<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 September 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 November 1, 2000.
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<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements have been prepared by
Canyon Resources Corporation ("the Company") pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations.
These consolidated financial statements should be read in conjunction
with the financial statements and accompanying notes included in the Company's
Form 10-K for the year ended December 31, 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>
September 30, December 31,
ASSETS 2000 1999
-------------- --------------
<S> <C> <C>
Cash and cash equivalents $ 673,200 $ 681,600
Restricted cash 2,262,700 2,211,900
Accounts receivable 22,200 18,800
Inventories 6,604,800 7,818,900
Prepaid and other assets 1,206,400 1,168,700
-------------- --------------
Total current assets 10,769,300 11,899,900
-------------- --------------
Property and equipment, at cost
Producing properties 52,371,200 51,521,400
Non-producing properties 22,952,200 21,136,400
Other 839,600 841,600
-------------- --------------
76,163,000 73,499,400
Accumulated depreciation and depletion (25,887,100) (18,582,400)
-------------- --------------
Net property and equipment 50,275,900 54,917,000
-------------- --------------
Other assets 2,875,900 4,414,300
-------------- --------------
Total Assets $ 63,921,100 $ 71,231,200
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 2,270,900 $ 2,499,700
Notes payable - current 2,009,100 30,700
Accrued reclamation costs 1,830,400 1,830,400
Deferred income 3,225,100 8,421,200
Other current liabilities 869,700 876,900
-------------- --------------
Total current liabilities 10,205,200 13,658,900
Notes payable - long term 3,333,900 5,336,900
Accrued reclamation costs 2,238,500 2,386,100
Deferred income 1,579,900 2,769,200
Other noncurrent liabilities 1,366,800 1,445,500
-------------- --------------
Total Liabilities 18,724,300 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 September 30, 2000 116,300 465,000
Capital in excess of par value 95,773,300 95,422,100
Deficit (50,692,800) (50,252,500)
-------------- --------------
Total Stockholders' Equity 45,196,800 45,634,600
-------------- --------------
Total Liabilities and Stockholders' Equity $ 63,921,100 $ 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
REVENUE
<S> <C> <C> <C> <C>
Sales $ 9,060,600 $ 8,168,200 $ 26,448,400 $ 22,866,600
------------ ------------ ------------ ------------
EXPENSES
Cost of sales 6,128,400 6,106,000 18,475,600 18,160,100
Depreciation, depletion, and amortization 2,397,900 1,793,400 7,283,400 5,094,400
Selling, general and administrative 215,900 208,300 758,700 875,000
Exploration costs 48,900 92,000 65,400 164,300
------------ ------------ ------------ ------------
8,791,100 8,199,700 26,583,100 24,293,800
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 105,800 29,000 181,200 106,600
Interest expense (195,700) (162,600) (576,500) (513,600)
Gain on restructuring of gold loan -- -- -- 3,108,200
Gain (loss) on asset disposals 44,900 20,400 89,100 (19,000)
Other 300 -- 600 (7,000)
------------ ------------ ------------ ------------
(44,700) (113,200) (305,600) 2,675,200
------------ ------------ ------------ ------------
Net income (loss) $ 224,800 $ (144,700) $ (440,300) $ 1,248,000
============ ============ ============ ============
Basic and diluted income (loss) per share(1) $ 0.02 $ (0.01) $ (0.04) $ 0.11
============ ============ ============ ============
Weighted average shares outstanding:(1)
Basic eps 11,627,200 11,624,400 11,626,900 11,574,500
Diluted eps 11,640,900 11,624,400 11,626,900 11,575,800
</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>
Nine months ended September 30,
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (440,300) $ 1,248,000
------------- -------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and depletion 7,283,400 5,094,400
Amortization of financing costs 138,600 116,400
(Gain) loss on asset dispositions (89,100) 19,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (3,400) 138,000
(Increase) decrease in inventories 1,214,100 (2,006,000)
(Increase) decrease in prepaid and other assets (1,140,800) 1,399,200
Decrease in accounts payable and accrued liabilities (181,900) (558,800)
(Decrease) increase in deferred income (6,385,400) 2,055,700
Decrease in other liabilities (147,600) (279,900)
Decrease in restricted cash 106,300 339,200
------------- -------------
Total adjustments 794,200 6,317,200
------------- -------------
Net cash provided by operating activities 353,900 7,565,200
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (1,502,300) (184,300)
Proceeds from asset sales 89,200 64,800
Decrease in restricted cash 1,345,800 --
------------- -------------
Net cash used in investing activities (67,300) (119,500)
------------- -------------
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 (24,600) (11,002,200)
Payments on capital lease obligations (272,900) (211,100)
------------- -------------
Net cash used in financing activities (295,000) (8,757,100)
------------- -------------
Net decrease in cash and cash equivalents (8,400) (1,311,400)
Cash and cash equivalents, beginning of year 681,600 1,985,700
------------- -------------
Cash and cash equivalents, end of period $ 673,200 $ 674,300
============= =============
</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 $440,500 of interest during the first nine months of
2000, and $398,600 during the corresponding period of 1999. There was
no capitalized interest for either period.
2. The Company paid no income taxes during the first nine months of 2000
nor the corresponding period of 1999.
Supplemental schedule of noncash investing and financing activities:
1. The Company acquired $147,500 in equipment through capital leases
during the first nine months of 2000 and $12,300 in equipment through
capital leases during the corresponding period of 1999.
2. The Company converted a commodity based loan with a carrying amount of
$7,727,200 to a cash loan during the first nine months of 1999. The
carrying amount was reduced by $2,528,000 at the time of conversion to
adjust the monetized amount of the loan to fair market value.
3. The Company financed an equipment lease buy-out in the amount of
$59,200 during the first nine months of 1999.
4. The Company acquired equipment with a fair market value of $53,000 by
exchange of certain assets during the first nine months of 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 the first nine months 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 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 does not anticipate a material impact on its
financial statements upon adoption of the SAB.
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.
7
<PAGE> 8
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
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>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
Collateral for Letter of Credit(a) $ 249,000 $ 249,000
Collateral for reclamation bonds and other
contingent events(b) 1,956,500 1,869,000
Seven-Up Pete Venture funds(c) -- 2,502,900
Unexpended proceeds from gold sales(d) 57,200 93,900
------------ ------------
2,262,700 4,714,800
Current portion 2,262,700 2,211,900
------------ ------------
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 and other contingent
events at the Briggs Mine, 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 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 ($1,869,000) and as partial
collateral ($87,000) for reclamation and other contingent
events at the Briggs Mine.
(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
8
<PAGE> 9
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
4. RESTRICTED CASH: (CONTINUED)
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.
(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.
5. INVENTORIES:
Inventories consisted of the following at:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- --------------
<S> <C> <C>
Gold-in-process(a) $ 6,165,600 $ 7,314,200
Materials and supplies 439,200 504,700
-------------- --------------
$ 6,604,800 $ 7,818,900
============== ==============
</TABLE>
(a) Includes all direct and indirect costs of mining, crushing,
processing, and site overhead expenses.
9
<PAGE> 10
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
6. NOTES PAYABLE:
Notes payable consisted of the following at:
<TABLE>
<CAPTION>
SEPTEMBER 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) 8,800 33,400
------------- -------------
$ 5,343,000 $ 5,367,600
Current portion 2,009,100 30,700
------------- -------------
Notes Payable - Noncurrent $ 3,333,900 $ 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
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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Principal payments
Gold loan
o Ounces -- -- -- 26,623
o Monetized amt -- -- -- $10,331,200
Cash loans -- -- -- $ 650,000
Interest payments
Gold loan
o Ounces -- -- -- 715
o Market value -- -- -- $ 194,800
Cash loans $ 121,900 $ 101,500 $ 354,800 $ 103,500
Weighted avg int rate
Gold loans -- -- -- 2.5%
Cash loans 9.2% 7.6% 8.9% 7.8%
</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 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 third quarter
of 2000 was $183,100. For the comparable period of 1999,
spending totaled $209,900. For the nine months ended September
30, 2000, spending totaled $534,900 as compared to $666,200
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 October 1999,
the Company received a determination notice from the DEQ for
an increase in the bond amount to approximately $8.1 million.
In August 2000, the DEQ further revised the bond amount to
approximately $14.2 million. The
11
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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Company believes the DEQ bond amount 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:
In connection with the purchase of a participating interest
and underlying assets in the Seven-Up Pete Venture, the
Company is subject to a contingent payment of $10 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.
(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 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 appealed
the action of the DNRC in an administrative hearing process
and the DNRC Hearing Examiner affirmed the DNRC action. The
Company intends to proceed with a lawsuit against the DNRC for
breach of contract. The Company will seek the court's order
that the DNRC violated its clear contract obligations,
affirming that the leases are still in effect, and awarding
the Company damages for the DNRC's illegal conduct. 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 removed.
In September 1998, the DEQ issued a Notice of Violation and
Administrative Order alleging certain violations of Montana
water quality laws related to the
12
<PAGE> 13
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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", a ruling that was upheld, in September
2000, by the U.S. Ninth Circuit Court of Appeals. 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.
8. PRICE PROTECTION ARRANGEMENTS:
At September 30, 2000, 26,200 ounces of the Briggs Mine production was
hedged with floating rate forward contracts at an average price of
approximately $296 per ounce. The mark to market value of the Company's
forward contracts at September 30, 2000, was approximately $0.5
million.
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 hedge accounting is that the hedging relationship
13
<PAGE> 14
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
8. PRICE PROTECTION ARRANGEMENTS: (CONTINUED)
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. 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.
9. DEFERRED INCOME:
The Company's deferred income balance at September 30, 2000 was $4.8
million which will be recognized in operations as follows:
<TABLE>
<CAPTION>
$ MM
--------------------------------------------------------------------------------
Balance of Year Year
2000 2001 2002 Total
---- ---- ---- -----
<S> <C> <C> <C>
$2.0 $1.5 $1.3 $4.8
</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
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
11. EARNINGS PER SHARE (EPS): (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
BASIC EPS
Net income (loss) $ 224,800 $ (144,700) $ (440,300) $ 1,248,000
============= ============= ============= =============
Weighted average shares
outstanding 11,627,200 11,624,400 11,626,900 11,574,500
============= ============= ============= =============
Per share amount $ 0.02 ($ 0.01) ($ 0.04) $ 0.11
============= ============= ============= =============
DILUTED EPS
Net income (loss) $ 224,800 $ (144,700) $ (440,300) $ 1,248,000
============= ============= ============= =============
Weighted average shares
outstanding 11,627,200 11,624,400 11,626,900 11,574,500
Add: effect of dilutive options 13,700 (A) (A) 1,300
------------- ------------- ------------- -------------
Weighted average shares
outstanding, as adjusted 11,640,900 11,624,400 11,626,900 11,575,800
============= ============= ============= =============
Per share amount $ 0.02 $ (0.01) $ (0.04) $ 0.11
============= ============= ============= =============
</TABLE>
(A) Effect would be antidilutive due to a net loss.
At September 30, 2000, options to purchase 515,400 shares of common stock were
outstanding that were not included in the calculation of diluted EPS for three
months ended September 30, 2000, because their exercise price was greater than
the average market price of the Company's common shares. At September 30, 1999,
options and warrants to purchase 511,400 shares of common stock were outstanding
that were not included in the calculation of diluted EPS for three months ended
September 30, 1999 as the effect would be antidilutive.
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 $224,800, or $0.02 per share on
revenues of $9,060,600 for the third quarter of 2000. For the nine months ended
September 30, 2000, the Company recorded a net loss of $440,300, or $0.04 per
share on revenues of $26,448,400. This compares to a net loss of $144,700, or
$0.01 per share for the third quarter of 1999 and net income of $1,248,000, or
$0.11 per share on revenues of $22,866,600 during the first nine months of 1999.
The results for the first nine months of 1999 included a gain of $3,108,200 in
connection with restructurings of the Company's gold loan.
For the three months ended September 30, 2000, the Company sold 21,661
ounces of gold and 5,000 ounces of silver at an average price of $418 per
equivalent gold ounce. For the comparable period of 1999, the Company sold
22,253 ounces of gold at an average realized price of $367 per equivalent gold
ounce. The New York Commodity Exchange (COMEX) gold price averaged $276 and $260
per ounce for the three months ended September 30, 2000 and 1999, respectively.
The following table summarizes the Company's gold deliveries and
revenues for the three months ended September 30, 2000 and the comparable period
for 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 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 12,800 $ 324 $ 4,144 19,100 $ 312 $ 5,950
Spot sales 8,861 $ 276 2,447 3,153 $ 289 910
Deferred income -- -- 2,445 -- -- 1,308
------ ---------- ---------- ----------
21,661 $ 417 9,036 22,253 $ 367 8,168
Other transactions
Silver proceeds -- -- 25 -- -- --
------ ---------- ---------- ----------
21,661 $ 418 $ 9,061 22,253 $ 367 $ 8,168
</TABLE>
16
<PAGE> 17
For the nine months ended September 30, 2000, the Company sold 65,970
ounces of gold and 15,000 ounces of silver at an average price of $401 per
equivalent gold ounce. For the comparable period of 1999, the Company sold
63,017 ounces of gold and 3,900 ounces of silver at an average realized price of
$363 per equivalent gold ounce. The New York Commodity Exchange (COMEX) gold
price averaged $282 and $273 per ounce for the nine months ended September 30,
2000 and 1999, respectively.
The following table summarizes the Company's gold deliveries and
revenues for the nine months ended September 30, 2000 and the comparable period
for 1999.
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 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 34,600 $ 320 $ 11,073 59,200 $ 310 $ 18,335
Spot sales 31,370 $ 284 8,915 3,817 $ 286 1,092
Deferred income -- -- 6,385 -- -- 3,418
---------- ---------- ---------- ----------
65,970 $ 400 26,373 63,017 $ 363 22,845
Other transactions
Silver proceeds -- -- 75 -- -- 22
---------- ---------- ---------- ----------
65,970 $ 401 $ 26,448 63,017 $ 363 $ 22,867
</TABLE>
Cost of sales was $6.1 million for the third quarter 2000, and also for
the comparable period in 1999. For the nine months ended September 30, 2000,
cost of sales was $18.5 million as compared to $18.2 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 September 30, Nine months ended September 30,
2000 1999 2000 1999
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Cash operating(1) $271 $263 $269 $277
Total cash costs(2) $277 $269 $274 $282
Total production costs(3) $393 $354 $389 $386
</TABLE>
(1) All direct and indirect costs of the operation, excluding
royalties and accruals for site restoration.
(2) Cash operating costs plus royalties.
(3) Total cash costs plus depreciation, depletion, amortization and
accruals for site restoration.
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<PAGE> 18
Depreciation, depletion and amortization was higher in the current
period due principally to a lower reserve base. Selling, general, and
administrative expense was not materially different for the third quarter and
was lower in the current nine month 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 a gain of approximately $3.1 million for the nine months ended
September 30, 1999. There was no comparable activity in the current period.
LIQUIDITY & CAPITAL RESOURCES
For the nine months ended September 30, 2000, operating activities
provided $0.4 million of cash, investing activities used $0.1 million of cash,
and financing activities used $0.3 million of cash. Cash and cash equivalents at
September 30, 2000 was $0.7 million.
During the first nine months of 2000, the Company spent $0.8 million on
development of the McDonald Gold Project. 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 $0.7 million on development of the
North Briggs deposit and other capital improvements at the Briggs Mine during
the first nine 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", a ruling that was
upheld, in September 2000, by the U.S. Ninth Circuit Court of Appeals. 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 contracts. The
Company's
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<PAGE> 19
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 appealed the action of the DNRC and
the DNRC Hearing Examiner affirmed the DNRC action. The Company intends to
proceed with a lawsuit against the DNRC for breach of contract. The Company will
seek the court's order that the DNRC violated its clear contract obligations,
affirming that the leases are still in effect, and awarding the Company damages
for the DNRC's illegal conduct. 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 removed.
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
19
<PAGE> 20
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.
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. In August 2000, the DEQ further revised its bond
amount to approximately $14.2 million. The Company believes the DEQ bond amount
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 September 30, 2000, had
entered into floating rate forward gold contracts on 26,200 ounces
(approximately 26% of estimated production for the ensuing twelve months) at an
average price of $296 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 26% 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 $0.7 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 nine months of 2000, $3.6 million of
the gain was recognized based on the original expected settlement dates of the
forward contracts. The remaining gain of $0.9 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 nine months of 2000, $2.8 million of the gain
was recognized based on the original expected settlement date of the forward
contracts. The remaining gain will be recognized as follows: i) $1.1 million
during the balance of 2000 and ii) $0.3 million in 2001.
21
<PAGE> 22
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 September 30, 2000, the mark to market value of the Company's
forward gold contracts was approximately $0.5 million.
Interest Rates
At September 30, 2000, the Company's debt was approximately $5.3
million which relates principally 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 September 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
<TABLE>
<S> <C> <C>
ITEM 1. LEGAL PROCEEDINGS:..........................................................................None
ITEM 2. CHANGES IN SECURITIES:......................................................................None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:............................................................None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:........................................None
ITEM 5. OTHER INFORMATION:..........................................................................None
ITEM 6(a) EXHIBITS:
No. 27 - Financial Data Schedule
ITEM 6(b) REPORTS ON FORM 8-K:....................................................................None
</TABLE>
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CANYON RESOURCES CORPORATION
Date: November 10, 2000 /s/ Gary C. Huber
------------------------------
Gary C. Huber
Chief Financial Officer
Date: November 10, 2000 /s/ Richard T. Phillips
------------------------------
Richard T. Phillips
Treasurer
24
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE
---------- ------------------- ----
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
25
