<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
---------------------
COMMISSION FILE NUMBER 0-12207
PEGASUS GOLD INC.
(Exact name of registrant as specified in its charter)
PROVINCE OF BRITISH COLUMBIA NONE
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
601 W. FIRST AVE., SUITE 1500, SPOKANE, WASHINGTON 99201-3832
(Address of principal executive offices) (Zip Code)
(509) 624-4653
(Registrant's telephone number, including area code)
---------------------
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 issuer's
classes of common stock, as of the latest practicable date:
41,201,390
Common Shares, without par value, outstanding at July 31, 1997
<PAGE>
PEGASUS GOLD INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
PART I. FINANCIAL INFORMATION
Page
Item #1
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996. . . . . . . . . . . . . 3
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 . . 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996. . . . . . . . . . . 5
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997 AND
YEAR ENDED DECEMBER 31, 1996 . . . . . . . . . . . . . . . . 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . . 7
Item #2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . . 11
PART II. OTHER INFORMATION
Item #1
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . 17
Item #4
SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS . . . . . . 17
Item #6
EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . 17
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
In this Report, unless otherwise indicated, all dollar amounts are expressed in
U.S. Dollars.
2
<PAGE>
PEGASUS GOLD INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and December 31, 1996
(In Thousands)
ASSETS
1997 1996
---- ----
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . $ 4,677 $ 8,566
Due from sales of products . . . . . . . . . . . . . . 23,085 36,748
Inventories. . . . . . . . . . . . . . . . . . . . . . 56,317 51,997
Other current assets . . . . . . . . . . . . . . . . . 11,301 10,164
-------- --------
Total current assets . . . . . . . . . . . . . . . . 95,380 107,475
Investments. . . . . . . . . . . . . . . . . . . . . . . 9,857 20,987
Property, plant, and equipment, net. . . . . . . . . . . 640,915 618,940
Other assets . . . . . . . . . . . . . . . . . . . . . . 6,344 6,806
-------- --------
Total assets. . . . . . . . . . . . . . . . . . . . $752,496 $754,208
-------- --------
-------- --------
LIABILITIES
Current liabilities:
Accounts payable and other current liabilities . . . . $ 26,294 $ 23,641
Accrued salaries, wages, and benefits. . . . . . . . . 5,865 10,350
Mining taxes payable . . . . . . . . . . . . . . . . . 3,710 4,610
Current portion of obligations under capital lease . . 3,747 3,626
-------- --------
Total current liabilities. . . . . . . . . . . . . . 39,616 42,227
Long-term debt . . . . . . . . . . . . . . . . . . . . . 230,437 215,086
Capital lease obligations. . . . . . . . . . . . . . . . 20,678 22,466
Deferred income taxes. . . . . . . . . . . . . . . . . . 44,553 44,602
Deferred site closure and reclamation. . . . . . . . . . 50,025 50,878
Deferred revenue . . . . . . . . . . . . . . . . . . . . 9,346 8,074
Other deferred liabilities . . . . . . . . . . . . . . . 8,417 7,598
-------- --------
Total liabilities. . . . . . . . . . . . . . . . . . 403,072 390,931
-------- --------
Commitments and contingencies (Note 5)
SHAREHOLDERS' EQUITY
Class A preferred shares, Series 1, C$10 par value:
Authorized - 20,000,000 shares; none issued
Common shares no par value:
Authorized - 200,000,000 shares; issued
and outstanding, 1997 - 41,198,068 shares
and 1996 - 41,092,342 shares . . . . . . . . . . . . . 426,133 425,382
Accumulated deficit. . . . . . . . . . . . . . . . . . . (73,899) (70,734)
Net unrealized holding loss on
available-for-sale investments . . . . . . . . . . . . (1,564) ---
Foreign currency translation adjustment. . . . . . . . . (1,246) 8,629
-------- --------
Total shareholders' equity . . . . . . . . . . . . . 349,424 363,277
-------- --------
Total liabilities and shareholders'
equity. . . . . . . . . . . . . . . . . . . . . . . $752,496 $754,208
-------- --------
-------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS. 3
<PAGE>
PEGASUS GOLD INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended June 30, 1997 and 1996
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales. . . . . . . . . . . . . . . . . . . . . . . . $50,603 $56,958 $99,206 $105,748
Cost of sales. . . . . . . . . . . . . . . . . . . . 36,792 42,375 71,148 78,070
Depreciation and amortization. . . . . . . . . . . . 9,542 10,045 18,802 19,262
------- ------- ------- --------
46,334 52,420 89,950 97,332
------- ------- ------- --------
Gross profit . . . . . . . . . . . . . . . . . . . . 4,269 4,538 9,256 8,416
------- ------- ------- --------
Operating expenses:
General and administrative. . . . . . . . . . . . . 2,332 3,292 4,975 6,665
Exploration and evaluation. . . . . . . . . . . . . 1,190 2,152 2,387 3,608
Care and maintenance. . . . . . . . . . . . . . . . 1,601 424 3,495 458
Closure, reclamation and related costs. . . . . . . --- 500 500 1,000
------- ------- ------- --------
5,123 6,368 11,357 11,731
------- ------- ------- --------
Loss from operations . . . . . . . . . . . . . . . . (854) (1,830) (2,101) (3,315)
------- ------- ------- --------
Other income (expense):
Interest and other income . . . . . . . . . . . . . 758 995 1,012 2,342
Interest expense, net of amounts capitalized . . . (429) (724) (864) (1,834)
Gain (loss) on disposition of assets and other. . . (3,353) 20 (3,348) (170)
Equity in net income (loss) of affiliates . . . . . 631 (244) 2,012 498
------- ------- ------- --------
(2,393) 47 (1,188) 836
------- ------- ------- --------
Loss before income taxes . . . . . . . . . . . . . . (3,247) (1,783) (3,289) (2,479)
Income tax benefit . . . . . . . . . . . . . . . . . (97) (70) (124) (779)
------- ------- ------- --------
Net loss . . . . . . . . . . . . . . . . . . . . . . ($3,150) ($1,713) ($3,165) ($1,700)
------- ------- ------- --------
------- ------- ------- --------
Net loss per share . . . . . . . . . . . . . . . . . ($0.08) ($0.04) ($0.08) ($0.04)
------- ------- ------- --------
------- ------- ------- --------
Weighted average common shares outstanding . . . . . 41,191 41,334 41,169 40,492
------- ------- ------- --------
------- ------- ------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
4 OF THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
PEGASUS GOLD INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($3,165) ($1,700)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . 19,168 19,558
Payments for closure, reclamation and related costs . . . . (4,294) (4,159)
Provision for closure, reclamation and related costs . . . . 500 1,000
Loss on investments. . . . . . . . . . . . . . . . . . . . . 4,962 ---
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . 2,453 (1,787)
Change in working capital accounts . . . . . . . . . . . . . . 5,222 (13,038)
-------- --------
Net cash provided by operating activities. . . . . . . . . . . . 24,845 3,448
-------- --------
Investing activities:
Additions to property, plant, and equipment, net . . . . . . . (48,665) (88,595)
Proceeds from investments. . . . . . . . . . . . . . . . . . . 1,460 ---
Sale of property, plant and equipment. . . . . . . . . . . . . --- 3,881
Sale of short-term investments . . . . . . . . . . . . . . . . --- 624
Purchase of investments. . . . . . . . . . . . . . . . . . . . --- (4,630)
-------- --------
Net cash used in investing activities. . . . . . . . . . . . . . (47,205) (88,720)
-------- --------
Financing activities:
Proceeds from issuance of long-term debt . . . . . . . . . . . 19,575 ---
Proceeds from issuance of common shares. . . . . . . . . . . . 751 90,900
Payments of obligations under capital lease. . . . . . . . . . (1,667) (1,413)
Payments of long-term debt . . . . . . . . . . . . . . . . . . --- (19,189)
Debt issuance costs. . . . . . . . . . . . . . . . . . . . . . --- (1,806)
-------- --------
Net cash provided by financing activities. . . . . . . . . . . . 18,659 68,492
-------- --------
Effect of exchange rate changes on cash and cash equivalents . . (188) 181
-------- --------
Net decrease in cash and cash equivalents. . . . . . . . . . . . (3,889) (16,599)
Cash and cash equivalents, beginning of period . . . . . . . . . 8,566 32,907
-------- --------
Cash and cash equivalents, end of period . . . . . . . . . . . . $4,677 $16,308
-------- --------
-------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS. 5
<PAGE>
PEGASUS GOLD INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Six Months Ended June 30, 1997 and the Year Ended December 31, 1996
(In Thousands)
<TABLE>
<CAPTION>
Common Shares Foreign
------------------------- Unrealized Currency
Number Accumulated Loss on Translation
of Shares Amount Deficit Investments Adjustment
---------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 . . . . . . . . . 34,825,203 $334,214 ($49,131) $ --- $3,621
Net loss . . . . . . . . . . . . . . . . . . (21,603)
Common shares issued for:
Cash . . . . . . . . . . . . . . . . . . . 6,000,000 88,175
Stock option plan . . . . . . . . . . . . 234,217 2,612
Employee savings plan and other. . . . . . 32,922 381
Foreign currency translation adjustment. . . 5,008
---------- -------- ----------- ----------- ------------
Balance, December 31, 1996 . . . . . . . . . 41,092,342 425,382 (70,734) --- 8,629
Net loss . . . . . . . . . . . . . . . . . . (3,165)
Common shares issued for:
Stock option plan. . . . . . . . . . . . . 41,100 311
Employee savings plan and other. . . . . . 64,626 440
Net unrealized holding loss on
available-for-sale investments . . . . . . (1,564)
Foreign currency translation adjustment. . . (9,875)
---------- -------- ----------- ----------- ------------
Balance, June 30, 1997 . . . . . . . . . . . 41,198,068 $426,133 ($73,899) ($1,564) ($1,246)
---------- -------- ----------- ----------- ------------
---------- -------- ----------- ----------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
6 OF THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
PEGASUS GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION
The Company, which is organized in British Columbia, presents all
financial statements in United States dollars and under generally
accepted accounting principles as practiced in the United States.
2. SIGNIFICANT ACCOUNTING POLICIES
These unaudited consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K. In the opinion of management,
the financial information set forth in the accompanying unaudited
interim consolidated financial statements reflects all adjustments
necessary for a fair statement of the periods reported, and all such
adjustments were of a normal and recurring nature.
Certain prior year balances have been reclassified to conform with the
current year presentation with no effect on net loss or accumulated
deficit as previously reported.
INVESTMENTS
The Company uses the equity method of accounting for investments in the
common stock of companies in which it owns a 20 to 50 percent interest.
Investments in the common stock of companies in which the Company owns
less than a 20 percent interest are accounted for as available-for-sale
and are stated at fair market value at each balance sheet date, with
unrealized holding gains and losses, net of tax, reported as a component
of shareholders' equity. Realized gains and losses from investments
classified as available-for-sale are included in the results of
operations and are determined using the specific identification method
for ascertaining the cost of investments sold.
Permanent impairments in investment value are recognized in the results
of operations.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS 130 establishes standards for the reporting
and display of comprehensive income and its components (revenues,
expenses, gains and losses). The purpose of reporting comprehensive
income is to present a measure of all changes in shareholders' equity
that result from recognized transactions and other economic events of
the period, other than transactions with owners in their capacity as
owners. SFAS 130 is effective for financial statements issued for
periods ending after December 15, 1997. Adoption of SFAS 130 will
result in additional disclosures in the Company's financial statements
but will not impact the Company's reported net income or net income per
share.
SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information". SFAS 131 specifies revised
guidelines for determining an entity's operating segments and the type
and level of financial information to be disclosed. SFAS 131 is
effective for fiscal years beginning after December 15, 1997. Adoption
of SFAS 131 will not have material impact on the Company's current
geographic and segment disclosures.
7
<PAGE>
PEGASUS GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVENTORIES
Inventories consist of the following:
June 30, Dec. 31,
(In Thousands) 1997 1996
------- -------
Deferred mining costs . . . . . . . . . . . $35,713 $34,134
Materials and supplies. . . . . . . . . . . 12,237 11,294
Stockpiled ore. . . . . . . . . . . . . . . 8,065 6,317
Processed metals . . . . . . . . . . . . . 302 252
------- -------
$56,317 $51,997
------- -------
------- -------
4. INVESTMENTS
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Holding Holding Carrying
Cost Gains Losses Value
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
(In Thousands)
June 30, 1997
Available-for-sale:
Equity securities. . . . . . . . . . . $10,421 $265 ($1,829) $8,857
Other investments:
Notes receivable . . . . . . . . . . . 1,000
-------
$9,857
-------
-------
December 31, 1996
Available-for-sale:
Equity securities. . . . . . . . . . . $ 4,323 --- --- $4,323
Equity investments:
USMX, Inc. (30%) . . . . . . . . . . . 8,349
The Emerging Markets Gold Fund (21%) 3,026
-------
11,375
Other investments:
Notes receivable . . . . . . . . . . . 5,289
-------
$20,987
-------
-------
</TABLE>
USMX, INC.
On May 30, 1997, USMX, Inc. ("USMX") and Dakota Mining Corporation
("Dakota") completed a merger whereby the Company received one common
share of Dakota stock for each 1.1 common shares of USMX it owned. The
Company recorded the exchange, in which it received 4,387,273 Dakota
shares, at the then fair value of $1 per Dakota share, resulting in a
loss of $3,642,000. The loss is included in the gain (loss) on
disposition of assets and other in the Consolidated Statements of
Operations. The resulting investment in Dakota has been classified as
available-for-sale and is included in equity securities above.
THE EMERGING MARKETS GOLD FUND
In June 1997, the shareholders of The Emerging Markets Gold Fund
("EMGF") agreed to liquidate EMGF. Upon liquidation, the Company
received $1,460,000 in cash and a distribution of shares of certain
investments of EMGF with an aggregate fair market value of $1,931,000 at
the time of distribution. The transaction resulted in a loss of
$1,320,000 which is included in the gain (loss) on disposition of assets
and other in the Consolidated Statements of Operations. The securities
received have been classified as available-for-sale and are included in
equity securities above.
8
<PAGE>
PEGASUS GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS, CONTINUED:
NOTES RECEIVABLE
In June 1996, the Company entered into an agreement with USMX to
purchase its net profits royalty in the Montana Tunnels Mine for
$4,500,000 and advanced USMX that amount in the form of a term loan
pending USMX shareholder approval of the transaction. On May 30, 1997,
the USMX shareholders approved the royalty sale. The unamortized balance
of the loan of $4,144,000 has been recorded in property and mineral
rights (included in property, plant, and equipment) of the Montana
Tunnels Mine and will be amortized over the remaining life of the mine
on a unit of production basis.
5. COMMITMENTS AND CONTINGENCIES
HEDGED PRODUCTION
At June 30, 1997, the Company's production hedging program consists of
the following:
Average Price Delivery
Per Unit Period
------------- ---------
GOLD
Forward sales . . . . . . 597,000 ounces $442 1997-2003
Contingent forward sales. 905,000 ounces $419 1998-2003
Call options sold . . . . 385,000 ounces $479 1997-2003
Put options purchased . . 300,000 ounces $423 1997-2001
SILVER
Forward sales . . . . . . 1,740,000 ounces $5.08 1997-2001
ZINC
Forward sales . . . . . .10,472,000 pounds $0.50 1997-1998
Call options sold . . . . 8,818,000 pounds $0.51 1997-1998
Put options purchased . . 5,291,000 pounds $0.48 1997-1998
Gold hedging contracts include contracts for which the price per ounce
is estimated based on expected delivery dates and estimated interest
rates. Delivery under contingent forward sales contracts is dependent on
the spot price of gold at various measurement dates over the term of the
related contracts. If the spot price of gold is below $340 per ounce on
March 31, 1998, contracts for a total of 720,000 ounces will be
canceled. A certain portion of the remaining ounces will be deliverable
if the spot price is between $375 and $435 per ounce at certain
measurement dates after March 31, 1998.
FOREIGN CURRENCY
The Company enters into foreign exchange contracts to hedge transactions
related to firm commitments and contractual obligations denominated in
foreign currencies, including debt. The Company regularly monitors
its foreign currency exposures and ensures that hedge contract amounts
do not exceed the amounts of underlying exposures.
At June 30, 1997, the Company held foreign currency option contracts
with notional amounts totaling $151,674,000 which mature during 1997 and
1998. The option contracts allow the Company to convert $109,932,000 to
Australian dollars at an average rate of US$0.7610, while providing the
counterparty the option to require the Company to convert $151,674,000
to Australian dollars at a average rate of US$0.7597. Performance under
put option contracts with notional amounts totaling $41,742,000 is
dependent on the spot exchange rate over the term of the related
contracts.
9
<PAGE>
PEGASUS GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES, CONTINUED:
COMMON SHARES ISSUABLE
At June 30, 1997, a total of 14,983,150 common shares of authorized
common stock were reserved for the following:
Convertible notes . . . . . . . 7,709,067
Stock options . . . . . . . . . 6,903,842
Employee savings plan . . . . . 370,241
----------
14,983,150
----------
----------
ZORTMAN EXTENSION
A plan of operation for the Zortman Extension Project was submitted to
regulatory agencies in May 1992. The Final Environmental Impact
Statement was issued in March 1996 and a favorable Record of Decision,
("ROD") and operating permits were granted on October 25, 1996. The ROD
was subsequently appealed by local Indian tribal groups and the National
Wildlife Federation and in June 1997, the Interior Board of Land Appeals
("IBLA") granted a stay pending its review and decision regarding the
appeal. The Company believes the decision is without precedent, and the
IBLA has granted the Company's request for an expedited hearing. As a
result of the stay, construction of the Zortman Extension could be
delayed past 1998.
Mining operations at Zortman ceased early in 1996 and will not commence
again until a twelve month construction period on the Zortman Extension
is substantially completed. The Company is currently recovering gold
from residual leaching of existing heap leach pads. Although the
Company expects a favorable decision upon completion of the appeal
process, it is possible that an unfavorable decision could be issued,
creating further delays or causing the Extension Project to be
abandoned. In addition, the Company is preparing a new feasibility
study designed to reduce the costs of construction and is drilling to
confirm the economics of mining certain material. If an unfavorable
decision on the appeal is received, or the feasibility study does not
reduce the capital required, and the drilling does not confirm the
economics of processing certain material, the Company would be required
to write-off some or all of the deferred development costs associated
with the project, which amounted to $21,171,000 at June 30, 1997. In
addition, the Company would be required to accrue a liability of at
least $37,143,000 for reclamation and construction of environmental
facilities. Gold production will continue from leaching ore previously
mined and loaded on the pads, but at a significantly reduced rate.
LEGAL PROCEEDINGS
Various lawsuits, claims, and proceedings have been or may be instituted
or asserted against the Company. Management believes the disposition of
other matters that are pending or asserted will not have a material
adverse effect on the financial position of the Company or its results
of operations.
PURCHASE COMMITMENTS
At June 30, 1997, the Company had capital expenditure purchase
commitments relating to the construction at Mt. Todd and Pullalli, of
approximately $5,300,000 and $3,300,000, respectively.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The Company recorded a net loss of $3.2 million ($0.08 per share) for
the quarter and six months ended June 30, 1997, compared to a net loss
of $1.7 million ($0.04 per share) during the same periods in 1996. The
net loss for the quarter and year to date in 1997 includes net
non-recurring losses of $3.4 million ($0.08 per share) resulting from
the disposition of assets. In 1996, the net loss for the quarter and
year to date included non-recurring charges of $0.5 million ($0.01 per
share) and $1.0 million ($0.02 per share), respectively.
For the quarter, the net loss increased compared to the same period of
1996 as a result of the loss on disposition of assets, a 20 percent
decrease in gold production, and a $1.2 million increase in care and
maintenance expenses at Zortman, offset partially by a 5 percent
increase in realized gold prices, a $1.0 million reduction in
exploration and evaluation expenses, a $0.9 million decrease in general
and administrative expenses, and the capitalization of interest to
construction projects.
For the year-to-date, the increase in the net loss results from a 16
percent decrease in gold production and the loss on disposition of
assets, offset partially by a 6 percent increase in realized gold
prices, higher by-product revenues, and lower exploration and evaluation
and general and administrative expenses.
GOLD PRODUCTION
The following chart details gold production, cash costs and total
production costs per ounce by location.
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------ ------ ------ ------
FLORIDA CANYON MINE:
Ounces of gold . . . . . . . . . 45,480 40,510 85,611 64,994
Average cost per ounce:(1)
Cash operating cost. . . . . . . $290 $255 $284 $252
Total cash cost. . . . . . . . . $300 $269 $295 $268
Total production cost. . . . . . $397 $338 $396 $339
MONTANA TUNNELS MINE:(2)
Ounces of gold . . . . . . . . . 22,996 17,708 42,864 37,882
Average cost per ounce:(1)
Cash operating cost. . . . . . . $201 $217 $198 $190
Total cash cost. . . . . . . . . $238 $256 $239 $229
Total production cost. . . . . . $386 $423 $394 $386
MT. TODD MINE:
Ounces of gold produced. . . . . 4,938 15,622 11,038 31,245
Average cost per ounce:(1)
Cash operating cost. . . . . . . $408 $467 $419 $431
Total cash cost. . . . . . . . . $414 $467 $422 $431
Total production cost. . . . . . $517 $577 $525 $530
11
<PAGE>
Three Months Ended Six months Ended
June 30, June 30,
1997 1996 1997 1996
------ ------ ------ ------
ZORTMAN MINE:
Ounces of gold . . . . . . . . . 5,447 8,064 5,447 20,271
Average cost per ounce:(1)
Cash operating cost. . . . . . . $295 $259 $295 $291
Total cash cost. . . . . . . . . $310 $240 $310 $296
Total production cost. . . . . . $444 $352 $482 $413
BEAL MOUNTAIN MINE:
Ounces of gold . . . . . . . . . 2,890 9,776 10,773 16,574
Average cost per ounce:(1)
Cash operating cost. . . . . . . $205 $287 $318 $282
Total cash cost. . . . . . . . . $239 $302 $348 $306
Total production cost. . . . . . $345 $409 $442 $409
BLACK PINE MINE:
Ounces of gold . . . . . . . . . 11,022 23,790 24,526 42,654
Average cost per ounce:(1)
Cash operating cost. . . . . . . $321 $259 $289 $268
Total cash cost. . . . . . . . . $344 $285 $314 $294
Total production cost. . . . . . $358 $308 $328 $328
CONSOLIDATED TOTALS
Ounces of gold . . . . . . . . . 92,773 115,460 180,259 213,620
Average cost per ounce:(1)
Cash operating cost. . . . . . . $276 $282 $275 $276
Total cash cost. . . . . . . . . $295 $298 $296 $296
Total production cost. . . . . . $398 $385 $400 $386
Average price per ounce sold . . $444 $424 $451 $426
- ---------------
(1) Effective January 1, 1997, the Company adopted the gold
production cost standard developed by the Gold Institute in order to
facilitate comparisons among companies in the gold industry. Cash
production costs reported in prior periods have been restated as cash
operating costs and total cash costs in accordance with the new
standard. Cash operating costs calculated under the new standard
include all operating costs (including overhead) at the mine sites,
but exclude royalties, production taxes and reclamation and are
reported net of by-product credits. Total cash costs include
royalties and production taxes, but exclude reclamation. Total
production costs remain unchanged and include reclamation in addition
to depreciation, depletion and amortization.
(2) Includes Diamond Hill.
REVENUES
GOLD: Revenue from the sale of gold decreased 16 percent to $41.2
million during the second quarter of 1997 as a result of a 20 percent
decline in gold production, offset partially by higher realized gold
prices. Lower production reflects residual heap leach operations at
Zortman, Beal Mountain, and Mt. Todd thus far in 1997, while production
at Beal Mountain and Mt. Todd in 1996 reflected ongoing operations.
Average realized gold prices for the second quarter of 1997 and 1996
were $444 and $424 per ounce, compared to average second quarter COMEX
gold prices of $343 and $390 during the same periods. For the first six
months of 1997 and 1996 average realized gold prices were $451 and $426
per ounce, compared to average COMEX gold prices of $348 and $395 over
the same periods. Increased realized prices reflect the benefits from
the Company's hedging program.
12
<PAGE>
OTHER METALS: Sales of other metals increased $1.4 million to $9.4 million in
the second quarter of 1997. Higher production of zinc, due to increased mill
feed grades and tonnage at Montana Tunnels, and increased prices for zinc were
partially offset by lower production and realized prices for silver. Realized
prices were $4.77 per ounce, $0.56 per pound, and $0.24 per pound for silver,
zinc, and lead, respectively, compared to $5.35, $0.48, and $0.34, respectively,
in the second quarter of 1996.
Year-to-date revenue from the sale of other metals increased 20 percent to $17.8
million as a result of higher production and higher realized prices for zinc and
lead. Realized prices were $4.60 per ounce, $0.55 per pound and $0.27 per pound
for silver, zinc, and lead respectively, compared to $5.30, $0.49 and $0.26
respectively, in the first six months of 1996.
OPERATING COSTS
The average total cash cost of production was virtually unchanged at $295 and
$296 per ounce of gold in the second quarter and first half of 1997,
respectively, compared to $298 and $296 per ounce during the same periods of
1996. Total cash costs reflect higher by-product credits per ounce offset by
lower production. For the quarter and year to date, total cash costs per
ounce at Florida Canyon were higher primarily as a result of lower ore grades
and harder, more abrasive ore. At Montana Tunnels, decreased cash costs
resulted from increased gold production and by-product credits. Total cash
costs at Mt. Todd reflect the increased cost of residual production. At Beal
Mountain, lower total cash costs reflect only the cost of residual leaching
during the pre-stripping of the south Beal pit expansion. Higher total cash
costs at Black Pine are attributable to lower production, offset slightly by
higher ore grade.
Increased total production costs reflect depreciation and amortization charges
of $103 per ounce in the second quarter of 1997, compared to $87 per ounce in
1996. For the year to date, total production costs include depreciation and
amortization of $104 in 1997, an increase of 16 percent over 1996. The increase
reflects lower production, increased property, plant, and equipment balances,
and amortization for reclamation and closure costs which increased in the second
half of 1996.
Exploration and evaluation expenses in the second quarter of 1997 and year to
date are 45 percent and 34 percent lower than during the same periods in 1996
due to lower overall program expenditures.
In April, the Company agreed to acquire up to 60 percent of Capira Dorada, a
private Panamanian company. Capira Dorada holds an approximate 100 square
kilometer exploration concession, located about 50 kilometers southwest of
Panama City, Panama. The Capira Dorada prospect is an early-stage exploration
opportunity with potential for the discovery of bulk minable gold and silver
deposits.
Care and maintenance costs increased to $1.6 million and $3.5 million in the
second quarter and year to date in 1997, compared to $0.4 million and $0.5
million during the same periods in 1996. Increased costs reflect classification
of non-production related costs at Zortman as care and maintenance.
General and administrative expenses decreased 29 percent in the second quarter
and 25 percent for the first six months of 1997, primarily as a result of fewer
employees, decreased travel costs associated with the Company's foreign
operations, and an overall cost savings program undertaken by the Company.
OTHER INCOME (EXPENSE) AND TAXES
Interest and other income decreased $0.2 million during the second quarter of
1997 and $1.3 million for the year to date because of lower average cash and
cash equivalent balances. During 1996, cash and cash equivalents included
proceeds from the Company's public offering of six million common shares in
January.
Interest expense decreased $0.3 million in the second quarter of 1997 and $1.0
million for the year-to-date compared to the first six months of 1996.
Increased total interest costs associated with the higher borrowings under the
Company's Revolving Credit Facility have been offset by the capitalization of
$3.8 million of interest to construction projects in the second quarter of
1997, and $7.7 million, year to date, compared to $1.8 million and $3.3 million
capitalized during the same periods in 1996.
13
<PAGE>
Equity in net income of affiliates is comprised of the Company's proportionate
share of earnings from the Emerging Markets Gold Fund ("EMGF") prior to its
liquidation in June, and USMX, Inc. ("USMX"), prior to their merger with Dakota
Mining Corporation ("Dakota") in May.
The net loss on disposition of assets and other represents losses on the
exchange of investments in EMGF and USMX of $1.3 million and $3.6 million,
respectively, offset by a $1.5 million gain on the sale of royalty credits in
the Northern Territory of Australia.
In June, the shareholders of EMGF agreed to liquidate the fund. The Company's
share of the distribution comprised $1.5 million in cash together with shares of
certain investees of EMGF, primarily junior mining companies, with a fair market
value of $1.9 million at the time of liquidation. The transaction resulted in a
loss of $1.3 million (see Note 4).
In May, USMX and Dakota completed a merger under the terms of which the Company
received one share of Dakota stock for each 1.1 shares of USMX. The exchange
resulted in a loss of $3.6 million based on the fair market value of the Dakota
shares received (see Note 4).
The decrease in the income tax benefit results from the 1996 recognition of
certain refund claims.
COMMISSIONING AT MT. TODD
Commissioning and start-up activities continued throughout the second quarter
with the expectation that commercial production would be achieved by June 30,
1997. The commissioning and start-up process has taken longer than expected as
a result of an unexpected failure of the gas turbine in the power station,
performance of the crushing circuit and lower recoveries because of higher than
anticipated copper dissolution in the flotation circuit. While construction is
now complete and the power station repaired, the crushing and flotation circuits
continue to be the most significant challenges in achieving commercial
production. Once the steady state operating costs and the implications of
planned improvements to the circuits are determined, the Company will evaluate
the status of commercial production.
CRUSHING CIRCUIT - Recent performance has demonstrated throughput of
approximately 1,065 tonnes per hour (tph) at a product size of 3.2
millimeters (mm), compared to the design criteria of 1,220tph at 2.6mm.
However, circuit availability of nearly 80 percent has exceeded design
availability of 75 percent, resulting in daily throughput rates that have met
or exceeded design levels over the last month. June production from the
circuit was 579,000 tonnes, or 88 percent of design (1,017tph at 79 percent
availability) with product size ranging between 2.9mm-3.4mm. As a result of
lower throughput, increased maintenance costs and higher power consumption,
crushing costs of approximately A$2.65 per tonne have exceeded expectations.
A coarse size reject system designed to increase throughput and reduce costs
is being engineered.
FLOTATION CIRCUIT - Flotation commissioning in June demonstrated higher than
anticipated copper loading in the concentrate carbon-in-leach (CIL) circuit.
Because increased copper levels resulted in higher consumption of cyanide and
reduced recovery, the Company shut down the flotation circuit in June, with gold
production continuing on a whole ore leach basis. The effect of not operating
the flotation circuit has resulted in a recovery of 76 percent compared to plan
ultimate design of 84 percent. Preliminary engineering and metallurgical test
work indicate the circuit could produce a commercial copper concentrate with
only minor modifications to the process flowsheet. Implementation of these
modifications, which are expected to increase recovery and reduce cyanide
consumption, is expected to be complete before the end of 1997.
Until modifications to the flotation circuit are implemented, the facility will
run only the whole ore CIL leach circuit. Production is expected to average
18,000-20,000 ounces a month over the second half with cash costs averaging
approximately $335 per ounce. To the extent steady state production is not
achieved, throughput decreases or processing changes are unsuccessful, actual
costs could differ from those projected. The determination of the change from
the start-up and production phases of the operation will be based on sustained
achievement of a significant percentage of design criteria for each of the
critical components of the production process, as well as the operating cost
performance of the facilities.
Based on the results of operations in July, the Company expects to achieve
commercial production during the third quarter. However, if modifications are
unsuccessful or the mine does not achieve sustained steady state
14
<PAGE>
operation and costs cannot be reduced, it is possible that reserves could be
reduced and the value of the assets impaired. Because of the significance of
the impact of each of the items being considered and because steady state
production has not been achieved, determination of the long-term impact of
these items is uncertain at this time.
ZORTMAN EXTENSION
A favorable Record of Decision ("ROD") and operating permits for the Zortman
Extension were granted by the Bureau of Land Management and the Montana
Department of Environmental Quality in October 1996. Indian tribes and the
National Wildlife Federation appealed the governments' actions. In June 1997, a
stay of the ROD was granted by the Interior Board of Land Appeals pending its
review and decision regarding the appeal. The Company asked for, and has been
granted, an expedited review. Although the Company expects a favorable decision
upon completion of the appeal process, it is possible that an unfavorable
decision could be issued, creating further delays or causing the project to be
abandoned. In addition, the Company is preparing a new feasibility study
designed to reduce the cost of construction and is performing additional
drilling to confirm the economics of mining certain material. If an unfavorable
decision on the appeal is received, or the new feasibility study does not reduce
the capital spending required, and drilling does not confirm the economic
viability of certain material, the Company would be required to write-off some
or all of the deferred development costs associated with the project. In
addition, the Company would be required to accrue a liability for reclamation
and construction of environmental facilities.
GOLD PRICE
During the first half of the year, gold prices eroded, and in early July 1997,
reached 12 year lows. The results of the Company's operations are significantly
affected by the market price of gold. Gold prices fluctuate and are affected by
numerous factors beyond the Company's control, including demand for precious
metals, forward selling by producers, central bank sales and purchases of gold,
production and cost levels in major gold-producing regions such as South Africa
and the former Soviet Union, expectations with respect to the rate of inflation,
the relative strength of the U.S. dollar and of certain other currencies,
interest rates, global or regional political or economic crises and sales of
gold by holders in response to such factors. The supply of gold consists of a
combination of new mine production and existing stocks of bullion and fabricated
gold held by governments, public and private financial institutions, private
individuals and companies.
The Company's gold price hedging program has, in the past, provided substantial
additional revenue. The Company expects to continue to deliver against hedging
contracts to generate additional revenue over the remainder of 1997 and into the
next few years. In addition, the Company will continue to manage its hedging
program by entering into new contracts as opportunities arise. However, a
continued slump in gold prices could render a portion of the Company's reserves
and operations uneconomic, negatively impacting cash flow and operating results
requiring a reduction in reserves and an impairment in asset values.
FINANCING, CAPITAL INVESTMENT, AND LIQUIDITY
At June 30, 1997, the Company had working capital of $55.8 million, compared to
$65.2 million at the end of 1996. Cash and cash equivalents totaled $4.7
million at June 30, 1997, compared to $8.6 million at the end of 1996.
OPERATING ACTIVITIES
Cash flow provided by operating activities was $24.8 million through the second
quarter of 1997, compared to $3.4 million during the same period in 1996.
Increased cash flow from operations primarily reflects changes in working
capital accounts, particularly accounts receivable. Before working capital
changes, cash flow from operations for the first six months of 1997 increased
$3.1 million compared to the same period in 1996.
INVESTING ACTIVITIES
During the first six months of 1997, the Company invested $48.7 million in
property, plant and equipment, including $24.4 million for Phase II at Mt. Todd,
(including capitalized start-up costs), $4.4 million at Florida Canyon, and $7.7
million of capitalized interest, and received proceeds of $1.5 million from
liquidation of
15
<PAGE>
EMGF. During the same period in 1996, the Company invested $88.6 million in
property, plant and equipment, $4.6 million on investments, and received $3.9
million from the sale of exploration tenements in Australia. The decrease in
capital spending reflects completion of major expansion projects at Mt. Todd
and Florida Canyon.
FINANCING ACTIVITIES
Cash flow from financing activities for the year to date includes borrowings
under the Company's Revolving Credit Facility of $19.6 million and $0.8
million raised from the issuance of common stock to the employee savings plan
and through stock option exercises. In the first six months of 1996, the
Company raised $88.4 million, net of expenses, from the issuance of six
million common shares in Canada and the United States and made payments on
outstanding long-term debt amounting to $19.2 million.
CONCLUSION
The Company believes that the $4.7 million in cash and cash equivalents on hand,
along with cash flow from operations and funding available under the Revolving
Credit Facility, will be adequate to meet its cash requirements. However, cash
flow from operations is subject to certain risks that could materially impact
available cash. In addition, if the Company were to violate covenants under its
Revolving Credit Facility, its liquidity could be significantly affected. To
the extent the sources of liquidity identified are not adequate to meet the
Company's cash requirements, all or a portion of the hedge position discussed in
Note 5 to the Consolidated Financial Statements could be monetized.
SAFE HARBOR
The statements in this report which are not historical facts are forward looking
statements that involve a number of risks and uncertainties. In addition to the
factors discussed above, other factors that could cause actual results to differ
materially include the price of gold and other commodities and currencies,
production, permitting or regulatory delays, reserve estimation, metallurgical
recoveries, exploration success and reserve growth, litigation, capital costs,
and other risks detailed in the Company's SEC filings.
16
<PAGE>
PART II. OTHER INFORMATION
PEGASUS GOLD INC.
Items 2, 3, and 5 of Part II are omitted from this report as inapplicable.
Item 1. Legal Proceedings
See Part 1 - Item 1 - "Notes to Consolidated
Financial Statements." Note 5 Paragraph 5 entitled "Legal
Proceedings", which information is incorporated herein by reference.
Item 4. Submission of Matters to Vote of Security Holders
(a) The 1997 Annual General Meeting of shareholders was held on
April 30, 1997.
(b) The following directors were elected at the above meeting:
Peter M.D. Bradshaw, Douglas R. Cook, and Peter R. Kutney.
The following Directors' terms of office did not expire at the
meeting and they continued in office after the meeting:
Lawrence I. Bell, Michael A. Grandin, Werner G. Nennecker,
Lindsay D. Norman, Anthony J. Petrina, and Fred C. Schulte.
(c) The following matters were voted upon at the meeting:
<TABLE>
For Against Withheld Abstained Not Voted
- ----------------------------------------------------------------------------------------
<S> <C> <S> <C> <C>
Election of Directors:
Mr. Bradshaw 23,041,706 156,305 364,719
Mr. Cook 23,063,646 134,365 364,719
Mr. Kutney 23,069,026 128,985 364,719
Re-appointment of
Coopers & Lybrand,
as Auditors of
the Company for
1997 23,368,667 118,396 8,018 67,749
Remuneration of
Auditors 23,017,214 435,828 109,788
1997 Stock Plan -
Adopt the Plan
authorizing the
issuance of up to
4,000,000 shares 9,286,236 4,157,032 215,637 9,903,925
</TABLE>
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits
10.0 Amendment No. 1 to the Multi-currency Reducing Revolving
Credit Agreement, dated as of June 30, 1997
11.0 Computation of Earnings Per Share
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
None
17
<PAGE>
PEGASUS GOLD INC.
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.
PEGASUS GOLD INC.
(Registrant)
Date: August 14, 1997 By:/s/ Phillips S. Baker, Jr.
----------------------------
Phillips S. Baker, Jr.
Vice President, Finance
Chief Financial Officer, and
Principal Accounting Officer
18
<PAGE>
PEGASUS GOLD INC.
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.
PEGASUS GOLD INC.
(Registrant)
Date: August 14, 1997 By:/s/ Phillips S. Baker, Jr.
--------------------------------
Phillips S. Baker, Jr.
Vice President, Finance
Chief Financial Officer, and
Principal Accounting Officer
<PAGE>
AMENDMENT NO. 1 TO THE
CREDIT AGREEMENT
Dated as of June 30, 1997
AMENDMENT NO. 1 TO THE CREDIT AGREEMENT among Pegasus Gold,
Inc., a company organized under the laws of British Columbia, Canada
("PGI"), Pegasus Gold Corporation, a Nevada corporation ("PGC"), and
Pegasus Gold Australia Pty Ltd, an Australia corporation ("PGA", and
together with PGI and PGC, the "BORROWERS"), the banks, financial
institutions and other institutional lenders parties to the Credit
Agreement referred to below (collectively, the "LENDERS"), the co-agents
referred to therein and Citibank, N.A., as administrative agent in the
United States and as a collateral agent (the "US ADMINISTRATIVE AGENT")
for the Lenders, Citibank Canada, as administrative agent in Canada and
as a collateral agent (the "CANADIAN ADMINISTRATIVE AGENT") for the
Lenders, and Citibank Limited, as administrative agent in Australia and
as a collateral agent (the "AUSTRALIAN ADMINISTRATIVE AGENT", and
together with the US Administrative Agent and the Canadian
Administrative Agent, the "ADMINISTRATIVE AGENTS") for the Lenders.
PRELIMINARY STATEMENTS:
(1) The Borrowers, the Lenders and the Administrative Agents
have entered into a Multicurrency Reducing Revolving Credit Agreement
dated as of April 17, 1996 (the "CREDIT AGREEMENT"). Capitalized terms
not otherwise defined in this Amendment have the same meanings as
specified in the Credit Agreement.
(2) In accordance with Section 8.01 of the Credit Agreement,
the Borrowers and the Required Lenders have agreed to amend the Credit
Agreement as hereinafter set forth.
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit
Agreement is, effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 3, hereby
amended as follows:
(a) The definition of "EBITDA" in Section 1.01 is amended
in full to read as follows:
<PAGE>
"EBITDA" means, with respect to any Person for any period, net
income (or net loss) of such Person for such period PLUS (a) to the
extent deducted in computing such net income (or net loss), the sum
of (i) interest expense, (ii) income tax expense, (iii) depreciation
expense, (iv) amortization expense, (v) non-cash charges related to
asset write downs, revaluations and other similar reductions in the
carrying value of property, plant and equipment and Investments and
(vi) any non-recurring expense paid for by PGI or its Subsidiaries
solely with PGI's common stock, PLUS (b) any refund or release to any
Borrower or Guarantor of contributions described in clause (c)(i)
below, and MINUS (c)(i) contributions made by any Borrower or
Guarantor in connection with Liens permitted pursuant to Section
5.02(a)(viii) or (ix) and (ii) to the extent included in computing
such net income (or net loss), non-recurring gains since January 1,
1997, in each case (other than with respect to clauses (b) and (c)(i)
above) determined in accordance with GAAP for such period.
(b) Section 2.09(c)(ii) is hereby amended by deleting clause (A)
therefrom and replacing it with the following:
(A) except with respect to any Existing Letter of Credit, an issuance
fee, payable in the currency in which the applicable Letter of Credit
is denominated, for each Letter of Credit issued by such Issuing Bank
on or after April 17, 1996, in an amount equal to 0.125% of the
Available Amount of such Letter of Credit calculated and payable (i)
on the date of issuance of such Letter of Credit and (ii) if such
Letter of Credit shall be extended one or more times and remain
outstanding for a period in excess of one (1) year, on each annual
anniversary of the issuance date of any such Letter of Credit,
PROVIDED that such Letter of Credit is outstanding on such anniversary
date (and, with respect to any increase in such Available Amount at
any time, 0.125% of such increase payable on the date of such
increase) and
(c) Section 5.01(j) is hereby amended by adding thereto, immediately
following the word "Affiliates" appearing in the fourth line of such
Section, the words "which are not Loan Parties".
(d) Section 5.01(l) is amended (i) by inserting the words "not
subject to any contingency that may preclude any Borrower from making
delivery or receiving payment thereunder" immediately after the phrase
"Gold Price Hedge Agreement" and (ii) by inserting the words "in cash"
immediately after the phrase "weighted average realized price of gold".
(e) Section 5.02(a) is hereby amended by (i) deleting the word "and"
appearing at the end of Section 5.02(a)(vi), (ii) deleting the period
appearing at the end
2
<PAGE>
of Section 5.02(a)(vii) and replacing it with a semicolon, and (iii) adding
thereto the following Sections 5.02(a)(viii) and (ix) to read as follows:
(viii) Liens arising under a Trust Agreement, dated as of
October 22, 1996, between PGC, as Grantor, and the Board of Investment
of the State of Montana, as Trustee, and furnished solely for purposes
of compliance with the financial assurances requirements set forth in
Paragraph 44 of the Consent Decree entered September 27, 1996, in the
consolidation of UNITED STATES OF AMERICA, ET AL., V. PEGASUS GOLD
CORPORATION, ET AL., Civil Action No. 95-95-BLG-JDS, and GROS VENTRE
TRIBE, ET AL., V. PEGASUS GOLD INC., ET AL., Civil Action No.
95-96-BLG-JDS, in the United States District Court for the District of
Montana, Billings Division (hereinafter referred to as the "ZORTMAN
CONSENT DECREE"); PROVIDED, HOWEVER, that the aggregate fair market
value of all property subject to such Liens shall not at any time
exceed US$15,000,000 and no such Lien shall extend to cover any
Collateral; and
(ix) Liens securing the obligations of any Borrower or
any Restricted Subsidiary to reimburse the issuer of any surety or
bond required to be furnished under Paragraph 44 of the Zortman
Consent Decree; PROVIDED, HOWEVER, that the aggregate fair market
value of all property subject to such Liens shall not at any time
exceed US$10,000,000 and no such Lien shall extend to cover any
Collateral.
(f) Section 5.03 is amended by inserting at the end thereof a new
Section 5.03(l), to read as follows:
(l) MONTHLY FINANCIALS. As soon as available and in any event
within 30 days after the end of each month from July, 1997 through and
including December, 1997, (i) Consolidated and consolidating balance
sheets of PGI and its Subsidiaries as of the end of such month and
Consolidated and consolidating statements of income and a Consolidated
statement of cash flows of PGI and its Subsidiaries for the period
commencing at the end of the previous Fiscal Year and ending with the
end of such month, setting forth in each case in comparative form the
corresponding figures for the corresponding period in the previous
Fiscal Year and (ii) a schedule in form satisfactory to the US
Administrative Agent setting forth the position of the Loan Parties
under all Hedge Agreements, all in reasonable detail and duly certified
by the chief financial officer of PGI.
(g) Section 5.03 is amended by inserting at the end thereof a
new Section 5.03(m), to read as follows:
3
<PAGE>
(m) MOUNT TODD REPORT. As soon as available and in any event
within 30 days after the end of each month from July, 1997 through and
including December, 1997, a report on the Mount Todd development, in
form and covering subject matter satisfactory to the US Administrative
Agent.
(h) Section 5.03 is amended by inserting at the end thereof a new
Section 5.03(n), to read as follows:
(n) MOUNT TODD ENGINEERING REPORT. No later than December 15,
1997, an engineering report, from an independent engineering firm
selected by PGI and subject to the approval of the Required Lenders
(such approval not to be unreasonably withheld), in form and covering
subject matter satisfactory to the US Administrative Agent and
prepared on a basis consistent with the feasibility study and
engineering review regarding the Phase II Development provided to the
US Administrative Agent prior to the closing of the Credit Agreement.
(i) Section 5.03 is amended by inserting at the end thereof a
new Section 5.03(o), to read as follows:
(o) OFFICER'S CERTIFICATE. No later than January 30, 1998 and
no earlier than January 2, 1998, (i) a certificate from the chief
financial officer of PGI confirming that, as of December 31, 1997,
subject where applicable to year-end audit adjustments, no Default
has occurred and is continuing or, if a Default has occurred and is
continuing, a statement as to the nature thereof and the action that
the Borrowers have taken and propose to take with respect thereto and
(ii) a schedule setting forth the computations used by such officer
in determining compliance as of December 31, 1997 with the covenants
contained in Sections 5.04(a) through (e); PROVIDED, HOWEVER, that if
such certificate fails to be delivered on January 30, 1998 and any
Administrative Agent shall have notified any Borrower of such failure,
such certificate shall be delivered within three days of such notice.
(j) Section 5.04(b) is amended by deleting the periods September
30, 1997 to December 30, 1997 and December 31, 1997 to March 30, 1998,
and the ratios set opposite such periods, and substituting therefor the
periods and ratios set forth below:
Period Ratios
------ ------
September 30, 1997 to December 30, 1997 6.00 to 1.0
December 31, 1997 5.75 to 1.0
January 1, 1998 to March 30, 1998 5.50 to 1.0
4
<PAGE>
(k) Section 5.04(c) is amended by deleting the periods
September 30, 1997 to December 30, 1997 and December 31, 1997 to March 30,
1998, and the ratios set opposite such periods, and substituting therefor
the ratios set forth below:
Period Ratios
------ ------
September 30, 1997 to December 30, 1997 2.40 to 1.0
December 31, 1997 2.70 to 1.0
January 1, 1998 to March 30, 1998 3.00 to 1.0
(l) Section 6.01(c) is amended by inserting immediately after
the reference "5.04" therein the phrase "or 5.03(o) (but only if the
three day grace period provided for in the proviso of such Section
5.03(o) shall have expired without delivery of the certificate referred
to therein)".
SECTION 2. ADDITIONAL FEE. If the Borrowers fail to comply
with the covenants set forth in either Section 5.04(b) or 5.04(c) (in
each case such compliance to be determined without giving effect to
Sections 1(j) and 1(k) of this Amendment) with respect to the dates of
September 30, 1997 and December 31, 1997 then, within three Business
Days after the delivery of (i) with respect to any failure to comply
with the covenants applicable as of September 30, 1997, the related
quarterly financial statements delivered in accordance with Section
5.03(b) of the Credit Agreement or (ii) with respect to any failure to
comply with the covenants applicable as of December 31, 1997, the chief
financial officer's certificate delivered in accordance with Section
5.03(o) of the Credit Agreement, as amended hereby, and, in either case,
no later than three Business Days after any such financial statements
are or such certificate is required to be delivered pursuant to such
Section 5.03(b) or such Section 5.03(o), as applicable:
(a) the US Borrower shall pay or cause to be paid to the US
Administrative Agent, for the account of each US Lender,
(b) the Canadian Borrower shall pay or cause to be paid to the
Canadian Administrative Agent, for the account of each Canadian Lender
and
(c) the Australian Borrower shall pay or cause to be paid to
(i) the Australian Administrative Agent, for the account of each
Australian Lender and (ii) each Risk Participant (in consideration of
such Risk Participant's Obligation to purchase such Risk Participant's
Adjusted Pro Rata Share of Australian Borrower Advances)
a fee equal to 0.25% per annum of each such Lender's Revolving Credit
Commitment (as designated pursuant to Section 2.01(e) of the Credit
Agreement) for the fiscal quarter ended on September 30, 1997 or
December 31, 1997, as applicable; PROVIDED, HOWEVER, that if during the
calendar quarter ended September 30, 1997 or December 31, 1997, as
applicable, any
5
<PAGE>
Borrower is required to pay default rate interest in accordance with
Section 2.08(c) of the Credit Agreement, the fee payable on such date in
accordance with this Section shall be reduced PRO RATA, based on the
number of days occuring in such calendar quarter on which such default
rate shall be payable; PROVIDED FURTHER that if year-end audit
adjustments show that the Borrowers were not in compliance with the
covenants referred to above in this Section 2, the Borrowers shall
immediately notify the US Administrative Agent of such non-compliance
and the Borrowers shall pay the fees provided for in this Section 2
within three Business Days of when such notice was or should have been
sent.
SECTION 3. CONDITIONS TO EFFECTIVENESS. This Amendment shall
become effective as of the date first above written when, and only when,
on or before August 15, 1997 the Borrowers shall have paid to the US
Administrative Agent for the account of the Lenders (other than the
Non-Pro Rata Lender) a fee equal to 0.05% of the aggregate amount of the
Revolving Credit Commitments, and the US Administrative Agent shall have
received counterparts of this Amendment executed by the Borrowers and
the Required Lenders or, as to any of the Lenders, advice satisfactory
to the US Administrative Agent that such Lender has executed this
Amendment, and the consent attached hereto executed by each Guarantor
and each Pledgor.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS.
Each Borrower represents and warrants as follows:
(a) Each Loan Party is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, continuance or amalgamation.
(b) The execution, delivery and performance by each Borrower
of this Amendment and the Credit Agreement, as amended hereby, are
within such Borrower's corporate powers, have been duly authorized by
all necessary corporate action, and do not (i) contravene such
Borrower's charter or bylaws or other constituent documents, (ii)
violate any foreign or domestic law (including, without limitation, the
Securities Exchange Act of 1934 and the Racketeer Influenced and Corrupt
Organizations Chapter of the Organized Crime Control Act of 1970), rule,
regulation (including, without limitation, Regulations G, T, U or X of
the Board of Governors of the Federal Reserve System), order, writ,
judgment, injunction, decree, determination or award applicable to any
Borrower, (iii) result in the breach of any material provision of, or
constitute a default under, any material contract, loan agreement,
indenture, mortgage, deed of trust, lease or other instrument binding on
or affecting any Borrower or any of their properties or (iv) except for
the Liens created under the Loan Documents, result in or require the
creation or imposition of any Lien upon or with respect to any of the
properties of any Loan Party. No Loan Party is in violation of any such
law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award or in breach of any such contract, loan
agreement, indenture, mortgage, deed of trust, lease or other
instrument, the violation or breach of which would reasonably be
expected to have a Material
6
<PAGE>
Adverse Effect. No Borrower is entering into this Amendment in the
capacity of a trustee of any trust or settlement. Each Loan Party
benefits by executing the Loan Documents to which it is a party and the
interest, fees and other amounts payable hereunder are fair and
reasonable. Each Loan Party incorporated in Australia has complied with
Section 289 of the Australian Corporations Law since the later of the
date of its incorporation and January 1, 1993.
(c) No consent of any other Person and no authorization or
approval or other action by, and no notice to or filing with, any
foreign or domestic governmental authority or regulatory body or any
other third party is required for the due execution, delivery or
performance by any Borrower of this Amendment or the Credit Agreement,
as amended hereby.
(d) This Amendment has been duly executed and delivered by
each Borrower. This Amendment and the Credit Agreement, as amended
hereby, are the legal, valid and binding obligation of each Borrower,
enforceable against such Borrower in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors'
rights generally and by general equitable principles.
(e) There is no action, suit, investigation, litigation or
proceeding affecting any Loan Party, including any Environmental Action,
pending or, to the best knowledge of any Borrower, threatened before any
court, governmental agency or arbitrator that (i) would reasonably be
expected to have a Material Adverse Effect, or (ii) purports to affect
the legality, validity or enforceability of this Amendment or the Credit
Agreement, as amended hereby.
SECTION 5. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS . (a) On
and after the effectiveness of this Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof" or words of
like import referring to the Credit Agreement, and each reference in the
Notes and each of the other Loan Documents to "the Credit Agreement",
"thereunder", "thereof" or words of like import referring to the Credit
Agreement, shall mean and be a reference to the Credit Agreement, as
amended by this Amendment.
(b) The Credit Agreement, as specifically amended by this
Amendment, the Notes and each of the other Loan Documents are and shall
continue to be in full force and effect and are hereby in all respects
ratified and confirmed. Without limiting the generality of the
foregoing, the Collateral Documents and all of the Collateral described
therein do and shall continue to secure the payment of all Obligations
of the Loan Parties under the Loan Documents, in each case as amended by
this Amendment.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of any
7
<PAGE>
Lender or any Administrative Agent under the Credit Agreement, nor
constitute a waiver of any provision of the Credit Agreement.
SECTION 6. COSTS, EXPENSES AND TAXES. The Borrowers agree to
pay on demand all costs and expenses of the Administrative Agents in
connection with the preparation, execution, delivery and administration,
modification and amendment of this Amendment and the other instruments
and documents to be delivered hereunder (including, without limitation,
the reasonable fees and expenses of counsel for the Administrative
Agents) in accordance with the terms of Section 8.04 of the Credit
Agreement. In addition, the Borrowers shall pay any and all stamp and
other taxes payable or determined to be payable in connection with the
execution and delivery of this Amendment and the other instruments and
documents to be delivered hereunder, and agrees to save the
Administrative Agents and each Lender harmless from and against any and
all liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes.
SECTION 7. EXECUTION IN COUNTERPARTS. This Amendment may be
executed in any number of counterparts and by different parties hereto
in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which taken together shall constitute but
one and the same agreement. Delivery of an executed counterpart of a
signature page to this Amendment by telecopier shall be effective as
delivery of a manually executed counterpart of this Amendment.
8
<PAGE>
SECTION 8. GOVERNING LAW. This Amendment shall be governed
by, and construed in accordance with, the laws of the State of New York.
<PAGE>
EXHIBIT 11.0
PEGASUS GOLD INC.
COMPUTATION OF EARNINGS PER SHARE
(In Thousands, except for share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY:
Earnings:
Net loss applicable to primary
earnings per share calculation............ ($3,150) ($1,713) ($3,165) ($1,700)
------- ------- ------- -------
------- ------- ------- -------
Weighted average number of shares
outstanding:
Common shares and equivalents.............. 41,190 41,032 41,163 40,128
Additional shares outstanding assuming
exercise of stock options reduced by the
number of shares which could have been
purchased with the proceeds from the
exercise of such options................... 1 302 6 364
------- ------- ------- -------
Weighted average number of shares
outstanding, as adjusted................... 41,191 41,334 41,169 40,492
------- ------- ------- -------
------- ------- ------- -------
Net loss per share - primary............... ($0.08) ($0.04) ($0.08) ($0.04)
------- ------- ------- -------
------- ------- ------- -------
FULLY DILUTED:
Earnings:
Net loss.................................. ($3,150) ($1,713) ($3,165) ($1,700)
Add:
Interest relating to 6.25% convertible
subordinated notes, net of tax............. --- 18 --- 257
Amortization of issuance costs relating to
6.25% convertible subordinated notes,
net of tax................................. --- 130 --- 260
------- ------- ------- -------
Net loss applicable to fully diluted
earnings per share calculation............ ($3,150) ($1,565) ($3,165) ($1,183)
------- ------- ------- -------
------- ------- ------- -------
Weighted average number of shares
outstanding:
Common shares and equivalents............. 41,190 41,032 41,163 40,128
Additional shares outstanding assuming
exercise of stock options reduced by the
number of shares which could have been
purchased with the proceeds from the
exercise of such options................. 1 304 8 366
Additional average shares outstanding
assuming conversion of 6.25%
convertible subordinated notes........... 7,709 7,709 7,709 7,709
------- ------- ------- -------
Weighted average number of shares
outstanding, as adjusted................... 48,900 49,045 48,879 48,203
------- ------- ------- -------
------- ------- ------- -------
Net loss per share - fully diluted (a)..... ($0.06) ($0.03) ($0.06) ($0.03)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
(a) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
<PAGE>
EXHIBIT 11.0
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
ART 5. FOR 2ND QUARTER 10-Q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,677
<SECURITIES> 0
<RECEIVABLES> 23,085
<ALLOWANCES> 0
<INVENTORY> 56,317
<CURRENT-ASSETS> 95,380
<PP&E> 640,915
<DEPRECIATION> 0
<TOTAL-ASSETS> 752,496
<CURRENT-LIABILITIES> 39,616
<BONDS> 0
0
0
<COMMON> 426,133
<OTHER-SE> (76,709)
<TOTAL-LIABILITY-AND-EQUITY> 752,496
<SALES> 99,206
<TOTAL-REVENUES> 99,206
<CGS> 71,148
<TOTAL-COSTS> 89,950
<OTHER-EXPENSES> 6,382
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 864
<INCOME-PRETAX> (3,289)
<INCOME-TAX> (124)
<INCOME-CONTINUING> (3,165)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,165)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.06)
</TABLE>
