<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1996.
Commission file number 0-31986 (82-689)
GLAMIS GOLD LTD.
(Exact name of Registrant as specified in its charter)
British Columbia, Canada None.
(Jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
3324 Four Bentall Centre, 1055 Dunsmuir Street, Vancouver, B.C. Canada, V7X 1L3
(Address of Principal Executive Offices)
Registrant's Telephone Number: (604) 681-3541
Securities registered or to be registered pursuant to Section 12(b) of the Act.
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Class On Which Registered
- -------------- -------------------
<S> <C>
Common Shares Without Par Value The New York Stock Exchange, Inc.
The Toronto Stock Exchange
</TABLE>
Securities registered or to be registered pursuant to Section 12(g) of
the Act. None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting securities held by non-affiliates of
the registrant (based on the closing sale price of the common shares of $8.25 on
March 13, 1997, as reported by the New York Stock Exchange, Inc.) was
approximately $252,994,599 (Cdn. $344,992,635).
As of March 13, 1997 the Registrant had 31,092,707 common shares outstanding.
Page 1 of 124
Exhibit Index Appears on Page 86
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CURRENCY
Effective July 1, 1994, the Company began reporting in U.S. dollars.
Accordingly, unless otherwise stated, all references herein to money are in U.S.
dollars.
YEAR END
Effective December 31, 1995 the Company changed its year end from June 30 to
December 31.
COPIES OF FORM 10-K
A copy of this Form 10-K, including the financial statements and schedules
hereto, can be obtained, without charge, by sending a written request to James
R. Billingsley, Vice-President, Administration of the Company, at:
Glamis Gold Ltd.,
Suite 3324, Four Bentall Centre,
1055 Dunsmuir Street,
P.O. Box 49287,
Vancouver, British Columbia,
Canada V7X 1L3
FORWARD LOOKING INFORMATION
A number of statements in this Form 10-K are forward looking statements that
involve a number of risks and uncertainties. The risks and uncertainties which
could materially affect actual results both positively and adversely include,
but are not limited to, differences between anticipated and actual recovery
rates, changes to mining plans due to prudent mine engineering, timing delays
in obtaining permits, and gold prices obtained upon the sale of gold. These
risks and uncertainties are the normal risks involved in mining and the
permitting process, to which the Company's operations are subject.
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T A B L E O F C O N T E N T S
<TABLE>
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PAGE
<S> <C>
GLOSSARY................................................................... 5
ITEM 1 - BUSINESS.......................................................... 6
THE COMPANY................................................................ 6
General................................................................. 6
Summary of Properties................................................... 7
Other Information....................................................... 8
Executive Officers of the Company....................................... 9
OPERATING SUMMARY.......................................................... 11
Gold Production......................................................... 11
Cash Cost of Production per Ounce of Gold
Produced.............................................................. 11
Royalty Cost Per Ounce of Gold Produced................................. 12
SUMMARY OF RESERVES AND OTHER
MINERALIZATION.......................................................... 13
Proven and Probable Mineable Reserves................................... 13
Contained Ounces of Gold................................................ 14
Effects of Development Drilling During Fiscal
1996.................................................................. 15
Exploration and Development Expenditures................................ 15
Other Mineralization.................................................... 16
PRODUCTION METHOD.......................................................... 17
GOLD SALES................................................................. 18
OTHER CONSIDERATIONS....................................................... 18
Gold Prices............................................................. 18
Regulatory and Environmental Factors.................................... 19
Reclamation............................................................. 20
Calculation of Reserves................................................. 21
Insurance and Mining Risks.............................................. 21
Title Matters........................................................... 22
Permitting.............................................................. 22
Supplies, Utilities and Transportation.................................. 23
Competition............................................................. 23
Political and Economic Conditions in Mexico and
Indonesia............................................................. 23
Employees............................................................... 23
ITEM 2 - PROPERTIES........................................................ 24
PICACHO MINE, CALIFORNIA................................................... 24
Property and Material Agreements........................................ 24
Production Equipment and Power.......................................... 25
History................................................................. 25
Geology................................................................. 26
Mining Operations and Reserves.......................................... 26
Permitting.............................................................. 26
Production.............................................................. 27
RAND MINING COMPANY........................................................ 27
Property and Material Agreements........................................ 27
Production Equipment and Power.......................................... 29
History................................................................. 29
Geology................................................................. 30
Mining Operations and Reserves.......................................... 30
Permitting.............................................................. 31
Rand Pad and Process Facilities (formerly the
Rand Project)...................................................... 32
Production.............................................................. 33
OTHER LANDS................................................................ 33
Alto Mine, California................................................... 33
Imperial Project, California............................................ 33
Material Agreements................................................... 33
Geology............................................................... 34
Reserves.............................................................. 35
Future Operations..................................................... 35
Mexico.................................................................. 35
Exploration........................................................... 35
Cieneguita Property, Mexico........................................... 35
La Jojoba Property, Sonora, Mexico.................................... 37
Indonesia - Gunung Pani Joint Venture Project........................... 38
ITEM 3 - LEGAL PROCEEDINGS................................................. 39
ITEM 4 - SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS................................................ 40
ITEM 5 - MARKET INFORMATION AND
RELATED SHAREHOLDER MATTERS............................................. 40
Stock Exchanges (TSE/NYSE:GLG).......................................... 40
Shareholders............................................................ 42
Dividends............................................................... 42
Investment Canada Act................................................... 43
Certain Tax Matters..................................................... 44
United States Federal Income Tax Considerations......................... 44
U.S. Holders.......................................................... 45
Distributions on Common Shares of the
Company............................................................ 45
Foreign Tax Credit.................................................... 46
Disposition of Common Shares of the
Company............................................................ 46
Other Considerations.................................................. 46
Passive Foreign Investment Company.................................... 47
Canadian Federal Income Tax Considerations.............................. 47
ITEM 6 - SELECTED FINANCIAL
INFORMATION............................................................. 48
ITEM 7 - MANAGEMENT DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................... 49
General................................................................. 49
</TABLE>
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<TABLE>
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PAGE
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Revenue................................................................. 51
Cost of Production...................................................... 51
Expenses................................................................ 52
Other Income and Expenses............................................... 53
Liquidity and Capital Resources......................................... 53
Capital Expenditures.................................................... 54
Hedging................................................................. 55
Break Even Price Per Ounce of Gold...................................... 55
Regulatory, Environmental and Other Risk
Factors............................................................... 56
Reclamation........................................................... 56
ITEM 8 - FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA...................................................... 57
Index to Financial Statements........................................... 57
ITEM 9 - DISAGREEMENTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE................................................ 84
ITEM 10 - DIRECTORS AND EXECUTIVE
OFFICERS OF THE COMPANY................................................. 84
ITEM 11 - EXECUTIVE COMPENSATION........................................... 84
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT........................................ 84
ITEM 13 - CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS.................................................... 84
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K....................................... 85
Financial Statements and Financial Statement
Schedules............................................................... 85
Reports on Form 8-K........................................................ 85
Exhibits................................................................... 85
</TABLE>
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GLOSSARY
CONTAINED OUNCES: The ounces of metal in reserves obtained by
multiplying tonnage by grade.
CUT-OFF GRADE: The grade below which mineralized material will
be considered waste rather than ore.
DEVELOPMENT: The preparation of a known commercially mineable
deposit for mining.
GEOCHEMICAL SURVEY: The sampling of rocks, stream sediments,
and soils in order to locate abnormal
concentrations of metallic elements or minerals.
The samples are usually assayed by various
methods to determine the quantities of elements
or minerals in each sample.
GEOPHYSICAL SURVEY: The exploration of an area in which physical
properties relating to geology are used.
Geophysical methods include seismic, magnetic,
gravity and induced polarization techniques.
GGX: Glamis Gold Exploration, Inc.
MINEABLE RESERVES:(1) That portion of the proven and
probable reserves which may be mined and sold at
a profit, taking into account all mining
parameters.
MINERALIZED: Mineral-bearing; the metallic minerals may have
been either a part of the original rock unit or
injected at a later time.
NET SMELTER RETURNS: Gross sales proceeds received from the sale of
production obtained from a property, less the
costs of insurance, smelting, refining (if
applicable) and the cost of transportation of
production from the mine or mill to the point of
sale.
ORE: A metal or mineral or a combination of these of
sufficient value as to quality and quantity to
enable it to be mined at a profit.
RESERVES: Proven and Probable Reserves together.
OZ/T: Troy ounces of metal per ton of material. One
oz/t is equivalent to 31.103 grams per ton or
34.286 grams per tonne.
PATENTED MINING CLAIM: A mineral claim which has been surveyed, and
which grants the land within the surveyed area to
the grantee.
PROBABLE RESERVES:(1) The material for which tonnage and grade are
computed partly from specific measurements,
samples or production data, and partly from
projection for a reasonable distance on
geological evidence, and for which the sites
available for inspection, measurement and
sampling are too widely or otherwise
inappropriately spaced to outline the material
completely as to establish its grade throughout.
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PROVEN RESERVES:(1) The material for which tonnage is computed from
dimensions revealed in outcrops or trenches or
underground workings or drill holes and for which
the grade is computed from the results of
adequate sampling, and for which sites for
inspection, sampling and measurement are so
spaced and the geological character so well
defined that the size, shape and mineral content
are established, for which the computed tonnage
and grade are judged to be accurate within limits
which shall be stated and for which it shall be
stated whether the tonnage and grade of proven
ore or measured ore are in situ or extractable,
with dilution factors shown, and reasons for the
use of these dilution factors clearly explained.
RAND: Rand Mining Company.
RECOVERY RATE: The percentage of metals or minerals which are
recovered from ore during processing.
STRIPPING RATIO: The ratio of waste to ore that will be
experienced in mining an ore body.
UNPATENTED LODE MINING CLAIM: A mineral claim located on land owned by the
United States which grants the minerals in place
and exclusive possession of the land within the
claim area to the recorded owner.
(1) The definitions of mineable, proven and probable reserves are those used in
Canada by provincial securities regulatory authorities and are set forth in
National Policy No. 2A of such regulatory authorities. The reader should be
aware that the definition standards enunciated in National Policy No. 2A
differ in certain respects from those set forth in SEC Industry Guide 7,
which contains the definitions and parameters of disclosure for issuers
engaged in significant mining operations.
PART I
ITEM 1 - BUSINESS
THE COMPANY
GENERAL
Glamis Gold Ltd. (the "Company") was incorporated under the laws of the Province
of British Columbia on September 14, 1972 under the name Renniks Resources Ltd.
(N.P.L.). Since incorporation, the Company has undergone several capital
reorganizations and on December 12, 1977 the name of the Company was changed to
Glamis Gold Ltd.
The Company's head and executive offices are located at 3324 Four Bentall
Centre, 1055 Dunsmuir Street, Vancouver, British Columbia, V7X 1L3.
The Company's operations are conducted through its wholly-owned Nevada
subsidiary Glamis Gold, Inc. and Glamis Gold, Inc.'s wholly-owned subsidiaries,
Chemgold, Inc., a California
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corporation and Rand Mining Company and Glamis Gold Exploration, Inc., each
Nevada corporations. In addition, the Company has a wholly-owned Mexican
subsidiary called Minera Glamis S.A. de C.V. In this Report, unless the context
indicates otherwise, the term the "Company" refers to the Company together with
Glamis Gold, Inc., its subsidiaries and Minera Glamis S.A. de C.V.
SUMMARY OF PROPERTIES
The Company is engaged in the mining and extraction of precious metals by
open-pit mining and heap leaching method and has an active program of
exploration and development of precious metal properties. It initiated heap
leaching in California in 1981 and is recognized as a leader in the use of this
process. See Item 1 "Operating Summary - Production Method" for a description of
the heap leaching process.
The Company produces gold from two operating mines located in California: the
Picacho mine (the "Picacho Mine") located in Imperial County and the Rand mine
("Rand Mine") located in Kern County. Due to a commingling of assets and sharing
of services and equipment, the Company's Yellow Aster Mine and Baltic Mine,
which prior to this Report have been reported separately, have been combined
herein under the heading the "Rand Mine" which is comprised of 3 ore bodies: the
Yellow Aster Pit, the Baltic Pit and the Lamont Pit and 3 processing facilities:
the Yellow Aster Facilities, the Baltic Facilities and the Rand Facilities. See
Item 2 - "Properties" for a description of the mines and processing facilities.
The Company holds a 100% interest in a property located in Imperial County,
California (the "Imperial Project") which is currently being permitted for
future mining activities. A Final Feasibility Report on this project was
presented to the Board of Directors on May 1, 1996. The Report showed the
project has a very favourable net present value. On May 2, 1996, the Board of
Directors approved the project and directed pursuit of necessary permits to
begin mining as soon as possible. With the timely receipt of all required
permits, it is expected that gold production will begin in approximately the
first quarter of 1998. See Item 2 - "Properties - Other Lands" for a
description of this project.
The Company is a party to a joint venture arrangement in respect of a property
located in Mexico in which it has a 60% interest. The joint venture has the
right to acquire a 100% interest in the Cieneguita property ("Cieneguita
Property") located in the State of Chihuahua, Mexico which has been placed into
production. See Item 2 - "Properties - Other Lands" for a description of this
property.
During the fiscal year ended June 30, 1994, the Company initiated an exploration
program in Mexico to search out potential mining areas which have not been
subject to any known exploration by other parties. The program was curtailed
during the fiscal year ended June 30, 1995 because no properties were found
which met the Company's criteria for open-pit, heap leach operations.
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On August 14, 1996, the Company entered into a letter of intent with Paramount
Ventures & Finance Inc., a public company, the shares of which are listed on the
Vancouver Stock Exchange, which provided for the Company acquiring 2,000,000
Units of Paramount at Cdn.$2.25 per Unit (which has been done) and acquiring 50%
of Paramount's interest in the Gunung Pani Gold Project on North Sulawesi Island
of Indonesia. To earn the interest the Company is to fund all exploration and
development costs up to the time of delivery of a positive Feasibility Study.
See Item 2 - "Properties - Other Lands - Indonesia."
The Company's approach to the acquisition of mining properties has generally
been to limit its review to undeveloped precious metal properties that others
have explored in sufficient detail to demonstrate that the properties have
significant potential gold mineralization or to review companies which own such
properties. Of particular interest to the Company are properties on which
reserves have been established by major companies. While such properties may not
be economic for other companies to develop, the Company's expertise in the
profitable exploitation of low grade ores through the heap leaching process may
make the properties attractive to the Company.
The Company's criteria for property acquisition normally are:
- - the property should have the potential for large reserves that can be
mined on an open pit basis,
- - the ore should be suitable for gold extraction by heap leaching, and
- - the property should be capable of being brought into production in
stages to avoid large capital outlays at any one time.
Based on the ounces of gold contained in the proven and probable mineable
reserves as at December 31, 1996 on the properties in which the Company has an
interest, and the Company's ownership interests and rights in such properties,
the Company estimates its gold reserves to be approximately 2,969,701 contained
ounces. See "Summary of Reserves and Other Mineralization".
OTHER INFORMATION
The Company's mining operations are subject to the normal risks of mining and
its profits are subject to fluctuations in the price of gold which fluctuate
widely and are affected by numerous factors beyond the Company's control. The
imposition of a proposed gross royalty on all production from federal lands in
the United States, if it becomes law, will affect the profitability of the
operations of the Rand Mine from its Baltic and Lamont Pits and of the Imperial
Project (the Picacho Mine and Yellow Aster Pit at the Rand Mine are primarily on
private or patented land and will not be materially affected). The Company's
mining operations are subject to health, safety and environmental legislation
and regulations, changes in which could cause additional expenses, capital
expenditures, restrictions and delays in the Company's activities, the extent of
which cannot be predicted. Certain of the Company's properties have not been
surveyed and therefore in accordance with the laws of the jurisdiction in which
the properties
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are located, their existence and area could be in doubt. In addition, the
Company has mining interests in Mexico and Indonesia which may be affected by
changes in the political and economic environment in these countries. See "Other
Considerations".
EXECUTIVE OFFICERS OF THE COMPANY
The following are the names of the executive officers of the Company, their ages
and positions with the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Chester Ferguson Millar 70 Chairman and Director
Vancouver, British Columbia
Allen Dan Rovig 58 President, Chief Executive Officer and
Reno, Nevada Director
Lorne Barry Anderson 62 Chief Financial Officer and Treasurer
Vancouver, British Columbia
James Richard Billingsley 74 Vice-President, Administration and
Vancouver, British Columbia Director
</TABLE>
CHESTER F. MILLAR is the Chairman of the Board of the Company and has been since
November of 1989. Mr. Millar was President and Chief Executive Officer of the
Company over the period August 1985 to November 1989. Mr. Millar is a pioneer of
the gold heap leaching technique, creating the first heap leach operations in
California, Alaska, Honduras and New Zealand.
A. DAN ROVIG is a director, President and Chief Executive Officer of the Company
and its subsidiaries and has been since November 1989. From September 1988 to
November 1989, Mr. Rovig was President of the Company's subsidiaries. Before
joining the Company in September of 1988 he was, for five years, an executive
officer of British Petroleum Minerals Ltd., including its subsidiaries Amselco
Minerals Inc. and BP Minerals America.
JAMES R. BILLINGSLEY is a director of the Company and Vice-President in charge
of corporate administration, a position which he has held since joining the
Company in August of 1986.
LORNE B. ANDERSON is Chief Financial Officer and Treasurer of the Company, a
position which he has held since joining the Company in May of 1988.
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LOCATION MAP OF THE COMPANY'S OPERATIONS IN THE UNITED STATES
The map shows the southern one-half of California and the part of
Nevada which is adjacent thereto. The location of the operations of Rand Mining
Co. is shown to be in California, lying west of Las Vegas, Nevada and northeast
of Los Angeles, California, being on California highway 195. The location of
the operations of Chemgold Inc. and of the Imperial Project are shown to be in
the southeast part of California, lying west of Yuma, Arizona and east of San
Diego, California.
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OPERATING SUMMARY
GOLD PRODUCTION
The following table describes, for the fiscal year ended December 31, 1996, for
the six months ended December 31, 1995 and for the 1995 and 1994 fiscal years
ended June 30, gold production from the Company's mining operations.
<TABLE>
<CAPTION>
GOLD PRODUCTION
OUNCES OF GOLD PRODUCED FOR FISCAL PERIODS
- --------------------------- --------------------------------------------------------------
SIX MONTHS
ENDED
MINE DECEMBER 31 DECEMBER 31 JUNE 30
- --------------------------- ------------ ------------- -------------------------
1996 1995 1995 1994
------------ ------------- ---------- ---------
<S> <C> <C> <C> <C>
Picacho(1) 34,621 14,434 25,290 23,333
Rand(2) 85,762 29,814 76,272 81,134
Cieneguita(3) 1,208 561 - -
------------ ------------- ---------- ---------
Total Production 121,591 44,809 101,562 104,467
============ ============= ========== =========
Percentage increase (decrease) from 36% (12)%(4) (3)% 34%
prior period (on an annualized basis)
</TABLE>
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(1) 329,776 ounces of gold have been produced from the Picacho Mine since
commencement of production in 1980 to December 31, 1996.
(2) 443,266 ounces of gold have been produced from the Rand Mine since
commencement of production in 1987 to December 31, 1996.
(3) This reflects the Company's 60% interest in total production which
commenced in November 1995.
(4) The percentage decrease has been calculated on an annualized basis.
CASH COST OF PRODUCTION PER OUNCE OF GOLD PRODUCED
The following table describes for the fiscal year ended December 31, 1996 and
for the six months ended December 31, 1995 and for the 1995 and 1994 fiscal
years ended June 30, the cash cost of production related to the Company's mining
operations. Cash cost of production includes mining, processing and direct mine
overhead costs while royalties, selling, general and administrative costs and
depreciation and depletion are excluded.
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CASH COST OF PRODUCTION PER OUNCE OF GOLD PRODUCED
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED
- ----------------------------- ------------------------------------------------------------
SIX MONTHS
DECEMBER 31 ENDED
MINE DECEMBER 31 JUNE 30
- ----------------------------- -------------- ------------- ---------------------
1996 1995 1995 1994
-------------- ------------- ------- --------
<S> <C> <C> <C> <C>
Picacho $162 $162 $216 $218
Rand $214 $316 $197 $184
--- ---- ---- ----
Average For All Mines $200 $265 $202 $192
==== ==== ==== ====
Percentage increase (decrease) from (25)% 31%(1) 5% 3%
prior period
</TABLE>
- ----------------
(1) Comparison is to costs for the year ended June 30, 1995.
ROYALTY COST PER OUNCE OF GOLD PRODUCED
The following table describes, for the fiscal year ended December 31, 1996 and
for the six months ended December 31, 1995 and for the 1995 and 1994 fiscal
years ended June 30, the royalty cost per ounce of gold produced from the
Company's mining operations.
ROYALTY COST PER OUNCE OF GOLD PRODUCED
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED
- ----------------------------- ------------------------------------------------------------
SIX MONTHS
DECEMBER 31 ENDED
MINE DECEMBER 31 JUNE 30
- ----------------------------- -------------- ------------- ---------------------
1996 1995 1995 1994
-------------- ------------- ------- --------
<S> <C> <C> <C> <C>
Picacho $38 $38 $37 $37
Rand $17 $13 $14 $11
--- --- --- ---
Average For All Mines $23 $21 $20 $17
=== === === ===
</TABLE>
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SUMMARY OF RESERVES AND OTHER MINERALIZATION
PROVEN AND PROBABLE MINEABLE RESERVES
The following table describes the Company's proven and probable mineable
reserves as at December 31, 1996, December 31, 1995 and June 30, 1995 and 1994.
Mineable reserves do not reflect losses in the heap leaching process, but do
include allowance for dilution of ore in the mining process. Proven and probable
mineable reserves as at December 31, 1996 for the Rand Mine and the Imperial
Project have been calculated based on a gold price of $400 per ounce and for the
Picacho Mine were calculated based on a gold price of $380 per ounce. For
December 31 and June 30, 1995 they have been calculated based on a gold price of
$380 per ounce at the Picacho Mine and $400 per ounce at the Rand Mine and for
the Imperial Project. For the fiscal year ended June 30, 1994 the reserves were
based on a gold price of $380 for all sites. Reference should be made to the
Glossary on page [5] for a description of terms used herein.
<TABLE>
<CAPTION>
PROVEN AND PROBABLE MINEABLE RESERVES
MINE OR PROJECT FISCAL YEAR ENDED DECEMBER 31, 1996
- ------------------------ ----------------------------------------------
GOLD GRADE (OZ/T)
TONS (AVERAGE)
----------------------------
PROVEN PROBABLE
<S> <C> <C> <C>
RAND MINE 51,066,000 18,542,000 0.020
PICACHO MINE 1,065,500 60,700 0.035
IMPERIAL PROJECT 81,623,700 13,504,500 0.016
----------- ---------- -----
TOTAL(1) 133,755,200 32,107,200 0.018
=========== ========== =====
</TABLE>
(1) The proven and probable reserves as at December 31, 1996 were calculated
by the Company and verified by Mine Reserves Associates, Inc., an entity
which is not affiliated with the Company.
<TABLE>
<CAPTION>
PROVEN AND PROBABLE MINEABLE RESERVES
MINE OR PROJECT SIX MONTHS ENDED DECEMBER 31, 1995
- --------------------- ----------------------------------------
GOLD GRADE
(OZ/T)
TONS (AVERAGE)
-------------------------
PROVEN PROBABLE
<S> <C> <C> <C>
RAND MINE 55,220,400 3,907,700 0.023
PICACHO MINE 2,790,900 174,500 0.039
IMPERIAL PROJECT 73,796,000 16,039,000 0.017
----------- ---------- -----
TOTAL(1) 131,807,300 20,121,200 0.020
=========== ========== =====
</TABLE>
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<TABLE>
<CAPTION>
MINE OR PROJECT FISCAL YEARS ENDED JUNE 30
- ------------------ ------------------------------------------------------------------
1995 1994
----------------------------- ------------------------------------
GOLD GOLD
GRADE GRADE
(OZ/T) (OZ/T)
TONS (AVERAGE) TONS (AVERAGE)
----------------------- -----------------------
PROVEN PROBABLE PROVEN PROBABLE
<S> <C> <C> <C> <C> <C> <C>
RAND MINE 58,009,200 3,907,700 0.0231 48,664,200 5,619,900 0.0228
PICACHO MINE 3,433,900 185,400 0.037 4,405,000 298,600 0.034
IMPERIAL PROJECT 73,796,000 16,039,000 0.017 -- -- --
----------- ---------- ------ ---------- --------- ------
TOTAL 135,239,100 20,132,100 0.020 53,069,200 5,918,500 0.0237
=========== ========== ====== ========== ========= ======
</TABLE>
CONTAINED OUNCES OF GOLD
The following table describes the ounces of gold contained in the Company's
proven and probable mineable reserves as at the fiscal year ended December 31,
1996, the six months ended December 31 1995 and the 1995 and 1994 fiscal years
ended June 30. The ounces of gold which will actually be recovered from these
reserves will depend on actual gold grades encountered and recovery rates(1).
<TABLE>
<CAPTION>
CONTAINED OUNCES OF GOLD
MINE OR PROJECT DECEMBER 31 JUNE 30
- --------------------------- ----------------------------- ----------------------
1996 1995 1995 1994
------------- ------------- --------- ----------
<S> <C> <C> <C> <C>
RAND MINE 1,414,655 1,364,200 1,433,300 1,238,800
PICACHO MINE 39,501 114,578 133,291 158,821
IMPERIAL PROJECT 1,515,545 1,509,004 1,509,004 -
------------- ------------- --------- ----------
TOTALS(1) 2,969,701 2,987,782 3,075,595 1,397,621
============= ============= ========= ==========
Percentage increase (1)% (3)%(2) 120% 2%
(decrease) from
prior period
</TABLE>
(1) Recovery rates experienced at the Company's operating mines from
start-up to December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Mine Recovery Rate
---- -------------
<S> <C>
Picacho 65.0%
Rand 58.2%
</TABLE>
(2) Comparison is to reserves as at June 30, 1995.
<PAGE> 15
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EFFECTS OF DEVELOPMENT DRILLING DURING FISCAL 1996
The effects of mining at each of the Company's mines during the period January
1, 1996 to December 31, 1996 are as follows:
PICACHO MINE - During year 1996, 1,631,600 tons of ore were mined and
58,525 ounces of gold were placed on the heap leach pad at the Picacho
Mine. No exploration drilling was conducted at the Picacho Mine during
fiscal 1996. Gold reserves decreased by 75,077 ounces due to diminution of
the reserves as the mine enters its final year of production.
IMPERIAL PROJECT - During fiscal 1996, a development drilling program
increased the proven and provable mineable reserves for this project by
5,293,200 tons to 95,128,200 tons as at December 31, 1996. The ounces of
contained gold increased by 6,541 ounces to 1,515,545 ounces. The average
grade of ore for the project dropped slightly from 0.017 ounces of gold
per ton to 0.016 ounces of gold per ton as dilution was added to the
reserve base.
RAND MINE - During the year ended December, 1996, 8,840,600 tons of ore
containing 157,955 ounces of gold were mined and placed on the heap leach
pads at Rand Mine and 85,762 ounces of gold were recovered. The
development drilling program during fiscal 1996 added 208,410 ounces of
gold to the gold reserves.
EXPLORATION AND DEVELOPMENT EXPENDITURES
The following table lists the amount of expenditures incurred by the Company on
exploration and mine development activities during the fiscal year ended
December 31, 1996, the six months ended December 31, 1995, and the fiscal years
ended June 30, 1995 and 1994.
<TABLE>
<CAPTION>
EXPLORATION AND DEVELOPMENT EXPENDITURES
FISCAL PERIODS ENDED
- -------------------- --------------------------------------------------------------
SIX MONTHS ENDED
MINE OR PROJECT DECEMBER 31 DECEMBER 31 JUNE 30
- -------------------- ------------ ----------------- ---------------------------
1996 1995 1995 1994
------------ ----------------- ---------- ----------
<S> <C> <C> <C> <C>
Picacho Mine -- -- -- $ 18,580
Rand Mine $ 513,382 $ 238,645 $ 428,190 501,330
Imperial Project 2,010,282 1,205,000 1,379,000 380,000
Miscellaneous
Projects in 191,684 75,000 1,181,051 --
the United States
Mexico(1) 197,891 174,000 977,000 1,705,000
</TABLE>
<PAGE> 16
- 16 -
(1) Approximately $475,000 of the fiscal year June 30, 1995 and $874,000 of the
fiscal year June 30, 1994 expenditures were in respect of exploration
activities not associated with the Cieneguita Property. During the fiscal
year ended December 31, 1996, the Company spent approximately $197,891 on
the La Jojoba property located in the State of Sonora, Mexico, $193,591 of
which was expended on exploration activities and $4,300 of which was
expended on property payments. On March 4, 1996 the Company delivered a
notice of termination to Aquiline in respect of the Company's involvement in
the La Jojoba property.]
OTHER MINERALIZATION
In addition to the proven and probable mineable reserves described above, the
Company has delineated certain other mineralization. Other mineralization has
not been included in the proven and probable mineable reserve estimates because
even though enough drilling has been performed to indicate a sufficient amount
and grade to warrant further exploration or development expenditures, these
resources do not qualify as proven and probable reserves under applicable
definitions and accordingly are not commercially mineable ore bodies and will
not become so until further drilling, metallurgical work and/or other economic
and technical feasibility factors based upon such work are resolved. Other
mineralization has been calculated solely by the Company. Other mineralization
associated with the Company's operating mines and other projects is as follows:
<TABLE>
<CAPTION>
OTHER MINERALIZATION
FISCAL YEAR ENDED DECEMBER 31, 1996
----------------------------------------
GOLD GRADE CONTAINED
MINE OR PROJECT TONS (OZ/T) OUNCES GOLD
- ------------------------- ------------ ----------- -----------
(average)
<S> <C> <C> <C>
RAND MINE 18,685,000 0.021 398,800
PICACHO MINE 16,100 0.037 589
IMPERIAL PROJECT 12,417,000 0.016 200,879
---------- ----- -------
TOTALS 31,118,100 0.019 600,268
========== ===== =======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, 1995
----------------------------------------
GOLD GRADE CONTAINED
MINE OR PROJECT TONS (OZ/T) OUNCES GOLD
- ------------------------- ------------ ----------- -----------
(average)
<S> <C> <C> <C>
RAND MINE 30,877,700 0.018 554,700
PICACHO MINE 21,400 0.047 997
IMPERIAL PROJECT 12,438,000 0.017 213,401
---------- ----- -------
TOTALS 43,337,100 0.018 769,098
========== ===== =======
</TABLE>
<PAGE> 17
- 17 -
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30
---------------------------------------------
MINE OR PROJECT 1995 1994
- ------------------------- --------------------------------- ----------
GOLD CONTAINED CONTAINED
GRADE OUNCES OUNCES
TONS (OZ/T) GOLD GOLD
---------- --------- --------- ----------
(average)
<S> <C> <C> <C> <C>
RAND MINE 30,877,700 0.018 554,700 149,364
PICACHO MINE 25,700 0.046 1,187 3,056
IMPERIAL PROJECT 12,438,000 0.017 213,401 --
---------- ----- ------- -------
TOTAL 43,341,400 0.018 769,288 152,400
========== ===== ======= =======
</TABLE>
PRODUCTION METHOD
The Company uses the heap leach method to extract gold from low-grade ores. This
process involves piling relatively coarse ore on an impervious membrane and
allowing a dissolving fluid (a weak cyanide solution in the case of gold
recovery) to seep down through the pile. The valuable metals are contained in
the leaching solution that drains from the bottom of the pile and is
subsequently collected on carbon and then recovered by electrolysis and
smelting.
Many aspects of ores have a large influence on the leachability or recovery of
the contained precious metals. For example, the presence of certain clays may
hinder the movement of solutions through the pile and the lack of fractures or
porosity in the ore may shield the contained metals from the leaching solution,
making them largely unrecoverable. The best leaching ores are those that are
fractured, oxidized, and free of chemicals that consume the active ingredient in
the leaching solution.
Because of the nature of the ore at the Company's operating mines, crushing is
not needed. As a result, the ore is taken from the pits and unloaded directly
from trucks onto leach piles. Alkalinity of the ore is controlled by adding
modifying reagents. The modifying reagents are used to increase the alkalinity
of the ore, because the weak cyanide leaching solution used in the process is
unstable in anything but an alkaline environment. Sprinklers or drippers are
placed on top of the leach pile and the leaching solution is applied.
Drain pipes which collect the leaching solution are buried in a layer of sand
which protects the underlying impervious liner. The drainage system is usually
segmented to allow parts of the piles to be leached independently. Each segment
also contains a leak detection system so that, if a leak in the liner occurs,
the area of the leak can be isolated. Ore is piled in successive layers on the
leach pad to a total height of several hundred feet. When one layer of the pile
has been adequately leached, another layer of ore is placed on top and the
leaching process is continued.
<PAGE> 18
- 18 -
The gold-bearing solutions drain from the leach pile and are collected in a
pregnant solution pond. From here the solution is pumped through columns of
sand-sized activated carbon and a gold-oxygen-cyanide complex is captured in the
carbon pores. The carbon is removed and backwashed with a hot caustic or
caustic-cyanide solution that releases the gold complex from the carbon. The
solution is then passed through an electrowinning circuit where the gold is
deposited on steel wool batts. The batts are removed and broken down into a
sludge. The sludge or the steel wool plus gold is smelted in a crucible and
poured into a mold forming a dore bar. During the fiscal year ended December 31,
1996, the gold and silver content of the Company's gold product shipped to the
refinery was an average of approximately 78% gold and 12% silver for the gold
precipitates from Picacho Mine, an average of approximately 80% gold and 15%
silver for dore from the Rand Mine.
GOLD SALES
The dore bullion produced by Rand and gold precipitates produced at the Picacho
Mine are shipped to Engelhard Industries West Inc. ("Engelhard") of Anaheim,
California where they are refined by Engelhard to produce 99.99% pure gold.
Engelhard receives a refining and handling charge of approximately $1.60 per
ounce of gold produced.
Refined gold is either delivered against an existing future sales contract or
sold at the spot price for gold 2 days prior to the day of delivery to one of
various precious metal merchants for delivery to the London, U.K. market. See
"Management Discussion and Analysis of Financial Condition and Results of
Operations - Hedging".
OTHER CONSIDERATIONS
GOLD PRICES
The Company's profitability is strongly influenced by the price of gold which
fluctuates widely and which is affected by a number of factors outside of the
Company's control, including expectations for inflation, levels of interest
rates, demand for gold, global or regional political and economic conditions and
production expectations in major gold producing regions. The following table
sets forth for the calendar years indicated the annual high and low gold prices
per troy ounce on the London Bullion Market and Comex in New York.
<PAGE> 19
- 19 -
<TABLE>
<CAPTION>
CALENDAR YEAR LONDON BULLION MARKET COMEX
- --------------------- ----------------------------- -----------------------------
HIGH LOW HIGH LOW
----------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
1996 $414.80 $367.40 $414.70 $368.00
1995 396.95 372.40 395.40 371.20
1994 396.25 369.65 398.00 370.60
1993 406.60 325.20 407.00 325.30
1992 359.60 330.35 359.30 329.70
1991 403.70 343.50 403.20 344.30
1990 423.75 345.85 422.40 346.80
1989 417.15 355.75 418.90 358.10
</TABLE>
The London fixing price of gold on December 31, 1996 was $369.55 per ounce and
on March 13, 1997 the London noon fixing price was $352.90 per ounce.
REGULATORY AND ENVIRONMENTAL FACTORS
The United States mining operations of the Company are subject to extensive
federal, state and local laws and regulations governing exploration development
and production. In addition such mining operations are subject to inspection and
regulation by the Mining, Safety and Health Administration of the Department of
Labor under provisions of the Federal Mine Safety and Health Act of 1977, which
is designed to ensure operational safety and employee health and safety. The
United States government also regulates the environmental impact of the mining
industry through the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act of 1976 and the Federal
Land Policy and Management Act of 1976. In addition to imposing air quality
standards and other pollution controls, the most significant provisions of the
above legislation deal with mineral land reclamation and waste discharges from
mines, mills and further processing operations. The Company is also subject to
extensive health and safety regulations at the state level, as well as
legislation and regulation with respect to the environmental impact of its
mining operations in the State of California.
Compliance with such laws and regulations has increased the costs of planning,
designing, drilling, developing, constructing, operating and closing mining
operations. It is possible that the costs and delays associated with compliance
with such laws and regulations could become such that the Company would not
proceed with the development of a project or continue to operate a mine.
Standard open-pit mining techniques have been established to meet reclamation
requirements imposed by regulatory authorities. Such authorities generally
require a mining company to return sites to safely-contoured slopes, but usually
do not require backfilling of excavated areas. Heap leaching is done with a weak
cyanide solution held within a closed circuit, which includes the leach pads and
surface holding ponds. Due to the impervious qualities of the heap leach pad and
the closed nature of the leaching system, the Company believes that its
processing operations have a modest effect on the environment.
<PAGE> 20
- 20 -
Though the Company believes that its mining operations are in compliance with
all present health, safety and environmental rules and regulations, there is
always some uncertainty associated with such due to the complexity and
application of such rules and regulations. The Company does not anticipate that
compliance with existing environmental laws and regulations will have a material
impact on its earnings in the foreseeable future however, possible future
health, safety and environmental legislation, regulations and actions could
cause additional expense, capital expenditures, restrictions and delays in the
activities of the Company, the extent of which cannot be predicted.
During the three years ended June 30, 1995, the six months ended December 31,
1995 and the year ended December 31, 1996, the Company made no material capital
expenditures with respect to environmental compliance save and except as
required by permits for construction at its mining operations and for
reclamation being carried out concurrently with mining operations and estimates
that it will make no material capital expenditures in this area during the
fiscal year ending December 31, 1997. During the year ended December 31, 1996
the Company had four small reportable releases or spills at its operations. In
all cases the appropriate authorities were notified and clean-up was undertaken
immediately. Measures, including procedural changes and education were taken to
prevent re-occurrence of the incidents. No action by the authorities is expected
in respect of either occurrence. See "Insurance and Mining Risks".
The Company's unpatented mining claims on federal lands are currently subject to
procedures established by the U.S. General Mining Law of 1872. Legislation has
been introduced in prior and current sessions of the U.S. Congress to make
significant revisions to the U.S. Mining Laws including strict new environmental
protection standards and conditions, additional reclamation requirements and
extensive new procedural steps which would likely result in delays in permitting
and which could have a material adverse effect on the Company's ability to
develop minerals on federal lands. The proposed revisions would also impose
royalties on gold production from unpatented mining claims. Although legislation
has not been enacted, attempts to amend these laws can be expected to continue.
The extent of the changes that actually will be enacted and their potential
impact on the Company cannot be predicted. See "Management Discussion and
Analysis of Financial Condition and Results of Operations - Regulatory,
Environmental and Other Considerations".
RECLAMATION
The Company generally is required to mitigate long-term environmental impacts by
stabilizing, contouring, reshaping and revegetating various portions of a site
once mining and processing are completed.
Reclamation efforts are conducted in accordance with detailed plans which have
been reviewed and approved by the appropriate regulatory agencies. Whenever
feasible, reclamation is conducted concurrently with mining.
<PAGE> 21
- 21 -
The following table which describes the Company's reserve for reclamation costs
indicates that reclamation expenditures, for the past three and one-half years,
have not been material.
<TABLE>
<CAPTION>
RESERVE FOR RECLAMATION COSTS ($000)
FISCAL PERIODS ENDED
---------------------------------------------------
SIX MONTHS
DECEMBER 31 ENDED
DECEMBER 31 JUNE 30
-------------- -------------- -------------------
1996 1995 1995 1994
-------------- -------------- --------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period $1,163 $1,048 $ 851 $627
Increase in reserve based on 433
units of production 129 248 270
------ ------ ------ ----
1,596 1,177 1,099 897
Expenditures for reclamation 18 14 51 46
------ ------ ------ ----
Balance at end of period $1,578 $1,163 $1,048 $851
====== ====== ====== ====
</TABLE>
CALCULATION OF RESERVES
There are numerous uncertainties inherent in estimating proven and probable
mineable reserves including many factors beyond the control of the Company. The
estimation of reserves is in part a subjective process and the accuracy of any
reserve estimate is a function of the quality of available data and of
engineering, metallurgical and geological interpretation and judgment. Results
of drilling, testing and production subsequent to the date of an estimate may
justify revision of such estimates. Assumptions about prices are subject to
great uncertainty and prices of gold and silver have fluctuated widely in recent
years. Should any significant reduction in reserves occur, material write-downs
of the Company's investment in mining properties and/or increased amortization
charges may be required.
INSURANCE AND MINING RISKS
Mining operations are generally subject to a number of risks and hazards,
including environmental hazards, industrial accidents, labour disputes,
encountering unusual or unexpected geologic conditions, slope failures, changes
in the regulatory environment and natural phenomena such as inclement weather
conditions, floods, blizzards, earthquakes and rock slides.
The open-pit mining operations which the Company carries out are generally
subject to such risks, with the primary risk being slope failure. The Company
has not experienced any slope failure that has materially affected its open-pit
mines however, no assurance can be given that such will not occur. A major slope
failure could materially reduce production from the affected
<PAGE> 22
- 22 -
area for some time, although for large open-pits, because mining is done in
phases whereby pit walls are pushed back to final pit boundaries, a slope
failure in one area would not necessarily affect mining in another area or
overall pit design.
The Company carries insurance against property damage, including boiler and
machinery insurance, and also comprehensive general liability insurance,
including special liability policies, applicable to motor vehicles. It is also
insured against dishonesty and gold and silver bullion thefts, as well as losses
of goods in transit. The property damage and boiler and machinery insurance
policies include coverage for business interruption, resulting from an insured
loss, subject to a two-day waiting period and a maximum indemnification period
of one year. See "Item 2 - Properties" and "Title Matters" below for information
pertaining to title insurance held on certain of the Company's mining
properties.
The Company is specifically excluded by its insurers from coverage against
environmental pollution risks. The Company believes that it has taken adequate
precautions to minimize the risk of environmental pollution however, there is
some risk that the weak cyanide solution applied to heaps may leak into the
adjacent land surface which could result in the Company's operations for the
affected heap leach pad being shut down. See "Other Considerations Regulatory
and Environmental Factors" and "Management Discussion and Analysis of Financial
Condition and Results of Operations - Regulatory, Environmental and Other Risk
Factors".
TITLE MATTERS
Title to mining properties in the western United States involves certain
inherent risks due to the impossibility of determining the validity of
unpatented claims from real estate records, as well as the potential for
problems arising from the frequently ambiguous conveyancing history
characteristic of many mining properties. Although the Company believes it
conducted reasonable investigations (in accordance with standard mining industry
practice) of the validity of ownership of and the ability of its sellers to
transfer mining claims and other interests to it, there can be no assurance that
it holds good and marketable title to all of its U.S. properties. The Company
has conducted limited reviews of title and obtained representations regarding
ownership from sellers. The Company's practice is, if possible, to obtain title
insurance with respect to its major producing properties. This insurance however
is not sufficient to cover loss of investment or of future profits. In addition,
certain of the Company's properties have not been surveyed and therefore in
accordance with the laws of the jurisdiction in which the properties are
located, their existence and area could be in doubt.
PERMITTING
The Company is seeking governmental permits for certain of its development and
mining projects. Obtaining such permits is a complex and time consuming process
involving numerous federal, state and local agencies. The time involved and
success in obtaining such permits is contingent upon many variables not within
the Company's control. The failure to obtain such
<PAGE> 23
- 23 -
permits could have a material adverse effect on the Company's business,
operations and prospects. See "Item 2 - Properties".
SUPPLIES, UTILITIES AND TRANSPORTATION
The principal supplies needed for the operation of the Company's mines are
explosives, diesel fuel, chemical reagents (including cyanide, lime and sodium
hydroxide), equipment parts and lubricants.
Power is supplied to the Company's mines by power companies or diesel
generators. Each mine has access to adequate water.
Each of the Company's mines has good road access by either paved or gravel roads
from state highways.
COMPETITION
The Company competes with other mining companies for the acquisition of mining
claims and leases. There is significant and increasing competition for a limited
number of gold acquisition opportunities both within the United States and world
wide and as a result of this competition, the Company may be unable to acquire
attractive gold mining properties on terms acceptable to it.
POLITICAL AND ECONOMIC CONDITIONS IN MEXICO AND INDONESIA
The Company has mining interests in Mexico and Indonesia and accordingly the
Company may be affected by any political or economic instability which arises in
these countries. The risks include, but are not limited to: terrorism, military
repression, expropriation, extreme fluctuations in currency exchange rates and
high rates of inflation. Also, changes in mining or investment policies or
shifts in political attitude in Mexico or Indonesia may adversely affect the
Company's business in such countries. In addition, the Company's operations in
Mexico and Indonesia will be affected in varying degrees by government
regulations with respect to production, price controls, export controls, income
taxes, expropriation of property, maintenance of mining claims and concessions,
environmental legislation, land use policies, land claims of local people and
water use and mine safety. The effect of these factors on the Company's cannot
be predicted.
EMPLOYEES
At December 31, 1996, the Company employed approximately 208 persons located as
follows:
<PAGE> 24
- 24 -
<TABLE>
<CAPTION>
LOCATION NUMBER
- ------------------------------------------------ ------------
<S> <C>
Imperial Project 5
Picacho Mine 45
Rand Mine 137
Operations office staff (Reno, N.V.) 14
Corporate staff (Vancouver, B.C.) 5
Mexico 2
------------
208
============
</TABLE>
The Company's Rand Mine is unionized. Contract negotiations with the
International Longshoremen's & Warehousemen's Union have resulted in a three
year agreement, expiring May 1997, which was ratified by the hourly-rated
personnel at Rand on May 4, 1994. Negotiations to renew this agreement started
on March 11, 1997.
The Picacho Mine is non-union.
The Company competes with other mining companies in connection with the
recruitment and retention of qualified employees. At the present time a
sufficient supply of qualified workers is available for operations at each of
the Picacho and Rand Mines. The continuation of such supply depends upon a
number of factors, including, principally, the demand occasioned by other
projects. The Company provides its employees with a competitive compensation
package and a comprehensive benefits program.
ITEM 2 - PROPERTIES
PICACHO MINE, CALIFORNIA
PROPERTY AND MATERIAL AGREEMENTS
Chemgold, Inc. ("Chemgold"), which is a wholly-owned subsidiary of the Company,
holds a leasehold interest (the "Picacho Lease") in 31 contiguous patented
mining claims (approximately 600 acres) and 100 unpatented lode mining claims
(approximately 1,650 acres) located in Imperial County, California,
approximately 18 miles northwest of Yuma, Arizona. Access to the property is by
gravel road from Yuma. The Picacho Lease is between Chemgold and Picacho
Development Corp., a California company. The Company's interest in the patented
portion of the mineral claims associated with the Picacho Lease is insured in
the amount of $6,000,000 under a title insurance policy.
The Picacho Lease has a term of 20 years from September 24, 1979 and contains a
right of renewal for a further 20 years. The lease provides for payment of a
royalty of 10% of net
<PAGE> 25
- 25 -
smelter returns received by the Company from the sale of products mined from the
property, subject to a variable minimum annual royalty of $30,000 based on a
London Metal Exchange price for gold of $200 per ounce. The minimum royalty
increases or decreases by $1,000 per year for each $5 per ounce change in the
price of gold. During the fiscal year ended December 31, 1996 royalty expense
under the Picacho Lease amounted to $1,319,524.
The Picacho Lease may be terminated by Picacho Development Corp. if Chemgold
fails to pay the royalty and other sums payable under the lease, or to perform
its obligations thereunder or to perform significant mining work upon the
mineral claims which are the subject of the lease for three consecutive years.
The Picacho Lease will also terminate if Chemgold files a petition in
bankruptcy, if a receiver, trustee or liquidator of Chemgold is appointed, if
Chemgold's interest in the Picacho Lease is attached in any proceeding or if the
net minimum royalty and earned royalty paid to Picacho Development Corp. does
not exceed the minimum royalty payable in each of two consecutive calendar
years. Chemgold may terminate the Picacho Lease and all its obligations not yet
accrued thereunder on 90 days notice.
PRODUCTION EQUIPMENT AND POWER
During the fiscal year ended June 30, 1991 the Company leased 3 new 85 ton "Haul
Pack" haul trucks for the Picacho Mine together with a new Caterpillar 992c
front end loader and other equipment necessary to carry out mining operations.
Subsequent to that time new equipment has been acquired, as required, in order
to maintain planned production levels at the Picacho Mine. Current equipment
used at the Picacho Mine includes five 85 ton Haulpak trucks plus adequate
loading equipment. The equipment is maintained to industry standards in an
attempt to achieve the maximum number of available hours of use from the
equipment. Equipment expenditures of $758,000 were made during the fiscal year
ended December 31, 1996 to purchase equipment which had been on lease.
Power at the Picacho Mine site is provided by on-site generators.
HISTORY
The Picacho Mine was first mined in the late nineteenth century, initially by
placer mining methods and later as an underground lode mine. By 1911 when mining
activity ceased, underground mining had produced approximately 158,000 ounces of
gold from ore averaging 0.25 oz/t gold.
Development work conducted to date by the Company on the Picacho Mine consists
of drilling over 900 drill holes, constructing roads connecting the workings,
levelling and compacting of 107 acres for leach pads, establishing four major
open pits, installing five miles of water lines from the Colorado River to the
property and constructing an office, shop, laboratory and processing plant. To
December 31, 1996 the Company had expended an aggregate of $23,180,000, net of
written-off assets, on acquisition, exploration, development, and equipment at
the Picacho Mine and had extracted 329,776 ounces of gold.
<PAGE> 26
- 26 -
GEOLOGY
The ore at the Picacho Mine is located in a basin of what is thought to be
Precambrian gneiss surrounded by Tertiary lava flows and Quaternary gravels. Two
types of gold mineralization have been found at the Picacho Mine. The first type
of gold mineralization (mined by underground methods in the early years of
development of the property) is found in high grade structural zones along or
near the contact of the Tertiary volcanics with the Precambrian gneiss. The
second type of gold mineralization (currently being mined) consists of gold
disseminated throughout the altered and structurally complex Precambrian gneiss.
To date, four near-surface areas (the Dulcina-Venus-Mars, Apache, San George and
Diablo ore bodies) together with a deeper ore body (the "Dulcina Extension" and
the "East Dulcina") having reserves of this second type of ore have been
delineated.
MINING OPERATIONS AND RESERVES
Mining at the Picacho Mine is by open-pit methods and ore is processed by the
heap leach method. Production by the Company commenced in May of 1980 and to
date the four near-surface ore bodies delineated at the Picacho Mine have been
mined out. Production is currently occurring from the Dulcina Extension ore
body.
Proven and probable mineable reserves for the Picacho Mine have been calculated
as at December 31, 1996 within preliminary pit outlines, using a recovery rate
of 68.8%, a cut-off grade of 0.010 ounces of gold per ton and a gold price of
$380 per ounce, at 1,065,500 tons of proven mineable reserves grading 0.034
ounces per ton and 60,700 tons of probable reserves grading 0.059 ounces of gold
per ton having a combined stripping ratio of 0.2:1. It is expected that mining
of the Dulcina Extension ore body, which is the last known ore body on the
property, will continue into the fourth quarter of 1997 before reserves are
exhausted.
PERMITTING
The Company has obtained all permits and approvals required to enable it to
carry on its mining activities at the Picacho Mine until 65,500,000 tons of ore
and waste have been mined. The Conditional Use Permit issued by Imperial County
under the California Surface Mining and Reclamation Act of 1975 expires in 2006.
The operating permits issued by the California Regional Water Control Board
allows the processing of ore within the two currently permitted leaching sites.
No new permits will be required in order to mine and leach the total proven and
probable reserves of the Picacho Mine known to date. To December 31, 1996,
15,792,150 tons of ore and 39,880,837 tons of waste have been processed. Three
completely processed ore heaps have been leached out and neutralized to
California State requirements and reclamation of these sites is proceeding
according to plan. A fourth heap site has been rinsed and is being tested for
final neutralization and the fifth ore heap located on the property, which was
completed in the fiscal year ended June 30, 1995, is sufficient to handle
production for the remainder of the mine life.
<PAGE> 27
- 27 -
PRODUCTION
Certain key operating statistics for the Picacho Mine are set forth in the
following table:
<TABLE>
<CAPTION>
PICACHO MINE PRODUCTION RESULTS
FISCAL PERIODS ENDED
------------------------------------------------------------------
SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31 JUNE 30
---------------- -------------- --------------------------------
1996 1995 1995 1994(1)
---------------- -------------- --------------------------------
<S> <C> <C> <C> <C>
Ore mined (tons) 1,631,600 670,700 1,627,900 1,619,200
Waste mined (tons) 2,508,600 3,124,100 7,686,700 6,198,100
Stripping ratio(2) 1.54:1 4.7:1 4.7:1 3.8:1
Average gold assay (ounces/ton) 0.036 0.033 0.024 0.031
Ounces of gold produced 34,621 14,434 25,270 23,333
Cash cost of production per
ounce(3) $ 162 $ 162 $ 216 $ 218
- ----------
</TABLE>
(1) During the fiscal year ended June 30, 1994 much of the ore mined was from a
chloritic zone in the East Dulcina Pit which yielded a lower than average
recovery rate. Mining of this zone was completed by June 30, 1994 and during
the fiscal year ended June 30, 1995, the six months ended December 31, 1995
and the fiscal year ended December 31, 1996, more normal ore from the
Dulcina Extension Pit was placed on the leach pad.
(2) Ratio of waste mined to ore mined.
(3) Cash cost of production includes mining, processing and direct mine overhead
costs while royalties, selling, general and administrative costs and
depreciation and depletion are excluded.
RAND MINING COMPANY
PROPERTY AND MATERIAL AGREEMENTS
Rand, a wholly-owned subsidiary of the Company, operates the Rand Mine which is
comprised of 3 ore bodies: the Yellow Aster Pit, the Baltic Pit and the Lamont
Pit and three leach pads and related processing facilities: the Yellow Aster
Facilities, the Baltic Facilities and the Rand Facilities. In addition, the Rand
Mine has old mine dump material that contains recoverable gold which is called
the Descarga Deposit.
The operations of Rand were previously categorized separately as operations of
the Yellow Aster Mine and of the Baltic Mine, however, due to the commingling of
assets of such mines and the sharing of services and equipment between them, the
operations of the Yellow Aster Mine and
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the Baltic Mine have , since October, 1995, been combined to constitute the Rand
Mine, which encompasses all of the operations and assets of the Yellow Aster and
Baltic Mines.
The Rand Mine is located in the northeast end of the Rand Mountains in Kern
County, California, approximately 100 miles northeast of Los Angeles. Highway
395 passes one-half mile east of the property and a branch line of the Southern
Pacific Railroad passes seven miles to the north of the property.
The operations at the Rand Mine are conducted on property consisting of a total
of 92 patented mining claims and 381 unpatented lode and placer mining claims.
Of these, Rand owns all or a portion of 10 of the patented and 254 of the
unpatented mining claims. The balance of the patented and unpatented mining
claims are held under lease. 32 additional patented mining claims, total 516
acres were quit-claimed to the State of California in 1996 to meet endangered
species permit habitat compensation requirements.
Rand holds a lease (the "Yellow Aster Lease") in respect of the patented and
certain of the unpatented mining claims covering the Yellow Aster Pit and the
Descarga Deposit. The Yellow Aster Lease was acquired from the War Eagle Joint
Venture on August 10, 1984 for aggregate consideration of $6,450,000. Rand's
interest in the patented portion of the mining claims comprising the Yellow
Aster Mine is insured in the amount of $10,000,000 under a title insurance
policy.
Under the Yellow Aster Lease Rand is required to pay to Yellow Aster Mining and
Milling Company a production royalty of 6% of net returns less certain costs
from the sale of ore produced from the mining claims which are subject to the
Yellow Aster Lease, subject to a minimum monthly royalty of $4,000. The Yellow
Aster Lease will continue for as long as the royalty is paid.
On May 18, 1990 Rand exercised an option agreement to purchase from Echo Bay
Mines Ltd., for $5,000,000 plus a 1% net smelter return royalty, a parcel of
land (the "Baltic Lands") immediately adjacent to the lands comprised in the
Yellow Aster Lease. On June 29, 1990 the acquired property was assigned to GGX
and on January 1, 1991 GGX leased the property to Rand. GGX purchased the 1% net
smelter return royalty for $300,000 on September 28, 1990.
By an agreement effective as of August 31, 1990 with DRX, Inc., a Delaware
corporation ("DRX") and Westland Minerals Exploration Co. ("Westland"), a
Colorado corporation, (DRX and Westland collectively being the "Vendors"), GGX
agreed to acquire a 1-1/2% net smelter return interest held by the Vendors in
respect of mineral production from the Baltic Lands. The consideration paid by
GGX for the interest was $412,500. The Baltic Lands are subject to various
underlying royalty interests which average 1.5% and minimum annual property
payments which range from $153,000 to $293,000. See note 4(b)(ii) to the
consolidated financial statements.
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During the fiscal year ended December 31, 1996, royalty expense at the Rand Mine
amounted to $1,472,369.
By an agreement effective July 2, 1991 with the Vendors, the Company purchased
54 unpatented lode mining claims and one leasehold mineral interest for $200,000
and the grant to Westland of a 1.5% net smelter return interest in the purchased
lands. On September 30, 1992 the Company purchased an additional 16 unpatented
lode mining claims from Westland for $32,000. These interests form part of the
Rand Mine and though they have limited exploration potential, expand the area of
operations for the Rand Mine and eliminate any potential claim boundary disputes
between the Company and Westland concerning certain of the mineral claims
related to the Rand Mine. By agreement dated April 22, 1993 all other mineral
claims of DRX and Westland which formed part of an exploration agreement between
GGX and Westland dated June 29, 1991 were purchased for $75,000, and the 1.5%
net smelter return royalty was purchased by Rand for $5,000.
PRODUCTION EQUIPMENT AND POWER
During 1996, a fleet of 5 new 190 ton haulage trucks, one new 27 cubic yard
hydraulic shovel, one used 16 cubic yard shovel and other equipment necessary
for mining at the Rand Mine were purchased. The older fleet of 85 and 100 ton
trucks was retired, except that one of the 100 ton trucks was converted to a
water truck, and one has been retained. The two 14 cubic yard loaders were
converted to duty as back-up loaders. Total equipment expenditure during 1996
amounted to $13,312,449. All equipment is maintained to industry standards in an
attempt to achieve the maximum number of available hours of use from the
equipment.
Rand draws power from Southern California Edison, a California utilities
corporation.
HISTORY
According to the records of the U.S. Bureau of Mines, there was production from
certain parts of the Rand Mine from underground and open-pit mining operations
during the period 1897 to 1963, during which 597,000 ounces of gold and 155,000
ounces of silver were produced from 4,227,600 tons of ore mined. In addition,
from 1938 to the closing of the mine in the early 1940's, reprocessing of the
mine dumps and tailings produced 46,698 ounces of gold and 16,381 ounces of
silver from 2,217,607 tons of material.
Rand commenced production on the mineral claims associated with the Yellow Aster
Lease in January of 1987. As at December 31, 1996, Rand had expended an
aggregate of $77,592,000, net of written-off assets, on acquisition,
exploration, development and equipment at the Rand Mine and had extracted
443,266 ounces of gold.
<PAGE> 30
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GEOLOGY
The mining rights associated with the Yellow Aster Lease initially consisted of
three mineable deposits: the Yellow Aster deposit, ("Yellow Aster Pit"), the
Descarga deposit ("Descarga Deposit") and the initial Lamont deposit, ("Initial
Lamont Deposit").
The Initial Lamont Deposit has been mined out. The ore located in the Yellow
Aster Pit is contained in fractured Precambrian schists and Mesozoic intrusives.
This ore lies between a series of east-west striking, north dipping faults;
northwest striking, east dipping faults on the east, and a northeast striking,
west dipping fault on the west. Between the major faults the ground is severely
fractured and the rock is highly to moderately oxidized. Mineralized solutions
migrated along these structures and disseminated out into the fractured rock.
The Descarga Deposit consists of mine dump material from earlier operations
carried out on the Property.
Two ore bodies lie within the bounds of the Baltic Lands: the Baltic deposit
("Baltic Pit") and the Lamont deposit ("Lamont Pit"), which is adjacent to the
Initial Lamont Deposit. Gold mineralization located in the Baltic Pit is hosted
by the Rand Schist and controlled by two intersecting fault structures. The
brecciated rock within the structures, the north striking, east dipping Baltic
fault and the east striking, north dipping Lamont fault, contains most of the
mineralization and controls the depth of mineral oxidation. The primary mineral
resource is contained within the oxidized and mixed oxide-nonoxide zones of the
deposit.
Gold mineralization located in the Lamont Pit is hosted by the Rand Schist and
is controlled by the east striking, north dipping Lamont fault structure and
associated shear system. The brecciated rock within this structure contains most
of the mineralization and also controls the depth of mineral oxidation. The
Lamont structure is affected by several north striking, post mineralization
faults that have relocated mineralized blocks along the Lamont structure. The
primary mineral resource is contained within the oxidized and mixed
oxide-nonoxide zones of the deposit.
MINING OPERATIONS AND RESERVES
Mining at the Rand Mine is by open-pit methods and ore is processed by the heap
leach method. Production commenced from the Descarga Deposit and Initial Lamont
Deposit in January of 1987 utilizing one leach pad and a recovery plant.
Processing of material from the Descarga Deposit was suspended in 1989 to
concentrate on mining the Initial Lamont Deposit which was mined out by the
fourth quarter of the fiscal year ended June 30, 1990.
Mining from the Yellow Aster Pit started in May of 1990 employing an additional
recovery plant and leach pad (the "Yellow Aster Facilities"). The heap leach pad
of these facilities reached its maximum capacity in February 1996. The remaining
ore from the Yellow Aster Pit will be processed at the Rand Facilities (see
"Rand Pad and Process Facilities" below). The Yellow
<PAGE> 31
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Aster Pit has a projected mine life of 9 years and is expected to operate at a
63% recovery rate for gold.
323 reverse circulation drill holes totalling 159,453 feet, and 331 rotary drill
holes totalling 47,021 feet have been used to define the reserves of the Yellow
Aster Pit where mineable proven and probable reserves have been calculated as at
December 31, 1996 within preliminary pit outlines, using a computerized variable
recovery block model, a cut-off grade of 0.005 ounces of recoverable gold per
ton and a gold price of $400 per ounce, at 35,560,000 tons of proven reserves
grading 0.021 ounces of gold per ton and 17,973,000 tons of probable reserves
grading 0.017 ounces of gold per ton, having a combined stripping ratio of
1.87:1.
A recovery plant and a leach pad (the "Baltic Facilities") have been built to
primarily process ore from the Baltic Pit. Production commenced from the Baltic
Pit in August of 1993 and production commenced from the Lamont Pit in September,
1995. Initially ore from the Lamont Pit was processed by the Baltic Facilities
however, by December 1995 the ore was being processed by the Rand Facilities
(see "Rand Pad and Process Facilities" below). An economic analysis conducted in
1996 indicated that mining and processing of Yellow Aster ore was more
profitable than the Baltic and Lamont ore. Therefore, mining in the Baltic and
Lamont pits has been temporarily suspended. In addition, metallurgical studies
of unoxidized ore in such pits is on going to develop an enhanced processing
method for such ore.
787 drill holes, including 588 reverse circulation drill holes and 199 air track
drill holes, totalling 220,097 feet have been used to define the reserves of the
Baltic and Lamont Pits.
As at December 31, 1996, proven and probable mineable reserves for the Baltic
Pit were calculated within preliminary pit designs at 2,417,000 tons of proven
reserves and 16,000 tons of probable reserves, having a stripping ratio of
0.64:1 and grading 0.036 ounces of gold per ton, using recovery rates of 70% for
oxide ore, 25% for mixed ore and 10% for unoxidized ore, a cut-off grade of
0.008 ounces of gold per ton for oxide ore, 0.015 ounces per ton for mixed ore
and 0.035 ounces per ton for unoxidized ore and a gold price of $400 per ounce.
As at December 31, 1996, proven and probable mineable reserves for the Lamont
Pit were calculated within preliminary pit designs at 13,089,000 tons of proven
reserves and 553,000 tons of probable reserves, having a stripping ratio of
1.65:1 and grading 0.020 ounces of gold per ton, using a computerized variable
recovery block model, a cut-off grade of 0.005 ounces of recoverable gold per
ton and a gold price of $400 per ounce.
PERMITTING
All permits required to allow for the mining and processing of the proven and
probable mineable ore reserves of the Yellow Aster, Baltic and Lamont Pits have
been obtained and are in good standing. These permits provide for continued
mining from these pits, development of a new Lamont Valley waste rock stockpile
and transport of ore from the Pits to the newly permitted
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Rand Facilities (see "Rand Pad and Process Facilities" below). These permits
include an approved reclamation plan for all the above facilities.
RAND PAD AND PROCESS FACILITIES (FORMERLY THE RAND PROJECT)
As at December 31, 1996 all permits necessary for the development of the Rand
Pad and Process Facilities (the "Rand Facilities") had been received. The
permits allow for the mining of 60,000,000 tons of additional ore through
expansion of operations at the Yellow Aster, Baltic and Lamont Pits and the
development of a satellite mine, the development of waste rock stockpile
facilities sufficient for the storage of 72,000,000 tons of waste in the West
Valley and Lamont Valley, the construction of a 60,000,000 ton capacity heap
leach pad and plant in the Lamont Valley and provisions for the installation of
the ancillary and infrastructure services required by these facilities. The
permits also allow for an additional 5,000,000 tons of ore to be placed on the
Baltic heap leach pad and the construction of a 6,000,000 ton capacity heap
leach pad and related processing facility in the area of the Descarga Deposit.
These permits limit production levels at the Rand Mine to a life-of-mine average
amounting to 18,250,000 total tons per year.
The permits include certification of the Environmental Impact
Report/Environmental Impact Statement, approval of the Reclamation Plan,
approval of the BLM Plan of Operations, issue of the Kern County, California,
Conditional Use Permit, approval of the California Regional Water Quality
Control Board Report of Waste Discharge, receipt of the Kern County Air
Pollution Control District Authorities to Construct, completion of the U.S. Fish
and Wildlife Service's Section 7 endangered species consultation, receipt of the
California Department of Fish and Game's Section 2081 endangered species permits
and management agreements, and a U.S. Army Corps of Engineers Section 404
Nationwide Fill Permit.
Phase I of the Rand Facilities comprised of heap leach pad and processing
facility construction was completed in January, 1996 and the first gold was
recovered from these facilities during February 1996.
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PRODUCTION
Certain key operating statistics for the Rand Mine are set forth in the
following table:
<TABLE>
<CAPTION>
RAND MINE PRODUCTION RESULTS
FISCAL PERIODS ENDED
-------------------------------------------------------------------------------
SIX MONTHS
DECEMBER 31 ENDED JUNE 30
DECEMBER 31
------------------ ------------------ -------------------------------
1996 1995 1995 1994
<S> <C> <C> <C> <C>
Ore mined (tons) 8,840,600 3,224,600 5,475,587 6,886,768
Waste mined (tons) 6,260,500 3,789,500 8,179,832 9,533,026
Stripping ratio(1) 0.71 1.18:1 1.50:1 1.38:1
Average gold assay (ounces/ton) 0.018 0.025 0.019 0.020
Ounces of gold produced 85,762 29,814(2) 76,272 81,134
Cash cost of production per $ 214 $ 316 $ 197 $184
ounce(3)
- --------------------
</TABLE>
(1) Ratio of waste mined to ore mined.
(2) During the fiscal year ended December 31, 1996, the unoxidized and mixed
oxide-nonoxide ore from the Baltic Pit which was placed on the leach pad
yielded a lower than expected recovery rate. Mining of this type of ore
has been suspended pending further metallurgical studies. See "Management
Discussion and Analysis of Financial Condition and Results of Operations -
Production".
(3) Cash cost of production includes mining, processing and direct mine
overhead costs while royalties, selling, general and administrative costs
and depreciation and depletion are excluded.
OTHER LANDS
ALTO MINE, CALIFORNIA
The reclamation of the Alto Mine has been completed and the Company has been
released from all bonding requirements. Full control of the property has
reverted to the owner.
IMPERIAL PROJECT, CALIFORNIA
MATERIAL AGREEMENTS
Pursuant to a Joint Venture Agreement dated November 24, 1987, GGX, a
wholly-owned subsidiary of the Company, held a 65% interest and Imperial Gold
Corporation ("Imperial Gold"), a wholly-owned subsidiary of Arizona Star
Resources Corp., held a 35% interest in 567 unpatented mining claims (the
"Imperial County Claims") covering approximately 10,800 acres in eastern
Imperial County, California. Pursuant to a purchase agreement dated February 18,
1994, GGX acquired Imperial Gold's 35% interest in the Imperial County Claims by
paying $1,000,000 in cash and assigning to Imperial Gold its 15% share interest
in Idaho Gold
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Corporation, which had a book value of $917,000 and a 1.5% net smelter return
interest in the Imperial County Claims. The Company has since expanded its land
position at the Imperial Project to 610 claims covering approximately 11,250
acres. During fiscal 1996, a title opinion was issued on the claims encompassing
the project showing the Company has valid claim to the land covering the
Imperial Project. To date, approximately $9,601,000 has been expended on
acquisition and exploration of the Imperial Project.
GEOLOGY
The Imperial Project lies to the north and west of the Picacho Mine and south
and east of Santa Fe Pacific Gold's Mesquite Mine.
The geology of the Imperial Project consists of Mesozoic age gneissic and schist
units unconformably overlain by Tertiary basalts and Quaternary gravels. The
basal gneissic units are the upper part of a deeper Chocolate Mountain thrust
system which moved northeastward over the Orocopia Schist. The immediate project
area is structurally characterized as a northwest trending thrust sheet of
gneissic rocks cut by a network of curved faults (flower structures). The
gneissic units are in part thrust over the footwall metamorphic and sedimentary
units. Northwest trending high angle step faults displace mineralization to the
south and truncate the deposit to the east and west.
Major structural features appear to have acted as conduits, forming the geologic
setting for Imperial Project mineralization. Mineralization occurs primarily in
thick quartz-biotite gneissic and sericitic units. The basic rock-ore types are
biotite gneiss and sericite gneiss with gradational schistose sequences. The
biotite gneiss package occurs across the entire project area while sericite rich
units are more prevalent in the eastern portion of the deposit.
Primary gold mineralization occurs within hematitic and limonitic altered
breccias, microfractures and gouge zones developed in the host biotite and
sericite ore types. Minor quartz veining, very fine grained pyrite pseudomorphs
and silicified zones are also common.
Density of fractures, extent of the red-brown to yellow hematitic/limonitic
coatings and pyrite pseudomorphs within the host units are notable mineralized
features. Logging of core and cuttings from the project site indicate no fresh
pyrite or sulfide mineralization is present due to the oxidized state exhibited
throughout the deposit.
Sporadic mineralization is also noted along the gravel and volcanic contact and
in fault structures through the brecciated volcanic units. Low grade
mineralization also occurs within the overlying gravels as thin layers eroded
from exposed mineralized gneissic units.
<PAGE> 35
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RESERVES
Approximately 178,690 feet of reverse circulation and 4,240 feet of core
drilling have been completed over several areas on the Imperial Project.
Additionally, exploration programs completed to date consist of geologic mapping
and geochemical and geophysical surveys.
Drilling, geological interpretation and mine evaluation studies have resulted in
the delineation of a proven and probable mineable ore resource for the Imperial
Project as at December 31, 1996 within preliminary pit outlines, using a 73%
recovery rate, a cut-off grade of 0.007 ounces of gold per ton and a gold price
of $400 per ounce, at 81,623,700 tons of proven reserves grading 0.016 ounces
per ton and 13,504,500 tons of probable reserves grading 0.014 ounces of gold
per ton, having a combined stripping ratio of 2.64:1.
FUTURE OPERATIONS
A Final Feasibility Study completed on the Imperial Project in 1996 showed that
the project was financially sound and would provide a positive return on
investment. On May 2, 1996, the Board of Directors approved the project and
directed the Company to proceed with permitting, detailed engineering and
procurement. It is anticipated that the permits will be acquired by the last
quarter of fiscal 1997 with construction proceeding shortly thereafter.
The Company anticipates spending $47.6 million in 1997 in initial capital to
bring the project into operation. Initial gold production is anticipated in the
first quarter of fiscal 1998.
MEXICO
EXPLORATION
The Company's exploration program in Mexico, which was curtailed during the
fiscal year ended June 30, 1995, did not result in any prospects which meet the
criteria of the Company for open pit heap leach operations and only limited
exploration activity was carried out in Mexico during the year ended December
31, 1996.
CIENEGUITA PROPERTY, MEXICO
JOINT VENTURE AGREEMENT
By letter agreement (the "Agreement") dated August 13, 1992, the Company
acquired the right to earn a 60% interest in the Cieneguita property (the
"Cieneguita Property"), located in Chihuahua, Mexico, from Aquiline Resources
Inc. ("Aquiline"), of Vancouver, British Columbia. The Cieneguita Property
consists of one exploitation claim and two exploration claims.
<PAGE> 36
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Under the Agreement the Company acquired, by way of a private placement, 500,000
common shares of Aquiline at a price of $0.30 per share and in August of 1993
acquired an additional 545,454 common shares of Aquiline at a price of $0.55 per
share. During July 1994 an additional 545,454 common shares were acquired at a
price of $0.65 per share upon the exercise of warrants. These shares were sold
by the Company during the year ended December 31, 1996, for total consideration
of Cdn.$1,590,908.
Aquiline has the right, exercisable until December 4, 1998, to acquire a 100%
right, title and interest, subject to a 3% net smelter return royalty, in the
Cieneguita Property pursuant to the terms and conditions of an Option to
Purchase, Exploration and Exploitation Agreement (the "Option Agreement") made
between Aquiline's wholly-owned Mexican subsidiary, Minera Aquilon, S.A. de C.V.
and Minera Cuicuilco S.A. de C.V., a Mexican corporation.
Aquiline may exercise the option under the Option Agreement by paying $300,000
over a 6-year period. In turn the Company may earn 60% of Aquiline's rights
under the Option Agreement by making the cash payments when due under the Option
Agreement, by paying all other costs required to keep the claims in good
standing and by paying all other expenditures in respect of exploration on the
property until such time as the Company wishes to proceed to place the property
into commercial production in accordance with a feasibility report prepared in
respect of the property.
In May 1995, the Company and Aquiline entered into a joint venture agreement for
the further development of the Cieneguita Property to bring it into production.
Under the terms of this joint venture agreement, the Company will continue to be
the operator of the property, will contribute certain equipment to the joint
venture at an agreed value and will fund Aquiline's 40% share of the costs
required to bring the property into production. The Company will receive 100% of
the net income from metals produced from the Cieneguita Property until such time
as the Company has recovered Aquiline's 40% share of the total contributions,
plus interest at bank prime plus 2%, at which time further profits will be
shared in proportion to the venturer's participating interest at the time, which
currently is 40% to Aquiline and 60% to the Company. The Company has opened
negotiations with Aquiline to increase the Company's percentage interest in the
joint venture.
James R. Billingsley, a director and Vice-President of the Company, was a
director of Aquiline up to July, 1996. See Item 13 - "Certain Relationships and
Related Transactions".
GEOLOGY
The Cieneguita deposit lies in the Sierra Madre Occidental structural Arch and
Tertiary Volcanic province, which stretches from the Mexican-U.S. border south
to the transverse neovolcanic belt of Central Mexico. The oldest rocks in the
area are the basement Cretaceous clastic and calcareous sediments. These are
overlain by the lower volcanic series which averages 1 km in thickness and is
mainly composed of andesitic lavas and pyroclastics of Palaeocene-early Eocene
<PAGE> 37
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age. The unconformity overlying the upper volcanic series also averages 1 km in
thickness and mainly consists of massive silicic ignumbrites of
Oligocene-Miocene age.
The deposit is located in the flat lying andesites and andesitic agglomerates of
the lower volcanic series. The agglomeratic rocks form a more porous host than
the andesites and, in that sense, the mineralization is somewhat
stratigraphically controlled. The main controlling structure, however, trends at
060 degrees and appears to be vertical thus cross-cutting stratigraphy. The
rocks within the deposit have been intensely altered to a suite of sericite,
kaolin, jarosite and goethite with variable but minor amounts of silicification.
Oxidized mineralization forms an outcropping blanket from approximately 6 feet
to 60 feet thick.
The alteration and mineralization on the property is well defined along a zone
1000 m. long by 200 m. wide. The deposit is cut off at the east end by a fault
trending at 150 degrees and is lost at the west end in areas of overburden.
DEVELOPMENT ACTIVITIES
To date, 6,700 metres of diamond drilling has been carried out on the Cieneguita
Property which has delineated an auriferous zone 1,000 metres long and 200
metres wide, which outcrops. As at December 31, 1996, deferred costs, including
property payments and exploration and development expenditures amounted to
$2,338,000.
A grid was established on the property and 180 samples were collected from pits
spaced 20 meters by 40 meters. Results returned an average grade of 0.052 ounces
of gold per ton. Column leach tests were conducted on various sizes and types of
ore taken from the surface pits. An 8,000 tonne bulk heap leach test was carried
out which indicated recoveries of approximately 70% for gold and 6% for silver.
During mining it was found that the ore is exceedingly friable in some places
while in other places it appears to require agglomeration prior to leaching. A
contract has been arranged with a management group from Hermosillo to use the
existing facilities and to start production on a small scale. It is planned that
a maximum of 5,000 ounces of gold will be produced per year once the heap leach
pad has been expanded to accommodate additional ore. The first dore produced
from the property was poured in November 1995.
LA JOJOBA PROPERTY, SONORA, MEXICO
In May 1995, the Company entered into an option agreement with Aquiline to earn
an undivided 75% interest in the La Jojoba property located in the State of
Sonora, Mexico. Under the agreement the Company is required to fund the
exploration and development expenditures, make all property payments as required
by the underlying agreements with the property owner and prepare a feasibility
study on the property. The agreement provides that on completion of a positive
feasibility study, Aquiline may elect to maintain its 25% interest by funding
its share of further development costs or can assign its interest to the Company
in exchange for a 3% net smelter return royalty.
<PAGE> 38
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13 percussion and 26 reserve circulation drill holes have been drilled on the
property. Drilling was concentrated in a favourable zone with 5 holes drilled to
investigate mineralized areas outside of the zone. Results from the drilling and
metallurgical testing have been evaluated and the Company has delivered a notice
of termination to Aquiline. During the year ended December 31, 1996, costs
including, property payments and exploration and development expenditures
amounting to $198,000 were expensed.
James R. Billingsley, a director and Vice-President of the Company, resigned as
a director of Aquiline in July of 1996. See Item 13 - "Certain Relationships and
Related Transactions".
INDONESIA - GUNUNG PANI JOINT VENTURE PROJECT
The Company entered into a Letter Agreement dated August 14, 1996 with Paramount
Ventures & Finance Inc. ("Paramount") of Vancouver, British Columbia, pursuant
to which the Company has the option to earn 50% of Paramount's interest in the
Gunung Pani Gold Project located on Sulawesi Island in Indonesia. The property
consists of two parcels of land totalling 2,113 hectares, located just off a
paved road 170 kilometers west of the capital of Sulawesi. Paramount has the
option of earning an 80% interest in the property by paying all costs associated
with the property until the time of delivery of a positive feasibility study and
may increase its interest to 95% by making a cash payment of $15,000,000 to the
property vendor. Paramount currently holds its interest in the property through
a Memorandum of Understanding dated July 26, 1996 made with P.T. Pertiwi
Nusamega ("Pertiwi") and a Joint Venture Agreement dated September 28, 1996 with
Pertiwi. Pertiwi will hold the remaining 20% interest in the property upon the
Company and Paramount exercising their option. The Joint Venture Agreement
provides for the making of an application for contracts of work, which has not
yet been made, with respect to the property. Paramount is currently in the
process of preparing those applications.
The Company may exercise its option to earn a 40% interest in the Property by
paying all exploration and development costs in respect of the project until
delivery of a bankable feasibility study (the "Option Period") and will have the
right to acquire one-half of the additional 15% interest which Paramount may
acquire, for cash consideration of $7,500,000. During the Option Period,
Paramount will be responsible for paying all other costs of maintaining the
property in good standing. Upon exercise of the option, the Company and
Paramount will each pay 50% of the costs of the project.
The Company will be the operator of exploration and development activities on
the property during the Option Period and will remain as the operator after the
exercise of the option.
Between 1981 and 1990, 29 diamond drill holes aggregating 4,556 meters and 3
adits totalling 220 meters were completed on the property by a major mining
company. This work indicates the potential of a large disseminated gold deposit
being located on the property.
The Company anticipates spending from $l,500,000 to $2,000,000 on the
property during 1997, which funds will come from the Company's current working
capital.
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As part of the transaction with Paramount, the Company acquired 2,000,000
special warrants of Paramount at a price of Cdn.$2.25 each, for a total
consideration of Cdn.$4,500,000 ($3,300,000). Each special warrant is
exercisable into one unit comprised of one common share of Paramount and
one-half of one share purchase warrant. Each whole share purchase warrant is
exercisable at Cdn.$2.50 to acquire one common share of Paramount over a
one-year period. The value of the common shares of Paramount which underlie the
special warrants acquired by the Company, based on a share price of Cdn.$2.02,
the closing price for shares of Paramount on the Vancouver Stock Exchange on
March 13, 1997, is Cdn.$4,040,000.
To date the Company has drilled 9 diamond drill holes on the property, which
were positioned to test extensions of the known mineralization in what is known
as the KUD area. Assay results have been received for three of the holes. Two of
the holes testing the east and west extremities of the known mineralization
intersected low grade disseminated gold mineralization and the third hole,
testing the southern extremity of the known mineralization yielded no
significant results.
ITEM 3 - LEGAL PROCEEDINGS
The following is a description of material pending judicial proceedings in which
the Company is presently engaged. The Company is defending an action, initiated
on September 22, 1995 against Rand and Glamis Gold, Inc. by Rand Communities
Water District (the "Water District") in the Kern County, California Superior
Court, for Declaratory and Injunctive Relief. The Water District claims that the
groundwater basin from which it draws its water is in a state of overdraft due
to Rand pumping water from such basin in excess of that to which it is entitled
at law. The Water District is requesting a judicial determination as to the
amount of water to which Rand is entitled for use in its mining operations. It
also requests a temporary restraining order, a preliminary injunction and a
permanent injunction to greatly reduce Rand in its current and planned use of
water pumped from the groundwater basin, alleging irreparable injury to the
Water District and to its customers. Rand's withdrawal of water from the basin
was disclosed in its Environmental Impact Report/Environmental Impact Statement
which was approved by the BLM and Kern County as part of the permitting process
for the Rand Facilities. Rand believes that its pumping of water from the basin
is not and will not cause harm to the Water District's activities. If the matter
proceeds Rand will request the court to adjudicate the rights of all parties
drawing water from the basin.
In addition, David Robert Johnson served Rand and Glamis Gold, Inc. on February
26, 1996 with notice of an action commenced by him in the Kern County,
California Superior Court against Rand and Glamis Gold, Inc. for injunctive
relief and damages. Johnson claims that Rand is extracting more water from the
groundwater basin which is the subject of the Rand Communities Water District
action, than it is entitled at law and that such is causing a depletion in his
well which draws water from the groundwater basin. Johnson is requesting the
court to grant a temporary restraining order, a preliminary injunction and a
permanent injunction limiting Rand's extraction of water by its RMC-4 well from
the groundwater basin to an amount that will not result in any impairment to the
volume and capacity of water being drawn from Johnson's well and is claiming
damages of $3,500,000.
<PAGE> 40
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A hearing has been held in respect of the Water District's application for a
preliminary injunction and the Court, in January 1997 denied the application. No
prediction on the outcome of further proceedings in this matter can be made at
this time.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the 4th quarter of the fiscal year to be voted
upon by security holders.
PART II
ITEM 5 - MARKET INFORMATION AND RELATED SHAREHOLDER MATTERS
STOCK EXCHANGES (TSE/NYSE:GLG)
The Common Shares of the Company were first sold to the public under a
prospectus dated May 2, 1973 at Cdn.$0.50 per share. The Company's current stock
exchange listings together with the date of listing, are set out below:
The Toronto Stock Exchange (September 26, 1984)
The New York Stock Exchange (January 20, 1993)
Prior to January 20, 1993 the Common Shares were quoted on The Nasdaq National
Market in the United States.
THE TORONTO STOCK EXCHANGE
The high and low sale prices for the Common Shares of the Company on The Toronto
Stock Exchange for each quarter during the fiscal year ended December 31, 1996,
the transition period ended December 31, 1995, as well as for the fiscal year
ended June 30, 1995, are as follows:
<PAGE> 41
- 41 -
TRADING HISTORY ON THE TORONTO STOCK EXCHANGE
<TABLE>
<CAPTION>
Sales Price (Cdn$) Volume
- ---------------------------------------------------------------------------------------------------------------------
Low High
<S> <C> <C> <C>
Fiscal year ending December 31, 1996
1st Quarter $ 8.50 $ 12.40 1,605,613
2nd Quarter 9.50 12.00 550,875
3rd Quarter 9.10 10.00 275,830
4th Quarter 8.40 10.45 643,023
Transition Period Ended December 31, 1995
1st Quarter $ 8.875 $11.125 1,692,768
2nd Quarter 7.625 9.50 378,418
Fiscal year ending June 30, 1995
1st Quarter $ 8.625 $ 12.50 2,174,530
2nd Quarter 10.375 13.50 2,115,271
3rd Quarter 10.25 13.25 1,285,070
4th Quarter 10.75 13.00 1,663,050
</TABLE>
The price of the Common Shares as reported by The Toronto Stock Exchange at the
close of business on December 31, 1996 and on March 13, 1997 was Cdn.$9.70 per
share and Cdn. $11.25 per share respectively.
THE NEW YORK STOCK EXCHANGE, INC.
The high and low prices for Common Shares of the Company on The New York Stock
Exchange for each quarter the fiscal year ended December 31, 1996, the
transition period ended December 31, 1995 as well as for the fiscal year ended
June 30, 1995 are as follows:
<PAGE> 42
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TRADING HISTORY ON THE NEW YORK STOCK EXCHANGE
<TABLE>
<CAPTION>
Sales Price Volume
--------------------------------- ----------------
Low High
--- ----
<S> <C> <C> <C>
Fiscal Year Ending December 31, 1996
1st Quarter $ 6.25 $ 8.875 9,956,180
2nd Quarter 6.875 8.875 5,790,800
3rd Quarter 6.50 7.25 2,705,900
4th Quarter 6.25 7.875 6,093,900
Transition Period Ended December 31, 1995
1st Quarter $ 6.625 $ 8.25 3,781,900
2nd Quarter 5.50 6.875 4,077,100
Fiscal Year Ending June 30, 1995
1st Quarter $ 7.375 $ 9.375 6,561,500
2nd Quarter 7.25 10.125 10,084,100
3rd Quarter 7.25 9.25 6,423,700
4th Quarter 7.875 8.75 5,056,000
</TABLE>
The price of Common Shares as reported by The New York Stock Exchange, Inc. at
the close of business on December 31, 1996 and on March 13, 1997 was $7.00 per
share and $8.25 per share, respectively.
SHAREHOLDERS
As at March 13, 1997 the Company had 2,032 registered shareholders.
DIVIDENDS
The Company's current policy is to declare dividends to shareholders in United
States funds. The Company paid dividends totalling Cdn.$0.06 ($0.044) per Common
Share in each of the transition period ended December 31, 1995, and the fiscal
years ended June 30, 1995 and 1994. Dividends payable to United States residents
are converted to and paid in United States dollars. No dividends were paid
during the fiscal year ended December 31, 1996.
The declaration and payment of future dividends is dependent upon the Company's
financial condition and other factors considered by the Board of Directors.
Payment of dividends could be reduced or discontinued at any time. See "Certain
Tax Matters - Canadian Federal Income Tax Considerations" for information with
respect to Canadian withholding tax applicable to non-Canadian shareholders.
<PAGE> 43
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INVESTMENT CANADA ACT
There is no law or governmental decree or regulation in Canada that restricts
the export or import of capital, or affects the remittance of dividends,
interest or other payments to a non-resident holder of common shares of the
Company, other than withholding tax requirements (see "Certain Tax Matters",
below).
There is no limitation imposed by Canadian law or by the charter or other
constituent documents of the Company on the right of a non-resident to hold or
vote common shares of the Company, other than as provided in the Investment
Canada Act (Canada) (the "Investment Act"). The following discussion summarizes
the principal features of the Investment Act for a non-resident who proposes to
acquire common shares of the Company. It is general only, it is not a substitute
for independent advice from an investor's own advisor, and it does not
anticipate statutory or regulatory amendments.
The Investment Act generally prohibits implementation of a reviewable investment
by an individual, government or agency thereof, corporation, partnership, trust
or joint venture that is not a "Canadian" as defined in the Investment Act (a
"non-Canadian"), unless after review the minister responsible for the Investment
Act (the "Minister") is satisfied that the investment is likely to be of net
benefit to Canada. An investment in common shares of the Company by a
non-Canadian other than a "WTO Investor" (as defined in the Investment Act and
used in this discussion) when the Company was not controlled by a WTO Investor,
would be reviewable under the Investment Act if it was an investment to acquire
control of the Company and the value of the assets of the Company was
Cdn.$5,000,000 or more, or if an order for review was made by the federal
cabinet on the grounds that the investment related to Canada's cultural heritage
or national identity. An investment in common shares of the Company by a WTO
Investor, or by a non-Canadian when the Company was controlled by a WTO
Investor, would be reviewable under the Investment Act if it was an investment
to acquire control of the Company and the value of the assets of the Company in
1996 exceeds approximately Cdn.$160,000,000. A non-Canadian would acquire
control of the Company for the purposes of the Investment Act if the
non-Canadian acquired a majority of the common shares of the Company. The
acquisition of less than a majority but one third or more of the common shares
of the Company would be presumed to be an acquisition of control of the Company
unless it could be established that, on the acquisition, the Company was not
controlled in fact by the acquiror through the ownership of common shares.
Certain transactions relating to common shares of the Company would be exempt
from the Investment Act, including:
(a) acquisition of common shares of the Company by a person in the
ordinary course of that person's business as a trader or
dealer in securities,
<PAGE> 44
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(b) acquisition of control of the Company in connection with the
realization of security granted for a loan or other financial
assistance and not for a purpose related to the provisions of
the Investment Act, and
(c) acquisition of control of the Company by reason of an
amalgamation, merger, consolidation or corporate
reorganization following which the ultimate direct or indirect
control in fact of the Company, through the ownership of
common shares, remained unchanged.
CERTAIN TAX MATTERS
The following paragraphs summarize certain United States and Canadian federal
income tax considerations in connection with the receipt of dividends paid on
Common Shares of the Company and certain Canadian federal income tax
considerations in connection with a disposition of Common Shares by
non-residents of Canada. These tax considerations are stated in brief and
general terms and are based on United States and Canadian law currently in
effect. There are other potentially significant United States and Canadian
federal income tax considerations, including proposals to amend some of the
rules summarized herein, and state, provincial or local income tax
considerations with respect to ownership and disposition of the Common Shares
which are not discussed herein. The tax considerations relative to ownership and
disposition of the Common Shares may vary from taxpayer to taxpayer depending on
the taxpayer's particular status. Accordingly, prospective purchasers should
consult with their tax advisors regarding tax considerations which may apply to
their particular situation.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain possible United States Federal
income tax consequences, under current law, generally applicable to a U.S.
Holder (as defined below) of Common Shares of the Company who hold such shares
as capital assets. This discussion does not address all potentially relevant
Federal income tax matters and it does not address consequences peculiar to
persons subject to special provisions of Federal income tax law, such as those
described below as excluded from the definition of a U.S. Holder. In addition,
this discussion does not cover any state, local or foreign tax consequences.
(See "Canadian Federal Income Tax Considerations" below).
The following discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations, published Internal
Revenue Service ("IRS") rulings, published administrative positions of the IRS
and court decisions that are currently applicable, any or all of which could be
materially and adversely changed, possibly on a retroactive basis, at any time.
In addition, this discussion does not consider the potential effects, both
adverse and beneficial, of any recently proposed legislation which, if enacted,
could be applied, possibly on a retroactive basis at any time. The following
discussion is for general information only and it is not intended to be, nor
should it be construed to be, legal or tax advice to any holder or prospective
holder of Common Shares of the Company and no opinion
<PAGE> 45
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or representation with respect to the United States Federal income tax
consequences to any such holder or prospective holders is made. Accordingly,
holders and prospective holders of Common Shares of the Company should consult
their own tax advisors about the Federal, state, local and foreign tax
consequences of purchasing, owning and disposing of Common Shares of the
Company.
U.S. HOLDERS
As used herein, a "U.S. Holder" includes a holder of Common Shares of the
Company who is a citizen or individual resident of the United States and a
corporation created or organized in or under the laws of the United States or of
any political subdivision. A U.S. Holder does not include persons subject to
special provisions of Federal income tax law, such as tax-exempt organizations,
qualified retirement plans, financial institutions, insurance companies, real
estate dealers, nonresident alien individuals and shareholders who acquired
their stock through the exercise of employee stock options or otherwise as
compensation.
DISTRIBUTIONS ON COMMON SHARES OF THE COMPANY
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to Common Shares of the Company are required to include in gross
income for United States Federal income tax purposes the gross amount of such
distributions to the extent that the Company has current or accumulated earnings
and profits, without reduction for any Canadian income tax withheld from such
distributions. Such Canadian tax withheld may be credited, subject to certain
limitations, against the U.S. Holder's United States Federal income tax by
those who itemize deductions. (See more detailed discussion at "Foreign Tax
Credit" below). To the extent that distributions exceed current or accumulated
earnings and profits of the Company, they will be treated first as a return of
capital up to the U.S. Holder's adjusted basis in the Common Shares and
thereafter as gain from the sale or exchange of the Common Shares. Preferential
tax rates for net capital gains are applicable to a U.S. Holder which is an
individual, estate or trust.
Dividends paid on Common Shares of the Company will not generally be eligible
for the dividends received deduction provided to corporations receiving
dividends from certain United States corporations. A U.S. Holder which is a
corporation may, under certain circumstances, be entitled to a 70% deduction of
the United States source portion of dividends received from the Company (unless
the Company qualifies as a "passive foreign investment company", as defined
below or in certain other circumstances) if such U.S. Holder owns shares
representing at least 10% of the voting power and value of the Company. The
availability of this deduction is subject to several complex limitations which
are beyond the scope of this discussion.
<PAGE> 46
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FOREIGN TAX CREDIT
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of Common Shares of the Company may be entitled,
at the option of the U.S. Holder, to either a deduction or a tax credit for such
foreign tax paid or withheld. Generally, it will be more advantageous to claim a
credit because a credit reduces United States Federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on a year-by-year basis and generally
applies to all foreign income taxes paid by (or withheld from) the U.S. Holder
during the year. There are significant and complex limitations which apply to
the credit, among which is the general limitation that the credit cannot exceed
the proportionate share of the U.S. Holder's United States income tax liability
that the U.S. Holder's foreign source income bears to his or its worldwide
taxable income. In the determination of the application of this limitation, the
various items of income and deduction must be classified into foreign and
domestic sources. Complex rules govern this classification process. There are
further limitations on the foreign tax credit for certain types of income such
as "passive income", "high withholding tax interest", "financial services
income", "shipping income", and certain other classifications of income. The
availability of the foreign tax credit and the application of the limitations on
the credit are fact specific and holders and prospective holders of Common
Shares of the Company should consult their own tax advisors regarding their
individual circumstances.
DISPOSITION OF COMMON SHARES OF THE COMPANY
A U.S. Holder will recognize a gain or loss upon the sale of Common Shares of
the Company equal to the difference, if any, between (a) the amount of cash plus
the fair market value of any property received, and (b) the shareholder's tax
basis in the Common Shares of the Company. This gain or loss will be capital
gain or loss if the Common Shares are a capital asset in the hands of the U.S.
Holder, which will be a short-term or long-term capital gain or loss depending
upon the holding period of the U.S. Holder. Gains and losses are netted and
combined according to special rules in arriving at the overall capital gain or
loss for a particular tax year. Deductions for net capital losses are subject to
significant limitations. For U.S. Holders which are individuals, any unused
portion of such net capital loss may be carried over to be used in later tax
years until such net capital loss is thereby exhausted. For U.S. Holders which
are corporations (other than corporations subject to Subchapter S of the Code),
an unused net capital loss may be carried back three years from the loss year
and carried forward five years from the loss year to be offset against capital
gains until such net capital loss is thereby exhausted.
OTHER CONSIDERATIONS
In the following circumstance, the above sections of this discussion may not
describe the United States Federal income tax consequences resulting from the
holding and disposition of common shares of the Company.
<PAGE> 47
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PASSIVE FOREIGN INVESTMENT COMPANY
As a foreign corporation with U.S. Holders, the Company could potentially be
treated as a passive foreign investment company ("PFIC"), as defined in Section
1296 of the Code, depending upon the percentage of the Company's income which is
passive, or the percentage of the Company's assets which is producing passive
income. U.S. Holders owning common shares of a PFIC are subject to an additional
tax on distributions and to an interest charge based on the value of deferral of
tax for the period during which the common shares of the PFIC are owned, in
addition to treatment of gain realized on disposition of common shares of the
PFIC as ordinary income, rather than capital gain, similarly subject to an
additional tax and interest charge. However, if the U.S. Holder makes a timely
election to treat a PFIC as a qualified electing fund ("QEF") with respect to
such shareholder's interest therein, the above-described rules generally will
not apply. Instead, the electing U.S. Holder would include annually in his gross
income his pro rata share of the PFIC's ordinary earnings and net capital gain
regardless of whether such income or gain was actually distributed. A U.S.
Holder of a QEF can, however, elect to defer the payment of United States
Federal income tax on such income inclusions, subject to an interest charge on
the amount of deferred taxes. Gain realized on disposition of common shares of a
QEF is treated as capital gain if the shares are a capital asset of the
disposing shareholder. Special rules apply to U.S. Holders who own their
interests in a PFIC through intermediate entities or persons.
The Company believes that it has not been a PFIC for its fiscal year ended
December 31, 1996, for the transition period ended December 31, 1995 or for its
fiscal years ended June 30, 1995, 1994, 1993, 1992, 1991 and 1990 and does not
believe that it will be a PFIC for the current fiscal year. The Company's
determination in this respect has been made after a review of the regulations
regarding a PFIC and the application of those rules to its own past and present
circumstances. The Company may have been a PFIC in earlier years. If in a
subsequent year the Company concludes that it is a PFIC, it intends to make
information available to enable a U.S. Holder to make a QEF election in that
year. Although it is considered unlikely, there can be no assurance that the
Company's determination concerning its PFIC status will not be challenged by the
IRS, or that it will be able to satisfy record keeping requirements which will
be imposed on QEFs. U.S. taxpayers who hold the Company's shares may wish to
consult with a personal tax advisor concerning the possible application of the
PFIC provisions to their personal circumstances.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
Dividends paid on Common Shares held by non-residents of Canada will generally
be subject to Canadian withholding tax. This withholding tax is levied at the
basic rate of 25%, although this rate may be reduced by the terms of any
applicable tax treaty. The Canada - U.S. tax treaty provides that the
withholding rate on dividends paid to U.S. residents on Common Shares is
generally 15%.
<PAGE> 48
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Generally, a non-resident of Canada who holds Common Shares as capital property
will not be subject to Canadian federal income tax on capital gains realized on
the disposition of his Common Shares.
ITEM 6 - SELECTED FINANCIAL INFORMATION
The financial information set forth in the tables below includes the accounts of
the Company and its subsidiaries on a consolidated basis. This financial
information was prepared in accordance with accounting principles generally
accepted in Canada. The selected financial information should be read in
conjunction with and is qualified by the Audited Consolidated Financial
Statements and the Notes thereto which form part of this Report. Reference
should be made to Note 11 of such financial statements for a reconciliation of
Canadian and U.S. generally accepted accounting principles.
SELECTED QUARTERLY DATA FOR THE YEAR ENDED DECEMBER 31, 1996, FOR THE SIX
MONTHS ENDED DECEMBER 31, 1995 AND FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
(Expressed in thousands of dollars, except for per common share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
(unaudited) (unaudited) (unaudited) (unaudited) (audited)
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended December 31, 1996
Revenue $9,954 $11,353 $12,293 $13,139 $46,739
Gross profit 4,375 4,921 6,378 6,712 22,386
Earnings from operations 71 840 1,832 1,987 4,730
Net earnings 74 571 1,330 2,084 4,059
Net earnings per Common Share 0.00 0.02 0.05 0.08 0.15
Six Months Ended December 31, 1995
Revenue 8,115 9,040 -- -- 17,155
Gross profit 2,953 2,329 -- -- 5,282
Earnings (loss) from operations (461) (1,387) -- -- (1,848)
Net earnings (loss) (660) (1,201) -- -- (1,861)
Net earnings (loss) per Common Share (0.025) (0.045) -- -- (0.07)
Fiscal Year Ended June 30, 1995
Revenue 10,845 8,991 9,969 9,227 39,032
Gross profit 4,941 3,916 3,736 5,887 18,480
Earnings (loss) from operations 1,097 252 (94) 1,979 3,234
Net earnings (loss) 1,109 95 (45) 1,529 2,688
Net earnings (loss) per Common Share 0.043 0.003 (0.001) 0.055 0.10
Fiscal Year Ended June 30, 1994
Revenue 6,117 10,415 10,403 12,221 39,156
Gross profit 2,512 5,656 5,150 5,703 19,021
Earnings from operations 178 1,855 1,584 834 4,451
Net earnings 335 1,166 1,126 940 3,567
Net earnings per Common Share 0.014 0.048 0.044 0.034 0.14
</TABLE>
<PAGE> 49
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SELECTED YEARLY DATA
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED
-------------------------------------------------------------------
SIX MONTHS
ENDED
DECEMBER 31 DECEMBER 31 JUNE 30
---------------- -------------
1996 1995 1995 1994
---------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Production statistics:
Production cash costs per ounce ($) 200 265 202 192
Ounces of gold produced 121,591 44,809 101,562 104,467
Average gold price realized per ounce ($) 384 383 384 375
Operating summary ($000):
Revenues 46,739 17,155 39,032 39,156
Net earnings (loss) 4,059 (1,861) 2,688 3,567
Cash generated from (used in) operations 12,941 (205) 12,916 8,051
Financial Status ($000):
Working capital 38,724 15,138 22,376 20,316
Total assets 107,974 69,758 73,846 66,705
Long-term liabilities 2,729 2,625 2,641 1,270
Shareholders' equity 100,888 64,609 67,639 62,800
Per common share ($):
Net earnings (loss) 0.15 (0.07) 0.10 0.14
Book value 3.25 2.45 2.56 2.43
Dividends -- 0.044 0.044 0.044
</TABLE>
ITEM 7 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
This Management Discussion and Analysis should be read in conjunction with and
is qualified by the Audited Consolidated Financial Statements and the Notes
thereto which form a part of this Report. This financial information was
prepared in accordance with accounting principles generally accepted in Canada.
Reference should be made to Note 11 of such financial statements for a
reconciliation of Canadian and U.S. generally accepted accounting principles.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996, THE SIX MONTHS ENDED
DECEMBER 31, 1995 AND THE YEARS ENDED JUNE 30, 1995 AND JUNE 30, 1994.
Gold production for the year ended December 31, 1996 was 121,591 ounces or an
increase of 35% over the annualized production rate reported for the six months
ended December 31, 1995. The production for the year ended December 31, 1996
compares very favourably to the projection made in last year's report
anticipating production of 105,000 to 110,000 ounces of
<PAGE> 50
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gold for fiscal 1996. The Company expects that gold production for the year
ended December 31, 1997 will be in the range of 120,000 to 125,000 ounces.
Presuming the successful completion of permitting on the Imperial Project by the
middle of 1997 and the commencement of construction shortly thereafter, the
Company expects gold production for the year ended December 31, 1998 to be
approximately 200,000 ounces.
The Rand Mine produced 85,762 ounces of gold in the year ended December 31, 1996
as compared to an annualized rate of 59,628 ounces of gold during the six months
ended December 31, 1995. This major improvement in production was the direct
result of mining oxide ore from the Yellow Aster Pit of the Rand Mine and the
commissioning of the new Rand processing facilities in January 1996. The first
gold was recovered from these facilities during February 1996 and gold
production from these facilities totalled 60,329 ounces for the year.
The leach pad at the Yellow Aster facilities of the Rand Mine was filled to
permitted capacity during February 1996 and the facilities were producing gold
at the rate of 350 ounces per month at year end. Leaching of ore from the Yellow
Aster pad will continue for the next few months after which the leach pad will
be decommissioned and reclaimed. The economic review in process at December 31,
1995 was completed during the year. The Rand Mine Optimization Study recommended
replacing the fleet of 85 and 100-ton trucks and 992 loaders with 190-ton trucks
and a 27-cubic yard hydraulic shovel. The new equipment was placed in service
during the fourth quarter of 1996. The training and debugging period has gone
well and the Company anticipates that the efficiencies forecast in the study
will be reflected in lower unit costs and higher tonnages mined during fiscal
1997 and beyond.
The Picacho Mine produced a record 34,621 ounces of gold during the year ended
December 31, 1996 or an increase of 20% over the annualized rate of 28,868
ounces of gold produced during the six months ended December 31, 1995. This
record is the result of excellent water management and the tonnage mined during
the year being mainly ore.
Gold production for the six months ended December 31, 1995 was 44,809 or a 12%
decrease on an annualized basis from the 101,562 ounces of gold produced for the
year ended June 30, 1995. This decrease in production was the result of an
unexpected low recovery rate for gold on the unoxidized and mixed oxide-nonoxide
ore from the Baltic Pit of the Rand Mine. Gold production for the year ended
June 30, 1995 at 101,562 was 2.8% lower than the 104,467 ounces produced in the
prior year. This slight decrease in production occurred because of lower grades
and higher stripping ratios at the Rand Mine.
<PAGE> 51
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REVENUE
Revenue for the year ended December 31, 1996 was $46.7 million compared to $17.2
million for the six months ended December 31, 1995, an increase of 36% on an
annualized basis. With the average revenue realized per ounce of gold being $384
for 1996 and $383 in the six months ended December 31, 1995, revenue increased
$0.1 million due to the changes in the price of gold. The increase in production
for the year ended December 31, 1996 increased revenue realized during 1996 by
$12.2 million over the annualized rate for the six months ended December 31,
1995.
Revenue for the six months ended December 31, 1995 was a 12% decrease on an
annualized basis compared to the $39.0 million for the fiscal year ended June
30, 1995. Revenue decreased mainly because of the decrease in production at the
Rand Mine described above. Revenue for the fiscal year ended June 30, 1995 was
$0.2 million lower than the prior year (basically unchanged) because the
decrease in production of 2,905 ounces of gold was offset by the increase in the
average revenue realized per ounce of gold of $384 for the fiscal year ended
June 30, 1995 from an average of $375 in the prior fiscal year.
COST OF PRODUCTION
The Company's cost of production of $24.4 million for the year ended December
31, 1996 is 3% greater, on an annualized basis, than the $11.9 million incurred
for the six months ended December 31, 1995. This increase during the current
period is due to an increase in production on an annualized basis of 5,753
ounces of gold at the Picacho Mine and of 26,134 ounces of gold at the Rand
Mine.
The cash cost per ounce of gold production decreased during the year ended
December 31, 1996 to $200 per ounce of gold from $265 per ounce of gold for the
six months ended December 31, 1995. This decrease in cash costs per ounce of
gold production was primarily due the lower costs of mining ore from the Yellow
Aster Pit at the Rand Mine.
For the six months ended December 31, 1995, the cost of production at $11.9
million was a 16% increase on an annualized basis over the $20.6 million
incurred in the fiscal year ended June 30, 1995. This annualized increase is
primarily the result of a $1.8 million write- down of the work in process
inventory on the heap leach pad of the Baltic Facilities caused by the lower
recovery rates experienced from that heap during the period. The cost of
production for the fiscal year ended June 30, 1995 was a 2% increase over the
$20 million realized in the year ended June 30, 1994. This increase in costs was
due to mining lower grades and encountering higher stripping ratios at the Rand
Mine partially offset by a slight decrease in production of 2,905 ounces.
<PAGE> 52
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EXPENSES
Depreciation and depletion charges for the year ended December 31, 1996 were
$10.6 million compared to the $4.7 million incurred for the six months ended
December 31, 1995 an increase of 13.6% on an annualized basis. Depletion is $0.6
million greater than the prior period on an annualized basis because production
was 35% higher during the current period, however, the depletion rate per ounce
decreased during the current period because of higher reserves. A $0.6 million
increase in depreciation during the current period resulted from the acquisition
of assets during the year, which had been leased, and the higher level of
production causing more pad depreciation to be incurred as pads are depreciated
on a units of production basis.
Depreciation and depletion charges during the six months ended December 31, 1995
increased 9% on an annualized basis compared to such charges for the year ended
June 30, 1995. This increase was a direct result of the reduction of the work in
process inventory on the heap leach pad of the Baltic Facilities. The reduction
in the number of ounces recoverable from the heap increased the per ounce
charges. During the fiscal ended June 30, 1995 depreciation and depletion
charges decreased 6.5% compared to those charged for the 1994 fiscal year due to
more ounces being produced from newer and higher cost facilities. Depreciation
and depletion charges are expected to remain relatively constant during the
fiscal year ending December 31, 1997 as compared to the year ended December 31,
1996.
Royalty expense increased 48% or $0.9 million for the year ended December 31,
1996 as compared to the six months ended December 31, 1995 on an annualized
basis. This was caused by the 35% increase in production and the higher royalty
rates incurred on the ounces of gold produced at the Picacho and Rand Mines.
Royalty expense was down by 6%, on an annualized basis, for the six months ended
December 31, 1995 compared to the year ended June 30, 1995, due to decreased
production from the Baltic Pit. There was a 13% increase in royalties for the
fiscal year ended June 30, 1995 as compared to the fiscal year ended June 30,
1994 which is the direct result of expensing advance minimum royalty payments on
parcels from which no gold production is anticipated.
Exploration expenses of $0.9 million for the year ended December 31, 1996 were
the write-off of exploration on the Jojoba prospect in Mexico. The Company has
expended an additional $0.2 million dollars on the evaluation of several other
properties during the year in an effort to acquire additional reserves for the
Company.
Exploration expense for the six months ended December 31, 1995 was minimal. The
decrease during the period as compared to the two prior years reflect the
decision to suspend "grass roots" exploration. While exploration efforts in
Mexico were curtailed during the year ended June 30, 1995, compared to those for
the fiscal year ended June 30, 1994, the Company incurred a major exploration
expense in fiscal year 1995 for the due diligence on the primary mining property
held by Golden Queen Mining Co. Ltd. as part of a proposed acquisition of
<PAGE> 53
- 53 -
"Golden Queen" by the Company. The acquisition was not completed because the
merger proved to be uneconomic for the Company.
General and administrative costs at $3.2 million for the year ended December 31,
1996 is 11.0% greater on an annualized basis than the $1.4 million incurred for
the six months ended December 31, 1995. The major expense impacting the increase
in costs during the current year is approximately $224,000 related to the
unsuccessful equity financing activities during June and July, 1996.
On an annualized basis there was no material change in general and
administrative costs for the six months ended December 31, 1995 compared to the
fiscal year ended June 30, 1995. These costs increased during the fiscal year
ended June 30, 1995 as compared to the prior year due to higher consulting and
legal fees pertaining to the Company's search for acquisition targets. The
general and administrative expenses for the year ending December 31, 1997 are
expected to be comparable to those incurred in the year just ended.
OTHER INCOME AND EXPENSES
Interest and other income at $0.8 million for the year ended December 31, 1996
includes a gain of approximately $558,000 from the sale of the investment in
Aquiline Resources. The loss of $0.3 million for the six months ended December
31, 1995 includes a charge of $607,000 for the loss on the sale of the
investment and costs when the bid to acquire Eldorado Corporation was allowed to
lapse during the period.
The interest on long-term debt for the year ended December 31, 1996, the six
months ended December 31, 1995, on an annualized basis, and for the year ended
June 30, 1995 are comparable. The increase in interest on long term debt for the
fiscal year ended June 30, 1995 compared to that of the fiscal year ended June
30, 1994 occurred because the Company did not capitalize any interest charges
during the year ended June 30, 1995. Interest charges consist mainly of the
amortization of deferred charges for credit arrangements, for letters of credit
used as security for future reclamation costs and for standby fees.
The net earnings for the year ended December 31, 1996 was $4.1 million ($0.15
per share) compared to the loss for the six months ended December 31, 1995 of
$1.9 million ($0.07 per share) and to income of $2.7 million ($0.10 per share)
for the year ended June 30, 1995. Net income for the year ended June 30, 1994
was $3.6 million ($0.14 per share).
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $38.7 million at December 31, 1996 compared
to $15.1 million at December 31, 1995 and $22.4 million at June 30, 1995. The
long-term liabilities consisting of reserves for reclamation and deferred taxes
totalled approximately $2.7 million at December 31, 1996, 1995 and June 30,
1995, respectively. Included in the working capital was
<PAGE> 54
- 54 -
cash of $26.5 million at December 31, 1995, $4.2 million at December 31, 1996,
and $14.1 million in cash as at June 30, 1995.
During the current year cashflow from operations totalled $12.9 million while
the six months ended December 31, 1995 resulted in cash used in operations of
$205,000. A positive cash flow from operations of $12.9 million occurred in the
fiscal year ended June 30, 1995, and $8.1 million occurred for the fiscal year
ended June 30, 1994.
During the year the Company sold 4,500,000 common shares by public
offering in Canada to produce net proceeds to the Company of approximately
$31,500,000.
No dividends were declared or paid during the year ended December 31, 1996. A
dividend of $0.044 (Cdn. $0.06) per share was paid on September 29, 1995 to
shareholders of record at September 13, 1995 and a dividend of $0.044 (Cdn.
$0.06) per share was paid on September 30, 1994 to shareholders of record at
September 13, 1994.
The Company has a banking facility available for cash draws and letters of
credit for security against future reclamation costs. At December 31, 1996, no
cash was drawn against the line and $4.7 million was utilized for letters of
credit issued as security for future reclamation costs. The Company is
finalizing an arrangement with a bonding company to replace the letters of
credit issued as security for future reclamation costs with bonds, thereby
freeing up a portion of the line for cash draws. The credit arrangement expires
June 1, 2001. The Company and the lender have agreed to review the agreements
annually with a view to extending the agreement by one year so that, the maximum
facility, initially for $20.0 million, will be continually available for the
term of the amended facility. The amount available for borrowing at December 31,
1996 was $20.0 million.
With anticipated cashflow from operations for the year ending December 31, 1997
of approximately $13.4 million, cash on-hand of $26.5 million bank financing of
$18.5 million available for cash draws and no debt outstanding other than
current liabilities, management believes that the Company is in a very good
financial position to proceed with growth and capital projects.
CAPITAL EXPENDITURES
During the year ended December 31, 1996 $24.9 million was expended on capital
projects and investments as compared to the $8.6 million expended in the six
months ended December 31, 1995. Major expenditures during the year were as
follows:
<PAGE> 55
- 55 -
<TABLE>
<CAPTION>
Millions $
----------
<S> <C>
Equipment for the Rand Mine Optimization 13.3
Rand Processing Facilities 2.8
Purchase of mining equipment off lease .7
Equipment purchases for the Imperial Project .7
Imperial Project planning, permitting, and development 2.0
Investment in Pacific Amber Resources .7
Investment in Paramount Ventures & Finance 3.3
</TABLE>
The Company's capital expenditures for the fiscal year ended December 31, 1997
are estimated to be $58.0 million. The major expenditures will be $52.0 million
for permitting, equipment acquisition, construction and startup at the Imperial
Project and $4.3 million for deferred stripping at the Rand Mine for mining of
waste at the Randsburg Butte prior to the next phase of mining at the Yellow
Aster Pit.
HEDGING
The Company's current policy is not to engage in hedging practices. As at
December 31, 1996, the Company had call options outstanding for 16,200 ounces of
gold at $415 per ounce expiring through December 1997. These remaining call
options result from previous banking arrangements.
BREAK EVEN PRICE PER OUNCE OF GOLD
A major external factor that may have a marked effect on liquidity, either
positive or negative, is the price of gold bullion on international markets. The
Company's break-even price per ounce of gold for the year ending December 31,
1997 is estimated to be $341 compared to the year ended December 31, 1996 actual
of $340 and the break-even price of $405, on an annualized basis, for the six
months ended December 31, 1995, $350 for the fiscal year ended June 30, 1995 and
$327 for the fiscal year ended June 30, 1994. The break-even price of gold
includes all costs, including depreciation and depletion, royalties, corporate
administration and exploration. Depreciation and depletion is projected to be
$86 per ounce of gold for the year ending December 311997, compared to the
actual of $87 per ounce of gold for the year ending December 31 1996, $102, on
an annualized basis, for the six months ended December 31, 1995, $85 for the
fiscal year ended June 30, 1995 and $88 for the fiscal year ended June 30, 1994.
On a purely cash basis, the break-even price per ounce of gold is projected to
be $255 for the fiscal year ending December 31, 1997, which is comparable to
that for the fiscal years ended December 31, 1996, and June 30, 1995 and 1994.
Any sustained price per ounce for gold over or under these prices will
appreciably affect the Company's general liquidity position, and will
substantially increase or decrease revenues, earnings and cashflow as the case
may be.
<PAGE> 56
- 56 -
REGULATORY, ENVIRONMENTAL AND OTHER RISK FACTORS
RECLAMATION
The Company generally is required to mitigate long-term environmental impacts by
stabilizing, contouring, reshaping and revegetating various portions of a site
once mining and processing are completed. Reclamation efforts are conducted in
accordance with detailed plans which have been reviewed and approved by the
appropriate regulatory agencies. Whenever feasible, reclamation is conducted
concurrently with mining. During the past three years, reclamation expenditures
have not been material.
Standard open-pit leaching techniques have been established to meet reclamation
requirements imposed by regulatory authorities. Due to the impervious qualities
of the heap leach pad and the closed nature of the leaching system, the Company
believes that its mining operations have a relatively modest effect on the
environment.
Though the Company believes that its mining operations are in compliance with
all present health, safety and environmental rules and regulations there is
always some uncertainty associated with such due to the complexity and
application of such rules and regulations. The Company does not anticipate that
the cost of compliance with existing environmental laws and regulations will
have a material impact on its earnings in the foreseeable future. However,
possible future health, safety and environmental legislation, regulations and
actions could cause additional expense, capital expenditures, restrictions and
delays in the activities of the Company, the extent of which cannot be
predicted. The Company made no material capital expenditures for environmental
control facilities, other than designed monitoring systems at the Picacho and
Rand Mines, during the year ended December 31, 1996, the six months ended
December 31, 1995 and the fiscal year ended June 30, 1995 and estimates that it
will make no material capital expenditures in this area during the fiscal year
ending December 31, 1996, other than monitoring systems incorporated in leach
pad construction and expansion programs. At the corporate level, an
Environmental Compliance Committee and Policy Statement were established to
assure measurable standards for internal environmental audits for review by the
Board of Directors. The Committee has been active and is satisfied the Company
is complying with regulatory parameters.
Legislation has been introduced in prior sessions of the U.S. Congress to make
significant revisions to the U.S. General Mining Law of 1872 which would affect
the Company's unpatented mining claims on federal lands, part of which would be
the imposition of a royalty on gold production. Any levy of the type proposed
will only apply to unpatented federal lands
<PAGE> 57
- 57 -
and accordingly will have an insignificant effect on the economics of the
Picacho Mine and Rand's production from the Yellow Aster Pit. It cannot be
predicted if these proposals will become law, however, should a gross royalty
become law, it will affect the profitability of Rand's production from the
Baltic and Lamont Pits and the profitability of the Imperial Project. The
current estimates are that a 5% net profits interest could be the rate of
royalty when it is finalized. A net profits royalty of 5% to the U.S.
government, which may or may not be adequate, was included in the final
feasibility study for the Imperial Project and is included in the estimated
total cost of production per ounce of $292 for the project.
The Company's mineral development and mining activities and profitability
involve significant risks due to numerous factors outside of its control,
including the price of gold, risks inherent in mining, foreign exchange
fluctuations and the above-described regulatory matters.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
Page
<S> <C>
Financial Statements
Report of Independent Chartered Accountants 58
Consolidated Balance Sheets at December 31, 1996 and
December 31, 1995 59
Consolidated Statements of Operations for the year ended December 31,
1996, the six months ended December 31, 1995,
and for the years ended June 30, 1995 and 1994 60
Consolidated Statements of Retained Earnings for the year ended
December 31, 1996, the six months ended December 31, 1995, and
for the years ended June 30, 1995 and 1994 61
Consolidated Statements of Changes in Financial Position for the year
ended December 31, 1996, the six months ended
December 31, 1995, and for the years ended June 30, 1995 and 1994 62
Notes to Consolidated Financial Statements 63
</TABLE>
<PAGE> 58
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Glamis Gold Ltd.
We have audited the consolidated balance sheets of Glamis Gold Ltd. as at
December 31, 1996 and 1995 and the consolidated statements of earnings, retained
earnings and changes in financial position for the year ended December 31, 1996,
for the six month period ended December 31, 1995 and for each of the years ended
June 30, 1995 and 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1996
and 1995 and the results of its operations and the changes in its financial
position for the year ended December 31, 1996, for the six month period ended
December 31, 1995 and for each of the years ended June 30, 1995 and 1994 in
accordance with generally accepted accounting principles in Canada.
Accounting principles generally accepted in Canada vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operations for the year ended December 31, 1996,
for the six month period ended December 31, 1995 and for each of the years ended
June 30, 1995 and 1994 and shareholders' equity as at December 31, 1996 and 1995
to the extent summarized in note 11 to the consolidated financial statements.
Signed: "KPMG"
Chartered Accountants
Vancouver, Canada
January 31, 1997
<PAGE> 59
GLAMIS GOLD LTD.
Consolidated Balance Sheets
(Expressed in thousands of United States dollars)
December 31, 1996 and 1995
<TABLE>
<CAPTION>
=========================================================================================
1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 26,493 $ 4,162
Accounts receivable 206 293
Taxes recoverable - 404
Inventories (note 3) 16,124 12,493
Prepaid expenses 258 310
- -----------------------------------------------------------------------------------------
43,081 17,662
Plant and equipment and mine development costs (note 4) 59,898 50,459
Other assets (note 5) 4,995 1,637
- -----------------------------------------------------------------------------------------
$107,974 $ 69,758
=========================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 3,306 $ 2,262
Taxes payable 497 -
Royalties payable 554 262
- -----------------------------------------------------------------------------------------
4,357 2,524
Reserve for reclamation costs (note 13(c)) 1,578 1,163
Deferred income taxes 1,151 1,462
- -----------------------------------------------------------------------------------------
7,086 5,149
Shareholders' equity:
Share capital (note 7):
Authorized:
50,000,000 common shares without par value
5,000,000 preferred shares, $10 par value,
issuable in Series
Issued and fully paid:
31,004,707 (1995 - 26,386,707) common shares 88,296 56,076
Contributed surplus 63 63
Retained earnings 12,529 8,470
- -----------------------------------------------------------------------------------------
100,888 64,609
Commitments and contingencies (notes 4 and 13)
- -----------------------------------------------------------------------------------------
$107,974 $ 69,758
=========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
On behalf of the Board:
"A Dan Rovig" Director "J. M. Billingsley" Director
- ----------------------- -----------------------------
<PAGE> 60
GLAMIS GOLD LTD.
Consolidated Statements of Operations
(Expressed in thousands of United States dollars)
<TABLE>
<CAPTION>
===================================================================================================
Six months
Year ended ended Years ended June 30,
December 31, December 31, ----------------------
1996 1995 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from gold production $ 46,739 $ 17,155 $ 39,032 $ 39,156
Cost of production 24,353 11,873 20,552 20,135
- ---------------------------------------------------------------------------------------------------
22,386 5,282 18,480 19,021
Expenses:
Depreciation and depletion 10,590 4,662 8,577 9,173
Royalties 2,805 953 2,020 1,788
Exploration 1,038 67 1,795 1,038
Selling, general and administrative 3,223 1,448 2,854 2,571
- ---------------------------------------------------------------------------------------------------
17,656 7,130 15,246 14,570
- ---------------------------------------------------------------------------------------------------
Earnings (loss) from operations 4,730 (1,848) 3,234 4,451
Interest and other income (expense) (note 8) 777 (337) 505
387
Interest on long-term debt (215) (95) (216) (44)
- ---------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 5,292 (2,280) 3,523 4,794
Provision for income taxes (note 9):
Current 1,544 (288) 921 1,510
Deferred (311) (131) (86) (283)
- ---------------------------------------------------------------------------------------------------
1,233 (419) 835 1,227
- ---------------------------------------------------------------------------------------------------
Net earnings (loss) $ 4,059 $ (1,861) $ 2,688 $ 3,567
===================================================================================================
Primary earnings (loss) per share $ 0.15 $ (0.07) $ 0.10 $ 0.14
===================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 61
GLAMIS GOLD LTD.
Consolidated Statements of Retained Earnings
(Expressed in thousands of United States dollars)
<TABLE>
<CAPTION>
================================================================================================
Six months
Year ended ended Years ended June 30,
December 31, December 31, ----------------------
1996 1995 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retained earnings, beginning of period $ 8,470 $ 11,500 $ 9,970 $ 7,517
Net earnings (loss) 4,059 (1,861) 2,688 3,567
Dividends - (1,169) (1,158) (1,114)
- ------------------------------------------------------------------------------------------------
Retained earnings, end of period $ 12,529 $ 8,470 $ 11,500 $ 9,970
================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 62
GLAMIS GOLD LTD.
Consolidated Statements of Changes in Financial Position
(Expressed in thousands of United States dollars)
<TABLE>
<CAPTION>
=========================================================================================================
Six months
Year ended ended Years ended June 30,
December 31, December 31, ----------------------
1996 1995 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash provided by (used in):
Operations:
Net earnings (loss) $ 4,059 $ (1,861) $ 2,688 $ 3,567
Items not affecting working capital:
Depreciation and depletion 10,590 4,662 8,577 9,173
Amortization of financing costs 71 51 106 114
Reserve for reclamation costs 415 115 197 143
Deferred income taxes (311) (131) (86) (283)
Loss (gain) on sale of investments (627) 607 - -
Net changes in non-cash working capital
balances relating to operations (1,256) (3,648) 1,434 (4,663)
- ---------------------------------------------------------------------------------------------------------
12,941 (205) 12,916 8,051
Financing:
Financing costs - - (115) -
Contracts payable - - - (108)
Convertible debentures - - - (7,580)
Issue of common shares 32,220 - 3,309 8,871
Dividends - (1,169) (1,158) (1,114)
- ---------------------------------------------------------------------------------------------------------
32,220 (1,169) 2,036 69
Investments:
Investments, net of proceeds (2,802) 308 (915) _
Plant and equipment, net of disposals (17,614) (4,060) (5,341) (6,925)
Mineral property acquisition and mine
development costs (2,414) (3,930) (7,157) (5,628)
Other assets - (915) (220) (257)
- ---------------------------------------------------------------------------------------------------------
(22,830) (8,597) (13,633) (12,810)
- ---------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents
during the period 22,331 (9,971) 1,319 (4,690)
Cash and cash equivalents, beginning of period 4,162 14,133 12,814 17,504
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 26,493 $ 4,162 $ 14,133 $ 12,814
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 63
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
1. NATURE OF OPERATIONS AND PRESENTATION:
The Company and its wholly-owned subsidiaries are engaged in the
exploration, development and extraction of precious metals in the State of
California in the United States of America and in the State of Chihuahua in
the Republic of Mexico and exploration and development on Sulawesi Island in
Indonesia.
Effective with the December 31, 1995 fiscal period, the Company changed its
fiscal period end from June 30 to December 31.
2. SIGNIFICANT ACCOUNTING POLICIES:
(a) Generally accepted accounting principles:
These consolidated financial statements have been prepared in accordance
with accounting principles and practices that are generally accepted in
Canada, which conform, in all material respects, with those generally
accepted in the United States, except as explained in note 11.
(b) Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its subsidiaries. As at December 31, 1996 the Company's
active subsidiaries are wholly-owned and are as follows:
Glamis Gold Inc.
Chemgold, Inc.
Rand Mining Company
Glamis Gold Exploration Inc.
Minera Glamis, S.A. de C.V.
(c) Cash equivalents:
Cash equivalents are highly liquid investments, such as term deposits
with major financial institutions, having original maturities of three
months or less, that are readily convertible to contracted amounts of
cash.
(d) Inventories:
(i) Finished goods inventory is stated at market less refinery
charges.
(ii) Work-in-progress inventory, which is ore on the leach pads,
consists of mining costs related to the ore being processed and
is stated at the lower of cost and net realizable value. These
costs will be charged to operations and included in cost of
production on the basis of ounces of gold recovered. Based upon
actual gold recoveries and operating plans, the Company
continuously evaluates and refines estimates used in determining
the costs charged to operations and the carrying value of costs
associated with the ore on the leach pads.
(iii) Supplies and spare parts inventory is stated at the lower of
cost, using the first-in, first-out method, and replacement
cost.
<PAGE> 64
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 2
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(e) Plant and equipment:
Plant and equipment are stated at cost less accumulated depreciation.
Pads are depreciated on a unit-of-production basis over estimated
reserves expected to be processed from the pad. Certain mining equipment
is depreciated based on hours used over their estimated useful lives.
All other asset categories are depreciated using the straight-line
method over their estimated useful lives. Estimated useful lives for
mining equipment and major asset categories range from three to seven
years. Maintenance and repairs are charged to expense as incurred.
Replacements and major improvements are capitalized.
(f) Mine development costs:
(i) Property acquisition and mine development costs are recorded at
cost and amortized by the unit-of-production method based on
recoverable gold reserves. If it is determined that the deferred
costs related to a property are not recoverable over its
production life, the unrecoverable portion is charged to
earnings in the period such determination is made.
(ii) Mine development costs for current production are charged to
earnings as incurred. Mining costs associated with waste rock
removal are deferred and charged to cost of production on the
basis of life-of-mine average stripping rates for the mine. Mine
development costs incurred to expand operating capacity, develop
new ore bodies or develop mine areas in advance of current
production are deferred and then amortized on a
unit-of-production basis. General and administrative costs are
expensed as incurred.
(iii) Expenditures incurred on properties identified as having
development potential are deferred on a project basis until the
viability of the project is determined. If a project is
abandoned, the accumulated project costs are charged to earnings
in the period in which the determination is made. Exploration
expenditures on properties identified as not having development
potential are charged to earnings as incurred.
(g) Capitalization of interest:
Interest on long-term debt is capitalized and included in plant and
equipment and mine development costs on the basis of expenditures
incurred for the acquisition and development of projects, without
reference to specific borrowings for these projects, while the projects
are actively being prepared for proposed production. Capitalization is
discontinued when the asset commences commercial production.
(h) Reserve for reclamation costs:
Minimum standards for mine reclamation have been established by various
governmental agencies which affect certain operations of the Company. A
reserve for mine reclamation costs has been established for restoring
certain mining areas based upon estimates of costs to comply with
existing reclamation standards. Mine reclamation costs for operating
properties are accrued using the unit-of-production method.
<PAGE> 65
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 3
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(i) Revenue recognition:
Revenue is recognized when gold is ready for shipment to the refinery.
(j) Income taxes:
(i) Certain expenses are reported in different periods for income
tax and financial statement reporting purposes. The principal
differences result from certain mine development costs which are
expensed as incurred for income tax purposes and deferred and
charged to operations on the unit-of-production method for
financial statement reporting purposes.
(ii) No provision has been made for withholding tax to which
undistributed earnings of foreign subsidiaries may be subject
when remitted to the Company. Management intends that all
undistributed income in foreign subsidiaries be reinvested in
those subsidiaries indefinitely to provide for corporate
expansion.
(k) Translation of foreign currencies:
The Company's Canadian operations are considered self-sustaining
operations for the treatment of foreign exchange translation gains or
losses arising from consolidation. Accordingly, the Company uses the
current rate method to translate the accounts of its Canadian operations
to United States dollars as follows:
(i) Assets and liabilities at rates of exchange in effect at the end
of the period;
(ii) Revenues and expenses at the average exchange rate during the
period;
(iii) Material exchange gains and losses arising from translation are
deferred and included as a separate component of shareholders'
equity.
The Company's Mexican subsidiary, Minera Glamis, S.A. de C.V., is
treated as an integrated operation and the related accounts are
translated into United States dollars using the temporal method as
follows:
(i) Revenue and expenses at average exchange rates for each period;
(ii) Monetary items at the rates of exchange prevailing at the
balance sheet dates;
(iii) Non-monetary items at the historical exchange rates; and
(iv) Exchange gains and losses arising from translation are included
in the determination of net earnings for each period, except for
exchange gains or losses relating to non-current monetary assets
or liabilities, which are deferred and amortized over the
remaining life of the asset or liability.
<PAGE> 66
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 4
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(l) 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. Significant areas requiring the use of
management estimates relate to the determination of mineral reserves,
reclamation and environmental obligations, impairment of assets, useful
lives for depreciation, depletion and amortization, and valuation
allowances for deferred tax assets. Actual results could differ from
those estimates.
(m) Comparative figures:
Certain of the prior periods comparative figures have been reclassified
to conform with the presentation adopted for the current period.
3. INVENTORIES:
<TABLE>
<CAPTION>
=====================================================================
December 31, December 31,
1996 1995
---------------------------------------------------------------------
<S> <C> <C>
Finished goods $4,645 $2,737
Work-in-progress 10,811 8,915
Supplies and spare parts 668 841
---------------------------------------------------------------------
$16,124 $12,493
=====================================================================
</TABLE>
4. PLANT AND EQUIPMENT AND MINE DEVELOPMENT COSTS:
<TABLE>
<CAPTION>
=================================================================================================
December 31, December 31,
1996 1995
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Plant and equipment and mine development costs, net of accumulated
depreciation and depletion of $55,464 (December 31, 1995 - $44,878):
Plant and equipment $31,631 $19,895
Mineral property acquisition costs 10,625 12,307
Mine development costs 17,642 18,257
-------------------------------------------------------------------------------------------------
$59,898 $50,459
=================================================================================================
</TABLE>
<PAGE> 67
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 5
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
4. PLANT AND EQUIPMENT AND MINE DEVELOPMENT COSTS (CONTINUED):
<TABLE>
<CAPTION>
=======================================================================================
December 31, December 31,
1996 1995
---------------------------------------------------------------------------------------
<S> <C> <C>
Allocated to the projects as follows:
Rand Mine (note 4(a)) $40,754 $31,381
Picacho Mine (note 4(b)) 5,356 7,918
Cieneguita Project (note 4(c)) 2,047 2,191
Exploration and development properties (note 4(d)) 11,439 8,593
Administrative offices 302 376
---------------------------------------------------------------------------------------
$59,898 $50,459
=======================================================================================
</TABLE>
During the year ended December 31, 1996, the Company capitalized $ nil (six
months ended December 31, 1995 - $ nil, year ended June 30, 1995 - $ nil;
1994 - $291,000) of interest on long-term debt to plant and equipment and
mine development costs.
(a) Rand Mine:
<TABLE>
<CAPTION>
=====================================================================
December 31, December 31,
1996 1995
---------------------------------------------------------------------
<S> <C> <C>
Plant and equipment $49,047 $32,792
Mineral property acquisition costs 13,290 13,290
Mine development costs 15,255 14,888
---------------------------------------------------------------------
77,592 60,970
Less accumulated depletion and depreciation 36,838 29,589
---------------------------------------------------------------------
$40,754 $31,381
=====================================================================
</TABLE>
The Rand Mine is comprised of three ore bodies: the Yellow Aster pit,
the Baltic pit and the Lamont pit; and three leach pad and related
processing facilities: the Yellow Aster facilities, the Baltic
facilities and the Rand facilities (note 13(c)).
(i) Yellow Aster:
An agreement to obtain mining and exploration rights on the
Yellow Aster pit and facilities provides the Company the option
to receive an assignment or transfer of the underlying land
lease. All option payments have been made and are included in
mine development costs.
Under the terms of the option agreement, the Company is required
to pay gross monthly royalties of 6% of smelter returns, against
which certain costs may be deducted, from the Yellow Aster pit
and facilities. The minimum monthly royalty payment required by
this agreement is $4,000.
<PAGE> 68
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 6
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
4. PLANT AND EQUIPMENT AND MINE DEVELOPMENT COSTS (CONTINUED):
(a) Rand Mine (continued):
(ii) Baltic and Lamont:
Certain of the Baltic pit and facilities and the Lamont pit are
situated on patented claims, which are subject to various
agreements with the owners of the underlying claims that provide
for minimum property payments and royalties on production from
the claims. The royalties average 1-1/2% of net smelter returns
and the minimum annual property payments due over the next five
years are approximately as follows:
<TABLE>
<CAPTION>
=========================================================
Minimum
Fiscal year property payments
---------------------------------------------------------
<S> <C>
1997 $145
1998 140
1999 284
2000 134
2001 134
=========================================================
</TABLE>
(b) Picacho Mine:
<TABLE>
<CAPTION>
=====================================================================
December 31, December 31,
1996 1995
---------------------------------------------------------------------
<S> <C> <C>
Plant and equipment $ 8,106 $ 7,669
Mineral property acquisition costs 5,799 5,799
Mine development costs 9,275 9,275
---------------------------------------------------------------------
23,180 22,743
Less accumulated depletion and depreciation 17,824 14,825
---------------------------------------------------------------------
$ 5,356 $ 7,918
=====================================================================
</TABLE>
(i) Lease:
The Picacho Mine is located on leased property and operates
under a conditional use permit. The lease, which expires in
1999, contains a 20 year renewal option.
(ii) Royalties:
The Company is required to pay monthly royalties of 10% of net
smelter returns under terms of the lease agreement with the
Picacho Mine claim owners. The minimum annual royalty payment
required is $30,000 when gold is $200 per ounce. The minimum
royalty amount increases or decreases by $1,000 per year for
each $5 per ounce change in the gold price.
<PAGE> 69
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 7
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
4. PLANT AND EQUIPMENT AND MINE DEVELOPMENT COSTS (CONTINUED):
(c) Cieneguita Project:
<TABLE>
<CAPTION>
===========================================================================
December 31, December 31,
1996 1995
---------------------------------------------------------------------------
<S> <C> <C>
Property and equipment $ 541 $ 503
Mineral property acquisition and development costs 1,797 1,819
---------------------------------------------------------------------------
2,338 2,322
Less accumulated depletion and depreciation 291 131
---------------------------------------------------------------------------
$2,047 $2,191
===========================================================================
</TABLE>
In August 1992, the Company signed a letter agreement with Aquiline
Resources Inc. ("Aquiline") (note 5(a)), a company with a common
director, to earn a 60% interest in the Cieneguita Project (the
"Project"), a mineral concession located in the State of Chihuahua,
Mexico. During the year ended June 30, 1995, the Company met the terms
of the agreement, as amended, and earned a 60% interest in the Project.
In May 1995, the Company and Aquiline entered into a joint venture
agreement to bring the Project into production. Under the terms of this
joint venture agreement, the Company continues to be the operator of the
Project; has contributed certain equipment to the joint venture at an
agreed value; and funded Aquiline's 40% share of the costs required to
bring the Project into production. The Company will receive 100% of the
net income from metals produced from the Project until such time as the
Company has recovered Aquiline's 40% share of the total contributions,
plus interest at bank prime plus 2%, at which time further profits will
be shared in proportion to the venturer's participating interest at that
time, which currently is 40% to Aquiline and 60% to the Company. At
December 31, 1996, Aquiline's 40% share of the total contributions
funded by the Company was $311,000 (December 31, 1995 - $311,000) (note
5).
Summarized financial information of the Company's 60% share of the
Cieneguita Joint Venture is as follows:
<TABLE>
<CAPTION>
========================================================================
December 31, December 31,
1996 1995
------------------------------------------------------------------------
<S> <C> <C>
Current assets, consisting primarily of accounts
receivable and finished goods inventories $ 244 $ 251
Plant and equipment and mine development costs 340 310
Accounts and royalties payable (6) (32)
------------------------------------------------------------------------
Venturers' equity $ 578 $ 529
========================================================================
</TABLE>
<PAGE> 70
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 8
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
4. PLANT AND EQUIPMENT AND MINE DEVELOPMENT COSTS (CONTINUED):
(c) Cieneguita Project (continued):
<TABLE>
<CAPTION>
=====================================================================
Year ended Period ended
December 31, December 31,
1996 1995
---------------------------------------------------------------------
<S> <C> <C>
Revenues from gold production $ 485 $ 217
Expenses (434) (155)
---------------------------------------------------------------------
Net earnings $ 51 $ 62
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
=======================================================================
Year ended Period ended
December 31, December 31,
1996 1995
-----------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used in):
Operations $ 207 $(142)
Financing (17) 481
Investments (70) (328)
-----------------------------------------------------------------------
Increase in cash and cash equivalents 120 11
Cash and cash equivalents, beginning of period 11 -
-----------------------------------------------------------------------
Cash and cash equivalents, end of period $ 131 $ 11
=======================================================================
</TABLE>
(d) Exploration and development properties:
<TABLE>
<CAPTION>
====================================================================
December 31, December 31,
1996 1995
--------------------------------------------------------------------
<S> <C> <C>
Imperial Project (note 4(d)(i)):
Plant and equipment - deposit $ 777 $ -
Mineral property acquisition costs 3,330 3,311
Mine development costs 6,270 4,279
--------------------------------------------------------------------
10,377 7,590
Buckboard and Lamont West (note 4(d)(ii)) 385 385
La Jojoba (note 4(d)(iii)) - 618
Gunung Pani Project (note 4(d)(iv)) 486 -
Mina Project (note 4(d)(v)) 191 -
--------------------------------------------------------------------
$11,439 $ 8,593
====================================================================
</TABLE>
<PAGE> 71
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 9
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
4. PLANT AND EQUIPMENT AND MINE DEVELOPMENT COSTS (CONTINUED):
(d) Exploration and development properties (continued):
(i) Imperial Project:
The Imperial Project consists of certain unpatented mining
claims located in eastern Imperial County in the State of
California. Consideration given to acquire the Company's 100%
interest in the Imperial Project included a net smelter return
royalty of 1-1/2% on gold production from the property. At
December 31, 1996, the Company has entered into contracts for
plant and equipment purchases totalling approximately $7,251,000
of which $777,000 has been paid as a deposit. Permits to operate
the project are being sought from the appropriate regulatory
authorities and are expected to be received in 1997.
(ii) Buckboard and Lamont West:
On April 23, 1993, the Company acquired the Buckboard and Lamont
West properties which are located adjacent to the Yellow Aster
and Baltic Projects.
(iii) La Jojoba:
In May 1995, the Company entered into an option agreement with
Aquiline to earn an undivided 75% interest in the La Jojoba
property located in the State of Sonora, Mexico. The Company was
required to fund the exploration and development expenditures,
make all property payments as required by the underlying
agreements with the property owner and prepare a feasibility
study on the property. In 1996, the Company elected not to
proceed with this agreement and wrote off the related
exploration and development expenditures totalling $848,000.
(iv) Gunung Pani Project:
During 1996, the Company entered into an option agreement with
Paramount Ventures and Finance Inc. ("Paramount") (note 5(a)) to
earn a 40% interest in the Gunung Pani Gold Project located on
Sulawesi Island in Indonesia. In order to earn its 40% interest,
the Company is required to fund the exploration and development
expenditures and prepare a feasibility study on the property.
Paramount is responsible for paying all other costs of
maintaining the property in good standing. On completion of a
positive feasibility study, the Company and Paramount will each
contribute 50% of the costs of the Project.
(v) Mina Project:
In June 1996, the Company entered into an agreement with Mina
Gold Mine Inc. ("Mina") giving the Company the exclusive right
to explore mining claims and other properties in the Bell Mining
District, Mineral County, Nevada through December 31, 1998. The
Company has the option to purchase the property for $1,000,000
and is required to pay Mina minimum royalty payments and satisfy
minimum work commitments during the option period.
<PAGE> 72
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 10
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
5. OTHER ASSETS:
<TABLE>
<CAPTION>
=================================================================================================
December 31, December 31,
1996 1995
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment in other companies, at cost (quoted market value $7,303,000;
December 31, 1995 - $3,040,000)
Aquiline Resources Inc. (note 5(a)) $ - $ 600
Pacific Amber Resources Ltd. (note 5(b)) 1,325 593
Paramount Ventures and Finance Inc. (note 5(c)) 3,306 -
-------------------------------------------------------------------------------------------------
4,631 1,193
Receivable from Aquiline Resources Inc. (note 4(c)) 311 311
Loan origination costs and deferred interest (note 5(d)) 47 118
Other 6 15
-------------------------------------------------------------------------------------------------
$4,995 $1,637
=================================================================================================
</TABLE>
(a) Investment in Aquiline Resources Inc.:
At December 31, 1995, the Company held 1,590,908 common shares of
Aquiline, the company which held a 100% interest in the Cieneguita
Project (note 4(c)), representing approximately 32% of its outstanding
common shares. During 1996, the Company sold its investment for cash
proceeds and recorded a gain of $558,000. The Company has accounted for
its investment on the cost basis as the Company did not exercise
significant influence over the strategic operating, investing, and
financing policies of Aquiline.
(b) Investment in Pacific Amber Resources Ltd.:
During 1995, the Company purchased 660,000 special warrants of Pacific
Amber Resources Ltd. ("Pacific Amber"), a company with a common
director, by way of two private placements. A total of 360,000 special
warrants were purchased at a price of Cdn. $0.70 per special warrant and
300,000 special warrants at a price of Cdn. $1.85 per special warrant.
Each special warrant entitled the holder to receive one common share and
one share purchase warrant with each share purchase warrant entitling
the holder to purchase one common share at stipulated prices.
During 1996, the Company converted its special warrants to common shares
and share purchase warrants and exercised 360,000 share purchase
warrants at Cdn. $1.00 per share and 300,000 share purchase warrants at
Cdn. $2.20 per share. In addition, 14,100 common shares were sold for
cash proceeds and a gain of $69,000 was recorded. At December 31, 1996
the Company held 1,305,900 common shares of Pacific Amber, representing
approximately 8% of its outstanding common shares.
The Company's investment in Pacific Amber has been accounted for on the
cost basis.
<PAGE> 73
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 11
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
5. OTHER ASSETS (CONTINUED):
(c) Paramount Ventures and Finance Inc.:
During 1996, the Company acquired 2,000,000 special warrants of
Paramount, the company that holds a right to an 80% interest in the
Gunung Pani Gold project (note 4(d)(iv)), at Cdn. $2.25 per special
warrant by way of private placement. Each special warrant entitles the
holder to receive one common share and one-half of a share purchase
warrant with each whole share purchase warrant entitling the holder to
purchase one common share at a price of Cdn. $2.50 per share within one
year from the date of issue. At December 31, 1996, if the special
warrants were converted into shares and warrants, the Company would have
held approximately 6% of the outstanding common shares of Paramount.
The Company's investment in Paramount has been accounted for on the cost
basis.
(d) Loan origination costs and deferred interest:
These costs are being charged to earnings over the term of the banking
agreement (note 13(b)).
6. CONVERTIBLE DEBENTURES:
During 1991, the Company issued $12,000,000 of 8% convertible subordinated
notes which were converted into 8% convertible subordinated debentures
maturing on October 1, 1996. The debentures were convertible any time at the
rate of 345 common shares per $1,000 principal amount of debentures,
representing a fixed conversion price of Cdn. $3.35 per share.
During the year ended June 30, 1994, the Company gave notice of redemption,
as allowed under the terms of the debenture agreement, and all of the
remaining outstanding debentures were converted by December 15, 1993 (note
7).
<PAGE> 74
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 12
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
7. SHARE CAPITAL:
(a) Issued and fully paid:
<TABLE>
<CAPTION>
=======================================================================================================
Number
of shares Amount
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance as at June 30, 1993 22,954,607 $ 44,211
Issued during the year:
For cash consideration under the terms of directors' and
employees' stock option 326,000 1,291
On conversion of debentures (note 6) 2,615,100 7,265
-------------------------------------------------------------------------------------------------------
Balance as at June 30, 1994 25,895,707 52,767
Issued during the year:
For cash consideration under the terms of directors' and
employees' stock option 491,000 3,309
-------------------------------------------------------------------------------------------------------
Balance as at June 30, 1995 and December 31, 1995 26,386,707 56,076
Issued during the year:
For cash consideration under the terms of directors' and
employees' stock options 118,000 785
For cash consideration pursuant to an underwriting agreement
dated November 18, 1996 4,500,000 31,435
-------------------------------------------------------------------------------------------------------
Balance as at December 31, 1996 31,004,707 $ 88,296
=======================================================================================================
</TABLE>
(b) Stock options:
At December 31, 1996, a total of 650,000 common shares for directors
and officers and 300,000 common shares for employees were reserved for
issuance under options granted. These options expire at varying dates
to October 1, 2001 and are exercisable at prices ranging from Cdn.
$7.875 to Cdn. $12.625 per share.
Stock options granted during the year ended December 31, 1996 under the
terms of directors' and employees' stock options were at prices ranging
from Cdn. $9.25 to Cdn. $9.30 per share (six month period ended
December 31, 1995 - Cdn. $7.875 to Cdn. $9.25 per share).
<PAGE> 75
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 13
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
7. SHARE CAPITAL (CONTINUED):
(b) Stock options (continued):
A continuity of directors' and employees' stock options is as follows:
<TABLE>
<CAPTION>
==============================================================================================
Six months Years ended
Year ended ended June 30,
December 31, December 31, -----------------
1996 1995 1995 1994
(In thousands of common shares)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance outstanding, beginning of period 768 679 467 588
Cancelled during the period - (89) - -
Granted during the period 300 178 703 205
Exercised at an average price of Cdn. $9.21
(December 31, 1995 - Cdn. $ nil; June 30,
1995 - Cdn. $9.31; 1994 - Cdn. $5.25) (118) - (491) (326)
----------------------------------------------------------------------------------------------
Balance outstanding, end of period 950 768 679 467
==============================================================================================
</TABLE>
8. INTEREST AND OTHER INCOME (EXPENSE):
<TABLE>
<CAPTION>
==============================================================================================================
Six months Years ended
Year ended ended June 30,
December 31, December 31, --------------------
1996 1995 1995 1994
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 189 $ 271 $ 654 $ 551
Foreign exchange loss (39) (1) (149) (164)
Gain (loss) on sale of investments (notes 5(a) and (b)) 627 (607) - -
--------------------------------------------------------------------------------------------------------------
$ 777 $(337) $ 505 $ 387
==============================================================================================================
</TABLE>
In May 1995, the Company acquired 200,000 common shares of Eldorado
Corporation Ltd. ("Eldorado") through open market purchases. In June
1995, the Company offered, under certain conditions, to purchase all of
the outstanding common shares, special warrants and convertible
debentures of Eldorado by way of a take-over bid. Costs associated with
the take-over bid were deferred and included in the Company's investment
in Eldorado at June 30, 1995.
In August 1995, as the minimum number of shares of Eldorado required
under the offer, as amended, were not tendered, the Company allowed its
offer to expire and subsequently sold the Eldorado shares.
A loss of $607,000 was recorded on the sale of the shares and write-off
of the costs associated with the take-over bid.
<PAGE> 76
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 14
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
9. INCOME TAXES:
The provision for income taxes differs from the Canadian federal and British
Columbia provincial statutory rate as follows:
<TABLE>
<CAPTION>
======================================================================================================================
Year ended Six months ended Years ended June 30,
December 31, December 31, -----------------------------------------
1996 1995 1995 1994
Amount Rate Amount Rate% Amount Rate% Amount Rate%
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income tax expense
computed at statutory
rates $ 2,414 45.6 $(1,040) (45.6) $ 1,603 45.5 $ 2,174 45.3
Permanent differences (105) (2.0) 84 3.7 (36) (1.0) 135 2.8
Foreign taxes different
from statutory rate (1,163) (21.9) 345 15.1 (599) (17.0) (909) (18.9)
Utilization of deductions
not reflected in the
accounts (486) (9.2) (47) (2.1) (311) (8.9) (332) (6.9)
Other 573 10.8 239 10.5 178 5.1 159 3.3
----------------------------------------------------------------------------------------------------------------------
$ 1,233 23.3 $ (419) (18.4) $ 835 23.7 $ 1,227 25.6
======================================================================================================================
</TABLE>
(a) Potential future tax benefits:
At December 31, 1996, the Company has Canadian tax pools of
approximately Cdn. $3,100,000 and Mexican operating losses of New Pesos
$15 million (approximately $2,000,000) available which may be carried
forward and used to reduce certain taxable income in future years. The
potential income tax benefits related to these items have not been
reflected in the accounts.
(b) Deferred income taxes:
Deferred income tax recovery arising from reporting costs for tax
purposes at amounts differing from those charged to earnings are as
follows:
<TABLE>
<CAPTION>
================================================================================================
Six months Years ended
Year ended ended June 30,
December 31, December 31, -------------------
1996 1995 1995 1994
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation, depletion and amortization $(827) $(525) $(683) $(486)
Exploration and development cost 582 501 640 684
Revenue not recognized for tax purposes, net 238 3 (311) 212
Other (304) (110) 268 (693)
------------------------------------------------------------------------------------------------
$(311) $(131) $ (86) $(283)
================================================================================================
</TABLE>
<PAGE> 77
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 15
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
10. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT:
During 1996, the Company retroactively adopted new presentation and
disclosure standards with respect to financial instruments. The adoption
of the new standards has not changed earnings previously reported.
(a) Hedging:
In order to protect against the impact of declining gold prices, the
Company had previously entered into forward sales and option contracts
to effectively provide a minimum price for a portion of inventories and
future production. Contracted prices on spot deferred sales and options
are recognized in revenues as designated production is delivered to meet
commitments.
As at December 31, 1996, the Company had no outstanding spot deferred
forward sales contracts (December 31, 1995 - 8,450 ounces of gold at an
average price of $376 per ounce) and had written call options for 16,200
(December 31, 1995 - 32,000) ounces of gold at $415 (December 31, 1995 -
$400) per ounce expiring through December 1997.
(b) Carrying value and fair value of financial instruments:
Except as disclosed elsewhere in these financial statements, the
carrying amounts for the Company's financial instruments approximated
fair values, with the following exception:
<TABLE>
<CAPTION>
===========================================================================================
December 31, 1996 December 31, 1995
-------------------------------------------------------------------------------------------
Net carrying Fair Net carrying Fair
amount value amount value
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Off-balance sheet instruments:
Gold spot deferred forward
sales contracts $ - $ - $ - $(85)
===========================================================================================
</TABLE>
The fair value of forward sales contracts reflects the excess
(deficiency) of the average contract price compared to the quoted gold
price at period-end thereby presenting the unrealized gains (losses) in
respect of open contracts.
<PAGE> 78
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 16
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES:
Accounting under Canadian and United States generally accepted accounting
principles is substantially the same, except for the following:
(a) Change in ending date of financial year:
Effective December 31, 1995, the Company changed its fiscal year from
June 30 to December 31. United States accounting principles recommend
disclosure of condensed earnings information for the comparable period
in the notes to the financial statements. This information may be
unaudited.
Accordingly, unaudited condensed consolidated earnings information of
the Company for the six month period ended December 31, 1994 is as
follows:
<TABLE>
<S> <C>
Revenue $19,836
======================================================================
Gross profit $ 8,857
======================================================================
Income taxes $ 221
======================================================================
Net earnings $ 1,204
======================================================================
Earnings per share $ 0.05
======================================================================
</TABLE>
(b) Accounting for income taxes:
United States accounting principles require the use of the asset and
liability method of accounting for income taxes. Under the asset and
liability method, deferred income taxes are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
Under United States accounting principles, at December 31, 1996 and 1995
there would be no deferred income tax liability. The amount reported for
earnings for the December 31, 1996 fiscal year would be decreased by
$311,000, the amount reported for loss for the December 31, 1995 fiscal
period would be increased by $131,000, the amount reported for earnings
for the 1995 fiscal year would be reduced by $86,000 and the amount
reported for earnings for the 1994 fiscal year would be increased by
$1,679,000.
<PAGE> 79
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 17
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED):
(b) Accounting for income taxes (continued):
The tax effect of the Company's temporary differences that give rise to
the deferred income tax balance as at December 31, 1996 are deferred tax
assets of $6,550,000 (December 31, 1995 - $5,298,000) for Alternative
Minimum Tax credit carry forwards, inventory and the reserve for
reclamation costs, for which a valuation allowance of $nil (December 31,
1995 - $1,834,000) has been applied, and deferred tax liabilities of
$6,550,000 (December 31, 1995 - $3,464,000) primarily for plant and
equipment and mine development costs and revenue not recognized for tax
purposes.
(c) Accounting for investments in debt and equity securities:
Statement of Financial Accounting Standards No. 115, Accounting for
Investments in Debt and Equity Securities, requires that portfolio
investments that have readily determinable fair values and are held
principally for the purpose of selling them in the near term be
presented at fair value with their unrealized holding gains and losses
included in earnings. Investments that have readily determinable fair
values and, while not held principally for the purpose of selling them
in the near term, are available-for-sale and must also be presented at
fair value with their holding gains and losses reported in a separate
component of shareholders' equity until realized. Both of these types of
investments are presented on a cost basis under Canadian accounting
principles.
Under United States accounting principles, other assets and unrealized
holding gains in shareholders' equity at December 31, 1996 would each be
increased by $2,672,000 (December 31, 1995 - $1,847,000).
(d) Accounting for long-lived assets:
Statement of Accounting Standards No. 121, Accounting for the Impairment
of Long-Lived Assets and For Long-Lived Assets to be Disposed of, was
issued by the Financial Accounting Standards Board in March 1995 and is
effective for the current fiscal year. Adopting Statement 121 did not
result in any material differences in the consolidated financial
information presented under United States accounting principles.
(e) Stock based compensation:
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, was issued by the Financial Accounting
Standards Board in 1995 and is effective for the Company's current
fiscal year. The statement requires that stock-based compensation be
accounted for based on a fair value methodology, although it allows the
effects to be disclosed in the notes to the financial statements rather
that in the statement of operations, which the Company has elected to
do. The fair value of stock options granted to directors, officers and
employees during 1996 was estimated to be $158,000 and accordingly,
would have reduced reported earnings by that amount.
<PAGE> 80
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 18
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED):
(f) Computation of earnings per share:
Under United States accounting principles, the computation of primary
earnings per share includes common stock equivalents, such as common
stock options, warrants and convertible debentures. This method requires
that primary earnings per share be computed as if stock options and
warrants were exercised at the beginning of the fiscal period (or at the
time of issuance, if later), and as if the funds obtained thereby were
used to purchase common stock of the Company at the average market price
during the period. Fully diluted earnings per share shows the effect on
earnings per share which would result if the proceeds from the exercise
of common stock options and warrants were used to purchase the Company's
common stock at the higher of its market value at the end of the year or
the average value during the year.
(g) Statement of changes in financial position:
Under United States accounting principles, the changes in non-cash
working capital are disclosed in detail in the statement of changes in
financial position and the cash amount of interest and taxes paid is
required to be disclosed.
The net changes in non-cash working capital are as follows:
<TABLE>
<CAPTION>
=================================================================================================
Six months Years ended
Year ended ended June 30,
December 31, December 31, ----------------------
1996 1995 1995 1994
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accounts receivable $ 87 $ (124) $ 160 $ (294)
Taxes recoverable/payable 901 (302) 1,218 (676)
Inventories (3,632) (2,127) (968) (3,922)
Prepaid expenses 52 (53) 93 (94)
Accounts payable and accrued liabilities 1,044 (1,013) 1,079 191
Royalties payable 292 (29) (148) 132)
-------------------------------------------------------------------------------------------------
$(1,256) $(3,648) $ 1,434 $(4,663)
=================================================================================================
</TABLE>
During the year ended December 31, 1996, the Company paid $215,000 of
interest (six month period ended December 31, 1995 - $95,000; year ended
June 30, 1995 - $216,000; 1994 - $335,000) and paid $775,000 of taxes
(six month period December 31, 1995 - $ nil; year ended June 30, 1995 -
recovered $398,000; 1994 - paid $1,510,000).
<PAGE> 81
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 19
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED):
A reconciliation of the net earnings (loss) for the period as shown in these
consolidated financial statements to the net earnings (loss) for the period
in accordance with United States accounting principles, excluding the
effects of Statement 123, is as follows:
<TABLE>
<CAPTION>
=======================================================================================================
Six months Years ended
Year ended ended June 30,
December 31, December 31, ---------------------
1996 1995 1995 1994
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings (loss) for the period in these
consolidated financial statements $ 4,059 $(1,861) $ 2,688 $3,567
Adjustment for income taxes (311) (131) (86) 1,679
-------------------------------------------------------------------------------------------------------
Net earnings (loss) for the period using United
States accounting principles $ 3,748 $(1,992) $ 2,602 $5,246
=======================================================================================================
Primary earnings (loss) per share $ 0.14 $ (0.08) $ 0.10 $ 0.21
=======================================================================================================
Fully diluted earnings (loss) per share $ 0.14 $ (0.08) $ 0.10 $ 0.21
=======================================================================================================
</TABLE>
Shareholders' equity under United States accounting principles would be as
follows:
<TABLE>
<CAPTION>
================================================================
December 31,
--------------------
1996 1995
----------------------------------------------------------------
<S> <C> <C>
Shareholders' equity:
Common stock $ 88,296 $56,076
Contributed surplus 63 63
Unrealized holding gains 2,672 1,847
Retained earnings 13,680 9,932
----------------------------------------------------------------
$104,711 $67,918
================================================================
</TABLE>
12. RELATED PARTY TRANSACTIONS:
In addition to the related party transactions disclosed in notes 4(c),
4(d)(iii), 5(a) and 5(b), during the year ended December 31, 1996 the
Company incurred professional fees totalling $216,000 (six month period
ended December 31, 1995 - $169,000; year ended June 30, 1995 - $201,000;
1994 - $90,000) with a company with common directors and with a firm in
which an officer of the Company is a partner, of which $nil is included in
accounts payable and accrued liabilities as at December 31, 1996 (December
31, 1995 - $7,000).
<PAGE> 82
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 20
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
13. COMMITMENTS AND CONTINGENCIES:
(a) Operating leases:
The Company has entered into operating leases for office premises and
equipment. Minimum annual lease payments required are approximately as
follows:
<TABLE>
<CAPTION>
=====================================================================
Minimum
Fiscal year lease payments
---------------------------------------------------------------------
<S> <C>
1997 $172
1998 128
1999 105
=====================================================================
</TABLE>
(b) Banking agreement:
At December 31, 1996, the Company has a banking facility of $20,000,000
that is secured by all precious metals in any form, all tangible and
intangible personal property, all and any inventory, and all
indebtedness to the Company. The interest rate is based on the London
Interbank Offered Rate for selected borrowing periods or the United
States Federal Funds Rate for one day or greater periods, at the
Company's option, plus a fixed margin of 1.0%. Repayment terms of the
facility are based upon a quarterly repayment schedule, subject to a
final repayment date of December 1, 1998. As at December 31, 1996 there
were no cash borrowings under the existing banking facility but the
lender had provided letters of credit for $4,754,976 (December 31,
1995 - $4,741,831) to provide security for future reclamation costs.
(c) Legal proceedings:
During the process of obtaining the required permits to operate the Rand
facilities (note 4(a)) from the appropriate regulatory authorities in
California, the Company disclosed its anticipated water requirements to
be drawn from the regional water supply. Subsequent to receiving its
permits, two lawsuits were filed against the Company alleging that the
Company is pumping water from the regional water supply in excess of
that to which it is entitled. Both plaintiffs have requested a temporary
restraining order, a preliminary injunction and a permanent injunction
to limit the Company's current and planned use of water pumped from the
regional water supply and one plaintiff is claiming damages. During
1996, the request for a preliminary injunction was denied by the Court,
however, no prediction on the outcome of the remaining proceedings can
be made at this time.
<PAGE> 83
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 21
(Tables expressed in thousands of United States dollars)
Year ended December 31, 1996
Six months ended December 31, 1995
Years ended June 30, 1995 and 1994
================================================================================
14. POSSIBLE CONFLICT OF INTEREST AND DUTY:
During 1996, the Company's Chairman acquired the rights to a mineral
property which the Company had been evaluating with a view to a possible
acquisition. It appears that at the time of the acquisition, the Company's
Chairman was not aware that the Company's Reno office still had an open file
on the property even though it had terminated its evaluation activities. The
Company's Chairman subsequently transferred his rights to that property to a
company of which he and two other directors of the Company are directors and
officers. The Company's Corporate Governance Committee was concerned that by
the Company's Chairman acquiring the rights to the property prior to the
Company closing its file, and by not disclosing such to the Company, a
conflict of interest had arisen. The Committee commissioned an independent
legal review of the facts and the law relating to this situation which
concluded that it was arguable that the common directors placed themselves
in a position of conflict of interest and duty.
An independent report on the economic viability of the property demonstrated
that the property could not be economically placed into production based
upon the information that the Company had acquired on the property. The
Company's President and Chief Executive Officer also concluded that the
property was not and is not of economic interest to the Company.
Based on this information, the Company's Board of Directors resolved that
the matter of the possible breach of the Conflict of Interest and Duty
principle be put to the shareholders of the Company to be dealt with at
their next meeting.
<PAGE> 84
- 84 -
ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements with the Company's Auditors on any matter of
accounting principle or practices or financial statement disclosure.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information concerning the Company's Directors is set forth in the section
entitled "Election of Directors" on pages 4 through 10 of the Proxy Statement
for use in connection with the Company's Annual General Meeting of Shareholders
to be held on May 6, 1997 or such later date prior to June 30, 1997 as
determined by the Directors, and is incorporated herein by reference.
Information concerning the Company's Executive Officers is set forth in Part I,
Item 1 herein under the section entitled "Executive Officers of the Company."
ITEM 11 - EXECUTIVE COMPENSATION
Incorporated herein by reference is the section entitled "Executive
Compensation" on pages 10 through 16 of the Proxy Statement for use in
connection with the Company's Annual General Meeting of Shareholders to be held
on May 6, 1997 or such later date prior to June 30, 1997 as determined by the
Directors.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated herein by reference is the section entitled "Stock Ownership of
Certain Beneficial Owners and Management" on pages 3 and 4 of the Proxy
Statement for use in connection with the Company's Annual General Meeting of
Shareholders to be held on May 6, 1997 or such later date prior to June 30, 1997
as determined by the Directors.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference are the sections entitled "Certain
Relationships and Related Transactions" on page 17 and "Other Business -
Conflict of Interest" on page 18, of the Proxy Statement for use in connection
with the Company's Annual General Meeting of Shareholders to be held on May 6,
1997 or such later date prior to June 30, 1997 as determined by the Directors.
<PAGE> 85
- 85 -
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules:
1. The following consolidated financial statements of the Company
are included in Part II, Item 8:
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Chartered Accountants 58
Consolidated Balance Sheets at December 31, 1996 and December 31, 59
1995
Consolidated Statements of Operations for the year ended December 31, 60
1996, the six months ended December 31, 1995, and for the years ended
June 30, 1995 and 1994
Consolidated Statements of Retained Earnings for the year ended December 61
31, 1996, the six months ended December 31, 1995, and for the years
ended June 30, 1995 and 1994
Consolidated Statements of Changes in Financial Position for the year 62
ended December 31, 1996, the six months ended December 31, 1995, and
for the years ended June 30, 1995 and 1994
Notes to Consolidated Financial Statements 63
</TABLE>
2. The following consolidated financial statement schedules of
the Company are included in Part IV, Item 14:
No Schedules are appended because of the absence of the condition under
which they are required or because the information called for is
included in the consolidated financial statements or notes thereto.
(b) Reports on Form 8-K:
A report on Form 8-K filed December 5, 1996 with respect to the
Company's offshore public financing.
(c) Exhibits: The following documents are Exhibits to this Report.
10.43 Underwriting Agreement dated November 18, 1996
among the Company, Midland Walwyn Capital Inc. and
RBC Dominion Securities Inc.
21. List of Subsidiaries
23.1 Consent of the Auditors (KPMG Chartered Accountants)
23.2 Consent of Mine Reserves Associates, Inc.
<PAGE> 86
- 86 -
27. Financial Data Schedule
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description
- ----------- -------------------
<S> <C>
3.1 Certified copy of Memorandum and Articles of the Company as
amended (incorporated herein by reference to the Form 20-F for
the year ended June 30, 1988 and to the Form S-8 dated March
12, 1988).
4.1 Warrant Indenture between the Company and Canada Permanent
Trust Company dated December 12, 1985 (incorporated herein by
reference to the Form 20-F for the year ended June 30, 1988).
4.2 Trust Deed between the Company and Montreal Trust Company of
Canada dated April 29, 1991 (incorporated herein by reference
to the Form 10-Q for the quarter ended September 30, 1993.
10.1 Mining Lease between Chemgold, Inc. and Picacho Development
Corp. dated September 24, 1979 (incorporated herein by
reference to the Form 20-F for the year ended June 30, 1988).
10.2 Mining Option Agreement between War Eagle Joint Venture and
Chemgold, Inc. dated August 13, 1984 (incorporated herein by
reference to the Form 20-F for the year ended June 30, 1988).
10.3 Exploration Agreement with Option to Enter into Mining Lease
between Glamis Gold, Inc. and Rancheria del Rio Estanislaus
dated August 17, 1987 (incorporated herein by reference to the
Form 20-F for the year ended June 30, 1988).
10.4 Mining Lease of Sullivan Property among the Company, Glamis
Gold, Inc., Kenneth R. Palosky, Joan M. Palosky and Omega
Resources Company dated February 9, 1987 (incorporated herein
by reference to the Form 20-F for the year ended June 30,
1988).
10.5 Letter of Intent from Keradamex, Inc. to the Company and
Glamis Gold, Inc., dated August 17, 1988 (incorporated herein
by reference to the Form 20-F for the year ended June 30,
1988).
10.6 Exploration Agreement and Option to Purchase between Glamis
Gold, Inc. and Gold Fields Mining Corporation dated June 5,
1987, as amended (incorporated herein by reference to the Form
20-F for the year ended June 30, 1988).
10.7 Imperial County Joint Venture Agreement among the Company,
Glamis Gold, Inc., Amir Mines Ltd. and Amir Mines (U.S.) Inc.
dated November 24, 1987 (incorporated herein by reference to
the Form 20-F for the year ended June 30, 1988).
10.8 Assignment and Novation Agreement among the Company, Glamis
Gold, Inc., Amir Mines Ltd. and Imperial Gold Corporation
dated February 1, 1988 (incorporated herein by reference to
the Form 20-F for the year ended June 30, 1988).
</TABLE>
<PAGE> 87
- 87 -
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description
- ----------- -------------------
<S> <C>
10.9 Mining Lease among Glamis Gold, Inc., Thomas B. Thedford and
Alice J. Thedford dated December 29, 1987 (incorporated herein
by reference to the Form 20-F for the year ended June 30,
1988).
10.10 Share and Loan Purchase agreement among the Company, Tonto
Drilling Services, Tonto Precious Metals Ltd., Julia
Aspillaga, David Lowell, Robert Shoemaker and Gilda Roja S.
dated January 23, 1988 (incorporated herein by reference to
the Form 20-F for the year ended June 30, 1988).
10.11 Finders Fee Agreement between the Company and Barry Rayment
(incorporated herein by reference to the Form 20-F for the
year ended June 30, 1988).
10.12 Salave Venture Agreement between Charter Exploraciones, S.A.,
the Company and Biomet Technology Inc. dated March 9, 1988
(incorporated herein by reference to the Form 20-F for the
year ended June 30, 1988).
10.13 Purchase and Sale Agreement among the Company, Biomet
Technology Inc. and Salave Joint Venture Corporation dated
August 15, 1988 (incorporated herein by reference to the Form
20-F for the year ended June 30, 1988).
10.14 Shareholder Agreement between Glamis Gold Ltd. and Biomet
Technology Inc. dated August 15, 1988 (incorporated herein by
reference to the Form 20-F for the year ended June 30, 1988).
10.15 Management Agreement between the Company and Chemgold, Inc.
dated August 1, 1983, as amended (incorporated herein by
reference to the Form 20-F for the year ended June 30, 1988).
10.16 Employment Agreement between the Company and Chester F. Millar
dated January 1, 1985, as amended (incorporated herein by
reference to the Form 20-F for the year ended June 30, 1988).
10.17 Employment Agreement between the Company and Lorne B. Anderson
dated May 3, 1988 as amended (incorporated herein by reference
to the Form 20-F for the year ended June 30, 1988).
10.18 Stock Option Agreements made between the Company and the
following directors and officers: Chester F. Millar, James R.
Billingsley, Frederick N. Maycock (incorporated herein by
reference to the Form 20-F for the year ended June 30, 1988).
10.19 Agreement to provide sodium cyanide between Glamis Gold, Inc.
and Van Waters & Rogers, Inc. dated July 29, 1987
(incorporated herein by reference to the Form 20-F for the
year ended June 30, 1988).
10.20 Refining Agreement between Engelhard Industries West, Inc. and
Chemgold, Inc. dated December 12, 1984 (incorporated herein by
reference to the Form 20-F for the year ended June 30, 1988).
</TABLE>
<PAGE> 88
- 88 -
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description
- ----------- -------------------
<S> <C>
10.21 Purchase Agreement effective July 2, 1991 between Rand Mining
Company and DRX, Inc. and Westland Minerals Exploration Co.
(incorporated herein by reference to the Form 10-K for the
year ended June 30, 1993).
10.22 Option to Purchase Agreement dated May 18, 1990 between Rand
Mining Company and Echo Bay Explorations, Inc. (incorporated
herein by reference to the Form 10-K for the year ended June
30, 1993).
10.23 Royalty purchase agreement dated September 28, 1990 between
Glamis Gold Exploration, Inc. and Echo Bay Explorations, Inc.
(incorporated herein by reference to the Form 10-K for the
year ended June 30, 1993).
10.24 Royalty purchase agreement dated August 31, 1990 between
Glamis Gold Exploration, Inc. and DRX, Inc. and Westland
Minerals Exploration Co. (incorporated herein by reference to
the Form 10-K for the year ended June 30, 1993).
10.25 Exploration and option to joint venture agreement dated June
29, 1991 between Glamis Gold Exploration, Inc. and DRX, Inc.
and Westland Minerals Exploration Co. (incorporated herein by
reference to the Form 10-K for the year ended June 30, 1993).
10.26 Agreement dated August 13, 1992 between the Company and
Aquiline Resources Inc. (incorporated herein by reference to
the Form 10-K for the year ended June 30, 1993).
10.27* Incentive Share Option and Share Appreciation Rights Plan as
amended January 15, 1992 (incorporated herein by reference to
the Form 10-K for the year ended June 30, 1993).
10.28* Service Agreement of Chester F. Millar dated January 1, 1991
(incorporated herein by reference to the Form 10-K for the
year ended June 30, 1993).
10.29* Service Agreement of James R. Billingsley dated January 1,
1991 (incorporated herein by reference to the Form 10-K for
the year ended June 30, 1993).
10.30* Service Agreement of Lorne B. Anderson dated January 1, 1991
(incorporated herein by reference to the Form 10-K for the
year ended June 30, 1993).
10.31* Service Agreement of A. Dan Rovig dated January 1, 1991
(incorporated herein by reference to the Form 10-K for the
year ended June 30, 1993).
10.32 Loan Agreement dated as of July 24, 1991 between Glamis Gold,
Inc., Chemgold, Inc., Rand Mining Company and Mase Westpac
Limited (incorporated herein by reference to the Form 10-K for
the year ended June 30, 1993).
10.33 Purchase Agreement dated March 9, 1993 among Loewen Ondaatje
McCutcheon Limited, Nesbitt Thomson Inc. & Glamis Gold Ltd.
(incorporated herein by reference to the Form 10-K for the
year ended June 30, 1993).
</TABLE>
<PAGE> 89
- 89 -
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description
- ----------- -------------------
<S> <C>
10.34 Special Warrant Indenture dated March 11, 1993 between Glamis
Gold Ltd. and Montreal Trust Company of Canada (incorporated
herein by reference to the Form 10-K for the year ended June
30, 1993).
10.35 Underwriting Agreement dated May 19, 1993 between Glamis Gold
Ltd. and Loewen Ondaatje McCutcheon Limited (incorporated
herein by reference to the Form 10-K for the year ended June
30, 1993).
10.36 Purchase Agreement dated January 27, 1994 between Glamis Gold
Exploration, Inc. and Imperial Gold Corporation (incorporated
herein by reference to the Form 10-Q for the quarter ended
March 31, 1994).
10.37 Banking agreement dated as of July 13, 1994 between Glamis
Gold, Inc., Chemgold, Inc. and Rand Mining Company and the
Republic Bank of New York (incorporated herein by reference to
the Form 10-Q for the quarter ended September 30, 1994).
10.38 Letter agreement dated December 16, 1994 between the Company
and Golden Queen Mining Co. Ltd. in respect of the merger of
the two companies (incorporated herein by reference to the
Form 10-Q for the quarter ended December 31, 1994).
10.39 Joint Venture Agreement dated May 29, 1995 between the Company
and Aquiline Resources Inc. in respect of the Cieneguita
property located in Mexico (incorporated herein by reference
to the Form 10-K for the year ended June 30, 1995).
10.40 Agreement dated May 10, 1995 between the Company and Aquiline
Resources Inc. in respect of the La Jojoba property
(incorporated herein by reference to the Form 10-Q for the
quarter ended September 30, 1995).
10.41* Incentive Share Option Purchase Plan dated for reference
September 30, 1995 (incorporated herein by reference to the
Form S-8 dated January 30, 1996).
10.42 Letter Agreement dated August 14, 1996 with Paramount Ventures
& Finance Inc. (incorporated herein by reference to the Form
10-Q for the quarter ended September 30, 1996).
10.43 Underwriting Agreement dated November 18, 1996 among the
Company, Midland Walwyn Capital Inc. and RBC Dominion
Securities Inc.
* Represents a management contract, compensation plan or arrangement
required to be filed as an exhibit to this report.
21. List of Subsidiaries
23.1 Consent of Auditors (KPMG)
23.2 Consent of Mine Reserves Associates, Inc.
27. Financial Data Schedule
</TABLE>
<PAGE> 90
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
GLAMIS GOLD LTD.
By: "A. Dan Rovig" March 26, 1997
-------------------------------------
A. Dan Rovig, President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: "A. Dan Rovig" March 26, 1997
-------------------------------------
A. Dan Rovig, President,
Chief Executive Officer and Director
By: "Chester F. Millar" March 26, 1997
-------------------------------------
Chester F. Millar, Director and
Chairman of the Board
By: "James R. Billingsley" March 26, 1997
-------------------------------------
James R. Billingsley, Director
and Vice-President
By: "Lorne B. Anderson" March 26, 1997
-------------------------------------
Lorne B. Anderson, Treasurer
and Chief Financial Officer
By: "Jacques Barbeau, Q.C." March 26, 1997
-------------------------------------
Jacques Barbeau, Q.C.
Director
By: "Ian S. Davidson" March 26, 1997
-------------------------------------
Ian S. Davidson
Director
By: "Francis O'Kelly" March 26, 1997
-------------------------------------
Francis O'Kelly
Director
<PAGE> 1
-1-
EXHIBIT 10.43
UNDERWRITING AGREEMENT
November 18, 1996
Glamis Gold Ltd.
3324 Four Bentall Centre
1055 Dunsmuir Street
P.O. Box 49287
Vancouver; B.C.
V7X 1L3
Dear Sirs:
ISSUE OF 4,500,000 COMMON SHARES
The undersigned Underwriters understand that Glamis Gold Ltd. (the
"Corporation") proposes to issue and offer 4,500,000 common shares (the
"Underwritten Shares") for sale to the public through the Underwriters.
Subject to the terms and conditions set forth in this Agreement, the
Underwriters severally offer to purchase all but not less than all of the
Underwritten Shares at a purchase price of U.S.$7.30 per Underwritten Share,
for an aggregate purchase price of U.S.$32,850,000 (the "Purchase Price"), and
by its acceptance of this offer the Corporation agrees to issue and sell the
Underwritten Shares to the Underwriters.
In consideration of the agreement of the Underwriters to purchase the
Underwritten Shares and the services rendered and to be rendered by the
Underwriters in connection herewith, the Corporation agrees to pay the
Underwriting Fee, to Midland Walwyn Capital Inc., on behalf of the
Underwriters. Payment of the Purchase Price by the Underwriters and of the
Underwriting Fee by the Corporation will be made at the Closing Time at the
offices of Corporation's Counsel in Vancouver against delivery by the
Corporation of the Underwritten Shares.
The following are the terms and conditions of the agreement between the
Corporation and the Underwriters:
<PAGE> 2
-2-
1. DEFINITIONS
1.1 Unless otherwise defined in this Agreement, the following
terms shall have the following meanings, respectively:
(a) "this Agreement", "hereto", "herein", "hereunder", "hereof"
and similar expressions refer to the agreement resulting from the
acceptance by the Corporation of this offer and not to any particular
section or other portion of this Agreement;
(b) "business day" means any day (other than a Saturday or Sunday)
on which banks in each of Vancouver and Toronto are open for business;
(c) "Canadian Securities Commissions" means the securities
commission or other securities regulatory authority in each of the
Provinces;
(d) "Canadian Securities Laws" means the securities acts or
similar statutes of the Provinces and all rules, regulations, policy
statements, notices and blanket orders or rulings thereunder;
(e) "Closing Date" shall mean December 5, 1996 or such later date
as the Underwriters may designate;
(f) "Closing Time" shall mean 10:00 a.m. Vancouver time) on the
Closing Date, or such other time on the Closing Date as the
Underwriters may designate;
(g) "Corporation's Counsel" means Lang Michener Lawrence & Shaw;
(h) "Distribution Period" means the period commencing on the date
of this Agreement and ending on the earlier of:
(i) the date on which all of the Underwritten Shares have
been sold by the Underwriters to the public pursuant to the
Final Prospectus; and
(ii) 45 days after the Closing Date;
(i) "Financial Statements" means the financial statements
contained or incorporated by reference in the Prospectuses including,
unless the context requires otherwise, any auditors' report thereon;
(j) "material" or "materially", when used in relation to the
Corporation, means material in relation to the Corporation on a
consolidated basis;
(k) "material change", "material fact" and "misrepresentation"
have the meanings attributed thereto under applicable Canadian
Securities Laws;
(l) "Midland" means Midland Walwyn Capital Inc.;
<PAGE> 3
-3-
(m) "POP System" means the prompt offering qualification system
for the distribution of securities of certain issuers established by
National Policy Statement No.47 of the Canadian Securities
Administrators under the Canadian Securities Laws;
(n) "Preliminary Prospectus" means the preliminary short form
prospectus of the Corporation (which includes any French language
translation thereof) to be dated November 18, 1996 relating to the
distribution of the Underwritten Shares and, where the context
requires, includes all documents incorporated therein by reference;
(o) "Principal Jurisdiction" means the Securities Commission of
British Columbia;
(p) "Prospectus" means the final short form prospectus of the
Corporation (which includes any French language translation thereof)
relating to the distribution of the Underwritten Shares and, where the
context requires, includes all documents incorporated therein by
reference;
(q) "Prospectuses" means the Preliminary Prospectus and the
Prospectus;
(r) "Prospectus Amendment" means any amendment to the Preliminary
Prospectus or the Prospectus (which includes any French language
translation thereof) and of any amendment to any document incorporated
therein by reference;
(s) "Qualifying Provinces" means each of the provinces of Canada;
(t) "Subsidiary" means a subsidiary of the Corporation within the
meaning ascribed thereto in the Company Act (British Columbia) and
also includes a Subsidiary of a Subsidiary;
(u) "U.S. Offering Memorandum" means the private placement
memorandum for the private placement offering and resale of certain of
the Underwritten Shares by the Underwriters in the United States of
America;
(v) "Underwriters" means Midland and RBC Dominion Securities Inc.;
(w) "Underwriting Fee" means the fee to be paid to the
Underwriters under this Agreement of U.S.$0.30 per Underwritten Share,
being an aggregate of U.S.$1,350,000; and
(x) "$" and "dollars" means United States dollars.
Other terms which are defined elsewhere in this Agreement have the meanings so
ascribed.
<PAGE> 4
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2. FILING OBLIGATIONS
2.1 The Corporation shall, as soon as possible and not later than
4:00 p.m. (Vancouver time) on November 18, 1996, have prepared and filed the
Preliminary Prospectus with the Principal Jurisdiction and obtained a receipt
therefor pursuant to the expedited review procedures under the Canadian
Securities Laws for all provinces other than Quebec and by 5:00 p.m. Vancouver
time) on November 19, 1996 have prepared and filed the Preliminary Prospectus
in the English and French languages and obtained a receipt therefor from the
Quebec Securities Commission.
2.2 The Corporation shall, as soon as possible after any comments
have been satisfied with respect to the Preliminary Prospectus, and in any
event not later than November 28, 1996, have prepared and filed under the
Canadian Securities Laws the Prospectus (in the English and French languages,
as appropriate) (and shall have obtained receipts therefor by the close of
business on the respective days of filing) and shall have taken all other steps
and proceedings that may be necessary in order to qualify the Underwritten
Shares for distribution (or distribution to the public, as the case may be) in
each of the Qualifying Provinces by the Underwriters under the provisions of
Canadian Securities Law.
3. DUE DILIGENCE
3.1 Prior to the filing of the Prospectuses and during the
Distribution Period, the Corporation shall have allowed the Underwriters and
their counsel to participate fully in the preparation of, and to approve the
form of, such documents and to have reviewed any documents incorporated by
reference therein.
3.2 During the Distribution Period, the Corporation shall allow
the Underwriters to conduct all due diligence which they may reasonably require
to conduct in order to fulfil their obligations as underwriters and in order to
enable the Underwriters to responsibly execute any certificate required to be
executed by them in the Prospectuses.
3.3 The Corporation hereby represents, warrants and covenants as
follows to each of the Underwriters and acknowledges that each of the
Underwriters is relying upon such representations, warranties and covenants in
connection with its execution and delivery of this Agreement:
(a) the Corporation has been and will be at the Closing Time duly
organized and is and will be at the Closing Time validly subsisting
under the laws of British Columbia; each of the Corporation and the
Subsidiaries has and will at the Closing Time have all requisite
corporate power and authority to own, lease and operate its properties
and assets and conduct its business as currently conducted and to
carry out its obligations under this Agreement; to its knowledge each
of the Corporation and the Subsidiaries is current with all filings
required to be made under the laws of Canada, the Provinces and all
other jurisdictions in which it carries on any material business and
has all necessary licenses, leases, permits, authorizations and other
approvals necessary to permit it to conduct its business as described
in the Prospectuses and any Prospectus Amendment, except where the
absence of such power and authority or failure to make any filing or
obtain any license, lease, permit or authorization would not result in
a material adverse change;
<PAGE> 5
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(b) the authorized and issued capital of the Corporation is as
described in the Prospectus and, in the case of the issued capital,
the outstanding common shares will be validly issued and outstanding
as fully-paid and non-assessable at the Closing Time;
(c) except as disclosed in the Preliminary Prospectus, as at the
Closing Time, no holder of outstanding shares of the Corporation will
be entitled to any preemptive or any similar rights to subscribe for
any common shares or other securities of the Corporation and no
rights, warrants or options to acquire, or instruments convertible
into or exchangeable for any treasury shares of the Corporation will
be outstanding;
(d) the Corporation has all requisite corporate power and
authority to
(i) enter into this Agreement;
(ii) issue, sell and deliver the Underwritten Shares in
accordance with this Agreement; and
(iii) carry out all the terms and provisions of this
Agreement;
(e) the Corporation and each Subsidiary is and will be at the
Closing Time qualified to carry on business in all jurisdictions where
the failure to so qualify would result in a material adverse change;
(f) each of the Corporation and the Subsidiaries is not and will
not be at the Closing Time
(i) in breach or violation of any of the terms or
provisions of, or in default under; any indenture, debenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which it is a party or by which it is bound or
to which any of its property or assets is subject, which
breach or violation or the consequences thereof would, alone
or in the aggregate, result in a material adverse change; or
(ii) in violation of the provisions of its articles,
bylaws or resolutions or any statute or any order; rule or
regulation of any court or governmental agency or body having
jurisdiction over it or any of its properties which violation
or the consequences thereof would, alone or in the aggregate,
would result in a material adverse change;
(g) the execution and delivery of this Agreement, the issue and
sale of the Underwritten Shares and the performance or the
consummation of the transactions contemplated in this Agreement do not
and will not conflict with or result in a breach or violation of any
of the terms or provisions of, or constitute a default under (whether
after notice or lapse of time or both), any indenture, debenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Corporation is a party or by which it is bound
or to which any of its property or assets is subject, other than such
agreements which will terminate simultaneously with the Closing, which
breach or violation or the consequences thereof would, alone or in the
aggregate, result in a material adverse change, nor will such action
conflict with or result in any violation of the provisions of the
articles, bylaws or resolutions of the Corporation or any statute or
any order; rule or regulation of any court or governmental agency or
body having jurisdiction over it or any of its properties which
violation
<PAGE> 6
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or the consequences thereof would, alone or in the aggregate, would
result in a material adverse change;
(h) other than as may be required under the rules and by-laws of
The Toronto Stock Exchange and the New York Stock Exchange, no
consent, approval, authorization, order, registration or qualification
of or with any court or governmental agency or body is required for
the issue and sale of the Underwritten Shares by the Corporation or
the consummation by the Corporation of the transactions contemplated
in this Agreement;
(i) there is no legal or governmental action, proceeding or
investigation pending or, to the knowledge of the Corporation,
threatened, which questions the validity of the issuance or sale of
the Underwritten Shares by the Corporation or the validity of any
action taken or to be taken by the Corporation in connection with this
Agreement;
(j) at or before the Closing Time, all actions required to be
taken by or on behalf of the Corporation, including the passing of all
requisite resolutions of the Board of Directors, shall have occurred
so as to validly authorize and issue the Underwritten Shares to be
issued and sold by the Corporation;
(k) this Agreement has been duly authorized, executed and
delivered by the Corporation and constitutes a valid and binding
obligation of the Corporation, enforceable against it in accordance
with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting the rights of creditors generally, and except as limited by
the application of equitable principles when equitable remedies are
sought and by the fact that rights to indemnity, contribution and
waiver, and the ability to sever unenforceable terms, may be limited
by applicable law;
(l) the Corporation will apply the net proceeds from the issue and
sale of the Underwritten Shares substantially in accordance with the
description of such matter in the Prospectuses;
(m) neither the Corporation nor any Subsidiary has received notice
from any governmental or regulatory authority of any jurisdiction in
which it carries on a material part of its business, or owns or leases
any material property, of any restriction on its ability to or of a
requirement for it to qualify to, nor is the Corporation otherwise
aware of any restriction on its ability to or of a requirement for it
or any Subsidiary to qualify to, conduct its business as described in
the Prospectuses and any Prospectus Amendment in such jurisdiction,
except such qualifications as have been satisfied;
(n) The Montreal Trust Company of Canada, at its principal offices
in Toronto, Ontario and Vancouver, British Columbia, has been duly
appointed as the registrar and transfer agent for the common shares of
the Corporation;
(o) the Underwritten Shares will be duly and validly created and
issued at the Closing Time;
(p) the statements in the second sentence of the second paragraph
under the heading "Eligibility for Investment" in the Prospectuses are
true and complete;
<PAGE> 7
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(q) to its knowledge the operations of the Corporation and its
subsidiaries are in substantial compliance with applicable
environmental laws and permits except to the extent that noncompliance
would not have a material adverse effect on the Corporation and its
subsidiaries, taken as a whole.
4. DELIVERY OF PROSPECTUSES AND RELATED DOCUMENTS
4.1 The Corporation shall deliver to the Underwriters prior to or
contemporaneously, as nearly as practicable, with the filing with the Principal
Jurisdiction of the Prospectuses or any Prospectus Amendment, a copy of the
following for each of the Underwriters and Underwriters' counsel:
(a) the Prospectuses and any Prospectus Amendment and for all
supporting documents, as filed with the Securities Commissions of the
British Columbia Securities Commission signed on behalf of the
Corporation and its directors in accordance with Canadian Securities
Laws and the receipt therefor of the British Columbia Securities
Commission;
(b) all documents incorporated, or containing information
incorporated, by reference into the Prospectuses and any Prospectus
Amendment, if such documents have not previously been delivered to the
Underwriters; and
(c) with respect to the Prospectus and any Prospectus Amendment
only, a "comfort letter" of KPMG addressed to the directors of the
Corporation and to the Underwriters, in form and substance acceptable
to the Underwriters, confirming the accuracy of such financial
information as required by the Underwriters.
4.2 The delivery by the Corporation to the Underwriters of the
Prospectuses and any Prospectus Amendment shall constitute a representation and
warranty to the Underwriters by the Corporation that:
(a) the information and statements contained or incorporated by
reference in the Prospectuses and any Prospectus Amendment (except any
information and statements relating solely to the Underwriters)
constitutes full, true and plain disclosure of all material facts
relating to the Corporation and to the Underwritten Shares; and
(b) the Prospectuses and any Prospectus Amendment do not
contain a misrepresentation.
Such delivery shall also have constituted, and shall constitute, the consent of
the Corporation to the use of the Prospectuses and any Prospectus Amendment by
the Underwriters in connection with the distribution of the Underwritten Shares
in the Qualifying Provinces.
<PAGE> 8
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5. TRANSLATION
5.1 The Corporation shall deliver to the Underwriters prior to the
time any French language version (the "French Version") of the Prospectuses or
any Prospectus Amendment is to be filed an opinion of counsel in the Province
of Quebec addressed to the Underwriters and to its counsel to the effect that
the French Version of the Prospectuses or any Prospectus Amendment to be signed
by the Underwriters is in all material respects a reasonable translation of the
English language version (the "English Version") of the Prospectuses or any
Prospectus Amendment signed by the Underwriters (other than the Financial
Statements of the Corporation and any portion of a documents not specifically
incorporated therein by reference) and sets forth fairly the same meaning as
the English Version.
The Corporation shall also deliver to the Underwriters contemporaneously with
such opinion an opinion of the auditors of the Corporation addressed to the
Underwriters and to their counsel to the effect that:
(a) the Financial Statements of the Corporation contained or
incorporated int he French Version are in all material respects a
complete and accurate translation of the Financial Statements of the
Corporation contained or incorporated in the English Version; and
(b) the information contained in the French Version which is
derived from or related to the Financial Statements of the Corporation
is translated in such a way as to be consistent in meaning with the
Financial Statements of the Corporation contained or incorporated in
the English Version.
Similar opinions as to translation shall be provided to the Underwriters and
addressed to the Underwriters and to their counsel with respect to any
Prospectus Amendment or other relevant document in the French language at the
time the same is presented to the Underwriters for their signature or; if their
signature is not required, at the time the same is filed with the Quebec
Securities Commission.
6. COMMERCIAL COPIES OF PROSPECTUS
6.1 The Corporation shall deliver to the Underwriters as soon as
possible, but in any event
(a) on or before 4:00 p.m. Vancouver time) on November 19, 1996 in
Vancouver; Toronto and Montreal, the Underwriters' reasonable
requirements of commercial copies of the English Version of the
Preliminary Prospectus, and
(b) on or before 4:00 p.m. Montreal time) on November 20, 1996 in
Montreal, the Underwriters' reasonable requirements of commercial
copies of the French Version of the Preliminary Prospectus.
6.2 The Corporation shall deliver to the Underwriters as soon as
possible, but in any event on or before 10:00 a.m. (local time) on the second
business day after the issuance of receipts for the Final Prospectus in British
Columbia and Quebec respectively
(a) in Vancouver; Toronto and Montreal, the Underwriters'
reasonable requirements of commercial copies of the English Version of
the Final Prospectus, and
<PAGE> 9
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(b) in Montreal, the Underwriters' reasonable requirements of
commercial copies of the French Version of the Final Prospectus.
6.3 The Corporation shall also deliver to the Underwriters as soon
as possible following the issuance of receipts for the Prospectus, copies of
the U.S. Offering Memorandum relating to the Final Prospectus and any amendment
or supplement thereto in such numbers and, at such cities as the Underwriters
may reasonably request by oral instructions given by the Underwriters to the
printer thereof.
7. DISTRIBUTION OF UNDERWRITTEN SHARES
7.1 The Underwriters:
(a) shall offer the Underwritten Shares for sale to the public,
directly and through banking and selling group members, only in
compliance with applicable Canadian Securities Laws and those
requirements set forth in Schedule A and the Underwriters will not
solicit offers to purchase or sell the Underwritten Shares so as to
require registration of the Underwritten Shares or filing of a
prospectus with respect to the distribution of the Underwritten Shares
under the laws of any jurisdiction other than the Provinces, and will
require each banking and selling group member to agree with the
Underwriters not to so solicit or sell. For purposes of this
subsection, the Underwriters shall be entitled to assume that the
Underwritten Shares are qualified for distribution in each Qualifying
Province and an Underwriter will not be liable to the Corporation
under this section with respect to a default by another Underwriter
under this section;
(b) shall not make use of any "green sheet" in respect of the
Underwritten Shares without the prior approval of the Corporation and
shall comply with the notice dated July 7, 1989, issued by the Ontario
Securities Commission with respect to the use of "green sheets" and
other marketing material during the waiting period under the Ontario
Securities Act; and
(c) shall use all reasonable efforts to complete and to cause the
members of the banking and selling group to complete the distribution
of the Underwritten Shares as soon as practicable after the closing
time.
7.2 Each of the Underwriters, within the Distribution Period, will
notify the Underwriters, and the Underwriters will notify the Corporation, when
distribution of the Underwritten Shares has terminated. Each of the
Underwriters will notify the Underwriters, and the Underwriters will notify the
Corporation, of the amount of Underwritten Shares sold in each Qualifying
Province as soon as possible after the Closing Date.
<PAGE> 10
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8. UNITED STATES OFFERS & SALES
8.1 The Underwriters shall offer and sell certain of the
Underwritten Shares in the United States in accordance with the terms and
conditions of Schedule A, which terms and conditions are incorporated herein by
reference.
9. MATERIAL CHANGES
9.1 During the Distribution Period, the Corporation shall promptly
notify the Underwriters in writing, with full particulars, of:
(a) any change (actual, contemplated or threatened) in the
business, affairs, operations, assets, liabilities (contingent or
otherwise), capital or ownership of the Corporation on a consolidated
basis; or
(b) any change in any matter covered by a statement contained or
incorporated by reference in the Prospectus or any Prospectus
Amendment;
which change is, or may be, of such a nature as to render the Prospectuses or
any Prospectus Amendment misleading or untrue in any material respect or would
result in any of such documents containing a misrepresentation or which would
result in any of such documents not complying in any material respect with any
of the Canadian Securities Laws or which change would reasonably be expected to
have a significant effect on the market price or value of the Underwritten
Shares. The Corporation shall in good faith discuss with the Underwriters any
change in circumstances (actual or proposed within the knowledge of the
Corporation) which is of such a nature that there is reasonable doubt whether
notice need be given to the Underwriters pursuant to this section and, in any
event, prior to making any filing referred to in section 9.2.
9.2 Subject to section 3.1, the Corporation shall promptly comply
with all applicable filing and other requirements, if any, under the Canadian
Securities Laws arising as a result of any change referred to in section 9.1
and shall prepare and file under all applicable Canadian Securities Laws, with
all possible dispatch, and in any event within any time limit prescribed under
applicable Canadian Securities Laws, any Prospectus Amendment as may be
required under applicable Canadian Securities Laws at any time during the
Distribution Period. The Corporation shall further promptly deliver to the
Underwriters a copy for each of the Underwriters and the Underwriters' counsel
of each Prospectus Amendment as filed with the Securities Commissions, and of
opinions and comfort letters with respect to each such Prospectus Amendment
substantially similar to those referred to in section 4.1.
9.3 The delivery by the Corporation to the Underwriters of each
Prospectus Amendment shall constitute a representation and warranty to the
Underwriters by the Corporation, with respect to the Prospectuses, as amended
by such Prospectus Amendment and by each Prospectus Amendment previously
delivered to the Underwriters, to the same effect as set forth in sections
4.2(a) and (b). Such delivery shall also constitute the consent of the
Corporation to the use of the Prospectuses, as amended or supplemented by any
Prospectus Amendment, by the Underwriters in connection with the distribution
of the Underwritten Shares in the Qualifying Provinces.
<PAGE> 11
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10. CLOSING
10.1 At the Closing Time the Corporation shall deliver to Midland,
on behalf of the Underwriters, a single certificate representing the
Underwritten Shares agreed to be purchased by the Underwriters pursuant to this
Agreement, registered in such name as Midland may specify at least 24 hours
prior to the Closing Time, against payment by Midland to or to the order of the
Corporation of the Purchase Price, and concurrently the Corporation shall pay
to the Underwriters the Underwriting Fee. All payments at the Closing Time
shall be made by certified cheque or bank draft in immediately available
Canadian funds.
10.2 The single common share certificate representing the
Underwritten Shares delivered to the Underwriters pursuant to section 10.1
shall be immediately exchanged for certificates representing Underwritten
Shares in the same aggregate number which will be released that day at such of
the principal offices of Montreal Trust Company in the cities of Vancouver;
Toronto and Montreal registered in such names as shall be designated in writing
by the Underwriters or their agents in sufficient time prior to the Closing
Date to permit such release. All exchanges of certificates representing
Underwritten Shares are to be made without cost to the Underwriters (other than
applicable transfer taxes, if any) for a period of 21 days after the Closing
Date.
11. CONDITIONS PRECEDENT
11.1 The following are conditions precedent to the obligation of
the Underwriters to close the transaction contemplated by this Agreement, which
conditions the Corporation covenants to exercise its best efforts to have
fulfilled at or prior to the Closing Time and which conditions may be waived in
writing in whole or in part by the Underwriters:
(a) the Underwritten Shares shall have attributes substantially as
set forth in the Prospectus;
(b) at the Closing Time, the Corporation shall have delivered to
the Underwriters a certificate, dated the Closing Date, signed on
behalf of the Corporation by any two of its officers satisfactory to
the Underwriters, and certifying that:
(i) there has been no adverse material change, financial
or otherwise, to the Closing Time in the assets, liabilities
(contingent or otherwise), capital, business, operations or
affairs of the Corporation on a consolidated basis, since
November 18, 1996;
(ii) no transaction of a nature material to the
Corporation on a consolidated basis has been entered into,
directly or indirectly, by the Corporation since November 18,
1996; and
(iii) the Corporation on a consolidated basis has no
material contingent liabilities;
(iv) no order, ruling or determination (excluding
temporary trading halts for the dissemination of information)
having the effect of ceasing or suspending trading in the
Underwritten Shares or any other securities of the Corporation
has been issued in any of the
<PAGE> 12
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Provinces or the United States of America and, to the
Corporation's knowledge, no proceedings for such purpose are
pending, contemplated or threatened;
(v) the representations and warranties of the Corporation
contained herein are true and correct as of the Closing Time
with the same force and effect as if made at and as of the
Closing Time; and
(vi) the Corporation has complied in all material respects
with all terms and conditions of this Agreement to be complied
with by the Corporation at or prior to the Closing Time;
(vii) no event of default under any agreement or instrument
pursuant to which indebtedness of the Corporation or any of
its Subsidiaries has been issued, and no event which, with the
giving of notice or the passage of time, or both, would
constitute an event of default under any such agreement or
instrument, has occurred and is continuing and no default
under any agreement or instrument to which the Corporation or
any of its Subsidiaries is a party or subject will occur as a
result of the sale of the Underwritten Shares in accordance
with the terms hereof;
(viii) there are no actions, suits or proceedings, whether
on behalf of or against the Corporation or its Subsidiaries
pending or; to the knowledge of the Corporation and its
Subsidiaries at law or in equity, before or by any court or
federal, provincial, municipal or governmental department,
commission, board, bureau, agency or instrumentality, domestic
or foreign, and which may in any way materially adversely
affect the Corporation or its Subsidiaries, which are not
fully disclosed in the Preliminary Prospectus;
(c) at the Closing Time, the Corporation shall have furnished to
the Underwriters evidence that the Underwritten Shares have been
listed for trading on The Toronto Stock Exchange and the New York
Stock Exchange and will be posted for trading at the opening of
trading on the Closing Date;
(d) the Underwriters shall have received at the Closing Time a
letter of the auditors of the Corporation updating their "comfort
letter" referred to in section 4.1, such letter to be in form and
content satisfactory to the Underwriters and their counsel; and
(e) at the Closing Time, the Underwriters shall have received
favourable legal opinions, dated the Closing Date, on behalf of the
Corporation from the Corporation's Counsel (and the Corporation's U.S.
counsel), and on behalf of the Underwriters from their counsel, with
respect to all such matters as the Underwriters may reasonably
request, including, without limitation, as to the issue and sale to
the public of the Underwritten Shares and that the attributes of the
Underwritten Shares are consistent with the description thereof in the
Prospectus and as to the matters set forth under the heading
"Eligibility for Investment" in the Prospectus.
<PAGE> 13
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12. TERMINATION
12.1 In addition to any other remedies which may be available to
the Underwriters, the Underwriters (or any of them) shall be entitled, at their
or its option, to terminate and cancel their or its obligations under this
Agreement, without any liability on their or its part, if prior to the Closing
Time:
(a) there shall have occurred any adverse material change in
relation to the Corporation, or a development that could result in an
adverse material change in relation to the Corporation; or
(b) there shall have occurred any change in the applicable
securities laws of any province of Canada, or any state of the United
States or any inquiry, investigation or other proceeding is made or
any order is issued under or pursuant to any statute of Canada or any
province thereof or any statute of the United States or any state
thereof or any stock exchange in relation to the Corporation or any of
its securities (except for any inquiry, investigation or other
proceeding or order based upon activities of the Underwriters and not
upon activities of the Corporation);
which, in the reasonable opinion of any of the Underwriters, prevents or
restricts trading in or the distribution of the Underwritten Shares or
adversely affects or might reasonably be expected to adversely affect the
investment quality or marketability of the Underwritten Shares; or
(c) there should develop, occur or come into effect or existence
any event, action, state, condition or major financial occurrence of
national or international consequence or any law or regulation which,
in the opinion of any of the Underwriters, seriously adversely
affects, or involves, or will seriously adversely affect or involve,
the financial markets or the business, operations or affairs of the
Corporation and its subsidiaries, taken as a whole; or
(d) a cease trading order is made by any Securities Commission or
other competent authority by reason of the fault of the Corporation or
its respective directors, officers and agents and such cease trading
order is not rescinded within 48 hours prior to Closing;
each Underwriter shall be entitled, at its respective option, to terminate and
cancel its obligations to the Corporation under this Agreement by written
notice to that effect given to the Corporation prior to the Closing. In the
event of any such termination pursuant to the provisions of this section (or
any termination pursuant to the provisions of this Agreement) by one of the
Underwriters, each of the other Underwriters shall be deemed contemporaneously
to have terminated its obligations under this Agreement unless any such other
Underwriter shall, within 24 hours after notice of termination is given, notify
the Corporation to the effect that it is assuming the obligations of the
Underwriters terminating their obligations. In the event of any such
termination, the Corporation's obligations under this Agreement to the
Underwriters who have so terminated shall be at an end except for any liability
of the Corporation provided for in sections 15 and 16.
<PAGE> 14
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13. CONDITIONS
13.1 All terms and conditions of this Agreement and all
representations and warranties contained herein shall be construed as
conditions and any breach or failure to comply in all material respects thereof
shall entitle the Underwriters, at their respective options, in addition to and
not in lieu of any other remedies the Underwriters have in respect thereof, to
terminate and cancel their obligation to purchase the Underwritten Shares by
notice in writing to that effect given to the Corporation at or prior to the
Closing Time. The Underwriters may waive in whole or in part or extend the
time for compliance with any of such terms and conditions without prejudice to
their rights in respect of any other of such terms and conditions or any other
or subsequent breach or non-compliance, provided that to be binding on the
Underwriters any such waiver or extension must be in writing by each of them.
14. RESTRICTION ON FURTHER ISSUES
14.1 During the period commencing on the date hereof and ending on
the day which is 90 days following the Closing Date, the Corporation shall not,
without the prior written consent of the Underwriters, not to be unreasonably
withheld:
(a) issue any of its common shares or financial instruments
convertible or exercisable into common shares of the Corporation,
other than:
(i) to satisfy instruments in existence on November 18,
1996; or
(ii) pursuant to any directors', officers', employees'
benefit, incentive or stock option plans of the Corporation in
existence on November 18, 1996;
(b) agree or become bound to do so; or
(c) publicly announce any intention to do so.
15. INDEMNIFICATION
15.1 As further consideration for the services provided by the
Underwriters pursuant to this Agreement, the Corporation agrees to indemnify
and save harmless each of the Underwriters and each of their directors,
officers, employees and agents (each an "Indemnified Party") from and against
all liabilities, claims, losses (other than loss of profits), reasonable costs,
damages and reasonable expenses ("liabilities") in any way caused by, or
arising directly or indirectly from, or in consequence of:
(a) any information or statement (except any statement furnished
by or relating solely to the Underwriters and provided by the
Underwriters to the Corporation in writing) contained in the
Prospectuses or any Prospectus Amendment or in any certificate of the
Corporation delivered pursuant to this Agreement which at the time and
in the light of the circumstances under which it was made contains or
is alleged to contain a misrepresentation;
<PAGE> 15
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(b) any omission or alleged omission to state in the Prospectuses,
any Prospectus Amendment or any certificate of the Corporation
delivered pursuant to this Agreement any fact (except facts relating
solely to the Underwriters), whether material or not, required to be
stated in such document or necessary to make any statement in such
document not misleading in light of the circumstances under which it
was made;
(c) any order made or enquiry, investigation or proceedings
commenced or threatened by any securities commission or other
competent authority based upon any untrue statement or omission or
alleged untrue statement or alleged omission or any misrepresentation
or alleged misrepresentation (except a statement or omission or
alleged statement or omission relating solely to the Underwriters) in
the Prospectuses or any Prospectus Amendment or based upon any failure
to comply with applicable securities laws (other than any failure or
alleged failure to comply by the Underwriters or members of the
banking and selling group), preventing or restricting the trading in
or the sale or distribution of the Underwritten Shares in any of the
Provinces;
(d) the non-compliance or alleged non-compliance by the
Corporation with any Securities Laws including the Corporation's
noncompliance with any statutory requirement to make any document
available for inspection; or
(e) the inaccuracy or breach of any representation or warranty of
the Corporation contained in this Agreement or in any document
delivered by the Corporation in connection with this offering or the
failure by the Corporation to perform any covenant contained in this
Agreement.
15.2 Notification of Claims
If any matter or tiling contemplated by this section 15 (any such matter or
thing being referred to as a "Claim") is asserted against any person or company
m respect of which indemnification is or might reasonably be considered to be
provided, such person or company (the "Indemnified Party") will notify the
Corporation, as soon as possible of the nature of such Claim and the
Corporation shall be entitled (but not required) to assume the defence of any
suit brought to enforce such Claim; provided, however, that the defence shall
be conducted through legal counsel acceptable to the Indemnified Party and that
no settlement of any such Claim may be made by the Indemnified Party without
the prior written consent of the Corporation and the Corporation shall not be
liable for any settlement of any such Claim unless it has consented in writing
to such settlement.
15.3 Right of Indemnity in Favour of Others
With respect to any Indemnified Party who is not a party to this Agreement, the
Underwriters shall obtain and hold the rights and benefits of this section 15
in trust for and on behalf of such Indemnified Party.
15.4 Retaining Counsel
In any such Claim, the Indemnified Party shall have the right to retain other
counsel to act on his or its behalf, provided that the reasonable fees and
disbursements of such counsel shall be paid by the Indemnified Party unless
<PAGE> 16
-16-
(a) the Corporation, on the one hand, and the Indemnified Party,
on the other hand, shall have mutually agreed to the retention of the
other counsel; or
(b) the named parties to any such Claim (including any added third
or impleaded party) include both the Indemnified Party, on the one
hand, and the Corporation, on the other hand, and the representation
of both parties by the same counsel would be inappropriate due to the
actual or potential differing interests between them. The Corporation
shall be responsible hereunder only for the payment of the fees and
disbursements of one set of counsel acting on behalf of the
Indemnified Party.
15.5 Contribution
In order to provide for a just and equitable contribution in circumstances m
which the indemnity provided in this section 15 would otherwise be available in
accordance with its terms but is, for any reason, held to be unavailable to or
unenforceable by the Underwriters or enforceable otherwise than in accordance
with its terms, the Underwriters and the Corporation shall contribute to the
aggregate of all claims, expenses, costs and liabilities and all losses (other
than loss of profits) of a nature contemplated in this section 15 in such
proportions so that: (i) each Underwriter is responsible for the portion
represented by the percentage that the aggregate fee payable by the Corporation
to such Underwriter bears to the aggregate offering price of the Underwritten
Shares; and (ii) the Corporation is responsible for the balance, whether or not
they have been sued together or sued separately. The Underwriters shall not in
any event be liable to contribute, in the aggregate, any amounts in excess of
such aggregate fee or any portion of such fee actually received. However, no
party who has engaged in any fraud, fraudulent misrepresentation or negligence
shall be entitled to claim contribution from any person who has not engaged in
such fraud, fraudulent misrepresentation or negligence.
15.6 Right of Contribution in Addition to Other Rights
The rights to contribution provided in this section 15 shall be in addition to
and not in derogation of any other right to contribution which the Underwriters
may have by statute or otherwise at law.
15.7 Calculation of Contribution
In the event that the Corporation may be held to be entitled to contribution
from the Underwriters under the provisions of any statute or at law, the
Corporation shall be limited to contribution in an amount not exceeding the
lesser of:
(a) the portion of the full amount of the loss or liability giving
rise to such contribution for which the Underwriters are responsible,
as determined in section 15.1; and
(b) the amount of the aggregate fee actually received by the
Underwriters from the Corporation under this Agreement.
<PAGE> 17
-17-
15.8 Notice
If the Underwriters have reason to believe that a claim for contribution may
arise, they shall give the Corporation notice of such claim in writing, as soon
as reasonably possible, but failure to notify the Corporation shall not relieve
the Corporation of any obligation which it may have to the Underwriters under
this section 15.
15.9 Right of Contribution in Favour of Others
With respect to this section 15, the Corporation acknowledges and agrees that
the Underwriters are contracting on their own behalf and as agents for their
directors, officers, employees and agents.
16. EXPENSES
Whether or not the transactions contemplated in this Agreement shall be
completed, all expenses of or incidental to the creation, issue and delivery of
the Underwritten Shares and all expenses of or incidental to all other matters
in connection with the transactions set out in this Agreement shall be
collectively borne by the Corporation directly including, without limitation,
(i) fees and expenses payable in connection with the qualification of the
Underwritten Shares for distribution to the public, fees relating to listing
the Underwritten Shares on any exchanges, fees and expenses of counsel for the
Corporation, all fees and expenses of local counsel, all fees and expenses of
the Corporation's auditors, all costs incurred in connection with the
preparation and printing of the Prospectuses, Prospectus Amendments and
certificates representing the Underwritten Shares and all costs incurred in
connection with the preparation of any marketing documents or other marketing
devices (including slide presentations and videos, if any); and (ii) fees,
taxes and disbursements of the Underwriters' legal counsel; provided, however,
if any Underwritten Shares are sold in the Province of Quebec pursuant to the
Prospectus, the Underwriters agree that the Corporation shall only bear
responsibility for 50% of the fees, taxes and disbursements of the
Underwriters' legal counsel.
17. SEVERAL OBLIGATIONS
17.1 The obligations of the Underwriters to purchase the
Underwritten Shares at the Closing Time shall be several and not joint, and the
percentage of the Underwritten Shares which each of the Underwriters shall be
severally obligated to purchase is as follows:
<TABLE>
<S> <C>
Midland Walwyn Capital Inc. 50%
RBC Dominion Securities Inc. 50%
----
100%
</TABLE>
17.2 If one of the Underwriters shall or refuse to purchase its
applicable percentage of the Underwritten Shares, the other Underwriter shall
be relieved, without liability, of its obligation to purchase its respective
percentage of the Underwritten Shares, provided that the Underwriter who shall
be willing and able to purchase its respective percentage of the Underwritten
Shares shall have the right, but not the obligation, to purchase severally the
Underwritten Shares not taken up.
<PAGE> 18
-18-
17.3 Notwithstanding anything contained in section 17.2, the
Underwriters shall not be entitled to purchase in any event less than all of
the Underwritten Shares. In addition, nothing contained in section 17.2 shall
relieve from responsibility to the Corporation the Underwriters who shall
default in its obligation to purchase its respective percentage of the
Underwritten Shares.
18. AUTHORITY TO UNDERWRITERS
18.1 All steps which must or may be taken by the Underwriters in
connection with this Agreement, including any agreement to amend this
Agreement, but with the exception of steps contemplated by sections 12 and 15,
may be taken by Midland on the Underwriters' behalf, after consultation with
the other Underwriters, and this is the authority to the Corporation for
accepting notification of any such steps from Midland on their behalf.
19. NOTICES
19.1 Any notices or other communication that may be required or
desired to be given pursuant to this Agreement may be given in writing by
telecopier or by hand delivery, delivery or other charges prepaid, and:
(a) in the case of notice to the Corporation, be addressed to:
Glamis Gold Ltd.
3324 Four Bentall Centre
1055 Dunsmuir Street
P.O. Box 49287
Vancouver, B.C. V7X 1L3
Attention: Lorne B. Anderson
Chief Financial Officer and Treasurer
(telecopy: (604) 681-9306)
(b) in the case of notice to the Underwriters, be addressed to:
Midland Walwyn Capital Inc.
1100 - 595 Burrard Street
Vancouver, B.C. V7X 1C3
Attention: Doug Bell
(telecopy: (604) 661-7789)
and to:
RBC Dominion Securities Inc.
2100 - 666 Burrard Street
Vancouver; B.C.
<PAGE> 19
-19-
V6C 3B1
Attention: Ken Booth
(telecopy: (604) 257-7117)
19.2 Any such notice or other communication shall be deemed to be
given at the time telecopied or delivered, if telecopied or delivered to the
recipient on a business day and before 5:00 p.m. Vancouver time) on such
business day, and otherwise shall be deemed to be given at 9:00 a.m. Vancouver
time) on the next following business day.
20. MISCELLANEOUS
20.1 The representations and warranties contained in this Agreement
shall survive the purchase by the Underwriters of the Underwritten Shares and
shall continue in full force and effect unaffected by any subsequent
disposition by the Underwriters of the Underwritten Shares.
20.2 Time shall be of the essence of this Agreement.
20.3 This Agreement may be executed in several counterparts, each
of which when so executed shall be deemed to be an original but which together
shall constitute one and the same agreement.
20.4 This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings, both written and oral, among such parties with
respect to the subject matter hereof.
20.5 If any provision of this Agreement is determined to be void or
unenforceable in whole or in part, it shall be deemed not to affect or impair
the validity of any other provision of this Agreement and such void or
unenforceable provision shall be severable from this Agreement.
20.6 This Agreement shall be governed by and interpreted in
accordance with the laws of the Province of British Columbia and the federal
laws of Canada applicable therein. Each of the parties hereto irrevocably
attorns to the jurisdiction of the courts of the Province of British Columbia.
Please confirm your acceptance of this offer by signature of an authorized
officer or officers in the space set forth below.
MIDLAND WALWYN CAPITAL INC. RBC DOMINION SECURITIES INC.
By: "K.F. Williamson" By: "Ken Booth"
----------------------- --------------------------
<PAGE> 20
-20-
The foregoing is accepted by Glamis Gold Ltd.
Dated the 18th day of November, 1996.
GLAMIS GOLD LTD.
By: "Lorne B. Anderson"
-----------------------
Chief Financial Officer
<PAGE> 21
-21-
SCHEDULE A
UNITED STATES OFFERS AND SALES
As used in this Schedule A, the following terms shall have the meanings
indicated:
(a) "Directed Selling Efforts" means "directed selling efforts" as that
term is defined in Regulation S. Without limiting the foregoing, but
for greater clarity in this Schedule, it means, subject to the
exclusions from the definition of "directed selling efforts" contained
in Regulation S, any activity undertaken for the purpose of, or that
could reasonably be expected to have the effect of, conditioning the
market in the United States for any of the securities offered, and
includes the placement of any advertisement in a publication with a
general circulation in the United States that refers to the offering
of the Underwritten Shares;
(b) "Institutional Accredited Investor" means an "accredited investor" as
that term is defined in Rule 501(a)(1),(2),(3) or (7) of Regulation D;
(c) "Regulation D" means Regulation D adopted by the SEC under the U.S.
Securities Act;
(d) "Regulation S" means Regulation S adopted by the SEC under the U.S.
Securities Act;
(e) "Reporting Issuer" means a "reporting issuer" as that term is defined
in Regulation S;
(f) "Restricted Period" means the 40 day period that commences on the
later of (i) the date the securities are first offered to persons
other than distributors in reliance on Regulation S or (ii) the
Closing Date;
(g) "SEC" means the United States Securities and Exchange Commission;
(h) "United States" means the United States of America, its territories
and possessions, any state of the United States, and the District of
Columbia;
(i) "U.S. Person" means U.S. person as that term is defined in Regulation
S; and
(j) "U.S. Exchange Act" means the United States Securities Exchange Act of
1934, as amended;
(k) "U.S. Securities Act" means the United States Securities Act of 1933,
as amended.
Capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Underwriting Agreement.
<PAGE> 22
-2-
1. The Company represents, warrants, covenants and agrees that:
(a) the Company is a Reporting Issuer;
(b) neither the Company nor any of its affiliates, nor any person
acting on its or their behalf, has made or will make:
(i) any offer to sell, or any solicitation of an offer to
buy, any Underwritten Shares to a U.S. Person or a person in
the United States; or
(ii) any sale of Underwritten Shares unless, at the time
the buy order was or will have been originated, the purchaser
was outside the United States or the Company, its affiliates,
and any person acting on its or their behalf reasonably
believe that the purchaser was outside the United States;
(c) during the period in which the Underwritten Shares are offered
for sale, neither it nor any of its affiliates, nor any person acting
on its or their behalf has made or will make any Directed Selling
Efforts in the United States, or has taken or will take any action
that would cause the exclusion from registration afforded by
Regulation S to be unavailable for offers and sales of the
Underwritten Shares pursuant to this Agreement;
(d) none of the Company, its affiliates or any person acting on
its or their behalf has engaged or will engage in any form of general
solicitation or general advertising (as those terms are used in
Regulation D of the U.S. Securities Act) including advertisements,
articles, notices or other communications published in any newspaper,
magazine or similar media, or broadcast over radio, or television, or
any seminar or meeting whose attendees have been invited by general
solicitation or general advertising;
(e) except with respect to the offer and sale of Underwritten
Shares offered hereby, the Company has not, since December 31, 1995,
sold, offered for sale or solicited any offer to buy any of its
securities in the United States or to a U.S. Person;
(f) the Company is not an open-end investment company or unit
investment trust registered or required to be registered or close- end
investment company required to be registered but not registered, under
the United States Investment Company Act of 1940;
(g) any press release issued by the Company in the United States
in connection with the offering will comply with the requirements of
Rule 135c of the U.S. Securities Act; and
(h) within 15 days following the Closing Date, the Company will
file with the SEC a Current Report on Form 8-K with respect to Item 9
thereof.
<PAGE> 23
-3-
2. The Underwriters severally but not jointly represent and warrant to
and covenant and agree with the Company as follows:
(a) the Underwriters acknowledge that none of the Underwritten
Shares have been or will be registered under the U.S. Securities Act
and that such securities are either:
(i) being offered and sold outside the United States in
reliance upon an exclusion from the registration requirements
stated under the U.S. Securities Act provided by Regulation S
thereof; or
(ii) being offered and sold in the United States in
reliance upon an exemption from registration under the U.S.
Securities Act;
(b) The Underwriters have offered and sold and will offer and sell
Underwritten Shares (i) as part of their distribution at any time and
(ii) otherwise until the conclusion of the Restricted Period, only in
accordance with Rule 903 of Regulation S under the U.S. Securities
Act (or as provided in paragraph 3 below). Accordingly, neither the
Underwriters nor any of their affiliates nor any person acting on
their behalf or on behalf of their affiliates has made or will make,
except to the extent permitted by paragraph 3 hereof:
(i) any offer to sell or any solicitation of an offer to
buy, any Underwritten Shares to any U.S. Person or person in
the United States;
(ii) any sale of Underwritten Shares to any purchaser
unless, at the time the buy order was or will have been
originated, the purchaser was outside the United States, or
such Underwriter; affiliate, or person acting on behalf of
either reasonably believed that such purchaser was outside the
United States; or
(iii) any Directed Selling Efforts in the United States
with respect to the Underwritten Shares.
The Underwriters and such affiliates will comply with the offering
restrictions requirement of Regulation S;
(c) The Underwriters agree that, at or prior to confirmation of
sale of Underwritten Shares, it will have sent to each distributor,
dealer or person receiving a selling concession, fee or other
remuneration that purchases Underwritten Shares prior to the
expiration of the Restricted Period, a confirmation or notice to
substantially the following effect:
"The securities covered hereby have not been registered under the U.S.
Securities Act of 1933 (the "U.S. Securities Act") and may not be
offered or sold within the United States or to, or for the account or
benefit of, any U.S. Person (i) as part of their distribution at any
time or (ii) otherwise
<PAGE> 24
-4-
until the conclusion of the restricted period (as defined in Schedule
A of the Underwriting Agreement). Terms used herein have the meanings
given to them in Regulation S;" and
(d) the Underwriters agree to obtain substantially identical
undertakings from each member of any banking and selling group formed
in connection with the distribution contemplated hereby. Other than
any banking and selling group agreement, the Underwriters have not
entered and will not enter into any contractual arrangement with
respect to the distribution of the Underwritten Shares except with its
affiliates or with the prior written consent of the Company.
3. The Underwriters may offer the Underwritten Shares in the United
States to certain Institutional Accredited Investors and in connection
therewith severally but not jointly represent and warrant to and covenant and
agree with Company as follows:
(a) each Underwriter having a broker-dealer affiliate registered
under the U.S. Exchange Act, acting through such broker-dealer
affiliate, will offer the Underwritten Shares in the United States to
a limited number of Institutional Accredited Investors with which such
Underwriter has a pre-existing relationship;
(b) immediately prior to soliciting such offerees, the
Underwriters had reasonable grounds to believe and did believe that
each offeree is an Institutional Accredited Investor;
(c) the aggregate number of Institutional Accredited Investors to
which such broker-dealer affiliates will make offers shall not exceed
thirty (30);
(d) no form of general solicitation or general advertising has
been or will be used (as those terms are used in Regulation D under
the U.S. Securities Act), including advertisements, articles, notices
or other communications published in any newspaper, magazine or
similar media or broadcast over radio or television, or any seminar or
meeting whose attendees had been invited by general solicitation or
general advertising, in connection with the offer or sale of the
Underwritten Shares in the United States;
(e) the Underwriters shall exercise reasonable care to assure that
the purchasers of the Underwritten Shares are not "underwriters"
within the meaning of Section 2(11) of the U.S. Securities Act by
taking the following actions:
(i) reasonable inquiry to determine if the purchaser is
acquiring the securities for itself or for other persons; and
(ii) written disclosure to each purchaser prior to sale
that the Shares have not been registered under the U.S.
Securities Act and, therefore, cannot be resold unless
registered under the U.S. Securities Act or an exemption or
exclusion from registration is available;
<PAGE> 25
-5-
(f) All offers and sales of the Underwritten Shares in the United
States will be effected by Midland Walwyn Capital Corporation and RBC
Dominion Securities Corporation (the "Placement Agents") in accordance
with all applicable U.S. broker-dealer requirements;
(g) Any offer or sale, or solicitation of an offer to buy
Underwritten Shares that has been made or will be made in the United
States will be made only in transactions that are exempt from
registration under applicable "blue sky" securities laws;
(h) each offeree will be provided with a copy of the Final
Prospectus relating to the Underwritten Shares, together with a U.S.
Offering Memorandum, and no other written material other than the
Preliminary Prospectus relating to the Underwritten Shares, together
with a U.S. Offering Memorandum, will be used in connection with the
offer and sale of the Underwritten Shares in the United States; and
(i) prior to any resale of Underwritten Shares in the United
States, it shall cause each purchaser thereof (a "U.S. Purchaser") to
represent, warrant and agree in writing to the Placement Agent as set
forth in the U.S. Purchaser's Letter attached hereto as Exhibit A.
<PAGE> 26
-6-
EXHIBIT A
U.S. PURCHASER'S LETTER
Glamis Gold Ltd. Underwriters' U.S. Affiliates
- ---------------------------------- ---------------------------------
- ---------------------------------- ---------------------------------
- ---------------------------------- ---------------------------------
- ---------------------------------- ---------------------------------
- ---------------------------------- ---------------------------------
PURCHASE OF UNDERWRITTEN SHARES OF GLAMIS GOLD LTD.
Gentlemen and Ladies:
In connection with its agreement to purchase the number of Common Shares (the
"Offered Securities") of Glamis Gold Ltd. (the "Company") indicated herein, the
undersigned represents, warrants and covenants to you as follows:
(a) it is authorized to consummate the purchase of the Offered
Securities;
(b) it understands that the Offered Securities have not been and
will not be registered under the United States Securities Act of 1933,
as amended (the "Securities Act") or any applicable state securities
laws and that the contemplated sale is being made in reliance on a
private placement exemption from such registration only to
institutional accredited investors (as such term is defined on Annex A
hereto, "Institutional Accredited Investors");
(c) it has received a copy, for its information, of the Canadian
Final Prospectus of the Company together with a U.S. covering
memorandum relating to the offering of the Offered Securities and it
has had access to such additional information, if any, concerning the
Company as it has considered necessary in connection with its
investment decision to acquire the Offered Securities;
<PAGE> 27
-7-
(d) it is purchasing Offered Securities in an amount exceeding
US$400,000;
(e) it has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of its
investment in the Offered Securities and is able to bear the economic
risks of such investment;
(f) it and any account for which it is purchasing Offered
Securities are resident in the United States;
(g) it is an Institutional Accredited Investor and is acquiring
the Offered Securities for its own account or for the account of an
Institutional Accredited Investor as to which it exercises sole
investment discretion, and not with a view to any resale, distribution
or other disposition of the Offered Securities in violation of the
United States securities laws or applicable state securities laws;
(h) it acknowledges that it has not purchased Offered Securities
as a result of any general solicitation or general advertising,
including advertisements, articles, notices or other communications
published in any newspaper, magazine or similar media or broadcast
over radio or television, or any seminar or meeting whose attendees
have been invited by general solicitation or general advertising;
(i) it agrees that if it decides to offer, sell or otherwise
transfer any of the Offered Securities, it will not offer, sell or
otherwise transfer any of such securities, directly or indirectly,
unless (i) the sale is to the Company; (ii) the sale is made outside
the United States in compliance with the requirements of Rule 904 of
Regulation S, if applicable (or such successor rule or regulation as
then in effect); (iii) the sale is made pursuant to an exemption from
registration under the U.S. Securities Act provided by Rule 144
thereunder, if available, and in compliance with any applicable state
securities laws or (iv) in a transaction that does not require
registration under the Securities Act and any applicable state
securities laws, and with respect to subparagraphs (iii) and (iv), it
has prior to such sales, furnished to the Company an opinion of
counsel of recognized standing reasonably satisfactory to the Company;
(i) it understands and acknowledges that upon the original
issuance thereof, and until such time as the same is no longer
required under applicable requirements of the Securities Act or
applicable state securities laws, certificates representing Offered
Securities, and all certificates issued in exchange therefor or in
substitution thereof, shall bear the following legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO
THE COMPANY, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904
OF REGULATIONS UNDER THE SECURITIES ACT, IF APPLICABLE, (C) PURSUANT
TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
<PAGE> 28
-3-
ACT PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, AND IN COMPLIANCE
WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (D) IN A TRANSACTION
THAT DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS. DELIVERY OF THIS CERTIFICATE MAY
NOT CONSTITUTE GOOD DELIVERY IN SETTLEMENT OF TRANSACTIONS ON STOCK
EXCHANGES IN CANADA. A NEW CERTIFICATE BEARING NO LEGEND MAY BE
OBTAINED FROM THE REGISTRAR AND TRANSFER AGENT UPON DELIVERY OF THIS
CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO
THE REGISTRAR AND TRANSFER AGENT AND THE COMPANY, TO THE EFFECT THAT
SUCH SALE IS BEING MADE IN ACCORDANCE WITH RULE 904 OF REGULATION S
UNDER THE SECURITIES ACT.";
provided, that if securities are being sold outside the United States
in compliance with the requirements of Rule 904 of Regulation S, any
such legend may be removed by providing a declaration to the registrar
and transfer agent, to the effect set forth on Annex B hereto (or as
the Company may prescribe from time to time);
(j) it consents to the Company making a notation on its records or
giving instructions to any transfer agent of the Offered Securities in
order to implement the restrictions on transfer set forth and
described herein;
(k) if required by applicable securities legislation, regulatory
policy or order or by any securities commission, stock exchange or
other regulatory authority, it will execute, deliver and file and
otherwise assist the Company in filing reports, questionnaires,
undertakings and other documents with respect to the issue of the
Offered Securities.
The undersigned acknowledges that the representations and warranties and
agreements contained herein are made by it with the intent that they may be
relied upon by you in determining its eligibility to purchase the Offered
Securities. By this letter the undersigned represents and warrants that the
foregoing representations and warranties are true and that they shall survive
the purchase by it of the Offered Securities and shall continue in full force
and effect notwithstanding any subsequent disposition by the undersigned of
Offered Securities.
You are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.
Registration of made as follows (if space is the certificate(s) representing
the Offered Securities should be insufficient, attach a list):
<PAGE> 29
-4-
Name:
--------------------------------
Address:
--------------------------------
--------------------------------
--------------------------------
Number of Offered Securities
Purchased:
Total Purchase Price:
A check in the amount set forth above accompanies this letter.
The certificate(s) representing the Offered Securities should:
[ ] be mailed by registered mail to the registered holder(s) at the
address set forth in the prior paragraph; or
[ ] be made available to be picked up at the principal office of the
Company's Registrar and Transfer Agent in the City of Toronto,
Ontario.
Please check one box, failing which such certificate will be mailed by
registered mail to the registered holder(s) as described above.
Dated: __________________________ ______________________________
Name of Purchaser
By: ______________________________
Name:
Title:
AGREED AND ACCEPTED
GLAMIS GOLD LTD.
By: __________________________________________
Name:
Title:
<PAGE> 30
-5-
ANNEX A
DEFINITION OF INSTITUTIONAL ACCREDITED INVESTOR
"Institutional Accredited Investor" means any entity which comes within any of
the following categories:
1. Any bank as defined in Section 3(a)(2) of the Securities Act or any
savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity; any broker dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934; any
insurance company as defined in Section 2(13) of the Securities Act;
any investment company registered under the Investment Company Act of
1940 or a business development company as defined in Section 2(a)(48)
of that Act; any Small Business Investment Company licensed by the
U.S. Small Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958; any plan established and
maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess of
U.S.$5,000,000; any employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974, if the investment
decision is made, by a plan fiduciary, as defined in Section 3(21) of
such Act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the
employee benefit plan has total assets in excess of U.S.$5,000,000,
or, if a self-directed plan, with investment decisions made solely by
persons that are accredited investors;
2. Any private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
3. Any organization described in Section 501(c)(3) of the internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purposes of acquiring the
securities offered, with total assets in excess of U.S.$5,000,000;
4. Any trust with total assets in excess of U.S.$5,000,000, not formed
for the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person, being defined as a
person who has such knowledge and experience in financial and business
matters that he or she is capable of evaluating the merits, and risks
of the prospective investment.
<PAGE> 31
-2-
ANNEX B
FORM OF DECLARATION FOR REMOVAL OF LEGEND
TO: Montreal Trust Company of Canada
as registrar and transfer agent
for Underwritten Shares of
Glamis Gold Ltd.
The undersigned (a) acknowledges that the sale of the securities of Glamis Gold
Ltd. (the "Company") to which this declaration relates is being made in
reliance on Rule 904 of Regulation S under the United States Securities Act of
1933, as amended (the "Securities Act") and (1)) certifies that (1) the
undersigned is not an affiliate of the Company as that term is defined in the
Securities Act, (2) the offer of such securities was not made to a person in
the United States and either (A) at the time the buy order was originated, the
buyer was outside the United States, or the seller and any person acting on its
behalf reasonably believe that the buyer was outside the United States or (B)
the transaction was executed on or through the facilities of The Toronto Stock
Exchange, The Montreal Exchange or the Vancouver Stock Exchange and neither the
seller nor any person acting on its behalf knows that the transaction has been
prearranged with a buyer in the United States, (3) neither the seller nor any
affiliate of the seller nor any person acting on any of their behalf has
engaged or will engage in any directed selling efforts in the United States in
connection with the offer and sale of such securities, (4) the sale is bona
fide and not for the purpose of "washing off" the resale restrictions imposed
because the securities are "restricted securities" (as such term is defined in
Rule 144(a)(3) under the Securities Act), (5) the seller does not intend to
replace the securities sold in reliance on Rule 904 of the Securities Act with
fungible unrestricted securities and (6) the contemplated sale is not a
transaction, or part of a series of transactions which, although in technical
compliance with Regulation S, is part of a plan or scheme to evade the
registration provisions of the Securities Act. Terms used herein have the
meanings given to them by Regulation S.
Dated: ______________________ ______________________________
Name of Seller
By: _____________________________
Name:
Title:
<PAGE> 1
- 92 -
EXHIBIT NO. 21 LIST OF SUBSIDIARIES
The following is a list of the subsidiaries of the Company
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C>
Glamis Gold, Inc. Nevada
Chemgold, Inc. California
Rand Mining Company Nevada
Glamis Gold Exploration, Inc. Nevada
Minera Glamis S.A. de C.V. Mexico
Glamis Gold Sales, Inc. Barbados
344684 B.C. Ltd. British Columbia
Mexicana Resources Inc. British Columbia
Salave Gold Joint Venture Corporation British Columbia
Glamis Gold Ltd. y Compania Limitada Chile
Glamis Gold (Barbados) Ltd. Barbados
</TABLE>
<PAGE> 1
Exhibit 23.1
To the Board of Directors
Glamis Gold Ltd.:
We consent to incorporation by reference in the registration statement on Form
S-8 of Glamis Gold Ltd. of our report dated January 31, 1997 relating to the
consolidated balance sheets of Glamis Gold Ltd. as at December 31, 1996 and
1995, and the related consolidated statements of operations, retained earnings,
and changes in financial position for the year ended December 31, 1996, for the
six month period ended December 31, 1995 and for each of the years ended June
30, 1995 and 1994, which report appears in the December 31, 1996 annual report
on Form 10-K of Glamis Gold Ltd.
Signed: "KPMG"
- ----------------------------
Chartered Accountants
Vancouver, Canada
March 26, 1997
<PAGE> 1
CONSENT OF MINE RESERVES ASSOCIATES, INC. EXHIBIT 23.2
TO THE BOARD OF DIRECTORS OF GLAMIS GOLD LTD.
We consent to the incorporation by reference into a Registration Statement on
Form S-8 of Glamis Gold Ltd. in respect of its Incentive Share Purchase Option
Plan dated for reference September 30, 1995 of our verification of the ore
reserves of Glamis Gold Ltd. as such appears on page 13 of the Report on Form
10-K of Glamis Gold Ltd. for the Period ended December 31, 1996.
DATED this 18th day of March, 1997.
MINE RESERVES ASSOCIATES, INC.
Per: "Lawrence E. Allen"
-------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GLAMIS GOLD
LTD. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10K
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 26,492
<SECURITIES> 0
<RECEIVABLES> 206
<ALLOWANCES> 0
<INVENTORY> 16,124
<CURRENT-ASSETS> 43,081
<PP&E> 115,361
<DEPRECIATION> 55,463
<TOTAL-ASSETS> 107,974
<CURRENT-LIABILITIES> 4,357
<BONDS> 2,729
0
0
<COMMON> 88,296
<OTHER-SE> 12,592
<TOTAL-LIABILITY-AND-EQUITY> 107,974
<SALES> 49,739
<TOTAL-REVENUES> 49,739
<CGS> 24,353
<TOTAL-COSTS> 24,353
<OTHER-EXPENSES> 16,879
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 215
<INCOME-PRETAX> 5,292
<INCOME-TAX> 1,233
<INCOME-CONTINUING> 4,059
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,059
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
