<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997.
-----------------
Commission file number 0-31986 (82-689)
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GLAMIS GOLD LTD.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
British Columbia, Canada None.
(Jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
</TABLE>
5190 Neil Road Suite 310, Reno, Nevada, USA 89502
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number: (702) 827-4600
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Name of Each Exchange
Title of Class On Which Registered
- -------------- ---------------------
Common Shares Without Par Value New York Stock Exchange, Inc.
The Toronto Stock Exchange
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 $3.625
on March 12, 1998, as reported by the New York Stock Exchange, Inc.) was
approximately $ 113,265,688 (Cdn. $ 160,915,391).
As of March 12, 1998 the Registrant had 31,245,707 common shares outstanding.
Page 1 of 97
Exhibit Index Appears on Page 98
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2
DOCUMENTS INCORPORATED BY REFERENCE
THE COMPANY'S DEFINITIVE PROXY STATEMENT FOR ITS ANNUAL MEETING OF SHAREHOLDERS
ON MAY 8, 1998, WHICH WILL BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
WITHIN 120 DAYS AFTER THE CLOSE OF THE FISCAL YEAR, IS INCORPORATED BY REFERENCE
IN PART III HEREOF.
YEAR END
Effective December 31, 1995 the Company changed its year end from June 30 to
December 31.
CURRENCY
All amounts are expressed in United States Dollars unless otherwise noted.
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 Daniel
J. Forbush, Investor Relations, at:
Glamis Gold Ltd.,
5190 Neil Road, Suite 310
Reno, Nevada USA
89502 V7X 1L3
FORWARD LOOKING INFORMATION
CERTAIN OF THE INFORMATION CONTAINED IN THIS FORM 10-K CONSTITUTES
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS, INCLUDING BUT
NOT LIMITED TO THOSE WITH RESPECT TO THE PRICE OF GOLD, ESTIMATED FUTURE
PRODUCTION, ESTIMATED COST OF FUTURE PRODUCTION, ACQUISITION OPPORTUNITIES, THE
COMPANY'S HEDGING POLICY AND PERMITTING TIME LINES, INVOLVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES, AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY
FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, THE ACTUAL PRICE
OF GOLD, THE FACTUAL RESULTS OF CURRENT EXPLORATION ,DEVELOPMENT AND MINING
ACTIVITIES, THE IMPLEMENTATION OF COST CUTTING MEASURES, CHANGES IN PROJECT
PARAMETERS AS PLANS CONTINUE TO BE EVALUATED, AS WELL AS THOSE FACTORS DISCUSSED
IN THE SECTION ENTITLED "OTHER CONSIDERATIONS" IN THIS FORM 10-K.
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TABLE OF CONTENTS
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PAGE
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GLOSSARY ................................................................... 5
ITEM 1 - BUSINESS .......................................................... 6
THE COMPANY ............................................................... 6
General ................................................................ 6
Summary of Properties .................................................. 7
Other Information ...................................................... 9
Executive Officers of the Company ...................................... 9
OPERATING SUMMARY ......................................................... 12
Gold Production ........................................................ 12
Cash Cost of Production per Ounce of Gold Produced ..................... 12
Royalty Cost Per Ounce of Gold Produced................................. 13
SUMMARY OF RESERVES AND OTHER MINERALIZATION .............................. 14
Proven and Probable Mineable Reserves .................................. 14
Contained Ounces of Gold ............................................... 15
Effects of Development Drilling During Fiscal 1997 ..................... 16
Exploration and Development Expenditures ............................... 17
Other Mineralization ................................................... 17
PRODUCTION METHOD ......................................................... 19
GOLD SALES ................................................................ 20
OTHER CONSIDERATIONS ...................................................... 20
Gold Prices ............................................................ 20
Regulatory and Environmental Factors ................................... 21
Reclamation ............................................................ 22
Calculation of Reserves ................................................ 23
Insurance and Mining Risks ............................................. 24
Title Matters .......................................................... 25
Permitting ............................................................. 25
Supplies, Utilities and Transportation ................................. 25
Competition ............................................................ 26
Political and Economic Conditions in Mexico ............................ 26
Employees .............................................................. 26
ITEM 2 - PROPERTIES ....................................................... 27
PICACHO MINE, CALIFORNIA .................................................. 27
Property and Material Agreements ....................................... 27
Production Equipment and Power ......................................... 28
History ................................................................ 28
Geology ................................................................ 28
Mining Operations and Reserves ......................................... 29
Permitting ............................................................. 29
Production ............................................................. 30
GLAMIS RAND MINING COMPANY ................................................ 30
Property and Material Agreements .......................................... 30
Production Equipment and Power ............................................ 33
History ................................................................... 33
Geology ................................................................... 34
Mining Operations and Reserves ............................................ 34
Permitting ................................................................ 36
Rand Pad and Process Facilities (formerly the Rand Project) ............... 36
Production ................................................................ 37
OTHER LANDS ............................................................... 38
Imperial Project, California .............................................. 38
Material Agreements ....................................................... 38
Geology ................................................................... 38
Reserves .................................................................. 39
Future Operations ......................................................... 39
Mexico .................................................................... 40
Cieneguita Property, Mexico ............................................... 40
Geology ................................................................... 41
Development Activities .................................................... 41
La Jojoba Property, Sonora, Mexico ........................................ 42
Exploration ............................................................... 42
Indonesia - Gunung Pani Joint Venture Project ............................. 42
ITEM 3 - LEGAL PROCEEDINGS ................................................ 43
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .............. 44
ITEM 5 - MARKET INFORMATION AND RELATED SHAREHOLDER MATTERS ............... 44
Stock Exchanges (TSE/NYSE:GLG) ............................................ 44
Shareholders .............................................................. 46
Dividends ................................................................. 46
Investment Canada Act ..................................................... 47
Certain Tax Matters ....................................................... 48
United States Federal Income Tax Considerations ........................... 48
U.S. Holders .............................................................. 49
Distributions on Common Shares of the Company ............................. 49
Foreign Tax Credit ........................................................ 50
Disposition of Common Shares of the Company ............................... 50
Other Considerations ...................................................... 50
Passive Foreign Investment Company ........................................ 51
Canadian Federal Income Tax Considerations ................................ 52
ITEM 6 - SELECTED FINANCIAL INFORMATION ................................... 52
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ........................................ 54
General ................................................................... 54
</TABLE>
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4
<TABLE>
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PAGE
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Revenue ................................................................. 55
Cost of Production ...................................................... 56
Expenses ................................................................ 57
Other Income and Expenses ............................................... 58
Liquidity and Capital Resources ......................................... 59
Capital Expenditures .................................................... 60
Hedging ................................................................. 61
Break Even Price Per Ounce of Gold ...................................... 61
Regulatory, Environmental and Other Risk Factors ........................ 62
Reclamation .......................................................... 62
Year 2000 ............................................................ 63
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ....................... 63
Index to Financial Statements ........................................... 63
ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE .............. 91
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY .................. 91
ITEM 11 - EXECUTIVE COMPENSATION ........................................... 91
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ... 91
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................... 91
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K .. 92
Financial Statements and Financial Statement Schedules ..................... 92
Reports on Form 8-K ........................................................ 92
Exhibits ................................................................... 92
</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 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.
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
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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: Glamis 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.
Effective March 31, 1998, the Company's head and executive offices are located
at 5190 Neil Road, Suite 310, Reno, Nevada, USA 89502.
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 corporation and Glamis Rand Mining Company, Glamis
Exploration, Inc., and Glamis Imperial Corporation 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.
<PAGE> 7
7
SUMMARY OF PROPERTIES
The Company is engaged in the mining and extraction of precious metals by
open-pit mining and the heap leaching method of extraction as well as the
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. The Rand Mine 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 had a 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. Presuming the successful completion of
permitting by the third quarter of 1998 and acceptable gold prices, it is
expected that gold production will begin in approximately the second quarter of
1999. 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.
On August 14, 1996, the Company entered into an option agreement with Paramount
Ventures & Finance Inc., a public company, the shares of which are listed on the
Vancouver Stock Exchange. During 1996, the Company acquired 2,000,000 common
shares of Paramount at Cdn. $2.25 per common share and entered into an option
agreement to earn 50% of Paramount's interest in the Gunung Pani Gold Project on
North Sulawesi Island in Indonesia. To earn the interest the Company was to fund
all exploration and development costs up to the time of delivery of a positive
Feasibility Study. During 1997, the Company elected not to proceed with
<PAGE> 8
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this agreement and wrote off the related exploration expenditures totalling
$586,000. Also, the Company wrote down the carrying value of its investment in
Paramount to its market value at December 31, 1997 of approximately $1,081,000.
Traditionally 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. Recently the Board of Directors has instructed management to
seek out growth opportunities which take advantage of lower acquisition costs
available as a result of the lower gold price and weak junior share market
conditions. 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, 1997 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 2,453,705 contained
ounces. See "Summary of Reserves and Other Mineralization".
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9
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 gross royalty on all production from federal lands in the United
States, which has in the past been proposed, if enacted, 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 are located, their existence
and area could be in doubt. In addition, the Company has mining interests in
Mexico which may be affected by changes in the political and economic
environment in this country. 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:
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NAME AGE POSITION
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<S> <C> <C>
Chester F. Millar 71 Chairman and Director
Vancouver, British Columbia
C. Kevin McArthur 43 President, Chief Executive Officer and Director
Reno, Nevada
Daniel J. Forbush 45 Chief Financial Officer, Treasurer and Secretary
Reno, Nevada
</TABLE>
CHESTER F. MILLAR is the Chairman of the Board of the Company and has been since
November of 1989. Mr. Millar was Chairman 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.
C. KEVIN MCARTHUR is a Director, and has been President & Chief Executive
Officer of the Company since January 1, 1998; Chief Operating Officer from July
30, 1997 to December 31, 1997 and prior thereto general manager with the
Company.
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10
DANIEL J. FORBUSH is a Certified Public Accountant and holds a Masters of
Business Administration degree is the Chief Financial Officer and Treasurer and
Secretary of Company effective February 28, 1998. From November 1988 to February
1998 he was the Controller of Glamis Gold Inc. and it's subsidiaries. Prior to
joining the Company in November 1988 he was for seven years the Manager of
Managerial Accounting Echo Bay Mines.
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LOCATION MAP OF THE COMPANY'S OPERATIONS IN THE UNITED STATES
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OPERATING SUMMARY
GOLD PRODUCTION
The following table describes, for the fiscal years ended December 31, 1997 and
1996, for the six months ended December 31, 1995 and for the 1995 fiscal year
ended June 30, gold production from the Company's mining operations.
GOLD PRODUCTION
<TABLE>
<CAPTION>
OUNCES OF GOLD PRODUCED FOR FISCAL PERIODS
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
MINE DECEMBER 31, DECEMBER 31, JUNE 30,
- ------------------------------------------------------------------------------- ------------ ------------
1997 1996 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Picacho(1) 33,239 34,621 14,434 25,290
Rand(2) 94,243 85,762 29,814 76,272
Cieneguita(3) 1,189 1,208 561 --
------------ ------------ ------------ ------------
Total Production 128,671 121,591 44,809 101,562
============ ============ ============ ============
Percentage increase (decrease) 6% 36% (12)%(4) (3)%
from prior period (on an annualized basis)
</TABLE>
(1) 363,015 ounces of gold have been produced from the Picacho Mine since
commencement of production in 1980 to December 31, 1997.
(2) 537,509 ounces of gold have been produced from the Rand Mine since
commencement of production in 1987 to December 31, 1997.
(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 years ended December 31, 1997 and
1996, for the six months ended December 31, 1995 and for the 1995 fiscal year
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
ENDED YEAR ENDED
MINE DECEMBER 31, DECEMBER 31, JUNE 30,
- ----------------------------------------------------------------- ------------ ------------
1997 1996 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Picacho $ 180 $ 162 $ 162 $ 216
Rand $ 229 $ 214 $ 316 $ 197
Average For All Mines $ 218 $ 200 $ 265 $ 202
============ ============ ============ ============
Percentage increase 9% (25)% 31%(1) 5%
(decrease) from 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 years ended December 31, 1997 and
1996, for the six months ended December 31, 1995 and for the 1995 fiscal year
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
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
MINE 1997 1996 1995 1995
- ------------------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
------------ ------------ ------------ ------------
Picacho $ 33 $ 38 $ 38 $ 37
Rand $ 19 $ 17 $ 13 $ 14
Average For All Mines $ 22 $ 23 $ 21 $ 20
============ ============ ============ ============
</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, 1997 and 1996, December 31, 1995 and June 30, 1995.
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, 1997 for the Rand Mine were calculated
based on a gold price of $325 per ounce and for the Imperial Project were
calculated based on a gold price of $350 per ounce. For December 31, 1996 the
reserves 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, 1995 and June 30, 1995
reserves 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.
Reference should be made to the Glossary on page [5] for a description of terms
used herein.
PROVEN AND PROBABLE MINEABLE RESERVES
<TABLE>
<CAPTION>
MINE OR PROJECT FISCAL YEAR ENDED DECEMBER 31, 1997
- ----------------------- --------------------------------------------------------
TONS GOLD GRADE(OZ/T)
(AVERAGE)
--------------------------------
PROVEN PROBABLE
-------------------------------- ----------------
<S> <C> <C> <C>
Rand Mine 33,101,000 11,427,000 0.023
Picacho Mine(1) Nil Nil --
Imperial Project 81,623,700 13,504,500 0.016
----------- -----------
Total(2) 114,724,700 24,931,500 0.018
=========== =========== ===========
</TABLE>
(1) Mining of the last known ore body at the Picacho Mine was completed in
December 1997.
(2) The proven and probable reserves as at December 31, 1997 were calculated
by the Company and verified by Mine Reserves Associates, Inc., an entity
which is not affiliated with the Company.
<TABLE>
<CAPTION>
MINE OR PROJECT FISCAL YEAR ENDED DECEMBER 31, 1996
- ----------------------- --------------------------------------------------------
TONS GOLD GRADE(OZ/T)
(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>
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(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>
MINE OR PROJECT SIX MONTHS ENDED DECEMBER 31, 1995
- ---------------------- --------------------------------------------------------
GOLD GRADE
TONS (OZ/T)(AVERAGE)
---------------------------------
<S> <C> <C> <C>
PROVEN PROBABLE
------------ ------------ ------------
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>
<TABLE>
<CAPTION>
MINE OR PROJECT FISCAL YEAR ENDED JUNE 30, 1995
- ---------------------- --------------------------------------------------------
GOLD GRADE
TONS (OZ/T) (AVERAGE)
--------------------------------
<S> <C> <C> <C>
PROVEN PROBABLE
------------ ------------ ------------
Rand Mine 58,009,200 3,907,700 0.0231
Picacho Mine 3,433,900 185,400 0.037
Imperial Project 73,796,000 16,039,000 0.017
----------- -----------
Total 135,239,100 20,132,100 0.020
=========== =========== ===========
</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,
1997 and 1996, the six months ended December 31 1995 and the 1995 fiscal year
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).
<PAGE> 16
16
<TABLE>
<CAPTION>
CONTAINED OUNCES OF GOLD
- ------------------------------------------------------------------------------------------------------------------
ENDED YEAR ENDED
MINE DECEMBER 31, DECEMBER 31, JUNE 30,
- ------------------------------------------------------------------------ ------------ ------------
1997 1996 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Rand Mine 938,160 1,414,655 1,364,200 1,433,300
Picacho Mine(1) Nil 39,501 114,578 133,291
Imperial Project 1,515,545 1,515,545 1,509,004 1,509,004
------------ ------------ ------------ ------------
Totals(1) 2,453,705 2,969,701 2,987,782 3,075,595
============ ============ ============ ============
Percentage increase (17)% (1)% (3)%(2) 120%
(decrease) from prior period
</TABLE>
(1) Recovery rates experienced at the Company's operating mines from start-up
to December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Mine Recovery Rate
---- -------------
<S> <C>
Picacho 65.2%
Rand 59.9%
</TABLE>
(2) Comparison is to reserves as at June 30, 1995.
EFFECTS OF DEVELOPMENT DRILLING DURING FISCAL 1997
The effects of mining at each of the Company's mines during the period January
1, 1997 to December 31, 1997 are as follows:
PICACHO MINE - During fiscal 1997, 1,140,200 tons of ore were mined and
49,779 ounces of gold were placed on the heap leach pad at the Picacho
Mine of which 33,239 ounces of gold were recovered. No exploration
drilling was conducted at the Picacho Mine during fiscal 1997. There are
no gold reserves remainingat the Picacho Mine as mining of the last known
ore body was completed in December 1997.
IMPERIAL PROJECT - During fiscal 1997, there was no change tothe proven
and provable mineable reserves for this project of 95,128,200 tons as at
December 31, 1997. The ounces of contained gold remained the same as in
1996 at an estimated 1,515,545 ounces. The average grade of ore for the
project remained at 0.016 ounces of gold per ton. As the Company is still
awaiting completion of permitting on the Imperial Project there was no
change to the above information during fiscal 1997.
RAND MINE - During fiscal 1997, 7,102,700tons of ore containing 135,791
ounces of gold were mined and placed on the heap leach pads at Rand Mine
and 94,243ounces of gold were recovered. The development drilling program
during fiscal 1997 has not added
<PAGE> 17
17
ounces of gold to the gold reserves as the program is still in progress.
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, 1997 and 1996, the six months ended December 31, 1995, and the
fiscal year ended June 30, 1995.
EXPLORATION AND DEVELOPMENT EXPENDITURES
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED
- -----------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
MINE DECEMBER 31, DECEMBER 31, JUNE 30,
1997 1996 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Picacho Mine -- -- -- --
Rand Mine $ 584,193 $ 513,382 $ 238,645 $ 428,190
Imperial Project 1,166,388 2,010,282 1,205,000 1,379,000
Miscellaneous Projects in 340,062 191,684 75,000 1,181,051
the United States(1)
Mexico(2) 4,870 197,891 174,000 977,000
Indonesia(1) 581,486 -- -- --
</TABLE>
(1) During 1997, the Company wrote off $581,486 on the project in Indonesia
and $308,967 on the Mina prospect in Nevada because they did not meet the
Company's investment criteria.
(2) Approximately $475,000 of the fiscal year June 30, 1995 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:
<PAGE> 18
18
OTHER MINERALIZATION
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------
GOLD GRADE CONTAINED
MINE OR PROJECT TONS (OZ/T) OUNCES GOLD
- ---------------------- -----------------------------------------------
<S> <C> <C> <C>
(average)
Rand Mine 17,226,000 0.018 313,810
Picacho Mine Nil -- Nil
Imperial Project 12,417,000 0.016 200,879
------------ ------------ ------------
Totals 29,643,000 0.017 514,689
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------
GOLD GRADE CONTAINED
MINE OR PROJECT TONS (OZ/T) OUNCES GOLD
- ---------------------- -----------------------------------------------
<S> <C> <C> <C>
(average)
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
- ---------------------- -----------------------------------------------
<S> <C> <C> <C>
(average)
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> 19
19
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1995
-----------------------------------------------
GOLD GRADE CONTAINED
MINE OR PROJECT TONS (OZ/T) OUNCES GOLD
- ---------------------- -----------------------------------------------
<S> <C> <C> <C>
(average)
Rand Mine 30,877,700 0.018 554,700
Picacho Mine 25,700 0.046 1,187
Imperial Project 12,438,000 0.017 213,401
------------ ------------ ------------
Totals 43,341,400 0.018 769,288
============ ============ ============
</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> 20
20
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 back-washed 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,
1997, the gold and silver content of the Company's gold product shipped to the
refinery was an average of approximately 80% gold and 17% silver for the gold
precipitates from Picacho Mine, and an average of approximately 81% gold and 12%
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 $1.25
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`s 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> 21
21
<TABLE>
<CAPTION>
CALENDAR YEAR LONDON BULLION MARKET COMEX
- -------------------------------- ----------------------------- -----------------------------
HIGH LOW HIGH LOW
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
1997 $ 366.55 $ 283.00 $ 365.70 $ 282.80
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
</TABLE>
The London afternoon fixing price for gold on December 31, 1997 was $289.20 per
ounce and on March 12, 1998 the London afternoon fixing price was $293.85 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
<PAGE> 22
22
have a 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
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 year ended June 30, 1995, the six months ended December 31, 1995 and
the years ended December 31, 1996 and 1997, 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, 1998. During the year ended December 31, 1997
the Company had six 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 any of the occurrences. 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. In the past,
legislation has been introduced before 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's 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> 23
23
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.
RESERVE FOR RECLAMATION COSTS ($000)
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED
- --------------------------------------------------------------------------------------------------
SIX MONTHS
MINE ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
- ------------------------------------------------------------------ ----------------------------
1997 1996 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at beginning of
period $ 1,578 $ 1,163 $ 1,048 $ 851
Increase in reserve based on
units of production 673 433 129 248
------------ ------------ ------------ ------------
2,251 1,596 1,177 1,099
Expenditures for reclamation 44 18 14 51
------------ ------------ ------------ ------------
Balance at end of period $ 2,207 $ 1,578 $ 1,163 $ 1,048
============ ============ ============ ============
</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 judgement. 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. As at December 31, 1997, the Company reduced the total proven and
probable reserves at the Rand Mine by 476,000 ounces (inclusive of 135,791
ounces that were mixed and stacked on the heap leach pads), due to lower gold
prices. The reduction in the proven and probable reserves from fiscal 1996 to
fiscal 1997 did not result in a write-down of the Company's investment in mining
properties and/or any material increases in amortization charges because
(assuming $325 gold) there was an excess of future net revenues over capitalized
costs. 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.
<PAGE> 24
24
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 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".
<PAGE> 25
25
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 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. See "Item 3 - Legal
Proceedings".
Each of the Company's mines has good road access by either paved or gravel roads
from state highways.
<PAGE> 26
26
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
The Company has mining interests in Mexico and accordingly the Company may be
affected by any political or economic instability which arises in this country.
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 may adversely affect the Company's business in such country.
In addition, the Company's operations in Mexico 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, 1997, the Company employed approximately 190 persons located as
follows:
<TABLE>
<CAPTION>
LOCATION NUMBER
- ------------------------------------------------------ ------
<S> <C>
Imperial Project 4
Picacho Mine 34
Rand Mine 134
Operations office staff (Reno, N.V.) 11
Corporate staff (Vancouver, B.C.) 5
Mexico 2
------
190
======
</TABLE>
In the first quarter of 1998, restructuring activities included the reduction of
the total number of employees by 35% which includes layoffs at the Picacho Mine
due to mine closure, a reduction in the number of mining shifts at the Rand Mine
due to changes in the mine plan and transfer of the management functions from
the Vancouver office to the Reno office to reduce general and administrative
costs.
The Company's Rand Mine was unionized until June 1997, when the hourly-rated
personnel voted in favour of decertifying the International Longshoremen's &
Warehousemen's Union
<PAGE> 27
27
(ILWU) Local 30. This decertification is not expected to have any material
economic effect on the Company.
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 75 unpatented lode mining claims
(approximately 1,150 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 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,
1997 royalty expense under the Picacho Lease amounted to $1,097,500.
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
<PAGE> 28
28
obligations not yet accrued thereunder on 90 days notice.
PRODUCTION EQUIPMENT AND POWER
Current equipment used at the Picacho Mine includes five 85 ton Haulpak trucks
and two CAT 992 loaders. 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. There
were no equipment expenditures during the fiscal yearended December 31, 1997.
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, 1997 the Company had expended an aggregate of $23,153,000, net of
written-off assets, on acquisition, exploration, development, and equipment at
the Picacho Mine and had extracted 363,015 ounces of gold. Proven and probable
mineable reserves for the Picacho Mine were exhaustedas at December 31, 1997.
GEOLOGY
The ore at the Picacho Mine was 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) was 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 consists of gold disseminated throughout the
altered and structurally complex Precambrian gneiss.
<PAGE> 29
29
MINING OPERATIONS AND RESERVES
Mining at the Picacho Mine was 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 during 1997 was from the Dulcina Extension ore body.
Proven and probable mineable reserves for the Picacho Mine were exhaustedas at
December 31, 1997. Mining of the last known ore body at the Picacho Mine was
completed in December 1997, on target with life-of-mine projections. Gold
production will continue for two years followed by reclamation of the last
remaining heap leach pad and processing facility. Reclamation is expected to be
completed by the year 2002, with continued revegetation monitoring thereafter.
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 leach the ore which is on the
remaining heap leach pad at the Picacho Mine To December 31, 1997, 16,932,350
tons of ore and 40,387,637 tons of waste have been processed. Four completely
processed ore heaps have been leached out and neutralized to California State
requirements and reclamation of these sites is proceeding according to plan. It
is expected that leaching of the fifth ore heap located on the property, which
was completed in the fiscal year ended June 30, 1995, will be completed during
fiscal 2000 after which all operations, other than reclamation, at the Picacho
Mine will be terminated.
<PAGE> 30
30
PRODUCTION
Certain key operating statistics for the Picacho Mine are set forth in the
following table:
PICACHO MINE PRODUCTION RESULTS
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS
MINE ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
- ------------------------------------------------------------------------------ ------------ ------------
1997 1996 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Ore mined (tons) 1,140,200 1,631,600 670,700 1,627,900
Waster mined (tons) 506,800 2,508,600 3,124,100 7,686,700
Stripping ratio(1) 1.21:1 1.54:1 4.7:1 4.7:1
Average gold assay 0.044 0.036 0.033 0.024
(ounces/ton) 33,239 34,621 14,434 25,270
Ounces of gold produced $ 180 $ 162 $ 162 $ 216
Cash cost of production per ounce(2)
------------ ------------ ------------ ------------
</TABLE>
(1) Ratio of waste mined to ore mined.
(2) 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.
GLAMIS 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 started to recover old mine dump material located between Yellow Aster
Pit and the old Descarga Deposit.
The operations at the of Rand Mine 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 the Baltic Mine have ,
since October, 1995, been combined to constitute the
<PAGE> 31
31
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 98 patented mining claims and 452 unpatented lode and placer mining claims.
Of these, Rand owns all or a portion of 11 of the patented and 330 of the
unpatented mining claims. The balance of the patented and unpatented mining
claims are held under lease. 32 additional patented mining claims, totalling 516
acres were quit-claimed to the State of California in 1996 to meet endangered
species permit habitat compensation requirements. California did not accept the
claims. Rand has since deeded over alternative tortoise compensation property
totalling 640 acres to the State. This included three parcels near Barstow,
California and two parcels near Kramer Junction, California.
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 Nevada Company, a production royalty of 6% of net proceeds
less certain costs from the sale of ore produced from the mining claims. The
minimum monthly royalty payment required by this agreement is $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 $140,000 to $284,000. See note 4(a)(ii) to the
consolidated financial
<PAGE> 32
32
statements.
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.
By a Purchase Agreement dated March 5, 1997 the Company purchased a patented
lode mining claim from J. Leslie and Gwendolyn Asher for $10,000 reserving to
the Ashers a 3.0% NSR that is capped at $100,000.
By a Mineral Lease Agreement dated June 9, 1997, the Company leased five
patented lode mining claims from Nigel Barrow for $250,000 reserving to Mr.
Barrow a 5.0% NSR. The lease is for fifteen years and extendible as long as
mining operations are conducted on the property.
By a Mineral Lease Agreement dated July 14, 1997, the Company leased five
unpatented lode mining claims from Cameron Benko for $25,000 upon signing and
$15,000 per year minimum royalty, reserving unto Mr. Benko a royalty of 3.0% of
gross returns. Also there is a requirement to spend a minimum of $60,000 on work
within the first three years. The minimum royalty will increase to $30,000 per
year commencing in the fifth year. The lease is for twenty years and extendible
as long as minimum royalty payments are made.
By a Mineral Lease Agreement dated November 3, 1997, the Company leased one
unpatented placer mining claim from Antelope Valley Treasure Hunters Society and
Robert F. Harik and Patricia A. Harik for $5,000 upon signing, $5,000 on the
first anniversary escalating to $25,000 on the fifth anniversary, and reserving
to the owners a 5.0% NSR. The minimum royalties continue at $25,000 per year
after the fifth anniversary. All advance royalties are recoupable against
production royalties. The lease is for twenty years and extendible as long as
exploration, development or mining operations are conducted on the property.
<PAGE> 33
33
By a Mineral Lease Agreement dated November 6, 1997, the Company leased two
unpatented placer mining claims from Robert F. Harik, Patricia A. Harik, Ronald
Sweeny, Pamela Sweeny, H. Richard Fox, Joyce E. Fox Jason Fox, Stacy Fox, Gary
Mitchell and Bonnie Mitchell for $10,000 upon signing, $10,000 on the first
anniversary escalating to $50,000 on the fifth anniversary, and reserving to the
owners a5.0% NSR. The minimum advance royalty is recoupable against production
royalties. The lease is for twenty years and extendible as long as exploration,
development or mining operations are conducted on the property.
By purchase agreement dated November 18, 1997, the Company purchased the royalty
interest on thirteen unpatented lode mining claims from Intermountain Resources,
Inc. for $150,000.
By purchase agreement dated December 1, 1997, the Company purchased the
underlying royalties interest to the thirteen unpatented lode mining claims
mentioned above from J.P. and Juanita R. Rogowski for $25,000.
During the fiscal year ended December 31, 1997, royalty expense at the Rand Mine
amounted to $1,760,161.
PRODUCTION EQUIPMENT AND POWER
During 1997, a second 27 cubic yard hydraulic shovel was purchased to replace a
smaller 16 cubic yard shovel which was retired. The last 85 ton truck from the
old fleet, which had been retained as a backup unit, was sold. All the other
older 85 ton and 100 ton trucks were sold. The mining fleet now consists solely
of five 190 ton haulage trucks, two 27 cubic yard hydraulic shovels, two drills,
two large dozers, and one motor grader. Total equipment expenditures at the Rand
mine during 1997 amounted to $2.2 million. 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.
<PAGE> 34
34
Rand commenced production on the mineral claims associated with the Yellow Aster
Lease in January of 1987. As at December 31, 1997, Rand had expended an
aggregate of $78,388,000, net of written-off assets, on acquisition,
exploration, development and equipment at the Rand Mine and had extracted
537,509 ounces of gold.
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 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. The Initial Lamont Deposit has been mined out.
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.
<PAGE> 35
35
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 Aster Pit has a projected
mine life of 8 years and is expected to operate at a 67% 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, 1997 within preliminary pit outlines, using a computerized variable
recovery block model, a cut-off grade of 0.003 recoverable ounces of gold per
ton for the reserves of oxide ore, mixed ore and sulfide ore, and a gold price
of $325 per ounce, at 22,781,000 tons of proven reserves grading 0.022 ounces of
gold per ton and 11,107,000 tons of probable reserves grading 0.016 ounces of
gold per ton, having a combined stripping ratio of 1.72:1.
In 1997, 14 additional reverse circulation drill holes totaling 12,628 feet, two
NCHQ (2.5 inch) core holes totaling 700 feet and two PQ (3.3 inch) core holes
totaling 780 feet were drilled within or proximal to the designed Yellow Aster
pit. Data for the 1997 drilling is not yet incorporated in the current mine
model as results from the metallurgical testing are not expected until the
second quarter of 1998.
A recovery plant and a leach pad (the "Baltic Facilities") were 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 beinghauled to Phase I of the new "Rand
Facilities", comprised of a heap leach pad and processing facility. Construction
of this facility was complete by January, 1996, and the first gold was recovered
from it during February, 1996.
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.
Due to lower gold prices and the associated decrease in proven and probable
reserves as at December 31, 1997, of 476,000 ounces (inclusive of 135,791 ounces
that were mined and stacked on the heap leach pads), the Company revised the
mine plan which resulted in a reduction inthe number of mining shifts during the
1st quarter of 1998.
As at December 31, 1997, proven and probable mineable reserves for the Baltic
Pit were calculated within preliminary pit designs at 1,729,000 tons of proven
reserves and 13,000 tons of probable reserves, having a stripping ratio of
0.40:1 and grading 0.037 ounces of gold per ton, using recovery rates of 70% for
oxide ore, 25% for mixed ore and 15% for unoxidized ore, a
<PAGE> 36
36
cut-off grade of 0.005 ounces of gold per ton for oxide ore, 0.012 ounces per
ton for mixed ore and 0.020 ounces per ton for unoxidized ore and a gold price
of $325 per ounce.
As at December 31, 1997, proven and probable mineable reserves for the Lamont
Pit were calculated within preliminary pit designs at 8,591,000 tons of proven
reserves and 307,000 tons of probable reserves, having a stripping ratio of
1.48:1 and grading 0.022 ounces of gold per ton, using a computerized variable
recovery block model, a cut-off grade of 0.003 recoverable ounces of gold per
ton for the reserves of oxide ore, mixed ore and sulfide ore, and a gold price
of $325 per ounce.
PERMITTING
All environmental regulatory permits, licences and authorizations required to
carry out planned operations at the Rand Mine and to process 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 Rand Facilities. These
permits include an approved reclamation plan for all the above facilities.
RAND PAD AND PROCESS FACILITIES (THE "RAND FACILITIES")
As at December 31, 1996 all environmental regulatory permits, licences and
authorizations necessary for the development of the Rand Pad and Process
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
<PAGE> 37
37
February 1996. Phase II of the Rand Facilities comprised of expansion of the
leach pad construction began in December 1997, and is expected to be completed
during the second quarter of 1998.
PRODUCTION
Certain key operating statistics for the Rand Mine are set forth in the
following table:
RAND MINE PRODUCTION RESULTS
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED
- ----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS
MINE ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
- ------------------------------------------------------------------------------- ------------ ------------
1997 1996 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Ore mined (tons) 7,102,700 8,840,660 3,224,600 5,475,587
Waster mined (tons) 13,583,500 6,260,500 3,789,500 8,179,832
Stripping ratio (1) 1.91 0.71 1.18:1 1.50:1
Average gold assay (ounces/ton) 0.019 0.018 0.025 0.019
Ounces of gold produced 94,243 85,762 29,814(2) 76,272
Cash cost of production per ounce(3) $ 229 $ 214 $ 316 $ 197
------------ ------------ ------------ ------------
</TABLE>
(1) Ratio of waste mined to ore mined.
(2) During the period ended December 31, 1995, 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.
<PAGE> 38
38
OTHER LANDS
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, assigning to Imperial Gold its 15% share interest in
Idaho Gold Corporation, which had a book value of $917,000 and providing
Imperial Gold 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 579 claims covering approximately 10,630 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. During 1997, a
subsidiary, Glamis Imperial Corporation was formed to be the operating company
for the Imperial Project. To date, approximately $18,639,000 has been expended
on acquisition, exploration and development and deposits on equipment for the
Imperial Project.
GEOLOGY
The Imperial Project lies to the north and west of the Picacho Mine and south
and east of Newmont 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.
<PAGE> 39
39
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.
RESERVES
Approximately 185,750 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, 1997 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 $350 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.
During the 3rd quarter 1997, the company completed revised cultural studies
required by the Bureau of Land Management ("BLM") to facililate completion of
the company's Environmental Impact Statement ("EIS"). The Draft EIS was
published in the Federal Registry on November 28, 1997. The Record of Decision
is expected during the 3rd quarter of 1998. Delays in the permitting process
have been ongoing due to the additional cultural studies required by BLM, as
well as, ongoing project opposition from various groups of individuals
The Company paid deposits totalling $7.2 million during 1996 and 1997(92% of the
total cost of $7.8 million) for the acquisition of a shovel for the Imperial
Project which is stored at the supplier's site. Major capital expenditures for
the Imperial Project have been postponed until all
<PAGE> 40
40
permits are received and the price of gold improves. Management is now seeking a
suitable buyer for the shovel but does not intend to sell the equipment at a
loss. Assuming permits are received and gold prices are acceptable, the Company
anticipates spending $48.0 million in initial capital to bring the project into
operation. Initial gold production is anticipated in the second quarter of
fiscal 1999.
MEXICO
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.
Under the Agreement the Company acquired, by way of a private placement, 500,000
common shares of Aquiline at a price of Cdn. $0.30 per share and in August of
1993 acquired an additional 545,454 common shares of Aquiline at a price of
Cdn. $0.55 per share. During July 1994 an additional 545,454 common shares were
acquired at a price of Cdn. $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. The agreement provided that 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
<PAGE> 41
41
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 of the Company, was a director of Aquiline up
to July, 1996.
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
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
60 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
1,000 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, 1997, deferred costs, including
property payments and exploration and development expenditures amounted to
$740,000 (1996 - $2,338,000). The decrease during 1997, of $1,598,000 compared
with the prior fiscal year, was due primarily to a $1,458,000 write-off of
mineral property acquisition and development costs.
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
<PAGE> 42
42
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 production began on a
small scale November 1995. 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 was
required by the underlying agreements with the property owner and prepare a
feasibility study on the property. The agreement provided 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.
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 were evaluated and the Company delivered a notice of
termination to Aquiline during the 1996 fiscal year. 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, was a director of the Company of Aquiline up to July of
1996.
EXPLORATION
The Company carried out a limited exploration program in Mexico during the year
ended December 31, 1997. No significant findings resulted from that work.
INDONESIA - GUNUNG PANI JOINT VENTURE PROJECT
The Company had entered into a Letter Agreement dated August 14, 1996 with
Paramount Ventures & Finance Inc. ("Paramount") of Vancouver, British Columbia,
pursuant to which the Company had the option to earn 50% of Paramount's interest
in the Gunung Pani Gold Project located on Sulawesi Island in Indonesia.
During 1997, the Company elected not to proceed with this agreement and wrote
off the related exploration expenditures totalling $586,000 because the project
did not meet the Company's investment criteria.
<PAGE> 43
43
As part of the transaction with Paramount, the Company acquired 2,000,000 common
shares of Paramount at a cost of Cdn. $2.25 each, for a total consideration of
Cdn. $4,500,000 ($3,300,000). During 1997, the Company wrote down the carrying
value of its investment to its market value at December 31, 1997 of
approximately $1,081,000. The closing price for shares of Paramount on the
Vancouver Stock Exchange on March 12, 1998, was Cdn. $0.60.
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 requested 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.
The Company filed a motion with the Court for an order to impose a court-ordered
physical solution on Johnson to resolve the groundwater usage dispute with him.
On January 16, 1998, the Court granted the Company's motion. By the terms of the
court's order, Johnson is required to comply with the groundwater mitigation
measuresset forth in the approval documents for the Rand Project, which are the
same measures applicable to the Water District. This court order
<PAGE> 44
44
settles some of Johnson's claims, but possibly not all claims. This order is
subject to appeal by Johnson.
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. The Company is currently attempting to negotiate a settlement with
both plaintiffs. A court date has been set for April 20, 1998.
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. $0.50 per share. The Company's current
stock exchange listings together with the date of listing, are set out below:
The Toronto Stock Exchange (September 26, 1984)
New York Stock Exchange (January 20, 1993)
Prior to January 20, 1993 the Common Shares were quoted on The Nasdaq National
Market in the United States.
<PAGE> 45
45
THE TORONTO STOCK EXCHANGE
The high and low sale prices for the Common Shares of the Company on The Toronto
Stock Exchange for each quarter during the fiscal years ended December 31, 1997
and 1996, and the transition period ended December 31, 1995 are as follows:
TRADING HISTORY ON THE TORONTO STOCK EXCHANGE
<TABLE>
<CAPTION>
Sales Price (Cdn$)
------------------
Low High Volume
------ ------ ---------
<S> <C> <C> <C>
Fiscal year ending December 31, 1997
1st Quarter $ 9.15 $11.75 1,546,540
2nd Quarter 8.75 10.80 328,860
3rd Quarter 8.50 10.00 476,440
4th Quarter 4.60 9.70 368,795
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
</TABLE>
The price of the Common Shares as reported by The Toronto Stock Exchange at the
close of business on December 31, 1997 and on March 12, 1998 was Cdn. $ 5.45 per
share and Cdn. $5.15 per share respectively.
NEW YORK STOCK EXCHANGE, INC.
The high and low prices for Common Shares of the Company on New York Stock
Exchange for each quarter the fiscal years ended December 31, 1997 and 1996, and
the transition period ended December 31, 1995 are as follows:
<PAGE> 46
46
TRADING HISTORY ON THE NEW YORK STOCK EXCHANGE
<TABLE>
<CAPTION>
Sales Price Volume
------------------- ---------
Low High
------- ------ ---------
<S> <C> <C> <C>
Fiscal Year Ending December 31, 1997
1st Quarter $ 6.875 $ 8.75 4,811,000
2nd Quarter 6.25 7.876 2,721,400
3rd Quarter 6.5625 7.375 3,887,800
4th Quarter 2.875 6.9375 6,032,800
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
</TABLE>
The price of Common Shares as reported by New York Stock Exchange, Inc. at the
close of business on December 31, 1997 and on March 12, 1998 was $3.6875 per
share and $3.625 per share, respectively.
SHAREHOLDERS
As at March 12, 1998 the Company had 2,000 registered shareholders.
DIVIDENDS
No dividends will be declared or paid in 1998 due to the 1997 loss. The Company
paid dividends totalling $0.05 per Common Share during the fiscal year ended
December 31, 1997, and Cdn. $0.06 ($0.044) per Common Share in the transition
period ended December 31, 1995, and the fiscal year ended June 30, 1995. No
dividends were paid during the fiscal year ended December 31, 1996. If dividends
are declared it is the Company's policy to declare and pay such dividends in
United States funds.
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> 47
47
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,
(b) acquisition of control of the Company in connection with the
realization of
<PAGE> 48
48
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
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. In addition, this discussion does not
cover any state, local or foreign tax consequences. (For a discussion of certain
Canadian Federal Income tax considerations, 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
<PAGE> 49
49
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 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, a
corporation or partnership created or organized in or under the laws of the
United States or of any political subdivision thereof or a trust or estate the
income of which is taxable in the United States irrespective of source. For
taxable years beginning after December 31, 1996 (or for the immediately
preceding taxable year if the trustee of a trust so elects), a trust is a U.S.
Holder for federal income tax purposes if, and only if (i) a court within the
United States is able to exercise primary supervision over the administration of
the trust and (ii) one or more United States persons have the authority to
control all substantial decisions of the trust.
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> 50
50
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.
Furthermore, the rules for Foreign tax credits or deductions are subject to
further modification under the United States - Canada Income Tax Treaty. 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 mid-term or long-term capital gain or short
term or long term capital 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> 51
51
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
1297 of the Code, depending upon the percentage of the Company's income which is
passive, or the percentage of the Company's assets whichproduce, or are held for
the production of, 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 either or a passive income, and net capital gain
regardless of whether such income or gain was actually distributed. A U.S.
holder is not required to make a QEF election simply because another U.S. Holder
makes the election. 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. In addition, under recently enacted tax legislation, a U.S. Holder
may make a mark-to-market election for certain PFICs with marketable stock,
thereby potentially avoiding the adverse tax consequences of PFIC
characterization. The election may be make for tax years beginning after
December 31, 1997. Under such an election, the shareholder would determine his,
her or its income or loss with respect to the PFIC stock as of the close of each
taxable year. For example, an electing shareholder would include in income each
year an amount equal to the excess, if any, of the fair market value of the PFIC
stock as of the close of the taxable year over the shareholder's adjusted basis
in such stock. Any income included in income pursuant to the mark-to-market
election would be treated as ordinary income. Alternatively, for tax years where
the shareholder's adjusted basis in the PFIC stock exceeds its fair market
value, an electing shareholder may, subject to certain limitations, be entitled
to a deduction. 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 years ended
December 31, 1997 and 1996, for the transition period ended December 31, 1995 or
for its fiscal years ended prior to June 30, 1995. 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. 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.
<PAGE> 52
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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%.
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 10of such financial statements for a reconciliation of
Canadian and U.S. generally accepted accounting principles.
SELECTED QUARTERLY DATA FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996,
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND FOR THE YEAR ENDED
JUNE 30, 1995. (Expressed in thousands of dollars, except for per
common share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(unaudited) (unaudited) (unaudited) (unaudited) (audited)
Fiscal Year Ended December 31, 1997
Revenue $ 11,359 $ 11,092 $ 10,297 $ 9,487 $ 42,235
Gross profit 5,810 4,743 2,560 1,119 14,232
Earnings (loss) from operations 1,225 (697) (1,557) 8,175 (9,204)
Net earnings (loss) 1,151 (584) (909) 7,937 (8,279)
Net earnings (loss) per Common 0.04 (0.02) (0.03) (0.26) (0.27)
Share
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
</TABLE>
<PAGE> 53
53
<TABLE>
<S> <C> <C> <C> <C> <C>
Earnings (loss) from operations (461) (1,387) -- -- (1,848)
Net earnings (loss) (660) (1,201) -- -- (1,861)
Net earnings (loss) per Common (0.02) (0.05) -- -- (0.07)
Share
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 0.04 0.00 (0.00) 0.06 0.10
</TABLE>
SELECTED YEARLY DATA
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED
------------------------------------------------------------------------------------
SIX MONTHS
ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
--------------------------- ------------ ----------------------------------------
1997 1996 1995 1995 1994 1993
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Production statistics:
Production cash costs per ounce
($) 218 200 265 202 192 186
Ounces of gold produced 128,671 121,591 44,809 101,562 104,467 77,882
Average gold price realized per
ounce ($) 328 384 383 384 375 338
Operating summary ($000):
Revenues 42,235 46,739 17,155 39,032 39,156 26,302
Net earnings (loss) (8,279) 4,059 (1,861) 2,688 3,567 351
Cash generated from (used in) 12,067 12,941 (205) 12,916 8,051 9,310
operations
Financial Status ($000):
Working capital 36,430 38,724 15,138 22,376 20,316 20,234
Total assets 101,643 107,974 69,758 73,846 66,705 63,818
Long-term liabilities 4,707 2,729 2,625 2,641 1,270 8,990
Shareholders' equity 92,429 100,888 64,609 67,639 62,800 51,791
Per common share ($):
Net earnings (loss) (0.27) 0.15 (0.07) 0.10 0.14 0.02
Book value 2.97 3.25 2.45 2.56 2.43 2.26
Dividends 0.05 -- 0.044 0.044 0.044 0.046
</TABLE>
<PAGE> 54
54
ITEM 7 - MANAGEMENT'S 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 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 10 of such financial statements for a reconciliation of
Canadian and U.S. generally accepted accounting principles.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996, THE SIX
MONTHS ENDED DECEMBER 31, 1995 AND THE YEAR ENDED JUNE 30, 1995
OVERVIEW:
The Company' fundamental vision is to remain a low cost profitable producer.
While the Company has achieved greater productionin 1997, at lower costs, the
Company must remain cognisant of the gold price.
The downturn in the price of gold during 1997 has been a concern to the Company.
Management's approach to this problem included a revision of the mine plan at
the Rand Mine to reduce costs, a cost containment program at all facilities and
a new hedging strategy for a limited amount of future gold production.
In addition, the Company underwent a management restructuring in December 1997.
The new management team is mandated to review and optimize the Company's
operations and administrationwith a view to maximizing the Company's resources.
At the same time the Board has directed management to seek out growth
opportunities which take advantage of lower acquisition costs available as a
result ofthe lower gold price and weak junior share market conditions.
Gold Production:
During 1997, operations focused primarily on the Rand Mine and Picacho Mine. On
a consolidated basis goldproduction for the year ended December 31, 1997 was
128,671 ounces an increase of 7,080 ounces or 6% over the ounces produced in the
year ended December 31, 1996. The 1996 production of 121,591 was 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, 1997 compares
favourably to the projection made in last year's report anticipating production
of 120,000 to 125,000 ounces of gold for fiscal 1997. The Company expects that
gold production for the year ended December 31, 1998 will be in the range of
100,000 to
<PAGE> 55
55
105,000 ounces. Presuming the successful completion of permitting on the
Imperial Project by the third quarterof 1998 and improvements in the price of
gold, construction could commence during the third quarter of 1998. If this
occurs, the Company could expect gold production for the year ended December 31,
1999 to be approximately 150,000 ounces.
Total 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-unoxidized ore from the Baltic Pit of the Rand Mine.
Rand Mine:
The Rand Mine produced 94,243 ounces of gold in the year ended December 31, 1997
which was 10% higher than the 85,762 ounces of gold in the year ended December
31, 1996. The annualized rate of production was 59,628 ounces of gold during the
six months ended December 31, 1995. This significant improvement in production
was the direct result of mining oxide ore from the Yellow Aster Pit of the Rand
Mine and the first full year of operations with the new mining equipment
purchased in 1996. The move to larger equipment was designed to maximise
productivity over life-of-mine.
Due to lower gold prices and the associated decrease in proven and probable
reserves as at December 31, 1997, of 476,000 ounces (inclusive of 135,791 ounces
that were mined and stacked on the heap leach pads), the Company revised the
mine plan which resulted in a reduction inthe number of mining shifts during the
1st quarter of 1998.
Picacho Mine:
The Picacho Mine produced 33,239 ounces of gold during the year ended December
31, 1997 which is only 4% lower than the 34,621 ounces of gold produced during
the year ended December 31, 1996. The 1996 production increase of 20% over the
annualized rate of 28,868 ounces of gold produced during the six months ended
December 31, 1995 was the result of focused water management and the tonnage
mined during the year being mainly ore.
Mining of the last known ore body at the Picacho Mine was completed in December
1997, on target with life-of-mine projections. Gold production will continue for
two years followed by reclamation of the last remaining heap leach pad and
processing facility. Reclamation is expected to be completed by the year 2002,
with continued revegetation monitoring thereafter.
REVENUE
Revenue for the year ended December 31, 1997 was $42.2 million compared to $46.7
million for the year ended December 31, 1996, a decrease of10%. With the average
revenue realized per ounce of gold being $328 for 1997 and $384 in the year
ended December 31, 1996, revenue
<PAGE> 56
56
decreased $6.8 million due to the changes in the price of gold. The increase in
production for the year ended December 31, 1997 increased revenue realized
during 1997 by $2.3 million over the production rate during the year ended
December 31, 1996.
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.
COST OF PRODUCTION
The cost of production includes mining, processing and direct mine overhead
costs while royalties, selling, general and administrative costs and
depreciation and depletion costs are excluded.
Cost of production of $28.0 million for the year ended December 31, 1997 was 15%
greater than the $24.4 million incurred for the year ended December 31, 1996. An
increase of approximately $1.4 million resulted from an increase in production
of 7,080 ounces of gold. A write-down of approximately $2.2 million ofthe
carrying value of work-in-process inventories on the Company's books at the
Picacho and Rand Mines was due to a reduction in the ounces of gold on the heap
leach pads expected to be recoveredat lower gold prices.
The cash cost per ounce of gold production increased during the year ended
December 31, 1997 to $218 per ounce of gold from $200 per ounce of gold for the
year ended December 31, 1996. The increase was due primarily to inventory cost
adjustments described above.
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 1996 was 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.
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 at the Baltic Facilities caused by the lower
recovery rates experienced from that heap during the period.
<PAGE> 57
57
EXPENSES
For the year ended December 31, 1997, depreciation and depletion charges were
$11.0 million compared to the $10.6 million incurred for the year ended December
31, 1996. The increase is principally attributable to the increase in gold
production during 1997. Depreciation and depletion charges on a per ounce basis
at the Picacho and Rand Mines during the fiscal year ending December 31, 1998,
are expected to remain comparable to the year ended December 31, 1997.
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 12.8% on an annualized basis. Depletion was
$0.6 million greater than the prior period on an annualized basis because the
production was higher in the period. A $0.6 million increase in depreciation
during this period resulted from the acquisition of assets during 1996 which had
been leased, and the higher level of production, causing more pad depreciation
to be incurred.
Depreciation and depletion charges for 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.
Royalty expense of $2.9 million increased less than $0.1 million for the year
ended December 31, 1997 as compared to the year ended December 31, 1996. The
increase was caused by the increase in production at the Rand Mine.
For the year ended December 31, 1996, royalty expense increased 48% or $0.9
million 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.
The Company incurred $0.9 million for exploration expenses in the year ended
December 31, 1997, of which approximately $0.6 is attributable to the Indonesian
project and approximately $0.3 million relates toexploration and evaluation
expenditures on the Mina prospect in Nevada. This figure compares favourably to
the $1.0 million incurred in the year ended December 31, 1996. The projects were
abandoned because they did not meet the Company's investment criteria. The 1998
exploration budget is estimated at $0.7 million for continued exploration at the
Rand Mine.
<PAGE> 58
58
Exploration expenses of $0.9 million for the year ended December 31, 1996 were
the write-off of exploration costs on the Jojoba prospect in Mexico. The Company
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 prior year reflects the decision
to suspend "grass roots" exploration during the period. 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 Golden Queen by the Company. The acquisition was not
completed because the merger proved to be uneconomic for the Company.
For the year ended December 31, 1997, general and administrative costs of $3.3
million were 2.0% greater than the $3.2 million incurred for the year ended
December 31, 1996. The general and administrative expenses for the year ending
December 31, 1998 are expected to decrease by an estimated 20% compared with
those incurred in the 1997 fiscal year as the result of restructuring
activities, which are expected to have little effect on the Company's
operations.
In the first quarter of 1998, restructuring activities included the reduction of
the total number of employees by 35% which includes layoffs at Picacho Mine due
to the mine closure, a reduction in the number of mining shifts at Rand Mine due
to the changes in the mine plan and the transfer of the management functions
from the Vancouver office to the Reno office to reduce general and
administrative costs.
General and administrative costs of $3.2 million for the year ended December 31,
1996 were 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 year was 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.
During the year ended December 31, 1997, the Company wrote down the carrying
value of investments in two junior exploration companies by $3.1 million. In
addition, the carrying value of the Cieneguita Joint Venture was reduced by
approximately $1.5 million because of the lower price of gold. During the
current year, a restructuring cost of $0.7 million was accrued for severance and
closure costs of the Vancouver officeand severance and relocation costs at the
Reno office.
OTHER INCOME AND EXPENSES
For the year ended December 31, 1997 interest and other income of $1.3 million
resulted from interest income on the cash balances of the Company.
<PAGE> 59
59
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.
Interest and amortization of deferred financing costsfor the year ended December
31, 1997 decreased almost $0.2 million as compared to the year ended December
31, 1996 because the standby fees on the Company's credit facility were
suspended for the year since there was no borrowing available under the
facility. These items 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 net loss for the year ended December 31, 1997 was $8.3 million ($0.27 per
share) compared to earnings for the year ended December 31, 1996 of $4.1 million
($0.15 per share) and the net loss for the six months ended December 31, 1995 of
$1.9 million ($0.07 per share). Net income for the year ended June 30, 1995 was
$2.7 million ($0.10 per share).
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $36.4 million at December 31, 1997 compared
to $38.7 million at December 31, 1996, and $15.1 million at December 31,
1995. The long-term liabilities consisting of reserves for reclamation and
deferred taxes totalled approximately $4.7 million at December 31, 1997 compared
to $2.7 million at December 31, 1996, 1995 and June 30, 1995,
respectively. Included in the working capital was cash of $26.9 million at
December 31, 1997, $26.5 million at December 31, 1996, and $4.2 million at
December 31, 1995.
During the current year cashflow from operations totalled $12.1 million compared
to $12.9 million for the year ended December 31, 1996, while the six months
ended December 31, 1995 resulted in cash used in operations of $205,000. A
positive cashflow from operations of $12.9 million occurred in the fiscal year
ended June 30, 1995. The decrease in cash flow during the year ended December
31, 1997 is the result of the decrease in the revenue realised per ounce of
gold.
During the year ended December 31, 1996, 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 will be declared or paid in 1998 due to the1997 loss. A dividend of
$0.05 per share was paid on March 28, 1997 to shareholders of record at March
14, 1997. 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.
<PAGE> 60
60
The Company and its current lending institution have not come to an agreement to
renew the current line of credit. At the present time no credit is available to
the Company. Management is continuing its dialogue with the lending institution
and is also considering new sources of financing. The lending institution has
continued to sustain the Company by leaving in place $1.3 million of letters of
credit issued as security for future reclamation costs. The Company has an
arrangement with a bonding company which has replaced letters of credit in the
amount of $3.4 million with bonds issued as security for future reclamation
costs.
Assuming an average gold price of $325 and estimated production of 100,000
ounces, the anticipated cashflow from operations for the year ending December
31, 1998 is estimated to be $9.6 million,thus with cash on-hand of $26.9 million
and no debt outstanding other than current liabilities as at December 31, 1997,
management believes that the Company has sufficient resources to proceed with
growth and capital projects.
CAPITAL EXPENDITURES
During the year ended December 31, 1997, a total of $11.5 million was expended
on capital projects and investments as compared to the $24.9 million expended in
the year ended December 31, 1996. Major expenditures during the fiscal year 1997
were as follows:
<TABLE>
<CAPTION>
Millions $
----------
<S> <C>
Drilling, exploration and claims acquistion at Rand Mine $ 1.2
Purchase of used shovel at Rand Mine 1.9
Deposits on equipment purchases for the Imperial Project 6.3
Imperial Project planning, permitting, and development 1.9
Other 0.2
-----
$11.5
=====
</TABLE>
The Company's capital expenditures for the fiscal year ended December 31, 1998
are estimated to be $7.0 million. The major expenditures will be $1.4 million
for permitting at the Imperial Project and $5.6 million for construction of a
leach pad extension at the Rand Mine.
The Company paid deposits totalling $7.2 million during 1996 and 1997(92% of the
total cost of $7.8 million) for the acquisition of a shovel for the Imperial
Project which is stored at the supplier's site. Major capital expenditures for
the Imperial Project have been postponed until all permits are received and the
price of gold improves. Management is now seeking a suitable buyer for the
shovel but does not intend to sell the equipment at a loss.
<PAGE> 61
61
HEDGING
During the third quarter of 1997, the Company implemented a limited policy to
hedge future gold production and pursuant to this the Company acquired put
options. As at December 31, 1997, the Company had purchased put options for
24,000 ounces of gold at $325 per ounce expiring through April 1998.
On February 20, 1998, the Company amended its policy to enable future hedging as
needed, of up to 60% of planned production for up to five years.
BREAK EVEN PRICE PER OUNCE OF GOLD
A major external factor that has had and will continue to havea 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, 1998 is estimated to be $303 compared to the year ended
December 31, 1997 actual of $328, $340 in the year ended December 31, 1996, and
the break-even price of $405, on an annualized basis, for the six months ended
December 31, 1995, and $350 for the fiscal year ended June 30, 1995. The
break-even price of gold includes all costs, including depreciation and
depletion, royalties, corporate administration and exploration but excludes
inventoryand investment write downs and one time costs associated with the
corporate restructuring. Depreciation and depletion is projected to be $78 per
ounce of gold for the year ending December 31, 1998 compared to $86 per ounce of
gold for the year ending December 31, 1997, $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, and $85 for the fiscal year ended June 30, 1995. On a purely
cash basis, the break-even price per ounce of gold is projected to be $220 for
the fiscal year ending December 31, 1998, which compares very favourably to the
actual of $242 per ounce of gold for the year ended December 31, 1997 and $255
per ounce of gold for the fiscal years ended December 31, 1996, and June 30,
1995. Any sustained changes in the price of gold over or under these levels will
appreciably affect the Company's general liquidity position, and could
substantially increase or decrease revenues, earnings and cashflow as the case
may be.
<PAGE> 62
62
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 for design of monitoring systems at the Picacho
and Rand Mines, during the years ended December 31, 1997 and 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, 1998, 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, including a royalty on
gold production. Any levy of the type proposed in the past would only apply to
unpatented federal lands and accordingly would have an insignificant effect on
the economics of the Picacho Mine and Rand Mine's production from the Yellow
Aster Pit. It cannot be predicted if these proposals will become law. However,
should a 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. A net profits royalty of 5% to the U.S. government, which may or may
not be an adequate allowance, was included in the final
<PAGE> 63
63
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.
YEAR 2000
The Company has been actively reviewing all of the computer systems currently in
use from the computer control module in its haul trucks, loaders, shovels, and
drills to those used for financial and cost accounting as well as those used for
mine planning. The review has not yet identified any systems which will be
affected by the year 2000 risks. The Company feels that any problems identified,
if any, as this review is completed in the coming year will not require
significant resources to correct.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Page
Financial Statements
<S> <C>
Report of Independent Chartered Accountants 64
Consolidated Balance Sheets at December 31, 1997 and
December 31, 1996 65
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996, the six months ended December 31, 1995,
and for the year ended June 30, 1995. 66
Consolidated Statements of Retained Earnings for the years ended
December 31, 1997 and 1996, the six months ended December 31, 1995, and
for the year ended June 30, 1995. 67
Consolidated Statements of Changes in Financial Position
for the years ended December 31, 1997 and 1996, the six months ended
December 31, 1995, and for the year ended June 30, 1995. 68
Notes to Consolidated Financial Statements 69-90
</TABLE>
<PAGE> 64
64
INDEPENDENT AUDITOR'S 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, 1997 and 1996 and the consolidated statements of operations,
retained earnings and changes in financial position for each of the years ended
December 31, 1997 and 1996, for the six month period ended December 31, 1995 and
for the year ended June 30, 1995. 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, 1997
and 1996 and the results of its operations and the changes in its financial
position for each of the years ended December 31, 1997 and 1996, for the six
month period ended December 31, 1995 and for the year ended June 30, 1995, 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 operation for each of the years ended December
31, 1997 and 1996, for the six month period ended December 31, 1995 and for the
year ended June 30, 1995 and shareholders' equity as at December 31, 1997 and
1996 to the extent summarized in note 10 to the consolidated financial
statements.
"KPMG"
Chartered Accountants
Vancouver, Canada
February 6, 1998
<PAGE> 65
65
GLAMIS GOLD LTD.
Consolidated Balance Sheet
(Expressed in thousands of United States dollars)
December 31, 1997, with comparative figures for 1996
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 26,913 $ 26,493
Accounts receivable 340 206
Taxes recoverable 1,043 --
Inventories (note 3) 12,219 16,124
Prepaid expenses 422 258
- -----------------------------------------------------------------------------------
40,937 43,081
Plant and equipment and mine development costs (note 4) 58,074 59,898
Other assets (note 5) 2,632 4,995
- -----------------------------------------------------------------------------------
$101,643 $107,974
===================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 4,113 $ 3,306
Taxes payable -- 497
Royalties payable 394 554
- -----------------------------------------------------------------------------------
4,507 4,357
Reserve for reclamation costs (notes 5(d) and 12(b)) 2,207 1,578
Deferred income taxes 2,500 1,151
- -----------------------------------------------------------------------------------
9,214 7,086
Shareholders' equity:
Share capital (note 6):
Authorized:
200,000,000 common shares without par value
5,000,000 preferred shares, $10 par value,
issuable in Series
Issued and fully paid:
31,222,707 (1996 - 31,004,707) common shares 89,650 88,296
Contributed surplus 63 63
Retained earnings 2,716 12,529
- -----------------------------------------------------------------------------------
92,429 100,888
- -----------------------------------------------------------------------------------
Commitments and contingencies (notes 4 and 12) $101,643 $107,974
===================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
On behalf of the Board:
"CHESTER F. MILLAR" "C. KEVIN McARTHUR"
____________________________ Director ____________________________ Director
CHESTER F. MILLAR C. KEVIN McARTHUR
<PAGE> 66
66
GLAMIS GOLD LTD.
Consolidated Balance Sheet
(Expressed in thousands of United States dollars)
<TABLE>
<CAPTION>
Six months
Year ended December 31, ended Year ended
------------------------------- December 31, June 30,
1997 1996 1995 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from gold production $ 42,235 $ 46,739 $ 17,155 $ 39,032
Cost of production 28,003 24,353 11,873 20,552
- ---------------------------------------------------------------------------------------------------------------------------
14,232 22,386 5,282 18,480
Expenses:
Depreciation and depletion 11,040 10,590 4,662 8,577
Royalties 2,870 2,805 953 2,020
Exploration 926 1,038 67 1,795
Selling, general and administrative 3,295 3,223 1,448 2,854
Write-down of investments and properties 4,583 -- -- --
Restructuring costs 722 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
23,436 17,656 7,130 15,246
- ---------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from operations (9,204) 4,730 (1,848) 3,234
Interest and other income (expense) (note 7) 1,339 777 (337) 505
Interest and amortization of financing costs (49) (215) (95) (216)
- ---------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (7,914) 5,292 (2,280) 3,523
Provision for income taxes (note 8):
Current (recovery) (985) 1,544 (288) 921
Deferred 1,350 (311) (131) (86)
- ---------------------------------------------------------------------------------------------------------------------------
365 1,233 (419) 835
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (8,279) $ 4,059 $ (1,861) $ 2,688
===========================================================================================================================
Basic earnings (loss) per share $ (0.27) $ 0.15 $ (0.07) $ 0.10
===========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 67
67
GLAMIS GOLD LTD.
Consolidated Statements of Retained Earnings
(Expressed in thousands of United States dollars)
<TABLE>
<CAPTION>
Six months
Year ended December 31, ended Year ended
------------------------------- December 31, June 30,
1997 1996 1995 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retained earnings, beginning of period $ 12,529 $ 8,470 $ 11,500 $ 9,970
Net earnings (loss) (8,279) 4,059 (1,861) 2,688
Dividends (1,534) -- (1,169) (1,158)
- --------------------------------------------------------------------------------------------------------------------
Retained earnings, end of period $ 2,716 $ 12,529 $ 8,470 $ 11,500
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 68
68
GLAMIS GOLD LTD.
Consolidated Statements of Changes in Financial Position
(Expressed in thousands of United States dollars)
<TABLE>
<CAPTION>
Six months
ended Year ended
Year ended December 31, December 31, June 30,
------------------------------- ------------ ------------
1997 1996 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash provided by (used in):
Operations:
Not earnings (loss) $ (8,279) $ 4,059 $ (1,861) $ 2,688
Items not affecting working capital:
Depreciation and depletion 11,040 10,590 4,662 8,577
Amortization of financing costs 31 71 51 106
Reserve for reclamation costs 628 415 115 197
Write-down of investments and
properties 4,583 -- -- --
Deferred income taxes 1,350 (311) (131) (86)
Loss (gain) on sale of investments -- (627) 607 --
Net changes in non-cash working capital
balances relating to operations 2,714 (1,256) (3,648) 1,434
- -----------------------------------------------------------------------------------------------------------------------------
12,067 12,941 (205) 12,916
Financing;
Financing costs -- -- -- (115)
Issue of common shares 1,354 32,220 -- 3,309
Dividends (1,534) -- (1,169) (1,158)
- -----------------------------------------------------------------------------------------------------------------------------
(180) 32,220 (1,169) 2,036
Investments:
Investments, net of proceeds -- (2,802) 308 (915)
Plant and equipment, net of disposals (8,403) (17,614) (4,060) (5,341)
Mineral property acquisition and mine
development costs (2,272) (2,414) (3,930) (7,157)
Other assets (792) -- (915) (220)
- -----------------------------------------------------------------------------------------------------------------------------
(11,467) (22,830) (8,597) (13,633)
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents during the period 420 22,331 (9,971) 1,319
Cash and cash equivalents, beginning of period 26,493 4,162 14,133 12,814
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 26,913 $ 26,493 $ 4,162 $ 14,133
=============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 69
69
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
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.
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 10.
(b) Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and Its subsidiaries. As at December 31, 1997 the Company's
active subsidiaries are wholly-owned and are as follows:
Glamis Gold Inc.
Chemgol, Inc.
Glamis Rand Mining Company
Glamis Gold Exploration Inc.
Glamis Imperial Corporation
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.
<PAGE> 70
70
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 2
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(d) Inventories (continued):
(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.
(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 on major components of rolling stock are accrued on a per
hour basis and charged to expense. 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 an a
unit-of-production basis. General and administrative costs are
expensed as incurred.
<PAGE> 71
71
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 3
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(f) Mine development costs (continued):
(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.
(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.
<PAGE> 72
72
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 4
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(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.
(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.
<PAGE> 73
73
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 5
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
3. INVENTORIES:
<TABLE>
<CAPTION>
December 3l, December 31,
1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 3,403 $ 4,645
Work-in-progress 8,256 10,811
Supplies and spare parts 560 668
- ----------------------------------------------------------------------------------------------
$ 12,219 $ 16,124
==============================================================================================
</TABLE>
4. PLANT AND EQUIPMENT AND MINE DEVELOPMENT COSTS:
<TABLE>
<CAPTION>
December 3l, December 31,
1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Plant and equipment and mine
development costs, net of
accumulated depreciation and
depletion of $63,113 (1996 -
$55,464):
Plant and equipment $ 33,152 $ 31,631
Mineral property acquisition costs 9,521 10,625
Mine development costs 15,401 17,642
- ----------------------------------------------------------------------------------------------
$ 58,074 $ 59,898
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 3l, December 31,
1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Allocated to the projects as follows:
Rand Mine (note 4(a)) $ 36,860 $ 41,139
Picacho Mine (note 4(b)) 1,821 5,356
Cieneguita project (note 4(c)) 487 2,047
Exploration and development properties (note 4(d)) 18,639 11,054
Administrative offices 267 302
- ----------------------------------------------------------------------------------------------
$ 58,074 $ 59,898
==============================================================================================
</TABLE>
<PAGE> 74
74
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 6
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
4. PLANT AND EQUIPMENT AND MINE DEVELOPMENT COSTS (CONTINUED):
(a) Rand Mine:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
Plant and equipment $ 48,411 $ 49,047
Mineral property acquisition costs 13,887 13,675
Mine development costs 16,090 15,255
- ----------------------------------------------------------------------------------
78,388 77,977
Less accumulated depletion and depreciation 41,528 36,838
- ----------------------------------------------------------------------------------
$ 36,860 $ 41,139
==================================================================================
</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 12(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> 75
75
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 7
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
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>
Fiscal year Minimum property payments
--------------------------------------------------------------
<S> <C>
1998 $ 140
1999 284
2000 134
2001 134
2002 134
==============================================================
</TABLE>
(b) Picacho Mine:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
Plant and equipment $ 8,079 $ 8,106
Mineral property acquisition costs 5,799 5,799
Mine development costs 9,275 9,275
- ----------------------------------------------------------------------------------
23,153 23,180
Less accumulated depletion and depreciation 21,332 17,824
- ----------------------------------------------------------------------------------
$ 1,821 $ 5,356
==================================================================================
</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.
<PAGE> 76
76
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 8
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
4. PLANT AND EQUIPMENT AND MINE DEVELOPMENT COSTS (CONTINUED):
(b) Picacho Mine (continued);
(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.
(c) Cieneguita Project
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Property and equipment $ 538 $ 541
Mineral property acquisition and development costs 1,660 1,797
- ------------------------------------------------------------------------------------------
2,198 2,338
- ------------------------------------------------------------------------------------------
Less accumulated depletion and depreciation (253) (291)
Less write-off of mineral property acquisition and
development costs (1,458) --
- ------------------------------------------------------------------------------------------
$ 487 $ 2,047
==========================================================================================
</TABLE>
In August 1992, the Company signed a letter agreement with Aquiline
Resources Inc. ("Aquiline") (note 5(a)), a company with a common
director until 1996, 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, 1997,
Aquiline's 40% share of the total contributions funded by the
Company was $348,000 (December 31, 1996 - $311,000) (note 5).
<PAGE> 77
77
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 9
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
4. PLANT AND EQUIPMENT AND MINE DEVELOPMENT COSTS (CONTINUED):
(c) Cieneguita Project (continued):
Summarized financial information of the Company's 60% share of the
Cieneguita Joint Venture is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
Current assets, consisting primarily of accounts
receivable and finished goods inventories $ 124 $ 244
Plant and equipment and mine development costs 378 340
Accounts and royalties payable (4) (6)
- --------------------------------------------------------------------------------------
Venturers' equity $ 498 $ 578
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
Revenues from gold production $ 392 $ 485
Expenses (471) (434)
- --------------------------------------------------------------------------------------
Net earnings (loss) $ (79) $ 51
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used in):
Operations $ (1) $ 207
Financing 7 (17)
Investments (108) (70)
- --------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (102) 120
Cash and cash equivalents, beginning of year 131 11
- --------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 29 $ 131
======================================================================================
</TABLE>
<PAGE> 78
78
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 10
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
4. PLANT AND EQUIPMENT AND MINE DEVELOPMENT COSTS (CONTINUED):
(d) Exploration and development properties:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Imperial Project (note 4(d)(i)):
Plant and equipment - deposit $ 7,132 $ 777
Mineral property acquisition costs 3,330 3,330
Mine development costs 8,177 6,270
- -----------------------------------------------------------------------------
18,639 10,377
Gunung Pani Project (note 4(d)(ii)) -- 486
Mina Project (note 4(d)(iii)) -- 191
- -----------------------------------------------------------------------------
$ 18,639 $ 11,054
=============================================================================
</TABLE>
(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. During
1996, the Company entered into an agreement for the purchase
of equipment totaling approximately $7,800,000 of which
$7,001,000 (1996 - $725,000) has been paid as a deposit. Title
does not transfer to the Company until the equipment is
erected on the property. Permits to operate the project are
being sought from the appropriate regulatory authorities and
are expected to be received in 1998.
(ii) Gunung Pani Project:
During 1996, the Company entered into an option agreement with
Paramount Ventures and Finance Inc. ("Paramount") (note 5(b))
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 was required to fund the exploration and
development expenditures and prepare a feasibility study on
the property. Paramount was responsible for paying all other
costs of maintaining the property In good standing. In 1997,
the Company elected not to proceed with this agreement and
wrote off the related exploration expenditures totaling
$586,000.
<PAGE> 79
79
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 11
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
4. PLANT AND EQUIPMENT AND MINE DEVELOPMENT COSTS (CONTINUED):
(d) Exploration and development properties (continued):
(iii) 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 had the option to purchase the property for
$1,000,000 and was required to pay Mina minimum royalty
payments and satisfy minimum work commitments during the
option period. In 1997, the Company elected not to proceed
with this agreement and wrote off the related exploration
expenditures totaling $309,000.
5. OTHER ASSETS:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Investment in other companies, at cost
less provision for impairment in
value (quoted market value
$1,492,000; 1996 - $7,303,000):
Pacific Amber Resources Ltd. (note 5(a)) $ 411 $ 1,325
Paramount Ventures and Finance Inc. (note 5(b)) 1,081 3,306
- ----------------------------------------------------------------------------------------------
1,492 4,631
Receivable from Aquiline Resources Inc. (note 4(c)) 348 311
Drilling equipment (note 5(c)) 252 --
Environmental bonds - restricted deposits (note 5(d)) 511 --
Loan origination costs and deferred interest (note 5(e)) 16 47
Other 13 6
- ----------------------------------------------------------------------------------------------
$ 2,632 $ 4,995
==============================================================================================
</TABLE>
(a) Investment in Pacific Amber Resources Ltd.:
During 1996 and 1995 the Company acquired 1,320,000 common shares of
Pacific Amber Resources Ltd. ("Pacific Amber"), a company with a
common director to 1997, at a cost of Cdn $1.38 per share. During
1996, the Company sold 14,100 shares for cash proceeds (note 7) to
hold 1,305,900 shares.
During 1997, the Company wrote down the carrying value of its
investment in Pacific Amber to its market value at December 31,
1997, of $411,000.
<PAGE> 80
80
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 12
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
5. OTHER ASSETS (CONTINUED):
(b) Paramount Ventures and Finance Inc.:
During 1996, the Company acquired 2,000,000 common shares of
Paramount, (Note 4(d)(ii)) at a cost of Cdn $2.25 per share.
During 1997, the Company wrote down the carrying value of its
investment in Paramount to its market value at December 31, 1997, of
$1,081,000.
(c) Drilling equipment:
During 1997, the Company acquired a drill for use in Indonesia (see
note 4(d)(ii)). At December 31, 1997, the drill is in storage in
Vancouver, BC for utilization on a suitable exploration property.
(d) Environmental Bonds - Restricted deposits:
During 1997, the Company entered into an agreement with a bonding
company to issue reclamation bonds to regulatory authorities as
security for future reclamation costs. Under the terms of the
agreement with the bonding company the Company must provide
collateral of 15% of the outstanding bond amount as either a cash
deposit or a letter of credit and pay an annual fee of 0.875% of the
face amount of the bond. As at December 31, 1997, the bonding
company had issued reclamation bonds in the amount of $3,411,000 of
which the Company provided a letter of credit from the bank of
$511,000. The letter of credit was funded by the Company with a
cash deposit which earns interest at a fixed rate of return of 5%.
(e) Loan origination costs and deferred interest:
These costs are being charged to earnings over the term of the
banking agreement (note 12(b)).
<PAGE> 81
81
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 13
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
6. SHARE CAPITAL:
(a) Issued and fully paid:
<TABLE>
<CAPTION>
Number of shares Amount
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
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 option 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
Issued during the year:
For cash consideration under the terms of
directors' and employees' stock option 218,000 1,354
- --------------------------------------------------------------------------------------------------
Balance as at December 31, 1997 31,222,707 $ 89,650
==================================================================================================
</TABLE>
(b) Stock options:
At December 31, 1997, a total of 1,370,000 common shares for
directors and officers and 500,000 common shares for employees were
reserved for issuance under options granted. These options expire at
varying dates to December 21, 2002 and are exercisable at prices
ranging from Cdn. $4.60 to Cdn. $12.625 per share.
Stock options granted during the year ended December 31, 1997 under
the terms of directors' and employees' stock options were at prices
ranging from Cdn. $4.60 to Cdn, $10.10 per share (1996 - Cdn, $9.25
to Cdn. $9.30 per share).
<PAGE> 82
82
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 14
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
6. SHARE CAPITAL (CONTINUED):
(b) Stock options (continued):
A continuity of directors' and employees' stock options is as follows:
<TABLE>
<CAPTION>
Six months
Year ended December 31, ended Year ended
----------------------- December 31, June 30,
1997 1996 1995 1995
- ------------------------------------------------------------------------------------------------------
(in thousands of common shams)
<S> <C> <C> <C> <C>
Balance outstanding, beginning of period 950 768 679 467
Cancelled during the period (135) -- (89) --
Granted during the period 1,273 300 178 703
Exercised at an average price of Cdn. $8.75
(December 31, 1996 - Cdn. $9.21;
December 31, 1995 - Cdn. Nil; June 30,
1995 - Cdn. $9.31) (218) (118) -- (491)
- ------------------------------------------------------------------------------------------------------
Balance outstanding, end of period 1,870 950 768 679
======================================================================================================
</TABLE>
7. INTEREST AND OTHER INCOME (EXPENSE):
<TABLE>
<CAPTION>
Six months
Year ended December 31, ended Year ended
------------------------ December 31, June 30,
1997 1996 1995 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 1,385 $ 189 $ 271 $ 654
Foreign exchange loss (46) (39) (1) (149)
Gain (loss) on sale of investments -- 627 (607) --
- ------------------------------------------------------------------------------------------------------
$ 1,339 $ 777 $ (337) $ 505
======================================================================================================
</TABLE>
During 1996, the Company sold its investment of 1,590,908 common shares of
Aquiline for cash proceeds and recorded a gain of $558,000. In addition, the
Company sold 14,100 common shares of Pacific Amber for cash proceeds and
recorded a gain of $69,000.
<PAGE> 83
83
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 15
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
7. INTEREST AND OTHER INCOME (EXPENSE) (CONTINUED):
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.
8. INCOME TAXES:
The provision for income taxes differs from the Canadian federal and
British Columbia provincial statutory rate as follows:
<TABLE>
<CAPTION>
Year ended December 31, Six months ended Year ended
-------------------------------------------- December 31 June 30,
1997 1996 1995 1995
Amount Rate% Amount Rate % Amount Rate % Amount Rate %
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income tax expense
(benefit) computed at
statutory rates $(3,609) (45.6) $ 2,414 45.6 $(1,040) (45.6) $ 1,603 45.5
Permanent differences (94) (1.2) (105) (2.0) 84 3.7 (36) (1.0)
Foreign taxes different
from statutory rate 2,742 34.6 (1,163) (21.9) 345 15.1 (599) (17.0)
Utilization of deductions
not reflected In the
accounts (396) (5.0) (486) (9.2) (47) (2.1) (311) (8.9)
other 1,722 21.8 573 10.8 239 10.5 178 5.1
- ------------------------------------------------------------------------------------------------------------------------------
$ 365 4.6 $ 1,233 23.3 $ (419) (18.4) $ 835 23.7
==============================================================================================================================
</TABLE>
(a) Potential future tax benefits:
At December 31, 1997, the Company has Canadian tax pools of approximately
Cdn, $1,700,000 and Mexican operating losses of New Pesos $16 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.
<PAGE> 84
84
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 16
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
8. INCOME TAXES (CONTINUED):
(b) Deferred income taxes:
Deferred income taxes arising from reporting expenses for tax purposes at
amounts differing from those charged to earnings are as follows:
<TABLE>
<CAPTION>
Six months
Year ended December 31, ended Year ended
------------------------ December 31, June 30,
1997 1996 1995 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation, depletion and
amortization $ 873 $ (827) $ (525) $ (683)
Exploration and development cost (290) 582 501 640
Revenue not recognized for tax
purposes, net 188 238 3 (311)
Other 579 (304) (110) 268
- ---------------------------------------------------------------------------------------------
$ 1,350 $ (311) $ (131) $ (86)
=============================================================================================
</TABLE>
9. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT:
During 1996, the Company retroactively adopted now 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, 1997, the Company had no outstanding call options
(December 31, 1996 - 16,200 ounces of gold at $415 per ounce expiring
through December 1997), had put options outstanding for 24,000 ounces of
gold at $325 per ounce expiring through April 1998 (December 31, 1996 - no
put options outstanding) and had no outstanding spot deferred forward sales
contracts as at December 31, 1997 and 1996.
At December 31, 1997, the unrealized gain in respect of open put option
contracts is approximately $900,000, which reflects the excess of the
option strike price compared to the quoted gold price.
<PAGE> 85
85
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 17
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
9. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED):
(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 approximate
fair values.
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES;
Accounting practices under Canadian and United States generally accepted
accounting principles are 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 an deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
<PAGE> 86
86
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 18
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED):
(b) Accounting for income taxes (continued):
Under United States accounting principles, at December 31, 1997,
deferred income taxes payable would be $2,500,000 (1996 - nil). The
amount reported for a loss for the December 3l, 1997 fiscal year would
be increased by $1,151, 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 and the amount reported for earnings for the
1995 fiscal year would be reduced by $86,000.
The tax effect of the Company's temporary differences that give rise to
the deferred income tax balance as at December 31, 1997 are deferred
tax assets of $1,889,000 (December 31, 1996 - $6,550,000) for
Alternative Minimum Tax credit carry forwards, inventory and the
reserve for reclamation costs, for which a valuation allowance of nil
(December 31, 1996 - nil) has been applied, and deferred tax
liabilities of $4,389,000 (December 31, 1996 - $6,550,000) 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. During 1997, these investments were written
down to their market value at December 31, 1997, and accordingly, there
would be no differences in these balances at December 31, 1997.
(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 was effective for the 1996 fiscal year. Adopting
Statement 121 did not result in any material differences in the
consolidated financial information presented under United States
accounting principles.
<PAGE> 87
87
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 19
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED):
(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 was effective for the Company's 1996 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 than 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 1997 was estimated to be $1,441,000 (1996-$158,000)
and accordingly, would have increased reported loss (1996 - reduced
reported earnings) by that amount.
(f) Computation of earnings per share;
Statement of Accounting Standards No. 128, Earnings per Share, was
issued by the Financial Accounting Standards Board in March 1997 and is
retroactively effective for the Company's 1997 fiscal year. The
calculation of earnings per share under Statement 128 is similar to the
calculation of earnings per share under Canadian accounting principles.
Adopting Statement 128 did not result in any material differences in
the presentation of previously reported basic and diluted earnings per
share in this note.
(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
Year ended December 31, ended Year ended
---------------------- December 31, June 30,
1997 1996 1995 1995
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accounts receivable $ (134) $ 87 $ (124) $ 160
Taxes recoverable/payable (1,540) 901 (302) 1,218
Inventories 3,905 (3,632) (2,127) (968)
Prepaid expenses (164) 52 (53) 93
Accounts payable and accrued
liabilities 807 1,044 (1,013) 1,079
Royalties payable (160) 292 (29) (148)
----------------------------------------------------------------------------------------
$ 2,714 $(1,256) $(3,648) $ 1,434
========================================================================================
</TABLE>
<PAGE> 88
88
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 20
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
10. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED):
(g) Statement of changes in financial position (continued):
During the year ended December 31, 1997, the Company paid $49,000 of
interest (year ended December 31, 1996 - $215,000; six month period
ended December 31, 1995 - $95,000; year ended June 30, 1995 - $216,000)
and paid $155,000 of taxes (year ended December 31, 1996 - $775,000;
six month period ended December 31, 1995 - nil; year ended June 30,
1995 - recovered $398,000).
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
Year ended December 31, ended Year ended
------------------------- December 31, June 30,
1997 1996 1995 1995
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earning (loss) for the period in
these consolidated financial
statements $(8,279) $ 4,059 $(1,861) $ 2,688
Adjustment for Income taxes (1,151) (311) (131) (86)
-------------------------------------------------------------------------------------------------------
Net earnings (loss) for the period
using United States accounting
principles $(9,430) $ 3,748 $(1,992) $ 2,602
=======================================================================================================
Basis earnings (loss) per share $ (0.25) $ 0.14 $ (0.08) $ 0.10
=======================================================================================================
Diluted earnings (loss) per share $ (0.25) $ 0.14 $ (0.08) $ 0.10
=======================================================================================================
</TABLE>
<PAGE> 89
89
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 21
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
11. RELATED PARTY TRANSACTIONS:
In addition to the related party transactions disclosed in notes 4(c), 5(a)
and 7, during the year ended December 31, 1997 the Company incurred
professional fees totaling $101,098 (year ended December 31, 1996 -
$216,000; six month period ended December 31, 1995 - $169,000; year ended
June 30, 1995 - $201,000) with a company with common directors and with a
firm in which an officer of the Company is a partner, of which $6,896 is
included in accounts payable and accrued liabilities as at December 31,
1997 (December 31, 1996 - nil).
During 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. In 1996, the Company elected not to proceed with
this agreement and wrote off the related exploration and development
expenditures totaling $848,000.
12. 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>
Fiscal year Minimum lease payments
------------------------------------------------------------------
<S> <C>
1998 $ 228
1999 201
2000 99
2001 99
2002 74
=================================================================
</TABLE>
(b) Banking agreement:
At December 31, 1996, the Company had a banking facility of $20,000,000
which was subject to review annually, and was 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 was 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 were based upon a quarterly
repayment schedule, subject to a final repayment date of December 1,
1998.
<PAGE> 90
90
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 22
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1997 and 1996
Six months ended December 31, 1995
Year ended June 30, 1995
- --------------------------------------------------------------------------------
12. COMMITMENTS AND CONTINGENCIES (CONTINUED):
(b) Banking agreement (continued):
As at December 31, 1997, there is no borrowing capacity available to
the Company as the lending institution and the Company have not come to
an agreement to renew the line of credit. However, the lender has
provided letters of credit for $1,336,000 (December 31, 1996 -
$4,755,000) 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 had 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
1998, 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. The Company is currently attempting to negotiate
a settlement with both plaintiffs.
<PAGE> 91
91
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 8, 1998 or such later date prior to June 30, 1998 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 15 of the Proxy Statement for use in
connection with the Company's Annual General Meeting of Shareholders to be held
on May 8, 1998 or such later date prior to June 30, 1998 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 8, 1998 or such later date prior to June 30, 1998
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 of the Proxy Statement
for use in connection with the Company's Annual General Meeting of Shareholders
to be held on May 8, 1998 or such later date prior to June 30, 1998 as
determined by the Directors.
<PAGE> 92
92
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 64
Consolidated Balance Sheets at December 31, 1997 and December 31, 65
1997
Consolidated Statements of Operations for the years ended December 66
31, 1997 and 1996, the six months ended December 31, 1995, and for
the year ended June 30, 1995.
Consolidated Statements of Retained Earnings for the years ended 67
December 31, 1997 and 1996, the six months ended December 31, 1995,
and for the year ended June 30, 1995.
Consolidated Statements of Changes in Financial Position for the 68
years ended December 31, 1997 and 1996, the six months ended
December 31, 1995, and for the year ended June 30, 1995 .
Notes to Consolidated Financial Statements 69-90
</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
December 15, 1997 with respect to the announcement of the Company's
re-organization, new appointments of Executive Officers and Directors.
(c) Exhibits: The following documents are Exhibits to this Report.
*21. List of Subsidiaries
*23.1 Consent of the Auditors (KPMG Chartered Accountants)
<PAGE> 93
93
*23.2 Consent of Mine Reserves Associates, Inc.
*27 Financial Data Schedule
-----------------
*Previously filed
Exhibit No. Exhibit Description
----------- -------------------
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).
<PAGE> 94
94
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).
10.21 Purchase Agreement effective July 2, 1991 between Rand
Mining Company and DRX,
<PAGE> 95
95
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).
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
<PAGE> 96
96
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. (incorporated by reference to the Form 10K
for years ended December 31, 1996).
* 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 Chartered Accountants)
*23.2 Consent of Mine Reserves Associates, Inc.
*27. Financial Data Schedule
------------------
* Previously filed
<PAGE> 97
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: "C. Kevin McArthur" March 23, 1998
---------------------------------
C. Kevin McArthur, President,
Chief Executive Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: "C. Kevin McArthur" March 23, 1998
---------------------------------
C. Kevin McArthur, President,
Chief Executive Officer and Director
By: "Chester F. Millar" March 23, 1998
---------------------------------
Chester F. Millar, Director and
Chairman of the Board
By: "James R. Billingsley" March 23, 1998
---------------------------------
James R. Billingsley, Director
By: "Daniel J. Forbush" March 23, 1998
---------------------------------
Daniel J. Forbush, Treasurer
and Chief Financial Officer
(Principal Financial & Accounting Officer)
By: "Hans von Michaelis" March 23, 1998
---------------------------------
Hans von Michaelis, Director
By: "Ian S. Davidson" March 23, 1998
---------------------------------
Ian S. Davidson, Director
By: "Francis O'Kelly" March 23, 1998
---------------------------------
Francis O'Kelly, Director
By: "Jean Depatie" March 23, 1998
---------------------------------
Jean Depatie, Director
<PAGE> 98
LIST OF EXHIBITS
INCLUDED IN THIS FORM 10-K
Exhibit No. Description Page No.
*21 List of Subsidiaries 99
*23.1 Consent of Auditors (KPMG Chartered Accountants) 100
*23.2 Consent of Mine Reserves Associates, Inc. 101
*27. Financial Data Schedule 102
- -----------------
*Previously filed
