<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998.
Commission file number 0-31986 (82-689)
GLAMIS GOLD LTD.
(Exact name of Registrant as specified in its charter)
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British Columbia, Canada None.
(Jurisdiction of incorporation or organization) (IRS Employer Identification No.)
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5190 Neil Road Suite 310, Reno, Nevada, USA 89502
(Address of Principal Executive Offices)
Registrant's Telephone Number: (775) 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. [X]
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 $1.75 on
March 18, 1999, as reported by the New York Stock Exchange, Inc.) was
$119,608,006.
As of March 18, 1999 the Registrant had 68,347,432 common shares outstanding.
1 of 89
Exhibit Index Appears on Page 80
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DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE COMPANY'S DEFINITIVE PROXY STATEMENT FOR ITS ANNUAL MEETING OF
SHAREHOLDERS ON APRIL 28,1999, WHICH WILL BE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION WITHIN 120 DAYS AFTER THE CLOSE OF THE FISCAL YEAR, ARE
INCORPORATED BY REFERENCE IN PART III HEREOF.
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 the
Director of Investor Relations, at:
Glamis Gold Ltd.,
5190 Neil Road, Suite 310
Reno, Nevada
USA 89502
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T A B L E O F C O N T E N T S
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GLOSSARY.................................... 5
ITEM 1 - BUSINESS - Introduction..............6
Summary of Business..................... 7
Operating Summary....................... 9
Summary of Reserves & Other
Mineralization...................... 11
Production Method....................... 14
Other Considerations.................... 15
Executive Officers of the
Company.............................. 20
ITEM 2 - PROPERTIES......................... 21
Picacho Mine............................ 21
Rand Mine............................... 23
Cieneguita Property..................... 27
OTHER LANDS............................... 28
Imperial Project, California............ 28
San Martin Project, Honduras............ 31
Exploration............................. 32
ITEM 3 - LEGAL PROCEEDINGS.................. 33
ITEM 4 - SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS.............. 33
ITEM 5 - MARKET INFORMATION AND
RELATED SHAREHOLDER MATTERS............. 34
Stock Exchanges (TSE/NYSE:GLG).............. 34
Shareholders................................ 35
Dividends................................... 35
Investment Canada Act....................... 36
Certain Tax Matters......................... 37
United States Federal Income Tax
Considerations....................... 37
U.S. Holders................................ 38
Distributions on Common Shares of
the Company....................... 38
Foreign Tax Credit.......................... 38
Disposition of Common Shares of
the Company....................... 39
Other Considerations........................ 39
Passive Foreign Investment
Company........................... 40
Canadian Federal Income Tax
Considerations....................... 41
ITEM 6 - SELECTED FINANCIAL
INFORMATION............................. 41
ITEM 7 - MANAGEMENT DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS.............................. 42
Results of Operations for
1998,1997 & 1996..................... 42
Liquidity and Capital Resources......... 45
Capital Expenditures.................... 46
Environmental, Regulatory, and
Other Risk Factors................... 47
ITEM 7A- QUALITATIVE AND
QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.. 49
ITEM 8 - FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA...................... 50
Index to Financial Statements........... 50
ITEM 9 - DISAGREEMENTS ON
ACCOUNTING AND FINANCIAL
DISCLOSURE.............................. 78
ITEM 10 - DIRECTORS AND EXECUTIVE
OFFICERS OF THE COMPANY................. 78
ITEM 11 - EXECUTIVE COMPENSATION............ 79
ITEM 12 - SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.............................. 79
ITEM 13 - CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS................ 79
ITEM 14 - EXHIBITS, FINANCIAL
STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K............................. 79
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GLOSSARY
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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 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,
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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 A mineral claim located on land owned
CLAIM: by the United States which grants the
minerals in place and exclusive
possession of the land within the claim
area to the recorded owner.
</TABLE>
(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.
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PART I
ITEM 1 - BUSINESS
INTRODUCTION
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 moved to 5190
Neil Road, Suite 310, Reno, Nevada, USA 89502.
In July of 1998, the Company completed the purchase of the 40% interest in the
Cieneguita project held by our joint venture partner. This gave the Company 100%
interest in the property through its wholly-owned Mexican subsidiary Minera
Glamis Mexico S.A. de C.V. (Refer to Note 5(c) of the financial statements.)
The Company acquired all of the issued and outstanding shares of Mar-West
Resources Ltd. ("Mar-West") effective October 19,1998. Mar-West Resources Ltd.
is a British Columbia, Canada corporation engaged in exploration and holds
mineral properties located primarily in Central America. Mar-West became a
wholly-owned subsidiary of the Company upon completion of the transaction.
(Refer to Note 3 of the financial statements.)
Effective February 26, 1999, the Company completed the documents required for
the acquisition of Rayrock Resources Inc. ("Rayrock") an Ontario, Canada
corporation. Rayrock's primary assets are three producing gold mines in Nevada
and an operating copper mine in Chile. (Refer to Note 16 of the financial
statements.)
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, Glamis Rand Mining Company, Glamis
Exploration, Inc., and Glamis Imperial Corporation, each Nevada corporations,
its wholly-owned Mexican subsidiary Minera Glamis Mexico S.A. de C.V., its
subsidiaries, and the newly acquired Mar-West Resources Ltd., and its
subsidiaries. Because the acquisition of Rayrock was not effective until
March 1999 it is not considered a subsidiary of the Company as at
December 31, 1998.
In this Report, unless the context indicates otherwise, the term the "Company"
refers to the Company together with Glamis Gold, Inc., Minera Glamis Mexico S.A.
de C.V., and Mar-West Resources Ltd.
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SUMMARY OF BUSINESS
The Company is engaged in exploration, mine development, and the mining and
extraction of precious metals. The mining method used is open-pit mining with
heap leaching extraction. The Company initiated heap leaching in California in
1981 and considers itself 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 ("Picacho") located in Imperial County and the Rand Mine ("Rand")
located in Kern County. The Rand Mine is comprised of three ore bodies: the
Yellow Aster Pit, the Baltic Pit and the Lamont Pit and three processing
facilities: the Yellow Aster Facilities, the Baltic Facilities and the Rand
Facilities. The Company also has a small operation at the Cieneguita property
("Cieneguita") located in the State of Chihuahua, Mexico which was placed into
production in 1995. 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 was completed in April
1996. 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 during 1999 and acceptable gold prices, it
is expected that gold production will begin within twelve months after receipt
of the final permits. See Item 2 - "Properties - Other Lands" for a description
of this project.
On August 14, 1996, the Company entered into an agreement with Paramount
Ventures & Finance Inc., whose shares 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 agreement to earn 50% of
Paramount's interest in the Gunung Pani Gold Project 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 and wrote off related exploration expenditures totaling
$586,000 as well as writing down the investment to $1,081,000. At December 31,
1998 the Company wrote down the carrying value of its investment in Paramount to
a minimal value of approximately $10,000.
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. To that end, the Company completed the acquisition of Mar-West
Resources Ltd., with its portfolio of late-stage development properties, and in
early 1999, the acquisition of Rayrock Resources Inc. with its four producing
properties.
Based on the ounces of gold contained in the proven and probable reserves as at
December 31, 1998 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 2,792,000 contained ounces. This
figure includes the properties acquired from Mar-West, but
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excludes the Rayrock properties which were not acquired until March 1999. See
"Summary of Reserves and Other Mineralization".
OTHER INFORMATION
The Company's mining operations are subject to the normal risks of mining and
its profits are subject to fluctuations in the price of gold which fluctuate
widely and are affected by numerous factors beyond the Company's control. The
imposition of a gross royalty on all production from federal lands in the United
States, which has been proposed in the past, if enacted, will affect the
profitability of the operations of the Rand Mine from its Baltic and Lamont
Pits, the Imperial Project and the newly-acquired Rayrock mines. 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 to the United
States, the Company now has interests in Mexico, Honduras, Guatemala, El
Salvador and Panama (excluding the Rayrock properties) which may be affected by
changes in the political and economic environment in these countries. See "Other
Matters".
SEGMENT INFORMATION
Information regarding operating segments (producing mines, exploration and
development properties, and corporate) and geographic information (North America
and Latin America) is found in Note 13 of the financial statements which form
part of this report.
FORWARD-LOOKING STATEMENTS
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 and other applicable laws or regulatory policies.
Such forward-looking statements, involve known and unknown risks, uncertainties
and other factors which may cause the actual results 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
results of current exploration activities, conclusions of feasibility studies
now underway, changes in project parameters as plans continue to be refined,
future prices for gold and other mineral commodities, as well as those factors
discussed in the section entitled "Environmental, Regulatory and Other Risk
Factors". Although the Company has attempted to identify important factors that
could cause actual results to differ materially, there may be other factors that
cause actual results not to be as anticipated, estimated or intended. There can
be no assurance that such statements will prove to be accurate as actual results
and future events could differ materially from those anticipated in such
statements. Accordingly, readers should not place undue reliance on
forward-looking statements.
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OPERATING SUMMARY
GOLD PRODUCTION
The following table describes, for the fiscal years ended December 31, 1998,
1997, and 1996, gold production from the Company's mining operations.
GOLD PRODUCTION
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MINE Year Ended December 31,
1998 1997 1996
---- ---- ----
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Picacho(1) 16,275 33,239 34,621
Rand(2) 87,015 94,243 85,762
Cieneguita Project(3) 2,823 1,189 1,208
------- ------- -------
Total Production 106,113 128,671 121,591
======= ======= =======
</TABLE>
(1) 379,290 ounces of gold have been produced from the Picacho Mine since
commencement of production in 1980 to December 31, 1998.
(2) 624,524 ounces of gold have been produced from the Rand Mine since
commencement of production in 1987 to December 31, 1998.
(3) 5,781 ounces of gold have been credited to the Company's account from
November 1995 to December 31, 1998. This represents its 60% interest from
November 1995 through June 1998, and its 100% interest thereafter.
CASH COST OF PRODUCTION PER OUNCE OF GOLD PRODUCED
The following table describes for the years ended December 31, 1998, 1997, and
1996, 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.
CASH COST OF PRODUCTION PER OUNCE OF GOLD PRODUCED
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Mine Year Ended December 31,
1998 1997 1996
---- ---- ----
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Picacho $126 $180 $162
Rand $215 $229 $214
Cieneguita Project $376 $396 $360
---- ---- ----
Average For All Mines $206 $218 $200
==== ==== ====
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ROYALTY COST PER OUNCE OF GOLD PRODUCED
The following table describes, for the years ended December 31, 1998, 1997, and
1996, the royalty cost per ounce of gold produced from the Company's mining
operations.
ROYALTY COST PER OUNCE OF GOLD PRODUCED
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MINE Year Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Picacho $30 $33 $38
Rand $18 $19 $17
Cieneguita Project $6 $12 $2
Average For All Mines $20 $22 $23
=== === ===
</TABLE>
SUMMARY OF RESERVES AND OTHER MINERALIZATION
PROVEN AND PROBABLE MINEABLE RESERVES
The following tables describe the Company's proven and probable mineable
reserves as at December 31, 1998, 1997, and 1996. 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, 1998 for the Rand Mine, Imperial Project and the San Martin
Project (acquired as a result of the acquisition of Mar- West) were calculated
based on a gold price of $300 per ounce. For December 31, 1997 the reserves for
the Rand Mine were calculated based on a gold price of $325 per ounce and for
the Imperial Project on a gold price of $350 per ounce. For December 31, 1996
the reserves for the Rand Mine and the Imperial Project were based on a gold
price of $400 and for the Picacho Mine reserves were calculated based on a gold
price of $380 per ounce. The following table also describes the ounces of gold
contained in the Company's proven and probable mineable reserves as at the
fiscal years ended December 31, 1998, 1997, and 1996. The ounces of gold which
will actually be recovered from these reserves will depend on actual gold grades
encountered and recovery rates.
Reference should be made to the Glossary on page [4] for a description of terms
used herein.
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PROVEN AND PROBABLE MINEABLE RESERVES
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MINE OR YEAR ENDED DECEMBER 31, 1998
PROJECT
GOLD GRADE CONTAINED
TONS (OZ/T) OUNCES OF
(AVERAGE) GOLD
PROVEN PROBABLE
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Rand Mine 32,973,000 400,000 0.021 710,000
Picacho Mine Nil Nil -- --
Imperial 79,088,000 13,361,000 0.016 1,477,000
Project
San Martin 23,039,500 -- 0.029
Project 605,000
Total(1) 135,100,500 13,761,000 0.019 2,792.000
=========== ========== ===== =========
</TABLE>
(1) The proven and probable mineable reserves as at December 31, 1998 were
calculated by the Company and verified by Mine Reserves Associates,
Inc., an entity which is not affiliated with the Company.
<TABLE>
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MINE OR YEAR ENDED DECEMBER 31, 1997
PROJECT
GOLD GRADE CONTAINED
TONS (OZ/T) OUNCES OF
(AVERAGE) GOLD
PROVEN PROBABLE
<S> <C> <C> <C> <C>
Rand Mine 33,101,000 11,427,000 0.023 938,160
Picacho Mine(1) Nil Nil -- --
Imperial 81,623,700 13,504,500 0.016 1,515,545
Project
----------- ---------- ---------
Total(2) 114,724,700 24,931,500 0.018 2,453,705
=========== ========== ===== =========
</TABLE>
(1) Mining of the last known ore body at the Picacho Mine was completed in
January, 1998.
(2) The proven and probable mineable 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 YEAR ENDED DECEMBER 31, 1996
PROJECT
GOLD GRADE CONTAINED
TONS (OZ/T) OUNCES OF
(AVERAGE) GOLD
PROVEN PROBABLE
<S> <C> <C> <C> <C>
Rand Mine 51,006,000 18,542,000 0.023 1,414,655
Picacho Mine 1,065,500 60,700 0.035 39,501
Imperial 81,623,700 13,504,500 0.016 1,515,545
Project ---------- ---------- ---------
Total(1) 133,755,200 32,107,200 0.018 2,969,701
=========== ========== ===== =========
</TABLE>
(1) The proven and probable mineable 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.
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EFFECTS OF DEVELOPMENT DRILLING DURING FISCAL 1998
The effects of mining and development at each of the Company's mines during the
period January 1, 1998 to December 31, 1998 are as follows:
PICACHO MINE - Mining of 73,100 tons of ore in January 1998 completed
mining at Picacho. 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 in 1997 and
16,275 in 1998. No development drilling was conducted at the Picacho
Mine during 1998. There are no gold reserves remaining at the Picacho
Mine as mining of the last known ore body was completed in January 1998.
IMPERIAL PROJECT - During fiscal 1998, there was no development
drilling. The ounces of contained gold was redetermined at an estimated
1,477,000 ounces. The average grade of ore for the project remained at
0.016 ounces of gold per ton. The Company is still awaiting final
permits on the Imperial Project.
RAND MINE - During fiscal 1998, 7,992,700 tons of ore containing 135,875
ounces of gold were mined and placed on the heap leach pads at Rand Mine
and 87,015 ounces of gold were recovered. The current development
drilling program begun in 1998 is still in progress and has not yet been
modeled.
EXPLORATION AND DEVELOPMENT EXPENDITURES
The following table lists the amount of expenditures incurred by the Company on
exploration and mine development activities during the years ended December 31,
1998, 1997, and 1996.
EXPLORATION AND DEVELOPMENT EXPENDITURES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
MINE 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Rand Mine $ -- $ 584,193 $ 513,382
Imperial Project -- 1,166,388 2,010,282
Miscellaneous Projects in
the United States(1) 25,800 340,062 191,684
Mexico(2) 28,600 4,870 197,891
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) During the 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, 1997 the
Company delivered a notice of termination to Aquiline Resources, Inc. in
respect of the Company's involvement in the La Jojoba property.
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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:
OTHER MINERALIZATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
GOLD GOLD GOLD
MINE OR PROJECT TONS GRADE TONS GRADE TONS GRADE
(OZ/T) (OZ/T) (OZ/T)
(AVERAGE) (AVERAGE) (AVERAGE)
<S> <C> <C> <C> <C> <C> <C>
Rand Mine 15,815,000 0.017 17,226,000 0.018 18,685,000 0.021
Picacho Mine Nil - - - 16,100 0.037
Imperial Project 1,976,000 0.012 12,417,000 0.016 12,417,000 0.016
San Martin Project 4,028,000 0.032 - - - -
Cieneguita Project 3,306,000 0.048 - - - -
---------- ---------- ----------
Totals 25,125,000 0.022 29,643,000 0.017 31,118,100 0.019
========== ===== ========== ===== ========== =====
</TABLE>
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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.
The gold-bearing solutions drain from the leach pile and are collected in a
pregnant solution pond. From here the solution is pumped through columns of
sand-sized activated carbon and a gold-oxygen-cyanide complex is captured in the
carbon pores. The carbon is removed and backwashed with a hot caustic or
caustic-cyanide solution that releases the gold complex from the carbon. The
solution is then passed through an electrowinning circuit where the gold is
deposited on steel wool batts. The batts are removed and broken down into a
sludge. The sludge or the steel wool plus gold is smelted in a crucible and
poured into a mold forming a dore bar. The dore bars are sent to a refiner for
further processing.
<PAGE> 15
-15-
OTHER CONSIDERATIONS
GOLD SALES AND HEDGING ACTIVITIES
The dore bullion produced by Rand and gold precipitates produced at the Picacho
Mine are further refined by third parties before being sold as gold bullion
(99.99% pure gold). The refined gold is either sold at the spot price for gold
for delivery two days later or delivered against an existing forward sales or
option contract to one of various precious metal merchants for delivery to the
London, U.K. market. (Refer to Item 7 - "Management's Discussion and Analysis of
Financial Conditions and Results of Operations - Hedging".)
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.
<TABLE>
<CAPTION>
CALENDAR YEAR LONDON BULLION MARKET
HIGH LOW
---- ---
<S> <C> <C>
1998 $312.90 $273.40
1997 366.55 283.00
1996 414.80 367.40
1995 396.95 372.40
1994 396.25 369.65
1993 406.60 325.20
1992 359.60 330.35
1991 403.70 343.50
1990 423.75 345.85
</TABLE>
The London final price for gold on December 31, 1998 was $287.45 per ounce and
on March 18, 1999 the London final fixing price was $283.70 per ounce.
ENVIRONMENTAL AND REGULATORY 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.
<PAGE> 16
-16-
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. 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.
Heap leaching is done with a weak cyanide solution held within a closed circuit,
which includes the leach pads and surface holding ponds. Due to the impervious
qualities of the heap leach pad and the closed nature of the leaching system,
the Company believes that its processing operations have a modest effect on the
environment.
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 years ended December 31, 1996, 1997 and 1998, 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, 1999. During the year ended December 31, 1998
the Company had four small reportable releases or spills at its operations. In
all cases the appropriate authorities were notified and clean-up was undertaken
immediately. Measures, including procedural changes and education were taken to
prevent re-occurrence of the incidents. No action by the authorities is expected
in respect of 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.
<PAGE> 17
-17-
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 --
Environmental, Regulatory and Other Risk Factors".
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 1996 to 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 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.
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, 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
<PAGE> 18
-18-
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 - Environmental, Regulatory, and Other Risk Factors".
TITLE MATTERS
Title to mining properties in the western United States involves certain
inherent risks due to the impossibility of determining the validity of
unpatented claims from real estate records, as well as the potential for
problems arising from the frequently ambiguous conveyancing history
characteristic of many mining properties. Although the Company believes it
conducted reasonable investigations (in accordance with standard mining industry
practice) of the validity of ownership of and the ability of its sellers to
transfer mining claims and other interests to it, there can be no assurance that
it holds good and marketable title to all of its U.S. properties. The Company
has conducted limited reviews of title and obtained representations regarding
ownership from sellers. The Company's practice is, if possible, to obtain title
insurance with respect to its major producing properties. This insurance however
is not sufficient to cover loss of investment or of future profits. In addition,
certain of the Company's properties have not been surveyed and therefore in
accordance with the laws of the jurisdiction in which the properties are
located, their existence and area could be in doubt.
In Honduras, site of the San Martin project, all mineral resources are owned by
the state. Title to minerals can be held separately from title to the surface.
Rights to explore for and to extract minerals are granted by the state through
issuance of mineral concessions, of which there are two types: exploration and
exploitation. Exploration concessions may be granted for a period of up to four
years and subsequently extended as needed to a maximum concession lifespan of
six years. Exploitation concessions are granted for a period of forty years with
possibility of extension for a further twenty years.
In Guatemala, mining rights are also held by the state and are separate from
surface rights. There are two distinct options for obtaining exploration rights
and one for obtaining mining rights. Reconnaissance licenses are granted for a
period of one year and are not renewable. The holder has the exclusive right to
apply for exploration and/or exploitation concessions at the termination of the
twelve-month period. Exploration concessions are granted for three years but may
be extended for a further four years upon application. Exploitation concessions
are granted for a period of twenty-five years.
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.
<PAGE> 19
-19-
Power is supplied to the Company's mines by power companies or diesel
generators. Each mine has access to adequate water. Each of the Company's mines
has good road access by either paved or gravel roads from state highways.
COMPETITION
The Company competes with other mining companies for the acquisition of mining
claims and leases. There is significant and increasing competition for a limited
number of gold acquisition opportunities both within the United States and world
wide and as a result of this competition, the Company may be unable to acquire
attractive gold mining properties on terms acceptable to it.
FOREIGN POLITICAL AND ECONOMIC CONDITIONS
The Company has active mining and property interests in Mexico, Honduras,
Guatemala, El Salvador and Panama. Accordingly, the Company may be affected by
any political or economic instability which arises in these countries. The risks
include, but are not limited to: terrorism, military repression, expropriation,
extreme fluctuations in currency exchange rates and high rates of inflation.
Also, changes in mining or investment policies or shifts in political attitude
may adversely affect the Company's business in such country. In addition, the
Company's operations can 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
operations cannot be predicted.
EMPLOYEES
At December 31, 1998, the Company employed approximately 143 persons located as
follows:
<TABLE>
<CAPTION>
LOCATION NUMBER
- -------- ------
<S> <C>
Imperial Project 3
Picacho Mine 11
Rand Mine 105
Exploration, Corporate and Other Locations 24
----
143
====
</TABLE>
In the first quarter of 1998, restructuring activities included reduction of the
total number of employees. This included layoffs at the Picacho Mine due to the
cessation of mining, 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 Picacho Mine is non-union. The Rand Mine was unionized until June 1997 when
the International Longshoremen's & Warehousemen's Union (Local 30) was
decertified.
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.
<PAGE> 20
-20-
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
Name Age Position and Term Served
- ---- --- ------------------------
<S> <C> <C>
A. Dan Rovig 60 Chairman of the Board since November 1998;
President and Chief Executive Officer
November 1989 to August 1997. Mr. Rovig
served as a consultant to the Company
1997-1998 before being appointed
Chairman of the Board.
C. Kevin McArthur 44 President and Chief Executive Officer of the
Company since January 1998; Chief
Operating Officer July 1997 to December
1997; President of Rand Mining Co.
December 1995 to July 1997; Vice-
President of Chemgold, Inc. October 1990
to December 1995.
Daniel J. Forbush 46 Chief Financial Officer, Treasurer and
Secretary of the Company since February
1998; Controller of Glamis Gold, Inc.,
November 1988 to February 1998.
</TABLE>
ITEM 2 - PROPERTIES
PICACHO MINE, CALIFORNIA
PROPERTY AND MATERIAL AGREEMENTS
Chemgold, Inc. ("Chemgold"), 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,
1998 royalty expense under the Picacho Lease amounted to $494,768.
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
<PAGE> 21
-21-
perform significant mining work upon the mineral claims which are the subject of
the lease for three consecutive years. The Picacho Lease will also terminate if
Chemgold files a petition in bankruptcy, if a receiver, trustee or liquidator of
Chemgold is appointed, if Chemgold's interest in the Picacho Lease is attached
in any proceeding or if the net minimum royalty and earned royalty paid to
Picacho Development Corp. does not exceed the minimum royalty payable in each of
two consecutive calendar years. Chemgold may terminate the Picacho Lease and all
its obligations not yet accrued thereunder on 90 days notice.
PRODUCTION EQUIPMENT AND POWER
Equipment use was limited to the month of January 1998, when mining operations
ceased. Five 85 ton Haulpak trucks and two CAT 992 loaders remain available. No
equipment expenditures were made in 1997 or 1998. $758,000 was expended during
the fiscal year ended December 31, 1996 to purchase equipment which had been on
lease.
Power at the Picacho Mine site is provided by on-site generators.
HISTORY
The Picacho Mine was first mined in the late nineteenth century, initially by
placer mining methods and later as an underground lode mine. By 1911 when mining
activity ceased, underground mining had produced approximately 158,000 ounces of
gold from ore averaging 0.25 oz/t gold.
Development work conducted to date by the Company on the Picacho Mine consists
of drilling over 900 drill holes, constructing roads connecting the workings,
levelling and compacting of 107 acres for leach pads, establishing four major
open pits, installing five miles of water lines from the Colorado River to the
property and constructing an office, shop, laboratory and processing plant. To
December 31, 1998 the Company had expended an aggregate of $23,004,000, net of
written-off assets, on acquisition, exploration, development, and equipment at
the Picacho Mine and had extracted 379,290 ounces of gold. Proven and probable
mineable reserves for the Picacho Mine were exhausted in January 1998.
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.
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 and 1998 was from the Dulcina Extension ore
body.
Proven and probable mineable reserves for the Picacho Mine were exhausted in
January 1998, when mining of the last known ore body at the Picacho Mine was
completed, on target with life-of-mine projections.
<PAGE> 22
-22-
Gold production will continue for another year 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
currently allows the processing of ore within one permitted leaching site. 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, 1998, 17,005,450 tons of ore
and 40,401,837 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 completed. It is expected that leaching of the fifth
ore heap located on the property, will be completed during 2000 after which all
operations, other than reclamation, at the Picacho Mine will be terminated.
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
DECEMBER 31,
MINE
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Ore mined (tons) 73,100 1,140,200 1,631,600
Waste mined (tons) 14,200 506,800 2,508,600
Stripping ratio(1) 0.19:1 1.21:1 1.54:1
Average gold assay (ounces/ton) 0.035 0.044 0.036
Ounces of gold produced 16,275 33,239 34,621
Cash cost of production per ounce(2) $126 $180 $162
------ --------- ---------
</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
Glamis Rand Mining Company, a wholly-owned subsidiary of the Company, operates
the Rand Mine which is comprised of 3 primary 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 reprocessed some old mine dump
material located between the Yellow Aster Pit and the old Descarga Deposit.
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.
<PAGE> 23
-23-
The operations at the Rand Mine are conducted on property consisting of a total
of 135 patented mining claims and 530 unpatented lode and placer mining claims.
Of these, Rand owns all or a portion of 42 of the patented and 383 of the
unpatented mining claims. The balance of the patented and unpatented mining
claims are held under lease. Rand has deeded over tortoise compensation property
totaling 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.
The Rand Mine has several other leases on lode and placer claims with terms up
to twenty years. Leases are subject to renewal or purchase at the discretion of
the Company. These leases normally have advance minimum royalties as well as a
net smelter return royalty. These leases have no significant minimum required
payments, and the royalties average 1.5%. (Refer to Note 5(a)(ii) of the
financial statements.) During the fiscal year ended December 31, 1998, royalty
expense at the Rand Mine amounted to $1,534,573.
PRODUCTION EQUIPMENT AND POWER
The mining fleet consists of five 190 ton haulage trucks, two 27 cubic yard
hydraulic shovels, two drills, two large bulldozers, and one motor grader. There
were no equipment expenditures at the Rand mine during 1998. 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> 24
-24-
Rand commenced production on the mineral claims associated with the Yellow Aster
Lease in January of 1987. As at December 31, 1998, the Company had expended an
aggregate of $83,850,000, net of written-off assets, on acquisition,
exploration, development and equipment at the Rand Mine and had extracted
624,524 ounces of gold.
GEOLOGY
The mining rights associated with the Yellow Aster Lease initially consisted
primarily 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.
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 5 years and is expected to operate at a 62% average recovery rate
for gold.
<PAGE> 25
-25-
Due to lower gold prices and the associated decrease in proven and probable
mineable 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 in the number of mining
shifts during the 1st quarter of 1998.
The Yellow Aster, Lamont, and Baltic pits were completely remodeled in 1998
using oxidation codes from drill logs to make new boundaries for all composited
ore intercepts into oxide, mixed or sulfide categories. 337 reverse circulation
drill holes totaling 172,081 feet, 331 rotary drill holes totaling 47,021 feet,
and four core holes totaling 1480 feet were used to define the reserves of the
Yellow Aster Pit. 792 drill holes, including 593 reverse circulation drill holes
and 199 air track drill holes, totaling 221,897 feet have been used to define
the reserves of the Baltic and Lamont Pits. As at December 31, 1998, using a
price of $300 per ounce of gold, the proven and probable mineable reserves at
Rand totaled 33,373,000 tons grading 0.021 ounces of gold per ton.
In 1998, five additional reverse circulation holes totaling 4,900 feet were
drilled in Burcham Canyon as a dual function exploration/condemnation project.
The lack of economic reserves encountered in the Burcham Canyon area provided an
advantageous area to dump waste from the Phase II Yellow Aster Butte pre-ore
stripping campaign during the fourth quarter of 1998 and into 1999.
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, 1995 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
<PAGE> 26
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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, and receipt of
the California Department of Fish and Game's Section 2081 endangered species
permits and management agreements.
Phase I of the Rand Facilities comprised of heap leach pad and processing
facility construction was completed in January, 1996 and the first gold was
recovered from these facilities during February 1996. Phase II of the Rand
Facilities comprised of expansion of the leach pad construction began in
December 1997, and was 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
MINE
DECEMBER 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Ore mined (tons) 7,992,700 7,102,700 8,840,660
Waste mined (tons) 9,569,500 13,583,500 6,260,500
Stripping ratio (1) 1.20:1 1.91:1 0.71:1
Average gold assay (ounces/ton) 0.017 0.019 0.018
Ounces of gold produced 87,015 94,243 85,762
Cash cost of production per ounce(2) $215 $229 $214
--------- ---------- ---------
</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.
CIENEGUITA PROJECT, MEXICO, MEXICO
MATERIAL AGREEMENTS
In May 1995, the Company and Aquiline Resources, Inc. ("Aquiline") entered into
a joint venture agreement for the further development of the Cieneguita Property
to bring it into production. James R. Billingsley, a director of the Company,
was a director of Aquiline up to July, 1996.
In July, 1998 the Company completed the purchase of Aquiline's 40%interest in
the project for by paying $318,750 in cash, canceling $307,611 of debt due from
Aquiline to the Company, and issuing 25,000 shares of the Company's common stock
to Aquiline at a price of $4.25 per share. (Refer to Note 5(c) of the financial
statements.)
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
<PAGE> 27
-27-
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.
PRODUCTION
The property is a small, open-pit heap leach mine. A contract was arranged with
a management group from Hermosillo to use the existing facilities and production
began on a small scale in November 1995. The first dore produced from the
property was poured in November 1995.
The Company's credited share of production for 1998 was 2,823 ounces of gold. As
at December 31, 1998, the Company's carrying value of the Cieneguita project was
$1,265,000.
DEVELOPMENT ACTIVITIES
To December 31, 1998, 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.
A grid was established on the property and 180 samples were collected from pits
spaced 20 meters by 40 meters. Results returned an average grade of 0.052 ounces
of gold per ton. Column leach tests were conducted on various sizes and types of
ore taken from the surface pits. An 8,000 tonne bulk heap leach test was carried
out which indicated recoveries of approximately 70% for gold and 6% for silver.
During mining it was found that the ore is exceedingly friable in some places
while in other places it appears to require agglomeration prior to leaching.
The Company has not established proven and probable reserves at Cieneguita as of
December 31, 1998. The mineralization has all been categorized as "resource",
pending additional work planned in 1999.
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
<PAGE> 28
-28-
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 1997, 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 1998, a subsidiary,
Glamis Imperial Corporation was formed to be the operating company for the
Imperial Project. During 1998, Glamis Imperial Corporation revised its land
position within the Imperial Project. Areas that had been previously determined
to be non-mineral in character were converted to millsite claims. Additionally,
the lode claims within the project area were re-staked to insure maximum
coverage of the mineralized area. The claim group now totals 664 unpatented lode
claims and 285 millsite claims. To December 31, 1998, approximately $20,027,000
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.
Primary gold mineralization occurs within hematitic and limonitic altered
breccias, microfractures and gouge zones developed in the host biotite and
sericite ore types. Minor quartz veining, very fine grained pyrite pseudomorphs
and silicified zones are also common.
Density of fractures, extent of the red-brown to yellow hematitic/limonitic
coatings and pyrite pseudomorphs within the host units are notable mineralized
features. Logging of core and cuttings from the project site indicate no fresh
pyrite or sulfide mineralization is present due to the oxidized state exhibited
throughout the deposit.
Sporadic mineralization is also noted along the gravel and volcanic contact and
in fault structures through the brecciated volcanic units. Low grade
mineralization also occurs within the overlying gravels as thin layers eroded
from exposed mineralized gneissic units.
<PAGE> 29
-29-
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 December 31, 1998 consist of
geologic mapping and geochemical and geophysical surveys. Drilling, geological
interpretation and mine evaluation studies have resulted in the delineation of
proven and probable mineable ore reserves for the Imperial Project of 79,088,000
tons of proven reserves grading 0.016 ounces per ton and 13,361,000 tons of
probable reserves grading 0.014 ounces of gold per ton, having a combined
stripping ratio of 2.49:1, as at December 31, 1998. Reserves were determined
within the pit outlines, using a 73% recovery rate, a cut-off grade of 0.007
ounces of gold per ton and a gold price of $300 per ounce.
DEVELOPMENT ACTIVITIES
A final feasibility study completed on the Imperial Project in April 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.
On November 28, 1997 the Second Draft Environmental Impact Statement (EIS) for
the Imperial Project was published in the Federal Register. The comment period
for this draft ended April 13, 1998. Following the end of the comment period,
the Bureau of Land Management (BLM) and Imperial County began working on
responses to the comments received on the draft EIS. While Imperial County has
completed its review and responses to comments, the BLM continues its review
which is now expected in the second quarter of 1999. Following completion of
responses to comments, the final EIS is expected to be available for public
comment during the second quarter of 1999. A Record of Decision (ROD) is
expected in late 1999 although a delay by the BLM in responding, or legal
opposition from special interest groups could delay the ROD beyond that date.
On November 2, 1998 the area surrounding, and including, the Imperial Project
was "segregated" from mineral entry for the protection of cultural artifacts,
subject to valid existing rights. Following this segregation, the BLM began the
process of examining the validity of the mining claims within the Imperial
Project. This Validity Exam is not expected to be complete prior to the issuance
of a record of decision on the environmental impact statement, but the Company
believes all rights to minerals are properly filed and documented and the
Validity Exam will conclude favorably to the Company.
Major capital expenditures for the Imperial Project have been postponed until
all permits are received and the price of gold improves. Assuming permits are
received and gold prices are acceptable, the Company anticipates spending $42.0
million in initial capital to bring the project into operation. Initial gold
production is anticipated within twelve months after the final permits are
received.
SAN MARTIN PROJECT, HONDURAS
ACQUISITION AND DESCRIPTION
The San Martin project was acquired in October 1998 as part of the acquisition
of Mar-West Resources, Ltd.
<PAGE> 30
-30-
The property consists of one exploration concession acquired on December 8, 1995
by a Mar-West subsidiary. The concession encompasses 14,100 hectares. The
property is located in central Honduras in the Departamento of Francisco
Morazan. Access to the property is provided on good paved and gravel roads.
GEOLOGY
The oldest rocks identified on the property to date are Paleozoic metasediments
of the Cacaguapa Group. This unit contains garnet schist, feldspar augen schist,
quartz-muscovite schist, phyllites, and rare marble and metagranite. Metamorphic
grades range from greenschist to epidote-amphibolite facies.
Several bodies of porphyritic dacite and tonalite intrude and locally overlie
the schists. The intrusives are elongated on an east-west trend. Based on
intrusive and unconformable relationships with older stratified rocks, the
intrusives are thought to be early Tertiary. Irregular exposures of felsic tuff
and ignimbrite are correlated with the Miocene Padre Miguel Group. Asymmetrical
block faulting closely follows placement of the dacite-tonalite porphyries. The
dominant-structural feature on the San Martin Property is the northwest
trending Siria Graben, which coincides with the location and trend of the Minas
de Oro metalogenic belt. Several east-trending structures including the Arenal
Fault are also present. A complex series of structural fabrics are visible on an
outcrop scale, and more work is required to understand the structure.
RESERVES
In 1995 Mar-West acquired the ground following the identification of anomalous
gold values in stream sediments and subsequently completed trenching,
geophysics, geochemistry, and geological mapping. In 1997, exploration focused
on the possibility of hot springs style gold mineralization at the Hot Springs
Zone (also known as the Sinter Zone). Trenching and subsequent reverse
circulation drilling was completed. All 73 reverse circulation drill holes
completed May-June, 1997 intersected anomalous to ore-grade gold values
averaging .038 to .048 ounces per tonne in a veneer of highly altered schist
closely paralleling the topographic surface of the Hot Springs dome. The veneer
has an average true thickness of approximately 20 meters and had been
intersected in all drill holes completed over an area of 500 x 700 meters.
Since its discovery, the Sinter Zone (Hot Springs Zone) has been renamed the
Rosa Deposit. The Rosa Deposit sits on a south facing hillside directly above an
active hot springs known locally as Fuente Termal. Over 180 diamond and reverse
circulation drillholes have been drilled. This drilling has defined a completely
oxidized resource containing significant gold mineralization. As of December 31,
1998, using a gold price of $300 per ounce, the Rosa Deposit has proven mineable
reserves of 23,039,500 tons grading 0.029 and a stripping ratio of 0.18:1.
Near the end of 1998, a metallurgical program was undertaken to determine the
amenability of the Rosa Deposit to treatment by run-of-mine heap leaching. To
date, eleven large diameter column tests, as well as over one hundred bottle
roll tests have been conducted on both run-of-mine and crushed material. This
testwork has indicated that the material is amenable to run-of-mine heap
leaching with an anticipated recovery of 65% with very low cyanide and lime
consumption.
<PAGE> 31
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DEVELOPMENT ACTIVITIES
In 1998, a series of holes were drilled in a zone of alteration located on a
hillside just north of the Palo Ralo dome. This drilling intercepted
mineralization in a blanket formation similar to Rosa. Following the initial
drilling, a new program was undertaken in late 1998 to follow up on delineating
the resource. By the end of 1998, over 60 reverse circulation and core holes had
been drilled on this resource defining an oxidized zone. Drilling on this
resource is continuing in order to define the known boundary of the resource to
ensure adequate space is defined for both engineering and permitting work.
During 1998 baseline environmental studies were carried out on the entire San
Martin area. These studies were performed with the intent of providing detailed,
timely information for the Environmental Impact Report to be written in 1999.
Engineering work to date includes a detailed mine model for the Rosa Deposit, a
preliminary leach pad design, detailed metallurgical testing, preliminary
equipment selection and facilities design. Additional land acquisition and work
on social programs in the local community have been priorities. The Company
plans on applying for exploitation concessions during the first half of 1999,
and complete a feasibility study on the project by July 1999 with a plan for
beginning construction in November 1999. Current scheduling shows production of
approximately 60-65,000 ounces of gold per year for approximately ten years at a
cash cost of under $150 per ounce. Because the plan calls for run-of- mine
leaching, capital costs are expected to be low, approximately $18 million for a
total cost of under $200 per ounce.
EXPLORATION
Aside from the work performed by Mar-West subsidiaries, the Company carried out
a limited exploration program during 1998. No significant findings resulted from
that work.
A subsidiary of Mar-West had exploration programs on-going in Guatemala and
other areas of Central America. In Guatemala, Mar-West received an Exploration
Concession for a 3,900 hectare area know as Juptiapa II. Contained within this
area is the Cerro Blanco prospect. Mar-West began a thorough study of Cerro
Blano utilizing geological, geochemical and geophysical techniques. This
detailed mapping led to several interesting target zones where reverse
circulation drilling was done in 1997. The initial drilling located a very
interesting zone of intense gold mineralization. In late 1998, a geophysical
survey was conducted on the areas of interest at Cerro Blanco which was used as
the basis for an additional drill program. The drilling program consists of both
reverse circulation and core drillholes and was designed to test the geophysical
anomalies as well as follow up on the 1997 drilling results. Results from this
program are not yet complete.
ITEM 3 - LEGAL PROCEEDINGS
There are no material legal items currently pending.
The following is a description of the judicial proceeding which the Company
settled in 1998.
The Company defended an action, initiated on September 22, 1996 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 claimed that the
<PAGE> 32
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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. 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.
In addition, David Robert Johnson served Rand and Glamis Gold, Inc. on February
26, 1997 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 claimed 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 was causing a depletion in his
well which draws water from the groundwater basin. Johnson requested 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 would not result in any impairment to the
volume and capacity of water being drawn from Johnson's well and claimed 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 was required to comply with the groundwater mitigation
measures set forth in the approval documents for the Rand Project, which are the
same measures applicable to the Water District. This court order settled some of
Johnson's claims, but possibly not all claims. This order was subject to appeal
by Johnson.
A hearing was held in respect of the Water District's application for a
preliminary injunction and the Court, in January 1997 denied the application.
Subsequently the plaintiffs withdrew their lawsuits and the Company agreed to
additional payments of approximately $12,000 per year. The settlement was
finalized in June 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.$0.50 per share. The Company's current stock
exchange listings together with the date of listing, are set out below:
The Toronto Stock Exchange (September 26, 1984)
New York Stock Exchange (January 20, 1993)
<PAGE> 33
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Prior to January 20, 1993 the Common Shares were quoted on The Nasdaq National
Market in the United States.
THE TORONTO STOCK EXCHANGE
The high and low sale prices for the Common Shares of the Company on The Toronto
Stock Exchange for each quarter during the fiscal years ended December 31, 1998,
1997 and 1996 are as follows:
TRADING HISTORY ON THE TORONTO STOCK EXCHANGE
<TABLE>
<CAPTION>
Sales Price (Cdn$) Volume
Low High
--- ----
<S> <C> <C> <C>
Fiscal year ending December 31, 1998
1st Quarter $4.80 $ 6.80 352,045
2nd Quarter 5.00 7.40 300,812
3rd Quarter 3.00 5.50 637,108
4th Quarter 2.75 4.85 1,544,102
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 Ended 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
</TABLE>
The price of the Common Shares as reported by The Toronto Stock Exchange at the
close of business on December 31, 1998 and on March 18, 1999 was Cdn.$ 2.90 per
share and Cdn. $2.70 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, 1998, 1997, and
1996 are as follows:
<PAGE> 34
-34-
TRADING HISTORY ON THE NEW YORK STOCK EXCHANGE
<TABLE>
<CAPTION>
Sales Price Volume
Low High
--- ----
<S> <C> <C> <C>
Fiscal Year Ending December 31, 1998
1st Quarter $3.5625 $ 4.75 1,973,200
2nd Quarter 3.3125 4.9375 1,927,400
3rd Quarter 1.875 3.875 3,454,000
4th Quarter 1.6875 3.3750 5,400,300
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 Period Ended 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
</TABLE>
The price of Common Shares as reported by New York Stock Exchange, Inc. at the
close of business on December 31, 1998 and on March 18, 1999 was $1.88 per share
and $1.75 per share, respectively.
SHAREHOLDERS
As at March 18, 1999 the Company had 1,960 registered shareholders.
DIVIDENDS
No dividends are planned to be declared or paid in 1999 due to the loss incurred
in 1998. No dividends were declared or paid in 1998. The Company paid dividends
totalling $0.05 per Common Share during the fiscal year ended December 31, 1997.
No dividends were paid during the 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> 35
-35-
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
1999 exceeds approximately Cdn.$178,000,000. 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 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,
<PAGE> 36
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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 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.
<PAGE> 37
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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. (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.
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
<PAGE> 38
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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, 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.
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.
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 which produce, 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.
<PAGE> 39
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However, if the U.S. Holder makes a timely election to treat a PFIC as a
qualified electing fund ("QEF") with respect to such shareholder's interest
therein, the above-described rules generally will not apply. Instead, the
electing U.S. Holder would include annually in his gross income his pro rata
share of the PFIC's ordinary earnings, and net capital gain regardless of
whether such income or gain was actually distributed. A U.S. holder 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 made 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 be entitled to a deduction, subject to certain limitations. 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 years ended December
31, 1998, 1997 or 1996. 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 or mark-to-market 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.
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 as at the specified
dates. This financial information was
<PAGE> 40
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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 consolidated financial statements and the notes thereto which
form part of this Report. Reference should be made to Note 17 of such financial
statements for a reconciliation of Canadian and U.S. generally accepted
accounting principles.
SELECTED YEARLY DATA
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31 JUNE 30,
1998 1997 1996 1995 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Production statistics:
Production cash costs per ounce ($) 206 218 200 265 202 192
Ounces of gold produced 106,113 128,671 121,591 44,809 101,562 104,467
Average gold price realized per ounce ($) 310 328 384 383 384 375
Operating summary ($000):
Revenues 32,869 42,235 46,739 17,155 39,032 39,156
Net earnings (loss) (2,007) (8,279) 4,059 (1,861) 2,688 3,567
Cash generated from (used in) operations 9,331 12,067 12,941 (205) 12,916 8,051
Financial Status ($000):
Working capital 34,156 36,430 38,724 15,138 22,376 20,316
Total assets 119,161 101,643 107,974 69,758 73,846 66,705
Long-term liabilities 4,740 4,707 2,729 2,625 2,641 1,270
Shareholders' equity 110,359 92,429 100,888 64,609 67,639 62,800
Per common share ($):
Net earnings (loss) (0.06) (0.27) 0.15 (0.07) 0.10 0.14
Book value 2.84 2.97 3.25 2.45 2.56 2.43
Dividends -- 0.05 -- 0.044 0.044 0.044
</TABLE>
Supplementary quarterly data can be found following the financial statements at
Item 8.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
This Management Discussion and Analysis of the financial results of the
Company's operations for the years 1996 through 1998 should be read in
conjunction with and is qualified by the 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 17 of such financial statements for a
reconciliation of Canadian and U.S. generally accepted accounting principles.
The following discussion contains statements which are not historical facts, and
by their nature are considered "forward looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995 (refer to Part I for the
cautionary statement).
<PAGE> 41
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OVERVIEW
The Company's vision continues to focus on being a quality, cost-effective
producer. The challenge of stagnant gold markets with prices averaging under
$300 per ounce in 1998 continues to be a concern to the Company. Cost
containment programs continue at all locations. Our mandate is to maximize
shareholder value by increasing reserves, implementing economies of scale and
operating effectively and conscientiously at all facilities.
To that end, we have actively sought out growth opportunities. On October 19,
1998 the Company completed the acquisition of Mar- West. This acquisition
brought the Company an impressive portfolio of late-stage development properties
in Central America. Financial data for Mar-West is included in the Company's
financial statements (refer to Note 3 of the financial statements). Adding more
immediate production was the objective of the acquisition in early 1999, of
Rayrock. This addition brings the Company three operating mines generating over
100,000 ounces of gold per year. Because the Rayrock acquisition is a
"subsequent event", financial data for Rayrock is not included in the 1998
financial statements (refer to Note 16 of the financial statements). The
acquisitions of these two companies have substantially increased the Company's
assets, and has established it as a well-funded, intermediate gold producer with
production in excess of 200,000 ounces of gold per year.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
SUMMARY
The Company substantially improved its performance during 1998. Although the
Company incurred a net loss of $2.0 million ($0.06 per share) in 1998, this
compares favorably to a loss of $8.3 million ($0.27 per share) in 1997. The
Company reported a profit of $4.1 million ($0.15 per share) in 1996. The 1998
results reflect continuing lower average market prices for gold ($294 in 1998,
$331 in 1997, and $388 in 1996), as well as decreased production as the Picacho
Mine winds down.
Net cash flows provided by operations continue to be positive
($9.3 million in 1998) and the Company's working capital is a strong $34.2
million. The Company plans approximately $25 million in capital expenditures and
exploration costs in 1999, all from internally generated funds.
GOLD PRODUCTION:
On a consolidated basis gold production for the year ended December 31, 1998 was
106,113 ounces, a decrease of 22,558 ounces or 18% fewer ounces than were
produced in the year ended December 31, 1997. The 1997 production of 128,671 was
an increase of 6% over the production reported for the fiscal year ended
December 31, 1996 of 121,591 ounces.
The production for the year ended December 31, 1998 compares favorably to the
projection made in last year's report anticipating production of 100,000 to
105,000 ounces of gold for fiscal 1998. The Company expects that gold production
for the year ended December 31, 1999 will exceed 200,000 ounces. Production from
the Imperial Project is not included in the 1999 projections since production
from this project will depend upon a conclusion to the permitting process and
improved project economics.
<PAGE> 42
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Rand Mine:
The Rand Mine produced 87,015 ounces of gold in the year ended December 31, 1998
which was 8% less than the 94,243 ounces of gold in the year ended December 31,
1997. Production was 85,762 ounces of gold during the year ended December 31,
1996. The decrease in production at the Rand Mine in the current year was the
result of the 1997 year-end mine plan revision in response to lower gold prices.
In order to reduce costs, the Rand Mine eliminated reserves from the proven and
probable categories which were not economically feasible to mine at
then-existing gold prices.
Picacho Mine:
The Picacho Mine produced 16,275 ounces of gold during the year ended December
31, 1998 which was lower than the 33,239 ounces of gold produced during the year
ended December 31, 1997, but almost 3,500 ounces more than forecast. The 1997
production decreased marginally over the 1996 rate of 34,621 ounces of gold.
Mining of the last known ore body at the Picacho Mine was completed in January
1998, on target with life-of-mine projections. Gold production continued during
1998 and will continue with an anticipated production of 5,800 ounces in 1999
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.
Cieneguita Project:
In July 1998, the Company completed the purchase of its joint venture partner's
40% share of Cieneguita. Total ounces credited to the Company in 1998 were
2,823, compared to 1,189 ounces in 1997. The Company expects production to
approach 5,800 ounces during 1999. (Refer to Note 5(c) of the financial
statements.)
REVENUE
Revenue from production for the year ended December 31, 1998 was $32.9 million
compared to $42.2 million for 1997 and $46.7 million for 1996. Average revenue
realized per ounce of gold dropped to $310 in 1998 from $328 in 1997. The
average realized price per ounce for gold in 1996 was $384. The decline in gold
prices accounted for $7.4 million of the $9.3 million decrease in revenues from
1997 to 1998. The remaining $1.9 million of the decrease resulted from reduced
production. Revenue decreased $6.8 million due to the changes in the price of
gold from 1996 to 1997. The increase in production for the year ended December
31, 1997 increased revenue realized during 1997 by $2.3 million over the year
ended 1996.
COST OF PRODUCTION
The cash 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.
The Company's cash cost of production for the year ended December 31, 1998 was
$21.8 million, a decrease of 22% over the $28.0 million incurred for the year
ended December 31, 1997. The reduced costs reflect the cessation of mining at
the Picacho Mine in January of 1998 and the reduction in operating shifts at the
Rand Mine as a result of lower gold prices.
<PAGE> 43
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Cash costs of production of $28.0 million for the year ended December 31, 1997
were 15% greater than the $24.4 million incurred for the year ended December 31,
1996. Approximately $1.4 million of the increase in costs resulted from
increased production of 7,080 ounces of gold. An additional $2.2 million
was written off the carrying value of work-in-process inventories at the Picacho
and Rand Mines resulting from re-valuing the ounces of gold on the heap leach
pads to net realizable value.
The average cash cost per ounce of gold production decreased to $206 per ounce
during 1998 from a 1997 rate of $218 per ounce. This was due to the cessation of
mining at Picacho, resulting in reduced labor and operating costs, as well cost
reductions at the Rand Mine. The average cash cost per ounce of gold production
in 1996 was $200 per ounce. The increase between 1997 and 1996 was due primarily
to the inventory cost adjustments.
OTHER INCOME AND EXPENSES
Depreciation and depletion charges for the year ended December 31, 1998 were
$8.9 million. This represents a $2.1 million decrease from the $11.0 million
charge incurred in the year ended December 31, 1997. The reduction is a result
of the decrease in production and the corresponding reduction in depreciation
and depletion charged on a "unit-of-production" basis. The cutbacks in staffing
generated fewer hours of machine operation and, consequently, a reduction in
depreciation based on "machine hours" of operation.
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 was principally attributable to the increase in gold
production during 1997 using the same "unit-of-production" basis.
Royalty expense of $2.0 million for the year ended December 31, 1998 was $0.9
million less than the $2.9 million incurred during 1997. The lower royalty
expense was a result of a lower gold prices, fewer ounces produced and a higher
proportion of the production coming from the Rand Mine, which has a lower
royalty rate. During 1996, royalty expense was $2.8 million.
Exploration costs in the year ended December 31, 1998 totaled $34,000 compared
to the $0.9 million expensed during 1997 and $1.0 million in 1996. The Company
significantly reduced exploration activity during 1998 due to the decision to
seek out growth opportunities through acquisitions.
Selling, general and administrative expenses of $2.6 million for the year ended
December 31, 1998 were lower than the $3.3 million and $3.2 million incurred
during 1997 and 1996 respectively. The reduction was due to restructuring
activities that took place in the first quarter of 1998, which included closing
of the Vancouver office and transferring the administrative and financial
functions to the Reno office. Restructuring charges of $0.7 million were
incurred in 1997 relating to these changes.
During 1998 a loss of $1.1 million was incurred from the sales or write-downs of
the Company's investments in various junior exploration companies. This compares
to the $4.6 million written off in 1997 on the Company's investment in two
junior exploration companies as well as a $1.5 million
<PAGE> 44
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write-down on the Cieneguita project. There were no write-downs during the year
ended December 31, 1996.
Interest and other income for 1998 and 1997 totaled $1.5 million and $1.3
million, respectively, comprised primarily of investment income on the Company's
cash balances. $0.8 million income for the year ended December 31, 1996 includes
a gain of approximately $0.6 million from the sale of the investment in Aquiline
Resources.
Interest expense and amortization of financing costs for the year ended December
31, 1998 was $63,000 compared to the December 31, 1997 expense of $49,400.
Interest expense and amortization of financing costs under such facilities
totaled $215,000 in 1996. The reduction in both years was primarily due to the
termination of a credit facility in 1997.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL AND CASH FLOW
The Company had working capital of $34.2 million at December 31, 1998 compared
to $36.4 million at December 31, 1997 and $38.7 million at December 31, 1996.
The long-term liabilities consisting of reserves for reclamation and deferred
taxes totaled approximately $4.7 million at December 31, 1998, $4.7 million at
December 31, 1997 and $2.7 million at December 31, 1996.
During 1998 cash flow from operations totaled $9.3 million compared to $12.1
million for the year 1997, and $12.9 million in 1996. The decrease in cash flow
is primarily attributable to the decrease in the realized price per ounce of
gold as well as fewer ounces of gold being produced.
Capital Resources
In July, 1998, the Company completed the purchase of the remaining 40% interest
in the Cieneguita project held by the Company's joint venture partner, Aquiline
Resources Inc. The Company paid $0.6 million in cash and canceled debt and
issued 25,000 common shares of the Company at $4.25 per share.
On October 19, 1998 the Company acquired all of the issued and outstanding
shares of Mar-West Resources Ltd. The Company issued 7,539,905 common shares to
Mar-West shareholders and paid $4.3 million in cash. (Refer to Note 3 of the
financial statements.)
Subsequently, effective March 1999, the Company completed the acquisition of
100% of the issued and outstanding shares of Rayrock Resources, Inc. The Company
issued 29,227,820 common shares and paid Cdn.$52,883,007 (approximately
US$35,000,000). Rayrock has interests in three open-pit gold mines in Nevada as
well as a producing copper mine in Chile. (Refer to Note 16 of the financial
statements.)
During the year ended December 31, 1996, the Company sold 4,500,000 common
shares by public offering in Canada . Net proceeds to the Company were
approximately US$31,500,000.
No dividends are planned to be declared or paid in 1999 due to the loss incurred
in 1998. No dividends were paid or declared in 1998. 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.
<PAGE> 45
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CAPITAL EXPENDITURES
During the year ended December 31, 1998, a total of $6.5 million was expended on
capital projects and investments as compared to the $11.5 million spent during
1997 and $24.9 million during 1996. Major expenditures during the fiscal year
1998 were as follows:
<TABLE>
<CAPTION>
(in $millions)
--------------
<S> <C>
Drilling, exploration and claims acquisition at Rand Mine $0.5
Completion of Rand Pad Phase II Construction 4.5
Imperial Project planning, permitting, development 1.4
Other 0.1
----
$6.5
</TABLE>
The Company paid deposits totaling $7.0 million during 1997 and 1996 (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. Further major capital
expenditures for the Imperial Project have been postponed until all permits are
received and project economics improve.
Capital expenditures and funds for exploration for 1999 are estimated to be
approximately $25 million. The primary expenditures are expected to be for the
San Martin project in Honduras (approximately $15.4 million), acquired by the
Company in the Mar-West acquisition. Additional expenditures are planned at the
Imperial project and the new properties acquired in the Mar-West and Rayrock
acquisitions. Exploration expenditures are budgeted at approximately $6.0
million, of which $1.0 million is expected to be charged against earnings in
1999. The Company believes that estimated cash flows from operations and current
cash reserves will be sufficient to fund these anticipated expenditures.
In the course of business the Company may issue debt or equity securities to
meet the growth plans of the Company if it determines that additional resources
could be obtained under favorable financial market conditions. No assurance can
be given that additional funding will be available or, if available, will be on
terms acceptable to the Company.
HEDGING
During the third quarter of 1997, the Company implemented a limited policy to
hedge future gold production. This policy was amended in February 1998 to allow
hedging of 60% of the Company's planned production for up to five years. As at
December 31, 1998, the Company had outstanding call options on 10,000 ounces of
gold expiring January 1999, as well as forward sales of 3,000 ounces of gold for
delivery in January 1999. This compares to a 1997 position of put options for
24,000 ounces of gold at $325 per ounce expiring through April 1998. (Refer to
Item 7A - Qualitative and Quantitative Disclosures About Market Risk.)
<PAGE> 46
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ENVIRONMENTAL, REGULATORY 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. During the years ended December 31, 1998, 1997, and 1996, there were
no material expenditures for environmental control facilities other than for
design of monitoring systems at the Rand Mine. The Company estimates that it
will make no material capital expenditures in this area during the year ending
December 31, 1999, other than monitoring systems incorporated into leach pad
construction and expansion programs. At the corporate level, an Environmental
Compliance Committee and Policy Statement have been 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.
As of December 31, 1998, the Company had in place $0.9 million of letters of
credit issued as security for future reclamation costs. The Company also has an
arrangement with a bonding company which has replaced letters of credit in the
amount of $3.9 million with bonds issued as security for future reclamation
costs.
REGULATORY
Legislation has been introduced in prior sessions of the U.S. Congress to make
significant revisions to the 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 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, the Imperial Project, and the newly-acquired Rayrock
mines. 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 feasibility study for the
Imperial Project and is included in the estimated total cost of production.
OTHER RISK FACTORS
The Company's mineral development and mining activities and profitability
involve significant
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risks due to numerous factors outside of its control including, but not limited
to: the price of gold, changes in the regulatory environment, various foreign
exchange fluctuations, and risks inherent in mining.
A major external factor that has a marked effect on liquidity, either positive
or negative, is the price of gold bullion on international markets. The
Company's break-even price per ounce of gold includes all costs, including
depreciation and depletion, royalties, corporate administration and exploration
but excludes inventory and investment write downs and one-time costs associated
with the corporate restructuring. For the year ended December 31, 1998 the
Company's break-even price was $319, compared to $328 for 1997, and $340 for
1996, including depreciation and depletion of $84 per ounce of gold for the year
ending December 31, 1998, $86 per ounce in 1997, and $87 per ounce in 1996. 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 cash flow.
OTHER MATTERS
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date sensitive systems may recognize the
year 2000 as 1900 or some other date resulting in errors when information using
year 2000 dates is processed. In addition similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 issue may be experienced before, on, or after
January 1, 2000, and if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure, which
could affect an entity's ability to conduct normal business operations. It is
not possible to be certain that all aspects of the Year 2000 issue affecting the
entity, including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
The Company believes that its recordkeeping and reporting systems are already
compliant. The Company has state-of-the-art systems using relational technology
already in place. All network servers have been certified compliant by their
manufacturer. The Company has planned additional software upgrades which will
underscore the readiness of the system. Due to the nature of the Company's
business, there are few interconnects and interdependencies to consider. The
critical major equipment suppliers have been contacted and have already
indicated their compliance or are keeping the Company informed of their
progress. Contingency planning is ongoing and consists of continuing contact
with major suppliers not yet certifying compliance regarding correction or
mitigation efforts. The Company expects total in-house compliance and completion
of supplier assessment by early third quarter 1999.
There have been limited specific Year 2000 costs incurred by the Company.
Hardware and software upgrades were planned based on business requirements.
Additional expenditures prior to year-end 1999 are not expected to exceed
$10,000. The nature of the Company's mining business is not "high-tech" and
consequently not significantly dependent on computer hardware or software
outside the financial reporting systems, which have already been addressed. The
Company expects no material change in revenues due to Year 2000 issues.
<PAGE> 48
-48-
ITEM 7A - QUALITATIVE AND QUANTITATIVE DISCLOSURES
ABOUT MARKET RISK
As noted in Item 7 "Other Risks" the Company is subject to changes in metals
prices which directly impact its profitability and cash flows. Because the
markets in which the Company sells its products set prices outside of the
Company's control, the Company believes it is important to reduce the impact of
negative price movements through hedging transactions. These hedging
transactions utilize so-called "derivatives", the value of which is "derived"
from movements in the prices or rates associated with the underlying product.
The Company's hedging policy was established to protect the Company's production
by use of forward contracts, spot deferred contracts, and options, in any
combination. The Company continuously monitors its position with respect to the
unrealized gains and losses and to ensure compliance with Company policy.
The Company also invests cash balances in short-term investments which are
subject to interest rate fluctuations. Because these investments are in highly
liquid, short-term instruments, any impact of an interest rate change will not
be material.
The table below sets forth the positions of the Company at December 31, 1998.
<TABLE>
<CAPTION>
(in millions of U.S dollars) Maturity 1999 Fair Value at
12/31/98
<S> <C> <C>
Assets:
Short-term investments $23.0 $ 23.0
Derivatives:
Gold Forward Sales
Ounces 3,000 $ 17.0
Price per ounce $294
Gold Call Options sold:
Ounces 10,000 nil
Price per ounce $310
</TABLE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Index to Financial Statements Page
- ----------------------------- ----
<S> <C>
Report of Independent Chartered Accountants 51
Consolidated Balance Sheets at December 31, 1998 and 1997 52
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997, and 1996 53
Consolidated Statements of Retained Earnings for the years
ended December 31, 1998, 1997 and 1996. 54
</TABLE>
<PAGE> 49
-49-
<TABLE>
<CAPTION>
<S> <C>
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997, and 1996 55
Notes to Consolidated Financial Statements 56
</TABLE>
<PAGE> 50
-50-
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Glamis Gold Ltd. as at
December 31, 1998 and 1997 and the consolidated statements of operations,
retained earnings and cash flows for each of the years ended December 31, 1998,
1997 and 1996. 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, 1998
and 1997 and the results of its operations and its cash flows for each of the
years ended December 31, 1998, 1997 and 1996 in accordance with generally
accepted accounting principles in Canada.
Accounting principles generally accepted in Canada vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operations for each of the years ended December
31, 1998, 1997 and 1996 and shareholders' equity as at December 31, 1998 and
1997 to the extent summarized in note 17 to the consolidated financial
statements.
"KPMG LLP"
Chartered Accountants
Vancouver, Canada
February 18, 1999, except as to note 16, which
is as of February 26, 1999
<PAGE> 51
-51-
GLAMIS GOLD LTD.
Consolidated Balance Sheets
(Expressed in thousands of United States dollars)
As at December 31
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 26,170 $ 26,913
Accounts receivable ...................................................... 986 340
Taxes recoverable ........................................................ -- 1,043
Inventories (note 4) ..................................................... 10,629 12,219
Prepaid expenses ......................................................... 433 422
- -----------------------------------------------------------------------------------------------------------
38,218 40,937
Plant and equipment and mine development costs (note 5) ....................... 79,655 58,074
Other assets (note 6) ......................................................... 1,288 2,632
- -----------------------------------------------------------------------------------------------------------
$119,161 $101,643
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ................................. $ 3,583 $ 4,113
Taxes payable ............................................................ 177 --
Royalties payable ........................................................ 302 394
- -----------------------------------------------------------------------------------------------------------
4,062 4,507
Reserve for reclamation costs (notes 6(a) and 15(b)) .......................... 2,523 2,207
Deferred income taxes ......................................................... 2,217 2,500
- -----------------------------------------------------------------------------------------------------------
8,802 9,214
Shareholders' equity:
Share capital (note 7):
Authorized:
200,000,000 common shares without par value
5,000,000 preferred shares, Cdn$10 par value, issuable
in Series
Issued and fully paid:
38,860,612 (1997 - 31,222,707) common shares ....................... 109,587 89,650
Contributed surplus ...................................................... 63 63
Retained earnings ........................................................ 709 2,716
- -----------------------------------------------------------------------------------------------------------
110,359 92,429
Commitments and contingencies (notes 5 and 15)
Subsequent event (note 16)
- -----------------------------------------------------------------------------------------------------------
$119,161 $101,643
===========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
On behalf of the Board:
Director Director
<PAGE> 52
-52-
GLAMIS GOLD LTD.
Consolidated Statements of Operations
(Expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue from gold production .............................. $ 32,869 $ 42,235 $ 46,739
Cost of production ........................................ 21,807 28,003 24,353
- ----------------------------------------------------------------------------------------------------------
11,062 14,232 22,386
Expenses:
Depreciation and depletion ........................... 8,871 11,040 10,590
Royalties ............................................ 2,046 2,870 2,805
Exploration .......................................... 34 926 1,038
Selling, general and administrative .................. 2,558 3,295 3,223
Write-down of investments and properties ............. 1,091 4,583 --
Restructuring costs .................................. -- 722 --
- ----------------------------------------------------------------------------------------------------------
14,600 23,436 17,656
- ----------------------------------------------------------------------------------------------------------
Earnings (loss) from operations ........................... (3,538) (9,204) 4,730
Interest and other income (expense) (note 8) .............. 1,543 1,339 777
Interest and amortization of financing costs .............. (63) (49) (215)
- ----------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes ....................... (2,058) (7,914) 5,292
Provision for income taxes (note 9):
Current (recovery) ................................... 232 (985) 1,544
Deferred ............................................. (283) 1,350 (311)
- ----------------------------------------------------------------------------------------------------------
(51) 365 1,233
- ----------------------------------------------------------------------------------------------------------
Net earnings (loss) ....................................... $ (2,007) $ (8,279) $ 4,059
==========================================================================================================
Basic earnings (loss) per share ........................... $ (0.06) $ (0.27) $ 0.15
==========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 53
-53-
GLAMIS GOLD LTD.
Consolidated Statements of Retained Earnings
(Expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retained earnings, beginning of year $ 2,716 $ 12,529 $ 8,470
Net earnings (loss) (2,007) (8,279) 4,059
Dividends -- (1,534) --
- ----------------------------------------------------------------------------------------------------------
Retained earnings, end of year $ 709 $ 2,716 $ 12,529
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 54
-54-
GLAMIS GOLD LTD.
Consolidated Statements of Cash Flows
(Expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net cash provided by operating activities (note 10) $ 9,331 $ 12,067 $ 12,941
Cash flows from investing activities:
Purchase of plant and equipment, net of disposals (5,228) (8,403) (17,614)
Mineral property acquisition and mine development
costs (4,778) (2,272) (2,414)
Proceeds from sale of investments 294 -- 1,250
Purchase of investments -- -- (4,052)
Purchase of other assets (492) (792) --
- ----------------------------------------------------------------------------------------------------------
(10,204) (11,467) (22,830)
Cash flows from financing activities:
Proceeds from issuance of common shares 130 1,354 32,220
Dividends -- (1,534) --
- ----------------------------------------------------------------------------------------------------------
130 (180) 32,220
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents during
the year (743) 420 22,331
Cash and cash equivalents, beginning of year 26,913 26,493 4,162
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 26,170 $ 26,913 $ 26,493
==========================================================================================================
Supplemental disclosures of cash flow information
(see also note 11):
Cash paid during the year for:
Interest $ 47 $ 18 $ 144
Taxes 164 155 775
==========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 55
-55-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
1. NATURE OF OPERATIONS:
The Company and its wholly-owned subsidiaries are engaged in the
exploration, development and extraction of precious metals principally in
the State of California in the United States of America, the State of
Chihuahua in the Republic of Mexico, and in Honduras and Guatemala in
Central America. Also see note 16.
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 17.
(b) Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its direct and indirect subsidiaries. As at December 31,
1998 the Company's active subsidiaries are wholly-owned and are as
follows:
- Glamis Gold, Inc. and its subsidiaries Chemgold, Inc., Glamis
Rand Mining Company, Glamis Exploration Inc. and Glamis Imperial
Corporation;
- Minera Glamis Mexico, S.A. de C.V. and its subsidiaries; and
- Mar-West Resources Ltd. and its subsidiaries
Investments in other companies are carried at cost less provisions for
impairment in value.
(c) Cash equivalents:
Cash equivalents are highly liquid investments, such as term deposits
with major financial institutions, having original maturities of three
months or less, that are readily convertible to contracted amounts of
cash.
(d) Inventories:
(i) Finished goods inventory is stated at market less refinery
charges.
(ii) Work-in-progress inventory, which is ore on the leach pads,
consists of mining costs related to the ore being processed and
is stated at the lower of cost or 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.
<PAGE> 56
-56-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 2
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(d) Inventories (continued):
(iii) Supplies and spare parts inventory is stated at the lower of
cost, using the first-in, first-out method, or 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 on a
unit-of-production basis. General and administrative costs are
expensed as incurred.
(iii) Expenditures incurred on properties identified as having
development potential are deferred on a project basis until the
viability of the project is determined. If a project is
abandoned, the accumulated project costs are charged to earnings
in the period in which the determination is made. Exploration
expenditures on properties identified as not having development
potential are charged to earnings as incurred.
(g) Reserve for reclamation costs:
Minimum standards for mine reclamation have been established by
various governmental agencies which affect certain operations of the
Company. A reserve for mine reclamation costs has been established for
restoring certain mining areas based upon estimates of costs to comply
with existing reclamation standards. Mine reclamation costs for
operating properties are accrued using the unit-of-production method.
<PAGE> 57
-57-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 3
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(h) Revenue recognition:
Revenue is recognized when gold is ready for shipment to the refinery.
(i) 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.
(j) 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 Mexico, S.A. de C.V.
("Minera Glamis") and the foreign subsidiaries of Mar-West Resources
Ltd. ("Mar-West"), are treated as integrated operations and the
related accounts are translated into United States dollars using the
temporal method as follows:
(i) Revenue and expenses at average exchange rates for each period;
(ii) Monetary items at the rates of exchange prevailing at the balance
sheet dates;
(iii) Non-monetary items at the historical exchange rates; and
(iv) Exchange gains and losses arising from translation are included
in the determination of net earnings for each period, except for
exchange gains or losses relating to non-current monetary assets
or liabilities, which are deferred and amortized over the
remaining life of the asset or liability.
<PAGE> 58
-58-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 4
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(k) 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.
(l) Comparative figures:
Certain of the prior years comparative figures have been reclassified
to conform with the presentation adopted for the current year.
3. ACQUISITION OF MAR-WEST:
On October 19, 1998, the Company received the final approvals necessary to
complete an agreement with Mar-West, a Canadian public company, to acquire
all of the issued and outstanding shares of Mar-West pursuant to a plan of
arrangement. The terms of the agreement gave the shareholders of Mar-West
the right to receive either 0.5 common shares of the Company for each
Mar-West share held, or 0.4 common shares of the Company and Cdn$0.48 cash
for each Mar-West share held. Mar-West is an exploration company holding a
100% interest in the San Martin Project located in central Honduras, a 100%
interest in the Cerro Blanco Project located in Guatemala, as well as
interests in other mineral properties in Central America. The transaction
was accounted for by the purchase method and is summarized below:
<TABLE>
<S> <C>
Net assets acquired at fair market value:
Mineral properties $ 21,648
Capital assets, net 179
Net non-cash working capital deficiency (220)
-------------------------------------------------------------------------------------------------------
21,607
Cash and cash equivalents 3,087
------------------------------------------------------------------------------------------------------------
$ 24,694
============================================================================================================
Consideration given:
Cash $ 4,329
Issue of 7,539,905 common shares of the Company 19,701
Transaction costs 664
------------------------------------------------------------------------------------------------------------
$ 24,694
============================================================================================================
</TABLE>
<PAGE> 59
-59-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 5
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
4. INVENTORIES:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
1998 1997
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 4,048 $ 3,403
Work-in-progress 5,835 8,256
Supplies and spare parts 746 560
------------------------------------------------------------------------------------------------------------
$ 10,629 $ 12,219
============================================================================================================
</TABLE>
5. PLANT AND EQUIPMENT AND MINE DEVELOPMENT COSTS:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
1998 1997
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Plant and equipment and mine development costs, net of accumulated
depreciation and depletion of $71,671 (1997 - $63,113):
Plant and equipment $ 33,163 $ 33,152
Mineral property acquisition costs 29,492 9,521
Mine development costs 17,000 15,401
------------------------------------------------------------------------------------------------------------
$ 79,655 $ 58,074
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
1998 1997
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Allocated to the projects as follows:
Rand Mine (note 5(a)) $ 35,259 $ 36,860
Picacho Mine (note 5(b)) 542 1,821
Cieneguita Project (note 5(c)) 1,265 487
Exploration and development properties (note 5(d)) 42,420 18,639
Administrative offices 169 267
------------------------------------------------------------------------------------------------------------
$ 79,655 $ 58,074
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
(a) Rand Mine:
--------------------------------------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Plant and equipment $ 52,928 $ 48,411
Mineral property acquisition costs 13,887 13,887
Mine development costs 17,036 16,090
--------------------------------------------------------------------------------------------------------
83,851 78,388
Less accumulated depletion and depreciation 48,592 41,528
--------------------------------------------------------------------------------------------------------
$ 35,259 $ 36,860
========================================================================================================
</TABLE>
<PAGE> 60
-60-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 6
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
5. PLANT AND EQUIPMENT AND MINE DEVELOPMENT COSTS (CONTINUED):
(a) Rand Mine (continued):
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 15(c)); located in Kern
County, California.
(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.
(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>
1999 $ 187
2000 207
2001 226
2002 278
2003 318
==================================================================================================
</TABLE>
(b) Picacho Mine:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
1998 1997
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Plant and equipment $ 7,930 $ 8,079
Mineral property acquisition costs 5,799 5,799
Mine development costs 9,275 9,275
-------------------------------------------------------------------------------------------------------
23,004 23,153
Less accumulated depletion and depreciation 22,462 21,332
-------------------------------------------------------------------------------------------------------
$ 542 $ 1,821
=======================================================================================================
</TABLE>
<PAGE> 61
-61-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 7
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
5. PLANT AND EQUIPMENT AND MINE DEVELOPMENT COSTS (CONTINUED):
(b) Picacho Mine (continued):
(i) Lease:
The Picacho Mine is located on leased property in Imperial
County, California, and operates under a conditional use permit.
The lease, which expires in 1999, contains a 20 year renewal
option.
(ii) Royalties:
The Company is required to pay monthly royalties of 10% of net
smelter returns under terms of the lease agreement with the
Picacho Mine claim owners. The minimum annual royalty payment
required is $30,000 when gold is $200 per ounce. The minimum
royalty amount increases or decreases by $1,000 per year for each
$5 per ounce change in the gold price.
(c) Cieneguita Project:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Property and equipment $ 755 $ 538
Mineral property acquisition and development costs 2,277 1,660
--------------------------------------------------------------------------------------------------------
3,032 2,198
Less accumulated depletion, depreciation and write-offs (1,767) (253)
Less write-off of mineral property acquisition and development
costs - (1,458)
--------------------------------------------------------------------------------------------------------
$ 1,265 $ 487
========================================================================================================
</TABLE>
In 1992, the Company signed a letter agreement with Aquiline Resources
Inc. ("Aquiline"), 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, that was
earned during the year ended June 30, 1995.
During the year ended December 31, 1998, the Company completed the
purchase of the remaining 40% interest in the Project held by Aquiline
for $318,750 in cash, the issuance of 25,000 common shares of the
Company and the cancellation of amounts totalling $307,611 due from
Aquiline.
<PAGE> 62
-62-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 8
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
5. PLANT AND EQUIPMENT AND MINE DEVELOPMENT COSTS (CONTINUED):
(d) Exploration and development properties:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Imperial Project (note 5(d)(i)):
Plant and equipment $ 7,336 $ 7,132
Mineral property acquisition costs 3,330 3,330
Mine development costs 9,361 8,177
---------------------------------------------------------------------------------------------------
20,027 18,639
San Martin Project (note 5(d)(ii)) 12,346 -
Cerro Blanco Project (note 5(d)(iii)) 9,484 -
Other 563 -
--------------------------------------------------------------------------------------------------------
$ 42,420 $ 18,639
========================================================================================================
</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 totalling
approximately $7,800,000 of which $7,001,000 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 1999.
(ii) San Martin Project:
The San Martin Project is an advanced-stage gold property
consisting of a 100% interest in one exploration concession
covering 14,100 hectares in central Honduras. It was acquired by
the Company in 1998 as part of the acquisition of Mar-West (note
3).
(iii) Cerro Blanco Project:
The Cerro Blanco Project is an advanced-stage gold property
consisting of a 100% interest in one granted concession and eight
concession applications in southern Guatemala. It was acquired by
the Company in 1998 as part of the acquisition of Mar-West (note
3).
<PAGE> 63
-63-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 9
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
6. OTHER ASSETS:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
1998 1997
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment in other companies, at cost less provision for impairment in
value (quoted market value $530,000; 1997 -
$1,492,000) $ 20 $ 1,492
Environmental bonds - restricted deposits (note 6(a)) 714 511
Receivable from Aquiline Resources Inc. (note 5(c)) - 348
Drilling equipment 252 252
Loan origination costs and deferred interest - 16
Other 302 13
------------------------------------------------------------------------------------------------------------
$ 1,288 $ 2,632
============================================================================================================
</TABLE>
(a) 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 bonds. As at December 31, 1998, the bonding company
had issued reclamation bonds in the amount of $3,894,000 (1997 -
$3,411,000) of which the Company provided letters of credit totaling
$687,000 (1997 - $511,000). The letters of credit are secured with
cash deposits totaling $714,000 which earn interest at a fixed rate of
return of 5%
<PAGE> 64
-64-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 10
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
7. SHARE CAPITAL:
(a) Issued and fully paid:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Number of shares Amount
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance as at December 31, 1995 26,386,707 $ 56,076
Issued during the year:
For cash consideration under the terms of directors' and
employees' stock options 118,000 785
For cash consideration pursuant to an underwriting agreement
dated November 18, 1996 4,500,000 31,435
--------------------------------------------------------------------------------------------------------
Balance as at December 31, 1996 31,004,707 88,296
Issued during the year:
For cash consideration under the terms of directors' and
employees' stock options 218,000 1,354
--------------------------------------------------------------------------------------------------------
Balance as at December 31, 1997 31,222,707 89,650
Issued during the year:
For cash consideration under the terms of directors' and
employees' stock options 73,000 130
Issued upon acquisition of Mar-West (note 3) 7,539,905 19,701
Issued upon acquisition of remaining 40% interest in the
Cieneguita Project (note 5(c)) 25,000 106
--------------------------------------------------------------------------------------------------------
Balance as at December 31, 1998 38,860,612 $ 109,587
========================================================================================================
</TABLE>
(b) Stock options:
At December 31, 1998, a total of 2,064,000 common shares for directors
and officers and 546,500 common shares for employees were reserved for
issuance under options granted. These options expire at varying dates
to November 30, 2003 and are exercisable at prices ranging from
Cdn$0.50 to Cdn$12.625 per share.
Stock options granted during the year ended December 31, 1998 under
the terms of directors' and employees' stock option plans, and through
the continuance of Mar-West options upon the acquisition of Mar-West
on October 19, 1998, were at prices ranging from Cdn$0.50 to Cdn$5.15
per share (1997 - Cdn$4.60 to Cdn$10.10 per share).
<PAGE> 65
-65-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 11
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
7. SHARE CAPITAL (CONTINUED):
(b) Stock options (continued):
The continuity of directors' and employees' stock options (in
thousands of shares) is as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
1998 1997 1996
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance outstanding, beginning of year 1,870 950 768
Granted during the year 387 1,273 300
Granted on conversion of Mar-West employees' and
directors' stock options 533 - -
Exercised at an average price of Cdn$2.62
(1997 - Cdn$8.75; 1996 - Cdn$9.21) (73) (218) (118)
Cancelled during the year (107) (135) -
-------------------------------------------------------------------------------------------------------
Balance outstanding, end of year 2,610 1,870 950
=======================================================================================================
</TABLE>
8. INTEREST AND OTHER INCOME (EXPENSE):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
1998 1997 1996
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 1,740 $ 1,385 $ 189
Foreign exchange loss (41) (46) (39)
Gain (loss) on sale of investments (156) - 627
-----------------------------------------------------------------------------------------------------------
$ 1,543 $ 1,339 $ 777
===========================================================================================================
</TABLE>
9. INCOME TAXES:
The provision for income taxes differs from the Canadian federal and
British Columbia provincial statutory rate as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
1998 1997 1996
-----------------------------------------------------------------------------------------------------------
Amount Rate % Amount Rate % Amount Rate %
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income tax expense (benefit)
computed at statutory rates $ (938) (45.6) $ (3,609) (45.6) $ 2,414 45.6
Permanent differences (125) (6.1) (94) (1.2) (105) (2.0)
Foreign taxes different from
statutory rate 272 13.2 2,742 34.6 (1,163) (21.9)
Utilization of deductions not
reflected in the accounts - - (396) (5.0) (486) (9.2)
Other 740 36.0 1,722 21.8 573 10.8
-----------------------------------------------------------------------------------------------------------
$ (51) (2.5) $ 365 4.6 $ 1,233 23.3
===========================================================================================================
</TABLE>
<PAGE> 66
-66-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 12
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
9. INCOME TAXES (CONTINUED):
(a) Potential future tax benefits:
At December 31, 1998, the Company has Canadian tax pools of
approximately Cdn$4 million, Mexican operating losses of approximately
Pesos $12 million (approximately $1,200,000), and certain Honduran and
Guatemalan tax deductions available which may be carried forward and
used to reduce certain taxable income in future years. The potential
income tax benefits related to these items have not been reflected in
the accounts.
(b) Deferred income taxes:
Deferred income taxes arising from reporting expenses for tax purposes
at amounts differing from those charged to earnings are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
1998 1997 1996
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation, depletion and amortization $ (818) $ 873 $ (827)
Exploration and development cost 301 (290) 582
Revenue not recognized for tax purposes, net 58 188 238
Other 176 579 (304)
-------------------------------------------------------------------------------------------------------
$ (283) $ 1,350 $ (311)
=======================================================================================================
</TABLE>
10. RECONCILIATION OF NET EARNINGS (LOSS) TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
The computation of net cash provided by operating activities is as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings (loss) $ (2,007) $ (8,279) $ 4,059
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and depletion 8,871 11,040 10,590
Amortization of financing costs 16 31 71
Reserve for reclamation costs 316 628 415
Write-down of investments and properties 1,091 4,583 -
Deferred income taxes (283) 1,350 (311)
Loss (gain) on sale of investments 156 - (627)
Decrease (increase) in accounts receivable (646) (134) 87
Decrease (increase) in taxes recoverable/payable 1,220 (1,540) 901
Decrease (increase) in inventories 1,230 3,905 (3,632)
Decrease (increase) in prepaid expenses (11) (164) 52
Increase (decrease) in accounts payable and
accrued liabilities (530) 807 1,044
Increase (decrease) in royalties payable (92) (160) 292
----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 9,331 $ 12,067 $ 12,941
==========================================================================================================
</TABLE>
<PAGE> 67
-67-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 13
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
11. NON-CASH INVESTING ACTIVITIES:
During the year ended December 31, 1998, the Company issued common shares
pursuant to the following transactions:
<TABLE>
<S> <C>
(a) The acquisition of all of the issued and outstanding shares of Mar-West
for consideration as follows (see also note 3):
Fair value of assets acquired $ 24,694
Less cash and transaction costs paid (4,993)
---------
Consideration paid through the issuance of common shares $ 19,701
=========
(b) The acquisition of the remaining 40% interest in the Cieneguita Joint
Venture for consideration as follows (see also note 5(c)):
Fair value of assets acquired $ 733
Less cash paid (319)
---------
Non-cash consideration $ 414
=========
Non-cash consideration consisted of:
Cancellation of amounts receivable $ 308
Consideration paid through the issuance of common shares 106
---------
$ 414
=========
</TABLE>
12. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT:
During 1996, the Company retroactively adopted new presentation and
disclosure standards with respect to financial instruments. The adoption of
the new standards did not change earnings previously reported.
(a) Hedging:
In order to protect against the impact of declining gold prices, the
Company has entered into forward sales and option contracts to
effectively provide a minimum price for a portion of inventories and
future production. Contracted prices on forward sales and options are
recognized in revenues as designated production is delivered to meet
commitments.
As at December 31, 1998, the Company had outstanding call options on
10,000 ounces of gold at $310 per ounce expiring on January 27, 1999
(1997 - nil), had no put options outstanding (1997 - 24,000 ounces of
gold at $325 per ounce expiring through April 1998) and had forward
sales contracts for 3,000 ounces of gold at $294 per ounce expiring on
January 21, 1999 (1997 - nil).
At December 31, 1998, the unrealized gain in respect of open forward
sales contracts is approximately $17,000 (1997 - nil) and in respect
of open put option contracts is nil (1997 - approximately $900,000),
which reflects the strike price compared to the quoted gold price.
<PAGE> 68
-68-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 14
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
12. 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.
13. SEGMENTED INFORMATION:
During 1998, the Company adopted the accounting standards related to
segment disclosures recently approved by the accounting standard-setting
bodies in Canada and the U.S. The information presented below is consistent
with those standards. The accounting policies of all segments are
consistent with those outlined in note 2 - significant accounting policies.
The Company has not allocated general and administrative expenses from the
corporate segment.
(a) Operating segments:
The Company has determined its operating segments to be producing
mines and exploration and development properties, based on the way
management organizes and manages its business.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Exploration and
Producing development
1998 mines properties Corporate Total
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 32,869 $ - $ - $ 32,869
Cost of production 21,807 - - 21,807
Depreciation and depletion 8,782 - 89 8,871
Write-down of investments and
properties - - 1,091 1,091
Other operating expenses 2,158 - 2,480 4,638
--------------------------------------------------------------------------------------------------------
Earnings (loss) from operations 122 - (3,660) (3,538)
Other income (expense) 79 - 1,401 1,480
--------------------------------------------------------------------------------------------------------
Earnings (loss) before taxes $ 201 $ - $ (2,259) $ (2,058)
========================================================================================================
Capital expenditures $ 6,290 $ 23,714 $ 88 $ 30,091
========================================================================================================
Identifiable assets $ 47,726 $ 42,875 $ 28,560 $ 119,161
========================================================================================================
</TABLE>
<PAGE> 69
-69-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 15
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
13. SEGMENTED INFORMATION (CONTINUED):
(a) Operating segments (continued):
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Exploration and
Producing development
1997 mines properties Corporate Total
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 42,235 $ - $ - $ 42,235
Cost of production 28,003 - - 28,003
Depreciation and depletion 10,794 - 246 11,040
Write-down of investments and
properties 1,458 - 3,125 4,583
Other operating expenses 3,431 - 4,382 7,813
--------------------------------------------------------------------------------------------------------
Earnings (loss) from operations (1,451) - (7,753) (9,204)
Other income (expense) (156) - 1,446 1,290
--------------------------------------------------------------------------------------------------------
Earnings (loss) before taxes $ (1,607) $ - $ (6,307) $ (7,914)
========================================================================================================
Capital expenditures $ (586) $ 11,035 $ 226 $ 10,675
========================================================================================================
Identifiable assets $ 52,693 $ 18,535 $ 30,415 $ 101,643
========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Exploration and
Producing development
1996 mines properties Corporate Total
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 46,739 $ - $ - $ 46,739
Cost of production 24,353 - - 24,353
Depreciation and depletion 10,393 - 197 10,590
Other operating expenses 4,020 - 3,261 7,281
--------------------------------------------------------------------------------------------------------
Earnings (loss) from operations 7,973 - (3,458) 4,515
Other income (expense) (101) - 878 777
--------------------------------------------------------------------------------------------------------
Earnings (loss) before taxes $ 7,872 $ - $ (2,580) $ 5,292
========================================================================================================
Capital expenditures $ 17,437 $ 2,354 $ 237 $ 20,028
========================================================================================================
</TABLE>
(b) Geographic information:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
North Latin
1998 America America Total
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 32,869 $ - $ 32,869
========================================================================================================
Earnings (loss) from operations $ (3,538) $ - $ (3,538)
========================================================================================================
Earnings (loss) before taxes $ (2,058) $ - $ (2,058)
========================================================================================================
Identifiable assets $ 94,917 $ 24,244 $ 119,161
========================================================================================================
</TABLE>
In 1997 and prior years, all revenues and substantially all expenses
and assets were in North America.
<PAGE> 70
-70-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 16
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
14. RELATED PARTY TRANSACTIONS:
During the year ended December 31, 1998, the Company was charged
professional fees totalling nil (1997 - $101,000; 1996 - $216,000) by a
company with common directors, and by a firm in which a former officer of
the Company is a partner.
15. COMMITMENTS AND CONTINGENCIES:
(a) Operating leases:
The Company has entered into operating leases for office premises and
equipment. Minimum annual lease payments required are approximately as
follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Minimum lease
Fiscal year payments
--------------------------------------------------------------------------------------------------------
<S> <C>
1999 $ 127
2000 24
2001 24
2002 18
</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.
As at December 31, 1998 and 1997, there was no borrowing capacity
available to the Company as the lending institution and the Company
have not yet come to an agreement to renew the line of credit.
However, the lender has provided letters of credit for $934,000 (1997
- $1,336,000) to provide security for future reclamation costs.
(c) Legal proceedings:
During the process of obtaining the required permits to operate the
Rand facilities (note 5(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 1996, the request for a preliminary
injunction was denied by the Court. During 1998, the Company settled
these lawsuits with both plaintiffs.
<PAGE> 71
-71-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 17
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
15. COMMITMENTS AND CONTINGENCIES (CONTINUED):
(d) Possible Company Act violation:
Prior to the Company entering into the arrangement agreement to
acquire all the issued and outstanding shares of Mar-West (note 3),
the Chairman of the Company's Board of Directors (the "Board") at that
time had acquired shares of Mar-West. The Chairman however, did not
disclose his ownership of Mar-West shares to the Board until after the
arrangement agreement had been signed. The Chairman has subsequently
resigned as Chairman and Director.
Legal counsel for the Company has determined that the former Chairman
may have violated Section 120(1) of the Company Act (British Columbia)
(the "Section"), which provides that every director of a company who
is in any way, directly or indirectly, interested in a proposed
contract or transaction with the company is to disclose the nature and
extent of his interest at the meeting of directors at which the
proposed contract or transaction is first considered, provided the
director is in attendance, and is not to vote on the transaction. A
director in breach of the Section must account to the company for any
profits made as a consequence of the company entering into or
performing the proposed contract or transaction. It is the
responsibility of the company's board of directors to arrive at and
collect any profits made and deliver these to the company's account.
The Board is taking steps to determine the amount of profits, if any,
made by the former Chairman and to collect any such amounts.
(e) Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in
errors when information using year 2000 dates is processed. In
addition, similar problems may arise in some systems which use certain
dates in 1999 to represent something other than a date. The effect of
the Year 2000 Issue may be experienced before, on, or after January 1,
2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure
which could affect an entity's ability to conduct normal business
operations. It is not possible to be certain that all aspects of the
Year 2000 Issue affecting the Company, including those related to the
efforts of customers, suppliers or other third parties, will be fully
resolved.
<PAGE> 72
-72-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 18
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
16. SUBSEQUENT EVENT:
On January 23, 1999, the Company signed an amended letter agreement with
Rayrock Resources Inc. ("Rayrock"), a Canadian public company principally
engaged in the exploration for and the mining, production and sale of gold
from mines in Nevada, U.S.A. and copper from a mine in northern Chile. The
agreement provides that the Company will acquire all of the issued and
outstanding multiple voting shares and subordinate voting shares of Rayrock
from the shareholders of Rayrock pursuant to a plan of arrangement. Each
Rayrock shareholder will be entitled to receive, in exchange for each
Rayrock multiple voting share and subordinate voting share held, either 2.4
common shares of the Company or 1.6 common shares of the Company and
Cdn$3.00. BlackRock Ventures Inc. ("BlackRock"), a significant shareholder
of Rayrock and a company that Rayrock is a significant shareholder of, has
agreed, subject to receipt of all necessary approvals, to acquire the
shares of a company Rayrock holds as a long term investment in lieu of a
portion of the common shares of the Company otherwise issuable to
BlackRock. Completion of this arrangement is subject to the approval of the
shareholders of Rayrock and the Ontario Court (General Division). On
completion of this arrangement, Rayrock will become a wholly-owned
subsidiary of the Company.
Effective February 26, 1999, the Company completed the acquisition of
Rayrock by the issuance of approximately 29,277,820 common shares and cash
of Cdn$52,883,000 ($34,791,000). Presented below is a pro forma condensed
consolidated balance sheet which has been prepared from the consolidated
balance sheets of the Company and Rayrock as at December 31, 1998.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Expressed in thousands of United States dollars)
December 31, 1998
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Glamis Rayrock Pro forma Pro forma
Gold Ltd. Resources Inc. adjustments Glamis Gold Ltd.
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 26,170 $ 52,872 $ (34,791) (a) $ 34,251
(10,000) (a)
Other current assets 12,048 15,271 (6,364) (a) 20,955
Plant and equipment and mine
development costs 79,655 40,702 - 120,357
Other assets 1,288 11,546 (1,872) (a) 18,526
7,564 (b)
-----------------------------------------------------------------------------------------------------------
$ 119,161 $ 120,391 $ (45,463) $ 194,089
===========================================================================================================
</TABLE>
<PAGE> 73
-73-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 19
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
16. SUBSEQUENT EVENT (CONTINUED):
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (continued)
(Expressed in thousands of United States dollars)
December 31, 1998
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Glamis Rayrock Pro forma Pro forma
Gold Ltd. Resources Inc. adjustments Glamis Gold Ltd.
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities $ 4,062 $ 7,879 $ - $ 11,941
Long-term debt - 4,028 - 4,028
Reserve for reclamation costs 2,523 10,499 - 13,022
Deferred income taxes 2,217 2,442 - 4,659
-----------------------------------------------------------------------------------------------------------
8,802 24,848 - 33,650
Shareholders' equity:
Share capital 109,587 88,351 50,080 (a) 159,667
(88,351) (a)
Contributed surplus 63 840 (840) (a) 63
Retained earnings 709 9,907 (9,907) (a) 709
Cumulative translation
adjustment - 4,009 (4,009) (a) -
------------------------------------------------------------------------------------------------------
110,359 103,107 (53,027) 160,439
Deduct reciprocal shareholdings - (7,564) 7,564 (b) -
------------------------------------------------------------------------------------------------------
110,359 95,543 (45,463) 160,439
-----------------------------------------------------------------------------------------------------------
$ 119,161 $ 120,391 $ (45,463) $ 194,089
===========================================================================================================
</TABLE>
Pro forma adjustments:
(a) Record acquisition of Rayrock, including estimated transaction costs.
(b) Reclassify BlackRock reciprocal shareholdings back to other assets.
17. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES:
Accounting practices under Canadian and United States generally accepted
accounting principles, as they affect the Company, are substantially the
same, except for the following:
(a) Accounting for income taxes:
United States accounting principles require the use of the asset and
liability method of accounting for income taxes. Under the asset and
liability method, deferred income taxes are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the
enactment date.
<PAGE> 74
-74-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 20
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
17. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED):
(a) Accounting for income taxes (continued):
Under United States accounting principles, at December 31, 1998 and
1997, deferred income taxes payable would be approximately the same as
that presented under Canadian accounting principles. Under United
States accounting principles, the amount reported for a loss for the
December 31, 1998 fiscal year would also be the same as that presented
under Canadian accounting principles. However, under United States
accounting principles the amount reported for loss for the December
31, 1997 fiscal year would BE increased by $1,151,000 and the amount
reported for earnings for the December 31, 1996 fiscal year would be
decreased by $311,000.
The tax effect of the Company's temporary differences that give rise
to the deferred income tax balance as at December 31, 1998 are
deferred tax assets of $2,267,000 (1997 - $1,889,000) for Alternative
Minimum Tax credit carry forwards, inventory and the reserve for
reclamation costs, for which a valuation allowance of nil (1997 - nil)
has been applied, and deferred tax liabilities of $4,484,000 (1997 -
$4,389,000) primarily for plant and equipment and mine development
costs and revenue not recognized for tax purposes.
(b) 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 sale 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 sale 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, 1998 would each
be increased by $510,000. At December 31, 1997, these investments were
written down to their market value under Canadian accounting
principles and accordingly, there was no difference in these balances
at December 31, 1997.
(c) Accounting for long-lived assets:
Statement of Financial 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> 75
-75-
GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 21
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
17. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED):
(d) 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 that in the statement of operations, which the Company has
elected to do. The fair value of stock options granted to directors,
officers and employees during 1998 was estimated to be $1,224,000
(1997 - $1,441,000; 1996 - $158,000) and accordingly, would have
increased the reported loss (1997 - increased reported loss; 1996 -
reduced reported earnings) by that amount.
(e) Computation of earnings per share:
Statement of Financial 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.
(f) Comprehensive income:
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, was issued by the Financial Accounting Standards
Board in June 1997 and is retroactively effective for the Company's
1998 fiscal year. The statement requires that a company classify items
of other comprehensive income by their nature in a financial statement
and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in
the equity section of the balance sheet.
Under United States accounting principles, comprehensive income for
the year ended December 31, 1998 would be $510,000 (1997 - nil; 1996 -
$1,758,000).
<PAGE> 76
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GLAMIS GOLD LTD.
Notes to Consolidated Financial Statements, page 22
(Tables expressed in thousands of United States dollars)
Years ended December 31, 1998, 1997 and 1996
17. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED):
A reconciliation of the net earnings (loss) for the year as shown in these
consolidated financial statements to the net earnings (loss) for the year
in accordance with United States accounting principles, excluding the
effects of Statement 123, and to comprehensive income (loss) for the year
using United States accounting principles, is as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
1998 1997 1996
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings (loss) for the year in these
consolidated financial statements $ (2,007) $ (8,279) $ 4,059
Adjustment for income taxes - (1,151) (311)
-----------------------------------------------------------------------------------------------------------
Net earnings (loss) for the year using United States
accounting principles (2,007) (9,430) 3,748
Other comprehensive income, net of tax:
Unrealized holding gains on investments 510 - 1,758
-----------------------------------------------------------------------------------------------------------
Comprehensive income (loss) for the year using United
States accounting principles $ (1,497) $ (9,430) $ 5,506
-----------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share $ (0.06) $ (0.30) $ 0.14
-----------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share $ (0.06) $ (0.30) $ 0.14
===========================================================================================================
</TABLE>
Shareholders' equity under United States accounting principles would be as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shareholders' equity:
Common stock $ 109,587 $ 89,650
Contributed surplus 63 63
Unrealized holding gains 510 -
Retained earnings 709 2,716
-----------------------------------------------------------------------------------------------------------
$ 110,869 $ 92,429
===========================================================================================================
</TABLE>
<PAGE> 77
-77-
SUPPLEMENTARY DATA:
SELECTED QUARTERLY DATA FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(Expressed in thousands of dollars, except for per common share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
(unaudited) (unaudited) (unaudited) (unaudited) (audited)
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended December 31, 1998
Revenue $ 8,955 $ 8,189 $ 8,244 $ 7,481 $ 32,869
Gross profit 3,769 2,755 3,147 1,391 11,062
Earnings (loss) from operations 144 (597) (182) (2,903) (3,538)
Net earnings (loss) 334 (142) 205 (2,404) (2,007)
Net earnings (loss) per Common Share 0.01 0.00 0.00 (0.07) (0.06)
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 Share 0.04 (0.02) (0.03) (0.26) (0.27)
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
</TABLE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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" of the Proxy Statement which is to be filed
within 120 days after the end of the Company's fiscal year, 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" of the Proxy Statement which is to be filed within 120 days after
the end of the fiscal year.
<PAGE> 78
-78-
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" of the Proxy Statement which is to be
filed within 120 days after the end of the fiscal year.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference are the sections entitled "Certain
Relationships and Related Transactions" of the Proxy Statement which is to be
filed within 120 days after the end of the fiscal year.
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 51
Consolidated Balance Sheets at December 31, 1998 and 1997 52
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 53
1996.
Consolidated Statements of Retained Earnings for the years ended December 31, 1998, 54
1997 and 1996.
Consolidated Statements of Cash Flows for the years ended December 31, 55
1998, 1997 and 1996
Notes to Consolidated Financial Statements 56
</TABLE>
2. Financial schedules included in Part IV, Item 14: All schedules are
omitted because they are not applicable or the required information is
shown in the financial statements or notes thereto.
3. Exhibits required to be filed by Item 601 of Regulation S-K. Exhibits
21, 23.1, 23.2 and 27 are filed herewith. All other exhibits are
incorporated by reference as indicated below.
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description
- ----------- -------------------
<S> <C>
3.1 Certified copy of Memorandum and Articles of the Company as
amended (incorporated herein by reference to the Form 20-F
for the year ended June 30, 1988 and to the Form S-8 dated
March 12, 1988).
</TABLE>
<PAGE> 79
-79-
<TABLE>
<S> <C>
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).
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
</TABLE>
<PAGE> 80
-80-
<TABLE>
<S> <C>
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, 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.
</TABLE>
<PAGE> 81
-81-
<TABLE>
<S> <C>
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 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
</TABLE>
<PAGE> 82
-82-
<TABLE>
<S> <C>
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)
10.44 Agreement for Purchase and Sale between Aquiline Resources
Inc. and the Registrant made as of May 12, 1998.
10.45 ----NOT USED
10.46 Letter Agreement dated August 14, 1998 pertaining to the
acquisition of Mar-West Resources Ltd. by the Registrant.
10.47 Arrangement Agreement between the Registrant and Mar-West
Resources Ltd. made as of August 14, 1998.
10.48 Amended Incentive Share Purchase Option Plan dated for
reference September 30, 1995.
10.49 Letter Agreement made between the Registrant and Rayrock
Resources Inc. dated November 19, 1998.
10.50 Amending Agreement between the Registrant and Rayrock
Resources Inc. dated January 23, 1999.
10.51 Arrangement Agreement between the Registrant and Rayrock
Resources Inc. made as of January 25, 1999.
*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 LLP Chartered Accountants)
</TABLE>
<PAGE> 83
-83-
<TABLE>
<S> <C>
23.2 Consent of Mine Reserves Associates, Inc.
27. Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
Filed on October 27, 1998, regarding the acquisition of Mar-West
Resources, Ltd. dated October 21, 1998.
<PAGE> 84
-87-
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, 1999
----------------------------------------
C. Kevin McArthur, President and
Chief 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: "A. Dan Rovig" March 23, 1999
----------------------------------------
A. Dan Rovig
Chairman of the Board
By: "C. Kevin McArthur" March 23, 1999
----------------------------------------
C. Kevin McArthur, President,
Chief Executive Officer and Director
(Principal Executive Officer)
By: "James R. Billingsley" March 23, 1999
----------------------------------------
James R. Billingsley, Director
By: "Daniel J. Forbush" March 23, 1999
----------------------------------------
Daniel J. Forbush, Treasurer
and Chief Financial Officer
(Principal Financial & Accounting Officer)
By: "Hans von Michaelis" March 23, 199
----------------------------------------
Hans von Michaelis, Director
By: "Ian S. Davidson" March 23, 1999
----------------------------------------
Ian S. Davidson, Director
By: "Francis O'Kelly" March 23, 1999
----------------------------------------
Francis O'Kelly, Director
By: "Jean Depatie" March 23, 1999
----------------------------------------
Jean Depatie, Director
<PAGE> 1
-84-
EXHIBIT NO. 21 LIST OF SUBSIDIARIES
The following is a list of the subsidiaries of the Company
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C>
Chemgold, Inc. California
Entre Mares El Salvador S.A. de C.V. El Salvador
Entre Mares de Guatemala S.A. Guatemala
Exminsa S.A. de C.V. El Salvador
Glamis Exploration, Inc. Nevada
Glamis Gold, Inc. Nevada
Glamis Gold (Barbados) Ltd. Barbados
Glamis Gold Ltd. y Compania Limitada Chile
Glamis Gold Sales, Inc. Barbados
Glamis Rand Mining Company Nevada
Glamis Imperial Corporation Nevada
GPI Joint Venture Corporation Barbados
Mar-West Resources Ltd. British Columbia
Mar-West Aruba A.V.V. Aruba
Mexicana Resources Inc. British Columbia
Minera Glamis S.A. de C.V. Mexico
Minera Glamis La Cieneguita S.de R.L.de C.V Mexico
Minera Glamis Mexico S.A. de C.V. Mexico
Minerales Entre Mares (Honduras) S.A. Honduras
</TABLE>
<PAGE> 1
-85-
Exhibit 23.1
To the Board of Directors
Glamis Gold Ltd.:
We consent to incorporation by reference in the registration statement on Form
S-8 of Glamis Gold Ltd. of our report dated February 18, 1999, except as to note
16, which is as of February 26, 1999, relating to the consolidated balance
sheets of Glamis Gold Ltd. as at December 31, 1998 and 1997, and the related
consolidated statements of operations, retained earnings, and cash flows for
each of the years ended December 31, 1998, 1997, and 1996, which report appears
in the December 31, 1998 annual report on Form 10-K of Glamis Gold Ltd.
Signed: "KPMG LLP"
Chartered Accountants
Vancouver, Canada
March 23, 1999
<PAGE> 1
-86-
CONSENT OF MINE RESERVES ASSOCIATES, INC. EXHIBIT 23.2
TO THE BOARD OF DIRECTORS OF GLAMIS GOLD LTD.
We consent to the incorporation by reference into a Registration Statement on
Form S-8 of Glamis Gold Ltd. in respect of its Incentive Share Purchase Option
Plan date for reference September 30, 1995 of our verification of the ore
reserves of Glamis Gold Ltd. as such appears on page 11 of the Report on Form
10-K of Glamis Gold Ltd. for the Period ended December 31, 1998.
DATED this 23rd day of March 1999.
"SIGNED"
MINE RESERVES ASSOCIATES, INC.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GLAMIS GOLD
LTD. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10K
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 26,170
<SECURITIES> 0
<RECEIVABLES> 986
<ALLOWANCES> 0
<INVENTORY> 10,629
<CURRENT-ASSETS> 38,218
<PP&E> 151,326
<DEPRECIATION> 71,671
<TOTAL-ASSETS> 119,161
<CURRENT-LIABILITIES> 4,062
<BONDS> 0
0
0
<COMMON> 109,587
<OTHER-SE> 709
<TOTAL-LIABILITY-AND-EQUITY> 119,161
<SALES> 32,869
<TOTAL-REVENUES> 32,869
<CGS> 21,807
<TOTAL-COSTS> 21,807
<OTHER-EXPENSES> 13,057
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63
<INCOME-PRETAX> (2,058)
<INCOME-TAX> (51)
<INCOME-CONTINUING> (2,007)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,007)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
