<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 26, 1999
-------------------------------
GLAMIS GOLD LTD.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
British Columbia, Canada
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
0-31986 (86-689) None
- ------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
5190 Neil Road, Suite 310, Reno, Nevada 89502
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(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code (775) 827-4600
------------------------------
n/a
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
Exhibits begin on Page 4
Page 1 of - 30 Pages
<PAGE> 2
- 2 -
ITEM 7 IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS:
ITEM 7:
Exhibit (a) Financial Statements of the Business Acquired
See Exhibit 10.52
Exhibit (b) Pro Forma Financial Information
See Exhibit 10.53
Exhibit (c) Exhibits
10.51 Arrangement Agreement between the registrant and Rayrock
Resources Inc. made as of January 25, 1999 (incorporated
herein by reference to the registrant's Form 8-K filed on
February 26, 1999).
10.52 Audited consolidated balance sheets of Rayrock Resources
Inc. as at December 31, 1998 and December 31, 1997 and the
consolidated statements of earnings, retained earnings and
changes in financial position for each of the years ended
December 31, 1998, 1997 and 1996.
10.53 Unaudited pro forma consolidated financial statements of
Glamis Gold Ltd. for the year ended December 31, 1998.
99.1 Press Release dated March 1, 1999 (incorporated herein by
reference to the registrant's Form 8-K filed on February
26, 1999).
23.1 Consent of PricewaterhouseCoopers LLP, Chartered
Accountants
<PAGE> 3
- 3 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLAMIS GOLD LTD.
----------------------------------------
(Registrant)
May 13, 1999 "C. Kevin McArthur"
----------------------------------------
C. Kevin McArthur
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.52
AUDITORS' REPORT
To the Shareholders of Rayrock Resources Inc.:
We have audited the consolidated balance sheets of Rayrock Resources Inc. as at
December 31, 1998 and December 31, 1997 and the consolidated statements of
earnings, retained earnings and changes in financial position 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 December 31, 1997 and the results of its operations and the changes in its
financial position for each of the years ended December 31, 1998, 1997 and 1996
in accordance with generally accepted accounting principles in Canada.
/s/ PricewaterhouseCoopers LLP
- ----------------------------------
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
February 22, 1999
RAYROCK RESOURCES INC.
1
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(US$ in thousands)
(As at December 31) 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and short-term investments $ 52,872 $ 73,467
Accounts receivable (note 3) 5,594 5,495
Product and supplies inventories (note 4) 2,946 2,845
Prepaid expenses 367 459
Investments (note 6) 6,364
- ----------------------------------------------------------------------------------------------
68,143 82,266
- ----------------------------------------------------------------------------------------------
Mining properties (note 5)
Producing assets 40,702 52,579
Asset held for development 8,021
- ----------------------------------------------------------------------------------------------
40,702 60,600
- ----------------------------------------------------------------------------------------------
Other assets
Long-term investments (note 6) 5,373 29,095
Restricted cash and other assets (note 7) 6,173 9,593
- ----------------------------------------------------------------------------------------------
11,546 38,688
- ----------------------------------------------------------------------------------------------
$120,391 $181,554
- ----------------------------------------------------------------------------------------------
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 7,555 $ 6,338
Taxes payable 7,197
Current portion of long-term debt (note 8) 324 6,150
- ----------------------------------------------------------------------------------------------
7,879 19,685
- ----------------------------------------------------------------------------------------------
Long-term debt (note 8) 4,028 3,552
Accrued reclamation and site restoration 10,499 9,816
Deferred income taxes 2,442 1,920
Minority interest (note 2) 16,169
- ----------------------------------------------------------------------------------------------
16,969 31,457
- ----------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Capital stock (note 9) 88,351 91,186
Contributed surplus 840 370
Retained earnings 9,907 45,326
Cumulative translation adjustment 4,009 4,009
- ----------------------------------------------------------------------------------------------
103,107 140,891
Deduct reciprocal shareholdings 7,564 10,479
- ----------------------------------------------------------------------------------------------
95,543 130,412
- ----------------------------------------------------------------------------------------------
$120,391 $181,554
- ----------------------------------------------------------------------------------------------
Commitments and contingencies (notes 10 and 18)
</TABLE>
See accompanying notes to consolidated financial statements
Signed on behalf of the Board,
/s/ "C. Kevin McArthur" /s/ "Ian S. Davidson"
- -------------------------------- ---------------------------------
C. Kevin McArthur Ian S. Davidson
Director Director
RAYROCK RESOURCES INC.
2
<PAGE> 3
CONSOLIDATED STATEMENTS
OF EARNINGS
<TABLE>
<CAPTION>
(US$ in thousands, except per share amounts)
(For the years ended December 31) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Gold $ 31,174 $ 33,132 $ 41,539
Copper 17,643 22,223 24,776
- ------------------------------------------------------------------------------------------------------------------------
48,817 55,355 66,315
- ------------------------------------------------------------------------------------------------------------------------
Direct segment expenses
Gold 25,129 25,973 32,353
Copper 13,858 15,854 14,625
- ------------------------------------------------------------------------------------------------------------------------
38,987 41,827 46,978
- ------------------------------------------------------------------------------------------------------------------------
Direct segment income 9,830 13,528 19,337
- ------------------------------------------------------------------------------------------------------------------------
Other operating expenses
Corporate administrative (note 11) 9,017 2,482 1,831
Reorganization costs 1,655
Depreciation, amortization and reclamation 14,185 15,578 15,139
Exploration expenditures 6,548 4,329 5,462
- ------------------------------------------------------------------------------------------------------------------------
29,750 24,044 22,432
- ------------------------------------------------------------------------------------------------------------------------
Other (expense) income
Interest income 3,377 2,282 1,636
Interest expense on long-term debt (663) (1,119) (1,797)
Gain on sale of Discovery 4,586
Gain on sale of Pinson 3,992
Write-down of mining and other assets (notes 5 and 7) (6,692) (11,188) (25,412)
(Write-down of)/gain on investments (note 6) (13,112) 290 559
- ------------------------------------------------------------------------------------------------------------------------
(17,090) (5,149) (21,022)
- ------------------------------------------------------------------------------------------------------------------------
Loss before income taxes (37,010) (15,665) (24,117)
- ------------------------------------------------------------------------------------------------------------------------
Provision for income tax recovery (expense)
Current 71 3,804 (1,262)
Deferred (1,920) 1,234
- ------------------------------------------------------------------------------------------------------------------------
71 1,884 (28)
- ------------------------------------------------------------------------------------------------------------------------
Loss before undernoted items (36,939) (13,781) (24,145)
Share of loss of equity accounted associates (506) (215) (1,011)
Minority interest in loss of subsidiary 2,037 3,496 9,595
- ------------------------------------------------------------------------------------------------------------------------
Loss for the year from continuing operations (35,408) (10,500) (15,561)
Earnings from discontinued operations (note 14) 3,877 3,101
Gain on discontinued operations (net of taxes of $10,604)(note 14) 15,015
- ------------------------------------------------------------------------------------------------------------------------
(Loss) earnings for the year $(35,408) $ 8,392 $(12,460)
- ------------------------------------------------------------------------------------------------------------------------
Loss per share from continuing operations $ (2.02) $ (0.58) $ (0.84)
- ------------------------------------------------------------------------------------------------------------------------
(Loss) earnings per share $ (2.02) $ 0.46 $ (0.68)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS
OF RETAINED EARNINGS
<TABLE>
<CAPTION>
(US$ in thousands)
(For the years ended December 31) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Retained earnings - beginning of year $ 45,326 $ 36,958 $ 49,449
(Loss) earnings for the year (35,408) 8,392 (12,460)
Dividends (11) (24) (31)
- ------------------------------------------------------------------------------------------------------------------------
Retained earnings - end of year $ 9,907 $ 45,326 $ 36,958
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
RAYROCK RESOURCES INC.
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF CHANGES
IN FINANCIAL POSITION
<TABLE>
<CAPTION>
(US$ in thousands, except per share amounts)
(For the years ended December 31) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Loss for the year from continuing operations $(35,408) $(10,500) $(15,561)
- ------------------------------------------------------------------------------------------------------------------------
Non-cash charges to losses
Depreciation, amortization, and reclamation 14,185 15,578 15,139
Deferred taxes 1,920 (1,234)
Minority interest (2,037) (3,496) (9,595)
Share of loss of equity accounted associates 506 215 1,011
Gain on sale of Discovery (4,586)
Gain on sale of Pinson (3,992)
Write-down of assets 22,076 11,188 25,412
Other (2,122) 512 (185)
- ------------------------------------------------------------------------------------------------------------------------
32,608 21,331 26,556
- ------------------------------------------------------------------------------------------------------------------------
Funds flow from continuing operations (2,800) 10,831 10,995
Cash from discontinued operations 6,128 2,671
Decrease (increase) in working capital, excluding cash 3,432 (5,605) 3,016
- ------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 632 11,354 16,682
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Mining assets - net of disposals (3,082) (2,720) (10,037)
Acquisition of minority interest of Minera (note 2) (6,760)
Acquisition of increased interest in Daisy Gold Mine (note 2) (3,647)
Sale (purchase) of long-term investments 6,134 (6,963) (5,267)
Proceeds on sale of Discovery 4,426
Proceeds on sale of Pinson 4,461
(Taxes) proceeds on sale of discontinued operations (10,604) 49,929
Other assets - net of disposals 4,258 (2,794) (4,908)
- ------------------------------------------------------------------------------------------------------------------------
Cash (used in) provided by investment activities (13,701) 41,878 (15,751)
- ------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Decrease in long-term debt (5,058) (6,373) (5,332)
Dividends on preferred shares (11) (24) (31)
(Redemption) issue of capital stock (2,457) (207) 2
- ------------------------------------------------------------------------------------------------------------------------
Cash used in financing activities (7,526) (6,604) (5,361)
- ------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash (20,595) 46,628 (4,430)
Cash and short-term investments - beginning of year 73,467 26,839 31,269
- ------------------------------------------------------------------------------------------------------------------------
Cash and short-term investments - end of year $ 52,872 $ 73,467 $ 26,839
- ------------------------------------------------------------------------------------------------------------------------
Funds flow from continuing operations per share $ (0.16) $ 0.60 $ 0.60
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
RAYROCK RESOURCES INC.
4
<PAGE> 5
NOTES TO THE FINANCIAL STATEMENTS
(For the years ended December 31, 1998, 1997 and 1996)
(All amounts in US$, unless otherwise indicated)
1. ACCOUNTING POLICIES
The accounting policies of the Company are in accordance with accounting
principles generally accepted in Canada. Those policies considered significant
are outlined below:
(A) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries.
The following are the principal subsidiaries and associated companies and the
Company's interest therein:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
Voting Equity Voting Equity Voting Equity
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Subsidiaries
Rayrock Mines, Inc. and subsidiaries 100% 100% 100% 100% 100% 100%
Minera Rayrock Inc. ("Minera") 65.3% 37.5% 64.7% 37.5%
- -----------------------------------------------------------------------------------------------------------
Associates
Discovery West Corp. ("Discovery") 39.9% 38.9%
BlackRock Ventures Inc. ("BlackRock") 46.4% 45.9% 46.5% 46.0% 40.1% 39.2%
- -----------------------------------------------------------------------------------------------------------
BlackRock's interest in the Company 25.4% 19.3% 34.1% 18.9% 34.1% 18.8%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
On May 20, 1998, the Company completed the acquisition of the minority interest
in Minera and on June 1, 1998 the Company amalgamated with Minera.
BlackRock owns 18.6% of the subordinate voting shares and 100% of the multiple
voting shares of the Company, giving BlackRock a total voting interest of 25.4%.
Under the equity method of accounting, the Company's effective interest in the
cost of its shares held by BlackRock are deducted from shareholders' equity. The
Company's equity in the earnings of BlackRock is based on the earnings of
BlackRock excluding the latter's interest in the earnings of the Company due to
the existence of the reciprocal shareholdings.
Rayrock Mines, Inc. holds the following interests in U.S. mining operations.
Certain of these U.S. mining operations are conducted using joint ventures and
accordingly are accounted for using proportionate consolidation whereby these
consolidated financial statements include the Company's proportionate interest
in the joint venture.
<TABLE>
<CAPTION>
December 31 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Marigold Mining Company Joint Venture 66 2/3% 66 2/3% 66 2/3%
Daisy Mine (Note 2(B)) 100% 35% 35%
Pinson Mining Company 26.5%
Dee Gold Mining Company 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(B) FOREIGN CURRENCY TRANSLATION
The U.S. dollar is the principal currency of the Company's business;
accordingly, these consolidated financial statements are expressed in U.S.
dollars. Foreign currency transactions of the Company have been translated into
U.S. dollars at the rate of exchange in effect during the year, and any
corresponding gains and losses are included in the determination of operating
results.
RAYROCK RESOURCES INC.
5
<PAGE> 6
The operations of the Company's subsidiaries are considered to be carried on in
U.S. dollars and thus determined to be of an integrated nature. Accordingly,
monetary items of the Company and its subsidiaries are translated at the rate of
exchange in effect at the balance sheet dates; non-monetary items are translated
at historical exchange rates. Revenue and expense items are translated at the
rate of exchange in effect on the date they occur except for depreciation or
amortization of assets which are translated at the same exchange rates as the
assets to which they relate. Gains or losses on the translation of monetary
items are included in the statement of earnings except for unrealized exchange
gains or losses on long-term monetary assets or liabilities that are deferred
and amortized over the remaining life of the related asset or liability.
(C) INCOME TAXES
The Company follows the deferral method of tax allocation whereby the provision
for income taxes is based upon income reported in the accounts.
(D) PROPERTY ACQUISITION, EXPLORATION AND
DEVELOPMENT EXPENDITURES
Mining properties
Costs incurred in exploring for minerals, including participation in
partnerships and joint ventures and the relatively insignificant costs of
acquiring exploration rights, are charged to exploration expenditures in the
year incurred, unless, in the opinion of management, the expenditure is likely
to result in the establishment of a viable income-producing property. Upon this
determination, all costs related to further acquisitions, exploration,
development, and pre-production are capitalized. Mine development costs incurred
to maintain current production are included in operating costs. Interest and
other financing costs incurred during the construction phase are capitalized.
(E) DEPRECIATION, DEPLETION AND AMORTIZATION
(i) Mining properties
Property acquisition, deferred exploration and mine development costs are
amortized on the unit-of-production method.
(ii) Deferred stripping costs
Mining costs associated with waste gravel and rock removal are deferred and
recognized in operations based on the average stripping ratio for each mine. The
average stripping ratio is calculated as the tons of material estimated to be
mined to the tons of ore estimated to contain economically recoverable gold.
(iii)Deferred sulphide heap leach costs
The available copper content from sulphide ore is extracted over a period of up
to two years. The costs of placing this ore on the heap leach pad is deferred
and amortized over the estimated recovery period.
(iv)Plant and equipment
The plant and equipment are carried at cost and amortized using the
straight-line method over their estimated useful lives as follows:
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Buildings 8-10 years
Mill equipment 8-10 years
Mine equipment 5 years
Tailings dams 1 1/2-8 years
Autos and trucks 3-5 years
Office and miscellaneous equipment 3-10 years
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(v) Capital and other assets in Canada
Amortization is provided on a declining balance basis at rates sufficient to
write-off the cost of the assets over their estimated useful lives. The rates in
use are as follows:
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Office building 14%
Other capital assets 20 - 30%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
RAYROCK RESOURCES INC.
6
<PAGE> 7
(F) RECLAMATION AND SITE RESTORATION COSTS
Estimated reclamation and site restoration costs are charged to earnings over
the estimated life of the properties by the unit-of-production method based on
commercially recoverable proven and probable reserves. Ongoing reclamation
activities are expensed in the period incurred.
(G) REVENUE FROM MINING OPERATIONS
Gold in transit and at refineries is recorded at net realizable value and
included in bullion settlements and gold sales. The price of each shipment is
based generally on the Comex spot bullion prices on the dates of sale or at
prices negotiated under forward sales contracts. Subsequent adjustments for
quantity variances based on refiner weights and assays are recorded when
determined.
Revenue from copper cathodes is recorded when delivered and title passes to the
customer. The price of each shipment is based on the LME copper price on the
date of sale or at prices negotiated under forward sales contracts.
(H) PRODUCT AND SUPPLY INVENTORIES
Finished copper inventory is stated at the lower of production cost, as
determined using average production costs, and net realizable value.
Major mining and milling supplies in the U.S. are stated at the lower of
first-in, first-out cost and net realizable value. Mining and milling supplies
in Chile are stated at the lower of cost, determined on an average basis, and
net realizable value.
(I) FORWARD SALES CONTRACTS
Commitments to sell gold and copper arise under forward sales contracts.
Contracted prices on forward sales will be recognized in revenue as production
is delivered to the customer. The costs of any options purchased to enable the
Company to participate in higher commodity prices are deferred and will be
netted against revenue in the month in which the related production is
delivered.
(J) PENSION EXPENSE
The Company has defined contribution pension plans for its eligible employees.
Company contributions to the defined contribution plans are expensed as
incurred.
(K) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expense during
the reporting period. The most significant estimates are related to the physical
and economic lives of mining properties, future commodity prices and production
costs, the existence of economically recoverable reserves and the amount accrued
for reclamation liabilities. Actual results may vary materially from estimates.
RAYROCK RESOURCES INC.
7
<PAGE> 8
(L) PER SHARE AMOUNTS
Earnings and funds flow from operations per subordinate voting share are
calculated on the basis of the weighted average number of shares outstanding
during the period, after deducting the Company's pro rata interest in its own
shares held by BlackRock.
The stock options and convertible preferred shares do not have a material effect
on earnings per share.
(M) COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform to the current
year's presentation.
2. ACQUISITIONS
(A) ACQUISITION OF MINORITY INTEREST OF MINERA
On May 20, 1998, the Company completed the acquisition of the minority interest
in Minera. The excess of the book value of the minority interest on the
consolidated balance sheet over the acquisition cost of $6.8 million amounted to
approximately $7.2 million and was applied to reduce the carrying value of the
Company's Sierra Valenzuela copper property (note 5).
(B) ACQUISITION OF INCREASED INTEREST IN DAISY
Effective June 30, 1998, the Company acquired the 65% interest in the Daisy mine
held by Inter-Rock Gold Inc. for approximately $3,647,000 net of cash acquired
of $107,000. The purchase price was broken down as follows:
<TABLE>
<CAPTION>
(in thousands)
- -----------------------------------------------------------
<S> <C>
Assets Acquired
Cash $ 107
Accounts receivable 403
Product and supplies inventories 11
Prepaid expenses 152
Producing assets 4,236
Restricted cash and other assets 203
- -----------------------------------------------------------
5,112
- -----------------------------------------------------------
Liabilities Assumed
Accounts payable and accrued liabilities 474
Accrued reclamation and site restoration 415
Long-term debt 469
- -----------------------------------------------------------
1,358
- -----------------------------------------------------------
Net Assets Acquired $3,754
- -----------------------------------------------------------
</TABLE>
RAYROCK RESOURCES INC.
8
<PAGE> 9
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
Bullion receivable $3,051 $1,484
Taxes recoverable 705 1,358
Current portion of loan to Secret Pass (note 13(c)) 875
Other 1,838 1,778
- ---------------------------------------------------------------------------------
$5,594 $5,495
- ---------------------------------------------------------------------------------
</TABLE>
4. INVENTORIES
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
Product
Copper $ 534 $ 581
- ---------------------------------------------------------------------------------
Supplies
Gold 256 246
Copper 2,156 2,018
- ---------------------------------------------------------------------------------
2,412 2,264
- ---------------------------------------------------------------------------------
$2,946 $2,845
- ---------------------------------------------------------------------------------
</TABLE>
RAYROCK RESOURCES INC.
9
<PAGE> 10
5. MINING PROPERTIES
(A) PRODUCING ASSETS
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
USA
Mineral interests $ 9,658 $ 9,366
Building and equipment 36,896 34,256
Mining and mobile equipment 18,880 18,601
Office & miscellaneous equipment 621 580
- --------------------------------------------------------------------------------
66,055 62,803
Accumulated depreciation and amortization (54,128) (50,060)
- --------------------------------------------------------------------------------
11,927 12,743
- --------------------------------------------------------------------------------
Chile
Capital assets 27,795 29,550
Accumulated depreciation and amortization (13,710) (11,567)
- --------------------------------------------------------------------------------
14,085 17,983
- --------------------------------------------------------------------------------
26,012 30,726
- --------------------------------------------------------------------------------
Deferred development costs
USA
Deferred mine development costs 10,883 7,770
Deferred stripping costs 3,306 2,364
Deferred leach pad costs 1,838 1,982
- --------------------------------------------------------------------------------
16,027 12,116
Accumulated amortization (9,617) (7,240)
- --------------------------------------------------------------------------------
6,410 4,876
- --------------------------------------------------------------------------------
Chile
Deferred mine development costs 21,179 26,505
Accumulated amortization (12,899) (9,528)
- --------------------------------------------------------------------------------
8,280 16,977
- --------------------------------------------------------------------------------
14,690 21,853
- --------------------------------------------------------------------------------
$ 40,702 $ 52,579
- --------------------------------------------------------------------------------
</TABLE>
As a result of low copper prices, the carrying value of Chilean producing assets
was written down by $5.9 million during 1998. During 1997, as a result of low
gold prices, the carrying value of US producing assets was written down by $11.2
million, consisting of a $5.9 million write-down of producing assets and an
increase to accrued reclamation and site restoration of $5.3 million. During
1996, the carrying value of US producing assets was written down by $7.8
million. These charges are included in the consolidated statement of earnings
under "write-down of mining and other assets". In determining the carrying value
of mining assets at December 31, 1998, the Company estimates the life of mine
undiscounted cash flows and makes a write-down when this amount is less than the
carrying value of the related mining assets. The Company, in its cash flow
estimate, assumed a gold price of $300 per ounce for the life of mine. For
copper, the Company assumed $0.71 per pound for 1999, $0.75 for 2000, and $0.80
thereafter.
RAYROCK RESOURCES INC.
10
<PAGE> 11
(B) ASSET HELD FOR DEVELOPMENT
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred exploration and development costs
Sierra Valenzuela copper property, Chile (note 2) $ $ 8,021
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
During 1996 the Company's Bellavista gold property in Costa Rica was written
off. The total charge of approximately $14 million is included in the
consolidated statement of earnings under "write-down of mining and other
assets"
6. LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment in BlackRock
Common shares $ 12,825 $ 12,825
Cumulative share of loss (1,009) (503)
- ----------------------------------------------------------------------------------------------------------------
(quoted market value - $9,583; 1997, $25,941) 11,816 12,322
Less reciprocal share interest (7,564) (10,479)
- ----------------------------------------------------------------------------------------------------------------
4,252 1,843
Preferred shares 90 90
Loan receivable 258
- ----------------------------------------------------------------------------------------------------------------
4,600 1,933
- ----------------------------------------------------------------------------------------------------------------
Investment in Magin Energy Inc. ("Magin")
Common shares (1997 quoted market value - $16,400) 17,621
- ----------------------------------------------------------------------------------------------------------------
Loans to an officer and director 1,231
- ----------------------------------------------------------------------------------------------------------------
Other investments
(quoted market value - $1,260; 1997, $9,313) 773 8,310
- ----------------------------------------------------------------------------------------------------------------
$ 5,373 $ 29,095
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The quoted market values referred to above do not necessarily represent the
realizable value of these holdings which may be more or less than indicated by
market quotations.
Subsequent to year end, Glamis Gold Ltd. ("Glamis") and BlackRock agreed that
for a period of 90 days from the effective date of the Arrangement between
Glamis and the Company, as described in note 19, that BlackRock may, provided it
finds a purchaser, require Glamis to sell the shares of BlackRock held by the
Company, to such purchaser for a price per share (before taxes) of not less than
Cdn $0.52.
The Company held 3,285,800 or 10.8% of the outstanding shares of Magin at
December 31, 1998. As part of the Arrangement with Glamis that occurred
subsequent to year end, the Company has disposed of its Magin investment.
Accordingly, this investment has been reclassified as a current asset and
written down to the December 31, 1998 market price. The write-down for 1998
totals approximately $11.3 million and this charge is included in the
consolidated statements of earnings under "(write-down of)/gain on investments".
RAYROCK RESOURCES INC.
11
<PAGE> 12
7. RESTRICTED CASH AND OTHER ASSETS
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Restricted cash $3,638 $3,957
Long-term portion of loan to Secret Pass (note 13(c)) 2,188
Head office property and related assets 1,086 1,132
Oil and gas joint venture interest 495 741
Other 954 1,575
- ------------------------------------------------------------------------------------
$6,173 $9,593
- ------------------------------------------------------------------------------------
</TABLE>
Restricted cash relates to funds set aside for end of mine life closure and
reclamation costs in connection with the Company's U.S. gold operations.
The Company's head office property, a portion of which is available to be rented
out, was written down in 1996 by $3.6 million as a result of low occupancies and
a general decline in local real estate values. The write-down is included in the
consolidated statement of earnings under "write-down of mining and other
assets".
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- -----------------------------------------------------------
<S> <C> <C>
Bank loan $ $ 5,000
Mortgage payable 3,180 3,304
Long-term payable 469 377
Lease purchase 703 759
Series C preferred shares 262
- -----------------------------------------------------------
4,352 9,702
Less current portion (324) (6,150)
- -----------------------------------------------------------
$ 4,028 $ 3,552
- -----------------------------------------------------------
</TABLE>
(a) The bank loan consists of a term loan bearing interest at Libor plus 1 1/2%
and is repayable in quarterly payments of $1.25 million beginning March 31, 1996
and is prepayable at any time. The loan was fully repaid on September 30, 1998.
(b) The mortgage payable at December 31, 1998, of Cdn$4,671,000 (1997, Cdn
$4,726,000) is for a 10-year term due January 1, 2000, bearing interest at
11.125% per annum and repayment is based on a 30-year amortization. The office
building and all future rents receivable are pledged as security for the
mortgage.
(c) In June, 1998, 281,250 of the Series C preferred shares were converted into
subordinate voting shares. The remainder of the Series C preferred shares were
redeemed on June 30, 1998.
RAYROCK RESOURCES INC.
12
<PAGE> 13
9. CAPITAL STOCK
(A) AUTHORIZED (UNLIMITED), ISSUED AND OUTSTANDING
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------------------------------------
No. of Stated No. of Stated
($ in thousands) Shares Value Shares Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Preferred
Series A 100,000 $ 71
Series B 100,000 71
Series D 350,000 250
Participating
Subordinate Voting 19,185,920 $ 85,903 19,652,820 88,346
Multiple Voting 176,000 2,448 176,000 2,448
- -----------------------------------------------------------------------------------------------------------
$ 88,351 $ 91,186
- -----------------------------------------------------------------------------------------------------------
</TABLE>
PREFERRED SHARES
The Series A, B, and D cumulative, redeemable preferred shares were redeemed for
cash on June 30, 1998 at par value.
PARTICIPATING SHARES
The subordinate voting shares and multiple voting shares rank equally on a
share-for-share basis with respect to dividends and distribution of remaining
property upon dissolution. The subordinate voting shares carry one vote per
share and the multiple voting shares carry ten votes per share.
The multiple voting shares are intended to be issued only to BlackRock, subject
to regulatory approvals, in order to allow it to maintain its respective voting
interest in the Company whenever an equity financing of the subordinate voting
shares is made. The multiple voting shares, which are not listed, are
convertible on a share-for-share basis into subordinate voting shares at any
time at the option of the holder.
In the event a takeover offer is made for the multiple voting shares, the
holders of the subordinate voting shares have, pursuant to the share conditions,
the right to convert any or all of their shares into multiple voting shares,
unless the offer is rejected and notice is given by the original holders of the
multiple voting shares. Also, in accordance with a trust agreement entered into
between the Company, the holders of the multiple voting shares and a trustee,
the holders of the multiple voting shares are prevented from selling their
shares pursuant to a takeover bid offer unless there is an identical offer made
to the holders of the subordinate voting shares or a concurrent unconditional
offer is made to purchase all of the subordinate voting shares at the same price
as, or a higher price than, the price paid for the multiple voting shares.
RAYROCK RESOURCES INC.
13
<PAGE> 14
Changes in the number and stated value of the subordinate voting shares were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
No. of Stated No. of Stated No. of Stated
($ in thousands) Shares Value Shares Value Shares Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Opening balance 19,652,820 $88,346 19,703,862 $88,552 19,703,462 $88,550
Adjustment 458
Conversion of Series C preferred 75,000 193
Stock options exercised 194,500 700 2,400 12 400 2
Redeemed (736,400) (3,336) (53,900) (218)
- --------------------------------------------------------------------------------------------------------------------------------
Closing balance 19,185,920 $85,903 19,652,820 $88,346 19,703,862 $88,552
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(B) STOCK OPTIONS AND
SHARE APPRECIATION RIGHTS
i) Stock options
The Company has established a stock option plan pursuant to which a fixed number
of 1,968,800 subordinate voting shares are available for the granting of
incentive stock options. Employee incentive stock options totalling 1,649,500
subordinate voting shares were outstanding at December 31, 1998 (1997,
1,073,600; 1996, 1,289,500). These options are exercisable at prices ranging
from Cdn$5.40 to Cdn$16.00 (weighted average - 1998, Cdn$8.80; 1997, Cdn$14.24;
1996, Cdn$14.19) and expire at various dates to 2008.
Stock options on 1,291,000 subordinate voting shares were granted during 1998 at
prices ranging from Cdn$5.40 to Cdn$6.00 per share (1997, nil; 1996, 140,000).
Options on 194,500 subordinate voting shares were exercised during 1998 (1997,
2,400; 1996, 400) at a price of Cdn$5.55 (1997, Cdn$5.12; 1996, Cdn$8.13).
Stock options on 520,600 subordinate voting shares expired or were cancelled
during 1998 (1997, 213,500; 1996, 50,000).
ii) Share appreciation rights
During 1998 the Company's chief executive officer was granted share appreciation
rights equivalent to options to acquire 949,571 subordinate voting shares. The
exercise price of the share appreciation rights is Cdn$6.00. One-third of the
share appreciation rights vest on each of September 1, 1998, 1999 and 2000. The
rights expire in 2008.
10. COMMITMENTS AND CONTINGENCIES
(a) As at December 31, 1998, the Company had no outstanding gold or copper
forward or spot deferred sales contracts.
(b) The Company's pension plans cover its eligible employees. These plans
consist of defined contribution plans under which the Company makes
contributions based on employees' earnings to the employees' personal retirement
accounts.
RAYROCK RESOURCES INC.
14
<PAGE> 15
11. CORPORATE ADMINISTRATIVE EXPENSES
There were two principal reasons for the increase in corporate administrative
expenses in 1998. In connection with the resignation of the Company's former
chairman and chief executive officer in April 1998, the Company incurred
approximately $3.8 million of expenditures relating to contractual severance and
post-employment obligations. Secondly, higher professional advisory fees were
incurred on strategic planning, acquisition search and capital restructuring
initiatives, and on a review of certain resolutions proposed by a shareholder.
12. INCOME TAXES
The variations from the basic statutory income taxes and the Company's effective
income tax (expense) recovery are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Loss before income taxes $(37,010) $(15,665) $(24,117)
- --------------------------------------------------------------------------------
Income taxes at Canadian statutory rate
of 44.6% (1997 and 1996, 44.6%) $ 16,506 $ 6,987 $ 10,756
Increase (decrease) resulting from:
Losses not tax affected (15,686) (2,496) (10,751)
Non-deductible expenses (2,066) (127)
Lower foreign jurisdiction statutory rates 1,120 (643) 714
Other (1,869) 102 (620)
- --------------------------------------------------------------------------------
$ 71 $ 1,884 $ (28)
- --------------------------------------------------------------------------------
</TABLE>
The Company and its subsidiaries had the following loss carryforwards at
December 31, 1998. The Canadian parent company had non-capital loss
carryforwards totalling approximately Cdn$13.3 million expiring beginning in
2000 and net capital losses of approximately Cdn$34.8 million. The Company's
Chilean subsidiary had loss carryforwards totalling approximately $25.6 million
available for carryforward indefinitely. The Company's U.S. subsidiary had
approximately $1.1 million of regular net operating loss carryforward expiring
in 2018 and approximately $2.5 million of alternative minimum tax credits
available on an indefinite carryforward basis.
13. RELATED PARTY TRANSACTIONS
(a) The Company makes regular charges to the U.S. mining partnerships. Recovery
of service charges from U.S. mining partnerships was $300,000 for the year ended
December 31, 1998 (1997 and 1996, $300,000). Management fee charges to BlackRock
were Cdn$350,000 for the year ended December 31, 1998 (1997 and 1996, nil).
(b) Accounts receivable at December 31, 1998, includes amounts totalling $31,000
(1997, $284,000; 1996, $80,000) which are due from related companies.
(c) At December 31, 1997, Inter-Rock, a 65% joint venture partner in the Daisy
Gold Project, had $3.06 million outstanding (1996, $2.75 million) under a $3.5
million credit facility. The loan was repaid in full during 1998.
RAYROCK RESOURCES INC.
15
<PAGE> 16
14. DISCONTINUED OPERATIONS
On September 5, 1997, the Company sold its agricultural minerals business
carried out by its wholly owned subsidiary, Western Ag-Minerals Company, for $53
million plus interest from March 1, 1997. At December 31, 1997, there were no
assets or liabilities remaining.
The results of operations and changes in financial position of this discontinued
business have been disclosed separately from those of continuing operations.
Revenue from these discontinued operations was $30.9 million in 1997 and $40.8
million in 1996.
Included in the 1997 gain on discontinued operations of $15.0 million is $5.1
million relating to the realization of a portion of the cumulative translation
adjustment account as a result of the sale of these assets. The gain of $15.0
million is shown net of estimated U.S. taxes payable of $10.6 million
attributable to the taxable gain arising on the sale.
RAYROCK RESOURCES INC.
16
<PAGE> 17
15. SEGMENTED INFORMATION
The Company has mining activities in the United States of America and in South
and Central America. Segmented information, to the extent it is not self-evident
in these financial statements, is as follows:
<TABLE>
<CAPTION>
For the years ended Gold Mining - U.S. Copper Mining - Chile
------------------------------- --------------------------------
(in thousands) 1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 31,174 $ 33,132 $ 41,539 $ 17,643 $ 22,223 $ 24,776
- ----------------------------------------------------------------------------------------------------------------
Direct segment income $ 6,045 $ 7,159 $ 9,186 $ 3,785 $ 6,369 $ 10,151
Depreciation, amortization
and reclamation (6,210) (6,416) (8,243) (7,696) (8,865) (5,897)
Exploration (2,584) (2,639) (2,633) (3,411) (1,252) (2,419)
Write-down of mining and other assets (11,188) (7,800) (6,692)
- ----------------------------------------------------------------------------------------------------------------
Segmented net profits $ (2,749) $(13,084) $ (9,490) $(14,014) $ (3,748) $ 1,835
- ----------------------------------------------------------------------------------------------------------------
Corporate administrative
Reorganization costs
Interest expense
Other (expense) income
Income taxes
Minority interest
Equity accounted associates
- ----------------------------------------------------------------------------------------------------------------
Loss for the year
- ----------------------------------------------------------------------------------------------------------------
Capital expenditures $ 1,817 $ 542 $ 4,664 $ 1,265 $ 2,178 $ 5,373
- ----------------------------------------------------------------------------------------------------------------
Total assets $ 29,241 $ 31,811 $ 46,866 $ 27,226 $ 52,988 $ 54,972
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the years ended Reconciling Items Total
-------------------------------- --------------------------------
(in thousands) 1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 48,817 $ 55,355 $ 66,315
- --------------------------------------------------------------------------------------------------------------
Direct segment income $ 9,830 $ 13,528 $ 19,337
Depreciation, amortization
and reclamation $ (279) $ (297) $ (999) (14,185) (15,578) (15,139)
Exploration (553) (438) (410) (6,548) (4,329) (5,462)
Write-down of mining and other assets (17,612) (6,692) (11,188) (25,412)
- --------------------------------------------------------------------------------------------------------------
Segmented net profits $ (832) $ (735) $(19,021) (17,595) (17,567) (26,676)
- ----------------------------------------------------------------------------------------------------------------
Corporate administrative (9,017) (2,482) (1,831)
Reorganization costs (1,655)
Interest expense (663) (1,119) (1,797)
Other (expense) income (9,735) 7,158 6,187
Income taxes 71 1,884 (28)
Minority interest 2,037 3,496 9,595
Equity accounted associates (506) (215) (1,011)
- --------------------------------------------------------------------------------------------------------------
Loss for the year $(35,408) $(10,500) $(15,561)
- --------------------------------------------------------------------------------------------------------------
Capital expenditures $ 3,082 $ 2,720 $ 10,037
- --------------------------------------------------------------------------------------------------------------
Total assets $ 63,924 $ 96,755 $ 82,822 $120,391 $181,554 $184,660
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Certain of the mining in the United States is conducted through joint ventures.
The Company`s proportionate share of the current liabilities of such joint
ventures totalled $1.7 million in 1998 (1997, $4.6 million; 1996, $4.3 million).
Sales to three separate customers in the gold segment each accounted for 10% or
more of the Company's consolidated revenues as follows: sales to one customer
totalled $5.9 million (1998), and sales to a second customer totalled $7.5
million (1998), $8.6 million (1997) and $7.3 million (1996) and sales to a third
customer totalled $16.1 million (1998), 16.5 million (1997), and $18.9 million
(1996). Sales to one customer in the copper segment accounted for 10% or more of
the Company's consolidated revenues as follows: $5.4 million (1998), and $6.8
million (1997).
16. FINANCIAL INSTRUMENTS AND
RISK MANAGEMENT
RISK MANAGEMENT
The Company reduces its exposure to fluctuations in commodity prices through the
use of derivative instruments and has established a control environment which
includes policies and procedures for risk assessment and the approval,
reporting, and monitoring of derivative instrument activities. The Company does
not use derivative instruments for trading or speculative purposes.
The Company's copper derivatives are considered financial instruments as they
involve settlement with cash whereas the Company's gold derivatives are not
financial instruments as they are settled only through delivery of gold, a
non-financial asset.
CREDIT AND MARKET RISK
The Company is exposed to certain losses, generally the amount by which the
contract price exceeds the spot price of a commodity, in the event of
non-performance by the counterparties to these agreements. The Company attempts
to minimize its credit exposure by limiting its counterparties to major
financial institutions which meet the Company's credit standards,
RAYROCK RESOURCES INC.
17
<PAGE> 18
limiting the maximum exposure to any one counterparty, and spreading exposure
among a number of counterparties. Management believes that the risk of incurring
losses is remote.
Due to the nature of the copper and gold markets, the Company is not dependent
on its significant customers to provide a market for these commodities. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral. Credit risk associated with respect to bullion
receivables is limited due to settlement payments being received shortly after
bullion deliveries.
The Company is exposed to market risk on commodity contracts as a result of
changes in commodity prices.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value estimates set out below are made at discrete points in time based
on relevant market information and information about the financial instruments.
These estimates may be subjective in nature and involve uncertainties and
significant judgement and therefore cannot be determined with precision.
The carrying amounts of cash and short-term investments, accounts receivable,
and accounts payable approximate fair value because of the short maturity of
these instruments. The fair value of long-term investments is based on quoted
market prices. The fair value of fixed rate long-term debt is based on a
discounted cash flow calculation. The carrying value of the variable rate
long-term debt is considered to approximate fair value. The carrying value of
the copper forward sales reflects the estimated amounts the Company would
receive or pay to terminate such contracts at the reporting date, thereby taking
into account the current unrealized gains or losses in respect of open
contracts.
The carrying amounts for all financial instruments approximated fair values with
the following exceptions:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------
Carrying Fair Carrying Fair
(in thousands) Value Value Value Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term investments excluding
equity accounted associates $ 773 $ 1,260 $27,162 $26,944
Fixed rate long-term debt $ 3,180 $ 3,182 $ 3,304 $ 3,610
Off-balance sheet financial instruments:
Copper forward sales $ -- $ -- $ -- $ 1,940
- ------------------------------------------------------------------------------------------------
</TABLE>
17. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
Accounting practices under Canadian and United States generally accepted
accounting principles are substantially the same, except for the following more
significant differences:
(A) ACCOUNTING FOR INCOME TAXES
United States accounting principles, as set out in Statement of Financial
Accounting Standards No. 109, require the use of the asset and liability method
of accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
Under United States accounting principles, at December 31, 1998, deferred income
taxes payable would be $2,442,000 (1997, $1,920,000). There is no impact on the
amount reported for a loss for 1998. The amount reported for earnings for 1997
would be increased by $147,000, and the amount reported for a loss for 1996
would be decreased by $1,658,000. The Company recognized the tax benefit, in the
amount of $2,603,000 in 1997 and $119,000 in 1996, of the utilization of net
operating loss carryforwards to shelter income in the year.
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
$28,992,000 (1997, $25,518,000) relating primarily to loss carry forwards for
which a valuation allowance of $26,440,000 (1997, $19,668,000) has been applied,
and deferred tax liabilities of $4,994,000 (1997, $7,770,000) relating primarily
to investments in marketable securities.
RAYROCK RESOURCES INC.
18
<PAGE> 19
(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 the purpose of
selling them in the near term be presented at fair value with their unrealized
holding gains and losses included in earnings. Investments that have readily
determinable fair values and, while not held principally for the purpose of
selling them in the near term, are available-for-sale and must also be presented
at fair value with their unrealized holding gains and losses reported in a
separate component of other comprehensive income. Both of these types of
investments are presented on a cost basis under Canadian accounting principles.
Under United States accounting principles, long-term investments and
shareholders' equity would each be increased at December 31, 1998 by $487,000.
As at December 31, 1997, long-term investments would be decreased and
shareholders' equity would be increased by $218,000. As at December 31, 1996,
long-term investments and shareholders' equity would be increased by $1,386,000.
(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,
requires that when the carrying amount of the asset exceeds the undiscounted
future cash flows expected from the asset, that the write-down be measured as
the excess of the carrying amount of the asset over its fair value. Under
Canadian accounting principles the write-down is equal to the excess of the
carrying amount over the undiscounted future cash flows.
Under United States accounting principles, the amount reported for a loss for
1998 would be increased by $8.9 million, the amount reported for earnings for
1997 would be increased by $10.05 million, and the amount reported for a loss
for 1996 would be increased by $9.75 million.
(D) STOCK BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, suggests that stock-based compensation be accounted for based on a
fair value methodology. However, companies can continue to use the intrinsic
value method as prescribed by APB 25. Under this method, compensation cost is
the excess of the quoted market price of the stock at the grant date over the
exercise price. The Company has chosen to use the intrinsic value method. The
Company has not recognized any compensation cost as the exercise price of
options granted is set at the market price at the time of granting.
(E) COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, requires disclosure of comprehensive income (loss) which is intended to
reflect all changes in equity except those resulting from contributions by and
distribution to owners. Components of comprehensive income include such items as
net earnings (loss) and changes in the fair value of investments not held for
trading.
(F) STATEMENT OF CHANGES IN FINANCIAL POSITION
Under United States accounting principles, the changes in non-cash working
capital are disclosed in detail in the statement of changes in financial
position and the cash amount of interest and taxes paid is required to be
disclosed. The net changes in non-cash working capital are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts receivable $ (254) $ (826) $ 2,381
Taxes recoverable/payable 2,702 (3,096) 529
Inventories (101) (389) 1,368
Prepaid expenses 92 429 (245)
Accounts payable and accrued liabilities 993 (1,723) (1,017)
- -------------------------------------------------------------------------------------
$ 3,432 $(5,605) $ 3,016
- -------------------------------------------------------------------------------------
</TABLE>
In addition, under United States accounting principles, taxes paid in 1998 on
the sale of discontinued operations of $10.604 million would be classified as an
operating versus an investment activity.
During the year ended December 31, 1998, the Company paid $663,000 of interest
(1997, $1,119,000; 1996, $1,797,000) and paid $6,200,000 of taxes (1997,
$637,000; 1996, $1,019,000).
RAYROCK RESOURCES INC.
19
<PAGE> 20
A reconciliation of the net earnings (loss) for the period as shown in these
consolidated financial statements to the net earnings (loss) for the period in
accordance with United States accounting principles, excluding the effects of
Statement 123, is as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings (loss) - Canadian GAAP $(35,408) $ 8,392 $(12,460)
Adjustment for income taxes 147 1,658
Adjustment for impairment of long lived assets (8,900) 10,050 (9,750)
- -----------------------------------------------------------------------------------------------------------------
Net earnings (loss) - U.S. GAAP $(44,308) $ 18,589 $(20,552)
Other comprehensive income adjustments:
Unrealized gains (losses) on investments 705 (1,604) 1,415
Cumulative translation account adjustments (5,116)
- -----------------------------------------------------------------------------------------------------------------
Comprehensive earnings (loss) $(43,603) $ 11,869 $(19,137)
- -----------------------------------------------------------------------------------------------------------------
Basic and diluted earnings (loss) per share before comprehensive
income adjustments $ (2.53) $ 1.02 $ (1.12)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Shareholders' equity under United States accounting principles would be as
follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Shareholders' equity:
Common stock $ 88,351 $ 91,186
Contributed surplus 840 370
Accumulated other comprehensive income (loss) 487 (218)
Retained earnings 1,307 45,626
Cumulative translation adjustment 4,009 4,009
Reciprocal shareholdings (7,564) (10,479)
- -------------------------------------------------------------------------------
$ 87,430 $ 130,194
- -------------------------------------------------------------------------------
</TABLE>
18. YEAR 2000
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.
19. SUBSEQUENT EVENT
Glamis and the Company announced on January 25, 1999 that they had agreed to
enter into a transaction pursuant to a Plan of Arrangement. Pursuant to the Plan
of Arrangement, Glamis will acquire all of the issued and outstanding Rayrock
Multiple Voting Shares and Rayrock Subordinate Voting Shares and each Rayrock
Shareholder will be entitled to receive, in exchange for each Rayrock Share
held, either 2.4 Glamis Shares or 1.6 Glamis Shares and Cdn$3.00. As a result of
the Arrangement, Rayrock will become a wholly owned subsidiary of Glamis. The
Arrangement is subject to approval of Rayrock Shareholders and the Ontario Court
(General Division). Subject to shareholder approval, BlackRock has agreed to
accept the 3,285,800 shares of Magin owned by the Company in lieu of a portion
of the Glamis shares which it would have otherwise been entitled to receive.
RAYROCK RESOURCES INC.
20
<PAGE> 1
EXHIBIT 10.53
Pro Forma Consolidated Financial Statements of
GLAMIS GOLD LTD.
(Expressed in thousands of U.S. dollars)
Year ended December 31, 1998
(Unaudited)
Refer to note 1 to the pro forma consolidated financial statements for a
description of the transaction, the entities involved and what this pro forma
presentation shows.
<PAGE> 2
GLAMIS GOLD LTD.
Pro Forma Consolidated Balance Sheet
(Expressed in thousands of U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
=========================================================================================================================
Rayrock Pro forma
Glamis Gold Ltd. Resources Inc. Glamis Gold Ltd.
December 31, December 31, Pro forma December 31,
1998 1998 adjustments 1998
- -------------------------------------------------------------------------------------------------------------------------
(note 2)
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 26,170 $ 52,872 $ (35,073)(a) $ 33,969
(10,000)(a)
Other current assets 12,048 15,271 (6,364)(a) 20,955
- -------------------------------------------------------------------------------------------------------------------------
38,218 68,143 (51,437) 54,924
Plant and equipment and mine
development costs 79,655 40,702 (1,343)(a) 119,014
Other assets 1,288 11,546 (3,408)(a) 16,990
7,564 (b)
- -------------------------------------------------------------------------------------------------------------------------
$ 119,161 $ 120,391 $ (48,624) $ 190,928
=========================================================================================================================
Liabilities and Shareholders' Equity
Liabilities:
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
Shareholder's equity:
Share capital (note 3) 109,587 88,351 46,919 (a) 156,506
(88,351)(a)
Contributed surplus 63 840 (840)(a) 63
Cumulative translation adjustment
-- 4,009 (4,009)(a) --
Retained earnings 709 9,907 (9,907)(a) 709
- -------------------------------------------------------------------------------------------------------------------------
110,359 103,107 (56,188) 157,278
Deduct reciprocal shareholdings -- (7,564) 7,564(b) --
- -------------------------------------------------------------------------------------------------------------------------
110,359 95,543 (48,624) 157,278
- -------------------------------------------------------------------------------------------------------------------------
$ 119,161 $ 120,391 $ (48,624) $ 190,928
=========================================================================================================================
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
<PAGE> 3
GLAMIS GOLD LTD.
Pro Forma Consolidated Statement of Operations
(Expressed in thousands of U.S. dollars, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
=================================================================================================================
Rayrock Pro forma
Glamis Gold Ltd. Resources Inc. Glamis Gold Ltd.
Year ended Year ended Year ended
December 31, December 31, Pro forma December 31,
1998 1998 adjustments 1998
- -----------------------------------------------------------------------------------------------------------------
(note 2)
<S> <C> <C> <C> <C>
Revenues $ 32,869 $ 48,817 $ -- $ 81,686
Cost of production 21,807 38,987 (1,571)(c) 60,085
862(d)
- -----------------------------------------------------------------------------------------------------------------
11,062 9,830 (709) 21,601
Expenses:
Depreciation and depletion 8,871 14,185 (862)(d) 22,194
Royalties 2,046 -- 1,571(c) 3,617
Selling, general and administrative 2,558 9,017 -- 11,575
Exploration 34 6,548 -- 6,582
Write-down of investments and
properties 1,091 19,804 -- 20,895
- -----------------------------------------------------------------------------------------------------------------
14,600 49,554 709 64,863
- -----------------------------------------------------------------------------------------------------------------
Loss from operations (3,538) (39,724) -- (43,262)
Interest and other income 1,543 3,377 -- 4,920
Interest and amortization of financing
costs (63) (663) -- (726)
- -----------------------------------------------------------------------------------------------------------------
Loss before income taxes and the
under-noted (2,058) (37,010) -- (39,068)
Provision for (recovery of) income taxes (51) (71) -- (122)
- -----------------------------------------------------------------------------------------------------------------
Loss before the under-noted (2,007) (36,939) -- (38,946)
Share of loss of associated companies -- (506) -- (506)
Minority interest in loss of subsidiary -- 2,037 -- 2,037
- -----------------------------------------------------------------------------------------------------------------
Loss for the year $ (2,007) $(35,408) $ -- $(37,415)
=================================================================================================================
Loss per share (note 3) $ (0.06) $ (0.57)
=================================================================================================================
</TABLE>
See accompanying notes to pro forma consolidated financial statements
<PAGE> 4
GLAMIS GOLD LTD.
Notes to Pro Forma Consolidated Financial Statements
(Tables expressed in thousands of U.S. dollars)
(Unaudited)
December 31, 1998
================================================================================
1. PLAN OF ARRANGEMENT AND BASIS OF PRESENTATION:
The accompanying pro forma consolidated financial statements have been
prepared for purposes of inclusion in a Form 8-K amendment being filed by
Glamis Gold Ltd. ("Glamis"). The pro forma consolidated financial statements
give effect to the arrangement between Glamis and Rayrock Resources Inc.
("Rayrock") which resulted in the exchange by the shareholders of Rayrock of
their multiple voting shares and subordinate voting shares of Rayrock, at
their election, into 2.4 common shares of Glamis for each Rayrock multiple
voting share or subordinate voting share held, or 1.6 common shares of a
Glamis and Cdn. $3.00 ($1.94) for each Rayrock multiple voting share or
subordinate voting share held. BlackRock Ventures Inc. ("BlackRock"), a
significant shareholder of Rayrock and a company that Rayrock is a
significant shareholder of, has agreed to acquire the shares of Magin Energy
Inc. ("Magin"), a company Rayrock holds as an investment, in lieu of a
portion of the common shares of Glamis otherwise issuable to BlackRock.
For accounting purposes, the transaction has been accounted for as an
acquisition of Rayrock by Glamis. The pro forma consolidated financial
statements have been prepared using the purchase method whereby the net
assets of Rayrock have been recorded at their fair values.
These pro forma consolidated financial statements include:
(a) a pro forma consolidated balance sheet prepared from the consolidated
balance sheet of each of Glamis and Rayrock as at December 31, 1998,
which gives pro forma effect to the acquisition of Rayrock and the
assumptions as described in note 2, as if these transactions occurred on
December 31, 1998; and
(b) a pro forma consolidated statement of operations for the year ended
December 31, 1998 prepared from the consolidated statement of operations
of each of Glamis and Rayrock for the year ended December 31, 1998, which
gives pro forma effect to the acquisition of Rayrock and the assumptions
as described in note 2, as if these transactions occurred on January 1,
1998.
These pro forma consolidated financial statements are not necessarily
indicative of the financial position of Glamis as at the time of closing of
the transaction referred to above, nor of the future operating results of
Glamis as a result of the transaction.
The pro forma consolidated financial statements should be read in conjunction
with the consolidated financial statements of Glamis for the year ended
December 31, 1998 and the consolidated financial statements of Rayrock for
the year ended December 31, 1998.
<PAGE> 5
GLAMIS GOLD LTD.
Notes to Pro Forma Consolidated Financial Statements, page 2
(Tables expressed in thousands of U.S. dollars)
(Unaudited)
December 31, 1998
================================================================================
2. Pro forma assumptions:
The pro forma consolidated balance sheet has been prepared based on the
balance sheets of Glamis and Rayrock as at December 31, 1998 and gives effect
to the following transactions as if they had occurred at December 31, 1998:
(a) Acquisition of Rayrock:
(i) the issuance of 29,277,820 common shares of Glamis to the
shareholders of Rayrock at a value of Cdn. $2.42 ($1.60) per
common share, being the estimated fair value at February 26, 1999;
(ii) the payment of cash of Cdn. $52,883,000 ($35,073,000) to the
shareholders of Rayrock;
(iii) the transfer of the 3,285,800 common shares of Magin held by
Rayrock to BlackRock at a value of Cdn. $2.92 ($1.94) per common
share, being the book value of Magin at December 31, 1998 (which
approximated the fair value of Magin at February 26, 1999); and
(iv) the payment of $10,000,000 for estimated transaction related
costs.
The total consideration was $98,356,000. The excess of the book value of
the net assets of Rayrock over the consideration given has been reflected
as a reduction in the book value of plant and equipment and mine
development costs and other assets in the pro forma consolidated balance
sheet.
(b) Reclassification of reciprocal shareholdings:
The reclassification of BlackRock reciprocal shareholdings to other
assets, as there would no longer be any material reciprocal shareholdings
by BlackRock of Glamis.
The pro forma consolidated statement of operations gives effect to the
following assumptions as if the transactions described above had occurred on
January 1, 1998:
(c) The reclassification of royalties expense of Rayrock from cost of
production to a separate expense caption; and
(d) The reclassification of accrued end of mine life reclamation expense of
Rayrock from depreciation and depletion to cost of production.
<PAGE> 6
GLAMIS GOLD LTD.
Notes to Pro Forma Consolidated Financial Statements, page 3
(Tables expressed in thousands of U.S. dollars)
(Unaudited)
December 31, 1998
================================================================================
3. Share capital:
(a) After giving effect to the pro forma assumptions in note 2, the issued
and fully paid share capital of Glamis is as follows:
<TABLE>
<CAPTION>
==========================================================================================================
Number
of shares Amount
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1998 38,860,612 $ 109,587
Acquisition of Rayrock by way of common shares and cash (note 2(a)) 29,277,820 46,919
- ----------------------------------------------------------------------------------------------------------
Pro forma balance, December 31, 1998 68,138,432 $ 156,506
==========================================================================================================
</TABLE>
(b) Options, warrants and other share capital rights:
Reference should be made to the notes to the consolidated financial
statements referred to above for each of Glamis and Rayrock for
commitments to issue common shares pursuant to options, warrants and
rights. The arrangement agreement provides that on the effective date of
the arrangement, all outstanding commitments to issue common shares of
Rayrock pursuant to options, warrants and rights will be converted into
options, warrants and rights of Glamis on the basis of each right to
acquire one Rayrock share will be converted into a right to acquire 2.71
Glamis shares, with a corresponding adjustment to the exercise price.
Accordingly, on closing, the 1,649,500 outstanding share purchase options
of Rayrock were converted into 4,470,145 share purchase options of
Glamis.
4. Loss per share:
The calculations of pro forma loss per share in the pro forma consolidated
statement of operations for the year ended December 31, 1998 is based on the
weighted average number of common shares of Glamis that would have been
outstanding for the year ended December 31, 1998 had the transactions
described in note 2 occurred on January 1, 1998.
<PAGE> 1
TO THE BOARD OF DIRECTORS OF GLAMIS GOLD LTD. EXHIBIT 23.1
We consent to the incorporation by reference in this statement of Glamis Gold
Ltd. on Form 8 of our report dated February 22, 1999 relating to the consolidate
balance sheets of Rayrock Resources Inc. as at December 31, 1998 and December
31, 1997 and the consolidated statement of earnings, retained earnings and
changes in financial position for each of the years ended December 31, 1998,
1997 and 1996.
Dated this 12th day of May, 1999.
PRICEWATERHOUSECOOPERS LLP
Per: /s/ M.J. Hales, C.A.
--------------------------------
Authorized Signatory
