<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
GRANGES, INC.
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(Name of Registrant as Specified in its Charter)
GRANGES, INC.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
COMMON SHARES
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(2) Aggregate number of securities to which transaction applies:(1)
32,768,944
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: $1.875 (2)
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(4) Proposed maximum aggregate value of transaction:
$61,441,770
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$12,288.35
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(2) Form, Schedule or Registration Statement No.:
Schedule 14a
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(3) Filing Party:
Granges, Inc.
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(4) Date Filed:
August 23, 1996
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(1) Represents 32,768,944 shares of common stock of the Registrant to
be issued to the stockholders of Da Capo Resources Ltd. which is
amalgamating with the Registrant.
(2) Based on a price of $1.875 per share of the voting common stock of
the Registrant which represents the average of the high and low
prices reported in trading on the American Stock Exchange on
August 20, 1996.
<PAGE> 2
GRANGES INC.
and
DA CAPO RESOURCES LTD.
JOINT MANAGEMENT
INFORMATION CIRCULAR
for
Extraordinary General Meetings of Shareholders
to be Held on
Tuesday, October 22, 1996
[GRANGES INC. LOGO] [DA CAPO LOGO]
SEPTEMBER 16, 1996
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
LETTER TO SHAREHOLDERS . . . . . . . . . . . . 1 RISK FACTORS . . . . . . . . . . . . . . . . 53
AVAILABLE INFORMATION . . . . . . . . . . . . 4 GRANGES INC. . . . . . . . . . . . . . . . . 55
Overview . . . . . . . . . . . . . . . . 55
INCORPORATION OF CERTAIN INFORMATION BY No Relationship to Da Capo Insiders . . 56
REFERENCE . . . . . . . . . . . . . . . 4 Documents Incorporated By Reference . . 56
Recent Developments . . . . . . . . . . 56
UNCERTAINTY OF FORWARD LOOKING STATEMENTS . . 5 Share Capital . . . . . . . . . . . . . 59
Selected Consolidated Financial and
RELATIONSHIPS WITH INDEPENDENT PUBLIC Operating Information of Granges . . 59
ACCOUNTANTS . . . . . . . . . . . . . . 5
DA CAPO RESOURCES LTD. . . . . . . . . . . . 60
SHAREHOLDERS' PROPOSALS . . . . . . . . . . . 5 Name and Incorporation . . . . . . . . . 60
Business of Da Capo . . . . . . . . . . 60
NOTICES OF EXTRAORDINARY GENERAL MEETINGS No Relationship to Granges Insiders . . 61
Granges . . . . . . . . . . . . . . . . . 6 Properties . . . . . . . . . . . . . . . 61
Da Capo . . . . . . . . . . . . . . . . . 7 Independent Preliminary Evaluation of
Feasibility . . . . . . . . . . 62
SUMMARY . . . . . . . . . . . . . . . . . . . 8 Teck Agreement . . . . . . . . . . . 62
Amayapampa Property . . . . . . . . 63
WHAT A SHAREHOLDER SHOULD DO TO VOTE . . . . 20 Capa Circa Property . . . . . . . . 67
Preliminary Results and
WHAT A SHAREHOLDER SHOULD DO TO RECEIVE VISTA Recommendations for Development
GOLD SHARE CERTIFICATES . . . . . . . . 20 of Amayapampa and Capa Circa
Properties . . . . . . . . . . . 71
CURRENCY EXCHANGE RATES . . . . . . . . . . . 22 Irpa Irpa Property . . . . . . . . . 74
Santa Isabel Property . . . . . . . 75
GOLD PRICES . . . . . . . . . . . . . . . . . 22 Copacabana Property . . . . . . . . 75
San Gerardo Property . . . . . . . . 77
UNITS OF MEASUREMENT . . . . . . . . . . . . 22 Management's Discussion and Analysis of
Financial Condition and Results of
GENERAL PROXY INFORMATION . . . . . . . . . . 23 Operations . . . . . . . . . . . . . 78
Granges Inc. . . . . . . . . . . . . . . 23 Consolidated Capitalization . . . . . . 80
Da Capo Resources Ltd. . . . . . . . . . 24 Share Capital . . . . . . . . . . . . . 80
Dividend Record . . . . . . . . . . . . 80
THE AMALGAMATION . . . . . . . . . . . . . . 26 Prior Sales of Securities . . . . . . . 81
Terms of the Amalgamation . . . . . . . 26 Directors and Officers . . . . . . . . . 82
Background to and Reasons for the Executive Compensation . . . . . . . . . 82
Amalgamation . . . . . . . . . . . . 27 Indebtedness of Directors and Senior
Terms of the Definitive Agreement . . . 28 Officers . . . . . . . . . . . . . . 83
Granges Board of Directors Review and Interest of Management and Others in
Recommendation . . . . . . . . . . . 29 Material Transactions . . . . . . . 84
Goepel Shields Fairness Opinion . . . . 31 Principal Holders of Da Capo Common Shares 85
Da Capo Board of Directors Review and Escrowed Shares . . . . . . . . . . . . 85
Recommendations . . . . . . . . . . 32 Options to Purchase Securities and Share
Salman Partners Fairness Opinion . . . . 33 Purchase Warrants . . . . . . . . . 86
Conditions of the Amalgamation . . . . . 34 Legal Proceedings . . . . . . . . . . . 87
Income Tax Considerations . . . . . . . 35 Material Contracts . . . . . . . . . . . 87
Right of Dissent . . . . . . . . . . . . 39 Auditors . . . . . . . . . . . . . . . . 88
Expenses of the Amalgamation . . . . . . 40 Registrar and Transfer Agent . . . . . . 88
INTENTIONS OF SIGNIFICANT SHAREHOLDERS . . . 40 CONSENTS . . . . . . . . . . . . . . . . . . 89
DESCRIPTION OF VISTA GOLD CORP. . . . . . . . 42 CERTIFICATE OF GRANGES . . . . . . . . . . . 91
Business Strategy of Vista Gold . . . . 42
Management of Vista Gold . . . . . . . . 43 CERTIFICATE OF DA CAPO . . . . . . . . . . . 92
Pro Forma Capitalization . . . . . . . . 45
Pro Forma Consolidated Balance Sheet of SCHEDULES:
Vista Gold . . . . . . . . . . . . . 45
Share Capital . . . . . . . . . . . . . 47 A Amalgamation Agreement
Shareholder Protection Rights Plan . . . 47 B Proposed Granges Special Resolution
Eligibility for Investment . . . . . . . 51 C Proposed Da Capo Special Resolution
Dividend Policy . . . . . . . . . . . . 52 D Goepel Shields Fairness Opinion
Auditors and Registrar and Transfer Agent 52 E Salman Partners Fairness Opinion
F Pro Forma Consolidated Financial Statements of
COMPARATIVE TRADING HISTORY . . . . . . . . . 52 Vista Gold
G Consolidated Financial Statements of Granges
H Consolidated Financial Statements of Da Capo
I Granges Form 10-K
J Extract from the Company Act (British
Columbia) relating to dissent and appraisal
rights
</TABLE>
<PAGE> 4
[GRANGES INC. LOGO] [DA CAPO LOGO]
September 16, 1996
To the Shareholders of Granges Inc. and Da Capo Resources Ltd.
Dear Shareholders:
We are pleased to invite you to attend extraordinary general meetings
of the shareholders of Granges Inc. and Da Capo Resources Ltd. to be held in
the Tweedsmuir Room at the Hotel Vancouver, 900 West Georgia Street, Vancouver,
British Columbia, Canada on Tuesday, October 22, 1996 at 10:00 a.m. and 11:00
a.m. (Vancouver time), respectively.
At the shareholders' meetings, you will be asked to consider and vote
upon the Amalgamation of Granges and Da Capo. The Amalgamation is subject to
approval of the shareholders of Granges and Da Capo and approval by the British
Columbia Supreme Court. Under the Amalgamation, shareholders of Granges will
receive one common share in the amalgamated company and collectively the
shareholders of Granges will hold 66.3% of its share capital on a fully diluted
basis. Under the Amalgamation, the shareholders of Da Capo will receive two
common shares of the amalgamated company for each common share held in Da Capo.
The shareholders of Da Capo collectively will hold 33.7% of the fully diluted
share capital of the new company, which will adopt the name "Vista Gold Corp.".
After the Amalgamation is completed, Vista Gold will be a well
financed mid-tier gold producer with substantial reserves and a large portfolio
of properties located in North and South America. At its inception, the
amalgamated company will have 100,000 ounces of gold production per year from
the efficient Hycroft mine in Nevada which, in 1995, produced 101,000 ounces at
a cash cost of U.S. $272 per ounce. Based on planned development and expansion
projects, annual gold production over the next three years is expected to grow
to approximately 300,000 ounces from mines located in the United States,
Bolivia and Venezuela. Vista Gold's development plans will call for the
immediate completion of a feasibility study for the Amayapampa-Capa Circa
project in Bolivia leading to expected construction and start-up by mid- 1998.
Similar plans are also underway for the Guariche project in Venezuela with an
anticipated start-up during 1998.
The new company will start off with gold mineralization totalling 4.4
million ounces. Proven and probable mineable reserves will total 1.5 million
ounces, based solely on the reserves at the Hycroft mine and the Amayapampa-
Capa Circa project. Additional drilling of the Amayapampa-Capa Circa project
and the Guariche project, which is planned for the second half of 1996, is
expected to add significantly to mineable reserves.
Vista Gold will have a broad portfolio of additional exploration
properties in Bolivia, Canada, Ecuador, the United States and Venezuela in
various stages of development. It will also have a strong balance sheet, with
approximately U.S. $27.0 million in working capital and no long term debt.
The Amalgamation is structured so that Canadian and United States
shareholders who hold their shares of Granges or Da Capo as capital property
will receive a tax-deferred rollover into common shares of the amalgamated
company for Canadian income tax purposes. For U.S. federal income tax
purposes, the transaction should constitute a non-taxable reorganization
transaction and U.S. shareholders generally should not be subject to tax on the
transaction.
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<PAGE> 5
The Amalgamation is a complex transaction. The attached Joint
Management Information Circular provides a detailed description of the terms of
the Amalgamation and includes certain financial statements and other
information in respect of Granges and Da Capo, and pro forma financial
statements in respect of the new company, to assist you in considering the
matter to be voted upon. You are urged to review this information carefully
and, if you require assistance, to consult your legal, financial or income tax
advisors.
RECOMMENDATIONS
The Board of Directors of Granges has received a written opinion of
Goepel Shields & Partners Inc. dated September 16, 1996 which is reproduced in
full as Schedule D to the Joint Management Information Circular. The holders
of common shares in Granges are urged to carefully read the opinion of Goepel
Shields in its entirety. Based on the written opinion of its financial advisor
and other factors (which are reviewed in detail in the Joint Management
Information Circular), and after careful consideration, the Board of Directors
of Granges determined that the terms of the Amalgamation are in the best
interests of Granges and are fair and reasonable to the shareholders of
Granges. ACCORDINGLY, THE BOARD OF DIRECTORS OF GRANGES UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS OF GRANGES VOTE IN FAVOUR OF THE SPECIAL RESOLUTION APPROVING
THE AMALGAMATION TO BE CONSIDERED AT THE SPECIAL MEETING.
The Board of Directors of Da Capo has received a written opinion of
Salman Partners Inc. dated September 16, 1996 which is reproduced in full as
Schedule E to the Joint Management Information Circular. The holders of common
shares in Da Capo are urged to carefully read the opinion of Salman Partners in
its entirety. Based on the written opinion of its financial advisor and other
factors (which are reviewed in detail in the Joint Management Information
Circular), and after careful consideration, the Board of Directors of Da Capo
has determined that the terms of the Amalgamation are in the best interests of
Da Capo and are fair and reasonable to the shareholders of Da Capo.
ACCORDINGLY, THE BOARD OF DIRECTORS OF DA CAPO UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS OF DA CAPO VOTE IN FAVOUR OF THE SPECIAL RESOLUTION APPROVING THE
AMALGAMATION TO BE CONSIDERED AT THE SPECIAL MEETING.
PRINCIPAL SHAREHOLDERS SUPPORT THE AMALGAMATION
The principal shareholders of Granges and Da Capo, who are Atlas
Corporation and Ross Beaty, respectively, have agreed to support and vote in
favour of the Amalgamation. If the Amalgamation is approved by the
shareholders of Granges and Da Capo, Atlas Corporation will hold 12.6% of the
fully diluted common shares of Vista Gold and Ross Beaty and his associated
companies will hold 8.8%.
PROCEDURE FOR EXCHANGE
The Amalgamation will become effective on November 1, 1996. Assuming
that all necessary shareholder, regulatory and court approvals are obtained,
the shareholders of Granges and Da Capo will receive certificates representing
common shares in Vista Gold after they have completed and returned a copy of
the Letter of Transmittal (printed on white paper for Granges shareholders and
printed on blue paper for Da Capo shareholders) which accompanies the Joint
Management Information Circular, together with the certificates representing
their Granges and Da Capo common shares. In order to receive their new common
shares as soon as possible, Granges and Da Capo shareholders should deliver the
Letter of Transmittal and their Granges and Da Capo common shares to one of the
offices of Montreal Trust Company of Canada set out in the Letter of
Transmittal immediately after the extraordinary general meetings of the
shareholders of Granges and Da Capo.
ATTENDANCE AT MEETING
Because of the importance of the matters to be considered at the
extraordinary general meetings, your shares should be represented whether or
not you are able to attend in person. See "What a Shareholder Should do to
Vote" on page 20 of the Joint Management Information Circular for instructions
on the actions to be taken by shareholders in connection with the meetings. If
you are unable to attend the meeting in
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<PAGE> 6
person, we would appreciate you taking the time now to sign, date and return
the enclosed proxy (printed on yellow paper in the case of Granges shareholders
and green paper in the case of Da Capo shareholders) in the enclosed postage
prepaid envelopes so that your shares can be voted at the extraordinary general
meeting in accordance with your instructions.
Yours sincerely,
(signed) MICHAEL B. RICHINGS (signed) ROSS J. BEATY
President and Chief Executive Officer President
Granges Inc. Da Capo Resources Ltd.
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<PAGE> 7
AVAILABLE INFORMATION
Granges Inc. ("Granges") is subject to the informational requirements
of the Securities Exchange Act of 1934 as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information with
the SEC. Such reports, proxy statements and other information are available
for inspection and copying at the public reference facilities maintained by the
SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549, and at the regional offices of the SEC located at 7 World Trade Center,
New York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60601. Copies of such materials can also be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 at the prescribed rates. Granges' common shares are
listed on the American Stock Exchange and, as a result, the periodic reports,
proxy statements and other information filed by Granges with the SEC can be
inspected at the offices of the American Stock Exchange, 86 Trinity Place, New
York, New York 10005.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Granges' (i) Annual Report on Form 10-K for the year ended December
31, 1995, including the consolidated financial statements and schedule of
Granges and the report thereon by Coopers & Lybrand (the "Form 10-K"), (ii)
Quarterly Report on Form 10-Q for the three month period ended June 30, 1996
and Quarterly Report on Form 10-Q for the three month period ended March 31,
1996 (the "Form 10-Qs"), and (iii) Current Reports on Form 8-K dated July 31,
1996 (two), July 2, 1996, June 24, 1996, June 11, 1996, May 9, 1996, May 3,
1996, April 16, 1996, April 9, 1996, March 20, 1996, March 1, 1996, February
26, 1996 and January 17, 1996 respectively, are each hereby incorporated by
reference herein.
ALL DOCUMENTS FILED BY GRANGES WITH THE SEC PURSUANT TO SECTIONS
13(A), 13(C), 14 OR 15(D) OF THE EXCHANGE ACT AFTER THE DATE OF THIS JOINT
MANAGEMENT INFORMATION CIRCULAR AND PRIOR TO THE DATE OF THE EXTRAORDINARY
GENERAL MEETING OF GRANGES SHALL BE DEEMED INCORPORATED BY REFERENCE IN THIS
JOINT MANAGEMENT INFORMATION CIRCULAR AND TO BE A PART HEREOF FROM THE DATE OF
FILING OF SUCH DOCUMENTS. ANY STATEMENT CONTAINED IN THIS JOINT MANAGEMENT
INFORMATION CIRCULAR OR IN A DOCUMENT INCORPORATED OR DEEMED TO BE INCORPORATED
BY REFERENCE IN THIS JOINT MANAGEMENT INFORMATION CIRCULAR SHALL BE DEEMED TO
BE MODIFIED OR SUPERSEDED FOR PURPOSES OF THIS JOINT MANAGEMENT INFORMATION
CIRCULAR TO THE EXTENT THAT A STATEMENT CONTAINED IN THIS JOINT MANAGEMENT
INFORMATION CIRCULAR OR IN ANY OTHER SUBSEQUENTLY FILED DOCUMENT THAT ALSO IS
OR IS DEEMED TO BE INCORPORATED BY REFERENCE HEREIN MODIFIES OR SUPERSEDES SUCH
STATEMENT. ANY SUCH STATEMENT SO MODIFIED OR SUPERSEDED SHALL NOT BE DEEMED,
EXCEPT AS SO MODIFIED OR SUPERSEDED, TO CONSTITUTE A PART OF THIS JOINT
MANAGEMENT INFORMATION CIRCULAR.
THE MODIFYING OR SUPERSEDING STATEMENT NEED NOT STATE THAT IT HAS
MODIFIED OR SUPERSEDED A PRIOR STATEMENT OR INCLUDE ANY OTHER INFORMATION SET
FORTH IN THE DOCUMENT THAT IT MODIFIES OR SUPERSEDES. THE MAKING OF A
MODIFYING OR SUPERSEDING STATEMENT SHALL NOT BE DEEMED AN ADMISSION FOR ANY
PURPOSES THAT THE MODIFIED OR SUPERSEDED STATEMENT, WHEN MADE, CONSTITUTED A
MISREPRESENTATION, AN UNTRUE STATEMENT OF MATERIAL FACT OR AN OMISSION TO STATE
A MATERIAL FACT THAT IS REQUIRED TO BE STATED OR THAT IS NECESSARY TO MAKE A
STATEMENT NOT MISLEADING IN LIGHT OF THE CIRCUMSTANCES IN WHICH IT WAS MADE.
ANY STATEMENT AS MODIFIED OR SUPERSEDED SHALL NOT BE DEEMED, EXCEPT AS SO
MODIFIED OR SUPERSEDED, TO CONSTITUTE A PART OF THIS JOINT MANAGEMENT
INFORMATION CIRCULAR.
Granges undertakes to provide without charge to each person to whom a
copy of this Joint Management Information Circular has been delivered, upon the
written or oral request of such person, a copy of any or all of the documents
incorporated by reference herein, other than the exhibits to such documents,
unless such exhibits are specifically incorporated by reference into the
information that this Joint Management Information Circular incorporates.
Written or oral requests for such copies should be directed to Granges, 709 -
700 West Pender Street, Vancouver, British Columbia, Canada V6C 1G8, Attention:
Nancy A. Larson, Corporate Secretary/Manager Investor Relations, telephone
number (604) 687-2831.
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<PAGE> 8
No person is authorized to give any information or to make any
representations not contained in this Joint Management Information Circular or
in the documents incorporated herein by reference in connection with the
solicitation made hereby and, if given or made, such information or
representations should not be relied upon as having been authorized by Granges
or Da Capo Resources Ltd. ("Da Capo"). This Joint Management Information
Circular does not constitute the solicitation of a proxy from any person in any
jurisdiction in which it is unlawful to make such proxy solicitation. The
delivery of this Joint Management Information Circular shall not, under any
circumstances, create an implication that there has not been any change in the
affairs of Granges or Da Capo since the date of this Joint Management
Information Circular other than as set forth in the documents incorporated
herein by reference.
THIS JOINT MANAGEMENT INFORMATION CIRCULAR INCORPORATES DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE
DOCUMENTS ARE AVAILABLE UPON WRITTEN OR ORAL REQUEST FROM GRANGES, 709 - 700
WEST PENDER STREET, VANCOUVER, BRITISH COLUMBIA, CANADA V6C 1G8, ATTENTION:
NANCY A. LARSON, CORPORATE SECRETARY/MANAGER INVESTOR RELATIONS, TELEPHONE
NUMBER (604) 687-2831. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY OCTOBER 10, 1996.
UNCERTAINTY OF FORWARD LOOKING STATEMENTS
This Joint Management Information Circular, including the letter to
shareholders of Granges and Da Capo and any documents that are incorporated by
reference as set forth in "Incorporation of Certain Information by Reference",
contains forward looking statements concerning, among other things, projected
annual gold production, mineralization and mineable reserves and cash operating
costs. Such statements are typically punctuated by words or phrases such as
"anticipate", "estimate", "projects", "foresee", "management believes",
"Granges believes" and words or phrases of similar import. Such statements are
subject to certain risks, uncertainties or assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated or projected. Important factors that could cause actual results to
differ materially from those in the foregoing forward-looking statements are
identified in this Joint Management Information Circular under "Risk Factors".
Granges, Da Capo and Vista Gold assume no obligation to update these
forward-looking statements to reflect actual results, changes in assumptions or
changes in other factors affecting such statements.
RELATIONSHIPS WITH INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand has acted as independent public accountants for
Granges since June 31, 1984. It is expected that representatives of Coopers &
Lybrand will be present at the extraordinary general meeting of Granges to
respond to appropriate questions of shareholders and to make a statement if
such representatives so desire.
SHAREHOLDERS' PROPOSALS
A shareholder of Granges (a "Granges Shareholder") who wishes to
present a proposal to be considered at the 1997 annual general meeting of the
Granges Shareholders and who wishes to have such a proposal presented in the
Management Information and Proxy Circular of Granges, must deliver such
proposal in writing to the Corporate Secretary/Manager Investor Relations of
Granges at 709 - 700 West Pender Street, Vancouver, British Columbia, Canada
V6C 1G8 no later than January 23, 1997.
- 5 -
<PAGE> 9
GRANGES INC.
NOTICE OF EXTRAORDINARY GENERAL MEETING
NOTICE IS HEREBY GIVEN THAT an Extraordinary General Meeting (the
"Granges Meeting") of the members (the "Granges Shareholders") of Granges Inc.
("Granges") will be held in the Tweedsmuir Room at the Hotel Vancouver, 900
West Georgia Street, Vancouver, British Columbia, Canada V6C 2W6 on Tuesday,
October 22, 1996 at 10:00 a.m. (Vancouver time), for the following purposes:
(a) to consider and, if thought appropriate, to pass a special
resolution of the Granges Shareholders approving the
amalgamation agreement (the "Amalgamation Agreement") dated
September 16, 1996 between Granges and Da Capo Resources Ltd.
(the full text of the proposed special resolution is set out
in Schedule B to the accompanying Joint Management Information
Circular which forms part of this Notice);
(b) to consider any amendment to or variations of any matters
identified in this Notice; and
(c) to transact all such other business as may properly come
before the Granges Meeting or any adjournment or adjournments
thereof.
A copy of the Amalgamation Agreement is attached as Schedule A to the
Joint Management Information Circular which forms part of this Notice.
Take notice that pursuant to the Company Act (British Columbia) (the
"Company Act") you may, until October 29, 1996, give Granges by registered mail
addressed to Granges at 709-700 West Pender Street, Vancouver, British
Columbia, V6C 1G8, Attention: Nancy A. Larson, Corporate Secretary/Manager
Investor Relations, a notice of dissent with respect to the special resolution
to approve the Amalgamation Agreement. As a result of giving notice of dissent
you may, on receiving from Granges a notice of intention to act under section
231 of the Company Act, require the amalgamated company to purchase for their
fair value all your common shares in the capital of Granges in respect of which
the notice of dissent was given. See "The Amalgamation - Right of Dissent" in
the accompanying Joint Management Information Circular.
Accompanying this Notice are: (i) a Joint Management Information
Circular; (ii) a form of proxy and notes thereto (printed on yellow paper); and
(iii) a Letter of Transmittal (printed on white paper). If you are unable to
attend the meeting in person, kindly read the notes accompanying the enclosed
form of proxy and complete and return the instrument of proxy within the time
and to the location set out therein.
This Joint Management Information Circular and the form of proxy are
first being sent to Granges Shareholders on approximately September 20, 1996.
DATED at Vancouver, British Columbia, this 16th day of September,
1996.
BY ORDER OF THE BOARD
(signed) NANCY A. LARSON,
Corporate Secretary/
Manager Investor Relations
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<PAGE> 10
DA CAPO RESOURCES LTD.
NOTICE OF EXTRAORDINARY GENERAL MEETING
NOTICE IS HEREBY GIVEN THAT an Extraordinary General Meeting (the "Da
Capo Meeting") of the members (the "Da Capo Shareholders") of Da Capo Resources
Ltd. ("Da Capo") will be held in the Tweedsmuir Room at the Hotel Vancouver,
900 West Georgia Street, Vancouver, British Columbia, Canada V6C 2W6 on
Tuesday, October 22, 1996 at 11:00 a.m. (Vancouver time), for the following
purposes:
(a) to consider and, if thought appropriate, to pass a special
resolution of the Da Capo Shareholders approving the
amalgamation agreement (the "Amalgamation Agreement") dated
September 16, 1996 between Da Capo and Granges Inc. (the full
text of the proposed special resolution is set out in Schedule
C to the accompanying Joint Management Information Circular
which forms part of this Notice);
(b) to consider any amendment to or variations of any matters
identified in this Notice; and
(c) to transact all such other business as may properly come
before the Da Capo Meeting or any adjournment or adjournments
thereof.
A copy of the Amalgamation Agreement is attached as Schedule A to the
Joint Management Information Circular which forms part of this Notice.
Take notice that pursuant to the Company Act (British Columbia) (the
"Company Act") you may, until October 29, 1996, give Da Capo by registered mail
addressed to Da Capo at 1500-625 Howe Street, Vancouver, British Columbia, V6C
2T6, Attention: Gordon Jang, Secretary, a notice of dissent with respect to the
special resolution to approve the Amalgamation Agreement. As a result of giving
notice of dissent you may, on receiving from Da Capo a notice of intention to
act under section 231 of the Company Act, require the amalgamated company to
purchase for their fair value all your common shares in the capital of Da Capo
in respect of which the notice of dissent was given. See "The Amalgamation -
Right of Dissent" in the accompanying Joint Management Information Circular.
Accompanying this Notice are: (i) a Joint Management Information
Circular; (ii) a form of proxy and notes thereto (printed on green paper); and
(iii) a Letter of Transmittal (printed on blue paper). If you are unable to
attend the meeting in person, kindly read the notes accompanying the enclosed
form of proxy and complete and return the instrument of proxy within the time
and to the location set out therein.
This Joint Management Information Circular and the form of proxy are
first being sent to Da Capo Shareholders on approximately September 20, 1996.
DATED at Vancouver, British Columbia, this 16th day of September,
1996.
BY ORDER OF THE BOARD
(signed) GORDON JANG,
Secretary
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<PAGE> 11
SUMMARY
The following is a summary of, and is qualified in its entirety by, the more
detailed information and financial statements appearing or referred to
elsewhere in this Joint Management Information Circular including the schedules
hereto. Certain capitalized words and terms used in this summary are defined
in the Joint Management Information Circular.
THE COMPANIES
GRANGES INC.
Granges Inc. ("Granges") is a public British Columbia company whose
common shares are listed on The Toronto Stock Exchange and the American Stock
Exchange. Granges is engaged, directly and through joint ventures, in the
operation, development and exploration of mineral properties in the United
States, Canada, Venezuela and Ecuador. Since 1971, Granges and its predecessor
companies, previously owned by Granges AB of Sweden, have held participating
interests in six mines, four of which were discovered by Granges. Granges has
operated four of the six mines. Granges' principal mining operation is the
Hycroft mine (formerly known as the Crofoot/Lewis mine) in the United States
which produces gold and by-product silver. In 1995, the Hycroft mine produced
approximately 101,000 ounces of gold at a cash cost of U.S.$272 per ounce.
Granges also has 22 undeveloped mineral properties covering approximately
180,800 hectares (446,750 acres) in various stages of evaluation. In 1995,
Granges acquired a 41 percent equity interest in Zamora Gold Corp., a Canadian
mineral exploration company that controls a large land position in the Nambija
gold district of southern Ecuador. In 1996, Granges acquired an option to
purchase the Guariche mining concessions in Venezuela. See "Granges Inc.".
DA CAPO RESOURCES LTD.
Da Capo Resources Ltd. ("Da Capo") is a public British Columbia
company whose common shares are listed on the Vancouver Stock Exchange. Da
Capo is a mineral exploration and development company engaged in locating,
acquiring, exploring and developing gold properties in Bolivia. Da Capo's
principal gold project is located in south-central Bolivia and consists of two
partially-explored gold deposits on properties which Da Capo has recently
acquired interests in. These properties, the Amayapampa property and the Capa
Circa property, are located ten kilometres apart and are very similar
geologically. Da Capo is currently assessing the feasibility of development of
the Amayapampa and Capa Circa properties through two open pit mines that would
supply ore to a centralized processing facility. Da Capo also holds or has
rights to acquire interests in four other undeveloped mineral properties
covering approximately 13,900 hectares (5,607 acres) located in the same region
of Bolivia. See "Da Capo Resources Ltd. - Business of Da Capo".
EXTRAORDINARY GENERAL MEETINGS
DATE, TIME AND PLACE OF MEETINGS
The Extraordinary General Meeting (the "Granges Meeting") of the
members of Granges (the "Granges Shareholders") will be held on Tuesday,
October 22, 1996 at 10:00 a.m. (Vancouver time) in the Tweedsmuir Room at the
Hotel Vancouver, 900 West Georgia Street, Vancouver, British Columbia, Canada.
The Extraordinary General Meeting (the "Da Capo Meeting") of the
members of Da Capo (the "Da Capo Shareholders") will be held on Tuesday,
October 22, 1996 at 11:00 a.m. (Vancouver time) in the Tweedsmuir Room at the
Hotel Vancouver, 900 West Georgia Street, Vancouver, British Columbia, Canada.
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<PAGE> 12
RECORD DATE FOR VOTING
The record date for voting for both the Granges Meeting and the Da
Capo Meeting is the close of business on September 17, 1996.
PURPOSE OF MEETINGS
The purpose of both the Granges Meeting and the Da Capo Meeting is to
consider and, if thought appropriate, to pass a special resolution approving
the amalgamation agreement (the "Amalgamation Agreement") dated September 16,
1996 between Granges and Da Capo under which Granges and Da Capo have agreed to
amalgamate and merge into a single corporate entity to be called "Vista Gold
Corp.".
COURT APPROVAL
The Company Act (British Columbia) requires that, after approval of
the Amalgamation Agreement by the shareholders of Granges and Da Capo, an
application must be made to the British Columbia Supreme Court (the "Court")
for an order approving the amalgamation of Granges and Da Capo (the
"Amalgamation"). The Court may, having regard to the rights and interests of
every shareholder and creditor affected, approve the Amalgamation either as
presented or subject to terms and conditions the Court considers appropriate or
the Court may dismiss the application. On the application for approval by the
Court, the Court must examine all the relevant facts and satisfy itself that
all parties to the Amalgamation are being fairly dealt with. Any creditor or
shareholder of Granges or Da Capo is entitled to be heard at the time of the
application to the Court.
THE AMALGAMATION
TERMS OF AMALGAMATION
The Amalgamation is expected to become effective on November 1, 1996
(the "Effective Date"). Upon the Amalgamation becoming effective, Granges and
Da Capo will amalgamate and continue as one company under the name "Vista Gold
Corp." (hereinafter referred to as "Vista Gold"). The shares of Granges and Da
Capo will be exchanged or cancelled on the following basis:
o each issued and outstanding common share of Granges shall be
exchanged for one common share of Vista Gold;
o each issued and outstanding common share of Da Capo shall be
exchanged for two common shares of Vista Gold; and
o each authorized but unissued common share and preferred share
of Granges and each authorized but unissued common share of Da
Capo shall be cancelled.
After the Amalgamation, the current Granges Shareholders will hold
63.0 percent of Vista Gold's outstanding share capital (66.3 percent on a fully
diluted basis) and the current Da Capo Shareholders will hold 37.0 percent of
Vista Gold's outstanding share capital (33.7 percent on a fully diluted basis).
The initial board of directors of Vista Gold will be comprised of
David R. Sinclair, Michael B. Richings, William M. Calhoun, James H. Dunnett,
C. Thomas Ogryzlo, Keith Steeves, Alan G. Thompson and Peter Walton, who are
presently directors of Granges, and Ross J. Beaty, who is presently a director
of Da Capo. Key management personnel of Vista Gold will include David R.
Sinclair as Chairman of the Board, Ross J. Beaty as Vice Chairman of the Board,
Michael B. Richings as President and Chief Executive Officer, Amjad J. Ali as
Vice President Finance and Chief Financial Officer and Ronald J. McGregor as
Vice President Operations and Development.
- 9 -
<PAGE> 13
BACKGROUND TO AND REASONS FOR THE AMALGAMATION
Following extensive discussions and negotiations between management of
Granges and Da Capo, on July 31, 1996 the Boards of Directors of Granges and Da
Capo unanimously approved the amalgamation of Granges and Da Capo to create a
single corporate entity on the terms set out above, subject to shareholder,
court and regulatory approval, the receipt of support agreements to vote in
favour of the Amalgamation from Atlas Corporation ("Atlas"), the principal
shareholder of Granges, and Ross J. Beaty and his associated companies, the
principal shareholders of Da Capo, Granges and Da Capo entering into a
definitive agreement for the amalgamation and the satisfactory completion of
due diligence by both Granges and Da Capo.
The underlying reason for the proposed amalgamation was that a variety
of benefits would result from the Amalgamation although the impact of each may
vary for each company. Those benefits include:
o increased gold production, from an initial level of 100,000
ounces of gold production per year from the Hycroft mine in
Nevada which is expected to increase up to approximately
300,000 ounces of gold production per year by 1999 with the
development of new mines located in Bolivia and Venezuela;
o lower gold production costs, from current cash production
costs of U.S. $287 per ounce which are expected to decline to
an average cash production cost below U.S. $200 per ounce by
1999;
o increased proven and probable reserves of 1.5 million ounces
and an increased gold mineral reserve totalling 4.4 million
ounces;
o a more diverse portfolio of exploration properties, combining
Granges' exploration prospects in the United States, Canada,
Venezuela and Ecuador with Da Capo's exploration prospects in
Bolivia;
o more exposure to potential investment opportunities through
Vista Gold's greater size, geographical diversity and
financial strength;
o enhanced management depth and diversity, with management of
Vista Gold consisting of the current management team of
Granges, augmented by the addition of Ross J. Beaty, the
current President of Da Capo, as Vice Chairman of the Board of
Vista Gold and the addition of members of Da Capo's geological
team in Bolivia as employees or consultants of Vista Gold;
o a strong balance sheet, with approximately US$27.0 million in
working capital and no long term debt, which will facilitate
the development of the Amayapampa-Capa Circa project in
Bolivia and the Guariche project in Venezuela and allow an
active search for other investment opportunities;
o increased market capitalization, which will permit Vista Gold
to qualify for short form prospectus offerings in Canada and
will enhance access to equity and debt markets for financing;
and
o larger stock market float and potential enhancement of trading
liquidity relative to the current float and liquidity of
Granges and Da Capo as separate companies.
TERMS OF DEFINITIVE AGREEMENT
Following completion of Granges' and Da Capo's due diligence review
and the receipt of support agreements to vote in favour of the Amalgamation
from Atlas and Mr. Beaty and his associated companies
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<PAGE> 14
on August 16 and August 6, 1996, respectively, Granges and Da Capo entered into
a definitive agreement (the "Definitive Agreement") dated August 16, 1996 to
amalgamate the two companies.
Under the Definitive Agreement, the implementation of the Amalgamation
is subject to a number of conditions for the benefit of Granges and Da Capo,
including:
(a) the Amalgamation being approved by the Granges Shareholders,
the Da Capo Shareholders and the Court;
(b) the Board of Directors of either Granges or Da Capo not
withdrawing or adversely modifying its approval or
recommendation to their respective shareholders to vote in
favour of the Amalgamation;
(c) the holders of more than five percent of the outstanding
common shares in Granges or the outstanding common shares in
Da Capo not exercising their right of dissent in connection
with the Amalgamation; or
(d) the Amalgamation being consummated on or before December 31,
1996.
See "The Amalgamation - Terms of Definitive Agreement".
The Definitive Agreement also provides that if the Granges
Shareholders fail to approve the Amalgamation or the Amalgamation is not
completed on or before December 31, 1996 as a result of fault on the part of,
or anything within the control of, Granges, then Granges is required to pay
U.S.$250,000 to Da Capo.
GRANGES BOARD OF DIRECTORS REVIEW
Goepel Shields & Partners Inc. ("Goepel Shields") was engaged on
September 12, 1996 as financial advisor to Granges and the Board of Directors
of Granges, to advise and assist the Board of Directors in its review of the
terms of the Amalgamation. The Board of Directors of Granges has reviewed in
detail the basis for the Amalgamation, the Definitive Agreement, the fairness
opinion (the "Goepel Shields Fairness Opinion") dated September 16, 1996
prepared by Goepel Shields and the agreement dated August 16, 1996 under which
Granges' 22.8 percent shareholder, Atlas, agreed to support the Amalgamation.
Based on its review, the Board of Directors of Granges has determined that the
Amalgamation is in the best interest of Granges and is fair and reasonable to
the Granges Shareholders. Accordingly, the Board of Directors of Granges has
unanimously approved the Amalgamation, the Amalgamation Agreement and this
Joint Management Information Circular and its submission to the Granges
Shareholders for approval at the Granges Meeting. Subsequent to the approval
of the Amalgamation by the Board of Directors of Granges, the Amalgamation
Agreement was entered into by Granges and Da Capo.
GOEPEL SHIELDS FAIRNESS OPINION
Goepel Shields was retained by Granges and the Board of Directors of
Granges to provide a fairness opinion on the terms of the Amalgamation to
Granges Shareholders. On September 16, 1996, Goepel Shields delivered to the
Board of Directors of Granges the Goepel Shields Fairness Opinion in which
Goepel Shields advised that the terms of the Amalgamation and the exchange
ratios contemplated thereby are fair to the Granges Shareholders from a
financial point of view. The full text of the Goepel Shields Fairness Opinion,
which sets forth the assumptions made, matters considered and limitations on
the review undertaken by Goepel Shields in rendering its opinion, is reproduced
in full as Schedule D to this Joint Management Information Circular. GRANGES
SHAREHOLDERS ARE URGED TO READ THE GOEPEL SHIELDS FAIRNESS OPINION CAREFULLY
AND IN ITS ENTIRETY.
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<PAGE> 15
DA CAPO BOARD OF DIRECTORS REVIEW
Salman Partners Inc. ("Salman Partners") was engaged on August 16,
1996 as financial advisor to the Board of Directors of Da Capo to advise and
assist the Board of Directors in its review of the terms of the Amalgamation.
The members of the Board of Directors of Da Capo held numerous formal and
informal meetings between mid-June 1996 and September 16, 1996 to review the
terms of the Amalgamation. The Board of Directors of Da Capo has reviewed in
detail the basis for the Amalgamation, the Definitive Agreement, the fairness
opinion (the "Salman Partners Fairness Opinion") dated September 16, 1996
prepared by Salman Partners and the agreement dated August 6, 1996 under which
Da Capo's 27.0 percent shareholders, Ross J. Beaty and his associated
companies, agreed to support the Amalgamation. Based on this review and its
consideration of additional issues, the Board of Directors of Da Capo has
determined that the Amalgamation is in the best interest of Da Capo and is fair
and reasonable to the Da Capo Shareholders. Accordingly, the Board of
Directors of Da Capo has unanimously approved the Amalgamation, the
Amalgamation Agreement and this Joint Management Information Circular and its
submission to the Da Capo Shareholders for approval at the Da Capo Meeting.
Subsequent to the approval of the Amalgamation by the Board of Directors of Da
Capo, the Amalgamation Agreement was entered into by Granges and Da Capo.
SALMAN PARTNERS FAIRNESS OPINION
Salman Partners was retained by the Board of Directors of Da Capo to
provide a fairness opinion on the terms of the Amalgamation to the Da Capo
Shareholders. On September 16, 1996 Salman Partners delivered to the Board of
Directors of Da Capo the Salman Partners Fairness Opinion, in which Salman
Partners advised that the terms of the Amalgamation are fair to the Da Capo
Shareholders from a financial point of view. The full text of the Salman
Partners Fairness Opinion, which sets forth the assumptions made, matters
considered and limitations on the review undertaken by Salman Partners in
rendering its opinion, is reproduced in full as Schedule E to this Joint
Management Information Circular. DA CAPO SHAREHOLDERS ARE URGED TO READ THE
SALMAN PARTNERS FAIRNESS OPINION CAREFULLY AND IN ITS ENTIRETY.
- -------------------------------------------------------------------------------
RECOMMENDATIONS OF BOARDS OF DIRECTORS
THE BOARD OF DIRECTORS OF GRANGES UNANIMOUSLY RECOMMENDS THAT THE
GRANGES SHAREHOLDERS VOTE IN FAVOUR OF THE SPECIAL RESOLUTION APPROVING THE
AMALGAMATION AT THE GRANGES MEETING.
THE BOARD OF DIRECTORS OF DA CAPO UNANIMOUSLY RECOMMENDS THAT THE DA
CAPO SHAREHOLDERS VOTE IN FAVOUR OF THE SPECIAL RESOLUTION APPROVING THE
AMALGAMATION AT THE DA CAPO MEETING.
- -------------------------------------------------------------------------------
CONDITIONS OF THE AMALGAMATION
In order for the Amalgamation to be implemented, a special resolution
approving the Amalgamation Agreement (the "Granges Resolution") must be
approved by not less than 3/4 of the votes cast by Granges Shareholders
entitled to vote and represented in person or by proxy at the Granges Meeting
and a special resolution approving the Amalgamation Agreement (the "Da Capo
Resolution") must also be approved by not less than 3/4 of the votes cast by Da
Capo Shareholders entitled to vote and represented in person or by proxy at the
Da Capo Meeting.
If the Granges Resolution is approved at the Granges Meeting and the
Da Capo Resolution is approved at the Da Capo Meeting, Granges and Da Capo
intend to make a joint application to the Supreme Court of British Columbia
(the "Court") at 10:00 a.m. (Vancouver time) on October 30, 1996, or as soon
thereafter as they may be heard, for an order approving the Amalgamation. Any
Granges Shareholder or Da Capo Shareholder is entitled to be heard at this
application.
Notwithstanding approval of the Amalgamation Agreement by the Granges
Shareholders and Da Capo Shareholders and by the Court, the directors of either
Granges or Da Capo may, on their own
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<PAGE> 16
initiative, subject to the terms and conditions of the Amalgamation Agreement,
terminate the implementation of the Amalgamation at any time prior to the issue
of the certificate by the Registrar of Companies for British Columbia giving
effect to the Amalgamation. See "The Amalgamation - Conditions of the
Amalgamation".
RIGHT OF DISSENT
Granges Shareholders and Da Capo Shareholders who vote against or who
abstain from voting on the special resolutions to approve the Amalgamation
Agreement have a right of dissent which entitles them to be paid the fair value
of their common shares of Granges or Da Capo, respectively, as determined by
the Court. Exercise of the right of dissent requires strict compliance with
the provisions of the Company Act (British Columbia) (the "Company Act") and
applicable law. See "The Amalgamation - Right of Dissent".
CANADIAN AND UNITED STATES INCOME TAX CONSEQUENCES
Shareholders of Granges and Da Capo who hold their shares as capital
property and who receive shares of Vista Gold will be deemed to have disposed
of their shares for proceeds of disposition equal to the adjusted cost base to
them of those shares immediately before the Effective Date so that no gain or
loss will be recognized for Canadian income tax purposes in respect thereof.
Such shareholders will be deemed to have acquired common shares of Vista Gold
at a cost equal to such proceeds.
If the common shares of Granges or Da Capo constitute "taxable
Canadian property" to a shareholder, then the shares of Vista Gold received by
shareholders will also constitute "taxable Canadian property". See "The
Amalgamation - Income Tax Considerations - Canada".
Granges and Da Capo believe that the respective amalgamations of
Granges and Da Capo into Vista Gold will constitute reorganizations described
in section 368(a) of the United States Internal Revenue Code of 1986 (the
"Code"). Accordingly, United States holders of common shares of Granges and Da
Capo who receive only common shares of Vista Gold should receive tax-deferred
treatment, provided such holders file the notice under section 367(b) of the
Code and provided further that the otherwise tax-free status is not overridden
by the "passive foreign investment corporation" rules under section 1291 of the
Code. See "The Amalgamation - Income Tax Considerations - United States of
America".
Shareholders should consult their own tax advisors with respect to
their particular circumstances.
SHARE CAPITAL OF VISTA GOLD
Vista Gold will be authorized to issue 3,000,000,000 shares divided
into 2,500,000,000 common shares without par value and 500,000,000 preferred
shares without par value. See "Description of Vista Gold - Share Capital".
After giving effect to the Amalgamation, there will be 88,650,405 common shares
of Vista Gold outstanding (100,759,904 common shares on a fully diluted basis
assuming the exercise of all outstanding stock options and common share
purchase warrants of Granges and Da Capo). Vista Gold will adopt a stock
option plan identical to the existing Stock Option Plan of Granges and, after
giving effect to the Amalgamation, all outstanding stock options and common
share purchase warrants exercisable to acquire common shares of Granges will
become exercisable to acquire common shares of Vista Gold upon the same terms
and at the same price at which they were originally issued. After giving
effect to the Amalgamation, each outstanding stock option exercisable to
acquire one common share of Da Capo will become exercisable to acquire two
common shares of Vista Gold at one-half of the original exercise price. See
"Description of Vista Gold Corp. - Share Capital".
Approval of The Toronto Stock Exchange and the American Stock Exchange
is required to effect the substitutional listing of the common shares of Vista
Gold to be issued on the Effective Date of the Amalgamation. The common shares
of Granges are listed on The Toronto Stock Exchange and the American Stock
Exchange under the trading symbol "GXL". The Toronto Stock Exchange and the
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<PAGE> 17
American Stock Exchange have preliminarily indicated that they will continue to
list the common shares of Vista Gold after consummation of the Amalgamation
under the trading symbol "VGZ". Prior to the consummation of the Amalgamation,
Granges anticipates that it will file a supplemental listing application to
list the common shares of Vista Gold that Da Capo Shareholders will own
immediately following the consummation of the Amalgamation.
Each common share of Vista Gold will have attached to it one right
issued pursuant to the current Shareholder Protection Rights Agreement ("Rights
Agreement") dated May 1, 1996 between Granges and Montreal Trust Company of
Canada. In accordance with the Rights Agreement, the Amalgamation Agreement
stipulates that Vista Gold will assume all obligations of Granges under the
Rights Agreement.
STOCK MARKET PRICES
The closing price of the common shares of Granges on The Toronto Stock
Exchange and on the American Stock Exchange was Cdn. $2.01 and U.S. $1.56,
respectively, on July 31, 1996, immediately preceding the announcement of the
proposed Amalgamation, and Cdn. $2.13 and U.S. $1.50, respectively, on
September 13, 1996, which was the last day on which the common shares of
Granges traded prior to the approval of the Amalgamation Agreement by the
Boards of Directors of Granges and Da Capo.
The closing price of the common shares of Da Capo on the Vancouver
Stock Exchange was Cdn. $3.90 on July 31, 1996, immediately preceding the first
announcement of the proposed Amalgamation, and Cdn. $3.75 on September 13,
1996, which was the last day on which the common shares of Da Capo traded prior
to the approval of the Amalgamation Agreement by the Boards of Directors of
Granges and Da Capo. See "Comparative Trading History".
INTENTIONS OF SIGNIFICANT SHAREHOLDERS
As of September 15, 1996, the only person known to Granges who
beneficially owns common shares of Granges carrying more than ten percent of
the votes attached to all common shares of Granges was Atlas. Atlas
beneficially owns, directly or indirectly, 12,714,900 common shares of Granges,
which represents 22.8 percent of Granges' outstanding common shares.
As of September 15, 1996, the only person known to Da Capo who
beneficially owns common shares of Da Capo carrying more than ten percent of
the votes attached to all common shares of Da Capo was Ross J. Beaty. Ross J.
Beaty beneficially owns, directly or indirectly through associated companies,
4,421,308 common shares of Da Capo, which represents 27.0 percent of Da Capo's
outstanding common shares.
On August 6, 1996 and August 16, 1996, Mr. Beaty and his associated
companies and Atlas, respectively, entered into separate agreements with
Granges and Da Capo to support and vote in favour of the Amalgamation.
All of the directors and senior officers of Granges and their
associates who hold common shares of Granges have notified Granges that they
intend to vote in favour of the special resolution approving the Amalgamation
at the Granges Meeting.
In addition to Mr. Beaty and his associated companies, all of the
other directors and senior officers of Da Capo and their associates who hold
common shares of Da Capo have notified Da Capo that they intend to vote in
favour of the special resolution approving the Amalgamation at the Da Capo
Meeting.
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<PAGE> 18
BUSINESS STRATEGY OF VISTA GOLD
The merger between Granges and Da Capo is the first step in their
long-term strategy of becoming a mid-size gold producer. Over the next few
years, Granges' plan has been to increase production to between 300,000 and
500,000 ounces of gold per year with an average cash cost of production below
U.S. $200 per ounce and to have reserves and mineral inventory to sustain this
production level for at least eight to ten years. Vista Gold's future
production will be mainly from Latin America and Nevada. Vista Gold's
exploration and development focus will be on gold and growth, and increased
production will be achieved through the development of mineral properties found
through its own exploration program and the acquisition of developed or near
development mineral properties.
Apart from the current expansion of the Brimstone deposit under way at
the Hycroft mine in Nevada, Vista Gold's first expansion in production will be
achieved by the development of the Amayapampa and Capa Circa properties of Da
Capo in Bolivia. These two properties currently have small, ongoing mining and
processing operations and have been subject to drilling and geologic
evaluation. Under Granges' direction, Mine Reserves Associates completed an
independent ore reserve evaluation which demonstrated that Amayapampa contains
proven and probable reserves of approximately 500,000 ounces of gold, contained
in 6.2 million tonnes averaging 2.54 grams of gold per tonne. The total
mineralization at Amayapampa is estimated to be 1.1 million ounces of gold,
contained in 14.3 million tonnes averaging 2.35 grams of gold per tonne. Capa
Circa has limited drilling and some mine development. Reserves at Capa Circa
have not been calculated because of limited information. However, historic
production grades and the continuity of vein structures indicate that a minimum
potential mineral inventory of 1.0 million tonnes at 6.0 grams per tonne
(190,000 ounces) exists. The total mineralization at Capa Circa is estimated
to be 1.1 million ounces of gold, contained in 27.6 million tonnes averaging
1.21 grams of gold per tonne. Four other properties located in various parts
of Bolivia are in the early stages of exploration.
Studies completed by Granges indicate an open pit development on the
Amayapampa ore deposit with a smaller underground development commencing one
year later on the Capa Circa deposit. The ore from both mines would be treated
in a 3,200-tonne-per-day mill using gravity, flotation and cyanide leaching to
achieve gold recoveries of 90 to 92 percent. The operation would produce
approximately 100,000 ounces per year starting in the second year of production
and would have a life of at least nine years. The average operating cash cost
would be U.S. $143 per ounce and the total capital cost would be U.S. $65
million. The estimated pay back, at an assumed price of U.S. $400 per ounce of
gold, would be achieved during the second year of production. As these are
advanced-stage development properties, Granges foresees a seven month final
feasibility period followed by final design and construction over a 15 month
period to result in operations commencing 22 months from completion of the
Amalgamation.
The final feasibility study will involve final definition drilling and
condemnation drilling at Amayapampa, as well as core drilling to obtain pit
slope stability information and drilling to define reserves at Capa Circa.
Reserve estimates will be refined and the final mine design completed.
Metallurgical testing will continue to obtain information for final process
plant design. Studies will be undertaken to finalize processing methodology
and site optimization for facilities. The tailings dam site will be evaluated
and finalized, as will design parameters, resulting in a final design. Final
design will be done on roads, power and communications. Baseline environmental
and socio-economic studies will continue, leading to applications for operating
permits. Upon completion of the final feasibility study and obtaining
financing and all necessary permits and approvals, construction will commence.
The next major expansion of Vista Gold's production is anticipated to
come from the development of the Guariche project in Venezuela. This property
is currently the subject of an option agreement with L.B. Mining Company. The
agreement provides for an option period of not less than five months during
which Granges is to evaluate the reserve potential of the property. If Granges
is satisfied that there is a potential minimum of 500,000 ounces of proven and
probable reserves of gold on the property at the end of the option period,
Granges will acquire the Guariche project and purchase these reserves at U.S.
$30 per ounce.
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<PAGE> 19
The Guariche deposit is estimated to contain 7.8 million tonnes at 2.1
grams of gold per tonne in a mineral inventory which is no deeper than 75
metres from the surface. Granges has completed a prefeasibility study assuming
that these resources are converted into mineable reserves. A prefeasibility
study which examined the open pit development and processing using cyanide
leaching and carbon in pulp extraction estimated that the production cost of
gold from this development would be at an average cost of U.S. $180 per ounce.
The capital cost for the development was estimated to be U.S. $38 million.
Vista Gold will continue to look for appropriate development
opportunities while maintaining an aggressive exploration program on properties
located in Bolivia, Ecuador, Venezuela, the United States and Canada.
SELECTED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF VISTA GOLD
The following table presents selected pro forma consolidated financial
information for Vista Gold prepared to illustrate the effects of the
Amalgamation. Such pro forma financial statements were prepared in accordance
with Canadian generally accepted accounting principles and should be read in
conjunction with the pro forma consolidated balance sheet and consolidated
statements of earnings of Vista Gold, the notes thereto and the compilation
report of Coopers & Lybrand with respect thereto set out in Schedule F to this
Joint Management Information Circular. THE DOLLAR AMOUNTS IN THE FOLLOWING
TABLE ARE IN UNITED STATES DOLLARS.
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<PAGE> 20
VISTA GOLD CORP.
PRO FORMA CONSOLIDATED BALANCE SHEET
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
GRANGES INC. DA CAPO
AS AT RESOURCES LTD.
JUNE 30, 1996 AS AT APRIL 30, 1996 ADJUSTMENTS PRO FORMA
--------------- -------------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,650 $ 1,652 $ 448 (1) $ 5,023
(727)(2)
Cash held as security - 2,001 2,001
Funds held in escrow 18,496 - 18,496
Marketable securities 4 - 4
Accounts receivable and other 3,794 21 3,815
Inventories 16,680 - 16,680
Prepaids and deposits - 17 17
--------- --------- -------- ---------
42,624 3,691 (279) 46,036
INVESTMENT IN ZAMORA GOLD CORP. 3,563 - 3,563
PROPERTY, PLANT AND EQUIPMENT 39,831 15,406 (15,406)(3) 85,939
46,108 (2)
--------- --------- -------- ---------
$ 86,018 $ 19,097 $ 30,423 $ 135,538
========= ========= ======== =========
LIABILITIES
CURRENT LIABILITIES
Bank loan $ - $ 1,351 $ $ 1,351
Accounts payable and accrued liabilities 14,111 181 14,292
Due to related parties - 17 17
--------- --------- --------- ---------
14,111 1,549 Nil 15,660
ACCRUED LIABILITIES - 300 300
PROVISIONS FOR FUTURE RECLAMATION AND 3,699 - 3,699
--------- --------- --------- ---------
CLOSURE COSTS
17,810 1,849 Nil 19,659
SHAREHOLDERS' EQUITY
SHARE CAPITAL 54,398 15,202 448 (1) 102,069
(15,650)(2)
47,671 (2)
SPECIAL WARRANTS 18,505 5,303 (5,303)(2) 18,505
DEFICIT (3,488) (3,257) (15,406)(3) (3,488)
18,663 (2)
CURRENCY TRANSLATION ADJUSTMENT (1,207) - (1,207)
--------- --------- --------- ---------
68,208 17,248 30,423 115,879
--------- --------- --------- ---------
$ 86,018 $ 19,097 $ 30,423 $ 135,538
========= ========= ========= =========
</TABLE>
Notes:
(1) To record the effect of 169,000 common shares issued by Da Capo
subsequent to April 30, 1996 and before July 31, 1996 for consideration
of $448,000.
(2) To record the acquisition of Da Capo using the purchase method of
accounting, including costs of the transaction estimated to be
U.S.$727,000.
(3) To write-off deferred exploration costs capitalized by Da Capo in order
to conform to Granges' accounting policy.
- 17 -
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
GRANGES
The following table sets forth selected historical consolidated
financial and operating information for Granges for the six months ended June
30, 1996 and 1995 and the three years ended December 31, 1995. This
information is based upon, and should be read in conjunction with, the audited
consolidated financial statements of Granges, including notes thereto, set out
in Schedule G to this Joint Management Information Circular. THE DOLLAR
AMOUNTS IN THE FOLLOWING TABLE ARE IN U.S. DOLLARS.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEARS ENDED DECEMBER 31
------------------ --------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(unaudited) (audited)
(thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Working capital $28,514 $28,944 $21,672 $30,460 $21,19
Cash and cash equivalents (and funds 22,146 22,244 15,210 33,045 719,55
held in escrow) 86,018 62,639 64,216 72,444 7
Total assets - 138 - - 60,950
Bank loan 68,208 54,033 54,568 54,568 3,650
Shareholders' equity 48,579
OPERATING RESULTS
Sales
Trout Lake mine (1) n/a n/a n/a 2,386 10,450
Hycroft mine 16,408 21,728 41,294 37,485 30,054
------ ------ ------ ------ ------
16,408 21,728 41,294 39,871 40,504
Results of mining operations
Trout Lake mine (1) n/a n/a n/a (329) 406
Hycroft mine (1,791) 2,597 3,305 2,195 351
------- ----- ----- ----- ---
(1,791) 2,597 3,305 1,866 756
------- ----- ----- ------ -----
-
Net earnings (loss) (4,897) 1,210 2,159 5,117 2,022
Net earnings (loss) per common share (0.11) 0.03 0.05 0.15 0.06
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEARS ENDED DECEMBER 31
--------------- -----------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING STATISTICS
Trout Lake mine (Granges' share) (1)
Cash cost per ton ($) n/a n/a n/a 54 41
Pounds of copper produced (thousands) n/a n/a n/a 1,357 7,375
Pounds of zinc produced (thousands) n/a n/a n/a 6,738 29,869
Ounces of gold produced n/a n/a n/a 2,229 9,973
Proven and probable reserves (thousands of tons) n/a n/a n/a n/a 5,144
Hycroft mine
Cash cost per ounce (US$) (2) 287 273 272 294 281
Ounces of gold produced 39,635 51,360 101,128 94,868 86,516
Proven and probable reserves (millions of tons) n/a n/a 58.8 66.5(3) 56.7
(4)
</TABLE>
Notes:
(1) The joint venture interest of Granges in the Trout Lake mine was
sold effective March 31, 1994.
(2) Direct operating cash costs which is the sum of mining costs
(excluding deferred waste stripping) and
processing and mine administration costs, net of silver credits.
(3) Grading 0.019 ounce of gold per ton, of which 61,133,000 tons at a
grade of 0.019 ounce of gold per ton are proven.
(4) Proven and probable reserves are reported as at December 31 each
year. See Granges' annual report on Form 10-K for the fiscal year
ended December 31, 1995 annexed as Schedule I to this Joint
Management Information Circular.
- 18 -
<PAGE> 22
DA CAPO
The following table sets forth selected historical consolidated
financial data for Da Capo for the three years ended April 30, 1996. This
information is based upon, and should be read in conjunction with, the audited
consolidated financial statements of Da Capo, including notes thereto, set out
in Schedule H to this Joint Management Information Circular. THE DOLLAR
AMOUNTS IN THE FOLLOWING TABLE ARE IN CANADIAN DOLLARS.
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
Expenses
General and administration $ 280,334 $ 360,486 $ 27,022
Professional fees 73,338 105,543 53,044
Filing and transfer fees 12,725 16,734 6,501
Foreign exchange loss (gain) (8,268) (29,881) 35,742
Bank charges, interest and other 2,248 1,511 3,357
Bad debt - - 81,007
----------- ------------ ------------
360,377 454,393 206,673
Interest income 174,407 376,586 562
Gain on sale of subsidiary - 26,121 -
Write-down of deferred charges - - -
----------- ------------ ------------
Net loss for the year (185,970) (51,686 (206,111)
Deficit, beginning of year (4,247,653) (4,195,967 (3,989,856)
----------- ------------ ------------
Deficit, end of year $(4,433,623) $ (4,247,653 $ (4,195,967)
=========== ============ ============
Earnings (loss) per common share $(0.02) $(0.10) $(0.10)
</TABLE>
- 19 -
<PAGE> 23
WHAT A SHAREHOLDER SHOULD DO TO VOTE
HOLDERS OF COMMON SHARES OF GRANGES
Each holder of common shares of Granges should either:
o attend the Granges Meeting to be held on Tuesday, October 22,
1996 at 10:00 a.m. (Vancouver time) in the Tweedsmuir Room at
the Hotel Vancouver, 900 West Georgia Street, Vancouver,
British Columbia; or
o complete the enclosed form of proxy for the Granges Meeting
accompanying this Joint Management Information Circular
(printed on yellow paper) and return the completed form so
that it is received by Montreal Trust Company of Canada, 510
Burrard Street, Vancouver, British Columbia, Canada V6C 3B9,
Attention: Stock and Bond Transfer Department, not less than
48 hours (excluding Saturdays, Sundays and holidays) before
the time set for the holding of the Granges Meeting or any
adjournment thereof.
HOLDERS OF COMMON SHARES OF DA CAPO
Each holder of common shares of Da Capo should either:
o attend the Da Capo Meeting to be held on Tuesday, October 22,
1996 at 11:00 a.m. (Vancouver time) in the Tweedsmuir Room at
the Hotel Vancouver, 900 West Georgia Street, Vancouver,
British Columbia; or
o complete the enclosed form of proxy for the Da Capo Meeting
accompanying this Joint Management Information Circular
(printed on green paper) and return the completed form so that
it is received by Pacific Corporate Trust Company, 830 - 625
Howe Street, Vancouver, British Columbia, Canada V6C 2B8,
Attention: Lisa Scotland not less than 48 hours (excluding
Saturdays, Sundays and holidays) before the time set for the
holding of the Da Capo Meeting or any adjournment thereof.
WHAT A SHAREHOLDER SHOULD DO TO RECEIVE VISTA GOLD SHARE CERTIFICATES
The procedures for Granges Shareholders and Da Capo Shareholders to
surrender their Granges and Da Capo common share certificates and receive Vista
Gold common share certificates in exchange therefor are set out in the Letters
of Transmittal (printed on white paper for Granges Shareholders and printed on
blue paper for Da Capo Shareholders) accompanying this Joint Management
Information Circular. Granges Shareholders and Da Capo Shareholders who have
not received Letters of Transmittal should contact Montreal Trust Company of
Canada ("Montreal Trust") at the address, telephone or facsimile number set out
on the back cover of this Joint Management Information Circular.
Upon receipt by Montreal Trust of a Granges Shareholder's or a Da Capo
Shareholder's properly completed Letter of Transmittal, together with his or
her Granges or Da Capo common share certificates, Montreal Trust will forward
to such shareholders on or as soon as practicable after the Effective Date, the
Vista Gold common share certificates to which such shareholder is entitled.
Once Granges Shareholders and Da Capo Shareholders have surrendered their
Granges and Da Capo common share certificates to Montreal Trust, they will not
be entitled to sell the securities to which those certificates relate.
Granges Shareholders and Da Capo Shareholders who forward properly
completed Letters of Transmittal, together with their respective Granges and Da
Capo common share certificates, prior to the Effective Date will be forwarded
the Vista Gold common share certificates to which they are entitled as soon as
practicable, but, in any event, not later than ten days after the Effective
Date. Montreal Trust will
- 20 -
<PAGE> 24
forward to Granges and Da Capo Shareholders who have deposited their properly
completed Letters of Transmittal, together with their Granges and Da Capo
common share certificates, after the Effective Date the Vista Gold common share
certificates to which they are entitled within ten days following receipt by
Montreal Trust of such letters and share certificates.
Granges Shareholders and Da Capo Shareholders who do not forward to
Montreal Trust properly completed Letters of Transmittal, together with their
Granges and Da Capo common share certificates, will not receive the Vista Gold
common share certificates to which they are otherwise entitled until tender is
made. Whether or not Granges Shareholders or Da Capo Shareholders forward
their respective Granges or Da Capo common share certificates upon completion
of the Amalgamation on the Effective Date, all Granges Shareholders and Da Capo
Shareholders will cease to be shareholders of Granges or Da Capo as of the
Effective Date and will only be entitled to receive the common shares in Vista
Gold Corp. to which they are entitled under the Amalgamation, or in the case of
Granges Shareholders or Da Capo Shareholders who properly exercise a dissent
right, the right to receive the fair value for their Granges or Da Capo common
shares in accordance with the dissent procedures set forth under "The
Amalgamation - Right of Dissent".
No commission will be charged to Granges Shareholders or Da Capo
Shareholders who tender certificates evidencing their respective Granges or Da
Capo common shares according to the instructions set out in the Letters of
Transmittal or who use the services of a member of the soliciting dealer group,
if any.
If the Amalgamation is not completed, all transmitted Granges or Da
Capo common share certificates will be returned forthwith to the Granges
Shareholders or Da Capo Shareholders entitled thereto, without charge.
IT IS RECOMMENDED THAT GRANGES SHAREHOLDERS AND DA CAPO SHAREHOLDERS
COMPLETE AND RETURN THEIR LETTER OF TRANSMITTAL ENCLOSING THEIR RESPECTIVE
GRANGES OR DA CAPO COMMON SHARE CERTIFICATES TO MONTREAL TRUST AS SOON AS
POSSIBLE AFTER THE GRANGES MEETING AND DA CAPO MEETING, BUT IN ANY EVENT PRIOR
TO THE EFFECTIVE DATE. ALL CERTIFICATES REPRESENTING GRANGES OR DA CAPO COMMON
SHARES DEPOSITED WITH MONTREAL TRUST MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE
EFFECTIVE DATE.
- 21 -
<PAGE> 25
CURRENCY EXCHANGE RATES
The exchange rates of the Canadian dollar to the U.S. dollar at the
end of the calendar years 1991 through 1995, and the first nine months of 1996,
and the high, the low and the average exchange rates for each of such periods,
were as follows (such rates, which are expressed in Canadian dollars, being the
noon buying rates for U.S. dollars reported by the Bank of Canada):
<TABLE>
<CAPTION>
1996(1) 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
High $1.3851 $1.4267 $1.4090 $1.3484 $1.2938 $1.1665
Low 1.3531 1.3275 1.3085 1.2400 1.1401 1.1193
Average for Period 1.3675 1.3726 1.3659 1.2898 1.2083 1.1458
End of Period 1.3694 1.3640 1.4018 1.3217 1.2709 1.1555
</TABLE>
(1) Through September 13, 1996. On September 13, 1996, the noon buying
rate for U.S. dollars reported by the Bank of Canada was U.S.$1.00
= Cdn. $1.3694.
GOLD PRICES
The following tables set forth the annual high, low and average
afternoon fixing prices (gold) for the periods indicated:
(London Bullion Market - U.S.$ per ounce)
<TABLE>
<CAPTION>
1996(1) 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
High $415 $396 $396 $406 $360 $403
Low 381 372 370 344 330 344
Average for Period 392 384 384 360 344 362
</TABLE>
(1) Through September 13, 1996. On September 13, 1996, the afternoon
fixing price of gold on the London Bullion Market was U.S.$383 per
ounce.
UNITS OF MEASUREMENT
Conversion rates from Imperial measure to metric and from metric to
Imperial are provided below.
<TABLE>
<CAPTION>
================================================= ================================================
IMPERIAL MEASURE METRIC UNIT METRIC UNIT IMPERIAL MEASURE
------------------------------------------------- ------------------------------------------------
<S> <C> <C> <C>
2.47 acres 1 hectare 0.4047 hectares 1 acre
3.28 feet 1 metre 0.3048 metres 1 foot
0.62 miles 1 kilometre 1.609 kilometres 1 mile
0.032 ounces (troy) 1 gram 31.1 grams 1 ounce (troy)
1.102 tons (short) 1 tonne 0.907 tonnes 1 ton
0.029 ounces (troy)/ton 1 gram/tonne 34.28 grams/tonne 1 ounce (troy)/ton
================================================= ================================================
</TABLE>
- 22 -
<PAGE> 26
GENERAL PROXY INFORMATION
GRANGES INC.
SOLICITATION OF PROXIES
This Joint Management Information Circular is furnished in connection
with the solicitation BY THE MANAGEMENT OF GRANGES of proxies to be voted at
the Granges Meeting to be held in the Tweedsmuir Room at the Hotel Vancouver,
900 West Georgia Street, Vancouver, British Columbia, Canada on Tuesday,
October 22, 1996 at 10:00 a.m. (Vancouver time), for the following purposes:
(a) to consider and, if thought appropriate, to pass a special
resolution of the Granges Shareholders approving the
Amalgamation Agreement dated September 16, 1996 between
Granges and Da Capo Resources Ltd. (the full text of the
proposed special resolution is set out in Schedule B to this
Joint Management Information Circular);
(b) to consider any amendment to or variations of any matters
identified in the Notice of the Granges Meeting; and
(c) to transact all such other business as may properly come
before the Granges Meeting or any adjournment or adjournments
thereof.
The solicitation for proxies will be conducted by mail and may be
supplemented by telephone or other personal contact to be made without special
compensation by directors, officers and employees of Granges or by Granges'
registrar and transfer agent. GRANGES MAY RETAIN OTHER PERSONS OR COMPANIES TO
SOLICIT PROXIES ON BEHALF OF MANAGEMENT, IN WHICH EVENT CUSTOMARY FEES FOR SUCH
SERVICES WILL BE PAID. ALL COSTS OF SOLICITATION WILL BE BORNE BY GRANGES.
APPOINTMENT OF PROXYHOLDER
The persons named in the enclosed form of proxy for the Granges
Meeting are directors or officers of Granges and are nominees of management. A
GRANGES SHAREHOLDER HAS THE RIGHT TO APPOINT SOME OTHER PERSON, WHO NEED NOT BE
A GRANGES SHAREHOLDER, TO REPRESENT SUCH SHAREHOLDER AT THE GRANGES MEETING BY
STRIKING OUT THE NAMES OF THE PERSONS DESIGNATED IN THE ACCOMPANYING FORM OF
PROXY AND BY INSERTING THAT OTHER PERSON'S NAME IN THE BLANK SPACE PROVIDED.
IF A GRANGES SHAREHOLDER APPOINTS ONE OF THE PERSONS DESIGNATED IN THE
ACCOMPANYING FORM OF PROXY AS A NOMINEE AND DOES NOT DIRECT THE SAID NOMINEE TO
VOTE EITHER FOR OR AGAINST OR WITHHOLD FROM VOTING ON A MATTER OR MATTERS WITH
RESPECT TO WHICH AN OPPORTUNITY TO SPECIFY HOW THE SHARES REGISTERED IN THE
NAME OF SUCH GRANGES SHAREHOLDER SHALL BE VOTED, THE PROXY SHALL BE VOTED FOR
SUCH MATTER OR MATTERS.
The instrument appointing a proxyholder must be in writing signed by
the Granges Shareholder, or such shareholder's attorney authorized in writing.
If the Granges Shareholder is a corporation, the instrument appointing a
proxyholder must be in writing signed by an officer or attorney of the
corporation duly authorized by resolution of the directors of such corporation,
which resolution must accompany such instrument. An instrument of proxy will
only be valid if it is duly completed, signed, dated and received at the office
of Granges' registrar and transfer agent, Montreal Trust Company of Canada, 510
Burrard Street, Vancouver, British Columbia, V6C 3B9, Attention: Stock and Bond
Transfer Department, not less than 48 hours (excluding Saturdays, Sundays and
holidays) before the time set for the holding of the Granges Meeting or any
adjournments thereof) unless the Chairman of the Granges Meeting elects to
exercise his discretion to accept proxies received subsequently.
- 23 -
<PAGE> 27
REVOCATION OF PROXY
A Granges Shareholder may revoke a proxy by delivering an instrument
in writing executed by such shareholder or by attorney authorized in writing
or, where the Granges Shareholder is a corporation, by a duly authorized
officer or attorney of the corporation, either to the registered office of
Granges at 709 - 700 West Pender Street, Vancouver, British Columbia, Canada
V6C 1G8, Attention: Nancy A. Larson, Corporate Secretary/Manager Investor
Relations, at any time up to and including the last business day preceding the
day of the Granges Meeting, or any adjournment thereof, or with the Chairman of
the Granges Meeting on the day of the Granges Meeting, or any adjournment
thereof, before any vote in respect of which the proxy is to be used shall have
been taken. A Granges Shareholder may also revoke a proxy by depositing
another properly executed instrument appointing a proxyholder bearing a later
date in the manner described above, or in any other manner permitted by law.
VOTING OF PROXIES
A Granges Shareholder may direct the matter in which his or her shares
are to be voted by marking the form of proxy accordingly. If the instructions
in a proxy given to management are certain, the common shares represented by
such proxy will be voted on a poll and where a choice with respect to the
Granges Resolution has been specified in the proxy, the shares will be voted on
any poll in accordance with the specifications so made. WHERE NO CHOICE IS SO
SPECIFIED OR IN THE ABSENCE OF CERTAIN INSTRUCTIONS, THE COMMON SHARES
REPRESENTED BY A PROXY GIVEN TO MANAGEMENT WILL BE VOTED FOR THE GRANGES
RESOLUTION. IF MORE THAN ONE DIRECTION IS MADE WITH RESPECT TO THE GRANGES
RESOLUTION, SUCH COMMON SHARES WILL SIMILARLY BE VOTED FOR THE GRANGES
RESOLUTION.
EXERCISE OF DISCRETION BY PROXYHOLDERS
The enclosed form of proxy confers discretionary authority upon the
proxyholders named therein with respect to amendments or variations to matters
identified in the Notice of the Granges Meeting and other matters not so
identified which may properly be brought before the Granges Meeting. At the
date of this Joint Management Information Circular, the management of Granges
knows of no such amendments, variations or other matters to come before the
Granges Meeting. If any other matter comes before the Granges Meeting, the
persons named in the proxy will vote in accordance with their judgment on such
matter.
SECURITIES ENTITLED TO VOTE
The authorized share capital of Granges is 1,500,000,000 shares
without par value divided into 750,000,000 common shares, of which 55,881,461
common shares are issued and outstanding as of the date hereof, and 750,000,000
preferred shares, of which none are issued. The Board of Directors of Granges
has fixed the close of business on September 17, 1996 as the record date for
the purpose of determining the Granges Shareholders entitled to receive Notice
of the Granges Meeting, but the failure of any Granges Shareholder to receive a
Notice of the Granges Meeting does not deprive such Granges Shareholder of the
entitlement to vote at the Granges Meeting.
DA CAPO RESOURCES LTD.
SOLICITATION OF PROXIES
This Information Circular is furnished in connection with the
solicitation by the MANAGEMENT OF DA CAPO of proxies to be voted at the Da Capo
Meeting to be held in the Tweedsmuir Room at the Hotel Vancouver, 900 West
Georgia Street, Vancouver, British Columbia, Canada on Tuesday, October 22,
1996 at 11:00 a.m. (Vancouver time), for the following purposes:
- 24 -
<PAGE> 28
(a) to consider and, if thought appropriate, to pass a special
resolution of the Da Capo Shareholders approving the
Amalgamation Agreement dated September 16, 1996 between
Granges and Da Capo (the full text of the proposed special
resolution is set out in Schedule C to this Joint Management
Information Circular);
(b) to consider any amendment to or variations of any matters
identified in the notice of the Da Capo Meeting; and
(c) to transact all such other business as may properly come
before the Da Capo Meeting or any adjournment or adjournments
thereof.
The solicitation for proxies will be conducted by mail and may be
supplemented by telephone or other personal contact to be made without special
compensation by directors, officers and employees of Da Capo or by Da Capo's
registrar and transfer agent. DA CAPO MAY RETAIN OTHER PERSONS OR COMPANIES TO
SOLICIT PROXIES ON BEHALF OF MANAGEMENT, IN WHICH EVENT CUSTOMARY FEES FOR SUCH
SERVICES WILL BE PAID. ALL COSTS OF SOLICITATION WILL BE BORNE BY DA CAPO.
APPOINTMENT OF PROXYHOLDER
The persons named in the enclosed form of proxy for the Da Capo
Meeting are directors or officers of Da Capo and are nominees of management. A
DA CAPO SHAREHOLDER HAS THE RIGHT TO APPOINT SOME OTHER PERSON, WHO NEED NOT BE
A DA CAPO SHAREHOLDER, TO REPRESENT SUCH SHAREHOLDER AT THE DA CAPO MEETING BY
STRIKING OUT THE NAMES OF THE PERSONS DESIGNATED IN THE ACCOMPANYING FORM OF
PROXY AND BY INSERTING THAT OTHER PERSON'S NAME IN THE BLANK SPACE PROVIDED.
IF A DA CAPO SHAREHOLDER APPOINTS ONE OF THE PERSONS DESIGNATED IN THE
ACCOMPANYING FORM OF PROXY AS A NOMINEE AND DOES NOT DIRECT THE SAID NOMINEE TO
VOTE EITHER FOR OR AGAINST OR WITHHOLD FROM VOTING ON A MATTER OR MATTERS WITH
RESPECT TO WHICH AN OPPORTUNITY TO SPECIFY HOW THE SHARES REGISTERED IN THE
NAME OF SUCH DA CAPO SHAREHOLDER SHALL BE VOTED, THE PROXY SHALL BE VOTED FOR
SUCH MATTER OR MATTERS.
The instrument appointing a proxyholder must be signed in writing by
the Da Capo Shareholder, or such shareholder's attorney authorized in writing.
If the Da Capo Shareholder is a corporation, the instrument appointing a
proxyholder must be in writing signed by an officer or attorney of the
corporation duly authorized by resolution of the directors of such corporation,
which resolution must accompany such instrument. An instrument of proxy will
only be valid if it is duly completed, signed, dated and received at the office
of Da Capo's registrar and transfer agent, Pacific Corporate Trust Company, 830
- - 625 Howe Street, Vancouver, British Columbia, Canada V6C 2B8, Attention:
Lisa Scotland, not less than 48 hours (excluding Saturdays, Sundays and
holidays) before the time set for the holding of the Da Capo Meeting or any
adjournments thereof, unless the Chairman of the Da Capo Meeting elects to
exercise his discretion to accept proxies received subsequently.
REVOCATION OF PROXY
A Da Capo Shareholder may revoke a proxy by delivering an instrument
in writing executed by such shareholder or by such shareholder's attorney
authorized in writing or, where the Da Capo Shareholder is a corporation, by a
duly authorized officer or attorney of the corporation, either to the
registered office of Da Capo at 700 - 625 Howe Street, Vancouver, British
Columbia, Canada V6C 2T6, Attention: Gordon Jang, Secretary, at any time up to
and including the last business day preceding the day of the Da Capo Meeting,
or any adjournment thereof, or with the Chairman of the Da Capo Meeting on the
day of the Da Capo Meeting, or any adjournment thereof, before any vote in
respect of which the proxy is to be used shall have been taken. A Da Capo
Shareholder may also revoke an instrument appointing a proxyholder by
depositing another properly executed instrument appointing a proxyholder
bearing a later date in the manner described above, or in any other manner
permitted by law.
- 25 -
<PAGE> 29
VOTING OF PROXIES
A Da Capo Shareholder may direct the matter in which his or her common
shares are to be voted by marking the form of proxy accordingly. If the
instructions in a proxy given to management are certain, the common shares
represented by such proxy will be voted on a poll and where a choice with
respect to the Da Capo Resolution has been specified in the proxy, the common
shares will be voted on a poll in accordance with the specifications so made.
WHERE NO CHOICE IS SO SPECIFIED OR IN THE ABSENCE OF CERTAIN INSTRUCTIONS, THE
COMMON SHARES REPRESENTED BY A PROXY GIVEN TO MANAGEMENT WILL BE VOTED FOR THE
DA CAPO RESOLUTION. IF MORE THAN ONE DIRECTION IS MADE WITH RESPECT TO THE DA
CAPO RESOLUTION, SUCH COMMON SHARES WILL SIMILARLY BE VOTED FOR THE DA CAPO
RESOLUTION.
EXERCISE OF DISCRETION BY PROXYHOLDERS
The enclosed form of proxy confers discretionary authority upon the
proxyholders named therein with respect to amendments or variations to matters
identified in the Notice of the Da Capo Meeting and other matters not so
identified which may properly be brought before the Da Capo Meeting. At the
date of this Joint Management Information Circular, the management of Da Capo
knows of no such amendments, variations or other matters to come before the Da
Capo Meeting. If any other matter comes before the Da Capo Meeting, the
persons named in the proxy will vote in accordance with their judgment on such
matter.
SECURITIES ENTITLED TO VOTE
The authorized share capital of Da Capo is 100,000,000 common shares
without par value of which 16,384,472 common shares are issued and outstanding.
See "Da Capo Resources Ltd. - Share Capital". The Board of Directors of Da
Capo has fixed the close of business on September 17, 1996 as the record date
for the purpose of determining the Da Capo Shareholders entitled to receive
notice of the Da Capo Meeting, but the failure of any Da Capo Shareholder to
receive Notice of the Da Capo Meeting does not deprive such Da Capo Shareholder
of the entitlement to vote at the Da Capo Meeting.
THE AMALGAMATION
TERMS OF THE AMALGAMATION
The Amalgamation of Granges and Da Capo will be effected in accordance
with the Amalgamation Agreement dated September 16, 1996 between Granges and Da
Capo (collectively the "Amalgamating Companies"). The text of the Amalgamation
Agreement is annexed as Schedule A to this Joint Management Information
Circular.
Under the Amalgamation Agreement, Granges and Da Capo will amalgamate
pursuant to the Company Act and continue as one company under the name "Vista
Gold Corp." with an executive office at Suite 3000, 370 Seventeenth Street,
Denver, Colorado, U.S.A. 80202 and with a registered and records office at 709
- - 700 West Pender Street, Vancouver, British Columbia, Canada V6C 1G8. The
property of the Amalgamating Companies will continue to be the property of
Vista Gold, which will continue to be liable for the debts, liabilities and
obligations of each of Granges and Da Capo. The Amalgamating Companies will
request of the Registrar of Companies for British Columbia that the
Amalgamation be effective on November 1, 1996.
On the Effective Date the outstanding common shares of each of Granges
and Da Capo will be exchanged or cancelled on the following basis:
(1) each issued and outstanding common share of Granges shall be
exchanged for one common share of Vista Gold;
- 26 -
<PAGE> 30
(2) each issued and outstanding common share of Da Capo shall be
exchanged for two common shares of Vista Gold; and
(3) each authorized but unissued common share and preferred share
of Granges and authorized but unissued common share of Da Capo
shall be cancelled.
No fractional shares of Vista Gold will be issued.
After the Amalgamation, the current Granges Shareholders will hold
63.0 percent of Vista Gold's outstanding share capital (66.3 percent on a fully
diluted basis) and the current Da Capo Shareholders will hold 37.0 percent of
Vista Gold's outstanding share capital (33.7 percent on a fully diluted basis).
Following the Effective Date of the Amalgamation, each Granges
Shareholder and Da Capo Shareholder will receive certificates representing the
number of common shares of Vista Gold to which each such shareholder is
entitled, after they have completed and returned a copy of the Letter of
Transmittal (printed on white paper for Granges Shareholders and printed on
blue paper for Da Capo Shareholders) which accompanies this Joint Management
Information Circular, together with the certificates representing such Granges
or Da Capo common shares to Montreal Trust Company of Canada, 510 Burrard
Street, Vancouver, British Columbia, V6C 3B9, Attention: Stock and Bond
Transfer Department. See "What a Shareholder Should do to Receive Vista Gold
Share Certificates." Until an exchange of certificates is effected,
certificates representing Granges and Da Capo common shares will be deemed to
represent the appropriate number of common shares of Vista Gold to be received
in exchange for such certificates.
BACKGROUND TO AND REASONS FOR THE AMALGAMATION
Following extensive discussions and negotiations between management of
Granges and Da Capo, on July 31, 1996 the Boards of Directors of Granges and Da
Capo each unanimously approved the amalgamation of Granges and Da Capo to
create a single corporate entity on the terms set out above, subject to
shareholder, court and regulatory approval, the receipt of support agreements
to vote in favour of the Amalgamation from Atlas, the principal shareholder of
Granges, and Ross J. Beaty and his associated companies, the principal
shareholders of Da Capo, Granges and Da Capo entering into a definitive
agreement for the amalgamation and the satisfactory completion of due diligence
by both Granges and Da Capo. The underlying reason for the proposed
amalgamation was that a variety of benefits would result from the Amalgamation
although the impact of each may vary for each company. Those benefits include:
o increased gold production, from an initial level of 100,000
ounces of gold production per year from the Hycroft mine in
Nevada which is expected to increase up to approximately
300,000 ounces of gold production per year by 1999 with the
development of new mines located in Bolivia and Venezuela;
o lower gold production costs, from current cash production
costs of U.S. $287 per ounce which are expected to decline to
an average cash production cost below U.S. $200 per ounce by
1999;
o increased proven and probable reserves of 1.5 million ounces
and increased gold mineralization totalling 4.4 million
ounces;
o a more diverse portfolio of exploration properties, combining
Granges' exploration prospects in the United States, Canada,
Venezuela and Ecuador with Da Capo's exploration prospects in
Bolivia;
o more exposure to potential investment opportunities through
Vista Gold's greater size, geographical diversity and
financial strength;
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o enhanced management depth and diversity, with management of
Vista Gold consisting of the current management team of
Granges, augmented by the addition of Ross J. Beaty, the
current president of Da Capo, as Vice Chairman of Vista Gold
and the addition of members of Da Capo's geological team in
Bolivia as employees or consultants of Vista Gold;
o a strong balance sheet, with approximately U.S. $27.0 million
in working capital and no long term debt, which will
facilitate the development of the Amayapampa-Capa Circa
project in Bolivia and the Guariche project in Venezuela and
allow an active search for other investment opportunities;
o increased market capitalization, which will permit Vista Gold
to qualify for short form prospectus offerings in Canada and
will enhance access to equity and debt markets for financing;
and
o larger stock market float and potential enhancement of trading
liquidity relative to the current float and liquidity of
Granges and Da Capo as separate companies.
TERMS OF THE DEFINITIVE AGREEMENT
Following completion of Granges' and Da Capo's due diligence review
and the receipt of support agreements to vote in favour of the Amalgamation
from Atlas on August 16, 1996 and from Mr. Beaty and his associated companies
on August 6, 1996, Granges and Da Capo entered into the Definitive Agreement on
August 16, 1996.
Under the terms of the Definitive Agreement, the implementation of the
Amalgamation is subject to the satisfaction, waiver or release from mutual
conditions precedent and conditions precedent in favour of each of Granges and
Da Capo as set out in the Definitive Agreement prior to the Effective Date and
subject to termination in certain circumstances set out in the Definitive
Agreement.
The mutual conditions precedent are: (a) receipt of approval of the
Amalgamation from shareholders and creditors of Granges and Da Capo; (b) all
material consents and approvals legally required for the consummation of the
Amalgamation, including required approvals of securities regulatory authorities
and the Court order approving the Amalgamation, being obtained or filed; (c) no
statute, rule, regulation, order, decree or injunction being enacted, entered,
promulgated or enforced by any court or government entity which enjoins or
prohibits the consummation of the Amalgamation; (d) no action, proceeding or
other application before any court or governmental entity being threatened or
pending, challenging or seeking to restrain or prohibit the consummation of the
Amalgamation, seeking to obtain any material damages from Granges or Da Capo,
seeking to prohibit or impose any material limitations on Granges' or Da Capo's
ownership or operation of all or any material portion of its business or
assets, or seeking to compel Granges or Da Capo to dispose of or hold separate
all or any material portion of Granges' or Da Capo's business or assets, as a
result of the transactions contemplated by the Definitive Agreement; and (e)
Vista Gold expressly assuming the performance and observance of all covenants
and conditions to be performed and observed by Granges under the Shareholder
Protection Rights Agreement (the "Rights Agreement") dated as of May 1, 1995
between Granges and Montreal Trust.
The conditions precedent in favour of Granges are: (a) the
representations and warranties of Da Capo set forth in the Definitive Agreement
being true and correct in all material respects as of the Effective Date; (b)
performance by Da Capo of all its obligations under the Definitive Agreement
prior to the Effective Date; (c) no representation and warranty of Ross J.
Beaty or his associates contained in their support agreement being untrue as at
the Effective Date; and (d) Mr. David A. O'Connor transferring his 20 percent
interest in Sociedad Industrial Minera Yamin Ltda. to a nominee of Granges.
The conditions precedent in favour of Da Capo are: (a) the
representations and warranties of Granges in the Definitive Agreement being
true and correct in all material respects as of the Effective
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Date; (b) performance by Granges of all of its obligations under the Definitive
Agreement; and (c) no representation and warranty of Atlas contained in its
support agreement being untrue as at the Effective Date.
The Definitive Agreement may be terminated at any time prior to the
Effective Date as follows:
(a) by mutual consent of Granges and Da Capo;
(b) by either Granges or Da Capo, if there has been a material
breach of any representation, warranty, covenant or agreement
contained in the Definitive Agreement on the part of the other
party, and such breach has not been cured, or best efforts are
not being employed to cure such breach, within 10 days after
notice is given to the party committing such breach;
(c) by either Granges or Da Capo, if the Amalgamation has not been
consummated on or before December 31, 1996;
(d) by either Granges or Da Capo, if the Amalgamation has not been
approved by the Granges Shareholders, the Da Capo Shareholders
or the Court on or before December 31, 1996;
(e) by either Granges or Da Capo, if the conditions to its
obligation to complete the Amalgamation shall have become
impossible to satisfy or any permanent injunction or other
order of a court or other competent authority preventing the
Amalgamation shall have become final and non-appealable;
(f) by Granges, if the Board of Directors of Da Capo shall have
withdrawn or modified in any manner adverse to Granges its
approval of the Definitive Agreement or the transactions
contemplated thereunder or its approval or recommendation to
Da Capo Shareholders in favour of the Amalgamation;
(g) by either Granges or Da Capo, if the holders of more than five
percent of the outstanding Granges common shares have
exercised rights of dissent in connection with the
Amalgamation which have not been withdrawn;
(h) by Da Capo, if the Board of Directors of Granges shall have
withdrawn or modified in any manner adverse to Da Capo its
approval of the Definitive Agreement or the transactions
contemplated thereby or its approval or recommendation to
Granges Shareholders in favour of the Amalgamation; or
(i) by either Granges or Da Capo, if the holders of more than five
percent of the outstanding Da Capo common shares have
exercised rights of dissent in connection with the
Amalgamation which have not been withdrawn.
The Definitive Agreement also provides that if the Granges
Shareholders fail to approve the Granges Resolution or the Amalgamation fails
to complete on or before December 31, 1996 as a result of fault on the part of,
or anything within the control of, Granges, then Granges is required to pay
U.S. $250,000 to Da Capo.
GRANGES BOARD OF DIRECTORS REVIEW AND RECOMMENDATION
Goepel Shields was formally engaged on September 12, 1996, with effect
from June 1, 1996, as financial advisor to the Board of Directors of Granges,
to advise and assist the Board of Directors in its review of the terms of the
Amalgamation. The Board of Directors of Granges has reviewed in detail the
basis for the Amalgamation, the Definitive Agreement, the Goepel Shields
Fairness Opinion dated
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<PAGE> 33
September 16, 1996 and the support agreement dated August 16, 1996 under which
Granges' 22.8 percent shareholder, Atlas, agreed to vote in favour of the
Amalgamation. Based on this review and its consideration of additional issues,
the Board of Directors of Granges determined that the terms of the Amalgamation
are in the best interest of Granges and are fair and reasonable to the Granges
Shareholders. Accordingly, the Board of Directors of Granges has unanimously
approved the Amalgamation, the Amalgamation Agreement and this Joint Management
Information Circular and its submission to the Granges Shareholders for
approval at the Granges Meeting. Subsequent to the approval of the
Amalgamation by the Board of Directors of Granges, the Amalgamation Agreement
was entered into by Granges and Da Capo.
THE BOARD OF DIRECTORS OF GRANGES UNANIMOUSLY RECOMMENDS THAT THE
GRANGES SHAREHOLDERS VOTE IN FAVOUR OF THE AMALGAMATION.
In arriving at their conclusions, the Board of Directors of Granges
considered, among other matters:
(a) information with respect to the financial condition, business
and operations of each of Granges and Da Capo, on both an
historical and prospective basis, including information in
respect of Vista Gold on a pro forma basis. See "Schedule F -
Pro Forma Consolidated Financial Statements of Vista Gold";
(b) information with respect to the properties of each of Granges
and Da Capo that are in production, under development or under
exploration. See "Granges Inc." and "Da Capo Resources Ltd. -
Properties";
(c) historical information regarding the trading price of the
common shares of Granges on The Toronto Stock Exchange and the
American Stock Exchange and the trading price of the common
shares of Da Capo on the Vancouver Stock Exchange. See
"Comparative Trading History";
(d) the benefits to Granges and the Granges Shareholders described
under "Background to and Reasons for the Amalgamation";
(e) the detailed provisions of the Definitive Agreement and the
Amalgamation Agreement;
(f) the procedures pursuant to which the Amalgamation is to be
approved as described under "Conditions of the Amalgamation";
(g) advice received from Goepel Shields;
(h) the Goepel Shields Fairness Opinion, including the matters
referred to therein;
(i) the tax treatment of Granges Shareholders under the
Amalgamation. See "Income Tax Considerations";
(j) the rights of appraisal and dissent available to the Granges
Shareholders with respect to the Amalgamation as described
under "Right of Dissent";
(k) the eligibility for investment under certain statutes in the
common shares of Vista Gold as described under "Description of
Vista Gold - Eligibility for Investment";
(l) the risk factors relating to Da Capo as described under "Risk
Factors"; and
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<PAGE> 34
(m) the agreement dated August 16, 1996 among Da Capo, Granges and
Atlas, under which Atlas agreed to support and vote in favour
of the Amalgamation as described under "Intentions of
Significant Shareholders".
GOEPEL SHIELDS FAIRNESS OPINION
Goepel Shields first met with representatives of Granges to discuss a
potential business combination of Granges with Da Capo in June 1996. Goepel
Shields was formally engaged on September 12, 1996, with effect from June 1,
1996, as financial advisor to Granges and the Board of Directors of Granges and
to provide an opinion on the fairness of the terms of the Amalgamation to
Granges Shareholders from a financial point of view. Goepel Shields is an
independent Canadian investment firm specializing in corporate finance services
for, and the sale and trading of equity securities of, resource and industrial
companies headquartered in western Canada. Goepel Shields also provides
investment research and trading services to financial institutions. Goepel
Shields and its principals have prepared numerous valuations and fairness
opinions and have participated in a significant number and variety of
transactions involving private and publicly traded companies.
Under the terms of its engagement, Goepel Shields will receive a fee
for acting as financial advisor and for preparing the Goepel Shields Fairness
Opinion, a portion of which is contingent upon successful completion of the
Amalgamation. Granges has also agreed to reimburse Goepel Shields for its
reasonable out-of-pocket expenses and to indemnify Goepel Shields in certain
circumstances. Goepel Shields is not an insider, associate or affiliate (as
such terms are defined in the Securities Act (British Columbia)) of either the
Amalgamating Companies or their affiliates or associates.
In preparing the Goepel Shields Fairness Opinion, Goepel Shields
reviewed and relied upon, in part, the agreements and documents relevant to the
Amalgamation, financial statements and reports to shareholders of both Da Capo
and Granges, certain internal financial information, projections and forecasts
prepared by Granges and Da Capo and their respective managements, discussions
with senior management of Granges and Da Capo and their respective auditors and
legal advisors, information with respect to ore reserves and mineral
inventories of Granges and Da Capo, information with respect to other
transactions of a comparable nature, current and historical market trading
information relating to the common shares of Granges and Da Capo and such other
industry, corporate, economic and market data, and such other investigations
and financial analysis, as Goepel Shields considered necessary or appropriate
in the circumstances.
Goepel Shields did not, for the purpose of its analysis, prepare a
formal valuation of either Granges or Da Capo. In the preparation of the
Goepel Shields Fairness Opinion, it placed emphasis on stock market trading
prices of Granges and Da Capo relative to each other and on the net asset value
approach whereby estimates of value for the assets and liabilities for each of
Granges and Da Capo were determined in the aggregate and on a per share basis
using assumptions which were considered consistent and appropriate for each of
the Amalgamating Companies. Goepel Shields also considered other approaches
commonly used to compare publicly traded gold companies in the development
and/or production stage such as adjusted stock market capitalization per ounce
of annual production, adjusted stock market capitalization per ounce of
recoverable reserves and total cost of production. Goepel Shields also
considered certain qualitative aspects of the Amalgamation, including a
comparison of the attributes of Granges on a stand alone basis with those of
Vista Gold subsequent to completion of the Amalgamation. In its net asset
value approach, Goepel Shields derived a range of relative values for the
common shares of Granges and the common shares of Da Capo which are consistent
with the share exchange ratios under the terms of the Amalgamation Agreement.
Goepel Shields also considered other factors relevant to the Granges
Shareholders before and after giving effect to the Amalgamation including:
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<PAGE> 35
(a) Vista Gold's much larger market capitalization and float which
should result in an enhanced stock market trading liquidity;
(b) as a result of its experience in operating the Hycroft mine,
Granges has developed an experienced mining team with
expertise in operating open pit mines at low costs which will
be available to develop and operate a mine at the
Amayapampa-Capa Circa project in Bolivia;
(c) Da Capo will provide Vista Gold with an established
infrastructure in Bolivia including experienced administrative
and exploration teams;
(d) Da Capo will provide Vista Gold with a portfolio of
prospective exploration properties in Bolivia providing Vista
Gold with the potential to expand its operating base in
Bolivia;
(e) upon completion of the Amalgamation, Vista Gold will have one
operating mine producing approximately 100,000 ounces of gold
per year, one project at the feasibility stage and a second
advanced project under due diligence review. As a result,
Granges expects Vista Gold to have annual gold production
approaching 300,000 ounces by 1999 with overall cash
production costs below U.S.$200 per ounce; and
(f) Vista Gold will be well financed with working capital of
approximately U.S.$27 million and no long term debt.
Based upon its review, Goepel Shields concluded that the terms of the
Amalgamation are fair, from a financial point of view, to Granges Shareholders.
The Goepel Shields Fairness Opinion is to be considered in its
entirety. Consideration of only selected portions would likely be misleading
and omit important parts of the process and supporting assumptions used to
arrive at the fairness opinion. GRANGES SHAREHOLDERS ARE URGED TO READ THE
GOEPEL SHIELDS FAIRNESS OPINION CAREFULLY AND IN ITS ENTIRETY. A copy of the
Goepel Shields Fairness Opinion is set out in Schedule D to this Joint
Management Information Circular.
DA CAPO BOARD OF DIRECTORS REVIEW AND RECOMMENDATIONS
Salman Partners was engaged on August 16, 1996 as financial advisor to
the Board of Directors of Da Capo to advise and assist the Board of Directors
in its review of the terms of the Amalgamation. The members of the Board of
Directors of Da Capo held numerous formal and informal meetings between
mid-June, 1996 and September 16, 1996 to review the terms of the Amalgamation.
The Board of Directors of Da Capo has reviewed in detail the basis for the
Amalgamation, the Definitive Agreement, the Salman Partners Fairness Opinion
dated September 16, 1997 and the agreement dated August 6, 1996 under which Da
Capo's 27.0 percent shareholder, Ross J. Beaty and his associated companies,
agreed to vote in favour of the Amalgamation. Based on this review and its
consideration of additional issues set out below, the Board of Directors of Da
Capo determined that the terms of the Amalgamation are in the best interest of
Da Capo and are fair and reasonable to the Da Capo Shareholders. Accordingly,
the Board of Directors of Da Capo has unanimously approved the Amalgamation,
the Amalgamation Agreement and this Joint Management Information Circular and
its submission to the Da Capo Shareholders for approval at the Da Capo Meeting.
Subsequent to the approval of the Amalgamation by the Board of Directors of Da
Capo, the Amalgamation Agreement was entered into by Granges and Da Capo.
THE BOARD OF DIRECTORS OF DA CAPO UNANIMOUSLY RECOMMENDS THAT THE DA
CAPO SHAREHOLDERS VOTE IN FAVOUR OF THE SPECIAL RESOLUTION APPROVING THE
AMALGAMATION AT THE DA CAPO MEETING.
In arriving at their conclusions, the Board of Directors of Da Capo
considered, among other matters:
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<PAGE> 36
(a) information with respect to the financial condition, business
and operations of each of Da Capo and Granges, on both an
historical and prospective basis, including information in
respect of Vista Gold on a pro forma basis. See Schedule F -
Pro Forma Consolidated Financial Statements of Vista Gold;
(b) information with respect to the properties of each of Da Capo
and Granges that are in production, under development or under
exploration. See "Da Capo Resources Ltd. - Business of Da
Capo" and "Granges Inc.";
(c) historical information regarding the trading price of the
common shares of Da Capo on the Vancouver Stock Exchange and
the trading price of the common shares of Granges on The
Toronto Stock Exchange and the American Stock Exchange. See
"Comparative Trading History";
(d) the benefits to Da Capo and the Da Capo Shareholders described
herein under the heading "Background to and Reasons for the
Amalgamation";
(e) the detailed provisions of the Definitive Agreement and the
Amalgamation Agreement;
(f) the procedures pursuant to which the Amalgamation is to be
approved as described herein under the heading "Conditions of
the Amalgamation";
(g) advice received from Salman Partners;
(h) the Salman Partners Fairness Opinion, including the matters
referred to therein;
(i) the tax treatment of Da Capo Shareholders under the
Amalgamation. See "Income Tax Considerations";
(j) the rights of appraisal and dissent available to the Da Capo
Shareholders with respect to the Amalgamation as described
under "Right of Dissent";
(k) the eligibility for investment under certain statutes in the
common shares of Vista Gold as described under "Description of
Vista Gold - Eligibility for Investment";
(l) the risk factors relating to Granges as described under "Risk
Factors";
(m) the requirement, under the Definitive Agreement, for Granges
to pay U.S. $250,000 to Da Capo if the Granges Shareholders
fail to approve the Granges Resolution or the Amalgamation
fails to complete on or before December 31, 1996 as a result
of fault on the part of, or anything within the control of,
Granges; and
(n) the agreement dated August 6, 1996 between Granges, Da Capo
and Da Capo's 27.0 percent shareholder, Ross J. Beaty and his
associated companies, under which Mr. Beaty and his associated
companies agreed to support and vote in favour of the
Amalgamation as described under "Intentions of Significant
Shareholders".
SALMAN PARTNERS FAIRNESS OPINION
Salman Partners Inc. was retained by the Board of Directors of Da Capo
on August 16, 1996 to provide an opinion on the fairness, from a financial
point of view, of the terms of the Amalgamation to the Da Capo Shareholders.
Salman Partners is a full service investment dealer headquartered in
Vancouver, British Columbia and registered as a full service dealer in the
provinces of British Columbia and Ontario. Salman Partners
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<PAGE> 37
is not affiliated with any financial institution and is a member of The Toronto
Stock Exchange, the Vancouver Stock Exchange, the Investment Dealers
Association of Canada, the Canadian Investor Protection Fund and the Canadian
Depository of Securities. Salman Partners provides its clients with a wide
range of services including corporate finance, mergers, acquisitions and
financial advisory services, institutional equity sales and trading and equity
research. Da Capo has agreed to pay Salman Partners a fee for its services in
providing the Salman Partners Fairness Opinion and to reimburse Salman Partners
for its reasonable out-of-pocket expenses.
The fee payable to Salman Partners is not contingent in whole or in
part upon the outcome of the Amalgamation, and Salman Partners has no financial
interest in Da Capo or Granges that may be affected by the outcome of the
Amalgamation. Salman Partners is not an insider, associate or affiliate (as
such terms are defined in the Securities Act (British Columbia)) of either of
the Amalgamating Companies or their affiliates or associates.
In preparing the Salman Partners Fairness Opinion, Salman Partners
reviewed and relied upon, in part, the agreements and documents relevant to the
Amalgamation, financial statements and reports to shareholders of both Da Capo
and Granges, certain internal financial information, projections and forecasts
prepared by Da Capo and Granges and their respective managements, discussions
with senior management of Da Capo and Granges and their respective auditors and
legal advisors, discussions with Pincock, Allen & Holt with regard to certain
mineral inventory information of Da Capo, information with respect to other
transactions of a comparable nature, current and historical market trading
information relating to the common shares of Da Capo and Granges and such other
financial market, corporate and industry information, investigations and
analyses that Salman Partners considered necessary or appropriate in the
circumstances. Having reviewed all aspects of the Amalgamation including,
without limitation, the terms of the Amalgamation Agreement, Salman Partners
has advised the board of directors of Da Capo that the terms of the
Amalgamation are fair to the Da Capo Shareholders from the financial point of
view.
The Salman Partners Fairness Opinion is to be considered in its
entirety. Consideration of only selected portions would likely be misleading
and omit important parts of the process and supporting assumptions used to
arrive at the fairness opinion. DA CAPO SHAREHOLDERS ARE URGED TO READ THE
SALMAN PARTNERS FAIRNESS OPINION CAREFULLY AND IN ITS ENTIRETY. A copy of the
Salman Partners Fairness Opinion is set out in Schedule E to this Joint
Management Information Circular.
CONDITIONS OF THE AMALGAMATION
In order for the Amalgamation to be implemented, the Granges
Resolution must be approved by not less than 3/4 of the votes cast by Granges
Shareholders entitled to vote and represented in person or by proxy at the
Granges Meeting and the Da Capo Resolution must be approved by not less than
3/4 of the votes cast by Da Capo Shareholders entitled to vote and represented
in person or by proxy at the Da Capo Meeting.
If the Amalgamation Agreement is approved at both the Granges Meeting
and the Da Capo Meeting, Granges and Da Capo will make a joint application to
the Court at 10:00 a.m. Vancouver time on October 30, 1996, or as soon
thereafter as they may be heard, for an order approving the Amalgamation. Any
Granges Shareholder or Da Capo Shareholder is entitled to be heard at this
application.
The Court may, having regard to the rights and interests of every
shareholder and creditor affected, approve the Amalgamation either as presented
or subject to terms and conditions the Court considers appropriate or the Court
may dismiss the application. On the application for approval by the Court, the
Court must examine all the relevant facts and satisfy itself that all parties
to the Amalgamation are being fairly dealt with.
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If the Amalgamation is approved by the Court, Granges and Da Capo will
file with the Registrar of Companies for British Columbia such materials as are
required in order that the Registrar of Companies may issue a certificate
approving the Amalgamation.
Notwithstanding approval of the Amalgamation Agreement by the Granges
Shareholders and Da Capo Shareholders and by the Court, the directors of either
Granges or Da Capo may, on their own initiative, subject to the terms and
conditions of the Definitive Agreement, terminate the implementation of the
Amalgamation at any time prior to the issue of the certificate by the Registrar
of Companies for British Columbia giving effect to the Amalgamation.
INCOME TAX CONSIDERATIONS
CANADA
In the opinion of Ladner Downs, the following summary fairly presents
the principal Canadian federal income tax considerations of the Amalgamation
applicable to holders of common shares of Granges and of Da Capo (collectively,
the "shareholders").
The following summary as to Canadian federal income tax does not take
into account provincial or foreign income tax legislation or considerations.
This summary applies only to shareholders who hold their common shares as
capital property for the purposes of the Income Tax Act (Canada) (the "Tax
Act"). This summary is based upon the current provisions of the Tax Act, the
regulations thereunder, all specific proposals to amend the Tax Act that have
been publicly announced prior to the date hereof and counsel's understanding of
the current administrative and assessing practices of Revenue Canada.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE,
NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR
SHAREHOLDER. ACCORDINGLY, SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES.
Resident Shareholders
Shareholders who receive shares of Vista Gold will be deemed to have
disposed of their shares of Granges or Da Capo for proceeds of disposition
equal to the adjusted cost base to them of those shares immediately before the
date the Amalgamation becomes effective so that no gain or loss will be
recognized in respect thereof. Such shareholders will be deemed to have
acquired common shares of Vista Gold at a cost equal to such proceeds.
Pursuant to Revenue Canada's administrative practice, shareholders who
receive the fair value of their shares in exercise of their rights of dissent
summarized under "The Amalgamation - Right of Dissent" will be considered to
have disposed of such shares for proceeds of disposition equal to the amount so
received in respect of the shares. To the extent that such proceeds exceed (or
are less than) the adjusted cost base of such shares and any reasonable costs
of disposition, a capital gain (or loss) will arise. In certain cases
described in the Tax Act such a loss will be reduced by the amount of dividends
received on the shares. It is unclear whether such administrative practice
would extend to interest, if any, awarded by a court in respect of such
amounts. Shareholders who propose to exercise their rights of dissent should
consult their own tax advisors.
Non-Resident Shareholders
A shareholder who is not a resident of Canada for the purposes of the
Tax Act, who holds his common shares of Granges or Da Capo as capital property
(whether or not such shares constitute "taxable Canadian property" as described
below) will be subject to the same income tax considerations as those discussed
above with respect to shareholders resident in Canada. If the common shares of
Granges or Da
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Capo constitute "taxable Canadian property" to a shareholder, then under the
Tax Act, the shares of Vista Gold received by such shareholder will also
constitute taxable Canadian property.
Based on Revenue Canada's administrative policy described above, a
shareholder who is not resident in Canada and who receives a payment equal to
the fair market value of his common shares as a result of the exercise of a
right to dissent will be considered to have disposed of his common shares for
proceeds of disposition equal to the amount so received in respect of the
common shares, less any interest awarded by a court. Any capital gain realized
on the disposition of the shareholder's shares will not be subject to tax under
the Tax Act unless such shares are "taxable Canadian property" and the
shareholder is not entitled to relief under a tax treaty between Canada and the
shareholder's jurisdiction of residence. A share will be "taxable Canadian
property" of a shareholder if, at any time during the five-year period
immediately preceding the disposition of the shares, not less than 25 percent
of the issued shares of any class or series belonged to the shareholder, to
persons with whom the shareholder did not deal at arm's length, or any
combination thereof. For the purposes of determining whether common shares of
Granges or Da Capo are "taxable Canadian property" of the shareholder, options
to acquire common shares owned by the shareholder or persons with whom the
shareholder did not deal at arm's length are treated as having been exercised.
Interest awarded to a dissenting shareholder by a court will be subject to
Canadian withholding tax at the rate of 25 percent unless such rate is reduced
under the provisions of a tax treaty between Canada and the dissenting
shareholder's jurisdiction of residence.
UNITED STATES OF AMERICA
The following is a general summary of certain material United States
federal income tax consequences to United States Holders (as defined below) of
the Amalgamation and the exchanges of common shares of Granges and Da Capo for
common shares of Vista Gold (the "Exchanges"). 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 the
Code, such as insurance companies, tax-exempt organizations, financial
institution, broker-dealers, holders of 10% or more of the common shares of
Granges, Da Capo or Vista Gold and non-resident alien individuals and foreign
corporations. In addition, this discussion does not address any state, local
or foreign tax consequences of the Exchanges. ACCORDINGLY, HOLDERS OF COMMON
SHARES OF GRANGES OR DA CAPO SHOULD CONSULT THEIR OWN TAX ADVISORS ABOUT THE
UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF ACQUIRING,
OWNING AND DISPOSING OF COMMON SHARES OF VISTA GOLD.
As used herein, "United States Holder", includes a holder of common
shares of Granges or Da Capo who is a citizen or resident of the United States,
a corporation or partnership created or organized in or under the laws of the
United States or any political subdivision thereof, or a trust whose income is
subject to United States federal income taxation regardless of its source.
Reorganization Treatment
The Internal Revenue Service, in published and private rulings, has
treated amalgamation transactions as transfers of the assets of the
amalgamating corporations to a new corporation in exchange for stock of the new
corporation, which stock in turn is considered to be distributed by the
amalgamating corporations to their shareholders in exchange for their stock in
the amalgamating corporations. Accordingly, Granges and Da Capo believe that
the respective amalgamations of Granges and Da Capo into Vista Gold will
constitute reorganizations described in section 368(a) of the Code. As a
result, United States Holders who receive only common shares of Vista Gold
should receive tax- deferred treatment, provided that such United States
Holders file the notice under section 367(b) of the Code (described below) and
provided further that the otherwise tax-free status described below, is not
overridden by the passive foreign investment corporation ("PFIC") rules under
section 1291 of the Code, as discussed in more detail below.
- 36 -
<PAGE> 40
Assuming that the Exchanges constitute reorganizations described in
section 368(a) of the Code:
1. United States Holders will not recognize gain or loss upon the
Exchanges;
2. the aggregate tax basis of the common shares of Vista Gold
received by a United States Holder will be the same as the
aggregate tax basis of the common shares of Granges or Da Capo
held by such United States Holder immediately prior to the
Exchanges;
3. The holding period of the common shares of Vista Gold received
by a United States Holder will include the period during which
such holder held common shares of Granges or Da Capo, provided
that the common shares of Granges or Da Capo were held as a
capital asset within the meaning of section 1221 of the Code;
and
4. Where a dissenting United States Holder of common shares of
Granges or Da Capo receives solely cash in exchange for such
holder's common shares, such cash will be treated as having
been received by such holder as a distribution in redemption
of the common shares. In general, gain or loss will be
recognized upon such distribution in an amount equal to the
difference between the cash received on the redemption and the
holder's adjusted basis in such common shares. Provided that
the common shares of Granges or Da Capo have been a capital
asset in the hands of the holder, generally the gain or loss
will be a capital gain or loss and will be a long-term or
short-term capital gain or loss, depending on whether such
common shares have been held for more than one year.
Section 367
Generally, each United States Holder who is required to file a United
States federal income tax return for the taxable year in which the Exchanges
occur must file with the Internal Revenue Service (the "IRS") a notice
described in the applicable Income Tax Regulations promulgated under section
367(b) of the Code (the "Section 367(b) Notice") in order for the Exchanges to
qualify as a tax-free reorganization with respect to the shareholder. The
Section 367(b) Notice must be filed on or before the last date for filing
(including extensions) the federal income tax return for such holder's taxable
year in which the Exchanges occur, either at the Internal Revenue Service
Center where the holder files his or her federal income tax return or with the
District Director having jurisdiction over such return.
Passive Foreign Investment Corporation Rules
Generally, the Code defines a PFIC as any foreign corporation if
either: (i) 75 percent or more of its gross income for the taxable year is
passive income or (ii) the proportion of the average value of the assets held
by the corporation during the taxable year which produces passive income is at
least 50 percent. Passive income generally includes income such as dividends,
interest, rents, royalties, certain capital gains, the excess of gains over
losses in certain commodity transactions, and certain other income not derived
in the active conduct of a trade or business. However, gains from commodities
transactions are not considered passive income if derived by a foreign
corporation in the act of conduct of a commodity business and "substantially
all" of such corporation's business is as an active commodities producer,
processor, merchant or handler.
As discussed further below, the U.S. federal income tax consequences
of the Amalgamation and the Exchanges to United States Holders may depend, in
part, on determinations as to whether Granges or Da Capo ever have been
classified as PFICs and as to whether Vista Gold will constitute a PFIC.
Granges and Da Capo do not believe that either of them is or has been a PFIC or
that Vista Gold will be a PFIC. However, because PFIC determinations involve
the application of Code provisions and related Treasury regulations that may be
capable of differing interpretations, no assurances can be made regarding the
past or present PFIC status of the companies. Furthermore, changes in the
operations and business plans of Vista Gold occurring after the Amalgamation
may affect its PFIC determination for the current and future taxable periods.
- 37 -
<PAGE> 41
The Code grants the United States Treasury Department (the "Treasury")
authority to issue Income Tax Regulations that treat transfers of stock of a
PFIC, which would otherwise be tax-free, as taxable transactions. In 1992, the
Treasury proposed Income Tax Regulations that treat transfers of stock of a
PFIC in non-recognition transfers, such as the Exchanges, as taxable
transactions, if finalized in the form proposed, would unless, among other
things, the stock of such PFIC is transferred for stock of another PFIC. No
predications can be made as to whether or in what form such regulations will be
finalized.
As noted above, Granges and Da Capo do not believe that either of them
is a PFIC or that Vista Gold will be a PFIC. Presumably, if it were ultimately
determined that either Granges or Da Capo is a PFIC, Vista Gold also would be a
PFIC, and, therefore, the Exchanges would not become taxable transactions
pursuant to the above-mentioned exception. However, in the unlikely event that
it ultimately were determined that Granges or Da Capo were a PFIC at any time
during a U.S. Holder's period of stock ownership, and that Vista Gold were not
a PFIC, then United States Holders would be taxed on the "gain" realized on the
disposition of the stock in such PFIC under the provisions of section 1291 of
the Code. For these purposes, the gain to a United States Holder would equal
the fair market value of the common shares of Vista Gold received in the
Exchanges over such holder's adjusted tax basis in the stock of the PFIC
exchanged therefor. Under the provisions of section 1291 of the Code, all such
gain required to be recognized would be treated as ordinary income and taxed in
the manner described in the next paragraph.
In addition, if Vista Gold were a PFIC, United States Holders who
receive common shares of Vista Gold would be subject to certain adverse
consequences if such holders received any distribution that is treated as an
"excess distribution" or realized gain from a subsequent disposition of common
shares of Vista Gold. Generally, an excess distribution is any distribution
that is greater than 125 percent of the average annual distributions received
by such United States Holder in the three preceding years (or such shorter
period for which the common shares were held), which would include the period
the United States Holder held common shares of Granges or Da Capo if either
also were a PFIC. The amount of the excess distribution for gain is allocated
on a pro rata basis to each day in which the United States Holder held stock in
the PFIC, which would include the period the United States Holder held common
shares of Granges or Da Capo (unless the Exchanges are treated as taxable
transactions, as described above). Any amount of the excess distribution
treated as allocable to a prior taxable period would be subject to an interest
charge as if the holder had tax deficiencies in the taxable periods during
which the holder held stock in the PFIC.
If Vista Gold were a PFIC but Granges or Da Capo were not PFICs,
United States Holders would be able to avoid the rules described in the
previous paragraph by electing to treat Vista Gold as a qualified electing fund
("QEF") in the first taxable year that Vista Gold were a PFIC. As a result of
making a QEF election, a United States Holder would be subject to current
United States federal income taxation on such holder's pro rata share of the
ordinary income of Vista Gold. However, based on management's belief that
Vista Gold will not be a PFIC, management does not intend to make corresponding
distributions, and, accordingly, United States Holders that make a QEF election
may be currently taxed on their share of ordinary income without receiving a
corresponding distribution.
If Vista Gold were a PFIC and Granges or Da Capo also were PFICs, a
QEF election would not alter the "PFIC taint" from prior taxable years.
However, in the taxable year in which a QEF election is made, a United States
Holder would be able to elect to "purge" the prior PFIC taint and be treated as
if such holder disposed of the stock of the PFIC in a taxable disposition in
such taxable year. The gain on the deemed disposition would be subject to tax
under section 1291 of the Code in accordance with the rules described above.
BECAUSE OF THE COMPLEXITIES REGARDING THE POSSIBLE APPLICATION OF THE
PFIC RULES, UNITED STATES HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS ABOUT
THE APPLICATION OF SUCH RULES.
- 38 -
<PAGE> 42
RIGHT OF DISSENT
Pursuant to the Company Act, any Granges Shareholder who dissents in
respect of the Granges Resolution or any Da Capo Shareholder who dissents in
respect of the Da Capo Resolution (a "Dissenting Shareholder") is entitled,
provided the Amalgamation is effected and upon compliance with the appropriate
procedures, to be paid the fair value of the common shares of Granges or the
common shares of Da Capo in respect of which dissent was exercised and which
are held by the Dissenting Shareholder, such fair value to be determined as of
the day before the Granges Resolution and Da Capo Resolution were passed.
The following is a summary of the operation of the provisions of the
Company Act relating to a Dissenting Shareholder's dissent and appraisal
rights. Any Granges Shareholder or Da Capo Shareholder considering the
exercise of a right of dissent should seek independent legal advice since
failure to comply strictly with the provisions of the Company Act may prejudice
such shareholder's right to dissent. The provisions of the Company Act
relating to a Dissenting Shareholder's dissent and appraisal rights are set out
in Schedule J to this Joint Management Information Circular.
Pursuant to the Company Act, a Granges Shareholder or a Da Capo
Shareholder who wishes to dissent in respect of the Granges Resolution or the
Da Capo Resolution must give written notice of dissent ("Notice of Dissent") to
Granges or Da Capo, respectively. Notice of Dissent may be given to Granges by
leaving it at or by mailing it by registered mail addressed to Granges'
registered and records office at 709 - 700 West Pender Street, Vancouver,
British Columbia, Canada V6C 1G8, Attention: Nancy A. Larson, Corporate
Secretary/Manager Investor Relations, or by personally serving it on any
director or officer of Granges. Notice of Dissent may be given to Da Capo by
leaving it at or by mailing it by registered mail addressed to Da Capo's
registered and records office at 700 - 625 Howe Street, Vancouver, British
Columbia, Canada V6C 2T6, Attention: Gordon Jang, Secretary, or by personally
serving it on any director or officer of Da Capo. In all cases, Notice of
Dissent must be given by not later than October 29, 1996. The giving of a
Notice of Dissent does not deprive a Granges Shareholder or a Da Capo
Shareholder of the right to vote on the Granges Resolution or Da Capo
Resolution, respectively. A vote against the Granges Resolution or the Da Capo
Resolution or the execution or exercise of a proxy does not constitute a Notice
of Dissent. A Granges Shareholder or a Da Capo Shareholder is not entitled to
dissent with respect to any common shares if such shareholder votes (or
instructs or is deemed, by submission of any incomplete proxy, to have
instructed his or her proxyholder to vote) any common shares in favour of the
Granges Resolution or Da Capo Resolution, respectively, but a Granges
Shareholder or a Da Capo Shareholder may abstain from voting on the Granges
Resolution or Da Capo Resolution, respectively, or may vote as a proxy for a
shareholder whose proxy requires an affirmative vote without affecting his or
her dissent rights.
If the Granges Resolution and Da Capo Resolution are passed, each of
Granges and Da Capo are required to give any Dissenting Shareholder of Granges
or Da Capo, respectively, prior notice of Granges' or Da Capo's respective
intention to act on the Granges Resolution or Da Capo Resolution and to advise
any Dissenting Shareholder of his or her rights under the Company Act. Within
14 days after Granges or Da Capo gives such a notice of intention to act, each
Dissenting Shareholder must send to Granges or Da Capo, as appropriate, a
written notice containing his or her name and address, the number of common
shares of Granges or Da Capo in respect of which he or she dissents and a
requirement that Granges or Da Capo, as appropriate, purchase all such common
shares (the "Demand for Purchase") together with the share certificates
representing the common shares in respect of which he or she dissents. A
Dissenting Shareholder who fails to forward such written notice and his or her
share certificates within the 14 days loses any right to require Granges or Da
Capo to purchase all the shares in respect of which the Notice of Dissent was
given.
Upon a Dissenting Shareholder making a Demand for Purchase, the
Dissenting Shareholder is bound to sell and Granges, Da Capo or Vista Gold, as
the case may be, is bound to purchase the common shares in respect of which the
Demand for Purchase is given for their fair value as of the day before the
Granges Resolution and Da Capo Resolution were passed, including any
appreciation or depreciation in anticipation of the votes. After making a
Demand for Purchase, a Dissenting Shareholder may not vote
- 39 -
<PAGE> 43
or exercise or assert any rights of a shareholder in respect of the shares for
which Notice of Dissent has been given unless the Dissenting Shareholder
withdraws the Demand for Purchase with the consent of Granges or Da Capo, as
appropriate. Until the Dissenting Shareholder is paid in full for such shares,
he or she may exercise and assert the rights of a creditor of Granges or Da
Capo, as appropriate, with respect to such common shares.
Either the Dissenting Shareholder or Granges, Da Capo or Vista Gold,
as the case may be, is entitled to apply to the Court, which may fix the price
and the terms of the purchase and sale of the shares in respect of which the
dissent is made or order that the price and terms be established by arbitration
or make such consequential orders and give such directions as the Court
considers appropriate. Except as described above, the Amalgamation does not
affect the rights of the Dissenting Shareholder, Granges or Da Capo under the
Company Act or the price to be paid for the common shares of Granges or Da
Capo.
EXPENSES OF THE AMALGAMATION
The expenses to be incurred by Granges in connection with the
Amalgamation, including investment dealer, legal, accounting, proxy
solicitation and printing expenses are estimated not to exceed Cdn. $750,000.
The expenses to be incurred by Da Capo in connection with the Amalgamation,
including investment dealer, legal, accounting, proxy solicitation and printing
expenses are estimated not to exceed Cdn. $250,000.
INTENTIONS OF SIGNIFICANT SHAREHOLDERS
As of September 13, 1996, the only person known to Granges
beneficially owning common shares of Granges carrying more than ten percent of
the votes attached to all common shares of Granges was Atlas. Atlas
beneficially owns, directly or indirectly, 12,714,900 common shares of Granges,
which represents 22.8 percent of Granges' outstanding common shares.
Based upon Atlas' current holdings, after giving effect to the
Amalgamation, Atlas would beneficially own, directly or indirectly, 12,714,900
common shares of Vista Gold, representing 14.3 percent of the outstanding
common shares of Vista Gold (12.6 percent on a fully diluted basis).
As of September 13, 1996, the only person known to Da Capo
beneficially owning common shares of Da Capo carrying more than ten percent of
the votes attached to all common shares of Da Capo was Ross J. Beaty. Ross J.
Beaty beneficially owns, directly or indirectly through associated companies,
4,421,308 common shares of Da Capo, which represents 27.0 percent of Da Capo's
outstanding common shares.
Based upon Mr. Beaty's current holdings, after giving effect to the
Amalgamation, Mr. Beaty would beneficially own, directly or indirectly,
8,842,616 common shares of Vista Gold, representing 9.97 percent of the
outstanding common shares of Vista Gold (8.8 percent on a fully diluted basis).
On August 6, 1996, Mr. Beaty and his associated companies entered into
a support agreement with Granges and Da Capo. On August 16, 1996, Atlas
entered into a support agreement with Granges and Da Capo.
Under the support agreements, each of Atlas and Mr. Beaty and his
associated companies have agreed, among other things:
(a) not to take any steps, directly or indirectly, which may in
any way adversely affect the Amalgamation or any alternative
form of transaction whereby either Granges or Da Capo or any
of their respective affiliates is effectively to acquire 100%
of the common shares of the other and merge such entities on
economic terms which, in relation to shareholders,
- 40 -
<PAGE> 44
are substantially equivalent or better than those contemplated
by the Amalgamation (an "Alternative Transaction");
(b) not to solicit, initiate or encourage submissions, proposals
or offers from any other person, entity or group relating to,
or facilitate or encourage any effort to attempt with respect
to, the acquisition or disposition of all or a substantial
part of the issued or unissued shares of Granges or Da Capo or
their respective subsidiaries, or any arrangement,
amalgamation, merger, sale of all or any substantial part of
their respective assets, take-over bid, reorganization,
recapitalization, liquidation or winding-up of, or other
business combination or a similar transaction involving
Granges or Da Capo or any of their respective subsidiaries and
any other party;
(c) to use all reasonable efforts to assist Granges and Da Capo to
complete the Amalgamation or an Alternative Transaction;
(d) to vote its common shares in either Granges or Da Capo in
favour of the Amalgamation at the Granges Meeting or Da Capo
Meeting;
(e) not to exercise any rights of dissent provided under sections
231 and 273 of the Company Act (British Columbia) with respect
to the Amalgamation or any Alternative Transaction; and
(f) not to transfer or assign or agree to transfer or assign any
of the common shares of Granges or Da Capo held by it without
the prior consent of Granges and Da Capo.
Under the terms of the support agreement between Atlas Corporation,
Granges and Da Capo, Granges has agreed:
(a) to use all reasonable efforts to assist Atlas in reducing the
number of common shares of Granges pledged by Atlas as
security for the 7% exchangeable debentures due October 25,
2000 issued by Atlas;
(b) to negotiate in good faith an amendment to the Gold Bar joint
venture agreement between Granges and Atlas pursuant to which
Granges will withdraw from the joint venture in exchange for a
payment from Atlas in an amount to be negotiated;
(c) to file and use its best efforts to cause to become effective
not later than November 30, 1996 all registration statements
and other filings (federal, provincial or state) as shall be
necessary on the part of Granges to enable Atlas to dispose of
its common shares of Granges on The Toronto Stock Exchange and
the American Stock Exchange or otherwise in Canada or the
United States, without restriction of any kind whatsoever
under applicable securities laws and to maintain, in the case
of any registration statement filed with the U.S. Securities
and Exchange Commission, the effectiveness of such
registration and other applicable filings until the earlier of
(i) the date of completion of such disposition, and (ii)
December 31, 2000;
(d) to cause Michael B. Richings, if and when requested by Atlas,
to resign from the Board of Directors of Atlas; and
(e) to reimburse promptly all expenses (other than brokerage
commissions or underwriting fees) incurred by Atlas in
connection with the support agreement, the Amalgamation or any
Alternative Transaction or any of the matters referred in (a)
to (d) above.
- 41 -
<PAGE> 45
Under the terms of the support agreements, each of Granges and Da Capo
also has agreed not to purchase or sell any common shares of the other until
the Amalgamation becomes effective or the Definitive Agreement is terminated.
All of the directors and senior officers of Granges and their
associates who hold common shares of Granges have advised Granges that they
intend to vote in favour of the special resolution approving the Amalgamation
at the Granges Meeting.
In addition to Mr. Beaty and his associated companies, all of the
other directors and senior officers of Da Capo and their associates who hold
common shares of Da Capo have advised Da Capo that they intend to vote in
favour of the special resolution approving the Amalgamation at the Da Capo
Meeting.
DESCRIPTION OF VISTA GOLD CORP.
The name of the amalgamated company will be "Vista Gold Corp.". Vista
Gold's head office will be located at Suite 3000 - 370 Seventeenth Street,
Denver, Colorado, U.S.A. 80202 and its registered and records office will be
located at 709 - 700 West Pender Street, Vancouver, British Columbia, Canada
V6C 1G8.
BUSINESS STRATEGY OF VISTA GOLD
The merger between Granges and Da Capo is the first step in their
long-term strategy of becoming a mid-size gold producer. Over the next few
years, Granges' plan has been to increase production to between 300,000 and
500,000 ounces of gold per year with an average cash cost of production below
U.S. $200 per ounce and to have reserves and mineral inventory to sustain this
production level for at least eight to ten years. Vista Gold's future
production will be mainly from Latin America and Nevada. Vista Gold's
exploration and development focus will be on gold and growth, and increased
production will be achieved through the development of mineral properties found
through its own exploration program and the acquisition of developed or near
development mineral properties.
Apart from the current expansion of the Brimstone deposit under way at
the Hycroft mine in Nevada, Vista Gold's first expansion in production will be
achieved by the development of the Amayapampa and Capa Circa properties of Da
Capo in Bolivia. These two properties currently have small, ongoing mining and
processing operations and have been subjected to drilling and geologic
evaluation. Under Granges' direction, Mine Reserves Associates completed an
independent ore reserve evaluation which demonstrated that Amayapampa contains
proven and probable reserves of approximately 500,000 ounces of gold, contained
in 6.2 million tonnes averaging 2.54 grams of gold per tonne. The total
mineralization at Amayapampa is estimated to be 1.1 million ounces of gold,
contained in 14.3 million tonnes averaging 2.35 grams of gold per tonne. Capa
Circa has limited drilling and some mine development. Reserves at Capa Circa
have not been calculated because of limited information. However, historic
production grades and the continuity of vein structures indicate that a minimum
potential mineral inventory of 1.0 million tonnes at 6.0 grams of gold per
tonne (190,000 ounces) exists. The total mineralization at Capa Circa is
estimated to be 1.1 million ounces of gold, contained in 27.6 million tonnes
averaging 1.21 grams of gold per tonne. Four other properties located in
various parts of Bolivia are in the early stages of exploration.
Studies completed by Granges indicate an open pit development on the
Amayapampa ore deposit with a smaller underground development commencing one
year later on the Capa Circa deposit. The ore from both mines would be treated
in a 3,200-tonne-per-day mill using gravity, flotation, and cyanide leaching to
achieve gold recoveries of 90 to 92 percent. The operation would produce
approximately 100,000 ounces per year starting in the second year of production
and would have a life of at least nine years. The average operating cash cost
would be U.S. $143 per ounce and the total capital cost would be U.S. $65
million. The estimated pay back, at an assumed price of U.S. $400 per ounce of
gold, would be achieved during the second year of production. As these are
advanced-stage development properties,
- 42 -
<PAGE> 46
Granges foresees a seven month final feasibility period followed by final
design and construction over a 15 month period to result in operations
commencing 22 months from completion of the Amalgamation.
The final feasibility study will involve final definition drilling and
condemnation drilling at Amayapampa, as well as core drilling to obtain pit
slope stability information and drilling to define reserves at Capa Circa.
Reserve estimates will be refined and the final mine design completed.
Metallurgical testing will continue to obtain information for final process
plant design. Studies will be undertaken to finalize processing methodology
and site optimization for facilities. The tailings dam site will be evaluated
and finalized, as will design parameters, resulting in a final design. Final
design will be done on roads, power and communications. Baseline environmental
and socio-economic studies will continue, leading to applications for operating
permits. Upon completion of the final feasibility study and obtaining
financing and all necessary permits and approvals, construction will commence.
The next major expansion of Vista Gold's production is anticipated to
come from the development of the Guariche project in Venezuela. This property
is currently the subject of an option agreement with L.B. Mining Company. The
agreement provides for an option period of not less than five months during
which Granges is to evaluate the reserve potential of the property. If Granges
is satisfied that there is a potential minimum of 500,000 ounces of proven and
probable reserves of gold on the property at the end of the option period,
Granges will acquire the Guariche project and purchase these reserves at U.S.
$30 per ounce.
The Guariche deposit is estimated to contain 7.8 million tonnes at 2.1
grams of gold per tonne in a mineral inventory which is no deeper than 75
metres from the surface. The company has completed a prefeasibility study
assuming that these resources are converted into mineable reserves. A
prefeasibility study which examined the open pit development and processing
using cyanide leaching and carbon in pulp extraction estimated at the
production cost of gold from this development would be at an average cost of
U.S. $180 per ounce. The capital cost for the development was estimated to be
U.S. $38 million.
Vista Gold will continue to look for appropriate development
opportunities while maintaining an aggressive exploration program on properties
located in Bolivia, Ecuador, Venezuela, the United States and Canada.
MANAGEMENT OF VISTA GOLD
The following persons will hold office as the initial directors and
officers of Vista Gold from the Effective Date:
<TABLE>
<CAPTION>
BENEFICIALLY
OWNED OR
PRINCIPAL OCCUPATION, BUSINESS OR CONTROLLED VISTA
NAME, RESIDENCE AND POSITION EMPLOYMENT FOR THE LAST FIVE YEARS GOLD SHARES(1)
---------------------------- ---------------------------------- ----------------
<S> <C> <C>
Directors
ROSS J. BEATY Geologist; President of Da Capo since March 1994; 8,694,616
Vancouver, B.C. Chairman of the Board of Pan American Silver Corp.
Director and Vice Chairman (a silver mining company) since March 1994; prior
of the Board thereto President of Equinox Resources Ltd. (a
mining company)
WILLIAM M. CALHOUN Mining Engineer; Chief Executive Officer of William Nil
Silverton, Id. Calhoun, Inc. (mining consultants)
Director
</TABLE>
- 43 -
<PAGE> 47
<TABLE>
<CAPTION>
BENEFICIALLY
OWNED OR
PRINCIPAL OCCUPATION, BUSINESS OR CONTROLLED VISTA
NAME, RESIDENCE AND POSITION EMPLOYMENT FOR THE LAST FIVE YEARS GOLD SHARES(1)
---------------------------- ---------------------------------- ----------------
<S> <C> <C>
JAMES H. DUNNETT Businessman; President of Acorn Capital Finance Nil
Denver, Co. Corporation (an investment company)
Director
C. THOMAS OGRYZLO Mining Engineer; President and Chief Operating Nil
Mississauga, Ont. Officer of Kilborn Engineering and Construction Ltd.
Director (an engineering firm) since 1992; prior thereto
Senior Vice President of Kilborn Engineering and
Construction Ltd.
MICHAEL B. RICHINGS Mining Engineer; President and Chief Executive Nil
Littleton, Co. Officer of Granges since June 1995; President of
Director, President and Atlas Corporation (a mining company) from January
Chief Executive Officer 1995 to June 1995; Group Executive and President of
Lac Minerals Ltd. South America (a mining company)
from 1993 to 1995; prior thereto Vice President of
Operations of Atlas Corporation
KEITH STEEVES Mining executive; retired in 1996 as Senior Vice- Nil
Richmond, B.C. President, Commercial of Teck Corporation (a mining
Director company)
DAVID R. SINCLAIR Chartered Accountant; Retired in 1990 as Senior and Nil
Nanoose Bay, B.C. Managing Partner of Coopers & Lybrand, Vancouver
Chairman of the Board (chartered accountants)
ALAN G. THOMPSON Businessman; President and Chief Executive Officer Nil
West Vancouver, B.C. of A.G.T. Financial Corporation (an investment
Director company)
PETER WALTON Self-employed business consultant Nil
West Vancouver, B.C.
Director
Officers
MICHAEL B. RICHINGS Mining Engineer; President and Chief Executive Nil
Littleton, Co. Officer of Granges since June 1995; President of
President and Chief Atlas Corporation (a mining company) from January
Executive Officer 1995 to June 1995; Group Executive and President of
Lac Minerals Ltd. South America (a mining company)
from 1993 to 1995; prior thereto Vice President of
Operations of Atlas Corporation
AMJAD J. ALI Chartered Accountant; Vice-President, Finance and 30,000
Castle Rock, Co. Chief Financial Officer of Granges since 1993; prior
Vice-President, Finance and thereto, Vice-President, Finance of Quintette Coal
Chief Financial Officer Limited (a mining company)
</TABLE>
- 44 -
<PAGE> 48
<TABLE>
<S> <C> <C>
NANCY A. LARSON Corporate Secretary/Manager Investor Relations of Nil
North Vancouver, B.C. Granges since January 1996; Corporate Solicitor of
Corporate Secretary/Manager Granges from 1993 to 1996; prior thereto Associate,
Investor Relations Jones McCloy Peterson (Barristers & Solicitors)
RONALD J. MCGREGOR Vice President, Operations and Development of Nil
Castle Rock, Co. Granges since July 1996; prior thereto Vice
Vice President, Operations President, Evaluation and Development, Cambior
and Development U.S.A. (mining company)
</TABLE>
- ------------------------------------------
(1) The number of Vista Gold shares to be beneficially owned, directly or
indirectly, or over which each individual identified will exercise
control or direction, is based on the number of Granges common shares
or Da Capo common shares beneficially owned, directly or indirectly,
or over which control or direction is exercised, by such individual as
at September 13, 1996.
Each director of Vista Gold will hold office until the next annual
general meeting of the shareholders of Vista Gold or until their successors are
duly elected or appointed. Each officer of Vista Gold will hold office at the
pleasure of the Board of Directors of Vista Gold.
PRO FORMA CAPITALIZATION
The pro forma capitalization of Vista Gold as of July 31, 1996, after
giving effect to the Amalgamation, is set forth in the following table:
PRO FORMA CAPITALIZATION
AS OF JULY 31, 1996
(U.S. dollars in thousands)
<TABLE>
<S> <C>
Long term debt Nil
Shareholders' Equity
Common shares $120,574
(88,650,405 shares)
Deficit (3,488)
Currency translation adjustment (1,207)
--------
Total pro forma capitalization $115,879
========
</TABLE>
PRO FORMA CONSOLIDATED BALANCE SHEET OF VISTA GOLD
The following table presents selected pro forma consolidated financial
information for Vista Gold prepared to illustrate the effects of the
Amalgamation. Such pro forma financial information was prepared in accordance
with Canadian generally accepted accounting principles and should be read in
conjunction with the pro forma consolidated balance sheet and consolidated
statements of earnings of Vista Gold, the notes thereto and the compilation
report of Coopers & Lybrand with respect thereto set out in Schedule
- 45 -
<PAGE> 49
F to this Joint Management Information Circular. THE DOLLAR AMOUNTS IN THE
FOLLOWING TABLE ARE IN UNITED STATES DOLLARS.
VISTA GOLD CORP.
PRO FORMA CONSOLIDATED BALANCE SHEET
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
DA CAPO
GRANGES INC. AS AT RESOURCES LTD.
JUNE 30, 1996 AS AT APRIL 30, 1996 ADJUSTMENTS PRO FORMA
------------- -------------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,650 $ 1,652 $ 448 (1) $ 5,023
(727)(2)
Cash held as security - 2,001 2,001
Funds held in escrow 18,496 - 18,496
Marketable securities 4 - 4
Accounts receivable and other 3,794 21 3,815
Inventories 16,680 - 16,680
Prepaids and deposits - 17 17
---------- --------- --------- ---------
42,624 3,691 (279) 46,036
INVESTMENT IN ZAMORA GOLD CORP. 3,563 - 3,563
PROPERTY, PLANT AND EQUIPMENT 39,831 15,406 (15,406)(3) 85,939
46,108 (2)
---------- --------- --------- ---------
$ 86,018 $ 19,097 $ 30,423 $ 135,538
========== ========= ========= =========
LIABILITIES
CURRENT LIABILITIES
Bank loan $ - $ 1,351 $ $ 1,351
Accounts payable and accrued 14,111 181 14,292
liabilities
Due to related parties - 17 17
---------- --------- --------- --------
14,111 1,549 Nil 15,660
ACCRUED LIABILITIES - 300 300
PROVISIONS FOR FUTURE RECLAMATION AND 3,699 - 3,699
---------- --------- --------- --------
CLOSURE COSTS
17,810 1,849 Nil 19,659
SHAREHOLDERS' EQUITY
SHARE CAPITAL 54,398 15,202 448 (1) 102,069
(15,650)(2)
47,671 (2)
SPECIAL WARRANTS 18,505 5,303 (5,303)(2) 18,505
DEFICIT (3,488) (3,257) (15,406)(3) (3,488)
18,663 (2)
CURRENCY TRANSLATION ADJUSTMENT (1,207) - (1,207)
---------- --------- --------- ---------
68,208 17,248 30,423 115,879
---------- --------- --------- ---------
$ 86,018 $ 19,097 $ 30,423 $ 135,538
========== ========= ========= =========
</TABLE>
Notes:
(1) To record the effect of 169,000 common shares issued by Da Capo
subsequent to April 30, 1996 and before July 31, 1996 for consideration
of $448,000.
(2) To record the acquisition of Da Capo using the purchase method of
accounting, including costs of the transaction estimated to be
U.S.$727,000.
(3) To write-off deferred exploration costs capitalized by Da Capo in order
to conform to Granges' accounting policy.
- 46 -
<PAGE> 50
SHARE CAPITAL
Vista Gold will be authorized to issue 3,000,000,000 shares divided
into 2,500,000,000 common shares without par value and 500,000,000 preferred
shares without par value.
Holders of the common shares of Vista Gold to be issued pursuant to
the Amalgamation will be entitled to one vote per share at all meetings of
shareholders of Vista Gold and to receive dividends as of and when declared by
the directors of Vista Gold and to receive a pro rata share of the assets of
Vista Gold available for distribution to shareholders in the event of
liquidation, dissolution or winding-up. There will be no pre-emptive,
conversion or redemption rights attached to the common shares of Vista Gold.
Each common share of Vista Gold shall have attached to it one right
issued pursuant to and governed by the terms of the shareholder protection
rights agreement (the "Rights Agreement") dated as of May 1, 1996 between
Granges and Montreal Trust. See "Shareholder Protection Rights Plan".
The preferred shares of Vista Gold will be issuable in series by the
Board of Directors of Vista Gold with such terms relating to dividends,
redemption and distribution in the event of liquidation, dissolution or
winding-up as the directors in their sole discretion may determine.
Vista Gold will adopt a stock option plan identical to the Stock
Option Plan of Granges. After giving effect to the Amalgamation, all
outstanding stock options and common share purchase warrants exercisable to
acquire common shares of Granges will become exercisable to acquire common
shares of Vista Gold upon the same terms and at the same price at which they
were originally issued.
After giving effect to the Amalgamation, each outstanding stock option
exercisable to acquire one common share of Da Capo will become exercisable to
acquire two common shares of Vista Gold at one-half of the price at which such
stock options were originally issued. Otherwise, such stock options shall
retain the same terms under which they were originally issued.
Approval of The Toronto Stock Exchange and the American Stock Exchange
is required to effect the substitutional listing of the common shares of Vista
Gold to be issued on the Effective Date of the Amalgamation. The common shares
of Granges are listed on The Toronto Stock Exchange and the American Stock
Exchange under the trading symbol "GXL". The common shares of Da Capo are
listed on the Vancouver Stock Exchange under the trading symbol "DCX". The
Toronto Stock Exchange and American Stock Exchange have preliminarily indicated
that they will continue to list the common shares of Vista Gold after
consummation of the Amalgamation under the trading symbol "VGZ". Prior to the
Effective Date, Granges anticipates that it will file a supplemental listing
application to list the common shares of Vista Gold that Da Capo Shareholders
will own on the Effective Date. The common shares of Vista Gold will not be
listed on the Vancouver Stock Exchange. Prior to the Effective Date, Da Capo
anticipates that it will file an application to de-list from the Vancouver
Stock Exchange the common shares of Vista Gold that Da Capo Shareholders will
own on the Effective Date.
SHAREHOLDER PROTECTION RIGHTS PLAN
Vista Gold will be a party to the Rights Agreement, which contains the
terms of the Shareholder Protection Rights Plan (the "Rights Plan") of Granges
which was previously adopted by the Board of Directors of Granges on May 1,
1995 and confirmed by ordinary resolution of the Granges Shareholders at an
extraordinary general meeting held on September 29, 1995.
The Rights Plan was designed to ensure that Granges Shareholders
receive equal treatment in the event of a takeover bid or other acquisition of
Granges common shares that could lead to a change in control of Granges. It
was also intended to provide time for the Granges Shareholders to properly
assess any takeover bid and to provide the Board of Directors of Granges with
sufficient time to explore and develop alternatives for maximizing shareholder
value including, if appropriate, searching for other potential bidders. The
Rights Plan was also designed to ensure that United States and Canadian Granges
Shareholders are treated equally and that a takeover bid must be made to all
Shareholders on the same terms in all jurisdictions.
- 47 -
<PAGE> 51
The Rights Plan is not intended to deter takeover bids. It was
designed to ensure that all Granges Shareholders receive equal treatment in the
event of a takeover bid or other acquisition of control. Takeover bid contests
for corporate control provide an opportunity for shareholders to obtain a once
and for all gain. After the acquisition of effective control of a company
other than through a takeover bid made to all shareholders, the opportunity for
this one time gain normally does not recur. Without a Rights Plan, it would be
possible for a bidder to acquire effective control either through open market
purchases or private agreement purchases or both using various techniques
permitted under applicable securities legislation without making a bid
available to all shareholders at the same price including any premium offered
under private agreement purchases. Such acquisitions of control can be an
effective deterrent to other potential offerors. Shareholder rights plans are
designed to prevent this by forcing all acquisitions of control to be made
pursuant to a takeover bid available to all shareholders or in some other
manner that is permitted by the board of directors of a company.
A takeover bid will not necessarily achieve all the objectives of
ensuring equal treatment for all shareholders or of maximizing shareholder
value. A takeover bid can be completed legally in 21 days. This is too short
a time period to ensure that the board of directors of a company can develop
other alternatives. The Rights Plan was intended to provide time for Granges
Shareholders to properly assess any takeover bid and to provide the Board of
Directors of Granges with sufficient time to explore and develop alternatives
for maximizing shareholder value including the identification of other
potential bidders.
As the common shares of Granges are traded on the American Stock
Exchange and therefore are traded in the United States, there is a possibility
that the differences between the United States and Canadian securities
legislation could result in unequal treatment of Granges Shareholders in the
two jurisdictions. The Rights Plan was intended to ensure equal treatment of
Shareholders regardless of country of residence.
The Boards of Directors of Granges and Da Capo believe that the Rights
Plan will provide the same benefits to shareholders of Vista Gold ("Vista Gold
Shareholders") as the Rights Plan previously provided to Granges Shareholders.
The following is a summary of the principal terms of the Rights
Agreement as will be applicable to Vista Gold:
Term
The Rights Agreement came into force on May 1, 1995 and will expire on
the date of the annual general meeting of Vista Gold in 1998.
Shareholder Approval
The Rights Agreement was approved by an ordinary resolution of the
Granges Shareholders on September 29, 1995. The Rights Agreement was also
approved, in accordance with regulatory requirements, by a majority of the
shareholders voting in person or by proxy at such extraordinary general meeting
other than Atlas, which then held 27.6% of the outstanding common shares of
Granges.
Issue of Rights
One common share purchase right (a "Right") was issued and attached to
each outstanding common share of Granges on May 1, 1995 and one Right was
issued and attached to each common share of Granges subsequently issued. One
Right will be issued and attach to each common share of Vista Gold (a "Vista
Gold Share") issued on the Effective Date and one Right will be issued and
attach to each Vista Gold Share subsequently issued prior to the expiry of the
Rights Agreement.
- 48 -
<PAGE> 52
Exercise of Rights
The Rights will separate from the Vista Gold Shares and will be
exercisable after the close of business on the tenth trading day (the
"Separation Time") after a person has acquired, or announces or commences a
takeover bid to acquire, 20 percent or more of the Vista Gold Shares other than
pursuant to a Permitted Bid (referred to below). The acquisition by a person
(an "Acquiring Person") of 20 percent or more of the Vista Gold Shares is
called a "Flip-In Event". Any Rights held by an Acquiring Person will become
void on the occurrence of the Flip-In Event.
Each Right entitles the registered holder thereof to purchase one
Vista Gold Share at the exercise price of Cdn. $20 per share (the "Exercise
Price") after the Separation Time. However, after a Flip-In Event occurs, each
Right will entitle the holder to receive, upon payment of the Exercise Price,
Vista Gold Shares having a market value equal to twice the Exercise Price.
The adjustment to the Exercise Price after a Flip-In Event, together
with the Rights held by an Acquiring Person becoming void upon the occurrence
of the Flip-In Event, makes any offer for control or takeover bid that is not a
Permitted Bid prohibitively expensive for the Acquiring Person. Prior to the
Rights Plan being triggered, the Rights will have no value and will have no
dilutive effect on the Vista Gold Shares.
Certificates and Transferability
Prior to the Separation Time, the Rights will be evidenced by a legend
imprinted on the Vista Gold Share certificates and will not be transferable
separately from the Vista Gold Shares. After the Separation Time, the Rights
will be evidenced by separate certificates (the "Rights Certificates") and will
be transferable separately from the Vista Gold Shares.
Permitted Bid Requirements
Permitted Bids and Competing Permitted Bids (referred to below) are
exempted from the operation of the Rights Plan. A "Permitted Bid" is a
takeover bid for either all or less than all the Vista Gold Shares made by way
of a takeover bid circular which complies with the following:
(1) the offer, whether a full bid or "partial bid", must be made
by way of a takeover bid circular to all Vista Gold
Shareholders on the same terms;
(2) the offer must remain outstanding for a minimum of 60 days to
permit Vista Gold Shareholders to properly assess the bid, to
allow alternate bids to emerge and to give the Board of
Directors of Vista Gold sufficient time to appraise the offer,
seek or formulate possible alternatives and communicate its
recommendations to the Vista Gold Shareholders;
(3) Vista Gold Shares cannot be taken up and paid for under the
bid unless more than 50% of the Vista Gold Shares held by
shareholders ("Independent Shareholders") who are independent
of the offeror are tendered and not withdrawn;
(4) any Vista Gold Shares deposited during the 60 day period may
be withdrawn until taken up and paid for; and
(5) if more than 50% of the Vista Gold Shares held by Independent
Shareholders are deposited and not withdrawn, the offeror must
make a public announcement and the takeover bid must be
extended for a further ten business days to allow other Vista
Gold Shareholders who have not yet tendered to deposit their
Vista Gold Shares under the offer.
A "Competing Permitted Bid" is a Permitted Bid made after another
Permitted Bid and while that other Permitted Bid remains outstanding, with the
exception that a Competing Permitted Bid must remain
- 49 -
<PAGE> 53
open for acceptance until the later of 21 days after the date of the Competing
Permitted Bid or the 60th day after the date of the other Permitted Bid.
Termination or Waiver
At any time before the occurrence of a Flip-In Event, the Board of
Directors of Vista Gold may elect to terminate the Rights. The Board of
Directors of Vista Gold may waive the application of the Rights Plan to any
particular Flip-In Event if it determines that a person became an Acquiring
Person by inadvertence. The Board of Directors of Vista Gold may also, until a
Flip-In Event has occurred, waive the application of the Rights Plan to any
particular Flip-In Event.
Grandfathered Person
Atlas Corporation, which presently holds 22.8 percent of the
outstanding common shares of Granges, is "grandfathered" under the Rights
Agreement so long as it beneficially owns not more than 40 percent and not less
than five percent of the outstanding common shares of Granges or of the Vista
Gold Shares.
Exemptions for Investment Advisors
Investment advisors (for fully managed accounts) and trust companies
(acting in their capacities as trustees and administrators) acquiring more than
20 percent of the Vista Gold Shares will be exempted from triggering a Flip-In
Event provided that they are not part of a group making a takeover bid.
Exchange Option
Under certain circumstances, the Board of Directors of Vista Gold can,
on the exercise of a Right and payment of the Exercise Price, issue in lieu of
Vista Gold Shares debt or equity securities or assets of Vista Gold having a
value equal to twice the Exercise Price. The Board of Directors of Vista Gold
can also determine to issue in exchange for Rights, but without payment of the
Exercise Price, debt or equity securities or assets having a value equal to the
Exercise Price.
Adjustments
The Exercise Price, the number and kind of securities subject to
purchase upon exercise of each Right and the number of Rights outstanding are
subject to adjustment from time to time to prevent dilution in the event that
Vista Gold:
(i) declares or pays a dividend on the Vista Gold Shares payable
in Vista Gold Shares (or other securities exchangeable for or
convertible into or giving a right to acquire Vista Gold
Shares) other than pursuant to any dividend reinvestment plan;
(ii) subdivides or changes the outstanding Vista Gold Shares into a
greater number of Vista Gold Shares;
(iii) consolidates or changes the outstanding Vista Gold Shares into
a smaller number of Vista Gold Shares;
(iv) issues any Vista Gold Shares (or other securities exchangeable
for or convertible into or giving a right to acquire Vista
Gold Shares) in respect of, in lieu of or in exchange for
existing Vista Gold Shares;
(v) fixes a record date for the making of a distribution to
substantially all holders of Vista Gold Shares of rights or
warrants entitling them (for a period expiring within 45
calendar days after such record date) to subscribe for or
purchase Vista Gold Shares (or securities convertible into or
exchangeable for or carrying a right to purchase or subscribe
for Vista Gold Shares)
- 50 -
<PAGE> 54
at a price per Vista Gold Share (or, in the case of a security
convertible into or exchangeable for or carrying a right to
purchase or subscribe for Vista Gold Shares, having a
conversion, exchange or exercise price per share (including
the price required to be paid to purchase such convertible or
exchangeable security or right)) less than 90 percent of the
market price per Vista Gold Share on such record date; or
(vi) fixes a record date for the making of a distribution to
substantially all holders of Vista Gold Shares of evidences of
indebtedness or assets (other than a regular periodic cash
dividend or a dividend paid in Vista Gold Shares but including
any dividend payable in securities other than Vista Gold
Shares) or rights or warrants entitling them to subscribe for
or purchase Vista Gold Shares (or securities convertible into
or exchangeable for or carrying a right to purchase or
subscribe for Vista Gold Shares) at a price per Vista Gold
Share (or, in the case of a security convertible into or
exchangeable for or carrying a right to purchase or subscribe
for Vista Gold Shares, having a conversion, exchange or
exercise price per share (including the price required to be
paid to purchase such convertible or exchangeable security or
right)) less than 90 percent of the market price per Vista
Gold Share on such record date.
With certain exceptions, no adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or decrease of at
least one percent in the Exercise Price. No fractional Vista Gold Shares will
be issued upon exercise of the Rights and, in lieu thereof, Vista Gold shall
pay to the registered holders of Rights an amount in cash equal to the same
fraction of the market value of one Vista Gold Share on the date of exercise of
the Rights.
Amendments
The Board of Directors of Vista Gold may from time to time supplement
or amend the Rights Agreement without the approval of any holders of Rights to
make any changes which the Board of Directors of Vista Gold acting in good
faith may deem necessary or desirable or to cure any ambiguity or to correct or
supplement any provision which may be inconsistent with any other provision or
which is otherwise defective. No supplements or amendments can be made after a
Flip-in Event if it materially adversely affects the interests of the holders
of Rights generally.
ELIGIBILITY FOR INVESTMENT
In the opinion of Ladner Downs, counsel to Granges, and Maitland &
Company, counsel to Da Capo, subject to compliance with the prudent investment
standards and general investment provisions and restrictions of the statutes
referred to below (and where applicable, the regulations thereunder) and, in
certain cases, subject to the satisfaction of additional requirements relating
to investment or lending policies or goals, and, in certain cases, the filing
of such policies or goals, the Vista Gold Shares would not, if the date hereof
were the Effective Date, be precluded as investments under the following
statutes:
<TABLE>
<S> <C>
Insurance Companies Act (Canada) An act respecting trust companies and saving
Trust and Loan Companies Act (Canada) companies (Quebec) (except trust companies with
Pension Benefits Standards Act, 1985 (Canada) respect to funds, other than deposits, which are
Financial Institutions Act (British Columbia) administered for other persons)
Loan and Trust Corporations Act (Alberta) An act respecting insurance (Quebec) (in respect
The Pension Benefits Act, 1992 (Saskatchewan) of insurers other than mutual associations,
The Insurance Act (Manitoba) professional corporations or guarantee fund
Loan and Trust Corporations Act (Ontario) corporations)
Pension Benefits Act (Ontario) Supplemental Pension Plans Act (Quebec)
</TABLE>
In the opinion of such counsel, the Vista Gold Shares when listed on a
prescribed stock exchange will be qualified investments for registered
retirement savings plans, registered retirement income funds and deferred
profit sharing plans under the Tax Act. Also, in the opinion of such counsel,
the Vista Gold Shares
- 51 -
<PAGE> 55
will not constitute "foreign property" under the Tax Act as currently enacted.
In the further opinion of such counsel, if the currently proposed amendments to
the Tax Act are enacted substantially as proposed, the Vista Gold Shares when
listed on a prescribed stock exchange in Canada will not constitute "foreign
property" under the Tax Act.
DIVIDEND POLICY
The payment of dividends by Vista Gold will be a matter to be
determined from time to time by the Board of Directors of Vista Gold. Neither
Granges nor Da Capo has, since the date of their respective incorporations,
declared or paid any dividends on their respective common shares. Earnings
have been retained to finance further exploration, development and
acquisitions.
AUDITORS AND REGISTRAR AND TRANSFER AGENT
Coopers & Lybrand, Chartered Accountants, at its principal offices in
Vancouver, British Columbia will be the auditors of Vista Gold until the first
annual meeting of the shareholders of Vista Gold.
Montreal Trust, at its principal transfer offices in Toronto,
Montreal, Halifax, Winnipeg, Regina and Vancouver, will be the registrar and
co-transfer agent for the common shares of Vista Gold. Bank of New York, at
its principal transfer office in New York, will be a co-transfer agent for the
common shares of Vista Gold.
COMPARATIVE TRADING HISTORY
The following table sets forth the high and low prices of the Granges
common shares and the volumes traded on The Toronto Stock Exchange and the
American Stock Exchange and the high and low prices of the Da Capo common
shares and the volume traded on the Vancouver Stock Exchange for the periods
indicated:
<TABLE>
<CAPTION>
GRANGES COMMON SHARES GRANGES COMMON SHARES DA CAPO COMMON SHARES
TORONTO STOCK EXCHANGE AMERICAN STOCK EXCHANGE VANCOUVER STOCK EXCHANGE
------------------------ -------------------------- ------------------------
PERIOD HIGH LOW VOLUME HIGH LOW VOLUME HIGH LOW VOLUME
------ ---- --- ------ ---- --- ------ ---- --- ------
(Cdn. $) (#) (U.S. $) (#) (Cdn. $) (#)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994
First Quarter 4.40 3.15 2,818,058 3.38 2.38 2,203,600 4.10 0.70 529,700
Second Quarter 3.95 2.70 721,227 2.94 1.88 958,900 4.70 3.50 311,600
Third Quarter 3.20 2.55 1,823,712 2.50 1.88 983,000 4.20 3.30 433,000
Fourth Quarter 3.20 1.91 2,094,282 2.44 1.38 1,466,200 5.00 3.65 674,700
1995
First Quarter 2.70 2.05 1,731,658 1.94 1.44 1,162,100 3.75 1.80 467,500
Second Quarter 2.85 2.31 2,232,468 2.19 1.69 1,009,800 2.90 1.65 1,006,900
Third Quarter 3.20 2.20 2,765,778 2.38 1.63 1,397,300 3.05 2.25 656,200
Fourth Quarter 2.80 2.22 3,638,121 2.13 1.63 946,200 2.55 1.91 1,018,300
1996
First Quarter 3.75 2.70 3,984,782 2.75 1.625 3,405,000 4.50 2.43 4,033,589
April 2.70 2.55 3,292,214 2.18 1.875 1,488,400 4.75 3.65 1,587,875
May 2.80 2.50 1,158,575 2.06 1.81 1,129,300 4.80 4.25 349,534
June 2.88 1.90 837,606 2.12 1.44 1,099,100 4.79 3.80 836,538
July 2.25 1.90 600,818 1.68 1.37 689,000 4.25 3.80 488,575
August 2.60 1.75 2,145,152 1.9375 1.25 844,200 4.65 3.60 963,352
September 1-15 2.48 2.15 280,745 1.8125 1.50 99,300 4.33 3.60 403,990
</TABLE>
- 52 -
<PAGE> 56
The closing price of the common shares of Granges on The Toronto Stock
Exchange and on the American Stock Exchange was Cdn. $2.01 and U.S. $1.56,
respectively, on July 31, 1996, immediately preceding the announcement of the
proposed Amalgamation, and Cdn. $2.13 and U.S. $1.50, respectively, on
September 13, 1996 which was the last day on which the common shares of Granges
traded prior to the approval of the Amalgamation Agreement by the Boards of
Directors of Granges and Da Capo.
The closing price of the common shares of Da Capo on The Vancouver
Stock Exchange was Cdn. $3.90 on July 31, 1996, immediately preceding the first
announcement of the proposed Amalgamation, and Cdn. $3.75 on September 13, 1996
which was the last day on which the common shares of Da Capo traded prior to
the approval of the Amalgamation Agreement by the Boards of Directors of
Granges and Da Capo.
RISK FACTORS
The Granges Shareholders and Da Capo Shareholders should carefully
consider each of the following risk factors in deciding whether or not to vote
in favour of the Granges Resolution or Da Capo Resolution.
FLUCTUATING PRICES
Granges' and Da Capo's revenues are, and Vista Gold's revenues are
expected to be, in large part derived from the mining and sale of gold and
other precious and base metals or interests related thereto. The price of
those commodities has fluctuated widely, particularly in recent years, and is
affected by numerous factors beyond the control of Granges, Da Capo or Vista
Gold, including international, economic and political trends, expectations of
inflation, currency exchange fluctuations, interest rates, global or regional
consumption patterns (such as the development of gold coin programs),
speculative activities and increased production due to new mine developments
and improved mining and production methods. The effect of these factors on the
price of base and precious metals, and therefore the economic viability of any
of Granges', Da Capo's or Vista Gold's projects, cannot accurately be
predicted.
EXPLORATION AND DEVELOPMENT
All of the mineral properties which Da Capo owns and all of the
mineral properties owned by Granges or to be owned by Vista Gold, other than
the Hycroft Mine, are in the exploration and development stages only. Mineral
exploration and development involves a high degree of risk and few properties
which are explored are ultimately developed into producing mines. There is no
assurance that Granges', Da Capo's or Vista Gold's mineral exploration and
development activities will result in any discoveries of commercial bodies of
ore. The long-term profitability of Granges', Da Capo's or Vista Gold's
operations will be in part directly related to the cost and success of its
exploration programs, which may be affected by a number of factors beyond the
control of Granges, Da Capo or Vista Gold.
Substantial expenditures are required to establish ore reserves
through drilling, to develop metallurgical processes to extract metal from the
ore and, in the case of new properties, to develop the mining and processing
facilities and infrastructure at any site chosen for mining. Although
substantial benefits may be derived from the discovery of a major mineralized
deposit, no assurance can be given that minerals will be discovered in
sufficient quantities to justify commercial operations or that the funds
required for development can be obtained on a timely basis.
OPERATING HAZARDS AND RISKS
Mineral exploration involves many risks, which even a combination of
experience, knowledge and careful evaluation may not be able to overcome.
Operations in which Granges, Da Capo and Vista Gold have direct or indirect
interests will be subject to all the hazards and risks normally incidental to
exploration, development and production of gold and other metals, any of which
could result in work stoppages, damage to property and possible environmental
damage. Although Granges and Da Capo have obtained, and Vista
- 53 -
<PAGE> 57
Gold will obtain, liability insurance in an amount which they consider
adequate, the nature of these risks is such that liabilities might exceed
policy limits, the liabilities and hazards might not be insurable against, or
any of Granges or Da Capo or Vista Gold might not elect to insure itself
against such liabilities due to high premium costs or other reasons, in which
event Granges, Da Capo or Vista Gold could incur significant costs that could
have a materially adverse effect upon their financial condition.
MINORITY INTEREST IN PROPERTIES
Certain third parties hold minority interests in certain of Da Capo's
properties or will hold interests in Vista Gold's properties. Under Bolivian
law, a minority interest in a mining concession is an undivided interest in
that concession and the holder of such a minority interest may take actions to
restrict all exploration and development of the mining concessions by the
holder of the majority interest if such exploration and development is
conducted without the minority owner's permission. Furthermore, if the
majority and minority parties wish to separate their interests, but are unable
to agree as to the method of division or purchase of the property, the parties
must file a request for division before a Bolivian civil court.
CALCULATION OF RESERVES AND GOLD RECOVERY
There is a degree of uncertainty attributable to the calculation of
reserves and corresponding grades being mined or dedicated to future
production. Until reserves are actually mined and processed, the quantity of
ore and grades must be considered as an estimate only. In addition, the
quantity of reserves and ore may vary depending on metal prices. Any material
change in the quantity of reserves, mineralization, grade or stripping ratio
may affect the economic viability of Granges', Da Capo's or Vista Gold's
properties. In addition, there can be no assurance that gold recoveries or
other metal recoveries in small scale laboratory tests will be duplicated in
larger scale tests under on- site conditions or during production.
ENVIRONMENTAL FACTORS
All phases of Granges', Da Capo's and Vista Gold's operations are
subject to environmental regulation. Environmental legislation is evolving in
a manner which will require stricter standards and enforcement, increased fines
and penalties for non-compliance, more stringent environmental assessments of
proposed projects and a heightened degree of responsibility for companies and
their officers, directors and employees. There is no assurance that future
changes in environmental regulation, if any, will not adversely affect
Granges', Da Capo's or Vista Gold's operations.
COMPETITION AND AGREEMENTS WITH OTHER PARTIES
The mining industry is intensely competitive in all of its phases, and
Granges and Da Capo compete with, and Vista Gold will compete with, many
companies possessing greater financial resources and technical facilities than
themselves. Competition in the mining business could adversely affect
Granges', Da Capo's or Vista Gold's ability to acquire suitable producing
properties or prospects for mineral exploration in the future.
CASH FLOW
Da Capo Company's properties are currently being assessed for
exploration and development and as a result, Da Capo has no source of operating
cash flow. Any further significant work would likely require additional equity
or debt financing. Da Capo has limited financial resources and there is no
assurance that additional funding will be available to allow Da Capo to fulfil
its obligations on existing properties. Failure to obtain additional financing
could result in the delay or indefinite postponement of further exploration and
development.
CONFLICTS OF INTEREST
Certain directors of Granges and Da Capo are, and certain initial
directors of Vista Gold will be, officers and/or directors of, or are
associated with other natural resource companies that acquire interests in
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<PAGE> 58
mineral properties. Such associations may give rise to conflicts of interest
from time to time. In the event that any such conflict of interest arises, a
director who has such a conflict will disclose the conflict to a meeting of the
directors of the company in question and will abstain from voting for or
against approval of any matter in which such director may have a conflict. In
appropriate cases, the company in question will establish a special committee
of independent directors to review a matter in which several directors, or
management, may have a conflict. In accordance with the laws of British
Columbia, the directors of all companies are required to act honestly, in good
faith and in the best interests of a company for which they serve as a
director.
TITLE TO ASSETS
Although Granges and Da Capo have reviewed and are satisfied with the
title for all mineral properties in which they have a material interest, there
is no guarantee that title to such concessions will not be challenged or
impugned.
POLITICAL AND ECONOMIC INSTABILITY IN SOUTH AMERICA
Certain of Granges' exploration and development activities occur in
Venezuela and Ecuador, all of Da Capo's exploration and development activities
occur in Bolivia and certain of Vista Gold's exploration and development
activities will occur in the aforementioned countries. As a result, Granges,
Da Capo or Vista Gold may be affected by possible political or economic
instability in those countries. The risks include, but are not limited to:
military repression, extreme fluctuations in currency exchange rates and high
rates of inflation. Changes in mining or investment policies or shifts in
political attitude in the aforementioned countries may adversely affect
Granges', Da Capo's or Vista Gold's business. Operations may be affected in
varying degrees by government regulations with respect to restrictions on
production, price controls, export controls, income taxes, expropriation of
property, maintenance of claims, environmental legislation, land use, land
claims of local people, water use and mine safety. The effect of these factors
cannot be accurately predicted.
FOREIGN CURRENCY
Granges's operations throughout North and South America and Da Capo's
operations in Bolivia render each of them, and Vista Gold's operations
throughout North and South America will render it, subject to foreign currency
fluctuations which may materially affect financial position and results.
Neither Granges nor Da Capo engage in currency hedging to offset any risk of
currency fluctuations.
GRANGES INC.
OVERVIEW
Granges was originally incorporated on November 28, 1983 under the
Company Act (British Columbia) and on May 1, 1995 amalgamated with Hycroft
Resources & Development Corporation under the name "Granges Inc.".
Granges is engaged, directly and through joint ventures, in the
exploration for and the acquisition, development and operation of mineral
properties in North and South America. Since 1971, Granges and its predecessor
companies, previously owned by Granges AB of Sweden, have held participating
interests in six mines, four of which were discovered by Granges. Granges has
operated four of the six mines. Granges's principal mining operation is the
Hycroft mine (formerly known as the Crofoot/Lewis mine) in the United States
which produces gold and by-product silver. In 1995, the Hycroft mine produced
approximately 101,000 ounces of gold at a cash cost of U.S. $272 per ounce.
Granges also has 22 undeveloped mineral properties covering approximately
180,800 hectares (446,750 acres) in various stages of evaluation. In 1995,
Granges acquired a 41 percent equity interest in Zamora Gold Corp., a Canadian
mineral exploration company
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<PAGE> 59
that controls a large land position in the Nambija gold district of southern
Ecuador. In 1996, Granges acquired an option to purchase the Guariche mining
concessions in Venezuela.
Granges's head office is situated at Suite 3000 - 370 Seventeenth
Street, Denver, Colorado, 80202, U.S.A. and its registered and records offices
are situated at Suite 709 - 700 West Pender Street, Vancouver, British
Columbia, V6C 1G8. Granges' telephone number at such office is (604) 687-2831.
The common shares in the capital of Granges are listed on The Toronto Stock
Exchange and the American Stock Exchange and trade under the symbol "GXL".
NO RELATIONSHIP TO DA CAPO INSIDERS
None of the directors or officers of Granges are directors or officers
of Da Capo, and none of the directors or officers of Da Capo are directors or
officers of Granges. The only person known to Granges who beneficially own
common shares of Granges carrying more than ten percent of the votes attached
to all common shares of Granges is Atlas Corporation which does not, to
Granges' knowledge, beneficially own any common shares of Da Capo. The only
persons known to Granges who beneficially own common shares of Da Capo carrying
more than ten percent of the votes attached to all common shares of Da Capo are
Ross Beaty and his associated companies who do not, to Granges' knowledge,
beneficially own any common shares of Granges.
DOCUMENTS INCORPORATED BY REFERENCE
Certain disclosure documents of Granges are incorporated by reference
into this Joint Management Information Circular. See "Incorporation of Certain
Information by Reference".
RECENT DEVELOPMENTS
SPECIAL WARRANT OFFERING
Pursuant to an underwriting agreement dated as of April 15, 1996 among
ScotiaMcLeod Inc., First Marathon Securities Limited, Yorkton Securities Inc.
and Goepel Shields & Partners Inc. (collectively, the "Underwriters") and
Granges on April 25, 1996, Granges issued and sold 9,699,800 special warrants
(the "Underwritten Special Warrants") at a price of Cdn. $2.60 per Underwritten
Special Warrant under exemptions from the prospectus requirements of applicable
securities legislation. Each Underwritten Special Warrant entitled the holder
thereof to acquire one common shares of Granges and one-half of one common
share purchase warrant of Granges (an "Underwritten Warrant") at no additional
cost. On July 8, 1996, the Underwritten Special Warrants were deemed exercised
and the Company issued 9,699,800 common shares of Granges and 4,849,900
Underwritten Warrants to holders of the Underwritten Special Warrants.
The gross proceeds to Granges from the sale of the Underwritten
Special Warrants, which were received by the Company on July 9, 1996, were Cdn.
$25,219,480. A fee of $0.13 per Underwritten Special Warrant was paid by
Granges to the Underwriters in connection with the issue and sale of the
Underwritten Special Warrants. No additional fee was paid to the Underwriters
in connection with the issue of common shares of Granges and Underwritten
Warrants upon the deemed exercise of the Underwritten Special Warrants. The
expenses of the issue of the Underwritten Special Warrants, estimated to be
Cdn. $200,000, were borne by Granges.
The Underwritten Warrants were issued in registered form pursuant to a
warrant indenture dated as of April 25, 1996 (the "Underwritten Warrant
Indenture") between Granges and Montreal Trust. Each whole Underwritten
Warrant entitles the holder thereof to acquire one common share of Granges at a
price of Cdn. $3.00 until 4:30 p.m. (local time) on October 31, 1997, after
which time the Underwritten Warrants will become null and void. Under the
Underwritten Warrant Indenture, Granges may, from time to time, purchase
Underwritten Warrants in the market, by private contract or otherwise. No
adjustment as to cash dividends paid in the ordinary course will be made upon
any exercise of Underwritten Warrants. Holders of
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<PAGE> 60
Underwritten Warrants do not have any voting or pre-emptive rights or any other
rights as shareholders of Granges.
The Underwritten Warrant Indenture provides that the rights conferred
by the Underwritten Warrants will be subject to adjustment in certain
circumstances including, subject to certain restrictions, any reorganization of
the share capital of Granges by way of consolidation, subdivision, merger,
amalgamation, arrangement or otherwise where the payment of stock dividends or
making of other distributions in cash, property or securities to all or
substantially all of Granges' shareholders occurs.
GUARICHE OPTION AGREEMENT
On June 7, 1996 Granges entered into a definitive option agreement
(the "Guariche Option Agreement") with LB Mining Co. Ltd. ("L.B. Mining") under
which Granges has been granted the right to conduct exploration drilling and
technical studies on mining concessions ("the Guariche Properties") owned by
two wholly-owned subsidiaries of L.B. Mining which are organized under the
laws of Venezuela, Corporacion Minera Nacional, C.A. and Aerominas, C.A.
(collectively, the "L.B. Subsidiaries"), during an option period which
terminates 150 days after the Second Option Payment (as defined below) and the
right to acquire the LB Subsidiaries which own the Guariche Properties (the
"Guariche Option"). The consideration to be paid for the Guariche Option is
U.S.$275,000 payable as to U.S.$125,000 (the "First Option Payment") upon
receipt of documentation evidencing the LB Subsidiaries' ownership of the
necessary exploitation concessions and occupancy permits for the Guariche
Properties and as to U.S.$150,000 (the "Second Option Payment") upon receipt of
exploration drilling permits for and upon Granges being satisfied there are no
remaining overriding interests in the Guariche Properties. If the condition to
the First Option Payment is satisfied by June 15, 1996 and the conditions to
the Second Option Payment are satisfied by July 15, 1996 then Granges will be
required to incur minimum exploration expenditures on the Guariche Properties
of U.S.$350,000 during the option period. If the conditions to the First
Option Payment or the Second Option Payment are not satisfied, Granges has the
right to terminate the agreement or extend the date of the Second Option
Payment by a further 30 days. Multiple 30 day extensions are permitted, but
not beyond December 15, 1996. If, after making the Second Option Payment,
Granges terminates its exploration activities without meeting its expenditure
commitment of U.S.$350,000 during the option period, it must pay LB Mining a
break-off fee of U.S.$500,000. To date, the condition to the First Option
Payment has not been satisfied and Granges has granted three consecutive 30 day
extensions.
If drilling and technical studies completed during the option period
satisfy Granges that the Guariche Properties potentially contain a minimum
proven and probable mineable reserve of 500,000 ounces or more of gold, Granges
intends, but will not be obligated, to exercise the Guariche Option to purchase
the LB Subsidiaries for U.S.$15,000,000 payable as to U.S.$10,000,000 in cash
and as to U.S.$5,000,000 in the form of 2,047,938 common shares of Granges to
be issued, at a deemed price of Cdn. $3.35 (U.S.$2.44148) per share, upon the
deemed exercise of the Class A Warrants (as defined below) in accordance with
the Class A and B Warrant Indenture (as defined below). If the value of the
common shares of Granges issuable upon exercise of the Class A Warrants,
calculated upon the basis of the average trading price of the common shares of
Granges on The Toronto Stock Exchange for the five business days immediately
preceding the exercise of the Class A Warrants, is less than U.S.$5,000,000,
Granges will pay LB Mining the difference in cash.
Under the terms of the purchase agreement to be entered into by
Granges and LB Mining at the time of exercise of the Guariche Option by
Granges, Granges will be obligated to incur at least U.S.$2,000,000 in
exploration expenditures during the next two years, with at least
U.S.$1,000,000 to be incurred during the first year. The purchase agreement
will also provide for semi-annual payments within two years of exercise of the
Guariche Option for proven and probable mineable reserves ("Excess Ounces")
established by Granges on the Guariche Properties over and above 500,000 ounces
at the rate of U.S.$30 per ounce. The purchase agreement will provide that if
more than 500,000 Excess Ounces (over 1,000,000 total ounces) are established
within two years after the exercise of the Guariche Option, LB Mining may elect
to take U.S.$5,000,000 of the U.S.$15,000,000 that it would then be owed for
the Excess Ounces in the form of 2,529,161 common shares of Granges, at a
deemed price of Cdn. $2.70 (U.S.$1.97694) per share, by exercising the Class B
Warrants (as defined below) in accordance with the Class A and B Warrant
Indenture.
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<PAGE> 61
The purchase agreement will also provide that if more than 500,000
additional Excess Ounces (over the Excess Ounces, if any, established within
the two years following the exercise of the Guariche Option) are established
within the three years following such two year period, then Granges will pay LB
Mining U.S.$30 per ounce for each additional Excess Ounce. If less than
500,000 of such additional Excess Ounces are established then, in lieu of the
U.S.$30 per ounce payment, Granges will pay LB Mining a net smelter production
royalty of 7.5% of net smelter returns from such additional Excess Ounces. The
net smelter royalty will also be paid on all additional ounces established
after the end of such three year period to the extent not previously paid for.
Granges will pay LB Mining a premium for each Excess Ounce produced
if, on the date of production of that Excess Ounce, the average P.M. fixing for
gold on the London Metal Exchange is U.S.$450 or more calculated as follows:
<TABLE>
<CAPTION>
SPOT PRICE PER OUNCE PREMIUM PER OUNCE
-------------------- -----------------
<S> <C>
U.S.$450.00 to $499.99 U.S.$3.00
U.S.$500.00 to $549.99 U.S.$5.00
U.S.$550.00 to $599.99 U.S.$7.00
</TABLE>
and for each similar increase of U.S.$50.00 in the price of gold over
U.S.$599.99, Granges will pay LB Mining an increased premium of U.S.$2.00 per
ounce of gold above the U.S.$7.00 premium.
On June 7, 1996, Granges issued 2,047,938 special warrants (the "L.B.
Special Warrants") to L.B. Mining pursuant to the Guariche Option Agreement.
On July 9, 1996, the L.B. Special Warrants were deemed exercised into 2,047,938
Class A common share pursuant warrants (the "Class A Warrants") and 2,529,161
Class B common share purchase warrants (the "Class B Warrants"). The Class A
Warrants and Class B Warrants were issued under the terms of a warrant
indenture (the "Class A and Class B Warrant Indenture") dated as of June 7,
1996 between the Company and Montreal Trust.
Upon Granges exercising the Guariche Option, each Class A Warrant will
be deemed exercised and will entitle LB Mining to receive one common share of
Granges, at the deemed price of Cdn. $3.35 (U.S.$2.44148) per share. In the
event that Granges does not exercise the Guariche Option during the option
period, the Class A Warrants will expire.
If more than 500,000 Excess Ounces are established by semi-annual
reserve studies within two years after the exercise of the Guariche Option, LB
Mining may elect to exercise the Class B Warrants within 15 days of being
notified of the establishment of such Excess Ounces in place of receiving
payment of U.S.$5,000,000 of the U.S.$15,000,000 that Granges would owe LB
Mining for such Excess Ounces. The Class B Warrants will terminate upon the
earlier of:
(a) the expiry of the option period, if Granges has not exercised
the Guariche Option;
(b) ten days after the fourth semi-annual reserve study following
the exercise of the Guariche Option, if more than 500,000
Excess Ounces are not established; or
(c) ten days after LB Mining elects to receive all of its payment
from Granges for any Excess Ounces in cash.
The Class A and B Warrant Indenture provides that the rights conferred
by the Class A Warrants and Class B Warrants will be subject to adjustment in
certain circumstances including, subject to certain restrictions, any
reorganization of the share capital of Granges by way of consolidation,
subdivision, merger, amalgamation, arrangement or otherwise, or the payment of
stock dividends or making of other distributions in cash, property or
securities to all or substantially all of Granges's shareholders.
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<PAGE> 62
No adjustments as to cash dividends paid in the ordinary course will
be made upon any exercise or deemed exercise of Class A Warrants or Class B
Warrants. The holder of the Class A Warrants and Class B Warrants will not
have any voting or pre-emptive rights or any other rights as a shareholder of
Granges. A copy of the Class A and B Warrant Indenture will be available for
examination during normal business hours at the registered office of Granges
from the date hereof up to and including the date of the Granges Meeting.
The Class A Warrants and Class B Warrants are not transferable.
SHARE CAPITAL
Granges is authorized to issue 750,000,000 common shares without par
value, of which 55,881,461 common shares are issued and outstanding as of the
date of this Joint Management Information Circular, and 750,000,000 preferred
shares without par value, of which none are issued.
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION OF GRANGES
The following table sets forth selected historical consolidated
financial and operating information for Granges for the six months ended June
30, 1996 and 1995 and the three years ended December 31, 1995. This
information is based upon, and should be read in conjunction with the audited
consolidated financial statements of Granges, including notes thereto, set out
in Schedule G to this Joint Management Information Circular. THE DOLLAR
AMOUNTS IN THE FOLLOWING TABLE ARE IN U.S. DOLLARS.
GRANGES INC.
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEARS ENDED DECEMBER 31
-------------- ----------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(unaudited) (audited)
(thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Working capital $28,514 $28,944 $21,672 $30,460 $ 21,197
Cash and cash equivalents (and funds held in escrow) 22,146 22,244 15,210 33,045 719,557
Total assets 86,018 62,639 64,216 72,444 60,950
Bank loan - 138 - - 3,650
Shareholders' equity 68,208 54,033 54,568 54,568 48,579
OPERATING RESULTS
Sales
Trout Lake mine (1) n/a n/a n/a 2,386 10,450
Hycroft mine 16,408 21,728 41,294 37,485 30,054
------ ------- ------- ------- --------
16,408 21,728 41,294 39,871 40,504
Results of mining operations
Trout Lake mine (1) n/a n/a n/a (329) 406
Hycroft mine (1,791) 2,597 3,305 2,195 351
------- ------- ------- ------- --------
(1,791) 2,597 3,305 1,866 756
------- ------- ------- ------- --------
Net earnings (loss) (4,897) 1,210 2,159 5,117 2,022
Net earnings (loss) per common share (0.11) 0.03 0.05 0.15 0.06
</TABLE>
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<PAGE> 63
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEARS ENDED DECEMBER 31
-------------------- ----------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING STATISTICS
Trout Lake mine (Granges' share) (1)
Cash cost per ton ($) n/a n/a n/a 54 41
Pounds of copper produced (thousands) n/a n/a n/a 1,357 7,375
Pounds of zinc produced (thousands) n/a n/a n/a 6,738 29,869
Ounces of gold produced n/a n/a n/a 2,229 9,973
Proven and probable reserves (thousands of tons) n/a n/a n/a n/a 5,144
Hycroft mine
Cash cost per ounce (US$) (2) 287 273 272 294 281
Ounces of gold produced 39,635 51,360 101,128 94,868 86,516
Proven and probable reserves (millions of tons) (4) n/a n/a 58.8 66.5(3) 56.7
</TABLE>
Notes:
(1) The joint venture interest of Granges in the Trout Lake mine was
sold effective March 31, 1994.
(2) Direct operating cash costs which is the sum of mining costs
(excluding deferred waste stripping) and
processing and mine administration costs, net of silver credits.
(3) Grading 0.019 ounce of gold per ton, of which 61,133,000 tons at a
grade of 0.019 ounce of gold per ton are proven.
(4) Proven and probable reserves are reported as at December 31 each
year. See Granges' annual report on Form 10-K for the fiscal year
ended December 31, 1995 annexed as Schedule I to this Joint
Management Information Circular.
DA CAPO RESOURCES LTD.
NAME AND INCORPORATION
Da Capo was incorporated under the Company Act (British Columbia) on
March 24, 1986 under the name Pope Valley Holdings Ltd. Effective February 28,
1994, Da Capo changed its name to Consolidated Pope Valley Holdings Ltd., and
effective May 5, 1994 Da Capo changed its name to Da Capo Resources Ltd.
Da Capo's head office is situated at 1500 - 625 Howe Street,
Vancouver, British Columbia, V6C 2T6. Da Capo's telephone number at such
office is (604) 684-1175. Da Capo's registered and records office is situated
at 700 - 625 Howe Street, Vancouver, British Columbia, V6C 2T6. Da Capo is a
reporting issuer in the Province of British Columbia. The common shares in the
capital of Da Capo (the "Da Capo Common Shares") are listed on the Vancouver
Stock Exchange (the "VSE") and trade under the symbol "DCX".
Da Capo has established a Bolivian branch office under the laws of
Bolivia - Da Capo Resources Ltd. Sucursal del Bolivia ("Da Capo Bolivia"), and
its principal office in Bolivia is located at Av. Villazon, Pasaje Trigo #451,
La Paz, Bolivia. Da Capo also beneficially owns a 100% interest in Sociedad
Industrial Minera Yamin Ltda. ("Yamin"), a Bolivian limited liability company
with an office at Av. Villazon, Pasaje Trigo #451, La Paz, Bolivia.
BUSINESS OF DA CAPO
Da Capo is engaged in the location, acquisition, exploration and
development of gold properties in Bolivia. All of the properties in which Da
Capo has an interest are currently in either the exploration or exploration and
development stage. Da Capo's primary objective is to explore and develop its
existing gold properties. Its secondary objective is to selectively locate,
evaluate and acquire other gold properties in Bolivia and to finance their
exploration and development through equity financing, joint ventures, option
agreements or through a combination of all three.
Da Capo has recently acquired interests in two properties - the
Amayapampa property and the Capa Circa property - which host partially-explored
gold deposits. Da Capo is currently assessing the feasibility of
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<PAGE> 64
development of the Amayapampa and Capa Circa properties through two open pit
mines that would supply mineralized material to a centralized processing
facility. Processing would include milling, sulfide concentration,
concentration roasting and roasted concentrate leaching of gold. Currently,
the two properties are being mined by small-scale underground methods. The
existing mine at the Amayapampa property will be shut down by September 1996 to
permit Da Capo to commence further development on the property. Da Capo also
holds or has rights to acquire interests in several other mineral properties
located in the same region of Bolivia (the Irpa Irpa, Copacabana, San Gerardo
and Santa Isabel properties). See "Properties". Other properties will be
added to Da Capo's land base in Bolivia depending on results from Da Capo's
acquisition efforts and the exploration programs at the Amayapampa and Capa
Circa properties.
Prior to 1994 under its previous management and corporate name, Da
Capo, through its wholly owned United States subsidiary, P.V.W., Inc. ("PVW"),
was in the business of purchasing bulk wine for bottling and resale, producing
an estate bottled wine and custom crushing and bottling wine for growers in the
area surrounding PVW's Pope Valley Winery, located in the Pope Valley region of
northern California's Napa Valley. Da Capo closed down the winery operation in
February 1992 when foreclosure proceedings were commenced against PVW. Da Capo
sold PVW for nominal value on May 26, 1994. Prior to 1994, Da Capo had no
interests in any mineral properties. Da Capo has no ongoing liabilities or
commitments in connection with the debts of its former subsidiary, PVW, arising
from guarantees or otherwise.
In early 1994, a new management team was formed to manage Da Capo's
affairs. From January through May 1994, Da Capo was substantially reorganized
through completion of: a name change from Consolidated Pope Valley Holdings
Ltd. to Da Capo Resources Ltd.; a 5:1 share consolidation; a Cdn. $1,000,000
equity financing to repay Da Capo's existing indebtedness (including Cdn.
$838,580 to repay accrued contractual obligations in respect of wages and lease
payments contractually owing from PVW to a former director and officers of Da
Capo) and a Cdn. $500,000 equity financing to provide working capital. The new
management team changed Da Capo's focus to the acquisition and exploration of
mineral properties in Bolivia and on May 27, 1994, Da Capo raised Cdn.
$10,500,000 in equity financing on a private placement basis.
Da Capo employs 24 full-time employees and four part-time employees in
both Canada and Bolivia, including seven geologists and one metallurgical
engineer.
NO RELATIONSHIP TO GRANGES INSIDERS
None of the directors or officers of Da Capo are directors or officers
of Granges, and none of the directors or officers of Granges are directors or
officers of Da Capo. The only persons known to Da Capo who beneficially own Da
Capo Common Shares carrying more than ten percent of the votes attached to all
common shares of Da Capo are Ross Beaty and his associated companies who do
not, to Da Capo's knowledge, beneficially own any common shares of Granges.
The only person known to Da Capo beneficially owning common shares of Granges
carrying more than ten percent of the votes attached to all common shares of
Granges is Atlas Corporation which does not, to Da Capo's knowledge,
beneficially own any Da Capo Common Shares.
PROPERTIES
Da Capo has recently acquired interests in two principal mineral
properties (the Amayapampa property and the Capa Circa property), as set out
below. Da Capo also owns or has rights to acquire interests in several other
mineral properties located in the same region as the Amayapampa and Capa Circa
properties (the Irpa Irpa, Copacabana, San Gerardo and Santa Isabel
properties), as set out below. Da Capo is currently assessing the feasibility
of plans to develop the Amayapampa and Capa Circa properties as two open pit
mines that would supply mineralized material to a centralized processing
facility. Currently, the two properties are being mined by small-scale
underground methods. The existing mine on the Amayapampa property will be shut
down by September 1996 to permit Da Capo to commence with further development
on the property.
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<PAGE> 65
INDEPENDENT PRELIMINARY EVALUATION OF FEASIBILITY
Pincock, Allen & Holt ("PAH"), a division of Hart Crowser Inc., an
independent minerals industry consulting firm, with an office at 274 Union
Boulevard, Suite 200, Lakewood, Colorado, 80228, was retained by Da Capo to
conduct a preliminary study (the "PAH Study") of the feasibility of Da Capo's
Amayapampa and Capa Circa properties in Bolivia. The PAH Study is based on
internal reports of Da Capo and a site visit during mid-December 1995 to
observe first hand the site layout and to discuss the project directly with
representatives of Da Capo. The principal author of the evaluation was Mark G.
Stevens, C.P.G.
Copies of the PAH Study are available for inspection at Da Capo's head
office at 1500 - 625 Howe Street, Vancouver, British Columbia, V6C 2T6, during
normal business hours from the date hereof until October 22, 1996, which is the
date of the Granges Meeting and the Da Capo Meeting. PAH has reviewed and
agrees with the disclosure set out herein under the headings "Properties -
Amayapampa Property", "Properties - Capa Circa Property", and "Properties -
Preliminary Results and Recommendations for Development of Amayapampa and Capa
Circa Properties" which, in part, summarizes information contained in the PAH
Study.
The PAH Study will be used by Da Capo for an internal study on the
current potential of the Amayapampa and Capa Circa properties. Information,
opinions, and conclusions presented in the PAH Study are based on data supplied
by Da Capo. Further work is required in order to prepare a full feasibility
report.
TECK AGREEMENT
Pursuant to a letter agreement between Da Capo and Teck Corporation
("Teck") accepted June 8, 1994 (the "Teck Agreement"), Da Capo granted Teck
certain rights in consideration for Teck's assistance in locating and
evaluating the Amayapampa property and Capa Circa property during Da Capo's
initial activities in early 1994 in Bolivia.
The Teck Agreement provided that if Da Capo should in the future
desire to solicit or receive any offer from an independent third party dealing
at arms length with Da Capo (a "Proposed Purchaser") to provide either debt
financing or equity financing through the purchase of common shares or
preferred shares of Da Capo or its affiliates where more than 50 percent of the
net proceeds from any such debt or equity financing would be dedicated to
funding expenditures on one or more mineral properties in Bolivia, or to
acquire any of Da Capo's interests in mineral properties in Bolivia, Da Capo
would first offer Teck the opportunity to provide such debt or equity financing
or acquire such mineral property on terms no less favourable than those offered
by the Proposed Purchaser.
Pursuant to a letter agreement (the "September 1996 Agreement") dated
September 4, 1996 from Da Capo to Teck, and accepted by Teck on September 6,
1996 and agreed to by Da Capo, Granges, David O'Connor, Yamin, Altoro (as
hereinafter defined), Ross J. Beaty and MANISA Gold on September 12, 1996, Teck
agreed to terminate its rights under the Teck Agreement and, except for the
joint venture agreement for the San Gerardo property described below, under all
pre- existing agreements concerning Bolivia between Teck and any of the other
parties to the September 1996 Agreement. The parties to the September 1996
Agreement also agreed:
(a) that Teck will transfer its 51 percent interest in a joint
venture agreement between Teck and Da Capo relating to the San
Gerardo property described below to MANISA Gold;
(b) except as provided in subparagraph (a) above, none of the
parties other than Da Capo and Yamin have any right, title or
interest in any existing or future properties or projects of
Da Capo or Yamin in Bolivia; and
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(c) interests in certain other properties in Bolivia held by
Altoro, which are all located more than 50 kilometers from any
properties in which Da Capo has an interest, will be
transferred to MANISA Gold by Altoro.
AMAYAPAMPA PROPERTY
Summary
The Amayapampa property consists of 24 mining concessions covering
1,657 hectares and currently supports a small-scale underground gold mine. The
mine currently operates at 100 tonnes per day, employs about 150 miners and
includes two on-site mills. The Amayapampa property contains a series of
quartz veins within a mineralized zone that ranges from 40 to 70 metres wide
and can be traced for more than one kilometre along strike. The upper 25 to 30
metres of the deposit have been oxidized. The PAH Study indicates an in pit
mineral inventory of 8.5 million tonnes at a grade of 2.51 grams of gold per
tonne and a 4.2:1 strip ratio (waste:ore).
Location and Access
The 24 mining concessions that constitute the Amayapampa property have
a total area of approximately 1,657 hectares.
The Amayapampa property is located 300 kilometres southeast of La Paz
in Bustillo Province, Department of Potosi, in south-central Bolivia (Lat:
18degrees 34.5" S; Long: 66degrees 22.4" W). The Amayapampa property is
accessible via gravel road from Oruro to Llallagua/Uncia (110 kilometres or
approximately 2 1/2 hours) and a dirt road southeast from Uncia to the villages
of Lagunillas and Chuqui Uta (approximately 1/2 hour). An approximately 15
kilometre spur road leads northeast from Lagunillas to the Amayapampa property.
A regional, high-tension power line runs along the west side of the Amayapampa
property.
The Amayapampa property is situated within the moderately rugged
Eastern Cordilleran region of Bolivia with elevations varying from 3,750 metres
to 4,100 metres above sea level. The area is arid with rain falling minimally
as thunder showers during the summer months of January to March. Occasional
snow is reported during the drier winter months of May to August.
Ownership
On April 28, 1994, Da Capo entered into an agreement with Mr. David
Anthony O'Connor of Casilla 11314, La Paz, Bolivia and La Compania Minera
Altoro S.R.L. ("Altoro") of Casilla 11314, La Paz, Bolivia, both parties at
arm's length to Da Capo, which was amended by agreements dated June 10, 1994
and July 15, 1994 (the "Altoro/O'Connor Agreement"), pursuant to which Mr.
O'Connor and Altoro assigned to Da Capo:
(a) Altoro's exclusive right and option to acquire a 51 percent
interest in eight mining concessions that constitute a part of
the Amayapampa property (and a further option to acquire an
additional 19 percent interest in such concessions), pursuant
to an option agreement dated March 22, 1994 (the "Amayapampa
Option") between Altoro and Racl Garafulic Gutierrez ("R.
Garafulic") of Ave. Argentina No. 2057, Casilla 9285, La Paz,
Bolivia and Compania Explotadora de Minas S.A. ("CEM", and
collectively with R. Garafulic, the "Amayapampa Vendors") of
Calle San Salvador 1421, Casilla 4962, La Paz, Bolivia. The
Amayapampa Vendors are both parties at arm's length to Da
Capo;
(b) Mr. O'Connor's exclusive right and option to acquire the Capa
Circa property pursuant to an option agreement dated January
12, 1994 (the "Yamin Option Agreement") between Mr. O'Connor
and Yamin. See "Capa Circa Property - Ownership"; and
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(c) a 100 percent interest in the Santa Isabel property, for which
an exploration concession application had been made on behalf
of Altoro. See "Santa Isabel Property".
As consideration for the assignment of the above interests, Da Capo issued a
total of 1,000,000 Da Capo Common Shares to Mr. O'Connor between June 30, 1994
and April 16, 1996.
On February 5, 1996 Da Capo exercised the Amayapampa Option and
acquired a 51 percent interest in the eight mining concessions that constitute
a part of the Amayapampa property in consideration for: (i) the cancellation of
a loan in the amount of U.S.$2,425,000 which had been previously made by Da
Capo to R. Garafulic on December 22, 1994; and (ii) payment of U.S.$75,000 by
Da Capo to R. Garafulic between March 22, 1994 and September 22, 1994.
On March 8, 1996 Da Capo entered into an agreement (the "Amayapampa
Acquisition Agreement") with the Amayapampa Vendors to acquire the following
interests in the Amayapampa property:
(a) R. Garafulic's remaining 24 percent interest in two mining
concessions (the Gran Porvenir and Chayentena concessions)
that constitute a part of the Amayapampa property;
(b) R. Garafulic's 49 percent interest in six mining concessions
that constitute a part of the Amayapampa property; and
(c) CEM's 100 percent interest in 16 mining concessions that
constitute a part of the Amayapampa property.
In consideration for these interests, Da Capo:
(a) issued 1,000,000 special warrants (the "Amayapampa Special
Warrants"), each exercisable to acquire one Da Capo Common
Share without further payment, to a nominee of the Amayapampa
Vendors on April 11, 1996; and
(b) made a non-recourse, interest-free loan of U.S.$3.24 million
(the "Amayapampa Loan") to a nominee of the Amayapampa Vendors
on April 11, 1996.
The Amayapampa Loan was secured by an assignment of all proceeds from the sale
of any of 1,000,000 Da Capo Common Shares held by such nominee. The Amayapampa
Loan was cancelled on April 29, 1996 upon the sale of such Da Capo Common
Shares and Cdn. $4,355,000 received from the proceeds of such sale on or before
May 7, 1996.
After being acquired by the Amayapampa Vendors, the Amayapampa Special
Warrants were transferred to third parties at arm's length to Da Capo in
transactions exempt from prospectus requirements under the relevant securities
legislation.
On August 14, 1996 Da Capo issued 1,000,000 Da Capo Common Shares
without payment of any additional consideration upon the deemed exercise of the
Amayapampa Special Warrants.
Under the terms of the Amayapampa Acquisition Agreement, CEM could
continue operating the Amayapampa mine at current levels of production up to
August 11, 1996. Thereafter, CEM has agreed to move, at its own risk, all
existing mining equipment, machinery, tools and generators from the Amayapampa
property. The Amayapampa Vendors will also remove at their own risk
approximately 1,500 tonnes of auriferous pyritic dumps currently located on the
Amayapampa property by September 8, 1996.
All of Da Capo's interests in the Amayapampa property were transferred
into the name of its subsidiary, Yamin, on April 11, 1996.
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Ms. Elizabeth Mirabel, a resident of Bolivia at arm's length to Da
Capo, holds the remaining 25 percent interest in the Gran Porvenir and
Chayentena mining concessions, which constitute 604 hectares of the Amayapampa
property. On June 28, 1996, Da Capo and Ms. Mirabel entered into a lease
agreement (the "Lease") under which Ms. Mirabel granted a lease for her 25
percent interest in the two mining concessions in favour of Da Capo for a term
of ten years commencing July 10, 1996 and renewable for an additional ten year
term. During the first two years of the Lease, Da Capo will pay Ms. Mirabel
U.S.$7,000 per month, and U.S.$10,000 per month for the subsequent eight years.
History
The Amayapampa district was first mined during the colonial period.
Small-scale mining continued until modern times and recently the main deposits
have been exploited by mechanized means. CEM is currently mining the
Amayapampa deposit, primarily by open stoping methods at a rate of
approximately 100 tonnes per day. Grade control practices are not used at the
mine and all mined material is processed by two mills.
The Amayapampa Mine is at present one of the largest producing
underground gold mines in Bolivia and consists of 32 levels of underground
development. Upper level, generally oxidized material is removed via the upper
Virtus Adit (4,100 metres) and trucked to the Porvenir mill while lower
sulphide material is dropped by ore passes to the 850 metre long Virquicocha
Adit (3,970 metres) and taken out by electric locomotives to the Virquicocha
mill. At both mills gold is recovered via amalgam plates and gravity tables.
The lower mill includes a flotation circuit to upgrade the pyrite concentrate.
Approximately 150 people work at the mine and live locally at the
village of Amayapampa and at other small camps near the mine.
Geology
The Amayapampa property is located on the east limb of a regional
anticline near the top of the Ordovician sequence. Host rocks consist of west
dipping black shales and siltstones, with interbedded sandstones. West of the
mine, west dipping Lower Silurian rocks lie beneath the Ordovician, suggesting
that the anticline is overturned. The mineralized zone appears to be localized
on a doubly plunging anticline. A number of west dipping faults with variable
offsets cut the mineralization.
The Amayapampa deposit is approximately 600 metres long along strike,
40 to 80 metres in width across the strike, and 250 metres in depth down near
the vertical dip. Further exploration may extend the strike length and may
find down-dip extensions. Cutting through the deposit area are both high and
low angle structures. The high angle, west dipping shears are often parallel
to bedding and commonly mineralized. The low angle shears are unmineralized
thrusts which have caused a series of westerly offsets to the mineralized zone.
Although the individual veins dip easterly, the result of the thrusting has
produced a westerly dipping zone of mineralization. The known mineralization
bottoms at a low angle thrust fault (Virqui Ckocha fault) which has an offset
of at least 50 metres.
Economic gold mineralization is contained in a series of anastomosing
quartz veins that cross cut pyritized sediments along a north-northwest
trending zone that is 40 to 70 metres wide. The veining has a steep easterly
dip and cuts the west dipping host rock sediments. The veins exhibit radical
changes in thickness and direction over as little as five metres. The best
veins follow structures but even the best of these cannot be traced more than
300 metres vertical or 100 metres laterally. Several types of mineralized
veins have been recognized, including the quartz- siderite-pyrite veins
currently being exploited. Stockworks consist of bull quartz veinlets hosted
by black shales forming three to four metre wide zones.
The mineralization contains free gold and pyrite with occasional
stibnite and arsenopyrite. Trace amounts of chalcopyrite, galena and
sphalerite have been observed in the drill core. Gold mineralization is also
found in the interbedded shales and sandstones associated with pyritization.
The pyrite occurs as large cubes, replacing sandy layers, as cross cutting
veinlets, and as clusters near quartz veins.
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Surficial oxidation is restricted to the upper 25-30 metres of the
deposit, with some deeper zones present along veins and structures. Weak
silification is associated with the veining but is not pronounced.
Previous Exploration
No systematic exploration of the Amayapampa deposits was carried out
by its owners until Da Capo optioned the property. Recent work by Da Capo has
included surface trenching, underground mapping and extensive channel sampling,
core and reverse circulation drilling. Da Capo is currently carrying out a
bulk sampling program. Twenty core holes have been drilled in the Amayapampa
deposit area for a total of 4,500 metres. The holes were drilled largely with
HQ size core and total recovery averaged 88 percent overall and 86 percent in
the ore zones. Fifty-five reverse circulation holes were drilled for a total
of 5,200 metres. For the reverse circulation drilling, samples were generally
collected at two metre intervals and were combined and assayed in four metre
intervals.
Underground channel sampling has been conducted along 4,050 metres of
underground workings representing 43 different levels and sublevels, extending
over a vertical distance of 208 metres.
Current deposit sample spacing (the distance between drill
holes/underground channel locations) ranges from five metres to 40 metres. The
PAH Study recommends that additional drilling be conducted in gap areas, and
that drilling and channel sample intervals not exceed two metres in order to be
able to accurately assess deposit grade variations.
All exploration samples in Da Capo's current database were analyzed at
Bondar-Clegg Laboratories in Oruro, Bolivia. Because of the coarse gold
particles and concerns about nugget effect, all samples were processed using
the Hammer Mill Process (similar to a metallic screen assay). Fifteen pulps
from the underground sampling were checked at Chemex Laboratories in Vancouver,
British Columbia. Da Capo did not find any significant variance and the PAH
Study noted a good comparison of the results. Nineteen underground channels
that were in excess of ten grams of gold per tonne over the initial five metre
sampling interval, were resampled over smaller intervals based on lithology.
Results from these were lower than the originals, the difference being
attributed to the nugget effect in the quartz veins.
PAH conducted a correlation analysis on duplicate samples taken from
certain reverse circulation holes and found that, although there was some grade
scattering which is typical of gold deposits, there was an overall good
comparison of gold grades, with a correlation coefficient of 0.91. The average
gold grade for the original samples was 2.15 grams of gold per tonne and for
the duplicate samples was 2.20 grams of gold per tonne. The PAH Study notes
that these results provide confidence in the reliability of the reverse
circulation samples.
Mineral Inventory
Da Capo used exploration data to create a computer database for the
Amayapampa deposit that in turn was used to create block models for estimating
mineral inventory and in pit mineral inventory. To confirm Da Capo's modelling
methodology, PAH conducted a preliminary independent mineral inventory estimate
to test the adequacy of Da Capo's models. Comparison of the mineral inventory
and the deposit model found reasonable agreement between Da Capo's and PAH's
measured and indicated categories.
The total mineral inventory (measured, indicated and inferred) in Da
Capo's Amayapampa model at a gold cutoff grade of 0.5 grams per tonne is 14.3
million tonnes at an average grade of 2.07 grams of gold per tonne. Da Capo's
Amayapampa model does not take into account the past mining production from
this deposit, which is estimated by Da Capo to be approximately 500,000 tonnes
grading four to five grams of gold per tonne. Twenty percent of this mineral
inventory is in the inferred category. The PAH Study states that the
estimated, measured and indicated mineral inventories found in Da Capo's
computer model appear adequate for preliminary internal evaluation however it
concludes that Da Capo's estimation of the inferred mineral inventory category
used overly liberal search parameters. PAH's estimates of tonnage in this
category
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is 13 percent of Da Capo's. The PAH Study recommends that further testwork
should be conducted on deposits on the Amayapampa property to ensure
appropriate estimates of tonnage and grade.
The PAH Study showed an in pit mineral inventory (measured and
indicated) on the Amayapampa property of 8.5 million tonnes at a gold grade of
2.51 grams of gold per tonne and 4.2:1 strip ratio (waste:mineralized
material). The PAH Study was based on developing the Amayapampa and Capa Circa
properties as a single project. See "Properties - Preliminary Results and
Recommendations for Development of Amayapampa and Capa Circa Properties" below
for details.
Exploration Potential
The PAH Study finds that moderate potential exists at the Amayapampa
property for expanding the mineral inventory along strike and at depth if more
mineralization can be found in the thrust-faulted offsets. Previous drilling
was successful in locating faulted offsets to the southwest of the main
deposit. Similar zones of mineralization are possible below the central and
northern parts of the currently defined deposit. Further mineral inventories
located at depth may be below the feasible level of open pit mining but could
potentially represent underground mining opportunities.
The PAH Study also notes that limited sampling of mineralized
structures in the antimony zone and in an area one kilometre north of the
Amayapampa gold has indicated potential for additional exploitable zones
separate from the main deposit.
1996 Exploration Program
Da Capo has currently budgeted Cdn. $800,000 of funds from its
treasury to conduct continued exploration on the Amayapampa Property in 1996.
The funds will be allocated as follows:
<TABLE>
<S> <C>
Reverse circulation drill program (5,000 metres) $500,000
Additional metallurgical testwork 100,000
Environmental impact statement 100,000
General expenses including geologist salaries and transportation equipment 100,000
--------
Total $800,000
</TABLE>
Da Capo, however, is also contemplating undertaking a significant
development program to build a large open-pit mine on the Amayapampa Property,
as is discussed in the PAH Study. PAH has preliminarily estimated that the
costs of the proposed development program will be approximately
U.S.$75,000,000. See "Preliminary Results and Recommendations for Development
of Amayapampa and Capa Circa Properties". Any decision to undertake this
development project in 1996 would require external project financing from a
third party or a significant equity financing by Da Capo.
CAPA CIRCA PROPERTY
Summary
The Capa Circa property consists of four partly overlapping mining
concessions covering 103 hectares. A cooperative is currently mining the Capa
Circa property primarily by open stoping methods at a rate of approximately 50
tonnes per day. Mineralization on the Capa Circa property is similar to that
of the Amayapampa deposit and consists of a mineralized zone several tens of
meters wide that can be traced for more than one kilometre along strike. The
PAH Study indicates an in pit mineral inventory on the Capa Circa property of
9.4 million tonnes at an average grade of 1.75 grams of gold per tonne and a
6.8:1 strip ratio (waste:ore).
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Location and Access
The four overlapping mining concessions that constitute the Capa Circa
property have a total area of 103 hectares.
The Capa Circa property is located 300 kilometres southeast of La Paz
in Bustillo Province, Department of Potosi, in south-central Bolivia (Lat:
18degrees 34.5" S; Long: 66degrees 22.4" W). The Capa Circa property is
accessible via gravel road from Oruro to Llallagua/Uncia (110 kilometres or
approximately 2 1/2 hours) and a dirt road southeast from Uncia to the villages
of Lagunillas and Chuqui Uta (approximately 1/2 hour). A short two kilometre
spur road leads east to the Capa Circa property from a point approximately
seven kilometres south of Lagunillas. A local power line runs along the east
side of the Capa Circa property and supplies power to the present Capa Circa
mine.
The property is situated within the moderately rugged Eastern
Cordilleran region of Bolivia with elevations varying from 3,750 metres to
4,100 metres above sea level. The area is arid with rain falling minimally as
thunder showers during the summer months of January to March. Occasional snow
is reported during the drier winter months of May to August.
Ownership
On April 28, 1994, Da Capo was assigned an option to acquire the Capa
Circa property pursuant to the Altoro/O'Connor Agreement. See "Amayapampa
Property - Ownership".
Pursuant to the terms of the option agreement (the "Capa Circa Option
Agreement") dated January 12, 1994 between Yamin and David Anthony O'Connor
("O'Connor"), which was assigned to Da Capo, Da Capo had the option to acquire
all of Yamin's interest in three Bolivian mining concessions (the Santa Rosa,
San Mateo and Innocentes concessions) which constitute a part of the Capa Circa
property by making a payment of U.S.$4.8 million to Yamin on or before January
12, 1996. During the term of the Capa Circa Option Agreement, Da Capo was also
required to pay to Yamin a total of U.S. $200,000, as follows:
(i) U.S.$50,000 on April 12, 1994;
(ii) U.S.$50,000 on July 12, 1994;
(iii) U.S.$50,000 on January 12, 1995; and
(iv) U.S.$50,000 on July 12, 1995.
All of the above amounts were paid by Da Capo to Yamin and accepted by Yamin.
On January 12, 1996 the Capa Circa Option Agreement expired.
Under the terms of a letter agreement (the "Yamin Letter Agreement")
dated January 22, 1996 between Da Capo and Boris Yaksic and other members of
the Yaksic family (collectively, the "Capa Circa Vendors") of Santa Rosa de
Capa Circa, Casilla 3544, Cochabamba, Bolivia, who are all parties at arm's
length to Da Capo and who collectively owned a 100 percent interest in Yamin,
Da Capo would acquire a 100 percent beneficial interest in Yamin in
consideration for payment of U.S.$500,000 and the issuance of 700,000 Common
Shares with a guaranteed value of U.S.$1,555,000 to the Capa Circa Vendors on
the date of signing a more formal agreement. The Yamin Letter Agreement was
formalized by a purchase and sale agreement (the "Yamin Acquisition Agreement")
dated as of March 1, 1996 among Da Capo, O'Connor and the Capa Circa Vendors,
pursuant to which Da Capo and O'Connor acquired an 80 percent and 20 percent
interest, respectively, in the shares of Yamin in consideration for payment of
U.S.$500,000 and the issuance of 700,000 special warrants (the "Capa Circa
Special Warrants") with a guaranteed value of U.S.$1,555,000. On August 14,
1996, Da Capo issued 700,000 Common Shares for no additional consideration upon
the deemed exercise of the Capa Circa Special Warrants. Under the terms of a
separate trust agreement (the "Trust Agreement") dated March 1, 1996 between Da
Capo and O'Connor, O'Connor holds his shares of Yamin as trustee for the
benefit of Da Capo, with the result of that Da Capo is effectively the
beneficial owner of 100 percent of the shares of Yamin.
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<PAGE> 72
Yamin is a Bolivian limited liability company and was, at the time of
the Yamin Acquisition Agreement, the sole owner of: (a) a 100 percent interest
in the four mining concessions (the Santa Rosa, San Mateo, Innocentes and Santa
Benigna concessions), which comprise the Capa Circa property; (b) the mill,
machinery, tools, equipment and vehicles employed in Yamin's small-scale
underground gold mining operations on the Capa Circa property; and (c)
approximately 15,000 tonnes of pyritic tailings located on the Capa Circa
property.
The other material terms of the Yamin Acquisition Agreement are as
follows:
(a) all machinery, tools, equipment and vehicles owned by Yamin on
April 1, 1996 remain the property of Yamin and may be freely
used for continuing small-scale underground mining operations
at the Capa Circa mine until such time as Da Capo terminates
the current operations of the mine to permit the development
of a larger mine on the Capa Circa property. At such time,
ownership of the machinery, tools, equipment and vehicles will
revert to the Capa Circa Vendors, who will have 90 days to
remove such machinery, tools, equipment and vehicles from the
Capa Circa property;
(b) title to the pyritic tailings located on the Capa Circa
property was transferred to the Capa Circa Vendors on April 1,
1996. Upon the termination of current small-scale underground
mining operations by Yamin at the Capa Circa mine, the Capa
Circa Vendors will be permitted to treat such tailings in the
existing concentrator at the Capa Circa Mine until the supply
of tailings is exhausted. Treatment of these tailings will be
conducted in such a way that the development of a larger mine
on the Capa Circa property will not be adversely affected; and
(c) upon termination of the current small-scale underground mining
operations at the Capa Circa mine, the Capa Circa Vendors will
pay all severance benefits and indemnities in excess of
U.S.$300,000 that are required under Bolivian law to be paid
to mining personnel employed by Yamin.
History
The district in which the Capa Circa property is located was first
mined during the colonial period. Small- scale mining continued on until
modern times and recently the main deposits have been exploited by mechanized
means. The Capa Circa property and mine was purchased in 1938 as an antimony
mine by the Yaksic family. Antimony mining continued at the Capa Circa
property until approximately 1981 when declining antimony prices and probably
declining reserves resulted in a conversion to gold mining.
A cooperative is currently mining the Capa Circa deposit using
underground methods at an estimated rate of 20 tonnes per day. Grade control
practices are not used at the mine and all mined material is processed by a
mill.
Geology
The Capa Circa geology and mineralization are similar to the
Amayapampa property. The Capa Circa property is hosted by Upper Ordovician
shales and sandstones on the east limb of a regional anticline. The Capa Circa
mineralization is hosted by high angle, east dipping quartz veins, stockworks
and disseminated pyrite conformable to the sedimentary host rocks. The deposit
is zoned, with antimony mineralization more prevalent in the western
mineralized zones. The Capa Circa deposit is approximately 600 metres in
length along strike, 20 to 200 metres in width across strike, and 250 metres in
depth down near vertical dip. Further exploration may extend the strike length
and may find down-dip extensions.
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Previous Exploration
No systematic exploration of the Capa Circa deposit was carried out by
its owners until Da Capo optioned the property. Recent exploration by Da Capo
has consisted of surface trenching, underground mapping and channel sampling,
and core drilling. Thirteen core holes were drilled for a total of 2,445
metres. The holes were drilled largely with HQ size core and total recovery
averaged 93 percent overall. Several of the holes were drilled from
underground locations. Sample intervals were selected geologically, and in
some cases were up to six metres in length.
Channel samples were collected from 2,455 metres of underground
workings representing 20 different levels and sublevels, extending over a
vertical distance of 140 metres. Channel samples are collected at five-metre
intervals, with channels ten to 15 centimetres wide and two to three
centimetres deep.
All exploration samples in the Capa Circa database were analyzed at
Bondar-Clegg Laboratories in Oruro, Bolivia. Because of the coarse gold
particles and concerns about nugget effect, all samples were processed using
the Hammer Mill Process (similar to a metallic screen assay).
The PAH Study recommends that drilling and channel sample intervals
not exceed two metres in order to be able to accurately assess deposit grade
variations. It also finds that considerable additional drilling is required at
Capa Circa.
Mineral Inventory
Exploration data was used by Da Capo to create a computer database for
the Capa Circa deposit that in turn was used to create a block model for
estimating mineral inventory and in pit mineral inventory. To confirm Da
Capo's modelling methodology, PAH conducted a preliminary independent mineral
inventory estimate to test the adequacy of Da Capo's Capa Circa model.
Comparison of the mineral inventories in the deposit model found reasonable
agreement between Da Capo's and PAH's measured and indicated categories.
The total mineral inventory (measured, indicated, and inferred) in Da
Capo's Capa Circa model at a gold cutoff grade of 0.5 grams per tonne is 27.6
million tonnes at an average grade of 1.21 grams of gold per tonne. Forty-one
percent of this mineral inventory is in the inferred category, which PAH
estimated to be 0.5 million tonnes of inferred mineral inventory versus 11.2
million tonnes estimated by Da Capo. PAH believes that the estimated measured
and indicated mineral inventories found in Da Capo's own computer model appear
adequate for preliminary internal evaluation. PAH recommends that further
testwork should be conducted on the Capa Circa deposits to ensure appropriate
estimates of tonnage and grade.
The PAH Study results showed an in pit mineral inventory (measured and
indicated) on the Capa Circa property of 9.4 million tonnes at an average gold
grade of 1.75 grams of gold per tonne and a 6.8:1 strip ratio
(waste:mineralized material). The PAH Study was based on developing the
Amayapampa and Capa Circa properties as a single project. See "Properties -
Preliminary Results and Recommendations for Development of Amayapampa and Capa
Circa Properties" below. ALL ESTIMATES WITH RESPECT TO RESERVES CONTAINED
WITHIN THE CAPA CIRCA PROPERTY ARE PRELIMINARY.
Exploration Potential
At the Capa Circa gold deposit the mineralized zone is open at depth.
While it is likely that additional mineral inventories may occur below economic
open pit limits, underground mining may be a possibility. Additional potential
also exists along strike in the mineralized zone. Significant additional
drilling is required to further confirm the existing Capa Circa mineral
inventory and to test the mineralized zone at depth and along strike.
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1996 Exploration Program
Da Capo currently intends to continue operating the Capa Circa Mine in
the same manner as it has been operated for the last 30 years, that is, as a
small underground gold mine operated by existing personnel. This is expected
to generate net proceeds of approximately $200,000 per year and cover all of Da
Capo's overhead costs in connection with the Capa Circa mine.
Da Capo's overall strategy is to focus its efforts in 1996 on building
a large open pit mine at the Amayapampa mine ten kilometres north of Capa
Circa. Because Amayapampa has significantly higher grade mineralized material
than Capa Circa, it is Da Capo's intention to operate a mine at Amayapampa
until it is depleted, then truck Capa Circa mineralized material to the
Amayapampa mill along a haulage road. As a result, Da Capo does not plan to do
any further work on Capa Circa, other than to continue operating the existing
mine, until it has taken the Amayapampa project to a full feasibility study.
See "Properties - Preliminary Results and Recommendations for Development of
Amayapampa and Capa Circa Properties" below.
As a result, no funds from treasury will be required for planned 1996
work at the Capa Circa property.
PRELIMINARY RESULTS AND RECOMMENDATIONS FOR DEVELOPMENT OF AMAYAPAMPA AND CAPA
CIRCA PROPERTIES
The PAH Study is a preliminary study of the feasibility of the
Amayapampa and Capa Circa properties. The scope of the PAH Study is limited,
as it is to be used as part of an internal study by Da Capo to determine the
current potential of these two properties. The development scenario presented
in the PAH Study constitutes only one option of several development
alternatives with regard to plant sites, processing and production rates.
Further study is needed to fully understand the economic viability of other
development alternatives.
ALL ESTIMATES AND ANALYSIS CONTAINED IN THE PAH STUDY WITH RESPECT TO
THE AMAYAPAMPA AND CAPA CIRCA PROPERTIES ARE PRELIMINARY.
In Pit Mineral Inventory and Mine Cost Estimates
The PAH Study was based on developing the Amayapampa and Capa Circa
properties as two open pit mines, feeding a single, centrally located
processing plant. The mine plan developed by PAH is based on a 5,000 tonnes of
mineralized material per day (1.8 million tonne per year) production rate
throughout the ten-year mine life, and is based on bulk mining of low to medium
grade mineralized envelopes peripheral to high grade veins. There is no
current provision for selective mining of individual veins. Actual selectivity
during mining will be determined by a grade control program. PAH conducted a
floating cone analysis to determine the economic open pit limits for the
Amayapampa and Capa Circa projects. A U.S.$400 per ounce gold price was used
for the analysis. Haulroad access was then designed into the cone pits.
The resulting in pit mineral inventories (measured and indicated) are
based on an oxide cutoff grade of 0.35 grams per tonne and a sulfide cutoff
grade of 0.71 grams per tonne. The in pit mineral inventory contained within
the planned Amayapampa pit was 8.5 million tonnes at a grade of 2.51 grams of
gold per tonne and 4.2:1 strip ratio (waste:mineralized material). The in pit
mineral inventory contained within the planned Capa Circa pit was 9.4 million
tonnes at an average gold grade of 1.75 grams of gold per tonne and a 6.8:1
strip ratio (waste:mineralized material). The in pit mineral inventories for
the Amayapampa and Capa Circa properties are summarized by measured and
indicated confidence categories below:
- 71 -
<PAGE> 75
AMAYAPAMPA AND CAPA CIRCA PROJECTS
IN PIT MINERAL INVENTORIES
<TABLE>
<CAPTION>
MEASURED INDICATED TOTAL MEASURED AND INDICATED
----------------------- ----------------------- -------------------------------
KTONNES AU (G/T) KTONNES AU (G/T) KTONNES AU (G/T)
------- -------- ------- -------- ------- --------
AMAYAPAMPA PROJECT
------------------
<S> <C> <C> <C> <C>
Oxide 599 2.99 697 2.30 1,295 2.62
Sulfide 4,022 2.65 3,153 2.28 7,175 2.49
----- ---- ----- ---- ----- ----
Total 4,621 2.69 3,850 2.28 8,471 2.51
CAPA CIRCA PROJECT
------------------
Sulfide 4,339 1.92 5,048 1.61 9,387 1.75
TOTAL AMAYAPAMPA AND CAPA CIRCA
-------------------------------
Total 8,960 2.32 8,898 1.90 17,858 2.11
===== ==== ===== ==== ====== ====
</TABLE>
Notes: (1) In pit mineral inventories are tabulated at an internal cutoff
grade of 0.35 grams per tonne for oxide and 0.71 grams per tonne for
sulfide.
(2) In pit mineral inventories do not take into account the past
production from the Amayapampa deposit which is estimated to total
500,000 tonnes at a grade of four to five grams of gold per tonne,
or the Capa Circa deposit which is estimated to total 100,000 tonnes
at a grade of six grams of gold per tonne.
Standard open pit equipment has been considered for the preparation
and excavation of both mineralized and waste material. Primary machines
(encompassing drills, excavators and haul trucks) were sized and quantified
based on material movement requirements for each year of operation. Secondary
units were then identified and added to the list of mine capital equipment
necessary to accomplish the task at hand. The work schedule assumed two
12-hour shifts daily, for 360 days per year. The requirement of maintaining
production from two widely-separated pits was recognized, and as a result
perhaps some units will need to be purchased which otherwise (in a single-pit
situation) would not be utilized.
All mine equipment is to be diesel powered. Ten-cubic-meter front
loaders have been selected in this initial exercise and will fill 77-tonne
haulers. In peak years four drills, three loaders and fourteen haul trucks
will be necessary.
The PAH Study indicates that initial mine capital (expended in year
minus one and year one of operations) is expected to total U.S.$19.5 million,
exclusive of any imposed value added taxes, and without contingencies. Total
mine capital will be in the range of U.S.$26.2 million after allowance of
nearly U.S.$4.0 million for salvage.
The PAH Study estimates that a weighted average of mine operating
costs, consisting of materials and supplies as well as labour, for the entire
project suggests a total cost in early 1996 dollars of U.S.$1.02 per tonne of
material handled. This is equivalent to U.S.$6.67 per tonne of mineralized
material, under PAH's assumed projected strip ratio for the two pits. Of this
total, approximately 71 percent is comprised of consumables, with the remaining
portion being labour. As with mine capital, no contingencies have been
included.
Hourly labour needs are estimated to be in the range of 223 persons in
total. This is based upon the number of primary and secondary equipment items
necessary to meet the production needs, and upon the established work schedule
at the property. Annual costs are projected to be U.S.$2.6 million. A total
of 50 staff members are forecast, at an annual cost of U.S.$800,000.
- 72 -
<PAGE> 76
Ore Processing and Cost Estimates
Metallurgic testwork was conducted by Lakefield Research on samples
from the Amayapampa and Capa Circa deposits including gravity separation and
flotation testing. The recovery of gold by gravity separation ranged from 13.2
percent to 84.9 percent. Discrepancies between the direct head analyses values
for gold and the calculated values are evidence of the presence of a
significant nugget effect in several of the samples.
Froth flotation tests were conducted to establish the expected gold
recovery from a gravity-flotation circuit. The rougher recovery of gold from
the combined gravity tailing samples ranged from 98 to 81 percent. The
presence of slimes (probably graphite) in the pulps led to the voluminous froth
observed in all tests in the series as well as a probable retarding of sulfide
flotation kinetics; therefore, in order to determine gold recovery from a
gravity- flotation circuit, froth flotation tests were conducted on deslimed
gravity tailing samples. It has been difficult to ascertain the effect of
grind size on rougher gold recovery, as the flotation feed size was generally
coarse, ranging from 27.1 percent passing 200 mesh to 54.4 percent passing 200
mesh. The gold recoveries with the coarsest and finest grinds, respectively,
were equivalent to approximately 95 percent. This was the highest recovery
observed in this testwork. The PAH Study notes that this testwork is very
preliminary and additional testwork is needed.
A flow sheet was developed which includes gravity treatment of the
mineralized material to produce a high-grade gold concentrate and flotation of
gold and sulfide from the gravity tailings. A gravity concentrate for smelting
on- site would contain 10,000 to 20,000 grams of gold per tonne. A flotation
concentrate containing the remaining gold would be roasted in a fluid bed
roaster and leached for 48 hours in a cyanide circuit. Overall recoveries of
gold were estimated at 85 percent in the oxide and 92 percent in the sulfide.
The PAH Study estimates total plant capital costs to be approximately
U.S.$35.5 million exclusive of any imposed value-added taxes, and without
contingencies. The plant, as estimated by PAH, is assumed to be constructed as
an addition to the existing operation. The general infrastructure items, which
are assumed to be consistent with such facilities, are included in this
estimate.
The PAH Study estimates that annual operating costs for the processing
of 1.8 million tonnes of mineralized material is U.S.$9.82 million or
approximately U.S.$5.45 per tonne of mineralized material. These costs are
based on an operating schedule in which general operations are conducted in
three 8-hour shifts per day, seven days a week, 52 weeks per year with an
operating time of 8,400 hours per year (96 percent operating time) and with 1.8
million tonnes per year of feed to the process plant. PAH also prepared a
preliminary estimate of general and administrative costs associated with the
project. The estimated total general and administrative costs for the
production of 1.8 million tonnes per year is U.S.$1.75 million or approximately
U.S.$0.97 per tonne of mineralized material.
See "Business Strategy of Vista Gold" for a description of Vista
Gold's preliminary plan for the development of the Amayapampa and Capa Circa
properties.
Infrastructure
The PAH Study suggests that access to the site will be via an existing
surface road that will require upgrading. The haul roads from both the Capa
Circa and Amayapampa deposits to the proposed process plant have a general
down-hill grade. For much of the Amayapampa route the road roughly maintains a
constant elevation. There are no intervening mountain ranges and the roads
follow along ridge lines and valleys where possible. Other suggested
infrastructure needs include an administrative office facility to be provided
on-site for the operating management and staff, a maintenance shop located
adjacent to the pit rim and a combination metallurgical and assay laboratory to
be constructed next to the Merill-Crowe plant. Power would be acquired from
the local grid within 15 kilometres of the site. Water supplies would also be
obtained locally.
- 73 -
<PAGE> 77
Cash Flow Evaluation
PAH prepared cash flow analysis of the project based on the following
assumptions: (i) a stand-alone operation; (ii) exclusion of sunk costs to date;
(iii) 1996 dollars as a base without factoring for any future inflation; and
(iv) 100 percent equity investment (no leveraging). All cost projections were
considered on the basis that no contingencies have been taken. The analysis
was conducted after-taxes, and includes an allowance for mandated
profit-sharing.
Results of the PAH Study indicate that the internal rate of return for
the project is 21.6 percent, and that at a ten percent discount rate the net
present value of the venture is approximately U.S.$31.2 million.
The PAH Study also finds that the average operating cost of
production, including mining, processing, and general and administrative
operating costs, is U.S.$199 per ounce of gold produced and sold. The average
cash cost of production, including all of the above plus royalties, income
taxes, and profit sharing is U.S.$244 per ounce of gold produced. The average
total cost of production including all of the above plus non-cash costs such as
depreciation and amortization is U.S.$311 per ounce of gold produced.
ALL EVALUATIONS MADE IN THE PAH STUDY HAVE BEEN BASED ON LIMITED
TESTWORK AND STUDY CONDUCTED ON A PRELIMINARY BASIS. FURTHER STUDY IS NEEDED
TO FULLY UNDERSTAND THE ECONOMIC VIABILITY OF ANY DEVELOPMENT ALTERNATIVE.
IRPA IRPA PROPERTY
Location and Access
The Irpa Irpa gold-antimony property is located between the Amayapampa
and Capa Circa mines and consists of seven mining concessions covering 462
hectares. The Irpa Irpa property's position on the road between Amayapampa and
Capa Circa makes any gold mineralization relatively accessible.
Ownership and History
In 1995, Da Capo entered into an option with V. Illich, an individual
at arm's length to Da Capo, to acquire a 100 percent interest in the seven
concessions which comprise the Irpa Irpa property for U.S.$250,000. Unless
exercised, the option will expire on November 30, 1997.
Local villagers currently exploit the mine for small amounts of
antimony. Historically, indeterminate amounts of gold have also been mined
from the property.
Geology and Mineralization
There is some gold associated with the antimony mineralization but a
purely gold zone outcrops some 200 metres east of the antimony workings. This
gold zone is over two kilometres long but relatively narrow.
The antimony mineralization at the Irpa Irpa property occurs in the
west limb of a large anticline which is slightly overturned to the west. The
mineralization is vein hosted in Upper Ordovician sedimentary rocks (Amutara
formation), which consists of intercalated gritty slates, carbonaceous shales
and quartzites. The sedimentary sequence strikes N10degrees -20W and dips
40degrees SW. The nucleus of the anticline is disrupted by longitudinal and
transverse faults. The mine area is affected by a large thrust fault. The
principal zone is a system of three to five, parallel to subparallel veins
striking N30degrees to 50degrees W, along the disrupted zone associated with
the thrust fault. The most abundant mineral is antimony accompanied by quartz,
pyrite and very minor gold. Hydrothermal alteration consists of argilitization
and kaolinization.
The associated gold zone is several hundred metres to the east away
from the main workings, and is thought to occur within the anticlinal axis.
Mineralization is concentrated in fractures and longitudinal and
- 74 -
<PAGE> 78
transverse faults containing quartz, mylonite, pyrite and gold. Some zones
appear to be silicified and contain boxworks after sulfides. This section has
only been sporadically sampled.
Most of the adits are collapsed, especially in the main antimony zone.
At present, some villagers are rehabilitating a few of the galleries for the
exploitation of antimony. A number of small adits reportedly worked for gold
are at least partially open down slope (to the east) just above the creek bed.
The adits will be sampled in the future.
Exploration
Ongoing exploration at Irpa Irpa is at an early stage. Da Capo has
carried out gridding, reconnaissance scale geological mapping and geochemical
sampling of the Irpa Irpa property. A total of 152 samples were collected and
these were submitted to Bondar Clegg Laboratories in Oruro for analysis.
One hundred and eleven channel samples, each being five meters in
length, were collected from the Irpa Irpa property mine area with 79 samples
from the main antimony zone (of which 55 were surface samples and 24 were
underground samples) and 32 samples from the eastern auriferous zone. Of the
55 surface samples collected from the antimony zone 50 samples are below 0.150
grams of gold per tonne; four samples are between 0.150-0.450 grams of gold per
tonne and one sample is above 0.450 grams of gold per tonne. The underground
samples are all under 0.150 grams of gold per tonne.
No disseminated sulfide mineralization has been found within the wall
rocks in the antimony zone and the alteration zones at surface are only very
weakly anomalous. The gold content in the zone has been found to be very low
with the exception of one sample of 1.6 grams of gold per tonne, and two
samples of 0.2 grams of gold per tonne. These samples were collected from the
southern section of the main antimony workings.
Samples taken from the auriferous zone were all surface outcrop
channel samples. Six of these returned significantly anomalous gold values
ranging from 0.258 to 0.210 grams of gold per tonne.
During 1996, Da Capo intends to spend Cdn. $75,000 on an exploration
program for the Irpa Irpa property. This exploration program will include
underground and surface geological sampling and mapping to prepare the property
for drilling.
SANTA ISABEL PROPERTY
Da Capo holds an exploration concession for the Santa Isabel property
which covers approximately 6,500 hectares and encompasses much of the land
around and between the Amayapampa property and Capa Circa properties. Da Capo
was assigned the application for this concession by Altoro pursuant to the
Altoro/O'Connor Agreement. See "Amayapampa Property - Ownership".
To date, Da Capo has not performed any work on the Santa Isabel
property. Da Capo proposes to reserve this area for use in conjunction with
any future development of the Amayapampa property or the Capa Circa property.
Future exploration of the Santa Isabel property may also be undertaken to
determine whether mineralization that may be located in the Amayapampa or Capa
Circa properties extends into the Santa Isabel property.
COPACABANA PROPERTY
Location and Access
The Copacabana property, also known as the Cerro Valun property,
consists of one mining concession which covers 140 hectares and is located
about 45 kilometres southwest of Tupiza. It is accessible by a good quality
dirt road.
- 75 -
<PAGE> 79
Ownership and History
In 1995 Da Capo purchased 100 percent of the Copacabana property from
Sr. Alvaro, an individual at arm's length to Da Capo, for U.S.$50,000. In
addition, Da Capo has applied to the Bolivian government for a large concession
surrounding the mineralized areas of the Copacabana property and covering 8,969
hectares.
Since Spanish colonial times, a small scale mine had operated on the
property producing indeterminate amounts of gold. The mine was shut down after
Da Capo purchased the property.
Geology and Mineralization
The Copacabana mineralized system is one of a number of gold bearing
quartz vein systems in the area. The mineralization is hosted in a doubly
plunging anticline in Ordovician black shales. Another formerly producing gold
mine called Santa Barbara is also located on this anticline about one kilometre
to the north. This mine was also sampled, with significant results (44 grams
of gold per tonne in dump material and 6.67 grams of gold per tonne from grabs
of the veins underground). Other gold workings exist in the area along
parallel structures.
At the Copacabana mine the mineralized system extends about one
kilometre north/south along the anticlinal axis and occurs over a width of
about 100 metres in places. Several sets of gold bearing quarts veins occur,
with veins, stockworks and breccia zones developed along the axis and a well
developed vein-veinlet set perpendicular to the axis and shallowly dipping.
In addition to gold mineralization occurring in the quartz veining,
stockworks and quartz filled breccia zones where it is associated with pyrite
and arsenopyrite, the results of Da Capo's sampling indicate that gold also
occurs in the unveined host rocks. There are zones of more pyritic host
sediments adjacent to the anticlinal structure which may be preferentially
mineralized.
Previous Exploration
Exploration completed to date has been limited to chip-channel
sampling of the workings and overlying outcrop, with reconnaissance grab
sampling of the surrounding mineralized structures. To date, a total of 120
samples have been collected at the mine at the Copacabana property. Sampling
of two crosscuts located about 25 metres below the surface returned results of
55 metres grading 1.15 grams of gold per tonne and three metres grading 163
grams of gold per tonne.
Vertical channel sampling along the main north/south drive tested a
set of shallowly dipping veins. Samples of this vein set returned values of
1.5 metres at 4.2 grams of gold per tonne and 2.0 metres at 1.0 grams of gold
per tonne. Sampling in this drive of black shales containing pyritic blebs and
clasts returned values of 2.0 metres at 1.4 grams of gold per tonne, 1.5 metres
at 2.33 grams of gold per tonne and 2.0 metres at 0.61 grams of gold per tonne.
Also, a random grab of pyritic black shale returned 2.87 grams of gold per
tonne.
Surface sampling gave low grade gold results over a broad area and a
comparison of surface results directly over sampling of drives 25 metres below
indicates the existence of significant surface depletion. Nevertheless, a
value of 5.66 grams of gold per tonne was received from a random grab over
outcropping shales near the anticlinal axis.
1996 Exploration
During 1996, Da Capo currently intends to spend approximately Cdn.
$75,000 on an exploration program for the Copacabana Property which will
include underground and surface geological sampling and mapping to prepare the
property for drilling.
- 76 -
<PAGE> 80
SAN GERARDO PROPERTY
Location and Access
The San Gerardo property consists of four mining concessions which
cover 486 hectares and additional exploration concessions which cover 6,267
hectares. The property lies west of the City of Oruro, which is 220 km south
of La Paz on a paved road and consequently is well placed with respect to
roads, railways, electricity and other infrastructure.
Ownership and History
In June 1995, Altoro acquired from a co-operative of 80 individuals,
who are all at arm's length to Da Capo, options to purchase 100 percent
interests in the four exploration concessions that constitute the San Gerardo
property as follows:
<TABLE>
<CAPTION>
CONCESSIONS AREA COVERED (HECTARES) PRICE EXPIRY DATE
----------- ---------------------- ----- -----------
<S> <C> <C> <C>
Don Nicholas 60 U.S. $200,000 February 25, 1997
La Espagnola, 426 U.S. $100,000 September 9, 1997
Morenas and Esperanza
</TABLE>
The property was subsequently made subject to a joint venture between
Teck and Altoro, in which Teck held a 51 percent interest and Altoro held a 49
percent interest. On February 15, 1996, Da Capo was assigned Altoro's 49
percent interest in the joint venture agreement with Teck in return for a two
percent net smelter return payable to Altoro. Under the terms of the joint
venture agreement, Teck is required to fund all costs incurred on the property
until the completion of a bankable feasibility study, after which Da Capo must
fund its 49 percent share of additional costs.
The Bolivian government recently granted Da Capo additional
exploration concessions in the vicinity of the San Gerardo property covering
6,267 hectares.
For several decades, small amounts of gold have been mined
intermittently by several cooperatives. Such small scale operations still
currently operate on the property.
Geology and Mineralization
A number of gold vein deposits in the area are mined on a small scale.
Mineralization is apparently stratabound within three north-east striking zones
and Da Capo has determined that at least two of these zones have the potential
to host bulk mineable gold deposits.
Exploration
Altoro has carried out a program of geological mapping, soil and rock
chip sampling, ground magnetics and reverse circulation drilling on the San
Gerardo property. In December 1995 and July 1996, thirty holes were drilled
for a total of 4,128 metres. The results of this drilling indicate a zone of
mineralization that is at least 100 metres wide and 850 metres long. Da Capo
intends to carry out further exploration on the property which will be funded
by Teck pursuant to the joint venture agreement.
THE IRPA IRPA, COPACABANA, SAN GERARDO AND SANTA ISABEL PROPERTIES ARE
IN THE EXPLORATION STAGE ONLY AND DO NOT CONTAIN A KNOWN BODY OF COMMERCIAL
ORE.
- 77 -
<PAGE> 81
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion should be read in conjunction with the audited
consolidated financial statements of Da Capo as at April 30, 1996, 1995 and
1994 and related notes thereto included as Schedule H to this Joint Management
Information Circular.
In April 1994, Da Capo changed its focus from a winery business in
Napa Valley, California to the acquisition and exploration of mineral
properties in Bolivia. Da Capo is in the exploration stage on its mineral
properties and therefore has no regular cash flow. Da Capo's historical
capital needs have been met by advances and equity subscriptions from both
private investors (including members of management) and the public.
Da Capo focused its efforts to the acquisition and exploration of
mineral properties in Bolivia and has acquired majority or entire interests in
two properties, the Amayapampa property and the Capa Circa property, and holds
or has rights to acquire several other mineral properties located in the same
region. To provide funding for its activities, Da Capo has raised
approximately Cdn. $13,721,000 in equity capital since April 1993.
CAPITAL RESOURCES AND LIQUIDITY
Da Capo is in the exploration stage on its mineral properties and
therefore has no regular cashflow. Da Capo's only source of revenue is
interest income. Da Capo's historical needs have been met by equity
subscriptions from both private investors (including members of management) and
the public. Since Da Capo is involved in exploration and evaluation of mineral
properties, it is the opinion of management that the most meaningful financial
information relates primarily to current liquidity and solvency. As at April
30, 1996, Da Capo had working capital of approximately Cdn. $4.7 million and a
bank loan of approximately Cdn. $1.8 million.
Da Capo recently acquired majority or entire interests in two
properties in Bolivia, the Amayapampa property and the Capa Circa property, in
the latter, by acquiring 100 percent interest in Yamin. The purchase price for
the Amayapampa property was U.S.$2.5 million for a 51 percent interest and the
remaining interest in the property for 1,000,000 Amayapampa Special Warrants at
a price of Cdn. $4.35 per Special Warrant and an interest free, non-recourse
Amayapampa Loan of U.S.$3.24 million to a nominee of the Amayapampa Vendors.
The Amayapampa Loan was secured by an assignment of all proceeds from the sale
of any of the 1,000,000 common shares of Da Capo held by such nominee. The
Amayapampa Loan was cancelled on April 29, 1996 upon the sale of such common
shares and Da Capo received approximately Cdn. $4,355,000 in early May 1996 as
the proceeds from such sale. In order to finance the Amayapampa Loan, Da Capo
borrowed U.S.$3.24 million from the Bank of Montreal (the "Bank Loan") at an
interest rate of prime plus 0.5 percent for a twelve month term. The Bank Loan
was secured by U.S.$2.0 million cash collateral from Da Capo and a personal
guarantee by Ross J. Beaty, the President of Da Capo. In connection with the
personal guarantee, Da Capo issued to the guarantor 124,000 share purchase
warrants exercisable at Cdn. $4.10 per warrant on the earlier of 4:00 p.m.
(Vancouver time) on March 8, 1997 or on that date which is 30 days following
any reduction or payment of the Bank Loan. Da Capo paid down the Bank Loan in
the amount of U.S.$1.89 million on April 30, 1996 and paid down the balance of
the Bank Loan on May 6, 1996. The purchase price for Yamin was the issuance of
700,000 Capa Circa Special Warrants and payment of U.S.$500,000 in cash.
- 78 -
<PAGE> 82
RESULTS OF OPERATIONS
General
The following table sets forth selected historical consolidated
financial data for Da Capo for the three years ended April 30, 1996. THE
FOLLOWING DOLLAR AMOUNTS IN THE FOLLOWING TABLE ARE IN CANADIAN DOLLARS.
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30
--------------------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Expenses
General and administration $ 280,334 $ 360,486 $ 27,022
Professional fees 73,338 105,543 53,044
Filing and transfer fees 12,725 16,734 6,501
Foreign exchange loss (gain) (8,268) (29,881) 35,742
Bank charges, interest and other 2,248 1,511 3,357
Bad debt - - 81,007
----------- ----------- -----------
360,377 454,393 206,673
Interest income 174,407 376,586 562
Gain on sale of subsidiary - 26,121 -
Write-down of deferred charges - - -
----------- ----------- -----------
Net loss for the year (185,970) (51,686) (206,111)
Deficit, beginning of year (4,247,653) (4,195,967) (3,989,856)
-----------
Deficit, end of year $(4,433,623) $(4,247,653) $(4,195,967)
=========== =========== ===========
Earnings (loss) per common share $(0.02) $(0.10) $(0.10)
</TABLE>
1996 compared to 1995
For the year ended April 30, 1996 Da Capo reported a net loss of Cdn.
$185,970 compared to a net loss of Cdn. $51,686 for the year ended April 30,
1995. Da Capo's only source of revenue was interest income which decreased
significantly in 1996 due to increased spending on exploration and the
Amayapampa and Capa Circa property acquisitions. As part of the property
acquisitions Da Capo issued 1,700,000 Special Warrants at a deemed value of
Cdn. $7,220,000 and paid U.S.$500,000 and made a non-recourse, interest-free
loan of U.S.$3,240,000 to one of the Amayapampa Vendors. This loan was repaid
on May 6, 1996. Da Capo also raised Cdn. $2,286,308 in new capital in 1996
compared to Cdn. $9,890,833 in 1995 and completed its obligation by issuing the
remaining 600,000 Da Capo Common Shares to the optionor for the assignment of
the Amayapampa and Capa Circa Options. Total expenditures for drilling,
geologists' salaries and benefits, vehicles, field supplies and field office
expenses in 1996 were Cdn. $2,413,200 compared to Cdn. $2,203,456 in 1995.
Operating expenses were Cdn. $360,377 compared to Cdn. $454,393 in 1995. The
operating expenses decreased as a result of lower salaries and general office
expenses charged by a company related by directors in common as they had spent
less time on Da Capo's affairs and lower professional fees.
1995 Compared to 1994
For the year ended April 30, 1995, Da Capo reported a net loss of Cdn.
$51,686 compared to a net loss of Cdn. $206,111 for the year ended April 30,
1994. Da Capo's only revenue was interest income. Interest income in fiscal
1995 was Cdn. $376,586 compared to Cdn. $562 in fiscal 1994. Exploration
expenditures for drilling, geologist's salaries and benefits, vehicles, field
supplies and field office expenses were Cdn. $2,564,991 in fiscal 1995 compared
to Cdn. $10,646 in fiscal 1994. The significant increase was due to a change
in Da Capo's focus in April 1994 from the winery business to mineral
exploration. The increase in interest income
- 79 -
<PAGE> 83
was the result of Da Capo completing Cdn. $12 million in equity financings in
fiscal 1995. Operating expenses were Cdn. $454,393 in fiscal 1995 compared to
Cdn. $206,673 in fiscal 1994. Operating expenses increased significantly in
fiscal 1995 as it marked the first full year of operation under new management
compared to fiscal 1994 when Da Capo was under new management for only one
month. Professional fees were significantly higher in 1995 due to higher legal
fees to reorganize Da Capo's affairs.
CONSOLIDATED CAPITALIZATION
The following table sets forth the consolidated capitalization of Da
Capo as at the dates indicated and as adjusted to give effect to the exercise
of the Special Warrants:
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
AMOUNT OUTSTANDING AS AS OF
AUTHORIZED OF APRIL 30, 1996(1)(2) SEPTEMBER 15, 1996(3)
---------- ----------------------- ---------------------
<S> <C> <C> <C>
LONG-TERM DEBT: - -
SHAREHOLDERS' EQUITY:
Common Shares 100,000,000 Cdn. $20,695,918 Cdn. $28,532,318
(14,515,472 shs.) (16,384,472 shs.)
</TABLE>
- ----------------
(1) As at April 30, 1996 Da Capo had no contributed surplus and a deficit of
Cdn. $4,433,623.
(2) As at April 30, 1996, there were 1,700,000 special warrants outstanding
to acquire common shares of Da Capo for no additional consideration upon
exercise or deemed exercise of such special warrants and 124,000 warrants
outstanding to acquire Da Capo Common Shares at a price of Cdn. $4.10 per
share exercisable on the earlier of March 8, 1997 or on that date which is
30 days following any reduction or payment of the Amayapampa Loan. As at
April 30, 1996, there were outstanding directors' and employees' stock
options to purchase: 345,000 Da Capo Common Shares at Cdn. $2.40 per
share exercisable on or before September 13, 1999; 200,000 Common Shares at
Cdn. $2.40 per share on or before September 14, 1999; 30,000 Da Capo Common
Shares at Cdn. $2.10 per share exercisable on or before December 3, 2000;
and 50,000 Da Capo Common Shares at Cdn. $3.00 per share exercisable on or
before February 21, 2001. As at April 30, 1996, there were 187,500 Da Capo
Common Shares held in escrow.
(3) As at September 15, 1996, there were outstanding directors' and employees'
stock options to purchase: 300,000 Da Capo Common Shares at Cdn. $2.40
per share exercisable on or before September 13, 1999; 200,000 Da Capo
Common Shares at Cdn. $2.40 per share exercisable on or before September
14, 1999; 30,000 Da Capo Common Shares at Cdn. $2.10 per share
exercisable on or before December 3, 2000; and 50,000 Da Capo Common
Shares at Cdn. $3.00 per share exercisable on or before February 21, 2001.
As at September 15, 1996, there were 187,500 Da Capo Common Shares held in
escrow.
SHARE CAPITAL
Da Capo is authorized to issue 100,000,000 common shares without par
value. Holders of Da Capo Common Shares are entitled to one vote per Da Capo
Common Share at all meetings of shareholders, to receive dividends as and when
declared by the directors and to receive a pro rata share of the assets of Da
Capo available for distribution to shareholders in the event of liquidation,
dissolution or winding-up. There are no pre-emptive, conversion or redemption
rights attached to the Da Capo Common Shares.
DIVIDEND RECORD
Da Capo has not, since the date of its incorporation, declared or paid
any dividends on its Common Shares and does not currently intend to pay
dividends. Earnings will be retained to finance further exploration and
development.
- 80 -
<PAGE> 84
PRIOR SALES OF SECURITIES
The following tables set forth the particulars of prior sales of Da
Capo Common Shares for the past 12 months:
<TABLE>
<CAPTION>
NUMBER OF DA CAPO PRICE PER DA CAPO NET AMOUNT REALIZED
DATE METHOD OF SALE COMMON SHARES COMMON SHARE ($CDN.) BY DA CAPO ($CDN.)
---- -------------- ------------------ -------------------- -------------------
<S> <C> <C> <C> <C>
October 28, 1995 Issued to acquire an 100,000 $2.00(2) $200,000(2)
interest in mineral
properties(1)
December 29, 1995 Exercise of warrants 100,000 $0.57 $57,000
January 5, 1996 Exercise of warrants 50,000 $0.57 $28,500
January 8, 1996 Exercise of warrants(3) 1,601,154 $0.57 $912,658
January 8, 1996 Exercise of warrants(3) 400,000 $0.57 $228,000
January 22, 1996 Exercise of warrants 80,000 $0.57 $45,600
February 9, 1996 Exercise of warrants 50,000 $0.57 $28,500
February 9, 1996 Exercise of warrants 1,000,000 $0.57 $570,000
February 13, 1996 Exercise of warrants(3) 300,000 $0.57 $171,000
February 15, 1996 Exercise of warrants(3) 82,500 $0.57 $47,025
February 27, 1996 Exercise of warrants 32,500 $0.57 $18,525
April 11, 1996 Exercise of options 5,000 $2.40 $12,000
April 16, 1996 Issued to acquire an 500,000 $4.20(2) $2,100,000(2)
interest in mineral
properties(1)
May 6, 1996 Exercise of options 10,000 $2.40 $24,000
May 22, 1996 Exercise of options 10,000 $2.40 $24,000
June 4, 1996 Exercise of warrants(3) 124,000 $4.10 $508,400
June 5, 1996 Exercise of options 10,000 $2.40 $24,000
June 17, 1996 Exercise of options 15,000 $2.40 $36,000
August 14, 1996 Exercise of Amayapampa 1,000,000 $4.35(2) $4,350,000(2)
Special Warrants(4)
August 14, 1996 Exercise of Capa Circa 700,000 $4.10(2) $2,870,000(2)
Special Warrants(5)
</TABLE>
(1) Issued pursuant to the Altoro/O'Connor Agreement. See "Amayapampa
Property - Ownership".
(2) The market price on the date of the property acquisition agreement.
(3) Issued to Ross Beaty, President of Da Capo, or associates thereof.
(4) See "Amayapampa Property - Ownership". (5) See "Capa Circa
Project - Ownership"
- 81 -
<PAGE> 85
DIRECTORS AND OFFICERS
The names and municipalities of residence of the directors and
officers of Da Capo, positions held by them with Da Capo and their principal
occupations for the past five years are as set forth below:
<TABLE>
<CAPTION>
NAME, MUNICIPALITY OF RESIDENCE AND POSITION CURRENT PRINCIPAL OCCUPATION
- -------------------------------------------- ----------------------------
<S> <C>
ROSS J. BEATY President of Da Capo and Chairman of Pan American
Vancouver, B.C. Silver Corp. (a silver mining company) since March
Director and President 1994; and prior thereto, President of Equinox
Resources Ltd. (a mining company)
HUGH MOGENSEN Private Investor
Saanichton, B.C.
Director
JOHN H. WRIGHT President of Pan American Silver Corp. since March
Vancouver, B.C. 1994; and prior thereto, Chief Operating Officer
Director of Equinox Resources Ltd.
GORDON JANG Controller and Secretary of Da Capo and Controller
Vancouver, B.C. of Pan American Silver Corp. since March 1994; and
Controller and Corporate Secretary prior thereto Controller of Equinox Resources Ltd.
R. STUART ANGUS Partner, Stikeman, Elliott (Barristers &
Vancouver, B.C. Solicitors) since March 1996; and prior thereto
Director partner, Smith Lyons (Barristers & Solicitors)
</TABLE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the total
compensation of Da Capo's current President (who assumed office in March 1994)
during Da Capo's most recent fiscal years ended April 30, 1996, 1995 and 1994.
None of Da Capo's officers or employees receive annual compensation from Da
Capo in excess of Cdn. $100,000. During the fiscal years ended April 30, 1994,
1995 and 1996, Da Capo did not make any long-term incentive plan awards to its
directors, officers or employees. THE DOLLAR AMOUNTS IN THE FOLLOWING TABLE
ARE IN CANADIAN DOLLARS.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION ($) COMPENSATION
---------------------------------------- ------------
NAME AND OTHER ANNUAL SECURITIES ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION UNDER OPTIONS COMPENSATION
------------------ ---- ------ ----- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ROSS J. BEATY, 1996 37,740 Nil Nil Nil Nil
President 1995 85,755 Nil Nil(1) 50,000 Nil
1994 7,425 Nil Nil(1) Nil Nil
</TABLE>
- --------------
(1) Perquisites and other personal benefits paid to Mr. Beaty do not
exceed the lesser of Cdn. $50,000 and 10% of his total annual salary
and bonus.
- 82 -
<PAGE> 86
Da Capo and Pan American Silver Corp. ("Pan American") share a head
office, overhead expenses and executive salaries and benefits, which are
incurred by Pan American and reimbursed by Da Capo on a formula determined
annually and mutually agreed to between Da Capo and Pan American. The
President of Da Capo is the Chairman of the Board of Directors of Pan American
and Mr. John Wright, a director of Da Capo, is the President of Pan American.
For the fiscal year ended April 30, 1996, Da Capo reimbursed Pan American Cdn.
$10,600 in respect of salaries and benefits paid to Mr. John Wright and Cdn.
$41,500 in respect of salaries and benefits paid to the President. For the
fiscal year ended April 30, 1995, Da Capo reimbursed Pan American Cdn. $22,100
in respect of salaries and benefits paid to Mr. John Wright and Cdn. $90,000
in respect of salaries and benefits paid to the President. The above Summary
Compensation Table only takes into account the compensation of the President of
Da Capo reimbursed by Da Capo to Pan American.
Termination of Employment, Change in Responsibilities and Employment Contracts
The President of Da Capo is not currently engaged under an employment
contract.
Compensation of Directors
Other than compensation paid to the President of Da Capo and Mr. John
Wright as disclosed above under the heading "Summary Compensation Table", none
of the directors of Da Capo have received any fees for serving as directors
during the fiscal year ended April 30, 1996. Da Capo has adopted a policy
pursuant to which directors will only receive reimbursement for reasonable
out-of-pocket expenses relating to their attendance at meetings or other
expenses incurred for Company purposes. Two of Da Capo's directors who are not
officers were granted stock options to purchase up to 100,000 Common Shares at
a price of Cdn. $2.40 per share up until September 13, 1999, and a third
director who is not an officer of Da Capo was granted options to purchase up to
50,000 Common Shares at a price of Cdn. $3.00 per share up until February 1,
2001.
Options
During the fiscal year ended April 30, 1996, no stock options were
granted to the President of Da Capo.
The following table sets forth information concerning the exercise of
options during the fiscal year ended April 30, 1996 and the value as at April
30, 1996 of unexercised in-the-money options held by the President of Da Capo.
THE DOLLAR AMOUNTS IN THE FOLLOWING TABLE ARE IN CANADIAN DOLLARS.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-
UNEXERCISED OPTIONS THE-MONEY OPTIONS AT
AT FINANCIAL YEAR END FINANCIAL YEAR END
SECURITIES ACQUIRED AGGREGATE REALIZED (#) EXERCISABLE/ ($) EXERCISABLE/
NAME ON EXERCISE VALUE UNEXERCISABLE UNEXERCISABLE
--------------- ------------------- ------------------ --------------------- ----------------------
<S> <C> <C> <C> <C>
Ross J. Beaty 0 $0 25,000/25,000 $37,500/$37,500
</TABLE>
INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS
None of the directors or senior officers of Da Capo or associates or
affiliates of the foregoing persons is indebted to Da Capo.
- 83 -
<PAGE> 87
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
No director or senior officer of Da Capo or any shareholder holding of
record or beneficially, directly or indirectly, more than ten percent of the
issued Da Capo Common Shares, or any of their respective associates or
affiliates, had any material interest, directly or indirectly, in any
transaction with Da Capo, or in any proposed transaction, within the past three
years, except as follows:
(1) in consideration for a personal guarantee from the President
of Da Capo to secure the Bank Loan, Da Capo issued to the
President share purchase warrants to acquire up to 124,000 Da
Capo Common Shares at a price of Cdn. $4.10 per share prior to
4:00 p.m. (Vancouver time) on the earlier of March 8, 1997 or
30 days following any reduction or payment of the Bank Loan.
On April 30, 1996 Da Capo paid down the Bank Loan in the
amount of U.S.$1.89 million and paid down the balance on May
6, 1996;
(2) Da Capo issued 461554 B.C. Ltd. ("461554 B.C."), a private
British Columbia company controlled by the President of Da
Capo, 300,000 escrow shares from Da Capo's treasury on August
4, 1994. See "Escrowed Shares";
(3) pursuant to a subscription agreement dated January 25, 1994,
461554 B.C. purchased 1,601,154 units of Da Capo, at Cdn.
$0.26 per unit, each unit consisting of one Da Capo Common
Share and one non- transferable share purchase warrant
entitling the holder thereof to purchase one additional Da
Capo Common Share at Cdn. $0.50 per share on or before
February 27, 1995 and at Cdn. $0.57 per share on or before
February 27, 1996;
(4) pursuant to a subscription agreement dated January 24, 1994,
the President of Da Capo, purchased 400,000 units of Da Capo
at Cdn. $0.26 per unit, and six associates of the President
purchased 300,000 units of Da Capo at Cdn. $0.26 per unit.
Each unit consisted of one Da Capo Common Share and one non-
transferable share purchase warrant entitling the holder
thereof to purchase one additional Da Capo Common Share at
Cdn. $0.50 per share on or before February 27, 1995 and at
Cdn. $0.57 per share on or before February 27, 1996;
(5) effective April 29, 1994, 461554 B.C. acquired 75,000
performance escrow shares of Da Capo by way of an escrow
transfer from a former principal of Da Capo;
(6) pursuant to a subscription agreement dated January 25, 1994,
Mermaid Resources Ltd., a private British Columbia company
controlled by Mr. Hugh Mogensen, a director of Da Capo,
purchased 50,000 units of Da Capo, at Cdn. $0.26 per unit,
each unit consisting of one Da Capo Common Share and one
non-transferable share purchase warrant entitling the holder
thereof to purchase one Da Capo additional Common Share at
Cdn. $0.50 per share on or before February 27, 1995 and at
Cdn. $0.57 per share on or before February 27, 1996;
(7) pursuant to a Subscription Agreement dated January 25, 1994,
an associate of Mr. John H. Wright, a director of Da Capo,
purchased 180,000 units of Da Capo, at Cdn. $0.26 per unit,
each unit consisting of one Da Capo Common Share and one
non-transferable share purchase warrant entitling the holder
thereof to purchase one additional Da Capo Common Share of Da
Capo at Cdn. $0.50 per share on or before February 27, 1995
and at Cdn. $0.57 per share on or before February 27, 1996;
and
(8) Da Capo and Pan American share a head office, overhead and
general and administrative costs (including executive salaries
and benefits), which are incurred by Pan American and
reimbursed by Da Capo on a formula determined annually and
mutually agreed to between Da Capo and Pan American. For the
fiscal years ended April 30, 1996, 1995 and 1994 Pan American
charged Da Capo Cdn. $164,968, Cdn. $307,371 and Cdn. $25,644,
respectively, for general, office and administrative costs, of
which Cdn. $22,750 is outstanding as at April 30, 1996.
- 84 -
<PAGE> 88
PRINCIPAL HOLDERS OF DA CAPO COMMON SHARES
The following table sets forth information at the date of this Joint
Management Information Circular with respect to Da Capo Common Shares owned of
record or owned beneficially, directly or indirectly, by each person or company
known by Da Capo to be the beneficial owner of greater than ten percent of the
Da Capo Common Shares, before and after giving effect to the exercise or deemed
exercise of the Special Warrants:
<TABLE>
<CAPTION>
TYPE OF NO. OF SHARES PERCENTAGE OF CLASS
NAME AND ADDRESS OWNERSHIP OWNED BENEFICIALLY OWNED BENEFICIALLY
- ---------------- --------------- ------------------ ------------------
<S> <C> <C> <C>
ROSS J. BEATY record 4,421,308 27.0%
1500 - 625 Howe St. and
Vancouver, B.C. beneficial
V6C 2T6
</TABLE>
As at September 15, 1996, the directors and officers of Da Capo owned
beneficially, directly or indirectly, 4,682,308 of the issued and outstanding
Da Capo Common Shares, representing 28.2 percent of the issued and outstanding
Da Capo Common Shares as of that date, and options to purchase up to 250,000 Da
Capo Common Shares.
ESCROWED SHARES
As at April 30, 1996, the following Da Capo Common Shares (the
"Escrowed Shares") have been deposited with the Trustee pursuant to an escrow
agreement dated April 29, 1994 (the "Escrow Agreement") between Da Capo, 461554
B.C. Ltd. and the Trustee:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENTAGE
DESIGNATION OF CLASS HELD IN ESCROW OF CLASS
- -------------------- -------------------- ----------
<S> <C> <C>
Common 187,500 1.3%
</TABLE>
All of the Escrowed Shares outstanding are owned by 461554 B.C. Ltd.
and are subject to the terms of the Escrow Agreement. The issuance of 300,000
of the Escrowed Shares to 461554 B.C. was approved by the shareholders of Da
Capo at its annual general meeting held on October 20, 1993.
The Escrow Agreement provides that the Escrowed Shares may not be
sold, assigned, pledged, hypothecated, alienated, transferred within escrow or
in any manner dealt with, without the prior written consent of the Vancouver
Stock Exchange, provided that the Escrowed Shares may be pledged or
hypothecated to a financial institution if such financial institution agrees to
be bound by the terms of the Escrow Agreement.
Pursuant to the Escrow Agreement, the Escrowed Shares may only be
released in accordance with the release provisions described in British
Columbia Securities Commission Local Policy Statement No. 3-07 and Vancouver
Stock Exchange Listings Policy Statement 19. The effect of such policies is,
in essence, that the holders of Escrowed Shares will only be entitled to the
pro-rata release of those Escrowed Shares on the basis of 15 percent of the
original number of Escrowed Shares for every Cdn. $100,000 expended on
exploration and development of resource properties by Da Capo, or by a person
other than Da Capo in order to earn an interest in the resource properties, but
only in respect of that portion of the expenditure equal to Da Capo's remaining
proportionate interest in the resource property after the other person's
interest has been earned. Notwithstanding the foregoing, no more than 50
percent of the original number of Escrowed Shares may be released in any 12
month period.
Da Capo has applied to the British Columbia Securities Commission and
the Vancouver Stock Exchange for a release of the remaining Escrowed Shares
prior to the Effective Date.
- 85 -
<PAGE> 89
OPTIONS TO PURCHASE SECURITIES AND SHARE PURCHASE WARRANTS
Although Da Capo has not established a stock option plan for the
granting of incentive stock options, it has in the past entered into individual
incentive stock option contracts with its executive officers, directors and
employees in accordance with the policies of the VSE. The purpose of granting
such options is to assist Da Capo in attracting, retaining and motivating
executive officers, directors and employees of Da Capo and of its subsidiaries
and to more closely align the personal interests of such executive officers,
directors and employees to those of Da Capo's shareholders.
The Vancouver Stock Exchange's Listing Policy 23 sets out the
requirements for granting stock options, which include, among other things:
(a) options may be granted for a period of up to ten years;
(b) the aggregate number of common shares that may be reserved for
issuance pursuant to director and employee stock options must
not exceed ten percent of the issued and outstanding common
shares at the time of granting, without VSE approval;
(c) the aggregate number of common shares that may be reserved for
issuance to any one individual pursuant to director or
employee incentive stock options must not exceed five percent
of the issued and outstanding common shares at the time of
granting any stock option;
(d) the minimum exercise price of a stock option shall be the
average closing price of the common shares for the ten trading
days immediately preceding the day on which such stock options
are granted, less a discount of up to 20 percent if the
average closing price of the common shares is Cdn. $1.00 or
less, a 15 percent discount if the average closing price of
the common shares is from Cdn. $1.01 to Cdn. $5.00, and a ten
percent discount if the average closing price of the common
shares is above Cdn. $5.00; and
(e) options may only be granted to directors, officers or
employees of Da Capo or its subsidiaries, employees of
management companies providing services to Da Capo, or to
persons who perform services (other than investor relation
services) on an ongoing basis or are expected to provide
services of value to Da Capo.
All options issued by Da Capo are exercisable as to 25 percent within
one year from the date of grant, as to 50 percent between the first and second
year from the date of grant, as to 75 percent between the third and fourth year
from the date of grant, and as to 100 percent after the fourth year from the
date of grant.
At Da Capo's annual general meeting held on September 8, 1995, the
shareholders of Da Capo authorized the directors of Da Capo, in their
discretion to:
(a) re-negotiate any existing stock options; and
(b) grant options to insiders of Da Capo or its subsidiaries at
such prices and upon such terms as may be acceptable to the
Vancouver Stock Exchange.
As well, the shareholders of Da Capo ratified and approved the grant and
exercise of any stock options granted to insiders of Da Capo other than
pursuant to a prior shareholder authorization.
- 86 -
<PAGE> 90
As of September 13, 1996 the following stock options and securities
convertible into Da Capo Common Shares are outstanding:
<TABLE>
<CAPTION>
NUMBER OF MARKET VALUE
COMMON EXERCISE MARKET VALUE ON SEPTEMBER 13,
NAME TYPE SHARES PRICE($CDN.) EXPIRY DATE ON DATE OF GRANT 1996 ($CDN.)
---- ---- ------ ------------ ----------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Executive Officer Options 50,000 $2.40(1) Sept. 13, 1999 $3.60 $10.50
and Director (one
individual)
Executive Officer Options 50,000 $2.40 Sept. 14, 1999 $2.40 $10.50
(who is not a
director) (one
individual)
Directors (not Options 100,000 $2.40(1) Sept. 13, 1999 $3.60 $10.50
officers) (three Options 50,000 $3.00 Feb. 21, 2001 $3.60 $10.50
individuals)
Employees (three Options 150,000 $2.40(1) Sept. 13, 1999 $3.60 $10.50
individuals) Options 150,000 $2.40 Sept. 14, 1999 $2.40 $10.50
Options 30,000 $2.10 Dec. 3, 2000 $2.15 $10.50
</TABLE>
- ----------------
(1) The original exercise price of these options was Cdn. $3.50, but such
options were re-priced at Cdn. $2.40 on September 14, 1995. The
re-pricing of these options was approved by the VSE and by the
shareholders of Da Capo at Da Capo's annual general meeting held on
September 8, 1995.
LEGAL PROCEEDINGS
Da Capo knows of no actual, threatened or pending legal proceedings to
which Da Capo or any of its subsidiaries is a party or which any of their
property is subject which are material or potentially material.
MATERIAL CONTRACTS
The only material contracts not in the ordinary course of business
entered into by Da Capo within two years prior to the date hereof are as
follows:
1. the Yamin Acquisition Agreement dated as of March 1, 1996,
referred to under "Properties -Capa Circa Property -
Ownership";
2. the Amayapampa Acquisition Agreement dated as of March 8,
1996, referred to under "Properties - Amayapampa Property -
Ownership";
3. the special warrant indenture dated March 1, 1996 between Da
Capo and Pacific Corporate Trust Company pursuant to which the
Capa Circa Special Warrants were issued;
4. the special warrant indenture dated March 8, 1996 between Da
Capo and Pacific Corporate Trust Company, pursuant to which
the Amayapampa Special Warrants were issued;
5. a credit facility agreement dated March 8, 1996 between Da
Capo and the Bank of Montreal, pursuant to which Da Capo
borrowed U.S.$3.24 million from the Bank of Montreal at an
interest rate of prime plus 0.5 percent for a 12 month term.
This Bank Loan was secured by U.S.$2.0 million cash collateral
from Da Capo and a personal guarantee from Ross J. Beaty,
- 87 -
<PAGE> 91
the President of Da Capo. On April 30, 1996 Da Capo paid down
the Bank Loan in the amount of U.S.$1.89 million. Da Capo
repaid the balance of the Bank Loan on May 6, 1996;
6. the Definitive Agreement dated as of August 16, 1996 referred
to under "The Amalgamation - Terms of Definitive Agreement";
and
7. the Amalgamation Agreement dated as of September 15, 1996
referred to under "the Amalgamation - Terms of the
Amalgamation".
Copies of the above material contracts will be available for
inspection at Da Capo's head office at 1500 - 625 Howe Street, Vancouver,
British Columbia, V6C 2T6 during regular business hours from the date hereof
until October 22, 1996 which is the date of the Granges Meeting and the Da Capo
Meeting.
AUDITORS
The auditors of Da Capo are Price Waterhouse, Chartered Accountants,
601 West Hastings Street, Vancouver, British Columbia, V6B 5A5.
REGISTRAR AND TRANSFER AGENT
Da Capo's registrar and transfer agent for its common shares is
Pacific Corporate Trust Company, 830 - 625 Howe Street, Vancouver, British
Columbia, V6C 3B8.
- 88 -
<PAGE> 92
CONSENTS
To the Board Directors of
GRANGES INC.
We hereby consent to the reference to our opinions contained under
"The Amalgamation - Income Tax Considerations - Canada" and "Description of
Vista Gold Corp. - Eligibility for Investment" in the Joint Management
Information Circular of Granges Inc. and Da Capo Resources Ltd. dated September
16, 1996.
Vancouver, British Columbia (signed) LADNER DOWNS
September 16, 1996
To the Board of Directors of
DA CAPO RESOURCES LTD.
We hereby consent to the reference to our opinion contained under
"Description of Vista Gold Corp. - Eligibility for Investment" in the Joint
Management Information Circular of Granges Inc. and Da Capo Resources Ltd.
dated September 16, 1996.
Vancouver, British Columbia (signed) MAITLAND & COMPANY
September 16, 1996
To the Board of Directors of
GRANGES INC.
We hereby consent to the reference to our opinion contained under "The
Amalgamation - Goepel Shields Fairness Opinion" in the Joint Management
Information Circular of Granges Inc. and Da Capo Resources Ltd. dated September
16, 1996.
Vancouver, British Columbia (signed) GOEPEL SHIELDS & PARTNERS INC.
September 16, 1996
To the Board of the Directors of
DA CAPO RESOURCES LTD.
We hereby consent to the reference to our opinion contained under "The
Amalgamation - Salman Partners Valuation and Fairness Opinion" in the Joint
Management Information Circular of Granges Inc. and Da Capo Resources Ltd.
dated September 16, 1996.
Vancouver, British Columbia (signed) SALMAN PARTNERS INC.
September 16, 1996
- 89 -
<PAGE> 93
To the Board of
DA CAPO RESOURCES LTD.
We hereby consent to the references to our study contained under "Da
Capo Resources Ltd. - Properties" in the Joint Management Information Circular
of Granges Inc. and Da Capo Resources Ltd. dated September 16, 1996.
Lakewood, Colorado (signed) PINCOCK, ALLEN & HOLT
September 16, 1996
- 90 -
<PAGE> 94
CERTIFICATE OF GRANGES
September 16, 1996
This Joint Management Information Circular (to the extent that it
relates to the Amalgamation generally, the business of Granges, the Granges
Meeting, the Consolidated Pro Forma Balance Sheet of Vista Gold and the Granges
financial statements) contains no untrue statement of a material fact and does
not omit to state a material fact that is required to be stated or that is
necessary to make a statement not misleading in light of the circumstances in
which it was made. The contents (to the extent such contents relate to the
Amalgamation generally, the business of Granges, the Granges Meeting, the
Consolidated Pro Forma Balance Sheet of Vista Gold and the Granges financial
statements) and the sending of this Joint Management Information Circular have
been approved by the board of directors of Granges.
(signed) MICHAEL B. RICHINGS (signed) AMJAD J. ALI
President & Vice President Finance
Chief Executive Officer and Chief Financial Officer
ON BEHALF OF THE BOARD OF DIRECTORS
(signed) PETER WALTON (signed) ALAN G. THOMPSON
Director Director
- 91 -
<PAGE> 95
CERTIFICATE OF DA CAPO
September 16, 1996
This Joint Management Information Circular (to the extent that it
relates to the Amalgamation generally, the business of Da Capo, the Da Capo
Meeting, the Consolidated Pro Forma Balance Sheet of Vista Gold and the Da Capo
financial statements) contains no untrue statement of a material fact and does
not omit to state a material fact that is required to be stated or that is
necessary to make a statement not misleading in light of the circumstances in
which it was made. The contents (to the extent such contents relate to the
Amalgamation generally, the business of Da Capo, the Da Capo Meeting, the
Consolidated Pro Forma Balance Sheet of Vista Gold and the Da Capo financial
statements) and the sending of this Joint Management Information Circular have
been approved by the board of directors of Da Capo.
(signed) ROSS J. BEATY (signed) GORDON JANG
President Controller and Secretary
ON BEHALF OF THE BOARD OF DIRECTORS
(signed) JOHN H. WRIGHT (signed) R. STUART ANGUS
Director Director
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<PAGE> 96
SCHEDULE A
AMALGAMATION AGREEMENT
THIS AMALGAMATION AGREEMENT is made the 16th day of September,
1996,
BETWEEN:
GRANGES INC., a company incorporated under the laws of the
Province of British Columbia,
("Granges")
AND:
DA CAPO RESOURCES LTD., a company incorporated under the laws
of the Province of British Columbia,
("Da Capo")
WHEREAS:
A. Granges is a company incorporated under the Company Act of
British Columbia, and has an authorized capital of 750,000,000 common shares
without par value and 750,000,000 preferred shares without par value, of which
55,881,461 common shares (the "Granges Shares") are issued and outstanding as
fully paid and non-assessable shares and no preferred shares are issued and
outstanding;
B. Da Capo is a company incorporated under the Company Act of
British Columbia and has an authorized capital of 100,000,000 common shares
without par value, of which 16,384,472 common shares (the "Da Capo Shares") are
issued and outstanding as fully paid and non-assessable shares;
C. Granges and Da Capo have each made disclosure to the other of
all their respective assets and liabilities; and
D. Granges and Da Capo, acting under the authority contained in
the Company Act of British Columbia, have agreed to amalgamate and continue as
one company upon the terms and conditions set forth herein.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration
of the mutual covenants hereinafter set forth and other good and valuable
consideration, (the receipt and sufficiency of which is hereby acknowledged and
agreed) the parties hereto covenant and agree as follows:
<PAGE> 97
ARTICLE 1
DEFINITIONS
1.1 In this Agreement unless the context otherwise requires:
(a) "Act" means the Company Act of British Columbia, R.S.B.C.
1979, c.59, as amended;
(b) "Amalgamating Companies" means Granges and Da Capo;
(c) "Amalgamated Company" means the company continuing from the
amalgamation of the Amalgamating Companies;
(d) "Amalgamation" means the amalgamation of Granges and Da Capo
contemplated hereby;
(e) "Effective Date" means November 1, 1996;
(f) "Registrar of Companies" means the Registrar of Companies in
and for the Province of British Columbia.
ARTICLE 2
AMALGAMATION
2.1 AMALGAMATION
Granges and Da Capo hereby agree to amalgamate pursuant to
Section 271 of Part 8 of the Act and to continue as one company upon and,
subject to the conditions set forth herein, effective at the Effective Date.
ARTICLE 3
MEMORANDUM, ARTICLES AND DIRECTORS
3.1 NAME
The name of the Amalgamated Company shall be "Vista Gold
Corp.".
3.2 MEMORANDUM AND ARTICLES OF AMALGAMATED COMPANY
The form of Memorandum and Articles of the Amalgamated
Company, as approved in writing by the Registrar of Companies pursuant to the
provisions of section 272 of the Act, are attached hereto as Schedules A and B
respectively.
3.3 REGISTERED OFFICE
The registered office of the Amalgamated Company, until
changed in accordance with the provisions of the Act and the Articles of the
Amalgamated Company, shall be 709 - 700 West Pender Street, Vancouver, British
Columbia, V6C 1G8.
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3.4 RECORDS OFFICE
The records office of the Amalgamated Company, until changed
in accordance with the provisions of the Act and the Articles of the
Amalgamated Company, shall be 709 - 700 West Pender Street, Vancouver, British
Columbia, V6C 1G8.
3.5 DIRECTORS
The full names, addresses and occupations of the first
directors of the Amalgamated Company shall be as follows:
<TABLE>
<S> <C> <C>
NAME ADDRESS OCCUPATION
- ---- ------- ----------
Ross J. Beaty 2755 West 30th Avenue Geologist
Vancouver, British Columbia
V6L 1Y8
William M. Calhoun 118 Third Street Mining Engineer
Silverton, Idaho
83867
James H. Dunnett 1605 - 1777 Larimer Street Businessman
Denver, Colorado
80202
C. Thomas Ogryzlo 1432 Clarkson Road Mining Engineer
Mississauga, Ontario
L5J 2W5
Michael B. Richings 10581 Harebell Run Mining Engineer
Littleton, Colorado
80125
David R. Sinclair Box B, C-5, RR.#1 - Seacrest Chartered Accountant
1433 Dorcas Point Road
Nanoose Bay, British Columbia
V0R 2R0
Keith Steeves #14 - 5531 Cornwall Drive Retired Businessman
Richmond, British Columbia
V7C 5N7
Alan G. Thompson 1124 Eyremount Businessman
West Vancouver, British Columbia
V7S 2C2
Peter Walton 302 - 2190 Argyle Ave. Business Consultant
West Vancouver, British Columbia
V7V 1A4
</TABLE>
Each of the first directors of the Amalgamated Company shall
hold office until the first annual general meeting of the Amalgamated Company.
The first directors shall carry on and continue the operation of the
Amalgamated Company in such manner as they shall determine, subject to and in
accordance with the Articles of the Amalgamated Company and the Act.
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<PAGE> 99
3.6 ANNUAL MEETING
The first annual general meeting of the Amalgamated Company
shall be held in the month of May in the year 1997.
ARTICLE 4
EXCHANGE OF SHARES
4.1 EXCHANGE OF SHARES
At the Effective Date, and except as the law may otherwise
require the manner in which all of the issued and unissued shares of each of
the Amalgamating Companies shall be exchanged for shares of the Amalgamated
Company or cancelled shall be as follows:
(a) each issued and outstanding Granges Share shall be exchanged
for one common share of the Amalgamated Company;
(b) each issued and outstanding Da Capo Share shall be exchanged
for two common shares of the Amalgamated Company; and
(c) each authorized but unissued common share and preferred share
of Granges and common share of Da Capo, respectively, shall be
cancelled.
No fractional shares of the Amalgamated Company will be issued. After the
Effective Date the holders of Granges Shares shall surrender the certificate or
certificates representing Granges Shares held by them and the holders of Da
Capo Shares shall surrender the certificate or certificates representing Da
Capo Shares held by them, in each case with a duly completed letter of
transmittal, and in return shall be entitled to receive certificates for common
shares without par value of the Amalgamated Company on the above basis, which
common shares shall be issued as fully paid and non-assessable.
4.2 STOCK OPTIONS
At the Effective Date, the Amalgamated Company shall adopt a
stock option plan in the form of the existing Stock Option Plan of Granges and
the outstanding stock options under the existing Stock Option Plan of Granges
and the outstanding stock options of Da Capo shall be exchanged for stock
options under the stock option plan of the Amalgamated Company as follows:
(a) each granted and outstanding option to purchase a Granges
Share under the Stock Option Plan of Granges shall remain
effective to acquire one common share of the Amalgamated
Company under the stock option plan of the Amalgamated Company
upon the same terms and conditions as are attached to such
option pursuant to the option agreement entered into between
Granges and the holder thereof in accordance with the Stock
Option Plan of Granges; and
(b) each granted and outstanding option to purchase a Da Capo
Share shall be exchanged for an option to purchase two common
shares of the Amalgamated Company under the stock option plan
of the Amalgamated Company at an exercise price equal to 50%
of the exercise price and upon such other terms and conditions
as are prescribed under the agreement between Da Capo and the
holder thereof and otherwise upon such other terms and
conditions not inconsistent therewith as are prescribed under
the stock option plan of the Amalgamated
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<PAGE> 100
Company provided such holder enters into an agreement with
respect thereto in accordance with the form prescribed under
the stock option plan of the Amalgamated Company.
ARTICLE 5
GENERAL
5.1 CONTRIBUTION OF AMALGAMATING COMPANIES
The Amalgamating Companies shall contribute to the Amalgamated
Company all of their respective assets subject to all of their respective
liabilities.
5.2 OBLIGATIONS OF THE AMALGAMATED COMPANY
The Amalgamated Company shall be seized of and shall hold and
possess all the property, rights and interest and shall be subject to all the
debts, liabilities and obligations of each of the Amalgamating Companies,
including any obligation to dissenting holders of Granges Shares or Da Capo
Shares pursuant to Section 231 of the Act, and every shareholder of each of the
Amalgamating Companies is bound by the terms of this Amalgamation Agreement.
5.3 RIGHTS OF CREDITORS
The rights of creditors against the property, rights and
assets of each of the Amalgamating Companies and all liens upon their
respective properties to the rights and assets, shall be unimpaired by the
Amalgamation, and all debts, contracts, liabilities and duties of each of the
Amalgamating Companies shall henceforth attach to the Amalgamated Company and
may be enforced against it.
5.4 ACTIONS OR PROCEEDINGS
No action by or against either of the Amalgamating Companies
shall abate or be affected by the Amalgamation, but for all purposes of such
actions or proceedings, such company may be deemed still to exist or the
Amalgamated Company may be substituted in such actions or proceedings in place
thereof.
5.5 CONDITION PRECEDENT
This Amalgamation Agreement shall be subject to the condition
that it shall be adopted by each of Granges and Da Capo in the manner required
by the Act.
5.6 COMPLIANCE WITH THE ACT
The parties hereto shall forthwith make all applications
required to be made under the provisions of Section 273 of the Act.
5.7 AMENDMENTS TO AGREEMENT
The Amalgamating Companies may, by resolution of their
respective directors, assent to any alteration or modification of the
Amalgamation Agreement which the Registrar of Companies or the Supreme Court of
British Columbia may require or approve, and all alterations and modifications
so assented to shall be binding upon the Amalgamating Companies.
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<PAGE> 101
5.8 SHAREHOLDER PROTECTION RIGHTS AGREEMENT
The Amalgamated Company hereby assumes the due and punctual
performance and observance of each and every covenant and condition of the
Shareholder Protection Rights Agreement made as of May 1, 1995 between Granges
and Montreal Trust Company of Canada to be performed and observed by Granges.
5.9 TERMINATION
The Amalgamating Companies may at any time prior to issuance
of the Certificate of Amalgamation by the Registrar of Companies, by an
instrument of termination approved by or subsequently ratified by resolution of
their respective directors and duly signed by a director or officer of each of
the Amalgamating Companies, terminate and abandon this Amalgamation Agreement
and all rights of all the parties hereto shall thereby be at an end and this
Amalgamation Agreement shall be of no force or effect whatsoever.
5.10 EFFECTIVE DATE
The Effective Date of the Amalgamation shall be November 1,
1996 and thereupon and thereafter the Amalgamated Company shall be seized of
and will hold and possess all the properties, rights and interests and will be
subject to all debts, liabilities and obligations of each of the Amalgamating
Companies without any further deeds, transfers or conveyances as fully and
effectually and to all intents and purposes as the same are now held or borne
by each of the Amalgamating Companies respectively and the directors of the
Amalgamated Company will have the full power to carry the Amalgamation into
effect and to perform such acts as are necessary or proper for such purpose.
The provisions of this paragraph will not be deemed to exclude any of the
effects, rights or privileges provided by law which are incident to or result
from the Amalgamation and which are not herein specifically provided for.
IN WITNESS WHEREOF the parties hereto have caused this
Agreement to be duly executed on the day and year first above written.
GRANGES INC.
By: (signed) Michael B. Richings
By: (signed) Amjad J. Ali
DA CAPO RESOURCES LTD.
By: (signed) Ross J. Beaty
By: (signed) Gordon Jang
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<PAGE> 102
MEMORANDUM
OF
VISTA GOLD CORP.
FORM 1
Section 5
COMPANY ACT
M E M O R A N D U M
I wish to be formed into a company with limited liability under the Company Act
in pursuance of this Memorandum.
1. The name of the Company is "Vista Gold Corp.".
2. The authorized capital of the Company consists of
3,000,000,000 shares divided into 2,500,000,000 Common shares without par value
and 500,000,000 Preferred shares without par value.
3. The Preferred shares shall confer on the holders thereof and
shall be subject to the following special rights and restrictions:
3.1 Issuable in Series: The Preferred shares may be issued at any
time or times in one or more series, and the Directors may by resolution alter
the Memorandum to fix the number of Preferred shares in, and determine the
designation of the Preferred shares of, each series and the special rights and
restrictions of each series subject to the special rights and restrictions
hereby attached to the Preferred shares. A resolution under this paragraph 3.1
may only be passed prior to the issue of Preferred shares of the series to
which the resolution relates.
3.2 Preference over Junior Shares: The Preferred shares shall be
entitled to preference over the Common shares with respect to the payment of
dividends and the distribution of assets of the Company in the event of
liquidation, dissolution or winding-up of the Company, whether voluntary or
involuntary, or in the event of any other distribution of assets of the Company
among its members for the purpose of winding up its affairs; and the Preferred
shares of each series may be given such other preference, not inconsistent
herewith, over the Common shares determined in the case of each series
authorized to be issued.
3.3 Parity among Series:
(a) Where cumulative dividends with respect to a series of
Preferred shares are not paid in full, the shares of all
series of Preferred shares shall participate rateably with
respect to accumulated dividends in accordance with the
amounts that would be payable on those shares if all the
accumulated dividends were paid in full.
(b) Where amounts payable on winding-up, or on the occurrence of
any other event as a result of which the holders of the shares
of all series of Preferred shares are then entitled to a
return of capital, are not paid in full, the shares of all
series of Preferred shares shall participate rateably in the
return of capital in respect of the Preferred shares as a
class in accordance with the amounts that would be payable on
the return of capital if all amounts so payable were paid in
full.
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<PAGE> 103
3.4 No Pre-Emptive Rights: Except as otherwise required by law,
the registered holders of the Preferred shares shall not be entitled as such to
subscribe for, purchase or receive any part of any issue of shares, bonds,
debentures or other securities of the Company now or hereafter authorized, or
any rights to acquire the same, otherwise than in accordance with the special
rights and restrictions, if any, which may from time to time be attached to any
series of Preferred shares.
3.5 Restrictions on Creating New Shares: So long as any Preferred
shares are outstanding, the Company shall not at any time without, in addition
to any approval that may then be prescribed by applicable law, the approval of
the registered holders of the Preferred shares given in writing by the
registered holders of three-quarters of the Preferred shares or given by a
resolution passed at a meeting called and conducted in accordance with
paragraph 3.8 hereof and carried by the affirmative vote of not less than
three-quarters of the votes cast at such meeting, create or issue any shares
ranking prior to the Preferred shares with respect to the payment of dividends
or the distribution of assets in the event of the liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary, or in the event of
any other distribution of assets of the Company among its members for the
purpose of winding up its affairs.
3.6 Voting: Except as otherwise provided with respect to any
particular series of Preferred shares and except as otherwise required by law,
the registered holders of the Preferred shares shall not be entitled as a class
to receive notice of or to attend or to vote at any meetings of the Company.
3.7 Amendments: The special rights and restrictions attached to
the Preferred shares as a class may be varied or abrogated at any time or from
time to time with, in addition to any approval that may then be prescribed by
applicable law, the approval of the registered holders of three-quarters of the
Preferred shares or given by a resolution passed at a meeting called and
conducted in accordance with paragraph 3.8 hereof and carried by the
affirmative vote of not less than three-quarters of the votes cast at such
meeting.
3.8 Meetings of Registered Holders of Preferred Shares: The
formalities to be observed with respect to giving notice and voting at any
meeting of the registered holders of Preferred shares, the quorum therefor and
the conduct thereof, shall, with the necessary changes and so far as
applicable, be those from time to time prescribed by the Articles of the
Company with respect to meetings of members.
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<PAGE> 104
PROVINCE OF BRITISH COLUMBIA
COMPANY ACT
ARTICLES OF
VISTA GOLD CORP.
PART 1
INTERPRETATION
1.1 In these Articles, unless there is something in the subject or
context inconsistent therewith:
"BOARD" and "THE DIRECTORS" or "THE DIRECTORS" mean the Directors of
the Company for the time being.
"COMPANY ACT" means the Company Act of the Province of British
Columbia as from time to time enacted and all amendments thereto and
includes the regulations made pursuant thereto.
"SEAL" means the common seal of the Company.
"MONTH" means calendar month.
"REGISTERED OWNER" or "REGISTERED HOLDER" when used with respect to a
share in the authorized capital of the Company means the person
registered in the register of members in respect of such share.
Expressions referring to writing shall be construed as including references to
printing, lithography, typewriting, photography and other modes of representing
or reproducing words in a visible form.
Words importing the singular include the plural and vice versa; and words
importing male persons include female persons; and words importing persons
shall include corporations.
1.2 The meaning of any words or phrases defined in the Company Act
shall, if not inconsistent with the subject or context, bear the same meaning
in these Articles.
1.3 The Rules of Construction contained in the Interpretation Act
shall apply, mutatis mutandis, to the interpretation of these Articles.
PART 2
SHARES AND SHARE CERTIFICATES
2.1 Every member is entitled, without charge, to one certificate
representing the share or shares of each class held by him, provided that, in
respect of a share or shares held jointly by several persons, the Company shall
not be bound to issue more than one certificate, and delivery of a certificate
for a share to one of several joint registered holders or to his duly
authorized agent shall be sufficient delivery to all; and provided further that
the Company shall not be bound to issue certificates representing redeemable
shares, if such shares are to be redeemed within one month of the date on which
they were allotted. Any share certificate may be sent through the mail by
registered prepaid mail to the member entitled thereto, and neither the Company
nor any transfer agent shall be liable for any loss occasioned to the member
owing to any such share certificate so sent being lost in the mail or stolen.
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<PAGE> 105
2.2 If a share certificate
(i) is worn out or defaced, the Directors shall, upon
production to them of the said certificate and upon
such other terms, if any, as they may think fit,
order the said certificate to be cancelled and shall
issue a new certificate in lieu thereof;
(ii) is lost, stolen or destroyed, then, upon proof
thereof to the satisfaction of the Directors and upon
such indemnity, if any, as the Directors deem
adequate being given, a new share certificate in lieu
thereof shall be issued to the person entitled to
such lost, stolen or destroyed certificate; or
(iii) represents more than one share and the registered
owner thereof surrenders it to the Company with a
written request that the Company issue in his name
two or more certificates each representing a
specified number of shares and in the aggregate
representing the same number of shares as the
certificate so surrendered, the Company shall cancel
the certificate so surrendered and issue in lieu
thereof certificates in accordance with such request.
Such sum as the Directors may from time to time prescribe shall be paid to the
Company for each certificate to be issued under this Article.
2.3 Every share certificate shall be signed manually by at least
one officer or Director of the Company or by or on behalf of a registrar,
branch registrar, transfer agent or branch transfer agent of the Company and
any additional signatures may be printed or otherwise mechanically reproduced
and, in such event, a certificate so signed is as valid as if signed manually,
notwithstanding that any person whose signature is so printed or mechanically
reproduced shall have ceased to hold the office that he is stated on such
certificate to hold at the date of the issue of a share certificate.
2.4 Except as required by law, statute or these Articles, no
person shall be recognized by the Company as holding any share upon any trust
and the Company shall not be bound by or compelled in any way to recognize
(even when having notice thereof) any equitable, contingent, future or partial
interest in any share or in any fractional part of a share or (except only as
by law, statute or these Articles provided or as ordered by a court of
competent jurisdiction) any other rights in respect of any share except an
absolute right to the entirety thereof in its registered holder.
PART 3
ISSUE OF SHARES
3.1 Subject to Article 3.2 and to any direction to the contrary
contained in a resolution passed at a general meeting authorizing any increase
or alteration of capital, the shares shall be under the control of the
Directors who may, subject to the rights of the holders of the shares of the
Company for the time being issued, issue, allot, sell or otherwise dispose of,
or grant options on, issue warrants for or otherwise deal in, shares authorized
but not outstanding at such times, to such persons (including Directors), in
such manner, upon such terms and conditions, and at such price or for such
consideration, as they, in their absolute discretion, may determine.
3.2 If the Company is, or becomes, a company which is not a
reporting company and the Directors are required by the Company Act before
allotting any shares to offer them pro rata to the members, the Directors
shall, before allotting any shares, comply with the applicable provisions of
the Company Act.
3.3 Subject to the provisions of the Company Act, the Company, or
the Directors on behalf of the Company, may pay a commission or allow a
discount to any person in consideration of his subscribing or agreeing to
subscribe, whether absolutely or conditionally, for any shares in the Company,
or procuring or agreeing to procure subscriptions, whether absolutely or
conditionally, for any such shares, provided that, if
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<PAGE> 106
the Company is not a specially limited company, the rate of the commission and
discount shall not in the aggregate exceed 25 per centum of the amount of the
subscription price of such shares.
3.4 No share may be issued until it is fully paid and the Company
shall have received the full consideration therefor in cash, property or past
services actually performed for the Company. The value of property or services
for the purpose of this Article shall be the value determined by the Directors
by resolution to be, in all circumstances of the transaction, the fair market
value thereof.
PART 4
SHARE REGISTERS
4.1 The Company shall keep or cause to be kept within British
Columbia, a register of members, a register of transfers and a register of
allotments, all as required by the Company Act, and may combine one or more of
such registers. If the Company's capital shall consist of more than one class
of shares, a separate register of members, register of transfers and register
of allotments may be kept in respect of each class of shares. The Directors,
on behalf of the Company, may appoint a trust company to keep the register of
members, register of transfers and register of allotments or, if there is more
than one class of shares, the Directors may appoint a trust company, which need
not be the same trust company, to keep the register of members, the register of
transfers and the register of allotments for each class of shares. The
Directors, on behalf of the Company, may also appoint one or more trust
companies, including the trust company which keeps the said registers of its
shares or of a class thereof, as transfer agent for its shares or such class
thereof, as the case may be, and the same or another trust company or companies
as registrar for its shares or such class thereof, as the case may be. The
Directors may terminate the appointment of any such trust company at any time
and may appoint another trust company in its place.
4.2 Unless prohibited by the Company Act, the Company may keep or
cause to be kept one or more branch registers of members at such place or
places, either within or outside British Columbia, as the Directors may from
time to time determine.
4.3 The Company shall not at any time close its register of
members.
PART 5
TRANSFER AND TRANSMISSION OF SHARES
5.1 Subject to the provisions of the Memorandum and of these
Articles that may be applicable, any member may transfer any of his shares by
instrument in writing executed by or on behalf of such member and delivered to
the Company or its transfer agent. The instrument of transfer of any share of
the Company shall be in the form, if any, on the back of the Company's share
certificates or in such other form as the Directors may from time to time
approve. Except to the extent that the Company Act may otherwise provide, the
transferor shall be deemed to remain the holder of the shares until the name of
the transferee is entered in the register of members or a branch register of
members in respect thereof.
5.2 The signature of the registered owner of any shares, or of his
duly authorized attorney, upon an authorized instrument of transfer shall
constitute a complete and sufficient authority to the Company, its Directors,
officers and agents to register, in the name of the transferee as named in the
instrument of transfer, the number of shares specified therein or, if no number
is specified, all the shares of the registered owner represented by share
certificates deposited with the instrument of transfer. If no transferee is
named in the instrument of transfer, the instrument of transfer shall
constitute a complete and sufficient authority to the Company, its Directors,
officers and agents to register, in the name of the person in whose behalf any
certificate for the shares to be transferred is deposited with the Company for
the purpose of having the transfer registered, the number of shares specified
in the instrument of transfer or, if no number is specified, all the shares
represented by all share certificates deposited with the instrument of
transfer.
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<PAGE> 107
5.3 Neither the Company nor any Director, officer or agent thereof
shall be bound to inquire into the title of the person named in the form of
transfer as transferee or, if no person is named therein as transferee, of the
person on whose behalf the certificate is deposited with the Company for the
purpose of having the transfer registered or be liable to any claim by such
registered owner or by any intermediate owner or holder of the certificate or
any of the shares represented thereby or any interest therein for registering
the transfer, and the transfer, when registered, shall confer upon the person
in whose name the shares have been registered a valid title to such shares.
5.4 Every instrument of transfer shall be executed by the
transferor and left at the registered office of the Company or at the office of
its transfer agent or registrar for registration, together with the share
certificate for the shares to be transferred and such other evidence, if any,
as the Directors or the transfer agent or registrar may require to prove the
title of the transferor or his right to transfer the shares and the right to
the transferee to have the transfer registered. All instruments of transfer
where the transfer is registered shall be retained by the Company or its
transfer agent or registrar and any instrument of transfer where the transfer
is not registered shall be returned to the person depositing the same, together
with the share certificate which accompanied the same when tendered for
registration.
5.5 There shall be paid to the Company in respect of the
registration of any transfer such sum, if any, as the Directors may from time
to time determine.
5.6 In the case of the death of a member, the survivor or
survivors, where the deceased was a joint registered holder, and the legal
personal representative of the deceased, where he was the sole holder, shall be
the only persons recognized by the Company as having any title to his interest
in the shares. Before recognizing any legal personal representative, the
Directors may require him to obtain a grant of probate or letters of
administration in British Columbia.
5.7 Upon the death or bankruptcy of a member, his personal
representative or trustee in bankruptcy, although not a member, shall have the
same rights, privileges and obligations that attach to the shares formerly held
by the deceased or bankrupt member if the documents required by the Company Act
shall have been deposited at the Company's registered office.
5.8 Any person becoming entitled to a share in consequence of the
death or bankruptcy of a member shall, upon such documents and evidence being
produced to the Company as the Company Act requires, or who becomes entitled to
a share as a result of an order of a Court of competent jurisdiction or a
statute, has the right either to be registered as a member in his
representative capacity in respect of such share, or, if he is a personal
representative, instead of being registered himself, to make such transfer of
the share as the deceased or bankrupt person could have made; but the Directors
shall, as regards a transfer by a personal representative or trustee in
bankruptcy, have the same right, if any, to decline or suspend registration of
a transferee as they would have in the case of a transfer of a share by the
deceased or bankrupt person before the death or bankruptcy.
PART 6
ALTERATION OF CAPITAL
6.1 The Company may, by ordinary resolution filed with the
Registrar, amend its Memorandum to increase the authorized capital of the
Company by:
(i) creating shares with par value or shares without par
value, or both;
(ii) increasing the number of shares with par value or
shares without par value, or both; or
(iii) increasing the par value of a class of shares with
par value, if no shares of that class are issued.
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6.2 The Company may, by special resolution, alter its Memorandum
to subdivide, consolidate, change from shares with par value to shares without
par value, or from shares without par value to shares with par value, or change
the designation of all or any of its shares but only to such extent, in such
manner and with such consents of members holding a class of shares which is the
subject of or affected by such alteration, as the Company Act provides.
6.3 The Company may alter its Memorandum or these Articles:
(i) by special resolution, to create, define and attach
special rights or restrictions to any shares, and
(ii) by special resolution and by otherwise complying with
any applicable provision of its Memorandum or these
Articles, to vary or abrogate any special rights and
restrictions attached to any shares
and in each case by filing a certified copy of such resolution with the
Registrar but no right or special right attached to any issued shares shall be
prejudiced or interfered with unless all members holding shares of each class
whose right or special right is so prejudiced or interfered with consent
thereto in writing, or unless a resolution consenting thereto is passed at a
separate class meeting of the holders of the shares of each such class by a
majority of three-fourths, or such greater majority as may be specified by the
special rights attached to the class of shares, of the issued shares of such
class.
6.4 Notwithstanding such consent in writing or such resolution, no
such alteration shall be valid as to any part of the issued shares of any class
unless the holders of the rest of the issued shares of such class either all
consent thereto in writing or consent thereto by a resolution passed by the
votes of members holding three-fourths of the rest of such shares.
6.5 If the Company is or becomes a reporting company, no
resolution to create, vary or abrogate any special right of conversion
attaching to any class of shares shall be submitted to any meeting of members
unless, if so required by the Company Act, the Superintendent of Brokers for
British Columbia shall have consented to the resolution.
6.6 Unless these Articles otherwise provide, the provisions of
these Articles relating to general meetings shall apply, with the necessary
changes and so far as they are applicable, to a class meeting of members
holding a particular class of shares but the quorum at a class meeting shall be
one person holding or representing by proxy one-third of the shares affected.
PART 7
PURCHASE AND REDEMPTION OF SHARES
7.1 Subject to the special rights and restrictions attached to any
class or series of shares, the Company may, by a resolution of the Directors
and in compliance with the Company Act, purchase any of its shares at the price
and upon the terms specified in such resolution or redeem any class or series
of its shares in accordance with the special rights and restrictions attaching
thereto. No such purchase or redemption shall be made if the Company is
insolvent at the time of the proposed purchase or redemption or if the proposed
purchase or redemption would render the Company insolvent. Unless otherwise
permitted under the Company Act, the Company shall make its offer to purchase
pro rata to every member who holds shares of the class or kind, as the case may
be, to be purchased.
7.2 If the Company proposes at its option to redeem some but not
all of the shares of any class, the Directors may, subject to the special
rights and restrictions attached to such class of shares, decide the manner in
which the shares to be redeemed shall be selected.
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7.3 Subject to the provisions of the Company Act, any shares
purchased or redeemed by the Company may be sold or issued by it, but, while
such shares are held by the Company, it shall not exercise any vote in respect
of these shares and no dividend or other distribution shall be paid or made
thereon.
PART 8
BORROWING POWERS
8.1 The Directors may from time to time on behalf of the Company:
(i) borrow money in such manner and amount, on such
security, from such sources and upon such terms and
conditions as they think fit;
(ii) issue bonds, debentures and other debt obligations
either outright or as security for any liability or
obligation of the Company or any other person; and
(iii) mortgage, pledge, charge, whether by way of specific
or floating charge, or give other security on the
undertaking, or on the whole or any part of the
property and assets, of the Company (both present and
future).
8.2 Any bonds, debentures or other debt obligations of the Company
may be issued at a discount, premium or otherwise, and with any special
privileges as to redemption, surrender, drawing, allotment of or conversion
into or exchange for shares or other securities, attending and voting at
general meetings of the Company, appointment of Directors or otherwise and may,
by their terms, be assignable free from any equities between the Company and
the person to whom they were issued or any subsequent holder thereof, all as
the Directors may determine.
8.3 The Company shall keep or cause to be kept within the Province
of British Columbia in accordance with the Company Act a register of its
debentures and a register of debentureholders which registers may be combined,
and, subject to the provisions of the Company Act, may keep or cause to be kept
one or more branch registers of its debentureholders at such place or places as
the Directors may from time to time determine and the Directors may by
resolution, regulation or otherwise make such provisions as they think fit
respecting the keeping of such branch registers.
8.4 Every bond, debenture or other debt obligation of the Company
shall be signed manually by at least one Director or officer of the Company or
by or on behalf of a trustee, registrar, branch registrar, transfer agent or
branch transfer agent for the bond, debenture or other debt obligation
appointed by the Company or under any instrument under which the bond,
debenture or other debt obligation is issued and any additional signatures may
be printed or otherwise mechanically reproduced thereon and, in such event, a
bond, debenture or other debt obligation so signed is as valid as if signed
manually notwithstanding that any person whose signature is so printed or
mechanically reproduced shall have ceased to hold the office that he is stated
on such bond, debenture or other debt obligation to hold at the date of the
issue thereof.
8.5 The Company shall keep or cause to be kept a register of its
indebtedness to every Director or officer of the Company or an associate of any
of them in accordance with the provisions of the Company Act.
PART 9
GENERAL MEETINGS
9.1 An annual general meeting shall be held once in every calendar
year at such time (not being more than 13 months after the holding of the last
preceding annual general meeting) and place as may be determined by the
Directors.
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9.2 If the Company is, or becomes, a company which is not a
reporting company and all the members entitled to attend and vote at an annual
general meeting consent in writing to all the business which is required or
desired to be transacted at the meeting, the meeting need not be held.
9.3 All general meetings other than annual general meetings are
herein referred to as and may be called extraordinary general meetings.
9.4 The Directors may, whenever they think fit, convene an
extraordinary general meeting. An extraordinary general meeting, if
requisitioned in accordance with the Company Act, shall be convened by the
Directors or, if not convened by the Directors, may be convened by the
requisitionists as provided in the Company Act.
9.5 If the Company is, or becomes, a reporting company, advance
notice of any general meeting at which Directors are to be elected shall be
published in the manner required by the Company Act.
9.6 A notice convening a general meeting specifying the place, the
day and the hour of the meeting and, in the case of special business, the
general nature of that business, shall be given as provided in the Company Act
and in the manner hereinafter in these Articles mentioned, or in such other
manner, if any, as may be prescribed by ordinary resolution, whether previous
notice thereof has been given or not, to such persons as are entitled by law or
under these Articles to receive such notice from the Company. Accidental
omission to give notice of a meeting to, or the non-receipt of notice of a
meeting, by any member shall not invalidate the proceedings at that meeting.
9.7 All the members of the Company entitled to attend and vote at
a general meeting may, by unanimous consent in writing given before, during or
after the meeting, or if they are present at the meeting by a unanimous vote,
waive or reduce the period of notice of such meeting and an entry in the minute
book of such waiver or reduction shall be sufficient evidence of the due
convening of the meeting.
9.8 Except as otherwise provided by the Company Act, where any
special business at a general meeting includes considering, approving,
ratifying, adopting or authorizing any document or the execution thereof or the
giving of effect thereto, the notice convening the meeting shall, with respect
to such document, be sufficient if it states that a copy of the document or
proposed document is or will be available for inspection by members at the
registered office or records office of the Company or at some other place in
British Columbia designated in the notice during usual business hours up to the
date of such general meeting.
PART 10
PROCEEDINGS AT GENERAL MEETINGS
10.1 All business shall be deemed special business which is
transacted at
(i) an extraordinary general meeting other than the
conduct of and voting at such meeting; and
(ii) an annual general meeting, with the exception of the
conduct of, and voting at, such meeting, the
consideration of the financial statement and of the
respective reports of the Directors and Auditor,
fixing or changing the number of Directors, the
election of Directors, the appointment of the
Auditor, the fixing of the remuneration of the
Auditor and such other business as by these Articles
or the Company Act may be transacted at a general
meeting without prior notice thereof being given to
the members or any business which is brought under
consideration by the report of the Directors.
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10.2 No business, other than election of the chairman or the
adjournment of the meeting, shall be transacted at any general meeting unless a
quorum of members, entitled to attend and vote, is present at the commencement
of the meeting, but the quorum need not be present throughout the meeting.
10.3 Save as herein otherwise provided, a quorum shall be two
members or proxyholders present. If there is only one member, the quorum is
one person present and being, or representing by proxy, such member. The
Directors, the Secretary or, in his or her absence, an Assistant Secretary, and
the solicitor of the Company shall be entitled to attend at any general meeting
but no such person shall be counted in the quorum or be entitled to vote at any
general meeting unless he is a member or proxyholder entitled to vote thereat.
10.4 If, within half an hour from the time appointed for a general
meeting a quorum is not present, the meeting, if convened upon the requisition
of members, shall be dissolved. In any other case, it shall stand adjourned to
the same day in the next week, at the same time and place, and, if at the
adjourned meeting a quorum is not present within half an hour from the time
appointed for the meeting, the person or persons present and being, or
representing by proxy, a member or members entitled to attend and vote at the
meeting shall be a quorum.
10.5 The Chairman of the Board, if any, or in his absence the
Vice-Chairman of the Board shall be entitled to preside as Chairman at every
general meeting of the Company.
10.6 If at any general meeting neither the Chairman of the Board
nor the Vice-Chairman of the Board is present within 15 minutes after the time
appointed for holding the meeting or is willing to serve as Chairman, the
members present shall choose a Chairman.
10.7 The Chairman may and shall, if so directed by the meeting,
adjourn the meeting from time to time and from place to place, but no business
shall be transacted at any adjourned meeting other than the business left
unfinished at the meeting from which the adjournment took place. When a
meeting is adjourned for 30 days or more, notice, but not "advance notice", of
the adjourned meeting shall be given as in the case of an original meeting.
Save as aforesaid, it shall not be necessary to give any notice of an adjourned
meeting or of the business to be transacted at an adjourned meeting.
10.8 No motion proposed at a general meeting need be seconded and
the Chairman may propose or second a motion.
10.9 Subject to the provisions of the Company Act, at any general
meeting a resolution put to the vote of the meeting shall be decided on a show
of hands unless (before or on the declaration of the result of the show of
hands) a poll is directed by the Chairman or demanded by at least one member
entitled to vote who is present in person or by proxy. The Chairman shall
declare to the meeting the decision on every question in accordance with the
result of the show of hands or the poll, and such decision shall be entered in
the minute book of the Company. A declaration by the Chairman that a
resolution has been carried, or carried unanimously, or by a particular
majority, or lost or not carried by a particular majority and an entry to that
effect in the minute book of the Company shall be conclusive evidence of the
fact, without proof of the number or proportion of the votes recorded in favour
of, or against that resolution.
10.10 In the case of an equality of votes, whether on a show of
hands or on a poll, the Chairman of the meeting at which the show of hands
takes place or at which the poll is demanded shall not be entitled to a second
or casting vote.
10.11 No poll may be demanded on the election of a Chairman. A poll
demanded on a question of adjournment shall be taken forthwith. A poll
demanded on any other question shall be taken as soon as, in the opinion of the
Chairman, is reasonably convenient, but in no event later than seven days after
the meeting and at such time and place and in such manner as the Chairman of
the meeting directs. The result of the poll shall be deemed to be the
resolution of and passed at the meeting at which the poll was demanded.
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Any business other than that upon which the poll has been demanded may be
proceeded with pending the taking of the poll. A demand for a poll may be
withdrawn. In any dispute as to the admission or rejection of a vote, the
decision of the Chairman made in good faith shall be final and conclusive.
10.12 Every ballot cast upon a poll and every proxy appointing a
proxyholder who casts a ballot upon a poll shall be retained by the Secretary
for such period and be subject to such inspection as the Company Act may
provide.
10.13 On a poll, a person entitled to cast more than one vote need
not, if he votes, use all his votes or cast all the votes he uses in the same
way.
10.14 Unless the Company Act, the Memorandum or these Articles
otherwise provide, any action to be taken by a resolution of the members may be
taken by an ordinary resolution.
PART 11
VOTES OF MEMBERS
11.1 Subject to any special voting rights or restrictions attached
to any class of shares and the restrictions on joint registered holders of
shares, on a show of hands every member who is present in person and entitled
to vote thereat shall have one vote and on a poll every member shall have one
vote for each share of which he is the registered holder and may exercise such
vote either in person or by proxyholder.
11.2 Any person who is not registered as a member but is entitled
to vote at any general meeting in respect of a share may vote the share in the
same manner as if he were a member; but, unless the Directors have previously
permitted his right to vote at that meeting in respect of the share, he shall
satisfy the Directors of his right to vote the share before the time for
holding the meeting or adjourned meeting, as the case may be, at which he
proposes to vote.
11.3 Any corporation not being a subsidiary which is a member of
the Company may by resolution of its directors or other governing body
authorize such person as it thinks fit to act as its representative at any
general meeting or class meeting. The person so authorized shall be entitled
to exercise in respect of and at such meeting the same powers on behalf of the
corporation which he represents as that corporation could exercise if it were
an individual member of the Company personally present, including, without
limitation, the right, unless restricted by such resolution, to appoint a
proxyholder to represent such corporation, and shall be counted for the purpose
of forming a quorum if present at the meeting. Evidence of the appointment of
any such representative may be sent to the Company by written instrument,
telegram, telex, facsimile or any method of transmitting legibly recorded
messages. Notwithstanding the foregoing, a corporation which is a member may
appoint a proxyholder.
11.4 In the case of joint registered holders of a share, the vote
of the senior who exercises a vote, whether in person or by proxyholder, shall
be accepted to the exclusion of the votes of the other joint registered
holders; and for this purpose seniority shall be determined by the order in
which the names stand in the register of members. Several legal personal
representatives of a deceased member whose shares are registered in his sole
name shall for the purpose of this Article be deemed joint registered holders.
11.5 A member of unsound mind entitled to attend and vote, in
respect of whom an order has been made by any court having jurisdiction, may
vote, whether on a show of hands or on a poll, by his committee, curator bonis
or other person in the nature of a committee or curator bonis appointed by that
court, and any such committee, curator bonis or other person may appoint a
proxyholder.
11.6 A member holding more than one share in respect of which he is
entitled to vote shall be entitled to appoint one or more (but not more than
five) proxyholders to attend, act and vote for him on the same occasion. If
such a member should appoint more than one proxyholder for the same occasion,
he shall
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specify the number of shares each proxyholder shall be entitled to vote. A
member may also appoint one or more alternate proxyholders to act in the place
and stead of an absent proxyholder.
11.7 A form of proxy shall be in writing under the hand of the
appointor or of his attorney duly authorized in writing or, if the appointor is
a corporation, either under the seal of the corporation or under the hand of a
duly authorized officer or attorney. A proxyholder need not be a member of the
Company if:
(i) the Company is, at the time, a reporting company; or
(ii) the member appointing the proxyholder is a
corporation; or
(iii) the Company shall have, at the time, only one member;
or
(iv) the persons present in person or by proxy and
entitled to vote at the meeting by resolution permit
the proxyholder to attend and vote; for the purpose
of such resolution, the proxyholder shall be counted
in the quorum but shall not be entitled to vote;
and in all other cases a proxyholder must be a member.
11.8 A proxy and any power of attorney or other authority under
which it is signed or a notarially certified copy of the power or authority
shall be deposited at the place specified for that purpose in the notice of
meeting or, in the documents mailed to the members with the notice of meeting
or, if no place is so specified, at the registered office of the Company before
the time for holding the meeting at which the person named in the proxy
proposes to vote or such earlier time as the Directors may determine. In
default, the proxy will not be treated as valid.
11.9 Unless the Company Act or any other statute or law which is
applicable to the Company or to any class of its shares requires any other form
of proxy, a proxy, whether for a specified meeting or otherwise, shall be in
the form following, but may also be in any other form that the Directors or the
Chairman of the meeting shall approve:
"The undersigned member of _____________________ (hereinafter called
the "Company") hereby appoints ____________________________, or
failing him, ______________________ or failing either of them,
_______________________ as the proxyholder for and on behalf of the
undersigned to attend, act and vote for and on behalf of the
undersigned at the general meeting of the members of the Company to be
held on ______________________ and at any adjournments thereof, to the
same extent and with the same powers as if the undersigned were
present at the said meeting, or any adjournment thereof, and the
persons named are specifically directed to vote as indicated below:
Dated:
--------------------------------
Signature of Member"
11.10 A vote given in accordance with the terms of a proxy is valid,
notwithstanding the previous death or incapacity of the member giving the proxy
or the revocation of the proxy or of the authority under which the form of
proxy was executed or the transfer of the share or shares in respect of which
the proxy is given, provided that no notification in writing of such death,
incapacity, revocation or transfer shall have been received at the registered
office of the Company or by the Chairman of the meeting or adjourned meeting
for which the proxy was given before the vote is taken.
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11.11 Every proxy may be revoked by an instrument in writing
(i) executed by the member giving the same or by his
attorney authorized in writing or, where the member
is a corporation, by a duly authorized officer or
attorney of the corporation; and
(ii) delivered either at the registered office of the
Company at any time up to and including the last
business day preceding the day of the meeting, or any
adjournment thereof at which the proxy is to be used,
or to the Chairman of the meeting on the day of the
meeting or any adjournment thereof before any vote in
respect of which the proxy is to be used shall have
been taken
or in any other manner provided by law.
PART 12
DIRECTORS
12.1 The number of directors may be determined by ordinary
resolution. The number of Directors, excluding additional Directors, may be
fixed or changed from time to time by ordinary resolution, whether previous
notice thereof has been given or not, but notwithstanding anything contained in
these Articles, the number of Directors shall never be less than one or, if the
Company is or becomes a reporting company, less than three.
12.2 The remuneration of the Directors as such may from time to
time be determined by the Directors or, if the Directors shall so decide, by
the members. Such remuneration may be in addition to any salary or other
remuneration paid to any officer or employee of the Company as such who is also
a Director. The Directors shall be repaid such reasonable travelling, hotel
and other expenses as they incur in and about the business of the Company and,
if any Director shall perform any professional or other services for the
Company that in the opinion of the Directors are outside the ordinary duties of
a Director or shall otherwise be specially occupied in or about the Company's
business, he may be paid a remuneration to be fixed by the Board, or, at the
option of such Director, by the Company in general meeting, and such
remuneration may be either in addition to, or in substitution for, any other
remuneration that he may be entitled to receive. The Directors, on behalf of
the Company, unless otherwise determined by ordinary resolution, may pay a
gratuity or pension or allowance on retirement to any Director who has held any
salaried office or place of profit with the Company or to his spouse or
dependents and may make contributions to any fund and pay premiums for the
purchase or provision of any such gratuity, pension or allowance.
12.3 A Director shall not be required to hold a share in the
capital of the Company as qualification for his office but shall be qualified
as required by the Company Act to become or act as a Director.
PART 13
ELECTION AND REMOVAL OF DIRECTORS
13.1 At each annual general meeting of the Company all the
Directors shall retire and the members entitled to vote thereat shall elect a
Board of Directors. If the Company is, or becomes, a company that is not a
reporting company and the business to be transacted at any annual general
meeting is consented to in writing by all the members who are entitled to
attend and vote thereat, such annual general meeting shall be deemed for the
purpose of this Part to have been held on such written consent becoming
effective.
13.2 A retiring Director shall be eligible for re-election.
13.3 Where the Company fails to hold an annual general meeting in
accordance with the Company Act, the Directors then in office shall be deemed
to have been elected or appointed as Directors on the last
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day on which the annual general meeting could have been held pursuant to these
Articles and they may hold office until other Directors are appointed or
elected or until the day on which the next annual general meeting is held.
13.4 If at any general meeting at which there should be an election
of Directors, the places of any of the retiring Directors are not filled by
such election, such of the retiring Directors who are not re-elected as
Directors may be requested by the newly-elected Directors, and they shall, if
willing to do so, continue in office to complete the number of Directors for
the time being fixed pursuant to these Articles until further new Directors are
elected at a general meeting convened for the purpose. If any such election or
continuance of Directors does not result in the election or continuance of the
number of Directors for the time being fixed pursuant to these Articles, such
number shall be fixed at the number of Directors actually elected or continued
in office or at such number as fixed by resolution at a general meeting.
13.5 Any casual vacancy occurring in the Board of Directors may be
filled by resolution of the remaining Directors or Director.
13.6 Between successive annual general meetings, the Directors
shall have power to appoint one or more additional Directors but not more than
one-third of the number of Directors fixed pursuant to these Articles and in
effect at the last general meeting at which Directors were elected. Any
Director so appointed shall hold office only until the next following annual
general meeting of the Company but shall be eligible for election at such
meeting and, so long as he is an additional Director, the number of Directors
shall be increased accordingly.
13.7 Any Director may, by instrument in writing delivered to the
Company, appoint any person to be his alternate to act in his place at meetings
of the Directors at which he is not present unless the Directors shall have
reasonably disapproved the appointment of such person as an alternate Director
and shall have given notice to that effect to the Director appointing the
alternate Director within a reasonable time after delivery of such instrument
to the Company. Every such alternate shall be entitled to notice of meetings
of the Directors and to attend and vote as a Director at a meeting at which the
person appointing him is not personally present, and, if he is a Director, to
have a separate vote on behalf of the Director he is representing in addition
to his own vote. A Director may at any time by instrument, telegram, telex or
facsimile revoke the appointment of an alternate appointed by him. The
remuneration payable to such an alternate shall be payable out of the
remuneration of the Director appointing him.
13.8 The office of Director shall be vacated if the Director:
(i) resigns his office by notice in writing delivered to
the registered office of the Company; or
(ii) is convicted of an indictable offence and the other
Directors shall have resolved to remove him; or
(iii) ceases to be qualified to act as a Director pursuant
to the Company Act.
13.9 The Company may, by special resolution, remove any Director
before the expiration of his period of office and may, by an ordinary
resolution, appoint another person in his stead.
PART 14
POWERS AND DUTIES OF DIRECTORS
14.1 The Directors shall manage, or supervise the management of,
the affairs and business of the Company and shall have the authority to
exercise all such powers of the Company as are not, by the Company Act or by
the Memorandum or these Articles, required to be exercised by the Company in
general meeting.
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14.2 The Directors may, from time to time, by power of attorney or
other instrument under the seal, appoint any person to be the attorney of the
Company for such purposes, and with such powers, authorities and discretions
(not exceeding those vested in or exercisable by the Directors under these
Articles and excepting the powers of the Directors relating to the constitution
of the Board and of any of its committees and the appointment or removal of
officers and the power to declare dividends) and for such period, with such
remuneration and subject to such conditions as the Directors may think fit, and
any such appointment may be made in favour of any of the Directors or any of
the members of the Company or in favour of any corporation, or of any of the
members, directors, nominees or managers of any corporation, firm or joint
venture and any such power of attorney may contain such provisions for the
protection or convenience of persons dealing with such attorney as the
Directors think fit. Any such attorney may be authorized by the Directors to
subdelegate all or any of the powers, authorities and discretions for the time
being vested in him.
PART 15
DISCLOSURE OF INTEREST OF DIRECTORS
15.1 A Director who is, in any way, directly or indirectly
interested in an existing or proposed contract or transaction with the Company
or who holds any office or possesses any property whereby, directly or
indirectly, a duty or interest might be created to conflict with his duty or
interest as a Director shall declare the nature and extent of his interest in
such contract or transaction or of the conflict or potential conflict with his
duty and interest as a Director, as the case may be, in accordance with the
provisions of the Company Act.
15.2 A Director shall not vote in respect of any such contract or
transaction with the Company in which he is interested and, if he shall do so,
his vote shall not be counted, but he shall be counted in the quorum present at
the meeting at which such vote is taken. Subject to the provisions of the
Company Act, the foregoing prohibitions shall not apply to
(i) any such contract or transaction relating to a loan
to the Company, which a Director, or a specified
corporation or a specified firm in which he has an
interest, has guaranteed or joined in guaranteeing
the repayment of the loan or any part of the loan;
(ii) any contract or transaction made or to be made with,
or for the benefit of, an affiliated corporation of
which a Director is a director;
(iii) determining the remuneration of the Directors;
(iv) purchasing and maintaining insurance to cover
Directors against liability incurred by them as
Directors; or
(v) the indemnification of any Director by the Company.
These exceptions may from time to time be suspended or amended to any extent
approved by the Company in general meeting and permitted by the Company Act,
either generally or in respect of any particular contract or transaction or for
any particular period.
15.3 A Director may hold any office or place of profit with the
Company (other than the office of auditor of the Company) in conjunction with
his office of Director for such period and on such terms (as to remuneration or
otherwise) as the Directors may determine and no Director or intended Director
shall be disqualified by his office from contracting with the Company either
with regard to his tenure of any such other office or place of profit or as
vendor, purchaser or otherwise, and, subject to compliance with the provisions
of the Company Act, no contract or transaction entered into by or on behalf of
the Company in which a Director is in any way interested shall be liable to be
voided by reason thereof.
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15.4 Subject to compliance with the provisions of the Company Act,
a Director or his firm may act in a professional capacity for the Company
(except as auditor of the Company) and he or his firm shall be entitled to
remuneration for professional services as if he were not a Director.
15.5 A Director may be or become a director or other officer or
employee of, or otherwise interested in, any corporation or entity in which the
Company may be interested as a shareholder or otherwise, and, subject to
compliance with the provisions of the Company Act, such Director shall not be
accountable to the Company for any remuneration or other benefits received by
him as director, officer or employee of, or from his interest in, such other
corporation or firm, unless the Company in general meeting otherwise directs.
PART 16
PROCEEDINGS OF DIRECTORS
16.1 The Chairman of the Board, if any, or, in his absence, the
Vice-Chairman of the Board shall preside as Chairman at every meeting of the
Directors. If there is no Chairman of the Board or Vice-Chairman of the Board
or neither the Chairman of the Board nor the Vice-Chairman of the Board is
present within 15 minutes of the time appointed for holding the meeting or is
willing to act as Chairman or, if the Chairman of the Board and the
Vice-Chairman of the Board have advised the Secretary that they will not be
present at the meeting, the Directors present shall choose one of their number
to be Chairman of the meeting.
16.2 The Directors may meet together for the dispatch of business,
adjourn and otherwise regulate their meetings, as they think fit. Questions
arising at any meeting shall be decided by a majority of votes. In case of an
equality of votes, the Chairman shall not have a second or casting vote.
Meetings of the Board held at regular intervals may be held at such place, at
such time and subject to Article 16.4, upon at least 48 hours notice or such
longer notice, if any, as the Board may by resolution from time to time
determine.
16.3 A notice convening a meeting of the Directors shall, subject
to Article 16.4, specify the place, the day, the hour of the meeting and the
general nature of the business to be conducted; be given in writing addressed
to each director and alternate director at his address as it appears on the
books of the Company and delivered personally or transmitted by facsimile or
other form of recorded communication tested prior to transmission. Any notice
delivered shall be deemed to have been given and received on the day it is so
delivered unless such day is not a business day in which case the notice shall
be deemed to have been given and received on the next following business day.
Any notice transmitted by facsimile or other form of recorded communication
shall be deemed to have been given and received on the first business day after
its transmission.
16.4 All the Directors may, by unanimous consent in writing given
before, during or after the meeting, or if they are present at the meeting by a
unanimous vote, waive or reduce the period of notice of such meeting or the
form or manner of giving the notice of such meeting and an entry in the minute
book of such waiver or reduction shall be sufficient evidence of the due
convening of the meeting.
16.5 A meeting of the Board or of any committee of the Directors
may be held by means of conference telephones or other communications
facilities whereby all Directors participating in the meeting can hear each
other provided that all such Directors agree to such participation. A Director
participating in a meeting in accordance with this Article shall be deemed to
be present at the meeting and to have so agreed and shall be counted in the
quorum therefor and be entitled to speak and vote thereat.
16.6 A Director may, and the Secretary or an Assistant Secretary
upon request of a Director shall, call a meeting of the Board at any time. It
shall not be necessary to give notice of a meeting of Directors to any Director
or alternate Director if such meeting is to be held immediately following a
general meeting at which such Director shall have been elected or is the
meeting of Directors at which such Director is appointed.
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16.7 Any Director of the Company may file with the Secretary a
document executed by him waiving notice of any past, present or future meeting
or meetings or the Directors being, or required to have been, sent to him and
may at any time withdraw such waiver with respect to meetings held thereafter.
After filing such waiver with respect to future meetings and until such waiver
is withdrawn no notice need be given to such Director and, unless the Director
otherwise requires in writing to the Secretary, to his alternate Director of
any meeting of Directors and all meetings of the Directors so held shall be
deemed not to be improperly called or constituted by reason of notice not
having been given to such Director or alternate Director.
16.8 The quorum necessary for the transaction of the business of
the Directors shall be a majority of the Directors.
16.9 The continuing Directors may act notwithstanding any vacancy
in their body, but, if and so long as their number is reduced below the number
fixed pursuant to these Articles as the necessary quorum of Directors, the
continuing Directors may act for the purpose of increasing the number of
Directors to that number or of summoning a general meeting of the Company, but
for no other purpose.
16.10 Subject to the provisions of the Company Act, all acts done by
any meeting of the Directors or of a committee of Directors, or by any person
acting as a Director, shall, notwithstanding that it be afterwards discovered
that there was some defect in the qualification, election or appointment of any
such Directors or of the members of such committee or person acting as
aforesaid, or that they or any of them were disqualified, be as valid as if
every such person had been duly elected or appointed and was qualified to be a
Director.
16.11 A resolution consented to in writing, whether by document,
telegram, telex, facsimile or any method of transmitting legibly recorded
messages or other means, by all of the Directors shall be as valid and
effectual as if it had been passed at a meeting of the Directors duly called
and held. Such resolution may be in two or more counterparts which together
shall be deemed to constitute one resolution in writing. Such resolution shall
be filed with the minutes of the proceedings of the Directors and shall be
effective on the date stated thereon or on the latest date stated on any
counterpart.
PART 17
EXECUTIVE AND OTHER COMMITTEES
17.1 The Directors may by resolution appoint one or more committees
consisting of such member or members of their body as they think fit and may,
subject to Article 17.2, delegate to any such committee between meetings of the
Board such powers of the Board subject to such conditions as may be prescribed
in such resolution, and all committees so appointed shall keep regular minutes
of their transactions and shall cause them to be recorded in books kept for
that purpose, and shall report the same to the Board of Directors at such times
as the Board of Directors may from time to time require. The Directors shall
also have power at any time to revoke or override any authority given to or
acts to be done by any such committees except as to acts done before such
revocation or overriding and to terminate the appointment or change the
membership of a committee and to fill vacancies in it. Committees may make
rules for the conduct of their business and may appoint such assistants as they
may deem necessary. Unless otherwise determined by the Directors, a majority
of the members of a committee shall constitute a quorum thereof.
17.2 Notwithstanding Article 17.1 no committee of the Directors has
the authority to:
(a) submit to the shareholders any question or matter requiring
the approval of the shareholders;
(b) fill a vacancy among the directors or in the office of
auditor;
(c) issue securities except in the manner and on the terms
authorized by the directors;
(d) declare dividends;
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(e) purchase, redeem or otherwise acquire shares issued by the
Company;
(f) pay a commission to any person in connection with the purchase
of shares of the Company;
(g) approve an information circular referred to in Division (4) of
Part 4 of the Company Act;
(h) approve a take-over bid circular or directors' circular
referred to in the Securities Act (British Columbia); and
(i) approve any financial statements referred to in section 169 of
the Company Act.
17.3 Any committee may meet and adjourn as it thinks proper.
Questions arising at any meeting shall be determined by a majority of votes of
the members of the committee present and, in case of an equality of votes, the
Chairman shall not have a second or casting vote. A resolution approved in
writing by all the members of the Executive Committee or any other committee
shall be as valid and effective as if it had been passed at a meeting of such
committee duly called and constituted. Such resolution may be in two or more
counterparts which together shall be deemed to constitute one resolution in
writing. Such resolution shall be filed with the minutes of the proceedings of
the committee and shall be effective on the date stated thereon or on the
latest date stated in any counterpart.
PART 18
OFFICERS
18.1 The Directors shall from time to time appoint a President and
a Secretary and such other officers, if any, as the Directors shall determine
and the Directors may, at any time, terminate any such appointment. No officer
shall be appointed unless he is qualified in accordance with the provisions of
the Company Act.
18.2 One person may hold more than one of such offices, except that
the offices of President and Secretary must be held by different persons unless
the Company has only one member. Any person appointed as the Chairman of the
Board, the Vice-Chairman of the Board or the President shall be a Director.
The other officers need not be Directors. The remuneration of the officers of
the Company as such and the terms and conditions of their tenure of office or
employment shall from time to time be determined by the Directors; such
remuneration may be by way of salary, fees, wages, commission or participation
in profits or any other means or all of these modes and an officer may, in
addition to such remuneration, be entitled to receive, after he ceases to hold
such office or leaves the employment of the Company, a pension or gratuity.
The Directors may decide what functions and duties each officer shall perform
and may entrust to and confer upon him any of the powers exercisable by them
upon such terms and conditions and with such restrictions as they think fit and
may from time to time revoke, withdraw, alter or vary all or any of such
functions, duties and powers. The Secretary shall, inter alia, perform the
functions of the Secretary specified in the Company Act.
18.3 Every officer of the Company who holds any office or possesses
any property whereby, whether directly or indirectly, duties or interests might
be created in conflict with his duties or interests as an officer of the
Company shall, in writing, disclose to the President the fact and the nature,
character and extent of the conflict.
PART 19
INDEMNITY AND PROTECTION OF DIRECTORS, OFFICERS AND EMPLOYEES
19.1 Subject to the provisions of the Company Act, the Directors
shall cause the Company to indemnify a Director or former Director of the
Company and the Directors may cause the Company to indemnify a Director or
former Director of a corporation of which the Company is or was a shareholder
and the heirs and personal representatives of any such person against all
costs, charges and expenses, including an
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amount paid to settle an action or satisfy a judgment, actually and reasonably
incurred by him or them including an amount paid to settle an action or satisfy
a judgment in a civil, criminal or administrative action or proceeding to which
he is or they are made a party by reason of his being or having been a Director
of the Company or a director of such corporation, including any action brought
by the Company or any such corporation. Each Director of the Company on being
elected or appointed shall be deemed to have contracted with the Company on the
terms of the foregoing indemnity.
19.2 Subject to the provisions of the Company Act, the Directors
may cause the Company to indemnify any officer, employee or agent of the
Company or of a corporation of which the Company is or was a shareholder
(notwithstanding that he is also a Director) and his heirs and personal
representatives against all costs, charges and expenses whatsoever incurred by
him or them and resulting from his acting as an officer, employee or agent of
the Company or such corporation. In addition, the Company shall indemnify the
Secretary or an Assistant Secretary of the Company (if he shall not be a full
time employee of the Company and notwithstanding that he is also a Director)
and his respective heirs and legal representatives against all costs, charges
and expenses whatsoever incurred by him or them and arising out of the
functions assigned to the Secretary by the Company Act or these Articles and
each such Secretary and Assistant Secretary shall on being appointed be deemed
to have contracted with the Company on the terms of the foregoing indemnity.
19.3 The failure of a Director or officer of the Company to comply
with the provisions of the Company Act or of the Memorandum or these Articles
shall not invalidate any indemnity to which he is entitled under this Part.
19.4 The Directors may cause the Company to purchase and maintain
insurance for the benefit of any person who is or was serving as a Director,
officer, employee or agent of the Company or as a director, officer, employee
or agent of any corporation of which the Company is or was a shareholder and
his heirs or personal representatives against any liability incurred by him as
such director, officer, employee or agent.
PART 20
DIVIDENDS AND RESERVE
20.1 The Directors may, from time to time, declare and authorize
payment of such dividends, if any, as they may deem advisable and need not give
notice of such declaration to any member. No dividend shall be paid otherwise
than out of funds and/or assets properly available for the payment of dividends
and a declaration by the Directors as to the amount of such funds or assets
available for dividends shall be conclusive. The Company may pay any such
dividend, wholly or in part, by the distribution of specific assets and, in
particular, by paid up shares, bonds, debentures or other securities of the
Company or any other corporation or in any one or more such ways as may be
authorized by the Company or the Directors and where any difficulty arises with
regard to such a distribution the Directors may settle the same as they think
expedient and, in particular, may fix the value for distribution of such
specific assets or any part thereof and may determine that cash payments in
substitution for all or any part of the specific assets to which any members
are entitled shall be made to any members on the basis of other value so fixed
in order to adjust the rights of all parties and may vest any such specific
assets in trustees for the persons entitled to the dividend as may seem
expedient to the Directors.
20.2 Any dividend declared on shares of any class by the Directors
may be made payable on such date as is fixed by the Directors.
20.3 Subject to the rights of members, if any, holding shares with
special rights as to dividends, all dividends on shares of any class shall be
declared and paid according to the number of such shares held.
20.4 The Directors may, before declaring any dividend, set aside
out of the funds properly available for the payment of dividends such sums as
they think proper as a reserve or reserves, which shall, at the discretion of
the Directors, be applicable for meeting contingencies, or for equalizing
dividends, or for any other purpose to which such funds of the Company may be
properly applied and pending such application may,
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at the like discretion, either be employed in the business of the Company or be
invested in such investments as the Directors may from time to time think fit.
The Directors may also, without placing the same in reserve, carry forward such
funds which they think prudent not to divide.
20.5 If several persons are registered as joint holders of any
share, any one of them may give an effective receipt for any dividend, bonuses
or other moneys payable in respect of the share.
20.6 No dividend shall bear interest against the Company. Where
the dividend to which a member is entitled includes a fraction of a cent, such
fraction shall be disregarded in making payment thereof and such payment shall
be deemed to be payment in full.
20.7 Any dividend, bonuses or other moneys payable in cash in
respect of shares may be paid by cheque or warrant sent through the post
directed to the registered address of the holder or, in the case of joint
holders, to the registered address of that one of the joint holders who is
first named in the register, or to such person and to such address as the
holder or joint holders may direct in writing. Every such cheque or warrant
shall be made payable to the order of the person to whom it is sent. The
mailing of such cheque or warrant shall, to the extent of the sum represented
thereby (plus the amount of any tax required by law to be deducted), discharge
all liability for the dividend, unless such cheque or warrant shall not be paid
on presentation or the amount of tax so deducted shall not be paid to the
appropriate taxing authority.
20.8 Notwithstanding anything contained in these Articles, the
Directors may, from time to time, capitalize any undistributed surplus on hand
of the Company and may, from time to time, issue as fully paid and
non-assessable any unissued shares, or any bonds, debentures or debt
obligations of the Company as a dividend representing such undistributed
surplus on hand or any part thereof.
PART 21
DOCUMENTS, RECORDS AND REPORTS
21.1 The Company shall keep at its records office or at such other
place as the Company Act may permit, the documents, copies, registers, minutes
and records which the Company is required by the Company Act to keep at its
records office or such other place, as the case may be.
21.2 The Company shall keep or cause to be kept proper books of
account and accounting records in respect of all financial and other
transactions of the Company in order to properly record the financial affairs
and conditions of the Company and to comply with the Company Act.
21.3 Unless the Directors determine otherwise, or unless otherwise
determined by an ordinary resolution, no member of the Company shall be
entitled to inspect the accounting records of the Company.
21.4 The Directors shall, from time to time, at the expense of the
Company, cause to be prepared and laid before the Company in general meeting
such financial statements and reports as are required by the Company Act.
21.5 Every member shall be entitled, without charge, to a copy of
the latest annual financial statement of the Company and, if so required by the
Company Act, a copy of each such annual financial statement and interim
financial statement shall be mailed to each member.
PART 22
NOTICES
22.1 A notice, statement or report may be given or delivered by the
Company to any member either by delivery to him personally or by sending it by
mail to him to his address as recorded in the register of members. Where a
notice, statement
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or report is sent by mail, service or delivery of the notice, statement or
report shall be deemed to be effected by properly addressing, prepaying and
mailing the notice, statement or report and to have been given on the day,
Saturdays, Sundays and holidays excepted, following the date of mailing. A
certificate signed by the Secretary or other officer of the Company or of any
other corporation acting in that behalf for the Company that the letter,
envelope or wrapper containing the notice, statement or report was so
addressed, prepaid and mailed shall be conclusive evidence thereof.
22.2 A notice, statement or report may be given or delivered by the
Company to the joint holders of a share by giving the notice to the joint
holder first named in the register of members in respect of the share.
22.3 A notice, statement or report may be given or delivered by the
Company to the persons entitled to a share in consequence of the death,
bankruptcy or incapacity of a member by sending it through the mail prepaid
addressed to them by name or by the title of representatives of the deceased or
incapacitated person or trustee of the bankrupt, or by any like description, at
the address, if any, supplied to the Company for the purpose by the persons
claiming to be so entitled, or (until such address has been so supplied) by
giving the notice in a manner in which the same might have been given if the
death, bankruptcy or incapacity had not occurred.
22.4 Notice of every general meeting or meeting of members holding
a class of shares shall be given in a manner hereinbefore authorized to every
member holding at the time of the issue of the notice or the date fixed for
determining the members entitled to such notice, whichever is the earlier,
shares which confer the right to notice of and to attend and vote at any such
meeting. No other person except the auditor of the Company and the Directors
of the Company shall be entitled to receive notices of any such meeting.
PART 23
RECORD DATES
23.1 The Directors may fix in advance a date, which shall not be
more than the maximum number of days permitted by the Company Act preceding the
date of any meeting of members or any class thereof or of the payment of any
dividend or of the proposed taking of any other proper action requiring the
determination of members as the record date for the determination of the
members entitled to notice of, or to attend and vote at, any such meeting and
any adjournment thereof, or entitled to receive payment of any such dividend or
for any other proper purpose and, in such case, notwithstanding anything
elsewhere contained in these Articles, only members of record on the date so
fixed shall be deemed to be members for the purposes aforesaid.
23.2 Where no record date is so fixed for the determination of
members as provided in the preceding Article, the date on which the notice is
mailed or on which the resolution declaring the dividend is adopted, as the
case may be, shall be the record date for such determination.
PART 24
SEAL
24.1 The Directors may provide a seal and one or more duplicate
seals for the Company and, if they do so, shall provide for the safe custody of
the seal and duplicate seals which shall not be affixed to any instrument
except in the presence of the following persons, namely:
(i) any two Directors; or
(ii) one of the Chairman of the Board, the Vice-Chairman
of the Board, the President, a Vice-President, the
Secretary and an Assistant Secretary; or
(iii) if the Company shall have only one member, the
President or the Secretary; or
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(iv) such person or persons as the Directors may, from
time to time, by resolution appoint;
and the said Directors, officers, person or persons in whose presence the seal
is to be affixed to an instrument shall sign such instrument. For the purpose
of certifying under seal true copies of any document or resolution, the seal
may be affixed in the presence of any one of the foregoing persons.
24.2 To enable the seal of the Company to be affixed to any bonds,
debentures, share certificates or other securities of the Company, whether in
definitive or interim form, on which facsimiles of any of the signatures of the
Directors or officers of the Company are, in accordance with the Company Act
and/or these Articles, printed or otherwise mechanically reproduced, there may
be delivered to the firm or company employed to engrave, lithograph or print
such definitive or interim bonds, debentures, share certificates or other
securities one or more unmounted dies reproducing the Company's seal and the
Chairman of the Board, the Vice-Chairman of the Board, the President, a
Vice-President, the Secretary or Assistant Secretary may by a document
authorize such firm or company to cause the Company's seal to be affixed to
such definite or interim bonds, debentures, share certificates or other
securities by the use of such dies. Bonds, debentures, share certificates or
other securities to which the Company's seal has been so affixed shall for all
purposes be deemed to be under and to bear the Company's seal lawfully affixed
thereto.
24.3 The Company may have for use in any other province, state,
territory or country an official seal which shall have on its face the name of
the province, state, territory or country where it is to be used and all of the
powers conferred by the Company Act with respect thereto may be exercised by
the Directors or by a duly authorized agent of the Company.
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SCHEDULE B
PROPOSED GRANGES SPECIAL RESOLUTION TO APPROVE AMALGAMATION
BE IT RESOLVED that:
1. the amalgamation agreement (the "Amalgamation Agreement") made the
16th day of September, 1996 between Da Capo Resources Ltd. and Granges
Inc. (the "Company") providing for the amalgamation (the
"Amalgamation") of Da Capo Resources Ltd. and the Company, be and is
hereby ratified, adopted and approved and the execution, delivery and
performance of the Amalgamation Agreement by the President and Chief
Executive Officer and Vice President Finance and Chief Financial
Officer of the Company be and the same are ratified and approved;
2. notwithstanding that this resolution has been duly passed by the
members of the Company voting thereon or may be approved by the
Supreme Court of British Columbia (the "Court"), the directors of the
Company may terminate the implementation of the Amalgamation and the
Amalgamation Agreement in accordance with the terms of the
Amalgamation Agreement; and
3. any two of the directors and officers of the Company are hereby
authorized, for and on behalf of the Company, to execute such other
documents and do such other things as they deem necessary or advisable
in connection with the Amalgamation Agreement, the Amalgamation or the
fulfilment by the Company of its covenants or obligations thereunder
or otherwise in furtherance of this resolution and execution by such
directors and officers shall be conclusive proof of their authority to
act on behalf of the Company.
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SCHEDULE C
PROPOSED DA CAPO SPECIAL RESOLUTION TO APPROVE AMALGAMATION AGREEMENT
BE IT RESOLVED that:
1. the amalgamation agreement (the "Amalgamation Agreement") made the
16th day of September, 1996 between Granges Inc. and Da Capo Resources
Ltd. (the "Company") providing for the amalgamation (the
"Amalgamation") of Granges Inc. and the Company, be and is hereby
ratified, adopted and approved and the execution, delivery and
performance of the Amalgamation Agreement by the President and
Controller and Secretary of the Company be and the same are ratified
and approved;
2. notwithstanding that this resolution has been duly passed by the
members of the Company voting thereon or may be approved by the
Supreme Court of British Columbia, the directors of the Company may
terminate the implementation of the Amalgamation and the Amalgamation
Agreement in accordance with the terms of the Amalgamation Agreement;
and
3. any two of the directors and officers of the Company are hereby
authorized, for and on behalf of the Company, to execute such other
documents and do such other things as they deem necessary or advisable
in connection with the Amalgamation Agreement, the Amalgamation or the
fulfilment by the Company of its covenants or obligations thereunder
or otherwise in furtherance of this resolution and execution by such
directors and officers shall be conclusive proof of their authority to
act on behalf of the Company.
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SCHEDULE D
GOEPEL SHIELDS FAIRNESS OPINION
September 16, 1996
The Board of Directors
Granges Inc.
Suite 3000
370 Seventeenth Street
Denver, Colorado, 80202
Dear Sirs:
RE: PROPOSED AMALGAMATION WITH DA CAPO RESOURCES LTD.
INTRODUCTION
We understand that Granges Inc. ("Granges") and Da Capo Resources Ltd. ("Da
Capo") have entered into a definitive agreement (the "Definitive Agreement")
dated August 16, 1996 and an amalgamation agreement (the "Amalgamation
Agreement") dated September 16, 1996 pursuant to which the two companies will
amalgamate (the "Amalgamation") and continue as one company ("Amalco") under
the name "Vista Gold Corp.". We further understand that, pursuant to the terms
of the Amalgamation, each common share of Granges ("Granges Shares") will be
exchanged for one common share of Amalco ("Amalco Shares") and each common
share of Da Capo ("Da Capo Shares") will be exchanged for two Amalco Shares
(the "Exchange Ratios").
Subsequent to the completion of the Amalgamation, common shareholders of
Granges and Da Capo (the "Granges Shareholders" and "Da Capo Shareholders",
respectively) will hold approximately 63% and 37%, respectively, (or
approximately 66% and 34%, respectively, on a fully diluted basis) of the
issued and outstanding Amalco Shares.
The terms and conditions of the Amalgamation as well as a detailed review of
the financial position and operations of each of Granges and Da Capo are more
fully described in a joint management information circular (the "Information
Circular") which will be provided to shareholders. Extraordinary general
meetings of Granges Shareholders and Da Capo Shareholders will be held on
October 22, 1996 to consider and, if thought appropriate, pass special
resolutions approving the Amalgamation Agreement.
ASSIGNMENT AND BACKGROUND
In a joint press release dated July 31, 1996 (the "Announcement Date"), the
boards of directors of Granges and Da Capo announced that they had approved the
Amalgamation subject to, among other things, shareholder, court and regulatory
approval.
Goepel Shields & Partners Inc. ("Goepel Shields") first met with
representatives of Granges in June, 1996 to discuss a potential business
combination with Da Capo. In an agreement dated September 12, 1996 and
effective as of June 1, 1996, Goepel Shields was formally engaged by Granges
to, among other things, act as financial advisor to Granges and the board of
directors of Granges (the "Granges Board") pertaining to the Amalgamation and
prepare a fairness opinion (the "Fairness Opinion") as to whether the terms of
the Amalgamation are fair, from a financial point of view, to Granges
Shareholders.
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Under the terms of our engagement, Goepel Shields will receive a fee for acting
as financial advisor and for the preparation of the Fairness Opinion, a portion
of which is contingent upon completion of the Amalgamation. Additionally,
Granges has agreed to reimburse Goepel Shields for its reasonable out-of-pocket
expenses and to indemnify Goepel Shields in certain circumstances. Goepel
Shields has not been engaged to prepare a formal valuation of either Granges or
Da Capo, nor have we been requested to determine the likely trading range of
Amalco Shares after giving effect to the Amalgamation, and the Fairness Opinion
should not be construed as such.
QUALIFICATIONS OF GOEPEL SHIELDS
Goepel Shields is an independent Canadian investment firm specializing in
corporate finance services for, and the sale and trading of equity securities
of, resource and industrial companies headquartered in western Canada. Goepel
Shields also provides investment research and trading services to financial
institutions. Goepel Shields and its principals have prepared numerous
valuations and fairness opinions and have participated in a significant number
and variety of transactions involving private and publicly traded companies.
Goepel Shields has not, in the 24 months preceding the commencement of this
engagement, acted as lead or co-lead underwriter of securities of either
Granges or Da Capo.
Goepel Shields acts as a trader and dealer, both as principal and agent, in
major North American financial markets and, from time to time, has executed and
may in the future execute transactions on behalf of Granges, Da Capo or Amalco
or other clients for which it receives compensation. In addition, as an
investment dealer, Goepel Shields conducts research on public companies and
may, in the ordinary course of its business, be expected to provide research
reports and investment advice to its clients on issues and investment matters
including research and advice on Granges, Da Capo or Amalco.
The Fairness Opinion expressed herein is the opinion of Goepel Shields and the
form and content hereof has been approved for release by a committee of its
officers and directors, each of whom is experienced in merger, acquisition,
divestiture and valuation matters. There are no understandings or agreements
between Goepel Shields and either of Granges or Da Capo or any of their
affiliates with respect to future business dealings.
SCOPE OF REVIEW
In the course of our review, Goepel Shields considered and relied upon, among
other things, the following:
GRANGES INC.
i) audited consolidated financial statements for each of the
fiscal years in the five year period ended December 31, 1995;
ii) unaudited consolidated financial statements for the three and
six month periods ended March 31, 1996 and June 30, 1996,
respectively;
iii) other public information pertaining to Granges including
annual reports, quarterly reports, press releases and research
reports;
iv) Form 10-K pertaining to the fiscal year ended December 31,
1995;
v) minutes of meetings of the Granges Board and related
materials;
vi) Annual Information Form of Granges for the fiscal year ended
December 31, 1995;
vii) joint management information circular of Granges and Hycroft
Resources & Development Corporation for special shareholder
meetings held on March 30, 1995 to vote on and approve an
amalgamation of the two companies;
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viii) Management Information and Proxy Circular of Granges dated
April 9, 1996 pertaining to the Annual General Meeting held on
May 22, 1996;
ix) short form prospectus dated July 2, 1996 pertaining to the
issue of special warrants for gross proceeds of $25,219,480;
x) public information including annual reports, quarterly reports
and press releases pertaining to Granges' investment in Zamora
Gold Corp. ("Zamora");
xi) management prepared production forecasts, financial
projections, and other financial analysis pertaining to the
Hycroft gold mine (the "Hycroft Mine");
xii) site visit to the Hycroft Mine in August, 1996;
xiii) management prepared pre-feasibility report dated April 1996
pertaining to the Guariche gold project (the "Guariche
Project");
xiv) exploration and purchase option agreement relating to the
Guariche Project;
xv) management prepared due diligence report pertaining to Da
Capo's assets in Bolivia;
xvi) discussions with Granges' auditors;
xvii) discussions with Granges' legal counsel; and
xviii) a certificate of representation as to certain factual matters
as at the date hereof provided by Granges and addressed to us.
DA CAPO RESOURCES LTD.
i) audited consolidated financial statements for each of the
fiscal years in the four year period ended April 30, 1996;
ii) unaudited consolidated financial statements for the three, six
and nine month periods ended July 31, 1995, October 31, 1995
and January 31, 1996, respectively;
iii) other public information pertaining to Da Capo including
annual reports, press releases and research reports;
iv) minutes of meetings of the board of directors of Da Capo and
related materials;
v) management prepared technical reports pertaining to certain
exploration properties held by Da Capo in Bolivia;
vi) report titled, "Preliminary Evaluation of The Feasibility of
Da Capo Resources Ltd.'s Amayapampa and Capa Circa Gold
Projects, Bolivia" dated March 1, 1996 prepared by Pincock
Allen & Holt, independent mining consultants (the "PAH
Report");
vii) site visit to the Amayapampa and Capa Circa properties (the
"Amayapampa- Capa Circa Project") in June, 1996;
viii) final prospectus dated August 2, 1996 pertaining to the
qualification of 1,700,000 Da Capo shares upon the exercise of
previously issued special warrants;
ix) discussions with Da Capo's auditors;
D-3
<PAGE> 129
x) discussions with Da Capo's legal counsel; and
xi) a certificate of representation as to certain factual matters
as at the date hereof provided by Da Capo and addressed to us.
OTHER INFORMATION
i) discussions with senior management of Granges and Da Capo with
respect to the information referred to above and their
assessment of historical, current and prospective operations,
assets, investments and financial positions;
ii) draft copy of the Information Circular;
iii) the Definitive Agreement between Granges and Da Capo;
iv) the Amalgamation Agreement between Granges and Da Capo;
v) shareholder support letters to vote in favour of the
Amalgamation from Atlas Corporation and Ross J. Beaty and his
associated companies;
vi) current and historical stock market trading information
relating to Granges Shares, Da Capo Shares and the common
shares of Zamora; and
vii) other industry, corporate, economic and market data, as well
as such other investigations and financial analysis we
considered necessary or appropriate in the circumstances.
ASSUMPTIONS AND LIMITATIONS
With the approval of the Granges Board and as provided under the terms of our
engagement, Goepel Shields has relied upon and has assumed the completeness,
accuracy and fair presentation of all the financial and other information,
data, advice, opinions, and representations obtained by it from public sources,
or provided to it by Granges or Da Capo or their affiliates. Goepel Shields
has assumed that the business plans, financial estimates and projections
provided to it by the management of Granges and Da Capo represent their best
estimates of the most probable results for their respective companies for the
periods presented therein. Subject to the exercise of professional judgement
and except as expressly described herein, Goepel Shields has not attempted, and
assumes no responsibility, to verify independently the accuracy or completeness
of any of such information, data, advice, opinions, representations, business
plans, forecasts and projections.
Granges and Da Capo have represented to Goepel Shields, in certificates dated
as at the date hereof, amongst other things, to the effect that: the
information, data and other material provided to Goepel Shields are complete,
true and accurate in all material respects and do not contain any untrue
statement of a material fact or omit to state any material fact and that since
the date the relevant information was provided, there has been no material
changes in either Granges or Da Capo or any of their subsidiaries and no
material change has occurred in the information or any part thereof which would
reasonably be expected to have a material effect on the Fairness Opinion, and
with respect to any portions of the information that constitute forecasts,
projections or estimates, such forecasts, projections or estimates were
prepared using the assumptions identified therein, which in the reasonable
belief of Granges and Da Capo are reasonable in the circumstances, and are not
misleading in any material respect in light of the assumptions used therefor.
In preparing the Fairness Opinion, Goepel Shields has made several other
assumptions including that the disclosure provided in the Information Circular
is true and correct in all material respects. The Fairness Opinion is rendered
on the basis of securities markets, economic and general business and financial
conditions prevailing as of the date hereof and the condition and prospects,
financial and otherwise, of Granges and Da Capo as they were reflected in the
information and documents reviewed by Goepel Shields and as they were
represented to us in our discussions with management of Granges and Da Capo.
D-4
<PAGE> 130
The methodology employed by Goepel Shields included a review of long-range
financial projections provided by Granges and Da Capo which reflect numerous
assumptions regarding the impact of general economic and industry conditions on
the future financial results of Granges and Da Capo. While Goepel Shields
believes the assumptions used are appropriate in the circumstances, some or all
of the assumptions may prove to be incorrect.
The Fairness Opinion has been provided for the use of the Granges Board and may
not be used or relied upon by any other person without the prior written
consent of Goepel Shields. The Fairness Opinion is not intended to be and does
not constitute a recommendation to any Granges Shareholder as to whether or not
such shareholder should vote in favour of the Amalgamation.
Goepel Shields' analysis must be considered as a whole. Selecting portions of
our analysis or of the factors considered, without considering all factors and
analysis in connection with the preparation of the Fairness Opinion, could
create a misleading view of the process underlying the Fairness Opinion. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. Any attempt to do so
could lead to undue emphasis on any particular factor or analysis. In our
analysis, we have made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many
of which are beyond the control of Granges and Da Capo.
APPROACH TO THE FAIRNESS OPINION
METHODOLOGY
Goepel Shields reviewed and considered different methodologies and approaches
to assess the fairness from a financial point of view of the Amalgamation to
Granges Shareholders. Of particular importance in our view is a comparison of
the Exchange Ratios with our assessment of the relative values of Granges and
Da Capo using consistent assumptions and techniques for each company. For the
purposes of our analysis, Goepel Shields did not prepare, nor were we requested
to prepare, a formal valuation of either Granges or Da Capo.
In the preparation of the Fairness Opinion, Goepel Shields placed emphasis on
stock market trading prices whereby the relative stock market trading prices of
Granges and Da Capo are considered. Goepel Shields also placed emphasis on the
net asset value approach whereby estimates of value for the assets and
liabilities for each of Granges and Da Capo are determined in the aggregate and
on a per share basis using assumptions which are consistent and appropriate for
each company. The relative values determined using these approaches were then
considered with reference to the Exchange Ratios.
Goepel Shields also considered other approaches commonly used to compare
publicly traded gold companies in the development and/or production stage such
as adjusted stock market capitalization per ounce of annual production,
adjusted stock market capitalization per ounce of recoverable reserves and
total cost of production.
Goepel Shields further considered certain qualitative aspects of the
Amalgamation including a comparison of the attributes of Granges on a stand
alone basis with those of Amalco subsequent to completion of the Amalgamation.
STOCK MARKET TRADING APPROACH
Tables 1 and 2 below summarize the relative stock market performance of Granges
and Da Capo for the periods indicated.
D-5
<PAGE> 131
Table 1(1)
Stock Market Price Performance
<TABLE>
<CAPTION>
IMPUTED PRICE OF
DA CAPO DA CAPO PREMIUM TO
GRANGES SHARE SHARE PRICE(2) SHARES(3) MARKET(4)
PERIOD PRICE(2) ($/SH) ($/SH) ($/SH) (%)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
July 31/96 to Sept. 11/96 $2.17 $4.08 $4.34 6.4
July 30/96(5) 2.09 4.00 4.18 4.5
Last 10 days to July 30/96(6) 2.02 3.92 4.04 3.1
Last 30 days to July 30/96(6) 2.11 4.01 4.22 5.2
Last 60 days to July 30/96(6) 2.43 4.26 4.86 14.1
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Data from Reuter: file Ltd.
(2) Weighted average trading prices for the periods shown based on daily
closing prices and trading volumes on The Toronto Stock Exchange
("TSE") in the case of Granges and on the Vancouver Stock Exchange
("VSE") in the case of Da Capo.
(3) Imputed price of Da Capo Shares calculated by multiplying the Granges
Share price by 2.0.
(4) Premium to market calculated as the amount by which the imputed price
of Da Capo Shares exceeds the weighted
average price of Da Capo Shares for a given period.
(5) Last trading day prior to the Announcement Date.
(6) Includes trading up to and including July 30, 1996.
Based on our review of the volume weighted average stock market trading prices
of Granges Shares and Da Capo Shares, the relative stock market trading prices
of Granges Shares and Da Capo Shares over various periods prior to the
Announcement Date are supportive of and consistent with the proposed Exchange
Ratios.
Table 2 (1)
Stock Market Trading Summary
<TABLE>
<CAPTION>
1995 1996(2)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
GRANGES INC.
Total Volume Traded(3) 16,207,017 17,655,595
Average Daily Volume(3) 64,642 120,565
Approximate % of total shares outstanding traded(4) 40.4% 38.3%
Number of days where no trades 13 2
DA CAPO RESOURCES LTD.
Total Volume Traded(5) 3,149,882 7,383,911
Average Daily Volume(5) 12,599 50,574
Approximate % of total shares outstanding traded(4) 28.1% 54.6%
Number of days where no trades 39 0
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Data from Reuter: file Ltd.
(2) Up to and including July 30, 1996.
(3) Based on trading on the TSE and the American Stock Exchange.
(4) Total volume traded divided by, in the case of Granges, for 1995, the
average number of shares outstanding for the year ended December 31,
1995, and for 1996, the average number of shares outstanding for the
six month period ended June 30, 1996, and, in the case of Da Capo, for
1995, the average number of shares outstanding for the nine month
period ended January 31, 1996, and for 1996, the average number of
shares outstanding for the three month period ended April 30, 1996.
(5) Based on trading on the VSE.
D-6
<PAGE> 132
With respect to trading volume, Granges Shares had an average daily trading
volume of approximately 64,642 shares in 1995 and approximately 120,565 shares
in 1996 for the period ended prior to the Announcement Date. This compares to
approximately 12,599 shares and 50,574 shares, respectively, for Da Capo Shares
for the same periods. Subsequent to completion of the Amalgamation,
shareholders of both companies should benefit from enhanced stock market
liquidity.
NET ASSET VALUE APPROACH
For the purposes of the net asset value approach, Goepel Shields made the
following assumptions:
i) the share capital and cash positions of each of Granges and Da
Capo were adjusted to take into account "in-the-money" options
and warrants;
ii) estimates of value for Granges' investment in Zamora were
determined with reference to recent stock market trading
performance and with reference to the assets owned by Zamora;
iii) other working capital items were stated at the balance sheet
carrying values as at June 30, 1996 in the case of Granges and
April 30, 1996 in the case of Da Capo;
iv) the Hycroft Mine was evaluated on an after-tax discounted cash
flow basis employing long-range mine plans prepared by
Granges;
v) Granges' Guariche Project was evaluated on an after-tax
discounted cash flow basis employing reserve, operating cost
and capital cost estimates as prepared by Granges;
vi) Da Capo's Amayapampa-Capa Circa Project was evaluated on an
after-tax discounted cash flow basis with reference to
reserve, operating cost and capital cost estimates as prepared
by Granges and as provided in the PAH Report;
vii) the exploration portfolios of Granges and Da Capo were
reviewed with the respective managements and estimates of
value were determined with reference to several factors such
as the stage of the exploration program, exploration results
to date, ownership interest and historic and budgeted
exploration expenditures; and
viii) United States dollar amounts were converted into Canadian
dollar amounts at current exchange rates.
With respect to the discounted cash flow analysis, Goepel Shields employed a
number of assumptions including the following:
i) discount rates ranging from 0% to 7.5%;
ii) constant 1996 dollars; and
iii) gold prices ranging from US$385 to US$410 per ounce of gold.
Goepel Shields further considered the sensitivity of our discounted cash flow
approach to changes in our assumptions relating to certain variables including
gold price, discount rates and operating costs.
D-7
<PAGE> 133
Based on the net asset value approach, Goepel Shields derived a range of
relative values for Granges Shares and Da Capo Shares which were consistent
with the Exchange Ratios.
COMPARABLE COMPANIES APPROACH
Goepel Shields reviewed statistics comparing Granges and Da Capo with other
publicly traded gold mining companies on the basis of adjusted stock market
capitalization per ounce of annual production and per ounce of recoverable
reserves. After considering the relative reserve development and the timing
and magnitude of future gold production for both companies, the results of our
analysis indicate that each of Granges and Da Capo are trading at lower ranges
relative to other comparable mining companies. However, given the difficulty
in identifying truly comparable companies which are at the same stage of
production and reserve development, and the wide variation in ratios that are
obtained within the sample of companies, Goepel Shields placed less emphasis on
the comparable companies approach.
Goepel Shields also considered the imputed value of Da Capo on a total cost per
ounce basis after taking into account the market capitalization of Da Capo, the
capital costs to develop the Amayapampa-Capa Circa Project and the cash
operating costs to operate the mine. The total cost per ounce value derived
from this analysis compares very favourably to other junior mining companies.
COMPARABLE TRANSACTIONS APPROACH
There have been a number of recent transactions involving gold companies and
gold properties. While Goepel Shields reviewed and considered available
information relating to certain of these transactions, particularly in relation
to our review and analysis of the Amayapampa-Capa Circa Project where there is
a preliminary level of feasibility work completed to date, we placed limited
emphasis on this approach due to, among other things, the different mineral
composition of each of the properties involved, the varying sizes and stages of
development of the deposits involved, the preliminary nature of some of the
capital cost and operating cost estimates provided for various projects, the
different levels of ownership and the different forms of consideration paid.
OTHER CONSIDERATIONS
Goepel Shields considered other factors relevant to a Granges Shareholder
before and after giving effect to the Amalgamation including the factors listed
below.
i) With approximately 89 million shares issued and outstanding
upon completion of the Amalgamation, Amalco will have a much
larger market capitalization and float which should result in
enhanced stock market trading liquidity.
ii) As a consequence of operating the Hycroft Mine, Granges has
developed an experienced mining team with expertise in
operating open-pit mines at low costs. This expertise is
available to effectively develop and operate a mine at the
Amayapampa-Capa Circa Project in Bolivia.
iii) Da Capo provides Amalco with an established infrastructure in
Bolivia including experienced administrative and exploration
teams that are capable of supporting the development of the
Amayapampa- Capa Circa Project as well as other projects in
Bolivia.
D-8
<PAGE> 134
iv) Da Capo brings to Amalco a portfolio of prospective
exploration properties in Bolivia providing Amalco with the
potential to expand its operating base in Bolivia.
v) Upon completion of the Amalgamation, Amalco will have one
operating mine producing approximately 100,000 ounces of gold
per year, one project at the feasibility stage and a second
advanced project under due diligence review. As a result,
Granges expects Amalco to have annual gold production
approaching 300,000 ounces by 1999 with overall cash
production costs below US$200 per ounce.
vi) On a proforma basis, Amalco will be well financed with working
capital of approximately US$27 million, including cash of
approximately US$26 million, and no debt.
CONCLUSION
Based on and subject to the foregoing, Goepel Shields is of the view that the
terms of the Amalgamation are fair, from a financial point of view, to Granges
Shareholders as of the date hereof.
This opinion is given as of the date hereof and we disclaim any undertaking or
obligation to advise any person of any change in any fact or matter affecting
our opinion that may come or be brought to our attention after the date hereof.
Yours truly,
(signed) GOEPEL SHIELDS & PARTNERS INC.
D-9
<PAGE> 135
SCHEDULE E
SALMAN PARTNERS FAIRNESS OPINION
September 16,1996
The Board of Directors
Da Capo Resources Ltd.
1500-625 Howe Street
Vancouver, B.C.
V6C 2T6
Dear Sirs:
We understand that the Board of Directors of Da Capo Resources Ltd. ("Da Capo")
and the Board of Directors of Granges Inc. ("Granges") have approved the
amalgamation of Da Capo and Granges (collectively, the "Companies") to form a
new company ("Amalco") subject to shareholder, court and regulatory approval
(the "Proposed Transaction").
We have been engaged by the Board of Directors of Da Capo to provide our
opinion (the "Opinion") as to the fairness, from a financial point of view, to
the shareholders of Da Capo, of the financial terms of the amalgamation
contemplated in connection with the Proposed Transaction. We have not been
engaged to prepare, and have not prepared, a valuation of either of the
Companies and this opinion should not be construed as such.
THE AMALGAMATION
Under the terms of the Proposed Transaction, each holder of Da Capo shares will
be entitled to two Amalco common shares for each Da Capo common share, and each
holder of Granges common shares will be entitled to one Amalco common share for
each Granges common share. The conditions and other details of the Proposed
Transaction are more fully described in the Joint Information Circular (the
"Circular") to be provided to the Da Capo and Granges shareholders in
connection with the Proposed Transaction.
CREDENTIALS OF SALMAN PARTNERS INC.
Salman Partners Inc. is a federally incorporated full service Investment Dealer
headquartered in Vancouver, British Columbia. Salman Partners Inc. is
registered as a full service dealer in the provinces of British Columbia and
Ontario. The firm is not affiliated with any financial institution. Salman
Partners Inc. is a member of The Toronto Stock Exchange, the Vancouver Stock
Exchange, the Investment Dealers Association of Canada, the Canadian Investor
Protection Fund and the Canadian Depository of Securities. The firm employs 14
people and has one office in Vancouver, British Columbia. Salman Partners Inc.
provides its clients with a wide range of services including corporate finance,
mergers, acquisitions and financial advisory services, institutional equity
sales and trading, and equity research.
The opinions expressed herein are the opinions of Salman Partners Inc. The form
and content hereof have been approved by a senior director and professionals
from Salman Partners Inc., each of whom is experienced in mergers,
acquisitions, divestitures and valuation matters.
INDEPENDENCE OF SALMAN PARTNERS INC.
Salman Partners Inc. is not an insider, associate or affiliate (as such terms
are defined in the Securities Act (British Columbia)) of either of the
Companies or their affiliates or associates (collectively the "Interested
Parties").
E-1
<PAGE> 136
Salman Partners Inc. has not, in the 24 months preceding the commencement of
this engagement, acted as lead or co-lead underwriter of securities of any
Interested Party or any of its principal security holders or its affiliates,
associates or related persons.
Salman Partners Inc. acts as a trader and dealer, both as principal and agent,
in the Canadian financial markets and, in such capacity, may in the future have
positions in securities of the Interested Parties and, from time to time, may
in the future execute transactions on behalf of the Interested Parties or other
clients for which it receives compensation. In addition, as an Investment
Dealer, Salman Partners Inc. conducts research and provides investment advice
to its clients on investment matters.
Salman Partners Inc. does not have any agreements, commitments or
understandings in respect of any future business involving any of the
Interested Parties. However, Salman Partners Inc. may, from time to time in
the future, seek or be provided with assignments from one or more of the
Interested Parties.
SCOPE OF REVIEW
In rendering our Opinion, we have reviewed and, where considered appropriate,
relied upon, among things, the following:
(i) the Merger Agreement dated August 16, 1996 between Da
Capo and Granges;
(ii) a support letter executed by Ross Beaty and Atlas
Corporation, the principal shareholders of Da Capo
and Granges, respectively, dated August 16, 1996;
(iii) the draft Circular dated September 12, 1996;
(iv) the draft Amalgamation Agreement set out in the draft
Circular;
(v) Annual reports to shareholders and audited financial
statements of Da Capo for the two fiscal periods
ending April 30, 1995;
(vi) Annual reports to shareholders and audited financial
statements of Granges for the three fiscal periods
ending December 31, 1995;
(vii) the Form 10-K of Granges for the fiscal period ending
December 31, 1995;
(viii) draft unaudited financial statements of Da Capo for
the period ending July 31, 1996;
(xix) unaudited financial statements of Granges for the
period ending June 30, 1996;
(x) federal and provincial income tax returns of Da Capo
for the fiscal periods ending April 30, 1993, 1994,
and 1995;
(xi) federal and provincial income tax returns of Granges
for the years ending 1993, 1994 and 1995;
(xii) a Preliminary Evaluation of the Feasibility of Da
Capo Resources Ltd.'s Amayapampa and Capa Circa Gold
Projects, Bolivia prepared for Da Capo by Pincock,
Allen & Holt and dated March 1, 1996;
(xiii) minutes of 1994, 1995 and 1996 Da Capo and Granges
directors' and shareholders' meetings;
(xiv) Management Information circulars for Da Capo and
Granges dated September 8, 1995 and April 9, 1996,
respectively;
E-2
<PAGE> 137
(xv) certain internal financial information, projections
and forecasts prepared by Da Capo and Granges and
their respective management;
(xvi) the Prospectus of Da Capo dated August 2, 1996;
(xvii) the Prospectus of Granges dated July 2, 1996;
(xviii) the Joint Management Information Circular of Granges
and Hycroft Resources & Development Corporation dated
February 24, 1995;
(xix) discussions with the senior management of both Da
Capo and Granges;
(xx) discussions with the auditors of Da Capo and Granges;
(xxi) public information relating to the business,
operations, financial performance and current and
historical market trading information relating to Da
Capo and Granges;
(xxii) information with respect to other transactions of a
comparable nature considered by us to be relevant in
the circumstances;
(xxiii) letters of representation from Da Capo and Granges,
dated the date hereof and addressed to Salman
Partners Inc., as to the completeness and accuracy of
the information upon which the Opinion is based; and
(xxiv) such other financial market, corporate and industry
information, investigations and analyses as Salman
Partners Inc. considered necessary or appropriate in
the circumstances.
We have conducted such analyses, investigations and testing of assumptions as
were considered to be appropriate in the circumstances for the purposes of
arriving at an opinion as to whether the consideration offered under the
Proposed Transaction is fair from a financial point of view.
ASSUMPTIONS AND LIMITATIONS
Having reviewed all aspects of the Proposed Transaction, Da Capo has
determined, and we are relying upon such determination, that the Proposed
Transaction is not subject to the valuation and shareholder approval
requirements of Ontario Securities Commission Policy 9.1 and Quebec Securities
Commission Policy Q-27.
We have relied upon and have assumed, without independent verification, the
completeness, accuracy and fair presentation of all of the financial and other
information, data, advice, opinions or representations obtained by us from
public sources, senior management of the Companies, their consultants and
advisors (the "Information"). The Opinion is conditional upon the completeness
and accuracy of all of the Information.
Management of the Companies have represented to Salman Partners Inc., in
certificates delivered as of the date hereof, among other things that the
Information provided to us by or on behalf of the Companies are complete and
correct at the date the Information was provided to us and that there has been
no material change or material fact (as such terms are defined in the
Securities Act (British Columbia)) relating to the Information that has not
been generally disclosed and that no change has occurred in the facts set out
or referred to in any such Information subsequent to the date thereof which
would reasonably be expected to have a material effect on the Opinion.
E-3
<PAGE> 138
The Opinion has been rendered on the basis of securities markets, economic,
financial and general business conditions prevailing at the date hereof and the
condition and prospects, financial or otherwise, of the Companies as they were
reflected in discussions with management of the Companies or as they were
reflected in the Information reviewed by us. In our analyses, and in
connection with the preparation of the Opinion, we made numerous assumptions
with respect to commodity prices, general business and economic conditions and
other matters, many of which are beyond the control of any party involved in
the Proposed Transaction.
The Opinion has been provided for the use of the shareholders of Da Capo and
may not be used or relied upon by any other person without the express prior
written consent of Salman Partners Inc. The Opinion is given as of the date
hereof and Salman Partners Inc. disclaims any undertaking or obligation to
advise any person of any change in any fact or matter affecting its Opinion
which may come or be brought to its attention after the date hereof. In the
event that there is any change in any fact or matter affecting the Opinion
after the date hereof, Salman Partners Inc. reserves the right to change,
modify or withdraw its Opinion.
We believe that our analyses must be considered as a whole and that selecting
portions of our analyses or the factors considered by us, without considering
all factors and analyses together, could create a misleading view of the
process underlying the Opinion. The preparation of a fairness opinion is a
complex process and it is not necessarily susceptible to partial analysis or
summary description. Any attempt to do so could lead to undue emphasis on any
particular factor or analysis.
FAIRNESS CONCLUSION
Based upon, and subject to , the foregoing and such other matters as we have
considered relevant, we are of the opinion that, as of the date hereof, the
consideration offered to the Da Capo shareholders under the Proposed
Transaction is fair, from a financial point of view.
Yours very truly,
(signed) SALMAN PARTNERS INC.
E-4
<PAGE> 139
SCHEDULE F
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF VISTA GOLD CORP.
COMPILATION REPORT
TO THE DIRECTORS OF GRANGES INC. AND DA CAPO RESOURCES LTD.
We have reviewed, as to compilation only, the accompanying pro forma
consolidated balance sheet as at June 30, 1996 and the pro forma consolidated
statement of earnings for the year ended December 31, 1995 of Vista Gold Corp.
which has been prepared for inclusion in the Joint Management Informational
Circular for Extraordinary General Meeting of Shareholders to be held on
Tuesday, October 22, 1996. In our opinion, the pro forma consolidated balance
sheet and the pro forma consolidated statement of earnings have been properly
compiled to give effect to the proposed amalgamation and assumptions described
in the notes thereto.
Vancouver, B.C. (signed) Coopers & Lybrand
August 13, 1996 Chartered Accountants
F-1
<PAGE> 140
VISTA GOLD CORP.
PRO FORMA CONSOLIDATED BALANCE SHEET
(Unaudited)
(Expressed in thousands of U.S. dollars)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GRANGES INC. DA CAPO
AS AT RESOURCES LTD.
JUNE 30, 1996 AS AT APRIL 30, 1996 ADJUSTMENTS PRO FORMA
------------- -------------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,650 $ 1,652 $ 448 (1) $ 5,023
(727)(2)
Cash held as security - 2,001 2,001
Funds held in escrow 18,496 - 18,496
Marketable securities 4 - 4
Accounts receivable and other 3,794 38 3,815
Inventories 16,680 - 16,680
Prepaids and deposits - 17 17
-------------------------------------------------------------------------------
42,624 3,691 (279) 46,036
INVESTMENT IN ZAMORA GOLD CORP. 3,563 - 3,563
PROPERTY, PLANT AND EQUIPMENT 39,831 15,406 (15,406)3(a) 85,939
46,108 3(c)
-------------------------------------------------------------------------------
$ 86,018 $ 19,097 $ 30,423 $ 135,538
===============================================================================
LIABILITIES
CURRENT LIABILITIES
Bank loan $ - $ 1,351 $ $ 1,351
Accounts payable and accrued 14,111 181 14,292
liabilities
-------------------------------------------------------------------------------
Due to related parties 17 17
14,111 1,549 Nil 15,660
ACCRUED LIABILITIES - 300 300
-------------------------------------------------------------------------------
Provisions for future reclamation and 3,699 - 3,699
closure costs
-------------------------------------------------------------------------------
17,810 1,849 Nil 19,659
-------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL 54,398 15,202 448 (1) 102,069
(15,650)(2)
47,671 (2)
SPECIAL WARRANTS 18,505 5,303 (5,303)(2) 18,505
DEFICIT (3,488) (3,257) (15,406)(3) (3,488)
18,663 (2)
CURRENCY TRANSLATION ADJUSTMENT (1,207) - (1,207)
-------------------------------------------------------------------------------
68,208 17,248 30,423 115,879
-------------------------------------------------------------------------------
$ 86,018 $ 19,097 $ 30,423 $ 135,538
===============================================================================
</TABLE>
F-2
<PAGE> 141
VISTA GOLD CORP.
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
(Expressed in thousands of U.S. dollars)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DA CAPO
GRANGES INC. FOR RESOURCES LTD.
THE YEAR AS ENDED FOR THE YEAR ENDED
DECEMBER 31, 1995 JANUARY 31, 1996 ADJUSTMENTS PRO FORMA
----------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE $ 41,294 $ Nil $ $ 41,294
--------------------------------------------------------------------
EXPENSES
Operating costs 33,711 60 33,771
Depreciation, depletion and 4,054 4,054
provision for future reclamation
and closure costs
Amortization of deferred stripping 223 223
--------------------------------------------------------------------
37,988 60 38,048
--------------------------------------------------------------------
RESULTS OF MINING OPERATIONS 3,306 (60) 3,246
--------------------------------------------------------------------
Mineral exploration and property (4,139) (3,086)(3)(d) (7,225)
evaluation
General and administrative (2,465) (194) (2,659)
Interest income, net 1,390 172 1,562
Gain on sale of mineral properties 6,075 6,075
and marketable securities
Equity in loss of Zamora Gold Corp. (516) (516)
Foreign exchange loss (68) (68)
Other expense (1,298) (1,298)
---------------------------------------------------------------------
(953) (90) (3,086) (4,129)
---------------------------------------------------------------------
EARNINGS (LOSS) BEFORE TAXES 2,353 (150) (3,086) (883)
INCOME TAXES 193 193
---------------------------------------------------------------------
NET EARNINGS (LOSS) $ 2,160 $ (150) (3,086) $ (1,076)
=====================================================================
EARNINGS (LOSS) PER SHARE $ 0.05 $ (0.01) $ (0.02)
=====================================================================
</TABLE>
F-3
<PAGE> 142
VISTA GOLD CORP.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Expressed in thousands of U.S. dollars)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The unaudited pro forma consolidated balance sheet and consolidated
statement of earnings of Vista Gold have been compiled from and include:
(a) the unaudited consolidated balance sheet of Granges Inc. (Granges)
as at June 30, 1996 and the audited consolidated statement of
earnings of Granges for the year ended December 31, 1995.
(b) the audited consolidated balance sheet of Da Capo Resources Ltd. (Da
Capo) as at April 30, 1996 and the unaudited consolidated statement
of operations of Da Capo for the year ended January 31, 1996.
The audited consolidated financial statements for Granges for each of the
years in the three year period ended December 31, 1995 and the unaudited
consolidated financial statements for Granges for the six months ended
June 30, 1996 and 1995 have been included elsewhere in this informational
circular. The audited consolidated financial statements for Da Capo for
each of the years in the three year period ended April 30, 1996 are
included elsewhere in this informational circular.
These pro forma consolidated financial statements give effect to the
proposed amalgamation between Granges and Da Capo as described in note 2
below.
In the opinion of management, these pro forma consolidated financial
statements include all the adjustments necessary for fair presentation in
accordance with generally accepted accounting principles in Canada
applied on a basis consistent with Granges' accounting policies.
The pro forma consolidated financial statements are not intended to
reflect the results of operations or the financial position of the
Company which would actually have resulted had the amalgamation been
effected on the dates indicated above. Further, the pro forma
consolidated balance sheet and statement of earnings are not necessarily
indicative of the results of operations or financial position that may be
obtained in the future.
2. AMALGAMATION
On July 31, 1996, the boards of directors of Granges and Da Capo
unanimously approved the amalgamation of the two companies to form a new
gold mining company (Vista Gold), subject to shareholder, court and
regulatory approval, the entering into of a definitive amalgamation
agreement, and satisfactory completion of due diligence by Granges and Da
Capo. Under the terms of the agreement, each holder of Granges shares
will be entitled to one Vista Gold share for each Granges share,
55,881,461 shares in total, and each holder of Da Capo shares will be
entitled to two Vista Gold shares for each Da Capo share, 32,768,944
shares in total.
F-4
<PAGE> 143
VISTA GOLD CORP.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Expressed in thousands of U.S. dollars)
- --------------------------------------------------------------------------------
The amalgamation will be accounted for using the purchase method with
Granges as the acquiring entity. Under this method, the excess of the
purchase price paid over the net book value of the acquired company is
allocated to other assets up to their fair market value. The purchase
price of $47,671,000 is based on the fair value of Granges shares at July
31, 1996. In calculating the purchase price, 1,700,000 Da Capo special
warrants exchangeable on August 6, 1996 for Da Capo common shares on the
basis of one special warrant for one common share are assumed to have
been fully converted to common shares. This purchase price exceeds Da
Capo's net book value of $17,696,000 by $29,975,000 and this excess has
been allocated to mineral properties, together with the estimated costs
of the amalgamation of $727,000.
3. PRO FORMA ADJUSTMENTS
The adjustments are those necessary for recording the amalgamation and
presenting it in a manner consistent with Granges' accounting policies.
(a) To write off deferred exploration costs capitalized by Da Capo in
order to conform to Granges' accounting policy.
(b) To record the effect of 169,000 shares issued by Da Capo subsequent
to April 30, 1996 and before July 31, 1996 for consideration of
$448,000.
(c) To record the acquisition of Da Capo using the purchase method of
accounting including costs of the transaction estimated to be
$727,000.
(d) To write off current period exploration costs deferred by Da Capo in
order to conform to Granges' accounting policy.
Pro forma earnings per share have been calculated based on the aggregate
weighted average number of shares of each of the companies adjusted for
the share exchange ratios described in note 2.
F-5
<PAGE> 144
SCHEDULE G
GRANGES INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Expressed in U.S. dollars)
G-1
<PAGE> 145
REVIEW ENGAGEMENT REPORT
TO THE DIRECTORS OF GRANGES INC.
We have reviewed the consolidated balance sheet of Granges Inc. as at June 30,
1996 and the consolidated statements of earnings (loss), retained earnings
(deficit) and changes in cash resources for the six months ended June 30, 1996
and 1995. Our reviews were made in accordance with generally accepted
standards for review engagements and accordingly consisted primarily of
enquiry, analytical procedures and discussion related to information supplied
to us by the Company.
A review does not constitute an audit and consequently, we do not express an
audit opinion on these financial statements.
Based on our reviews, nothing has come to our attention that causes us to
believe that these consolidated financial statements are not, in all material
respects, in accordance with generally accepted accounting principles.
Vancouver, B.C. (signed) Coopers & Lybrand
August 13, 1996 Chartered Accountants
AUDITORS' REPORT
TO THE DIRECTORS OF GRANGES INC.
We have audited the consolidated balance sheets of Granges Inc. as at December
31, 1995 and 1994 and the consolidated statements of earnings (loss), retained
earnings (deficit) and changes in cash resources for each of the three years
ended December 31, 1995. These consolidated 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,
1995 and 1994 and the results of its operations and the changes in its cash
resources for each of the three years ended December 31, 1995 in accordance
with generally accepted accounting principles. As required by the British
Columbia Company Act, we report that, in our opinion, these principles have
been applied on a consistent basis.
Vancouver, B.C.
March 1, 1996
(except note 23(a)
and (b), which are (signed) Coopers & Lybrand
as of March 4, 1996) Chartered Accountants
G-2
<PAGE> 146
GRANGES INC.
CONSOLIDATED BALANCE SHEETS
AS AT JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 AND 1994
(Expressed in thousands of U.S. dollars)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 ----------------------------------
(UNAUDITED) 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,650 $ 15,210 $ 33,045
Funds held in escrow 18,496
Marketable securities 5 179 240
Accounts receivable 3,794 1,432 2,030
Inventories (note 10) 16,680 11,090 10,275
-------------------------------------------------------
42,625 27,911 45,590
INVESTMENT IN ZAMORA GOLD CORP.
(note 11) 3,562 4,254
PROPERTY, PLANT AND EQUIPMENT
(notes 7 and 12) 39,831 32,051 26,854
-------------------------------------------------------
$ 86,018 $ 64,216 $ 72,444
=======================================================
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities
(note 14) $ 14,111 $ 6,239 $ 14,862
Equipment notes payable (note 15) 268
-------------------------------------------------------
14,111 6,239 15,130
PROVISIONS FOR FUTURE RECLAMATION AND CLOSURE
COSTS 3,699 3,409 3,061
-------------------------------------------------------
17,810 9,648 18,191
-------------------------------------------------------
SHAREHOLDERS' EQUITY
COMMON SHARES, without par value (note 16)
(Issued 1996 - 46,181,661 shares; 1995 -
46,042,911 shares; 1994 - 34,177,000 shares) 54,398 54,190 107,111
SPECIAL WARRANTS (note 16) 18,505
CONTRIBUTED SURPLUS (note 16) 2,786
RETAINED EARNINGS (DEFICIT) (3,488) 1,409 (55,463)
CURRENCY TRANSLATION ADJUSTMENT (note 17) (1,207) (1,031) (181)
-------------------------------------------------------
68,208 54,568 54,253
-------------------------------------------------------
$ 86,018 $ 64,216 $ 72,444
=======================================================
APPROVED BY THE DIRECTORS
</TABLE>
CONTINGENCIES AND COMMITMENTS (note 22)
(signed) ALAN THOMPSON, Director
(signed) PETER WALTON, Director
The accompanying notes are an integral part
of these consolidated financial statements.
G-3
<PAGE> 147
GRANGES INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Expressed in thousands of U.S. dollars)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------ ---------------------------------
1996 1995 1995 1994 1993
(Unaudited)
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RETAINED EARNINGS (DEFICIT) - BEGINNING
OF PERIOD $1,409 $(55,275) $(55,275) $(60,392) $(62,414)
PRIOR PERIOD ADJUSTMENT (note 5) (188) (188) (188) (188)
------------------------------------------------------------
1,409 (55,463) (55,463) (60,580) (62,602)
AMALGAMATION COSTS (note 4) (1,223)
CAPITAL REDUCTION (note 16) 55,936
------------------------------------------------------------
1,409 (55,463) (750) (60,580) (62,602)
NET EARNINGS (LOSS) (4,897) 1,210 2,159 5,117 2,022
------------------------------------------------------------
RETAINED EARNINGS (DEFICIT) -
END PERIOD $(3,488) $(54,253) $1,409 $(55,463) $(60,580)
=============================================================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
G-4
<PAGE> 148
GRANGES INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Expressed in thousands of U.S. dollars, except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
---------------------- ---------------------------------------
1996 1995 1995 1994 1993
(Unaudited)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE $16,408 $21,728 $41,294 $39,871 $40,505
------------------------------------------------------------------------
EXPENSES
Operating costs 13,805 17,265 33,712 32,303 35,424
Depreciation, depletion and
provision for future
reclamation and closure
costs 2,273 1,837 4,054 2,592 4,325
Amortization of deferred
stripping 2,121 29 223 3,110
-------------------------------------------------------------------------
18,199 19,131 37,989 38,005 39,749
-------------------------------------------------------------------------
(1,791) 2,597 3,305 1,866 756
-------------------------------------------------------------------------
RESULTS OF MINING OPERATIONS
Mineral exploration 1,886 1,615 4,139 3,972 3,573
Corporate administrative 1,119 1,033 2,465 2,670 3,707
Interest income, net (note
6) (380) (940) (1,390) (1,562) (976)
Other expense (income) 196 303 1,298 579 (516)
Gain on sale of mineral
properties
and marketable securities
(note 7) (298) (810) (6,075) (9,208) (1,659)
Dilution gain on issue of
subsidiary shares (note 8) (5,419)
Equity in loss of Zamora
Gold
Corp. 691 516
-------------------------------------------------------------------------
3,214 1,201 953 (3,549) (1,290)
-------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE
INCOME TAXES (5,005) 1,396 2,352 5,415 2,046
-------------------------------------------------------------------------
CURRENT INCOME TAXES (note 9) (108) 186 193 298 24
-------------------------------------------------------------------------
NET EARNINGS (LOSS) $(4,897) $1,210 $2,159 $5,117 $2,022
=========================================================================
EARNINGS (LOSS) PER SHARE $ (0.11) $0.03 $0.05 $0.15 $0.06
=========================================================================
WEIGHTED AVERAGE
SHARES OUTSTANDING 46,145,088 38,085,045 30,819,466 25,025,320 24,975,009
=========================================================================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
G-5
<PAGE> 149
GRANGES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN CASH RESOURCES
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Expressed in thousands of U.S. dollars)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
---------------------- ----------------------------------------
1996 1995 1995 1994 1993
(UNAUDITED)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $(4,897) $1,210 $2,159 $5,117 $2,022
Items not involving cash -
Depreciation, depletion
and amortization 4,104 1,629 3,778 5,087 3,450
Provision for future
reclamation and
closure costs 290 260 539 655 934
Deferred revenue
recognized (419) (584)
Gain on sale of
investments (298) (810)
Gain on sale of
equipment (64) (234)
Gain on sale of mineral
properties and
marketable
securities (note 7) (6,075) (9,208) (1,554)
Equity in loss of
Zamora Gold Corp. 691 516
Dilution gain on issue
of subsidiary
shares (note 8) (5,419)
Foreign exchange loss (26)
-------------------------------------------------------------------------
(110) 2,289 917 1,168 (1,411)
Deferred revenue 832
Currency translation
adjustment (351) (108) (441) (2) 124
Changes in working capital,
excluding cash and cash
equivalents (note 18) 95 (8,914) (8,779) 8,203 1,466
-------------------------------------------------------------------------
(366) (6,733) (8,303) 9,369 1,011
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Property, plant and
equipment (11,372) (1,036) (9,676) (15,478) (8,171)
Proceeds from sale of
mineral properties and
marketable securities
(note 7) 11,074 23,657 1,754
Investments (notes 7 and 11) (9,691)
Investment in subsidiary
(note 8) (2,019)
Proceeds from sale of
equipment 102 480
Deferred stripping (512) (2,687)
Proceeds from sale of
investments 473 872
Option payments received 29
-------------------------------------------------------------------------
(11,411) (2,822) (8,293) 8,281 (7,956)
-------------------------------------------------------------------------
</TABLE>
G-6
<PAGE> 150
GRANGES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN CASH RESOURCES
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Expressed in thousands of U.S. dollars)
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------------- ---------------------------------
1996 1995 1995 1994 1993
(Unaudited)
----------------------------------------------------------------
FINANCING ACTIVITIES
<S> <C> <C> <C> <C> <C>
Equipment note proceeds (payments),
net (275) (378) (228)
Issue of shares for options 208 96 229 21 212
Amalgamation costs (1,223)
Option payments received 30
Bank loan repayments (3,805) (7,165)
Issue of shares for settlement
of litigation (note 16) 202
Issue of subsidiary shares (note 8) 7,438
Long-term debt repayments (134)
Deferred amalgamation costs (1,209)
Issue of special warrants 18,505
---------------------------------------------------------------
18,713 (1,247) (1,239) (4,162) 459
---------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 6,936 (10,802) (17,835) 13,488 (6,486)
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 15,210 33,045 33,045 19,557 26,043
---------------------------------------------------------------
CASH AND CASH EQUIVALENTS - $22,146 $22,243 $15,210 $33,045 $19,557
END OF PERIOD
===============================================================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
G-7
<PAGE> 151
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
Granges Inc. is engaged in gold mining and related activities in the
United States, Canada and Latin America, including exploration,
extraction, processing, refining and reclamation. Gold bullion is the
Company's principal product, which is a commodity produced primarily in
South Africa, the United States, Canada, Australia and Latin America.
The Company's results are impacted by the price of gold. Gold prices
fluctuate and are affected by numerous factors, including, but not
limited to, expectations with respect to the rate of inflation, exchange
rates (specifically, the U.S. dollar relative to other currencies),
interest rates, global and regional political and economic crises, and
governmental policies with respect to gold holdings by central banks.
The demand for and supply of gold affect gold prices, but not necessarily
in the same manner as demand and supply affect the prices of other
commodities. The supply of gold consists of a combination of new mine
production and existing stocks of bullion and fabricated gold held by
governments, public and private financial institutions, industrial
organizations and private individuals. The demand for gold consists of
jewellery and investment demand, as well as producer hedging activities.
Gold can be readily sold on numerous markets throughout the world and its
market value can be readily ascertained at any particular time. As a
result, the Company is not dependent upon any one customer for the sale
of its product.
2. CHANGE IN REPORTING CURRENCY
The consolidated financial statements of Granges Inc. and its
subsidiaries have historically been expressed in Canadian (Cdn.) dollars.
As a result of the sale of exploration and operating properties in
Canada, sales revenues and a significant portion of expenses being
denominated in United States (U.S.) dollars, the increasing international
focus of the Company's operating activities, and the Company's recent
relocation to Denver, the U.S. dollar has become the principal currency
of Granges' business. Accordingly, the U.S. dollar has been adopted as
the reporting currency for the consolidated financial statements of the
Company effective January 1, 1996. The comparative information has been
translated into U.S. dollars for the six months ended June 30, 1995, and
at the December 31, 1995, 1994 and 1993 year ends at a rate of one U.S.
dollar to Cdn. $1.3652.
3. SIGNIFICANT ACCOUNTING POLICIES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements of Granges Inc. and its
subsidiaries have been prepared in accordance with accounting principles
generally accepted in Canada. These principles differ in certain
material respects from those accounting principles generally accepted in
the United States. The differences are described in note 24.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Granges
Inc., its subsidiaries and its proportionate share of the assets,
liabilities, revenues and expenses of its unincorporated joint ventures.
The Company's subsidiaries and its percentage ownership in these entities
as at December 31, 1995 and at June 30, 1996 are: (see notes 4 and 7(a))
G-8
<PAGE> 152
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
<TABLE>
<CAPTION>
OWNERSHIP
---------
<S> <C>
Hycroft Resources & Development, Inc. and its wholly
owned subsidiary Hycroft Lewis Mine, Inc. 100%
Granges (U.S.) Inc. and its wholly owned subsidiary
Granges (Arizona) Inc. 100%
Granges (Canada) Inc. (previously called 493744 Ontario
Limited) 100%
</TABLE>
Effective March 31, 1994, the Company sold its 29% interest in the Trout
Lake joint venture. These financial statements include the Company's
share of the results of the joint venture to the date of disposal.
USE OF ESTIMATES
The preparation of consolidated financial statements in accordance 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 liabilities at the date of the
consolidated financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from
those reported.
FOREIGN CURRENCY TRANSLATION
Self-sustaining foreign operations are translated using the current rate
method. Under this method, assets and liabilities are translated at the
rate of exchange on the balance sheet date, and revenue and expenses at
the average rate of exchange during the period. Exchange gains and
losses are deferred and shown as a currency translation adjustment in
shareholders' equity until transferred to earnings when the net
investment in the foreign operation is reduced.
Integrated foreign operations are translated using the temporal method.
Under this method, monetary assets and liabilities are translated at the
rate of exchange in effect at the balance sheet date and non-monetary
assets and liabilities are translated at historical exchange rates,
unless such items are carried at market, in which case they are
translated at the exchange rate in effect at the balance sheet date.
Revenues and expenses are translated at the rate of exchange in effect on
the dates that they occur, and depreciation and amortization of assets
translated at historical rates are translated at the same exchange rates
as the assets to which they relate. Exchange gains and losses are
included in the determination of net income for the current period,
except for any exchange gains or losses related to foreign currency
denominated monetary items that have a fixed or ascertainable life
extending beyond the end of the current fiscal period. Such gains or
losses are deferred and amortized over the life of the item.
Foreign currency denominated monetary items of the Company, excluding its
foreign operations, are translated at the year-end exchange rate.
Exchange gains and losses on these items are recognized in earnings in
the year they arise.
G-9
<PAGE> 153
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
REVENUE RECOGNITION
Sales are recorded as soon as the product is considered available for
sale. Gains and losses on forward sales and option contracts are
deferred until the related production is sold.
MINERAL EXPLORATION
Acquisition and exploration expenditures on mineral properties are
expensed when incurred until such time as the property indicates the
potential of being developed into a mine, and thereafter the expenditures
are capitalized. Previously capitalized expenditures are expensed if the
project is determined to be uneconomic.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid debt instruments such as
certificates of deposit, commercial paper, and money market accounts
purchased with an original maturity date of three months or less. The
Company's policy is to invest cash in conservative, highly rated
instruments and limit the amount of credit exposure to any one
institution. Cash equivalents are stated at cost plus accrued interest
which approximates market value.
MARKETABLE SECURITIES
Marketable securities are carried at the lower of cost or market value.
INVENTORIES
Product inventory is valued at the lower of average cost and net
realizable value. The direct cash costs associated with ore on the leach
pads are inventoried and charged to operations as the contained gold is
recovered. Based upon actual metal recoveries, ore grades, and operating
plans, management continuously evaluates and refines estimates in
determining the carrying values of costs associated with ore under leach.
It is possible that in the near term, estimates of recoverable ore,
grade, and gold price could change causing the Company to revise the
value of its heap leach inventory.
Supplies are valued at the lower of average cost and net realizable
value.
PROPERTY, PLANT AND EQUIPMENT
(a) Developed Mineral Properties
Property acquisition and development costs are carried at cost less
accumulated amortization and write-downs. Amortization is provided
on the unit-of-production method based on proven and probable
reserves. Management reviews quarterly the carrying value of the
Company's interest in each property, and where necessary, these
properties are written down to their estimated recoverable amount
determined on a non-discounted basis. Management's estimate of gold
price, recoverable proven and probable reserves, operating capital,
and reclamation costs are subject to risks and uncertainties
affecting the recoverability of the Company's investment in
property, plant and equipment. Although management has made
G-10
<PAGE> 154
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
(a) Developed Mineral Properties (continued)
its best estimate of these factors based on current conditions, it
is possible that changes could occur in the near term which could
adversely affect management's estimate of net cash flows expected to
be generated from its operating properties and the need for possible
asset impairment write-downs.
(b) Plant and Equipment
Plant and equipment are recorded at cost and depreciated using the
unit-of-production method or the straight-line method over their
estimated useful lives.
(c) Deferred Stripping
During production, mining costs associated with waste rock removal
are deferred and charged to operations on the basis of the average
strip ratio for the life of the mine. The average strip ratio is
calculated as a ratio of the tons of waste expected to be mined to
the tons of ore estimated to be mined. Although management has made
its best estimate of these factors based on current conditions, it
is possible that changes could occur in the near term which could
adversely affect management's estimate of ore and waste in proven
and probable reserves and the need for a change in the amortization
rate of deferred stripping cost.
PROVISION FOR FUTURE RECLAMATION AND CLOSURE COSTS
All of the Company's operations are subject to reclamation, site
restoration, and closure requirements. Costs related to ongoing site
restoration programs are expensed when incurred. A provision for mine
closure and site restoration costs is charged to earnings over the lives
of the mines on a unit-of-production basis. The Company calculates its
estimates of the ultimate reclamation liability based on current laws and
regulations and the expected future costs to be incurred in reclaiming,
restoring and closing its operating mine sites. It is possible that the
Company's estimate of its ultimate reclamation liability could change in
the near term due to possible changes in laws and regulations and changes
in cost estimates.
ESTIMATES OF PROVEN AND PROBABLE RESERVES
Management's calculation of proven and probable reserves is based upon
engineering and geological estimates and financial estimates including
gold prices and operating costs. The Company depreciates some of its
assets and accrues for reclamation on a unit-of-production basis over
proven and probable reserves. Changes in geological interpretations of
the Company's ore bodies and changes in gold prices and operating costs
may change the Company's estimate of proven and probable reserves. It is
possible that the Company's estimate of proven and probable reserves
could change in the near term and could result in revised charges for
depreciation and reclamation in future reporting periods.
INTERIM FINANCIAL STATEMENTS
Information as at and for the periods ended June 30, 1996 and 1995 is
unaudited.
G-11
<PAGE> 155
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
4. AMALGAMATION OF GRANGES INC. AND HYCROFT RESOURCES & DEVELOPMENT
CORPORATION
On March 30, 1995, the shareholders of Granges Inc. (Granges) and its
50.5% owned subsidiary, Hycroft Resources & Development Corporation
(Hycroft), approved the amalgamation of the two companies, effective May
1, 1995, under the name Granges Inc. (Amalco).
Under the terms of the amalgamation, the outstanding common shares of
each of Granges and Hycroft were exchanged or cancelled on the following
basis:
(a) each issued and outstanding common share of Granges was exchanged
for one common share of Amalco;
(b) each issued and outstanding common share of Hycroft, except for
those common shares registered in the name of Granges or its
affiliates, was exchanged for 0.88 of a common share of Amalco;
(c) each issued and outstanding common share of Hycroft which was
registered in the name of Granges or its affiliates was cancelled;
(d) each authorized but unissued common share of Granges and each
authorized but unissued common share of Hycroft was cancelled.
No fractional shares of Amalco were issued, and the number of shares
received by a Hycroft shareholder was rounded down to the nearest whole
number of shares of Amalco, if such a shareholder was otherwise entitled
to receive a fraction of a share of Amalco. Immediately after the
amalgamation, shareholders of Granges beneficially owned 34,214,500
common shares of Amalco and shareholders of Hycroft beneficially owned
11,718,416 common shares of Amalco, representing 74.5% and 25.5% of the
issued and outstanding common shares of Amalco, respectively.
As Granges already controlled Hycroft, the amalgamation was treated in a
manner similar to a pooling of interest. Accordingly, the year-to-date
results of Amalco represent the consolidated results of Granges for the
four months ended April 30, 1995 and the consolidated results of Amalco
for the eight months ended December 31, 1995, with all comparative
figures being the consolidated results of Granges.
Costs of $1.22 million to carry out the amalgamation have been treated as
a capital transaction and charged directly to the deficit on the date of
amalgamation.
5. PRIOR PERIOD ADJUSTMENT
During 1995, the Company received notification from the Manitoba
Department of Finance of proposed assessments for the years 1983 to 1993
under the Mining Tax Act and for the period March 1, 1989 to December 31,
1994 under the Retail Sales Tax Act. The Company, subsequent to December
31, 1995, arrived at a settlement with the Department under which the
total taxes and interest payable under both Acts amounted to Cdn.
$330,000 (U.S. $242,000), with Cdn $120,000 (U.S. $88,000) previously
paid. This settlement has been treated as a prior period adjustment and
the effect has been to increase mineral properties by $54,000, increase
accounts payable by $154,000 at December 31, 1995, and by $242,000 at
December 31, 1994, and to reduce beginning retained earnings by $188,000.
G-12
<PAGE> 156
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
6. INTEREST INCOME, net
<TABLE>
<CAPTION>
June 30, December 31,
------------------------ ----------------------------------------
1996 1995 1995 1994 1993
(Unaudited)
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ (380) $ (947) $ (1,538) $ (1,675) $ (1,354)
Bank loan interest 7 65 339
Equipment notes
interest 9 48 39
Financing fee 139
---------------------------------------------------------------------------
$ (380) $ (940) $ (1,390) $ (1,562) $ (976)
===========================================================================
</TABLE>
7. GAIN ON SALE OF MINERAL PROPERTIES AND MARKETABLE SECURITIES
MINERAL PROPERTIES
On September 27, 1995, the Company sold its base metal exploration
properties in Manitoba and Saskatchewan to Aur Resources Inc. (Aur) for
1,250,000 shares of Aur and a royalty equal to 2% of future net smelter
returns from the properties, subject to Aur's right to purchase half of
the royalty for $0.7 million. The Company realized a gain on the sale of
these properties of $4.9 million.
Effective March 31, 1994, the Company sold its 29% interest in the Trout
Lake joint venture, as well as a number of exploration properties, to its
co-venturer Hudson Bay Mining and Smelting Co., Limited (HBMS) for total
cash consideration of $24.2 million, realizing a gain of $9.2 million.
As part of the terms of sale, HBMS assumed all environmental liabilities
arising due to past or future activities of the Trout Lake mine.
Accordingly, the $593,000 reclamation and closure accrual related to the
mine was removed from the Company's books and included in the calculation
of the gain.
In May 1993, the Company sold its 40% interest in the Jualin joint
venture in Alaska, and its related 22.3% equity investment in
International Curator Resources Ltd. for proceeds of $1.2 million. The
costs associated with this project had been included in mineral
exploration expense in prior years.
MARKETABLE SECURITIES
In December 1995, the Company sold its 1,250,000 shares of Aur, acquired
in the sale of the base metal properties, for net proceeds of Cdn. $7.25
million (U.S. $5.3 million) and realized a gain of $0.4 million.
In June 1995, the Company sold its 200,000 shares of International
Curator Resources Ltd. for net proceeds of Cdn. $1.2 million (U.S. $0.9
million) and realized a gain of $0.8 million.
On October 7, 1993, the Company sold its 200,000 shares of Pan Orvana
Resources for net proceeds of Cdn. $694,000 (U.S. $508,000) and realized
a gain of $362,000.
G-13
<PAGE> 157
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
8. SUBSIDIARY SHARE ISSUE
In July 1993, the Company's subsidiary, Hycroft, completed a sale of 10.5
million common shares. The Company acquired 2.65 million of the 10.5
million shares, which resulted in a reduction of its interest in Hycroft
from 67% to 50.5%. The net effect on the consolidated financial
statements of the Company was to increase cash and cash equivalents by
$5.42 million and report a gain on the reduction of its interest in the
subsidiary of the same amount.
9. INCOME TAXES
A reconciliation of the combined Canadian federal and provincial income
taxes at statutory rates and the Company's effective income tax expense
at the fiscal year end is as follows:
<TABLE>
<CAPTION>
December 31
1995 1994 1993
-----------------------------------------
<S> <C> <C> <C>
Income taxes at statutory rates $ 1,045 $ 2,469 $ 787
Increase (decrease) in taxes from:
Resource and depletion allowance (223)
Non-taxable portion of capital gain (133) (149)
Non-taxable portion of dilution gain (619)
Financing costs on share issue (33) (50) (255)
Application of prior years' loss (1,010) (815)
carryforward
Utilization of resource and asset pools (1,929) (4,228)
Recovery of prior years' taxes (66) (91) (60)
Deferred tax debit not recognized 758 3,401 1,359
U.S. Alternative Minimum Tax 188
Differences in foreign tax rates 314 (131) (186)
-----------------------------------------
144 211 (12)
Large corporations tax 49 87 36
-----------------------------------------
Income taxes per statements of earnings $ 193 $ 298 $ 24
=========================================
</TABLE>
The Company has incurred income tax losses in prior periods of Cdn.
$24.4 million (U.S. $17.9 million) which may be carried forward and
applied against future taxable income when earned. No benefit in
respect of these losses has been recorded in these accounts. The
losses expire as follows:
G-14
<PAGE> 158
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
9. INCOME TAXES (continued)
<TABLE>
<CAPTION>
YEAR CANADA UNITED STATES TOTAL
-----------------------------------------
<S> <C> <C> <C>
2000 $ 1,400 $ 1,400
2001 1,693 1,294 2,987
2002 586 1,358 1,944
2003 5,418 5,418
2004 1,373 1,373
2008 388 388
2009 10 10
2010 4,325 4,325
-----------------------------------------
$ 3,679 $ 14,166 $ 17,845
=========================================
</TABLE>
10. INVENTORIES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 -------------------------
(UNAUDITED) 1995 1994
------------------------------------------
<S> <C> <C> <C>
Product inventory $ 13,689 $ 8,665 $ 8,258
Supplies 2,991 2,425 2,017
-----------------------------------------
$ 16,680 $ 11,090 $ 10,275
=========================================
</TABLE>
11. INVESTMENT IN ZAMORA GOLD CORP.
On October 6, 1995, Granges Inc. completed a private placement with
Zamora Gold Corp. (Zamora) for the issuance of 8,000,000 units at $0.60
per unit. Each unit consisted of one common share of Zamora and one
common share purchase warrant entitling Granges to purchase one common
share for $0.75 until October 4, 1997. Granges' 8,000,000 shares
represent 41% of the issued and outstanding shares of Zamora and the
investment is accounted for using the equity method.
<TABLE>
<S> <C>
Total investment $ 4,769
Share of net book value acquired 4,670
-------
Excess of cost over net book value $ 99
-------
Total investment 4,769
Equity in losses 1,207
-------
Carrying amount at June 30, 1996 $ 3,562
=======
</TABLE>
G-15
<PAGE> 159
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
11. INVESTMENT IN ZAMORA GOLD CORP. (continued)
The excess of cost over net book value has been allocated to the mineral
exploration properties for purposes of calculating Granges' equity in
Zamora's earnings. The excess will be amortized on a unit-of-production
basis if such properties are developed into operating mines or written
off if the properties are abandoned.
12. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprises the following:
<TABLE>
<CAPTION>
PROPERTY METALS PRODUCED ACQUIRED/COMMENCED PRODUCTION
-------- --------------- -----------------------------
<S> <C> <C>
Hycroft mine gold, silver Lewis 1987, Crofoot 1988
Tartan mine gold 1987 (suspended 1989)
Trout Lake mine copper, zinc, gold, silver 1982 (interest disposed of
March 31, 1994 - see note 7(a))
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
(UNAUDITED)
--------------------------------------------------
ACCUMULATED
DEPRECIATION,
DEPLETION,
AMORTIZATION
AND
COST WRITE-DOWNS NET
--------------------------------------------------
<S> <C> <C> <C>
Producing mine - Hycroft mine $ 62,547 $ 30,852 $ 31,695
Non-producing mine - Tartan Lake mine 3,870 1,977 1,893
Corporate assets 1,924 272 1,652
--------------------------------------------------
68,341 33,101 35,240
Deferred stripping costs - Hycroft 10,025 5,434 4,591
--------------------------------------------------
$ 78,366 $ 38,535 $ 39,831
==================================================
</TABLE>
G-16
<PAGE> 160
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
12. PROPERTY, PLANT AND EQUIPMENT (continued)
<TABLE>
<CAPTION>
DECEMBER 31,
DECEMBER 31, 1994
1995 (RESTATED, NOTE 5)
----------------------------------------------------------------------------------
ACCUMULATED ACCUMULATED
DEPRECIATION, DEPRECIATION,
DEPLETION, DEPLETION,
AMORTIZATION AMORTIZATION
AND AND
COST WRITE-DOWNS NET COST WRITE-DOWNS NET
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Producing mine $ 62,362 $ 38,887 $ 23,475 $ 59,473 $ 36,143 $ 23,330
- Hycroft mine
Non-producing mine 3,870 1,977 1,893 3,870 1,977 1,893
- Tartan Lake mine
Corporate assets 744 262 482 823 414 409
----------------------------------------------------------------------------------
66,976 41,126 25,850 64,166 38,534 25,632
Deferred stripping 9,513 3,312 6,201 4,396 3,174 1,222
costs - Hycroft
----------------------------------------------------------------------------------
$ 76,489 $ 44,438 32,051 $ 68,562 $ 41,708 $ 26,854
==================================================================================
</TABLE>
(a) Deferred Stripping
During 1993, the amounts of waste moved per ton of ore at the
Hycroft mine exceeded the average ratio expected over the life of the
mine. The mining plan indicates that this will continue to be the
case from time to time, whereas previously there was little variation
in the ratio of waste to ore. To accommodate these variations,
mining costs associated with removal of waste in excess of the
life-of-mine average is deferred and charged to operations in future
periods when ratios are below the average. Stripping costs deferred
for the six months ended June 30, 1996 amounted to $512,000 (1995 -
$5,261,000; 1994 - $1,434,000). Amortization of previously deferred
costs was $2,122,000 for the six months ended June 30, 1996 (1995 -
$223,000; 1994 - $3,110,000).
(b) Royalties
The Crofoot property is subject to 4% net profits royalties. No
royalty payments were made in 1995, 1994 and 1993 because minimum
royalty payments made prior to 1993 aggregating $2.8 million were
available for credit to the royalty obligations. Effective 1996, the
Company has agreed to apply this credit to reduce the maximum
royalties payable of $10 million and to pay minimum royalty payments
of $240,000 per year.
G-17
<PAGE> 161
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
12. PROPERTY, PLANT AND EQUIPMENT (continued)
(c) Royalties (continued)
The Lewis property is subject to a 5% net smelter royalty on gold
produced from the Lewis property. During 1993, 1994 and 1995, only
nominal minimum royalties were required in relation to this property.
13. JOINT VENTURE
The Company proportionately consolidates its share of the assets,
liabilities, revenues, and expenses of its joint ventures. Prior to
March 31, 1994, the Company's principal joint venture was the Trout Lake
mine, in which it owned 29% (see note 7(a)). The 1994 results include
the Company's share of production, revenues, and expenses from the Trout
Lake mine to the date of disposal. The proportionate amounts of the
joint venture included in the consolidated accounts are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------
1996 1995 1994
(UNAUDITED)
----------------------------------------
<S> <C> <C> <C>
Revenue $Nil $ Nil $2,386
Expenses Nil Nil 2,860
</TABLE>
14. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------
1996 1995 1994
(UNAUDITED) (RESTATED-NOTE 5)
---------------------------------------------
<S> <C> <C> <C>
Accounts payable $ 3,856 $3,514 $13,106
Accrued liabilities 10,255 2,725 1,756
---------------------------------------------
$14,111 $6,239 $14,862
=============================================
</TABLE>
Accounts payable at December 31, 1994 included $9.6 million to purchase
mining equipment for the development of the Brimstone deposit.
G-18
<PAGE> 162
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
15. EQUIPMENT NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------
1996 1995 1994
(UNAUDITED)
----------------------------------------
<S> <C> <C> <C>
Notes payable due 1994 and 1995, 7.75% to 9.85%
(1995 - $nil; 1994 - $261,000) $ $ $ 268
---------------------------------------
Less: Amounts due within one year 268
$ Nil $ Nil $ Nil
=======================================
</TABLE>
16. SHARE CAPITAL
(a) Authorized share capital comprises 750,000,000 common shares without
par value and 750,000,000 preferred shares without par value.
(b) Common shares issued and outstanding:
<TABLE>
<CAPTION>
SHARES AMOUNT
-----------------------------------
<S> <C> <C>
Balance - December 31, 1993 34,157,000 $ 107,089
Issued in 1994 20,000 22
-----------------------------------
Balance - December 31, 1994 34,177,000 107,111
Issued upon exercise of stock options 147,500 228
Issued pursuant to amalgamation (note 4) 11,718,411
Capital reduction (53,149)
-----------------------------------
Balance - December 31, 1995 46,042,911 54,190
Issued upon exercise of stock options 138,750 208
-----------------------------------
Balance - June 30, 1996 (unaudited) 46,181,661 $ 54,398
===================================
</TABLE>
(c) Capital Reduction
At the March 30, 1995 extraordinary meeting, the shareholders of
Granges approved a special resolution to reduce the capital of the
Company. Under this resolution, the share capital and contributed
surplus were reduced by $53.1 million and $2.8 million, respectively,
with a corresponding decrease to Granges' accumulated deficit of
approximately $55.9 million. The effect of this capital reduction
was to eliminate the consolidated accumulated deficit of Granges as
of December 31, 1994, after giving effect to the estimated costs of
the amalgamation. This deficit was caused primarily by prior
write-downs of mining assets.
(d) Common Share Options
At December 31, 1995, 1,320,000 common shares were reserved for
issuance under options granted to directors, officers and management
employees. These options expire as follows: 1996 - 65,000; 1997 -
100,000; 2001 - 30,000; 2003 - 20,000; 2004 - 25,000; and 2005 -
1,080,000.
G-19
<PAGE> 163
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
16. SHARE CAPITAL (continued)
(d) Common Share Options (continued)
<TABLE>
<CAPTION>
SHARE OPTION PRICE
OPTIONS (CDN.)
-----------------------------------
<S> <C> <C>
Balance - December 31, 1993 230,000 $1.45 to $2.85
Granted in 1994 530,000 $2.28 to $3.30
Exercised in 1994 (20,000) $1.45
-----------------------------------
Balance - December 31, 1994 740,000 $1.45 to $3.30
Granted in 1995 905,000 $2.25 to $2.78
Exercised in 1995 (147,500) $1.45 to $2.28
Expired in 1995 (177,500) $2.28 to $2.70
-----------------------------------
Balance - December 31, 1995 1,320,000 $1.45 to $2.78
Granted in 1996 125,000 $2.51 to $2.75
Exercised in 1996 (137,500) $1.90 to $2.85
Expired in 1996 (5,000) $2.28
-----------------------------------
Balance - June 30, 1996 (unaudited) 1,302,500
===================================
</TABLE>
During the year ended December 31, 1995, options to purchase
35,000 shares at Cdn. $3.30 (U.S. $2.42) per share were repriced to
Cdn. $2.78 (U.S. $2.04) per share.
(e) Special Warrants
On April 25, 1996, a private placement of $9,699,800 special
warrants was completed at a price of Cdn. $2.60 (U.S. $1.68) per unit
for gross proceeds of Cdn. $25,219,000 (U.S. $18,473,000). Each
special warrant is exercisable into one common share and one-half of
one common share purchase warrant of Granges for no additional
consideration. Each whole common share purchase warrant is
exercisable into one common share of Granges at a price of Cdn. $3.00
(U.S. $2.20) per share until October 31, 1997.
On July 3, 1996, Granges filed a final short-form prospectus
with the securities commissions in British Columbia and Ontario
relating to the private placement. The funds held in escrow were
released to Granges on July 8, 1996. Net proceeds received were Cdn.
$24,045,000 (U.S. $17,613,000). The net proceeds received will be
used to fund the cash payments due upon exercise of the Guariche
option and exploration on the Guariche properties if the option is
exercised, to develop the Brimstone project at the Company's Hycroft
mine, and to explore the Company's mineral properties in Nevada and
Peru. Any remaining net proceeds, including unused proceeds if the
Guariche option is not exercised, will be used for general corporate
purposes, including ongoing exploration and development expenditures
and acquisition opportunities as they arise.
On July 10, 1996, all of the 9,699,800 outstanding special
warrants were exercised and 9,699,800 common shares in the capital of
the Company and 4,849,900 common share purchase warrants were issued
to the holders of the special warrants.
G-20
<PAGE> 164
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR TH(e)IXSpecial WarrantsN(continued)AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
17. CURRENCY TRANSLATION ADJUSTMENT
The currency translation adjustment represents the foreign currency
translation loss on the Company's investment in its self-sustaining
foreign operations.
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------
1996 1995 1994
(UNAUDITED)
------------------------------
<S> <C> <C> <C>
Currency translation adjustment - beginning of $(1,031) $(181) $(904)
period
Unrealized gain (loss) for the period (176) (850) 723
-----------------------------
Currency translation adjustment - end of period $(1,207) $(1,031) $(181)
=============================
</TABLE>
18. CHANGES IN WORKING CAPITAL, EXCLUDING CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------------------------------------------------
1996 1995 1995 1994 1993
(UNAUDITED)
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accounts receivable $(2,362) $(702) $598 $2,072 $381
Marketable securities 175 61 61 22
Inventories (5,590) 1,105 (815) (3,680) 212
Accounts payable and 7,872 (9,378) (8,623) 9,789 873
accrued liabilities
----------------------------------------------------
$95 $(8,914) $(8,779) $8,203 $1,466
====================================================
</TABLE>
19. RELATED PARTY TRANSACTIONS
In 1994, consulting fees of $53,000 were paid to a director of the
Company who resigned during 1994. In 1995 no such fees were paid.
G-21
<PAGE> 165
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
20. SEGMENTED INFORMATION
The Company operates in the mining industry in Canada and the United
States. Its major product is gold, and prior to 1995, it also produced
copper and zinc. Geographic segments are presented below.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
---------------------- --------------------------------
1996 1995 1995 1994 1993
(UNAUDITED)
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales
Canada $ $ $ $ 2,386 $ 10,451
U.S. 16,408 21,728 41,294 37,485 30,054
--------------------------------------------------------------
$16,408 $21,728 $ 41,294 $39,871 $ 40,505
==============================================================
Results of mining
operations
Canada $ $ $ $ (349) $ 406
U.S. (1,791) 2,597 3,305 2,215 350
--------------------------------------------------------------
$ (1,791) $ 2,597 $ 3,305 1,866 $ 756
==============================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------
1996 1995 1994
(UNAUDITED)
-------------------------------------------
<S> <C> <C> <C>
Identifiable assets
Canada $ 28,333 $28,897 $33,076
U.S. 57,685 35,319 39,368
-------------------------------------------
$ 86,018 $64,216 $72,444
===========================================
</TABLE>
21. RETIREMENT PLANS
The Company provides a voluntary money purchase retirement plan to
permanent Canadian employees to which the Company makes contributions,
depending on length of employment, from 2% to 4% of salary. The
Company's contribution in the year ended December 31, 1995 was $26,000
(1994 - $24,000).
The Company provides a voluntary retirement plan to permanent U.S.
employees to which the Company makes contributions, depending on
length of employment, from 2% to 4% of salary. The Company's
contribution in 1995 was $83,000 (1994 - $9,000).
G-22
<PAGE> 166
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
22. CONTINGENCIES AND COMMITMENTS
(a) The Company is committed to payments under certain operating
leases for mining equipment. Future payments under these
leases in each of the next five years and in the aggregate
are:
<TABLE>
<S> <C>
1996 $ 1,998
1997 1,998
1998 1,055
1999
2000
-------
$ 5,051
=======
</TABLE>
Letters of credit totalling $2.8 million (1994 - $3.5 million)
have been provided as security under these mine equipment
operating leases.
(b) As part of its gold hedging program, the Company has entered
into agreements with major financial institutions to deliver
gold. Realization under these agreements is dependent upon
the ability of those financial institutions to perform in
accordance with the terms of the agreements.
As at June 30, 1996, the Company's consolidated hedging
program consisted of:
(i) forward sales contracts totalling 50,000 ounces for
deliveries up to November 28, 1997, at an average
price of $403 per ounce.
(ii) matching option contracts for 1,000 ounces of gold,
under which the Company can require the financial
institution to buy gold at $392 per ounce, while the
financial institution can require the Company to sell
the same number of ounces at $465 per ounce. These
options have various expiry dates during 1996 and
result in no net cost to the Company.
As at December 31, 1995, the Company's consolidated hedging
program consisted of:
(i) forward sales contracts totalling 12,000 ounces for
deliveries up to December 27, 1996, at an average
price of $383 per ounce.
(ii) matching option contracts for 19,000 ounces of gold,
under which the Company can require the financial
institution to buy gold at $392 per ounce, while the
financial institution can require the Company to sell
the same number of ounces at $465 per ounce. These
options have various expiry dates during 1996 and
result in no net cost to the Company.
G-23
<PAGE> 167
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
23. SUBSEQUENT EVENTS
(a) Subsequent to December 31, 1995, the Company, through its
subsidiary, has arranged a secured standby credit facility.
The facility is available for drawdown until December 31,
1996, in dollars or as a gold loan, to a maximum of $13.0
million or the gold ounce equivalent thereof (not to exceed
35,000 ounces). Drawdowns under the facility bear interest at
LIBOR plus 1.60% for dollar loans and gold lease rates plus
1.60% for gold loans. The loan is repayable in seven
semi-annual installments commencing the earlier of 12 months
after the first drawdown or June 30, 1997. In the event the
Company generates cash surpluses after debt service, it is
required to make annual mandatory prepayments equal to 25% of
excess cash flow, up to a maximum of $2.5 million annually and
$5.0 million in aggregate.
In addition to the loan facility, the Company has also
arranged a hedging facility for up to 275,000 ounces of gold
for deliveries up to the year 2001. Both hedging and credit
facilities are secured by the assets at the Hycroft mine and
the parent company guarantee.
(b) On February 29, 1996, the Company entered into a letter of
intent to enter into an option agreement with L.B. Mining
Company to acquire the Guariche gold project in southeastern
Venezuela. Subject to due diligence and the Company's
satisfying itself, during the four-month option period, that
the project contains 500,000 ounces of proven and probable
reserves, the Company will acquire the property for $15
million, of which $5 million is payable in Granges shares and
the balance in cash. Additional proven and probable reserves
above 500,000 ounces will cost $30 per ounce up to one million
ounces. Any excess above one million proven and probable
ounces attracts a 7.5% net smelter royalty. The expenditure
commitment is $600,000 during the option period, an additional
$1.0 million within the first 12-month period after the
property is acquired, and a further $1.0 million within the
following 12-month period.
(c) On July 31, 1996, the boards of directors of Granges and Da
Capo Resources Ltd. (Da Capo) unanimously approved the
amalgamation of the two companies to form a new gold mining
company (Amalco), subject to: shareholder, court, and
regulatory approval; entering into a definitive amalgamation
agreement; and satisfactory completion of due diligence by
Granges and Da Capo.
Under the terms of the agreement, each holder of Granges
shares will be entitled to one Amalco share for each Granges
share, and each holder of Da Capo shares will be entitled to
two Amalco shares for each Da Capo share. The amalgamated
company will be owned 66.25% by Granges shareholders and
33.75% by Da Capo shareholders on a fully diluted basis. The
transaction will be accounted for as a purchase.
G-24
<PAGE> 168
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
24. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The significant differences between generally accepted accounting
principles (GAAP) in Canada and the United States are as follows:
(a) Under Canadian GAAP, interest costs relating specifically to
assets under construction may be capitalized during the
construction period. When construction is completed, further
interest costs are expensed. Under U.S. GAAP, interest to be
capitalized for qualifying assets is intended to be that
portion of the interest cost incurred during the assets'
acquisition periods that theoretically could have been avoided
if expenditures for the assets had not been made.
(b) Under Canadian GAAP, the amalgamation of Granges and Hycroft
was treated in a manner similar to a pooling of interest.
Under U.S. GAAP, the amalgamation does not meet the conditions
for pooling of interest. Accordingly, the transaction would
be treated as a purchase under U.S. GAAP with the excess of
proceeds over the net book value of Hycroft's net assets
allocated to mineral properties.
(c) Under Canadian corporate law, the Company underwent a capital
reduction in connection with the amalgamation of Granges and
Hycroft whereby share capital and contributed surplus were
reduced to eliminate the consolidated accumulated deficit of
Granges as of December 31, 1994, after giving effect to the
estimated costs of the amalgamation. Under U.S. corporate
law, no such transaction is available and, accordingly, is not
allowed under U.S. GAAP.
(d) As disclosed in note 2, the Company adopted the U.S. dollar as
the reporting currency effective January 1, 1996. Under
Canadian GAAP, the translation of prior period results is
performed through a translation of convenience whereby amounts
appearing for prior years are restated to the new reporting
currency using the exchange rate prevailing at the end of the
last period for which the previous reporting currency was the
currency of measurement and display. Under U.S. GAAP,
pre-1995 financial statements must be translated by the
current rate method using the year-end or annual average
exchange rate as appropriate. The Company has determined that
any difference arising as a result of this U.S./Canadian GAAP
difference would not be material to the financial statements.
G-25
<PAGE> 169
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
24. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
(e) Under Canadian GAAP, corporate income taxes are accounted for
using the deferral method of income tax allocation. Under
this method, deferred income taxes represent a deferral to
future periods of a benefit obtained or expenditures incurred
currently, and are accordingly computed at current tax rates
without subsequent adjustment to the accumulated balance to
reflect changes in tax rates. Deferred taxes are provided on
differences between accounting and taxable income due to the
difference in timing of recognition of items for accounting
and tax purposes ("timing differences"). Under U.S. GAAP,
corporate income taxes are accounted for using the liability
method of income tax allocation. Under this method, preferred
income taxes are considered to reflect the recognition in the
current period of taxes expected to be payable or recoverable
in a future period, and accordingly, the accumulated tax
allocation balance is adjusted in future periods to reflect
changes in tax rates. Deferred taxes are provided on
"temporary differences," which is a broader concept than
"timing differences." Under U.S. GAAP, deferred tax assets
are reduced by a valuation allowance if, based on the weight
of available evidence, it is more likely than not that some
portion or all of the deferred tax assets will not be
realized. As at December 31, 1994, any deferred tax assets to
be recognized would have been offset by a valuation allowance.
Under U.S. GAAP, the excess of purchase price over net book
value acquired would be tax affected, giving rise to a credit
to deferred income taxes and a debit to mineral properties.
This would result in a corresponding reduction in the
valuation allowance with the resulting credit being allocated
against mineral properties. At December 31, 1995, the
Company's deferred tax would be as follows:
<TABLE>
<S> <C>
Deferred taxes arising on -
Operating losses $3,268
Excess purchase price (9,866)
Temporary tax and book basis difference 10,012
------
3,414
Less: Valuation allowance 3,414
------
$ Nil
======
</TABLE>
G-26
<PAGE> 170
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
24. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
(f) Under U.S. GAAP, the settlement of mining taxes described in
note 5 is a current year expense.
The significant differences in the consolidated statements of earnings
(loss) and retained earnings (deficit) relative to U.S. GAAP were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
-----------------------------------------
<S> <C> <C> <C>
Net earnings following Canadian GAAP $ 2,159 $ 5,117 $ 2,022
Net interest capitalized (amortized) (note a) (21) (26) 41
Depreciation of excess proceeds over net book value of (2,658)
assets on amalgamation (note b)
Other item -
Settlement of mining taxes (note e) (188)
-----------------------------------------
Net earnings (loss) following U.S. GAAP (708) 5,091 2,063
Deficit - beginning of year following U.S. GAAP (53,983) (59,074) (61,137)
-----------------------------------------
Deficit - end of year following U.S. GAAP $(54,691) $(53,983) $(59,074)
=========================================
Primary earnings (loss) per share $ (0.015) $ (0.15) $ 0.06
=========================================
</TABLE>
G-27
<PAGE> 171
GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995
(Figures in tables expressed in thousands of U.S. dollars, except per share
data)
- --------------------------------------------------------------------------------
24. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
The significant differences in the consolidated balance sheet as at
December 31, 1995 relative to U.S. GAAP were:
<TABLE>
<CAPTION>
Cdn./U.S Per U.S.
Per Cdn. GAAP Adjustment GAAP
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets $27,911 $ $27,911
Investments 4,254 4,254
Property, plant and
equipment 32,051 23,440 (a and b) 55,491
---------------------------------------------------------------------
$64,216 $23,440 $87,656
Current liabilities $6,239 5 $6,239
Provision for future
reclamation and closure
costs 3,409 3,409
9,648 Nil 9,648
---------------------------------------------------------------------
Common shares 54,190 76,754 (b and c) 130,944
Contributed surplus 2,786 (c) 2,786
Retained earnings 1,409 (56,100) (a, b and c) (54,691)
(deficit)
Currency translation (1,031) (1,031)
adjustment
---------------------------------------------------------------------
$64,216 $23,440 $87,656
=====================================================================
</TABLE>
Cash flows for the Company under Canadian GAAP are presented in the
consolidated statement of changes in cash resources. Under Canadian
GAAP, all financing and investing activities are presented on the face
of the statement. Under U.S. GAAP, only cash transactions are
presented, with non-cash transactions disclosed separately. The gain
on the sale of the Company's base metal properties was a non-cash
transaction. Accordingly, under U.S. GAAP the proceeds from the sale
of mineral properties and marketable securities and the purchase of
investments would both be reduced by $4,921,000, the value of the
non-cash transaction. The Company is not aware of any differences
between Canadian and U.S. GAAP in classifications among categories
within the cash flow statement.
Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for -
Interest $149 $115 $378
Income taxes 193 305 23
</TABLE>
G-28
<PAGE> 172
SCHEDULE H
DA CAPO RESOURCES LTD.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996, 1995 AND 1994
(EXPRESSED IN CANADIAN DOLLARS)
H-1
<PAGE> 173
AUDITORS' REPORT
June 14, 1996, except as to note 12 which is as of September 16, 1996
To the Directors of
Da Capo Resources Ltd.
We have audited the consolidated balance sheets of Da Capo Resources Ltd. as at
April 30, 1996 and 1995 and the consolidated statements of operations and
deficit and changes in financial position for the three years ended April 30,
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 April 30, 1996
and 1995 and the results of its operations and the changes in its financial
position for the three years ended April 30, 1996 in accordance with generally
accepted accounting principles. As required by the British Columbia Company
Act, we report that, in our opinion, these principles have been applied on a
consistent basis.
(signed) Price Waterhouse
Vancouver, B.C. Chartered Accountants
H-2
<PAGE> 174
DA CAPO RESOURCES LTD.
CONSOLIDATED BALANCE SHEETS
AS AT APRIL 30, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
Current assets
Cash $ 2,248,729 $ 4,175,497
Cash held as security (Note 5) 2,724,000 -
Accounts receivable 29,132 117,458
Prepaids and deposits 23,210 6,114
---------------------------------
5,025,071 4,299,069
Fixed assets (Note 3) 220,802 228,575
Resource properties (Note 4)
Property costs 20,752,550 4,111,034
Advances - 3,294,363
---------------------------------
20,752,550 7,405,397
---------------------------------
$ 25,998,423 $ 11,933,041
=================================
LIABILITIES
Current liabilities
Bank loan (Note 5) $ 1,838,700 $ -
Accounts payable 247,328 62,970
Due to related parties (Note 9) 22,750 8,114
---------------------------------
2,108,778 71,084
Accrued liabilities (Note 4) 408,600 -
---------------------------------
2,517,378 71,084
---------------------------------
SHAREHOLDERS' EQUITY
Share capital (Note 6) 20,695,918 16,109,610
Special warrants (Note 7) 7,218,750 -
Deficit (4,433,623) (4,247,653)
---------------------------------
23,481,045 11,861,957
---------------------------------
$ 25,998,423 $ 11,933,041
=================================
</TABLE>
APPROVED BY THE BOARD
(signed) ROSS BEATY, Director
(signed) JOHN WRIGHT, Director
H-3
<PAGE> 175
DA CAPO RESOURCES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Expenses
General and administration $ 280,334 $ 360,486 $ 27,022
Professional fees 73,338 105,543 53,044
Filing and transfer fees 12,725 16,734 6,501
Bank charges, interest and other 2,248 1,511 3,357
----------------------------------------------
368,645 484,274 89,924
----------------------------------------------
Interest income 174,407 376,586 562
Foreign exchange gain 8,268 29,881 (35,742)
Bad debt - - (81,007)
Gain on sale of subsidiary - 26,121 -
----------------------------------------------
Net loss for the year (185,970) (51,686) (206,111)
----------------------------------------------
Deficit, beginning of year (4,247,653) (4,195,967) (3,989,856)
Deficit, end of year $(4,433,623) $(4,247,653) $(4,195,967)
==============================================
Loss per common share $ (0.02) $ (0.01) $ (0.10)
==============================================
</TABLE>
H-4
<PAGE> 176
DA CAPO RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash provided by (used in) operating activities
Net loss for the year $ (185,970) $ (51,686) $ (206,111)
Item not involving cash
Gain on sale of subsidiary - (26,121) 948
---------------------------------------------
(185,970) (77,807) (205,163)
Changes in non-cash working capital items
Accounts receivable 88,326 (114,283) (3,175)
Prepaids and deposits (17,096) (5,552) (562)
Accounts payable 184,358 6,156 14,201
Due to related parties 14,636 (246,656) (502,803)
---------------------------------------------
84,254 (438,142) (697,502)
---------------------------------------------
Cash provided by financing activities
Bank loan 1,838,700 - -
Cash held as security (2,724,000) - -
Common shares issued for cash 2,286,308 9,980,833 983,396
Special warrants issued for property, net of costs 4,348,750 - -
Special warrants issued for subsidiary (Note 4) 2,870,000 - -
Subscriptions received - - 470,884
Common shares issued for property 2,300,000 1,510,000 -
---------------------------------------------
10,919,758 11,490,833 1,454,280
---------------------------------------------
Cash used in investing activities
Acquisition of fixed assets (Note 3) (46,814) (253,972) -
Acquisition of subsidiary (Note 4) (3,553,150) - -
Acquisition of resource properties (Note 4) (7,388,803) (1,821,128) -
Deferred exploration costs (Note 4) (1,942,013) (2,253,863) (10,646)
Advances (Note 4) - (3,294,363) -
---------------------------------------------
(12,930,780) (7,623,326) (10,646)
---------------------------------------------
Increase (decrease) in cash during the year (1,926,768) 3,429,365 746,132
Cash, beginning of year 4,175,497 746,132 -
---------------------------------------------
Cash, end of year $ 2,248,729 $ 4,175,497 $ 746,132
=============================================
</TABLE>
H-5
<PAGE> 177
DA CAPO RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
1. OPERATIONS
The Company is in the process of exploring its resource properties in
Bolivia and has not determined whether these properties contain ore
reserves that are economically recoverable. The recoverability of amounts
shown for resource properties and related deferred costs is dependent upon
the discovery of economically recoverable reserves, the ability of the
Company to obtain necessary financing to complete the development, and
future profitable production from the properties or proceeds from
disposition.
2. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements of the Company have been prepared
based on generally accepted accounting principles and include the accounts
of the Company and its subsidiaries. All intercompany transactions have
been eliminated.
FOREIGN CURRENCY TRANSLATION
Monetary items are translated at the exchange rate in effect at the balance
sheet date; non-monetary items are translated at historical exchange rates;
and revenue and expense items are translated at exchange rates prevailing
on the dates of the transactions.
RESOURCE PROPERTIES
Acquisition costs of resource properties together with direct exploration
and development expenditures are deferred in the accounts. When production
is attained these costs will be amortized. When acquisition costs and
deferred expenditures on individual producing properties exceed the
estimated net recoverable amount, the properties are written down to the
net recoverable amount. Costs relating to properties abandoned are written
off when the decision to abandon is made.
FIXED ASSETS
Depreciation is provided on a straight-line basis over the estimated useful
lives of the fixed assets.
Loss per common share
Loss per common share is based on the weighted average of common shares
issued and outstanding during the year. Fully diluted loss per common
share has not been presented since it is anti-dilutive.
3. FIXED ASSETS
<TABLE>
<CAPTION>
ACCUMULATED 1996 1995
COST DEPRECIATION NET NET
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Vehicles $ 228,634 $ 63,700 $ 164,934 $ 187,035
Office and field equipment 72,152 16,284 55,868 41,540
--------- --------- --------- ---------
$ 300,786 $ 79,984 $ 220,802 $ 228,575
========= ========= ========= =========
</TABLE>
All fixed assets are located in Bolivia and are used for exploration. The
related depreciation has been capitalized to mineral property interests.
H-6
<PAGE> 178
DA CAPO RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
4. RESOURCE PROPERTIES
Property costs
<TABLE>
<CAPTION>
ACQUISITION DEFERRED TOTAL TOTAL
COSTS EXPLORATION 1996 1995
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Amayapampa $ 9,843,686 $ 3,109,431 $ 12,953,117 $ 2,287,404
Capa Circa 6,142,511 1,051,571 7,194,082 1,741,249
Other 139,049 466,302 605,351 82,381
------------ ------------ ------------ ------------
$ 16,125,246 $ 4,627,304 $ 20,752,550 $ 4,111,034
============ ============ ============ ============
</TABLE>
The Company is a party to an agreement (the "Agreement"), as amended,
whereby it is deemed to have acquired, effective July 15, 1994, all of the
Optionor's rights and option to acquire an interest in certain mining
concessions. The interest comprises two options, the Garafulic Option and
the Yamin Option and the Santa Isabel Concession. A portion of the
Garafulic Option as later amended ("Amayapampa" property) was exercised on
February 5, 1996 and the Yamin Option ("Capa Circa" property) expired on
January 12, 1996 and was replaced by a new agreement.
Under the Agreement in consideration for the transfer of the interest, the
Company is required to issue 1,000,000 common shares to the Optionor and
fulfill all of the obligations of the Optionor under the Garafulic and
Yamin Option agreements and the Santa Isabel Concession. The Company
issued 200,000 shares on completion of the Agreement and has issued 300,000
shares in three equal lots at six month intervals from the date of the
Agreement. The remaining 500,000 shares were issued on April 16, 1996 upon
the exercise of the Garafulic Option. The 1,000,000 common shares were
issued for a total of $3,810,000.
AMAYAPAMPA
The Garafulic Option grants the right to explore as well as a unilateral,
exclusive and irrevocable sale and purchase option to acquire 51% of the
Amayapampa Vendors' interests (the "Vendors") in eight concessions which
are part of the eight Amayapampa Concessions, located in the Province of
Bustillos, Department of Potosi, Bolivia for $3,396,000 (U.S.$2,500,000)
and an additional two year option to purchase a further 19% interest for
$4,135,500 (U.S.$3,000,000).
On December 22, 1994, an agreement was reached whereby the Company advanced
to the Vendors a non-interest bearing loan (the "Loan") of $3,294,363
(U.S.$2,425,000) maturing on March 22, 1996. The loan was secured by 100%
of the Vendors' interests in the eight Amayapampa concessions (Concessions
A) and its 100% interest in sixteen additional mining concessions,
excluding certain equipment. Upon the Company electing to exercise its
option to acquire a 51% interest in the Amayapampa concessions, the
$3,396,000 (U.S.$2,500,000), including $103,090 (U.S.$75,000) paid to date,
exercise price will be deemed to have been paid in full by forgiving
repayment of the loan.
On February 5, 1996 the Company exercised the Garafulic Option in
consideration for: (i) the cancellation of the Loan and (ii) payments
totalling $103,090 (U.S.$75,000) made between March 22, 1994 and September
22, 1994.
H-7
<PAGE> 179
DA CAPO RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
On March 8, 1996 the Company entered into an agreement with the Vendors to
acquire a 24% interest in two mining concessions, 49% interest in six
mining concessions comprising the remainder of the Vendors' interests in
Concessions A and 100% interest in sixteen additional mining concessions
comprising the Vendors' interests in sixteen additional mining concessions,
all constituting a part of the Amayapampa property. The purchase
consideration was 1,000,000 special warrants at a price of $4.35 per
special warrant and a non-recourse, interest- free loan of U.S.$3,240,000
(Notes 5 and 7).
CAPA CIRCA
The Yamin Option, which expired on January 12, 1996, granted the right to
explore as well as a unilateral, exclusive and irrevocable instalment sale
and purchase option to acquire 100% of three concessions which are part of
the Capa Circa Mine, located in the Province of Bustillos, Department of
Potosi, Bolivia. The Company made payments totalling $276,001
(U.S.$200,000) and the exercise price was U.S.$4,800,000.
Effective March 1, 1996, the Company acquired 100% interest in Yamin Ltda,
owner of the Capa Circa Mine, in consideration for payment of $683,150
(U.S.$500,000), the issuance of 700,000 special warrants at a price of
$4.10 per special warrant and assuming $408,600 (U.S.$300,000) in accrued
liabilities relating to the Capa Circa Mine.
The cost of the acquisition has been allocated as follows:
<TABLE>
<S> <C>
Resource property $ 3,961,750
Accrued liabilities (408,600)
-----------
Net assets acquired $ 3,553,150
===========
Consideration paid:
Cash $ 683,150
Special warrants 2,870,000
-----------
$ 3,553,150
===========
</TABLE>
OTHER
Irpa Irpa
The Company holds an option to purchase 100% interest in seven concessions
located between the Amayapampa and Capa Circa Mine. The option price is
U.S.$250,000 and expires on November 30, 1997.
Santa Isabel
The Company holds a 100% interest in one concession covering 6,500 hectares
and encompasses much of the land around and between the Amayapampa property
and the Capa Circa Mine.
Copacabana
The Company holds a 100% interest in one mining concession covering 140
hectares and has applied for an exploration concession covering 8,969
hectares in the vicinity of the Copacabana property.
San Gerardo
The Company holds a 49% interest in an option to acquire the San Gerardo
property for purchase consideration of a 2% net smelter royalty. The
option includes five exploration concessions covering 495 hectares. The
option price for the five concessions totals U.S.$420,000 and expires
between July 16,
H-8
<PAGE> 180
DA CAPO RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
1996 and September 9, 1997. The 51% joint venturer is responsible for
funding all exploration costs through to the completion of a feasibility
study.
5. BANK LOAN
On March 8, 1996 the Company entered into an agreement to advance to the
Amayapampa property vendors (Note 4) an interest-free, non-recourse loan of
$4,439,124 (U.S.$3,240,000). The loan is secured by an assignment of all
proceeds from the sale of any of the 1,000,000 common shares held by the
vendors. The funds were borrowed from the Bank of Montreal ("Bank Loan")
at an interest rate of prime plus 0.5% for a twelve month term. The Bank
Loan is secured by a U.S.$2,000,000 cash collateral from the Company and a
personal guarantee by an officer of the Company. On April 30, 1996 the
loan balance outstanding was $1,838,700 (U.S.$1,350,000) and was repaid
subsequent to year end.
Interest costs, net of interest income relating to the U.S.$2,000,000 cash
collateral, of $45,427 were capitalized as part of the acquisition of the
Amayapampa property.
6. SHARE CAPITAL
Authorized
Authorized capital is 100,000,000 common shares without par value.
Changes in issued shares were as follows:
<TABLE>
<CAPTION>
NUMBER
OF SHARES AMOUNT
<S> <C> <C>
Balance at April 30, 1994 5,585,129 $ 4,618,777
Shares issued against subscriptions received prior to April 30, 1994 1,000,000 -
Issued during the year
For cash
Exercise of special warrants - net of issue costs 3,000,000 9,799,270
Exercise of private placement warrants 273,875 178,563
Issue of new escrow shares 300,000 3,000
For resource properties (Note 4) 400,000 1,510,000
Cancellation of performance escrow shares (679,686) -
--------- -------------
Balance at April 30, 1995 9,879,318 16,109,610
Issued during the year
For cash
Exercise of stock options 5,000 12,000
Exercise of private placement warrants 4,031,154 2,274,308
For resource properties (Note 4) 600,000 2,300,000
---------- ------------
Balance at April 30, 1996 14,515,472 $ 20,695,918
========== ============
</TABLE>
In connection with the personal guarantee of the bank loan (Note 5), the
Company issued to the guarantor 124,000 share purchase warrants exercisable
at $4.10 per warrant on the earlier of March 8, 1997 or the date which is
30 days following any reduction or payment of the Bank Loan. These share
purchase warrants were exercised subsequent to year end.
H-9
<PAGE> 181
DA CAPO RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
As of April 30, 1996, there were 124,000 warrants outstanding exercisable
at $4.10 per warrant. At April 30, 1995 there were 5,572,279 warrants
outstanding: 3,696,154 warrants at $0.57 per share of which 55,000 shares
were never exercised and expired on February 26, 1996, 390,000 warrants at
$0.50 per share and 1,486,125 warrants at $4.02 per share, which expired on
October 31, 1995.
As of April 30, 1996, outstanding directors and employees stock options are
as follows:
<TABLE>
<CAPTION>
Number of options Exercise price Expiry date
------------------------------------------------------------------
<S> <C> <C>
345,000 $2.40 September 13, 1999
200,000 $2.40 September 14, 1999
30,000 $2.10 December 3, 2000
50,000 $3.00 February 21, 2001
-------
625,000
</TABLE>
As of April 30, 1995, there were 350,000 directors and employees stock
options outstanding exercisable at $3.50 and were subsequently
repriced to $2.40 per share, expiring on September 13, 1999.
As of April 30, 1995, there were 375,000 common shares held in escrow.
On January 12, 1996, 187,500 common shares were released from escrow
in accordance with the escrow agreement dated April 29, 1994.
7. SPECIAL WARRANTS
During the year ended April 30, 1996, the Company:
i) issued 1,000,000 special warrants at a value of $4,350,000
pursuant to an acquisition of an interest in the Amayapampa
property (Note 4). Each special warrant may be exchanged for
one common share at no additional cost on the earlier of the
date a receipt is issued for the prospectus by the British
Columbia Securities Commission and March 8, 1997.
ii) issued 700,000 special warrants at a value of $2,870,000
pursuant to the acquisition of Yamin Ltda (Note 4). Each
special warrant may be exchanged for one common share at no
additional cost on the earlier of the date a receipt is issued
for the prospectus by the British Columbia Securities
Commission and April 1, 1997.
8. INCOME TAXES
The Company has $768,000 of non-capital losses available to apply
against future Canadian income for tax purposes and which expire
during the fiscal years 1997 through 2004.
9. RELATED PARTY TRANSACTIONS
During the year, the Company was charged $164,968 (1995 - $307,371;
1994 - $25,644) for general, office and administrative costs from a
corporation related through officers and directors in common with the
Company of which $22,750 is outstanding at April 30, 1996 (1995 -
$8,114; 1994 $Nil).
H-10
<PAGE> 182
DA CAPO RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
During the year ended April 30, 1994 the Company received advances of
$229,126 from parties in which the Company's president is a principal
and $22,575 from a former director. A foreign exchange loss of
$35,187 was incurred in respect of amounts denominated in U.S. dollars
owing to related parties as at April 30, 1993 and settled during the
year ended April 30, 1994. The total outstanding at April 30, 1994 of
$254,770 was repaid during fiscal 1995.
All amounts are repayable on demand without interest.
10. SEGMENTED INFORMATION
The Company operates in one industry, the exploration for and
extraction of precious metals.
<TABLE>
<CAPTION>
APRIL 30, 1996 CANADA BOLIVIA TOTAL
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ (186,091) $ 121 $ (185,970)
Identifiable assets 4,951,634 21,046,789 25,998,423
Capital expenditures - 13,339,380 13,339,380
April 30, 1995 Canada Bolivia Total
-----------------------------------------------------------------------------
Net income (loss) $ (51,686) $ - $ (51,686)
Identifiable assets 4,204,046 7,728,995 11,933,041
Capital expenditures - 7,623,326 7,623,326
April 30, 1994 Canada Bolivia Total
-----------------------------------------------------------------------------
Net income (loss) $ (206,111) $ - $ (206,111)
Identifiable assets 749,869 10,646 760,515
Capital expenditures - 10,646 10,646
</TABLE>
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES AND PRACTICES
Accounting under the United States and Canadian generally accepted
accounting principles ("GAAP") is substantially the same except for
the following:
Consolidated Statement of Changes in Financial Position
Under U.S. GAAP, the consolidated statement of changes in financial
position is called a statement of cash flows and reflects only cash
transactions affecting financing and investing activities, whereas
Canadian GAAP requires non-cash activities to be included. Under U.S.
GAAP the following transactions would be excluded from the
consolidated statement of changes in financial position:
H-11
<PAGE> 183
DA CAPO RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Financing activities:
Under Canadian GAAP $ 10,919,758 $ 11,490,833 $ 1,454,280
Common shares issued for property (2,300,000) (1,510,000) -
Special warrants issued for subsidiary (2,870,000) - -
Special warrants issued for property, net of
costs (4,348,750) - -
------------ ------------- --------------
Under United States GAAP 1,401,008 9,980,833 1,454,280
Investing activities:
Under Canadian GAAP (12,930,780) (7,623,326) (10,646)
Acquisition of subsidiary 2,870,000 - -
Acquisition of resource properties 6,648,750 1,510,000 -
------------ ------------- --------------
Under United States (GAAP) (3,412,030) (6,113,326) (10,646)
Net change under U.S. GAAP $ - $ - $ -
============ ============= ==============
</TABLE>
12. SUBSEQUENT EVENTS
Subsequent to April 30, 1996, the Company:
(a) on June 28, 1996 entered into an agreement to lease the
remaining 25% interest in two of the concessions comprising
the Amayapampa property for a ten year period with a ten year
renewal option. Lease payments are U.S.$7,000 per month for
the first two years and U.S$10,000 per month for the remaining
eight years;
(b) allowed one concession on the San Gerardo property with an
option price of U.S.$120,000 to lapse;
(c) on August 16, 1996 entered into an agreement with Granges Inc.
to amalgamate the two companies into one legal entity Vista
Gold Corp. ("Vista Gold"). On the amalgamation becoming
effective, each issued common share of Granges Inc. will be
exchanged for one Vista Gold common share and each issued
common share of the Company will be exchanged for two common
shares of Vista Gold.
(d) filed a prospectus to qualify 1,700,000 common shares for
issue and distribution on the exercise of Special Warrants
(Note 7).
These shares were issued on August 14, 1996.
H-12
<PAGE> 184
SCHEDULE I
Conformed
- --------------------------------------------------------------------------------
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT PURSUANT TO Section 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
--------- --------
Commission File Number 1-9025
GRANGES INC.
(Exact Name of Registrant as Specified in its Charter)
Province of British Columbia None
(State or other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
Suite 3000
370 Seventeenth Street
Denver, Colorado 80202
(Address of Principal Executive Offices) (Zip Code)
(303) 629-2450
(Registrant's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Registered on
------------------- -------------
Common Shares without par value American Stock Exchange
Toronto Stock Exchange
SECURITIES 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 the
filing requirements for the past 90 days. Yes x No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [ ]
The aggregate market value of outstanding Common Shares of the Registrant which
may be voted held by non-affiliates of the Company was approximately US
$95,249,676.
As of March 27, 1996, 46,181,661 Common Shares of the Registrant were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None
- --------------------------------------------------------------------------------
I-1
<PAGE> 185
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
GLOSSARY OF TERMS, CURRENCY AND METRIC Certain Canadian Income Tax Considerations
CONVERSION TABLE . . . . . . . . . . . . 3 for United States Persons . . . . . 25
PART I . . . . . . . . 6 ITEM 6. SELECTED FINANCIAL DATA . . . . . . 25
Exchange Rates . . . . . . . . . . . . . 27
ITEM 1. BUSINESS. . . . . . . . . . . . . . 6
General . . . . . . . . . . . . . . . . 6 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Segmented Financial Information . . . . 7 OF FINANCIAL CONDITION AND RESULTS OF
Corporate Organization Chart . . . . . . 7 OPERATIONS . . . . . . . . . . . . . 27
Significant Developments in 1995 . . . . 8 Introduction . . . . . . . . . . . . . . 27
Granges-Hycroft Amalgamation and Atlas Results of Operations . . . . . . . . . 28
Agreement . . . . . . . . . . . 8 1995 Compared With 1994 . . . . . . 28
New Exploration Agreements - Peru . 8 1994 Compared with 1993 . . . . . . 30
New Exploration Agreements - Nevada 8 Liquidity and Capital Resources . . 31
Acquisition of Shares of Zamora Gold 9 Outlook . . . . . . . . . . . . . . . . 32
Sale to Aur Resources Inc. . . . . . 9 Reclamation and Environmental Costs . . 33
New Exploration Office . . . . . . . 9 Reclamation . . . . . . . . . . . . 33
Reduction of Share Capital . . . . . 9 Brimstone Project . . . . . . . . . 33
Directors . . . . . . . . . . . . . 10 Regulatory Compliance and Other
Management . . . . . . . . . . . . . 10 matters . . . . . . . . . . . . 33
Shareholders' Rights Plan . . . . . 10
Operations . . . . . . . . . . . . . 10 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND
Subsequent Events . . . . . . . . . 10 SUPPLEMENTARY DATA . . . . . . . . . 34
Refining and Marketing . . . . . . . . . 11
Gold and Silver Sales . . . . . . . 11 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
Hedging and Metal Sales Commitments 12 ACCOUNTANTS ON ACCOUNTING AND
Exploration and Business Development . . 13 FINANCIAL DISCLOSURE . . . . . . . . 58
Property Interests and Mining Claims . . 13
Reclamation . . . . . . . . . . . . . . 14 PART III . . . . . . . 59
Government Regulation . . . . . . . . . 14
Environmental Regulation . . . . . . . . 14 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Competition . . . . . . . . . . . . . . 15 OF THE REGISTRANT . . . . . . . 59
Employees . . . . . . . . . . . . . . . 15 Directors of Granges . . . . . . . . . . 59
Executive Officers . . . . . . . . . . . 61
ITEM 2. PROPERTIES . . . . . . . . . . . . . 15
Operations . . . . . . . . . . . . . . . 15 ITEM 11. EXECUTIVE COMPENSATION . . . . . 62
Hycroft Mine . . . . . . . . . . . . . . 15 Summary Compensation Table . . . . . . . 62
Description of Properties . . . . . 16 Compensation Pursuant to Plans . . . . . 63
Geology and History . . . . . . . . 16 Stock Option Plans . . . . . . . . . 63
Mining and Processing . . . . . . . 17 Option Grants . . . . . . . . . . . 63
Ore Reserves . . . . . . . . . . . . 17 Aggregated Option Exercises and Value
Operating Statistics . . . . . . . . 18 of Unexercised Options . . . . . 64
Brimstone Project . . . . . . . . . 18 Outstanding Options . . . . . . . . 65
Mine Site Exploration . . . . . . . 19 Cash Bonus Plans . . . . . . . . . . 65
The Gold Bar Properties . . . . . . . . 19 Pension and Retirement Savings Plans 65
Description of Properties . . . . . 19 Employment Contracts and Termination of
Terms of the Joint Venture . . . . . 20 Employment on Change of Control . . 65
Undeveloped Mineral Properties . . . . . 21 Composition of the Compensation Committee 66
1995 Exploration . . . . . . . . . . 21 Report of the Compensation Committee . . 66
1996 Exploration Plan . . . . . . . . . 23 Performance Graph . . . . . . . . . . . 68
Compensation of Directors . . . . . . . 68
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . 23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF BENEFICIAL OWNERS AND MANAGEMENT 68
SECURITY HOLDERS . . . . . . . . . . 23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
PART II . . . . . . . . 24 TRANSACTIONS . . . . . . . . . . 70
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY PART IV . . . . . . . . . . . . . . . . . . . 71
AND RELATED STOCKHOLDER MATTERS . . 24
Price Range of Common Shares and Warrants 24 ITEM 14. EXHIBITS, FINANCIAL STATEMENT
Dividends . . . . . . . . . . . . . . . 24 SCHEDULES AND REPORTS ON FORM 8-K . . . 71
Exchange Controls . . . . . . . . . . . 24
SIGNATURES . . . . . . . . . . . . . . . . . 75
</TABLE>
I-2
<PAGE> 186
GLOSSARY OF TERMS, CURRENCY AND METRIC CONVERSION TABLE
GLOSSARY OF TERMS
"Atlas" means Atlas Corporation.
"Amalgamation" means the amalgamation of Granges Inc. and Hycroft Resources and
Development Corporation, effective on May 1, 1995.
"Amalgamation Agreement" means the amalgamation agreement between Granges Inc.
and Hycroft Resources and Development Corporation dated February 24, 1995.
"Aur" means Aur Resources Inc.
"breccia" means rock consisting of fragments, more or less angular, in a matrix
of finer-grained material or of cementing material.
"Common Shares" means common shares without par value of Granges.
"Company" means the consolidated group, after the Amalgamation, consisting of
Granges and its subsidiaries Hycroft Inc., Hycroft Lewis, Granges (U.S.),
Granges (Canada) Inc., Granges (Arizona) Inc.
"cut-off grade" means the minimum grade of ore used to establish reserves.
"dore bar" means an unrefined gold and silver bullion bar consisting of
approximately 90% precious metals which will be further refined to almost pure
metal.
"en echelon" means parallel structural features, such as veins or faults, that
are offset like the edges of shingles on a roof when viewed from the side.
"Gold Bar Properties" means a portion of 1194 claims comprising approximately
34 square miles held by Atlas in the vicinity of Atlas' Gold Bar property near
Eureka, Nevada.
"Granges" means Granges Inc.
"Granges (U.S.)" means Granges (U.S.), Inc., a wholly-owned subsidiary of
Granges.
"heap leach" means, as a gold extraction method, to percolate a cyanide
solution through crushed ore heaped on an impervious pad or base.
"Hycroft" means the consolidated group, prior to the Amalgamation, consisting
of Hycroft Corp. and its subsidiaries Hycroft Inc. and Hycroft Lewis.
"Hycroft Corp." means Hycroft Resources & Development Corporation.
"Hycroft Inc." means Hycroft Resources & Development, Inc., a wholly-owned
subsidiary of Hycroft Corp. prior to the Amalgamation and a wholly-owned
subsidiary of Granges after the Amalgamation.
"Hycroft Lewis" means Hycroft Lewis Mine, Inc., a wholly-owned subsidiary of
Hycroft Inc.
"Inca Pacific" means Inca Pacific Resources Inc.
"International Curator" means International Curator Resources Ltd.
"Joint Venture" means joint venture agreement between Granges and Atlas for
exploration and development of Atlas' Gold Bar Properties near Eureka, Nevada.
I-3
<PAGE> 187
"massive sulphides" means a continuous body of compounds of sulphur in which
zinc, lead and copper minerals predominate over host rock minerals.
"mineralization" means material containing valuable minerals.
"ore" means material containing valuable minerals that can be economically
extracted.
"Peru Syndicate" means The Peru Syndicate S.A.
"proven reserves" means reserves for which (a) quantity is computed from
dimensions revealed in outcrops, trenches, workings, or drill holes; grade
and/or quality are computed from the results of detailed sampling and (b) the
sites for inspection, sampling and measurement are spaced so closely and the
geologic character is so well defined that size, shape, depth, and mineral
content of reserves are well-established.
"probable reserves" means reserves for which quantity and grade and/or quality
are computed from information similar to that used for proven reserves, but the
sites for inspection, sampling, and measurement are farther apart or are
otherwise less adequately spaced. The degree of assurance although lower than
that for proven reserves, is high enough to assume continuity between points of
observation.
"reserve" or "ore reserve" mean that part of a mineral deposit which could be
economically and legally extracted or produced at the time of the reserve
determination.
"Reserve Report" means a report which satisfies the United States Securities
and Exchange criteria for reporting reserves to be completed by Granges as
provided under the terms of the Joint Venture.
"Rights Plan" means the shareholders' rights plan of Granges that was adopted
at a special shareholders' meeting on September 29, 1995.
"shallow plunging rods" means rod-shaped bodies inclined downwards from the
surface at a relatively shallow angle with reference to the horizontal.
"strike", when used as a noun, means the direction, course or bearing of a vein
or rock formation measured on a level surface, and, when used as a verb, means
to take such direction, course or bearing.
"stringer sulphides" means a network of small non-persistent veins of sulphide
minerals.
"volcaniclastic" means derived by ejection of volcanic material from a volcanic
vent.
"Zamora" means Zamora Gold Corp.
CURRENCY
Unless otherwise specified, all dollar amounts in this report are expressed in
Canadian dollars.
The exchange rate at the end of each of the five years to December 31, 1995,
and the average, the high and the low rates of exchange for each year in that
five-year period, are set forth in "Item 6 - Selected Financial Data". These
exchange rates are expressed as the amount of United States funds equivalent to
one Canadian dollar, being the noon buying rates in New York City for cable
transfers in Canadian dollars, as certified for customs purposes by the Federal
Reserve Bank of New York. On March 20, 1996 this noon buying rate was 1.3597
(Canadian $1.00 equals US $0.7355).
I-4
<PAGE> 188
METRIC CONVERSION TABLE
<TABLE>
<CAPTION>
TO CONVERT IMPERIAL MEASUREMENT UNITS TO METRIC MEASUREMENT UNITS MULTIPLY BY
<S> <C> <C>
Acres . . . . . . . . . . . . . . . . . . . Hectares . . . . . . . . . . . . . . . 0.4047
Feet . . . . . . . . . . . . . . . . . . . Metres . . . . . . . . . . . . . . . . 0.3048
Miles . . . . . . . . . . . . . . . . . . . Kilometres . . . . . . . . . . . . . . 1.6093
Tons (short) . . . . . . . . . . . . . . . Tonnes . . . . . . . . . . . . . . . . 0.9071
Ounces (troy) . . . . . . . . . . . . . . . Grams . . . . . . . . . . . . . . . . . 31.103
Ounces (troy) per ton (short) . . . . . . . Grams per tonne . . . . . . . . . . . . 34.286
</TABLE>
I-5
<PAGE> 189
PART I
ITEM 1. BUSINESS.
GENERAL
The Company is engaged, directly and through joint ventures, in the exploration
for and the acquisition, development and operation of mineral properties in
North and South America. Since 1971, the Company and its predecessor
companies, previously owned by Granges AB of Sweden, have held participating
interests in six mines, four of which were discovered by the Company. The
Company has also operated four of the six mines.
During 1995, the Company's principal mining operation and source of earnings
was the Hycroft mine (formerly known as Crofoot/Lewis mine) in the United
States which produces gold and by-product silver. The Company also realized a
significant non-recurring gain on the sale of all of its base metal exploration
properties in Saskatchewan and Manitoba to Aur Resources Inc. See "Significant
Developments in 1995 - Sale to Aur Resources Inc." below. In addition to
exploration work being carried out at the Hycroft mine, the Company has
approximately 22 undeveloped mineral properties covering approximately 180,800
hectares (446,750 acres) in various stages of evaluation. The Company has
approximately 260 full-time permanent employees.
During 1995, the Company took actions to increase its focus on precious metals,
which included entering into exploration agreements respecting new properties
in Peru and Nevada, acquiring a significant land position in Ecuador through
its acquisition of 41 percent equity interest in Zamora Gold Corp. and selling
all of its base metal exploration properties. See "Significant Developments in
1995 - New Exploration Agreements", "Significant Developments in 1995 -
Acquisitions of Shares of Zamora Gold" and "Significant Developments in 1995 -
Sale to Aur Resources Inc." below.
Granges and Hycroft Corp. were both incorporated under and governed by the laws
of the Province of British Columbia, Canada. Granges was originally
incorporated on November 28, 1983 under the name Granges Exploration Ltd. In
November 1983 Granges acquired all the mining interests of Granges AB in
Canada. On June 28, 1985 Granges Exploration Ltd. and Pecos Resources Ltd.
amalgamated under the name Granges Exploration Ltd. and on June 9, 1989 Granges
Exploration Ltd. changed its name to Granges Inc. On May 1, 1995 Granges and
Hycroft Corp. were amalgamated under the name of "Granges Inc.". See
"Significant Developments in 1995 - Granges-Hycroft Amalgamation and Atlas
Agreement" below.
As of February 12, 1996, Granges moved its executive office from Vancouver,
British Columbia to Denver, Colorado. The current addresses, telephone and
facsimile numbers of the offices of Granges are:
<TABLE>
<CAPTION>
EXECUTIVE OFFICE REGISTERED AND RECORDS OFFICE
---------------- -----------------------------
<S> <C>
Suite 3000 Suite 709
370 Seventeenth Street 700 West Pender Street
Denver, Colorado 80202 Vancouver, B.C. V6C 1G8
Telephone: (303) 629-2450 Telephone: (604) 687-2831
Facsimile: (303) 629-2499 Facsimile: (604) 687-8699
</TABLE>
The Company had one mine in operation during 1995. Operations have been
suspended since 1989 at the Tartan mine in Manitoba. The chart on page 7 shows
the Company's interests in the Hycroft mine and all of its subsidiaries after
giving effect to the Amalgamation. Detailed information on the Hycroft mine is
contained in "Item 2 - Properties".
I-6
<PAGE> 190
The Company derives all of its current revenues from the sale of gold and
silver extracted from the Hycroft mine. In fiscal 1993, 1994 and 1995 revenues
from sales of gold and silver were $45 million, $54 million and $56 million,
respectively. In fiscal 1993 revenues from sales of copper and zinc were $10
million.
SEGMENTED FINANCIAL INFORMATION
The Company operates in the mining industry in Canada and the United States.
See note 19 to the consolidated financial statements in Item 8 of this Report
for information on the Company's sales, earnings from operations and
identifiable assets by geographic area.
CORPORATE ORGANIZATION CHART
[Flowchart showing Granges, Inc. organization chart
of operations in Canada and the United States.]
Notes:
(1) Acquisition of 41 percent in Zamora Gold Corp. was completed on
October 6, 1995.
(2) Before the Amalgamation was effective on May 1, 1995, Granges owned
approximately 50.5 percent of the issued common shares of Hycroft
Corp. which owned 100 percent of Hycroft Inc. See "Significant Events
- Granges-Hycroft Amalgamation and Atlas Agreement" below.
I-7
<PAGE> 191
SIGNIFICANT DEVELOPMENTS IN 1995
GRANGES-HYCROFT AMALGAMATION AND ATLAS AGREEMENT
Each of Granges and Hycroft announced on January 13, 1995 that Granges had made
an amalgamation proposal to Hycroft for its consideration. On that date a
special committee of the directors of Hycroft who were not directors or
officers of Granges was constituted for the purpose of reviewing the
amalgamation proposal. The special committee engaged independent legal and
financial advisors to assist the committee in its deliberations, to prepare a
valuation of the outstanding shares of both Granges and Hycroft and to provide
a fairness opinion to the minority shareholders of Hycroft. Granges also
engaged financial advisors to provide a valuation and fairness opinion to the
Granges shareholders.
Following extensive discussions and negotiations between the Hycroft special
committee and its representatives and management and the Board of Directors of
Granges, the Board of Directors of Granges and the Hycroft special committee
agreed to a share exchange ratio that provided for Hycroft shareholders to
receive 0.88 of a common share of the amalgamated company for each common share
of Hycroft. Each Granges shareholder received one share of the amalgamated
company for each common share of Granges. The financial advisors of Granges and
Hycroft each rendered an opinion to the shareholders of Granges and Hycroft
respectively as to the fairness of the share exchange ratios agreed.
On February 24, 1995 each of the Boards of Directors of Granges and Hycroft
approved the terms of an amalgamation agreement, which the companies entered
into on that same date. The Amalgamation Agreement included the share exchange
ratios agreed to and provided for the amalgamated company to be called "Granges
Inc.". On March 30, 1995 the shareholders of each of Granges and Hycroft Corp.
approved the Amalgamation and the Amalgamation was effective as of May 1, 1995.
NEW EXPLORATION AGREEMENTS - PERU
In July 1995, Granges entered into an agreement with Inca Pacific Resources
Inc. and The Peru Syndicate S.A. to explore for gold on the Cerro Conor Punta
property in Peru. This property totals 6,800 hectares and is within six
kilometres of the Yanacocha district, which supports several current gold
mining operations. Granges can earn a 100 percent interest in the property
though a series of payments totalling US$250,000 plus expenditures of
US$1,050,000 on the property over four years. All but the first instalment of
payments and expenditures are contingent upon positive exploration results, due
diligence and the Company's election to continue. An intensive work program on
the property including field reconnaissance and a mapping program was conducted
in 1995. If Granges exercises its option, Inca Pacific and the Peru Syndicate
will retain a two percent net smelter returns royalty on all production from
the property.
The Cerro Conor Punta property is within 6 kilometres of the Yanacocha district
(which includes Carachugo and Maqui Maqui) and the Michiquillay copper/gold
porphyry deposit. The Yanacocha Mine is the largest gold mine in South America
with production of 552,000 ounces of gold in 1995.
The Cerro Conor Punta property is largely underlain by tertiary volcanics of
younger age than Yanacocha host rocks. Erosional windows into older rocks show
Cretaceous limestones and argillites. The property is prospective for gold-
skarn, porphyry copper/gold and disseminated oxide-gold deposits.
NEW EXPLORATION AGREEMENTS - NEVADA
On October 4, 1995, Granges and Atlas signed a letter agreement which sets out
the principal terms and conditions under which Atlas will make available to
Granges an opportunity to earn a 50 percent undivided interest in a portion of
1,194 claims comprising approximately 34 square miles (21,700 acres) held by
Atlas in the vicinity of Atlas' Gold Bar property near Eureka, Nevada. A
formal joint-venture
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agreement was executed by Granges and Atlas on September 29, 1995. See
"Properties - The Gold Bar Properties" below.
ACQUISITION OF SHARES OF ZAMORA GOLD
On October 6, 1995, Granges completed its acquisition of 41 percent of the
outstanding shares of Zamora Gold Corp.
The acquisition involved the private placement by Zamora to Granges of
8,000,000 units, each consisting of one common share of Zamora and one common
share purchase warrant, at a price of US$0.60 per unit for a total subscription
price of US$4.8 million. Each warrant entitles Granges to purchase one common
share of Zamora at a price of US$0.75 until October 4, 1997. The 8,000,000
common shares purchased resulted in Granges initially owning 41% of the issued
and outstanding common shares of Zamora.
In accordance with the private placement subscription agreement that was
entered into between Zamora and Granges on August 28, 1995, the transaction was
submitted to the shareholders of Zamora for their approval at a special meeting
held on Wednesday, October 4, 1995. At this meeting, the shareholders of
Zamora approved the private placement and also approved a new board of
directors consisting of: Michael Richings, the President and Chief Executive
Officer of Granges; David Sinclair, the Chairman of the Board of Granges; David
Birkenshaw, the Vice Chairman of the Board of Granges and the Chairman of Atlas
Corporation; Michael Bickers, the former Chairman and Chief Executive Officer
of Zamora; and David Jones a former director of Zamora. The new Board of
Directors of Zamora appointed Michael Richings the Chairman and Chief Executive
Officer of Zamora.
Concurrent with the closing of the private placement, Granges and Zamora
entered into a management services contract under which Granges agreed to
provide management and technical services to Zamora at cost.
Zamora is a Canadian mineral exploration company that controls a large land
position in the Nambija gold district of southern Ecuador. Zamora has made
recent discoveries of both high grade gold zones and more extensive breccia
zones at the Mina Real concession.
SALE TO AUR RESOURCES INC.
In July 1995, Granges entered into an agreement to sell the remainder of its
base metal exploration properties in Saskatchewan and Manitoba to Aur Resources
Inc. For these 39 properties, Granges received 1,250,000 shares in Aur and
reserved a royalty equal to two percent of future net smelter returns from the
properties, subject to Aur's right to purchase half of that royalty for $1.0
million.
NEW EXPLORATION OFFICE
On September 1, 1995, Granges established an exploration office for the western
United States and Mexico in Reno, Nevada, from which regional gold exploration
will be conducted. The Reno office is overseen by Ted Wilton who, prior to
joining Granges in June, was Vice President and Regional Managing Geologist at
Independence Mining Company Inc.
REDUCTION OF SHARE CAPITAL
At an extraordinary general meeting of Granges held on March 30, 1995 the
shareholders of Granges approved a reduction of the share capital and
contributed surplus of Granges by approximately $72.6 million and $3.8 million
respectively, with a corresponding decrease in Granges' accumulated deficit of
approximately $76.4 million. The effect of this capital reduction was to
eliminate the consolidated accumulated deficit of Granges as of December 31,
1994 after giving effect to the estimated costs of the Amalgamation. The
capital reduction did not give rise to any gain or loss to Granges shareholders
and
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allowed the newly amalgamated company to start its corporate existence with a
balance sheet that was not burdened by the deficit accumulated in prior
periods.
On April 7, 1995 the capital reduction was approved by the British Columbia
Supreme Court, which allowed the capital reduction to become effective
immediately thereafter.
DIRECTORS
The Amalgamation Agreement specified that from the date of the Amalgamation
until October 1, 1995, Granges would have 11 directors as follows:
John S. Auston Kenneth E. Mathews Alan G. Thompson
David Birkenshaw Michael Richings John Walton
William Calhoun David R. Sinclair Peter Walton
James Dunnett Peter Steen
Each of the above directors continue to hold office with the exception of John
Auston, Ken Mathews and James Dunnett who held office only until September 30,
1995 and Peter Steen who held office only until March 1, 1996. Two of the four
vacancies on the board of directors so created were not filled by the remaining
directors and two of the remaining vacancies were filled by the appointment as
directors of Granges of Keith Steeves, businessman, effective October 1, 1995
and C. Thomas Ogryzlo, mining engineer, effective March 8, 1996.
MANAGEMENT
The Amalgamation Agreement provided for John S. Auston to be the President and
Chief Executive Officer of Granges with his term as President and Chief
Executive Officer ending concurrently with the end of his term as a director.
John S. Auston resigned as President and Chief Executive Officer and director
as of June 1, 1995. Michael Richings (who became a director on May 1, 1995)
was appointed on May 9, 1995 to succeed John S. Auston as President and Chief
Executive Officer of Granges.
On May 1, 1995, Paul N. Wright was appointed Vice President Mining and Project
Development. On the same date, David R. Sinclair, formerly Chairman of
Hycroft, became Chairman of Granges. In July 1995, the Senior Vice President
Exploration, Frederick Felder, left Granges.
SHAREHOLDERS' RIGHTS PLAN
On May 1, 1995, the Board of Directors adopted a shareholders' rights plan. Its
purpose is to ensure fair treatment of all shareholders in the event of any
takeover bid for the corporation or any acquisition of a controlling bloc of
shares. The plan allows the Board sufficient time to give considered attention
to any unsolicited offer for the Company and to explore and develop
alternatives for maximizing shareholder value.
OPERATIONS
See "Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Operations".
SUBSEQUENT EVENTS
On December 31, 1995, the general counsel and corporate secretary, Janis Busse,
left Granges. On January 1, 1996, the Company appointed Nancy Larson, who was
previously Corporate Solicitor/Manager Investor Relations of Granges, to become
Corporate Secretary/Manager Investor Relations.
On February 28, 1996 Granges, through its subsidiary, Hycroft Inc., arranged a
secured stand-by credit facility. The facility is available for drawdown until
December 31, 1996, in dollars or as a gold loan, to a
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maximum of US$13.0 million or the gold ounce equivalent thereof (not to exceed
35,000 ounces). Drawdowns under the facility bear interest at LIBOR plus 1.60
percent for dollar loans and gold lease rates plus 1.60 percent for gold loans.
The loan is repayable in seven semi-annual instalments commencing on the
earlier of 12 months after the first drawdown or June 30, 1997. In the event
Hycroft Inc. generates cash surpluses after debt service, it is required to
make annual prepayments equal to 25 percent of its excess cash flow, up to a
maximum of US$2.5 million annually and US$5.0 million in aggregate.
In addition to the loan facility, Hycroft Inc. also entered into a standby
hedging facility on February 28, 1996 for up to 275,000 ounces of gold for
deliveries up to the year 2001. Both the hedging and credit facilities are
secured by the assets at the Hycroft mine and guarantees from Granges and
Hycroft Lewis.
On February 29, 1996, the company entered into a Letter of Intent with L. B.
Mining Company to enter into an option agreement to acquire the Guariche gold
project in southeastern Venezuela. Subject to due diligence and Granges
satisfying itself during a four-month option period that the project contains
500,000 ounces of proven and probable gold reserves, Granges may acquire the
property for US$15 million of which US$5 million is payable in special warrants
to acquire Granges shares and the balance in cash. Granges has also agreed to
pay (i) US$30 per ounce for additional proven and probable gold reserves on the
property above the initial 500,000 ounces up to one million ounces; and (ii) a
7.5 percent Net Smelter Royalty in respect of any additional proven and
probable gold reserves in excess of 1,000,000 ounces. Granges' expenditure
commitment is US$600,000 during the option period, an additional US$1.0 million
within the first 12-month period after the property is acquired, and a further
US$1.0 million within the following 12-month period.
REFINING AND MARKETING
The Hycroft mine produces dore which is processed by Metalor USA Refining
Corporation in North Attleboro, Massachussetts. Gold and silver can be sold on
numerous markets throughout the world, and the market price is readily
ascertainable. Alternate refiners for silver and gold produced from the
Hycroft mine are available if necessary. As a result of the large number of
available gold and silver purchasers, the Company is not dependent upon the
sale to any one customer of either its gold or silver.
GOLD AND SILVER SALES
The profitability of gold and base metal mining is directly related to the
market price of the metal compared with the cost of production. The following
is a brief description of factors affecting and historical trends in the market
prices of gold and silver, which account for most of the Company's revenue. A
description of the Company's hedging and forward sales commitments also
follows.
Gold prices fluctuate widely and are affected by numerous factors, including
expectations with respect to the rate of inflation, the market value of various
currencies (specifically, the US dollar relative to other currencies), interest
rates, global and regional political and economic crises and governmental
policies with respect to gold holdings by a nation or its citizens.
The demand for and supply of gold affect gold prices but not necessarily in the
same manner as supply and demand affect the prices of other commodities. The
supply of gold consists of a combination of new mine production and existing
stocks of bullion and fabricated gold held by governments, public and private
financial institutions, industrial organizations and private individuals.
The price of silver, while related somewhat to the price of and affected to
some extent by the same factors as gold, is more subject to normal supply and
demand factors. Silver has a wide range of industrial uses on the demand side
and is subject to both mine production and substantial secondary supply from
scrap and dishoarding on the supply side. Silver inventories held by metal
exchanges remained high during the 1980's and 1990's and lower industrial and
consumer demand and relatively high interest rates continued to depress the
price of silver during much of that period.
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The following table sets out the annual high and low gold prices per troy ounce
in the London bullion market in US dollars for the years indicated:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1995 US $396 US $372
1994 396 370
1993 406 326
1992 360 330
1991 403 334
</TABLE>
Source: Bloomberg
On December 29, 1995, the morning fixing price of gold on the London bullion
market was US $388 per ounce.
The following table sets out the annual high and low silver price per ounce
(Handy & Harmon New York Prices) in US dollars for the years indicated:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1995 US $6.01 US $3.39
1994 5.80 4.63
1993 5.37 3.55
1992 4.32 3.63
1991 4.53 3.58
</TABLE>
The Handy & Harmon price for silver on December 29, 1995 was US $5.11 per
ounce.
HEDGING AND METAL SALES COMMITMENTS
The Company may from time to time protect against falling gold prices through
forward sales of future production. Under this hedging process the sales price
of gold to be delivered at a future date is fixed at the time the forward sale
is made, thus eliminating the effect of any future gold price fluctuations.
Revenue from these forward sales is recognized when the gold is due to be
delivered. At December 31, 1995 the Company had sold forward 12,000 ounces of
gold at an average price of US $383.33 per ounce for delivery in 1996 and
19,000 ounces of gold are covered by options with a minimum price of $392 per
ounce and a maximum price of $465 per ounce, for delivery in 1996. The
Company's board of directors regularly reviews the Company's forward sales
arrangements. The level of future forward sales would depend in part upon the
Company's assessment of gold market conditions at the relevant time.
The Company has a trading facility to hedge up to a maximum of approximately
50% of its production for the next five years.
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EXPLORATION AND BUSINESS DEVELOPMENT
The Company conducts a comprehensive exploration program in the United States,
Latin America and Canada and evaluates specific exploration and advanced
business development opportunities throughout the world. The Company's
exploration and business development activities are focused on gold. The
Company has major exploration projects underway at the Hycroft mine, the Gold
Bar Properties and at the Nambija exploration project of Zamora.
The Company's exploration activities are headquartered in Denver, Colorado with
a district exploration office in Reno, Nevada. The exploration department has
a permanent staff of 11 people which includes geologists and support staff.
Consultants and contract personnel are used for specific projects and tasks.
The Company spent $5.7 million on exploration in 1995: $242,000 on
international exploration programs, $3.0 million in the United States
(including $1.5 million on exploration at the Hycroft mine) and $2.3 million in
Canada.
In November 1995, the board of directors of Granges reviewed and approved the
1996 exploration program. During 1996 a total of US$6.1 million will be spent
on exploration, including US$2.5 million in Nevada, US$1.3 million in Latin
America and US$2.3 million to be carried out by Zamora in South America. An
estimated US$1.4 million will be spent on exploration at the Hycroft mine.
Actual expenditures will vary because of the acquisition of new properties and
the results of exploration activities at exploration properties and the Hycroft
mine.
See "Properties - 1995 Exploration Plan" and "Properties - 1996 Exploration
Plan" below.
PROPERTY INTERESTS AND MINING CLAIMS
In the United States, most of the Company's exploration activities are
conducted within the state of Nevada. Mineral interests may be owned in Nevada
by (i) the United States, (ii) the state of Nevada or (iii) private parties.
Where prospective mineral properties are owned by private parties or by the
state, some type of property acquisition agreement is necessary in order for
the Company to explore or develop such property. Generally, these agreements
take the form of long-term mineral leases under which the Company acquires the
right to explore and develop the property in exchange for periodic cash
payments during the exploration and development phase and a royalty, usually
expressed as a percentage of gross production or net profits derived from the
leased properties if and when mines on the properties are brought into
production. Other forms of acquisition agreements are exploration agreements
coupled with options to purchase and joint venture agreements. Where
prospective mineral properties are held by the United States, mineral rights
may be acquired through the location of unpatented mineral claims upon
unappropriated federal land. If the statutes and regulations for the location
of a mining claim are complied with, the locator obtains a valid possessory
right to develop and produce minerals from the claim. The right can be freely
transferred and is protected against appropriation by the government without
just compensation. The claim locator also acquires the right to obtain a patent
or fee title to his claim from the federal government upon compliance with
certain additional procedures.
Mining claims are subject to the same risk of defective title that is common to
all real property interests. Additionally, mining claims are self-initiated
and self-maintained and therefore, possess some unique vulnerabilities not
associated with other types of property interests. It is impossible to
ascertain the validity of unpatented mining claims from public real estate
records and, therefore, it can be difficult or impossible to confirm that all
of the requisite steps have been followed for location and maintenance of a
claim. If the validity of an unpatented mining claim is challenged by the
Bureau of Land Management or Forest Service on the grounds that mineralization
has not been demonstrated, the claimant has the burden of proving the
presenting economic feasibility of mining minerals located thereon. Such a
challenge might
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be raised upon submittal of a patent application or if the government seeks to
include the land in an area to be dedicated to another use.
RECLAMATION
Although reclamation is conducted concurrently with mining, whenever feasible,
the Company generally is required to mitigate long-term environmental impacts
by stabilizing, contouring, resloping, and revegetating various portions of a
site once mining and mineral processing operations are completed. These
reclamation efforts are conducted in accordance with detailed plans which have
been reviewed and approved by the appropriate regulatory agencies.
The reclamation and closure costs for the Company's mines are estimated by
management as follows:
<TABLE>
<S> <C>
Hycroft mine (US$5.1 million) $7.1 million
Tartan Lake mine 1.0 million
------------
$8.1 million
============
</TABLE>
These costs are charged to earnings over the life of the mine and the provision
to date is $4.7 million. As part of the terms of the sale of the Company's
interest in the Trout Lake mine in 1994, Hudson Bay Mining and Smelting Co.,
Ltd. has assumed all environmental liabilities arising from past or future
activities of that mine.
As reported in the Company's Form 20-F for 1994, an amended Crofoot/Lewis Mine
Reclamation Plan that included the Brimstone deposit was submitted to the
Nevada Bureau of Land Management (the "BLM") in March 1994. In April 1995 the
BLM approved the plan and a surety bond in the amount of US$5.1 million was
posted to secure reclamation obligations under the plan.
GOVERNMENT REGULATION
Mining operations and exploration activities are subject to various national,
state, provincial and local laws and regulations in the United States, Canada
and other jurisdictions, which govern prospecting, development, mining,
production, exports, taxes, labour standards, occupational health, waste
disposal, protection of the environment, mine safety, hazardous substances and
other matters. The Company has obtained or has pending applications for those
licences, permits or other authorizations currently required to conduct its
operations. The Company believes that it is complying in all material respects
with applicable mining, health, safety and environmental statutes and the
regulations passed thereunder in the United States, Canada and the other
jurisdictions in which the Company operates and there are no current orders or
directions with respect thereto.
ENVIRONMENTAL REGULATION
The Company's mining operations and exploration activities are subject to
various federal, state and local laws and regulations governing protection of
the environment. These laws are continually changing and, as a general matter,
are becoming more restrictive. The Company's policy is to conduct business in
a way that safeguards public health and the environment. The Company believes
operations are conducted in material compliance with applicable laws and
regulations.
Changes to current local, state or federal laws and regulations in the
jurisdictions where the Company operates could require additional capital
expenditures and increase operating and/or reclamation costs. Although the
Company is unable to predict what additional legislation, if any, might be
proposed or enacted, additional regulatory requirements could render certain
mining operations uneconomic.
During 1995 there were no material environmental incidents or non-compliance
with any applicable environmental regulations. Also, the Crofoot Water
Pollution Control Permit, which governs construction and operation of leach
pads on that property, was amended to allow for an ultimate heap elevation of
250
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feet, from the current maximum of 200 feet, creating additional pad capacity.
In July, the Nevada Department of Environmental Protection (the "NDEP")
indicated that the Company would receive approval for the construction of
plant, pads and ponds associated with the Brimstone deposit. The required
permit was received in February, 1996. No further permits of a material nature
are required for the development of this deposit.
In October, a Plan of Operations amendment was submitted to the BLM. for
additional exploration drilling in the Hycroft mine area. An Environmental
Assessment (an "EA") must be prepared and reviewed by the BLM before this work
can begin. Management expects that the EA will be approved later in the year.
In February 1995, the NDEP and the BLM were notified of Granges' intent to
begin mining the private lands associated with the Brimstone deposit. The NDEP
Bureau of Mining Regulation and Reclamation has granted their approval for the
action.
As reported in the Company's Form 20-F for 1994, the BLM determined that an EA
rather than an Environmental Impact Study, of the public lands in the Brimstone
area would be required prior to their inclusion into the mining project. In
April 1995, the BLM accepted the EA and approved the plan to develop the public
lands in the Brimstone area.
COMPETITION
The Company competes with other mining companies in connection with the
acquisition of gold and other precious metals properties. There is significant
and increasing competition for the limited number of gold acquisition
opportunities, some with other companies having substantially greater financial
resources than the Company. As a result, the Company may eventually be unable
to acquire attractive gold mining properties. The Company believes no single
company has sufficient market power to affect the price or supply of gold in
the world market.
EMPLOYEES
As at December 31, 1995, the Company had approximately 260 permanent full-time
employees, of which 242 were employed at the Hycroft mine site, nine were
employed in exploration activities and nine were employed at Granges' executive
office other than in exploration activities. None of the Company's employees
are represented by a labour union. Neither the Hycroft mine nor the Tartan
mine has ever experienced a loss of production due to work stoppages. The
Company considers its relations with its employees to be excellent.
ITEM 2. PROPERTIES
OPERATIONS
Detailed information is contained herein with respect to the Hycroft mine
(formerly known as the Crofoot/Lewis mine), as well as the terms of Granges'
recent Joint Venture involving the Gold Bar Properties. Following the
Amalgamation, Granges holds the Hycroft mine through its wholly-owned
subsidiaries Hycroft Inc. and Hycroft Lewis. The reserves and average grades
given for the Hycroft mine have been estimated by Granges. Estimates of
reserves and production herein are subject to the effect of changes in metal
prices and to the risks inherent in mining and processing operations.
HYCROFT MINE
The Hycroft mine and related facilities is located 97 kilometres (60 miles)
west of Winnemucca, Nevada and is an open-pit, heap leaching operation which
produces gold and by-product silver. The Lewis mine was originally a sulphur
mine. In 1983 it commenced operation as a small heap leach gold mine. Hycroft
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acquired the Lewis mine in early 1987 and completed construction of the
adjacent Crofoot mine project in April 1988. In early 1989 the two mines were
consolidated into a single operation under an ore purchase agreement, with ore
from both properties processed through the larger and more efficient Crofoot
plant. The Lewis plant is not currently being operated. In 1995 the Hycroft
mine produced 101,128 ounces of gold and 417,823 ounces of silver.
DESCRIPTION OF PROPERTIES
The Crofoot and Lewis properties together comprise approximately 3,885 hectares
(9,600 acres). The Crofoot property, originally held under two leases, covers
approximately 1,460 hectares (3,600 acres). The Lewis property, which
virtually surrounds the Crofoot property, is held through a lease which covers
approximately 2,430 hectares (6,000 acres). The mine is accessible by road and
has access to adequate supplies of water and power. The major mining
facilities consist of mobile mining equipment, a three stage crushing and
conveying system, three leach pads with a Merrill-Crowe gold-silver recovery
plant and associated maintenance and support facilities.
GEOLOGY AND HISTORY
The Hycroft mine is located on the western flank of the Kamma Mountains. The
deposit is hosted in a volcanic eruptive breccia and conglomerates associated
with the tertiary Kamma Mountain volcanics. The volcanics are mainly acidic to
intermediate tuffs, flows and coarse volcaniclastic rocks. Fragments of these
units dominate the clasts in the eruptive breccia. Volcanic rocks have been
block-faulted by dominant north trending structures which have affected the
distribution of alteration and mineralization. The Central Fault and East
Fault control the distribution of mineralization and subsequent oxidation. A
post-mineral range-front fault separates the ore body from the adjacent
Pleistocene Lahontan Lake sediments in the Black Rock desert. The geological
events have created a physical setting ideally suited to the open-pit, heap
leach mining operation at the Hycroft mine. The heap leach method is widely
used in the southwestern United States and allows the economical treatment of
oxidized low-grade ore deposits in large volumes.
The known gold mineralization within the Crofoot and Lewis properties extends
for a distance of 4.8 kilometres (3 miles) in a north-south direction by 2.5
kilometres (1.5 miles) in an east-west direction. Mineralization extends to a
depth of less than 100 metres (330 feet) in the outcropping to near-outcropping
portion of the deposit on the northwest side to over 300 metres (990 feet) in
the Brimstone deposit in the east. Not all the mineralization is oxidized and
the depth of oxide ore varies considerably over the area of mineralization.
The determination of whether mineralization can be mined economically is
dependent on the grade of mineralization, the depth of overburden and the
degree of oxidation.
Since the commencement of development of the Crofoot property and the
acquisition of the Lewis property by Hycroft, Granges (US) has operated the
Hycroft mine on behalf of Hycroft Inc. and Hycroft Lewis, and has provided
ongoing management, administrative and technical services.
In 1992, Hycroft Inc. exercised its options to convert its leasehold interests
in the Crofoot property into a 100 percent ownership interest in the patented
mining claims, a 100 percent possessory interest in the unpatented claims and a
100 percent interest in the incidental rights thereto, all subject to four
percent net profits royalties and excluding rights to sulphur.
The Crofoot property is subject to a four percent net profits royalties. No
royalty payments were made in 1995, 1994 and 1993 because minimum royalty
payments made prior to 1993 aggregating US$2.8 million were available for
credit against the royalty obligations. The aggregate acquisition cost to
Hycroft was $6,881,481 and was financed by the issuance of Common Shares to
Granges and the assumption of certain debts associated with the Lewis mine.
The leasehold interest in the Lewis property extends until January 1, 2013 or
for so long thereafter as Hycroft Lewis continues to conduct commercial mining
operations on the property.
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The Lewis Lease provides for the payment to the lessor of a five percent net
smelter return royalty on gold production. The royalty increases for ore
grades above 0.05 ounce per ton and is offset by annual advance minimum
royalties. From January 1989 to December 1993, the Company had the right to
commingle specific tonnages of ore from the Lewis property with ore from the
adjoining Crofoot property under agreements with the lessor of the Lewis
property which required cash payments for specific tonnages in lieu of
royalties. The commingling of ore permitted recovery of ore on the common
boundary and in the past resulted in lower operating costs through the use of
the Crofoot facilities for treatment of Lewis ore.
The ore reserves in the Brimstone deposit, which lies partially on the Crofoot
property and partially on the Lewis property, were delineated subsequent to the
most recent Lewis ore purchase agreement dated March 15, 1991. Hycroft Lewis
is entitled under the mining lease to commingle ore from the Lewis mine.
Hycroft Lewis has the right and ability to mine and process ore reserves on the
Lewis property as has been done in the past, and gold produced from such
reserves would be subject to the lessor's net smelter return royalty under the
Lewis Lease. If Granges determines that Brimstone ore or other ores which lie
on the Lewis property should be mined and processed separately from operations
at the Crofoot mine, Hycroft Lewis will conduct the mining and processing
operations of such ore.
MINING AND PROCESSING
The ore mined from the Crofoot/Lewis properties had a stripping ratio in 1995
which averaged approximately 2.7 tons of waste to one ton of ore. It is
expected that the stripping ratio in 1996 will be approximately 2.2 tons of
waste to one ton of ore.
Higher-grade ore is hauled about one mile to a three-stage crushing and
screening plant where it is crushed to a nominal minus 3/4 - inch and conveyed
to prepared impervious pad areas on the property. A conveyor system stacks the
crushed ore on the leach pad in layers, each of which is 20 to 30 feet thick.
Lower grade ore is hauled directly from the open pit to different areas of the
leach pad and stacked without crushing at run-of-mine size. Dilute alkaline
cyanide solution is pumped from a pond to the heap surface and distributed
evenly over the crushed and run-of-mine ore through a network of pipes and
irrigation sprinklers or drip emitters. The solution percolates down through
the layers of ore, preferentially leaching gold and silver from the rock. This
pregnant solution, containing dissolved gold and silver, flows along the
surface of the impervious leach pad to an open ditch from which it drains into
one of two pregnant solution ponds. The low-grade solutions are recirculated
to the heaps to increase the amount of gold in the solution, and the high-grade
solution is pumped directly to the recovery plant where the gold and silver are
extracted. The process is a zero-discharge closed circuit.
The gold-silver recovery plant can process 2,800 U.S. gallons of solution per
minute (17,000 tons of solution per day). This process includes filtering to
remove particulates, de-aeration to remove dissolved oxygen and introduction of
small quantities of zinc dust. The dissolved gold and silver precipitate out
of the solution onto the zinc particles which are then removed by a second
stage of filtration. The barren solution is returned to the leaching circuit.
The precipitate is treated to remove mercury, then mixed with fluxes and
smelted to yield a dore bar. Dore bars are shipped offsite for refining and
sale. Gold and silver production from the Hycroft mine is refined by Metalor
USA Refining Corporation. Alternate refiners are available if necessary.
Bulk metallurgical tests indicate that all of the ore from the Brimstone
deposit can be treated by using less costly run-of-mine leaching. In 1996 the
Company plans to construct an additional pad and processing plant for treating
the ore from the Brimstone deposit.
ORE RESERVES
Total ore reserves as at January 1, 1996 were determined by the Company to be
58.8 million tons grading 0.019 ounce of gold per ton. This compares to proven
and probable reserves at January 1, 1995 of approximately 66.5 million tons
grading 0.019 ounces of gold per ton. Estimated contained gold as of the end
of 1995 was 1,115,000 ounces, compared to 1,264,000 ounces at the end of 1994.
Mining and
I-17
<PAGE> 201
processing of these reserves is planned with an estimated ultimate average
recovery of 60 percent of these contained ounces. Of the total reserves 83
percent are on patented claims and 19 percent are on unpatented claims. See
"Business - Property Interests and Mining Claims".
In 1995, 37,000 ounces of estimated contained gold were added chiefly by
drilling potential ore around the South Central pit and by closer-spaced
drilling of the Brimstone deposit. Total proven and probable ore reserves will
enable the Company, at current operating rates and metal prices, to mine ore to
the year 2001 at current production rates.
The Hycroft ore reserves consist of the estimated quantities of mineralized
material which on the basis of geological and engineering data, can be
demonstrated with a reasonably high degree of certainty to be recoverable by
established mining and treatment methods. Only that material estimated to
contain mineral values in excess of current cut-off grades in mining operations
is included.
Ore reserves are adjusted annually by the Company by the amount extracted in
the previous year, by the additions and deletions resulting from new geological
information and interpretation and from changes in operating costs and metal
prices. Ore reserves are not revised in response to short-term cyclical price
variations in metal markets.
OPERATING STATISTICS
Operating statistics for the Hycroft mine for the period 1991 to 1995 were as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ore and waste material mined (000's of tons) . . . . . . . . 37,279 26,438 23,015 16,656 15,047
Strip ratio . . . . . . . . . . . . . . . . . . . . . . . . . 2.7 2.0 3.0 1.7 1.6
Ore processed (000's of tons) . . . . . . . . . . . . . . . . 9,931 9,255 5,720 6,093 5,800
Ore grade (oz. gold/ton) . . . . . . . . . . . . . . . . . . 0.019 0.020 0.023 0.022 0.026
Ounces of gold produced . . . . . . . . . . . . . . . . . . . 101,128 94,868 86,516 100,030 94,340
Operating costs (US$/oz. of gold)(1) . . . . . . . . . . . . $272 $294 $281 $271 $305
</TABLE>
- --------------------
(1) Direct cash operating costs which is the sum of mining costs (excluding
deferred waste stripping) and processing and mine administration cost, net
of silver credits.
Production for 1995 was up six percent from 1994. The increased production is
the result of a 13 percent increase in the amount of ore mined and processed in
1995 over 1994. This increase was partly offset by a higher proportion of a
lower grade uncrushed run of mine ore.
BRIMSTONE PROJECT
As of January 1, 1996, Brimstone's proven and probable reserves were 46.5
million tons at a grade of 0.019 ounces per ton of gold as compared with 44.2
million tons at a grade of 0.017 ounces per ton of gold at January 1, 1995.
Drilling and engineering studies on the Brimstone deposit will continue during
1996.
I-18
<PAGE> 202
Prior to 1992 the Company had completed a modest amount of exploration in the
Brimstone deposit. An initial evaluation of the potential reserves defined by
this drilling was not positive at the then-current gold prices and operating
costs. Subsequent evaluation of the same potential reserves indicated that
positive economics could be achieved by using less costly run-of-mine heap
leaching. Based upon this evaluation additional drilling and engineering was
completed resulting in an increase in mineable reserves. Ongoing drilling,
engineering and metallurgical testing has confirmed the positive economics of
run-of-mine leaching and increased the proven and probable reserves to the
current level.
Mining of the Brimstone deposit is scheduled to commence in 1996 in a series of
six sequential pit expansions. Leach pads, solution ponds and Merril Crowe
solution processing plant will be constructed in 1996, allowing the processing
of ore in the final quarter of 1996. Environmental permits for the new pad and
processing facility were issued by late 1995.
MINE SITE EXPLORATION
Since 1989 exploration has been continuously conducted at the Hycroft mine and
several oxidized gold deposits have been discovered that are currently being
mined or are ready for development. Additionally, the recent exploration
effort has identified an important zone of sulfide-related mineralization which
may result, with further exploration and evaluation, in the definition of
additional reserves. In 1995, exploration activity at the Hycroft mine
consisted of geologic mapping, geochemical sampling and geophysical surveying
of targets in the mine area. The ongoing search for additional oxide gold
reserves met with limited success as a result of the 1995 program, although the
size and the economic viability of the newly identified zones of mineralization
has not yet been established.
In 1995, a $1.5 million exploration program, which included development
drilling, was carried out in the area of the Brimstone deposit, adjacent to
another portion of the south-central mine, and at other geologic targets in the
area. The results obtained from this extensive program are currently being
assessed. The exploration potential for additional reserves remains
favourable.
The property also has potential for deep unoxidized deposits of higher grade.
Exploration to date has recognized more massive volcanic rocks between the
Central and East Faults, as well as mineralization at depth which raises the
possibility of finding higher grade structurally controlled mineralization.
THE GOLD BAR PROPERTIES
DESCRIPTION OF PROPERTIES
The Gold Bar Properties include a 100 percent interest in the mineral and
surface rights for exploration, development and mining afforded unpatented
mining claims under U.S. mining laws. The specific claims included in the Gold
Bar Properties are as follows:
275 Westside Lode Claims
673 Jasper Lode Claims
26 WAH Lode Claims
11 Tail Lode Claims
20 GB/GC Lode Claims
22 Cotton Lode Claims
47 Jam/Jelly Lode Claims
-------------------------
1,194 Total Claims
With the exception of the Cotton, GB/GC, and Jam/Jelly Claims, all claims are
presently unburdened by production royalties. The Jam/Jelly and Cotton claims
carry a four percent net smelter return royalty on production between 50,000
and 150,000 total ounces of gold produced. The GB/GC claims carry a three
percent to six percent sliding scale net smelter return royalty dependent on
price. The Gold Bar
I-19
<PAGE> 203
Properties also include approximately 900 acres of fee land leased to Atlas by
Eureka Livestock Company under a mining lease dated July 5, 1994, covering a
100 percent interest in the surface estate and a 67 percent interest in the
mineral estate. Excluded from the Gold Bar Properties is the surface and
facilities and infrastructure comprising the existing Gold Bar mill complex.
TERMS OF THE JOINT VENTURE
Under the terms of the Joint Venture with Atlas, Granges will be required to
spend the following amounts on the Properties:
<TABLE>
<S> <C>
Initial Period:
Year One: US$ 625,000
Year Two: US$ 625,000
------------
US$1,250,000
</TABLE>
Under the Joint Venture, Granges will guarantee that it will meet or exceed the
expenditure obligation indicated above for Year One. Unless Granges terminates
the Joint Venture agreement prior to the end of Year One (September 28, 1996),
it will also guarantee to perform the expenditure obligation indicated above
for Year Two.
<TABLE>
<S> <C>
Extended Period:
Year Three: US$1,000,000
</TABLE>
The above expenditure amount are the minimum required to be incurred by Granges
in order to maintain its interest. Exploration and development expenditures
made by Granges that are in excess of the required minimum will apply as a
credit against the requirements for any subsequent year. Granges may elect at
any time not to proceed and to withdraw from the Joint Venture.
Granges will be entitled to earn a 50 percent interest in not more than 15
square miles of the Gold Bar Properties (which will be selected by Granges in
its sole discretion, although such selection shall consist of not more than
three non-contiguous tracts, each being roughly square in shape and referred to
herein as the "Selected Properties") by paying to Atlas US$250,000 plus
11/12ths of the federal rental payment (US$109,450) made by Atlas for the year
ending September 1, 1996 to maintain the Gold Bar Properties, and satisfying
one of the two following requirements:
(1) by satisfying its initial expenditure requirements of US$2.25
million and delivering to Atlas a completed reserve report
identifying an economic deposit of gold or any other minerals
which satisfies the SEC criteria for reporting reserves, using
economic criteria and certain accounting procedures
contemplated under the Joint Venture, and recommending
development of a mineral deposit. If the mineral is gold, the
required proven or probable mineable reserves is in excess of
300,000 ounces of gold. The report is to be completed by an
independent third party at the expense of Granges;
(2) if Granges satisfies its initial expenditure requirements of
US$2.5 million during the first three years, but fails to
complete the Reserve Report, it may proceed to evaluate the
Gold Bar Properties under the Joint Venture for an additional
two years by incurring exploration and development
expenditures of not less than US$1 million per year. If
during this second extension Granges completes the Reserve
Report, it will earn a 50 percent undivided interest in not
more than three square miles the Gold Bar Properties to be
selected by Granges in its sole discretion.
Granges will be the manager of the Joint Venture until Granges completes its
initial expenditure requirements. Thereafter, the manager will be Atlas unless
otherwise agreed by a management committee
I-20
<PAGE> 204
formed under the Joint Venture. The management committee will consist of one
person representing Atlas and one person representing Granges. Decisions will
require a majority vote and, in the event of a deadlock, an independent third
party will cast the deciding vote. Unanimous consents will be required for
certain transactions including acquisitions or dispositions of any assets of
the Joint Venture, a call for contributions not previously approved under a
budget and borrowing on behalf of the Joint Venture.
After Granges has satisfied its initial expenditure requirements, programs and
budgets are to be agreed upon under the Joint Venture for any period of one
year or longer. Any programs and budgets requiring total expenditures for both
participants in excess of US$2,500,000 shall allow 180 days for each
participant to obtain financing. The penalty for failing to contribute to an
approved program and budget will be a pro rata reduction in a participant's
participating interest if it pertains to exploration of up to US$2,500,000. If
the failure to contribute pertains to exploration in excess of US$2,500,000 the
penalty will be a reduction of a participant's participating interest by 50
percent of the pro rata reduction that would otherwise be required. The
penalty for failing to contribute to an approved program and budget shall be
forfeiture of the participating interest during the development or mining stage
in exchange for a five percent net proceeds interest in production from the
Gold Bar Properties up to an amount equal to the defaulting party's initial
expenditure contributions. If a participating interest is reduced to less than
ten percent, that participant will be deemed to have withdrawn from the Joint
Venture and shall relinquish its entire participating interest in return for a
five percent net proceeds interest in production from the Gold Bar Properties
until it has recovered its initial contributions under the Joint Venture.
Either participant will have 180 days from any dilution to make up
contributions equal to 125 percent of required contributions to maintain its
participating interest.
Granges will have the right, for 60 days after receipt of notice from Atlas of
termination of an existing exploration agreement (the "Homestake Agreement")
between Atlas and Homestake Mining Company, to elect to include those
properties included under the Homestake Agreement in the Joint Venture. If
Granges makes such an election, it will be required to spend an additional
US$955,000 on exploration and development expenditures as part of its initial
expenditure requirements.
Atlas will be entitled to receive a two percent net smelter royalty on the
production of valuable minerals from the Selected Properties. The royalty will
apply only to the portion of the Selected Properties that are not presently
burdened by any third party royalty on production.
For a period of 180 days after completion of Granges' initial expenditure
requirements, the management committee will have the right to select a
percentage of the milling capacity of the surface and facilities and
infrastructure comprising the existing Gold Bar mill complex for processing the
Joint Venture's products. The percentage will be based on the ratio of the
reserves in the Selected Properties to the total reserves in the Selected
Properties and Gold Bar Properties. The percentage of milling capacity made
available to the Joint Venture cannot be less than 50 percent. Atlas will
receive a payment for operating costs, reclamation charges, certain capital
expenditures and mill depreciation equal to US$1.50 per tonne of ore processed
from the Selected Properties that are applicable to Granges' then participating
interest in the Joint Venture.
UNDEVELOPED MINERAL PROPERTIES
1995 EXPLORATION
In keeping with the Company's intention to focus its activities in the precious
metals sector, its exploration activities during 1994 were redirected towards
the search for gold and silver while work on base metal properties was
terminated. The Company has refocused much of its geographic attention from
Canada to the Western United States and certain prospective areas of Latin
America, particularly Peru and Ecuador.
Granges spent approximately $5.7 million on exploration in 1995. Of that
amount, approximately $4.2 million was spent on undeveloped mineral properties,
which excludes mine-site exploration at the Hycroft mine.
I-21
<PAGE> 205
At December 31, 1995 Granges had approximately 11 full-time exploration staff,
which excludes several consultants employed on specific projects. The Company
also hires additional employees on a seasonal basis to staff its exploration
programs.
During 1995 the Company's principal exploration programs on undeveloped
properties were those on the Sulphur mining district and the Gold Bar
Properties in Nevada, Tartan Lake in Manitoba, the Mishi property in Ontario,
the Cerro Conor Punta property in Peru and the Tumi D'Oro property in Southern
Ecuador.
A new exploration office was established in Reno, Nevada to serve as the base
of activity for an expanded regional reconnaissance and evaluation program in
the Western United States, and for project exploration of the Sulphur mining
district, the Gold Bar Properties and other properties that may be acquired in
the future. The geographic focus of the Company's United States exploration
program has been, and continues to be, on the Great Basin geologic province,
which covers nearly all of the state of Nevada and portions of several
adjoining states.
In the Sulphur mining district in Nevada, which is the locality of the Hycroft
mine, exploration activities included geologic mapping, geochemical sampling
and geophysical surveying of targets surrounding the Hycroft mine. The results
obtained from this exploration program are currently being assessed.
At the Gold Bar Properties in Nevada, the Company began an exploration drilling
program in late 1995 testing predicted northwest trending zones of
mineralization believed to extend beyond the open pit of the mined-out Gold Bar
mine. All of the earliest holes of this drilling program intersected
meaningful zones of alteration that are commonly associated with gold deposits.
At the Tartan Lake property in Manitoba, approximately Cdn.$800,000 was spent
drilling a new zone of mineralization found in late 1994. This exploration was
completed in April of 1995 and led to a 25 percent increase in the drill
indicated geological resource at Tartan Lake. After a review of the potential
economics of development, Granges has decided to divest itself of this
property.
In Ontario, Granges conducted exploration, including geophysics and drilling,
at its Mishi property. Following review of these exploration results, the
Company has decided to dispose of the Mishi property. The property has been
sold by Granges to its joint venture partner, McMillan Gold Corporation for
$225,000 and 600,000 shares of McMillan Gold Corporation.
With the change in focus from base metals to gold, Granges sold its interests
in all of its Manitoba and Saskatchewan base metal properties to Aur Resources
Inc. Following disposition of the base metal properties and its decision to
divest the Mishi property, Granges closed its exploration offices in Flin Flon,
Manitoba and Timmins, Ontario. Granges expects to continue to examine advanced
stage prospects in the major gold provinces in Canada, but in the nearer term
will be most active in Nevada and Latin America.
In Peru, the Company undertook an intensive work program on the Cerro Conor
Punta property, including field reconnaissance and a mapping program.
At the Tumi D'Oro property in Southern Ecuador, the Company through Zamora
conducted initial reconnaissance geophysics and stream geochemistry. Three
substantial targets following up surface gold occurrences are being evaluated
and more than 20 areas with anomalous gold drainage are being investigated by
Zamora at this time.
The Company has also been active in the on-site assessment of operating mines
and other advanced exploration projects in Northern Peru, Venezuela, Nicaragua
and Africa.
From time to time the Company may dispose of interests in mineral properties
whose economic potential is not attractive to the Company. During 1995 Granges
disposed of its interests in eight properties in
I-22
<PAGE> 206
addition to the 39 base metal properties sold to Aur and reduced acreages by
abandonment of portions of other properties.
1996 EXPLORATION PLAN
In November 1995, the board of directors of the Company reviewed and approved
the 1996 exploration program. During 1996 a total of US $6.1 million will be
spent on exploration, including $2.5 million in Nevada, US $1.3 million in
South America and US $2.3 million to be carried out by Zamora in South America.
An estimated US $1.4 million will be spent on exploration at the Hycroft mine.
The Hycroft exploration program will further evaluate the potential for oxide
ore at the mine and will commence the evaluation of sulphide-related gold
mineralization below the oxide ore bodies of the Central and East faults. This
resource is currently estimated to contain approximately 25 million tons
grading 0.03 ounces of gold per ton and is believed to have considerable
potential for further expansion and improvement of grade.
Management believes that the opportunity for expansion in production at the
Hycroft mine of 10,000 to 15,000 ounces of gold per year may be possible with
existing processes facilities and those under construction in 1996.
The Company's expanded South American exploration program, at Zamora, will
include an evaluation of the high grade gold system located at Tumi D'Oro. The
program will involve a 6,000 metre drill campaign, with an initial 1,500 metre
program testing a 600 metre strike length of altered and mineralized rock at
Tumi D'Oro on the Mina Real concession. Surface trenching at Tumi D'Oro has
revealed average gold grades of 20.05 grams/tonne (uncut) over 24 metres.
Further drilling is expected at the Guaysimi Sur breccia zone, following a
structural mapping program. Exploration will also include follow-up soil
sampling and prospecting of more than 25 drainage anomalies on the 90,000
hectare package during the first half of 1996.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any pending or threatened litigation which is
likely to have a material adverse effect upon the Company or its operations,
taken as a whole.
In regard to the arbitration among Granges, Hycroft Corp., Hycroft Inc., Frank
W. Lewis and F.W. Lewis, Inc., the Arbitrator's Rulings were entered in 1995.
In the Rulings, the Arbitrator found that neither party breached the lease nor
the covenant of good faith and fair dealing. The Arbitrator approved the
Company's proposal for commingling of ores at the dedicated run-of-mine heap
leach pad, subject to certain conditions, including third party monitoring and
the parties' negotiation of certain procedural matters. Pursuant to the
Arbitrator's Rulings, the Company must provide certain project documentation to
Lewis. The Company has complied with its obligations as prescribed in the
Rulings.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, by Granges during the fourth quarter of
fiscal 1995.
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<PAGE> 207
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON SHARES AND WARRANTS
The Common Shares of Granges are listed on the American Stock Exchange and The
Toronto Stock Exchange under the symbol GXL. The following table sets out the
reported high and low sale prices on the American Stock Exchange and on The
Toronto Stock Exchange for the periods indicated as reported by the exchanges:
<TABLE>
<CAPTION>
AMERICAN STOCK THE TORONTO STOCK
EXCHANGE EXCHANGE
---------------- -------------------
(US DOLLARS) (CANADIAN DOLLARS)
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C> <C>
1995 1st quarter 1.94 1.44 2.70 2.05
2nd quarter 2.19 1.69 2.85 2.31
3rd quarter 2.38 1.63 3.20 2.20
4th quarter 2.13 1.63 2.80 2.22
1994 1st quarter 3.38 2.38 4.40 3.15
2nd quarter 2.94 1.88 3.95 2.70
3rd quarter 2.50 1.88 3.20 2.55
4th quarter 2.44 1.38 3.20 1.91
</TABLE>
On March 27, 1996 the last reported sale price of the Common Shares of Granges
on the American Stock Exchange was US$2.18 and on The Toronto Stock Exchange
was Cdn. $2.90. As at March 27, 1996 there were 46,181,661 Common Shares
issued and outstanding, and the Company had 825 shareholders of record.
DIVIDENDS
Granges has never paid dividends. While any future dividends will be determined
by the directors of Granges after consideration of the earnings and financial
condition of Granges and other relevant factors, it is currently expected that
available cash resources will be utilized in connection with the ongoing
exploration and development programs of the Company.
EXCHANGE CONTROLS
There are no governmental laws, decrees or regulations in Canada that restrict
the export or import of capital, including foreign exchange controls, or that
affect the remittance of dividends, interest or other payments to nonresident
holders of the securities of Granges, other than as Canadian withholding tax.
See "Item 5 - Certain Canadian Income Tax Considerations for United States
Person".
I-24
<PAGE> 208
CERTAIN CANADIAN INCOME TAX CONSIDERATIONS FOR UNITED STATES PERSONS
For purposes of this discussion, "United States Person" means a citizen or
resident of the United States, or a corporation or partnership organized in the
United States or under the laws of the United States or of any State or an
estate or trust, the income of which is subject to United States Federal income
tax regardless of its source.
A shareholder, who is not a resident of Canada, who receives a dividend will
generally be subject to Canadian withholding tax at the rate of 25 percent on
dividends paid or credited or deemed to have been paid or credited to him on a
share. Such Canadian withholding tax rate may be subject to a reduction
pursuant to an applicable tax treaty. In the case of shareholders who are
United States Persons, the income tax treaty between Canada and the United
States provides that the withholding rate in respect of such dividends will
generally be 15 percent unless the shareholder is a corporation that owns at
least 10 percent of the voting stock of Granges in which case the withholding
tax rate would be 10 percent.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data in Table I have been derived from the consolidated
financial statements of the Company which have been prepared in accordance with
accounting principles generally accepted in Canada. The selected financial data
should be read in conjunction with those financial statements and the notes
thereto.
TABLE I
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Canadian Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Results of Operations
---------------------
Sales $56,374 $54,432 $55,297 $63,703 $56,845
Earnings from
mining operations 4,512 2,548 1,033 10,342 639
Net earnings (loss) 2,948 6,985 2,761 50 (26,689)
Net earnings (loss) per share 0.07 0.20 0.08 nil (0.79)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31
------------------------------------------------------------
1995 1994(1) 1993 1992 1991
---- ---- ---- ---- ----
(Canadian dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Financial Position
------------------
Working capital $29,586 $41,583 $28,938 $30,916 $25,556
Total assets 87,668 98,900 83,209 86,301 81,253
Long-term debt -- -- 277 629 244
Shareholders' equity 74,496 74,065 66,320 62,745 61,968
</TABLE>
(1) 1994 information has been restated. Refer to Note 4 to the
Consolidated Financial Statements in Item 8.
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<PAGE> 209
Had the consolidated financial statements of the Company been prepared in
accordance with accounting principles generally accepted in the United States,
certain selected financial data would have been reported as follows in Table
II.
TABLE II
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------------------------
1995 1994(1) 1993(1) 1992(1) 1991(1)
---- ---- ---- ---- ----
(Canadian dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Results of Operations
---------------------
Earnings (loss) from
mining operations $883 $2,548 $1,033 $10,342 $639
Net earnings (loss)
before extraordinary item
$(966) $6,949 $2,816 $(74) $(70,970)
Net earnings (loss) (966) 6,949 2,816 (74) (70,204)
Primary earnings (loss)
per share before
extraordinary item (0.02) 0.20 0.08 nil (2.09)
Primary earnings (loss)
per share after
extraordinary item (0.02) 0.20 0.08 nil (2.07)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31
------------------------------------------------------------
1995 1994(1) 1993(1) 1992(1) 1991(1)
---- ---- ---- ---- ----
(Canadian dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Financial Position
------------------
Total assets $119,460 $98,826 $85,008 $88,045 $83,121
Shareholders' equity 106,288 74,321 66,231 64,489 63,836
</TABLE>
(1) The information presented in Table II above for 1994 and prior
years has been restated in response to comments of the
Securities and Exchange Commission.
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<PAGE> 210
EXCHANGE RATES
The exchange rate at the end of each of the five years to December 31, 1995,
and the average, the high and the low rates of exchange for each year in that
five-year period, are set forth below.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
As at December 31 $0.7325 $0.7129 $0.7553 $0.7867 $0.8654
Yearly average 0.7283 0.7321 0.7515 0.8276 0.8726
High for year 0.7529 0.7159 0.8065 0.8771 0.8926
Low for year 0.7025 0.7097 0.7416 0.7729 0.8587
</TABLE>
Notes: (1) Exchange rates are expressed as the amount of United States
funds equivalent to one Canadian dollar, being the noon buying
rates in New York City for cable transfers in Canadian dollars,
as certified for customs purposes by the Federal Reserve Bank of
New York.
(2) The yearly average rate means the average of the exchange rates
on the last day of each month during a year.
(3) On March 20, 1996 the noon rate as quoted by the Federal Reserve
Bank of New York was $0.7355.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
This discussion should be read in conjunction with the consolidated financial
statements of the Company for the three years ended December 31, 1995 and the
related notes thereto, which have been prepared in accordance with generally
accepted accounting principles (GAAP) in Canada. Differences from United States
GAAP are described in note 23 to the consolidated financial statements.
The Company had one mine in operation during 1995 and the majority of 1994.
The Hycroft (formerly Crofoot/Lewis) mine in Nevada began gold production in
1987 and is the Company's only operating mine at the present time. The Company
sold its 29 percent interest in the Trout Lake mine in Manitoba to its
co-venturer and mine operator Hudson Bay Mining and Smelting Co., Ltd.
effective March 31, 1994. The Trout Lake mine has been producing copper, zinc,
gold and silver since 1982. The Company also owns the Tartan Lake gold mine
in Manitoba at which operations have been suspended since 1989.
1995 was a year of significant change for the Company, beginning with the
amalgamation of Granges and its 50.5 percent owned subsidiary, Hycroft
Resources & Development Corporation on May 1, 1995. As Granges already
controlled Hycroft, the amalgamation was treated in a manner similar to a
pooling of interest under Canadian GAAP. As the results of operations of
Hycroft were fully consolidated into the results of Granges, the results of the
amalgamated company for 1995 are directly comparable to those of 1994,
excluding other changes in operations as discussed below. Full details of the
amalgamation are provided in note 3 of the consolidated financial statements.
Under U.S. GAAP, the transaction is accounted for as a purchase and the
quantification of the differences is provided in note 23 to the financial
statements.
In addition to the amalgamation, the Company continued to change its focus to
precious metals, with the sale of its remaining base metal properties in
Saskatchewan and Manitoba and the purchase of a 41 percent interest in Zamora
Gold Corp., a Canadian mineral exploration company that controls the largest
land position in the highly prospective Nambija gold district in Southern
Ecuador.
I-27
<PAGE> 211
RESULTS OF OPERATIONS
1995 COMPARED WITH 1994
Net earnings for 1995 were $2.9 million compared to $7.0 million in 1994. The
1995 earnings include gains of $6.7 million from the sale of mineral properties
and $1.6 million from the sale of investments, while the 1994 earnings include
a gain of $12.6 million from the sale of the Company's interest in the Trout
Lake mine in March of that year. Excluding these gains, results were losses of
$5.4 million and $5.6 million for 1995 and 1994 respectively. Results for 1995
have improved primarily due to increased production and higher gold prices.
Revenue for 1995 increased by four percent over 1994, with revenue by operation
as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Hycroft $56,374 $51,175
Trout Lake -- 3,257
------- -------
$56,374 $54,432
======= =======
</TABLE>
Revenue from Hycroft increased ten percent from 1994 due to a combination of
increased gold and silver production and an increased realized price per ounce
of gold. Production at the mine was as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
(ounces)
<S> <C> <C>
Gold 101,128 94,868
Silver 417,823 314,756
</TABLE>
This increased production is the result of a 13 percent increase in the amount
of ore mined and processed in the year over 1994 which resulted from the
addition of new, more efficient mining equipment in late 1994. Although total
ore tons increased, this increase was offset in part by a higher proportion of
lower grade uncrushed run-of-mine ore. Run- of-mine ore accounted for 56
percent of tons processed in 1995 and 36 percent in 1994, resulting in a
decrease in the average grade of gold per ton processed from 1994. The net
effect of the increase in tonnage and the lower average grade was a seven
percent increase in gold production. Gross realized price per ounce of gold
was US$387 in 1995 and US$380 in 1994, compared to the London afternoon fix of
US$386 and US$384 respectively.
Operating costs for the Company increased four percent over 1994, with costs
by operation as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Hycroft $46,023 $41,081
Trout Lake -- 3,018
------- -------
$46,023 $44,099
======= =======
</TABLE>
Operating costs at Hycroft increased 12 percent from 1994, attributable to the
following:
<TABLE>
<CAPTION>
($ MILLIONS)
------------
<S> <C>
increase in total tons mined 15.8
decrease in costs per ton mined (10.5)
</TABLE>
Total tons mined increased 41 percent, from 26.4 million tons in 1994 to 37.3
million tons in 1995. Part of this increase was due to the decision made in
late 1994 to increase the production rate of the mine and
I-28
<PAGE> 212
the associated addition of a larger, more efficient fleet of mining equipment.
The remainder is due to an increase in the strip ratio in the areas mined in
1995 (2.72:1 in 1995 compared to 1.98:1 in 1994). The costs associated with
this additional stripping have been deferred in accordance with the Company's
policy. The decrease in cost per ton mined is due in part to the efficiencies
from the new fleet of mining equipment as well as to the reduction in
processing costs from a higher proportion of uncrushed run-of-mine ore, as
discussed above. Although operating costs in total increased in 1995, direct
cash operating cost per ounce was US$272, compared to US$294 in 1994, as a
result of the increase in gold production for the year.
Depreciation, depletion and provision for future reclamation and mine closure
was 56 percent higher than 1994, due to the increase in ore production as well
as the substantial addition of new mining equipment in December 1994. The
decrease in amortization of deferred stripping is due to the higher strip
ratio in 1995, as discussed above. The strip ratio in 1995 was higher than the
life-of-mine average strip ratio and resulted in additional deferral of costs
associated with mining this material. The 1994 strip ratio was below the
life-of-mine average and resulted in expensing of previously deferred costs.
Mineral exploration expenses increased four percent in 1995, continuing the
three year trend of increases in exploration spending. The increased spending
is consistent with the Company's shift into precious metals and the aggressive
exploration programs put in place in 1995 to find additional sources of
production. During the year, the Company opened an exploration office in Reno,
Nevada, from which it performs its exploration activities in the western United
States and Mexico. In addition, the Company has begun substantial exploration
work in South America. The 1996 exploration program has been budgeted at
US$3.8 million excluding expenditures of Zamora Gold Corp., a level consistent
with 1995 expenditures.
Corporate administrative expenses have decreased eight percent as compared to
1994 due in part to the continuing efforts of management to reduce the
Company's overhead costs, as well as anticipated reductions in costs as a
result of the amalgamation of the Company and Hycroft early in the year.
Interest income decreased 11 percent solely due to $190,000 in fees related to
the stand-by credit facility, which is more fully described in the Liquidity
and Capital Resources section. Excluding this fee, interest income was
consistent with 1994 as the average cash balance of the Company and interest
rates received were consistent during both years.
Other expense increased by $983,000 in 1995. Other expenses include $671,000
in severance costs related to the Company's exit from base metals and corporate
office staff reduction, as well as $358,000 for costs related to the closure of
the Vancouver office. As a result of the Company's increased activities in
Nevada and South America, the Board of Directors approved a move of the
Company's executive office from Vancouver, British Columbia, to Denver,
Colorado, effective January 1, 1996.
Gain on sale of mineral properties and marketable securities represents three
transactions in the year. In June 1995, the Company sold 200,000 shares of
International Curator Resources Inc. for net proceeds of $1.2 million. These
shares were carried on the books at cost, and the sale resulted in a gain of
$1.1 million. In September, the Company sold all of its remaining base metal
properties in Manitoba and Saskatchewan to Aur Resources Inc. for 1,250,000
shares of Aur and a royalty equal to two percent of future net smelter returns
from the properties, subject to Aur's right to purchase one half of the royalty
for $1.0 million. The shares were allocated a value equal to the closing price
of Aur on the Toronto Exchange on the day prior to the announcement of the
sale, and no value was allocated to the royalty for accounting purposes. This
transaction resulted in a gain of $6.7 million. In December, the Company sold
the Aur shares for net proceeds of $7.25 million and realized a further gain of
$0.5 million. Treatment of the sale of the base metal properties in the cash
flow statement differs between Canadian and US GAAP. These differences are
detailed in note 23 to the consolidated financial statements.
The significant reduction in income taxes relates directly to the increased
exploration activity in the Western United States. Income taxes in 1995 and
1994 were directly attributable to the Company's subsidiary, Granges (U.S.)
Inc., utilizing all of its available tax carry forwards and being taxable.
Future
I-29
<PAGE> 213
increased exploration activity in the Western United States should be
sufficient to make the Company's subsidiary non- taxable.
1994 COMPARED WITH 1993
1994 was a transition year for the Company, with the sale of its share of the
Trout Lake copper/zinc mine and a shift of emphasis toward precious metals.
Net earnings for the year were $7.0 million, which includes $12.6 million gain
on the sale of Trout Lake. This compares to net earnings of $2.8 million in
1993, which included a $7.4 million dilution gain and gains of $2.9 million on
the disposal of Granges' 40 percent of interest in Jualin joint venture and the
associated 22.3 percent equity interest in International Curator Resources
Ltd., as well as settlement of a lawsuit regarding a defective unit of mining
equipment at the Hycroft mine.
Revenue for 1994 decreased 1.5 percent from 1993, although this masks
improvements realized during the year at the Hycroft mine. Sales by operation
were:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Hycroft $51,175 $41,030
Trout Lake 3,257 14,267
------- -------
$54,432 $55,297
======= =======
</TABLE>
Trout Lake revenue for 1994 is for the period of January 1 to March 31 only.
Copper and zinc production were down 27 percent and 20 percent respectively
from the first three months of 1993, due to a 23 percent decrease in ore
tonnage produced from the mine. The lower ore tonnage was a direct result of
insufficient work areas in the mine caused by a shortage of development work
and poor ground conditions.
The Hycroft mine produced 94,868 ounces of gold in 1994, which is an increase
of 10 percent from 1993 and includes record quarterly production of 28,195
ounces in the third quarter. The increased gold production can be attributed
to several factors, the most significant being the increase in ore production
in 1994 and the introduction of run-of-mine ore from the South Central pit.
During the second half of 1993 the mine was re-equipped with larger, more
efficient mobile mining equipment and this, in conjunction with the improvement
in the waste to ore ratio to 1.98:1 from 2.96:1 in 1993, contributed to a 53
increase in the amount of ore mined in 1994. While the crushed ore tons
processed were slightly more than in 1993, a significant amount of uncrushed
run-of-mine ore from the South Central pit was introduced to the leach pads,
providing more ounces under leach in 1994. The increased gold production in
1994, along with higher gold prices and a weaker Canadian dollar resulted in a
25 percent increase in revenue from the mine. The Company's average realized
price for gold sales in 1994 was US$380 per ounce compared to US$361 in 1993
and the average London PM fix for gold was US$384 and US$360 respectively.
Operating costs decreased nine percent from 1993, which reflects the reduction
in costs due to the sale of Trout Lake and an increase in costs experienced at
Hycroft. Total operating costs at Hycroft, in US dollar terms, were at 1993
levels, but the weaker Canadian dollar during 1994 translates to an increase of
8 percent over 1993.
Depreciation, depletion and provision for reclamation and mine closure
decreased 40 percent from 1993, primarily due to the sale of Trout Lake. A 12
percent increase was experienced at Hycroft due to the weaker Canadian dollar
exchange rate as well as more ore tons mined in 1994. The amortization of
deferred stripping in 1994 resulted from expensing of waste costs deferred in
the second half of 1993 and the first half of 1994 due to improvement in the
strip ratio in 1994.
Mineral exploration expenditures increased 11 percent from 1993. This increase
is comprised of a ten percent decrease in expenditures at Trout Lake due to the
sale, offset by a shift from definition drilling to exploration at Hycroft and
new gold exploration projects in Nevada. Increased exploration at Hycroft
added 434,000 contained ounces to reserves. Corporate administrative costs
have decreased 28 percent
I-30
<PAGE> 214
from 1993 as a result of office relocation and down-sizing measures. Other
expenses in 1994 of $0.8 million compares to other income of $0.7 million in
1993. This results from $1.2 million of costs incurred in 1994 related to
identification and evaluation of prospective purchasers of the block of the
Company's shares sold by M.I.M. Canada Inc. in the first half of the year, the
proposed four-way merger of Granges, Hycroft, Atlas Corporation and Dakota
Mining presented to the Board by Atlas and subsequently withdrawn, as well as
preparatory work for the recently proposed amalgamation of Granges and Hycroft
and a gain on settlement of a lawsuit regarding a defective unit of mining
equipment at Hycroft in 1993.
Net interest income increased 60 percent from 1993, reflecting a 70 percent
decrease in interest expense and 24 percent increase in interest income. The
decrease in interest expense resulted directly from the final US$3.75 million
payment on the bank loan in May of 1994 and a virtually debt-free position for
the remainder of the year. This compares with an average bank loan outstanding
in 1993 of US$7.5 million. The increase in interest income reflects the
increase in cash and cash equivalents in the second quarter of the year due to
the net proceeds from the sale of Trout Lake. The effective interest rate
received by the Company fell from approximately 5.8 percent in 1993 to 5.3
percent in 1994.
The increase in current income taxes primarily reflects the Company's
subsidiary, Granges (U.S.) Inc., utilizing all of its tax loss carry forwards
and having taxable income in the U.S. for the first time.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash balance at December 31, 1995 was $20.8 million,
a reduction of $24.3 million from the end of the prior year. This decrease is
primarily the result of $12.3 million (US$9.8 million) in payments for Hycroft
mine equipment, capital expenditures of $6.0 million and deferred stripping
costs of $7.2 million, while operations generated $1.3 million before changes
in working capital. Investments for 1995 are comprised of the $6.5 million
investment in Zamora Gold Corp. and the $6.7 million value allocated to the
shares of Aur Resources received from the sale of the base metal properties.
These investments have been offset by the proceeds from the sale of mineral
properties and marketable securities discussed above.
The current life-of-mine plan for the Hycroft mine anticipates additional
capital spending of US$22 million, which will be incurred primarily in 1996 and
1997 for the development of the Brimstone deposit. Financing for this
expenditure will be partly from the Company's cash reserves and partly from the
secured stand-by loan facility arranged by the Company. The facility is
available during 1996 in dollars or as a gold loan, to a maximum of US$13.0
million or the gold ounce equivalent thereof (not to exceed 35,000 ounces of
gold). The terms of this facility are detailed in note 22 to the consolidated
financial statements. In addition to this facility, the lender has extended a
gold hedging facility to the Company for a maximum of 275,000 ounces of gold.
The Company anticipates approximately US$5.3 million in reclamation and
severance costs over the life of the mine, primarily in 1998 through 2001,
which will be funded by cash flow from operations.
During the year, the Company entered into an agreement with Inca Pacific
Resources Inc., and the Peru Syndicate S.A. to explore for gold on the Cerro
Conor Punta property in Peru. Under the terms of the agreement, Granges can
earn a 100 percent interest in the property by making a series of payments
totalling US$250,000 and by spending US$1,050,000 on expenditures on the
property over a period of four years. All but the first two instalment
payments totalling US$50,000 and the first exploration expenditures of
US$50,000 are contingent upon positive exploration results and the Company's
election to continue. The first instalment of US$20,000 was paid during the
third quarter.
In addition, the Company entered into an agreement in principle with Atlas
Corporation, a 27 percent shareholder of the Company, for an exploration joint
venture on approximately 34 square miles of Atlas's Gold Bar claim block
located near Eureka, Nevada. The agreement calls for Granges to spend US$2.25
million on exploration and development within three years. Granges' obligation
will be to spend US$625,000 in each of the first two years, unless Granges
elects to terminate the joint venture prior to the
I-31
<PAGE> 215
end of the first or second year, and US$1.0 million in year three. Such
expenditures will earn the Company a 50 percent interest (subject to a two
percent net smelter royalty reserved by Atlas) in a 15 square mile area on the
property provided that a deposit of at least 300,000 ounces of gold is proven.
It is expected that the above requirements will be funded through a combination
of cash from operations and the Company's existing cash reserves.
OUTLOOK
Management's outlook for future growth of Granges is through the acquisition of
additional precious metal reserves, primarily in the form of producing or
near-production properties, as well as exploration efforts of the Company.
Granges is actively searching for acquisition targets in North America and
Latin America and has recently established an exploration office in Reno,
Nevada, from which regional exploration will be conducted. The sale of the
Company's base metal properties in Manitoba and Saskatchewan was an important
step in shifting the focus of the Company's exploration program from Canada to
the Western U.S. and Latin America.
During the year, the Company acquired 41 percent of the outstanding shares of
Zamora Gold Corp., a Canadian mineral exploration company that controls the
largest land position in Ecuador, located in the highly prospective Nambija
gold district of Southern Ecuador. This acquisition was completed through a
private placement of 8,000,000 units consisting of one common share of Zamora
at US$0.60 per share and one warrant for a total subscription price of US$4.8
million. Each warrant entitles Granges to purchase one common share of Zamora
for US$0.75 until October 4, 1997. The agreement also provided that prior to
the closing of this transaction, a majority of the directors on the Zamora
board were to be Granges representatives. This provision will not affect any
subsequent elections of directors for Zamora. Concurrent with the closing of
the private placement, Granges and Zamora entered into a management services
contract under which Granges has agreed to provide management and technical
services to Zamora at cost.
1996 operations at Hycroft are expected to be similar to 1995. Total tons
mined in 1996 are budgeted to be approximately 34 million tons, with ore tons
six percent higher than 1995 and similar gold grades. The proportion of
run-of-mine ore processed in the year is expected to increase to approximately
61 percent from 56 percent in 1995. Gold production and direct cash costs in
1996 are expected to be approximately the same as 1995. Under the Company's
current long-range plan the mine is expected to continue into 2001 with annual
production in excess of 100,000 ounces of gold and 500,000 ounces of silver.
Direct cash operating cost per ounce is expected to average US$255 over the
life of the mine, with costs declining from 1996 as the proportion of
run-of-mine ore increases. From 1998 onwards, the mine is expected to process
only run-of-mine ore. The Company's results are impacted by fluctuations in
the price of gold.
An estimated US$1.0 million will be spent in 1996 on exploration at the Hycroft
mine to further evaluate the potential for oxide ore at the mine and will
commence the evaluation of the sulphide-related gold mineralization below the
oxide ore bodies of the Central and East faults.
In addition, the Company is evaluating the possibility for expansion in
production at the Hycroft mine of 10,000 to 15,000 ounces of gold with existing
processing facilities. Technical feasibility studies of the expansion are
expected to be completed early in 1996.
I-32
<PAGE> 216
RECLAMATION AND ENVIRONMENTAL COSTS
RECLAMATION
The reclamation and closure costs for the Company's mines are estimated by
management as follows:
<TABLE>
<S> <C>
Hycroft mine (US$5.1 million) $7.1 million
Tartan Lake mine 1.0 million
--------------
$8.1 million
==============
</TABLE>
These costs are charged to earnings over the life of the mine and the provision
to date is $4.7 million. As part of the terms of the sale of the Company's
interest in the Trout Lake mine, Hudson Bay Mining and Smelting Co., Ltd. has
assumed all environmental liabilities arising from past or future activities of
that mine.
As reported in the Company's Form 20-F for 1994, an amended Hycroft Mine
Reclamation Plan that included the Brimstone deposit was submitted to the
Nevada Bureau of Land Management (BLM) in March 1994. In April 1995 the BLM
approved the plan and a surety bond in the amount of US$5.1 million was posted
to secure reclamation obligations under the plan.
BRIMSTONE PROJECT
In February 1995, the Nevada Department of Environmental Protection (NDEP) and
the BLM were notified of Granges' intent to begin mining the private lands
associated with the Brimstone deposit. The NDEP Bureau of Mining Regulation
and Reclamation has granted their approval for the action.
As reported in the Company's Form 20-F for 1994, the BLM determined that an
Environmental Assessment (EA) rather than an Environmental Impact Study, of the
public lands in the Brimstone area would be required prior to their inclusion
into the mining project. In April 1995, the BLM accepted the EA and approved
the plan to develop the public lands in the Brimstone area.
REGULATORY COMPLIANCE AND OTHER MATTERS
During 1995 there were no material environmental incidents or non-compliance
with any applicable environmental regulations. Also, the Crofoot Water
Pollution Control Permit, which governs construction and operation of leach
pads on that property, was amended to allow for an ultimate heap elevation of
250 feet, from the current maximum of 200 feet, creating additional pad
capacity. In July, the Nevada Department of Environmental Protection indicated
that the Company would receive approval for the construction of plant, pads and
ponds associated with the Brimstone deposit. The required permit was received
in February, 1996. No further permits of a material nature are required for
the development of this deposit.
In October, a Plan of Operations amendment was submitted to the BLM for
additional exploration drilling in the mine area. An Environmental Assessment
must be prepared and reviewed by the BLM before this work can begin.
Management expects that the EA will be completed by March, 1996 and approved
later in the year.
In regard to the arbitration among Granges Inc., Hycroft Resources &
Development Corporation and Hycroft Lewis Mine, Inc., and Frank W. Lewis and
F.W. Lewis, Inc., the Arbitrator's Rulings have been entered.
In the Rulings, the Arbitrator found that neither party breached the lease nor
the covenant of good faith and fair dealing. The Arbitrator approved the
Company's proposal for commingling of ores at the dedicated run-of-mine heap
leach pad, subject to certain conditions, including third party monitoring and
the parties' negotiation of certain procedural matters. Pursuant to the
Arbitrator's Rulings, the Company must provide certain project documentation to
Lewis. The Company has complied with its obligations as prescribed in the
Rulings.
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<PAGE> 217
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management's Responsibility for Financial Reporting
Consolidated Highlights
Independent Auditors' Report
Consolidated Financial Statements
Consolidated Statements of Earnings
Consolidated Statements of Retained Earnings (Deficit)
Consolidated Balance Sheets
Consolidated Statements of Changes in Cash Resources
Notes to Consolidated Financial Statements
Selected Quarterly Financial Data
I-34
<PAGE> 218
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of Granges Inc. have been
prepared by and are the responsibility of the Company's management. The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada and reflect management's
best estimates and judgments based on currently available information. Systems
of internal control have been designed and maintained by management to provide
reasonable assurance, on a cost effective basis, that assets are safeguarded
from loss or unauthorized use and to produce reliable accounting records for
financial reporting purposes.
The audit committee of the Board of Directors is composed of non-management
directors. It meets regularly with the Company's management and auditors and
reviews internal control and financial reporting matters to ensure that
management is properly discharging its responsibilities before submitting the
consolidated financial statements to the Board of Directors for approval.
The Company's auditors, Coopers & Lybrand, have examined these consolidated
financial statements and their report follows:
(signed) MICHAEL B. RICHINGS (signed) A.J. ALI, CA
President and Chief Executive Officer Vice President Finance and
Chief Financial Officer
I-35
<PAGE> 219
CONSOLIDATED HIGHLIGHTS
<TABLE>
<CAPTION>
================================================================================
Financial (Canadian dollars in thousands, except share data) 1995 1994
---- ----
<S> <C> <C>
Sales $56,374 $54,432
Net earnings 2,948 6,985
Earnings per share 0.07 0.20
Cash and cash equivalents 20,765 45,113
Working capital 29,586 41,583
Long-term debt nil nil
Total assets 87,668 98,900
Net assets - per share 1.62 2.17
================================================================================
</TABLE>
<TABLE>
<CAPTION>
Consolidated Production 1995 1994
---- ----
<S> <C> <C>
Gold (ounces) 101,128 97,097*
Silver (ounces) 417,823 314,756
</TABLE>
* Includes 2,229 ounces of gold from the Company's 29 percent share of
production from the Trout Lake mine to March 31, 1994.
I-36
<PAGE> 220
AUDITORS' REPORT
To the Shareholders of Granges Inc.
We have audited the consolidated balance sheets of Granges Inc. as at December
31, 1995 and 1994 and the consolidated statements of earnings, retained
earnings (deficit) and changes in cash resources for each of the years in the
three year period ended December 31, 1995. These consolidated 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,
1995 and 1994 and the results of its operation and changes in its cash
resources for each of the three years ended December 31, 1995 in accordance
with generally accepted accounting principles. As required by the British
Columbia Company Act, we report that, in our opinion, these principles have
been applied on a consistent basis.
Vancouver, B.C. (signed) COOPERS & LYBRAND
March 1, 1996 except as to Chartered Accountants
Note 22 which is as of March 4, 1996
I-37
<PAGE> 221
CONSOLIDATED STATEMENTS OF EARNINGS
(CANADIAN DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $ 56,374 $ 54,432 $ 55,297
---------- ---------- ----------
EXPENSES
Operating costs 46,023 44,099 48,360
Depreciation, depletion and provision for
future reclamation and mine closure 5,535 3,539 5,904
Amortization of deferred stripping 304 4,246 --
---------- ---------- ----------
51,862 51,884 54,264
---------- ---------- ----------
RESULTS OF MINING OPERATIONS 4,512 2,548 1,033
---------- ---------- ----------
Mineral exploration 5,650 5,423 4,878
Corporate administrative 3,365 3,645 5,061
Interest income - net (Note 5) (1,898) (2,132) (1,333)
Other expense (income) 1,772 789 (704)
Gain on sale of mineral properties
and marketable securities (Note 6) (8,293) (12,570) (2,265)
Dilution gain on issue of subsidiary shares (Note 7) -- -- (7,398)
Equity in loss of Zamora Gold Corp. 704 -- --
---------- ---------- ----------
1,300 (4,845) (1,761)
---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 3,212 7,393 2,794
CURRENT INCOME TAXES (Note 8) 264 408 33
---------- ---------- ----------
NET EARNINGS $ 2,948 $ 6,985 $ 2,761
========== ========== ==========
EARNINGS PER SHARE $ 0.07 $ 0.20 $ 0.08
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 42,074,356 34,164,260 34,095,575
========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
I-38
<PAGE> 222
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
(CANADIAN DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deficit, Beginning of Year as previously reported $ (75,462) $ (82,447) $ (85,208)
Prior period adjustment (Note 4) (256) (256) (256)
------------ ------------ ------------
Deficit, Beginning of Year restated (75,718) (82,703) (85,464)
Amalgamation costs (Note 3) (1,669) -- --
Capital reduction (Note 15) 76,362 -- --
------------ ------------ ------------
(1,025) (82,703) (85,464)
Net earnings 2,948 6,985 2,761
------------ ------------ ------------
Retained earnings (deficit), End of Year $ 1,923 $ (75,718) $ (82,703)
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
I-39
<PAGE> 223
CONSOLIDATED BALANCE SHEETS
(CANADIAN DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31 1995 1994
- ----------------------------------------------------------------------------------------------
(Restated, See
Note 4)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 20,765 $ 45,113
Marketable securities (Market value - $478,000) 244 327
Accounts Receivable 1,955 2,772
Inventories (Note 9) 15,140 14,027
--------- ---------
38,104 62,239
Investment in Zamora Gold Corp. (Note 10) 5,808 --
Property, Plant and Equipment (Note 6, 11) 43,756 36,661
--------- ---------
$ 87,668 $ 98,900
========= =========
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities (Note 13) $ 8,518 $ 20,290
Equipment notes payable (Note 14) -- 366
--------- ---------
8,518 20,656
Provisions for Future Reclamation and Closure Costs 4,654 4,179
--------- ---------
13,172 24,835
--------- ---------
SHAREHOLDERS' EQUITY
Common Shares, without par value
(Issued 1995 - 46,042,911; 1994 - 34,177,000 shares) (Note 15) 73,980 146,227
Contributed Surplus (Note 15) -- 3,803
Retained Earnings (Deficit) 1,923 (75,718)
Currency Translation Adjustment (Note 16) (1,407) (247)
--------- ---------
74,496 74,065
--------- ---------
$ 87,668 $ 98,900
========= =========
</TABLE>
Contingencies and Commitments (Note 21)
APPROVED BY THE BOARD
(signed) ALAN G. THOMPSON (signed) PETER WALTON
Director Director
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
I-40
<PAGE> 224
CONSOLIDATED STATEMENTS OF CHANGES IN CASH RESOURCES
(CANADIAN DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net earnings $ 2,948 $ 6,985 $ 2,761
Items not involving cash
Depreciation and depletion 4,853 2,699 4,710
Amortization of deferred stripping 304 4,246 --
Provision for future reclamation
and closure costs 736 894 1,275
Deferred revenue recognized -- (572) (797)
Gain on sale of equipment -- (88) (320)
Gain on sale of mineral properties
and marketable securities (Note 6) (8,293) (12,570) (2,121)
Equity in loss of Zamora Gold Corp. 704 -- --
Dilution gain on issue of subsidiary shares (Note 7) -- -- (7,398)
Foreign exchange loss -- -- (35)
-------- -------- --------
1,252 1,594 (1,925)
Deferred revenue -- -- 1,136
Currency translation adjustment (602) (2) 168
Change in working capital, excluding cash
and cash equivalents (Note 17) (11,985) 11,198 2,002
-------- -------- --------
(11,335) 12,790 1,381
-------- -------- --------
Investing Activities
Property, plant and equipment (13,209) (21,131) (11,155)
Proceeds from sale of mineral properties
and marketable securities (Note 6) 15,117 32,296 2,394
Investments (Note 6, 10) (13,230) -- --
Investment in subsidiary (Note 7) -- -- (2,756)
Proceeds from sale of equipment -- 140 655
-------- -------- --------
(11,322) 11,305 (10,862)
-------- -------- --------
Financing Activities
Equipment note proceeds (payments) net (375) (515) (311)
Issue of shares for options 313 29 289
Amalgamation costs (1,669) -- --
Option payments received 40 -- --
Bank loan advances (repayments) -- (5,195) (9,782)
Issue of shares for settlement of litigation (Note 15) -- -- 276
Issue of subsidiary shares (Note 7) -- -- 10,154
-------- -------- --------
(1,691) (5,681) 626
-------- -------- --------
Increase (decrease) in Cash and Cash Equivalents (24,348) 18,414 (8,855)
Cash and Cash Equivalents, Beginning of Year 45,113 26,699 35,554
-------- -------- --------
Cash and Cash Equivalents, End of Year $ 20,765 $ 45,113 $ 26,699
======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
I-41
<PAGE> 225
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR INFORMATION IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE DATA)
1. NATURE OF OPERATIONS
Granges Inc. is engaged in gold mining and related activities in the United
States, Canada, and Latin America, including exploration, extraction,
processing, refining and reclamation. Gold bullion is the company's principal
product, which is a commodity produced primarily in South Africa, the United
States, Canada, Australia, and Latin America.
The company's results are impacted by the price of gold. Gold prices fluctuate
and are affected by numerous factors, including, but not limited to,
expectations with respect to the rate of inflation, exchange rates
(specifically, the U.S. dollar relative to other currencies), interest rates,
global and regional political and economic crises and governmental policies
with respect to gold holdings by central banks. The demand for and supply of
gold affect gold prices, but not necessarily in the same manner as demand and
supply affect the prices of other commodities. The supply of gold consists of
a combination of new mine production and existing stocks of bullion and
fabricated gold held by governments, public and private financial institutions,
industrial organizations and private individuals. The demand for gold consists
of jewellery and investment demand, as well as producer hedging activities.
Gold can be readily sold on numerous markets throughout the world and its
market value can be readily ascertained at any particular time. As a result,
the company is not dependent upon any one customer for the sale of its product.
2. SIGNIFICANT ACCOUNTING POLICIES
A) GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements of Granges Inc. and its subsidiaries have
been prepared in accordance with accounting principles generally accepted in
Canada. These principles differ in certain material respects from those
accounting principles generally accepted in the United States. The differences
are described in note 23.
B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Granges Inc., its
subsidiaries and its proportionate share of the assets, liabilities, revenues
and expenses of its unincorporated joint venture. The Company's subsidiaries
and its percentage ownership in these entities as at December 31, 1995 are:
(see Notes 3 and 6A)
<TABLE>
<CAPTION>
OWNERSHIP
- ----------------------------------------------------------------------------------------------
<S> <C>
Hycroft Resources & Development, Inc. and its
wholly owned subsidiary Hycroft Lewis Mine, Inc. 100%
Granges (U.S.) Inc. and its wholly owned subsidiary Granges (Arizona) Inc. 100%
Granges (Canada) Inc. (previously called 493744 Ontario Limited) 100%
</TABLE>
C) USE OF ESTIMATES
The preparation of consolidated financial statements in accordance 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 liabilities at the date of the consolidated financial
statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those reported.
I-42
<PAGE> 226
D) FOREIGN CURRENCY TRANSLATION
Self-sustaining foreign operations are translated using the current rate
method. Under this method, assets and liabilities are translated at the rate of
exchange on the balance sheet date, and revenue and expenses at the average
rate of exchange during the period. Exchange gains and losses are deferred and
shown as a currency translation adjustment in shareholders' equity until
transferred to earnings when the net investment in the foreign operation is
reduced.
Integrated foreign operations are translated using the temporal method. Under
this method, monetary assets and liabilities are translated at the rate of
exchange in effect at the balance sheet date and non-monetary assets and
liabilities are translated at historical exchange rates, unless such items are
carried at market, in which case they are translated at the exchange rate in
effect at the balance sheet date. Revenues and expenses are translated at the
rate of exchange in effect on the dates that they occur and depreciation and
amortization of assets translated at historical rate are translated at the same
exchange rates as the assets to which they relate. Exchange gains and losses
are included in the determination of net income for the current period, except
for any exchange gains or losses related to foreign currency denominated
monetary items that have a fixed or ascertainable life extending beyond the end
of the current fiscal period. Such gains or losses are deferred and amortized
over the life of the item.
Foreign currency denominated monetary items of the company, excluding its
foreign operations, are translated at the year-end exchange rate. Exchange
gains and losses on these items are recognized in earnings in the year they
arise.
E) REVENUE RECOGNITION
Sales are recorded as soon as the product is considered available for sale.
Gains and losses on forward sales and option contracts are deferred until the
related production is sold.
F) MINERAL EXPLORATION
Acquisition and exploration expenditures on mineral properties are expensed
when incurred until such time as the property indicates the potential of being
developed into a mine, and thereafter the expenditures are capitalized.
Previously capitalized expenditures are expensed if the project is determined
to be uneconomic.
G) CASH EQUIVALENTS
Cash equivalents consist of highly liquid debt instruments such as certificates
of deposit, commercial paper, and money market accounts purchased with an
original maturity date of less than three months. The company's policy is to
invest cash in conservative, highly rated instruments and limit the amount of
credit exposure to any one institution. Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
H) MARKETABLE SECURITIES
Marketable securities are carried at the lower of cost or market value.
I) INVENTORIES
Product inventory is valued at the lower of average cost and net realizable
value. The direct cash costs associated with ore on the leach pads are
inventoried and charged to operations as the contained gold is recovered.
Based upon actual metal recoveries, ore grades and operating plans, management
continuously evaluates and refines estimates in determining the carrying values
of costs associated with ore under leach. It is possible that in the near
term, estimates of recoverable ore, grade, and gold price could change causing
the company to revise the value of its heap leach inventory.
I-43
<PAGE> 227
Supplies are valued at the lower of average cost and net realizable value.
J) PROPERTY, PLANT AND EQUIPMENT
(I) DEVELOPED MINERAL PROPERTIES
Property acquisition and development costs are carried at cost less
accumulated amortization and write downs. Amortization is provided on the
unit-of-production method based on proven and probable reserves.
Management reviews quarterly the carrying value of the company's interest
in each property and, where necessary, these properties are written down to
their estimated recoverable amount determined on a non-discounted basis.
Management's estimate of gold price, recoverable proven and probable
reserves, operating, capital and reclamation costs are subject to risks and
uncertainties affecting the recoverability of the company's investment in
property, plant and equipment. Although management has made its best
estimate of these factors based on current conditions, it is possible that
changes could occur in the near term that could adversely affect
management's estimate of net cash flows expected to be generated from its
operating properties and the need for possible asset impairment write
downs.
(II) PLANT AND EQUIPMENT
Plant and equipment are recorded at cost and depreciated using the
units-of-production method or the straight-line method over their estimated
useful lives.
(III) DEFERRED STRIPPING
During production, mining costs associated with waste rock removal are
deferred and charged to operations on the basis of the average strip ratio
for the life of the mine. The average strip ratio is calculated as a ratio
of the tons of waste expected to be mined to the tons of ore estimated to
be mined. Although management has made its best estimate of these factors
based on current conditions, it is possible that changes could occur in the
near term that could adversely affect management's estimate of ore and
waste in proven and probable reserves and the need for a change in the
amortization rate of deferred stripping cost.
K) PROVISION FOR FUTURE RECLAMATION AND CLOSURE COSTS
All of the company's operations are subject to reclamation, site restoration
and closure requirements. Costs related to ongoing site restoration programs
are expensed when incurred. A provision for mine closure and site restoration
costs is charged to earnings over the lives of the mines on a
unit-of-production basis. The company calculates its estimates of the ultimate
reclamation liability based on current laws and regulations and the expected
future costs to be incurred in reclaiming, restoring and closing its operating
mine sites. It is possible that the company's estimate of its ultimate
reclamation liability could change in the near term due to possible changes in
laws and regulation and changes in cost estimates.
L) ESTIMATES OF PROVEN AND PROBABLE RESERVES
Management's calculation of proven and probable reserves is based upon
engineering and geological estimates and financial estimates including gold
prices and operating costs. The company depreciates some of its assets and
accrues for reclamation on a unit-of-production basis over proven and probable
reserves. Changes in geological interpretations of the company's ore bodies
and changes in gold prices and operating costs may change the company's
estimate of proven and probable reserves. It is possible that the company's
estimate of proven and probable reserves could change in the near term and
could result in revised charges for depreciation and reclamation in future
reporting periods.
I-44
<PAGE> 228
3. AMALGAMATION OF GRANGES INC. AND HYCROFT RESOURCES & DEVELOPMENT
CORPORATION.
On March 30, 1995, the shareholders of Granges Inc. (Granges) and its 50.5
percent owned subsidiary, Hycroft Resources & Development Corporation
(Hycroft), approved the amalgamation of the two companies, effective May 1,
1995 under the name Granges Inc. (Amalco).
Under the terms of the amalgamation, the outstanding common shares of each of
Granges and Hycroft were exchanged or cancelled on the following basis:
A) each issued and outstanding common share of Granges was exchanged for one
common share of Amalco;
B) each issued and outstanding common share of Hycroft, except for those
common shares registered in the name of Granges or its affiliates, was
exchanged for 0.88 of a common share of Amalco;
C) each issued and outstanding common share of Hycroft that was registered in
the name of Granges or its affiliates was cancelled; and
D) each authorized but unissued common share of Granges and each authorized
but unissued common share of Hycroft was cancelled.
No fractional shares of Amalco were issued and the number of shares received by
a Hycroft shareholder was rounded down to the nearest whole number of shares of
Amalco, if such a shareholder were otherwise entitled to receive a fraction of
a share of Amalco. Immediately after the amalgamation, shareholders of Granges
beneficially owned 34,214,500 common shares of Amalco and shareholders of
Hycroft beneficially owned 11,718,416 common shares of Amalco, representing
74.5 percent and 25.5 percent of the issued and outstanding common shares of
Amalco, respectively.
As Granges already controlled Hycroft, the amalgamation was treated in a manner
similar to a pooling of interest. Accordingly, the year-to-date results of
Amalco represent the consolidated results of Granges for the four months ended
April 30, 1995 and the consolidated results of Amalco for the eight months
ended December 31, 1995, with all comparative figures being the consolidated
results of Granges.
$1.7 million of costs to carry out the amalgamation have been treated as a
capital transaction and charged directly to the deficit on the date of
amalgamation.
4. PRIOR PERIOD ADJUSTMENT
During 1995, the company received notification from the Manitoba Department of
Finance of proposed assessments for the years 1983 to 1993 under the Mining Tax
Act and for the period March 1, 1989 to December 31, 1994 under the Retail
Sales Tax Act. The company, subsequent to the end of the year, arrived at a
settlement with the Department under which the total taxes and interest payable
under both Acts amounted to $330,000, with $120,000 previously paid. This
settlement has been treated as a prior period adjustment and the effect has
been to increase mineral properties by $74,000, increase accounts payable by
$210,000 at December 31, 1995, and by $330,000 at December 31, 1994 and to
reduce beginning retained earnings by $256,000.
I-45
<PAGE> 229
5. INTEREST INCOME - NET
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ (2,101) $(2,286) $(1,849)
Bank loan interest -- 89 463
Equipment notes interest 13 65 53
Financing fee 190 -- --
-------- ------- -------
$ (1,898) $(2,132) $(1,333)
======== ======= =======
</TABLE>
6. GAIN ON SALE OF MINERAL PROPERTIES AND MARKETABLE SECURITIES
A) MINERAL PROPERTIES
On September 27, 1995, the company sold its base metal exploration properties
in Manitoba and Saskatchewan to Aur Resources Inc. (Aur) for 1,250,000 shares
of Aur and a royalty equal to two percent of future net smelter returns from
the properties, subject to Aur's right to purchase half of the royalty for $1.0
million. The company realized a gain on the sale of these properties of $6.7
million.
Effective March 31, 1994, the company sold its 29 percent interest in the Trout
Lake joint venture, as well as a number of exploration properties, to its
co-venturer Hudson Bay Mining and Smelting Co., Limited (HBMS) for total cash
consideration of $33 million, realizing a gain of $12.6 million. As part of
the terms of sale, HBMS assumed all environmental liabilities arising due to
past or future activities of the Trout Lake Mine. Accordingly, the $810,000
reclamation and closure accrual related to the mine has been removed from the
company's books and included in the calculation of the gain.
In May 1993, the company sold its 40 percent interest in the Jualin joint
venture in Alaska, and its related 22.3 percent equity investment in
International Curator Resources Ltd. for proceeds of $1.7 million. The costs
associated with this project had been included in mineral exploration in prior
years.
B) MARKETABLE SECURITIES
In December 1995, the company sold its 1,250,000 shares of Aur, acquired in the
sale of the base metal properties, for net proceeds of $7.25 million and
realized a gain of $0.5 million.
In June 1995, the company sold its 200,000 shares of International Curator
Resources Ltd. for net proceeds of $1.2 million and realized a gain of $1.1
million.
On October 7, 1993, the company sold its 200,000 shares of Pan Orvana Resources
for net proceeds of $694,000 and realized a gain of $494,000.
7. SUBSIDIARY SHARE ISSUE
In July 1993, the company's subsidiary, Hycroft, completed a sale of 10.5
million common shares. The company acquired 2.65 million of the 10.5 million
shares, which resulted in a reduction of its interest in Hycroft from 67
percent to 50.5 percent. The net effect on the consolidated financial
statements of the Company was to increase cash and cash equivalents by $7.4
million and to report a gain on the reduction of its interest in the subsidiary
of the same amount.
I-46
<PAGE> 230
8. INCOME TAXES
A reconciliation of the combined Canadian federal and provincial income taxes
at statutory rates and the company's effective income tax expenses is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes at statutory rates $ 1,426 $ 3,371 $ 1,075
Increase (decrease) in taxes from:
Resource and depletion allowance -- -- (304)
Non-taxable portion of capital gain (182) (203)
Non-taxable portion of dilution gain -- -- (845)
Financing costs on share issue (45) (69) (348)
Application of prior years' loss carry forward -- (1,379) (1,113)
Utilization of resource and asset pools (2,633) (5,772) --
Recovery of prior years' taxes (90) (124) (82)
Deferred tax debit not recognized 1,035 4,643 1,855
U.S. Alternative Minimum Tax 257 -- --
Differences in foreign tax rates 429 (178) (254)
------- -------- --------
197 289 (16)
Large Corporations tax 67 119 49
------- -------- --------
Income taxes per statements of earnings $ 264 $ 408 $ 33
======= ======== ========
</TABLE>
The Company has incurred income tax losses in prior periods of $24.4 million,
which may be carried forward and applied against future taxable income when
earned. No benefit in respect of these losses has been recorded in these
accounts. The losses expire as follows:
<TABLE>
<CAPTION>
CANADA UNITED STATES TOTAL
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
2000 $ 1,911 $ -- $ 1,911
2001 2,312 1,767 4,079
2002 800 1,854 2,654
2003 -- 7,396 7,396
2004 -- 1,875 1,875
2008 -- 530 530
2009 -- 14 14
2010 -- 5,904 5,904
------- --------- ---------
$ 5,023 $ 19,340 $ 24,363
======= ========= =========
</TABLE>
9. INVENTORIES
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Product inventory $11,830 $11,273
Supplies 3,310 2,754
------- -------
$15,140 $14,027
======= =======
</TABLE>
I-47
<PAGE> 231
10. INVESTMENT IN ZAMORA GOLD CORP.
On October 6, 1995, Granges Inc. completed a private placement with Zamora Gold
Corp. (Zamora) for the issuance of 8,000,000 units at US$0.60 per unit. Each
unit consists of one common share of Zamora and one common share purchase
warrant entitling Granges to purchase one common share for US$0.75 until
October 4, 1997. Granges' 8,000,000 shares represent 41 percent of the issued
and outstanding shares of Zamora and the investment is accounted for using the
equity method.
<TABLE>
<S> <C>
Total initial investment $ 6,511
Share of net book value 6,375
-------
Excess of cost over net book value $ 136
=======
</TABLE>
The excess of cost over net book value has been allocated to the mineral
exploration properties for purposes of calculating Granges' equity in Zamora's
earnings. The excess will be amortized on a units-of-production basis if such
properties are developed into operating mines or written off if the properties
are abandoned.
11. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprises of the following:
<TABLE>
<CAPTION>
Property Metals Produced Acquired/Commenced
Production
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hycroft mine gold, silver Lewis 1987, Crofoot 1988
Tartan mine gold 1987 (suspended 1989)
Trout Lake mine copper, zinc, gold, silver 1982 (interest disposed of
March 31, 1994 - see note6A)
</TABLE>
<TABLE>
<CAPTION>
1995 1994
(RESTATED,
SEE NOTE 4)
---------------------------------------------- ------------------------------------------------
ACCUMULATED ACCUMULATED
DEPRECIATION, DEPRECIATION,
DEPLETION, DEPLETION,
AMORTIZATION AMORTIZATION
AND AND
COST WRITE DOWNS NET COST WRITE DOWNS NET
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Producing Mines
Hycroft mine $85,137 $53,089 $32,048 $81,193 $49,342 $31,851
Non-Producing Mine
5,283 2,699 2,584 5,283 2,699 2,584
Tartan Lake mine
Corporate Assets 1,016 357 659 1,123 565 558
-------- ------- ------- ------- ------- -------
91,436 56,145 35,291 87,599 52,606 34,993
Deferred stripping
costs - Hycroft 12,987 4,522 8,465 6,002 4,334 1,668
-------- ------- ------- ------- ------- -------
$104,423 $60,667 $43,756 $93,601 $56,940 $36,661
======== ======= ======= ======= ======= =======
</TABLE>
I-48
<PAGE> 232
A) DEFERRED STRIPPING
During 1993, the amounts of waste moved per ton of ore at the Hycroft mine
exceeded the average ratio expected over the life of the mine. The mining plan
indicates that this will continue to be the case from time to time, whereas
previously there was little variation in the ratio of waste to ore. To
accommodate these variations, mining costs associated with removal of waste in
excess of the life-of-mine average will be deferred and charged to operations
in future periods when ratios are below the average. Stripping costs deferred
this year amounted to $7,182,000 (1994 - $1,958,000; 1993 - $3,725,000).
Amortization of previously deferred costs was $304,000 in 1995 (1994 -
$4,246,000; 1993 - Nil).
B) ROYALTIES
The Crofoot property is subject to 4 percent net profits royalties. No royalty
payments were made in 1995, 1994 and 1993 because minimum royalty payments
made prior to 1993 aggregating US$2.8 million were available for credit the
royalty obligations. Effective 1996, the company has agreed to apply this
credit to reduce the maximum cumulative royalties payable of US$10 million and
to pay minimum royalty payments of US$240,000 per year.
The Lewis property is subject to a 5 percent net smelter royalty on gold
produced from the Lewis property. During 1993, 1994 and 1995, only nominal
minimum royalties were required in relation to this property.
12. JOINT VENTURE
The Company proportionately consolidates its share of the assets, liabilities,
revenues and expenses of its joint venture. Prior to March 31, 1994 the
Company's principal joint venture was the Trout Lake mine, in which it owned 29
percent (see Note 6a). The 1994 results include the Company's share of
production, revenues and expenses from the Trout Lake mine to the date of
disposal. The proportionate amounts of the above joint venture included in the
consolidated accounts are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ -- $ 3,257 $14,267
============= ======= =======
Expenses $ -- $ 3,905 $14,568
============= ======= =======
</TABLE>
13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------------------
(Restated, See
Note 4)
<S> <C> <C>
Accounts payable $4,798 $17,893
Accrued liabilities 3,720 2,397
------ -------
$8,518 $20,290
====== =======
</TABLE>
Accounts payable at December 31, 1994 included $13.1 million (US$9.3 million)
to purchase mining equipment for the development of the Brimstone deposit, all
of which was paid during 1995.
I-49
<PAGE> 233
14. EQUIPMENT NOTES PAYABLE
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C>
Notes payable due 1994 and 1995, 7.75% to 9.85%
(1995 - US$ NIL; 1994 - US$261,000) $ -- $ 366
Less: amounts due within one year -- 366
-------- ---------
$ -- $ --
======== =========
</TABLE>
15. SHARE CAPITAL
A) Authorized share capital comprises 750,000,000 common shares without par
value and 750,000,000 preferred shares without par value.
B) Common shares issued and outstanding:
<TABLE>
<CAPTION>
Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C>
At December 31, 1993 34,157,000 $146,198
Issued in 1994 20,000 29
---------- --------
At December 31, 1994 34,177,000 146,227
Issued upon exercise of stock options 147,500 312
Issued pursuant to amalgamation (Note 3) 11,718,411 --
Capital reduction -- (72,559)
---------- --------
At December 31, 1995 46,042,911 $ 73,980
========== ========
</TABLE>
C) CAPITAL REDUCTION
At the March 30, 1995 extraordinary meeting, the shareholders of Granges
approved a special resolution to reduce the capital of the company. Under this
resolution the share capital and contributed surplus were reduced by $72.6
million and $3.8 million, respectively, with a corresponding decrease to
Granges' accumulated deficit of approximately $76.4 million. The effect of
this capital reduction was to eliminate the consolidated accumulated deficit of
Granges as of December 31, 1994 after giving effect to the estimated costs of
the amalgamation. This deficit was caused primarily by prior write downs of
mining assets.
D) LITIGATION SETTLEMENT
Settlement of the action commenced in 1989 by Oxford Acquisitions Inc. against
Granges and Outokumpu Mines Ltd. occurred in February 1993 with mutual
releases. The company's only other obligation in the settlement was the
issuance of 150,000 Granges shares to the plaintiff.
E) COMMON SHARE OPTIONS
At December 31, 1995, 1,320,000 common shares were reserved for issuance under
options granted to directors, officers and management employees. These options
expire as follows: 1996 - 65,000; 1997 - 100,000; 2001 - 30,000; 2003 -
20,000; 2004 - 25,000; 2005 - 1,080,000.
I-50
<PAGE> 234
<TABLE>
<CAPTION>
SHARE OPTIONS OPTION PRICE
- -------------------------------------------------------------------------
<S> <C> <C>
At December 31, 1993 230,000 $ 1.45 to $ 2.85
Granted in 1994 530,000 $ 2.28 to $ 3.30
Exercised in 1994 (20,000) $ 1.45
---------
At December 31, 1994 740,000 $ 1.45 to $ 3.30
Granted in 1995 905,000 $ 2.25 to $ 2.78
Exercised in 1995 (147,500) $ 1.45 to $ 2.28
Expired in 1995 (177,500) $ 2.28 to $ 2.70
---------
At December 31, 1995 1,320,000 $ 1.45 to $ 2.78
=========
</TABLE>
During the year, options to purchase 35,000 shares at $ 3.30 per share were
repriced to $2.78 per share.
16. CURRENCY TRANSLATION ADJUSTMENT
The currency translation adjustment represents the foreign currency translation
loss on the Company's investment in its self-sustaining foreign operations.
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Currency translation adjustment, beginning of year $ (247) $(1,234)
Unrealized gain (loss) for the year (1,160) 987
-------- -------
Currency translation adjustment, end of year $ (1,407) $ (247)
======== =======
</TABLE>
17. CHANGES IN WORKING CAPITAL, EXCLUDING CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts receivable $ 560 $ 2,828 $ 520
Marketable Securities 83 30 --
Inventories (1,113) (5,024) 290
Accounts payable and accrued liabilities (11,772) 13,364 1,192
-------- ------- --------
$(12,242) $11,198 $ 2,002
======== ======= ========
</TABLE>
18. RELATED PARTY TRANSACTIONS
In 1994, consulting fees of $72,000 (1993 - $72,000) were paid to a director of
the Company, who resigned during 1994. In 1995 no such fees were paid.
19. SEGMENTED INFORMATION
The Company operates in the mining industry in Canada and the United States.
Its major product is gold, and prior to 1995, it also produced copper and zinc.
Geographic segments are presented below.
I-51
<PAGE> 235
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales
Canada $ -- $ 3,257 $14,267
U.S. 56,374 51,175 41,030
------- ------- -------
56,374 $54,432 $55,297
======= ======= =======
Results of Mining Operations
Canada $ -- $ (476) $554
U.S. 4,512 3,024 479
------- ------ -------
4,512 $ 2,548 $ 1,033
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Identifiable assets
Canada $39,450 $45,156
U.S. 48,475 53,670
------- -------
$87,925 $98,826
======= =======
</TABLE>
20. RETIREMENT PLANS
The company provides a voluntary money purchase retirement plan to permanent
Canadian employees to which the company makes contributions, depending on
length of employment, from 2 percent to 4 percent of salary. The company's
contribution in 1995 was $35,500 (1994 - $33,300).
The company provides a voluntary retirement plan to permanent U.S. employees to
which the company makes contributions, depending on length of employment, from
2 percent to 4 percent of salary. The company's contribution in 1995 was
US$113,200 (1994 - US$12,400).
21. CONTINGENCIES AND COMMITMENTS
A) The Company is committed to U.S. dollar payments under certain
operating leases for mining equipment. Future payments under these leases in
each of the next five years and in the aggregate are:
<TABLE>
<CAPTION>
Cdn. $000's
U.S. $000's Equivalent
- --------------------------------------------------------------------------------
<S> <C> <C>
1996 1,998 2,727
1997 1,998 2,727
1998 1,055 1,440
1999 -- --
------ ------
$5,051 $6,894
====== ======
</TABLE>
Letters of credit totalling US$2.8 million (1994-US$3.5 million) have been
provided as security under these mine equipment operating leases.
The company is also committed to payments under a lease for office space ending
May 31, 1997. Annual payments under the lease, net of subtenancy receipts, are
$487,000.
I-52
<PAGE> 236
B) As part of its gold hedging program, the company has entered into
agreements with major financial institutions to deliver gold. Realization
under these agreements is dependent upon the ability of those financial
institutions to perform in accordance with the terms of the agreements. As at
December 31, 1995, the company's consolidated hedging program consists of:
(i) forward sales contracts totalling 12,000 ounces for deliveries up
to December 27, 1996, at an average price of US$383.33 per ounce;
(ii) matching option contracts for 19,000 ounces of gold under which
the company can require the financial institution to buy gold at US$392
per ounce, while the financial institution can require the company to
sell the same number of ounces at US$465 per ounce. These options have
various expiry dates during 1996 and result in no net cost to the
company.
22. SUBSEQUENT EVENT
Subsequent to the end of the year, the company, through its subsidiary, has
arranged a secured stand-by credit facility. The facility is available for
drawdown until December 31, 1996, in dollars or as a gold loan, to a maximum of
US$13.0 million or the gold ounce equivalent thereof (not to exceed 35,000
ounces). Drawdowns under the facility bear interest at LIBOR plus 1.60 percent
for dollar loans and gold lease rates plus 1.60 percent for gold loans. The
loan is repayable in seven semi-annual instalments commencing the earlier of 12
months after the first drawdown or June 30, 1997. In the event, the company
generates cash surpluses after debt service, it is required to make annual
prepayments equal to 25 percent of its Excess Cash flow, up to a maximum of
US$2.5 million annually and US$5.0 million in aggregate.
In addition to the loan facility, the company has also arranged a hedging
facility for up to 275,000 ounces of gold for deliveries up to the year 2001.
Both the hedging and credit facilities are secured by the assets at the Hycroft
mine and parent company guarantee.
On February 29, 1996, the company entered into a Letter of Intent to enter into
an Option Agreement with L. B. Mining Company to acquire the Guariche gold
project in Southeastern Venezuela. Subject to due diligence and the company
satisfying itself that, during the four-month option period, the project
contains 500,000 ounces of proven and probable reserves, the company will
acquire the property for US$15 million of which US$5 million is payable in
Granges shares and the balance in cash. Additional proven and probable
reserves above the 500,000 ounces will cost US$30 per ounce up to one million
ounces. Any excess above one million proven and probable ounces attract a 7.5
percent Net Smelter Royalty. The expenditure commitment is US$600,000 during
the option period, an additional US$1.0 million within the first 12-month
period after the property is acquired, and a further US$1.0 million within the
following 12-month period.
23. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The significant differences between generally accepted accounting principles
(GAAP) in Canada and in the United States are as follows:
A) Under Canadian GAAP, interest costs relating specifically to assets
under construction may be capitalized during the construction period.
When construction is completed, further interest costs are expensed.
Under U.S. GAAP, interest to be capitalized for qualifying assets is
intended to be
I-53
<PAGE> 237
that portion of the interest cost incurred during the assets'
acquisition periods that theoretically could have been avoided if
expenditures for the assets had not been made.
B) Under Canadian GAAP, the amalgamation of Granges and Hycroft was
treated in a manner similar to a pooling of interest. Under U.S. GAAP,
the amalgamation does not meet the conditions for pooling of interest.
Accordingly, the transaction would be treated as a purchase under U.S.
GAAP with the excess of proceeds over the net book value of Hycroft's
net assets allocated to mineral properties.
C) Under Canadian corporate law, the company underwent a capital reduction
in connection with the amalgamation of Granges and Hycroft whereby
share capital and contributed surplus were reduced to eliminate the
consolidated accumulated deficit of Granges as of December 31, 1994,
after giving effect to the estimated costs of the amalgamation. Under
U.S. corporate law, no such transaction is available and accordingly is
not allowed under U.S. GAAP.
D) Under Canadian GAAP, corporate income taxes are accounted for using the
deferral method of income tax allocation. Under this method, deferred
income taxes represent a deferral to future periods of a benefit
obtained or expenditures incurred currently, and are accordingly
computed at current tax rates without subsequent adjustment to the
accumulated balance to reflect changes in tax rates. Deferred taxes
are provided on differences between accounting and taxable income due
to the difference in timing of recognition of items for accounting and
tax purposes ("timing differences"). Under U.S. GAAP, corporate income
taxes are accounted for using the liability method of income tax
allocation. Under this method, deferred income taxes are considered to
reflect the recognition in the current period of taxes expected to be
payable or recoverable in a future period, and accordingly, the
accumulated tax allocation balance is adjusted in future periods to
reflect changes in tax rates. Deferred taxes are provided on
"temporary differences", which is a broader concept than "timing
differences." Under U.S. GAAP, deferred tax assets are reduced by a
valuation allowance if, based on the weight of available evidence, it
is more likely than not that some portion or all of the deferred tax
assets will not be realized. As at December 31, 1994 any deferred tax
assets to be recognized would have been offset by a valuation
allowance. Under US GAAP, the excess of purchase price over net book
value acquired would be tax affected giving rise to a credit to
deferred income taxes and a debit to mineral properties. This would
result in a corresponding reduction in the valuation allowance with the
resulting credit being allocated against mineral properties. At
December 31, 1995, the Company's deferred tax would be as follows:
<TABLE>
<CAPTION>
1995
---------
<S> <C>
Deferred taxes arising on:
Operating losses $ 4,462
Excess purchase price (13,469)
Temporary tax and book basis difference 13,669
---------
Subtotal 4,662
Valuation allowance (4,662)
---------
$ nil
=========
</TABLE>
E) Under U.S. GAAP, the settlement of Mining taxes described in Note 4 is a
current year's expense.
I-54
<PAGE> 238
The significant differences in the consolidated statements of earnings and
deficit relative to U.S. GAAP were as follows:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net earnings following Canadian GAAP $ 2,948 $ 6,985 $ 2,761
Net interest capitalized (amortized) (Note A) (29) (36) 55
Depreciation of excess of proceeds over net book
value of assets on amalgamation (Note B) (3,629) -- --
Other Item
Settlement of Mining Taxes (Note E) (256) -- --
-------- -------- ---------
Net earnings (loss), following U.S. GAAP (966) 6,949 2,816
Deficit, beginning of year following U.S. GAAP (73,699) (80,648) (83,464)
-------- -------- ---------
Deficit, end of year following U.S. GAAP $(74,665) $(73,699) $ (80,648)
======== ======== =========
Primary earnings (loss) per share $ (0.02) $ 0.20 $ 0.08
======== ======== =========
</TABLE>
The significant differences in the balance sheet as at December 31, 1995
relative to U.S. GAAP were:
<TABLE>
<CAPTION>
Per Cdn. Cdn./U.S. Per U.S.
GAAP Adj. GAAP
---- --- ----
<S> <C> <C> <C>
Current assets $38,104 $ 38,361
Investments 5,808 5,808
Property, plant and equipment 43,756 31,535(A),(B) 75,291
------- --------
$87,668 $119,460
======= ========
Current liabilities 8,518 8,518
Provision for reclamation and future closure costs 4,654 4,654
------- --------
13,172 13,172
Common shares 73,980 104,785(B),(C) 178,765
Contributed surplus -- 3,803(C) 3,803
Retained earnings (deficit) 1,923 (77,053)(A),(B),(C) (74,873)
Currency translation adjustment (1,407) (1,407)
------- --------
87,668 119,460
======= ========
</TABLE>
Cash flows for the company under Canadian GAAP are presented in the
consolidated statement of changes in cash resources. Under Canadian GAAP all
financing and investment activities are presented on the face of the statement.
Under U.S. GAAP only cash transactions are presented, with non-cash
transactions disclosed separately. The gain on the sale of the company's base
metal properties was a non-
I-55
<PAGE> 239
cash transaction. Accordingly, under U.S. GAAP the proceeds from the sale of
mineral properties and marketable securities and the purchase of investments
would both be reduced by $6,718,750, the value of the non-cash transaction.
The company is not aware of any differences between Canadian and U.S. GAAP in
classifications among categories within the cash flow statement.
Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 203 $ 157 $ 516
Income taxes 264 416 33
</TABLE>
I-56
<PAGE> 240
SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION
(CANADIAN DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th Year
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Sales 15,976 13,687 13,781 12,930 56,374
Earnings (loss) from
mining operations 2,727 818 1,265 (298) 4,512
Net earnings (loss) 1,434 218 5,780 (4,484) 2,948
Earnings (loss) per share 0.04 0.01 0.13 (0.10) 0.07
1994
Sales 13,834 11,387 15,344 13,867 54,432
Earnings (loss) from
mining operations (402) 427 1,584 939 2,548
Net earnings (loss) 10,477 (751) (1,148) (1,593) 6,985
Earnings (loss) per share 0.31 (0.02) (0.03) (0.05) 0.20
</TABLE>
I-57
<PAGE> 241
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
I-58
<PAGE> 242
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of Granges
The directors of Granges are elected each year at the annual general meeting of
shareholders and hold office until their successors are elected or appointed.
On August 15, 1994 Atlas acquired 12,694,200 common shares, representing 37.2
percent of the issued and outstanding common shares, of Granges in a private
transaction from a previous shareholder. As a result of the subsequent
amalgamation on May 1, 1995 of Granges with its 50.5 percent owned subsidiary,
Hycroft Corp., Atlas' interest in the Post-Amalgamation Granges was reduced to
27.7 percent. Pursuant to an agreement dated May 13, 1994, as amended by a
subsequent agreement dated February 24, 1995, Atlas agreed that, following the
Amalgamation, which Atlas agreed to support, (i) Atlas would vote its common
shares of Granges in favour of a slate of nine directors who would constitute
the board of directors of Granges from and after October 1, 1995 and would vote
its common shares in favour of such nine directors at the first
post-amalgamation annual general meeting of Granges in 1996, and (ii) Michael
B. Richings, then President of Atlas, would become President and Chief
Executive Officer of Granges, subject to approval of the Granges board of
directors. The agreement entitles Atlas to representation on the board of
directors of Granges in proportion with its shareholding in Granges.
Mr. Richings became President and Chief Executive Officer of Granges effective
June 1, 1995, and ceased to be President of Atlas, although he remains on the
board of directors of Atlas. Both Mr. Richings and Mr. David J. Birkenshaw,
Chairman and Chief Executive Officer of Atlas, serve on both the board of
directors of Atlas and the board of directors of Granges.
The present directors of Granges, together with the location of their
residences, ages, length of service and business experience, are described
below.
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME AGE DIRECTOR SINCE DURING PAST FIVE YEARS
---- --- -------------- ----------------------
<S> <C> <C> <C>
David J. Birkenshaw 40 August 17, 1994 Investment Banker; Chairman and
Toronto, Ont. Chief Executive Officer of Atlas
Director and Vice Chairman of Corporation, a mining company,
the Board since 1990; Chairman of
Birkenshaw & Company, Ltd., an
investment company, since 1990
William M. Calhoun 63 May 1, 1995 Mining Engineer and Geologist;
Silverton, Id. Chief Executive Officer of
Director William Calhoun, Inc., mining
consultants
</TABLE>
I-59
<PAGE> 243
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME AGE DIRECTOR SINCE DURING PAST FIVE YEARS
---- --- -------------- ----------------------
<S> <C> <C> <C>
C. Thomas Ogryzlo 56 March 8, 1996 Mining Engineer; President and
Mississauga, Ont. Chief Operating Officer of
Kilborn Engineering and
Construction Ltd., an engineering
firm, since 1992; Senior Vice
President of Kilborn Engineering
and Construction from 1991 to
1992; prior to 1991 Senior Vice
President of Fluor Daniel Wright,
an engineering firm.
Michael B. Richings 50 May 1, 1995 Mining Engineer; Director of
Littleton, Co. Atlas Corporation, a mining
Director company, since January, 1995;
Group Executive and President of
Lac Minerals Ltd. South America,
a mining company, from 1993 to
1995; Vice President of
Operations of Atlas Corporation
from 1990 to 1992
David R. Sinclair 66 June 1, 1995 Chartered Accountant; Corporate
Nanoose Bay, B.C. Director; Director, Cominco Ltd.,
Director and Chairman of the a mining company
Board
Keith Steeves 63 September 29, 1995 Mining Executive; Senior Vice-
Vancouver, B.C. President, Commercial of Teck
Director Corporation, a mining company
Alan G. Thompson 68 December 1, 1989 Businessman; President and Chief
West Vancouver, B.C. Executive Officer of A.G.T.
Director Financial Corporation, an
investment company
John S. Walton 65 May 1, 1995 Businessman; Chairman of
Victoria, B.C. Endeavour Financial Corporation,
Director a firm providing corporate and
financial advisory services to
the mining industry
Peter Walton 66 May 24, 1989 Self-employed business consultant
West Vancouver, B.C.
Director
</TABLE>
Other than as set out above, none of the directors of Granges hold
directorships in any companies stipulated by this item and no events stipulated
by this item have occurred during the past five years that are material to an
evaluation of the ability or integrity of any director of Granges.
I-60
<PAGE> 244
None of the above directors has entered into any arrangement or understanding
with any other person pursuant to which he was or is to be elected as a
director of Granges or a nominee of any other person, except as disclosed
herein.
Executive Officers
The executive officers of Granges are appointed by and hold office at the
pleasure of the board of directors of Granges. The present executive officers
of Granges, together with their ages, length of service and business
experience, are described below:
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME AGE HELD OFFICE SINCE DURING PAST FIVE YEARS
---- --- ----------------- ----------------------
<S> <C> <C> <C>
Michael B. Richings 50 June 1, 1995 Mining Engineer; Director of Atlas
President and Chief Corporation, a mining company,
Executive Officer and since January, 1995; Group
Director Executive and President of Lac
Minerals Ltd. South America, a
mining company, from 1993 to 1995;
Vice President of Operations of
Atlas Corporation from 1990 to
1992
Amjad J. Ali 51 May 12, 1993 Vice President, Finance of Granges
Vice President Finance Inc. since 1993; prior to 1993,
and Chief Financial Vice President, Finance of
Officer Quintette Coal Limited, a mining
company
Nancy A. Larson 34 January 1, 1996 Corporate Solicitor of Granges
Corporate Secretary/ from 1993 to 1996; prior thereto
Manager Investor Associate, Jones McCloy Peterson
Relations (Barristers & Solicitors)
Paul Wright 42 May 1, 1995 General Manager, Crofoot/Lewis
Vice President Mining and mine of Hycroft Resources &
Project Development Development Corporation, a mining
company, from 1992 to 1995;
Manager, Western Operations of
J.S. Redpath Group, a mine
contracting and engineering
company, from 1987 to 1991
</TABLE>
Other than as set out above, none of the executive officers of Granges hold
directorships in any companies stipulated by this item and no events stipulated
by this item have occurred during the past five years that are material to an
evaluation of the ability or integrity of any of the above executive officers
of Granges.
None of the above executive officers has entered into any arrangement or
understanding with any other person pursuant to which he was or is to be
elected as an executive officer of Granges or a nominee of any other person.
I-61
<PAGE> 245
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the total compensation
for the Company for services during the three most recently completed financial
years with respect to certain executive officers or former executive officers
of Granges whose total compensation as officers during 1995 exceeded US
$100,000.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION ($) COMPENSATION
--------------------------------------- ------------
OTHER
ANNUAL SECURITIES ALL OTHER
NAME AND COMPEN- UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS SATION(1)(3) OPTIONS(2) SATION(3)
------------------ ---- ------ ----- ------------ ---------- ---------
($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C>
MICHAEL B. RICHINGS 1995 154,363 30,000 None 250,000 5,286(4)
President and Chief
Executive Officer
PAUL WRIGHT 1995 54,030 None None 100,000 144,690(5)
Vice President Mining and
Project Development
AMJAD J. ALI 1995 130,000 13,000 None 100,000 2,600
Vice President Finance 1994 130,000 12,000 None 20,000 2,600
1993 82,298 N/A None 20,000 37,573(6)
JOHN S. AUSTON 1995 108,333 None 572,870(7) 100,000 2,167
Former President and Chief 1994 260,000 24,000 None 100,000 3,500
Executive Officer 1993 200,000 N/A 6,000(8) 100,000 3,500
FREDERICK FELDER 1995 96,604 None 273,378(7) 50,000 3,500
Former Senior Vice 1994 139,500 13,000 None 20,000 3,500
President Exploration 1993 135,488 13,000 None 20,000 3,500
JANIS D. BUSSE 1995 130,000 13,000 239,759(7) 50,000 3,500
General Counsel & 1994 130,000 13,000 None 20,000 3,500
Corporate Secretary 1993 125,013 15,000 None 20,000 3,500
- --------------------------
</TABLE>
(1) Perquisites and other personal benefits for the most recently completed
financial year do not exceed the lesser of $50,000 and 10% of the total
annual salary and bonus for any of the executive unless otherwise noted.
(2) All securities under option are for common shares of Granges. No stock
appreciation rights ("SARs") are outstanding.
(3) Represents Granges' contribution under Granges' Retirement Savings Plan
except where otherwise indicated. The executive officers of Granges
participate in this plan on the same basis as all other employees of
Granges. See "Retirement Savings Plan".
(4) Michael B. Richings was Group Executive and President of Lac Minerals Ltd.,
South America from 1993 and became President and Chief Executive Officer of
Granges on June 1, 1995.
(5) Paul Wright was General Manager, Crofoot/Lewis mine of Hycroft Resources &
Development Corporation, from 1992 and became Vice President Mining and
Project Development on May 1, 1995.
(6) Amjad Ali became permanently employed by Granges in April 1993 and was
appointed Vice President Finance on May 12, 1993. Other compensation for
this officer during 1993 includes consulting fees of $12,000 per month for
a total of $36,000 and $1,573 representing Granges' contribution under the
Retirement Savings Plan.
(7) Severance payments, including base salary, bonus (where applicable) and
employee benefits. John S. Auston retired on June 1, 1995. Frederick
Felder ceased to be Senior Vice President Exploration on July 17, 1995.
Janis Busse ceased to be General Counsel and Corporate Secretary on
December 31, 1995.
(8) Director's fees.
I-62
<PAGE> 246
Compensation Pursuant to Plans
Stock Option Plans
In August 1984, Granges established a stock option plan, which was amended in
1990 and again in 1995 ("Stock Option Plan"), providing for the granting to
directors, officers and full-time employees of Granges of options to purchase
up to a maximum of 7,500,000 common shares of Granges ("Granges Shares") from
time to time. Under the Stock Option Plan, options may be exercised by making a
cash payment to Granges of an amount equal to the option exercise price per
share for each Granges Share in respect of which the option is exercised. All
options are subject to the terms and conditions of an option agreement entered
into by Granges and each participant at the time an option is granted.
Subject to the requirement of the Stock Option Plan, the Board of Directors has
the authority to select those individuals to whom options will be granted and
the specific terms of the options and to amend the terms of any options that
would otherwise expire upon the termination of director's, officer's or
full-time employee's position with Granges. The option exercise price under
the Stock Option Plan for common shares acquired upon exercise of an option is
not less than the fair market value, without any discount, of the common shares
at the time of granting of the option. All options expire 10 years after the
grant of the options and otherwise terminate upon the termination of the
optionee's employment or service with Granges, subject to the right of the
optionee to exercise options during the lesser of the time remaining to
exercise the option and 30 business days after such termination, unless
terminated with cause. If an optionee dies before his termination of employment
then any option can be exercised by the optionee's legal representative for the
lesser of the time remaining to exercise the option and 90 business days.
During the lifetime of the optionee, the option is exercisable only by the
optionee and options are not assignable or transferable.
Option Grants
The following table sets forth information concerning grants of stock options
under Granges' Stock Option Plan during the financial year ended December 31,
1995 to each of the executive officers named in the Summary Compensation Table.
All securities are for common shares of Granges. No stock appreciation rights
("SARs") are outstanding, and it is currently intended that none be issued.
I-63
<PAGE> 247
<TABLE>
<CAPTION>
POTENTIAL
% OF TOTAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL
SECURITIES GRANTED TO EXERCISE RATES OF STOCK
UNDERLYING EMPLOYEES IN OR PRICE APPRECIATION
NAME OPTIONS(2) FINANCIAL YEAR BASE PRICE EXPIRATION DATE FOR OPTION TERM
---- ---------- -------------- ---------- --------------- --------------------
(%) ($/SECURITY)
<S> <C> <C> <C> <C> <C> <C>
Michael B. Richings 100,000 8.3 2.70 May 8, 2005 439,802 700,310
150,000 12.4 2.25 December 12, 2005 549,752 875,388
Paul Wright 50,000 4.1 2.70 May 8, 2005 219,901 350,155
50,000 4.1 2.25 December 12, 2005 183,251 291,796
Amjad J. Ali 30,000 2.5 2.28 January 23, 2005 111,416 177,412
30,000 4.1 2.25 December 12, 2005 109,950 175,078
John S. Auston 0 0 0 0 - -
Frederick Felder 30,000 2.5 2.28 September 15, 1995 111,416 177,412
Janis Busse 30,000 2.5 2.28 January 31, 1996 111,416 177,412
</TABLE>
- ---------------
(1) The market value of the common shares on the date of grant of the
options is the closing price per share at which board lots of common
shares were traded on The Toronto Stock Exchange on the day preceding
the date of grant.
(2) Options to purchase 110,000 shares were exercisable on January 1, 1996
and an additional 102,500 will be exercisable on each of the three
anniversary dates of the initial vesting.
AGGREGATED OPTION EXERCISES AND VALUE OF UNEXERCISED OPTIONS
The following table sets forth information concerning the exercise of options
during the financial year ended December 31, 1995, and the value at December
31, 1995 of exercisable in-the-money options held, by each of the executive
officers named in the Summary Compensation Table. No SARs are outstanding.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING THE-MONEY OPTIONS AT
UNEXERCISED OPTIONS FINANCIAL YEAR-END
SHARES ACQUIRED VALUE AT FINANCIAL YEAR-END EXERCISABLE/
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE UNEXERCISABLE(1)
---- --------------- -------- ------------------------- ---------------------
(#) ($) (#) ($)
<S> <C> <C> <C> <C>
Michael B. Richings 0 0 62,500/187,500 140,625/421,875
Paul Wright 10,000 12,500 25,000/75,000 56,250/168,750
Amjad J. Ali 0 0 35,000/45,000 78,750/101,250
John S. Auston 0 0 100,000/0 225,000/0
Frederick Felder 27,500 32,275 0/0 0/0
Janis D. Busse 0 0 27,500/22,500 61,875/50,625
</TABLE>
(1) Based on the closing trading price of the Company's common shares on
The Toronto Stock Exchange on the last trading day of the financial
year, being $2.25.
I-64
<PAGE> 248
OUTSTANDING OPTIONS
The total number of outstanding options to purchase Granges Shares held by
executive officers, directors who were not executive officers and employees who
were neither directors nor executive officers of Granges as of December 31,
1995 (including all such officers, directors and employees of subsidiaries of
Granges)is as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF
OPTIONEES UNDER OPTION OPTIONS EXERCISABLE EXERCISE PRICE EXPIRY DATES
--------- ---------------- ------------------- -------------- ------------
<S> <C> <C> <C> <C>
Executive Officers 600,000 255,000 $1.45 - 2.85 2001 - 2005
Directors 400,000 220,000 $1.45 - 2.78 2001 - 2005
Employees 320,000 121,250 $1.45 - 2.85 2001 - 2005
</TABLE>
CASH BONUS PLANS
Executive officers and certain other senior employees of Granges are eligible
under employment contracts or under the policy adopted by Granges in 1989 for
cash performance or incentive bonuses. Bonuses paid in 1995 totalled $85,860
paid to eight persons. Bonuses are in the discretion of the board of directors
on recommendations from the Compensation Committee. There is no established
formula utilized in determining the bonuses.
PENSION AND RETIREMENT SAVINGS PLANS
Permanent, Canadian-based employees including executive officers of the Company
are eligible for contributions by the Company to their individual retirement
savings plan ("RSP"). The retirement savings plan also requires the Company to
contribute between 2% and 4% of the employee's salary, depending on length of
service, to a maximum of $3,500 per year and provided the employee also makes
the required contribution, as follows:
<TABLE>
<CAPTION>
GRANGES' EMPLOYEES'
TERM OF EMPLOYMENT CONTRIBUTION CONTRIBUTION
- ------------------ ------------ ------------
<S> <C> <C>
3 years or less . . . . . . . . . . . . . 2.0% 2%
3-4 years . . . . . . . . . . . . . . . . 3.0% 2%
4-5 years . . . . . . . . . . . . . . . . 3.5% 2%
5 years or more . . . . . . . . . . . . . 4.0% 2%
</TABLE>
The retirement savings funds for each employee are deposited in the employee's
registered retirement savings plan ("RRSP") as defined in Canadian income tax
legislation, and are held by a trustee. The amounts contributable to an RRSP
and the withdrawal and taxation of RRSP funds both before and after retirement
are governed by Canadian income tax legislation. If funds are withdrawn by the
employee from his or her RRSP, the employee ceases to qualify for contributions
by the Company for a period of two years.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ON CHANGE OF CONTROL
All of the four current executive officers of Granges have been engaged under
employment contracts. Each of these contracts commonly provide for base
salary, annual discretionary bonus, four weeks' vacation time and various minor
perquisites. The contract between Granges and the President and Chief
Executive
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<PAGE> 249
Officer, has an unlimited term and allows for termination of his employment by
Granges without cause provided that it continues to pay his base salary until
the earlier of the date he obtains comparable employment elsewhere and the date
of expiry of the contract. His base salary also continues to the expiry of the
term if he is permanently incapacitated during the term of the contract. The
contract also specifies a bonus payable annually of from zero to 30 percent of
his base salary, at the total discretion of the Board of Directors and provides
for a severance benefit described below.
The contracts between Granges and each of the other executive officers are for
an indefinite term, provide for bonuses of zero to 15 percent of base salary,
and contain no specific termination provisions.
Other than as described below, Granges has no plan or arrangement in respect of
compensation received or that may be received by executive officers in the most
recently completed or current financial year to compensate such officers in the
event of the termination of employment on resignation, retirement or change of
control or in the event of a change in responsibilities following a change in
control.
Granges had arrangements with 9 key employees including 6 executive officers
under which each is entitled to receive severance benefits based upon monthly
salary in the event of termination of their employment other than for cause
within one year following a change of control of Granges. The aggregate
compensation paid or payable to the 6 executive officers under this arrangement
is $1,751,875, and the amount paid or payable to each executive officer is as
follows:
<TABLE>
<S> <C>
Amjad J. Ali $162,500
John S. Auston 520,000
Janis Busse 195,000
Frederick Felder 174,375
Michael B. Richings 500,000
Paul Wright 200,000
</TABLE>
COMPOSITION OF THE COMPENSATION COMMITTEE
Granges has a compensation committee comprised of the following directors:
David J. Birkenshaw, David R. Sinclair, Peter Steen, Alan G. Thompson and John
S. Walton (the "Committee"). None of the members of the compensation committee
is or have been an executive officer or employee of Granges or any of its
subsidiaries or an executive officer, employee or director of Atlas Corporation
or any of its affiliates or subsidiaries except David J. Birkenshaw who is
Chairman of the Board and Chief Executive Officer of Atlas Corporation.
REPORT OF THE COMPENSATION COMMITTEE
It is the responsibility of the compensation committee to review and recommend
compensation policies and programs for Granges as well as salary and benefit
levels for its executives. The committee makes recommendations to the Board of
Directors which gives final approval on compensation matters. During 1995 the
compensation committee met five times.
Granges' compensation policies and programs are designed to be competitive with
similar mining companies and to recognize and reward executive performance
consistent with the success of Granges' business. They are intended to attract
and retain capable and experienced people.
In addition to industry comparables, the Committee considers a variety of
factors when determining both compensation policies and programs and individual
compensation levels. These factors include the long range interests of Granges
and its shareholders, overall financial and operating performance of Granges
and the committee's assessment of each executive's individual performance and
contribution toward meeting corporate objectives. Superior performance is
recognized through Granges' cash bonus plan.
I-66
<PAGE> 250
The total compensation plan for executive officers is comprised of three
components: base salary, a cash bonus plan and stock options. As a general
rule for establishing base salaries, the Committee reviews competitive market
data for each of the executive positions and determines placement at an
appropriate level in a range. Compensation levels are typically negotiated
with the candidate for the position prior to his or her final selection for an
executive office. The compensation range for executives normally moves
annually to reflect external factors such as inflation.
Granges' cash bonus plan generally allows management personnel to earn a bonus
to a maximum of 15 percent of his or her base salary, two-thirds of which is
based upon individual performance and one-third of which is based upon the
performance of Granges. All executive officers participate in this program
except the President and Chief Executive Officer. By contract, he is entitled
to earn a bonus of up to 30 percent of his base salary. In the past the
Committee has made a recommendation to the Board as to the appropriate bonus
for the most senior corporate officer, but no specific performance criteria or
objectives have been utilized by the Committee or the Board in making their
determinations.
In 1995 the executive group were paid bonuses of $42,000 in aggregate, which
were paid to three executive officers.
The third element in the total compensation plan is the Stock Option Plan.
This plan is intended to emphasize management's commitment to growth of Granges
and enhancement of shareholders' wealth through, for example, improvements in
net earnings and share price increments. In the past Granges placed less
reliance on stock options as management incentives in comparison to other
companies in the mining industry, principally due to the relative
undervaluation of Granges' stock and other factors which were perceived to have
interfered with normal market performance of its shares. A review of the stock
option element of executive and management compensation was undertaken in 1994
and in August 1994 the Board of Directors adopted the recommendations of the
compensation committee with respect to exercising its discretion in granting
options under the Stock Option Plan. These recommendations, which were
designed to improve the value of the plan as an incentive to management and to
encourage long term service, are as follows:
(a) participation under the Stock Option Plan will continue to be
restricted to senior staff;
(b) the initial grant of options will continue to be upon
commencement of permanent employment, will be at a level
commensurate with the seniority of the position and will be in
accordance with current industry standards;
(c) consideration will be given to subsequent grants on an ad hoc
basis dependant upon corporate and individual performance and
up to a maximum level commensurate with the seniority of the
position; and
(d) each new grant will have a maximum term of 10 years as
required under the Stock Option Plan, but with one-quarter of
the options exercisable at the date of grant and the remaining
three quarters in equal instalments over the succeeding three
years.
Submitted on behalf of the Compensation Committee
DAVID J. BIRKENSHAW
C. THOMAS OGRYZLO
DAVID R. SINCLAIR
ALAN G. THOMPSON
JOHN S. WALTON
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<PAGE> 251
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in Granges'
cumulative total shareholder return on its Common Shares with the cumulative
total return of the TSE 300 Stock Index, assuming the re-investment of
dividends, for the last five financial years:
[GRAPH]
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
TSE 300 100.00 112.02 110.41 146.35 146.09 167.31
GXL.TO 100.00 82.39 126.76 274.65 172.54 158.45
</TABLE>
COMPENSATION OF DIRECTORS
Compensation for directors of Granges during 1995 was and remains $12,000 per
annum plus a fee of $600 per meeting ($500 for telephone meetings) payable
quarterly in equal instalments. The Chairman of the board of directors
receives, in addition, an extra fee of $24,000 per annum. Granges also
reimburse directors for out-of-pocket expenses related to their attendance at
meetings. No additional amounts were paid or are payable to directors of
Granges for committee participation or special assignments.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 1995 certain information
regarding the beneficial ownership of Common Shares by (i) each person known by
Granges to own beneficially more than 5% of the outstanding Common Shares; (ii)
each of Granges' directors (including their spouses and children under 18) and
named executive officers; and (iii) all directors and officers of Granges as a
group (including their spouses and children under 18):
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<PAGE> 252
<TABLE>
<CAPTION>
TOTAL COMMON
SHARES
DIRECTORS, OFFICERS NO. OF EXERCISABLE BENEFICIALLY PERCENT
AND 5% SHAREHOLDERS COMMON SHARES OPTIONS(1) OWNED(1) OWNERSHIP(2)
------------------- ------------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Atlas Corporation 12,714,900 -- 12,714,900 27.6%
Republic Plaza
370 Seventeenth St.
Suite 3150
Denver, Colorado
80202
BGR Precious Metals Inc. 2,356,147 -- 2,356,147 5.1%
Suite 790
Commerce Place
40 Burrard Street
Vancouver, B.C.
V6C 3A6
David J. Birkenshaw 0 35,000 35,000 (3)
Alan G. Thompson 0 35,000 35,000 (3)
William Calhoun 0 27,500 27,500 (3)
Michael B. Richings 0 62,500 62,500 (3)
David R. Sinclair 0 27,500 27,500 (3)
Keith Steeves 0 27,500 27,500 (3)
Peter Steen 0 27,500 27,500 (3)
John S. Walton 0 27,500 27,500 (3)
Peter Walton 0 27,500 27,500 (3)
Amjad J. Ali 0 35,000 35,000 (3)
Paul Wright 0 25,000 25,000 (3)
Janis Busse 5,740 27,500 33,240 (3)
All directors and officers 5,740 385,000 390,740 (3)
as a group (12 persons)
</TABLE>
- ---------------
(1) Includes Common Shares receivable under options which are currently
exercisable or exercisable within 60 days of March 27, 1996 which are
deemed to be beneficially owned for purposes of this item.
(2) At March 27, 1996 there were 46,181,661 Common Shares in the capital
of Granges issued and outstanding.
(3) Less than 1.0%.
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<PAGE> 253
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1995, there have been no transactions, or series of similar
transactions, or any currently proposed transactions or series of similar
transactions, to which Granges or any of its subsidiaries was or is a party in
which the amount involved exceeds $60,000 and in which any director or
executive officer, nominee for election as a director, any member of the
immediate family of any of the foregoing persons or Atlas had, or will have, a
direct or indirect material interest, except for an exploration joint venture
agreement (the "Joint Venture Agreement") between Granges and Atlas dated as of
September 29, 1995.
The Joint Venture Agreement applies to approximately 34 square miles of Atlas'
Gold Bar claim block located near Eureka, Nevada. In order to earn a 50
percent undivided interest in not more than 15 square miles within the area of
interest, the terms of the agreement require Granges to spend US$2.25 million
on exploration and development within three years on approximately 1,194 claims
included in the area of interest, at the rate of US$625,000 in each of the
first two years and US$1.0 million in the third year, and to complete an
independent reserve report recommending development of a deposit containing a
mineable reserve in excess of 300,000 ounces of gold. Granges has the right to
terminate the agreement at any time prior to completing the US$2.25 million of
exploration and development expenditures and the independent reserve report.
If a reserve study is not completed within the first three years, Granges has
an option to earn a 50 percent interest in a reduced three square miles area by
spending an additional US$1.0 million in each of the next succeeding two years
and completing a reserve study. Atlas has retained a two percent net smelter
royalty on all claims not currently carrying third party royalties. Atlas has
agreed to make available to the venture, at the time of Granges' earn-in,
milling throughput rights of not less than 50 percent of the capacity of Atlas'
existing Gold Bar mill.
During 1995, there were and are no relationships regarding directors or
nominees for director as stipulated by this item and no director or executive
officer, nominee for election as a director, any member of their immediate
family or any corporation or organization in which any of them, directly or
indirectly, beneficially owns 10% or more of any class of equity securities was
indebted to Granges.
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<PAGE> 254
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. CONSOLIDATED FINANCIAL STATEMENTS OF GRANGES INC. AND SUBSIDIARIES
Consolidated financial statements of Granges and its subsidiaries are
incorporated under Item 8 of this Form 10-K.
B. REPORTS ON FORM 8-K
(i) The Company filed a report on Form 8-K dated October 5, 1995,
which reported under Item 5 (Other Events) the signing of an
agreement in principle with Atlas Corporation for an
exploration joint venture on approximately 34 square miles of
Atlas' Gold Bar claim block located near Eureka, Nevada.
(ii) The Company filed a report on Form 8-K dated November 14,
1995, which reported under Item 5 (Other Items) its 1995 third
quarter financial results.
(ii) The Company filed a report on Form 8-K dated November 27,
1995, which reported under Item 5 (Other Items) that its board
of directors reviewed and approved the 1996 exploration
program.
C. EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
3.01 Certificate of Amalgamation of Granges filed as
Exhibit 3.01 to the Form 20 F/A for the year ended
December 31, 1994 and incorporated herein by reference
(File No. 1-9025)
3.02 Memorandum of Granges filed as Exhibit 3.02 to the
Form 20-F/A for the year ended December 31, 1994 and
incorporated herein by reference (File No. 1- 9025)
3.03 Articles of Granges filed as Exhibit 3.03 to the Form
20-F/A for the year ended December 31, 1994 and
incorporated herein by reference (File No. 1- 9025)
3.04 Share Certificate of Granges filed as Exhibit 3.04 to
the Form 20-F/A for the year ended December 31, 1994
and incorporated herein by reference (File No. 1-9025)
10.01 Amalgamation agreement dated February 24, 1995 between
Granges and Hycroft included in the Joint Management
Information Circular of Granges and Hycroft filed as
Exhibit 20.1 to the Form 8-K dated May 1, 1995 and
incorporated herein by reference (File No. 1-9025)
10.02 Shareholder Protection Rights Agreement dated as of
May 1, 1995 between Granges and Montreal Trust Company
of Canada filed with the SEC as Exhibit 1.1 to the
Form 8-A of Granges dated May 19, 1995 and
incorporated herein by reference (File No. 1-9025)
</TABLE>
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<PAGE> 255
<TABLE>
<S> <C>
10.03 Severance Agreement dated May 31, 1995 between Granges
and John S. Auston filed as Exhibit 20.1 to the Form
8-K dated May 15, 1995 and incorporated herein by
reference (File No. 1-9025)
10.04 Agreement dated May 13, 1994 between Granges and Atlas
filed as Exhibit 2.01 to the Form 20-F for the period
ended December 31, 1994 and incorporated herein by
reference (File No.1-9025)
10.05 Employment agreement dated June 1, 1995 between
Granges and Michael B. Richings filed as Exhibit 10(i)
to the Form 10-Q for the quarterly period ended June
30, 1995 and incorporated herein by reference (File
No. 1-9025)
10.07 Purchase and Sale Agreement dated September 27, 1995
between Aur Resources Inc. and Granges filed as
Exhibit 10.06 to the Form 20-F/A for the year ended
December 31, 1994 and incorporated herein by reference
(File No. 1-9025)
10.08 Agreement dated February 24, 1995 between Granges and
Atlas filed as Exhibit 2.03 to the Form 20-F for the
period ended December 31, 1994 and incorporated herein
by reference (File No. 1-9025)
10.09 Revised stock option plan of Granges dated September
1995 filed as Exhibit 10.08 to the Form 20-F/A for the
year ended December 31, 1994 and incorporated herein
by reference (File No. 1-9025)
10.10 Commitment letter dated November 14, 1995 between
Granges and Deutsche Bank AG filed as Exhibit 10.09 to
the Form 20-F/A for the year ended December 31, 1994
and incorporated herein by reference (File No. 1-9025)
10.11 Purchase and Sale Agreement dated June 24, 1994
between Granges and Hudson Bay Mining and Smelting
Co., Limited filed as Exhibit 10.10 to the Form 20-
F/A for the year ended December 31, 1994 and
incorporated herein by reference (File No. 1-9025)
10.12 Private Placement Subscription Agreement dated August
25, 1995 between Granges and Zamora Gold Corp. filed
as Exhibit 10.10 to the Form 20-F/A for the year ended
December 31, 1994 and incorporated herein by reference
(File No. 1-9025)
10.13 Registration Agreement between Granges and Atlas dated
as of November 10, 1995 filed as Exhibit 10.12 to the
Form 20-F/A for the year ended December 31, 1994 and
incorporated herein by reference (File No. 1-9025)
10.14 Indemnification Agreement between Granges and Atlas
dated as of November 10, 1995 filed as Exhibit 10.13
to the Form 20-F/A for the year ended December 31,
1994 and incorporated herein by reference (File No.
1-9025)
10.15 Letter of Intent between Granges and Atlas dated as of
October 4, 1995 to enter into an Exploration Joint
Venture Agreement filed as Exhibit 10.14 to the Form
20-F/A for the year ended December 31, 1994 and
incorporated herein by reference (File No. 1-9025)
</TABLE>
I-72
<PAGE> 256
<TABLE>
<S> <C>
10.16 Employment Agreement dated March 24, 1993 between
Amjad J. Ali and Granges filed as Exhibit 10.15 to the
Form 20-F/A for the year ended December 31, 1994 and
incorporated herein by reference (File No. 1-9025)
10.17 Employment Agreement dated May 30, 1995 between Paul
Wright and Granges filed as Exhibit 10.16 to the Form
20-F/A for the year ended December 31, 1994 and
incorporated herein by reference (File No. 1-9025)
10.18 Form of Change of Control Agreement, agreements in the
same format dated May 31, 1995 have been entered into
between Granges and each of Amjad J. Ali, Janis D.
Busse and Paul Wright filed as Exhibit 10.17 to the
Form 20- F/A for the year ended December 31, 1994 and
incorporated herein by reference (File No. 1-9025)
10.19 Lewis Mine Lease and Assignment Agreement included in
the Assignment of Mining Lease dated January 23, 1987
among Standard Slag Company, Hycroft Lewis Mine, Inc.,
Hycroft Resources Corporation and Granges, filed as
Exhibit 10.7 to Granges' Registration Statement on
Form S-1, as amended, and incorporated herein by
reference (File No. 33-17974)
10.20 Lewis Hycroft Agreement dated January 10, 1989,
between Frank W. Lewis, Hycroft Lewis Mine, Inc. and
Hycroft Resources - Development Inc. filed as Exhibit
10.16 to Granges' Annual Report on Form 10-K for the
fiscal year ended December 31, 1988, as amended, and
incorporated herein by reference (File No. 1-9025)
10.21 Second Lewis-Hycroft Agreement dated March 15, 1991
between Frank W. Lewis, Granges, Hycroft Resources -
Development Inc. and Hycroft Lewis Mine, Inc. filed as
Exhibit 10.20 to the Form 20-F/A for the year ended
December 31, 1994 and incorporated herein by reference
(File No. 1-9025)
10.22 Lease and Option dated July 1, 1985, between Henry C.
Crofoot, trustee, and Hycroft Resources - Development
Inc. (Crofoot Patented Claims), as amended, filed as
Exhibit 10.8 to Granges' Registration Statement on
Form S-1, as amended, and incorporated herein by
reference (File No. 33-17974)
10.23 Lease and Option dated July 1, 1985, between Henry C.
Crofoot, trustee, and Hycroft Resources - Development
Inc. (Crofoot Unpatented Claims), as amended, filed as
Exhibit 10.9 to Granges' Registration Statement on
Form S-1, as amended, and incorporated herein by
reference (File No. 33-17974)
10.24 Amendment Agreement dated January 14, 1988, between
Henry C. Crofoot, et al and Hycroft Resources -
Development Inc. filed as Exhibit 10.13 to Granges'
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988, as amended, and incorporated herein
by reference (File No. 1-9025)
10.25 Second Amendment Agreement dated March 3, 1989,
between Henry C. Crofoot, et al and Hycroft Resources
- Development Inc. filed as Exhibit 10.24 to the Form
20-F/A for the year ended December 31, 1994 and
incorporated herein by reference (File No. 1-9025)
</TABLE>
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<PAGE> 257
<TABLE>
<S> <C>
10.26 Third Amendment Agreement dated August 16, 1991
between Henry C. Crofoot, et al and Hycroft Resources
- Development Inc. and Blackrock Properties, Inc.
filed as Exhibit 10.25 to the Form 20-F/A for the year
ended December 31, 1994 and incorporated herein by
reference (File No. 1-9025)
10.27 Employment Agreement dated July 31, 1989, between
Granges and Janis Busse, filed as Exhibit 28.1 to
Granges' Current Report on Form 8-K dated September 6,
1989, and incorporated herein by reference (File No.
1-9025)
11.01 Statement of Computation of Per Share Earnings of
Granges (Filed with 1995 Form 10-K)
21.01 List of all subsidiaries of Granges filed as Exhibit
21.01 to the Form 20- F/A for the year ended December
31, 1994 and incorporated herein by reference (File
No. 1-9025)
22.01 Joint Management Information Circular prepared in
connection with the Extraordinary General Meeting of
Granges held on March 30, 1995 filed as Exhibit 20.1
to the Form 8-K dated May 1, 1995 and incorporated
herein by reference (File No. 1-9025)
22.02 Management Information and Proxy Circular for an
Extraordinary Shareholder Meeting held on September
25, 1995 filed as Exhibit 22.02 to the Form 20-F/A for
the year ended December 31, 1994 and incorporated
herein by reference (File No. 1-9025)
24.01 Power of Attorney in favour of Michael B. Richings
filed as Exhibit 24.01 to the Form 20-F/A for the year
ended December 31, 1994 and incorporated herein by
reference (File No. 1-9025)
24.02 Power of Attorney in favour of Michael B. Richings
(Filed with 1995 Form 10-K)
99.1 Letter of Intent between Granges and L.B. Mining Co.
dated as of February 29, 1996 to enter into an Option
Agreement concerning the Guariche project in
Venezuela. (Filed with 1995 Form 10-K)
</TABLE>
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<PAGE> 258
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
GRANGES INC.
Dated: March 28, 1996 /s/ Michael B. Richings
---------------------------------------
Michael B. Richings,
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 date indicated.
Dated: March 28, 1996 By: /s/ Amjad J. Ali
------------------------------------
Amjad J. Ali,
Vice President Finance
and Chief Financial Officer
Dated: March 28, 1996 By: /s/ Nancy A. Larson
------------------------------------
Nancy A. Larson,
Corporate Secretary/Manager
Investor Relations
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<PAGE> 259
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Amendment has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and March 28, 1996
--------------------------------- Director
David R. Sinclair
/s/ Michael B. Richings President and Chief Executive March 28, 1996
--------------------------------- Officer and Director
Michael B. Richings
Vice Chairman of the Board
--------------------------------- Director
David Birkenshaw
* Director March 28, 1996
---------------------------------
William Calhoun
Director
---------------------------------
C. Thomas Ogryzlo
* Director March 28, 1996
---------------------------------
Alan G. Thompson
* Director March 28, 1996
---------------------------------
John Walton
* Director March 28, 1996
---------------------------------
Peter Walton
* Director March 28, 1996
---------------------------------
Keith Steeves
/s/ Amjad J. Ali Vice President Finance and Chief March 28, 1996
--------------------------------- Financial Officer
Amjad J. Ali
</TABLE>
* On his own behalf and pursuant to Powers of Attorney dated March 26 and March
28, 1996 the undersigned by signing his name hereby signs this Amendment in the
name and on behalf of the foregoing indicated officers and directors.
/s/ Michael B. Richings
- ---------------------------------------------
Michael B. Richings
I-76
<PAGE> 260
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the undersigned has signed this report solely in the capacity as
the duly authorized representative of Granges Inc. in the United States in the
City of Denver, Colorado, on this 28th day of March, 1996.
GRANGES (U.S.) INC.
By: /s/ Michael B. Richings
-------------------------------------
Michael B. Richings,
President and Chief Executive Officer
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<PAGE> 261
SCHEDULE J
SECTION 231 OF THE COMPANY ACT (BRITISH COLUMBIA)
231. (1) DISSENT PROCEDURE. -- Where
(a) being entitled to give notice of dissent to a
resolution as provided in section 37, 127, 150, 246,
268, 273 or 313, a member of a company (in this Act
called a "dissenting member") gives notice of
dissent;
(b) the resolution referred to in paragraph (a) is
passed; and
(c) the company or its liquidator proposes to act on the
authority of the resolution referred to in paragraph
(a),
the company or the liquidator shall first give to the dissenting member notice
of the intention to act and advise the dissenting member of his rights under
this section.
(2) On receiving a notice of intention to act in accordance with
subsection (1), a dissenting member is entitled to require the company to
purchase all his shares in respect of which the notice of dissent was given.
(3) The dissenting member shall exercise his right under
subsection (2) by delivering to the registered office of the company, within 14
days after the company, or the liquidator, gives the notice of intention to
act,
(a) a notice that he requires the company to purchase all
his shares referred to in subsection (2); and
(b) the share certificates representing all his shares
referred to in subsection (2);
and thereupon he is bound to sell those shares to the company and the company
is bound to purchase them.
(4) A dissenting member who has complied with subsection (3), the
company, or, if there has been an amalgamation, the amalgamated company, may
apply to the court, which may
(a) require the dissenting member to sell, and the
company or the amalgamated company to purchase, the
shares in respect of which the notice of dissent has
been given;
(b) fix the price and terms of the purchase and sale, or
order that the price and terms be established by
arbitration, in either case having due regard for the
rights of creditors;
(c) join in the application any other dissenting member
who has complied with subsection (3); and
(d) make consequential orders and give directions it
considers appropriate.
(5) The price to be paid to a dissenting member for his shares
shall be their fair value as of the day before the date on which the resolution
referred to in subsection (1) was passed, including any
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<PAGE> 262
appreciation or depreciation in anticipation of the vote on the resolution, and
every dissenting member who has complied with subsection (3) shall be paid the
same price.
(6) The amalgamation or winding up of the company, or any change
in its capital, assets or liabilities resulting from the company acting on the
authority of the resolution referred to in subsection (1), shall not affect the
right of the dissenting member and the company under this section or the price
to be paid for the shares.
(7) Every dissenting member who has complied with subsection (3) may
(a) not vote, or exercise or assert any rights of a
member, in respect of the shares for which notice of
dissent has been given, other than under this
section;
(b) not withdraw the requirement to purchase his shares,
unless the company consents; and
(c) until he is paid in full, exercise and assert all the
rights of a creditor of the company.
(8) Where the court determines that a person is not a dissenting
member, or is not otherwise entitled to the right provided by subsection (2),
the court may make the order, without prejudice to any acts or proceedings
which the company, its members, or any class of members may have taken during
the intervening period, it considers appropriate to remove the limitations
imposed on him by subsection (7).
(9) The relief provided by this section is not available if,
subsequent to giving his notice of dissent, the dissenting member acts
inconsistently with his dissent; but a request to withdraw the requirement to
purchase his shares is not an act inconsistent with his dissent.
(10) A notice of dissent ceases to be effective if the member
giving it consents to or votes in favour of the resolution of the company to
which he is dissenting, except where the consent or vote is given solely as a
proxy holder for a person whose proxy required an affirmative vote.
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<PAGE> 263
ANY QUESTIONS OR REQUESTS FOR ASSISTANCE MAY BE DIRECTED TO:
GRANGES INC. DA CAPO RESOURCES LTD.
709 - 700 West Pender Street 1500 - 625 Howe Street
Vancouver, British Columbia Vancouver, British Columbia
Canada V6C 1G8 Canada V6C 2T6
CONTACT: NANCY A. LARSON CONTACT: ROSS J. BEATY
TELEPHONE: (604) 689-7140 TELEPHONE: (604) 684-1175
FACSIMILE: (604) 687-8699 FACSIMILE: (604) 684-0147
GOEPEL SHIELDS & PARTNERS INC. SALMAN PARTNERS INC.
Suite 1100, Pacific Centre Suite 2393, 3 Bentall Centre
701 West Georgia Street 595 Burrard Street
Vancouver, British Columbia Vancouver, British Columbia
Canada V7Y 1C6 Canada V6J 3J2
CONTACT: K. ROSS CORY CONTACT: TERRANCE K. SALMAN
TELEPHONE: (604) 661-1752 TELEPHONE: (604) 685-2450
FACSIMILE: (604) 661-1790 FACSIMILE: (604) 685-2471
MONTREAL TRUST COMPANY OF CANADA PACIFIC CORPORATE TRUST COMPANY
4th Floor, 510 Burrard Street 830 - 625 Howe Street
Vancouver, British Columbia Vancouver, British Columbia
Canada V6C 3B9 Canada V6C 3B8
CONTACT: SHAREHOLDER COMMUNICATIONS CONTACT: LISA SCOTLAND
TELEPHONE: (604) 661-0222 TELEPHONE: (604) 689-9853
FACSIMILE: (604) 683-3694 FACSIMILE: (604) 689-8144
<PAGE> 264
PROXY
GRANGES INC.
709 - 700 West Pender Street
Vancouver, British Columbia, Canada V6C 1G8
EXTRAORDINARY GENERAL MEETING
October 22, 1996
THIS PROXY IS SOLICITED BY MANAGEMENT OF GRANGES INC.
The undersigned member ("shareholder") of Granges Inc. ("Granges") hereby
appoints Michael B. Richings, or failing him, Amjad J. Ali, or instead of
either of them
- --------------------------------------------------------------------------------
as proxyholder for and on behalf of the undersigned with the power of
substitution to attend the extraordinary general meeting of the shareholders of
Granges to be held on October 22, 1996 and at any adjournments thereof (the
"Meeting"), to act for and on behalf of and to vote the shares of the
undersigned and to cast the number of votes the undersigned would be entitled
to cast if personally present with respect to the matters specified
below.
I direct my proxy to vote as follows:
1. To pass a special resolution of the shareholders of Granges approving
the Amalgamation Agreement dated September 16, 1996 between Granges
and Da Capo Resources Ltd.
FOR [ ] AGAINST [ ]
The undersigned hereby revokes any proxy previously given with respect to the
shares represented hereby.
EXECUTED on the _______ day of ____________, 1996.
- --------------------------------------------------
Signature of Shareholder(s)
- --------------------------------------------------
Name of Shareholder(s) (Please print clearly)
- --------------------------------------------------
Address
- --------------------------------------------------
City/Province (State)
- --------------------------------------------------
Number of Shares Held
<PAGE> 265
NOTES TO PROXY
1. The shares represented by this Proxy will, on any ballot, be voted
as the shareholder may have specified by marking an "X" in the
spaces provided for that purpose. IF NO CHOICE IS SPECIFIED, THE
SHARES WILL BE VOTED AS IF THE SHAREHOLDER HAD SPECIFIED AN
AFFIRMATIVE VOTE.
2. THIS PROXY ALSO CONFERS A DISCRETIONARY AUTHORITY TO VOTE THE SHARES
WITH RESPECT TO:
A) AMENDMENTS OR VARIATIONS OF MATTERS IDENTIFIED IN THE NOTICE
OF MEETING, AND
B) OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING;
BUT ONLY IF MANAGEMENT OF GRANGES HAS NOT BEEN MADE AWARE A
REASONABLE TIME PRIOR TO THIS SOLICITATION THAT THE AMENDMENTS,
VARIATIONS OR OTHER MATTERS ARE TO BE PRESENTED FOR ACTION AT THE
MEETING.
3. A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON OR COMPANY TO
REPRESENT HIM/HER AT THE MEETING OTHER THAN THE PERSONS NAMED IN
THIS FORM OF PROXY. IF A SHAREHOLDER DOES NOT WISH TO APPOINT
EITHER OF THE PERSONS NAMED IN THIS PROXY, HE/SHE SHOULD STRIKE OUT
THEIR NAMES AND INSERT IN THE BLANK SPACE PROVIDED THE NAME OF THE
PERSON HE/SHE WISHES TO ACT AS HIS/HER PROXYHOLDER. SUCH OTHER
PERSON NEED NOT BE A SHAREHOLDER OF GRANGES.
4. This Proxy may not be valid unless it is dated and signed by the
shareholder or by his attorney duly authorized by him in writing,
or, in the case of a corporation, is executed under its corporate
seal or by an officer or officers or attorney for the corporation
duly authorized. If this Proxy is executed by an attorney for an
individual shareholder or joint shareholders or by an officer or
officers or attorney of a corporate shareholder not under its
corporate seal, the instrument so empowering the officer or officers
or the attorney, as the case may be, or a notarial copy thereof,
should accompany the Proxy.
5. This Proxy may not be used at the Meeting or any adjournments
thereof unless it is deposited at the office of MONTREAL TRUST
COMPANY OF CANADA, Granges' Registrar and Transfer Agent, 510
Burrard Street, Vancouver, British Columbia, V6C 3B9, Attention:
Stock & Bond Transfer Department no later than 10:00 a.m. on Friday,
October 18, 1996. The Chairman of the Meeting has the discretion to
accept proxies filed subsequently.
<PAGE> 266
PROXY
DA CAPO RESOURCES LTD.
1500 - 625 Howe Street
Vancouver, British Columbia, Canada V6C 2T6
EXTRAORDINARY GENERAL MEETING
October 22, 1996
THIS PROXY IS SOLICITED BY MANAGEMENT OF DA CAPO RESOURCES LTD.
The undersigned member ("shareholder") of Da Capo Resources Ltd. ("Da Capo")
hereby appoints Gordon Jang, or failing him, Christine Rampersad, or instead of
either of them
- --------------------------------------------------------------------------------
as proxyholder for and on behalf of the undersigned with the power of
substitution to attend the extraordinary general meeting of the shareholders of
Da Capo to be held on October 22, 1996 and at any adjournments thereof (the
"Meeting"), to act for and on behalf of and to vote the shares of the
undersigned and to cast the number of votes the undersigned would be entitled
to cast if personally present with respect to the matters specified below.
I direct my proxy to vote as follows:
1. To pass a special resolution of the shareholders of Da Capo approving
the Amalgamation Agreement dated September 16, 1996 between Da Capo
and Granges Inc.
FOR [ ] AGAINST [ ]
The undersigned hereby revokes any proxy previously given with respect to the
shares represented hereby.
EXECUTED on the _______ day of ____________, 1996.
- --------------------------------------------------
Signature of Shareholder(s)
- --------------------------------------------------
Name of Shareholder(s) (Please print clearly)
- --------------------------------------------------
Address
- --------------------------------------------------
City/Province (State)
- --------------------------------------------------
Number of Shares Held
<PAGE> 267
NOTES TO PROXY
1. The shares represented by this Proxy will, on any ballot, be voted as
the shareholder may have specified by marking an "X" in the spaces
provided for that purpose. IF NO CHOICE IS SPECIFIED, THE SHARES WILL
BE VOTED AS IF THE SHAREHOLDER HAD SPECIFIED AN AFFIRMATIVE VOTE.
2. THIS PROXY ALSO CONFERS A DISCRETIONARY AUTHORITY TO VOTE THE SHARES
WITH RESPECT TO:
A) AMENDMENTS OR VARIATIONS OF MATTERS IDENTIFIED IN THE NOTICE
OF MEETING, AND
B) OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING;
BUT ONLY IF MANAGEMENT OF DA CAPO HAS NOT BEEN MADE AWARE A REASONABLE
TIME PRIOR TO THIS SOLICITATION THAT THE AMENDMENTS, VARIATIONS OR
OTHER MATTERS ARE TO BE PRESENTED FOR ACTION AT THE MEETING.
3. A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON OR COMPANY TO
REPRESENT HIM/HER AT THE MEETING OTHER THAN THE PERSONS NAMED IN THIS
FORM OF PROXY. IF A SHAREHOLDER DOES NOT WISH TO APPOINT EITHER OF
THE PERSONS NAMED IN THIS PROXY, HE/SHE SHOULD STRIKE OUT THEIR NAMES
AND INSERT IN THE BLANK SPACE PROVIDED THE NAME OF THE PERSON HE/SHE
WISHES TO ACT AS HIS/HER PROXYHOLDER. SUCH OTHER PERSON NEED NOT BE A
SHAREHOLDER OF DA CAPO.
4. This Proxy may not be valid unless it is dated and signed by the
shareholder or by his attorney duly authorized by him in writing, or,
in the case of a corporation, is executed under its corporate seal or
by an officer or officers or attorney for the corporation duly
authorized. If this Proxy is executed by an attorney for an
individual shareholder or joint shareholders or by an officer or
officers or attorney of a corporate shareholder not under its
corporate seal, the instrument so empowering the officer or officers
or the attorney, as the case may be, or a notarial copy thereof,
should accompany the Proxy.
5. This Proxy may not be used at the Meeting or any adjournments thereof
unless it is deposited at the office of PACIFIC CORPORATE TRUST
COMPANY, Da Capo's Registrar and Transfer Agent, 830 - 625 Howe
Street, Vancouver, British Columbia, V6C 2B8, Attention: Lisa
Scotland no later than 11:00 a.m. on Friday, October 18, 1996. The
Chairman of the Meeting has the discretion to accept proxies
filed subsequently.
