<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year-ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1-9620
AMAX GOLD INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1199974
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
9100 East Mineral Circle 80112
Englewood, Colorado (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (303) 643-5500
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
==========================================================================================================
Title of each class Name of each exchange on which registered
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Common Stock, $0.01 par value (99,329,039 shares New York Stock Exchange, Inc.
outstanding at March 11, 1997) The Toronto Stock Exchange
$3.75 Series B Convertible Preferred Stock, $1.00 par New York Stock Exchange, Inc.
value (1,840,000 shares outstanding
at March 11, 1997)
==========================================================================================================
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. X
-----
The aggregate market value of voting stock held by non-affiliates at the closing
price of $7 1/4 on March 11, 1997, was approximately $341,500,000.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
1996 Annual Report to Shareholders (Parts I, II and IV). Proxy Statement for
the 1997 Annual Meeting to be filed within 120 days after the fiscal year
(Part III).
<PAGE>
Part I
Items 1 and 2. Business and Properties
Amax Gold Inc. (Amax Gold or the Company) and its subsidiaries are engaged in
the mining and processing of gold and silver ore and in the exploration for, and
acquisition and development of, gold-bearing properties, principally in the
Americas, Russia, Australia and Africa. The Company's share of production from
its operating properties in the United States and Chile totaled 268,331 ounces
during 1996, and its share of reserves as of December 31, 1996, in all its
properties totaled approximately 229 million tons of ore reserves with an
average grade of 0.028 ounces of gold per ton, with 6.4 million contained ounces
of gold. The Company has agreed to acquire, subject to certain conditions, from
Cyprus Amax Minerals Company (Cyprus Amax) its 50 percent interest in the Kubaka
gold mine in the Russian Federation. The acquisition would add 2.47 million
tons of ore reserves with an average grade of 0.540 ounces of gold per ton, with
1.33 million contained ounces for the Company's account. The Company expects to
complete the acquisition of the Kubaka mine in early 1997.
The Company was incorporated in Delaware in 1987 and reincorporated in 1995.
Cyprus Amax owns approximately 52.5 percent of the Company's outstanding Common
Stock and has the right to acquire additional shares in connection with the
Kubaka acquisition and under certain financing arrangements.
The Company owns the Fort Knox mine near Fairbanks, Alaska, which is nearing
commencement of commercial production. The Company's operating properties
consist of a 50 percent interest in the Refugio mine in Chile; the Hayden Hill
mine in Lassen County, California; and a 90 percent interest in the Guanaco mine
in Chile. In addition the Company owns a 62.5 percent joint venture interest in
the Haile property in Lancaster County, South Carolina. The Company also owns
the Sleeper mine in Humboldt County, Nevada, and the Wind Mountain mine in
Washoe County, Nevada, which are in reclamation. The locations of Amax Gold's
properties are shown on the map on page 2, and descriptions are set forth below.
Data relating to the Company's domestic and foreign operations and export sales
are incorporated by reference from Note 13 to the Consolidated Financial
Statements on page 24 of the 1996 Annual Report.
Unless otherwise indicated, reserves represent proven and probable reserves,
and all reserve information is given as of December 31, 1996. Other mineralized
material represents a mineralized body with established geologic continuity that
requires additional work to qualify as reserves. Except as otherwise noted,
references to tons and ounces are to short tons of 2,000 pounds and to troy
ounces of 31.103 grams, respectively. Production is defined as gold or silver
produced in the form of dore plus any inventory in mill carbon circuits. Tons
mined include removal of waste required to access ore. Total cash costs include
all operating costs at the mine site, including overhead, proceeds taxes and
royalties, are net of credits for silver by-product and exclude reclamation
costs.
All of the Company's operating properties are open pit mines. Except for mining
equipment owned by contract miners at Guanaco and Refugio and mobile mining
equipment leased by the Company at Fort Knox, the Company owns its mining and
processing equipment, which is maintained in good operating condition. Ore is
processed by milling or heap leaching. Milling is the traditional process for
recovering gold from ore. After ore is crushed, the gold and silver are
concentrated and then smelted into dore, which is shipped to refiners for
further processing. The milling process is typically used for higher recovery
oxide and sulfide ores.
Heap leaching is a lower cost processing method applied principally to oxidized
ores. The heap leach recovery rate is generally lower than for milling. In the
heap leaching process, crushed and/or run-of-mine ore is loaded onto impermeable
leach pads. The ore is irrigated with a weak cyanide solution that penetrates
the ore, dissolving the gold and silver. The pregnant solution is collected and
pumped through activated carbon or a Merrill Crowe zinc precipitation plant to
remove the metals from the solution. After the gold and silver is stripped from
the carbon or processed from the zinc precipitate, it is smelted into dore,
which is shipped to refiners for further processing.
The terms Amax Gold and the Company when used herein may refer collectively to
Amax Gold Inc. and its subsidiaries and affiliates or to one or more of them
depending on the context.
<PAGE>
[Strip Art Here]
-2-
<PAGE>
Fort Knox Mine
The Fort Knox mine is located in the Fairbanks Mining District, 15 air miles
northeast of Fairbanks, Alaska.
Development. Fort Knox reached mechanical completion in November 1996, and
construction was essentially completed in early 1997. The first gold bars were
poured on December 20, 1996. During April 1996, the Company announced that the
Fort Knox mine's total capital cost was expected to increase to approximately
$396 million, including $26 million in capitalized interest, resulting
principally from increased excavation requirements, design enhancements and
higher than anticipated costs in several areas such as labor, freight and
engineering. As of the end of February 1997, approximately $365 million had
been spent on construction, including capitalized interest. The operation
includes an open pit mine, a conventional 36,000 tons per day (13.1 million tons
per year) mill and process plant, a tailings storage facility and a fresh water
reservoir to supply process water. The process facilities are designed as a
zero discharge system. Power is supplied by the public utility serving the area
over a distribution line paid for by the Company. Access is provided by paved
highway for 21 miles from Fairbanks and then for five miles by unpaved road.
The mine and plant are designed to operate year round and to produce
approximately 300,000 to 350,000 ounces of gold per year, with the higher rates
expected during the early years.
Property Position. The Fort Knox mine covers approximately 47,000 acres and
consists of two state mining leases, approximately 1,400 state mining claims,
seven patented federal mining claims, and the mineral rights to 38 patented
federal mining claims. The current reserve is located on approximately 1,150
acres of land held under a state mining lease that expires in 2014 and may be
renewed for a period not to exceed 55 years. This lease is subject to a 3
percent royalty payable to the State of Alaska based on net income. The
remaining Fort Knox property is held by deeds, a second mining lease, an option
agreement and mining claim locations. The second mining lease expires in 2009,
and the Company plans to exercise the option agreement in 1997. Claims
surrounding the current reserve are subject to net smelter return royalties
ranging from 3 percent to 6 percent on the state mining claims, and both a 1
percent net smelter return royalty and a 10 percent overriding net profits
interest on certain of the patented federal mining claims.
Geology and Ore Reserves. The Fort Knox gold deposit occurs as porphyry-style
mineralization of the type usually associated with copper and molybdenum ore
bodies. The ore is hosted within the upper margins of a granitic intrusion in a
stockwork of small quartz veins and shear zones. The veins and shears are
fractions of an inch to 10 inches wide with erratic and widely-spaced
distribution. The gold occurs as fine grains of free gold disseminated within
and along the margins of the veins and shears. In plan view, the deposit has a
dimension of about 4,000 by 2,000 feet, elongated in an east-west direction and
extending to depths of 1,000 feet. The geology is relatively simple and the
rocks are weakly altered. Grade is usually related to the degree of fracturing
and veining of the rocks. Because of the low grade and erratic distribution of
gold, the Company is mining on a bulk tonnage basis. The following table sets
forth the proven and probable reserves for the Fort Knox mine.
Fort Knox Mine
Proven and Probable Ore Reserves
As of December 31, 1996
<TABLE>
<CAPTION>
Gold Gold
Tons Avg. Grade Content
(000) (oz./ton) (000 oz.)
- --------------------------------------------------------------------
<S> <C> <C> <C>
Mill Ore 161,315 0.025 4,079
====================================================================
</TABLE>
The December 31, 1996 Fort Knox reserves were calculated by the Company and
verified by Mineral Resources Development, Inc. in its report dated February
1997. Reserves are calculated using a gold price of $400 per ounce and a gold
cut-off grade of 0.013 ounces per ton. Minor changes from the 1995 reserve
reflect the production of gold during start-up. The Company estimates that mill
recovery will be approximately 90 percent.
-3-
<PAGE>
In addition to proven and probable reserves, the Company has estimated 157
million tons of other mineralized material at an average grade of 0.021 ounces
per ton.
Refugio Mine
The Company owns a 50 percent interest in the Refugio mine, located in the
Maricunga Mining District in central Chile, approximately 75 miles east of
Copiapo. The property, situated between 13,800 feet and 14,800 feet above sea
level, is held by Compania Minera Maricunga (CMM), a Chilean contractual mining
company indirectly owned 50 percent by the Company and 50 percent by Bema Gold
Corporation, a publicly traded company based in Vancouver, British Columbia.
Operations. Construction of the Refugio mine was completed in early 1996 with
the development of an open pit mine and a three-stage crushing and heap leach
operation capable of processing 33,000 tons of ore per day, or 11.9 million tons
per year. The mine and plant are designed to produce an estimated 200,000 to
250,000 ounces of gold per year, of which the Company's share is 50 percent.
Production commenced in April 1996; however, start-up was delayed due to
mechanical problems with the secondary and tertiary crushers and the collapse of
fill underlying the fine ore storage bin. Placement of ore on the pads,
leaching and gold production continued until resolution of these issues in the
third quarter of 1996, and commercial production commenced on October 1, 1996.
The Company has retained an experienced mining contractor with its own equipment
to drill, blast, load and transport all ore and waste. Carbon adsorption,
stripping and electrowinning are being used to recover gold from the leach
solutions. Electrowon cathodes are smelted to dore bars for shipment.
Facilities include a permanent camp with access to the site from Copiapo
provided by road. Power is supplied by on-site diesel powered generators.
Water extraction rights expected to be sufficient to supply the mine are owned
by CMM.
The following table presents operating data for the Refugio mine for the period
from commencement of commercial production on October 1, 1996, through December
31, 1996.
Refugio Mine
Operating Data
(AGI 50% Share)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1996
<S> <C>
Tons mined 3,297,800
Tons of ore to heap leach 1,720,875
Average grade to heap leach (oz. per ton) 0.031
Heap leach recovery rate (%) 58.2%
Ounces of gold produced 30,612
Ounces of silver produced 2,620
Cost per ounce of gold produced:
Total cash costs $242
Depreciation and depletion 95
- ------------------------------------------------------------------------------
Total production costs $337
==============================================================================
</TABLE>
Property Position. The Refugio property comprises approximately 14,500 acres,
consisting of mineral rights, surface rights and water rights expected to be
sufficient for the mine. The principal ore deposit is held by mining claims
that are owned by CMM. Essentially all of the mineral rights surrounding the
claims are held by a joint venture formed by Bema and the former owner of the
Refugio claims. CMM has agreements in place with this joint venture that will
allow CMM to mine any extensions of its major ore deposits extending onto
surrounding mineral rights and to use the surrounding areas for project needs.
CMM owns or controls surface rights covering the known mineralization and the
currently anticipated
-4-
<PAGE>
mining operation under two leases from the Chilean Army, which expire in 2001
and 2005 and may be extended for an additional ten years.
The Company, through its 50 percent ownership of CMM, is responsible for payment
of a net smelter return to the former owners of the Refugio property that is
expected to average 2.5 percent of the Company's share of production from the
currently defined ore reserves. An additional sliding scale net smelter return
related to net profits and ranging from 2.5 to 5 percent is payable on the
Company's share of any production in excess of current reserves.
Geology and Ore Reserves. The Refugio property encompasses the Verde, Pancho
and Guanaco gold deposits, which are disseminated gold porphyry deposits
containing minor amounts of copper. Gold mineralization is contained within a
strong stockwork system hosted by silicified intrusive rocks. The Verde deposit
contains all the current reserves and consists of oxide, mixed and unoxidized
ore types and it is open at depth. Additional exploration potential also exists
in the Guanaco and Pancho deposits. The Refugio property lies at the southern
end of a 90-mile-long belt of Miocene-aged volcanic rocks that contains a number
of large disseminated gold-silver deposits. The following table sets forth the
proven and probable reserves in the Verde deposit.
Refugio Mine
Proven and Probable Ore Reserves in the Verde Deposit
As of December 31, 1996
<TABLE>
<CAPTION>
Gold Content
(000 oz.)
Gold ----------------------
Tons Avg. Grade The Company's
(000) (oz./ton) Total 50% Share
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Heap Leach Ore 107,204 0.029 3,117 1,558
==============================================================================
</TABLE>
The December 31, 1996 Refugio reserves were calculated by the Company and
verified by Mineral Resources Development, Inc. in its report dated February
1997. The reserves are confined to the Verde pit zone. The variable cut-off
grades for pit design and reserve summary were based on a $375 per ounce gold
price and costs and recoveries which vary by rock type and alteration. Changes
in reserves from 1995 relate to production and the removal of 2.9 million tons
of in-pit inferred resource which was previously included in the reserve. The
Company expects the average ultimate recovery rate for the reserve to be
approximately 66 percent.
In addition to proven and probable reserves, the Company has estimated its share
of other mineralized material to be 134 million tons at an average grade of
0.025 ounces per ton.
Hayden Hill Mine
The Hayden Hill mine in Lassen County, California is located approximately 120
miles northwest of Reno, Nevada.
Operations. The Hayden Hill operation is an open pit mine with two pits, heap
leach pads and tailings disposal facilities. Access to the mine is provided by a
county road that connects to a state highway. Power for operations is purchased
from the local rural electric association. Water for mining and processing
operations is provided by two wells located in close proximity to the mine.
Potable water is supplied by truck. Mining is expected to be completed in late
1997 with residual leaching continuing into 1998.
-5-
<PAGE>
The following table presents operating data for the Hayden Hill mine for the
years indicated.
Hayden Hill Mine
Operating Data
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Tons mined 8,275,944 8,522,982 12,922,500
Tons of ore to heap leach 5,505,849 5,538,965 5,132,694
Average grade to heap leach (oz. per ton) 0.028 0.024 0.017
Heap leach recovery rate (%) 67.80 60.10 74.10
Ounces of gold produced 103,502 80,031 65,785
Ounces of silver produced 320,574 227,125 137,570
Cost per ounce of gold produced:
Total cash costs* $229 $253 $382
Reclamation 30 22 24
Depreciation and depletion 87 87 105
- --------------------------------------------------------------------------------
Total production costs $346 $362 $511
================================================================================
</TABLE>
*During 1994, the Company changed its method of accounting for ore loaded on
heap leach pads, which increased 1994 cash production costs at the Hayden Hill
mine by $39 per ounce.
Property Position. The Company controls approximately 6,300 acres through
ownership of federal patented and unpatented mining claims and fee lands, and a
long-term lease of federal unpatented mining claims, which has an indefinite
term. Approximately 75 percent of the current reserves are subject to a gross
receipts net smelter return royalty ranging from 2 percent to 5 percent.
Geology and Ore Reserves. The Hayden Hill deposit occurs within a Miocene-aged
volcaniclastic sequence, comprised of dacitic tuffs and breccias, lahars and
tuffaceous lake bed sediments. At its base, this mine sequence has siltstones
that are intercalated with sandstones and some andesites. The dacite breccia
overlies the basal units and averages approximately 200 feet thick. The deposit
is dominantly hosted by the dacitic breccia and overlying units, which were
extensively hydrothermally altered during the mineralizing event. The following
table sets forth the proven and probable reserves at the Hayden Hill mine.
Hayden Hill Mine
Proven and Probable Ore Reserves
As of December 31, 1996
<TABLE>
<CAPTION>
Gold Gold
Tons Avg. Grade Content
(000) (oz./ton) (000 oz.)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Heap Leach Ore 5,635 0.029 164
================================================================================
</TABLE>
The December 31, 1996 Hayden Hill reserves were calculated by the Company. The
reserves within the designed pits were based on a $400 per ounce gold price,
variable cut-off grades and variable recoveries depending on rock alteration.
Changes from 1995 reserves result from production and a revision of the resource
model and the pit designs, which increased the remaining reserves by 0.9 million
tons and 44,000 ounces of gold. The Company expects the average ultimate gold
recovery rate to be approximately 60 percent.
-6-
<PAGE>
Guanaco Mine
The Company owns a 90 percent interest in and operates the Guanaco mine, located
in the Guanaco Mining District in northern Chile, approximately 145 miles
southeast of Antofagasta, Chile. Under existing shareholder arrangements, the
Company receives 100 percent of production until certain conditions are met.
Management currently does not believe these conditions will be met; therefore,
100 percent of Guanaco's reserves have been included in the Company's reserves.
Operations. The operation consists of an open pit mine, heap leach facilities
capable of processing approximately 2.4 million tons of ore per year and
permanent camp facilities. The facility includes three stages of crushing,
permanent pad heap leaching and Merrill Crowe zinc precipitation of gold. The
Company has retained an experienced mining contractor with its own equipment to
drill, blast, load and transport all ore and waste. Access to the mine from
Antofagasta is provided by the Pan American Highway (approximately 120 miles
south) and a gravel surface road (approximately 25 miles east). Power is
supplied by an on-site power plant. The water supply for mine operations comes
primarily from nearby wells and from nearby surface springs, which also provide
potable water.
The Guanaco mine began production in April 1993. Production was impacted in
1994 by initial crusher throughput problems, as well as by process water
shortages, which were resolved in the fourth quarter of 1994. During 1995,
despite continued problems with crusher throughput, production at Guanaco
increased primarily due to higher grades and recoveries. The crusher problems
were resolved in 1996, which resulted in significantly improved production.
Mining is expected to be completed in mid-1997 with residual leaching continuing
into 1998. However, based on a detailed study of the continuity of ore, costs
and production rates, a $35.5 million pre-tax write-down was recorded during the
fourth quarter of 1996. See Note 6 of the Company's Consolidated Financial
Statements for further discussion.
The following table presents operating data for the Guanaco mine for the years
indicated.
Guanaco Mine
Operating Data
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Tons mined 13,332,872 13,389,543 12,699,988
Tons of ore to heap leach 2,479,645 2,030,848 2,172,746
Average grade to heap leach (oz. per ton) 0.070 0.063 0.050
Heap leach recovery rate (%) 55.20 55.30 53.20
Ounces of gold produced 96,018 70,850 57,675
Ounces of silver produced 359,869 268,066 295,940
Cost per ounce of gold produced:
Total cash production costs* $290 $375 $420
Reclamation 4 - -
Depreciation and depletion 156 151 147
- --------------------------------------------------------------------------------
Total production costs $450 $526 $567
================================================================================
</TABLE>
*During 1994, the Company changed its method of accounting for ore loaded on
heap leach pads, which decreased 1994 cash production costs at the Guanaco mine
by $65 per ounce. Cash costs in 1996 exclude the impact of the write-down of
heap leach inventories at Guanaco.
Property Position. The Guanaco property position consists of approximately
25,000 acres consisting of mineral claims leased from Empresa Nacional de
Mineria (ENAMI), an entity of the Chilean government, and certain other mineral
rights. Nearly all of the reserves are located on land covered by the ENAMI
lease, which expires in 2006 and may be extended
-7-
<PAGE>
by the Company for additional five-year terms thereafter. The lease is subject
to royalties varying with the level of production, with the royalty on gold
ranging from a 7 percent gross royalty to a 3 percent gross royalty plus a 2
percent net profits royalty; there is a gross royalty of 2 percent for all other
metals. The property remains subject to a 1.1 percent net smelter return
royalty to the minority owners for metals other than gold.
Geology and Ore Reserves. The Guanaco deposit contains gold mineralization in
steeply dipping vein-like zones within a silicified volcanic host rock. The
following table sets forth the proven and probable reserves at the Guanaco mine.
Guanaco Mine
Proven and Probable Ore Reserves
As of December 31, 1996
<TABLE>
<CAPTION>
Gold Gold
Tons Avg. Grade Content
(000) (oz./ton) (000 oz.)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Heap Leach Ore 2,673 0.045 119*
================================================================================
</TABLE>
*Represents 100 percent of Guanaco's reserves.
The December 31, 1996 Guanaco reserves were calculated by the Company. The
resource model and pits were revised to reflect development drilling in 1996,
actual 1996 costs and revised metallurgical recovery rates. Reserves were
calculated based on a $400 per ounce gold price and a cut-off grade of 0.021
ounces per ton. Changes in reserves from 1995 reflect production and revision
of the resource model and pit designs, which decreased the remaining reserves by
1.3 million tons and 116,000 ounces of gold. The Company estimates the ultimate
recovery rate for the gold reserve to be approximately 57 percent. No attempt
has been made to quantify a silver reserve, but the current operation recovers
about four times as much silver as gold.
Sleeper Mine
The Sleeper mine is located in Humboldt County, Nevada, approximately 28 miles
north of Winnemucca.
Operations. Gold production in 1996 decreased from 1995 levels due to
completion of mining as planned in the first quarter of 1996. Milling was
completed in August of 1996 and operations were completed at the end of the
third quarter. Reclamation activities, partially funded through continued
residual leaching, have commenced at Sleeper and are expected to be
substantially completed by 2000. The operation includes an open pit mine, mill,
heap leach pads and tailings disposal facilities. Access to the mine is
provided by a gravel road that connects to a paved public highway. Power is
purchased from the local rural electric association. Water is provided by a
well system that is currently being used to fill the pits, and potable water is
supplied by truck.
-8-
<PAGE>
The following table presents operating data for the Sleeper mine for the years
indicated.
Sleeper Mine
Operating Data
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Tons mined 1,432,400 14,467,900 18,639,300
Tons of ore milled 570,975 857,284 802,534
Average mill-head grade (oz. per ton) 0.069 0.095 0.110
Mill recovery rate (%) 65.20 67.30 80.60
Tons of ore to heap leach 453,100 2,779,000 5,012,600
Average grade to heap leach (oz. per ton) 0.020 0.018 0.016
Heap leach recovery rate (%) 42.80 55.50 44.90
Ounces of gold produced
Mill 25,843 54,731 70,750
Heap leach 12,356 27,331 36,162
- --------------------------------------------------------------------------------
Total 38,199 82,062 106,912
- --------------------------------------------------------------------------------
Ounces of silver produced 36,222 98,694 142,597
Cost per ounce of gold produced
Total cash costs* $247 $325 $264
Reclamation 19 17 9
Depreciation and depletion 67 50 92
- --------------------------------------------------------------------------------
Total production costs $333 $392 $365
================================================================================
</TABLE>
*During 1994, the Company changed its method of accounting for ore loaded on
heap leach pads, which increased 1994 cash production costs at the Sleeper mine
by $5 per ounce.
Property Position. The property was discovered by an AMAX Inc. geologist in
1982 and development of the mine was completed in March 1986. Current
facilities occupy approximately 2,000 acres of unpatented mining claims. No
royalties are payable on production from the Sleeper mine.
Haile Property
The Company owns a 62.5 percent joint venture interest in the Haile property in
Lancaster County, South Carolina. The remaining 37.5 percent interest is owned
by Kershaw Gold Company, Inc., a wholly owned subsidiary of Piedmont Mining
Company, Inc. (Piedmont). The Company has not made a decision to develop the
Haile property and is considering various options with respect to its interest
in Haile. The Company is involved in a dispute with Piedmont regarding
certain agreements. See Item 3. "Legal Proceedings."
Property Position. The Haile property covers approximately 3,600 acres and
consists entirely of fee property that is either owned by the venture
participants, leased from third parties under leases that can be extended to
2001 or controlled by purchase agreements. The leased property is subject to a
4 percent net smelter return royalty.
Geology and Ore Reserves. Ore grade mineralization on the Haile property is
generally hosted within silicified and pyritized fine-grained metasedimentary
rocks near the folded and faulted contact with overlying volcaniclastic and
-9-
<PAGE>
metavolcanic rocks. Current reserves are contained in four separate deposits.
The following table sets forth the proven and probable reserves at the Haile
property.
Haile Property
Proven and Probable Ore Reserves
As of December 31, 1996
<TABLE>
<CAPTION>
Gold Content
(000 oz.)
Gold ----------------------
Tons Avg. Grade The Company's
(000) (oz./ton) Total 62.5% Share
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mill Ore 8,736 0.089 780 488
==============================================================================
</TABLE>
The reserves were calculated by the Company and verified by Derry, Michner,
Booth & Wahl in its April 1994 audit. No changes were made to reserves during
1996 or 1995. Pits were designed on the basis of a $375 per ounce gold price
while ore within the pits was summarized using a gold price of $400 per ounce.
The Company estimates ultimate gold recoveries would range from 65 percent to 85
percent.
Kubaka Mine (Acquisition Pending)
During October 1995, Amax Gold announced that it would acquire, subject to
certain conditions, Cyprus Amax's wholly-owned subsidiary, Cyprus Magadan Gold
Corporation, which owns a 50 percent interest in Omolon Gold Mining Company
(Omolon). See "Agreements with Cyprus Amax - Acquisition Agreement" for further
discussion. Omolon is developing the Kubaka gold mine in the Russian
Federation. In April 1996, the Company announced a revised capital cost
estimate of $228 million for Kubaka due to a delayed start-up, higher logistics
and freight costs, higher than anticipated labor costs and taxes, and some
design changes. As a result of the cost increases which necessitated the
arrangement of additional financing, the acquisition was delayed and the Company
completed an amended acquisition agreement in October 1996, received shareholder
approval for the acquisition in December 1996, and expects to acquire the mine
in early 1997. The Company's share of proven and probable reserves would be
2.47 million tons with an average grade of 0.540 ounces of gold per ton with
1.33 million contained ounces. In addition, the Company has estimated its share
of other mineralized material to be 1.95 million tons at an average grade of
0.290 ounces per ton at Kubaka.
Kubaka is an open pit, mill recovery, gold mine located in the Russian Far East,
approximately 200 miles south of the Arctic Circle and 600 miles northeast of
the major port city of Magadan. The Kubaka mine's remote location in this sub-
Arctic region requires the Company to plan for operations in extreme cold and to
provide all services and facilities on site. The first gold was poured in
February 1997 and commercial production is expected to commence in mid-1997 with
anticipated cash costs averaging approximately $185 per ounce.
Omolon holds the license from the Russian government to develop the Kubaka mine
and to explore and develop the Evenskoye property, also in the Magadan region
(the Kubaka License). The Kubaka License is for a period of 18 years, subject
to extension of up to an additional two years, and limits the ownership of a
foreign party (i.e., the Company) in Omolon to a maximum of 50 percent. The
Kubaka License establishes certain production requirements for Kubaka and
requires Omolon to complete exploration activities, a feasibility study and its
assessment of the reserves at Evenskoye prior to December 31, 1998.
As of December 31, 1996, Kubaka had been funded with $86 million in equity
contributions by Cyprus Amax and the Russian partners, $100 million in project
financing provided by the European Bank for Reconstruction (EBRD) and
Development and the Overseas Private Investment Corporation (OPIC) and $14
million in subordinated debt from a bank licensed to do business in Russia to
fund part of the increased capital costs. An additional $30 million in project
financing was provided by EBRD and OPIC in February 1997. In addition, Omolon
is seeking to arrange a working capital line of credit.
-10-
<PAGE>
Exploration
The Company's primary exploration objective continues to be the acquisition and
evaluation of near-surface gold deposits that can be mined by open pit methods.
The Company also continues exploration activity on the Fort Knox and Refugio
properties. The Company expects to increase its exploration activities in the
Russian Federation following the acquisition of Kubaka.
Pursuant to an Exploration Joint Venture Agreement effective since January 1994,
the Company and Cyprus Amax have agreed to pool their efforts for the principal
purpose of discovering and developing future gold prospects, with Cyprus Amax
providing 75 percent and the Company providing 25 percent of the initial
exploration funding for such prospects. A Cyprus Amax subsidiary manages
exploration activities, with equal participation by Amax Gold in decisions
affecting property acquisition and divestiture. The Agreement will terminate
December 31, 1997 unless extended by mutual agreement. Amax Gold has the first
right to acquire any gold property owned by the joint venture and Cyprus Amax
has the first right to acquire properties containing deposits of minerals other
than gold or silver. During 1996, the joint venture conducted exploration
activities principally in the Americas, Russia, Australia and Africa.
Exploration expenditures were $3.5 million in 1996 compared to $5.9 million in
1995. Exploration expenditures for 1997 are expected to be approximately $10
million.
Gold Market and Prices
Gold has two principal uses: product fabrication and bullion investment.
Fabricated gold has a wide variety of end uses, including jewelry manufacture
(the largest fabrication component), electronics, dentistry, industrial and
decorative uses, medals, medallions and official coins. The Company sells all
of its refined gold to banks and other bullion dealers, using a variety of
hedging techniques. Substantially all of the Company's 1996 sales were export
sales made in Europe.
The profitability of the Company's operations is significantly affected by the
market price of gold. The price of gold has fluctuated widely and is affected
by numerous factors, including international economic trends, currency exchange
fluctuations, expectations for inflation, consumption patterns (such as
purchases of gold jewelry and the development of gold coin programs), sales of
gold bullion holdings by central banks or other large gold bullion holders or
dealers and global and regional political events, particularly in the Middle
East and major gold-producing countries such as South Africa and the
Commonwealth of Independent States (the former Soviet Union). Gold prices also
are affected by worldwide production levels and on occasion have been subject to
rapid short-term changes because of market speculation.
The following table sets forth for the years indicated the high and low closing
prices of gold, first position, as provided by the Commodity Exchange, Inc.
(COMEX) in New York.
<TABLE>
<CAPTION>
High Low
------- -------
Year (dollars per ounce)
---- -------------------
<S> <C> <C>
1992 $359.30 $329.70
1993 407.00 326.30
1994 398.00 370.60
1995 395.40 372.20
1996 414.70 368.00
</TABLE>
-11-
<PAGE>
Refining, Sales and Hedging Activities
Refining arrangements are in place with third parties for the Company's
production. Because of the availability of refiners other than those with whom
such arrangements have been made, the Company believes that no adverse effect
would result if any of these arrangements were terminated.
The Company employs a number of hedging techniques with the objective of
mitigating the impact of downturns in the gold market and providing adequate
cash flow for operations while maintaining significant upside potential in a
market upswing. During 1996 and 1995 the Company's hedging efforts resulted in
average realized prices of $412 per ounce and $406 per ounce, respectively,
compared with the average COMEX price of $388 per ounce in 1996 and $384 per
ounce in 1995.
Agreements with Cyprus Amax
Amax Gold has entered into the following agreements with Cyprus Amax.
Financing Arrangements with Cyprus Amax. Pursuant to a financing arrangement
with Cyprus Amax, approved by the Company's stockholders in September 1996,
Cyprus Amax has guaranteed the Company's $250 million Fort Knox loan until
economic completion of the Company's Fort Knox mine and has provided the Company
with a $250 million demand loan facility, in exchange for which the Company has
agreed to (i) pay Cyprus Amax a financing and guaranty fee of $10 million, (ii)
pay Cyprus Amax 1.75 percent annually on amounts outstanding under the Fort Knox
loan, (iii) reimburse Cyprus Amax for any payments made or costs incurred under
the Cyprus Amax guaranty, (iv) make no additional borrowing under the
convertible line of credit without the prior consent of Cyprus Amax, and (v)
grant Cyprus Amax a first priority security interest in the collateral for the
Fort Knox loan, and if requested, security interests in certain additional
assets to the extent available. All of these obligations to Cyprus Amax are
payable in cash or, at the election of Cyprus Amax, in shares of Common Stock,
valued at the time of issuance of the shares.
In April 1994, Cyprus Amax agreed to make loans to the Company under a revolving
credit agreement from time to time until December 31, 2001, in an aggregate
principal amount not to exceed at any time $100 million. The Company may elect
to repay amounts of outstanding indebtedness either by payment in cash or
payment in shares of its $2.25 Series A Convertible Preferred Stock and Cyprus
Amax may convert any indebtedness into Common Stock of the Company at a stated
conversion price. As stated above, the Company has agreed not to make
additional draws under this line of credit without the prior consent of Cyprus
Amax.
Stock Issuance Agreement. In September 1995, the Company and Cyprus Amax
entered into an Agreement Regarding Stock Issuance pursuant to which, with the
agreement of both parties, obligations owing from the Company to Cyprus Amax
from time to time may be paid in shares of Common Stock valued at the most
recent 30-day average closing price. Of the 879,500 shares issuable, 128,042
shares were issued to Cyprus Amax in 1995 as payment for $835,473 due Cyprus
Amax under a financing agreement.
Acquisition Agreement. Pursuant to the Amended and Restated Agreement and Plan
of Merger and Reorganization, dated as of October 9, 1996 (the Acquisition
Agreement), the Company will acquire, subject to the satisfaction of certain
conditions, Cyprus Amax's indirect 50 percent interest in the Kubaka mine for a
purchase price payable in shares of the Company's Common Stock as follows: (i)
approximately 11.8 million shares of Common Stock to be paid upon closing the
Acquisition Agreement, (ii) approximately 4.2 million shares of Common Stock to
be paid within ten days of commencement of commercial production of the Kubaka
gold property, and (iii) a contingent payment in shares of Common Stock (a)
equal to $10 per gold equivalent ounce (up to a maximum of $45 million) of the
Company's pro rata share of proven and probable reserves which the Company
acquires the right to mine in the Russian Federation, excluding properties
covered by the Kubaka License or acquired by the Company's joint venture with
Cyprus Amax, on or before June 30, 2004, and (b) valued at the then current ten-
day average stock price. See "Kubaka Mine (Acquisition Pending)."
-12-
<PAGE>
Exploration Joint Venture Agreement. Under the Exploration Joint Venture
Agreement, the Company and Cyprus Amax have agreed to pool their efforts for the
principal purpose of discovering and developing future gold prospects. See
"Exploration."
Services Agreement. Pursuant to the Services Agreement, the Company and Cyprus
Amax provide a variety of managerial and other services to each other on a full
cost-reimbursement basis. The Company paid Cyprus Amax approximately $3.4
million for 1996 services, including insurance coverage, and Cyprus Amax paid
the Company approximately $2.0 million, including reimbursement for services at
the Kubaka mine.
Employee Transfer Agreement. Pursuant to the Employee Transfer Agreement, the
Company and Cyprus Amax have amended their respective benefit plans to allow
employees to transfer between the companies with minimal effect on an employee's
benefits.
Employees
At December 31, 1996, the Company and its consolidated subsidiaries employed
1,012 persons in addition to 107 contract miners at its Guanaco mine and 266
contract miners at its Refugio mine. The hourly employees at the Guanaco mine
are represented by the Sociedad Contractual Minera Guanaco labor union and are
covered by a labor contract that expires at the end of May 1999. The hourly
employees at Refugio are represented by the Sindicato de Trabajadores de
Compania Minera Maricunga labor union and are covered by a labor contract that
expires at the end of February 2001. None of the Company's employees in the
United States are organized and the Company considers its employee relations to
be good. The Company obtains certain administrative and other services from
Cyprus Amax.
Competition
The Company competes with other companies in the acquisition of mineral
interests and the recruitment and retention of qualified employees. A number of
these companies are larger than the Company in terms of annual gold production
and total reserves and have been engaged in gold mining and exploration longer
than the Company. Management does not believe, however, that such competition
has had a material effect on the development of the Company's business or the
sale of its products.
Foreign Operations
Foreign operations and investments such as those that the Company has in Chile
and expects to acquire in Russia may be adversely affected by exchange controls,
currency fluctuations, taxation and laws or policies of particular countries or
by political events in those countries as well as by laws and policies of the
United States affecting foreign trade, investment and taxation.
Regulation and Environmental Matters
The Company's mining and processing operations and exploration activities in the
United States, Chile, Russia and other countries are subject to various laws and
regulations governing the protection of the environment, exploration,
development, production, exports, taxes, labor standards, occupational health,
waste disposal, toxic substances, mine safety and other matters. New laws and
regulations, amendments to existing laws and regulations, or more stringent
implementation of existing laws and regulations could have a material adverse
impact on the Company, increase costs, cause a reduction in levels of production
and/or delay or prevent the development of new mining properties. Amax Gold
expects to be able to comply with all existing environmental laws and
regulations. Such compliance requires significant expenditures and increases
the Company's mine development and operating costs.
In March 1994, the U.S. Forest Service notified the Company that it considers
the Company to be a Potentially Responsible Party (PRP) under the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA), jointly and
severally liable with other PRP's, for damages attributable to alleged releases
of hazardous substances from the Siskon
-13-
<PAGE>
Mine, located in the Klamath National Forest in Siskiyou County, California.
The Company conducted a limited exploration drilling program in the summer of
1991 on property at the Siskon mine site which the Company believes is not
involved in the alleged releases. Based on facts currently known to management,
the Company does not anticipate that this matter will have any material effect
on the Company's financial condition or results of operations.
Executive Officers of The Registrant
As of December 31, 1996, the names, ages and offices of all executive officers
of the Company were as follows.
<TABLE>
<CAPTION>
Name Age Office
- --------------------------------------------------------------------------------
<S> <C> <C>
Milton H. Ward 64 Chairman of the Board and Chief Executive Officer
S. Scott Shellhaas 48 President and Chief Operating Officer
Robert B. Blakestad 50 Vice President, Exploration
Larry D. Clark 50 Vice President
Deborah J. Friedman 44 Vice President, General Counsel and Secretary
Mark A. Lettes 47 Vice President, Trading
David L. Mueller 46 Vice President, Controller and Assistant Secretary
Andrew F. Pooler 38 Vice President
</TABLE>
Mr. Ward was elected Chairman of the Board and Chief Executive Officer of the
Company in November 1993 and served as President from November 1993 until
February 1995. He has been Chairman of the Board, President and Chief Executive
Officer of Cyprus Amax since May 1992. Prior to joining Cyprus Amax, Mr. Ward
had been President and Chief Operating Officer of Freeport-McMoRan Inc. and
Chairman and Chief Executive Officer of Freeport McMoRan Copper & Gold Inc.
since 1984.
Mr. Shellhaas was elected President and Chief Operating Officer of the Company
in April 1996. From 1994 to 1996 he was President of Cyprus Foote Mineral
Company, from 1991 to 1994 he was President of Cyprus Northshore Mining
Corporation and from 1989 to 1991 he was Senior Vice President of Cyprus Amax's
South Pacific operations. He held various positions in Cyprus Amax's law
department from 1982 to 1989.
Mr. Blakestad was elected Vice President, Exploration in May 1996. From 1990 to
1996, he held various management positions for Cyprus Amax's exploration
department, including Exploration Manager, South Pacific and Exploration
Manager, North America.
Mr. Clark was elected Vice President of the Company in April 1996. From 1988 to
1996, he held various management positions in Cyprus Amax's business
development, operating and law departments.
Ms. Friedman was elected Vice President, General Counsel and Secretary of the
Company in September 1994. From 1982 to 1993, she held various positions in the
law department of Cyprus Amax, including General Counsel and Associate General
Counsel. In 1994, she served as a legal consultant handling various matters for
Cyprus Amax.
Mr. Lettes was elected Vice President, Trading of the Company and appointed a
Director in the Cyprus Amax Treasury Department in August 1996. He has held
various management positions in the Company's financial departments since 1987,
including Chief Financial Officer from 1994 to 1996, Treasurer from May 1988 to
February 1991, and Vice President since August 1989.
Mr. Mueller was elected Vice President, Controller and Assistant Secretary in
October 1994. He was Director of Financial Reporting at Echo Bay Mines, Ltd.
from October 1990 until 1994. Prior to October 1990, he was a Senior Manager at
Ernst & Young LLP.
-14-
<PAGE>
Mr. Pooler was elected Vice President of the Company in February 1992 and is
responsible for the Company's operations in the contiguous United States and in
Chile. From May 1988 until February 1992 he was General Manager of the Wind
Mountain mine.
Each executive officer holds office subject to removal at any time by the Board
of Directors of Amax Gold.
Item 3. Legal Proceedings
In October 1996, a purported derivative action was filed in the Court of
Chancery of Delaware on behalf of a purported stockholder of the Company titled
Harry Lewis v. Milton H. Ward, et al., C.A. No. 15255-NC, against Cyprus Amax,
- -------------------------------------
the directors of the Company, and the Company as a nominal defendant. The
complaint alleges, among other things, that the defendants engaged in self-
dealing in connection with the Company's entry in March 1996 into the demand
loan facility provided by Cyprus Amax, that Cyprus Amax controls the Company's
Board of Directors and management, that the terms of the transaction were not
negotiated by persons independent of Cyprus Amax, that the timing of the
transaction precluded the Company from seeking financing in the commercial or
public debt markets and prevented the Special Committee of the Board of
Directors of the Company that approved entry into the transaction from seeking
alternatives to the transaction. The complaint seeks, among other things, a
declaration that the demand loan facility is not entirely fair to the Company
and damages in an unspecified amount. The Company believes that the complaint
is without merit and intends to defend the matter vigorously.
In October 1995, a purported derivative action was filed in the Court of
Chancery of Delaware on behalf of a purported stockholder of the Company titled
Harbor Finance Partners v. Allen Born, et al. and v. Amax Gold, Inc., as nominal
- --------------------------------------------------------------------------------
defendant, C.A. No. 14637, with respect to the proposed Kubaka transaction. The
- ---------
complaint alleges that the individual defendants have breached their fiduciary
duty in connection with the sale of Cyprus Magadan to the Company, that the
price to be paid for Cyprus Magadan substantially exceeds its fair market value
in an arms-length transaction, and that by agreeing to the transaction,
defendants have wrongfully enabled Cyprus Amax to increase its control over the
Company and have caused the Company to waste its assets. The complaint seeks,
among other things, rescission of the proposed transaction and damages in an
unspecified amount. The Company believes that the complaint is without merit
and intends to defend the matter vigorously.
There is presently pending in United States District Court for the District of
South Carolina, Rock Hill Division, litigation filed by Kershaw Gold Company,
Inc., Piedmont Mining Company's subsidiary that owns 37.5 percent of the Haile
project, against the Company alleging that the Company tortiously interfered
with the performance by its subsidiaries, Lancaster Mining Company Inc. and
Haile Mining Company, of their obligations under certain agreements. Kershaw
alleges that, among other things, Amax Gold caused Lancaster to fail to complete
the exploration expenditures authorized in the 1994 venture budget and initiated
attempts to sell its interest in the Haile property without informing Kershaw.
Kershaw claims that damages of $38 to $60 million resulted from the alleged
breaches. Discovery is almost completed. The Company believes that the
complaint is without merit and intends to defend the matter vigorously.
The litigation described above is part of a lawsuit filed originally in South
Carolina Circuit Court in March 1995 by Piedmont Mining Company and Kershaw Gold
Company, Inc. against Amax Gold, Lancaster and Haile, alleging breach of
contract, fraud and tortious interference with contract rights. Pursuant to
motions filed by the defendants, all claims of Piedmont and Kershaw were
dismissed on the grounds that jurisdiction was to be determined by arbitration,
except the claim of Kershaw against the Company described above. The
plaintiff's motion for reconsideration is pending.
Pursuant to certain agreements between Piedmont, Kershaw and the Company,
Piedmont and Kershaw indemnified the Company from all environmental and other
liabilities arising from Piedmont's operations or other conditions existing on
the Haile property prior to July 1, 1992. Following Piedmont's and Kershaw's
continued refusal to pay environmental costs that the Company believed were
covered by the indemnity, the Company submitted to arbitration its claim for
$1.4 million, the amount of such costs incurred through August 1995. The
Company prevailed in this matter and the $1.4 million arbitration award,
including accrued interest, has been paid. Piedmont's and Kershaw's appeals of
the arbitration award are pending in the Fourth Circuit Court of Appeals.
-15-
<PAGE>
TMB Associates (TMB), a Nevada general partnership that is the lessor under a
1987 lease of unpatented federal mining claims (as amended, the Lease) that
comprise a substantial part of the Wind Mountain mine property, initiated
arbitration in 1994 against the Company asserting claims related to the
formation and performance of, and alleged breach of duties with respect to, the
Lease. The Company prevailed in this matter, which was concluded in early 1997.
Item 4. Submission of Matters to a Vote of Security Holders
The consent of the Company's stockholders was solicited in connection with the
approval of the Company's acquisition of an interest in the Kubaka gold mine
from Cyprus Amax. See "Agreements with Cyprus Amax - Acquisition Agreement."
Stockholder approval was received on December 23, 1996, with 18,550,729 votes in
favor (excluding Cyprus Amax's 49,361,557 votes in favor), 2,124,684 votes
against, 352,062 votes abstaining and 16,221,235 broker non-votes.
-16-
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information required by this item is incorporated by reference from "Stock
Market Information" on page 27 of the 1996 Annual Report.
The information required by Items 6 through 8 is incorporated by reference from
the pages of the Company's 1996 Annual Report as set forth below.
Applicable Pages
in 1996
Form 10-K Item Number Annual Report
--------------------- ----------------
Item 6. Selected Financial Data..................................... 5
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 6 - 8
Item 8. Financial Statements and Supplementary Data................. 9 - 26
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item appears in the Company's Proxy Statement
for the 1997 Annual Meeting of Stockholders to be filed within 120 days after
the end of the fiscal year.* Information about Executive Officers of the
Company required by this item appears in Part I of this Annual Report on Form
10-K.
Item 11. Executive Compensation
The information required by this item appears in the Company's Proxy Statement
for the 1997 Annual Meeting of Stockholders to be filed within 120 days after
the end of the fiscal year.*
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item appears in the Company's Proxy Statement
for the 1997 Annual Meeting of Stockholders to be filed within 120 days after
the end of the fiscal year.*
Item 13. Certain Relationships and Related Transactions
The information required by this item appears in the Company's Proxy Statement
for the 1997 Annual Meeting of Stockholders to be filed within 120 days after
the end of the fiscal year.*
- --------------------
* References in this Annual Report on Form 10-K to material contained in Amax
Gold's Proxy Statement for the 1997 Annual Meeting to be filed within 120 days
after the fiscal year incorporate such material into this Report by reference.
-17-
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
Pages in 1996
Annual Report
-------------
1. Financial Statements Included in the 1996 Annual Report
And Incorporated by Reference:
Report of Independent Accountants 9
Consolidated Statement of Operations for
each of the three years in the period ended
December 31, 1996 10
Consolidated Balance Sheet at December 31, 1996
and 1995 11
Consolidated Statement of Cash Flows for each
of the three years in the period ended
December 31, 1996 12
Consolidated Statement of Shareholders'
Equity for each of the three years in the
period ended December 31, 1996 13
Notes to Consolidated Financial Statements 14 - 26
2. Financial Statement Schedules
Financial statement schedules are not included in this Annual Report on
Form 10-K because they are not applicable.
With the exception of the aforementioned financial statements and the
information incorporated in Items 1 and 2 and Items 5 through 8, the
1996 Annual Report is not deemed to be filed as part of this Annual
Report on Form 10-K.
3. Exhibits
Exhibit
Number Exhibit
- ------ -------
3(i) Certificate of Incorporation, dated April 13, 1995, and filed with the
Secretary of State of the State of Delaware on April 26, 1995, filed as
Appendix F to the Company's Proxy Statement for the 1995 Annual Meeting
of Stockholders, dated April 27, 1995, and incorporated herein by
reference.
3(ii) By-Laws, dated April 27, 1995, adopted on April 26, 1995, as amended and
restated effective June 21, 1995, filed as Exhibit 3(ii) to the
Company's Registration Statement on Form 8-B filed June 21, 1995 and
incorporated herein by reference.
4.1 Certificate of Designations for the $2.25 Series A Convertible Preferred
Stock, filed as Exhibit 4.1 to the Company's Registration Statement on
Form 8-B filed June 21, 1995 and incorporated herein by reference.
4.2 Certificate of Designations for the $3.75 Series B Convertible Preferred
Stock, filed as Exhibit 4.2 to the Company's Form 8-B filed June 21,
1995 and incorporated herein by reference.
-18-
<PAGE>
Exhibit
Number Exhibit
- ------ -------
10.1 Agreement regarding issuance of stock dated September 29, 1995 between
the Company and Cyprus Amax, filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995
and incorporated herein by reference.
10.2 Directors' Deferred Compensation Plan for Members of the Board of
Directors of Amax Gold Inc. filed as Exhibit 10.14.2 to the Company's
Registration Statement No. 33-22645 and incorporated herein by
reference.
10.3 Amax Gold Inc. Excess Benefit Plan, filed as Exhibit EX-10(g) to the
Company's Annual Report on Form 10-K for the year-ended December 31,
1993 and incorporated herein by reference.
10.4 Amax Gold Inc. Deferred Compensation Plan, filed as Exhibit EX-10(h) to
the Company's Annual Report on Form 10-K for the year-ended December 31,
1993 and incorporated herein by reference.
10.5 Amax Gold Inc. 1992 Stock Option Plan, filed as Exhibit A to the
Company's Proxy Statement for the 1993 Annual Meeting of Stockholders
and incorporated herein by reference.
10.6 Amax Gold Inc. Key Executive Long-Term Incentive Plan (formerly the Amax
Gold Performance Share Plan), filed as Exhibit B to the Company's Proxy
Statement for the 1993 Annual Meeting of Stockholders and incorporated
herein by reference.
10.7 Term Loan Agreement, dated October 31, 1995, between Amax Gold Inc.,
Fairbanks Mining, Inc., Guanaco Mining Company, Inc., Lassen Gold
Mining, Inc., Melba Creek Mining Inc., Nevada Gold Mining, Inc. and a
group of banks, filed as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1995 and incorporated
herein by reference; Amendment to Term Loan Agreement dated December 7,
1995; Amendment to Term Loan Agreement dated March 19, 1996; and Cyprus
Amax Guaranty, dated as of March 19, 1996 by Cyprus Amax, in favor of
the administrative agent for the group of banks, filed as Exhibit 10.7
to the Company's Annual Report on Form 10-K for the year ended December
31, 1995 and incorporated herein by reference.
10.8 Exploration Joint Venture Agreement, effective January 1, 1994, between
the Company and Cyprus Amax, filed as Exhibit 10.1 to the Company's
Registration Statement on Form S-3 (Registration No. 33-53963) and
incorporated herein by reference; and Amendment to Exploration Joint
Venture Agreement, dated December 29, 1995, between the Company and
Cyprus Amax, filed as Exhibit 10.8 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 and incorporated herein
by reference.
10.9 Revolving Credit Agreement, dated as of April 15, 1994 between the
Company and Cyprus Amax, filed as Appendix A to the Company's Proxy
Statement for the July 26, 1994 Special Meeting of Stockholders and
incorporated herein by reference; and Amendment to Revolving Credit
Agreement, dated as of March 10, 1994, between the Company and Cyprus
Amax, filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K
for the year-ended December 31, 1994 and incorporated herein by
reference.
10.10 Loan Agreement, dated as of November 23, 1994, amended February 7 and
14, 1995, among Compania Minera Maricunga, as borrower, Amax Gold Inc.
and Bema Gold Corporation, as guarantors, and certain banks, and related
documents, as amended, filed as Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the year-ended December 31, 1994 and
incorporated herein by reference; as amended by Letter Agreement, dated
as of November 1, 1996, and Letter Agreement, dated as of December 19,
1996.
-19-
<PAGE>
Exhibit
Number Exhibit
- ------ -------
10.11 Credit Agreement, dated as of March 19, 1996, between the Company and
Cyprus Amax; Guaranty Fee Agreement, dated as of March 19, 1996, between
the Company and Cyprus Amax; and Reimbursement Agreement, dated as of
March 19, 1996, between the Company and Cyprus Amax filed as Exhibit
10.12 to the Company's Annual Report on Form 10-K for the year-ended
December 31, 1995 and incorporated herein by reference; Amendment
Agreement dated October 31, 1996, amending the Credit Agreement dated
March 19, 1996 between the Company and Cyprus Amax, filed as Exhibit
(10b) to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 and incorporated herein by reference.
10.12 Services Agreement, dated as of January 1, 1994, between the Company and
Cyprus Amax, filed as Exhibit 10.13 to the Company's Annual Report on
Form 10-K for the year-ended December 31, 1995 and incorporated herein
by reference.
10.13 Amended and Restated Agreement and Plan of Merger and Reorganization,
dated as of October 9, 1996 among the Company, Amax Russia Corporation,
Cyprus Amax, Cyprus Gold Company and Cyprus Magadan Gold Company, filed
as Exhibit (10a) to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 and incorporated herein by reference.
21 Subsidiaries of the Company.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Mineral Resources Development, Inc.
23.3 Consent of Derry, Michner, Booth & Wahl.
27 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter of 1996.
-20-
<PAGE>
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.
AMAX GOLD INC.
Date: March 12, 1997 By /s/ S. Scott Shellhaas
-------------------------------------------
S. Scott Shellhaas
President and Chief Operating 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 indicated on March 12, 1997.
Signature Title
- -------------------------------------- --------------------------------------
/s/ Milton H. Ward Chairman of the Board, Chief
- -------------------------------------- Executive Officer (principal
Milton H. Ward executive officer) and Director
/s/ David L. Mueller Vice President, Controller and
- -------------------------------------- Assistant Secretary (principal
David L. Mueller financial and accounting officer)
/s/ Richard H. Block Director
- --------------------------------------
Richard H. Block
/s/ Allen Born Director
- --------------------------------------
Allen Born
/s/ Gerald J. Malys Director
- --------------------------------------
Gerald J. Malys
/s/ Vernon F. Taylor, Jr. Director
- --------------------------------------
Vernon F. Taylor, Jr.
/s/ Russell L. Wood Director
- --------------------------------------
Russell L. Wood
-21-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In millions except per share amounts, percentages,
production and sales ounces and amounts per ounce)
Year Ended December 31,
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------
For the year:
<S> <C> <C> <C> <C> <C>
Revenues $ 108.2 $ 96.6 $ 94.6 $ 81.9 $ 99.7
Earnings (loss) from operations/(1)(2)/ (37.9) (17.2) (43.9) (116.0) 18.8
Earnings (loss) before cumulative
effect of accounting changes, net/(1)(2)/ (34.2) (23.9) (43.0) (89.0) 13.0
Net earnings (loss)/(1)(2)(3)/ (34.2) (23.9) (35.5) (104.2) 11.5
Per common share:
Earnings (loss) before cumulative
effect of accounting changes/(1)(2)(3)/ (.42) (.36) (.56) (1.14) .18
Net earnings (loss)/(1)(2)(3)/ (.42) (.36) (.47) (1.34) .16
Weighted average common shares outstanding 96.9 86.5 79.3 77.8 73.7
Capital and cash acquisition expenditures 187.7 206.2 23.0 23.4 113.7
Cash dividends to common stockholders - - - 2.0 2.8
Dividends declared per common share - - - .08 .08
Cash dividends to preferred stockholders 6.9 6.9 1.8 - -
Dividends declared per preferred share/(4)/ 3.75 3.75 .9791 - -
At year-end:
Current assets 62.9 65.2 72.7 37.9 47.1
Total assets 765.3 611.1 403.2 381.0 477.6
Current liabilities 212.3 42.8 45.6 37.6 46.9
Long-term debt 272.6 238.2 83.2 111.8 103.1
Note payable to parent - 5.0 - 24.7 -
Shareholders' equity 262.5 296.3 245.5 173.3 257.2
Working capital (deficit) (149.4) 22.4 27.1 0.3 0.2
Book value per common share 1.75 2.16 1.93 2.22 3.45
Long-term debt to total capitalization 51% 45% 25% 39% 29%
Key operating factors for the year:
Total ounces of gold produced 268,331 238,255 240,885 210,880 253,603
Total ounces of gold sold 262,975 238,094 235,664 209,290 248,024
Average realized price per ounce sold $ 412 $ 406 $ 401 $ 392 $ 402
Average cost per ounce produced/(5)/:
Total cash costs/(6)/ $ 255 $ 313 $ 329 $ 375 $ 215
Reclamation costs 16 13 11 13 8
Depreciation, depletion and amortization 110 91 105 122 87
- -----------------------------------------------------------------------------------------------------
Total production costs per ounce $ 381 $ 417 $ 445 $ 510 $ 310
=====================================================================================================
</TABLE>
/(1)/ In the fourth quarter of 1996, the Company recorded a $35.5 million pre-
tax write-down of the Guanaco mine and an unrelated $10 million deferred
tax benefit. These special items increased the net loss by $25.5 million,
or $.26 per share. In 1994, the Company recorded an $18.6 million pre-tax
($14.4 million after-tax) write-down of the Hayden Hill mill to its
estimated salvage value and a $2.5 million pre-tax ($2.1 million after-
tax) write-down of other assets that increased the net loss by $16.5
million, or $.21 per common share. In 1993, the Company recognized a $64.1
million pre-tax ($41.9 million after-tax) write-down of Hayden Hill and a
$23.6 million pre-tax ($15.6 million after-tax) write-down of Sleeper,
which increased the 1993 net loss by $57.5 million, or $.74 per common
share.
/(2)/ Effective January 1, 1994, the Company changed its method of accounting
for the cost of ore loaded on heap leach pads to record such costs as
work-in-process inventory. The 1994 net loss is reduced by a $7.5 million,
or $.09 per common share, after-tax benefit relating to the cumulative
effect of this accounting change. Effective January 1, 1993, Amax Gold
changed its exploration accounting policy such that prior period
exploration expenses would no longer be capitalized and restored to
-22-
<PAGE>
earnings when a property became exploitable. The 1993 net loss includes a
$13.4 million, or $.17 per common share, after-tax charge relating to the
cumulative effect of this accounting change. The 1992 net earnings include
$8.9 million, or $.12 per common share, of after-tax income related to
prior year exploration expenditures on the Haile and Guanaco projects that
were capitalized and restored to earnings.
/(3)/ The 1993 net loss includes a $1.8 million, or $.03 per common share,
after-tax cumulative effect of the January 1, 1993, adoption of
Statement of Financial Accounting Standards (SFAS) No. 112, "Employers'
Accounting for Postemployment Benefits." Net earnings for 1992 include a
$1.5 million, or $.02 per common share, after-tax cumulative effect of the
January 1, 1992, adoption of SFAS No. 106, "Postretirement Benefits Other
Than Pensions."
/(4)/ The Company issued 1.8 million preferred shares in August 1994. Preferred
share dividends were $1.8 million during the fourth quarter of 1994.
/(5)/ Average costs weighted by ounces of gold produced at each mine.
/(6)/ Effective January 1, 1996, the Company adopted the Gold Production Cost
Standard developed by the Gold Institute in order to facilitate
comparisons among companies in the gold industry. Cash production costs
reported in prior periods have been restated as cash operating costs and
total cash costs in accordance with the new standard. Cash operating costs
calculated under the new standard include all operating costs (including
overhead) at the mine sites, but exclude royalties, production taxes and
reclamation. Total cash costs include royalties and production taxes, but
exclude reclamation. Total production costs remain unchanged and include
reclamation and depreciation, depletion and amortization. Total cash costs
in 1996 exclude the impact of the write-down of heap leach inventories at
Guanaco.
-23-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Amax Gold reported a 1996 net loss of $34.2 million, or $.42 per share, compared
with a 1995 net loss of $23.9 million, or $.36 per share, and a 1994 net loss of
$35.5 million, or $.47 per share. The 1996 results included a $35.5 million
after-tax write-down of the Guanaco mine in Chile, partially offset by an
unrelated $10 million deferred tax benefit. Included in the 1994 results was a
$16.5 million after-tax asset write-down, primarily for the Hayden Hill mill,
partially offset by a $7.5 million cumulative after-tax benefit from a change in
accounting for heap leach inventory.
Excluding the write-downs and special items, the 1996 net loss was $8.7 million,
or $.16 per share, compared with a 1995 net loss of $23.9 million, or $.36 per
share, and a 1994 net loss of $26.5 million, or $.36 per share. The Company's
operating loss before write-downs was $2.4 million in 1996 compared with losses
from operations before write-downs of $17.2 million and $22.8 million in 1995
and 1994, respectively. Lower cash production costs and higher gold
production and sales were the primary reasons for the improved trend.
<TABLE>
<CAPTION>
Selected Data (In millions unless otherwise indicated) 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 108.2 $ 96.6 $ 94.6
Operating loss $ (37.9) $ (17.2) $ (43.9)
Operating loss, excluding write-downs $ (2.4) $ (17.2) $ (22.8)
Production, oz. 268,331 238,255 240,885
Sales, oz. 262,975 238,094 235,664
Average realization, $/oz. $ 412 $ 406 $ 401
Average total cash costs, $/oz. $ 255 $ 313 $ 329
Average total production costs, $/oz. $ 381 $ 417 $ 445
- ------------------------------------------------------------------------------------------
</TABLE>
Revenue improved to $108.2 million in 1996 from $96.6 million in 1995 and $94.6
million in 1994. The increases were a result of higher gold sales and higher
average realized prices. Gold sales in 1996 were 262,975 ounces, compared with
238,094 ounces in 1995 and 235,664 ounces in 1994. The increase primarily
resulted from the commencement of commercial production as of October 1, 1996 at
the Refugio mine in Chile, partially offset by the completion of operating
activities at the Company's Sleeper mine in Nevada. Increases in production at
the Hayden Hill and Guanaco mines also contributed to increased gold sales in
both 1996 and 1995. Amax Gold's average realized price was $412 per ounce in
1996, $406 per ounce in 1995 and $401 per ounce in 1994 compared with average
COMEX gold prices of $388 per ounce for 1996 and $384 per ounce in 1995 and
1994. Amax Gold's average realized price exceeded the average COMEX price each
year due to the positive impact of hedging activities.
Gold production was 268,331 ounces in 1996, a 13 percent increase over 1995 gold
production of 238,255 ounces. Gold production in 1994 was 240,885 ounces,
slightly higher than 1995. The commencement of commercial production at Refugio
resulted in 30,612 ounces of production for Amax Gold's account in the fourth
quarter. Guanaco and Hayden Hill both set production records during 1996.
Guanaco produced 96,018 ounces during 1996, an increase of nearly 36 percent
from 1995 production of 70,850 ounces. Improved crusher efficiency and higher
grades were the main factors in achieving the record. Hayden Hill's 1996
production increased more than 29 percent to 103,502 ounces from 1995 production
of 80,031 ounces due to higher grades as well as improved recovery. In 1994,
Guanaco and Hayden Hill produced 57,675 and 65,785 ounces of gold, respectively.
Mining is expected to be completed in mid-1997 at Guanaco and in late 1997 at
Hayden Hill with residual leaching continuing into 1998 at both mines.
Sleeper's production declined to 38,199 ounces in 1996 compared with 82,062
ounces in 1995 and 106,912 ounces in 1994. Operations were completed at Sleeper
during the third quarter of 1996 and lower grades and recoveries at the end of
the mine life resulted in reduced production. Consolidated production is
expected to increase significantly during 1997 as the Company's new mines reach
full production levels.
The Company's cost of sales declined for the fourth year in a row, reflecting a
trend of lower average cash costs and drawing down low-cost Sleeper inventory
from an early LIFO layer. Consolidated cash costs were reduced to $255 per
ounce for 1996 compared with $313 per ounce for 1995 and $329 per ounce for
1994. Refugio's 1996 cash costs were $242 per ounce, which is in line with
expectations. Guanaco lowered its 1996 cash costs excluding the impact of the
write-down of heap leach inventories by nearly 23 percent to $290 per ounce.
The reduction in cash costs primarily resulted from the
-24-
<PAGE>
significant increase in production at Guanaco during 1996 as well as lower
mining costs resulting from a renegotiated arrangement with the contract miner.
Hayden Hill's 1996 cash costs decreased by $24 per ounce to $229 per ounce
compared with 1995, also primarily due to higher production. At Sleeper, cash
costs were reduced during 1996 by $78 per ounce to $247 per ounce, despite
significantly lower production, due to the processing of previously stockpiled
ore and residual recovery of gold with low associated mining costs. The
decrease in consolidated cash costs from 1995 to 1994 was attributed to
increased production at Hayden Hill and Guanaco, which lowered cash costs,
partially offset by higher cash costs at Sleeper due to reduced production.
Cash costs are expected to continue to decline during 1997 due to the impact of
Refugio, Fort Knox and Kubaka, assuming start-up, operations and the acquisition
of Kubaka proceed as expected.
During the fourth quarter, the Company recorded a $35.5 million write-down of
the Guanaco mine as a result of a detailed study of the continuity of ore, costs
and production rates. The write-down was partially offset by an unrelated $10
million tax benefit resulting from the reversal of deferred income taxes, which
are no longer anticipated due to revised mine economics.
Depreciation and depletion increased to $29.8 million during 1996 mainly as a
result of higher depreciation and depletion rates at Guanaco and Sleeper, as
well as the increased percentage of total production from Guanaco, which has a
significantly higher depletion rate, and commercial production at Refugio.
Guanaco's rate increased in 1996 due to a revised mine plan, which lowered
estimated future production, while at Sleeper the rate increased due to higher
than anticipated capital spending during 1995. The consolidated depreciation
and depletion rate was $110 per ounce during 1996 compared with $91 per ounce
during 1995.
General and administrative costs increased slightly in 1996 to $8.3 million as a
result of severance expenses related to management changes recorded during the
first half of the year, partially offset by cost reductions from a second
quarter corporate reorganization.
Reduced exploration activities during 1996 resulted in exploration spending of
$3.5 million, which was approximately 41 percent lower than 1995 spending of
$5.9 million. During 1995 the Company spent approximately $2.3 million on two
projects which subsequently were discontinued. During 1997, exploration costs
are expected to be approximately $10 million, reflecting increased activities in
Russia, assuming the acquisition of Kubaka is completed, and at the Company's
existing properties.
Interest expense was $29.7 million in 1996 compared with $13.3 million in 1995.
The increase is attributed to higher average debt balances which were necessary
to fund the Company's capital spending on its construction projects. Capitalized
interest of $22.8 million in 1996 was nearly four times higher than in 1995 due
to increased capital spending at Fort Knox, the delay in start-up at Refugio and
a higher weighted average interest rate. Interest income declined to $1.6
million in 1996 from $3.0 million in 1995 as a result of reduced funds available
for investment.
Other expense of $1.0 million was $1.3 million lower than 1995 due to the
receipt of $1.4 million in payment of a previously reserved environmental
arbitration award related to the Company's Haile property.
Liquidity and Capital Resources
Amax Gold's operating cash flow improved to $16.5 million in 1996 from $2.6
million in 1995. The major reason for the improved cash flow was lower cash
costs at the Company's operating mines. Working capital was negative for the
1996 year-end primarily due to the classification of the amount due under the
Cyprus Amax demand loan as a current liability.
Capital expenditures declined from 1995 levels due to the completion of
construction at Refugio during 1996, partially offset by increased spending at
Fort Knox. Commercial production was achieved at the Refugio mine in Chile as
of October 1, 1996, where capital spending, excluding capitalized interest,
totaled approximately $12 million for 1996 compared with about $50 million in
1995. During December 1996, the first gold was poured at the Fort Knox mine
near Fairbanks, Alaska, and commercial production is expected in early 1997.
Capital spending, excluding capitalized interest, at Fort Knox was approximately
$173 million during 1996 compared with approximately $150 million in 1995. Amax
Gold received shareholder approval to acquire Cyprus Amax's 50 percent interest
in the Kubaka mine in late December 1996. The transaction should be completed in
early 1997. The first gold was poured at Kubaka during February 1997 and
-25-
<PAGE>
commercial production is expected by mid-1997. Capital spending should decrease
substantially in 1997 with the completion of the construction of the Company's
new mines.
Net financing activities in 1996 generated $181.5 million in cash. As a result
of projected cost increases in completing the Fort Knox mine and other projected
cash needs, the Company renegotiated the $250 million Fort Knox loan, which
Cyprus Amax has guaranteed until economic completion. The remaining $50 million
of the Fort Knox financing was drawn during the first quarter of 1996. Also
during the first quarter of 1996, Cyprus Amax made available to Amax Gold a
demand loan facility to be used to fund additional capital costs at Fort Knox
and for general corporate purposes. The Company borrowed $130 million under
this facility during 1996 and an additional $9.7 million through February 1997.
Funding is provided solely at the discretion of Cyprus Amax. As a condition of
the Fort Knox refinancing, Amax Gold repaid $5 million to Cyprus Amax borrowed
under the $100 million convertible line of credit and agreed not to make
additional draws without the consent of Cyprus Amax. In August 1996, the
Company completed a sale-leaseback of Fort Knox mobile mine equipment for
proceeds of $24.3 million.
During 1997, Amax Gold's capital spending will be reduced significantly to
approximately $40 million, excluding Kubaka. Assuming start-up and operations at
the Company's mines proceed as expected, cash flow from operations should be
sufficient to satisfy the Company's remaining cash needs, including scheduled
third-party debt service. Although the Company does not anticipate requiring
significant additional funding from Cyprus Amax for the remainder of the year,
the Company expects that Cyprus Amax would make additional financing available
if necessary. The Company anticipates that repayments, if any, of the Cyprus
Amax demand loan could be funded through additional external financing. Amax
Gold is considering various options to restructure its debt and capital, which
could include accessing public debt and equity markets.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
With the exception of historical matters, the matters discussed in this report
are forward-looking statements that involve risks and uncertainties that could
cause actual results to differ materially from projected results. Such forward-
looking statements include statements regarding expected dates for commencement
of mining, gold production and commercial production, projected quantities of
future gold production, estimated reserves and recovery rates, anticipated
production rates, costs and expenditures, prices realized by the Company, growth
plans and sources of financing and repayment alternatives. Factors that could
cause actual results to differ materially include, among others: risks and
uncertainties relating to general domestic and international economic and
political conditions, the cyclical and volatile price of gold, the political and
economic risks associated with foreign operations, cost overruns, construction
delays, unanticipated ground and water conditions, unanticipated grade and
geological problems, metallurgical and other processing problems, availability
of materials and equipment, the timing of receipt of necessary governmental
permits, the occurrence of unusual weather or operating conditions, force
majeure events, lower than expected ore grades, the failure of equipment or
processes to operate in accordance with specifications or expectations, labor
relations, accidents, delays in anticipated start-up dates, environmental risks,
the results of financing efforts and financial market conditions and other risk
factors detailed in the Company's Securities and Exchange Commission filings.
Many of such factors are beyond the Company's ability to control or predict.
Readers are cautioned not to put undue reliance on forward-looking statements.
The Company disclaims any intent or obligation to update publicly these forward-
looking statements, whether as a result of new information, future events or
otherwise.
-26-
<PAGE>
REPORT OF MANAGEMENT
The management of Amax Gold Inc. is responsible for the integrity and
objectivity of the financial statements and other financial information
contained in this Annual Report. The financial statements were prepared in
accordance with generally accepted accounting principles and include estimates
that are based on management's best judgment.
Amax Gold maintains an internal control system which includes formal policies
and procedures designed to provide reasonable assurance that assets are
safeguarded and transactions are properly recorded and executed in accordance
with management's authorization. Amax Gold's internal audit function audits
compliance with the internal control system and issues reports to Amax Gold's
management and the Audit Committee of the Board of Directors.
Amax Gold's financial statements have been audited by independent accountants,
whose appointment is ratified yearly by the shareholders at the annual
shareholders' meeting. The independent accountants conducted their audits in
accordance with generally accepted auditing standards. These standards include
an evaluation of the internal accounting controls in establishing the scope of
audit testing necessary to allow them to render an independent professional
opinion on the fairness of Amax Gold's financial statements.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with representatives of management and the
independent accountants to review their work and ensure that they are properly
discharging their responsibilities.
Milton H. Ward
Chairman and Chief Executive Officer
S. Scott Shellhaas
President and Chief Operating Officer
-27-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Amax Gold Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Amax Gold
Inc. and its subsidiaries at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Denver, Colorado
February 12, 1997
-28-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Year-ended December 31,
(In millions except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $108.2 $ 96.6 $ 94.6
Costs and operating expenses:
Cost of sales 69.0 78.3 79.0
Depreciation and depletion 29.8 21.5 25.3
Asset write-downs 35.5 - 21.1
General and administrative 8.3 8.1 6.9
Exploration 3.5 5.9 6.2
- --------------------------------------------------------------------------
Total costs and operating expenses 146.1 113.8 138.5
- --------------------------------------------------------------------------
Loss from operations (37.9) (17.2) (43.9)
Interest expense (29.7) (13.3) (9.1)
Capitalized interest 22.8 5.9 0.2
Interest income 1.6 3.0 2.1
Other (1.0) (2.3) 1.1
- --------------------------------------------------------------------------
Loss before income taxes and cumulative
effect of accounting change (44.2) (23.9) (49.6)
Income tax benefit 10.0 - 6.6
- --------------------------------------------------------------------------
Loss before cumulative effect of
accounting change (34.2) (23.9) (43.0)
Cumulative effect of accounting change, net
of income tax provision of $2.0 in 1994 - - 7.5
- --------------------------------------------------------------------------
Net loss (34.2) (23.9) (35.5)
Preferred stock dividends (6.9) (6.9) (1.8)
- --------------------------------------------------------------------------
Loss attributable to common shares $(41.1) $(30.8) $(37.3)
- --------------------------------------------------------------------------
Per common share:
Loss before cumulative effect of
accounting change $ (.42) $ (.36) $ (.56)
Cumulative effect of accounting change - - .09
- --------------------------------------------------------------------------
Net loss $ (.42) $ (.36) $ (.47)
- --------------------------------------------------------------------------
Weighted average common shares outstanding 96.9 86.5 79.3
- --------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
-29-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31,
(In millions except share amounts)
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and equivalents $ 11.1 $ 25.6
Inventories 30.7 26.6
Receivables 3.2 2.7
Other 17.9 10.3
- -----------------------------------------------------------------------------
Current assets 62.9 65.2
Property, plant and equipment, net 668.0 510.5
Other 34.4 35.4
- -----------------------------------------------------------------------------
Total assets $765.3 $611.1
- -----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Cyprus Amax demand loan $130.0 $ -
Current maturities of long-term debt 39.3 7.3
Accounts payable, trade 14.7 14.5
Accrued and other current liabilities 23.8 16.2
Reclamation reserve, current portion 4.5 4.8
- -----------------------------------------------------------------------------
Current liabilities 212.3 42.8
Long-term debt 272.6 238.2
Note payable to Cyprus Amax - 5.0
Reclamation reserve, non-current portion 11.2 11.1
Deferred income taxes - 10.0
Other 6.7 7.7
- -----------------------------------------------------------------------------
Total liabilities 502.8 314.8
Commitments and contingencies (Notes 8 and 14) - -
Shareholders' equity:
Preferred stock, par value $1.00 per share, authorized
10,000,000 shares, 2,000,000 shares designated as
$2.25 Series A Convertible Preferred Stock,
no shares issued and outstanding; and 1,840,000 shares
designated as $3.75 Series B Convertible Preferred
Stock, issued and outstanding 1,840,000 shares 1.8 1.8
Common Stock, par value $.01 per share, authorized
200,000,000 shares, issued and outstanding 99,308,979
shares in 1996 and 96,427,838 shares in 1995 1.0 1.0
Paid-in capital 355.7 339.8
Accumulated deficit (87.4) (46.3)
Unearned equity - financing costs (8.6) -
- -----------------------------------------------------------------------------
Total shareholders' equity 262.5 296.3
- -----------------------------------------------------------------------------
Total liabilities and shareholders' equity $765.3 $611.1
- -----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
-30-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Year-ended December 31,
(In millions)
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (34.2) $ (23.9) $(35.5)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and depletion 29.8 21.5 25.3
Asset write-downs 35.5 - 21.1
Increase (decrease) in reclamation reserve (0.2) 2.8 2.5
Cumulative effect of accounting change - - (7.5)
Non-cash interest* 5.2 - -
Amortization of financing costs* 4.0 2.2 0.4
Decrease in deferred taxes (10.0) - (6.6)
Deferred hedging costs 0.5 (3.2) (3.9)
Minority interest - - (1.1)
Other, net 0.5 0.8 (0.6)
Decrease (increase) in working capital:
Receivables (0.5) 0.2 3.7
Accrued and other current liabilities (0.1) (2.0) 0.4
Inventories (13.5) 2.0 (0.8)
Other assets (0.7) (0.5) (0.8)
Accounts payable, trade 0.2 2.7 0.3
- --------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 16.5 2.6 (3.1)
- --------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Capital expenditures (187.7) (206.2) (23.0)
Loan to joint venture partner (2.0) (10.0) -
Capitalized interest (22.8) (5.9) (0.2)
Proceeds from repayment of loans - 1.2 -
Other - 1.5 (0.8)
- --------------------------------------------------------------------------------------
Net cash used in investing activities (212.5) (219.4) (24.0)
- --------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from financings 74.3 242.5 36.0
Repayments of financings (8.1) (104.0) (55.8)
Issuance of Common Stock to Cyprus Amax* - 80.8 20.7
Advances from Cyprus Amax 130.0 5.0 9.3
Repayments to Cyprus Amax (5.0) - (34.0)
Net proceeds from sale of convertible preferred stock - - 88.3
Deferred financing costs (2.8) (11.7) (3.4)
Preferred dividends paid (6.9) (6.9) (1.8)
Other - - (3.0)
- --------------------------------------------------------------------------------------
Net cash provided by financing activities 181.5 205.7 56.3
- --------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents (14.5) (11.1) 29.2
Cash and equivalents at January 1 25.6 36.7 7.5
- --------------------------------------------------------------------------------------
Cash and equivalents at December 31 $ 11.1 $ 25.6 $ 36.7
- --------------------------------------------------------------------------------------
</TABLE>
*During the fourth quarter of 1996, the Company issued $15.2 million in stock to
Cyprus Amax in payment of $5.2 million in interest and a $10 million guaranty
and financing fee. The guaranty and financing fee was recorded as unearned
equity and $1.4 million was amortized during 1996.
Cash paid for interest (including interest capitalized) was $17.9 million, $9.2
million and $8.2 million in 1996, 1995 and 1994, respectively. There were no
income taxes paid during 1996, 1995 or 1994.
The accompanying notes are an integral part of these statements.
-31-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In millions)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Retained
------------------------ ---------------- Paid-In Earnings Unearned
Shares Amount Shares Amount Capital (Deficit) Equity
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 - $ - 78.2 $0.8 $150.7 $ 21.8 $ -
Net loss - - - - - (35.5) -
Issuance of common shares:
Employee and director plans - - 0.1 - 0.5 - -
Repayment of Cyprus Amax debt - - 3.0 - 20.7 - -
Issuance of preferred stock 1.8 1.8 - - 86.5 - -
Preferred stock dividends - - - - - (1.8) -
- -----------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 1.8 1.8 81.3 0.8 258.4 (15.5) -
Net loss - - - - - (23.9) -
Issuance of common shares:
Employee and director plans - - 0.1 - 0.7 - -
Repayment of Cyprus Amax debt,
including interest - - 15.0 0.2 80.7 - -
Preferred stock dividends - - - - - (6.9) -
- -----------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 1.8 1.8 96.4 1.0 339.8 (46.3) -
Net loss - - - - - (34.2) -
Issuance of common shares:
Employee and director plans - - 0.1 - 0.7 - -
Repayment of fees and
interest to Cyprus Amax - - 2.8 - 15.2 - (10.0)
Amortization of unearned
financing costs - - - - - - 1.4
Preferred stock dividends - - - - - (6.9) -
- -----------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 1.8 $ 1.8 99.3 $ 1.0 $355.7 $ (87.4) $(8.6)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
-32-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise indicated and
except per share amounts and amounts per ounce)
1. NATURE OF OPERATIONS
Amax Gold Inc. and its subsidiaries (Amax Gold or the Company) are engaged in
the mining and processing of gold and silver ore and the exploration for, and
acquisition of, gold-bearing properties, principally in the Americas, Russia,
Australia and Africa. The Company's primary products are gold and silver
produced in the form of dore and then shipped to refiners for final processing.
The Company is currently 52.5 percent owned by Cyprus Amax Minerals Company
(Cyprus Amax).
The Company produces gold and silver using both the traditional milling process
and heap leaching. All of the Company's operating properties are open pit
mines. The Company owns the Fort Knox mine near Fairbanks, Alaska, which was
essentially completed in early 1997 and is nearing commencement of commercial
production. The Company's operating properties consist of a 50 percent interest
in the Refugio mine in Chile; the Hayden Hill mine in Lassen County, California;
and a 90 percent interest in the Guanaco mine in Chile. The Company also owns
the Sleeper mine in Humboldt County, Nevada, and the Wind Mountain mine in
Washoe County, Nevada, which are in reclamation. In addition the Company owns
a 62.5 percent joint venture interest in the Haile property in Lancaster County,
South Carolina. The Company expects to acquire a 50 percent interest in the
Kubaka mine, which is currently under construction in the Russian Federation,
from Cyprus Amax in early 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Amax Gold and the
related entities that it controls. Investments in companies over which the
Company can exercise significant influence but not control are accounted for
using the equity method. Investments in joint ventures are accounted for using
proportionate consolidation, consistent with accepted mining industry practice.
All material intercompany balances and transactions have been eliminated.
Certain 1995 and 1994 amounts have been reclassified to conform to the 1996
presentation.
Earnings Per Share
Earnings per common share have been calculated on the basis of the average
common shares outstanding. Outstanding Company stock options were not
considered in the earnings per share calculation as these were antidilutive.
Cash and Equivalents
Cash and equivalents include cash and highly liquid investments with an original
maturity of three months or less. The Company invests cash in time deposits
maintained in high credit quality financial institutions.
Inventories
Gold inventory is valued at the lower of aggregate cost, computed on a last-in,
first-out (LIFO) basis, or market. Materials and supplies are valued at average
cost less reserves for obsolescence.
Property, Plant and Equipment
Property, plant and equipment, including development expenditures and
capitalized interest, are carried at cost. Expenditures for major improvements
are capitalized. Gains and losses on retirements are included in earnings.
Depreciation and depletion are computed using the units-of-production method
based on the estimated ounces of gold to be recovered and estimated salvage
values. Mobile equipment and assets that have useful lives shorter than the
mine life are depreciated on a straight-line basis over estimated useful lives
of one to five years.
In the third quarter of 1995, Amax Gold adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of." In the event that
facts and circumstances indicate that the carrying amount of an asset may not be
recoverable and an estimate of future
-33-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise indicated and
except per share amounts and amounts per ounce)
undiscounted cash flows is less than the carrying amount of the asset, an
impairment loss will be recognized. See Note 6 for discussion of the write-down
of the Guanaco mine recorded in the fourth quarter of 1996 in accordance with
SFAS No. 121. Adoption of SFAS No. 121 had no effect on the Company's results
of operations for the year-ended December 31, 1995.
Exploration
Exploration expenditures are charged against earnings in the period incurred.
Gold and Currency Financings
The Company uses various gold and currency financings to fund its mining
activities. To finance investments with gold loans the Company borrows gold
from banks and sells the gold on the open market. Gold loans are recorded on
the balance sheet at the price received when the borrowed gold is sold. The
banks are repaid from future gold production, at which time revenues are
recorded. Gold loans bear relatively low interest rates, result in a hedge
against future gold price fluctuations and limit realized prices to the amounts
received when the borrowed gold is sold.
Currency financings represent borrowings in hard currency, typically U.S.
dollars. The terms, including interest rates, are negotiated with lenders based
on market conditions at the time the financing is arranged.
Foreign Currency Translation
The U.S. dollar is the functional currency of all of the Company's foreign
subsidiaries. The financial statements of foreign subsidiaries are remeasured
in U.S. dollars based on a combination of both current and historical exchange
rates; gains and losses due to this remeasurement are reflected in the
consolidated statement of operations. For the years ended December 31, 1996,
1995 and 1994, translation losses were insignificant.
Hedging Activities
Forward sale contracts, generally on a spot deferred basis, put and call option
contracts and compound options are entered into to hedge the effect of price
changes on the Company's precious metals that are produced and sold. Premiums
paid for purchased options and premiums earned on sold options are deferred and
recognized in income over the term of the related option. The results of gold
hedging activities are included in revenues at the time the hedged production is
sold. Silver hedging results are reflected as a by-product credit.
Interest rate swap options are entered into as a hedge against interest rate
exposure on the Company's floating rate financing facilities in order to fix the
Company's interest costs. The differences to be paid or received on swap
options are included in interest expense as incurred.
Postretirement Benefits
Postretirement benefits other than pensions are calculated in accordance with
the provisions set forth in SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which requires the expected cost
of postretirement benefits other than pensions to be accrued during the years
the employee renders service.
Postemployment Benefits
Postemployment benefits are calculated in accordance with the provisions set
forth in SFAS No. 112, "Employers' Accounting for Postemployment Benefits."
SFAS No. 112 requires the Company to expense postemployment benefits as they are
earned by the employee for services rendered, rather than as they are paid.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in 1995 and
is effective for fiscal years beginning after December 15, 1995. Amax Gold
adopted SFAS No. 123 in 1996 and has elected to continue to measure compensation
-34-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise indicated and
except per share amounts and amounts per ounce)
cost using the intrinsic value based method of accounting prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees." See Note 12 for
further discussion of net income and earnings per share as if the fair value
based method of accounting as defined in SFAS No. 123 had been applied.
Reclamation
Reclamation, site restoration and closure costs for each producing mine are
estimated based primarily on environmental and regulatory requirements and are
accrued over the expected life of each mine using the units-of-production
method. Ongoing environmental and reclamation expenditures are expensed as
incurred.
Income Taxes
Income taxes are calculated in accordance with the provisions set forth in SFAS
No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred income
taxes are determined using an asset and liability approach. This method gives
consideration to the future tax consequences associated with differences between
the financial accounting and tax basis of assets and liabilities and gives
immediate effect to changes in income tax laws. The income statement effect is
derived from changes in deferred income taxes on the balance sheet.
Use of Estimates
The preparation of Amax Gold's consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect amounts reported in the financial
statements and accompanying notes. Management's estimates are made in
accordance with mining industry practice. Significant areas requiring the use
of management estimates relate to the determination of mineral reserves,
reclamation and environmental obligations, impairment of assets, postretirement
and other employee benefits, useful lives for depreciation, depletion and
amortization, and valuation allowances for deferred tax assets. Actual results
could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES
As of December 31, 1996, Cyprus Amax owned approximately 52 million Common
Shares, or approximately 52.5 percent, of the Company's outstanding Common
Stock. As discussed below, the increase in Cyprus Amax's ownership resulted
from various financial transactions with Cyprus Amax. See also Note 6 for
discussions related to the Kubaka acquisition agreement.
Financing Arrangements
Pursuant to a financing arrangement with Cyprus Amax, approved by the Company's
shareholders in September 1996, Cyprus Amax has guaranteed the Company's $250
million Fort Knox loan until economic completion of the Company's Fort Knox mine
and has provided the Company with a $250 million demand loan facility, in
exchange for which the Company has agreed to (i) pay Cyprus Amax a financing and
guaranty fee of $10 million, (ii) pay Cyprus Amax 1.75 percent annually on
amounts outstanding under the Fort Knox loan, (iii) reimburse Cyprus Amax for
any payments made or costs incurred under the Cyprus Amax guaranty, (iv) make no
additional borrowing under the $100 million convertible line of credit without
the prior consent of Cyprus Amax, and (v) grant Cyprus Amax a first priority
security interest in the collateral for the Fort Knox loan, and if requested,
security interests in certain additional assets to the extent available. All of
these obligations to Cyprus Amax are payable in cash or, at the election of
Cyprus Amax, in shares of Common Stock, valued at the time of issuance of the
shares.
On November 1, 1996, Cyprus Amax elected to receive payment in shares of Common
Stock of an aggregate of $15.2 million for all accrued interest on the demand
loan and interest differential payments due through October 31, 1996, as well as
the $10 million financing and guaranty fee. On November 12, 1996, the Company
issued 2.8 million shares of Common Stock to Cyprus Amax as payment for such
obligations. As of December 31, 1996, the Company had borrowed $130 million
under the demand loan at an average rate of 8.1 percent. Interest and interest
differential expense accrued as of
-35-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise indicated and
except per share amounts and amounts per ounce)
December 31, 1996 totaled $2.3 million. Funding is provided solely at the
discretion of Cyprus Amax. Although the Company does not anticipate requiring
significant additional funding from Cyprus Amax for the remainder of the year,
the Company expects that Cyprus Amax would make additional financing available
if necessary. The $10 million guaranty and financing fee was recorded as
unearned equity and is being amortized over the expected period of the demand
loan and Cyprus Amax guaranty. During 1996, $1.4 million was amortized.
In April 1994, Cyprus Amax provided the Company with a $100 million convertible
line of credit. Outstanding amounts under the credit line bear interest at
LIBOR plus 0.3 percent and may be repaid through the issuance of up to two
million shares of $2.25 Series A Convertible Preferred Stock. Amax Gold may
redeem the Convertible Preferred Stock by issuing up to 12,099,213 shares of
Common Stock at a maximum price of $8.265 per share and a minimum price of
$5.854 per share. Cyprus Amax may convert the line of credit, any outstanding
indebtedness and/or Convertible Preferred Stock to 12,099,213 shares of Amax
Gold Common Stock valued at $8.265 per share. At December 31, 1995, $5.0
million was outstanding under this arrangement which was repaid in April 1996.
The average annualized interest rate on this borrowing was 6.5 percent for the
year-ended December 31, 1995.
In March 1995, Cyprus Amax provided the Company with an additional $80 million
convertible line of credit. During 1995, the full amount was borrowed by the
Company and subsequently converted by Cyprus Amax to 14,919,806 shares of Amax
Gold Common Stock at $5.362 per share.
Other Agreements
In September 1995, the Company and Cyprus Amax entered into an agreement
regarding stock issuance pursuant to which obligations owing from the Company to
Cyprus Amax under existing or future contractual arrangements may be paid in
shares of Common Stock with the consent of both parties. The stock will be
valued based on the most recent 30-day average closing price, and the maximum
number of shares of Common Stock that may be issued is 879,500 shares. In
September 1995, 128,042 shares of such Common Stock were issued to Cyprus Amax
as payment for $835,473 due under the $80 million convertible line of credit.
The Company has entered into several additional agreements with Cyprus Amax.
Under an exploration joint venture agreement the two companies pool efforts to
discover and develop new gold properties, with Cyprus Amax providing 75 percent
and the Company providing 25 percent of initial funding. Amax Gold was charged
$2.5 million, $3.1 million and $1.1 million under this agreement for the years
ended December 31, 1996, 1995 and 1994, respectively.
A services agreement governs the provision of and payment for general
administrative services between Cyprus Amax and the Company. For the years
ended December 31, 1996, 1995 and 1994, insurance, management and other services
were supplied to the Company on a full cost reimbursement basis. The Company
was charged $3.4 million, $4.3 million and $4.8 million for the years ended
December 31, 1996, 1995 and 1994, respectively, for reimbursable costs. As of
December 31, 1996 and 1995, the Company had outstanding amounts due to Cyprus
Amax of $0.3 million and $0.5 million, respectively, relating to such services.
Pursuant to an employee transfer agreement, the Company and Cyprus Amax have
amended their respective benefit plans to allow employees to transfer from the
Company to Cyprus Amax or from Cyprus Amax to the Company with minimal effect on
an employee's benefits.
-36-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise indicated and
except per share amounts and amounts per ounce)
4. INCOME TAXES
Income (loss) before income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------
<S> <C> <C> <C>
Domestic $ 6.5 $ (5.0) $(32.9)
Foreign (50.7) (18.9) (16.7)
- ----------------------------------------
$(44.2) $(23.9) $(49.6)
- ----------------------------------------
</TABLE>
The income tax benefit consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------
<S> <C> <C> <C>
Current:
Federal $ - $ - $ -
State - - -
Foreign - - -
- ------------------------------------
Deferred:
Federal - - (5.3)
State (10.0) - 0.7
Foreign - - -
- ------------------------------------
(10.0) - (4.6)
- ------------------------------------
$(10.0) $ - $(4.6)
- ------------------------------------
</TABLE>
The total income tax benefit is included in the financial statements as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C>
Income tax benefit $(10.0) $ - $(6.6)
Cumulative effect of accounting change - - 2.0
- ------------------------------------------------------------------
$(10.0) $ - $(4.6)
- ------------------------------------------------------------------
</TABLE>
The components of deferred tax (assets) liabilities are as follows:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Reclamation liabilities $ (5.8) $ (5.0)
Postretirement benefits (1.5) (0.8)
Accrued liabilities (8.7) (10.6)
Net operating loss carryforwards (53.4) (37.3)
Minimum tax credit carryforwards (2.8) (2.8)
Other (0.3) (0.5)
- -----------------------------------------------------
Total deferred tax assets (72.5) (57.0)
Valuation allowance 18.1 11.4
- -----------------------------------------------------
Net deferred tax assets (54.4) (45.6)
Deferred tax liabilities:
Properties 54.4 55.6
- -----------------------------------------------------
Net deferred tax liabilities $ - $ 10.0
- -----------------------------------------------------
</TABLE>
The following is a reconciliation between the amount determined by applying the
federal statutory rate of 34 percent to the loss before taxes and the income tax
benefit:
-37-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise indicated and
except per share amounts and amounts per ounce)
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes at statutory rate $(15.0) $(8.1) $(16.9)
Increases (decreases) resulting from:
Losses with no expected tax benefit 15.0 9.1 10.1
State income taxes, net of federal benefit (10.0) (0.2) (0.4)
Percentage depletion - (0.8) (0.2)
Other - - 0.8
- -----------------------------------------------------------------------------
Income tax benefit (10.0) - (6.6)
- -----------------------------------------------------------------------------
Income tax provision of cumulative
effect of accounting change at statutory rate - - 3.2
State income taxes, net of federal benefit - - -
Foreign losses with no expected tax benefit - - (1.2)
- -----------------------------------------------------------------------------
Income tax provision of cumulative
effect of accounting change - - 2.0
- -----------------------------------------------------------------------------
$(10.0) $ - $ (4.6)
- -----------------------------------------------------------------------------
</TABLE>
The valuation allowance increased $6.7 million in 1996 due to uncertainties of
realizing loss carryforwards in the future.
At December 31, 1996, the Company had federal tax net operating loss
carryforwards of $99 million and alternative minimum tax net operating loss
carryforwards of $82 million expiring in the years 2004 through 2011 and minimum
tax credit carryforwards of $3 million, which do not expire. At December 31,
1996, the Company also had Chilean tax net operating loss carryforwards of $99
million, which do not expire.
During 1996, $10 million of deferred income taxes were reversed due to revised
mine economics.
The Company will file certain state income tax returns for 1996 on a combined
basis with Cyprus Amax. State tax expense and related liabilities have been
determined as if the Company filed separate income tax returns. The Company is
not included in the Cyprus Amax federal income tax return.
5. INVENTORIES
Inventories at December 31, 1996 and 1995, consisted of the following:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------
<S> <C> <C>
Gold:
Finished goods $18.0 $10.0
Work-in-process 4.0 11.7
Materials and supplies 8.7 4.9
- ----------------------------------------
$ 30.7 $26.6
- ----------------------------------------
</TABLE>
The LIFO basis of product inventory at December 31, 1996 and 1995, approximated
its replacement cost. During 1996, the Company reduced certain inventory
quantities that were valued at lower LIFO costs prevailing in prior years. The
effect of this reduction was to increase net income by approximately $2.4
million.
Effective January 1, 1994, the Company changed its method of accounting for the
costs of ore loaded on heap leach pads to record such costs as work-in-process
inventory. Previously, the Company had expensed these costs as incurred. The
cumulative after-tax effect of the change in accounting for inventory for
periods prior to 1994 was a decrease in the net
-38-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise indicated and
except per share amounts and amounts per ounce)
loss of $7.5 million or $.09 per common share. The effect of the accounting
change in 1994 was a reduction in cost of sales of $0.3 million.
6. PROPERTY, PLANT AND EQUIPMENT AND WRITE-DOWNS
The components of property, plant and equipment at December 31, 1996 and 1995,
were as follows:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Mining plant and equipment $ 197.5 $ 167.9
Mining properties 231.3 172.0
Development properties and construction-in-progress 556.8 435.7
- ------------------------------------------------------------------------
985.6 775.6
Less accumulated depreciation, depletion
and write-downs (317.6) (265.1)
- ------------------------------------------------------------------------
$ 668.0 $ 510.5
- ------------------------------------------------------------------------
</TABLE>
Acquisition of Kubaka
The Company has agreed to acquire, subject to certain conditions, from Cyprus
Amax its indirect 50 percent interest in the Kubaka mine, located in the Magadan
Oblast of the Russian Federation. The remaining 50 percent interest is held by
five Russian shareholders. The Kubaka mine has proven and probable reserves of
approximately 2.66 million ounces of gold, of which the Company's share would be
1.33 million ounces. Additional gold and silver deposits, not classified as
reserves, are included in the acquisition.
The purchase price is payable in shares of the Company's Common Stock, with
approximately 11.8 million shares payable at closing and 4.2 million shares paid
upon commencement of commercial production, valued at $5.9375 per share, the
average closing price for the ten trading days preceding the public announcement
of the acquisition. In addition, the Company would make a contingent payment of
$10 per gold equivalent ounce, not to exceed $45 million in the aggregate, of
the Company's pro rata share of proven and probable reserves established on new
properties in the Russian Federation which the Company acquires the rights to
mine on or before June 30, 2004.
The first gold was poured at the Kubaka mine in February 1997 and commercial
production is expected by mid-1997. Capital costs are expected to be $228
million, which exceeds the original estimate of $180 million by $48 million.
The increase reflects a delayed start-up, higher logistics and freight costs,
higher than anticipated labor costs and taxes and some design changes.
As of December 31, 1996, Kubaka has been funded with $86 million in equity
contributions by Cyprus Amax and the Russian partners, $100 million in project
financing provided by the European Bank for Reconstruction and Development
(EBRD) and the Overseas Private Investment Corporation (OPIC) and $14 million in
subordinated debt from a bank licensed to do business in Russia to fund part of
the increased capital costs. An additional $30 million in project financing was
provided by EBRD and OPIC in February 1997. Cyprus Amax has provided a guaranty
of the financing, which will remain in place until the project meets certain
completion tests. Amax Gold expects to complete the acquisition of the Kubaka
mine in early 1997.
Asset Write-Downs
As a result of a detailed study of the continuity of ore, costs and production
rates at the Company's Guanaco mine, the Company recorded a $35.5 million pre-
tax write-down during the fourth quarter of 1996. Included in the write-down
were $9.4 million of heap leach inventories which were impaired due to lower
actual and expected future recovery rates. Mining is expected to be completed
at Guanaco during the second quarter of 1997 with residual leaching continuing
into 1998.
-39-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise indicated and
except per share amounts and amounts per ounce)
The Company recognized an $18.6 million pre-tax write-down of Hayden Hill assets
during the fourth quarter of 1994 as a result of its determination that a mill
operation would not be economic. The Company also wrote down $2.5 million pre-
tax of other assets in 1994.
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
At December 31 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
Term loan, 8.1% and 8.3% for 1996 and 1995, due 1997 - 2001 $250.0 $200.0
Gold loan, 6.9% and 5.4% for 1996 and 1995, due 1996 - 2001 38.3 42.5
Sale-leaseback, 8.4% for 1996, due 2004 23.6 -
Chilean government agency debt, 8.3%
for 1995, due 1996 - 3.0
- -------------------------------------------------------------------------------------
311.9 245.5
Less current portion 39.3 7.3
- -------------------------------------------------------------------------------------
$272.6 $238.2
- -------------------------------------------------------------------------------------
</TABLE>
Scheduled debt maturities as of December 31, 1996 (in millions) were $39.3,
$67.4, $67.7, $68.8 and $62.8 for the years 1997 through 2001, respectively.
In August 1996, the Company completed a sale-leaseback of Fort Knox mobile
mining equipment for proceeds of $24.3 million, which were used primarily to
fund construction of the Fort Knox mine. Lease payments are due quarterly with
maturity in 2004. Interest rates on the equipment leases range from 7.7 percent
to 8.7 percent with approximately 73 percent of the equipment leases at 8.4
percent, maturing in 2001.
During October 1995, the Company completed a term loan agreement for $250
million to be used for construction of the Fort Knox mine and repayment of
certain existing debt obligations. The loan has a six-year term with repayments
beginning in 1997. As of December 31, 1996, the Company had borrowed $37
million in gold at $381 per ounce and the remaining $213 million in currency.
Interest on the loan is calculated at LIBOR for the dollar portion and at the
bank's lease rate for the gold portion, plus 2.25 or 2.0 percent at certain
intervals of construction or plus 1.75 percent after completion tests are
passed. Collateral for the loan includes the assets and production of the Fort
Knox and Hayden Hill mines and the stock of the subsidiaries owning the Sleeper
and Guanaco mines. The loan agreement places restrictions on proceeds of future
equity offerings and borrowings, restricts dividends and requires certain net
worth and cash ratios be maintained. Interest rate protection agreements must
be in place for at least 50 percent of any dollar portion of the borrowing. In
addition, Amax Gold must maintain gold reserve minimums and hedge a portion of
future production in order to obtain specified minimum cash flows.
In March 1996, as a result of projected higher capital costs to complete the
Fort Knox mine and other cash needs anticipated in 1996, the Company
renegotiated the Fort Knox loan and entered into certain other financial
arrangements with Cyprus Amax. See "Financing Arrangements" in Note 3 for
further discussion. Cyprus Amax has guaranteed the loan until economic
completion of the Fort Knox mine, as defined in the loan agreement, and the
Company has agreed not to borrow without the consent of Cyprus Amax under the
$100 million credit line previously provided by Cyprus Amax, which forms part of
the guaranty.
In February 1995, Compania Minera Maricunga (CMM), a 50 percent owned joint
venture of Amax Gold, obtained $85 million in financing to build the Refugio
mine in Chile. The loan was drawn in 223,684 ounces of gold, which were sold
for $380 per ounce. The Company and the other 50 percent owner are guarantors
on a several basis in proportion to their respective ownership interests until
completion tests are passed, at which time the loan becomes non-recourse to the
Company. The loan is a five-year amortizing term loan that can be transferred
between gold and U.S. dollars. Interest
-40-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise indicated and
except per share amounts and amounts per ounce)
on the loan is calculated at LIBOR for any U.S. dollar portion and at the bank's
gold lease rate for any gold portion, plus 1.75 percent during the construction
phase and 2.5 percent after completion tests are passed.
8. HEDGE CONTRACTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Hedge Contracts
Precious metal hedge contracts include forward sales contracts, spot deferred
forward sales, put and call options and compound options and are entered into by
the Company to hedge the effect of price changes on the Company's precious
metals that are produced and sold. Realization under these contracts is
dependent upon the counterparties performing in accordance with the terms of the
contracts. The Company does not anticipate non-performance by the
counterparties.
Forward sales contracts require the future delivery of gold at a specified
price. Forward sales contracts that are made on a spot deferred basis allow the
Company to defer the delivery of gold under a forward sales contract to a later
date at a renegotiated market price. Various factors influence the decision to
close a spot deferred forward sales contract or to roll the contract forward to
a later date. A put option gives the put buyer the right, but not the
obligation, to sell gold to the put seller at a predetermined price on or before
a predetermined date. A call option gives the call buyer the right, but not the
obligation, to buy gold from the call seller at a predetermined price on or
before a predetermined date. The Company also uses compound options to protect
against decreases in gold prices and to reduce the initial cash outlay needed to
provide this protection. The call portion of a compound option allows the
Company to purchase a put. The Company's risk in purchasing compound options is
limited to the premium paid.
As of December 31, 1996, the Company's outstanding hedge contracts were as
follows:
<TABLE>
<CAPTION>
Average
Realized Price
Gold Ounces Per Ounce Period
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Forward sales contracts/(1)/ 315,796 $440 Jan. 1997 - March 1997
Option contracts:
Purchased put options 534,000 $423 Jan. 1997 - Dec. 2001
Sold put options 178,900 $387 Jan. 1997 - Sept. 1999
Purchased call options 340,000 $427 Mar. 1997 - Dec. 1998
Sold call options 256,600 $416 Jan. 1997 - Dec. 1997
</TABLE>
/(1)/ Represents the net forward sales position, which was made primarily on a
spot deferred forward basis, and which allows for deferral of the delivery
of gold ounces to a later date at a renegotiated gold price.
The market value of the Company's forward contracts and put and call options at
December 31, 1996 and 1995, was approximately $25.1 million and $22.6 million.
Future market valuations for these contracts are dependent on gold market
prices, option volatility and interest rates, which can vary significantly.
These contracts will be utilized in the future to hedge against declines in gold
market prices for the Company's future gold production while maintaining
benefits in the event of higher gold market prices.
Interest Rate Protection Agreements
As a requirement of the Fort Knox loan, the Company has entered into interest
rate swap option agreements to reduce the impact of changes in interest rates.
At December 31, 1996, the Company had interest rate swaps and swap option sales
contracts that if exercised between February 1997 and April 1998 would obligate
the Company to pay a fixed rate of 5.7 percent over an average term of 1.6 years
on a principal amount of $190 million. Swap options that expired January 1997
were sold to offset $20 million of swap contracts that if exercised would reduce
the Company's obligation to paying a fixed
-41-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise indicated and
except per share amounts and amounts per ounce)
rate of 5.6 percent on a principal amount of $170 million. The Company also
purchased swap options with the right to pay 6.7 percent over an average term of
2.0 years on a principal amount of $150 million. Gains or losses realized on
these contracts will be amortized over the term of the loan. Amax Gold would
break even if required to terminate these interest rate swap agreements, given
market interest rates at December 31, 1996. Due to the requirements placed on
the Company as a condition of its Fort Knox borrowings, the Company does not
expect to close these contracts.
Credit Risk
Amax Gold is exposed to credit losses in the event of non-performance by
counterparties to financial instruments, but does not expect any counterparties
to fail to meet their obligations. The Company generally does not obtain
collateral or other security to support financial instruments subject to credit
risk but monitors the credit standing of counterparties.
The estimated fair values for financial instruments under SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments," are determined at
discrete points in time based on relevant market information. These estimates
involve uncertainties and cannot be determined with precision. The estimated
fair values of the Company's financial instruments, as measured on December 31,
1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and equivalents $ 11.1 $ 11.1 $ 25.6 $ 25.6
Long-term receivables 12.6 12.6 11.9 11.9
Long-term debt 272.6 272.6 238.2 238.2
Hedge contracts 9.6 25.1 10.1 22.6
Interest rate protection agreements - - - (1.4)
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Equivalents
The carrying amounts approximate fair value because of the short maturity of
these instruments.
Long-Term Receivables
The fair value is estimated based on expected discounted future cash flows,
including applicable interest.
Long-Term Debt
The fair value is estimated based on the quoted market prices for the same or
similar issues offered to the Company for debt of similar maturities.
Hedge Contracts
The fair value of options is estimated based on market prices, volatilities and
interest rates, while the fair value of forward sales is estimated based on the
quoted market price for the contracts at December 31, 1996 and 1995. The net
asset of $9.6 million and $10.1 million recorded on the financial statements as
of December 31, 1996 and 1995 is comprised of $10.6 million and $5.4 million in
prepaid option costs, $6.3 million and $7.8 million in deferred option costs and
net of $7.3 million and $3.1 million in current deferred premiums, respectively.
Interest Rate Protection Agreements
The fair value of interest rate protection agreements is estimated by obtaining
quotes from financial institutions and represents the cost to buy out the swaps
and options at December 31, 1996 and 1995. The Company does not expect to buy
out these agreements.
-42-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise indicated and
except per share amounts and amounts per ounce)
9. EMPLOYEE BENEFITS
Pension Plan
Substantially all employees in the United States are covered by a non-
contributory defined benefit pension plan. Benefits are based generally on
years of service and compensation levels prior to retirement. The Company makes
annual contributions to the plan in accordance with the requirements of the
Employee Retirement Income Security Act of 1974 (ERISA). Effective July 1,
1994, the Company amended its plan to a career average plan from a final pay
plan. The change had the effect of reducing the projected benefit obligation
and annual pension expense. Plan assets are invested in a balanced fund and
small capital equity fund.
Net annual pension cost includes the following components:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 0.6 $ 0.5 $ 0.8
Interest cost 0.3 0.3 0.4
Actual return on assets (0.3) (0.5) (0.1)
Deferred gain (loss) 0.1 0.2 (0.2)
Net amortization of prior service
cost and losses (0.1) (0.1) 0.2
- -----------------------------------------------------------
Net periodic expense $ 0.6 $ 0.4 $ 1.1
- -----------------------------------------------------------
</TABLE>
The following table summarizes the funded status of the plan and the related
amounts recognized in the Company's financial statements at December 31:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation, including vested benefits of
$2.8 in 1996 and $4.2 in 1995 $ 3.5 $ 5.1
- ----------------------------------------------------------------------
Projected benefit obligation $(3.6) $(5.1)
Plan assets at fair value 2.4 3.4
- ----------------------------------------------------------------------
Plan assets less than projected benefit obligation (1.2) (1.7)
Unrecognized prior service cost (0.7) (0.8)
Unrecognized net loss 0.8 1.6
- ----------------------------------------------------------------------
Accrued pension cost $(1.1) $(0.9)
- ----------------------------------------------------------------------
</TABLE>
The following assumptions were used in calculating the funded status of the plan
at December 31 and the pension cost for the subsequent year:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------
<S> <C> <C>
Expected long-term rate of return on assets 9.0% 9.0%
Discount rate 7.75% 7.25%
Rate of increase in compensation levels 5.83% 5.25%
</TABLE>
Postretirement Benefits Other than Pensions
The Company also provides certain health care and life insurance benefits for
retired employees in the United States. The postretirement health care plans are
contributory in certain cases based upon years of service, age and retirement
date.
-43-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise indicated and
except per share amounts and amounts per ounce)
The Company currently does not fund postretirement benefits and may modify plan
provisions at its discretion. Net periodic postretirement benefit costs for the
years ended December 31, 1996, 1995 and 1994, were insignificant.
The following table sets forth the status of the plan and the related amounts
recognized in the Company's financial statements at December 31:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 1.0 $ 0.3
Active plan participants 1.0 1.5
- -----------------------------------------------------------------------
Total accumulated postretirement benefit obligation 2.0 1.8
Plan assets at fair value - -
- -----------------------------------------------------------------------
Accumulated postretirement benefit obligation
in excess of plan assets (2.0) (1.8)
Unrecognized prior service cost (1.4) (1.5)
Unrecognized net loss 0.5 0.5
- -----------------------------------------------------------------------
Accrued postretirement benefit cost $(2.9) $(2.8)
- -----------------------------------------------------------------------
</TABLE>
The accumulated postretirement benefit obligation was determined using a
weighted average annual discount rate of 7.75 percent in 1996 and 7.25 percent
in 1995. The assumed health care cost trend rate for 1997 is 9 percent,
declining gradually by one-half percent per year to 4.25 percent by 2010 and
thereafter. A one percent increase in the health care cost trend rate used
would have resulted in an insignificant increase in the 1996 postretirement
benefit cost and the accumulated postretirement benefit obligation at December
31, 1996.
Postemployment Benefits
The Company also has a number of postemployment plans covering severance,
disability income, and continuation of health and life insurance for disabled
employees. At December 31, 1996 and 1995, the Company's liability for
postemployment benefits totaled $3.9 million and $4.4 million, respectively, and
is included in other liabilities.
10. PREFERRED STOCK
In August 1994, the Company sold publicly 1.8 million shares of $3.75 Series B
Convertible Preferred Stock (Preferred Stock) for net proceeds of $88.3 million.
The Preferred Stock is convertible at the option of the holder at any time at an
initial conversion price of $8.25 per share (equivalent to a conversion rate of
6.061 shares of Common Stock for each share of Preferred Stock), subject to
adjustment in certain events. If all of the Preferred Stock were to be
converted, an additional 11.2 million Common Shares would be issued.
The Preferred Stock is redeemable at the option of the Company at any time on or
after August 15, 1997, in whole or in part, for cash, initially at a redemption
price of $52.625 per share declining ratably annually to $50.00 per share on or
after August 15, 2004, plus accrued and unpaid dividends.
Annual cumulative dividends of $3.75 per share are payable quarterly on each
November 15, February 15, May 15 and August 15, as and if declared by the Board
of Directors.
-44-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise indicated and
except per share amounts and amounts per ounce)
11. COMMON STOCK
In February 1992, the Company's Board of Directors approved a Dividend
Reinvestment Plan whereby shareholders of the Company may elect to reinvest any
future Common Stock dividend payments in additional shares of the Company's
Common Stock. Three million shares of the Company's Common Stock are reserved
for issuance pursuant to this plan.
In 1994, the Company's shareholders approved a plan to grant Common Shares to
non-employee directors, under which 100,000 shares of Common Stock were reserved
for issuance. In each of May 1996, June 1995 and August 1994, 7,500 shares were
issued.
During 1995, Amax Gold was reincorporated in Delaware and elected not to be
governed by Section 203 of the Delaware General Corporation Law, permitting the
Company to engage in business transactions with Cyprus Amax without requiring
the approval of 66 2/3 percent of all shareholders excluding Cyprus Amax and its
affiliates and associates. As a result of the reincorporation, Amax Gold's
treasury stock was cancelled.
12. STOCK-BASED COMPENSATION PLANS
At December 31, 1996, the Company has two stock-based compensation plans, which
are described below. The Company applies APB Opinion 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its fixed stock option plan. The compensation cost that
has been charged against income for its long-term incentive plan was
insignificant for 1996 and 1995. Had compensation cost for the Company's two
stock-based compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of SFAS No.
123, the difference in the Company's net income and earnings per share would
have been immaterial.
The Company maintains a fixed stock option plan for officers and salaried
employees to purchase Common Shares. Options are exercisable at prices equal to
the market value on the date of grant. Options vest in two years and remain
exercisable until ten years from date of grant. As of December 31, 1996, 2.0
million Common Shares are reserved for future grants.
A summary of the status of the Company's fixed stock option plan as of December
31, 1996 and 1995 and changes during the years ending on those dates is
presented below:
-45-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise indicated and
except per share amounts and amounts per ounce)
<TABLE>
<CAPTION>
1996 1995
---------------------------- ------------------------
Weighted- Weighted-
Average Average
Fixed Options Shares Exercise Price Shares Exercise Price
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at
beginning of year 1,060,000 $7.19 756,425 $7.19
Granted 50,000 $6.75 345,400 $7.18
Exercised 300 $8.75 - $ -
Forfeited 74,575 $7.21 41,825 $7.11
- ------------------------------------------------------------------------------
Outstanding at
end of year 1,035,125 $7.16 1,060,000 $7.19
- ------------------------------------------------------------------------------
Options exercisable
at year-end 738,925 $7.16 151,350 $8.75
Weighted-average
fair value of
options granted
during the year 50,000 $2.24 345,400 $2.37
- ------------------------------------------------------------------------------
</TABLE>
During 1993, Amax Gold implemented a long-term incentive plan. Under this plan,
officers of the Company may receive restricted stock awards based on the rate of
return received by investors in the Company's Common Stock, compared with that
of its peers in the gold industry. Such awards may be deferred, accelerated or
otherwise adjusted based upon a strategic and comparative performance
assessment. Effective January 1, 1996 and 1995, 52,550 shares and 35,400 shares
were granted at grant prices of $7.75 and $5.63, respectively. As of December
31, 1996, 762,050 shares were reserved for issuance. The valuation of the
shares issued under the performance share plan as calculated under SFAS No. 123
approximates the amounts already recorded as compensation expense by the Company
and is insignificant for the years ended December 31, 1996 and 1995.
-46-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise indicated and
except per share amounts and amounts per ounce)
13. DOMESTIC AND FOREIGN OPERATIONS
The Company's foreign operations consist of the Guanaco and Refugio mines in
Chile. The components of the Company's domestic and foreign operations were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
United States $ 65.7 $ 68.2 $ 74.9
Foreign 42.5 28.4 19.7
- --------------------------------------------------------------
$108.2 $ 96.6 $ 94.6
- --------------------------------------------------------------
Income (loss) from operations:
United States $ 2.0 $ (6.6) $(31.4)
Foreign (39.9) (10.6) (12.5)
- --------------------------------------------------------------
$(37.9) $(17.2) $(43.9)
- --------------------------------------------------------------
Net income (loss) attributable
to common shares:
United States $ 9.6 $(11.9) $(25.1)
Foreign (50.7) (18.9) (12.2)
- --------------------------------------------------------------
$(41.1) $(30.8) $(37.3)
- --------------------------------------------------------------
Identifiable assets:
United States $631.4 $448.6 $308.3
Foreign 133.9 162.5 94.9
- --------------------------------------------------------------
$765.3 $611.1 $403.2
- --------------------------------------------------------------
</TABLE>
-47-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise indicated and
except per share amounts and amounts per ounce)
Substantially all of the Company's 1996, 1995 and 1994 sales were made in Europe
through a wholly owned subsidiary of the Company. The Company's sales to major
customers that exceeded 10 percent of total sales were $95 million to four
customers during 1996, $58 million to two customers in 1995 and $65 million to
four customers in 1994. The Company believes that the loss of any of these
customers would have no material adverse impact on the Company because of the
active worldwide market for gold.
14. COMMITMENTS AND CONTINGENCIES
The Company currently accrues reclamation liabilities for the following
operations:
<TABLE>
<CAPTION>
Reclamation Costs Accrued
Total Anticipated --------------------------
Reclamation Cost Current Non-Current
- -----------------------------------------------------------------
<S> <C> <C> <C>
Sleeper $ 8.9 $4.0 $ 4.9
Hayden Hill 9.5 0.5 5.9
Other 1.9 - 0.4
- -----------------------------------------------------------------
Total $20.3 $4.5 $11.2
- -----------------------------------------------------------------
</TABLE>
The anticipated reclamation costs for the Company's mines are estimates based on
current federal, state and Chilean laws and regulations. Changes in the
federal, state and Chilean laws and regulations could impact these anticipated
reclamation costs.
15. QUARTERLY DATA (UNAUDITED)
Quarterly earnings data for the years ended December 31, 1996 and 1995, follow:
<TABLE>
<CAPTION>
1996 Quarters First Second Third Fourth
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $25.6 $25.6 $23.4 $ 33.6
Loss from operations (2.5) (0.7) (0.4) (34.3)
Net loss (3.5) (2.5) (1.7) (26.5)
Loss attributable to common shares (5.2) (4.2) (3.4) (28.3)
- ------------------------------------------------------------------------
Per common share:
Net loss $(.05) $(.05) $(.03) $ (.29)
- ------------------------------------------------------------------------
1995 Quarters First Second Third Fourth
- ------------------------------------------------------------------------
Revenues $22.7 $26.7 $23.7 $ 23.5
Loss from operations (4.9) (2.7) (2.9) (6.7)
Net loss (6.0) (4.5) (4.9) (8.5)
Loss attributable to common shares (7.7) (6.2) (6.6) (10.3)
- ------------------------------------------------------------------------
Per common share:
Net loss $(.09) $(.08) $(.08) $ (.11)
- ------------------------------------------------------------------------
</TABLE>
Fourth quarter 1996 results included a pre-tax charge of $35.5 million due to
the write-down of the Guanaco mine and an unrelated $10 million deferred tax
benefit.
-48-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise indicated and
except per share amounts and amounts per ounce)
16. RESERVE DATA (UNAUDITED)
The following table presents proven and probable ore reserves by property at
December 31. Ore reserves are calculated by the Company.
Ore Reserves/(1)/
(thousands, except average grades)
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------ --------- ---------
Contained Contained Contained
Average ounces ounces ounces
grade Contained (the (the (the
(ounces ounces Company's Company's Company's
Tons per ton) (100%) share) share) share)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gold
Producing mines:
Guanaco/(2)/ 2,673 0.045 119 119 378 481
Hayden Hill 5,635 0.029 164 164 273 381
Sleeper - - - - 48 155
Refugio/(3)/ 107,204 0.029 3,117 1,558 1,672 1,537
---------------------------------------------
Total producing
mines 3,400 1,841 2,371 2,554
---------------------------------------------
Properties under
construction:
Fort Knox 161,315 0.025 4,079 4,079 4,094 4,094
---------------------------------------------
Development
properties/(5)/:
Haile 8,736 0.089 780 488 488 488
---------------------------------------------
Total gold 8,259 6,408 6,953 7,136
---------------------------------------------
Kubaka/(4)/ 4,949 0.540 2,665 1,332 - -
---------------------------------------------
Total gold -
including
pending
acquisition 10,924 7,740 6,953 7,136
---------------------------------------------
</TABLE>
The following table presents other mineralized material for the Company's three
new mines as of December 31, 1996, as calculated by the Company.
<TABLE>
<CAPTION>
Tons Average Grade
(000) (Ounces Per Ton)
- ---------------------------------------------
<S> <C> <C>
Fort Knox 157,000 0.021
Refugio 134,000 0.025
Kubaka 1,950 0.290
- ---------------------------------------------
292,950
- ---------------------------------------------
</TABLE>
-49-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise indicated and
except per share amounts and amounts per ounce)
/(1)/ Reserves. That part of a mineral deposit that could be economically and
legally extracted or produced at the time of the reserve determination.
Reserves have been calculated using a $400 per ounce gold price for all
mines except Refugio, for which a $375 per ounce gold price was used.
Proven Reserves. 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. 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.
These definitions comply with those issued by the Securities and Exchange
Commission, which are based on definitions used by the United States
Bureau of Mines and the United States Geological Survey.
Other Mineralized Material. A mineralized body that has been physically
delineated by drilling, underground work, surface trenching, etc., and
found to contain a sufficient amount of mineralized material with an
average grade of metal or metals to warrant further exploration
expenditures. The Company's reported mineralized material must be defined
by a conceptual mine plan and have established geologic continuity but
does not qualify as a commercially mineable ore body until final legal,
technical and economic factors have been resolved.
/(2)/ The Company owns a 90 percent interest in the Guanaco mine and under
existing shareholder arrangements receives 100 percent of production until
certain conditions are met. Management currently does not believe those
conditions will be met; therefore, 100 percent of Guanaco's reserves have
been included in the Company's reserve table for 1996.
/(3)/ Commercial production at the Refugio mine commenced on October 1, 1996.
/(4)/ The Company expects to complete the acquisition of the Kubaka property
from Cyprus Amax early in 1997.
/(5)/ The Company has not yet reached a decision regarding whether to proceed
with development of the property.
The Company reports extractable (mineable) ore reserves. Reserves do not
reflect losses in the milling or heap leaching processes, but do include
allowance for ore dilution in the mining process.
Recovery rates for 1996 were as follows:
<TABLE>
<CAPTION>
Heap
Leach Mill
- ---------------------------------------------------------
<S> <C> <C>
Guanaco 55.2% -%
Hayden Hill 67.8% -%
Sleeper 42.8% 65.2%
Refugio 58.2% -%
- ---------------------------------------------------------
</TABLE>
-50-
<PAGE>
AMAX GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions unless otherwise indicated and
except per share amounts and amounts per ounce)
Based on completed feasibility studies and the processes contemplated therein,
the estimated average gold recovery rates at the Company's properties under
construction and development properties are approximately 97 percent at Kubaka,
90 percent at Fort Knox and 65 to 85 percent at Haile.
-51-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Exhibit
- ----------- -------
10.11 Letter Agreement, dated November 1, 1996 and Letter
Agreement, dated December 19, 1996, amending Loan
Agreement, dated as of November 23, 1994.
21 Subsidiaries of the Company.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Mineral Resources Development, Inc.
23.3 Consent of Derry, Michner, Booth & Wahl.
27 Financial Data Schedule.
<PAGE>
EXHIBIT 10.10
[LOGO OF N. M. ROTHSCHILD & SONS LIMITED]
New Court, St. Swithin's Lane, London EC4P 4DU
To: Compania Minera Maricunga as of 1 November, 1996
Neuva de Lyon 72
Oficina 1801
Santiago
Chile
and to each of the other Obligors
party to the Loan Agreement referred
to below
Re: Loan Agreement, dated as of November 23, 1994 (as amended or otherwise
modified from time to time prior to the date hereof, the "Loan
----
Agreement"), among Compania Minera Maricunga, as the Borrower, Amax Gold
---------
Refugio, Inc. and Bema Gold (Bermuda) Ltd., as the Intermediate Owners,
Amax Gold Inc. and Bema Gold Corporation, as the Guarantors, the financial
institutions referred to therein as the Banks, Deutsche Bank AG, New York
Branch, as the Technical Agent for the Banks, and N M Rothschild & Sons
Limited, as the Administrative Agent for the Banks.
-------------------------------------------------------------------------
Dear Sirs:
Reference is made to the letter agreement, dated as of 30 September, 1996
(the "30 September Letter Agreement"), pursuant to which, and as set forth in
-----------------------------
greater detail therein, the Bank Parties agreed to certain amendments and
waivers to the terms and conditions of the Loan Agreement. As you are aware, the
modification referred to in paragraph 3(a) of the 30 September Letter Agreement
----
was expressed by the terms and conditions thereof to be of no further effect
from November 1, 1996. You have requested that, and by their respective
signatures hereto (and subject to the terms and conditions hereof) each Bank
Party consents to, such modification being extended to apply to the period
commencing as of the date of this letter agreement and ending on March 31, 1997
and, for such purposes, the reference in paragraph 3(a) of the 30 September
Letter Agreement to the date "October 31, 1996" shall be deemed to be a
reference to the date "March 31, 1997".
In addition to the foregoing, the Obligors have requested that the Bank
Parties consent to the following additional waivers and amendments to the Loan
Agreement as in effect on the date hereof.
<PAGE>
1. Mechanical Completion Date.
---------------------------
That the provisions of Section 9.1.16 of the Loan Agreement to the effect
--------------
that an Event of Default shall have occurred in the event that the Mechanical
Completion Date shall not have occurred on or prior to September 30, 1996 be
amended by substituting the date "March 31, 1997" for the date "September 30,
1996" currently referred to therein.
2. Revised Development Plan.
-------------------------
That any Default which might already have occurred, and which might occur
on or prior to the date (the "Waiver Expiry Date") which is the earlier to occur
------------------
of (a) February 21, 1997 and (b) the date on which the Banks accept the revised
Development Plan as set forth below, in either such case pursuant to the terms
and conditions of clause (b) of Section 1.8 of the Loan Agreement and arising
---------- -----------
out of the failure to modify the Development Plan as currently in effect (being
the version thereof referred to in the definition of such term contained in
Section 1.1 of the Loan Agreement as originally executed) as a result any delay
- -----------
in the construction and operation of the Mine due to events arising prior to the
date of this letter agreement be waived. For the avoidance of doubt such waiver
shall expire on the Waiver Expiry Date and each of the Obligors acknowledges and
undertakes the obligation to deliver to the Banks the proposed modified
Development Plan on or prior to January 31, 1997 (and in addition each of the
Obligors hereby undertakes to deliver to the Banks on or prior to December 31,
1996 a plan in reasonable detail relating to the expected schedule of
development (and levels of Production) at the Mine for the period up until the
end of the Project Period. Such proposed modified Development Plan shall contain
(a) assumptions (including assumptions reflecting a reduction in the volume of
sodium cyanide required for the leaching of oxide ores (but not sulphide ores)
in the amount of 35% from the levels contained in the Development Plan as
currently in effect) and (b) projections illustrating compliance for all periods
in the future by the Borrower with the provisions of the Loan Agreement
(including Section 8.2.4 thereof), in each such case in a form and substance
-------------
reasonably satisfactory to the Independent Consultant and all the Banks. The
Banks shall determine whether or not the proposed revised Development Plan is in
a form acceptable to them by February 21, 1997.
3. Compliance Certificates.
------------------------
That (a) the provisions of clause (c) of Section 8.1.1 of the Loan
---------- -------------
Agreement requiring delivery of Compliance Certificates prepared as at September
30, 1996 and as at December 31, 1996 by no later than fifteen (15) Business Days
after September 30, 1996 and December 31, 1996, respectively, be waived by (b)
any Default which might already have occurred as a result of non-compliance by
the Borrower with such provisions in connection with the Compliance Certificate
required to be prepared as at September 30, 1996 be waived.
4. Materially Adverse Effect.
--------------------------
That the definition of the term "Materially Adverse Effect" contained in
-------------------------
Section 1.1 of the Loan Agreement be amended in its entirety to read as set
- -----------
forth below:
-2-
<PAGE>
"Materially Adverse Effect" means, with respect to any Obligor
-------------------------
(including the Borrower), an effect, resulting from any occurrence of
whatever nature (including any adverse determination in any labor
controversy, litigation, arbitration or governmental investigation or
proceeding), which is materially adverse, or is or would be reasonably
likely to be materially adverse, to the ability of such Obligor to make
any payment or perform any other material obligation required under any
Operative Document or, in the case of the Borrower (except at any time
during the period referred to in the next sentence of this definition),
to develop and operate the Mine substantially in accordance with the
Development Plan. During the period commencing on November 1, 1996 and
ending on the date on which a revised Development Plan is agreed
pursuant to the provisions of the letter agreement, dated as of
November 1, 1996, between the parties to this Agreement, the
determination of whether the effect of any such occurrence is, or would
be reasonably likely to be, materially adverse to the ability of any
Obligor to make any payment or perform any other material obligation
required under the Loan Agreement shall be made in accordance with such
evidence and projections as shall, in the reasonable judgment of all
the Banks, accurately reflect the projected progress and development of
the Refugio Project.
5. AGI Support Agreement.
----------------------
That (a) the definition of the term "Consolidated Working Capital"
----------------------------
contained in Section 1.2 of the AGI Support Agreement be amended in its entirety
-----------
to read as set forth below:
"Consolidated Working Capital" means, at any time, the excess of (a)
----------------------------
Adjusted Consolidated Current Assets, less, (b) Adjusted Consolidated
Current Liabilities (excluding, however, Indebtedness outstanding to Cyprus
Amax from time to time), in each case calculated at such time.
and (b) any Default which might already have occurred as a result of
non-compliance by AGI with the provisions of clause (c) of Section 8.2 of the
---------- -----------
AGI Support Agreement due to the inclusion in the calculation of Consolidated
Working Capital of Indebtedness of AGI to Cyprus referred to in the amended
definition of such term contained above be waived.
The undersigned Bank Parties have discussed the foregoing requested waivers
and amendments and, subject to the terms and conditions of this letter agreement
and as of the date hereof, are willing to and do hereby consent thereto.
As you are aware, the first scheduled amortizing payment of the Principal
Amount of the Loans is scheduled to be made on December 31, 1996. Due to the
delay in completion of the Mine it is the expectation of the Bank Parties that
contributions to the Borrower will be required to be made by each Guarantor (or
one or more of their respective Affiliates) in order to enable the Borrower to
make such scheduled payment. Accordingly,
-3-
<PAGE>
the Bank Parties expect that, by no later than December 1, 1996, each Guarantor
will supply to the Administrative Agent details of the method by which it
currently contemplates such contributions will be made.
Except as expressly waived or amended by the terms of this letter agreement
or by the 30 September Letter Agreement as extended by this letter agreement,
the terms and conditions of the Loan Agreement and each other Loan Document
shall continue in full force and effect.
This letter agreement is a Loan Document and shall in all respects be
construed and interpreted in accordance with the Loan Agreement (including
Sections 11.9 and 11.13 thereof) and, except as otherwise defined in this letter
- ------------- -----
agreement, terms for which meanings are provided in the Loan Agreement are used
in this letter agreement with such meanings. This letter agreement shall become
effective when the Administrative Agent shall have received (a) from the
Borrower an amendment fee in the amount of U.S.$50,000 for distribution to the
Banks in accordance with their respective Percentages, and (b) counterparts of
this letter agreement executed on behalf of each party referred to below (or
evidence of such execution acceptable to the Administrative Agent). In the event
that the conditions set forth in the immediately preceding sentence shall not
have been satisfied on or prior to November 15, 1996 then this letter agreement
shall, immediately and without further action, be of no further force and
effect.
Very truly yours,
per pro N M ROTHSCHILD & SONS LIMITED,
as a Bank and as the Administrative Agent
/s/ Paul R. Baker
By:_________________________________________
Paul R. Baker
Name Printed: ______________________________
Assistant Director
Title:______________________________________
/s/ M. Palmer
By:_________________________________________
M. Palmer
Name Printed:_______________________________
Manager
Title:______________________________________
-4-
<PAGE>
DEUTSCHE BANK AG, New York Branch,
as the Technical Agent
/s/ Richard G. Reeves
By:_________________________________________
Richard G. Reeves
Name Printed:_______________________________
Vice President
Title:______________________________________
/s/ Daniel C. Cillie
By:_________________________________________
Daniel C. Cillie
Name Printed:_______________________________
Assistant Vice President
Title:______________________________________
DEUTSCHE BANK AG, Los Angeles and/or
Cayman Islands Branches, as a Bank
/s/ Richard G. Reeves
By:_________________________________________
Richard G. Reeves
Name Printed:_______________________________
Vice President
Title:______________________________________
/s/ Daniel C. Cillie
By:_________________________________________
Daniel C. Cillie
Name Printed:_______________________________
Assistant Vice President
Title:______________________________________
CANADIAN IMPERIAL BANK OF
COMMERCE, as a Bank
/s/ J. W. Kunkle
By:_________________________________________
John W. Kunkle
Name Printed:_______________________________
Authorized Signatory
Title:______________________________________
CREDIT LYONNAIS, as a Bank
Illegible
By:_________________________________________
Name Printed:_______________________________
Head of Project Finance
Title:______________________________________
CREDIT LYONNAIS CANADA, as a Bank
/s/ M. C. Manion
By:_________________________________________
M. C. Manion
Name Printed:_______________________________
Vice President
Title:______________________________________
-5-
<PAGE>
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION, as a Bank
/s/ Ricardo M. Campoy
By:_________________________________________
Ricardo M. Campoy
Name Printed:_______________________________
Managing Director
Title:______________________________________
ACCEPTED AND AGREED as of the
date first hereinabove written
COMPANIA MINERA MARICUNGA,
as the Borrower
/s/ D. Hunter
By:_____________________________________
Donald Hunter
Name Printed:____________________________
General Manager
Title:___________________________________
AMAX GOLD INC., as a Guarantor
/s/ S. Scott Shellhaas
By:_______________________________________
S. Scott Shellhaas
Name Printed:_____________________________
President and Chief Operating Officer
Title:_____________________________________
BEMA GOLD CORPORATION,
as a Guarantor
/s/ C. Johnson
By:_______________________________________
Name Printed:_____________________________
Title:_____________________________________
AMAX GOLD REFUGIO, INC., as an
Intermediate Owner
/s/ S. Scott Shellhaas
By:_______________________________________
S. Scott Shellhaas
Name Printed:_____________________________
President
Title:_____________________________________
-6-
<PAGE>
BEMA GOLD (BERMUDA) LTD,
as an Intermediate Owner
/s/ C. Johnson
By:_______________________________________
Name Printed:_____________________________
Title:_____________________________________
-7-
<PAGE>
[LOGO OF N M ROTHSCHILD & SONS LIMITED]
New Court, St. Swithin's Lane, London EC4P 4DU
N M ROTHSCHILD & SONS LIMITED
New Court, St. Swithin's Lane, London EC4P 4DU
To: Compania Minera Maricunga as of December 19, 1996
Nueva de Lyon 72
Oficina 1801
Santiago
Chile
Amax Gold Inc.
9100 East Mineral Circle
Englewood
Colorado 80112
U.S.A.
Bema Gold Corporation
1400-510 Burrard Street
Vancouver, B.C.
V6C 3A8, Canada
and to each of the other Obligors
party to the Loan Agreement referred
to below
Re: (1) Loan Agreement, dated as of November 23, 1994 (as amended or
otherwise modified from time to time prior to the date hereof, the
"Loan Agreement"), among Compania Minera Maricunga, as the Borrower,
--------------
Amax Gold Refugio, Inc. and Bema Gold (Bermuda) Ltd., as the
Intermediate Owners, Amax Gold Inc. ("AGI") and Bema Gold Corporation
("Bema Gold"), as the Guarantors, the financial institutions referred
---------
to therein as the Banks, Deutsche Bank AG, New York Branch, as the
Technical Agent for the Banks and N M Rothschild & Sons Limited
("Rothschild"), as the Administrative Agent for the Banks, and (2)
----------
Support Agreement, dated as of February 14, 1995 (as amended or
otherwise modified from time to time prior to the date hereof, the
"Bema Gold Support
-----------------
<PAGE>
Agreement") between Bema Gold and Rothschild, as the Administrative
---------
Agent for the Banks.
Dear Sirs:
By letter, dated December 5, 1996, Bema Gold requested that amendments and
waivers be made to certain provisions of the Loan Agreement, the Bema Gold
Support Agreement and the Subordination Agreement (Bema Gold/AGI). The
undersigned Bank Parties have discussed the requests therein contained and,
subject to the terms and conditions of this letter agreement, are willing to
consent to the following amendments and waivers to the Loan Agreement, the Bema
Gold Support Agreement and the Subordination Agreement (Bema Gold/AGI), as each
is in effect on the date hereof. This letter agreement is a Loan Document and
shall in all respects be construed and interpreted in accordance with the Loan
Agreement (including Sections 1.1, 1.11, 11.9 and 11.13 thereof) and, except as
------------ ---- ---- -----
otherwise defined in this letter agreement, terms for which meanings are
provided in the Loan Agreement are used in this letter agreement with such
meanings.
1. Computation of financial covenants contained in the Bema Gold Support
---------------------------------------------------------------------
Agreement.
- ---------
In that Bema Gold has been issuing its publicly disclosed financial
statements and related reports denominated in U.S. Dollars since January 1,
1996, Bema gold requests that: (a) the covenants contained in Sections 8.2 and
------------
8.3 of the Bema Gold Support Agreement be calculated in U.S. Dollars rather than
- ---
Canadian Dollars (using an initial exchange rate (in effect as at January 1,
1996) of U.S.$1.00 = CDN $1.364) and (b) with respect to each Compliance
Certificate (as defined in the Bema Gold Support Agreement; the "Bema Gold
---------
Compliance Certificate") required to be delivered pursuant to the Bema Gold
Support Agreement, the calculations contained in each such Bema Gold Compliance
Certificate shall be made using U.S. Dollars rather than Canadian Dollars (using
an exchange rate as aforesaid).
2. Permitted Investments by Bema Gold.
----------------------------------
In that Bema Gold wishes to engage in additional financing activities on
behalf of its Affiliates, Bema Gold requests that:
(a) the threshold for permitted investments by Bema Gold contained in
clause (e) of Section 8.3 of the Bema Gold Support Agreement be amended from
---------- -----------
"CDN $2,000,000 (or the equivalent thereof in any other currency)" to
"U.S.$7,500,000 (or the equivalent thereof in any other currency)":
(b) the definition of "Adjusted Consolidated Current Assets" contained
------------------------------------
in Section 1.2 of the Bema Gold Support Agreement be amended by adding the
-----------
phrase: "but excluding, for the avoidance of doubt, all Investments in
Affiliates of Bema Gold permitted by clause (e) of Section 8.3" after the
---------- -----------
words "Project Account"; and
-2-
<PAGE>
(c) Item 1 of Attachment 1 to the Bema Gold Compliance Certificate be
------ ------------
amended by adding the phrase: "but excluding, for the avoidance of doubt,
all Investments in Affiliates of Bema Gold permitted by clause (e) of
----------
Section 8.3" after the words "Project Account".
-----------
3. Waiver of Consolidated Net Worth Covenant
-----------------------------------------
Bema Gold, effective with the April to June 1996 calendar quarter, adopted
Canadian GAAP Abstract EIC71, issued June 28, 1996 (relating, inter alia, to the
----------
accounting treatment for interest expense on securities such as the 1994
Convertible Debentures), a copy of which has been delivered to the Bank Parties.
As a result, the shareholders' equity of Bema Gold and its consolidated
Subsidiaries was reduced as at September 30, 1996 by CDN$3.2 million.
Accordingly, Bema Gold requests that, in accordance with Section 1.5 of the
-----------
Loan Agreement, the Canadian GAAP abstract referred to above be deemed
incorporated into Canadian GAAP for all purposes of the Loan Documents and in
addition, each of sub-clause (a)(i) of Section 8.2 of the Bema Gold Support
----------------- -----------
Agreement and sub-clause (a)(i) of the Bema Gold Compliance Certificate be
-----------------
amended by deleting the figure of "CDN$50,000,000" and replacing it with
"U.S.$34,000,000".
4. Drilling and Testing on Poncho Deposit.
--------------------------------------
Bema Gold and AGI are proposing to engage in drilling and metallurgical
testing activities at the Poncho gold deposit located about one kilometre to the
northwest of the Verde deposit. The budget for such programmes (such programmes,
collectively, the "Poncho Exploration Programme") is projected to be U.S.$3
----------------------------
million for the 1997 financial year. It is proposed that the Borrower obtain
such moneys from the Guarantors in the form of intercompany advances, such
advances to be treated as Approved Subordinated Indebtedness of the type
described in clause (a) of the definition of such term. In order to allow AGI
----------
to fund its share of the expenditures required for the Poncho Exploration
Programme, the Guarantors have proposed that Bema Gold make a principal
repayment to AGI on the Bema Gold/AGI Subordinated Note in the amount of
U.S.$1,500,000 and that accordingly the aggregate principal amount thereof be
permanently reduced from U.S.$10,000,000 to U.S.$8,500,000.
The Guarantors and the Borrower accordingly request that:
(a) Clause 3 of the Subordination Agreement (Bema Gold/AGI) be waived
--------
to permit the repayment described in the above paragraph;
(b) amounts advanced by the Guarantors in respect of the Poncho
Exploration Programme be considered as Approved Subordinated Indebtedness
(of the type described in clause (a) of the definition thereof) for all
----------
purposes of the Loan Agreement and the other Loan Documents;
(c) Article 4 of the Loan Agreement be waived to allow the deposit of
---------
amounts advanced by the Guarantors to the Borrower in respect of the Poncho
Exploration Programme into the Proceeds Sub-Account (Other Collections)
-3-
<PAGE>
and the release of such amounts therefrom, pursuant to the terms and on
the conditions set forth in Article 4 of the Loan Agreement and other
---------
applicable provisions of the Loan Documents;
(d) sub-clause (a) of Section 8.2.1 of the Loan Agreement be waived to
-------------- -------------
permit the Borrower to engage in activities relating to the Poncho
Exploration Programme; and
(e) Section 8.2.5 of the Loan Agreement be waived (pending the
-------------
agreement of a revised Development Plan by all relevant parties) so as to
permit Capital Expenditures to be incurred by the Borrower in respect of the
Poncho Exploration Programme.
Except as expressly waived or amended by the terms of this letter agreement,
the terms and conditions of the Loan Agreement, the Bema Gold Support Agreement
and each other Loan Document shall continue in full force and effect. For the
avoidance of doubt the waivers and amendments in this letter agreement shall
take effect upon the receipt by the Administrative Agent of signature pages
hereof from the Obligors and the Required Banks.
Very truly yours,
per pro N M ROTHSCHILD & SONS LIMITED,
as a Bank and as the Administrative Agent
By:
------------------------------------------
Name Printed:
--------------------------------
Title:
---------------------------------------
By:
------------------------------------------
Name Printed:
--------------------------------
Title:
---------------------------------------
DEUTSCHE BANK AG, New York Branch,
as the Technical Agent
By:
------------------------------------------
Name Printed:
--------------------------------
Title:
---------------------------------------
-4-
<PAGE>
By:
------------------------------------------
Name Printed:
--------------------------------
Title:
---------------------------------------
DEUTSCHE BANK AG, Los Angeles and/or
Cayman Islands Branches, as a Bank
By:
------------------------------------------
Name Printed:
--------------------------------
Title:
---------------------------------------
By:
------------------------------------------
Name Printed:
--------------------------------
Title:
---------------------------------------
CANADIAN IMPERIAL BANK OF
COMMERCE, as a Bank
By:
------------------------------------------
Name Printed:
--------------------------------
Title:
---------------------------------------
CREDIT LYONNAIS, as a Bank
By:
------------------------------------------
Name Printed:
--------------------------------
Title:
---------------------------------------
CREDIT LYONNAIS CANADA, as a Bank
By:
------------------------------------------
Name Printed:
--------------------------------
Title:
---------------------------------------
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION, as a Bank
By:
------------------------------------------
Name Printed:
--------------------------------
Title:
---------------------------------------
-5-
<PAGE>
ACCEPTED AND AGREED as of the
date first hereinabove written
COMPANIA MINERA MARICUNGA,
as the Borrower
By:
------------------------------------------
Name Printed:
--------------------------------
Title:
---------------------------------------
AMAX GOLD INC., as a Guarantor
By: /s/ David L. Mueller
------------------------------------------
Name Printed: David L. Mueller
--------------------------------
Title: Vice President, Controller and
Assistant Secretary
---------------------------------------
BEMA GOLD CORPORATION,
as a Guarantor
By:
------------------------------------------
Name Printed:
--------------------------------
Title:
---------------------------------------
AMAX GOLD REFUGIO, INC., as an
Intermediate Owner
By: /s/ David L. Mueller
------------------------------------------
Name Printed: David L. Mueller
--------------------------------
Title: Vice President, Controller and
Assistant Secretary
---------------------------------------
BEMA GOLD (BERMUDA) LTD., as
an Intermediate Owner
By:
------------------------------------------
Name Printed:
--------------------------------
Title:
---------------------------------------
-6-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF AMAX GOLD INC.
(All 100% owned unless otherwise indicated)
Name of Subsidiary Jurisdiction of Incorporation
------------------ -----------------------------
AGI Chile Credit Corp., Inc. Delaware
Amax Gold de Chile Ltda. Chile
Amax Gold Exploration, Inc. Delaware
Amax Gold Refugio, Inc. Delaware
Amax Precious Metals, Inc. Delaware
Amax Russia Corporation Delaware
Compania Minera Amax Guanaco* Chile
Compania Minera Maricunga** Chile
Fairbanks Gold Ltd. British Columbia
Fairbanks Gold Mining, Inc. Delaware
Guanaco Mining Company, Inc. Delaware
Haile Mining Company, Inc. Delaware
Lancaster Mining Company, Inc. Delaware
Lassen Gold Mining, Inc. Delaware
Melba Creek Mining, Inc. Alaska
Nevada Gold Mining, Inc. Delaware
Wind Mountain Mining, Inc. Delaware
- ----------------
* 90% owned.
** 50% owned.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Nos. 33-36612 and
33-53963) and in the Registration Statements on Form S-8 (Nos. 33-53665 and
33-54553) of Amax Gold Inc. of our report dated February 12, 1997 appearing on
page 9 of the 1996 Annual Report to Shareholders of Amax Gold Inc., which is
incorporated by reference in this Annual Report on Form 10-K.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
Denver, Colorado
March 12, 1997
<PAGE>
Exhibit 23.2
[LOGO & LETTERHEAD OF MINERAL RESOURCES DEVELOPMENT, INC.]
MINERAL RESOURCES DEVELOPMENT, INC.
Property Evaluators, Developers, Consulting Geologists and Engineers
March 12, 1997
Amax Gold Inc.
9100 East Mineral Circle
Englewood, CO 80112
RE: Fort Knox Gold Project Reserve Study
Ladies and Gentlemen:
We hereby authorize the reference to the Fort Knox Gold Project, Fairbanks,
Alaska, 1996 Reserve Update, dated February 26, 1997, prepared for Fairbanks
Gold Mining, Inc., by Mineral Resources Development, Inc., in the annual Report
on Form 10-K of Amax Gold, Inc. (File No. 1-9620), to be filed with the United
States Securities and Exchange Commission:
We also confirm that we have read the descriptions of the Fort Knox Project ore
reserves as contained in the Annual Report on Form 10-K and have no reason to
believe that there is any misrepresentation in the information contained
herein that is derived from our reports or known to us as a result of services
we performed in connection with the preparation of such reports.
Sincerely,
MINERAL RESOURCES DEVELOPMENT, INC.
/s/ Frank P. Howald
By: Frank P. Howald
Title: Vice President, Project Management
- --------------------------------------------------------------------------------
Bayshore Corporate Center Jose Domingo Canes 2640
1710 So. Amphlett Blvd., Suite 302 Santiago, Chile
San Mateo, California 94402 USA Tel: 56 2 2047107
Tel: (415) 349-2100 Fax: (415) 349-2111 Fax: 56 2 2745315
<PAGE>
Exhibit 23.3
DMBW, Inc. . 13949 W. Colfax Ave., Suite 110
DERRY, MICHENER, BOOTH & WAHL . Golden, Colorado 80401
- ------------------------------------------- . Telephone: (303) 233-8786
MINING AND GEOLOGICAL CONSULTANTS . Telecopier: (303) 232-2586
March 12, 1997
Amax Gold Inc.
9100 East Mineral Circle
Englewood, CO 80112
RE: Haile Project Reserve Study
Ladies and Gentlemen:
We hereby authorize the reference to the following described report prepared by
DMBW, Inc. (Derry, Michener, Booth & Wahl) ("DMBW") in an Annual Report on Form
10-K to be filed by Amax Gold Inc. ("AGI") (File No. 1-9620), with the
Securities and Exchange Commission ("SEC"):
1. Audit of April 1, 1994 Ore Reserves at the Haile Mine, dated April 22, 1994,
prepared for Amax Gold, Inc.
We also confirm that we have read the description of the Haile Project ore
reserves as contained in the Annual Report and have no reason to believe that
there is any misrepresentation in the information contained on Form 10-K, which
is derived from our report, or known to us as a result of services we performed
in connection with the preparation of such report.
Sincerely.
DMBW, Inc.
[Derry, Michener, Booth & Wahl] [SEAL OF AMERICAN INSTITUTE OF
PROFESSIONAL GEOLOGISTS]
/s/ I. S. Parrish
--------------------------
By: I. S. Parrish
Title: President/Economic Geologist
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,100
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 30,700
<CURRENT-ASSETS> 62,900
<PP&E> 985,600
<DEPRECIATION> (317,600)
<TOTAL-ASSETS> 765,300
<CURRENT-LIABILITIES> 212,300
<BONDS> 272,600
0
1,800
<COMMON> 1,000
<OTHER-SE> 259,700
<TOTAL-LIABILITY-AND-EQUITY> 765,300
<SALES> 108,200
<TOTAL-REVENUES> 108,200
<CGS> 69,000
<TOTAL-COSTS> 146,100
<OTHER-EXPENSES> 1,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,300<F1>
<INCOME-PRETAX> (44,200)
<INCOME-TAX> 10,000
<INCOME-CONTINUING> (34,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (34,200)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
<FN>
<F1>Net of interest income of $1.6 million and capitalized interest of $22.8
million.
</FN>
</TABLE>
