<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] 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
KINAM GOLD INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 06-1199974
------------------------------------------------ ---------------------------------
(State or other jurisdiction of incorporation or (IRS Employer Identification No.)
organization)
185 SOUTH STATE ST., #820, SALT LAKE CITY, UTAH 84111
------------------------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code (801) 363-9152
--------------
</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 ____
Common Stock Outstanding, $0.01 par value, as of November 13 , 2000 --
92,213,928 shares
Total Pages - 13
Exhibit Index Located on Page 13
<PAGE> 2
PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KINAM GOLD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 44.7 $ 45.8 $ 149.3 $ 157.4
------- ------- ------- -------
Costs and operating expenses (income):
Cost of sales 31.2 32.4 107.8 105.4
Depreciation and depletion 15.4 17.2 51.7 57.8
General and administrative (1.1) (0.9) (3.4) (2.9)
Exploration 0.6 0.2 2.1 0.7
------- ------- ------- -------
Total costs and operating expenses 46.1 48.9 158.2 161.0
------- ------- ------- -------
Loss from operations: (1.4) (3.1) (8.9) (3.6)
Interest expense (2.3) (2.5) (7.9) (7.4)
Interest income 0.4 0.6 2.1 1.1
Other (0.1) (1.3) (0.1) (1.3)
------- ------- ------- -------
Loss before income taxes (3.4) (6.3) (14.8) (11.2)
Income tax expense (1.6) (0.9) (3.4) (2.0)
------- ------- ------- -------
Net loss (5.0) (7.2) (18.2) (13.2)
Preferred stock dividends (1.7) (1.7) (5.1) (5.1)
------- ------- ------- -------
Loss attributable to common shares $ (6.7) $ (8.9) $ (23.3) $ (18.3)
======= ======= ======= =======
Per common share:
Net basic and diluted loss $ (0.07) $ (0.10) $ (0.25) $ (0.20)
Weighted average number of common shares outstanding 92.2 92.2 92.2 92.2
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 3
KINAM GOLD INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions except per value of stock)
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Current
Cash and equivalents $ 19.2 $ 25.1
Inventories 46.0 49.2
Receivables 19.8 21.8
Other 3.9 2.2
------ ------
Current assets 88.9 98.3
Property, plant and equipment, net 311.8 351.0
Other 14.8 14.6
------ ------
$415.5 $463.9
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Current
Demand loan from parent $ 73.6 $ 73.6
Current maturities of long-term debt 21.7 25.3
Accounts payable, trade 20.3 22.7
Accrued and other current liabilities 15.7 15.2
Reclamation reserve, current portion 4.1 6.2
------ ------
Current liabilities 135.4 143.0
Advance from parent 215.0 213.2
Long-term debt 95.7 110.6
Reclamation reserve, non-current portion 26.4 24.6
Other 13.8 20.0
------ ------
486.3 511.4
------ ------
Commitments and contingencies
Shareholders' equity (capital deficiency):
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 92,213,928 shares
0.9 0.9
Paid-in capital 409.4 409.4
Accumulated deficit (482.9) (459.6)
------ ------
Total shareholders' equity (capital deficiency) (70.8) (47.5)
------ ------
Total liabilities and shareholders' equity (capital deficiency) $415.5 $463.9
====== ======
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE> 4
KINAM GOLD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss $(18.2) $(13.2)
Adjustments to reconcile net loss to cash flow provided from
operations:
Depreciation and depletion 51.7 57.8
Increase (decrease) in reclamation reserve (0.3) 1.6
Decrease in working capital items 0.6 5.5
Other (6.5) (5.0)
----- -----
Cash flow provided from operating activities 27.3 46.7
----- -----
Cash flows used in investing activities:
Capital expenditures (13.1) (12.7)
Business acquisition, net of cash acquired -- (30.1)
Proceeds from sale of assets -- 2.1
----- -----
Cash flow used in investing activities (13.1) (40.7)
----- -----
Cash flows from financing activities:
Repayments of financings (18.5) (6.9)
Proceeds from financings -- 3.7
Proceeds from financings from parent 1.8 8.2
Preferred stock dividends (3.4) (5.1)
----- -----
Cash flow used in financing activities (20.1) (0.1)
----- -----
Net (decrease) increase in cash and cash equivalents (5.9) 5.9
Cash and cash equivalents at January 1 25.1 19.0
----- -----
Cash and cash equivalents at September 30 $19.2 $24.9
===== =====
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE> 5
KINAM GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying interim unaudited consolidated financial statements include all
adjustments that are, in the opinion of management, necessary for a fair
presentation. Results for any interim period are not necessarily indicative of
the results that may be achieved in future periods. The financial information as
of this interim date should be read in conjunction with the financial statements
and notes thereto contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
On June 1, 1998, Kinam Gold, Inc. (the Company) completed a merger agreement
with Kinross Gold Corporation ("Kinross") providing for a combination of their
businesses. Kinross currently owns 100% of the Company's outstanding common
stock.
2. ECONOMIC DEPENDENCE
The Company relies solely on Kinross for funding the portion of operating costs,
capital expenditures, general corporate expenditures and debt and interest
payments not funded by cash flow from operations. Assuming the price of gold
remains at current levels the Company anticipates additional borrowings from its
parent for the remainder of 2000 as well as in 2001. While Kinross has funded
these obligations in the past it is under no obligation to do so, and there can
be no assurance that the Company may not have to seek funding from other sources
in the future. These financial statements have been prepared on a going-concern
basis which assumes continuity of operations and realization of assets and
settlement of liabilities in the normal course of business.
3. INVENTORIES
Inventories consist of the following (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
2000 1999
------------ -----------
<S> <C> <C>
Gold
Finished goods $14.4 $14.4
Work in progress 3.1 2.7
Materials and supplies 28.5 32.1
---- ----
$46.0 $49.2
===== =====
</TABLE>
4. LONG-TERM DEBT
Long-term debt repayments during the third quarter of 2000 were comprised of
capital lease repayments of $2.3 million. For the first nine months of 2000 long
term debt repayments were comprised of capital lease repayments of $6.0 million,
repayments of the Kubaka subordinated debt of $2.9 million, and repayment of the
Kubaka project financing debt of $9.6 million.
5
<PAGE> 6
5. HEDGE CONTRACTS
Forward sales contracts, generally on a spot deferred basis are entered into
from time to time to protect the Company from the effect of price changes on
precious metals sales. As of September 30, 2000 the Company had no outstanding
hedge contracts.
During July 1998, the Company liquidated its hedge position and received
approximately $45.9 million in cash. In connection with the transaction the
Company recognized a gain of $41.7 million, net of costs previously incurred.
The gain is being included in revenue over the period the underlying hedge
contracts were originally scheduled to expire. The company realized $4.2 million
and $1.4 million for the first nine months and third quarter respectively
relating to the amortization of these hedge gains.
6. COMMITMENTS AND CONTINGENCIES
Reclamation, site restoration and closure costs are accrued on a
units-of-production basis using estimates based upon current federal, state and
applicable foreign laws and regulations governing the protection of the
environment. These laws and regulations are continually changing and generally
becoming more restrictive. Any changes in these laws and regulations could
impact future estimated reclamation costs. Total reclamation costs for the
Company at the end of current operating mine lives are estimated to be
approximately $45.0 million.
7. SUBSEQUENT EVENTS
On November 8, 2000, mining operations at the Refugio open pit were idled.
Kinross is taking this decision in its capacity as the operator to conserve cash
in light of the decision of Bema Gold Corporation, the Company's Joint Venture
partner, ("Bema") to not fund recent cash calls and continued weak gold prices.
Bema disputes Kinross' right to make this decision. Crushing operations at
Refugio will continue processing the broken rock inventory as the operation is
prepared to enter a residual leach mode. Production of gold will continue during
residual leaching as the in-process inventory is reduced. However, production
from the Refugio mine will decline and eventually cease unless operations in the
open pit are resumed. As a result of the high production costs it is not
anticipated that this will occur until the price of gold increases
substantially.
8. 2000 FIGURES
Certain of the 1999 figures have been reclassified to conform to the current
year presentation.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PRODUCTION RESULTS
The following table sets forth the Company's ounces of gold production,
production costs, ounces of gold sold and average realized prices for the three
months and nine months ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Gold production (ounces)
Fort Knox 88,675 95,974 249,964 259,919
Kubaka 60,555 57,234 179,018 184,363
Refugio 16,414 17,193 63,946 67,926
Hayden Hill 2,007 3,925 6,990 12,774
Guanaco 3,186 4,374 12,470 17,277
-------- -------- -------- --------
Consolidated gold production 170,837 178,700 512,388 542,259
======== ======== ======== ========
Cash operating cost ($ per ounce of gold produced)(1)
Fort Knox $ 209 $ 184 $ 220 $ 193
Kubaka 102 95 111 96
Refugio 308 307 275 256
Hayden Hill 169 171 205 156
Guanaco 249 199 229 162
-------- -------- -------- --------
Consolidated cash operating cost $ 181 $ 167 $ 189 $ 166
======== ======== ======== ========
</TABLE>
7
<PAGE> 8
<TABLE>
<S> <C> <C> <C> <C>
Total cash cost ($ per ounce of gold produced)(2)
Fort Knox $ 209 $ 184 $ 220 $ 193
Kubaka 134 134 146 137
Refugio 322 322 289 270
Hayden Hill 181 181 219 167
Guanaco 277 218 252 181
-------- -------- -------- --------
Consolidated total cash cost $ 194 $ 182 $ 204 $ 183
======== ======== ======== ========
Total production cost ($ per ounce of gold produced)(3)
Fort Knox $ 317 $ 294 $ 330 $ 304
Kubaka 220 238 268 276
Refugio 376 400 349 344
Hayden Hill 277 181 219 167
Guanaco 181 218 252 181
-------- -------- -------- --------
Consolidated total production cost $ 286 $ 282 $ 307 $ 293
======== ======== ======== ========
Ounces of gold sold 150,968 167,141 509,256 552,056
Average realized price per ounce of gold $ 296 $ 274 $ 293 $ 285
</TABLE>
(1) Cash operating cost at the mine sites includes overhead, net of credits for
silver by-product.
(2) Total cash cost includes cash operating cost plus royalties and applicable
production taxes.
(3) Total production cost includes total cash cost plus reclamation and
depreciation and depletion.
The following table provides a reconciliation of operating costs per the
consolidated financial statements to operating costs for per ounce calculation
of total cash costs as per the Gold Institute guidelines
RECONCILIATION OF TOTAL CASH COSTS PER
EQUIVALENT OUNCE OF GOLD TO CONSOLIDATED FINANCIAL STATEMENTS
(millions except production in ounces and per ounce amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------------- ---------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating costs per financial statements $ 31.2 $ 32.4 $ 107.8 $ 105.4
Dore inventory change 3.3 0.1 0.0 (2.9)
Site restoration cost accruals (0.3) (0.4) (1.5) (1.6)
Contract termination costs -- -- -- (1.5)
Other (1.1) 0.4 (2.0) (0.2)
---------- ---------- ---------- ----------
Operating costs for per ounce calculation purposes $ 33.1 $ 32.5 $ 104.3 $ 99.2
---------- ---------- ---------- ----------
Gold production -- ounces 170,837 178,700 512,388 542,259
Total cash costs per ounce of gold $ 194 $ 182 $ 204 $ 183
</TABLE>
8
<PAGE> 9
The Company reported a third quarter 2000 net loss of $5.0 million, or $.07 per
share after preferred dividends, on revenue of $44.7 million, compared with a
1999 third quarter net loss of $7.2 million, or $.10 per share after preferred
dividends, on revenue of $45.8 million. The Company had an operating loss of
$1.4 million for the third quarter of 2000 compared with an operating loss of
$3.1 million for the 1999 third quarter. Low gold prices contributed to the
operating losses in both quarters.
For the first nine months of 2000 the Company had a net loss of $18.2 million,
or $.25 per share after preferred dividends, on revenue of $149.3 million,
compared with a net loss of $13.2 million, or $.20 per share after preferred
dividends, on revenue of $157.4 million for the first nine months of 1999. The
nine month loss from operations of $8.9 million compared with a 1999 nine month
loss from operations of $3.6 million due to reduced gold production and higher
Russian taxes.
The Company's average realized price for gold in the third quarter of 2000 was
$296 per ounce compared with $274 per ounce for the 1999 third quarter. The
average spot price was $277 per ounce in the third quarter of 2000 compared with
$259 per ounce in the third quarter of 1999. The realized price exceeded the
spot price due to the amortization of the gain realized when the hedge position
was closed in 1998.
The Company's share of gold production was 170,837 ounces during the third
quarter of 2000 compared with 178,700 ounces in the third quarter of 1999.
Revenue from gold was $44.7 million during the third quarter of 2000 compared
with $45.8 million during the third quarter of 1999.
For the first nine months of 2000, the Company's share of gold production was
512,388 ounces compared with 542,259 ounces in 1999. Revenue from gold was
$149.3 million during the first nine months of 2000 compared with 157.4 million
in 1999. In the first nine months of 2000, the Company realized $293 per ounce
of gold, as compared with $285 per ounce in 1999. The average spot price for
gold was $282 per ounce in the first nine months of 2000 as compared with $273
in the first nine months of 1999.
The Company's third quarter 2000 depreciation and depletion decreased to $15.4
million from $17.2 million in the third quarter of 1999 due primarily to
decreased sales and lower depreciation rates due to the $100.6 million writedown
of the Company's mining properties in the fourth quarter of 1999.
General and administrative income of $1.1 million for the third quarter of 2000
compared with 1999 third quarter income of $0.9 million. The increased income is
mainly attributable to the inclusion of the Refugio management fee in 2000.
The $0.4 million increase in exploration expense to $0.6 million for the third
quarter of 2000 resulted from increased exploration near the Guanaco Mine in
Chile and the Kubaka mine in Russia.
Lower interest expense of $2.3 million for the third quarter of 2000, compared
with $2.5 million for the 1999 third quarter, was primarily attributed to lower
debt balances partially offset by higher interest rates.
9
<PAGE> 10
MINING OPERATIONS
FORT KNOX MINE
Gold production in the third quarter of 2000 was 88,675 ounces, compared with
95,974 ounces during the third quarter of 1999 due to milling of lower grade
ore. In the third quarter of 2000, total cash costs were $209 per ounce of gold
compared with $184 during the third quarter of 1999. Operating costs increased
nominally when compared with the second quarter of 2000. Production is expected
to increase and total cash costs per ounce of gold are expected to decrease
during the fourth quarter of the year as the grade of ore processed increases.
KUBAKA MINE (54.7% OWNERSHIP INTEREST, 53% IN 1999)
The Company's share of gold production in the third quarter of 2000 was 60,555
ounces compared with 57,234 ounces during the third quarter of 1999. In the
third quarter of 2000, total cash costs were $134 per ounce of gold compared
with $134 per ounce during the third quarter of 1999 due to increased throughput
of lower grade ore partially offset by reduced royalties.
REFUGIO MINE (50% OWNERSHIP INTEREST)
The Company's share of gold production in the third quarter of 2000 was a
disappointing 16,414 ounces compared with 17,193 ounces during the third quarter
of 1999. In the third quarter of 2000, total cash costs were $322 per ounce of
gold compared with $322 in the third quarter of 1999. Cash spending for the
Company's share of production decreased by $0.4 million when compared with the
third quarter of 1999, but the reduced spending did not compensate for the poor
operating performance during the quarter.
As of November 8, 2000, mining operations in the open pit were idled. Kinross is
taking this decision in its capacity as the operator to conserve cash in light
of the decision of Bema Gold Corporation to not fund recent cash calls and
continued weak gold prices. Bema disputes Kinross' right to make this decision.
Crushing operations at Refugio will continue processing the broken rock
inventory as the operation is prepared to enter a residual leach mode.
Production of gold will continue during residual leaching as the in-process
inventory is reduced. However, production from the Refugio mine will decline and
eventually cease unless operations in the open pit are resumed. As a result of
the high production costs it is not anticipated that this will occur until the
price of gold increases substantially.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operations for the first nine months of 2000 of
$27.3 million compared with $46.7 million for the comparable 1999 nine months.
The decrease was due to higher operating costs, lower sales, and increased
reclamation spending.
Capital spending was $13.1 million for the first nine months of 2000 compared
with $12.7 million during the first nine months of 1999. Approximately $9.4
million was spent at Fort Knox, primarily on permitting activities of the True
North property and additions to the mining fleet. Refugio capital spending was
$2.9 million for the first nine months of 2000 primarily on a new leach pad,
while Kubaka spent $0.2 million and Guanaco spent $0.6 million.
10
<PAGE> 11
The Board of Directors has suspended the quarterly dividends on the U.S. $3.75
Series B Convertible Preferred Stock payable on August 15th, and November 15,
2000. This decision has been taken by the Board as a cash conservation measure
due to the persistence of low gold prices and will be reviewed by the Board on a
quarterly basis.
The Company relies solely on Kinross for funding the portion of operating costs,
capital expenditures, general corporate expenditures and debt and interest
payments not funded by cash flow from operations. The Company continues to
conserve cash whenever possible including approving only capital expenditures
necessary to sustain operations, continued low exploration expenditures,
suspending the payment of preferred stock dividends and continually monitoring
operating costs at all its operations. However, as a result of continued low
gold prices the Company has borrowed $1.8 million from its parent in 2000.
Assuming the price of gold remains at current levels the Company anticipates
additional borrowings from its parent for the remainder of 2000 as well as in
2001. While Kinross has funded these obligations in the past it is under no
obligation to do so, and there can be no assurance that the Company may not have
to seek funding from other sources in the future.
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 gold
sales, reserve additions, projected quantities of future gold production,
estimated reserves and recovery rates, anticipated production rates, costs and
expenditures, prices realized by the Company and expected to be realized,
expected future cash flows, anticipated financing needs, growth plans and
sources of financing and repayment alternatives. Factors that could cause actual
results to differ materially from such forward-looking statements 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,
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 and
approvals, 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, 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. Refer to the Risk Factors on pages
13 to 16 of the Company's Annual Report on Form 10K as filed with the Securities
and Exchange Commission, for a more detailed discussion of risks. 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.
11
<PAGE> 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
1. COMMODITY PRICE RISKS
The Company's revenues are derived primarily from the sale of gold production.
The Company's net income can vary significantly with fluctuations in the market
prices of gold. Based on the Company's projected 2000 sales volume, each $10 per
ounce change in the average realized price of gold sales would have an
approximate $7 million impact on revenues and pre-tax earnings. At various
times, in response to market conditions, the Company has entered into gold
forward sales contracts for some portion of expected future production to
mitigate the risk of adverse price fluctuations. The significant decline in spot
gold prices in 1998 increased the value of the Company's forward sales
contracts. The Company closed out these contracts in 1998 for $45.9 million in
cash. (See Note 4 to the financial statements for further explantation. The
Company does not currently hold any forward sales contracts.
2. FOREIGN CURRENCY EXCHANGE RISK
The Company conducts the majority of its operations in the U.S., Russia, and
Chile. Currency fluctuations affect the cash flow that the Company will realize
from its non-U.S. operations as gold is sold primarily in U.S. dollars, while
production costs are incurred in Russian rubles and Chilean pesos. The Company's
results are positively affected when the U.S. dollar strengthens against these
foreign currencies and adversely affected when the U.S. dollar weakens against
these foreign currencies. The Company's cash and equivalent balances are held in
U.S. dollars. Holdings denominated in other currencies are relatively
insignificant. The Company does not currently engage in currency hedging
transactions.
The temporal method is used to consolidate results of operations in Russia. The
major currency-related exposure at any balance sheet date is on
ruble-denominated cash balances and working capital. Because the bullion
inventory is denominated in U.S. dollars, there are no related foreign exchange
risks. The foreign exchange exposure on the balance of the Company's working
capital items is nominal. Gold sales are primarily denominated 50% in U.S.
dollars and 50% in rubles. The U.S. dollars received are used to service the
U.S. dollar denominated debt and the foreign supplies inventory purchases, while
the rubles received from the gold sales are used to pay local operating costs.
The Company has and will continue to convert any excess rubles into U.S. dollars
to repay U.S. denominated third party and inter-corporate debt obligations.
Assuming estimated 2000 ruble payments of 880 million rubles at an exchange rate
of 30 rubles to one U.S. dollar, each 2 rubles change to the U.S. dollar could
result in an approximate $1.8 million change in the Company's pre-tax earnings.
In Chile, the currency measurement is the U.S. dollar as the majority of
transactions are denominated in U.S. dollars. Local expenditures are recorded
based on the prevailing exchange rate at the time and bullion settlement
receivables are denominated in U.S. dollars. Assuming the Company's share of
estimated 2000 pesos payments of 3.2 billon pesos at an exchange rate of 515
pesos to one U.S. dollar, each 15 pesos change to the U.S. dollar could result
in an approximately $0.2 million change in the Company's pre-tax earnings.
3. INTEREST RATE RISKS
As at September 30, 2000, the Company carried $105.2 million of variable rate
debt, all denominated in U.S. dollars. Interest expense would change by
approximately $1.1 million per year for every one percent change in interest
rates.
12
<PAGE> 13
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is also involved in legal proceedings and claims which arise in the
ordinary course of its business. The Company believes these claims are without
merit and is vigorously defending them. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially affect
the financial position, results of operations or cash flows of the Company.
ITEM 2. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number
(27) Financial Data Schedule
(b) Reports on Form 8-K -- None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KINAM GOLD INC.
By /s/ Brian W. Penny
-----------------------------
Treasurer and Director
(principal financial officer)
Dated: November 13, 2000
13
