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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number: 0-16436
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PIEDMONT MINING COMPANY, INC.
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(Name of small business issuer in its charter)
NORTH CAROLINA 56-1378516
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4215 STUART ANDREW BOULEVARD, CHARLOTTE, NC 28217
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (704) 523-6866
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered under Section 12(g) of the Exchange Act:
No Par Value Common Stock
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(Title of class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The Registrant had no revenues for the fiscal year ended December 31, 1995.
The aggregate market value of shares of the Registrant's no par value Common
Stock, its only outstanding class of voting stock, held by non-affiliates as of
March 29, 1996 was $8,892,086.
The number of shares outstanding of the Registrant's no par value Common Stock,
its only outstanding class of Common Stock, as of March 15, 1996, was
15,043,869 shares.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<S> <C>
Incorporated Document Parts into which Incorporated
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Proxy Statement for Annual Meeting of Part III
Shareholders to be held May 15, 1996
</TABLE>
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PART I
ITEM 1. BUSINESS
General.
The Registrant is engaged in exploration for gold and other precious
metals and evaluation of gold properties in North and South Carolina. The
Registrant was also engaged in the mining and production of gold at its Haile
Mine properties (the "Haile Property") near Kershaw, South Carolina, from early
1985 until mid-1992, when the Registrant entered into a mining venture with a
subsidiary of Amax Gold Inc. to further explore, evaluate and, if warranted,
develop and operate a gold mining operation at the Haile Property on a larger
scale than was previously operated by the Registrant. The Registrant also
controls three property areas in North Carolina on which it has conducted
exploration activities. The Registrant's activities in South Carolina are
conducted primarily through its wholly-owned subsidiary, Kershaw Gold Company,
Inc. (formerly Mineral Mining Company, Inc.), and the Registrant formed another
wholly-owned subsidiary, Piedmont Gold Company, Inc., for its North Carolina
activities. Unless the context otherwise requires, all references to the
Registrant in Items 1 and 2 of this report include Piedmont Mining Company,
Inc. and both such subsidiaries.
From 1985 until mid-1992, the Registrant's principal business (other
than its continuing exploration activities) and principal source of revenue was
the mining and production of gold at the Haile Property. See "Prior Operations
at the Haile Property." On March 15, 1991, the Registrant entered into an
Option and Earn-In Agreement with a subsidiary of Amax Gold Inc. ("AGI"; all
references in this report to AGI include AGI and its subsidiaries) pursuant to
which AGI obtained an option to acquire an undivided 62.5% interest in the
Haile Property and undertook to conduct further exploration and evaluation of
the Haile Property during the option period. On May 1, 1992, AGI exercised its
option and acquired the 62.5% interest, and effective as of July 1, 1992 the
Registrant and AGI, through wholly-owned subsidiaries, entered into a mining
venture (the "Haile Mining Venture" or the "Venture") to further explore and
evaluate and, if warranted, develop and operate a large-scale gold mining
operation at the Haile Property. The Registrant has a 37.5% interest in the
Venture and AGI has the remaining 62.5% interest. Venture operations are
managed by another wholly-owned subsidiary of AGI. See "Haile Mining Venture"
below.
On March 29, 1995, the Registrant filed a lawsuit in South Carolina
against AGI claiming, among other things, that AGI's failure to implement the
approved 1994 program and budget for the Venture was in breach of its
obligations under the Venture Agreement and Management Agreement for the
Venture, and seeking damages. The Registrant intends to vigorously pursue its
claims. Since the commencement of the litigation with AGI, operations at
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the Haile Property have been limited to property maintenance. See Item 3 --
Legal Proceedings.
In connection with the Option and Earn-In Agreement and exploration
activities at the Haile Property during the option period, the Registrant
phased out its mining operations at the Haile Property in 1991, although
recovery and production of gold from mineralized rock previously mined and
stacked continued until late 1992. The Haile Mining Venture's activities to
date have consisted of further exploration and evaluation of the Haile Property
and property maintenance. If a production decision were made after the current
exploration and evaluation program is completed, it is expected that a surface
mining operation would be established at the Haile Property on a significantly
larger scale than the small-scale heap leaching operation previously conducted
by the Registrant. See "Haile Mining Venture" below.
Total Venture expenditures from the formation of the Venture in July
1992 through the end of 1993 were approximately $8,000,000. The 1994 program
and budget called for total Venture expenditures of approximately $6,300,000,
including $1,900,000 for additional drilling and $150,000 for completion of a
bankable feasibility study. However, no further drilling was conducted in 1994
or 1995 and the bankable feasibility study has not yet been produced.
The Registrant also controls three mineral property areas in North
Carolina that are not part of the Haile Mining Venture and where the Registrant
has conducted exploration for gold and other precious metals independent of its
participation in the Haile Mining Venture. In August 1992, the Registrant
resumed exploration at its North Carolina properties, which continued through
mid-1993. No significant exploration activities at the North Carolina
properties have been conducted since that time. See "Exploration at North
Carolina Properties" below.
In April 1990, in connection with its acquisition of certain of the
mining properties that are now part of the Haile Property, the Registrant also
acquired other property and equipment associated with mining, processing and
selling a mineral assemblage commonly referred to as sericite and marketed
under the trademark Mineralite(R), among others. The Registrant continued its
sericite operations until July 31, 1992, when it sold the remaining assets
associated with those operations back to the original owner. The Registrant
decided to sell the sericite operations so that it could devote its resources
primarily to the Haile Mining Venture and to its North Carolina gold
properties.
The Registrant was incorporated in North Carolina in July 1983 by the
partners in a limited partnership, Piedmont Land and Exploration Company, which
had been organized in 1980 to conduct exploration for gold and other precious
metals in the southeastern United States. In November 1983, the limited
partnership assigned to the Registrant its mining leases with respect to the
Haile Property and then in 1985 all of the partners in the limited
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partnership transferred their interests in the limited partnership to the
Registrant in exchange for additional shares of its Common Stock, and the
partnership was dissolved.
Prior Operations at the Haile Property.
The Registrant's principal activities since it began operations in
1985 have been mining and production of gold by heap leaching at its Haile
Property and conducting exploration at the Haile Property and other properties
controlled by the Registrant.
The Registrant's operations at the Haile Property prior to the
commencement of the Haile Mining Venture have accounted for all of the gold
produced by the Registrant and most of the Registrant's revenues to date.
Mining and production of gold by the Registrant at the Haile Property involved
open-pit mining of mineralized rock, crushing and agglomerating the mineralized
rock and stacking it on leach pads for recovery through heap leaching.
The Registrant phased out its mining operations during 1991 while
participating with AGI in further exploration and evaluation of the Haile
Property pursuant to the Option and Earn-In Agreement. Heap leaching and
recovery of gold from mineralized rock that was mined and stacked during 1991
and prior years continued into 1992 (for the account of the Registrant through
June 30, 1992 and thereafter for the account of the Haile Mining Venture, in
which the Registrant has a 37.5% interest).
Because the projected mine life at the Haile Property at any time
never exceeded more than about one year from the time the Registrant commenced
its mining operations in 1985 until mining operations were phased out in 1991,
the Registrant was required to continually conduct exploration in order to
locate additional gold mineralization as known deposits were depleted through
mining. While gold production from the Registrant's operations at the Haile
Property has been important to the development of the Registrant's business and
has provided some of the funds for continued exploration, the Registrant's
long-term prospects have depended upon the success of the exploration and
significantly increasing the mineralized tonnage and ore reserves at the Haile
Property; consequently, it has devoted a substantial part of its resources to
exploration.
Exploration involves the study of geological and historical data,
examination of properties, geologic mapping, geochemical and geophysical
surveying and mapping, trenching, drilling, and collection and analysis of
samples, all in an effort to locate mineralization and determine the tonnage
and grade thereof. The costs of exploration are not recoverable if the program
is unsuccessful in locating commercially mineable deposits. If exploration is
successful, the development and commencement of mining operations will require
substantial additional funding, the amount of which will depend upon the nature
and size of the
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operations necessary to mine and recover gold economically from the deposits.
The Registrant first commenced meaningful exploration in late 1987
after completion of its initial public offering. However, costs incurred in
1988 for leach pad construction and new facilities and equipment at the Haile
Property, including the costs of compliance with more stringent regulatory
requirements, were greater than originally anticipated. As a result of such
increased costs, construction and regulatory delays, and a shortage of cash
during late 1988 and early 1989, the Registrant's exploration activities were
constrained. During that period, the Registrant concentrated its exploration
efforts at the Haile Property, where its preliminary exploration results were
encouraging and where additional mineralization could be processed at its
facilities on site.
Since further drilling and testing necessary to determine the
feasibility of mining the gold mineralization at the Haile Property, as well as
the development of a larger mine and related production facilities, required
substantial additional capital beyond the Registrant's resources at that time,
the Registrant began in 1990 to investigate various financing alternatives,
including possible joint ventures, equity financings and business combinations
with other mining companies. Such investigations led the Registrant to enter
into the Option and Earn-In Agreement with AGI described below in March 1991.
Pursuant to that agreement, exploration activities at the Haile Property in
1991 and early 1992 were conducted and fully funded by AGI as it evaluated
whether or not to exercise its option and acquire a 62.5% interest in the Haile
Property. AGI exercised its option on May 1, 1992, and as of July 1, 1992 the
Registrant and AGI entered into the Haile Mining Venture to further explore and
evaluate, and, if warranted, develop and operate a large- scale gold mining
operation at the Haile Property.
Haile Mining Venture.
On March 15, 1991 the Registrant entered into an Option and Earn-In
Agreement with AGI, pursuant to which AGI was granted an option to earn a 62.5%
interest in the Haile Property. The Option and Earn-In Agreement provided
that, upon exercise of such option, the Registrant and AGI would then enter
into a joint venture for further exploration and evaluation and, if warranted,
development of the property with the objective of establishing a large scale
gold mining and processing operation.
Pursuant to the agreement and as part of the earn-in conditions, AGI
paid the Registrant $1,000,000 in cash, assumed the Registrant's obligations to
make payments on its notes to MMC Holding, Inc. and its shareholder through May
1, 1992 (a total of $1,072,000), provided financial support for a $750,000
reclamation bond increase, funded all exploration activity and paid a portion
of the lease holding costs of certain mineral leases during the
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option period, and prepared at its sole cost a preliminary feasibility study
for the Haile Property which was delivered to the Registrant in December 1991.
AGI exercised its option on May 1, 1992, at which time it satisfied
the further conditions to such exercise by paying the Registrant an additional
$1,750,000 in cash and issuing 1,000,000 unregistered shares of its common
stock to the Registrant. Pursuant to a Securities Agreement dated May 1, 1992
between the parties, such shares have demand registration rights through
December 31, 1996, subject to AGI's rights under certain conditions to
repurchase the shares from the Registrant for cash at their then market value.
Prior to May 1, 1994, AGI was obligated, at the Registrant's request, to lend
up to $2,000,000 to the Registrant at the prime rate plus 2%, such loan to be
secured by AGI shares having a market value of at least 200% of the amount of
the loan (or, if less, all of the AGI shares originally issued) and to be
repaid from the proceeds of any registered offering or related sale of the AGI
shares or upon expiration of the registration rights. In October 1993, the
Registrant commenced borrowing from AGI against its 1,000,000 shares of AGI
Common Stock. In January 1995, the Registrant began selling shares of the AGI
Common Stock on the open market. On February 27, 1995 the Registrant paid AGI
$1,247,772, representing the entire loan balance plus accrued interest, from
the proceeds of the sale of a portion of the shares of AGI Common Stock held by
the Registrant. At March 15, 1996, the Registrant held 240,900 remaining
shares of the AGI Common Stock. The closing price of AGI's Common Stock on the
New York Stock Exchange on March 15, 1996 was $7.00 per share.
Upon AGI's exercise of the option, the Registrant conveyed to AGI a
62.5% undivided interest in the Haile Property and, effective July 1, 1992,
subsidiaries of the Registrant and AGI entered into the Haile Mining Venture
Agreement to form the Haile Mining Venture and entered into a Management
Agreement with another subsidiary of AGI for the management of Venture
operations. The joint venture interests are 62.5% for AGI and 37.5% for the
Registrant, subject to dilution of a participant that fails to fund its share
of Venture expenditures. The Registrant has not funded its share of Venture
expenditures since February 1995 as a result of the litigation commenced on
March 29, 1995 and described in "Item 3. Legal Proceedings." On March 29, 1995
the Registrant filed a lawsuit in South Carolina against AGI and its two
wholly-owned subsidiaries claiming, among other things, that AGI's failure to
implement the approved 1994 program and budget for the Venture was in breach of
its obligations under the Venture Agreement and Management Agreement for the
Venture, and seeking damages. AGI has indicated that it intends to activate
the dilution of interest provisions of the Venture Agreement as a result of the
Registrant's failure to pay its share of Venture expenditures since March 1995.
Each participant is to take in kind or separately dispose of its share
of the gold or other mineral products produced by the
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Venture. Although the Registrant is represented on the Venture's Management
Committee and the consent of the Registrant is required for certain actions of
the Venture, the Venture is effectively controlled by AGI and its day to day
operations are managed by the AGI subsidiary acting as Manager under the
Management Agreement. A production decision will require the unanimous consent
of both participants, but either party may elect to proceed alone under certain
conditions. Each participant in the Venture is obligated to offer to the other
the option to participate in the acquisition of any real property within five
miles of the Haile Property. The disposition by a participant of any interest
in the Venture or the Haile Property (other than certain transfers to
affiliates) is subject to the consent of the other participant and certain
other restrictions; however, this does not preclude a transfer by the
Registrant or AGI of the stock in their subsidiaries that are the Venture
participants.
The arrangements with AGI were entered into after extensive
investigations by the Registrant during 1990 and early 1991 of its financing
alternatives for further exploration and development of the Haile Property. In
connection with the Option and Earn-In Agreement, International Corona
Corporation (now Homestake Canada, Inc.) waived its right of first refusal on
joint ventures as to the Haile Property.
From the formation of the Venture until 1994, extensive exploration
and evaluation of the Haile Property continued, including drilling and studies
relating to reserve delineation, metallurgical evaluation, environmental,
engineering, hydrological and other technical studies. AGI's most recently
published calculations of the reserves at the Haile Property are summarized in
Item 2 of this report. Since the beginning of 1994, Venture activities
consisted primarily of engineering and evaluation work, environmental studies
and property maintenance. In 1994, AGI advised the Registrant that it intended
to pursue a sale of its interest in the Venture.
On March 29, 1995, the Registrant filed a lawsuit in South Carolina
against AGI and certain of its affiliates, claiming, among other things, that
AGI's failure to implement the approved 1994 program and budget for the Venture
was a breach of its obligations under the Venture Agreement and Management
Agreement for the Venture, and seeking damages. The Registrant intends to
vigorously pursue its claims. See Item 3 -- Legal Proceedings.
Total Venture expenditures were approximately $5,074,000 in 1993,
$2,415,000 in 1994 and $1,011,000 in 1995. The Registrant has funded its 37.5%
share of the 1993 and 1994 expenditures and the expenditures through February
1995, but has not funded its 37.5% share of the remaining 1995 expenditures as
a result of the litigation described in the following paragraph and under Item
3 -- Legal Proceedings. AGI has identified approximately $2,133,000 of Venture
expenditures through December 31, 1995 that it now claims are subject to the
indemnification provisions of the Venture
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Agreement ($290,000 for the second half of 1992, $681,000 for 1993, $674,000
for 1994 and $488,000 for 1995). In addition, the Registrant's portion of the
budgeted expenditures for 1996 that AGI claims are subject to such
indemnification provisions, as indicated in the 1996 work plan and budget and
latest monthly report provided to the Registrant by the Venture manager, is
$694,000. The Registrant has disputed such cost reallocation and the total
amount claimed by AGI, including budgeted amounts for 1996, is now
approximately $2,210,000 and is increasing every month. On March 5, 1996, an
arbitration panel of the American Arbitration Association rendered an award in
connection with the Registrant's dispute with AGI over such cost reallocation.
The award calls for the Registrant to pay approximately $1,370,000 of the
disputed expenses to a subsidiary of AGI. According to the award, the
administrative and arbitrators' fees and expenses, totalling approximately
$66,000, are to be borne equally by the parties. The Registrant has moved to
stay the award confirmation proceeding and has filed a cross-motion to vacate
the arbitration award. The expenses that are the subject of the award are
reflected as current liabilities on the Registrant's financial statements. See
"Certain Factors Affecting the Industry and the Registrant -- 3. Governmental
Regulation, Environmental Controls and Indemnification" below.
Based upon the Preliminary Feasibility Study prepared by AGI in
December 1991 pursuant to the Option and Earn- In Agreement, preliminary
estimates of the total costs of developing and commencing operations, ranged up
to approximately $80,000,000, of which the Registrant's 37.5% share could range
up to approximately $30,000,000.
The 1995 program and budget included total Venture expenditures of
approximately $1,010,000, of which the Registrant's 37.5% share was
approximately $378,750. The 1996 program and budget calls for total Venture
expenditures of approximately $1,080,000, of which the Registrant's 37.5% share
is approximately $405,000.
Exploration at North Carolina Properties.
The Registrant currently controls three property areas in North
Carolina at which it has conducted limited exploration for gold and other
precious metals, primarily at its Russell-Coggins Property. See Item 2 --
Properties -- "North Carolina Properties."
Although the Registrant has held interests in various North Carolina
properties during most of the time it has been in business, exploration of the
North Carolina properties has been limited due to the priority given to the
Haile Property and the Registrant's limited financial resources and manpower.
In 1992 the Registrant commenced a new limited exploration program at its
Russell-Coggins Property. Exploration expenditures for the North Carolina
properties were approximately $162,000 in 1993. The Registrant made no
expenditures for exploration at the North
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Carolina properties in 1994 and 1995 and has not budgeted any such expenditures
for 1996.
Although the Registrant's exploration results at its Russell-Coggins
Property have been encouraging and the Registrant has defined certain zones of
gold mineralization at the Russell-Coggins Property as summarized in Item 2
below, the exploration results are still preliminary and the Registrant has
decided not to allocate its limited resources to further exploration there at
this time. If the Registrant were to resume significant exploration at such
property, the Registrant would need additional financing beyond its current
capital resources, such as additional debt or equity financings or a joint
venture or merger with another mining company. The amount of additional
capital needed cannot be accurately predicted at this time.
Employees and Consultants.
The Registrant had three full time employees at March 15, 1996, all of
which are executive officers. A fourth individual, the manager for the
Registrant's exploration activities, is on a leave of absence through June 30,
1996. The Registrant uses part-time employees from time to time for various
clerical activities at its corporate office. None of the Registrant's
employees are represented by labor unions or covered by collective bargaining
agreements. Management considers its employee relations to be good.
The number of the Registrant's employees was substantially reduced
during 1991 and 1992 due to the winding down and suspension of its mining
operations and the sale of the its sericite operations.
The Registrant regularly engages consultants to advise it regarding
exploration, development, operations, environmental and administrative matters.
Certain Factors Affecting the Industry and the Registrant.
Exploration, development and mining of mineral properties involve
unique and greater risks than those generally associated with other industries.
Many exploration programs do not result in the discovery of a commercially
mineable mineral deposit, in which case the costs of exploration are not
recoverable. The Registrant's operations are subject to all the hazards and
risks normally incident to the exploration, development and mining of mineral
properties, including the particular risks described below:
1. Fluctuating Price for Gold. Most of the Registrant's revenues have
been derived from the sale of gold produced from its mining and processing
operations. The Registrant's prospects will depend upon the ability of the
Registrant (and, with respect to the Haile Property, the Haile Mining Venture)
to locate and profitably exploit gold deposits through the mining, production
and sale of
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gold. Therefore, the feasibility of developing and operating new gold mining
operations and the future profitability of any such operations will depend on
the price of gold. Gold prices fluctuate widely from time to time and are
affected by numerous factors beyond the Registrant's control which cannot be
accurately predicted, including expectations about inflation, exchange rates,
banking, economic and political crises, interest rates, global supply and
demand, political and economic conditions, and production costs in major gold
producing regions, including the Republic of South Africa and the former Soviet
Union, and many other factors. From 1985 through 1994, gold prices fluctuated
between a low of approximately $284 per ounce and a high of approximately $485
per ounce. In 1995, gold prices fluctuated between a low of about $371 per
ounce and high of about $395 per ounce. At March 15, 1996, the price of gold
was approximately $396 per ounce.
2. Effect of Exploration Costs. Exploration costs do not generate
offsetting revenues unless and until the exploration is successful and the
Registrant can commence additional production, sell the property or otherwise
realize the benefits of additional discoveries. The Registrant experienced
losses in 1987, 1988 and 1989 due largely to increased exploration costs. The
Registrant generated a profit in 1990 despite its large exploration costs but
experienced losses again in 1991 and subsequent years largely as a result of
exploration and development costs and the suspension of its mining operations.
Although the Registrant's share of the costs of the Haile Mining Venture are
being offset on the Registrant's income statement by amortization of the
deferred gain on the disposition to AGI of a 62.5% interest in the Haile
Property, the Registrant does not expect to generate any operating revenues
resulting from such exploration efforts or from its North Carolina exploration
program unless and until the Registrant (or, with respect to the Haile
Property, the Venture) is able to develop and commence new mining operations.
3. Governmental Regulation, Environmental Controls and
Indemnification. The gold mining industry is subject to extensive federal,
state and local laws and regulations covering exploration, development,
operations and production, taxes, labor standards, occupational health, waste
disposal, environmental protection, reclamation, mine safety, toxic substances
and other matters. Environmental, operating, water, dust and other federal and
state permits are essential to any mining operation. The nature of the mining
business is such that mining companies are frequently in the process of
applying for additional permits or modifications to existing permits at any
given time. There can be no assurance that such permits will be granted in the
future as needed, and, if such permits are not granted, the Registrant or any
mining venture in which it is a participant could be required to curtail or
cease its development plans or operations with serious adverse consequences to
its liquidity and profitability. Amendments to current laws and regulations
governing operations and activities of mining companies or more stringent
implementation thereof or additional taxes could
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have a material adverse impact on the Registrant. In addition, opposition to
development of mining operations by environmental and other groups is
increasing, and such opposition may result in delays, increased costs or
abandonment of development plans.
The Registrant is responsible for its 37.5% share of the expenditures
of the Venture. The Registrant has not paid its 37.5% share of such expenses
since February 1995 due to the ongoing litigation with AGI. See Item 3 --
Legal Proceedings. The Preliminary Feasibility Study prepared for the
Registrant in December 1991 pursuant to the Option and Earn-In Agreement
estimated total environmental and regulatory costs to the Venture in connection
with the development and commencement of mining operations at the Haile
Property to be approximately $1,120,000. However, that estimate has been
increasing as a result of delays in development and commencement of production
and may be subject to further increases due to changes in regulations or in the
nature and scope of the project.
In addition, pursuant to the Option and Earn-In Agreement, the Venture
Agreement and certain related agreements, the Registrant has agreed to
indemnify AGI from all environmental and other liabilities arising from matters
occurring or existing on the Haile Property prior to March 15, 1991, or arising
from acts, omissions and operations on the Haile Property from March 15, 1991
to July 1, 1992 (the date the Venture was formed). AGI has identified
approximately $2,133,000 of Venture expenditures through December 31, 1995 that
it now claims are subject to such indemnification provisions and should be
reallocated 100% to the Registrant ($290,000 for the second half of 1992,
$681,000 for 1993, $674,000 for 1994 and $488,000 for 1995). In addition, the
Registrant's portion of the budgeted expenditures for 1996 that AGI claims are
subject to such indemnification provisions, as indicated in the 1996 work plan
and budget and latest monthly report provided to the Registrant by the Venture
manager, is $694,000. The Registrant has paid its 37.5% share of such costs
through December 31, 1994 (which total approximately $617,000), but has not
paid the remaining 62.5% of such costs through December 31, 1994. Futhermore,
as a result of the pending litigation with AGI, the Registrant has not paid any
of the costs since January 1995. The Registrant has disputed such cost
reallocation, and the total amount claimed by AGI, including budgeted amounts
for 1996, is now approximately $2,210,000 and is increasing every month. A
substantial part of such costs relate to ongoing water treatment and property
maintenance at the Haile Mine property, as well as certain reclamation costs.
AGI has also taken the position that the Registrant will be responsible for
100% of similar ongoing expenses in the future.
The Registrant disputed the cost reallocation asserted by AGI and in
May 1995 AGI commenced an arbitration proceeding as to such dispute. On March
5, 1996, an arbitration panel of the American Arbitration Association rendered
an award in connection with the Registrant's dispute with AGI over such cost
reallocation. The award calls for the Registrant to pay approximately
$1,370,000 of
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the disputed expenses to a subsidiary of AGI. According to the award, the
administrative and arbitrators' fees and expenses, totalling approximately
$66,000, are to be borne equally by the parties. The Registrant has moved to
stay the award confirmation proceeding and has filed a cross-motion to vacate
the arbitration award. See Item 3 -- Legal Proceedings. The expenses that are
the subject of the award are reflected as current liabilities on the
Registrant's financial statements.
The Registrant has been advised by the manager of the Venture that it
believes the Venture conducts its operations so as to protect the public health
and environment, and that the Venture has made and expects to make in the
future expenditures to comply with applicable environmental laws and
regulations. Upon any commencement of mining operations at the Haile Property,
reclamation and restoration costs for those operations will be estimated and
provided based upon the requirements then in effect.
4. Long Lead Time and Delays. The risks normally associated with the
exploration and development of a mineral deposit include the extended period of
time required to complete such exploration, development and permitting, as well
as the risks and delays normally associated with permitting and construction.
Such events can result in a delay in the receipt of income from a property or
operation with serious adverse consequences to the Registrant's liquidity,
financial condition and profitability. The Registrant has also been adversely
affected by the delays from AGI's failure to implement the 1994 work plan and
budget.
5. Need for Additional Financing. The Registrant has historically required
substantial capital to conduct and expand its exploration and development
program, and has frequently sought additional capital as its business has
developed, including that obtained through its initial public offering of
Common Stock in 1987, additional equity financing in 1989, and the
consideration received pursuant to the Option and Earn-In Agreement with AGI in
1991 and its exercise in 1992. The Registrant's current capital resources are
limited (See Item 6 -- Management's Discussion and Analysis or Plan of
Operation; Financial Condition, Liquidity and Capital Resources) and it will
need additional financing if the Haile Mining Venture decides to develop and
commence mining operations at the Haile Property pursuant to the Venture
Agreement or if the Registrant decides to resume its exploration program in
North Carolina. Based upon the Preliminary Feasibility Study prepared in
December 1991 by AGI pursuant to the Option and Earn-In Agreement, preliminary
estimates of the total costs of developing and commencing operations, ranged up
to approximately $80,000,000, of which the Registrant's 37.5% share could range
up to approximately $30,000,000. If a production decision were made, there is
no assurance that project financing will be available and the Registrant may be
required to seek its own separate financing.
Financing for such purpose, or to expand the Registrant's North
Carolina exploration program, could be sought through the
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issuance of additional shares of Common Stock or other equity securities, or
through debt financing, or through various arrangements with third parties.
There is no assurance that the Registrant could obtain any such additional
financing. Any such additional financing obtained through the issuance of
additional shares of Common Stock or other equity securities could result in
further dilution to the Registrant's shareholders. Any arrangement with third
parties to finance the Registrant's exploration, development, or operations
could take the form of a joint venture, merger, lease, royalty, purchase
option, or some other participation which could reduce, or involve a
disposition of, the Registrant's interests in its properties or the revenues
therefrom. The Registrant's failure or inability to fund its share of the
expenses of the Haile Mining Venture would also result in dilution of its
interest in the Venture and possibly termination of its participating interest.
ITEM 2. PROPERTIES
General.
The Registrant and AGI (the "Venture Participants") control the Haile
Property near Kershaw, South Carolina, in accordance with their undivided
interests in the Haile Mining Venture (62.5% for AGI and 37.5% for the
Registrant), and the Registrant itself controls three other mineral property
areas in North Carolina independent of the Venture. This Item 2 describes each
such property area, the nature of the Registrant's or Venture Participants'
interests therein, and the exploration work conducted or planned to be
conducted at each property.
All of the properties described are either owned by the Registrant or
Venture Participants or controlled by the Registrant or Venture Participants
under mineral leases or purchase options, as indicated. The existing rights
under the mineral leases would permit mining and extraction of gold and other
minerals on all such properties, except that all necessary permits from local,
state and federal regulatory authorities would have to be obtained prior to
commencement of any mining operations.
The Registrant and AGI have conducted title examinations of, and
obtained title insurance on, certain key tracts at the Haile Property on which
gold mineralization has been located. In addition, the Registrant carries
$250,000 of title insurance on certain key Russell-Coggins property tracts in
North Carolina subject, however, to matters that would be disclosed by an
accurate survey. It has been the general policy of the Registrant not to incur
the expense of conducting title examinations and obtaining title insurance on
leased properties until such time as it commits substantial funds to the
exploration or acquisition of the properties. With respect to the tracts other
than those noted above, the Registrant can give no assurance as to the status
of title of such tracts or as to the exact acreage of each such tract.
Statements of acreage contained in this report are generally based
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upon recitals in the relevant documentation and not upon any surveys conducted
for or by the Registrant.
All of the Registrant's mineral properties occur, geologically, within
the major depositional boundary between underlying metavolcanic rocks and
overlying metasedimentary rocks of the Carolina Slate Belt. A large number of
the gold mines which operated in North and South Carolina during the past 200
years are located in this geological environment. The gold bearing zones are
known to occur either in the upper portions of the dominantly silica-rich
metavolcanics or in the lower siliceous strata of the metasediments. Similar
geologic environments in volcanic terrains elsewhere in North and South
Carolina and throughout the world are known to host disseminated low grade,
bulk tonnage gold mineralization. In addition, a number of the Registrant's
properties were mined in the past by underground methods, and several have
potential for the discovery of mineralization which could be mined by either
open pit or underground methods.
Haile Property
1. Location. The Haile Property is located approximately two miles
north of Kershaw in Lancaster County, South Carolina, on paved U.S. Highway 601
which passes through the western portion of the property. The property is
accessible all year.
2. Leases, Facilities and Ownership . The Haile Property consists of
approximately 3,669.0 acres in 19 tracts, five of which are owned by the
Venture Participants and 14 of which are controlled under various Mineral
Leases. The currently estimated reserves on the Haile Property (see "4.
Mineable Reserve Estimates at the Haile Property" below) are on the tracts
owned by the Venture Participants and on a 1,209 acre tract controlled under a
Mineral Lease and Purchase Option. Those tracts were subject to a mortgage
securing a note which had been assumed by AGI individually and was paid in full
in 1994.
The Venture Participants own a 288 acre tract, a 234 acre tract, a
17.65 acre tract, a 89.3 acre tract, a one acre tract and the mineral estate in
and to a 20 acre tract at the Haile Property. The 288 acre tract is improved
with the facilities previously used by the Registrant in its mining operations,
including three cement block buildings containing approximately 7,000 square
feet, which housed the mine office, assay laboratory, engineering and mapping
facilities and the recovery plant equipment, and two separate small buildings
used to house the sample and core storage facilities. The Registrant's storage
and treatment ponds, wastewater treatment facility and leach pads were also
constructed on the tract. Although these facilities are currently held and
used by the Venture for various purposes, it is not expected that they will be
used as part of the mining facilities if a decision is made to develop a new
mine and production facility at the Haile Property.
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The 89.3 acre tract was purchased on December 1, 1994. On August 5,
1993, the Venture Partners purchased a house and one acre of land located
adjacent to the Haile Property for $52,000.
The Venture Participants also hold a Mineral Lease covering three
tracts totalling 1,209 acres and containing a significant portion of the
currently estimated reserves on the Haile Property. In 1991, AGI acquired an
option to purchase these three tracts (the "Purchase Option") for $2,495,000,
plus 8% per annum from May 1, 1992, subject to annual payments of $150,000 to
keep the Purchase Option in force until as late as June 20, 2001. Upon AGI's
exercise of its option under the Option and Earn-In Agreement, it assigned a
37.5% interest in the Purchase Option to the Registrant so that the property
subject to the Purchase Option would become part of the Venture if the Purchase
Option is exercised. This Mineral Lease will expire on June 21, 1996, but the
lessor has recently offered to extend the Mineral Lease and related Purchase
Option for one year provided the annual payments described above are made.
The Venture Participants have a mineral lease interest in a 60%
undivided interest in a 169-acre tract under a Mineral Lease dated October 7,
1983. This lease can be continued by making advance royalty payments of
$12,000 annually from 1993 through 2002. In the event of production from the
property, the lessee would pay a royalty of 4.5% of gross smelter returns and
all advance royalty payments would be credited against any royalties from
production. Under the terms of the lease, the Venture Participants have a
right of first refusal to lease or purchase the lessors' 60% interest in such
property on the same terms offered by or to any third party. In order to make
production on this property feasible, an action to partition the mineral rights
in this property may be required.
A 100 acre tract is controlled under a Mineral Lease dated June 29,
1984. Advance royalties are now $15,000 per year, which will be credited
against annual royalties of 4.75% of gross smelter returns if the property is
in production. This lease continues after the tenth year so long as mining
commences during the first ten years or annual production royalties of 4.75% of
gross smelter returns commencing in the eleventh year yield not less than
$15,000 per year.
An 82 acre tract is controlled under a Mineral Lease dated September
24, 1984. Advance royalties are now $6,000 per year. The lease continues
after the tenth year so long as mining commences during the first ten years and
payments (whether production royalty payments or advance royalty payments) are
made in the amount of $10,000 per year. In the event of production from the
property, the lessee would pay a royalty of 4% of gross smelter returns and all
advance royalty payments would be credited against any production royalties.
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A 77 acre tract is controlled under a Mineral Lease dated November 11,
1987. After the fifth year, the term continues so long as the Registrant makes
advance royalty payments of $10 per acre per year to be credited against
royalties of 4% of net smelter returns in the event of production from the
property. The Venture Participants have the option to purchase this property
at any time during the lease term for $1,000 per acre less a credit for rental
and royalty payments previously made.
A 61.56 acre tract is controlled under a Mineral Lease dated March 10,
1988, which has terms similar to those of the Mineral Lease for the 77 acre
tract described in the preceding paragraph, except that advance royalty
payments after the fifth year are $100 per acre per year and the purchase
option price is $1,100 per acre.
On June 13, 1991 the Registrant entered into an Assignment of Rights
and Obligations Agreement with Brewer Gold Company, pursuant to which the
Registrant conveyed to Brewer a Mineral Lease on eight acres adjacent to a
Brewer tract which contains a small gold deposit. In exchange, Brewer conveyed
to the Registrant Mineral Leases to eight tracts totalling 1,344 acres, as to
which the Registrant conveyed or agreed to convey a 62.5% undivided interest to
AGI upon its exercise of its option under the Option and Earn-In Agreement. In
1993, a Mineral Lease dated February 27, 1984 with respect to a 23.9 acre tract
was terminated by the Venture Participants. None of the estimated reserves at
the Haile Property were located on this tract. The remaining seven tracts are
as follows:
Tract 1: A 10 acre tract controlled under a Mineral Lease dated September 14,
1983. Advance royalties are now $300 per year, which will be credited against
annual royalties of 5% of net smelter returns in the event of production from
the property. For every acre within any open pit, shaft, stockpile, waste
dump, or ore related facilities, the lessee must pay 200% of the current market
value for non-mining related uses of equivalent land, buildings, and other
improvements in the vicinity. This lease continues for a minimum term of 15
years or so long as the owner receives production royalty payments if the
property is in production.
Tract 2: A 10 acre tract controlled under a Mineral Lease dated September 9,
1983. Advance royalties are now $300 per year, which will be credited against
annual royalties of 5% of net smelter returns from production if the property
is ever in production. For every acre within any open pit, shaft, stockpile,
waste dump, or ore related facilities, the lessee may be obligated to pay 200%
of the current market value for non-mining related uses of equivalent land,
buildings, and other improvements in the vicinity. This lease continues for a
minimum term of 15 years or so long as the owner receives production royalty
payments if the property is in production.
Tract 3: A 25.5 acre tract controlled under a Mineral Lease dated September
12, 1983. Advance royalties are now $1,020 per year,
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which will be credited against annual royalties of 5% of net smelter returns
from production if the property is ever in production. For every acre within
any open pit, shaft, stockpile, waste dump, or ore related facilities, the
lessee is obligated to pay 200% of the current market value for non-mining
related uses of equivalent land, buildings and other improvements in the
vicinity. This lease continues for a minimum term of 15 years or so long as
the owner receives production royalty payments if the property is ever in
production.
Tract 4: A 167 acre tract controlled under a Mineral Lease dated September 26,
1983. Advance royalties are now $6,680 per year, which will be credited
against annual royalties of 5% of net smelter returns from production if the
property is ever in production. For every acre within any open pit, shaft,
stockpile, waste dump, or ore related facilities, the lessee is obligated to
pay 150% of the current market value for non-mining related uses of equivalent
land, buildings, and other improvements in the vicinity. This lease continues
for a minimum term of 21 years or so long as the owner receives production
royalty payments from production if the property is in production.
Tract 5: A 172 acre tract controlled under a Mineral Lease dated September 18,
1983. Advance royalties are now $5,000 per year, which will be credited
against annual production royalties of 5% of net smelter returns from
production if the property is ever in production. For every acre within any
open pit, shaft, stockpile, waste dump, or ore related facilities, the lessee
is obligated to pay 150% of the current market value for non-mining related
uses of equivalent land, buildings, and other improvements in the vicinity.
This lease continues for a minimum term of 21 years or so long as the owner
receives production royalty payments if the property is in production.
Tract 6: A 761 acre tract controlled under a Mineral Lease dated August 20,
1987. Advance royalties are now $7,610 per year, which will be credited
against annual production royalties of 5% of net smelter returns from
production if the property is ever in production. For every acre within any
open pit, shaft, stockpile, waste dump, or ore related facilities, the lessee
is obligated to pay reasonable value for non-mining related uses of equivalent
land, buildings, and other improvements in the vicinity. This lease continues
for a minimum term of 10 years or so long as the owner receives production
royalty payments if the property is in production.
Tract 7: A 175 acre tract controlled under a Mineral Lease dated August 20,
1987. Advance royalties are now $1,750 per year, which will be credited
against annual production royalties of 5% of net smelter returns from
production if the property is ever in production. For every acre within any
open pit, shaft, stockpile, waste dump, or ore related facilities, the lessee
is obligated to pay reasonable damages for non-mining related uses of
equivalent land, buildings, and other improvements in the vicinity. This
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lease continues for a minimum term of 10 years or so long as the owner receives
production royalty payments if the property is in production.
3. Exploration At The Haile Property. Meaningful exploration at the
Haile Property commenced in late 1987, with geophysical surveys and then
exploration drilling. Geophysical surveys have now been conducted over most of
the Haile Property. Drilling, geophysics and geochemical studies in 1989 and
1990 succeeded in locating two new areas of mineralization mineable by shallow
open pit methods and resulted in a significant increase in the mineralized
tonnage. Pursuant to the Option and Earn-In Agreement with AGI, AGI commenced
further exploration in April 1991 continuing through November 1991. This 1991
exploration program was fully funded by AGI and resulted in a further
significant increase in the mineralized tonnage at the Haile Property. The
remainder of 1991 was spent in compilation and analysis of the data, from which
was prepared a Preliminary Feasibility Study delivered to the Registrant in
December 1991 in fulfillment of one of the earn-in conditions. In March and
April 1992, further exploration drilling was conducted on the Haile Property,
again fully funded by AGI, which resulted in the location of another
significant new zone of gold mineralization.
On May 1, 1992, AGI exercised its option to acquire a 62.5% interest
in the Haile Property, and the Haile Mining Venture was formed in July 1992.
See Item 1 -- Business -- "Haile Mining Venture" for a discussion of Venture
activities. AGI's most recently published calculations of reserves at the
Haile Property are summarized below.
4. Mineable Reserve Estimates at the Haile Property. The most recent
audited estimates of the mineable reserves at the Haile Property have been made
by AGI in connection with its management of the Haile Mining Venture and have
been audited by DMBW, Inc. as set forth in their report dated April 22, 1994
(the "1994 Reserve Report").
According to the 1994 Reserve Report, the proven and probable reserves
of in-place gold mineable by open pit methods at the Haile Property at April 1,
1994 were 8,736,325 short tons of mill ore at an average mill head grade of
0.0893 troy ounces per short ton, containing 780,018 ounces of gold in place.
Such reserves were calculated through the use of mapping, drilling, sampling,
assaying and other standard evaluation methods, and are based upon drilling
results through the end of 1993, a facility processing about 4,000 tons per day
and producing about 100,000 ounces of gold per year, an assumed gold price of
$400 per ounce, and a floating cut-off grade averaging 0.025 ounces per ton.
Cash production costs were estimated at $236 per ounce of gold recovered. The
stripping ratio (of waste to ore) was estimated at 5.6 to 1, including waste
for 80-ft. wide in-pit haulage roads. Such reserves represent in-place
mineable reserve estimates and do not reflect losses in the
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recovery process; it was estimated that ultimate gold recoveries would range
from 69% to 81%.
These reserves are defined within six separate pits. In their audit
of these reserves, DMBW, Inc. reviewed one or more sections through each of the
open pits designed by AGI. The audit represented 11% of the total reserves.
Based on this approach, DMBW's own estimate of the contained ounces was 7.5%
greater than that computed by AGI, and therefore they concluded that this is a
conservative, but fair and prudent, estimate of gold reserves at the Haile
Property.
North Carolina Properties.
A. Russell-Coggins Property
1. Location. This property includes the Russell and Coggins tracts,
located one to two miles north of El Dorado, Montgomery County, North Carolina,
on paved State Road 1302, which bounds or traverses the property and is open
all year. One additional tract totaling 140 acres located approximately one
mile north and east of the Russell and Coggins tracts is included with the
Russell-Coggins property for exploration purposes.
2. Ownership, Leases and Permits. The 1,144 acre Russell tract and
the 82 acre Coggins tract were acquired by the Registrant in 1987 upon exercise
of a purchase option, subject only to a 1% production royalty to the prior
owner.
An additional 140 acre tract is controlled by the Registrant under a
Mineral Lease dated May 5, 1986, as amended June 4, 1991. Rentals for the
fourth year are $2,500, the fifth year $3,000, the sixth year $2,000 and the
seventh through eleventh years $5,000 per year. After the tenth year, advance
royalties will be paid in the amount of $10,000 per year, which will be
credited against annual production royalties of 4% of gross smelter returns if
the property is put into production. This lease continues after the fifteenth
year so long as commercial production has commenced. Under the terms of the
lease, the Registrant has a right of first refusal to lease or purchase such
land on the same terms offered by or to any third party. The Registrant may
terminate this lease at any time.
The Registrant had a prospecting permit from the U.S. Forest Service
on a tract of approximately 2,272 acres near the Russell-Coggins property which
expired March 31, 1996.
3. Recent Exploration History. In 1984, the Registrant entered into a
joint venture with Tenneco Minerals, Incorporated to conduct a program of
geological mapping, geochemical surveying, geophysics and core drilling.
Tenneco terminated its interest in the property in 1985; the usual reason for
such termination is the failure to locate commercially mineable mineralization.
Based on the results of the 1984-1985 work, a mineralized tonnage of 426,345
tons grading 0.056 ounces of gold per ton at a cut-off grade of
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0.01 ounces per ton was determined to exist on the Russell tract at that time.
The Registrant has possession of all maps and records from the 1984-1985 work.
Further exploration drilling was conducted by the Registrant during
late 1989 and early 1990, resulting in a significant increase in the
mineralized tonnage. The mineralized tonnage reported below was compiled in
August 1990 using the results of that drilling. From August 1992 through
mid-1993, the Registrant conducted additional limited exploration on its North
Carolina properties, focused primarily on this property, consisting of
additional rock chip and soil sampling, trenching and drilling. Although some
of the drilling results from the recent exploration program were encouraging,
the Registrant has not yet obtained a revised estimate of the mineralized
tonnage based on the recent drilling results and therefore is not in a position
to quantify any change in the proven and probable mineralized tonnage at this
property resulting from its most recent drilling program. The Registrant has
no current plans for further exploration at this property in 1996.
4. Mineralized Tonnage. Based on all drilling and exploration data
available through mid-1990, David C. Jonson, independent consulting geologist,
of Golden, Colorado compiled an estimate of the gold mineralization at the
Russell-Coggins property in August 1990 as follows:
Geologically Proven and Probable Gold Mineralization
----------------------------------------------------
(cut-off grade equals 0.01 ounces per ton)
Tons Grade (ounces/ton)
---------- ------------------
4,127,720 0.051
Note that tonnages and grades do not account for any mining dilution or losses
in recovery. Jonson's proven tonnage includes mineralization within 50 feet of
drill holes or pit assays on a section, and probable tonnage includes
mineralization within an additional 50 feet. Grade and tonnage are based on
atomic absorption assays as well as fire assays where available. Three assays
of greater than 2.6 oz/ton were reduced to 0.5 ounces of gold per ton.
This information does not reflect the results of exploration work that
was conducted on the property from late 1992 through mid-1993.
This information should not be construed as an estimate of
commercially mineable ore reserves, as no feasibility studies have been made.
The Registrant has not yet done sufficient drilling and analysis or
metallurgical testing of the mineralization and therefore is unable to estimate
the extraction dilution and processing recovery factors, or whether this
mineralization could be mined and processed economically. Consequently, there
is no assurance that a commercially mineable ore reserve exists on this
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property unless and until further geologic work and drilling and a final
legal-economic feasibility study is conducted.
B. Star Property
1. Location. This property is located approximately two miles west of
Star, Montgomery County, North Carolina, on State Road 1340 which bisects the
property. The property is accessible by a paved road which is open all year.
2. Leases. The property consists of four leased tracts of land. Two
tracts totaling 173 acres are held by the Registrant under a Mineral Lease
dated February 6, 1981, as amended on May 22, 1987, March 25, 1989, February 6,
1993 and February 6, 1995. Annual advance royalty payments are $2,082 and are
paid through February 6, 1997. Annual advance royalties paid will be credited
against annual production royalties of 4% of net smelter returns if the
property is brought into production. This lease continues after the tenth year
as long as mining commences during the first ten years and annual production
royalties of 4% of net smelter returns commencing in the eleventh year yield
not less than the advance royalty paid in the tenth year. Under the terms of
the lease, the Registrant has a right of first refusal to lease or purchase
such land on the same terms offered by or to any third party. The Registrant
can at any time release any part of the leased property and reduce the rent or
advance royalties payable under the terms of the lease proportionate to such
release. The lease may also be terminated by the Registrant at any time.
A third tract of 445 acres is held by the Registrant under a Mineral
Lease dated June 22, 1981, and as amended on June 21, 1991. Annual rental
payments for years 11 though 15 are $2,000 and are paid through June 22, 1996.
If mining has commenced during the initial fifteen year term of this lease, the
term of this lease shall continue as long as annual production royalties of 4%
of net smelter returns for each lease year after the first fifteen years of the
term are in an amount not less than the advance royalties paid during the
fifteenth year of the term. This lease shall terminate on the last day of any
such lease year that royalty payments are not in such amount.
A fourth tract, approximately 169 acres, is held by the Registrant
under a Mineral Lease dated December 18, 1980, also under similar terms, except
that rental payments are $1,690 per year indefinitely and no production is
required. If production commences, similar production royalties are payable by
the Registrant.
3. Recent History. The Registrant entered into a joint venture with
Kennecott Minerals Company to explore the property in 1983. Approximately
2,000 feet of backhoe trenching and sampling were conducted during this
program. Four of the geochemical targets discovered by this work were tested
by shallow diamond core drill holes. Mineralization was not of economic
interest at that
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time, and Kennecott chose not to fund the program beyond one year. Only a
shaft and related structures remain from prior activities conducted on the
property during the 1950's. Numerous old abandoned shallow pits and test
shafts, now caved, are scattered over the property.
4. Exploration. Because exploration work at other property areas has
a higher priority and the Registrant has limited staff, resources and
facilities, there was no exploration activity at this property in 1995.
Consequently, there is no assurance that a commercially mineable ore reserve
exists on this property unless and until further geologic work and drilling and
a final legal-economic feasibility study is conducted.
C. Jones-Keystone Property
1. Location. This property is located approximately 12 miles west of
Asheboro, in Randolph County, North Carolina, and can be reached by traveling
southwest on paved State Road 1344 for 1.2 miles from its intersection with
U.S. Highway 64 and then east on an unpaved road for 0.8 miles. The roads are
open all year.
2. Leases. The property consists of two contiguous tracts of land. A
240 acre tract is held under a Mineral Lease dated December 18, 1980, as
amended December 18, 1993. Annual advance royalties are $2,400 per year
through 1998 and are paid through December 18, 1996. If mining has commenced
during the initial fourteen year term of this lease, the term of this lease
shall continue as long as annual production royalties of 4% of net smelter
returns for each lease year after the fourteenth year of the term are not less
than the advance royalties paid during the fourteenth year of the lease term.
This lease shall terminate on the last day of any lease year that royalty
payments are not in such amount. This lease includes an option to purchase the
tract for $300,000 plus 10% for each lease year after December 18, 1982 until
the option is exercised. Under the terms of the lease, the Registrant has a
right of first refusal to lease or purchase such land on the same terms offered
by or to any third party.
The other tract is 156 acres held under a Mineral Lease dated February
9, 1983, as amended February 9, 1992. Annual advance royalties are $1,560 per
year through 1998 and are paid through February 9, 1997. If mining has
commenced during the initial fourteen year term of this lease, the term of this
lease shall continue as long as annual production royalties of 4% of net
smelter returns for each lease year after the first fourteen years of the term
are not less than the advance royalties paid during the fourteenth year of the
term. This lease shall terminate on the last day of any such lease year that
royalty payments are not in such amount. Under the terms of the lease, the
Registrant has a right of first refusal to lease or purchase such land on the
same terms offered by or to any third party.
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3. Recent History. American Smelting and Refining Company drilled
three diamond core holes on the property in 1969, and the Registrant has
possession of these results. U.S. Borax and Chemical Company drilled the
property after that, but the Registrant has no knowledge of the results. These
major companies with greater financial resources and larger technical staffs
than the Registrant decided not to explore further or to develop the property.
Only two abandoned open pits and four shafts of unknown depth are known on the
property.
4. Exploration. During 1990, two trenches were dug along the trend of
old mine workings. Samples of rock indicated low grade mineralization was
present in each trench. No exploration work was conducted in 1991 or 1992. In
1993, the Registrant conducted limited IP geophysics. One core hole was drilled
to test one geophysical anomaly. This hole intersected over two hundred feet
of anomalous gold. No exploration was conducted in 1995. Consequently, there
is no assurance that a commercially mineable ore reserve exists on this
property unless and until further geologic work and drilling and a final
legal-economic feasibility study is conducted.
* * * *
Property Acquisitions. The Registrant holds purchase options on several
property tracts. In addition, the Registrant may attempt to purchase or lease
other tracts. Opportunities to acquire new mineral rights and properties, some
of which have already had drilling and exploration work done on them, may also
be brought to the Registrant's attention from time to time. The Registrant has
no current plans to acquire any additional tracts; however, the Haile Mining
Venture continues to consider the acquisition of rights in other properties
near the Haile Property in connection with its continuing exploration and
evaluation.
Office Facilities. The Registrant leases approximately 1,900 square feet of
office space for its corporate headquarters in Charlotte, North Carolina under
a six-month lease. The Registrant also rents a small office in New York City
and in October 1994 signed a five year lease on this office.
ITEM 3. LEGAL PROCEEDINGS.
On March 29, 1995, the Registrant and its wholly-owned subsidiary,
Kershaw Gold Company, Inc., as plaintiffs, filed a complaint in the Court of
Common Pleas for Lancaster County, South Carolina (Case No. 95-155) against
Amax Gold Inc., Lancaster Mining Company, Inc. and Haile Mining Company, Inc.,
alleging breach of contract by defendants Amax Gold Inc., Lancaster Mining
Company, Inc. and Haile Mining Company, Inc., and tortious interference with
contractual rights by defendant Amax Gold Inc. The complaint asked for actual
and punitive damages as the Court and jury shall determine. A trial by jury
has been demanded.
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A hearing on pending motions in the state court proceeding was held on
October 5, 1995. On November 2, 1995, the court issued an order dismissing the
claims of Piedmont Mining Company, Inc. (but not those of Kershaw Gold Company)
against the defendants, and dismissing both plaintiffs' claims for breach of
contract against Amax Gold Inc. (but not Kershaw Gold Company's claims against
Lancaster Mining Company, Inc. and Haile Mining Company, Inc.), on the grounds
that only the subsidiaries of the Registrant and of Amax Gold Inc. are parties
to the contract in question. The order also stayed Kershaw Gold Company's
claims for breach of contract against the two Amax Gold Inc. subsidiaries
pending a determination of arbitrability by the arbitrators. Kershaw Gold
Company's claim against Amax Gold Inc. for tortious interference with contract
(including the Venture Agreement) was allowed to proceed. Amax Gold Inc.'s
motion for a more definite statement of the tortious interference claim was
granted. Discovery on the tortious interference claim was also authorized.
The Registrant intends to vigorously prosecute its claims against Amax Gold
Inc. and the two subsidiaries. The Registrant timely moved for reconsideration
of the court's November 2, 1995 order. To date no hearing or ruling has
occurred with respect to such motion.
Following the court's November 2, 1995, order, the defendant, Amax
Gold Inc., removed the claim against it by Kershaw to the Federal District
Court for the District of South Carolina. Kershaw filed its amended complaint
in this action on January 29, 1996 alleging tortious interference and civil
conspiracy. Discovery is proceeding and the court has issued a scheduling
order that the case will be called for trial during the term of court beginning
July 8, 1996.
On May 24, 1995, the defendant filed a demand for arbitration with the
American Arbitration Association alleging a breach by plaintiffs of obligations
under the Venture Agreement. The defendant sought to recover costs incurred,
and has taken the position that "future costs are not waived, but are
specifically preserved." The Registrant has taken the position before both the
court and the American Arbitration Association that the dispute is not
arbitrable under the terms of the Venture Agreement, and objected to the
arbitration proceedings. Nevertheless, the arbitration proceedings were
conducted in early 1996 before an arbitration panel of the American Arbitration
Association.
On March 5, 1996, the arbitration panel rendered an award calling for
the Registrant to pay approximately $1,370,000 of the disputed expenses to a
subsidiary of AGI. According to the award, the administrative and arbitrators'
fees and expenses, totalling approximately $66,000, are to be borne equally by
the parties. On or about March 6, 1996, Lancaster moved in the Federal
District Court to have the order of the arbitrators confirmed in order to make
such award a judgment of the court. On or about April 4, 1996, the Registrant
filed a motion in the Federal District Court to stay the confirmation
proceeding and a cross-motion to vacate the arbitration award, both of which
the Registrant intends to
24
<PAGE> 25
vigorously pursue. The expenses that are the subject of the arbitration award
are reflected as current liabilities on the Registrant's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Registrant's Common Stock is traded in the over-the-counter market
and is quoted on the National Association of Securities Dealers OTC Bulletin
Board. Prior to January 26, 1996, the Registrant's Common Stock was traded in
the over-the-counter market and was quoted on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) under the symbol PIED.
The high and low bid prices for the Common Stock as reported on NASDAQ for each
quarterly period during 1994 and 1995 (which reflect inter-dealer prices
without markup, markdown or commissions and which may not represent actual
transactions) were as follows:
<TABLE>
<CAPTION>
Bid Prices ($)
----------------
High Low
---- ------
<S> <C> <C>
1994
First Quarter 2-1/8 1-1/4
Second Quarter 1-9/16 1-1/8
Third Quarter 1-1/2 1
Fourth Quarter 1-1/8 13/16
1995
First Quarter 15/16 5/8
Second Quarter 11/16 1/4
Third Quarter 7/16 5/16
Fourth Quarter 13/32 3/16
</TABLE>
The Registrant had 331 shareholders of record as of March 30, 1996.
The Registrant has paid no cash dividends and does not currently
expect to pay any cash dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
The Registrant's principal operations prior to mid-1992, other than
its exploration activities, were the mining and production of gold at the Haile
Property, which accounted for most of the
25
<PAGE> 26
Registrant's revenues to date. On March 15, 1991, the Registrant entered into
an Option and Earn-In Agreement with AGI pursuant to which AGI was granted an
option to acquire a 62.5% undivided interest in the Haile Property. In
connection with its entering into the Option and Earn-In Agreement and AGI's
exploration activities at the Haile Property during the option period
thereunder, the Registrant began to phase out its shallow, open-pit mining
operations at the Haile Property in March 1991 and suspended mining and hauling
in August 1991. AGI exercised its option on May 1, 1992, and the Registrant
and AGI formed the Haile Mining Venture on July 1, 1992 to further explore,
evaluate, and, if warranted, develop and operate a large-scale mining operation
at the Haile Property. The Registrant has an undivided 37.5% interest in the
Venture's assets, liabilities, costs and revenues. Recovery and production of
gold from the leaching of ore previously mined continued in 1991 and 1992 for
the account of the Registrant until the formation of the Venture, and for a
short period thereafter for the account of the Venture. Consequently, the
Registrant's results of operations during the three years ended December 31,
1995 primarily reflect the activities of the Haile Mining Venture and the
Registrant's general and administrative expenses.
In connection with the grant of the option pursuant to the Option and
Earn-In Agreement with AGI in March 1991, and as part of the earn-in
conditions, AGI also paid the Registrant $1,000,000 in cash, assumed debt
service obligations during the option period (approximately $1,072,000) on the
Registrant's note to MMC Holding, Inc., provided financial support for a
reclamation bond increase at the Haile Property, funded all exploration costs
at the Haile Property during the option period, and provided at its expense a
preliminary feasibility study for the Haile Property. Upon the exercise by AGI
of its option in 1992, the Registrant received $1,750,000 in cash and 1,000,000
unregistered shares of AGI Common Stock. Because the Registrant intends to
fund its share of the costs of the Venture, the excess of the fair value of the
consideration received from AGI over the carrying value of the interests in the
Haile Property sold and liabilities assumed was reflected as a deferred gain
and is being amortized to income in amounts equal to the sum of the
Registrant's share of the Haile Mining Venture's costs and expenses and the
Registrant's other direct costs of participation in the Venture.
Results of Operations
1995 Compared to 1994
There were no sales and no mine operating expense in 1995 due to the
suspension of mining in 1991 and the completion in 1992 of recoveries of gold
from leaching of ore previously mined.
General and administrative expense decreased 16% due to a decrease in
salaries and general corporate overhead.
26
<PAGE> 27
Professional fees increased 123% due to an increase in required legal
services primarily as a result of the pending litigation against AGI.
There was no stock appreciation rights and awards expense accrued in 1995.
Exploration expense declined 13% principally due a decrease in lease
expense for the Registrant's North Carolina properties.
Interest expense decreased 78% due to a decrease in short term
borrowings by the Registrant in 1995.
Interest and other income increased from $1,000 to $25,000 due
principally to the interest earned on invested cash.
The Registrant has been amortizing the deferred gain, recorded as a
result of the AGI option exercise, to income in amounts equal to the sum of the
Registrant's share of the Haile Mining Venture's costs and expenses and the
Registrant's other direct costs of participation in the Venture. Such costs
and related amortization amounted to $2,046,000 in 1995, which included the
$1,370,000 accrued arbitration award. Exclusive of the arbitration award
expense, the amortization of deferred gain was 32% lower than in 1994 due a
lower level of Venture activity and expenditures.
The Registrant's investment in AGI Common Stock is carried at its
aggregate fair value of $1,830,000 as of December 31, 1995. The unrealized
gain, calculated based on the difference between fair value and the adjusted
cost basis of the shares, in the amount of $505,000 is recorded in
shareholders' equity net of related deferred income taxes of $197,000. The
Registrant sold 747,600 shares of AGI Common Stock in 1995 for total proceeds
of $3,988,000 and generating a net gain of $64,000.
The Registrant recorded a deferred income tax benefit of $197,000 for
the year ended December 31, 1995 relating principally to a reduction in the
valuation allowance against deferred tax assets. This reduction was directly
attributable to the accounting for the unrealized gain on the AGI Common Stock.
The offsetting tax expense relating to the unrealized gain on the AGI Common
Stock is recorded as an adjustment to shareholders' equity as referred to
above.
The Registrant adopted Financial Accounting Standards No. 109 ("FAS
109") in the first quarter of 1993. Adoption of FAS 109 did not affect the
Company's results of operations in 1995. The Company has deferred tax assets
totalling $3.1 million at December 31, 1995 which have been fully reserved
through a valuation allowance as reflected in Note 6 to the consolidated
financial statements.
The Registrant's net loss of $660,000 in 1995 was due to the factors
set forth above.
27
<PAGE> 28
1994 Compared to 1993
There were no sales in 1994 due to the suspension of mining in 1991
and the completion in 1992 of recoveries of gold from leaching of ore
previously mined.
There was no mine operating expense during 1994 due to the suspension
of mining in 1991 and production in 1992.
Depreciation expense decreased 69% principally as a result of the
limited expenditures for plant, machinery and equipment during 1994, and the
sale in early 1994 of non-Venture mining equipment.
General and administrative expense increased 27% due to the increase
of salaries and general corporate overhead.
Professional fees increased 44% due to an increase in required legal
and accounting services.
Stock appreciation rights and awards expense accrued in 1992 and 1993
was reversed, resulting in a $82,000 gain for 1994. The gain was due to a
decline in the Registrant's stock price.
Exploration expense declined 90% principally due to the suspension of
the exploration program on the Registrant's North Carolina properties early in
1993.
Interest expense increased 1657%, from $7,000 to $123,000, due to
increased short term borrowings by the Registrant in 1994 in order to fund its
ongoing Venture expenses and other corporate expenses.
Interest and other income decreased 99% due principally to the
elimination of dividend income as a result of Amax Gold Inc. suspending
dividends on its Common Stock in 1994 and because there were no gold sales in
1994.
The Registrant has been amortizing the deferred gain, recorded as a
result of the AGI option exercise, to income in amounts equal to the sum of the
Registrant's share of the Haile Mining Venture's costs and expenses and the
Registrant's other direct costs of participation in the Venture. Such costs
and related amortization amounted to $987,000 in 1994. This amount is 51%
lower than 1993 due to a lower level of Venture activity and in particular no
drilling activity on the property in 1994.
The Registrant had previously reported an unrealized gain on the
1,000,000 shares of AGI Common Stock held by it for sale during 1994 pursuant
to SFAS 115, which the Registrant adopted effective January 1, 1994. Based on
the market price of $6.00 per share at December 31, 1994, the unrealized gain
on such date was $450,000. However, because the decline in market value of the
AGI Common Stock subsequent to December 31, 1994 was determined to be "other
than temporary" under SFAS 115, this investment was written down by
28
<PAGE> 29
$750,000 as of December 31, 1994 (based on the market value of AGI Common Stock
at March 17, 1995 of $5.25 per share). The effect of this writedown under SFAS
115 was to eliminate the unrealized gain on available for sale securities of
$450,000 written up during 1994 in accordance with SFAS 115 and resulted in a
charge against income of $300,000 for the excess of the writedown over the
unrealized gain.
The Registrant's loss of $1,225,000 in 1994 was due to the factors set
forth above.
The Registrant adopted Financial Accounting Standards No. 109 ("FAS
109") in the first quarter of 1993. Adoption of FAS 109 did not affect the
Company's results of operations in 1994. The Company has deferred tax assets
totalling $3.2 million at December 31, 1994 which have been fully reserved
through a valuation allowance as reflected in Note 6 to the consolidated
financial statements.
Financial Condition, Liquidity and Capital Resources
The Registrant's financial condition and liquidity continued to
decline in 1995 due primarily to the funding of its 37.5% share of the costs
and expenses of the Haile Mining Venture and various corporate costs without
any offsetting revenues. Working capital decreased to $658,000 at December 31,
1995, compared with $3,065,000 at the end of 1994.
The Registrant's principal source of liquidity during 1995 was from
the sale of some of the shares of AGI Common Stock it had acquired upon AGI's
exercise of its option with respect to the Haile Property which the Registrant
began to liquidate in January 1995. Proceeds from the sale of such shares were
also used to repay previous borrowings against such shares made in 1993 and
1994. At March 15, 1996, the Registrant held 240,900 shares of AGI Common
Stock and had approximately $470,000 in cash and equivalents. Further sales of
or margin loans on the remaining shares of the AGI Common Stock held by the
Registrant may be its only source of additional cash for the foreseeable
future. Thus, further declines in the market price of the AGI Common Stock
could severely affect the Registrant's liquidity. The closing price of AGI
Common Stock on the New York Stock Exchange on March 15, 1996 was $7.00.
The Registrant believes that its current cash position and funds
available from loans on, or dispositions of, the AGI Common Stock (assuming no
significant deterioration in market value) will provide sufficient capital
resources for its continued operations (including the costs of pursuing the
lawsuit against AGI) through the end of 1996, even if the Registrant is
ultimately required to pay the $1,370,000 awarded to AGI in the arbitration of
the disputed environmental expenses claimed by AGI. However, the Registrant
will need additional financing if the Haile Mining Venture decides to develop
and commence mining operations at the
29
<PAGE> 30
Haile Property pursuant to the Venture Agreement, or if prior to a production
decision the Venture incurs substantially more expenditures for which the
Registrant is responsible, or if there is no favorable resolution of the
Registrant's claims against AGI during 1996 and the Registrant is also required
to pay to AGI the $1,370,000 arbitration award. Additional financing for such
purposes could be sought through the issuance of additional shares of the
Registrant's Common Stock or other equity securities, through debt financing,
or through various arrangements (including joint ventures or mergers) with
third parties. However, the Registrant currently has no commitments for any
such additional financing, and there is no assurance that the Registrant could
obtain any such additional financing if and when needed.
If a production decision were made by the Haile Mining Venture, the
Registrant's share of the Venture's total costs of developing and commencing
mining operations at the Haile Property, as estimated in the Preliminary
Feasibility Study prepared in December 1991 by AGI pursuant to the Option and
Earn-In Agreement, could be as great as $30,000,000, depending upon the nature,
size and scope of the operations and other variables, which have not yet been
determined. Although the Registrant and AGI have agreed in their Venture
Agreement to seek project financing for the development of the Haile Property
if a production decision is made, there is no assurance that project financing
will be available and the Registrant may be required to seek its own separate
financing.
ITEM 7. FINANCIAL STATEMENTS.
The following reports of independent accountants and financial
statements are filed under this Item 7:
Report of Independent Accountants
Consolidated balance sheets - December 31, 1995 and 1994.
Consolidated statements of operations - years ended December 31, 1995,
1994 and 1993.
Consolidated statements of cash flows - years ended December 31, 1995,
1994 and 1993.
Notes to consolidated financial statements (including Changes in
Shareholders' Equity in Note 7)
30
<PAGE> 31
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Piedmont Mining Company, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and of cash flows present fairly, in all
material respects, the financial position of Piedmont Mining Company, Inc. and
its subsidiaries at December 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, 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.
As discussed in Note 2 to the financial statements, the Venture's operations
have consisted primarily of drilling and engineering studies to further
ascertain the existence, location, quality, quantity and commercial value of
ore reserves, as well as ongoing permitting and environmental studies and
property maintenance. There has been no further drilling since January 1994,
and in September 1994 the Company was notified by its co-venturer that it had
decided to pursue the sale of its interest in the Venture. Since the beginning
of 1994, Venture activities have been limited primarily to property
maintenance, engineering and evaluation work and environmental studies.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 10 to the
financial statements, the Company has disputed a claim made by its co-venturer
in the Haile Mining Venture regarding certain venture costs. In March 1996, an
arbitration panel rendered an award which calls for the Company to pay
approximately $1,370,000 of the disputed costs to the co-venturer. If such
award is upheld and becomes payable, the Company's liquid assets would be
substantially depleted which raises substantial doubt about the Company's
ability to continue as a going concern. Management's plans with respect to
this matter, and the uncertainties associated with an ongoing dispute with the
co-venturer, are discussed in Note 10. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting and reporting for certain investments in equity securities
in 1994.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Charlotte, North Carolina
April 4, 1996
31
<PAGE> 32
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
ASSETS 1995 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents (including $0 and
$51,000 relating to the Haile Mining Venture) $ 782,000 $ 91,000
Investment in Amax Gold Inc. common stock (Notes 1, 2, 3 and 5) 1,830,000 5,250,000
Accounts receivable 28,000 28,000
--------------- --------------
Total current assets 2,640,000 5,369,000
Property and equipment, net (including $245,000 and $227,000
relating to the Haile Mining Venture) (Note 4) 286,000 278,000
Deferred costs, net of accumulated amortization
(including $1,536,000 relating to the Haile Mining Venture) 1,754,000 1,754,000
Other assets 4,000 4,000
--------------- --------------
$ 4,684,000 $ 7,405,000
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable (including $234,000 and $39,000
relating to the Haile Mining Venture) $ 288,000 $ 90,000
Accrued salaries and wages 9,000 17,000
Accrued venture costs (Note 10) 315,000 -
Accrued arbitration award (Note 10) 1,370,000 -
Note payable (Notes 3 and 5) - 940,000
Accrued interest - 28,000
Note payable to Amax Gold Inc. (Notes 2, 3 and 5) - 1,129,000
Accrued interest payable to Amax Gold Inc. (Notes 2, 3 and 5) - 100,000
--------------- --------------
Total current liabilities 1,982,000 2,304,000
--------------- --------------
Accrued reclamation costs 125,000 125,000
--------------- --------------
Deferred gain, net of accumulated amortization of $6,341,000
and $4,295,000 (Note 2) 678,000 2,724,000
--------------- --------------
Shareholders' equity (Notes 7 and 8):
Common Stock, no par value; authorized - 100,000,000
shares; issued and outstanding - 15,043,869 shares 11,157,000 11,157,000
Contributed capital 317,000 317,000
Accumulated deficit (9,882,000) (9,222,000)
Unrealized gain on securities, net of tax (Note 3) 307,000 -
--------------- --------------
Total shareholders' equity 1,899,000 2,252,000
--------------- --------------
Commitments and contingencies (Notes 2 and 10)
$ 4,684,000 $ 7,405,000
=============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE> 33
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Net sales $ - $ - $ -
Cost of sales:
Depreciation expense (Note 4) 10,000 19,000 61,000
Haile Mining Venture expenses (Notes 2 and 10) 2,046,000 987,000 2,006,000
Amortization of deferred gain (Notes 2 and 10) (2,046,000) (987,000) (2,006,000)
------------- ------------ -------------
10,000 19,000 61,000
------------- ------------ -------------
Other expenses (income):
General and administrative 621,000 739,000 581,000
Stock appreciation rights and awards - (82,000) 26,000
Exploration 14,000 16,000 162,000
Professional fees 277,000 124,000 86,000
Interest expense 27,000 123,000 7,000
Gain on sale of assets (67,000) (13,000) (5,000)
Interest and other income (25,000) (1,000) (190,000)
Other than temporary decrease in available-for-sale
securities (Note 3) - 300,000 -
------------- ------------ -------------
847,000 1,206,000 667,000
------------- ------------ -------------
Loss before income taxes (857,000) (1,225,000) (728,000)
Income tax benefit (Note 6) 197,000 - -
------------- ------------ -------------
Net loss $ (660,000) $ (1,225,000) $ (728,000)
============= ============ =============
Net loss per common share $ (.04) $ (.08) $ (.05)
============= ============ =============
Weighted average number of common shares
outstanding (Note 1) 15,043,869 14,943,951 14,908,520
============= ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 34
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (660,000) $ (1,225,000) $ (728,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 46,000 45,000 96,000
Deferred income taxes (197,000) - 137,000
Amortization of deferred gain (2,046,000) (987,000) (2,006,000)
Accrued arbitration award 1,370,000 - -
Other than temporary decline in
available-for-sale securities (Note 3) - 300,000 -
Compensation recorded with respect to
stock appreciation rights and stock awards - - 26,000
Gain on sale of assets (67,000) (13,000) (5,000)
Changes in operating assets and liabilities:
Increase in accrued venture costs 315,000 - -
Increase (decrease) in accounts payable
and other accrued expenses 62,000 (26,000) (25,000)
Increase in income taxes (refundable) payable - 110,000 (293,000)
Other - 3,000 17,000
------------- ------------ -------------
Net cash used in operating activities (1,177,000) (1,793,000) (2,781,000)
------------- ------------ -------------
INVESTING ACTIVITIES
Proceeds from sale of Amax Gold, Inc. stock 3,988,000 - -
Purchase of property and equipment (54,000) (65,000) (77,000)
Proceeds from sale of equipment 3,000 90,000 15,000
------------- ------------ -------------
Net cash provided (used) by investing activities 3,937,000 25,000 (62,000)
------------- ------------ -------------
FINANCING ACTIVITIES
Proceeds from exercise of stock options - 121,000 24,000
Proceeds from (repayment of) loan from
Amax Gold Inc. (1,129,000) 603,000 526,000
Proceeds from (repayment of) note payable (940,000) 940,000 -
------------- ------------ -------------
Net cash provided (used) by financing activities (2,069,000) 1,664,000 550,000
------------- ------------ -------------
Increase (decrease) in cash and cash equivalents 691,000 (104,000) (2,293,000)
Cash and cash equivalents at beginning of year 91,000 195,000 2,488,000
------------- ------------ -------------
Cash and cash equivalents at end of year $ 782,000 $ 91,000 $ 195,000
============= ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 35
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts of
Piedmont Mining Company, Inc. and its wholly owned subsidiaries (collectively,
the "Company"). All significant intercompany accounts and transactions have
been eliminated in consolidation.
USE OF ESTIMATES:
Generally accepted accounting principles require management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent liabilities, and the reported amounts of revenues and
expenses. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with initial maturities of
three months or less to be cash equivalents.
INVESTMENTS:
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115) which changed its method of accounting and
reporting for investments in equity securities. The investment in Amax Gold
Inc. common stock at January 1, 1994 is classified as available-for-sale and
stated at market unless declines in market value below cost are determined to
be other than temporary. SFAS 115 requires that unrealized gains and losses be
recorded as direct adjustments, net of deferred taxes, to shareholders' equity.
Prior to January 1, 1994, the Company carried the Amax Gold Inc. common stock
at the lower of cost or market.
DEFERRED COSTS:
Development costs and costs of obtaining mineral rights are deferred until the
related properties reach the production stage, and then they are amortized on a
units-of-production basis.
EXPLORATION COSTS:
Exploration costs are expensed as incurred.
RECLAMATION:
Certain reclamation is performed and expensed on an ongoing basis as mining
operations are performed. Reclamation and shutdown costs to be incurred when
mining operations are closed are provided over the period of operation of the
mine based upon management's periodic assessment of such ultimate cost.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost and depreciated over the estimated
useful lives of the assets using the straight-line method.
35
<PAGE> 36
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
IMPAIRMENT OF LONG-LIVED ASSETS:
The Company is required to adopt Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" (SFAS 121) in the first quarter of 1996. SFAS 121
requires the recognition of impairment losses on long-lived assets when facts
and circumstances indicate that impairment may exist. The Company does not
believe that the adoption of SFAS 121 will have a material affect on the
Company's financial position or results of operations.
INCOME TAXES:
The Company provides for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109), which requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
bases of assets and liabilities using the enacted income tax rates expected to
apply to taxable income in the periods in which the deferred tax liability or
asset is expected to be settled or realized. SFAS 109 requires that a
valuation allowance be established, if necessary, to reduce the deferred tax
assets to the amount that management believes is more likely than not to be
realized.
NET LOSS PER COMMON SHARE:
Net loss per common share is computed based on the weighted average number of
shares of Common Stock outstanding during the year. Stock options and unearned
stock awards have been excluded from the calculation of net loss per common
share because they are not dilutive.
NOTE 2 - HAILE MINING VENTURE:
On March 15, 1991 the Company and Amax Gold Exploration, Inc., a wholly-owned
subsidiary of Amax Gold Inc., (collectively, "Amax"), entered into an Option
and Earn-In Agreement (the "Agreement"), pursuant to which the Company granted
Amax an option (the "Option") to acquire a 62.5% undivided interest in the
Company's Haile Mine properties and certain equipment and improvements (the
"Property"), and then to enter into a joint venture with the Company to further
explore, develop and mine the Property.
As consideration for the Option, Amax paid the Company $1,000,000 in cash on
March 15, 1991 and agreed to pay on behalf of the Company the principal and
interest on certain notes issued by the Company. The total payments on the
notes approximated $1,072,000. In addition, Amax agreed to provide a guaranty
or other financial support necessary to enable the Company to increase its
reclamation bond on the Property by approximately $750,000 during the Option
period. Amax conducted and funded all the exploration costs during such
period.
On May 1, 1992, Amax exercised the Option and the Company received $1,750,000
in cash and 1,000,000 unregistered shares of Amax common stock (valued upon
receipt by the Company at $5,550,000). In addition, Amax assumed 62.5% or
$625,000 of the Company's note obligation to MMC Holding, Inc. The Company has
demand registration rights through December 31, 1996, subject to Amax's right
to repurchase the Amax shares from the Company for cash at their then market
value. The closing price of Amax common stock on the New York Stock Exchange
was $7.25 and $6.00 on December 31, 1995 and 1994, respectively.
Pursuant to the Agreement, the Company and Amax formed a venture (the "Haile
Mining Venture" or the "Venture") to further explore, evaluate and, if
warranted, develop and operate a gold mine at the Property. Amax manages and
controls the Venture. Amax and the Company have 62.5% and 37.5% undivided
interests, respectively, in the Venture's assets and liabilities. Costs of the
Venture are borne by each party based on its respective interest, and the
ultimate gold produced by the Venture, if any, will be taken by the parties in
kind. Accordingly, the Company is reflecting in the applicable captions of its
financial statements its share of the Venture's assets, liabilities and costs.
36
<PAGE> 37
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In the event that either party fails to pay its proportionate share of the
Venture's costs, the other party may pay the non-paying party's share of such
costs, in which case the interest of the non-paying party in the Property may
be diluted (see Note 10).
The $7,019,000 excess of the fair value of the consideration received from Amax
over the carrying value of the Property sold and liabilities assumed was
reflected as a deferred gain because of the Company's intent to fund its share
of the costs of the Venture, and such amount is expected to exceed the amount
of the deferred gain. The Company is amortizing the deferred gain to income in
amounts equal to the sum of the Company's share of the Venture's costs and
expenses and the Company's other direct costs of participation in the Venture,
all of which the Company is charging to expense as incurred because the Company
and Amax have not yet made a decision to develop an operating mine at the
Property.
A summary of the assets and liabilities included in the accompanying balance
sheets which are associated with the Company's interest in the Venture is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
<S> <C> <C>
Cash and cash equivalents $ - $ 51,000
Property and equipment 245,000 227,000
Deferred costs 1,536,000 1,536,000
Trade accounts payable (234,000) (39,000)
--------------- --------------
Company's net investment in Venture
(excluding deferred gain of $678,000 and $2,724,000) $ 1,547,000 $ 1,775,000
=============== ==============
</TABLE>
In contemplation of the formation of the Venture described above, the Company
suspended its mining and hauling operations in August 1991. On June 30, 1992
leaching and recovery of gold ceased for the account of the Company and
commenced for the account of the Venture with Amax taking its 62.5% of the gold
production. Such leaching and recovery of gold ceased in 1992.
The Venture's operations have consisted primarily of drilling and engineering
studies to further ascertain the existence, location, quality, quantity and
commercial value of the ore reserves, as well as ongoing permitting and
environmental studies and property maintenance. There has been no further
drilling since January 1994, and in September 1994 the Company was notified by
Amax that it intended to pursue the sale of its interest in the Venture. Since
the beginning of 1994, Venture activities have been limited primarily to
property maintenance, engineering and evaluation work and environmental
studies.
Should the venturers (including any successor to the interest of Amax in the
Venture) decide to develop an operating mine, it is expected that the Venture
would construct a processing facility for gold production at the Haile
Property. The size and complexity of such processing facility cannot be
determined until the venturers complete the work necessary to make a production
decision and establish a mining plan for the Haile Property. Accordingly,
management cannot estimate with precision the cost of construction and related
costs to be incurred if the venturers decide to begin production. Based upon a
preliminary feasibility study prepared for Amax in late 1991, the total cost of
developing and commencing operations ranged up to approximately $80 million, of
which the Company's 37.5% share could range up to approximately $30 million.
Should a production decision be made, the Company would probably seek to
finance its share of such costs through debt financing (either directly by the
Company or through project financing by the Venture) and/or by raising
additional equity capital. No such production decision has been made.
See Note 10 for further discussion regarding contingencies relating to the
Haile Mining Venture.
37
<PAGE> 38
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - INVESTMENT IN AMAX GOLD INC. COMMON STOCK:
In 1995, the Company began selling in the open market shares of the Amax common
stock it had acquired upon exercise of the Amax Option described in Note 2.
The Company sold 747,600 shares at an average price of approximately $5.34 per
share during 1995 with total proceeds of $3,988,000 and gains on sales totaling
$64,000.
The Company recorded a $300,000 write-down in 1994 reflecting what was
considered at that time an "other than temporary" decline in the market value
of the Amax common stock held as of December 31, 1994. The adjusted cost basis
of such stock is $5.25 per share as compared to fair value of $7.25 at December
31, 1995.
The proceeds from the sales of the Amax common stock have been used to repay
indebtedness and fund operating cash requirements.
The Company is partially dependent upon sales of or loans on the Amax common
stock to fund its 1996 operating cash needs. A decline in the market value of
such stock could adversely affect the Company's liquidity and capital resources
and its ability to fund its share of the Venture costs. Failure to fund its
share of the Venture costs could result in a dilution of the Company's interest
in the Venture.
NOTE 4 - PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE 1995 1994
<S> <C> <C>
Land $ 149,000 $ 149,000
Buildings and improvements 3 - 20 years 122,000 122,000
Machinery and equipment 3 - 5 years 335,000 451,000
--------------- --------------
606,000 722,000
Less - Accumulated depreciation (320,000) (444,000)
--------------- --------------
Net property and equipment $ 286,000 $ 278,000
=============== ==============
</TABLE>
NOTE 5 - BORROWINGS:
The Company had borrowings from Amax that were secured by the pledge of Amax
common shares having a market value equal to 200 percent of the outstanding
principal balance (or, if less, all of the Amax shares originally issued). The
principal balance outstanding under this agreement, $1,129,000 at December 31,
1994, was paid in full in 1995.
The Company also has a credit arrangement with a broker that is secured by the
Company's unpledged shares of Amax stock. Borrowings may be obtained under
this arrangement based on the number of shares subject to pledge and the market
value of such shares, among other factors. Amounts borrowed under this
arrangement bear interest at 8.25% and totaled $940,000 at December 31, 1994
and were repaid in full in 1995.
Interest paid for the year ended December 31, 1995 was $156,000. There was no
interest paid for the years ended December 31, 1994 and 1993.
38
<PAGE> 39
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6 - INCOME TAXES:
The provision (benefit) for income taxes is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current:
Federal $ - $ - $ (137,000)
State - - -
------------- -------------- --------------
- - (137,000)
------------- -------------- --------------
Deferred:
Federal (170,000) - 137,000
State (27,000) - -
------------- -------------- --------------
(197,000) - 137,000
------------- -------------- --------------
Income tax benefit $ (197,000) $ - $ -
============= ============== ==============
</TABLE>
A reconciliation of the income tax benefit computed using the U.S. federal
statutory rate to the amount recorded is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Tax benefit at statutory rate $ 291,000 $ 417,000 $ 248,000
Effect of unused operating loss (291,000) (417,000) (248,000)
Change in valuation allowance 178,000 - -
Other 19,000 - -
------------- -------------- --------------
Income tax benefit $ 197,000 $ - $ -
============= ============== ==============
</TABLE>
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
<S> <C> <C>
Deferred tax liabilities:
Unrealized gain on investment securities $ (197,000)
Depreciation (42,000) $ (49,000)
Deferred costs (472,000) (472,000)
--------------- --------------
Gross deferred tax liabilities (711,000) (521,000)
--------------- --------------
Deferred tax assets:
Deferred gain and accrued arbitration award 790,000 1,051,000
Net operating loss carryforward 2,838,000 2,568,000
Investment tax and AMT credit carryforwards 86,000 86,000
Other 49,000 46,000
--------------- --------------
Gross deferred tax assets 3,763,000 3,751,000
Valuation allowance (3,052,000) (3,230,000)
--------------- --------------
Deferred tax asset after valuation allowance 711,000 521,000
--------------- --------------
Net deferred tax asset (liability) $ - $ -
=============== ==============
</TABLE>
39
<PAGE> 40
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At December 31, 1995, the Company had approximately $8,348,000 of net operating
loss carryforwards which expire in varying amounts through the year 2010. Also
at December 31, 1995, the Company had an AMT credit carryforward of $54,000 and
an investment tax credit carryforward of $32,000 to offset future income tax
liabilities.
In light of the Company's cumulative losses in recent years, management has
established a valuation allowance of $3,052,000 against its deferred income tax
assets at December 31, 1995 which reduces the carrying value of such assets to
an amount equal to the sum of its offsetting deferred income tax liabilities.
The 1995 deferred tax benefit results principally from a reduction in the
valuation allowance credited to income. This reduction was directly related to
the accounting for the unrealized gain on investment securities. An offsetting
income tax expense related to the increase in market value of the investment
securities held is recorded as an adjustment to shareholders' equity as
required by SFAS 115.
Income taxes paid were $152,000 in 1993. The Company paid no income taxes in
1994 or 1995.
During the fourth quarter of 1994 the Company reversed income tax benefits
recorded in the nine months ended September 1994 resulting in a fourth quarter
charge against income of $263,000.
NOTE 7 - CHANGES IN SHAREHOLDERS' EQUITY:
An analysis of changes in Shareholders' equity follows:
<TABLE>
<CAPTION>
COMMON COMMON CONTRIBUTED ACCUMULATED
SHARES STOCK CAPITAL DEFICIT OTHER TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 14,861,369 $11,012,000 $317,000 $ (7,269,000) $ (46,000) $4,014,000
Net loss for 1993 - - - (728,000) - (728,000)
Stock options and stock
appreciation rights 62,550 24,000 - - 46,000 70,000
---------- ----------- -------- ----------- --------- ----------
Balance at December 31, 1993 14,923,919 11,036,000 317,000 (7,997,000) - 3,356,000
---------- ----------- -------- ----------- --------- ----------
Net loss for 1994 - - - (1,225,000) - (1,225,000)
Stock options & stock
appreciation rights 119,950 121,000 - - - 121,000
---------- ----------- -------- ----------- --------- ----------
Balance at December 31, 1994 15,043,869 11,157,000 317,000 (9,222,000) - 2,252,000
Net loss for 1995 - - - (660,000) - (660,000)
Unrealized gain on investment
securities, net of tax - - - - 307,000 307,000
---------- ----------- -------- ----------- --------- ----------
Balance at December 31, 1995 15,043,869 $11,157,000 $317,000 $(9,882,000) $ 307,000 $1,899,000
========== =========== ======== =========== ========= ==========
</TABLE>
Other changes reflected unearned compensation on stock appreciation rights in
1993 and unrealized gain on securities available-for-sale, net of tax, in 1995.
In addition to Common Stock, the Company's authorized capital stock includes
1,000,000 shares of $1 par value Preferred Stock, none of which is outstanding.
40
<PAGE> 41
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - STOCK OPTION PLANS AND STOCK AWARDS:
The Company has adopted six stock option plans for officers, key employees and
non-employee Directors: the 1985 Incentive Stock Option Plan (the "1985 Plan");
the 1988 and 1994 Stock Option Plans (the "1988 Plan" and the "1994 Employee
Plan"); the 1989, 1991 and 1994 Nonqualified Stock Option Plans for
non-employee Directors (the "1989 Plan," the "1991 Plan" and the "1994 Plan").
In addition, stock awards have been granted to certain officers and key
employees (the "Stock Awards"). The shares issued or issuable under all such
stock option plans and awards have been registered under the Securities Act of
1933. These plans and awards are described below:
1985 PLAN:
Options were granted under the 1985 Plan in February 1987 for 60,606 shares at
$1.65 per share for a period of five years and 97,999 shares at $1.50 per share
for a period of ten years. Further options were granted in December 1987 to
purchase 61,000 shares at $1.75 per share for a period of ten years. No
further options can be granted under the 1985 Plan. These options, which are
generally non-transferable, became exercisable in installments in February 1989
and February 1990. The shares are registered under the Securities Act of 1933.
Grantees of the options may request stock appreciation rights. Shares issued
under the Plan cannot be sold, assigned, transferred, pledged or otherwise
encumbered for a period of six months following such issuance. Shares and
prices of Common Stock under option are subject to adjustment in certain
events, principally stock dividends or splits or other recapitalizations.
1988 PLAN:
The 1988 Plan provides for the granting of options to purchase up to 500,000
shares of Common Stock. It allows for the granting of incentive stock options
and nonqualified stock options. In addition, the Plan provides that stock
appreciation rights may be granted with respect to any option granted under the
Plan. The options are to be granted under such provisions, terms and
conditions as the Compensation Committee of the Board of Directors of the
Company determines. Incentive stock options are not to be granted at less than
100% of the fair market value of the shares on the date the options are granted
and in no event may the option price be less than 110% of the fair market value
of the shares on the date the option is granted to an over-ten-percent
shareholder. No incentive stock option can be exercised after the expiration
of ten years from the date of grant and an incentive stock option granted to an
over-ten-percent shareholder cannot be exercised after the expiration of five
years from the date of grant. Each option under the Plan requires the optionee
to remain in the continuous employment of the Company for a period of at least
one year from the date of grant before the option becomes exercisable.
1989 AND 1991 PLANS:
During 1989 the Company adopted a nonqualified stock option plan for
non-employee members of its Board of Directors. This plan granted to each
non-employee Director on November 1, 1989 options to purchase 30,000 shares of
Common Stock (an aggregate of 210,000 shares) at $1.00 per share. Fifty
percent of the options were exercisable after November 1, 1990, with the
remainder exercisable after November 1, 1991. The options expired on the
earlier of November 1, 1994 or when an optionee ceased to be a Director by
reasons specified in the Plan. During 1991 the Company adopted a second
nonqualified stock option plan for non-employee members of its Board of
Directors. The plan granted to each non-employee Director on August 1, 1991
options to purchase an additional 30,000 shares of Common Stock (an aggregate
of 180,000 shares) at $2.00 per share. Fifty percent of the options became
exercisable after August 1, 1992 and the remaining options became exercisable
after August 1, 1993. The options granted under the 1991 Plan expire on the
earlier of August 1, 1996 or when an optionee ceases to be a Director by
reasons specified in the 1991 Plan. The options are generally
non-transferable.
41
<PAGE> 42
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1994 PLANS:
During 1994, the Company adopted a nonqualified stock option plan for
non-employee members of its Board of Directors. The 1994 Plan grants options
to purchase 10,000 shares of Common Stock to each non-employee Director every
six months beginning July 1, 1994, subject to an aggregate limit of 300,000
shares. The Plan granted options to purchase 50,000 shares of Common Stock in
July 1994 at $1.34 per share, the average market value for the last five
trading days to the date of grant. The options are exercisable immediately
after the grant date. All options expire on the earlier of five years after
the date of grant or when an optionee ceases to be a Director by reasons
specified in the Plan.
During 1994, the Company also adopted a stock option plan for officers and key
employees. Under the 1994 Employee Plan, options (which may be either
incentive stock options or non-qualified stock options) may be granted to
purchase up to 500,000 shares of Common Stock. The options are generally
exercisable after six months from the grant date. Otherwise, the terms of the
1994 Employee Plan are comparable to those of the 1988 Plan described above.
The Plan granted incentive stock options to purchase 75,000 shares of Common
Stock in June 1994 at $1.25 per share, the market value at the date of grant.
The options under both of the 1994 plans are generally non-transferable.
OPTION SUMMARY:
The following table sets forth changes in the number of shares under option:
<TABLE>
<CAPTION>
PRICE
SHARES RANGE
<S> <C> <C>
Options outstanding at December 31, 1992 637,666 $ .85-2.00
Exercised (27,550) .85-1.00
Terminated (30,000) 2.00
--------
Options outstanding at December 31, 1993 580,116 1.00-2.00
Granted 125,000 1.25-1.34
Exercised (119,950) 1.00
Terminated (3,333) 1.75
--------
Options outstanding at December 31, 1994 581,833 1.07-2.00
Granted 90,000 .44-.95
Terminated (50,500) 1.34-2.00
--------
Options outstanding and exercisable at December 31, 1995 621,333 $ .44-2.00
========
Options available for future grant at December 31, 1995 605,000
========
</TABLE>
42
<PAGE> 43
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STOCK AWARDS:
On May 28, 1992 the Company's shareholders approved a stock bonus plan pursuant
to which the Board of Directors awarded 335,000 shares of Common Stock to key
officers of the Company. Such awards were contingent upon the officers
remaining in the employment of the Company for the period from November 13,
1991 to January 2, 1993. Such awards vested in 1993.
During 1992 the Board of Directors approved an additional stock bonus plan (the
"1992 Stock Bonus Plan for Non-affiliates") pursuant to which up to 100,000
shares of Common Stock may be awarded to the Company's employees, consultants
or advisors who are not directors or executive officers. A total of 35,000
shares have been awarded to employees. The awards were contingent upon the
employees being in the continuous employment of the Company for specified
periods ending July 31, 1993. Such awards vested in 1993.
NOTE 9 - MINING LEASES:
The Company and Amax (in connection with the Haile Mining Venture) own
undivided interests in the Haile Property and lease the remainder from third
parties under leases of varying terms. In conjunction with the Agreement
described in Note 2, Amax entered into an agreement with one of the third
parties to purchase part of the property under certain terms. Such purchase
option has been assigned to the Venture. Purchase option payments under the
agreement amount to $150,000 annually, subject to escalation for inflation
beginning in 1996. The purchase option if exercised prior to its expiration in
June 2001 requires a payment of $2,495,000 subject to escalation at 8% per
annum, computed from May 1, 1992.
The Company also owns and leases certain mineral properties in North Carolina
which have not yet entered the development stage. Rental expenses for these
properties amounted to approximately $14,000, $17,000 and $16,000 for 1995,
1994 and 1993, respectively, and have been charged to exploration expense.
NOTE 10 - CONTINGENCIES:
Pursuant to the Option and Earn-In Agreement described in Note 2, the Haile
Mining Venture Agreement (the "Venture Agreement") between the subsidiaries of
the Company and Amax that are the Venture participants, and certain related
agreements, the Company and its subsidiary have agreed to indemnify Amax and
its affiliates from all environmental and other liabilities arising from
matters occurring or existing at the Haile Property prior to March 15, 1991 or
arising from acts, omissions and operations of the Company and its subsidiary
from March 15, 1991 to July 1, 1992 (the date of formation of the Venture).
Venture expenditures incurred from its formation through December 31, 1995
total approximately $11,505,000, of which the Company has paid its 37.5% share
through February 1995. Amax has identified approximately $2,133,000 of these
Venture expenditures through December 31, 1995 that it now claims are subject
to such indemnification provisions and should be reallocated 100% to the
Company ($290,000 for the second half of 1992, $681,000 for 1993, $674,000 for
1994 and $488,000 for 1995). The Company has paid its 37.5% share of such
costs through December 31, 1994 (which total approximately $617,000), but has
not paid the remaining 62.5% of such costs through December 31, 1994.
Furthermore, the Company has not paid any of these costs since January 1995 due
to the pending litigation. The Company has disputed such cost reallocation,
and the total amount claimed by Amax through December 31, 1995 is approximately
$1,516,000 and is increasing every month. A substantial part of such costs
relate to ongoing water treatment and property maintenance at the Haile Mine
property, as well as certain reclamation costs. Amax has also taken the
position that the Company will be responsible for 100% of similar ongoing
expenses in the future. The Venture's financial statements do not reflect the
amount of such costs as Venture expenditures.
43
<PAGE> 44
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The Company has disputed the cost reallocation asserted by Amax and arbitration
proceedings were commenced by Amax in May 1995. On March 5, 1996, an
arbitration panel of the American Arbitration Association rendered an award in
connection with the Company's dispute with Amax over such cost reallocation.
The award calls for the Company to pay approximately $1,370,000 of the disputed
costs to a subsidiary of Amax. In addition, approximately $33,000 of
administrative expenses are to be borne by the Company. The Company has filed
a motion to stay the confirmation proceeding and has also filed a cross motion
to vacate the arbitration award. The award has been accrued as of December 31,
1995 and has been fully offset by amortization of the deferred gain in the
statement of operations for the year ended December 31, 1995.
The Company has not funded its share of the Venture's expenditures since
February 1995 as a result of litigation commenced against Amax in March 1995,
but such costs have been accrued. Amax has indicated that it intends to
activate the dilution of interest provisions of the Venture Agreement as a
result of the Company's failure to pay its share of Venture expenditures since
March 1995.
On March 29, 1995, the Company filed a lawsuit in South Carolina against Amax
claiming, among other things, that Amax's failure to implement the approved
1994 Program and Budget for the Venture was in breach of its obligations under
the Venture Agreement and Management Agreement for the Venture, and seeking
actual and punitive damages. Discovery is to be completed on or before June
15, 1996 and trial is scheduled to commence with the term of the Court
beginning on July 8, 1996. No amounts have been recorded in the accompanying
financial statements relating to this gain contingency.
44
<PAGE> 45
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
Items 9 through 12 are incorporated herein by reference to the
sections captioned "Principal Shareholders and Holdings of Management,"
"Election of Directors," "Committees of the Board of Directors," "Executive
Officers," "Executive and Director Compensation," and "Compliance with Section
16(a) of the Exchange Act" in the Registrant's definitive Proxy Statement for
the 1996 Annual Meeting of Shareholders, to be filed with the Commission not
later than April 29, 1996.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits (Parenthetical number denotes incorporation by
reference as described in footnotes following the list of
Exhibits).
3.1 The Registrant's Articles of Incorporation, as
amended. (19)
3.2 The Registrant's Bylaws, as amended. (1)
10.1 Private Placement Agreement dated June 26, 1984
between the Registrant and International Investors
Incorporated. (2)
10.4 The Registrant's 1985 Incentive Stock Option Plan
adopted January 21, 1986, as amended January 27, 1987
and July 14, 1987. (2)
10.5 The Registrant's Management Incentive Compensation
Plan adopted January 21, 1986. (2)
10.7 Contract of Lease Agreement dated June 21, 1946
between Haile Mines, Inc. and James P. Beckwith.
(Haile) (2)
10.8 Agreement dated July 11, 1984 among the Registrant
and George B. Small and wife, June L. Small, Gold
Fields Mining Corporation and Mineral Mining
Corporation. (Haile) (2)
10.10 Mineral Lease dated June 29, 1984 among the Company
and Bobby B. Gregory and wife, Ethel Mae Gregory.
(Haile) (2)
10.11 Mineral Lease dated September 24, 1984 among the
Registrant and Morris H. Phillips and wife, Mary Lou
G. Phillips. (Haile) (2)
45
<PAGE> 46
10.12 Mineral Lease dated October 7, 1983 among the
Registrant and W.S. Jones, Executor under the Will of
Fred S. Jones; Teresa Jones Carter; Susan Jones
Lawson; Patricia Jones Jennings; Karen Jones; Emily
Jones King; Miriam Jones Lewis; Anne Jones Horton;
and Virginia Jones Horton. (Haile) (2)
10.14 Mineral Lease dated May 5, 1986 among the Registrant
and John F. Cagle and wife, Victoria H. Cagle.
(Russell-Coggins) (2)
10.16 Mineral Lease dated December 18, 1980 among the
Registrant (then Piedmont Land) and Roy Reynolds and
wife, Esther Reynolds. (Star) (2)
10.17 Mineral Lease dated February 6, 1981 among the
Registrant (then Piedmont Land) and Mary Aileen
Smitherman Willis and husband, John Willis; Mary
Aileen Smitherman Willis, Substitute Executrix of the
Estate of Samuel G. Smitherman; Mary Aileen
Smitherman Willis, Executrix of the Estate of Aileen
M. Smitherman; and Mary Aileen Smitherman, Trustee
under the Will of Aileen M. Smitherman, including
amendment dated May 22, 1987. (Star) (2)
10.18 Mineral Lease dated June 22, 1981 among the
Registrant (then Piedmont Land) and J.P. McIntosh and
wife, Fairy L. McIntosh. (Star) (2)
10.25 Mineral Lease dated December 18, 1980 among the
Registrant (then Piedmont Land) and J.D. Ross, Jr.
and wife, Ruth S. Ross. (Jones-Keystone) (2)
10.26 Mineral Lease dated February 9, 1983 among the
Registrant (then Piedmont Land) and S.A. Lowe, Jr.
and wife, Inez D. Lowe. (Jones-Keystone) (2)
10.28 Mineral Lease dated June 11, 1991 between the
Registrant (then Piedmont Land) and Seagrove Lumber
Company. (2)
10.36 Form of Indemnity Agreement between the Registrant
and its directors and officers. (2)
10.38 Option to Purchase Mineral Rights dated November 20,
1985 between the Registrant (then Piedmont Land) and
Rockingham Mining and Investment Company,
Incorporated. (Russell-Coggins) (2)
10.39 Agreement dated September 22, 1987 between the
Registrant and International Investors Incorporated,
relating to the Private Placement Agreement listed as
Exhibit 10.1. (2)
10.40 Mineral Lease dated November 11, 1987 between the
Registrant and Minor Lee Catoe. (Haile) (3)
46
<PAGE> 47
10.41 Mineral Lease dated March 10, 1988 between the
Registrant and Ira Taylor, Jr. and Pauline H.
Taylor. (Haile) (3)
10.42 The Registrant's 1988 Stock Option Plan. (4)
10.44 Exploration License and Option to Purchase Agreement
dated September 29, 1990 between the Registrant and
Ronny Edward Hinson and wife Nadine G. Hinson, and
Charles W. Hinson and wife Pauline D. Hinson.
(Haile) (1)
10.45 Amendment dated March 25, 1989 relating to the
Mineral Lease listed as Exhibit 10.17. (Star) (3)
10.46 Share Purchase Agreement dated March 8, 1989 between
the Registrant and Corona Corporation. (5)
10.47 The Registrant's 1989 Nonqualified Stock Option Plan
for Non-Employee Directors. (6)
10.49 Option and Earn-In Agreement dated March 15, 1991
between the Registrant, Mineral Mining Company, Inc.
(the Registrant's wholly-owned subsidiary, now
Kershaw Gold Company, Inc.) and Amax Gold
Exploration, Inc. (1)
10.50 The Registrant's 1991 Nonqualified Stock Option Plan
for Non-Employee Directors. (7)
10.51 Amendment dated June 4, 1991 relating to Mineral
Lease listed as Exhibit 10.14. (Russell-Coggins) (7)
10.52 Assignment of Rights and Obligations Agreement dated
June 13, 1991 between the Registrant and Brewer Gold
Company, including the assigned mineral leases
described therein. (Haile) (7)
10.53 Amendment dated June 21, 1991 relating to Mineral
Lease listed as Exhibit 10.18. (Star) (7)
10.55 Letter Agreement dated September 20, 1991 between the
Registrant, Mineral Mining Company, Inc. and Amax
Gold Exploration, Inc. (7)
10.57 Amendment dated February 9, 1992 relating to Mineral
Lease listed as Exhibit 10.26. (Jones-Keystone)
(7)
10.58 Severance Agreement dated as of March 1, 1992 between
the Registrant and Robert M. Shields, Jr. (8)
10.59 Severance Agreement dated as of March 1, 1992 between
the Registrant and Earl M. Jones. (8)
47
<PAGE> 48
10.60 The Registrant's 1992 Restricted Stock Bonus Plan.
(9)
10.61 The Registrant's 1992 Stock Bonus Plan for
Non-Affiliates. (10)
10.62 Haile Mining Venture Agreement dated as of July 1,
1992 between Lancaster Mining Company, Inc. and
Mineral Mining Company, Inc. (now Kershaw Gold
Company, Inc., a wholly-owned subsidiary of the
Registrant). (8)
10.63 Management Agreement dated as of July 1, 1992 between
Haile Mining Company, Inc., as the Manager, and
Lancaster Mining Company, Inc. and Mineral Mining
Company, Inc. (now Kershaw Gold Company, Inc., a
wholly-owned subsidiary of the Registrant) as the
Participants. (8)
10.64 Notice of Exercise of Option dated May 1, 1992. (11)
10.65 Securities Agreement dated May 1, 1992 between the
Registrant and Amax Gold Inc. (12)
10.66 Asset Purchase Agreement dated as of July 31, 1992
between Mineral Mining Company, Inc. (the
Registrant's wholly-owned subsidiary) and MMC
Holding, Inc. (13)
10.67 Memorandum of Extension Agreement dated October 17,
1992, relating to Exploration License and Option to
Purchase Agreement listed as Exhibit 10.44. (Haile)
(8)
10.68 Quitclaim deed dated July 22, 1992 releasing rights
as to two tracts held under the Mineral Lease listed
as Exhibit 10.28. (8)
10.69 Term Loan Agreement dated as of October 15, 1993
between the Registrant and Amax Gold Inc. (14)
10.70 Amendment dated February 6, 1993 relating to Mineral
Lease listed as Exhibit 10.17. (Star) (3)
10.71 Amendment dated December 15, 1993 relating to Mineral
Lease listed as Exhibit 10.25. (Jones-Keystone) (3)
10.72 Severance Agreement dated as of September 1, 1993
between the Registrant and Thomas L. Ross III. (3)
10.73 Severance Agreement dated as of September 1, 1993
between the Registrant and John W. Maddry. (3)
48
<PAGE> 49
10.74 Letter Agreement dated April 28, 1994 between the
Registrant and Amax Gold Inc. amending the Term Loan
Agreement, Pledge Agreement and Securities Agreement.
(15)
10.75 Pledge Agreement by and among Smith Barney Shearson
Inc. and the Registrant dated as of May 23, 1994.
(16)
10.76 The Registrant's 1994 Employee Stock Option Plan.
(17)
10.77 The Registrant's 1994 Nonqualified Stock Option Plan
for Non-Employee Directors. (18)
10.78 Amendment dated February 6, 1995 relating to Mineral
Lease listed as Exhibit 10.17 (Star). (19)
10.79 Amendment dated December 27, 1995 to Severance
Agreement between the Registrant and John W. Maddry.
21 List of Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of DMBW, Inc.
23.3 Consent of David C. Jonson.
27 Financial Data Schedule (filed in electronic format
only)
MANAGEMENT CONTRACTS AND COMPENSATORY
PLANS AND ARRANGEMENTS
The foregoing exhibits include the following management contracts and
compensatory plans and arrangements:
10.4 The Registrant's 1985 Incentive Stock Option Plan
adopted January 21, 1986, as amended January 27, 1987
and July 14, 1987. (2)
10.5 The Registrant's Management Incentive Compensation
Plan adopted January 21, 1986. (2)
10.42 The Registrant's 1988 Stock Option Plan. (4)
10.47 The Registrant's 1989 Nonqualified Stock Option Plan
for Non-Employee Directors. (6)
10.50 The Registrant's 1991 Nonqualified Stock Option Plan
for Non-Employee Directors. (7)
49
<PAGE> 50
10.58 Severance Agreement dated as of March 1, 1992 between
the Registrant and Robert M. Shields, Jr. (8)
10.59 Severance Agreement dated as of March 1, 1992 between
the Registrant and Earl M. Jones. (8)
10.60 The Registrant's 1992 Restricted Stock Bonus Plan.
(9)
10.61 The Registrant's 1992 Stock Bonus Plan for
Non-Affiliates. (10)
10.72 Severance Agreement dated as of September 1, 1993
between the Registrant and Thomas L. Ross III. (3)
10.73 Severance Agreement dated as of September 1, 1993
between the Registrant and John W. Maddry. (3)
10.76 The Registrant's 1994 Employee Stock Option Plan.
(17)
10.77 The Registrant's 1994 Nonqualified Stock Option Plan
for Non-Employee Directors. (18)
10.78 Amendment dated December 27, 1995 to Severance
Agreement between the Registrant and John W. Maddry.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during
the quarter ended December 31, 1995.
- -------------------------
NOTES FOR INCORPORATION BY REFERENCE
(1) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-K for the fiscal year ended December 31,
1990. File No. 0-16436.
(2) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Registration Statement on Form S-1, Registration No.
33-16040.
(3) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1993.
(4) Incorporated herein by reference to Exhibit 10 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-27214.
50
<PAGE> 51
(5) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Registration Statement on Form S-1, Registration No.
33-28042.
(6) Incorporated herein by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-43861.
(7) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-K for the fiscal year ended December 31,
1991, File No. 0-16436.
(8) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-KSB for the fiscal year ended December 31,
1992, File No. 0-16436.
(9) Incorporated herein by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-48177.
(10) Incorporated herein by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-56780.
(11) Incorporated herein by reference to Exhibit 2.3 in the Registrant's
Current Report on Form 8-K dated May 1, 1992, File No. 0-16436.
(12) Incorporated herein by reference to Exhibit 2.4 in the Registrant's
Form 8-K dated May 1, 1992, File No. 0- 16436.
(13) Incorporated herein by reference to Exhibit 2.1 to the Registrant's
Form 8-K dated July 31, 1992, File No. 0- 16436.
(14) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-QSB for the quarter ended September 30,
1993, File No. 0-16436.
(15) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-QSB for the quarter ended March 31, 1994,
File No. 0-16436.
(16) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-QSB for the quarter ended June 30, 1994,
File No. 0-16436.
(17) Incorporated herein by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-81684.
(18) Incorporated herein by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-81682.
51
<PAGE> 52
(19) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-KSB for the fiscal year ended December 31,
1994.
52
<PAGE> 53
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PIEDMONT MINING COMPANY, INC.
By:/s/ Robert M. Shields,Jr.
------------------------------
Robert M. Shields, Jr.
Chairman of the Board of
Directors and Chief
Executive Officer
Dated: April 11, 1996
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ Robert M. Shields, Jr. Chairman of the Board April 11, 1996
- --------------------------- of Directors, Chief
Robert M. Shields, Jr. Executive Officer,
Treasurer, and Director
(Principal Executive
and Financial Officer)
/s/ Earl M. Jones President, Chief April 11, 1996
- --------------------------- Operating Officer
Earl M. Jones and Director
/s/ Thomas L. Ross III Secretary and Controller April 11, 1996
- ---------------------------
Thomas L. Ross III
/s/ John W. Castles 3d Director April 11, 1996
- ---------------------------
John W. Castles 3d
/s/ William Feick, Jr. Director April 11, 1996
- ---------------------------
William Feick, Jr.
</TABLE>
53
<PAGE> 54
<TABLE>
<S> <C> <C>
/s/ Director _________, 1996
- ----------------------------------
Christopher M. H. Jennings
/s/ Joseph F. McDonald Director April 11, 1996
- ----------------------------------
Joseph F. McDonald
</TABLE>
54
<PAGE> 55
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
Item 13
FORM 10-KSB
ANNUAL REPORT
For the fiscal year ended Commission File Number
December 31, 1995 0-16436
PIEDMONT MINING COMPANY, INC.
EXHIBIT INDEX
(Parenthetical number denotes incorporation by reference as described in
footnotes following the list of Exhibits).
<TABLE>
Sequentially
Exhibit Numbered
Number Exhibit Description Page
- ------ ------------------- ------------
<S> <C>
3.1 The Registrant's Articles of Incorporation, as amended. (19)
3.2 The Registrant's Bylaws, as amended. (1)
10.1 Private Placement Agreement dated June 26, 1984 between the
Registrant and International Investors Incorporated. (2)
10.4 The Registrant's 1985 Incentive Stock Option Plan adopted
January 21, 1986, as amended January 27, 1987
and July 14, 1987. (2)
10.5 The Registrant's Management Incentive Compensation Plan
adopted January 21, 1986. (2)
10.7 Contract of Lease Agreement dated June 21, 1946 between Haile
Mines, Inc. and James P. Beckwith.
(Haile) (2)
10.8 Agreement dated July 11, 1984 among the Registrant and George
B. Small and wife, June L. Small, Gold
Fields Mining Corporation and Mineral Mining Corporation.
(Haile) (2)
10.10 Mineral Lease dated June 29, 1984 among the Company and Bobby
B. Gregory and wife, Ethel Mae Gregory. (Haile) (2)
</TABLE>
55
<PAGE> 56
10.11 Mineral Lease dated September 24, 1984 among the Registrant
and Morris H. Phillips and wife, Mary Lou G. Phillips.
(Haile) (2)
10.12 Mineral Lease dated October 7, 1983 among the Registrant and
W.S. Jones, Executor under the Will of Fred S. Jones; Teresa
Jones Carter; Susan Jones Lawson; Patricia Jones Jennings;
Karen Jones; Emily Jones King; Miriam Jones Lewis; Anne Jones
Horton; and Virginia Jones Horton. (Haile) (2)
10.14 Mineral Lease dated May 5, 1986 among the Registrant and John
F. Cagle and wife, Victoria H. Cagle. (Russell-Coggins) (2)
10.16 Mineral Lease dated December 18, 1980 among the Registrant
(then Piedmont Land) and Roy Reynolds and wife, Esther
Reynolds. (Star) (2)
10.17 Mineral Lease dated February 6, 1981 among the Registrant (then
Piedmont Land) and Mary Aileen Smitherman Willis and husband,
John Willis; Mary Aileen Smitherman Willis, Substitute
Executrix of the Estate of Samuel G. Smitherman; Mary Aileen
Smitherman Willis, Executrix of the Estate of Aileen M.
Smitherman; and Mary Aileen Smitherman, Trustee under the
Will of Aileen M. Smitherman, including amendment dated May
22, 1987. (Star) (2)
10.18 Mineral Lease dated June 22, 1981 among the Registrant (then
Piedmont Land) and J.P. McIntosh and wife, Fairy L. McIntosh.
(Star) (2)
10.25 Mineral Lease dated December 18, 1980 among the Registrant
(then Piedmont Land) and J.D. Ross, Jr. and wife, Ruth S. Ross.
(Jones-Keystone) (2)
10.26 Mineral Lease dated February 9, 1983 among the Registrant (then
Piedmont Land) and S.A. Lowe, Jr. and wife, Inez D. Lowe.
(Jones-Keystone) (2)
10.28 Mineral Lease dated June 11, 1991 between the Registrant (then
Piedmont Land) and Seagrove Lumber Company. (2)
56
<PAGE> 57
10.36 Form of Indemnity Agreement between the Registrant and its
directors and officers. (2)
10.38 Option to Purchase Mineral Rights dated November 20, 1985
between the Registrant (then Piedmont Land) and Rockingham
Mining and Investment Company, Incorporated.
(Russell-Coggins) (2)
10.39 Agreement dated September 22, 1987 between the Registrant and
International Investors Incorporated, relating to the Private
Placement Agreement listed as Exhibit 10.1. (2)
10.40 Mineral Lease dated November 11, 1987 between the Registrant
and Minor Lee Catoe. (Haile) (3)
10.41 Mineral Lease dated March 10, 1988 between the Registrant and
Ira Taylor, Jr. and Pauline H. Taylor. (Haile) (3)
10.42 The Registrant's 1988 Stock Option Plan. (4)
10.44 Exploration License and Option to Purchase Agreement dated
September 29, 1990 between the Registrant and Ronny Edward
Hinson and wife Nadine G. Hinson, and Charles W. Hinson and
wife Pauline D. Hinson. (Haile) (1)
10.45 Amendment dated March 25, 1989 relating to the Mineral Lease
listed as Exhibit 10.17. (Star) (3)
10.46 Share Purchase Agreement dated March 8, 1989 between the
Registrant and Corona Corporation. (5)
10.47 The Registrant's 1989 Nonqualified Stock Option Plan for
Non-Employee Directors. (6)
10.49 Option and Earn-In Agreement dated March 15, 1991 between the
Registrant, Mineral Mining Company, Inc. (the Registrant's
wholly-owned subsidiary, now Kershaw Gold Company, Inc.) and
Amax Gold Exploration, Inc. (1)
10.50 The Registrant's 1991 Nonqualified Stock Option Plan for
Non-Employee Directors. (7)
57
<PAGE> 58
10.51 Amendment dated June 4, 1991 relating to Mineral Lease listed
as Exhibit 10.14. (Russell-Coggins) (7)
10.52 Assignment of Rights and Obligations Agreement dated June 13,
1991 between the Registrant and Brewer Gold Company,
including the assigned mineral leases described therein.
(Haile) (7)
10.53 Amendment dated June 21, 1991 relating to Mineral Lease
listed as Exhibit 10.18. (Star) (7)
10.55 Letter Agreement dated September 20, 1991 between the
Registrant, Mineral Mining Company, Inc. and Amax Gold
Exploration, Inc. (7)
10.57 Amendment dated February 9, 1992 relating to Mineral Lease
listed as Exhibit 10.26. (Jones-Keystone) (7)
10.58 Severance Agreement dated as of March 1, 1992 between the
Registrant and Robert M. Shields, Jr. (8)
10.59 Severance Agreement dated as of March 1, 1992 between the
Registrant and Earl M. Jones. (8)
10.60 The Registrant's 1992 Restricted Stock Bonus Plan. (9)
10.61 The Registrant's 1992 Stock Bonus Plan for Non-Affiliates.
(10)
10.62 Haile Mining Venture Agreement dated as of July 1, 1992 between
Lancaster Mining Company, Inc. and Mineral Mining Company,
Inc. (now Kershaw Gold Company, Inc., a wholly-owned
subsidiary of the Registrant). (8)
10.63 Management Agreement dated as of July 1, 1992 between Haile
Mining Company, Inc., as the Manager, and Lancaster Mining
Company, Inc. and Mineral Mining Company, Inc. (now Kershaw
Gold Company, Inc., a wholly-owned subsidiary of the
Registrant) as the Participants. (8)
10.64 Notice of Exercise of Option dated May 1, 1992. (11)
58
<PAGE> 59
10.65 Securities Agreement dated May 1, 1992 between the Registrant
and Amax Gold Inc. (12)
10.66 Asset Purchase Agreement dated as of July 31, 1992 between
Mineral Mining Company, Inc. (the Registrant's wholly-owned
subsidiary) and MMC Holding, Inc. (13)
10.67 Memorandum of Extension Agreement dated October 17, 1992,
relating to Exploration License and Option to Purchase
Agreement listed as Exhibit 10.44. (Haile) (8)
10.68 Quitclaim deed dated July 22, 1992 releasing rights as to two
tracts held under the Mineral Lease listed as Exhibit 10.28.
(8)
10.69 Term Loan Agreement dated as of October 15, 1993 between the
Registrant and Amax Gold Inc. (14)
10.70 Amendment dated February 6, 1993 relating to Mineral Lease
listed as Exhibit 10.17. (Star) (3)
10.71 Amendment dated December 15, 1993 relating to Mineral Lease
listed as Exhibit 10.25. (Jones-Keystone) (3)
10.72 Severance Agreement dated as of September 1, 1993 between the
Registrant and Thomas L. Ross III. (3)
10.73 Severance Agreement dated as of September 1, 1993 between the
Registrant and John W. Maddry. (3)
10.74 Letter Agreement dated April 28, 1994 between the Registrant
and Amax Gold Inc. amending the Term Loan Agreement, Pledge
Agreement and Securities Agreement. (15)
10.75 Pledge Agreement by and among Smith Barney Shearson Inc. and
the Registrant dated as of May 23, 1994. (16)
10.76 The Registrant's 1994 Employee Stock Option Plan. (17)
10.77 The Registrant's 1994 Nonqualified Stock Option Plan for
Non-Employee Directors. (18)
59
<PAGE> 60
10.78 Amendment dated February 6, 1995 relating to Mineral Lease
listed as Exhibit 10.17. (Star) (19)
10.79 Amendment dated December 27, 1995 to Severance Agreement
between the Registrant and John W. Maddry.
21 List of Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of DMBW, Inc.
23.3 Consent of David C. Jonson.
27 Financial Data Schedule (filed in electronic format only)
- -------------------------
NOTES FOR INCORPORATION BY REFERENCE
(1) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-K for the fiscal year ended December 31,
1990. File No. 0-16436.
(2) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Registration Statement on Form S-1, Registration No.
33-16040.
(3) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1993.
(4) Incorporated herein by reference to Exhibit 10 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-27214.
(5) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Registration Statement on Form S-1, Registration No.
33-28042.
(6) Incorporated herein by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-43861.
(7) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-K for the fiscal year ended December 31,
1991, File No. 0-16436.
(8) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-KSB for the fiscal year ended December 31,
1992, File No. 0-16436.
60
<PAGE> 61
(9) Incorporated herein by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-48177.
(10) Incorporated herein by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-56780.
(11) Incorporated herein by reference to Exhibit 2.3 in the Registrant's
Current Report on Form 8-K dated May 1, 1992, File No. 0-16436.
(12) Incorporated herein by reference to Exhibit 2.4 in the Registrant's
Form 8-K dated May 1, 1992, File No. 0-16436.
(13) Incorporated herein by reference to Exhibit 2.1 to the Registrant's
Form 8-K dated July 31, 1992, File No. 0-16436.
(14) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-QSB for the quarter ended September 30,
1993, File No. 0-16436.
(15) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-QSB for the quarter ended March 31, 1994,
File No. 0-16436.
(16) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-QSB for the quarter ended June 30, 1994,
File No. 0-16436.
(17) Incorporated herein by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-81684.
(18) Incorporated herein by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-81682.
(19) Incorporated herein by reference to the exhibit designated by the same
number in the Registrant's Form 10-KSB for the fiscal year ended December 31,
1994.
61
<PAGE> 1
EXHIBIT 10.79
PIEDMONT MINING COMPANY, INC.
CHARLOTTE, NORTH CAROLINA
December 27, 1995
John W. Maddry
612 Russell Road
Camden, SC 29020
Dear John:
This will confirm our understanding regarding your leave of absence
from Piedmont during the period from January 1 through June 30, 1996 (the
"Absence Period").
In view of your valuable contributions to Piedmont, your present
intention to return to Piedmont promptly after June 30, 1996 and our present
intention to resume your employment at that time, and the fact that you will
lose other benefits by reason of your departure (including stock options that
have been granted to you), we agree that your departure during the Absence
Period will not terminate your Severance Payment Agreement with Piedmont dated
September 1, 1993, subject to the following conditions and modifications:
1. Your employment will be deemed to continue, for purposes of
the Severance Agreement, during the Absence Period and until your
return to the Company's employment, provided you return by the end of
July 1996, except that until your return the amount of the Severance
Payment will be $28,050 instead of $56,100.
2. If an "Occurrence Date" occurs during the Absence Period and
prior to your return to the Company's employment (and in any event
prior to July 31, 1996), then the failure of the Company to offer to
employ you again after the Occurrence Date and prior to the end of
July 1996 upon substantially the same terms as you are currently
employed will be deemed a termination of your employment by the
Company without "cause," entitling you to the modified Severance
Payment set forth in paragraph 1 above.
3. If you return to the Company's employment prior to the end of
July 1996 and prior to an Occurrence Date, then your Severance Payment
Agreement will thereafter continue in full force and effect in
accordance with its original terms, with the original amount of the
Severance Payment reinstated.
4. If you do not return to the Company's employment by the end of
July 1996, then your employment will be deemed
<PAGE> 2
to have terminated, for purposes of the Severance Payment Agreement,
on July 31, 1996, and the Severance Payment Agreement will then
terminate. This will not affect your right to receive the modified
Severance Payment as set forth in paragraph 1 above if the conditions
for such payment were met on or before July 31, 1996.
Please acknowledge your agreement to this arrangement by signing a
copy of this letter below, whereupon the Severance Payment Agreement will be
deemed modified accordingly.
Very truly yours,
/s/ Earl M. Jones
-----------------
Earl M. Jones
President
AGREED TO:
/s/ John W. Maddry
- ----------------------------
John W. Maddry
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name of Subsidiary (1) State of Incorporation
- ------------------ ----------------------
<S> <C>
Kershaw Gold Company, Inc. South Carolina
Piedmont Gold Company, Inc. North Carolina
</TABLE>
- ------------------------
(1) Such subsidiary does business only under its corporate name.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registrant
Statements on Form S-8 (Nos. 33-27214, 33-27221, 33-48177, 33-81680, 33-81684
and 33-81682) of Piedmont Mining Company, Inc. of our report dated April 4,
1996 appearing on page 31 of this Annual Report on Form 10-KSB.
PRICE WATERHOUSE LLP
Charlotte, North Carolina
April 12, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF DMBW, INC.
We hereby consent to the presentation of information as to the
estimated proven and probable reserves at the Haile Property derived from our
report to Amax Gold Inc. dated April 22, 1994 and the references to us and to
such report appearing under the caption "Haile Property - 4. Mineable Reserve
Estimates" in Item 2 of the Annual Report on Form 10-KSB of Piedmont Mining
Company, Inc. (the "Registrant") for its fiscal year ended December 31, 1995,
and the incorporation thereof by reference to said Form 10-KSB in the
Registration Statements of the Registrant on Form S-8, Registration Nos.
33-27214, 33-27221, 33-43861, 33-48177, 33-48176, 33-56780, 33-81684 and
33-81682.
DMBW, INC.
By: /s/ I. S. Parrish
--------------------------
Name: I. S. Parrish
------------------------
Title: President
-----------------------
Golden, Colorado
March 20, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF DAVID C. JONSON
I hereby consent to the use of a summary of my reports as to
mineralized tonnage at the Russell-Coggins Property and the references to me as
an independent consulting geologist appearing in Item 2 of the Annual Report on
Form 10-KSB of Piedmont Mining Company, Inc. (the "Registrant") for its fiscal
year ended December 31, 1995, and the incorporation thereof by reference to
said Form 10-KSB in the Registration Statements of the Registrant on Form S-8,
Registration Nos. 33-27214, 33-27221, 33-43861, 33-48177, 33-48176, 33-56780,
33-81684 and 33-81682.
/s/ David C. Jonson
--------------------------
David C. Jonson
Golden, Colorado
March 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 782,000
<SECURITIES> 1,830,000
<RECEIVABLES> 28,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,640,000
<PP&E> 606,000
<DEPRECIATION> 320,000
<TOTAL-ASSETS> 4,684,000
<CURRENT-LIABILITIES> 1,982,000
<BONDS> 0
0
0
<COMMON> 11,157,000
<OTHER-SE> (9,258,000)
<TOTAL-LIABILITY-AND-EQUITY> 4,684,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 10,000
<TOTAL-COSTS> 10,000
<OTHER-EXPENSES> 820,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,000
<INCOME-PRETAX> (857,000)
<INCOME-TAX> (197,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (660,000)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
