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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, 1996
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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
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)
4101-G 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:
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<S> <C>
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 operating revenues for the fiscal year ended December 31,
1996.
The aggregate market value of shares of the Registrant's no par value Common
Stock held by non-affiliates as of March 15, 1997 was $3,378,952.
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, 1997 was 16,568,869
shares.
DOCUMENTS INCORPORATED BY REFERENCE
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<CAPTION>
Incorporated Document Parts into which Incorporated
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<S> <C>
Proxy Statement for Annual Meeting of Part III
Shareholders to be held June 28,1997
</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. 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 a 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 have been
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 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. Since the
commencement of the litigation with AGI, operations at the Haile Property
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have been limited primarily to property maintenance and environmental studies.
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 production were to commence again, 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 approved 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 by September 1994. However, no
further drilling has been conducted since January 10, 1994, and the bankable
feasibility study has not yet been provided to the Registrant.
The Registrant also controls three mineral property areas in North
Carolina that were not part of the Haile Mining Venture and where the
Registrant has conducted exploration for gold and other precious metals
independent of its past 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 its exploration and
significantly increasing the mineralized tonnage and ore reserves at the Haile
Property and at its North Carolina properties; 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 minable 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. In January 1995, the Registrant began selling shares
of the AGI Common Stock on the open market. In 1996, the Registrant sold its
remaining shares of the AGI Common Stock.
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. 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 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.
Under the Venture Agreement: 1) each participant would take in kind or
separately dispose of its share of the gold or other mineral products produced
by the Venture; 2) 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; 3) a production decision will require the unanimous
consent of both participants, but either party may elect to proceed alone under
certain conditions; 4) 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; 5) 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; and 6) a participant's interest in the joint venture is subject
to dilution if a participant fails to fund its share of the Venture
expenditures. 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. The
Registrant's
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position is that AGI has materially breached the Venture Agreement and the
Management Agreement and that as a result the Registrant has no obligation to
fund any portion of the Venture's costs.
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 and in its 1995 Annual Report to its Shareholders, in its
November 29, 1996 Consent Solicitation Statement and in its February 28, 1997
Registration Statement on Form S-3 filed with the Securities and Exchange
Commission. Since the beginning of 1994, Venture activities have consisted
primarily of environmental studies, evaluation work and property maintenance.
In September 1994, AGI advised the Registrant that it intended to pursue a sale
of its interest in the Venture.
Total Venture expenditures were approximately $5,074,000 in 1993,
$2,415,000 in 1994, $1,011,000 in 1995 and $1,099,000 in 1996. The Registrant
funded 37.5% of the 1993 and 1994 expenditures and the expenditures through
February 1995, but did not fund 37.5% of the remaining 1995 expenditures or any
of the 1996 expenditures as a result of the litigation described in the
following paragraph and under Item 3 -- Legal Proceedings. AGI has identified
approximately $2,412,000 of Venture expenditures through December 31, 1996 that
AGI now claims are subject to the indemnification provisions of the Venture
Agreement ($290,000 for the second half of 1992, $681,000 for 1993, $674,000
for 1994, $488,000 for 1995 and $279,000 for 1996). In addition, claims for
1997, as indicated on projections provided to the Registrant by the Venture
manager, are $523,000. The Registrant has disputed such cost reallocation.
The total amount claimed by AGI, including budgeted amounts for 1997 is now
approximately $2,935,000 (including $1,370,000 that has been paid to AGI as a
result of the arbitration award described in the next paragraph) and is
increasing each 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. Pursuant to the award, the Registrant paid
approximately $1,370,000 of the disputed expenses to a subsidiary of AGI in
December 1996. According to the award, the administrative and arbitrators'
fees and expenses, totalling approximately $66,000, were to be borne
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equally by the parties. The expenses that were the subject of the award were
accrued on the Registrant's 1995 financial statements. The Registrant paid the
full amount of the arbitration award in 1996. It is the Registrant's position
that amounts in excess of the $1,370,000 award may not be reallocated. 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 at that time, of which the Registrant's 37.5% share would have been
approximately $30,000,000. The Registrant believes, based on current
information, that such costs could be significantly less. See "Certain Factors
Affecting the Industry and the Registrant -- 5. Need for Additional Financing"
below.
The 1996 program and budget included total Venture expenditures of
approximately $1,079,000, of which 37.5% would have been approximately
$412,000. The 1997 program and budget calls for total Venture expenditures of
approximately $1,549,000, of which 37.5% would have been approximately
$581,000.
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 Carolina properties in 1994, 1995 or
1996 and has not budgeted any such expenditures for 1997.
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 and at the Jones-Keystone property, 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 properties, 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
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additional capital needed cannot be accurately predicted at this time.
Employees and Consultants.
The Registrant had two full time employees at March 15, 1997, both of
which are executive officers. The Registrant uses part-time employees and
consultants from time to time for various activities. 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 periodically 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 minable
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 past revenues
were 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, possibly the Haile Mining
Venture) to locate and profitably exploit gold deposits through the mining,
production and sale of 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 1995, gold prices fluctuated between a low of approximately $284 per
ounce and a high of approximately $485 per ounce. In 1996, gold prices
fluctuated between a low of about $367 per ounce and a high of about $415 per
ounce. At March 14, 1997, the price of gold was approximately $353
per ounce.
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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 have
been 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 new mining operations are developed and production
commences.
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 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 Venture Agreement provided that the Registrant is responsible for
37.5% of the expenditures of the Venture. The Registrant has not paid such
37.5% share of these expenses since February 1995 due to the ongoing litigation
against AGI. See Item 3 -- Legal Proceedings. The Preliminary Feasibility
Study prepared for AGI 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 changes due to changes in regulations or in the
nature and scope of the project.
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The Option and Earn-In Agreement, the Venture Agreement and certain
related agreements, provided that the Registrant 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 $2,412,000 of
Venture expenditures through December 31, 1996 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, $488,000 for 1995 and $279,000 for 1996). In addition, AGI's claims
for 1997, as indicated on projections provided to the Registrant by the Venture
manager, are $523,000. 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. Initially, the Registrant paid 37.5% of such costs
through December 31, 1994 (which totaled approximately $617,000).
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. Pursuant to the award, the Registrant paid approximately
$1,370,000 of the disputed costs to a subsidiary of AGI. According to the
award, the administrative and arbitrators' fees and expenses, totalling
approximately $66,000, were to be borne equally by the parties. The award was
paid in full in December 1996. The Registrant believes that it is not
responsible for any cost reallocation in excess of the $1,370,000 that is the
subject of the arbitration award. However, AGI has taken the position that the
Registrant will be responsible for 100% of similar ongoing expenses. See Item
3 -- Legal Proceedings.
The Registrant has been advised by the manager of the Venture that it
believes the Venture has conducted 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
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to implement the approved 1994 work plan and budget and complete a bankable
feasibility study.
5. Need for Additional Financing. The Registrant has historically
required substantial capital to conduct its exploration and development
programs, 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 were to proceed to
develop and commence mining operations at the Haile Property or if the
Registrant decides to resume exploration in North Carolina. Based upon the
Preliminary Feasibility Study prepared by AGI pursuant to the Option and
Earn-In Agreement in December 1991, preliminary estimates of the total costs of
developing and commencing operations, ranged up to approximately $80,000,000 at
that time, of which the Registrant's 37.5% share would have been approximately
$30,000,000. The Registrant believes, based on current information, that such
costs could be significantly less. If a production decision were to be made,
there is no assurance that project financing would 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 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. Under the Venture Agreement, the
Registrant's failure or inability to fund its share of the expenses of the
Haile Mining Venture could 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
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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 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
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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.
Minable 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.
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, it is not expected that they would be used as part of the mining
facilities if a decision were made to develop a new mine and production
facility at the Haile Property.
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 (subject to
escalation for inflation beginning in 1996) 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, 1997, 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
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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.
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
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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, 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
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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 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 by the Registrant in
1989 and 1990 succeeded in locating two new areas of mineralization minable 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
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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. Minable Reserve Estimates at the Haile Property. The most recent
audited estimates of the minable 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"). A summary of the 1994 Reserve Report has been
subsequently published by AGI in its 1995 Annual Report to Shareholders, 1995
Form 10-K, November 29, 1996 Consent Solicitation Statement to its shareholders
and a Registration Statement on Form S-3 with respect to $200 million of
securities filed with the Securities and Exchange Commission on February 28,
1997.
According to the 1994 Reserve Report, the proven and probable reserves of
in-place gold minable 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 of ore
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 minable reserve estimates and do not reflect losses in the 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
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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. The Registrant will terminate this lease
on May 5, 1997.
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 and cannot be renewed.
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 minable 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 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 1997.
4. Mineralized Tonnage. Based on all drilling and exploration data
available through mid-1990, David C. Jonson, independent
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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
minable 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 minable ore reserve exists on this 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
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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 will not be renewed by the Registrant.
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 were $2,000 and were paid through June 22, 1996. No
additional lease payments will be made, resulting in the lease terminating on
June 21, 1997.
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 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 1996. Consequently, there
is no assurance that a commercially minable 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, 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
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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 8, 1998. 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.
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 1994, 1995 or 1996.
Consequently, there is no assurance that a commercially minable 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
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no current plans to acquire any additional tracts. It is not known whether the
acquisition of rights in other properties near the Haile Property may be
considered in the future.
Office Facilities. The Registrant leases approximately 500 square feet of
office space for its corporate headquarters in Charlotte, North Carolina under
a month-to-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, a portion of
which it subleases to another individual.
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.
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.
The civil conspiracy claim was later dismissed. Discovery is substantially
completed. On August 19, 1996, Amax Gold filed a motion for summary judgement.
A hearing on this motion was held on November
23
<PAGE> 24
25, 1996 before a Magistrate Judge, who recommended on January 17, 1997 that
Amax Gold's motion for summary judgement be denied. The Magistrate's
recommendation is now before the Federal District Judge. It is currently
anticipated that the case will be called for trial during the term of court
beginning in mid-August 1996.
On May 24, 1995, Lancaster Mining Company, Inc. filed a demand for
arbitration with the American Arbitration Association alleging the 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 $66,000, were to be borne equally by
the parties. In August 1996, the award was confirmed by the U.S. District
Court in South Carolina and judgment was entered on the award.
On September 9, 1996, the Registrant and its wholly-owned subsidiary,
Kershaw Gold Company, Inc., filed petitions for relief under Chapter 11 of the
U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Western District of
North Carolina. Such filings automatically stayed the enforcement of the
judgement on the arbitration award. After a hearing, the Bankruptcy Court
dismissed the petitions on October 30, 1996, thereby terminating the automatic
stay. Following dismissal of the bankruptcy proceedings, Lancaster Mining
Company, Inc. commenced proceedings to enforce its judgement. The Registrant
paid the judgement in full in December 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Registrant's Common Stock is traded in the over-the-counter market and
is quoted on the National Association of Securities Dealers OTC Bulletin Board.
Prior to January 26, 1996, the Registrant's Common Stock was traded in the
over-the-counter market and was quoted on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) under the symbol PIED.
24
<PAGE> 25
The high and low bid prices for the Common Stock as reported on the NASDAQ
Bulletin Board for each quarterly period during 1995 and 1996 (which reflect
inter-dealer prices without markup, markdown or commissions and which may not
represent actual transactions) were as follows:
<TABLE>
<CAPTION>
Bid Prices ($)
--------------
High Low
---- -----
<S> <C> <C>
1995
First Quarter .93 .625
Second Quarter .69 .25
Third Quarter .44 .31
Fourth Quarter .41 .19
1996
First Quarter .938 .310
Second Quarter .812 .500
Third Quarter .625 .281
Fourth Quarter .440 .187
</TABLE>
The Registrant had 320 shareholders of record as of March 31, 1997.
The Registrant has paid no cash dividends and does not currently expect to
pay any cash dividends in the foreseeable future.
On December 9, 1996, the Board of Directors of the Registrant authorized
the issuance of up to $300,000 principal amount of Convertible Notes to members
of the Board of Directors. Pursuant to such authorization, the Registrant
issued $290,000 principal amount of Convertible Notes to five directors and an
accredited investor. The Convertible Notes mature June 30, 1997 and are
convertible into shares of the Registrant's Common Stock at $.40 per share from
March 31, 1997 until maturity.
On December 14, 1996, the Registrant's Board of Directors authorized the
issuance of up to 2,000,000 shares of the Registrant's Common Stock in
privately negotiated transactions with accredited investors pursuant to Rule
506 of regulation D under the Securities Act of 1933. The Registrant sold
1,400,000 shares at $.40 per share pursuant to this authorization for net
proceeds of approximately $560,000.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
25
<PAGE> 26
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 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 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, 1996 primarily reflect the property maintenance activities
at the Haile property, the legal proceedings relating to 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.
Results of Operations
1996 Compared to 1995
There were no sales and no mine operating expense in 1996 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 7% due to a decrease in
salaries and general corporate overhead.
Professional fees increased 81% due to an increase in required legal
services primarily as a result of the litigation against AGI.
26
<PAGE> 27
There was no stock appreciation rights and awards expense accrued in 1996.
Exploration expense declined 29% principally due a decrease in lease
expense for the Registrant's North Carolina properties.
There was no interest expense in 1996 because the Registrant had no
borrowings.
Interest and other income increased 12% 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 37.5% 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 $521,000 in 1996. The amortization of deferred gain was 23% lower
than in 1995 due a lower level of Venture activity and expenditures.
The Registrant sold all of its remaining shares of AGI Common Stock in
1996 for total proceeds of $1,537,000, generating a net gain of $15,000.
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 1996. The Company has deferred tax assets totalling
approximately $4.0 million at December 31, 1996 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 $1,057,000 in 1996 was due to the factors set
forth above.
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.
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.
27
<PAGE> 28
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 was 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
$3.8 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.
Financial Condition, Liquidity and Capital Resources
The Registrant's financial condition and liquidity continued to decline in
1996 due primarily to the accounting charge for 37.5% of the costs and expenses
of the Haile Mining Venture, the payment of the arbitration award and various
corporate costs without any
28
<PAGE> 29
offsetting revenues. Working capital decreased to ($643,000) at December 31,
1996, compared with $658,000 at the end of 1995.
The Registrant's principal source of liquidity during 1996 was from the
sale of all of the remaining 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. In late 1996, the Registrant completed the sale of the shares
of AGI Common Stock. The net proceeds from such sale were used to pay most of
the arbitration award. In addition, in December 1996, the Registrant completed
a sale of 1,400,000 shares of Common Stock and issued $290,000 of Notes
convertible into Common Stock. The net proceeds from such sales were
approximately $850,000, a portion of which was used to pay the remainder of the
arbitration award. At March 30, 1997, the Registrant had approximately
$557,000 in cash or cash equivalents.
The Registrant believes that its current cash position may provide
sufficient capital resources for its continued operations (including the costs
of pursuing the lawsuit against AGI) through the end of 1997. However,
additional financing will be required to develop and commence mining operations
at the Haile Property or if there is no favorable resolution of the litigation
during 1997. 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.
ITEM 7. FINANCIAL STATEMENTS.
The following reports of independent accountants and financial statements
are filed under this Item 7:
Reports of Independent Accountants
Consolidated balance sheets - December 31, 1996 and 1995.
Consolidated statements of operations - years ended December 31, 1996 and
1995.
Consolidated statements of cash flows - years ended December 31, 1996 and
1995.
Notes to consolidated financial statements (including Changes in
Shareholders' Equity in Note 7)
29
<PAGE> 30
Independent Auditors' Report
To the Board of Directors and Shareholders of
Piedmont Mining Company, Inc.
We have audited the accompanying consolidated balance sheet of Piedmont Mining
Company, Inc. and subsidiaries as of December 31, 1996, and the related
consolidated statements of operations and cash flows for the year then ended.
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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Piedmont Mining
Company, Inc. and subsidiaries as of December 31, 1996, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company's
future operations are substantially dependent on the outcome of the Haile
Mining Venture ("the Venture"). The Venture's operations have consisted
primarily of drilling and engineering studies to further ascertain the
existence and commercial value of ore reserves. Since the beginning of 1994,
Venture activities have been limited primarily to property maintenance,
evaluation work and environmental studies. 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.
As discussed in Note 11 to the consolidated financial statements, the Company
filed a lawsuit on March 29, 1995, against its co-venturer for breach of its
obligations under the Venture Agreement and Management Agreement for the
Venture and is seeking actual and punitive damages. The ultimate outcome of
this litigation cannot presently be determined. In addition, the Company's
co-venturer reallocates certain reclamation and environmental costs of the
Venture 100% to the Company that it claims are subject to indemnification
provisions of the Venture agreement. In March, 1996, an arbitration panel
rendered an award that required the Company to pay $1,370,000 of such
designated costs through August, 1995. The award was paid in full during 1996.
The Company is disputing future cost reallocations.
30
<PAGE> 31
(Continued)
The conditions and events discussed in the two preceding paragraphs raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans with respect to these matters and the uncertainties
associated with the ongoing dispute with the co-venturer are discussed in Note
11. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
It is the Company's policy to expense the costs of reclamation on an ongoing
basis as mining operations are performed. Reclamation and shutdown costs to be
incurred when mining operations are closed should be provided over the period
of operations of the mine based upon management's periodic assessment of such
ultimate costs. Management has made no assessment of the ultimate costs to be
incurred when mining operations are closed since the Company entered into the
Haile Mining Venture (See Notes 2 and 11), because the amount of such costs
cannot be reasonably estimated.
/s/ GLEIBERMAN SPEARS SHEPHERD & MENAKER, P.A.
Charlotte, North Carolina
April 4 , 1997
31
<PAGE> 32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Piedmont Mining Company, Inc.
In our opinion, the consolidated balance sheet and the related consolidated
statements of operations and of cash flows as of and for the year ended
December 31, 1995 (appearing on pages 33 through 48 of the Piedmont Mining
Company, Inc. 1996 Annual Report on Form 10-KSB) present fairly, in all
material respects, the financial position, results of operations and cash flows
of Piedmont Mining Company, Inc. and its subsidiaries as of and for the year
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 audit 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 audit provides a reasonable basis
for the opinion expressed above. We have not audited the consolidated
financial statements of Piedmont Mining Company, Inc. and its subsidiaries for
any period subsequent to December 31, 1995.
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 11 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 called 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 11. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
PRICE WATERHOUSE LLP
Charlotte, North Carolina
April 4, 1996
32
<PAGE> 33
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 700,000 $ 782,000
Investments in Amax Gold Inc. common stock (Notes 2, 3 and 5) 1,830,000
Accounts receivable 28,000
Prepaid expenses 1,000
------------ -----------
Total current assets 701,000 2,640,000
Property and equipment, net (including $227,000 and $245,000
relating the Haile Mining Venture) (Note 4) 263,000 286,000
Deferred costs, net of accumulated amortization (including
$1,536,000 relating to the Haile Mining Venture) 1,754,000 1,754,000
Other assets 3,000 4,000
------------ ------------
$ 2,721,000 $ 4,684,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 7) $ 290,000
Accounts payable (including $246,000 and $234,000 relating
to the Haile Mining Venture) 267,000 $ 288,000
Accrued salaries and wages 4,000 9,000
Accrued venture costs (Note 11) 783,000 315,000
Accrued arbitration award (Note 11) 1,370,000
------------
Total current liabilities 1,344,000 1,982,000
------------ ------------
Accrued reclamation costs (Note 11) 125,000 125,000
------------ ------------
Deferred gain, net of accumulated amortization of $6,862,000 and
$6,341,000 (Note 2) 157,000 678,000
------------ ------------
Uncertainties and contingencies (Notes 2, 11 and 12)
Shareholders' equity (Notes 7, 8 and 9):
Common stock, no par value; authorized 100,000,000
shares; issued and outstanding 16,443,869 shares, 1996;
15,043,869 shares, 1995 11,717,000 11,157,000
Contributed capital 317,000 317,000
Accumulated deficit (10,939,000) (9,882,000)
Unrealized gain on securities, net of tax (Note 3) 307,000
------------ ------------
1,095,000 1,899,000
------------ ------------
$ 2,721,000 $ 4,684,000
============ ============
</TABLE>
See notes to consolidated financial statement.
33
<PAGE> 34
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net sales $ $
Cost of sales:
Depreciation expense (Note 4) 9,000 10,000
Haile Mining Venture expenses (Notes 2 and 11) 521,000 2,046,000
Amortization of deferred gain (Notes 2 and 11) (521,000) (2,046,000)
----------- -----------
9,000 10,000
----------- -----------
Other expenses (income):
General and administrative 579,000 621,000
Exploration 10,000 14,000
Professional fees 502,000 277,000
Interest expense 27,000
Gain on sale of assets (15,000) (67,000)
Interest and other income (28,000) (25,000)
----------- -----------
1,048,000 847,000
----------- -----------
Loss before income taxes (1,057,000) (857,000)
Income tax benefit (Note 6) 197,000
----------- -----------
Net loss $(1,057,000) $ (660,000)
----------- -----------
Net loss per common share ($.07) ($.04)
----------- -----------
Weighted average number of common shares outstanding
(Note 8) 15,105,239 15,043,869
=========== ===========
</TABLE>
See notes to consolidated financial statement.
34
<PAGE> 35
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,057,000) $ (660,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 39,000 46,000
Deferred income taxes (197,000)
Amortization of deferred gain (521,000) (2,046,000)
Accrued arbitration award (1,370,000) 1,370,000
Gain on sale of assets (15,000) (67,000)
(Increase) decrease in:
Accounts receivable 28,000
Prepaid expenses (1,000)
Other assets 1,000
Increase (decrease) in:
Accounts payable and other accrued expenses (26,000) 62,000
Accrued venture costs 468,000 315,000
----------- -----------
Net cash used in operating activities (2,454,000) (1,177,000)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of Amax Gold Inc. stock 1,537,000 3,988,000
Purchase of property and equipment (16,000) (54,000)
Proceeds from sale of equipment 1,000 3,000
----------- -----------
Net cash provided by investing activities 1,522,000 3,937,000
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 560,000
Proceeds from (repayment of):
Loan from Amax Gold Inc. (1,129,000)
Notes payable 290,000 (940,000)
----------- -----------
Net cash provided by (used in) financing activities 850,000 (2,069,000)
----------- -----------
Increase (decrease) in cash and cash equivalents (82,000) 691,000
Cash and cash equivalents at beginning of year 782,000 91,000
----------- -----------
Cash and cash equivalents at end of year $ 700,000 $ 782,000
=========== ===========
</TABLE>
See notes to consolidated financial statement.
35
<PAGE> 36
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. Description of business and summary of significant accounting policies:
Description of business:
The Company is principally engaged in the investment in, exploration of and
development of gold properties.
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:
The timely preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Actual
results could differ from those estimates. Significant estimates include
the recoverability of deferred costs, accrued Venture costs and accrued
reclamation costs. It is reasonably possible that a change in one or more
of these estimates could occur in the near term due to the uncertainties
described in Note 11.
Cash and cash equivalents:
The Company considers all highly liquid investments with initial maturities
of three months or less to be cash equivalents.
Investments:
The Company's investment in Amax Gold Inc. common stock has been accounted
for as available-for-sale and stated at 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.
Reclassifications:
Certain amounts reported in the 1995 financial statements have been
reclassified to conform with the current year presentation.
36
<PAGE> 37
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. Description of business and summary of significant accounting policies
(continued):
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 costs (See Note 11).
Property and equipment and depreciation:
Property and equipment are recorded at cost and depreciation over the
estimated useful lives of the assets using the straight-line method.
Financial instruments:
The estimated fair value of the Company's cash and cash equivalents
and notes payable approximates the carrying amounts due principally to
their short maturities.
Impairment of long-lived assets:
Effective January 1, 1996, the Company adopted 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). SFAS 121
requires the recognition of impairment losses on long-lived assets when
facts and circumstances indicate that impairment may exist. The adoption
of SFAS 121 did not have a material effect 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.
37
<PAGE> 38
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
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. (See Note 3).
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 to be borne by each party based on its respective
interest, and the ultimate gold produced by the Venture, if any, is to be
taken by the parties in kind. Accordingly, the applicable captions of the
Company's financial statements reflect its share of the Venture's assets,
liabilities and costs.
The Agreement further provides that 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 Venture may be diluted (See Note 11).
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 was 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. The Company is charging these costs to
expense as incurred because the Company and Amax have not yet made a
decision to develop an operating mine at the Property (See Note 11).
38
<PAGE> 39
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
2. Haile Mining Venture (continued):
A summary of the assets and liabilities included in the accompanying
balance sheets that are associated with the Company's interest in the
Venture is as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
---------- ----------
<S> <C> <C>
Property and equipment $ 227,000 $ 245,000
Deferred costs 1,536,000 1,536,000
Trade accounts payable (246,000) (234,000)
---------- ----------
Company's net investment in Venture (excluding deferred
gain of $157,000 and $678,000) $1,517,000 $1,547,000
========== ==========
</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, 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 were to
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 11 for further discussion regarding uncertainties and
contingencies relating to the Haile Mining Venture.
39
<PAGE> 40
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
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 acquired upon exercise of the Amax Option described in
Note 2. The Company sold 252,400 shares at an average price of
approximately $6.09 per share during 1996 with total proceeds of $1,537,000
and a net gain on the sales of $15,000. 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 a net gain on the sales of $64,000.
The Company recorded a $300,000 writedown 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 was $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 including the arbitration award and to fund operations.
4. Property and equipment:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land $149,000 $149,000
Buildings and improvements 122,000 122,000
Machinery and equipment 309,000 335,000
-------- --------
580,000 606,000
Less accumulated depreciation 317,000 320,000
-------- --------
$263,000 $286,000
</TABLE>
5. Borrowings:
The Company had a credit arrangement with a broker that was secured by
the Company's unpledged shares of Amax stock. Borrowings could be obtained
under this arrangement at 8.25% interest based on the number of shares
subject to pledge and the market value of such shares, among other factors.
Amounts borrowed under this arrangement were repaid in full in 1995.
Cash paid for interest on all borowings was $156,000 for the year ended
December 31, 1995.
40
<PAGE> 41
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
6. Income taxes:
The provision (benefit) for income taxes is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current:
Federal
State
Deferred:
Federal $ (170,000)
State (27,000)
----------
(197,000)
---------- ----------
Income tax benefit $ -0- $ (197,000)
========== ==========
</TABLE>
A reconciliation of the income tax benefit computed using the statutory
rate to the amount recorded is as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Tax benefit at U.S. federal statutory rate $ (359,000) $ (291,000)
Effect of state tax, net (48,000) (38,000)
Change in valuation allowance 422,000 (178,000)
Other (15,000) 310,000
---------- ----------
Income tax benefit $ -0- $ (197,000)
========== ==========
</TABLE>
41
<PAGE> 42
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
6. Income taxes (continued):
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Deferred tax liabilities:
Unrealized gain on investment securities $ -0- ($197,000)
Depreciation (36,000) (42,000)
Deferred costs (535,000) (472,000)
----------- ----------
Gross deferred tax liabilities (571,000) (711,000)
----------- ----------
Deferred tax assets:
Deferred gain and accrued arbitration award 61,000 790,000
N et operating loss carryforward 3,853,000 2,838,000
Investment tax and AMT credit carryforwards 86,000 86,000
Other 45,000 49,000
----------- ----------
Gross deferred tax assets 4,045,000 3,763,000
Valuation allowance (3,474,000) (3,052,000)
----------- ----------
Deferred tax asset after valuation allowance 571,000 711,000
----------- ----------
Net deferred tax asset (liability) $ -0- $ -0-
=========== ==========
</TABLE>
At December 31, 1996, the Company had approximately $11,332,000 of net
operating loss carryforwards, which expire in varying amounts through the
year 2011. Also at December 31, 1996, 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 the light of the Company's cumulative losses in recent years, management
has established a valuation allowance of $3,474,000 against its deferred
income tax assets at December 31, 1996, which reduces the carrying value
of such assets to an amount equal to the sum of its offseting 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.
The Company paid no income taxes in 1996 or 1995.
42
<PAGE> 43
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
7. Notes payable:
In December 1996, the Company issued $290,000 of convertible notes to
officers, directors and a third party. The convertible notes accrue
interest at 5% per annum and are due June 30, 1997. The holders of the
notes have the right to convert all or any portion of the outstanding
principal and accrued interest into shares of common stock at $.40 per
share on or after March 31, 1997.
8. Changes in shareholders' equity:
An analysis of changes in shareholders' equity is as follows:
<TABLE>
<CAPTION>
Common Common Contributed Accumulated
shares stock capital deficit Other Total
---------- ----------- ------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 15,043,869 $11,157,000 $317,000 $ (9,222,000) $ 2,252,000
Net loss for the year (660,000) (660,000)
Unrealized gain on investment
securities, net of tax $ 307,000 307,000
---------- ----------- -------- ------------ ----------- -----------
Balance, December 31, 1995 15,043,869 11,157,000 317,000 (9,882,000) 307,000 1,899,000
Net loss for the year (1,057,000) (1,057,000)
Issuance of common stock 1,400,000 560,000 560,000
---------- ----------- -------- ------------ ----------- -----------
Unrealized gain on investment
securities, net of tax (307,000) (307,000)
---------- ----------- -------- ------------ ----------- -----------
Balance, December 31, 1996 16,443,869 $11,717,000 $317,000 $(10,939,000) $ -0- $ 1,095,000
========== =========== ======== ============ =========== ===========
</TABLE>
In December 1996, the Company completed the sale of 1,400,000 shares of
its unregistered common stock to a group of accredited investors under
Regulation D of the Securities Act of 1933 and received proceeds of
$560,000.
The Company has authorized 1,000,000 shares of $1 par value Preferred
Stock, none of which is outstanding.
9. 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") and 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:
43
<PAGE> 44
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
9. Stock option plans and stock awards (continued):
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. Options outstanding under
the Plan were 43,333 at December 31, 1996 and 1995.
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 grantiang of
incentive 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 provision, terms
and conditions as the Compensation Committe 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 granted to
an over-ten-percent shareholder cannot be exercised after the expiration
of fice years from the grant date. Each option under the Plan requires
the optioee to remain in the continous employment of the Company of the
Company for a period of at least one year from the date of grant before
the option becomes exercisable. Options were granted under the 1988 Plan
in May, 1989 for 125,000 shares at $1.07 for a period of ten years.
Further options were granted in march, 1990 for 35,000 shares at $1.85 per
share for period of ten years. Further options were granted in July, 1991
for 103,500 shares at $1.57 per share for a period of ten years. Options
outstanding under the Plan were 203,00 and 263,00 at December 31, 1996 and
1995, respectively.
1989 and 1991 Plan:
During 1989, the Company adopted a nonqualifies stock option plan for
non-employee members of its Board of Directors. The plan granted to
each non-employee Director on November 1, 19989, option s 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, 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
44
<PAGE> 45
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
9. Stock option plans and stock awards (continued):
1989 and 1991 Plan (continued):
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
expired on the earlier of August 1, 1996, or when an optionee ceased to be
a Director by reasons specified in the 1991 Plan. The options were
options were generally non-transferable. Options outstanding under the
Plan were zero and 120,000 at December 31, 1996 and 1995, respectively.
1994 Plan:
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. Under the Plan options have been granted to
purchase 200,000 shares of Common Stock through December 1996 at between
$.32 - $1.34 per share (weighted average of $.75 per share). The option
prices equal the average market value for a certain period as defined by
the Plan prior 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. Options outstanding under the
Plan were 200,000 and 120,000 at December 31, 1996 and 1995, respectively.
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. Options outstanding under the Plan were 50,000
and 75,000 at December 31, 1996 and 1995, respectively.
45
<PAGE> 46
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
9. Stock option plan and stock awards (continued):
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 January 1, 1995 581,833 $ 1.07-2.00
Granted 90,000 .44- .95
Terminated (50,500) 1.34-2.00
--------
Options outstanding at December 31, 1995 621,333 $ .44-2.00
Granted 80,000 .32- .69
Terminated (205,000) 1.25-2.00
--------
Options outstanding and exercisable at December 31, 1996 496,333 $ .25-1.57
========
Options available for future grant at December 31, 1996 550,000
</TABLE>
Stock awards:
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. There were 65,000 shares of common stock available to be awarded
at December 31, 1996 and 1995.
10. 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 that have not yet entered the development stage. Rental expenses
for these properties amounted to approximately $10,000 and $14,000 for
1996 and 1995, respectively, and have been charged to exploration expense.
46
<PAGE> 47
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
11. Uncertainties and contingencies:
Litigation:
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 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, 1996,
totaled approximately $12,604,000, of which the Company paid 37.5%
through February 1995. Amax has identified approximately $2,412,000 of
these Venture expenditures through December 31, 1996, that it 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, $488,000 for 1995 and $279,000 for 1996). The Company
paid 37.5% of the costs reallocated to the Company through December 31,
1994, (which totaled approximately $617,000). The Company has not paid any
of these reallocated costs, except for the arbitration award of $1,370,000
discussed below, since January 1995 due to the pending litigation. The
Company has disputed such cost reallocation. The total amount of such
reallocated costs claimed by Amax and unpaid through December 31, 1996, is
approximately $425,000 and is increasing every month.
A substantial part of such costs relates 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
Company's consolidated financial statements reflect only 37.5% of the
amount of such costs through December 31, 1996, as Venture costs.
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 has been substantially completed and the trial date is pending.
No amounts have been recorded in the accompanying financial statements
relating to this gain contingency.
The Company has not funded its share of the Venture's expenditures
since February 1995 as a result of the litigation commenced against Amax
in March 1995. The Company has, however, accrued Venture costs totaling
$783,000, including $159,000, or 37.5% of the costs reallocated 100% to
the Company subsequent to August 1995. The total of such costs reallocated
100% to the Company subsequent to August, 1995 was $146,000 in 1995 and
$279,000 in 1996. These accruals have also been fully offset by
amortization of the deferred gain in the statements of operations for the
years ended December 31, 1996 and 1995. 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. It is the Company's position that Amax has
materially breached the Venture Agreement and Management Agreement and
that as a result it has no obligation to fund its portion of the Venture
costs and is not responsible for any future indemnification costs.
47
<PAGE> 48
PIEDMONT MINING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
11. Uncertainties and contingencies (continued):
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 required the Company to pay
approximately $1,370,000 of the disputed costs through August, 1995 to a
subsidiary of Amax. In addition, approximately $33,000 of administrative
expenses related to the arbitration were borne by the Company. The award
was accrued as of December 31, 1995, and was fully offset by amortization
of the deferred gain in the statement of operations for the year ended
December 31, 1995. In August 1996, the award was confirmed by the U. S.
District Court in South Carolina, and judgment was entered on the award.
In September 1996, the Company filed petitions for relief under Chapter 11
of the U.S. Bankruptcy Code, which automatically stayed the enforcement of
the judgment. In October 1996, the Bankruptcy Court dismissed the
Company's petitions for relief. The full amount of the arbitration award
was paid in 1996.
Management plans to pursue its legal positions with respect to these
matters and to protect its interest in the Haile Mining Venture. The
Company will attempt to meet working capital requirements through
private placements of equity capital and convertible debt, if necessary.
Reclamation costs:
Management has made no assessment or provision for reclamation and shutdown
costs to be incurred when mining operations are closed since the Company
entered into the Haile Mining Venture in 1992, because the amount of such
costs cannot be reasonably estimated, in part because no mining plan has
been established, and the Company is not in control of the Venture.
However, the ultimate obligations for reclamation and shutdown costs may
differ materially from the amount accrued in the financial statements. No
decision has been made on any future mine development or operations or
over what period of time such operations would occur.
12. Severance agreements:
The Company has severance payment agreements with two officers that
provide each of them severance pay benefits of $250,000 if there is a
change in control of the Company and within two years of the change in
control one or both of the officers are involuntarily terminated, they
resign for good reason as defined in the Agreement or in the event of
their disability or death. The agreements expired in March, 1997 and were
extended to March 2002.
48
<PAGE> 49
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The information required to be reported by this item was previously
reported by the Registrant on Current Reports on Form 8-K dated December 3,
1996 and March 3, 1997. No disclosure is required in response to Item 304(b)
of Regulation S-B.
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 Annual
Meeting of Shareholders to be held on June 28, 1997, to be filed with the
Commission not later than April 30, 1997.
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)
4 Form of Convertible Note. (21)
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)
49
<PAGE> 50
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
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
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
50
<PAGE> 51
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)
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)
51
<PAGE> 52
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)
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)
52
<PAGE> 53
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)
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. (20)
21 List of Subsidiaries of the Registrant.
23.1 Consent of Gleiberman, Spears, Shepherd & Menaker, P.A.
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of DMBW, Inc.
23.4 Consent of David C. Jonson.
27 Financial Data Schedule (filed in electronic format
only)
MANAGEMENT CONTRACTS AND COMPENSATORY
53
<PAGE> 54
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)
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.
- --------------------------------------
NOTES FOR INCORPORATION BY REFERENCE
54
<PAGE> 55
(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.
(9) Incorporated herein by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-8, Registration No. 33-48176.
(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.
55
<PAGE> 56
(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.
(20) 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,
1995.
(21) Incorporated herein by reference to Exhibit 4 in the Registrant's Current
Report on Form 8-K dated December 23, 1996, File No. 0-16436.
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K on December 6, 1996
notifying the SEC of the resignation of Price Waterhouse LLP as the
Registrant's Independent Accountants.
The Registrant filed a report on Form 8-K on December 23, 1996
notifying the SEC of the authorization by the Board of Directors of
the issuance of up to $300,000 principal amount of Convertible
Notes, of which $290,000 in principal amount was subsequently
issued, and up to 2,000,000 shares of the Registrant's Common
Stock, of which 1,400,000 shares were sold at a price of $.40 per
share.
56
<PAGE> 57
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, 1997
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, 1997
- ------------------------------ 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, 1997
- ------------------------------ Operating Officer
Earl M. Jones and Director
/s/ John W. Castles 3d Director April 11, 1997
- ------------------------------
John W. Castles 3d
/s/ William Feick, Jr. Director April 11, 1997
- ------------------------------
William Feick, Jr.
/s/ Christopher M. H. Jennings Director April 11, 1997
- ------------------------------
Christopher M. H. Jennings
</TABLE>
57
<PAGE> 58
<TABLE>
<S> <C> <C>
/s/ Joseph F. McDonald Director April 11, 1997
- ------------------------------
Joseph F. McDonald
/s/ Douglas D. Donald Director April 11, 1997
- ------------------------------
Douglas D. Donald
</TABLE>
58
<PAGE> 59
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
Item 13
FORM 10-KSB
ANNUAL REPORT
<TABLE>
<S> <C>
For the fiscal year ended Commission File Number
December 31, 1996 0-16436
</TABLE>
PIEDMONT MINING COMPANY, INC.
EXHIBIT INDEX
(Parenthetical number denotes incorporation by reference as described in
footnotes following the list of Exhibits).
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Description Page
- ------- ------------------- ------------
<S> <C> <C>
3.1 The Registrant's Articles of Incorporation, as
amended. (19)
3.2 The Registrant's Bylaws, as amended. (1)
4 Form of Convertible Note. (21)
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)
</TABLE>
59
<PAGE> 60
<TABLE>
<S> <C> <C>
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)
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)
</TABLE>
60
<PAGE> 61
<TABLE>
<S> <C> <C>
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)
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
</TABLE>
61
<PAGE> 62
<TABLE>
<S> <C> <C>
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)
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
</TABLE>
62
<PAGE> 63
<TABLE>
<S> <C> <C>
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)
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)
</TABLE>
63
<PAGE> 64
<TABLE>
<S> <C> <C>
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.(20)
21 List of Subsidiaries of the Registrant.
23.1 Consent of Gleiberman, Spears, Shepherd & Menaker,
P.A.
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of DMBW, Inc.
23.4 Consent of David C. Jonson.
27 Financial Data Schedule (filed in electronic format
only)
</TABLE>
- -----------------------------------
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.
64
<PAGE> 65
(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. 33-48176.
(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.
65
<PAGE> 66
(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.
(20) 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,
1995.
(21) Incorporated herein by reference to Exhibit 4 in the Registrant's current
report on Form 8-K dated December 6, 1997, File No. 0-16436.
66
<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.
67
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement Nos.
33-27214, 33-27221, 33-48177, 33-56780, 33-81682 and 33-81684 of Piedmont Mining
Company, Inc. on Form S-8 of our report dated April 4, 1997, appearing in the
Annual Report on Form 10-KSB of Piedmont Mining Company, Inc. for the year ended
December 31, 1996.
/s/ Gleiberman Spears Shepherd & Menaker, P.A.
Charlotte, North Carolina
April 10, 1997
68
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Regulation Statements
on Form S-8 (Nos. 33-27214, 33-27221, 33-43861, 33-48177, 33-56780, 33-81684 and
33-81682) of Piedmont Mining Company, Inc. of our report dated April 4, 1996
appearing on page 32 of this Annual Report on Form 10-KSB.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Charlotte, North Carolina
April 10, 1997
69
<PAGE> 1
EXHIBIT 23.3
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. Minable 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, 1996, 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 31, 1997
70
<PAGE> 1
EXHIBIT 23.4
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, 1996, 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. Johnson
-------------------------------------
David C. Jonson
Golden, Colorado
March 31, 1997
71
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's Form 10-KSB for the year ended December 31, 1996 and is qualified
in its entirety by reference to such Form 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 700,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 701,000
<PP&E> 580,000
<DEPRECIATION> 317,000
<TOTAL-ASSETS> 2,721,000
<CURRENT-LIABILITIES> 1,344,000
<BONDS> 0
0
0
<COMMON> 11,717,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,721,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 9,000
<OTHER-EXPENSES> 1,076,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (28,000)
<INCOME-PRETAX> (1,057,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,057,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,057,000)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
