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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
/ / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended ________________________
OR
/X/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM JULY 1, 1995 TO DECEMBER 31, 1995 COMMISSION
FILE NUMBER 0-16484
FIRSTMISS GOLD INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEVADA 64-0748908
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
5460 SOUTH QUEBEC STREET
SUITE 240
ENGLEWOOD, COLORADO 80111
(Address of principal executive (Zip Code)
offices)
</TABLE>
Registrant's telephone number, including area code: (303) 771-9000
Securities registered pursuant to Section 12(g) of the Act:
<TABLE>
<CAPTION>
NAME OF EXCHANGES ON WHICH
TITLE OF EACH CLASS REGISTERED
- - - ----------------------------------- -----------------------------------
<S> <C>
Common Stock, par value $0.01 The Nasdaq National Market
The Toronto Stock Exchange
</TABLE>
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ NO __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
Aggregate market value of the voting stock held by non-affiliates of the
Registrant on February 29, 1996: $673,451,523. Common Stock outstanding on
February 29, 1996: 25,704,600
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
INTRODUCTION
FirstMiss Gold Inc., a Nevada corporation (the "Company"), is engaged in the
exploration, development, mining and processing of gold ore from the 33,000-acre
"Getchell Property" located in north central Nevada (see map on page 10).
The Getchell Property is located in the Potosi Mining District on the
eastern side of the Osgood Mountain Range, 35 miles northeast of Winnemucca,
Nevada. Access to the property is via Nevada State Highway 18 and an all-weather
gravel road maintained jointly by the Company and various competitors who use
the same access. The Company's operations on the Getchell Property include a
pressure oxidation ("autoclave") mill facility, a heap leach facility and an
underground mine, known as the "Getchell Underground mine." Prior to July 1,
1995, operations also included open pit mining of oxide and sulfide ores.
Gold mineralization on the Getchell Property is found in a series of
discrete zones along the Getchell fault zone (the "Getchell Fault") and the
Turquoise Ridge fault zone (the "Turquoise Ridge Fault"), and in other areas on
the property. As of December 31, 1995, the Company had proven and probable
reserves of approximately 11.5 million tons of ore at an average grade of 0.262
ounces/ton gold, with approximately 3.0 million contained ounces of gold. During
the six-month period ended December 31, 1995 (the "Interim Period"),
approximately 85,627 ounces of gold were produced and sold.
In January 1995, the Company announced a new geologic resource along the
Turquoise Ridge Fault on the Company's Getchell Property. The Company hired
Mineral Resources Development, Inc. ("MRDI") to prepare a pre-feasibility study
(the "MRDI Study") on one of the mineralized zones found along the Turquoise
Ridge Fault. A pre-feasibility study is an economic-based analysis of an ore
body that serves as the basis for a mine plan for the extraction of gold from
that ore body on an economically viable basis. In September 1995, MRDI issued an
executive summary (the "MRDI Study Summary") of its pre-feasibility study. The
MRDI Study concluded that the portion of the Turquoise Ridge Fault covered by
the study contains probable reserves of 1.254 million contained ounces of gold.
Subsequent analysis of drill data increased the probable reserves at the
Turquoise Ridge ore body to 1.44 million contained ounces (included in the 3.0
million ounces total reserve stated above). The MRDI Study concluded that the
reserves are located between 1,400 feet and 2,000 feet below the surface and
that underground mining methods will be required.
A shaft sinking contractor was selected in December 1995 and shaft sinking
on a ventilation shaft commenced in January 1996. Construction of several
surface facilities associated with the Turquoise Ridge mine was also started in
the first quarter of 1996.
The Company was incorporated in Nevada in August 1987 by First Mississippi
Corporation, a Mississippi corporation ("First Mississippi"), for the purpose of
financing, developing and operating the Getchell gold mining project and for
conducting minerals exploration. In May 1988, the Company sold 3,250,000 shares
of its common stock in an initial public offering. Following the offering, First
Mississippi held approximately 81% of the Company's stock.
In February 1990, First Mississippi announced plans to distribute its stock
in the Company to First Mississippi's shareholders. According to First
Mississippi, this spin-off was subject to a favorable tax ruling from the
Internal Revenue Service and a favorable operational and financial outlook for
the Company. Although the required I.R.S. ruling was received in December 1990,
gold prices had fallen in the interim, and the spin-off was put on hold. First
Mississippi informed the Company that it received a subsequent ruling from the
Internal Revenue Service in April 1995 and that a spin-off would be treated as a
tax-free distribution for federal income tax purposes, subject to certain
conditions. On October 20, 1995, First Mississippi distributed its 14,750,000
shares of the Company's stock to First Mississippi shareholders in a tax-
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free spin-off. Each First Mississippi Corporation shareholder received 0.70846
shares of the Company's common stock for each share of First Mississippi
Corporation stock owned as of the October 10, 1995 record date.
In late 1995, the Company sold a total of 7,475,000 common shares to to the
public at $19.50 per share. Net proceeds to the Company were approximately
$137.5 million. Of these monies, the Company repaid $15.0 million of notes due
to First Mississippi, pursuant to stipulations in the Internal Revenue Service
ruling in connection with the spin-off.
The Company's fiscal year-end has been changed from June 30 to December 31.
As a result, the following discussion presents results for a six month "Interim
Period" from July 1, 1995 to December 31, 1995.
The Company's principal executive offices are located at 5460 South Quebec
Street, Suite 240, Englewood, Colorado 80111. The Company's telephone number is
(303) 771-9000. At December 31, 1995, the Company had approximately 352
employees.
THE GETCHELL PROPERTY
HISTORY. Gold mining commenced at the Getchell Property in the late 1930's
and has continued intermittently since that time under several different owners.
First Mississippi purchased the property (inactive at the time) from Conoco,
Inc. in 1983. First Mississippi began a program to develop the property in July
1983. Operations at the oxide heap leach facility and the autoclave mill
facility were commenced in June 1985 and February 1989, respectively, and as of
December 31, 1995, the Company had produced over 1.4 million ounces of gold from
the Getchell Property.
PROPERTY INTEREST. The Getchell Property consists of approximately 18,900
acres of unpatented lode and mill site mining claims and 14,100 acres of fee
land owned by the Company. Greater than 90% of the Company's current proven and
probable reserves are on fee land. Approximately 65% of the Getchell Property,
including all current proven and probable reserves, is subject to a 2% net
smelter royalty owned by a third party.
GEOLOGY. Gold mineralization on the Getchell Property occurs in a series of
discrete zones associated with the north-trending Getchell Fault and with the
northeast-trending Turquoise Ridge Fault. Both systems cut through a thick
sequence of interbedded early Paleozoic sedimentary, plutonic and volcanic
units. The northwest-dipping Turquoise Ridge Fault and the eastward-dipping
Getchell Fault intersect in an open pit known as the "Main Pit," an area where
surface mining has ceased.
Refractory sulfide gold deposits are found at depth along the Getchell Fault
and in sedimentary units near the Getchell Fault. Drilling has identified
similar gold deposits in folded Paleozoic sedimentary units in contact with the
Turquoise Ridge Fault 2,000 feet northeast of the Getchell Fault. Oxidized gold
deposits are also associated with the Getchell and Turquoise Ridge fault zones,
typically occurring as discrete zones at depths shallower than the sulfide
mineralization.
Oxide and sulfide gold mineralization are also found in Section 13
approximately 3 miles north east of the mill site and at Powder Hill 2,500 feet
south of the Turquoise Ridge ore body. The relationship of these areas of
mineralization to other mineralized zones on the Getchell Property, if any, is
unknown at this time.
A mineral deposit is a naturally occurring concentration of minerals that
may or may not be economically mineable. A mineable reserve is that part of a
mineral deposit that has been drilled sufficiently to define the tonnage and
grade and that may be extracted at a profit. Mineral deposits do not qualify as
commercially mineable ore bodies ("proven and probable" mineable reserves) under
Securities and Exchange Commission rules until a final and comprehensive
economic, technical and legal feasibility study based, upon adequate test
results, is concluded.
MINING. While the Company's past ore production has come principally from
open pit mines, the Company's current ore production comes primarily from
underground mining. Surface mining was terminated in the Main Pit in July 1995
after a geotechnical monitoring program indicated that continued pit
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mining would likely destabilize the pit wall. As a result, approximately 239,000
tons of ore averaging 0.153 ounces per ton, or approximately 36,600 contained
ounces of gold, were abandoned in the pit bottom. The Company wrote off the
unamortized cost of various assets that were expected to be recovered from the
remaining ore reserves. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations."
The Getchell Underground mine began commercial production on May 1, 1995,
and the Company anticipates that the majority of mining activities will be
underground for the foreseeable future. Stockpiles of lower grade ores, created
during the active life of the Main Pit, together with current production from
the Getchell Underground mine will furnish mill feed until additional refractory
ore sources, such as the Turquoise Ridge ore body, can be put into production.
There is sufficient stockpile material to feed the mill at normal milling rates
for approximately 1 3/4 years assuming current milling rates and expected
production rates from the Getchell Underground mine. Stockpile ore grades are
lower than what was typically produced from the Main Pit in recent years.
HEAP LEACH Prior to July 1995, the Company mined oxide ores from open pit
mines at the Getchell Property and processed them by heap leaching. No oxide
ores were mined during the Interim Period due to exhaustion of known oxide
reserves in June 1995. However, the heap leach operation continues to leach ores
stacked in earlier periods to recover residual gold. Recent exploration efforts
have identified various small oxide pods on the Getchell Property and limited
oxide mining resumed in early 1996.
GETCHELL UNDERGROUND MINE (Referred to as the Getchell Main Underground mine
in prior periods). Operations at the Getchell Underground mine were the main
focus of the Company's attention during the Interim Period. In January 1995, the
Company assumed full mining duties from an independent underground mining
contractor and implemented a program to enhance the mine's operations. Staff
enhancements were made with particular attention to mine planning, engineering
and an underground operations staff. To facilitate achievement of near and
long-term production goals, the Company has leased additional equipment and has
made additions to the mine work force.
During the six months ended December 31, 1995, production from the Getchell
Underground Mine averaged approximately 1,000 tons of ore per day with an
average gold grade of 0.295 ounces per ton. The Company's mining rate goal is to
achieve output of 1,500 tons of ore per day by the end of 1996. However, there
can be no assurances that such goals will be reached. In the Interim Period, the
Getchell Underground mine produced 172,381 tons of ore at an average grade of
0.295 ounces per ton, or 50,908 contained ounces of gold.
The Company has employed the "Drift and Fill" mining method in the Getchell
Underground mine, which the Company has determined is appropriate for the ground
conditions currently being encountered. This mining method involves mining a
section of ore, which is then backfilled with cemented aggregate prior to the
mining of the next contiguous section of the ore body. Higher productivity
mining methods are currently under review for future applications.
EXPLORATION AND DEVELOPMENT
The Company's exploration activities are concentrated exclusively on the
Getchell Property and include drilling, geological mapping, and geophysical and
geochemical surveys. Prior to fiscal 1994, exploration was oriented toward
development of known ore zones and evaluation of the numerous exploration
targets on the property. In fiscal 1994 and 1995, exploration concentrated along
the Turquoise Ridge Fault, where the high grade Turquoise Ridge ore body was
subsequently discovered.
Limited exploration of the rest of the Getchell Property has indicated deep
sulfide mineralization at Hansen Creek, located along the Getchell Fault to the
south of the Main Pit, and mixed oxide/sulfide mineralization at Section 13,
located in the northeast corner of the Getchell Property. Limited drilling has
also encountered gold mineralization at the Powder Hill area. Several other
exploration targets have been identified at the Getchell Property and await
exploration drilling.
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At the Getchell Underground mine, the ore body remains open at depth and
along strike. Development drilling during 1996 will concentrate on deeper parts
of the Getchell Underground ore body and areas along strike from the current
reserves.
TURQUOISE RIDGE. Based on the MRDI Study Summary issued in September 1995,
the Company announced a new probable reserve consisting of 3.712 million tons of
ore with an average grade of 0.338 ounces per ton or 1.254 million contained
ounces of gold. Subsequent analysis of the earlier drill results have increased
probable reserves to 1.44 million contained ounces.
The MRDI Study focused on one area of drill intersections from a portion of
the Turquoise Ridge Fault on the Getchell property. The MRDI Study was based
upon the piercements of 51 drill holes, which were targeted to be positioned at
a nominal spacing of 100 feet. Eight of the drill hole piercements provided
close-spaced, 50-feet offsets. There were overall a total of 81 drill holes
within the vicinity of the Turquoise Ridge. However, a number of mineralized
intercepts exist in the periphery of the study area which were not incorporated
into the MRDI Study. In order to ensure the integrity of the database used to
support resource estimation and mine planning, more than 10,000 drill samples
were sent to an outside assay lab and were then passed through an MRDI
control-quality assurance protocol, designed to monitor the precision of gold
assays on a batch-by-batch basis.
It is currently expected that two shafts will access the Turquoise Ridge ore
bodies. One shaft will serve as a production/service shaft and the other, which
is now under construction, will serve as a ventilation shaft and an emergency
exit. Development drilling and a trial stoping program will be conducted from
the ventilation shaft until the production shaft is complete.
The MRDI Study estimates that the capital required to bring the Turquoise
Ridge underground mine into commercial production at 2,000 tons of ore per day
will be approximately $85 million, to be spent from approximately October 1995
through the first calendar quarter of 1998. Under the timetable presently
contemplated by the Company, initial production of development ore would
commence no earlier than the end of 1997, with full production anticipated by
the end of 1998.
RESERVES
Sulfide reserves assume a 0.200 ounce per ton cutoff for underground
reserves (0.250 ounce per ton cutoff for the reserves announced with respect to
Turquoise Ridge during the Interim Period). Oxide reserves are based on a 0.010
cyanide soluble cutoff grade.
Proven and probable mineable ore reserves are estimates of quantities and
grades of ore which can be economically recovered based on assumptions of a $400
per ounce future gold price and projected future mining and milling costs. These
reserves have been prepared by the Company and confirmed by Mine Development
Associates or MRDI, independent mining consulting firms.
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The following table sets forth the proven and probable mineable gold ore
reserves located on the Getchell Property as of December 31, 1995.
PROVEN AND PROBABLE MINEABLE RESERVES
<TABLE>
<CAPTION>
CONTAINED
ORE TONS GRADE GOLD OUNCES
------------ --------- ------------
<S> <C> <C> <C>
(WEIGHTED AVERAGE)
Sulfide
Getchell Underground........................................ 3,883,000 0.344 1,335,580
Turquoise Ridge............................................. 4,217,700 0.342 1,442,660
Other....................................................... 298,900 0.231 69,000
Stock Piles................................................. 1,231,800 0.096 118,490
------------ --------- ------------
Total Sulfide................................................. 9,631,400 0.308 2,965,730
Oxide
Section 13.................................................. 1,024,800 0.032 32,440
Valmy Hill.................................................. 834,000 0.020 16,700
------------ --------- ------------
Total Oxide................................................... 1,858,800 0.026 49,140
------------ --------- ------------
Total Reserves................................................ 11,490,200 0.262 3,014,870
------------ --------- ------------
------------ --------- ------------
</TABLE>
OPERATIONS
MILLING PROCESS. Economic gold recoveries from the sulfide ores on the
Getchell Property are attained by oxidizing the ore prior to treatment by
conventional carbon in leach ("CIL") processes. The Company's mill was designed
and constructed to use high temperature pressure oxidation autoclaves to oxidize
sulfides in the ore. Prior to pressure oxidation, ore is ground in a
conventional grinding circuit, thickened to form an ore slurry, treated with
sulfuric acid to remove carbonate minerals and preheated. The preheated ore
slurry then enters the autoclaves where the temperature and pressure are
increased and high purity oxygen is added to oxidize the sulfide minerals. As
the ore slurry leaves the autoclaves, limestone and lime are added to adjust the
pH and sodium cyanide is added to the slurry in small amounts to dissolve the
gold. The ore slurry is then transferred to a conventional CIL circuit where the
dissolved gold is adsorbed onto carbon granules. Loaded carbon is periodically
removed from the cyanide circuit and processed to strip the gold. The stripping
process culminates in a gold precipitate which is collected in filter presses
and smelted into dore bars for shipment. The Company was one of the first U.S.
gold companies to use autoclaves for processing ore. The Company believes that
autoclaves are presently the most effective available method for milling the
Getchell Property sulfide ores.
The mill was designed to process an average daily nominal throughput of
3,000 tons at an average recovery rate of 89%. Improvements in operating
efficiencies have allowed the mill to exceed design capacity in recent years. In
the Interim Period, the average daily mill throughput was 3,215 tons and gold
recovery averaged 89.2%. Autoclave availability averaged 91.6% in the Interim
Period versus 90.2% in fiscal 1995.
HEAP LEACHING PROCESS. Heap leaching is a process used to recover gold from
naturally oxidized, permeable ore. The process involves the percolation of a
cyanide solution through crushed ore heaped on an impervious pad to dissolve
gold out of the ore. Since recovery rates from heap leaching are lower than from
conventional CIL milling, this process is not usually applied to high-grade ore.
Past heap leach recovery has averaged approximately 70% of the cyanide soluble
gold.
Prior to July 1995, the Company mined oxide ores from open pit mines at the
Getchell Property and processed them by heap leaching. No oxide ores were mined
during the Interim Period due to exhaustion of known oxide reserves in June
1995. However, the heap leach operation continues to leach ores stacked in
earlier periods to recover residual gold. Recent exploration efforts have
identified various small oxide pods on the Getchell Property and limited oxide
mining resumed in early 1996.
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PRODUCTION. The following table sets forth selected information about the
Company's production of gold in the Interim Period.
<TABLE>
<CAPTION>
SULFIDE ORE
----------------------------
GETCHELL TOTAL
STOCKPILE UNDERGROUND MINE SULFIDE ORE
--------- ----------------- -----------
<S> <C> <C> <C>
Tons Processed.............................................. 419,117 172,381 591,498
Grade....................................................... 0.104 0.295 0.160
</TABLE>
ANCILLARY FACILITIES AND RAW MATERIALS. Oxygen, which is used in the
autoclaves, is supplied under a long-term agreement by an independent contractor
who owns and operates a plant at the mill site. The agreement has a remaining
term of approximately 8 years. Payments were $3.5 million in fiscal 1995 and
$1.5 million in the Interim Period. Supplemental liquid oxygen has been
purchased and delivered via truck in the past when mill needs exceed the oxygen
plant output. There were no material amounts of supplemental liquid oxygen
purchased during the Interim Period.
Electricity is provided by an independent utility company under an electric
services agreement. The mill uses reclaimed water pumped from the tailings pond
and from the dewatering of the pits. Makeup water for the milling process comes
from two wells located on the Getchell Property approximately four miles from
the plant. A limestone deposit located on the Getchell Property is mined and
stockpiled by an independent contractor for use in the milling process.
Other materials necessary in the milling process, such as sodium hydroxide,
sulfuric acid, lime, carbon, propane and sodium cyanide, are available for
purchase from more than one supplier and are hauled by truck to the Getchell
Property. These materials may be subject to shortages from time to time,
resulting in higher costs.
The Company has constructed a tailings dam and pond on 172 acres of land on
the property. In June 1995, the Company substantially completed an additional
lift increasing the capacity at the tailings pond. Additional lifts to increase
capacity will be constructed as needed. The pond is lined with a synthetic liner
and is designed to accommodate run-off from a 100-year flood event and
reasonably expected seismic activity for the site.
SALES AND MARKETING
During the Interim Period, the Company's dore was refined and sold under
contract to Metalor USA Refining Corporation ("Metalor") of North Attleborough,
Massachusetts, a wholly owned subsidiary of Swiss Bank Corporation. The Company
believes that there are a number of potential purchasers in addition to Metalor.
Total ounces of gold sold were 85,627, 199,237 (which includes 14,939
development phase ounces from the Getchell Underground mine), 243,826, and
210,644 for the Interim Period, fiscal 1995, 1994 and 1993, respectively. Of
these sales, none were exported in the Interim Period and fiscal 1995, and 7%
and 28% were exported (to France) in fiscal 1994 and 1993, respectively.
HEDGING ACTIVITIES
The Company currently uses spot deferred contracts in its hedging program to
protect earnings and cash flows. These transactions have been designated as
hedges of the price of future production and are accounted for as such. Spot
deferred contracts are agreements between a seller and a counterparty whereby
the seller commits to deliver a set quantity of gold on an established date in
the future and at an agreed upon price. The established forward price is equal
to the current spot gold price on the day the agreement is signed plus
"contango." Contango is equal to the difference between the prevailing market
rate for cash deposits less the gold lease rate, for comparable periods.
Contango rates ranged from 5.4% to a negative 0.25% during the Interim Period.
At the scheduled future delivery date, the seller may, at the option of the
counterparty, deliver gold and thereby fulfill the contract or defer delivery to
a future date. This option allows the seller to maximize the price realized. If
the spot price on the delivery date is greater than the contract price, delivery
on the contract is deferred to a new forward date and the gold is sold at the
higher spot price. If the spot price is lower than the contract price, the
delivery is made against the contract and the higher contract price is realized.
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Each time a seller defers delivery, the forward sales price is increased by
the then prevailing contango for the next period out to the newly established
forward delivery date. Generally, the counterparty will allow the seller to
continue to defer contract deliveries providing that there is sufficient
scheduled production from proven and probable reserves to fulfill the
commitment. During the Interim Period, fiscal 1995 and fiscal 1994, the Company
deferred delivery on contracts representing 16,000, 70,100 and 244,000 ounces,
respectively.
At December 31, 1995, the Company had spot deferred contracts on 104,100
gold ounces which are scheduled to be delivered throughout 1996 at prices
ranging from $388 to $421 per gold ounce. The Company intends to continue to
defer delivery into future periods when the spot market price is higher than the
spot-deferred contract price. Based on the market price of gold at December 31,
1995, the unrealized gain on the contracts is $1.6 million.
Risk of loss with these forward sales and purchases agreements arises from
the possible inability of a counterparty to honor contracts and from the
Company's potential inability to deliver gold. Nonperformance by any party to
the financial instruments is not anticipated.
In fiscal 1994 and 1993, the Company had a 150,000 ounce gold loan with a
predetermined price of $475 per ounce, and a related fixed forward sales
arrangement covering 202,600 gold ounces. Under the gold loan, in fiscal 1994
and 1993 the Company delivered 20,625 and 28,125 gold ounces. Under the forward
sales arrangement, the Company delivered 47,000 and 40,000 gold ounces in fiscal
1994 and 1993, respectively, at $400 per gold ounce. All commitments under these
agreements were fulfilled at June 30, 1994.
GOVERNMENT REGULATION
The mining operations of the Company are subject to inspection and
regulation by the Mine Safety and Health Administration of the Department of
Labor ("MSHA") under provisions of the Federal Mine Safety and Health Act of
1977. The Occupation and Safety Health Administration ("OSHA") also has
jurisdiction over safety and health standards not covered by MSHA. It is the
Company's policy to comply with the directives and regulations of MSHA and OSHA.
All of the Company's exploration, development and production activities are
subject to regulation under one or more of the various environmental laws. These
laws address emissions to the air, discharges to water, management of wastes,
management of hazardous substances, protection of natural resources, protection
of antiquities and reclamation of lands which are disturbed. Many of the
regulations also require permits to be obtained for the Company's activities;
these permits normally are subject to public review processes resulting in
public approval of the activity. It is possible that future changes in these
laws or regulations could have a significant impact on some portion of the
Company's business, causing those activities to be economically re-evaluated at
that time.
During the past three years, the United States Congress considered a number
of proposed amendments to the General Mining Law of 1872, as amended (the
"General Mining Law"), which governs mining claims and related activities on
federal lands. In 1992, a holding fee of $100 per claim was imposed upon
unpatented mining claims located on federal lands. In October 1994, a one-year
moratorium on processing of new patent applications was approved. In addition, a
variety of legislation is now pending before the United States Congress to amend
further the General Mining Law. The proposed legislation would, among other
things, change the current patenting procedures, impose royalties, and enact new
reclamation, environmental controls and restoration requirements. The royalty
proposals range from a 2% royalty on "net profits" from mining claims to an 8%
royalty on modified gross income/net smelter returns. The extent of any such
changes is not presently known and the potential impact on the Company as a
result of future congressional action is difficult to predict. The proposed
changes to the General Mining Law could adversely affect the Company's ability
to economically develop mineral resources on federal lands. Other than various
exploration areas, all of the Company's existing mining operations occur on
private or patented property.
ENVIRONMENTAL MATTERS AND SAFETY
ENVIRONMENTAL REGULATIONS. Mining is subject to potential risks and
liabilities associated with pollution of the environment and the disposal of
waste products occurring as a result of mineral exploration and
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production. Environmental liability may result from mining activities conducted
by others prior to the Company's ownership of a property. Insurance for
environmental risks (including potential liability for pollution or other
hazards as a result of the disposal of waste products occurring from exploration
and production) is not generally available at a reasonable price to the Company
or to other companies within the industry. To the extent the Company is subject
to environmental liabilities, the payment of such liabilities would reduce funds
otherwise available to the Company and could have a material adverse effect on
the Company. Should the Company be unable to fully fund the cost of remedying an
environmental problem, the Company might be required to suspend operations or
enter into interim compliance measures pending completion of the required
remedy. The potential exposure may be significant and could have a material
adverse effect on the Company.
In the context of environmental permitting, including the approval of
reclamation plans, the Company must comply with standards, laws and regulations
which may entail greater or lesser costs and delays depending on the nature of
the activity to be permitted and how stringently the regulations are implemented
by the permitting authority. It is possible that the costs and delays associated
with compliance with such laws, regulations and permits could become such that
the Company would not proceed with the development of a project or the operation
or further development of a mine. Laws and regulations involving the protection
and remediation of the environment are constantly changing and are generally
becoming more restrictive. The Company has made, and expects to make in the
future, significant expenditures to comply with such laws and regulations.
Pending bills which affect environmental laws applicable to mining include
versions which may substantially alter the Clean Water Act, Safe Drinking Water
Act, Endangered Species Act and a bill which will introduce additional
protection of wetlands (Wetlands Protection and Management Act). Adverse
developments and operating requirements in these acts could impair the ability
of the Company as well as others to develop mineral resources. Revisions to
current versions of these bills could occur prior to passage.
The Environmental Protection Agency ("EPA") continues the development of a
solid waste regulatory program specific to mining operations under the Resource
Conservation and Recovery Act ("RCRA"). Of particular concern to the mining
industry is a proposal by the EPA titled "Recommendation for a Regulatory
Program for Mining Waste and Materials Under Subtitle D of the Resource
Conservation and Recovery Act" ("Strawman II") which, if implemented, would
create a system of comprehensive federal regulation of the entire mine site.
Many of these requirements would be duplicative of existing state regulations.
Strawman II, as currently proposed, would regulate not only mine and mill wastes
but also numerous production facilities and processes which could limit internal
flexibility in operating a mine. To implement Strawman II as proposed, the EPA
must seek additional statutory authority, which is expected to be requested in
connection with Congress' reauthorization of RCRA.
The Company is also subject to regulations under (i) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA" or
"Superfund") which regulates and establishes liability for the release of
hazardous substances and (ii) the Endangered Species Act ("ESA") which
identifies endangered species of plants and animals and regulates activities to
protect these species and their habitats. Revisions to CERCLA and ESA are being
considered by Congress; the impact on the Company of these revisions is not
clear at this time.
Environmental laws and regulations may also have an indirect impact on the
Company, such as increased cost for electricity due to acid rain provisions of
the Clean Air Act Amendments of 1990. Charges by refiners to which the Company
sells its metallic concentrates and products have substantially increased over
the past several years because of requirements that refiners meet revised
environmental quality standards. The Company has no control over the refiners'
operations or their compliance with environmental laws and regulations.
ENVIRONMENTAL COMPLIANCE AND CAPITAL COSTS. The Company incurred compliance
costs of $568,000, $530,000, $292,000 and $216,000 in the Interim Period and
fiscal 1995, 1994 and 1993, respectively, in connection with permitting,
monitoring for compliance with pollution control requirements, reclamation and
waste management.
8
<PAGE>
Capital expenditures for environmental protection were $231,000 in the
Interim Period. Such capital expenditures are expected to be approximately $4
million in 1996, reflecting a periodic enlargement of the tailings dam. These
projected expenditures are based on laws and regulations currently in effect and
should not have a material adverse effect on the Company's earnings or
competitive position.
RECLAMATION. The Company accrues for environmental liabilities associated
with reclamation and closure costs over the productive lives of its mines.
Activities which result in reclamation costs are the permanent closure of the
mining and mineral processing operations and reclamation of the disturbed land
to a productive use. Permanent closure and reclamation activities take place
concurrently with and after the productive life of the operations. Activities
which result in closure costs after permanent closure and reclamation relate to
monitoring. The Company conducts concurrent reclamation activities. The Company
anticipates making additional accruals during the remaining productive life of
the operations. Current insurance coverage does not cover reclamation and
closure costs.
The uncertainties related to reclamation and closure costs result from
unknown future additional regulatory requirements, significant new surface
disturbances or additional mineral processing facilities and the potential for
recognition in the future of additional activities needed for reclamation. The
technologies for reclamation are evolving during the life of the operations.
Periodic review of the activities and costs for reclamation, and consequent
adjustments to the ongoing accrual, are conducted.
In accordance with the State of Nevada Division of Environmental Protection
("NDEP"), the Company has submitted a plan to the NDEP for the eventual closure
and reclamation of the Getchell Property and is awaiting approval and
permitting. As of December 31, 1995, the total estimated cost for reclamation
and eventual closure was $4.8 million, of which the Company had accrued $3.0
million. The Company has begun reclamation of surface mining disturbances and
anticipates an ongoing program of reclamation over the next several years.
Activities have included regrading, revegetation and soil stabilization.
SAFETY COMPLIANCE COSTS. The Company incurred compliance costs of $183,000
in the Interim Period related to safety and industrial hygiene.
COMPETITION
The Company faces competition from other mining companies in connection with
the acquisition of mineral interests and the recruitment and retention of
qualified employees. Many of the competitors have substantially larger financial
resources and produce substantially larger amounts of gold. As such, it may be
difficult for the Company to obtain potential development properties in the
future on acceptable terms.
WORKING CAPITAL REQUIREMENTS AND SEASONALITY OF BUSINESS
The Company does not expect seasonally-induced changes in the amount of
working capital now that production has shifted from open pit mining to
underground operations. In prior periods, to mitigate potential winter
weather-induced ore shortages at the mill, ore inventories were increased in the
fall, requiring more working capital during those periods.
9
<PAGE>
[MAP]
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party or to
which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq National Market under
"FRMG" and on the Toronto Stock Exchange under the symbol "FSM". The high and
low recorded prices of the Company's common stock during each quarter of fiscal
1994, 1995 and the six months ended December 31, 1995 are presented in the table
below. No dividends have been declared since the Company's initial public
offering in May 1988, and dividends are not anticipated for the near future. The
Company intends to retain earnings to support current operations and to fund
exploration and development projects. There were approximately 6,000
stockholders of record as of March 1, 1996.
<TABLE>
<CAPTION>
FISCAL 1994 HIGH LOW
--------- ---------
<S> <C> <C>
First Quarter........................................................ $ 8.00 $ 5.13
Second Quarter....................................................... $ 8.00 $ 5.13
Third Quarter........................................................ $ 8.63 $ 5.94
Fourth Quarter....................................................... $ 7.88 $ 6.25
<CAPTION>
FISCAL 1995
<S> <C> <C>
First Quarter........................................................ $ 8.75 $ 6.25
Second Quarter....................................................... $ 10.50 $ 8.00
Third Quarter........................................................ $ 10.13 $ 7.75
Fourth Quarter....................................................... $ 21.00 $ 9.75
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, 1995
<S> <C> <C>
Quarter ended 9/30/95................................................ $ 25.00 $ 19.50
Quarter ended 12/31/95............................................... $ 23.75 $ 17.63
</TABLE>
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FISCAL YEARS ENDED JUNE 30
DECEMBER 31, -----------------------------------------------------
1995 1995 1994 1993 1992 1991
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA (FOR THE PERIOD):
Net Sales.......................................... $ 34,425 $ 71,485 $ 95,150 $ 78,773 $ 83,048 $ 73,464
Cost of sales...................................... 35,956 69,775 82,131 75,254 71,664 67,504
------------ --------- --------- --------- --------- ---------
Gross margin............................... (1,531) 1,170 13,019 3,519 11,384 5,960
Exploration expenses............................... 628 3,776 4,049 2,803 1,142 1,347
Abandonment and impairment of mineral properties... 0 11,531 0 256 0 0
Selling, general & administrative expenses......... 2,054 2,659 1,745 2,021 2,368 2,073
------------ --------- --------- --------- --------- ---------
Earnings (loss) from operations............ (4,213) (16,256) 7,225 (1,561) 7,874 2,540
Interest and other income.......................... 936 132 150 180 356 392
Interest expense, net.............................. (2,634) (1,805) (1,776) (1,705) (2,302) (2,906)
------------ --------- --------- --------- --------- ---------
Earnings (loss) before income taxes................ (5,911) (17,929) 5,599 (3,086) 5,928 26
Income tax expense (benefit)....................... (884) 428 1,300 (617) 1,671 (63)
------------ --------- --------- --------- --------- ---------
Earnings (loss) before cumulative effect of change
in accounting principle.......................... (5,027) (18,357) 4,299 (2,469) 4,257 89
Cumulative effect of change in accounting
principle........................................ 0 0 1,350 0 0 0
------------ --------- --------- --------- --------- ---------
Net earnings (loss)........................ $ (5,027) $ (18,357) $ 5,649 $ (2,469) $ 4,257 $ 89
------------ --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- ---------
Earnings (loss) per common share before cumulative
effect of accounting change...................... (0.25) (1.01) 0.24 (0.14) 0.24 0.00*
Cumulative effect of accounting change............. 0.00 0.00 0.07 0.00 0.00 0.00
------------ --------- --------- --------- --------- ---------
Total earnings (loss) per common share..... $ (0.25) $ (1.01) $ 0.31 $ (0.14) $ 0.24 $ 0.00*
------------ --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- ---------
BALANCE SHEET DATA (AT END OF THE PERIOD):
Working capital (deficit).......................... $ 124,150 $ 5,722 $ 12,981 $ (6,931) $ (843) $ (4,629)
Net property, plant and equipment.................. 79,844 67,689 66,798 75,360 72,380 84,029
Total assets....................................... 210,493 85,120 88,747 92,238 93,348 104,344
Gold loan.......................................... 0 0 0 9,800 23,163 40,980
Notes payable to First Mississippi................. 23,771 40,900 29,339 23,635 14,237 13,140
Stockholders' equity............................... 164,264 31,744 49,719 44,068 46,102 41,844
OPERATING DATA (FOR THE PERIOD):
Ounces of Gold Produced:
Mill............................................... 82,691 166,937** 215,363 186,799 196,877 164,213
Heap Leach......................................... 2,936 17,361 28,463 23,666 21,871 21,580
------------ --------- --------- --------- --------- ---------
Total...................................... 85,627 184,298** 243,826 210,465 218,748 185,793
Ounces of gold sold................................ 85,627 184,298** 243,826 210,644 218,821 185,540
Average Realized price per Ounce................... $ 402 $ 388 $ 390 $ 374 $ 380 $ 396
Average Market price per Ounce..................... $ 385 $ 385 $ 379 $ 346 $ 352 $ 373
Cash Costs per Ounce:
Mill............................................... $ 379 $ 327 $ 290 $ 290 $ 262 $ 299
Heap Leach......................................... $ 144 $ 318 $ 183 $ 202 $ 166 $ 227
</TABLE>
- - - ------------
* Less than $0.01 per share.
** Excludes 14,939 development ounces from the Getchell Underground mine.
The above selected historical financial data should be read in conjunction
with the Consolidated Financial Statements and the Notes thereto on pages F-1
through F-18 and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained herein.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
This Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read in conjunction with the Consolidated Financial
Statements of the Company and the Notes thereto on pages F-1 through F-18.
OVERVIEW
The information set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operation" below includes "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and is subject to the safe harbor created by
that section. Factors that realistically could cause results to differ
materially from those projected in the forward looking statements are set forth
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Factors."
CHANGE IN FISCAL YEAR-END
The Company's fiscal year-end has been changed from June 30 to December 31.
As a result, the accompanying financial statements and following discussion
present results for a six month "Interim Period" from July 1, 1995 to December
31, 1995.
SIX MONTHS ENDED DECEMBER 31, 1995 COMPARED TO
SIX MONTHS ENDED DECEMBER 31, 1994
RESULTS OF OPERATIONS. Results for the six-month period ended December 31,
1995 (Interim Period), were a net loss of $5.0 million ($0.25 per share)
compared to a loss of $1.3 million ($0.07 cents per share) in the six-month
period ended December 31, 1994. Lower sales volumes, due to lower mill feed
grades, were largely responsible for the larger loss in the current period.
Increased use of lower grade stockpile ores caused the lower grades. Charges
related to the spin-off and associated short-term financing costs also
contributed to the current period's lower earnings.
SALES. Sales for the Interim Period dropped to $34.4 million from $38.0
million in the six months ended December 31, 1994. Lower output from both the
mill and heap leach contributed to the decline.
Mill production was lower due to lower feed grades. Even with approximately
1,000 tons per day of high grade underground ore entering the mill during the
Interim Period, the low grade stockpile ores used to meet mill capacity
requirements reduced the average grade below what it was during the same period
a year ago when Main Pit ores were still being milled. Heap leach gold
production for the six months consisted of residual recoveries from ores stacked
on pads in earlier periods, and as such was substantially lower than in the same
six-month period of the prior fiscal year. There were no new oxide ores mined in
the Interim Period.
Realized gold prices increased to $402 per ounce in the Interim Period from
$385 per ounce in the same period last year, but the price increase was
insufficient to offset the drop in gold output. Hedging contributed $17 per
ounce to the realized price in the Interim Period. There were no hedge revenues
nor losses in the six months ended December 31, 1994.
During the six month Interim Period, hedges for 63,000 ounces were closed at
an average price of $393 per ounce, contributing $403,000 to revenues. In
addition $1.1 million of deferred hedging revenues were recognized due to
rolling of scheduled deliveries into future periods under spot deferred
agreements.
COST OF SALES. Cost of sales during the Interim Period were essentially
unchanged from the same period a year ago, but slightly higher sulfide operating
costs were offset by lower heap leach costs due to cessation of mining at the
heap leach operation.
Total cost per ounce for the Interim Period rose to $420 from $362 in the
six months ended December 31, 1994 reflecting lower unit output from the mill
and the heap leach. Cash cost per ounce showed a similar pattern for the same
reasons, rising to $371 per ounce from $293 in the same period a year ago.
13
<PAGE>
It is anticipated that unit costs per ounce will decrease in 1996 as the
Getchell Underground mine accesses higher grade ore zones, and as daily output
rises during the year. Further cost reductions are expected in 1996 when the
second portal is completed into the Getchell Underground mine and from scheduled
improvements in underground support facilities.
EXPLORATION. Exploration expenses for the Interim Period were down sharply
from the same period a year ago. The major factor in the drop was a temporary
hiatus in drilling during the Interim Period while various geophysical surveys
were performed to identify and prioritize drill targets for 1996. The target
identification phase was completed near the end of the Interim Period and
drilling has resumed. (see "Outlook" below).
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs were higher in the Interim Period reflecting a higher range of overall
activity related to the spin-off of the Company from First Mississippi (see
discussion below) and the Turquoise Ridge Feasibility study. Professional
services, travel and various insurance costs contributed to the increase.
INTEREST AND OTHER INCOME. The increase in Interest and Other Income
reflects higher interest income on higher cash balances following the equity
offering in November (see "Liquidity and Capital Resources" below), and higher
royalty income.
INTEREST EXPENSE. Interim Period interest expense was up from the same
period of the prior year due to higher balances on the First Mississippi notes
during the first half of the Interim Period and due to loan fees on bridge
financing required to carry the Company from the spin-off in October 1995 until
the equity issue in November 1995.
HISTORICAL RESULTS OF OPERATIONS
SALES. Sales in fiscal 1995 fell to $71.5 million from $95.2 million in
fiscal 1994 due to lower volume and lower ore grades in both the oxide and
sulfide operations. Oxide ore grades dropped as the Turquoise Ridge Oxide Pit
came to the end of its scheduled productive life in the fourth quarter. Mill
feed grades were lower due to increased milling of lower grade stockpile ores.
Realized gold prices of $388 per ounce in fiscal 1995 were basically
unchanged from $390 in fiscal 1994 and compared to $374 per ounce in fiscal
1993. The Company's hedging program contributed $3 per ounce to the realized
price in fiscal 1995, $11 per ounce in fiscal 1994 and $28 per ounce in fiscal
1993. Fiscal 1994 sales of $95.2 million were up substantially from $78.8
million in fiscal 1993 due primarily to high grade North Pit ore mined and
milled in fiscal 1994. Mill feed grades averaged 0.175, 0.203 and 0.169 ounces
per ton in fiscal 1995, fiscal 1994 and fiscal 1993, respectively.
During fiscal 1995, hedges for 169,900 ounces were closed against spot
deferred contracts at an average price of $392 per ounce, contributing $0.6
million to revenues as compared to 3,000 ounces delivered against spot deferred
contracts at $375 per ounce in fiscal 1994. Sales in fiscal 1994 and fiscal 1993
reflected gold loan payments of 20,625 and 28,125 ounces, respectively, at $475
per ounce. In addition, in fiscal 1994 and fiscal 1993, the Company exercised
hedges for the sale of 47,000 and 40,000 ounces of gold, respectively, at $400
per ounce under terms of a gold loan related hedging program. At June 30, 1995,
147,100 ounces were hedged, using spot deferred contracts, for delivery over the
next 11 months at an average price of $401 per ounce.
COSTS OF SALES. Total cost of sales in fiscal 1995 was down $12.4 million
(15%) from fiscal 1994, largely due to lower depreciation and mining costs
associated with the lower grade stockpile ores milled during the year. Although
total cost of sales was down, total cost per ounce increased from $337 per ounce
in fiscal 1994 to $379 per ounce in fiscal 1995 due to lower mill throughput and
reduced grades at both the heap leach facility and the mill. Cash costs per
ounce were $326 in fiscal 1995 compared to $278 in fiscal 1994, up due to lower
production levels in fiscal 1995. Total costs of sales in fiscal 1994 were up
$6.9 million (9%) from fiscal 1993, principally due to the costs associated with
a 16% increase in annual production. Total cost per ounce was lower in fiscal
1994 than in fiscal 1993 due to the sharp increase in unit production in fiscal
1994.
14
<PAGE>
EXPLORATION. Exploration expenses in fiscal 1995 of $3.8 million were down
from $4.0 million in fiscal 1994 and up from $2.8 million in fiscal 1993.
However, total exploration and development expenditures, including drill costs
capitalized at Turquoise Ridge after September 1994, were up sharply to $10.7
million in fiscal 1995 from $5.7 million in fiscal 1994 and $3.7 million in
fiscal 1993. The significant increase is largely a reflection of the increased
scope of activity at Turquoise Ridge as well as drilling on various other
exploration targets on the Getchell Property.
ABANDONMENTS AND IMPAIRMENTS. Abandonments and impairments in fiscal 1995,
which totalled $11.5 million, included a $2.4 million non-cash write-off of an
inactive silver exploration property in New Mexico and a $9.1 million non-cash
write-down of assets associated with the Main Pit. The silver property write-off
was in response to the continued low price of silver, unsuccessful attempts in
the fourth quarter to find a buyer for the property and the commitment of
exploration and development to Turquoise Ridge. Capitalized pit development
costs and deferred stripping costs were written off as a result of the early
shut-down of the Main Pit due to a geotechnical monitoring program indicating
that continued mining would likely destabilize the pit wall.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A costs were $2.7 million in fiscal
1995, up from $1.7 million in fiscal 1994 and $2.0 million in fiscal 1993. The
increase in fiscal 1995 was primarily due to increases in personnel and
activities relating to the spin-off of the Company's common stock held by First
Mississippi Corporation. Legal and professional services also were higher in
response to the anticipated spin-off and certain financing activities. Fiscal
1995 salaries, benefits and moving charges increased from the prior fiscal year,
reflecting the hiring of additional corporate officers. SG&A costs were lower in
fiscal 1994 than in fiscal 1993 due to reductions in staff personnel and lower
moving, recruiting and professional services costs.
INTEREST AND OTHER INCOME. Interest and other income totaled $0.1 million
in fiscal 1995, essentially unchanged from the two prior fiscal years. Other
income includes gains on sale of excess equipment, minor royalties and other
miscellaneous income.
INTEREST EXPENSE. Total obligations payable to First Mississippi increased
to $43.2 million, including $2.3 million of current payables, at June 30, 1995
from $30.2 million at the end of fiscal 1994 and $24.3 million at the end of
fiscal 1993. Net interest expense of $1.8 million in fiscal 1995 was essentially
unchanged from the prior two fiscal years, but gross interest expense before
capitalization of interest was $3.0 million in fiscal 1995 or $1.0 million
greater than fiscal 1994 and $1.2 million greater than fiscal 1993. The increase
was a result of higher balances on the First Mississippi notes. Interest
capitalized during fiscal years 1995, 1994 and 1993 amounted to $1,159,000,
$221,000 and $43,000, respectively. The increase from fiscal 1994 to fiscal 1995
was due primarily to development at the Getchell Main Underground Mine. Interest
costs of $1.2 million and $0.2 million on advances from First Mississippi to
fund mine development projects were capitalized in fiscal 1995 and 1994,
respectively. See "Liquidity and Capital Resources" below.
INCOME TAXES; CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES. In July
1993, the Company adopted the Financial Accounting Standards Board's Statement
No. 109 "Accounting for Income Taxes" ("Statement 109"). Adoption of Statement
No. 109 changed the Company's method of accounting for income taxes from the
deferred method required under APB Opinion 11 to the asset and liability method.
The Company opted to report the impact of this accounting change as a cumulative
effect of change in accounting principle rather than to restate prior years'
income tax provisions. The cumulative effect on 1994's income from adopting
Statement 109 was a $1.4 million tax benefit. See Note 9 to the Consolidated
Financial Statements.
Fiscal 1995 income tax expense was down from the prior fiscal year as a
result of lower earnings, partially offset by $6.7 million in tax benefits which
were not recorded for operating losses incurred because their realization is
currently uncertain.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Until October 20, 1995, the Company has financed its operations from cash
generated from operations, and from loans from First Mississippi who owned
approximately 81% of the Company until October 20, 1995. On October 20, 1995
First Mississippi spun-off their 81% ownership and per terms of the IRS ruling
were thereafter prevented from advancing additional cash to the Company.
Earlier borrowings from First Mississippi included $9.3 million in fiscal
1995, $1.2 million in fiscal 1994 and $8.5 million in fiscal 1993. In addition
to the cash borrowings, $2.3 million was added to the First Mississippi notes in
fiscal 1995 for payment of interest, bringing the total obligations due First
Mississippi to $43.2 million at June 30, 1995 (including $2.3 million of current
payable not included in the note).
In February 1995, a single new promissory note (the "Note") was executed
with First Mississippi, replacing all notes in place at that date. The Note
carried an interest rate of prime plus 0.75 percent and accrued interest once a
year in February. The Note was due no later than August 1, 1997. See Note 8 to
the Consolidated Financial Statements. On September 24, 1995 the Note was again
renegotiated as part of the spin-off agreements with First Mississippi. Under
the new provisions, the Note, due in September 2000, carries a market rate of
interest based upon LIBOR and accrues interest during the five year period until
due.
A total $8.9 million of cash was borrowed from First Mississippi during the
Interim Period and an additional $2.7 million of interest and taxes due were
added to the Note balance bringing the total amount owed on the First
Mississippi notes to $52.5 million in October immediately prior to the spin-off.
In anticipation of the planned spin-off, a $20 million interim credit
facility was negotiated with The Toronto-Dominion Bank in September 1995. The
proceeds of this financing were used to continue development of the Turquoise
Ridge mine and to meet daily operating cash needs following the spin-off and
until such time as a stock offering was effected. On October 20, 1995 $5.5
million was borrowed against this credit facility.
In late 1995 the Company issued a total of 7,475,000 common shares to the
public at $19.50 per share. Net proceeds to the Company were approximately
$137.5 million. Of these proceeds, the Company repaid $5.5 million borrowed from
The Toronto Dominion Bank in October 1995 and repaid $15 million on the notes
payable to First Mississippi Corporation. The payment to First Mississippi,
along with a $13.9 million credit received from First Mississippi on October 20,
1995, per terms of the Tax Sharing Agreement, decreased the First Mississippi
note balance to $23.8 million at December 31, 1995.
Cash provided by (used) in operating activities during the Interim Period
and fiscal years 1995, 1994 and 1993 were ($6.2 million), $16.0 million, $21.9
million and $18.3 million, respectively. Cash used by operations during the
Interim Period is principally related to lower sales, higher mining costs, and
expenses associated with the spin-off. The decrease in cash provided by
operating activities in fiscal 1995 is primarily attributable to lower
production, only slightly offset by reduced cost of sales as compared to fiscal
1994 in which the Company experienced higher grade ore with only slightly
increased costs.
Capital expenditures were $10.7 million, $26.9 million, $10.5 million and
$5.6 million in the Interim Period and fiscal years 1995, 1994 and 1993,
respectively. Capital expenditures during the Interim Period included $3.5
million for the Turquoise Ridge mine, $5.0 million for equipment capitalized
development costs at the Getchell Underground mine, and $2.2 million for mill
and other improvements. Capital expenditures in fiscal 1995 included $3.6
million for general mill improvements, $14.9 million for equipment and
capitalized development costs at the Getchell Underground mine and $8.4 million
for development drilling and engineering at Turquoise Ridge.
Several pieces of underground mining equipment were acquired during the
Interim Period under capital leases for use in the Getchell Underground mine.
Lease obligations incurred in connection with this equipment totaled $5.5
million, payable over the next five years.
Capital expenditures for fiscal 1996 are estimated to be $57 million,
primarily related to the anticipated development of the Turquoise Ridge mine.
16
<PAGE>
At December 31, 1995 the Company's cash and cash equivalents totaled $114.6
million. It is anticipated that this cash, along with cash generated by
operations, will be sufficient to complete the construction of the Turquoise
Ridge Mine and to meet other capital and operating needs over the next two
years.
OUTLOOK.
The major focus of the Company in the upcoming year will be shaft sinking
and construction of surface support facilities for the Turquoise Ridge mine.
Current plans envision initiation of a second shaft in the second quarter of
1996 and the first shaft now under construction, is expected to be completed by
early 1997. Initial production of development ore is expected no earlier than
the end of 1997.
During 1996 exploration drilling will focus on the evaluation of numerous
targets on the Getchell Property located outside of the known reserve areas.
Additional drilling is planned to identify extensions of the Getchell
Underground reserves and to follow up on the Powder Hill mineralization.
The mill will continue to process sulfide ores from the Getchell Underground
ore body, supplemented by stockpile ores as needed to keep the mill operating at
full capacity. Improvements in Getchell Underground grades and output are
planned, and the Company's mining rate goal is to achieve an output of 1,500
tons per day by year-end.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), was issued by the Financial Accounting
Standards Board in October, 1995. SFAS 123 establishes financial accounting
standards for stock-based employee compensation plans as well as transactions in
which the entity issues its equity instruments to acquire goods or services from
non-employees. This statement defines a fair market value based method of
accounting for employee stock options or similar equity instruments, and
encourages all entities to adopt this method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation costs for those plans using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees". Entities electing to remain with the accounting in Opinion
25 must make pro forma disclosures of net income and, if presented, earnings per
share, as if the fair value-based method of accounting defined by SFAS 123 had
been applied. SFAS 123 is applicable to fiscal years beginning after December
15, 1995. The Company currently accounts for its equity instruments using the
accounting prescribed by Opinion 25. The Company does not currently expect to
adopt the accounting prescribed by SFAS 123; however, the Company will include
the disclosures required by SFAS 123 in future financial statements.
RISK FACTORS
GOLD PRICE VOLATILITY
The Company's profitability is significantly affected by changes in the
market price of gold. Gold prices fluctuate widely and are affected by numerous
industry factors, such as demand for precious metals, forward selling by
producers, central bank sales and purchases of gold, and production and cost
levels in major gold-producing regions such as South Africa and the former
Soviet Union. Moreover, gold prices are also affected by macro-economic factors
such as expectations for inflation, interest rates, currency exchange rates, and
global or regional political and economic situations. The current demand for and
supply of gold affect gold prices, but not necessarily in the same manner as
current demand and supply affect the prices of the other commodities. The
potential supply of gold consists of new mine production plus existing stocks of
bullion and fabricated gold held by governments, financial institutions,
industrial organizations and individuals. Since mine production in any single
year constitutes a very small portion of the total potential supply of gold,
normal variations in current production do not necessarily have a significant
effect on the supply of gold or on its price. If gold prices should decline
below the Company's cash costs of production and remain at such levels for any
sustained period, the Company could determine that it is not economically
feasible to continue commercial production.
17
<PAGE>
The volatility of gold prices is illustrated in the following table of the
annual high, low and average London P.M. Fix:
<TABLE>
<CAPTION>
PRICE PER OUNCE
---------------------------------
CALENDAR YEAR HIGH LOW AVERAGE
--------- --------- -----------
<S> <C> <C> <C>
1984................................................................. $ 406 $ 308 $ 360
1985................................................................. 341 294 317
1986................................................................. 438 326 368
1987................................................................. 500 390 446
1988................................................................. 495 395 437
1989................................................................. 416 356 381
1990................................................................. 474 346 383
1991................................................................. 403 344 362
1992................................................................. 374 330 344
1993................................................................. 406 326 360
1994................................................................. 396 370 384
1995................................................................. 396 370 384
</TABLE>
The London P.M. Fix on March 21, 1996, was $395.80 per ounce.
LOSSES
The Company reported a net loss of $5.0 million for the six months ended
December 31, 1995 and a net loss of $18.4 million for the fiscal year ended June
30, 1995. The Company expects to continue to experience losses until its low
grade stockpile ores is replaced by higher grade ore from new sources, which new
sources could include sources presently being explored or developed by the
Company. There can be no assurance that such higher grade replacement ores will
be obtained by the Company.
RESERVES
The ore reserves presented in this report are, in large part, estimates made
by the Company and confirmed by independent mining consultants. No assurance can
be given that the indicated level of recovery of gold will be realized or that
the assumed gold price of $400 per ounce will be obtained. Reserve estimates may
require revision based on actual production experience. Market price
fluctuations of gold, as well as increased production costs or reduced recovery
rates, may render ore reserves containing relatively lower grades of
mineralization uneconomic and may ultimately result in a restatement of
reserves. Moreover, short-term operating factors relating to the ore reserves,
such as the need for sequential development of ore bodies and the processing of
new or different ore grades, may adversely affect the Company's profitability in
any particular accounting period.
Declines in the market price of gold may also render ore reserves containing
relatively lower grades of gold mineralization uneconomic to exploit unless the
utilization of forward sales contracts or other hedging techniques is sufficient
to offset the effects of a drop in the market price of the gold expected to be
mined from such reserves. If the Company's realized price per ounce of gold,
including hedging benefits, were to decline substantially below the levels set
for calculation of reserves for an extended period, there could be material
delays in the development of new projects, increased net losses, reduced cash
flow, reductions in reserves and asset impairments.
CERTAIN TURQUOISE RIDGE MINE RISKS
The Turquoise Ridge Mine involves numerous risks. These include the
following:
There can be no assurance that the probable reserves set forth in the MRDI
Study will actually be mined and milled on an economic basis, if at all. The
MRDI Study is based upon many assumptions, some or all of which may not prove to
be accurate. The failure of any such assumptions to prove accurate may alter the
conclusions of the MRDI Study and may have a material adverse affect on the
Company.
The Turquoise Ridge mine is now transitioning from the pre-feasibility study
level of project development to the construction phase of development. The
expenditure required to advance the project to the
18
<PAGE>
point of a production test is large, particularly since the Company has decided
to proceed with shaft systems capable of being used in full-scale production to
save time and money, should trial mining be confirmed as viable. Thus, to a
large extent, expenditures which would usually be supported by a feasibility
study will depend on the data in-hand and assumptions made in the MRDI Study
with an attendent higher level of uncertainty.
RESERVES. The resource and reserve estimates were prepared using geological
and engineering judgment based on available data. In the absence of underground
development, such estimates must be regarded as imprecise and some of the
assumptions made may later prove to be incorrect or unreliable.
The grade distribution at Turquoise Ridge is fairly narrow, with most
stoping blocks having grades between 0.2 to 0.4 ounces per ton. This means that
small changes in cutoff grade can cause large shifts in the reserves. If
dilution and/or mining costs related to bad ground are higher than expected, the
reserves could be substantially reduced, resulting in a shortening of mine life
and a reduced or negative cash flow.
DILUTION. The tonnage and grade of the mill feed material was estimated by
applying dilution factors to certain resource data. The dilution agents are
backfill, waste from the back of overcut crosscuts and drifts, and from the
walls. In the case of the latter two, MRDI assumed that there would be an
average of one foot of back and wall dilution. If this dilution increases, there
will be corresponding negative effects on the tonnage and grade to mill. This
risk is related to the irregular configuration of the ore body which, even with
the tight cut-and-fill stoping method used, could make achievement of a dilution
thickness of one foot impossible to achieve in practice.
NO. 1 SHAFT COMPLETION. MRDI believes a two-year assumed construction
period for No. 1 Shaft, which will become the main production shaft, is an
aggressive schedule. Delay in construction would necessitate removing ore
through the No. 2 Shaft, which is basically designed for waste and the limited
ore from early production. Additionally, the availability of the final
ventilation circuit required for mining depends upon the completion of No. 1
Shaft.
MINING COST. As part of the project risk assessment, sensitivities were run
on various mining costs. Due to uncertainties about actual ground conditions and
productivities, these costs are only predictable within a broad range and the
predictions may not be valid. Therefore, actual mining costs may have a material
adverse effect on the viability of the Turquoise Ridge project and on the
Company.
HYDROLOGY Drainage of the ore body and surrounding rock will be critical to
the achievement of the mining efficiencies and costs estimated for the study. If
the deposit is not drained and water remains in this clay-rich environment,
mining conditions could worsen, and support costs will increase. If, due to the
presence of fine clays, the deposit drains slowly, the start of production may
be delayed, and the build-up to full production may be of longer duration.
Additionally, depending upon the quantity and quality of water encountered, the
water treatment/disposal options presently available to the Company may be
insufficient to meet estimated amounts needed to treat water pumped from
Turquoise Ridge during de-watering.
GEOTECHNICAL CONSIDERATIONS The Turquoise Ridge ore zones contain areas of
poor ground conditions due to a high percentage of the ground being comprised of
low rock mass rating rock and clay. As a result, additional ground support may
be required.
PROJECT DEVELOPMENT RISKS
The Company from time to time engages in the development of new ore bodies.
The Company's ability to sustain or increase its present level of gold
production is dependent in part on the successful development of such new ore
bodies and/or expansion of existing mining operations. The economic feasibility
of any such development project, and all such projects collectively, is based
upon, among other things, estimate of reserves, metallurgic recoveries, capital
and operating costs of such projects and future gold prices. Development
projects are also subject to the successful completion of feasibility studies,
issuance of necessary permits and receipt of adequate financing.
Development projects have no operating history upon which to base estimates
of future cash operating costs and capital requirements. In particular,
estimates of reserves, metal recoveries and cash operating costs
19
<PAGE>
are to a large extent based upon the interpretation of geologic data obtained
from drill holes and other sampling techniques and feasibility studies which
derive estimates of cash operating costs based upon anticipated tonnage and
grades of ore to be mined and processed, the configuration of the ore body,
expected recovery rates of metals from the ore, comparable facility and
equipment costs, anticipated climate conditions and other factors. As a result,
it is possible that actual cash operating costs and economic returns of any and
all development projects may materially differ form the costs and returns
initially estimated.
DEPENDENCE ON A SINGLE MINE
All of the Company's revenues are derived from its mining and milling
operations at the Getchell Property. If the operations at the Getchell
Underground mine or at any of the Company's processing facilities were to be
reduced, interrupted or curtailed, the Company's ability to generate revenues
and profits in the future would be materially adversely affected.
EXPLORATION
Mineral exploration, particularly for gold, is highly speculative in nature,
involves many risks and frequently is unsuccessful. The Company is seeking to
expand its reserves only through exploration and development at the Getchell
Property. There can be no assurance that the Company's exploration efforts will
result in the discovery of any additional gold mineralization or that any
mineralization discovered will result in an increase of the Company's reserves.
If reserves are developed, it may take a number of years and substantial
expenditures from the initial phases of drilling until production is possible,
during which time the economic feasibility of production may change. No
assurance can be given that the Company's exploration programs will result in
the replacement of current production with new reserves or that the Company's
development program will be able to extend the life of the Company's existing
mines.
HEDGING ACTIVITIES
The Company currently uses spot deferred contracts in its hedging program to
protect earnings and cash flows from the impact of short term drops in gold
price. These transactions have been designated as hedges of the price of future
production and are accounted for as such. Spot deferred contracts are agreements
between a seller and a counterparty whereby the seller commits to deliver a set
quantity of gold, at an established date in the future and at an agreed upon
prices. The established forward price is equal to the current spot gold price on
the day the agreement is signed plus "contango." Contango is equal to the
difference between the prevailing market rate for cash deposits less the gold
lease rate, for comparable periods. Contango rates ranged from approximately
5.4% to a negative 0.25% during the Interim Period.
At the scheduled future delivery date, the seller may, at the option of the
counterparty, deliver gold and thereby fulfill the contract or defer delivery to
a future date. This option allows the seller to maximize the price realized. If
the spot price on the delivery date is greater than the contract price, delivery
on the contract is deferred to a new forward date and the gold is sold at the
higher spot price. If the spot price is lower than the contract price, the
delivery is made against the contract and the higher contract price is realized.
Each time a seller defers delivery, the forward sales price is increased by
the then prevailing contango for the next period out to the newly established
forward delivery date. Generally, the counterparty will allow the seller to
continue to defer contract deliveries providing that there is sufficient
scheduled production from proven and probable reserves to fulfill the
commitment. During the Interim Period, fiscal 1995 and fiscal 1994, the Company
deferred delivery on contracts representing 16,000, 70,100 and 244,000 ounces,
respectively.
At December 31, 1995, the Company had spot deferred contracts on 104,100
gold ounces which are scheduled to be delivered throughout 1996 at prices
ranging from $388 to $421 per gold ounce. The Company intends to continue to
defer delivery into future periods when the spot market price is higher than the
spot deferred contract price. Based on the market price of gold at December 31,
1995, the unrealized gain on the contracts is $1.6 million. The Company's
accounting treatment for spot deferred contracts is outlined in Notes 1 and 7 to
the Consolidated Financial Statements.
20
<PAGE>
Risk of loss with these forward sales and purchases agreements arises from
the possible inability of a counterparty to honor contracts and from changes in
the Company's potential inability to deliver gold. However, nonperformance by
any party to the financial instruments in not anticipated.
The Company is required by the counterparty to maintain a $12 million line
of credit which is guaranteed by First Mississippi. Should the cumulative
liquidation cost of the Company's spot deferred positions exceed the cumulative
value of such positions by an amount in excess of the margin account, the
Company could be subject to a margin call. The liquidation cost is what the
Company would have to pay on the liquidation date to purchase fixed forward
delivery contracts to meet its spot deferred deliveries. The cost of fixed
forward delivery contracts is based upon the spot price on the liquidation date
plus contango through the deliver date.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the services of certain key officers and
employees, including its Chief Executive Officer, its Chief Financial Officer
and its Chief Operating Officer. Competition in the mining industry for
qualified individuals is intense, and the loss of any of these key officers or
employees if not replaced could have a material adverse effect on the Company's
business and its operations. The Company currently does not have key person
insurance. The Company has entered into Termination Agreements with its Chief
Executive Officer, Chief Financial Officer and Chief Operating Officer which
provide for certain payments upon termination or resignation resulting from a
change of control (as defined in such agreements).
REGULATION OF MINING ACTIVITY
The mining operations of the Company are subject to inspection and
regulation by the Mine Safety and Health Administration of the Department of
Labor ("MSHA") under provisions of the Federal Mine Safety and Health Act of
1977. The Occupation and Safety Health Administration ("OSHA") also has
jurisdiction over safety and health standards not covered by MSHA.
All of the Company's exploration, development and production activities are
subject to regulation under one or more of the various environmental laws. These
laws address emissions to the air, discharges to water, management of wastes,
management of hazardous substances, protection of natural resources, protection
of antiquities and reclamation of lands which are disturbed. Many of the
regulations also require permits to be obtained for the Company's activities;
these permits normally are subject to public review processes resulting in
public approval of the activity. It is possible that future changes in these
laws or regulations could have a significant impact on some portion of the
Company's business, causing those activities to be economically reevaluated at
that time.
During the past three years, the United States Congress considered a number
of proposed amendments to the General Mining Law of 1872, as amended (the
"General Mining Law"), which governs mining claims and related activities on
federal lands. In 1992, a holding fee of $100 per claim was imposed upon
unpatented mining claims located on federal lands. In October 1994, a one-year
moratorium on processing of new patent applications was approved. In addition, a
variety of legislation is now pending before the United States Congress to amend
further the General Mining Law. The proposed legislation would, among other
things, change the current patenting procedures, impose royalties, and enact new
reclamation, environmental controls and restoration requirements. The royalty
proposals range from a 2% royalty on "net profits" from mining claims to an 8%
royalty on modified gross income/net smelter returns. The extent of any such
changes is not presently known and the potential impact on the Company as a
result of future congressional action is difficult to predict. Although a
majority of the Company's existing mining operations occur on private or
patented property, the proposed changes to the General Mining Law could
adversely affect the Company's ability to economically develop mineral resources
on federal lands.
ENVIRONMENTAL REGULATIONS
Mining is subject to potential risks and liabilities associated with
pollution of the environment and the disposal of waste products occurring as a
result of mineral exploration and production. Environmental liability may result
from mining activities conducted by others prior to the Company's ownership of a
21
<PAGE>
property. Insurance for environmental risks (including potential liability for
pollution or other hazards as a result of the disposal of waste products
occurring from exploration and production) is not generally available at a
reasonable price to the Company or to other companies within the industry. To
the extent the Company is subject to environmental liabilities, the payment of
such liabilities would reduce funds otherwise available to the Company and could
have a material adverse effect on the Company.
In the context of environmental permitting, including the approval of
reclamation plans, the Company must comply with standards, laws and regulations
which may entail greater or lesser costs and delays depending on the nature of
the activity to be permitted and how stringently the regulations are
implementing by the permitting authority. It is possible that the costs and
delays associated with compliance with such laws, regulations and permits could
become such that the Company would not proceed with the development of a project
or the operation or further development of a mine. Laws and regulations
involving the protection and remediation of the environment are constantly
changing and are generally becoming more restrictive. The Company has made, and
expects to make in the future, significant expenditures to comply with such laws
and regulations.
Pending bills which affect environmental laws applicable to mining include
versions which may substantially alter the Clean Water Act, Safe Drinking Water
Act, Endangered Species Act and a bill which will introduce additional
protection of wetlands (Wetlands Protection and Management Act). Adverse
developments and operating requirements in these acts could impair the ability
of the Company as well as others to develop mineral resources. Revisions to
current versions of these bills could occur prior to passage.
The Environmental Protection Agency ("EPA") continues the development of a
solid waste regulatory program specific to mining operations under the Resource
Conservation and Recovery Act ("RCRA"). Of particular concern to the mining
industry is a proposal by the EPA titled "Recommendation for a Regulatory
Program for Mining Waste and Materials Under Subtitle D of the Resource
Conservation and Recovery Act" ("Strawman II") which, if implemented, would
create a system of comprehensive federal regulation of the entire mine site.
Many of these requirements would be duplicative of existing state regulations.
Strawman II as currently proposed would regulate not only mine and mill wastes
but also numerous production facilities and processes which could limit internal
flexibility in operating a mine. To implement Strawman II as proposed, the EPA
must seek additional statutory authority, which is expected to be requested in
connection with Congress' reauthorization of RCRA.
The Company is also subject to regulations under (i) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA" or
"Superfund") which regulates and establishes liability for the release of
hazardous substances and (ii) the Endangered Species Act ("ESA") which
identifies endangered species of plants and animals and regulates activities to
protect these species and their habitats. Revisions to CERCLA and ESA are being
considered by Congress; the impact on the Company of these revisions is not
clear at this time.
Environmental laws and regulations may also have an indirect impact on the
Company, such as increased cost for electricity due to acid rain provisions of
the Clean Air Act Amendments of 1990. Charges by refiners to which the Company
sells its metallic concentrates and products have substantially increased over
the past several years because of requirements that refiners meet revised
environmental quality standards. The Company has no control over the refiners'
operations or their compliance with environmental laws and regulations. If the
refining capacity of the United States is significantly further reduced because
of environmental requirements, it is possible that the Company's operations
could be adversely affected.
MINING RISK AND INSURANCE
The gold ore located on the Getchell Property and the existing tailings
ponds and waste dumps located on the Getchell Property contain relatively high
levels of arsenic, and the milling of such ore involves the use of other toxic
substances, including sodium cyanide, sodium hydroxide, sulfuric acid and nitric
acid. In addition, the business of gold mining is generally subject to a number
of risks and hazards, including environmental hazards, industrial accidents,
labor disputes, the encounter of unusual or unexpected geological conditions,
slope failures, changes in the regulatory environment and natural phenomena such
as
22
<PAGE>
inclement weather conditions, floods, blizzards and earthquakes. Such
occurrences could result in damage to, or destruction of, mineral properties or
production facilities, personal injury or death, environmental damage, delays in
mining, monetary losses and possible legal liability. The Company maintains
insurance against risks that are typical in the gold mining industry and in
amounts that the Company believes to be reasonable, but which may not provide
adequate coverage in certain unforeseen circumstances. However, insurance
against certain risks (including certain liabilities for environmental pollution
or other hazards as a result of exploration and production) is not generally
available to the Company or to other companies within the industry.
TITLE TO PROPERTIES
Certain of the Company's mineral rights consist of unpatented mining claims.
Unpatented mining claims are unique property interests that are generally
considered to be subject to greater title risk than other real property
interests. The greater title risk results from unpatented mining claims being
dependent on strict compliance with a complex body of federal and state
statutory and decisional law, much of which compliance involves physical
activities on the land, and from the lack of public records which definitively
control the issues of validity and ownership.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are set forth on pages F-1
through F-18.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
23
<PAGE>
PART III
ITEMS 10. DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions of the executive officers and directors of the
Company as of February 29, 1996 are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
--- ------------------------------------------------
<S> <C> <C>
J. Kelley Williams............................. 61 Chairman of the Board
G.W. Thompson.................................. 54 President, Chief Executive Officer and Director
Donald S. Robson............................... 43 Vice President, Chief Financial Officer, and
Secretary
R. David Russell............................... 39 Vice President and Chief Operating Officer
Donald O. Miller............................... 49 Vice President, Human Resources & Administration
Richard F. Nanna............................... 47 Vice President, Exploration
Roger D. Palmer................................ 46 Controller
Cecil Alvarez.................................. 60 Director
Walter A. Drexel............................... 65 Director
Robert C. Horton............................... 69 Director
Pete Ingersoll................................. 65 Director
Charles P. Moreton............................. 68 Director
R. Michael Summerford.......................... 47 Director
Robert L. Zerga................................ 55 Director
</TABLE>
G.W. THOMPSON. Mr. Thompson, 54, is President and Chief Executive Officer of
the Company and has been since September 1994. He was a private investor and
consultant in the mining business from May 1992 until September 1994. He was
President and Chief Executive Officer of Meridian Minerals Company, a
diversified minerals company and a subsidiary of Burlington Resources Inc.
("Meridian Minerals"), from 1983 to May 1992.
DONALD S. ROBSON. Mr. Robson, 43, is Vice President and Chief Financial
Officer of the Company and has been since March 1995 and has been Corporate
Secretary since October 1995. From May 1990 to September 1994, he was Vice
President, Finance of Lac Minerals Ltd. ("Lac Minerals"), a gold mining company.
R. DAVID RUSSELL. Mr. Russell, 39, is Vice President and Chief Operating
Officer of the Company and has been since February 1995. From April 1994 to
February 1995, he was General Manager of Lac Minerals U.S.A. Ltd., a gold mining
company and a wholly owned subsidiary of Lac Minerals. From June 1993 to April
1994, he was a Manager at Independence Mining Company ("Independence Mining"), a
gold mining company and a subsidiary of Minorco Inc. From September 1992 to June
1993, he was a Manager at Hecla Mining Company, a diversified mining company.
From August 1988 to April 1992, he was General Manager at the Lincoln Mine,
owned by Meridian Minerals.
DONALD O. MILLER. Mr. Miller, 49, is the Vice President-Human Resources &
Administration and has been since April 1995. From January 1993 to April 1995,
Mr. Miller had his own consulting firm, GEM 2000, at which he consulted on human
resources issues, primarily in the mining industry. From May 1991 to January
1993, he was the Vice President, Human Resources at Newmont Mining Company, an
international gold mining company. From November 1988 to May 1991, he was the
Manager, Compensation and Benefits at Cyprus Minerals Company, a major producer
of copper, coal and molybdenum.
ROGER D. PALMER. Mr. Palmer, 46, is the Controller of the Company and has
been since April 1995 and has been Assistant Secretary since October 1995. From
June 1992 to December 1993, Mr. Palmer held the positions of Assistant
Controller and Manager, Financial Planning and Analysis with the Company. From
June 1989 to June 1992, he was a Division Controller at OESI Power Corporation,
a geothermal energy company.
24
<PAGE>
RICHARD F. NANNA. Mr. Nanna, 47, is the Vice President, Exploration of the
Company and has been since August 1991. From 1981 to August 1991, Mr. Nanna was
an exploration geologist with the Company.
J. KELLEY WILLIAMS. Mr. Williams, 61, is Chairman of the Board of the
Company and has been since October 1987. He is the Chairman of the Board and
Chief Executive Officer of First Mississippi Corporation and has been since
November 1988. He was a Director, President and Chief Executive Officer of First
Mississippi from 1971 until November 1988. He is a Director of Deposit Guaranty
Corporation and Deposit Guaranty National Bank, Jackson, Mississippi. He is a
member of the Nominating Committee.
CECIL ALVAREZ. Mr. Alvarez, 60, is retired and has been a director of the
Company since 1987. He was President and Chief Executive Officer of the Company
from August 1990 until his retirement in March 1992. From October 1987 until
August 1990, Mr. Alvarez was President of the Company. He was employed by First
Mississippi in 1968 and joined the Company as General Manager in 1980. He is a
member of the Audit Committee.
WALTER A. DREXEL. Mr. Drexel, 65, is retired and has been since 1987. He has
been a director since May 1995. From January 1981 to March 1987, Mr. Drexel was
employed in various capacities with Burlington Northern Inc. ("Burlington") and
its wholly-owned subsidiary, Burlington Northern Railroad ("Burlington
Railroad"), including serving as Vice Chairman of Burlington and Chairman, CEO
and President of Burlington Railroad. Prior to 1981, Mr. Drexel served for 23
years in various capacities as an officer at Atlantic Richfield Company. He is a
member of the Audit Committee.
ROBERT C. HORTON. Mr. Horton, 69, is a self-employed mining consultant and
has been a director of the Company since 1988. He is the Associate Dean Emeritus
of the Mackay School of Mines at the University of Nevada, Reno, and was
Associate Dean from July 1989 until July 1990. He was also Director of that
University's Center for Strategic Materials Research and Policy Study from
September 1987 until July 1990. From September 1981 until July 1987, Mr. Horton
was the Director of the U.S. Bureau of Mines, Department of the Interior,
Washington D.C. He is a member of the Compensation Committee and the Long-Term
Incentive Committee.
PETE INGERSOLL. Mr. Ingersoll, 65, is the principal partner of Ingersoll,
Parker & Longabaugh, a mining consulting firm and has been a director of the
Company since November, 1994. From July 1987 to December 1992, he was a Senior
Vice President, Metals and Mining, in the Equity Research Department of Lehman
Brothers Inc. He is Chairman of the Audit Committee and a member of the
Long-Term Incentive Committee.
CHARLES P. MORETON. Mr. Moreton, 68, has been a private investor, primarily
in the oil and gas business since July 1991 and has been a Company director
since 1988. Mr. Moreton was the Chairman of the Board of Commet Resources, Inc.,
a natural gas transmission and marketing company in Houston, Texas, from 1986
until its dissolution in July 1991. He is also a Director of Tanglewood
Bancshares, Inc. in Houston, Texas. He is a Director of First Mississippi and
Plasma Processing Corporation, a subsidiary of First Mississippi. He is a member
of the Compensation Committee and the Long-Term incentive Committee.
R. MICHAEL SUMMERFORD. Mr. Summerford, 47, is Vice President and Chief
Financial Officer of First Mississippi, and has been since 1987, and has been a
director of the Company since 1988. From 1983 to 1988, he was a Vice President
of First Mississippi. Mr. Summerford is also the Director of Melamine Chemicals,
Inc., a publicly held corporation originally formed by First Mississippi and an
unrelated party, and is a member of the Management Committee of Triad Chemical,
a joint venture fifty percent (50%) owned by First Mississippi. He is a member
of the Audit Committee.
ROBERT L. ZERGA. Mr. Zerga, 55, has been semi-retired and self-employed
since January 1995 and has been a director of the Company since 1995. From July
1990 to November 1994, he served as Chief Executive Officer and Chairman of the
Board of Independence Mining. During the same time period, he served as Vice
President and director of Minorco (U.S.A.) Inc., a gold mining company and a
subsidiary of Minorco Inc. He is the chairman of the Compensation Committee.
25
<PAGE>
The AUDIT COMMITTEE consists of four Directors who are not employees of
First Mississippi (applicable to the period prior to the spinoff) or the Company
with broad latitude for inquiry into all operations of the Company. Its primary
responsibilities include recommendation to the Board on the selection of
independent auditors; review of audit reports prepared by independent auditors,
internal auditors, independent engineers, insurance auditors and other
consultants engaged by the Company to examine specific areas of corporate
operations; and examination of the adequacy of compliance with various
governmental regulations and corporate policies and procedures. The current
members of the Audit Committee are Cecil Alvarez, Walter Drexel, R. Michael
Summerford and Pete Ingersoll.
The COMPENSATION COMMITTEE consists of three non-employee Directors and is
charged with the responsibility of recommending to the Board a program of
overall compensation for executive officers and other key employees. The current
members of the Compensation Committee are Robert L. Zerga, Charles P. Moreton
and Robert C. Horton.
The NOMINATING COMMITTEE is composed of two non-employee Directors and the
Chief Executive Officer and is responsible for Director nominations. The
Nominating Committee considers suggestions from all sources. Stockholder
suggestions for nominees for the next Annual Meeting of Stockholders, together
with appropriate detailed biographical information, should be submitted to the
Corporate Secretary no later than September 30, 1996. The current members of the
Nominating Committee are G.W. Thompson and J. Kelley Williams; the third
position is temporarily open.
The LONG-TERM INCENTIVE COMMITTEE consists of three Directors who are not
employees of First Mississippi or the Company. The committee is the
administrator of the Company's Long-Term Incentive Plan (the "LTI Plan") and
makes all determinations as to who shall receive awards under this plan,
including the timing, pricing and amount of such awards. The current members of
the Long-Term Incentive Committee are Robert C. Horton, Pete Ingersoll and
Charles P. Moreton.
26
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the annual and
long-term compensation for services in all capacities to the Company for the
prior fiscal years ended June 30, 1995, 1994 and 1993 and for the six-month
period ended December 31, 1995 of those persons who were either (i) the chief
executive officer of the Company during the last completed fiscal year or (ii)
one of the other four most highly compensated executive officers of the Company
as of the end of the last completed fiscal year whose annual salary and bonuses
exceeded $100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION
--------------------------- -----------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING
COMPEN- STOCK OPTION ALL OTHER
SALARY BONUS SATION AWARDS AWARDS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (1)($) ($) (2)($) (3)($)
- - - ----------------------------------- ------- ------- ------ -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
G.W. Thompson...................... 1995(4) 100,000 -- (5) -- -- 105,000 32,633(7)(8)(9)
President and CEO 1995 167,000 -- (5) -- 65,000(6) 90,000 3,008(7)(8)
R. David Russell................... 1995(4) 69,996 -- (5) -- -- 45,000 21,585(7)(8)(9)
Vice President and Chief Operating 1995 55,321 -- (5) -- -- 34,000 218(8)
Officer
Donald S. Robson................... 1995(4) 62,500 -- (5) -- -- 24,000 23,666(7)(8)(9)
Vice President and Chief Financial 1995 33,654 -- (5) -- -- 22,059 216(8)
Officer
Donald O. Miller................... 1995(4) 49,998 -- (5) -- -- 15,000 705(8)
Vice President, Human Resources 1995 20,512 -- (5) -- -- 13,954 351(8)
Richard F. Nanna................... 1995(4) 45,114 -- (5) -- -- 0 2,403(7)(8)
Vice President, Exploration 1995 90,228 27,200 -- -- 8,187 4,804(7)(8)
1994 88,920 55,300 -- -- 7,300 4,765(7)(8)
1993 84,972 0 14,550(10) -- 5,000 4,429(7)(8)
</TABLE>
- - - ------------
(1)Other Annual Compensation includes direct cash payments related to tax
reimbursement payments, tax planning and tax return preparation services
provided to the named Executive Officer at the Company's expense, and tax
reimbursements paid on imputed income resulting from the personal use of
Company automobiles and country club dues and memberships, including imputed
income on the same, but only if such payments exceed the lesser of $50,000
or 10% of the total salary and bonus of the Named Executive Officer. Tax
reimbursement payments are pursuant to a plan providing for payment to
eligible employees of thirty-seven percent of the Company's federal income
tax deduction resulting from the exercise of Convertible Subordinated
Debentures and NQSOs.
(2)Represents NQSOs granted under the LTI Plan.
(3)All Other Compensation is comprised of Company contributions related to the
401(k) Plan, relocation expenses, executive life insurance paid by the
Company on the Executive Officer's behalf, and the above market portion of
interest earned under the Deferred Income Plan.
In fiscal year 1986, First Mississippi established a Deferred Income Plan
for Directors, Officers and Key Employees which superseded the previous
deferred income arrangement and pursuant to which deferral opportunities in
any given year are determined at the discretion of the Board of First
Mississippi for up to a maximum of three years. These deferrals are held by
First Mississippi until retirement, resignation or other termination of
services. Amounts deferred by Officers earn interest at the prescribed rate
not less than the ten year Treasury Note Rate or more than twenty percent,
which varies based on the circumstances of the participant's retirement,
resignation or other termination and on the participant's length of
employment with First Mississippi. First Mississippi is owner and
beneficiary of life insurance policies covering most of the participants in
this plan. The benefits under these policies are expected to cover the
interest cost in excess of market rates, resulting in no net cost to First
Mississippi over the life of the plan. The maximum interest rate and other
plan provisions may be amended prospectively and, if necessary, may be
adjusted retroactively due to severe economic changes
27
<PAGE>
including but not limited to changes in tax law. However, no retroactive
changes in the rate of return may occur unless such economic changes are
material, adverse and retroactive in nature. Mr. Alvarez deferred a portion
of his compensation for the maximum three years when he was an Officer of
the Company, but currently does not defer any compensation. Prior to October
20, 1995, the date of the spin-off, his account balance earned interest, but
at the ten-year Treasury Note Rate. No other officers of the Company
participated in the plan. The Company does not presently have a deferred
income plan.
(4)Represents compensation for the six-month period July 1 through December 31,
1995. On September 24, 1995, the Company converted from a fiscal year ended
June 30 to a fiscal year ended December 31. The 1995 fiscal year for Messrs.
Russell, Robson and Miller represents compensation from the date of hire
through June 30, 1995. These dates were February 6, for Mr. Russell, March
21 for Mr. Robson and April 17, for Mr. Miller.
(5)Mr. Thompson's bonus will be calculated for a 16-month period (September
1994 through December 1995), incorporating performance for the fiscal year
1995 and the last six months of 1995. Messrs. Russell, Robson and Miller
will have bonuses calculated based on a period from date of hire in 1995
through December 31, 1995. Mr. Nanna received a bonus for fiscal year 1995
and is eligible for a bonus based on performance during the last six months
of 1995. Such bonus amounts are not presently calculable and will be
disclosed in the subsequent fiscal year in the appropriate column for the
fiscal year in which earned.
(6)Represents 10,000 shares of restricted stock issued to Mr. Thompson upon
being named President and CEO, of which he has sole voting but no investment
power. All of the shares vested on February 21, 1996, 90 days after the
November 1995 stock offering was completed.
(7)Company contributions related to the 401(k) Plan for the last six months of
1995 were $3,078 for Mr. Thompson, $466 for Mr. Russell, $1,155 for Mr.
Robson and $1,828 for Mr. Nanna. For the prior fiscal year 1995, Company
contributions were $2,000 for Mr. Thompson and $3,655 for Mr. Nanna. For the
fiscal year 1994, Company contributions were $3,557 for Mr. Nanna and for
the fiscal year 1993 they were $3,598 for Mr. Nanna.
(8)Executive Life Insurance paid by the Company for the last six months of 1995
was $2,625 for Mr. Thompson, $261 for Mr. Russell, $324 for Mr. Robson, $705
for Mr. Miller and $575 for Mr. Nanna. Executive Life Insurance paid by the
Company in fiscal year 1995 was $1,008 for Mr. Thompson, $218 for Mr.
Russell, $216 for Mr. Robson, $351 for Mr. Miller and $1,149 for Mr. Nanna.
Executive Life Insurance paid in fiscal year 1994 was $1,208 on behalf of
Mr. Nanna and in fiscal year 1993 was $1,031 on behalf of Mr. Nanna.
(9)Relocation expenses paid by the Company during the last six months of 1995
on behalf of Mr. Thompson were $26,930, on behalf of Mr. Russell were
$20,585 and on behalf of Mr. Robson were $22,187.
(10)Includes tax reimbursement payments to Mr. Nanna of $12,963 in fiscal year
1993.
The following table sets forth certain information with respect to grants of
stock options during the prior fiscal year period (July 1, 1994 to June 30,
1995) to the Named Executive Officers pursuant to the Company's LTI Plan.
28
<PAGE>
OPTION GRANTS IN PRIOR FISCAL YEAR
<TABLE>
<CAPTION>
ASSUMED RATES OF STOCK
% OF TOTAL PRICE APPRECIATION FOR
NUMBER OF OPTIONS GRANTED EXERCISE OPTION TERM (3)
OPTIONS TO ALL PRICE ($/ EXPIRATION ----------------------
NAME GRANTED (1) EMPLOYEES (2) SHARE)(2) DATE 5% 10%
- - - -------------------------------------- ----------- ----------------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
G.W. Thompson......................... 90,000 36% $ 6.810 8/22/04 $ 385,200 $ 976,500
R. David Russell...................... 34,000 19% $ 8.4375 2/08/05 $ 180,285 $ 456,025
Donald S. Robson...................... 22,059 9% $ 8.500 3/20/05 $ 118,015 $ 298,899
Donald O. Miller...................... 13,954 6% $ 10.750 4/17/05 $ 94,329 $ 239,032
Richard F. Nanna...................... 8,127 3% $ 11.44 5/10/05 $ 58,433 $ 148,155
</TABLE>
- - - ------------
(1) All options granted represent NSQOs that vest one year from the date of
grant. All options were granted for a term of ten years, subject to earlier
termination in certain events. The exercise price is equal to the fair
market value of the Company's Common Stock on the date of grant.
(2) Based on 246,349 total options granted in the prior fiscal year ended June
30, 1995.
(3) The amounts shown are for illustrative purposes only. Potential gains are
net of the exercise price, but before taxes associated with the exercise.
Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% rates of stock price appreciation are provided in accordance with
the rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future Common Stock price. Actual
gains, if any, on stock option exercises are dependent upon the future
financial performance of the Company, overall market conditions and the
option holders' continued employment through the vesting period. This table
does not take into account any appreciation in the price of the Common Stock
from the date of grant to the date of this Proxy Statement other than the
columns reflecting assumed rates of appreciation of 5% and 10%.
The following table sets forth certain information with respect to grants of
stock options during the six months ended December 31, 1995 to the Named
Executive Officers pursuant to the Company's LTI Plan.
OPTION GRANTS IN THE INTERIM PERIOD
<TABLE>
<CAPTION>
ASSUMED RATES OF STOCK
% OF TOTAL PRICE APPRECIATION FOR
NUMBER OF OPTIONS GRANTED EXERCISE OPTION TERM (3)
OPTIONS TO ALL PRICE ($/ EXPIRATION --------------------------
NAME GRANTED (1) EMPLOYEES (2) SHARE)(2) DATE 5% 10%
- - - ------------------------------------------- ----------- ----------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
G.W. Thompson.............................. 105,000 51% $ 20.25 11/16/05 $ 1,338,750 $ 3,386,250
R. David Russell........................... 45,000 22% $ 20.25 11/16/05 $ 573,750 $ 1,451,250
Donald S. Robson........................... 24,000 12% $ 20.25 11/16/05 $ 306,000 $ 774,000
Donald O. Miller........................... 15,000 7% $ 20.25 11/16/05 $ 191,250 $ 483,750
</TABLE>
- - - ------------
(1) All options granted represent NSQOs that vest in equal installments over
five years from the date of grant. All options were granted for a term of
ten years, subject to earlier termination in certain events. The exercise
price is equal to the fair market value of the Company's Common Stock on the
date of grant.
(2) Based on 207,376 total options granted in the six months ended December 31,
1995.
(3) The amounts shown are for illustrative purposes only. Potential gains are
net of the exercise price, but before taxes associated with the exercise.
Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% rates of stock price appreciation are provided in accordance with
the rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future Common Stock
29
<PAGE>
price. Actual gains, if any, on stock option exercises are dependent upon
the future financial performance of the Company, overall market conditions
and the option holders' continued employment through the vesting period.
This table does not take into account any appreciation in the price of the
Common Stock from the date of grant to the date of this Proxy Statement
other than the columns reflecting assumed rates of appreciation of 5% and
10%.
The following table sets forth certain information with respect to
unexercised options held by the Named Executive Officers as of June 30, 1995
(the prior fiscal year end). No outstanding options held by the Named Executive
Officers were exercised in the prior fiscal year ended June 30, 1995.
AGGREGATED OPTIONS OUTSTANDING AT PRIOR FISCAL YEAR END
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES AGGREGATE VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED, IN-THE-MONEY
OPTIONS OPTIONS(1)
-------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - - ----------------------------------------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
G.W. Thompson.................................. 90,000 0 $ 1,187,100 $ 0
R.David Russell................................ 0 34,000 $ 0 $ 393,125
Donald S. Robson............................... 0 22,059 $ 0 $ 253,679
Donald O. Miller............................... 0 13,954 $ 0 $ 129,075
Richard F. Nanna............................... 32,300 8,127 $ 472,025 $ 69,567
</TABLE>
- - - ------------
(1) Value was computed as the difference between the individual option price and
the closing sales price of the Company's Common Stock on June 30, 1995
($20.00). Only options with fair market value in excess of the exercise
price are reflected in this column.
The following table sets forth certain information with respect to
unexercised options held by the Named Executive Officers as of December 31,
1995. No outstanding options held by the Named Executive Officers were exercised
over the six months ended December 31, 1995.
AGGREGATED OPTIONS OUTSTANDING AT END OF INTERIM PERIOD AND END OF INTERIM
PERIOD OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES AGGREGATE VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED, IN-THE-MONEY
OPTIONS OPTIONS(1)
-------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - - ----------------------------------------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
G.W. Thompson.................................. 90,000 105,000 $ 1,389,600 $ 210,000
R.David Russell................................ 0 79,000 $ 0 $ 559,625
Donald S. Robson............................... 0 46,059 $ 0 $ 351,311
Donald O. Miller............................... 0 28,954 $ 0 $ 190,471
Richard F. Nanna............................... 32,300 8,127 $ 544,813 $ 87,873
</TABLE>
- - - ------------
(1) Value was computed as the difference between the individual option price and
the closing sales price of the Company's Common Stock on December 31, 1995
($22.25). Only options with fair market value in excess of the exercise
price are reflected in this column.
30
<PAGE>
OTHER COMPENSATION
Employees participate in a noncontributory Retirement Plan established by
the Company. Employees become one hundred percent vested after five years of
employment. The plan provides for normal retirement at age sixty-five with
actuarially adjusted provisions for early and postponed retirement dates.
Retirement benefits are based on years of service and average compensation
(wages and salary) of the five highest consecutive years during employment.
Theoretical benefits payable under the plan are reflected in the estimated
retirement plan table below and are not subject to any reduction for social
security benefits or other offset amounts.
The following table shows the estimated annual retirement benefit payable to
participating employees including Named Executive Officers in earnings and years
of service classifications as indicated.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS FOR
YEARS OF CREDITED SERVICE
AVERAGE ANNUAL COMPENSATION -------------------------------------------
(5 HIGHEST CONSECUTIVE YEARS) 10 YEARS 20 YEARS 30 YEARS 40 YEARS
- - - ----------------------------------------------------------- --------- --------- --------- ----------
<S> <C> <C> <C> <C>
$25,000.................................................... $ 4,212 $ 8,424 $ 12,136 $ 16,848
$50,000.................................................... 8,712 17,424 26,136 34,848
$100,000................................................... 17,712 35,424 53,136 70,848
$150,000 or greater........................................ 26,712 53,424 80,136 106,848
</TABLE>
Years of service for the Named Executive Officers are: G.W. Thompson, one
year; R. David Russell, less than one year; Donald S. Robson, less than one
year; Donald O. Miller, less than one year; and Richard F. Nanna, fourteen
years.
In fiscal 1995, the Company entered into Termination Agreements with G.W.
Thompson, Donald S. Robson, R. David Russell and Donald O. Miller and in May
1991, the Company entered into a Termination Agreement with Richard F. Nanna
(collectively, the "Termination Agreements"). The Termination Agreements are
contingent upon a Change of Control, as defined therein, and provide for a
three-year term. Each individual would be paid upon termination without cause
within three years of a Change of Control or upon resignation within twelve
months of a Change of Control, one and one-half times the sum of the three-year
average of his annual base salary (excluding bonuses) plus fringe benefit costs
equal to thirty-six percent of his annual base salary. Upon termination, the
individual would have the option, unless he notifies the Company otherwise, to
receive a cash payment equal to the cash value of all his NQSOs, Debenture
Options and Debentures, whether then exercisable or not. No individual would
receive payments in the event of death, disability or termination for cause. The
Termination Agreements also provide for, among other things, an additional
payment to be made by the Company to the individual if any of the severance
payments provided for by the Termination Agreements or any other payments made
pursuant to a Change of Control of the Company (the "Total Payments") become
subject to an additional tax ("Excise Tax") imposed by Section 4999 of the
Internal Revenue Code, such that the net of all of the payments received by the
individual after the imposition of the Excise Tax on the Total Payments and the
federal income tax on the additional payment shall be equal to the Total
Payments.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Murrill, a former director who resigned on November 1, 1995 and who is
also a Director of First Mississippi, and Mr. Moreton who is a Director of First
Mississippi, and Messrs. Horton and Zerga who are members of the Company's
Compensation Committee, are not now and never have been Officers or employees of
the Company or First Mississippi.
DIRECTOR COMPENSATION
In 1995, the Chairman of the Board was compensated for his services with a
retainer of $18,400 per year. Other Directors who are not employees of the
Company ("Outside Directors") were compensated for their services with a
retainer of $7,500 per year. In addition, all Outside Directors received $500
per day for
31
<PAGE>
attendance at Board Meetings, and an additional $350 per day for attendance at
Committee Meetings. No compensation in addition to his regular salary and
benefits was paid to the Chief Executive Officer for his services as a Director.
At a meeting of the Board of Directors held on November 16, 1995, the
compensation for Outside Directors was changed. Beginning in 1996, each Outside
Director will receive $7,500 per year. The Chairman of the Board will receive an
additional $15,000 per year, and Committee Chairmen will receive an additional
$2,500 per year. In addition, Outside Directors will receive $750 per day for
attendance at board meetings, $500 per day for attendance at committee meetings,
$750 per day for special service requests made by the Chairman of the Board or
the Chief Executive Officer and $250 per day for travel with a maximum allowance
of two travel days per meeting or special service project. Reasonable expenses
incurred for the benefit of the Company will be reimbursed at cost. The Company
will also provide directors with accidental death and dismemberment benefits,
business travel insurance and director and officer liability insurance. Medical
and dental insurance will also be offered to Outside Directors.
32
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 1, 1996, the number and
percentage of the outstanding shares of Common Stock which, according to the
information supplied to the Company, are beneficially owned by (i) each person
who is currently a director of the Company, (ii) each Named Executive Officer
(as defined on page 27), (iii) all current directors and executive officers of
the Company as a group and (iv) each person who, to the knowledge of the
Company, is the beneficial owner of more than 5% of the outstanding Common
Stock. Except as otherwise indicated, the persons named in the table have sole
voting and dispositive power with respect to all shares beneficially owned,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
DEBENTURE
OPTIONS TOTAL
AND/OR COMMON
NQSOS PERCENT STOCK PERCENT
NAME AND ADDRESS BENEFICIALLY OF COMMON BENEFICIALLY OF
OF BENEFICIAL OWNER OWNED(1) CLASS STOCK OWNED(2) CLASS
- - - -------------------------------------------------------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
DIRECTORS/NOMINEES AND NAMED EXECUTIVE OFFICERS(3):
Cecil Alvarez........................................... 454(4)
1991-A Series(5)...................................... 4,000 100% 4,454 *
Walter A. Drexel........................................ 1,000 1,000 *
Robert C. Horton........................................ 1,500(6)
1989-B Series......................................... 1,000 33%
1990-C Series......................................... 1,000 33%
1991-B Series......................................... 1,000 33%
1992-A Series......................................... 1,000 33%
1993-A Series......................................... 1,000 33%
-----------
5,000 6,500 *
Pete Ingersoll..........................................
1994-A Series......................................... 1,000 33% 1,000 *
Donald O. Miller........................................
NQSOs................................................. 13,954 6% 13,954 *
Charles P. Moreton...................................... 21,502(7)
1989-B Series......................................... 1,000 33%
1990-C Series......................................... 1,000 33%
1991-B Series......................................... 1,000 33%
1992-A Series......................................... 1,000 33%
1993-A Series......................................... 1,000 33%
-----------
5,000 26,502 *
Richard F. Nanna........................................ 177
1988-A Series......................................... 3,500 100%
1989-A Series......................................... 1,000 100%
1990-A Series......................................... 2,000 100%
NQSOs................................................. 40,427 16%
-----------
46,927 47,104 *
Donald S. Robson........................................
NQSOs................................................. 22,059 9% 22,059 *
R. David Russell........................................
NQSOs................................................. 34,000 14% 34,000 *
R. Michael Summerford................................... 0 N/A 35,977 35,977 *
G.W. Thompson........................................... 10,000(8)
NQSOs................................................. 90,000 36% 100,000 *
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
DEBENTURE
OPTIONS TOTAL
AND/OR COMMON
NQSOS PERCENT STOCK PERCENT
NAME AND ADDRESS BENEFICIALLY OF COMMON BENEFICIALLY OF
OF BENEFICIAL OWNER OWNED(1) CLASS STOCK OWNED(2) CLASS
- - - -------------------------------------------------------- ----------- ----------- ---------- ----------- -----------
J. Kelley Williams...................................... 0 N/A 691,165(9) 691,165(9) 2.7%
<S> <C> <C> <C> <C> <C>
ALL CURRENT DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(14 PERSONS)(10)....................................... 761,950
1988-A Series......................................... 3,500 100%
1989-A Series......................................... 1,000 100%
1989-B Series......................................... 3,000 100%
1990-A Series......................................... 2,000 100%
1990-C Series......................................... 3,000 100%
1991-A Series......................................... 4,000 100%
1991-B Series......................................... 3,000 100%
1992-A Series......................................... 3,000 100%
1993-A Series......................................... 3,000 100%
1994-A Series......................................... 3,000 100%
NQSOs................................................. 207,087 82% 997,538 3.9%
5% BENEFICIAL HOLDERS:
FMR Corp.(11) .......................................... 3,208,646 3,208,646 12.5%
82 Devonshire Street
Boston, MA
Goldman Sachs & Co.(11) ................................ 1,535,357 1,535,357 6.0%
85 Broad Street
New York, NY
</TABLE>
- - - ------------
* Represents less than one percent of class.
(1)Numbers represent shares of Common Stock of the Company underlying the
Convertible Subordinated Debentures and NQSOs beneficially owned by the
Directors and Named Executive Officers that are exercisable within 60 days
of March 1, 1996. Since more than the six months has elapsed from date of
grant, the Debentures are immediately convertible into the specified number
of shares of Convertible Preferred Stock of the same series and then
immediately convertible into the specified number of shares of Common Stock
of the Company. NQSOs are exercisable no earlier than six months after the
date of the grant into shares of Common Stock of the Company and presently
all are exercisable.
(2)In connection with the Stockholder Rights Plan adopted by the Board on June
13, 1990, Stock Purchase Rights were dividended to stockholders of record on
June 25, 1990, and are deemed to attach to the outstanding shares of Common
Stock of the Company, including outstanding shares of Common Stock reported
above as being owned by Directors and Named Executive Officers. Under
certain conditions each right may be exercised to purchase one share of
Common Stock at an exercise price of $40 (subject to adjustment). The rights
may be exercised only after commencement of a public announcement of a
tender or exchange offer if, upon its consummation, the offeror would
beneficially own 20% or more of the Company's Common Stock. An "Acquiring
Person" trigger was also provided, making the rights exercisable if a person
holds at least 15% of the shares of Common Stock without the prior approval
of a majority of the independent members of the Board. The rights, which do
not have voting rights, expire in June 2000 and may be redeemed by the
Company at a price of $0.01 per right prior to a specified period of time
after the occurrence of certain events. In certain events, without the
consent of the majority of the independent members of the Board, including
certain acquisitions of an Acquiring Person, each right (except certain
rights which are or were beneficially owned by 20% or more owners, or an
Acquiring Person, which rights are voided) will entitle its holder to
purchase shares of Company Common Stock with a value of twice the then
current exercise price. If, following an acquisition of 20%
34
<PAGE>
or more of the shares of Common Stock, the Company is acquired in a merger
or other business combination or sells 50% of its assets or earnings power,
each right (other than rights voided as above) will entitle its holder to
purchase stock of the acquiring company with a value of twice the then
current exercise price.
(3)The address of Messrs. Alvarez, Drexel, Horton, Ingersoll, Miller, Moreton,
Nanna, Robson, Russell, Summerford, Thompson and Williams is c/o FirstMiss
Gold Inc., 5460 S. Quebec Street, Suite 240 Englewood, Colorado 80111.
(4)Shared voting and investment power with wife 100 shares, sole voting power
354 shares.
(5)The 4,000 shares of 1991-A Series represent shares of Common Stock
underlying Debentures that have already been purchased through the exercise
of 1991-A Series Debenture Options.
(6)Included are 500 shares owned by Mrs. Horton, of which Mr. Horton has no
voting and investment power and disclaims beneficial ownership.
(7)Includes 10,700 shares held by the Charles and Betty Moreton Family Trust,
of which Mr. Moreton and his wife are co-trustees. Mr. Moreton shares voting
and investment power with his wife as co-trustee.
(8)Represents 10,000 shares of restricted stock issued to Mr. Thompson upon
being named President and CEO of the Company, of which he has sole voting
but no investment power. All of the shares vested on February 21, 1996.
(9)Includes: 384,311 shares held by the J. Kelly Williams Revocable Trust, of
which Mr. Williams is trustee; 43,747 shares held by the Jean Pittman
Williams Revocable Trust, of which Mr. Williams' wife is trustee and of
which Mr. Williams disclaims beneficial ownership and has no voting or
investment power; 2,479 shares held by Mr. Williams' son and of which Mr.
Williams disclaims beneficial ownership and has no voting or investment
power; 3,542 shares held by Katherine K. Williams and of which Mr. Williams
has shared voting and investment power; 116,895 shares held by JKW Holdings,
Inc. and of which Mr. Williams has shared voting and investment power; and
265 shares held by J. Kelley Williams, Inc.
(10)Except as otherwise indicated in these notes, the shares beneficially owned
by the persons indicated in the table represent sole voting and investment
power.
(11)Based on Schedule 13G filed by the investor with the Securities and Exchange
Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following discussion includes certain relationships and related
transactions which occurred during the Company's fiscal year ended June 30, 1995
as well as the six months ended December 31, 1995.
SPINOFF. Until October 20, 1995, First Mississippi owned 14,750,000 shares
of Common Stock of the Company (approximately 81% of the outstanding Common
Stock). On that date First Mississippi distributed the stock it owned in the
Company to its own shareholders. Following completion of the distribution, to
the best of the Company's knowledge, First Mississippi owned no Common Stock of
the Company. During the six months ended December 31, 1995, Messrs. Moreton,
Summerford and Williams, who are currently members of the Board of Directors of
the Company, served as a director, Vice President and Chief Financial Officer,
and Chairman and Chief Executive Officer, respectively of First Mississippi. At
December 31, 1995, Mr. Williams beneficially owned 1,188,063 shares of common
stock of First Mississippi, or 5.08% of the total number of shares outstanding.
DEBT OWED TO FIRST MISSISSIPPI. During the time that the Company was
controlled by First Mississippi, the Company relied on First Mississippi for
capital and operating advances from time to time. This arrangement ceased with
the spinoff on October 20, 1995. During fiscal 1995, the Company borrowed $10.4
million from First Mississippi and also transferred $2.3 million of interest
payable to the notes, at an interest rate of prime plus three quarters of a
percent. Effective the date of the spinoff, the debt was $52.5 million and the
Company and First Mississippi entered into a new long-term loan agreement (the
"Loan Agreement") which provided that the total outstanding amount would be due
in September 2000,
35
<PAGE>
that the Company would repay $15 million to First Mississippi from the proceeds
of a public common stock offering prior to April 1996, that interest would
accrue at a rate not exceeding the London Inter-Bank Offered Rate plus one
percent, and that the interest would not be paid in cash, but rather would be
capitalized to the note. The Loan Agreement contains two financial covenants
which state that the Company must maintain a minimum net worth of $27 million
and that its debt to equity ratio must not exceed 2:1. As of December 31, 1995,
the Company had a net worth of $164.3 million and a debt to equity ratio of
0.14:1. In November 1995, the Company reduced the debt by $15 million, from
proceeds of a common stock offering. The debt was further reduced by the
settlement of the Tax Sharing Agreement (described below) whereby First
Mississippi paid the Company $13.9 million to settle certain tax sharing
arrangements, and these monies were used to reduce the debt. At December 31,
1995, the total aggregate debt owed to First Mississippi pursuant to the Loan
Agreement was $23.8 million.
FIRST MISSISSIPPI INDEMNITY. Prior to October 20, 1995, First Mississippi
indemnified its officers and directors and those of its subsidiaries, when such
officers and directors were serving in such capacities at the request of the
Board of First Mississippi. On February 2, 1991, the Board of First Mississippi
extended its corporate indemnity to the directors of the Company who are not
otherwise employees of the Company [or First Mississippi]. First Mississippi's
corporate indemnity requires that the person to be indemnified either: (a) be
wholly successful, on the merits or otherwise, in any action or proceeding
against such person; or (b) otherwise establish that such person acted in good
faith and in a manner such person reasonably believed to be in, or not opposed
to, the best interests of the Company, and in the case of any criminal action or
proceeding, had no reasonable cause to believe that the conduct was unlawful.
Whether these standards are met will be determined by those stockholders or
Directors of First Mississippi not involved in the matter at issue or by special
legal counsel selected by the Directors of First Mississippi. In the case of any
action or suit by or in the right of the Company, any person finally adjudged
liable for gross negligence or willful misconduct in performing duties for the
Company will not be entitled to indemnification unless a court determines that
indemnification is proper under the circumstances. Advancement of expenses is
allowed upon receipt of an undertaking to repay should it ultimately be
determined that an individual is not entitled to indemnity. The persons
protected under this arrangement were Messrs. Williams, Summerford and Moreton,
each of whom is a director or officer of First Mississippi. The First
Mississippi indemnity arrangement for these individuals terminated at the date
of the spinoff, October 20, 1995. As of such date all directors and officers of
the Company were provided with new indemnification agreements by the Company on
substantially the same terms as stated above.
ADMINISTRATIVE SERVICES AGREEMENT. In October 1987, the Company and First
Mississippi, entered into an Administrative Services Agreement whereby the
Company can obtain from First Mississippi services including communications,
financial services (accounting, management information, internal audit and tax),
human resources, legal, risk management and shareholder services. The fee
payable for such services by the Company under the Administrative Services
Agreement is negotiated annually (other than the fees for legal services, which
are charged at a fixed hourly rate for services over the budgeted amount, and
for special projects not contemplated by an approved budget) between the Company
and First Mississippi. This fee is determined primarily on a cost reimbursement
basis and approved by a majority of the Company's non-employee Directors who are
also not affiliated with First Mississippi. The Company paid to First
Mississippi for the fiscal year ended June 30, 1995 and the six months ended
December 31, 1995 approximately $224,000 and $59,000, respectively. The Company
has the right to obtain such services from unaffiliated third parties if it
believes that such services can be obtained at a lower cost than the fee paid to
First Mississippi. The agreement may be terminated by either party in the event
of an uncured material breach of the agreement. As a result of the spinoff on
October 20, 1995 the Administrative Services Agreement was amended so that it
will terminate on April 19, 1996.
TAX SHARING AGREEMENT. In October 1987, the Company and First Mississippi
entered into a Tax Sharing Agreement for the period during which the Company was
a member of the affiliated group of corporations of which First Mississippi is
the common parent (the "Affiliated Group"). Under the agreement, the Company
accrued income taxes (payable to First Mississippi) as if the Company and its
subsidiaries were, since the inception of the agreement on October 28, 1987, a
separate affiliated group of
36
<PAGE>
corporations filing consolidated income tax returns. In determining the amount
of such payments, the Company was potentially bound by tax elections,
conventions, treatments or methods utilized by First Mississippi in filing its
consolidated income tax returns. The Tax Sharing Agreement also provided for
payments in respect of net operating losses and certain other tax benefits by
First Mississippi to the Company or, under some circumstances, by the Company to
First Mississippi, in taxable years in which the Company was no longer a member
of the Affiliated Group. Effective with the spinoff on October 20, 1995 the Tax
Sharing Agreement was terminated. In settlement of the Agreement, First
Mississippi paid the Company approximately $13.9 million, being the approximate
present value of tax credits owed by First Mississippi to the Company, based on
certain business and tax election assumptions. The $13.9 million was used to
reduce the debt owed by the Company to First Mississippi.
TAX RULING AGREEMENT. First Mississippi obtained a letter ruling from the
Internal Revenue Service in April 1995 providing for the tax-free distribution
to its shareholders of its shares of the Company's Common Stock. In September
1995, First Mississippi and the Company entered into the Tax Ruling Agreement
which sets forth certain covenants and agreements of the Company relevant to
maintaining the tax-free nature of the distribution of the common stock.
The Tax Ruling Agreement provides that the Company will complete an
underwritten public equity of common stock generating aggregate proceeds of at
least $50 million prior to April 1996. In late 1995, the Company satisfied this
requirement by issuing common stock to the public which generated net proceeds
of approximately $137.5 million. The Tax Ruling Agreement also required the
Company to repay at least $15 million of debt owed to First Mississippi from the
net proceeds of the common equity issue, which repayment occurred in November
1995.
The Tax Ruling Agreement provides also that the Company will not, prior to
one year from the date of the spinoff, enter into any agreement to merge or
consolidate with or into any other corporation, to liquidate, to sell or
transfer all or substantially all of its assets, to redeem or repurchase any of
its capital stock (except for the redemption of the stock of one or more Company
employees upon his or her termination) or to issue additional shares of its
capital stock (except in connection with the public offering of common stock
described above, or issuances pursuant to the Company's employee benefit or
compensation plans), unless it first obtains an opinion of counsel or a
supplemental ruling from the I.R.S. that such action does not interfere with the
Tax Ruling.
In the event the Company takes such actions or solicits or assists any
person or group to commence a tender offer, if such person or group would
acquire ownership of 20% or more of the Company's outstanding Common Stock
without an opinion or a supplemental I.R.S. ruling, the Company agreed under the
Tax Ruling Agreement to indemnify and hold First Mississippi and certain
affiliated corporations harmless against any and all federal, state and local
taxes, interest penalties and additions thereto imposed upon or incurred by such
corporations as a result of such action's effect on the tax free nature of the
spinoff.
Prior to the spin-off, the Company's employees participated in the First
Mississippi qualified noncontributory defined benefit pension plan and its
401(k) thrift plan. The Company reimbursed First Mississippi for the pension
plan on a proportionate share basis and for the Company matching portion of the
employees' contribution to the 401(k) plan. During the fiscal 1995 and the six
months ended December 31, 1995, the Company paid $668,000 and $298,000,
respectively, in connection with such plans. Such employee participation was
terminated effective upon the spin off on October 20, 1995.
37
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND SCHEDULES
The Financial Statements which are filed with this Form 10-K are set forth
in the Index to Financial Statements at page F-1, which immediately precedes
such financial statements. No schedules are required under the applicable
instructions or are inapplicable and have therefore been omitted.
EXHIBITS
The following exhibits are, as indicated below, either filed herewith or
have previously been filed with the Commission and are referred to and
incorporated herein by reference to such filings.
<TABLE>
<S> <C> <C>
3(a) -- Articles of Incorporation, as amended, which were filed as Exhibit
3(a) to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1991, are incorporated herein by reference.
3(b) -- Bylaws of the Company, which were filed as Exhibit 3(b) to the
Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1990, are incorporated herein by reference.
4(a) -- Article IV, Article XIII and Article XIV of the Company's Articles of
Incorporation, which are included in Exhibit 3(a) filed with the
Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1991, are incorporated herein by reference.
4(b) -- Article II and Article V, Section 6 of the Company's Bylaws, which are
included in Exhibit 3(b) filed with the Company's Annual Report on
Form 10-K for fiscal year ended June 30, 1990, are incorporated herein
by reference.
4(c) -- Company Resolutions authorizing the 1988-A Series Convertible
Preferred Stock, effective July 13, 1988, which were filed as Exhibit
4(c) to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1988, are incorporated by reference.
4(d) -- Company Resolutions authorizing the 1989-A Series Convertible
Preferred Stock, effective August 9, 1989, which were filed as Exhibit
4(f) to the Company's Annual Report on Form 10-K for the year ended
June 30, 1989, are incorporated herein by reference.
4(e) -- Company Resolutions authorizing the 1989-B Series Convertible
Preferred Stock, effective November 2, 1989, which were filed as
Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1989, are incorporated herein by
reference.
4(f) -- Company Resolutions authorizing the 1990-A Series Convertible
Preferred Stock, effective August 8, 1990, which were filed as Exhibit
4(f) to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1990, are incorporated herein by reference.
4(g) -- Company Resolutions authorizing the Company's 1990-B and 1990-C Series
Convertible Preferred Stock, effective November 1, 1990 and November
2, 1990, respectively, which were filed as Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990, are incorporated herein by reference.
</TABLE>
38
<PAGE>
<TABLE>
<S> <C> <C>
4(h) -- Company Resolutions authorizing the 1991-A Series Convertible
Preferred Stock, effective August 14, 1991, which were filed as
Exhibit 4(h) to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1991, are incorporated herein by reference.
4(i) -- Company Resolutions authorizing the 1991-B Series Convertible
Preferred Stock, effective November 7, 1991, which were filed as
Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1991, are incorporated herein by
reference.
4(j) -- Company Resolutions authorizing the 1992-A Series Convertible
Preferred Stock, effective November 5, 1992, which were filed as
Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992, are incorporated herein by
reference.
4(k) -- Company Resolutions authorizing the 1993-A Series Convertible
Preferred Stock, effective November 4, 1993, which were filed as
Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993, are incorporated herein by
reference.
4(l) -- Credit Agreement, dated as of December 30, 1987, which was filed as
Exhibit 10.17 to Amendment No. 1 to the Company's Registration
Statement on Form S-1 filed with the Securities and Exchange
Commission on November 2, 1987 (the "Form S-1"), is incorporated by
reference.
4(m) -- First Amendment to Credit Agreement, dated as of January 26, 1988,
which was filed as Exhibit 10.23 to Amendment No. 2 to the Company's
Form S-1, is incorporated by reference.
4(n) -- Second Amendment to Credit Agreement, dated as of April 14, 1988,
which was filed as Exhibit 10.24 to Amendment No. 4 to the Company's
Form S-1, is incorporated by reference.
4(o) -- Third Amendment to Credit Agreement, dated as of March 30, 1989, which
was filed as Exhibit 4(h) to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1989, is incorporated by reference.
4(p) -- Fourth Amendment to the Credit Agreement, dated as of July 2, 1990,
which was filed as Exhibit 4(m) to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1991, is incorporated herein
by reference.
4(q) -- Amended and Restated Gold Loan Agreement, dated January 26, 1988,
which was filed as Exhibit 10.15 to Amendment No. 2 to the Company's
Form S-1, is incorporated by reference.
4(r) -- Rights Agreement dated June 13, 1990, which was filed as Exhibit 1 to
the Company's Form 8-K dated June 13, 1990, is incorporated by
reference.
4(s) -- Loan Agreement between the Company and First Mississippi, dated March
29, 1990, which was filed as Exhibit 4(p) to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1991, is
incorporated herein by reference.
4(t) -- Amendment to Loan Agreement between The Company and First Mississippi,
dated August 27, 1991, which was filed as Exhibit 4(q) to the
Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1991, is incorporated herein by reference.
</TABLE>
39
<PAGE>
<TABLE>
<S> <C> <C>
4(u) -- Second Amendment to Loan Agreement between the Company and First
Mississippi dated August 25, 1993, which was filed as Exhibit 4(t) to
the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1993, is incorporated herein by reference.
10(a) -- Gold Production Purchase Agreement, dated November 11, 1987, together
with Form of Amendment No. 1 thereto, which was filed as Exhibit 10.16
to Amendment No. 1 to the Company's Form S-1, is incorporated by
reference.
10(b) -- Administrative Services Agreement, dated October 28, 1987, which was
filed as Exhibit 10.2 to the Company's Form S-1, is incorporated by
reference.
10(c) -- Tax Sharing Agreement effective as of October 1, 1987, which was filed
as Exhibit 10.3 to the Company's Form S-1, is incorporated by
reference.
10(d) -- FirstMiss Gold Inc. Amended and Restated Long-Term Incentive Plan, as
amended November 14, 1992, which was filed as Exhibit 10(i) Annual
Report on Form 10-K for the fiscal year ended June 30, 1993 is
incorporated herein by reference.
10(e) -- Assignment Agreement, dated October 28, 1987, which was filed as
Exhibit 10.14 to the Company's Form S-1, is incorporated by reference.
10(f) -- Reserved.
10(g) -- Gold Loan Agreement, dated November 11, 1987, which was filed as
Exhibit 10.15 to Amendment No. 1 to the Company's Form S-1, is
incorporated by reference.
10(h) -- Indemnity Agreement, dated as of October 30, 1987, which was filed as
Exhibit 10.18 to Amendment No. 1 to the Company's Form S-1, is
incorporated by reference.
10(i) -- Credit Support Agreement, dated as of December 30, 1987, which was
filed as Exhibit 10.19 to Amendment No. 1 to the Company's Form S-1,
is incorporated by reference.
10(j) -- Construction Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing, dated as of December 30, 1987, which was filed as
Exhibit 10.20 to Amendment No. 2 to the Company's Form S-1, is
incorporated by reference.
10(k) -- Developer Indemnity Agreement, dated as of January 26, 1988, which was
filed as Exhibit 10.21 to Amendment No. 2 to the Company's Form S-1,
is incorporated by reference.
10(l) -- Amendment No. 1 to the Gold Production Purchase Agreement, dated as of
January 26, 1988, which was filed as Exhibit 10.22 to Amendment No. 2
to the Company's Form S-1, is incorporated by reference.
10(m) -- Form of Termination Agreement between First Mississippi Corporation
and Charles M. McAuley (Company's Termination Agreement with such
individual contains identical provisions to those contained in the
form), which was filed as Exhibit 10(v) to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1991, is incorporated
herein by reference.
10(n) -- Form of Termination Agreement between the Company and Richard F.
Nanna, Q. Allen Neal and Charles M. McAuley (Company's Termination
Agreement with each such individual contains identical provisions to
those contained in the form), which was filed as Exhibit 10(w) to the
Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1991, is incorporated herein by reference.
</TABLE>
40
<PAGE>
<TABLE>
<S> <C> <C>
10(o) -- Form of Addendum to Termination Agreement between the Company and
Richard F. Nanna, Q. Allen Neal and Charles M. McAuley (Company's
Addendum to Termination Agreement with each such individual contains
identical provisions to those contained in the form), which was filed
as Exhibit 10(x) to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1991, is incorporated herein by reference.
10(p) -- Refining Agreement between FMG Inc. and Metalor USA Refining
Corporation dated June 1, 1992, which was filed as Exhibit 10(w) to
the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1992, is incorporated herein by reference.
10(q) -- Amendment to Refining Agreement between FMG Inc. and Metalor USA
Refining Corporation dated May 27, 1993, which was filed as Exhibit
10(x) to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1993, is incorporated herein by reference.
10(r) -- Mine Operating Contract between FMG Inc. and N.A. Degerstrom, Inc.,
dated July 1, 1991, which was filed as Exhibit 10(aa) to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1991, is
incorporated herein by reference.
10(s) -- Oxygen Supply Agreement, dated August 27, 1987, and Air Rights Lease
Agreement, dated as of August 27, 1987, which were filed as Exhibit
10(j) to the Company's Annual Report on Form 10-K for the year ended
June 30, 1989, are incorporated herein by reference.
10(t) -- Mine Contract between FMG Inc. and J.S. Redpath Corporation dated
August 30, 1993, which was filed as Exhibit 10(bb) to the Company's
Form 10-K for the fiscal year ended June 30, 1994, is incorporated
herein by reference.
10(u) -- Amendment to Administrative Services Agreement between First
Mississippi and the Company dated August 29, 1995, which was filed a
Exhibit 10(cc) to the Company's Form 10-K for the fiscal year ended
June 30, 1995, is incorporated herein by reference.
10(v) -- Form of Termination Agreement between the Company and G.W. Thompson,
Donald S. Robson, R. David Russell and Donald O. Miller (Company's
Termination Agreement with each such individual contains identical
provisions to those contained in the form), which was filed as Exhibit
10(dd) to the Company's Form 10-K for the fiscal year ended June 30,
1995, is incorporated herein by reference.
10(w) -- Promissory Note by the Company in favor of First Mississippi dated
February 1, 1995, which was filed as Exhibit 10(ee) to the Company's
Form 10-K for the fiscal year ended June 30, 1995, is incorporated
herein by reference.
10(x) -- Restricted Stock Award Agreement between the Company and G.W. Thompson
dated August 22, 1994, which was filed as Exhibit 10(ff) to the
Company's Form 10-K for the fiscal year ended June 30, 1995, is
incorporated herein by reference.
10(y) -- Post Spin-Off Agreement dated as of September 24, 1995, by and between
First Mississippi and the Company, which was filed as Exhibit 10(a) to
the Company's Report on Form 8-K dated September 24, 1995, is
incorporated by reference herein.
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C>
10(z) -- Tax Ruling Agreement dated as of September 24, 1995, by and between
First Mississippi and the Company, which was filed as Exhibit 10(b) to
the Company's Report on Form 8-K dated September 24, 1995, is
incorporated by reference herein.
10(aa) -- Loan Agreement dated as of September 24, 1995, by and between First
Mississippi and the Company, which was filed as Exhibit 10(c) to the
Company's Report on Form 8-K dated September 24, 1995, is incorporated
by reference herein.
10(bb) -- Amended Tax Sharing Agreement dated as of September 24, 1995, by and
between First Mississippi and the Company, which was filed as Exhibit
10(d) to the Company's Report on Form 8-K dated September 24, 1995, is
incorporated by reference herein.
10(cc) -- Loan Agreement dated as of September 24, 1995 by and between The
Toronto Dominion Bank and the Company.
21. -- List of subsidiaries of the Company.
23. -- Consent of KPMG Peat Marwick LLP regarding incorporation of reports
into Registration Statements.
27. -- Financial Data Schedule.
</TABLE>
Certain debt instruments have not been filed. The Company agrees to furnish
a copy of such agreement(s) to the Commission upon request.
REPORTS ON FORM 8-K
On November 3, 1995, the Company filed a report on Form 8-K reporting under
Item 1(a) of Form 8-K the distribution of 14,750,000 shares of the Company's
common stock on October 20, 1995 by First Mississippi Corporation to First
Mississippi Corporation's shareholders.
On November 17, 1995, the Company filed a report on Form 8-K filing the
underwriting agreement and certain opinions and consents of legal counsel in
connection with the Company's public offering of common stock.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
FIRSTMISS GOLD INC.
Date: By: /s/ G.W. THOMPSON
------------------------------------------
G.W. Thompson,
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - -------------------------------------------------- ------------------------------------------ -----------------
<C> <S> <C>
/s/G. W. THOMPSON President and Chief Executive Officer March 20, 1996
G. W. Thompson (Principal Executive Officer) and
Director
/s/DONALD S. ROBSON Vice President and Chief Financial Officer March 20, 1996
Donald S. Robson (Principal Financial Officer)
/s/ROGER D. PALMER Controller March 20, 1996
Roger D. Palmer (Principal Accounting Officer)
/s/J. KELLEY WILLIAMS Director and Chairman of the Board of March 20, 1996
J. Kelley Williams Directors
/s/CECIL ALVAREZ Director March 20, 1996
Cecil Alvarez
/s/WALTER A. DREXEL Director March 20, 1996
Walter A. Drexel
/s/ROBERT C. HORTON Director March 20, 1996
Robert C. Horton
/s/PETE INGERSOLL Director March 20, 1996
Pete Ingersoll
/s/CHARLES P. MORETON Director March 20, 1996
Charles P. Moreton
/s/R. MICHAEL SUMMERFORD Director March 20, 1996
R. Michael Summerford
/s/ROBERT L. ZERGA Director March 20, 1996
Robert L. Zerga
</TABLE>
43
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
<TABLE>
<S> <C>
INDEPENDENT AUDITORS' REPORT.......................................................... F-2
CONSOLIDATED BALANCE SHEETS--
December 31, 1995, June 30, 1995 and 1994........................................... F-3
CONSOLIDATED STATEMENTS OF OPERATIONS--
Six Months Ended December 31, 1995 and Years Ended June 30, 1995, 1994 and 1993..... F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--
Six Months Ended December 31, 1995 and Years Ended June 30, 1995, 1994 and 1993..... F-5
CONSOLIDATED STATEMENT OF CASH FLOWS--
Six Months Ended December 31, 1995 and Years Ended June 30, 1995, 1994 and 1993..... F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
December 31, 1995, June 30, 1995 and 1994........................................... F-7
</TABLE>
All supporting schedules are omitted because they are inapplicable, not
required, or the information is presented in the consolidated financial
statements or notes thereto.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
FIRSTMISS GOLD INC.:
We have audited the accompanying consolidated balance sheets of FirstMiss
Gold Inc. and subsidiary as of December 31, 1995, June 30, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the six months ended December 31, 1995 and each of the years in
the three-year period ended June 30, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 audits provide 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 FirstMiss
Gold Inc. and subsidiary as of December 31, 1995, June 30, 1995 and 1994, and
the results of their operations and their cash flows for the six months ended
December 31, 1995 and each of the years in the three-year period ended June 30,
1995, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 9 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 109, ACCOUNTING FOR INCOME TAXES, as of July 1, 1993.
KPMG Peat Marwick LLP
Denver, Colorado
February 7, 1996
F-2
<PAGE>
FIRSTMISS GOLD INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995, JUNE 30, 1995 AND 1994
(IN THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, --------------------
1995 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................................................. $ 114,633 $ 595 $ 1,979
Trade accounts receivable.................................................. 3,812 1,709 2,190
Inventories:
Ore and ore in process................................................... 2,088 2,459 7,488
Materials and supplies................................................... 7,662 7,095 5,266
------------ --------- ---------
Total inventories.................................................... 9,750 9,554 12,754
------------ --------- ---------
Prepaid expenses and other current assets.................................... 1,408 728 181
Deferred hedging gains, net.................................................. 1,046 -- --
Deferred income taxes due from First Mississippi (note 9).................... -- 2,581 2,581
Total current assets................................................. 130,649 15,167 19,685
------------ --------- ---------
Property, plant and equipment, net (notes 3 and 4)........................... 79,844 67,689 66,798
Deferred income taxes due from First Mississippi (note 9).................... -- 2,264 2,264
------------ --------- ---------
Total assets......................................................... $ 210,493 $ 85,120 $ 88,747
------------ --------- ---------
------------ --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................... $ 4,711 $ 6,595 $ 5,165
Payable to First Mississippi (note 8)...................................... 242 1,943 910
Income taxes payable to First Mississippi (note 9)......................... -- 402 74
Current portion of capital lease obligation................................ 844 -- --
Other accrued expenses..................................................... 702 505 555
------------ --------- ---------
Total current liabilities............................................ 6,499 9,445 6,704
------------ --------- ---------
Notes payable to First Mississippi (note 8).................................. 23,771 40,900 29,339
Capital lease obligations, less current installments......................... 4,387 -- --
Accrued reclamation costs.................................................... 2,961 3,031 2,985
Deferred income tax liability (note 9)....................................... 8,611 -- --
Stockholders' equity (notes 2, 6 and 12):
Preferred stock, par value $.01 per share; 10,000,000 shares authorized;
none issued.............................................................. -- -- --
Common stock, par value $.01 per share; 50,000,000 shares authorized;
issued and outstanding 25,657,600 shares at December 31, 1995, 18,182,600
shares at June 30, 1995 and 18,111,500 shares at June 30, 1994........... 257 182 181
Contributed and paid-in capital............................................ 171,722 34,285 33,862
Retained earnings (accumulated deficit).................................... (7,708) (2,681) 15,676
Unearned compensation...................................................... (7) (42) --
------------ --------- ---------
Total stockholders' equity........................................... 164,264 31,744 49,719
------------ --------- ---------
Commitments (notes 6, 7, 10 and 11)
Total liabilities and stockholders' equity........................... $ 210,493 $ 85,120 $ 88,747
------------ --------- ---------
------------ --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FIRSTMISS GOLD INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1995 AND YEARS ENDED
JUNE 30, 1995, 1994 AND 1993
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED JUNE 30,
DECEMBER 31, --------------------------------
1995 1995 1994 1993
------------ ---------- --------- ---------
<S> <C> <C> <C> <C>
Net sales........................................................ $ 34,425 $ 71,485 $ 95,150 78,773
Cost of sales.................................................... 35,956 69,775 82,131 75,254
------------ ---------- --------- ---------
Gross margin............................................. (1,531) 1,710 13,019 3,519
Exploration expenses............................................. 628 3,776 4,049 2,803
Abandonment and impairment of mineral properties (note 3)........ -- 11,531 -- 256
Selling, general and administrative expenses (note 8)............ 2,054 2,659 1,745 2,021
------------ ---------- --------- ---------
Earnings (loss) from operations.......................... (4,213) (16,256) 7,225 (1,561)
Interest expense, net (notes 5 and 8)............................ (2,634) (1,805) (1,776) (1,705)
Interest and other income........................................ 936 132 150 180
------------ ---------- --------- ---------
Earnings (loss) before income taxes and cumulative effect
of change in accounting principle...................... (5,911) (17,929) 5,599 (3,086)
Income tax expense (benefit)..................................... (884) 428 1,300 (617)
------------ ---------- --------- ---------
Earnings (loss) before cumulative effect of change in
accounting principle................................... (5,027) (18,357) 4,299 (2,469)
Cumulative effect of change in accounting for income taxes (note
9)............................................................. -- -- 1,350 --
------------ ---------- --------- ---------
Net earnings (loss)...................................... $ (5,027) $ (18,357) $ 5,649 $ (2,469)
------------ ---------- --------- ---------
------------ ---------- --------- ---------
Earnings (loss) per common share:
Before cumulative effect of accounting change.................. $ (0.25 ) $ (1.01) $ 0.24 $ (0.14)
Cumulative effect of accounting change......................... -- -- 0.07 --
------------ ---------- --------- ---------
$ (0.25 ) $ (1.01) $ 0.31 $ (0.14)
------------ ---------- --------- ---------
------------ ---------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FIRSTMISS GOLD INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 1995 AND
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(IN THOUSANDS OF DOLLARS, EXCEPT SHARES)
<TABLE>
<CAPTION>
RETAINED
COMMON CONTRIBUTED EARNINGS
COMMON STOCK STOCK AND PAID-IN UNEARNED (ACCUMULATED
NUMBER OF SHARES AMOUNT CAPITAL COMPENSATION DEFICIT)
---------------- ----------- ----------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1992................... 18,000,200 $ 180 $ 33,430 $ (4) $ 12,496
Issuance of shares...................... 111,300 1 432 2 (2,469)
Amortization of unearned compensation... -- -- -- -- --
Net loss -- -- -- -- --
---------------- ----- ----------- --- ------------
Balance at June 30, 1993.................. 18,111,500 181 33,862 (2) 10,027
Amortization of unearned compensation... -- -- -- 2 5,649
Net earnings............................ -- -- -- -- --
---------------- ----- ----------- --- ------------
Balance at June 30, 1994.................. 18,111,500 181 33,862 -- 15,676
Issuance of shares...................... 71,100 1 363 -- --
Issuance of restricted stock awards..... -- -- 60 (60) --
Amortization of unearned compensation... -- -- -- 18 --
Net loss................................ -- -- -- -- (18,357)
---------------- ----- ----------- --- ------------
Balance at June 30, 1995.................. 18,182,600 182 34,285 (42) (2,681)
Issuance of shares...................... 7,475,000 75 137,437 -- --
Amortization of unearned compensation... -- -- -- 35 --
Net loss................................ -- -- -- -- (5,027)
---------------- ----- ----------- --- ------------
Balance at December 31, 1995.............. 25,657,600 $ 257 $ 171,722 $ (7) $ (7,708)
---------------- ----- ----------- --- ------------
---------------- ----- ----------- --- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FIRSTMISS GOLD INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1995 AND
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
SIX-MONTHS ENDED -------------------------------
DECEMBER 31, 1995 1995 1994 1993
----------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)........................................ $ (5,027) (18,357) 5,649 (2,469)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in ) operating activities:
Depreciation and depletion............................... 4,078 9,514 13,459 13,525
Amortization............................................. -- 5,031 9,920 203
Abandonment and impairment of mineral properties and
inventory.............................................. -- 11,531 -- 1,756
Deferred income taxes, including cumulative effect of
change in accounting principle......................... (884) -- (3,204) (1,627)
Loss (gain) on disposal or write-down of assets.......... -- 32 13 (12)
Deferred compensation.................................... 35 18 2 2
Deferred hedging gain, net............................... (1,046) -- -- --
Net change in operating assets and liabilities, net of
noncash activity:
Trade accounts receivable.............................. (2,103) 481 (228) (308)
Inventories............................................ (196) 3,200 (3,188) 1,556
Prepaid expenses and other current assets.............. (680) (547) 55 (65)
Accounts payable....................................... (1,884) 1,430 (3,818) 4,080
Payable to First Mississippi........................... 1,747 3,313 4,723 1,020
Income taxes payable to First Mississippi.............. (402) 328 (1,846) 510
Other accrued expenses................................. 197 (50) (149) (782)
Accrued reclamation costs.............................. (70) 46 549 947
-------- --------- --------- ---------
Cash provided by (used in) operating activities...... (6,235) 15,970 21,937 18,336
-------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures....................................... (10,718) (26,883) (10,451) (5,555)
Proceeds from sale of property............................. -- 203 15 51
Deferred stripping costs................................... -- (318) (4,612) (11,244)
-------- --------- --------- ---------
Cash used by investing activities.................... (10,718) (26,998) (15,048) (16,748)
-------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock..................... 137,513 363 -- 433
Proceeds from long-term debt............................... 14,350 10,428 1,200 8,500
Repayments on long-term debt............................... (20,588) (1,147) -- --
Principal payments under capital lease obligation.......... (284) -- -- --
Purchase of gold for repayment of gold loan................ -- -- (9,800) (13,363)
Proceeds from issuance of convertible debentures........... -- -- -- 12
-------- --------- --------- ---------
Cash provided (used) by financing activities......... 130,991 9,644 (8,600) (4,418)
-------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents........................................ 114,038 (1,384) (1,711) (2,830)
Cash and cash equivalents at beginning of year............... 595 1,979 3,690 6,520
-------- --------- --------- ---------
Cash and cash equivalents at end of year..................... $ 114,633 595 1,979 3,690
-------- --------- --------- ---------
-------- --------- --------- ---------
Supplemental disclosures:
Interest paid during the year, net of amounts
capitalized.............................................. $ 87 48 292 554
-------- --------- --------- ---------
-------- --------- --------- ---------
Income taxes paid to First Mississippi..................... $ -- -- 2,000 500
-------- --------- --------- ---------
-------- --------- --------- ---------
</TABLE>
Supplemental noncash financing activities:
In the six months ended December 31, 1995 and the years ended June 30, 1995,
1994 and 1993, $3,048,000, $2,280,000, $1,505,000 and $898,000, respectively,
of interest payable to First Mississippi was transferred to the principal
balance of notes payable to First Mississippi.
In the six months ended December 31, 1995, $13,900,000 of income taxes
receivable from First Mississippi was used as a reduction of the balance of
the notes payable to First Mississippi. In 1994, $3,000,000 of income taxes
payable to First Mississippi was transferred to the principal balance of notes
payable to First Mississippi.
Capital lease obligations of $5,515,000 were incurred to acquire equipment
during the six month period ended December 31, 1995.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FIRSTMISS GOLD INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) OWNERSHIP AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) OWNERSHIP AND OPERATIONS
FirstMiss Gold Inc. (the Company) was incorporated in August 1987 as a
subsidiary of First Mississippi Corporation (First Mississippi). On October 20,
1995, First Mississippi distributed its 81% interest in the Company's common
stock to First Mississippi shareholders, and in November and December 1995 the
Company completed an equity offering of 7,475,000 common shares.
FirstMiss Gold Inc. is engaged principally in financing, developing and
operating gold mining projects and conducting exploration for gold in Nevada.
The Company sold the majority of its primary product, gold, to one U.S. customer
during the periods ended December 31, 1995, June 30, 1995, 1994, and 1993. Given
the nature of the commodity being sold and because other potential purchasers of
gold exist, the Company believes that the loss of such customer would not
adversely affect its operations.
The Getchell Underground mine and the Turquoise Ridge underground mine are
located on the Company's Getchell property. Commercial production from the
Gretchell Underground mine began in May 1995, while construction of the
Turquoise Ridge underground mine began in January 1996. The property is located
in the Potosi Mining District on the eastern side of the Osgood Mountain Range,
approximately 35 miles northeast of Winnemucca, Nevada. The Getchell Property
consists of approximately 18,900 acres of unpatented load and mill site mining
claims and 14,100 acres of fee land owned by the Company.
(B) BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States,
which for the Company, are not materially different from international
accounting standards. Management makes various estimates and assumptions in
determining the reported amounts of assets, liabilities, revenues and expenses
for each period presented, and in the disclosures of commitments and
contingencies. Changes in these estimates and assumptions will occur as a result
of the passage of time and the occurrence of future events, and actual results
will differ from those estimates.
(C) CASH AND CASH EQUIVALENTS
For the purposes of the consolidated statements of cash flows, the Company
considers all debt and highly liquid instruments with original maturities of
three months or less to be cash equivalents. Cash equivalents at December 31,
1995 consist of commercial paper and U.S. and Canadian Treasury obligations
denominated in U.S. dollars.
(D) INVENTORIES
Inventories of ore, ore in process and finished goods are stated at the
lower of average cost or net realizable value. Materials and supplies are stated
at the lower of average cost or replacement cost.
The Company provides an allowance for obsolescence for certain materials and
supplies inventory items. The allowance is based on estimates of inventory
salvage value and anticipated usage over the estimated life of the mine. At
December 31, 1995, June 30, 1995 and 1994, the allowance for obsolescence was
$1,458,000, $1,229,000 and $1,169,000, respectively.
(E) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Maintenance and repairs
are charged to expense as incurred.
F-7
<PAGE>
FIRSTMISS GOLD INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CAPITALIZATION OF INTEREST
Interest is capitalized on expenditures related to construction or
development projects actively being prepared for their intended use.
Capitalization is discontinued when the asset enters commercial operation or
development ceases.
MINERAL EXPLORATION AND MINE DEVELOPMENT
Exploration costs are charged to expense as incurred, as are development
costs for projects not yet determined by management to be commercially feasible.
Expenditures for mine development are capitalized when the properties are
determined to have development potential but are not yet producing. Mine
development costs incurred to access reserves on producing mines are also
capitalized.
MINERAL PROPERTIES
Mining projects and properties are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of these assets
may not be recoverable. If estimated future cash flows expected to result from
the use of the mining project or property and its eventual disposition are less
than the carrying amount of the mining project or property, an impairment is
recognized based upon the estimated fair value of the mining project or
property. Fair value generally is based on the present value of estimated future
net cash flows for each mining project or property, calculated using estimates
of proven and probable reserves, future prices, operating costs, capital
requirements and reclamation costs.
DEFERRED STRIPPING COSTS
To properly match waste removal costs with revenue from gold sales, mining
costs associated with waste rock removal were deferred and charged to operations
on the basis of the estimated average stripping ratio for the life of each
individual ore body. The average stripping ratio is calculated as a ratio of the
tons of waste rock material estimated to be removed and the tons of ore
estimated to contain recoverable gold.
(F) DEPRECIATION, DEPLETION AND AMORTIZATION
Property, plant and equipment with useful lives as long or longer than
existing ore reserves are depreciated or depleted using the units-of-production
method. Plant and equipment with useful lives shorter than existing ore reserves
are depreciated using the straight-line method. Capitalized development costs
and development costs estimated to be incurred over the life of the mine, are
depleted on a units of production method. Depreciation and depletion rates are
subject to periodic review to ensure that asset costs are amortized over their
useful lives.
Depletion is computed on a units-of-production method based on the ratio of
tons of ore mined or ounces of gold produced during the period, to the estimated
total proven and probable reserves of the related property.
(G) RECLAMATION OF MINING AREAS
A liability has been established for estimated costs for restoring certain
disturbed mining and milling areas to comply with existing reclamation
standards. Such costs are charged to operations on a units-of-production basis
over the life of the mine. The amount accrued is based on management's estimate
of reclamation costs to be incurred, $4,800,000 at December 31, 1995,
considering environmental and regulatory requirements. Accrued reclamation costs
are subject to a review by management on a regular basis and are revised when
appropriate for changes in future estimated costs or regulatory requirements.
The Company performs concurrent reclamation to the extent possible, however,
the majority of the accrued costs are anticipated to be expended at the end of
the mine life which, based on existing reserves, is estimated to be 2003.
F-8
<PAGE>
FIRSTMISS GOLD INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(H) REVENUE RECOGNITION
Revenue from spot sales are recorded when title passes to the buyer. Revenue
from shipments under forward sales agreements are recorded at the settlement
date of the agreements. Proceeds from the gold loan, repaid in full on June 30,
1994, were accounted for as deferred revenue and recognized in income at the
rate of $475 per ounce of gold.
Total ounces of gold sold were:
<TABLE>
<CAPTION>
PERIOD GOLD OUNCES SOLD
- - - --------------------------------------------------------------------------- -----------------
<S> <C>
Six months ended December 31, 1995......................................... 85,627
Year ended June 30, 1995................................................... 184,298
Year ended June 30, 1994................................................... 243,826
Year ended June 30, 1993................................................... 210,644
</TABLE>
For the year ended June 30, 1995, gold ounces sold does not include 14,939
ounces of gold sold from properties under development, the revenue from which
was credited to mine development costs.
(I) HEDGING TRANSACTIONS
The Company enters into hedging transactions which not only provide a
minimum price for future production but also allow the Company to take advantage
of increases in the gold price. Hedging transactions have included the purchase
of spot deferred contracts and obtaining gold loans. Gains and losses from
hedging activities are recognized in sales on a basis consistent with the hedged
item. Gains and losses on early termination of hedging contracts are deferred
until the hedged items are recognized in sales. Gains and losses on spot
deferred deliveries rolled into future periods are recognized at the originally
scheduled delivery date.
(J) AMORTIZATION OF DEFERRED LOAN COSTS
Deferred loan costs are amortized over the term of the related loan using
the interest method. Amortization charged to expense for the years ended June
30, 1994 and 1993, was $75,000 and $203,000, respectively. Deferred loan costs
were fully amortized at June 30, 1994.
(K) INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES (Statement 109) as of July 1, 1993. Under the asset
and liability method of Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amount of existing assets and liabilities and
their respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date. The cumulative effect of this change in method of accounting for income
taxes is included in the consolidated statement of operations for the year ended
June 30, 1994.
Prior to the settlement of the tax sharing agreement described in notes 2
and 9, the Company had a tax sharing and allocation agreement with First
Mississippi under which the Company made payments to First Mississippi in
respect to federal, state and local income taxes and state franchise taxes as if
it were a separate corporation, not affiliated with First Mississippi, filing
separate income tax returns.
Under the provisions of the tax sharing agreement, First Mississippi was
required to reimburse the Company for any deduction, credit or allowance which
had been utilized by First Mississippi and subsidiaries in the consolidated tax
returns at such time as the Company could have utilized the underlying tax
assets if it had filed federal and state income tax returns computed on a
separate return basis. In addition, the
F-9
<PAGE>
FIRSTMISS GOLD INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company was required to pay First Mississippi for the estimated income tax
liability of the Company for the taxable year, to be computed as though the
Company were reporting its taxable income or loss on a separate return basis.
(L) EARNINGS PER SHARE
Earnings per share is calculated based on the weighted average number of
common shares and dilutive common share equivalents outstanding during each
period, and were 19,857,000 for the six months ended December 31, 1995,
18,139,000 for the year ended June 30, 1995, 18,150,000 for the year ended June
30, 1994 and 18,024,000 for the year ended June 30, 1993.
(M) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1995
financial statement presentation.
(2) SPIN-OFF BY FIRST MISSISSIPPI AND EQUITY OFFERING
On September 24, 1995, First Mississippi's board of directors approved the
spin-off of First Mississippi's stock in the Company to First Mississippi
shareholders of record on October 10, 1995. On October 20, 1995, First
Mississippi distributed its 81% interest in the Company to First Mississippi
shareholders. In connection with this spin-off, on September 24, 1995, the
Company entered into certain agreements with First Mississippi, including a loan
agreement for the outstanding balances due from the Company to First Mississippi
at the date of the spin-off (described in note 8(a)), an agreement to settle
certain tax sharing arrangements (see note 9) and an agreement to undertake a
public offering of at least $50 million prior to April 28, 1996. In addition,
the Company entered into a $20 million credit facility with The Toronto-Dominion
Bank (see note 5).
On November 21, 1995, the Company completed an equity offering of 6,500,000
common shares which, together with the underwriter's exercise of a 975,000
common share over-allotment option on December 15, 1995, resulted in net
proceeds to the Company of $137.5 million after offering costs and expenses of
$8,250,000.
(3) ABANDONMENTS AND IMPAIRMENT OF MINING ASSETS
As discussed in note 1, when circumstances warrant, the Company performs
property evaluations to assess the recoverability of its mining properties and
investments. Mining in the Main Pit was discontinued in July 1995 after a
geotechnical monitoring program, initiated in June 1995, indicated that
continued mining in the Main Pit would likely destabilize the pit wall. This
event combined with lower grades and higher than anticipated costs, made it
unlikely that the Company would recover the remaining proven and probable
reserves in the Main Pit. Accordingly, the remaining pit development costs of
$5,475,000 and deferred stripping costs of $3,613,000 were written off at June
30, 1995.
In the fiscal year ended June 30, 1995, the Company's $2,324,000 investment
in the Silver Bar property was written off through a charge to operations. The
write off was a result of the Company's decision to commit its exploration and
development resources to the Getchell property, silver prices which were lower
than those required to economically develop the prospect and unsuccessful
attempts to sell Silver Bar. Additional exploration prospects with a recorded
value of $119,000 were abandoned during the year ended June 30, 1995.
F-10
<PAGE>
FIRSTMISS GOLD INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1995, June 30, 1995 and 1994
consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
1995 1995 1994
------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Properties under development..................................... $ 11,856 $ 8,979 $ 6,449
Undeveloped properties........................................... -- -- 2,471
Producing mining properties...................................... 43,124 36,238 32,169
Plant, machinery and equipment................................... 97,454 91,183 85,980
Furniture and fixtures........................................... 650 451 426
------------ ---------- ----------
153,084 136,851 127,495
Less accumulated depreciation and depletion...................... 73,240 69,162 69,022
------------ ---------- ----------
Net depreciable property, plant and equipment.................. 79,844 67,689 58,473
Deferred stripping costs, net of amortization.................... -- -- 8,325
------------ ---------- ----------
Net property, plant and equipment.............................. $ 79,844 $ 67,689 $ 66,798
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
Properties under development consists of construction and other costs
related to facilities not yet completed and placed in service. The cost of
undeveloped properties is reclassified to developed properties when management
determines that the project is commercially productive.
Interest capitalized, depreciation and depletion expense and amortization of
deferred stripping costs are as follows:
<TABLE>
<CAPTION>
SIX-MONTHS
ENDED YEAR ENDED JUNE 30,
DECEMBER 31, ------------------------------------------
1995 1995 1994 1993
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Interest capitalized........................ $ 402,000 $ 1,159,000 $ 221,000 $ 43,000
Depreciation and depletion expense.......... 4,078,000 9,514,000 13,459,000 13,525,000
Amortization of deferred stripping
costs..................................... -- 5,031,000 9,920,000 203,000
</TABLE>
(5) DEBT AND GOLD LOAN
(A) THE TORONTO-DOMINION BANK LOAN FACILITY
In September 1995, the Company entered into a loan facility with The
Toronto-Dominion Bank, which provided for $20 million of term loans to the
Company (the Facility). The Facility was established to finance the development
of the Turquoise Ridge reserves between the spin-off and the equity offering.
The Company paid fees of $1,055,000 related to the Facility. The Company
borrowed $5,500,000 under the Facility on October 20, 1995, which was repaid in
full upon completion of the November 21, 1995 equity offering. Interest on the
outstanding indebtedness accrued at 3% over the LIBOR rate for each month during
which the advances were outstanding. The Facility was terminated in full upon
payment of the obligation.
(B) GOLD LOAN AND CREDIT AGREEMENT
FMG had a gold loan which matured and was repaid in full on June 30, 1994.
Under the gold loan, FMG borrowed a total of 150,000 ounces of gold which
provided $71,270,000 at an average predetermined price of $475 per ounce. In the
years ended June 30, 1994 and 1993, FMG repaid 20,625 and 28,125 ounces of the
gold loan and, as a result of the repayments, approximately $9,800,000 and
$13,363,000, respectively, of deferred revenue was recognized in gold sales.
F-11
<PAGE>
FIRSTMISS GOLD INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to the gold loan agreements, FMG was required to enter into a
forward sales arrangement, covering 202,600 ounces of gold. Under this
agreement, during 1994 and 1993, FMG sold 47,000 and 40,000 ounces,
respectively, at $400 per ounce. All commitments under the agreement were
fulfilled as of June 30, 1994.
(6) PENSION, 401(K) AND LONG-TERM INCENTIVE PLANS
Prior to the spin-off, the Company's employees participated in the First
Mississippi qualified noncontributory defined benefit pension plan. In
connection with spin-off, the Company agreed to establish its own qualified
noncontributory defined benefit pension plan. In turn, First Mississippi agreed
to (i) maintain the administration and funding of accrued benefits at the
spin-off date for all vested Company employees, and (ii) transfer funds to the
Company's plan equal to the actuarially determined pension liability of the non
vested Company employees in the First Mississippi Plan.
The Company's plan will cover all full-time permanent employees. The
benefits are based on years of service and participants' compensation during the
last five years of employment. Under the plan, an employee becomes a participant
following six months of service, provided that the employee is regularly
employed for at least 1,000 hours per year. Pension expense was $195,000,
$451,000, $412,000 and $374,000 for the six months ended December 31, 1995 and
years ended June 30, 1995, 1994 and 1993, respectively.
At December 31, 1995, First Mississippi has not yet transferred funds, and
therefore the liability, for unvested Company employees previously covered under
the First Mississippi Plan. Based on the information available, the Company
believes that the impact of the post spin-off events on the Company's financial
statements is not material.
Substantially all employees who have completed six months of service are
eligible to participate in the Company's 401(k) thrift plan. Under the plan,
employees may elect to contribute from 1% to 16.8% of monthly base pay, with the
Company providing matching contributions up to 4% of monthly base pay. Total
expense under the plan amounted to $103,000, $217,000, $195,000 and $181,000 for
the six months ended December 31, 1995, and the years ended June 30, 1995, 1994
and 1993, respectively.
Directors, officers and certain key employees of the Company participate in
a long-term incentive plan under which the Company has reserved 900,000 shares
of common stock for issuance. Awards may be in the form of stock options,
options to purchase debentures convertible into common stock or convertible
preferred stock, stock appreciation rights, performance units, restricted stock,
supplemental cash and such other forms as the Board of Directors may direct.
Stock options may be incentive stock options or nonqualified stock options. The
Board of Directors in its discretion will determine the recipients and the
amounts of all awards. Options outstanding will expire in 1998 through 2004
unless exercised. The debenture options outstanding give the holder the right to
purchase a debenture from the Company, which is convertible into preferred stock
which is then convertible into common stock of the Company at the original
option price. As of December 31, 1995, awards for 35,575 common shares remained
available for granting until the plan terminates in 1997.
F-12
<PAGE>
FIRSTMISS GOLD INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in stock options and debenture options during the six months ended
December 31, 1995 and the years ended June 30, 1995, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
STOCK OPTIONS DEBENTURE OPTIONS
------------------------------ -------------------------------
NUMBER OF OPTION PRICE PER NUMBER OF OPTION PRICE PER
SHARES SHARE SHARES SHARE
---------- ------------------ --------- --------------------
<S> <C> <C> <C> <C>
Outstanding at June 30, 1993.................... 125,000 $4.375 100,300 3.25 - 10.1875
Granted....................................... 60,200 6.6875 5,000 6.375
Expired or canceled........................... (2,300) 6.6875 (3,000) 7.625 - 9.75
---------- ---------
Outstanding at June 30, 1994.................... 182,900 4.375 - 6.6875 102,300 3.25 - 10.1875
Granted....................................... 246,349 7.25 - 11.4375 1,000 9.53125
Exercised..................................... (47,600) 6.6875 - 7.25 (13,500) 3.25 - 10.1875
Expired or canceled........................... (129,700) 4.375 - 6.6875 (20,300) 7.625 - 9.750
---------- ---------
Outstanding at June 30, 1995.................... 251,949 4.375 - 11.4375 69,500 3.25 - 10.1875
---------- ---------
Granted....................................... 207,376 20.25 --
---------- ---------
Outstanding at December 31, 1995................ 459,325 4.375 - 20.25 69,500 3.25 - 10.1875
---------- ---------
---------- ---------
</TABLE>
In August 1994, a restricted stock award of 10,000 common shares was
granted. Under the terms of the restricted stock award and as a result of the
spin-off and subsequent equity offering completed in November 1995 (see note 2),
the restricted stock award vested in February 1996. No restricted stock awards
were granted during the six months ended December 31, 1995 or during the years
ended June 30, 1994 and 1993.
(7) HEDGING ACTIVITIES AND COMMITMENTS
The Company's principal product is gold. As such, the Company is subject to
price risk from fluctuating gold prices. The Company uses hedging transactions
to protect earnings and cash flows from the impact of short-term declines in
gold prices. At December 31, 1995, the Company had commitments under spot
deferred sales contracts for the delivery of gold as follows:
<TABLE>
<CAPTION>
DELIVERY DATE PRICE RANGE OUNCES
- - - ------------------------------------ -------------------- ---------
<S> <C> <C>
Year ending December 31, 1996 $387.63 - $420.56 104,100
</TABLE>
Based on the market price of gold on December 31, 1995, the unrealized gain
on these contracts is $1,559,000. Risk of loss arises from the possible
inability of the counterparty to fulfill its obligations under the contracts and
from changes in the Company's anticipated gold production.
(8) RELATED PARTY TRANSACTIONS
(A) NOTES PAYABLE
As discussed in note 2, contemporaneously with the spin-off, the Company and
First Mississippi executed a promissory note, whereupon all promissory notes
previously entered into between the two companies were canceled. The principal
balance of the promissory note is equal to the indebtedness of the Company to
First Mississippi for advances and accrued interest thereon, as of the date of
the spin-off, net of the $13,900,000 receivable resulting from the settlement of
the tax sharing agreement (see note 9).
The promissory note is due September 22, 2000 or upon a change in control of
the Company and may be prepaid without penalty. Interest on the note accrues at
a LIBOR-based rate (6.25% at December 31, 1995) and is payable based on the
LIBOR period selected by the Company (one month, three month, six month or one
year).
At June 30, 1995 and 1994, the Company had $40,900,000 and $29,339,000,
respectively, outstanding pursuant to notes payable to First Mississippi.
Interest accrued at the prime rate plus 0.75% and, if unpaid, was added to the
balance due under the notes.
F-13
<PAGE>
FIRSTMISS GOLD INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accrued interest and income taxes payable transferred to notes payable and
interest expense on common due First Mississippi are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED JUNE 30,
DECEMBER 31, ----------------------------------------
1995 1995 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Accrued interest payable transferred
to notes payable.................... 3,048,000 2,280,000 1,505,000 898,000
Income tax payable transferred to
notes payable....................... -- -- 3,000,000 --
Interest expense net of capitalized
interest............................ $1,278,000 $ 1,801,000 $ 1,730,000 $ 1,063,000
</TABLE>
(B) ADMINISTRATIVE CHARGES
The Company had an administrative services agreement with First Mississippi
which was terminated in conjunction with the spin-off. Prior to termination, the
Company reimbursed First Mississippi on a fee basis determined annually. Under
this agreement, the Company reimbursed First Mississippi approximately $59,000,
$224,000, $139,000 and $148,000 for the six months ended December 31, 1995 and
years ended June 30, 1995, 1994 and 1993, respectively. Direct expenses incurred
by First Mississippi on behalf of the Company were charged to the Company based
on the actual costs incurred.
The Company reimbursed First Mississippi approximately $220,000, $327,000,
$214,000 and $141,000 for the six months ended December 31, 1995 and years ended
June 30, 1995, 1994 and 1993, respectively, for insurance premiums paid by First
Mississippi on behalf of the Company.
(9) INCOME TAXES
Until the spin-off, the Company and First Mississippi operated under the
terms of a Tax Sharing Agreement. In connection with the spin-off, First
Mississippi and the Company entered into an Amended Tax Sharing Agreement. The
Amended Tax Sharing Agreement provides for the termination of the Tax Sharing
Agreement, and sets forth the parties' obligations with respect to taxes
relating to pre-distribution taxable periods (Pre-Spin-Off Periods).
The Amended Tax Sharing Agreement obligated First Mississippi to pay the
Company (by either an actual payment or a reduction in the Company's outstanding
indebtedness to First Mississippi) an agreed upon amount of approximately
$13,900,000, representing the tax benefit received by the affiliated group of
which First Mississippi is the common parent corporation (the First Mississippi
Affiliated Group) from its use of the Company's losses, deductions, credit and
allowances in Pre-Spin-Off Periods. As a result of this agreement, the Company
relinquished its rights to, and eliminated the deferred tax balances of, certain
Federal net operating loss carryforwards and alternative minimum tax credit
carryforwards totaling $10,774,000 and $8,591,000, respectively, and the related
valuation allowance of $6,684,000.
The Company has agreed in the Amended Tax Sharing Agreement to indemnify
First Mississippi for any taxes attributable to the Company and assessed with
respect to consolidated or combined tax returns which include the Company and
relate to Pre-Spin-Off Periods, to the extent any liability for such taxes
exceeds $250,000. Conversely, First Mississippi has agreed to indemnify the
Company against any liability for taxes attributable to members of the First
Mississippi Affiliated Group, other than the Company, but imposed on the Company
as a result of its inclusion in First Mississippi's consolidated or combined tax
returns for the Pre-Spin-Off Periods. Certain of the Federal Income tax returns
of the First Mississippi Affiliated Group are presently under examination by the
Internal Revenue Service for the years 1987 through 1994. In the opinion of
management, any additional tax liability, not previously provided for, resulting
from these examinations and ultimately determined to be payable, has been
adequately provided for.
F-14
<PAGE>
FIRSTMISS GOLD INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company adopted Statement 109 as of July 1, 1993. The cumulative effect
of the change, totaling $1,350,000, is reported separately in the consolidated
statement of operations for the year ended June 30, 1994. Financial statements
of prior years have not been restated to apply the provisions of Statement 109.
Income tax expense (benefit) attributable to earnings (loss) before income
tax expense consists of (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED JUNE 30,
DECEMBER 31, -------------------------------
1995 1995 1994 1993
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Federal:
Current................................................... $ (884) $ 428 $ 3,783 $ 867
Deferred.................................................. -- -- (2,483) (1,484)
----- --------- --------- ---------
$ (884) $ 428 $ 1,300 $ (617)
----- --------- --------- ---------
----- --------- --------- ---------
</TABLE>
Income tax expense (benefit) for the six months ended December 31, 1995 and
years ended June 30, 1995, 1994 and 1993, respectively, differ from the amounts
computed by applying the U.S. federal income tax rate of 35% for 1995 and 34%
for 1994 and 1993, to pretax income as a result of the following:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED JUNE 30,
DECEMBER 31, -------------------------------
1995 1995 1994 1993
------------ --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Computed "expected" tax expense (benefit)................ $ (2,069) $ (6,275) $ 1,904 $ (1,049)
Increase in valuation allowance for net deferred tax
assets................................................. -- 6,684 -- --
Percentage depletion..................................... 1,353 (1,177) (1,043) --
Nondeductible expenses and other......................... (168) 16 (91) 5
Benefit not recorded for net operating loss.............. -- -- -- 427
Tax provision adjustment for pending IRS matters......... -- 1,180 427 --
Adjustment to deferred tax assets and liabilities for
enacted change in tax rates............................ -- -- 103 --
------------ --------- --------- ---------
Actual tax expense (benefit)............................. $ (884) $ 428 $ 1,300 $ (617)
------------ --------- --------- ---------
------------ --------- --------- ---------
</TABLE>
For the year ended June 30, 1993, deferred income tax benefit of $1,484,000
results from timing differences in the recognition of income and expense for
income tax and financial reporting purposes. The sources and tax effects of
those timing differences for the year ended June 30, 1993 are presented below
(in thousands):
<TABLE>
<S> <C>
Capitalized mineral exploration and development costs and related
amortization............................................................. $ 3,470
Depreciation and depletion................................................. (1,718)
Alternative minimum tax credit carryforward................................ (867)
Tax effect of net operating loss carryforward.............................. (1,754)
Benefit not recorded for loss carryback.................................... 427
Deferred loan costs........................................................ (69)
Accrued reclamation costs.................................................. (322)
Inventory valuation adjustment............................................. (510)
Other, net................................................................. (141)
---------
$ (1,484)
---------
---------
</TABLE>
F-15
<PAGE>
FIRSTMISS GOLD INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities at December 31, 1995 and June 30, 1995 and
1994 are presented below:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED JUNE 30,
DECEMBER 31, ----------------------
1995 1995 1994
------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Accrued pension costs........................................... $ 657 $ 656 $ 519
Accrued reclamation costs....................................... 1,093 1,085 1,052
Deferred stripping costs........................................ 4,017 4,017 2,256
Inventory valuation adjustment.................................. 448 374 356
Federal net operating loss carryforward......................... 1,153 10,318 2,643
Alternative minimum tax credit carryforward..................... 566 9,157 9,695
Other, net...................................................... 1,063 883 846
------------ ---------- ----------
Total gross deferred tax assets........................... 8,997 26,490 17,367
Less valuation allowance........................................ -- (6,684) --
------------ ---------- ----------
Total deferred tax assets................................. 8,997 19,806 17,367
------------ ---------- ----------
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation.................................................. (1,957) (1,551) (1,770)
Interest capitalized for financial reporting purposes........... (279) (279) (303)
Depletion....................................................... (1,114) (1,114) (1,114)
Capitalized mineral exploration and development costs net of
related amortization.......................................... (12,790) (11,792) (9,020)
Other, net...................................................... (1,468) (225) (315)
------------ ---------- ----------
Total gross deferred tax liabilities...................... (17,608) (14,961) (12,522)
------------ ---------- ----------
Net deferred tax assets (liabilities)..................... $ (8,611) $ 4,845 $ 4,845
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
As of December 31, 1995, the Company has net operating loss carryforwards
for Federal income tax purposes of approximately $3,293,000 which may be used by
the Company to offset future federal taxable income, if any. These loss
carryforwards will expire in 2010.
The Company has alternative minimum tax credit carryforwards of $566,000
available to reduce future regular income taxes, if any, in excess of
alternative minimum taxes the carryforwards are available over an indefinite
period.
(10) LEASES
The Company is obligated under capital leases for mining equipment. The term
of the leases range from four to five years. A certain lease provides that the
Company will purchase the leased equipment at fair market value at the end of
the lease term or renew the lease for an additional two years.
At December 31, 1995, the gross amount of leased property held under capital
leases totaled $5,515,000, with related accumulated depreciation of $309,000.
Amortization of assets held under capital leases is included with depreciation
expense.
F-16
<PAGE>
FIRSTMISS GOLD INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also has several noncancelable operating leases for mining
equipment, vehicles and office space. Future minimum lease payments under
noncancelable operating leases (with initial or remaining lease terms in excess
of one year) and future capital lease payments as of December 31, 1995 are as
follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
Years ending December 31:
1996..................................................................
1997.................................................................. $ 1,213 $ 1,578
1998.................................................................. 1,292 1,468
1999.................................................................. 1,390 1,467
2000.................................................................. 1,980 1,468
Thereafter............................................................ 430 949
--------- -----------
Total minimum lease payments.................................... 6,305 $ 6,930
-----------
-----------
Less amounts representing interest.................................... (1,074)
---------
Present value of minimum capital lease payments................. 5,231
Less current installments............................................. (844)
---------
Capital lease obligations, less current installments............ $ 4,387
---------
---------
</TABLE>
Rental expense under these leases amounted to $1,234,000, $1,258,000,
$417,000, and $442,000 for the six months ended December 31, 1995 and years
ended June 30, 1995, 1994 and 1993, respectively.
(11) COMMITMENTS
The Company has an agreement with an independent contractor which owns and
operates an oxygen plant which provides oxygen for the autoclave process in the
mill. The agreement requires, among other things, that the Company must
generally pay the independent contractor at a rate of approximately $224,000 a
month in 1996 (subject to future adjustment for inflation) and that the Company
pay a termination fee if the contract is terminated prior to January 2004 of
approximately $3,200,000 in 1996, decreasing each year thereafter to
approximately $400,000 in the last year of the contract.
The Company is obligated to pay a 2% royalty on net smelter returns of the
current mineral production from certain of its mining properties. Royalties
accrued on sales are recorded as operating costs and amounted to $783,000,
$1,535,000, $1,852,000 and $1,449,000 for the six months ended December 31, 1995
and years ended June 30, 1995, 1994 and 1993, respectively.
In connection with its hedging activities, the Company has established a
$12,000,000 line of credit. The line of credit is guaranteed by First
Mississippi.
(12) STOCKHOLDERS' RIGHTS PLAN
On June 13, 1990, the Company declared a distribution of one common stock
purchase right for each outstanding share of common stock. The rights, which do
not have voting rights, expire in June 2000 and are subject to redemption or
exchange by the Company at $0.01 per right at any time before the close of
business on the tenth day after a public announcement that an acquiring person
exists (unless such 10-day period is extended by action of the Company's Board
of Directors). The rights have an initial exercise price of $40 which is subject
to adjustment. In the event of an entity, other than First Mississippi,
acquiring more than a 15% beneficial ownership of the Company, the rights
entitle the holder to acquire common stock of the Company with a value of twice
the established exercise price. In the event of a merger or other business
combination, the rights entitle the holder to acquire stock of the acquiring
entity with a value of twice the established exercise price.
F-17
<PAGE>
FIRSTMISS GOLD INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data follow (in thousands except for per share
data):
<TABLE>
<CAPTION>
QUARTERLY
----------------------
DECEMBER 31, 1995 SEPT. 30 DEC. 31
- - - ----------------------------------------------------------------------------------------------- ----------- ---------
<S> <C> <C>
Net sales...................................................................................... $ 17,605 $ 16,820
----------- ---------
----------- ---------
Gross margin................................................................................... $ 666 $ (2,197)
----------- ---------
----------- ---------
Loss before income taxes....................................................................... $ (1,659) $ (4,252)
----------- ---------
----------- ---------
Net loss....................................................................................... $ (1,234) $ (3,793)
----------- ---------
----------- ---------
Loss per share................................................................................. $ (0.07) $ (0.18)
----------- ---------
----------- ---------
</TABLE>
The above quarterly earnings (loss) per share are based on the weighted
average common shares outstanding during each quarter whereas the annual
earnings (loss) per share are based on the weighted average common shares
outstanding during the year.
<TABLE>
<CAPTION>
QUARTERLY
----------------------------------------------
JUNE 30, 1995 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
- - - --------------------------------------------------------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales.................................................................. $ 21,509 $ 16,517 $ 15,786 $ 17,673
----------- --------- ----------- ---------
----------- --------- ----------- ---------
Gross margin............................................................... $ 3,616 $ (1,349) $ 1,637 $ (2,194)
----------- --------- ----------- ---------
----------- --------- ----------- ---------
Earnings (loss) before income taxes........................................ $ 882 $ (2,767) $ (39) $ (16,005)
----------- --------- ----------- ---------
----------- --------- ----------- ---------
Net earnings............................................................... $ 507 $ (1,827) $ (454) $ (16,583)
----------- --------- ----------- ---------
----------- --------- ----------- ---------
Earnings per share......................................................... $ 0.03 $ (0.10) $ (0.03) $ (0.91)
----------- --------- ----------- ---------
----------- --------- ----------- ---------
<CAPTION>
QUARTERLY
----------------------------------------------
JUNE 30, 1994 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
- - - --------------------------------------------------------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales.................................................................. $ 20,836 $ 24,495 $ 24,658 $ 25,161
----------- --------- ----------- ---------
----------- --------- ----------- ---------
Gross margin............................................................... $ 1,607 $ 4,532 $ 4,020 $ 2,860
----------- --------- ----------- ---------
----------- --------- ----------- ---------
Earnings (loss) before cumulative effect of change in accounting
principle................................................................ $ (185) $ 1,826 $ 2,123 $ 535
----------- --------- ----------- ---------
----------- --------- ----------- ---------
Net earnings............................................................... $ 1,165 $ 1,826 $ 2,123 $ 535
----------- --------- ----------- ---------
----------- --------- ----------- ---------
Earnings (loss) per share before cumulative effect of accounting change.... $ (0.01) $ 0.10 $ .12 $ 0.03
----------- --------- ----------- ---------
----------- --------- ----------- ---------
Earnings per share......................................................... $ 0.06 $ 0.10 $ 0.12 $ 0.03
----------- --------- ----------- ---------
----------- --------- ----------- ---------
</TABLE>
As described in note 9, the Company adopted Statement 109 as of July 1,
1993. The cumulative effect of the change, totaling $1,350,00, is reported
separately in the consolidated statements of operations for the year ended June
30, 1994.
F-18
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
3(a) -- Articles of Incorporation, as amended, which were filed as Exhibit
3(a) to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1991, are incorporated herein by reference.
3(b) -- Bylaws of the Company, which were filed as Exhibit 3(b) to the
Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1990, are incorporated herein by reference.
4(a) -- Article IV, Article XIII and Article XIV of the Company's Articles of
Incorporation, which are included in Exhibit 3(a) filed with the
Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1991, are incorporated herein by reference.
4(b) -- Article II and Article V, Section 6 of the Company's Bylaws, which are
included in Exhibit 3(b) filed with the Company's Annual Report on
Form 10-K for fiscal year ended June 30, 1990, are incorporated herein
by reference.
4(c) -- Company Resolutions authorizing the 1988-A Series Convertible
Preferred Stock, effective July 13, 1988, which were filed as Exhibit
4(c) to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1988, are incorporated by reference.
4(d) -- Company Resolutions authorizing the 1989-A Series Convertible
Preferred Stock, effective August 9, 1989, which were filed as Exhibit
4(f) to the Company's Annual Report on Form 10-K for the year ended
June 30, 1989, are incorporated herein by reference.
4(e) -- Company Resolutions authorizing the 1989-B Series Convertible
Preferred Stock, effective November 2, 1989, which were filed as
Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1989, are incorporated herein by
reference.
4(f) -- Company Resolutions authorizing the 1990-A Series Convertible
Preferred Stock, effective August 8, 1990, which were filed as Exhibit
4(f) to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1990, are incorporated herein by reference.
4(g) -- Company Resolutions authorizing the Company's 1990-B and 1990-C Series
Convertible Preferred Stock, effective November 1, 1990 and November
2, 1990, respectively, which were filed as Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990, are incorporated herein by reference.
4(h) -- Company Resolutions authorizing the 1991-A Series Convertible
Preferred Stock, effective August 14, 1991, which were filed as
Exhibit 4(h) to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1991, are incorporated herein by reference.
4(i) -- Company Resolutions authorizing the 1991-B Series Convertible
Preferred Stock, effective November 7, 1991, which were filed as
Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1991, are incorporated herein by
reference.
4(j) -- Company Resolutions authorizing the 1992-A Series Convertible
Preferred Stock, effective November 5, 1992, which were filed as
Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992, are incorporated herein by
reference.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
4(k) -- Company Resolutions authorizing the 1993-A Series Convertible
Preferred Stock, effective November 4, 1993, which were filed as
Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993, are incorporated herein by
reference.
4(l) -- Credit Agreement, dated as of December 30, 1987, which was filed as
Exhibit 10.17 to Amendment No. 1 to the Company's Registration
Statement on Form S-1 filed with the Securities and Exchange
Commission on November 2, 1987 (the "Form S-1"), is incorporated by
reference.
4(m) -- First Amendment to Credit Agreement, dated as of January 26, 1988,
which was filed as Exhibit 10.23 to Amendment No. 2 to the Company's
Form S-1, is incorporated by reference.
4(n) -- Second Amendment to Credit Agreement, dated as of April 14, 1988,
which was filed as Exhibit 10.24 to Amendment No. 4 to the Company's
Form S-1, is incorporated by reference.
4(o) -- Third Amendment to Credit Agreement, dated as of March 30, 1989, which
was filed as Exhibit 4(h) to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1989, is incorporated by reference.
4(p) -- Fourth Amendment to the Credit Agreement, dated as of July 2, 1990,
which was filed as Exhibit 4(m) to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1991, is incorporated herein
by reference.
4(q) -- Amended and Restated Gold Loan Agreement, dated January 26, 1988,
which was filed as Exhibit 10.15 to Amendment No. 2 to the Company's
Form S-1, is incorporated by reference.
4(r) -- Rights Agreement dated June 13, 1990, which was filed as Exhibit 1 to
the Company's Form 8-K dated June 13, 1990, is incorporated by
reference.
4(s) -- Loan Agreement between the Company and First Mississippi, dated March
29, 1990, which was filed as Exhibit 4(p) to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1991, is
incorporated herein by reference.
4(t) -- Amendment to Loan Agreement between The Company and First Mississippi,
dated August 27, 1991, which was filed as Exhibit 4(q) to the
Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1991, is incorporated herein by reference.
4(u) -- Second Amendment to Loan Agreement between the Company and First
Mississippi dated August 25, 1993, which was filed as Exhibit 4(t) to
the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1993, is incorporated herein by reference.
10(a) -- Gold Production Purchase Agreement, dated November 11, 1987, together
with Form of Amendment No. 1 thereto, which was filed as Exhibit 10.16
to Amendment No. 1 to the Company's Form S-1, is incorporated by
reference.
10(b) -- Administrative Services Agreement, dated October 28, 1987, which was
filed as Exhibit 10.2 to the Company's Form S-1, is incorporated by
reference.
10(c) -- Tax Sharing Agreement effective as of October 1, 1987, which was filed
as Exhibit 10.3 to the Company's Form S-1, is incorporated by
reference.
10(d) -- FirstMiss Gold Inc. Amended and Restated Long-Term Incentive Plan, as
amended November 14, 1992, which was filed as Exhibit 10(i) Annual
Report on Form 10-K for the fiscal year ended June 30, 1993 is
incorporated herein by reference.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10(e) -- Assignment Agreement, dated October 28, 1987, which was filed as
Exhibit 10.14 to the Company's Form S-1, is incorporated by reference.
10(f) -- Reserved.
10(g) -- Gold Loan Agreement, dated November 11, 1987, which was filed as
Exhibit 10.15 to Amendment No. 1 to the Company's Form S-1, is
incorporated by reference.
10(h) -- Indemnity Agreement, dated as of October 30, 1987, which was filed as
Exhibit 10.18 to Amendment No. 1 to the Company's Form S-1, is
incorporated by reference.
10(i) -- Credit Support Agreement, dated as of December 30, 1987, which was
filed as Exhibit 10.19 to Amendment No. 1 to the Company's Form S-1,
is incorporated by reference.
10(j) -- Construction Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing, dated as of December 30, 1987, which was filed as
Exhibit 10.20 to Amendment No. 2 to the Company's Form S-1, is
incorporated by reference.
10(k) -- Developer Indemnity Agreement, dated as of January 26, 1988, which was
filed as Exhibit 10.21 to Amendment No. 2 to the Company's Form S-1,
is incorporated by reference.
10(l) -- Amendment No. 1 to the Gold Production Purchase Agreement, dated as of
January 26, 1988, which was filed as Exhibit 10.22 to Amendment No. 2
to the Company's Form S-1, is incorporated by reference.
10(m) -- Form of Termination Agreement between First Mississippi Corporation
and Charles M. McAuley (Company's Termination Agreement with such
individual contains identical provisions to those contained in the
form), which was filed as Exhibit 10(v) to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1991, is incorporated
herein by reference.
10(n) -- Form of Termination Agreement between the Company and Richard F.
Nanna, Q. Allen Neal and Charles M. McAuley (Company's Termination
Agreement with each such individual contains identical provisions to
those contained in the form), which was filed as Exhibit 10(w) to the
Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1991, is incorporated herein by reference.
10(o) -- Form of Addendum to Termination Agreement between the Company and
Richard F. Nanna, Q. Allen Neal and Charles M. McAuley (Company's
Addendum to Termination Agreement with each such individual contains
identical provisions to those contained in the form), which was filed
as Exhibit 10(x) to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1991, is incorporated herein by reference.
10(p) -- Refining Agreement between FMG Inc. and Metalor USA Refining
Corporation dated June 1, 1992, which was filed as Exhibit 10(w) to
the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1992, is incorporated herein by reference.
10(q) -- Amendment to Refining Agreement between FMG Inc. and Metalor USA
Refining Corporation dated May 27, 1993, which was filed as Exhibit
10(x) to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1993, is incorporated herein by reference.
10(r) -- Mine Operating Contract between FMG Inc. and N.A. Degerstrom, Inc.,
dated July 1, 1991, which was filed as Exhibit 10(aa) to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1991, is
incorporated herein by reference.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10(s) -- Oxygen Supply Agreement, dated August 27, 1987, and Air Rights Lease
Agreement, dated as of August 27, 1987, which were filed as Exhibit
10(j) to the Company's Annual Report on Form 10-K for the year ended
June 30, 1989, are incorporated herein by reference.
10(t) -- Mine Contract between FMG Inc. and J.S. Redpath Corporation dated
August 30, 1993, which was filed as Exhibit 10(bb) to the Company's
Form 10-K for the fiscal year ended June 30, 1994, is incorporated
herein by reference.
10(u) -- Amendment to Administrative Services Agreement between First
Mississippi and the Company dated August 29, 1995, which was filed a
Exhibit 10(cc) to the Company's Form 10-K for the fiscal year ended
June 30, 1995, is incorporated herein by reference.
10(v) -- Form of Termination Agreement between the Company and G.W. Thompson,
Donald S. Robson, R. David Russell and Donald O. Miller (Company's
Termination Agreement with each such individual contains identical
provisions to those contained in the form), which was filed as Exhibit
10(dd) to the Company's Form 10-K for the fiscal year ended June 30,
1995, is incorporated herein by reference.
10(w) -- Promissory Note by the Company in favor of First Mississippi dated
February 1, 1995, which was filed as Exhibit 10(ee) to the Company's
Form 10-K for the fiscal year ended June 30, 1995, is incorporated
herein by reference.
10(x) -- Restricted Stock Award Agreement between the Company and G.W. Thompson
dated August 22, 1994, which was filed as Exhibit 10(ff) to the
Company's Form 10-K for the fiscal year ended June 30, 1995, is
incorporated herein by reference.
10(y) -- Post Spin-Off Agreement dated as of September 24, 1995, by and between
First Mississippi and the Company, which was filed as Exhibit 10(a) to
the Company's Report on Form 8-K dated September 24, 1995, is
incorporated by reference herein.
10(z) -- Tax Ruling Agreement dated as of September 24, 1995, by and between
First Mississippi and the Company, which was filed as Exhibit 10(b) to
the Company's Report on Form 8-K dated September 24, 1995, is
incorporated by reference herein.
10(aa) -- Loan Agreement dated as of September 24, 1995, by and between First
Mississippi and the Company, which was filed as Exhibit 10(c) to the
Company's Report on Form 8-K dated September 24, 1995, is incorporated
by reference herein.
10(bb) -- Amended Tax Sharing Agreement dated as of September 24, 1995, by and
between First Mississippi and the Company, which was filed as Exhibit
10(d) to the Company's Report on Form 8-K dated September 24, 1995, is
incorporated by reference herein.
10(cc) -- Loan Agreement dated as of September 24, 1995 by and between The
Toronto Dominion Bank and the Company.
21. -- List of subsidiaries of the Company.
23. -- Consent of KPMG Peat Marwick LLP regarding incorporation of reports
into Registration Statements.
27. -- Financial Data Schedule.
</TABLE>
Certain debt instruments have not been filed. The Company agrees to furnish
a copy of such agreement(s) to the commission upon request.
<PAGE>
FIRSTMISS GOLD INC.
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
SUBSIDIARY STATE OF INCORPORATION
- - - ---------- ----------------------
PMG Inc. Nevada
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
FirstMiss Gold Inc.:
We consent to incorporation by reference in the registration statements (No.
33-24401, 2-93585, 33-24414, 33-31226, 33-32572, 33-37805, 33-39067,
33-43602, 33-45342, 33-56046, 33-57761 and 33-74020) on Form S-8 of FirstMiss
Gold Inc. of our report dated February 7, 1996 relating to the consolidated
balance sheets of FirstMiss Gold Inc. and subsidiary as of December 31, 1995,
June 30, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for the six months ended
December 31, 1995 and each of the years in the three-year period ended June
30, 1995, which report appears in the December 31, 1995, annual report on
Form 10-K of FirstMiss Gold Inc.
KPMG PEAT MARWICK LLP
Denver, Colorado
March 21, 1996
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
FirstMiss Gold Inc.:
We consent to incorporation by reference in the registration statement (No.
33-62449) on Form S-3 of FirstMiss Gold Inc. of our report dated February 7,
1996 relating to the consolidated balance sheets of FirstMiss Gold Inc. and
subsidiary as of December 31, 1995, June 30, 1995 and 1994, and the related
consolidated statement of operations, stockholders' equity and cash flows for
the six months ended December 31, 1995 and each of the years in the
three-year period ended June 30, 1995 which report appears in the December
31, 1995, annual report on Form 10-K of FirstMiss Gold Inc.
KPMG PEAT MARWICK LLP
Denver, Colorado
March 21, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 114,633
<SECURITIES> 0
<RECEIVABLES> 3,812
<ALLOWANCES> 0
<INVENTORY> 9,750
<CURRENT-ASSETS> 130,649
<PP&E> 153,084
<DEPRECIATION> 73,240
<TOTAL-ASSETS> 210,493
<CURRENT-LIABILITIES> 6,499
<BONDS> 12
0
0
<COMMON> 257
<OTHER-SE> 164,007
<TOTAL-LIABILITY-AND-EQUITY> 210,493
<SALES> 34,425
<TOTAL-REVENUES> 34,425
<CGS> 35,956
<TOTAL-COSTS> 35,956
<OTHER-EXPENSES> 2,682
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,643
<INCOME-PRETAX> (5,911)
<INCOME-TAX> (844)
<INCOME-CONTINUING> (5,027)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,027)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
