SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1998
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-16484
Getchell Gold Corporation
(Exact name of Registrant as specified in its charter)
Delaware 64-0748908
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5460 South Quebec Street
Suite 240
Englewood, Colorado 80111
(Address of principal executive offices) (Zip code)
(303) 771-9000
(Registrant's telephone number including area code)
Not applicable
(Former name, former address, and former fiscal year, if changed since last
report)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Title Outstanding
Common Stock, par value $0.0001 30,792,454 on October 30, 1998
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GETCHELL GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net sales $14,631 $17,587 $37,242 $ 51,124
Cost of sales 16,106 21,661 45,281 63,198
------- ------- ------- --------
Gross margin (1,475) (4,074) (8,039) (12,074)
General and administrative expenses 1,253 1,292 2,889 5,055
Exploration expenses 296 397 583 1,393
------- ------- ------- --------
Loss from operations (3,024) (5,763) (11,511) (18,522)
Interest expense, net of interest capitalized (159) (204) (522) (646)
Interest and other income 634 1,065 2,240 3,203
------- ------- ------- --------
Net loss $(2,549) $(4,902) $(9,793) $(15,965)
======= ======= ======= ========
Basic loss per common share $ (0.08) $ (0.18) $ (0.33) $ (0.60)
======= ======= ======= ========
Weighted average number of shares outstanding 30,789 26,779 29,837 26,499
======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 1
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 37,779 $ 34,247
Accounts receivable:
Trade 3,774 1,790
Employee 213 182
Other 206 261
-------- --------
Total accounts receivable 4,193 2,233
-------- --------
Inventories:
Ore and ore in process 2,300 1,873
Materials and supplies 11,248 10,873
-------- --------
Total inventories 13,548 12,746
-------- --------
Prepaid expenses 1,744 808
-------- --------
Total current assets 57,264 50,034
Property, plant and equipment, net 245,006 188,242
Other 3,525 211
-------- --------
Total assets $305,795 $238,487
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,541 $ 13,506
Accrued expenses 2,780 2,258
Current portion of capital lease obligations 3,464 2,248
Stock appreciation rights 942 1,238
Other 821 198
-------- --------
Total current liabilities 17,548 19,448
Long-term debt, principally ChemFirst Inc. 26,998 27,057
Capital lease obligations, less current portion 11,316 6,685
Deferred income taxes 1,809 1,809
Reclamation liabilities 2,718 2,701
Deferred revenue 3,400 -
Other liabilities 2,111 892
-------- --------
Total liabilities 65,900 58,592
-------- --------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, par value $0.0001; 10,000,000 shares authorized;none issued - -
Common stock, par value $0.0001; 100,000,000 shares authorized; issued and
outstanding 30,792,454 at Sept. 30, 1998 and 26,784,351 at Dec. 31, 1997 3 3
Contributed and paid-in capital 290,773 220,979
Accumulated deficit (50,881) (41,087)
-------- --------
Total stockholders' equity 239,895 179,895
-------- --------
Total liabilities and stockholders' equity $305,795 $238,487
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 2
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
Cash flows from operating activities: 1998 1997
-------- ---------
<S> <C> <C>
Net loss $ (9,793) $(15,965)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation, depletion and amortization 8,632 7,820
Accrued interest converted to loan principal - 772
Unrealized hedging and call option gains/losses, net 288 362
Other 4 -
Net change in operating assets and liabilities:
Accounts receivable (1,960) (375)
Inventories (801) (1,912)
Prepaid expenses (936) 305
Accounts payable (430) (885)
Accrued expenses 522 280
Stock appreciation rights liability (296) 2,492
Other liabilities 1,571 592
------- --------
Cash used in operating activities (3,199) (6,514)
------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (61,102) (41,070)
Other 123 -
------- --------
Cash used in investing activities (60,979) (41,070)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock 69,793 47,928
Principal payments under capital lease obligation (2,109) (1,410)
Other 26 (202)
-------- --------
Cash provided by financing activities 67,710 46,316
-------- --------
Net increase (decrease) in cash and cash equivalents 3,532 (1,268)
Cash and cash equivalents at beginning of period 34,247 64,130
-------- --------
Cash and cash equivalents at end of period $ 37,779 $ 62,862
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 3
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
The financial statements included herein are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and Securities and Exchange Commission regulations. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations.
In the opinion of management, the financial statements reflect all
adjustments of a normal and recurring nature which are necessary to present
fairly the financial position, results of operations and cash flows for the
interim periods. These financial statements should be read in conjunction with
the Annual Report of Getchell Gold Corporation (the "Company") on Form 10-K for
the year ended December 31, 1997.
(2) PUBLIC EQUITY OFFERING
In March 1998, the Company completed an equity offering of 4,002,000 common
shares which resulted in net proceeds to the Company of $69.7 million after
offering costs and expenses of $3.3 million. Net proceeds of the offering will
be used for the completion of the Company's Turquoise Ridge mine, for an
increase in mill capacity, for exploration on its Getchell property and for
general corporate purposes.
(3) HEDGING AND OTHER PRECIOUS METAL CONTRACT COMMITMENTS
Precious metal contracts consist of spot deferred, forward sales, call
option and lease rate swap contracts. The Company currently uses spot deferred
and forward sales contracts to mitigate the impact on earnings and cash flows of
decreases in gold prices. Risk of loss on the spot deferred and forward sales
contracts arises from the possible inability of a counterparty to fulfill its
obligations under the contracts and from the Company's potential inability to
deliver gold, although non-performance by the counterparty to the contracts is
not anticipated.
At September 30, 1998, the Company's outstanding spot deferred contracts
were for 340,000 ounces at a projected average price of $313 per ounce. Of these
contracts, 30,000 ounces were for delivery in 1998 at a projected weighted
average price of $337 per ounce, 155,000 ounces were for delivery in 1999 at a
projected weighted average price of $308 per ounce, 120,000 ounces were for
delivery in 2000 at a projected weighted average price of $313 per ounce and
35,000 ounces were for delivery in 2001 at a projected weighted average price of
$315 per ounce. Based on the market price of gold at September 30, 1998, the
unrealized gains on the spot deferred contracts were $6.0 million.
Page 4
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Additionally, in November 1997, the Company entered into a forward sales
contract covering the sale of 250,000 ounces of gold with an option by the
counterparty to purchase up to an additional 225,000 ounces of gold, if the gold
price equals or exceeds certain price increments. The agreement calls for the
Company to deliver 50,000 ounces of gold on December 31 in each of the years
1998 through 2002 and up to an additional 75,000 ounces of gold in each of the
years 2000 to 2002. Deliveries in 1998 and 1999 will be at approximately $355
per ounce of gold, while deliveries in 2000 through 2002 will be at
approximately $343 per ounce. These forward selling prices assume a constant
future gold lease rate of 2%. The actual forward prices under the contract are
adjusted up or down based on the actual future gold lease rate.
The option feature of the contract is similar to a written call option. The
premium related to the option feature is included in the forward sales price of
the 250,000 ounces of gold. For accounting purposes, the contract sales price of
the 250,000 ounces of gold has been allocated between the forward sales
component of the contract and the premium for the embedded option. The revenue
associated with the forward sales component of the contract will be recognized
when the gold is delivered. The option premium portion of the forward sales
price of $3.4 million was recorded as a long-term receivable and deferred
revenue and is adjusted for changes in its market value. The deferred option
premium will be recognized in earnings when the option expires or is exercised.
This transaction is further detailed in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
Deferred revenue also includes premiums received for call options sold. The
deferred amounts are recognized in income when the option expires or is
exercised. At September 30, 1998, the Company had outstanding European call
option contracts for 190,000 ounces of gold at a price of $333 per ounce which
expire in 1998. Risk of loss on European call option contracts exists if the
Company is unable to deliver the required quantity of gold or the market price
were to exceed the exercise price of the option on the date designated in the
contract.
Page 5
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) PROPERTY, PLANT AND EQUIPMENT (in thousands)
At At
September 30, December 31,
1998 1997
-------- --------
Land and land improvements $ 14,214 $ 14,214
Buildings and equipment 132,382 124,249
Mine development 62,708 54,929
Construction-in-progress 138,316 88,742
-------- --------
Total property, plant and equipment 347,620 282,134
Accumulated depreciation, depletion and amortization (102,614) (93,892)
-------- --------
Net property, plant and equipment $245,006 $188,242
======== ========
Capitalized mine development and construction-in-progress at September 30,
1998 and December 31, 1997 are comprised of the following (in thousands):
At At
September 30, December 31,
Project 1998 1997
--------- -------
Mine Development:
Getchell Underground mine.......................... $49,883 $45,043
Turquoise Ridge mine............................... 6,560 4,079
Other projects..................................... 6,265 5,807
------- -------
$62,708 $54,929
======= =======
Construction in Progress:
Getchell Underground mine.......................... $ 1,192 $ 1,486
Turquoise Ridge mine............................... 123,362 72,075
Mill improvements.................................. 13,723 15,015
Other projects..................................... 39 166
-------- -------
$138,316 $88,742
======== =========
Depletion of mine development and construction costs related to the
Turquoise Ridge mine and other projects will begin once commercial production
has been achieved. Depreciation and depletion expense was $3.2 million and $2.8
million for the three months ended September 30, 1998 and 1997, respectively,
and $8.6 million and $7.8 million for the nine months ended September 30, 1998
and 1997, respectively.
Page 6
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitalized interest was $0.6 million and $0.4 million for the three months
ended September 30, 1998 and 1997, respectively, and $1.7 million and $1.2
million for the nine months ended September 30, 1998 and 1997, respectively.
(5) SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by operating activities includes the following cash
payments (in thousands):
Nine Months Ended
Septeber 30,
---------------------------
1998 1997
----------- -----------
Interest, net of amounts capitalized $ (834) $ (588)
Income taxes $ - $ -
Capital lease obligations of $8.0 million were incurred to acquire
equipment during the nine months ended September 30, 1998.
(6) COMMITMENTS AND CONTINGENCIES Environmental Obligations
The Company's mining and exploration activities are subject to various
federal and state laws and regulations governing the protection of the
environment. These laws and regulations are continually changing and are
generally becoming more restrictive. The Company conducts its operations so as
to protect the public health and environment and believes its operations are in
compliance with all applicable laws and regulations. The Company has made, and
expects to make in the future, expenditures to comply with such laws and
regulations. The Company cannot predict such future expenditures.
Internal Revenue Service Tax Claim
The Internal Revenue Service ("IRS") has filed notices of deficiencies,
stating that the IRS is proceeding against ChemFirst Inc. ("ChemFirst"), the
Company's former parent, for income taxes associated with ChemFirst's
consolidated income tax returns filed for fiscal years 1989, 1990, 1991 and
1992. In addition, ChemFirst has received correspondence from the IRS which
assert additional claims for periods subsequent to fiscal year 1992. The
Company's share of these asserted deficiencies and additional claims, including
interest, totals approximately $5.8 million. In response to the notices of
deficiencies, ChemFirst and the Company filed a petition with the United States
Tax Court and, subsequently, the Company met with IRS representatives and
presented information supporting the Company's position on all matters. The
Company believes it has adequately provided for any liabilities that may result
from the outcome of these matter. The tax sharing agreement between ChemFirst
and the
Page 7
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company is further detailed in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
Major Contracts
The Company has an agreement with an independent contractor which provides
oxygen for the autoclave process in the mill. The agreement requires, among
other things, that the Company must pay the independent contractor at a rate
(subject to future adjustments for inflation) of approximately $0.2 million a
month. If the Company no longer has a need for oxygen, it may terminate the
contract but is obligated to a termination fee if the contract is terminated
prior to January 2004. The termination fee is $2.4 million in 1998 and decreases
each year until reaching $0.4 million in 2004.
Royalties
The Company is obligated to pay to a third party a 2% royalty on net
smelter returns of the current mineral production from certain of its mining
properties. Royalties are recorded as operating costs, except for royalties on
ounces produced in the development phase of the Turquoise Ridge mine, in which
case such royalties are offset against the revenue from these ounces. Total
royalties amounted to $0.3 million and $0.2 million for the three months ended
September 30, 1998 and 1997, respectively, and $0.7 million and $0.8 million for
the nine months ended September 30, 1998 and 1997, respectively.
Letter of Credit
At September 30, 1998, a $4.5 million secured letter of credit was
outstanding for bonding of a reclamation plan.
Page 8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
The information set forth in this discussion and analysis includes both
historical information and "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and is subject
to the safe harbor created by that section. To the extent that this report
contains forward-looking statements regarding the financial condition, operating
results, business prospects or any other operations of the Company, the
Company's actual financial condition, operating results, business prospects and
other operations may differ materially from that projected or estimated by the
Company in forward-looking statements. Factors that realistically could cause
results to differ materially from those projected in the forward-looking
statements are set forth in "Risk Factors" below.
Results of Operations
Results for the quarter ended September 30, 1998 were a net loss of $2.5
million, or $0.08 per share, compared with a net loss of $4.9 million, or $0.18
per share, for the quarter ended September 30, 1997. Results for the nine months
ended September 30, 1998 were a loss of $9.8 million, or $0.33 per share,
compared with a loss of $16.0 million, or $0.60 per share, in the same period of
1997. Lower operating expenses more than offset lower net sales and interest
income for the third quarter and first nine months of 1998 as compared to the
same periods of 1997, while the first nine months of 1998 also benefited from
lower general and administrative ("G&A") and exploration expenses.
Net sales of $14.6 million in the third quarter of 1998 were down from
$17.6 million in the third quarter of 1997 and net sales of $37.2 million in the
first nine months of 1998 were down from $51.1 million in the same period of
1997. Lower net sales resulted from lower gold prices and fewer ounces sold.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Ounces of gold sold 44,982* 49,280 111,195* 135,271
Average realized price per ounce $325 $357 $335 $378
Average market price per ounce $289 $325 $294 $337
</TABLE>
* Does not include 3,931 and 9,310 ounces of gold sold from the development
of Turquoise Ridge for the quarter and nine months ended September 30,
1998, respectively, for which the revenues, net of production expenses,
were offset against the capital costs of the project.
Page 9
<PAGE>
<TABLE>
<CAPTION>
Quarter Nine Months
Ended Ended
Change in net sales (in millions) in 1998 versus 1997 due to: September 30, September 30,
---------------- ----------------
<S> <C> <C>
Change in price per ounce of gold sold $ (1.6) $ (5.8)
Change in ounces of gold sold (1.4) (8.1)
---------------- ----------------
Total change in net sales $ (3.0) $ (13.9)
================ ================
</TABLE>
The Company has hedged a portion of its production, which resulted in
higher realized prices than the average market prices. At September 30, 1998,
the Company had outstanding spot deferred contracts for 340,000 ounces at a
projected average price of $313 per ounce. Of these contracts, 30,000 ounces
were for delivery in 1998 at a projected weighted average price of $337 per
ounce, 155,000 ounces were for delivery in 1999 at a projected weighted average
price of $308 per ounce, 120,000 ounces were for delivery in 2000 at a projected
weighted average price of $313 per ounce and 35,000 ounces were for delivery in
2001 at a projected weighted average price of $315 per ounce.
Additionally, in November 1997, the Company entered into a forward sales
contract covering the sale of 250,000 ounces of gold with an option by the
counterparty to purchase up to an additional 225,000 ounces of gold, if the gold
price equals or exceeds certain price increments. For accounting purposes, the
contract sales price of the 250,000 ounces of gold has been be allocated between
the forward sales component of the contract and the premium for the embedded
option. The revenue associated with the forward sales component of the contract
will be recognized when the gold is delivered. The option premium portion of the
forward sales price of $3.4 million was recorded as a long-term receivable and
deferred revenue and is adjusted for changes in its market value. The deferred
option premium will be recognized in earnings when the option expires or is
exercised. This transaction is further detailed in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
Following are the operating results from the Getchell Underground mine.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------ --------------------------
1998 1997 1998 1997
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Ore mined (dry tons) 122,268 122,270 305,732 375,119
Ore mined per operating day (dry tons) 1,359 1,359 1,141 1,400
Average grade of ore mined (ounces per ton) 0.437 0.346 0.405 0.312
Contained ounces (before recoveries) 53,412 42,355 123,829 116,904
Underground mining costs per ton $44.72 $54.74 $47.62 $52.41
</TABLE>
Page 10
<PAGE>
Cost reductions per ton at the Getchell Underground mine during both the
third quarter and first nine months of 1998 compared to the same periods of 1997
were the result of improved mining practices through the use of bulk mining
methods and lower maintenance expenses. Underground development of the second
Northwest Ore Zone continued during the third quarter, which is being accessed
from two working levels. The ground is amenable to long hole stoping, and the
fifth long hole stope is currently being excavated.
Operating results at the mill, including the processing of development ore
from Turquoise Ridge during the third quarter and first nine months of 1998, are
as follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------ ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Ore milled (dry tons) 170,515 281,495 394,489 835,177
Average grade of ore milled (ounces per ton) 0.323 0.195 0.340 0.181
Average gold recovery 91.2% 87.8% 90.9% 87.7%
Milling costs per ton $40.75 $29.74 $45.11 $30.68
</TABLE>
Through April 1998, the Company ran only one autoclave in the mill. In May
1998, production from the Getchell Underground mine and development ores from
the Turquoise Ridge mine exceeded the capacity of one autoclave. The decision
was then made to bring the second autoclave on line, mixing the higher grade
underground ores with 44,845 tons in the third quarter and 66,806 tons in the
first nine months of 1998 of low grade stockpile ore. This resulted in the
blended milled grades and recoveries listed above for the 1998 periods. As
production of ore from underground sources increases, the Company anticipates
bringing the third autoclave into service as early as the end of 1998.
Cost of sales was $16.1 million in the third quarter of 1998, down from
$21.7 million in the third quarter of 1997. For the first nine months of 1998,
cost of sales was $45.3 million compared with $63.2 million in the same period
of 1997. Cash costs per ounce (including royalties) in the third quarter of 1998
improved to $285 from $383 in the third quarter of 1997 and in the first nine
months of 1998 improved to $329 from $408 in the first nine months of 1997.
Milling, underground mining costs and mine site G&A were lower in the 1998
periods as compared to the same periods in 1997. Decreases in cost of sales and
the total underground mining and milling costs were primarily due to the lower
volume of ore processed with the underground mining costs also reflecting
improved mining practices and lower maintenance expenses. Mine site G&A costs in
the 1998 periods reflected the capitalization of the portion of those costs
associated with the development of the Turquoise Ridge mine.
Page 11
<PAGE>
The decreases in corporate and mine site G&A and exploration costs in the
first nine months of 1998 as compared to the same period of 1997 reflected
adjustments to reduce non- cash compensation expense recorded in connection with
the grant in February 1997 of Stock Appreciation Rights ("SARS") for certain
corporate executives and key employees. The SARS are further detailed in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Lower exploration expenses in the third quarter and the first nine months
of 1998 as compared to the same periods of 1997 reflected the Company's focus on
the delineation and expansion of known ore zones, for which the drilling
expenditures are capitalized. Capitalized drilling expenditures were $1.2
million and $2.9 million for the third quarter and first nine months of 1998,
respectively.
Net interest expense in the 1998 third quarter and first nine months was
lower than the same periods of 1997 due to higher capitalized interest
associated with the Turquoise Ridge construction project. Interest and other
income was lower in the third quarter and first nine months of 1998 compared to
the same periods of 1997 due to lower cash and cash equivalent balances
throughout the third quarter and first nine months of 1998 as compared to the
same periods of 1997.
Liquidity and Capital Resources
During the first nine months of 1998, the Company used $3.2 million of cash
in operations and $61.1 million for capital expenditures. The capital
expenditures included $44.6 million on Turquoise Ridge mine development, $5.2
million on the Getchell Underground mine, $6.3 million on the mill, $3.0 million
on development drilling and $2.0 million on other items. Total expenditures on
the Turquoise Ridge mine construction through September 30, 1998 were $100.7
million with an additional $8.0 million of mobile equipment leased. An estimated
$10 million is expected to be spent to complete the construction of the mine,
although there can be no assurances that actual expenditures will not differ
materially from this amount.
In March 1998, the Company completed an equity offering of 4,002,000 common
shares at $18.25 per share which resulted in net proceeds to the Company of
$69.7 million after offering costs and expenses of $3.3 million. As of September
30, 1998, cash and cash equivalents were $37.8 million.
The principal balance of the Company's promissory note with ChemFirst was
$26.9 million at September 30, 1998. The promissory note is due September 22,
2000 or upon a change in control of the Company and may be prepaid without
penalty. The interest rate on the loan is the London Interbank Offered Rate for
a period selected by the Company, plus an applicable margin based on the
Company's leverage ratio. The interest rate was 6-11/16% at September 30, 1998.
Since the inception of the promissory note, interest has been capitalized to the
note at the end of each interest period.
Page 12
<PAGE>
Approximately $15 million is expected to be spent on capital projects in
the last three months of 1998, including the Turquoise Ridge mine, modifications
to the mill, Getchell Underground mine development, equipment and development
drilling, although there can be no assurance that actual expenditures will not
differ materially from this amount. The Company plans on financing these capital
development projects and its operations from its existing cash resources. The
Company had cash flow from operating activities of $1.7 million in the third
quarter of 1998. The Company believes that cash flows from operations and
current cash balances will be sufficient to fund operations and capital
investments through 1999. However, if there are any shortfalls in funds required
to meet these needs, such funds may be supplemented by additional funds raised
by issuing debt or equity securities. There can be no assurance that additional
funding will be available on favorable terms, if at all.
Statement of Financial Accounting Standards No. 133
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133") which establishes accounting and reporting
standards for derivative instruments and for hedging activities. SFAS 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999. The Company has not assessed the impact SFAS 133 may have in the future.
Statement of Position 98-5
In April 1998, the American Institute of Certified Public Accountant's
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities ("SOP 98-5") which provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up activities
and organization costs to be expensed as incurred. SOP 98-5 is effective for all
fiscal years beginning after December 15, 1998 with initial application reported
as the cumulative effect of a change in accounting principle. The Company has
not assessed the impact SOP 98-5 may have in the future.
The Year 2000 Issue
The Problem
The Year 2000 Issue is the result of the inability of hardware, software
and control systems to correctly identify two-digit references to specific
years, beginning with the year 2000. This could result in system failures or
miscalculations causing disruptions of operations of the Company and its
suppliers.
The Company's State of Readiness
The Company has instituted a Year 2000 Project ("Project"). As a part of
the Project, the Company has completed an initial evaluation of its computer
systems and significant software programs. This evaluation included the
Company's network hardware and operating system, software operating the hoists
at Turquoise Ridge, the control system at the mill and accounting and business
process software. It is currently believed that the Company's network hardware
and operating system, software operating the hoists at Turquoise Ridge and
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accounting and business process software are all Year 2000 compliant. The
control system at the mill, and other less critical hardware and software,
require further evaluation, which is expected to be completed by the end of the
first quarter of 1999. The Company's less critical software programs are
predominantly "off-the-shelf" products with Year 2000 versions now available.
Therefore, if the software programs are not Year 2000 compliant, the Company
will replace these software programs by utilizing vendor provided upgrades by
the end of the third quarter of 1999. Based on work performed to date, no
material issues have been identified, however, subsequent work may lead to
discovery of material issues.
As part of the Company's Year 2000 Project, the Company plans to contact
its significant third-party suppliers, such as its refiners and suppliers of
power, oxygen and chemicals, to determine the extent to which the Company is
vulnerable to its refiner's or supplier's failure to remediate their Year 2000
Issue. The contacts are planned to be completed by the end of the first quarter
1999. However, there can be no assurance that third party suppliers will
adequately address their Year 2000 Issue or that failure of the third party
suppliers to address their Year 2000 Issue would not have a material adverse
effect on the Company or its operations.
The Costs to Address the Company's Year 2000 Issues
Expenditures through September 30, 1998 have been minimal. Based upon the
findings at September 30, 1998, the estimated costs of becoming Year 2000
compliant are less than $0.1 million.
The Risks Associated with the Company's Year 2000 Issues
The Company's failure to resolve Year 2000 Issues on or before December 31,
1999 could result in system failures or miscalculation causing disruption in
operations and normal business activities. Additionally, failure to timely
remediate Year 2000 Issues by third parties upon whom the Company's business
relies could result in disruptions in the Company's supply of parts and
materials or result in other problems related to the Company's daily operations.
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Risk Factors
Readers should carefully consider the risk factors set forth below, as well
as all of the other information in this document and the Annual Report of the
Company on Form 10-K for the year ended December 31, 1997.
Gold Price Volatility
The Company's profitability is significantly affected by changes in the
price of gold. Gold prices may fluctuate widely. In August 1998, the market
price of gold declined to levels that were the lowest in over eighteen years and
has remained below $300 for most of 1998. Gold prices 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. Moreover, gold prices are also affected
by macroeconomic 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 affects gold prices, but
not necessarily in the same manner as current demand and supply affect the
prices of 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
the Company's realized price should decline below the Company's expected cash
costs of production and remain at such levels for any sustained period, there
could be material delays in the development of new projects, increased net
losses, reduced cash flow, reductions in reserves, asset impairments or
cessation of production.
The volatility of gold prices is illustrated in the following table of the
annual high, low and average London P.M. Fix:
High Low Average
Calendar Year Price Per Ounce
1987........................................... $500 $390 $446
1988........................................... $484 $395 $437
1989........................................... $416 $356 $381
1990........................................... $424 $346 $383
1991........................................... $403 $344 $362
1992........................................... $360 $330 $344
1993........................................... $406 $326 $360
1994........................................... $396 $370 $384
1995........................................... $396 $372 $384
1996........................................... $415 $367 $387
1997........................................... $367 $283 $331
1998 (Through October 30)...................... $296 $273 $294
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The London P.M. Fix on October 30, 1998, was $292 per ounce.
Continuing Losses
The Company reported net losses of $2.5 million and $9.8 million for
the quarter and nine months ended September 30, 1998, and $19.4 million and
$14.0 million for the years ended December 31, 1997 and 1996, respectively, $5.0
million for the six months ended December 31, 1995 and $18.4 million for the
fiscal year ended June 30, 1995. The Company expects to continue to experience
losses at least until higher grade ore from Turquoise Ridge or other sources is
produced, which other sources could include sources presently being explored or
developed by the Company. There can be no assurance that sources of higher grade
ores will be developed by the Company.
Reserves
The ore reserves described by the Company are, in large part, estimates
made by the Company and confirmed by independent mining consultants known as
Mine Development Associates ("MDA") or Mineral Resource Development, Inc.
("MRDI"). The reserves confirmed by MDA or MRDI are subject to certain risks and
assumptions, including those discussed in "Certain Turquoise Ridge Mine Risks"
below. Additionally, no assurance can be given that the indicated level of
recovery of gold will be realized or that the assumed gold price of $350 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 period.
Declines in the market price of gold may also render ore reserves
containing relatively lower grades of gold mineralization uneconomic to exploit.
Project Development Risks
The Company from time to time engages in the development of new ore
bodies. Specific risks associated with the Company's development of the
Turquoise Ridge mine are discussed below. 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, estimates 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
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recoveries and cash operating costs 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 from the costs and returns initially estimated.
Certain Turquoise Ridge Mine Risks
The Turquoise Ridge mine involves numerous risks. These include the
following:
Capital Requirements. Expenditures required to advance the Turquoise Ridge mine
to the point of commercial production were estimated to be $10 million at
September 30, 1998. As of September 30, 1998, the Company's cash and cash
equivalents were $37.8 million. The Company intends to finance the completion of
the Turquoise Ridge mine with its existing cash resources. There can be no
assurance that the cash required to advance the Turquoise Ridge mine to
commercial production and to fund the ongoing Turquoise Ridge operations will be
available. If there are any shortfalls in funds required to meet these needs,
such funds may be supplemented by additional funds raised by issuing debt or
equity secruities. There can be no assurance that additional funding will be
available on favorable terms, if at all.
Reserves. There can be no assurance that the probable reserves set forth in
MRDI and MDA's reserve reports for Turquoise Ridge and the Shaft Zone will
actually be mined and milled on an economic basis, if at all. The MDA and MRDI
reports are 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 MDA's and/or MRDI's report on reserves and may have a material
adverse affect on the Company. 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 generally between 0.2 to 0.75
ounces per ton. Small changes in cutoff grade can cause large shifts in the
reserves. If dilution and/or mining costs related to poor ground conditions 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. MDA used approximately 15%
dilution and 95% recovery of the minable reserve. 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
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cut-and-fill stoping method used, could make achievement of a dilution thickness
of one foot impossible to achieve in practice.
Production Shaft Completion. Completion of the production shaft, which is
expected no earlier than the fourth quarter of 1998, is an aggressive schedule.
Delay in this construction would necessitate removing ore through the
Ventilation 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 the Production 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. Increased 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 by the study. If
the deposit is not drained and water remains in this clay-rich environment,
mining conditions could worsen, and ground 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 dewatering. Currently, the infiltration
basins are accepting and disposing of all water delivered from both the Getchell
Underground and the Turquoise Ridge mines, although there can be no assurance
that these conditions will continue.
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, the Company may be required to
make expenditures on additional ground support.
Dependence on a Single Property
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 or Turquoise Ridge mines, or at any of the Company's processing
facilities, were to be reduced, interrupted or curtailed, the Company's ability
to generate future revenues and profits could be materially adversely affected.
Exploration
Mineral exploration, particularly for gold, is highly speculative in
nature, involves many risks and is frequently unsuccessful. The Company is
seeking to expand its reserves only through exploration and development at the
Getchell Property. There can be no assurance that
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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 and Other Precious Metal Contract Commitments
Precious metals contracts between the Company and various
counterparties involve the requirement that the Company deliver gold to the
counterparty at agreed-upon prices. Should the counterparty be unable to fulfill
its purchase obligations, there is no guarantee that the Company will be able to
receive the agreed-upon sales price in the open market. Should Getchell be
unable to produce sufficient gold to meet its hedging contract obligations, the
Company may be obligated to purchase such gold at the then market price. There
can be no assurance that the Company will have the funds necessary to purchase
such gold or that it will be able to do so without causing a material adverse
effect on the Company.
The Company's accounting treatment for hedging and other precious metal
contract commitments is outlined in Notes 2 and 3 to the Company's consolidated
financial statements included in Item 8 "-Financial Statements and Supplementary
Data" of the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
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,
its Chief Operating Officer, its Chief Administrative Officer and its Vice
President of Exploration. 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, Chief Operating Officer, Chief Administrative
Officer and Vice President of Exploration which provide for certain payments
upon termination or resignation resulting from a change of control (as defined
in such agreements).
In connection with the development of Turquoise Ridge, the Company
expects that it will require a significant number of additional skilled
employees. The Company faces intense competition from other mining companies in
connection with the recruitment and retention of such employees. Additionally,
although the Company does not currently have any unionized employees, there can
be no assurance that unionization will not occur in the future.
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Government Regulation
Safety. The mining operations of the Company are subject to inspection and
regulation by the Mine Safety and Health Administration of the United States
Department of Labor ("MSHA") under the provisions of the Mine Safety and Health
Act of 1977. The Occupational Safety and Health Administration ("OSHA") also has
jurisdiction over safety and health standards not covered by MSHA. It is the
Company's policy to comply with applicable directives and regulations of MSHA
and OSHA.
On January 15, 1997, a mine site accident involving a loader resulted
in the death of a Company employee. As required by federal law, MSHA officials
investigated the accident. MSHA issued seven enforcement actions, one of which
was subsequently vacated. Civil penalties for which the Company has been
assessed as the result of such actions were $120,817. A contest of the penalties
and underlying violations was filed on March 12, 1998. The case has been
forwarded to the Office of Administrative Law Judges of the Federal Mine Safety
and Health Review Commission for a hearing. The settlement agreement has been
submitted to the Administrative Law Judge for approval. One order was vacated,
and a penalty of $85,000 for the remaining alleged violations has been proposed.
The Company expects that the settlement will be approved in the near future and
the penalty will be required to be paid before year end. MSHA also conducted a
special investigation to determine whether knowing and/or willful violations on
the part of the Company or any agent, officer or director of the Company
occurred. That investigation has been concluded and no further violations were
alleged.
Current Environmental Laws and Regulations. The Company must comply with
environmental standards, laws and regulations which may entail greater or lesser
costs and delays depending on the nature of the regulated activity and how
stringently the regulations are implemented by the regulatory authority. It is
possible that the costs and delays associated with compliance with such laws and
regulations 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 and
the governmental policies for implementation of such laws and regulations 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. These requirements include 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; (ii) the Endangered Species Act ("ESA") which
identifies endangered species of plants and animals and regulates activities to
protect these species and their habitats; (iii) the Clean Water Act; (iv) the
Clean Air Act; (v) the Resource Conservation and Recovery Act for disposal of
hazardous waste; (vi) the Migratory Bird Treaty Act; (vii) the Safe Drinking
Water Act; (viii) the Federal Land Policy and Management Act; (ix) the National
Environmental Policy Act; (x) the National Historic Preservation Act; and (xi)
many other state and federal laws and regulations.
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The United States Environmental Protection Agency ("EPA") continues the
development of a solid waste regulatory program specific to mining operations
such as the Company's, whose mineral extraction and beneficiation wastes are not
regulated as hazardous wastes under the Resource Conservation and Recovery Act
("RCRA"). In September 1997, the EPA issued its National Hardrock Mining
Framework. The Framework focuses on the EPA's use of its existing authorities
other than RCRA to address environmental concerns posed by hardrock mining. The
Company does not anticipate that the Framework will have a material adverse
effect on the Company. Regulations promulgated under RCRA on May 29,1998, the
Phase IV Land Disposal Restrictions, will not materially impact the Company's
operations.
New regulations promulgated under Section 313 of the Emergency Planning
and Community Right to Know Act ("EPCRA") have significantly expanded Toxic
Release Inventory ("TRI") reporting requirements to include the metal mining
industry. The Company expects to incur additional costs in complying with the
new TRI reporting requirements and could be adversely affected, along with the
rest of the metal mining industry, by the public availability of the reports.
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.
Potential Legislation. Several recent legislative developments have affected or
may in the future affect the cost of and the ability of mining claimants to use
the Mining Law of 1872, as amended (the "General Mining Law"), to acquire and
use federal lands for mining operations. Since October 1994, a moratorium has
been imposed on processing new patent applications for mining claims. This
moratorium should not affect the status of the patent applications made by the
Company under the General Mining Law before the moratorium was imposed. Also,
since 1993, a rental or maintenance annual fee of $100 per claim has been
imposed by the Federal government on unpatented mining claims in lieu of the
prior requirement for annual assessment work. During the last several
Congressional sessions, bills have been repeatedly introduced in the U.S.
Congress which would supplant or radically alter the General Mining Law. As of
October 28, 1998, no such bills have been passed. Such bills have proposed,
among other things, to permanently eliminate or greatly limit the right to a
mineral patent, impose royalties, and impose new Federal reclamation,
environmental control and other restoration requirements. Royalty proposals have
ranged from a 2% royalty on "net profits" from mining claims to an 8% royalty on
modified gross income/net smelter returns. If enacted, such legislation could
substantially impair the ability of companies to economically develop mineral
resources on federal lands. The extent of the changes, if any, which may be
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made by Congress to the General Mining Law is not presently known, and the
potential impact on the Company as a result of future Congressional action is
impossible 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. Disposal of overburden and mineral
processing wastes by the Company occur on both private and federal lands.
Exploration activities also occur on both private and federal lands.
BLM is considering revisions to 43 C.F.R. Section 3809 which regulates
mining activities on public lands managed by the BLM. BLM anticipates that an
environmental impact statement evaluating the potential effects of these
regulatory revisions will be issued in 1999. The proposed revisions address
reclamation and bonding requirements for the industry. The impact of these
potential revisions, when finalized, is not known at this time.
Other legislative initiatives relating to environmental laws
potentially applicable to mining include proposals to substantially alter
CERCLA, the Clean Water Act, Safe Drinking Water Act, and the ESA, bills which
introduce additional protection of wetlands and various initiatives to increase
the regulatory control over exploration and mining activities. Adverse
developments and operating requirements resulting from these initiatives could
substantially impair the economic ability of the Company, as well as others, to
develop mineral resources. Because none of these bills have passed and because
revisions to current versions of these bills could occur prior to passage, the
potential impact on the Company of such legislative initiatives is not known at
this time.
Environmental Matters
Environmental Liability. The Company is subject to potential risks and
liabilities associated with pollution of the environment and the disposal of
waste products that could occur as a result of the Company's mineral
exploration, development and production.
The gold ore located on the Getchell Property and the existing tailings
ponds and waste rock piles 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, but not limited to, sodium cyanide, sodium
hydroxide, sulfuric acid and nitric acid.
Environmental liability also may result from mining activities
conducted by others prior to the Company's ownership of a property. Historic
mining disturbances, facilities, waste materials and other discrete areas of
potential contamination associated with gold, tungsten, and molybdenum
production between 1937 and 1969 by previous owners and operators are
encompassed within the area of the Company's Getchell Property operations. Under
CERCLA and other federal, state and local environmental laws, ordinances, and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property or other property to which such substances may
have migrated. Such laws may impose liability
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whether or not the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. In connection with its current
or prior ownership or operation of property or facilities, the Company may be
potentially liable for any such costs or liabilities. Although the Company is
currently not aware of any material environmental claims pending or threatened
against it, no assurance can be given that a material environmental claim will
not be asserted against the Company.
Restoration of certain areas of historic disturbance and contamination
has been undertaken in conjunction with current mining operations and has been
incorporated into the Company's state permits in coordination with the federal
land management agency. Such restoration will not necessarily result in removal
of all hazardous substances located on the Getchell Property nor will it relieve
the Company of all potential liability for such substances under CERCLA or
similar laws.
To the extent the Company is subject to environmental liabilities, the
payment of such liabilities or the costs which must be incurred to remedy
environmental pollution 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 remedy 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. 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) has
not been purchased by the Company as it is not generally available at a
reasonable price.
Environmental Permits. All of the Company's exploration, development and
production activities are subject to regulation under one or more of the various
state and federal environmental laws and regulations. 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 restoration of lands which are disturbed by mining. Many of the regulations
require permits to be obtained for the Company's activities. The Company
maintains permits required for its facilities and operations which provide for
ongoing compliance and monitoring. Some of the permits include Bureau of Land
Management Plan of Operations No. N24-87-003P; EPA Hazardous Waste Facility No.
NVD986774735; Nevada water pollution control permits NEV86014 (for mining and
mineral processing) and NEV95113 (for excess mine water disposal); Nevada
reclamation permit 0105; and Nevada air quality permit AP1041-0292. These
permits must be updated and reviewed from time to time, and normally are subject
to environmental impact analyses and public review processes prior to approval
of the activity. It is possible that future changes in applicable laws,
regulations and permits or changes in their enforcement or regulatory
interpretation could have a significant impact on some portion of the Company's
business, causing those activities to be economically re-evaluated at that time.
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Restoration. The Company accrues expenses over the productive life of its mine
for anticipated costs associated with restoration of the mine site. Activities
which result in restoration costs include the permanent closure of the mining
and mineral processing operations and the reclamation of the disturbed land to a
productive use. This includes restoration of historic and current mining and
mineral processing operations and associated land disturbances. Restoration
takes place concurrent with and after the productive life of mining operations.
Activities which result in restoration costs after permanent closure and
reclamation primarily relate to monitoring and other post mining management
activities.
The uncertainties related to future restoration costs result from
unknown future additional regulatory requirements, significant new facilities or
surface disturbances, and the potential for recognition in the future of
additional activities needed for restoration. The technologies for restoration
are evolving. Periodic review of the activities and costs for restoration, and
consequent adjustments to the ongoing accrual, are conducted. The Company has
programs of evaluating various restoration technologies during mining and
milling operations. The Company has begun restoration of the Getchell property,
conducts concurrent restoration and anticipates an ongoing program of concurrent
restoration over the productive life of the mining operations. Restoration
activities have included regrading, fertilizing, mulching, seeding, live
planting, monitoring and restoration research.
In accordance with applicable State and Federal laws, the Company has
posted a reclamation bond of $4.5 million to cover the costs for reclamation of
the Getchell property. Current submittals to expand the existing tailing
facility are expected to increase the bond requirements to approximately $9.0
million. As of September 30, 1998, the total estimated restoration costs for the
Getchell Property were $8.7 million, of which the Company had accrued $2.7
million. The amount of total estimated restoration costs has increased over time
due to expanded mining activities, requirements for restoring expanded tailing
disposal areas, and more stringent regulatory requirements. Additional increases
may occur in the future for the same reasons.
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 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
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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) has not been purchased by the
Company as such coverage is not generally available at a reasonable price to it
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.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
10(a)- Form of Termination Agreement between the Company and Sarah Jones Farmar.
27. - Financial Data Schedule.
Reports on Form 8-K
No reports on Form 8-K were filed by the registrant in the quarter
ended September 30, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Getchell Gold Corporation
October 30, 1998 By: /s/ G. W. Thompson
Date G. W. Thompson, President, Chief Executive Officer and
Director
October 30, 1998 By: /s/ Donald S. Robson
Date Donald S. Robson, Vice President and Chief Financial Officer
(Principal Financial Officer)
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July 20, 1998
PRIVILEGED AND CONFIDENTIAL
Sarah Jones Farmar
16374 Sandstone Drive
Morrison, CO 80465
Re: Termination Agreement
Dear Sarah:
GETCHELL Gold Corporation (the "Company") considers it essential to the best
interests of the stockholders of the Company to foster the continuous employment
of key management personnel. In this connection, the Board of Directors (the
"Board") of the Company recognizes that, as is the case with many publicly held
corporations and their subsidiaries and parents, the possibility of a Change in
Control may exist and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or distraction
of management personnel to the detriment of the Company and its stockholders.
The Board has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of members of the Company's
management, including yourself, to their assigned duties without distraction in
the face of potentially disturbing circumstances arising from the possibility of
a Change in Control of the Company.
In order to induce you to remain in the employ of the Company and in
consideration of your agreement set forth in Subsection 2(ii) hereto, the
Company agrees that you shall receive the severance benefits set forth in this
letter agreement ("Agreement") in the event your employment with the Company is
terminated subsequent to a "Change in Control" of the Company (as defined in
Section 2 hereof) under the circumstances described below. This agreement,
however, does not otherwise change your employment arrangements and except for
the conditions pertaining to a Change in Control, your continued employment
continues to be subject to the will of the President and Chief Executive Officer
of the Company.
1. TERMS OF AGREEMENT
This Agreement shall commence on the date hereof and shall continue in
effect through June 30, 2000; provided, however, if a Change in
Control of the Company shall have occurred during the term of this
Agreement, this
<PAGE> 2
Agreement shall continue in effect for a period of three (3) years
beyond the month in which such Change in Control occurred; provided
further, that in no event shall this Agreement extend beyond your
normal retirement age unless specifically endorsed to so provide.
2. CHANGE IN CONTROL
(i) No benefits shall be payable hereunder unless there
shall have been a Change in Control of the Company, as
set forth below. For purposes of this Agreement, a
"Change in Control" of the Company are deemed to have
occurred if:
(A) Any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended [the
"Exchange Act"], other than a trustee or
other fiduciary holding securities under an
employee benefit plan of the Company or a
corporation owned, directly or indirectly by
the stockholders of the Company, in
substantially the same proportions as their
ownership of stock of the Company, is or
becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the
Company representing twenty percent (20%)
or more of the combined voting power of the
Company's outstanding securities; or
(B) During any period of two (2) consecutive
years (not including any period prior to the
execution of this Agreement), individuals
who at the beginning of such period
constitute the Board and any new director
(other than a director designated by a person
who has entered into an agreement with the
Company to effect a transaction described in
clause (A) or (i) of this Subsection) whose
election by the Board or nomination for
election by the Company's stockholders was
approved by a vote of at least two-thirds
(2/3) of the directors then still in office
who either were directors at the beginning of
the
<PAGE> 3
period or whose election or nomination for
election was previously so approved, cease
for any reason to constitute a majority
thereof; or
(C) The shareholders of the Company approve a
merger or consolidation of the Company with
any other corporation, other than a merger or
consolidation which would result in the
voting securities of the Company
outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity) at least
eighty percent (80%) of the combined voting
power of the voting securities of the
Company or such surviving entity
outstanding immediately after such merger or
consolidation, or the shareholders of the
Company approve an agreement for the sale
or disposition by the Company of all or
substantially all the Company's assets; or
(D) There occurs any "Takeover Event," as such
term is defined in the Amended and Restated
Long-Term Incentive Plan of the Company, as
amended November 4, 1992, or a "Change in
Control," as such term is defined in the 1996
Long-Term Equity Incentive Plan of the
Company.
(ii) For purposes of this Agreement, a "potential Change in
Control" of the Company shall be deemed to have
occurred if:
(A) The Company enters into an agreement, the
consummation of which would result in the
occurrence of a Change in Control of the
Company.
(B) Any person (including the Company) publicly
announces an intention to take or to consider
taking actions which, if
<PAGE> 4
consummated, would constitute a Change in
Control of the Company.
(C) Any person, other than a trustee or other
fiduciary holding securities under an
employee benefit plan of the Company or a
corporation owned, directly or indirectly, by
the stockholders of the Company, in
substantially the same proportions as their
ownership of stock of the Company, who is
or becomes the beneficial owner, directly or
indirectly, of securities of the Company
representing nine and a half (9.5%) percent
or more of the combined voting power of the
Company's then outstanding securities,
increases his beneficial ownership of such
securities by five percent (5%) or more over
the percentage so owned by such person on
the date hereof; or
(D) The Board adopts a resolution to the effect
that, for purposes of this Agreement, a
potential Change in Control has occurred.
You agree that, subject to the terms and conditions of this Agreement, in the
event of a potential Change in Control, you will remain in the employ of the
Company until the earliest of (i) a date which is six (6) months from the
occurrence of such potential Change in Control, (ii) the termination by you of
your employment by reason of Disability, as defined in Subsection 3(i), or (iii)
the occurrence of a Change in Control of the Company.
3. TERMINATION FOLLOWING CHANGE IN CONTROL
If any of the events described in Subsection 2(i)
hereof constituting a Change in Control of the
Company have occurred, you shall be entitled to the
benefits provided in Subsection 4(iii) hereof upon
the subsequent termination of your employment during
the term of this Agreement unless such termination is
(A) because of your death or Disability as defined in
Subsection 3(i), (B) by the Company for Cause, or by
you other than for Good Reason, in either of which
case you shall be entitled to the benefits provided
in Subsection 4(ii).
(i) DISABILITY. If, as a result of your incapacity due to
physical or mental illness, you shall have been
absent from
<PAGE> 5
the full-time performance of your duties with the
Company for six (6) consecutive months, and within
thirty (30) days after written notice of termination
is given you shall not have returned to the full-time
performance of your duties, your employment may be
terminated for "Disability".
(ii) CAUSE. Termination by the Company of your employment
for "Cause" shall mean termination upon (A) the
willful and continued failure by you to substantially
perform your duties with the Company (other than any
such failure resulting from your incapacity due to
physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of
Termination by you for Good Reason as defined in
Subsections 3(iv) and 3 (iii), respectively) after a
written demand for substantial performance is
delivered to you by the Company, which demand
specifically identifies the manner in which the
Company believes that you have not substantially
performed your duties, or (B) the willful engaging by
you in conduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise.
For purposes of this Subsection, no act, or
failure to act, on your part shall be deemed
"willful" unless done, or omitted to be done, by you
not in good faith and without reasonable belief that
your action or omission was in the best interest of
the Company.
(iii) GOOD REASON. You shall be entitled to terminate your
employment for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean, without your
express written consent, the occurrence after a
Change in Control of the Company of any of the
following circumstances unless, in the case of
paragraphs (A), (E), (F), (G) or (H), such
circumstances are fully corrected prior to the Date
of Termination specified in the Notice of
Termination, as defined in Subsections 3(v) and
3(iv), respectively, given in respect thereof:
(A) The assignment to you of any duties
inconsistent with your status as a senior
manager of the Company or a substantial
adverse alteration in the nature or status
of your responsibilities from those in
effect immediately prior to the Change in
Control
<PAGE> 6
of the Company;
(B) A reduction by the Company in your annual
base salary as in effect on the date hereof
or as the same may be increased from time to
time except for across-the-board salary
reductions similarly affecting all senior
executives of the Company and all senior
executives of any person or entity which
accedes to the business of the Company;
(C) The relocation of your principal office to
outside the Englewood, Colorado
Metropolitan Area, or the Company's
requiring you to be based anywhere other
than in Englewood, Colorado except for
required travel on the Company's business to
an extent substantially consistent with your
present business travel obligations;
(D) The failure by the Company, without your
consent, to pay to you any portion of your
current compensation except pursuant to an
across-the-board compensation deferral
similarly affecting all senior executives of
the Company and all senior executives of any
person or entity which accedes to the
business of the Company, or to pay to you
any portion of an installment of deferred
compensation under any deferred
compensation program of the Company,
within seven (7) days of the date such
compensation is due;
(E) The failure by the Company to continue in
effect any compensation plan in which you
participate immediately prior to the Change
in Control of the Company which is material
to your total compensation, including but
not limited to the Getchell Gold Corporation
Long-Term Incentive Plan, as the plan is
amended from time to time ("the Long-Term
Incentive Plan"), or any substitute plan
<PAGE> 7
adopted prior to the Change in Control,
unless an equitable arrangement (embodied in
an ongoing substitute or alternative plan)
has been made with respect to such plan, or
the failure by the Company to continue your
participation therein (or in such substitute
or alternative plan) on a basis not
materially less favorable, both in terms of
the amount of benefits provided and the
level of your participation relative to
other participants, as existed at the time
of the Change in Control of the Company;
(F) The failure by the Company to continue to
provide you with benefits substantially
similar to those enjoyed by you under any of
the Company's pension, life insurance,
medical, health and accident, or disability
plans in which you were participating at the
time of the Change in Control of the
Company, the taking of any action by the
Company which would directly or indirectly
materially reduce any of such benefits or
deprive you of any material fringe benefit
enjoyed by you at the time of the Change in
Control of the Company, or the failure by
the Company to provide you with the number
of paid vacation days to which you are
entitled on the basis of years of service
with the Company in accordance with the
Company's normal vacation policy in effect
at the time of the Change in Control of the
Company;
(G) The failure of the Company to obtain a
satisfactory agreement from any successor to
assume and agree to perform this Agreement,
as contemplated in Section 5 hereof;
(H) Any purported termination of your employment
which is not effected pursuant to a Notice
of Termination satisfying the requirements
of Subsection (iv) below (and,
<PAGE> 8
if applicable, the requirements of
Subsection (ii) above); for purposes of this
Agreement, no such purported termination
shall be effective; or
(iv) Any material breach by the Company of any provision
of this Agreement.
Your right to terminate your employment pursuant to this Subsection shall not be
affected by your incapacity due to physical or mental illness unless such
illness constitutes "Disability". Your continued employment shall not constitute
consent to, or a waiver of rights with respect to, any circumstance constituting
Good Reason hereunder.
(v) NOTICE OF TERMINATION. Any purported termination
of your employment by the Company or by you shall be
communicated by written Notice of Termination to the other
party hereto in accordance with Section 6 hereof. For
purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under
the provision so indicated.
(vi) DATE OF TERMINATION, ETC. "Date of Termination"
shall mean (A) if your employment is terminated for
Disability, thirty (30) days after Notice of Termination is
given (provided that you shall not have returned to the
full-time performance of your duties during such thirty
(30) day period), and (B) if your employment is terminated
pursuant to Subsection (ii) or (iii) above or for any other
reason (other than Disability), the date specified in the
Notice of Termination (which, in the case of a termination
pursuant to Subsection (ii) above shall not be less than
thirty (30) days, and in the case of a termination pursuant
to Subsection (iii) above shall not be less than fifteen
(15) nor more than sixty (60) days, respectively, from the
date such Notice of Termination is given); provided that
if within fifteen (15) days after any Notice of Termination
is given, or if later, prior to the Date of Termination
(as determined without regard to this provision), the party
receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, the
Date of Termination
<PAGE> 9
shall be the date on which the dispute is finally
determined, either by mutual written agreement of the
parties by a binding arbitration award, or by a final
judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to
which the time for appeal therefrom has expired and no
appeal has been perfected); provided further that the Date
of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute
with reasonable diligence. Notwithstanding the pendency of
any such dispute, the Company will continue to pay you your
full compensation in effect when the notice giving rise to
the dispute was given (including, but not limited to, base
salary) and continue you as a participant in all
compensation, benefit and insurance plans in which you were
participating when the notice giving rise to the dispute
was given, until the dispute is finally resolved in
accordance with this Subsection. Amounts paid under this
Subsection are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement.
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY
Following a Change in Control as defined by Subsection
2(i), upon termination of your employment or during a
period of disability, you shall be entitled to the
following benefits:
(i) During any period that you fail to perform your full-time
duties with the Company as a result of incapacity due to
physical or mental illness that does not constitute
Disability, you shall continue to receive your base salary
at the rate in effect at the commencement of any such
period, together with all compensation payable to you under
the Long-Term Incentive Plan or other plan during such
period, until this Agreement is terminated pursuant to
Section 3(i) hereof. Thereafter, or in the event your
employment shall be terminated, or by reason of your death,
your benefits shall be determined under the Company's
retirement, insurance and other compensation programs then
in effect in accordance with the terms of such programs;
<PAGE> 10
(ii) If your employment shall be terminated by the Company for
Cause or by you other than for Good Reason, or for
Disability or death, the Company shall pay you your full
base salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given, plus all
other amounts to which you are entitled under any
compensation plan of the Company at the time such
payments are due, and the Company shall have no further
obligations to you under this Agreement;
(iii) If your employment by the Company shall be terminated (a)
by the Company other than for Cause or Disability or (b) by
you for Good Reason, then you shall be entitled to the
benefits provided below:
(A) The Company shall pay you your full base
salary through the Date of Termination at the
rate in effect at the time Notice of
Termination is given, plus all other amounts
to which you are entitled under any
compensation plan of the Company, at the
time such payments are due, except as
otherwise provided below.
(B) In lieu of any further salary payments to you
for periods subsequent to the Date of
Termination, the Company shall pay as
severance pay to you, a lump sum severance
payment (together with the payments
provided in Paragraph E below and any
payment you may receive pursuant to
Paragraph D below, the "Severance
Payments") equal to 1.5 times the sum of (i)
your annual base salary and (ii) bonuses,
averaged over the three (3) years (or such
portion of the three (3) years during which
you actually were employed by the
Company) prior to the occurrence of the
circumstances giving rise to the Notice of
Termination.
(C) Health plan, dental plan, life insurance plan and
long-term disability plan coverage in
<PAGE> 11
effect on the Date of Termination will continue
for a period of twenty four (24) months from the
Date of Termination.
(D) Except for Incentive Stock Options ("ISO's")
which are hereby specifically excluded, in
lieu of shares of common stock of the
Company ("Company Shares") issuable upon
exercise of outstanding options ("Options"),
granted to you under the Company's
Long-Term Incentive Plan as amended from
time to time, or any other plan then in effect
(which Options shall be canceled upon the
making of the payment referred to below),
unless you notify the Company by giving
notice in accordance with Section 6 hereof
within fifteen (15) days after receipt of
Notice of Termination that you do not wish
such payment, the Company shall pay to you
not later than the fifth day following the Date
of Termination, an amount in cash equal to
the product of (i) the difference (to the extent
that such difference is a positive number)
obtained by subtracting the per share exercise
price of each Option held by you whether or
not then fully exercisable from the higher of
(A) the closing price of Company Shares as
reported on the American Stock Exchange on
the Date of Termination, or (B) the highest
per share price for Company Shares actually
paid in connection with any Change in
Control of the Company, or (C) the highest
per share price payable under the terms of
the Company's Long-Term Incentive Plans
as amended from time to time and (ii) the
number of Company Shares covered by each
such Option.
(E) The Company shall also pay to you all legal fees
and expenses incurred by you as a result of such
termination (including all such fees and expenses,
if any, incurred in contesting or disputing any
such termination or in
<PAGE> 12
seeking to obtain or enforce any right or benefit
provided by this Agreement or in connection with
any tax audit or proceeding to the extent
attributable to the application of Section 4999 of
the Internal Revenue Code of 1986, as amended (the
"Code") to any payment or benefit provided
hereunder).
(F) In the event that you become entitled to the
payments (the "Severance Payments")
provided under paragraphs (B),(D), and (E)
above, or to any other payments or benefits
received or to be received by you in
connection with a Change in Control or your
termination of employment (whether
pursuant to the terms of this Agreement or
any other plan, arrangement or agreement
with the Company) any person whose actions
result in a Change in Control or any person
affiliated with the Company or such person
(collectively with the Severance Payments,
the "Total Payments) if any of the Total
Payments will be subject to the tax (the
"Excise Tax") imposed by Section 4999 of
the Code, the Company shall pay to you at
the time specified in paragraph (G), below,
an additional amount (the "Gross-Up
Payment") such that the net amount retained
by you, after deduction of any Excise Tax on
the Total Payments and any federal income
tax and Excise Tax upon the payment
provided for by this paragraph, shall be
equal to the Total Payments. For purposes
of determining whether any of the Total
Payments will be subject to the Excise Tax
and the amount of such Excise Tax, (i) the
Total Payments shall be treated as "parachute
payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of
Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the
meaning of Section 280G(b)(1) shall be
<PAGE> 13
treated as subject to the Excise Tax, unless in
the opinion of tax counsel selected by the
Company's independent auditors and acceptable to
you such other payments or benefits (in whole or
in part) do not constitute parachute payments, or
such excess parachute payments (in whole or in
part) represent reasonable compensation for
services actually rendered within the meaning of
Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section
280G(b)(3) of the Code, or are otherwise not
subject to the Excise Tax; (ii) the amount of the
Total Payments which shall be treated as subject
to the Excise Tax shall be equal to the lesser of
(A) the total amount of the Total Payments or (B)
the amount of excess parachute payments within the
meaning of Section 280G(b)(1) (after applying
clause (i), above); and (iii) the value of any
non-cash benefits or any deferred payment or
benefit shall be determined by the Company's
independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the
Code. For purposes of determining the amount of
the Gross-Up Payment, you shall be deemed to pay
federal income taxes at the highest marginal rate
of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made. In the
event that the Excise Tax is subsequently
determined to be less than the amount taken into
account hereunder at the time of termination of
your employment, you shall repay to the Company at
the time that the amount of such reduction in
Excise Tax is finally determined the portion of
the Gross-Up Payment attributable to such
reduction (plus the portion of the Gross-Up
Payment attributable to the Excise Tax and federal
income tax imposed on the Gross-Up Payment being
repaid by you if such repayment results in a
reduction in
<PAGE> 14
Excise Tax and/or a federal income tax deduction)
plus interest on the amount of such repayment at
the rate provided in Section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is
determined to exceed the amount taken into account
hereunder at the time of the termination of your
employment (including by reason of any payment,
the existence or amount of which cannot be
determined at the time of the Gross-Up Payment),
the Company shall make an additional gross-up
payment in respect of such excess (plus any
interest payable with respect to such excess) at
the time that the amount of such excess is finally
determined.
(G) The payments provided for in paragraphs
(B), (D), and (F) above, shall be made not
later than the fifth (5th) day following the
Date of Termination; provided, however,
that if the amounts of such payments cannot
be finally determined on or before such day,
the Company shall pay to you on such day an
estimate, as determined in good faith by the
Company, of the minimum amount of such
payments and shall pay the remainder of such
payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the
Code) as soon as the amount thereof can be
determined, but in no event later than the
thirtieth (30th) day after the Date of
Termination. In the event that the amount of
the estimated payments exceeds the amount
subsequently determined to have been due,
such excess shall constitute a loan by the
Company to you payable on the fifth (5th)
day after demand by the Company (together
with interest at the rate provided in Section
1274(b)(2)(B) of the Code).
(vi) You shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other
<PAGE> 15
employment or otherwise, nor shall the amount of any
payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of
employment by another employer, by retirement benefits, by
offset against any amount claimed to be owed by you to the
Company, or otherwise.
(vii) In addition to all other amounts payable to you under this
Section 4, you shall be entitled to receive all benefits
payable to you under the 401(k) Thrift Plan, and any other
plan or agreement relating to retirement benefits.
5. RELATIONSHIP WITH LONG-TERM INCENTIVE PLAN
In the event of an inconsistency between the terms of this
Agreement and the terms of the Company's Long-Term Incentive
Plans, the terms of this Agreement shall control.
6. SUCCESSORS: BINDING AGREEMENT
(i) The Company will require any successor (whether
direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to
expressly assume and agree to perform this
Agreement in the same manner and to the same
extent that the Company would be required to
perform it if no such succession had taken place.
Failure of the Company to obtain such assumption
and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company
in the same amount and on the same terms as you
would be entitled to hereunder if you terminate your
employment for Good Reason following a Change in
Control, except that for purposes of implementing
the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of
Termination. As used in this Agreement,
"Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or
<PAGE> 16
otherwise.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal
representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
If you should die while any amount would still be
payable to you hereunder if you had continued to
live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of
this Agreement to your devisee, legatee or other
designee or, if there is no such designee, to your
estate.
7. NOTICES
For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by
United States registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth on the first
page of this Agreement, provided that all notice to the Company shall
be directed to the attention of the Board with a copy to the
Secretary of the Company, or to such other address as either party
may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon
receipt.
8. MISCELLANEOUS
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The
validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Delaware. All
references to Sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such Sections.
Any payments provided for hereunder shall be paid net of any
applicable withholding
<PAGE> 17
required under federal, state or local law. The obligations of the
Company under Section 4 shall survive the expiration of the term of
this Agreement.
9. VALIDITY
The invalidity or unenforceable ability or any provision of this
Agreement shall not affect the validity or enforceability of any
other provision of this Agreement, which shall remain in full force
and effect.
10. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original, but all of which together will
constitute one and the same instrument.
If this letter sets forth our agreement on the subject matter hereof, kindly
sign and return to the Company the enclosed copy of this letter which will then
constitute our agreement on this subject.
Sincerely yours,
GETCHELL GOLD CORPORATION
/s/ G. W. Thompson
G. W. (Bill) Thompson
President and Chief Executive Officer
GWT:mim
ACCEPTED AND AGREED to on this 20 day of July, 1998.
/s/ Sarah Jones Farmar
Sarah Jones Farmar
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