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 June 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 30,793,026 on July 30, 1998
Page 1
<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 Six Months Ended
June 30, June 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net sales $11,808 $18,675 $22,611 $ 33,537
Cost of sales 14,142 21,726 29,175 41,537
------- ------- ------- --------
Gross margin (2,334) (3,051) (6,564) (8,000)
General and administrative expenses 715 643 1,636 3,763
Exploration expenses 189 424 287 996
------- ------- ------- --------
Loss from operations (3,238) (4,118) (8,487) (12,759)
Interest expense, net of interest capitalized (171) (221) (363) (442)
Interest and other income 1,071 1,255 1,606 2,138
------- ------- ------- --------
Net loss $(2,338) $(3,084) $(7,244) $(11,063)
======= ======= ======= ========
Basic loss per common share $ (0.08) $ (0.12) $ (0.25) $ (0.42)
======= ======= ======= ========
Weighted average number of shares outstanding 30,788 26,775 29,353 26,358
======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 2
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 57,757 $ 34,247
Accounts receivable:
Trade 3,893 1,790
Employee 269 182
Other 310 261
-------- --------
Total accounts receivable 4,472 2,233
-------- --------
Inventories:
Ore and ore in process 1,323 1,873
Materials and supplies 10,982 10,873
-------- --------
Total inventories 12,305 12,746
-------- --------
Prepaid expenses 603 808
-------- --------
Total current assets 75,137 50,034
Property, plant and equipment, net 228,469 188,242
Other 125 211
-------- --------
Total assets $303,731 $238,487
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,118 $ 13,506
Accrued expenses 1,888 2,258
Current portion of capital lease obligations 3,391 2,248
Stock appreciation rights 536 1,238
Other 403 198
-------- --------
Total current liabilities 16,336 19,448
Long-term debt, principally ChemFirst Inc. 26,966 27,057
Capital lease obligations, less current portion 11,714 6,685
Deferred income taxes 1,809 1,809
Reclamation liabilities 2,653 2,701
Other liabilities 1,853 892
-------- --------
Total liabilities 61,331 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 30,791,146 at June 30, 1998 and 26,784,351 at December 31, 1997 3 3
Contributed and paid-in capital 290,728 220,979
Accumulated deficit (48,331) (41,087)
-------- --------
Total stockholders' equity 242,400 179,895
-------- --------
Total liabilities and stockholders' equity $303,731 $238,487
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 3
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
Cash flows from operating activities: 1998 1997
-------- ---------
<S> <C> <C>
Net loss $ (7,244) $(11,063)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 5,386 5,068
Accrued interest converted to loan principal - 772
Deferred hedging gain, net 205 362
Other 4 391
Net change in operating assets and liabilities:
Accounts receivable (2,240) (105)
Inventories 442 (951)
Prepaid expenses 206 499
Accounts payable (1,498) (1,559)
Accrued expenses (371) (170)
Stock appreciation rights liability (702) 2,045
Other liabilities 913 277
------- --------
Cash used in operating activities (4,899) (4,434)
------- --------
Cash flows from investing activities:
Additions to property, plant and mine development (39,673) (24,120)
Other 123 -
------- --------
Cash used in investing activities (39,550) (24,120)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock 69,748 47,908
Principal payments under capital lease obligation (1,784) (926)
Other (5) (110)
-------- --------
Cash provided by financing activities 67,959 46,872
-------- --------
Net increase in cash and cash equivalents 23,510 18,318
Cash and cash equivalents at beginning of period 34,247 64,130
-------- --------
Cash and cash equivalents at end of period $ 57,757 $ 82,448
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 4
<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) $73 MILLION 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 $69.8 million
after offering costs and expenses of $3.2 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 June 30, 1998, the Company's outstanding spot deferred contracts
were for 230,000 ounces at a projected average price of $322 per ounce. Of these
contracts, 60,000 ounces were for delivery in 1998 at a projected weighted
average price of $337 per ounce, 130,000 ounces were for delivery in 1999 at a
projected weighted average price of $314 per ounce and 40,000 ounces were for
delivery in 2000 at a projected weighted average price of $326 per ounce. Based
on the market price of gold at June 30, 1998, the unrealized gains on the spot
deferred contracts were $5.9 million.
Page 5
<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 gold ounces 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 gold
ounce, 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 will
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 is deferred, adjusted for changes in
market value of the option, and 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 includes premiums received for call options sold. The
deferred amounts are recognized in income when the option expires or the related
transaction occurs. At June 30, 1998, the Company had outstanding European call
option contracts for 100,000 ounces of gold at a price of $309 per ounce which
expire in 1998 and contracts for 60,000 ounces of gold at a price of $400 per
ounce which expire in 1999. Risk of loss on European call option contracts
exists if the Company is unable to deliver the required quantity of gold and the
market price were to exceed the exercise price of the option on the date
designated in the contract.
Page 6
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) PROPERTY, PLANT AND EQUIPMENT (In thousands)
At At
June 30, December 31,
1998 1997
-------- ------------
Land and land improvements $ 14,214 $ 14,214
Buildings and equipment 132,032 124,249
Mine development 60,300 54,929
Construction-in-progress 121,260 88,742
-------- -------
Total property, plant and equipment 327,806 282,134
Accumulated depreciation, depletion and amortization (99,337) (93,892)
-------- --------
Net property, plant and equipment $228,469 $188,242
======== ========
Capitalized mine development and construction-in-progress at June 30,
1998 and December 31, 1997 are comprised of the following (in thousands):
At At
June 30, December 31,
Project 1998 1997
-------- ------------
Mine Development:
Getchell Underground mine $ 48,690 $45,043
Turquoise Ridge mine 5,682 4,079
Other projects 5,928 5,807
-------- -------
$ 60,300 $54,929
======== =======
Construction in Progress:
Getchell Underground mine $ 1,068 $ 1,486
Turquoise Ridge mine 108,947 72,075
Mill improvements 11,004 15,015
Other projects 241 166
-------- -------
$121,260 $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 $2.8 million and $2.7
million for the three months ended June 30, 1998 and 1997, respectively, and
$5.4 million and $5.1 million for the six months ended June 30, 1998 and 1997,
respectively.
Page 7
<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 June 30, 1998 and 1997, respectively, and $1.0 million and $0.8
million for the six months ended June 30, 1998 and 1997, respectively.
(5) SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by operating activities includes the following cash
payments (in thousands):
Six Months Ended
June 30,
---------------------------
1998 1997
----------- -----------
Interest, net of amounts capitalized $ (538) $ (356)
Income taxes $ - $ -
Capital lease obligations of $8.0 million were incurred to acquire
equipment during the six months ended June 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 memos 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 Company is
Page 8
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 who
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 $0.2 million for both the three months ended June 30, 1998
and 1997 and $0.4 million and $0.3 million for the six months ended June 30,
1998 and 1997, respectively.
Letter of Credit
At June 30, 1998, a $4.5 million unsecured letter of credit was
outstanding for bonding of a reclamation plan.
Page 9
<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 and business prospects
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 June 30, 1998 were a net loss of $2.3
million, or $0.08 per share, compared with a net loss of $3.1 million, or $0.12
per share, for the quarter ended June 30, 1997. Results for the six months ended
June 30, 1998 were a loss of $7.2 million, or $0.25 per share, compared with a
loss of $11.1 million, or $0.42 per share, in the same period of 1997. Lower
operating and exploration expenses more than offset lower sales revenue for the
second quarter and first six months of 1998 as compared to the same periods of
1997, while the first six months of 1998 also benefited from lower general and
administrative ("G&A") expenses. Lower sales revenues resulted from lower gold
prices and the Company's December 1997 decision to suspend the processing of low
grade stockpile ore.
Sales revenues of $11.8 million in the second quarter of 1998 were down
from $18.7 million in the second quarter of 1997 and sales revenues of $22.6
million in the first six months of 1998 were down from $33.5 million in the same
period of 1997.
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Ounces of gold sold 35,192* 48,262 66,213* 85,991
Average realized price per ounce $336 $387 $341 $390
Average market price per ounce $298 $341 $298 $344
</TABLE>
* Does not include 3,828 and 5,379 ounces of gold sold from the
development of Turquoise Ridge for the quarter and six months ended
June 30, 1998, respectively, for which the revenues, net of production
expenses, were offset against the capital costs of the project.
Page 10
<PAGE>
<TABLE>
<CAPTION>
Quarter Six Months
Change in sales revenue (in millions) in 1998 versus 1997 due to: Ended June 30, Ended June 30,
---------------- ----------------
<S> <C> <C>
Change in price per ounce of gold sold $ (2.5) $ (4.2)
Change in ounces of gold sold (4.4) (6.7)
------ ------
Total change in sales revenues $ (6.9) $(10.9)
====== ======
</TABLE>
The Company has hedged a portion of its production, which resulted in
higher realized prices than the average market prices. At June 30, 1998, the
Company had outstanding spot deferred contracts for 230,000 ounces at a
projected average price of $322 per ounce. Of these contracts, 60,000 ounces
were for delivery in 1998 at a projected weighted average price of $337 per
ounce, 130,000 ounces were for delivery in 1999 at a projected weighted average
price of $314 per ounce and 40,000 ounces were for delivery in 2000 at a
projected weighted average price of $326 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 will 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 is deferred, adjusted for changes in market value of the option, and
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.
Cost reductions per ton at the Getchell Underground mine during both
the second quarter and first six months of 1998 compared to the same periods of
1997 were the result of lower backfill and maintenance charges and improved
mining practices. Development of the second northwest ore zone continued during
the second quarter of 1998 with approximately 1,700 feet of footwall ramp and
ore access drifting completed. Following are the operating results from the
Getchell Underground mine.
Page 11
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
------------------------ --------------------------
1998 1997 1998 1997
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Ore mined (dry tons) 95,857 147,271 183,464 252,849
Ore mined per operating day (dry tons) 1,065 1,636 1,031 1,421
Average grade of ore mined (ounces per ton) 0.394 0.304 0.384 0.295
Contained ounces (before recoveries) 37,808 44,698 70,417 74,512
Underground mining costs per ton $47.74 $49.58 $49.55 $51.28
</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 taken to bring the second autoclave on line, mixing the higher
grade underground ores with 16,834 tons of low grade stockpile ore, representing
14% of total ore milled for the second quarter of 1998. This resulted in the
blended milled recoveries listed below for the 1998 periods, whereas milled
recoveries for the underground and low grade stockpile ores separately were
91.5% and 87%, respectively, for the second quarter of 1998. As production of
ore from underground sources increases, the Company anticipates bringing the
third autoclave into service as early as the end of 1998. Operating results at
the mill, including the processing of development ore from Turquoise Ridge
during the second quarter and first six months of 1998, are as follows:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
------------------------ ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Ore milled (dry tons) 123,891 283,437 223,974 553,682
Average grade of ore milled (ounces per ton) 0.353 0.188 0.353 0.173
Average gold recovery 90.8% 88.5% 90.7% 87.6%
</TABLE>
Cost of sales was $14.1 million in the second quarter of 1998, down
from $21.7 million in the second quarter of 1997. For the first six months of
1998, cost of sales was $29.2 million compared with $41.5 million in the same
period of 1997. Cash costs per ounce in the second quarter of 1998 improved to
$322 from $393 in the second quarter of 1997 and in the first six months of 1998
improved to $358 from $423 in the first six 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 the
underground mining and milling costs
Page 12
<PAGE>
were primarily due to the lower volume of ore processed with the underground
mining costs also reflecting lower backfill and maintenance charges and improved
mining practices. Mine site G&A costs in the 1998 periods reflected the
capitalization of the portion of those costs associated with the Turquoise Ridge
mine while development ore is being processed.
The decreases in corporate and mine site G&A and exploration costs in
the first six 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 second quarter and the first six 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. Such drilling expenditures capitalized were $1.4
million and $1.7 million for the second quarter and first six months of 1998,
respectively. Interest and other income was lower in the second quarter and
first six months of 1998 compared to the same periods of 1997 due to lower cash
and cash equivalent balances throughout the second quarter and first six months
of 1998 as compared to the same periods of 1997.
Liquidity and Capital Resources
During the first six months of 1998, the Company used $4.9 million of
cash in operations and $39.7 million for capital expenditures. The capital
expenditures included $29.4 million on Turquoise Ridge mine development, $3.8
million on the Getchell Underground mine, $3.5 million on the mill, $1.7 million
on development drilling and $1.3 million on other items. Total expenditures on
the Turquoise Ridge mine construction through June 30, 1998 were $85.5 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 $69.8 million after offering costs and expenses of $3.2 million. As of June
30, 1998, cash and cash equivalents were $57.8 million.
The principal balance of the Company's promissory note with ChemFirst
was $26.9 million at June 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 6-22/32% at June 30, 1998. Since
the inception of the promissory note, interest has been capitalized to the note
at the end of each interest period.
Page 13
<PAGE>
The Company does not expect positive cash flow from operating
activities earlier than the third quarter of 1998, although there can be no
assurance that there will be cash flow from operations at that time.
Approximately $20 million is expected to be spent on capital projects in the
last six months of 1998, including the Turquoise Ridge mine as discussed,
modifications to the mill, the 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 believes that cash flows from operations
and current cash balances will be sufficient to fund operations and capital
investments through 1998. 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.
In June 1998, the Financial 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.
Page 14
<PAGE>
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 January 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 macro-economic factors such as expectations for inflation, interest rates,
currency exchange rates and global or regional political and economic
situations. The current demand for and supply of gold 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:
Calendar Year High Low Average
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 July 30)............................. $313 $279 $296
Page 15
<PAGE>
The London P.M. Fix on July 30, 1998, was $290 per ounce.
Continuing Losses
The Company reported net losses of $2.3 and $7.2 million for the
quarter and six months ended June 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
Page 16
<PAGE>
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 June
30, 1998. As of June 30, 1998, cash and cash equivalents were $57.8 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 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
Page 17
<PAGE>
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
Page 18
<PAGE>
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.
Page 19
<PAGE>
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 Company is currently engaging in
settlement discussions with the Solicitor's Office. The Commission
Administrative Law Judge may vacate the penalties, reduce them, or increase
them, but in no case will the maximum exceed $0.3 million. 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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<PAGE>
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. Recent regulations promulgated under RCRA, the Phase IV
Land Disposal Restrictions, could potentially alter regulatory requirements
applicable to the storage and management of mining wastes. The Company is
currently reviewing these regulations and assessing whether such changes will
materially impact its 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
required.
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
July 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
Page 21
<PAGE>
resources on federal lands. The extent of the changes, if any, which may be 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 its Surface Mining Regulations under 43
C.F.R. Section 3809. BLM anticipates that an environmental impact statement
evaluating the potential effects of these regulatory revisions will be issued in
November 1998. The proposed revisions address reclamation and bonding
requirements for the industry. The impact of these potential revisions, when
finalized, is not know 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 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
Page 22
<PAGE>
property to which such substances may have migrated. Such laws may impose
liability 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.
Page 23
<PAGE>
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 June 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
Page 24
<PAGE>
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.
Page 25
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders on May 14, 1998, the Company
stockholders, pursuant to proxies solicited under Regulation 14A, cast votes on
proposals as follows:
Proposal No. 1 - Election of Directors
For Withhold Authority
Pete Ingersoll 22,699,542 500,973
William E. Nettles 22,970,291 230,224
G. W. Thompson 22,700,149 500,366
Continuing directors are:
Walter A. Drexel
John Racich
Charles E. Stott, Jr.
R. Michael Summerford
J. Kelley Williams
Al Winters
Robert L. Zerga
Proposal No. 2 - Approval of the 1998 Stock Option Plan for Outside Directors
For Against Abstain Non Vote
22,246,193 881,163 73,159 7,585,836
Proposal No. 3 - Amendment of the 1996 Long Term Equity Incentive Plan
For Against Abstain Non Vote
19,395,853 3,721,123 83,539 7,585,836
Proposal No. 4 - Ratification of Appointment of Independent Auditors
For Against Abstain Non Vote
23,163,946 11,192 25,377 7,585,836
ITEM 5. OTHER INFORMATION
New Securities and Exchange Commission rules regarding stockholder
proposals became effective on June 29, 1998. Pursuant to these new rules, if the
Company has not received notice by February 17, 1999 of any matter a stockholder
intends to propose for a vote at the 1999 annual meeting of stockholders, then a
proxy solicited by the board of directors
Page 26
<PAGE>
may be voted on such matter in the discretion of the proxy holder, without
discussion of the matter in the proxy statement soliciting such proxy and
without such matter appearing as a separate item on the proxy card.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27. - Financial Data Schedule.
Reports on Form 8-K
No reports on Form 8-K were filed by the registrant in the quarter
ended June 30, 1998.
Page 27
<PAGE>
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
July 30, 1998 By: /s/ G. W. Thompson
Date G. W. Thompson, President, Chief Executive Officer
and Director
July 30, 1998 By: /s/ Donald S. Robson
Date Donald S. Robson, Vice President and Chief
Financial Officer
(Principal Financial Officer)
Page 28
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