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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-16484
GETCHELL GOLD CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 64-0748908
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5460 SOUTH QUEBEC STREET 80111
SUITE 240 (Zip Code)
ENGLEWOOD, COLORADO
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (303) 771-9000
Securities registered pursuant to Section 12(b) of the Act:
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<S> <C>
TITLE OF EACH CLASS NAME OF EXCHANGES ON WHICH REGISTERED
- -------------------------------------------------------- --------------------------------------------------------
Common Stock, par value $0.0001 American Stock Exchange
The Toronto Stock Exchange
</TABLE>
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
Aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the
February 20, 1998 closing price of $19 7/8 on the American Stock Exchange, was
approximately $512,000,000.
Common Stock outstanding on February 20, 1998 was 26,784,351 shares.
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
INTRODUCTION
The following discussion of Getchell Gold Corporation's business and
properties includes "forward-looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"),
and is subject to the safe harbor created by that section. Factors that
realistically could cause results to differ materially from those projected in
the forward-looking statements are set forth in "Business and Properties" and in
"Risk Factors" as found in Item 7 "--Management's Discussion and Analysis of
Results of Operations and Financial Condition."
Getchell Gold Corporation, together with its subsidiary, is referred to
herein as the "Company." The Company was incorporated in 1987 by ChemFirst Inc.
("ChemFirst"), (formerly First Mississippi Corporation). After the Company's
initial public offering in 1988, ChemFirst held approximately 81% of the
Company's common stock. In October 1995, ChemFirst distributed its shares of the
Company's common stock to ChemFirst's shareholders in a tax free distribution
(the "Spin-Off").
The Company is a Delaware corporation that is engaged in exploration and
production of gold from its 33,000-acre "Getchell Property" located in north
central Nevada (see map on page 2). All of the Company's consolidated sales and
operating losses and profits have been related to its gold mining activities in
the United States.
The Company's principal executive offices are located at 5460 South Quebec
Street, Suite 240, Englewood, Colorado 80111. The Company's telephone number is
(303) 771-9000.
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[MAP]
Map which displays the outline of the Getchell Property, its general
locations within the state of Nevada and labels of the various mines, faults and
processing facilities.
2
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THE GETCHELL PROPERTY
GENERAL. The Getchell Property is located in the Potosi Mining District on
the eastern side of the Osgood Mountain Range, 43 miles northeast of Winnemucca,
Nevada. Access to the property is off Interstate 80 on an all-weather gravel
road maintained and used jointly by the Company and various competitors.
Gold mining commenced at the Getchell Property in the late 1930's and has
continued intermittently since that time under several different owners.
ChemFirst purchased the inactive property from Conoco Inc. in 1983, at which
time ChemFirst began a development program. As of December 31, 1997, the Company
had produced over 1.8 million ounces of gold from the Getchell Property.
Current operations on the Getchell Property include a pressure oxidation
("autoclave") mill facility, a heap leach facility and two underground mines,
the "Turquoise Ridge" mine and the "Getchell Underground" mine. Production of
development ore at the Turquoise Ridge mine began in the first quarter of 1998
with commercial production expected to be reached no earlier than the third
quarter of 1998. There can be no assurance that this development schedule can be
achieved. Commercial production at the Getchell Underground mine began in May
1995. Prior to July 1995, and for nine months during 1996, operations on the
property also included open pit mining of oxide and sulfide ores. During the
year ended December 31, 1997, the Company sold 179,676 ounces of gold as
compared to 171,343 ounces of gold in 1996.
In the years ended December 31, 1997 and 1996, ore for mill feed was
primarily derived from the Getchell Underground mine and from low-grade surface
stockpile ore, which was built up from the prior open pit mining operations.
Approximately 54% of the mill feed for 1997 consisted of this low-grade
stockpile ore. In December 1997, in order to conserve cash while at the same
time continuing the development of the Turquoise Ridge mine, the processing of
low-grade stockpile ore was suspended and the decision was made to focus
production at the Getchell Underground mine on the potentially higher grade
Northwest Ore Zones.
PROPERTY INTEREST. The Getchell Property consists of approximately 18,900
acres of unpatented lode and mill site mining claims and 14,100 acres of fee
land owned by the Company. Greater than 90% of the Company's current proven and
probable reserves are on fee land. Approximately 65% of the Getchell Property,
including all current proven and probable reserves, is subject to a royalty
payable to a third party equal to 2% of the sales revenues, net of shipping and
refining costs.
GEOLOGY. Gold mineralization on the Getchell Property occurs in a series of
discrete zones associated with the north/south-trending Getchell Fault and with
the northeast-trending Turquoise Ridge Fault (see maps on pages 2 and 5). Both
systems cut through a thick sequence of interbedded early Paleozoic sedimentary
and volcanic units that dip at various angles. Intensity of gold mineralization
is related to structural complexity and the location of rocks chemically
receptive to mineralization. "Mineralization" is a naturally occurring
concentration of minerals which may or may not be economically minable.
Refractory sulfide gold deposits are found at depth along the Getchell Fault
and in sedimentary units near the Getchell Fault. Drilling has identified
similar gold deposits in folded Paleozoic sedimentary units in contact north and
south of the Turquoise Ridge Fault 2,000 feet northeast of the Getchell Fault.
Oxidized gold deposits are also associated with the Getchell and Turquoise Ridge
Fault zones and with other locations on the Getchell Property, typically
occurring as discrete zones at depths shallower than the sulfide mineralization.
Additional oxide and sulfide gold mineralization is found in an area known as
Section 13 which is located approximately three miles northeast of the mill site
(see map on page 2).
EXPLORATION AND DEVELOPMENT
The Company's exploration activities are focused on the Getchell Property.
Methods employed include drilling, geological mapping, and geophysical and
geochemical surveys. The Company's exploration
3
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staff includes four full-time geologists. The full-time staff is augmented by
consultants and other contract employees as needed. Exploration efforts have
been successful in recent years in identifying new gold reserves at the Getchell
Underground and Turquoise Ridge mines. Exploration on the remainder of the
Getchell Property has indicated deep sulfide mineralization at Hansen Creek,
located along the Getchell Fault, and mixed oxide/sulfide mineralization at
Section 13. Several other exploration targets have been identified at the
Getchell Property and await exploration drilling.
GETCHELL UNDERGROUND. Development drilling at the Getchell Underground mine
indicates that the ore body remains open at depth and along strike to the north
and to the south. Underground drilling in 1997 and 1996 defined new ore bodies
now known as the "Northwest Ore Zones" which are located in the foot wall to the
north and west of the current Getchell Underground workings. Development of
these zones is a high priority because of potentially higher grades than the
average grade of the Getchell Underground mine. Additional drilling is planned,
on an ongoing basis, to determine the ultimate extent of the mineralization.
Such drilling may determine that there are no additional reserves in such zones.
TURQUOISE RIDGE. Development drilling during 1996 identified a southern
extension to the Turquoise Ridge ore body, now known as the Shaft Zone, and by
December 1996 sufficient drilling and engineering had been done to establish an
additional reserve of 1.3 million contained ounces of gold at an average grade
of 0.400 ounces per ton. The Shaft Zone is contiguous with the original
Turquoise Ridge reserves as announced at the end of 1995 (see property map on
page 5). Drilling in 1997 from both the surface and from underground has further
defined the Shaft Zone. Drilling in 1997 from the surface also expanded the
Turquoise Ridge deposit to the north, in an area known as the "N" Beds, and
discovered a new mineralized zone to the south now known as "Bud Hill." The
Company presently intends to initially mine ore from the Shaft Zone.
4
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[MAP]
Map which displays details of the active mining areas of the Getchell
Property including location of proven and probable reserves, shafts, mill
facilities, heap leach facilities and other sites.
5
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PROVEN AND PROBABLE ORE RESERVES
The Company's estimated proven and probable ore reserves were approximately
6.2 million contained ounces at December 31, 1997. At December 31, 1996,
estimated reserves totaled 4.5 million contained ounces. During 1997, 0.2
million contained ounces were mined, 0.2 million contained ounces were removed
from reserves due to the decline in the gold price used in the reserve
calculations, and 2.1 million contained ounces were added through development
drilling and exploration. Such reserves were determined by the use of mapping,
drilling, sampling, assaying and evaluation methods generally applied in the
mining industry. Calculations with respect to the estimates of proven and
probable gold reserves as of December 31, 1997, are based on a gold price of
$350 per ounce. If such estimates were based on a gold price of $325 per ounce,
the Company believes such estimated proven and probable gold reserves would not
decrease significantly. Calculations with respect to the estimates of proven and
probable reserves as of December 31, 1996, were based on a gold price of $400
per ounce.
The Company's proven and probable ore reserves have been prepared by the
Company and verified by two independent mining consulting firms, Mineral
Resources Development Inc. ("MRDI") and Mine Development Associates ("MDA").
MRDI confirmed the portion of the "A" Zone reserves identified in the 1995
Turquoise Ridge pre-feasibility study (which reserves at that time equaled
3,712,000 ore tons at a weighted average grade of 0.338 ounces per ton or
1,253,000 contained ounces of gold). Such reserves are included in the "A" Zone
reserves in the following chart. All other reserves were confirmed by MDA. For
information regarding risks associated with the Company's estimates of its
proven and probable reserves, see "Risk Factors--Gold Price Volatility" and
"--Reserves" in Item 7--"Management's Discussion and Analysis of Results of
Operations and Financial Condition."
<TABLE>
<CAPTION>
PROVEN AND PROBABLE MINABLE RESERVES (1) (2)
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DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------------------- -----------------------------------------
AVERAGE GRADE CONTAINED AVERAGE GRADE CONTAINED
AREA ORE TONS (OZ/TON) OUNCES(3) ORE TONS (OZ /TON) OUNCES(3)
- ---------------------------- ------------ --------------- ---------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
UNDERGROUND RESERVES
Turquoise Ridge
"A" Zone................ 3,712,000 0.338 1,253,000 3,712,000 0.338 1,253,000
Shaft Zone.............. 3,756,144 0.398 1,494,128 3,324,000 0.400 1,329,800
"N" Beds................ 3,596,470 0.449 1,615,128 505,700 0.373 188,660
Getchell Underground...... 5,054,775 0.345 1,743,731 5,119,100 0.309 1,582,890
Other underground......... -- -- -- 184,000 0.278 51,200
------------ ---------- ------------ ----------
Total Underground
Reserves................... 16,119,389 0.379 6,105,987 12,844,800 0.343 4,405,550
------------ ---------- ------------ ----------
------------ ------------
SURFACE RESERVES
Hansen Creek (Sulfide).... 85,500 0.138 11,800 200,400 0.148 29,600
Section 13................ 1,139,700 0.044 50,240 1,024,800 0.031 32,440
Stockpile................. 101,256 0.100 10,126 876,030 0.085 74,400
------------ ---------- ------------ ----------
Total Surface Reserves...... 1,326,456 0.054 72,166 2,101,230 0.065 136,440
------------ ---------- ------------ ----------
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TOTAL PROVEN AND PROBABLE... 6,178,153 4,541,990
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</TABLE>
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(1) The term "reserve" means that part of a mineral deposit which can be
economically and legally extracted or produced at the time of the reserve
determination.
The term "proven reserves" means reserves for which (a) quantity is computed
from dimensions revealed in outcrops, trenches, workings or drill holes; (b)
grade and/or quality are computed from the results of detailed sampling and
(c) the sites for
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inspection, sampling and measurement are spaced so closely and the geologic
character is so well defined that size, shape, depth and mineral content of
reserves are well-established.
The term "probable reserves" means reserves for which quantity and grade
and/or quality are computed from information similar to that used for proven
reserves, but the sites for inspection, sampling and measurement are farther
apart or are otherwise less adequately spaced. The degree of assurance,
although lower than that for proven reserves, is high enough to assume
continuity between points of observation.
(2) Calculated using cut-off grades for 1997 and 1996 as follows: sulfide
material not less than 0.200 ounce per ton for underground reserves except
for the Turquoise Ridge"A" zone which is not less than 0.250 ounce per ton;
sulfide stockpile material not less than 0.075 ounce per ton; oxide material
not less than 0.010 ounce per ton cyanide soluble.
The term "cut-off grade" means the lowest grade of mineralized rock that can
be included in the reserve in a given area. Cut-off grades vary depending
upon prevailing economic conditions, minability of the area, amenability of
the ore to gold extraction, and milling or leaching facilities available.
Calculations were based on a 15% average mining dilution and an average mine
recovery of 95%.
(3) The proven and probable minable ore reserve ounces are "contained" ounces
with mining dilution taken into account. Actual ounces expected to be
recovered during milling and heap leach processing will be less.
MINES
TURQUOISE RIDGE MINE. There are two shafts at the Turquoise Ridge mine
which provide access to the Shaft Zone reserves and the other Turquoise Ridge
reserves. One shaft, which is still under construction, will serve as a
production/service shaft and the other shaft is a ventilation shaft and
emergency escape-way. At December 31, 1997, sinking of the production/service
shaft had reached a depth of 1,281 feet and sinking of the ventilation shaft had
reached a depth of 1,710 feet. The ventilation shaft is temporarily bottomed,
although the Company may further sink this shaft in the future. Until the
production/service shaft is complete, access to the ore body and development
drilling will be conducted from the ventilation shaft.
At December 31, 1997, 6,574 feet of waste development had been completed on
three levels located 900, 1,250 and 1,550 feet below the surface at the
Turquoise Ridge mine. Underground core drilling began in the third quarter of
1997 with approximately 28,000 feet completed by December 31, 1997.
Limited development ores were hoisted during December 1997 from the 1550
level, although these ores were not milled until February 1998. Development of
the Turquoise Ridge mine has focused primarily on the 1550 level. Development on
the 900 and 1250 levels has been limited by an expected three month delay in the
completion of a waste and ore transfer borehole from the 900 and 1250 levels to
the 1550 level caused by contractor equipment problems. In early 1998,
development drilling is being accelerated on the 1250 and 1550 levels in an
attempt to mitigate the impact of the borehole delays.
The Company currently estimates that the expected total capital cost for
construction required to bring the Turquoise Ridge underground mine into
commercial production at its designed capacity of 2,000 tons of ore per day is
$92 million. At December 31, 1997, approximately $56 million of the projected
$92 million had been spent. Under the timetable presently contemplated by the
Company, commercial production is expected to be reached no earlier than the
third quarter of 1998. However, there can be no assurance that the anticipated
costs will not exceed $92 million, that the Company's development schedule can
be achieved, or that there will not be equipment problems which delay
production. See "Risk Factors--Certain Turquoise Ridge Mine Risks" and "Risk
Factors--Liquidity" in Item 7 below.
GETCHELL UNDERGROUND MINE. The Getchell Underground mine is located
immediately west of the Turquoise Ridge mine. Access to the ore body is achieved
via two portals located in the west wall of the Main Pit which connect to a
series of declines to lower levels. Ore and waste is moved to the surface by
truck.
The Company employs the "drift and fill" mining method in the Getchell
Underground mine, which the Company has determined is appropriate for the ground
conditions currently being encountered. This
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mining method involves mining a section of ore, which is then backfilled with
cemented aggregate prior to the mining of the next contiguous section of the ore
body. Higher productivity mining methods are currently being used on a test
basis in the Northwest Ore Zones due to better ground conditions in the zone.
Two of the higher productivity mining methods currently being used in the
Northwest Ore Zones are drift and bench mining and longhole stoping.
PROCESSING FACILITIES AND OPERATIONS
MILL. The Company's mill began operating in February 1989. Economic gold
recoveries from the sulfide ores on the Getchell Property are obtained by a
pressure oxidation process known as autoclaving, prior to treatment by
conventional carbon-in-leach ("CIL") processes. The mill uses high temperature,
high pressure autoclaves to oxidize sulfides in the ore. The Company believes
that autoclaves are presently the most effective available method for milling
the Getchell Property sulfide ores.
Ore is processed through various grinding circuits, with a fine grinding
circuit having been added in the fourth quarter of 1997 to improve mill
recoveries. After crushing and grinding, the ore is thickened to form an ore
slurry, treated with sulfuric acid to remove carbonate minerals and then
preheated. The preheated ore slurry then enters the autoclaves where temperature
and pressure are increased and oxygen is added to oxidize the sulfide minerals.
After the ore slurry leaves the autoclaves, limestone and lime are added to
adjust the pH level and sodium cyanide is added in small amounts to leach the
gold from the ore slurry. The ore slurry is then transferred to a conventional
CIL circuit where the dissolved gold is absorbed onto carbon granules. Loaded
carbon granules are periodically removed from the CIL circuit and processed to
strip the gold. The stripping process culminates in a gold precipitate which is
collected in filter presses and smelted into dore bars. The dore bars are
shipped from the Getchell Property for further processing by an independent
refinery.
As a result of suspending processing of the low-grade surface stockpile ore
in December 1997, the Company anticipates operating two of its three autoclaves
intermittently during the first and second quarters of 1998. Full mill
production is expected no earlier than the fourth quarter 1998 depending on
increased mine production from the new Northwest Ore Zones in the Getchell
Underground mine and from the Turquoise Ridge mine. In connection with
anticipated commercial production at the Turquoise Ridge mine, the Company
currently intends to increase mill throughput capacity from 3,200 tons per day
to 4,200 tons per day. There can be no assurances as to the timing and levels of
production achieved at the mill or from the Getchell Underground or Turquoise
Ridge mines.
HEAP LEACH. Heap leaching is a process used to recover gold from naturally
oxidized, permeable ores. The process involves heaping the ore on an impermeable
pad and applying a weak cyanide solution to the top of the heap. As the solution
percolates through the heap, gold is leached from the ore. The gold bearing
solution is recovered as it seeps from the bottom of the pile and the solution
is treated to recover the gold. Since gold recovery rates from heap leaching are
lower than from conventional CIL milling, this process is not usually applied to
high-grade ore. In such higher-grade ore, the value of the incremental gold
recovered through the milling process typically more than offsets the higher
cost of the milling process.
Oxide ores from several pits on the Getchell Property were mined and leached
from 1985 until December 1997. In 1995, full-time oxide ore mining was
discontinued as reserves which could be processed at the existing heap leach
facility were exhausted. Final leaching from the existing facility is scheduled
for 1998, at which time permanent closure of the facility is expected to begin.
Costs for such closure have been included in the estimate for reclamation, for
which accruals are being made. Various small oxide deposits are still known to
exist on the Getchell Property, but any future heap leaching would be done in a
newly constructed facility which is not currently planned.
ANCILLARY FACILITIES AND RAW MATERIALS. Oxygen used in the autoclave
process is supplied under a long-term agreement by an independent contractor
which owns and operates a plant at the Company's mill site. The agreement has a
remaining term of approximately six years. Payments for the oxygen totaled
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$1.8 million in 1997. Supplemental liquid oxygen has been purchased and
delivered via truck during periods of down time at the oxygen plant and during
times of higher mill throughput resulting in oxygen needs exceeding the oxygen
plant capacity. Liquid oxygen purchases were immaterial during 1997.
Electricity is provided by an independent utility company under an electric
services agreement. The mill uses reclaimed water pumped from the tailings pond
and from the dewatering of the pits and underground mines. Makeup water for the
milling process comes from two wells located on the Getchell Property
approximately four miles from the mill. A limestone deposit located on the
Getchell Property is mined and stockpiled for use in the milling process.
Other materials necessary in the milling process, such as sodium hydroxide,
sulfuric acid, lime, carbon, propane and sodium cyanide are available for
purchase from more than one supplier and are hauled by rail and truck to the
Getchell Property. These materials may be subject to shortages from time to
time, resulting in higher costs. Where practicable, the Company seeks to enter
into long term contracts to assure continuing supplies and to minimize costs of
such materials.
The Company has constructed a tailings dam and pond on 316 acres of land on
the Getchell Property. In 1997 the Company completed an additional lift, thereby
increasing the capacity at the tailings pond. Additional lifts to increase
capacity will be constructed as needed. The pond is lined with a plastic liner
and is designed to accommodate water run-off from a "100-year flood" event and
reasonably expected seismic activity for the site.
PRODUCTION
The following table sets forth selected information about the Company's
production data:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1997 1996
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<S> <C> <C>
Ounces of gold sold................................................. 179,676 171,343
Average realized price per ounce.................................... $ 361 $ 396
Cash cost per ounce produced........................................ $ 418 $ 402
Getchell Underground mine:
Ore mined (dry tons).............................................. 500,459 424,156
Ore mined per operating day (dry tons)............................ 1,410 1,188
Average grade of ore mined (ounces per ton)....................... 0.313 0.302
Milling:
Production (ounces)............................................... 176,967 163,580
Ore milled (dry tons)............................................. 1,085,099 1,119,547
Average grade of ore milled (ounces per ton)...................... 0.187 0.162
Ore milled per calendar day (dry tons)............................ 2,973 3,059
Gold recovery..................................................... 87.9% 88.7%
Leaching:
Production (ounces)............................................... 2,709 7,763
Ore processed (dry tons).......................................... --(a) 874,753
Average grade of ore processed (ounces per ton)................... --(a) 0.019
</TABLE>
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(a) No ore was placed on the heap leach pads in 1997.
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The following table sets forth the source and grade of mill feed for the
years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1997 1996
------------------------------------- -------------------------------------
AVERAGE AVERAGE
DRY TONS GRADE DRY TONS GRADE
PROCESSED (OUNCES PER TON) PROCESSED (OUNCES PER TON)
------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Getchell Underground ore.............. 500,285 0.313 418,972 0.301
Stockpile ore......................... 584,814 0.082 700,575 0.082
---------- ----- ---------- -----
Total Sulfide Ore................. 1,085,099 0.187 1,119,547 0.162
---------- ----- ---------- -----
---------- ----- ---------- -----
</TABLE>
SALES AND MARKETING
During the year ended December 31, 1997, the Company's dore was refined
under contract with Metalor USA Refining Corporation ("Metalor") of North
Attleborough, Massachusetts, a wholly owned subsidiary of Swiss Bank
Corporation. The refined gold was sold to Metalor. The Company believes that
there are a number of potential refiners and purchasers in addition to the one
currently being used.
HEDGING ACTIVITIES 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. These transactions have been designated as hedges of
the price of future production and are accounted for as such, with the
recognition of any gains or losses in sales when the related gold production is
delivered. 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.
Spot deferred and forward sales contracts are agreements between a seller
and a counterparty whereby the seller commits to deliver a set quantity of gold
on an established future date and at an agreed upon price. The established
forward price is equal to the current spot gold price on the day the agreement
is signed plus "contango." Contango is equal to the difference between the
prevailing market interest rate for cash deposits less the gold lease rate, for
comparable periods. The contango rate was approximately 4% per annum for
one-month to twelve-month periods at December 31, 1997.
On the scheduled future delivery date, the seller may deliver physical gold
and thereby fulfill the contract, liquidate the contract through the financial
market by purchasing an equivalent amount of gold, or with respect to a spot
deferred contract, defer delivery to a future date. If the spot price on the
delivery date is greater than the contract price, delivery on the contract may
be deferred to a new future date and the gold is sold at the higher spot price.
If the spot price is lower than the contract price, the delivery may be made
against the contract and the higher contract price is realized. In practice,
this generally allows the seller to maximize the price received. Each time a
seller defers delivery, the forward sales price is increased by the then
prevailing contango (assuming it is positive) for the next period to the newly
established future delivery date. Generally, the counterparty will allow the
seller to continue to defer contract deliveries providing that there is
sufficient scheduled production from proven and probable reserves to fulfill the
commitment and the counterparty can borrow the gold.
At December 31, 1997, the Company's outstanding spot deferred contracts were
for 130,000 ounces at an average price of $336 per ounce, including estimated
future contango. Of these contracts, 110,000 ounces were for delivery in 1998 at
a weighted average price of $342 per ounce, including estimated future contango,
and 20,000 ounces were for delivery in 1999 at a weighted average price of $302
per ounce, including estimated future contango.
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Additionally, in November 1997, the Company entered into a forward sales
contract covering the sale of 250,000 ounces of gold and 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.
The option feature of the contract specifies that if the gold spot price
equals or exceeds certain price increments, then the Company will sell an
additional amount of gold at a specified price. If at any time on or between
December 27, 1997 and December 27, 2000, the gold spot market price equals or
exceeds a price increment, the Company will deliver 15,000 ounces of gold at
$343 per ounce deliverable on December 31 in each of the years 2000, 2001 and
2002. The price increments are $380, $387, $394, $401 and $408. In total, if all
five price increments are equaled or exceeded prior to December 27, 2000, the
Company would be required to deliver 75,000 ounces at December 31 in each of the
years 2000, 2001 and 2002.
If any price increment has not been equaled or exceeded prior to or on
December 27, 2000 but is equaled or exceeded during the period beginning after
December 27, 2000 up to or on December 27, 2001, then if the gold spot market
price equals or exceeds the price increment during the period, the Company will
deliver 15,000 ounces of gold at $343 per ounce deliverable on December 31, in
both 2001 and 2002. Similarly, if any price increment has not been equaled or
exceeded prior to or on December 27, 2001, but is equaled or exceeded during the
period beginning after December 27, 2001 up to or on December 27, 2002, then if
the gold spot market price equals or exceeds the price increment during the
period, the Company will deliver 15,000 ounces of gold at $343 per ounce
deliverable on December 31, 2002.
At December 31, 1997, the Company had outstanding European call option
contracts for 55,000 ounces of gold at a price of $343 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. European call option contracts are agreements between a seller
and a counterparty whereby the counterparty has the right, but not the
obligation, to buy gold from the seller at a predetermined price on a
predetermined date. The counterparty pays a premium for this right. The premiums
are deferred until the option expires or the related transaction occurs at which
time the deferred amounts are recognized in income. 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.
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."
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
11
<PAGE>
("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. The maximum civil penalties for which the Company
could be assessed as the result of such actions is $0.3 million. MSHA is also
conducting 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. The result of that investigation is unknown, but could result
in criminal penalties for the Company and/or civil or criminal penalties for
agents, officers, or directors of the Company. While management of the Company
believes that the results of the investigation will not have a material adverse
effect on the Company, no assurance can be given that the outcome of this
investigation will not have such an effect.
On May 26, 1997, a worker employed by the ventilation shaft sinking
contractor was killed in an accident at the bottom of the ventilation shaft due
to a mechanical failure of a safety device. As required by federal law, MSHA
officials investigated the cause of the accident. Enforcement action was taken
against the contractor, but the Company did not receive any citations as a
result of that accident investigation.
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.
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.
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.
12
<PAGE>
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
February 20, 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 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. 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 AND SAFETY
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 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
13
<PAGE>
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.
ENVIRONMENTAL COMPLIANCE AND CAPITAL COSTS. It is estimated that with
respect to the Company's operations, compliance with federal, state and local
regulations relating to the discharge of material into the environment, or
otherwise relating to the protection of the environment, required capital
expenditures of approximately $4.2 million in 1997 including $3.8 million on the
tailing facilities and $0.4 million on other facilities. It is estimated that
the Company will require approximately $1.7 million of capital expenditures for
environmental compliance in 1998 primarily in the mill facility.
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.
14
<PAGE>
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 December 31, 1997, 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.
SAFETY. The Company incurred compliance costs of $0.9 million during the
year ended December 31, 1997 related to safety department operations, safety
training and industrial hygiene.
EMPLOYEES
At December 31, 1997, the Company had 437 employees, none of which are
unionized. In December 1997, as a result of changes to operations, the Company
reduced its workforce by 82 full-time employees, or 16% of the total workforce.
The Company faces competition from other mining companies in connection with
the recruitment and retention of qualified employees. The Company maintains an
ongoing evaluation of the labor market for qualified mining industry employees.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party or to
which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise during the quarter ended December 31, 1997.
15
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the American Stock Exchange and on
The Toronto Stock Exchange under the symbol "GGO." In a cost savings measure,
the Company voluntarily requested to be delisted from The Toronto Stock
Exchange. Such request has been acknowledged and shall be effective at the close
of business on February 26, 1998. After February 26, 1998, the Company will
continue to be listed on the American Stock Exchange.
Provided in the table below are the high and low recorded prices of the
Company's common stock on the American Stock Exchange for periods after June 24,
1996 and on the Nasdaq National Market for prices prior to June 25, 1996. No
dividends have been declared since the Company's initial public offering in May
1988, and dividends are not anticipated for the foreseeable future. The Company
intends to retain earnings to support current operations and to fund exploration
and development projects. There were approximately 4,050 stockholders of record
as of February 20, 1998.
<TABLE>
<CAPTION>
1996 HIGH LOW
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First Quarter.............................................................. $ 29.25 $ 21.75
Second Quarter............................................................. $ 41.00 $ 27.13
Third Quarter.............................................................. $ 50.25 $ 30.50
Fourth Quarter............................................................. $ 48.00 $ 37.38
1997
- ---------------------------------------------------------------------------
First Quarter.............................................................. $ 51.50 $ 32.00
Second Quarter............................................................. $ 43.50 $ 34.25
Third Quarter.............................................................. $ 41.00 $ 29.38
Fourth Quarter............................................................. $ 42.25 $ 19.50
1998
- ---------------------------------------------------------------------------
First Quarter (through February 20)........................................ $ 26.44 $ 17.81
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA (In thousands, except per share)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS
31, ENDED YEAR ENDED JUNE 30,
---------------------- DECEMBER 31, --------------------------------
1997 1996 1995 1995 1994 1993
---------- ---------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIODS ENDED:
Net Sales....................................... $ 64,797 $ 67,878 $ 34,425 $ 71,485 $ 95,150 $ 78,773
---------- ---------- ------------ ---------- --------- ---------
---------- ---------- ------------ ---------- --------- ---------
Income (loss) before cumulative effect of change
in accounting principle....................... $ (19,427) $ (13,952) $ (5,027) $ (18,357) $ 4,299 $ (2,469)
Cumulative effect of change in accounting
principle..................................... -- -- -- -- 1,350 --
---------- ---------- ------------ ---------- --------- ---------
Net income (loss)............................... $ (19,427) $ (13,952) $ (5,027) $ (18,357) $ 5,649 $ (2,469)
---------- ---------- ------------ ---------- --------- ---------
---------- ---------- ------------ ---------- --------- ---------
Income (loss) per common share--basic and
assuming dilution:
Before cumulative effect of change in accounting
principle..................................... $ (0.73) $ (0.54) $ (0.25) $ (1.01) $ 0.24 $ (0.14)
Cumulative effect of change in accounting
principle..................................... -- -- -- -- 0.07 --
---------- ---------- ------------ ---------- --------- ---------
Net income (loss)............................... $ (0.73) $ (0.54) $ (0.25) $ (1.01) $ 0.31 $ (0.14)
---------- ---------- ------------ ---------- --------- ---------
---------- ---------- ------------ ---------- --------- ---------
AT END OF PERIOD:
Total assets.................................... $ 238,487 $ 208,808 $ 210,493 $ 85,120 $ 88,747 $ 92,238
Long-term debt, including current portion....... $ 27,057 $ 25,336 $ 23,783 $ 40,900 $ 29,339 $ 33,435
Stockholders' equity............................ $ 179,895 $ 151,222 $ 164,264 $ 31,744 $ 49,719 $ 44,068
</TABLE>
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition. The discussion
should be read in conjunction with Item 8--"Financial Statements and
Supplementary Data."
The information set forth in this discussion and analysis includes "forward
looking statements" within the meaning of Section 21E of the Exchange Act and is
subject to the safe harbor created by that section. Factors that realistically
could cause results to differ materially from those projected in the forward
looking statements are set forth in "Risk Factors."
On October 20, 1995, ChemFirst distributed its 81% interest in the Company
to ChemFirst shareholders. In September 1995, the Company changed its fiscal
year end from June 30 to December 31. On June 25, 1996, the Company changed its
corporate name from FirstMiss Gold Inc. to Getchell Gold Corporation and changed
its state of incorporation from Nevada to Delaware.
RESULTS OF OPERATIONS
The following Consolidated Statement of Operations includes results for the
years ended December 31, 1997 and 1996, the six months ended December 31, 1995
and the year ended June 30, 1995, and are derived from the Financial Statements
of the Company, which have been audited by KPMG Peat Marwick LLP, whose report
thereon is included herein. Because the Company changed its fiscal year end from
June 30 to December 31 in 1995, unaudited consolidated statement of operations
data for the year ended December 31, 1995 has been included for comparability.
17
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales..................................................................... $ 64,797 $ 67,878 $ 67,884
Cost of sales................................................................. 86,320 78,784 69,972
---------- ---------- ----------
Gross margin................................................................ (21,523) (10,906) (2,088)
General and administrative expenses........................................... 5,515 4,669 3,531
Exploration expenses.......................................................... 1,537 3,580 2,106
Abandonment and impairment of mineral properties.............................. -- -- 11,531
---------- ---------- ----------
Loss from operations........................................................ (28,575) (19,155) (19,256)
Interest expense, net of capitalized interest................................. (839) (1,082) (3,680)
Interest and other income..................................................... 4,055 5,415 981
---------- ---------- ----------
Loss before income taxes.................................................... (25,359) (14,822) (21,955)
Income tax benefit (provision)................................................ 5,932 870 (109)
---------- ---------- ----------
Net loss.................................................................... $ (19,427) $ (13,952) $ (22,064)
---------- ---------- ----------
---------- ---------- ----------
Loss per common share--basic and assuming dilution............................ $ (0.73) $ (0.54) $ (1.16)
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of shares outstanding--basic and assuming dilution.... 26,571 25,727 19,035
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
The Company reported a net loss of $19.4 million ($0.73 per share) in 1997,
compared with a net loss of $14.0 million ($0.54 per share) in 1996 and a net
loss of $22.1 million ($1.16 per share) in 1995. Although the Company reported
increased production, lower exploration expense and a higher tax benefit, lower
realized gold prices and higher operating costs for 1997 resulted in an
increased net loss as compared to 1996. Results for 1995 included non-cash
impairment and abandonment charges of $11.5 million.
Sales revenue of $64.8 million in 1997 decreased from $67.9 million reported
in both 1996 and 1995. The Company hedged a portion of its production in all
three years, which resulted in higher realized prices than the average market
prices.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Ounces of gold sold.............................................................. 179,676 171,343 171,194
Average realized price per ounce................................................. $ 361 $ 396 $ 397
Average market price per ounce................................................... $ 328 $ 387 $ 385
</TABLE>
18
<PAGE>
The effects of the changes in the average realized price per ounce and the
annual ounces of gold sold on sales revenues between years are reflected in the
following table (in millions):
<TABLE>
<CAPTION>
1997 VS. 1996 VS.
1996 1995
--------- ---------
<S> <C> <C>
Increase (decrease) in sales revenue due to:
Realized price.............................................................. $ (6.1) $ (0.1)
Gold sold................................................................... $ 3.0 $ 0.1
</TABLE>
The increase in the ounces sold in 1997 as compared to 1996 and 1995
resulted from improvements in the underground mining operations, which improved
the overall grade of ore milled. Production is expected to increase in 1998 upon
the completion of the Turquoise Ridge mine. There can be no assurance that this
development schedule can be achieved. Once the Company begins processing
Turquoise Ridge mine development ore, net revenues will be offset against the
capital costs of the Turquoise Ridge mine until it is declared to be in
commercial production, which is expected no earlier than the third quarter of
1998.
Mill feed for 1997 consisted of approximately 46% Getchell Underground ore
compared to approximately 38% in 1996, with the remaining mill feed in both
years coming from low-grade stockpile ore. Gold recovery rates decreased
slightly in 1997 from 1996 as a result of lower recovery rates from the
processing of low-grade stockpile ore in 1997. A fine-grind plant was added to
the mill in December 1997 which is intended to increase throughput and improve
recovery.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Ore milled (dry tons)...................................................... 1,085,099 1,119,547 1,169,950
Average grade of ore milled (ounces per ton)............................... 0.187 0.162 0.165
Gold recovery.............................................................. 87.9% 88.7% 88.7%
</TABLE>
Increased underground ore production at the Getchell Underground mine in
1997 as compared to 1996 and 1995 was principally the result of the introduction
of long-hole stoping in certain parts of the Getchell Underground mine in the
first quarter of 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Getchell Underground ore mined (dry tons).................... 500,459 424,156 252,005
Getchell Underground ore mined per operating day (dry
tons)...................................................... 1,410 1,188 710
Average grade of ore mined (ounces per ton).................. 0.313 0.302 0.308
</TABLE>
Cost of sales was $86.3 million in 1997, up from $78.8 million in 1996 and
$70.0 million in 1995, and cash costs per ounce produced were $418, $402 and
$359 for the three periods, respectively. Underground mining and mine site
general and administrative ("G&A") costs were higher in 1997 as compared to
1996, increasing cost of sales and cash cost per ounce. Increases in underground
mining costs were related to higher maintenance costs, as well as the effects of
the flooding and fatality in the first quarter of 1997. Mine site G&A costs have
risen primarily due to increased support services as the Company expands its
operations. Milling costs, surface mining and royalties were lower in 1997 as
compared to 1996 due to increased discounts in 1997 under an acid purchase
agreement, decreased surface mining activity and lower gold prices,
respectively. Cost of sales also includes higher depreciation and depletion
costs in 1997 as compared to 1996 reflecting the addition of assets throughout
1996, mostly at the mill and in the Getchell Underground operation. The increase
in cost of sales and the cash costs per ounce in 1996 over 1995 is due
19
<PAGE>
to higher mining, milling and G&A costs. The increased costs were the result of
shifting from primarily open pit operations in 1995 to primarily underground
operations in 1996 and an increase in the scope of the operations in 1996 as
compared to 1995. Higher depreciation costs also contributed to the increase in
cost of sales in 1996.
Corporate G&A costs were $5.5 million in 1997 versus $4.7 million in 1996
and $3.5 million in 1995. The increase in corporate G&A costs in 1997 over 1996
was primarily due to $0.8 million of non-cash compensation expense associated
with the grant in February 1997 of stock appreciation rights ("SARS") for
certain corporate executives and key employees. The Board of Directors of the
Company authorized the granting of these SARS under the Company's 1996 Long Term
Equity Incentive Plan with respect to 75,983 shares at a weighted average option
price of $8.21 per share. Compensation with respect to stock appreciation rights
is accounted for on a variable basis and is "marked to market" at the end of
each fiscal quarter based on the market price of the Company's Common Stock.
Accordingly, the Company's future quarterly financial results will reflect
additional compensation expense if the market price of the Common Stock
increases from the end of the preceding quarter or an offset to compensation
expense if the market price decreases from the end of the preceding quarter. The
increase in corporate G&A in 1996 compared to 1995 reflected increased corporate
activities, including additional costs for investor relations and professional
services, following the October 1995 Spin-Off from ChemFirst.
Exploration expenses totaled $1.5 million in 1997, $3.6 million in 1996 and
$2.1 million in 1995. Lower exploration expenses in 1997 than in 1996 and 1995
reflected the Company's current focus on the delineation and expansion of known
ore zones, for which drilling expenditures are capitalized. Exploration and
development drilling expenditures combined were $8.1 million, $6.9 million and
$8.5 million in 1997, 1996 and 1995, respectively.
Abandonments and impairments in 1995, which totaled $11.5 million, included
a $2.4 million non-cash write-off of an inactive silver exploration property in
New Mexico and a $9.1 million non-cash write-down of assets associated with the
Main Pit. The silver property write-off was in response to the continued low
price of silver, unsuccessful attempts in the fourth quarter of fiscal 1995 to
find a buyer for the property and the commitment of exploration and development
resources to Turquoise Ridge. Capitalized pit development costs and deferred
stripping costs were written off as a result of the early shut-down of the Main
Pit due to a geotechnical monitoring program indicating that continued mining
would likely destabilize the pit wall.
Net interest expense was $0.8 million in 1997 compared to $1.1 million in
1996 and $3.7 million in 1995. Net interest expense in 1997 and 1996 was lower
than 1995 due to lower debt balances with ChemFirst and higher capitalized
interest associated with the Company's current development projects, primarily
Turquoise Ridge.
Interest and other income of $4.1 million in 1997 decreased from $5.4
million in 1996 due to lower cash and cash equivalent balances. Interest and
other income in 1996 increased from $1.0 million in 1995 as a result of interest
earned on proceeds from the 1995 equity offering.
An analysis of tax attributes completed in connection with the 1996 tax
return in the fall of 1997 and long-range tax planning undertaken in the fourth
quarter of 1997 indicated that it is more likely than not that the Company will
be able to utilize a larger portion of its Federal net operating loss
carryforwards than previously estimated. As a result, the Company adjusted the
valuation allowance for deferred tax assets and recorded a tax benefit of $5.9
million in the fourth quarter of 1997. A $0.9 million tax benefit was recognized
on the pretax loss in the first quarter of 1996. An income tax provision of $0.1
million was recognized in 1995.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $9.1 million in 1997 as compared to
cash provided by operations of $1.8 million in 1996, primarily as a result of
the increase in the net loss reported for the period, adjusted for non-cash
charges. Cash used in operating activities was $6.3 million for the six months
ended December 31, 1995.
Cash used for investing activities increased in 1997 to $66.8 million from
$51.7 million in 1996 primarily due to increased capital expenditures related to
the Turquoise Ridge mine. Cash used for investing activities in the six months
ended December 31, 1995 were $10.7 million.
Cash provided by financing activities was $46.0 million in 1997 as compared
to cash used of $0.6 million in 1996. The Company received $47.7 million in net
proceeds from a public offering of its common stock in March 1997. Cash provided
by financing activities in the six months ended December 31, 1995 were $131.1
million. The principal balance of the Company's promissory note to ChemFirst was
$26.9 million at December 31, 1997. Principal and all accrued interest is due on
September 22, 2000 or upon a change in control of the Company.
Cash and cash equivalents at December 31, 1997 were $34.2 million. In
February 1998, the CIBC Inc. informed the Company that no amounts are available
or are expected to become available for borrowing under the Company's $25
million credit facility. The Company has not borrowed under this facility since
it was established in 1997. In addition, the Company does not expect cash flow
from operating activities earlier than the third quarter, although there can be
no assurance that there will be cash flow from operations after that time.
As of December 31, 1997, the Company estimates that completion of the
Turquoise Ridge mine will require additional expenditures of approximately $36
million and projects that it will not have sufficient internal funds for such
completion. In addition, the Company expects to expend approximately $16 million
for additional capital expenditures in 1998 related to mill improvements, the
Getchell Underground mine, equipment and development drilling. The Company also
intends to increase mill capacity from 3,200 tons per day to 4,200 tons per day
which would require approximately $25 million commencing in late 1998 through
planned completion in 1999. The Company's planned exploration activities would
also require additional funds in 1998.
In order to finance these expenditures, together with its operating
activities, the Company will require additional equity or debt financing. While
the Company believes it can obtain such financing, there can be no assurance
that such financing will be available on a timely basis or on acceptable terms,
if at all. In the event that such financing is not obtained on a timely basis,
the Company would be forced to delay completion of the Turquoise Ridge mine, as
well as certain other expenditures, which would have a material adverse effect
on the Company.
YEAR 2000
In 1997, the Company commenced a year 2000 date conversion project. The
project addresses the effects the year 2000 will have on all hardware and
software and the resulting upgrades and/or purchases that may be required. The
Company expects to complete an analysis of its current hardware and software by
March 1998. The estimated cost of upgrades and/or purchases that may be required
and the time line for implementation are expected to be determined at that time.
Based upon the findings through December 31, 1997, the estimated costs of
upgrades and purchases, including expenditures through December 31, 1997, are
not significant.
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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.
LIQUIDITY
Cash and cash equivalents at December 31, 1997 were $34.2 million. In
February 1998, the CIBC Inc. informed the Company that no amounts are available
or are expected to become available for borrowing under the Company's $25
million credit facility. In addition, the Company does not expect cash flow from
operating activities earlier than the third quarter, although there can be no
assurance that there will be cash flow from operations after that time.
As of December 31, 1997, the Company estimates that completion of the
Turquoise Ridge mine will require additional expenditures of approximately $36
million and projects that it will not have sufficient internal funds for such
completion. In addition, the Company expects to expend approximately $16 million
for additional capital expenditures in 1998 related to mill improvements, the
Getchell Underground mine, equipment and development drilling. The Company also
intends to increase mill capacity from 3,200 tons per day to 4,200 tons per day
which would require approximately $25 million commencing in late 1998 through
planned completion in 1999. The Company's planned exploration activities would
also require additional funds in 1998.
In order to finance these expenditures, together with its operating
activities, the Company wil require additional equity or debt financing. There
can be no assurance, however, that such financing will be available on a timely
basis or on acceptable terms, if at all. In the event that such financing is not
obtained on a timely basis, the Company would be forced to delay completion of
the Turquoise Ridge mine, as well as certain other expenditures, which would
have a material adverse effect on the Company.
GOLD PRICE VOLATILITY
The Company's profitability is significantly affected by changes in the
price of gold. Gold prices may fluctuate widely. In 1997, the market price of
gold declined to levels that were the lowest since 1985. 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.
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The volatility of gold prices is illustrated in the following table of the
annual high, low and average London P.M. Fix:
<TABLE>
<CAPTION>
PRICE PER OUNCE
---------------------------------
CALENDAR YEAR HIGH LOW AVERAGE
- --------------------------------------------------------------------- --------- --------- -----------
<S> <C> <C> <C>
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 February 20)........................................... $ 305 $ 279 $ 293
</TABLE>
The London P.M. Fix on February 20, 1998, was $297 per ounce.
CONTINUING LOSSES
The Company reported net losses of $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 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.
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<PAGE>
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, estimate of
reserves, metallurgic recoveries, capital and operating costs of such projects
and future gold prices. Development projects are also subject to the successful
completion of feasibility studies, issuance of necessary permits and receipt of
adequate financing.
Development projects have no operating history upon which to base estimates
of future cash operating costs and capital requirements. In particular,
estimates of reserves, metal recoveries and cash operating costs 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 $36 million at
December 31, 1997. The Company intends to finance the completion of the
Turquoise Ridge mine through external equity or debt financing. There can be no
assurance that the financing required to advance the Turquoise Ridge mine to
commercial production will be available on a timely basis, or on acceptable
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 (see
"Proven and Probable Minable Reserves" table in Item 1 and 2 "Business and
Properties") 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 cut-and-fill stoping method used, could make achievement of a
dilution thickness of one foot impossible to achieve in practice.
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<PAGE>
PRODUCTION SHAFT COMPLETION. Completion of the production shaft, which is
expected no earlier than the third 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 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.
25
<PAGE>
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."
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.
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. The maximum civil penalties for which the Company
could be assessed as the result of such actions is $0.3 million. MSHA is also
conducting 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. The result of that investigation is unknown, but could result
in criminal penalties for the Company and/or civil or criminal penalties for
agents, officers, or directors of the Company. While management of the Company
believes that the results of the investigation will not have a material adverse
effect on the Company, no assurance can be given that the outcome of this
investigation will not have such an effect.
On May 26, 1997, a worker employed by the ventilation shaft sinking
contractor was killed in an accident at the bottom of the ventilation shaft due
to a mechanical failure of a safety device. As required by federal law, MSHA
officials investigated the cause of the accident. Enforcement action was taken
against the contractor, but the Company did not receive any citations as a
result of that accident investigation.
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
26
<PAGE>
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.
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.
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
February 20, 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 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. 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.
27
<PAGE>
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 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.
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<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 December 31, 1997, 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 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.
29
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INDEPENDENT AUDITORS' REPORT............................................................................... 31
CONSOLIDATED STATEMENTS OF OPERATIONS--
Years Ended December 31, 1997 and 1996, Six Months Ended December 31, 1995 and Year Ended June 30, 1995.... 32
CONSOLIDATED BALANCE SHEETS--
December 31, 1997 and 1996................................................................................. 33
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--
Years Ended December 31, 1997 and 1996, Six Months Ended December 31, 1995 and Year Ended June 30, 1995.... 34
CONSOLIDATED STATEMENT OF CASH FLOWS--
Years Ended December 31, 1997 and 1996, Six Months Ended December 31, 1995 and Year Ended June 30, 1995.... 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
December 31, 1997 and 1996................................................................................. 36
</TABLE>
All supporting schedules are omitted because they are inapplicable, not
required, or the information is presented in the consolidated financial
statements or notes thereto.
30
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Getchell Gold Corporation:
We have audited the accompanying consolidated balance sheets of Getchell
Gold Corporation and subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years ended December 31, 1997 and 1996, the six months ended
December 31, 1995 and the year ended June 30, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Getchell
Gold Corporation and subsidiary as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years ended December
31, 1997 and 1996, the six months ended December 31, 1995 and the year ended
June 30, 1995, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
February 12, 1998
31
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------- SIX MONTHS ENDED YEAR ENDED
1997 1996 DECEMBER 31, 1995 JUNE 30, 1995
---------- ---------- ----------------- -------------
<S> <C> <C> <C> <C>
Net sales............................................... $ 64,797 $ 67,878 $ 34,425 $ 71,485
Cost of sales........................................... 86,320 78,784 35,956 69,775
---------- ---------- ------- -------------
Gross margin.......................................... (21,523) (10,906) (1,531) 1,710
General and administrative expenses..................... 5,515 4,669 2,054 2,659
Exploration expenses.................................... 1,537 3,580 628 3,776
Abandonment and impairment of mineral properties........ -- -- -- 11,531
---------- ---------- ------- -------------
Loss from operations.................................. (28,575) (19,155) (4,213) (16,256)
Interest expense, net of capitalized interest........... (839) (1,082) (2,634) (1,805)
Interest and other income............................... 4,055 5,415 936 132
---------- ---------- ------- -------------
Loss before income taxes.............................. (25,359) (14,822) (5,911) (17,929)
Income tax benefit (provision).......................... 5,932 870 884 (428)
---------- ---------- ------- -------------
Net loss.............................................. $ (19,427) $ (13,952) $ (5,027) $ (18,357)
---------- ---------- ------- -------------
---------- ---------- ------- -------------
Basic loss per common share............................. $ (0.73) $ (0.54) $ (0.25) $ (1.01)
---------- ---------- ------- -------------
---------- ---------- ------- -------------
Weighted average number of shares outstanding........... 26,571 25,727 19,857 18,139
---------- ---------- ------- -------------
---------- ---------- ------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 34,247 $ 64,130
Accounts receivable:
Trade................................................................................. 1,790 2,478
Employee.............................................................................. 182 171
Other................................................................................. 261 315
---------- ----------
Total accounts receivable........................................................... 2,233 2,964
---------- ----------
Inventories:
Ore and ore in process................................................................ 1,873 1,816
Materials and supplies................................................................ 10,873 8,676
---------- ----------
Total inventories................................................................... 12,746 10,492
---------- ----------
Unrealized hedging gain, net............................................................ -- 362
Prepaid expenses........................................................................ 808 1,098
---------- ----------
Total current assets................................................................ 50,034 79,046
Property, plant and equipment, net (Note 4)............................................... 188,242 129,762
Other..................................................................................... 211 --
---------- ----------
Total assets........................................................................ $ 238,487 $ 208,808
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 13,506 $ 8,378
Accrued expenses........................................................................ 2,258 1,740
Current portion of capital lease obligations (Note 6)................................... 2,248 1,753
Stock appreciation rights (Note 9)...................................................... 1,238 --
Other................................................................................... 198 --
---------- ----------
Total current liabilities........................................................... 19,448 11,871
Long-term debt, principally to ChemFirst Inc. (Note 5).................................... 27,057 25,336
Capital lease obligations, less current portion (Note 6).................................. 6,685 9,092
Deferred income taxes (Note 7)............................................................ 1,809 7,741
Reclamation liabilities (Note 13)......................................................... 2,701 2,694
Other liabilities......................................................................... 892 852
---------- ----------
Total liabilities................................................................... 58,592 57,586
---------- ----------
Commitments and contingencies (Note 13)...................................................
Stockholders' equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; none issued............. -- --
Common stock, $0.0001 par value; 50,000,000 shares authorized; issued and outstanding
26,784,351 in 1997 and 25,765,871 in 1996............................................... 3 3
Contributed and paid-in capital........................................................... 220,979 172,879
Accumulated deficit....................................................................... (41,087) (21,660)
---------- ----------
Total stockholders' equity.......................................................... 179,895 151,222
---------- ----------
Total liabilities and stockholders' equity.......................................... $ 238,487 $ 208,808
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
33
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK CAPITAL IN EARNINGS TOTAL
---------------------- EXCESS OF UNEARNED (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE COMPENSATION DEFICIT) EQUITY
--------- ----------- ---------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994............. 18,112 $ 181 $ 33,862 $ -- $ 15,676 $ 49,719
Shares issued for stock options
exercised........................ 61 1 363 -- -- 364
Issuance of restricted stock
awards........................... 10 -- 60 (60) -- --
Amortization of unearned
compensation..................... -- -- -- 18 -- 18
Net loss........................... -- -- -- -- (18,357) (18,357)
--------- ----- ---------- ----- ------------ ------------
Balance at June 30, 1995............. 18,183 182 34,285 (42) (2,681) 31,744
Shares issued in equity offering,
net of costs (Note 8)............ 7,475 75 137,437 -- -- 137,512
Amortization of unearned
compensation..................... -- -- -- 35 -- 35
Net loss........................... -- -- -- -- (5,027) (5,027)
--------- ----- ---------- ----- ------------ ------------
Balance at December 31, 1995......... 25,658 257 171,722 (7) (7,708) 164,264
Shares issued for stock options
exercised........................ 108 1 956 -- -- 957
Change in par value from $0.01 to
$0.0001.......................... -- (255) 255 -- -- --
Additional costs of 1995 equity
offering (Note 8)................ -- -- (54) -- -- (54)
Amortization of unearned
compensation..................... -- -- -- 7 -- 7
Net loss........................... -- -- -- -- (13,952) (13,952)
--------- ----- ---------- ----- ------------ ------------
Balance at December 31, 1996......... 25,766 3 172,879 -- (21,660) 151,222
Shares issued in equity offering,
net of costs (Note 8)............ 1,000 -- 47,698 -- -- 47,698
Shares issued for stock options
exercised........................ 18 -- 402 -- -- 402
Net loss........................... -- -- -- -- (19,427) (19,427)
--------- ----- ---------- ----- ------------ ------------
Balance at December 31, 1997......... 26,784 $ 3 $ 220,979 $ -- $ (41,087) $ 179,895
--------- ----- ---------- ----- ------------ ------------
--------- ----- ---------- ----- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
34
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS
31, ENDED YEAR ENDED
---------------------- DECEMBER 31, JUNE 30,
1997 1996 1995 1995
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................................... $ (19,427) $ (13,952) $ (5,027) $ (18,357)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation, depletion and amortization................... 10,996 9,770 4,078 14,545
Deferred income tax benefit................................ (5,932) (870) (884) --
Abandonment and impairment of mineral properties........... -- -- -- 11,531
Unrealized hedging gain, net............................... 362 684 (1,046) --
Accrued interest converted to loan principal............... 1,643 1,522 3,048 2,279
Stock appreciation rights.................................. 1,238 -- -- --
Other...................................................... 198 12 34 51
Net change in operating assets and liabilities:............
Accounts receivable...................................... 732 1,697 (2,806) 378
Inventories.............................................. (2,254) (742) (196) 3,200
Prepaid expenses......................................... 290 (539) 22 (445)
Accounts payable......................................... 2,511 2,775 (3,762) 2,792
Accrued expenses......................................... 518 1,038 197 (50)
Other liabilities........................................ 48 416 20 46
---------- ---------- ------------ ----------
Cash provided by (used in) operating activities........ (9,077) 1,811 (6,322) 15,970
---------- ---------- ------------ ----------
Cash flows from investing activities:
Additions to property, plant and equipment................... (66,771) (51,677) (10,718) (27,201)
Proceeds from sale of property............................... -- 9 -- 203
---------- ---------- ------------ ----------
Cash used in investing activities...................... (66,771) (51,668) (10,718) (26,998)
---------- ---------- ------------ ----------
Cash flows from financing activities:
Proceeds from issuance of common stock....................... 48,088 903 137,512 363
Proceeds from long-term debt................................. -- 31 14,350 10,750
Repayments on long-term debt................................. -- -- (20,500) (1,469)
Principal payments under capital lease obligation............ (1,912) (1,580) (284) --
Other........................................................ (211) -- -- --
---------- ---------- ------------ ----------
Cash provided by (used in) financing activities........ 45,965 (646) 131,078 9,644
---------- ---------- ------------ ----------
Net (decrease) increase in cash and cash equivalents........... (29,883) (50,503) 114,038 (1,384)
Cash and cash equivalents at beginning of period............... 64,130 114,633 595 1,979
---------- ---------- ------------ ----------
Cash and cash equivalents at end of period..................... $ 34,247 $ 64,130 $ 114,633 $ 595
---------- ---------- ------------ ----------
---------- ---------- ------------ ----------
</TABLE>
See Note 12 for supplemental cash flow information.
The accompanying notes are an integral part of these statements.
35
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) THE COMPANY
Getchell Gold Corporation (the "Company") is engaged in gold exploration and
production at its Getchell Property in Nevada. The Getchell Property is in the
Potosi Mining District on the eastern side of the Osgood Mountain Range,
approximately 43 miles northeast of Winnemucca, Nevada. The Getchell Property
consists of approximately 18,900 acres of unpatented load and mill site mining
claims and 14,100 acres of fee land owned by the Company. Located on the
Getchell Property are the Getchell Underground and Turquoise Ridge underground
mines. Commercial production from the Getchell Underground mine began in May
1995. Construction of the Turquoise Ridge mine began in January 1996 and
production of development ore is expected to begin no earlier than the first
quarter of 1998 with commercial production expected to be reached no earlier
than the third quarter of 1998.
The Company was incorporated in August 1987 as a subsidiary of ChemFirst
Inc. ("ChemFirst") (formerly known as First Mississippi Corporation). On
September 24, 1995, ChemFirst's Board of Directors approved the spin-off of
ChemFirst's stock in the Company to ChemFirst shareholders of record on October
10, 1995 (the "Spin-Off"). On October 20, 1995, ChemFirst distributed its 81%
interest in the Company to ChemFirst shareholders. In connection with the
Spin-Off, on September 24, 1995, the Company entered into certain agreements
with ChemFirst, including a loan agreement for the outstanding balances due from
the Company to ChemFirst at the date of the Spin-Off (described in Note 5), an
agreement to settle certain tax sharing arrangements (see Note 7) and an
agreement to undertake a public offering of at least $50 million prior to April
28, 1996.
On June 25, 1996, the Company changed its corporate name from FirstMiss Gold
Inc. to Getchell Gold Corporation and changed its state of incorporation from
Nevada to Delaware. In September 1995, the Company changed its fiscal year end
from June 30 to December 31.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States ("U.S.") which do
not differ materially from those principles that the Company would have followed
had its consolidated financial statements been prepared in accordance with
accounting principles generally accepted in Canada.
CASH AND CASH EQUIVALENTS
For the purposes of the consolidated balance sheets and consolidated
statements of cash flows, the Company considers all debt and highly liquid
instruments with original maturities of three months or less to be cash
equivalents. Cash equivalents at December 31, 1997 and 1996 consisted of
commercial paper and U.S. and Canadian Treasury obligations denominated in U.S.
dollars.
INVENTORIES
Inventories of ore, ore in process and precious metals are stated at the
lower of average cost or net realizable value. Materials and supplies are stated
at the lower of average cost or replacement cost.
The Company provides an allowance for obsolescence for certain materials and
supplies inventory items. The allowance is based on estimates of technical
obsolescence which result from normal ongoing
36
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
upgrades, improvements and betterments of plant and equipment. At both December
31, 1997 and 1996, the allowance for obsolescence was $1.0 million.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Maintenance and repairs
related to operations are charged to expense as incurred, and are capitalized on
construction and development projects.
MINERAL EXPLORATION AND MINE DEVELOPMENT
Exploration costs are charged to expense as incurred. After a project is
determined by management to be commercially feasible, such costs are
capitalized. Expenditures for mine development are capitalized until production
reaches a commercial level. Prior to achieving commercial production, revenues
relating to development ore, net of mining and processing costs associated with
its production, are offset against mine development costs. Mine development
costs incurred to access reserves on producing mines are also capitalized.
MINERAL PROPERTIES
Mining projects and properties are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of these assets
may not be recoverable. If estimated future cash flows expected to result from
the use of the mining project or property and its eventual disposition are less
than the carrying amount of the mining project or property, an impairment is
recognized based upon the estimated fair value of the mining project or
property. Fair value generally is based on the present value of estimated future
net cash flows for each mining project or property, considering estimates of
proven and probable mineable reserves, future prices, operating costs, capital
requirements and reclamation costs.
CAPITALIZATION OF INTEREST
Interest expense allocable to construction or development projects is
capitalized until commercial production is achieved.
DEPRECIATION, DEPLETION AND AMORTIZATION
Property, plant and equipment, with useful lives as long or longer than
existing ore reserves, are depreciated or depleted using the unit-of-production
method. Plant and equipment, with useful lives shorter than existing ore
reserves, are depreciated using the straight-line method, generally over five
years. Capitalized mine development costs and mine development costs estimated
to be incurred over the life of the mine, are depleted on a unit-of-production
method. Depreciation and depletion rates are subject to periodic review to
ensure that asset costs are amortized over their useful lives.
Depletion computed on a unit-of-production method is based on the ratio of
tons of ore mined or ounces of gold produced during the period, to the estimated
total proven and probable reserves to which the capitalized costs relate.
37
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLAMATION OF MINING AREAS
Estimated costs for restoring certain disturbed mining and milling areas to
comply with existing reclamation standards totaled $8.7 million at December 31,
1997. This amount is based on management's estimate of future reclamation costs
to be incurred considering environmental and regulatory requirements. Such costs
are charged to operations on a unit-of-production basis over the life of the
mine. The amount accrued at December 31, 1997 was $2.7 million. Reclamation cost
estimates are reviewed by management on a regular basis and are appropriately
revised for changes in future estimated costs, regulatory requirements or mine
life.
The Company performs concurrent reclamation to the extent possible. However,
most of the estimated costs are anticipated to be expended at the end of the
mine life. Based on existing reserves and mineral resources, the mine life is
estimated to be in excess of 10 years.
REVENUE RECOGNITION
Revenue from spot sales are recorded when title passes to the buyer. Revenue
from shipments under forward sales agreements are recorded at the settlement
date of the agreements.
Total ounces of gold sold were:
<TABLE>
<CAPTION>
PERIOD OUNCES SOLD
- -------------------------------------------------------------------------------- -----------
<S> <C>
Year ended December 31, 1997.................................................... 179,676
Year ended December 31, 1996.................................................... 171,343
Six Months ended December 31, 1995.............................................. 85,627
Year ended June 30, 1995........................................................ 184,298*
</TABLE>
- ------------------------
* For the year ended June 30, 1995, gold ounces sold does not include 14,939
ounces of gold sold from properties under development. Revenues from these
ounces were offset against mine development costs.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into certain financial transactions as a hedge against
changes in prices of the gold produced. Hedging transactions have included spot
deferred and forward sales contracts. In determining when hedge accounting is
appropriate, the Company considers the correlation of anticipated production to
the designated delivery date and the instrument's effectiveness in reducing
price risk related to gold sales. Gains and losses on the spot deferred and
forward sale contract transactions, as well as any costs or revenues associated
therewith, are recognized in sales when the related gold production is
delivered.
The Company has sold written call options in the form of European call
option contracts and certain options imbedded in forward sales contracts. Where
call option premiums are included in the price of forward sales, proceeds from
the forward sales are allocated between forward sales revenue and the call
option premiums. Recognition of premiums received for call options sold are
deferred until the option expires or the related transaction occurs at which
time the deferred amounts are recognized in income. Deferred premiums are
included in other liabilities in the consolidated balance sheet.
38
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EMPLOYEE STOCK COMPENSATION
The Company applies the intrinsic value based method of accounting
prescribed by APB Opinion No. 25 "Accounting for Stock Issued to Employees" and
related Interpretations in accounting for its stock-based incentive plans. Under
the intrinsic value based method, compensation cost is the excess, if any, of
the quoted market price of the stock at grant date over the amount an employee
must pay to acquire the stock.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amount of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The Company records a
valuation allowance against the portion of the deferred tax assets that it
believes will not likely be realized.
Prior to the Spin-Off, the Company had a tax sharing and allocation
agreement with ChemFirst (described in Notes 1 and 7) under which the Company
made payments to ChemFirst in respect to federal, state and local income taxes
and state franchise taxes as if it were a separate corporation, not affiliated
with ChemFirst, filing separate income tax returns. Under the provisions of the
tax sharing agreement, ChemFirst was required to reimburse the Company for any
deduction, credit or allowance which had been utilized by ChemFirst and
subsidiaries in the consolidated tax returns at such time as the Company could
have utilized the underlying tax assets if it had filed federal and state income
tax returns computed on a separate return basis. In addition, the Company was
required to pay ChemFirst for the estimated income tax liability of the Company
for the taxable year, to be computed as though the Company were reporting its
taxable income or loss on a separate return basis.
EARNINGS AND LOSS PER SHARE
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which
specifies the computation, presentation and disclosure requirements for earnings
per share. SFAS 128 is effective for periods ending after December 15, 1997 and
requires retroactive restatement of earnings per share in prior periods. The
statement replaces the calculation of "primary earnings per share" with "basic
earnings per share" and redefines the "dilutive earnings per share" computation.
Adoption of SFAS 128 did not effect the reported loss per common share for the
years ended December 31, 1997 and 1996, the six months ended December 31, 1995
and the year ended June 30, 1995. Due to a reported loss from operations in all
periods, including potential common shares in the denominator of a diluted per
share computation is antidilutive. Therefore, loss per common share assuming
dilution is the same as basic earnings per share. Potential common shares
include stock options of which 1,336,113 and 969,552 were outstanding at
December 31, 1997 and 1996, respectively.
39
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial assets and liabilities
approximates their book values as a result of the short-term nature of the
instruments or the variable interest rate associated with the instruments,
except for the fair values of the hedging and other precious metals contracts
disclosed in Note 3.
ESTIMATES, RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual amounts could differ
from those estimates.
Gold mining requires the use of specialized facilities and technology. The
Company relies heavily on such facilities to maintain production levels. Also,
the market price of gold significantly affects the profitability of the
Company's operations. Market gold prices can fluctuate widely and are affected
by numerous factors beyond the Company's control. Although the Company has
limited its sales to a small number of customers, the Company is not
economically dependent on a limited number of customers for the sale of its
product because gold commodity markets are well-established worldwide.
The Company projects that it will not have sufficient internal funds to
complete the construction of the Turquoise Ridge mine. Currently, several
financing options are being considered. The recoverability of the cost of the
Turquoise Ridge and Getchell mines and related facilities and completion of the
Turquoise Ridge mine is dependent upon the Company's ability to raise sufficient
funds to complete construction. While the Company believes it can obtain such
financing, there can be no assurance that such financing will be available on a
timely basis or on acceptable terms.
(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 December 31, 1997, the Company's outstanding spot deferred contracts were
for 130,000 ounces at an average price of $336 per ounce, including estimated
future contango. Of these contracts, 110,000 ounces were for delivery in 1998 at
a weighted average price of $342 per ounce, including estimated future contango,
and 20,000 ounces were for delivery in 1999 at a weighted average price of $302
per ounce, including estimated future contango.
Additionally, in November 1997, the Company entered into a forward sales
contract covering the sale of 250,000 ounces of gold and 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
40
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(3) HEDGING AND OTHER PRECIOUS METAL CONTRACT COMMITMENTS (CONTINUED)
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.
The option feature of the contract specifies that if the gold spot price
equals or exceeds certain price increments, then the Company will sell an
additional amount of gold at a specified price. If at any time on or between
December 27, 1997 and December 27, 2000, the gold spot market price equals or
exceeds each price increment, the Company will deliver 15,000 ounces of gold at
$343 per ounce deliverable on December 31 in each of the years 2000, 2001 and
2002. The price increments are $380, $387, $394, $401 and $408. In total, if all
five price increments are equaled or exceeded prior to December 27, 2000, the
Company would be required to deliver 75,000 ounces at December 31 in each of the
years 2000, 2001 and 2002.
If any price increment has not been equaled or exceeded prior to or on
December 27, 2000 but is equaled or exceeded during the period beginning after
December 27, 2000 up to or on December 27, 2001, then if the gold spot market
price equals or exceeds the price increment during the period, the Company will
deliver 15,000 ounces of gold at $343 per ounce deliverable on December 31, in
both 2001 and 2002. Similarly, if any price increment has not been equaled or
exceeded prior to or on December 27, 2001, but is equaled or exceeded during the
period beginning after December 27, 2001 up to or on December 27, 2002, then if
the gold spot market price equals or exceeds the price increment during the
period, the Company will deliver 15,000 ounces of gold at $343 per ounce
deliverable on December 31, 2002.
At December 31, 1997, the Company had outstanding European call option
contracts for 55,000 ounces of gold at a price of $343 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.
The following table represents the carrying amounts and estimated fair
values of the Company's derivative financial instruments at December 31, 1997
and 1996. The fair value of a financial instrument is the estimated amount the
Company would receive or pay to terminate the agreement (dollar amounts in
thousands, liabilities in brackets):
<TABLE>
<CAPTION>
OUNCES CARRYING AMOUNT FAIR VALUE
-------------------- -------------------- --------------------
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Spot deferred contracts............................. 130,000 90,000 -- -- $ 4,908 $ 2,649
Forward sales contract (including embedded options
on 225,000 ounces)................................ 250,000 -- -- -- -- --
European call options............................... 115,000 25,000 $ 176 $ 31 $ 77 $ 24
</TABLE>
41
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(4) PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land and land improvements............................................ $ 14,214 $ 9,524
Buildings and equipment............................................... 124,249 115,550
Mine development...................................................... 54,929 38,757
Construction-in-progress.............................................. 88,742 48,916
---------- ----------
Total property, plant and equipment................................. 282,134 212,747
Accumulated depreciation, depletion and amortization.................. (93,892) (82,985)
---------- ----------
Net property, plant and equipment................................... $ 188,242 $ 129,762
---------- ----------
---------- ----------
</TABLE>
Capitalized mine development and construction-in-progress at December 31,
1997 and 1996 are comprised of the following (in thousands):
<TABLE>
<CAPTION>
MINE DEVELOPMENT CONSTRUCTION-IN-PROGRESS
-------------------- --------------------
PROJECT 1997 1996 1997 1996
- -------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Getchell Underground mine................... $ 45,043 $ 35,438 $ 1,486 $ 3,260
Turquoise Ridge mine........................ 4,079 342 72,075 40,448
Mill improvements........................... -- -- 15,015 3,914
Other projects.............................. 5,807 2,977 166 1,294
--------- --------- --------- ---------
$ 54,929 $ 38,757 $ 88,742 $ 48,916
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
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 $11.0 million, $9.8 million, $4.1
million and $9.5 million for the years ended December 31, 1997 and 1996, the six
months ended December 31, 1995 and the year ended June 30, 1995, respectively.
Amortization of deferred stripping costs was $5.0 million for the year ended
June 30, 1995. There was no amortization expense in the years ended December 31,
1997 and 1996 and the six months ended December 31, 1995.
Mining in the Main Pit was discontinued in July 1995 after a geotechnical
monitoring program, initiated in June 1995, indicated that continued mining in
the Main Pit would likely destabilize the pit wall. This event, combined with
lower grades and higher than anticipated costs, made it unlikely that the
Company would recover the remaining proven and probable reserves in the Main
Pit. Accordingly, the remaining pit development costs of $5.5 million and
deferred stripping costs of $3.6 million were written off at June 30, 1995.
In the fiscal year ended June 30, 1995, the Company's $2.3 million
investment in the Silver Bar property was written off through a charge to
operations. The write off was a result of the Company's decision to commit its
exploration and development resources to the Getchell Property, lower silver
prices than those required to economically develop the prospect and unsuccessful
attempts to sell Silver Bar. Additional exploration prospects with a recorded
value of $0.1 million were abandoned during the year ended June 30, 1995.
42
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(5) DEBT
PROMISSORY NOTE
Contemporaneously with the Spin-Off (discussed in Note 1), the Company and
ChemFirst executed a promissory note, upon which all promissory notes previously
entered into between the two companies were canceled. The principal balance of
the promissory note was equal to the indebtedness of the Company to ChemFirst
for advances and accrued interest thereon, as of the date of the Spin-Off, net
of a $13.9 million receivable resulting from the settlement of the tax sharing
agreement (see Note 7).
The principal balance of the promissory note was $26.9 million and $25.3
million at December 31, 1997 and 1996, respectively. 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. The
interest rate was 6 22/32% and 6 5/32% at December 31, 1997 and 1996,
respectively. Since the inception of the promissory note, interest has been
converted to note principal at the end of each interest period. The carrying
value of this debt is assumed to approximate its fair value.
The promissory note contains covenants that require minimum net worth, as
defined, of $27.0 million and a ratio of indebtedness to tangible net worth, as
defined, of no more than 2.0:1.0.
REVOLVING LINE OF CREDIT FACILITY
In September 1997, the Company entered into a three year, $25 million
revolving line of credit with the CIBC Inc. In February 1998, the CIBC Inc.
informed the Company that no amounts are available or are expected to become
available for borrowing under the line of credit. The Company has not borrowed
under this facility since it was established.
Interest rates are variable and adjust with changes in the lender's prime
rate, the Federal Funds Effective Rate or the London Interbank Borrowing Rate.
There is a quarterly commitment fee of 1/4% per annum of the daily average
unused amount committed.
The agreement contains covenants that limit the amount of debt outstanding;
that require a protection ratio, as defined, of not less than 1.5 to 1; and that
require an interest coverage ratio, as defined, of not less than 2.0 to 1 to be
determined as of the end of each fiscal quarter beginning with the fiscal
quarter ended December 31, 1998.
CAPITALIZED INTEREST
Capitalized interest was $1.7 million and $1.3 million for the years ended
December 31, 1997 and 1996, $0.4 million for the six months ended December 31,
1995, $1.2 million for the year ended June 30, 1995.
(6) LEASES
The Company is obligated under capital leases for mobile mining equipment
for remaining terms ranging from two to four years. All capital lease agreements
provide that the Company can purchase the leased equipment at fair value at the
end of the lease term. At December 31, 1997 and 1996, $7.1 million and $9.9
million, respectively, of leased property was included in property, plant and
equipment net of $5.6 million and $2.8 million, respectively, of accumulated
depreciation, depletion and amortization.
43
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(6) LEASES (CONTINUED)
The Company is also obligated under non-cancelable operating leases for
mining equipment, vehicles and office space. Rental expense under these leases
for the years ended December 31, 1997 and 1996, the six months ended December
31, 1995 and the year ended June 30, 1995 was $0.7 million, $1.0 million, $1.2
million and $1.3 million, respectively.
Future capital lease payments and future minimum lease payments under
noncancelable operating leases with initial or remaining lease terms in excess
of one year as of December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
Year Ended December 31, 1998............................................ $ 2,901 $ 546
Year Ended December 31, 1999............................................ 3,594 549
Year Ended December 31, 2000............................................ 3,197 104
Year Ended December 31, 2001............................................ 545 --
--------- -----------
Total minimum lease payments............................................ 10,237 $ 1,199
-----------
-----------
Less amounts representing interest...................................... (1,304)
---------
Present value of minimum capital lease payments......................... 8,933
Less current portion (2,248)
---------
Capital lease obligations, less current portion $ 6,685
---------
---------
</TABLE>
(7) INCOME TAXES
Until the Spin-Off (see Note 1), the Company and ChemFirst operated under
the terms of a Tax Sharing Agreement. In connection with the Spin-Off, ChemFirst
and the Company entered into an Amended Tax Sharing Agreement. The Amended Tax
Sharing Agreement provided for the termination of the Tax Sharing Agreement, and
sets forth the parties' obligations with respect to taxes relating to taxable
periods prior to the Spin-Off.
The Amended Tax Sharing Agreement obligated ChemFirst to pay the Company (by
either an actual payment or a reduction in the Company's outstanding
indebtedness to ChemFirst) an agreed upon amount of approximately $13.9 million,
representing the tax benefit received by the affiliated group, of which
ChemFirst is the common parent corporation (the ChemFirst Affiliated Group),
from its use of the Company's losses, deductions, credit and allowances in
periods prior to the Spin-Off. As a result of this agreement, the Company
relinquished its rights to, and eliminated the deferred tax balances relating
to, certain Federal net operating loss carryforwards and alternative minimum tax
credit carryforwards totaling $10.8 million and $8.6 million, respectively, and
the related valuation allowance of $6.7 million.
The Company agreed in the Amended Tax Sharing Agreement to indemnify
ChemFirst for any taxes attributable to the Company and assessed with respect to
consolidated or combined tax returns which include the Company and relate to
periods prior to the Spin-Off, to the extent any liability for such taxes
exceeds $0.3 million. Conversely, ChemFirst agreed to indemnify the Company
against any liability for taxes attributable to members of the ChemFirst
Affiliated Group, other than the Company, but imposed on the Company as a result
of its inclusion in ChemFirst's consolidated or combined tax returns for periods
prior to the Spin-Off. Certain of the Federal Income tax returns of the
ChemFirst Affiliated Group are
44
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(7) INCOME TAXES (CONTINUED)
presently under examination by the Internal Revenue Service for the years 1987
through 1996. In the opinion of management, any additional tax liability
resulting from these examinations and ultimately determined to be payable has
been adequately provided for (see note 13).
Components of the Company's deferred income tax liabilities and assets are
as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Plant and equipment, principally due to capitalization, depletion
and depreciation differences...................................... $ (9,168) $ (10,598)
Other, net.......................................................... (1,243) (1,370)
---------- ----------
Total gross deferred tax liabilities.............................. (10,411) (11,968)
Deferred tax assets:
Accrued pension costs............................................... 762 972
Accrued reclamation costs........................................... 963 943
Inventory valuation adjustment...................................... 327 406
Federal net operating loss carryforward............................. 13,720 6,646
Alternative minimum tax ("AMT") credit carryforward................. 566 566
Deferred compensation............................................... 433 --
Other, net.......................................................... 69 --
---------- ----------
Total gross deferred tax assets................................... 16,840 9,533
Less valuation allowance.......................................... (8,238) (5,306)
---------- ----------
Total deferred tax assets......................................... 8,602 4,227
---------- ----------
Net deferred tax liabilities...................................... $ (1,809) $ (7,741)
---------- ----------
---------- ----------
</TABLE>
A valuation allowance has been recorded to reduce such Federal net operating
loss and AMT credit carryforwards to an amount expected to be realized through
the reversal of temporary differences. The valuation allowance at December 31,
1997 increased by $2.9 million from December 31, 1996.
As of December 31, 1997, the Company had net operating loss and AMT loss
carryforwards for Federal income tax purposes of approximately $39.2 million and
$57.0 million, respectively, which may be used by the Company to offset future
Federal taxable income, if any. These loss carryforwards will expire in the
years from 2010 to 2012.
As of December 31, 1997, the Company had AMT credit carryforwards of $0.6
million available to reduce future regular income taxes, if any, in excess of
alternative minimum taxes. The AMT credit carryforwards do not expire.
45
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(7) INCOME TAXES (CONTINUED)
The Company's income tax provision (benefit) for income taxes consists of
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS YEAR
31, ENDED ENDED
-------------------- DECEMBER 31, JUNE 30,
1997 1996 1995 1995
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Federal:
Current...................................... $ -- $ -- $ -- $ 428
Deferred..................................... (5,932) (870) (884) --
--------- --------- ------------ ---------
$ (5,932) $ (870) $ (884) $ 428
--------- --------- ------------ ---------
--------- --------- ------------ ---------
</TABLE>
The Company's provisions (benefits) for income taxes differ from amounts
computed by applying the U.S. corporate income tax rate of 35% for the following
reasons (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS YEAR
31, ENDED ENDED
-------------------- DECEMBER 31, JUNE 30,
1997 1996 1995 1995
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
U.S. corporate income tax benefit at statutory
rate......................................... $ (8,876) $ (5,188) $ (2,069) $ (6,275)
Increase in valuation allowance for net
deferred tax assets.......................... 2,932 5,306 -- 6,684
Excess percentage depletion.................... -- -- -- (1,177)
Nondeductible expenses and other............... 12 14 (168) 16
Employee stock option exercises................ -- (1,002) -- --
Tax provision adjustment for pending IRS
matters...................................... -- -- 1,353 1,180
--------- --------- ------------ ---------
Actual tax (benefit) provision................. $ (5,932) $ (870) $ (884) $ 428
--------- --------- ------------ ---------
--------- --------- ------------ ---------
</TABLE>
(8) STOCKHOLDERS' EQUITY
COMMON STOCK OFFERINGS
In the fourth quarter of 1995, the Company completed an equity offering of
7,475,000 common shares which resulted in net proceeds to the Company of $137.5
million after offering costs and expenses of $8.3 million.
In March 1997, the Company completed an equity offering of 1,000,000 common
shares under an existing "shelf" registration statement filed with the
Securities and Exchange Commission and a shelf prospectus with the securities
regulatory authorities in certain provinces of Canada which resulted in net
proceeds to the Company of $47.7 million after offering costs and expenses of
$2.3 million. Net proceeds of the offering are being used for the continued
development of the Turquoise Ridge mine, for exploration on the Getchell
property and for general corporate purposes.
In June 1997, the Company filed a new shelf registration statement with the
Securities and Exchange Commission and a shelf prospectus with the securities
regulatory authorities in certain provinces of Canada allowing for the sale of
$300 million in debt and equity securities.
46
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(8) STOCKHOLDERS' EQUITY (CONTINUED)
SHAREHOLDER RIGHTS PLAN
In connection with the Shareholder Rights Plan amended and restated on
December 31, 1996, Rights have been issued (and will be issued for any newly
outstanding Common Stock) to holders of the outstanding shares of Common Stock
of the Company. The Rights may be exercised only after the earlier of 10 days
after a person becomes (or the directors have knowledge of someone becoming) an
Acquiring Person and 10 days after commencement of a public announcement of a
tender or exchange offer if, upon its consummation, the offeror would
beneficially own 15% or more of the Common Stock. An "Acquiring Person" is
defined to be a person who holds at least 15% of the shares of Common Stock
without the prior approval of a majority of the outside directors of the Board.
In the event someone becomes an Acquiring Person, each holder of Rights (except
the Acquiring Person, whose Rights are voided) has the right to purchase one
one-thousandth of a Series A Junior Participating Preferred Stock ("Preferred
Stock") or, in lieu of shares of Preferred Stock, to receive a number of shares
of Common Stock specified by formula at 50% of the market price of the shares of
Common Stock. The Rights, which do not have voting rights, expire in December
2006 and may be redeemed by the Company at a price of $0.01 per Right prior to a
specified period of time after the occurrence of certain events. The Company may
also exchange all of the outstanding Rights for shares of Common Stock at a
ratio of one share of Common Stock per Right (as adjusted), any time after the
first time someone becomes an Acquiring Person. If, following an acquisition of
15% or more of the shares of Common Stock, the Company is acquired in a merger
or other business combination or sells 50% of its assets or earnings power, each
Right (other than Rights voided as above) will entitle its holder to purchase a
number of shares specified by formula of the acquiring company with a value of
twice the then current exercise price. As of December 31, 1997, 26,784,351
Rights had been issued and are outstanding. Although the Board of Directors have
authorized the creation of the Preferred Stock, such series has not been
authorized for issuance.
(9) EMPLOYEE BENEFIT PLANS
STOCK COMPENSATION PLANS
At December 31, 1997, the Company has three stock-based incentive plans
which are described below. The Company applies APB Opinion 25 and related
Interpretations in accounting for its plans. Stock options are granted with an
exercise price equal to the fair market value of the Company's Common Stock at
the date of grant. Accordingly, no compensation cost has been recognized on
these stock option plans. Had compensation cost for the plans been determined
based on the fair value at the grant dates for awards under those plans
consistent with the method of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's net
loss and loss per share would have been increased to the pro forma amounts
indicated below (in thousands except per share).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, FOR THE SIX MONTHS
---------------------- ENDED
1997 1996 DECEMBER 31, 1995
---------- ---------- ------------------
<S> <C> <C> <C> <C>
Net loss................. As reported $ (19,427) $ (13,952) $ (5,027)
Pro forma $ (21,955) $ (15,333) $ (5,052)
Primary loss per share... As reported $ (0.73) $ (0.54) $ (0.25)
Pro forma $ (0.81) $ (0.59) $ (0.25)
</TABLE>
47
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(9) EMPLOYEE BENEFIT PLANS (CONTINUED)
For purposes of the forgoing table, the fair value of option grants made in
the years ended December 31, 1997 and 1996 and the six months ended December 31,
1995 were estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-------------------- SIX MONTHS ENDED
1997 1996 DECEMBER 31, 1995
--------- --------- -----------------
<S> <C> <C> <C>
Volatility........................................... 46% 37% 37%
Risk Free Interest Rate.............................. 6.10% 6.40% 5.68%
Expected Lives....................................... 5 Years 5 Years 5 Years
Expected Dividends................................... None None None
</TABLE>
Directors, officers and certain key employees of the Company participated in
the 1987 Long Term Incentive Plan ("1987 LTIP") under which the Company had
reserved 900,000 shares of Common Stock for issuance. The 1987 LTIP terminated
in October 1997, therefore no future grants will be made from the plan. Awards
were in the form of stock options, options to purchase debentures convertible
into Common Stock or convertible preferred stock, stock appreciation rights,
performance units, restricted stock, supplemental cash and such other forms as
directed by the Board of Directors. Stock options granted under 1987 LTIP were
granted only with an exercise price of not less than 100% of the fair market
value of the Common Stock on the date of grant. The debenture options
outstanding give the holder the right to purchase a debenture from the Company,
which is convertible into preferred stock which is then convertible into the
Common Stock of the Company at the original option price. The Board of Directors
in its discretion, determined the recipients, the amounts of all awards and
vesting period of awards. All awards expire no later than ten years from the
date of grant.
Officers and eligible employees of the Company participate in the 1996 Long
Term Equity Incentive Plan ("1996 LTIP") under which the Company had reserved
900,000 shares of Common Stock for issuance. Awards under the 1996 LTIP include
stock options, stock appreciation rights, restricted stock or performance
shares. Stock options granted under the 1996 LTIP may be granted only with an
exercise price of not less than 100% of the fair market value of the Common
Stock on the date of grant. The Board of Directors in its discretion, determines
the recipients, the amounts of all awards and vesting period of awards. All
awards expire no later than ten years from the date of grant. As of December 31,
1997, awards for 102,722 common shares remained available for granting and the
Company has granted awards for 62,700 common shares that are subject to
shareholder approval to increase the number of Common Stock authorized for the
granting of option under the 1996 LTIP. All calculations that follow take into
consideration the shares granted subject to shareholder approval.
On February 14, 1997, the Board of Directors of the Company granted stock
appreciation rights ("SARS") under the Company's 1996 LTIP with respect to
75,983 shares at a weighted average grant price of $8.21 per share to certain
executives and other employees of the Company. The SARs outstanding as of
December 31, 1997 are vested and expire on various dates through 2005.
Compensation with respect to SARS is accounted for on a variable basis and is
"marked to market" at the end of each fiscal quarter based on the market price
of the Company's Common Stock. Based on the $24.50 market price of the Company's
Common Stock at December 31, 1997, the Company recognized compensation expense
of
48
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(9) EMPLOYEE BENEFIT PLANS (CONTINUED)
$1.2 million, or $0.05 per share, in the year ended December 31, 1997. Of the
$1.2 million, $0.8 million was charged to general and administrative expenses
and $0.3 million was charged to cost of sales and $0.1 million was charged to
exploration. The Company's future quarterly results will reflect only
compensation expense or adjustments thereto based on the change in the market
price of the Common Stock as compared to the market price at the end of the
preceding quarter.
Directors of the Company participate in the 1996 Stock Option Plan for
Outside Directors ("1996 LTIP for Directors") under which the Company had
originally reserved 100,000 shares of Common Stock for issuance. Each person who
(i) was an outside director at the time the 1996 LTIP for Directors was adopted
or (ii) is first elected or appointed as an outside director thereafter will
receive a non-qualified stock option grant to purchase the number of shares of
Common Stock equal to $22,500 divided by one-third of the closing price of the
Common Stock on the date of grant at an option exercise price equal to the fair
market value of the stock on the date of grant. Following such initial grant,
each such Outside director who serves until the third, sixth or ninth
anniversaries of the initial date of grant will automatically receive an
additional number of shares of Common Stock equal to $22,500 divided by
one-third of the closing price of the Common Stock on the date of grant on each
such anniversary at an aggregate option exercise price equal to the fair market
value of the stock on the date of grant, so long as the person is an Outside
Director at the close of business on the date of such anniversary. Generally the
options vest over three years. All options expire five years after the date of
grant. As of December 31, 1997, awards for 69,939 common shares remained
available for granting.
On November 14, 1997, the Board of Directors approved a new Director's Stock
Option Plan ("Director's New LTIP") and subject to shareholder approval, granted
45,000 options on November 14, 1997. Under the Director's New LTIP, each outside
member of the Board of Directors would be granted 5,000 non-qualifying stock
options ("NQSOs") at the fair market value on November 14, 1997, and on each
Annual Meeting of Stockholders, up to a maximum of 15,000 options for each
outside Director. Each option granted will vest immediately, but would be
subject to certain conditions and limitations. The Director's New LTIP would
replace the 1996 LTIP for Directors. All calculations that follow take into
consideration the shares granted subject to shareholder approval.
49
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(9) EMPLOYEE BENEFIT PLANS (CONTINUED)
A summary of the status of the Company's three option plans as of December
31, 1997, 1996 and 1995 and June 30, 1995 and changes during the periods ending
on those dates is presented below:
<TABLE>
<CAPTION>
STOCK OPTIONS DEBENTURE OPTIONS SARS
----------------------- ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at June 30, 1994.................. 182,900 $ 5.11 102,300 $ 7.93 -- $ --
Granted..................................... 246,349 $ 8.48 1,000 $ 9.53 -- --
Exercised................................... (47,600) $ 5.81 (13,500) $ 6.43 -- --
Expired or canceled......................... (129,700) $ 5.22 (20,300) $ 8.68 -- --
---------- ----------- ----------- ----- ----------- -----
Outstanding at June 30, 1995.................. 251,949 $ 8.22 69,500 $ 8.02 -- --
Granted..................................... 224,041 $ 20.25 -- -- -- --
---------- ----------- ----------- ----- ----------- -----
Outstanding at December 31, 1995.............. 475,990 $ 13.88 69,500 $ 8.02 -- --
Granted..................................... 569,133 $ 32.27 -- -- -- --
Exercised................................... (56,271) $ 9.27 (57,000) $ 8.11 -- --
Expired or canceled......................... (31,800) $ 33.01 -- -- -- --
---------- ----------- ----------- ----- ----------- -----
Outstanding at December 31, 1996.............. 957,052 $ 24.45 12,500 $ 7.63 -- --
Granted..................................... 410,098 $ 34.17 -- -- 75,983 $ 8.21
Exercised................................... (14,480) $ 27.03 -- -- -- --
Expired or canceled......................... (105,040) $ 34.75 -- -- -- --
---------- ----------- ----------- ----- ----------- -----
Outstanding at December 31, 1997.............. 1,247,630 $ 27.87 12,500 $ 7.63 75,983 $ 8.21
---------- ----------- ----------- ----- ----------- -----
---------- ----------- ----------- ----- ----------- -----
</TABLE>
The weighted average fair value of options granted during the year ended
December 31, 1997 and 1996 and the six months ended December 31, 1995 was
$19.12, $13.68 and $8.35, respectively.
The following table summarizes the exercisable options and SARs outstanding:
<TABLE>
<CAPTION>
EXERCISABLE OPTIONS
--------------------------------------------------------------------------
STOCK OPTIONS DEBENTURE OPTIONS SARS
---------------------- ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
--------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1997.............................. 439,167 $ 18.27 12,500 $ 7.63 75,983 $ 8.21
At December 31, 1996.............................. 258,514 $ 10.91 12,500 $ 7.63 -- $ --
At December 31, 1995.............................. 127,800 $ 6.47 69,500 $ 8.02 -- $ --
At June 30, 1995.................................. 125,800 $ 6.46 69,500 $ 8.02 -- $ --
</TABLE>
50
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(9) EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table summarizes information about options and SARs
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ------------------------
WEIGHTED- AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING IN YEARS PRICE EXERCISABLE PRICE
- --------------------- ----------- ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STOCK OPTIONS
$6.69-$10.03 157,150 6.8 $ 7.40 157,150 $ 7.40
$10.04-$15.04 41,709 7.3 $ 11.22 41,709 $ 11.22
$15.05-$22.57 220,693 7.4 $ 20.25 100,627 $ 20.25
$22.58-$33.86 490,383 8.0 $ 30.80 130,981 $ 30.39
$33.87-$50.00 337,695 9.2 $ 40.18 8,700 $ 43.13
--
- --------------------- ----------- ----------- ----------- -----------
$6.69-$50.00 1,247,630 8.1 $ 27.87 439,167 $ 18.27
--
--
- --------------------- ----------- ----------- ----------- -----------
- --------------------- ----------- ----------- ----------- -----------
DEBENTURE OPTIONS
$3.25-$4.88 1,000 3.9 $ 3.25 1,000 $ 3.25
$4.89-$7.31 3,000 4.5 $ 5.88 3,000 $ 5.88
$7.32-$10.19 8,500 2.0 $ 8.76 8,500 $ 8.76
--
- --------------------- ----------- ----------- ----------- -----------
$3.25-$10.19 12,500 2.8 $ 7.63 12,500 $ 7.63
--
--
- --------------------- ----------- ----------- ----------- -----------
- --------------------- ----------- ----------- ----------- -----------
SARS
$6.69-$10.03 60,551 6.7 $ 7.44 60,551 $ 7.44
$10.04-$11.44 15,432 7.3 $ 11.22 15,432 $ 11.22
--
- --------------------- ----------- ----------- ----------- -----------
$6.69-$11.44 75,983 6.8 $ 8.21 75,983 $ 8.21
--
--
- --------------------- ----------- ----------- ----------- -----------
- --------------------- ----------- ----------- ----------- -----------
</TABLE>
In August 1994, a restricted stock award of 10,000 common shares was
granted. Under the terms of the restricted stock award and as a result of the
Spin-Off and subsequent equity offering completed in November 1995 (see Notes 1
and 8), the restricted stock award vested in February 1996. No additional
restricted stock awards have been granted.
PENSION BENEFITS
Prior to the Spin-Off (see Note 1), the Company's employees participated in
ChemFirst's qualified noncontributory defined benefit pension plan. In
connection with Spin-Off, the Company established its own qualified
noncontributory defined benefit pension plan. In turn, ChemFirst agreed to (i)
maintain the administration and funding of accrued benefits at the Spin-Off date
for all vested Company employees, and (ii) transfer funds to the Company's
pension plan equal to the actuarially determined pension liability for the non
vested Company employees included in the ChemFirst pension plan. In September
1996, ChemFirst transferred the funds relating to the liability for non-vested
Company employees previously covered under the ChemFirst pension plan. Pension
expense allocated to the Company by ChemFirst was $0.2 million and $0.5 million
for the six months ended December 31, 1995 and year ended June 30, 1995,
respectively.
51
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(9) EMPLOYEE BENEFIT PLANS (CONTINUED)
Employees who participated in the ChemFirst pension plan as of September 30,
1995 were eligible to participate in the Company's pension plan at inception.
All other employees are eligible to participate in the Company's pension plan
following six months of service. The Company's plan covers all full-time
permanent employees. Benefits are based on years of service and participants'
compensation during the last five years of employment. Under the plan, an
employee becomes a participant after six months of service, provided that the
employee is regularly employed for at least 1,000 hours per year.
The components of pension expense for the pension plan consist of (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Service cost................................................................. $ 1,111 $ 635
Interest cost on projected benefit obligation................................ 190 140
Return on assets............................................................. (233) (16)
Net amortization and deferral................................................ 224 71
--------- ---------
Pension expense.............................................................. $ 1,292 $ 830
--------- ---------
--------- ---------
</TABLE>
The Company's policy is to fund the plan based on the minimum requirements
of applicable regulations. The following table sets forth the funded status of
the Company's pension plan and the amounts recognized in the Company's
consolidated balance sheet (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation.............................................................
Vested benefit obligation................................................................ $ 636 $ 45
Non-vested benefits...................................................................... 1,274 954
--------- ---------
Accumulated benefit obligation............................................................. 1,910 999
Effect of future salary increases.......................................................... 2,115 1,640
--------- ---------
Projected benefit obligation................................................................. 4,025 2,639
Plan assets at fair value, principally mutual funds.......................................... (2,070) (558)
--------- ---------
Shortfall of plan assets over projected benefit obligation................................... 1,955 2,081
Unrecognized net loss........................................................................ (50) (112)
Unrecognized prior service cost.............................................................. (1,215) (1,292)
--------- ---------
Net pension liability........................................................................ $ 690 $ 677
--------- ---------
--------- ---------
</TABLE>
In measuring the projected benefit obligation for the pension plan, a
weighted average discount rate of 7.25% and a rate of increase in future
compensation of 3.5% was used at December 31, 1997 and a weighted average
discount rate of 7.5% and a rate of increase in future compensation of 3.0% was
used at December 31, 1996. The weighted average expected long-term rate of
return on plan assets was assumed to be 7.5% and 7.0% for the years ended
December 31, 1997 and 1996, respectively.
52
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(9) EMPLOYEE BENEFIT PLANS (CONTINUED)
SAVINGS PLAN
Substantially all employees who have completed six months of service are
eligible to participate in the Company's 401(k) thrift plan. Under the savings
plan, employees may elect to contribute from 1% to 15% of monthly base pay, with
the Company matching contributions up to 4% of monthly base pay. Total expense
under the plan amounted to $0.5 million, $0.4 million, $0.1 million and $0.2
million for the years ended December 31, 1997 and 1996, the six months ended
December 31, 1995, and the year ended June 30, 1995, respectively.
(10) MAJOR CUSTOMERS
The Company is not economically dependent on a limited number of customers
for the sale of its product because gold commodity markets are well-established
worldwide. During 1997 and 1996, one customer accounted for 100% of total sales
and $54.1 million or 82% of total sales, respectively. In the six months ended
December 31, 1995 and the year ended June 30, 1995, one customer accounted for
all of the total sales. For the years ended December 31, 1997 and 1996, the six
months ended December 31, 1995 and the year ended June 30, 1995, export sales
were less than 10% of total sales.
(11) RELATED PARTY TRANSACTIONS
The Company had an administrative services agreement with ChemFirst which
was terminated in conjunction with the Spin-Off (see Note 1). Prior to the
termination of the agreement, the Company reimbursed ChemFirst on a fee basis
determined annually. Under this agreement, the Company reimbursed ChemFirst
approximately $0.1 million and $0.2 million for the six months ended December
31, 1995 and the year ended June 30, 1995, respectively. Direct expenses
incurred by ChemFirst on behalf of the Company were charged to the Company based
on the actual costs incurred.
For insurance premiums paid by ChemFirst on behalf of the Company, the
Company reimbursed ChemFirst approximately $0.2 million and $0.3 million for the
six months ended December 31, 1995 and year ended June 30, 1995, respectively.
As discussed in Note 1, contemporaneously with the Spin-Off, the Company and
ChemFirst executed a promissory note, upon which all promissory notes previously
entered into between the two companies were canceled.
(12) SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by operating activities includes the following cash
payments (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
-------------------- DECEMBER 31, YEAR ENDED
1997 1996 1995 JUNE 30, 1995
--------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Interest, net of amounts capitalized (Note 5)........................ $ (838) $ (448) $ 87 $ 48
Income taxes paid.................................................... $ -- $ -- $ -- $ --
</TABLE>
Excluded from the statement of consolidated cash flows are the effects of
certain non-cash transactions. In the years ended December 31, 1997 and 1996,
the six months ended December 31, 1995, and the year ended June 30, 1995,
interest payable in the amounts of $1.6 million, $1.5 million, $3.0 million and
53
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(12) SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED)
$2.3 million, respectively, was capitalized to the note payable to ChemFirst. In
the six months ended December 31, 1995, $13.9 million of income taxes receivable
from ChemFirst were offset against the note payable to ChemFirst.
Capital lease obligations of $7.2 and $5.5 million were incurred to acquire
equipment during the year ended December 31, 1996 and six months ended December
31, 1995, respectively.
(13) 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
In September 1997 and October 1996, the Internal Revenue Service ("IRS")
filed notices of deficiencies, stating that the IRS is proceeding against
ChemFirst for income taxes associated with ChemFirst's consolidated income tax
returns filed in 1989, 1990, 1991 and 1992. The Company's share of the asserted
deficiency for 1989 through 1994, including interest, totals approximately $5.5
million. In response, ChemFirst and the Company filed a petition with the United
States Tax Court in December 1996. The Company believes it has adequately
provided for any liabilities that may result from the outcome of this matter.
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. The Company is also 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 a 2% royalty on net smelter returns of the
current mineral production from certain of its mining properties. Royalties,
recorded as operating costs, amounted to $1.1 million, $1.5 million, $0.8
million and $1.5 million for the years ended December 31, 1997 and 1996, the six
months ended December 31, 1995 and year ended June 30, 1995, respectively.
LETTER OF CREDIT
At December 31, 1997, a $4.5 million unsecured letter of credit was
outstanding for bonding of a reclamation plan.
54
<PAGE>
GETCHELL GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(14) FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited selected quarterly financial
information (amounts in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------- YEAR ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
----------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales..................................... $ 14,862 $ 18,675 $ 17,587 $ 13,673 $ 64,797
Gross margin.................................. $ (4,949) $ (3,051) $ (4,074) $ (9,449) $ (21,523)
Loss before income taxes...................... $ (7,979) $ (3,084) $ (4,902) $ (9,394) $ (25,359)
Net loss...................................... $ (7,979) $ (3,084) $ (4,902) $ (3,462) $ (19,427)
Loss per share................................ $ (0.31) $ (0.12) $ (0.18) $ (0.13) $ (0.73)
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------- YEAR ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
----------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales..................................... $ 14,655 $ 17,193 $ 17,020 $ 19,010 $ 67,878
Gross margin.................................. $ (1,923) $ (1,243) $ (3,572) $ (4,168) $ (10,906)
Loss before income taxes...................... $ (2,603) $ (2,021) $ (4,218) $ (5,980) $ (14,822)
Net loss...................................... $ (1,733) $ (2,021) $ (4,218) $ (5,980) $ (13,952)
Loss per share................................ $ (0.07) $ (0.08) $ (0.16) $ (0.23) $ (0.54)
</TABLE>
The following table sets forth unaudited consolidated statements of
operations data for the year ended December 31, 1995 and the six months ended
December 31, 1994 (amounts in thousands, except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Net sales............................................................................ $ 67,884 $ 38,026
Cost of sales........................................................................ 69,972 35,759
------------ ------------
Gross margin....................................................................... (2,088) 2,267
General and administrative expenses.................................................. 3,531 1,182
Exploration expenses................................................................. 2,106 2,298
Abandonment and impairment of mineral properties..................................... 11,531 --
------------ ------------
Loss from operations............................................................... (19,256) (1,213)
Interest expense, net of capitalized interest........................................ (3,680) (759)
Interest and other income............................................................ 981 87
------------ ------------
Loss before income taxes........................................................... (21,955) (1,885)
Income tax provision (benefit)....................................................... 109 (565)
------------ ------------
Net loss........................................................................... $ (22,064) $ (1,320)
------------ ------------
------------ ------------
Basic loss per common share.......................................................... $ (1.16) $ (0.07)
------------ ------------
------------ ------------
Weighted average number of shares outstanding........................................ 19,035 18,122
------------ ------------
------------ ------------
</TABLE>
55
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions for the past five years of the executive
officers and directors of the Company as of February 13, 1998 are set forth
below:
J. KELLEY WILLIAMS, 63, is Chairman of the Board of the Company and has been
since October 1987. He is the Chairman of the Board and Chief Executive Officer
of ChemFirst and has been since November 1988. Mr. Williams has been a director
of the Company since 1987 and his current term expires in 2000. Mr. Williams is
also a Director of Deposit Guaranty Corporation.
G. W. THOMPSON, 56, has been President and Chief Executive Officer of the
Company since September 1994. He was a private investor and consultant in the
mining business from May 1992 until September 1994. Mr. Thompson has been a
director since 1994 and his current term expires in 1998.
R. DAVID RUSSELL, 41, has been Vice President and Chief Operating Officer
since February 1995. He was General Manager of Lac Minerals U.S.A. Ltd., a gold
mining company and wholly owned subsidiary of Lac Minerals Ltd., from April 1994
to February 1995. From June 1993 to April 1994. Mr. Russell was a Manager at
Independence Mining Company, a gold mining company and a subsidiary of Minorco
Inc. From September 1992 to June 1993, he was a Manager at Hecla Mining Company,
a diversified mining company.
DONALD S. ROBSON, 45, is Vice President and Chief Financial Officer of the
Company and has been since March 1995. Mr. Robson has also served as Corporate
Secretary since October 1995. From May 1990 to September 1994, he was Vice
President, Finance of Lac Minerals Ltd., a gold mining company.
DONALD O. MILLER, 51, is the Vice President--Human Resources and Chief
Administrative Officer and has been since April 1995. From January 1993 to April
1995, Mr. Miller had his own consulting firm, GEM 2000, at which he consulted on
human resources issues, primarily in the mining industry. From May 1991 to
January 1993, he was the Vice President, Human Resources at Newmont Mining
Company, a mining company.
RICHARD F. NANNA, 49, is the Vice President, Exploration of the Company and
has been since August 1991.
ROGER D. PALMER, 48, is the Controller of the Company and has been since
April 1995. From December 1993 to April 1995, Mr. Palmer was Assistant
Controller of the Company. From June 1992 to December 1993, Mr. Palmer held the
position of Manager, Financial Planning and Analysis with the Company.
WALTER A. DREXEL, 67, is a private investor. From September 1987 to June
1996, he was part owner of the Chicago Central and Pacific Railroad. Mr. Drexel
is a member of the Compensation, Human Resource and Director Affairs Committee
and has been a director since 1995. His current term expires in 1999.
ROBERT C. HORTON, 72, is a self-employed mining consultant. He is the
Associate Dean Emeritus of the Mackay School of Mines at the University of
Nevada, Reno. Mr. Horton is a member of the Compensation, Human Resource and
Director Affairs Committee and has been a director since 1988. He will be
retiring from the Board in 1998.
PETE INGERSOLL, 67, is the principal partner of Ingersoll, Parker &
Longabaugh, a mining consulting firm. He is a member of the Compensation, Human
Resource and Director Affairs Committee and has been a
56
<PAGE>
director since 1994. Mr. Ingersoll's current term expires in 1998. Mr. Ingersoll
is also a Director of Stillwater Mining Company.
JOHN RACICH, 62, is a mining consultant. He retired in 1989 as Senior Vice
President and Chief Financial Officer of Placer Dome Inc., a gold mining
company. Mr. Racich is Chairman of the Audit, Budgeting and Finance Committee.
He has been a director since 1996 and his current term expires in 1999.
CHARLES E. STOTT, JR., 64, is a mining consultant. From 1994 to 1995, he was
President and Chief Executive Officer of Gold Capital Corporation, a gold mining
company. From 1993 to 1994, he was Executive Vice President, American Mine
Services Inc., a mining contracting and engineering firm. From 1990 to 1993, he
was President and Chief Executive Officer of Horizon Resources Corporation, a
mining company. Mr. Stott is a member of the Compensation, Human Resource and
Director Affairs Committee. He has been a director since 1996 and his current
term expires in 1999.
R. MICHAEL SUMMERFORD, 49, is Vice President and Chief Financial Officer of
ChemFirst and has been since 1988. He is a member of the Audit, Budgeting and
Finance Committee. Mr. Summerford has been a director since 1987 and his current
term expires in 2000.
ALLEN S. WINTERS, 57, is a consultant for various mining companies. He
retired in 1995 as Vice President of Homestake Mining Company and General
Manager of Homestake Mine. Mr. Winters is a member of the Audit, Budgeting and
Finance Committee. He has been a director since 1996 and his current term
expires in 2000.
ROBERT L. ZERGA, 57, has been self-employed since January 1995. From July
1990 to November 1994, he served as Chief Executive Officer and Chairman of the
Board of Independence Mining Company Inc., a gold mining company which is an
indirect wholly-owned subsidiary of Minorco Inc. During the same time period, he
served as Vice President and director of Minorco (U.S.A.) Inc., a gold mining
company and subsidiary of Minorco Inc. He is Chairman of the Compensation, Human
Resource and Director Affairs Committee. Mr. Zerga has been a director since
1995 and his current term expires in 1999. Mr. Zerga is also a Director of
Canyon Resources, a mining company.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the annual and
long-term compensation for services in all capacities to the Company for the
years ended December 31, 1997 ("1997") and 1996 ("1996"), the six months ended
June 30, 1995 (the "1995IP" or "Interim Period"), and the year ended June 30,
1995 ("1995") of those persons who were either (i) the chief executive officer
of the Company during the last completed fiscal year or (ii) one of the other
four most highly compensated executive officers of the Company as of the end of
the last completed fiscal year whose annual salary and bonuses exceeded $100,000
(collectively, the "Named Executive Officers").
57
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ----------------------------
---------------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING
NAME AND COMPENSATION STOCK AWARDS OPTION/SAR
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) (1) ($) ($) AWARDS(2)
- --------------------------- ------------ ----------- ----------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
G.W. Thompson.............. 1997 360,000 -- -- -- 91,640
President and 1996 300,000 127,500(5) -- -- --
Chief Executive Officer 1995 IP(4) 116,665 133,000(6) -- -- 105,000
1995(4) 183,000 -- (6) -- 65,000(7) 90,000
R. David Russell........... 1997 220,000 -- -- -- 43,140
Vice President and 1996 175,000 63,000(5) -- -- --
Chief Operating Officer 1995 IP(4) 81,667 63,000(6) -- -- 45,000
1995(4) 55,321 -- (6) -- -- 34,000
Donald S. Robson........... 1997 158,333 -- -- -- 20,905
Vice President and 1996 140,000 36,750(5) 42,914(11) -- --
Chief Financial Officer 1995 IP(4) 72,917 50,000(6) -- -- 24,000
1995(4) 33,654 -- (6) -- -- 22,059
Donald O. Miller........... 1997 128,333 -- -- -- 14,745
1996 110,000 29,700(5) 24,267(12) -- --
Vice President, Human
1995 IP(4) 49,998 30,000(6) -- -- 15,000
Resources and Chief
Administrative Officer 1995(4) 20,512 -- (6) -- -- 13,954
Richard F. Nanna........... 1997 94,340 -- -- -- 15,963
Vice President,
Exploration 1996 92,947 19,751(5) 317,779(13) -- 15,000
1995 IP(4) 45,114 13,950 -- -- --
1995 90,228 27,200 -- -- 15,427
<CAPTION>
NAME AND ALL OTHER
PRINCIPAL POSITION COMPENSATION (3) ($)
- --------------------------- ---------------------
<S> <C>
G.W. Thompson.............. 40,390(8)(9)
President and 104,384(8)(9)(10)
Chief Executive Officer 66,058(8)(9)(10)
3,008(8)(9)
R. David Russell........... 25,725(8)(9)(14)
Vice President and 41,526(8)(9)(10)(14)
Chief Operating Officer 21,585(8)(9)(10)
218(9)
Donald S. Robson........... 10,680(8)(9)
Vice President and 13,277(8)(9)(10)
Chief Financial Officer 42,961(8)(9)(10)
216(9)
Donald O. Miller........... 7,812(9)
3,591(9)
Vice President, Human
705(9)
Resources and Chief
Administrative Officer 351(9)
Richard F. Nanna........... 4,554(8)(9)
Vice President,
Exploration 4,198(8)(9)
2,403(8)(9)
4,804(8)(9)
</TABLE>
- ------------------------------
(1) Other Annual Compensation included direct cash payments related to tax
reimbursement payments, tax planning and tax return preparation services
provided to the Named Executive Officer at the Company's expense, and tax
reimbursements paid on imputed income resulting from the personal use of
Company automobiles and club dues and memberships, including imputed income
on the same, but only if such payments exceed the lesser $50,000 or 10% of
the total salary and bonus of the Named Executive Officer.
(2) Represents non-qualified stock options ("NQSOs") and stock appreciation
rights ("SARs") granted under the Company's Long-Term Equity Incentive
Plans.
(3) All Other Compensation consists of Company contributions related to the
Company's 401(k) Plan, relocation expenses and executive life insurance
paid by the Company on the Named Executive Officer's behalf.
(4) In September 1995, the Company converted from a fiscal year ended June 30
to a fiscal year ended December 31. For Messrs. Thompson, Russell, Robson
and Miller 1995 amounts represent compensation from the date of hire
through June 30, 1995. These dates were September 1, 1994 for Mr. Thompson,
February 6, 1995 for Mr. Russell, March 21, 1995 for Mr. Robson and April
17, 1995 for Mr. Miller. For all Name Executive Officers the 1995 IP
amounts represent compensation from July 1, 1995 through December 31, 1995.
(5) Represents bonuses earned for the year ended December 31, 1996 which were
paid in the year ended December 31, 1997.
(6) Mr. Thompson's bonus was calculated for a 16-month period (September 1994
through December 1995), incorporating performance for the year ended June
30, 1995 and the Interim Period. The bonuses of Messrs. Russell, Robson and
Miller were based on a period from their respective dates of hire in 1995
through December 31, 1995. These bonuses were all paid in the year ended
December 31, 1996.
(7) Includes 10,000 shares of restricted stock issued to Mr. Thompson upon
being named President and Chief Executive Officer, of which he has sole
voting and investment power. At December 31, 1997, such shares had a market
value of $245,000. All of the shares vested on February 21, 1996.
(8) Company contributions related to the Company's 401(k) Plan for the year
ended December 31, 1997 were $4,850 for Mr. Thompson, $8,425 for Mr.
Russell, $4,792 for Mr. Robson and $3,774 for Mr. Nanna. For the year ended
December 31, 1996, Company contributions were $10,053 for Mr. Thompson,
$6,766 for Mr. Russell, $9,627 for Mr. Robson and $3,718 for Mr. Nanna. For
the Interim Period, Company contributions were $3,078 for Mr. Thompson,
$466 for Mr. Russell, $1,155 for Mr. Robson and $1,828 for Mr. Nanna. For
the year ended June 30, 1995, Company contributions were $2,000 for Mr.
Thompson and $3,655 for Mr. Nanna.
58
<PAGE>
(9) Executive Life Insurance paid by the Company for the year ended December
31, 1997 was $35,540 for Mr. Thompson, $4,500 for Mr. Russell, $5,888 for
Mr. Robson, $7,812 for Mr. Miller and $780 for Mr. Nanna. For the year
ended December 31, 1996, Executive Life Insurance paid by the Company was
$16,547 for Mr. Thompson, $2,120 for Mr. Russell, $1,663 for Mr. Robson,
$3,591 for Mr. Miller and $480 for Mr. Nanna. Executive Life Insurance paid
by the Company for the Interim Period was $2,625 for Mr. Thompson, $261 for
Mr. Russell, $324 for Mr. Robson, $705 for Mr. Miller and $575 for Mr.
Nanna. Executive Life Insurance paid by the Company in the year ended June
30, 1995 was $1,008 for Mr. Thompson, $218 for Mr. Russell, $216 for Mr.
Robson, $351 for Mr. Miller and $1,149 for Mr. Nanna.
(10) Relocation expenses paid by the Company during the year ended December 31,
1996 on behalf of Mr. Thompson were $77,784, on behalf of Mr. Russell were
$24,107 and on behalf of Mr. Robson were $1,987. Relocation expenses paid
by the Company during the Interim Period on behalf of Mr. Thompson were
$60,355, on behalf of Mr. Russell were $20,858 and on behalf of Mr. Robson
were $41,482.
(11) Includes direct cash payments related to tax reimbursement payments of
$26,316, tax planning and tax return preparation services at the Company's
expense of $6,641, and tax reimbursements paid on imputed income resulting
from the personal use of Company automobiles of $4,560 and club dues and
memberships of $5,397, including imputed income on the same.
(12) Includes direct cash payments related to tax reimbursement payments of
$12,884, tax planning services at the Company's expense of $2,398, and tax
reimbursements paid on imputed income resulting from the personal use of
Company automobiles of $4,748 and club dues and memberships of $4,237,
including imputed income on the same.
(13) Includes direct cash payments related to tax reimbursement payments of
$316,674 and tax reimbursements paid on imputed income resulting from the
personal use of Company automobiles of $1,105, including imputed income on
the same.
(14) Includes imputed interest calculated at 8% on a $160,000 interest-free
bridge loan related to Mr. Russell's northern California residence, which
total $12,800 and $8,533 in 1997 and 1996, respectively.
The following table sets forth certain information with respect to grants of
stock options and SARs to Named Executive Officers during the year ended
December 31, 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF MARKET STOCK PRICE
SECURITIES % OF TOTAL PRICE ON APPRECIATION FOR
UNDERLYING OPTIONS/SARS EXERCISE DATE OF OPTION TERM(4)
OPTIONS/SARS GRANTED TO ALL PRICE GRANT --------------------
NAME GRANTED EMPLOYEES(3) ($/SHARE) ($/SHARE) EXPIRATION DATE 0% 5%
- ---------------------------- ------------- ----------------- ----------- ----------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
G.W. Thompson............... 58,340(1) 12.0 40.25 40.25 2/14/2007 -- 1,370,319
G.W. Thompson............... 33,300(2) 6.9 6.81 40.25 8/23/2004 1,076,256 1,606,717
R. David Russell............ 30,560(1) 6.3 40.25 40.25 4/01/2007 -- 717,808
R. David Russell............ 12,580(2) 2.6 8.44 40.25 2/09/2005 386,111 621,140
Donald S. Robson............ 13,505(1) 2.8 40.25 40.25 4/01/2007 -- 317,212
Donald S. Robson............ 7,400(2) 1.5 8.50 40.25 3/21/2005 226,662 364,914
Donald O. Miller............ 9,935(1) 2.0 40.25 40.25 2/14/2007 -- 233,358
Donald O. Miller............ 4,810(2) 1.0 10.75 40.25 4/18/2005 136,507 226,371
Richard F. Nanna............ 6,000(1) 1.2 40.25 40.25 4/01/2007 -- 140,931
Richard F. Nanna............ 1,295(2) 0.3 8.50 40.25 7/14/1998 39,665 42,199
Richard F. Nanna............ 370(2) 0.1 9.75 40.25 8/10/1999 10,870 12,354
Richard F. Nanna............ 740(2) 0.2 7.63 40.25 8/09/2000 23,313 27,877
Richard F. Nanna............ 1,850(2) 0.4 6.69 40.25 8/12/2003 60,018 84,638
Richard F. Nanna............ 2,701(2) 0.6 7.25 40.25 8/11/2004 86,107 129,134
Richard F. Nanna............ 3,007(2) 0.6 11.44 40.25 5/11/2005 83,271 139,450
<CAPTION>
NAME 10%
- ---------------------------- ---------
<S> <C>
G.W. Thompson............... 3,572,919
G.W. Thompson............... 2,312,461
R. David Russell............ 1,871,587
R. David Russell............ 949,049
Donald S. Robson............ 827,087
Donald S. Robson............ 557,801
Donald O. Miller............ 608,449
Donald O. Miller............ 351,748
Richard F. Nanna............ 367,458
Richard F. Nanna............ 44,733
Richard F. Nanna............ 13,911
Richard F. Nanna............ 32,898
Richard F. Nanna............ 115,872
Richard F. Nanna............ 186,377
Richard F. Nanna............ 217,830
</TABLE>
- ------------------------------
(1) Options represent NQSOs that vest over four years from the date of grant at
a rate of 20% in the first three years and 40% in the final year. All
options were granted for a term of ten years, subject to earlier termination
in certain events. The exercise price is equal to the fair market value of
the Company's Common Stock on the date of grant.
(2) Represents SARs that are all currently vested.
(3) Based on 486,081 total options granted in the year ended December 31, 1997.
(4) The amounts shown are for illustrative purposes only. Potential gains are
net of the exercise price. Amounts represent hypothetical gains that could
be achieved for the respective options if exercised at the end of the option
term. The assumed 0%, 5% and 10% rates of stock price appreciation are
provide in accordance with the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of the
future Common Stock price. Actual gains, if any, on stock option exercises
are dependent upon the future financial performance of the Company, overall
market conditions and
59
<PAGE>
the option holders' continued employment through the vesting period. This
table does not take into account any appreciation in the price of the Common
Stock from the date of grant to the date of this Annual Report other than
the columns reflecting assumed rates of appreciation of 0%, 5% and 10%.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information with respect to the Named
Executive Officers concerning the exercise of options and SARs in 1997 and
unexercised options and SARs held at December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT AT DECEMBER 31, 1997(1)
SHARES DECEMBER 31, 1997(#) ($)
ACQUIRED ON VALUE -------------------------- -------------------------
NAME EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- ------------- --------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
G.W. Thompson.................... -- -- 165,300 121,340 2,359,677 267,750
R. David Russell................. -- -- 64,580 57,560 824,691 114,750
Donald S. Robson................. -- -- 37,000 27,905 479,200 61,200
Donald O. Miller................. 1,500 $ 29,625 22,310 18,935 264,012 38,250
Richard F. Nanna................. -- -- 39,890 18,000 596,965 --
</TABLE>
- ------------------------
(1) Value was computed as the difference between the individual option or SAR
price and the closing sales price of the Company's Common Stock on December
31, 1997 ($24.50). Only options and SARs with fair market value in excess of
the exercise price are reflected in this column.
OTHER COMPENSATION
Employees participate in a noncontributory Retirement Plan established by
the Company. Employees become 100% vested after five years of employment. The
plan provides for normal retirement at age sixty-five with actuarially adjusted
provisions for early and postponed retirement dates. Retirement benefits are
based on years of service and average compensation (wage and salary) of the five
highest consecutive years during employment. Theoretical benefits payable under
the plan are reflected in the estimated retirement plan table below and are not
subject to any reduction for social security benefits or other offset amounts.
The following table shows the estimated annual retirement benefit payable to
participating employees including Named Executive Officers in earnings and years
of service classifications as indicated.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS FOR YEARS OF
CREDITED SERVICE
AVERAGE ANNUAL COMPENSATION -------------------------------------------
(FIVE HIGHEST CONSECUTIVE YEARS) 10 YEARS 20 YEARS 30 YEARS 40 YEARS
- -------------------------------------------------- --------- --------- --------- ----------
<S> <C> <C> <C> <C>
$25,000........................................... $ 4,212 $ 8,424 $ 12,136 $ 16,848
$50,000........................................... 8,712 17,424 26,136 34,848
$100,000.......................................... 17,712 35,424 53,136 70,848
$150,000 or greater............................... 26,712 53,424 80,136 106,848
</TABLE>
Effective November 14, 1997, the Compensation Committee recommended and the
Board of Directors approved a non-qualified and unfunded Supplemental Executive
Retirement Plan. The plan will provide executives who were over the age of 50 at
the time of adoption of the plan, specifically G.W. Thompson and Donald O.
Miller, two years credited service for each year of employment from the approval
of the plan, until retirement, up to a maximum of 25 years, with Mr. Thompson
receiving one extra year to his first two-year credit. Additional executives
shall receive such benefit at the discretion of the Compensation Committee.
Years of service for the Named Executive Officers are: G.W. Thompson,
60
<PAGE>
three years; R. David Russell, Donald S. Robson and Donald O. Miller, two years
each; and Richard F. Nanna, sixteen years.
During the year ended December 31, 1997, the Company entered into new
termination agreements with G.W. Thompson, R. David Russell, Donald S. Robson,
Donald O. Miller and Richard F. Nanna (collectively, the "Termination
Agreements") as the prior termination agreements expired in 1997. The
Termination Agreements have substantially similar terms to the old termination
agreements. The Termination Agreements expire on June 30, 2000 unless a Change
of Control (as defined therein) occurs, in which case the Termination Agreements
expire three months from the end of the month in which the Change of Control
occurred. Upon termination without Cause (as defined therein) or for Disability
(as defined therein) or upon Voluntary Resignation (as defined therein), and in
the case of Mr. Nanna's Termination Agreement, such Voluntary Resignation must
be for Good Reason (as defined therein), each of Messrs. Thompson, Russell,
Robson and Miller would be paid two times the sum of his annual base salary and
bonuses averaged over the three year period ending on the date of termination,
with certain benefit plans continuing for a period of 36 months, and Mr. Nanna
would be paid one and a half times the sum of his annual base salary and bonuses
averaged over the three year period ending on the date of termination, with
certain benefit plans continuing for a period of 24 months. Upon termination,
the individual would have the option, unless he notifies the Company otherwise,
to receive a cash payment equal to the cash value of all his NQSOs, Debenture
Options, Debentures and Stock Appreciation Rights, whether then exercisable or
not. No individual would receive payments in the event of death. The Termination
Agreements also provide for, among other things, an additional payment to be
made by the Company to the individual if any of the severance payments provided
for in the Termination Agreement or any other payments made pursuant to a Change
of Control of the Company (the "Total Payments") become subject to an additional
tax ("Excise Tax") imposed by Section 4999 of the Code, such that the net of all
of the payments received by the individual after the imposition of the Excise
Tax on the Total Payments and the federal income tax on the additional payment
shall be equal to the Total Payments.
COMPENSATION, HUMAN RESOURCE & DIRECTOR AFFAIRS COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Drexel, Horton, Ingersoll, Stott and Zerga, who are members of the
Compensation, Human Resource & Director Affairs Committee, are not now and never
have been officers or employees of the Company.
DIRECTOR COMPENSATION
In 1997, the Chairman of the Board was compensated for his services with an
annual retainer of $22,500. Other Directors who are not employees of the Company
(together with the Chairman, "Outside Directors") were compensated for their
services with an annual retainer of $7,500. In addition, all Outside Directors
received $750 per day for attendance at board meetings, and an additional $500
per day for attendance at committee meetings, $750 per day for special service
requests made by the Chairman of the Board or the Chief Executive Officer and
$250 per day for travel. No compensation, in addition to his regular salary and
benefit, is payable to the Chief Executive Officer for his services as a
Director. In accordance with the 1996 Stock Option Plan for Outside Directors,
Outside Directors may elect to forego cash payment of all or any of his fees
during a fiscal year and receive an option to purchase the number of shares
equal to the fees divided by one-third of the closing price of the Common Stock
on the last day of the fiscal year. Mr. Williams made such an election for 1997.
Also in accordance with the 1996 Stock Option Plan for Outside Directors,
each person who is elected or appointed as an Outside Director automatically
receives on the date of such election or appointment a NQSO grant to purchase
the number of shares of Common Stock equal to $22,500 divided by one-third of
the closing price of the Common Stock on such date. Individuals who were Outside
Directors at the time the 1996 Stock Option Plan for Outside Directors was
adopted by the Board of Directors received such an
61
<PAGE>
NQSO on the date of adoption by the Board, subject to stockholder approval.
Following such initial grant, each such Outside Director who serves until the
third, sixth and ninth anniversaries of the initial date of grant will
automatically receive an NQSO to purchase an additional number of shares of
Common Stock equal to $22,500 divided by one-third of the closing price of the
Common Stock on the date of grant on each such anniversary at an aggregate
option price equal to the fair market value of the Common Stock on the date of
grant, so long as the person is an Outside Director at the close of business on
the date of such anniversary. An option will be exercisable with respect to
one-third of the shares subject to the option on the anniversary of the date of
grant and an additional one-third on each of the two succeeding anniversaries.
Options granted under the 1996 Stock Option Plan for Outside Directors shall
expire five years after the date of grant.
On November 14, 1997, the Board of Directors approved a new Director's Stock
Option Plan ("Director's New LTIP"), and subject to shareholder approval,
granted 45,000 options on November 14, 1997. Under the Director's New LTIP, each
outside member of the Board of Directors would be granted 5,000 NQSOs at the
fair market value on the date of grant on November 14, 1997 and on the date of
each Annual Meeting of Stockholders, up to a maximum of 15,000 options for each
outside Director. Each option granted would vest immediately upon their grant,
but would be subject to certain conditions and limitations. The Director's New
LTIP would replace the 1996 Stock Option Plan for Outside Directors upon
shareholder approval.
62
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth as of December 31, 1997, the number and
percentage of the outstanding shares of common stock which, according to the
information supplied to the Company, were beneficially owned by (i) each person
who is currently a Director of the Company, (ii) each Named Executive Officer
(as defined above), (iii) all current Directors and Executive Officers of the
Company as a group and (iv) each person who, to the knowledge of the Company, is
the beneficial owner of more than 5% of the outstanding common stock. Except as
otherwise indicated, the persons named in the table have sole voting and
dispositive power with respect to all shares beneficially owned, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
DEBENTURE
OPTIONS
AND/OR TOTAL COMMON
NQSOS STOCK
BENEFICIALLY PERCENT OF BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) CLASS COMMON STOCK OWNED(2)
- ---------------------------------------------------------------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS (3):
Walter Drexel................................................... 1,000
NQSOs......................................................... 2,222 * 3,222
Robert C. Horton................................................ 1,500(4)
1989-B Series................................................. 1,000 100%
1990-C Series................................................. 1,000 100%
1991-B Series................................................. 1,000 100%
1992-A Series................................................. 1,000 100%
1993-A Series................................................. 1,000 100%
NQSOs......................................................... 2,222 * 8,722
Pete Ingersoll..................................................
1994-A Series................................................. 1,000 100%
NQSOs......................................................... 2,222 * 3,222
Donald O. Miller................................................ 646(5)
NQSOs......................................................... 17,500 1.5% 18,146
Richard F. Nanna................................................ 191
1988-A Series................................................. 3,500 100%
1989-A Series................................................. 1,000 100%
1990-A Series................................................. 2,000 100%
NQSOs......................................................... 23,427 2.0% 30,118
John Racich..................................................... 300
NQSOs......................................................... 666 * 966
Donald S. Robson................................................ 991
NQSOs......................................................... 29,600 2.6% 30,591
R. David Russell................................................ 2,196
NQSOs......................................................... 52,000 4.5% 54,196
Charles E. Stott, Jr............................................ 275
NQSOs......................................................... 666 * 941
R. Michael Summerford........................................... 20,350
NQSOs......................................................... 2,222 * 22,572
G. W. Thompson.................................................. 11,432
NQSOs......................................................... 132,000 11.5% 143,432
J. Kelley Williams.............................................. 606,283(6)
NQSOs......................................................... 6,285 * 612,568
Allen S. Winters................................................ 300
NQSOs......................................................... 666 * 966
<CAPTION>
PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER CLASS
- ---------------------------------------------------------------- -----------
<S> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS (3):
Walter Drexel...................................................
NQSOs......................................................... *
Robert C. Horton................................................
1989-B Series.................................................
1990-C Series.................................................
1991-B Series.................................................
1992-A Series.................................................
1993-A Series.................................................
NQSOs......................................................... *
Pete Ingersoll..................................................
1994-A Series.................................................
NQSOs......................................................... *
Donald O. Miller................................................
NQSOs......................................................... *
Richard F. Nanna................................................
1988-A Series.................................................
1989-A Series.................................................
1990-A Series.................................................
NQSOs......................................................... *
John Racich.....................................................
NQSOs......................................................... *
Donald S. Robson................................................
NQSOs......................................................... *
R. David Russell................................................
NQSOs......................................................... *
Charles E. Stott, Jr............................................
NQSOs......................................................... *
R. Michael Summerford...........................................
NQSOs......................................................... *
G. W. Thompson..................................................
NQSOs......................................................... *
J. Kelley Williams..............................................
NQSOs......................................................... 2.3%
Allen S. Winters................................................
NQSOs......................................................... *
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
DEBENTURE
OPTIONS
AND/OR TOTAL COMMON
NQSOS STOCK
BENEFICIALLY PERCENT OF BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) CLASS COMMON STOCK OWNED(2)
- ---------------------------------------------------------------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Robert L. Zerga - NQSOs......................................... 2,222 * 2,222
ALL CURRENT DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (15
PERSONS)(7) 645,864
1988-A Series................................................. 3,500 100%
1989-A Series................................................. 1,000 100%
1989-B Series................................................. 1,000 100%
1990-A Series................................................. 2,000 100%
1990-C Series................................................. 1,000 100%
1991-B Series................................................. 1,000 100%
1992-A Series................................................. 1,000 100%
1993-A Series................................................. 1,000 100%
1994-A Series................................................. 1,000 100%
NQSOs......................................................... 282,417 24.6% 940,781
5% BENEFICIAL HOLDERS (8):
FMR Corp........................................................ 4,000,695 4,000,695
82 Devonshire Street
Boston, MA 02109
John A. Levin & Co. ............................................ 1,657,290 1,657,290
One Rockefeller Plaza, 25th Floor
New York, NY 10020 and
Baker Fentress & Company
200 West Madison Street
Chicago, Illinois 60606
Fleet Financial Group, Inc...................................... 1,603,032 1,603,032
One Federal Street
Boston, MA 02110
<CAPTION>
PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER CLASS
- ---------------------------------------------------------------- -----------
<S> <C>
Robert L. Zerga - NQSOs......................................... *
ALL CURRENT DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (15
PERSONS)(7)
1988-A Series.................................................
1989-A Series.................................................
1989-B Series.................................................
1990-A Series.................................................
1990-C Series.................................................
1991-B Series.................................................
1992-A Series.................................................
1993-A Series.................................................
1994-A Series.................................................
NQSOs......................................................... 3.5%
5% BENEFICIAL HOLDERS (8):
FMR Corp........................................................ 14.9%
82 Devonshire Street
Boston, MA 02109
John A. Levin & Co. ............................................ 6.2%
One Rockefeller Plaza, 25th Floor
New York, NY 10020 and
Baker Fentress & Company
200 West Madison Street
Chicago, Illinois 60606
Fleet Financial Group, Inc...................................... 6.0%
One Federal Street
Boston, MA 02110
</TABLE>
- ------------------------------
* Represents less than one percent of class.
(1) Numbers represent shares of Common Stock of the Company underlying the
Convertible Subordinated Debentures and NQSOs beneficially owned by the
Directors and Named Executive Officers that are exercisable within 60 days
of December 31, 1997. Since more than the six months has elapsed from date
of grant, the Debentures are immediately convertible into the specified
number of shares of Convertible Preferred Stock of the same series and then
immediately convertible into the specified number of shares of Common Stock
of the Company.
(2) In connection with the Shareholder Rights Plan amended and restated on
December 31, 1996, Rights have been issued (and will be issued for any newly
outstanding Common Stock) to the outstanding shares of Common Stock of the
Company. The Rights may be exercised only after the earlier of 10 days after
a person becomes (or the directors have knowledge of someone becoming) and
Acquiring Person and 10 days after commencement of a public announcement of
a tender or exchange offer if, upon its consummation, the offeror would
beneficially own 15% or more of the Common Stock. An "Acquiring Person" was
defined to be a person who holds at least 15% of the shares of Common Stock
without the prior approval of a majority of the outside directors of the
Board. In the event someone becomes an Acquiring Person, each holder of
Rights (except the Acquiring Person, whose Rights are voided) has the right
to purchase one one-thousandth of a Series A Junior Participating Preferred
Stock ("Preferred Stock") or, in lieu of shares of Preferred Stock, to
receive a number of shares of Common Stock specified by formula at 50% of
the market price the shares of Common Stock. The Rights, which do not have
voting rights, expire in December 2006 and may be redeemed by the Company at
a price of $0.01 per Right prior to a specified period of time after the
occurrence of certain events. The Company may also exchange all of the
outstanding Rights for shares of Common Stock at a ratio of one share of
Common Stock per Right (as adjusted), any time after the first time someone
becomes an Acquiring Person. If, following an acquisition of 15% or more of
the shares of Common Stock, the Company is acquired in a merger or other
business combination or sells 50% of its assets or earnings power, each
Right (other than Rights voided as above) will entitle its holder to
purchase a number of shares specified by formula of the acquiring company
with a value of twice the then current exercise price.
64
<PAGE>
(3) A mailing address for Messrs. Drexel, Horton, Ingersoll, Miller, Nanna,
Racich, Robson, Russell, Summerford, Thompson, Williams, Winters and Zerga
is c/o Getchell Gold Corporation, 5460 S. Quebec Street, Suite 240,
Englewood, Colorado 80111.
(4) Included are 500 shares owned by Mrs. Horton, of which Mr. Horton has no
voting and investment power and disclaims beneficial ownership.
(5) Included are 333 shares owned by Mrs. Miller, of which Mr. Miller has no
voting and investment power and disclaims beneficial ownership.
(6) Includes 43,747 shares held by the Jean Pittman Williams Revocable Trust, of
which Mr. Williams' wife is trustee and of which Mr. Williams disclaims
beneficial ownership and has no voting or investment power; and 116,895
shares held by JKW Holdings, Inc. of which Mr. Williams has shared voting
and investment power.
(7) Except as otherwise indicated in these notes, the shares beneficially owned
by the persons indicated in the table represent sole voting and investment
power.
(8) Based on a Schedule 13G filed by the investor with the Securities and
Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company currently has a $160,000 interest-free bridge loan to Mr. R.
David Russell, Vice President and Chief Operating Officer, representing an
approximation of the equity value of a residence in northern California. Such
amount is due upon the sale of Mr. Russell's residence in northern California.
65
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND SCHEDULES
The Financial Statements which are filed with this Form 10-K are set forth
in the Index to Financial Statements at page 30, which immediately precedes such
financial statements. No schedules are required under the applicable
instructions or are inapplicable and have therefore been omitted.
EXHIBITS
The following exhibits are, as indicated below, either filed herewith or
have previously been filed with the Commission and are referred to and
incorporated herein by reference to such filings.
<TABLE>
<S> <C>
3 (a)-- Certificate of Incorporation. Incorporated by reference to Appendix D to the
Company's definitive Proxy Statement dated May 3, 1996.
3 (b)-- Bylaws of the Company, as amended. Incorporated by reference to Appendix E to the
Company's definitive Proxy Statement dated May 3, 1996.
3 (c)-- Amendment to the Company's Certificate of Incorporation.
4 (c)-- Company Resoulutions authorizing the 1988-A Series Convertible Preferred Stock,
effective July 13, 1988. Incorporated by reference to Exhibit 4(c) to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1988.
4 (d)-- Company Resolutions authorizing the 1989-A Series Convertible Preferred Stock,
effective August 9, 1989. Incorporated by reference to Exhibit 4(f) to the
Company's Annual Report on Form 10-K for the year ended June 30, 1989.
4 (e)-- Company Resolutions authorizing the 1989-B Series Convertible Preferred Stock,
effective November 2, 1989. Incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1989.
4 (f)-- Company Resolutions authorizing the 1990-A Series Convertible Preferred Stock,
effective August 8, 1990. Incorporated by reference to Exhibit 4(f) to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1990.
4 (g)-- Company Resolutions authorizing the Company's 1990-B and 1990-C Series
Convertible Preferred Stock, effective November 1, 1990 and November 2, 1990,
respectively. August 14, 1991. Incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990.
4 (h)-- Company Resolutions authorizing the 1991-A Series Convertible Preferred Stock,
effective August 14, 1991. Incorporated by reference to Exhibit 4(h) to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1991.
4 (i)-- Company Resolutions authorizing the 1991-B Series Convertible Preferred Stock,
effective November 7, 1991. Incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1991.
4 (j)-- Company Resolutions authorizing the 1992-A Series Convertible Preferred Stock,
effective November 5, 1992. Incorporated by reference to Exhibit 4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1992.
4 (k)-- Company Resolutions authorizing the 1993-A Series Convertible Preferred Stock,
effective November 4, 1993. Incorporated by reference to Exhibit 4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993.
4 (l)-- Amended and Restated Rights Agreement between the Company and Harris Trust &
Savings Bank, dated as of December 31, 1996.
10 (a)-- The Company's Amended and Restated Long-Term Incentive Plan, as amended November
14, 1992. Incorporated by reference to Exhibit 10(i) to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1993.
</TABLE>
66
<PAGE>
<TABLE>
<S> <C>
10 (b)-- Mine Operating Contract between FMG Inc. and N.A. Degerstrom, Inc. dated July 1,
1991. Incorporated by reference to Exhibit 10(aa) to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1991.
10 (c)-- Oxygen Supply Agreement, dated August 27, 1987, and Air Rights Lease Agreement,
dated as of August 27, 1987. Incorporated by reference to Exhibit 10(j) to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1989.
10 (d)-- Promissory Note by the Company in favor of ChemFirst dated February 1, 1995.
Incorporated by reference to Exhibit 10(ee) to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995.
10 (e)-- Restricted Stock Award Agreement between the Company and G.W. Thompson dated
August 22, 1994. Incorporated by reference to Exhibit 10(ff) to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1995.
10 (f)-- Post Spin-Off Agreement dated as of September 24, 1995, by and between ChemFirst
and the Company. Incorporated by reference to 10(a) to the Company's Report on
Form 8-K dated September 24, 1995.
10 (g)-- Tax Ruling Agreement dated as of September 24, 1995, by and between ChemFirst and
the Company. Incorporated by reference to Exhibit 10(b) to the Company's Report
on Form 8-K dated September 24, 1995.
10 (h)-- Amended Tax Sharing Agreement dated as of September 24, 1995, by and between
ChemFirst and the Company. Incorporated by reference to Exhibit 10(d) to the
Company's Report on Form 8-K dated September 24, 1995.
10 (i)-- Turquoise Ridge Shaft No. 1 Construction contract between Thyssen Mining and the
Company dated January 2, 1996. Incorporated by reference to Exhibit 10(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
10 (j)-- Turquoise Ridge Shaft No. 2 Construction contract between Thyssen Mining and the
Company dated May 1, 1996. Incorporated by reference to Exhibit 10(b) to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
10 (k)-- 1996 Stock Option Plan for Outside Directors. Incorporated by reference to
Exhibit 4(a) to the Company's Registration Statement on Form S-8 dated February
19, 1997.
10 (l)-- 1996 Long Term Equity Incentive Plan. Incorporated by reference to Exhibit 4(b)
to the Company's Registration Statement on Form S-8 dated February 19, 1997.
10 (m)-- Form of Termination Agreement between the Company and Richard F. Nanna.
Incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997.
10 (n)-- Form of Termination Agreement between the Company and G.W. Thompson, Donald S.
Robson, R. David Russell and Donald O. Miller (Company's Termination Agreement
with each such individual contains identical provisions to those contained in the
form). Incorporated by reference to Exhibit 10(b) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997.
10 (o)-- Loan Agreement dated as of September 5, 1997, by and between CIBC, Inc. and the
Company. Incorporated by reference to Exhibit 10(c) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997.
21. List of subsidiaries of the Company.
23.A Consent of KPMG Peat Marwick LLP.
27. Financial Data Schedule.
</TABLE>
REPORTS ON FORM 8-K
None
67
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
GETCHELL GOLD CORPORATION
Date: February 23, 1998 By: /s/ G.W. THOMPSON
-----------------------------------------
G.W. Thompson, PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President and Chief
/s/ G.W. THOMPSON Executive Officer
- ------------------------------ (Principal Executive February 23, 1998
G. W. Thompson Officer) and Director
Vice President and Chief
/s/ DONALD S. ROBSON Financial Officer
- ------------------------------ (Principal Financial February 23, 1998
Donald S. Robson Officer)
/s/ ROGER D. PALMER
- ------------------------------ Controller (Principal February 23, 1998
Roger D. Palmer Accounting Officer)
/s/ J. KELLEY WILLIAMS
- ------------------------------ Director and Chairman of February 23, 1998
J. Kelley Williams the Board of Directors
/s/ WALTER A. DREXEL
- ------------------------------ Director February 23, 1998
Walter A. Drexel
/s/ ROBERT C. HORTON
- ------------------------------ Director February 23, 1998
Robert C. Horton
/s/ PETE INGERSOLL
- ------------------------------ Director February 23, 1998
Pete Ingersoll
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ JOHN RACICH
- ------------------------------ Director February 23, 1998
John Racich
/s/ CHARLIE E. STOTT, JR.
- ------------------------------ Director February 23, 1998
Charlie E. Stott, Jr.
/s/ R. MICHAEL SUMMERFORD
- ------------------------------ Director February 23, 1998
R. Michael Summerford
/s/ AL WINTERS
- ------------------------------ Director February 23, 1998
Al Winters
/s/ ROBERT L. ZERGA
- ------------------------------ Director February 23, 1998
Robert L. Zerga
</TABLE>
69
<PAGE>
EXHIBIT 3(C)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
GETCHELL GOLD CORPORATION
GETCHELL GOLD CORPORATION, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
1. The name of the corporation (hereinafter called the "Corporation") is
Getchell Gold Corporation.
2. The certificate of incorporation of the Corporation is hereby amended by
striking out Article IV, Section 1 thereof and by substituting in lieu of said
Article IV, Section 1 the following new Article IV, Section 1:
(1) Shares, Classes and Series Authorized.
The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is 110,000,000 shares. Stockholders
shall not have any preemptive rights, nor shall stockholders have the right to
cumulative voting in the election of directors or for any other purpose. The
classes and the aggregate number of shares of stock of each class which the
Corporation shall have authority to issue are as follows:
A. 100,000,000 shares of Common Stock, $0.0001 par value ("Common
Stock").
B. 10,000,000 shares of Preferred Stock, $0.0001 par value ("Preferred
Stock").
3. The amendment of the certificate of incorporation herein certified has
been duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Getchell Gold Corporation, has caused this certificate
to be signed by G.W. Thompson, its President and Chief Executive Officer, and
Donald S. Robson, its Vice President, Chief Financial Officer and Secretary,
this 28 day of May, 1997.
<TABLE>
<S> <C>
By: /s/ G.W. THOMPSON
----------------------------------------------
G.W. Thompson
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ATTEST: /s/ D. S. ROBSON
----------------------------------------------
Donald S. Robson
VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND
SECRETARY
</TABLE>
<PAGE>
EXHIBIT 23(A)
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Getchell Gold Corporation:
We consent to incorporation by reference in the registration statements (Nos.
33-62449 and 333-30241) on Form S-3 and (Nos. 33-80335, 33-24401, 33-24414,
33-31226, 33-32572, 33-37085, 33-39067, 33-43602, 33-45342, 33-56046, 33-57761,
33-74020, and 333-22005) on Form S-8 of Getchell Gold Corporation of our report
dated February 12, 1998, relating to the consolidated balance sheets of Getchell
Gold Corporation and subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flow for the years ended December 31, 1997 and 1996, the six months ended
December 31, 1995 and the year ended June 30, 1995, which report appears in the
December 31, 1997 annual report on Form 10-K of Getchell Gold Corporation.
KPMG PEAT MARWICK LLP
Denver, Colorado
February 20, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 34,247
<SECURITIES> 0
<RECEIVABLES> 2,233
<ALLOWANCES> 0
<INVENTORY> 12,746
<CURRENT-ASSETS> 50,034
<PP&E> 282,134
<DEPRECIATION> 93,892
<TOTAL-ASSETS> 238,487
<CURRENT-LIABILITIES> 19,448
<BONDS> 31
0
0
<COMMON> 3
<OTHER-SE> 179,892
<TOTAL-LIABILITY-AND-EQUITY> 238,487
<SALES> 64,797
<TOTAL-REVENUES> 64,797
<CGS> 86,320
<TOTAL-COSTS> 86,320
<OTHER-EXPENSES> 2,997
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 839
<INCOME-PRETAX> (25,359)
<INCOME-TAX> (5,932)
<INCOME-CONTINUING> (19,427)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,427)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> (0.73)
</TABLE>
