SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-17480
CROWN RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
Washington 84-1097086
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1675 Broadway, Suite 2400, Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303)
534-1030
Indicate by checkmark whether the registrant (1) has filed
all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements
for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Shares outstanding as of May 8, 2000: 14,553,302 shares of
common stock, $0.01 par value.
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements. . . . . . . . . . .3
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . .7
PART II - OTHER INFORMATION
Item 1 Legal Proceedings. . . . . . . . . . . . . . . . . . 10
Item 2 Changes in Securities. . . . . . . . . . . . . . . . 12
Item 3 Defaults Upon Senior Securities. . . . . . . . . . . 12
Item 4 Submission of Matters to a Vote
of Security Holders. . . . . . . . . . . . . . . . 12
Item 5 Other Information. . . . . . . . . . . . . . . . . . 12
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
CROWN RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except per share amounts)
<CAPTION>
March 31, December 31,
2000 1999
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,127 $5,174
Short-term investments 87 87
Prepaid expenses and other 71 114
Total current assets 4,285 5,375
Mineral properties, net 16,759 16,772
Other assets:
Debt issuance costs, net 145 170
Marketable equity securities 304 103
Other 309 289
Total other assets 758 562
$21,802 $22,709
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 210 $ 205
Other 81 289
Total current liabilities 291 494
Long term liabilities:
Convertible debentures 15,000 15,000
Minority interest in consolidated
subsidiary 1,118 1,235
Stockholders' equity:
Preferred stock, $0.01 par value - -
Common stock, $0.01 par value 146 145
Additional paid-in capital 34,827 34,803
Accumulated deficit (29,650) (28,837)
Unrealized gain (loss) on marketable
equity securities 70 (131)
Total stockholders' equity 5,393 5,980
$21,802 $22,709
</TABLE>
See Notes to Consolidated Financial Statements.
<TABLE>
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three months ended
(in thousands, except per March 31,
share amounts) 2000 1999
(restated)
<S> <C> <C>
Revenues:
Mineral property option proceeds $ 100 $ 100
Royalty income 32 20
Interest income 58 91
190 211
Costs and expenses:
Exploration expense 418 267
Depreciation, depletion and amortization 16 19
General and administrative 392 425
Interest expense 243 243
Abandonment and impairment of mining
claims and leases 59 -
Other, net (8) 8
1,120 962
Loss before minority interest (930) (751)
Minority interest in loss of subsidiary 117 20
Net loss $ (813) $ (731)
Basic and diluted net loss per common
and common equivalent share $(0.06) $(0.05)
Weighted average number of common and
common equivalent shares outstanding 14,551 14,532
</TABLE>
See Notes to Consolidated Financial Statements.
<TABLE>
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three months ended March 31,
(in thousands) 2000 1999
(restated)
<S> <C> <C>
Operating activities:
Net loss $ (813) $ (731)
Adjustments:
Depreciation, depletion & amortization 41 44 Abandonment of mining
claims
and leases 59 -
Common stock issued for services 25 24
(Gain) Loss on asset sales (6) 5
Minority interest (117) (20)
Changes in operating assets and liabilities:
Prepaid expenses and other 43 25
Accounts payable and other
current liabilities (203) (248)
Net cash used in operating activities (971) (901)
Investing activities:
Additions to mineral properties (46) (55)
Proceeds from asset sales 6 22
Increase in other assets (36) (61)
Net cash used in investing activities (76) (94)
Net decrease in cash and cash equivalents (1,047) (995)
Cash and cash equivalents, beginning of period 5,174 8,136
Cash and cash equivalents, end of period $ 4,127 $ 7,141
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest $ 432 $ 432
</TABLE>
See Notes to Consolidated Financial Statements.
CROWN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The accompanying consolidated financial statements of Crown
Resources Corporation ("Crown" or the "Company") for the three
months ended March 31, 2000 and 1999 are unaudited, but in the
opinion of management, include all adjustments, consisting only
of
normal recurring items, necessary for a fair presentation.
Interim
results are not necessarily indicative of results which may be
achieved in the future.
These financial statements should be read in conjunction with
the financial statements and notes thereto which are included in
Crown's Annual Report on Form 10-K for the year ended December
31,
1999. The accounting policies set forth in those annual
financial
statements are the same as the accounting policies utilized in
the
preparation of these financial statements, except as modified for
appropriate interim financial statement presentation.
During the fourth quarter of 1999, Crown changed its method
of
accounting for exploration costs on properties without proven and
probable reserves from capitalizing all expenditures to expensing
all costs, other than acquisition costs, prior to the
establishment
of proven and probable reserves. The change was applied
retroactively to January 1, 1999. This brings Crown's accounting
method in accordance with the predominant practice in the U.S.
mining industry. The $8.5 million cumulative effect of the
change
has been included in the 1999 prior year loss and is reflected in
retained earnings. The balances for the 1999 first quarter
interim
statements have been restated to reflect the change in accounting
principle as follows (unaudited):
<TABLE>
<CAPTION>
Quarter ended March 31,
1999 1999
previously
reported restated
Consolidated statement of operations:
<S> <C> <C>
Revenue $ 111 $ 211
Costs and expenses $ 695 $ 962
Minority interest $ 3 $ 20
Net loss $ (581) $ (731)
Basic and diluted net loss per
common equivalent share $(0.04) $(0.05)
Consolidated statement of cash flows:
Net loss $ (581) $ (731)
Net cash used in operating activities $ (734) $ (901)
Net cash used in investing activities $ (261) $ ( 94)
</TABLE>
2. COMPREHENSIVE INCOME
<TABLE>
The following represents Comprehensive loss and its
components:
<CAPTION>
Three months ended March 31,
2000 1999
<S> <C> <C>
Net loss $(813) $(731)
Unrealized gain (loss) on
marketable equity securities 201 (45)
Comprehensive loss $(612) $(776)
</TABLE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The following discussion relates to the restated interim
amounts for 1999 as a result of the change in accounting
principle
to expense exploration costs as discussed in Note 1 to the
consolidated financial statements of this report.
Crown had a net loss of $813,000 or $0.06 per share, for the
first quarter of 2000 compared with a loss of $731,000, or $0.05
per share, for the first quarter of 1999. The larger loss was
primarily related to increased exploration in Mexico during the
first quarter of 2000.
Total revenues for the first quarter of 2000 were $190,000
compared with $211,000 for first quarter 1999. Although Crown
received higher royalty revenues compared to the prior year from
the Kettle River mine in Washington, this was offset by lower
interest income during 2000 due to lower cash balances.
Crown's South American operations are conducted by Solitario
Resources Corporation, its 57.2 percent-owned subsidiary.
Solitario recorded $100,000 in mineral option proceeds during
the
first quarter of 2000, the same amount as received in 1999, from
Cominco, Ltd. related to its joint venture of the Bongara zinc
project in Peru.
General and administrative expenses for the first quarter of
2000 were $392,000 compared with $425,000 for the same period
last
year. The decrease was primarily due to reduced administrative
staff and travel and during 2000 compared to the prior year.
Interest expense of $243,000 for first quarter 2000 was the same
as
in the year earlier quarter.
During the first quarter of 2000, Crown recorded property
abandonments of $59,000, relating to the San Juan de Minas
property
in Mexico. There were no abandonments in the prior year quarter.
Liquidity and Capital Resources
During the quarter ended March 31, 2000, Crown spent $46,000
for mineral property acquisition costs compared to $55,000 in the
first quarter of 1999.
Working capital at March 31, 2000 decreased to $3,994,000
from
$4,881,000 at December 31, 1999. Cash and cash equivalents at
March 31, 2000 were $4,127,000, including $2,099,000 held in
Solitario.
On April 26, 2000 Solitario completed a transaction with an
affiliate of Newmont Mining Corporation ("Newmont") and sold its
interest in its Yanacocha property for $6 million and a sliding
scale net smelter return ("NSR") royalty that varies with the
price
of gold. In order to effect the transaction, Solitario
transferred
all of the operating assets and liabilities, excluding its
interest
in Yanacocha, of its Peru operating subsidiary, Minera Los
Tapados
("MLT"), to a new operating subsidiary, Minera Solitario Peru.
Newmont received all of the outstanding shares of MLT for cash
consideration of $5.6 million. The balance of the $6 million
payment, $400,000, is being held in a reserve by Newmont pending
release of certain contingent liabilities. As part of the
agreement, Newmont will be required to deliver the NSR royalty
to
Solitario within 120 days.
Crown expects to spend approximately $1,405,000 in 2000 on
its
exploration programs, including $900,000 to be spent by
Solitario.
Existing funds and projected sources of funds are believed to be
sufficient to finance planned activities for the current year.
Crown will need to raise additional capital or restructure its
existing obligations to meet its required debt repayments,
including the payment of its $15,000,000 convertible debentures,
due August 2001. The long-term funding and operating results of
Crown continue to be largely dependent on the permitting and
successful commencement of commercial production at the Crown
Jewel
project (the "Project").
Crown Jewel Project Permitting
The Project is in the permitting phase, with work currently
underway to obtain the permits necessary to construct and operate
the mine. Many of the proposed facilities at the Project are to
be
located on unpatented lode mining claims and millsite claims.
The
validity of the claims, or obtaining some other rights from the
federal government, is a prerequisite to the construction of the
facilities.
In January 2000, the State of Washington Pollution Control
Hearings Board ("PCHB") issued a ruling vacating the previously
granted 401 Water Quality Permit for the Crown Jewel Project
issued
by the Washington Department of Ecology ("WDOE"). The ruling
also
reversed certain water rights issued by the WDOE for the Crown
Jewel Project. On March 14, 2000, Battle Mountain Gold
Company("Battle Mountain" or "BMG"), Crown's joint venture
partner
that is earning a 54% interest in the project, filed an appeal in
Superior Court for the State of Washington for Okanogan County,
challenging the PCHB ruling. A hearing date has not yet been set
in the appeal. Nonetheless, the PCHB ruling creates further delay
and uncertainty regarding a timetable for the construction of the
project. See Legal Proceedings elsewhere in this report.
As a result of the PCHB ruling, on February 4, 2000, Battle
Mountain announced it was writing off its entire investment in
the
Crown Jewel Project as of December 31, 1999, and reclassifying
the
proven and probable reserves to mineralized materials. Because
Crown is the holder of 100% of the Crown Jewel project, subject
to
Battle Mountain's potential earn-in, and that the basis and
economics of Crown's interest is materially different than Battle
Mountain's interest, Crown engaged Mine Reserves Associates
("MRA")
to conduct an independent analysis of its Crown Jewel project
reserves in February and March 2000. Per the MRA report, Crown
is
reporting proven and probable reserves of 2,556,000 tons at a
grade
of 0.354 for a total of 905,000 contained ounces. The MRA design
would use the bulk of the waste rock material from mine design
for
tailings dam construction and to backfill the underground mining
areas, in order to increase the recoverable underground ounces.
As part of the analysis of the Crown Jewel reserves
subsequent
to the January 2000 PCHB ruling, Crown retained Gochnour and
Associates ("Gochnour"), an independent mining environmental
consultant, to review the required permits for the mine design as
proposed in the MRA report. Gochnour indicated the MRA design
would require conducting additional baseline studies and
collecting
data for modeling to amend previously approved permits as well as
to obtain permits for activities that were not previously
contemplated, for example the underground mining effects on
ground
water. Gochnour indicated the underground alternative will also
require mitigation of environmental impacts. The Gochnour report
concludes the MRA mine design is legally permittable. Although
Crown and Gochnour are not aware of any laws or regulations which
would be violated by the mine design proposed by MRA, there will
continue to be uncertainty regarding the ability of Crown
obtaining
the necessary permits from the regulatory authorities in a timely
manner, if ever.
There are no assurances that required permits will be issued
in a timely fashion, that Crown or Battle Mountain will prevail
in
current or future legal actions or that conditions contained in
permits issued by the agencies will not be so onerous as to
preclude construction or operation of the project.
Market Risk
As of March 31, 2000, there have been no material changes in
the market risks to which Crown is exposed as disclosed in the
Annual Report on Form 10-K for the year ended December 31, 1999.
Safe Harbor
The information set forth in this report includes "forward-
looking" statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934, and is subject to the safe harbor created by those
sections. Factors that could cause results to differ materially
from those projected in the forward-looking statements include,
but
are not limited to, the timing of receipt of necessary
governmental
permits, the market price of gold, results of current exploration
activities and other risk factors detailed in Crown's Annual
Report
on form 10K for the year ended December 31, 1999.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In March 1997, administrative appeals of the ROD for the
Final
Environmental Impact Statement ("FEIS") for the Crown Jewel
Project
were filed against the United States Forest Service, ("USFS") by
members of the following parties: (i) a joint appeal by the
Okanogan Highlands Alliance, Washington Environmental Council,
Colville Indian Environmental Protection Alliance, Washington
Wilderness Coalition, Rivers Council of Washington, and Sierra
Club, Cascade Chapter; (ii) Confederated Tribes of the Colville
Reservation; (iii) Columbia River Bioregional Education Project;
and (iv) Kettle Range Conservation Group; (all groups
collectively
the "Plaintiffs"). The appeals were denied in May 1997.
Pollution Control Hearings Board
Since the fourth quarter of 1997, members of the Plaintiffs,
and others filed a total of seven actions (PCHB Nos. 97-146, 97-
182, 97-183, 97-185, 97-186, 98-019 and 99-019) against the
Washington Department of Ecology ("WDOE") before the Pollution
Control Hearings Board ("PCHB"), a state administrative tribunal,
challenging the FEIS and certain permit decisions. Although the
PCHB dismissed or ruled in favor of the WDOE on three of the
actions (PCHB 97-146, 97-185 and 98-019), after a consolidated
hearing on the remaining actions, in January of 2000, the PCHB
issued a ruling vacating the previously granted 401 Water Quality
Permit for the Crown Jewel Project issued by WDOE. The ruling
also
reversed certain water rights issued by the WDOE for the Crown
Jewel Project. On March 14, 2000, Battle Mountain filed an
appeal
in Superior Court of the State of Washington for Okanogan County
challenging the PCHB ruling. A hearing date has not been set in
the appeal.
United States Ninth Circuit Court of Appeals
In late May 1997, members of the Plaintiffs filed an action
in
United States District Court for the District of Oregon against
the
USFS appealing the Forest Service's issuance of the FEIS, its
decision to uphold the ROD and the denial of administrative
appeals. On December 31, 1999 the Court affirmed the decisions
of
the USFS on the adequacy of the FEIS by granting all motions for
summary judgement on behalf of the USFS and Battle Mountain,
while
denying all motions of the Plaintiffs. Members of the Plaintiffs
appealed of the decision to the Ninth Circuit Court of Appeals in
April 1999. Briefs have been filed in the appeal, however, no
hearing date has been set in the appeal.
Thurston County Superior Court
In December of 1997, the members of the Plaintiffs filed
three
separate actions against the WDOE in Superior Court of the State
of
Washington for Thurston County. The actions challenge the WDOE's
approval of permits issued to Battle Mountain for water resource
mitigation and solid waste permit rulings. In April 1998,
members
of the Plaintiffs dismissed one of the three actions related to
the
tailings and solid waste permits without prejudice. In November
1998, the remaining two actions were consolidated. The case is
currently pending and no trial date has been set.
The impact and timing of resolutions of these and any other
appeals related to the permitting process cannot be determined
with
any accuracy at this time.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: The exhibits as indexed on page 14 of this Report
are included as a part of this Form 10-Q.
(b) Reports on Form 8-K:
On January 25, 2000 a report on form 8-K regarding a ruling
by
the Pollution Control Hearings Board vacating the previously
granted 401 Water Quality Permit for the Crown Jewel Project
and the reversal of certain water rights issued for the Crown
Jewel Project.
Exhibit Number Description
27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CROWN RESOURCES CORPORATION
May 15 2000 By: /s/ James R. Maronick
Date James R. Maronick
Vice President - Finance
Principal Financial and
Accounting Officer)
INDEX TO EXHIBITS
Exhibit
Number Description Page No.
27 Financial Data Schedule . . 15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,127
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,285
<PP&E> 18,379
<DEPRECIATION> 1,158
<TOTAL-ASSETS> 21,802
<CURRENT-LIABILITIES> 290
<BONDS> 15,000
0
0
<COMMON> 34,973
<OTHER-SE> (29,580)
<TOTAL-LIABILITY-AND-EQUITY> 21,802
<SALES> 190
<TOTAL-REVENUES> 190
<CGS> 0
<TOTAL-COSTS> 877
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 243
<INCOME-PRETAX> (930)
<INCOME-TAX> 0
<INCOME-CONTINUING> (930)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (813)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
