<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 1997
- --------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-19182
---------
Nord Pacific Limited
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Bermuda Not Applicable
- ----------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
22 Church St.
Hamilton HM11 Bermuda N/A
- ----------------------------------------- ---------
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code (441) 292-2363
--------------
Not Applicable
- -------------------------------------------------------------------------------
(Former name, former address, and former fiscal
year, if changed since last report)
Indicated 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 twelve 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
----- -----
The number of shares of Common Stock outstanding as of May 9, 1997 was
9,515,654.
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NORD PACIFIC LIMITED
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION:
ITEM 1. Condensed Consolidated Financial Statements:
Balance Sheets - March 31, 1997
and December 31, 1996 2-3
Statements of Operations - Quarters
ended March 31, 1997 and 1996 4
Statements of Cash Flows - 5
Quarters ended March 31, 1997 and
1996
Notes to Condensed Consolidated Financial 6-9
Statements
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10-11
PART II. OTHER INFORMATION:
ITEM 3. Not Applicable 12
ITEM 4. Submission of Matters to a Vote of Security Holders 12
ITEM 5. Not Applicable 12
ITEM 6. Exhibits and Reports on Form 8-K 12
1
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NORD PACIFIC LIMITED
BALANCE SHEETS
ASSETS
(In Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 439 $ 439
Accounts receivable:
Trade 1,602 1,868
Affiliates 54 21
Other 55 43
--------- ------------
1,711 1,932
Inventories:
Copper 260 131
Supplies 162 195
--------- ------------
422 326
Forward currency exchange contracts 76
Premium on copper contracts 547 1,193
Prepaid expenses 40 96
--------- ------------
TOTAL CURRENT ASSETS 3,159 4,062
FORWARD CURRENCY EXCHANGE CONTRACTS 18
PREMIUM ON COPPER CONTRACTS 198 311
DEFERRED COSTS ASSOCIATED WITH ORE UNDER
LEACH, net of accumulated amortization of $9,227 in 1997
and $8,569 in 1996 8,198 7,897
PROPERTY, PLANT AND EQUIPMENT -
at cost less accumulated depreciation of $4,689 in 1997 5,321 5,411
and $4,450 in 1996
DEFERRED EXPLORATION AND DEVELOPMENT COSTS:
Girilambone, net of accumulated amortization of $1,420 in 1997
and $1,199 in 1996 4,353 4,471
Other projects 18,564 17,307
OTHER 628 264
--------- ------------
$ 40,421 $ 39,741
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--------- ------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2
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NORD PACIFIC LIMITED
BALANCE SHEETS
LIABILITIES AND
SHAREHOLDERS' EQUITY
(In Thousands of U.S. Dollars)
MARCH 31, DECEMBER 31,
1997 1996
------------- ------------
CURRENT LIABILITIES:
Accounts payable:
Trade $ 1,350 $ 1,595
Affiliates 408 276
------------- ------------
1,758 1,871
Note payable - Nord Resources Corporation 2,609 947
Accrued expenses 1,446 1,067
Deferred gain on copper contracts 61 1,565
Payable on copper contracts 625
Forward currency exchange contracts 79
Current maturities of long-term debt 1,700 1,700
------------- ------------
TOTAL CURRENT LIABILITIES 8,278 7,150
LONG-TERM LIABILITIES:
Long-term debt 2,335 3,334
Payable on copper contracts 198 311
Deferred income tax liability 4,440 3,740
Obligation under purchase agreement 786 795
Retirement benefits 218 202
------------- ------------
7,977 8,382
SHAREHOLDERS' EQUITY:
Common stock 476 476
Additional paid-in capital 31,467 31,467
Accumulated deficit (8,575) (8,532)
Foreign currency translation adjustment 798 798
------------- ------------
24,166 24,209
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$ 40,421 $ 39,741
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------------- ------------
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
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NORD PACIFIC LIMITED
STATEMENTS OF OPERATIONS
(In Thousands of U.S. Dollars, except share and per share amounts)
QUARTER ENDED
MARCH 31,
--------------------
1997 1996
---- ----
SALES $ 3,936 $ 3,210
COSTS AND EXPENSES:
Cost of sales 1,987 1,961
Abandoned projects 197 101
General and administrative 1,077 898
--------- ---------
TOTAL COSTS AND EXPENSES 3,261 2,960
--------- ---------
OPERATING EARNINGS 675 250
OTHER INCOME (EXPENSE):
Interest and other income 37 65
Interest and debt issuance costs (148) (142)
Forward currency exchange contracts gain (loss) (170) 384
Copper contracts gain (loss) 232 (301)
Foreign currency transaction gain (loss) 31 (43)
--------- ---------
TOTAL OTHER INCOME (EXPENSE) (18) (37)
--------- ---------
EARNINGS BEFORE INCOME TAXES 657 213
PROVISION FOR INCOME TAXES 700 300
--------- ---------
NET (LOSS) $ (43) $ (87)
--------- ---------
--------- ---------
NET (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE $ - $ (.01)
--------- ---------
--------- ---------
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES (In thousands) 9,516 9,492
--------- ---------
--------- ---------
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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NORD PACIFIC LIMITED
STATEMENTS OF CASH FLOWS
(In Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (43) $ (87)
Adjustment for non-cash items
except depreciation and amortization 323 (458)
Depreciation and amortization 1,041 902
---------- ----------
Net cash provided by operating activities 1,321 357
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (165) (381)
Deferred exploration and development costs (1,492) (1,850)
---------- ----------
Net cash (used in) investing activities (1,657) (3,090)
CASH FLOWS FROM FINANCING ACTIVITIES:
Addition to long-term debt 1,071
Payments of long-term debt (2,070) (1,185)
Restricted cash 80
Net borrowings - Nord Resources Corporation 1,662
Costs associated with potential Canadian
offering of common stock (336)
---------- ----------
Net cash provided by (used in) financing activities 327 (1,105)
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS 9 33
---------- ----------
(DECREASE) IN CASH AND CASH
EQUIVALENTS - (2,946)
CASH AND CASH EQUIVALENTS -
beginning of period 439 3,656
---------- ----------
CASH AND CASH EQUIVALENTS - end of period $ 439 $ 710
---------- ----------
---------- ----------
CASH PAID FOR INTEREST $ 108 $ 104
---------- ----------
---------- ----------
NON-CASH TRANSACTION:
Purchase of Derivative Financial Instruments $ 198
----------
----------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
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NORD PACIFIC LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED MARCH 31, 1997 AND 1996
A. FINANCIAL STATEMENTS
The balance sheet at December 31, 1996 contains financial information taken
from the audited consolidated financial statements. The interim consolidated
financial statements are unaudited. In the opinion of management, all
adjustments, which consist of normal recurring adjustments, necessary to
present fairly the financial position and results of operations for the
interim periods presented have been made. The results shown for the first
quarter of 1997 are not necessarily indicative of the results that may be
expected for the entire year.
In February 1997, the Financial Accounting Standard Board issued SFAS No.
128, "Earnings Per Share," which is effective for the Company at December 31,
1997. SFAS No. 128 establishes standards for computing and presenting
earnings per share. It replaces the presentation of primary earnings per
share with a presentation of basic earnings per share. It also requires dual
presentation of basic and diluted earnings per share for entities with
complex capital structures. As the Company incurred a loss in the first
quarter of 1997 and 1996, the adoption of SFAS No. 128 will have no effect on
the Company's financial statements for the period ended March 31, 1997 and
1996.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
Certain reclassifications have been made in the 1996 financial statements to
conform to the classification used in 1997. These reclassifications had no
effect on results of operations or shareholders' equity as previously
reported.
B. TAXATION
Under current Bermuda law, the Company is not required to pay any taxes in
Bermuda on either income or capital gains. The Company has received an
undertaking from the Minister of Finance in Bermuda that in the event of any
such taxes being imposed, the Company will be exempted from taxation until
the year 2016. Although the Company is not subject to income taxes, it has
subsidiaries which are subject to income taxes in their respective foreign
countries.
A provision for deferred income taxes of $700,000 has been recorded in the
first quarter of 1997 resulting from the profitable operations of the
Girilambone Copper Property in Australia. The effective tax rate differs
from the statutory tax rate primarily because losses in other countries
cannot be used to offset taxable earnings in Australia.
6
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C. GIRILAMBONE
The Company is a 40% joint venturer in the Girilambone Copper Property and a
50% joint venturer in the Girilambone North Copper Property (collectively
"Girilambone") in Australia. All costs incurred during mine development have
been capitalized and are being amortized using the units of production method
over the estimated reserves. Following is summarized combined balance sheet
information of 100% of Girilambone:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- -------------
<S> <C> <C>
Current assets $ 2,023 $ 2,260
Deferred costs associated with ore under leach, net 19,167 18,648
Property, plant and equipment, net 12,057 12,494
Deferred exploration and development costs, net 13,365 13,688
----------- -------------
Total assets 46,612 47,090
Current liabilities 3,027 3,412
----------- -------------
Partners' equity $ 43,585 $ 43,678
----------- -------------
----------- -------------
Company's share of equity $ 18,558 $ 18,535
Less: Eliminations (1,652) (1,671)
----------- -------------
Net assets recorded by Company $ 16,906 $ 16,864
----------- -------------
----------- -------------
</TABLE>
Debt incurred related to Girilambone is the separate responsibility of each
venturer and is not included in the joint ventures' financial statements.
Copper production is distributed to each venturer based on its respective
ownership interest. Sale of copper is the responsibility of each venturer.
Cost and expense information related to operation of the mine is as follows:
QUARTER ENDED
MARCH 31,
-----------------------
1997 1996
---- ----
(In Thousands of U.S. Dollars)
Cost of copper sales $ 4,843 $ 4,902
General and administrative expense $ 125 $ 63
7
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D. INDEBTEDNESS
In February 1997, the Company finalized the restructuring of its financing
agreement with the Girilambone lender. The restructuring provides additional
financing of $980,000, increases the amount of financing available to
$5,225,000, and bears interest at Singapore Interbank Offered Rates ("SIBOR")
plus 1-1/2%. Principal payments are to be made quarterly at the greater of
$425,000 or 50% of available cash flow. The amount available of $980,000 was
borrowed in February 1997 and the funds were used to repay a loan payable
previously outstanding. In April 1997, the Girilambone lender approved an
additional drawing of $2,000,000 under the restructured financing agreement.
The agreement also contains certain debt coverage ratio requirements.
During the period the loan is outstanding, the Company is required to
maintain a reserve account with the lender sufficient to meet the next
quarterly principal repayment. All cash proceeds generated from Girilambone
operations are required to be deposited with the lender and must be used to
pay any project costs, bank fees, interest, principal, and funding required
in the reserve account before any cash is available to the Company. The
Company is now required to maintain this account at $400,000 for the first
month of each calendar quarter and $800,000 at the end of the second month of
each calendar quarter.
E. FINANCIAL INSTRUMENTS
The Company utilizes certain financial instruments, primarily copper hedging
agreements and forward currency exchange contracts. These financial
instruments are utilized to reduce the risk associated with the volatility of
commodity prices and fluctuations in foreign currency exchange rates,
particularly the Australian dollar. The Company does not hold or issue
financial instruments for trading purposes.
COPPER AGREEMENTS
To mitigate the effect of price changes on substantially all of its expected
copper sales through June 30, 1998, the Company has entered into both swap
and call option agreements for 1997 and put options for the first two
quarters of 1998.
The Company has outstanding both swap and call option agreements with a
single counterparty on a total of 9.9 million pounds of copper which settle
ratably each month through December 31, 1997. The swap agreements lock in a
fixed forward price as a floor, with the purchase of call options above the
floor permitting the Company to benefit from an increase in copper price
above the call price. The copper swap agreements are designated as hedges up
to the level of anticipated copper sales, with gains and losses deferred and
reflected as a component of sales when each contract settles. The swap
agreements with contract amounts in excess of the anticipated copper sales
and call options do not qualify as hedges and are recorded at market.
Under this combination swap and call option arrangement, at the settlement
date for each copper contract during 1997, the Company will receive $1.02 per
pound plus the excess of market price (as determined by the London Metals
Exchange) over $1.11 per pound.
In November 1996, the Company purchased put options at a cost of $.08 per
pound of copper for 4.0 million pounds of copper maturing ratably each month
from January through March 1998. In April 1997, the Company purchased
additional put options at a cost of $.05 per pound of copper for 4.0 million
pounds of
8
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copper maturing ratably each month from April through June 1998. This
hedging program guarantees that the Company will receive a minimum of $.90
per pound of copper, and will benefit from any copper price above $.90 per
pound. The premiums are payable upon the expiration of each contract.
Sales for the quarter ended March 31, 1997, include losses of $256,000 that
were realized in settlement of copper hedging contracts. No gain or loss was
recorded in the first quarter of 1996.
FORWARD CURRENCY EXCHANGE CONTRACTS
The Company has entered into forward exchange contracts to protect against
Australian currency fluctuations related to payment of a portion of the
expected operating costs of Girilambone. Realized and unrealized gains and
losses on these contracts are included in the results of operations.
Outstanding contracts at March 31, 1997, total $12 million and mature in
monthly installments of $800,000 at an average exchange rate of A$1.00 =
U.S.$.786.
The Company is exposed to copper price fluctuations and currency risks in the
event of nonperformance by the counterparties to the various agreements
described above but has no off balance sheet risk of accounting loss. The
Company anticipates, however, that the counterparties will be able to fully
satisfy their obligations under the agreements. The Company does not obtain
collateral or other security to support financial instruments subject to
credit risk.
F. NORD RESOURCES CORPORATION
Nord Resources Corporation ("Resources") owns approximately 35% of the
outstanding common stock of the Company. In October 1996, Resources agreed
to make available to the Company, at Resources' discretion, an operating loan
payable upon demand and bearing interest at the prime rate plus 1%.
Resources had the option to convert any or all of the unpaid principal into
shares of common stock of the Company. The conversion price would have
equaled the average of the high and low sales price of the Company's common
stock on March 31, 1997. Resources elected not to convert its loan into
common stock of the Company. The amount owed to Resources under the
operating loan at March 31, 1997, was $2,609,000.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Nord Pacific Limited (the "Company") recorded a net loss for the quarter
ended March 31, 1997 of $43,000 compared to a net loss of $87,000 for the
same period of 1996. The Company recorded operating earnings of $675,000 for
the quarter ended March 31, 1997, compared to $250,000 for the same period of
1996. The Company's share of copper sold in the first quarter of 1997
totaled 3,735,000 pounds compared to 2,733,000 pounds sold in the same period
in 1996. Copper production increased 38% during the first quarter of 1997
compared to the 1996 first quarter due to the introduction of heap aeration
into the production process. During 1997, the Company received $1.12 per
pound of copper sold compared to $1.17 per pound received in 1996. The
copper hedging programs established by the Company resulted in a decrease in
sales of $256,000 in 1997 and had no effect on 1996 revenue. Including the
impact of the copper hedging programs, the Company realized a net average
selling price per pound of $1.05 in 1997 compared to $1.17 in 1996. Cost of
sales per pound of copper declined to $.53 in 1997 compared to $.72 in 1996,
and cost of sales as a percentage of sales decreased to 50% in 1997 compared
to 61% in 1996, due to increased production and efficiencies resulting from
the introduction of heap aeration into the production process. Adversely
affecting operating earnings in the first quarter of 1997 was the write-off
of an abandoned property of $197,000. Also contributing to lower operating
earnings was a 20% increase in general and administrative expense, largely
due to a $70,000 nonrecurring tax expense relating to withholding on
intercompany interest. The Company recorded a gain of $232,000 in the first
quarter of 1997 on marking its copper contracts to market compared to a loss
of $301,000 in the same period of 1996. A loss of $170,000 on forward
exchange contracts was recorded in 1997 compared to a gain of $384,000 in
1996. Fluctuations in gains and losses in the forward currency exchange
contracts and in foreign currency transactions are primarily a result of
changes in the relative strength of the Australian currency compared to U.S.
currency. During the first quarter of 1997, the Australian dollar weakened
compared to the U.S. dollar, while it strengthened in the first quarter of
1996.
Adversely affecting net earnings in the 1997 first quarter was a provision of
income taxes of $700,000 compared to $300,000 in the 1996 first quarter due
to the increase in operating earnings at Girilambone. The effective tax rate
differs from the statutory tax rate primarily because losses in other
countries cannot be used to offset taxable earnings in Australia.
LIQUIDITY AND CAPITAL RESOURCES
Cash of $1,321,000 was provided during the quarter ended March 31, 1997, by
the Company's operating activities. During the first quarter of 1997, the
Company expended cash to fund exploration and development activity totaling
$1,492,000, of which $469,000 related to properties near Girilambone and
$613,000 related to the Tabar gold project with the remaining $410,000
expended for other projects. The Company expended $959,000 for its share of
deferred costs associated with ore under leach at Girilambone. The Company
borrowed $1,071,000 from two lenders and expended $1,190,000 for principal
payments under the Girilambone financing agreement, and paid $880,000 against
a general credit line. Cash at March 31, 1997 was the same as at December 31,
1996.
10
<PAGE>
In October 1996, Nord Resources Corporation ("Resources") agreed to make
available to the Company, at Resources' discretion, an operating loan payable
upon demand which bears interest at the prime rate plus 1%. The amount owed
to Resources under the operating loan at March 31, 1997, was $2,609,000.
The Company is continuing to pursue the offering of its common stock in
Canada. The offering is currently subject to several conditions, including a
review of the prospectus by the regulatory authorities in Canada; listing of
the Company's common stock on the Toronto Stock Exchange; shareholder
approval for elimination of the time limit to complete the offering; and
market conditions in Canada. There can be no assurance that the Canadian
offering will be completed. Should the Canadian offering not proceed,
expenditures on major exploration projects would have to be curtailed until
suitable alternative funding could be obtained.
In April 1997, the Girilambone lender approved an additional drawing of
$2,000,000 under the restructured financing agreement. Proceeds will be used
for exploration and working capital needs of the Company.
The Company is in the exploration phase of all its projects except
Girilambone. Additional efforts on all exploration projects will be required
to determine the extent to which they will be commercially viable and whether
the deferred exploration costs ultimately will be realized. If commercially
viable resources are identified, the Company will likely have to seek
external sources of financing to fund development of these resources.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1-3. NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special General Meeting of the stockholders was held on February 17,
1997. The following matters were acted upon and passed at the meeting:
1. Approval of the sale of up to 4,500,000 shares of Common Stock in the
Proposed Canadian Offering.
2. Approval of a five (5) for one (1) Reverse Stock Split.
3. Approval of delisting the Company's Common Stock from the Australian
Stock Exchange Limited.
BROKER
VOTE TABULATION FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
1. CANADIAN OFFERING 6,090,810 68,443 1,728
2. REVERSE STOCK SPLIT 6,077,335 75,807 1,728
3. DELISTING FROM AUSTRALIA 6,024,982 112,763 1,728
STOCK EXCHANGE
ITEM 5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No Reports on Form 8-K were filed during the quarter ended March
31, 1997.
EXHIBIT 27. FINANCIAL DATA SCHEDULE - filed herewith as part of
this Report on Form 10-Q.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORD PACIFIC LIMITED
May 13, 1997 By: /s/Terence H. Lang
-------------------
Terence H. Lang,
Treasurer, Principal
Financial Officer and
Authorized Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORD PACIFIC
LIMITED FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 439
<SECURITIES> 0
<RECEIVABLES> 1,602
<ALLOWANCES> 0
<INVENTORY> 422
<CURRENT-ASSETS> 3,159
<PP&E> 10,010
<DEPRECIATION> 4,689
<TOTAL-ASSETS> 40,421
<CURRENT-LIABILITIES> 8,278
<BONDS> 0
0
0
<COMMON> 476
<OTHER-SE> 23,690
<TOTAL-LIABILITY-AND-EQUITY> 40,421
<SALES> 3,936
<TOTAL-REVENUES> 3,936
<CGS> 1,987
<TOTAL-COSTS> 1,987
<OTHER-EXPENSES> 197
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 148
<INCOME-PRETAX> 657
<INCOME-TAX> 700
<INCOME-CONTINUING> (43)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
