<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
September 30, 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
incorporation or organization) Identification No.)
22 Church St.
Hamilton HE 11 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 November 7, 1997 was
12,360,803.
<PAGE>
NORD PACIFIC LIMITED
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION:
ITEM 1. Condensed Consolidated Financial Statements:
Balance Sheets - September 30, 1997
and December 31, 1996 2-3
Statements of Operations - Quarters
ended September 30, 1997 and 1996 and
Three Quarters ended September 30, 1997
and 1996 4
Statements of Cash Flows - Three
Quarters ended September 30, 1997 and
1996 5
Notes to Condensed Consolidated Financial
Statements 6-10
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11-12
PART II. OTHER INFORMATION:
ITEM 1-3. Not Applicable 13
ITEM 4. Submission of Matters to a Vote of Security Holders 13
ITEM 5. Not Applicable 13
ITEM 6. Exhibits and Reports on Form 8-K 13
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NORD PACIFIC LIMITED
BALANCE SHEETS
ASSETS
(In Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,215 $ 439
Accounts receivable:
Trade 1,952 1,868
Affiliates 40 21
Other 87 43
------------- ------------
2,079 1,932
Inventories:
Copper 131 131
Supplies 168 195
------------- ------------
299 326
Forward currency exchange contracts 76
Premium on copper contracts 807 1,193
Prepaid expenses 98 96
------------- ------------
TOTAL CURRENT ASSETS 10,498 4,062
FORWARD CURRENCY EXCHANGE CONTRACTS 18
PREMIUM ON COPPER CONTRACTS 144 311
DEFERRED COSTS ASSOCIATED WITH ORE UNDER
LEACH, net of accumulated amortization of $10,756
in 1997 and $8,569 in 1996 8,809 7,897
PROPERTY, PLANT AND EQUIPMENT -
at cost less accumulated depreciation of $5,259 in
1997 and $4,450 in 1996 4,953 5,411
DEFERRED EXPLORATION AND DEVELOPMENT
COSTS: Girilambone, net of accumulated amortization
of $1,729 in 1997 and $1,199 in 1996 4,419 4,471
Other projects 22,969 17,307
OTHER 128 264
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$ 51,920 $ 39,741
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------------- ------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
NORD PACIFIC LIMITED
BALANCE SHEETS
LIABILITIES AND
SHAREHOLDERS' EQUITY
(In Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable:
Trade $ 1,124 $ 1,595
Affiliates 339 276
------------- ------------
1,463 1,871
Note payable - Nord Resources Corporation 947
Accrued expenses 893 1,067
Income taxes payable 1,200
Deferred gain on copper contracts 283 1,565
Payable on copper contracts 615
Forward currency exchange contracts 922
Current maturities of long-term debt 1,700 1,700
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TOTAL CURRENT LIABILITIES 7,076 7,150
LONG-TERM LIABILITIES:
Long-term debt 2,332 3,334
Payable on copper contracts 144 311
Deferred income tax liability 4,440 3,740
Obligation under purchase agreement 726 795
Retirement benefits 228 202
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7,870 8,382
SHAREHOLDERS' EQUITY:
Common stock 617 476
Additional paid-in capital 44,047 31,467
Accumulated deficit (8,488) (8,532)
Foreign currency translation adjustment 798 798
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36,974 24,209
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$ 51,920 $ 39,741
------------- ------------
------------- ------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
NORD PACIFIC LIMITED
STATEMENTS OF OPERATIONS
(In Thousands of U.S. Dollars, except share and per share amounts)
<TABLE>
<CAPTION>
QUARTER ENDED THREE QUARTERS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
------- ------- ------- -------
SALES $ 4,401 $ 4,362 $12,526 $11,441
COSTS AND EXPENSES:
Cost of sales 2,307 2,491 6,540 6,745
Abandoned projects (93) 303 113
General and administrative 815 904 2,938 2,672
------- ------- ------- -------
TOTAL COSTS AND EXPENSES 3,029 3,395 9,781 9,530
------- ------- ------- -------
OPERATING EARNINGS 1,372 967 2,745 1,911
OTHER INCOME (EXPENSE):
Interest and other income 131 20 198 116
Interest and debt issuance costs (115) (83) (439) (325)
Forward currency exchange
contracts gain (loss) (474) 24 (1,053) 403
Copper contracts gain (loss) (101) (113) 281 (378)
Foreign currency transaction
gain (loss) 124 (46) 212 (68)
------- ------- ------- -------
TOTAL OTHER INCOME (EXPENSE) (435) (198) (801) (252)
------- ------- ------- -------
EARNINGS BEFORE INCOME TAXES 937 769 1,944 1,659
PROVISION FOR INCOME TAXES (500) (485) (1,900) (1,320)
------- ------- ------- -------
NET EARNINGS $ 437 $ 284 $ 44 $ 339
------- ------- ------- -------
------- ------- ------- -------
NET EARNINGS PER COMMON
AND COMMON EQUIVALENT
SHARE $ .04 $ .03 $ -- $ .03
------- ------- ------- -------
------- ------- ------- -------
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES
(In thousands) 12,418 10,141 10,844 10,034
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
NORD PACIFIC LIMITED
STATEMENTS OF CASH FLOWS
(In Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
THREE QUARTERS ENDED
SEPTEMBER 30,
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 44 $ 339
Adjustment for non-cash items except
depreciation and amortization (365) (296)
Depreciation and amortization 3,483 3,378
---------- ----------
Net cash provided by operating activities 3,162 3,421
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (385) (714)
Deferred exploration and development costs (6,463) (6,263)
---------- ----------
Net cash (used in) investing activities (6,848) (6,977)
CASH FLOWS FROM FINANCING ACTIVITIES:
Canadian common stock offering proceeds 12,300
Costs associated with Canadian common stock offering (1,332)
Addition to long-term debt 3,071
Payments of long-term debt (4,073) (1,185)
Restricted cash 1,080
Net borrowings - Nord Resources Corporation 259
Stock option activity 183 87
---------- ----------
Net cash provided by (used in) financing activities 10,408 (18)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 54 77
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 6,776 (3,497)
CASH AND CASH EQUIVALENTS - beginning of period 439 3,656
---------- ----------
CASH AND CASH EQUIVALENTS - end of period $ 7,215 $ 159
---------- ----------
---------- ----------
CASH PAID FOR INTEREST $ 421 $ 271
---------- ----------
---------- ----------
NON-CASH TRANSACTIONS:
Purchase of Derivative Financial Instruments $ 448
----------
----------
Conversion of Advances Due to Nord Resources
Corporation into Common Stock $ 1,748
----------
----------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
NORD PACIFIC LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED SEPTEMBER 30, 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
three quarters of 1997 are not necessarily indicative of the results that may
be expected for the entire year.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements
and requires reporting of selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. SFAS No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997. The Company
has not yet determined the effect of SFAS No. 131 on its financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which will require disclosure in the financial statements of all the changes
in equity during a period from transactions and other events and
circumstances from non-owner sources. Items included in comprehensive income
will include separate classification of items based upon their nature. SFAS
No. 130 is effective for financial statements for fiscal years beginning
after December 15, 1997. The adoption of SFAS No. 130 has no effect on the
Company's financial statements for the periods ended September 30, 1997 and
1996.
In February 1997, the Financial Accounting Standards 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. The adoption of SFAS No. 128 is not expected to
have a material effect on the Company's financial statements for the third
quarter and first three quarters of 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.
6
<PAGE>
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.
The provision for deferred income taxes represents estimated taxes due on 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.
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>
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- -------------
(In Thousands of U.S. Dollars)
<S> <C> <C>
Current assets $ 2,701 $ 2,260
Deferred costs associated with ore under leach, net 19,953 18,648
Property, plant and equipment, net 11,103 12,494
Deferred exploration and development costs, net 12,558 13,688
-------------- -------------
Total assets 46,315 47,090
Current liabilities 3,443 3,412
-------------- -------------
Partners' equity $ 42,872 $ 43,678
-------------- -------------
-------------- -------------
Company's share of equity $ 18,567 $ 18,535
Less: Eliminations (1,608) (1,671)
-------------- -------------
Net assets recorded by Company $ 16,959 $ 16,864
-------------- -------------
-------------- -------------
</TABLE>
7
<PAGE>
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:
<TABLE>
<CAPTION>
QUARTER ENDED THREE QUARTERS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------- ------- -------- --------
(In Thousands of U.S. Dollars)
<S> <C> <C> <C> <C>
Cost of copper sales $ 5,686 $ 5,972 $ 16,041 $ 16,607
General and administrative expense $ 116 $ 279 $ 359 $ 407
</TABLE>
D. INDEBTEDNESS
In February 1997, the Company finalized the restructuring of its financing
agreement with the Girilambone lender. The restructuring provided additional
financing of $980,000, 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, which was borrowed in May 1997. The debt outstanding at September
30, 1997, was $4,032,000. The agreement also contains certain debt coverage
ratio requirements.
During the period the loan is outstanding, the Company is maintaining 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. Beginning in
July, subsequent to the closing of the Canadian Offering (as defined below),
the Company is maintaining this account at $1,000,000.
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. Under the terms of the financing
agreement with the Girilambone lender, the Company is required to maintain a
minimum of twelve months copper hedging program at a minimum of $.90 per
pound and a hedging program for the Company's A$ operating expenses for the
following twelve month period.
COPPER AGREEMENTS
To mitigate the effect of price changes on substantially all of its expected
copper sales through December 31, 1998, the Company has entered into both
swap and call option agreements for 1997 and put options for all of 1998.
8
<PAGE>
The Company has outstanding both swap and call option agreements with a
single counterparty on a total of 3.3 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, if any, (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 put
options at a cost of $.05 per pound of copper for 4.0 million pounds of
copper maturing ratably each month from April through June 1998. In June
1997, the Company purchased additional put options at a cost of $.03 per
pound of copper for 4.0 million pounds of copper maturing ratable each month
from July through September 1998, and at a cost of $.04 per pound of copper
for 4.0 million pounds of copper maturing ratably each month from October
through December 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 three quarters ended September 30, 1997, include losses of
$556,000 that were realized in settlement of copper hedging contracts
compared to a gain of $635,000 in the first three quarters 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 September 30, 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 ("RESOURCES")
In October 1996, Resources agreed to make available to the Company, at
Resources' discretion, an operating loan payable on demand and bearing
interest at the prime rate plus 1%. At December 31, 1996, the Company owed
Resources advances of $947,000. During the first three quarters of 1997,
Resources advanced the Company an additional $2,800,745, net of repayments,
bringing the total indebtedness to $3,747,745. The indebtedness was totally
repaid prior to September 30, 1997, as follows. In July and August 1997, the
Company repaid $2,000,000 in cash. Concurrent with the closing of the
Company's Canadian Offering (Note G) on July 3, 1997, Resources, which
previously owned 35% of the outstanding Common Stock of the Company,
purchased 349,549 Units in a private placement at $5.00 per Unit (as defined
below), or $1,747,745. Resources now owns 30% of the outstanding Common
Shares of the Company.
9
<PAGE>
G. CANADIAN OFFERING
On July 3, 1997, the Company completed the closing of its offering in Canada
("Canadian Offering"). The Company received gross proceeds of $12,300,000
(C$16,974,000). Net proceeds totalled $10,968,000 (C$15,150,000) after
payment of commissions and certain legal fees. The Canadian Offering
consisted of the sale of 2,460,000 Units consisting of one Common Share and
one-half of one Purchase Warrant ("The Purchase Warrant"). Each Purchase
Warrant entitles the holder to purchase one Common Share at C$9.00 ($6.52 at
current exchange rate) prior to July 3, 1998.
H. DIFFERENCE BETWEEN U.S. AND CANADIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES.
The condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
("U.S. GAAP"), which differ in certain respects from accounting principles
generally accepted in Canada ("Canadian GAAP"). The Company noted only one
material difference as it pertains to these condensed consolidated financial
statements. U.S. GAAP under SFAS No. 123 requires options issued to
non-employees to be valued and a corresponding expense recorded in the
financial statements. Canadian GAAP has no similar requirement. The net
result of this difference is that under Canadian GAAP, earnings before income
taxes and net earnings would be increased for the three quarters ended
September 30, 1997, by $80,000 and general and administrative expense would
be reduced by the same amount.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Nord Pacific Limited (the "Company") recorded net earnings for the three
quarters ended September 30, 1997 of $44,000 compared to net earnings of
$339,000 for the same period of 1996. The Company recorded an increase of
44% in operating earnings, recognizing $2,745,000 for the three quarters
ended September 30, 1997, compared to $1,911,000 for the same period of 1996.
The significant increase in operating earnings was largely due to increased
production and sales. The Company's share of copper sold in the first three
quarters of 1997 totaled 11,794,000 pounds compared to 10,097,000 pounds sold
in the same period in 1996. Copper production increased 14% during the first
three quarters of 1997 compared to the 1996 first three quarters due to the
introduction of heap aeration into the production process. During 1997, the
Company received, prior to the effects of its hedging programs, $1.09 per
pound of copper sold compared to $1.07 per pound received in 1996. The
copper hedging programs established by the Company resulted in a decrease in
sales of $556,000 in 1997 and an increase in sales of $635,000 in 1996.
Including the impact of the copper hedging programs, the Company realized a
net average selling price per pound of $1.06 in 1997 compared to $1.13 in
1996. Cost of sales per pound of copper declined to $.55 in 1997 compared to
$.67 in 1996, and cost of sales as a percentage of sales decreased to 52% in
1997 compared to 59% in 1996, due to increased production and efficiencies
resulting from the introduction of heap aeration into the production process.
While cost of sales amounts are currently low due to level of reserves at
the current pit, costs will increase as mining increases at the Girilambone
North pits. Adversely affecting operating earnings in the first three
quarters of 1997 was the write-off of an abandoned property of $303,000 in
Mexico. Also affecting operating earnings was a 10% increase in general and
administrative expense, due to an increase in exploration expense of the
Company, increased public relations costs, and a nonrecurring tax expense
relating to tax on intercompany interest. The Company recorded a gain of
$281,000 in the first three quarters of 1997 on marking its copper contracts
to market compared to a loss of $378,000 in the same period of 1996. A loss
of $1,053,000 on forward exchange contracts was recorded in 1997 compared to
a gain of $403,000 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 U.S. currency
compared to the Australian currency. During the first three quarters of
1997, the Australian dollar weakened compared to the U.S. dollar, while it
strengthened in the first three quarters of 1996.
Adversely affecting net earnings in the 1997 first three quarters was a
provision for income taxes of $1,900,000 compared to $1,320,000 in the 1996
first three quarters 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.
The Company recorded net earnings of $437,000 during the third quarter of
1997 compared to net earnings of $284,000 during the same period in 1996.
Operating earnings during the third quarter increased 42% from $967,000 in
the third quarter of 1996 to $1,372,000 in the third quarter of 1997. The
Company's share of copper sold in the third quarter of 1997 totaled 4,282,000
pounds compared to 3,977,000 pounds in the third quarter of 1996. During the
third quarter of 1997, the Company received, prior to the effect of its
hedging programs, $1.03 per pound of copper sold compared to $.92 per pound
of copper sold in the third quarter of 1996. The copper hedging programs
established by the Company resulted in a decrease in sales of $29,000 in the
third quarter of 1997 compared to an increase in sales of $685,000 in the
third quarter of 1996. Including the impact of the copper hedging programs,
the Company realized a net average selling price per pound of $1.06 in 1997
and $1.10 in 1996. Cost of sales per pound of copper declined to $.54 in the
third quarter of 1997 compared to $.63 in the third quarter of 1996, and cost
of sales as a percentage of sales decreased to 52% in the third quarter of
1997 compared to 57% in the third quarter of 1996. Also contributing to
increased operating earnings was a slight decrease in general and
administrative expenses due
11
<PAGE>
to cost cutting measures implemented by the Company. The Company recorded a
loss of $101,000 in the third quarter of 1997 on marking its copper contracts
to market compared to $113,000 in the third quarter of 1996. Adversely
affecting net earnings was the $474,000 loss on forward currency exchange
contracts in the third quarter of 1997 which was caused by weakening of the
Australian dollar in relation to the U.S. dollar, compared to a gain of
$24,000 in the same period of 1996. Also reducing net earnings for the 1997
third quarter was the $500,000 provision for income taxes compared to
$485,000 in the 1996 third quarter.
LIQUIDITY AND CAPITAL RESOURCES
Cash at September 30, 1997 was $7,215,000 compared to $439,000 at December
31, 1996. Cash of $3,162,000 was provided during the three quarters ended
September 30, 1997, by the Company's operating activities. During the first
three quarters of 1997, the Company expended cash to fund exploration and
development activity totaling $6,463,000, of which $1,794,000 related to
properties near Girilambone, $3,245,000 related to the Tabar gold project,
$663,000 on the Ramu Nickel/Cobalt project with the remaining $761,000
expended for other projects. The Company expended $3,100,000 for its share
of deferred costs associated with ore under leach at Girilambone. The
Company borrowed $3,071,000 from two lenders and made $3,193,000 in principal
payments under the Girilambone financing agreement, and paid $880,000 against
a general credit line.
In October 1996, Resources agreed to make available to the Company, at
Resources' discretion, an operating loan payable on demand and bearing
interest at the prime rate plus 1%. At December 31, 1996, the Company owed
Resources advances of $947,000. During the first three quarters of 1997,
Resources advanced the Company an additional $2,800,745, net of repayments,
bringing the total indebtedness to $3,747,745. The indebtedness was totally
repaid prior to September 30, 1997, as follows. In July and August 1997, the
Company repaid $2,000,000 in cash. Concurrent with the closing of the
Company's Canadian Offering (Note G) on July 3, 1997, Resources, which
previously owned 35% of the outstanding Common Stock of the Company,
purchased 349,549 Units in a private placement at $5.00 per Unit (as defined
below), or $1,747,745. Resources now owns 30% of the outstanding Common
Shares of the Company.
On July 3, 1997, the Company completed the closing of its offering in Canada
("Canadian Offering"). The Company received gross proceeds of $12,300,000
(C$16,974,000). Net proceeds totaled $10,968,000 (C$15,150,000) after
payment of commissions and certain legal fees. The Canadian Offering
consisted of the sale of 2,460,000 Units consisting of one Common Share and
one-half of one Purchase Warrant ("The Purchase Warrant"). Each Purchase
Warrant entitles the holder to purchase one Common Share at C$9.00 ($6.52 at
current exchange rate) prior to July 3, 1998.
In April 1997, the Girilambone lender approved an additional drawing of
$2,000,000 under the restructured financing agreement. Proceeds were used
for exploration and working capital needs of the Company. No additional
line of credit is currently available under this financing agreement.
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 seek external
sources of financing to fund development of these resources.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1-5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No Reports on Form 8-K were filed during the quarter ended
September 30, 1997.
EXHIBIT 27. FINANCIAL DATA SCHEDULE - filed herewith as part of
this Report on Form 10-Q.
13
<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
November 11, 1997 By:s/Terence H. Lang
------------------
Terence H. Lang,
Treasurer, Principal
Financial Officer and
Authorized Officer
<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 SEPTEMBER 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
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