<PAGE>
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
For the transition period from _________ to ________
Commission file Number 000-19182
NORD PACIFIC LIMITED
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(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 Street,
Hamilton HM FX, Bermuda Not Applicable
- ----------------------- ---------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (441) 292-2363
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.05 Par Value
---------------------------
(Title of Class)
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 voting stock held by non-affiliates based on the
average of NASDAQ bid and asked quotations as of March 20, 1998, was
$26,154,495.
The number of common shares outstanding as of March 20, 1998 was 12,925,203.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement to be dated on or about April 30, 1998.
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ITEMS 1 AND 2. BUSINESS AND PROPERTIES
General
Nord Pacific Limited (the "Company"), is engaged in the production of
copper and in the exploration for gold, copper, nickel, cobalt and other
minerals in Australia, Papua New Guinea ("PNG") and North America. As used
herein the term "Company", unless the context indicates otherwise, includes all
subsidiaries.
The Company currently owns a 40% interest in the Girilambone Copper Mine
which has been in production since May 1993, a 50% interest in the Girilambone
North Copper Mines which have been in production since July 1996, a 50% interest
in the Tritton Copper Project, a 100% interest in the Tabar Islands Gold
Project, which is in the pre-development and exploration stages, a 35% interest
in the Ramu Nickel-Cobalt Project, which is in the pre-development stage, and
various interests in other exploration properties.
An independent technical review of the Company's mining and exploration
properties, dated February 24, 1997, was prepared by Watts, Griffis and McOuat
Consulting Geologists and Engineers, of Toronto, Canada, in connection with a
public equity issue in Canada completed in July 1997. Certain information
contained in this report has been derived from that technical review.
Unless indicated otherwise, all amounts are presented in U.S. dollars.
Girilambone and Girilambone North Copper Mines, New South Wales, Australia
The Girilambone project consists of three separate joint ventures with
Straits Mining Pty Limited ("Straits Mining"), formerly Straits Resources Pty
Ltd., an Australian company. The Company has 40% and 50% interests in two
mining joint ventures and a 50% interest in an exploration joint venture.
Mining operations are managed jointly by the Company and Straits Mining.
Construction of the Girilambone Copper Mine was completed in May 1993.
Total capital costs including working capital were approximately $30 million.
The mine was originally expected to produce approximately 14,000 metric tonnes
("tonnes" = approximately 2,205 pounds to a tonne) or approximately 31 million
pounds of high purity copper each year for six years from inception.
Subsequently, additional orebodies were discovered at Girilambone North, and the
reserves re-calculated, providing for a total project life of 8 years at higher
production rates, as described below. The Girilambone copper mine involves open
pit mining of oxide and chalcocite ores followed by crushing and stacking on
leach pads and solvent extraction-electrowinning ("SX-EW") processing.
In 1994, a Stage 1 plant upgrade was undertaken by the Company, which
allowed the processing of greater volumes of heap leach solutions to provide
more flexibility in achieving production goals. In 1995, the Company undertook
a Stage 2 plant expansion. The expansion increased electrowinning capacity by
15% which allowed the Company to take advantage of seasonally higher grade leach
solutions, and justified the construction of a third leach pad with its
associated services. The water supply was also expanded.
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In June 1996, following successful field tests, forced aeration of heaps
containing chalcocite, the main copper sulfide ore, was introduced resulting in
a significant increase in the rate of copper leaching. Largely in consequence
of heap aeration, copper production at Girilambone has increased significantly
and since mid-1996 the plant operated at a capacity in excess of 17,000 tonnes
per annum (37,500,000 pounds) of copper. The heap aeration has overcome the
negative effects of low winter temperatures on heap leaching operations,
resulting in significantly improved productivity.
Mining activities ceased at Girilambone's Murrawombie pit in July 1997 due
to the exhaustion of ore reserves. Ore mined from Murrawombie has been stacked
on heaps for leaching. Copper will continue to be derived from these heaps over
the next year.
Mining activities by the Girilambone North Mining Joint Venture commenced
at the northern pits in May 1996. To date, limited mining of oxide copper ore
has been conducted from the North East and Hartmans Pits. Pre-stripping is
continuing at Hartmans Pit and is scheduled to begin at Larsens Pit in May 1998.
The mines produce high purity cathode copper from open pits using heap
leaching and the SX-EW process. The mine is managed by a joint venture owned by
the Company and Straits Mining.
Copper production from both Girilambone and Girilambone North in 1997, at
17,702 tonnes (39 million pounds), was 8.7% greater than in 1996, and 38.5%
greater than in 1995. In 1998 the copper production level is forecast to remain
approximately the same as that achieved in 1997. Total copper production from
both projects through December 31, 1997 was 64,861 tonnes.
Total proven and probable reserves of ore in all pits not yet mined and
placed on pads as of December 31, 1997 were estimated by the joint venturers to
be 4,519,000 tonnes of ore grading 0.84% copper containing approximately 38,117
tonnes of copper metal.
In addition, the heaps are estimated to contain 39,650 tonnes of copper.
Stockpiles contain an additional 2,941 tonnes of copper.
The total copper in ore, heaps and stockpiles at December 31, 1997 is
estimated to be 80,708 tonnes (178 million pounds), supporting operations for a
further three to four years at the higher production rates achieved as a
consequence of aeration and improved heap leach management practices, after
allowance for metallurgical recoveries.
In addition to copper ores, material containing low grade gold
mineralization has been mined and is being stockpiled separately for possible
processing at a later date. The low grade stockpiles contained approximately
10,750 ounces of gold at December 31, 1997.
Girilambone Exploration
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The Company has a 50% interest in exploration licenses covering
approximately 3,300 square kilometers surrounding the Girilambone and
Girilambone North mines and beneath the Girilambone open pit. The Company is
the manager of the exploration joint venture.
Exploration for the prime target of leachable copper deposits has continued
throughout the tenements with the objective of the discovery of additional
reserves for treatment through the existing SX-EW treatment plant at
Girilambone.
The secondary exploration target is primary copper (chalcopyrite)
mineralization, and the program has been successful in locating two massive
sulfide bodies containing chalcopyrite mineralization comprising the Tritton
deposit, about 14 miles southwest of the Girilambone mine. A new treatment
plant would be required to treat the ore if the deposit is developed.
The copper resource at Tritton has been calculated at 10.23 million tonnes
at a grade of 3.00% copper, containing 307,000 tonnes of copper metal, at depths
of from 200 meters to 1,000 meters below the surface. The mineralization is
still open at that depth. The identified resource also contains 75,000 ounces
of gold and 3.9 million ounces of silver. A detailed feasibility study on this
project commenced in late 1997 and is scheduled for completion in mid 1998.
The Tabar Islands Gold Project
The Tabar Islands are located in PNG approximately 80 km (kilometers)
northwest of Lihir Island, the site of a major gold deposit operated by
Rio Tinto LTD ("Rio Tinto"), and approximately 150 km north of Rabaul. The
four islands, which make up the Tabar Islands, are Simberi, Tabar, Tatau and
Mapua Islands.
In the past 15 years, approximately $30 million has been spent by the
Company and its former co-venturers on exploration of the islands. A total of
21 prospects have been identified, of which four, all located on Simberi Island,
have been substantially drill tested and are estimated to contain resources in
the oxide zone of approximately 444,000 ounces of gold at 0.5 gram/tonne cut-off
grade.
A feasibility study on the development of the oxide resources was completed
in 1996. However, the economics of the project are marginal on the previously
identified minable gold reserves of 217,800 ounces at the current projected gold
price. Accordingly, development was deferred and exploration efforts continued
in 1997. Revised resource estimates will be completed in mid 1998. In December
1996, the Company was granted a general Mining Lease over these deposits.
A major exploration and drilling program was completed in 1997 aimed
primarily at sulfide gold deposits on Simberi, and gold/copper targets on Tatau
and Tabar Islands.
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Exploration was also conducted on the near surface oxide mineralization on
Simberi Island. This program was successful in identifying additional gold
resources, however, new resource calculations were not yet completed at the time
of this report.
The Ramu Nickel-Cobalt Project
Ramu is located on mainland PNG, 80 km southwest of the port of Madang.
The exploration license is held in joint venture with Highlands Pacific
Limited ("HPL") (a company formed following the Placer Dome takeover of
Highlands Gold Limited in 1997), which holds a 65% interest and is the
manager. The Company holds a 35% interest.
HPL, as operator of the project, pursued a program of reserve drilling,
metallurgical testwork, engineering studies and preparation of a pre-feasibility
study (the "Study") which was completed in mid-1996.
The Study indicated that the Ramu Project could become one of the
lowest cost nickel producing properties in the world. Unit total operating
costs when full production levels are reached were estimated to be approximately
$1.39 per pound of nickel produced. After cobalt credits, based on a cobalt
price of $8.00 per pound, these operating costs would be reduced to $0.67 per
pound of nickel. Capital costs for development were estimated to be $763.7
million.
The Study assumed a mine life of 20 years, although it is expected that
this will be significantly extended upon completion of additional resource
drilling. The Study projected annual production of 32,670 tonnes (72 million
pounds) of nickel and 2,770 tonnes (6.1 million pounds) of cobalt, generating an
annual, average, after tax cash flow of $150 million (at a nickel price of
$3.50/lb and cobalt price of $8.00/lb) over its assumed 20 year life.
In 1997, the joint venture commenced the preparation of a full scale
Feasibility Study, which is due for completion in 1998. As part of the study,
programs of metallurgical testwork, additional resource drilling, refurbishment
of site facilities, test mining, preliminary detailed engineering and
environmental studies continued. The 18 month program which commenced in July
1997 is estimated to cost $22.4 million, of which the Company's share is 35%.
Development of the project will be dependent on the results of this
Feasibility Study and on the availability of financing.
Other Exploration Interests
The Company has gold and copper exploration interests in three separate
joint ventures with major Australian companies in the Cloncurry region in
Queensland and in Western Australia. The Company also has exploration
properties in Canada and Mexico.
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Detailed Description of Properties
The following is a more detailed summary of the Company's mining and
exploration interests. It should be noted that, except for Girilambone Copper
Mine, the Girilambone North mines and the Simberi Gold Project, where ore
reserves have been delineated, reserves have not been defined on other
properties. No assurance can be given that economically exploitable ore bodies
exist at any other property until the Company completes additional work,
including further drilling and feasibility studies incorporating all relevant
technical and economic factors. The ore reserve figures presented in this
report are estimates and no assurance can be given that the indicated level of
recovery of the identified metals will be realized. Market price fluctuations
in the metals, as well as higher production costs or reduced recovery rates, may
impair the economic recoverability of those ore reserves containing relatively
lower grades of mineralization, resulting in a revision of ore reserves.
1. GIRILAMBONE AND GIRILAMBONE NORTH COPPER MINES, NEW SOUTH WALES, AUSTRALIA
The Girilambone and Girilambone North Copper mines are located
approximately 625km (390 miles) northwest of Sydney, New South Wales ("NSW"),
Australia. They consist of mining leases, exploration licenses and surface
rights owned by the Company and Straits Mining. The mining leases are for a
term of 20 years and expire on August 5, 2013 at Girilambone and on January
13, 2017 at Girilambone North. The exploration licenses are generally for
terms ranging from two to five years and are renewable, based upon compliance
with certain conditions. The properties are accessed by paved highway from
the town of Nyngan, NSW. Power is supplied by a private NSW power agency on
commercial terms.
The Girilambone area lies toward the northern end of a zone known as the
Lachlan Fold Belt, a large region of Paleozoic rocks which can be traced from
eastern Victoria to northern NSW. A substantial proportion of metal production
by those states has been derived from this belt which hosts a number of
significant base metal mines. In the mine area, the dominant rock types include
quartzite and chlorite schists. Copper mineralization occurs within a quartzite
horizon and in enclosing schists of the Ordovician Girilambone Beds. A leached
oxidized ore zone lies over secondarily enriched chalcocite-dominated ore. This
grades into a primary sulfide zone at depth.
Mineralogy consists of malachite and copper oxide minerals in the oxidized
upper part of the orebodies, malachite/chalcocite in the middle of the orebodies
and chalcopyrite in the underlying primary sulfide zones. Native copper occurs
in both the oxide and chalcocite zones.
The Girilambone copper deposit and associated satellite deposits were mined
during the late 1800's and early 1900's by underground methods and produced
approximately 80,000 tonnes of ore averaging 2% copper.
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The Company acquired an option to purchase the Girilambone exploration
license in 1989 and completed its purchase in 1990. After conducting 46,000
feet of reverse circulation and 8,000 feet of diamond drilling and
metallurgical and engineering studies, a feasibility study containing
favorable results was completed in 1991. Straits Engineers Contracting Pty
Limited, a Singapore company, acquired interests in both the proposed mine
(the mining joint venture) and the surrounding exploration ground (the
exploration joint venture) in December 1991 and subsequently assigned its
interests to Straits Mining ("Straits"), an Australian affiliate. Straits
funded $6.9 million of project development expenditures and made loans and
payments to the Company totaling $2.7 million in order to earn its 60% share
in the original Girilambone Mining Joint Venture ("GMJV"). Straits also
funded the initial $345,000 of exploration expenditure to earn its 50%
interest in the exploration joint venture.
The GMJV, in which the Company has a 40% interest, is managed by a jointly
owned (40% by the Company and 60% by Straits) management company named
Girilambone Copper Company Pty Limited ("Girilambone Copper Company").
Mining of the Girilambone orebody (Murrawombie pit) under the GMJV
commenced in late 1992, and construction of the processing plant for the mine
was completed and initial production achieved in May 1993. Design production
rate was achieved in November 1993. The average production rate envisaged over
the original six year mine life was approximately 14,000 tonnes (31 million
pounds) per year of high-purity copper cathode.
In 1994, a Stage 1 plant upgrade was undertaken for a total cost of $2.2
million (the Company's share being $880,000), which consisted of the
installation of additional pumping capacity, a new mixer settler, and additional
water pumping capacity. A multimedia strong electrolyte filter was also
installed to improve electrowinning operations.
In 1995, a Stage 2 plant upgrade was undertaken at a total cost of $1.1
million (the Company's share being $440,000) which was funded out of project
cash flow. The upgrade involved the installation of 12 additional
electrowinning cells, construction and equipping a third leach pad, further
upgrading of the raw water system and some minor upgrading of the solvent
extraction plant.
Heap aeration techniques were trialed in early 1996 which resulted in
dramatic improvement in production, offsetting previous cold weather effects on
leaching. All new sulfide heaps are now being aerated, and older heaps are
being re-stacked and equipped with aeration facilities.
Mining operations ceased at the Murrawombie pit in July 1997, with all
leachable ore having been placed on the heaps for leaching. Copper from this
ore will be produced during 1998 and 1999 as the ore is leached and solutions
are processed for metal recovery.
The Company holds a 50% interest in a second mining joint venture with
Straits, the Girilambone North Mining Joint Venture ("GNMJV"). This
joint venture is also managed by Girilambone Copper Company. Following
successful feasibility studies carried out
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in 1995 and 1996, this joint venture commenced mining operations in the
Girilambone North area in early 1996. Three orebodies are being developed -
North East Pit, Hartmans Pit and Larsens Pit, all located in close proximity to
each other approximately 2 miles northwest of Girilambone Mine and its
processing facilities.
The ore types at Girilambone North are similar to those found at
Girilambone, but of lower grade. Both the copper oxides and supergene copper
sulfides in the northern pits are amenable to heap leaching. Ore from these
pits is being mined and trucked to the Girilambone operations by the same mining
contractor as being used at Girilambone. The Girilambone facilities are then
used to crush and stack the Girilambone North ore on segregated leach pads (for
metallurgical and cost accounting purposes) and then to heap leach and process
the resulting solutions to produce cathode copper.
Production of copper metal from all pits in 1997 was 17,702 tonnes, with
virtually all the copper produced being London Metal Exchange ("LME") Grade A
equivalent (99.999% pure) or better. Production in 1996 was 16,281 tonnes of
copper metal and in 1995, 12,784 tonnes of copper metal. 1998 production is
expected to be similar to that in 1997.
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Reserve Estimates
Estimated life-of-mine open-pittable, minable copper ore reserves at
Girilambone and Girilambone North at December 31, 1997, including material
already mined, are shown in the following table. These reserves were determined
by Girilambone Copper Company.
GIRILAMBONE AND GIRILAMBONE NORTH RESERVES
(0.15% residual copper grade at a 0.4% cut-off) *
<TABLE>
<CAPTION>
Contained
Copper Copper
Tonnes Grade (thousand
(million) % tonnes)
--------- ------- ----------
<S> <C> <C> <C>
Total Life of Mine
(Murrawombie, North East,
Hartmans and Larsens East Pits)
Mined to December 31, 1997 6.638 1.65 109.720
(including stockpiles and heaps)
Remaining Reserves 4.519 0.84 38.117
--------- ------- ----------
Total Minable Reserves 11.157 1.33 147.837
Total Recoverable Copper 121.003
</TABLE>
* All leachable ore has been mined from Girilambone (Murrawombie pit)
* Ore from Girilambone North (Hartmans, Larsens and North East pits) will be
mined at a 0.4% copper cut-off
* Heaps will be leached to a residual fixed copper grade of 0.15%
Low grade gold mineralization has also been mined and is being stockpiled
separately for possible processing at a later date. The low grade mined
stockpiles contain approximately 10,750 ounces of gold at December 31, 1997
(352,092 tonnes grading 0.98 g/t).
Mining Plan
The pits at Girilambone and Girilambone North are mined by
conventional truck and large backhoe open pit methods using a contract mining
company which is responsible for mining, crushing, screening and stacking ore on
the leach pads.
Ore Processing
Treatment of the copper ore is by the low cost and environmentally
friendly three-stage process of heap leaching and SX-EW. The SX-EW process
has been extensively used in the USA and Chile and is a proven process.
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Heap Leaching
Once the oxide ore has been mined, crushed and stacked on the leaching
pads, a solution of water and sulfuric acid is applied. The copper is leached
into solution as copper sulfate and routed to the solvent extraction plant for
processing.
In the case of chalcocite ore, ferric sulfate in the presence of sulfuric
acid and air is used as the leachant, and is aided by bacteria, dominantly
THIOBACILLUS FERRO-OXIDANS. The leached copper solution from the chalcocite is
also treated in the solvent extraction-electrowinning plant. The installation
of heap aeration systems in 1996 overcame prior winter production problems.
The SX-EW Process
The solvent extraction plant is a chemical extraction plant in which the
copper solution is extracted and concentrated via an ion exchange chemical. The
purified and concentrated copper solution is pumped to the electrowinning
tankhouse where the copper is electroplated out of solution onto stainless steel
cathodes. This copper can then be shipped directly to end-users with no further
refining or smelting necessary.
Girilambone Financing Agreement
The Company had $2,861,450 of debt outstanding at December 31, 1997
under a financing agreement with the Bank of Western Australia Ltd.
("BankWest"; formerly R&I Bank). The outstanding amount includes previous
additional drawings of US$7,555,000 for the Company's working capital and to
fund the Company's 50% share of the development of the Girilambone North
deposits. The loan bears interest at Singapore InterBank Offered Rate
("SIBOR") plus 1.5% (7.41% at December 31, 1997). This facility is required
to be repaid quarterly in installments being the greater of the amount
required to reduce the outstanding amount in accordance with a schedule of
maximum outstanding amounts as at each quarterly repayment date or 50% of
available cash flow.
During the period the loan is outstanding, the Company is required to
build up each quarter a cash deposit of $1,000,000 in a reserve account with
BankWest. All cash proceeds in the reserve account must be first used to pay
any project costs, bank fees, interest and principal. Any remaining proceeds
are then available at BankWest's discretion for use by the Company. At
December 31, 1997, proceeds from this account were used to pay principal,
interest and fees. BankWest, as collateral on the loan, holds a security
interest in the Australian assets of the Company including their share of the
assets of and production from Girilambone and Girilambone North mines.
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Copper Sales
The Company sells its copper production under contract through a marketing
agent. In 1997 sales of $16.3 million were made under contract, primarily to
two Australian consumers, Metal Manufactures Limited and Crane Enfield Metals
Pty Ltd, at a price which is at a set premium to the prevailing London Metals
Exchange price at the time the copper is delivered. The contracts are intended
to be evergreen contracts that are rolled over annually and for 1998 are for a
minimum of 94% of production. The loss of either or both of these consumers
would not have any material adverse effect on the Company because of the ongoing
demand for the quality copper produced at Girilambone.
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
put option agreements for 7,200 tonnes of copper on a monthly deferred
settlement basis.
The copper put agreements are designated as hedges of anticipated copper
sales, and gains and losses under these agreements are deferred and reflected as
a component of sales when each contract settles.
The put option agreements are with two counterparties on a total of 7,200
tonnes of copper for 1998, maturing at 600 tonnes (1.3 million pounds) per
month. Under these agreements the Company will receive market price for its
copper sales but with a guaranteed minimum price of $0.90 per pound, at an
average cost of $0.05 per pound. There was no cash outlay at the time these
contracts were entered into.
Sales for the years ended December 31, 1997, 1996 and 1995, include $54,000
of losses, $1,058,000 of gains and $1,080,000 of losses, respectively, that were
realized in settlement of copper hedging contracts.
Forward Currency Exchange Contracts
The Company has entered into forward exchange contracts, expiring at
various times through March 1999, to hedge against potential 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. For the year
ended December 31, 1997, the Company recognized a loss of $2,399,000 compared
to a gain of $479,000 in 1996 and a loss of $279,000 in 1995. At December
31, 1997 the total of outstanding contracts was $12,000,000 (A$15,100,000).
The Company is exposed to copper price fluctuations and currency risks in
the event of non-performance by the counterparties to the various agreements
described above. The Company anticipates, however, that the counterparties will
be able to fully satisfy their
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obligations under the agreements. The Company does not obtain collateral or
other security to support financial instruments subject to credit risk.
2. GIRILAMBONE EXPLORATION JOINT VENTURE ("GEJV")
The Company has a 50% interest in a joint venture with Straits
covering approximately 3,300km(2) surrounding the Girilambone and Girilambone
North mines and beneath the Girilambone pit. The Company is the manager of the
exploration program.
Exploration for additional reserves of copper suitable for treatment at the
existing SX-EW plant at the Girilambone mine is the primary objective of the
exploration program which is continuing throughout the tenements held by the
joint venture. Several copper occurrences are known in the region.
Chalcopyrite mineralization of the type discovered at the Tritton prospect,
14 miles southwest of Girilambone, is a secondary exploration target. A
separate plant would be required to treat this type of mineralization.
During 1997, the Company expended $1.8 million on exploration and
feasibility studies as its 50% share of joint venture costs.
Exploration Methods
In 1997, shallow vacuum drilling geochemical sampling programs were
conducted at points along surveyed grids in geologically and geochemically
favorable areas. These programs were successful in identifying anomalies in
copper, gold and lead-zinc. Five of these areas remain to be tested by deep
reverse circulation ("RC") drilling in 1998.
Sirotem electromagnetic surveys, a modern geophysical ground technique used
to identify electrically conductive zones possibly related to copper
mineralization, were conducted by the Company throughout 1997. A number of
anomalies were tested in 1997, with several yet to be tested.
In 1996-97, deep RC drilling was completed on twenty-eight prospects.
Sulfide mineralization was intersected at a number of these and intersections up
to 10 meters wide of over 2.0% copper were obtained. Additional deep drilling
of some of these prospects is planned for 1998.
Bonnie Dundee Project Area
This project includes three copper prospects known as Tritton, Budgerygar
and Bonnie Dundee, the latter two having been the subject of small scale mining
activity in the late 1800's. The deposits are approximately half a mile apart
along strike. The area is located 14 miles southeast of the Girilambone mine.
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Tritton Deposit
This is a significant new deposit discovered by the Company in 1995 when a
deep diamond drilling program over Sirotem anomalies was successful in locating
pyrite-chalcopyrite sulfide mineralization to depths of several hundred meters.
In 1996, an additional ninety holes were completed to vertical depths of 1,000
meters. Drilling continued in 1997 and a total of 132 deep diamond drill holes
and 15 Navvi drill deflections were completed by December 1997. This drilling
has defined a resource containing 307,000 tonnes of copper which remains open at
depth and along strike in the lower levels.
Two zones of mineralization have been intersected. The mineralization
outlined by the current intersections extends continuously down dip for 1,100
meters through these zones, except for an 80 meter gap between them. Each of
the zones has a strike length of at least 250 meters. Because of structural
geology and variations in the grade of copper, the lower zone was subdivided
into the Central Zone and the Lower Zone during 1996.
During 1997, a resource estimate was re-calculated using all available
drill hole data at a 1% copper lower cut-off to 1,000 meters vertical depth as
shown in the table below.
TRITTON PROJECT
RESOURCES AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
ZONE CLASSIFICATION TONNES Cu Cu Au Ag Co BD
(MILLIONS) % TONNES G/T G/T % T/CM *
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UPPER MEASURED 0.93 5.83 54,219 0.39 18.4 424 3.53
INDICATED 0.45 4.38 19,710 0.35 12.8 387 3.49
INFERRED 0.29 3.10 8,990 0.32 12.7 251 3.40
SUB-TOTAL 1.66 4.97 82,919 0.37 15.9 384 3.50
CENTRAL MEASURED 2.26 3.34 75,484 0.18 9.4 348 3.40
INDICATED 0.69 2.64 18,216 0.25 10.3 308 3.44
INFERRED 0.46 2.60 11,960 0.38 12.8 324 3.68
SUB-TOTAL 3.41 3.10 105,660 0.22 10.0 337 3.45
LOWER MEASURED 0 0 0 0 0 0 0
INDICATED 1.11 2.36 26,196 0.25 11.8 235 3.27
INFERRED 4.05 2.28 92,340 0.18 10.5 292 3.27
SUB-TOTAL 5.16 2.30 118,536 0.20 10.8 280 3.27
ALL ZONES MEASURED 3.19 4.06 129,514 0.24 12.0 370 3.44
INDICATED 2.25 2.85 64,125 0.27 11.5 288 3.37
INFERRED 4.79 2.36 113,044 0.21 10.9 293 3.32
TOTAL 10.23 3.00 306,683 0.23 11.4 316 3.37
SUBTOTAL MEASURED + IND. 5.44 3.56 195,727 0.25 11.8 336 3.41
CONTAINED
COPPER - TONNES 306,900
OUNCES - GOLD 75,647
OUNCES - SILVER 3,749,482
TONNES - COBALT 3,233
</TABLE>
* BD T/cm = bulk density in tonnes per cubic meter
A final feasibility study with an estimated completion date of June 1998 is in
progress.
13
<PAGE>
Budgerygar Prospect
This prospect is held in a joint venture between the GEJV and an Australian
company. The GEJV has earned a 90% interest in the exploration license.
The Company drilled a total of four deep diamond drill holes during 1997.
Wide intersections of copper bearing but sub-economic zones of massive sulfide
mineralization were encountered.
3. TABAR ISLANDS AND SIMBERI GOLD PROJECTS
The Company holds an exploration license over the Tabar Islands, namely
Simberi, Tatau, Tabar and Mapua, and a mining lease, granted in December 1996,
over the eastern part of Simberi Island. The mining lease is for a twelve year
period expiring December 3, 2008 and the renewable exploration license is for a
two year period expiring June 5, 1999.
Background
The Tabar Islands lie to the north of New Ireland Province in PNG,
approximately 80 km northwest of Lihir Island and 150 km north of Rabaul.
The Tabar Islands cover an area of approximately 270 square kilometers. The
Company acquired an exploration license over the Tabar Islands in 1981 and
after some preliminary reconnaissance, farmed out a majority interest to
Kennecott Explorations (Australia) Limited ("Kennecott"), now a subsidiary of
Rio Tinto, and Niugini Mining Limited. Kennecott as the operator discovered
gold mineralization and anomalies, but these apparently did not meet its
corporate investment criteria.
In 1993, the Company acquired the interests of both Kennecott and Niugini
Mining for payments totaling $1.57 million (A$2 million) of which half has been
paid. The remaining payment of $0.65 million (A$1 million) is payable by
December 3, 1998.
Kennecott and Niugini Mining have an option to re-acquire 50% of the
project if feasibility studies indicate that any new mining project could
produce 150,000 ounces or more of gold annually. Exercise of the option would
require payment to the Company of 250% of the Company's expenditure on the mine
development area from July 1994 to the date the option is exercised.
Expenditures from July 1994 through December 31, 1997 totaled approximately
$11.9 million.
The Tabar Islands are part of a chain of islands which include Simberi,
Tatau and Tabar Islands. They are geologically similar to the nearby Lihir
Island where a very large world class gold mining project was put into
production in 1997 by non-related companies. The Lihir mine is expected to
produce approximately 625,000 ounces of gold in 1998.
14
<PAGE>
Tabar Project Stage of Development
Exploration since 1981, at a cost to the Company and its former
co-venturers of approximately $30 million, has yielded anomalous gold
indications on three of the Tabar Islands. Ten gold prospects have been
identified on Simberi Island, and a further 11 on Tatau and Tabar Islands.
The major oxide gold deposits on Simberi Island have been the subject of
over 928 drillholes during the exploration and resource definition drilling
phases, the majority of which were drilled along ridges to test oxide
mineralization in the zone of weathering, 20-50 meters from surface.
On December 3, 1996, the Company was granted a 25 square kilometer 12 year
mining lease to develop and operate a gold mine on Simberi Island under which
the government of PNG will have no participating interest. Once production has
commenced, the Company will be required to pay a production royalty of 2% of
sales to the PNG Government. The development of the Simberi gold deposits is
based on a feasibility study prepared by an independent engineering company in
1996.
The feasibility study proposes the extraction of mineralization from the
five oxide gold deposits on the mining lease by simple open cut mining
techniques. The mining rate would commence at an initial 600,000 tonnes per
annum, and increase to a final design rate of one million tonnes per annum.
The feasibility study assumes a treatment plant would be constructed at
Pigiput Bay on the eastern side of Simberi Island, in a modular manner to
facilitate relocation. The plant has been designed for single stage crushing,
although a second stage would be added later if necessary. The crushing circuit
would be followed by open circuit primary ball milling and closed circuit
secondary ball milling, with conventional cyanide leaching. This would be
followed by carbon in pulp absorption, pressure desorption, and conventional
electrowinning of gold to produce dore bars on site. Tailings would be
discharged by submarine outfall into the ocean at a depth of 115 meters.
Capital costs for development of the Simberi Island Gold Project are
estimated at $20.4 million. Average life of mine operating costs for the
project are estimated to be approximately $204 per ounce of gold produced.
Production rates over the estimated five year life of the mine are projected to
average approximately 40,000 ounces of gold per annum.
Due to the limited size of the proven and probable reserves, coupled with
the decline in the price of gold, development of the project has been deferred
pending the discovery of additional reserves and/or a significant recovery in
the gold price. Per U.S. accounting rules relating to the recoverability of the
carrying value of assets and due to the continued decline in gold prices in the
fourth quarter of 1997 the Company recorded an impairment to the carrying value
of the Tabar Islands Gold Project. The carrying value of $4.3 million at
December 31, 1997 reflects the current calculated recoverable value of this
property at currently projected gold prices.
Estimates of Mineralization
15
<PAGE>
A revised resource calculation is being prepared to quantify additional
resources discovered during 1997 but results were not yet available at the time
of this report. Therefore, the following information is based on results at the
beginning of 1997.
The measured and indicated oxide resource of approximately 341,700 ounces
of gold, and inferred oxide resource of approximately 105,400 ounces of gold on
Simberi Island are contained in several deposits all within a prospective zone
four kilometers long by two kilometers wide. This zone is characterized by
airborne geophysical anomalies typical of epithermal alteration systems, as well
as widespread anomalous gold in rock chip and soil samples. The tested
prospects were selected on the basis of anomalous gold values.
16
<PAGE>
The ore reserve estimates for the five Simberi Island deposits, as
determined by the Company, are shown in the table below.
SIMBERI OXIDE GOLD DEPOSITS
RESERVE ESTIMATES
<TABLE>
<CAPTION>
Proved Reserve Probable Reserve Total Reserves
-------------- ---------------- ----------------
Tonnage Gold Gold Tonnage Gold Gold Tonnage Gold Gold
Pit Name 000t G/T Ounces 000t g/t ounces 000t g/t ounces
- -------- --------- ----- ------- ------- ----- -------- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sorowar 2,442 1.36 106,800 851 1.05 28,700 3,293 1.28 135,500
South Samat 169 5.21 28,300 18 3.28 1,900 187 5.02 30,200
North Samat 153 3.63 17,900 10 0.93 300 163 3.47 18,200
East Samat - - - 179 1.89 10,900 179 1.89 10,900
Pigiput 377 1.32 16,000 214 1.02 7,000 591 1.21 23,000
----- ----- ------- ------- ----- -------- ------- ----- --------
TOTAL
RESERVE (1) 3,141 1.67 169,000 1,272 1.19 48,800 4,413 1.54 217,800
----- ----- ------- ------- ----- -------- ------- ----- --------
----- ----- ------- ------- ----- -------- ------- ----- --------
</TABLE>
(1) Totals may not match, due to rounding
Estimated ore reserves of 217,800 ounces of gold are contained in these
deposits. Management believes the potential for discovery of new mineralization
of both oxide and sulfide materials elsewhere in the project area is favorable.
Exploration
During 1997, exploration programs on Simberi, Tatau and Tabar Islands were
extended. Reconnaissance exploration was carried out on prospects on Tabar
Island and on Tatau Island. Extensive drilling was completed on oxide and
sulfide prospects on Simberi Island, including drilling of induced polarization
("IP") geophysical anomalies.
Ground geophysical surveys, using the IP method, were conducted at
prospects on Tatau Island and over an extensive area on Simberi Island covering
all the known oxide deposits and surrounding areas. The IP surveys were
successful in locating underlying sulfide mineralizations.
The drilling in 1997 identified additional gold mineralization in both
oxide and sulfide zones, which are expected to increase the oxide gold reserves
and resources.
On Simberi Island, 198 RC drillholes were completed in 1997 totaling
51,200 feet of drilling and another 30 diamond drill holes (predominantly HQ
size) were drilled, totaling 17,800 feet of drilling.
Another 477 shallow surface percussion drill holes (Wacker drill) were
drilled at three prospects on Tabar Island and Tatau Island.
17
<PAGE>
In addition, a substantial amount of dozer benching (approximately 32,000
feet) and channel sampling were undertaken during 1997.
The 1998 program for the Tabar Islands will include a complete
re-evaluation and synthesis of 1997 results.
4. RAMU NICKEL-COBALT PROJECT
Background
Ramu is located approximately 80 km southwest of the Port of Madang on the
north coast of PNG. The Company farmed into the property in 1978 and formed a
joint venture (the "JV") with HPL.
The current renewable exploration license expired on February 26, 1998 and
application has been made for a two year extension which the Company believes
will be granted.
The license covers approximately 246 km(2) of which approximately 32
km(2) is underlain by the mineralized laterite containing nickel, cobalt and
chromite.
In 1992, the joint venture agreement was amended to permit HPL to increase
its interest in the JV. As manager of the JV, HPL solely funded a program of
metallurgical testing and drilling. As of December 31, 1996, approximately
$7.0 million (K9.0 million) had been expended by HPL, and, accordingly, the
Company's interest was diluted to 35% and HPL interest increased to 65%. The
Company is currently contributing its 35% share of costs to maintain its
interest in the project.
Expenditures by the joint venture in 1997 amounted to approximately $8.2
million (K11.7 million), most of which was incurred in the second half of the
year when the full feasibility study was underway as described below.
Another party, Eastern Pacific Mines, may elect within 180 days of
receiving details of any proposed commercial development of Ramu to participate
in such development up to 10%. The interest would be acquired from the Company
and HPL in proportion to their interests. Further, the government of PNG has
the right to acquire up to 30% of Ramu at a price pro-rata to the accumulated
exploration expenditures at any time prior to the commencement of mining. If it
exercises this right, the government is required to contribute to further
exploration and development expenditures in proportion to its equity interest in
the project.
Mineralization and Resource Estimates
18
<PAGE>
The mineralization is contained in an extensive area where a strong
lateritic profile is developed over the basic and ultrabasic bedrock. The
lateritization process is due in part to the effects of weathering under
tropical conditions, resulting in enrichment near the surface of nickel and
cobalt found in the underlying bedrock. The lateritic profile is up to 50
meters thick, although thicknesses of 25-30 are more common, occurring over an
area of about 32 square kilometers.
By world standards the Ramu resource is large and, although nickel
grades are only average, cobalt grades are relatively high, making nickel
equivalent grades more attractive. Further, increases in both nickel and
cobalt grades may be achieved by simple screening techniques.
Resource drilling in the Ramu mining area has been ongoing since July
1997. The current status of resource estimate, based on extensive drilling is
shown in the following table:
Identified Mineral Resource - Ramu
<TABLE>
<CAPTION>
Measured Indicated Inferred Total
Resource Style Tonnes Nl Co Tonnes Nl Co Tonnes Nl Co Tonnes Nl Co
Millions % % Millions % % Millions % % Millions % %
-------- ---- ---- -------- ---- ---- -------- ---- ---- -------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Limonite 15.7 0.91 0.10 5.9 0.91 0.09 36-44 0.90 0.10 58-65 0.90 0.10
Saprolite 5.1 1.06 0.14 2.3 1.07 0.12 10-13 1.00 0.10 17-20 1.02 0.11
Rocky Saprolite
(rock free-2mm) 18-21 1.40 0.08 18-21 1.40 0.08
Total 20.8 .95 0.11 8.2 0.95 0.10 64-78 1.05 0.09 93-107 1.02 0.10
</TABLE>
The total resource is estimated at 93-107 million tonnes averaging 1.02% nickel
and 0.1% cobalt. Drilling will continue in 1998 and the Company expects that
the Ramu resources will be expanded.
19
<PAGE>
Previous Feasibility Work
The Ramu deposit has been the subject of several scoping studies and
metallurgical testwork programs which considered various process routes and
project capacities.
Two of these studies, carried out in 1982 and 1989 by independent
engineering firms, determined that pressure acid leaching would provide the most
favorable treatment process for the limonite zones. Later testwork done by a
major American research laboratory confirmed that the Ramu laterite
mineralization is amenable to treatment by pressure acid leaching using
autoclave technology.
Metallurgical recoveries from this process are indicated to be high, with
extraction rates around 90% for both nickel and cobalt. In addition, the Ramu
limonite material, by virtue of its low magnesia content, has low acid
consumption relative to similar resources around the world, an important
characteristic that results in lower processing costs.
Similar laterite projects are currently being developed in Australia using
similar process technology.
Feasibility Program
The JV has pursued a program of metallurgical testwork, engineering and
pre-feasibility studies, relying when necessary on the expertise of outside
consultants.
In mid-1996 a detailed pre-feasibility study (the "PF Study") was completed
which confirmed the very large scale of the Ramu Project and favorable
economics. The PF Study indicates that the Ramu deposit could become one of the
lowest cost nickel producing properties in the world. As reported in the PF
Study, the capital costs for the development of the Ramu Project are estimated
to be $763.7 million. Annual total operating costs when full production levels
are reached are estimated to be approximately $96.4 million and the unit
operating costs are estimated to be $32.12 per tonne of ore mined and processed,
or $1.39 per pound of nickel produced. After cobalt credits, these operating
costs could be reduced to as low as $0.67 per pound of nickel based on a cobalt
price of $8.00 per pound. If the Ramu Project is developed, over its estimated
minimum 20 year mine life, the project is expected to produce approximately
630,000 tonnes (1.39 billion pounds) of nickel and 56,000 tonnes (123 million
pounds) of cobalt.
Work on a detailed feasibility study commenced in mid-1997. This program
includes detailed drilling programs to define ore resources, geotechnical
investigations, bulk sampling and trial mining, metallurgical testing and pilot
plant work, detailed engineering studies and preparation of an environmental
management plan to meet contemporary international standards. It is expected
that this program will take approximately 18 months to complete and will cost
approximately $22.4 million.
20
<PAGE>
5. OTHER EXPLORATION PROPERTIES - AUSTRALIA
Cloncurry Region, Queensland
Monakoff - Copper/Gold Prospect
The Company holds exploration tenements at Monakoff in the Cloncurry
district of Queensland in a joint venture with Placer Exploration Limited
("Placer") and BHP Minerals Pty Limited ("BHPM"). Placer had previously earned
a 76.3% interest in the tenements by completing expenditures of approximately
$945,000 and the Company's interest is presently 23.7%. BHPM has the right to
earn a 51% interest by the expenditure of $1.125 million, at which time the
Company's interest would be reduced to approximately 11.6%, and a further 10%
interest by the additional expenditure of $562,000, at which time the Company's
interest would be approximately 9.2%.
Mount Dromedary - Copper/Gold Prospect
The Company holds exploration tenements at Mt. Dromedary, also situated
in the Cloncurry district of Queensland. In 1996, CRA Exploration Pty
Limited (now Rio Tinto) earned a 75% interest in the Mt. Dromedary tenements by
spending $780,000. Subsequently the Company converted its interest into a
10% free-carried interest.
In January 1998, Rio Tinto advised its intention to withdraw from the joint
venture. Rio Tinto's interest will revert to the Company.
The Company will review all available data in 1998 to ascertain how to
proceed with these exploration tenements.
Western Australia - Gold
The Company has one exploration joint venture in Western Australia where
joint venture partners are funding the work. No significant exploration results
have been reported to date.
21
<PAGE>
6. OTHER EXPLORATION PROPERTIES - CANADA AND MEXICO
Canada
In 1997, the Company entered into an agreement with Young-Shannon Gold
Mines to earn up to a 65% interest in the Chester Gold Project, located north of
Sudbury, Ontario. Between 1987 and 1991, drilling at this project identified a
zone containing 240,000 ounces of gold with the potential for expansion. Due to
the decline in gold prices experienced in 1997, development of this project has
been delayed indefinitely and its carrying value was written off at December 31,
1997.
Mexico
The Company holds two exploration properties in Mexico and is continuing to
evaluate the possible acquisition of precious and base metal properties.
7. OTHER BUSINESS MATTERS
A. Risk Factors
Risk factors which may have a significant impact on the future performance
of the Company or the value of its shares include:
Risk of Mineral Exploration and Development
As the primary business of the Company is the exploration for and
commercial development of base and precious metals and other minerals, it is
subject to the substantial risks inherent in such activities. The Company is
still in the exploratory or pre-development phase of all operations except at
the Girilambone and Girilambone North Copper Mines. Although exploration on
several of the properties has resulted in discoveries of mineralization, the
magnitude and commercial feasibility of such discoveries cannot be accurately
determined until feasibility work currently in progress is completed in 1998.
Competition, Markets and Regulations
The mineral industry is extremely competitive. The ability of the Company
to benefit from undeveloped discoveries will depend upon its ability, as
discussed below, to obtain additional financing to develop those properties and
on other market factors beyond its control.
World market prices for precious metals, base metals (including nickel and
copper), and strategic minerals are subject to many variables and may fluctuate
widely, depending upon world supply and demand and on international economic and
political factors. Revenues that
22
<PAGE>
the Company may receive for the minerals from any existing projects or from
any future mineral discoveries are uncertain and no assurance can be made
that prices will be sufficient to warrant commencement or continuation of
commercial exploitation.
The Company has in place certain price protection agreements in regards to
its share of production from the Girilambone and Girilambone North Copper Mines
to reduce the impact of fluctuations in copper prices through December 1998.
However, if as a result of a decline in copper prices the Company's realization
on future copper sales, after the expiration of the price protection agreements,
were to decrease significantly and remain at such level for any substantial
period, it might not be economically feasible to continue commercial production
at Girilambone and Girilambone North and the Company might, with the consent of
its co-venturer, curtail or suspend some or all of its mining activities.
As the Company has interests in Australia, PNG, Canada, Mexico and the
United States, its operations will be subject to regulations in these countries
and could be adversely affected by unfavorable political developments in these
countries. In some countries, precious metals and strategic minerals are
sometimes considered to be national assets which may cause impediments to mining
operations. It is possible that the Company's assets could be expropriated by
governments and that the compensation received, if any, may not reflect the true
value of such assets. In addition, governmental regulations often require local
participation in mining ventures, and the Company could be hindered in such
countries if it is unable to obtain local investors for its operations. Changes
to applicable environmental and safety regulations could restrict the Company's
operations.
Foreign Exchange Risks
The Company has mining and exploration operations in several countries. As
a consequence, the Company's revenue and costs will be affected by fluctuations
in currency rates. The Company has certain forward currency exchange contracts
in place in conjunction with its Girilambone Copper Project borrowings intended
to minimize the effect of certain of these fluctuations. These contracts mature
progressively through March 1999. Any contracts not utilized by April 1999 can
be rolled forward until such time as the Company elects to utilize them.
Uninsured Risks
Exploration for and development of mineral deposits involve hazards which
could result in the Company incurring losses and liabilities to third parties.
The Company is not insured against all losses or liabilities that could arise
from its operations either because insurance is unavailable or because the
premium cost is excessive. If the Company incurs uninsured losses or
liabilities, the funds available for exploration and development will be reduced
and the Company's assets may be jeopardized. However, the Company has insured
many of its operational risks.
23
<PAGE>
Additional Financing Required
The Company will need additional financing to commercially develop
properties such as Tritton, Ramu and Tabar, should development be warranted.
There can be no assurances that such additional financing will be available in
the amounts and at the time necessary to continue exploration on or development
of a specific property.
Borrowing Risks
Interest charges on borrowings incurred by the Company may fluctuate
because of many factors. High interest rates could have an adverse effect on
the Company's operations.
Employee Risks
The Company is generally non-unionized and the majority of its employees
are employed under contract or, in the case of seasonal field activities, under
short-term contract or as casual labor. Approximately 35-40% of staff employed
at the Company's Girilambone operations is unionized, all under one union.
There have been no labor disputes since mining operations began in 1992, and a
new two year labor agreement was finalized in early 1998 with a nominal
expiration date of July 16, 1999. The Company's history of labor relations is
excellent and management believes the risk of material adverse effect due to
labor unrest is minimal.
Title to Properties
With respect to most properties, the Company must expend certain amounts
annually in exploration or development (which amounts are subject to periodic
re-negotiations) as a condition to retaining title. Conditions imposed by
licenses and mining legislation must also be complied with. Consequently, the
Company could lose title to one or more properties or portions thereof if
license conditions are not complied with or if sufficient funds are not
available to meet annual expenditure requirements.
In PNG, proceedings were initiated in the National Court regarding the
constitutional validity of the Mining Act Chapter 195 which, INTER ALIA,
provided that minerals are the property of the State. These proceedings have
been discontinued. Should the PNG Supreme Court consider the constitutional
questions at some future time it is possible that it could result in mining
leases and other tenements in PNG being invalid, such that challenges could
be mounted as to their existence. Management believes that such proceedings
are unlikely to be re-instituted.
The Mabo and Wik Decisions
The decisions of the High Court of Australia in MABO V. THE STATE OF
QUEENSLAND (1992) 107 ALR 1 and WIK PEOPLES V THE STATE OF QUEENSLAND (1997) 71
ALJR 173 may have
24
<PAGE>
an effect on the Australian tenements and real property interests held by the
Company. These cases recognized that native title to land in Australia
survived the Crown's acquisition of sovereignty. However, the acquisition of
sovereignty exposed native title to extinguishment by valid exercise of
sovereign power is inconsistent with the continued right to enjoy native
title. Where the Crown has validly alienated land by granting an interest
that is wholly or partially inconsistent with a continuing right to enjoy
native title, native title is extinguished to the extent of the
inconsistency. The Wik decision found that on certain pastoral leases not
bestowing exclusive rights of occupancy, native title was not extinguished
but co-existed with the pastoral rights. Thus native title has been
extinguished by the grant of rights to mine or by the conduct of mining
operations pursuant to a right to do so. The Company is not aware of any
claim having been made nor does it have any reason to believe that any claim
will be made in respect of any mining tenements or real property interests
held by the Company in Australia as a result of the Mabo or Wik decisions.
In the area surrounding the Company's Girilambone and Girilambone North
mines the state Department of Mineral Resources has reached the view that native
title has been extinguished and accordingly the Company believes that there is
no risk of successful claims for native title to its mining and exploration
tenements in that area.
Miscellaneous
The local laws of the countries outside the United States in which the
Company is conducting activities generally prohibit direct ownership of mining
rights and properties by non-domestic entities, but permit foreign entities to
own such rights and properties through domestic subsidiaries. To obviate or
reduce the risks of title complications, title is generally held on behalf of
the Company in the name of local nominees or local companies.
B. Mining in Australia
Mineral commodities are a major Australian export industry and mining is
generally encouraged by both federal and state governments, as long as
environmental guidelines are followed. Ownership of minerals is generally
vested in the state. The individual states and territories of Australia
establish and administer their own mineral policies. The states and territories
have the right to impose mineral royalties, being typically several percent of
the salable value of the mineral.
The various state and territorial governments administer exploration and
development through ministerial departments. Exploration licenses (giving the
licensees the right to explore but not develop and mine minerals) are typically
granted for two years, with renewals requiring increased expenditure and partial
relinquishment of ground. A person or company can lodge an application for an
exploration license if the ground is not held by others and if they have the
technical and financial resources to meet the proposed work program. Foreign
ownership restrictions generally do not apply to exploration activities.
25
<PAGE>
Development and mining of minerals requires granting of a mining lease.
The procedures and time taken to gain a mining lease vary considerably between
the states and territories. In general however, the basis for the granting of a
mining lease is demonstration by the applicant that the exploration resource can
be economically mined and that operations will comply with environmental
guidelines. Foreign investment guidelines must also be satisfied in the
granting of mining leases where certain capital threshold amounts are exceeded.
Currently the threshold for mining projects is A$50 million ($33 million). The
foreign investment guidelines generally require 50% Australian ownership,
however this can be negotiated or waived. There are no restrictions on
repatriation of foreign company income and it is not the policy of Australian
governments to take an equity interest in mining developments.
Australia taxes trading profits (including trust profits distributed to
corporate beneficiaries) and capital gains at the rate of 36%. Sales of mining
rights acquired by a prospector before August 20, 1996 can be exempt from tax up
to the market value as at that date, and sale or joint venture by the Company of
particular exploration licenses or mining leases may qualify for that exemption,
depending upon the circumstances. Australia also has a 10% withholding tax upon
the payment of interest and a withholding tax on royalties or dividends paid out
of untaxed profits to a non-resident which varies from 10% to 30%, depending
upon the country and the type of payment.
C. Mining in Papua New Guinea
PNG is a constitutional democracy and has a comprehensive mining law and
tax code. The PNG Mining Act is based on the premise that minerals in the
ground are the property of the State. Exploration and development of
minerals requires approval of the PNG Government and are administered by the
Department of Mineral Resources. Prospecting rights are obtained through
application to the PNG Government for an Exploration License which, if
granted, is valid for two years and obligates the holder to commit to a work
plan and expenditure schedule. For large projects, prior to development of a
major minerals project, a Mining Development Contract must be negotiated with
the PNG Government which sets forth details as to the administration of the
mining operation, specific proposals committing the developer to construction
of facilities and implementing the operation. If the PNG Government
subsequently approves a Proposal for Development, a Special Mining Lease is
granted and the Mining Development Contract is signed, allowing the
development to proceed with the plans set forth in the proposal. A failure
to meet the stated commitments in the mining proposal can result in
termination of a Special Mining Lease and the forced sale to the PNG
Government of plant and equipment at its depreciated value. For smaller
mining projects a general Mining Lease may be granted for a term of up to 21
years. Under the Mining Act the government reserves the right to take a
participating interest up to 30% in such projects. Local landowner
participation is strongly encouraged by the government.
PNG has consistently encouraged exploration for and development of
minerals. Development of major mineral projects is affected by two major
considerations, namely (1) taxation and royalties and (2) the Government's
entitlement to have an equity interest in mineral projects. It is a long
standing PNG Government policy to acquire an option to purchase an equity
interest in new major mining ventures; in practice this interest has not
exceeded 30% in
26
<PAGE>
major mining ventures. The maximum participation by the PNG Government in
any particular project, and the terms under which its interest may be
obtained, are negotiable and are usually negotiated prior to the issuance of
the Special Mining Lease. The PNG Government is not obligated to commit to
the exact extent of its participation until a Special Mining Lease is
granted. At the present time the PNG Government does not own an interest in
any project in which the Company has an interest.
Mining development projects in PNG may be undertaken by PNG
corporations, foreign corporations or by PNG or foreign corporations
participating in an unincorporated joint venture. The PNG income tax rate
for mining companies is currently 35% for PNG corporations (operating on a
Special Mining Lease) and 48% for foreign corporations, but accelerated
deductions for capital and exploration expenditures are allowed and special
tax relief may be granted during the initial years of mining. The rate of
tax for resident companies on a general mining lease (which applies to
smaller mining projects) was reduced to 25% from January 1, 1996. The
government also imposes on Special Mining Leases an additional profits tax at
the rate of 35% on after-tax cash flow when the rate of return exceeds 20%
or, at the operator's one-time option, 12% plus the average US prime rate.
The dividend withholding tax rate is 17% for resident companies. PNG does not
have a capital gains tax.
In 1994 the PNG currency was first devalued by 12% and subsequently allowed
to float. During 1994 the effective devaluation against the US$ was
approximately 20% and in 1995 it was approximately 10%. In 1996 it was
relatively stable and in 1997 it depreciated approximately 12%. This has had a
relatively minor effect on the Company.
Political and Other Risks (PNG)
The country of PNG comprises the eastern half of a large land mass north of
Australia in the South Pacific. PNG was administered as a trust territory by
Australia from the end of World War I until it became independent in 1975. The
economy of PNG is based largely on minerals, petroleum, coffee, timber and
Australian economic aid. PNG has pro-western (particularly Australian) ties and
democratic elections. However, PNG is a third world country and any investment
is subject at any time to the potentially volatile effects of political
instability and economic uncertainty prevalent in such countries, including
civil strife and expropriation, excessive taxation and other forms of government
interference. PNG has experienced episodes of civil unrest and breakdowns in
law and order in certain locations in the past few years. In the North Solomons
Province of PNG such activity led to the closure of the large Panguna
(Bougainville) copper-gold mine in 1990 which has not reopened. Other projects
on mainland PNG have experienced brief closures due to violence. The Company,
however, is not aware of any such problems in areas where it is conducting
exploration.
D. Mining in Mexico
Mexico has a rich tradition of mining and encourages mineral development
and foreign investment. Mexico is a significant producer of at least 19
non-fuel mineral commodities,
27
<PAGE>
particularly silver, copper, lead and zinc. Mexico has a comprehensive
mining law that was amended in 1992 to simplify and speed up the granting of
mining concessions. All minerals are owned by the government and are granted
by exploration and mining concessions with royalties to the government. Up
to 100% direct foreign ownership and control are now permitted for
exploration and mining operations under certain specified conditions and
periods of terms. Taxes for mining in Mexico have been reduced in the past
few years by eliminating a 7% mine production tax and are generally in line
with US and Canadian levels of taxation. The recent devaluation of the
Mexican peso and the economic adversity resulting therefrom should not have a
significant negative effect on the Company.
E. Environmental
At December 31, 1997, the Company had reserves of approximately $120,000
for remediation of certain Australian and Papua New Guinea sites and other
environmental costs in accordance with its policy to record liabilities for
environmental expenditures when it is probable that obligations have been
incurred and the costs reasonably can be estimated.
The amounts of these liabilities are very difficult to estimate due to
such factors as the unknown extent of the remedial actions that may be
required and, in the case of sites not owned by the Company, the unknown
extent of the Company's probable liability in proportion to the probable
liability of other parties. Moreover, the Company has other probable
environmental liabilities that in its judgment cannot reasonably be
estimated, and losses attributable to remediation costs are reasonably
possible at other sites. The Company cannot now estimate the total additional
loss it may incur for such environmental liabilities, but such loss could be
substantial.
F. Bermuda
The Company is incorporated in Bermuda which has no limitations on the
right of non-residents to vote or hold stock in the Company. Bermuda does not
restrict the payment of dividends, interest or other payments to non-residents.
Under current Bermuda law, the Company is not required to pay any taxes 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. There
is no tax treaty between the United States and Bermuda.
G. Organization
The Company was organized in 1988 for the purpose of acquiring all of the
assets, subject to the liabilities, of two limited partnerships (the
"Partnerships"). The Partnerships and Nord Resources Corporation ("Resources")
owned all of the venture interests in Nord-Highlands Mineral Venture-I a
California joint venture ("Nord-Highlands"). On April 2, 1990, the Partnerships
transferred all of their assets, subject to their liabilities, to the Company in
exchange for shares of common stock of the Company (the "Exchange") and
Resources relinquished all rights it had in Nord-Highlands. The Partnerships
then immediately dissolved and liquidated and distributed the shares of the
Company to their respective limited partners. The Company, and its wholly-owned
Bermuda subsidiary, Nord Gold Company Limited, own 100% of the interests in
Nord-Highlands, which is the exploration and development arm of the Company in
Australia, PNG and other areas of the South Pacific. All activities of the
Company in the United States are carried out by Hicor Corporation, a wholly
owned Delaware subsidiary.
Exploration activities in Mexico are carried out by Compania Minera Nord
Pacific de Mexico S.A. de C.V., a controlled Mexican subsidiary.
Nord Pacific is currently owned approximately 28.6% by Resources,
a Delaware corporation organized in 1971 and listed on the New York
Stock Exchange.
The Company's principal offices are located at 22 Church Street, Hamilton
HM FX Bermuda, telephone number (441) 292-2363. The US subsidiary of the
Company, Hicor
28
<PAGE>
Corporation, maintains offices at 201 Third Street, NW, Suite 1750,
Albuquerque, New Mexico 87102, telephone number (505) 241-5820.
29
<PAGE>
H. Glossary of Technical Terms
<TABLE>
<S> <C> <C>
chalcocite - a copper sulfide mineral.
chalcopyrite - a copper iron sulfide mineral.
leaching - a dissolution of mineral components from ore by appropriate
chemicals.
laterite - a naturally leached iron and aluminum rich rock, formed at
the surface by weathering in tropical conditions.
malachite - a green hydrated copper carbonate mineral.
Ordovician - a geological period within the Paleozoic Era.
ore - material which can be mined and/or treated at a profit.
oxidized zone - zone in which sulfides have been altered to oxides by
surface waters.
Paleozoic - an era of geological time, from 245- 570 million years ago.
quartzite - a compact siliceous rock formed of silica of sedimentary
origin.
reserve - part of a mineral deposit which could be economically and
legally extracted or produced at the time of the reserve determination.
resource - an identified in-situ mineral occurrence from which minerals
may be recovered.
schist - a medium to coarse grained metamorphic rock with sub-parallel
orientation of micaceous minerals.
sulfide - a mineral compound characterized by the linkage of sulfur
with a metal.
</TABLE>
30
<PAGE>
PART II
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
On February 17, 1997, the stockholders of the Company granted approval for
a reverse stock split whereby one new share of common stock, $.05 par value
share ("New Common Stock") was exchanged for every five shares of common stock
$.01 par value share ("Old Common Stock"). They also approved the sale of up to
4,500,000 shares of New Common Stock in an offering in Canada (the "Canadian
Offering") and the delisting of the Company's Common stock from the Australian
Stock Exchange.
The effective date of the reverse split was March 10, 1997. Each share of
New Common Stock is equivalent to an American Depository Receipt ("ADR"). The
Company has terminated the ADR program and delisted the ADR's from the NASDAQ
Stock Market. Only the Company's New Common Stock is currently traded on the
NASDAQ under the symbol NORPF.
On July 3, 1997, the Company completed the closing of the Canadian
Offering. The Canadian Offering consisted of the sale of 2,460,000 Units
consisting of one New Common Share and one-half of one Purchase Warrant (the
"Purchase Warrant"). Each whole Purchase Warrant entitles the holder to
purchase one Common share at C$9.00 (US$6.29 at December 31, 1997 exchange
rate) prior to July 3, 1998. Further, the Company issued 225,000 warrants
("Warrants") to Canaccord Capital Corporation (the "Agent"). Each Warrant
entitles the Agent to purchase one Common Share at C$6.90 (US$4.82
at December 31, 1997 exchange rate) prior to July 3, 1998.
On July 3, 1997, concurrent with the closing of the Canadian offering, the
Company sold 349,549 Units at $5.00 per Unit to Nord Resources Corporation in
exchange for the extinguishment of $1,747,745 of Company debt.
On December 12, 1997, the Company completed the sale of 600,000 shares of
New Common Stock (the "Placement") to Mineral Resources Development Company Pty,
Limited ("MRDC"), a corporation wholly owned by the Government of Papua New
Guinea. These shares were sold at a price of $4.50 (C$6.40) per share and
proceeds from the sale were placed in escrow pending issuance of the stock. The
shares were issued and the funds were released in January 1998.
The Company's common stock traded on the Australian Stock Exchange ("ASX")
under the symbol NDP from February 28, 1994, until, at the Company's request, it
was delisted on March 5, 1997.
The following is the quarterly range of real time sales prices for the
Company's Common Stock as reported by NASDAQ for 1997 and 1996. The quotations
reflect interdealer prices, without retail mark up, mark down or commission and
may not necessarily represent actual transactions.
31
<PAGE>
Sales prices of common shares have been adjusted to reflect the 1 for 5
reverse stock split which was effective March 10, 1997.
<TABLE>
<CAPTION>
Per Common Share
----------------
1997 (US$) High Low
---------------------------------------------
<S> <C> <C>
1st Quarter 7 5/8 5 1/2
2nd Quarter 6 3/4 4 7/8
3rd Quarter 5 3/8 3 3/4
4th Quarter 5 1/8 2 3/8
Per ADR
-------
1996 (US$) High Low
----------- ------ ------
1st Quarter 5 1/2 3 7/16
2nd Quarter 9 3/4 4 1/2
3rd Quarter 8 4 3/8
4th Quarter 7 7/8 4 3/4
</TABLE>
Following is the quarterly range of stock prices for the Company's common
stock as reported by the Australian Stock Exchange for 1996 until March 5, 1997
when it was delisted. Amounts are reported in Australian dollars.
<TABLE>
<CAPTION>
1997 (A$) High Low
----------- ---- ----
<S> <C> <C>
1st Quarter 8.5 6.75
1996 (A$) High Low
--------- ----- ----
1st Quarter 7 4.50
2nd Quarter 11.25 6.00
3rd Quarter 11.25 7.40
4th Quarter 8.75 6.50
</TABLE>
Following is the quarterly range of stock prices for the Company's common
stock as reported by the Toronto Stock Exchange (the "TSE") for July, 1997
(the period the Company was initially listed on the TSE) to December 31, 1997.
<TABLE>
Per Common Share
----------------
1997 (C$) High Low
----------- ---- ----
<S> <C> <C>
3rd Quarter 6.75 5.00
4th Quarter 7.00 3.75
</TABLE>
There were no dividends declared or paid in 1997 or 1996 and dividends are
not anticipated in the near future. The Company intends to retain earnings to
support current operations, to fund exploration and development projects and to
repay bank loans.
The Company paid a dividend of $.05 per share totaling $468,000, with
respect to its 1994 earnings, from existing cash reserves on June 30, 1995 to
shareholders of record on June 6, 1995.
The approximate number of equity security holders of record as of March 20,
1998 of the Company's common stock was 375.
32
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------
(In thousands, except for share amount)
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Sales $ 16,328 $ 16,178 $ 14,074 $ 11,293 $ 4,674
Costs and Expenses:
Cost of sales 8,696 8,969 7,664 7,289 3,861
Abandoned and impaired projects 14,293 191 352 35 298
General and administrative 3,827 3,615 3,022 2,735 2,628
--------- --------- --------- --------- ---------
Total costs and expenses 26,816 12,775 11,038 10,059 6,787
--------- --------- --------- --------- ---------
Operating Earnings (Loss) (10,488) 3,403 3,036 1,234 (2,113)
Other Income (Expenses):
Interest and other income 357 161 448 697 235
Interest (371) (406) (604) (992) (969)
Copper contracts gain (loss) 372 (304)
Forward currency exchange
contracts gain (loss) (2,399) 497 (279) 2,535 14
Foreign currency transaction gain (loss) 502 (114) (378) 515 (204)
--------- --------- --------- --------- ---------
Total Other Income (Expense) (1,539) (166) (813) 2,755 (924)
Earnings (Loss) Before Income Taxes (12,027) 3,237 2,223 3,989 (3,037)
Provisions for Income Taxes 2,300 2,620 1,120 -- --
--------- --------- --------- --------- ---------
Net Earnings (Loss) $ (14,327) $ 617 $ 1,103 $ 3,989 $ (3,037)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic Earnings (Loss) Per Common
Share $ (1.31) $ 0.06 $ 0.12 $ 0.43 $ (0.06)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted Earnings (Loss) Per
Common Share $ (1.31) $ 0.06 $ .10 $ 0.39 $ (.06)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Dividends Paid Per Share $ -- $ -- $ 0.05 $ -- $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Working capital (deficiency) $ (1,139) $ (3,088) $ (60) $ 4,017 $ (3,122)
Deferred exploration costs 17,827 21,778 14,312 10,895 9,629
Total assets 40,397 39,741 34,666 32,850 22,605
Indebtedness 2,861 5,981 5,430 7,133 15,564
Shareholders' equity 25,256 24,209 23,460 22,813 3,441
CASH FLOW DATA:
Nord Pacific expenditures for:
Exploration costs $ 10,720 $ 8,154 $ 4,099 $ 1,611 $ 5,393
Capital expenditures 473 771 1,569 727 3,893
</TABLE>
33
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT OF
1995. The statements contained in this report which are not historical fact
are "forward looking statements" that involve various important risks,
uncertainties, and other factors which could cause the Company's actual
results for 1998 and beyond to differ materially from those expressed in such
forward looking statements. These important factors include, without
limitation, the risks and factors set forth herein as well as other risks
previously disclosed in the Company's securities filings.
RESULTS OF OPERATIONS
Due primarily to expensed costs related to impaired properties, the
Company recorded a net loss of $14,327,000 for the year ended December 31,
1997 compared to net earnings of $617,000 in 1996. Copper sold during 1997
totaled 15,600,000 pounds, an 8% increase over 14,400,000 pounds of copper
sold in 1996. During 1997 and 1996, the Company received an average of $1.05
per pound of copper sold. The copper hedging programs established by the
Company resulted in a decrease in sales of $54,000 in 1997 compared to an
increase of $1,058,000 in 1996. Including the impact of copper hedging
programs, the Company realized a net average selling price of $1.05 in 1997
compared to $1.13 realized in 1996. Copper production increased 9% in 1997
over 1996 due to continued improvement in the production process. Cost of
sales per pound of copper declined to $.55 in 1997 compared to $.62 in 1996.
The decrease resulted from continued improvements in the heap leaching
process due to forced heap aeration. Cost of sales as a percentage of sales
decreased slightly to 53% in 1997 compared to 55% in 1996.
Costs incurred for impaired and abandoned properties increased to
$14,293,000 from $191,000 in 1996. In March 1995, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standard
No. 121 ("FAS 121"), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." This statement requires that
long-lived assets and certain intangibles be reviewed for impairment whenever
events or circumstances indicate that the carrying value of an asset may not
be recoverable. Due to the precipitous decline in gold prices during the
fourth quarter 1997, the Company's review of the Tabar Island Gold Project
("Tabar") in PNG indicated that the full carrying value of Tabar was not
totally recoverable at currently projected gold prices. Under the
requirements of FAS 121, the Company therefore wrote down the value of this
project by $13,381,000 to $4,275,000. The Company also wrote off the costs
associated with gold projects in Canada ($609,000) and Mexico ($303,000).
General and administrative expense increased 6% due to an increase in overall
exploration activities and costs associated with regulatory requirements and
other expenses.
Interest and other income increased in 1997 compared to 1996 due to
additional funds available for investment. Interest and debt issuance costs
decreased as debt was repaid during 1997.
34
<PAGE>
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 Australian currency compared to United States currency.
During 1997 and 1995, the Australian dollar weakened compared to the United
States dollar, while it strengthened in 1996. A gain of $372,000 was recorded
in 1997 resulting from a decline in the market value of copper contracts which
were entered into in late 1995.
A provision for income taxes in Australia of $2,300,000 and $2,620,000 was
recorded in 1997 and 1996, respectively, resulting from profits generated from
the Girilambone mining operations. Operating losses incurred in other taxing
jurisdictions cannot be used to offset taxable income generated in Australia.
Although the Company has recorded a provision for income taxes, no income taxes
were payable in 1996 because of the use of operating, exploration and
development loss carryforwards.
December 31, 1996 compared to December 31, 1995
During 1996, the Company recorded net earnings of $617,000 compared to net
earnings of $1,103,000 in 1995. Operating earnings were $3,403,000 and
$3,036,000 in 1996 and 1995, respectively. Operating earnings increased during
1996 despite a considerable decline in the copper sales prices realized by the
Company. Copper sold during 1996 totaled 14,400,000 pounds, a 28% increase over
11,280,000 pounds of copper sold in 1995. During 1996, the Company received
$1.05 per pound of copper sold compared to $1.35 per pound received in 1995. The
copper hedging programs established by the Company resulted in an increase in
revenue of $1,058,000 in 1996 and a decrease in revenue of $1,080,000 in 1995.
Including the impact of the copper hedging programs, the Company realized a net
average selling price per pound of copper of $1.13 in 1996 compared to $1.25
realized in 1995. Copper production increased 29% in 1996 over 1995 due to the
initiation of modifications to the production process. Cost of sales per pound
of copper declined to $0.62 in 1996 compared to $0.68 in 1995. This decrease
resulted from improved heap leaching efficiency after the introduction of forced
heap aeration and from additional estimated reserves. Cost of sales as a
percentage of sales increased slightly to 55% in 1996 from 54% in 1995. The
lower selling price of copper realized was generally offset by higher copper
recovery.
Costs incurred for abandoned projects of $191,000 in 1996 and $352,000 in
1995 related primarily to several exploration projects in Mexico which were
abandoned based on unfavorable drilling results. General and administrative
expense increased 20% in 1996 compared to 1995. The change was primarily due to
an increase in overall exploration activities and costs associated with
regulatory requirements.
Interest and other income decreased during the two-year period ended
December 31, 1996 due to less cash available for investment. Interest and debt
issuance costs also decreased as a result of repayment of debt under a financing
agreement for Girilambone operations.
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 Australian currency compared to United States currency.
During 1996, the Australian dollar
35
<PAGE>
strengthened compared to the United States dollar, while it weakened in 1995.
A loss of $304,000 was recorded in 1996 resulting from a decline in the
market value of copper contracts which were entered into in late 1995.
A provision for income taxes in Australia of $2,620,000 and $1,120,000 was
recorded in 1996 and 1995, respectively, resulting from profits generated from
the Girilambone mining operations. Operating losses incurred in other taxing
jurisdictions cannot be used to offset taxable income generated in Australia.
Although Australian taxable income in 1996 was comparable to 1995 levels, the
provision was lower in 1995 as the Company benefited from the use of net
operating loss carryforwards which had previously been subject to a valuation
allowance. Although the Company has recorded a provision for income taxes, no
income taxes are payable for 1996 or 1995 because of the use of operating,
exploration and development loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
During the three-year period ended December 31, 1997, cash of
$14,427,000 was provided by operating activities exclusively from the
Company's interest in the Girilambone copper deposit, including the North
Pits. The Company expended $12,573,000 during the period for its share of
costs incurred to place ore under leach at Girilambone copper mine. Cash of
$26,434,000 was used to fund exploration and development activity and capital
expenditures during the period, primarily related to the Company's activities
in the Girilambone area, the Tabar Islands and on the Ramu project.
The Company's payments of long-term debt, net of additions, during the
period totaled $4,271,000. In February 1997, the Company restructured its
Girilambone Financing Agreement the result of which provided additional
financing of $980,000, which was borrowed and used to repay a loan from an
Australian lender. The Girilambone Financing Agreement requires that all
cash proceeds generated from Girilambone mining operations be deposited with
the lender and must be used to pay any project costs, bank fees, interest and
principal, and to fund a reserve account with the lender. Any remaining
proceeds are then available at the lender's discretion for use by the
Company. At December 31, 1997 funds from this account were used to pay
principal and interest on the loan. The lender authorized the Company to
utilize the funds from this reserve account for working capital needs and
exploration activity in 1996. The lender, as collateral on the loan, holds a
security interest in all of the Company's Australian assets including the
Company's share of assets on and production from the Girilambone and
Girilambone North Mines.
Further funds were provided during 1997 when on July 3, 1997, the
Company closed its public stock offering in Canada (the "Canadian Offering").
The Canadian Offering consisted of the sale of 2,460,000 units (the "Units")
consisting of one share of the Company's common stock (the "Common Shares")
and one-half of one Purchase Warrant (the "Purchase Warrant"). Each whole
Purchase Warrant entitles the holder to purchase one Common Share of at
C$9.00 (US$6.29 at the December 31, 1997 exchange rate). Further, the
Company issued 225,000 warrants ("Warrants") to the Agent. Each Warrant
entitles the Agent to purchase one Common Share at C$6.90 (U.S.$4.82 at
December 31, 1997 exchange rate) prior to July 3, 1998. Gross proceeds from
the Canadian Offering totaled $12,300,000 (C$16,974,000). After payment of
commissions, certain legal fees and other associated costs, net proceeds
totaled $10,684,000 (C$14,574,000). Proceeds were used primarily to fund
the Company's exploration activities.
36
<PAGE>
In October 1996, Resources agreed to make available to the Company, at
Resources' discretion, an operating loan of up to $2 million, which available
amount was increased to $4 million in May 1997, payable upon demand bearing
interest at prime plus 1%. Total funds advanced under the operating loan
totaled $3,748,000. Concurrent with the closing of the offering described
above, the Company repaid $2,000,000 to Resources and Resources agreed to
convert the $1,747,000 balance due them to 349,549 Units at $5.00 per unit.
During 1995, the Company paid a dividend totaling $468,000 from profits
earned in 1994. The extent and timing of future dividends are dependent on the
future profits and financial resources of the Company. No further dividend
payments are anticipated in the near future as the Company intends to retain
earnings to support current operations, to fund exploration and development
projects and to repay bank loans.
The Company is in the exploration phase of all its projects except for the
Girilambone Copper Mine. Additional efforts on all exploration projects will be
required to determine the extent to which resources 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.
The Company believes funds required for continued general exploration
activities and for overhead expenses will be available from cash provided by
Girilambone mining operations. Should development proceed on the Tritton Copper
Project, the Ramu nickel/cobalt project, or the Simberi Island Gold Project, the
Company would likely seek funds through debt financing for such development.
The Company currently shares office space, personnel and certain general and
administrative expenses with Resources. It is anticipated that this sharing
arrangement will significantly reduce general and administrative expenses.
YEAR 2000
The Company initiated the process of preparing its computer systems and
applications for the Year 2000 in January, 1998. This process involves
modifying or replacing certain hardware and software maintained by the Company
as well as communicating with external services providers to ensure that they
are taking the appropriate action to remedy their Year 2000 issues. Management
expects to have substantially all of the system and application changes
completed by the end of 1998 and believes that its level of preparedness is
appropriate.
The Company estimates that the total cumulative cost of the project will be
approximately $50,000, which includes both internal and external personnel costs
related to modifying the systems as well as the cost of purchasing or leasing
certain hardware and software.
The costs of the project and the expected completion dates are based on
management's best estimates.
37
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Index to Consolidated Financial Statements as of December 31, 1997 and
1996 and For Each of the Three Years In the Period Ended December 31,1997:
Page:
<S> <C>
Independent Auditors' Report 38
Balance Sheets 39
Statements of Operations 41
Statements of Shareholders' Equity 42
Statements of Cash Flows 43
Notes to Financial Statements 44
</TABLE>
38
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Nord Pacific Limited
Hamilton, Bermuda
We have audited the accompanying balance sheets of Nord Pacific Limited and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997 (all expressed in U.S.
dollars). 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Nord Pacific Limited and
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with accounting principles generally accepted in the
United States of America.
DELOITTE & TOUCHE
Chartered Accountants
Hamilton, Bermuda
March 20, 1998
39
<PAGE>
NORD PACIFIC LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1997 AND 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
ASSETS 1997 1996
------- ------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,351 $ 439
Accounts receivable
Trade 1,313 1,868
Affiliates 53 21
Subscribed shares receivable (Note I) 2,700 --
Other 90 43
------- ------
4,156 1,932
Inventories
Copper metal 137 131
Supplies 204 195
------- ------
341 326
Premium on copper contracts (Note F) 760 1,193
Forward currency exchange contracts (Note F) -- 76
Prepaid expenses 137 96
------- ------
TOTAL CURRENT ASSETS 8,745 4,062
FORWARD CURRENCY EXCHANGE CONTRACTS (Note F) -- 18
PREMIUM ON COPPER CONTRACTS (Note F) -- 311
DEFERRED COSTS ASSOCIATED WITH
ORE UNDER LEACH, net of accumulated amortization
of $11,518 in 1997 and $8,569 in 1996 (Note B) 8,970 7,897
PROPERTY, PLANT, AND EQUIPMENT at cost
less accumulated depreciation (Note C) 4,737 5,411
DEFERRED EXPLORATION AND DEVELOPMENT COSTS
Girilambone, net of accumulated amortization
of $1,883 in 1997 and $1,199 in 1996 (Note B) 4,335 4,471
Exploration prospects (Note D) 13,492 17,307
OTHER 118 264
------- ------
$ 40,397 $ 39,741
------- ------
------- ------
</TABLE>
See notes to consolidated financial statements.
40
<PAGE>
NORD PACIFIC LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1997 AND 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
- ------------------------------------ --------- ---------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable
Trade $ 975 $ 1,595
Affiliates 168 276
--------- ---------
Total accounts payable 1,143 1,871
Note payable - Nord Resources Corporation (Note G) -- 947
Accrued expenses 1,484 1,067
Deferred gain on copper contracts (Note F) -- 1,565
Payable on copper contracts (Note F) 760 --
Income taxes payable (Note K) 1,200 --
Current maturities of long-term debt (Note E) 2,548 1,700
Forward currency contracts (Note F) 2,099 --
Obligation under purchase agreement (Note D) 650 --
--------- ---------
TOTAL CURRENT LIABILITIES 9,884 7,150
LONG-TERM LIABILITIES
Long-term debt (Note E) 313 3,334
Payable on copper contracts (Note F) -- 311
Deferred income tax liability (Note K) 4,840 3,740
Obligation under purchase agreement (Note D) -- 795
Retirement benefits (Note L) 104 202
--------- ---------
TOTAL LONG-TERM LIABILITIES 5,257 8,382
CONTINGENT LIABILITIES (Note M)
SHAREHOLDERS' EQUITY (Notes G, I and N)
Common stock, par value $.05 per share,
authorized 20,000,000 shares, issued
and outstanding: 1997 - 12,360,803 and
l996 - 9,515,654 618 476
Common stock subscribed (Note I) 2,677 --
Additional paid-in capital 44,022 31,467
Accumulated deficit (22,859) (8,532)
Foreign currency translation adjustment 798 798
--------- ---------
25,256 24,209
--------- ---------
$ 40,397 $ 39,741
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
41
<PAGE>
NORD PACIFIC LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C>
SALES (Note J) $ 16,328 $ 16,178 $ 14,074
COSTS AND EXPENSES
Cost of sales (Note B) 8,696 8,969 7,664
Abandoned and impaired projects (Note D) 14,293 191 352
General and administrative
Nord Resources Corporation (Note G) 566 415 361
Other 3,261 3,200 2,661
--------- --------- ---------
Total general and administrative 3,827 3,615 3,022
--------- --------- ---------
Total costs and expenses 26,816 12,775 11,038
--------- --------- ---------
OPERATING EARNINGS (LOSS) (10,488) 3,403 3,036
OTHER INCOME (EXPENSE)
Interest and other income 357 161 448
Interest and debt issuance costs (371) (406) (604)
Forward currency exchange contracts
gain (loss) (Note F) (2,399) 497 (279)
Foreign currency transaction gain (loss) 502 (114) (378)
Copper contracts gain (loss) (Note F) 372 (304) --
--------- --------- ---------
TOTAL OTHER (EXPENSE) (1,539) (166) (813)
EARNINGS (LOSS) BEFORE INCOME TAXES (12,027) 3,237 2,223
PROVISION FOR INCOME TAXES (Note K) 2,300 2,620 1,120
--------- --------- ---------
NET EARNINGS (LOSS) $ (14,327) $ 617 $ 1,103
--------- --------- ---------
--------- --------- ---------
NET EARNINGS (LOSS) PER COMMON SHARE (Note P)
BASIC $ (1.31) $ .06 $ .12
--------- --------- ---------
--------- --------- ---------
DILUTED $ (1.31) $ .06 $ .10
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
42
<PAGE>
NORD PACIFIC LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARES)
<TABLE>
<CAPTION>
Common Stock Additional
Shares Amount Paid-in Accumulated
(Note I) Capital Deficit
----------- -------- --------- ------------
<S> <C> <C> <C> <C>
BALANCE - December 31,1994 9,489,341 $ 474 $ 31,325 $ (9,784)
Net earnings -- -- -- 1,103
Common stock issued relating to
stock bonus plan 2,913 1 11 --
Dividend paid ($.05 per share) -- -- -- (468)
----------- -------- --------- ------------
BALANCE - December 31,1995 9,492,254 475 31,336 (9,149)
Net earnings -- -- -- 617
Compensation relating to options
issued to non-employees -- -- 45 --
Exercise of stock options 23,400 1 86 --
----------- -------- --------- ------------
BALANCE - December 31,1996 9,515,654 476 31,467 (8,532)
Net loss -- -- -- (14,327)
Exercise of stock options 35,600 2 153 --
Common stock issued in
public offering 2,460,000 123 10,561 --
Compensation relating to options
issued to non-employees -- -- 110 --
Conversion of debt to common
stock 349,549 17 1,731 --
----------- -------- --------- ------------
BALANCE - December 31, 1997 12,360,803 $ 618 $ 44,022 $ (22,859)
----------- -------- --------- ------------
----------- -------- --------- ------------
</TABLE>
See notes to consolidated financial statements.
43
<PAGE>
NORD PACIFIC LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,1997,1996 AND 1995
(IN THOUSANDS OF U.S DOLLARS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ (14,327) $ 617 $ 1,103
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 1,148 1,278 1,258
Amortization 3,565 3,259 2,736
Compensation relating to non-qualified options,
bonus shares and restricted stock 111 45 12
Unrealized (gain) loss on forward currency exchange contracts 2,399 988 977
Foreign currency transaction loss (gain) (502) 114 378
Abandoned and impaired projects 14,293 191 352
Deferred costs associated with ore under leach (4,023) (4,992) (3,558)
Deferred income taxes 2,300 2,620 1,120
Derivative financial instruments (372) 304 --
Change in assets and liabilities:
Accounts receivable 146 (764) (36)
Inventories (9) (45) (47)
Prepaid expenses (42) 80 (139)
Accounts payable (319) 158 709
Accrued expenses and other liabilities 477 339 525
---------- ------- --------
Net cash provided by operating activities 4,845 4,192 5,390
INVESTING ACTIVITIES
Capital expenditures (473) (771) (1,569)
Payment of obligation under purchase agreement -- -- (648)
Deferred exploration costs (10,720) (8,154) (4,099)
---------- ------- --------
Net cash (used in) investing activities (11,193) (8,925) (6,316)
FINANCING ACTIVITIES
Repayments of long-term debt (5,153) (1,185) (4,703)
Additions to long-term debt 2,981 789 3,000
Net borrowings - Nord Resources Corporation 669 947
Stock option exercised 155 87
Restricted cash -- 1,080 (56)
Issuance of common stock 12,300 -- --
Costs associated with issuance of common stock (1,735) (265)
Dividends paid -- -- (468)
---------- ------- --------
Net cash provided by (used in) financing activities 9,217 1,453 (2,227)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 43 63 (340)
---------- ------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,912 (3,217) (3,493)
CASH AND CASH EQUIVALENTS - beginning of year 439 3,656 7,149
---------- ------- --------
CASH AND CASH EQUIVALENTS - end of year $ 3,351 $ 439 $ 3,656
---------- ------- --------
---------- ------- --------
CASH PAID FOR INTEREST $ 371 $ 384 $ 449
---------- ------- --------
---------- ------- --------
NON-CASH TRANSACTIONS
Purchase of derivative financial instruments (Note F) $ -- $ 311 $ 1,308
---------- ------- --------
---------- ------- --------
Conversion of long-term debt due to Nord Resources
Corporation into common stock (Note G) $ 1,748 $ -- $ --
---------- ------- --------
---------- ------- --------
Common stock subscribed $ 2,700 $ -- $ --
---------- ------- --------
---------- ------- --------
</TABLE>
See notes to consolidated financial statements.
44
<PAGE>
NORD PACIFIC LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,1997, 1996, AND 1995
(IN U.S. DOLLARS)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY DESCRIPTION
Nord Pacific Limited and subsidiaries under consolidation (collectively, the
"Company") operates in a single industry segment which includes the exploration
for and development and production of precious and base metals and strategic
mineral properties primarily in Australia and Papua New Guinea. Exploration
activity carried on in North America, including Canada and Mexico, is primarily
for gold.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America. The consolidated
financial statements include the accounts of the Company, its wholly-owned
subsidiaries, and its 40% interest in the Girilambone copper property in
Australia and its 50% interest in the Girilambone North Project (collectively
"Girilambone"). Financial statement amounts relating to Girilambone represent
the Company's proportionate interest in the assets, liabilities and operations
of Girilambone. All significant intercompany accounts and transactions are
eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all investments with an original maturity of three months
or less to be cash equivalents. The carrying amount of cash and cash equivalents
approximates fair value.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
DEFERRED COSTS ASSOCIATED WITH ORE UNDER LEACH
Costs at Girilambone incurred with respect to ore under leach are deferred and
amortized using the units of production method over the estimated reserves.
Copper is projected to be recovered during the next three-year period, based on
the present proven reserves and estimated copper within the leach pads. The
Company continually evaluates and refines estimates used to determine the
amortization and carrying amount of deferred costs associated with ore under
leach based upon actual copper recoveries and operating plans.
45
<PAGE>
PROPERTY, PLANT AND EQUIPMENT
Non-mining property, plant and equipment is depreciated using the
straight-line method over the estimated useful lives of the assets which
range from two to five years. Property, plant and equipment related to
Girilambone is depreciated by the units-of-production method over the
estimated reserves.
DEFERRED EXPLORATION AND DEVELOPMENT COSTS
All costs directly attributable to prospecting, exploration and development
are deferred. Costs related to producing properties are amortized by the
units-of-production method over the estimated recoverable reserves. Deferred
costs are carried at cost, not in excess of anticipated future recoverable
value, and are expensed when a project is no longer considered commercially
viable.
DEBT ISSUANCE COSTS
Professional fees and expenses relating to the issuance of debt are capitalized
and amortized over the term of the related borrowings.
FOREIGN CURRENCY TRANSLATION
The functional currency for operations conducted in Australia is the U.S.
dollar. Adjustments to U.S. dollar balances as a result of changes in the
exchange rate between U.S. dollars and Australian dollars are recognized
currently in the statement of operations as foreign currency transaction gains
and losses. Prior to March 31, 1993, the Australian dollar was the functional
currency for the Company's operations conducted in Australia, and the resulting
translation adjustments were accumulated as a separate component of
shareholders' equity through March 31, 1993.
FINANCIAL INSTRUMENTS
Gains and losses related to qualifying hedges of anticipated copper sales are
deferred and recognized in the statement of operations as a component of sales
at the settlement date. Option premiums incurred are deferred until the date of
settlement or expiration.
Realized and unrealized gains and losses on forward currency exchange contracts
and other derivative financial instruments that do not qualify as hedges are
recognized currently in the statement of operations. Net unrealized gains and
losses are included as assets or liabilities in the balance sheet.
NET EARNINGS (LOSS) PER COMMON SHARE
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
128, EARNINGS PER SHARE. Earnings (loss) per share data in 1996 and 1995 has
been restated to reflect the adoption of SFAS No. 128. Basic net earnings
(loss) per common share is computed by dividing net earnings (loss) by the
weighted average number of common shares outstanding during the year. Diluted
net earnings per share is determined after giving effect to stock options and
the conversion of preferred shares considered to be dilutive. Because the
Company incurred a loss for the year ended December 31, 1997, the effects of the
potentially dilutive securities are not included in the calculations.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS No. 129,
"Disclosure of Information about Capital Structure", which is effective for
financial statements for periods ending after
46
<PAGE>
December 15, 1997 and established standards for disclosing information about
an entity's capital structure. During 1997, SFAS No. 129 was adopted and had
no significant effect on the Company's disclosures about its capital
structure.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income", which is effective for financial statements
for periods beginning after December 15, 1997 and established standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. The Company does not believe the adoption of SFAS No. 130 will have
a material impact on its financial statement presentation or related
disclosures.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information", which is
effective for fiscal years beginning after December 15, 1997 and establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report 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. The Company operates in one business segment and does not believe
that the adoption of SFAS No. 131 will have a material impact on its financial
statements or related disclosures.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company measures compensation cost for stock options issued to employees
using the intrinsic value based method under Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees."
RECLASSIFICATIONS
Certain reclassifications have been made in the 1996 and 1995 consolidated
financial statements to conform to the classifications used in 1997.
B. 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. In 1996 mining commenced in the Girilambone North
Project area and the ore from this property is being processed through the
existing Girilambone plant. 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 a summarized balance sheet data of
Girilambone:
47
<PAGE>
<TABLE>
<CAPTION>
Amounts Included
Total Girilambone In Accompanying
Joint Ventures Financial Statements
---------------------- --------------------
Balance Sheet Data December 31 December 31
(in thousands) 1997 1996 1997 1996
- ------------------- -------- -------- ------- -------
<S> <C> <C> <C> <C>
Current assets $ 1,638 $ 2,260 $ 658 $ 913
Deferred costs associated with ore under
leach, net 19,934 18,648 8,970 7,897
Property, plant and equipment, net 10,541 12,494 4,244 5,019
Deferred exploration and development
costs, net 16,602 13,688 4,335 4,471
-------- -------- ------- -------
Total assets 48,715 47,090 18,207 18,300
Current liabilities 2,230 3,412 948 1,436
-------- -------- ------- -------
Partners' equity $ 46,485 $ 43,678 $17,259 $16,864
-------- -------- ------- -------
-------- -------- ------- -------
Company's share of equity $ 18,846 $ 18,535
Less: Eliminations (1,587) (1,671)
-------- --------
Net assets recorded by Company $ 17,259 $ 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 data related to the operation of the mine is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
--------- -------- ---------
(In thousands)
<S> <C> <C> <C>
Cost of Copper Sales:
Total Girilambone Venture $21,048 $21,993 $19,161
Included in Financial Statements 8,696 8,969 7,664
General and Administrative:
Total Girilambone Venture $ 538 $ 569 $ 270
Included in Financial Statements 242 257 108
</TABLE>
48
<PAGE>
C. PROPERTY, PLANT & EQUIPMENT
<TABLE>
<CAPTION>
December 31,
1997 1996
------ -------
(In thousands)
<S> <C> <C>
Land $ 302 $ 292
Plant, mining and milling equipment 9,211 8,914
Furniture and fixtures 712 655
------ -------
10,225 9,861
Less accumulated depreciation 5,488 4,450
------ -------
$ 4,737 $ 5,411
------ -------
------ -------
</TABLE>
D. DEFERRED EXPLORATION AND DEVELOPMENT COSTS
Exploration prospects include the following:
<TABLE>
<CAPTION>
December 31,
1997 1996
--------- ---------
(In thousands)
<S> <C> <C>
Ramu $ 4,263 $ 1,712
Tabar Islands 4,275 13,167
Girilambone Exploration Area 3,978 2,207
Other 976 221
--------- ---------
$ 13,492 $ 17,307
--------- ---------
--------- ---------
</TABLE>
RAMU
In 1992, the Company entered into an agreement with its Ramu joint venturer to
dilute its interest in the project. At December 31, 1996, the joint venturer
had spent approximately $7,000,000, reducing the Company's interest to 35%.
Beginning in the fourth quarter of 1996, the Company began funding its share of
expenditures on Ramu and intends to continue to do so in order to maintain its
35% interest. The Company currently does not have sufficient resources to fund
its share of future commercial development costs and will need to obtain
additional funding for such costs.
The Papua New Guinea government has a right to acquire an interest of up to 30%
in Ramu, at a price pro-rata to the accumulated exploration expenditure, at the
time a development decision is made. If it exercises this right, the government
is required to contribute to further exploration and development expenditures in
proportion to its equity in the project.
Another party may elect within 180 days of receiving details of any proposed
commercial development of Ramu to participate in such development up to 10%.
The interest is to be acquired from the Company and the joint venturer in
proportion to their interests.
49
<PAGE>
TABAR ISLANDS
In 1993 the Company increased its interest in the Tabar Islands project from 29%
to 100%. The remaining purchase price at December 31, 1997, of $650,000 is
payable in December 1998. On December 3, 1996, the Company was granted a mining
lease to develop and operate a gold mine on Simberi Island. While the
government of Papua New Guinea will have no participating interest, once
production has commenced, a royalty of 2% of sales will be payable to the
government.
The former joint venture owners have an option to reacquire 50% of the project
if feasibility studies indicate that the project could produce 150,000 ounces or
more of gold annually. Exercise of the option would require payment to the
Company of 250% of its cumulative expenditures for mine development from July
1994 to the date the option is exercised. Expenditures from July 1994 through
December 31, 1997, totaled approximately $11,900,000.
In accordance with SFAS No. 121, the Company reviewed the carrying costs in and
anticipated cash flows from the project to ascertain the probability of
impairment. Based upon the continued decline in gold prices during the fourth
quarter of 1997, the Company determined that future cash flows, based on
currently calculated resources, were insufficient at projected gold prices to
support the $17,656,000 carrying value of the project. The Company therefore
recorded a $13,381,000 impairment at December 31, 1997, reducing the value to
$4,275,000.
GIRILAMBONE EXPLORATION AREA
The Company has a 50% interest in an exploration joint venture related to areas
adjacent to its Girilambone copper mine. Under the venture the Company is
required to fund its 50% share of exploration costs. Exploration efforts are
continuing in the Girilambone exploration area to identify additional mineable
reserves.
As the Company is still in the exploration and prefeasibility phase on Ramu,
Tabar and other projects, and additional efforts on these exploration properties
will be required in order to determine the extent to which resources will be
commercially viable and whether the deferred exploration and development costs
ultimately will be realized.
E. LONG TERM DEBT
<TABLE>
<CAPTION>
December 31,
1997 1996
-------- -------
(In thousands)
<S> <C> <C>
Girilambone financing agreement $ 2,861 $ 4,245
Loan payable -- 789
-------- -------
2,861 5,034
Less current maturities 2,548 1,700
-------- -------
Long-term debt $ 313 $ 3,334
-------- -------
-------- -------
</TABLE>
The long-term debt matures as follows: 1998, $2,548,000 and 1999, $313,000.
50
<PAGE>
GIRILAMBONE FINANCING AGREEMENT
In February 1997, the Company restructured its financing agreement with the
Girilambone lender. The restructuring provided additional financing of $980,000,
increasing the amount of financing available to $5,225,000, bearing interest at
Singapore Interbank Offered Rates ("SIBOR") plus 1-1/2%. Principal payments are
payable quarterly and began in March 1997 at the greater of $425,000 or 50% of
available cash flow. Available funds of $980,000 were borrowed in February 1997
and the funds were used to repay the loan payable described below. The
restructured agreement also contains certain debt coverage ratio requirements.
The fair value of the Company's outstanding debt is not considered to be
materially different from its carrying amount.
During the period the loan is outstanding, the Company is required to build
up each quarter a cash deposit of $1,000,000 with the lender. 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 and principal. Any remaining proceeds are then available at the
lender's discretion for use by the Company. At December 31, 1997, essentially
all proceeds from this account were used to pay principal, interest and fees.
As collateral on the loan, the lender owns a security interest in the
Australian assets of the Company including the Company's share of assets of
and production from the Girilambone and Girilambone North mines.
LOAN PAYABLE
At December 31, 1996, the Company had outstanding $789,000 under a loan facility
provided by an Australian lender. This amount was repaid on February 28, 1997
with funds from the restructured Girilambone Financing Agreement.
F. 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
speculative purposes.
COPPER AGREEMENTS
To mitigate the effect of price changes on substantially all of its expected
copper sales through December 31, 1998, the Company entered in both swap and
call option agreements for 1996 and 1997 and put options for 1998.
The Company entered into both swap and call option agreements with a single
counterparty on a total of 13.2 million pounds of copper which settled each
month during 1997. The swap agreements locked 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 were 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 settled. The swap agreements with contract amounts in excess of
the anticipated copper sales and the call options did not qualify as hedges and
were recorded at market.
Under this combination swap and call option arrangement, at the settlement date
for each copper contract during 1997, the Company received $l.02 per pound plus
the excess of market price (as determined by the London Metals Exchange) over
$1.11 per pound.
51
<PAGE>
In November 1996, the Company purchased put options at a cost of $.08 per
pound of copper for 4.0 million pounds of copper. In 1997, the Company
purchased put options for an additional 11.9 million pounds of copper at $.05
per pound of copper. These mature ratably each month from January 1998
through December 1998. This hedging program assures that the Company will
receive a minimum of $.90 per pound of copper, and will benefit from any
copper price above $.90 per pound.
Sales for the years ended December 3l, 1997, 1996 and 1995, include $54,000 of
losses, $1,058,000 of gains and $1,080,000 of losses, respectively, that were
realized in settlement of copper hedging contracts. The following table
summarizes the market value of the copper contracts determined based upon price
quotes received from the counterparty to the agreements.
<TABLE>
<CAPTION>
Number of Contracts Strike Price Fair Value
or Notional Amount Per Tonne Asset
------------------- ------------ -----------
<S> <C> <C> <C>
At December 31, 1997:
Purchased put options 7,200 tonnes $ 1,984 $1,524,600
At December 31, 1996:
Purchased call options 6,000 tonnes 2,450 142,000
Swap agreements 6,000 tonnes 2,250 1,052,000
Purchased put options 1,800 tonnes 1,984 273,000
</TABLE>
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 currently in the results of operations. For the
year ended December 31, 1997, the Company recognized a loss of $2,399,000
compared to a gain of $497,000 in 1996 and a loss of $279,000 in 1995 on these
contracts. Outstanding contracts at December 31, 1997, total $12,000,000 and
mature in monthly installments of $800,000 at an average exchange rate of A$1.00
= U.S. $.7935.
COUNTERPARTY RISK
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. 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.
G. NORD RESOURCES CORPORATION
Nord Resources Corporation ("Resources") owns approximately 28.6% 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 on demand and bearing interest
at the prime rate plus 1%. At December 31, 1996, the Company owed Resources
advances of $947,000. During 1997, Resources advanced the Company an additional
$2,800,745, net of repayments, bringing the total indebtedness to $3,747,745.
In July and August 1997, the Company repaid $2,000,000 of the amount
outstanding. Concurrent with the
52
<PAGE>
closing of the Company's Canadian offering on July 3, 1997, Resources, which
previously owned 35% of the outstanding common stock of the Company,
converted the remainder of the amount outstanding into 349,549 units
consisting of one share of common stock and one half of one purchase warrant
(the "Purchase Warrant") (the "Units") at $5.00 per Unit.
Interest expense under loans from Resources was $114,000, $7,000 and $0 for
the years ended December 31, 1997, 1996 and 1995 respectively.
In 1997 and 1996, Resources provided certain services to the Company under a
management agreement. Resources was reimbursed for all direct expenses and
its overhead associated with the operations of the Company at approximately
$7,000 per month as per the management agreement. Management believes that the
costs that would have been incurred had the Company obtained such services on
a stand alone basis would have approximated the amounts paid to Resources.
Total amounts paid to Resources were $566,000 and $399,000 for the years
ended December 31, 1997 and 1996, respectively. In December 1997, Resources
closed its office in Dayton, Ohio and moved its administrative functions to
Albuquerque, New Mexico. The Company currently shares office space,
administrative personnel and expenses with Resources on a 50/50 basis.
H. OPERATING LEASES
The Company leases its office space and certain equipment under operating
leases. Certain of the leases contain renewal options and escalation clauses.
Minimum annual lease payments under non-cancelable lease obligations for the
years ended December 31 are as follows:
<TABLE>
<S> <C>
1998 $ 99,973
1999 66,110
2000 62,187
2001 63,028
--------
$291,298
--------
</TABLE>
Rent expense for operating leases was $125,885, $206,000, and $238,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
I. SHAREHOLDERS' EQUITY
STOCK OPTION PLANS AND OTHER OPTION GRANTS
Under the Company's three stock option plans, options have been granted at
market price at date of grant. In addition, during 1997, 1996 and 1995,
non-plan options totaling 150,000, 224,000, and 12,000 shares, respectively,
have also been granted to officers and directors of the Company at or in
excess of market value at date of grant. During 1997, 1996 and 1995,
non-plan options for 53,000, 33,600 and 10,000 shares, respectively, were
issued to certain consultants to the Company.
Options are generally exercisable beginning six months to three years from date
of grant and expire over a five to ten year period from date of grant. At
December 31, 1997, 106,207 shares are available for future grant under the stock
option plans.
A summary of the status of the Company's stock option plans and non-plan options
as of December 31, 1997, 1996, and 1995 and changes during the years ending on
those dates is presented below:
53
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- -------- --------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at Beginning of Year 1,664,200 $ 4.05 1,342,400 $ 3.95 4,142,000 $ 4.72
Granted 296,078 5.47 347,200 4.50 401,200 4.00
Exercised (35,600) 4.34 (23,400) 3.75 -- --
Forfeited -- -- (2,000) 4.40 (3,200,800) 4.95
--------- -------- --------- -------- --------- ---------
Outstanding at End of Year 1,924,678 4.26 1,664,200 4.05 1,342,400 3.94
--------- -------- --------- -------- --------- ---------
--------- -------- --------- -------- --------- ---------
Options Exercisable at Year-End 1,574,800 $ 4.10 1,161,600 $ 3.95 910,400 $ 3.91
Weighted average fair value of options $ 2.06 $ 1.87 $ 1.66
granted during year
</TABLE>
The assumptions used in determining the fair value of options granted during
1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected Volatility 55% 55% 55%
Expected Life of Grant 2.50 years 3 years 3 years
Risk-Free Interest Rate 6.05% 5.03% 5.03%
Expected Dividend Rate None None None
</TABLE>
The following table summarizes information about stock option plans and non-plan
options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Weighted Average
Options Contract Life
Exercise Prices Per Share Outstanding (Years) Options Exercisable
------------------------- ----------- ----------------- -------------------
<S> <C> <C> <C>
$2.54 216,000 3.00 216,000
3.91 36,000 4.25 36,000
4.00 387,000 2.13 387,000
4.26 272,000 5.17 272,800
4.38 93,600 6.25 93,600
4.45 264,000 1.25 264,000
4.50 347,200 3.08 190,400
4.95 12,000 6.00 12,000
5.25 146,678 9.58 53,000
5.69 150,000 9.58 50,000
--------- ---------
$2.54 - 5.69 1,924,478 4.36 1,574,800
--------- ---------
--------- ---------
</TABLE>
STOCK BONUS PLAN
The 1990 Stock Bonus Plan provides for the issuance of up to 80,000 shares of
common stock as incentive bonuses. At December 31, 1997, 76,193 shares have
been awarded and 3,807 shares are available for future award. During 1995, the
Company awarded 2,913 bonus shares under this plan at a weighted average price
of $4.00 per share.
54
<PAGE>
A total of 1,875,085 shares have been reserved for exercise of stock options and
for award under the Stock Bonus Plan.
CANADIAN OFFERING
On July 3, 1997, the Company closed its public stock offering in Canada (the
"Offering"). The 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 whole Purchase Warrant entitles the holder to
purchase one share of common stock at C$9.00 (U.S.$6.29 at December 31, 1997
exchange rate) at date of exercise. Further, the Company issued 225,000
Warrants (the "Warrants") to the underwriter. Each Warrant entitles the
underwriter to purchase one share of common stock at C$6.90 (US$4.82 at
December 31, 1997) prior to July 3, 1998. The Company has determined the fair
value of these warrants at July 3, 1997 to be diminimus. These warrants
expire at July 3, 1998. Gross proceeds from the Offering totaled
US$12,300,000 (C$16,974,000). The Company received net proceeds of
US$10,684,000 (C$14,574,000) after payment of commissions, certain legal
fees, and other related costs.
PRIVATE PLACEMENT TO NORD RESOURCES CORPORATION
On July 3, 1997, concurrent with the closing of the Canadian offering, the
Company issued 349,549 Units at $5.00 per Unit to Nord Resources Corporation in
exchange for the extinguishment of $1,747,745 of Company debt.
PRIVATE PLACEMENT TO MINERAL RESOURCES DEVELOPMENT COMPANY PTY, LIMITED ("MRDC")
On December 12, 1997, the Company completed the sale of 600,000 shares of Common
Stock (the "Placement") to MRDC, a corporation wholly owned by the Government of
Papua New Guinea. These shares were sold at a price of US$4.50 (C$6.40) per
share and gross proceeds totaled US$2,700,000 (C$3,840,000). After payment of
certain related costs, net proceeds totaled US$2,647,000. The proceeds from the
Placement were placed in escrow pending issuance of the stock certificate. At
December 31, 1997, the proceeds were accounted for as an account receivable and
common stock subscribed. The shares were issued and the funds were received
by the Company in 1998.
OTHER
The Company applies APB Opinion No. 25 in accounting for its stock option
plans. Accordingly, no compensation cost has been recognized for incentive
and certain non-qualified options granted to employees. For the years ended
December 31, 1997, 1996 and 1995, compensation related to issuance of options
to non-employees and bonus shares totaled $111,000, $45,000 and $12,000,
respectively. Had compensation cost for the Company's option grants been
determined based on the fair value at the grant dates for awards under those
plans consistent with the provision of SFAS No. 123, the Company's net
earnings and net earnings (loss) per share would have been reduced to the pro
forma amounts indicated below:
55
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
---------- ------- --------
(in thousands)
<S> <C> <C> <C> <C>
Net Earnings (Loss) As reported $ (14,327) $ 617 $ 1,103
Pro forma $ (14,793) $ 1 $ 656
Net Earnings (Loss) per
Share - Basic As reported $ (1.31) $ .06 $ .12
Pro forma $ (1.35) $ -- $ .07
Share - Diluted As reported $ (1.31) $ .06 $ .10
Pro forma $ (1.35) $ -- $ .06
</TABLE>
J. SIGNIFICANT CUSTOMERS
Sales in 1997 included copper sales to three customers of $8,277,000, $2,991,000
and $2,507,000. Sales in 1996 included copper sales to two customers of
$11,309,000 and $2,521,000. Sales in 1995 included copper sales to two
customers of $11,255,000 and $2,926,000. Management believes the loss of any of
these customers would not have any material adverse effect on the Company
because of the ongoing demand for the quality copper produced at Girilambone.
K. INCOME TAXES
Under 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 any such taxes are 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.
Net operating loss carryforwards of $1,894,000 which expire from 2005 through
2009 are available in the United States. These carryforwards are available only
to reduce the separate taxable income of the Company's United States subsidiary.
Exploration cost carryforwards of $867,000 and development cost carryforwards
of $682,000 are available in Australia. These carryforwards, subject to
certain restrictions, are available indefinitely only to reduce the separate
taxable income of the Company's Australian operations.
Exploration cost carryforwards of $22,846,000 are available in Papua New
Guinea, provided sufficient projects are developed in that country.
Carryforwards totaling $20,010,000 may be carried forward indefinitely
against future earnings in Papua New Guinea. Carryforwards totaling
$2,836,000 expire between the years 2000 and 2007.
56
<PAGE>
The principal deferred tax assets and (liabilities) for the United States,
Australia, Papua New Guinea and Mexico are as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
----- -----
(in thousands)
<S> <C> <C>
Long-term deferred tax assets
and (liabilities):
United States:
Deferred tax assets:
Deferred compensation $ 35 $ 68
Net operating loss carryforwards 1,466 1,384
------- -------
1,501 1,452
Deferred tax (liabilities)
Depreciation 2 (5)
Valuation allowance (1,503) (1,447)
------- -------
Total United States $ -- $ --
------- -------
------- -------
</TABLE>
<TABLE>
<S> <C> <C>
Australia:
Deferred tax assets:
Exploration cost carryforwards -- 296
Development cost carryforwards 682 827
Other 867 203
------- -------
1,549 1,326
Deferred tax (liabilities):
Unrealized gain on currency contracts -- (34)
Deferred leach costs (3,229) (2,843)
Exploration and development costs (3,004) (1,613)
Depreciation (648) (448)
Other (81) (128)
------- -------
(6,962) (5,066)
------- -------
Total Australia $(5,413) $(3,740)
------- -------
------- -------
Papua New Guinea:
Deferred tax assets:
Exploration cost carryforwards $ 5,995 $ 4,029
Deferred tax liability:
Deferred exploration costs (1,760) (3,891)
Valuation allowance (4,235) (138)
------- -------
Total Papua New Guinea $ -- $ --
------- -------
------- -------
Mexico:
Operating loss carryforwards $ 723 $ 497
Valuation allowance 723 (497)
------- -------
Total Mexico $ -- $ --
------- -------
------- -------
</TABLE>
A valuation allowance has been provided for 100% of the Company's net
deferred tax assets in the United States, Papua New Guinea and Mexico based
on the history of operating losses for the Company in these countries and
limitations on use of the carryforwards.
The Company had taxable income from its operations in Australia during 1996
and 1995, which required the utilization of all its trading loss
carryforwards and a portion of its development cost carryforwards.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1997
----- -------- -------
(In thousands)
<S> <C> <C> <C>
Currently payable:
Australia $1,960 $ 2,934 $ 2,035
Use of Australian carryforwards (1,210) (2,934) (2,035)
------ -------- -------
750 -- --
Change in deferred income taxes (4,787) 2,424 1,389
Change in valuation allowance 6,337 196 (269)
------ -------- -------
Provision for income taxes $2,300 $ 2,620 $ 1,120
------ -------- -------
------ -------- -------
</TABLE>
57
<PAGE>
Principal reasons for the differences between the income taxes at the statutory
U.S. rate and income tax expense as recorded:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
------ -------- -------
(In thousands)
<S> <C> <C> <C>
Income taxes at statutory U.S. tax rate $(4,060) $ 1,101 $ 756
Reserve for impairment 4,266 -- --
Difference between Australian and
U.S. tax rates (98) 121 107
Non-deductible losses of subsidiaries 1,832 1,000 1,006
Effect of Australian tax rate increase
on deferred income tax assets -- -- (59)
Decrease in Australian valuation allowance -- -- (651)
Other 360 398 (39)
------ -------- -------
Income tax expense $2,300 $ 2,620 $ 1,120
------ -------- -------
------ -------- -------
</TABLE>
L. PENSION PLANS
The Company has a defined contribution pension plan covering certain employees
of its Australian operations. Under the terms of the plan, the Company
contributes an amount equal to 10% of the employees wages. Pension costs were
$48,000, $47,000 and $41,000 for the years ended December 31, 1997, 1996 and
1995 respectively.
The Company is obligated to pay a lump sum benefit that matches the
difference, if any, between the present value of an executive's retirement
benefit under a previous plan and the cash value of an insurance policy at
retirement. At December 31, 1997 and 1996, the cash surrender value of
$223,016 and $209,700, respectively, has been offset against the accrued
retirement benefits liability. Pension expense for the years ended December
31, 1996 and 1995 was $68,000, and $59,000 respectively. Pension expense for
1997, 1996 and 1995 included $0, $42,000 and $36,000 respectively of service
cost and $0, $26,000, and $23,000, respective of interest on the accrued
benefit obligation. The projected benefit obligation at December 31, 1997
and 1996 was $350,000 and $501,000, respectively. The assumed discount rate,
the estimated rate at which the plan could settle its liabilities, was 7.25%
in 1997 and 7.00% in 1996. The assumed rate of a future pay increase was
0.00% in 1997 and 5.00% in 1996. Pension expense and liability are
determined on an annual basis.
M. EMPLOYMENT AGREEMENTS
The Company has agreements with two of its officers which contain change in
control provisions which would entitle one officer to receive 50% of his salary
and the other officer to receive 200% of his salary in the event of a change in
control of the Company and a change in certain conditions of their employment.
58
<PAGE>
The maximum contingent liability under these agreements is approximately
$470,000 at December 31, 1997.
N. DIFFERENCE BETWEEN U.S. AND CANADIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The 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 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 for the years ended December 31, 1997, 1996 and
1995 would be increased by $110,000, $45,000 and $11,000 respectively and
general and administrative expense would be reduced by the same amount.
O. ENVIRONMENTAL
At December 31, 1997, the Company had reserves of approximately $120,000 for
remediation of certain Australian and Papua New Guinea sites and other
environmental costs in accordance with its policy to record liabilities for
environmental expenditures when it is probable that obligations have been
incurred and the costs reasonably can be estimated. The Company's estimates
of these costs are based upon currently available facts, existing technology,
and presently enacted laws and regulations. Where the available information
is sufficient to estimate the amount of liability, that estimate has been
used; where the information is only sufficient to establish a range of
probable liability and no point within the range is more likely than any
other, the lower end of the range has been used.
The amounts of these liabilities are very difficult to estimate due to such
factors as the unknown extent of the remedial actions that may be required
and, in the case of sites not owned by the Company, the unknown extent of the
Company's probable liability in proportion to the probable liability of other
parties. Moreover, the Company has other probable environmental liabilities
that in its judgment cannot reasonably be estimated, and losses attributable
to remediation costs are reasonably possible at other sites. The Company
cannot now estimate the total additional loss it may incur for such
environmental liabilities, but such loss could be substantial.
The possibility of recovery of some of the environmental remediation costs
from insurance companies or other parties exists; however, the Company does
not recognize these recoveries in its financial statements until they are
received.
59
<PAGE>
P. NET INCOME PER SHARE
In accordance with SFAS No. 128, "Earnings Per Share", the following presents
the computations of basic and diluted net income per share:
BASIC NET INCOME PER SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Net (loss) income available to
common shareholders' basic $ (14,327) $ 617 $ 1,103
--------- --------- --------
--------- --------- --------
Weighted average shares of
common stock outstanding - basic 10,935 10,053 9,559
--------- --------- --------
--------- --------- --------
Basic net (loss) income per share $ (1.31) $ .06 $ .12
--------- --------- --------
--------- --------- --------
</TABLE>
DILUTED NET INCOME PER SHARE
(IN THOUSAND EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
----------- ------- --------
<S> <C> <C> <C>
Net (loss) income available to
Common shareholders - diluted $ (14,327) $ 617 $ 1,103
----------- ------- --------
----------- ------- --------
Weighted average shares of
common stock outstanding 10,935 10,053 9,559
Add: Dilutive share related to
stock based compensation 221 931 1,146
Weighted average shares of
Common stock outstanding - diluted 11,156 10,984 10,705
----------- ------- --------
----------- ------- --------
Diluted net income per share $ (1.31) $ .06 $ .10
----------- ------- --------
----------- ------- --------
</TABLE>
Warrants to purchase 1,404,775 shares of common stock at $6.50 per share were
outstanding at December 31, 1997, but were not included in the computation of
diluted net income per share because the exercise price was greater than the
average market price of common shares and, since the Company experienced a loss,
these shares would have been antidilutive.
60
<PAGE>
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
None
PART III
ITEM 10, 11, 12 AND 13.
The information required by Part III is incorporated by reference to the
Company's Proxy Statement to be dated on or about April 30, 1997.
PART IV
ITEM 14, EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. Financial Statements: The financial statements of Nord Pacific Limited
are included in Part 11, Item 8 of this Form 10-K.
(a)2. Financial Statement Schedules
None
(a)3. Exhibits
See "Exhibit Index" on Page 63
(b). Reports on Form 8-K
A report on Form 8-K relating to the sale of common stock was filed on
December 24, 1997.
61
<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.
NORD PACIFIC LIMITED
By: /s/ Edgar F. Cruft
-----------------------------
Edgar F. Cruft
Chairman of the Board
March 27, 1998
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 date indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Edgar F. Cruft
- ----------------------- Chairman and Director March 27, 1998
Edgar F. Cruft
/s/ W. Pierce Carson
- ----------------------- President, CEO and Director March 27, 1998
W. Pierce Carson (principal executive officer)
/s/ Raymond W. Jenner
- ----------------------- Chief Financial Officer March 27, 1998
Raymond W. Jenner (principal financial and
accounting officer)
/s/ Terence H. Lang
- ----------------------- Director March 27, 1998
Terence H. Lang
/s/ Leonard Lichter
- ---------------------- Director March 27, 1998
Leonard Lichter
/s/ Lucile Lansing
- --------------------- Director March 27, 1998
Lucile Lansing
/s/ Michel J. Drew
- --------------------- Director March 27, 1998
Michel J. Drew
/s/ John C. R. Collis
- --------------------- Director March 27, 1998
John C. R. Collis
- --------------------- Director March 27, 1998
John B. Roberts
</TABLE>
62
<PAGE>
Exhibit Index
-------------
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------ ------- ----
<S> <C> <C>
3.1 Registrant's Amended Memorandum of Association.
Reference is made to Exhibit 3.2 to
Registrant's 1993 Form 10-K.
3.2 Registrant's Amended By-Laws. Reference is made
to Exhibit 3.3 to Registrant's 1993 Form 10-K.
10.1 Amended Joint Venture Agreement of Nord-Highlands Mineral
Venture-I. Reference is made to Exhibit 10.1 in Registrant's
Registration Statement on Form S-4 (33-25683).
10.2 Trust Deed dated December 28, 1978 between Nord
Australex Nominee Pty. Ltd. and Nord Australex
Limited Partnership. Reference is made to
Exhibit 10.4 in Registrant's Registration
Statement on Form S-4 (33-25683).
10.3 Memorandum of Association and Articles or
Association of Nord Australex Nominees Pty.
Ltd. Reference is made to Exhibit 10.5 in
Registrant's Registration Statement on Form S-4
(33-25683).
10.4 Deed of Acknowledgement dated February 6, 1981
of Nord Australex Nominees Pty. Ltd. Reference
is made to Exhibit 10.6 in Registrant's
Registration Statement on Form S-4 (33-25683).
10.5 Memorandum of Association and Articles of
Association of Nord Resources (Pacific) Pty.
Ltd. Reference is made to Exhibit 10.7 in
Registrant's Registration Statement on Form S-4
(33-25683).
10.6 Management Agreement dated December 29, 1978
between Nord Australex Nominees Pty. Ltd. and
Nord Resources (Pacific) Pty. Ltd. Reference is
made to Exhibit 10.8 in Registrant's
Registration Statement on Form S-4 (33-25683).
10.7 Trust Deed dated December 29, 1978 between Nord
Australex Nominees (PNG) Pty. Ltd. and Nord
Australex Limited Partnership. Reference is
made to Exhibit 10.9 in Registrant's
Registration Statement on Form S-4 (33-25683).
10.8 Memorandum of Association and Articles of
Association of Nord Australex Nominees (PNG)
Pty. Ltd. Reference is made to Exhibit 10.10 in
Registrant's Registration Statement on Form S-4
(33-25683).
10.9 Deed of Acknowledgment dated February 8, 1981
of Nord Australex
63
<PAGE>
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------ ------- ----
Nominees (PNG) Pty. Ltd. Reference is made to
Exhibit 10.11 in Registrant's Registration Statement
on Form S-4 (33-25683).
10.10 Memorandum of Association and Articles of
Association of Nord Exploration Company (Pty.)
Limited. Reference is made to Exhibit 10.12 in
Registrant's Registration Statement on Form S-4
(33-25683).
10.11 Management Agreement dated December 29, 1978
between Nord Australex Nominees (PNG) Pty. Ltd.
and Nord Exploration Company (Pty.) Ltd.
Reference is made to Exhibit 10. 13 in
Registrant's Registration Statement on Form S-4
(33-25683).
10.12 Joint Venture Agreement dated November 17, 1978
among Nord Exploration Company (Pty.) Limited,
Carpentaria Exploration Company Pty. Ltd. and
Eastern Pacific Mines Pty. Limited. Reference
is made to Exhibit 10.23 in Registrant's
Registration Statement on Form S-4 (33-25683).
10.13 Deed of Variation dated November 29, 1986 among
Nord Australex Nominees (PNG) Ltd., Nord
Exploration Company (PNG) Limited, Carpentaria
Exploration Company Pty. Ltd. and Eastern
Pacific Mines Pty. Limited. Reference is made
to Exhibit 10.24 in Registrant's Registration
Statement on Form S-4 (33-25683).
10.14 Deed of Assignment dated October 3, 1987 among
Carpentaria Exploration Company Pty. Ltd.,
Nord Australex Nominees (PNG) Pty. Ltd.,
Eastern Pacific Mining Pty. Limited and
Highlands Gold Properties Pty. Limited.
Reference is made to Exhibit 10.25 in
Registrant's Registration Statement on Form S-4
(33-25683).
10.15 Prospecting Authority No: 192 dated February
27, 1992 (Ramu River). Reference is made to
Exhibit 10.20 to Registrant's 1991 Form 10-K.
10.16 Extension of Prospecting Authority No. 609
dated July 29, 1993 (Tabar Islands). Reference
is made to Exhibit 10. 19 to Registrant's 1993
Form 10-K.
10.17 Management Agreement dated April 2, 1990
between Registrant and Nord Resources
Corporation. Reference is made to Exhibit 10.24
to Registrant's Form 10-K for 1990.
64
<PAGE>
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------ ------- ----
10.18 Registrant's 1989 Stock Option Plan. Reference
is made to Exhibit 10.25 to Registrant's Form
10-K for 1990.
10.19 Registrant's 1990 Stock Bonus Plan. Reference
is made to Exhibit 10.26 to Registrant's Form
10-K for 1990.
10.20 Registrant's 1991 Stock Option Plan. Reference
is made to Exhibit 10.31 to Registrant's 1991
Form 10-K.
10.21 Assumption agreement of W. Pierce Carson. Split
Dollar Insurance and Supplemental Compensation
Plan. Reference is made to Exhibit 10.37 to
Registrant's 1991 Form 10-K.
10.22 Joint Venture Agreement between Registrant and
Straits Engineers Contracting Pte Ltd.
Reference is made to Exhibit 2.2 to
Registrant's Form 8-K filed on December 23, 1991.
10.23 Severance agreement. W. Pierce Carson dated
April 1, 1992. Reference is made to Exhibit
10.33 to Registrant's 1992 Form 10-K.
10.24 Severance agreement. Mark R. Welch dated April
2, 1992. Reference is made to Exhibit 10.34 to
Registrant's 1992 Form 10-K.
10.25 Amendment to Ramu Joint Venture Agreement the
Registrant and High lands Gold Ltd. dated May
13, 1992. Reference is made to Exhibit 10.36 to
Registrant's 1992 Form 10-K.
10.26 Girilambone Mining Joint Venture Agreement
between Registrant and Straits Resources Pty.
Ltd. dated August 26, 1992. Reference is made
to Exhibit 10.37 to Registrant's 1992 Form 10-K.
10.27 Girilambone Exploration Joint Venture Agreement
between Registrant and Straits Resources Pty.
Ltd. dated August 26, 1992. Reference is made
to Exhibit 10.28 to Registrant's 1992 Form 10-K.
10.28 Girilambone Project Co-Ordination Agreement
between Registrant and Straits Resources Pty.
Ltd. dated August 26, 1992. Reference is made
to Exhibit 10.39 to Registrant's 1992 Form 10-K.
10.29 Girilambone Variation Agreement between
Registrant and Straits Resources Pty. Ltd.
dated August 26, 1992. Reference is made to
Exhibit 10.40 to Registrant's 1992 Form 10-K.
65
<PAGE>
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------ ------- ----
10.30 Girilambone Facility Agreement between the
Registrant and the R&I Bank of Western
Australian Ltd. dated January 12, 1993.
Reference is made to Exhibit 10.41 to
Registrant's 1992 Form 10-K.
10.31 Girilambone Facility Agreement between
Registrant and Rothschild Australia Ltd. dated
February 5, 1993. Reference is made to Exhibit
10.42 to Registrant's 1992 Form 10-K.
10.32 Commodity Swap Agreement between Registrant and
R&I Bank of Western Australia dated January 12,
1993. Reference is made to Exhibit 10.43 to
Registrant's 1992 Form 10-K.
10.33 Commodity Option Agreement between Registrant
and R&I Bank of Western Australia dated January
12, 1993. Reference is made to Exhibit 10.44 to
Registrant's 1992 Form 10-K.
10.34 Deed Polls regarding the Nord Australex
Exploration (Australian) Trust entered into by
Nord Gold Company, Registrant and Nord-Highlands Mineral Venture-I
dated January 12, 1993. Reference is made to Exhibit 10.45 to
Registrant's 1992 Form 10-K.
10.35 Underwriting Agreement between Registrant and
Prudential-Bache Securities (Australia) Limited
dated December 17, 1993. Reference is made to
Exhibit 10.50 to Registrant's 1993 Form 10-K.
10.36 Deed of Agreement between Registrant, Straits
Engineers Contracting PTE Ltd. and Straits
Resources Pty. Ltd. regarding Girilambone
Copper Project Joint Venture. Reference is made
to Exhibit 10.53 to Registrant's 1993 Form 10-K.
10.37 Purchase Agreement between Registrant and
Kennecott Explorations (Australia) Ltd. and
Niugini Mining Limited dated August 30, 1993.
Reference is made to Exhibit 10.58 to
Registrant's 1993 Form 10-K.
10.38 Nord Pacific Limited Stock Option effective
April 7, 1994. Reference is made to Exhibit
10.39 to Registrant's 1994 Form 10-K.
10.39 ADR Deposit Agreement with Bank of New York.
Reference is made to Exhibit 10.41 to
Registrant's 1995 Form 10-K.
10.40 Copper hedge executed December 5, 1996 with
Rothschild Australia Limited. Reference is
made to Exhibit 10.41 to Registrant's 1996
66
<PAGE>
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------ ------- ----
Form 10-K.
10.41 Amended and Restated Facility Agreement between
the Registrant and Bank of Western Australia
Ltd. dated February 28, 1997. Reference is
made to Exhibit 10.42 to Registrant's 1996 Form 10-K.
10.42 Promissory Note between the Registrant and Nord
Resources Corporation dated October 24, 1996.
Reference is made to Exhibit 10.43 to
Registrant's 1996 Form 10-K.
10.43 Subscription Agreement dated July 3, 1997
between Registrant and Nord Resources
Corporation. E-1
10.44 Employment Agreement between Registrant and W.
Pierce Carson. E-7
10.45 Employment Agreement between the Registrant and Edgar F. Cruft. E-18
10.46 Common Stock Purchase Agreement between the Registrant and
Mineral Resources Development Company Pty., Limited dated
December 3, 1997. Reference is made to Exhibit 10.1 to
Registrant's Form 8-K filed on December 24, 1997
11.1 Computation of Earnings Per Share - 1994. Reference is made to
Exhibit 11.1 to Registrant's 1994 Form 10-K
21.1 Subsidiaries of Registrant. Reference is made
to Exhibit 22.1 to Registrant's 1992 Form 10-K.
24.1 Consent of Deloitte & Touche E-24
27.1 Financial Data Schedule for fiscal year end 1997 E-25
27.2 Financial Data Schedule for third quarter 1996 E-26
28.1 Assurance under The Exempted Undertaking Tax
Protection Act, 1966, issued by the Minister of
Finance of the Island of Bermuda. Reference is
made to Exhibit 28.3 in Registrant's
Registration Statement on Form S-4 (33-25683).
</TABLE>
67
<PAGE>
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT ("Agreement") dated this 3rd day
of July, 1997 between NORD PACIFIC LIMITED, a Bermuda corporation (the
"Company"), with an address at 22 Church Street, Hamilton HM11, Bermuda and
NORD RESOURCES CORPORATION, a Delaware corporation (the "Purchaser"), with an
address at 8150 Washington Village Drive, Dayton, Ohio 45458.
W I T N E S S E T H :
WHEREAS, the Purchaser currently owns 3,348,012 shares of
the common stock, $.05 par value per share ("Common Stock"), of the Company
representing approximately thirty-five and two one-hundredths (35.2%) percent
of the issued and outstanding shares of the Common Stock of the Company; and
WHEREAS, concurrently herewith, the Company is closing on
a public offering in Canada (the "Canadian Offering") of units ("Units"),
each Unit consisting of one (1) share of Common Stock and one-half (1/2) of
one (1) common stock purchase warrant ("Purchase Warrant"); and
WHEREAS, the Purchase Warrants are governed by a Warrant
Indenture dated the date hereof, between the Company and Montreal Trust
Company of Canada as Trustee (the "Warrant Trustee"); and
WHEREAS, subject to the terms and conditions that are set
forth herein, the Purchaser desires to purchase and the Company desires to
sell, in a private placement ("Private Placement") pursuant to Section 4(2)
of the Securities Act of 1933, as amended ("1933 Act"), Units comprised of
shares of Common Stock (the "NRC Shares") and Purchase Warrants (the
"Warrants"), for an aggregate price of $2,411,888.10 Cdn ("Purchase Price");
and
WHEREAS, the purpose of the Private Placement is to
enable the Purchaser to maintain, after the closing of the Canadian Offering
and the Private Placement, an approximate thirty (30%) percent ownership
interest in the Common Stock of the Company, before the exercise of any
Purchase Warrants.
NOW THEREFORE, in consideration of the premises and the
covenants and agreements set forth below and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto agree as follows:
1. PURCHASE AND SALE OF COMMON STACK AND WARRANTS.
Concurrently herewith and pursuant to Section 4(2)
under the 1933 Act,
E-1
<PAGE>
the Company shall sell in a private placement and the Purchaser shall
purchase the Shares and Warrants for the Purchase Price.
2. PAYMENT OF PURCHASE PRICE.
The Purchase Price shall be paid by the Purchaser to
the Company by certified or bank check payable to the direct order of the
Company, or by wire transfer, in the amount of the Purchase Price.
3. ISSUANCE OF SHARES.
The Shares purchased hereunder shall be issued by
the Company's transferAgent, American Stock Transfer & Trust Company
("Transfer Agent"), pursuant to a letter of instruction, delivered
concurrently herewith by the Company to the Transfer Agent. The certificate
for the Shares will contain a legend indicating that the Shares have not been
registered under the 1933 Act.
4. ISSUANCE OF WARRANTS.
The warrants purchased hereunder shall be issued by
the Warrant Trustee pursuant to a letter of instruction delivered
concurrently herewith by the Company to the Warrant Trustee.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
The Purchaser hereby represents and warrants to the
Company as follows:
(i) the Purchase is a corporation duly organized,
validly existing and in good standing under the
laws of the State of Delaware;
(ii) the purchase of the Shares and Warrants and the
execution, delivery and performance of this
Agreement has been duly authorized by all
necessary action on the part of the Purchaser
and this Agreement constitutes a valid and
binding obligation of the Purchaser
enforceable in accordance with its terms;
(iii) the Purchaser is acquiring the Shares and
Warrants for investment purposes only and not
with a view to sale or distribution hereof and
that the Shares and Warrants are being acquired
for Purchaser's own account and not on behalf of
others;
(iv) Purchaser acknowledges that the Shares and
Warrants constitute restricted securities
within the meaning of Rule 144 promulgated by
the Securities and Exchange Commission under
the 1933 Act and that neither the Shares,
Warrants nor shares of Common Stock
E-2
<PAGE>
issuable upon exercise of the Warrants may be
sold, except pursuant to an effective
registration statement under the 1933 Act or in
a transaction exempt from registration under
the 1933 Act.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the
Purchaser as follows:
(i) the Company is a corporation duly organized,
validly existing and in good tanding under the
laws of Bermuda;
(ii) the Company has full corporate power and
authority to execute and deliver this Agreement
and to issue the Shares and Warrants and to
consummate the transactions contemplated on its
part hereby;
(iii) the execution and delivery of the Shares,
Warrants and this Agreement and the performance
by the Company of the Warrants and this Agreement
have been duly authorized by all necessary
actions on the part of the Company and the
Warrants and this Agreement constitute valid and
binding obligations of the Company enforceable
in accordance with their terms; and
(iv) upon payment of the Purchase Price, the Shares
will be duly and validly authorized and issued,
fully paid and nonassessable and free from
preemptive rights and the shares of Common Stock
issuable upon exercise of the Warrants have been
duly and validly authorized for issue and, upon
payment of the applicable exercise price, will
be fully paid and nonassessable and free from
preemptive rights.
7. LISTING.
The Company shall take such steps as are necessary
to make application to list the Shares and the shares of Common Stock
underlying the Warrants on the National Association of Securities Dealers
Automated Quotation System, National Market and the Toronto Stock Exchange.
9. PUBLIC ANNOUNCEMENTS.
The parties hereto agree to coordinate the release
of public information relating to this Agreement and, except as otherwise
required by applicable law, rule or regulation, will not release any
information without the prior written consent of the other party hereto.
E-3
<PAGE>
10. BROKERS AND FINDERS.
The Company and Purchaser each represent to the
other that it has dealt with no broker or finder in connection with this
transaction. This representation shall survive the closing hereunder.
11. MISCELLANEOUS.
(a) This Agreement constitutes the entire agreement
between the parties relating to the subject matter hereof, superseding any
and all prior or contemporaneous oral and prior written agreements and
understandings. This Agreement may not be modified or amended nor may any
right be waived except by a writing which expressly refers to this Agreement,
states that it is a modification, amendment or waiver and is signed by all
parties with respect to a modification or amendment or the party granting the
waiver with respect to a waiver. No course of conduct or dealing and no
trade custom or usage shall modify any provisions of this Agreement.
(b) This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed entirely within such State.
(c) This Agreement shall be binding upon and inure
to the benefit of the parties hereto, and their respective successors and
permitted assigns. Neither this Agreement nor any rights or obligations
hereunder may be sold, transferred or assigned without the prior written
consent of the other party.
(d) In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force
and effect without said provision.
(e) Each party shall, without payment of any
additional consideration by any other party, at any time on or after the date
hereof take such further action and execute such other and further documents
and instruments as the other party may request in order to provide the other
party with the benefits of this Agreement.
(f) The captions and headings contained herein are
solely for convenience and reference and do not constitute a part of the
Agreement.
(g) All references to any gender shall be deemed
to include the masculine, feminine or neuter gender, the singular shall
include the plural and the plural shall include the singular.
(h) This Agreement may be executed in two or more
counterparts, each of which shall be deemed on original but all of which
together shall constitute one and the same document.
E-4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date and year first aforesaid.
NORD PACIFIC LIMITED
By: /s/ W. Pierce Carson
-------------------------------
Name: W. Pierce Carson
Title: President
NORD RESOURCES CORPORATION
By: /s/ Terence H. Lang
-------------------------------
Name: Terence H. Lang
Title: Senior Vice President-Finance
E-5
<PAGE>
NORD PACIFIC LIMITED
22 CHURCH STREET
HAMILTON HM11
BERMUDA
July 3, 1997
Nord Resources Corp oration
8150 Washington Village Drive
Dayton, Ohio 45458
RE: PRIVATE PLACEMENT OF SHARES OF COMMON STOCK,
$.05 PAR VALUE PER SHARE AND WARRANTS
PURSUANT TO SECTION 4(2) OF THE UNITED STATE
SECURITIES ACT OF 1933, AS AMENDED
Ladies and Gentleman:
Reference is made to the Subscription Agreement dated the date
hereof between us (the "Agreement"). This shall serve to confirm the
following: (I) as of June 30, 1997, Nord Pacific was indebted to Nord
Resources in the aggregate amount of $3,661,387.82 (the "Debt"); and (ii) the
Purchase Price (as defined in the Agreement) shall be paid by Nord Pacific to
Nord Resources by reduction of the Debt by an amount equal to the Purchase
Price.
Please acknowledge your agreement to the above by signing the
enclose copy of this letter and returning it to the undersigned.
Very truly yours,
NORD PACIFIC LIMITED
WPC/ri By: /s/ W. Pierce Carson
-------------------------------
Enc. W. Pierce Carson, President
75085.1
AGREED TO:
NORD RESOURCES CORPORATION
By: /s/ Terence H. Lang
-------------------------------
Terence H. Lang, Senior Vice
President-Finance
E-6
<PAGE>
CONTINUATION OF EMPLOYMENT AGREEMENT
AGREEMENT made as of this 27th day of May, 1997 by and between
NORD PACIFIC LIMITED, a Bermuda corporation (the "Company"), with an address
at 22 Church Street, Hamilton HM11, Bermuda and W. PIERCE CARSON ("Carson"),
an individual residing at 33 Encantado, Tijeras, New Mexico.
W I T N E S S E T H :
In consideration of the mutual covenants and agreements herein
contained, the parties hereby agree as follows:
1. EMPLOYMENT. The Company (or a subsidiary of the Company)
agrees to employ, and does hereby employ Carson and Carson hereby accepts
such employment, for the Term (as defined below), with the duties and
compensation and upon the terms and conditions hereinafter set forth in this
Agreement.
2. TERM. The term of Carson's employment shall commence on
June 1, 1997 ("Effective Date") and shall continue through and including May
31, 1999, unless earlier terminated as hereinafter provided for in this
Agreement. The Term shall thereafter be automatically extended from year to
year, unless termination notice is given by either party not less than ninety
(90) days prior to expiration of the then Term.
3. DUTIES AND OFFICES.
(a) Carson shall be the President and Chief Executive
Officer ("CEO") of the Company during the Term and shall perform the services
as set forth in the Company's bylaws and as the Company's Board of Directors
("Board") shall direct, which services shall be commensurate with Carson's
status as CEO of the Company. Carson shall perform his services subject only
to the direction and control of the Board and will report only to the Board.
E-7
<PAGE>
(b) During the Term, Carson shall devote his full
working time and energies to the business and affairs of the Company,
provided however that the Company acknowledges that Carson will also be CEO
of Nord Resources Corporation ("NRC") and he shall be entitled to devote such
time and attention as he deems necessary to NRC and its affairs. Carson
agrees to use his best efforts, skills and abilities to promote the Company's
interest.
(c) The office for the performance of his services and
the head office of Hicor Corporation shall be located in Albuquerque, New
Mexico, Phoenix, Arizona or Santa Barbara, California, the final
determination thereof to be in the discretion of the Board of Directors.
4. COMPENSATION. During the Term, the Company shall pay
Carson an annual salary ("Salary") of $200,000 in equal semi-monthly
installments, less required withholding and other applicable taxes.
5. EXPENSES, BENEFITS AND PERQUISITES.
(a) The Company will pay or reimburse Carson for all
travel and other expenses reasonably incurred by Carson during the Term in
connection with the performance of his duties hereunder upon presentment of
written expense receipts reflecting such expenses.
(b) The Company will pay to Carson a living allowance
for his Australian expenses of $35,000 per year, which shall be intended to
fully reimburse him for all personal living expenses incurred by him while
located in the Sydney, Australia area.
(c) The Company and Carson recognize that Carson and his
spouse are entitled to retirement benefits from the Company and that he will
continue to accrue benefits thereunder. The Company will fund such
retirement funds on an on-going, current basis.
E-8
<PAGE>
(d) Carson will continue to receive substantially the
same benefits as he has previously been receiving from the Company.
(e) Carson shall be entitled to four weeks paid vacation
each calendar year, to be taken contemporaneously with his vacation from NRC.
The cost of the above may be shared by the Company with NRC and it is not
intended that the cost of items hereunder be duplicative of items provided by
NRC.
6. DISABILITY. If Carson is unable to perform his services
by reason of illness or incapacity for a period of 180 consecutive days, the
Company shall have the right to terminate this Agreement and all benefits
hereunder at any time after the 180th day, provided that on the effective
date of termination, Carson is still disabled. Such termination shall not
effect any rights which Carson may have at the time of termination pursuant
to any insurance, retirement, pension, stock or option award or other benefit
plan or arrangement with the Company. During the period of disability prior
to termination, the Company shall pay Carson the Salary provided for in this
Agreement and shall comply with all other terms and conditions of this
Agreement.
7. DEATH OF CARSON. In the event that Carson should die
during the Term, this Agreement and all benefits hereunder shall terminate.
Such termination shall not affect any rights which Carson, his spouse or
estate may have at the time of his death pursuant to any insurance or other
death benefit, retirement, pension, stock or option award or any other
benefit plan or arrangement with the Company.
8. DISCHARGE FOR CAUSE. The Board of Directors of the
Company may discharge Carson For Cause at any time. Such discharge shall be
effected by written notice to Carson which shall specify the reasons for
Carson's discharge and the effective date thereof. As used herein, the term
"For Cause" shall mean only chronic alcoholism, drug addiction, criminal
dishonesty or willful violation of direct written instructions from the Board
of Directors of the Company relating to a material matter which directions
are consistent with all applicable laws, rules
E-9
<PAGE>
and regulations and orders to which Carson or the Company are subject and the
provisions of this Agreement unless cured within ten (10) days after notice.
Upon termination pursuant to this Section 8, this Agreement and all benefits
hereunder shall terminate, except that such termination shall not effect any
right that Carson may have at the time of termination pursuant to any
insurance or other death benefit, retirement, pension, stock or option award
or any other benefit plan or arrangement with the Company.
9. INDEMNIFICATION. The Company shall indemnify Carson to
the fullest extent permitted by law and the certificate of incorporation and
bylaws of the Company from and against any loss, claim, liability and/or
expense incurred for, or by reason of, or arising out of, acts of Carson as
an officer and/or director of the Company or any subsidiary.
10. ADDITIONAL COMPENSATION. In recognition of the value of
Carson's services to the Company and as a further inducement for Carson to
enter into this Agreement, the Company has agreed:
(a) contemporaneously herewith, to issue to Carson
non-plan, non-qualified options ("1997 Options") to purchase 100,000 shares
of the Company's common stock at (THE AVERAGE OF THE BID AND ASKED PRICE ON
THE DATE PRECEDING THE DATE OF SIGNING) per share, which options shall expire
on May 31, 2002. 50,000 of the 1997 Options shall be exercisable commencing
on June 1, 1998 and the other 50,000 shall be exercisable commencing June 1,
1999.
(b) On June 1, 1998 the Company will issue non-plan,
non-qualified options ("1998 Options"; 1997 Options and 1998 Options being
hereinafter referred to collectively as "Carson Options") to purchase an
additional 100,000 shares of the Company, at the "Market Price" as of the
date of issuance of the 1998 Options, which 1998 Options will expire on May
31, 2003. 50,000 of the 1998 Options will be exercisable commencing June 1,
1999 and the other 50,000 of the 1998 Options will be exercisable commencing
June 1, 2000. For purposes hereof, Market Price shall mean the average of
the closing bid and asked price of the Company's
E-10
<PAGE>
shares on the NASDAQ National Market (or such other market on which the
Company's shares are then listed) on the date of such issuance.
11. NONCOMPETITION AND CONFIDENTIALITY AGREEMENT.
(a) During the Term and for a period of one year after
such expiration, Carson will not, without the prior written consent of the
Company, directly or indirectly own, manage, operate, control or participate
in the ownership, management, operation or control of, or be connected as a
stockholder, partner, joint venturer or otherwise with, or accept employment
of any kind with, any business which, or any business or organization any
part of which, competes with the businesses of the Company or any of its
subsidiaries or affiliates as such businesses are now conducted or may be
conducted at any time during the Term, in any geographical area in which such
businesses are conducted during the term of this Agreement, provided,
however, that nothing contained herein will prohibit or restrict Carson from
fully performing his duties as CEO of NRC or owning shares or being a
director of NRC. Notwithstanding the terms hereof, if this Agreement is
terminated prior to the expiration of its then current term by the Company
other than For Cause, the provisions of this Section 11 shall not be
applicable to any period after such termination.
(b) (i) Carson acknowledges that during his
employment with the Company or any of its subsidiaries, he may have access to
secret and confidential information, including but not limited to some or all
of the following:
(A) product and business plans, budgets, sales
forecasts, design plans, research and engineering data,
inventions, methods, systems and processes,
(B) exploration activities, including, but not
limited to, prospects, joint ventures, mining and acquisition
opportunities and similar matters,
(C) customers, and
E-11
<PAGE>
(D) trade secrets
(all such information is hereinafter referred to as "Confidential Information").
(ii) Carson agrees that (except as authorized
in writing by the Company or required pursuant to legal or administrative
process) he will not reveal, divulge or make known to any person, firm or
corporation any Confidential Information.
(iii) Carson agrees that at any time during
the Term upon the request of the Board of Directors and upon the termination
of this Agreement, Carson will deliver all Confidential Information together
with copies thereof in his possession to the Company. In addition, if after
the Term he shall discover any Confidential Information in his possession, he
shall forthwith deliver the same together with all copies thereof to the
Company.
(c) In the event of the breach or threatened breach of
the terms and conditions of this Section 11 by Carson, the Company shall be
entitled to a temporary or preliminary restraining order and an injunction or
other equitable relief restraining and enjoining Carson from violating this
Section 11. In addition to the equitable relief provided above, the Company
shall have the right to pursue all other remedies available at law to the
Company for such breach or threatened breach, including recovery of damages
from Carson.
(d) In the event that any of the provisions of this
Section 11 shall be deemed unenforceable, invalid, or overbroad, in whole or
in part for any reason, then any court of competent jurisdiction is hereby
authorized, requested and instructed to reform such provision or provisions
to provide for the maximum confidentiality restraints upon the activities of
Carson, which may then be legal and valid.
12. DISPUTE RESOLUTION. Any controversy or claim arising out
of or relating to this Agreement and the obligations and responsibilities of
the parties hereto or the breach or alleged breach by any of the parties of
their respective obligations hereunder shall be settled by arbitration in the
City of New York, New York
E-12
<PAGE>
by one arbitrator in accordance with the then governing Rules of the American
Arbitration Association. The written decision of the arbitrator shall be
final and binding upon the Company and Carson. Judgment upon the award
rendered may be entered and enforced in any court of competent jurisdiction.
Notwithstanding the above, either party shall be entitled to seek and obtain
injunctive or similar relief from a court of competent jurisdiction where
appropriate pending arbitration. Both parties hereby submit to the exclusive
jurisdiction of the courts of the State of New York or Federal courts
situated in New York County, New York for such purpose and for purposes of
enforcing any arbitration award. All legal fees and expenses reasonably
incurred by Carson in good faith as a result of any claim or arbitration
arising from this Agreement shall be paid by the Company.
13. MISCELLANEOUS.
(a) Carson's Change of Control Agreement with the
Company dated April 2, 1992 shall remain in full force and effect.
(b) This Agreement contains the entire understanding
between the parties hereto concerning the subject matter hereof. This
Agreement may only be amended by an instrument in writing executed by the
parties hereto.
E-13
<PAGE>
(c) This Agreement shall be construed and enforced in
accordance with the laws of the State of New York.
(d) This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of the successor or
successors of the Company, whether by merger, consolidation or otherwise.
(e) Any notice to be given pursuant to the terms of this
Agreement shall be in writing and delivered by hand or sent by registered or
certified mail to such party at such party's address set forth above or to
such other address or to the attention of such other person as either party
has specified by prior written notice to the other party.
(f) The Company's waiver of a breach of any provision of
this Agreement by Carson shall not operate or be construed as a waiver of any
subsequent breach of this Agreement by Carson. No waiver shall be valid
unless in writing and signed by an authorized officer of the Company.
(g) Carson acknowledges that his services are unique and
personal. Accordingly, Carson shall not assign his rights or delegate his
duties or obligations under this Agreement.
(h) Headings in this Agreement are for convenience only
and shall not be used to interpret or construe its provisions.
(i) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
E-14
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its officers thereunto duly authorized, and Carson has
executed this Agreement all as of the date first above set forth.
NORD PACIFIC LIMITED
By:
---------------------------------
---------------------------------
W. PIERCE CARSON
E-15
<PAGE>
CONTINUATION OF EMPLOYMENT AGREEMENT
AGREEMENT made as of this 27th day of May, 1997 by and between
NORD PACIFIC LIMITED, a Bermuda corporation (the "Company"), with an address
at 22 Church Street, Hamilton HM11, Bermuda, and EDGAR F. CRUFT , ("Cruft"),
an individual residing at 4101 Roblar Avenue, Santa Ynez, California 93460.
WHEREAS, Cruft has been the Chief Executive Officer and
Chairman of the Board of the Company on a full-time basis for many years;
WHEREAS, Cruft desires to reduce his responsibilities to, and
compensation from, the Company and the Company desires to retain the
services of Cruft pursuant hereto;
In consideration of the mutual covenants and agreements herein
contained, the parties hereby agree as follows:
1. EMPLOYMENT. The Company (or a subsidiary of the Company)
agrees to continue to employ Cruft, and Cruft hereby agrees to continue such
employment for the Term (as defined below), with the reduced duties and
compensation and upon the terms and conditions hereinafter set forth in this
Agreement.
2. TERM. The term ("Term") of Cruft's employment hereunder
shall commence on June 1, 1997 ("Effective Date") and shall continue through
and including May 31, 1998 ("Initial Termination Date"), unless earlier
terminated by Cruft on not less than ninety (90) days' advance written notice
to the Company or as hereinafter provided for in this Agreement. The Term
hereof shall thereafter be automatically extended from year to year unless
and until terminated by either party on written notice given to the other
party not less than ninety (90) days' prior to the Initial Termination Date
or, if previously extended, the then extended termination date hereof.
3. DUTIES AND OFFICES.
E-16
<PAGE>
(a) Cruft shall be the Chairman of the Board of the
Company during the Term and shall perform the services as set forth in the
Company's bylaws, which services shall be commensurate with Cruft's status as
Chairman. Cruft shall perform his services subject only to the direction and
control of the Board and will report only to the Board.
(b) During the Term, Cruft shall be obligated to devote
no more than 12.5% of his full working time and energies to the business and
affairs of the Company. The Company understands that Cruft may
contemporaneously serve in a similar capacity with Nord Resources Corporation
("NRC").
(c) The office for the performance of his services shall
be located in or around Santa Ynez, California or at such other location to
which Cruft determines to relocate. The Company shall pay for Cruft's office
and such secretarial assistance as is reasonably necessary, which shall be
reduced to part-time as soon as reasonably possible.
4. COMPENSATION. During the Term, the Company shall pay
Cruft an annual salary ("Salary") of $50,000 in equal semi-monthly
installments, less required withholding and other applicable taxes. In the
event the Company and Cruft mutually agree in advance for Cruft to devote
additional time to the Company, Cruft will be compensated for such additional
time on a pro rata basis determined on an annual basis.
5. EXPENSES, BENEFITS AND PERQUISITES.
(a) The Company will pay or reimburse Cruft for all
travel and other expenses reasonably incurred by Cruft during the Term hereof
in connection with the performance of his duties hereunder upon presentment
of written expense receipts reflecting such expenses.
(b) The Company shall reimburse Cruft for his costs of
participation in the Company's health insurance plan so long as he is covered
under the NRC plan or, if NRC's plan is no longer available to Cruft, the
cost of a comparable plan separately maintained by Cruft.
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<PAGE>
(c) The Company shall provide to Cruft, at no cost to
Cruft, professional services related to tax, retirement and estate planning.
(d) Title to the 1989 BMW which Cruft is currently using
shall be transferred to him at no cost.
The cost of Cruft's office, insurance and certain
expenses and other items may be shared by the Company with NRC under separate
agreement, and it is not intended that the cost of items hereunder be
duplicative of items provided by NRC.
6. DISABILITY. If Cruft is unable to perform his services
by reason of illness or incapacity for a period of 180 consecutive days, the
Company shall have the right to terminate this Agreement and all benefits
hereunder at any time after the 180th day, provided that on the effective
date of termination, Cruft is still disabled. Such termination shall not
effect any rights which Cruft may have at the time of termination pursuant to
any insurance, retirement, pension, stock or option award or other benefit
plan or arrangement with the Company. During the period of disability prior
to termination, the Company shall pay Cruft his Salary provided for in this
Agreement and shall comply with all other terms and conditions of this
Agreement.
7. DEATH OF EXECUTIVE. In the event that Cruft should die
during the Term, this Agreement and all benefits hereunder shall terminate.
Such termination shall not affect any rights which Cruft, his spouse or
estate may have at the time of his death pursuant to any insurance or other
death benefit, retirement, pension, stock or option award or any other
benefit plan or arrangement with the Company.
8. DISCHARGE FOR CAUSE. The Board of Directors of the
Company may discharge Cruft "For Cause" at any time. Such discharge shall be
effected by written notice to Cruft which shall specify the reasons for
Cruft's discharge and the effective date thereof. As used herein, the term
"For Cause" shall mean only chronic alcoholism, drug addiction, criminal
dishonesty or willful violation of direct written instructions from the Board
of Directors
E-18
<PAGE>
of the Company relating to material matters, which directions are consistent
with all applicable laws, rules and regulations and orders to which Cruft or
the Company are subject and the provisions of this Agreement, unless cured
within 10 days after notice. Upon termination pursuant to this Section 8,
this Agreement and all benefits hereunder shall terminate, except that such
termination shall not affect any right that Cruft may have at the time of
termination pursuant to any insurance, retirement, pension, stock or option
award or any other benefit plan or arrangement with the Company.
9. INDEMNIFICATION. The Company shall indemnify Cruft to
the fullest extent permitted by law and the certificate of incorporation and
bylaws of the Company from and against any loss, claim, liability and/or
expense incurred for, or by reason of, or arising out of, acts of Cruft as an
officer and/or director of the Company or any subsidiary at any time prior to
the date hereof or during the Term hereof.
10. OPTIONS. Cruft currently owns those options listed on
Exhibit A hereto ("Existing Options"). Contemporaneously herewith, the
Company is issuing to Cruft non-plan, non-qualified options ("New Options",
New Options and Existing Options being referred to herein collectively as
"Cruft Options") to purchase an additional 50,000 shares of common stock of
the Company for (THE AVERAGE OF THE CLOSING BID AND ASKED PRICE FOR SUCH
STOCK ON NASDAQ ON THE DATE OF SIGNING) per share expiring June 1, 2000,
which New Options shall be exercisable by Cruft in whole or in part at any
time or times prior to such expiration date. For purposes of all the Cruft
Options, Cruft shall continue to be deemed an employee of the Company during
the Term hereof.
11. CONFIDENTIALITY AGREEMENT.
(a) (i) Cruft acknowledges that during his
employment with the Company or any of its subsidiaries, he may have access to
secret and confidential information, including but not limited to some or all
of the following:
(A) product and business plans, budgets, sales
forecasts, design plans, research and engineering data,
inventions, methods, systems and processes,
E-19
<PAGE>
(B) exploration activities, including, but not
limited to, prospects, joint ventures, mining and acquisition
opportunities and similar matters,
(C) customers, and
(D) trade secrets
(all such information is hereinafter referred to as "Confidential
Information").
(ii) Cruft agrees that (except as authorized in
writing by the Company or required pursuant to legal or administrative
process) he will not reveal, divulge or make known to any person, firm or
corporation any Confidential Information.
(iii) Cruft agrees that at any time during the
Term upon the request of the Board of Directors and upon the termination of
this Agreement, Cruft will deliver all Confidential Information together with
copies thereof in his possession to the Company. In addition, if after the
Term he shall discover any Confidential Information in his possession, he
shall forthwith deliver the same together with all copies thereof to the
Company.
(b) In the event of the breach or threatened breach of
the terms and conditions of this Section 11 by Cruft, the Company shall be
entitled to a temporary or preliminary restraining order and an injunction or
other equitable relief restraining and enjoining Cruft from violating this
Section 11. In addition to the equitable relief provided above, the Company
shall have the right to pursue all other remedies available at law to the
Company for such breach or threatened breach, including recovery of damages
from Cruft.
E-20
<PAGE>
(c) In the event that any of the provisions of this
Section 11 shall be deemed unenforceable, invalid, or overbroad, in whole or
in part for any reason, then any court of competent jurisdiction is hereby
authorized, requested and instructed to reform such provision or provisions
to provide for the maximum confidentiality restraints upon the activities of
Cruft, which may then be legal and valid.
12. DISPUTE RESOLUTION. Any controversy or claim arising out
of or relating to this Agreement and the obligations and responsibilities of
the parties hereto or the breach or alleged breach by any of the parties of
their respective obligations hereunder shall be settled by arbitration in the
City of New York, by one arbitrator in accordance with the then governing
Rules of the American Arbitration Association. The written decision of the
arbitrator shall be final and binding upon the Company and Cruft. Judgment
upon the award rendered may be entered and enforced in any court of competent
jurisdiction. Notwithstanding the above, either party shall be entitled to
seek and obtain injunctive or similar relief from a court of competent
jurisdiction where appropriate pending arbitration. Both parties hereby
submit to the exclusive jurisdiction of the courts of the State of New York
or Federal courts situated in New York County, New York for such purpose and
for purposes of enforcing any arbitration award. All legal fees and expenses
reasonably incurred by Cruft in good faith as a result of claims or
arbitration arising from this Agreement shall be paid by the Company.
13. MISCELLANEOUS.
(a) This Agreement contains the entire understanding
between the parties hereto concerning the subject matter hereof. This
Agreement may only be amended by an instrument in writing executed by the
parties hereto.
(b) This Agreement shall be construed and enforced in
accordance with the laws of the State of New York.
(c) This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of the successor or
successors of the Company, whether by merger, consolidation or otherwise.
E-21
<PAGE>
(d) Any notice to be given pursuant to the terms of this
Agreement shall be in writing and delivered by hand or sent by registered or
certified mail, to such party's address set forth above or to such other
address or to the attention of such other person as either party has
specified by prior written notice to the other party.
(e) The Company's waiver of a breach of any provision of
this Agreement by Cruft shall not operate or be construed as a waiver of any
subsequent breach of this Agreement by Cruft. No waiver shall be valid
unless in writing and signed by an authorized officer of the Company.
(f) Cruft acknowledges that his services are unique and
personal. Accordingly Cruft shall not assign his rights or delegate his
duties or obligations under this Agreement.
(g) Headings in this Agreement are for convenience only
and shall not be used to interpret or construe its provisions.
(h) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
E-22
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement
to be executed by its officers thereunto duly authorized, and Cruft has
executed this Agreement all as of the date first above set forth.
NORD PACIFIC LIMITED
By:
----------------------------
----------------------------
EDGAR F. CRUFT
E-23
<PAGE>
Exhibit 24.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in (i) Registration Statement
No. 33-41147 of Nord Pacific Limited on Form S-8, (ii) Registration Statement
No. 33-51752 of Nord Pacific Limited on Form S-8, (iii) Registration
Statement No. 33-84654 of Nord Pacific Limited on Form S-8, (iv) Registration
Statement No. 33-95514 of Nord Pacific Limited on Form S-8 and (v)
Registration Statement No. 33-21159 of Nord Pacific Limited on Form S-8 of
our report dated March 20, 1998, appearing in the Annual Report on Form 10-K
of Nord Pacific Limited for the year ended December 31, 1998.
DELOITTE & TOUCHE
Chartered Accountants
Hamilton, Bermuda
March 30, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORD
PACIFIC LIMITED FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,351
<SECURITIES> 0
<RECEIVABLES> 1,313
<ALLOWANCES> 0
<INVENTORY> 341
<CURRENT-ASSETS> 8,745
<PP&E> 10,225
<DEPRECIATION> 5,488
<TOTAL-ASSETS> 40,397
<CURRENT-LIABILITIES> 9,884
<BONDS> 313
0
0
<COMMON> 617
<OTHER-SE> 24,639
<TOTAL-LIABILITY-AND-EQUITY> 40,397
<SALES> 16,328
<TOTAL-REVENUES> 16,328
<CGS> 8,696
<TOTAL-COSTS> 8,696
<OTHER-EXPENSES> 14,293
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 371
<INCOME-PRETAX> (12,027)
<INCOME-TAX> 2,300
<INCOME-CONTINUING> (14,327)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,327)
<EPS-PRIMARY> (1.31)
<EPS-DILUTED> (1.31)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORD
PACIFIC LIMITED FORM 10-K FOR THE QUARTER ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<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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0
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<COMMON> 617
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<EPS-PRIMARY> .04
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