<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the quarterly period
ended September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 and 15(d) of The
Securities Exchange Act of 1934
Dakota Mining Corporation
(Exact name of Registrant as specified in its charter)
Canada 0-17583 84-1094683
- - --------------- -------------------- ---------------------
(State or other (Commission File No.) (IRS Employer ID No.)
jurisdiction of
incorporation/organization)
Executive Offices:
410 Seventeenth Street
Suite 2450
Denver, Colorado 80202
Telephone: (303) 573-0221
Fax: (303) 573-1012
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
Number of common shares outstanding on November 7, 1996 :35,479,742
<PAGE>
DAKOTA MINING CORPORATION
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED BALANCE SHEETS 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 4
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9
PART II - OTHER INFORMATION 16
ITEM 1 - LEGAL PROCEEDINGS 16
ITEM 2 - CHANGES IN SECURITIES 16
ITEM 3 - DEFAULT UPON SENIOR SECURITIES 16
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF
SECURITY HOLDERS 16
ITEM 5 - OTHER INFORMATION 16
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
<PAGE>
<TABLE>
DAKOTA MINING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(expressed in United States dollars)
(unaudited)
<CAPTION>
September 30, December 31,
1996 1995
---- -----
ASSETS
<S>
Current assets
<C> <C>
Cash $ 7,068,059 $2,260,025
Inventories 7,791,313 3,821,176
Deferred stripping costs 1,248,684 667,956
Other current assets 615,707 340,965
---------- ---------
16,723,763 7,090,122
Property, plant and equipment, net 17,568,974 22,972,514
Other assets
Reclamation bonds 4,667,888 3,577,475
Advance minimum royalties 2,037,491 2,007,260
Other 74,658 258,050
---------- ----------
$41,072,774 $35,905,421
=========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S>
Current liabilities
<C> <C>
Accounts payable $ 5,700,231 $ 5,152,517
Accrued liabilities 1,658,882 1,864,790
Reclamation costs 555,274 576,500
Short-term borrowings 3,200,000 1,157,991
Current portion of long-term debt 1,277,642 565,546
--------- ---------
12,392,029 9,317,344
Long-term liabilities
Long-term debt 103,370 439,520
Accrued shut-down costs 981,766 -
Reclamation costs 4,699,082 3,558,304
---------- ----------
Total liabilities 18,176,247 13,315,168
---------- ----------
Shareholders' equity
Warrants 63,134 87,500
Preference shares, without par value;
20,000,000 shares authorized, none
issued or outstanding
Common shares, without par value;
unlimited shares authorized;
35,479,742 issued and outstanding
in 1996; 26,534,742 in 1995 52,808,412 38,906,595
Accumulated deficit (29,663,142) (16,064,270)
Cumulative translation adjustment (311,877) (339,572)
----------- ----------
Total shareholders' equity 22,896,527 22,590,253
----------- ----------
$41,072,774 $35,905,421
=========== ===========
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
<PAGE>
<TABLE>
DAKOTA MINING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(expressed in United States dollars)
(unaudited)
<CAPTION>
Three months ended Nine months ended
Sept.30,1996 Sept.30,1995 Sept.30,1996Sept.30,1995
<S> <C> <C> <C> <C>
Operating revenues $9,064,863 $3,188,095 $15,865,630 $6,635,883
Operating costs
Mine, mill and
administration 7,839,230 1,641,072 13,508,789 3,935,791
Depreciation and depletion 1,415,217 855,075 3,369,353 1,972,398
Holding and standby costs - 1,100,020 1,330,026 3,025,202
Royalties and severance taxes 413,205 108,863 672,545 211,715
Reclamation 473,516 209,445 1,429,895 384,646
Other 22,878 38,428 111,716 94,034
General corporate costs 464,442 336,149 1,303,265 1,007,126
---------- -------- --------- ----------
10,628,488 4,289,052 21,725,589 10,630,912
---------- --------- ---------- ----------
Operating loss (1,563,625) (1,100,957) (5,859,959) (3,995,029)
--------- --------- --------- ---------
Other income (expense):
Investment income 25,123 62,932 435,821 207,402
Interest expense (18,412) (116,188) (283,401) (303,617)
Property impairment (7,922,116) - (7,922,116) -
Other 32,803 7,191 30,782 (5,882)
--------- ------- --------- --------
(7,882,602) (46,065) (7,738,914) (102,097)
--------- ------- --------- --------
Net loss $(9,446,227) $(1,147,022)$(13,598,873) $(4,097,126)
========== ========= ========== =========
Net loss per common share $ (0.27) $ ( 0.04)$ (0.45) $ (0.16)
========== ========= ========= =========
Weighted average number of
shares outstanding 35,477,394 26,255,413 30,037,331 25,012,663
========== ========== ========== ==========
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
<PAGE>
<TABLE>
DAKOTA MINING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in United States dollars)
unaudited)
<CAPTION>
Nine months ended
Sept. 30, 1996 Sept. 30, 1995
-------------- --------------
<S>
Cash provided by (used in)
Operating activities
<C> <C>
Net loss (13,598,873) (4,097,126)
Add (deduct) non-cash items:
Depreciation, depletion and amortization 3,369,353 1,972,398
Property impairment 7,922,116 -
Reclamation, holding and standby accrued 1,891,488 323,630
Other (117,216) 110,001
--------- ---------
(533,132) (1,691,097)
Net change in non-cash working
capital items related to operations (4,953,628) (853,175)
--------- ---------
(5,486,760) (2,544,272)
--------- ---------
Investment activities
Additions to property, plant and equipment (5,131,032) (3,712,741)
Additions to reclamation bonds and
other assets (962,667) (1,312,400)
--------- ---------
(6,093,699) (5,025,141)
--------- ---------
Financing activities
Proceeds from exercise of Common Share
Purchase Warrants 340,397 587,867
Proceeds from the sale of special warrants 14,513,672 6,000,000
Special warrant offering costs paid (976,616) (492,301)
New borrowings 3,230,000 1,360,571
Repayment of indebtedness (746,652) (1,043,301)
---------- ---------
16,360,801 6,412,836
---------- ---------
Effect of exchange rate on cash 27,692 -
---------- ---------
Net change in cash 4,808,034 (1,156,577)
Cash, beginning of period 2,260,025 3,097,441
---------- ---------
Cash, end of period $ 7,068,059 $1,940,864
========== =========
</TABLE>
(See accompanying notes to condensed consolidated financial statement)
<PAGE>
DAKOTA MINING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. General
Dakota Mining Corporation and its subsidiaries (the
"Company") are engaged in the business of investing in and
operating precious metals mining projects, producing gold
and silver and exploring for, acquiring and developing
precious metals properties.
The consolidated financial statements of the Company are
reported in United States dollars in accordance with
generally accepted accounting principles in Canada. As
described in Note 4, these principles may differ in certain
respects from those that the Company would have followed had
its consolidated financial statements been prepared in
accordance with generally accepted accounting principles and
practices in the United States.
The interim financial data are unaudited. However, in the
opinion of management, all adjustments that are normal and
recurring in nature have been made for a fair presentation
of the financial position of the Company at September 30,
1996 and the results of operations for the interim periods
presented. Results of operations for this period are not
necessarily indicative of results to be expected for the
full year. For a more thorough understanding of the
Company's operations and financial position, these
statements should be read with the audited financial
statements and notes included with the Company's December
31, 1995 audited financial statements.
2. Inventories and Deferred Stripping Costs
On the dates indicated, inventories were comprised of the
following:
<TABLE>
<CAPTION>
Sept. 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Bullion $ 874,764 $1,290,231
Heap leach 6,652,400 2,244,420
Materials and Supplies 264,149 286,525
--------- ---------
$7,791,313 $3,821,176
========= =========
</TABLE>
3. Borrowing Arrangements
On April 19, 1996, the Company completed an agreement to
establish a Revolving Loan Agreement with Gerald Metals,
Inc. for a $4.0 million seasonal line of credit. Interest
accrues at a rate of LIBOR plus 2.75% with the entire
balance repayable within one year. The credit facility is
collateralized by all the underlying assets of the Gilt Edge
and Stibnite Mines and is guaranteed by the Company. At
November 7, 1996, the Company had drawn $3.2 million of the
credit facility.
In April, 1996, the terms of a short-term borrowing
arrangement with D.H. Blattner & Sons ("Blattner") were
redetermined. The Company has signed a Secured Loan Note
which provides for monthly payments, including accrued
interest, of $75,000 commencing May 1, 1996 and continuing
<PAGE>
until September 1, 1997. The loan bears interest at 8.5%
per annum, is collateralized by the assets of Stibnite Mine
and is guaranteed by Dakota Mining Corporation. This
facility was subordinated by Blattner to Gerald under the
Revolving Credit Facility previously described. On May 21,
1996, Gerald purchased the Secured Loan Note from Blattner
in a transaction not involving the Company.
4. Generally Accepted Accounting Principles (GAAP) in Canada
and the United States
The Company follows Canadian accounting principles which are
different in some respects from accounting principles
applicable in the United States. There are no significant
differences in 1996 and 1995 between Canadian accounting
principles and U.S. GAAP pertaining to the Company.
(a) Under Canadian accounting principles, the
Arrangement completed on September 15, 1993 (Note 6)
was accounted for as a financial reorganization
resulting in a "fresh start." Consequently, results of
operations and cash flows for periods before the
financial reorganization are not reported. However,
under U.S. GAAP, the Arrangement would be accounted for
as a quasi-reorganization and the pre-Arrangement
results of operations and cash flow activities would
have been combined with the post-Arrangement financial
reorganization activities. U.S. GAAP requires that the
deficit accumulated after the financial reorganization
be dated as of September 15, 1993 to notify financial
statement readers of the reorganization.
(b) Under U.S. GAAP, the Company would calculate
deferred income taxes using an asset and liability
method. Deferred income taxes reflect the net tax
effect of temporary differences between the carrying
amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax
purposes.
(c) Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation (SFAS
123) was issued in October, 1995 by the Financial
Accounting Standards Board. SFAS 123 establishes
financial accounting and reporting standards for stock-
based employee compensation plans as well as
transactions in which an entity issues equity
instruments to acquire goods or services from non-
employees. Under SFAS 123 an entity may continue to
measure compensation cost for those plans in accordance
with APB Opinion No. 25, Accounting for Stock Issued
to Employees, which method is similar to that applied
under Canadian GAAP, providing that certain proforma
disclosures are provided. SFAS 123 is applicable to
fiscal years beginning after December 15, 1995. The
Company does not expect to adopt the accounting
prescribed by SFAS 123; however, it will include the
proforma disclosures required by SFAS 123 beginning
with its 1996 annual consolidated financial statements.
5. Ownership Interest in Golden Reward Mine
The Company owns a 40% interest in Golden Reward Mine, with
the remaining 60% interest being owned by two subsidiaries
of Wharf Resources Ltd. ("Wharf"). The Company's
proportionate share of the partnership's balance sheets as
of September 30, 1996 and December 31, 1995 and statements
<PAGE>
of operations for each of the years indicated are as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
Balance sheets
<S> <C> <C>
Current assets $1,052,523 $ 1,313,421
Plant property and equipment 1,266,400 10,047,831
Other assets 473,590 464,193
--------- ----------
Total assets 2,792,513 11,825,445
--------- ----------
Accounts payable and other
current liabilities 646,652 428,777
Current portion of long-term debt 364,400 364,400
Long-term debt 89,600 358,400
Other long-term liabilities 1,879,834 370,701
--------- ----------
Total liabilities 2,980,486 1,522,278
--------- ----------
$ (187,973) $10,303,167
========= ==========
</TABLE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
Sept. 30, Sept. 30,
1996 1995 1996 1995
---- ---- ---- ----
<S>
Statement of operations:
<C> <C> <C> <C>
Revenues $ 754,936 $2,772,314 $3,715,499 $5,998,736
Mine cash production
costs 192,088 1,318,549 2,860,796 3,317,670
Royalties 11,350 29,998 108,217 90,527
Holding and standby costs - - 1,330,026 -
Exploration 6,238 26,902 59,754 75,227
Reclamation - 99,977 639,496 158,983
Depreciation and depletion 371,799 741,627 1,643,539 1,656,161
Property impairment 7,922,116 - 7,922,116 -
--------- -------- --------- ---------
Total production costs 8,503,591 2,217,053 14,563,944 5,298,568
--------- --------- ---------- ---------
Operating income (loss) (7,748,655) 555,261 (10,848,445) 700,168
Other income (expense) (6,664) (25,155) 33,184 (124,025)
--------- --------- ---------- ---------
$(7,755,319) $ 530,106 $10,815,261 $ 576,143
========= ======== ========== =========
</TABLE>
Based upon uncertainties arising from the proximity of
certain unpermitted reserves to a ski hill, the operator of
Golden Reward L.P. reflected in the financial statements of
the partnership at December 31, 1995 and at September 30,
1996, an impairment of its investment in mineral properties
relating to the Golden Reward Mine. The Company
incorporated this write-down into its September 30, 1996
financial statements after Golden Reward L.P. failed to
reach an agreement regarding the acquisition of certain
surface rights owned by the ski hill.
6. 1993 Arrangement
On September 13, 1993, the shareholders of the Company
approved a recapitalization of the Company's outstanding
common shares as part of an "arrangement" under applicable
Canadian law (the "Arrangement"). Pursuant to such
Arrangement, all of the shares of common stock of the
Company issued and outstanding as of September 15, 1993 (the
<PAGE>
"Old Common Shares") were exchanged for new Common Stock and
Common Share Purchase Warrants (the "Arrangement Warrants".)
The basis for such exchange was one share of new Common
Stock and 1/2 of an Arrangement Warrant for every 12.43452
shares of Old Common Shares. A whole Arrangement Warrant
allowed the holder thereof to acquire one share of Common
Stock at an exercise price of $1.50 until September 15, 1994
and thereafter at $1.75 until their expiry on September 15,
1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company has interests in three principal mining
properties: a 100% interest in Gilt Edge Mine; a 100% interest in
Stibnite Mine; and a 40% interest in Golden Reward Mine. The
Company also has a 25% interest in Cactus Mine; however, such
mine is presently in the reclamation stage and future activities
will not be material to the Company.
The Company's operating activities at Gilt Edge Mine were
severely curtailed during 1995 pending receipt of various new
operating permits. The Company received the necessary operating
permits to recommence operations at Gilt Edge Mine on January 19,
1996.
For the past three years, the Company has funded, and it is
anticipated that it will continue to fund its operating losses,
working capital requirements and capital needs primarily through
the private placement of equity securities. On February 14,
1996, the Company issued and sold by way of private placement,
8.7 million Special Warrants at a price of Cdn$2.30 per Special
Warrant representing gross proceeds to the Company of
Cdn$20,010,000 (US$14,507,250). In June 1996, each Special
Warrant was exchanged into one Common Share and one-half of a
Purchase Warrant for no additional consideration. Each whole
Purchase Warrant entitles the holder thereof to acquire one
Common Share until December 14, 1997 at an exercise price of
Cdn$2.65. The Company paid commissions to certain underwriters
in connection with the offering of Cdn.$1,000,500 (U.S. $725,400)
or Cdn$.115 per Special Warrant and issued to such underwriters a
warrant to purchase 200,000 Common Shares under the same terms
and conditions as the Purchase Warrants.
The proceeds from the private placement are being used and
will continue to be used to fund capital expenditures required to
bring the Anchor Hill deposit located at Gilt Edge Mine into
production; to fund feasibility and permitting expenditures on
sulfide reserves at Gilt Edge Mine; to fund exploration, property
development and acquisition; and to fund the general working
capital requirements of the Company.
On April 19, 1996, the Company established a Revolving Loan
Agreement with Gerald Metals, Inc. for a $4.0 million seasonal
line of credit. Interest accrues at a rate of LIBOR plus 2.75%
with the entire balance repayable within one year. The credit
facility is collateralized by all the underlying assets of the
Gilt Edge and Stibnite Mines and is guaranteed by the Company.
At November 7, 1996, the Company had drawn $3.2 million of the
credit facility.
In order to minimize an adverse effect upon operations
should gold prices fall in the future, the Company from time-to-
time, enters into gold price protection agreements. At November
7, 1996, the Company had entered into various option contracts
with a bullion dealer to deliver 4,000 ounces of gold at a
<PAGE>
minimum price of $395 per ounce and a maximum of $425 per ounce
during the period from November 1, 1996 through December 31,
1996, and has agreed to deliver 4,500 ounces of gold at $390 per
ounce under forward sales contracts which expire during the
period from November 29, 1996 through January 31, 1997.
Fluctuations in future gold prices could significantly impact the
Company's future revenues.
At September 30, 1996, the Company had working capital of
$4.3 million primarily due to an increase in cash, inventory, and
other assets of $9.6 million since December 31, 1995, offset by
an increase in accounts payable of $600,000 and an increase in
the current portion of long-term debt of $3.1 million since
December 31, 1995. The improvement in working capital from a
deficit of $2.2 million at December 31, 1995 is a result of the
private placement of Special Warrants.
Cash used in operations was $5.5 million during the first
nine months of 1996 compared to cash used in operations of $2.5
million during the same period of 1995. The increase in cash
used in the first nine months of 1996 as compared to 1995 is
primarily due to the build-up in inventories at Gilt Edge mine
due to recommencement of operations and at Stibnite mine which as
of September 30 was in its mid-operating season. Cash was also
used to decrease accounts payable and accrued liabilities at
September 30, 1996 when compared to balances at December 31,
1995.
Cash used in investment activities during the first half of
1996 pertains to additions to plant, property and equipment
primarily for the expansion of additional heap leach facilities
at Gilt Edge Mine and for exploration programs at both Gilt Edge
Mine and Stibnite Mine.
Cash provided by financing activities during the first nine
months of 1996 included approximately $13.5 million of proceeds,
net of offering costs, from the sale of Special Warrants. The
Company also repaid approximately $270,000 of its pro rata share
of certain long-term debt obligations of Golden Reward L.P. In
total the Company repaid borrowings of $746,652 during the first
nine months of 1996.
During the next three years, the Company anticipates that
its aggregate costs for land holding, expansion of existing
mining facilities, exploration on existing properties and
obtaining new operating permits will approximate $6.5 million.
The Company anticipates that these capital requirements will be
funded from the proceeds of the sale of the Special Warrants sold
in February, 1996 and from cash flows from operations. The
Company also anticipates that it will meet its repayment
obligations under two short-term borrowing arrangements of $4.1
million and under various long-term debt agreements principally
from cash flows generated by operating activities.
On October 3, 1996 the Company signed an agreement to merge
with Ariel Resources Ltd. Under the terms of the agreement,
Ariel shareholders will receive one Dakota share for every two
shares of Ariel held and Ariel will become a wholly-owned
subsidiary of Dakota. The transaction is subject to required
regulatory approvals, the approval of Ariel shareholders, court
approval, completion of due diligence by both parties and certain
other conditions. After completion of the transaction, the
Company will be operated by the current management team at
Dakota.
Ariel holds a 55 sq. km. concession in the northern part of
the "Costa Rican Gold Belt," which is a 100 km long northwesterly-
trending belt that includes over 60 known gold properties.
Historically, Ariel's holdings have produced more than 1.6
million ounces of gold. Ariel is currently Costa Rica's largest
gold producer with three underground mines. This year Ariel's
combined production is expected to exceed 15,000 ounces of gold
at a cash cost of US $200 per ounce. Open pit operations are
expected to begin in the near future and should lead to a steady
rise in gold output, reaching the 80,000 ounce per year plateau
by 1999. At present, Ariel reports proven, probable and mineable
reserves of 634,000 ounces of gold and a gold resource of 376,900
ounces. The Company expects to complete due diligence on this
project by the end of November.
<PAGE>
Gilt Edge Mine
The Company recommenced operations at Gilt Edge Mine in the
second quarter of 1996 through the development of the Anchor Hill
oxide deposit which at December 31, 1995 consisted of 8.58
million tons of ore containing approximately 222,000 ounces of
gold. Average gold recoveries are estimated to be 71.6% and
average cash operating costs per ounce are expected to
approximate $250 per ounce produced. Depreciation, including
future development costs as noted below, is estimated to be $60
per ounce. Anchor Hill is expected to generate an operating
profit over its four-year mine life.
The Company has all requisite state and county operating
permits to allow for the development of the Anchor Hill oxide
deposit. The ultimate Anchor Hill open pit design contemplates
that approximately 37 acres of public lands will be disturbed,
principally for pit wall layback and waste removal. Accordingly,
the Company is required to complete an Environmental Impact
Statement ("EIS"). Management now expects to finalize the EIS
during the first quarter of 1997. Mining activities from Anchor
Hill can be conducted for approximately two years prior to any
disturbance of public lands. Completion of the EIS is expected
to cost approximately $165,000.
The Company has begun mining and processing activities at
Anchor Hill. The Company has hired a mining contractor to
conduct all mining and earthwork activities and is utilizing its
existing heap leach production facilities to process ores.
Initially, capital costs have been limited to the enlargement of
the present heap leach pad, offloading previously leached and
neutralized spent ore and purchasing certain equipment.
The South Dakota Department of Environment and Natural
Resources ("DENR") has conducted a Preliminary Assessment on
behalf of the United States Environmental Protection Agency
("EPA") of Gilt Edge Mine activities including the approximately
406 acres permitted under the Company's South Dakota state mining
permit. At this time, EPA has not made a determination as to
whether any further study needs to be made of the site.
Accordingly, the Company is not able to determine what impact, if
any, further action by DENR or EPA in connection with the
Preliminary Assessment may have on the site. The Company does
not know when the EPA may reach a decision on the Preliminary
Assessment.
In April 1993, the DENR issued the DENR Order regarding
remediation efforts related to acid rock drainage at Gilt Edge
Mine. The DENR Order remains in effect and the Company is in full
compliance. The DENR Order principally requires that, unless
discharge water meets certain permitted terms and conditions,
there shall be no discharge of acid mine drainage. On January
19, 1996, the Company received final approval of an updated and
amended reclamation plan from the State of South Dakota. Under
the conditions of the revised reclamation plan, the Company plans
to reclaim waste depositories and other areas by capping these
areas with impervious materials available from the overburden
associated with the Anchor Hill oxide deposit. Such capping will
prevent any continued migration of acid mine drainage. The
Company has estimated that its future capping costs will
approximate $3.2 million, which costs were fully accrued at
December 31, 1995. Funding of this obligation will be made from
operating cash flow derived from processing the Anchor Hill oxide
deposit.
The Company has provided the State of South Dakota with a
form of financial assurance in the amount of $7.9 million in
connection with the reclamation and remediation plan in the form
of cash deposits of $2.4 million and a demand note as proof of
<PAGE>
financial assurance in the amount of $5.5 million. The Company
expects its actual costs of completing the reclamation and
remediation plan to be substantially less than the financial
assurance amount.
At a future date when the Company provides notice to the
State of South Dakota that the Gilt Edge Mine will close and that
post closure care is to begin, the Company will be obligated to
convert a portion of its financial assurance into a post-closure
fund in a form acceptable to the State to ensure long term
treatment and maintenance of the site. The amount of the post-
closure financial assurance is not expected to be less than $3.0
million although no final determination will be made until the
mine actually closes.
As of September 30, 1996, the investment in property, plant
and equipment at Gilt Edge Mine approximated $9.5 million of
which $1.7 million is attributed to the sulfide development
potential of the property which is not currently subject to
amortization. Based upon a $400 per ounce gold price, an
independent engineering study and past operating experiences, the
Company believes that mining and processing the Anchor Hill oxide
deposit and the substantial sulfide deposit will generate
sufficient operating margins to ensure the recovery of the
Company's remaining investment in Gilt Edge Mine.
Stibnite Mine
Operations at Stibnite Mine were suspended in 1993 and 1994
pending resolution of various permitting matters. The Company
obtained the necessary permits to resume mining operations in
July 1995 and to conduct mining activities through 1997.
Operations subsequent to 1997 are subject to the completion of an
EIS which is expected to be completed in May 1997.
The Company has identified sufficient mineralized oxide
materials at Stibnite Mine to conduct operations at or above
historic annual production rates of approximately 32,000 ounces
of gold during 1996 and 1997 and has drill indicated mineralized
material which management believes will allow for several
additional years of operations. The drill indicated areas will
require further development drilling at a cost of approximately
$300,000 per year. Drilling activities, including reverse
circulation drilling to further delineate the prospects, will be
financed from the proceeds of the sale of Special Warrants.
As in the past, the Company has hired an outside contractor
to conduct all 1996 mining activities. All production facilities
necessary to conduct operations are in place and only minimal
refurbishment and maintenance is required to continue operations.
On July 10, 1995, the Company entered into a voluntary
Administrative Order of Consent with EPA regarding (the "Meadow
Creek Plan") an historic smelter tailings repository at Stibnite
Mine which existed prior to the Company's activities.
Approximately 50% of the work under the Meadow Creek Plan was
completed in 1995. Management estimates that approximately
$400,000 of costs will be incurred in each of 1996 and 1997 in
order to complete the Meadow Creek Plan. Such costs will be
funded from operating cash flows. The Company has apprised
previous owners and operators of the property of the Meadow Creek
Plan and believes that a substantial portion of such reclamation
costs may be recoverable from these parties.
On September 11, 1996 the Company received a Notice of
Potential Liability and Conduct of Removal Action from the United
<PAGE>
States Environmental Protection Agency pertaining to certain
remediation activities at an historic mine sight, located on
certain lands once leased by the Company. The Company never
conducted operations at this sight and no longer owns any
interest in the leases pertaining to this property. The EPA
estimates a total cost of $940,000.00 for its action. However,
the Company cannot presently determine the extent of its
liability, or whether any liability actually exists.
The Company's investment in mining assets at Stibnite Mine
as of September 30, 1996 is approximately $6.6 million of which
approximately $1.9 million has been attributed to the sulfide ore
potential of the property and is not currently subject to
amortization. Future depreciation will approximate $44 per
ounce. Based upon a $400 per ounce gold price and its past
operating experience, the Company believes Stibnite Mine's future
operating margins should ensure the recovery of its remaining
investment in mining assets.
Golden Reward Mine
Golden Reward Mine, is a partnership in which the Company
has a 40% interest, with the remaining 60% interest being owned
by two subsidiaries of Wharf Resources Ltd. ("Wharf"). Golden
Reward Mine ceased mining activities in June 1996. The Company's
share of estimated production in 1996 is expected to be
approximately 10,500 ounces of gold at an average cash cost of
$370 per ounce.
Based upon uncertainties arising from the proximity of
certain unpermitted reserves to a ski hill, the operator of
Golden Reward Mine reflected in the financial statements of the
partnership at December 31, 1995 and at September 30, 1996, an
impairment of its investment in mineral properties relating to
the Golden Reward Mine. The Company incorporated its prorata
share of this write-down into its September 30, 1996 financial
statements after Golden Reward L.P. failed to reach an agreement
regarding the acquisition of certain surface rights owned by the
ski hill. The write-down approximated $7.9 million. During the
second quarter of 1996, the Company had previously recorded a
shut-down accrual of approximately $1.7 million for its share of
future shut-down and reclamation costs.
Other Environmental Matters
In connection with its mining and milling activities, the
Company is required to comply with various federal, state and
local laws and regulations pertaining to the discharge of
materials into the environment or otherwise relating to the
protection of the environment. The Company believes that it has
obtained, or is taking the steps necessary to obtain, such
environmental permits, licenses or approvals required for its
operations. Management is not aware of any material violations of
environmental permits, licenses or approvals issued with respect
to the Company's operations other than the DENR Order issued to
the Company in respect of the Gilt Edge Mine by the South Dakota
DENR. See "Liquidity and Capital Resources" above.
Environmental laws and regulations may be enacted and
adopted in the future which may have an impact upon the Company's
operations. The Company cannot now accurately predict or estimate
the impact of any such future laws or regulations on its
operations.
Results Of Operations - For the Periods Ended September 30, 1996
and 1995
Revenues and Direct Operating Costs
The Company recorded a consolidated net loss of $9.4
million, or $0.27 per share, for the third quarter of 1996,
compared to a consolidated net loss of $1.1 million or $0.04 per
share, during the third quarter of 1995. Year-to-date, the
Company recorded a consolidated net loss of $13.6 million or
$0.45 per share in 1996, compared to a loss of $4.1 million, or
$0.16 per share in 1995. Included in this loss is a $7.9 million
nonrecurring charge to reduce the Company's carrying value of its
investment in the Golden Reward mine to its salvage value. Also
included in the year-to-date loss is an accrual of $1.7 million
representing future reclamation, mining, plant, services and
royalty costs at Golden Reward pertaining to the hiatus in
production as discussed previously.
<PAGE>
Shown below is the Company's share of metals sales (in
ounces) for each respective quarter:
<TABLE>
<CAPTION>
Metal Sales Metal Sales
Three months ended Nine months ended
Sept. 30, Sept.30,
1996 1995 1996 1995
---- ---- ---- ----
Ounces of gold sold
<S> <C> <C> <C> <C>
Cactus Mine (25%) 89 576 444 1,167
Gilt Edge Mine 9,925 2,308 15,136 2,308
Golden Reward Mine (40%) 2,040 7,218 9,495 15,641
Stibnite Mine 11,399 510 15,583 510
------ ------ ------ ------
23,453 10,612 40,658 19,626
====== ====== ====== ======
</TABLE>
[FN]
(1) Precious metals production for each of the joint
venture operations includes the Company's pro rata
share.
<TABLE>
<CAPTION>
Operating results for the comparative periods ended
September 30 are summarized in the following table:
Three months ended Nine months ended
Sept. 30, Sept. 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating revenue $9,064,863 $4,074,321(1) $15,865,630 $7,522,109(1)
========= ========= ========== =========
Average net price per
ounce of gold realized $ 386.52 $ 383.94 $ 390.23 $ 383.28
========= ========= ========= ========
Average London PM fix per
ounce of gold $ 385.00 $ 385.00 $ 392.00 $ 384.00
========= ========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
Sept. 30, Sept.30,
Mine, Mill and Admin(2) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gilt Edge Mine $3,127,759 $1,956,966 $4,627,049 $3,882,148
Golden Reward Mine 214,599 1,255,450 2,860,796 3,221,749
Stibnite Mine 4,410,133 186,602 5,786,940 330,018
Cactus Mine 86,739 199,020 234,004 384,024
_________ _________ _________ _________
Subtotal 7,839,230 3,598,038 13,508,789 7,817,939
Reclassified to holding
and standby - (1,956,966) - (3,882,148)
_________ _________ __________ __________
Total mine, mill and
administration $7,839,230 $1,641,072 $13,508,789 $3,935,791
========= ========= ========== =========
Average cash cost per ounce
of gold sold $ 334.26 $ 198.00 $ 332.26 $ 227.00
========= ========= ========= =========
</TABLE>
[FN]
(1) Operating revenues for 1995 do not include the
reclassification of revenues to holding and standby costs.
(2) Cash costs include mining, milling, project administration,
on-property exploration, and all holding and standby costs.
Overall, gold production and related operating revenues
increased due to the recommencement of operations at Stibnite
Mine in August 1995 after the successful completion of various
<PAGE>
permit matters. Recommencement of operations at Gilt Edge mine
in the second quarter of 1996 and the leaching of certain
stockpiled ores also contributed to higher production and
operating revenues than for the same period of 1995. This
increase was partially offset by a decrease in production at
Golden Reward Mine due to inclement weather during January and
February and the cessation of operations in June.
Mine, mill and administrative costs increased by $9,572,998
to $13,508,789 in the first nine months of 1996 when compared to
the same period of 1995. Costs at the Gilt Edge and Stibnite
Mines are significantly higher during the first nine months of
1996 than for the same period of 1995, but the periods are not
comparable because neither mine was operational during the first
half of 1995. Costs at Golden Reward are slightly lower for the
first nine months of 1996 due to the cessation of mining
activities in June, 1996. Costs at Cactus Mine are lower in the
first half of 1996 than in the same period of 1995 and relate to
wind-up and reclamation activities. Such costs will continue to
decline in the future as final reclamation activities continue.
The increase in depreciation, depletion and amortization in
1996 when compared to 1995 is due to an increase in the depletion
rate at Golden Reward Mine resulting from a reduction in
estimated recoverable reserves at December 31, 1995. Increases
in depletion at Gilt Edge Mine and Stibnite Mine are attributable
to units of production amortization as each mine sold
significantly more ounces during the first nine months of 1996
than during the same period of 1995.
Royalties vary from mine-to-mine and within the specific
area being mined in accordance with various agreements with
landowners. As a percentage of revenues, royalty expenses have
remained relatively flat. Effective in 1995, the State of South
Dakota adjusted its methods for calculating severance taxes, the
result of which was to significantly lower the effective rate.
Overall, royalties and severance taxes generally relate directly
to revenues earned. Therefore higher revenues in the first nine
months of 1996 resulted in higher royalty and severance taxes
than during the same period of 1995.
Reclamation costs in the first nine months of 1996 pertain
principally to the accrual of approximately $400,000 through
September 30 due to the early shutdown at Golden Reward and the
mining of Anchor Hill at Gilt Edge Mine, increasing by $1,045,249
to $1,429,895.
General corporate costs increased in 1996 when compared to
1995 due to additions in staff, legal expenses, travel
activities, and in the use of outside professional services
incurred in connection with potential mine acquisitions. These
increases are due, in part, to overall increases in corporate
activity in the first nine months of 1996 compared to the same
period of 1995.
Investment income is higher in the first nine months of 1996
due principally to interest earned on higher cash balances
available for investment purposes.
Interest expense is slightly lower in 1996 due to lower
vendor interest because of lower outstanding payable balances
during 1996. This is slightly offset by interest on the balance
on the Revolving Loan Agreement with Gerald Metals, Inc. during
the second and third quarters.
The Company does not anticipate that its U.S. operations
will be subject to alternative minimum tax during 1996.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULT UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
(b) The Company did not file a current report on
Form 8-K during the quarter ended September, 1996
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized
Dakota Mining Corporation
c/s Alan R. Bell Date November 7, 1996
- - -------------------------- ----------------
Alan R. Bell
President and Chief Executive Officer
c/s Robert R. Gilmore Date November 7, 1996
- - ------------------------- ----------------
Robert R. Gilmore
Vice President Finance
and Chief Financial Officer
<PAGE>
DAKOTA MINING CORPORATION
Exhibit 11 - COMPUTATION OF EARNINGS PER SHARE
Three months ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Three months ended Nine months ended
Sept. 30, Sept. 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning shares
outstanding 26,534,742 21,360,233 26,534,742 21,360,108
Exercise of common
share purchase warrants 56,470 19,091
Exercise of special
warrants 8,700,000 4,838,710 3,333,942 3,633,464
Average shares issued
for options exercised 242,652 - 168,647 -
---------- ---------- --------- ---------
Weighted average shares
outstanding 35,477,394 26,255,413 30,037,331 25,012,663
========== ========== ========== ==========
Net loss $(9,446,227) $(1,147,022) $(13,598,873) $(4,097,126)
========== ========== ========== ==========
Loss per common
share $ (0.27) $ (0.04) $ (0.45) $ (0.16)
========== ========== ========== =========
</TABLE>
[FN]
NOTE: All other issued and outstanding options and warrants are
antidilutive. Fully diluted calculation is not different and
therefore is not applicable.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000848448
<NAME> EX-27
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,068,059
<SECURITIES> 0
<RECEIVABLES> 188,190
<ALLOWANCES> 0
<INVENTORY> 7,791,313
<CURRENT-ASSETS> 16,723,763
<PP&E> 35,549,813
<DEPRECIATION> (17,980,839)
<TOTAL-ASSETS> 41,072,774
<CURRENT-LIABILITIES> 12,392,029
<BONDS> 0
0
0
<COMMON> 52,871,546
<OTHER-SE> (29,975,019)
<TOTAL-LIABILITY-AND-EQUITY> 41,072,774
<SALES> 15,865,630
<TOTAL-REVENUES> 15,865,630
<CGS> 21,725,589
<TOTAL-COSTS> 21,725,589
<OTHER-EXPENSES> 7,455,513
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 283,401
<INCOME-PRETAX> (13,598,873)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,598,873)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (.45)
<EPS-DILUTED> (.45)
</TABLE>
