UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 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 jurisdiction of (Commission File (I.R.S. Employer
incorporation/organization) Number) Identification No.)
1560 Broadway
Suite 880
Denver, Colorado 80202
(Address of principal executive offices)
Telephone: (303) 573-0221
Fax: (303) 573-1012
(Registrant's telephone number, including area code)
410 Seventeenth Street
Suite 2450
Denver, Colorado 80202
(Former address of principal executive offices)
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 12, 1997: 51,251,342
<PAGE>
DAKOTA MINING CORPORATION
INDEX
PART I FINANCIAL INFORMATION PAGE
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.............. 11
PART II OTHER INFORMATION................................. 19
ITEM 1 - LEGAL PROCEEDINGS........................ 19
ITEM 2 - CHANGES IN SECURITIES.................... 19
ITEM 3 - DEFAULT UPON SENIOR SECURITIES........... 19
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY
HOLDERS..................................... 19
ITEM 5 - OTHER INFORMATION........................ 19
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K......... 19
SIGNATURES....................................................... 20
<PAGE>
<TABLE>
DAKOTA MINING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(expressed in United States dollars)
(unaudited)
<CAPTION>
September 30, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C>
ASSETS
Current assets
Cash $ 2,918,699 $ 5,092,150
Inventories 10,772,919 2,643,701
Deferred stripping costs 1,302,092 886,086
Deferred hedging costs 4,947,311 -
Other current assets 513,356 739,064
------------------- -----------------
20,454,377 9,361,001
Property, plant and equipment, net 56,632,761 15,150,399
Other assets
Reclamation bonds 10,846,755 5,111,844
Advance minimum royalties 1,486,819 1,871,965
Deferred hedging costs 396,854 -
Other 516,439 74,141
------------------- ----------------
$ 90,334,005 $ 31,569,350
=================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 11,567,005 $ 4,915,525
Accrued liabilities and other 1,939,803 2,003,625
Reclamation Costs 1,468,987 428,983
Short-term borrowings - 623,623
Current portion of long-term debt 17,640,620 383,265
------------------- ----------------
32,616,415 8,355,021
Long-term liabilities
Long-term debt 14,992,590 3,240,053
Other long-term liabilities 818,414 952,000
Reclamation costs 6,488,821 5,562,881
------------------- ----------------
Total liabilities 53,547,490 18,109,955
------------------- ----------------
Shareholders' equity
Purchase warrants 63,134 63,134
Paid in Capital 10,412,611 -
Preference shares, without par value;
20,000,000 shares authorized, none issued
or outstanding - -
Common shares, without par value; unlimited
shares authorized; 51,101,726 issued and
outstanding in 1997; 35,479,742 in 1996 69,315,793 51,101,726
Accumulated deficit (43,735,745) (39,133,909)
Cumulative translation adjustment (638,028) (279,810)
-------------------- ------------------
35,417,765 13,459,395
==================== ==================
Total shareholders' equity $ 90,334,005 $ 31,569,350
==================== ==================
<FN>
(See accompanying notes to condensed consolidated financial statements)
</FN>
</TABLE>
<PAGE>
<TABLE>
DAKOTA MINING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(expressed in United States dollars)
(unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
----------------- ----------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Operating revenues $ 7,870,993 $ 9,064,863 $ 15,760,303 $ 15,865,630
----------------- ----------------- ------------------- ------------------
Operating costs
Mine, mill and administration 3,886,717 7,839,230 10,375,060 13,508,789
Depreciation and depletion 1,628,334 1,415,217 3,501,774 3,369,353
Holding and standby costs - - - 1,330,026
Royalties and severance taxes 286,393 413,205 830,827 672,545
Exploration (4,416) - 11,173 -
Reclamation 301,946 473,516 671,239 1,429,895
Other - 22,878 - 111,716
General corporate costs 698,352 464,442 1,615,215 1,303,265
----------------- ----------------- ------------------- ------------------
6,797,326 10,628,488 17,005,288 21,725,589
----------------- ----------------- ------------------- ------------------
Operating income (loss) 1,073,667 (1,563,625) (1,244,985) (5,859,959)
----------------- ----------------- ------------------- ------------------
Other income (expense):
Investment income 52,136 25,123 393,936 435,821
Interest expense (761,742) (18,412) (1,295,227) (283,401)
Property Impairment - (7,922,116) (2,635,767) (7,922,116)
Other (224,614) 32,803 (244,686) 30,782
----------------- ----------------- ------------------- ------------------
(934,220) (7,882,602) (3,781,744) (7,738,914)
----------------- ----------------- ------------------- ------------------
Net income (loss) $139,447 $(9,446,227) $(5,026,729) $(13,598,873)
================= ================= =================== ==================
Net income (loss) per common share $0.00 $(0.27) $(0.12) $(0.45)
================= ================= =================== ==================
Weighted average number of
shares outstanding 51,157,018 35,477,394 42,479,628 30,037,331
================= ================= =================== ==================
<FN>
(See accompanying notes to condensed consolidated financial statements)
</FN>
</TABLE>
<PAGE>
<TABLE>
DAKOTA MINING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in United States dollars)
(unaudited)
<CAPTION>
Nine months ended
September 30, 1997 September 30, 1996
----------------------- ------------------------
<S> <C> <C>
Cash provided by (used in):
Operating activities
Net loss $(5,026,729) $(13,598,873)
Add (deduct) non-cash items:
Depreciation, depletion and amortization 3,501,774 3,369,353
Property impairment 2,635,767 7,922,116
Reclamation, holding and standby accrued, net 671,239 1,891,488
Other - (117,216)
----------------------- ------------------------
1,782,051 (533,132)
Net change in non-cash working
capital items related to operations (2,017,655) (4,953,628)
----------------------- ------------------------
(235,604) (5,486,760)
----------------------- ------------------------
Investment activities
Additions to property, plant and equipment (5,715,178) (5,131,032)
Payment of capital related liabilities assumed at merger (3,723,897) -
Merger costs paid (812,084) -
Advances to USMX prior to merger (6,480,178) -
Additions to reclamation bonds and other assets (1,561,168) (962,667)
----------------------- ------------------------
(18,292,505) (6,093,699)
------------------------ ------------------------
Financing activities
Proceeds from exercise of common share
purchase warrants - 340,397
Proceeds from the sale of special warrants 18,088,753 14,513,672
Special warrant offering costs paid (1,412,595) (976,616)
New borrowings 2,970,000 3,230,000
Repayment of indebtedness (2,933,283) (746,652)
------------------------ -----------------------
16,712,875 16,360,801
------------------------ -----------------------
Effect of exchange rate on cash (358,217) 27,692
----------------------- ------------------------
Net change in cash (2,173,451) 4,808,034
Cash, beginning of period 5,092,150 2,260,025
----------------------- ------------------------
Cash, end of period $2,918,699 $7,068,059
======================= ========================
<FN>
(See accompanying notes to condensed consolidated financial statement)
</FN>
</TABLE>
<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 condensed 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 is 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, 1997 and the results of operations and cash flows 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, 1996 audited
consolidated financial statements as filed in its Annual Report on Form
10-K.
2. Merger
In February 1997, a definitive agreement ("Merger Agreement") with
USMX, Inc. ("USMX") was signed. The merger was completed May 29, 1997,
following a vote in favor of the transaction by shareholders of both
companies. Under the terms of the Merger Agreement, shareholders of USMX
received one Dakota common share for every 1.1 common shares of USMX held
and USMX became a wholly owned subsidiary of Dakota. In connection with the
transaction, the Company issued approximately 15.6 million common shares.
The Company's Common Shares had an approximate market value of $16.4
million or $1.05 per share, based upon an average US Dollar trading price
for the Common Shares on the day the merger was completed. Prior to the
merger the Company made loans and advances to USMX for approximately $6.5
million. These loans and advances were recorded as part of the purchase
price of USMX. The Company accounted for the merger as a purchase.
Under the terms of the Merger Agreement, the Company provided USMX with
a $5 million loan facility from the proceeds of the Special Warrant
offering. The loan was needed by USMX to reduce its outstanding accounts
payable and to commence start-up of the Illinois Creek Mine. In addition to
the $5 million loan the Company advanced USMX approximately $1.5 prior to
the completion of the merger. The additional funds were primarily used by
USMX to fund working capital requirements at the Illinois Creek Mine. The
Company accounted for the loan and advances as an adjustment to the
purchase price of USMX.
The following table summarizes the effect on the Company's balance
sheet at the May 29, 1997, merger date:
Assets acquired
Cash and other current assets $ 177,939
Inventories 2,864,413
Property plant and equipment 39,656,697
Reclamation bonds 3,855,445
Advance minimum royalties 450,000
Hedging contracts 6,222,936
------------------
Total assets acquired 53,227,430
Liabilities and debt assumed
Liabilities assumed 7,461,695
Debt assumed 22,086,156
------------------
Total liabilities and debt assumed 29,547,851
==================
Amounts paid and value of shares issued $ 23,679,579
==================
<PAGE>
3. Convertible Debenture Offering
In order to provide financing for the merger with USMX, on February 5,
1997, the Company entered into an agency agreement with certain Canadian
investment dealers (collectively, the "Agents") to sell by way of private
placement 25,000 Special Warrants at a price of Cdn$1,000 per Special
Warrant for aggregate gross proceeds to the Company of Cdn$25 million (US
$18.22 million). The Special Warrants offering was completed on February 6,
1997 with all proceeds, net of a 6% commission paid to the Agents, placed
into an escrow account. Proceeds from the Special Warrant offering, after
deducting the 6% commission paid to Agents and other costs, were
approximately US$16.8 million. On the date the merger was completed, all of
the remaining escrow funds were released to the Company. The offering
proceeds were principally used to complete construction and commence
start-up of the Illinois Creek Mine, acquired in the merger with USMX,
Inc., for developmental drilling and for general working capital purposes.
Effective May 29, 1997, upon receipt of shareholder's approval of the
Merger Agreement, each Special Warrant was excised without payment of any
additional consideration, into one 7.5% unsecured subordinated convertible
debenture (the "Debentures") of the Company in the principal amount of
Cdn$1,000. Each Debenture will be convertible into common shares of the
Company at a conversion price of Cdn$2.00 (US $1.56) per common share up to
and including the last business day immediately preceding February 5, 2004.
The Debentures are not redeemable prior to January 29, 2001 but thereafter
are redeemable by the Company if the weighted average trading price of the
Company's common shares is 125% of the conversion price for a defined
period prior to such redemption. On maturity or redemption, the Company has
the option to repay the principal amount of the Debentures in cash or
common shares of the Company at a price equal to 95% of the weighted
average trading price for a defined period prior to such maturity or
redemption.
The issue amount for the Debentures has been allocated between equity
and debt. The debt component has been calculated, effective the date of the
issue, by discounting the mandatory cash payments of principal and interest
under the terms of the Debentures.
4. Inventories and Deferred Stripping Costs
On the dates indicated, inventories valued at cost were comprised of
the following:
September 30, 1997 December 31, 1996
-------------------- ------------------
Bullion $ 226,271 $ 854,444
Heap leach 9,711,504 1,524,072
Materials and supplies 835,144 265,185
==================== ==================
$10,772,919 $2,643,701
==================== ==================
In 1997 and 1996, the mining activity at Gilt Edge Mine included the
removal of waste overburden. All deferred stripping costs reported on the
condensed consolidated balance sheets pertain to this activity. Mining
costs associated with the waste removal are deferred and recognized in
operations based on the average stripping costs for the related ore body.
The average stripping cost is calculated as the total tons of material to
be mined compared to the tons of ore estimated to contain economically
recoverable minerals.
5. Long-term Debt
<TABLE>
Long-term debt is comprised of the following
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Note Payable to Gerald $ 5,278,120 $ 3,230,000
Note Payable to Rothschild 20,500,000
Convertible Debentures 6,751,587 -
Note Payable to Harley Hall 96,179 358,400
Equipment Notes 7,324 34,918
------------------------- -------------------------
32,633,210 3,623,318
Less current portion (17,640,620) (383,265)
========================= =========================
$ 14,992,590 $ 3,240,053
========================= =========================
<FN>
For a description of Convertible Debentures, refer to Note 3. Of Notes to
Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
(a) Note Payable to Gerald
On February 28, 1997, the Company entered into a letter agreement with
Gerald Metals Inc. ("Gerald") to amend and restate the terms of a
Revolving Loan Agreement dated April 19, 1996. Under the amended terms,
the revolving loan was converted into a term loan of up to $7.5
million, the excess over the $5.0 million was to be repaid by August
1997 and the balance repaid at the rate of $1.0 million per month
commencing in June 1998. The loan bears interest at LIBOR plus 2.25%
and is collateralized by the Company's underlying assets at its Gilt
Edge and Stibnite mines. Accordingly, the amounts outstanding at
September 30, 1997 under the Revolving Loan Agreement have been
classified as long-term.
In September the Company liquidated certain hedging contracts held by
Gerald and used the $921,880 in proceeds to reduce the loan balance. At
September 30, 1997, the Company had not repaid the full excess over the
$5 million.
(b) Note Payable to Rothschild
At the merger date, USMX was obligated to NM Rothschild and Sons
("Rothschild") under a $22 million financing facility ("Rothschild
Credit Agreements"). Upon completion of the Merger, Dakota assumed the
obligations of this facility. Dakota agreed to use $1.5 million of the
proceeds from the Special Warrant offering to repay a portion of the
Rothschild Credit Agreement. The $1.5 million payment was made to
Rothschild during August, 1997. The remaining loan balance of $20.5
million is collateralized by the stock of the operating subsidiary of
USMX and its principal asset the Illinois Creek Mine, as well as the
stock of USMX and guarantees of USMX and Dakota. The loan bears
interest, payable quarterly, at 2.25% above LIBOR until "commercial
completion" of the project has occurred. The requirements for
commercial completion include the construction of the Illinois Creek
Mine facilities, which facilities and the equipment thereon must be
mechanically complete and electrically operable ("Mechanical
Completion"), the achievement of production amounts and grades, costs
and reserves similar to the development plan, and the absence of any
default in the Rothschild Credit Agreement. Following commercial
completion, this note bears interest at 1.879% above LIBOR. To date the
project has not achieved commercial production.
On September 19, 1997, the Company entered into an amendment to the
Rothschild Credit Agreements ("Amended Agreement"), whereby the Company
liquidated certain hedging contracts securing the loan. The $2 million
proceeds of the liquidation were paid to the principal contractor at
the Illinois Creek project as partial payment for services on the
project. The Company agreed with Rothschild that it will make a
prepayment of the principal amount of the loan in an amount of not less
than $2 million and not later than December 31, 1997. The Company will
continue to make regular interest payments and additional principal
payments are to be made in accordance with a revised amortization
schedule, with an aggregate of 65% of the principal amount to be paid
in periodic installments by December 31, 1998.
All revenues from the Project are placed in a Proceeds Account. Per the
Amended Agreement the Company will be permitted to withdraw $55,000 per
month for its overhead costs which are not directly related to the
Project. Other than these monthly payments and payment of direct
Project costs, no other distributions may be made to the Company until
all principal and interest payments on the loan have been made to
Rothschild. Accordingly, the Company will not be able to use any of the
Project revenues for its working capital or for other mining activities
until Rothschild has been repaid fully.
In the Amended Agreement, the Company and Rothschild confirmed that
certain events of default were outstanding and that the Amended
Agreement did not constitute a waiver of any of Rothschild's rights.
The events of default include the Company's inability to timely pay its
contractors, and the delay in mechanical completion of the Project.
(c) Note Payable to Harley Hall
At September 30, 1997 the remaining balance due to Harley Hall, doing
business as Hall Construction, ("Hall") is repayable by the Golden
Reward Mine in 6 equal monthly principal payments. The amount owed to
Hall bears interest at United States prime plus 1%. The amount owed to
Hall is collateralized by a mechanics' lien on the Golden Reward Mine.
The Company's 40% share of the note is reflected in the table above.
(d) Equipment Notes Payable
The equipment notes payable are for equipment purchased from a supplier
who agreed to a repayment term over three years on a graduated payment
basis. Interest ranging from 6% to 16.5% per annum is payable monthly.
The notes are secured by the equipment which is located at the Gilt
Edge Mine.
Management believes the fair value of long-term debt approximates the
carrying value.
6. 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 1997 and 1996 between
Canadian accounting principles and U.S. GAAP pertaining to the Company.
(a) Under US GAAP, the Debentures would be accounted for as debt, all of
which would be classified as long-term in the amount of $18.2 million.
Interest would be calculated on the balance of the Debentures and
accordingly would be higher by $260,000 in the three months and
$669,000 in the nine months ended September 30, 1997, respectively.
(b) 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.
(c) 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.
(d) At September 30, 1997 and 1996, the Company had one stock-based
compensation plan. The Company applies the intrinsic value method in
accounting for its plan. Accordingly, no compensation cost has been
recognized for its fixed stock option plan. No material compensation
cost would be recognizable under the method of Financial Accounting
Standards Board Statement 123 - Accounting for Stock-Based
Compensation.
7. 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
condensed statement of net assets as of September 30, 1997 and December 31,
1996 and statements of operations for each of the years indicated are as
follows:
<PAGE>
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
--------------------------- ------------------------
<S> <C> <C>
Statement of net assets:
Current assets $ - $ 569,273
Plant property and equipment 1,258,727 1,264,336
Other assets 575,774 575,849
--------------------------- ------------------------
Total assets 1,834,501 2,409,458
--------------------------- ------------------------
Accounts payable and other
current liabilities 456,041 486,829
Current portion of long-term debt 90,000 358,400
Other long-term liabilities 1,590,857 1,843,911
--------------------------- ------------------------
Total liabilities 2,136,898 2,689,140
--------------------------- ------------------------
$ (302,397) $ (279,682)
=========================== ========================
</TABLE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
---------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Statement of operations:
Revenues $ - $754,936 $ - $3,715,499
---------------- ------------------ ------------------ -----------------
Mine cash production costs 114,333 192,088 280,881 2,860,796
Royalties - 11,350 - 108,217
Holding and standby costs - - - 1,330,026
Exploration 1,921 6,238 3,295 59,754
Reclamation - - - 639,496
Depreciation and depletion - 371,799 - 1,643,539
Property impairment - 7,922,116 - 7,922,116
---------------- ------------------ ------------------ -----------------
Total production costs 116,254 8,503,591 284,176 14,563,944
---------------- ------------------ ------------------ -----------------
Operating income (loss) (116,254) (7,748,655) (284,176) (10,848,445)
Other income (expense) 30,628 (6,664) 51,175 33,184
------------------ ------------------ ----------------- -----------------
$(85,626) $(7,755,319) $(233,001) $10,815,261
================ ================== ================== =================
<FN>
The owners have disagreed regarding certain operational and financial
matters for the Golden Reward Mine, including planned future operations and
related funding requirements. The resolution of this matter is not
presently determinable.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Sources and Uses of Cash
Special Warrant Financing and Issue of Debentures. To provide financing for
Dakota and USMX in connection with the merger with USMX, on February 5, 1997,
Dakota entered into an agency agreement with certain Canadian investment dealers
(the "Agents") to sell by way of private placement 25,000 Special Warrants at a
price of Cdn.$1,000 per Special Warrant for aggregate gross proceeds to Dakota
of Cdn.$25 million (U.S. $18.22 million). Proceeds from the Special Warrant
offering, after deducting the 6% commission paid to Agents and other costs, was
approximately $16.8 million. The offering proceeds were principally used to
complete construction and commence start-up of the Illinois Creek Project,
developmental drilling, repayment of $1.5 million of the Rothschild Credit
Agreements (defined below) and for general working capital purposes.
Under the terms of the Merger Agreement, the Company provided USMX with a
$5 million loan facility from the proceeds of the Special Warrant offering. On
March 11, 1997, $5.0 million of the Special Warrant offering proceeds was
released to Dakota in connection with $5 million loan facility. As part of the
Merger transactions, Dakota and USMX agreed that Dakota would provide a $5
million line of credit to USMX, the proceeds of which were used to sustain
USMX's operations until the Merger was consummated. The loan was needed by USMX
to reduce its outstanding accounts payable and to commence start-up of the
Illinois Creek Mine. In addition to the $5 million loan the Company advanced
USMX approximately $1.5 prior to the completion of the merger. The additional
funds were primarily used by USMX to fund working capital requirements at the
Illinois Creek Mine. The Company accounted for the loan and advances as an
adjustment to the purchase price of USMX.
Effective May 29, 1997, upon receipt of shareholder's approval of the
Merger Agreement, each Special Warrant was exercised without payment of any
additional consideration, into one 7.5% unsecured subordinated convertible
debenture (the "Debentures") of the Company in the principal amount of
Cdn$1,000. Each Debenture will be convertible into common shares of the Company
at a conversion price of Cdn$2.00 (US $1.56) per common share up to and
including the last business day immediately preceding February 5, 2004. The
Debentures are not redeemable prior to January 29, 2001 but thereafter are
redeemable by the Company if the weighted average trading price of the Company's
common shares is 125% of the conversion price for a defined period prior to such
redemption. On maturity or redemption, the Company has the option to repay the
principal amount of the Debentures in cash or common shares of the Company at a
price equal to 95% of the weighted average trading price for a defined period
prior to such maturity or redemption.
Rothschild Credit Agreements. At the merger date, USMX was obligated to
Rothschild under a $22 million financing facility. Upon completion of the
Merger, the Company assumed the obligations of this facility. In August 1997,
the Company repaid $1.5 million of the Rothschild loan from the proceeds of the
Debenture offering discussed above, leaving an outstanding balance of $20.5
million.
On September 19, 1997, the Company entered into an amendment to the
Rothschild Credit Agreements ("Amended Agreement"), whereby the Company
liquidated certain hedging contracts securing the loan. The $2 million proceeds
of the liquidation were paid to the principal contractor at the Illinois Creek
project as partial payment for services on the project. The Company agreed with
Rothschild that it would make a prepayment of the principal amount of the loan
in an amount of not less than $2 million and not later than December 31, 1997.
The Company is also required to make interest and principal payments in
accordance with a revised amortization schedule, with an aggregate of 65% of the
principal amount to be paid in periodic installments by December 31, 1998.
All revenues from the Illinois Creek project are placed in a Proceeds
Account. Per the Amended Agreement, the Company will be permitted to withdraw
$55,000 per month for its overhead costs which are not directly related to the
Project. Other than these monthly payments and payment of direct Project costs,
no other distributions may be made to the Company until all principal and
interest payments on the loan have been made to Rothschild. Accordingly, the
Company will not be able to use any of the Project revenues for its working
capital or for other mining activities until Rothschild has been repaid fully.
In the Amended Agreement, the Company and Rothschild confirmed that certain
events of default were outstanding and that the Amended Agreement did not
constitute a waiver of any of Rothschild's rights. The events of default include
the Company's inability to timely pay its contractors, and the delay in
mechanical completion of the Project.
<PAGE>
No assurances can be given that the Illinois Creek Project will provide
sufficient cash flows to meet these repayment obligations to Rothschild and to
the contractors.
Gerald Metals. On February 28, 1997, the Company entered into a letter
agreement with Gerald Metals Inc. ("Gerald") to amend and restate the terms of a
Revolving Loan Agreement dated April 19, 1996. Under the amended terms, the
revolving loan was converted into a term loan of up to $7.5 million, the excess
over the $5.0 million was to be repaid by August 1997 and the balance repaid at
the rate of $1.0 million per month commencing in June 1998. The loan bears
interest at LIBOR plus 2.25% and is collateralized by the Company's underlying
assets at its Gilt Edge and Stibnite mines
In September the Company liquidated certain hedging contracts held by
Gerald and used the $921,880 in proceeds to reduce the loan balance. At
September 30, 1997, the remaining balance of the note is $5,278,120. The Company
has not repaid the full excess over the $5 million and does not have the ability
to repay this excess without jeopardizing the continued operations.
Capital Expenditures. For the balance of 1997, capital expenditures at Gilt
Edge Mine are expected to approximate $100,000 primarily for exploration and
equipment replacement. Capital expenditures at Stibnite Mine are expected to
approximate $200,000 for the remainder of 1997 primarily for reclamation. For
the remainder of 1997 capital expenditures at Illinois Creek are estimated to be
approximately $100,000 to complete construction of the facilities.
In 1998, capital expenditures relate primarily to heap leach pad expansion
at Gilt Edge Mine - $1.2 million and at Illinois Creek Mine - $0.7 million. In
addition, a minimum of $0.5 million of environmental related expenditures at
Stibnite Mine are anticipated in 1998 ( see Environmental Matters and Government
Regulation).
Dakota has ongoing needs for cash to fund permitting, construction and
environmental compliance activities at its Gilt Edge, Stibnite and Illinois
Creek Mines. Management is presently investigating several alternative sources
of new financing, including sale of certain assets, new borrowing arrangements
and merger arrangements. No assurances can be given that management will be
successful in obtaining such additional funding.
Property, Plant and Equipment. As of September 30, 1997, the investment
in property, plant and equipment at Gilt Edge Mine approximated $12.9 million of
which $1.7 million is attributed to the sulfide development potential of the
property which is not currently subject to amortization. Mining activity at the
Gilt Edge mine near Deadwood, South Dakota has been suspended until 1998,
awaiting the approval and issuance of the Environmental Impact Statement ("EIS")
for the continued development of the Anchor Hill pit. Accordingly all costs
incurred in the third quarter, net of gold revenues, have been deferred. These
costs will be amortized against Anchor Hill production. The EIS approval is
required before a 37-acre waste area can be developed in the Anchor Hill pit, to
access some 200,000 ounces of contained gold. The EIS originated almost four
years ago. The U.S. Forest Service has issued a favorable record of decision on
the EIS. The record of decision is expected to be published November 28, 1997,
to be followed by a 45 day appeal process. During this time period of non-mining
at Gilt Edge, heap leaching, environmental compliance, ongoing reclamation and
exploration will continue. Dakota 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 Dakota's remaining investment in
Gilt Edge Mine.
Dakota estimates that the salvage value of the Golden Reward Mine assets is
equal to or exceeds all remaining obligations of the partnership. Accordingly,
future holding costs are not expected to be material to Dakota.
During the second quarter 1997, management determined that based upon
current spot prices for gold, that Stibnite Mine would exhaust its oxide
reserves during the fourth quarter of 1997. Accordingly, management determined
that the carrying value of the assets at Stibnite Mine were in excess of their
realizable value and that operations would be suspended after the third quarter.
Accordingly, an impairment was recorded during the second quarter in the amount
of $2.6 million. Management continues to believe that the Stibnite District
represents a significant exploration project and, if capital resources become
available, intends to continue to conduct ongoing evaluations, exploration and
related activities. Under terms of the Stibnite property lease, the Company is
required to make quarterly royalty payments to the lease holders. Due to working
capital concerns, the Company determined it could not make such third quarter
payments estimated at $199,000, which were due October 31, 1997.
Subject to availability of capital resources and gold prices, it is also
management's intention to focus the Company's near term efforts on the Thunder
Mountain project in order to place that project into production as early as
2000.
<PAGE>
Working capital. At September 30, 1997, the deficit in working capital was
approximately $12.2 million, compared to working capital of approximately $1.0
million at December 31, 1996. The decrease is due principally to a $17.3 million
increase in the current portion of long term debt, of which $12.0 million was
assumed in the merger with USMX, and a $6.7 million increase in accounts payable
associated with increased activity at the Company's three mines and the
Company's extended payable cycle. The decreases to working capital are partially
offset by a $8.2 million increase in inventories related to Illinois Creek and a
$4.9 million increase in deferred hedging costs related to hedging contracts
acquired at the merger.
Executive management of the Company views this working capital deficit as
the most important issue to be resolved. Management, except for those involved
in maintaining the operations, is focusing a significant portion of its time and
effort on this issue. It is actively pursuing alternatives to refinance or
restructure the Rothschild debt to better match the debt amortization schedule
to the life of mine. As well, the Company is considering selling certain assets
to generate cash to pay down current liabilities. Also being examined are merger
alternatives with other precious metal mining companies whose balance sheet are
stronger than that of Dakota's. Although management is actively and aggressively
pursuing these alternatives, there can be no assurance that management will
successfully close on any transaction, or that if a transaction is closed, the
terms will be favorable to the Company. Due to its ongoing operational and other
commitments as described in this Report, as well as ongoing general and
adminstrative expenses, the Company will need to promptly effect a capital
raising transaction in order to maintain its current operations.
The Company's efforts to sell assets and pursue merger and other
lending alternatives have been impeded by the continued deterioration of
the price of gold. Although the Company has a strong forwards ales position
at September 30, 1997 with 178,300 ounces of gold sold forward at an average
price of $384 per ounce (which includes 102,000 ounces of Illinois Creek
production at prices in excess of $400 per ounce), most of the Company's
hedging contracts secure the Rothschild debt and Rothschild has not
indicated a willingness to permit liquidation of these contracts to alleviate
the Company's working capital problems.
Operating Cash flow. Cash used by operations was $235,600 during the first
nine months of 1997 compared to cash used in operations of $5.5 million during
the same period of 1996. The improvement in during the first nine months of 1997
is primarily the result of production flowing from the Illinois Creek Mine
beginning in the third quarter of 1997 and the liquidation of certain forward
hedges related to Illinois Creek production. The first gold was shipped from
Illinois Creek in August, 1997. During the third quarter of 1997 the Illinois
Creek Mine recorded revenues of $3.2 million and direct cash costs of $1.2
million. At September 30, 1997, heap leach inventories at Illinois Creek
contained approximately 54,840 ounces of recoverable gold at a total cost of
$9,562,000. The Company expects to recover most of the ounces of gold mined to
date at Illinois Creek during the fourth quarter of 1997 and the first half of
1998. Cash used in the first nine months of 1996 is primarily due to the
decrease in accounts payable and accrued liabilities at September 30, 1996 as a
result of selling down year-end gold bullion inventories and utilizing a portion
of proceeds from the sale of special warrants completed in February 1996.
Cash provided by operations was negatively effected by abnormally dry
weather conditions at the Illinois Creek mine site during most of May, June and
July which caused the permitted surface water supply to dry up. The lack of
water prevented initial flooding of the heap, causing the Illinois Creek
processing plan to operate at less than 10% of nominal capacity or 1,000 gpm.
Further, the volume of water necessary to fully saturate the ore was determined
to be 30 - 40% more than previous metallurgical test work had indicated. A new
water supply was located within the permit area and 1.5 miles of pipe installed
by the end of August to provide a reliable source of water. In addition, it was
determined that a design flaw existed in the carbon columns that resulted in the
flow not being able to exceed 700 gpm. Insufficient hydraulic head existed
between the five tanks to allow flow at 1,000 gpm. Temporary modifications were
incorporated into the design that resulted in full capacity being achieved by
mid September. Permanent modifications will be implemented prior to the 1998
production season and are not expected to exceed $200,000 nor cause any
production delays.
Investing and Financing Activities. Cash used in investment activities of
$18.3 million during the first nine months of 1997 is comprised of development
and exploration expenditures of approximately $5.7 million at Gilt Edge Mine,
Illinois Creek Mine and the Thunder Mountain Project, advances to USMX prior to
the merger of $6.5 million, additions to other assets, primarily reclamation
bonds, of $1.6 million and payment of costs related to the merger of $812,000.
Cash used in investment activities of $6.1 million during the first nine months
of 1996 pertains primarily to expansion of heap leach pads located at Gilt Edge
Mine in order to accommodate ores mined from the Anchor Hill oxide deposit.
Cash provided by financing activities during the first nine months of 1997
included approximately $16.7 million of proceeds, net of offering costs, from
the sale of Special Warrants in February 1997, new borrowings of $3.0 million
under the credit facility with Gerald offset by $3.0 in loan payments to Gerald
and Rothschild.
Other. In the course of its normal business, Dakota uses forward sales and
commodity put and call option contracts to manage its exposure to fluctuations
in the price of gold which it produces. Contract positions are designed to
ensure that Dakota will receive a defined minimum price for a portion of its
gold production. Potential gains on gold price increases are also eliminated
under forward sales commitments if such commitments are not bought back.
<PAGE>
Dakota is exposed to credit risk to the extent of an inability of a
counterparty to honor contracts; however, management believes the risk of
incurring losses due to credit risk is remote. Market risk on financial
instruments results from fluctuations in the gold price during the periods in
which the contracts are outstanding. Dakota manages its exposure to market risk
by matching future physical gold delivery with contract maturities. Risk of loss
arises from the possible inability of Dakota to deliver gold.
As of November 13, 1997, Dakota had forward sale contracts to deliver
approximately 164,400 ounces of gold over the next three years at an average
price of $381 per ounce, put options to deliver approximately 530,000 ounces of
silver on various dates through September, 1999 at a minimum price of $5.50 per
ounce.
At September 30, 1997, the market value of the Company's gold hedging
position approximated $10.9 million. Fluctuations in future gold prices could
significantly impact Dakota's future revenues as only a portion of Dakota's
expected gold production has been hedged by these contracts.
Environmental Matters and Government Regulation. All of Dakota's
exploration, development and production activities are subject to regulation
under one or more of the various state, local and federal environmental laws and
regulations. These laws address emissions to the air, discharges to water,
management of wastes, management of hazardous substances, protection of
endangered species, protection of natural resources and others. Such laws and
regulations are generally becoming more restrictive. Dakota has made and expects
to continue to make in the future, significant expenditures to comply with such
laws and regulations.
Existing and possible future environmental legislation, regulations and
actions, could cause additional expense, capital expenditures, restrictions and
delays in the activities of Dakota, the extent of which cannot be predicted.
Regulatory requirements and environmental standards are subject to constant
evaluation and may be significantly increased, which significantly adversely
affect Dakota's business. The cost of compliance with changes in governmental
regulations has the potential to reduce the profitability of operations.
Several recent legislative developments have affected or may in the future
affect the cost of and the ability of mining claimants to use the Mining Law of
1872, as amended, to acquire and use federal lands for mining operations. Since
October 1994, a moratorium has been imposed on processing new patent
applications for mining claims. Also, since 1993, a rental or maintenance annual
fee of $100 per claim has been imposed by the Federal government on unpatented
mining claims in lieu of the prior requirement for annual assessment work.
During the last several Congressional sessions, bills have been repeatedly
introduced in the U.S. Congress which would supplant or radically alter the
General Mining Law. As of September 30, 1997, no such bills had been passed.
Such bills have proposed, among other things, to permanently eliminate or
greatly limit the right to a mineral patent, impose royalties, and impose new
federal reclamation, environmental control and other restoration requirements.
If enacted, such legislation could impair the ability of Company to economically
develop mineral resources on federal lands. The extent of the changes, if any,
which may be made by Congress to the General Mining Law is not presently known
and the potential impact on Dakota as a result of future Congressional action is
not presently determinable.
Gilt Edge. 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 Dakota'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, Dakota is not able to determine
what impact, if any, further action by the DENR or EPA in connection with the
Preliminary Assessment may have on the site. Dakota 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 Dakota 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, Dakota
received final approval of an updated and amended reclamation plan from the
State of South Dakota. Under the conditions of the revised reclamation plan,
Dakota 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.
<PAGE>
The ultimate Anchor Hill open pit design at Dakota's Gilt Edge Mine
contemplates that approximately 37 acres of public lands will be disturbed,
principally for pit wall layback and waste removal. Accordingly, Dakota is
required to complete an Environmental Impact Statement (the "Gilt Edge EIS").
The process which begun almost four years ago, resulted in the U.S. Forest
Service issuing a favorable record of decision on the Gilt Edge EIS. The record
of decision is expected to be published November 28, 1997, to be followed by a
45 day appeal process. Dakota now expects to finalize the Gilt Edge EIS by early
1998. If, however, the Gilt Edge EIS is not completed in a timely manner, Gilt
Edge Mine operations scheduled to commence in 1998 will be delayed.
Dakota 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 financial assurance in the amount of $5.5 million. Dakota has
estimated that its actual capping costs will approximate $3.2 million, which
costs have been fully accrued at September 30, 1997. Funding of this obligation
will be made from operating cash flow derived from processing the Anchor Hill
oxide deposit.
At a future date when Dakota provides notice to the State of South Dakota
that the Gilt Edge Mine will close and that post closure care is to begin,
Dakota 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.
The State of South Dakota requires mines to provide the State with
financial assurance to cover mitigation costs in the event of an environmental
accident. In order to fulfill its obligation, Dakota has provided the State with
a form of demand note in the amount of $359,000.
Golden Reward. Golden Reward L.P. is required by the State of South Dakota
to provide financial security to cover the estimated cost of reclamation.
Reclamation bonds totaling $1,175,759 have been posted as a guarantee that the
land which is disturbed by mining will be reclaimed. Golden Reward L.P.
anticipates that total costs of reclamation will not exceed the amount of these
bonds.
Stibnite. In November 1993, Dakota filed an application for a U.S. Federal
Clean Water Act National Pollution Discharge Elimination System permit in
respect to Stibnite Mine. This permit is not necessary for Dakota's current
mining operations at Stibnite Mine. However, Dakota believes that obtaining this
permit would be of benefit as it would allow Stibnite Mine to discharge clean
water from the minesite in accordance with such permit standards in the future.
Dakota cannot anticipate when a draft permit will be issued.
On July 10, 1995, Dakota entered into a voluntary Administrative Order of
Consent ("AOC") with the EPA regarding the Stibnite Mine tailings area. The area
consists of historic tailings from the Bradley Mining Company 1930's - 1950's
overlain by spent ore from modern operations 1981 to present. Concentrations
exceeding EPA freshwater chronic water quality criteria were detected in samples
collected below the Bradley tailings in 1995. The AOC required Dakota to divert
clean surface waters around waste rock and tailings through use of an upgraded
and stabilized Meadow Creek diversion; the collection, storage and treatment of
contaminated waters from waste rock, tailings discharges and seeps through use
of a wastewater treatment system.
The Company has substantially complied with terms of the AOC except as it
relates to the construction of a water treatment plant. According to the AOC,
such a plant was to be under construction by August 1, 1997 and be operational
by June 1, 1998. The Company believes that such a water treatment plant is not
necessary and has requested a change to the AOC. The EPA has notified the
Company it continues to view the water treatment plant as a requirement.
Further, the EPA believes the Company has not complied with the time-frame
contemplated in the AOC. Accordingly, the EPA may assess fines against the
Company.
On June 30, 1997, Dakota entered into an Amended Administrative Order
of Consent to the 1995 AOC which further defines and extends the time to
complete the order and which requires the posting of an additional $2.0 million
reclamation bond. Due to working capital concerns, the Company has been unable
to post such a bond..
Through September 30, 1997 approximately $706,000 has been incurred in
connection with the AOC. Management estimates the work is over 50% complete and
it will cost an additional $500,000 to complete in 1998. Certain aspects of the
AOC are subjective in nature and Management cannot be assured that the EPA will
re-interpret or otherwise modify their position which could result in either
negative or positive impacts to the cost of completing the AOC.
Dakota has apprised previous owners and operators of the property of the
AOC and believes that a portion of such costs may be recoverable from these
parties. However, there is no assurance that Dakota will be successful in
obtaining a recovery of any of the costs of the AOC.
<PAGE>
On September 11, 1996, Dakota received a Notice of Potential Liability and
Conduct of Removal Action from the United States Environmental Protection Agency
("EPA") pertaining to certain remediation activities at an historic mine sight,
located on certain lands once leased by Dakota. Dakota 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 for its
action. However, Dakota cannot presently determine the extent of its liability,
or whether any liability actually exists.
Reclamation bonds totaling $859,500 have been posted by Dakota in
accordance with State of Idaho and USFS requirements to ensure that land which
is disturbed by mining at Stibnite Mine will be reclaimed. Dakota estimates that
the total costs of reclamation of other land which is disturbed by mining will
not exceed the amount of these reclamation bonds.
Illinois Creek. Reclamation bonds totaling $1,525,000 have been posted by
Dakota in accordance with State of Alaska requirements to ensure that land which
is disturbed by mining at Illinois Creek Mine will be reclaimed. Dakota
estimates that the total costs of reclamation of land which is disturbed by
mining will not exceed the amount of these reclamation bonds.
Other. Reclamation bonds totaling $1,736,600 have been posted by Dakota in
accordance with State of Utah and USFS requirements to ensure that land which
was disturbed by mining at the Goldstrike Mine, acquired in the merger with
USMX, will be reclaimed. Approximately half of the reclamation at the Goldstrike
Mine has been completed and $730,000 of the bonds was released to Dakota in
October, 1997.
Results Of Operations - For the Periods Ended September 30, 1997 and 1996
Revenues and Direct Operating Costs
The Company recorded consolidated net income of $139,000, or $0.00 per
share, for the third quarter of 1997, compared to a consolidated net loss of
$9.4 million or $0.27 per share, during the third quarter of 1996. Year-to-date,
the Company recorded a consolidated net loss of $5.0 million or $0.12 per share
in 1997, compared to a loss of $13.6 million, or $0.45 per share in 1996.
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(1)
September 30, September 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Ounces of gold sold:
Cactus Mine (25%) 60 89 233 444
Gilt Edge Mine - 9,925 16,380 15,136
Golden Reward Mine (40%) - 2,040 - 9,495
Stibnite Mine 10,464 11,399 14,866 15,583
Illinois Creek Mine 6,265 - 6,265 -
------------- ------------- ------------- -------------
16,789 23,453 37,744 40,658
============= ============= ============= =============
<FN>
(1) Precious metals production for each of the joint venture operations
includes the Company's pro rata share.
</FN>
</TABLE>
<PAGE>
Operating results for the comparative periods ended September 30 are
summarized in the following table:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Operating revenue $7,870,993 $9,064,863 $15,760,303 $15,865,630
Less: Hedge liquidations 2,078,098 - 2,078,098 -
-------------- --------------- --------------- ----------------
Revenue from sales $5,792,895 $9,064,863 $13,682,205 $15,865,630
============== =============== =============== ================
Average net price per ounce of
gold realized $345.04 $386.52 $362.50 $390.23
============== =============== =============== ================
Average London PM fix per ounce
of gold $323.64 $385.00 $336.95 $384.00
============== =============== =============== ================
</TABLE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
Mine, Mill and Administration(1) September 30, September 30,
1997 1996 1997 1996
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Gilt Edge Mine $ - $3,127,759 $5,141,692 $4,627,049
Golden Reward Mine 111,017 214,599 276,652 2,860,796
Stibnite Mine 2,872,117 4,410,133 3,938,030 5,786,940
Cactus Mine 19,934 86,739 135,037 234,004
Illinois Creek Mine 883,649 - 883,649 -
================ =============== ================ ================
Total mine, mill and administration $ 3,886,717 $7,839,230 $10,375,060 $13,508,789
================ =============== ================ ================
Average cash cost per ounce
of gold sold $231.50 $334.26 $274.88 $332.26
================ =============== ================ ================
<FN>
(1) Cash costs include mining, milling, project administration, on-property
exploration, and all holding and standby costs.
</FN>
</TABLE>
Metal sales were lower during the first nine months of 1997 when compared
to the same period of 1996, due primarily to the absence of metal sales from the
Company's 40% interest in the Golden Reward Mine which ceased mining activities
at the end of the second quarter of 1996 and declining production at the
Company's Stibnite Mine which will its final ore during the fourth quarter of
1997. The decreases in production were partially offset by the commencement of
production at the Company's Illinois Creek Mine during the third quarter of
1997.
Mine, mill and administrative costs decreased to $275 per ounce of gold
sold during the first nine months of 1997 compared to $332 per ounce of gold
sold during the same period of 1996. The decrease in costs relates primarily to
the absence of high cost ounces from the Gilt Edge Mine, the lower cost of
Stibnite Mine ounces resulting from the processing of stockpiled ores and the
addition of the low cost ounces from the Illinois Creek Mine. Mine, mill and
administrative costs related to Illinois Creek Mine production for 1997,
averaged $141 per ounce.
Depreciation and depletion is slightly higher for the first nine months of 1997
as compared to the same period of 1996. The change is the result of an increase
in depletion at the Stibnite Mine as the result of a higher depletion rate being
applied in 1997 and the addition of the Illinois Creek Mine depreciation and
depletion partially offset by a reduction in depletion at the Golden Reward Mine
as a result of the cessation of mining activities in June 1996.
Royalties vary from mine-to-mine and within the specific area being mined
in accordance with various agreements with landowners. The increase in royalties
and severance taxes is primarily the result of increased production coming from
the Gilt Edge Mine and the addition of royalties related to the Illinois Creek
Mine during the first nine months of 1997 as compared to the same period for
1996. In addition, the Golden Reward Mine with a lower royalty rate when
compared to the other mines, provided much of the production during the first
nine months of 1996.
The entire property impairment cost is related to Stibnite Mine as
discussed above under Sources and Uses of Cash.
Reclamation costs during the first nine months of 1997 consist principally
of accruals at the Gilt Edge Mine and the Illinois Creek Mine. Reclamation costs
for the first nine months of 1996 relate principally to the Golden Reward Mine
which ceased mining operations in June, 1996. According to estimates provided by
the Company's partner in Golden Reward Mine, all future reclamation costs are
currently accrued as of September 30, 1997.
<PAGE>
General corporate costs increased slightly for the first nine months of
1997 when compared to the same period for 1996, due to additions in staff, legal
expenses, travel activities, and in the use of outside professional services.
These increases are due, in part, to overall increases in corporate activity and
additional staff resulting from the merger.
Interest expense during the first nine months of 1997 increased compared to
the same period of 1996 as the result of (i) increased loan balances related to
the Gerald Metals, Inc. loan agreement, (ii) interest related to the convertible
debentures discussed above and (iii) the assumption of the Rothschild loan in
the merger with USMX.
Other Income decreased by $275,000 during the first nine months of 1997,
compared to the same period of 1996, as the result of the recognition of other
expense related to the merger and the write off of a joint venture.
Dakota does not anticipate that its U.S. operations will be subject to
alternative minimum tax during 1997.
<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
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
1) The Company filed a Form 8-K reporting under Item 5. the third
Amendment to Credit Agreement between USMX of Alaska, Inc. and N M
Rothschild and Sons Limited, dated September 19, 1997. The third
Amendment to Credit Agreement was filed as an exhibit to the Form 8-K.
2) Exhibit 11 Computation of Earnings Per Share
3) Exhibit 27 Financial Data Schedule
<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 19, 1997
President and Chief Executive Officer -------------------
c/s C. Brian Cramm Date November 19, 1997
C. Brian Cramm -------------------
Vice President Finance
and Chief Financial Officer
<PAGE>
<TABLE>
DAKOTA MINING CORPORATION
Exhibit 11 - COMPUTATION OF EARNINGS
PER SHARE Nine months ended September
30, 1997 and 1996
<CAPTION>
Three months ended Nine months ended
September 30, September. 30,
1997 1996 1997 1996
----------------- ------------------ ---------------- ------------------
<S> <C> <C> <C> <C>
Beginning shares outstanding 35,479,742 26,534,742 35,479,742 26,534,742
Shares issued as payment to lease holder 55,294 - 18,634 -
Exercise of special warrants - 8,700,000 - 3,333,972
Average shares issued to USMX
stockholders related to merger 15,621,982 - 6,981,252 -
Average shares issued for options exercised - 242,652 - 168,647
----------------- ------------------ ---------------- ------------------
Weighted average shares outstanding 51,157,018 35,477,394 42,479,628 30,037,331
================= ================== ================ ==================
Net income (loss) $ 139,447 $ (9,446,227) $ (5,026,729) $(13,598,873)
================= ================== ================ ==================
Loss per common share $ 0.00 $ (0.27) $ (0.12) $ (0.04)
================= ================== ================ ==================
<FN>
NOTE: All other issued and outstanding Debentures, options and warrants are antidilutive. Fully diluted calculation is not
different and therefore is not applicable.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000848448
<NAME> Dakota Mining Corp.
<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
<CASH> 2,919
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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0
0
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