United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K/A
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1996
OR
[ ] Transition Report Pursuant To Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-17583
Dakota Mining Corporation
(Exact name of registrant as specified in its charter)
Canada 84-1094683
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
410 Seventeenth Street, Suite 2450
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 573-0221
Securities registered pursuant to Section 12(b) of
the Act:
Name of each exchange
Title of each class on which each class is registered
Common Shares, No Par Value American Stock Exchange
The Toronto Stock Exchange
Berlin Stock Exchange
Frankfort Stock Exchange
Securities registered pursuant to Section 12(g) of
the Act:
none
(Title of Class)
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
APRIL 30, 1997 Dakota Mining Corp.
(Registrant)
By: /s/ Alan R. Bell
----------------------------
Alan R. Bell, President and
Chief Executive Officer
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PART I............................................................................................................4
ITEM 1: BUSINESS........................................................................................4
ITEM 2: PROPERTIES....................................................................................10
ITEM 3: LEGAL PROCEEDINGS...............................................................................19
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................19
PART II..........................................................................................................19
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................19
ITEM 6: SELECTED FINANCIAL DATA.........................................................................21
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........22
ITEM 8: CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................................35
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...........55
PART III.........................................................................................................55
PART IVI.........................................................................................................55
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...............................55
GLOSSARY OF CERTAIN MINING TERMS.................................................................................58
SIGNATURES.......................................................................................................61
</TABLE>
<PAGE>
On March 21, 1997 the noon buying rate in New York City for cable transfers in
Canadian dollars, as certified by the Federal Reserve Bank of New York, was
US$1.00 = Cdn$1.382. The noon rate for the United States dollar in Canada on
March 21, 1997 as reported by the Bank of Canada, was US$1.00 = Cdn$1.3799.
All dollar amounts are expressed in currency of the United States unless
otherwise stated.
<PAGE>
66
PART I
Reference is made to the glossary beginning on page 57 of this Annual Report on
Form 10-K with respect to the definitions of certain mining terms used herein.
ITEM 1: BUSINESS
General
The principal business office of the Registrant, Dakota Mining
Corporation (the "Company", "Registrant" or "Dakota"), is located at Suite 2450,
410 Seventeenth Street, Denver, Colorado 80202 and its telephone number is (303)
573-0221. The registered and records office of the Company is located at Suite
1700, 1030 West Georgia Street, Vancouver, British Columbia V6E 2Y3.
The Common Shares of the Company trade on the American Stock Exchange
("AMEX") and The Toronto Stock Exchange ("TSE") under the trading symbol "DKT"
and on the Berlin and Frankfort Stock Exchanges under the trading symbol "DMC".
Under the rules of the TSE, the Company was granted "senior issuer" status in
May of 1989. A senior issuer is a company which is exempt from section 19.09 of
the General By-law of the TSE. Section 19.09 of the General By-law requires all
non-exempt companies to give prompt notice to the TSE of any proposed material
change in the business or affairs of the company.
Dakota was formed as a result of an amalgamation of Brohm Resources
Inc. and MFC Mining Finance Corporation under the provisions of The Company Act
(British Columbia) effective August 2, 1988. Under the terms of the
amalgamation, Dakota was renamed MinVen Gold Corporation. On December 16, 1988,
Dakota was continued under the Canada Business Corporations Act (the "CBCA").
On September 13, 1993, the shareholders of Dakota approved a
recapitalization of Dakota's outstanding common shares as part of an arrangement
structured as a plan of arrangement (the "Arrangement") under Section 192 of the
CBCA. As a part of the Arrangement, all of the common shares of Dakota
outstanding as of September 15, 1993 (the "Old Common Shares") were exchanged
for new Common Shares no par value ("Dakota Common Shares"), and common share
purchase warrants ("Arrangement Warrants") and the name of MinVen Gold
Corporation was changed to Dakota Mining Corporation.
Under Canadian GAAP, the Arrangement was accounted for as a financial
reorganization utilizing "fresh start" accounting. Generally, prior period
figures are not included in the financial statements of an enterprise that has
comprehensively revalued its assets and liabilities as a result of a financial
reorganization. This is consistent with the concept that the enterprise is
starting anew using a "fresh start" basis of accounting. Accordingly, results of
operations and cash flow activities prior to September 15, 1993, the effective
date of the Arrangement, have not been included in the consolidated statements
of operations and cash flows as of December 31, 1993, rather these consolidated
financial statements are limited to the post-Arrangement period commencing
September 16, 1993.
On February 5, 1997, Dakota entered into a Merger Agreement (the
"Merger Agreement") with USMX, Inc. ("USMX"). Under the terms of the Merger
Agreement, holders of USMX Common Stock will receive one Dakota Common Share for
every 1.1 share of USMX Common Stock and USMX will become a wholly-owned
subsidiary of Dakota. In connection with the transaction, Dakota will issue
approximately 14.7 million Dakota Common Shares to existing USMX stockholders.
The Dakota Common Shares had an approximate market value of $23.2 million or
$1.58 per share, based upon an average trading price for Dakota's Common Shares
for a reasonable period before and after the Merger was announced. Dakota will
account for the Merger as a "purchase". Based upon the opinion of an independent
major accounting firm, Dakota anticipates that the Merger will not be taxable to
Dakota and should not be taxable to shareholders of Dakota or USMX. Completion
of the Merger remains subject to shareholder approval, review by regulatory
authorities, and other customary conditions. Dakota expects to complete the
Merger in May, 1997.
The following chart sets forth Dakota's corporate structure including
all material subsidiaries and their respective jurisdictions of incorporation.
Chart showing corporate structure including all material subsidiaries and
their respective jurisdictions of incorporation.
Dakota carries out its operations through its direct and indirect wholly-owned
subsidiaries as noted above.
Business of Dakota
Dakota is 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 throughout the world. Dakota
currently has 100% interest in Gilt Edge Mine located near Deadwood, South
Dakota, a 40% interest in Golden Reward Mine located near Lead, South Dakota and
a 100% interest in Stibnite Mine located in Valley County, Idaho.
"Map Showing Dakota Producing Mines"
Dakota also has a 25% interest in Cactus Mine located near Lancaster,
California. The entire ore deposit at Cactus Mine has been mined and while gold
recovery occurred throughout 1996 in connection with heap leach neutralization
activities, Cactus Mine is not expected to significantly affect future
operations of Dakota.
Dakota currently holds limited interests in certain other mining
claims, mineral claims and Crown granted mineral claims in British Columbia.
Although no work programs with respect to these existing claims are currently
under way, Dakota continues to seek the acquisition of additional mineral
interests outside of the United States.
Reference is made to Item 2: Properties for discussion of operating
activities during 1996 on a mine-by-mine basis.
Business Conditions
Nature of Mineral Exploration and Production. Exploration for and, if
warranted, production of minerals is highly speculative and involves greater
risks than many other businesses. Many exploration programs do not result in the
discovery of mineralization and any mineralization discovered may not be of
sufficient quantity or quality to be profitably mined. Uncertainties as to the
metallurgical amenability of any minerals discovered may not warrant the mining
of these minerals on the basis of available technology. Moreover, short-term
factors relating to the ore reserves, such as the need for orderly development
of ore bodies or the processing of new or different grades, may impair the
profitability of a mine in any particular accounting period. Mining operations
are also subject to a number of other hazards and risks such as encountering
unusual or unexpected formations, environmental pollution, industrial accidents,
rock movements and flooding, many of which cannot be insured against.
Project Development. Dakota from time to time engages in the
development of new ore bodies. The ability of Dakota to sustain or increase the
present level of gold production is dependent in part on the successful
development of such new ore bodies and/or expansion of existing mining
operations. The economic feasibility of any such development project, and all
such projects collectively, is based on, among other things, estimates of
reserves, metallurgical recoveries, capital and operating costs of such projects
and future gold prices. Development projects are also subject to the successful
completion of feasibility studies, issuance of necessary permits and receipt of
adequate financing.
Development projects have no operating history upon which to base
estimates of future cash operating costs and capital requirements. In
particular, estimates of reserves, metal recoveries and cash operating costs are
to a large extent based on the interpretation of geologic data obtained from
drill holes and other sampling techniques and feasibility studies which derive
estimates of cash operating costs based on anticipated tonnage and grades of ore
to be mined and processed, the configuration of the ore body, expected recovery
rates of metals from the ore, comparable facility and equipment costs,
anticipated climate conditions and other factors. As a result, it is possible
that actual cash operating costs and economic returns of any and all development
projects may materially differ from the costs and returns initially estimated.
Exploration. Mineral exploration, particularly for gold, is highly
speculative in nature, involves many risks and frequently is unsuccessful. There
can be no assurance that exploration efforts will result in the discovery of
gold mineralization. If reserves are developed, it may take a number of years
and substantial expenditures from the initial phases of drilling until
production is possible, during which time the economic feasibility of production
may change.
Competition and Scarcity of Mineral Lands. Although many companies and
individuals are engaged in the mining business, including large established
mining companies, there is a limited supply of desirable mineral lands available
for claim staking, lease or other acquisition in the United States and other
areas where Dakota contemplates conducting exploration and/or production
activities. Dakota may be at a competitive disadvantage in acquiring suitable
mining properties as they must compete with other individuals and companies,
many of which have greater financial resources and larger technical staffs than
Dakota.
Government Regulation. Dakota's mining operations are subject to
various laws and regulations concerning prospecting, developing, production,
exports, taxes, labor standards, occupational health, waste disposal, toxic
substances, environmental protection, mine safety and other matters. Dakota
seeks to make good faith efforts to comply with all applicable laws and
regulations.
Environmental Matters. Mining is subject to potential risks and
liabilities associated with pollution of the environment and the disposal of
waste products occurring as a result of mineral exploration and production.
Environmental liability may result from mining activities conducted by others
prior to Dakota's ownership of a property. Insurance for environmental risks
(including potential liability for pollution or other hazards as a result of the
disposal of waste products occurring from exploration and production) is not
generally available at a reasonable price to companies within the industry. To
the extent Dakota is subject to environmental liabilities, the payment of such
liabilities would reduce funds otherwise available to the company and could have
a material adverse effect on the company.
In the context of environmental compliance and permitting, including
the approval of reclamation plans, Dakota must comply with standards, laws and
regulations which may entail greater or lesser costs and delays depending on the
nature of the activity to be permitted, constructed and operated and how
stringently the regulations are implemented by the applicable regulatory
authority. It is possible that the costs and delays associated with compliance
with such laws, regulations and permits could become such that a company would
not proceed with the development of a project or the operation or further
development of a mine. Laws, regulations and regulatory policies involving the
protection and remediation of the environment are constantly changing at all
levels of government and are generally becoming more restrictive and the costs
imposed on the development and operation of mineral properties are increasing as
a result of such changes. Dakota has made, and expects to make in the future,
significant expenditures to comply with such laws and regulations.
The Environmental Protection Agency ("EPA") continues the development
of a solid waste regulatory program specific to mining operations under the
Resource Conservation and Recovery Act ("RCRA"). Of particular concern to the
mining industry is a proposal by the EPA titled "Recommendation for a Regulatory
Program for Mining Waste and Materials Under Subtitle D of the Resource
Conservation and Recovery Act" ("Strawman II") which, if implemented, would
create a system of comprehensive federal regulation of the entire mine site.
Many of these requirements would be duplicative of existing state regulations.
Strawman II as currently proposed would regulate not only mine and mill wastes
but also numerous production facilities and processes which could limit internal
flexibility in operating a mine. To implement Strawman II as proposed, the EPA
must seek additional statutory authority, which is expected to be requested in
connection with Congress' reauthorization of RCRA.
Mining companies in the United States are also subject to regulations
under (i) the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA") which regulates and establishes liability for the release
of hazardous substances and (ii) the Endangered Species Act ("ESA") which
identifies endangered species of plants and animals and regulates activities to
protect these species and their habitats. Revisions to CERCLA and ESA are being
considered by Congress; the impact on Dakota of these revisions is not clear at
this time. Environmental laws and regulations enacted and adopted in the future
may have a significant impact upon Dakota's future operations.
Reclamation plans which are approved by various environmental
regulatory authorities are subject to on-going review and modification. Although
Dakota believes that the reclamation plans developed and implemented for its
mine sites are reasonable under current conditions, any future re-determination
of reclamation conditions or requirements could significantly increase Dakota's
costs of implementation of such plans.
Mining Risks and Insurance. The business of gold mining is generally
subject to a number of risks and hazards, including environmental hazards,
industrial accidents, labor disputes, the encounter of unusual or unexpected
geological conditions, slope failures, changes in the regulatory environment and
natural phenomena such as inclement weather conditions, floods, blizzards and
earthquakes. Such occurrences could result in damage to, or destruction of,
mineral properties or production facilities, personal injury or death,
environmental damage, delays in mining, monetary losses and possible legal
liability. Dakota maintains insurance against risks that are typical in the gold
mining industry and in amounts that Dakota believes to be reasonable, but which
may not provide adequate coverage in certain unforeseen circumstances. Insurance
against certain risks (including certain liabilities for environmental pollution
or other hazards as a result of exploration and production) is not generally
available to Dakota or to other companies within the industry.
Proposed Changes in Mining Laws. 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
April 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. Recently, the Secretary of the
Interior directed the Bureau of Land Management to form a task force to prepare
and publish for public comment revisions to the hardrock mining surface
management regulations implemented in 1981. The Secretary suggested that such
revised regulations address implementation of a technology based standard in
conduct of hardrock mining, development of performance standards for hardrock
mining and reclamation, increasing regulation of operations of less than five
acres, and increasing coordination with state regulators. As of March 21, 1997,
no such bills have been passed or regulations proposed or promulgated.
Need for Substantial Capital. The business of precious metals mining
requires very large capital expenditures in advance of anticipated revenues from
operations. There is no assurance that Dakota will be able to obtain all of the
financing that it requires on acceptable terms and conditions.
Fluctuation in the Price of Gold. Because Dakota's revenues are or will
be derived primarily from the sale of gold, Dakota's earnings are directly
related to gold prices. Gold prices fluctuate widely and are affected by
numerous factors beyond Dakota's control, including expectations for inflation,
the relative exchange rate of the dollar, global and regional demand, political
and economic conditions, expectations for inflation and production costs in
major gold producing regions including South Africa and Russia. In addition,
gold prices have on occasion been subject to very rapid short-term changes due
to speculative activities of investors. Gold prices are also affected by
world-wide production levels, which have increased in recent years. Market price
fluctuations of gold may render uneconomic the mining of mineral deposits
containing relatively lower grades of mineralization.
Uncertainty of Title. Certain of Dakota's mining properties are
unpatented mining claims, and Dakota has only possessory title with respect to
such properties. The validity of unpatented mining claims is often uncertain and
may be contested. Although Dakota has attempted to acquire satisfactory title to
its properties, Dakota, in accordance with mining industry practices, has not
obtained title opinions and title insurance, with the attendant risk that title,
particularly on undeveloped properties, may be defective.
Dividend Policy. No dividends have been paid by Dakota to date. For the
foreseeable future, it is anticipated that Dakota will use earnings to finance
its growth and that dividends will not be paid to shareholders.
Joint Ventures. Some of the mines in which Dakota owns an interest are
operated through joint ventures with other mining companies. Any failure of such
other companies to meet their obligations to Dakota or to third parties could
have a material adverse effect on the joint ventures.
Permitting Matters. 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"). Dakota now expects to finalize the Gilt Edge EIS by the
Spring of 1997. 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.
Operations at Stibnite Mine after 1997 are subject to the completion of
an Environmental Impact Statement (the "Stibnite EIS"). Completion of the
Stibnite EIS was delayed during 1996 as a result of prioritizing completion of
the development of the Meadow Creek Plan. Dakota now expects the EIS to be
completed in the fall of 1997. If, however, the Stibnite EIS is not completed in
a timely manner, Stibnite Mine operations scheduled to commence in 1998 will be
delayed.
Sources and Availability of Raw Materials. Dakota uses several reagents
in the processes of extracting gold and silver. Dakota believes that these
reagents will continue to be available from a number of sources at acceptable
prices.
Patents, Trademarks, Licenses, Franchises, Concessions, and Government
Contracts. Dakota does not own any patents, trademarks, licenses, franchises or
concessions, except mining interests granted by governmental authorities and
private landowners. No portion of its business is subject to re-negotiation of
profits or termination of contracts or subcontracts at the election of any
government.
Seasonality. All of the open-pit facilities in which Dakota has an
interest are seasonal operations that are not able to operate or operate at
reduced rates during the winter months.
Major Customers. Sales of gold and silver (dore) bullion and
concentrates derived from Dakota's mines are made through open-market
transactions to unaffiliated companies. Because of the nature of the precious
metals markets, Dakota believes that the loss of any one of these customers
would not affect its business.
Employees. At December 31, 1996, Dakota employed 81 employees directly,
including 9 persons at its executive offices. Another 15 persons are employed
indirectly through Dakota's joint venture operations at Cactus and Golden Reward
Mines. All projects are operated using non-union labor.
ITEM 2: PROPERTIES
Reference hereafter, is occasionally made to sulfide or oxide ore and/or
mineralized deposits. Sulfide materials are mineralized rock in which much of
the gold is contained in sulfide. Such sulfide materials are generally mined and
processed by means of crushing the ore into fine particles and floating the
particles in a solution to separate the gold. This process is capital intensive
and often not an economic means of processing lower grade mineral deposits.
Oxide ore and/or mineralized deposits are sulfide deposits that have been
oxidized. Unlike sulfide deposits, gold can be extracted from oxide deposits
through the use of cyanide heap leaching solutions. Because cyanide heap
leaching is generally a less expensive process than crushing and floating
sulfide materials, lower grade mineral deposits can be more economically mined.
For this reason, Dakota has incurred costs to investigate methods of treating
sulfide materials to render them amenable to cyanide leaching processing. See
"Properties - Gilt Edge Mine - Sulfide Mineralized Deposit." Each mineral
deposit has unique metallurgical characteristics, and oxide and sulfide
mineralized materials are commonly intermingled.
Gilt Edge Mine. Gilt Edge Mine is a year round open pit heap leaching
operation. The following table sets forth certain historical production
information for Gilt Edge Mine:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ore crushed (thousands of tons) 1,583 572 - - 773
Average grade gold (ounces/tons) 0.023 0.043 - - 0.056
Average recovery (%) 72.8% 39.6% - - 60.0%
Ounces produced
Gold 26,150 9,748 2,374 9,423 26,836
Silver 38,223 19,436 5,670 18,524 45,201
Per ounce of gold sold
Cash Cost ($) $439 -(1) -(1) $301 $308
Total Cost ($) $500 -(1) -(1) $366 $381
<FN>
(1) During 1994 and through to August 1995, Gilt Edge Mine was on stand-by
pending the issue of operating permits for new mining areas. All costs
incurred in this period to care for and maintain the mine and
production facilities have been categorized as "stand-by costs". All
proceeds from the sale of gold and silver during this period were used
to offset stand-by costs. Cost per ounce figures are not meaningful.
(2) Gilt Edge recorded operating costs during the first four months of 1996
of approximately $3.2 million, or $122 cash cost per ounce, which costs
were incurred prior to obtaining any gold production from Anchor Hill
deposit. Cash costs per ounce are expected to decline in future years
as Gilt edge Mine will produce gold year round and will not
proportionately increase its operating costs.
[/FN]
</TABLE>
General. Dakota owns 100% of Gilt Edge Mine. Gilt Edge Mine is located
near Deadwood, South Dakota, approximately 40 miles from Rapid City, South
Dakota, where there is scheduled commercial airline service. Access to the
property is from Highway 385 on a secondary road maintained by the county. Gilt
Edge Mine is located within the Black Hills National Forest on private land that
is leased from various unaffiliated third parties. Unless production is
continuing or the leases are otherwise extended, such leases expire at various
times through 2012. The property consists of 308 patented and 323 unpatented
claims covering approximately 7,725 acres.
Ownership of the mineral rights under certain lease agreements is
transferable to Dakota upon payment of an aggregate of $3.67 million, of which
$1.3 million has been paid to date. Current production royalties of
approximately 2% with annual minimum royalty payments of approximately $228,200
are paid to parties dealing at arm's length with Dakota. All current production
royalty payments are applied to the $3.67 million lease buy-out price noted
above.
Pursuant to an agreement between Dakota and Repadre International
Corporation ("Repadre") dated March 8, 1995, Repadre has a 1-3/4% royalty
interest in certain properties and a 3/4% royalty interest in the other
properties at Gilt Edge Mine in consideration for having made a credit facility
available to Dakota. These royalties are in addition to the 2% production
royalties described above.
All mining, hauling and road maintenance at Gilt Edge Mine is performed
by a mining contractor.
Conventional open-pit mining methods are used with ores processed
through a heap-leach processing facility. The Gilt Edge Mine site includes one
planned open-pit mine known as Anchor Hill and two historic open-pit mines, a
7,000 ton per day crushing plant, a 14 acre heap leach pad, a 1,000 gallon per
minute Merrill-Crowe zinc precipitation processing plant, solution storage
facilities and ancillary facilities including two water treatment processing
plants, laboratory, warehouse, pump house, maintenance shops, and administrative
buildings. The plant and equipment are in good condition and are adequately
maintained.
Anchor Hill Oxide Deposit. As of January 1996, Dakota had obtained all
requisite state and county permits required for the initial development of the
Anchor Hill oxide deposit. Gold production from this deposit commenced in April
1996. Based on presently established proven and probable reserves and planned
mining rates, the Anchor Hill deposit will produce gold for approximately three
years. Dakota is also conducting site exploration and development drilling
activities in order to enlarge the presently known oxide reserves. Refer to
"Reserves" below. Several promising targets have been identified and gold
mineralizations have been confirmed. Dakota expects to expend approximately
$500,000 per year over the next three years in connection with this program.
Sulfide Deposit. Since 1989, Dakota has been evaluating the possibility of
mining the large sulfide mineralized deposit which has been fully delineated and
lies directly beneath the two open pits which were mined prior to 1992.
In September 1992, following laboratory tests conducted by Dakota on
mineralization from Gilt Edge Mine showing that the sulfide mineralization
responded to conventional cyanide leaching, a bulk heap leach test of the
material was instituted. A 42,000 ton bulk sample of the material was crushed to
a minus 1/4 inch in size and was subjected to conventional heap leach
procedures. The bulk test was concluded in November 1993 after 383 days of
leaching with actual gold recoveries at 49.4%. Extrapolated gold recoveries
after two full years of leaching were calculated to be in excess of 61%.
Based upon the bulk test results, Dakota commissioned two studies to
evaluate the commercialization of this large gold resource, including an
estimate of future capital costs and utilization of bio-oxidation processes to
treat sulfide mineralized material at Gilt Edge.
One study was undertaken to substantiate the economic viability of
utilizing a heap leach facility to process certain sulfide gold bearing material
at Gilt Edge Mine using the results obtained from the large scale bulk test
noted above. However, management of Dakota has not yet concluded that such a
facility will be constructed in the near future. Rather, Dakota is continuing to
evaluate alternatives which, if successful, could further enhance Gilt Edge Mine
by allowing Dakota to process a greater portion of the known sulfide mineralized
material. Such alternatives include investigation of a pre-treatment process,
including bio-oxidation of sulfide mineralized material prior to cyanidation
leaching as described below, and conventional mill grinding of ores.
To date Dakota has spent approximately $717,600 on studying the
feasibility of the bio-oxidation process at Gilt Edge. Results gathered to date
are encouraging and indicate that for each 1% increase in oxidation there is a
corresponding approximately 1% increase in recovery. Due to the promising
results to date in exploring for additional oxide reserves at Gilt Edge Mine,
Dakota has refocused its efforts to expanding its oxide reserves as noted above.
Accordingly, no significant expenditures are contemplated in the next year to
further develop these sulfide resources.
Geology. Mineralized deposits covered by Gilt Edge Mine properties are
associated with an early Tertiary alkalic igneous complex. Multiple stock, dike
and sill intrusions, comprised of alkalic trachyte porphyries, have been
emplaced into Precambrian metamorphic and Cambrian sedimentary basement rocks
along major northeast and northwest trending fracture zones. Gold mineralization
is disseminated within the porphyritic intrusions and concentrated within
fracture and breccia zones cross cutting all rock types. In addition, gold
mineralization as replacement stratiform or manto type bodies, occurs within
favorable (chemically reactive) strata of the flat lying Cambrian sedimentary
rocks.
Exploration. There is exploration potential for other oxide and sulphide
areas of mineralized material on the Gilt Edge Mine properties. Most of the
potential oxide tonnages are in small "pockets" (relative to the much more
extensive sulphide mineralization) that could prolong mine life to the point
that development of sulphide gold deposits takes place. The Anchor Hill oxide
deposit, from which production commenced in 1996, remains as the largest oxide
deposit defined to date. In addition, the Southeast Langley oxide deposit, which
will compliment Anchor Hill production in 1997, will require additional drilling
to fully delineate the reserves in that area. Finally, 1996 exploration drilling
intersected significant mineralized intervals in two exploration targets not
drilled previously. These areas (Ruby Ridge and West Anchor) are directly
adjacent to existing mine and operating facilities and no resource estimate has
been calculated for these areas.
Additional drilling in 1997 will be completed in the Southeast Langley
and the two new areas to fully assess the reserve potential. Field geochemical
work and mapping has identified at least two additional areas which will be
drilled for the first time in 1997.
Reserves. The table below sets forth the permitted in-place proven and
probable oxide reserves at Gilt Edge Mine as of December 1, 1996; as audited by
DMBW, Inc., independent professional geological consultants ("DMBW"):
<TABLE>
<CAPTION>
Grade oz. Contained Waste to Ore
Area Tons /ton Au Ounces Au Ratio
----------------- --------- -------- --------- -------------
<S> <C> <C> <C> <C>
Anchor Hill 7,231,372 0.029 210,465 1.74:1
Southeast Langley 403,379 0.029 11,588 1.13:1
------- ----- ------ ------
Total 7,634,651 0.029 222,053 1.71:1
========= ===== ======= ======
<FN>
(1) Average metallurgical recoveries from heap leaching are expected to
approximate 71.5% of contained ounces of gold.
[/FN]
</TABLE>
Permitting and Environmental Matters. Dakota has obtained all of the
requisite state and county permits that are required for the development of the
Anchor Hill oxide deposit. However, the ultimate open pit design contemplates a
disturbance of approximately 37 acres of U.S. National Forest Service lands
principally for pit wall layback. Accordingly, Dakota must finalize an ongoing
Environmental Impact Statement (the "Gilt Edge Mine EIS") to develop the
ultimate open pit mine design. The Gilt Edge Mine EIS, which has been underway
since January 1994, is expected to be finalized in May 1997. Assuming the Gilt
Edge Mine EIS is completed on a timely basis, no disruption to mining operations
is expected in 1997. To date, Dakota has expended $151,409 for the Gilt Edge
Mine EIS and expects to spend an additional $58,000 in 1997 for a total
expenditure of $209,409 through to its completion.
On February 21, 1997, Gilt Edge Mine received a draft Notice of
Violation ("NOV") from the State of South Dakota regarding an unauthorized
discharge of approximately 5,500 gallons of mine water due to an equipment
failure. Gilt Edge Mine had previously reported the discharge which occurred in
November 1996. The NOV requests a fine of $5,400 and that Dakota increase its
efforts to properly treat and discharge excess mine waters presently stored at
the minesite. Dakota is presently assessing the nature and extent of the
requested additional water treatment procedures requested by the State of South
Dakota and cannot presently determine what incremental costs, if any, that it
may likely incur as a result of the NOV.
Reference is also made to "Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Environmental Matters and Government
Regulation."
Severance Tax. Production from Gilt Edge Mine is subject to severance
taxes payable to the State of South Dakota at the rate of $4.00 per ounce of
gold produced together with a defined net profit tax of 10%.
Golden Reward Mine . Golden Reward Mine is a year round open pit heap
leaching operation. The following table sets forth certain historical production
information for Golden Reward Mine:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ore crushed (thousands of tons) 665 1,683 1,829 1,513 2,127
Average grade gold (ounces/tons) 0.037 0.040 0.040 0.033 0.038
Average recovery (%) - 72.7% 71.8% 71.2% 63.7%
Ounces produced
Gold 21,430 47,569 52,556 35,549 51,135
Silver 9,078 13,061 12,795 30,776 67,712
Per ounce of gold sold
Cash Cost ($) $298 $229 $263 $362 $381
Total Cost ($) $462 $401 $370 $471 $494
Gold 8,572 19,078 21,022 14,220 24,909
Silver 3,631 5,451 5,118 12,310 13,020
</TABLE>
General. Golden Reward Mine is situated within the historic Ruby Basin
Mining District in the northern Black Hills, approximately four miles southwest
of Lead, South Dakota. Access to the mine is from Highway 85 via the paved
Fantail Gulch Road. The property leased by Golden Reward L.P. comprises
approximately 6,450 acres of land consisting of 426 patented and 194 unpatented
claims. All present and immediate future activities are on patented lands leased
from third parties. The leases require annual minimum payments of $400,000
($160,000 for Dakota's account) with royalty rates ranging from 1% to 5%.
Dakota has a 40% interest in Golden Reward Mine. From inception of the
project through February 27, 1992, Dakota's ownership interest in Golden Reward
Mine was 33-1/3%. Dakota's ownership interest in Golden Reward Mine was adjusted
from 33-1/3% to 54% effective February 28, 1992 as a result of a former joint
venture partner's failure to pay certain cash call obligations that were in
default. On October 8, 1992, Dakota acquired that joint venture partner's
remaining interest in the assets of Golden Reward Mine. Immediately upon
attaining a 100% ownership interest in Golden Reward Mine, Dakota sold a 60%
ownership interest in Golden Reward Mine to Wharf Resources, Ltd. ("Wharf") of
Toronto, Ontario. Thereafter, Wharf and Dakota contributed their respective
ownership interests into a newly formed limited partnership, Golden Reward
Mining Company, L.P. ("Golden Reward L.P."). The limited partnership is governed
by a partnership agreement dated October 8, 1992.
The mine has exhausted all of its presently permitted mineral reserves.
Present activities pertain only to care and maintenance which costs are minimal
to Dakota. Future mining activities, if any, are dependent upon Golden Reward
L.P. acquiring certain land surface rights and new operating permits. No
assurance can be given that Golden Reward L.P. will be successful in its
endeavors.
Operations. Mining at Golden Reward Mine took place in satellite pits using
conventional open-pit mining methods. Ore and waste was drilled and blasted and
then the ore is trucked to the crusher. The ore was crushed to a nominal 5/8
inch product, and was transported by conveyor to a rail mounted stacker which
loads the ore on to the "on/off" leach pad. This consists of 12 cells each
capable of holding 50,000 tons of ore. Gold extraction from the solution is by
means of Merrill-Crowe recovery plant. All facilities are in excellent condition
and well maintained.
Geology. Golden Reward Mine is located in the Black Hills igneous
intrusive belt, an east-west trend of Eocene Age with intrusive activity being
70 miles in length. These igneous rocks are typically alkalic and are generally
porphyritic in texture with Tertiary porphyry the most volumetrically
significant intrusive rock in the area. All intrusive rock types at Golden
Reward Mine host gold mineralization. The tertiary intrusive rocks consist of
porphyritic dykes, sills and dyke-sill complexes. These dykes typically occur
along high-angle structures or schistocyte planes in the steeply inclined
Precambrian rocks. The sills within the Deadwood Formation, the dominant exposed
sedimentary rock, usually follow bedding planes or shale horizons.
Mineralization occurs in fracture zones radiating from these igneous-sedimentary
contacts.
Historically, gold production at Golden Reward Mine has come from
high-angle structures or "verticals" and associated replacements within the
dolomitic rocks of the Cambrian Deadwood Formation. The majority of the
mineralization at the present operation is oxide and occurs in the nearly flat
lying Cambrian Deadwood Formation.
Ski Area. Golden Reward Mine is located next to the Terry Peak Ski
Area, a regionally popular Winter recreation site. Due to the sensitive nature
of this area to recreational activities, Golden Reward L.P. has instituted a
reclamation planning project for the area, which includes sequentially mining
the various areas and reclaiming the areas which were previously mined as new
mine areas are opened. Golden Reward L.P. owns a 31% interest in the ski area
for which it paid $1.3 million in 1986. A new lodge was constructed and new snow
making equipment installed in 1989 and the project is now self-sufficient. The
operations of the Terry Peak Ski Area are not material to the operations of
Golden Reward L.P. The cost of the investment has been accounted for as part of
the cost of the property and is being amortized over the life of the Golden
Reward Mine.
Reserves and Mineralized Deposits. Shown below are the proven and
probable in-place oxide ore reserves and other oxide mineralized deposits of
Golden Reward Mine (100% interest) as of December 31, 1996 as prepared on
January 30, 1997 by Glenn R. Clark, an independent professional engineer (the
"Clark Ore Reserve Report").
<TABLE>
<CAPTION>
Grade oz/ Contained
Tons ton Au Ounces Au
- --------------------------------------- ------------------------ ------------------------- -------------------------
<S> <C> <C> <C>
Proven and Probable Reserves 1.85 million 0.051 94,350
Defined Mineral Deposits
Permitted .2 million 0.034
Non-Permitted(1) 4.35 million 0.035
<FN>
(1) Non-permitted mineralization represents extensions to existing
mineralized deposits on contiguous acreage
controlled by Golden Reward L.P.
</FN>
</TABLE>
Certain third party surface rights or facilities encumber the development
of 1.57 million tons of proven and probable reserves at an average grade of
0.052 ounces of gold per ton, or 81,640 ounces of gold, and all non-permitted
defined mineral deposits. In order to access such mineralized deposits, Golden
Reward L.P. will be required to relocate its existing crusher facility and
reduce its leach pad capacity by approximately 25% or to acquire or otherwise
compensate third parties to acquire or remove their facilities. At the present
time, Golden Reward Mine is not actively pursuing the removal of said
encumbrances.
The known reserves and defined mineral deposits at Golden Reward Mine
are on patented or private lands and would not be subject to a U.S. federal
royalty should the U.S. Congress enact a requirement for such a royalty.
Exploration. Potential exists for Golden Reward Mine to increase its
inventory of mineralized material The development effort has focused on those
surface deposits which are amenable to open-pit mining, however, potential also
exists for underground deposits which have yet to be evaluated. Golden Reward
L.P. has not yet determined that such underground deposits, if any, could
economically be developed.
Other Matters. Dakota and Wharf have disagreed regarding certain
operational and financial matters for the Golden Reward Mine, including planned
future operations and related funding requirements. The resolution of these
matter is not presently determinable.
Severance Taxes. Golden Reward Mine is subject to a severance tax of $4.00
per ounce of gold produced and 10% of net profits as levied by the State of
South Dakota.
Stibnite Mine. Stibnite Mine is a seasonal open pit heap leach operation
with potential for future expansion of existing oxide production.
Stibnite Mine recommenced operations in August 1995 after being placed
on stand-by for substantially all of 1993 and for 1994 while awaiting operating
permits. In July 1995, Stibnite Mine received all requisite operating permits to
recommence mining and processing activities and now has all requisite permits to
continue operations throughout 1997. See "Stibnite Mine Permitting and
Environmental Matters." The following table sets forth certain historical
production information concerning Stibnite Mine.
<TABLE>
<CAPTION>
1996 1995 1994(1) 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ore crushed (thousands of tons) 927 544 - 91 814
Average grade gold (ounces/tons) 0.031 0.050 - 0.016 0.038
Average recovery (%) 81.0% 71.0%(3) - 89.0% 89.4%
Ounces produced
Gold 29,352 19,094 - 1,863 27,651
Silver 7,309 5,358 - 1,212 11,683
Per ounce of gold sold
Cash Cost ($) $441 $366 - N/A(2) $323
Total Cost ($) $558 $407 - N/A(2) $330
<FN>
(1) No operations were conducted in 1994 while the mine was on stand-by awaiting operating permits.
(2) Costs for 1993 are not meaningful due to reduced level of mining activities pending the issue of
operating permits.
(3) Approximately 4,000 ounces of gold remain on the heap leach pads at December 31, 1995 and once recovered
in 1996 will increase recoveries to approximately 86%.
(4) Future cash costs per ounce of gold produced are expected to be substantially lower as Stibnite Mine no
longer plans to crush ores but rather will leach ores on a run-of-mine basis. In addition, mineable
head grades are expected to be higher thereby yielding higher ounces for similar quantities of ore tons
mined.
[/FN]
</TABLE>
General. Dakota's original 50% interest in Stibnite Mine was acquired
in 1986 from Pioneer Metals Corporation. In 1991, Dakota acquired the remaining
50% interest in Stibnite Mine from Pegasus Gold.
Stibnite Mine is located in central Idaho's Salmon River Mountains in
Valley County, approximately 15 miles east of the town of Yellow Pine. Access is
by secondary road from State Highway 55. A landing strip suitable for light
aircraft also exists on the property. The property comprises thirty patented
claims, 28 patented millsites and 487 unpatented mining claims covering 8,028
acres leased from third parties. This land surrounds the Yellow Pine Mine owned
by Hecla Mining Company ("Hecla").
The leases generally require production royalties that range from 5% up
to 6%. Two leases cover the majority of the production or targeted areas on the
property and will expire in the years 2005 through 2010. The leases require
advance minimum royalties of approximately $92,500 per year.
Operations.
Stibnite Mine is a seasonal, heap leach operation with mining activity
generally occurring from May through November. Conventional
drill-blast-load-haul methods are used. The ore is then crushed into pieces less
than one inch in diameter and deposited on leach pads for dilute cyanide
treatment. Gold and silver are recovered from the solution in a carbon
absorption plant with the barren ore being rinsed, neutralized and removed from
the pads. All facilities and equipment are in good condition and are adequately
maintained.
All mining, hauling, crushing and road maintenance is performed by a
mining contractor. Dakota and contractor personnel are housed on-site in both
company and privately owned trailers. Additional permanent living quarters and
mess hall facilities are provided at the site by Dakota.
Geology. The Stibnite Mine district lies in the east-central margin of
the Idaho Batholith. Quartz-monzonite and aplite dikes of this Cretaceous
intrusive complex are the most common rock-type in this area. Precambrian
metasediments of the Belt Series are also present. The sediments are composed of
quartzite, schist, conglomerate, calc silicate hornfels and marble. The
sediments form part of a large roof pendent with the contained sedimentary
formations, generally striking in a northwesterly direction and dipping to the
northeast.
North-to-northeasterly trending faulting is strongly developed in the
area, with three major northeast striking faults identified.
Gold occurs in fractures and quartz veining mainly in metasediments,
closely associated with pyrite, marcasite, pyrrhotite, chalcopyrite and
arsenopyrite which has been oxidized near the surface. Brecciated quartzite is
the most common rock. The gold bearing oxide zones currently mined are generally
underlain by deeper gold bearing sulfide zones.
Exploration. During 1996, Dakota entered into an agreement with Hecla to
develop the sulfide potential in the Stibnite district. Dakota and Hecla each
hold 50% of the unitized mineral interest. Under the terms of the agreement, the
parties are actively seeking a third party mining company to develop the
mineralized material. Dakota's oxide heap leach operations and resources are not
to be a part of the unitized assets.
Modest exploration programs have been conducted over the past several
years, principally within three target areas. Drilling results to date have
produced encouraging results. These three mineralized areas will be the subject
of a continuing drill program in 1997 when it is anticipated that the
mineralization and extent of the mineralized material will be defined in order
to increase mineable reserves. In addition, soil and stream geochemical sampling
and modest geophysical work are planned for the coming year. Dakota expects to
expend approximately $531,000 in 1997 for exploration.
The Stibnite Mine district has good potential to host significant oxide
and sulfide gold deposits. However, due to severe cash limitations in the past
few years, exploration efforts have been restricted to oxides and to the needs
of short term mine feed. A focused sulfide drilling program could enhance this
resource.
A particular opportunity exists at Stibnite Mine due to its strategic land
position surrounding the Yellow Pine sulfide mineralized material owned by
Hecla. Yellow Pine is undeveloped and reported by Hecla to contain approximately
20 million tons of refractory sulfide material or approximately two to three
million ounces of gold. The potential to define additional sulfide material
exists primarily on Stibnite Mine lands. Furthermore, should the Yellow Pine
deposit be developed at some future date, Stibnite Mine lands may be essential
for pit layback, mill site, waste and tailing disposal.
Reserves and Defined Mineralized Deposits. An independent audit conducted
by DMBW confirmed reserves as of January 1, 1997 as follows:
<TABLE>
<CAPTION>
Tons Grade Contained Ounces/Au
- --------------------------------------- --------------------- ---------------- -----------------------
<S> <C> <C> <C>
Proven and Probable Reserves 432,190 0.049 21,504
</TABLE>
Dakota's engineering staff has also identified other mineralized oxide
material outside of the current reserves of approximately 5.68 million ore tons
at an average grade of .032 opt gold.
In addition to the defined mineralized oxide material above, Dakota's
engineering staff has also located on the property refractory sulfide material
of approximately 5.0 million tons at a grade of 0.061 ounces of gold per ton
located throughout the property.
Of the total known mineralization, only the mineralized material in the
West End Pit, and mineralized material (sulfide) at the Yellow Pine, Homestake
and Meadow Creek Mines are located on patented or private lands. All other known
mineralization is on unpatented claims, which could be adversely affected in the
event certain proposed changes in mining laws in the United States are enacted.
See "Business Conditions-Proposed Changes in Mining Laws."
Permitting and Environmental Matters. Since early 1992, Dakota has been
in the process of preparing an Environmental Impact Statement (the "Stibnite
Mine EIS") to expand its mining operations. Dakota does not expect that the
Stibnite Mine EIS will be finalized until fall 1997. However, operations planned
for 1997 are not affected by the EIS.
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Environmental Matters and Government
Regulations."
ITEM 3: LEGAL PROCEEDINGS
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1996.
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Shares of Dakota are listed for trading on the TSE and AMEX
under the trading symbol "DKT" and on the BSE under the trading symbol "DMC."
The following table sets forth for the period indicated, the high and low sale
prices per Dakota Common Shares as reported by the TSE and AMEX. For current
price information, Dakota Shareholders are encouraged to consult publicly
available sources.
<TABLE>
<CAPTION>
TSE AMEX
------------------------------------ -------------------------------------
Volume Volume
High Low (000's) High Low (000's)
------ ------- ----------- ------- -------- ----------
(Cdn. $) (U.S.$)
<S> <C> <C> <C> <C> <C> <C>
1995
First quarter......... $2.35 $1.50 1,037,941 $1.88 $1.06 387,500
Second quarter........ 2.40 1.70 417,183 2.00 1.25 266,700
Third quarter......... 2.40 1.80 452,302 1.88 1.25 359,400
Fourth quarter........ 2.25 1.40 213,527 1.75 1.06 1,204,600
1996
First quarter......... 3.65 1.85 4,081,816 2.84 1.50 3,855,100
Second quarter........ 3.65 2.65 4,261,941 2.50 2.00 641,600
Third quarter......... 3.30 2.25 3,062,423 2.25 1.63 2,028,900
Fourth quarter........ 2.96 2.00 1,293,870 2.25 1.50 2,509,600
</TABLE>
At April 17, 1997, Dakota had 35,479,742 Common Shares outstanding and had
approximately 3,500 shareholders of record.
Dakota has no fixed dividend policy. Dividend distribution will be
considered by the Board of Directors from time to time having regard to Dakota's
operating results, capital requirements and general financial condition and
requirements. No dividends have been paid by Dakota at any time. For the
foreseeable future, it is anticipated that Dakota will use all available cash
flows to finance its growth and that dividends will not be paid to shareholders.
Should Dakota pay cash dividends, such cash dividends paid to
non-residents of Canada are subject to Canadian withholding tax at the rate of
25%. Under the terms of the Canada-United States tax treaty, shareholders
resident in the United States are subject to a withholding tax of 15%.
The articles and by-laws of Dakota contain no restrictions on the right
to hold or vote Dakota's Common Shares. There are no limitations under the laws
of Canada on the rights of foreign shareholders and, in particular, no
restriction on the remittance of dividends or other payments to non-resident
shareholders, subject to applicable withholding taxes discussed below.
Dakota sold the following securities during fiscal 1996 (and prior to the
date hereof in fiscal 1997) without registration under the Securities Act:
1. On February 14, 1996, Dakota issued 8,700,000 Special Warrants
internationally for a price of Cdn.$2.30 per Special Warrant pursuant to an
agency agreement with Canaccord Capital Corporation, Scotia MacLeod, Inc., and
Griffiths McBurney & Partners. Each Special Warrant is convertible into one
Common Share and 1/2 Common Share Purchase Warrant at no additional cost. Until
December 14, 1997, two Common Share Purchase Warrants are exercisable into one
Common Share for an exercise price of Cdn.$2.65. Dakota believes, after due
inquiry, that approximately 600,000 Special Warrants (exercisable into 600,000
Common Shares and 300,000 Common Share Purchase Warrants) and 300,000 Common
Shares underlying the Common Share Purchase Warrants were issued or are issuable
to two "U.S. persons" (as defined in Rule 902 promulgated under the Securities
Act) for aggregate purchase prices of Cdn.$1,380,000 and Cdn.$795,000,
respectively. Each purchaser who was a "U.S. person" has represented to Dakota
that such purchaser was purchasing the Special Warrants for its own account and
not with a view to resale or distribution and that such purchaser was an
"accredited investor" (as defined in Rule 501 promulgated under the Securities
Act). All other purchasers have represented to Dakota that they are not "U.S.
persons." Dakota believes that the offer and sale of all such securities was
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof and/or Regulation S promulgated thereunder.
2. On February 6, 1997, Dakota issued 25,000 Special Warrants internationally
for a price of Cdn.$1,000 per Special Warrant pursuant to an agency agreement
with Canaccord Capital Corporation, Scotia MacLeod, Inc., and Newcrest Capital
Inc. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources--Special Warrant
Financing and Issue of Debentures" for a description of the Special Warrants.
Dakota believes, after due inquiry, that no Special Warrants were issued to
"U.S. persons," and each purchaser has represented to Dakota that it is not a
"U.S. person." Dakota believes that, in the event any holders of Special
Warrants were deemed to be "U.S. persons," the offer and sale of such Special
Warrants would be exempt from registration under the Securities Act pursuant to
Section 4(2) thereof and/or Regulation S promulgated thereunder.
3. On March 20, 1997, Dakota issued to Gerald Metals, Inc. ("Gerald") options to
acquire up to 100,000 Common Shares. The options were granted to Gerald in
consideration of the loans provided by Gerald and certain financial and
consulting services. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--Sources
and Uses of Cash." The options are fully vested, currently exercisable, and
expire in March 2002. If exercised, the options entitle Gerald to receive up to
100,000 Common Shares at an exercise price of $1.375 per share. Gerald has
represented to Dakota that it acquired the option for its own account and not
with a view to resale or distribution. Dakota believes that the issuance of such
options was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof and Rule 501 promulgated thereunder. Dakota has undertaken
to register with the Commission the Common Shares issuable upon exercise of the
option.
ITEM 6: SELECTED FINANCIAL DATA
The selected financial data in Table I has been derived from the
audited consolidated financial statements of Dakota and should be read in
conjunction therewith, including notes thereto, included elsewhere in this
Annual Report on Form 10-K. Dakota utilizes the United States dollar as its
reporting currency. All financial data presented below are in thousands of
United States dollars except per share and other data.
<TABLE>
<CAPTION>
TABLE I
1996 1995 1994
---------- -------- -----------
Income Statement Data
<S> <C> <C> <C>
Revenue $ 24,556 $17,209 $ 8,442
Exploration costs 499 87 203
Loss from operations (15,274) (8,718) (5,663)
Other income (expense) (7,796) (272) (76)
Net loss (23,070) (8,990) (5,739)
Net loss per share (0.73) (0.35) (0.33)
Dividends per share 0.00 0.00 0.00
Balance Sheet Data(1):
Property, plant and equipment $ 15,150 $22,973 $ 23,527
Total assets 31,569 35,905 34,344
Total debt:
Short-term borrowings 624 1,158 1,158
Current portion of long-term debt 383 566 1,824
Long-term 3,240 440 898
Other non-current liabilities 6,515 3,558 1,851
Shareholders' equity 13,459 22,590 25,485
Other Data:
U.S. dollar exchange rate
(Canadian$/US$)(2)
As of December 31, 0.7301 0.7325 0.7129
Yearly average 0.7334 0.7284 0.7321
Low for period 0.7215 0.7025 0.7105
High for period 0.7515 0.7529 0.7632
</TABLE>
Had the consolidated financial statements been presented in accordance
with accounting principles and practices generally accepted in the United
States, additional financial data would be disclosed as follows:
<PAGE>
<TABLE>
<CAPTION>
TABLE II
1993(3) 1992
Income Statement Data
<S> <C> <C>
Revenue $ 7,156 $ 31,834
Exploration costs 147 326
Operating loss (5,080) (7,850)
Other income (expense) (2,036) (1,357)
Net loss (7,115) (8,991)
Net loss per share (1.04) (2.80)
Dividends per share 0.00 0.00
Balance Sheet Data (1):
Property, plant and equipment $ 23,362 $ 39,990
Total assets 35,036 48,804
Total debt:
Short-term borrowings 1,549 -
Current portion 3,329 20,494
Long-term 2,416 1,333
Other non-current liabilities 1,648 2,389
Shareholders' equity 19,852 17,143
Other Data:
U.S. dollar exchange rate
(Canadian$/US$)(2)
As of December 31, 0.7553 0.7867
Yearly average 0.7753 0.8276
Low for period 0.7435 0.7760
High for period 0.8050 0.8760
<FN>
(1) Amounts are at the last day of each of the periods indicated.
(2) Exchange rates are expressed as the United States dollar equivalent to one Canadian dollar.
(3) The Arrangement was accounted for as financial reorganization under Canadian generally accepted
accounting principles ("Canadian GAAP") which resulted in a "fresh
start." Accordingly, results of operations subsequent to September 15,
the effective date of the Arrangement, are reported separately in Table
I in conformity with Canadian GAAP. Under U.S. GAAP, the Arrangement
would have been accounted for as a quasi-reorganization with results of
operations for the pre-Arrangement period, January 1, 1993 to September
15, 1993, combined with the post-Arrangement period.
</FN>
</TABLE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
USMX Merger. On February 5, 1997, Dakota entered into the Merger
Agreement with USMX. Under the terms of the Merger Agreement, holders of USMX
Common Stock will receive one Dakota Common Share for every 1.1 share of USMX
Common Stock and USMX will become a wholly-owned subsidiary of Dakota. In
connection with the transaction, Dakota will issue approximately 15.6 million
Dakota Common Shares. The Dakota Common Shares had an approximate market value
of $23.2 million or $1.58 per share, based upon an average trading price for
Dakota's Common Shares for a reasonable period before and after the Merger was
announced. Dakota will account for the Merger as a "purchase". Based upon the
opinion of a major independent accounting firm, Dakota anticipates that the
Merger will not be taxable to Dakota and should not be taxable to shareholders
of Dakota or USMX. Completion of the Merger remains subject to shareholder
approval, review by regulatory authorities, and other customary conditions.
Dakota expects to complete the Merger in May, 1997.
The principal asset of USMX is its Illinois Creek Project. The Illinois
Creek Project is expected to produce approximately 64,000 ounces of gold and
419,000 ounces of silver in 1997 at a cash cost of approximately $250 per ounce
of gold. The Illinois Creek Project has an estimated six year life and is
expected to be an important source of operating cash flow to Dakota throughout
its productive life.
Special Warrant Financing and Issue of Debentures. To provide financing
for Dakota and USMX in connection with the Merger, 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 (as
defined hereafter) at a price of Cdn.$1,000 per Special Warrant for aggregate
gross proceeds to Dakota of Cdn.$25 million (U.S. $18.5 million). Proceeds from
the Special Warrant offering, after deducting the 6% commission paid to Agents
and other expected costs, approximate $16.9 million. The offering proceeds will
principally be 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 and for general working capital purposes.
The Special Warrants are comprised of 16,119 Series A Special Warrants and
8,881 Series B Special Warrants. The Special Warrants offering was completed on
February 6, 1997 with all proceeds, net of a 6% commission paid to Agents placed
in escrow. Each Special Warrant entitles the holder, upon exercise thereof and
without payment of any additional consideration, to acquire one Debenture in the
principal amount of Cdn$1,000. The Debentures are described in Part III hereof.
Dakota has agreed to use its best efforts to file a prospectus in British
Columbia, Alberta, Ontario and Quebec to qualify for distribution the Debentures
issuable upon exercise of the Special Warrants and the Dakota Common Shares
issuable upon conversion of the Debentures. A prospectus has been filed. If
qualification is not obtained by June 5, 1997, or such later date as the Agents
may determine in their sole discretion, the number of Dakota Common Shares
issuable upon conversion of the Debentures will be such that each Debenture will
be convertible for 550 Dakota Common Shares (the "Penalty").
If the shareholders of Dakota do not approve the issuance of the Series B
Special Warrants prior to May 31, 1997, then all Series B Special Warrants will
automatically be retracted and the holders thereof will receive the original
purchase price paid therefor plus a pro rata portion of the interest earned on
the purchase price while it was held in escrow. If the Merger is not completed
prior to June 5, 1997, the holders of the Series B Special Warrants may elect to
retract the Series B Special Warrants.
On March 11, 1997, $5.0 million of the Special Warrant offering
proceeds was released to Dakota in connection with the terms of the Merger
Agreement and a $5,000,000 Loan Agreement. As part of the Merger transactions,
Dakota and USMX agreed that Dakota will provide a $5 million line of credit to
USMX (the "$5,000,000 Loan Agreement") the proceeds of which will be used to
sustain USMX's operations until the Merger is consummated. The line of credit
bears interest at the rate of one per cent above a quoted floating prime rate
and is due August 31, 1997 or earlier if the Merger Agreement is terminated
before such date. The proceeds from the line of credit will be used to pay
certain ongoing operating expenses of USMX, primarily in connection with
start-up activities associated with the Illinois Creek Mine and to partially pay
trade creditors of USMX and its subsidiaries.
The $5,000,000 Loan Agreement is evidenced by two promissory notes with
similar terms but different amounts and different security. The $2 million
promissory note ("Note 1") is secured by a second priority position in all of
the capital stock of USMX of Alaska, Inc. owned by USMX. USMX of Alaska, Inc.
holds title to the Illinois Creek Mine. The second promissory note for $3
million ("Note 2") is secured by a first position on all of the capital stock of
MXUS S.A. de C.V., USMX's Mexican subsidiary holding approximately 600,000 acres
of land and interests in several exploration joint ventures, and a first
position on USMX's interests in its undeveloped Thunder Mountain property in
Idaho.
Further reductions in outstanding USMX's accounts payable balances,
together with remaining construction and start-up costs at the Illinois Creek
Project in 1997, are expected to be approximate an additional $7 million. These
additional costs will be funded by Dakota from proceeds of the Special Warrant
offering.
The remaining proceeds of the Special Warrant offering will be released
upon completion of the Merger, the obtaining of receipts from various securities
commissions in Canada of the final prospectus qualifying the securities issuable
by Dakota in connection with the offering and upon approval of the issue of the
Dakota Common Shares ultimately underlying the Series B Special Warrants by
Dakota shareholders. Should the Merger not be consummated for any reason, Dakota
will be obligated to exchange a pro rata portion of the Special Warrants for
Debentures in an amount equal to the proceeds released from escrow prior to that
time. USMX will be obligated to repay all outstanding obligations under the
$5,000,000 Loan Agreement. The remaining escrowed proceeds will then be used to
retract from the holders of the Special Warrants a pro rata number of Special
Warrants for the original purchase price thereof together with a pro rata amount
of interest earned thereon while such proceeds were held in escrow.
Rothschild Credit Agreements. At March 17, 1997, USMX was obligated to
N.M. Rothschild and Sons ("Rothschild") under a $22 million financing facility
("Rothschild Credit Agreements"). Upon completion of the Merger, Dakota will be
obligated to repay these obligations. As of March 17, 1997, USMX has failed to
comply with various provisions of the Rothschild Credit Agreements and has
continued operations to date with the forbearance of Rothschild. However, Dakota
and Rothschild entered into an Intercreditor Agreement on March 12, 1997 which
among other things, contained Rothschild's consent to the Merger Agreement and
set forth certain changes to the Rothschild Credit Agreements, which changes
will become effective upon consummation of the Merger. In Dakota's view, the
prospective changes to the Rothschild Credit Agreements will avoid any existing
or immediate defaults thereunder after closing of the Merger.
The most significant changes to the Rothschild Credit Agreements
include: (i) $1.5 million of the proceeds from the Special Warrant offering will
be used to repay a portion of the Rothschild Credit Agreements, (ii) certain
minimum cash retention requirements will no longer be required; (iii) all
remaining and outstanding loan balances will be deemed to be project debt and no
portion thereof will be convertible into Dakota Common Shares; (iv) scheduled
loan repayment dates will be changed to better match projected Illinois Creek
Project cash flows; (v) minimum working capital cash balances will be retained
in the Illinois Creek Project; (vi) certain terms related to "commercial
completion" and various financial covenants will be amended; and (vii) Dakota
will guarantee the Rothschild Credit Agreements until "commercial completion" is
realized.
The adjusted project loan balance of $20.5 million will bear 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. Principal payments are to be
made in installments of $3 million each on November 30 and February 28, of each
year, commencing November 30, 1997.
Dakota expects to repay the outstanding amounts under the Rothschild
Credit Agreements and all related interest accrued thereon from the operating
cash flows from the Illinois Creek Project. No assurances can be given that the
Illinois Creek Project will provide sufficient cash flows to meet these
repayment obligations.
Sources and Uses of Cash. Effective March 20, 1997, Dakota and Gerald
Metals, Inc. ("Gerald") agreed to amend and restate Dakota's line of credit
facility with Gerald. Under the amended terms, Dakota's line of credit has been
increased from the present outstanding balance of $3.23 million to $5.0 million.
The loan will be repayable at a rate of $1.0 million per month commencing in
June 1998, will bear interest at LIBOR plus 2.25% and will be collateralized by
Dakota's underlying assets at its Gilt Edge and Stibnite Mines and a guarantee
by Dakota.
Gerald has also agreed to provide a $2.5 million standby credit
facility to Dakota until July 31, 1997. The standby facility is intended to
serve as a bridge financing until completion of the Merger and the release from
escrow of the remaining proceeds from the Special Warrant offering. Dakota will
be obligated to pay a 1/2 of one percent commitment fee on any unused portion of
the standby credit facility. All outstanding balances thereunder bear interest
at LIBOR plus 2.25% and are collateralized by an assignment of "Note 2" under
the $5,000,000 Loan Agreement as described previously.
In April, 1996, Dakota commenced construction of expanded heap leach
facilities at its Gilt Edge Mine. Remaining capital costs are estimated to be
$4.0 million over two years. The heap leach pad expansion is being constructed
in stages. In this manner, ores can be mined and processed, thereby generating
an operating cash flow, prior to the completion of the entire heap leach pad
expansion. The remaining capital costs are expected to be funded by cash flows,
cash on hand and proceeds from the borrowing arrangements with Gerald.
Inventories decreased from approximately $3.82 million at December 31,
1995 to approximately $2.64 million at December 31, 1996. The decrease
principally relates to lower quantities of gold contained on heap leach pads at
the Stibnite Mine as of year end. In 1996, estimated recoverable ounces of gold
on Stibnite leach pads were approximately 1400 ounces as compared to
approximately 4400 ounces in 1995.
As of December 31, 1996, the investment in property, plant and
equipment at Gilt Edge Mine approximated $9.4 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 $380 per ounce gold price, an
independent engineering study and past operating experiences, 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.
Dakota has identified sufficient mineralized oxide materials at its
Stibnite Mine to conduct operations at annual production rates of approximately
24,000 ounces of gold during 1997 and has drill indicated mineralized material
which Dakota believes will allow for several additional years of operations. The
drill indicated areas will require further development drilling at a cost of
approximately $500,000 per year over the next two to three years. Drilling
activities will be financed from the proceeds of the Special Warrants and from
operating cash flows.
Dakota's investment in mining assets at Stibnite Mine as of December
31, 1996 is approximately $4.3 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 $34 per
ounce providing that 65% of the drill-indicated reserves convert to the proven
and probable category. Based upon a $380 per ounce gold price and its past
operating experience, Dakota believes Stibnite Mine's future operating margins
should ensure the recovery of its remaining investment in mining assets.
Once the Merger is completed, the principal focus of Dakota for the
remainder of 1997 will be: (i) to complete the successful start-up of operations
at Illinois Creek Project, including construction of expanded leach pad
facilities at a cost of $4.5 million; (ii) to continue operations at Gilt Edge
and Stibnite Mines, (iii) to complete construction of additional heap leach pads
at Gilt Edge Mine as previously discussed; (iv) to conduct development drilling
activities at Stibnite and Gilt Edge Mines at a cumulative cost of $1.1 million
in order to convert drill indicated mineral resources into proven and probable
mineable reserves; and (v) to continue exploration and evaluation of other
mining properties.
Over the next three years, the combined capital expenditures of Dakota
and USMX are expected to approximate $11.0 million in 1997, $5.9 million in
1998, and $3.0 million in 1999, excluding any costs to develop USMX's Thunder
Mountain Project. In 1997, capital expenditures at Gilt Edge Mine are expected
to approximate $5.0 million, $4.6 million for heap leach pad expansion and
$400,000 for exploration. Capital expenditures at Stibnite Mine are expected to
approximate $1.16 million in 1997 consisting of $530,000 for exploration,
$450,000 for mine development and the remainder for equipment replacement.
Capital expenditures at Illinois Creek are estimated to be $3.8 million to
complete construction of heap leach facilities and an additional $1.0 million
will be spent on exploration at Illinois Creek Mine and Thunder Mountain Project
after the Merger is complete.
In 1998, capital expenditures relate primarily to heap leach pad
expansion at Gilt Edge Mine - $2.5 million and at Illinois Creek Mine - $2.2
million. The remaining $1.2 million of capital expenditures will be allocated
for exploration at Gilt Edge, Illinois Creek and Stibnite Mines depending upon
the results of 1997 drilling activities. In 1999, capital expenditures will
pertain primarily to heap leach pad expansion and exploration activities.
For additional information on operating properties, see "Business and
Properties of Dakota." Management expects that the cash flows generated from
mining activities, together with the proceeds from the offering of Special
Warrants and under the Gerald credit facilities, discussed previously, will be
adequate to fund all required capital expenditures and operating activities.
However, no assurances can be given that Dakota's operations will provide
sufficient cash flow to fund these capital expenditures.
At December 31, 1996, Dakota had a working capital of $1.0 million as
compared to a working capital deficit of $2.2 million at December 31, 1995. The
improvement is due to higher cash balances in 1996 and a lower outstanding
balance under a short-term borrowing arrangement. At December 31, 1995, Dakota
had a working capital deficit of $2.2 million primarily due to an increase in
accounts payable of $3.47 million since December 31, 1994. The increase in
accounts payable arose in connection with the recommencement of operations at
Stibnite Mine as discussed below and increased operating activities at Gilt Edge
Mine related to the processing of certain previously stockpiled sulfide ores.
The working capital deficit was eliminated in February 1996 as a result of the
private placement of equity securities and reductions in accounts payable using
proceeds from sales of gold bullion produced after December 31, 1995.
Cash used in operations was $6.2 million during 1996 compared to cash
provided by operations of $413,219 in 1995. The increase in cash used during
1996 is a result of operating losses of approximately $2.8 million in 1996 at
Stibnite Mine and preproduction costs of approximately $ 3.2 million incurred in
connection with the start-up of Gilt Edge Mine in the spring of 1996.
Cash provided by operations was $413,219 during 1995 compared to cash
used in operations of $3.88 million in 1994. The decrease in cash used in 1995
compared to 1994 is primarily due to the increase in accounts payable and
accrued liabilities in 1995. The increase in cash used in 1994 to $3.88 million,
from $2.96 million in 1993, is due primarily to the payment of holding and
standby costs at the Gilt Edge and Stibnite Mines neither of which conducted
significant operations in 1994 nor provided operating cash flows.
Cash used in investing activities during 1996 primarily pertains to
additions to plant, property and equipment including the expansion of the leach
pad and development of Anchor Hill at the Gilt Edge Mine.
Cash used in investing activities during 1995 pertains to additions to
plant, property and equipment, including deferred development activities at Gilt
Edge Mine and Golden Reward Mine and the addition of a water treatment plant at
Gilt Edge Mine. During 1994, cash used also related to additions to plant,
property and equipment, including development activities at Gilt Edge Mine and
Golden Reward Mine.
Cash provided by financing activities during 1996 included
approximately $13.5 million of proceeds, net of offering costs, from the sale of
special warrants and $340,397 of proceeds received upon the exercise of common
share purchase warrants. Dakota also borrowed $3.23 million under a Revolving
Loan Agreement with Gerald Metals, Inc. In total, Dakota repaid almost $1.1
million of borrowings during 1996, including its pro rata share of long-term
debt obligations of Golden Reward L.P.
Cash provided by financing activities during 1995 included
approximately $5.5 million of proceeds, net of offering costs, from the sale of
special warrants and $587,873 of proceeds received upon the exercise of common
share purchase warrants. Dakota also borrowed $1.875 million under a short-term
credit facility with Gerald Metals, Inc., which credit facility was fully repaid
prior to the end of 1995. Proceeds from the borrowing were used for working
capital to restart operations at Stibnite Mine. Dakota also repaid approximately
$1.8 million of its pro rata share of certain long-term debt obligations of
Golden Reward L.P. In total Dakota repaid borrowings of $3.7 million in 1995.
Financing activities in 1994 generated $9.5 million of proceeds, net of offering
costs, from the sale of special warrants and $2.17 million of proceeds received
upon the exercise of Common share purchase warrants. Dakota repaid approximately
$1.87 million of its pro rata share of certain long-term debt obligations of
Golden Reward L.P. and in total repaid borrowings of $6.13 million in 1994.
Dakota has needs for cash to fund permitting, construction and
environmental compliance activities at its Gilt Edge, Stibnite and Golden Reward
projects. See Item 2 "Properties"
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.
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.
Dakota's accounting treatment for hedging is outlined in Notes to Item 8 -
"Financial Statements and Supplementary Data."
At December 31, 1996, Dakota had entered into various forward sale
contracts with a gold bullion dealer to deliver 7,500 ounces of gold at a
minimum prices of $370 per ounce and a maximum of $385 per ounce during the
period from January 31, 1997 through June 30, 1997. In addition, forward sales
contracts for 16,000 ounces at an average price of $387 were in place at
year-end. As of February 28, 1997, Dakota had forward sale contracts remaining
to deliver approximately 21,000 ounces of gold throughout 1997 at an average
price of $384 per ounce. Fluctuations in future gold prices could significantly
impact Dakota's future revenues as only a portion of Dakota's expected gold
production in 1997 has been hedged by these forward sales contracts.
Dakota intends to adopt the new Recommendations of the Canadian
Institute of Chartered Accountants relating to the presentation and disclosure
of financial instruments. In accordance with these recommendations the
Debentures will be segregated into their debt and equity components. The
financial liability component, representing the present value of future interest
payments, will be included in long-term debt. The remaining component,
representing the value ascribed to both the holders' option to convert the
principal balance into Dakota Common Shares and Dakota's right to pay the
principal amount of the instrument in Common Shares, will be classified in
shareholders' equity as the equity component of convertible instruments. These
components will be measured at their respective fair values at the date the
Debentures are exchanged for the Special Warrants.
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. Except as otherwise disclosed in this Form 10-K, Dakota
believes that it is in substantial compliance with all applicable material
governmental and environmental 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 the end of 1996, 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.
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.
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 December 31, 1996. Funding of this obligation
will be made from operating cash flow derived from processing the Anchor Hill
oxide deposit.
Dakota is required to meet certain equity covenants of $20 million as a
condition of its permits with the State of South Dakota. As of December 31, 1996
Dakota did not meet this requirement, however completion of the Special Warrant
offering on February 6, 1997 as discussed previously will ensure that Dakota
meets this requirement on a go-forward basis.
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 fulfil its obligation, Dakota has provided the State with
a form of demand note in the amount of $359,000.
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.
In November 1993, Dakota filed an application for a U.S. Federal Clean
Water Act National Pollution Discharge Elimination System permit in respect of
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
on Consent with the EPA regarding the tailings area (the "Meadow Creek Plan").
Approximately 50% of the work under the Meadow Creek Plan was completed in 1995.
Through December 31, 1996, $224,733 has been incurred in connection with the
Meadow Creek Plan. Management estimates that it will cost approximately $667,000
in 1997 in order to complete the Meadow Creek Plan. Such costs will be funded
from operating cash flows although there is no assurance that sufficient cash
flow from operations will be generated to complete the Meadow Creek Plan. Dakota
has apprised previous owners and operators of the property of the Meadow Creek
Plan 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 Meadow Creek Plan.
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 $701,322 have been posted by Dakota in
accordance with State of Idaho and USFS requirements to ensure that land which
is disturbed by mining 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.
Reference is made to the respective sections "Permitting and
Environmental Matters" in the description of the Gilt Edge, Golden Reward and
Stibnite Mines under "Properties" for further discussion of the financial impact
of environmental compliance.
Results of Operations
Dakota recorded a consolidated net loss of $23.1 million, or $0.73 per
share, in 1996. Of this loss, $16.4 million reflects non-recurring expenses
including the following: (i) a $9.6 million writedown in asset carrying values
and accrual of certain future estimated costs related to the suspension of
operations at Golden Reward Mine, (ii) an increase in depletion of $2.9 million
at Stibnite Mine due to a change in accounting estimates and the expensing of
deferred stripping costs of $700,000 which had been deferred in prior years, and
(iii) $3.2 million of preproduction and start-up expenses at the Gilt Edge Mine
prior to recommencing operations at the Anchor Hill deposit in May 1996.
Revenue Shown below is Dakota's share of metal sales (in ounces) in
each of the last three years:
<TABLE>
<CAPTION>
Metal Sales
Year Ended December 31(1)
1996 1995 1994
---- ---- ----
Gold Silver Gold Silver Gold Silver
- ------------------------------------- ----------- ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Cactus Mine (25%) 564 197 1,468 997 2,595 7,624
- ------------------------------------- ----------- ------------ ------------ ------------- ------------ -------------
Gilt Edge Mine(2) 23,537 32,619 8,839 16,156 2,534 7,245
- ------------------------------------- ----------- ------------ ------------ ------------- ------------ -------------
Golden Reward Mine (40%) 10,070 9,078 19,078 5,451 19,618 5,323
- ------------------------------------- ----------- ------------ ------------ ------------- ------------ -------------
Stibnite Mine 28,752 7,309 17,622 4,739 - -
- ------------------------------------- ----------- ------------ ------------ ------------- ------------ -------------
62,923 49,203 47,007 27,343 24,747 20,192
====== ====== ====== ====== ====== ======
<FN>
(1) Precious metals production for each of the joint venture operations includes Dakota's pro rata share.
(2) Includes gold sales from Gilt Edge Mine of 2,308 ounces and 2,534 ounces while in holding and standby
stage during 1995 and 1994, respectively. The related revenues were
recorded as a reduction of holding and standby costs.
</FN>
</TABLE>
Operating results for the last three years are summarized in the
following table:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating revenue $ 24,556,406 $ 18,094,834 $ 9,589,821
Loss on gold loan repayment(1) - - (205,558)
Reclassified to holding and standby - (886,226) (942,640)
Net operating revenue $ 24,556,406 $ 17,208,608(2) $ 8,441,623(2)
============ ============ ===========
<FN>
(1) Loss on gold loan relates to the payoff of a gold loan as a result of
the revaluation of the gold loan to $348 per ounce pursuant to the
arrangement completed September 15, 1993.
(2) Excludes sales of gold from Gilt Edge Mine while in holding and standby stage.
</FN>
</TABLE>
The benefits of Dakota's short-term gold hedging program principally provide a
minimum selling price for ounces of gold which only slightly exceeded the
average spot prices.
<TABLE>
<CAPTION>
Mine, Mill and Administration(1)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Gilt Edge Mine $ 10,339,845 $ 6,442,615 $ 3,563,013
Golden Reward Mine 3,003,781 4,363,047 4,681,572
Stibnite Mine 12,666,675 6,450,714 856,884
Cactus Mine 285,832 477,409 751,499
----------- ---------- ---------
Subtotal 26,296,133 17,733,785 9,852,968
Reclassified to holding and standby - (3,882,148) (4,419,897)
Total mine, mill and administration $ 26,296,133 $ 13,851,637 $ 5,433,071
============= ============ ============
Average cash cost per ounce of gold sold $418 $310(2) $245(2)
<FN>
(1) Cash costs include mining, milling, project administration, on-property
exploration, and all holding and standby costs.
(2) Excludes ounces of gold sold by Gilt Edge Mine while in the holding and standby stage.
</FN>
</TABLE>
1996 Compared to 1995. Metal sales at both Gilt Edge Mine and Stibnite
Mine were higher in 1996 than 1995 due primarily to an increase in ore tons
processed. During 1996, Gilt Edge Mine processed approximately 1.583 million ore
tons at an average grade of 0.023 ounces of gold per ton and Stibnite Mine
processed 927,000 ore tons at an average grade of 0.031 ounces of gold per ton.
In comparison, during 1995, Gilt Edge Mine processed approximately 572,000 ore
tons at an average grade of 0.043 ounces of gold per ton and Stibnite Mine
processed 544,000 ore tons at an average grade of 0.05 ounces of gold per ton.
The higher tonnages resulted in increased total metal production.
The above increases in production were partially offset by lower metal
sales from Dakota's 40% interest in the Golden Reward Mine. Golden Reward Mine
ceased mining activities at the end of the second quarter of 1996.
Mine, mill and administrative expense increased substantially in 1996 when
compared to 1995. The increase in costs relates primarily to the higher volumes
of ore tons mined at Gilt Edge and Stibnite Mines as discussed previously.
Although ore tonnages were higher, lower ore grades in 1996 adversely effected
cash costs per ounces of gold sold. In addition, costs at Gilt Edge Mine in 1996
include approximately $3.2 million of operating costs related to the Anchor Hill
oxide deposit incured during the period from January to April. Gold recoveries
from this deposit commenced in May 1996. Such expenses, are not recurring in
nature as the Anchor Hill deposit will continue operations on a year round
basis, increased the average cash costs per ounce of gold sold by $51 in 1996.
The Golden Reward Mine incurred $1.3 million less costs in 1996 than in 1995,
due to the cessation of mining activities in June. Costs at Cactus Mine were
lower in 1996 than in 1995 and relate to wind-up and reclamation activities.
The increase in depreciation, depletion and amortization in 1996 when
compared to 1995 is due to higher production rates in 1996 and to a change in
accounting estimate which led to a higher per ounce depletion rate for the
Stibnite Mine in 1996. This change in estimate resulted in additional depletion
of $2.9 million during 1996.
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 in 1995 and 1996, an impairment
of its investment in mineral properties relating to the Golden Reward Mine.
Dakota recorded this impairment of approximately $7.9 million in its 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. Of
this amount, approximately $790,500 pertains to the write down of inventory.
During the second quarter of 1996, Dakota recorded an accrual of approximately
$1.7 million for its share of reclamation and other costs due to the cessation
of mining operations.
Royalties vary from mine-to-mine and within the specific area being
mined in accordance with various agreements with landowners. Effective in 1995,
the State of South Dakota adjusted its method 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 1996 resulted in higher royalty and severance taxes
than in 1995.
Reclamation costs in 1996 consist of accruals at Gilt Edge Mine,
Stibnite Mine and Golden Reward Mine of $1.2 million, $380,000 and $640,000,
respectively. The costs at Gilt Edge Mine pertain to the mining of ore and waste
tons at Anchor Hill, the costs at Stibnite pertain to revised estimates of
reclamation costs due to additional mining activities in the West End and
Stibnite pits, and the costs at Golden Reward pertain to the cessation of
operations in the second quarter of 1996. According to estimates provided by our
partner in Golden Reward Mine, all future reclamation costs should now be
accrued as of December 31, 1996.
General corporate costs increased $500,000 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 mine
acquisitions. These increases are due, in part, to overall increases in
corporate activity.
Investment income is higher in 1996 due principally to interest earned
on higher cash balances available for investment purposes.
Interest expense is slightly lower in 1996 than in 1995 due to
decreased vendor interest on outstanding payable balances during 1996. This is
slightly offset by interest on the balance of the Revolving Loan Agreement with
Gerald Metals, Inc. beginning in the second quarter of 1996.
Dakota does not anticipate that its U.S. operations will be subject to
alternative minimum tax during 1997.
1995 Compared to 1994 and 1994 Compared to 1993. Gold production and
related operating revenues in 1995 increased from 1994 levels principally due to
the recommencement of operations at Stibnite Mine in August 1995 after the
successful completion of various permit matters and leaching certain stockpiled
ores at Gilt Edge Mine. In 1994 gold production and revenues decreased from 1993
levels due to the decrease in ounces sold from Gilt Edge Mine as a result of the
cessation of mining activities in January 1993. This was partially offset by
higher average gold prices realized and by increased ounces of gold produced at
Golden Reward Mine due to higher mined tonnages.
In 1995, Dakota mined and processed at Stibnite Mine a total of 544,340
tons of ore with an average grade of 0.05 ounces of gold per ton with overall
average recoveries expected to approximate 86%. Approximately 4,000 ounces of
gold remained on leach pads at December 31, 1995 and were recovered during the
Spring 1996 start-up. In 1994, Stibnite Mine was on standby awaiting the
issuance of certain operating permits. Production at Gilt Edge Mine was higher
in 1995 and is attributable to processing of approximately 572,000 tons of
certain stockpiled sulfide ores with an average grade of 0.043 ounces of gold
per ton and an expected recovery of 45%. Leaching of these materials continued
into 1996. Gilt Edge production in 1994 was principally from reprocessing
certain previously leached materials.
Mine, mill and administrative costs increased significantly in 1995
when compared to 1994. Such costs increased by approximately $2.9 million at
Gilt Edge Mine principally as a result of crushing and pad loading costs
associated with the processing of stockpiled sulfide ores as noted above. Costs
at Gilt Edge Mine in 1994 and through August 1995 relate principally to
neutralization, environmental compliance and administration. Costs at Stibnite
Mine increased $5.6 million as a result of the recommencement of operating
activities. Accordingly, costs are not comparable to 1994. Costs at Golden
Reward were relatively unchanged.
The decrease in average cash costs per ounce sold in 1994 resulted
primarily from increased cost efficiencies obtained at Golden Reward Mine which
are substantially due to the termination of a life-of-mine contract with Harley
Hall in October 1993. Due to the cessation of mining activities at Gilt Edge
Mine wherein certain fixed costs were spread over fewer ounces produced, cost
per ounce values for 1994 are not meaningful and have been excluded from Dakota
average.
Costs at Cactus Mine were lower in 1995 than in 1994 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 1995 when
compared to 1994 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 of approximately $398,000 at Gilt Edge Mine and
$726,000 at Stibnite Mine are attributable to units of production amortization
as each mine recommenced gold production in the third quarter of 1995.
Depreciation and depletion also increased in 1994 when compared to 1993
primarily due to the purchase of equipment at Gilt Edge Mine and the utilization
of straight-line depreciation of equipment while production was suspended during
1994. However, Dakota principally amortizes its mining assets using the units of
production method.
Holding and standby costs pertain to Gilt Edge Mine - $1.5 million and
Stibnite Mine - $866,605 and represent additional accrued 1994 operating
expenses incurred by each mine respectively while awaiting new operating
permits. The increase in holding costs at Gilt Edge Mine are a result of slower
than expected neutralization of spent ores on heap leach pads and the resultant
delays in processing certain stockpiled ores.
Royalties vary from mine-to-mine and within the specific area being
mined in accordance with various agreements with landowners. 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 1995 resulted in higher royalty and severance taxes
than in 1994. In 1994 royalties increased due to higher operating revenues, but
remained consistent in proportion to such revenue.
Reclamation costs in 1995 include approximately $1.7 million and in
1994 include approximately $1.3 million accrued in connection with the
finalization of a planned acceleration of concurrent reclamation activities
related to existing waste facilities at Gilt Edge Mine. Other reclamation costs
pertain principally to Golden Reward Mine and are relatively unchanged.
General corporate costs decreased in 1995 when compared to 1994 due to
reductions in staff, legal expenses, travel activities, and in the use of
outside professional services. These reductions are due, in part, to overall
decreases in corporate activity during 1995. Such corporate costs decreased in
1994 as compared to 1993 primarily due to an accrual of bonuses to certain
officers in 1993, offset in part, by increased shareholder and investor
relations activities.
Investment income is lower in 1995 due principally to lower cash
balances available for investment purposes. Investment income increased in 1994
as compared to 1993 due to interest earned on higher average cash balances. The
increase in cash balances arose from proceeds realized as a result of the
Arrangement described under Part I "Business - General" below, completed in
September 1993 and the private placement of special warrants in February 1994.
Interest expense is lower in 1995 due to lower outstanding indebtedness
as a result of the repayment of indebtedness to Wharf throughout 1995 and 1994.
This is partially offset by an increase in vendor interest due to larger
outstanding payable balances. Interest expense decreased in 1994 compared to
1993 primarily as a result of the $1.75 million payoff to Citibank, N.A. in
September 1993, offset in part by the interest accrued to Wharf due to advances
made for cash calls at the Golden Reward Mine.
<PAGE>
ITEM 8: CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Auditors' Report 35
Consolidated Financial Statements
Consolidated Balance Sheets 36
Consolidated Statements of Operations 37
Consolidated Statements of Shareholders' Equity 38
Consolidated Statements of Cash Flows 39
Notes to Consolidated Financial Statements 40
Unaudited Supplementary Financial Information
Quarterly Financial Data 53
<PAGE>
Auditors' Report
To the Shareholders of Dakota Mining Corporation
We have audited the consolidated balance sheets of Dakota Mining Corporation as
of December 31, 1996 and 1995 and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1996 and 1995 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996 in
accordance with generally accepted accounting principles.
KPMG
CHARTERED ACCOUNTANTS
Toronto, Canada
February 4, 1997,
except as to Note 2,
which is as of February 6, 1997
and Note 6(c), which is as
of February 28, 1997
<PAGE>
<TABLE>
<CAPTION>
DAKOTA MINING CORPORATION
CONSOLIDATED BALANCE SHEETS
(expressed in United States dollars)
December 31, December 31,
1996 1995
ASSETS -------------- ------------
<S> <C> <C>
Current assets
Cash $5,092,150 $2,260,025
Inventories 2,643,701 3,821,176
Deferred stripping costs 886,086 667,956
Other current assets 739,064 340,965
----------- ----------
9,361,001 7,090,122
Property, plant and equipment, net 15,150,399 22,972,514
Other assets
Reclamation bonds 5,111,844 3,577,475
Advance minimum royalties 1,871,965 2,007,260
Other 74,141 258,050
------------- ------------
$31,569,350 $35,905,421
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Account payable $4,915,525 $5,152,517
Accrued liabilities 2,003,625 1,864,790
Reclamation costs 428,983 576,500
Short-term borrowings 623,623 1,157,991
Current portion of long-term debt 383,265 565,546
----------- -----------
8,355,021 9,317,344
Long-term liabilities
Long-term debt 3,240,053 439,520
Other long-term liabilities 952,000 -
Reclamation costs 5,562,881 3,558,304
----------- -----------
Total liabilities 18,109,955 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 52,809,980 38,906,595
Accumulated deficit (39,133,909) (16,064,270)
Cumulative translation adjustment (279,810) (339,572)
------------- -------------
Total shareholders' equity 13,459,395 22,590,253
---------- ----------
$31,569,350 $35,905,421
========== ==========
</TABLE>
Approved on behalf of the Board
/s/Alan R. Bell_______________ /s/ Stanley Dempsey_______________
Alan R. Bell Stanley Dempsey
Director Director
(See accompanying notes to consolidated financial statements)
<PAGE>
<TABLE>
<CAPTION>
DAKOTA MINING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(expressed in United States dollars)
Year ended Year ended Year ended
December 31, December 31, December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating revenues $24,556,406 $17,208,608 $8,441,593
Operating costs
Mine, mill and administration 26,296,133 13,851,637 5,433,071
Depreciation, depletion, and
amortization 6,496,371 4,729,391 2,162,255
Royalties and severance taxes 1,163,510 743,713 340,824
Exploration 498,908 87,134 203,437
Reclamation 2,255,429 2,196,383 1,978,609
Holding and standby costs 1,330,026 3,025,127 2,324,437
General corporate costs 1,789,939 1,293,058 1,662,077
Property impairment 7,922,116 - -
----------- ---------- ----------
47,752,432 25,926,443 14,104,710
---------- ---------- ----------
Operating loss (23,196,026) (8,717,835) (5,663,117)
------------ ------------ ------------
Other income (expense):
Investment income 475,508 301,193 326,374
Interest expense (441,844) (496,239) (698,389)
Other 92,723 (76,837) 296,206
-------------- ------------- -----------
126,387 (271,883) (75,809)
------------- ------------ -------------
Net loss $(23,069,639) $(8,989,718) $(5,738,926)
============ =========== ===========
Net loss per common share $(0.73) $(0.35) $(0.33)
====== ====== ======
Weighted average number of
shares outstanding 31,405,369 25,396,310 17,406,350
========== ========== ==========
</TABLE>
(See accompanying notes to consolidated financial statements)
<PAGE>
<TABLE>
<CAPTION>
DAKOTA MINING CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(expressed in United States Dollars)
Cumulative
Common Shares Accumulated Translation
Shares Amount Warrants Deficit Account
--------------- ---------------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 13,973,068 $17,317,430 3,911,844 $(1,335,626) $(42,148)
Issue special warrants subsequently
exchanged for common shares, net
of offering costs of $734,042 6,000,000 9,498,969 - - -
Exercise of warrants for cash 1,387,040 2,931,226 (760,097) - -
Net loss and translation loss - - - (5,738,926) (297,424)
---------------- ----------- --------------- ----------- ---------
Balance, December 31, 1994 21,360,108 29,747,625 3,151,747 (7,074,552) (339,572)
Issue special warrants subsequently
exchanged for common shares, net
of offering costs of $493,150 4,838,710 5,506,850 - - -
Exercise of warrants for cash 335,924 772,631 (184,758) - -
Expiration of common share
purchase warrants - 2,879,489 (2,879,489) - -
Net loss - - - (8,989,718) -
Balance, December 31, 1995 26,534,742 38,906,595 87,500 (16,064,270) (339,572)
Issue special warrants subsequently
exchanged for common shares, net
of offering costs of $974,478 8,700,000 13,475,488 63,134 - -
Exercise of options for cash 245,000 340,397 - - -
Expiration of Pegasus warrants - 87,500 (87,500) - -
Net loss and transaction loss - - - (23,069,639) 59,762
Balance, December 31, 1996 35,479,742 $52,809,980 $ 63,134 $(39,133,909) $ 279,810
========== ========== ============= ============ =========
</TABLE>
(See accompanying notes to consolidated financial statements)
<PAGE>
<TABLE>
<CAPTION>
DAKOTA MINING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in United States dollars)
Year ended Year ended Year ended
December 31, December 31, December 31,
1996 1995 1994
---- ---- ----
Cash provided by (used in):
Operating activities
<S> <C> <C> <C>
Net loss $(23,069,639) $(8,989,718) $(5,738,926)
Add (deduct) non-cash items
Depreciation, depletion and amortization 6,496,371 4,656,910 2,448,382
Property impairment 7,131,639 - -
Reclamation, holding and standby costs accrued (net) 2,809,060 1,969,390 (165,800)
---------- ---------- ------------
(6,632,569) (2,363,418) (3,456,344)
Net change in non-cash working
capital items related to operations 459,148 2,776,637 (423,149)
----------- --------- ------------
(6,173,421) 413,219 (3,879,493)
------------ ---------- -----------
Investing activities
Additions to property, plant and equipment (5,847,542) (4,357,622) (2,585,907)
Proceeds from asset dispositions 4,757 - 118,380
Additions to reclamation bonds and other assets (1,240,592) (1,271,151) (259,298)
------------ ----------- ---------
(7,083,377) 5,628,773 2,726,825
------------ --------- ---------
Financing activities
Proceeds form exercise of
common share purchase warrants 340,397 587,873 2,171,129
Proceeds from the sale of special warrants 14,513,100 6,000,000 10,233,011
Special warrant offering costs paid (974,478) (493,150) (734,042)
New borrowings 3,242,824 1,992,474 368,155
Repayment of indebtedness (1,092,682) (3,709,059) (6,127,636)
----------- ----------- -----------
16,029,161 4,378,138 5,910,617
Effect of exchange rate changes 59,762 - (290,033)
------------- ----------------- ------------
Net change in cash 2,832,125 (837,416) (985,734)
Cash, beginning of period 2,260,025 3,097,441 4,083,175
--------- --------- ---------
Cash, end of period $5,092,150 $2,260,025 $3,897,441
========= ========= =========
</TABLE>
(See accompanying notes to consolidated financial statements)
<PAGE>
DAKOTA MINING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
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 11, 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 significant accounting policies used in these
consolidated financial statements are summarized as follows:
Basis of Consolidation
The consolidated financial statements include the accounts of the
Company, its subsidiaries and a proportionate share of the accounts of
partnerships and unincorporated joint ventures in which the Company has
an interest. At December 31, 1996, the Company's principal
subsidiaries, partnerships and joint ventures and its percentage equity
interest in each are as follows:
MinVen Gold (U.S.A.) Corporation 100.0%
Brohm Mining Corp. ("Gilt Edge Mine" or "Brohm") 100.0%
Stibnite Mine Joint Venture ("Stibnite Mine") 100.0%
The Golden Reward Mining Co., L.P. ("Golden Reward Mine") 40.0%
The Cactus Gold Mines Company Joint Venture ("Cactus Mine") 25.0%
Use of Estimates
Management of the Company makes various estimates and assumptions in
determining the reported amount of assets, liabilities, revenues and
expenses, and in the disclosure of commitments and contingencies. These
estimates will change with the passage of time and the occurrence of
future events, and actual results may differ materially from the
estimates.
Foreign Currency Translation
The Company presents its financial statement information in United
States dollars as its principal assets and operations are located in
the United States.
The Company uses the current rate method of foreign currency
translation whereby the assets and liabilities of its self-sustaining
Canadian operations are translated into their United States dollar
equivalent at rates of exchange prevailing at each balance sheet date.
Revenues and expenses of Canadian operations are translated at average
exchange rates prevailing during the periods in which such items are
recognized in earnings. Transaction amounts denominated in foreign
currencies are translated into their United States dollar equivalents
at exchange rates prevailing at the transaction dates.
<PAGE>
1. Accounting Policies (continued)
Foreign Currency Translation (continued)
Gains and losses arising from translation of the financial statements
of Canadian operations are included in the unrealized cumulative
translation adjustment account in shareholders' equity. Gains and
losses added to this account are recognized in the statement of
operations when the related net foreign investment is reduced.
Cash Equivalents
The Company considers all temporary cash investments having maturities
of three months or less at the date of purchase to be cash equivalents.
Inventories
Bullion and ore inventory are valued at the lower of the average unit
production cost or net realizable value. Materials and supplies are
valued at the lower of average cost or replacement cost.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Exploration costs,
pre-production costs, depreciation on equipment and other carrying
charges, principally financing costs, related to the development of
mineral properties with indicated economically recoverable reserves
are deferred until the start of commercial production. Major
expenditures related to the development of identified mineral reserves
on producing properties are capitalized. Mining costs associated with
waste rock removal are deferred and recognized in operations based on
the average stripping ratio for each ore body. The average striping
ratio is calculated as the total tons of material estimated to be
mined compared to the tons of ore estimated to contain economically
recoverable minerals. Mine exploration costs and development costs to
maintain production of operating mines are charged to operations as
incurred.
The Company periodically reviews the carrying value of its properties
by comparing the net book value with the estimated undiscounted future
cash flow from the property. If the net book value exceeds the
undiscounted future cash flow, the Company records an impairment.
Changes in the significant estimates and assumptions underlying future
cash flow estimates may have a material effect on future carrying
values and operating results.
Depreciation, Depletion and Amortization
Depreciation of plant and equipment is provided on the straight-line
method with useful lives ranging from three to ten years over the
lesser of the estimated useful life of the asset or the estimated life
of the ore reserves on the units-of-production method. Depletion and
amortization of deferred exploration and development costs are
provided on the units-of-production method based upon estimated proven
and probable ore reserves.
<PAGE>
Capitalization of Financing Costs
Financing costs, including interest, are capitalized on expenditures
related to significant development or expansion activities on mineral
properties. When production commences on these mineral properties, such
costs are charged against operations as incurred. There was no
capitalized interest in 1996, 1995 or 1994.
Reclamation Costs
The Company records a liability for the estimated cost to reclaim
mined land by accruing charges, ratably over the life of the related
mine, to reclamation costs. The estimate is based on the work which is
to be performed as set forth in the reclamation plan approved by the
agencies responsible for granting the related mining permits. The
accrued reclamation liability is reduced as reclamation expenditures
are made. Expenditures that are expected to be made within one year
are classified as a current liability. If operations are suspended for
a significant period, an immediate accrual of estimated reclamation
costs to be incurred during the suspension period is recorded.
Revenue Recognition
Revenues are recognized when deliveries of gold and silver are made.
Gains or losses on forward metal sales contracts, options and other
similar arrangements which hedge revenues from future production are
not recognized until the hedged production is delivered or the option
contract is exercised or expires.
Hedging
In the normal course of business, the Company uses forward sales
commitments 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 insure the Company 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 no bought back. Gains or losses on
forward sales, options and commodity loans that effectively establish
prices for future metal production are not recognized in income until
reflected in sales revenues when the related product is delivered for
sale.
Income Taxes
Income taxes are provided based on accounting income or loss. Deferred
taxes arise principally from claiming depreciation, depletion,
amortization, exploration and development costs for tax purposes at
amounts differing from those charged to operations for accounting
purposes. As the timing differences reverse, taxes previously deferred
are charged to income based on the effective rate.
Loss Per Share
Net loss per share has been calculated using the weighted average
number of common shares outstanding during each period. The exercise of
outstanding options and warrants to purchase common shares of the
Company would be anti-dilutive.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
1996 financial statement presentation.
<PAGE>
2. Merger and Convertible Debenture Offering Subsequent to Year-End:
On February 5, 1997, a definitive Merger Agreement with USMX, Inc.
(USMX) was signed. Under the terms of the Merger Agreement,
shareholders of USMX will receive one Dakota common share for every 1.1
common shares of USMX held and USMX will become a wholly owned
subsidiary of Dakota. In connection with the transaction, the Company
will issue approximately 14.7 million common shares in order to
complete the acquisition. The Company will account for the merger as a
purchase. Completion of the merger remains subject to shareholder and
creditor approval, review by regulatory authorities, and other
customary conditions. Management expects to complete the merger by
early May, 1997.
In order to provide financing for the proposed 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 $18.25 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.
Each Special Warrant entitles the holder, upon exercise thereof and
without payment of any additional consideration, to acquire 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
will not be redeemable prior to January 29, 2001 but thereafter will
be 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 will have 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 Company has agreed to use its best efforts to file a prospectus in
British Columbia, Alberta, Ontario and Quebec to qualify for
distribution the Debentures issuable upon exercise of the Special
Warrants and the common shares issuable upon conversion of the
Debentures.
If the Merger is not completed prior to May 31, 1997 or such later date
as the Agents may determine in its sole discretion, the number of
Dakota Common Shares issuable upon conversion of the Debentures will be
such that each Debenture will be convertible for 550 Dakota Common
Shares (the "Penalty").
Proceeds from the Special Warrant offering, after deducting the 6%
commission paid to Agents and other expected costs, approximate US$16.9
million. The offering proceeds will principally be used to complete
construction and commence start-up of the Illinois Creek Mine owned by
USMX, Inc., developmental drilling and for general working capital
purposes. Under the terms of the merger agreement, the Company has
agreed to provide USMX with a $5 million loan from the proceeds of the
Special Warrant offering. The loan is bridge financing needed by USMX
to reduce its outstanding accounts payable and to commence start-up of
its Illinois Creek Mine. The loan will be collateralized by various
USMX assets.
3. Inventories and Deferred Stripping Costs
At December 31 in each of the years indicated, inventories were
comprised of the following:
1996 1995
---- ----
Bullion $ 854,444 $1,290,231
Ore 1,524,072 2,244,420
Materials and supplies 265,185 286,525
----------- -----------
$2,643,701 $3,821,176
========= =========
In 1993, the mining activity at Stibnite Mine consisted primarily of
the removal of waste overburden. Accordingly, the costs of waste
removal of approximately $1.8 million were deferred. Of this amount,
$1.12 million was charged to operations in 1995 with the remainder
charged to operations in 1996 as related gold resources were mined. In
1996, the mining activity at Gilt Edge Mine included the removal of
waste overburden. Accordingly, the costs of waste removal of $886,086
were deferred.
4. Property, Plant and Equipment
At December 31, in each of the years indicated, property, plant and
equipment consisted of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
At cost
Mining properties $20,451,876 $14,470,978
Plant and equipment 12,352,287 12,312,247
Deferred costs 3,446,432 3,700,540
----------- -----------
36,250,595 30,483,765
Accumulated depreciation,
depletion and amortization
Mining properties 15,254,392 3,435,856
Plant and equipment 4,809,662 3,532,968
Deferred costs 1,036,142 542,427
------------ -----------
21,100,196 7,511,251
---------- ----------
$15,150,399 $22,972,514
========== ==========
</TABLE>
5. Short-term Borrowings
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 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 the Company. This facility was subordinated by Blattner
to Gerald Metals under the Revolving Loan Agreement previously
described. On May 21, 1996 Gerald Metals purchased the Secured Loan
Note from Blattner in a transaction not involving the Company. The
remaining unpaid balance as of December 31, 1996 is $624,000. This is
not part of the Revolving Loan Agreement discussed in Note 6(c).
Management believes the fair value of short-term borrowings
approximates the carrying value.
6. Long-term Debt
Long-term debt at December 31 is comprised of the following:
1996 1995
---- ----
Note payable to Harley Hall $ 358,400 $ 716,800
Equipment notes payable 34,918 288,266
Line of Credit Facility 3,230,000 -
--------- ---------
3,623,318 1,005,066
Less current portion 383,265 565,546
--------- ----------
$ 3,240,053 $ 439,520
========== ===========
(a) Note Payable to Harley Hall
At December 31, 1996, the remaining balance due to Harley
Hall, doing business as Hall Construction, ("Hall") is
repayable by the Golden Reward Mine in 12 equal monthly
principal payments (amounting to $896,000 annually, the
Company's 40% share is $358,400) plus accrued interest. The
amount owed to Hall bears interest at the following rates: (i)
from December 30, 1995 to December 29, 1996, at United States
prime plus 1.5%; and (ii) thereafter, at United States prime
plus 1%. The amount owed to Hall is secured by a mechanics'
lien on the Golden Reward Mine. The Company's 40% share of the
note is reflected in the table above.
(b) 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.
(c) Line of Credit Facility
On February 28, 1997, the Company entered into a letter
agreement with Gerald Metals Inc. to amend and restate the
terms of a Revolving Loan Agreement dated April 19, 1996.
Under the amended terms, the revolving loan will be converted
to a term loan of up to $5.0 million, will be repayable at the
rate of $1.0 million per month commencing in June 1998, will
bear interest at LIBOR plus 2.25% and will be collateralized
by Dakota's underlying assets at its Gilt Edge and Stibnite
mines. Accordingly, the amounts outstanding at December 31,
1996 under the Revolving Loan Agreement have been classified
as long-term .
Gerald has also agreed to provide the Company with a $2.5
million stand-by credit facility to serve as bridge financing
until completion of the merger with USMX and release of
remaining proceeds from the offering of special warrants.
Refer to Note 2 for a description of these matters. The
stand-by facility will be collateralized by a portion of the
$5 million advance to be made to USMX, will bear interest at
LIBOR plus 2.25% and the Company will be obligated to pay a
commitment fee of 1/2 of one percent on the unused portion.
The stand-by facility will be repayable on or before July 31,
1997.
(d) Interest Paid
Interest paid on long-term debt and short-term borrowings was $441,844
in 1996, $560,639 in 1995, and $1,213,119 in 1994.
7. Share Capital
(a) Stock Options to Directors and Employees
The Company has established a stock option plan for directors, officers
and employees covering 3,000,000 common shares. At December 31, 1996,
options and warrants to purchase 1,708,525 common shares were
outstanding with terms of up to five years from the date of grant at an
exercise price equal to the market price prevailing at the time of the
grants, as detailed in the following table:
<TABLE>
<CAPTION>
Number of Cdn $ Exercise
Common Option Price Price
Shares Per Share Warrants(1) Per Share
------ --------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1993 597,925 $3.50-$16.79 16,463 $1.50
Granted in 1994 40,000 $2.90 -
Surrendered or expired, 1994 (24,423) $3.50-$4.23 (2,211) $1.50
---------- ----------
Outstanding, December 31, 1994 613,502 $2.90-$16.79 14,252 1.75(1)
Granted in 1995 793,132 $1.60-$2.00 $1.75
Surrendered or expired, 1995 111,680 $2.00-$16.79 (14,252) -
------- --------
Outstanding, December 31, 1995 1,294,954 $1.60 - $4.23 - -
Granted in 1996 784,375 $2.45-$3.16 - -
Surrendered or expired, 1996 (370,804) $1.60-$4.23 - -
---------
Outstanding, December 31, 1996 1,708,525 $1.80-$3.50 - -
========= ==========
<FN>
(1) Effective September 16, 1994, the exercise price increased to $1.75 pursuant to the terms of
the warrants.
</FN>
</TABLE>
(b) Other Stock Purchase Rights
Information concerning other stock purchase rights granted by the
Company are as follows:
<TABLE>
<CAPTION>
Common Exercise Date
Shares Price of Grant Expiration
<S> <C> <C> <C> <C>
Citibank, N.A. 166,625 Cdn$4.68 7/31/92 7/31/97
Gerald Metals, Inc. 100,000 $1.57 9/21/94 9/21/99
Gerald Metals, Inc. 100,000 Cdn$1.80 3/20/97 3/20/02
Common Share Purchase Warrants 4,550,000 Cdn$2.65 2/14/96 12/14/97
</TABLE>
8. Income Taxes
(a) As a result of accumulated losses for which the Company
receives no current tax benefit, there is no income tax
benefit or expense for 1996, 1995 or 1994.
(b) The Company does not have an effective tax rate as a result of
losses without any resulting tax benefit. Therefore, the
United States statutory income tax rate of 34% is fully
eliminated by such losses.
(c) At December 31, 1996, the Company's United States operations
had net operating loss carry-forwards for tax purposes of
approximately $56 million. A majority of the loss
carry-forwards are restricted under United States tax laws
regarding the availability and future utilization of net
operating loss carry-forwards resulting from ownership
changes. These losses expire in various amounts through the
year 2010. The differences between losses for financial
reporting and tax purposes arise primarily as a result of
timing differences.
9. Commitments and Contingencies
(a) The Company is committed to total minimum payments under
various lease and royalty agreements to 2012, including its
pro rata share from its joint ventures. These commitments for
each of the next five years are as follows:
Years $ Amounts
----- ---------
1997 $503,659
1998 $794,850
1999 $433,563
2000 $336,649
2001 $318,750
Thereafter, annually $318,750
(b) The Company has an employee savings plan wherein it matches
employee contributions to the plan, up to 3% of each
employee's compensation. During 1996, 1995 and 1994, the
Company, contributed $50,334, $64,576, and $60,151,
respectively to the plan, including its pro rata share from
joint ventures.
(c) Environmental Matters
In April 1993, the South Dakota Department of Environmental
and National Resources ("DENR") issued an order ("Order")
regarding remediation efforts related to acid rock drainage at
the Gilt Edge Mine. The Order remains in effect. The Order
principally required that, unless discharge water meets
certain permitted terms and conditions, there shall be no
discharge of acid mine drainage and that the Company's
wholly-owned subsidiary, Brohm, submit a comprehensive
mitigation plan to address specific short term as well as long
term plans for the site. On January 19, 1996, Brohm received
final approval of an updated and amended plan from the State
of South Dakota. Brohm estimates that further reclamation and
mitigation costs in connection with the Order will approximate
$3.2 million which amount has been fully accrued. Brohm has
provided the State of South Dakota with a form of financial
assurance in the amount of $7.9 million to ensure that the
reclamation and remediation activities set forth in the
comprehensive plan will be performed. At December 31, 1996,
Brohm had provided the State of South Dakota with cash
deposits of $2.4 million and has provided the State of South
Dakota with a demand note as proof of financial assurance in
the amount of $5.5 million. All interest earned from the cash
deposits is added to the principal of such deposits. The
demand note is callable only under certain conditions which
principally relate to events whereby Brohm would fail to
fulfill its obligations under the comprehensive plan. The
demand note is subject to periodic adjustments as reclamation
activities are carried out and/or changes to the plan are
made. The Company anticipates that at its planned rate of
expenditure required reclamation will be completed by the end
of 1997 that the demand note will be cancelled.
Further, at a future date when Brohm provides notice to the
State of South Dakota that the mine will close and that post
closure care is to begin, Brohm will be obligated to establish
a post closure fund or other financial assurance 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 Company is required to meet certain equity covenants of
$20 million as a condition of its permits with the State of
South Dakota. As of December 31, 1996 the Company did not meet
this requirement, however the Convertible Debenture Offering
as discussed in Note 2 will ensure that the Company meets this
requirement on a go-forward basis.
(d) Hedging Activities - Gerald Metals, Inc.
The Company from time-to-time enters into gold price
protection agreements. As of December 31, 1996 the Company had
entered into various option contracts with Gerald Metals to
deliver 7,500 ounces of gold at a minimum price of $370.00 per
ounce and a maximum of $385.00 per ounce during the period
from January 31, 1997 through June 30, 1997. In addition,
forward sales contracts for 16,000 ounces at an average price
of $387.00 were in place at year-end.
The fair value of the Company's hedging instruments based on
the notional gain using market prices as of December 31, 1996
was approximately $309,000 for the forward sales options and
option contracts.
(e) Reclamation Costs
The ultimate amount of the reclamation obligations to be
incurred is uncertain, however the Company estimates these
costs to be $6.9 million at Gilt Edge Mine, $721,000 at
Stibnite Mine and $900,000 for the Company's 40% share at
Golden Reward. Of the total $8.4 million in estimated costs,
$6.0 million has been accrued for as of December 31, 1996. The
remaining costs will be accrued as mining continues at Gilt
Edge Mine and Stibnite Mine. However, no assurances can be
given that the above estimates accurately reflect the actual
costs of all reclamation activities that may be required.
10. 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, 1995 or 1994
between Canadian accounting principles and U.S. GAAP pertaining to the
Company.
(a) There are no material differences in the application of United
States accounting principles on accumulated deficit, share
capital and cumulative translation adjustment.
(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. The components of the Company's deferred taxes
in the balance sheet under U.S. GAAP as of December 31 would
therefore be as follows ($000's):
<TABLE>
<CAPTION>
1996 1995
---------------- --------------------
Canada U.S. Canada U.S.
<S> <C> <C> <C> <C>
Taxable temporary differences
Noncurrent
Mining costs capitalized for financial
reporting purposes $ - $ (300) $ - $(2,500)
Accounting differences attributed to joint ventures - (2,200) - (2,700)
Other - (2,900) - (3,000)
----------- ------- -------- -------
- (5,400) - (8,200)
----------- ------- -------- -------
Deductible temporary differences
Current
Tax basis of inventories in excess of book basis - 200 - (100)
--------- -------- -------- --------
Noncurrent
Tax basis of fixed assets in excess of book basis - 12,900 - 12,600
Reclamation costs not deductible for tax purposes - 1,900 - 1,300
Other - 200 - 200
-------- -------- -------
- 15,000 - 14,100
--------- ------ -------- ------
- 9,800 - 5,800
Net operating loss carryovers 1,800 23,200 1,500 19,200
------ ------ -------- ------
Net total deferred tax assets 1,800 33,000 1,500 25,000
Valuation allowance (1,800) (33,000) (1,500) (25,000)
------- -------- ------- --------
$ - $ - $ - $ -
========= ======== ======== ==========
</TABLE>
(c) At December 31, 1996 the Company has one stock-based compensation plan,
which is described below. 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. Had compensation cost for the
Company's stock-based compensation plan been determined based on the fair
value at the grant dates for awards under those plans consistent with the
method of Financial Accounting Standards Board Statement 123 - Accounting
for Stock-Based Compensation, the Company's net loss and loss per share
would have been increased to the pro forma amounts indicated below:
1996 1995
---- ----
Net loss As reported $(23,069,639) $(8,989,718)
Proforma (23,626,933) (9,390,332)
Primary loss per
common share As reported $(0.73) $(0.35)
Proforma $(0.75) $(0.37)
The fair value of each option grant is estimated on the date
of grant using the Black- Scholes option-pricing model with
the following weighted average assumptions used for grants in
1996, and 1995, respectively: dividend yield of 0% for both
years; expected volatility of 33%, and 58%, risk-free interest
rates between 5.28% and 6.61% and expected lives of two to
three years.
A summary of the status of the Company's stock option plan as
of December 31, 1996 and 1995, and changes during the years on
those dates is presented below:
<TABLE>
<CAPTION>
1996 1995
---- ----
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Fixed options
Outstanding at beginning
of year 1,294,954 $2.54 613,502 $3.57
Granted 784,375 $2.76 793,132 $1.93
Exercised 245,000 $1.90 - -
Outstanding and exercisable,
at end of year 1,708,525 $2.71 1,294,594 $2.54
Weighted average fair
value of options granted
during the year $2.76 $1.93
</TABLE>
The range of exercise prices is from $1.80 to $3.50 with a weighted
remaining contractual life of two years.
(d) The following table sets forth the components of the net change
in non-cash working capital items related to operations as
reflected in the consolidated statement of cash flows under U.S.
GAAP.
(e) During the fourth quarter of 1996, the Company changed an
accounting estimate which increased the Stibnite Mine depletion
expense and net loss approximately $2.8 million, or $(0.09) per
share for the year ended December 31, 1996.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Add (deduct) non-cash working capital items:
Inventories $1,177,475 $(2,529,304) $ 2,562
Deferred stripping costs (218,130) 1,159,260 (163,897)
Other current assets (402,040) (56,729) (115,312)
Accounts payable (236,992) 3,473,531 390,591
Accrued liabilities 138,835 729,879 767,357)
--------- ---------- ----------
$ 459,148 $2,776,637 $ (423,149)
========= ========= =========
</TABLE>
11. 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 statements of net assets as of December 31,
1996 and 1995 and condensed statements of operations and cash flows for
each of the years in the three year period ended December 31, 1996 are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Condensed Statements of Net Assets
<S> <C> <C> <C>
Current assets $ 569,273 $1,313,421
Property, plant and equipment, net 1,264,336 10,047,931
Other assets 575,849 464,193
---------- ------------
Total assets 2,409,458 11,825,445
--------- ----------
Accounts payable and other
current liabilities 486,829 428,777
Current portion of long-term debt 358,400 364,400
Long-term debt - 358,400
Other long-term liabilities 1,843,911 370,701
---------- ------------
Total liabilities 2,689,140 1,522,278
---------- -----------
$ (279,682) $10,303,167
=========== ==========
Condensed Statements of Operations:
Revenues 3,957,670 7,309,158 7,418,342
------------ ----------- -----------
Mine cash production costs 3,003,781 4,363,047 4,796,759
Royalties 96,269 193,720 167,117
Holding and standby costs 1,330,026 - -
Exploration 66,535 - -
Reclamation 639,496 208,298 117,472
Depreciation and depletion 1,645,603 3,277,390 2,155,086
Property impairment 7,922,116 - -
--------- --------------- ---------------
Total operating costs 14,703,826 8,042,455 7,236,434
---------- --------- ---------
Operating income (loss) (10,746,156) (733,297) 181,908
Other income (expense) 86,001 (225,334) (450,137)
------------ ------------ ----------
$(10,660,155) $ (958,631) $ 268,229)
============ =========== ==========
Condensed Statements of Cash Flows
Cash provided by operating activities $ 280,050 $ 2,668,071 $ 1,551,483
Cash used in investing activities (94,663) (1,058,452) (483,799)
Cash used in financing activities (364,400) (1,707,985) (1,346,654)
----------- ----------- -----------
Net decrease in cash (179,013) (98,366) (278,970)
Cash, beginning of period 459,430 557,796 836,766
--------- --------- ---------
Cash, end of period $ 280,417 $ 459,430 $ 557,796
========= ========= =========
</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 an impairment
of its investment in mineral properties relating to the Golden Reward
Mine. The Company recorded an impairment of approximately $7.9 million
in the carrying value of its 40% investment in Golden Reward Mine in
its 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. Of this amount, $790,477 pertains to the write-down
of inventory. During the second quarter of 1996, the Company recorded
an accrual of $1.7 million, representing its share of reclamation and
other costs accrued due to the cessation of mining operations. At
December 31, 1996, the Company's share of such costs accrued due to
the cessation of mining operations for the Golden Reward Mine were
approximately $890,000, of which $118,000 is included in accrued
liabilities and $772,000 is included in other long-term liabilities in
the Company's December 31, 1996, consolidated balance sheet.
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 these matters is
not presently determinable.
For the years ended December 31, 1996, 1995 and 1994, Wharf Resources
Management Inc., the operator of Golden Reward Mine and 60% owner of
Golden Reward L.P., was reimbursed $425,000, $530,000, and $420,000,
respectively, by Golden Reward Mine for technical and administrative
services.
<PAGE>
<TABLE>
<CAPTION>
Quarterly Financial Data
(unaudited)
March 31 June 30 September 30 December 31 Full Year
-------- ------- ------------ ----------- ---------
1996
<S> <C> <C> <C> <C> <C>
Revenues $3,196,715 $3,604,052 $9,064,863 $8,690,776 $24,556,406
Operating loss (917,139) (3,379,194) (9,485,310) (9,414,383) (23,196,026)
Other expense (28,294) 171,981 39,514 (56,814) 126,387
Net loss (945,433) (3,207,213) (9,446,227) (9,470,766) (23,069,639)
Net loss per share $(0.04) $(0.11) $(0.27) $(0.27) $(0.73)
1995
Revenues $1,967,445 $1,480,343 $3,188,095 $10,572,725 $17,208,608
Operating loss (1,170,173) (1,723,899) (1,100,957) (4,722,806) (8,717,835)
Other expense (54,035) (1,997) (46,065) (169,786) (271,883)
Net loss (1,224,208) (1,725,896) (1,147,022) (4,892,5920 (8,989,718)
Net loss per share $(0.06) $(0.07) $(0.04) $(0.18) $(0.35)
</TABLE>
<PAGE>
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Reference is made to the information set forth under the captions
"Dakota Management," "Dakota Security Ownership of Certain Beneficial
Owners," "Dakota Certain Relationships and Related Transactions," and
"Capitalization and Description of Dakota Securities" in the
Registrant's definitive Proxy Statement (Registration No. 333-23453) to
be filed pursuant to Regulation 14A on or before April 30, 1997, which
information is hereby incorporated by reference.
PART IVI
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
The Auditors' Report and Consolidated Financial Statements of Dakota
Mining Corporation are included in Part II, Item 8 of this Form 10-K.
(b) Reports on Form 8-K.
None
(c) Exhibits.
Exhibits referenced herein and which are not specifically included
herein are included herein by reference to the document filed with the
SEC which is set forth in the parenthetical contained in the
description of such exhibit.
2.1 Arrangement Agreement between the Registrant, VenturesTrident, L.P.,
VenturesTrident II, L.P., Holders of the Senior Exchangeable Promissory
Notes and Montreal Trust Company of Canada dated June 9, 1993 and Interim
Order (see Schedules 2 and 3 to the Registrant's Notice of Annual and
Special Meeting of Shareholders and Management Proxy Circular dated August
17, 1993).
2.2 Final Order from the Supreme Court of British Columbia dated September 14,
1993 (see Exhibit 4-e to the Registrant's Current Report on Form 8-K dated
September 15, 1993).
2.3 Arrangement Agreement dated July 31, 1992 by and among the Registrant,
United Coin Mines Limited, Moruya Gold Mines of North America, Inc., Moruya
Gold Mines of South Dakota, Inc. and Dakota Gold Mining Inc. (see Exhibit 1
to the Registrant's Current Report on Form 8-K dated October 8, 1992).
2.4 Agreement and Plan of Merger dated February 5, 1997 among the Registrant,
Dakota Merger Corporation and USMX, Inc. (see Appendix A to Registrant's
Registration Statement on Form S-4. File No. 333-23453).
2.5 Amendment No. 1 to Agreement and Plan of Merger dated April 21, 1997 among
the Registrant, USMX and Dakota Merger Corporation (See Appendix A-1 to
Registrant's Registration Statement on Form S-4, File No. 333-23453).
3.1 Pro-Forma Articles of Continuance of the Registrant. (see Exhibit 3.1 to
the Registrant's Registration Statement on Form S-1, File No. 33-73958).
3.2 Bylaws of the Registrant, as amended. (see Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1, File No. 33-73958).
4.1 Specimen certificate for Common Stock, no par value (see Exhibit 1 to the
Registrant's Registration Statement on Form 8-A, as amended, filed with the
Commission on September 16, 1993).
4.2 Purchase Warrant Indenture dated February 4, 1997 between the Registrant
and Montreal Trust Company of Canada (see Exhibit 4.4 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995).
4.3 Trust Indenture dated February 4, 1997 between Registrant and Montreal
Trust Company of Canada (see Exhibit 4.3 to Registrant's Registration
Statement on Form S-4, File No. 333-23453).
4.4 Special Warrant Indenture dated February 4, 1997 between the Registrant and
Montreal Trust Company of Canada (see Exhibit 4.4 to Registrant's
Registration Statement Form S-4, File No. 333-23453).
10.1 Cactus Joint Venture Agreement dated November 1, 1993, among Middle Buttes
Partners Ltd., CoCa Mines Inc. and Compass Mining, Inc. (see Exhibit 10.9
to the Registrant's Annual Report on Form 10-K for the year ended December
31, 1989).
10.2 Limited Partnership Agreement of the Golden Reward Mining Company Limited
Partnership between Wharf Gold Mines Inc., Dakota Gold Mining Inc. and
Wharf Reward Mines Inc. dated October 8, 1992 (see Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1992).
10.3 Amending Agreement dated February 12, 1993 to the Asset Purchase Agreement
and Limited Partnership Agreement of the Golden Reward Mining Company
Limited Partnership between Wharf Gold Mines Inc., Dakota Gold Mining Inc.
and Wharf Reward Mines Inc. (see Exhibit 10.23 to the Registrant's Annual
Report on From 10-K for the year ended December 31, 1992).
10.4 Employment Contract dated May 19, 1991 between the Registrant and Alan R.
Bell (see Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992).
10.5 Employment Contract dated June 17, 1991 between the Registrant and Robert
R. Gilmore (see Exhibit 10.25 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1992).
10.6 Share Incentive Plans (see Exhibit 28.1 to the Registrant's Registration
Statement on Form S-8 as filed with the Commission on September 16, 1993).
10.7 Option for Services Agreement dated July 21, 1992 by and between the
Registrant and CitiBank N.A. (see Exhibit 10.20 to the Registrant's
Registration Statement on Form S-1, File No. 33-73958).
10.8 Agreement for the Sale of Equipment and Personal Property and the
Resolution of Contract Matters dated September 30, 1993, by and among
Golden Reward Mining Company, L.P., Wharf Resources Management Inc., Wharf
Gold Mines, Inc., Dakota Gold Mining, Inc., Wharf Reward Mines, Inc. and
Harley Hall, individually and d/b/a Hall Construction Company. (see Exhibit
10.24 to the Registrant's Registration Statement on Form S-1, File No.
33-73958). 10.9 Net Smelter Return Royalty Agreement dated March 8, 1995
between the Registrant, Brohm Mining Corp. and Repadre International
Corporation (see Exhibit 10.17 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994).
10.10Demand Note as Proof of Financial Assurance dated March 16, 1995 between
the Registrant, MinVen Gold (U.S.A.) Corporation and the State of South
Dakota. (See Exhibit 10.20 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994.
10.11Stock Option Agreement between Registrant and Gerald Metals dated
September 21, 1995 (see Exhibit 10.15 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996).
10.12Agency Agreement dated February 4, 1997 among the Registrant, Canaccord
Capital Corporation, Scotia McLeod, Inc. and Newcrest Capital Inc. (see
Exhibit 10.13 to Registrant's Registration Statement on Form S-4, File No.
333-23453).
10.13* Amended and Restated Loan Agreement dated March 20, 1997 between
Registrant and Gerald Metals, Inc. regarding a $7.5 million working
capital, refinancing and hedging facility.
10.14Support Agreement dated February 4, 1997 among the Registrant, USMX, Inc.
and Pegasus Gold Inc. (see Exhibit 10.15 to Registrant's Registration
Statement on Form S-4, File No. 333-23453).
10.15Option Agreement dated February 4, 1997 from USMX, Inc. to the Registrant
(see Exhibit 10(a) to Current Report on Form 8-K of USMX, Inc. dated
February 4, 1997).
10.16Loan Agreement dated March 11, 1997 among the Registrant, USMX, Inc. and
USMX of Alaska, Inc. (see Exhibit 10.17 to Registrant's Registration
Statement on Form S-4, File No. 333-23453).
10.17Mortgage dated March 11, 1997 from USMX, Inc. to the Registrant (see
Exhibit 10.18 to Registrant's Registration Statement on Form S-4, File No.
333-23453).
10.18Intercreditor Agreement dated March 11, 1997 between the Registrant and N
M Rothschild & Sons Limited (see Exhibit 10.19 to Registrant's Registration
Statement on Form S-4, File No. 333-23453).
10.19Letter Agreement dated April 21, 1997 between Registrant, USMX and Peak
Oilfield Services Co. (See Exhibit 10.20 to Registrant's Registration
Statement on Form S-4, File No. 333-23453).
11.1* Statement re: Computation of Per Share Earnings.
21.1* Subsidiaries of the Registrant.
23.1**Consent of KPMG, Chartered Accountants, with respect to the Financial
Statements of the Registrant.
23.2* Consent of Glenn R. Clark & Associates Limited
23.3* Consent of DMBW, Inc.
* Filed with initial Form 10-K on March 31, 1997.
**Filed herewith as a part of this Form 10-K (A).
<PAGE>
GLOSSARY OF CERTAIN MINING TERMS
The following is a glossary of some of the terms used in the mining
industry and referenced herein:
"Adsorption" A process in which soluble complexes of gold and silver
physically adhere without chemical reaction to activated carbon
particles.
"Contained Gold" The total measurable gold or gold equivalent in grams
or ounces estimated to be contained within a mineral deposit. A
calculation or estimate of contained gold makes no allowance for mining
dilution or recovery losses.
"Cut off grade" The grade of mineralization, established by reference
to economic factors, above which material is included in mineral
deposit reserve/resource calculations and below which the material is
considered waste. May be either an external cut-off grade which refers
to the grade of mineralization used to control the external or design
limits of an open pit based upon the expected economic parameters of
the operation, or an internal cut-off grade which refers to the minimum
grade required for blocks of mineralization present within the confines
of an open pit to be included in mineral deposit estimates.
"Desorption" A process in which gold and silver physically adhered to
carbon particles in the adsorption process are stripped from the carbon
particles using a weak acid solution.
"Gold Deposit" A mineral deposit mineralized with gold but without
reference to its potential economics.
"Gold Equivalent" A method of presenting combined gold and silver
concentrations or weights for comparison purposes. Commonly involves
expressing silver as its proportionate value in gold based on the
relative values of the two metals. When gold equivalent is used to
express metal sold, the calculation is based on actual prices received.
When grades are expressed in gold equivalent, the relative recoveries
of the two metals are also taken into account.
"Grade" The amount of valuable mineral in each ton of mineralized
material, expressed as troy ounces (or grams) per ton or tonne of gold
or as a percentage of copper and other base metals.
"Heap Leaching" A method of gold and silver extraction in which
mineralized material is heaped on an impermeable pad and sodium cyanide
solution is applied to the material. The gold and silver are dissolved
out of the material as the solution percolates down through the heap,
the pregnant solution is collected from below the heap and the gold and
silver are precipitated from the pregnant solution in vessels or
columns containing activated carbon or zinc powder.
"Leach Pad" A large, impermeable foundation or pad used as a base for
ore during heap leaching. The pad prevents the leach solution from
escaping out of the circuit.
"Lode Mining Claim" A mining claim located on a vein or lode of quartz
or other rock in place, bearing gold, silver, cinnabar, tin, lead,
copper, or other valuable deposits.
"Mineral Deposit, Deposit, or Mineralized Material" A mineralized body
which has been physically delineated by sufficient drilling, trenching,
and/or underground work, and found to contain a sufficient average
grade of metal or metals to warrant further exploration and/or
development expenditures. Such a deposit does not qualify under SEC
standards as a commercially mineable ore body or as containing ore
reserves, until final legal, technical, and economic factors have been
resolved.
"Net Smelter Return Royalty" A royalty payment made by a producer of
metals, usually to a previous property owner or Governmental authority,
based on the value of gross metal production from the property, less
deduction of certain limited costs including smelting, refining,
transportation and insurance costs.
"Net Profits Interest Royalty" A royalty payment made by the producer
of metals, usually to a property owner or Governmental authority, based
on the value of gross metal production from the property, less
deduction of certain costs including smelting, refining, transportation
and insurance costs (often referred to as realization costs) plus
direct operating costs associated with the mining and treatment of ore
and the mining of associated waste.
"Open Pit Mining" The process of mining ore body from the surface in
progressively deeper steps. Sufficient waste rock adjacent to the ore
body is removed to maintain mining access and to maintain the stability
of the resulting pit.
"Ore" A natural aggregate of one or more minerals which, at a specified
time and place, may be mined and sold at a profit, or from which some
part may be profitably separated.
"Ounce (Oz)" Troy ounce.
"Oxidized Ore (Also Referred to as "Oxide Ore")" Mineralized rock which
can be profitably mined and in which some of the original minerals have
been oxidized by natural processes. Oxidation tends to make the ore
more porous and permits a more complete permeation of cyanide solutions
so that minute particles of gold in the interior of the rock will be
more readily dissolved.
"Oz/ton (Opt)" Troy ounces per short ton.
"Patented Mining Claim" A mining claim on the public land of the United
States, under the mining laws, for which a patent has been issued
conveying the title of the United States to the patentees.
"Porphyritic" A rock texture in which one mineral has a larger grain
size than the accompanying minerals.
"Probable Reserves" Reserves for which quantity and grade and/or
quality are computed from information similar to that used for proven
reserves, but the sites for inspection, sampling and measurement are
farther apart or are otherwise less adequately spaced. The degree of
assurance, although lower than that for proven reserves, is high enough
to assume continuity between points of observation.
"Proven/probable Reserves" A term used if the difference in degree of
assurance between the proven and probable categories cannot be reliably
defined.
"Proven Reserves" Reserves for which (a) quantity is computed from
dimensions revealed in outcrops, trenches, workings or drill holes;
grade and/or quality are computed from the results of detailed
sampling; and (b) the sites for inspection, sampling and measurement
are spaced so closely and the geological character is so well defined
that size, shape, depth and mineral content of reserves are well
established.
"Reserve" That part of a mineral deposit which can be economically and
legally extracted or produced at the time of the reserve determination.
Reserves are customarily stated in terms of "ore" when dealing with
metalliferous minerals.
"Reverse Circulation Holes" Exploration drill holes in which the fine
and coarse rock chips created during drilling are rapidly flushed to
the surface so that a representative sample can be obtained.
"Stock" A body of intrusive rock that covers less than 40 square miles,
has steep dips and is generally discordant with surrounding rock.
"Strike Length" The longest horizontal dimensions of a body or zone of
mineralization.
"Stripping Ratio" The ratio of waste material to ore that is
experienced in mining an ore body.
"Unpatented Mining Claim" A mining claim located on the public lands of
the United States, for which a patent has not been issued. An
unpatented mining claim is a possessory interest only, subject to the
paramount title of the United States. The validity of an unpatented
mining claim depends upon the existence of a valuable mineral deposit
within the boundaries of the claim and compliance with mining codes.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, effective
March 22, 1996.
DAKOTA MINING CORPORATION
Registrant
By: c/s Alan R. Bell By: c/s Robert R. Gilmore
Alan R. Bell, President and Robert R. Gilmore - Vice President,
Chief Executive Officer Finance and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934
this report has been signed below by the following persons in counterpart which
taken together shall constitute execution on behalf of the Registrant on the
dates indicated.
Date: March 26, 1996 By: c/s Alan R. Bell
- ------------------------ --------------------------------
Alan R. Bell, Director
Date: By:
Landon T. Clay, Director
Date: March 26 1996 By: c/s Stanley Dempsey
- ----------------------- ----------------------------
Stanley Dempsey, Director
Date: March 26, 1996 By: c/s Edward G. Thompson
- ----------------------- -----------------------------
Edward G. Thompson, Director
Date: By:
Tor Jensen, Director
<TABLE>
<CAPTION>
EXHIBIT 11
COMPUTATION OF EARNING PER SHARE Years
ended December 31, 1996, 1995, 1994
For the years ended December 31
-------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Beginning shares outstanding 26,534,742 21,360,108 13,973,068
Special warrants exercised 4,682,787 3,937,252 3,055,325
Average shares issued for options exercised 187,840 - -
Common share purchase warrants exercised - 98,950 377,957
----------------- ----------------- -----------------
Weighted average shares outstanding 31,405,369 25,396,310 17,406,350
================= ================= =================
Net loss $(23,069,639) $(8,989,718) $(5,738,926)
================= ================= =================
Loss per common share $(0.73) $(0.35) $(0.33)
================= ================= =================
</TABLE>
NOTE:All other issued and outstanding options and warrants are
antidilutive. Fully diluted loss per share calculation is not
different from the calculation above and therefore is not applicable.
EXHIBIT 21.1
SUBSIDIARIES
------------------------------------- -------------------------------------
Jurisdiction of
Corporation Incorporation
------------------------------------- -------------------------------------
MinVen Gold (U.S.A.) Delaware
Corporation
------------------------------------- -------------------------------------
Blackdome Mining Corp. British Columbia
------------------------------------- -------------------------------------
Compass Mining, Inc. Delaware
------------------------------------- -------------------------------------
Brohm Mining Corp. South Dakota
------------------------------------- -------------------------------------
Matrix Financial Inc. Delaware
------------------------------------- -------------------------------------
Helix Mining Inc. Delaware
------------------------------------- -------------------------------------
Stibnite Mine Inc. Delaware
------------------------------------- -------------------------------------
Barrier Reef Inc. Delaware
------------------------------------- -------------------------------------
Dakota Gold Mining Inc. Delaware
------------------------------------- -------------------------------------
Dakota Merger Delaware
Corporation
------------------------------------- -------------------------------------
EXHIBIT 23.1
Accountants' Consent
The Board of Directors
Dakota Mining Corporation:
We consent to incorporation by reference in the registration statement (File No.
33-68872) on Form S-8 of Dakota Mining Corporation of our report dated February
4, 1997, except as to Note 2, which is as of February 6, 1997 and Note 6(c),
which is as of February 28, 1997, relating to the consolidated balance sheets of
Dakota Mining Corporation and subsidiaries as at December 31, 1996 and 1995, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996,
which report is incorporated by reference in the December 31, 1996 annual report
on Form 10-K of Dakota Mining Corporation.
KPMG
Toronto, Canada
March 27, 1997
EXHIBIT 23.2
March 26, 1997
Dakota Mining Corporation
410 Seventeenth Street, Suite 2450
Denver, CO 80202
Gentlemen:
We hereby consent to the reference to our report dated January 30,
1997, entitled "GOLDEN REWARD MINING COMPANY L.P. at Lead, South Dakota"
contained in the Annual Report on Form 10-K, of Dakota Mining Corporation (the
"Company") for the fiscal year ended December 31, 1995, which Annual Report is
incorporated by reference into (i) the Registration Statement, as amended, of
the Company, on Form S-3 (File No. 33-73958), and (ii) the Registration
Statement of the Company, on Form S-8 (File 33-68872).
Very truly yours,
c/s/ Glenn R. Clark
------------------------------------
Glenn R. Clark & Associates Limited
EXHIBIT 23.3
March 26, 1997
Dakota Mining Corporation
410 Seventeenth Street, Suite 2450
Denver, CO 80202
Gentlemen:
We hereby consent to the reference to our report, dated January 17,
1997 and entitled Audit of Ore Reserves at the Gilt Edge Deposit, Lawrence
County, South Dakota and the Stibnite Deposit, Valley County, Idaho, contained
in the Annual Report on Form 10-K, of Dakota Mining Corporation (the "Company")
for the fiscal year ended December 31, 1995, which Annual Report is incorporated
by reference into (i) the Registration Statement, as amended, of the Company, on
Form S-3 (File No. 33-73958), and (ii) the Registration Statement of the
Company, on Form S-8 (File 33-68872).
Very truly yours,
c/s/ I.S.Parrish
---------------------------
I.S. Parrish, President
EXHIBIT 10.16
AMENDED AND RESTATED LOAN AGREEMENT
THS AMENDED AND RESTATED LOAN AGREEMENT (as the same may be amended
from time to time, "this Agreement") is made as of the 20 day of March, 1997,
among GERALD METALS, INC., a Delaware corporation with its principal place of
business at High Ridge Park P.O. Box 10134, Stamford, Connecticut 06904
("Lender"), and DAKOTA Mining CORPORATION, a federal corporation organized under
the Canada Business Corporation Act ("Dakota"), BROHM MINING CORP., a South
Dakota corporation ("Brohm"), STIBNITE MINE INC, a Delaware corporation
("Stibnite"), and BARRIER REEF INC., a Delaware corporation ("Barrier" and,
jointly and severally with Dakota, Brohm and Stibnite, "Borrower"), all with
principal offices at 410 Seventeenth Street, Suite 2450, Denver, Colorado 80202.
Borrower has requested that Lender provide Borrower with secured loans
m an aggregate principal amount not to exceed Seven Million Five Hundred
Thousand Dollars (57,500,000) at any time outstanding, (the "Loan(s)") and
Lender has agreed to extend such Loan upon the terms and subject to the
conditions hereinafter set forth Capitalized terms used herein are defined in
Section 1 of this Agreement. To effectuate this arrangement, Lender and Borrower
agree as follows:
1. Definitions. For the purposes of this Agreement:
"Affiliate" shall mean any Person which directly or indirectly
controls, is controlled by, or is under common control with, Borrower
or any Subsidiary For purposes of this Agreement, "control" shall mean
the possession, directly or indirectly, of the power to (i) vote twenty
percent (20%) or more of the securities having ordinary voting power
for the election of directors of such Person or (ii) direct or cause
the direction of management and policies of such Person, whether
through the ownership of' `voting securities, by contract or otherwise
and either alone or in conjunction with others or any group.
"Borrower" shall have the meaning given to such term in the preamble.
"Breakage Costs" shall mean the amount of any reduced return to, or
fees incurred by, Lender as a result of any prepayment or late payment
by Borrower of any payment amount due under the Note.
"Business Day" shall mean any day of the year other than a day on
which banking institutions in the States of New York or Colorado are
authorized by law to close.
"Code" shall mean the internal Revenue Code of 1986, as amended.
<PAGE>
"Collateral" shall mean any and all assets, rights and
interests in or to property of Borrower pledged or mortgaged to Lender,
or in which a security interest is granted to Lender, from time to
time, as security pursuant to the Security Documents, whether now owned
or hereafter acquired.
"Commitment" shall have the meaning given to such term in
Section 2(a) of this Agreement.
"Controlled Premises" shall have the meaning given to such
term in Section 8(k)(iii) of this Agreement.
"Date of Acceleration" shall have the meaning given to such
term in Section 12 of this Agreement.
"Default" shall mean an event, condition or default which with
the giving of notice, the passage of time, or both, would be an Event
of Default.
"Dollar(s)" and the sign "$" shall mean lawful money of the
United States of America.
"Environmental Requirement(s)" shall mean any present or
future law, statute, ordinance, rule, regulation, order, code, license,
permit, decree, judgment or directive of or by any Governmental
Authority and relating to or adduessin8 the protection of human health
or the environment, including, without limitation, all laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances
or wastes into the environment (including, without limitation, air,
surface water, ground water or land), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes.
"Event of Default" shall have the meaning given to such term
in Section 12 of this Agreement.
"Fair Market Value" on any day shall mean the Second London
Gold Fixing for that day (if such Fixing does not occur on such day,
the Fixing for the immediately preceding day for which it is
available).
"Governmental Authority" shall mean the federal government of
the United States of America or Canada and the government of any
province, state, county, municipality or other political subdivision
thereof or any governmental body, agency, authority, department or
commission (including, without limitation, any taxing authority) or any
instrumentality or officer thereof (including, without limitation, any
court or tribunal) exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government
and any corporation, partnership or other entity directly or indirectly
owned by or controlled by the foregoing.
<PAGE>
"Guarantor" shall mean MinVen Gold (USA) Corporation, a Delaware
corporation.
"Guaranty" shall mean that certain Amended and Restated
Limited Guaranty of even date herewith of Guarantor in favor of Lender,
as the same may be amended, modified, restated or supplemented from
time to time.
"Hazardous Material" shall mean any material or substance (i)
which, whether by its nature or use, is now or hereafter defined as a
hazardous waste, hazardous substance, hazardous material, pollutant or
contaminant under any Environmental Requirement, including, but not
limited to, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), 42 U.S.C. ss.9601(14) and (33), the
Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C ss.6903(5),
and the laws of the States of Idaho or South Dakota, (ii) which is
toxic, explosive, corrosive, flammable, infectious, radioactive,
carcinogenic, mutagenic or otherwise hazardous to human health or the
environment, (iii) which is or contains petroleum or any fraction
thereof; including crude oil, heating oil, gasoline or diesel fuel, or
(iv) the presence of which requires investigation or remediation under
any Environmental Requirement.
"Intercreditor Agreement" shall mean that certain
Intercreditor Agreement, dated as of February 26,1997, among Lender, N.
M. Rothschild & Sons Limited and Dakota, as amended by that certain
First Amendment of even date herewith and as the same may hereafter be
amended, modified or supplemented.
"Interest" shall have the meaning given to such term in
Section 3(a) of this Agreement.
"Leases" shall have the meaning given to such term in Section
10(i) of this Agreement.
"Lender" shall have the meaning given to such term in the
preamble of this Agreement.
"Liens" shall mean any lien, claim, charge, pledge, security
interest, mortgage, deed of trust or other encumbrance.
"LIBOR" shall mean the overnight London Interbank Offered Rate
quoted by Telerate, as of 11:00 a.m. British Standard Time, or as
otherwise mutually agreed.
<PAGE>
"Loan Balance(s)" at any particular time shall mean the
aggregate principal amount of Loans then outstanding under this
Agreement from time to time.
"Loan Documents" shall mean this Agreement, the Note, the
Security Documents and all other documents or instruments executed and
delivered by or on behalf of Borrower in connection with the Loans and
the transactions contemplated hereby, as the same may be amended,
modified, restated or supplemented from time to time.
"Loan(s)" shall have the meaning given to such term in the
preamble of this Agreement.
"Market Value" on any day shall mean the Second London Gold
Fixing for that day (if such Fixing does not occur on such day, the
Fixing for the immediately preceding day for which it is available).
"Maturity Date" shall mean as to (i) Loan Balances in excess of Five
Million Dollars ($5,000,000), July31, ------------- 1997 and (ii) as
to all Loan Balances, October 30, 1998.
"1996 Revolving Credit Agreement" shall mean that certain
Revolving Loan Agreement between Lender and Borrower dated as of April
12, 1996.
"Note" shall mean the amended and restated secured loan note
provided for in Section 4 of this Agreement.
"Notice" or "Notices" shall mean all requests, demands and
other communications, in writing (including facsimile transmissions),
sent by overnight delivery service, facsimile transmission or
hand-delivery to the other party at that party's Principal Office.
"Permitted Liens" shall mean certain existing liens identified
on Exhibit C hereto.
"Person" shall mean any individual, corporation, partnership,
joint venture, limited liability company, trust or unincorporated
organization, or any Governmental Authority.
"Premises" shall mean the Stibnite property in Valley County,
Idaho and the Gilt Edge property (including, without limitation, the
Anchor Hill Mine) in Lawrence County, South Dakota.
"Prime Rate" shall mean the rate of interest from time to time
established by The Chase Manhattan Bank, N.A., at its principal office
in New York, New York, as its prime rate for US. domestic commercial
loans; any change in the Prime Rate to be effective as of the opening
of business on the day on which such change becomes effective; it being
understood and agreed that the Prime Rate is a reference rate only and
does not necessarily represent the lowest or best rate actually charged
to any customers of such banking institution.
<PAGE>
"Principal Office" shall mean:
For Lender:
Gerald Metals, Inc.
High Ridge Park
P.O. Box 10134
Stamford, Connecticut 06904
Attention: Susan Scoggins, cc: Treasurer
FAX No.: (203) 329-4844
For Borrower:
Dakota Mining Corporation, Brohm Mining Corp.,
Stibnite Mine Inc. and Barrier Reef Inc.
c/o Dakota Mining Corporation
410 Seventeen Street, Suite 2450
Denver, Colorado 80202
Attention: Robert R Gilmore
FAX No.: (303) 573-1012
"Refining Agreements" shall mean those certain
Refining/Purchase Agreements of even date herewith between
Lender and Borrower as amended, modified, restated or
supplemented from time to time.
"Security Agreement(s) " shall mean those certain Amended and
Restated Security Agreements of even date herewith made by
Dakota, Brohm, Stibnite and Barrier in favor of Lender, as the
same may be amended, modified, restated or supplemented from
time to time.
"Security Documents" shall have the meaning given to such term
in Section 7 of this Agreement.
"Subsidiary" shall mean (i) any corporation in an unbroken
chain of corporations beginning with Borrower if all of the
corporations (other than the last corporation in the unbroken
chain) in the aggregate then own stock possessing fifty
percent (50%) or more of the total combined voting power of
all classes of stock in one of the other corporations in such
chain, (ii) any partnership or nominee realty trust in which
Borrower (or any Subsidiary) is a general partner, or (iii)
any partnership in which Borrower (or any Subsidiary)
possesses a fifty percent (50%) or greater interest in the
total capital or total income of such partnership.
<PAGE>
"USMX" shall have the meaning given to such term in Section 7
of this Agreement.
2. Loans.
(a) Subject to all of the terms and conditions
contained in this Agreement and provided no Default or Event
of Default has occurred, Lender agrees to make loans to
Borrower from time to time up to and including 12:00 noon (New
York City time) on March 31, 1998 or the Date of Acceleration,
whichever first occurs, in an aggregate amount not to exceed
Seven Million Five Hundred Thousand Dollars ($7,500,000) (or,
subsequent to July 31,1997, Five Million Dollars ($5,000,000)
(the "Commitment")~ Subject to all of the terms and conditions
contained in this Agreement, Borrower may borrow under the
provisions of this Section (each Loan to be in a minimum
amount of $500,000 or an integral multiple thereof).
(b) The Loan Balance shall be repaid (i) as to
amounts in excess of Five Million Dollars ($5,000,000), on
July31, 1997 and (ii) as to Loan Balances of Five Million
Dollars ($5,000,000) or less, in five (5) consecutive monthly
installments, each in an amount equal to the lesser of One
Million Dollars ($1,000,000) or one-fifth (1/5th) of the Loan
Balance outstanding on June 30,1998, commencing on June30,
1998 and continuing thereafter on the last Business Day of
each consecutive calendar month up to and including the
Maturity Date.
(c) Loans will be made by Lender within one (1)
Business Day after Lender's receipt of a written request for a
Loan in the form of Exhibit B hereto, signed by a duly
authorized officer of Borrower indicating the date and amount
of the Loan requested and acknowledging the principal balance
outstanding on the Loans, as of the said date after taking
into consideration the amount of the Loan as so requested.
Such written request for a Loan may be delivered by any
reasonable means, including facsimile transmission.
(d) On the date of execution and delivery of this
Agreement, Borrower will (i) pay Lender a facility fee in the
amount of $150,000, (ii) grant Lender a gold call option for
five thousand (5,000) troy ounces of gold at Three Hundred
Eighty Five Dollars ($385) per troy ounce expiring March
27,1998 for value March 31, 1998 and (iii) grant Lender a five
(5) year option from the date of this Agreement to purchase
one hundred thousand (100,000) frilly registered shares of
common stock of Dakota at the market price on the date of
execution and delivery of this Agreement.
3. Interest Payments.
(a) The outstanding principal balance of Loans shall
bear interest, from the date a Loan is made until payment in
full, at LIBOR plus two and one- quarter percent (2 1/4%) per
annum ("Interest"). Interest payments by Borrower to Lender
shall be made monthly on the first Business Day immediately
following the month for which such Interest is calculated and
with a final payment due and payable on the Maturity Date in
an amount equal to all accrued and unpaid Interest hereunder
as of the Maturity Date Interest shall be calculated on the
basis of the actual number of days elapsed over a year of
three hundred sixty (360) days.
<PAGE>
(b) Payments and any prepayments (including premiums
thereon) of the principal amount of the Loans, Interest and
other payments hereunder may be made in Dollars. Payment shall
be made in immediately available funds at the principal office
of The Chase Manhattan Bank, N.A., New York, New York for the
account of Lender (Account No 910-120-1995, ABA No 021000021),
initiated by bank wire transfer not later than 12:00 noon New
York time on the date on which such payment shall become due
(each such payment initiated after such time on such due date
to be deemed to have been made on the next succeeding Business
Day) or such other account at the same or such other bank as
Lender shall direct.
(c) Borrower shall pay interest with respect to all
amounts not paid when due under this Agreement or the Note at
a rate equal to four percent (4%) greater than the Prime Rate,
computed from the date due and calculated on the basis of the
actual number of days elapsed over a year of three hundred
sixty (360) days.
(d) The payment obligations of Borrower under this
Agreement are absolute and unconditional and shall not be
affected by reason of; but not limited to, force majeure.
(e) Notwithstanding anything herein contained, if any
law, regulation, treaty or official directive, or any change
therein or in the interpretation or application thereof by any
Governmental Authority, shall make it unlawful for Lender to
give effect to any of its obligations as contemplated hereby,
Lender, by Notice to Borrower, may declare that Lender shall
be released from such obligations (but without in any way
releasing Borrower from any of its obligations hereunder). To
the extent that such requirement or illegality obligates
Lender to require repayment of the Loan, Borrower will repay
the Loans at such time or times, and in such manner, as
necessary to satisfy such requirement or illegality and as
designated by Lender by Notice to Borrower together with any
accrued Interest and other amounts payable by Borrower to
Lender under this Agreement and the Note.
(f) Borrower hereby agrees to indemnify and save
Lender harmless from and against any liability (either
directly or by way of deduction, withholding or otherwise) for
any present or future tax, duty, levy, impost, fee or charge
in respect of; or arising out of; the execution and delivery
of or performance under this Agreement, or the making of the
Loans hereunder or the consummation of any of the transactions
contemplated by this Agreement, other than taxes which are
assessed on a net income basis and remitted by Lender to the
United States of America and any political subdivision or
taxing authority thereof or therein, in respect of; or arising
out of; the making of the Loans hereunder and the entering
into of the transactions described above. In particular,
without limitation, if Borrower should be required or
compelled to make any deduction or withholding of any tax or
other amount as aforesaid from any Interest or other payments
or deliveries payable to Lender hereunder, Borrower will
promptly and without any requirement of notice by Lender, pay
to Lender a sum which, after deduction of all applicable taxes
thereon, shall result in Lender's receiving one hundred
percent (100%) of the amounts of interest or other payment
which would have been received by Lender if such deduction or
withholding were not required. Borrower shall also deliver to
Lender within thirty (30) days after Borrower has made any
payment from which it is required by law to make any such
withholding or deduction a receipt issued by the applicable
taxing or other authorities evidencing the deduction or
withholding of all amounts required to be deducted or withheld
from such payment. Upon receipt by Lender of (i) such tax
receipts and other related information and documents and (ii)
the benefit of any reduction in federal or any other income
tax liability as determined by Lender, in its reasonable
discretion, resulting from the crediting or deducting of such
withholding taxes in the computation of such tax, Lender will
forthwith reimburse Borrower an amount so that Lender shall be
in the same position it would have been if such withholding
taxes had not been imposed. It is agreed that such
determination may be revised and Borrower will make an
appropriate adjustment with Lender after any disallowance of
such credit or deduction upon audit. The obligations of
Borrower and Lender, and their respective obligations to pay
any sums which may become payable, under this Section 3(f)
will survive the expiration or other termination of this
Agreement.
4. Note. The Loans shall be evidenced by the Amended and
Restated Secured Loan Note of Borrower in favor of Lender of
even date herewith in the principal amount of up to$7,500,000,
as the same may be amended, modified or restated from time to
time, which shall be substantially in the form attached hereto
as Exhibit A which promissory note is hereby incorporated
herein by reference and made a part hereof (the "Note").
5. Prepayment.
(a) If at any lime the Loan Balance shall exceed the
Commitment, then Borrower shall immediately prepay the Loans
in an amount equal to such excess.
(b) Subject to the provisions hereof; Borrower may
prepay, without penalty (other than Breakage Costs, if any)
the Loans in whole or in part upon not less than seven (7)
days' prior written notice to Lender. Such notice shall
specify the prepayment date and the amount of the prepayment
(which shall be at least $250,000) and shall be irrevocable.
Interest on the amount prepaid, accrued to the prepayment
date, shall be paid on the prepayment date Borrower also will
promptly pay Lender, within five (5) Business Days after
Lender's Notice and demand therefor, all Breakage Costs.
(c) Prepayments shall be applied first to all outstanding
Interest, and then to outstanding principal.
6. Application of Proceeds. The proceeds of the Loans shall be
used solely for (i) repayment of all indebtedness,
liabilities and obligations of Borrower to Lender under the
1996 Revolving Credit Agreement, (ii) the Gilt Edge Mine and
seasonal startup of the Stibnite Mine and general corporate
purposes related thereto and (iii) as to Loan Balance
amounts in excess of Five Million Dollars ($5,000,000),
working capital needs at the Illinois Creek gold property.
None of such proceeds shall be used to purchase or carry
margin stock or to extend credit to others for the purpose
of probating or carrying any margin stock.
7. Security. Payment and performance of all indebtedness,
liabilities and obligations of Borrower to Lender and any
other indebtedness and liabilities of Borrower to Lender,
whether under the Note or otherwise, shall be secured by:
<PAGE>
(a) a first priority security interest in the Collateral
pursuant to the terms of the Security Agreements;
(b) the Guaranty;
(c) a certain Amended and Restated Pledge Agreement of
Guarantor in favor of Lender covering all shares of
Brohm, Stibnite and Barrier;
(d) a certain First Mortgage, Assignment of Rents and
Royalties, Security Agreement and Financing Statement
executed by Stibnite and Barrier dated as of April 12,
1996 granting thereby to Lender a first priority
mortgage lien on the real estate and all improvements
thereon located at the Stibnite Mine, as amended by a
certain First Amendment of even date herewith;
(e) a certain Mortgage-Collateral Real Estate Mortgage
executed by Brohm dated as of April 12, 1996 granting
thereby to Lender a first priority mortgage lien on the
real estate and all improvements thereon known as the
Gilt Edge property of Brohm (including, without
limitation, the Anchor Hill Mine), as amended by a
certain First Amendment of even date herewith;
(f) a certain Collateral Assignment and Pledge Agreement
executed by Dakota with respect to a certain $3,000,000
promissory note of USMX, Inc., a Delaware corporation
in favor of Dakota and the pledge of shares of MXUS,
S.A. de C.V., a Mexican corporation;
(g) a Mortgage and Pledge Agreement pledging Thunder
Mountain (Valley County) contracts and rights described
therein;
(h) an Intercreditor Agreement among Lender, N~M.
Rothschild & Sons Limited and Dakota dated as of
February 26, 1997, as amended by a certain First
Amendment of even date herewith; and
(i) such other security documents as rnay he required by
Lender and necessary to attach or perfect a Lien in the
items covered by Subsections (a) through (h) above.
All agreements and instruments described in this Section 7,
together with any and all other agreements and instruments now
or hereafter securing the Note, are sometimes hereinafter
referred to collectively as the "Security Documents" and
individually as a "Security Document".
8. Representations and Warranties. To induce Lender to enter
into this Agreement and to make the Loans, Borrower hereby represents
and warrants to Lender (which representations and warranties shall
survive the delivery of the Note and the making of the Loans) that:
(a) Borrower (i) is duly organized, validly existing
and in good standing under the laws of the state or country of
its incorporation, (ii) has full power and authority to own
its properties and to carry on business as now being conducted
and is qualified to do business in every jurisdiction in which
the nature of its assets and the business carried on make such
qualification necessary or advisable and (iii) has full power
to execute, deliver and perform its obligations, respectively,
under this Agreement and the Note;
(b) The execution and delivery and performance by
Borrower of its obligations under this Agreement and the Note
have been duly authorized by all requisite action and will not
violate any provision of law, any order of any court or other
agency of government, the corporate charter or by-laws of
Borrower or any indenture, agreement or other instrument to
which it is a party, or by which it is bound, or be in
conflict with, result in a breach of; or constitute (with due
notice or lapse of time or both) a default under, or except as
may be provided by this Agreement, result in the creation or
imposition of any Lien of any nature whatsoever upon any of
the property or assets of Borrower pursuant to, any such
indenture, agreement or instrument;
(c) Borrower is not required to obtain any consent,
approval or authorization from, or to file any declaration or
statement with, any governmental instrumentality or other
agency in connection with or as a condition to the execution,
delivery or performance of this Agreement or the Note;
(d) There is no action, suit or proceeding at law or
in equity or by or before any governmental instrumentality or
other agency now pending or, to the knowledge of Borrower,
threatened against or affecting Borrower;
(e) Borrower has good title to all of its properties
and assets, free and clear of all Liens of any kind (except
(i) Permitted Liens and (ii) restrictions, easements and minor
irregularities in title which do not and will not interfere
with the occupation, use and enjoyment by Borrower of such
properties and assets in the normal course of its business as
presently conducted or materially impair the value of such
properties and assets for the purpose of such business);
(f) Any borrowings made by Borrower under this
Agreement do not and will not render Borrower insolvent;
Borrower is not contemplating either the filing of a petition
by it under any state or federal bankruptcy or insolvency laws
or the liquidating of all or a major portion of its property,
and Borrower has no knowledge of any person contemplating the
filing of any such petition against it;
(g) No statement of fact made by or on behalf of
Borrower in this Agreement or in any certificate or schedule
furnished to Lender pursuant hereto, contains any untrue
statement of a material fact or omits to state any material
fact necessary to make statements contained therein or herein
not misleading. There is no fact presently known to Borrower
which has not been disclosed to Lender which materially
affects adversely, nor as far as Borrower can foresee, will
materially affect adversely the property, business, operations
or condition (financial or otherwise) of Borrower;
(h) Borrower has filed all federal, state and local
tax returns required to be filed and has paid or made adequate
provision for the payment of all federal, state and local
taxes, charges and assessments;
(i) All work performed and other actions or omissions
to act at the mines and other properties owned and/or operated
by Borrower, and the current condition of such mines, comply
in all material respects with all applicable laws (including,
without limitation, all federal mining safety and health acts
and all local, state, provincial and federal environmental
laws), ordinances, rules and regulations of any governmental
agency and with all directions, rules and regulations of
officers of every governmental agency having jurisdiction over
such mines and other properties and there are no existing
material violations of any such applicable laws, ordinances,
directions, rules or regulations;
(j) There are no threatened proceedings or any
situation which (to Borrower's knowledge) would give rise to
proceedings against Borrower in respect of air, water; surface
or subsurface environmental conditions resulting directly or
indirectly from the use, transportation, storage or discharge
of pollutants in, about or relating to assets or business of
Borrower which, if adversely determined, would have a material
adverse effect on the business and operations of Borrower; and
(k) Borrower:
(i) has obtained all permits, licenses and other
authorizations which are required under all
Environmental Requirements;
(ii) is in compliance in all material respects with all
terms and conditions of the required permits, licenses
and authorizations, and is also in compliance with all
other Environmental Requirements or requirements
contained in any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued,
entered, promulgated or approved thereunder;
(iii)has never caused or, to its knowledge, permitted or
suffered to exist any Hazardous Material to be spilled,
placed, held, located or disposed of on, under or about
The Premises or released Hazardous Material into the
atmosphere, any body of water or any wetlands in excess
of maximum permitted regulatory levels or about which a
Governmental Authority might require corrective action
nor are any now existing on, under or about the
Premises or any other premises owned or leased by
Borrower while such Controlled Premises were owned or
leased by Borrower (collectively the "Controlled
Premises");
(iv) has no knowledge that the Controlled
Premises have ever been used (whether by Borrower or,
to the best knowledge of Borrower, by any other
Person) as a treatment, storage or disposal (whether
permanent or temporary) site for any Hazardous
Material in excess of maximum permitted regulatory
levels or which is otherwise not in compliance with
applicable Environmental Requirements;
(v) has not received any notice from any
Governmental Authority or any tenant, occupant or
operator of the Controlled Premises or from any other
Person with respect to the environmental condition of
the Controlled Premises, the improvements thereon or
any other property which was previously included in
the property description of the Controlled Premises
or such other real property, or with respect to the
release of Hazardous Material at, upon, under or
within the Controlled Premises, the improvements or
such other real property, or the past or ongoing
migration of Hazardous Material from neighboring
lands or to the Controlled Premises or Improvements
thereto; and
(vi) has no knowledge of any underground
storage tanks, asbestos-containing materials, PCBs,
radon gas or urea formaldehyde foam insulation at,
upon, under or within the Controlled Premises or
improvements thereon.
9. Conditions of Making the Loans. The obligation of Lender to make
the Loans hereunder is subject to the satisfaction of the
following conditions precedent:
(a) The representations and warranties set forth in
Section 8 hereof and in all other Loan Documents shall be true
and correct on and as of the date hereof and the date of each
Loan.
(b) Borrower shall have executed and delivered to
Lender, or caused to be executed and delivered to Lender; on
or prior to the date of execution of this Agreement, the
following:
(i) The Note;
(ii) A certificate of the Secretary or
Assistant Secretary of Borrower certifying to the
votes of Borrower's Board of Directors authorizing
the execution and delivery of this Agreement, the
Note and the Loan Documents;
(iii) A certificate of the Secretary or
Assistant Secretary of Borrower which shall certify
the names of the officers of Borrower authorized to
sign this Agreement, the Note and any other documents
or certificates to be delivered pursuant to this
Agreement by Borrower or any of its officers,
together with the true signatures of such officers
Lender may conclusively rely on such certificate
until it shall receive a further certificate of the
Secretary or an Assistant Secretary of Borrower
canceling or amending the prior certificate and
submitting the signatures of The officers named in
such further certificate;
(iv) Certificates of the appropriate
Governmental Authority, dated reasonably near the
date of the Loan, of the jurisdiction of
incorporation or organization of Borrower and of each
jurisdiction in which Borrower is qualified to do
business stating that Borrower is duly incorporated
(or qualified) and in good standing in such
jurisdiction and has filed all annual reports and has
paid all franchise and other taxes required to be
filed or paid to the date of such certificate;
(v) Each of the Security Documents, together with any other
documents required by the terms thereof;
(vi) Amended and Restated Pledge Agreement
of even date herewith of Guarantor in favor of Lender
with respect to all of the outstanding shares of
Brohm, Stibnite and Barrier;
(vii) Refining Agreements;
(viii) A favorable written opinion of
counsel to the Borrower, dated the date hereof in the
form attached hereto as Exhibit D; and
(ix) Such other supporting documents,
agreements and certificates as Lender or its counsel
may reasonably request.
(c) All legal matters incident to the transactions hereby
contemplated shall be satisfactory in all respects to
counsel for Lender.
(d) No Default or Event of Default shall have occurred.
(e)Execution and delivery by N. M. Rothschild & Sons Limited
of the Intercreditor Agreement.
10. Affirmative Covenants. Borrower covenants and agrees that, from
the date hereof and until payment in full of the principal-of;
and interest on, the Note and any other indebtedness of Borrower
to Lender, whether now existing or arising hereafter, Borrower
will:
(a) Do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its
corporate existence, rights, licenses, permits and franchises
and comply with all laws and regulations applicable to it; at
all times maintain, preserve and protect all franchises and
trade names and preserve all the remainder of its property
used or useful in the conduct of its business and keep the
same in good working order and condition, and from time to
time, make, or cause to be made, all needful and proper
repairs, renewals, replacements, betterments and improvements
thereto, as is consistent with Borrower's ordinary course of
business;
(b) Comply with all applicable laws, rules,
regulations, ordinances and orders whether now in effect or
hereafter enacted or promulgated by any Governmental Authority
having jurisdiction over the properties of Borrower;
(c) Pay and discharge or cause to be paid and
discharged all taxes, assessments and governmental charges or
levies imposed upon it or upon its respective income and
profits or upon any of its property, real, personal or mixed,
or upon any part thereof; before the same shall become in
default, as well as all lawful claims for labor, materials and
supplies or otherwise, which, if unpaid, might become a lien
or charge upon such properties or any part thereof;
(d) Give prompt written notice to Lender, as soon as
possible and in any event within ten (10) days after Borrower
has knowledge of any proceedings instituted against it by or
in any federal or state court or before any commission or
other regulatory body, whether federal, state or local, which,
if adversely determined, would have an adverse effect upon its
business, operations, properties, assets, or condition,
financial or otherwise;
(e) Permit agents or representatives of Lender; at
any reasonable time during normal business hours and from time
to time and, at Borrower's expense, at all such times as a
Default or Event of Default has occurred and is continuing,
(i) to examine and make copies of and abstracts from the
records and books of account of Borrower; and (ii) to discuss
the affairs, finances and accounts of Borrower with its
independent accountants and with any of its officers and
directors;
(f) Immediately advise Lender of any material adverse
change in its condition, financial or otherwise, or of
the occurrence of any Default or Event of Default;
(g) Furnish to Lender, promptly after the filing or
receiving thereof; copies of all notices which Borrower
receives from any Governmental Authority alleging its
noncompliance with environmental laws or regulations and any
replies of Borrower filed in response thereto, and take all
necessary remedial action as required by such Governmental
Authority;
(h) Promptly notify Lender of any evidence of
hazardous waste, toxic or similar contamination which requires
notification to any Governmental Authority at any property
owned or leased by Borrower and, in compliance with all
Governmental Authority requirements, diligently prosecute to
completion (subject to the right of Borrower to contest in
good faith the existence of such noncompliance, the amount of
damages caused thereby or the extent of its liability therefor
by appropriate proceedings diligently pursued which shall
operate during the pendency thereof to prevent (i) the sale or
loss of any property and the imposition of any lien thereon
and (ii) any interference with the use or operation of
Borrower's property) the removal of any such contamination;
(i) Perform and observe, or cause to be performed and
observed, all of the terms, covenants and conditions on the
part of Borrower to be performed and observed under all leases
for mining properties ("Leases"); not do or permit anything to
be done within its control, the doing of which, or refrain
from doing anything, the omission of which would be legal and
valid grounds for any landlord under a Lease, or its
successors or assigns, to terminate such Leases; promptly
notify Lender in writing of any known default on the part of
Borrower in the performance of any of The terms, covenants and
conditions under any Leases and of any legal proceedings
Instituted against it by any other party to any of The Leases;
and not cancel or terminate any Leases, or amend or modify the
same, directly or indirectly in any respect whatsoever,
without in each case the prior written consent of Lender;
(j) Borrower will maintain at all times insurance
coverage in respect of the properties and assets of Borrower
in amounts, on terms and with such financially sound and
reputable insurers reasonably acceptable to Lender, as is
consistent with Borrower's ordinary course of business. Such
coverage shall include, without limitation, fire and extended
coverage insurance for the frill insurable value of all
buildings and other improvements located on Borrower's
properties and public liability, business interruption and
worker's compensation insurance, all in amounts not less than
the amount of the coverage maintained immediately prior to the
execution of this Agreement and under policies in form and
content reasonably acceptable to Leader. All policies of
insurance shall name Lender as an additional insured pursuant
to an endorsement as set out in Exhibit E hereto, and shall
provide;
(i) that proceeds of insurance shall be payable to Lender
in accordance with the terms hereof notwithstanding any
act or negligence of Borrower, which might otherwise
result in forfeiture of said insurance;
(ii) a waiver by the insurer of all rights of setoff,
counterclaim or deductions against Borrower;
(iii)a provision precluding cancellation or amendment save
on not less than sixty (60) days' prior written notice
to Lender.
Any surplus remaining from any such insurance in
excess of all indebtedness, liabilities and obligations of
Borrower to Lender shall be delivered to Borrower, or its
successors or assigns.
Borrower shall furnish Lender with an original copy
of all policies of insurance. If Lender permits Borrower to
provide any of the required insurance through blanket
policies, then Borrower shall furnish Lender with a
certificate of insurance for each such policy setting forth
the coverage, the limits of liability, the name of the
carrier, the policy number, and the expiration date.
(k) With respect to environmental matters:
(i) comply strictly and in all respects with all
Environmental Requirements, including, but not limited
to, wetlands laws, laws pertaining to the registration
of underground storage tanks, asbestos and
asbestos-containing materials, PCBs, radon gas and urea
formaldehyde foam insulation; notify Lender promptly
after the discovery of any release, spill, hazardous
waste pollution or contamination affecting Controlled
Premises or the discovery of the presence of asbestos
and asbestos-containing materials, PCBs, radon gas and
urea formaldehyde foam insulation; notify Lender
promptly of any notice relating to environmental
matters received from any Governmental Authority,
tenant, occupant, operator or other Person; and pay
promptly when due any fine or assessment against
Controlled Premises;
(ii) not become involved, and will take
steps to prevent any tenant of Controlled Premises
from becoming involved, in any operations at
Controlled Premises generating, storing, disposing or
handling Hazardous Material in violation of
applicable law or any other activity that could lead
to the imposition on Borrower, Lender or the
Controlled Premises of any liability or lien under
any Environmental Requirement;
(iii) immediately contain, remediate and/or
remove any Hazardous Material found on Controlled
Premises and correct any violation of Environmental
Requirements found on Controlled Premises, which work
must be done in compliance with applicable laws and
at Borrower's expense; and agrees that Lender has the
right, at its sole option but at Borrower's expense,
to have an environmental engineer or other
representative review the work being done; and
(iv) promptly upon the request of Lender
after the occurrence of an Event of Default or at any
time prior to such occurrence based upon Lender's
reasonable belief that a hazardous waste or other
environmental problem exists with respect to
Controlled Premises, provide Lender with an
environmental site assessment report or an update of
any existing report, all in scope, form and content
and performed by such company as may be reasonably
satisfactory to Lender, provided, however that
Borrower also hereby grants to Lender the right to go
on the Controlled Premises and have such a report or
update done (at Borrower's expense).
(l) Pay Lender a commitment fee on the average daily
amount from the date hereof to and including the Maturity Date
by which the Commitment exceeds the Loan Balance, at the rate
of one-half of one percent (1/2%) per annum, payable on the
first (1st) Business Day of each month and on the Maturity
Date.
11. Negative Covenants. Borrower covenants and agrees that,
until payment in full of the principal of; and interest on, the Note
and any other indebtedness of Borrower to Lender, whether now existing
or arising hereafter, Borrower will not, directly or indirectly (except
for Dakota/Rothschild Obligations and Dakota/Rothschild Collateral, as
such terms are defined in the lntercreditor Agreement):
(a) Create, incur, assume or suffer to exist any Lien
of any nature whatsoever on any of its assets or properties,
now or hereafter owned, other than Permitted Liens;
(b) Guarantee, endorse or otherwise in anyway become
or be responsible for obligations of any other person, except
endorsements of negotiable instruments for collection in the
ordinary course of business;
(c) Sell, lease, transfer or otherwise dispose of its
properties, assets, rights, licenses and franchises to any
person, except in the ordinary course of its business, or turn
over the management of such properties, assets, rights,
licenses and franchises;
(d) Enter into any arrangement, directly or
indirectly, with any person whereby it shall sell or transfer
any property, real, personal or mixed, used or useful in its
business, whether now owned or hereafter acquired, and
thereafter rent or lease such property, except as is
consistent with Borrower's ordinary course of business;
(e) Dissolve, liquidate, consolidate with or merge
with, or otherwise acquire (without the prior written consent
of Lender, which consent will not be unreasonably withheld)
all or substantially all of the assets or properties of; any
corporation; make any substantial change in its executive
management; or alter or modify its corporate name, mailing
address 6r principal place of business; or
(f) Without the prior written consent of Lender,
which consent will not be unreasonably withheld, declare or
pay any dividends, or make any distribution of cash or
property, or both, to holders of shares of its capital stock,
or directly or indirectly, redeem, purchase or otherwise
acquire for a consideration, any shares of its capital stock,
of any class.
12. Defaults/Rights and Remedies of Lender Upon Default. In each case
of happening of any of the following events (each of which is
herein and in the Note and the Security Documents sometimes
called an "Event of Default"):
(a) default in the payment of any amount of the Loan
Balance or any mandatory prepayment or other amount
(including, without limitation, Interest) due under this
Agreement or the Note, which shall remain unremedied for a
period of two (2) Business Days after written notice from
Lender to Borrower that such amount is due and payable;
(b) default in the due observance or performance of
any covenant, condition or agreement contained in Sections 10
or 11 hereof; in the Note or in any instrument granting
security to Lender for the Note, and such default shall
continue unremedied for thirty (30) days after written notice
thereof by Lender to Borrower;
(c) default in the due observance or performance of
any other covenant, condition or agreement, on the part of
Borrower to be observed or performed pursuant to the terms
hereof (except as specifically referred to in this Section
12), and such default shall continue unremedied for twenty
(20) days after `written notice thereof by Lender to Borrower;
(d) any representation or warranty made herein or in
any report, certificate, financial statement or other
instrument finished in connection with this Agreement, or the
making of the Loans by Lender hereunder, shall prove to be
false or misleading in any material respect when made;
(e) default with respect to any evidence of
indebtedness of Borrower (other than to Lender), if the effect
of such default is to accelerate the maturity of such
indebtedness or to permit the holder thereof to cause such
indebtedness to become due prior to the stated maturity
thereof; or if any indebtedness of Borrower (other than to
Lender) is not paid, when due and payable, whether at the due
date thereof or a date fixed for prepayment or otherwise;
(f) Borrower shall (i) discontinue or abandon
operation of its business; (ii) apply for or consent to the
appointment of a receiver, trustee, custodian or liquidator of
it or any of its property, (iii) admit in writing its
inability to pay its debts as they mature, (iv) make a general
assignment for the benefit of creditors, (v) file, or have
filed against it a petition for relief under Title 11 of the
United States Code or (vi) file, or have filed against it, a
petition in bankruptcy, or a petition or an answer seeking
reorganization or an arrangement with creditors or to take
advantage of any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation law or
statute, or an answer admitting the material allegations of a
petition filed against it in any proceeding under any such law
or if corporate action shall be taken for the purpose of
effecting any of the foregoing;
(g) any order, judgment or decree shall be entered,
without the application, approval or consent of Borrower by
any court of competent jurisdiction, approving a petition
seeking reorganization of either Borrower or appointing a
receiver, trustee, custodian or liquidator of Borrower or of
all or a substantial part of the assets of Borrower, and such
order, judgment or decree shall continue unstayed and in
effect for any period of thirty (30) days;
(h) final judgment for the payment of money in excess
of an aggregate of Fifty Thousand Dollars ($50,000) shall be
rendered against Borrower, and the same shall remain
undischarged for a period of thirty (30) consecutive days,
during which execution shall not be effectively stayed;
(i) the occurrence of any attachment of any deposits
or other property of Borrower in the hands or possession of
Lender, or the occurrence of any attachment of any other
property of Borrower in an amount exceeding Twenty-five
Thousand Dollars ($25,000) which shall not be discharged
within thirty (30) days of the date of such attachment unless
being contested in good faith by appropriate proceedings and
as to which adequate reserves have been provided on the books
of Borrower;
(f) the occurrence of any event or condition
described in paragraph (d), (e), (f), (g) or (h) of this
Section 12 with respect to (1) Guarantor or (2) any other
Person liable, in whole or in part, for payment or performance
hereof or of the Note;
(k) for any reason, any Security Document at any time
shall not be in frill force and effect in all material
respects or shall not be enforceable in all material respects
in accordance with its terms, or any Lien or charge granted
pursuant thereto shall fail to be perfected, or Borrower shall
contest the validity, enforceability or perfection of any Lien
granted pursuant thereto, or Borrower shall seek to disaffirm,
terminate, limit or reduce its obligations under any Security
Documents;
(l) the occurrence of any Event of Default (as defined therein)
under any of the Security Documents;
(m) for any reason Guarantor shall terminate or seek
to terminate or limit, by written or verbal notice, its
Guaranty or shall be in default of Guarantor's own obligations
to Lender;
(n) the occurrence of any Event of Default under (i)
a certain Trading Agreement between Lender and Dakota dated
September 12, 1994, as the same may be amended, modified,
restated or supplemented from time to time or (ii) the
Refining Agreements; or
(o) the occurrence of any default or Event of Default
by Borrower or any subsidiary or affiliate of Borrower under
any agreement promissory note or other documents with or in
favor of N.M. Rothschild & Sons Ltd.; then, upon the
occurrence of any such Event of Default which has not been
cured by Borrower or waived in writing by Lender, Lender may,
by notice to Borrower; declare all indebtedness, liabilities
and obligations of Borrower to Lender to be immediate due and
payable. Upon Lender's declaration (the "Date of
Acceleration"), such indebtedness shall be immediately due and
payable, both as to principal and/or interest, without
presentment, demand, protest or notice of any land, all of
which are hereby expressly waived, anything contained herein
or in the Note or in any other evidence of such indebtedness
to the contrary notwithstanding (except with respect to any
Event of Default set forth in Section 12(f), in which case all
indebtedness, liabilities and obligations shall automatically
become immediately due and payable without the necessity of
any notice or other demand). Lender, in such instance, may
enforce payment of the same, may liquidate any or all of the
then open positions of Borrower with Lender (including,
without limitation, option or forward contracts), and may
exercise any or all of the rights, powers and remedies
possessed by Lender under the Note, this Agreement, the
Security Documents or under any agreement securing the
obligations of Borrower to Lender, whether afforded by law or
in equity. The remedies provided for herein are cumulative and
are not exclusive of any other remedies provided by law.
Borrower agrees to pay Lender's reasonable attorneys' fees and
legal expenses incurred in enforcing Lender's rights, powers
and remedies under this Agreement, the Note and any Security
Documents.
13. Miscellaneous.
(a) This Agreement and all covenants, agreements,
representations and warranties made herein and in the
certificates delivered pursuant hereto, shall survive the
execution and delivery to Lender of this Agreement and the
Note, and shall continue in full force and effect so long as
the Note or any other indebtedness or obligations of Borrower
to Lender is outstanding and unpaid. In this Agreement,
reference to a party shall be deemed to include the successors
and assigns of such party; provided, however that Borrower
shall not assign its rights hereunder or any interest herein
to any other party without the prior written consent of Lender
and any such purported assignment shall be void. All
covenants, agreements and indemnities in this Agreement and
the Note by or on behalf of Borrower shall inure to the
benefit of the successors and assigns of Lender and no
assignment of this Agreement and the Note will affect any of
Borrower's representations and warranties hereunder or
thereunder. Borrower acknowledges and agrees that from time to
time Lender may assign its rights under this Agreement and the
Note or any interest herein or therein to one or more
financial institutions. Any assignee of the Note shall take
the Note free and clear of all offsets, counterclaims or
defenses of any nature whatsoever which Borrower may have
against any assignor of the Note, and no such offset,
counterclaim or defense shall be interposed or asserted by
Borrower in any action or proceeding brought by any such
assignee upon the Note or under this Agreement, and any such
right to interpose or assert any such offset, counterclaim or
defense in any such action or proceeding is hereby expressly
waived by Borrower. The foregoing shall not be deemed or
construed to limit the liability of a prior holder of the Note
for damages relating to any such offset, counterclaim or
defense
(b) Borrower will reimburse Lender upon demand for
all out-of-pocket costs, charges and expenses of Lender
(including reasonable fees and disbursements of counsel to
Lender) in connection with (i) the preparation, execution and
delivery of this Agreement, the Note and any Security
Documents and the making of the Loan (such fees not to exceed
$ 15,000), (ii) any amendments, modifications, consents or
waivers in respect thereof, (iii) enforcing or defending
Lender's rights under or in respect of this Agreement, the
Note and the Security Documents and any other document or
instrument now or hereafter executed in connection herewith,
(iv) foreclosing or otherwise collecting upon the Security
Documents and (v) obtaining legal, accounting or other advice
in connection with any of the foregoing.
(c) This Agreement and the Note shall be construed in
accordance with and governed by the laws of the State of New
York without giving effect to principles of conflict of law
(d) No modification or waiver of any provision of
this Agreement, or of the Note, nor consent to any departure
by Borrower therefrom, shall in any event be effective unless
the same shall be in writing, and then such waiver or consent
shall be effective only in the specific instance, and for the
purpose, for which given. No notice to, or demand, on
Borrower, in any case, shall entitle Borrower to any other or
future notice or demand in the same, similar or other
circumstances.
(e) Neither any failure nor any delay on the part of
Lender in exercising any right, power or privilege hereunder,
or under the Note, or any other instrument given as security
therefor, shall operate as a waiver thereof; nor shall a
single or partial exercise thereof preclude any other or
future exercise, or the exercise of any other right, power or
privilege.
(f) All Notices, communications and distributions
hereunder shall be given or made to the intended recipient at
its Principal Office; or at such other address as the
addressee may hereafter specify for the purpose by written
notice to the other party hereto Such Notices and other
communications (including, without limitation, any
modifications of; or waivers or consents under, this
Agreement) shall be given or made in writing (including
facsimile transmissions), sent by overnight delivery service,
facsimile transmission or band- delivered to the other party
at that party's Principal Office. All such Notices and other
communications shall be deemed to have been duly given when
transmitted by facsimile transmission or personally delivered
or, in the case of overnight delivery, upon receipt, in each
case given or addressed as aforesaid.
(g) This Agreement shall be binding upon and inure to
the benefit of Borrower and Lender and their respective
successors and assigns, except that Borrower shall not have
the right to assign its rights hereunder or any interest
herein without the prior written consent of Lender
(h) Borrower hereby submits to the jurisdiction of
the courts of the State of New York and the United States
District Court for the Southern District of New York, as well
as to the jurisdiction of all courts to which an appeal may be
taken or other review sought from the aforesaid courts, for
the purpose of any suit, action or other proceeding arising
out of any of Borrower's obligations under or with respect to
this Agreement, the Note, or with respect to the transactions
contemplated hereby and Borrower expressly waives any and all
objections it may have as to venue in any such courts.
Borrower also waives any objection it might now or hereafter
have on the ground that any such action or proceeding in such
federal or state court has been brought in an inconvenient
forum. BORROWER AND LENDER EACH WAIVES TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT By EITHER OF THEM
AGAINST THE OTHER ON ANY MATTER WHATSOEVER (INCLUDING, WITHOUT
LIMITATION, ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, ANY OTHER
DOCUMENTS EXECUTED IN CONNECTION HEREWITH OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN). Borrower hereby
irrevocably designates and appoints CT Corporation System,
1675 Broadway, Denver, Colorado 80202, as its attorney-in-fact
to receive service of process in any suit, action or
proceeding arising out of any of its obligations under or with
respect to this Agreement or the transactions contemplated
hereby, it being expressly stipulated and agreed by Borrower
that service upon such attorney-in-fact shall constitute
personal service upon it Concurrently with the service of
process upon such attorney-in-fact, copies of the papers so
served shall be sent to Borrower. In the event such
attorney-in-fact at any time is incapable of acting or resigns
such appointment, then Borrower shall immediately appoint a
successor and give notice thereof to Lender. Nothing herein
shall affect the right of Lender to serve process in any other
manner permitted by law or to commence legal proceedings or
otherwise proceed against Borrower in any other jurisdiction.
(i) Upon the occurrence and during the continuance of
any Event of Default, Lender is hereby authorized at any time
and from time to time, without notice to Borrower (any such
notice being expressly waived by Borrower), to set off and
apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other
indebtedness at any time owing by Lender to or for the credit
or the account of Borrower, against any and all of the
indebtedness, liabilities, and obligations of Borrower now or
hereafter existing under this Agreement or the Note and
although such obligations may be contingent and unmatured.
Lender agrees promptly to notify Borrower after any such
setoff and application, provided that the failure to give such
notice shall not affect the validity of such setoff and
application. The rights of Lender under this section are in
addition to any other rights and remedies (including, without
limitation, other rights of setoff) which Lender may have.
(j) All agreements between Borrower and Lender are
hereby expressly limited so that in no contingency or event
whatsoever whether by reason of acceleration of the maturity
of indebtedness or otherwise shall the amount paid or agreed
to be paid to Lender for the use, forbearance or detention of
the indebtedness evidenced hereby or by the Note exceed the
maximum permissible under applicable law. As used herein, the
term "applicable law" shall mean the law in effect as of the
date hereof, provided, however, that in the event there is a
change in the law which results in a higher permissible rate
of interest, then this Agreement and the Note shall be
governed by such new law as of its effective date. If, from
any circumstance whatsoever, fulfilment of any provisions
hereof or of the Note at the time performance of such
provision shall be due, shall involve transcending the limit
of validity prescribed by law, then, ipso facto. the
obligation to be fulfiled shall be reduced to the limit of
such validity, and if from any circumstance Lender should ever
receive as interest an amount which would exceed the highest
lawful rate, such amount which would be interest shall be
applied to the reduction of the principal balance of the Note
and not to the payment of interest. This provision shall
control every other provision of all agreements between
Borrower and Lender
(k) Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
(1) Any Section heading in this Agreement are
included herein for convenience of reference only and shall
not constitute a part of this Agreement for any other purpose
As used in this Agreement, the term "person" shall include any
individual, corporation, partnership, joint venture, trust, or
unincorporated organization, or a government or any agency or
political subdivision thereof.
(rn) Borrower hereby agrees to indemnify, defend and
hold harmless Lender and its officers, directors, employees
and agents (collectively the "Indemnified Parties") against,
and agrees to hold the Indemnified Parties harmless from, any
and all liability, losses (excluding loss of profits), damages
and expenses (including reasonable counsel fees and expenses)
of any kind whatsoever which may be incurred by any of the
Indemnified Parties arising out of; in any way connected with,
or as a result of (i) any breach of any of the representations
or warranties made by Borrower in Section 8 hereof and any
breach of any covenant made by Borrower in Sections 10 and 11
hereof; (ii) any claim, action, suit, investigation or
proceeding relating to Borrower, whether or not any
Indemnified Party is a party thereto or target thereof;
provided that the foregoing indemnity shall not apply to any
such liability, losses, damages or expenses of an Indemnified
Party to the extent arising from willful misconduct or gross
negligence of such Indemnified Party or (iii) any losses,
claims, damages, liabilities, judgments or expenses arising
out of; or in any way related to (A) the presence, disposal,
spillage, discharge, leakage, release or threatened release of
any hazardous material about, from or affecting any property
of Borrower, (B)any personal injury or property damage arising
out of or related to any hazardous material or (C) any
violation of any environmental law or requirement. Borrower's
obligations set forth in this Section 13(m) shall survive any
termination of this Agreement and the payment in full of all
indebtedness, liabilities and obligations of Borrower to
Lender.
All indemnities set forth herein, including, without
limitation, this Section 13(m), shall survive the execution
and delivery of this Agreement and the Note and the making and
repayment of the Loan
(n) Lender represents and warrants to Borrower that:
(i) Lender (A) is duly organized, validly
existing and in good standing under the laws of the
state of its incorporation, (B) has Exit power and
authority to own its properties and to carry on
business as now being conducted and (C) has full
power to execute, deliver and perform its obligations
hereunder; and
(ii) The execution and delivery and
performance by Lender of its obligations under this
Agreement have been duly authorized by all requisite
action and will not violate any provision of law, any
order of any court or other agency of government, the
corporate charter or by-laws of Lender to any
indenture, agreement or other instrument to which it
is a part or by which it is bound.
(o) This Agreement may be executed in any number of
counterparts and by the different parties hereto in separate
counterparts, each of which when so executed and delivered
shall be an original, but all of which shall together
constitute one and the same instrument.
(p) The provisions contained herein shall, effective
the date hereof, be deemed to amend and restate the terms of
the 1996 Revolving Credit Agreement in its entirety, provided,
however, that Borrower shall remain obligated to pay to Lender
any and all accrued fees, charges and other amounts due under
the 1996 Revolving Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers, all as
of the day and the year first above written.
Borrower:
DAKOTA MINING CORPORATION
By: /c/s Robert R. Gilmore
Title: Vice President, Finance & CFO
BROHM MINING CORP.
By: /c/s Robert R. Gilmore
Title: Vice President, Finance & CFO
STIBNITE MINE INC.
By: /c/s Robert R. Gilmore
Title: Vice President, Finance & CFO
<PAGE>
BARRIER REEF, INC.
By: /c/s Robert R. Gilmore
Title: Vice President, Finance & CFO
Lender:
GERALD METALS, Inc.
By_____________________________________
Title:___________________________________
By: /c/s Robert C. Kaeser
Title: Vice President
<PAGE>
EXHIBITS TO AMENDED AND RESTATED REVOLVING LOAN AGREEMENT
EXHIBIT A Note
EXHIBIT B Request for Loan
EXHIBIT C Permitted Liens
EXHIBIT D Opinion of Borrower's counsel
EXHIBIT E Insurance Endorsement
<PAGE>
AMENDED AND RESTATED
SECURED LOAN NOTE
$7,500,000 March 20, 1997
FOR VALUE RECEIVED, DAKOTA MINING CORPORATION, a federal corporation
organized under the Canada Business Corporation Act, BROHM MINING CORP., a South
Dakota corporation, STIBNITE MINE INC., a Delaware corporation, and BARRIER REEF
INC., a Delaware corporation (jointly and severally, "Borrower"), promise to pay
to GERALD METALS, INC., a Delaware corporation lender or to its order, at its
principal office at High Ridge Park, Stamford, Connecticut 06904, the principal
sum of Seven Million Five Hundred Thousand Dollars ($7,500,000) or the aggregate
unpaid principal amount of loans made by Lender to Borrower pursuant to that
certain Amended and Restated Loan Agreement of even date herewith between
Borrower and Lender (hereinafter, as the same may be amended, modified, restated
or supplemented from time to time, the "Loan Agreement"), whichever amount is
less. Capitalized terms used herein and not otherwise defined herein shall have
the meanings ascribed thereto in the Loan Agreement.
The outstanding principal amount hereof; together with accrued and
unpaid interest thereon, shall he due and payable in the amount, at the rate and
on the dates set forth in, and shall he calculated in accordance with the terms
and provisions of; the Loan Agreement.
Methods of Payment. Payments of both principal and interest as required
hereunder shall be made in lawful money of the United States of America m
immediately available funds at the principal office of The Chase Manhattan Bank,
N.A., New York, New York for the account of Lender (Account No. 910-120-1995,
ABA No 021000021) initiated by bank wire transfer not later than 12:00 noon New
York time on the date on which such payment shall become due (each such payment
initiated after such time on such due date to be deemed to have been made on the
next succeeding Business Day) or such other account at the same or such other
bank as Lender shall direct. If any payment of principal or interest shall
become due on a Saturday, Sunday, public holiday under the laws of the State of
New York or on any other day on which banking institutions are authorized or
obligated by law to close in New York, New York or Denver, Colorado, such
payment shall be made on the next succeeding business day and such extension of
time shall in such case be included in computing interest in connection with
such payment.
Prepayment. Except as otherwise provided in Section 5 of the Loan
Agreement, this Note may be prepaid in whole or in part without premium or
penalty. Any payments received on this Note shall be applied first to any unpaid
fees or expenses incurred in connection with the making of the advances
hereunder, next to accrued but unpaid interest and then to principal amounts
outstanding.
Related Documents. This Note is the Amended and Restated Loan Note
referred to in, made pursuant to the terms of; and governed by the Loan
Agreement, which Loan Agreement is hereby incorporated herein as if set forth
herein at length This Note is entitled to all of the benefits of the Loan
Agreement, including provisions governing the payment and the acceleration of
maturity hereof. This Note is secured, inter alil by certain "Collateral" (as
defined in the Loan Agreement) and is entitled to the benefits thereof.
Remedies After Default. If an Event of Default as defined in the Loan
Agreement or in any of the Security Documents (as defined in the Loan Agreement)
has occurred and is continuing, the entire unpaid principal balance hereunder,
and all other sums paid by Lender to or on behalf of Borrower pursuant to the
terms of this Note, the Loan Agreement, the Security Documents or any of the
other Loan Documents (as defined in the Loan Agreement), together with unpaid
interest thereon, shall at the option of Lender become immediately due and
payable without further notice or demand and Lender may forthwith exercise the
remedies available to Lender at law and in equity as well as those remedies set
forth in this Note, the Loan Agreement, the Security Documents and the other
Loan Documents and one or more executions may forthwith issue on any judgment or
judgments obtained by virtue thereof; and no failure on the part of Lender to
exercise any of Lender's rights hereunder or under any other Loan Document shall
be deemed a waiver of any such rights or of any default. Irrespective of the
exercise or nonexercise of any of the aforesaid rights, Borrower shall pay
interest with respect to all amounts not paid when due under this Note at a rate
equal to four percent (4%) greater than the Prime Rate (as defined in the Loan
Agreement), computed from the date due and calculated on the basis of the actual
number of days elapsed over a year of three hundred sixty (360) days.
Waivers. Borrower hereby waives presentment for payment, protest and
demand, and notice of protest, demand and/or dishonor and nonpayment of this
Note, notice of any Event of Default under the Loan Agreement or any of the
Security Documents except as specifically provided therein, and all other
notices or demands otherwise required by law that Borrower may lawfully waive
Borrower expressly agrees that this Note, or any payment hereunder, may be
extended from time to time, without in any way affecting the liability of
Borrower. No unilateral consent or waiver by Lender with respect to any action
or failure to act which, without consent, would constitute a breach of any
provision of this Note shall be valid and binding unless in writing and signed
by Lender.
Governing Law. The rights and obligations of Borrower and all
provisions hereof shall be governed by and construed in accordance with the laws
of the State of New York without giving effect to principles of conflict of
laws.
Consent to Jurisdiction; Jury Trial Waiver. Borrower hereby submits to
the jurisdiction of the courts of the State of New York and the United States
District Court for the Southern District of New York, as well as to the
jurisdiction of all courts to which an appeal may be taken or other review
sought from the aforesaid courts, for the purpose of any suit, action or other
proceeding arising out of Borrower's obligations under or with respect to this
Note, and expressly waives any and all obligations it may have as to venue in
any of such courts. BORROWER AND LENDER EACH HEREBY WAIVES TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM AGAINST THE OTHER
ON ANY MATTERS WHATSOEVER (INCLUDING, WITHOUT LIMLTATION, ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS NOTE, THE LOAN
AGREEMENT, THE SECURITY DOCUMENTS OR ANY OTHER AGREEMENTS EXECUTED IN CONNECTION
HEREWITH OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN). No party to
this Note, including but not limited to any assignee of or successor to Borrower
or Lender, shall seek a jury trial in any lawsuit, proceeding, counterclaim, or
any other litigation procedure based upon, or arising out of; this Note, the
Loan Agreement, the Security Documents or any related instruments or the
relationship between the parties. No party will seek to consolidate any such
action, in which a jury trial has been waived, with any other action in which a
jury trial cannot be or has not been waived. THE PROVISIONS OF THIS PARAGRAPH
HAVE BEEN FULLY DISCUSSED BY BORROWER AND LENDER, AND THESE PROVISIONS SHALL BE
SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO
ANY OTHER PARTY THAT THE PROVISIONS OF THIS PARAGRAPH WELL NOT BE FULLY ENFORCED
IN ALL INSTANCES.
Savings Clause. All agreements between Borrower and Lender are hereby
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of maturity of the indebtedness evidenced hereby or
otherwise, shall the amount paid or agreed to be paid to Lender for the use,
forbearance or detention of the indebtedness evidenced hereby exceed the maximum
permissible under applicable law. As used herein, the term "applicable law"
shall mean the law in effect as of the date hereof; provided, however, that in
the event there is a change in the law which results in a higher permissible
rate of interest, then this Note shall be governed by such new law as of its
effective date. In this regard, it is expressly agreed that it is the intent of
Borrower and Lender in the execution, delivery and acceptance of this Note to
contract in strict compliance with the laws of the State of New York from time
to time in effect If; from any circumstance whatsoever, fulfillment of any
provision hereof or of the Loan Agreement or the Security Documents at the time
performance of such provision shall be due, shall involve transcending the limit
of validity prescribed by law, then the obligation to be fulfilled shall
automatically be reduced to the limit of such validity, and if from any
circumstances Lender should ever receive as interest an amount which would
exceed the highest lawful rate, such amount which would be excessive interest
shall be applied to the reduction of the principal balance evidenced hereby and
not to the payment of interest This provision shall control every other
provision of all agreements between Borrower and Lender.
Attorneys' Fees. If this Note shall not be paid when due and shall be
placed by the holder hereof in the hands of any attorney for collection, through
legal proceedings or otherwise, Borrower will pay a reasonable attorneys' fee to
the holder hereof together with reasonable costs and expenses of collection.
Continued Liability. Borrower shall remain primarily liable on this
Note and the Security Documents until full payment, unaffected by any agreement
or transaction between Lender and any subsequent Borrower as to payment of
principal, interest or other moneys, by any forbearance or extension of time,
guaranty or assumption by others, or by any other matter, as to all of which
notice is hereby waived by Borrower.
Section Headings. Any section headings in this Note are included herein
for convenience of reference only and shall not constitute a part of this Note
for any other purpose.
Amended and Restatement of Prior Agreement. The provisions contained
herein shall, effective the date hereof; amend and restate in their entirety the
terms of a certain $4,000,000 Secured Revolving Loan Note of Borrower in favor
of Lender dated April 12, 1996, provided, however, that Borrower shall remain
obligated to pay Lender all accrued interest and charges under such $4,000,000
Secured Revolving Loan Note, and all principal outstanding under such $4,000,000
Secured Revolving Loan Note shall hereafter be deemed to be outstanding under
this Note.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed by its
duly authorized officer as of the day and year first above written.
WITNESS: DAKOTA MINING CORPORATION
_______________________________________ By_____________________________________
Title:___________________________________
BROHM MINING CORP.
_____________________________________ By_____________________________________
Title:___________________________________
<PAGE>
STIBNITE MINE INC.
______________________________________ By_____________________________________
Title:___________________________________
BARRIER REEF, INC.
____________________________________ By_____________________________________
Title:___________________________________
<PAGE>
EXHIBIT B
REQUEST FOR LOAN
________________ 1997
Gerald Metals, Inc.
High Ridge Park
Stamford, Connecticut 06904
FAX No.: (203)329-4844
Attention:
Ladies and Gentlemen:
Pursuant to the provisions of Section 2(a) of the Amended and Restated
Loan Agreement dated as of March ___ 1997, between the undersigned and Gerald
Metals, Inc., as the same may be amended, modified, restated or supplemented
from time to time (the "Agreement"), the undersigned, as borrower, hereby
requests a Loan of________________________________ Dollars ($___________) to be
made on ___________ 1997 which Loan shall be evidenced by the undersigned's
Amended and Restated Secured Loan Note dated March ___, 1997. The principal
balance outstanding under said Secured Loan Note, after taking into
consideration the amount of the Loan requested hereunder, is
_______________________________________________ Dollars
($------------).
The undersigned hereby represents and warrants that (i) no event has
occurred and is continuing, or would result from the proposed Loan, which
constitutes an "Event of Default" or a "Default' as each term is defined in the
Agreement and (ii) the representations and warranties in Section 8 of the
Agreement are true and correct as of the date hereof. The undersigned further
represents and warrants that the financial condition of the undersigned has not
materially adversely changed since the submission of the undersigned's most
recent financial information to Lender
The officer signing below hereby individually represents that he/she is
an authorized officer of the undersigned Borrower and is authorized to request
the Loan on behalf of such Borrower
Very truly yours,
DAKOTA MINING CORPORATION
By: /c/s Robert R. Gilmore
Title: Vice President, Finance & CFO
BROHM MINING CORP.
By: ___________________________________
Title___________________________________
<PAGE>
STIBNITE MINE INC.
By_____________________________________
Title:___________________________________
BARRIER REEF, INC.
By_____________________________________
Title:___________________________________
<PAGE>
EXHIBIT C
TO AMENDED AND RESTATED LOAN AGREEMENT
PERMITTED LIENS
(A) Property of Dakota Mining Corporation described in the following
financing statements on file on the date hereof:
<TABLE>
<CAPTION>
Collateral
Filing Office Secured Party File No. File Date Description
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Colorado Sanwa Leasing 952041920 6/2195 Computers
Secretary of Corporation
State
- -----------------------------------------------------------------------------------------------------------------------------
Pitney Bowes 952053190 7/18/95 Equipment
Credit Corporation
- -----------------------------------------------------------------------------------------------------------------------------
South Dakota Arrowhead 951090900531 4/19/95 Specific equipment
Secretary of Industrial Water
State
- -----------------------------------------------------------------------------------------------------------------------------
Butler Machinery 951421102189 5/22/95 Specific equipment
Company
- -----------------------------------------------------------------------------------------------------------------------------
Butler Machinery 951600900336 6/9/95 Specific equipment
Company
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(B) Uniform Commercial Code financing statements filed in favor of D.H.
Blattner & Son, Inc. with the Secretaries of State of Colorado and
Idaho, County Recorder of Valley County, Idaho subsequent to the
filing of Uniform Commercial Code financing statements filed in favor
of Gerald Metals, Inc. (as noted in (E) below).
(C) First Mortgage, Assignment of Rents and Royalties, Security Agreement
and Financing Statement dated April, 1996 filed by Gerald Metals, Inc.
on the real property of Stibnite Mine Inc. and Barrier Reef Inc.
located in Idaho.
(D) Mortgage -- Collateral Real Estate Mortgage dated April, 1996 filed by
Gerald Metals, Inc. on the property of Brohm Mining Corp. located in
South Dakota.
(E) Property described in the following financing statements on file on
the date hereof, all of which list Gerald Metals, Inc. or its assignee
BHF Bank Aktengesellscahft, as the secured party.
<PAGE>
<TABLE>
<CAPTION>
Filing Office Debtor File No. and Date
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Colorado Secretary of State Dakota Mining Corporation 962030300-- 4/19/96
- -----------------------------------------------------------------------------------------------------------------------------
Brohm Mining Corporation 962030299-- 4/19/96
- -----------------------------------------------------------------------------------------------------------------------------
Stibnite Mine Inc. 922056191--8/03192
962030297 - 4/19196
- -----------------------------------------------------------------------------------------------------------------------------
Barrier Reef Inc. 922056190-- 8/3/92
962030298 - 4/19196
- -----------------------------------------------------------------------------------------------------------------------------
South Dakota Brohm Mining Corp.
Secretary of State
- -----------------------------------------------------------------------------------------------------------------------------
Lawrence Co., South Dakota Brohm Mining Corp.
Register of Deeds
- -----------------------------------------------------------------------------------------------------------------------------
Idaho Secretary of State Stibnite Mine Inc.
Barrier Reef Inc.
- -----------------------------------------------------------------------------------------------------------------------------
Valley Co., Idaho Stibnite Mine Inc.
Clerk and Recorder Barrier Reef Inc.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
A description of collateral covered by the foregoing financing statements is set
forth in Schedule A attached hereto.
(F) Property of Brohm Mining Corp. described in the following
financing statement on file on the date hereof:
<TABLE>
<CAPTION>
Collateral
Filing Office Secured Party File No. File Date Description
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Colorado Caterpillar Financial 962052327 7/10/96 Equipment
Secretary of Services Corp.
State
</TABLE>
(G) See Opinions of Title delivered by the Law Offices of Marvin D.
Truhe to Dakota and dated as of January 15, 1996 and April 4, 1996, copies of
which have been delivered to Gerald.
Debtor: Dakota Mining Corporation
410 Seventeenth Street, Suite 2450
Denver, Colorado 80202
Secured Party: Gerald Metals,, Inc.
High Ridge Park
P.O. Box 10134
Stamford, Connecticut 06904
All fixtures and all tangible and intangible personal property of
Debtor of every kind and description and wherever located, in each case whether
now owned or hereafter acquired by Debtor, or in which Debtor may now have or
hereafter acquire an interest, including, without limitation:
(1) all equipment (as such terms defined in the Uniform
Commercial Code the "UCC"), machinery and fixtures, including, without
limitation, all data processing and computer equipment, in each case
whether now owned or hereafter acquired by Debtor, or in which Debtor
may now have or hereafter acquire an interest;
(2) all products, goods and inventory (as such term is defined
in the UCC), including without limitation, all ore (in whatever form),
merchandise, raw materials, work in process, parts, components, dies,
molds, finished goods and all product inventory returned to or
repossessed by Debtor, in each case whether now owned or hereafter
acquired by Debtor, or in which Debtor may now have or hereafter
acquire an interest;
3) all instruments (as such term is defined in the UCC),
documents of title, general intangibles, contract rights and policies
and certificates of insurance, in each case whether now owned or
hereafter acquired by Debtor, or in which Debtor may now have or
hereafter acquire an interest;
(4) all accessions, additions and improvements to, and all
proceeds and products of, all of the foregoing included collateral,
including proceeds of insurance, whether now owned or hereafter
acquired by Debtor, or in which Debtor may now have or hereafter
acquire an interest; and
(5) all books, records, documents, computer tapes and discs
relating to all of the foregoing included collateral, whether now owned
or hereafter acquired by Debtor, or in which Debtor may now have or
hereafter acquire an interest.
<PAGE>
EXHIBIT D
TO AMENDED AND RESTATED LOAN AGREEMENT
March ___, 1997
Gerald Metals, Inc.
High Ridge Park, P.O. Box 10134
Stamford, Connecticut 06904
Re: Amended and Restated Revolving Loan Agreement among Gerald Metals,
Inc., Dakota Mining Corporation, Stibnite Mine Inc., Barrier Reef The.
and Brohm Miring Corp.
Ladies and Gentlemen:
We have acted as counsel to Stibnite Mine Inc., a Delaware corporation
("Stibnite"), Barrier Reef Inc., a Delaware corporation ("Barrier"), Brohm
Miring Corp., a South Dakota corporation "Brohm"), and MinVen Gold (USA)
Corporation, a Delaware corporation "Guarantor"), and as local counsel to Dakota
Mining Corporation, a federal corporation organized under the Canada Business
Corporations Act ("Dakota"; together with Stibnite, Barrier and Brohm,
"Borrower"), in connection with the amendment and restatement of the various
documents pertaining to a $4,000,000 loan (the "Loan") from Gerald Metals, Inc.
"Lender") to Borrower on April 15, 1996, including the Amended and Restated
Revolving Loan Agreement of even date herewith (the "Amended Loan Agreement")
among Borrower and Lender and the amended and restated limited guaranty of the
Loan by Guarantor. All capitalized terms used herein and not otherwise defined
shall have the meanings ascribed in the Amended Loan Agreement. In rendering the
opinions set forth below, we have examined, reviewed and relied upon the
following:
1. facsimiles or executed copies of the following:
(a) Amended Loan Agreement (including as to factual matters, the
representations and warranties set forth in Section 8
thereof?);
(b) Amended and Restated Secured Revolving Loan Note of even
date herewith of Borrower in favor of Lender (the "Amended
Note");
(c) Amended First Mortgage, Assignment of Rents and Royalties,
Security Agreement and Financing Statement of even date
herewith of Stibnite and Barrier in favor of Lender (the
"Amended Idaho Mortgage") (including, as to factual matters,
the representations, covenants and agreements contained
therein);
(d) Amended Mortgage--Collateral Real Estate Mortgage of even
date herewith of Brohm in favor of Lender (the "Amended
South Dakota Mortgage") (including, as to factual matters,
the covenants and agreements contained therein);
(e) Amended and Restated Security Agreement of even date
herewith between Dakota and Lender (including, as to factual
matters, the representations and warranties set forth in
Section 3 thereof);
(f) Amended and Restated Security Agreement of even date
herewith between Brohm and Lender (including, as to factual
matters, the representations and warranties set forth in
Section 3 thereof);
(g) Amended and Restated Security Agreement of even date
herewith between Stibnite and Lender (including, as to
factual matters, the representations and warranties set
forth in Section 3 thereof);
(h) Amended and Restated Security Agreement of even date
herewith between Barrier and Lender (including, as to
factual matters, the representations and warranties set
forth in Section 3 thereof);
(i) Amended UCC-1 Financing Statements wherein Borrower is the
debtor and Lender is the secured party ("Amended Financing
Statements") under the Uniform Commercial Code (the "UCC")
of Colorado, Idaho and South Dakota, which Amended Financing
Statements have been or are to be filed in the filing
offices listed on Schedule A hereto;
(j) Amended and Restated Limited Guaranty of even date herewith
of Guarantor favor of Lender; and
(k) Amended and Restated Pledge Agreement of even date herewith
between Lender and Guarantor (the "Amended Pledge
Agreement") (including, as to factual matters, the
representations and warranties set forth in Section 4
thereof);
(the documents listed in (a) through (k) above are collectively referred to
herein as the "Transaction Documents" and references to one or more Transaction
Documents with respect to a particular person or persons, refer only to those
Transaction Documents to which such person or persons is a party; the documents
listed in (e) through (h) above are collectively referred to herein as the
"Security Agreements");
2. facsimiles or copies of resolutions authorizing the
execution and delivery by Borrower of the Transaction
Documents and related matters;
3. facsimiles or executed copies of certificates of the
Assistant Secretaries of the Borrower certifying the
adoption of such resolutions by the Borrowers' Boards of
Directors and the effectiveness of such resolutions;
4. copies of the certificates of incorporation (or like charter
document) and bylaws of Borrower and Guarantor; and
5. certificates from the Secretary of State of Delaware as to
the good standing of Stibnite and Barrier, a certificate
from the Secretary of State of South Dakota as to the good
standing of Brohm, and a Certificate of Compliance of
Industry Canada with respect to Dakota.
In connection with the rendering of the opinions and other statements
set forth herein, we have not undertaken a general investigation of facts, nor
have we independently verified the accuracy or completeness of any records,
agreements, instruments, documents, certificates or letters delivered to us or
of any of the representations, warranties or statements made to us.
Although we have in the past been engaged to render legal services to
Borrower, our engagements have been limited to matters specified by their senior
officers and, consequently, we are not familiar with all of their legal affairs.
We are qualified to practice law in the State of Colorado and,
notwithstanding any provision of this opinion to the contrary, we express no
opinion concerning the applicability or effect of any laws other than the
internal laws of the State of Colorado, the Delaware Corporation Law and the
federal law of the United States of America (without reference to choice or
conflict of laws principles or requirements). For all purposes of this opinion,
we have assumed the applicability solely of the laws referenced in this
paragraph, notwithstanding statements in the Transaction Documents and other
controlling facts to the contrary.
In rendering this opinion, we have assumed, without independent
inquiry, that:
1. All panties to the Transaction Documents other than Borrower and
Guarantor have the power and authority (corporate, partnership or other) to
execute, deliver and perform the Transaction Documents, and the Transaction
Documents constitute the legal, valid and binding obligations of the other
parties thereto.
<PAGE>
Gerald Metals, Inc.
March ___ 1997
Page 4
2. Borrower owns the Collateral- We express no opinion as to the
existence of or the right, title or interest of Borrower in, to or under any of
the Collateral. We assume that the descriptions of the Collateral described,
appearing or contained in the Amended Idaho Mortgage, the Amended South Dakota
Mortgage, the Security Agreements and the Amended Financing Statements are
accurate, complete and legally sufficient for all purposes.
We have also assumed the genuineness and authorization of all
signatures (other than those of borrower and Guarantor) on all documents
submitted to us as or-is, copies, or facsimiles, the legal capacity of natural
persons who signed any documents submitted to us as originals, copies, or
facsimiles (other than those of Borrower and Guarantor), the authenticity and
accuracy of all documents submitted to us as originals and conformity to the
or-is of all documents submitted to us as copies or facsimiles. We have assumed
the genuineness of all signatures of Borrower and Guarantor on all documents
submitted to us as or-is, copies or facsimiles. We have assumed that all of the
Transaction Documents have been properly executed by all parties thereto.
Based on the foregoing and with due regard to legal considerations that
we deem relevant, we are of the following opinions:
1. Each of Borrower and Guarantor is a corporation duly organized
validity existing and in good standing under the laws of its state of
incorporation.
2. Each Borrower has the corporate power and authority to own its
property and assets, Guarantor has the corporate power and authority
to own the Pledged Shares (as defined in the Amended Pledge
Agreement), and each of Borrower and Guarantor have the corporate
power and authority to transact the business in which it is engaged,
and to execute and deliver the Transaction Documents and to perform
its obligations under the Transaction Documents. Each of Borrower and
Guarantor has taken all necessary corporate action to authorize such
execution, delivery and performance.
3. To our knowledge, without independent investigation of any kind and
without any actual or implied duty to perform any independent
investigation, the execution and delivery of the Transaction Documents
by each of Borrower and Guarantor, and the performance of its
respective obligations therein, do not violate or conflict with any
order or judgment of any court or other agency of government
applicable to Borrower or Guarantor (as applicable) or any provision
of Borrower's or Guarantor's respective articles of incorporation (or
like charter document) or bylaws.
4. No filings or registrations with any governmental office, authority or
agency are necessary in order to establish and perfect a security
interest in the Collateral in favor of Lender, except for the
following; (i) the re9ording of the Amended Idaho Mortgage and Amended
South Dakota Mortgage in
<PAGE>
Gerald Metals, Inc.
March ___ 1997
Page 5
the filing offices listed on Schedule B hereto; (ii) the filing of the
Amended Financing Statements in the filing offices listed in Schedule
A hereto; and (iii) the filing of continuation statements with respect
to the Amended Financing Statements at required intervals and in
accordance with applicable law.
5. Assuming the applicability solely of the internal laws of the State of
Colorado, the Delaware Corporation Law and the federal law of the
United States of America (without regard to choice or conflict of law
principles or requirements), the obligations of each of Borrower and
Guarantor under the Transaction Documents constitute its legal, valid,
binding and enforceable obligations, except as the enforceability
thereof may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights
of creditors generally; (ii) the application of general principles of
equity (regardless of whether considered in a proceeding in equity or
at law); and (iii) the assumptions, exceptions and qualifications set
forth elsewhere in this opinion. Notwithstanding the foregoing, and
subject to the assumptions, exceptions and qualifications set forth
elsewhere in this opinion, certain remedies, waivers, rights of Lender
and other provisions of the Transaction Documents may not be valid,
binding or enforceable under the laws expressly referenced above in
this paragraph; however, in our opinion, such matters should not
render the Transaction Documents, as against Borrower and Guarantor,
invalid as a whole or preclude (i) the judicial enforcement of the
obligation of the Borrower to repay the principal, together with
interest thereon (to the extent not deemed a penalty) as provided in
the Amended Note; (ii) the acceleration of the obligation of the
Borrower to repay such principal, together with such interest, upon a
default by Borrower in the payment of such principal or interest, or
upon a material default in any other material provision of the
Transaction Documents; and (iii) the foreclosure against the Borrower
in accordance with applicable law on the liens and security interest
in the Collateral created by the Transaction Documents upon maturity
or upon the acceleration pursuant to clause (ii) above of this
sentence.
FURTHER EXCEPTIONS AND OUALIFICATIONS
The foregoing opinions are subject to the following additional
assumptions, limitations and qualifications:
1. For purposes of the opinions expressed herein, we have assumed that
the recording and filing of the Amended Idaho Mortgage and Amended South Dakota
Mortgage and the Amended Financing Statements in the offices listed in Schedule
A and Schedule B hereto shall have been properly accomplished such that the same
shall be accurately abstracted and indexed in each instance by such office and
that no mistakes or errors shall have occurred in connection with such recording
and filing We have assumed that Lender will hold physical possession of all
stock pledged under the Amended Pledge Agreement and associated stock powers.
<PAGE>
Gerald Metals, Inc.
March ___ 1997
Page 6
2. Our opinions are rendered solely for the benefit of Lender and no
other party shall be entitled to rely on any matter set forth herein
without the express written consent of this firm. These opinions may
not be publicized or quoted to any other party without the prior
written consent of this firm or as may be required by law We disavow
any obligation to update these opinions or advise the addressee here
of any changes m our opinions in the event of changes of applicable
law becoming effective after the date hereof or if additional or newly
discovered information is brought to our attention after the date
hereof The opinions set forth in this opinion letter are limited to
the matters expressly stated herein, and no opinion may be Inferred
beyond the matter expressly so stated.
3. We express no opinion as to the priority of any lien, claim, charge,
pledge, security interest, mortgage, deed of trust or other
encumbrance on the Collateral described in the Amended Idaho Mortgage,
Amended South Dakota Mortgage, Security Agreements and Amended
Financing Statements.
4. We render no opinion regarding the perfection of any security interest
in motor vehicles, airplanes, trucks, railroad cars, barges or other
similar types of equipment with respect to which certificates of title
or other similar documents evidencing ownership are issued by a
governmental entity.
5. We have assumed that the Amended Financing Statements adequately
describe the Collateral which is the subject of the Security
Agreements.
6. To the extent any opinion or confirmation set forth herein is rendered
"to our knowledge" or otherwise indicates or refers to our knowledge
or belief, our knowledge or belief is based solely upon our actual
knowledge without our having obtained any factual certificates from
Borrower or Guarantor and without our having made or undertaken any
factual investigation or due diligence not disclosed in this opinion
letter.
7. Notwithstanding any provision of this opinion to the contrary, we
provide no opinion whatsoever as to the following: (i) any provisions
of the Transaction Documents providing for jurisdiction or venue for
resolution of disputes or for enforcement of rights or the choice of
law to govern the construction or enforcement of the Transaction
Documents; (ii) any prohibitions, requirements for consents or other
terms or conditions contained in any agreement or undertaking between
Borrower and or Guarantor and any lessor, royalty holder or landowner;
(iii) the validity, legality or enforceability of the granting of any
security interest in any governmental permit, license or authorization
held by Borrower or in any other asset in which a governmental agency,
authority or instrumentality holds an interest; (iv) any stock option
agreement of Dakota in favor of Lender; (v) any rights of subrogation
as between Lender and any third party; and (vi) whether the
Transaction Documents and the loans thereunder comply with applicable
laws governing usury.
<PAGE>
Gerald Metals, Inc.
March ___ 1997
Page 7
8. This opinion is subject to and governed in all respects by the Legal
Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991), as modified by the Report (the "Report") of the ABA Section of
Real Property, Probate and Trust Law and the American College of Real
Estate Lawyers (I 993) as to opinions pertaining to Real Estate
Secured Transactions or to security interests in real property. As a
consequence, and notwithstanding any provision of this opinion to the
contrary, this opinion is subject to all of the qualifications,
exceptions, limitations on coverage and other limitations described in
the Accord and the Report (collectively "Other Qualifications"),
regardless of whether the Other Qualifications are expressly repeated
herein an regardless of whether the Other Qualifications conflict or
are inconsistent with any provision of this opinion. The Other
Qualifications shall be deemed to apply to all aspects of this opinion
and to all aspects of the transactions and Transaction Documents that
are the subject of this opinion, and not just to those aspects
pertaining to real property and the granting of security interests in
real property. This opinion should be read in conjunction with the
Accord and the Report.
PARCEL, MAURO, HULTIN & SPAANSTRA, P.C.
<PAGE>
Schedule A
UCC FINANCING STATEMENT FILING JURISDICTIONS
Debtor: Dakota Mining Corporation
Jurisdiction: Secretary of State of Colorado
Debtor: Barrier Reef Inc.
Jurisdictions: Secretary of State of Colorado
Secretary of State of Idaho
Valley County, Idaho
Debtor: Stibnite Mine Inc.
Jurisdictions: Secretary of State of Colorado
Secretary' of State of Idaho
Valley County, Idaho
Debtor: Brohm Mining Corp.
Jurisdictions: Secretary of State of Colorado
Secretary of State of South Dakota
Lawrence County, South Dakota
Schedule B
MORTGAGE FILING JURISDICTIONS
Mortgagor: Stibnite Mine Inc., and Barrier Reef Inc.
Jurisdiction: Valley County, Idaho
Mortgagor: Brohm Mining Corp.
Jurisdiction: Lawrence County, South Dakota
<PAGE>
EXHIBIT E
LOSS PAYABLE ENDORSEMENT
Policy No,:
Named Insured: _____________________________________________________________
Name of Loss Payee and Additional Insured: Gerald Metals, Inc.
Address: High Ridge Park
P.O. Box 10134
Stamford, Connecticut 06904
Interest/Description of Property:
Loss under this policy will be payable to the above named Loss Payee
and Additional Insured as Lender or mortgagee as its interests may appear,
The Loss Payee and Additional Insured now has or will acquire from time
to time an insurable interest In certain property insured under this policy.
Such interests will be established by documentary or other written evidence
(including, without limitation, a security agreement).
The interest of the Loss Payee and Additional Insured will not be impaired by;
1. any act or neglect of the borrower, mortgagor or owner of the
above described property except as provided in the last paragraph
of this endorsement;
2, any change in the title or ownership of the property; or
3. a more hazardous occupancy of the premises where the property is
located than is permitted by this policy.
We reserve the right to cancel this policy at any time as provided by
its terms. If we do so, this policy will continue in force for the benefit only
of the Loss Payee and Additional Insured for sixty (60) days after notice to the
Loss Payee and Additional Insured of such cancellation and will then cease.
Whenever we will pay the Loss Payee and Additional Insured any sum for
loss or damage under this policy and claim that, as to the borrower, mortgagor
or owner, no liability existed then we will, to the extent of such payment, be
legally subrogated to all the rights of the party to whom the payment will be
made, under all securities held as collateral to the debt. At our option, we may
pay the Loss Payee and Additional Insured the whole principal due or to grow due
on the debt with interest, and thereupon receive a frill assignment and transfer
of the debt and of the mortgage
and all of such other securities as evidence of the interest of the Loss Payee
and Additional -Insured in the described property However, no subrogation will
impair the Loss Payee and Additional Insured's right to recover the frill amount
of its claim against the borrower, mortgagor or owner.
All other provisions of the policy apply.
EXHIBIT 23.1
Accountants' Consent
The Board of Directors
Dakota Mining Corporation:
We consent to incorporation by reference in the registration statement
(File No. 33-68872) on Form S-8 of Dakota Mining Corporation of our report dated
February 4, 1997, except as to Note 2, which is as of February 6, 1997 and Note
6(c), which is as of February 28, 1997, relating to the consolidated balance
sheets of Dakota Mining Corporation and subsidiaries as at December 31, 1996 and
1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1996, which report is incorporated by reference in the December 31,
1996 annual report on Form 10-K(A) of Dakota Mining Corporation.
KPMG
Toronto, Canada
May 5, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000848448
<NAME> Dakota Mining Corp.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,092
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,644
<CURRENT-ASSETS> 9,361
<PP&E> 36,251
<DEPRECIATION> 15,150
<TOTAL-ASSETS> 31,569
<CURRENT-LIABILITIES> 8,355
<BONDS> 0
0
0
<COMMON> 52,810
<OTHER-SE> (280)
<TOTAL-LIABILITY-AND-EQUITY> 31,569
<SALES> 24,556
<TOTAL-REVENUES> 24,556
<CGS> 26,296
<TOTAL-COSTS> 47,752
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 442
<INCOME-PRETAX> (23,070)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,070)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,070)
<EPS-PRIMARY> (.73)
<EPS-DILUTED> 0
</TABLE>
