SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1995, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE TRANSITION PERIOD FROM ----- TO ------, 1995.
Commission file number 2-2274.
ALTA GOLD CO.
(Exact name of Registrant as specified in its charter)
NEVADA 87-0259249
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
601 WHITNEY RANCH DRIVE, SUITE 10
HENDERSON, NEVADA 89014
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (702) 433-8525
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $0.001 Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
---- ----.
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the voting stock held by non-
affiliates of the Registrant is $116,734,006 computed using the
average high and low sales prices of Registrant's Common Stock on
March 22, 1996. On such date, the high and low sales prices of
Registrant's Common Stock were $4.50 and $4.00, respectively, per
share.
The number of shares outstanding of the Registrant's Common
Stock as of March 22, 1996 was 28,452,780.
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive Proxy Statement for the 1996 Annual Meeting of
Stockholders. Certain information therein is incorporated into Part
III hereof.
The undersigned registrant hereby amends the following items,
financial statements, exhibits or portions of its annual report on
Form 10-K for the fiscal year ended December 31, 1995, as set forth
in the pages attached hereto:
Items 1 and 2. Business and Properties
Item 8. Financial Statements and Supplementary Data
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
INTRODUCTION
Alta Gold Co. (the "Company") is a mining corporation which
explores for and/or produces precious and base metals, including gold,
silver, zinc, lead, copper and molybdenum, on properties located in
the western United States. The Company was incorporated in
Nevada on May 7, 1962, under the name of Silver King Mines, Inc.
On November 24, 1989, the Company merged with Pacific Silver
Corporation and the Company's name was changed to Alta Gold Co.
The Company's headquarters is located at 601 Whitney Ranch Drive,
Suite 10, Henderson, Nevada, 89014, and its telephone number is
(702) 433-8525.
The Company operates in one industry segment, solely within the
United States. For financial information regarding the Company, see
"Item 8. Financial Statements and Supplementary Data."
The Company's major mines, exploration properties and mining
interests are located primarily in Nevada. The Company also owns
a copper property in New Mexico and has mining interests in
California, Idaho and Oregon.
In 1991, the Company ceased mining activities because of a
downturn in metals prices. As a result of a subsequent increase in the market
price of gold, the Company resumed mining at its property known as the
Easy Junior mine, located in White Pine County, Nevada ("Easy
Junior") in 1993. In 1994, the Company acquired three gold
properties, the Kinsley mine, located in Elko County, Nevada
("Kinsley"), the Olinghouse mine, located in Washoe County, Nevada
("Olinghouse") and the Griffon mine, located in White Pine County,
Nevada ("Griffon"), and one copper property, the Copper Flat mine,
located in Sierra County, New Mexico ( Copper Flat ). Of these four
properties, Kinsley was developed and put into production in 1994.
Olinghouse, Griffon and Copper Flat are currently in the development
stage.
OVERVIEW OF MINING PROPERTIES
During 1995, the Company: (1) completed the purchase of and
began gold production at Kinsley; (2) continued to produce gold at
Easy Junior; (3) completed the purchase of and continued the
development at Olinghouse; (4) continued the development of
Copper Flat; (5) continued the development of Griffon; and (6) sold
its remaining interest in the Robinson Copper Project (as hereinafter
described). A summary of each of the Company's mining activities
is described below.
KINSLEY
Background and History. Kinsley is located approximately eighty
miles northeast of Ely, Nevada and is accessed by paved and
unpaved public roads . The property was acquired from Cominco
American Resources Incorporated and USMX, INC. in April 1994 for
a total purchase price of $3,000,000 consisting of $2,000,000 cash
(payable in installments) and shares of common stock of the
Company with a market value of $1,000,000. The Company made
an initial cash payment for the purchase price in the amount of
$1,000,000 (which included option payments totalling $50,000 made
in 1993) and issued 420,683 shares of common stock which had a
market value of $500,000. The Company paid the remaining
$1,000,000 in cash and issued an additional 461,095 shares of
common stock of the Company with a market value of $500,000 on
April 14, 1995. Under provisions of the purchase agreement, the
market value of the Company's common stock was based on the
average closing price of the Company's stock for the thirty trading
days immediately preceding the issuance of the stock.
Page 3 - Map encompassing the states of Nevada, New Mexico, Arizona and Utah,
and showing the locations of the cities of Henderson and Ely, Nevada, and the
Company's major mining properties: Kinsley, Olinghouse and Griffon, all
located in Nevada, and Copper Flat, located in New Mexico.
Property Interests. At Kinsley, the Company controls 207
unpatented mining claims covering approximately 4,200 acres. For
a description of the risks involved with unpatented mining claims, see
"Risk Factors - Uncertainty of Title."
Geology. The deposits at Kinsley occur as a cluster of Carlin-type
disseminated gold ore bodies in Cambrian age sedimentary rocks
within and adjacent to a large northwest trending structure. Proven
and probable reserves occur as replacement lenses and structurally
prepared zones in four separate ore bodies: the Main, Upper, Ridge
and West Ridge deposits. Mineralization is fine grained and readily
amenable to heap leaching.
Reserves. Based on a reserve report (the "PAH Report") dated
March 15, 1996, prepared by Pincock, Allen & Holt ("PAH"), an
independent consulting firm located in Lakewood, Colorado, Kinsley
has proven and probable reserves of 3,383,000 tons at an average
grade of 0.032 ounces per ton gold containing 110,966 ounces of
gold. The deposit has an estimated stripping ratio of 1.4:1. See
"Production and Reserve Summary" and "Risk Factors - Reserves Estimates."
Development and Planned Mining and Processing. Site
development at Kinsley commenced in July 1994 and mining began
in October 1994. Production of refined gold began in January 1995.
Mining of Kinsley will be conducted in seven open pits utilizing
conventional open pit methods. Operations are conducted over ten
to twelve hour shifts on a seven-day per week schedule. Ore is
processed at Kinsley through conventional heap leaching. The
current equipment fleet at Kinsley consists of front-end loaders
coupled with 50-ton haul trucks working on 15 foot benches and is
supported with a full set of ancillary equipment. The equipment is
in acceptable working condition.
In 1995, the Company mined 1,267,660 tons of ore with an
average grade of 0.0517 ounces per ton gold and produced 40,667
ounces of gold. Based on the current estimate of proven and
probable reserves, and other presently known factors, the Company
believes that Kinsley presently has an approximate mine life of two
and a half years.
EASY JUNIOR
Background and History. Easy Junior is located 50 miles west of
Ely, Nevada and is accessed by paved and unpaved public roads.
Initial development on the property commenced in 1989 under a 50-
50 joint venture agreement with Echo Bay Mines, Ltd. ("Echo Bay").
By December 1989, 3,354,086 tons of waste were removed and
297,504 tons of ore were mined. Gold recovery began in January
1990. Mining was later suspended in 1990 due to depressed gold
prices, higher than expected costs associated with stripping, and
lower than anticipated ore grades and recoveries. Total production
through December 31, 1992, was 11,560 ounces of which the
Company's share was 6,936 ounces. Effective December 31, 1991,
the Company purchased Echo Bay's interest in the property. After
completion of detailed engineering studies by the Company in 1992,
mining resumed at Easy Junior in June 1993 and was completed in
August 1994. Processing of the mined ore is currently expected to
be completed by the end of the second quarter of 1996.
Property Interests. At Easy Junior, the Company controls 56
unpatented mining claims covering approximately 1,200 acres. See
"Risk Factors - Uncertainty of Title."
Geology. Gold ore at Easy Junior occurs along the axis of a tight
fold within the Mississippian Chainman Shale and Joana Limestone.
Reserves. The Company completed mining all reserves at Easy
Junior in 1994. There is no assurance that a commercially viable
ore deposit exists until further drilling or other underground testing
is done and a comprehensive feasibility study based upon such work is
concluded.
Development and Planned Mining and Processing. The Company
anticipates that gold processing will be completed by the end of the
second quarter of 1996. The Company does not plan any additional
development and it is currently expected that most of the required
reclamation, including detoxification of the leach pad, removal of
structures, and recontouring and revegetation, will be completed in
1996. With the exception of certain ancillary equipment which is
used for residual heap leaching at Easy Junior, the Easy Junior
equipment fleet was transferred to Kinsley. The equipment, including
the ancillary equipment which remains at Easy Junior, is in acceptable
working condition.
OLINGHOUSE
Background and History. Olinghouse is located approximately 35
miles east of Reno, Nevada and is accessed by paved and unpaved
public roads. The Company acquired the property in July 1994 from
Phelps Dodge Mining Company for $4,625,000 in cash and a
promissory note due July 1995 in the amount of $2,250,000 bearing
an interest rate of prime plus 2%. The promissory note was paid in
full in July 1995.
Property Interests. At Olinghouse, the Company controls 210
unpatented mining claims and nine patented mining claims on
approximately 4,500 acres. See "Risk Factors - Uncertainty of Title."
Over half of the currently identified ore body lies within one of the
patented mining claims. Thirty-eight of the unpatented mining claims
and all nine of the patented mining claims are held under seven
different lease agreements with various third parties. Five of the
lease agreements carry net smelter return royalties ranging between
4% to 6%. Four of the lease agreements also contain buyout
options. All of the lease agreements require annual minimum
payments totaling $431,200 in 1996, $452,400 in 1997, $463,700 in
1998, $215,000 in 1999, and $231,400 in 2000, with minimum
payments due under three of the leases in the approximate amount
of $130,000 per year until mining is completed on the respective
leases.
Geology. Gold occurs in a series of at least five sub-parallel
mineralized structures cutting andesitic volcanic rocks. The
structures trend northeasterly and dip northwesterly at 35-90
degrees. Mineralization typically occurs over widths of 50-150 feet,
and over strike lengths of greater than 1000 feet. Laboratory studies
conducted by McClellan Laboratories, Inc., an independent laboratory
located in Sparks, Nevada, show excellent metallurgical
characteristics, with high extraction achieved by either cyanidization
or gravity separation.
Reserves. Based on the PAH Report, Olinghouse has proven and
probable reserves of 9,655,000 tons of ore at an average grade of
0.036 ounces per ton gold, containing 347,595 ounces of gold. The
deposit has an estimated stripping ratio of 4.5:1. See "Production
and Reserve Summary" and "Risk Factors-Reserve Estimates".
Development and Planned Mining and Processing. Depending upon
the receipt of necessary permits from state and Federal regulatory
authorities and the availability of outside financing, the Company
plans to begin mining at Olinghouse in the first quarter of 1997.
The Company is in the process of preparing an Environmental
Impact Statement ("EIS") together with completing metallurgical
studies and the Phase I mine plan for Olinghouse. There is no
assurance that the Company will obtain the necessary permits in a
timely fashion.
COPPER FLAT
Background and History. Copper Flat is located within the
Hillsboro Mining District, twenty-seven miles west of Truth or
Consequences, New Mexico and is accessed by paved and unpaved
public roads.
As reported in Gold Express Corporation's ("Gold Express") Form
10-K for the year ended June 30, 1993, the property was initially put
into production in early 1982 at a cost in excess of $112 million.
After three and one half months of production, operations were
halted due to low metal prices. The property was thereafter put into
a care and maintenance mode until 1986, at which time all structures
and equipment were sold and removed. During the three and one
half months the mine was in operation in 1982, approximately 1.2
million tons of ore were mined, and approximately 7.4 million pounds
of copper, 2,301 ounces of gold and 55,966 ounces of silver were
produced.
The Company acquired Copper Flat in June 1994 from Gold
Express for a purchase price which consisted of: (1) approximately
$1,400,000 in cash; (2) a $1,500,000 6% two-year convertible
subordinated debenture; (3) a $1,500,000 6% four-year convertible
subordinated debenture; and, (4) a fourteen-year subordinated zero
coupon debenture with a redemption price of $4,000,000. Both
convertible subordinated debentures are convertible into Alta Gold
common stock at a conversion rate of $4.00 per share.
Pursuant to the terms of the acquisition agreement, the Company
granted to Gold Express a provisional copper production
royalty ("Royalty"), which provides for a royalty based on 50% of the
quantity of copper produced from Copper Flat during a calendar
quarter as multiplied by the amount, if any, by which the average
closing spot price of copper during that respective quarter exceeds
$1.25 per pound. The maximum amount of the Royalty is
$4,000,000 in the aggregate. Any and all payments made by the
Company pursuant to the Royalty will be credited against, on a dollar
for dollar basis, the principal amount owed under the fourteen-year
subordinated zero coupon debenture.
The acquisition agreement expressly provides the Company with
the right to an adjustment of the purchase price for the breach of any
warranties or representations made by or obligations retained by Gold
Express. The Company has identified several instances where it
believes that such a breach has been made by Gold Express and
has notified Gold Express that it intends to exercise its right to an
adjustment of the purchase price to offset the cost of remedying
such breaches. The amounts involved and the ultimate resolution of
this matter have not yet been determined.
Copper Flat is also subject to a reserved interest held by Gold
Express' predecessor in interest. This reserved interest requires
payments of a 2 1/2% net smelter return royalty and $150,000 in
annual advanced royalties. This reserved interest also included an
additional 2 1/2% net smelter royalty which the Company acquired,
concurrent with the purchase of Copper Flat, in exchange for
375,000 shares of Alta Gold common stock. Under the terms of this
exchange, the Company has further agreed to pay in cash to the
owner of this reserved interest the difference between $4.00 per
share and the closing price of the Company's common stock on the
second anniversary date of the common stock issuance (June 1996),
if the closing price is less than $4.00 per share at that time, as
multiplied by the maximum of 250,000 shares.
Property Interests. At Copper Flat, the Company controls 422
unpatented mining claims and 21 patented mining claims on
approximately 5,000 acres of land. See "Risk Factors - Uncertainty
of Title."
Geology. The Copper Flat deposit occurs in and is adjacent to a
breccia pipe cutting a small quartz monzonite porphyry stock.
Chalcopyrite is the dominant copper mineral. Gold and silver occur
as electrum. Molybdenite is the dominant molybdenum mineral.
Reserves. Based on the PAH Report, Copper Flat has proven
and probable reserves of 59,119,000 tons of ore at an average
grade of 0.425% copper, 0.004 ounces per ton gold, 0.061 ounces
per ton silver and 0.013% molybdenum. Contained metal is
approximately 502,512,000 pounds of copper, 251,256 ounces of
gold, 3,577,000 ounces of silver and 15,370,000 pounds of
molybdenum. The deposit has internal continuity and an estimated
stripping ratio of less than 0.83:1. See "Production and Reserve
Summary" and "Risk Factors-Reserve Estimates".
Development and Planned Mining and Processing. In February
1996, the Company submitted a draft EIS to the U.S. Environmental
Protection Agency ("EPA") for the property. Depending upon the
timing of the approval of the EIS, the receipt of necessary permits
from state and Federal regulatory authorities, and the availability of
outside financing, the Company plans to begin mining in 1997. There is
no assurance that the Company will obtain the necessary permits in a
timely fashion.
GRIFFON
Background and History. Griffon is located approximately forty-six
miles southwest of Ely, Nevada and is accessed principally by
paved and unpaved public roads. The Company purchased the
property from Griffon Resources, Inc. ("GRI") in October 1994.
Under the terms of the acquisition agreement, the Company is
required to make a payment of $40,830 on October 1, 1996. The
acquisition agreement requires a royalty payable to GRI of $13.60
per ounce of gold for the first 50,000 ounces of production and a
maximum of $10.00 per ounce of gold for any additional production.
If the property is not in production by October 1, 1997, the Company
is required to return the property to GRI, unless the failure to have
the property in production by such time is due to reasons of force
majeure, as such term is defined in the acquisition agreement.
Property Interests. At Griffon, the Company controls 69
unpatented mining claims on approximately 1,400 acres. See "Risk
Factors - Uncertainty of Title."
Geology. The Griffon deposits consist of two Carlin-type
disseminated gold ore bodies, the Discovery Ridge deposit and the
Hammer Ridge deposit, hosted in the upper part of the Mississippian
Joana Limestone. The Discovery Ridge deposit, approximately 100 feet
thick, 400 feet wide, and 700 feet long, has excellent internal
continuity and is exposed at the surface. The Hammer Ridge deposit,
located approximately 1000 feet southeast of Discovery Ridge, is smaller,
but has similar geologic characteristics and is also exposed at the
surface. There is the potential to expand the reserves to the northwest
and southeast.
Reserves. Based on the PAH Report, Griffon has proven and
probable reserves of 2,737,000 tons of ore at an average grade of
0.025 ounces gold per ton, containing 68,418 ounces of gold. The
deposit has an estimated stripping ratio of 0.56:1. See "Production
and Reserve Summary" and "Risk Factors - Reserve Estimates."
Development and Planned Mining and Processing. In 1995, the
Company completed its delineation drilling program at Griffon and
began development of a mine plan for the property. Depending
upon the receipt of necessary permits from state and Federal
regulatory authorities, the Company plans to begin mining in 1997.
There is no assurance that the Company will obtain the necessary permits
in a timely fashion.
WARD
Background and History. Ward is located approximately 12 miles
south of Ely, Nevada and is accessed by paved and unpaved public
roads.
From 1966 to 1982 exploration by the Company and lessors of the
property partially defined a large copper, lead, zinc, silver resource.
In 1982, Gulf Minerals Resources Company calculated reserves from
surface drill holes of 17,000,000 tons grading 1.5% copper, 4% lead
and zinc, and 2 ounces per ton silver. From 1983 to 1985 the
Company drove twin 4,000 foot declines, 25,000 feet of underground
drifts and 71,500 feet of underground drilling delineating a portion of
the resource. A Company reserve calculation and feasibility study
was completed in December 1988 which justified placing the property
into production at a rate of 1,000 tons per day. The reserve
calculation and feasibility study was certified by PAH and production
began in late 1989. Due to depressed zinc prices and unfavorable
smelter contracts, the Company suspended mining and processing
of the ores in 1991. From the beginning of production in 1989 to the
completion of milling in May 1991, the property produced approximately
31.2 million pounds of zinc, 1.9 million pounds of copper, 2.4 million
pounds of lead, 158,811 ounces of silver and 134,051 pounds of
cadmium.
Property Interests. At Ward, the Company controls 32 patented
mining claims covering 300 acres and 121 unpatented mining claims
covering approximately 2,500 acres. See "Risk Factors - Uncertainty
of Title."
Geology. Mineralization at Ward consists of base metal
replacements of gently-dipping skarns and mantos in the Joana and
Guilmette Limestones. The Ward deposit was mined underground
using trackless equipment and open stopping with natural support.
Ore was hauled via the declines to a surface stockpile and then
trucked 14 miles east to a mill owned by the Company. The mill, originally
a cyanide leach, Merill-Crow process silver recovery system, was
remodeled by the Company in 1989 and 1990 to accommodate
flotation and filtering circuits which produce separate concentrates of
zinc, copper and lead. Concentrates from the mill were shipped by
truck and rail to custom smelters for smelting and refining.
Reserves. The Company estimates that the property has proven
and probable reserves of 246,178 tons of ore containing 567,440
ounces of silver, 4,954,000 pounds of copper, 44,740,000 pounds of
zinc and 4,456,000 pounds of lead. See "Production and Reserve Summary"
and "Risk Factors - Reserve Estimates."
Development and Planned Mining and Processing. The Company
is investigating the possibility of further expanding the reserves
through a joint venture or similar arrangement. However, the
Company has no present plans to develop the property.
SALE OF ROBINSON COPPER PROJECT ROYALTY
Until January of 1995, the Company owned provisional copper and
gold production royalties at the Robinson Copper Project, located
one mile west of Ely, Nevada. In January 1995, the Company sold
its interest in the provisional copper and gold production royalties for
$2.5 million in cash.
OTHER PROPERTIES
The Company also owns the following properties:
<TABLE>
<CAPTION>
PROPERTY LOCATION
-------- --------
<S> <C>
Elder Creek * Lander County, Nevada, near
Battle Mountain, Nevada
Golden Butte * 50 miles north of Ely, Nevada
Illipah 45 miles west of Ely, Nevada
Slaven Canyon 15 miles southeast of Battle
Mountain, Nevada
Taylor-Chipps 12 miles southeast of Ely, Nevada
Copper Cliffs Near Cuprum, Idaho
Iron Dyke Near Oxbow, Oregon
Red Ledge In Adams County, Idaho
Shasta In Shasta County, California
Tybo 65 miles northeast of Tonopah, Nevada
_______________
* Elder Creek and Golden Butte are in reclamation. Reclamation
activities at both locations include: leach pad detoxification,
removal of structures, and recontouring and revegetation.
</TABLE>
With regard to each of the properties set forth in the table above,
there is no assurance that a commercially viable ore deposit exists
until further drilling or underground testing is done and a
comprehensive feasibility study based upon such work is completed.
The Company does not have any current plans to develop or
conduct any drilling, testing or feasibility studies with regard to these
properties.
PRODUCTION AND RESERVES SUMMARY
The following table summarizes gold refined from the Company's
properties during the past three years.
<TABLE>
<CAPTION>
OUNCES OF GOLD REFINED
<S> <C> <C> <C>
Properties 1995 1994 1993
---------- ---- ---- ----
Kinsley 40,667 - -
Easy Junior 12,396 23,589 -
Golden Butte - - 163
------ ------ ---
Total 53,063 23,589 163
====== ====== ===
</TABLE>
The Company calculates its reserves by methods generally
applied within the mining industry by a multi-disciplinary team of
geologists, engineers, and geostatisticians. Due to the nature of the
deposits, all reserves are calculated from drill-hole assay results.
Representative samples are collected from the drilling, including a
significant amount of core drilling in deposits where reverse
circulation drill samples could be contaminated or diluted. Assay
results are evaluated to detect potential bias, and check assays are
completed on all ore-grade intercepts as a quality-control procedure.
Computer-generated ore deposit models are compared against
manual methods and, as mining progresses, against actual mining
results. Pit outlines generated from the models are based upon
mining and processing costs and processing recoveries and are
validated by mining and processing experience, yielding estimates of
reserves determined by optimum economic mining limits.
Reserves reported by the Company for Kinsley, Olinghouse,
Copper Flat and Griffon have been audited and verified by PAH as
provided in the PAH Report. PAH's audit of these reserves as of
March 15, 1996, verified that the Company's models for these
reserves have been prepared according to accepted engineering
practice and that these reserves satisfy the requirements for proven
and probable reserves.
The following table summarizes proven and probable ore reserves,
ore grade and contained metal of the properties owned by the
Company as of December 31, 1995.
<TABLE>
<CAPTION>
RESERVES (1) (2)
Tons of Ore
Proven and Probable
Reserves Grade Contained Metal (3)
<S> <C> <C> <C>
GOLD
Kinsley 3,383,000 0.032 110,966 oz.
Olinghouse 9,655,000 0.036 347,595 oz.
Copper Flat 59,119,000 0.004 251,256 oz.
Griffon 2,737,000 0.025 68,418 oz.
---------
Total 778,235 oz.
=========
SILVER
Copper Flat 59,119,000 0.061 3,577,000 oz.
Ward 246,178 2.305 567,440 oz.
---------
Total 4,144,440 oz.
=========
COPPER
Copper Flat 59,119,000 0.425% 502,512,000 lbs
Ward 246,178 1.006% 4,954,000 lbs
-----------
Total 507,466,000 lbs
===========
OTHER METALS
Molybdenum (Copper Flat) 59,119,000 0.013% 15,370,000 lbs
Zinc (Ward) 246,178 9.087% 44,740,000 lbs
Lead (Ward) 246,178 0.905% 4,456,000 lbs
</TABLE>
(1) The term "reserves" means that part of a mineral deposit which
can be reasonably assumed to be economically and legally
extracted or produced at the time of the reserves determination.
The term "economically", as used in the definition of reserves,
implies that profitable extraction or production under defined
investment assumptions has been established or analytically
demonstrated. The assumptions made must be reasonable,
including assumptions concerning the prices and costs that will
prevail during the life of the project. The term "legally", as used
in the definition of reserves, does not imply that all permits
needed for mining and processing have been obtained or that
other legal issues have been completely resolved. However, for
reserves to exist, there should not be any significant uncertainty
concerning issuance of these permits or resolution of legal
issues.
The term "proven reserves" means 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 geologic character is so well defined that size, shape,
depth and mineral content of reserves are well established.
The term "probable reserves" means 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.
(2) See "Risk Factors - Reserve Estimates".
(3) The term "contained metal" means that the reserves are
estimated to encompass a stated number of ounces or pounds of metal
in place. The number of ounces or pounds ultimately recovered and
available for sale depends upon mining and processing efficiency.
Actual recovered ounces will depend on processing recovery
rates. Estimated processing recovery rates, as a percent of
contained metal, are as follows: (1) gold: Kinsley - 75%,
Olinghouse - 83%, Copper Flat - 50%, Griffon - 85%; (2) silver:
Copper Flat - 90%, Ward - 80%; (3) copper: Copper Flat - 91%,
Ward - 70%; (4) other metals: molybdenum - 71%, zinc - 93%,
lead - 70%.
MINING AND PROCESSING METHODS
Mining and processing methods currently used by the Company include
open-pit mining and heap leaching. The following is a general
description of the mining and processing methods used at the
Company's mines.
Open-Pit Mining
At its current operations, the Company conducts open-pit mining
utilizing conventional, industry-employed methods and proven
equipment. Mine plans are designed to remove overburden to
expose sufficient ore to meet processing requirements. Material is
generally drilled and blasted in 20-foot benches in ore and 20 to 50-
foot benches in overburden. The blasted material is then loaded
onto off-road haul trucks using a fleet of front-end loaders, hydraulic
shovels and electric shovels. Overburden is transported outside the
pits and placed on piles, or used to backfill pits where operationally
feasible. Ore is transported by haul trucks to one of several
destinations. Depending on the ore grade, ore is either taken from
the pit and stacked from the trucks directly onto heap leach pads or
crushed before being stacked onto heap leach pads.
The Company has comprehensive preventative maintenance
programs at each mine for maintaining all equipment. As a piece of
equipment reaches the end of its economic life, that unit is retired
and replaced.
Heap Leaching
In conventional heap leaching, the ore is hauled from the pit and
crushed to an optimum size depending on the nature of the ore. The
crushed ore is then mixed with lime and/or polymer agglomerates
and hauled or conveyed to the leach pads where it is stacked. The
stacked ore is then cross-ripped to increase solution percolation, and
a weak cyanide solution is applied to the top surface of the heaps
using drip and sprinkler irrigation techniques. This solution
percolates down through the ore, where the cyanide leaches the gold
from the rock, collects on the lined pad and holds the gold in solution
as it flows to a central collection location. All leaching occurs in a
closed system on lined pads designed to meet applicable
environmental protection standards. The system is designed to
recover all cyanide and prevent its escape or infiltration into the
ground.
The gold-bearing pregnant solutions are collected from each
heap and pumped from heap leach pads to the mill facilities for
recovery. The gold is recovered through carbon absorption followed
by conventional pressure stripping of the carbon using a high-
temperature caustic solution, which is then pumped to electro-
winning cells or to a zinc-precipitation circuit. Gold is electro-plated
onto cathodes. The resultant electro-plated material is removed from
the cathodes, fluxed, smelted and poured into dore' bars for shipment
to a third-party refinery. Zinc precipitate is treated in a similar
manner.
Run-of-mine heap leaching is identical to conventional heap
leaching, except that the ore and lime are placed directly on heap
leach pads, without being crushed as a preliminary step. Run-of-
mine heap leaching cycles are typically longer and recoveries are
typically lower than conventional heap leaching.
FINANCING OF EXPLORATION AND DEVELOPMENT ACTIVITIES
The Company's exploration and development activities are currently
funded by internally generated capital, existing cash on hand, and
amounts borrowed from lending institutions. The amount of the
Company's expenditures in 1996 and in subsequent years will
depend on, among other factors, the market prices of precious and
base metals, the Company's available funds, the Company's ability
to borrow funds and borrowing limitations placed upon the Company
by lending institutions. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources".
MARKETING
The Company sells production from its mines to metals firms
pursuant to fixed price forward contracts and at spot prices prevailing
at the time of sale. As of December 31, 1995, the Company had
sold forward 6,000 ounces of gold for delivery in 1996 at an average
price of $391 per ounce, bought put options for 3,000 ounces of gold
for delivery in 1996 at an average price of $395 per ounce and sold
3,000 ounces of offsetting call options at an average price of $420
per ounce.
During the year ended December 31, 1995, the Company sold approximately
86% of its gold production to Gerald Metals, Inc., located in Stamford,
Connecticut. During the year ended December 31, 1994, the Company sold
100% of its gold production to Prudential Securities Incorporated.
During the year ended December 31, 1993, the Company sold 100% of its
gold production to Johnson Matthey, Inc., located in Salt Lake City, Utah.
Due to the fungible nature of gold, the Company believes that other buyers
are readily available to purchase the Company's gold and, consequently,
that its reliance on a single customer does not represent a significant
risk to the Company's operations.
GOVERNMENT CONTROLS AND REGULATIONS
The Company's business is subject to extensive governmental
controls and regulations which are amended from time to time. The
Company is unable to predict what additional legislation or
amendments may be proposed that might affect its business or the
time at which any such proposals, if enacted, might become
effective. Such legislation or amendments, however, could require
increased capital and operating expenditures and could prevent or
delay certain operations by the Company. See "Risk Factors".
Outlined below are some of the more significant aspects of
governmental controls and regulations which materially affect the
Company's principal area of business.
Regulation of Mining Activity
All of the Company's operations, including its exploration,
development and production activities, are subject to regulation
under environmental laws, policies and regulations. These laws,
policies and regulations regulate, among other matters, emissions to
the air, discharges to water, management of waste, management of
hazardous substances, protection of natural resources, protection of
endangered species, protection of antiquities and reclamation of land.
The Company's operations are also subject to numerous other Federal,
state and local laws and regulations. At the Federal level, the mining
operations of the Company are subject to inspection and regulation by
the division of Mine Safety and Health Administration of the Department
of Labor ("MSHA") under provisions of the Federal Mine Safety and Health
Act of 1977. The Occupation and Safety Health Administration
("OSHA") also has jurisdiction over certain safety and health
standards not covered by MSHA.
The Company's existing mining operations and all future
exploration and development projects also require or will require a
variety of permits. Although the Company believes the permits for
these projects can be obtained in a timely fashion, permitting
procedures are complex, costly, time-consuming and subject to
potential regulatory delay. The Company does not believe that
existing permitting requirements or other environmental protection
laws and regulations will have a material adverse effect on its
business, financial condition or results of operations. However, the
Company cannot be certain that future changes in laws and
regulations would not result in significant additional expense, capital
expenditures, restrictions or delays associated with the development
and operation of the Company's properties. The Company cannot
predict whether it will be able to renew its existing permits or whether
material changes in existing permit conditions will be imposed. Non-
renewal of existing permits or the imposition of additional conditions
could have a material adverse effect on the Company's financial
condition or results of operations.
The State of Nevada (where a majority of the Company's
properties are located) adopted the Mined Land Reclamation Act (the
"Nevada Act") in 1989 that established design, operation, monitoring
and closure requirements for all mining facilities. The Nevada Act
has increased the cost of designing, operating, monitoring and
closing new mining facilities and could affect the cost of operating,
monitoring and closing existing mining facilities. The State of
Nevada has also adopted reclamation regulations pursuant to which
reclamation plans have been prepared and financial assurances
established for existing facilities. New facilities are also required to
provide a reclamation plan and financial assurance to ensure that the
reclamation plan is implemented upon completion of operations. The
Nevada Act also requires reclamation plans and permits for
exploration projects that will result in more than five acres of surface
disturbance.
The State of New Mexico (where Copper Flat is located) recently
enacted the 1993 New Mexico Mining Act (the "New Mexico Act"), a reclamation
statute applicable to most existing hard-rock and precious metals mines, as
well as to future exploration and mining projects in New Mexico. The New
Mexico Act requires, among other things, closure and reclamation of mines
and exploration projects. The closure and reclamation obligations
associated with mining operations are imposed upon the operator or
owner of the mining operation.
Environmental Regulations
Legislation and implementation regulations adopted or proposed
by the United States Environmental Protection Agency ("EPA"), the
Bureau of Land Management ("BLM") and by comparable agencies
in various states directly and indirectly affect the mining industry in
the United States. These laws and regulations address the
environmental impact of mining and mineral processing, including
potential contamination of soil and water from tailings discharges and
other wastes generated by mining companies. In particular,
legislation such as the Clean Water Act, the Clean Air Act, the
Federal Resource Conservation and Recovery Act ("RCRA"), the
Environmental Response, Compensation and Liability Act and the
National Environmental Policy Act require analyses and/or impose
effluent standards, new source performance standards, air quality
antimycin standards and other design or operational requirements for
various components of mining and mineral processing, including gold
ore mining and processing. Such statutes also may impose liability
on the Company for remediation of waste it has disposed.
The Company's gold mining and processing operations generate
large quantities of solid waste which is subject to regulation under
the RCRA and similar state laws. The majority of the wastes
produced by the Company's operations are "extraction" and
"beneficiation" wastes that EPA has determined not to regulate under
RCRA's "hazardous waste" program. Instead, the EPA is developing
a solid waste regulatory program specific to mining operations under
the 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 the
EPA must seek additional statutory authority, which is expected to
be requested in connection with Congress' reauthorization of RCRA.
The Company is also subject to regulations under (i) the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA" or "Superfund") 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 the Company of
these revisions is not clear at this time.
Environmental laws and regulations may also have an indirect
impact on the Company, such as increased cost for electricity due
to acid rains provisions of the Clean Air Act Amendments of 1990.
Charges by refiners to which the Company sells its metallic
concentrates and products have substantially increased over the past
several years because of requirements that refiners meet revised
environmental quality standards. The Company has no control over
the refiners' operations or their compliance with environmental laws
and regulations. If the refining capacity of the United States is
significantly reduced because of environmental requirements, it is
possible that the Company's operations could be adversely affected.
Moreover, the Clean Air Act Amendments mandate the
establishment of a Federal air permitting program, identify a list of
hazardous air pollutants, including various metals and cyanide, and
establish new enforcement authority. The EPA has published final
regulations establishing the minimum elements of state operating
permit programs. The states had until November 15, 1993 to submit
their permit programs to the EPA for review and approval. Until the
state regulations are promulgated and approved by the EPA, the full
impact of the new regulations on the Company cannot accurately be
predicted.
The Company believes that its operations are in substantial
compliance with Federal and state regulations and that no significant
capital expenditures for environmental control facilities will be
required in the near future. However, compliance with these
standards, laws and regulations may necessitate control measures
and expenditures which, if required, cannot be estimated at this time.
Compliance may require substantial prophylactic measures regarding
operation of new mines and mills or materially affect the proposed
schedule for construction of such facilities. Under certain
circumstances, construction of mining facilities may be stayed
pending regulatory approval. See "Risk Factors - Environmental
Controls."
GOLD MARKET
The profitability of the Company's current operations is
significantly affected by the market price of gold. Market gold prices
can fluctuate widely and are affected by numerous factors beyond
the Company's control, including industrial and jewelry demand,
expectations with respect to the rate of inflation, the strength of the
U.S. dollar (the currency in which the price of gold is generally
quoted) and of other currencies, interest rates, central bank sales,
forward sales by producers, global or regional political or economic
events and production costs in major gold-producing regions such as
South Africa and the former Soviet Union. In addition, the price of
gold sometimes is subject to rapid short-term changes because of
speculative activities.
The demand for and supply of gold affect gold prices, but not
necessarily in the same manner as supply and demand may affect
the prices of other commodities. The supply of gold consists of a
combination of new mine production and existing stocks of bullion
and fabricated gold held by governments, public and private financial
institutions, industrial organizations and private individuals. As the
amounts produced in any single year constitute a very small portion
of the total potential supply of gold, normal variations in current
production do not necessarily have a significant impact on the supply
of gold or on its price.
If the Company's revenue from gold sales falls for a substantial
period below its costs of production at any or all of its operations, the
Company could determine that it is not economically feasible to
continue commercial production at any or all of its operations.
The gold market generally is characterized by volatile prices and
strong competition. The volatility of gold prices is illustrated in the
following table of annual high, low and average gold fixing prices per
ounce on the London P.M. Fix:
<TABLE>
<CAPTION>
YEAR High Low Average
---- ---- --- -------
<S> <C> <C> <C>
1985 $341 $294 $317
1986 438 326 368
1987 500 390 446
1988 495 395 437
1989 416 356 381
1990 424 346 383
1991 403 344 362
1992 374 330 344
1993 406 326 360
1994 396 370 384
1995 396 372 384
Sources of Data: Metals Week
</TABLE>
On March 22, 1996, the afternoon fixing for gold on the London P.M. Fix
was $397.70 per ounce and the closing spot market price of gold on the New
York Commodity Exchange was $398.60 per ounce. Gold prices on both the
London P.M. Fix and the New York Commodity Exchange are regularly published
in most major financial publications and many nationally recognized
newspapers. See "Risk Factors - Fluctuations in Price of Metals."
RISK FACTORS
Reserves Estimates
The Company's reserves presented are estimates and no assurance can
be given that the indicated amount of metal will be recovered. See
"Production and Reserve Summary." Reserve estimates may require revisions
based on actual production experience. Fluctuations in the market price
of gold, as well as increased production costs or reduced recovery rates,
may render reserves containing relatively lower grades of mineralization
uneconomical to recover and may ultimately result in a restatement of
reserves.
Fluctuations in the Price of Metals
The market price of metals is extremely volatile and is influenced by
factors beyond the control of the Company. If the price of a metal should
drop, the value of the Company's properties which are being explored or
developed for that metal could also drop and the Company might not be able to
recover its investment in those properties. The decision to place a mine
in production, and the commitment of funds necessary for that purpose,
must be made well in advance of the time when a mining company will
receive the first revenues from that production. Price fluctuations between
the time that such a decision is made and the commencement of production can
dramatically change the economics of a mine. Although it is possible to
protect against price fluctuations under some circumstances by buying and
selling futures contracts for the metal to be produced, the volatility of
metal prices represents a substantial risk in the mining industry
which no amount of planning or technical expertise can estimate. The Company
has entered into future sales contracts and purchased put options in an
amount equal to approximately 20% of its projected gold production for 1996
at an average price of $392 per ounce.
If the amounts the Company realizes from the sales of its metals were
to decrease significantly and remain at a decreased price level for an
extended period of time, the Company could determine it is not economically
feasible to continue commercial production of that metal. From 1991 to
1993, the Company ceased its production activities because of depressed
metals prices during that period.
Proposed Legislation Affecting the Mining Industry
During the past three years, the United States Congress considered a
number of proposed amendments to the General Mining Law of 1872, as amended
(the "General Mining Law"), which governs mining claims and related
activities on Federal lands. In 1992, a holding fee of $100 per claim was
imposed upon unpatented mining claims located on Federal lands. Beginning
in October 1994, a moratorium on processing of new patent applications was
approved. In addition, a variety of legislation is now pending before the
United States Congress to amend further the General Mining Law. The
proposed legislation would, among other things, change the current patenting
procedures, impose royalties, and enact new reclamation, environmental
controls and restoration requirements. The royalty proposals range from a
2% royalty on net profits from mining claims to an 8% royalty on modified
gross income/net smelter returns. The extent of any such changes is not
presently known and the potential impact on the Company as a result of
future congressional action is difficult to predict. If enacted, the
proposed legislation could adversely affect the potential for development
of operating mines on the Federal unpatented mining claims held by the
Company. Kinsley and Griffon and portions of Olinghouse and Copper Flat
consist of unpatented mining claims on Federal lands. The Company's
financial performance could therefore be materially and adversely affected
by passage of all or pertinent parts of the proposed legislation.
Government Permits
The Company is seeking governmental permits for expansion or advanced
exploration activities at Copper Flat, Olinghouse and Griffon.
Obtaining the necessary governmental permits is a complex and time-consuming
process involving numerous Federal, state and local agencies. The duration
and success of each permitting effort are contingent upon many variables
not within the Company's control. In the context of environmental
protection permitting, including the approval of reclamation plans, the
Company must comply with known standards, existing laws and regulations
which may entail greater costs and delays depending on the nature
of the activity to be permitted and the interpretation of the regulations
implemented by the permitting authority. The failure to obtain certain
permits could have a material adverse effect on the Company's business
and operations.
Environmental Controls
The Company is required to comply with numerous environmental laws and
regulations imposed by Federal and state authorities. At the Federal level,
legislation such as the Clean Water Act, the Clean Air Act, the RCRA, the
Environmental Response, Compensation and Liability Act and the National
Environmental Policy Act impose effluent and waste standards, performance
standards, air quality and emissions standards and other design or operational
requirements for various components of mining and mineral processing,
including gold ore mining and processing. Although the majority of the
waste produced by the Company's operations are "extraction" and
"beneficiation" wastes, which the EPA does not regulate under its current
"hazardous waste" program, the EPA is currently developing a separate
program under the RCRA to regulate such waste. Until the new regulatory
program is formally proposed by the EPA, there is not a sufficient basis on
which to predict the potential impacts of such regulations on the Company.
Many states, including the State of Nevada (where a majority of the
Company's properties are located), have also adopted regulations that
establish design, operation, monitoring, and closing requirements for
mining operations. Under these regulations, mining companies are required
to provide a reclamation plan and financial assurance to insure that the
reclamation plan is implemented upon completion of mining operations.
Further, under the Clean Air Act, as amended, states are required to
develop permit plans for polluting and potentially polluting industries
such as mining and smelting. Although the states have submitted their
permit programs to the EPA for review, until final regulations are
promulgated and approved by the EPA, the Company cannot predict the
full impact of these state permitting regulations.
The Company's compliance with Federal and state environmental laws may
necessitate significant capital outlays or delays, may materially and
adversely affect the economics of a given property, or may cause material
changes or delays in the Company's intended exploration, development and
production activities. Further, new or different environmental standards
imposed by governmental authorities in the future could adversely affect
the Company's business activities.
Uncertainty of Title
A majority of the Company's properties consist of unpatented mining
claims or mill site claims which the Company owns or leases. These claims
are located on Federal land or involve mineral rights which are subject to
the claims procedures established by the General Mining Law of 1872.
Under this law, if a claimant complies with the statute and
the regulations for the location of a mining claim or mill site claim, the
claimant obtains a valid possessory right to the land or the minerals
contained therein. To preserve an otherwise valid claim, the claimant must
also make certain additional filings with the county in which the land or
mineral is situated and the BLM and pay an annual "rental" fee of $100 per
claim. If a claimant fails to make the annual rental payment or make the
required filings, the mining claim or mill site claim is void or voidable.
Because mining claims and mill site claims are self-initiated and self-
maintained rights, they are subject to unique vulnerabilities not associated
with other types of property interests. It is difficult to ascertain the
validity of unpatented mining claims or mill site claims from public property
records and, therefore, it is difficult to confirm that a claimant has
followed all of the requisite steps for the initiation and maintenance of a
claim. Under Federal law, in order for an unpatented mining claim to be
valid, the claimant has the burden of proving that the mineral occurrence
on which it is based can be mined at a profit at the time the claim is
located and at any time when anyone makes any subsequent challenge to the
claim's validity. It is therefore conceivable that, during times of falling
metal prices, claims which were valid when they were located could
become invalid if challenged. See "Risk Factors - Fluctuations in the
Price of Metals".
Title to unpatented claims and other mining properties in the western
United States typically involves certain other inherent risks due to the
frequently ambiguous conveyancing history of those properties, as well as
the frequently ambiguous or imprecise language of mining leases, agreements
and royalty obligations. No generally applicable title insurance is
available for unpatented mining or mill site claims or many other of the
Company's mineral interests. As a result, some of the titles to the
Company's properties may be subject to challenge.
Dependence on Key Personnel
The Company is dependent on the services of certain key officers,
including its: (1) Chairman of the Board, Chief Executive Officer, and
President; (2) Senior Vice-President and Chief Financial Officer; (3) Vice-
President of Engineering and Construction and (4) Vice-President of
Exploration. Competition in the mining industry for qualified individuals
is intense, and the loss of any of these key officers or employees, if not
replaced, could have a material adverse effect on the Company's business and
operations. The Company currently does not have key person insurance. The
Company has entered into employment agreements with its Chief Executive
Officer, Chief Financial Officer and Vice-President of Engineering and
Construction which provide for certain payments upon termination or
resignation resulting from a change in control of the Company or
termination without cause (as those terms are defined in such agreements).
COMPETITION
The Company competes with other mining companies in connection with the
acquisition of mining claims and leases on precious and base metals
properties and in connection with the recruitment and retention of quality
employees.
There is significant competition for the limited number of precious and
base metals acquisition opportunities in North America and elsewhere. As a
result of this competition, much of which is with companies with greater
financial resources than the Company, the Company may be unable to continue
to acquire attractive mining properties on terms it considers acceptable.
Since there is a world market for gold, the Company believes that no
single company has sufficient market power to affect the price or supply of
gold in the world market.
OTHER
The Company does not own any patents, trademarks, licenses, franchises or
concessions except for mineral interests granted by governmental authorities
and private land owners.
The Company's business is generally not seasonal in nature except to
the extent that weather conditions at certain times of the year may affect the
Company's access to its properties.
The Company had 108 full-time employees at December 31, 1995. None of the
Company's employees are covered by collective bargaining agreements. The
Company believes that relations with its employees are satisfactory.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Report of Independent Public Accountants 19
inancial Statements:
- - Balance Sheets as of December 31, 1995 and 1994 20
- - Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 22
- - Statements of Stockholders' Equity for
Years Ended December 31, 1995, 1994 and 1993 23
- - Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 24
- - Notes to Financial Statements 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders and
Board of Directors of Alta Gold Co.:
We have audited the accompanying balance sheets of Alta Gold Co. (a
Nevada corporation) as of December 31, 1995 and 1994, and the related
statements of operations, stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1995. These 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 the audit to
obtain reasonable assurance about 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. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Alta Gold Co. as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
March 25, 1996
ALTA GOLD CO.
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
(In thousands)
<TABLE>
<CAPTION>
ASSETS
-----
1995 1994
----- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 369 $ 471
Short-term investments - 262
Receivables 110 428
Inventories 4,251 3,806
Prepaid expenses and other 91 437
------ ------
Total current assets 4,821 5,404
PROPERTY AND EQUIPMENT, net
Mining properties and claims 18,550 18,399
Buildings and equipment 15,063 11,611
Construction in progress - 2,044
------ ------
33,613 32,054
Less - accumulated depreciation (8,049) (5,740)
------ -----
Total property and
equipment, net 25,564 26,314
DEFERRED MINE DEVELOPMENT
COSTS, net 9,178 6,308
OTHER ASSETS 836 429
------ ------
Total assets $ 40,399 $ 38,455
======== ========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
ALTA GOLD CO.
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,064 $ 2,205
Accrued liabilities 1,149 840
Current portion of long-term debt 2,920 4,750
------- -------
Total current liabilities 5,133 7,795
LONG-TERM DEBT, net of current
portion 3,297 4,256
DEFERRED INCOME TAXES 755 755
OTHER LONG-TERM LIABILITIES 826 1,711
------- -------
Total liabilities 10,011 14,517
------- -------
COMMITMENTS AND CONTINGENCIES
(Note 7 )
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value;
authorized 40,000,000 shares,
issued 28,452,780 and
27,950,851 shares, respectively 28 28
Additional paid-in capital 42,360 41,799
Accumulated deficit (12,000) (17,889)
------- -------
Total stockholders' equity 30,388 23,938
------- -------
Total liabilities and
stockholders' equity $40,399 $38,455
======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<TABLE>
<CAPTION>
ALTA GOLD CO.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands, except share and per share amounts)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
REVENUE:
Sales of gold and other metals $ 20,636 $ 10,696 $ 194
Management fees - - 16
-------- -------- ------
20,636 10,696 210
-------- -------- ------
OPERATING COSTS AND EXPENSES:
Direct mining, production,
reclamation and
maintenance costs 15,396 8,332 2,732
General and administrative 1,432 1,455 1,923
Exploration 30 260 1,353
-------- ------- ------
16,858 10,047 6,008
-------- ------- ------
Income (loss) from operations 3,778 649 (5,798)
OTHER INCOME (EXPENSE):
Gain on sale of assets 2,589 307 -
Loss on forward contract - (398) -
Interest and other income 167 279 1,313
Interest expense (645) (215) (586)
------- ------ ------
2,111 (27) 727
------- ------ ------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES AND
EXTRAORDINARY ITEM 5,889 622 (5,071)
PROVISION FOR INCOME TAXES - - -
------- ------- ------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 5,889 622 (5,071)
EXTRAORDINARY ITEM:
Gain on extinguishment of debt - 2,182 -
-------- ------- ------
NET INCOME (LOSS) $ 5,889 $ 2,804 $ (5,071)
======= ========= ==========
NET INCOME (LOSS) PER SHARE:
Income (loss) before
extraordinary item $ .21 $ .02 $ (.19)
Extraordinary item - .08 -
------- --------- ----------
Net income (loss) $ .21 $ .10 $ (.19)
======= ========= ==========
WEIGHTED-AVERAGE COMMON
SHARES OUTSTANDING 28,337,506 27,608,897 27,004,130
========= ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
ALTA GOLD CO.
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 26,925 $ 27 $ 39,864 $ (15,622) $24,269
Common stock issued
for compensation 82 1 44 - 45
Cancellation of shares (3) (1) (1) - (2)
Net loss - - - (5,071 (5,071)
------ ------ --------- --------- -------
Balance, December 31, 1993 27,004 27 39,907 (20,693) 19,241
Common stock issued
for compensation 44 - 50 - 50
Stock issued in conjunction
with acquisition of mining
properties and claims 903 1 1,842 - 1,843
Net income - - - 2,804 2,804
------ ------- ------- --------- ------
Balance, December 31, 1994 27,951 28 41,799 (17,889) 23,938
Common stock issued
for compensation 41 - 47 - 47
Contribution from
shareholder - - 14 - 14
Stock issued for
repayment of debt 461 - 500 - 500
Net income - - - 5,889 5,889
------- ----- ------- -------- -------
Balance, December 31, 1995 28,453 $ 28 $42,360 $(12,000) $30,388
======= ===== ======= ========= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<TABLE>
<CAPTION>
ALTA GOLD CO.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 5,889 $ 2,804 $ (5,071)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities-
Depreciation, depletion and
amortization 3,350 967 1,367
Net gain on sale of assets (2,589) (307) -
Gain on extinguishment of debt - (2,182) -
Stock issued for compensation
and other services 47 50 43
Interest expense on term loan payable
to Mase Westpac Ltd. - 194 570
Loss on forward copper delivery contracts - 398 -
Decrease (increase) in -
Short-term investments 262 701 (775)
Receivables 318 (128) 43
Inventories (445) (453) (34)
Prepaid expenses and other (61) (149) (66)
Increase (decrease) in-
Accounts payable (1,141) 978 564
Accrued and other liabilities (690) (701) (75)
----- ----- -----
Net cash provided by (used in)
operating activities 4,940 2,172 (3,434)
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,474) (8,677) (1,277)
Additions to deferred mine development costs (3,084) (1,692) (3,056)
Proceeds from sale of property and equipment 240 353 301
Proceeds from sale of royalty interest 2,425 - -
----- ----- -----
Net cash provided by (used in)
investing activities (1,893) (10,016) (4,032)
----- ------ -----
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<TABLE>
<CAPTION>
ALTA GOLD CO.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt settlement $ - $ 4,214 $ -
Proceeds from issuance of debt 5,853 1,000 -
Payments on debt (9,016) (147) (363)
Increase in restricted short-term
investments - (184) (503)
Contributions from shareholder 14 - -
----- ------- -----
Net cash provided by (used in)
financing activities (3,149) 4,883 (866)
----- ------- -----
NET DECREASE IN CASH AND
CASH EQUIVALENTS (102) (2,961) (8,332)
CASH AND CASH EQUIVALENTS:
Beginning of year 471 3,432 11,764
------- ------ -------
End of year $ 369 $ 471 $ 3,432
======= ====== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for-
Interest, net of amount capitalized $ 357 $ 13 $ 27
Income taxes $ 67 $ 18 $ -
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1995, the Company retired debt totaling
$500 through the issuance of common stock.
During the year ended December 31, 1995, the Company acquired equipment
totaling $761 through the issuance of debt.
During the years ended December 31, 1995 and 1994, the Company capitalized
interest of $113 and $59, respectively, on zero coupon debentures to
deferred mine development costs.
During the year ended December 31, 1994, the Company acquired mining
interests totaling $9,790 through the issuance of debt in the amount of
$7,947 and common stock valued at $1,843.
During the years ended December 31, 1994 and 1993, the Company transferred
gold in process totaling $1,229 and $1,710, respectively, from deferred
development costs to gold inventories.
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
ALTA GOLD CO.
NOTES TO FINANCIAL STATEMENTS
(1) THE COMPANY
-----------
Basis of Financial Statement Presentation
-----------------------------------------
The accompanying financial statements include the accounts of Alta Gold Co.
(the "Company"), which was incorporated in Nevada in 1962. The Company
is a mining company which explores, mines and processes on its own behalf
precious and base metal ores, including gold, silver, zinc, lead and
copper, on properties located in the western United States, and in turn
sells these precious metals to customers located in the United States.
Because of depressed metal prices, the Company's mining properties or
interests were not in production during the first six months of 1993.
During the years ended December 31, 1995, 1994, and 1993, the Company
sold approximately 86%, 100%, and 100%, respectively, of its gold
production to one company.
Easy Junior
-----------
The Company owns a 100% interest in the Easy Junior mine which is located
near Ely, Nevada. The mine was originally put into production in early 1990;
however, mining was suspended during the third quarter of 1990 due to
depressed gold prices, higher than anticipated operating costs and lower
than anticipated ore grades and recoveries. Production resumed in June
1993 and during the year ended December 31, 1993, approximately 485,000
tons of ore were mined and 8,751 ounces of gold were produced. Mining
operations were completed in the third quarter of 1994 with the exception
of crushing and leaching activities. Crushing activities were completed
in the first quarter of 1995 and leaching activities are anticipated to be
completed in 1996.
Kinsley
-------
On October 15, 1993, the Company entered into an option agreement with
Cominco American Resources Incorporated ("Cominco") and USMX, INC.
("USMX") to purchase a 100% interest in the Kinsley gold property, located
near Ely, Nevada, for a total purchase price of $3,000,000 consisting of
$2,000,000 cash and shares of common stock of the Company with a market
value of $1,000,000. On April 14, 1994, the Company exercised its option
and acquired the Kinsley gold property. The Company made an initial cash
payment of $1,000,000 (which included option payments of $50,000 made in
1993) and issued 420,683 shares of common stock which had a market value
of $500,000. The Company paid the remaining $1,000,000 in cash and issued
461,095 shares of common stock of the Company with a market value of
$500,000 on April 14, 1995 (see Note 4). Under provisions of the purchase
agreement, the market value of the Company's common stock was based on
the average closing price of the Company's stock for the 30 trading days
immediately preceding the issuance of the stock.
The shares issued in conjunction with the Kinsley acquisition are not
registered shares; accordingly, the shares are not subject to transfer
or sale. However, under a provision of the purchase agreement, the
sellers requested the Company to register the shares. All expenses
incurred with respect to any registrations will be borne by the Company.
Cominco and USMX have a right of first refusal with respect to future sales
or transfers of Kinsley interests to third parties as well as rights to
acquire a 25% working interest in the Kinsley gold property if gold
production exceeds 300,000 ounces and an additional 24% working interest if
gold production exceeds 500,000 ounces.
Copper Flat
-----------
On June 14, 1994, the Company acquired a 100% interest in the Copper Flat
project which is located in the Hillsboro Mining District, east of Silver
City, New Mexico, from Gold Express Corporation ("Gold Express") pursuant to
the terms and conditions of an option agreement dated October 21, 1993. In
addition to approximately $600,000 in option payments paid in 1993, the
purchase price for the Copper Flat property consisted of: (i) $800,000 in
cash, (ii) a 6% convertible subordinated debenture in the principal amount
of $1,500,000 due two years after the date of acquisition, (iii) a 6%
convertible subordinated debenture in the principal amount of $1,500,000
due four years after the date of acquisition, and (iv) a $4,000,000
subordinated zero coupon debenture due fourteen years after the date of
acquisition. Gold Express may convert both convertible subordinated
debentures into common shares of the Company at a conversion price of
$4.00 per share at any time prior to the complete redemption of such
convertible subordinated debentures.
Pursuant to the terms of the purchase agreement, the Company granted Gold
Express' a provisional copper production royalty, which provides for a
royalty based on 50% of the quantity of copper produced from the Copper Flat
property during a calendar quarter. The maximum amount of the royalty over
the life of the mine is $4,000,000 and any royalty payments made by the
Company will be credited, on a dollar for dollar basis, against the
principal amount owed under the $4,000,000 zero coupon debenture.
The Copper Flat project is subject to a reserved interest held by Gold
Express' predecessor in interest. The reserved interest required payments
of a 2-1/2 % net smelter return royalty until the earlier of project
payback or five years, a 5% net smelter return royalty thereafter, and
$150,000 in annual advanced royalties. Concurrent with the acquisition
of the interest in the Copper Flat project, the Company issued 375,000
restricted common shares of the Company to the owner of the reserved
interest in exchange for capping the net smelter return royalty at 2-1/2 %
during the life of the project. Under the terms of this agreement, the
Company is obligated to pay the owner of this reserved interest the
difference between $4.00 per share and the closing price, if less than
$4.00 per share, of the Company's common stock as of the second
anniversary date of the common stock issuance as multiplied by a maximum of
250,000 shares.
Olinghouse
----------
On July 21, 1994, the Company acquired a 100% interest in the Olinghouse
gold property, located 30 miles east of Reno, Nevada, from the Phelps Dodge
Mining Company for a total purchase price of $6,875,000 consisting of
$4,625,000 in cash and a promissory note in the amount of $2,250,000 which
was paid in July 1995.
Griffon
-------
Effective October 14, 1994, the Company acquired from Griffon Resources,
Inc. ("GRI") the Griffon gold deposit located near the Easy Junior mine.
Under the terms of the purchase agreement, the Company is required to make
annual holding payments of $40,830 through 1996 and pay production
royalties of $13.60 per ounce of gold for the first 50,000 ounces of
production and a maximum of $10.00 per ounce of gold on any subsequent
production.
In the event the property is not in production by October 1997, the purchase
agreement requires that the Company return the property to GRI at that time,
unless production is prevented by reasons of force majeure, including
governmental imposed delays.
Ward and Taylor Operations
--------------------------
The Company's main base metal property in Nevada is the Ward zinc mine
("Ward"). Production mining at Ward commenced in 1989 and the Company
began milling the Ward ore at the Taylor mill in 1990. The Company
suspended mining operations in March 1991 as a result of declining zinc
prices and higher than anticipated operating costs. The Taylor mill
continued operating in 1991 until the mined ore stockpiles were processed.
The Company plans to resume operations when silver and/or zinc prices
increase.
Robinson Copper Project
-----------------------
In January 1995, the Company sold its royalty interest in the Robinson
project for $2,425,000 in cash. The Company had previously owned a working
interest in the Robinson project through 1991. The royalty interest had no
book value at December 31, 1994, and accordingly, the Company recognized
a gain of $2,425,000 on the sale of assets which is included in the
accompanying 1995 statement of operations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Management's Use of Estimates
-----------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
-------------------------
For purposes of the balance sheets and statements of cash flows, the Company
considers all highly liquid investments with an original maturity of three
months or less to be cash equivalents. Such investments are carried at cost
which approximates market.
Inventories
-----------
Inventories of in-process mineral products and consumable supplies are
valued at the lower of cost (using the first-in, first-out method) or
market. Inventories of refined products are valued at market.
Inventories consist of the following as of December 31, 1995 and 1994 (in
thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Precious metals
Refined products $238 $ 7
In process 3,765 3,098
Consumable supplies 248 701
------ ------
$4,251 $3,806
====== ======
</TABLE>
Property and Equipment
----------------------
Property and equipment are recorded at cost. Costs incurred for additions,
improvements and betterments are capitalized as incurred. Depreciation is
calculated using the straight-line method over the estimated useful lives
(ranging from 3 to 15 years) of the related assets. Certain processing
buildings and equipment are depreciated using the units-of-production
method. Costs for maintenance and repairs are charged to expense or, if
the equipment is associated with a property under development, to deferred
development costs, as incurred.
Exploration/Deferred Mine Development Costs
-------------------------------------------
The Company expenses exploration costs incurred in finding areas of
mineralization. When an area of mineralization has been approved for
development, any further exploration costs are capitalized.
Deferred mine development costs are recorded at cost and amortized to
operations over the expected productive lives of the properties using the
units-of-production method based on estimated reserves. The recoverability
of deferred mine development costs is dependent upon future metals prices.
Whenever events or circumstances indicate that the carrying amount of the
deferred development costs may not be recoverable, the Company analyzes the
impact of these changes and their effect on the future cash flows of each
property. If the sum of the undiscounted future cash flows is less than the
carrying amount of each property, the Company's policy is to write the assets
down to their fair value.
The Company capitalizes interest costs associated with significant projects
which have been approved for development and for which development
activities are in process. Interest capitalized during the years ended
December 31, 1995 and 1994 totaled $286,000 and $264,000, respectively.
No interest was capitalized in 1993.
Reclamation Costs
-----------------
Minimum standards for mine reclamation have been established by various
governmental agencies which affect certain operations of the Company. The
Company accrues estimated reclamation costs during the property's productive
life based on estimated reserves using the units-of-production method.
Income Taxes
------------
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, Accounting for Income Taxes. SFAS No.
109 requires recognition of deferred income tax assets and liabilities for
the consequences of temporary differences between amounts reported for
financial and income tax purposes. SFAS No. 109 also requires the
recognition of future tax benefits of deferred tax assets related to net
operating loss carryforwards and certain other temporary differences to
the extent that realization of such deferred tax assets is more likely than
not; otherwise, a valuation allowance is applied.
Revenue Recognition
-------------------
The Company recognizes revenue for all sales of mineral products at the
point of transfer to the buyer. Sales of certain metal by-products are
accounted for as a reduction to direct mining and production costs.
Forward Sales and Option Contracts
----------------------------------
The Company has developed a hedging strategy to minimize the effects of
declines in the price of gold. The Company enters into forward sales and
other hedging transactions, including options, related to the future
production and sale of the Company's gold inventory. Forward sales and
purchased option contracts do not subject the Company's results of
operations to risk due to price movements because the gains and losses
on the contracts generally offset the underlying gold inventory being
hedged. Gains from option contracts are offset against the underlying
gold transactions and losses are limited to the premiums paid at the
outset of the contract. For written option contracts, the Company
receives a premium at the outset and then recognizes unrealized gains and
losses for any changes in the market value of the options as those
changes occur.
At December 31, 1995, the Company had forward gold delivery contracts
covering 6,000 ounces of 1996 gold production at an average price of
$391 per ounce. At December 31, 1995, the Company had purchased put
contracts for 3,000 ounces of gold at $395 per ounce. Also, the Company
had sold call contracts for 3,000 ounces of gold at $420 per ounce for
which the market price of these contracts approximated cost at December
31, 1995, resulting in a de minimis unrealized loss for the year ended
December 31, 1995. Both contracts come due at various dates in
January, February, and March 1996, and are with the same counter party.
During 1994, the Company entered into a forward delivery contract for the
March 1995 delivery of 1,250,000 pounds of copper at an average price of
$1.07 per pound. The market value of March 1995 copper delivery contracts
at December 31, 1994 was $1.38 per pound. The Company was not in copper
production at that time and, therefore, marked the contract to market and
recognized a loss of $398,000 which is included in other expense in the
accompanying 1994 statement of operations. This contract expired in March
1995.
Net Income (Loss) Per Share
---------------------------
Net income (loss) per share is computed based on the weighted-average
number of shares and common stock equivalents, if dilutive, actually
outstanding during the year. Common stock equivalents are the shares that
would be outstanding assuming exercise of dilutive stock warrants and options
and fulfillment of employee stock compensation agreements. No common
stock equivalents were included in the computations for the years ended
December 31, 1995 and 1994 as the exercise of the common stock equivalents
would not have a materially dilutive effect on net income per share. No
common stock equivalents were included in the computations for the year
ended December 31, 1993 because the effects were anti-dilutive.
Reclassifications
-----------------
Certain revisions and reclassifications have been made to the prior periods'
financial statements to conform with the current year presentation.
(3) DEFERRED MINE DEVELOPMENT COSTS
-------------------------------
Deferred mine development costs as of December 31, 1995 and 1994, are
summarized as follows by mining area (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Ward and Taylor $4,389 $4,389
Kinsley 1,148 863
Copper Flat 2,747 1,370
Olinghouse 2,005 737
Griffon 394 127
------- -------
10,683 7,486
Less-accumulated
amortization (1,505) (1,178)
------- -------
$9,178 $6,308
====== ======
</TABLE>
(4) LONG-TERM DEBT
--------------
Long-term debt as of December 31, 1995 and 1994 consists of the following
(in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Notes payable; interest at 16.1%; due at
various dates between April 1998 and June
1998; secured by equipment $ 673 $ -
Amount due under a bank credit facility;
interest at prime plus 2%; due September
1996; secured by equipment 1,125 -
6% Subordinated convertible debenture payable
to Gold Express; due June 14, 1996 1,500 1,500
6% Subordinated convertible debenture payable to
Gold Express; due June 14, 1998 1,500 1,500
Zero coupon $4,000,000 subordinated debenture
payable to Gold Express; discounted at an
imputed rate of 9%; due June 14, 2008 1,369 1,256
Note payable; interest at 10%; due September
1996; unsecured 50 -
Note payable to a bank; interest at 10.5%;
paid February 1995, secured by equipment - 500
Note payable to a bank; interest at 10%;
paid February 1995, unsecured - 500
Note payable to USMX and Cominco; non-interest
bearing; paid April 1995; secured by Kinsley
gold property - 1,500
Note payable to a corporation; interest at prime
plus 2%; paid July 1995, secured by Olinghouse
gold property - 2,250
------ ------
6,217 9,006
Less- current portion (2,920) (4,750)
----- -----
Total long-term debt $3,297 $4,256
====== ======
</TABLE>
The subordinated convertible debentures are convertible at the option of the
holder into common stock at any time prior to maturity or earlier
redemption at a conversion price of $4.00 per share of the Company's common
stock. The debentures may be prepaid and redeemed by the Company without
penalty or premium at any time prior to maturity. The debentures are
subject to a right of offset in the event that the Company suffers any
loss, cost, damage, injury or expense as a result of a breach by Gold
Express of any provision of the asset purchase agreement under which the
debentures were issued. The Company has identified several breaches made
by Gold Express and has notified Gold Express that it intends to exercise
this right of offset. The amounts involved and the ultimate resolution of
this matter have not yet been determined.
On September 18, 1995, the Company obtained a $1,500,000 reducing credit
facility from a bank. The maximum available credit under the credit
facility reduces by $375,000 on each of January 1, 1996, April 1, 1996,
and July 1, 1996. The remaining outstanding balance is due on September
30, 1996. The credit facility is secured by various equipment owned by
the Company and used at the Kinsley gold property.
The credit facility contains certain financial covenants requiring the
Company to maintain a specified level of cash flow coverage (defined as
the ratio of earnings before interest, taxes, depreciation, and
amortization to the sum of long-term debt plus interest expense). The
credit facility also contains covenants that impose various restrictions
on the ability of the Company to, among other things, incur additional
debt, commit funds to new business ventures, and pay dividends on or
repurchase the Company's common stock.
At December 31, 1995 and 1994, the fair market value of long-term debt
approximated cost.
Aggregate principal payments for the years ending December 31, are as
follows (in thousands):
Year Amount
---- ------
1996 $2,920
1997 288
1998 1,640
1999 -
Thereafter 1,369
------
$6,217
======
(5) INCOME TAXES
------------
The components of the net deferred tax asset (liability) as of December 31,
1995 and 1994, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $6,642 $ 6,652
Depreciation, depletion and amortization - 1,083
Reclamation and other reserves 59 936
Other 188 138
----- -------
7,428 8,809
Less - valuation allowance (6,985) (8,809)
------ ------
Total deferred tax assets 443 -
------ ------
Deferred tax liability
Depreciation, depletion and amortization (443) -
Alternative minimum taxes (755) (755)
---- ----
Net deferred income taxes $ (755) $ (755)
===== =====
</TABLE>
SFAS 109 requires the recognition of future tax benefits of deferred tax
assets related to net operating loss carryforwards and certain temporary
differences to the extent that realization of such benefit is more likely
than not; otherwise, a valuation allowance is applied. At December 31,
1995 and 1994, the Company determined that $6,985,000 and $8,809,000,
respectively, of previously unrecognized tax benefits did not satisfy the
recognition criteria set forth in the SFAS No. 109 because of the Company's
history of prior operating results, and therefore, a valuation allowance
was recorded to reserve the applicable deferred tax assets.
During the years ended December 31, 1995 and 1994, no income tax provision
was recognized due to utilization of net operating loss carryforwards.
During the year ended December 31, 1993, no income tax provision was
recorded because the Company generated net operating losses for both
income tax and financial reporting purposes.
The following is a reconciliation between the "expected" provision for
income taxes using the statutory Federal income tax rate (35%) and the
provision for income taxes for each of the three years ended December 31,
1995 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Computed "expected" provision
for income taxes at the
Federal statutory rate $2,061 $997 $(1,774)
Utilization of net operating loss
carryforwards (2,053) (1,005) -
Net operating loss - no
benefit recorded - - 1,774
Other (8) 8 -
------ ------ -------
Provision for income taxes $ - $ - $ -
======= ======= =======
</TABLE>
As of December 31, 1995, the Company had the following income tax
carryforwards available for income tax purposes (in thousands):
<TABLE>
<CAPTION>
Expiration
Dates Amounts
---------- -------
<S> <C> <C>
Federal regular tax
operating loss carryforwards 2005 to 2009 $18,987
Federal AMT operating
loss carryforwards 2007 $ 7,311
</TABLE>
(6) RECLAMATION AND ENVIRONMENTAL COSTS
-----------------------------------
The Company's mining exploration, development and operational activities are
subject to Federal, state and local laws and various governmental agency
regulations that require the Company to protect the environment. Failure to
comply with applicable laws and regulations can result in delays in
operations, injunctive actions and damages as well as civil and criminal
penalties. To the extent that planned production on its properties is
delayed, interrupted or discontinued because of regulation or the economics
of the properties, future earnings of the Company would be adversely
affected. The Company believes its operations are presently in substantial
compliance with applicable air and water quality laws and regulations. The
laws and regulations governing mining operations are continually changing
and generally are becoming more restrictive. Consequently the Company's
current estimates of its reclamation obligations and its current level of
expenditures to perform ongoing reclamation may change in the future. At
the present time, however, the Company cannot predict the outcome of
future regulation or its impact on costs.
Nonetheless, the Company has recorded its best estimate of future
reclamation and closure costs based on currently available facts and
technology and enacted laws and regulations, and has taken into
consideration the Company's estimate of the likely effects of inflation
and other societal and economic factors. Future reclamation and closure
costs consist of management's estimate of all costs necessary to reclaim
and close each property and do not include any anticipated benefits
to be realized from salvage values of assets currently used at the
properties. In determining its best estimate of future reclamation
and closure costs, the Company has given consideration to its prior
experience and the experience of other companies in reclaiming
and closing properties. As of December 31, 1995 and 1994,
the Company had recorded reserves of approximately $1,596,000 and
$2,088,000, respectively, for reclamation costs which are included in
accrued liabilities and other long-term liabilities in the accompanying
balance sheets.
Certain regulatory agencies, such as the Bureau of Land Management and the
Environmental Protection Agency, review the Company s reclamation and
environmental obligations and the Company believes its recorded amounts are
consistent with those reviews and bonding requirements. The Company
believes it has accrued all necessary reclamation costs and there are no
additional contingent losses on unasserted claims to be disclosed or
recorded in the reclamation liability. The Company has not disposed of
any properties for which it has a commitment or is liable for any known
environmental liabilities.
A portion of the Company's reclamation obligation relates to former mining
properties acquired by the Company. Since the Company does not have these
properties in production, the Company's policy of providing for future
reclamation and mine closure costs on the unit-of-production method has not
resulted in any significant annual expenses. For the obligations recorded
on these properties, actual expenditures for reclamation will occur over a
number of years. For properties currently in production, the Company has
taken extra precautions to minimize the possibility of chemical spills,
especially in its heap leaching operations. Leak detection systems, double
liner pads and soil neutralization to help prevent spills and to minimize
any adverse consequences resulting from a possible spill have been
installed pursuant to regulatory requirements and permits. The Company
does not believe that any significant capital expenditures to monitor
or reduce hazardous substances or other environmental impacts are currently
required. As a result, near term reclamation obligations are not expected
to have a significant impact on the Company's liquidity.
(7) COMMITMENTS AND CONTINGENCIES
-----------------------------
Litigation
----------
The Company is the subject of legal proceedings in various stages, which it
considers routine to its business activities. It is management's opinion
that these matters will not have a material adverse effect on the Company's
financial position or results of operations.
Royalty Agreements, Mineral Leases and Work Commitments
-------------------------------------------------------
Some of the Company's properties are subject to minimum royalties and
production royalties ranging from 1/2% to 6% of net smelter returns or gross
sales price, as defined. In addition, certain development properties are
subject to work commitments.
In conjunction with the acquisition of the Olinghouse gold property, the
Company assumed mineral leases for land on which most of the resource
occurs. Payments of mineral leases in 1995 totaled $267,000. The leases
require annual minimum payments of $431,000 in 1996, $452,000 in 1997,
$464,000 in 1998, $215,000 in 1999, $231,000 in 2000, and $2,564,000
thereafter. These minimum royalty payments, mineral leases and work
commitments are terminable upon notice by the Company and, therefore, are
not reflected as liabilities in the accompanying financial statements.
Operating Leases
----------------
Effective November 15, 1993, the Company entered into a lease for its
corporate headquarters in Henderson, Nevada. Under the terms of the lease,
the Company was required to make monthly rent payments in the amount of
$7,947, beginning February 14, 1994. Effective March 1, 1995, and every
anniversary date thereafter, the monthly rental payment will increase based
on the increase in the consumer price index, with each annual increase to
be no less than 4% and no more than 8%. Rental expense was $100,000 for
the year ended December 31, 1995. Minimum rental payments under the lease
are $104,000 and $108,000 for the years ending December 31, 1996 and 1997,
respectively.
Insurance Coverage
------------------
The Company carries insurance against property damage, including boiler and
machinery insurance, and also comprehensive general liability, including
liability policies applicable to motor vehicles. The Company is also
insured against dishonesty and gold and silver bullion losses, as well as
losses of products in transit. The Company has elected not to insure
against business interruption during 1995. The Company cannot economically
insure for environmental pollution and has elected not to insure for mine
cave-ins, mine flooding, earthquake and other possible natural hazards
consistent with industry practice.
(8) STOCKHOLDERS' EQUITY
--------------------
Stock Warrants
--------------
During 1990, the Company entered into stock subscription agreements with
individuals who agreed to purchase restricted shares of the Company's common
stock. Under the terms of these agreements, the Company issued 267,100
shares of restricted common stock and simultaneously issued warrants to
purchase an additional 267,100 shares of restricted common stock at $3.00
per share. These warrants expired June 30, 1995.
During 1990, the Company also issued 268,356 additional warrants to purchase
shares of its common stock at exercise prices ranging from $3.90 to $4.54
per share to other third parties in connection with certain financing
transactions. These warrants expired January 5, 1994.
On November 1, 1995, the Company issued 50,000 warrants to purchase shares
of its common stock at an exercise price of $2.00 per share to an investment
company in connection with a short-term note payable (see Note 4). These
warrants are immediately exercisable and expire November 1, 1998.
The following table summarizes all stock warrants granted, exercised and
canceled or expired during the three years in the period ended December 31,
1995:
<TABLE>
<CAPTION>
Number Exercise Expiration
of Shares Prices Dates
--------- --------- -----------
<S> <C> <C> <C>
Outstanding, December 31, 1992 535,456 $3.00 to $4.54 1994 to 1995
Canceled or expired -
--------
Outstanding, December 31, 1993 535,456 $3.00 to $4.54 1994 to 1995
Canceled or expired (268,356) $3.90 to $4.54 1994
--------
Outstanding, December 31, 1994 267,100 $3.00 1995
Issued 50,000 $2.00 1998
Canceled or expired (267,100) $3.00 1995
-------
Outstanding, December 31, 1995 50,000 $2.00 1998
=======
</TABLE>
Stock Compensation Agreements
------------------------------
During the years ended December 31, 1995, 1994 and 1993, the Company issued
40,834, 44,166 and 82,000 shares, respectively, of its restricted common
stock to directors as directors' compensation.
Stock Options
-------------
In 1991 and 1992, the Company entered into a four-year and a three-year
employment agreement with its Chairman and Chief Executive Officer ("CEO")
and its Chief Financial Officer ("CFO"), respectively. As an employment
signing bonus, the Company granted the CEO and CFO options to purchase
500,000 and 80,000 shares of common stock, respectively, at a price of
$.75 per share. The options become exercisable ratably
over a four-year period and remain exercisable for a period of ten years.
During 1995, the Company entered into three-year employment agreements with
the CEO, CFO, and the Vice President of Engineering and Construction. Under
the terms of the employment agreements, the three officers were granted
options to purchase 375,000, 120,000, and 90,000 shares of common stock,
respectively, at a price of $.75 per share. The options become
exercisable ratably over a three-year period and remain exercisable over a
period of ten years. As of December 31, 1995, the CEO and CFO have
options to purchase 500,000 and 60,000 shares of common stock, respectively,
which are exercisable.
On March 28, 1995, the Company granted Gerald Metals an option to purchase
150,000 shares of common stock at a price of $1.03 per share in
consideration for, and as part of, an agreement between the two companies
for precious metal sales and hedging activities. The option became
exercisable immediately and may be exercised over a five-year period from
the grant date.
1994 Stock Option Plan
----------------------
On June 3, 1994, the Company's stockholders approved the 1994 Stock Option
Plan (the "Plan"). Under the Plan, all employees of the Company, as well as
persons who perform substantial services for or on behalf of the Company,
are eligible to receive options to purchase shares of the Company's common
stock. The Company reserved 1,000,000 shares of common stock for issuance
under the Plan and the Company s Board of Directors were authorized to
establish a committee (the "Committee") to administer all aspects of the
Plan, including selection of people to receive options, the number of
options to be issued (up to a maximum of 1,000,000) and the establishment
of the general terms of each option issued.
On June 16, 1994, the Committee issued 722,000 options to various key
individuals. All options issued are exercisable at $1.34 per share (the
closing price of the Company's common stock as of the date of grant) and
are exercisable over a ten-year period, and fully vest over periods ranging
from two to four years.
During 1995, 55,000 of the options issued in June 1994 under the Plan were
canceled. The Company also issued an additional 333,000 options under the
plan which are exercisable at $1.72 per share (the closing price of the
Company's stock as of the date of the grant) and are exercisable over a
ten-year period, and fully vest over periods ranging from one to four years.
(9) EMPLOYEE BENEFIT PLAN
---------------------
The Company has a deferred compensation plan pursuant to Section 401(k) of
the Internal Revenue Code for regular full-time employees who have reached
the age of 21 and completed one year of service. The Company's
contributions to the plan are at the discretion of the Company's Board of
Directors. It has been the Company's policy to match the employee's
voluntary salary deferrals at the rate of 100 percent to a maximum of
five percent of pay. Amounts expensed under the plan for the years ended
December 31, 1995, 1994 and 1993 totaled $118,926, $110,740 and $69,504,
respectively.
(10) RELATED PARTY TRANSACTIONS
--------------------------
During the year ended December 31, 1993, the Company provided loans to the
CEO and a former Secretary for relocation expenses in the amounts of
$125,250 and $86,200, respectively. At December 31, 1994 and 1993, the
outstanding balance, including accrued interest thereon, on the loan to the
CEO was $134,832 and $127,300, respectively. The loan to the former
Secretary was paid in full during 1993 and the loan to the CEO was paid in
full during 1995. During 1994, the Company provided a loan to the CFO for
relocation expenses in the amount of $125,000; the loan was paid in full
during 1994.
At December 31, 1995 and 1994, the Company had accrued Directors'
compensation totaling approximately $101,000 and $50,000, respectively.
The three-year employment agreements with the CEO, CFO, and Vice President
of Engineering and Construction provide for an annual salary (including
increases), incentive compensation, benefits and stock options (see Note 8).
The agreements also include termination and anti-takeover provisions which
provide for a payment to the three officers based on prior compensation,
in the event of a change in control of the Company.
During 1995, a director of the Company purchased shares of the Company's
common stock on the open market and sold those shares at a profit within six
months of the purchase, in violation of SEC regulations. In accordance with
Section 16(b) of the Securities and Exchange Act of 1934, the profits of
$14,000 were turned over to the Company. The Company credited additional
paid-in capital and the amount is shown as a contribution from shareholder
in the accompanying statements of stockholders' equity and cash flows.
(11) DEBT EXTINGUISHMENT
-------------------
On February 21, 1991, Mase Westpac, Ltd. ("Mase"), one of the Company's
former bank lenders, filed an action to recover the entire balance under a
revolving credit agreement and for a preliminary and permanent injunction
restraining the Company from violating the covenants in the revolving credit
agreement. Subsequently, the Company filed a countersuit against Mase
seeking a declaratory judgment that the Company was not in default under
the revolving credit agreement and alleging breach of contract, economic
duress and interference with contractual relations and perspective economic
advantage and certain Federal RICO (Racketeer Influenced and Corrupt
Organizations Act) violations.
On May 23, 1994, the Company entered into a settlement with Mase and
related parties which resulted in the full and complete settlement of any
and all litigation and claims. Under the terms of the settlement, the
Company released to Mase the entire balance held in a litigation escrow
fund having an estimated value of approximately $16,200,000 in exchange
for a cash payment of $4,500,000 plus Mase's release of claims of
approximately $14,200,000 in amounts owed under the revolving credit
agreement. As a result of the settlement, the Company realized an
extraordinary gain from the extinguishment of debt of $2,182,000.
Because of Federal regular tax and AMT net operating loss carryforwards, no
provision for income taxes was recognized. A contractual contingency fee
in the amount of approximately $206,000 was paid to a former CEO of the
Company in connection with the settlement and included in the gain
realized from the settlement.
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, on May 31, 1996.
ALTA GOLD CO.
By: /s/ Robert N. Pratt
-------------------
Robert N. Pratt, Chairman of the Board,
Chief Executive Officer, President and
Director
