SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
(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, 1996, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the transition period
from __________ to __________.
Commission file number 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 as of March 21, 1997, based on the
closing bid price as reported on the Nasdaq National Market of
$3 7/8, was approximately $102,298,547.
The number of shares outstanding of the Registrant's Common
Stock as of March 21, 1997 was 29,037,762.
DOCUMENTS INCORPORATED BY REFERENCE:
The information required by Part III of this Report is
incorporated by reference from Alta Gold Co.'s Proxy Statement
for the 1997 Annual Meeting of Stockholders to be filed with the
Commission not later than 120 days after the end of the fiscal
year covered by this Report.
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TABLE OF CONTENTS
PART I 1
ITEMS 1.
AND 2. BUSINESS AND PROPERTIES 1
ITEM 3. LEGAL PROCEEDINGS 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 22
PART II 23
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 23
ITEM 6. SELECTED FINANCIAL DATA 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 50
PART III 50
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 50
ITEM 11. EXECUTIVE COMPENSATION 50
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 50
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 50
PART IV. 50
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 50
SIGNATURES 54
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PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF
THE SECURITIES EXCHANGE ACT OF 1934 PROVIDE A "SAFE HARBOR" FOR
FORWARD-LOOKING STATEMENTS. CERTAIN INFORMATION INCLUDED HEREIN
CONTAINS STATEMENTS THAT ARE FORWARD-LOOKING, SUCH AS STATEMENTS
REGARDING MANAGEMENT'S EXPECTATIONS ABOUT THE COMPANY'S RESERVES,
TIMING OF RECEIPT OF GOVERNMENT PERMITS, PLANNED DATES FOR
COMMENCEMENT OF MINING OPERATIONS AND GOLD PRODUCTION AT THE
COMPANY'S MINING PROPERTIES, ANTICIPATED DRILLING AND RECLAMATION
EXPENDITURES AS WELL AS OTHER CAPITAL SPENDING, FINANCING SOURCES
AND THE EFFECTS OF REGULATION. SUCH FORWARD-LOOKING INFORMATION
INVOLVES IMPORTANT RISKS AND UNCERTAINTIES THAT COULD
SIGNIFICANTLY AFFECT ANTICIPATED RESULTS IN THE FUTURE AND,
ACCORDINGLY, SUCH RESULTS MAY DIFFER FROM THOSE EXPRESSED IN ANY
FORWARD-LOOKING STATEMENTS MADE HEREIN. THESE RISKS AND
UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, THOSE RELATING TO
THE MARKET PRICE OF METALS, PRODUCTION RATES, PRODUCTION COSTS,
THE AVAILABILITY OF FINANCING, THE ABILITY TO OBTAIN AND MAINTAIN
ALL OF THE PERMITS NECESSARY TO PUT AND KEEP PROPERTIES IN
PRODUCTION, DEVELOPMENT AND CONSTRUCTION ACTIVITIES AND
DEPENDENCE ON EXISTING MANAGEMENT. SEE "- RISK FACTORS."
GENERAL
Alta Gold Co. (the "Company") is engaged in the exploration,
development, mining and production of gold on properties located
in Nevada. The Company also has three base metals properties in
the western United States which are in various stages of
development. The Company operates solely in the metals mining
industry segment. 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 principal executive offices are located at 601
Whitney Ranch Drive, Suite 10, Henderson, Nevada 89014, and its
telephone number is (702) 433-8525.
HISTORY
In 1991, the Company ceased mining activities because of
higher than expected mining costs, and lower than anticipated ore
grades and recoveries, as well as declining gold prices.
Following a change in management and the implementation of a new
mining plan, the Company resumed mining in 1993 at the Easy
Junior mine ("Easy Junior") located near Ely, Nevada. In 1994,
the Company acquired three gold properties, the Kinsley mine
("Kinsley") located in Elko County, Nevada, the Olinghouse
property ("Olinghouse") located in Washoe County, Nevada, and the
Griffon property ("Griffon") located in White Pine County,
Nevada, and one copper property, the Copper Flat property
("Copper Flat") located in Sierra County, New Mexico. Kinsley
was permitted, developed and put into operation in October 1994,
and the Company completed mining all reserves at Easy Junior in
August 1994.
In 1995, the Company (i) produced 53,063 ounces of gold at
Easy Junior and Kinsley; (ii) continued mining activities at
Kinsley; (iii) continued permitting and development drilling at
Olinghouse and Griffon, (iv) continued permitting at Copper Flat;
and (v) sold its remaining royalty interest in a copper property.
In 1996, the Company (i) produced 49,486 ounces of gold at Easy
Junior and Kinsley; (ii) completed gold processing at Easy
Junior; (iii) continued mining activities Kinsley; (iv) continued
permitting, development drilling and mine planning at Olinghouse,
as well as preparing a feasibility study; (v) continued
permitting and mine planning at Griffon; (vi) continued
permitting at Copper Flat; (vii) acquired control of the
Excalibur property ("Excalibur") located in Mineral County,
Nevada; and (viii) entered into an agreement giving the Company
an option to acquire a 50% interest in, and right to manage, the
Osceola property ("Osceola") located in White Pine County,
Nevada.
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[Map of mining properties in Nevada and New Mexico]
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OPERATING PROPERTY
KINSLEY
BACKGROUND AND HISTORY. Kinsley is located approximately 80
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.
PROPERTY INTERESTS. At Kinsley, the Company controls 204
unpatented and five patented mining claims covering approximately
4,300 acres. See "- Risk Factors - Uncertainty of Title." The
patented mining claims covering approximately 100 acres are held
pursuant to a mineral lease with a third party, which lease
expires no sooner than 2001; provided, however, that the lease
may be terminated at any time upon notice by the Company.
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 multiple
ore bodies, including the Main, Upper and West Ridge deposits.
Mineralization is fine grained and readily amenable to heap
leaching.
RESERVES. Based upon the Company's reserve report prepared
by Pincock Allen & Holt ("PAH") dated March 14, 1997 (the "PAH
Report"), Kinsley had proven and probable reserves at
December 31, 1996 of 1,914,000 tons at an average grade of 0.033
ounces per ton gold, containing 63,200 ounces of gold, with an
estimated stripping ratio of 1.8:1. See "- Reserves" and "- Risk
Factors - Reserves Estimates."
HISTORIC DRILLING. Prior to the Company's acquisition of
Kinsley, Cominco American Resources Incorporated and USMX, Inc.
and their predecessors in interest drilled 497 reverse
circulation drill holes (approximately 119,150 feet). During the
Company's due diligence program prior to acquiring Kinsley and
subsequently thereafter, the Company drilled (i) 18 reverse
circulation drill holes (approximately 2,915 feet) and seven core
holes (approximately 944 feet) in 1993; (ii) 29 reverse
circulation drill holes (approximately 4,720 feet) in 1994; (iii)
51 reverse circulation drill holes (approximately 8,540 feet) in
1995; and (iv) 387 reverse circulation drill holes (approximately
73,655 feet) in 1996.
FUTURE DRILLING. Subject to the receipt of adequate
financing, the Company plans to drill approximately 200
additional reverse circulation drill holes (approximately 50,000
feet) in 1997 at an estimated cost of approximately $0.7 million.
No assurance can be given that the Company will be able to obtain
the financing necessary to fund these costs. See "- Risk Factors
- - Uncertainty of Funding" and "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
PERMITTING. In accordance with government regulations, all
permits necessary to develop and operate Kinsley were received in
1994, prior to the commencement of site development and mining.
WATER RIGHTS. The State of Nevada granted to the Company an
appropriation to divert and use water in an amount which
management believes is sufficient for its operations at Kinsley.
DEVELOPMENT, 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 is being conducted in numerous open pits utilizing
conventional open pit methods. Operations are conducted over
ten- to twelve-hour shifts on a seven-day per week 24-hour per
day 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 adequate working condition.
In 1995 and 1996, the Company mined 1,267,660 and 1,853,196
tons of ore, respectively, with an average grade of 0.0517 and
0.0322 ounces per ton gold, respectively, and produced 40,667 and
44,552 ounces of gold,
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respectively. Based upon the PAH Report, mining activities at
Kinsley are expected to continue at least through the end of
1997, and gold production from heap leaching and pad rinsing is
expected to continue in declining amounts from 1998 through at
least mid-1999.
RECLAMATION. The Company is conducting reclamation on a
continuous basis; however, most of the reclamation, including
re-contouring, revegetation, building removal and pad rinsing,
will not commence until mining and processing are completed.
Based on the present area of disturbance and the reclamation plan
for Kinsley, the Company presently estimates that the cost of
such reclamation will be approximately $0.3 million, of which
$0.2 million has been accrued as of December 31, 1996.
DEVELOPMENT PROPERTIES
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.
PROPERTY INTERESTS. At Olinghouse, the Company controls 238
unpatented and 11 patented mining claims covering approximately
4,300 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 of the patented mining claims are held under eight
mineral leases with various third parties. Four of the mineral
leases contain purchase options, one of which has been exercised.
The earliest expiration date of the mineral leases with respect
to which annual minimum payments do not result in automatic
exercise of a purchase option is 2032; provided, however, that
each of the leases, except for the lease as to which the purchase
option has been exercised, may be terminated at any time upon
notice by the Company. Six of the mineral leases carry net
smelter return royalties. All of the mineral leases require
annual minimum payments.
GEOLOGY. Gold occurs in a series of at least ten
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
20-150 feet, and over strike lengths of greater than 1,000 feet.
RESERVES. Based upon the PAH Report, Olinghouse had proven
and probable reserves as of December 31, 1996 of 22,751,000 tons
of ore at an average grade of 0.029 ounces per ton gold,
containing 662,200 ounces of gold, with an estimated stripping
ratio of 3.2:1. See "- Reserves" and "- Risk Factors - Reserves
Estimates."
The Company has completed an extensive soil sampling program
within the property position defining a number of moderate to
high-magnitude anomalies which mimic the known reserves and its
extensions and follow a series of parallel structures. Drilling
in some of these parallel structures has intersected ore grade
gold mineralization but the size of these mineral deposits has
not been delineated. Many of the soil anomalies have not yet
been tested.
Ore reserves composites were capped by PAH in the PAH Report
at 0.4 ounces per ton gold to minimize the influence of high
grade intervals. In addition, exceptionally high grade intervals
intersected in the core drilling program were excluded entirely
from the reserves calculation in order to eliminate the
possibility of imparting a positive bias on the data.
HISTORIC DRILLING. Prior to the Company's acquisition of
Olinghouse, Phelps Dodge Mining Company drilled 57 reverse
circulation drill holes (approximately 34,695 feet) and seven
core holes (approximately 6,507 feet). During the Company's due
diligence program prior to acquiring Olinghouse and subsequently
thereafter, the Company drilled (i) 30 reverse circulation drill
holes (approximately 10,265 feet) in 1994; (ii) 124 reverse
circulation drill holes (approximately 52,327 feet) in 1995; and
(iii) 396 reverse circulation drill holes (approximately 187,420
feet) and six core holes (approximately 1,181 feet) in 1996.
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FUTURE DRILLING. Subject to the receipt of adequate
financing, the Company plans to drill approximately 300
additional shallow reverse circulation drill holes (approximately
125,000 feet) and two deeper reverse circulation drill holes
(approximately 6,000 feet) in 1997 at an estimated cost of
approximately $3.0 million. The Company's 1996 drilling program
focused on defining the limits of the Payback Pit so that a mine
plan could be developed and production could begin in 1997. The
Company's 1997 drilling program will be focused on identifying
possible new ore bodies at Olinghouse. No assurance can be given
that the Company will be able to obtain the financing necessary
to fund these costs. See "- Risk Factors - Uncertainty of
Funding" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources."
PERMITTING. The Company submitted its Plan of Operation in
March 1996, and a draft Environmental Impact Statement ("EIS") is
expected to be issued early in the second quarter of 1997. A
Record of Decision is expected to be received in the second or
third quarter of 1997. The Storm Water Discharge permit was
received in December 1996 and the Water Pollution Control and Air
Quality permits are expected to be received in the second quarter
of 1997. In addition, because jurisdictional waters of the
United States exist on a small portion of Olinghouse, the Company
must obtain a Section 404 permit from the Army Corps of
Engineers, which permit is expected to be received in the second
quarter of 1997. The Company anticipates spending approximately
$1.4 million for permitting and property holding costs at
Olinghouse in 1997. No assurance can be given that the Company
will receive the necessary government permits in a timely manner,
or without conditions which would materially and adversely impact
the project. See "- Risk Factors - Government Permits and
Project Delays."
WATER RIGHTS. The State of Nevada granted to the Company an
appropriation to divert and use water in an amount which
management believes is sufficient for its initial operations at
Olinghouse. In addition, the Company has applied for a water
appropriation from the State of Nevada in an amount which
management believes will be sufficient for all anticipated future
operations at Olinghouse. The comment period on this application
has expired, and the Company anticipates that the State of Nevada
will grant the appropriation.
DEVELOPMENT PLAN. Subject to the receipt of adequate
financing and the necessary government permits, the Company plans
to begin site development and mining at Olinghouse in the second
or third quarter of 1997. Mining is scheduled to begin initially
in the Green Hill orebody and thereafter in the Payback Pit
utilizing conventional open pit methods. Operations are expected
to be conducted over ten-to-twelve-hour shifts on a seven-day per
week 24-hour per day schedule. Higher grade ore will be
initially processed through a gravity separation mill and
subsequently agglomerated and processed through conventional heap
leaching. Lower grade ore will be processed solely through
conventional heap leaching. The mine plan contemplates using a
fleet of front-end loaders coupled with 85-ton haul trucks
working on 20-foot benches. The Company is presently in the
process of obtaining price quotations for the required equipment.
The Company has also retained PAH to conduct a feasibility study
for Olinghouse, which study is expected to be completed early in
the second quarter of 1997.
Subject to the receipt of adequate financing and the
necessary government permits, the Company anticipates spending
approximately $17.5 million at Olinghouse in 1997 for site
development and equipment and an additional $2.1 million for
project working capital. No assurance can be given that the
Company will be able to obtain the financing necessary to fund
these costs or receive the necessary government permits in a
timely manner, or without conditions which would materially and
adversely impact the project. See "- Risk Factors - Uncertainty
of Funding" and "- Risk Factors - Government Permits and Project
Delays" and "Item 7. Management's Discussion of Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources."
RECLAMATION. Until the Company begins site development and
mining, the Company's only reclamation obligation involves the
recontouring of drill roads and drill sites, the cost of which is
minimal.
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GRIFFON
BACKGROUND AND HISTORY. Griffon is located approximately 46
miles southwest of Ely, Nevada, and is accessed principally by
paved and unpaved public roads. The Company acquired the
property in October 1994 from Griffon Resources, Inc. ("GRI").
PROPERTY INTERESTS. At Griffon, the Company controls 113
unpatented mining claims covering approximately 2,400 acres. See
"- Risk Factors - Uncertainty of Title." Pursuant to the terms
of the acquisition agreement under which Griffon was acquired,
the Company is required to make certain royalty payments to GRI.
In addition, 50 unpatented mining claims (representing all proven
and probable reserves at Griffon) on approximately 1,000 acres
must be reconveyed to GRI in the event that Griffon is not in
production by October 1, 1997 for reasons other than "force
majeure," which term as defined includes any government-imposed
delays. As of December 31, 1996, the Company had invested $0.9
in Griffon. As of the date hereof, the Company believes it has
completed all studies and investigations necessary to obtain, and
has made application for, all material permits necessary to place
Griffon into production by October 1, 1997. Although the Company
currently anticipates receiving the necessary permits by the
second quarter of 1997, no assurance can be given that the
Company will receive such permits in a timely manner, or without
conditions which would materially and adversely impact the
project. See "- Risk Factors - Government Permits and Project
Delays."
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 1,000 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 upon the PAH Report, Griffon had proven and
probable reserves at December 31, 1996 of 2,737,000 tons of ore
at an average grade of 0.025 ounces gold per ton, containing
68,400 ounces of gold, with an estimated stripping ratio of
0.56:1. See "- Reserves" and "Risk Factors - Reserves
Estimates."
HISTORIC DRILLING. Prior to the Company's acquisition of
Griffon, GRI and its predecessors in interest drilled 74 reverse
circulation drill holes (approximately 28,334 feet) and one core
hole (approximately 523 feet). During the Company's due
diligence program prior to acquiring Griffon and subsequently
thereafter, the Company drilled (i) 40 reverse circulation drill
holes (approximately 7,430 feet) in 1994; (ii) 49 reverse
circulation drill holes (approximately 8,065 feet) in 1995; and
(iii) ten reverse circulation drill holes (approximately 3,130
feet) in 1996.
FUTURE DRILLING. Subject to the receipt of adequate
financing, the Company plans to drill approximately 100 reverse
circulation drill holes (approximately 22,000 feet) in 1997 at an
estimated cost of approximately $0.4 million. No assurance can
be given that the Company will be able to obtain the financing
necessary to fund these costs. See "- Risk Factors - Uncertainty
of Funding" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources."
PERMITTING. The draft EIS was published in December 1996,
and a Record of Decision is expected to be received in the second
or third quarter of 1997. The Water Pollution Control, Air
Quality, Storm Water Discharge and Section 404 permits are
expected to be received either early in the second quarter of
1997 or concurrently with the Record of Decision. See "- Risk
Factors - Government Permits and Project Delays." The Company
anticipates spending approximately $0.1 million for permitting
and property holding costs in 1997. No assurance can be given
that the Company will receive the necessary government permits in
a timely manner, or without conditions which would materially and
adversely impact the project. See "- Risk Factors - Government
Permits and Project Delays."
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WATER RIGHTS. The Company has applied for a water
appropriation from the State of Nevada in an amount which
management believes will be sufficient for its operations at
Griffon. The comment period on this application has expired, and
the Company anticipates that the State of Nevada will grant the
appropriation.
DEVELOPMENT PLAN. Subject to the receipt of adequate
financing and the necessary government permits, the Company plans
to begin development and mining at Griffon in the second or third
quarter of 1997. Griffon is anticipated to have a mine life of
approximately two years. Mining will be conducted utilizing
conventional open pit methods on both the Discovery Ridge and
Hammer Ridge deposits. Operations are expected to be conducted
over ten-to-twelve-hour shifts on a five-day per week 20-hour per
day schedule and on single shifts on the weekends. Ore will be
processed through conventional heap leaching. The mine plan
contemplates using a fleet of front-end loaders coupled with
50-ton haul trucks working on 15-foot benches. Most of the
equipment that will be used will come from Easy Junior or out of
inventory and is in adequate condition.
Subject to the receipt of adequate financing and the
necessary government permits, the Company anticipates spending
approximately $4.6 million for site development and equipment and
an additional $1.3 million for project working capital at Griffon
in 1997. No assurance can be given that the Company will be able
to obtain the financing necessary to fund all of these costs or
receive the necessary government permits in a timely manner, or
without conditions which would materially and adversely impact
the project. See "- Risk Factors - Uncertainty of Funding" and
"- Government Permits and Project Delays" and "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
RECLAMATION. Until the Company begins site development and
mining, the Company's only reclamation obligation involves the
recontouring of drill roads and drill sites, the cost of which is
minimal.
EXCALIBUR
BACKGROUND AND HISTORY. Excalibur is located approximately
20 miles southwest of the town of Mina, in Mineral County, Nevada
and approximately 120 miles southeast of Reno, Nevada, and is
accessed by paved and unpaved public roads. In October 1996, the
Company initially entered into a mineral lease with an
independent geologist for six unpatented claims at Excalibur and
has since staked an additional 33 unpatented mining claims.
PROPERTY INTERESTS. At Excalibur, the Company controls 39
unpatented mining claims covering approximately 800 acres. Six of
the unpatented mining claims are held under a mineral lease with
a third party, which lease expires no sooner than 2016; provided,
however that the lease may be terminated at any time upon notice
by the Company. The lease carries a net smelter return royalty
and requires modest advance minimum annual royalties. See "Risk
Factors - Uncertainty of Title."
GEOLOGY. Gold mineralization occurs in a large 1,000 feet
by 2,000 feet jasperiod breccia within the Triassic-age Excelsior
Formation. The Excelsior Formation consists of metamorphosed
tuffaceous sediments, volcanic rocks, limestone and chert. Based
upon rock samples taken by the Company, and prior to any
drilling, low-grade gold concentrations appear to be common
within the jasperiod.
RESERVES. There are no known reserves on the property, and
no assurance can be given 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.
HISTORIC DRILLING. The Company has not been able to find
any evidence of previous drilling at Excalibur.
FUTURE DRILLING. Subject to the receipt of adequate
financing and the necessary government permits, the Company plans
to drill approximately 65 reverse circulation drill holes
(approximately 26,000 feet) in 1997 at an estimated cost of
approximately $0.4 million. No assurance can be given that the
Company will be able to obtain the financing necessary to fund
these costs or receive the necessary government permits in a
timely manner, or without conditions which would materially and
adversely impact the project. See "- Risk Factors - Uncertainty
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of Funding" and "- Government Permits and Project Delays" and
"Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital
Resources."
PERMITTING. The only permit which will be required at
Excalibur in 1997 relates to drilling, which permit the Company
expects to apply for and receive in sufficient time to complete
its 1997 drilling program.
WATER RIGHTS. The Company does not require any water rights
for the present stage of development at Excalibur.
DEVELOPMENT PLAN. Pending the results of the Company's 1997
drilling program at Excalibur, the Company does not have any
development plans for Excalibur at this time.
RECLAMATION. The Company does not have any reclamation
obligations at Excalibur at this time.
OSCEOLA
BACKGROUND AND HISTORY. Osceola is located approximately 37
miles southeast of Ely, Nevada, and is accessed by paved and
unpaved public roads. In November 1996, the Company entered into
an agreement giving the Company an option to acquire an interest
in Osceola. Under the terms of the agreement, after the
expenditure of $600,000 in drilling and associated work, the
Company may elect to have a 50% interest in, and become the
operator of, a joint venture which will be formed and will
control Osceola upon such election by the Company.
PROPERTY INTERESTS. Osceola includes 85 unpatented and five
patented mining claims covering approximately 1,800 acres. See
"- Risk Factors - Uncertainty of Title." The five patented and
79 of the unpatented mining claims are held under five mineral
leases with various third parties. The earliest expiration date
of the mineral leases is 2001.
GEOLOGY. Lode gold mineralization at Osceola occurs in
mesothermal quartz vein swarms and in replacement lenses in
limestone. Several such high-grade gold bearing quartz veins
were mined underground in the late 1800s. Based upon a limited
analysis of waste dumps at the mouth of one of these underground
workings, the Gilded Age mine, the Company believes that the rock
adjacent to the veins may be mineralized.
RESERVES. There are no defined reserves at Osceola and 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.
HISTORIC DRILLING. The Company has not been able to find
any evidence of previous drilling at Osceola.
FUTURE DRILLING. Subject to the receipt of adequate
financing, the Company plans to drill approximately 100 reverse
circulation drill holes (approximately 40,000 feet) in 1997 at an
estimated cost of approximately $0.5 million. No assurance can
be given that the Company will be able to obtain the financing
necessary to fund these costs. See "- Risk Factors - Uncertainty
of Funding" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources."
PERMITTING. At this time, the only required permit at
Osceola relates to drilling, which permit the Company received in
December 1996.
WATER RIGHTS. The Company does not require any water rights
for the present stage of development at Osceola.
DEVELOPMENT PLAN. Pending the results of the Company's 1997
drilling program at Osceola, the Company does not have any
development plans for Osceola at this time.
8
<PAGE>
RECLAMATION. The Company does not have any reclamation
obligations at Osceola at this time.
COPPER FLAT
BACKGROUND AND HISTORY. Copper Flat is located within the
Hillsboro Mining District, 27 miles west of Truth or
Consequences, New Mexico, and is accessed by paved and unpaved
public roads. The Company acquired Copper Flat in June 1994 from
Gold Express Corporation ("Gold Express"), currently known as
StarTronix International, Inc.
Based upon 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 $112.0 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 buildings and
equipment were sold and removed, although certain infrastructure
still remains in place. 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.
PROPERTY INTERESTS. At Copper Flat, the Company controls
418 unpatented and 21 patented mining claims and fee land
covering approximately 5,400 acres. See "- Risk Factors -
Uncertainty of Title." Fee land and patented mining claims
covering approximately 464 acres are held under four leases with
various third parties. The earliest expiration date of the
leases is 2010; provided, however, that each of the leases may be
terminated at any time upon notice by the Company.
Pursuant to the terms of the acquisition agreement, the
Company, upon certain conditions, may be required to pay a
provisional copper production royalty to Gold Express. Any and
all payments made by the Company pursuant to the provisional
copper production royalty will be credited against the principal
amount owed under a debenture issued by the Company in connection
with the acquisition of Copper Flat. Copper Flat is also subject
to a reserved interest held by Gold Express' predecessor in
interest. This reserved interest requires net smelter return
royalties and annual advanced royalties.
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 upon the PAH Report, Copper Flat had proven
and probable reserves at December 31, 1996 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 "- Reserves"
and "- Risk Factors - Reserves Estimates."
HISTORIC DRILLING. Prior to the Company's acquisition of
Copper Flat, Gold Express' predecessors in interest drilled 181
reverse circulation and core drill holes (approximately 127,325
feet). Based on the prior drilling and feasibility studies done
by PAH in 1980 and by another mining consulting firm in 1993, as
well as on information generated from actual mining and
production in 1982, the Company determined that no additional
drilling was required for the main ore body.
FUTURE DRILLING. At this time, the Company does not
contemplate any additional drilling at Copper Flat in the near
future.
PERMITTING. A draft EIS was issued in February 1996 and a
Record of Decision is expected to be received in the second or
third quarter of 1997. The Air Quality permit was received in
April 1996; however, the New Mexico Mining and Minerals Division
permit and the New Mexico Ground Water permit are pending. In
9
<PAGE>
December 1996, an owner of real property known as the Ladder
Ranch, near Copper Flat, threatened to challenge the permitting
and opening of Copper Flat. The owner of the Ladder Ranch has
raised concerns that Copper Flat would affect his quality of life
and is allegedly concerned about the impact of Copper Flat's
operations on the environment. The Company believes that the
allegations made by the owner of the Ladder Ranch are without
merit, and it intends to vigorously defend any such challenge to
Copper Flat. However, no assurance can be given that any such
challenge will not prevent or delay the permitting or opening of
Copper Flat, or that the Company will otherwise receive the
necessary government permits in a timely manner, or without
conditions which would materially and adversely impact the
project. See "- Risk Factors - Government Permits and Project
Delays."
The Company anticipates spending approximately $0.7 million
at Copper Flat in 1997 for permitting and property holding costs.
WATER RIGHTS. The Company has an appropriation granted by
the State of New Mexico to divert and use water in an amount
which management believes is sufficient for its operations at
Copper Flat.
DEVELOPMENT PLAN. Copper Flat already has certain
infrastructure in place. The infrastructure includes a tailings
pond, 19 miles of power lines, a water well field, a 20-inch
diameter water line, building and equipment foundations, an
access road and a system of division dams and channels. The
Company does not anticipate any site development or construction
at Copper Flat in 1997. The Company is presently evaluating the
potential joint venture, sale or spin-off of Copper Flat and its
other base metals properties so that the Company can focus on
gold development and production.
RECLAMATION. All required reclamation from previous mining
and production activity at Copper Flat has been completed.
However, groundwater contamination has been discovered near the
tailings pond at Copper Flat. If the property is developed, the
Company anticipates that remediation will be accomplished as part
of its operating plan. If the property is not developed, the
Company may be required to clean up the groundwater
contamination. The scope and cost of cleanup has not been
determined at this time.
OTHER PROPERTIES
EASY JUNIOR
The Company completed mining all reserves in August 1994,
and completed gold processing in December 1996. The Company does
not plan any additional development at Easy Junior. With the
exception of certain ancillary equipment used for pad rinsing and
recontouring, most of the equipment from Easy Junior was
transferred to Kinsley. The remaining equipment is scheduled to
be transferred to Griffon. The only significant reclamation
remaining at Easy Junior includes pad rinsing and recontouring
and revegetation of the leach pad, waste dumps and ponds. The
Company plans to complete this remaining reclamation in 1997 or
1998 at an estimated cost of $0.2 million, less credits for gold
in the estimated amount of $0.1 million which the Company expects
to recover from pad rinsing.
OTHER
The Company also owns or controls other properties
containing precious and/or base metals. The properties are in
various stages, including holding, exploration, development and
reclamation. In addition, one property is currently being leased
to another mining company.
RESERVES
The Company calculates its reserves by methods generally
applied within the mining industry by a multidisciplinary 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 core drilling in deposits where reverse
circulation drill samples could be contaminated or diluted.
Assay results are
10
<PAGE>
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 as of December 31, 1996 for
Kinsley, Olinghouse, Copper Flat and Griffon have been audited by
PAH as provided in the PAH Report. PAH's audit of these reserves
stated that the Company's models for these reserves have been
prepared according to accepted engineering practice and that
these reserves satisfy the requirement 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, 1996. See "- Risk Factors -
Reserves Estimates."
<TABLE>
<CAPTION>
TONS OF ORE
PROVEN AND
OPERATING (O)/ PROBABLE AVERAGE CONTAINED
DEVELOPMENT (D) RESERVES GRADE<F1> METAL<F2>
--------------- ----------- --------- ---------
<S> <C> <C> <C> <C>
GOLD
Kinsley O 1,914,000 0.033 63,200 oz.
Olinghouse D 22,751,000 0.029 662,200 oz.
Griffon D 2,737,000 0.025 68,400 oz.
Copper Flat D 59,119,000 0.004 251,256 oz.
-------------
Total 1,045,056 oz.
=============
OTHER METALS
Silver (Copper Flat) D 59,119,000 0.061 3,577,000 oz.
Copper (Copper Flat) D 59,119,000 0.425% 502,512,000 lbs.
Molybdenum (Copper Flat) D 59,119,000 0.013% 3,577,000 lbs.
___________________
<FN>
<F1> The average grade for (i) precious metals is expressed in
ounces of contained metal per ton of proven and probable
reserves; and (ii) base metals is expressed as a percentage
of contained metal per ton of proven and probable reserves.
<F2> Estimated processing recovery rates for the Company's
proven and probable reserves, as a percent of contained
metal, are as follows: (i) gold: Kinsley - 75%, Olinghouse
- 83%, Griffon - 85%, Copper Flat - 50%; (ii) silver:
Copper Flat - 90%; (iii) copper: Copper Flat - 91%; and
(iv) molybdenum: Copper Flat - 71%.
</FN>
</TABLE>
11
<PAGE>
GOLD PRODUCTION AND COST DATA
Based upon the operations at the Company's current and
former operating properties, the following table sets forth the
Company's gold production, the average realized sales price per
ounce, the average cash costs per ounce of gold produced, and the
average total costs per ounce of gold produced for the periods
indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
--------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
PRODUCTION (OUNCES OF GOLD)
Kinsley 44,552 40,667 - - -
Easy Junior <F1> 4,934 12,396 23,589 - -
Other - - - 163 1,866
------- ------- ------- ----------- ----------
Total production 49,486 53,063 23,589 163 1,866
======= ======= ======= =========== ==========
AVERAGE REALIZED SALES PRICE PER
OUNCE $ 392 $ 392 $ 390 $ 387 N/A<F2>
======= ======= ======= =========== ==========
AVERAGE CASH COSTS PER OUNCE
Kinsley $ 219 $ 184 $ - $ - $ -
Easy Junior <F1> 292 283 230 - -
Other - - - NM<F3> NM<F3>
------- ------- ------- ------------ ----------
Weighted average cash costs per
ounce $ 226 $ 207 $ 230 NM<F3> NM<F3>
======= ======= ======= ============ ==========
AVERAGE TOTAL COSTS PER OUNCE
Kinsley $ 284 $ 259 $ - $ - $ -
Easy Junior <F1> 294 291 245 - -
Other - - - NM<F3> NM<F3>
------- ------- ------- ----------- ----------
Weighted average total costs per
ounce $ 285 $ 266 $ 245 NM<F3> NM<F3>
======= ======= ======= =========== ==========
<FN>
<F1> The Company completed mining all reserves at Easy Junior in
August 1994, and completed gold processing in December 1996.
See "Business and Properties - Other Properties - Easy
Junior."
<F2> Not applicable because no gold was sold by the Company in
1992.
<F3> Not meaningful because gold production resulted primarily
from pad rinsing conducted during reclamation activities at
the Company's mining properties in 1992 and 1993.
</FN>
</TABLE>
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. The Company also anticipates conducting
open-pit mining at Olinghouse, Griffon and Copper Flat. Mine
plans are designed to remove overburden to expose sufficient ore
to meet processing requirements. Material is generally drilled
and blasted in 15- to 20-foot benches. The blasted material is
then loaded onto off-road haul trucks using a fleet of front-end
loaders. Overburden is transported outside the pits and placed
on piles. Ore is transported by haul trucks to a crushing plant.
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, oil and/or polymer
agglomerates and 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.
12
<PAGE>
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 to the processing facilities for recovery. The
gold is recovered through carbon adsorption followed by
conventional pressure stripping of the carbon using a
high-temperature caustic solution, which is then pumped to
electro-winning cells. 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.
MARKETING AND HEDGING
The Company has contractually agreed to sell 100% of its
gold production to Gerald Metals, Inc., located in Stamford,
Connecticut, through May 31, 1998, pursuant to fixed price future
sales contracts and/or at spot prices prevailing at the time of
sale. As of December 31, 1996, the Company had not entered into
any future sales contracts for gold or engaged in any other
hedging strategies. 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 any risk to the Company's
operations.
During the year ended December 31, 1996, the Company sold
all of its gold production to Gerald Metals, Inc. During the
year ended December 31, 1995, the Company sold 86% of its gold
production to Gerald Metals, Inc. and the remainder to Prudential
Securities Incorporated, located in New York, New York. During
the year ended December 31, 1994, the Company sold 100% of its
gold production to Prudential Securities Incorporated.
In order to mitigate some of the risks associated with
fluctuating gold prices, the Company has in the past and may in
the future use various price hedging strategies. Based upon an
internal policy, the Company may only hedge up to 50% of its
estimated annual production. Historically, hedging activities
have been limited to short-term contracts for future deliveries
of specific quantities of gold at specific prices and the use of
put and call options. The Company continuously evaluates the
short- and long-term benefits of entering into such future sales
contracts based upon current market conditions. In addition,
lenders may require the Company to engage in hedging activities.
Pursuant to a line of credit which the Company anticipates
receiving from Gerald Metals, Inc., the Company, on March 21,
1997, purchased put options for 108,500 ounces of gold at $335
per ounce, and, to partially offset the cost of the put options,
sold call options for 45,000 ounces of gold at $390 per ounce.
The put options mature with respect to 3,500 ounces of gold each
month from June 1997 to December 1997, and with respect to 7,000
ounces of gold each month from January 1998 to December 1998.
The call options mature with respect to 3,750 ounces of gold from
January 1998 to December 1998. See "- Risk Factors - Risk of
Hedging Strategies."
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.
13
<PAGE>
REGULATION OF MINING ACTIVITY
GENERAL. 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, protection of and discharges to
surface water and groundwater, 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.
PERMITTING. The Company's existing mining operations and
all future exploration and development projects also require or
will require a variety of federal, state and local regulatory
reviews, approvals and permits, such as an Environmental Impact
Statement, an Army Corps of Engineers Section 404 permit for
placement of dredged or fill material in waters or wetlands, a
Water Pollution Control permit or similar permits to protect the
quality of surface water and groundwater, a Storm Water Discharge
permit, an Air Quality permit, a Reclamation Plan permit, a
Mining and Mineral Division permit and other approvals of Plans
of Operation and reclamation plans. Although the Company
believes the reviews, approvals and permits for these projects
typically can be obtained in a timely fashion, permitting
procedures are complex, costly, time-consuming and subject to
potential regulatory delay or denial. 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
without material changes in existing permit conditions.
Modification of existing permits, such as the imposition of
additional conditions, could have a material adverse effect on
the Company's financial condition or results of operations.
RECLAMATION. 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)
enacted the 1993 New Mexico Mining Act (the "New Mexico Act"), a
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 ("EPA"),
the Army Corps of Engineers, the Bureau of Land Management 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,
surface water and groundwater from mining activities, such as
tailings ponds, heap leach pads, process ponds, chemical and fuel
storage, acid drainage and the generation and management of
waste. In particular, legislation
14
<PAGE>
such as the Clean Water Act, the Clean Air Act, the Federal
Resource Conservation and Recovery Act ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA" or "Superfund") and the National
Environmental Policy Act require analyses and/or impose effluent
standards, new source performance standards, air quality and
emission standards, other design or operational requirements and
limits on the emission, discharge or release of pollutants
regarding 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 disposed
of by the Company.
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) CERCLA
which regulates and establishes liability for the release of
hazardous substances and (ii) the Endangered Species Act ("ESA")
which identifies endangered species of plants and animals and
regulates activities to protect these species and their habitats.
Revisions to CERCLA and ESA are being considered by Congress; the
impact on the Company of these revisions is not clear at this
time. The Army Corps of Engineers has announced its intent to
limit and restrict the availability of a nationwide permit which
authorizes the placement of fill material in isolated waters of
up to ten acres in area without the need to obtain an individual
permit. The impact of this action on the Company cannot be
determined 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 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.
The Company believes that its operations are in substantial
compliance with federal and state regulations and that no
significant unanticipated 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."
SEASONAL FACTORS
The Company does not believe that its revenues from mining
activities and gold production are significantly seasonal,
however, harsh weather conditions in the winter may restrict the
Company's access to its mining properties and slow the production
of gold through heap leaching.
15
<PAGE>
COMPETITION
The Company competes with other mining companies and private
individuals in connection with the acquisition of unpatented
mining claims and mineral leases on gold and other precious
metals prospects and in connection with the recruitments and
retention of qualified employees. Many of the Company's
competitors have significantly greater financial and other
resources, including access to financial markets.
EMPLOYEES
As of December 31, 1996, the Company employed approximately
125 people. None of the employees of the Company is covered by a
collective bargaining agreement. Employees conduct most of the
functions of the Company, although consultants and contractors in
the fields of geology, engineering, hydrology, drilling, law,
insurance, and legislative liaison provide certain services
necessary for the functioning of the Company. To support its
production, exploration and permitting activities, the Company
maintains executive offices in Henderson, Nevada, operational
headquarters in Ely, Nevada and a field office in Fernley,
Nevada.
RISK FACTORS
CURRENT DEPENDENCE ON A SINGLE OPERATING PROPERTY
All of the Company's operating revenues are currently
derived from its mining operations at Kinsley located in Elko
County, Nevada. Mining activities at Kinsley commenced in the
fourth quarter of 1994, and gold production therefrom began in
January 1995. Although the Company has not experienced any
serious interruption in production at Kinsley, if the operations
at Kinsley were reduced, interrupted or curtailed, the Company's
ability to generate operating revenues and earnings would be
materially and adversely affected, unless and until other
properties were put into production.
LIMITED LIFE OF MINING PROJECTS
The Company derives all of its operating revenues from
mining projects which have a limited life. Based upon the
reserves estimate as of December 31, 1996, the Company expects
mining activities at Kinsley to continue at least through the end
of 1997, and gold production from heap leaching and pad rinsing
to continue in declining amounts from 1998 through at least mid-
1999. No assurance can be given that the estimated time for
completion of mining activities or gold production at Kinsley is
accurate. The Company has not yet initiated production at any of
its primary development stage properties, Olinghouse, Griffon, or
Copper Flat. The Company's ability to generate future operating
revenues and earnings after Kinsley is depleted is dependent on
its ability to bring one or more of these or other properties
into production. The commencement of production at these
properties is subject to, among other things, obtaining necessary
governmental permits and obtaining outside sources of funding.
No assurance can be given that the Company will have any mining
properties in operation once the mining and processing of ore
from Kinsley or other future operating properties, if any, are
completed.
GOVERNMENT PERMITS AND PROJECT DELAYS
The Company is seeking government permits and approvals for
the development of Olinghouse, Griffon and Copper Flat.
Obtaining the necessary government 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.
Notwithstanding the Company's good faith expectations, no
assurance can be given that any government permit or approval
will be issued when anticipated or without conditions that may
have a material adverse effect on the project. In the context of
environmental permitting, including the approval of reclamation
plans, the Company must comply with existing standards, laws and
regulations which may entail unexpected costs and delays
depending on the nature of the activity to be permitted and the
interpretation of the regulations implemented by the permitting
authority. Substantial delays in obtaining, or a failure to
obtain, certain government permits or approvals without
burdensome conditions could have a material adverse effect on the
Company's business and operations.
16
<PAGE>
In the event that Griffon is not in production by October 1,
1997 for reasons other than "force majeure," which term as
defined in the acquisition agreement includes any government-
imposed delays, the Company may be required to reconvey Griffon
to the seller. As of December 31, 1996, the Company had invested
$0.9 million in Griffon. Although the Company currently
anticipates receiving the necessary permits by the second quarter
of 1997, no assurance can be given that the Company will receive
such government permits in a timely manner, if at all.
An owner of real property known as the Ladder Ranch, near
Copper Flat in New Mexico, has threatened to challenge the
permitting and opening of Copper Flat. The owner of the Ladder
Ranch has raised concerns that operations at Copper Flat would
affect his quality of life and is allegedly concerned about the
impact of Copper Flat's operations on the environment. The
Company believes that the allegations made by the owner of the
Ladder Ranch are without merit, and it intends to vigorously
defend any such challenge to Copper Flat. However, no assurance
can be given that any such challenge will not prevent or delay
the permitting or opening of Copper Flat.
UNCERTAINTY OF FUNDING
Mining operations require a substantial amount of capital
prior to the commencement of, and in connection with, the actual
production of gold. Such capital requirements relate to the
costs of, among other things, acquiring mining claims and
properties, obtaining government permits, exploration and
delineation drilling to determine the underground configuration
of the ore body, designing and constructing the mine and process
facilities, purchasing and maintaining mining equipment, and
complying with bonding requirements established by various
regulatory agencies regarding the future restoration and
reclamation activities for each property.
For 1997, the Company has budgeted cash expenditures of (i)
$2.2 million for permitting and holding costs at Olinghouse,
Griffon and Copper Flat, (ii) $5.7 million in debt repayments and
associated interest, and (iii) $0.5 million for reclamation. In
addition to funds generated from gold production at Kinsley, the
Company estimates that it will require at least $5.0 million in
outside financing to cover these as well as day-to-day operating
and administrative costs. An additional $25.5 million in
expenditures for site development, construction, equipment and
working capital has been tentatively budgeted for 1997 - $19.6
million for Olinghouse and $5.9 million for Griffon, as well as
an additional $5.9 million for drilling and related activities -
$0.7 million for Kinsley, $3.0 million for Olinghouse, $0.4
million for Griffon, $0.5 million for Osceola, $0.4 million for
Excalibur and $0.9 million for other properties that may be
acquired. See "Business and Properties - Operating Property -
Kinsley," "- Development Properties - Olinghouse," "Griffon," "-
Excalibur," "- Osceola" and "- Copper Flat." The Company will
require outside sources of capital to fund such planned
expenditures. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and
Capital Resources." No assurance can be given that the Company
will obtain outside financing on terms that are favorable to the
Company or in amounts necessary to fund such planned
expenditures.
The Company's ability to obtain outside financing will
depend upon, among other things, the receipt of government
permits for Olinghouse, the completion of an acceptable
feasibility study for Olinghouse and the market price of gold and
perceptions of future gold prices. Therefore, the availability
of financing is dependent largely upon factors outside of the
Company's control, and cannot be accurately predicted. The
failure of the Company to obtain outside financing could have a
material adverse effect upon its financial condition and results
of operations.
VOLATILITY OF THE PRICE OF GOLD
The profitability of the Company's current operations is
affected by the market price of gold. 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.
17
<PAGE>
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 price of gold should decrease, the value of the
Company's gold properties which are being explored or developed
would also decrease 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. 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. One of the reasons the Company
ceased gold production activities from 1991 to 1993 was because
of depressed gold prices during that period.
The volatility of gold prices is illustrated in the
following table of annual high and low gold fixing prices per
ounce on the London P.M. Fix:
<TABLE>
<CAPTION>
YEAR HIGH LOW
-----------------------------------------------
<S> <C> <C>
1985 $341 $284
1986 438 326
1987 500 436
1988 484 395
1989 416 356
1990 424 346
1991 403 344
1992 360 330
1993 406 326
1994 396 370
1995 396 372
1996 415 367
</TABLE>
On March 21, 1997, the afternoon fixing for gold on the
London P.M. Fix was $352.80. Gold prices on the London P.M. Fix
are regularly published in most major financial publications and
many nationally recognized newspapers.
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, CERCLA 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
18
<PAGE>
assurance to insure that the reclamation plan is implemented upon
completion of mining operations. Additionally, Nevada and other
states require mining operations to obtain and comply with
environmental permits, including permits regarding air emissions
and the protection of surface water and groundwater.
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.
PROPOSED LEGISLATION AFFECTING THE MINING INDUSTRY
During the past several 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, limit the rights
obtained in a patent, impose royalties on unpatented claims, 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
that may be enacted 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 economics of development of operating
mines on the federal unpatented mining claims held by the
Company. Many of the Company's properties, including Kinsley,
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.
UNCERTAINTY OF DEVELOPMENT PROPERTY ECONOMICS
Exploration for and production of minerals is highly
speculative and involves greater risks than are inherent in many
other industries. Many exploration programs do not result in the
discovery of mineralization, and any mineralization discovered
may not be of sufficient quantity or quality to be profitably
mined. Also, because of the uncertainties in determining
metallurgical amenability of any minerals discovered, the mere
discovery of mineralization may not warrant the mining of the
minerals on the basis of available technology.
The Company's decision as to whether any of the mineral
development properties it now holds or which it may acquire in
the future contain commercially minable deposits, and whether
such properties should be brought into production, depends upon
the results of its exploration programs and/or feasibility
analyses and the recommendations of engineers and geologists.
The decision will involve the consideration and evaluation of a
number of significant factors, including, but not limited to,
the: (i) receipt of government permits; (ii) costs of bringing
the property into production, including exploration and
development work, preparation of feasibility studies and
construction of production facilities; (iii) availability and
costs of financing; (iv) ongoing costs of production; (v) market
prices for the metals to be produced; and (vi) estimates of
reserves or mineralization. No assurance can be given that any of
the development properties the Company owns, leases or acquires
contain (or will contain) commercially minable mineral deposits,
and no assurance can be given that the Company will ever generate
a positive cash flow from production operations on such
properties. The Company has identified Olinghouse, Griffon and
Copper Flat as having minable reserves. No assurance can be
given, however, that any of these development properties can
attain profitable operations.
COMPETITION AND SCARCITY OF MINERAL LANDS
Although many companies and individuals are engaged in the
mining business, including large, established mining companies,
there is a limited supply of desirable mineral lands available
for claim staking,
19
<PAGE>
lease or other acquisition in the United States and other areas
where the Company contemplates conducting exploration and/or
production activities. The Company may be at a competitive
disadvantage in acquiring suitable mining properties since it
must compete with these other individuals and companies, many of
which have greater financial resources and larger technical
staffs than the Company. As a result, there can be no assurance
the Company will be able to acquire new reserves or replace its
current reserves once they are depleted.
RESERVES ESTIMATES
The reserves reported in the PAH Report are based upon
estimates and no assurance can be given that the Company will
recover the indicated amount of metals. Further, estimated
reserves for properties that have not yet commenced production
(such as Olinghouse, Griffon and Copper Flat) may require
revision if the Company commences actual production.
Fluctuations in the market price of the metals produced by the
Company, as well as increased production costs or reduced
recovery rates, could make the mining of ore reserves containing
relatively lower grades of mineralization uneconomic, and could
ultimately cause the Company to restate its reserves. Moreover,
short-term operating factors relating to the ore reserves, such
as the need for sequential development of ore bodies and the
processing of new or different ore grades, could adversely affect
the Company's profitability in any particular accounting period.
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. 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 Bureau of
Land Management and pay an annual holding fee of $100 per claim.
If a claimant fails to make the annual holding 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. The General Mining Law
requires the discovery of a valuable mineral on each mining claim
in order for such claim to be valid, and mining claims may be
challenged by rival mining claimants and the United States.
Under judicial interpretations of the rule of discovery, the
mining claimant has the burden of proving that the mineral found
is of such quality and quantity as to justify further
development, and that the deposit is of such value that it can be
mined, removed and disposed of at a profit. The burden of
showing that there is a present profitable market applies not
only to the time when the claim was located, but also to the time
when such claim's validity is challenged. It is therefore
conceivable that, during times of falling metal prices, claims
which were valid when they were located could become invalid if
challenged.
Title to unpatented claims and other mining properties in
the western United States typically involves certain other
inherent risks due to the frequently ambiguous conveyance 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 mining or mill site claims. As a result, some of
the titles to the Company's properties may be subject to
challenge.
MINING RISKS AND INSURANCE
The Company's operations are subject to all of the operating
hazards and risks normally incident to exploring for and
developing mineral properties, such as unusual or unexpected
geological formations, environmental pollution, personal
injuries, flooding, cave-ins, changes in technology or mining
techniques, periodic interruptions because of inclement weather
and industrial accidents. Although the Company currently
20
<PAGE>
maintains insurance within ranges of coverage consistent with
industry practice to ameliorate some of these risks, no assurance
can be given that such insurance will continue to be available at
economically feasible rates, or that the Company's insurance is
adequate to cover the risks and potential liabilities associated
with exploring, owning and operating its properties. Insurance
against environmental risks is not generally available to the
Company or to other companies in the mining industry.
RISK OF HEDGING STRATEGIES
In order to mitigate some of the risks associated with
fluctuating gold prices, the Company has in the past and may in
the future use various price hedging strategies, such as selling
future contracts for gold, or using call and put options, to lock
in delivery prices for its gold production. The Company
continually evaluates the potential short- and long-term benefits
of engaging in such price hedging strategies based upon the then
current market conditions. In addition, lenders may from time to
time require the Company to use such hedging strategies. See " -
Marketing and Hedging." No assurance can be given, however, that
the use of price hedging strategies will always benefit the
Company. There is a possibility that the Company could lock in
forward deliveries at prices lower than the market price at the
time of delivery. The Company could also be subject to margin
calls if the market price of gold were to significantly rise
above the contracted forward delivery prices, which could
materially and adversely affect the Company's cash flows and
financial condition. In addition, the Company could fail to
produce enough gold to satisfy its forward delivery obligations,
causing the Company to purchase gold in the spot market at higher
prices to fulfill its delivery obligations.
UNKNOWN ENVIRONMENTAL LIABILITIES FOR PAST ACTIVITIES
Mining operations involve a potential risk of releases to
soil, surface water and groundwater of metals, chemicals, fuels,
liquids having acidic properties and other contaminants. In
recent years, regulatory requirements and improved technology
have significantly reduced those risks. However, those risks
have not been eliminated, and the risk of environmental
contamination from present and past mining activities exists for
mining companies. Companies may be liable for environmental
contamination and natural resource damages relating to properties
which they currently own or operate or at which environmental
contamination occurred while or before they owned or operated the
properties. The Company has conducted limited reviews of
potential environmental cleanup liability at its operating and
primary development properties, as well as other properties
acquired by the Company subsequent to 1992. The Company has
conducted limited or no reviews of potential environmental
cleanup liability at other properties owned currently or
previously by the Company. On a few occasions at operating
sites, the Company has detected leaks in excess of allowable
rates in the primary liners at heap leach pads or ponds. In each
such case, the pad or pond was equipped with a second liner and
either the location of the leak in the primary liner was taken
out of service or the leak was repaired. Other than known
conditions which will be remediated pursuant to approved or
proposed reclamation plans, the Company is not aware of any
significant environmental contamination which could give rise to
cleanup obligations or natural resource damages on the part of
the Company as a result of past activities (by the Company or
others) on these properties. However, no assurance can be given
that potential liabilities for such contamination or damages
caused by past activities at these properties do not exist.
WORKING CAPITAL DEFICIT
As of December 31, 1996, and 1995, the Company had $2.6
million and $0.3 million working capital deficits, respectively.
No assurance can be given that the Company's working capital
position will improve. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the services of certain key
executives, including Robert N. Pratt, Chief Executive Officer,
President and Chairman of the Board of Directors, and John A.
Bielun, Senior Vice President and Chief Financial Officer. The
loss of any of either of these individuals could have a material
adverse effect on
21
<PAGE>
the Company's business and operations. The Company currently
does not have key person insurance on these individuals. The
Company has entered into employment agreements with certain of
its key executives, including Messrs. Pratt and Bielun. Each of
these employment agreements expires in October 1998.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Bylaws contain certain measures designed to
make it more difficult and time consuming to change majority
control of the Company's Board of Directors and to reduce the
vulnerability of the Company to an unsolicited offer to take
control of the Company. The Company has also 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.
Furthermore, Nevada's "Combination with Interested Stockholders
Statute" and "Control Share Acquisition Statute" may have the
effect of delaying or making it more difficult to effect a change
in control of the Company.
These corporate and statutory anti-takeover measures may
have certain negative consequences, including an effect on the
ability of stockholders of the Company or other individuals to
(i) change the composition of the incumbent Board of Directors;
(ii) benefit from certain transactions which are opposed by the
incumbent Board of Directors; and (iii) make a tender offer or
otherwise attempt to gain control of the Company, even if such
attempt was beneficial to the Company and its stockholders.
Since such measures may also discourage accumulations of large
blocks of the Company's Common Stock by purchasers whose
objective is to seek control of the Company or have such Common
Stock repurchased by the Company (or other persons) at a premium,
these measures could also depress the market price of the
Company's Common Stock. Accordingly, stockholders may be
deprived of certain opportunities to realize the "control
premium" associated with takeover attempts.
RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS
The Company periodically considers the acquisition of mining
claims, properties and businesses. In connection with any such
future acquisitions, the Company may incur indebtedness or issue
equity securities, resulting in dilution of the percentage
ownership of existing stockholders. The Company intends to seek
stockholder approval for any such acquisitions only to the extent
required by applicable law, regulations or stock market listing
rules.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation or
administrative proceedings that the Company believes would have a
material adverse affect on the Company's results of operations.
The Company is not aware of any threat of such litigation or
proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
22
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION. The Company's common stock ("Common
Stock") is traded on the Nasdaq National Market under the symbol
"ALTA." The following table sets forth the high and low bid
prices of the Common Stock, as reported by the Nasdaq National
Market, during the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, HIGH LOW
------------------------------------------------------------
<S> <C> <C>
1995
First Quarter $1 11/32 $15/16
Second Quarter 1 5/16 1
Third Quarter 1 17/32 1 1/32
Fourth Quarter 2 1 1/8
1996
First Quarter 5 1/32 1 17/32
Second Quarter 4 7/8 3 1/16
Third Quarter 4 3 1/8
Fourth Quarter 4 9/16 3 11/32
</TABLE>
The closing bid price on the Nasdaq National Market on
March 21, 1997 was $3 7/8 per share.
HOLDERS. As of March 21, there were approximately 7,617
holders of record of the Company's common stock, including
several holders who are nominees for an undetermined number of
beneficial owners.
DIVIDENDS. The Company has not declared or paid any
dividends on its Common Stock since 1989, and the Board of
Directors intends to retain all earnings, if any, for use in the
Company's business for the foreseeable future. In addition, one
of the Company's loan agreements restricts the payment of cash
dividends. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources - 1997 Outlook." Any future determination as
to declaration and payment of dividends will be made at the
discretion of the Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial
data with respect to the Company and should be read in
conjunction with the Financial Statements and Notes thereto set
forth elsewhere in this report. All amounts are stated in
thousands except per share amounts.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1996 1995<F1> 1994<F2> 1993 1992<F3>
-------- ----------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total revenues $19,581 $20,636 $10,696 $ 210 $ 818
Income (loss) from operations 3,288 3,778 649 (5,798) (12,340)
Income (loss) before 3,247 5,889 622 (5,071) (11,419)
extraordinary item
Net income (loss) 3,247 5,889 2,804 (5,071) (10,042)
Per share:
Income (loss) before 0.11 0.21 0.02 (0.19) (0.42)
extraordinary item
Net income (loss) 0.11 0.21 0.10 (0.19) (0.37)
<FN>
<F1> In 1995, net income includes $2.4 million (or $0.09 per
share) from a non-recurring net gain on the sale of an
asset.
<F2> In 1994, net income includes $2.2 million (or $0.08 per
share) from an extraordinary item - gain on extinguishment
of debt.
<F3> In 1992, net income includes a charge of $6.8 million (or
$.25 per share) from the write-down of properties and $1.4
million (or $.05 per share) from an extraordinary item -
gain on extinguishment of debt.
No dividends were paid during the above five-year period.
</FN>
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
--------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets $46,621 $40,399 $38,455 $38,192 $42,524
Long-term obligations 3,164 4,878 6,722 3,113 3,638
Working capital (deficit) (2,634) (312) (2,391) 8,515 15,149
Stockholders' equity 35,604 30,388 23,938 19,241 24,269
</TABLE>
SUPPLEMENTARY FINANCIAL INFORMATION
The following table summarizes certain selected financial
data with respect to the Company and should be read in
conjunction with the Financial Statements and Notes thereto set
forth elsewhere in this report. All amounts are stated in
thousands except per share amounts.
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------
(UNAUDITED) YEARS ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
--------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1996 - Total revenues $5,185 $5,186 $4,629 $4,581 $19,581
Income from 776 1,002 937 573 3,288
operations
Net income 733 975 887 652 3,247
Net income per share 0.02 0.03 0.03 0.02 0.11
1995 - Total revenues $2,695 $3,597 $6,607 $7,737 $20,636
Income from 151 606 1,579 1,442 3,778
operations
Net income 2,539 467 1,382 1,501 5,889
Net income per share 0.09 0.02 0.05 0.05 0.21
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF
THE SECURITIES EXCHANGE ACT OF 1934 PROVIDE A "SAFE HARBOR" FOR
FORWARD-LOOKING STATEMENTS. CERTAIN INFORMATION INCLUDED HEREIN
CONTAINS STATEMENTS THAT ARE FORWARD-LOOKING, SUCH AS STATEMENTS
REGARDING MANAGEMENT'S EXPECTATIONS ABOUT THE COMPANY'S RESERVES,
TIMING OF RECEIPT OF GOVERNMENT PERMITS, PLANNED DATES FOR
COMMENCEMENT OF MINING OPERATIONS AND GOLD PRODUCTION AT THE
COMPANY'S MINING PROPERTIES, ANTICIPATED DRILLING AND RECLAMATION
EXPENDITURES AS WELL AS OTHER CAPITAL SPENDING, FINANCING SOURCES
AND THE EFFECTS OF REGULATION. SUCH FORWARD-LOOKING INFORMATION
INVOLVES IMPORTANT RISKS AND UNCERTAINTIES THAT COULD
SIGNIFICANTLY AFFECT ANTICIPATED RESULTS IN THE FUTURE AND,
ACCORDINGLY, SUCH RESULTS MAY DIFFER FROM THOSE EXPRESSED IN ANY
FORWARD-LOOKING STATEMENTS MADE HEREIN. THESE RISKS AND
UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, THOSE RELATING TO
THE MARKET PRICE OF METALS, PRODUCTION RATES, PRODUCTION COSTS,
THE AVAILABILITY OF FINANCING, THE ABILITY TO OBTAIN AND MAINTAIN
ALL OF THE PERMITS NECESSARY TO PUT AND KEEP PROPERTIES IN
PRODUCTION, DEVELOPMENT AND CONSTRUCTION ACTIVITIES AND
DEPENDENCE ON EXISTING MANAGEMENT. SEE "ITEMS 1 AND 2. BUSINESS
AND PROPERTIES - RISK FACTORS."
24
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995
In 1996, the Company had $19.6 million in revenue from the
sale of 49,900 ounces of gold at an average price of $392/oz, as
compared to $20.6 million in revenue in 1995 from the sale of
52,580 ounces of gold at an average price of $392/oz. In 1996,
the Company produced 49,486 ounces of gold, 44,552 ounces from
Kinsley at an average cash cost of $219/oz and 4,934 ounces from
Easy Junior at an average cash cost of $292/oz. In 1995, the
Company produced 53,063 ounces of gold, 40,667 ounces from
Kinsley at an average cash cost of $184/oz and 12,396 ounces from
Easy Junior at an average cash cost of $283/oz. The increase in
cash production costs at Kinsley from $184/oz to $219/oz between
1995 and 1996 is principally due to a decrease in the grade of
ore mined and longer hauls. In 1996, the Company mined 1,853,000
tons of ore at Kinsley with an average grade of .0322 oz/ton
gold, principally from the Ridge deposit. In 1995, the Company
mined 1,268,000 tons of ore at Kinsley with an average grade of
.0517 oz/ton gold, principally from the Main deposit, which was
depleted by the end of 1995.
Gold production at Kinsley began in late January 1995.
Mining at Easy Junior was completed in the third quarter of 1994;
however, gold production from pad rinsing continued in ever
decreasing amounts until it ended in December 1996. The decrease
in revenue from $20.6 million in 1995 to $19.6 million in 1996 is
principally due to the winding down of gold production at Easy
Junior, as partially offset by Kinsley being in production for a
full year in 1996. The decrease in direct mining, production and
holding costs from $15.4 million in 1995 to $14.6 million in 1996
is directly related to the decrease in production, as partially
offset by the lower grade of ore mined at Kinsley in 1996.
General and administrative expenses increased from $1.4
million in 1995 to $1.6 million in 1996 due to costs incurred in
1996 associated with the Company's efforts to raise additional
equity and debt capital.
Exploration expenses increased from $30,000 in 1995 to
nearly $0.1 million in 1996 as the result of exploration
conducted in 1996 on properties acquired late in 1996.
In 1995, the Company sold its remaining interest in the
Robinson copper property for a net gain of $2.4 million; there
were no similar transactions in 1996. Interest income and other
decreased from nearly $0.2 million in 1995 to nearly $0.1 million
in 1996 primarily as the result of lower average balances
available for investment in 1996. Interest expense and other
decreased from $0.6 million in 1995 to $0.1 million in 1996
principally due to increased capitalization of interest in 1996.
No provision for income taxes was recognized in 1996 because
of the generation of a tax loss and in 1995 because of the
utilization of net operating loss carryforwards. As of December
31, 1996, the Company estimates that it has approximately $25.0
million in accumulated net operating loss carryforwards. These
net operating loss carryforwards are scheduled to expire during
the period 2005 to 2011.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1995 AND 1994
The Company's $20.6 million in revenue in 1995 was derived
from the sale of gold produced at Kinsley and Easy Junior.
During 1995, the Company produced 53,063 ounces of gold, 40,667
ounces from Kinsley at an average cash cost of $184 per ounce and
12,396 from Easy Junior at an average cash cost of $283 per
ounce. During 1994, the Company produced 23,589 ounces of gold
from Easy Junior at an average cash cost of $230 per ounce. In
1995, the Company sold 52,580 ounces of gold at an average price
of $392 per ounce. In 1994, the Company sold 27,377 ounces of
gold at an average price of $390 per ounce. Mining began at
Kinsley in October 1994 and gold production began in January
1995.
Direct mining, production and holding costs increased from
$8.3 million in 1994 to $15.4 million in 1995 as the result of
Kinsley being in production in 1995.
25
<PAGE>
General and administrative expenses of $1.4 million in 1995
were minimally less than similar expenses incurred in 1994.
Exploration expenses decreased from $0.3 million in 1994 to
$30,000 in 1995 as the result of the natural progression from
exploration to development at Olinghouse, Copper Flat and
Griffon.
In 1995, the Company realized a gain of $2.6 million from
the sale of assets, including $2.4 million realized from the sale
of the Company's remaining interest in the Robinson Copper
Property. In 1994, the Company realized a gain of $0.3 million
from the sale of its remaining mining interests in Montana.
In 1994, the Company recorded a $0.4 million mark-to-market
loss on copper forward contracts. No similar transactions took
place in 1995.
Interest income and other decreased from $0.3 million in
1994 to $0.2 million in 1995 primarily due to less funds
available for investment in 1995.
Interest expense increased from $0.2 million in 1994 to $0.6
million in 1995 as the result of higher average borrowing
requirements in 1995 as compared to 1994.
No provision for income taxes was required for income earned
in either 1995 or 1994 because of the utilization of net
operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
As of December 31, 1996, the Company had negative working
capital of $2.6 million, as compared to $0.3 million in negative
working capital as of December 31, 1995. This $2.3 million
decrease in working capital is primarily due to funds expended on
the permitting and development of Olinghouse and Griffon and the
permitting of Copper Flat, as partially offset by (i) internal
funds generated from gold production at Kinsley and Easy Junior,
and (ii) the retirement of convertible debentures via the
issuance of common stock and warrants. The Company estimates
that it will need at least $5.0 million in outside financing to
provide adequate liquidity for the Company's operational and
investing and financing activities in 1997. In addition, outside
financing, whether from debt or equity or through joint ventures
or similar arrangements, will be required to begin site
development and construction at Olinghouse, Griffon and Copper
Flat.
The following table summarizes the Company's working capital
(deficit) as of the dates shown (with dollars in thousands):
DECEMBER 31,
------------------------
1996 1995
--------- ---------
Working capital (deficit) $(2,634) $(312)
Working capital ratio 0.66:1 0.94:1
OPERATIONS AND CAPITAL EXPENDITURES
In 1996, 1995 and 1994, the Company spent $8.8 million, $4.6
million and $10.4 million, respectively, for the acquisition of
mining claims, permitting and mine planning and the acquisition
of plant and equipment, for a total of $23.8 million during the
three-year period. In 1996, 1995 and 1994, the Company generated
from operations $5.6 million, $4.9 million and $2.2 million, for
a total of $12.7 million during the three-year period. The
resultant $11.1 million cash shortfall for the three-year period
was funded with $3.4 million in cash on hand
26
<PAGE>
at the beginning of the three-year period, the receipt of $3.0
million in proceeds from asset sales, the receipt of $4.2 million
from a debt settlement and $1.0 million in net borrowings.
FINANCING ACTIVITIES
The Company obtained $3.3 million from net financing
activities in 1996, used $3.2 million in net financing activities
in 1995, and obtained $4.9 million from net financing activities
in 1994, for a net total of $5.0 million provided by financing
activities during the three-year period. In 1996, the Company
realized $3.4 million from net borrowings. In 1995, the Company
reduced outstanding debt by $3.2 million. In 1994, the Company
realized $4.2 million from a net debt settlement plus $0.9
million from net borrowings, as partially offset by $0.2 million
in interest earned on restricted investments.
1997 OUTLOOK
For 1997, the Company has budgeted cash expenditures of (i)
$2.2 million for permitting and holding costs at Olinghouse,
Griffon and Copper Flat, (ii) $5.7 million in debt repayments and
associated interest, and (iii) $0.5 million for reclamation. In
addition to funds generated from gold production at Kinsley, the
Company estimates that it will require at least $5.0 million in
outside financing to cover these as well as day-to-day operating
and administrative costs. An additional $25.5 million in
expenditures for site development, construction, equipment and
working capital has been tentatively budgeted for 1997 - $19.6
million for Olinghouse and $5.9 million for Griffon, as well as
an additional $5.9 million for drilling and related activities -
$0.7 million for Kinsley, $3.0 million for Olinghouse, $0.4
million for Griffon, $0.5 million for Osceola, $0.4 million for
Excalibur and $0.9 million for other properties that may be
acquired. The timing of these expenditures is dependent upon the
receipt of all of the necessary permits and the availability of
outside financing. The Company is currently in the process of
permitting Olinghouse, Griffon and Copper Flat and is in
negotiations with certain parties in connection with such
financing. The Company expects to obtain all of the necessary
permits and financing; however, there is no assurance that the
Company will be able to do so.
On May 31, 1996, the Company received a line of credit from
Gerald Metals, Inc., pursuant to which the Company borrowed $5.0
million (the "Loan") at an interest rate of LIBOR plus two
percent. The Company paid Gerald Metals, Inc. three installments
of principal each in the amount of $100,000 on December 31, 1996,
January 31, 1997 and February 28, 1997. Commencing on March 31,
1997 and continuing on the last day of each month thereafter, the
Company was also required to pay Gerald Metals, Inc. an
additional nine installments of principal each in the amount of
one-ninth of the principal balance of the Loan on February 28,
1997.
On March 25, 1997, Gerald Metals, Inc. agreed to defer until
1998 amortization of the outstanding balance of the Loan in the
approximate amount of $4.7 million. The deferral will be in the
form of a new loan in the principal amount of $8.5 million (the
"New Loan"), to be used for the repayment of the Loan, working
capital, construction of the Griffon mine, and general working
capital purposes.
The New Loan will bear interest at LIBOR plus two percent
and will be payable in twelve consecutive monthly installments
beginning on January 31, 1998. The New Loan must be repaid from
the proceeds from any debt financing on Olinghouse and the
proceeds from the sale of any assets. The New Loan will be
secured by all personal property of the Company, a first security
mortgage on the Kinsley, Olinghouse and Griffon properties, and
certain inventory and equipment at Kinsley and Griffon. The New
Loan, like the Loan, will contain certain covenants that impose
restrictions on the ability of the Company to, among other
things, incur additional debt, change the Company's corporate
structure, use proceeds from equity financings other than for
certain specified purposes, and pay dividends on or repurchase
the Company's common stock. In addition, the Company will be
required to sell 100% of its gold production to Gerald Metals,
Inc. through March 31, 1999, and to enter into a hedging program
covering the Company's projected gold production from June 1997
through December 1998. In conjunction with this hedging program,
the Company, on March 21, 1997, purchased put options for 108,500
ounces of gold at $335 per ounce, and, to partially offset the
cost of the put options, sold call options for 45,000 ounces of
gold at $390 per ounce. The put options mature with respect to
3,500 ounces of gold each month from
27
<PAGE>
June 1997 to December 1997, and with respect to 7,000 ounces of
gold each month from January 1998 to December 1998. The call
options mature with respect to 3,750 ounces of gold from January
1998 to December 1998. See "Items 1 and 2. Business and
Properties - Marketing and Hedging" and " -Risk Factors - Risk of
Hedging Strategies."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
Report of Independent Public Accountants 29
Financial Statements:
- Balance Sheets as of December 31, 1996 and 1995 30
- Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 32
- Statements of Stockholders' Equity for
Years Ended December 31, 1996, 1995 and 1994 33
- Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 34
- Notes to Financial Statements 36
Supplementary Financial Information is included on page 24.
28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders 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, 1996 and 1995, and the
related statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December
31, 1996. 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, 1996 and 1995, and the
results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
March 25, 1997
29
<PAGE>
<TABLE>
<CAPTION>
ALTA GOLD CO.
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
(In thousands)
ASSETS
1996 1995
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 518 $ 369
Inventories 4,568 4,251
Prepaid expenses and other 133 201
---------- ----------
Total current assets 5,219 4,821
PROPERTY AND EQUIPMENT, net:
Mining properties and claims 20,500 18,550
Buildings and equipment 13,851 15,063
---------- ----------
34,351 33,613
Less - accumulated depreciation (10,237) (8,049)
---------- ----------
Total property and equipment, net 24,114 25,564
DEFERRED MINE DEVELOPMENT COSTS, net 16,037 9,178
OTHER ASSETS 1,251 836
---------- ----------
Total assets $ 46,621 $ 40,399
========== ==========
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
ALTA GOLD CO.
BALANCE SHEETS (CONTINUED)
AS OF DECEMBER 31, 1996 AND 1995
(In thousands, except share and per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,378 $ 1,064
Accrued liabilities 609 380
Current portion of long-term
reclamation liabilities 449 769
Current portion of long-term debt 5,417 2,920
--------- ----------
Total current liabilities 7,853 5,133
LONG-TERM DEBT, net of current portion 1,993 3,297
DEFERRED INCOME TAXES 662 755
LONG-TERM RECLAMATION LIABILITIES,
net of current portion 509 826
--------- ----------
Total liabilities 11,017 10,011
--------- ----------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; authorized
60,000,000 shares, issued 29,022,371 and
28,452,780 shares, respectively 29 28
Additional paid-in capital 44,328 42,360
Accumulated deficit (8,753) (12,000)
--------- ----------
Total stockholders' equity 35,604 30,388
--------- ----------
Total liabilities and stockholders' equity $ 46,621 $ 40,399
========= ==========
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
ALTA GOLD CO.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In thousands, except share and per share amounts)
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE:
Sales of gold and other metals $ 19,581 $ 20,636 $ 10,696
OPERATING COSTS AND EXPENSES:
Direct mining, production,
reclamation and maintenance costs 14,590 15,396 8,332
General and administrative 1,611 1,432 1,455
Exploration 92 30 260
------------ ------------ -----------
16,293 16,858 10,047
============ ============ ===========
INCOME FROM OPERATIONS 3,288 3,778 649
OTHER INCOME (EXPENSE):
Gain on sale of assets - 2,589 307
Loss on forward contract - - (398)
Interest and other income 92 167 279
Interest expense (133) (645) (215)
------------ ----------- -----------
(41) 2,111 (27)
------------ ----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES AND
EXTRAORDINARY ITEM 3,247 5,889 622
PROVISION FOR INCOME TAXES - - -
------------ ----------- -----------
INCOME BEFORE
EXTRAORDINARY ITEM 3,247 5,889 622
EXTRAORDINARY ITEM:
Gain on extinguishment of debt - - 2,182
------------ ------------ ------------
NET INCOME $ 3,247 $ 5,889 $ 2,804
============ ============ ============
NET INCOME PER SHARE:
Income before extraordinary item $ .11 $ .21 $ .02
Extraordinary item - - .08
------------ ------------ ------------
Net income $ .11 $ .21 $ .10
------------ ------------ ------------
WEIGHTED-AVERAGE COMMON
SHARES OUTSTANDING 30,362,011 28,337,506 27,608,897
============= ============ ============
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
ALTA GOLD CO.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In thousands)
COMMON STOCK ADDITIONAL
----------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 27,004 $ 27 $ 39,907 $ (20,693) $ 19,241
Common stock issued
for compensation 44 - 50 - 50
Common 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
Common 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
Common stock issued
for compensation 51 - 79 - 79
Common stock issued for
exercise of stock options 78 - 39 - 39
Common stock issued in
conjunction with acquisition
of mining properties and claims 40 - 160 - 160
Common stock issued upon
conversion of debt 400 1 1,599 - 1,600
Compensation expense for
stock options - - 128 - 128
Other - - (37) - (37)
Net income - - - 3,247 3,247
-------- -------- --------- ----------- -----------
Balance, December 31, 1996 29,022 $ 29 $ 44,328 $ (8,753) $ 35,604
======== ======== ========= =========== ===========
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
ALTA GOLD CO.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In thousands)
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,247 $ 5,889 $ 2,804
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation, depletion and amortization 3,087 3,350 967
Net gain on sale of assets - (2,589) (307)
Gain on extinguishment of debt - - (2,182)
Stock issued for compensation
and other services 79 47 50
Compensation expense for stock options 128 - -
Interest expense on term loan payable to
Mase Westpac Ltd. - - 194
Loss on forward copper delivery contracts - - 398
Decrease (increase) in -
Inventories (317) (445) (453)
Prepaid expenses and other (347) 519 424
Increase (decrease) in -
Accounts payable 314 (1,141) 978
Accrued and other liabilities (523) (690) (701)
Deferred income taxes (93) - -
--------- --------- ---------
Net cash provided by operating activities 5,575 4,940 2,172
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,644) (1,474) (8,677)
Additions to deferred mine development costs (7,147) (3,084) (1,692)
Proceeds from sale of property and equipment - 240 353
Proceeds from sale of royalty interest - 2,425 -
--------- --------- ---------
Net cash used in investing activities (8,791) (1,893) (10,016)
--------- --------- ---------
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
ALTA GOLD CO.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In thousands)
1996 1995 1994
--------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt settlement $ - $ - $ 4,214
Proceeds from issuance of debt 5,500 5,853 1,000
Payments on debt (2,137) (9,016) (147)
Proceeds from exercise of stock
options 39 - -
Other (37) 14 (184)
--------- ---------- ----------
Net cash provided by (used in)
financing activities 3,365 (3,149) 4,883
--------- ---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 149 (102) (2,961)
CASH AND CASH EQUIVALENTS:
Beginning of year 369 471 3,432
--------- ---------- ----------
End of year $ 518 $ 369 $ 471
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for-
Interest, net of amount capitalized $ 262 $ 357 $ 13
========= ========== ==========
Income taxes $ 36 $ 67 $ 18
========= ========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Equipment purchased with debt $ 707 $ 761 $ -
========= ========== ==========
Mining properties and claims
acquired with debt $ - $ - $ 7,947
========= ========== ==========
Mining properties and claims
acquired with common stock $ 160 $ - $ 1,843
========= ========== ==========
Debt retired with common stock $ 1,600 $ 500 $ -
========= ========== ==========
Mining properties and claims
purchase price adjustment $ 1,400 $ - $ -
========= ========== ==========
Gold in process transferred
from deferred development to
gold inventories $ - $ - $ 1,229
========= ========== ==========
Interest capitalized on zero
coupon debentures $ 123 $ 113 $ 59
========= ========== ==========
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
35
<PAGE>
ALTA GOLD CO.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) BASIS OF PRESENTATION AND NATURE OF OPERATIONS
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 engaged in the exploration, development,
mining and production of gold on properties located in Nevada.
The Company also owns three base metal properties, located in the
western United States.
During the years ended December 31, 1996, 1995, and 1994, the
Company sold approximately 100%, 86% and 100%, respectively, of
its gold production to one company.
KINSLEY
In 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. During
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 in 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 30 trading days immediately preceding
the issuance of the stock.
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 a total of
300,000 ounces and an additional 24% working interest if gold
production exceeds a total of 500,000 ounces.
COPPER FLAT
During 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"). 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.
The debentures were subject to a right of offset in the event
that the Company suffered 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 identified several breaches made by
36
<PAGE>
Gold Express and exercised its right of offset. In June 1996, the
Company entered into a settlement with Gold Express' successor in
interest, StarTronix International, Inc. ("StarTronix"), to
convert $1,600,000 of the $3,000,000 convertible debentures into
400,000 shares of the Company's common stock and warrants to buy
an additional 400,000 shares of the Company's common stock at a
price of $4.00 per share. The warrants were determined to have a
de minimis value. The difference was credited against the
original cost of certain mining properties and claims for which
the original debentures were issued.
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 a 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 was 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. In
1996, a payment of $109,000 was made to the owner of the reserved
interest to satisfy this obligation.
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
production commences, the Company must pay the predecessor in
interest $150,000 in annual advanced royalties which will be
credited against the net smelter royalty when production
commences.
OLINGHOUSE
During 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
During 1994, the Company acquired from Griffon Resources, Inc.
("GRI") the Griffon gold deposit located near Ely, Nevada. 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.
The Company is currently in the process of obtaining the
necessary permits and approvals to begin development of the mine
and 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.
EASY JUNIOR
The Company owns a 100% interest in the Easy Junior mine which is
located near Ely, Nevada. Mining operations were completed in
the third quarter of 1994 with the exception of crushing and
leaching
37
<PAGE>
activities. Crushing activities were completed in the first
quarter of 1995 and leaching activities were completed in the
fourth quarter of 1996.
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 net book
value of property, equipment, claims and deferred mine
development costs at Ward and the Taylor mill is approximately
$8,500,000 at December 31, 1996.
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. At the time of the sale, the royalty interest had
no book value, 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 fair
value.
INVENTORIES
Inventories of in-process mineral products and consumable
supplies are stated at the lower of cost (using the first-in,
first-out method) or market value. Inventories of refined
products are stated at market value.
Inventories consist of the following as of December 31, 1996 and
1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Precious metals:
Refined products $ 132 $ 238
In process 4,293 3,765
Consumable supplies 143 248
-------- --------
$ 4,568 $ 4,251
======== ========
</TABLE>
38
<PAGE>
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 a property. If the sum of the
undiscounted future cash flows is less than the carrying amount
of a 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, 1996, 1995 and
1994 totaled $384,000, $286,000 and $264,000, respectively.
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.
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.
HEDGING ACTIVITIES
The Company may enter into forward sales and other hedging
transactions related to future production to hedge the effect of
price changes on metals produced by the Company. The effect of
forward sales are reflected in operations when the related metals
are delivered from production. At December 31, 1996, the Company
had no outstanding forward sales, put, call or other contracts
related to future production.
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 and had sold call contracts for 3,000 ounces of
gold at $420 per ounce.
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
39
<PAGE>
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.
INCOME TAXES
The Company follows the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109, ACCOUNTING FOR INCOME
TAXES, which 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.
NET INCOME PER SHARE
Net income 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 calculation of net income per share for the years
ended December 31, 1995 and 1994 because they had a de minimus
effect on net income per share.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior periods'
financial statements to conform with the current year
presentation. These reclassifications had no effect on net
income.
(3) DEFERRED MINE DEVELOPMENT COSTS
Deferred mine development costs as of December 31, 1996 and 1995,
are summarized as follows by mining area (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Olinghouse $ 6,687 $ 2,005
Ward and Taylor 4,389 4,389
Copper Flat 4,025 2,747
Kinsley 1,907 1,148
Griffon 946 394
--------- ---------
17,954 10,683
Less-accumulated amortization (1,917) (1,505)
--------- ---------
$ 16,037 $ 9,178
========= =========
</TABLE>
40
<PAGE>
(4) LONG-TERM DEBT
Long-term debt as of December 31, 1996 and 1995 consists of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Note payable to Gerald Metals; interest at LIBOR plus 2%
(7.6% at December 31, 1996); due November 30, 1997;
secured by a first priority mortgage on the Kinsley
gold property $ 4,900 $ -
Zero coupon $4,000,000 subordinated debenture; discounted
at an imputed interest rate of 9%; due June 14, 2008 1,492 1,369
Notes payable; interest at various rates of 8.5% to 16.1%;
due at various dates between April 1998 and June 1999;
secured by equipment 1,018 673
Amount due under a bank credit facility; interest at prime
plus 2% (10.25% at December 31, 1996); paid in 1996;
secured by equipment - 1,125
Subordinated convertible debenture; interest at 6%;
converted in 1996 - 1,500
Subordinated convertible debenture; interest at 6%;
converted in 1996 - 1,500
Note payable; interest at 10%; paid in 1996; unsecured - 50
---------- ---------
7,410 6,217
Less- current portion (5,417) (2,920)
---------- ---------
Total long-term debt $ 1,993 $ 3,297
========== =========
</TABLE>
The two subordinated convertible debentures were converted into
400,000 shares of the Company's common stock and warrants to buy
an additional 400,000 shares of the Company's common stock at
$4.00 per share in June 1996. The remaining book value of the
debt was offset against the cost of certain mining properties and
claims under the terms of the Copper Flat purchase agreement (see
Note 1).
The note payable to Gerald Metals contains certain covenants that
impose various restrictions on the ability of the Company to,
among other things, incur additional debt, change the Company's
corporate structure and pay dividends on or repurchase the
Company's common stock. In addition, the Company is required to
sell 100% of its gold production to Gerald Metals through May 31,
1998.
In management's opinion, the fair market value of long-term debt
approximated book value at December 31, 1996 and 1995. The fair
value of long-term debt is based on the present value of expected
future cash flows discounted by the Company's estimated
incremental borrowing rate.
41
<PAGE>
At December 31, 1996, maturities of the Company's long-term debt
are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31,
1997 $ 5,417
1998 396
1999 105
2000 -
2001 -
Thereafter 1,492
--------
$ 7,410
========
</TABLE>
(5) INCOME TAXES
The components of the net deferred tax asset (liability) as of
December 31, 1996 and 1995, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 8,750 $ 6,642
Reclamation and other reserves 381 598
Other 85 188
-------- --------
9,216 7,428
Less - valuation allowance (5,667) (6,985)
-------- --------
Total deferred tax assets 3,549 443
-------- --------
Deferred tax liabilities:
Depreciation, depletion and amortization (3,549) (443)
Alternative minimum taxes (662) (755)
-------- --------
Total deferred tax liabilities (4,211) (1,198)
-------- --------
Net deferred income taxes $ (662) $ (755)
======== ========
</TABLE>
SFAS No. 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, 1996 and 1995, the Company
determined that $5,667,000 and $6,985,000, respectively, of
previously unrecognized tax benefits did not satisfy the
recognition criteria set forth in SFAS No. 109 because of the
Company's history of prior operating results; therefore, a
valuation allowance was recorded to reserve the applicable
deferred tax assets. During the years ended December 31, 1996,
1995 and 1994, no income tax provision was recognized due to
utilization of net operating loss carryforwards.
42
<PAGE>
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, 1996 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Computed "expected" provision for income
taxes at the Federal statutory rate $ 1,136 $ 2,061 $ 997
Utilization of net operating loss carryforwards (1,140) (2,053) (1,005)
Other 4 (8) 8
--------- ---------- ---------
Provision for income taxes $ - $ - $ -
========= ========== =========
</TABLE>
As of December 31, 1996, 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 2011 $25,001
Federal AMT operating loss
carryforwards 2007 $ 1,891
</TABLE>
(6) RECLAMATION AND ENVIRONMENTAL COSTS
GENERAL
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. 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. 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.
The Company's mining, exploration, development and operational
activities are subject to Federal, state and local laws as well
as various governmental agency regulations that require the
Company to protect the environment. 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. 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, 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.
43
<PAGE>
A portion of the Company's reclamation obligation relates to
former mining properties acquired by the Company. For the
obligations recorded on these properties, actual expenditures for
reclamation may 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.
RESTRICTED RECLAMATION DEPOSITS
Certain regulatory agencies, such as the Bureau of Land
Management and the Environmental Protection Agency, review the
Company's reclamation and environmental obligations and require
the Company to hold restricted deposits at financial institutions
or with the appropriate agency to ensure that adequate funds will
be available to meet estimated future reclamation costs. Such
deposits, totaling $870,000 and $609,000 as of December 31, 1996
and 1995, respectively, are classified as other assets in the
accompanying balance sheets.
SHASTA PROPERTY
In January 1996, the Company entered into a settlement agreement
with the California Sportfishing Protection Alliance ("CSPA")
related to certain property owned by the Company in Shasta
County, California. The CSPA had previously filed an action
against the Company under the Clean Water Act. The Company
agreed to pay the CSPA $450,000 and make certain expenditures
related to reclamation and clean-up. Under the terms of the
settlement, the Company paid the CSPA $200,000 in 1996, $150,000
on January 31, 1997, and must pay $100,000 before January 31,
1998. These 1997 and 1998 payment obligations have been included
in reclamation liabilities in the accompanying balance sheets.
In April 1996, the Company entered into a settlement agreement
with various companies which also owned property in Shasta County
and which the Company alleged to have contributed to any
environmental damage in the area. The Company received $380,000
from the various companies and was indemnified against present
and future claims, except for costs incurred as a result of the
CSPA settlement.
(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.
PURCHASE COMMITMENT
The Company formerly rented office facilities in Ely, Nevada. In
1994, it exercised an option to purchase these facilities. The
option provides for payments of $200,000 in cash, 100,000 shares
of restricted common stock of the Company, and a $1,000,000 note
payable, payable in six annual installments with interest at
prime plus 1% (9.25% at December 31, 1996). The Company has made
the initial $200,000 non-refundable payment under terms of the
option. However, before the Company acquires the property, the
seller is responsible for correcting certain environmental
problems at the site.
44
<PAGE>
The Company is awaiting the resolution of the environmental
issues before completing the purchase. The $200,000 is included
in other assets in the accompanying balance sheets.
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. 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 balance sheets.
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 1996
and 1995 totaled $460,000 and $267,000, respectively. At
December 31, 1996, minimum lease payments under these leases are
as follows (in thousands):
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1997 $ 452
1998 464
1999 215
2000 231
2001 238
Thereafter 2,326
--------
$ 3,926
========
</TABLE>
OPERATING LEASES
The Company leases its corporate headquarters in Henderson,
Nevada. Under the terms of the lease, the Company is required to
make monthly rent payments which increase annually 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 which
is included in general and administrative expenses was $105,000
and $100,000 for the years ended December 31, 1996 and 1995,
respectively. Minimum rental payments under the lease are
approximately $109,000, $114,000 and $21,000 for the years ending
December 31, 1997, 1998 and 1999, 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. The Company cannot economically insure for
environmental pollution and has elected not to insure for mine
cave-ins and other possible natural hazards consistent with
industry practice.
(8) EMPLOYEE BENEFIT PLANS
401(K) PLAN
The Company has a deferred compensation plan pursuant to Section
401(k) of the Internal Revenue Code for all regular full-time
employees who have reached the age of 21 and completed one year
of service.
45
<PAGE>
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 participant's voluntary salary deferrals at
the rate of 100% to a maximum of 5% of pay. Amounts expensed
under the plan for the years ended December 31, 1996, 1995 and
1994 totaled $130,000, $119,000, and $111,000, respectively.
STOCK-BASED COMPENSATION PLANS
The Company has adopted the 1994 Employee Stock Option Plan (the
"1994 Plan"). In addition, the Company has granted options
pursuant to various employment agreements.
1994 Plan -- In June 1994, the Company's stockholders approved
the 1994 Plan, under which 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 1994 Plan and the
Company's Board of Directors were authorized to establish a
committee (the "Committee") to administer all aspects of the 1994
Plan, including selection of people to receive options, the
number of options to be granted (up to a maximum of 1,000,000)
and the establishment of the general terms of each option grant.
The options granted in 1994 and 1995 vest over periods ranging
from two to four years and are exercisable over a period of ten
years. No options were granted in 1996.
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 became exercisable ratably over a four-
year period and are exercisable for a period of ten years.
In 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 are exercisable
over a period of ten years. These options require approval from
the Company's shareholders at the 1997 annual meeting.
The Company accounts for these stock options under Accounting
Principles Board Opinion No. 25, under which compensation cost is
determined as the difference in the fair market value of the
shares on the date the options are granted and the exercise price
of the options. For the years ended December 31, 1996 and 1995,
had the compensation cost for these plans been determined
consistent with SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the following pro
forma amounts:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Net Income
As reported $ 3,247,000 $ 5,889,000
============ ============
Pro forma $ 3,175,000 $ 5,817,000
============ ============
Earnings per share
As reported $ .11 $ .21
========= =========
Pro forma $ .10 $ .21
========= =========
</TABLE>
46
<PAGE>
Because the SFAS No. 123 method of accounting has not been
applied to options granted prior to January 1, 1995, the
resulting pro forma compensation cost may not be representative
of that to be expected in future years.
A summary of the status of the Company's 1994 Plan and options
related to employment agreements for each of the three years in
the period ended December 31, 1996, is presented in the table and
narrative below (shares in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---------------------- -------------------- ------------------
WTD. AVG. WTD. AVG. WTD. AVG.
SHARES EX. PRICE SHARES EX. PRICE SHARES EX. PRICE
--------- ----------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year 580 $.75 1,302 $1.08 1,580 $1.20
Granted 722 $1.34 333 $1.72 - -
Exercised - - - - (98) $1.34
Canceled - - (55) $1.34 - -
-------- -------- --------
Outstanding, end of year 1,302 $1.08 1,580 $1.20 1,482 $1.19
======== ======== ========
Exercisable at end of year 415 $.75 764 $.91 1,037 $1.05
======== ======== ========
Weighted average fair value
of options granted $ .61 $ .78 $ -
======== ======== ========
</TABLE>
At December 31, 1996, 580,000 of the 1,482,000 options
outstanding have a weighted average exercise price of $.75 and a
weighted average remaining contractual life of 9.1 years. All of
these options are exercisable. The remaining 902,000 options
have exercise prices between $1.34 and $1.72, with a weighted
average exercise price of $1.48 and a weighted average remaining
contractual life of 8.4 years. 457,000 of these options are
exercisable and their weighted average exercise price is $1.42.
The fair value of each option grant is estimated on the date of
the grant using the Black-Scholes option pricing model with the
following assumptions: risk-free interest rate of 6.5 percent;
expected dividend yield of 0.0 percent; expected life of 4.0
years; expected volatility of 49 percent.
(9) STOCKHOLDERS' EQUITY
NON-EMPLOYEE DIRECTOR STOCK OPTION AND STOCK COMPENSATION
AGREEMENTS
In December 1996, the Company granted options to purchase 35,000
shares of the Company's common stock at a price of $3.53 per
share to directors as directors' compensation. The options
became exercisable immediately and remain exercisable for a
period of ten years from the grant date. Compensation cost of
$38,000 was recognized based on the fair value of the options.
During the years ended December 31, 1996, 1995 and 1994, the
Company issued 50,833, 40,834 and 44,166 shares, respectively, of
its restricted common stock to directors as directors'
compensation.
OTHER NON-EMPLOYEE STOCK OPTIONS
In March 1995, the Company granted Gerald Metals an option to
purchase 150,000 shares of the Company's 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 remains exercisable for a period of five years from the grant
date.
47
<PAGE>
In May 1996, the Company granted Gerald Metals an option to
purchase 75,000 shares of the Company's common stock at a price
of $3.75 per share in connection with a loan from Gerald Metals
(see Note 4). The option became exercisable immediately and
remains exercisable for a period of five years from the grant
date. The Company capitalized the fair value of these options
totaling $72,000 as deferred financing fees which are being
amortized to interest expense over the life of the loan.
NON-EMPLOYEE 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.
In November 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 loan made to
the Company (see Note 4). These warrants became exercisable
immediately and remain exercisable for a period of three years
from the grant date.
In June 1996, the Company issued 400,000 warrants with an
exercise price of $4.00 per share as part of a settlement to
retire subordinated debentures issued in conjunction with the
acquisition of Copper Flat (see Notes 1 and 4). These warrants
became exercisable immediately and remain exercisable for a
period of five years from the grant date.
(10) RELATED PARTY TRANSACTIONS
DIRECTORS' COMPENSATION
At December 31, 1996 and 1995, the Company had accrued
compensation totaling approximately $70,000 and $101,000,
respectively, for non-employee directors of the Company.
EMPLOYMENT AGREEMENTS
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.
CONTRIBUTION FROM SHAREHOLDER
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 and credited to additional paid-in-
capital.
48
<PAGE>
(11) DEBT EXTINGUISHMENT
During 1991, one of the Company's former bank lenders filed an
action to recover the entire balance under a revolving credit
agreement. Subsequently, the Company filed a countersuit against
the lender seeking a declaratory judgment that the Company was
not in default under the revolving credit agreement and alleging,
among other items, breach of contract.
In May 1994, the Company entered into a settlement with the
lender and related parties which resulted in the full and
complete settlement of any and all litigation and claims. As a
result of the settlement, the Company realized an extraordinary
gain from the extinguishment of debt of $2,182,000.
(12) SUBSEQUENT EVENTS
Effective March 25, 1997, Gerald Metals, Inc. committed to
replace the $4,900,000 principal balance of the note payable
that was outstanding as of December 31, 1996 with a new loan
facility in the amount of $8,500,000, with closing to take
place in April 1997. The new loan facility will bear interest
at a rate of LIBOR plus 2% and amounts borrowed thereunder
will be repaid ratably over a twelve month period beginning
in January 1998. The new loan facility will be secured by a
first priority mortgage on the Kinsley, Olinghouse and
Griffin gold properties and will contain covenants that
impose various restrictions on the ability of the Company
to, among other things, incur additional debt, change the
Company's corporate structure, use proceeds from equity
financings other than for certain specified purposes, and pay
dividends or repurchase the Company's common stock. In addition,
the Company will be required to sell 100% of its gold production
to Gerald Metals, Inc. through March 31, 1999 and to enter into a
hedging program covering the Company's projected gold production
from June 1997 through December 1998. In conjunction with this
hedging requirement, the Company, on March 21, 1997, purchased
put options for 108,500 ounces of gold at $335 per ounce, and, to
partially offset the cost of the put option, sold call options
for 45,000 ounces of gold at $390 per ounce. The put options
mature with respect to 3,500 ounces of gold each month from June
1997 to December 1997, and with respect to 7,000 ounces of gold
each month from January 1998 to December 1998. The call options
mature with respect to 3,750 ounces of gold from January 1998 to
December 1998.
49
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information is incorporated by reference from the
Company's Proxy Statement to be filed with the Securities and
Exchange Commission (the "Commission") in connection with the
Company's Annual Meeting of Stockholders to be held on June 13,
1997.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from the
Company's Proxy Statement to be filed with the Commission in
connection with the Company's Annual Meeting of Stockholders to
be held on June 13, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
This information is incorporated by reference from the
Company's Proxy Statement to be filed with the Commission in
connection with the Company's Annual Meeting of Stockholders to
be held on June 13, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference from the
Company's Proxy Statement to be filed with the Commission in
connection with the Company's Annual Meeting of Stockholders to
be held on June 13, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
PAGE
(a) 1. Financial Statements: 28
See Index to Financial Statement
2. Financial Statement Schedules:
None required.
(b) Reports on Form 8-K:
Form 8-K, Item 5, for an event dated January 20,
1997, reporting the Company's Amended and Restated
Articles of Incorporation and Amended and Restated
Bylaws.
(c) Exhibits:
The following listed documents are included herein or have been
incorporated by reference from previous reports filed with the
Securities and Exchange Commission:
3.01 Restated Articles of Incorporation of Alta
Gold Co. (16)
3.02 Restated Bylaws of Alta Gold Co. (16)
50
<PAGE>
4.01 See Exhibit 3.01
4.02 See Exhibit 3.02
4.07 See Exhibit 10.33
4.08 See Exhibit 10.34
4.03 See Exhibit 10.18
4.04 See Exhibit 10.19
4.05 See Exhibit 10.28
4.06 See Exhibit 10.31
10.01 Exchange Agreement dated June 30, 1988, by and
among Silver King Mines, Inc., Pacific Silver
Corporation, Alta Gold Co. ("Alta"), NERCO
Minerals Company, and Resource Associates of
Alaska ("RAA") relating to the exchange of
Alta's interest in the Taylor Property with
RAA for an undivided one-half interest in the
Shoshone Property. (1)
10.02 Alta-NERCO Joint Venture Agreement, dated
July 1, 1988, by and between Alta Gold Co. and
Resource Associates of Alaska, Inc., relating
to the formation of the Alta-NERCO Joint
Venture. (1)
10.03 Amended and Restated Gold Production Purchase
Agreement between Mase Westpac Limited, New
York Branch and Alta Gold Co., dated
January 3, 1990 and relating to the purchase
of 38,000 ounces of gold. (2)
10.04 Loan Agreement between J. Aron & Company and
Alta Gold Co., dated as of February 26, 1990.
(2)
10.05 Warrant Purchase Agreement between Alta Gold
Co. and J. Aron & Company, dated as of
February 26, 1990. (2)
10.06 Master Agreement between the Company, Magma
Copper Company and Magma Nevada Mining Company
dated as of December 14, 1990. (3)
10.07 Consent, Lease Termination and Asset Transfer
Agreement among the Echo Bay Group, Magma
Copper Company, Magma Nevada Mining Company
and the Company dated as of December 14, 1990.
(3)
10.08 Limited Partnership Agreement among the
Company, Magma Nevada Mining Company and Magma
Limited Partner Co. dated as of March 13,
1991. (3)
10.09 Option Agreement between the Company and Magma
Nevada Mining Company dated March 13, 1991
relating to Put and Call options on interest
in the Robinson Property. (3)
10.10 Irrevocable Trust Agreement and Assignment of
Partnership Units to Trustee dated March 13,
1991 between the Company and West One Trust
Company. (3)
10.11 Provisional Copper Production Payment
Agreement between the Company and Magma Mining
Company dated December 14, 1990. (3)
10.12 Provisional Gold Production Payment Agreement
between the Company and Magma Mining Company
dated December 14, 1990. (3)
51
<PAGE>
10.13 Letter Agreement among the Company, Kennecott,
Magma and the Echo Bay Group concerning
environmental liability and expenditures on
the Robinson Property. (3)
10.14 Employment Agreement between Alta Gold Co. and
Robert N. Pratt dated October 15, 1991. (5)
10.15 Employment Agreement between Alta Gold Co. and
John A. Bielun dated October 18, 1992. (5)
10.16 Asset Purchase Agreement between Alta Gold Co.
and Gold Express Corporation dated June 14,
1994 (8)
10.17 Two year 6% Subordinated Convertible Debenture
due June 14, 1996 issued by Alta Gold Co. to
Gold Express Corporation dated June 14, 1994.
(8)
10.18 Four year 6% Subordinated Convertible
Debenture due June 14, 1998 issued by Alta
Gold Co. to Gold Express Corporation dated
June 14, 1994. (8)
10.19 Fourteen year Subordinated Zero Coupon
Debenture due June 14, 2008 issued by Alta
Gold Co. to Gold Express Corporation dated
June 14, 1994. (8)
10.20 Provisional Copper Production Royalty
Agreement between Alta Gold Co. and Gold
Express Corporation dated June 14, 1994. (8)
10.21 Agreement by and among Alta Gold Co., Cobb
Resources Corporation and Hydro Resources
Corporation in regard to the royalty on the
Copper Flat Property effective June 14, 1994.
(8)
10.22 Agreement for Purchase and Sale of Mining
Claims between Alta Gold Co. and Phelps Dodge
Mining Company effective July 8, 1994. (9)
10.23 Agreement for Purchase and Sale of Mining
Claims between Alta Gold Co. and Cominco
American Resources Incorporated and USMX, INC,
dated April 14, 1994. (12)
10.24 Agreement for Purchase and Sale of Mining
Claims between Alta Gold Co. and Griffon
Resources, Inc. effective October 14, 1994.
(12)
10.25 Facility Agreement between Gerald Metals, Inc.
and Alta Gold Co. dated March 28, 1995. (10)
10.26 Margin Agreement between Gerald Metals, Inc.
and Alta Gold Co. dated March 28, 1995. (10)
10.27 Purchase/Refining Agreement between Gerald
Metals, Inc. and Alta Gold Co. dated March 28,
1995. (10)
10.28 Stock Option Agreement between Gerald Metals,
Inc. and Alta Gold Co. dated March 28, 1995.
(10)
10.29 Employment Agreement between Alta Gold Co. and
Robert N. Pratt dated June 9, 1995. (11)
10.30 Employment Agreement between Alta Gold Co. and
John A. Bielun dated June 9, 1995. (11)
10.31 Promissory Note with U.S. Bank of Nevada dated
September 18, 1995. (11)
52
<PAGE>
10.32 Employment Agreement between Alta Gold Co. and
James S. Goff dated June 9, 1995.(13)
10.33 Loan Agreement dated May 31, 1996 between Alta
Gold Co. and Gerald Metals, Inc. (14)
10.34 Stock Option Agreement dated May 31, 1996
between Gerald Metals, Inc. and Alta Gold Co.
(14)
10.35 Settlement Agreement dated June 28, 1996 by
and between Alta Gold Co. and StarTronix
International, Inc., the successor in interest
to Gold Express Corporation. (15)
10.36 Warrant to purchase 400,000 shares of Alta
Gold Co. common stock granted on June 28, 1996
to StarTronix International, Inc. (15)
21.01 Subsidiaries of the Company. (6)
23.01 Consent of Arthur Andersen LLP.
23.02 Consent of Pincock, Allen & Holt.
27.01 Financial Data Schedule.
99.01 Court stipulated Escrow Agreement re: Mase
Westpac litigation. (4)
99.02 Settlement Agreement and Mutual Release dated
May 23, 1994 by Republic Mase Bank Limited,
Republic Mase Inc. and Alta Gold Co. (7)
- -----------------
(1) Incorporated by reference to Form 10-K (file no. 2-2274) for
the fiscal year ended March 31, 1988.
(2) Incorporated by reference to Form 10-K (file no. 2-2274) for
the year ended December 31, 1989.
(3) Incorporated by reference to Form 10-K (file no. 2-2274) for
the year ended December 31, 1990.
(4) Incorporated by reference to Form 10-K (file no. 2-2274) for
the year ended December 31, 1991.
(5) Incorporated by reference to Form 10-K (file no. 2-2274) for
the year ended December 31, 1992.
(6) Incorporated by reference to Form 10-K (file no. 2-2274) for
the year ended December 31, 1993.
(7) Incorporated by reference to Form 8-K (file no. 2-2274)
dated May 23, 1994.
(8) Incorporated by reference to Form 8-K (file no. 2-2274)
dated June 14, 1994.
(9) Incorporated by reference to Form 8-K (file no. 2-2274)
dated July 8, 1994.
(10) Incorporated by reference to Form 10-Q (file no. 2-2274) for
the quarter ended June 30, 1995.
(11) Incorporated by reference to Form 10-Q (file no. 2-2274) for
the quarter ended September 30, 1995.
(12) Incorporated by reference to Form 10-K (file no. 2-2274) for
the year ended December 31, 1994.
(13) Incorporated by reference to Form 10-K (file no. 2-2274) for
the year ended December 31, 1995.
(14) Incorporated by reference to Form 8-K (file no. 2-2274)
dated May 31, 1996.
(15) Incorporated by reference to Form 10-Q (file no. 2-2274) for
the quarter ended June 30, 1996.
(16) Incorporated by reference to Form 8-K (file no. 2-2274)
dated January 20, 1997.
53
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ALTA GOLD CO.
By: /S/ ROBERT N. PRATT
Robert N. Pratt, Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Robert N. Pratt Chairman, President, Chief March 28, 1997
Robert N. Pratt Executive Officer & Director
/s/ John A. Bielun Principal Financial Officer and March 28, 1997
John A. Bielun Principal Accounting Officer
/s/ Ralph N. Gilges Director March 28, 1997
Ralph N. Gilges
/s/ Thomas A. Henrie Director March 28, 1997
Thomas A. Henrie
/s/ Iwao Ino Director March 28, 1997
Iwao Ino
/s/ John A. Keily Director March 28, 1997
John A. Keily
/s/ Jack W. Kendrick Director March 28, 1997
Jack W. Kendrick
/s/ Thomas D. Mueller Director March 28, 1997
Thomas D. Mueller
54
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
NO. NO.
3.01 Restated Articles of Incorporation of Alta
Gold Co. (16)
3.02 Restated Bylaws of Alta Gold Co. (16)
4.01 See Exhibit 3.01
4.02 See Exhibit 3.02
4.07 See Exhibit 10.33
4.08 See Exhibit 10.34
4.03 See Exhibit 10.18
4.04 See Exhibit 10.19
4.05 See Exhibit 10.28
4.06 See Exhibit 10.31
10.01 Exchange Agreement dated June 30, 1988, by
and among Silver King Mines, Inc., Pacific
Silver Corporation, Alta Gold Co. ("Alta"),
NERCO Minerals Company, and Resource
Associates of Alaska ("RAA") relating to the
exchange of Alta's interest in the Taylor
Property with RAA for an undivided one-half
interest in the Shoshone Property. (1)
10.02 Alta-NERCO Joint Venture Agreement, dated
July 1, 1988, by and between Alta Gold Co.
and Resource Associates of Alaska, Inc.,
relating to the formation of the Alta-NERCO
Joint Venture. (1)
10.03 Amended and Restated Gold Production Purchase
Agreement between Mase Westpac Limited, New
York Branch and Alta Gold Co., dated
January 3, 1990 and relating to the purchase
of 38,000 ounces of gold. (2)
10.04 Loan Agreement between J. Aron & Company and
Alta Gold Co., dated as of February 26, 1990.
(2)
10.05 Warrant Purchase Agreement between Alta Gold
Co. and J. Aron & Company, dated as of
February 26, 1990. (2)
10.06 Master Agreement between the Company, Magma
Copper Company and Magma Nevada Mining
Company dated as of December 14, 1990. (3)
10.07 Consent, Lease Termination and Asset Transfer
Agreement among the Echo Bay Group, Magma
Copper Company, Magma Nevada Mining Company
and the Company dated as of December 14,
1990. (3)
10.08 Limited Partnership Agreement among the
Company, Magma Nevada Mining Company and
Magma Limited Partner Co. dated as of March
13, 1991. (3)
55
<PAGE>
EXHIBIT DESCRIPTION PAGE
NO. NO.
10.09 Option Agreement between the Company and
Magma Nevada Mining Company dated March 13,
1991 relating to Put and Call options on
interest in the Robinson Property. (3)
10.10 Irrevocable Trust Agreement and Assignment of
Partnership Units to Trustee dated March 13,
1991 between the Company and West One Trust
Company. (3)
10.11 Provisional Copper Production Payment
Agreement between the Company and Magma
Mining Company dated December 14, 1990. (3)
10.12 Provisional Gold Production Payment Agreement
between the Company and Magma Mining Company
dated December 14, 1990. (3)
10.13 Letter Agreement among the Company,
Kennecott, Magma and the Echo Bay Group
concerning environmental liability and
expenditures on the Robinson Property. (3)
10.14 Employment Agreement between Alta Gold Co.
and Robert N. Pratt dated October 15, 1991.
(5)
10.15 Employment Agreement between Alta Gold Co.
and John A. Bielun dated October 18, 1992.
(5)
10.16 Asset Purchase Agreement between Alta Gold
Co. and Gold Express Corporation dated June
14, 1994 (8)
10.17 Two year 6% Subordinated Convertible
Debenture due June 14, 1996 issued by Alta
Gold Co. to Gold Express Corporation dated
June 14, 1994. (8)
10.18 Four year 6% Subordinated Convertible
Debenture due June 14, 1998 issued by Alta
Gold Co. to Gold Express Corporation dated
June 14, 1994. (8)
10.19 Fourteen year Subordinated Zero Coupon
Debenture due June 14, 2008 issued by Alta
Gold Co. to Gold Express Corporation dated
June 14, 1994. (8)
10.20 Provisional Copper Production Royalty
Agreement between Alta Gold Co. and Gold
Express Corporation dated June 14, 1994. (8)
10.21 Agreement by and among Alta Gold Co., Cobb
Resources Corporation and Hydro Resources
Corporation in regard to the royalty on the
Copper Flat Property effective June 14, 1994.
(8)
10.22 Agreement for Purchase and Sale of Mining
Claims between Alta Gold Co. and Phelps Dodge
Mining Company effective July 8, 1994. (9)
10.23 Agreement for Purchase and Sale of Mining
Claims between Alta Gold Co. and Cominco
American Resources Incorporated and USMX,
INC, dated April 14, 1994. (12)
10.24 Agreement for Purchase and Sale of Mining
Claims between Alta Gold Co. and Griffon
Resources, Inc. effective October 14, 1994.
(12)
10.25 Facility Agreement between Gerald Metals,
Inc. and Alta Gold Co. dated March 28, 1995.
(10)
56
<PAGE>
EXHIBIT DESCRIPTION PAGE
NO. NO.
10.26 Margin Agreement between Gerald Metals, Inc.
and Alta Gold Co. dated March 28, 1995. (10)
10.27 Purchase/Refining Agreement between Gerald
Metals, Inc. and Alta Gold Co. dated March
28, 1995. (10)
10.28 Stock Option Agreement between Gerald Metals,
Inc. and Alta Gold Co. dated March 28, 1995.
(10)
10.29 Employment Agreement between Alta Gold Co.
and Robert N. Pratt dated June 9, 1995. (11)
10.30 Employment Agreement between Alta Gold Co.
and John A. Bielun dated June 9, 1995. (11)
10.31 Promissory Note with U.S. Bank of Nevada
dated September 18, 1995. (11)
10.32 Employment Agreement between Alta Gold Co.
and James S. Goff dated June 9, 1995.(13)
10.33 Loan Agreement dated May 31, 1996 between
Alta Gold Co. and Gerald Metals, Inc. (14)
10.34 Stock Option Agreement dated May 31, 1996
between Gerald Metals, Inc. and Alta Gold Co.
(14)
10.35 Settlement Agreement dated June 28, 1996 by
and between Alta Gold Co. and StarTronix
International, Inc., the successor in
interest to Gold Express Corporation. (15)
10.36 Warrant to purchase 400,000 shares of Alta
Gold Co. common stock granted on June 28,
1996 to StarTronix International, Inc. (15)
21.01 Subsidiaries of the Company. (6)
23.01 Consent of Arthur Andersen LLP. 59
23.02 Consent of Pincock, Allen & Holt. 61
27.01 Financial Data Schedule. 63
99.01 Court stipulated Escrow Agreement re: Mase
Westpac litigation. (4)
99.02 Settlement Agreement and Mutual Release dated
May 23, 1994 by Republic Mase Bank Limited,
Republic Mase Inc. and Alta Gold Co. (7)
- ------------------
(1) Incorporated by reference to Form 10-K (file no. 2-2274) for
the fiscal year ended March 31, 1988.
(2) Incorporated by reference to Form 10-K (file no. 2-2274) for
the year ended December 31, 1989.
(3) Incorporated by reference to Form 10-K (file no. 2-2274) for
the year ended December 31, 1990.
(4) Incorporated by reference to Form 10-K (file no. 2-2274) for
the year ended December 31, 1991.
(5) Incorporated by reference to Form 10-K (file no. 2-2274) for
the year ended December 31, 1992.
(6) Incorporated by reference to Form 10-K (file no. 2-2274) for
the year ended December 31, 1993.
(7) Incorporated by reference to Form 8-K (file no. 2-2274)
dated May 23, 1994.
57
<PAGE>
(8) Incorporated by reference to Form 8-K (file no. 2-2274)
dated June 14, 1994.
(9) Incorporated by reference to Form 8-K (file no. 2-2274)
dated July 8, 1994.
(10) Incorporated by reference to Form 10-Q (file no. 2-2274) for
the quarter ended June 30, 1995.
(11) Incorporated by reference to Form 10-Q (file no. 2-2274) for
the quarter ended September 30, 1995.
(12) Incorporated by reference to Form 10-K (file no. 2-2274) for
the year ended December 31, 1994.
(13) Incorporated by reference to Form 10-K (file no. 2-2274) for
the year ended December 31, 1995.
(14) Incorporated by reference to Form 8-K (file no. 2-2274)
dated May 31, 1996.
(15) Incorporated by reference to Form 10-Q (file no. 2-2274) for
the quarter ended June 30, 1996.
(16) Incorporated by reference to Form 8-K (file no. 2-2274)
dated January 20, 1997.
58
<PAGE>
EXHIBIT 23.01
CONSENT OF ARTHUR ANDERSEN LLP
59
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated March 25, 1997, included or
incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements File Nos. 33-84046,
333-05695, 333-05697, 333-05699.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
March 28, 1997
60
<PAGE>
EXHIBIT 23.02
CONSENT OF PINCOCK, ALLEN & HOLT
61
<PAGE>
[PINCOCK, ALLEN & HOLT LETTERHEAD]
March 24, 1997
Mr. John Bielun
Chief Financial Officer
Alta Gold Co.
601 Whitney Ranch Road
Suite 10
Henderson, Nevada 89014
Dear Sirs:
Pincock, Allen & Holt, a mining consulting firm based in
Lakewood, Colorado, hereby consents to the incorporation by
reference in the registration statements on Form S-8 (nos. 33-
305695, 33-305697 and 33-305699) and on Form S-3 (no. 33-84046)
of Alta Gold Co. of our report entitled "Reserve Audit, Kinsley
Mountain Gold Mine, Olinghouse Gold Project, Griffon Gold
Project, and the Copper Flat Copper Project," dated March 14,
1997 and all references to our firm included in or made part of
Alta Gold Co.'s Annual Report or Form 10-K for the fiscal year
ending December 31, 1996.
Sincerely,
PINCOCK, ALLEN & HOLT
/s/ John W. Rozelle, C.P.G.
John W. Rozelle, C.P.G.
Principal Geologist
62
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 518
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 4,568
<CURRENT-ASSETS> 5,219
<PP&E> 34,351
<DEPRECIATION> 10,237
<TOTAL-ASSETS> 46,621
<CURRENT-LIABILITIES> 7,853
<BONDS> 1,993
0
0
<COMMON> 29
<OTHER-SE> 35,575
<TOTAL-LIABILITY-AND-EQUITY> 46,621
<SALES> 19,581
<TOTAL-REVENUES> 19,581
<CGS> 14,590
<TOTAL-COSTS> 14,590
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133
<INCOME-PRETAX> 3,247
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,247
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<NET-INCOME> 3,247
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