FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: June 30, 1998
----------------------------------
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
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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
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(Address of principal executive offices) (Zip Code)
(702) 433-8525
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since
last report)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
The number of shares outstanding of the Registrant's Common Stock as
of August 6, 1998 was 32,515,528
<PAGE>
ALTA GOLD CO.
TABLE OF CONTENTS
PAGE
NUMBER
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997.................. 3
Consolidated Statements of Operations for the
Three Months Ended June 30, 1998 and 1997............ 5
Six Months Ended June 30, 1998 and 1997.............. 6
Condensed Statements of Cash Flows for the
Six Months Ended June 30, 1998 and 1997.............. 7
Notes to Condensed Financial Statements.............. 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........13
PART II. Other Information
Item 1. Legal Proceedings....................................19
Item 2. Changes in Securities................................19
Item 4. Submission of Matters to a Vote of Security Holders..19
Item 5. Other................................................20
Item 6. Exhibits and Reports on Form 8-K.....................20
SIGNATURE ..........................................................21
EXHIBIT INDEX ......................................................22
2
<PAGE>
<TABLE>
<CAPTION>
ALTA GOLD CO.
CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
June 30, December 31,
1998 1997
--------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,788,000 $ 3,330,000
Inventories 8,764,000 8,152,000
Prepaid expenses and other 291,000 157,000
--------------- ---------------
Total current assets 10,843,000 11,639,000
PROPERTY AND EQUIPMENT, net
Mining properties and claims 22,211,000 20,936,000
Buildings and equipment 23,624,000 17,697,000
--------------- ---------------
45,835,000 38,633,000
Less- accumulated depreciation (12,546,000) (11,705,000)
--------------- ---------------
Total property and equipment, net 33,289,000 26,928,000
DEFERRED MINE DEVELOPMENT COSTS, net 24,582,000 22,896,000
DEFERRED FINANCING COSTS 2,490,000 625,000
OTHER ASSETS 619,000 898,000
--------------- ---------------
Total Assets $ 71,823,000 $ 62,986,000
=============== ===============
</TABLE>
The accompanying notes to condensed financial statements are an
integral part of these statements.
3
<PAGE>
<TABLE>
<CAPTION>
ALTA GOLD CO.
CONDENSED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1998 1997
--------------- --------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 829,000 $ 829,000
Accrued liabilities 803,000 790,000
Current portion of long-term debt 3,491,000 7,482,000
-------------- --------------
Total current assets 5,123,000 9,101,000
LONG-TERM DEBT, net of current portion 20,605,000 11,910,000
DEFERRED INCOME TAXES 662,000 662,000
OTHER LONG-TERM LIABILITIES 1,196,000 1,514,000
-------------- --------------
Total liabilities 27,586,000 23,187,000
-------------- --------------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; authorized
60,000,000 shares, issued 32,515,528 and
30,191,639 shares, respectively 32,000 30,000
Additional capital 50,571,000 46,615,000
Accumulated deficit (6,366,000) (6,846,000)
-------------- --------------
Total stockholders' equity 44,237,000 39,799,000
-------------- --------------
Total liabilities and stockholders' equity $ 71,823,000 $ 62,986,000
============== ==============
</TABLE>
The accompanying notes to condensed financial statements are an
integral part of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
ALTA GOLD CO.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30,
---------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
REVENUE:
Sales of Gold $ 3,221,000 $ 2,991,000
OPERATING EXPENSES:
Direct mining, production, reclamation
and maintenance costs 2,618,000 2,472,000
General and administrative 401,000 386,000
Exploration 67,000 61,000
------------- -------------
3,086,000 2,919,000
------------- -------------
INCOME FROM OPERATIONS 135,000 72,000
------------- -------------
OTHER INCOME (EXPENSE):
Interest income and other 20,000 88,000
Loss on disposal of assets (41,000) -
------------- -------------
(21,000) 88,000
------------- -------------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY TIME 114,000 160,000
PROVISION FOR INCOME TAXES - -
INCOME BEFORE EXTRAORDINARY ITEM 114,000 160,000
------------- -------------
EXTRAORDINARY ITEM:
Gain on extinguishment of debt - 784,000
------------- -------------
NET INCOME $ 114,000 $ 944,000
============= =============
EARNINGS PER SHARE:
INCOME BEFORE EXTRAORDINARY ITEM -
Basic $ - $ 0.01
Diluted $ - $ -
NET INCOME -
Basic $ - $ 0.03
Diluted $ - $ 0.03
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 32,515,538 29,204,092
Diluted 35,548,666 33,214,836
</TABLE>
The accompanying notes to condensed financial statements are an
integral part of these statements.
5
<PAGE>
<TABLE>
<CAPTION>
ALTA GOLD CO.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30,
--------------------------------------
1998 1997
------------- -------------
<S> <C> <C>
REVENUE:
Sales of Gold $ 6,845,000 $ 5,849,000
OPERATING EXPENSES:
Direct mining, production, reclamation
and maintenance costs 5,562,000 4,856,000
General and administrative 708,000 785,000
Exploration 116,000 87,000
------------- -------------
6,386,000 5,728,000
------------- -------------
INCOME FROM OPERATIONS 459,000 121,000
------------- -------------
OTHER INCOME (EXPENSE):
Interest income and other 62,000 118,000
Loss on disposal of assets (41,000) -
------------- -------------
21,000 118,000
------------- -------------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY TIME 480,000 239,000
PROVISION FOR INCOME TAXES - -
------------- -------------
INCOME BEFORE EXTRAORDINARY ITEM 480,000 239,000
EXTRAORDINARY ITEM:
Gain on extinguishment of debt - 784,000
------------- -------------
NET INCOME $ 480,000 $ 1,023,000
============= =============
EARNINGS PER SHARE:
INCOME BEFORE EXTRAORDINARY ITEM -
Basic $ 0.02 $ 0.01
Diluted $ 0.01 $ 0.01
NET INCOME -
Basic $ 0.02 $ 0.04
Diluted $ 0.01 $ 0.03
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 31,973,852 29,118,086
Diluted 35,421,320 31,870,164
</TABLE>
The accompanying notes to condensed financial statements are an
integral part of these statements.
6
<PAGE>
<TABLE>
<CAPTION>
ALTA GOLD CO.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
----------------------------------
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 480,000 $ 1,023,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 1,526,000 1,006,000
Loss on disposal of assets 41,000 -
Gain on extinguishment of debt - (784,000)
Decrease (increase) in -
Inventories (612,000) (1,210,000)
Prepaid expenses and other 145,000 346,000
Increase (decrease) in -
Accounts payable - (788,000)
Accrued and other liabilities 27,000 (226,000)
------------- -------------
Net cash provided by (used in) operating activities 1,607,000 (633,000)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, buildings and equipment (7,453,000) (1,451,000)
Additions to deferred mine development costs (1,670,000) (3,055,000)
------------- -------------
Net cash used in investing activities (9,123,000) (4,506,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 17,215,000 17,978,000
Payments on debt (8,961,000) (5,900,000)
Financing costs (2,280,000) (929,000)
Proceeds from exercise of stock options - 185,000
------------- -------------
Net cash provided by financing activities 5,974,000 11,334,000
------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,542,000) 6,195,000
CASH AND CASH EQUIVALENTS, beginning of period 3,330,000 518,000
------------- -------------
CASH AND CASH EQUIVALENTS, end of period $ 1,788,000 $ 6,713,000
============= =============
</TABLE>
The accompanying notes to condensed financial statements are an
integral part of these statements.
7
<PAGE>
<TABLE>
<CAPTION>
ALTA GOLD CO.
CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
Six Months Ended June 30,
----------------------------------
1998 1997
------------- -------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest,
net of amount capitalized $ - $ -
Cash paid during the period for income taxes $ - $ -
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Debt retired with common stock $ 3,550,000 $ -
Interest capitalized on zero coupon debentures $ - $ 32,000
</TABLE>
The accompanying notes to condensed financial statements are an
integral part of these statements.
8
<PAGE>
ALTA GOLD CO.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. INTERIM FINANCIAL STATEMENT POLICIES AND DISCLOSURES
The interim, unaudited, condensed financial statements of Alta
Gold Co. (the "Company") included herein have been prepared pursuant
to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
required in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading.
These interim, unaudited, condensed financial statements should
be read in conjunction with the Company's Annual Report on Form 10-K
for the year ended December 31, 1997, as filed with the Securities and
Exchange Commission. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six
months ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
CASH AND CASH EQUIVALENTS
For purposes of the balance sheets and statements of cash flows,
the Company considers all investments with an original maturity of
three months or less to be cash equivalents.
RECLAMATION COSTS
Minimum standards for mine reclamation have been established by
various governmental agencies which affect certain operations of the
Company. The Company's general policy is to accrue estimated
reclamation costs during each property's productive life based on
estimated reserves using the units of production method. As of June
30, 1998, and December 31, 1997, the Company had reserved
approximately $701,000 and $726,000, respectively, for reclamation
activities of which approximately $28,000 is expected to be expended
during the last six months of 1998.
INCOME TAXES
No provision for income taxes was required in either 1998 or 1997
because of the utilization of net operating loss carryforwards. As of
June 30, 1998, the Company estimates that it has approximately
$30,502,000 in remaining net operating loss carryforwards. These net
operating loss carryforwards are scheduled to expire during the
period from 2005 to 2012.
EARNINGS PER SHARE
The Company follows the provisions of SFAS No. 128, EARNINGS PER
SHARE, which is required for financial statements issued for periods
ending after December 15, 1997, and requires restatement of
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<PAGE>
all prior-period earnings per share data presented. SFAS No. 128
replaces previously reported earnings per share with "basic" earnings
per share and "diluted" earnings per share. Basic earnings per share
is based on the weighted average number of shares actually outstanding
during the year. Diluted earnings per share includes the potential
dilution for the exercise of stock options, warrants, and debt
conversions.
NOTE 2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Precious metals:
Refined products $ 948,000 $ 865,000
In process 7,731,000 7,129,000
Consumable supplies 85,000 158,000
------------ ------------
$ 8,764,000 $ 8,152,000
============ ============
</TABLE>
Inventories of in-process metals and consumable supplies are
valued at the lower of cost (using the first-in, first-out method) or
market. Inventories of refined products are valued at market.
10
<PAGE>
NOTE 3. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Term loan with Standard Chartered Bank,
Credit Agricole Indosuez and Gerald
Metals; interest at LIBOR plus 2%; due
December 31, 2001; principal payments
payable in 11 equal quarterly
installments, commencing June 30, 1999;
secured by a first priority mortgage lien
on Olinghouse, Griffon, Copper Flat and
Kinsley $ 11,000,000 $ -
Revolving credit loan with Standard
Chartered Bank, Credit Agricole Indosuez
and Gerald Metals; interest at LIBOR plus
2%; due October 31, 1999; secured by a
first priority mortgage lien on
Olinghouse, Griffon, Copper Flat and
Kinsley 1,000,000 -
Credit facility with Gerald Metals and
BHF-Bank; interest at LIBOR plus 2%; due
March 31, 1999; principal payments
payable in 15 equal monthly installments,
commencing on January 31, 1998; secured
by a first priority mortgage lien on
Kinsley and Griffon; paid in May 1998
- 8,500,000
Interim loan with U.S. Bancorp Leasing &
Financial; interest at prime plus 1%; to
be repaid or converted into a 60-month
equipment loan by September 30, 1998;
secured by equipment 2,570,000 -
Note payable; interest at 12% payable
quarterly; due January 2, 1999; secured
by property 1,400,000 1,400,000
Convertible debentures; interest at 4%
payable quarterly; due April 14, 2000;
unsecured 4,700,000 8,250,000
Notes payable; interest at various rates
of 8.2% to 11.8%; due at various dates
between April 1999 and June 2002; secured
by equipment 3,426,000 1,242,000
------------- -------------
24,096,000 19,392,000
Less - current portion (3,491,000) (7,482,000)
------------- -------------
Total long-term debt $ 20,605,000 $ 11,910,000
============= =============
</TABLE>
11
<PAGE>
The convertible debentures may be converted into the Company's
common stock at a conversion price equal to the lesser of (1) 90% of
the average closing bid prices of the Company's common stock for the
five trading days preceding a notice of conversion or (2) $4.00. The
convertible debentures contain certain covenants that impose
restrictions on the ability of the Company to, among other things, pay
dividends on or repurchase the Company's common stock. During the
first six months of 1998, $3,550,000 of the convertible debentures
were converted into 2,320,018 shares of the Company's common stock.
On April 16, 1998, the Company entered into an interim loan and
security agreement (the "Interim Loan") with U.S. Bancorp Leasing &
Financial. Under the terms of the Interim Loan, the Company can
borrow up to $4,708,000 for the purpose of financing the construction
of a crushing and conveyor system for Olinghouse. The Interim Loan
accrues interest at prime plus one percent, with interest payable
monthly. Upon completion and acceptance by the Company of the
crushing and conveyor system, the Company has the option of either
paying off the Interim Loan or converting the Interim Loan into an
equipment loan, which will carry an interest rate of approximately 8.5
percent and be repaid in 60 equal monthly installments. The Interim
Loan is secured by the crushing and conveyor system. As of August 6,
1998, the Company had borrowed $3,320,000 under the Interim Loan.
The Company entered into a $17,000,000 revolving credit and term
loan agreement (the "Revolving Credit and Term Loan") dated as of
April 30, 1998, with Standard Chartered Bank, Gerald Metals, Inc. and
Credit Agricole Indosuez. The Revolving Credit and Term Loan carries
an interest rate of LIBOR plus two percent, payable monthly, and is
comprised of two components, a $6,000,000 line of credit and a
$11,000,000 term loan. The revolving line of credit expires October
31, 1999. The term loan is to be repaid in eleven equal installments
beginning June 30, 1999. The Company used $6,800,000 of the Revolving
Credit and Term Loan to repay certain indebtedness to Gerald Metals
and BHF-Bank. The remaining funds are to be used for (1) site
development, construction and equipment for Olinghouse, (2) working
capital and (3) the payment of certain expenses. The Revolving Credit
and Term Loan is secured by first priority trust deeds on Olinghouse,
Griffon, Kinsley and Copper Flat, and a first priority security
interest in all of the Company's tangible and intangible personal
property. Covenants include restrictions on the ability of the
Company to, among other things, change the Company's corporate
structure, pay dividends on or repurchase the Company's common stock,
and create or suffer to exist any liens (other than permitted liens)
on the Company's assets or properties. In addition, the Company is
required to sell 100% of its gold production to Gerald Metals through
April 30, 2003. All sales to Gerald Metals are made at the market
price prevailing at the time of sale. As of August 6, 1998, the
Company had borrowed $12,000,000 under the Revolving Credit and Term
Loan.
12
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Section 21E of the Securities Exchange Act of 1934 provides 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 future production
and development activities 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, dependence on existing management and weather
conditions. The Company cautions readers not to place undue reliance
on any such forward-looking statements, and such statements speak only
as of the date made.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTH PERIODS ENDED JUNE 30, 1998 AND JUNE 30, 1997.
In the second quarter of 1998, the Company had $3,221,000 in
revenue from the sale of 9,600 ounces of gold at an average price of
$336/oz, as compared to $2,991,000 in revenue from the sale of 8,731
ounce of gold at an average price of $343/oz in the second quarter of
1997. In the second quarter of 1998, the Company mined 402,000 tons
of ore at Griffon with an average grade of 0.0336 oz/ton gold
containing 13,483 ounces of gold and produced 10,007 ounces of gold,
including 7,590 ounces of gold from Griffon at an average cash cost of
$142/oz and 2,417 ounces of gold from Kinsley at an average cash cost
of $307/oz. In the second quarter of 1997, the Company mined 453,245
tons of ore at Kinsley with an average grade of 0.0337 oz/ton gold
containing 15,283 ounces of gold and produced 8,751 ounces of gold
from Kinsley at an average cash cost of $207/oz. Mining at Griffon
began in September 1997 and production of refined gold began in
January 1998. Mining at Kinsley was completed in early March 1998,
with gold production from heap leaching and pad rinsing expected to
continue in declining amounts through 2000. The decrease in gold
production at Kinsley from 8,751 ounces of gold in the second quarter
of 1997 to 2,417 ounces of gold in the second quarter of 1998 is due
to the completion of mining at Kinsley in March 1998 and to the
diminution of the size and the metallurgical quality of the last two
remaining ore bodies mined at Kinsley. The increase in the average
cash cost at Kinsley from $207/oz in the second quarter of 1997 to
$307/oz in the second quarter of 1998 is due to the diminution of the
size and the metallurgical quality of the last two remaining ore
bodies mined at Kinsley.
The increase in revenue from $2,991,000 in the second quarter of
1997 to $3,221,000 in the second quarter of 1998 is due to the
initiation of gold production at Griffon in January 1998, as partially
offset by the decrease in production at Kinsley and a decrease in the
price of gold. The average spot price of gold decreased from $343/oz
in the second quarter of 1997 to $300/oz in the second quarter of
1998. As a result of the Company's hedging program, in the second
quarter of 1998, the Company was able to partially, but not fully,
mitigate this decrease in the price of gold. Under the Company's
hedging program, the Company realized a minimum price of $335/oz for
gold sold in the second quarter of 1998.
13
<PAGE>
Direct mining, production, reclamation and holding costs
increased from $2,472,000 in the second quarter of 1997 to $2,618,000
in the second quarter of 1998 as the result of the initiation of gold
production at Griffon in January 1998 and the higher cash cost of
production at Kinsley in the second quarter of 1998, as partially
offset by the completion of mining at Kinsley in March 1998.
The increase in general and administrative expenses from $386,000
in the second quarter of 1997 to $401,000 in the second quarter of
1998 was de minimus.
The increase in exploration expense from $61,000 in the second
quarter of 1997 to $67,000 in the second quarter of 1998 was also de
minimis.
Interest income and other decreased from $88,000 in the second
quarter of 1997 to $20,000 in the second quarter of 1998 as the result
of less funds being available for investment in the second quarter of
1998.
In the second quarter of 1998, the Company realized a loss of
$41,000 from the disposal of unsalvageable equipment; there were no
such disposals in the second quarter of 1997.
In the second quarter of 1997, the Company recorded $784,000 from
an extraordinary gain from the retirement of debt. The gain resulted
from the retirement of a $4,000,000 zero coupon debenture due in 2008.
The Company paid $750,000 in cash to retire the debenture which had a
net carrying value of $1,534,000 at the time of retirement.
No provision for income taxes was recognized in either the second
quarter of 1998 or the second quarter of 1997 because of the
utilization of net operating loss carryforwards. As of June 30, 1998,
the Company estimates that it has approximately $30,502,000 in
remaining net operating loss carryforwards. These net operating loss
carryforwards are scheduled to expire during the period 2005 to 2012.
COMPARISON OF SIX MONTH PERIODS ENDED JUNE 30, 1998 AND JUNE 30, 1997.
In the first half of 1998, the Company had $6,845,000 in revenue
from the sale of 20,400 ounces of gold at an average price of $336/oz,
as compared to $5,849,000 in revenue from the sale of 16,890 ounces of
gold at an average price of $346/oz in the first half of 1997. In the
first half of 1998, the Company (1) mined 810,000 tons of ore at
Griffon with an average grade of 0.0337 oz/ton gold containing 27,305
ounces of gold, (2) mined 94,000 tons of ore at Kinsley with an
average grade of 0.0334 oz/ton gold containing 3,135 ounces of gold,
and (3) produced 20,617 ounces of gold, including 14,680 ounces of
gold from Griffon at an average cash cost of $144/oz and 5,937 ounces
of gold from Kinsley at an average cash cost of $288/oz. In the first
half of 1997, the Company mined 870,311 tons of ore at Kinsley with an
average grade of 0.0326 oz/ton gold containing 28,334 ounces of gold
and produced 16,843 ounces of gold from Kinsley at an average cash
cost of $214/oz. Mining at Griffon began in September 1997 and
production of refined gold began in January 1998. Mining at Kinsley
was completed in early March 1998, with gold production from heap
leaching and pad rinsing expected to continue in declining amounts
through 2000. The decrease in gold production at Kinsley from 16,843
ounces of gold in the first half of 1997 to 5,937 ounces of gold in
the first half of 1998 is due to the completion of mining at Kinsley
in March 1998 and to the diminution of the size and the
14
<PAGE>
metallurgical quality of the last two remaining ore bodies mined at
Kinsley. The increase in the average cash cost at Kinsley from
$214/oz in the first half of 1997 to $288/oz in the first half of 1998
is due to the diminution of the size and the metallurgical quality of
the last two ore bodies mined at Kinsley.
The increase in revenue from $5,849,000 in the first half of 1997
to $6,845,000 in the first half of 1998 is due to the initiation of
gold production at Griffon in January 1998, as partially offset by the
decrease in production at Kinsley and a decrease in the price of gold.
The average spot price of gold decreased from $348/oz in the first
half of 1997 to $297/oz in the first half of 1998. As a result of the
Company's hedging program, in the first half of 1998, the Company was
able to partially, but not fully, mitigate this decrease in the price
of gold. Under the Company's hedging program, the Company realized a
minimum price of $335/oz for gold sold in the first half of 1998.
Direct mining, production, reclamation and holding costs
increased from $4,856,000 in the first half of 1997 to $5,562,000 in
the first half of 1998 as the result of the initiation of gold
production at Griffon in January 1998 and the higher cash cost of
production at Kinsley in the first half of 1998, as partially offset
by the completion of mining at Kinsley in March 1998.
General and administrative expenses decreased from $785,000 in
the first half of 1997 to $708,000 in the first half of 1998 as the
result of cost cutting measures taken by the Company.
The increase in exploration expense from $87,000 in the first
half of 1997 to $116,000 in the first half of 1998 was de minimis.
Interest income and other decreased from $118,000 in the first
half of 1997 to $62,000 in the first half of 1998 as the result of
less funds being available for investment in the first half of 1998.
In the first half of 1998, the Company realized a loss of $41,000
from the disposal of unsalvageable equipment; there were no such
disposals in the first half of 1997.
In the first half of 1997, the Company recorded $784,000 from an
extraordinary gain from the retirement of debt. The gain resulted
from the retirement of a $4,000,000 zero coupon debenture due in 2008.
The Company paid $750,000 in cash to retire the debenture which had a
net carrying value of $1,534,000 at the time of retirement.
No provision for income taxes was recognized in either the first
half of 1998 or the first half of 1997 because of the utilization of
net operating loss carryforwards. As of June 30, 1998, the Company
estimates that it has approximately $30,502,000 in remaining net
operating loss carryforwards. These net operating loss carryforwards
are scheduled to expire during the period 2005 to 2012.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had $5,720,000 in working
capital, as compared to $2,538,000 in working capital as of December
31, 1997. The $3,182,000 increase in working capital is primarily due
to funds raised from debt financing and funds generated from gold
production at Griffon and Kinsley; the increase was partially offset
by funds used to (1) permit, develop, construct and equip Olinghouse,
(2) paydown outstanding debt and (3) continue the permitting of Copper
Flat.
15
<PAGE>
The Company believes that production from Griffon, Kinsley and
Olinghouse, which is scheduled to begin producing gold in the last
week of August 1998, and further borrowings under the Interim Loan
(defined below) and the Revolving Credit and Term Loan (defined below)
will provide adequate liquidity for the Company's operational needs
during the next twelve months. Additional financing will be required
to begin site development and construction at Copper Flat.
INVESTING AND FINANCING ACTIVITIES
During the first half of 1998, the Company expended (1)
$7,453,000, primarily for site development, construction and equipment
at Olinghouse, and (2) $1,670,000 for the permitting and development
of Olinghouse and the permitting of Copper Flat. During the same
period, the Company (1) obtained $17,215,000 in debt financing, (2)
expended $2,280,000 for debt financing costs and costs associated with
a gold hedging program covering gold production from January 1999
through September 2001, and (3) retired $8,961,000 of debt.
On April 16, 1998, the Company entered into an interim loan and
security agreement (the "Interim Loan") with U.S. Bancorp Leasing &
Financial. Under the terms of the Interim Loan, the Company can
borrow up to $4,708,000 for the purpose of financing the construction
of a crushing and conveyor system for Olinghouse. The Interim Loan
accrues interest at prime plus one percent, with interest payable
monthly. Upon completion and acceptance by the Company of the
crushing and conveyor system, the Company has the option of either
paying off the Interim Loan or converting the Interim Loan into an
equipment loan, which will carry an interest rate of approximately 8.5
percent and be repayable in 60 equal monthly installments. The
Interim Loan is secured by the crushing and conveyor system. As of
August 6, 1998, the Company had borrowed $3,320,000 under the Interim
Loan.
The Company entered into a $17,000,000 revolving credit and term
loan agreement (the "Revolving Credit and Term Loan") dated as of
April 30, 1998, with Standard Chartered Bank, Gerald Metals, Inc. and
Credit Agricole Indosuez. The Revolving Credit and Term Loan carries
an interest rate of LIBOR plus two percent, payable monthly, and is
comprised of two components, a $6,000,000 line of credit and a
$11,000,000 term loan. The line of credit expires October 31, 1999.
The term loan is to be repaid in eleven equal installments beginning
June 30, 1999. The Company used $6,800,000 of the Revolving Credit
and Term Loan to repay certain indebtedness to Gerald Metals and BHF-
Bank. The remaining funds are to be used for (1) site development,
construction and equipment for Olinghouse, (2) working capital and (3)
the payment of certain expenses. The Revolving Credit and Term Loan
is secured by first priority trust deeds on Olinghouse, Griffon,
Kinsley and Copper Flat, and a first priority security interest in all
of the Company's tangible and intangible personal property. Covenants
include restrictions on the ability of the Company to, among other
things, change the Company's corporate structure, pay dividends on or
repurchase the Company's common stock, and create or suffer to exist
any liens (other than permitted liens) on the Company's assets or
properties. In addition, the Company is required to sell 100% of its
gold production to Gerald Metals through April 30, 2003. All sales to
Gerald Metals are made at the market price prevailing at the time of
sale. As of August 6, 1998, the Company had borrowed $12,000,000
under the Revolving Credit and Term Loan.
In June 1998, the Company obtained $2,645,000 in additional
equipment financing, thereby completing the financing required to put
Olinghouse into production.
16
<PAGE>
OUTLOOK
On May 8, 1998, the Company received the final permit necessary
to begin site development and gold production at Olinghouse. The
property is expected to begin producing gold in the last week of
August 1998 at an anticipated annualized rate of 100,000 oz/year,
assuming normal operating conditions. The Company estimates that
$8,001,000 in additional expenditures will be required to put
Olinghouse into production - (1) $2,138,000 for additional equipment,
(2) $2,612,000 for working capital and (3) $3,251,000 for site
development and facilities. No assurance can be given that the
Company will be able to produce gold at Olinghouse at the expected
rate or that the actual expenditures necessary to put Olinghouse into
production will not exceed the estimated expenditures.
In addition to the funds necessary to put Olinghouse into
production, the Company has budgeted the following expenditures for
the remainder of 1998: (1) $1,802,000 for debt amortization, (2)
$511,000 for permitting and holding costs, principally for Copper Flat
and Lookout Mountain, (3) $294,000 for exploration and (4) $28,000 for
reclamation. These expenditures are expected to be funded from (1)
$5,000,000 of the undrawn balance available under the Revolving Credit
and Term Loan, (2) $2,138,000 of the undrawn balance available under
the Interim Loan (see "Investing and Financing Activities" above), and
(3) funds from revenues generated from Griffon, Kinsley and, later in
the year, Olinghouse. The Company believes that these funding sources
will provide adequate liquidity to meet the Company's estimated
expenditure requirements during the next twelve months.
Under the terms of the convertible debentures due April 14, 2000
(the "Debentures"), the Company must not issue more than 5,779,695
shares of its common stock (the "Maximum Share Amount"), unless the
Company has obtained stockholder approval or a waiver by the Nasdaq
Stock Market. In lieu of any conversion of shares in excess of the
Maximum Share Amount, the Company must pay the holders of the
remaining outstanding Debentures 111% of the remaining outstanding
principal amount plus accrued and unpaid interest (the "Penalty"). As
of August 6, 1998, $5,300,000 of the Debentures have been converted
into 3,308,802 shares of the Company's common stock. Based on a
conversion price of $1.34 (90% of the average closing bid price of the
Company's common stock for the five trading days preceding August 6,
1998 or $1.49), the Company would be obligated to pay the holders of
the Debentures a total of $1,530,000 if the holders were to convert
all of the outstanding Debentures ($4,700,000 in the aggregate
principal amount as of August 6, 1998). The amount payable to holders
of the Debentures, if any, will increase or decrease depending on the
average closing bid price of the Company's common stock. If the
average closing bid price of the Company's common stock were $2.11 or
above, a conversion of all the outstanding Debentures would not exceed
the Maximum Share Amount and no payment to holders in lieu of a
conversion of shares would be required. If a conversion of all or any
of the Debentures within the next 12 months should result in the
issuance of shares in excess of the Maximum Share Amount, management
believes that the Company will have sufficient funds to pay the
holders in lieu of a conversion of such shares or it will request
stockholder approval for the issuance of such shares.
As of June 30, 1998, the Company had sold call options for 22,500
ounces of gold with an exercise price of $390/oz, expiring in various
amounts during the period July 1998 through December 1998 and
purchased (1) put options for 62,400 ounces of gold with an exercise
price of $335/oz, expiring in various amounts during the period July
1998 through January 1999 and (2) put options for 346,800 ounces of
gold with an exercise price of $280/oz, expiring in various amounts
during the period January 1999 through September 2001.
17
<PAGE>
No assurance can be given that any of the Company's mining
projects will result in any significant contribution to the Company's
reserves, cash flow or earnings.
The Company's business is subject to various risk factors, some
of which are discussed in the Company's report on Form 10-K for the
year ended December 31, 1997, "Items 1. and 2. Business and
Properties - Risk Factors."
RECENTLY ISSUED ACCOUNTING STATEMENT
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (the "Statement"). The
Statement establishes accounting and reporting standards requiring
that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must
formally document, designate, and assess effectiveness of transactions
that receive hedge accounting.
The Company does not believe that the Statement will have any
impact on the Company's financial statements.
18
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 11, 1998, the U.S. Bureau of Land Management ("BLM")
issued its Record of Decision (the "BLM Decision") approving the
Company's mining permit for Olinghouse. The BLM Decision is currently
being appealed to the Interior Board of Land Appeals, U.S. Department
of the Interior, by the Pyramid Lake Paiute Tribe, Great Basin Mine
Watch, Sierra Club California/Nevada RCC Mining Committee and the
Building and Construction Trades Council of Northern Nevada
(collectively, the "Appellants"). The Appellants are attempting to
vacate the BLM Decision and require additional studies prior to the
issuance of a new decision. The Company and the BLM are currently
preparing responses to the appeal. The appeal has had no affect on
construction at Olinghouse and gold production is still scheduled to
begin in the last week of August 1998. The Company believes that the
appeal does not have merit and will not be sustained.
ITEM 2. CHANGES IN SECURITIES
As described in Part I, "Item 1. Financial Statements - Notes to
Condensed Financial Statements," Note 3, the Company is subject to
prohibitions against the payment of dividends and the repurchase of
common stock pursuant to the terms of Revolving Credit and Term Loan.
As partial compensation for assisting the Company in obtaining
the Revolving Credit and Term Loan, the Company issued to Gerald
Metals, Inc. options to acquire 450,000 shares of the Company's common
stock. The options have an exercise price of $1.78125 per share
(based on the closing price of the Company's common stock on the date
which the term sheet underlying the Revolving Credit and Term Loan was
executed) and are exercisable through May 15, 2003. Under the terms
of the underlying stock option agreement, the Company is required to
register the underlying shares under the Securities Act of 1933.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The 1998 Annual Meeting of Stockholders ("Annual Meeting")
of the Company was held on June 12, 1998.
(b) The Annual Meeting involved the election of three directors
of the Company, two for a three year term and one for a one
year term. At the Annual Meeting, Messrs. Robert N. Pratt
and Ralph N. Gilges were elected as directors for a three
year term and Dr. Thomas A. Henrie was elected as a director
for a one year term. Three other directors, each of whom
having terms of office extending through and beyond the
Annual Meeting, continued as directors after the Annual
Meeting - Messrs. John A. Keily, Jack W. Kendrick and Thomas
D. Mueller.
A tabulation of the votes cast is as follows:
19
<PAGE>
<TABLE>
<CAPTION>
For Against Abstain
---------- --------- ----------
<S> <C> <C> <C>
Robert N. Pratt 25,424,727 - 210,017
Ralph N. Gilges 25,425,427 - 209,317
Thomas A. Henrie 25,409,792 - 224,952
</TABLE>
ITEM 5. OTHER
Pursuant to Securities and Exchange Commission Rule 14a-4, unless
a stockholder proposal for the Company's 1999 Annual Meeting of
Stockholders is submitted to the Company prior to March 14, 1999,
management may use its discretionary voting authority to vote
management proxies on the stockholder proposal without any discussion
of the matter in the proxy statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.01 Financial Data Schedule
27.02 Restated Financial Data Schedule
(b) No reports were filed on Form 8-K during the three-month
period ended June 30, 1998.
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ALTA GOLD CO.
(Registrant)
Date: August 6, 1998 By: /s/ John A. Bielun
------------------------------
John A. Bielun
Chief Financial Officer and Chief
Accounting Officer
21
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
NUMBER NUMBER
27.01 Financial Data Schedule 23
27.02 Restated Financial Data Schedule 25
22
<PAGE>
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<PERIOD-END> JUN-30-1998
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0
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<PERIOD-END> JUN-30-1997
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0
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<COMMON> 29
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