<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 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 0-23042
MK GOLD COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 82-0487047
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
60 East South Temple, Suite 2100, Salt Lake City, Utah 84111
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(801) 237-1700
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. On August 12, 1996,
there were 19,397,800 outstanding shares of the Registrant's Common Stock, par
value $.01 per share.
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
As more fully described in the accompanying notes, the unaudited interim
consolidated financial statements contained in this report should be read in
conjunction with the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1996 (the "1996 10-K"). In the 1996 10-K, the Company reported
that the Company suffered significant losses in fiscal 1996 as a result of
serious problems at each of the Company's operations and projects. In addition,
the Company reported an impairment of assets totaling $33.9 million.
Accordingly, the 1996 10-K contains information relevant to an analysis of the
financial information contained in this report and for purposes of comparing the
Company's results of operations for the three months ended June 30, 1996 with
the same period in the prior year.
MK GOLD COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30
1996 1995
----------- -----------
<S> <C> <C>
Revenue
Product sales $ 628 $ 7,541
Mining services 2,792 1,918
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Total revenue 3,420 9,459
Operating expenses
Product sales 2,544 7,273
Mining services 2,254 1,337
----------- -----------
Total operating expenses 4,798 8,610
Gross profit (1,378) 849
Exploration and project investigation costs (391) (298)
General and administrative expense (547) (659)
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Loss from operations (2,316) (108)
Investment income 182 501
Equity in (loss) of unconsolidated affiliate (253)
Interest expense (32) (520)
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Loss before income taxes (2,166) (380)
Income tax benefit 436 118
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Net loss $ (1,730) $ (262)
=========== ===========
Loss per common share $(.09) $(.01)
Common shares used to compute loss per share 19,397,800 19,397,800
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
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MK GOLD COMPANY
CONSOLIDATED BALANCE SHEETS
AT JUNE 30, 1996 (UNAUDITED) AND MARCH 31, 1996 (AUDITED)
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
ASSETS 1996 1996
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<S> <C> <C>
Current assets
Cash and cash equivalents $ 8,855 $15,933
Securities available for sale 1,976 1,950
Gold bullion held for sale 7,575 2,915
Receivables 2,089 1,654
Refundable income taxes 727 -
Inventories
Ore and in process 2,297 3,016
Materials and supplies 1,462 1,065
Other 38 464
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Total current assets 25,019 26,997
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Investment in unconsolidated affiliates 1,127 1,197
Property, plant and mine development, net 5,843 6,514
Deferred income taxes 3,762 3,762
Restricted cash 794 736
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TOTAL ASSETS $36,545 $39,206
======= =======
</TABLE>
(continued)
3
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<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996
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<S> <C> <C>
Current liabilities
Accounts payable $ 3,160 $ 3,013
Income taxes payable - 808
Deferred income taxes 203 203
Other accrued liabilities 903 780
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Total current liabilities 4,266 4,804
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Reclamation liabilities 2,086 1,994
Deferred revenue 6,927 7,409
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Total liabilities 13,279 14,207
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STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized 40,000,000 shares,
issued 19,397,800. 194 194
Capital in excess of par value 67,105 67,105
Retained deficit (44,034) (42,304)
Net unrealized gain on securities available for sale 54 57
Deferred compensation -- restricted stock (53) (53)
-------- --------
Total stockholders' equity 23,266 24,999
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 36,545 $ 39,206
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
(concluded)
4
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MK GOLD COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,730) $ (262)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation, depletion and amortization 1,380 2,526
Deferred revenue (482) (346)
Equity in loss of unconsolidated affiliate - 253
Changes in operating assets and liabilities:
Trading securities, net - 811
Gold bullion held for sale (4,660) 1,043
Receivables (435) (1,403)
Refundable income taxes (727) (467)
Inventories 322 (376)
Other assets 426 140
Restricted cash (58) (52)
Reclamation liabilities 92 60
Income taxes payable (808) -
Payable to Leucadia - 319
Accounts payable and accrued expenses 270 207
Other adjustments (3) 263
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Total adjustments (4,683) 2,978
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Net cash provided (used) by operating activities (6,413) 2,716
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INVESTING ACTIVITIES:
Additions to PP&E (639) (1,852)
Investment in Jerooy Gold Company (1,106)
Proceeds from disposition of PP&E - 13
Investment in unconsolidated affiliate - (440)
Investment in securities available for sale (26) (2,318)
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Net cash (used) in investing activities (665) (5,703)
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FINANCING ACTIVITIES:
Payments on long term debt - (5,012)
-------
Net cash (used) in financing activities - (5,012)
------- -------
Increase (decrease) in cash and cash equivalents (7,078) (7,999)
-------
Cash and cash equivalents at beginning of period 15,933 17,056
Cash and cash equivalents at the end of the period 8,855 $ 9,057
======= =======
Supplemental disclosures of cash flow information
Interest paid $ 26 $ 348
Income taxes paid net $ 1,100 $ 297
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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MK GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS)
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
The financial information included herein is unaudited; however, the
information reflects all adjustments (consisting of normal recurring
adjustments) that are, in the opinion of management, necessary to the fair
presentation of the financial position, results of operations, and cash
flows for the interim periods. The financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements for the
fiscal year ended March 31, 1996, which are included in the Company's Annual
Report filed on Form 10-K for such year (the "1996 10-K"). The results of
operations for the three months ended June 30, 1996, are not necessarily
indicative of the results to be expected for the full year. The consolidated
balance sheet at March 31, 1996, was extracted from the audited annual
financial statements and does not include all disclosures required by
generally accepted accounting principles for annual financial statements.
In the 1996 10-K, the Company reported that the Company suffered significant
losses in fiscal 1996 as a result of serious problems at each of the
Company's operations and projects. In addition, the Company reported an
impairment of assets totaling $33.9 million. Accordingly, the 1996 10-K
contains information relevant to an analysis of the financial information
contained in this report and for purposes of comparing the Company's results
of operations for the three months ended June 30, 1996 with the same period
in the prior year.
2. RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
3. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company has granted an option to MinAmerica Corporation to purchase the
Company's investment in Arlo Resources, Ltd. for $1.2 million. The option
expires on August 19, 1996. It is uncertain whether the option will be
exercised.
4. MINING JOINT VENTURES
The Company owns a 53% undivided interest in the American Girl Mining Joint
Venture (the "AGMJV"), which operates a gold mine in Imperial County,
California, and owns a 25% undivided interest in the Castle Mountain Venture
(the "CMV"), which operates a gold mine in San Bernardino County,
California. Results of operations from both joint ventures have been
proportionately reflected in the accompanying consolidated financial
statements. Any differences between the Company's share of each venture's
product sales and net income (loss) before taxes and the amounts shown on
these schedules is due to differences in the timing of revenue recognition.
Income statement information for each
6
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of these joint ventures is summarized below. The amounts below reflect the
balances on the joint venture books and do not reflect the impairment
reported in the Company's 1996 10-K.
AMERICAN GIRL MINING JOINT VENTURE
<TABLE>
<CAPTION>
TOTAL VENTURE MK GOLD'S SHARE
----------------------------------------
Results of Operations
Three Months Ended June 30 1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Product sales $ 5,230 $ 4,131 $ 2,772 $2,189
(Loss) before taxes (5,317) (1,087) (2,818) (576)
</TABLE>
CASTLE MOUNTAIN VENTURE
<TABLE>
<CAPTION>
TOTAL VENTURE MK GOLD'S SHARE
----------------------------------------
Results of Operations
Three Months Ended June 30 1996 1995 1996 1995
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Product sales 12,280 $16,941 3,070 $4,235
Income (loss) before taxes (780) 2,273 (195) 568
</TABLE>
5. INCOME TAXES
The benefit for income taxes represents the cash refund that would result
from the carry-back of the loss for the three months ended June 30, 1996,
provided that the Company does not incur additional income tax expense for
the remainder of fiscal year 1997.
6. SUBSEQUENT EVENT
On August 9, 1996, the Company received notice that Kyrghyzaltyn State
Concern ("Kyrghyzaltyn") had filed a Request for Arbitration with the
Arbitration Institute of the Stockholm Chamber of Commerce relating to the
Jerooy Gold Project located in the Kyrghyz Republic in the former Soviet
Union. The Company owns a 30% interest in the Jerooy Gold Company
("Jerooy"), a joint stock company established to study, develop and mine the
Jerooy Gold Project. Kyrghyzaltyn owns the remaining 70%. In view of
unresolved political and logistic problems and economic uncertainties
associated with Jerooy, the Company recorded an impairment of its remaining
investment in Jerooy in fiscal 1996.
In its Request for Arbitration, Kyrghyzaltyn alleges that the Company
committed an anticipatory breach of the Jerooy project agreements and seeks
a declaration that, among other things, (i) the Company is liable to
Kyrghyzaltyn for all out-of-pocket losses caused by such repudiation, and
(ii) the Company is liable to Kyrghyzaltyn to the extent that Kyrghyzaltyn
is unable to enter into agreements with substitute joint venture partners on
economic terms substantially similar to those of the project
7
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agreements. The outcome of the foregoing proceeding is uncertain. The Company is
evaluating the Request for Arbitration and the Company's rights and obligations
under the Jerooy project agreements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
The purpose of this section is to discuss and analyze the Company's
consolidated financial condition, liquidity and capital resources and results of
operations. This analysis should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996.
GENERAL
In the 1996 10-K, the Company reported serious problems with respect to each of
its operations and projects. As a result of these difficulties, the Company
suffered significant losses in fiscal 1996. Additionally, the Company determined
an impairment of assets totaling $33.9 million. The impairment of assets and a
reduction of the Company's deferred tax assets, added to operating losses of
$7.1 million, resulted in a combined loss of $43.4 million for fiscal 1996.
American Girl--Oro Cruz. The Company holds a 53% interest in the American Girl
Mining Joint Venture (the "AGMJV"). Operations at the AGMJV currently consist of
surface and underground mining at the Oro Cruz Mine. Once surface mining began
at Oro Cruz, it became evident that the high grade drill hole intercepts had not
been adequately cut and that the mineralized envelope had been too broadly
defined during the computer modeling process. In addition, the surface
operations at Oro Cruz are hampered by relatively long haul distances to the
milling and heap leaching facilities.
The Oro Cruz underground orebody is characterized by poorly defined walls, poor
ground conditions and pervasive pegmatite intrusions--all of which have caused
excessive dilution. Moreover, it appears that the data used to calculate
underground ore reserves at Oro Cruz were gathered from drill holes that were
too broadly spaced.
Given the problems with the ore reserve estimates and the experience of mining
at Oro Cruz, the Company significantly downgraded both the surface and
underground reserves in fiscal 1996, as reported in the 1996 10-K.
During the three months ended June 30, 1996, the problems at Oro Cruz continued
to affect operations at the AGMJV. Ore grades at Oro Cruz continue to be lower
than expected due to the discovery of previously unknown underground workings.
In addition, operations were hampered by higher equipment maintenance costs and
higher heap leaching construction costs. Accordingly, the Company experienced
higher than projected operating costs at the AGMJV during the three months ended
June 30, 1996. Higher operating costs coupled with the reduced
8
<PAGE>
ore grade of the Oro Cruz project generated a significant operating loss for the
three months ended June 30, 1996.
The Company is continuing its review of shut-down or alternative operating
strategies for operations at the AGMJV, and the Company is discussing various
options with the Company's joint venture partner. The Company expects to
complete its evaluation and to take the appropriate actions with respect to the
operations at the AGMJV during the second quarter of fiscal 1997. If the Company
determines that an accelerated shut-down is appropriate at the AGMJV, the
Company expects to take a significant charge for the Company's share of costs
associated with such action.
Castle Mountain. The Company holds a 25% interest in the Castle Mountain Venture
(the "CMV"). As described in the 1996 10-K, ore grades at the Castle Mountain
Mine were expected to drop significantly compared to fiscal year 1996, and the
Company anticipates that operating costs will increase in future years as ore
grades continue to decrease. In light of the increasing production costs,
decreasing ore grades and projected gold prices, the Company determined that the
CMV would not generate sufficient cash flow to repay the book value of the
Company's investment in the CMV. Accordingly, the Company took a significant
charge related to its investment in the CMV in fiscal 1996.
As expected, lower ore grades were experienced at the Castle Mountain Mine
during the three months ended June 30, 1996, resulting in a reduction in gold
production. The Company's share of CMV operations did produce a positive cash
flow that was higher than expected, however, due to deferral of capital
expenditures on expansion of the ore crusher and development of a small
underground ore body.
Contract Mining. The Company provides mining services for the CMV at the Castle
Mountain Mine. During 1996, the Company and its joint venture partner were
engaged in a dispute over the original contract mining agreement. The dispute
was effectively settled on December 19, 1995. In settling the contract dispute,
the Company agreed to a reduction in the contract price from $1.21 per ton to
$.74 per ton and received a lump sum cash payment from the CMV.
As described in the 1996 10-K, a stringent cost-reduction program has been
applied to the contract mining operations. The cost savings include personnel
reductions, changes in work practices and reduced use of materials and
equipment. The Company believes the cost-reduction program has been successful
thus far, and contract mining operations were marginally profitable during the
three months ended June 30, 1996. The benefits of the cost reduction program
were partially offset, however, by higher fuel costs, equipment maintenance
costs and increased truck operating time. Future profitability of the contract
mining operations will depend upon the continued success of the Company's cost-
reduction program.
RESULTS OF OPERATIONS
Gold Production: The Company's attributable share of gold production for the
three month period ended June 30, 1996 was 13,764 ounces compared to 16,402
ounces for the three month period ended June 30, 1995. This represents a 16%
decrease in production totaling 2,638 ounces.
9
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Production at the Castle Mountain Mine decreased 30% to 7,597 ounces for the
three months ended June 30, 1996 compared to 10,784 ounces for the three months
ended June 30, 1995. The reduction in production is due to the lower ore grade
experienced in the new Oro Belle, Hart Tunnel and Jumbo ("OBHT") pits.
Operations in the higher grade Lesley Ann and Jumbo South pits ceased in
December, 1995.
The Company's share of gold production from the AGMJV increased 10% to 6,167
ounces for the three months ended June 30, 1996 compared to 5,618 ounces for the
three months ended June 30, 1995. Production volumes at the AGMJV increased
during the first quarter of fiscal year 1997 compared to the first quarter of
fiscal year 1996. Production volumes at the AGMJV were lower for the three
months ended June 30, 1995 as a result of permitting delays associated with the
Oro Cruz Mine. As described above, the Company is continuing its review of shut-
down or alternative operating strategies for operations at the AGMJV.
Revenue: Product sales revenue was $0.6 million for the three month period
ended June 30, 1996, compared to $7.5 million for the same period in 1995, a
decrease of 92%. Product sales revenue includes the recognition of $0.1 million
of deferred revenue associated with hedging activity. During the first quarter
only one delivery was made under a forward sale agreement. Gold production for
the first quarter was temporarily held in inventory and forward sales contracts
maturing during the first quarter were rolled forward to the second quarter.
During July, 1996 delivery was made on several forward contracts reducing gold
inventory to a more comparable level. The average price realized per ounce of
gold was $397 for the three month period ended June 30, 1996 compared to $395
during the same period for the prior year.
Revenue from mining services is primarily dependent upon the quantities of
materials mined during the period. For the three month period ended June 30,
1996, revenue increased 47% to $2.8 million compared to $1.9 million for the
same period in 1995. The recognition of deferred revenue relating to the
settlement of the dispute with the Company's joint venture partner in fiscal
1996 represents $0.4 million of the increase. Mining services revenue increased
despite a reduction in the contract price from $1.21 to $.74 per ton under the
Company's contract mining agreement with the CMV. Volumes at the Castle Mountain
Mine increased during the first quarter of fiscal 1997 as a result of the
increased volumes experienced in the OBHT pits compared to volumes in the Lesley
Ann pit during the comparable period in fiscal 1996.
Hedging Activity: For the three month period ended June 30, 1996, the average
gold price realized was $397 per ounce compared to an average spot price of
$391. For the nine months remaining in fiscal 1997, the Company has sold
forward 31,700 ounces at an average price of $405 per ounce, sold call options
on 14,400 ounces at an average price of $416 per ounce, and bought put options
on 4,800 ounces at an average price of $375 per ounce. For fiscal 1998, the
Company has sold forward 4,000 ounces at an average price of $406 per ounce.
The Company has the ability to extend forward and option positions into the
future.
Gross Profit: Gross profit from product sales before recognition of deferred
revenue decreased to a loss of $2.0 million for the three months ended June 30,
1996, compared to a profit of $0.3 million for the three months ended June 30,
1995. Product margins have declined as a result of increased operating costs.
Reduced ore grades at both the AGMJV and the CMV mines have negatively impacted
mining costs. Cash operating costs at the AGMJV exceed the sales value of
production.
10
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Gross profit from mining services before recognition of deferred revenue
decreased 77% to $0.1 million for the three month period ended June 30, 1996
from $0.6 million for the same period in 1995. Mining service margins have
decreased as a result of a decrease in the contract price from $1.21 to $.74 per
ton. Volumes have increased, but have not fully offset the impact of the reduced
price. The Company has applied a stringent cost reduction program to its
contract mining operations; however, the benefits of the cost reduction program
were partially offset by higher fuel costs, equipment maintenance costs and
increased truck operating time during the three months ended June 30, 1996.
Exploration Costs. Exploration and project investigation costs were $0.4
million for the three months ended June 30, 1996, compared to $0.3 million for
the same period during 1995, an increase of 31%. The Company's current
objective is to grow through the discovery and acquisition of profitable mining
properties and operations. Exploration activities have focused on precious
metal properties in the Western U.S. and South America. No properties were
acquired during the first quarter.
General and Administrative Expenses: General and administrative costs
decreased 19% to $0.5 million for the three month period ended June 30, 1996,
compared to $0.7 million for the same period during 1995. Cost reduction
efforts and lower legal fees have reduced general and administrative costs.
Equity in Unconsolidated Affiliates: Equity in unconsolidated affiliates
represents the Company's investment in the stock of Arlo Resources, Ltd. The
Company has granted an option to MinAmerica Corporation to purchase the
Company's investment in Arlo for $1.2 million. The option expires on August 19,
1996. It is uncertain whether the option will be exercised.
Interest Expense: Interest expense decreased to $32,000 for the three month
period ended June 30, 1996, compared to $0.5 million for the same period in
1995. During fiscal year 1996, the company repaid its outstanding bank debt.
The Company maintains a credit facility but did not utilize it during the first
quarter.
Income Taxes: The benefit for income taxes for the three month period ended June
30, 1996 was $0.4 million. The benefit for income taxes represents the cash
refund that would result from the carry-back of the loss for the three months
ended June 30, 1996, provided that the Company does not incur additional income
tax expense for the remainder of fiscal year 1997. The effective tax rate
(benefit) for the quarter ended June 30, 1996 was (20%).
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are its available resources of cash and
cash equivalents, a $20 million credit facility and cash generated from mining
operations and contract mining services. In addition, the Company has granted
an option to MinAmerica Corporation to purchase the Company's investment in Arlo
Resources, Ltd. for $1.2 million. The option expires August 19, 1996. It is
uncertain whether the option will be exercised.
At June 30, 1996, the Company had cash and cash equivalents of $8,855,000
representing a decrease in cash of $7,078,000 from March 31, 1996. The Company
did not sell its first quarter
11
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gold production. As a result, gold inventories increased $4.7 million. Existing
cash reserves were utilized to fund current business activities.
Net cash used by operating activities was $6,413,000 for the three months ended
June 30, 1996 compared to net cash provided by operating activities of
$2,716,000 for the same period in 1995. The negative cash flow was primarily the
result of a cash operating loss at the AGMJV and an increase in gold
inventories.
Additions to property, plant and equipment totaled $639,000 for the three months
ended June 30, 1996. Additions to property, plant and equipment consisted of (i)
mine development expenditures; (ii) construction expenditures for buildings,
machinery, plant and equipment; and (iii) expenditures for mobile mining service
equipment.
Upon completion of production at a mine, the Company must make expenditures for
reclamation and closure of the mine. The Company provides for future reclamation
and mine closure liabilities on a units-of-production basis. At June 30, 1996,
$2.1 million were accrued for such costs. In addition to these accruals, the
Company and its joint venture partners are depositing cash in a separate fund to
cover future reclamation costs at the AGMJV properties and at the CMV
properties.
The Company reviews the adequacy of its reclamation and mine closure liabilities
in light of current laws and regulations and adjusts its liabilities as
necessary. The Company is continuing its review of shut-down or alternative
operating strategies for operations at the AGMJV. These strategies, particularly
an accelerated shut-down at the AGMJV properties, may impact the accruals and
deposits for reclamation at the AGMJV properties. Accordingly, it is possible
that the Company will not have made adequate accruals and deposits for
reclamation of the AGMJV properties. If the Company has not made adequate
accruals and deposits for reclamation at the AGMJV properties, due to an
accelerated shutdown or otherwise, such reclamation expenses will reduce the
cash and cash equivalents to the Company.
12
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PART II. OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
- ------ -----------------
On August 9, 1996, the Company received notice that Kyrghyzaltyn State Concern
("Kyrghyzaltyn") had filed a Request for Arbitration with the Arbitration
Institute of the Stockholm Chamber of Commerce relating to the Jerooy Gold
Project located in the Kyrghyz Republic in the former Soviet Union. The Company
owns a 30% interest in the Jerooy Gold Company ("Jerooy"), a joint stock company
established to study, develop and mine the Jerooy Gold Project. Kyrghyzaltyn
owns the remaining 70%. In view of unresolved political and logistic problems
and economic uncertainties associated with Jerooy, the Company recorded an
impairment of its remaining investment in Jerooy in fiscal 1996.
In its Request for Arbitration, Kyrghyzaltyn alleges that the Company committed
an anticipatory breach of the Jerooy project agreements and seeks a declaration
that, among other things, (i) the Company is liable to Kyrghyzaltyn for all out-
of-pocket losses caused by such repudiation, and (ii) the Company is liable to
Kyrghyzaltyn to the extent that Kyrghyzaltyn is unable to enter into agreements
with substitute joint venture partners on economic terms substantially similar
to those of the project agreements. The outcome of the foregoing proceeding is
uncertain. The Company is evaluating the Request for Arbitration and the
Company's rights and obligations under the Jerooy project agreements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
(a) The following exhibits are filed with this report.
10.1 Option Agreement, dated July 4, 1996, relating to the Company's
investment in Arlo Resources Ltd.
27 Financial Data Schedule
(b) No report on Form 8-K was filed during the quarter for which this
report is filed.
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EXHIBIT 10.1
OPTION AGREEMENT
----------------
THIS AGREEMENT made as of the 4th day of July, 1996.
BETWEEN:
MK GOLD COMPANY, a corporation incorporated under the laws of the State of
---------------
Delaware, having an office at Suite 2100 - 60 East South Temple, Salt Lake
City, Utah, 84111
(hereinafter referred to as "MK Gold")
AND:
MINAMERICA CORPORATION, a corporation incorporated under the laws of the
----------------------
Republic of Panama, having an office at Torre Banco General, Marbella Piso
#25, Apartado 87-4733, Panama 7, Republic of Panama
(hereinafter referred to as "MinAmerica")
WHEREAS:
A. MK Gold is the beneficial owner of a total of 6,560,000 common shares
without par value (the "Shares") in the capital of Arlo Resources Ltd., a
corporation continued under the laws of the Yukon Territory, Canada ("Arlo");
B. MK Gold is the holder of non-transferable warrants to acquire a total of
2,655,000 common shares without par value in the capital of Arlo, at prices
ranging from $1.00 to $1.50 per share, and exercisable for periods of two years
from their respective dates of issue (collectively, the "Warrants");
C. MK Gold is also the holder of a right to acquire (the "Back-in Right"), in
certain circumstances, an interest in one or more logical mining units situated
on an exploration concession located in Panama, known as the Chorcha concession,
which right arises pursuant to an agreement dated for reference November 7, 1994
among Arlo, Arlo Resources (Panama) S.A.-("Arlo Panama"), MinAmerica, Geo Minas,
S.A. and MK Gold;
D. Pursuant to a Voting Trust Agreement among MK Gold, MinAmerica, Daniel J.
Kunz, Richard C. Fifer and Pacific Corporate Trust Company (the "Depositary")
made as of November 7, 1994 (the "Voting Trust Agreement"), MK Gold has
deposited share certificates representing all of the Shares with the Depositary
and the Depositary has issued to MK Gold voting trust certificates no's. 1138,
1140, 1142, 1159 and 1160 evidencing MK Gold's rights to the Shares (the "Voting
Trust Certificates");
E. Section 5 of the Voting Trust Agreement prohibits the transfer by either MK
Gold or MinAmerica of any voting trust certificate held by it without the prior
written consent of the other;
<PAGE>
F. Pursuant to a Right of First Offer and Anti-Dilution Agreement among MK
Gold, MinAmerica and Arlo made as of November 7,1994 (the "Right of First Offer
Agreement"), MK Gold agreed, subject to certain exceptions, not to sell or
transfer any of the Shares without first complying with the right of first offer
procedures contained therein;
G. MK Gold and MinAmerica have discussed the possible acquisition by
MinAmerica of all of MK Gold's right, title and interest in and to the Shares,
including, without limitation, the Voting Trust Certificates (collectively, the
"Interest") and the surrender by MK Gold, concurrently therewith, of the Back-in
Right and the Warrants; and
H. In order to facilitate the acquisition referred to in Recital G above, MK
Gold has agreed to grant to MinAmerica an option to purchase the Interest on the
terms and conditions set out below.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
premises, the mutual covenants and agreements herein contained and the payment
referred to in section 3.1 below, MK Gold and MinAmerica (hereinafter sometimes
collectively referred to as the "Parties") hereby covenant and agree as follows:
1. INTERPRETATION
--------------
1.1 DIVISIONS AND HEADINGS. The division of this Agreement into sections and
----------------------
the insertion of headings are for convenience of reference only and shall not
affect the construction or interpretation hereof. All references in this
Agreement to a designated section or other subdivision, is to the designated
section or other subdivision of this Agreement.
1.2 GENDER AND NUMBER. Unless the context otherwise requires, words importing
-----------------
the singular include the plural and vice versa and words importing gender
include all genders.
1.3 GOVERNING LAW. This Agreement shall in all respects be governed by and
-------------
construed in accordance with the laws of the Province of British Columbia and
the laws of Canada applicable therein. Each Party hereby irrevocably attorns to
the jurisdiction of the courts of the Province of British Columbia, agrees that
such courts shall have in personam jurisdiction over it, consents to service of
process in any manner authorized by British Columbia law, and agrees that any
action, suit or proceeding with respect to any disputes, differences or
controversies arising out of, in relation to or in connection with this
Agreement, or any breach hereof, shall be brought in the courts of the Province
of British Columbia. Each Party further agrees that a final judgment in any such
action or suit shall be conclusive and may be enforced in other jurisdiction by
suit or action on the judgment or in any other manner specified by law.
1.4 INVALIDITY. The invalidity or unenforceability of any provision of this
----------
Agreement shall not affect the validity or enforceability of any other provision
hereof and any such invalid or unenforceable provision shall be deemed to be
severable.
1.5 CURRENCY. Unless otherwise indicated herein, all dollar amounts referred
--------
to in this Agreement are expressed, and shall be paid, in Canadian currency.
2
<PAGE>
2. GRANT OF OPTION
---------------
2.1 OPTION. MK Gold grants to MinAmerica the full and exclusive first right
------
and option (the "Option"), irrevocable within the time limited herein for
exercise, to purchase, subject to the conditions set out in section 10, all (but
not less than all) of the Interest for the sum of $1,640,000 (the "Exercise
Price").
3. OPTION FEE
----------
3.1 OPTION FEE. MK Gold acknowledges that, in consideration of the grant of
----------
the Option, MinAmerica has paid to MK Gold the sum of $100,000 (the "Option
Fee"), which amount shall be credited against the Exercise Price if the Option
is duly exercised by MinAmerica, and which amount shall be retained by MK Gold,
absolutely, without any further liability or obligation to MinAmerica hereunder,
if the Option is not duly exercised by MinAmerica.
4. EXERCISE OF OPTION
------------------
4.1 EXERCISE. The Option may be exercised by MinAmerica, by giving written
--------
notice of such exercise to MK Gold in the manner specified in section 16.1
below, at any time on or before 5:00 p.m. (Vancouver time) on August 19, 1996
(the "Expiry Time"), at which time the Option shall, if not exercised as
provided herein, terminate and cease to be of any further force or effect.
5. REPRESENTATIONS AND WARRANTIES OF MK GOLD
-----------------------------------------
5.1 REPRESENTATIONS OF MK GOLD. MK Gold represents and warrants to MinAmerica
--------------------------
that:
(a) the Shares have been duly and validly issued and are outstanding as
fully paid and non-assessable shares in the capital of Arlo;
(b) the Interest is legally and beneficially owned by MK Gold, free and
clear of all liens, charges, mortgages, pledges, security interests,
encumbrances and claims whatsoever, other than pursuant to the Voting
Trust Agreement and the Right of First Offer Agreement;
(c) MK Gold has not granted or entered into any agreement, option,
understanding or commitment, present or future, contingent or
absolute, in respect of the Interest, or any part thereof, to or in
favor of any person, firm or corporation, other than the Right of
First Offer Agreement and the Voting Trust Agreement;
(d) this Agreement has been duly and validly authorized, executed and
delivered by MK Gold and constitutes a legal, valid and binding
obligation of MK Gold, enforceable against it in accordance with its
terms, except as may be limited by laws of general application
affecting the rights of creditors;
(e) MK Gold has all necessary corporate power, capacity and authority to
enter into this Agreement on the terms and conditions herein set forth
and to transfer the Interest to MinAmerica on and subject to such
terms and conditions; and
3
<PAGE>
(f) other than the Back-in Right, MK Gold holds no right or option to
acquire any interest in any mineral concession in Panama held by or
optioned to Arlo or Arlo Panama as of the date of this Agreement.
6. REPRESENTATIONS OF MINAMERICA
-----------------------------
6.1 REPRESENTATIONS OF MINAMERICA. MinAmerica represents, warrants and
-----------------------------
acknowledges to MK Gold that:
(a) this Agreement has been duly and validly authorized, executed and
delivered by MinAmerica and constitutes a legal, valid and binding
obligation of MinAmerica, enforceable against it in accordance with
its terms, except as maybe limited by laws of general application
affecting the rights of creditors;
(b) MinAmerica has all necessary corporate power, capacity and authority
to enter into this Agreement on the terms and conditions herein set
forth and to purchase the Interest from MK Gold on and subject to such
terms and conditions;
(c) the Shares constitute the holdings of a "control person", as that term
is defined in the Securities Act of British Columbia, as amended (the
"Act") and, as such, the sale and transfer of the Interest to
MinAmerica if the Option is duly exercised, will be effected pursuant
to the prospectus exemption contained in section 55(2)(4) of the Act.
Accordingly:
(i) MK Gold will, at least 7 days prior to the sale of the Interest,
be required to file a notice and declaration, in the required
form, with the British Columbia Securities Commission (the
"BCSC") and the Vancouver Stock Exchange (the "VSE") pursuant to
section 136 of the Securities Rules made under the Act (the
"Rules");
(ii) the Interest (including the Shares and Voting Trust Certificates)
will, after the transfer of the same to MinAmerica, be subject to
restrictions on resale set out in the Act and/or the Rules;
(iii) MinAmerica will not receive information which would otherwise be
provided to it under the Act and will be restricted from using
most of the civil remedies available under the Act; and
(iv) the transfer of the Interest to MinAmerica will require the prior
approval of the VSE;
(d) the Shares are comprised, in part, of:
(i) 125,000 Shares (the "Escrow Shares"), which are held by and
registered in the name of the Depositary pursuant to an escrow
agreement, and which may only be released from escrow or
transferred within escrow with the prior approval of the VSE; and
4
<PAGE>
(ii) 910,000 Shares (the "Private Placement Shares"), which are the
subject matter of an undertaking granted by MK Gold to the VSE
which prohibits the transfer or sale of such Shares on or before
August 31, 1996, without the prior approval of the VSE;
(e) if the Option is exercised, MinAmerica will be acquiring the Interest
as principal, for its own account and not on behalf of others, and for
purposes of investment and not with the intention of effecting a
distribution, and no other person, firm or corporation will have a
beneficial interest in the Interest, the Shares or the Voting Trust
Certificates;
(f) MinAmerica has not been formed solely for the purpose of purchasing
the Interest (or for other similar purchases) pursuant to an exemption
from the prospectus requirements of the Act;
(g) MinAmerica has not been induced to enter into this Agreement or to
purchase the Interest by any advertisement in radio, television or
printed media of general and regular paid circulation;
(h) the jurisdiction of incorporation and address of MinAmerica are
correctly set forth below its name on the first page of this
Agreement;
(i) MinAmerica is not a "U.S. Person" (as defined in Regulation S under
the U.S. Securities Act of 1933, as amended (the "1933 Act")), that it
has no office or address in the United States of America, and that no
offer to sell the Interest, or grant the Option, was made to
MinAmerica in the United States of America and that this Agreement was
executed by MinAmerica outside of the United States;
(j) the Shares and the Voting Trust Certificates have not been registered
under the 1933 Act and may not be offered or sold in the United
States, unless registered hereunder and under applicable state
securities laws, or unless an exemption from such requirements is
available; and
(k) MinAmerica has access to all relevant financial, technical,
operational and corporate information relating to Arlo and the
Interest.
7. SURVIVAL AND RELIANCE
---------------------
7.1 SURVIVAL. The representations and warranties contained in this Agreement
---------
shall survive the exercise of the Option and the closing of the sale and
purchase of the Interest (the "Closing").
7.2 RELIANCE. Each of the Parties acknowledges and agrees that the other Party
---------
has entered into this Agreement relying on the warranties and representations
and other terms and conditions of this Agreement, notwithstanding any
independent searches, enquiries or other investigations undertaken by or on
behalf of such other Party.
8. COVENANTS OF MK GOLD
--------------------
5
<PAGE>
8.1 COVENANTS OF MK GOLD. MK Gold covenants and agrees with MinAmerica that:
- --- ---------------------
(a) it will not, prior to the Expiry Time, enter into any agreement,
commitment or arrangement which would preclude it from selling and
transferring the Interest to MinAmerica, if the Option is duly
exercised, in accordance with the terms of this Agreement;
(b) upon the exercise of the Option by MinAmerica, it will promptly
request Arlo to apply to the VSE for its approval of the transfer of
the Interest (including, without limitation, the Escrow Shares and
Private Placement Shares) to MinAmerica, and will use all reasonable
efforts to assist Arlo in obtaining such approval;
(c) it will take all such actions as are necessary or desirable in order
to comply with any and all requirements under the Act and Rules which
apply to its offer and sale of the Interest pursuant to this
Agreement;
(d) on or before the Closing Date (as defined below), it will deliver, or
cause to be delivered, to MinAmerica each of the instruments and
documents referred to in section 11.1, and will do such further acts
and things and execute such further instruments and documents as are
necessary or desirable to carry out the intent of this Agreement; and
(e) it will, on or before the Closing Date, return to Arlo all of the
technical data, records, and other information belonging to Arlo which
are then in MK Gold's possession.
9. COVENANTS OF MINAMERICA
-----------------------
9.1 COVENANTS OF MINAMERICA. MinAmerica covenants and agrees with MK Gold
-----------------------
that:
(a) it has, on or before June 14, 1996, advanced the sum of $100,000 to
Arlo, as a non-interest bearing loan, to be used by Arlo to make the
payments required under the option agreements relating to the Santa
Lucia and Oro del Norte concessions in Panama;
(b) it will use all reasonable efforts to ensure that Arlo performs the
work which is required to be performed by it on or before the Closing
Date under the option agreement relating to the Santa Lucia
concession;
(c) upon the exercise of the Option, it will take all such actions as are
necessary or desirable in order to obtain the approval referred to in
section 8.1(b) and, without limiting the generality of the foregoing,
will use all reasonable efforts to assist Arlo in obtaining such
approval;
(d) it will take all such actions as are necessary or desirable in order
to comply with any and all requirements under the Act and Rules which
apply to its purchase of the Interest pursuant to this Agreement;
6
<PAGE>
(e) on or before the Closing Date, it will deliver, or cause to be
delivered, to MK Gold each of the instruments and documents referred
to in section 11.2, and will do such further acts and things and
execute such further instruments and documents as are necessary or
desirable to carry out the intent of this Agreement;
(f) upon its exercise of the Option, it shall be deemed to have waived the
provisions of the Right of First Offer Agreement and Voting Trust
Agreement which prohibit or restrict the sale or transfer of the
Shares and the Voting Trust Certificates, insofar as such provisions
would apply to the sale and transfer of the Interest to MinAmerica
pursuant to this Agreement;
(g) if the Option is exercised, it will promptly execute and deliver, as
and when requested by MK Gold or Arlo, or their solicitors, one or
more undertakings and/or declarations relating to the Escrow Shares
and the Private Placement Shares, in such form(s) as are required by
the VSE in connection with its approval of the transfer of the
Interest; and
(h) if the Option is exercised, it will use all reasonable efforts to
cause Arlo Panama to repay to MK Gold, within six (6) months after the
Closing Date, all of the indebtedness owing to MK Gold, pro rata with
the payment of its indebtedness to other creditors with whom it is
dealing at arm's length, it being acknowledged that, as of the date of
this Agreement, the amount of the indebtedness owing by Arlo Panama to
MK Gold is approximately $75,000, and that such indebtedness shall
bear interest at the prime lending rate announced from time to time by
MK Gold's principal bank.
10. CONDITIONS
----------
10.1 CONDITIONS IN FAVOR OF MK GOLD. Notwithstanding anything contained in this
------------------------------
Agreement, the obligation of MK Gold to sell and transfer the Interest to
MinAmerica, if the Option is duly exercised, is subject to the condition that on
the Closing Date:
(a) the approval referred to in section 8.1(b) shall have been obtained;
(b) the representations and warranties of MinAmerica set out in section
6.1 shall be true and correct in all material respects; and
(c) all of the covenants and agreements to be performed and observed by
MinAmerica on or before the Closing Date hereunder shall have been
performed and observed.
10.2 WAIVER BY MK GOLD. The conditions set forth in section 10.1 are for the
-----------------
exclusive benefit of MK Gold and may be waived by MK Gold, in writing, in whole
or in part on or before the Closing Date.
7
<PAGE>
10.3 CONDITIONS IN FAVOR OF MINAMERICA. Notwithstanding anything contained in
----------------------------------
this Agreement, the obligation of MinAmerica to purchase the Interest, if the
Option is exercised, shall be subject to the condition that:
(a) the approval referred to in section 8.1(b) shall have been obtained;
(b) the representations and warranties of MK Gold set out in section 5.1
shall be true and correct in all material respects; and
(c) all of the covenants and agreements to be performed and observed by MK
Gold on or before the Closing Date hereunder shall have been performed
and observed.
10.4 WAIVER BY MINAMERICA. The conditions set forth in section 10.3 are for the
---------------------
exclusive benefit of MinAmerica and may be waived by MinAmerica, in writing, in
whole or in part on or before the Closing Date.
11. DELIVERIES AT CLOSING
---------------------
11.1 BY MK GOLD. On the Closing Date, MK Gold shall deliver the following
----------
instruments and documents to MinAmerica:
(a) the resignation in writing of Mr. Richard B. Rickard, and any other
person nominated by MK Gold pursuant to the Voting Trust Agreement, as
a director and/or officer of Arlo and Arlo Panama;
(b) the Voting Trust Certificates, duly endorsed for transfer to
MinAmerica, together with a stock power of attorney relating to the
Interest, duly executed by MK Gold;
(c) a release, executed by MK Gold, releasing MinAmerica from any and all
claims, actions, suits, damages, demands and liabilities whatsoever,
in law or in equity, which MK Gold ever had, now has, or may have,
against MinAmerica for or by reason of any matter, cause or thing
whatsoever done or omitted to be done by MinAmerica, other than
pursuant to this Agreement;
(d) a release or surrender of the Back-in Right and the Warrants, duly
executed by MK Gold, in form and substance acceptable to each of
MinAmerica and MK Gold, acting reasonably;
(e) the certificates evidencing the Warrants; and
(f) a certificate executed by MK Gold dated the Closing Date to the effect
that the representations and warranties of MK Gold contained in this
Agreement are true and correct in all material respects as of the
Closing Date.
8
<PAGE>
11.2 BY MINAMERICA. On the Closing Date, MinAmerica shall deliver the following
-------------
instruments and documents to MK Gold:
(a) a certified cheque or bank draft, drawn on a major Canadian or
American bank, payable to or to the order of MK Gold, in the amount of
the Exercise Price, less the Option Fee;
(b) a release, executed by MinAmerica, releasing MK Gold from any and all
claims, actions, suits, damages, demands and liabilities whatsoever,
in law or in equity, which MinAmerica ever had, now has, or may have,
against MK Gold for or by reason of any matter, cause or thing
whatsoever done or omitted to be done by MK Gold, other than pursuant
to this Agreement; and
(c) a certificate executed by MinAmerica dated the Closing Date to the
effect that the representations and warranties of MinAmerica contained
in this Agreement are true and correct in all material respects as of
the Closing Date.
12. CLOSING
-------
12.1 TIME AND PLACE. If the Option is duly exercised by MinAmerica in
---------------
accordance with section 4.1, the purchase and sale of the Interest shall be
completed on that date which is thirty (30) days after the date of such
exercise, or on such other date as the Parties may agree upon in writing, (the
"Closing Date"), at the offices of MinAmerica's solicitors in Vancouver, Canada,
or at such other place as the Parties may agree upon in writing.
12.2 PROCEDURES. All documents to be delivered at the Closing will be delivered
----------
to the appropriate Party, or its solicitor, in escrow, on or before the Closing
Date. All matters of payment, execution and delivery of documents required to be
paid and/or delivered on the Closing Date will be deemed to be concurrent
requirements, and the closing of the purchase and sale of the Interest shall not
occur until all such payments and documents have been paid, executed and/or
delivered, as the case may be.
13. INDEMNIFICATION
---------------
13.1 BY MK GOLD. MK Gold will, upon demand, indemnify, defend and hold
----------
harmless MinAmerica from and against any and all demands, claims, actions,
proceedings, losses, damages, liabilities, costs and expenses of every nature
and kind (including, without limitation, legal fees on a solicitor and his own
client basis) suffered or incurred by MinAmerica, directly or indirectly, by
reason of any breach of or inaccuracy in any representation or warranty on the
part of MK Gold contained in this Agreement or any breach or nonfulfillment of
any covenant or agreement on the part of MK Gold contained herein.
13.2 BY MINAMERICA. MinAmerica will, upon demand, indemnify, defend and hold
--------------
harmless MK Gold from and against any and all demands, claims, actions,
proceedings, losses, damages, liabilities, costs and expenses of every nature
and kind (including, without limitation, legal fees on a solicitor and his own
client basis) suffered or incurred by MK Gold, directly or indirectly, by reason
of any breach of or inaccuracy in any representation or warranty on the part of
9
<PAGE>
MinAmerica contained in this Agreement or any breach or nonfulfillment of any
covenant or agreement on the part of MinAmerica contained herein.
14. CONFIDENTIALITY AND DISCLOSURE
------------------------------
14.1 CONFIDENTIALITY. Except as required under applicable law, each of the
----------------
Parties shall keep the existence and terms of this Agreement, and the
transactions contemplated hereby, strictly confidential; provided that it is
acknowledged and agreed that either Party shall be entitled to notify Arlo, and
its board of directors, of this Agreement, on a confidential basis.
14.2 DISCLOSURE. The Parties further agree that if, in the opinion of Arlo's
-----------
solicitors, Arlo is required to file a material change report with the BCSC with
respect to this Agreement prior to the exercise of the Option by MinAmerica,
they shall request Arlo to file such report on a confidential basis and to
maintain the confidentiality of this Agreement and such report until the Option
is exercised. Neither Party shall, unless required by applicable law, issue a
press release or make any other public announcement or public disclosure of this
Agreement, or cause Arlo to do so, without first providing a draft of such
release or announcement to the other Party.
15. RESTRICTED AREAS OF INTEREST
----------------------------
15.1 RESTRICTION. MK Gold shall not, within a period of two years from the
------------
Closing Date, without the prior written consent of MinAmerica, acquire any
interest of any kind, directly or indirectly, in any mineral concession located
within two (2) kilometres of any of the following concessions:
(a) Chorcha;
(b) Filo Corriente Grande;
(c) Changuinola Centro;
(d) Changuinola Norte; and
(e) Changuinola Sur;
each of which is more particularly described in Exhibit "A" hereto.
16. NOTICES
-------
16.1 NOTICES. All notices, requests or other communication required or
-------
permitted to be given under this Agreement shall be given in writing in the
English language and shall be personally delivered or telecopied (with
confirmation by registered airmail, postage prepaid) and addressed as follows:
10
<PAGE>
(a) to MK Gold:
Suite 2100 - 60 East South Temple
Salt Lake City, Utah
84111
Attention: Mr. Richard B. Rickard
---------
Telecopier No.: (801) 237-1730
with a copy to:
Fraser & Beatty
1500 - 1040 West Georgia Street
Vancouver, B.C.
V6E 4H8
Attention: Gary R. Sollis
---------
Telecopier No.: (604) 683-5214
(b) to MinAmerica:
Torre Banco General
Marbella Piso #25
Apartado 87-4733
Panama 7
Republic of Panama
Attention: Juan F. Pardini
----------
Telecopier No.: 011-507-263-2460
with a copy to:
Tupper Jonsson & Yeadon
1710 - 1177 W. Hastings Street
Vancouver, B.C.
V6E 2L3
Attention: Lee S. Tupper
---------
Telecopier No.: (604) 681-0139
Any notice personally delivered will be effective on the date of delivery
and any notice sent by telecopier will be effective on the day following the
date of transmission.
11
<PAGE>
Either Party may give written notice of a change of address in the same
manner, in which event such notice shall thereafter be given to it as above
provided at such changed address.
17. GENERAL PROVISIONS
------------------
17.1 TIME OF ESSENCE. Time shall be of the essence of this Agreement.
----------------
17.2 WHOLE AGREEMENT. This Agreement, together with the other documents
----------------
contemplated hereby, contains the whole agreement between MK Gold and MinAmerica
in respect of the Option and supersedes all prior agreements and understandings,
oral or written, by or between the Parties. There are no warranties,
representations, terms, conditions or collateral agreements, express, implied or
otherwise, relating to the Option, other than as expressly set forth in this
Agreement and in the documents to be delivered pursuant to this Agreement.
17.3 AMENDMENTS AND WAIVERS. No amendment, waiver or termination of this
----------------------
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any provision of this Agreement shall be deemed or shall
constitute a waiver of any other provision nor shall any such waiver constitute
a continuing waiver unless otherwise expressly provided.
17.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall
----------------------
enure to the benefit of the Parties and their respective successors and
permitted assigns; provided that this Agreement shall not be assigned, in whole
or in part, by either Party to any other person, firm or corporation, without
the prior written consent of the other Party.
17.5 COUNTERPARTS. This Agreement may be executed in one or more counterparts
------------
and such counterparts may be transmitted by electronic facsimile, and each such
counterpart shall be deemed to be an original and together such counterparts
shall constitute one document.
IN WITNESS WHEREOF the Parties have duly executed this Agreement as of the
day and year first above written.
MK GOLD COMPANY
By: __________________________________
Authorized Signatory
MINAMERICA CORPORATION
By: __________________________________
Authorized Signatory
By: __________________________________
Authorized Signatory
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE BODY OF THE ACCOMPANYING FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 8,855
<SECURITIES> 9,551
<RECEIVABLES> 2,089
<ALLOWANCES> 0
<INVENTORY> 3,759
<CURRENT-ASSETS> 25,019
<PP&E> 54,247
<DEPRECIATION> (48,404)
<TOTAL-ASSETS> 36,545
<CURRENT-LIABILITIES> 3,266
<BONDS> 0
0
0
<COMMON> 194
<OTHER-SE> 21,072
<TOTAL-LIABILITY-AND-EQUITY> 36,545
<SALES> 628
<TOTAL-REVENUES> 3,420
<CGS> 2,544
<TOTAL-COSTS> 4,798
<OTHER-EXPENSES> 2,938
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (32)
<INCOME-PRETAX> (2,166)
<INCOME-TAX> (436)
<INCOME-CONTINUING> (1,730)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,730)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
