<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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
---------------
(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) 297-6900
- --------------------------------------------------------------------------------
(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 April 28, 1997, there were
19,464,466 outstanding shares of the Registrant's Common Stock, par value $.01
per share.
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PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
On January 30, 1997, the Board of Directors elected to change the fiscal year
end of the Company from March 31 to December 31. Accordingly, the Company filed
a Transition Report on Form 10-K for the nine months ended December 31, 1996
(the "Transition 10-K"). 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 Transition 10-K.
2
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MK GOLD COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1997 1996
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Revenue
Product sales $5,948 $ 6,645
Mining services 2,936 1,862
------ --------
Total revenue 8,884 8,507
Operating expenses
Product sales 5,290 8,407
Mining services 2,604 1,524
------ --------
Total operating expenses 7,894 9,931
Gross profit (loss) 990 (1,424)
Exploration and project investigation costs (345) (706)
General and administrative expense (507) (1,146)
Equity in loss of unconsolidated affiliates - (58)
Provision for impairment of long-lived assets - (27,935)
------ --------
Income (loss) from operations 138 (31,269)
Investment income 177 72
Interest expense (23) -
------ --------
Income (loss) before income taxes 292 (31,197)
Income tax expense (117) (4,202)
------ --------
Net income (loss) $ 175 $(35,399)
====== ========
Net income (loss) per common share $ 0.01 $ (1.82)
Common shares used to compute income (loss) per share 19,464,466 19,397,800
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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MK GOLD COMPANY
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS MARCH 31, DECEMBER 31,
1997 1996
(UNAUDITED) (AUDITED)
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $17,683 $13,925
Gold bullion held for sale 3,668 5,933
Receivables 1,725 1,014
Refundable income taxes 291 2,346
Inventories
Ore and in process 834 1,456
Materials and supplies 1,338 1,196
Other 576 248
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Total current assets 26,115 26,118
------- -------
Property, plant and mine development 4,460 4,526
Deferred income taxes 1,059 1,124
Restricted cash 1,240 1,210
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TOTAL ASSETS $32,874 $32,978
======= =======
</TABLE>
(CONTINUED)
4
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<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY MARCH 31, DECEMBER 31,
1997 1996
(UNAUDITED) (AUDITED)
----------- -----------
<S> <C> <C>
Current liabilities
Accounts payable $ 2,355 $ 2,486
Current portion of mine closure liabilities 670 700
Other accrued liabilities 982 606
-------- --------
Total current liabilities 4,007 3,792
-------- --------
Reclamation liabilities 3,193 3,208
Deferred revenue 4,953 5,534
-------- --------
Total liabilities 12,153 12,534
-------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized
40,000,000 shares, issued 19,464,466 at
March 31, 1997 and 19,397,800 at March 31, 1996. 194 194
Capital in excess of par value 67,320 67,214
Accumulated deficit (46,714) (46,885)
Deferred compensation (79) (79)
-------- --------
Total stockholders' equity 20,721 20,444
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 32,874 $ 32,978
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
(CONCLUDED)
5
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MK GOLD COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1997 1996
(UNAUDITED) (UNAUDITED)
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 175 $(35,399)
------- --------
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation, depletion and amortization 579 1,771
Deferred taxes - 2,524
Equity in loss of unconsolidated affiliate - 58
Write-down of investment in unconsolidated affiliate - 346
Provision for impairment of long lived asset - 27,935
Changes in operating assets and liabilities:
Gold bullion held for sale 2,265 (519)
Receivables (711) (692)
Refundable income taxes 2,055 1,648
Inventories 480 (683)
Other assets (328) 207
Restricted cash (30) (67)
Accounts payable and other accrued liabilities 245 (671)
Deferred revenue (581) (2,544)
Reclamation liabilities (45) 70
------- --------
Total adjustments 3,929 29,383
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Net cash provided (used) by operating activities 4,104 (6,016)
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INVESTING ACTIVITIES:
Additions to property, plant and mine development (346) (483)
Investment in Jerooy Gold Company - (470)
Proceeds from disposition of property, plant and mine development - 1,094
Proceeds from sale of securities available for sale - 8,689
Castle Mountain contract lawsuit settlement - 8,925
------- --------
Net cash provided (used) by investing activities (346) 17,755
------- --------
FINANCING ACTIVITIES:
Increase in cash and cash equivalents 3,758 11,739
Cash and cash equivalents at beginning of period 13,925 4,194
------- --------
Cash and cash equivalents at the end of the period $17,683 $ 15,933
======= ========
Supplemental disclosures of cash flow information
Interest paid $ (23) $ (38)
Income taxes paid, net - -
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
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MK GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS)
1. UNAUDITED INTERIM CONSOLIDATED 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 consolidated financial position, results of operations,
and cash flows for the interim periods. The consolidated financial
statements should be read in conjunction with the Notes to Consolidated
Financial statements for the transition period from April 1, 1996 to
December 31, 1996, which are included in the Company's Transition Report on
Form 10-K for such period (the "Transition 10-K"). The results of operations
for the three months ended March 31, 1997, are not necessarily indicative of
the results to be expected for the full year. The consolidated balance sheet
at December 31, 1996, was extracted from the audited consolidated financial
statements contained in the Transition 10-K and does not include all
disclosures required by generally accepted accounting principles for annual
consolidated financial statements. Effective December 31, 1996, the Company
changed its fiscal year end from March 31 to December 31.
2. RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
3. MINING JOINT VENTURES
The Company owns a 25% undivided interest in the Castle Mountain Venture
(the "CMV"), which operates a gold mine in San Bernardino County,
California. The results for the CMV have been proportionally reflected in
the accompanying consolidated financial statements. Any differences between
the Company's share of reported sales and income and the amounts shown on
these schedules are due to differences in the timing of revenue and expense
recognition. The amounts below reflect the balances on the joint venture
books and do not reflect the impairment previously recorded by the Company.
CASTLE MOUNTAIN VENTURE
<TABLE>
<CAPTION>
TOTAL VENTURE MK GOLD'S SHARE
------------------- ----------------
Results of Operations
Three Months Ended March 31 1997 1996 1997 1996
--------------------------- -------- ------- ------ ------
<S> <C> <C> <C> <C>
Product sales $ 10,420 $13,524 $2,605 $3,381
Income (loss) before taxes $ (1,792) $ 1,211 $ (448) $ 303
</TABLE>
The Company owns a 53% interest in the American Girl Mining Joint Venture
(the "AGMJV") which, prior to September 1996, operated a gold mine in
Imperial County, California. After an extensive review of the operations at
the AGMJV, the Company determined that continued operation at the AGMJV
could not be economically justified. On September 5, 1996, the Company
announced the suspension of operations at the AGMJV and subsequently began
mine closure and reclamation operations. Mine closure and reclamation
activities continued during the three months ended March 31, 1997.
4. ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS No. 128"). SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS"). SFAS No. 128 simplifies the approach
for
7
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computing earnings per share previously found in Accounting Principles
Board Opinion ("APB") Opinion No. 15. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures.
SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997. The computation of basic EPS under SFAS No.
128 would have resulted in net income per common share of $.01 for the
quarter ended March 31, 1997. Diluted EPS would not have changed from basic
EPS for the quarter ended March 31, 1997.
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 Transition Report on Form 10-K for the period from April 1, 1996 to
December 31, 1996 (the "Transition 10-K").
GENERAL
The Company holds a 53% interest in the American Girl Mining Joint Venture.
During the year ended December 31, 1996, the AGMJV continued to experience high
mining costs. The Company reviewed several alternative operating and shut-down
strategies and determined that no practical mining and processing method could
be developed that would justify continued operations. On September 5, 1996, the
Company announced that it was suspending operations at the AGMJV.
As part of the suspension plan, the Company and its joint venture partner, Hecla
Mining Company, agreed to a modified program and budget for the remainder of
1996 which called for a suspension of full scale open pit and underground mining
effective mid-September, 1996. Crushing and milling operations ceased in mid-
October. Reclamation activities of the surface and underground operations began
in mid-September. It is expected that mine reclamation will be completed by the
end of 1999. The Company's share of the expected costs associated with the
closure was recorded in 1996.
In 1996, the Company reported serious problems at each of the Company's
operations and projects. The Company reported an impairment of assets of $28
million for the quarter ended March 31, 1996. This impairment of assets is
discussed in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996 and in the Transition 10-K.
8
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RESULTS OF OPERATIONS
GOLD PRODUCTION: The Company's attributable share of gold production for the
three months ended March 31, 1997, was 9,224 ounces compared to 15,924 ounces
for the three months ended March 31, 1996. This represents a 42% decrease in
production totaling 6,700 ounces.
Production at the Castle Mountain Mine decreased 15% to 7,370 ounces for the
three months ended March 31, 1997, compared to 8,645 ounces for the same period
in 1996. The decrease in production is attributable to the lower ore grade
experienced in the Oro Belle, Hart Tunnel and Jumbo ("OBHT") pits compared to
the higher grade ore from the Leslie Ann and Jumbo South pits processed during
the quarter ended March 31, 1996. During the first quarter of 1997, the CMV
processed stockpiled high grade material which partially offset the impact of
the lower grade ore in the new OBHT pits.
The Company's share of gold production at the AGMJV decreased 5,426 ounces to
1,853 ounces for the three months ended March 31, 1997, compared to 7,279 ounces
for the same period in 1996. As described above, the Company is conducting
closure and reclamation operations at the AGMJV. Gold production for the three
months ended March 31, 1997, resulted from the continued leaching of the
existing leach pads.
Product sales revenue for the three month period ended March 31, 1997, was $5.9
million compared to $6.6 million for the same period in 1996. Product sales
revenue for the 1997 period includes the recognition of $.2 million of deferred
revenue associated with hedging activity. During the three months ended March
31, 1997, 3,600 ounces of gold were sold under forward sales contracts and
11,000 ounces were sold on the spot market. 7,500 ounces of gold were sold under
forward sales contracts during the first quarter of 1997. Revenue has been
negatively impacted by the decline in gold prices compared to the first quarter
of 1996. Spot gold prices have declined approximately 10% compared to the same
period for 1996.
Mining service revenue for the three months ended March 31, 1997, increased 53%
to $2.9 million compared to $1.9 million for the three months ended March 31,
1996. During the three months ended March 31, 1996, contract mining operations
were transitioning from the low volume Leslie Ann pit to the new OBHT pits.
Production volumes during that period were significantly below current monthly
volumes.
HEDGING ACTIVITY: For the three month period ended December 31, 1996, the
average gold price realized was $362 per ounce compared to an average spot price
of $358. For the nine months remaining in 1997, the Company has sold forward
6,000 ounces at an average price of $392 per ounce and sold call options on
5,000 ounces at an average price of $365 per ounce. The Company has the ability
to extend forward and option positions into the future.
GROSS PROFIT: Gross profit from product sales was $.7 million for the first
quarter of 1997, compared to a loss of $1.8 million for the same period in 1996.
The impact of decreasing gold prices has been offset by reduced operating costs
due to the suspension of mining operations at the AGMJV. Mining costs at the CMV
have increased slightly as a result of reduced ore grade in the OBHT pits
compared to the Leslie Ann Pit.
Gross profit from contract mining operations for the three months ended March
31, 1997, is comparable to the results for the same period in 1996. Increased
revenues from higher volumes have been offset by increased operating costs.
EXPLORATION COSTS: Exploration costs for the quarter ended March 31, 1997 were
$.3 million, a decrease of 51% compared to $.7 million for the same period in
1996. During the three months ended March 31, 1996, the Company incurred
significant expenditures associated with ARLO Resources, Ltd ("ARLO") and its
exploration efforts in Panama. In September 1996, the Company sold its interest
in ARLO. The Company has active exploration programs in Nevada and Brazil. The
Company is examining other potential mining opportunities in North and South
America.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses
decreased 56% to $.5 million for the three month period ended March 31, 1997,
compared to $1.1 million for the same period during 1996. The reduction in
expenses is due to cost reduction efforts undertaken in 1996 and a reduction in
legal expenses.
9
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Legal expenses were higher during the three months ended March 31, 1996, as a
result of legal expenses associated with a lawsuit involving Viceroy Gold
Company and contract mining operations at the Castle Mountain Venture.
INTEREST EXPENSE: Interest expense, consisting of loan commitment fees, was
$23,000 for the three month period ended March 31, 1997. The Company maintains a
credit facility, but did not utilize it during the first quarter.
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.
At March 31, 1997, the Company had cash and cash equivalents of $17.7 million
and gold bullion of $3.7 million representing an increase in cash and cash
equivalents, and gold bullion of $1.5 million from December 31, 1996.
Net cash provided by operating activities was $4.1 million for the three months
ended March 31, 1997, compared to net cash used by operating activities of $6
million for the same period in 1996.
During the quarter ended March 31, 1997, the Company received $2.1 million of
income tax refunds relating to the tax loss reported for the year ended March
31, 1996.
Additions to property, plant and mine development totaled $.3 million for the
three months ended March 31, 1997, compared to $.5 million for the same period
in 1996. For all periods presented, additions to property, plant and mine
development equipment consisted of (i) mine development expenditures; (ii)
construction expenditures for buildings, machinery, plant and equipment; and
(iii) expenditures for mobile mining service equipment. Additions for the
quarter ended March 31, 1996 also included expenses relating to the Jerooy
project and Arlo Resources, Ltd.
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 March 31, 1997,
$3.9 million were accrued for such costs. In addition to the accruals, the
Company and its joint venture partner are depositing cash in separate funds to
cover future reclamation costs 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 it liabilities as
necessary.
10
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) The following exhibits are filed with this report.
27 Financial Data Schedule
(b) No report on Form 8-K was filed during the quarter for which this
report is filed.
11
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SIGNATURES
----------
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.
MK GOLD COMPANY
/s/ John C. Farmer
---------------------------------------
JOHN C. FARMER
Controller, Treasurer and Secretary
(Authorized Signatory and
Principal Financial and Accounting
Officer)
Date: May 12, 1997
12
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INDEX TO EXHIBITS
Exhibits
27 Financial Data Schedule.
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FOM 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> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 17,683
<SECURITIES> 0
<RECEIVABLES> 1,725
<ALLOWANCES> 0
<INVENTORY> 5,840
<CURRENT-ASSETS> 26,115
<PP&E> 53,595
<DEPRECIATION> 49,135
<TOTAL-ASSETS> 32,874
<CURRENT-LIABILITIES> 4,007
<BONDS> 0
0
0
<COMMON> 194
<OTHER-SE> 20,527
<TOTAL-LIABILITY-AND-EQUITY> 32,874
<SALES> 5,948
<TOTAL-REVENUES> 8,884
<CGS> 5,290
<TOTAL-COSTS> 7,894
<OTHER-EXPENSES> 852
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> 292
<INCOME-TAX> 117
<INCOME-CONTINUING> 175
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 175
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
