<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, 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 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 30, 1998, there were
19,464,466 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 year ended
December 31, 1997 (the "1997 10-K"). The 1997 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 March 31, 1998 with the same period in the prior year.
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
1998 1997
(UNAUDITED) (UNAUDITED)
------------ ------------
<S> <C> <C>
Revenue
Product sales $ 1,956 $ 5,948
Mining services 2,678 2,936
----------- -----------
Total revenue 4,634 8,884
Operating expenses
Product sales 2,139 5,290
Mining services 2,265 2,604
----------- -----------
Total operating expenses 4,404 7,894
Gross profit 230 990
Exploration and project investigation costs (554) (345)
General and administrative expense (466) (507)
----------- -----------
Income (loss) from operations (790) 138
Investment income 276 177
Interest expense (23) (23)
Gain on sale of assets 62 -
----------- -----------
Income (loss) before income taxes (475) 292
Income tax expense - (117)
----------- -----------
Net income (loss) $ (475) $ 175
=========== ===========
Basic and diluted income (loss) per share $(0.02) $0.01
Basic and diluted weighted average shares used
to compute income (loss) per share 19,464,466 19,464,466
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
MK GOLD COMPANY
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1998 1997
(UNAUDITED) (AUDITED)
----------- ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $18,765 $18,189
Gold bullion held for sale 2,450 2,031
Receivables 1,639 1,637
Other Receivables 245 918
Refundable income taxes - 594
Inventories
Ore and in process 419 395
Materials and supplies 389 674
Deferred income taxes 175 175
Other 145 191
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Total current assets 24,227 24,804
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Property, plant and mine development, net 1,754 1,971
Deferred income taxes 412 412
Restricted cash 1,482 1,430
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TOTAL ASSETS $27,875 $28,617
======== =======
</TABLE>
(CONTINUED)
4
<PAGE>
MK GOLD COMPANY
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
(UNAUDITED) (AUDITED)
---------- ------------
<S> <C> <C>
Current liabilities
Accounts payable $ 1,409 $ 1,358
Current portion of mine closure liabilities 2,111 1,934
Other accrued liabilities 930 1,149
-------- --------
Total current liabilities 4,450 4,441
-------- --------
Reclamation liabilities 591 569
Deferred revenue 3,757 4,055
-------- --------
Total liabilities 8,798 9,065
-------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized 40,000,000 shares,
issued 19,464,466 shares at March 31, 1998 and December 31, 1997 195 195
Capital in excess of par value 67,272 67,272
Accumulated deficit (48,362) (47,887)
Deferred compensation (28) (28)
-------- --------
Total stockholders' equity 19,077 19,552
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,875 $ 28,617
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
(CONCLUDED)
5
<PAGE>
MK GOLD COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
(UNAUDITED) (UNAUDITED)
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (475) $ 175
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation, depletion and amortization 276 579
Gain on sale of assets (62) -
Changes in operating assets and liabilities:
Gold bullion held for sale (419) 2,265
Receivables (2) (711)
Refundable income taxes 594 2,055
Inventories 261 480
Other assets 46 (328)
Restricted cash (52) (30)
Accounts payable and other accrued liabilities (168) 245
Deferred revenue (298) (581)
Reclamation liabilities 199 (45)
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Total adjustments 375 3,929
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Net cash provided (used) by operating activities (100) 4,104
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INVESTING ACTIVITIES:
Additions to property, plant and mine development (45) (346)
Proceeds from disposition of property, plant and mine development 721 -
------- -------
Net cash provided (used) by investing activities 676 (346)
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FINANCING ACTIVITIES:
Increase in cash and cash equivalents 576 3,758
Cash and cash equivalents at beginning of period 18,189 13,925
------- -------
Cash and cash equivalents at the end of the period $18,765 $17,683
======= =======
Supplemental disclosures of cash flow information
Interest paid $ 23 $ 23
Income taxes paid (refund), net $ (594) $(2,055)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
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 year ended December 31, 1997, which are
included in the Company's Annual Report on Form 10-K for such year (the
"1997 10-K"). The results of operations for the three months ended March
31, 1998, are not necessarily indicative of the results to be expected for
the full year. The consolidated balance sheet at December 31, 1997, was
extracted from the audited consolidated financial statements contained in
the 1997 10-K and does not include all disclosures required by generally
accepted accounting principles for annual consolidated financial
statements.
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 1998 1997 1998 1997
--------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Product sales $ 7,122 $10,420 $ 1,781 $2,605
Income (loss) before taxes $(4,722) $(1,792) $(1,181) $ (448)
</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, 1998.
7
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4. ACCOUNTING STANDARDS
REPORTING COMPREHENSIVE INCOME - In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. SFAS No. 130 requires that an
enterprise (a) classify items of other comprehensive income by their
nature in a financial statement and (b) display the accumulated balance
of other comprehensive income separately from retained earnings and
additional paid-in-capital in the equity section of a statement of
financial position.
Effective January 1, 1998, the Company adopted the provisions of SFAS
No. 130. Accordingly, the Company determined that no transactions were
considered to be an additional component of comprehensive income.
Therefore, comprehensive income (loss) equaled net income (loss) for
the three months ended March 31, 1998 and 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 Annual Report on Form 10-K for the year ended December 31, 1997 (the
"1997 10-K").
GENERAL
During 1997, gold prices suffered a dramatic decline. This decline has had a
significant impact throughout the industry, causing mine closures, reduction of
operations at other mines and a reduction of exploration efforts. During 1997,
the Company reviewed its operations in light of the gold market conditions and
determined that it would not be able to recover its investment in the Castle
Mountain Venture (the "CMV"). As reported in the 1997 10-K, the Company recorded
an asset impairment of $1.8 million during the fourth quarter of 1997 relating
to its investment in the CMV.
The Company holds a 53% interest in the American Girl Mining Joint Venture (the
"AGMJV"). 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 and recorded a charge of $2.1 million during the third quarter of 1996
to provide for the Company's share of the expected closure and reclamation
costs.
The project is under budget and ahead of schedule. During the fourth quarter of
1997, the company reviewed the remaining costs associated with mine closure and
reclamation at the AGMJV. The revised estimates, combined with better than
expected cash flows during 1997, indicated that the Company's provision for the
AGMJV mine closure and reclamation should be reduced. Accordingly, the Company
reported an addition to its earnings of $2.3 million during the fourth quarter
of 1997. Closure and reclamation activities at the AGMJV continued during the
first quarter of 1998.
RESULTS OF OPERATIONS
GOLD PRODUCTION: The Company's attributable share of gold production for the
three months ended March 31, 1998, was 7,332 ounces, compared to 9,224 ounces
for the three months ended March 31, 1997. This represents a 20% decrease in
production totaling 1,892 ounces.
8
<PAGE>
Production at the CMV decreased 20% to 5,865 ounces for the three months ended
March 31, 1998, compared to 7,370 ounces for the same period in 1997. The
decrease in production is attributable to the lower ore grade experienced in the
Oro Belle, Hart Tunnel and Jumbo ("OBHT") pits and lower ore crushing rates
resulting from weather related and mechanical problems. In addition, during the
first quarter of 1997, the CMV processed stockpiled high grade material which
increased the average grade of the material processed.
The Company's share of gold production at the AGMJV decreased 386 ounces to
1,467 ounces for the three months ended March 31, 1998, compared to 1,853 ounces
for the same period in 1997. As described above, the Company is conducting
closure and reclamation operations at the AGMJV. Gold production for the three
months ended March 31, 1998, resulted from the continued leaching of the
existing leach pads.
Product sales revenue for the three month period ended March 31, 1998 was $2.0
million, compared to $5.9 million for the same period in 1997. 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, 1998, 5,000 ounces of gold were sold under forward sales contracts and 1,351
ounces were sold on the spot market. 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. In addition to decreased product
sales, revenue was negatively impacted by the decline in gold prices compared to
the first quarter of 1997. Spot gold prices declined approximately 17% compared
to the first quarter of 1997.
Revenue from mining services for the three months ended March 31, 1998 decreased
9% to $2.7 million, compared to $2.9 million for the three months ended March
31, 1997. Revenues decreased due to lower levels of road and leach pad
construction work.
HEDGING ACTIVITY: For the three month period ended March 31, 1998, the average
price realized per ounce of gold was $325, compared to $362 per ounce for the
three months ended March 31, 1997. The average spot price for the three month
period ended March 31, 1998 was $296 per ounce. For the nine months remaining in
1998, the Company has sold forward 4,000 ounces of gold at an average price of
$315 per ounce and has purchased call options on 5,000 ounces at an average
price of $360 per ounce. The Company has the ability to extend forward
positions into the future.
GROSS PROFIT: The Company experienced a loss from product sales of $.2 million
for the first quarter of 1998, compared to a gross profit of $.7 million for the
same period in 1997, representing a decrease of $.9 million. The decrease is due
to lower gold prices and reduced production volumes at the CMV.
Gross profit from contract mining operations for the three months ended March
31, 1998 increased $.1 million compared to the same period in 1997. Reductions
in operating costs offset the impact of lower revenues.
EXPLORATION COSTS: Exploration costs for the quarter ended March 31, 1998 were
$.6 million, an increase of 61% compared to $.3 million for the same period in
1997. The increase is due to increased activity relating to the Company's
grassroots exploration programs in Nevada, Brazil and Mexico. The Company is
evaluating other potential mining opportunities throughout the world, including
North and South America.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses
decreased 8% for the three month period ended March 31, 1998, compared to the
same period in 1997. The decrease in expenses is due to cost reductions in
outside services expenses.
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, 1998, the Company had cash and cash equivalents of $18.8 million
and gold bullion of $2.5 million representing an increase in cash and cash
equivalents and gold bullion of $1 million from December 31, 1997.
9
<PAGE>
Net cash used by operating activities was $.1 million for the three months ended
March 31, 1998, compared to net cash provided by operating activities of $4.1
million for the same period in 1997.
During the quarter ended March 31, 1998, the Company received $.6 million of
income tax refunds relating to the tax loss reported for the year ended December
31, 1997. The Company also received $.7 million of proceeds from the disposal of
plant and equipment.
Additions to property, plant and mine development totaled $.1 million for the
three months ended March 31, 1998, compared to $.3 million for the same period
in 1997. 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.
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, 1998, $2.7 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.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING INFORMATION
Statements included in this Management's Discussion and Analysis of Financial
Condition and Results of Operations may contain forward-looking statements.
Such forward-looking statements are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Such statements may
relate, but not be limited, to projections of revenues, income or loss and
capital expenditures; exploration efforts; plans for growth and future
operations; financing needs; as well as assumptions relating to the foregoing.
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified. When used in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the words "estimates", "expects", "anticipates", "forecasts",
"plans", "intends", and variations of such words or similar expressions are
intended to identify forward-looking statements that involve risks and
uncertainties. Future events and actual results could differ materially from
those set forth in, contemplated by or underlying the forward-looking
statements.
10
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(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
<PAGE>
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 13, 1998
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 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> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 18,765
<SECURITIES> 0
<RECEIVABLES> 1,884
<ALLOWANCES> 0
<INVENTORY> 3,258
<CURRENT-ASSETS> 24,227
<PP&E> 29,897
<DEPRECIATION> 27,926
<TOTAL-ASSETS> 27,875
<CURRENT-LIABILITIES> 4,450
<BONDS> 0
0
0
<COMMON> 195
<OTHER-SE> 18,882
<TOTAL-LIABILITY-AND-EQUITY> 27,875
<SALES> 1,956
<TOTAL-REVENUES> 4,634
<CGS> 2,139
<TOTAL-COSTS> 4,404
<OTHER-EXPENSES> 1,020
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (23)
<INCOME-PRETAX> (475)
<INCOME-TAX> 0
<INCOME-CONTINUING> (475)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (475)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
