<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 June 30, 1999
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 August 6, 1999, there were
19,261,929 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, 1998 (the "1998 10-K"). The 1998 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 and six
month periods ended June 30, 1999 with the same periods 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 Six Months Ended
June 30 June 30
(Unaudited) (Unaudited)
1999 1998 1999 1998
------------------ ------------------
<S> <C> <C> <C> <C>
REVENUE
Product sales $ 299 $ 3,490 $ 1,231 $ 5,495
Mining services 2,802 2,415 5,561 5,044
----------- ----------- ----------- -----------
Total revenue 3,101 5,905 6,792 10,539
OPERATING EXPENSES
Product sales 774 3,173 2,265 5,312
Mining services 2,185 2,061 4,480 4,326
----------- ----------- ----------- -----------
Total operating expenses 2,959 5,234 6,745 9,638
GROSS PROFIT 142 671 47 901
EXPLORATION COSTS (516) (726) (1,012) (1,280)
GENERAL AND ADMINISTRATIVE EXPENSES (386) (407) (771) (873)
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (760) (462) (1,736) (1,252)
Investment income 188 285 384 561
Interest expense (19) (19) (38) (42)
Gain on sale of assets 73 (1) 79 61
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (518) (197) (1,311) (672)
Income tax expense - (5) - (5)
----------- ----------- ----------- -----------
NET LOSS $ (518) $ (202) $ (1,311) $ (677)
=========== =========== =========== ===========
Basic and diluted loss per common share $ (0.03) $ (0.01) $ (0.07) $ (0.03)
Basic and diluted weighted average shares
used to compute loss per common share 19,261,929 19,464,466 19,261,929 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>
June 30, December 31,
ASSETS 1999 1998
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $12,114 $15,687
Gold bullion held for sale 4,053 2,101
Receivables 1,960 2,428
Inventories
Ore and in process 751 658
Materials and supplies 640 649
Deferred income taxes 123 123
Other 274 283
------- -------
Total current assets 19,915 21,929
------- -------
Property, plant and mine development, net 1,263 1,189
Deferred income taxes 304 304
Restricted cash 1,009 1,426
------- -------
TOTAL ASSETS $22,491 $24,848
======= =======
</TABLE>
(continued)
4
<PAGE>
MK GOLD COMPANY
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars except per share data)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
(Unaudited) (Audited)
----------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,871 $ 1,749
Current portion of mine closure liabilities 511 1,105
Other accrued liabilities 264 293
-------- --------
Total current liabilities 2,646 3,147
-------- --------
Mine closure and reclamation liabilities 717 666
Deferred revenue 2,268 2,864
-------- --------
Total liabilities $ 5,631 $ 6,677
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, par value $.01, 19,464,466 shares issued and
19,261,929 shares outstanding at December 31, 1998 and June 30, 1999 195 195
Capital in excess of par value 67,146 67,146
Accumulated deficit (50,479) (49,168)
Treasury stock (2) (2)
-------- --------
Total stockholders' equity 16,860 18,171
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 22,491 $ 24,848
======== ========
</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>
Six Months Ended
June 30
1999 1998
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,311) $ (677)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation, depletion and amortization 432 551
Gain on sale of assets (79) (61)
Changes in operating assets and liabilities:
Gold bullion held for sale (1,952) 559
Receivables 468 68
Refundable income taxes - 594
Inventories (84) 50
Other assets 9 36
Restricted cash 417 (95)
Accounts payable and other accrued liabilities 93 114
Deferred revenue (596) (595)
Reclamation liabilities (543) (362)
------ ------
Total adjustments (1,835) 859
------ ------
Net cash provided (used) by operating activities (3,146) 182
------ ------
INVESTING ACTIVITIES:
Additions to property, plant and mine development (513) (106)
Proceeds from disposition of property, plant and mine development 86 985
------ ------
Net cash provided (used) by investing activities (427) 879
------ ------
FINANCING ACTIVITIES:
(Decrease) increase in cash and cash equivalents (3,573) 1,061
Cash and cash equivalents at beginning of period 15,687 18,189
------- -------
Cash and cash equivalents at the end of the period $12,114 $19,250
======= =======
Supplemental disclosures of cash flow information
Interest paid $ 38 $ 19
Income taxes paid (refund), net - (594)
</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, 1998, which are
included in the Company's Annual Report on Form 10-K for such year (the
"1998 10-K"). The results of operations for the six months ended June 30,
1999, are not necessarily indicative of the results to be expected for the
full year. The consolidated balance sheet at December 31, 1998, was
extracted from the audited consolidated financial statements contained in
the 1998 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
Six Months Ended June 30 1999 1998 1999 1998
------------------------ ---- ---- ---- ----
<S> <C> <C> <C> <C>
Product sales $11,531 $14,297 $ 2,883 $ 3,574
Loss before taxes $(4,344) $(7,850) $(1,086) $(1,963)
</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 six months ended June 30, 1999.
4. Accounting Standards
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 137 "Accounting
for Derivative Instruments and Hedging Activities-Deferral of the Effective
Date of FASB Statement No. 133." SFAS No. 137 delays the effective date of
SFAS 133 to fiscal years beginning after June 15, 2000. The Company will
adopt the new statement beginning on January 1, 2001. The Company does not
believe that SFAS 137 will have a significant effect on the earnings and
financial position of the Company.
7
<PAGE>
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, 1998 (the
"1998 10-K"). This section contains certain forward-looking statements that
involve risks and uncertainties, including statements regarding the Company's
plans, objectives, goals, strategies and financial performance. The Company's
actual results could differ materially from the results anticipated in these
forward-looking statements as a result of factors set forth under "Cautionary
Statement for Forward-Looking Information" below and elsewhere in this report.
Results of Operations
Gold Production: The Company's attributable share of gold production for the
three and six month periods ended June 30, 1999, was 6,340 ounces and 10,424
ounces, respectively, compared to 6,801 ounces and 14,133 ounces for the three
and six month periods ended June 30, 1998. This represents a decrease in
production of 7% for the three month period and 26% for the six month period,
compared to the same periods in 1998. The decrease in production for both
periods is attributable to the lower grade ore experienced in the Oro Belle,
Hart Tunnel and Jumbo pits and lower ore crushing rates resulting from weather
related and mechanical problems at the Castle Mountain Venture (the "CMV") and
the cessation of gold production at the American Girl Mining Joint Venture (the
"AGMJV"). The Company is conducting closure and reclamation operations at the
AGMJV and expects the project to be completed by the fourth quarter of 1999.
Product sales revenue for the three and six month periods ended June 30, 1999
decreased $3.2 million and $4.3 million, respectively, compared to the
corresponding periods in 1998. Due to weak gold market conditions, the Company
did not sell any gold during the quarter ended June 30, 1999. During the six
months ended June 30, 1999 no gold was sold under forward sales contracts, and
2,000 ounces of gold were sold on the spot market. Declining gold prices have
had a negative impact on gold revenues. Spot gold prices have declined
approximately 4% compared to the first six months of 1998. Product sales revenue
for the three and six month periods ended June 30, 1999 also includes deferred
revenue of $.3 million and $.6 million, respectively, associated with the
settlement of a dispute in 1995 relating to the Company's mining contract at the
CMV.
Revenue from mining services for the three and six month periods ended June 30,
1999 increased $.4 million and $.5 million, respectively, compared to the
corresponding periods in 1998. This increase is attributable to the escalation
of the contract price and an increase in tons mined during 1999.
Hedging Activity: For the six month period ended June 30, 1999, the average
gold price realized was $294 per ounce, compared to $317 per ounce for the six
months ended June 30, 1998. The average spot price for the six month period
ended June 30, 1999 was $280 per ounce.
Gross Profit: The Company experienced a loss from product sales of $.5 million
and $1.0 million for the three and six month periods ended June 30, 1999,
respectively, compared to a profit of $.3 million and $.2 million, respectively,
for the same periods in 1998. The decrease is due to depressed gold prices.
Gross profit from contract mining operations increased $.3 million and $.4
million for the three and six month periods ended June 30, 1999, respectively,
compared to the same periods in 1998. Reductions in operating costs and
increased revenues have resulted in improved earnings for contract mining
operations.
Exploration Costs: Exploration and project investigation costs were $.5 million
and $1.0 million for the three and six month periods ended June 30, 1999,
respectively, compared to $.7 million and $1.3 million for the three and six
month periods ended June 30, 1998. Despite the reduction in exploration expense,
the Company was active in its three exploration programs. Exploration activities
in Nevada have been focused on three properties acquired during
8
<PAGE>
the fourth quarter of 1998. Field work on these properties commenced during the
second quarter of 1999. Exploration activities in Mexico resulted in a joint
venture with Cominco Mexico S.A. de C.V. to explore the El Habal property in
Sinaloa State. Brazilian exploration activities have included the signing of an
option agreement to explore a prospective gold property in central Brazil.
Geologic sampling and mapping was done on that property during the quarter ended
June 30, 1999.
General and Administrative Expenses: General and administrative expenses
decreased to $.4 million and $.8 million for the three and six month periods
ended June 30, 1999, respectively. This represents a decrease of 5% and 12%
compared to the same periods in 1998. The reduction in costs is the result of
the Company's continued cost reduction efforts.
Liquidity and Capital Resources
The Company's principal sources of funds are its available resources of cash and
cash equivalents and cash generated from mining operations and contract mining
services. In addition, the Company maintains a $20 million credit facility with
Leucadia National Corporation, which was renewed effective March 1, 1998 for a
period of three years. At June 30, 1999, the Company had cash and cash
equivalents of $12.1 million and gold bullion of $4.1 million representing a
decrease in cash and cash equivalents and gold bullion of $1.6 million from
December 31, 1998.
Net cash used by operating activities was $3.1 million for the six months ended
June 30, 1999, compared to net cash provided by operating activities of $.2
million for the same period in 1998. The increase is due to depressed gold
prices and the Company's decision not to sell all of its available gold.
Additions to property, plant and mine development totaled $.5 million for the
six months ended June 30, 1999, compared to $.1 million for the same period in
1998. 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
June 30, 1999, $1.2 million were accrued for such costs. In addition to the
accruals, the Company and its joint venture partner are depositing cash in a
separate fund 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.
The Year 2000 Issue
The Company has performed an analysis and has implemented procedures to address
year 2000 issues. The Company is converting its financial systems to year 2000
compliant systems, with project completion scheduled for the third quarter of
1999. The Company does not anticipate a significant cost to modify its systems
to accommodate the impact of the upcoming change in the century. Although the
Company is working cooperatively with certain third parties, the Company cannot
give any assurances that the systems of other parties will be year 2000
compliant on a timely basis. In the most reasonably likely worst-case scenario
involving the failure of the Company's systems and applications or those
operated by others, the Company's business, financial condition and results of
operations would be materially adversely affected. However, an estimate of the
dollar amount of such an adverse effect cannot be practically determined at this
time.
Cautionary Statement for Forward-Looking Information
Certain information set forth in this report contains "forward-looking
statements" within the meaning of federal securities laws. Forward-looking
statements include statements concerning plans, objectives, goals, strategies,
future events, future revenues or performance, capital expenditures, exploration
efforts, financing needs, plans or intentions relating to acquisitions by the
Company and other information that is not historical information. When used in
this report, the words "estimates," "expects," "anticipates," "forecasts,"
"plans," "intends," "believes" and
9
<PAGE>
variations of such words or similar expressions are intended to identify
forward-looking statements. Additional forward-looking statements may be made by
the Company from time to time. All such subsequent forward-looking statements,
whether written or oral and whether made by or on behalf of the Company, are
also expressly qualified by these cautionary statements.
The Company's forward-looking statements are based upon the Company's current
expectations and various assumptions. The Company's expectations, beliefs and
projections are expressed in good faith and are believed by the Company to have
a reasonable basis, including without limitation, management's examination of
historical operating trends, data contained in the Company's records and other
data available from third parties, but there can be no assurance that
management's expectations, beliefs and projections will result or be achieved or
accomplished. The Company's forward-looking statements apply only as of the date
made. The Company undertakes no obligation to publicly update or revise forward-
looking statements which may be made to reflect events or circumstances after
the date made or to reflect the occurrence of unanticipated events.
There are a number of risks and uncertainties that could cause actual results to
differ materially from those set forth in, contemplated by or underlying the
forward-looking statements contained in this report. These risks include, but
are not limited to, the volatility of gold prices, imprecision of reserve
estimates, risks of exploration and development stage projects, political risks
of development in foreign countries, risks associated with environmental
regulation, mining risks and competition. Each of these risks and certain other
uncertainties are discussed in more detail in the 1998 10-K. There may also be
other factors, including those discussed elsewhere in this report, that may
cause the Company's actual results to differ materially from the forward-looking
statements. Any forward-looking statements made by or on behalf of the Company
should be considered in light of these factors.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------ ----------------------------------------------------------
Not applicable.
10
<PAGE>
PART II. OTHER INFORMATION
---------------------------
Item 1. LEGAL PROCEEDINGS
- ------ -----------------
As previously reported by the Company, the Company has filed a complaint against
Morrison Knudsen Corporation ("MK") seeking a declaration that MK's agreement
not to compete with the Company is valid, binding and enforceable. A trial was
scheduled for August 16, 1999; however, in July 1999 the court notified the
Company that it would be necessary to reschedule the trial. A new trial date has
not yet been determined.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
On June 8, 1999, the Company held its annual meeting of stockholders in Salt
Lake City, Utah. The only item of consideration was the election of two
directors with the votes tabulated as follows: Gordon J. Humphrey received
15,747,755 shares voting in favor and 76,162 shares were withheld; and James P.
Miscoll received 15,750,516 shares voting in favor and 73,401 shares were
withheld. Five directors who were not up for re-election continue to serve as
directors of the Company: Robert V. Hansberger, Robert S. Shriver, Ian M.
Cumming, Joseph S. Steinberg and G. Frank Joklik.
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
<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
Chief Financial Officer
(Authorized Signatory and
Principal Financial and Accounting Officer)
Date: August 11, 1999
12
<PAGE>
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,701
<SECURITIES> 10,413
<RECEIVABLES> 1,960
<ALLOWANCES> 0
<INVENTORY> 1,391
<CURRENT-ASSETS> 19,915
<PP&E> 20,618
<DEPRECIATION> 19,355
<TOTAL-ASSETS> 22,491
<CURRENT-LIABILITIES> 2,646
<BONDS> 0
0
0
<COMMON> 195
<OTHER-SE> 16,665
<TOTAL-LIABILITY-AND-EQUITY> 22,491
<SALES> 1,231
<TOTAL-REVENUES> 6,792
<CGS> 6,745
<TOTAL-COSTS> 8,528
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38
<INCOME-PRETAX> (1,311)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,311)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,311)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
