<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, 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
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(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, 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 months
ended March 31, 1999 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)
- --------------------------------------------------------------------------------
Three Months Ended
March 31
1999 1998
(Unaudited) (Unaudited)
------------ ------------
REVENUE:
Product sales $ 932 $ 1,956
Mining services 2,759 2,678
------------ -----------
Total revenue 3,691 4,634
OPERATING EXPENSES:
Product sales 1,491 2,139
Mining services 2,295 2,265
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Total operating expenses 3,786 4,404
GROSS PROFIT (LOSS) (95) 230
EXPLORATION COSTS (496) (554)
GENERAL AND ADMINISTRATIVE EXPENSES (385) (466)
------------ -----------
LOSS FROM OPERATIONS (976) (790)
Investment income 196 276
Interest expense (19) (23)
Gain on sale of assets 6 62
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NET LOSS $ (793) $ (475)
============ ===========
Basic and diluted loss per common share $ (0.04) $ (0.02)
Basic and diluted weighted average shares used
to compute loss per common share 19,261,929 19,464,466
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)
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March 31, December 31,
ASSETS 1999 1998
(Unaudited) (Audited)
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CURRENT ASSETS:
Cash and cash equivalents $13,545 $15,687
Gold bullion held for sale 2,601 2,101
Receivables 1,858 2,428
Inventories
Ore and in process 764 658
Materials and supplies 645 649
Deferred income taxes 123 123
Other 223 283
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Total current assets 19,759 21,929
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Property, plant and mine development, net 1,496 1,189
Deferred income taxes 304 304
Restricted cash 1,487 1,426
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TOTAL ASSETS $23,046 $24,848
======= =======
(continued)
4
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MK GOLD COMPANY
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
(Unaudited) (Audited)
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<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,508 $ 1,749
Current portion of mine closure liabilities 622 1,105
Other accrued liabilities 281 293
----------- -----------
Total current liabilities 2,411 3,147
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Mine closure and reclamation liabilities 691 666
Deferred revenue 2,566 2,864
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Total liabilities $ 5,668 $ 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 March 31, 1999 195 195
Capital in excess of par value 67,146 67,146
Accumulated deficit (49,961) (49,168)
Treasury stock (2) (2)
----------- -----------
Total stockholders' equity 17,378 18,171
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,046 $ 24,848
=========== ===========
</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)
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<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
(Unaudited) (Unaudited)
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (793) $ (475)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation, depletion and amortization 165 276
Gain on sale of assets (6) (62)
Changes in operating assets and liabilities:
Gold bullion held for sale (500) (419)
Receivables 570 (2)
Refundable income taxes - 594
Inventories (102) 261
Other assets 60 46
Restricted cash (61) (52)
Accounts payable and other accrued liabilities (253) (168)
Deferred revenue (298) (298)
Reclamation liabilities (458) 199
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Total adjustments (883) 375
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Net cash used by operating activities (1,676) (100)
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INVESTING ACTIVITIES:
Additions to property, plant and mine development (479) (45)
Proceeds from disposition of property, plant and mine development 13 721
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Net cash provided (used) by investing activities (466) 676
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,142) 576
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15,687 18,189
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CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 13,545 $ 18,765
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 19 $ 23
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 three months ended March
31, 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.
Castle Mountain Venture
Total Venture MK Gold's Share
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Results of Operations
Three Months Ended March 31 1999 1998 1999 1998
--------------------------- ---- ---- ---- ----
Product sales $ 4,655 $ 7,122 $1,164 $ 1,781
Loss before taxes $(2,714) $(4,722) $ (679) $(1,181)
The 1999 totals include the impact of impairments previously recorded on
the partners' financial statements but not included in the 1998 CMV
reported amounts.
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, 1999.
7
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4. New Accounting Standard - In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
supersedes SFAS No. 80, "Accounting for Future Contracts", SFAS No. 105,
"Disclosure of Information About Financial Instruments with Off-Balance-
Sheet Risk and Financial Instruments with Concentration of Credit Risk:,
and SFAS No. 119, "Disclosures About Derivative Financial Instruments and
Fair Value of Financial Instruments", and also amends certain aspects of
other SFASs previously issued. This statement establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Company management
is currently evaluating the effects of this change in its accounting for
derivatives and hedging activities.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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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 months ended March 31, 1999, was 4,084 ounces, compared to 7,332 ounces
for the three months ended March 31, 1998. This represents a 44% decrease in
production totaling 3,248 ounces.
Production at the Castle Mountain Venture (the "CMV") decreased 30% to 4,084
ounces for the three months ended March 31, 1999, compared to 5,865 ounces for
the same period in 1998. The decrease in production is attributable to the lower
ore grades experienced in the Oro Belle, Hart Tunnel and Jumbo pits.
Gold production at the American Girl Mining Joint Venture (the "AGMJV") has
ceased. The Company is conducting closure and reclamation operations at the
AGMJV and expects the project to be completed by mid-1999.
Product sales revenue for the three month period ended March 31, 1999 was $.9
million, compared to $2.0 million for the same period in 1998. Product sales
revenue for the 1999 and 1998 periods includes the recognition of $.3 million of
deferred revenue. During the three months ended March 31, 1999, no gold was
sold under forward sales contracts and 2,000 ounces were sold on the spot
market. 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. In addition to decreased product sales, revenue was negatively impacted
by the decline in gold prices compared to the first quarter of 1998. Spot gold
prices declined approximately 7% compared to the first quarter of 1998.
Revenue from mining services for the three months ended March 31, 1999 increased
3% to $2.8 million, compared to $2.7 million for the three months ended March
31, 1998. Revenues increased due to an increase in tons mined compared to the
first quarter of 1998.
8
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Hedging Activity: For the three month period ended March 31, 1999, the average
price realized per ounce of gold was $294, compared to $325 per ounce for the
three months ended March 31, 1998. The average spot price for the three month
period ended March 31, 1999 was $286 per ounce. The Company has the ability to
extend forward positions into the future. The Company had no forward sales
contracts as of March 31, 1999.
Gross Profit: The Company experienced a loss from product sales of $.6 million
for the first quarter of 1999, compared to a loss from product sales of $.2
million for the same period in 1998, representing a decrease of $.4 million. The
decrease is due to depressed gold prices and the Company's decision not to sell
all of its available gold.
Gross profit from contract mining operations for the three months ended March
31, 1999 increased $.05 million compared to the same period in 1998.
Exploration Costs: Exploration costs for the quarter ended March 31, 1999 were
$.5 million, a decrease of 10% compared to $.6 million for the same period in
1998. Although exploration expenses are marginally down compared to 1998, the
Company maintains active exploration programs in Nevada, Mexico and Brazil.
First quarter exploration activities in Nevada have been focused on three
properties acquired during the fourth quarter of 1998. Fieldwork on these
properties will begin in the second quarter. Exploration activities in Mexico
have included identification and examination of properties for potential
acquisition as well as continued work on existing properties. First quarter
Brazilian exploration efforts have resulted in the signing of an option on a
prospective gold target.
General and Administrative Expenses: General and administrative expenses
decreased 17% for the three month period ended March 31, 1999, compared to the
same period in 1998. 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 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 has been renewed through March 2001. At
March 31, 1999, the Company had cash and cash equivalents of $13.5 million and
gold bullion of $2.6 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 $1.7 million for the three months
ended March 31, 1999, compared to net cash used by operating activities of $.1
million for the same period in 1998.
Additions to property, plant and mine development totaled $.5 million for the
three months ended March 31, 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
March 31, 1999, $1.3 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.
In October 1998, the Company announced a share repurchase program. The Board of
Directors of the Company authorized the repurchase of up to 2 million shares. As
of March 31, 1999, 173,700 shares had been repurchased by the Company under the
repurchase program.
9
<PAGE>
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 mid 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 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 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
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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
Chief Financial Oficer and Secretary
(Authorized Signatory and
Principal Financial and Accounting Officer)
Date: May 14, 1999
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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 13,545
<SECURITIES> 0
<RECEIVABLES> 1,858
<ALLOWANCES> 0
<INVENTORY> 4,010
<CURRENT-ASSETS> 19,759
<PP&E> 1,496
<DEPRECIATION> 165
<TOTAL-ASSETS> 23,046
<CURRENT-LIABILITIES> 2,411
<BONDS> 0
0
0
<COMMON> 195
<OTHER-SE> 17,183
<TOTAL-LIABILITY-AND-EQUITY> 23,046
<SALES> 932
<TOTAL-REVENUES> 3,691
<CGS> 1,491
<TOTAL-COSTS> 3,786
<OTHER-EXPENSES> 881
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19
<INCOME-PRETAX> (793)
<INCOME-TAX> 0
<INCOME-CONTINUING> (793)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (793)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
