<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 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 No. 0-23042
MK GOLD COMPANY
(Exact name of registrant as specified in 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
(801) 297-6900
(Address of principal executive offices and telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
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 ___
-
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 21, 2000, the aggregate market value of the Registrant's voting and
non-voting common stock held by non-affiliates of the Registrant based upon the
average bid and asked prices reported for such date on the OTC Bulletin Board
was approximately $8,440,060.
The number of shares of the Registrant's common stock outstanding as of March
24, 2000 was 37,320,000.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934 in connection with the
2000 Annual Meeting of Stockholders of the Registrant is incorporated by
reference into Part III of this Form 10-K.
================================================================================
<PAGE>
MK GOLD COMPANY
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
PAGE
<S> <C>
Items 1. and 2. Business and Properties I-1
Item 3. Legal Proceedings I-6
Item 4. Submission of Matters to a Vote of Security Holders I-6
Item 10. Executive Officers of the Registrant I-6
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters II-1
Item 6. Selected Financial Data II-1
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations II-3
Item 7A. Quantitative and Qualitative Disclosures About Market Risk II-8
Item 8. Financial Statements and Supplementary Data II-9
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure II-28
PART III
Item 10. Directors and Executive Officers of the Registrant III-1
Item 11. Executive Compensation III-1
Item 12. Security Ownership of Certain Beneficial Owners and Management III-1
Item 13. Certain Relationships and Related Transactions III-1
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K IV-1
Signatures IV-2
</TABLE>
<PAGE>
This report 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 certain factors set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Cautionary Statement for Forward-Looking Information" and elsewhere in this
report.
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
Introduction
MK Gold Company ("MK Gold" or the "Company") was originally incorporated in
Delaware in 1990. The Company's principal executive offices are located at
Eagle Gate Tower, 60 East South Temple, Suite 2100, Salt Lake City, Utah, 84111.
The Company was a wholly owned subsidiary of Morrison Knudsen Corporation ("MK")
until December 14, 1993 when 9 million shares of the Company's common stock were
sold in a public offering and 9 million shares were retained by MK. During
January 1994, an underwriters' option was exercised and an additional 1,350,000
shares of common stock were sold to the public. On June 6, 1995, MK sold its 9
million shares of the Company's common stock to Leucadia National Corporation, a
New York corporation ("Leucadia"). The Company sold an additional 18,058,635
shares of common stock to Leucadia in September 1999 in connection with the
Company's acquisition of Riomin Exploraciones S.A., as described below.
Approximately 72.5% of the Company's outstanding common stock is currently owned
by Leucadia.
The Company is engaged in the business of mining gold and exploring for and
acquiring gold and other metal properties. The Company currently holds a joint
venture interest in one producing gold mining project and provides contract
mining services to that project. The Company also holds a joint venture interest
in a gold project for which the process of mine closure and reclamation was
completed in February 2000. See Items 1 and 2 - "Business and Properties--
Properties and Operations."
Properties and Operations
Las Cruces Project
On September 1, 1999, the Company acquired the entire share capital and
subordinated debt of Riomin Exploraciones S.A. from Rio Tinto plc ("Rio Tinto").
Subsequent to the acquisition, the name of Riomin Exploraciones, S.A. was
changed to Cobre Las Cruces, S.A. ("Las Cruces"). Las Cruces holds mineral
rights to the Las Cruces copper deposit in the Pyrite Belt of Spain. The Las
Cruces deposit has a resource estimated at 15.2 million metric tons estimated to
contain 6.1% copper. A gold bearing gossan, that has not been evaluated, and 150
meters of unconsolidated overburden overlie the deposit. The resource
calculation was based upon the analysis of 279 drill holds totaling over 272,000
feet. Las Cruces holds the exploration rights to 272 square kilometers adjacent
to the deposit.
A preliminary feasibility study, prepared by Rio Tinto in 1998, estimated
the capital cost would be approximately $300 million to bring the mine into
production. A bankable feasibility study and permitting activities are
currently underway. This study will better define the future capital and
operating costs of the Las Cruces Project.
Mining at the Las Cruces Project will be subject to permitting, significant
financing, engineering and construction. Although the Company believes necessary
permitting for the Las Cruces Project will be obtained, the Company cannot
guarantee that such will be the case. Further, there may be other political and
economic circumstances that could prevent the Las Cruces Project from being
developed.
The aggregate purchase price for the acquisition of Las Cruces was
$42,000,000 in cash. In addition, Rio Tinto will be entitled to receive a 1.5%
royalty on any copper sales from the Las Cruces Project at a price exceeding
$0.80 per pound. The Company obtained funding for the acquisition of Las Cruces
through (i) borrowings of $20,000,000 pursuant to its existing credit agreement
with Leucadia, (ii) the sale of 18,058,635 shares of its authorized but unissued
shares of common stock to Leucadia for $15,806,723 and (iii) $6,193,277 from the
Company's working capital. Pending regulatory approval of the acquisition of the
Company's common stock by Leucadia, Leucadia loaned to the Company $15,806,723
pursuant to a promissory note. This promissory note was repaid on October 8,
1999, at the time regulatory approval was given and the sale of MK Gold shares
to Leucadia
I-1
<PAGE>
was completed. In connection with the acquisition of Las Cruces, the Company
also granted Straits Resources Ltd., Sydney, Australia, a one-year option to
purchase 35% of Las Cruces at the Company's cost, plus interest.
Castle Mountain
The Company holds a 25% interest in the Castle Mountain Venture, a
California general partnership (the "CMV"). Viceroy Resource Corp. ("Viceroy")
holds the remaining 75% interest in the CMV. The CMV is governed by a management
committee composed of two members appointed by the Company and three members
appointed by Viceroy. Viceroy serves as the manager of the Castle Mountain Mine
which is operated by the CMV.
The Castle Mountain Mine is located in San Bernardino County, California,
approximately 70 miles south of Las Vegas, Nevada. Mining operations at the
Castle Mountain Mine commenced in June 1991, followed by commercial production
in April 1992. Operations are expected to continue through 2001, with gold
production extending into 2002. In 2000, the mining operations are expected to
have an average waste to ore ratio of approximately 0.9:1 and are expected to
produce approximately 9.8 million tons of ore and waste. Ore is subjected to a
combination of milling and heap leaching.
All surface and mineral rights on all Castle Mountain Mine claims are owned
by Viceroy for the benefit of the CMV. The CMV controls a central 4.5 square
mile block containing three patented lode claims, four patented placer claims,
191 unpatented lode claims, 35 unpatented placer claims and numerous millsite
claims. The CMV also controls a surrounding 50 square mile property block
covering the majority of the Castle Mountains.
Contract Mining. Pursuant to a Contract Mining Agreement with the CMV, the
Company performs mining services at the Castle Mountain Mine (i.e., all work
necessary to bring the ore to the crusher, including removal of overburden and
waste materials, drilling and blasting, and hauling). The Contract Mining
Agreement is subject to periodic price adjustments.
Total tons mined at the CMV during 1999 increased to 18.4 million tons from
17 million tons in 1998. The price received by the Company for contract mining
services performed during 1999 was $0.78 per ton while costs amounted to $.65
per ton. Additionally, the Company recorded $118,000 of net income from non-
mining earth work at the CMV during 1999.
CMV Operations. In 1999, MK Gold's 25% share of cash flow used in CMV
operations, after capital expenditures, was $593,000. CMV gold production was
94,970 ounces with cash costs at $303 per ounce. The Company's 25% share of
production in 1999 was 23,315 ounces as compared to 22,284 for the year ended
December 31, 1998.
Several mining claims controlled by the CMV are subject to production-based
net smelter return royalty payments and other royalty payments. Under the terms
of the royalty agreements, the CMV is required to make annual rental or advance
royalty payments. Royalty payments made by the CMV for 1999 totaled $468,000,
including the Company's attributable share of $117,000.
Based upon a $300 per ounce gold price, the estimated reserves and
stockpiles as of December 31, 1999 at the Castle Mountain Mine contain 296,014
ounces. The Company's attributable share is 74,003 ounces. After recovery
losses, the Company's share is expected to be 67,486 ounces (which includes
8,000 ounces of residual heap leach recovery). Cash operating costs are expected
to be $198 per ounce in 2000, a 35% decrease from 1999. Ore grade mined is
expected to increase from 0.034 ounces per ton in 1999 to 0.043 ounces per ton
in 2000, an increase of 26%. The Company anticipates that operating costs will
continue to decrease and ore grades will continue to increase until ore reserves
are exhausted. Closure and reclamation is expected to begin in 2001 and will
take approximately three years.
The tables below present the reserve and operating data for the CMV at
December 31, 1999.
I-2
<PAGE>
PROVEN AND PROBABLE RESERVES*
<TABLE>
<S> <C>
Total ore tons................................................................. 6,868,979
Waste to ore ratio............................................................. 1.2:1
Average ore grade (oz./ton).................................................... 0.043
Cutoff grade (oz./ton)......................................................... 0.015
Total contained ounces including stockpiles.................................... 296,014
MK Gold share (25%) contained.................................................. 74,003
MK Gold share (25%) recoverable................................................ 59,486
</TABLE>
-------------------
*Reserves were calculated by Viceroy. Reserves represent mineable and diluted
tons and do not reflect losses in the recovery process. The estimates of
reserves at December 31, 1999 are based on an assumed gold price of $300 per
ounce and include previously mined ore in stockpiles near the primary crusher.
The reserves were calculated with cut high grade assay values. Reserve estimates
were determined by use of mapping, drilling, metallurgical testing and other
standard evaluation methods generally applied by the mining industry, including
computer block modeling.
OPERATING DATA
(000's except grade and ounces)
(100% Basis)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Tons mined 18,402 17,032 17,864
Tons ore mined 5,058 3,843 3,572
Ore tons to pad* 4,123 3,891 4,103
Tons to mill 90 58 412
Avg. grade crushed (opt) 0.034 0.027 0.038
Overall gold recovery 70.0 84.8 78.5
Avg. mill head grade (opt) .138 .108 .138
Mill recovery** 50.5% 45.0% 49.7%
Ounces of gold produced
Mill** 6,266 2,817 28,264
Leach 88,704 86,319 94,139
Total gold production 94,970 89,136 122,403
Ounces of silver produced 26,579 32,731 51,901
Cost per ounce
Cash cost per ounce $ 303 $ 323 $ 278
Non-cash cost per ounce 43 45 104
Total cost per ounce $ 346 $ 368 $ 382
</TABLE>
- ----------------------
*Includes previously mined ore from stockpiles.
**Based on gold extracted during milling. Does not reflect gold leached from
milled material after stacked on pad.
I-3
<PAGE>
American Girl - Oro Cruz
The Company holds a 53% interest in the American Girl Mining Joint Venture,
a California general partnership (the "AGMJV"). Hecla Mining Company ("Hecla")
owns the remaining 47% interest. The AGMJV is governed by a management committee
composed of two members appointed by the Company and two members appointed by
Hecla. The Company serves as the manager of the AGMJV for a monthly fee of 2% of
the cash operating costs and capital expenditures, excluding royalty payments.
Management fees paid to the Company were less than $.1 million for 1999.
Prior to September 1996, the AGMJV operated the American Girl Mine and the
Oro Cruz Mine. These adjacent projects are located in Imperial County,
California, approximately 15 miles northwest of Yuma, Arizona. Full scale open
pit and underground mining operations at the AGMJV were suspended in September
1996, crushing and milling operations ceased in October 1996 and reclamation
activities of the surface and underground operations were initiated.
The reclamation costs at the AGMJV are significantly below budget. Gold
recovery from the leach pads has exceeded projections and proceeds from the
disposal of idle equipment have been greater than originally estimated. The
reclamation efforts at the AGMJV continued during 1999, and full mine
reclamation was completed in February 2000.
Exploration
The Company is continuing to search for profitable investment
opportunities. The Company has grassroots exploration programs in Nevada, Mexico
and Brazil. During 1999, field examinations were conducted on 52 properties
resulting in the acquisition of properties in Brazil, Mexico and the western
United States. Drilling programs were conducted on four properties, two in
Mexico, one in Brazil and one in Nevada. The Company continues to evaluate
exploration projects on a worldwide basis. Each of the Company's exploration
projects is described below.
Diamond Valley Project
The Company's Diamond Valley Project is based on a joint venture with
Phelps Dodge Exploration Company formed to explore, develop and produce precious
and other metals from the Diamond Valley property in Elko County, Nevada. During
1999, the Company commenced an exploration program on the property consisting of
sampling, geophysics and drilling. A zone of strong alteration and gold
mineralization extending along strike, up to 600 feet wide, was identified and
tested with 17 drill holes totaling 10,085 feet. While surface samples tested up
to 0.80 ounces per ton, the best drill intercept yielded 0.07 ounces per ton
over an interval of 5 feet. However, zinc values of 5.5% and 11.6% over 5 foot
intervals were encountered. No additional work on the property is currently
planned.
El Habal Project
The El Habal Project is based on a farm-in agreement with Cominco Mexico.
The 1999 exploration program consisted of mapping, sampling and drilling.
Further drilling is planned during 2000.
Fazenda Matou Project
The Fazenda Matou Project is located in southern Sao Paulo State in Brazil.
The Project was acquired in the second quarter of 1999. After a program of
sampling and mapping, three prospective gold targets, were identified and
drilled. The result of the drilling did not justify additional work. The
property has been abandoned.
Piedra Gorda
Piedra Gorda is a project consisting of six properties in Zacatecas Mexico.
After a program of mapping and sampling, one of the properties was drilled. The
results did not justify additional work. The six properties have been abandoned.
I-4
<PAGE>
Principe Project
The Principe Project is located in Tocantins State in Brazil. In the second
quarter, the Company signed a farm-in agreement with the Terra Goyana Mineradora
which will allow the company to earn up to a 70% interest in the exploration
concession. Preliminary sampling has identified several gold targets that will
be drilled in the first quarter of 2000.
Competition
The Company competes with other companies and individuals to acquire metal
mining projects and to recruit and retain qualified employees. Many of these
companies are substantially larger and have greater financial resources than the
Company. As a result of strong competition for a limited number of project
opportunities, it may be difficult for the Company to acquire metals projects on
favorable terms.
Industry Segment Data
Industry segment data for the Company is provided in Note 9 to the
Company's Consolidated Financial Statements, included in Part II of this report.
Environmental Matters
The Company is committed to fulfilling its requirements under various
federal, state, and local laws and regulations governing protection of the
environment. Environmental laws are continually changing and, as a general
matter, are becoming more restrictive. The Company's policy is to conduct its
business in a manner that safeguards public health and mitigates the
environmental effects of its mining operations. To comply with these federal,
state and local laws, the Company has made, and in the future may be required to
make, capital and operating expenditures. However, the Company does not
anticipate that it will be required to make any unusual capital or operating
expenditures for environmental compliance during the remainder of 2000 or during
2001.
Employees
At December 31, 1999 the Company employed 106 people, including 4 in the
gold mining segment, 67 in mining services, 23 at Las Cruces and 12 at the home
office. In addition to its geology staff, the Company uses contract
professionals to conduct exploration throughout the world.
ITEM 3. LEGAL PROCEEDINGS
The Company is a plaintiff in an action styled MK Gold Company v. Morrison
---------------------------
Knudsen Corporation, No. 2:96CV00935, instituted October 8, 1996 and pending in
- -------------------
the United States District Court for the District of Utah. In that case, MK Gold
has sued MK for breach of a noncompete agreement. The case has been set for a
three week trial to begin on April 2, 2001.
MK has asked the court to rule, as a matter of law, that even if MK
breached the noncompete agreement, MK Gold cannot show that such a breach
directly caused MK Gold any recoverable damages. MK Gold has responded to MK's
Motion, asserting that the existence of material facts precludes a summary
disposition of the issue. The court will hear argument from counsel for both
parties on the merits of this Motion on April 17, 2000.
The Company is a defendant in an action styled Morrison Knudsen Corporation
----------------------------
v. MK Gold Company, No. CV 99-0064-SBLW, instituted February 11, 1999 and
- ------------------
pending in the United States District Court for the District of Idaho. In that
case, MK has alleged that MK Gold violated federal and state trademark statutes
and breached a trademark license agreement by using the "MK" mark in connection
with nonprecious metals projects. Upon motion by MK Gold, the court has ruled
that the case should be stayed pending the resolution of the Utah litigation. MK
has asked the court to lift the stay, but the court has not yet ruled on that
request.
I-5
<PAGE>
ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT
Following is a schedule of names and certain information regarding all of
the executive officers of the Company, as of March 24, 2000:
Name Age Position
- ---- --- --------
G. Frank Joklik 71 Chairman of the Board and Chief Executive Officer
Donald L. Babinchak 64 President
James G. Baughman 43 Exploration Manager
John C. Farmer 50 Chief Financial Officer, Secretary
Larry L. Lackey 64 Director Exploration
Thomas G. White 56 Manager of Operations
G. Frank Joklik became Chairman of the Board of the Company on June 30,
1998, and has been a director since June 6, 1995. Mr. Joklik served as
President and Chief Executive Officer of the Company from November 1, 1995
through June 30, 1998. Concurrent with his appointment as Chairman of the Board,
Mr. Joklik took a leave of absence from his position as President and Chief
Executive Officer of the Company in order to fulfill his responsibilities to the
Salt Lake Organizing Committee for the 2002 Olympic Winter Games. Mr. Joklik
returned from leave of absence to his position as Chief Executive Officer during
the second quarter of 1999. Prior to joining the Company, Mr. Joklik was the
President and Chief Executive Officer of Kennecott Corporation.
Donald L. Babinchak has served as President of the Company since June 30,
1998. Mr. Babinchak has also served as the Director of Human Resources of the
Company since March 25, 1996. Mr. Babinchak was formerly Vice President of
Human Resources and Administration of Kennecott Corporation.
James G. Baughman has been the Company's Exploration Manager since
September 15, 1996 and an officer of the Company since March 21, 1997. Prior to
joining MK Gold, Mr. Baughman was a field and staff geologist for a number of
companies at locations in the lower United States, Alaska, Mongolia and South
America.
John C. Farmer was appointed Chief Financial Officer of the Company on June
30, 1998. Mr. Farmer has also served as the Company's Controller, Treasurer and
Secretary since April 25, 1996. Mr. Farmer was formerly the Chief Financial
Officer of Dyno Nobel Inc.
Larry L. Lackey has been Director Exploration for MK Gold since October 1,
1999. Mr. Lackey has also served as the Company's Chief Geologist since August
23, 1995. He was formerly Regional Vice President-Central America and the
Caribbean for Independence Mining Company, Inc.
Thomas G. White has been the Manager of Operations for MK Gold since
October 8, 1993. Prior to joining MK Gold, Mr. White served as a Mining
Executive for the gold operations of Homestake Mining Co., located in San
Francisco, California.
I-6
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market Information
Until January 6, 1999, the Company's common stock was traded on the
NASDAQ National Market System under the symbol "MKAU". On January 6, 1999, the
Company's common stock was delisted from trading on the Nasdaq National Market
System for failure to meet the minimum bid price requirement and the minimum
market value of public float requirement of the Nasdaq Stock Market. The
Company's common stock is currently traded on the NASD OTC Bulletin Board under
the symbol "MKAU".
The following table sets forth, for the Company's common stock, by
quarter, the high and low bid quotations as reported by the OTC Bulletin Board
for the year ended December 31, 1999, and the high and low sales prices as
reported by the NASDAQ National Market System for the year ended December 31,
1998. The high and low bid quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
Year Ended
Quarter ----------------------------------------------------
Ended December 31, 1999 December 31, 1998
----- --------------------- ------------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
3/31 $ .625 $ .36 $1.5310 $ .8750
6/30 .46 .4375 1.2500 .8125
9/30 1.25 .45 .8125 .5625
12/31 1.1875 .6563 .8125 .4375
</TABLE>
The high and low bid quotations for the first quarter 2000, as of March
21, 2000, were $1.05 and $.75, respectively.
Holders
As of March 24, 2000, the number of registered holders of the Company's
common stock was approximately 162 (not including beneficial owners of the
Company's common stock held in the name of a broker, dealer, bank, voting
trustee or other nominee).
Dividends
The Company does not intend to pay any cash dividends with respect to
its common stock in the foreseeable future. The Company did not pay any
dividends during 1999 or 1998.
Recent Sales of Unregistered Securities
In September of 1999, the Company sold 18,058,635 shares of common
stock to Leucadia for an aggregate purchase price of $15,806,723. No
underwriters were involved in this sale. The Company believes that this sale was
exempt from registration under Section 4(2) of the Securities Act of 1933
because it did not involve a public offering. The Company used the proceeds of
this sale to finance a portion of its acquisition of Las Cruces.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data have been summarized from the
Company's consolidated financial statements and are qualified in their entirety
by reference to, and should be read in conjunction with, such consolidated
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," below.
II-1
<PAGE>
MK GOLD COMPANY
SELECTED FIVE-YEAR FINANCIAL DATA
(in thousands, except share and ounce amounts, per share and per ounce data)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31 December 31
----------------------------------------- ------------------
1999 1998 1997 1996 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenue:
Product sales $ 8,456 $ 9,017 $16,656 $20,929 $14,284 $19,399
Mining services 11,023 11,065 11,233 8,927 7,065 6,477
------- ------- ------- ------- -------- -------
Total revenue 19,479 20,082 27,889 29,856 21,349 25,876
Gross profit (loss):
Product sales (351) 400 127 (2,033) (271) (277)
Mining services 2,430 1,730 1,307 1,095 757 1,292
------- ------- ------- ------- -------- -------
Total gross profit (loss) 2,079 2,130 1,434 (938) 486 1,015
Exploration costs (2,223) (3,068) (2,306) (2,161) (1,455) (1,028)
General and administrative
expenses (1,766) (1,661) (1,650) (2,829) (1,683) (2,655)
Provision for mine closure and
reclamation - - 2,330 (2,100) (2,100) -
Equity in loss of unconsolidated
affiliates - - - (58) - (1,480)
Provision for impairment of
long-lived assets - - (1,800) (27,935) - (5,946)
------- ------- ------- -------- -------- -------
LOSS FROM OPERATIONS $(1,910) $(2,599) $(1,992) $(36,021) $(4,752) $(10,094)
======= ======= ======= ======== ======== =======
NET LOSS PER COMMON SHARE $ (0.06) $ (0.07) $ (0.05) $ (2.06) $ (0.24) $ (0.41)
BALANCE SHEET DATA (At end of
period)
Total assets $59,941 $24,848 $28,617 $ 32,978 $32,978 $ 67,568
Long-term debt 20,000 None None None None None
Stockholders' equity 31,043 18,171 19,552 20,444 20,444 60,364
OTHER FINANCIAL DATA:
Depreciation, depletion, and
amortization:
Product Sales 710 947 2,403 4,686 3,070 6,130
Mining services 102 86 66 165 83 801
Capital expenditures 43,807 233 1,230 2,147 1,194 7,280
Payments of long-term debt - - - - - 20,024
OTHER DATA
Gold ounces sold 25,000 25,091 42,600 43,800 29,300 48,805
Gold ounces produced 23,315 25,292 34,426 54,294 38,249 46,185
Gold ounces in inventory, at end
of year 5,588 7,273 7,072 16,282 16,282 6,240
Average gold price realized (per
ounce) $ 289 $ 311 $ 351 $ 406 $ 404 $ 397
Average spot gold price (per
ounce) 279 295 333 386 385 386
Average costs per ounce (a)(b):
Mine production costs 298 320 270 312 282 289
Royalties 5 3 8 12 10 17
------- ------- ------- -------- -------- -------
Production costs 303 323 278 324 292 306
Depreciation, depletion and
amortization 39 41 101 86 81 132
Reclamation 4 4 3 3 4 2
------- ------- ------- -------- -------- -------
Full costs $ 346 $ 368 $ 382 $ 413 $ 377 $ 440
</TABLE>
(a) Production costs include costs and operating expenses for mining, milling,
processing, project-site administration and royalties, but exclude
exploration costs and interest expense. Full costs include all production
costs, plus depreciation, depletion and amortization relating to each
operating mine, divided by total ounces of gold produced. Per ounce costs
are normalized for fluctuations in waste stripping costs between the actual
waste to ore ratio and the mine life average waste to ore ratio. Data on
average costs per ounce may not correspond to expense reported in the
financial statements in any given year because of the timing and methods of
recognizing costs of production. Production costs represent costs incurred
in the year in which gold ounces are produced. In contrast, costs of sales
are recognized when gold ounces are delivered. Gold ounces delivered in one
year may have been produced in that year or may have been drawn from
inventory at the beginning of the year. Hence, costs associated with gold
ounces sold in one year may be reflective of average production costs in a
previous year.
(b) Average cost per ounce for the years ended December 31, 1999, 1998 and 1997
and nine months ended December 31, 1996 includes only the cost for the CMV.
II-2
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Selected Five-Year Financial Data and the Consolidated Financial Statements
and related notes thereto which appear elsewhere in this report. Undivided
interests in joint ventures are reported using pro rata consolidation, whereby
the Company consolidates its proportionate share of assets, liabilities,
revenues and expenses.
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
TWELVE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1998
Gold Production
The Company's attributable share of gold production decreased 8% to 23,315
ounces in 1999 from 25,292 ounces in 1998 due to the cessation of gold
production at the AGMJV. During 1998, 3,008 ounces of gold were recovered during
reclamation. Production at the Castle Mountain Mine increased 5% to 23,315
ounces during 1999 compared to 22,284 ounces in 1998.
Revenue
Product sales revenue decreased $.6 million or 6% to $8.5 million for 1999
compared to $9.0 million for 1998 primarily as a result of reduced gold prices.
The average price realized per ounce of gold decreased to $289 during 1999
compared to $311 in 1998.
Revenue derived from mining services is primarily dependent upon the
quantities of materials mined during the period. Revenue from mining services
decreased less than 1% to $11.0 million in 1999 from $11.1 million in 1998. Mine
production at the CMV was at a level comparable to 1998.
Hedging Activity
For 1999, the average gold price realized per ounce for the 25,000 ounces
sold was $289 per ounce compared to an average spot price of $279 per ounce.
During 1999, 4,336 ounces of the total gold sold were delivered under the
Company's hedging program at an average price of $313 per ounce. For 1998, the
average price realized for the 25,091 ounces sold was $311 per ounce compared
with the average spot price of $295 per ounce. During 1999, the Company delayed
selling its gold production due to depressed marked prices. During a spike in
gold prices in September and October, the Company sold its available gold
inventory and sold forward 27,336 ounces. At December 31, 1999, the Company had
forward sales contracts totaling 23,000 ounces for delivery in 2000 at an
average price of $318 per ounce. During 1998, the Company delivered 13,000
ounces of gold under its hedging program.
Gross Profit
Gross profit from product sales decreased from $.4 million in 1998 to $(.4)
million in 1999. As a percentage of product sales, gross profit was (4)% in 1999
compared to 5% in 1998. The decrease in profitability for 1999 was primarily due
to the decrease in gold prices.
Gross profit from mining services increased 40% to $2.4 million in 1999
from $1.7 million in 1998. The improvement in gross profit from mining services
is due to the replacement of high operating cost equipment and continued
emphasis on operating cost reductions. As a percentage of mining services
revenue, gross profit was 16.5% in 1999 compared to 11.7% in 1998.
II-3
<PAGE>
Exploration Costs
Exploration costs decreased 28% to $2.2 million compared to $3.1 million in
1998. Exploration expenditures decreased in 1999 as interests in fewer
properties were acquired. Mapping, sampling and drilling activities were focused
on fewer properties. In addition to its exploration programs in Nevada, Mexico
and Brazil, the Company conducted 52 field examinations during 1999. The Company
continues to seek opportunities throughout the world. See Items 1 and 2 -
"Business and Properties-Properties and Operations."
General and Administrative Expenses
General and administrative expenses for 1999 increased $.1 million or 6%
compared to 1998. The increase was primarily due to expenses relating to the
acquisition of Las Cruces.
Interest Expense
Interest expense increased 124% to $.18 million in 1999 from $.08 million
in 1998. Interest expense consisted primarily of the cost of the commitment fee
on the Company's credit facility and interest on a $15.8 million promissory note
with Leucadia in conjunction with the Company's sale of 18,058,635 shares of
common stock to Leucadia. The promissory note was repaid on October 8, 1999. In
addition to the interest expensed, an additional $.57 million in interest was
capitalized relating to the Las Cruces Project.
Income Taxes
The reduction in the deferred tax asset and the corresponding recognition
of income tax expense is the result of the reversal of temporary differences
arising in prior years. See Note 10 to the Company's Consolidated Financial
Statements. A deferred income tax liability of $3.97 million was recorded
relating to the Company's acquisition of Las Cruces.
TWELVE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1997
Gold Production
The Company's attributable share of gold production decreased 27% to 25,292
ounces in 1998 from 34,426 ounces in 1997. Production at the Castle Mountain
Mine decreased 27% to 22,284 ounces during 1998 compared to 30,601 ounces in
1997. The decrease was due to lower ore grades and reduced production resulting
from a wall failure in July 1998 followed by a crusher failure in August. The
wall failure occurred in the OBHT pit and negatively impacted production through
November. The crusher failure impacted production for six weeks. Gold production
from the AGMJV was 3,008 ounces in 1998 compared to 3,825 ounces in 1997. Gold
production at the AGMJV resulted from the continued rinsing of the leach pad
during reclamation.
Revenue
Product sales revenue decreased $7.6 million or 46% to $9.1 million for
1998 compared to $16.7 million for 1997 as a result of decreased gold production
at the Company's mining ventures and reduced gold prices. The average price
realized per ounce of gold decreased to $311 during 1998 compared to $351 in
1997. The decrease in gold production is attributable to the lower grades and
production problems experienced at the CMV, as well as the closure of the AGMJV.
Gold production at the AGMJV is attributable to the continued rinsing of the
leach pads during reclamation and mine closure activities.
Revenue derived from mining services is primarily dependent upon the
quantities of materials mined during the period. Revenue from mining services
decreased 1% to $11.1 million in 1998 from $11.2 million in 1997. The decrease
was due to lower production volumes experienced as a result of a wall failure at
the CMV. See Items 1 and 2 - "Business and Properties-Properties and
Operations."
Hedging Activity
For 1998, the average gold price realized per ounce for the 25,091 ounces
sold was $311 per ounce compared to an average spot price of $295 per ounce.
During 1998, 13,000 ounces of the total gold sold were
II-4
<PAGE>
delivered under the Company's hedging program at an average price of $317 per
ounce. For 1997, the average price realized for the 42,600 ounces sold was $351
per ounce compared with the average spot price of $333 per ounce. During 1997,
19,600 ounces were delivered under the Company's hedging program at an average
price of $366 per ounce. At December 31, 1998, the Company had no forward sales
contracts.
Gross Profit
Gross profit from product sales was negatively impacted by an 11% decline
in gold prices during 1998. Offsetting the decline in product sales was a
decrease in production costs as well as income generated during the AGMJV
closure and reclamation activities. Gross margin increased from $.2 million in
1997 to $.4 million in 1998. As a percentage of sales, gross profit was 5% in
1998 compared to 1.2% in 1997.
Gross profit from mining services increased 32% to $1.7 million in 1998
from $1.3 million in 1997. The increase was attributable to higher margin work
performed in an effort to remediate the wall failure experienced at the CMV. As
a percentage of mining revenue, gross profit was 11.8% in 1998 compared to 8.8%
in 1997.
Exploration Costs
Exploration costs increased 33% to $3.1 million compared to $2.3 million in
1997. In 1998, the Company added an exploration program in Mexico to its
existing exploration programs in Nevada and Brazil. The Company acquired claims
or other interests in properties in Nevada, Mexico and Brazil. The 1998
exploration efforts included drilling properties in Nevada and Brazil. The
Company also examined properties in Australia, Spain, Bolivia, Chile, Canada,
Peru as well as the western United States. See Items 1 and 2 - "Business and
Properties-Properties and Operations."
General and Administrative Expenses
General and administrative expenses for 1998 remained at a level comparable
to 1997, increasing only $.01 million or .7%.
Interest Expense
Interest expense decreased 40% to $.08 million in 1998 from $.14 million in
1997. Interest expense was primarily the cost of the commitment fee on the
Company's credit facility.
Income Taxes
The reduction in the deferred tax asset and the corresponding recognition
of income tax expense is the result of the reversal of temporary differences
arising in prior years. See Note 10 to the Company's Consolidated Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are its available resources of
cash and cash equivalents, cash generated from mining operations and contract
mining services, and its credit facility. At December 31, 1999, the Company had
cash and cash equivalents of $7.1 million and gold bullion of $1.4 million,
representing a decrease in cash and cash equivalents and gold bullion of $9.3
million from December 31, 1998.
In March 1998, the Company entered into a $20 million credit agreement (the
"Credit Facility") with Leucadia. The Credit Facility may be terminated on
December 15 of any year, provided Leucadia notifies the Company of such
termination prior to September 15 of such year. The original expiration of the
Credit Facility was December 15, 2000. The Credit Facility was amended,
effective March 1, 2000, to increase the credit limit to $30 million and extend
the expiration to December 15, 2001. At December 31, 1999, the Company had
outstanding borrowings under the Credit Facility of $20 million. Loans
outstanding under the Credit Facility bear interest equal to the prime rate, and
interest is payable quarterly.
Net cash provided by operating activities was $.6 million for 1999 compared
to net cash used of $3.5 million for 1998. The Company's cash operating cost per
ounce of gold produced exceeded the average gold price for 1999 and 1998. This
trend is expected to reverse for the remaining mine life at the CMV. The Company
expects that its cash and cash equivalents and operating cash flows will be
sufficient to cover operating expenses for the
II-5
<PAGE>
near term. However, the Company's cash resources will not be sufficient to cover
all projected expenses necessary to commence mining at the Las Cruces Project. A
preliminary feasibility study, prepared by Rio Tinto in 1998, estimated the
capital cost would be approximately $300 million to bring the mine into
production. The completion of a bankable feasibility study will better define
the future capital and operating costs of the Las Cruces Project. The Company
will require additional financing in order to complete construction and pay
other projected expenses at the Las Cruces Project. While the Company believes
that it will be able to obtain financing for the Las Cruces Project, no
assurances can be given that such financing will be available or that the
Company will be able to obtain such financing on favorable terms.
The Company's current sources of funds available to fund new mining
projects are limited. The Company utilized a significant portion of its existing
sources of funds, other than cash balances, to acquire the Las Cruces Project in
September 1999. Accordingly, the ability of the Company to commence new mining
projects may be dependent upon the Company's ability to obtain additional
sources of funds to finance any such mining projects. While the Company
believes that it may be able to obtain financing for new mining projects through
project financing or otherwise, no assurances can be given that such financing
will be available or that the Company will be able to obtain such financing on
favorable terms.
Additions to mining properties, plant and mine development totaled $2.5
million for 1999, $.2 million for 1998 and $1.2 million for 1997. For all
periods presented, additions to mining properties, plant and mine development
consisted of (i) mine development expenditures; (ii) construction expenditures
for buildings, machinery, plant and equipment; and (iii) expenditures for mobile
mining service equipment. Development costs incurred on the Las Cruces Project,
including the costs of a bankable feasibility study, are capitalized and are
reflected as investing activities in the Consolidated Statement of Cash Flows.
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
December 31, 1999, $1.1 million was accrued for such costs. In addition to the
accruals, the Company and Viceroy 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 its 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 24, 2000, 173,700 shares had been repurchased by the Company
under the repurchase program.
The Year 2000 Issue
The Company converted its financial systems to year 2000 compliant systems
prior to December 31, 1999. On January 1, 2000, the Company experienced no
difficulties with the transition to year 2000. The Company does not anticipate
any significant cost to further modify its systems to accommodate the impact of
the change in the century.
Cautionary Statement for Forward Looking Information
Certain information set forth in this Annual Report on Form 10-K 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
II-6
<PAGE>
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. In addition
to the other factors and matters discussed elsewhere in this report, the
following factors are among the factors that could cause 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.
Volatility of Gold Prices
A significant portion of the Company's revenues are derived from the sale
of gold and the Company's results of operations are directly affected by the
price of gold. Gold prices fluctuate widely and are affected by numerous factors
beyond the Company's control, including expectations regarding inflation, global
and regional demand and political and economic conditions and production costs
in major gold-producing regions. Gold prices are also affected by worldwide
production levels. In addition, the price of gold has on occasion been subject
to very rapid short-term changes because of speculative activities. The Company
seeks to mitigate this risk, in part, through periodic forward sales of a
portion of its gold production at fixed future prices. Hedging transactions
result in a reduction in possible revenue if the hedged price is less than the
market price at the time of settlement. Additional risks associated with hedging
activities could result from the inability of the Company to deliver gold from
production in settlement of forward sales contracts or to extend delivery dates
under such contracts, at a time when spot market prices are higher than the
forward sales contract delivery price.
Imprecision of Reserve Estimates
The ore reserve figures presented in this report for the CMV are estimates,
and no assurance can be given that the indicated levels of gold recovery will be
realized. Gold reserve estimates are expressions of judgment based on knowledge,
experience and industry practices. Valid estimates made at a given time may
significantly change when new information becomes available. While the Company
believes that the reserve estimates presented in this report are well
established, reserve estimates are necessarily imprecise and depend to some
extent on statistical inferences, which may prove unreliable. The reserve
estimates have been determined based on assumed gold prices, cut-off grades and
operating costs that may prove to be inaccurate. Fluctuations in the market
price of gold may render uneconomic the mining of ore reserves containing
relatively lower grades of mineralization.
Risks of Exploration and Development Stage Projects
There are a number of uncertainties inherent in any mineral exploration and
development program, including the location of economic ore bodies, the
development of appropriate metallurgical processes, the receipt of necessary
governmental permits and the construction of mining and processing facilities.
Substantial expenditures may be required to pursue such exploration and
development activities. Assuming discovery of an economic ore body and,
depending on the type of mining operation involved, several years may elapse
from the initial stages of development until commercial production is commenced.
New mining operations frequently experience unexpected problems during the
exploration and development stages and during the initial production phase. In
addition, preliminary reserve estimates may prove inaccurate. Accordingly, there
can be no assurance that the Company's current exploration and development
programs will result in any new commercial mining operations or yield new
reserves to replace and expand current reserves.
Permitting and bankable feasibility study activities are currently underway
at Las Cruces. Successful development of the Las Cruces Project will be subject
to the completion of the feasibility study, the issuance of permits, the
procurement of significant financing, engineering, construction and development.
Adverse political and environmental developments in Spain could delay or
preclude the issuance of permits necessary to develop the Las Cruces Project. In
addition, fluctuations in the copper price could adversely affect the ability to
obtain adequate financing to fund the development of the project and could
affect future profitability. The copper resource at the Las Cruces Project is an
estimate only. The reserve and potential copper recovery is being determined.
Political Risks of Development in Foreign Countries
The Company is currently conducting exploration activities in certain
foreign countries, including Spain, Brazil and Mexico. Foreign operations may be
subject to uncertain political and economic environments, foreign currency
controls and fluctuations, as well as risks of war and civil disturbances. Other
events may limit or disrupt a
II-7
<PAGE>
project, restrict the movement of funds, result in the deprivation of contract
rights, the taking of property by nationalization or expropriation without fair
compensation, increases in foreign taxation or limits on repatriations of
earnings. Furthermore, it is particularly important that the Company maintain
good relationships with the governments in the countries in which it operates.
Environmental and Other Laws and Regulations
The Company's activities are subject to extensive federal, state and local
laws and regulations controlling not only the exploration and mining of mineral
properties, but also the actual or potential effects of such activities upon the
environment. To the extent the Company undertakes new mining activities in
foreign countries, the Company also will be subject to such laws and regulations
in these jurisdictions. Compliance with any such laws and regulations may
necessitate significant capital outlays, may materially affect the economics of
a given project, may cause material changes or delays in the Company's intended
activities or may cause the Company to discontinue operations at a given
project. New or different standards imposed by any governmental authority in the
future may adversely affect the Company's activities.
Mining Risks and Insurance
The business of mining is generally subject to certain types of risks and
hazards, including environmental hazards, industrial accidents, unusual or
unexpected rock formations, cave-ins, flooding, bullion losses and periodic
interruptions due to inclement or hazardous weather conditions. Such risks could
result in damage to, or destruction of, mineral properties or production
facilities, personal injury, environmental damage, delays in mining, monetary
losses and possible legal liability. No assurance can be given that insurance to
cover these risks will be available to the Company at economically feasible
premiums. Insurance against environmental risks (including potential for
pollution or other hazards as a result of the disposal of waste products
occurring from production) is not generally available to the Company or to other
companies within the industry.
Competition
There is significant competition for the acquisition of properties
producing or capable of producing gold and other metals. The Company may be at a
competitive disadvantage in acquiring additional mining properties since it must
compete with other individuals and companies, many of which may have greater
financial resources and larger technical staffs than the Company. As a result of
this competition, the Company may be unable to acquire attractive mining
properties on terms it considers acceptable. The number of persons skilled in
the operation and development of mining properties is also limited and
significant competition exists for such individuals. As a result of this
competition, the Company may find it difficult to attract skilled individuals to
conduct mining operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See note 1 to the Company's Consolidated Financial Statements for
additional information regarding the Company's precious metals hedging program
and future adoption of Statement of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
Gold Risk
The results of the Company's operations are affected significantly by the
market price of gold. Gold prices are influenced by numerous factors over which
the Company has no control, including expectations with respect to the rate of
inflation, the relative strength of the United States dollar and certain other
currencies, interest rates, global or regional political or economic crises,
demand for gold for jewelry and industrial products and sales by holders and
producers of gold in response to these factors. The Company enters into option
contracts and forward sales contracts to establish a minimum selling price on
certain ounces of gold it produces. The Company does not enter into option or
sales contracts for the purpose of speculative trading. The Company's current
hedging policy provides for the use of forward sales contracts to hedge up to
80% of the remaining production at the CMV.
At December 31, 1999, the Company had forward sales contracts outstanding
for approximately 23,000 ounces of gold for delivery during 2000 at an average
price of $318 per ounce. This represents 64% of the Company's anticipated gold
production for 2000. The fair value of these contracts at December 31, 1999,
based on market quotations for similar financial instruments, was $.55 million.
II-8
<PAGE>
Foreign Currency Risk
Portions of the Company's operations are located in Spain, Mexico and
Brazil. The Company's future profitability could be impacted by fluctuations in
those countries' currency exchange rates relative to the United States dollar.
The Company has not entered into any foreign currency contracts or other
derivatives to establish a foreign currency protection program.
Other Financial Instrument Risk
The Company has borrowed $20 million under the Credit Facility. The
Credit Facility carries a variable interest rate equal to the prime rate. The
Credit Facility will expire on December 15, 2001, unless terminated earlier. The
Credit Facility may be terminated by Leucadia on December 15 of any year,
provided Leucadia notifies the Company of such termination prior to September 15
of such year. The Company has not undertaken any hedging activities with respect
to the Credit Facility.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
QUARTERLY FINANCIAL DATA (Unaudited)
(Thousands of dollars except share data)
Selected quarterly financial data for the years ended December 31, 1999
and 1998 is presented below.
1999 Quarters 1st 2nd 3rd 4th
Revenue $3,691 $3,101 $7,539 $5,148
Gross profit (95) 142 696 1,336
Net gain (loss) (793) (518) (483) 290
Gain (loss) per share (0.04) (0.03) (0.03) 0.01
1998 Quarters 1st 2nd 3rd 4th
Revenue $4,634 $5,905 $3,029 $6,514
Gross profit 230 671 446 783
Net gain (loss) (475) (202) (381) (223)
Gain (loss) per share (0.02) (0.01) (0.02) (0.02)
The gain (loss) per share per quarter is based on the average number of
shares outstanding during the quarter. During the fourth quarter of 1999,
18,058,635 shares were issued. This issuance of shares has been reflected in the
calculation of gain (loss) per share. As a result, the total loss per share for
the four quarters reflected above does not equal the annualized loss per share
in the consolidated financial statements.
II-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
of MK Gold Company
We have audited the accompanying consolidated balance sheets of MK Gold
Company and subsidiaries (the "Company") as of December 31, 1999 and December
31, 1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999. Our audits also included the consolidated financial statement schedule
listed in Item 14(a)(2). These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of MK Gold Company and
subsidiaries at December 31, 1999 and December 31, 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
March 3, 2000
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<PAGE>
MK GOLD COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1999, 1998 and 1997
(Thousands of dollars except share data )
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUE:
Product sales $ 8,456 $ 9,017 $ 16,656
Mining services 11,023 11,065 11,233
----------- ----------- -----------
Total revenue 19,479 20,082 27,889
----------- ----------- -----------
COSTS AND OPERATING EXPENSES:
Product sales 8,807 8,617 16,529
Mining services 8,593 9,335 9,926
----------- ----------- -----------
Total costs and operating expenses 17,400 17,952 26,455
----------- ----------- -----------
GROSS PROFIT 2,079 2,130 1,434
EXPLORATION COSTS (2,223) (3,068) (2,306)
GENERAL AND ADMINISTRATIVE EXPENSES (1,766) (1,661) (1,650)
PROVISION FOR MINE CLOSURE AND
RECLAMATION - - 2,330
PROVISION FOR IMPAIRMENT OF
LONG-LIVED ASSETS - - (1,800)
----------- ----------- -----------
LOSS FROM OPERATIONS (1,910) (2,599) (1,992)
Gain on sale of assets 86 455 141
Investment income and dividends, net 660 1,104 1,013
Interest expense (181) (81) (137)
----------- ----------- -----------
Loss before income taxes (1,345) (1,121) (975)
Income tax provision (159) (160) (27)
----------- ----------- -----------
NET LOSS $ (1,504) $ (1,281) $ (1,002)
=========== =========== ===========
Basic and diluted loss per common share $ (0.06) $ (0.07) $ (0.05)
Basic and diluted weighted average shares used to
compute loss per common share 23,417,325 19,406,679 19,464,466
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
II-11
<PAGE>
MK GOLD COMPANY
CONSOLIDATED BALANCE SHEETS
As of December 31, 1999 and 1998
(Thousands of dollars except share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ASSETS 1999 1998
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,126 $ 15,687
Investment securities 425 -
Receivables 2,012 2,428
Inventories 3,023 3,408
Deferred income taxes 41 123
Other 208 283
-------- --------
Total current assets 12,835 21,929
Mining properties, plant and mine development, net 45,768 1,189
Deferred income taxes 229 304
Restricted investment securities 876 -
Restricted cash 233 1,426
-------- --------
TOTAL ASSETS $ 59,941 $ 24,848
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,712 $ 1,749
Current portion of mine closure and reclamation liabilities 352 1,105
Other accrued liabilities 426 293
-------- --------
Total current liabilities 2,490 3,147
Mine closure and reclamation liabilities 769 666
Deferred revenue 1,672 2,864
Deferred income tax liability 3,967 -
Line of credit - Leucadia National Corporation 20,000
-------- --------
Total liabilities 28,898 6,677
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; 37,320,000 shares issued and outstanding at
December 31, 1999; 19,464,466 shares issued and
19,261,929 shares outstanding at December 31, 1998 373 195
Capital in excess of par value 82,773 67,146
Accumulated deficit (50,672) (49,168)
Treasury stock - (2)
Accumulated other comprehensive loss (1,431) -
-------- --------
Total stockholders' equity 31,043 18,171
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 59,941 $ 24,848
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
MK GOLD COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1999, 1998 and 1997
(Thousands of dollars except share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common Other
Stock Capital in Deferred Compre-
$0.01 Par Excess of Accumulated Treasury Compen- hensive
Value Par Value Deficit Stock sation Loss Total
----- --------- ------- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1997 $ 194 $ 67,214 $(46,885) $ - $ (79) $ - $ 20,444
----------
Comprehensive loss:
Net loss (1,002) (1,002)
Deferred compensation 51 51
Shares issued (66,667) 1 58 59
------- -------- -------- --------- --------- --------- ----------
December 31, 1997 195 67,272 (47,887) - (28) - 19,552
----------
Comprehensive loss:
Net loss (1,281) (1,281)
Deferred compensation 28 28
Shares redeemed - treasury
stock (126) (2) (128)
------- -------- -------- --------- --------- --------- ----------
December 31, 1998 195 67,146 (49,168) (2) - - 18,171
----------
Comprehensive loss:
Net loss (1,504) (1,504)
Net change in foreign
currency translation loss (1,431) (1,431)
----------
Comprehensive loss (2,935)
----------
Shares issued (18,058,635) 180 15,627 15,807
Treasury stock cancelled (2) 2 -
------- -------- -------- --------- --------- --------- ----------
December 31, 1999 $ 373 $ 82,773 $(50,672) $ - $ - $ (1,431) $ 31,043
======= ======== ======== ========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
II-13
<PAGE>
MK GOLD COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1999, 1998 and 1997
(Thousands of dollars)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,504) $ (1,281) $ (1,002)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Deferred compensation - 28 51
Deferred income taxes 159 160 628
Provision for impairment of long-lived assets - - 1,800
Depreciation, depletion, and amortization 911 1,068 2,510
Gain on sale of assets (86) (455) (141)
Changes in operating assets and liabilities net of
effects of Riomin acquisition:
Receivables 1,398 (791) (623)
Refundable income taxes - 594 1,752
Inventories 385 (308) 5,485
Other assets 77 (92) (34)
Restricted cash 1,193 4 (220)
Deferred revenue (1,192) (1,191) (1,479)
Mine closure and reclamation liabilities (650) (732) (3,094)
Accounts payable and other accrued liabilities (43) (465) (585)
-------- -------- --------
Net cash provided (used) by operating activities 648 (3,461) 5,048
-------- -------- --------
INVESTING ACTIVITIES:
Additions to mining properties, plant, and mine
development (2,507) (233) (1,230)
Acquisition of Riomin (net of cash acquired) (41,300) - -
Proceeds from disposition of property and plant 128 1,320 387
Purchase of investment securities (1,301) - -
-------- -------- --------
Net cash provided (used) by investing activities (44,980) 1,087 (843)
======== ======== ========
</TABLE>
II-14
<PAGE>
<TABLE>
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Net borrowings under line-of-credit agreement -
Leucadia National Corp. 20,000 - -
Proceeds from promissory note to Leucadia
National Corp. 15,807 59
Purchase of treasury stock - (128) -
--------- -------- ---------
Net cash provided (used) by financing activities 35,807 (128) 59
--------- -------- ---------
EFFECT OF EXCHANGE RATES ON CASH (36) - -
--------- -------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,561) (2,502) 4,264
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 15,687 18,189 13,925
--------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,126 $ 15,687 $ 18,189
========= ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 181 $ 99 $ 137
Income taxes refunded, net $ - $ (584) $ (2,557)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Fair value of assets acquired (net of cash acquired) $ 45,407
Fair value of liabilities assumed (4,107)
---------
NET CASH PAID $ 41,300
=========
</TABLE>
On October 8, 1999, the promissory note of $15,807 with Leucadia
National Corp. was settled in exchange for the issuance of 18,058,635 shares of
the Company's common stock.
The accompanying notes are an integral part of the consolidated financial
statements.
II-15
<PAGE>
MK GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of dollars except share data)
- --------------------------------------------------------------------------------
1. ORGANIZATION, OPERATIONS, AND BASIS OF ACCOUNTING
MK Gold Company (the "Company") is engaged in the business of mining
gold and exploring for and acquiring gold and other metal properties. The
Company owns a 53% undivided interest in the American Girl Mining Joint Venture
(the "AGMJV"). The Company also owns a 25% undivided interest in the Castle
Mountain Venture (the "CMV"), and performs mining services under a contract
mining agreement with the CMV. The Company also owns 100% of Cobre Las Cruces,
S.A. (see Note 4).
Principles of Consolidation - The Company owns an undivided interest in
each asset and pursuant to its agreements, is severally liable for its share of
each liability of the AGMJV and the CMV. The consolidated financial statements
include the Company's pro rata share of each of the joint ventures' assets,
liabilities, revenues and expenses, after elimination of intercompany accounts.
The Company does not recognize losses from joint ventures in excess of its pro-
rata share unless the other venturer's ability to absorb such losses is
uncertain and the Company determines that underwriting the other venturer's
share of losses is in the best long-term interest of the Company. The
consolidated financial statements also include the accounts of the Company and
its wholly-owned subsidiaries.
Use of Estimates in Preparing Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash Equivalents - Cash equivalents consist of investments in short-
term commercial paper, having a remaining maturity at date of acquisition of
three months or less, and money market mutual funds.
Restricted Cash and Investments - The CMV is funding its future
reclamation liabilities by establishing separate bank and investment accounts
for the funds and charging each partner for its proportionate share. The funding
amount is based on the estimated ultimate liability and is funded over the
remaining life of the mine. The AGMJV funded a restricted cash account which has
been utilized for reclamation of the AGMJV mine property.
Investment Securities - The Company's investment securities are
classified as available-for-sale. Available-for-sale securities are reported at
fair value with unrealized gains and losses, if any, recorded as other
comprehensive income (loss), a separate component of stockholders' equity.
Inventories - Gold bullion, ore and in-process inventories and
materials and supplies are stated at the lower of average cost or net realizable
value.
Mining Properties, Plant and Mine Development - Depreciation, depletion
and amortization of mining properties, mine development costs and major plant
facilities is computed principally by the units-of-production method based on
estimated proven and probable ore reserves. Proven and probable ore reserves
reflect estimated quantities of economically recoverable reserves which can be
recovered in the future from known mineral deposits. Such estimates are based on
current and projected costs and prices. Mining equipment and other plant
facilities are depreciated using straight-line or accelerated methods
principally over estimated useful lives of 3 to 10 years.
Generally, mineral exploration costs are expensed as incurred. When it
has been determined that a mineral property is economically viable, the cost of
subsequent reserve definition and expansion and the
II-16
<PAGE>
costs incurred to develop such property are capitalized as mine development
costs and charged to operations on a units-of-production method based on proven
and probable ore reserves. Carry forward mine development costs include costs
incurred for shaft sinking, permanent excavations, roads, tunnels and advance
removal of overburden and waste rock. Costs relating to stockpiled ore are
initially deferred as mine development costs and expensed in future periods when
the ore is processed. Major mine development expenditures at operating
properties and at new mining properties not yet producing are capitalized.
Property Evaluation - Recoverability of investments in operating mines
is evaluated periodically. Estimated future net cash flows from each mine are
calculated using estimates of proven and probable ore reserves, estimated future
gold prices (considering historical and current prices, price trends and related
factors) and operating capital and reclamation costs on an undiscounted basis.
Impairment is measured based on discounted future net cash flows.
Deferred Stripping Costs - The costs of waste stripping in excess of
the expected mine life average stripping ratio are deferred and charged to
production on a units-of-production method when the actual ratio of waste mined
to ore processed is less than the mine life average.
Mine Closure, Reclamation, and Environmental Remediation of Mined
Areas - The Company is subject to federal, state and local environmental
laws and regulations. The Company has put in place ongoing pollution control and
monitoring programs at the mine sites, and posted surety bonds as required for
compliance with state and local environmental obligations including reclamation.
Estimated future reclamation and mine closure costs are based principally on
legal and regulatory requirements and are accrued and charged over the expected
operating lives of the Company's mines on a units-of-production method. Ongoing
reclamation activities are expensed in the period incurred. The net provision
(benefit) for mine closure and reclamation liabilities charged to operations
totaled $(650) for the year ended December 31, 1999, $(798) for the year ended
December 31, 1998 and $(2,212) for the year ended December 31, 1997 (see Note
2).
Income Taxes - The Company utilizes an asset and liability approach for
financial accounting and reporting for income taxes. Deferred income taxes are
provided for temporary differences in the basis of assets and liabilities as
reported for financial statement purposes and income tax purposes.
Revenue Recognition - Revenue from product sales is recognized when the
gold is delivered to customers. Mining services revenue is recognized using the
units of delivery method based on quantities of materials moved. The revenue
recognized for each unit of material moved is determined on an individual pit
basis. The effect of changes in estimated total contract revenues, costs or
units of material to be moved for each pit is reflected in the accounting period
in which the change becomes known and over the remaining units to be mined in
each pit. Differences between customer billings and earned revenue using this
method are recorded as deferred revenue.
Deferred Revenue - Amounts received in advance of recognition of
revenue are recorded as deferred revenue. At December 31, 1999, deferred revenue
of $1,672 consists of cash received in December 1995 in the settlement of a
lawsuit with the CMV partner. Such amount is being recognized as revenue over
the life of the operating contract.
Hedging Activities - The Company enters into option and forward sales
contracts to establish a minimum price on certain ounces of gold it produces.
Gains and losses realized on such instruments, as well as any cost or revenue
associated therewith, are recognized as sales when the related production is
delivered to customers (see Note 16). The margin agreement associated with these
contracts may require the posting of collateral.
Earnings Per Share - Effective December 31, 1997, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." Accordingly, net loss per common share is computed by both the basic
method, which uses the weighted average number of the Company's common shares
outstanding, and the diluted method, which includes the dilutive common shares
from stock options
II-17
<PAGE>
and warrants, as calculated using the treasury stock method. For the periods
presented, the outstanding stock options were antidulitive. Since there is no
difference between the Company's basic and diluted earnings per share, dual
presentation was accomplished in one line on the income statement for all
periods presented.
Translation of Foreign Currency - Foreign currency denominated
investments and financial statements are translated into U.S. dollars at current
exchange rates, except that revenues and expenses are translated at average
exchange rates during each reporting period; resulting translation adjustments
are reported as a component of shareholders' equity. Net realized foreign
exchange gains (losses) were not material.
Segment Reporting - Effective January 1, 1998, the Company adopted SFAS
No. 131, "Disclosure About Segments of an Enterprise and Related Information".
SFAS No. 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosure about products and services,
geographic areas, and major customers.
New Accounting Standard - In June 1999, the Financial Accounting
Standards Board 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 No. 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 No. 133 will have a significant effect on the earnings and
financial position of the Company.
Reclassifications - Certain prior year amounts have been reclassified
to conform with the current year's presentation.
2. PROVISION FOR MINE CLOSURE AND RECLAMATION
On September 5, 1996, the Company suspended operations at the AGMJV.
During 1997, the Company continued its closure and reclamation efforts. Actual
gold recovery and amounts realized from the sale of idled equipment exceeded
initial estimates. Actual closure costs were below initial estimates. As a
result, the Company revised its cost estimate for the closure and reclamation
and the AGMJV and recognized $2,330 of income in 1997.
Closure and reclamation costs have continued at projected levels.
Closure and reclamation was completed in February 2000.
3. PROVISION FOR IMPAIRMENT OF LONG-LIVED ASSETS
During 1997, gold prices suffered a dramatic decline. The Company
reviewed its operations in light of the current gold market conditions and
determined that it would not be able to recover its investment in the CMV. The
Company recorded an impairment of $1,800 relating to its investment in the CMV.
4. ACQUISITION
On September 1, 1999, the Company acquired the entire share capital and
subordinated debt of Riomin Exploraciones, S.A. from Rio Tinto plc ("Rio
Tinto"). Subsequent to the acquisition, the name of Riomin Exploraciones, S.A.
was changed to Cobre Las Cruces, S.A. ("Las Cruces"). The aggregate purchase
price for the acquisition of Las Cruces was $42,000 in cash. Las Cruces holds
the exploration and mineral rights to the Las Cruces copper deposit in the
Pyrite Belt of Spain (the "Las Cruces Project"). The method of accounting for
the acquisition is the purchase method. The acquisition was funded through (i)
borrowings of $20,000 pursuant to the Company's existing credit agreement with
Leucadia National Corporation ("Leucadia"), (ii) the sale of 18,058,635 shares
of the Company's authorized but unissued shares of common stock to Leucadia for
$15,807 and (iii) $6,193 from the Company's working capital. Pending regulatory
II-18
<PAGE>
approval of the acquisition of the Company's common stock by Leucadia, Leucadia
loaned the Company $15,807 pursuant to a promissory note. This promissory note
was repaid October 8, 1999, at the time regulatory approval was given and the
sale of Company shares to Leucadia was completed. In connection with the
acquisition of Las Cruces, the Company also granted Straits Resources Ltd.,
Sydney, Australia, a one-year option to purchase 35% of Las Cruces at the
Company's cost, plus interest.
Of the $42,000 purchase price, $36,729 represents the purchase of
subordinated debt from Rio Tinto. At the acquisition date, Las Cruces had
stockholder's deficit of $6,064. The excess purchase price of approximately
$11,335, was allocated to mining properties. As part of the acquisition the
Company has also recorded a deferred tax liability of approximately $3,967,
which was also allocated to mining properties. The operating results of Las
Cruces are included in results of operations from its date of acquisition,
September 1, 1999, to December 31, 1999.
From the date of acquisition to December 31, 1999, all development
costs for the period, including costs for the bankable feasibility study, were
capitalized. The following table provides certain consolidated pro forma results
of continuing operations data assuming the acquisition of Las Cruces had
occurred at the beginning of each period presented.
Year Ended
December 31
--------------------------
1999 1998 1997
---- ---- ----
Pro forma unaudited results
Revenue $19,479 $20,082 $27,889
Loss before income taxes (2,582) (2,290) (7,780)
Net loss (2,687) (2,450) (7,807)
Basic and diluted loss per share $ (.07) $ (.07) $ (.21)
There are no material pro forma adjustments other than the adjustments
for the issuance of 18,058,635 shares of common stock to Leucadia. There was no
amortization of mining properties because production at the Las Cruces Project
has not begun.
5. INVESTMENTS
At December 31, 1999, The Company had investments of $1,301, consisting
of corporate bonds and notes of $1,253 and U.S. government securities of $48.
The investments have been classified as available-for-sale. The investments are
recorded at estimated fair value, which approximates amortized cost. At December
31, 1999, investments by contractual maturity are shown below. Expected
maturities are likely to differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
Due in one year or less $ 473
Due after one year through five years 828
Total $1,301
======
6. CASTLE MOUNTAIN JOINT VENTURE
The Company's 25% undivided interest in the CMV, which operates a gold
mine in San Bernardino County, California has been proportionately reflected in
the accompanying consolidated financial statements. The following financial
statements of the CMV are reported on a 100% basis.
II-19
<PAGE>
December 31
-----------
Financial Position 1999 1998
---- ----
Current assets $18,222 $17,277
Mining properties, plant and mine development, net 14,185 15,896
Current liabilities (3,719) (4,098)
Long-term liabilities (839) (1,365)
Reclamation liabilities (3,077) (2,664)
------- -------
Net assets $24,772 $25,046
======= =======
Year Ended December 31
----------------------
Results of Operations 1999 1998 1997
---- ---- ----
Product sales $26,495 $26,473 $40,641
Gross profit (loss) (5,570) (13,296) (11,253)
Loss before income taxes (5,605) (13,575) (13,061)
Year Ended December 31
----------------------
Cash Flows 1999 1998 1997
---- ---- ----
Net cash provided (used) by operating
activities $ (325) $ (2,699) $ 7,367
Net cash provided (used) by investing
activities (5,181) (2,455) (4,105)
Net cash provided (used) by financing
activities 4,807 2,359 1,010
Net increase (decrease) in cash $ (699) $ (2,795) $ 4,272
7. INVENTORIES
The components of inventory are shown below:
December 31
-----------
1999 1998
---- ----
Gold bullion $1,377 $2,101
Ore and in-process 1,019 658
Materials and supplies 627 649
------ ------
$3,023 $3,408
====== ======
II-20
<PAGE>
8. MINING PROPERTIES, PLANT AND MINE DEVELOPMENT
The components of mining properties, plant and mine development are
shown below:
December 31
-----------
1999 1998
---- ----
Mining properties $ 46,785 $ 1,770
Mine development 3,339 3,339
Plant and equipment 16,042 14,647
-------- --------
66,166 19,756
Less accumulated depreciation,
depletion and amortization (20,398) (18,567)
-------- --------
Mining properties, plant and
mine development, net $ 45,768 $ 1,189
======== ========
Maintenance and repair expenses charged to operations were $6,560,
$6,205, and $7,698, for the years ended December 31, 1999, 1998 and 1997,
respectively.
II-21
<PAGE>
9. INDUSTRY SEGMENT INFORMATION
The Company is not economically dependent on a limited number of
customers for the sale of its gold because gold commodity markets are well-
developed worldwide. The Company operated primarily in two industry segments,
gold sales and mining services. The majority of the mining service revenues are
derived from one customer, the CMV. During 1999, the Company acquired the Las
Cruces Project, which is a copper project in the feasibility and development
stage.
Year Ended December 31
----------------------
1999 1998 1997
---- ---- ----
Revenue:
Gold sales $ 8,456 $ 9,053 $16,728
Mining services 14,697 14,753 14,911
Corporate and eliminations (3,674) (3,724) (3,750)
------- ------- -------
Total revenue $19,479 $20,082 $27,889
======= ======= =======
Gross profit:
Gold sales $ (351) $ 436 $ 199
Mining services 2,430 1,730 1,307
Corporate and eliminations - (36) (72)
------- ------- -------
Total gross profit $ 2,079 $ 2,130 $ 1,434
======= ======= =======
Identifiable assets:
Gold sales $ 7,632 $10,064 $10,656
Copper project 45,916 - -
Mining services 2,040 2,515 2,243
Corporate and eliminations 4,353 12,269 17,058
------- ------- -------
Total assets $59,941 $24,848 $29,957
======= ======= =======
Depreciation, depletion and amortization:
Gold sales $ 687 $ 947 $ 2,403
Copper project 23 - -
Mining services 102 86 66
Corporate and eliminations 99 35 41
------- ------- -------
Total depreciation, depletion and
amortization $ 911 $ 1,068 $ 2,510
======= ======= =======
Capital expenditures:
Gold sales $ 511 $ 87 $ 1,026
Copper project 43,217 - -
Mining services 53 108 152
Corporate and eliminations 26 38 52
------- ------- -------
Total capital expenditures $43,807 $ 233 $ 1,230
======= ======= =======
II-22
<PAGE>
10. INCOME TAXES
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
December December December
31, 1999 31, 1998 31, 1997
--------- --------- ---------
<S> <C> <C> <C>
Currently payable (refundable):
U.S. federal $ - $ - $ (601)
State - - -
---------- ---------- ---------
Total currently payable (refundable) - - (601)
---------- ---------- ---------
Deferred:
U.S. federal 147 148 504
State 12 12 124
---------- ---------- ---------
Total deferred 159 160 628
---------- ---------- ---------
Total $ 159 $ 160 $ 27
========== ========== =========
</TABLE>
The deferred income tax provision (benefit) consists of:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
December December December
31, 1999 31, 1998 31, 1997
-------- -------- --------
<S> <C> <C> <C>
Depreciation, depletion and amortization $ 255 $ 354 $ 2,517
Reclamation and other liabilities 294 324 629
Deferred revenue 634 638 687
Inventory valuation - 874 (159)
Other 476 (511) 754
AMT credit (18) - 594
Asset impairment 173 838 961
Net operating loss (1,198) (3,935) (5,648)
Valuation allowance (457) 1,578 293
-------- -------- --------
Deferred income taxes $ 159 $ 160 $ 628
======== ======== ========
</TABLE>
II-23
<PAGE>
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------------------- --------------------------------------
Assets Liabilities Total Assets Liabilities Total
<S> <C> <C> <C> <C> <C> <C>
Depreciation, depletion
and amortization $ 5,271 $ (5,758) $ (487) $ 5,513 $ (5,163) $ 350
Reclamation and other
liabilities 137 137 431 431
Deferred revenue 1,077 1,077 1,711 1,711
Inventory valuation 51 51 (533) (533)
Other 41 41 660 (143) 517
AMT credit 140 140 122 122
Basis difference in
affiliate 1,133 1,133 1,133 1,133
Impairment of long-
lived assets 6,797 6,797 6,970 6,970
Net operating losses 13,970 13,970 12,772 12,772
Valuation allowance (22,589) (22,589) (23,046) (23,046)
Basis difference in
in foreign subsidiary (3,967) (3,967)
-------- -------- -------- -------- --------- ---------
$ 6,028 $ (9,725) $(3,697) $ 5,733 $ (5,306) $ 427
======== ======== ======== ======== ========= =========
</TABLE>
A valuation allowance is provided to reduce the deferred tax assets to
a level which, more likely than not, will be realized. The net deferred tax
assets reflect management's estimate of the amount which will be realized from
future taxable income of the character necessary to recognize such asset.
The provision for income taxes differs from the amounts computed by
applying the U.S. corporate income tax statutory rate of 34% for the following
reasons:
Year Year Year
Ended Ended Ended
December December December
31, 1999 31, 1998 31, 1997
-------- -------- --------
U.S. corporate income tax benefit
at statutory rate $ (457) $ (380) $ (331)
Valuation reserve (457) 1,578 293
State income taxes, net of federal
tax benefit (67) (56) (49)
Expiration of capital loss carryover 599 - -
Other, net 541 (982) 114
------- ------- -------
Income tax expense $ 159 $ 160 $ 27
======= ======= =======
11. LONG-TERM DEBT
At December 31, 1999 and December 31, 1998, the Company had a $20,000
credit facility (the "Credit Facility") with Leucadia National Corporation
("Leucadia"). As of December 31, 1999, borrowings of $20,000 were outstanding
under the Credit Facility. At December 31, 1998, the Company had no amounts
borrowed under the Credit Facility. Effective March 1, 2000, the Credit Facility
was increased to $30,000.
II-24
<PAGE>
The Credit Facility carries a variable interest rate tied to the published prime
rate. The Credit Facility will expire on December 15, 2001, unless terminated
earlier. The Credit Facility may be terminated by Leucadia on December 15 of any
year, provided Leucadia notifies the Company of such termination prior to
September 15 of such year. As the Credit Facility with Leucadia is a variable-
rate loan and as there has been no significant change in credit risk associated
with the Credit Facility, the fair value of the Credit Facility is equal to its
carrying value.
12. BENEFIT PLANS
The Company maintains a 401(k) Savings Plan (the "Plan") for all full-time
active employees and matches 50% of employee contributions to the Plan up to 5%
of eligible pay. Cost of the Plan was $87, $90, and $93 for the years ended
December 31, 1999, 1998 and 1997, respectively.
13. COMMITMENTS AND CONTINGENCIES
Environmental - The Company's mining operations and exploration activities
are subject to various federal, state and local laws and regulations governing
protection of the environment. These laws are continually changing and, as a
general matter, are becoming more restrictive. The Company's policy is to
conduct its business in a manner that safeguards public health and mitigates the
environmental effects of its mining operations. To comply with these federal,
state and local laws, the Company has made and in the future may be required to
make capital and operating expenditures. The Company does not anticipate
incurring any material unforeseen capital or operating expenditures for
environmental compliance during the remainder of its current fiscal year or the
succeeding fiscal year.
Surety bonds and letters of credit totaling $2,945 (of which the Company's
share is $903) have been provided as required by various governmental agencies
for environmental protection, including reclamation bonds at the American Girl
Mine and Castle Mountain Mine.
Product Sales Commitments - The Company sells gold at spot and under gold
hedge contracts. Precious metal hedge contracts include forward sales contracts
and put and call options. Realization under these contracts is dependent upon
the counterparties performing in accordance with the terms of the contracts. The
Company does not anticipate nonperformance by the counterparties. Hedging takes
the form of selling forward and creating collars. A collar includes buying put
options and selling call options. A put option gives the buyer the right, but
not the obligation, to sell gold to the put seller at a predetermined price on
or before a predetermined date. A call option gives the buyer the right, but not
the obligation, to buy gold from the call seller at a predetermined price on or
before a predetermined date. The risks associated with hedging are generally
twofold. First, that production may not be available to deliver gold against the
hedged position; and second, that the call options limit the amount of upside
potential if the price of gold increased above the option strike price. Under
the Company's hedging policies and production levels it is unlikely that the
Company would not have gold to deliver against hedged positions.
These hedging arrangements allow the Company to selectively extend maturity
dates, thereby postponing delivery against sales commitments. This flexibility
allows the Company to sell gold into the spot market when conditions are
favorable, while at the same time retaining the benefits of the contango, or
premium that is paid for gold when delivered in settlement of forward sales
contracts at maturity. At December 31, 1999, the Company had 23,000 ounces of
gold sold at an average price of $318 per ounce under forward sales contracts.
Legal Proceedings - The Company is a plaintiff in an action styled MK Gold
-------
Company v. Morrison Knudsen Corporation, pending in the United States District
- ---------------------------------------
Court for the District of Utah. In that case, the Company has sued Morrison
Knudsen Corporation ("MK") for breach of a noncompete agreement. The case has
been set for a three week trial to begin on April 2, 2001.
MK has asked the court to rule, as a matter of law, that even if MK
breached the noncompete agreement, the Company cannot show that such a breach
directly caused the Company any recoverable
II-25
<PAGE>
damages. The Company has responded to MK's Motion, asserting that the existence
of material facts precludes a summary disposition of the issue. The court will
hear argument from counsel for both parties on the merits of this Motion on
April 17, 2000.
The Company is a defendant in an action styled Morrison Knudsen Corporation
----------------------------
v. MK Gold Company, pending in the United States District Court for the District
- ------------------
of Idaho. In that case, MK has alleged that the Company violated federal and
state trademark statutes and breached a trademark license agreement by using the
"MK" mark in connection with nonprecious metals projects. Upon motion by the
Company, the court has ruled that the case should be stayed pending the
resolution of the Utah litigation. MK has asked the court to lift the stay, but
the court has not yet ruled on that request.
Other - The CMV and the AGMJV are committed to pay royalties to landowners
generally based on a percent of refined gold bullion. Effective net smelter
return royalties paid as a percent of the realized gold price were 1.8%, 1.4%,
and 2.1% for the years ended December 31, 1999, 1998, and 1997, respectively.
14. RELATED PARTY TRANSACTIONS
The Company's joint venture partner, Viceroy Resource Corp. ("Viceroy"), is
the manager of the CMV and, as such, is entitled to receive a management fee of
1% of capital expenditures and 2% of allowable costs as defined in the Castle
Mountain Venture Agreement. Management fees charged by Viceroy attributable to
the Company amounted to $145 for the year ended December 31, 1999, $140 for the
year ended December 31, 1998, and $167 for the year ended December 31, 1997.
The Company is the manager of the AGMJV and under the terms of the American
Girl Mining Joint Venture Agreement is entitled to receive a management fee of
2% of allowable costs as defined in the Agreement. Management fee revenue
recognized by the Company amounted to $0 for the year ended December 31, 1999,
$24 for the year ended December 31, 1998, and $61 for the year ended December
31, 1997.
The Company performs contract mining services for the CMV. Mining services
revenue recognized by the Company (before intercompany eliminations) was $14,697
for the year ended December 31, 1999, $14,753 for the year ended December 31,
1998, and $14,911 for the year ended December 31, 1997.
For the year ended December 31, 1999, approximately $616 in interest and
commitment fees was paid relating to the Credit Facility. In addition,
approximately $130 in interest was paid relating to the promissory note with
Leucadia. Approximately $565 in interest relating to the Las Cruces project was
capitalized.
15. STOCK PLANS
Stock Option Plan for Non-Employee Directors - The Company has 180,000
authorized options in a non-employee director stock option plan. These options
are awarded at 50% of the fair market value of the stock on the date of the
award. Compensation expense is then recognized equally over the three year
vesting period. As of December 31, 1999, 150,000 non-employee director stock
options have been granted and 30,000 non-employee director stock options are
available for grant.
Stock Incentive Plan - The Company has a stock incentive plan which allows
for a maximum of 2,500,000 options to be awarded. Options granted under the
stock incentive plan have an exercise price equal to the fair market value of
the stock on the date of grant and expire 10 years after the date of grant. The
following table summarizes the stock plan activities for both the non-employee
director and stock incentive plans:
II-26
<PAGE>
<TABLE>
<CAPTION>
Year Year Year
Ended December 31, Ended December 31, Ended December 31,
1999 1998 1997
---------------------- ---------------------- ----------------------
Number Price Number Price Number Price
of Range of Range of Range
Shares Per Share Shares Per Share Shares Per Share
<S> <C> <C> <C> <C> <C> <C>
Options:
Outstanding beginning of year 2,118,800 $0.81 - $3.09 2,043,800 $1.47 - $3.09 1,945,000 $1.47 - $4.00
Granted 75,000 $0.88 75,000 $0.81 250,000 $1.50
Canceled (151,200) $4.00
Outstanding end of year 2,193,800 $0.81 - $3.09 2,118,800 $0.81 - $3.09 2,043,800 $1.47 - $3.09
Weighted average fair market $0.44 $0.37 $0.71
value of options granted
during year
</TABLE>
The Company accounts for stock options granted using Accounting
Principles Board (APB) Opinion 25. Accordingly, no compensation cost has been
recognized for its fixed stock option plans. Had compensation cost for the
Company's stock-based compensation plans been determined based on the fair value
at the grant dates for awards under those plans consistent with Statement of
Financial Accounting Standards (SFAS) No. 123, the Company's net loss and net
loss per common share would have changed to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported $ (1,504) $ (1,281) $ (1,002)
Pro forma $ (1,836) $ (1,682) $ (1,411)
Net loss per common share (basic and diluted):
As reported $ (0.06) $ (0.07) $ (0.05)
Pro forma $ (0.08) $ (0.09) $ (0.07)
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used: dividend yield of 0%; expected volatility of 20%; risk-free
interest rate of 6.34% and expected lives of 7 years subsequent to vesting date.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Based on market conditions at December 31, 1999, the Company estimated
the fair value of outstanding forward contracts to be $552.
II-27
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
II-28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is included in the Company's
definitive proxy statement to be filed with the Commission pursuant to
Regulation 14A of the Securities Exchange Act of 1934 in connection with the
2000 annual meeting of stockholders of the Company (the "Proxy Statement") and
is incorporated herein by reference. In addition, reference is made to Item 10
in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included in the Proxy Statement
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included in the Proxy Statement
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included in the Proxy Statement
and is incorporated herein by reference.
III-1
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE
(a) Financial Statements, Schedules and Exhibits.
1. Financial Statements included in Part II of this Form 10-K:
Independent Auditors' Report II-10
Consolidated Statements of Operations for the years ended December
31, 1999, 1998 and 1997 II-11
Consolidated Balance Sheets at December 31, 1999 and 1998 II-12
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997 II-13
Consolidated Statements of Cash Flows for the years ended December
31, 1999, 1998 and 1997 II-14
Notes to Consolidated Financial Statements II-16
2. Financial Statement Schedules as of December 31, 1999 included
in Part IV of this Form 10-K:
Valuation and Qualifying Accounts IV-3
3. Exhibits:
The exhibits to this Form 10-K are listed in the Exhibit Index contained
elsewhere in this Form 10-K.
(b) Reports on Form 8-K.
A current report on Form 8-K was filed with the Commission on December 28,
1999, relating to the Company's acquisition of Riomin Exploraciones S.A.
and the change of control resulting from the sale by the Company of
18,058,635 shares of common stock to Leucadia.
An amended current report on Form 8-K/A was filed with the Commission on
November 15, 1999, relating to the Company's acquisition of Riomin
Exploraciones S.A. and the change of control resulting from the sale by the
Company of 18,058,635 shares of common stock to Leucadia. The financial
statements of Riomin Exploraciones S.A. were included in this report.
IV-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on March 28, 2000.
MK Gold Company
By /s/
-------------------------
D. L. Babinchak
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 28, 2000 by the following persons on behalf of
the Company in the capacities indicated.
/s/ Chairman of the Board and Chief Executive Officer
- ------------------------ (Principal Executive Officer)
G.F. Joklik
/s/ Chief Financial Officer and Secretary
- ------------------------ (Principal Financial and Accounting Officer)
J.C. Farmer
/s/ Director
- ------------------------
I.M. Cumming
/s/ Director
- ------------------------
R.V. Hansberger
/s/ Director
- ------------------------
J.P. Miscoll
/s/ Director
- ------------------------
R.S. Shriver
/s/ Director
- ------------------------
J.S. Steinberg
/s/ Director
- ------------------------
T.E. Mara
IV-2
<PAGE>
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, and 1997
(Thousands of dollars)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and End of
of Year Expenses Deductions Year
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Valuation for income taxes:
December 31, 1997 $ 21,175 $ 293 none $ 21,468
December 31, 1998 21,468 1,578 none 23,046
December 31, 1999 23,046 none 457 22,589
</TABLE>
IV-3
<PAGE>
EXHIBIT INDEX
Exhibits marked with an asterisk are filed herewith. The remainder of the
exhibits have heretofore been filed with the Commission and are incorporated
herein by reference.
Exhibit
Number Exhibits
3.1 Amended and Restated Certificate of Incorporation of the Company
(filed as Exhibit 3.1 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended March 31, 1996 and incorporated herein by
reference).
3.2 Amended and Restated Bylaws of the Company (filed as Exhibit 3.1 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996 and incorporated herein by reference).
10.1 Form of Indemnification Agreement to be entered into with Officers and
Directors of the Company (filed as Exhibit 10.1 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended March 31, 1995
and incorporated herein by reference).
10.2 Castle Mountain Venture Contract Mining Agreement (filed as Exhibit
10.39 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended March 31, 1996 and incorporated herein by reference).
10.3 Castle Mountain Joint Venture Agreement (filed as Exhibit 10.3 to the
Registrant's Form S-1 Registration Statement No. 33-70348 on October
14, 1993 and incorporated herein by reference).
10.4 Settlement Agreement, dated December 19, 1995, between Viceroy Gold
Corporation, the Company and the Castle Mountain Venture (filed as
Exhibit 10.37 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996 and incorporated herein by
reference).
10.5 Amendment No. 2 to Castle Mountain Venture Agreement, dated December
19, 1995, between the Company and Viceroy Gold Corporation (filed as
Exhibit 10.38 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996 and incorporated herein by
reference).
10.6 American Girl Venture Agreement (filed as Exhibit 10.4 to the
Registrant's Form S-1 Registration Statement No. 33-70348 on October
14, 1993 and incorporated herein by reference).
10.7 Oro Cruz Memorandum of Understanding (Memorandum of Agreement), (filed
as Exhibit 10.5 to the Registrant's Form S-1 Registration Statement
No. 33-70348 on October 14, 1993 and incorporated herein by
reference).
10.8 Agreement Not to Compete, Dated December 17, 1993, between the Company
and Morrison Knudsen (filed as Exhibit 10.12 to the Registrant's Form
S-1 Registration Statement No. 33-70348 on October 14, 1993 and
incorporated herein by reference).
10.9 Registration Rights Agreement, Dated December 17, 1993, between the
Company and Morrison Knudsen (filed as Exhibit 10.16 to the
Registrant's Form S-1 Registration Statement No. 33-70348 on October
14, 1993 and incorporated herein by reference).
10.10 Equipment Lease Agreement, Dated December 17, 1993, between the
Company and Morrison Knudsen (filed as Exhibit 10.17 to the
Registrant's Form S-1 Registration Statement No. 33-70348 on October
14, 1993 and incorporated herein by reference).
<PAGE>
10.11 Representative Arrangement with Johnson Mathey & Co. (filed as Exhibit
10.19 to the Registrant's Form S-1 Registration Statement No. 33-70348
on October 14, 1993 and incorporated herein by reference).
10.12 Benefit Plans (filed as Exhibit 10.23 of Amendment 1 to the
Registrant's Form S-1 Registration Statement No. 33-70348 on October
14, 1993 and incorporated herein by reference)./1/
+ Executive Incentive Plan
+ Stock Incentive Plan
+ Stock Option Plan for Non-Employee Directors
10.13 American Girl Amended and Restated Mining Joint Venture Agreement,
Dated January 1, 1994 (filed as Exhibit 10.20 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended March 31, 1995
and incorporated herein by reference).
10.14 Employment Agreement with Thomas G. White effective January 1, 1995
(filed as Exhibit 10.24 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended March 31, 1995 and incorporated herein by
reference)./1/
10.15 Credit Agreement, Effective as of March 1, 1998, between Leucadia
National Corporation and MK Gold Company (filed as Exhibit 10.14 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and incorporated herein by reference).
10.16 Amended and Restated MK Gold Company Executive Incentive Plan, Dated
January 9, 1995 (filed as Exhibit 10.28 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended March 31, 1995 and
incorporated herein by reference)./1/
10.17 List of additional signers of the Indemnification Agreement submitted
under Exhibit 10.1 (filed as Exhibit 10.31 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended March 31, 1996 and
incorporated herein by reference).
10.18 Stock Incentive Plan, as approved and amended by stockholders through
August 5, 1996 (filed as Exhibit 10.22 to the Registrant's Transition
Report on Form 10-K for the transition period from April 1, 1996 to
December 31, 1996 and incorporated herein by reference)./1/
10.19 Amendment No. 1 to Stock Option Plan for Non-Employee Directors,
approved by shareholders on July 14, 1994 (filed as Exhibit 10.33 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
March 31, 1995 and incorporated herein by reference)./1/
10.20 Amendment No. 1 to Credit Agreement, Dated as of March 1, 2000,
between MK Gold Company and Leucadia National Corporation.*
21 Subsidiaries of the Registrant. *
23 Consent of Deloitte & Touche L.L.P. *
27 Financial Data Schedule *
___________________
* Filed herewith.
/1/ Management contracts and compensatory plans and arrangements identified
pursuant to Item 14(a)(3) of Form 10-K.
<PAGE>
EXHIBIT 10.20
Amendment No. 1
to
Credit Agreement
dated as of March 1, 1998
between
MK GOLD COMPANY, as Borrower
and
LEUCADIA NATIONAL CORPORATION, as Lender
This Amendment No. 1 dated as of March 1, 2000 hereby amends the Credit
Agreement entered into as of March 1, 1998, between MK GOLD COMPANY, a Delaware
corporation ("Borrower"), and LEUCADIA NATIONAL CORPORATION, a New York
corporation ("Lender").
1. Section 1.1 "Defined Terms" is hereby amended as follows:
The definition of "Commitment" is hereby amended in its entirety to
----------
read as follows:
"Commitment" means the aggregate commitment of Lender to make Loans,
----------
which aggregate commitment initially was $20,000,000 and from and after the
effective date of this Amendment No. 1 until the Termination Date will be
increased to $30,000,000, as such amount may be reduced from time to time in
accordance with the Agreement."
"Termination Date" shall mean December 15, 2001, or such earlier date
----------------
as may be determined in accordance with subsection 2.1(e)."
2. Subsection 2.1(d) "Note" shall be amended by substituting the
----
following for the first sentence of subsection 2.1(d):
"Loans made by Lender shall be evidenced by a promissory note to be
executed and delivered by Borrower. On the effective date of this Amendment No.
1, Borrower shall deliver to Lender an executed promissory note in the form of
Exhibit A to this Amendment No. 1, and Lender shall return to Borrower the
executed promissory note dated as of March 1, 1998. From and after the effective
date of this Amendment No. 1, the promissory note delivered by Borrower on such
date shall constitute the Note for purposes of the Agreement."
3. Section 4.1 "Financial Condition" is hereby amended (x) to delete
-------------------
from the second line thereof the date "December 31, 1996" and to replace that
date with "December 31, 1998 and (y) to delete from the fifth line thereof the
date "September 30, 1997" and to replace that date with "September 30, 1999".
4. Section 4.5 "No Material Adverse Effect" is hereby amended to
--------------------------
delete from the first and last lines thereof the date "December 31, 1996" and to
replace that date in each place with "December 31, 1998".
5. In all other respects, the Credit Agreement dated as of March 1,
1998 shall remain in effect.
<PAGE>
6. The effective date of this Amendment No. 1 shall be as of March 1,
2000.
7. The Credit Agreement dated as of March 1, 1998, as amended by
Amendment No. 1 dated as of March 1, 2000, the letter agreement (undated)
between Borrower and Lender pursuant to which, among other things, Lender
consented to Borrower's acquisition of Riomin Exploraciones, S.A., taken
together with all other Loan Documents and all certificates and other documents
delivered by Borrower to Lender pursuant to the Loan Documents, embodies the
parties entire agreement and supercedes all prior agreements, written or oral,
relating to the subject matter thereof.
8. This Amendment No. 1 may be executed in counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original and all of which taken
together shall constitute one and the same instrument; signature pages may be
detached from multiple separate counterparts and attached to one single
counterpart so that all signature pages are physically attached to the same
document.
[Intentionally left blank.]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
1 to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
Borrower:
MK GOLD COMPANY
By: /s/
-------------------------------------
Name:
Title:
Lender:
LEUCADIA NATIONAL CORPORATION
By: /s/
-------------------------------------
Name:
Title:
3
<PAGE>
Exhibit A
MK GOLD COMPANY
PROMISSORY NOTE
U.S. $30,000,000 New York, New York
March 1, 2000
FOR VALUE RECEIVED, MK GOLD COMPANY, a Delaware corporation
("Borrower"), promises to pay to the order of LEUCADIA NATIONAL CORPORATION, a
New York corporation ("Payee"), on or before the Termination Date (as defined in
the Credit Agreement referred to below) the lesser of (x) THIRTY MILLION DOLLARS
($30,000,000) and (y) the unpaid principal amount of all Loans made by Payee to
Borrower under the Credit Agreement referred to below.
Borrower also promises to pay interest on the unpaid principal amount
hereof, from the date hereof until paid in full, at the rates and at the times
provided by that certain Credit Agreement, dated as of March 1, 1998, between
Borrower and Payee as amended by Amendment No. 1, dated as of March 1, 2000
(such amended Credit Agreement as it may be further amended, the "Credit
Agreement"). Capitalized terms used herein and not defined have the meanings
assigned to them in the Credit Agreement.
This Note is Borrower's "Note" and is issued pursuant to and entitled
to the benefits of the Credit Agreement, to which reference is hereby made for a
more complete statement of the terms and conditions under which the Loans
evidenced hereby were made and are to be repaid.
All payments of principal and in respect of this Note shall be made in
lawful money of the United States of America in immediately available funds at
the location designated by Payee.
Whenever any payment on this Note shall be stated to be due on a day
which is not a Business Day, such payment shall be made on the next succeeding
<PAGE>
Business Day and such extension of time shall be included in the computation of
the payment of interest on this Note.
This Note is subject to prepayment at the option of Borrower as
provided in subsection 2.4(a)(i) of the Credit Agreement.
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note, together with all accrued and unpaid interest
thereon, may become, or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Credit Agreement.
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed
and delivered by its officer thereunto duly authorized as of the date and at the
place first written above.
MK GOLD COMPANY
By:______________________
Name:
Title:
2
<PAGE>
EXHIBIT 21
MK GOLD COMPANY SUBSIDIARIES
STATE OR OTHER JURISDICTION OF
SUBSIDIARY INCORPORATION OR ORGANIZATION
- ---------- -----------------------------
MK Gold de Mexico, S. de R.L. de C.V............................. Mexico
Cobra Las Cruces, S.A............................................ Spain
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos. 33-
84754, 33-84756, and 333-16765 of MK Gold Company on Form S-8 of our report
dated March 3, 2000, appearing in this Annual Report on Form 10-K of MK Gold
Company for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
March 24, 2000
<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> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,126
<SECURITIES> 425
<RECEIVABLES> 2,012
<ALLOWANCES> 0
<INVENTORY> 3,023
<CURRENT-ASSETS> 12,835
<PP&E> 45,768
<DEPRECIATION> 911
<TOTAL-ASSETS> 59,941
<CURRENT-LIABILITIES> 2,490
<BONDS> 0
0
0
<COMMON> 373
<OTHER-SE> 30,670
<TOTAL-LIABILITY-AND-EQUITY> 59,941
<SALES> 8,456
<TOTAL-REVENUES> 19,479
<CGS> 8,807
<TOTAL-COSTS> 17,400
<OTHER-EXPENSES> 3,989
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181
<INCOME-PRETAX> (1,345)
<INCOME-TAX> (159)
<INCOME-CONTINUING> (1,504)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,504)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
