ITEM 3. LEGAL PROCEEDINGS
In June 1993, the Company, certain other affiliated corporations and several unnamed corporations and individuals were sued in the Nevada State Court for Washoe County by TMB Associates ("TMB"), a Nevada general partnership that is the lessor under an April 2, 1987 lease of unpatented federal mining claims (as amended, the "Lease") which comprise a substantial part of the Wind Mountain mine property position. The lawsuit involves the formation and performance of, and alleged breach of duties with respect to, the Lease pertaining to the exploration, development and mining of the Wind Mountain ore deposit. In 1993, the court granted the Company's motion to stay the litigation and to compel TMB to proceed with arbitration, pursuant to an arbitration clause in the Lease requiring any controversy to be settled by arbitration and imposing a one-year limitation for commencing arbitration. TMB initiated arbitration in 1994 and discovery is proceeding. At this time, the Company's management does not anticipate any material adverse effect on the Company's financial condition or results of operations from the results of arbitration.
Certain of the Company's New Zealand subsidiaries and certain subsidiaries of Poseidon Gold Limited ("PosGold") are defendants in an action brought by Mineral Resources (N.Z.) Limited and a subsidiary in the High Court of New Zealand, Auckland Registry, Commercial List, claiming that a transaction between the Company and a subsidiary of PosGold in June 1993 in which the Company realized all future economic benefit from an interest in a mine in New Zealand created a default under the joint venture agreement and seeking to obtain the Company's venture interest. The Company believes that it is remote that this litigation will result in any material effect on the Company's financial condition or results of operations.
See "Item 1 and 2. Business and Properties-Haile Project" for a description of a dispute between the Company and its joint venture partner in the Haile project.
parties are awaiting final action on pre-trial motions and the Company believes that it is remote that this litigation will result in any material adverse effect on the Company's financial condition or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the quarter ended December 31, 1994.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange (AU) and The Toronto Stock Exchange (AXG). As of March 24, 1995, 81,295,607 shares of Common Stock were outstanding with approximately 11,900 stockholders of record. Cyprus Amax owns approximately 42.2 percent of the Company's outstanding Common Stock. The Company's $3.75 Series B Convertible Preferred Stock is listed on the New York Stock Exchange (AUPrB). As of March 17, 1995, 1,840,000 shares of Series B Convertible Preferred Stock were outstanding with approximately 15 stockholders of record.
The following table sets forth for the periods indicated the high and the low sale prices per share of the Company's Common and Series B Convertible Preferred Stock as reported on the New York Stock Exchange Composite Tape and the dividends paid on such stock.
Stock Prices and Dividends Per Share
On March 4, 1994, the Company's Board of Directors decided to eliminate the quarterly dividend on the Company's Common Stock to reduce expenses. Although the Company's loan agreements do not directly limit the payment of dividends, the agreements require the Company to comply with certain financial convenants that may be affected by dividend payments.
The Series B Convertible Preferred Stock was issued on August 11, 1994. The dividend paid on November 15, 1994 included the 94 day period from date of issuance. Regular quarterly dividends are $.9375.
As of March 24, 1995, 4,066,649 warrants to purchase Common Stock of the Company were outstanding with approximately 80 holders of record. The warrants are listed on the American Stock Exchange (AUWS) and the
Toronto Stock Exchange (AXGWT). The warrants, issued in connection with the acquisition of the Fort Knox project, expire in January 1996 and permit the holder to purchase one share of Common Stock for $21.00.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
AMAX GOLD INC. AND SUBSIDIARIES FINANCIAL AND OPERATING HIGHLIGHTS (IN MILLIONS EXCEPT PER SHARE AMOUNTS, PERCENTAGES, PRODUCTION AND SALES OUNCES AND AMOUNTS PER OUNCE) YEARS ENDED DECEMBER 31,
/(1)/ In 1994, the Company recorded a $18.6 million ($14.4 million after tax) write-down of the Hayden Hill mill to its estimated salvage value and a $2.5 million ($2.1 after-tax) write-down of other assets which increased the net loss by $16.5 million or $.21 per share. In 1993, the Company recognized a $64.1 million pre-tax ($41.9 million after tax) write-down of Hayden Hill and a $23.6 million pre-tax ($15.6 million after tax) write- down of Sleeper, which increased the 1993 net loss by $57.5 million, or $.74 per common share. The earnings
for 1990 include a $12.6 million write-down of Amax Gold's investment in Canamax Resources Inc. recorded in the first half of 1990, which reduced 1990 net earnings per common share by $.21. The remaining Canamax investment was sold to Amax during the second half of 1990 for $6.4 million in cash. /(2)/ In 1994, the Company changed its method of accounting for the cost of ore loaded on heap leach pads. The 1994 net loss is reduced by a $7.5 million after tax benefit relating to the cumulative effect of this accounting change. In September 1993, Amax Gold changed its exploration accounting policy, effective January 1, 1993, such that prior period exploration expenses would no longer be capitalized and restored to earnings when a property became exploitable. The 1993 net loss includes a $13.4 million, or $.17 per common share, after tax charge relating to the cumulative effect of this accounting change. The 1992 net earnings include $8.9 million, or $.12 per common share, of after tax income related to prior year exploration expenditures on the Haile and Guanaco projects that were capitalized and restored to earnings. /(3)/ The 1993 net loss includes a $1.8 million, or $.03 per common share, after -tax cumulative effect of the January 1, 1993 adoption of Statement of Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits". Net earnings for 1992 include a $1.5 million, or $.02 per common share, after tax cumulative effect of the January 1, 1992 adoption of SFAS No. 106, "Postretirement Benefits Other Than Pensions". /(4)/ Adjusted for three-for-two common stock split effected in the form of a stock dividend which was distributed in 1988. /(5)/ Gold production for the year ended December 31, 1992 reflects increased production of 4,733 ounces at the Sleeper Mine and 542 ounces at the Waihi Mine relating to the cumulative effect of a change in accounting to include production in the mill carbon circuit, effective January 1, 1992. /(6)/ Average costs weighted by ounces of gold produced at each mine. /(7)/ Cash production costs include all operating costs at the mine site, including overhead and, where applicable, Nevada net proceeds tax, royalties and credits for silver by-products.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
The Company recorded a net loss of $35.5 million in 1994, the first full year of operations following the November 1993 merger of Amax Inc. with and into Cyprus Minerals Company. During the period since the merger, the Company has made management changes, significantly reduced staff, entered into exploration, non- compete and service agreements with Cyprus Amax Minerals Company ("Cyprus Amax") and successfully financed future growth. Gold production for 1994 was 240,885 ounces at an average cash production cost of $340 per ounce. The average price of gold realized in 1994 was $401 per ounce compared to the average market price of $384 per ounce.
RESULTS OF OPERATIONS
Amax Gold reported a net loss of $35.5 million in 1994 compared with a net loss of $104.2 million in 1993 and net income of $11.5 million in 1992. The 1994 results include after-tax asset write-downs of $16.5 million partially offset by the $7.5 million cumulative after-tax effect of a change in accounting for leach pad inventory. The Company paid dividends of $1.8 million in 1994 on preferred stock issued in August 1994. Results in 1993 include after-tax asset write-downs of $57.5 million, a $15.2 million charge for the after-tax cumulative effect of a change in accounting for exploration expenses and the adoption of a new accounting standard for postemployment benefits, and an after-tax gain of $2.4 million from the realization of the future economic benefit from its 33.53 percent interest in the Waihi Mine in New Zealand. The 1992 results include after-tax income of $8.9 million from exploration expenditures that were capitalized and restored to earnings and an after-tax charge of $1.5 million for the cumulative effect of the adoption of a new accounting standard for postretirement benefits other than pensions.
Revenues increased to $94.6 million for 1994 compared to $81.9 million in 1993. Revenues were $99.7 million in 1992. The increase in 1994 revenue from 1993 is a result of higher production and sales volumes from the Guanaco, Hayden Hill and Sleeper mines and higher realized prices in 1994. The decrease in revenues in 1993 from 1992 is a result of declines in production and sales volumes from the Sleeper, Wind Mountain and Waihi mines together with lower realized sales prices in 1993. Somewhat offsetting these declines in 1993 was production from Hayden Hill, which commenced operations in June 1992, and Guanaco, which commenced operations in April 1993. The Company sold 235,664 ounces of gold in 1994 compared to 209,290 ounces in 1993 and 248,024 ounces in 1992. Total production and sales volumes for 1995 are expected to increase slightly from 1994 levels as the Hayden Hill and Guanaco heap leach operations are scheduled to process ore at design capacity, more than offsetting declines in production at Sleeper which is nearing the end of its mine life and Wind Mountain where residual leaching is expected to end in 1995.
The Company realized an average selling price of $401 per ounce of gold in 1994, $392 per ounce in 1993 and $402 per gold ounce in 1992. The average realized price for each year includes hedging benefits from closing forward sales contracts and gold options at prices above market. The average COMEX gold price was $384 per ounce in 1994, $360 per ounce in 1993 and $344 per ounce in 1992.
Gold production was 240,885 ounces in 1994 compared to 210,880 ounces in 1993 and 253,603 ounces in 1992. The increase in gold production in 1994 was due to increased production at Guanaco, Hayden Hill and Sleeper. The increase in production at Guanaco was a result of operating for a full year in 1994 compared to operating for a portion of a year in 1993, when the mine commenced production in April. Guanaco experienced ordinary start-up delays and crusher throughput problems in 1993, and process water shortages in 1994 which were resolved in the fourth quarter. The increase in production at Hayden Hill in 1994 is primarily due to the successful conversion of the mine to a heap leach only operation during the last half of 1993. Increased production at Sleeper in 1994 compared to 1993 is a result of higher mill grade and mill recovery rates in 1994. These increases were partially
offset by expected lower residual heap leach production at Wind Mountain and the elimination of the Company's share of production at Waihi in New Zealand. In a transaction effective in April 1993, the Company realized the future benefit from its 33.53 percent interest in the Waihi mine. Gold production declined in 1993 from 1992 primarily as a result of lower mill head grades and related recovery rates at Sleeper, lower residual heap leach production at Wind Mountain after completion of mining in January 1992 and four months of production at Waihi in 1993 compared to a full year in 1992. These production decreases in 1993 compared to 1992 were partially offset by the commencement of operations at Guanaco in April 1993 and by increased production at Hayden Hill during its first full year of operations in 1993.
Cost of sales represent mining and processing costs for gold sold during the year including labor, materials and supplies, repairs and maintenance, fuel and utilities. The Company's operating costs also include estimated reclamation at each of the Company's mines, which is accrued and charged over the expected mine life using the units-of-production method. Reclamation costs are estimates based on current federal, state and Chilean laws and regulations governing the protection of the environment. Changes in these laws and regulations could increase future reclamation costs.
Cash production costs decreased to $340 per ounce in 1994 from $388 per ounce in 1993. Cash production costs were $223 per ounce in 1992. The decrease in cash production costs in 1994 compared to 1993 relates primarily to higher production during a full year of operations at Guanaco and reduced operating costs and higher production at Sleeper and Hayden Hill. Cash production costs per ounce at Guanaco decreased to $420 in 1994 from $664 in 1993. The decrease in cash costs at Guanaco is primarily a result of increased production due to a full year of operations, although production was hampered by intermittent process water shortages which were resolved in the fourth quarter. The decrease includes a $65 per ounce benefit from the effect of changing the method of accounting for inventory of ore loaded on heap leach pads in 1994. At Hayden Hill, cash costs per ounce decreased substantially to $406 in 1994 from $470 in 1993, despite an additional $39 per ounce increase from the change in accounting for heap leach inventory. Cash costs per ounce at Sleeper decreased to $273 in 1994 from $317 in 1993, despite a $5 increase in costs in 1994 relating to the change in accounting for heap leach inventory. Cash production costs per ounce in 1993 increased to $388 from $223 in 1992 primarily as a result of high costs associated with start-up together with low crusher throughput at Guanaco, lower expected grade and mill recovery rates in the first half of 1993 at Hayden Hill and reduced production related to lower mill head grades at Sleeper. Cash production costs are expected to be lower in 1995 than in 1994, due to higher production levels from Guanaco and Hayden Hill, which are expected to operate at design throughput in 1995. This increase in production is expected to be partially offset by lower production at Sleeper, which is nearing the end of expected mine life, and decreasing residual leach production from Wind Mountain. Refugio is scheduled to commence production at the end of 1995 or early in 1996.
Depreciation and depletion decreased by $.4 million in 1994 compared to 1993. The 1994 decrease was primarily a result of the write-downs of assets at Sleeper in December 1993 and at Hayden Hill in June 1993, somewhat offset by a full year of production at Guanaco in 1994. On a unit basis, depreciation and depletion decreased to $105 per ounce in 1994 from $122 per ounce in 1993. Depreciation and depletion has been favorably impacted by continuing residual heap leach production at Wind Mountain after assets were fully depreciated in the first quarter of 1992. For 1993 compared to 1992, total depreciation and depletion increased by $3.9 million. On a per ounce basis, depreciation and depletion increased to $122 per ounce in 1993 from $87 per ounce in 1992 as a result of production at Guanaco starting in April 1993 and a reduction of recoverable ounces at Sleeper which was partially offset by lower depreciation and depletion at Hayden Hill following the asset write-down in June 1993.
General and administrative costs have been reduced over the last three years. The primary reason for the decrease to $6.9 million in 1994 from $8.4 million in 1993 was a reduction of staff in 1994.
Asset write-downs were $21.1 million in 1994 and $87.7 million in 1993. The asset write-down in 1994 consisted of $18.6 million ($14.4 million after tax) for the Hayden Hill mill and $2.5 million ($2.1 million after tax) for other assets. In 1993, the Company wrote down the Hayden Hill mill by $64.1 million ($41.9 million after-tax) to its then estimated salvage value in anticipation that sufficient mill grade ore would be encountered to justify a future milling operation or possible use of the mill at another Company property. The additional write-down of the Hayden Hill mill in 1994 is the result of the lack of higher grade ore amenable to milling operations and the unlikely use of the mill at another of the Company's properties. In 1993, the Company also wrote down Sleeper assets by $23.6 million ($15.6 million after tax) as a result of reducing proven and probable reserves based on mining experience and reinterpretation of geologic data.
Exploration expense was $6.2 million in 1994 compared to $5.2 million in 1993, primarily reflecting increased activity in North, Central and South America, partially offset by savings related to the Company's agreement to pool efforts with Cyprus Amax to discover and develop new gold properties. Effective January 1, 1993, the Company changed its exploration accounting policy to expense exploration costs as incurred. Exploration expense in 1992 was $9.0 million before the effect of capitalizing $11.2 million for exploration expenditures under the Company's previous exploration accounting policy.
Interest expense rose to $8.9 million in 1994 compared to $8.5 million in 1993 and $2.3 million in 1992. These increases were primarily the result of higher interest rates in 1994 and a higher average debt balance in 1993. Interest in 1992 was partially offset by the capitalization of a portion of interest expense while the Hayden Hill and Guanaco mines were in the construction and development phase.
Interest income was $2.1 million in 1994 compared to $.7 million in 1993 and $1.6 million in 1992. The change in interest income relates to cash from the preferred share offering held prior to investing in capital projects.
In addition to the effects of changes in accounting for inventory in 1994 and changes in exploration accounting in 1993 noted above, accounting changes as a result of new accounting standards were made in 1993 and 1992. The cumulative effect of the 1993 accounting change for postemployment benefits was a decrease in net income of $1.8 million (net of a deferred tax benefit of $1 million). The cumulative effect of the 1992 accounting change for postretirement benefits was a decrease in net income of $1.5 million (net of a deferred tax benefit of $.9 million).
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $27.1 million at December 31, 1994 compared to $.3 million at December 31, 1993. During 1994, the Company's operating activities used $3.1 million of cash and cash used in investing activities was $24 million. Cash spent for property, plant and equipment at operating properties in 1994 included $6.6 million at Guanaco, $4.6 million at Hayden Hill and $1.1 million at Sleeper. In addition, 1994 capital expenditures at development properties included $5.4 million at Fort Knox, $4.2 million at Refugio and $1.1 million at Haile. Expenditures at Haile in 1995 will be expensed as incurred as a result of the Company's interest in selling its 62.5 percent of the property.
Net financing activities generated cash of $56.3 million. In August of 1994, the Company received net proceeds of $88.3 million from the sale of convertible preferred stock. The preferred stock was sold under a universal shelf registration filed by the Company in June 1994 covering $200 million of equity and/or subordinated debt securities. Currently $108 million is available under the shelf registration. The Company sold three million shares of common stock to Cyprus Amax and used the proceeds to repay $20.7 million outstanding under a promissory note. Other financing activities in 1994 included financing costs of $3.4 million, net debt repayments of $3.1 million and preferred stock dividends of $1.8 million.
Capital expenditures for 1995 are expected to be approximately $193 million including $133 million at Fort Knox, $54 million for the Company's share at Refugio and $6 million at operating properties. Financing for Refugio has been various financing alternatives for Fort Knox are under consideration. At December 31, 1994, the Company had total outstanding debt obligations of $107.1 million, representing $40.9 million under the Hayden Hill loan facility, $35 million under the Guanaco loan, $6.1 million under Chilean assumed debt, $23.5 million under gold leases and $1.6 million (or 4,000 gold ounces) under the Sleeper gold bullion loan agreement. Principal repayment obligations for 1995 aggregate $23.9 million.
During 1994, Cyprus Amax provided the Company with a $100 million line of credit at favorable interest rates available until April 30, 1997, with certain equity features. See Note 7 to the Company's 1994 consolidated financial statements. A substantial portion of this credit line has been designated by the Company as support for its other credit arrangements. In early 1995, availability was extended until December 31, 2001, subject to approval by the stockholders of the Company.
In February 1995, Cyprus Amax agreed, subject to approval by the stockholders of the Company, to provide the Company with an additional $80 million line of credit at favorable interest rates available until December 31, 2001, with certain equity features. See Note 7 to the Company's 1994 consolidated financial statements.
In February 1995, the joint venture company developing the Refugio project borrowed $85 million drawn in gold under a project financing arrangement with a group of banks. The Company's 50 percent share is $42.5 million. The remaining funds expected to be required to construct Refugio have been contributed to the joint venture company by the Company and its joint venture partner.
In March 1995, the Company arranged to borrow up to $40 million of the $80 million line of credit during the period prior to receipt of stockholder approval, primarily to fund capital expenditures at Fort Knox. Under this temporary arrangement, the equity features of the credit line are suspended and the loan is secured by a 20 percent interest in the Company's Fort Knox project. If stockholder approval is not received, the Company will have until October 15, 1995 to repay the loan. As of March 24, 1995, the Company has borrowed $5 million under this temporary arrangement.
Cash flows from operations for 1995 are expected to be sufficient to fund operating and administrative expenses, exploration expenditures and interest payments on outstanding debt. In order to meet all scheduled debt payments and to fund capital development requirements, the Company will be required to borrow money from Cyprus Amax under the lines of credit and obtain external debt or equity financing.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Amax Gold Inc.
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Amax Gold Inc. and its subsidiaries at December 31, 1994, and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above.
As discussed in Note 5 to the consolidated financial statements, the Company adopted a new method of accounting for heap leach ore costs, effective January 1, 1994.
Price Waterhouse LLP
Denver, Colorado
February 17, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Amax Gold Inc.:
We have audited the accompanying consolidated balance sheet of Amax Gold Inc. and Subsidiaries (the Company) as of December 31, 1993, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the two years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Amax Gold Inc. and Subsidiaries as of December 31, 1993, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 1993 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, during 1993 the Company changed its method of accounting for exploration expenditures and postemployment benefits. As also discussed in Note 1 to the consolidated financial statements, during 1992 the Company changed its method of accounting for precious metals inventory, postretirement benefits and income taxes.
Coopers & Lybrand
Denver, Colorado February 4, 1994 except for note 8 for which the date is March 18, 1994
REPORT OF MANAGEMENT
The management of Amax Gold Inc. is responsible for the integrity and objectivity of the financial statements and other financial information contained in this Annual Report. The financial statements were prepared in accordance with generally accepted accounting principles and include estimates that are based on management's best judgment.
Amax Gold maintains an internal control system which includes formal policies and procedures designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded and executed in accordance with management's authorization. Amax Gold's internal audit function audits compliance with the internal control system and issues reports to Amax Gold's management and the Audit Committee of the Board of Directors.
Amax Gold's financial statements have been audited by independent accountants, whose appointment is ratified yearly by the shareholders at the annual shareholders' meeting. The independent accountants conducted their audits in accordance with generally accepted auditing standards. These standards include an evaluation of the internal accounting controls in establishing the scope of audit testing necessary to allow them to render an independent professional opinion on the fairness of Amax Gold's financial statements.
The Audit Committee of the Board of Directors, composed solely of outside directors, meets periodically with representatives of management and the independent accountants to review their work and ensure that they are properly discharging their responsibilities.
Milton H. Ward Chairman, Chief Executive Officer
Roger A. Kauffman President and Chief Operating Officer
Mark A. Lettes Vice President and Chief Financial Officer
AMAX GOLD INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (in thousands except per share amounts) Year Ended December 31,
The accompanying notes are an integral part of these statements.
AMAX GOLD INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, (Dollars in thousands except par value of stock)
The accompanying notes are an integral part of these statements.
AMAX GOLD INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended December 31, (Dollars in thousands)
The accompanying notes are an integral part of these statements.
AMAX GOLD INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Dollars in thousands)
The accompanying notes are an integral part of these statements.
AMAX GOLD INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION Consolidated financial statements include the accounts of Amax Gold Inc. and its more than 50 percent owned subsidiaries (hereinafter referred to as the Company). Investments in 20 percent to 50 percent owned companies are accounted for by the equity method. Investments in ventures where the Company can take its production in-kind and is responsible for its pro rata share of assets and liabilities are included on a proportionate consolidation basis. All material intercompany balances and transactions have been eliminated. Certain 1993 and 1992 amounts have been reclassified to conform to the 1994 presentation.
CASH AND EQUIVALENTS Cash and equivalents include cash and highly liquid investments with an original maturity of three months or less. The Company invests cash in time deposits maintained in high credit quality financial institutions. Revenues resulting from the sale of hedged production of gold are included in cash flows from operating activities.
INVENTORIES Gold inventory is valued at the lower of aggregate cost, computed on a last-in, first-out (LIFO) basis, or market. Materials and supplies are valued at average cost less reserves for obsolescence. During the fourth quarter of 1994 the Company changed its method of accounting for the costs of ore loaded on heap leach pads to recognize such costs as work-in-process inventory. Previously, the Company expensed these costs as incurred. The change, made retroactive to January 1, 1994, results in a better matching of revenues and cost of sales and conforms with predominant mining industry practice.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost, including development expenditures and capitalized interest. Expenditures for major improvements are capitalized. Gains and losses on retirements are included in earnings. Depreciation and depletion are computed using the units-of-production method based on the estimated ounces of gold to be recovered and estimated salvage values. Mobile equipment and assets which have a useful life shorter than the mine life are depreciated on a straight-line basis over estimated useful lives of one to five years. Impairment is provided when the net book value of mining assets exceeds the related estimated undiscounted future cash flows.
GOLD AND CURRENCY FINANCINGS The Company uses various gold and currency financings to fund its mining activities.
To finance investments with gold loans the Company borrows gold from banks and sells the gold on the open market. Gold loans are recorded on the balance sheet at the price received when the borrowed gold is sold. The banks are repaid from future gold production at which time revenues are recorded. Gold loans bear relatively low interest rates and result in a hedge against future gold price fluctuations but can limit realized prices to the amounts received when the borrowed gold is sold. To offset any limit on realized prices, the Company may enter into offsetting hedging agreements.
AMAX GOLD INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
The Company also borrows gold from banks and sells the gold on the open market under gold leases. Gold leases bear interest at a relatively low gold rate but also require the Company to buy gold from the lender at a specified future price and date. The combined interest cost of a gold lease is the gold interest rate and the difference between the price of gold at the gold lease inception and the price of gold when the gold lease is repaid. Gold leases do not provide hedging benefits for the Company or limit upside participation in rising prices.
Currency financings represent borrowings in hard currency, typically U.S. dollars. The terms, including interest rates, are negotiated with the lenders based on market conditions at the time of the loan.
HEDGING ACTIVITIES Advance payments for the future delivery of mineral production are deferred until the designated delivery date. Upon delivery, sales are included in the Company's statements of operations based on the per ounce ratable share of payments received and expenses are included based on production costs.
Forward sale contracts and put and call option contracts are entered into from time to time to hedge the effect of price changes on the Company's precious metals that are produced and sold. The results of gold hedging activities are included in sales at the time the hedged production is sold. Silver hedging results are reflected in the by-product credit.
Interest rate swaps, options and caps are entered into as a hedge against interest rate exposure on the Company's financing facilities. The differences to be paid or received on swaps, options and caps are included in interest expense as incurred or realized.
POSTRETIREMENT BENEFITS Postretirement benefits other than pensions are calculated in accordance with the provisions set forth in Statement of Financial Accounting Standards (SFAS) No. 106, which the Company adopted effective January 1, 1992. SFAS No. 106 requires the expected cost of postretirement benefits other than pensions to be accrued during the years the employee renders service.
POSTEMPLOYMENT BENEFITS Postemployment benefits are calculated in accordance with the provisions set forth in SFAS No. 112, which the Company adopted effective January 1, 1993. SFAS No. 112 requires the Company to expense postemployment benefits as they are earned by the employee for services rendered, rather than as they are paid.
EXPLORATION Exploration expenditures are charged against earnings in the period incurred. During the second quarter of 1993, the Company changed its accounting policy, effective as of January 1, 1993, to discontinue the practice of subsequently capitalizing and restoring to earnings prior period exploration expenses when a property becomes exploitable. The Company believes the change better presents income from mining activities and follows the predominant mining industry practice.
RECLAMATION Reclamation, site restoration and closure costs for each producing mine are estimated based primarily upon environmental and regulatory requirements and are accrued and charged over the expected life of each of the
AMAX GOLD INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
Company's mines using the units-of-production method. Ongoing environmental and reclamation expenditures are expensed as incurred.
INCOME TAXES Income taxes are calculated in accordance with the provisions set forth in SFAS No. 109, which the Company adopted effective January 1, 1992. Under SFAS No. 109, deferred income taxes are determined using an asset and liability approach. This method gives consideration to the future tax consequences associated with differences between the financial accounting and tax bases of assets and liabilities and gives immediate effect to changes in income tax laws upon enactment. The income statement effect is derived from changes in deferred income taxes on the balance sheet.
2. TRANSACTIONS WITH AFFILIATES
In November 1993, AMAX Inc. (Amax), a New York corporation which owned approximately 68 percent of the Company's outstanding common stock, was merged with and into Cyprus Minerals Company, a Delaware corporation. Immediately prior to the merger, Amax distributed to Amax shareholders from the shares then held by Amax approximately 28 percent of the Company's outstanding common stock. As of December 31, 1994, the merged company, called Cyprus Amax Minerals Company (Cyprus Amax), owned approximately 34 million common shares, or approximately 42 percent, of the Company's outstanding common stock.
The Company has entered into several agreements with Cyprus Amax. Under an exploration joint venture agreement the two companies pool efforts to discover and develop new gold properties, with Cyprus Amax providing 75 percent and the Company providing 25 percent of initial funding. A non-compete agreement in process clarifies terms under which either company would generally provide opportunity for the other to develop minerals in its own interests but could also develop and produce minerals which would be in competition with the other party. A services agreement provides for general administrative services between Cyprus Amax and the Company.
For the years ended December 31, 1994, 1993 and 1992, management services and insurance were supplied to the Company on a full cost reimbursement basis. For the years ended December 31, 1993 and 1992, employee benefit plans (medical and life insurance benefits) and employee pension and thrift plan benefits were also provided. In October 1993, the Company established separate medical and life insurance coverage for its employees. Additionally, on November 15, 1993, a separate defined benefit pension plan and thrift plan for Company employees became effective. For the period from January 1, 1993 through November 14, 1993, and for the year ended December 31, 1992, Amax charged the Company approximately $.4 million and $1.3 million, respectively, for pension costs. For the years ended December 31, 1994, 1993, and 1992, the Company was charged $4.8 million, $4.8 million and $4.2 million, respectively, for reimbursable costs.
Interest income on advances to Amax under a demand promissory note receivable was $.2 million and $.5 million for the years ended December 31, 1993 and 1992, respectively.
Amax made loans to the Company during the year ended December 31, 1993 under a demand promissory note payable. See Note 7 for a further discussion.
AMAX GOLD INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
3. EMPLOYEE BENEFITS
PENSION PLAN
Substantially all employees are covered by a non-contributory defined benefit pension plan. The plan provides retirement benefits for employees based generally on years of service and compensation levels. Funding of the plan will be made in accordance with the requirements of ERISA. Effective July 1, 1994, the Company amended its plan to a career average plan from a final pay plan. The change has the effect of reducing the projected benefit obligation and annual pension expense.
Net annual pension cost includes the following components:
For the year ended December 31, 1992, the Company was charged $1.3 million for pension costs by Amax.
The following table summarizes the funded status of the plan and the related amounts recognized in the Company's financial statements at December 31:
The following assumptions were used in calculating the funded status of the plan at December 31 and the pension cost for the subsequent year:
AMAX GOLD INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company also provides certain health care and life insurance benefits for retired employees in the United States. Effective January 1, 1992, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". As of January 1, 1992, the Company recognized the full amount of its estimated accumulated postretirement benefit obligation as a cumulative effect of an accounting change. This cumulative amount represented the present value of the estimated future benefits payable to current retirees and a pro rata portion of estimated benefits payable to currently active employees after their retirement. The pre-tax charge to 1992 earnings for the cumulative effect of the accounting change was $2.4 million, with a net earnings effect of $1.5 million.
Net periodic postretirement benefit costs for the years ended December 31, 1994, 1993 and 1992 were insignificant.
The following table sets forth the status of the plan and the related amounts recognized in the Company's financial statements at December 31:
The accumulated postretirement benefit obligation was determined using a weighted average annual discount rate of 8.75 percent in 1994 and 7.5 percent in 1993. The assumed health care cost trend rate used in 1994 was 12 percent declining gradually to 6 percent for 2007 and thereafter.
A one percent increase each year in the health care cost trend rate used would have resulted in an insignificant increase in the 1994 postretirement benefit cost and the accumulated postretirement benefit obligation at December 31, 1994.
POSTEMPLOYMENT BENEFITS The Company also has a number of postemployment plans covering severance, disability income and continuation of health and life insurance for disabled employees. Effective January 1, 1993, the Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits". The pre-tax charge to 1993 earnings for the cumulative effect of this accounting change was $2.8 million, with a net earnings effect of $1.8 million.
AMAX GOLD INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
4. INCOME TAXES
Income (loss) before income taxes consists of the following:
The income tax provision (benefit) consisted of the following:
The total income tax provision (benefit) is included in the financial statements as follows:
The components of the deferred tax assets (liabilities) are as follows:
AMAX GOLD INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
Net deferred tax liabilities are included in the balance sheet at December 31 as follows:
The following is a reconciliation between the amount determined by applying the federal statutory rate of 34% to income (loss) before taxes and the income tax provision (benefit):
The valuation allowance increased $6.9 million due to uncertainties of realizing loss carryforwards in the future.
At December 31, 1994, the Company had federal tax net operating loss carryforwards of $73 million and alternative minimum tax net operating loss carryforwards of $43 million expiring in the years 2002-2009 and minimum tax credit carryforwards of $3 million which do not expire. At December 31, 1994, the Company also had Chilean tax net operating loss carryforwards of $67 million with no expiration.
AMAX GOLD INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
5. INVENTORIES
Inventories at December 31, 1994 and 1993 consisted of the following:
The market value of the finished goods inventory at December 31, 1994 was $14.4 million, with an excess replacement cost (at market value) over the LIFO basis of $4.1 million.
During the fourth quarter of 1994, the Company changed its method of accounting for the costs of ore loaded on heap leach pads, retroactive to January 1, 1994, to record such costs as work-in-process inventory. Previously, the Company had expensed these costs as incurred. The cumulative after-tax effect of the change in accounting for inventory for periods prior to 1994 was a decrease in the net loss of $7.5 million or $.09 per common share. The effect of the accounting change in 1994 is a reduction in costs of sales of $.3 million. Assuming the inventory accounting change had been applied retroactively, the unaudited pro forma effect would be a reduction of net loss of $2.3 million ($.03 per share) in 1993 and an increase in net earnings of $5.2 million ($.07 per share) in 1992.
6. PROPERTY, PLANT AND EQUIPMENT AND WRITE-DOWNS
The components of property, plant and equipment at December 31, 1994 and 1993 were as follows:
ASSET WRITE-DOWNS The Hayden Hill mine, which began commercial production in June 1992, experienced unacceptably high unit operating costs due to lower than anticipated mill head grades. A re-evaluation of the operation completed in July 1993 resulted in the downward revision of proven and probable ore reserves of approximately 400,000 contained gold ounces. During the last half of 1993, the mine was reconfigured to operate as a heap leach operation only, with the mill being maintained on stand-by status. As a result of the downward revision of the Hayden Hill ore reserves and the stand-by status of the mill, the Company recorded a $64.1 million pre-tax ($41.9 million after-tax) write-down of the Hayden Hill assets. At December 31, 1993, the net book value assigned to the Hayden Hill mill was approximately $24 million. During the 1993 analysis, the mill was not fully written down in anticipation that
AMAX GOLD INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
sufficient mill grade ore would be encountered to justify a future milling operation or possible use of the mill at another property.
After a successful year of full-scale heap leach only operation at Hayden Hill in 1994, the Company has determined that a mill operation as originally designed would not be economical. Given the favorable heap leach recoveries, lower heap leach operating costs and the lack of higher grade ore amenable to future milling operations, management no longer views milling as a viable option. As a result, the Company recognized an additional $18.6 million pre-tax ($14.1 million after tax) write-down of Hayden Hill during the fourth quarter of 1994.
The Company also wrote down $2.5 million ($2.1 million after-tax) of other assets in 1994.
Mining experience and a reinterpretation of geologic data at the Sleeper Mine during the fourth quarter of 1993 also led to a reduction in proven and probable ore reserves of approximately 300,000 contained gold ounces. As a result, the Company recorded a $23.6 million pre-tax ($15.6 million after-tax) write-down of its Sleeper assets as of December 31, 1993.
WAIHI TRANSACTION During 1993, the Company realized an $8.8 million gain from the future economic benefit of the Company's 33.53 percent interest in the Waihi Mine in New Zealand. The Company received gross proceeds of $15.4 million and a receivable of 15,500 ounces of gold to be paid over a 5-year period. Following the transaction, the Company sold forward, on a spot deferred forward basis (which allows the Company to defer the delivery of the gold ounces to a later date at a renegotiated gold price) the 15,500 gold ounces at an average price of $365 per ounce. The Company has renegotiated the spot-deferred forward price of the remaining 10,850 ounces of gold receivable to $385 per ounce at December 31, 1994.
The Company's statement of cash flows for the year ended December 31, 1993 reflects the net cash received from the transaction of $7.8 million, net of cash previously reflected in the Company's balance sheet and transaction costs.
EXPLORATION EXPENDITURES During 1993, the Company changed its method of accounting for exploration expenditures. Previously, the Company capitalized and restored to earnings prior period exploration expense when a property became exploitable. For the year ended December 31, 1993, the Company recognized a $13.4 million ($.17 per common share) after-tax charge (net of a deferred income tax benefit of $4.5 million) relating to the cumulative effect for periods prior to 1993. The effect of the accounting change was to reduce the 1993 net loss by $4.3 million. Assuming this accounting change had been applied retroactively, unaudited proforma earnings before cumulative effect of accounting changes, net earnings and net earnings per share for 1992 would have been $6.4 million, $4.9 million and $.07 per share, respectively.
7. GOLD AND CURRENCY FINANCINGS
The following tables summarize outstanding gold loan facilities and bank loans and related principal repayments.
AMAX GOLD INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
Other than the Company, the above named obligors are wholly owned subsidiaries of the Company except for Compania Minera Amax Guanaco, which is a 90 percent owned subsidiary.
The market value of the total outstanding gold and currency financings as of December 31, 1994 was $.2 million lower than the carrying value of $107 million.
NEVADA GOLD MINING, INC. As of December 31, 1994, 4,000 ounces of gold were outstanding under a gold bullion loan agreement for Nevada Gold Mining, Inc. (Nevada Gold). The Company has agreed to repay the outstanding balance in March 1995. Collateral consists of Nevada Gold's Sleeper mine assets and capital stock. Interest, payable quarterly, is based on the lender's cost of borrowing gold plus commitment and agency fees. During the years ended December 31, 1994, 1993 and 1992, the annualized interest rate was .2 percent, .7 percent and 1.8 percent, respectively. During the years ended December 31, 1994, 1993 and 1992, the Company paid $.1 million, $.1 million and $.2 million, respectively, in interest expense and fees.
AMAX GOLD INC. At December 31, 1994, the Company had outstanding gold leases of 60,951 gold ounces which were sold for $23.5 million and were originally scheduled to be repaid during 1995. Due to the availability of the line of credit with Cyprus Amax and the Company's intention to refinance the gold leases they have been classified as long-term.
While the December 31, 1994 market value of the total outstanding ounces borrowed is $.2 million lower than the $23.5 million carrying value (using the spot market price for gold), the Company has contractual agreements with
AMAX GOLD INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
the lenders which set the gold price upon repayment equal to the carrying value plus a 5.6 percent average annualized effective rate of interest.
LASSEN GOLD MINING, INC. The final maturity date for the facility is December 31, 1997. Interest, payable quarterly, is currently based on the London Interbank Offered Rate (LIBOR) plus 0.6 percent. The annualized interest rate for the years ended December 31, 1994, 1993 and 1992 was 5.4 percent, 5.3 percent, and 5.5 percent, respectively. During the years ended December 31, 1994, 1993 and 1992, the Company paid $2.7 million, $3.5 million and $3.1 million, respectively, in interest expense and fees on the loan. Collateral consists of a mortgage on the Hayden Hill Mine assets, a pledge of the Lassen Gold Mining, Inc. stock and a guarantee by the Company.
COMPANIA MINERA AMAX GUANACO Compania Minera Amax Guanaco (Amax Guanaco) outstanding debt of $6.1 million is owed to a Chilean governmental development agency. The final maturity date is August 31, 1996. The Chilean debt is collateralized by a stand-by letter of credit guaranteed by the Company. For the years ended December 31, 1994, 1993 and 1992, the annualized interest rate was 8.3 percent, 9.4 percent and 8.4 percent, respectively. During the years ended December 31, 1994, 1993 and 1992, interest expense and fees paid totaled $1.6 million, $5 million and $1.4 million, respectively. During the years ended December 31, 1993 and 1992, $.5 million and $2.8 million, respectively, of interest expense and fees on these financings were capitalized. The capitalized interest and fees are being amortized over the life of the project.
AGI CHILE CREDIT CORP., INC. In March 1994, AGI Chile Credit Corp., Inc. refinanced $34.2 million of outstanding Chilean short-term bridge loans with a $36 million term loan agreement. The final maturity date is October 1997. The loan is collateralized by guarantees from the Company and, initially, Cyprus Amax. Amounts outstanding bear interest at LIBOR plus 1.25 percent. For the year ended December 31, 1994, the annualized interest rate was 7.7 percent. Interest expense and fees paid totaled $3.6 million during 1994.
LINE OF CREDIT FROM CYPRUS AMAX On April 15, 1994, the Company and Cyprus Amax signed an agreement, subsequently approved by the Company's stockholders in July 1994, in which Cyprus Amax agreed to provide the Company with a $100 million convertible line of credit.
Outstanding amounts under the credit line bear interest at LIBOR plus 0.3 percent and may be repaid by the Company issuing up to two million shares of $2.25 Series A Convertible Preferred Stock. The Company will have the right to redeem the convertible preferred stock by issuing up to 12,099,213 shares of common stock at a maximum price of $8.265 per share and a minimum price of $5.854 per share. To effect a full redemption at prices below $8.265, the Company may be required to redeem a portion of any outstanding convertible preferred stock with cash up to a maximum of $29.2 million. Cyprus Amax will have the right to replace the line of credit and any outstanding indebtedness and/or convertible preferred stock with the purchase of up to 12,099,213 shares of the Company's common stock at a purchase price of $8.265 per share, an aggregate of $100 million.
A portion of the credit line is designated as support for indebtedness relating to the Hayden Hill, Guanaco and Refugio projects and for general corporate purposes.
AMAX GOLD INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
In June 1994, the Company borrowed $8 million from Cyprus Amax under the $100 million credit line. In August 1994, the Company repaid Cyprus Amax a total of $34 million outstanding under a demand promissory note payable and the line of credit agreement. The repayment was made with $13.3 million in cash and $20.7 million proceeds from the sale to Cyprus Amax of three million shares of common stock under a stock purchase agreement approved in July 1994.
On February 16, 1995, the Company and Cyprus Amax agreed to an additional $80 million line of credit, subject to approval by the Company's shareholders. Outstanding amounts under the new credit line bear interest at LIBOR plus 0.3 percent and may be repaid by the Company issuing up to 1.6 million shares of $2.25 Series C Convertible Preferred Stock. The Company will have the right to redeem the convertible preferred stock by issuing up to 14,919,806 shares of common stock at a maximum price of $5.362 per share and a minimum price of $4.916 per share.
If the entire $180 million lines of credit were drawn and converted into the Company's common stock and the outstanding Series B Convertible Preferred Stock were converted, Cyprus Amax ownership would increase to approximately 51.4 percent.
REFUGIO FINANCING In February 1995, Compania Minera Maricunga (CMM), a 50 percent-owned subsidiary of the Company, received $85 million in financing for the Refugio project in Chile. The loan was drawn in 223,684 ounces of gold which were sold for $380 per ounce. The loan is a five year amortizing term loan that can be transferred between gold and U.S. dollars. The Company and the other 50 percent owner are guarantors on a proportionate basis until after completion tests are passed, at which time the loan becomes non-recourse to the Company. Interest on the Company's share will be calculated at LIBOR for any U.S. dollar portion and at the bank's gold base rate for any gold portion, plus 1.75 percent during the construction phase or plus 2.5 percent after completion tests are passed.
8. HEDGE CONTRACTS
Precious metal hedge contracts include forward sales contracts, spot deferred forward sales 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.
Forward sales contracts require the future delivery of gold at a specified price. Forward sales contracts that are made on a spot deferred basis allow the Company to defer the delivery of gold under a forward sales contract to a later date at a renegotiated market price, as long as certain conditions are satisfied. Various factors influence the decision to close a spot deferred forward sales contract or to roll the contract forward to a later date. A put option gives the put 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 call buyer the right, but not the obligation, to buy gold from the call seller at a predetermined price on or before a predetermined date.
AMAX GOLD INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otehrwise indicated and except per share amounts and amounts per ounce)
As of December 31, 1994, the Company's outstanding hedge contracts were as follows:
/(1)/ Represents the net forward sales position which was made primarily on a spot deferred forward basis which allows the Company to defer the delivery of gold ounces to a later date at a renegotiated gold price.
The Company also has outstanding compound put options for 274,000 ounces at $432 per ounce and compound call options for 12,000 ounces at $420 per ounce. If exercised, these options expire through December 1999.
The market value of the Company's forward contracts, put and call option contracts and compound options at December 31, 1994 was approximately $13 million. Future market valuations for these contracts are dependent on gold market prices, option volatility and interest rates, which can vary significantly. These contracts will be utilized in the future to hedge against declines in gold market prices for the Company's future gold production while maintaining benefits in the event of higher gold market prices.
Interest rate hedge contracts entered into by the Company consist of interest rate swap, option and cap agreements to reduce the impact of changes in interest rates on its financing facilities. At December 31, 1994, the Company's outstanding interest rate swap was not significant.
9. PREFERRED STOCK
In August 1994, the Company sold publicly 1,840,000 shares of $3.75 Series B Convertible Preferred Stock (Preferred Stock) for net proceeds of $88.3 million. Outstanding Preferred Stock is convertible at the option of the holder at any time, at an initial conversion price of $8.25 per share (equivalent to a conversion rate of 6.061 shares of common stock for each share of Preferred Stock), subject to adjustment in certain events. If all of the Preferred Stock were to be converted, an additional 11,151,515 common shares would be issued.
The Preferred Stock is redeemable at the option of the Company at any time on or after August 15, 1997, in whole or in part, for cash, initially at a redemption price of $52.625 per share declining ratably annually to $50.00 per share on or after August 15, 2004, plus accrued and unpaid dividends.
Annual cumulative dividends of $3.75 per share will accrue from the date of issuance and are payable quarterly on each November 15, February 15, May 15 and August 15, as and if declared by the Board of Directors.
AMAX GOLD INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
10. COMMON STOCK
In February 1992, the Company's Board of Directors approved a Dividend Reinvestment Plan whereby shareholders of the Company may elect to reinvest any future dividend payments in additional shares of the Company's common stock. Three million shares of the Company's common stock are reserved for issuance pursuant to this plan.
The Company issued warrants to purchase 4,066,649 shares of common stock in connection with the acquisition of the Fort Knox property. Each warrant permits the holder to purchase one share of common stock at a price of $21.00 per share, subject to adjustment upon the occurrence of certain events. The warrants are currently exercisable and will expire on January 8, 1996.
In March 1994, the Company's Board of Directors eliminated the $0.02 quarterly dividend on common stock.
In March 1994, the Company adopted a plan to grant common shares to non-employee directors. The plan was approved by shareholders in May 1994. The Company reserved 100,000 shares of common stock for issuance pursuant to this plan. In August 1994, 7,500 shares were issued.
Earnings per common share have been calculated on the basis of the average common shares outstanding. For the year ended December 31, 1994, outstanding Company warrants were not considered in the earnings per share calculation as these were anti-dilutive.
11. STOCK OPTION PLAN
The Company maintains a stock option plan (the "Plan") for officers and salaried employees to purchase common shares. Options are exercisable at prices equal to the market value on the date of grant. Options vest in two years and are exercisable over a period of ten years from date of grant.
The following table summarizes activity under the Plan.
No options were exercised during 1994, 1993 or 1992. At December 31, 1994, 2.2 million common shares are reserved for future grants.
AMAX GOLD INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
12. DOMESTIC AND FOREIGN OPERATIONS
The Company's foreign operations consist of the Guanaco Mine and Refugio development project in Chile. Effective April 30, 1993, the Company realized the future economic benefit from its interest in the Waihi Mine in New Zealand. The components of the Company's domestic and foreign operations were as follows:
Substantially all of the Company's 1994, 1993 and 1992 sales were made in Europe, through a wholly owned subsidiary of the Company. The Company's sales to major customers which exceeded 10 percent of total sales were $65 million to four customers in 1994, $38 million to two customers during 1993 and $46 million to three customers during 1992. The Company believes that the loss of any of these customers would have no material adverse impact on the Company because of the active worldwide market for gold.
AMAX GOLD INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
13. COMMITMENTS AND CONTINGENCIES
The Company is currently accruing reclamation liabilities for the following operations:
The anticipated reclamation costs for the Sleeper, Hayden Hill and Wind Mountain mines are estimates based on current federal and state laws and regulations governing the protection of the environment. The reclamation accrual for the Wind Mountain mine is shown as current due to the expectation that residual heap leach production will subside in 1995, which is expected to result in the commencement of the final reclamation activities. The anticipated costs of reclamation for the Guanaco mine, given current Chilean laws and regulations governing the protection of the environment, are not expected to be significant. Changes in the federal, state and Chilean laws and regulations could impact these anticipated reclamation costs.
The Company's mining and exploration activities are subject to various federal, state and Chilean laws and regulations governing the protection of the environment which are continually changing and generally becoming more restrictive. The Company conducts its operations so as to protect the public health and environment. The Company has made, and expects to make in the future, significant expenditures to comply with such laws and regulations.
AMAX GOLD INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
14. QUARTERLY DATA (UNAUDITED)
Quarterly earnings data for the years ended December 31, 1994 and 1993 follow:
/(1)/ Restated for the fourth quarter change in inventory accounting policy, retroactive to January 1, 1994, which resulted in a net earnings increase of $8.1 million for the first quarter, $.2 million for the second quarter and $.7 million for the third quarter.
AMAX GOLD INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
A change in the Registrant's certifying accountant was reported on Form 8-K dated March 7, 1994.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item appears in the Company's Proxy Statement for the 1995 Annual Meeting to be filed within 120 days after the end of the fiscal year.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears in the Company's Proxy Statement for the 1995 Annual Meeting to be filed within 120 days after the end of the fiscal year.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears in the Company's Proxy Statement for the 1995 Annual Meeting to be filed within 120 days after the end of the fiscal year.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears in the Company's Proxy Statement for the 1995 Annual Meeting to be filed within 120 days after the end of the fiscal year.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter of 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
AMAX GOLD INC.
By /s/ MARK A. LETTES ------------------------------------- Mark A. Lettes, Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March , 1995.
Signature Title --------- -----
/s/ MILTON H. WARD Chairman of the Board, Chief Executive ------------------ Officer (principal executive officer) and Milton H. Ward Director
/s/ MARK A. LETTES Vice President and Chief Financial Officer ------------------ (principal financial officer) Mark A. Lettes
/s/ DAVID L. MUELLER Vice President and Controller (principal -------------------- accounting officer) David L. Mueller
/s/ ALLEN BORN Director -------------- Allen Born
/s/ GERALD J. MALYS Director ------------------- Gerald J. Malys
/s/ ROCKWELL A. SCHNABEL Director ------------------------ Rockwell A. Schnabel
/s/ VERNON F. TAYLOR, JR. Director ------------------------- Vernon F. Taylor, Jr.
/s/ RUSSELL L. WOOD Director ------------------- Russell L. Wood