ITEM 3. LEGAL PROCEEDINGS
As previously reported by the Company, the Company has filed a complaint against Morrison Knudsen Corporation ("MK"), seeking a declaration that MK's agreement not to compete with the Company is valid, binding and enforceable. A trial date is currently scheduled for August 16, 1999.
On February 11, 1999, MK filed a separate complaint against the Company in the U.S. District Court for the District of Idaho (Civil No. CV 99-0064-SBLW). The complaint alleges that the Company has breached an agreement with MK relating to the use of the name "MK Gold Company." MK is seeking an injunction preventing the Company from using the name "MK Gold Company." The Company has filed a motion to dismiss MK's complaint. Alternatively, the Company has requested a stay of the proceeding, or to have venue transferred to the U.S. District Court for the District of Utah.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 24, 1998, the Company held a special meeting of stockholders in Salt Lake City, Utah. The only item of consideration was the approval of a proposed amendment to the Company's Certificate of Incorporation to effect a one-for-three reverse split of the Company's Common Stock. The reverse split was proposed as a means to regain compliance with the listing requirements of the Nasdaq Stock Market.
The proposed amendment received 17,735,741 shares voting in favor of the amendment, 296,156 shares voting against the amendment, and 83,400 shares abstaining. The Board of Directors of the Company reserved the right to abandon the amendment if they determined that the reverse split was not in the best interests of the stockholders. On December 18, 1998, the Company announced that the Board of Directors had abandoned the amendment and the reverse split. See Item 5.
Item 5. "Market for the Company's Common Stock and Related Stockholder Matters."
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 19, 1999:
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. Prior to joining the Company, Mr. Joklik was the President and Chief Executive Officer of Kennecott Corporation.
Donald L. Babinchak has served as interim President and Chief Executive Officer 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.
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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 Chief Geologist for MK Gold 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 (1975 to 1992).
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
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 the high and low sales prices for the Company's Common Stock as reported by the NASDAQ National Market System by quarter for the years ended December 31, 1998 and December 31, 1997.
As of March 18, 1999, the number of registered holders of the Company's Common Stock was approximately 169 (not including beneficial owners of the Company's Common Stock held in the name of a broker, dealer, bank, voting trustee or other nominee).
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 1998 or the two preceding fiscal years.
ITEM 6.
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.
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MKGOLD COMPANY
SELECTED FIVE-YEAR FINANCIAL DATA (in thousands, except share and ounce amounts, per share and per ounce data)
(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, 1998 and 1997 and nine months ended December 31, 1996 includes only the cost for the Castle Mountain Venture.
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ITEM 7.
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, 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 is 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 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.
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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 standby credit facility.
Income Taxes
During 1998, the Company determined that it would not be able to fully utilize its tax asset. As a result, it reduced its tax asset to an amount that would more likely than not be realized through future taxable income. Accordingly, the Company's deferred tax asset was reduced by $.16 million. See Note 8 to the Company's Consolidated Financial Statements.
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO TWELVE MONTHS ENDED DECEMBER 31, 1996
Gold Production
The Company's attributable share of gold production decreased 37% to 34,426 ounces in 1997 from 54,294 ounces in 1996. Production at the Castle Mountain Mine increased to 30,601 ounces during 1997, as compared to 30,548 ounces during 1996. The Company's share of gold production from the AGMJV was 3,825 ounces during 1997, as compared to 23,746 ounces during 1996, an 84% decrease, due to the suspension of mining operations during the fourth quarter of 1996.
Revenue
Product sales revenue decreased $4.2 million or 20% to $16.7 million for 1997, down from $20.9 million for 1996 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 $351 during 1997, compared to $406 in 1996. The decrease in gold production was attributable to the suspension of mining operations at the AGMJV. Gold production at the AGMJV during 1997 was the result of continued leaching and 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 increased 26% to $11.2 million in 1997 from $8.9 million in 1996. During the first half of 1996, mining activity was reduced during a contract dispute between the Company and Viceroy.
Hedging Activity
For 1997, the average gold price realized per ounce for the 42,600 ounces of gold sold was $351 compared to an average spot price of $333 per ounce. During 1997, 19,600 ounces of the total gold sold were
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delivered under the Company's hedging program at an average price of $366 per ounce. For 1996, the average gold price realized per ounce for the 43,800 ounces of gold sold was $406 compared to an average spot price of $386 per ounce. During 1996, 36,800 ounces of gold were delivered under the hedging program at an average price of $407 per ounce. At December 31, 1997, for the year ended December 31, 1998, the Company had sold forward 4,000 ounces of gold at an average price of $338 per ounce.
Gross Profit
Gross profit from product sales for 1997 was negatively impacted by a 22% decline in gold prices during the year. Offsetting the impact of reduced gold prices was an improvement in production costs, the closure of mining operations at the AGMJV, and a reduction in contract mining costs at the CMV. Accordingly, gross profit from product sales increased to $.2 million for 1997 from a negative $2 million in 1996. As a percentage of total product sales, gross profit was 1.2% in 1997 compared to a negative 7.8% in 1996. The full cost per ounce of gold produced decreased to $382 per ounce in 1997 from $413 per ounce in 1996.
Gross profit from mining services increased 19% to $1.3 million in 1997 from $1.1 million in 1996. The increase was attributable to higher volumes of material mined. During the first quarter of 1996, mining activity was reduced as a result of a contract dispute. The settlement of the dispute resulted in a new Contract Mining Agreement which provided for increased production volumes at a reduced price. As a percentage of mining service revenue gross profit was 8.8% in 1997 compared to 11.6% in 1996.
Exploration Costs
Exploration costs increased 7% to $2.3 million in 1997 compared to $2.2 million in 1996. In 1997, the Company had exploration programs in Brazil and Nevada which resulted in the acquisition of claims or other interests in some properties in Nevada. The Company also examined properties in Canada, Peru, Bolivia, Chile, Australia, and the western United States.
General and Administrative Expenses
General and administrative expenses decreased 42% to $1.7 million in 1997 from $2.8 million in 1996. During 1996, the Company incurred significant legal expenses associated with its contract dispute with Viceroy. In addition, the Company incurred expenses associated with the relocation of its corporate office to Salt Lake City, Utah. Since its relocation in 1996, the Company has reduced administrative staff.
Equity in Unconsolidated Affiliates
Equity in unconsolidated affiliates represents the Company's investment in Arlo Resources, Ltd. stock. The Company sold its investment in Arlo on September 10, 1996 pursuant to which the Company received approximately $1.2 million. Prior to the sale of Arlo in 1996, the Company's investment in Arlo was written down by $0.4 million to $1.2 million.
Interest Expense
Interest expense increased 99% to $.14 million in 1997 from $.07 million in 1996. Interest was primarily the cost of the commitment fee on the Company's standby credit facility.
Income Taxes
During 1997, the Company determined that the ability of the Company to utilize its tax asset was uncertain. As a result it reduced its tax asset to an amount that would more likely than not be realized through future taxable income. Accordingly, the Company's deferred tax asset was reduced by $0.6 million. See Note 8 to the Company's Consolidated Financial Statements.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are its available resources of cash and cash equivalents and cash generated from mining operations and contract mining services. In addition, the Company maintains a $20 million credit facility with Leucadia. At December 31, 1998, the Company had cash and cash equivalents of $15.7 million and gold bullion of $2.1 million, representing a decrease in cash and cash equivalents and gold bullion of $2.4 million from December 31, 1997.
In September 1993, the Company entered into a $20.0 million credit facility (the "Credit Facility") with Canadian Imperial Bank of Commerce ("CIBC"). In connection with the acquisition by Leucadia of MK's 46.4% interest in the Company in June 1995, Leucadia purchased, at par, all of CIBC's interest as lender under the Credit Facility and released MK from its guarantee obligations under the Credit Facility. During the 1996 fiscal year, the Company repaid all amounts due under the revolving credit facility with Leucadia. In March 1998, the Company renegotiated the Credit Facility and entered into a new credit agreement with Leucadia. Pursuant to the new credit agreement, the Credit Facility will expire on September 15, 2000, 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.
Net cash used by operating activities was a $3.5 million for 1998 compared to net cash provided by operations of $5.0 million for 1997. Although the Company expects that its cash and cash equivalents will be sufficient to cover operating expenses for several years, the cash generated by the Company's operations is not sufficient to cover the Company's projected operating expenses, general and administrative expenses and exploration costs. Accordingly, the Company's cash and cash equivalents are being depleted under current operating conditions. Further, the significant decline in gold prices has had an adverse impact on the amount of cash provided by operating activities. The Company's cash operating costs per ounce of gold produced in 1998 exceeded the average gold price during the year. Although cash operating costs are expected to improve in 1999, depressed gold prices will continue to limit the amount of cash provided by operating activities. Therefore, unless gold prices increase or the Company is able to significantly reduce its costs of production, it is likely that the Company's cash and cash equivalents will continue to be depleted.
The Company's current sources of funds available to fund new mining projects are limited. 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 would be able to obtain such financing on favorable terms.
Additions to property, plant and equipment totaled $.2 million for 1998, $1.2 million for 1997 and $1.2 million for the nine-month transition period ended December 31, 1996. For all periods presented, additions to property, plant and equipment consisted of (i) mine development expenditures; (ii) construction expenditures for buildings, machinery, plant and equipment; and (iii) expenditures for mobile mining service equipment.
Upon completion of production at a mine, the Company must make expenditures for reclamation and closure of the mine. The Company provides for future reclamation and mine closure liabilities on a units-of-production basis. At December 31, 1998, $1.8 million was accrued for such costs. In addition to the accruals, the Company and its joint venture partner are depositing cash in a separate fund to cover future reclamation costs at the CMV properties. The Company reviews the adequacy of its reclamation and mine closure liabilities in light of current laws and regulations and adjusts 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 15, 1999, 173,700 shares had been repurchased by the Company under the repurchase program.
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The Year 2000 Issue
The Company has performed an analysis and has implemented procedures to address year 2000 issues. The Company is converting its financial systems to year 2000 compliant systems, with project completion scheduled for March 31, 1999. The Company does not anticipate a significant cost to modify its systems to accommodate the impact of the upcoming change in the century. Although the Company is working cooperatively with certain third parties, the Company cannot give any assurances that the systems of other parties will be year 2000 compliant on a timely basis. In the most reasonably likely worst-case scenario involving the failure of the Company's systems and applications or those operated by others, the Company's business, financial condition and results of operations would be materially adversely affected. However, an estimate of the dollar amount of such an adverse effect cannot be practically determined at this time.
Cautionary Statement for Forward Looking Information
Certain information set forth in this 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 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
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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 gold 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.
Political Risks of Development in Foreign Countries
The Company is currently conducting exploration activities in certain foreign countries, including 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 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
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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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8.
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, 1998 and 1997 is presented below.
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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 as of December 31, 1998 and December 31, 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended December 31, 1998 and 1997 and the nine months ended December 31, 1996. Our audits also included the 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 at December 31, 1998 and December 31, 1997, and the results of its operations and its cash flows for the years ended December 31, 1998 and 1997 and the nine months ended December 31, 1996 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 February 12, 1999
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MK GOLD COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (Thousands of dollars except share data) - --------------------------------------------------------------------------------
See notes to consolidated financial statements.
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MK GOLD COMPANY
CONSOLIDATED BALANCE SHEETS (Thousands of dollars except share data) - -------------------------------------------------------------------------------
See notes to consolidated financial statements.
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MK GOLD COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Thousands of dollars except share data) - -------------------------------------------------------------------------------
See notes to consolidated financial statements.
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MK GOLD COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of dollars) - --------------------------------------------------------------------------------
(Continued)
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MK GOLD COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of dollars) - --------------------------------------------------------------------------------
See notes to consolidated financial statements.
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MK GOLD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Thousands of dollars except share data) - --------------------------------------------------------------------------------
1. ORGANIZATION, OPERATIONS, AND BASIS OF ACCOUNTING
MK Gold (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 ("AGMJV"). The Company also owns a 25% undivided interest in the Castle Mountain Venture ("CMV"), and performs mining services under a contract mining agreement with the CMV.
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 accounts of the Company and reflect the Company's pro rata share of each of the joint venture's 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.
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 an original maturity of three months or less, and mutual funds.
Restricted Cash - CMV is funding its future reclamation liabilities by establishing a separate bank account 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. AGMJV has funded a restricted cash account which will be 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 recorded as other comprehensive income (loss), a separate component of stockholders' equity. Held to maturity securities are recorded at amortized cost.
Inventories - Gold bullion, ore and in-process inventories and materials and supplies are stated at the lower of average cost or net realizable value.
Property, 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.
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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 has proven and probable reserves, the cost of subsequent reserve definition and expansion and the 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. Provision (benefit) for mine closure and reclamation liabilities charged to operations totaled ($798) for the year ended December 31, 1998, $(2,212) for the year ended December 31, 1997 and $2,450 for the nine months ended December 31, 1996 (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, 1998, deferred revenue of $2,864 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 contracts and forward sales contracts to establish a minimum price on certain ounces of gold it produces. Gains and losses realized on such
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instruments, as well as any cost or revenue associated therewith, are recognized as sales when the related production is delivered to customers. The Company did not have any gold hedging positions outstanding at December 31, 1998.
Earnings Per Share - Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share", and retroactively restated its earnings per share for the nine months ended December 31, 1996 to conform with the statement. 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 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.
Comprehensive Income (Loss) - Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income", and reclassified comprehensive income (loss) for 1996 to conform with SFAS No. 130. This statement requires the Company to display an amount representing total comprehensive income (loss) for each applicable period. Other comprehensive income (loss) consists entirely of realized gain on available for sale securities. The Company had no components of other comprehensive income (loss) during any of the periods ended December 31, 1998 and 1997 and is, therefore, not required to report comprehensive income (loss) in those periods.
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. The Company has appropriately identified and disclosed all operating segments in accordance with SFAS 131 (see Note 7).
New Accounting Standard - In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which supersedes SFAS No. 80, "Accounting for Future Contacts", SFAS No. 105, "Disclosure of Information About Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentration of Credit Risk", and SFAS No. 119, "Disclosures About Derivative Financial Instruments and Fair Value of Financial Instruments", and also amends certain aspects of other SFASs previously issued. This statement establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments as fair value. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Company management is currently evaluating the effects of this change in its accounting for derivatives and hedging activities.
Reclassifications - Certain prior year amounts have been reclassified to conform with the current year's presentation.
Change in Fiscal Year - The Company changed its fiscal year end from March 31 to December 31 effective December 31, 1996.
2. PROVISION FOR MINE CLOSURE AND RECLAMATION
After completing a thorough evaluation of shut-down and alternative operating strategies for operations at the AGMJV, the Company determined that no practical mining and processing methods could be developed which would justify continued operations. On September 5, 1996, the Company, therefore, announced that it was suspending operations at the AGMJV.
As part of the suspension plan, the Company and its joint venture partner, Hecla Mining Company, agreed to a modified program and budget for the remainder of the year which called for a suspension of full scale open pit and underground mining effective September 1996. Crushing and milling operations ceased in October 1996. Reclamation activities of the surface and underground operations began in September 1996. It is expected that full mine reclamation will be completed by the end of 1999.
Cost estimates and budgets for the suspension of operation, closure and reclamation were developed. In 1996, the Company recorded a charge for its share of the expected closure and reclamation costs of $2,100.
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During 1997, the Company continued its closure and reclamation efforts. Actual gold recovery has exceeded the initial estimates. The amount realized from the sale of idled equipment has also exceeded the initial estimates while closure costs have been below estimates. As a result of these favorable developments, the Company has revised its cost estimate for the closure and reclamation at the AGMJV. Accordingly, the Company recognized $2,330 of income in 1997.
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. CASTLE MOUNTAIN JOINT VENTURE
The Company's 25% undivided interest in the Castle Mountain Venture, 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 CMV are reported on a 100% basis and do not reflect the provision for impairment of long-lived assets as recorded on the records of the Company.
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5. INVENTORIES
The components of inventory are shown below:
6. PROPERTY, PLANT AND MINE DEVELOPMENT
The components of property, plant and mine development are shown below:
Maintenance and repair expenses charged to operations were $6,205, $7,698, and $8,474, for the years ended December 31, 1998, December 31, 1997, and the nine months ended December 31, 1996, respectively.
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7. 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, product sales and mining services in the United States. The majority of the mining service revenues are derived from one customer (CMV).
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8. INCOME TAXES
The provision (benefit) for income taxes consists of:
The deferred income tax provision (benefit) consists of:
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Deferred tax assets and liabilities consist of the following:
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 35% for the following reasons:
9. LONG-TERM DEBT
At December 31, 1998 and December 31, 1997, the Company had a $20,000 credit facility (the "Credit Facility") with Leucadia National Corporation ("Leucadia"). As of December 31, 1998 and December 31, 1997, the Company had no amounts borrowed under this credit facility.
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10. 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 $90, $93, and $307 for the years ended December 31, 1998 and December 31, 1997 and the nine months ended December 31, 1996, respectively.
11. 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. However, the Company currently has no significant environmental activities under development and does not anticipate incurring any 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 $3,812 (the Company's share is $1,459) 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, 1998, the Company had no future sales commitments.
Legal Proceedings - As previously reported by the Company, the Company has filed a complaint against Morrison Knudsen Corporation ("MK"), seeking a declaration that MK's agreement not to compete with the Company is valid, binding and enforceable. A trial date is currently scheduled for August 16, 1999.
On February 11, 1999, MK filed a separate complaint against the Company in the U.S. District Court for the District of Idaho (Civil No. CV 99-0064-SBLW). The complaint alleges that the Company has breached an agreement with MK relating to the use of the name "MK Gold Company." MK is seeking an injunction preventing the Company from using the name "MK Gold Company." The Company has filed a motion to dismiss MK's complaint. Alternatively, the Company has requested a stay of the proceeding, or to have venue transferred to the U.S. District Court for the District of Utah.
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Other - CMV and 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 1.4% for the year ended December 31, 1998, 2.1% for the year ended December 31, 1997, and 4.1% for the nine months ended December 31, 1996.
12. RELATED PARTY TRANSACTIONS
The Company's joint venture partner, Viceroy Gold Corporation ("VGC"), is the manager of 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 VGC attributable to the Company amounted to $140 for the year ended December 31, 1998, $167 for the year ended December 31,1997, and $142 for the nine months ended December 31, 1996.
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 $24 for the year ended December 31, 1998, $61 for the year ended December 31, 1997, and $139 for the nine months ended December 31, 1996
The Company performs contract mining services for the CMV. Mining services revenue recognized by the Company was $14,753 for the year ended December 31, 1998, $14,911 for the year ended December 31, 1997, and $9,421 for the nine months ended December 31, 1996.
13. 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, 1998, 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:
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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:
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.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company had no forward contracts outstanding as of December 31, 1998. As of December 31, 1997, the Company estimated the fair value of outstanding forward contracts to be $194, but the carrying value had not been recorded by the Company.
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15. SELECTED COMPARABLE FINANCIAL DATA
The following table provides selected comparable financial data for the year ended December 31,1998 and year ended December 31, 1997:
*****
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ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
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PART III
ITEM 10.
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 1999 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.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included in the Proxy Statement and is incorporated herein by reference.
ITEM 12.
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.
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.
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PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 19, 1999.
MK Gold Company
By /s/ D.L. Babinchak ------------------------------------- D. L. Babinchak President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 19, 1998 by the following persons on behalf of the Corporation in the capacities indicated.
/s/ G.F. Joklik Chairman of the Board - ------------------- G.F. Joklik
/s/ D.L. Babinchak President, Chief Executive Officer and Director - ------------------- (Principal Executive Officer) D. L. Babinchak
/s/ J.C. Farmer Chief Financial Officer and Secretary - ------------------- (Principal Financial and Accounting Officer) J.C. Farmer
/s/ I.M. Cumming Director - ------------------- I.M. Cumming
/s/ R.V. Hansberger Director - ------------------- R.V. Hansberger
/s/ G.J. Humphrey Director - ------------------- G.J. Humphrey
/s/ J.P. Miscoll Director - ------------------- J.P. Miscoll
/s/ R.S. Shriver Director - ------------------- R.S. Shriver
/s/ J.S. Steinberg Director - ------------------- J.S. Steinberg
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VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997 AND THE NINE MONTHS ENDED DECEMBER 31, 1996 (Thousands of dollars)
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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).