ITEM 3. LEGAL PROCEEDINGS
In October 1996, a purported derivative action was filed in the Court of Chancery of Delaware on behalf of a purported stockholder of the Company titled
Harry Lewis v. Milton H. Ward, et al., C.A. No. 15255-NC, against Cyprus Amax, - ------------------------------------- the directors of the Company, and the Company as a nominal defendant. The complaint alleges, among other things, that the defendants engaged in self- dealing in connection with the Company's entry in March 1996 into the demand loan facility provided by Cyprus Amax, that Cyprus Amax controls the Company's Board of Directors and management, that the terms of the transaction were not negotiated by persons independent of Cyprus Amax, that the timing of the transaction precluded the Company from seeking financing in the commercial or public debt markets and prevented the Special Committee of the Board of Directors of the Company that approved entry into the transaction from seeking alternatives to the transaction. The complaint seeks, among other things, a declaration that the demand loan facility is not entirely fair to the Company and damages in an unspecified amount. The Company believes that the complaint is without merit and intends to defend the matter vigorously.
In October 1995, a purported derivative action was filed in the Court of Chancery of Delaware on behalf of a purported stockholder of the Company titled Harbor Finance Partners v. Allen Born, et al. and v. Amax Gold Inc., as nominal - ------------------------------------------------------------------------------- defendant, C.A. No. 14637, with respect to the proposed Kubaka transaction. The - --------- complaint alleged that the individual defendants breached their fiduciary duty in connection with the Kubaka transaction. In connection with the settlement of this action in June 1997, the number of shares of Common Stock issued by the Company in connection with the Kubaka transaction was reduced by approximately 600,000. The settlement was recently approved by the Delaware Court of Chancery.
Litigation was filed in United States District Court for the District of South Carolina, Rock Hill Division, litigation filed by Kershaw Gold Company, Inc., Piedmont Mining Company's subsidiary that owns 37.5 percent of the Haile project, against the Company alleging that the Company tortiously interfered with the performance by its subsidiaries, Lancaster Mining Company Inc. and Haile Mining Company, of their obligations under certain agreements. Kershaw alleged that, among other things, Amax Gold caused Lancaster to fail to complete the exploration expenditures authorized in the 1994 venture budget and initiated attempts to sell its interest in the Haile property without informing Kershaw. The Company was awarded judgment notwithstanding the $9 million jury verdict in the case. The plaintiff has appealed the decision to the U.S. Court of Appeals for the Fourth Circuit.
The litigation described above is part of a lawsuit filed originally in South Carolina Circuit Court in March 1995 by Piedmont Mining Company and Kershaw Gold Company, Inc. against Amax Gold, Lancaster and Haile, alleging breach of contract, fraud and tortious interference with contract rights. Pursuant to motions filed by the defendants,
all claims of Piedmont and Kershaw were dismissed on the grounds that jurisdiction was to be determined by arbitration, except the claim of Kershaw against the Company described above. The plaintiff's motion for reconsideration is pending.
Pursuant to certain agreements among Piedmont, Kershaw and the Company, Piedmont and Kershaw indemnified the Company from all environmental and other liabilities arising from Piedmont's operations or other conditions existing on the Haile property prior to July 1, 1992. Following Piedmont's and Kershaw's continued refusal to pay environmental costs that the Company believed were covered by the indemnity, the Company submitted to arbitration its claim for $1.4 million, the amount of such costs incurred through August 1995. The Company prevailed in this matter and the $1.4 million arbitration award, including accrued interest, has been received. In November 1997, the Company submitted to arbitration its claim for $1.7 million, the amount of environmental costs from August 1995 through October 1997 which the Company believes are covered by the indemnity and cash contributions to property maintenance and operations which the Company has made on behalf of Kershaw.
In September 1996, Joseph and Mark Munkhoff and Katherine Munkhoff Brake (the "Munkhoffs") initiated arbitration against Amax, Amax Exploration Inc. and Lassen Gold Mining Inc. seeking damages in connection with the calculation and payment of a royalty payable to the Munkhoffs under a mining lease. Their leased claims cover approximately 75% of the production from the Hayden Hill Mine. The Munkhoffs allege that their royalty on all or part of the production should have been calculated at a 5% rate rather than at the 2% rate utilized in royalty calculations by Lassen, and that they are entitled to a royalty on the proceeds of hedging activities. The Munkhoffs have not specified the amount of damages they seek. The Company has denied the Munkhoffs' claims and does not believe this matter will have a 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
There were no matters submitted to a vote of security holders during the fourth quarter of 1997.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Amax Gold Inc.'s Common Stock is listed on the New York Stock Exchange (AU) and The Toronto Stock Exchange (AXG); the $3.75 Series B Convertible Preferred Stock is listed on the New York Stock Exchange (AUPrB). Stockholders of record as of February 9, 1998: Common Stock, 7,757, Preferred Stock 76.
The following table sets forth for the periods indicated the high and the low sale prices per share of the Company's Common Stock and $3.75 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
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA AMAX GOLD INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA (IN MILLIONS EXCEPT PER SHARE AMOUNTS, PERCENTAGES, PRODUCTION AND SALES OUNCES AND AMOUNTS PER OUNCE) YEAR ENDED DECEMBER 31,
/(1)/ During the first quarter of 1997, Amax Gold elected to change its method of accounting for inventory from the last-in, first-out (LIFO) method to a three-month rolling average method. In accordance with generally accepted accounting principles when changing from the LIFO method, prior years' results have been restated to reflect the effect of this change in policy. The effect of this restatement on the years ended December 31, 1996 and 1995 was to increase the previously reported net loss by $5.0 million and $2.5 million, or $.06 and $.02 per share, respectively. The effect of this restatement on the year ended December 31, 1994 was to decrease the previously reported net loss by $4.4 million or $.06 per share. Additionally, as of January 1, 1997, the Company changed its accounting policy to include depreciation and depletion in inventory, which has
the effect of recording depreciation and depletion expense in the statement of operations as gold is sold rather than as it is produced. The cumulative effect of this accounting change is a $4.5 million reduction of the net loss as of January 1, 1997. /(2)/ In the fourth quarter of 1996, the Company recorded a $35.5 million pre- tax write-down of the Guanaco mine and an unrelated $10 million deferred tax benefit. These special items increased the net loss by $25.5 million, or $.26 per share. In 1994, the Company recorded an $18.6 million pre-tax ($14.4 million after-tax) write-down of the Hayden Hill mill to its estimated salvage value and a $2.5 million pre-tax ($2.1 million after-tax) write-down of other assets that increased the net loss by $16.5 million, or $.21 per common 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. /(3)/ Effective January 1, 1994, the Company changed its method of accounting for the cost of ore loaded on heap leach pads to record such costs as work-in-process inventory. The 1994 net loss is reduced by a $7.5 million, or $.09 per common share, after-tax benefit relating to the cumulative effect of this accounting change. Effective January 1, 1993, Amax Gold changed its exploration accounting policy 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. /(4)/ 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." /(5)/ The Company issued 1.8 million preferred shares in August 1994. Preferred share dividends were $1.8 million during the fourth quarter of 1994. /(6)/ Average costs weighted by ounces of gold produced at each mine. /(7)/ Effective January 1, 1996, the Company adopted the Gold Production Cost Standard developed by the Gold Institute in order to facilitate comparisons among companies in the gold industry. Cash production costs reported in prior periods have been restated as cash operating costs and total cash costs in accordance with the new standard. Cash operating costs calculated under the new standard include all operating costs (including overhead) at the mine sites, but exclude royalties, production taxes and reclamation. Total cash costs include royalties and production taxes, but exclude reclamation. Total production costs remain unchanged and include reclamation and depreciation, depletion and amortization. Total cash costs in 1996 exclude the impact of the write- down of heap leach inventories at Guanaco.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Amax Gold reported a 1997 net loss of $33.4 million, or $.37 per share, on revenue of $259.5 million compared with a 1996 net loss of $39.2 million, or $.48 per share on revenue of $108.2 million and a 1995 net loss of $26.4 million, or $.38 per share on revenue of $96.6 million. The 1997 results included a $4.5 million benefit for a first quarter inventory accounting change while the 1996 results included a $35.5 million write-down of the Guanaco mine and an unrelated $10 million deferred tax benefit. Excluding special items, the 1997 net loss was $37.9 million, or $.41 per share, compared with a 1996 net loss of $13.7 million, or $.21 per share. See Note 5 to the Consolidated Financial Statements for further discussion of the changes in accounting policies during the first quarter of 1997.
The Company's operating income improved to $1.9 million for 1997 compared with 1996 and 1995 operating losses of $7.4 million and $19.7 million, respectively, excluding special items and the Guanaco write-down. The improved operating results were attributed to lower cash costs and higher production, partially offset by significantly lower gold prices.
Revenue increased to $259.5 million in 1997 compared with $108.2 million in 1996 and $96.6 million in 1995. The improvement is a result of significantly higher gold sales of 720,889 ounces in 1997 due to the commencement of commercial production at Fort Knox and Kubaka and a full year of production at Refugio, offset by the closure of the Sleeper mine. Gold sales were 262,975 ounces in 1996 and 238,094 ounces in 1995. The increased sales volume was partially offset by a lower 1997 average realized price of $360 per ounce compared with $412 per ounce for 1996 and $406 per ounce for 1995. These realized prices compare with average spot gold prices of $331 per ounce in 1997, $388 per ounce in 1996 and $384 per ounce in 1995. Amax Gold's average realized price exceeded the average spot price in each year due to the positive impact of hedging activities.
Gold production was a record 729,831 ounces, compared with 268,331 ounces in 1996 and 238,255 ounces in 1995. Fort Knox, Kubaka and Refugio contributed a total of 524,035 ounces, or more than 70 percent of 1997 production. For 1998, these three mines are expected to contribute more than 90 percent of the Company's total production as Hayden Hill and Guanaco complete operations. Fort Knox and Kubaka have outperformed expectations throughout 1997 as mill throughput at both mines was higher than plan for the year, resulting in higher than anticipated production. Commercial production was achieved at Fort Knox on March 1, 1997, resulting in 320,522 ounces of production during 1997. At Kubaka, commercial production commenced on June 1, 1997, and 129,970 ounces were produced for Amax Gold's account during 1997. Operations at Refugio were hampered by the abnormally severe winter weather in mid-1997, which resulted in the suspension of crushing operations for nearly three months. The Company's 50 percent share of 1997 production at Refugio was 73,543 ounces compared with 30,612 ounces for 1996, when commercial production commenced on October 1, 1996. Production at Refugio is expected to improve during the first quarter of 1998 as the weather related problems and other operational inefficiencies are addressed. Mining was completed at Guanaco during July 1997, which resulted in the decrease in production to 93,594 ounces in 1997 compared with 96,018 ounces in 1996. Production at Guanaco will decline substantially during 1998 as residual leaching continues. Hayden Hill produced a record 112,202 ounces during 1997, an eight percent increase over 1996 production of 103,502 ounces due to higher ore grades, crusher throughput and recovery rate. Hayden Hill completed mining in December 1997 and production is expected to decline substantially during 1998 as residual leaching commences. Production in 1996 was 13 percent higher than 1995 due to the addition of Refugio during the fourth quarter of 1996. During 1998, consolidated production is expected to be more than 750,000 ounces as Fort Knox and Kubaka will have a full year of production.
The Company's cost of sales as a percentage of revenue declined to 61 percent in 1997 compared with 68 percent in 1996 and 84 percent in 1995, reflecting significantly lower average total cash costs. Consolidated total cash costs fell by 22 percent to $198 per ounce for 1997 from $255 per ounce in 1996 and $313 per ounce in 1995. Fort Knox's cash costs of $170 per ounce for 1997 were lower than expected as crusher and mill throughput and ore grade were higher than anticipated. As a result of higher mill throughput, Kubaka's 1997 cash costs of $175 per ounce were also lower than anticipated. Refugio's 1997 cash costs of $341 per ounce, compared with $242 per ounce for 1996, were higher primarily due to the adverse impact of the abnormal winter weather, partially offset by a $1.4 million insurance payment received relating to business interruption caused by the severe winter weather. Cash costs at Refugio are
expected to improve significantly during 1998. Cash costs continued to decline at Guanaco during 1997 to $229 per ounce compared with $290 per ounce in 1996 and $375 per ounce in 1995 due to improved crusher throughput and reduced spending. Cash costs at Hayden Hill improved to $186 per ounce in 1997 compared to $229 per ounce and $253 per ounce in 1996 and 1995, respectively. Higher ore grades at Hayden Hill, which resulted in increased production, were the main factor in the improved cash costs. Cash costs at both Guanaco and Hayden Hill are expected to increase during 1998 when production declines as operations are scaled back in preparation for the mines' closure. Consolidated average total cash costs for 1998 are anticipated to be similar to 1997 cash costs.
Depreciation and depletion nearly tripled to $88.4 million in 1997 compared with 1996, primarily as a result of increased production and sales. Additionally, the Company's consolidated depreciation and depletion rate increased to $123 per ounce in 1997 compared with $110 per ounce in 1996 due to the higher Fort Knox rate of $169 per ounce. At year-end 1997, approximately 450,000 contained ounces were added to the Fort Knox reserves, which will reduce the 1998 depreciation and depletion rate at the mine by about $20 per ounce. Lowering the gold price used to calculate ore reserves from $400 per ounce at December 31, 1996, to $375 per ounce at December 31, 1997, did not have a significant impact on Kubaka or Refugio reserves, however, higher than anticipated 1997 and future capital spending will result in increased 1998 depreciation and depletion rates at both mines. The consolidated depreciation and depletion rate for Amax Gold is not expected to change significantly during 1998.
General and administrative expenses decreased by 23 percent to $6.4 million in 1997 compared with $8.3 million in 1996. The decline was mainly attributed to the management fee the Company earns for operating the Kubaka project which is recorded as an offset to general and administrative expenses.
Expanded exploration activities during 1997 resulted in higher exploration expense of $5.5 million compared with $3.5 million in 1996. Spending at the Company's three new mines as well as exploration drilling on the subsequently abandoned Long Valley Project in California were the main factors causing the increase. During 1998, the Company expects to reduce its exploration costs to about $4 million due to lower gold prices.
Interest expense in 1997 was $42.5 million compared with $29.7 million in 1996. The increase was attributed to higher average debt balances, which were necessary to complete the Company's capital spending on construction projects. Capitalized interest declined to $4.2 million in 1997 from $22.8 million in 1996, as the Fort Knox project was completed during the first quarter of 1997. Interest income of $1.9 million in 1997 was slightly higher than 1996 and primarily relates to interest received on a loan to the Company's Refugio joint venture partner.
Other expense of $3.0 million was $2.0 million higher than 1996 due to the absence of a $1.4 million arbitration award received during 1996 as well as higher legal fees, as the Haile tortious interference case was tried during August 1997.
LIQUIDITY AND CAPITAL RESOURCES
Amax Gold's 1997 operating cash flow of $68.0 million was about four times higher than 1996 and more than 25 times higher than 1995 operating cash flow as a result of lower cash costs and higher production. Due to the low gold prices, the Company has tightened its spending in all areas in order to preserve cash. Working capital was negative for the 1997 and 1996 year ends due in part to the classification of the amount due under the Cyprus Amax demand loan facility as a current liability. Additionally, current maturities of long-term debt also contributed to the negative working capital and the Company is currently considering restructuring opportunities.
Capital expenditures declined to $30.8 million in 1997 from $187.7 million in 1996 due to the completion of the Fort Knox project during the first quarter of 1997. Capital spending at Fort Knox, excluding capitalized interest, was approximately $14 million in 1997 compared with $173 million in 1996, for a total project cost of about $345 million, which excludes $28 million in capitalized interest. The Kubaka acquisition was completed in May 1997, and capital spending following the purchase, excluding capitalized interest, was about $12 million. At Refugio, capital spending, excluding capitalized interest, totaled about $5 million in 1997 compared with $12 million in 1996. Most of the capital spent at Refugio during 1997 relates to operational inefficiencies that are being addressed and are expected to be
remedied in the first part of 1998. Capital spending is expected to further decline during 1998 as only sustaining capital projects will be completed in order to preserve cash.
Net financing activities for 1997 used $24.6 million in cash as a result of loan repayments. In May 1997, the Company completed a $71 million tax-exempt industrial revenue bond financing for the solid waste disposal facility at the Fort Knox mine. Proceeds were used to repay amounts borrowed to complete construction of the Fort Knox mine under the Cyprus Amax demand loan facility. A total of $49.5 million was borrowed and $106.2 million was repaid on the demand loan facility during 1997, resulting in an outstanding balance of $73.3 million at December 31, 1997. The Company currently has available approximately $70 million under the Cyprus Amax demand loan facility. During December 1997, the Company refinanced its $34 million portion of the Refugio gold loan with approximately $28 million borrowed under a new $40 million credit facility. The decline in gold prices since the gold was borrowed in early 1995 resulted in a gain of approximately $6 million, which will be amortized, net of approximately $2 million in deferred financing costs, over the four remaining years of the original loan life. In connection with the refinancing, the Company also received repayment of $10 million from the other 50 percent owner of Refugio. This amount, together with $10 million of the remaining proceeds from the new facility, was lent to the 50 percent owned Company that operates the Kubaka mine to fund debt service and working capital requirements. Scheduled 1997 Fort Knox debt repayments of approximately $30.8 million and a Refugio gold loan repayment of $4.3 million were made with 1997 cash flow from operations.
During 1998, Amax Gold's capital spending is expected to be approximately $15 million. With this lower capital spending and the anticipated higher production and lower cash costs, the Company expects to generate sufficient funds for general corporate purposes, capital expenditures and interest payments. However, assuming the price of gold remains at current levels, the Company anticipates borrowing additional amounts under the Cyprus Amax demand loan facility for a portion of its 1998 debt service. The Company is currently considering other opportunities to restructure its debt and capital.
The Company is participating in a Year 2000 Program established by Cyprus Amax to oversee and coordinate Year 2000 conversion. The program includes involvement from site and corporate personnel and communication with customers, suppliers and financial institutions to address Year 2000 compliance. Projects are underway to identify, evaluate and implement Year 2000 compliance solutions. The total cost of Year 2000 projects for the Company is not expected to be material and all critical applications are anticipated to be compliant by the end of 1999.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
With the exception of historical matters, the matters discussed in this report are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projected results. Such forward- looking statements include statements regarding expected dates for gold sales, reserve additions, return to full production at Refugio, projected quantities of future gold production, estimated reserves and recovery rates, anticipated production rates, costs and expenditures, prices realized by the Company and expected to be realized, expected future cash flows, anticipated financing needs, growth plans and sources of financing and repayment alternatives and possible business combinations. Factors that could cause actual results to differ materially include, among others: risks and uncertainties relating to general domestic and international economic and political conditions, the cyclical and volatile price of gold, the political and economic risks associated with foreign operations, cost overruns, unanticipated ground and water conditions, unanticipated grade and geological problems, metallurgical and other processing problems, availability of materials and equipment, the timing of receipt of necessary governmental permits and approvals, the occurrence of unusual weather or operating conditions, force majeure events, lower than expected ore grades, the failure of equipment or processes to operate in accordance with specifications or expectations, labor relations, accidents, environmental risks, the results of financing efforts and financial market conditions and other risk factors detailed in the Company's Securities and Exchange Commission filings. Refer to the Risk Factors on pages 7 to 13 of Amendment No. 1 to the Company's Registration Statement on Form S-3 (No. 333- 22598) as filed with the Securities and Exchange Commission on March 26, 1997, for a more detailed discussion of risks. Many of such factors are beyond the Company's ability to control or predict. Readers are cautioned not to put undue reliance on forward-looking statements. The Company disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 and Chief Executive Officer
S. Scott Shellhaas President and Chief Operating Officer
Leland O. Erdahl Vice President and Chief Financial Officer
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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, 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 audits. We conducted our audits 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 audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 5 to the consolidated financial statements, the Company changed its method of accounting for inventory in 1997.
Price Waterhouse LLP
Denver, Colorado
February 9, 1998
AMAX GOLD INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS Year-ended December 31, (In millions except per share amounts)
The accompanying notes are an integral part of these statements.
AMAX GOLD INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, (In millions except share amounts)
The accompanying notes are an integral part of these statements.
AMAX GOLD INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Year-ended December 31, (In millions)
*During the fourth quarter of 1996, the Company issued $15.2 million in stock to Cyprus Amax in payment of $5.2 million in interest and a $10 million guaranty and financing fee. The guaranty and financing fee was recorded as unearned equity and $3.1 million has been amortized through December 31, 1997.
Cash paid for interest (including interest capitalized) was $35.0 million, $17.9 million and $9.2 million in 1997, 1996 and 1995, respectively. There were no income taxes paid during 1997, 1996 or 1995.
The accompanying notes are an integral part of these statements.
AMAX GOLD INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (In millions)
The accompanying notes are an integral part of these statements.
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
1. NATURE OF OPERATIONS
Amax Gold Inc. and its subsidiaries (Amax Gold or the Company) are engaged in the mining and processing of gold and silver ore and the exploration for, and acquisition of, gold-bearing properties, principally in the Americas, Russia, Australia and Africa. The Company's primary products are gold and silver produced in the form of dore and then shipped to refiners for final processing. The Company is currently 58.8 percent owned by Cyprus Amax Minerals Company (Cyprus Amax).
The Company produces gold and silver using both the traditional milling process and heap leaching. All of the Company's operating properties are open pit mines. The Company's operating properties consist of a 100 percent interest in the Fort Knox mine near Fairbanks, Alaska; a 50 percent interest in the Kubaka mine in the Russian Federation; and a 50 percent interest in the Refugio mine in Chile. The Company also owns a 100 percent interest in the Hayden Hill mine in Lassen County, California; and a 90 percent interest in the Guanaco mine in Chile. Mining was completed at Hayden Hill and Guanaco during 1997 and residual leaching will continue during 1998 at both mines. In addition, the Company owns a 62.5 percent venture interest in the Haile property in Lancaster County, South Carolina. The Company also owns the Sleeper mine in Humboldt County, Nevada, and the Wind Mountain mine in Washoe County, Nevada, which are in reclamation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Amax Gold and the related entities that it controls. Investments in companies over which the Company can exercise significant influence but not control are accounted for using the equity method. Investments in joint ventures are accounted for using proportionate consolidation, consistent with accepted mining industry practice. All material intercompany balances and transactions have been eliminated. Certain 1996 and 1995 amounts have been reclassified to conform to the 1997 presentation.
EARNINGS PER SHARE
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share", was issued in February 1997. SFAS No. 128 replaces the presentation of primary earnings per share with a presentation of basic earnings per share. It requires a reconciliation of the numerators and denominators of the basic and diluted earnings per share computation. Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. For the year ended December 31, 1997, basic and diluted earnings per share were the same as primary earnings per share. Outstanding Company stock options were not considered in the diluted earnings per share calculation as these were antidilutive.
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.
INVENTORIES
Gold inventory is valued at the lower of aggregate cost, computed using a three- month rolling average method, or market. See Note 5 for discussion of the change in inventory accounting method during 1997. Materials and supplies are valued at average cost less reserves for obsolescence.
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including development expenditures and capitalized interest, are carried at cost. 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 that have useful lives shorter than the mine life are depreciated on a straight-line basis over estimated useful lives of one to five years.
Amax Gold follows Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." In the event that facts and circumstances indicate that the carrying amount of an asset may not be recoverable and an estimate of future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss will be recognized. The impairment is measured based on an estimate of future discounted cash flows. See Note 6 for discussion of the write-down of the Guanaco mine recorded in the fourth quarter of 1996 in accordance with SFAS No. 121.
EXPLORATION
Exploration expenditures are charged against earnings in the period incurred.
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, result in a hedge against future gold price fluctuations and limit realized prices to the amounts received when the borrowed gold is sold.
Currency financings represent borrowings in hard currency, typically U.S. dollars. The terms, including interest rates, are negotiated with lenders based on market conditions at the time the financing is arranged.
FOREIGN CURRENCY TRANSLATION
The U.S. dollar is the functional currency of all of the Company's foreign subsidiaries. The financial statements of foreign subsidiaries are remeasured in U.S. dollars based on a combination of both current and historical exchange rates; gains and losses due to this remeasurement are reflected in the consolidated statement of operations. For the year ended December 31, 1997, translation losses were $1.0 million while for the years ended December 31, 1996 and 1995, translation losses were insignificant.
DERIVATIVE CONTRACTS
Forward sale and purchase contracts, generally on a spot deferred basis, put and call option contracts and compound options are entered into to manage the effect of price changes on the Company's precious metals that are produced and sold. Premiums paid for purchased options and premiums earned on sold options are deferred and recognized in income over the term of the related option. The results of gold hedging activities are included in revenues at the time the hedged production is sold. Silver hedging results are reflected as a by-product credit. Gains and losses on derivative contracts that do not qualify as hedges are recognized currently.
Interest rate swap options are entered into as a hedge against interest rate exposure on the Company's floating rate financing facilities in order to fix the Company's interest costs. The differences to be paid or received on swap options are included in interest expense as incurred.
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
POSTRETIREMENT BENEFITS
Postretirement benefits other than pensions are calculated in accordance with the provisions set forth in SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which 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, "Employers' Accounting for Postemployment Benefits." 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.
STOCK-BASED COMPENSATION
Amax Gold adopted SFAS No. 123 "Accounting for Stock-Based Compensation," in 1996 and has elected to continue to measure compensation cost using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." See Note 12 for further discussion of net income and earnings per share as if the fair value based method of accounting as defined in SFAS No. 123 had been applied.
RECLAMATION
Reclamation, site restoration and closure costs for each producing mine are estimated based primarily on environmental and regulatory requirements and are accrued over the expected life of each mine 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, "Accounting for Income Taxes." 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 basis of assets and liabilities and gives immediate effect to changes in income tax laws. The income statement effect is derived from current taxes payable and changes in deferred income taxes on the balance sheet.
USE OF ESTIMATES
The preparation of Amax Gold's consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Management's estimates are made in accordance with mining industry practice. Significant areas requiring the use of management estimates relate to the determination of mineral reserves, reclamation and environmental obligations, impairment of assets, postretirement and other employee benefits, useful lives for depreciation, depletion and amortization, and valuation allowances for deferred tax assets. Actual results could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES
As of December 31, 1997, Cyprus Amax owned approximately 68 million Common Shares, or approximately 58.8 percent, of the Company's outstanding Common Stock. As discussed below, the increase in Cyprus Amax's ownership resulted from various financial transactions with Cyprus Amax. See also Note 6 for discussions related to the Kubaka acquisition agreement.
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
FINANCING ARRANGEMENTS
During December 1997, the Company completed a $40 million credit facility which was used to refinance the existing Refugio gold loan and for working capital and debt service requirements. In May 1997, the Company completed a $71 million tax-exempt industrial revenue bond financing for the solid waste disposal facility at the Fort Knox mine. Cyprus Amax has guaranteed both loans and the Company pays a 1.75 percent interest differential to Cyprus Amax as a guaranty fee on the industrial revenue bond and a 0.75 percent interest differential on the Refugio loan. The Company has also agreed to reimburse Cyprus Amax for any payments made under the guaranties. Additionally, the Company agreed not to borrow $40 million under an existing convertible line of credit with Cyprus Amax as part of the Refugio refinancing. See Note 7 for further discussion of the terms of each loan.
Pursuant to a financing arrangement with Cyprus Amax, approved by the Company's shareholders in September 1996, Cyprus Amax has guaranteed the Company's $250 million Fort Knox loan until economic completion of the Company's Fort Knox mine and has provided the Company with a $250 million demand loan facility, in exchange for which the Company (i) paid Cyprus Amax a financing and guaranty fee of $10 million, (ii) pays Cyprus Amax 1.75 percent annually on amounts outstanding under the Fort Knox loan, (iii) would reimburse Cyprus Amax for any payments made or costs incurred under the Cyprus Amax guaranty, (iv) agreed to make no additional borrowing under the $100 million convertible line of credit without the prior consent of Cyprus Amax, and (v) granted Cyprus Amax a first priority security interest in the collateral for the Fort Knox loan, and if requested, would grant security interests in certain additional assets to the extent available. All of these obligations to Cyprus Amax are payable in cash or, at the election of Cyprus Amax, in shares of Common Stock, valued at the time of issuance of the shares.
On November 1, 1996, Cyprus Amax elected to receive payment in shares of Common Stock of an aggregate of $15.2 million for all accrued interest on the demand loan and interest differential payments due through October 31, 1996, as well as the $10 million financing and guaranty fee. On November 12, 1996, the Company issued 2.8 million shares of Common Stock to Cyprus Amax as payment for such obligations. As of December 31, 1997 and 1996, the Company had borrowed $73.3 million and $130 million under the demand loan at average rates of 8.1 percent. Interest and interest differential expense accrued as of December 31, 1997 and 1996 totaled $7.1 million and $2.3 million, respectively. Funding is provided solely at the discretion of Cyprus Amax and as of December 31, 1997 the Company had approximately $70 million available under the demand loan. The Company anticipates borrowing a portion of its scheduled 1998 debt service from Cyprus Amax under the demand loan. The $10 million guaranty and financing fee was recorded as unearned equity and is being amortized over the expected period of the demand loan and Cyprus Amax guaranty. Through December 31, 1997, $3.1 million had been amortized.
In April 1994, Cyprus Amax provided 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 through the issuance of up to two million shares of $2.25 Series A Convertible Preferred Stock. Amax Gold may 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. Cyprus Amax may convert the line of credit, any outstanding indebtedness and/or Convertible Preferred Stock to 12,099,213 shares of Amax Gold Common Stock valued at $8.265 per share. No amounts were outstanding under this credit line as of December 31, 1997 or 1996.
In March 1995, Cyprus Amax provided the Company with an additional $80 million convertible line of credit. During 1995, the full amount was borrowed by the Company and subsequently converted by Cyprus Amax to 14,919,806 shares of Amax Gold Common Stock at $5.362 per share.
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
OTHER AGREEMENTS
In September 1995, the Company and Cyprus Amax entered into an agreement regarding stock issuance pursuant to which obligations owing from the Company to Cyprus Amax under existing or future contractual arrangements may be paid in shares of Common Stock with the consent of both parties. The stock will be valued based on the most recent 30-day average closing price, and the maximum number of shares of Common Stock that may be issued is 879,500 shares. In September 1995, 128,042 shares of such Common Stock were issued to Cyprus Amax as payment for $835,473 due under the $80 million convertible line of credit.
An agreement in principle to monetize a portion of the Company's foreign tax net operating losses was entered into with Cyprus Amax in February 1998. In connection with the proposed transaction, the Company is expected to record a gain of approximately $6.7 million.
The Company has entered into several additional 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. Amax Gold was charged $4.2 million, $2.5 million and $3.1 million under this agreement for the years ended December 31, 1997, 1996 and 1995, respectively.
A services agreement governs the provision of and payment for general administrative services between Cyprus Amax and the Company. For the years ended December 31, 1997, 1996 and 1995, insurance, management and other services were supplied to the Company on a full cost reimbursement basis. The Company was charged $4.1 million, $3.4 million and $4.3 million for the years ended December 31, 1997, 1996 and 1995, respectively, for reimbursable costs. As of December 31, 1997 and 1996, the Company had outstanding amounts due to Cyprus Amax of $0.5 million and $0.3 million, respectively, relating to such services. Pursuant to an employee transfer agreement, the Company and Cyprus Amax have amended their respective benefit plans to allow employees to transfer from the Company to Cyprus Amax or from Cyprus Amax to the Company with minimal effect on an employee's benefits.
4. INCOME TAXES
Income (loss) before income taxes consists of the following:
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
The components of deferred tax (assets) liabilities are as follows:
The following is a reconciliation between the amount determined by applying the federal statutory rate of 34 percent to the loss before taxes and the income tax (benefit) expense:
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
The valuation allowance increased $11 million in 1997 due to uncertainties of realizing loss carryforwards in the future.
At December 31, 1997, the Company had federal tax net operating loss carryforwards of $119 million and alternative minimum tax net operating loss carryforwards of $83 million expiring in the years 2004 through 2012 and minimum tax credit carryforwards of $5 million, which do not expire. At December 31, 1997, the Company also had Chilean tax net operating loss carryforwards of $105 million, which do not expire.
During 1996, $10 million of state deferred income taxes were reversed due to revised mine economics.
The Company will file certain state income tax returns for 1997 on a combined basis with Cyprus Amax. State tax expense and related liabilities have been determined as if the Company filed separate income tax returns. The Company is not included in the Cyprus Amax federal income tax return.
5. INVENTORIES
Inventories at December 31, 1997 and 1996, consisted of the following:
During the first quarter of 1997, Amax Gold elected to change its method of accounting for inventory from the last-in, first-out (LIFO) method to a three- month rolling average method. In accordance with generally accepted accounting principles when changing from the LIFO method, prior years' results have been restated to reflect the effect of this change in policy. The effect of this restatement on the years ended December 31, 1996 and 1995 was to increase the previously reported net loss by $5.0 million and $2.5 million, or $.06 and $.02 per share, respectively. The effect on beginning retained earnings as of January 1, 1995 was to increase retained earnings by $4.4 million. Additionally, as of January 1, 1997, the Company changed its accounting policy to include depreciation and depletion in inventory, which has the effect of recording depreciation and depletion expense in the statement of operations as gold is sold rather than as it is produced. The cumulative effect of this accounting change is a $4.5 million reduction of the net loss as of January 1, 1997. On a pro forma basis this change would have reduced the 1996 net loss by $2.3 million. Both accounting changes were made in order to better match current costs with revenues and to conform with prevailing gold industry practice.
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
6. PROPERTY, PLANT AND EQUIPMENT AND WRITE-DOWNS
The components of property, plant and equipment at December 31, 1997 and 1996, were as follows:
ACQUISITION OF KUBAKA
During May 1997, the Company completed the acquisition of a Cyprus Amax subsidiary that owns 50 percent of Omolon Gold Mining Company (Omolon). Omolon owns and operates the Kubaka gold mine, located in Far East Russia. Kubaka poured its first gold in February 1997 and achieved commercial production effective June 1, 1997. The project was completed at a capital cost of approximately $228 million, excluding about $14 million in capitalized interest. Under terms of the transaction, Cyprus Amax received a total of approximately 15.4 million shares of Amax Gold common stock, increasing Cyprus Amax's ownership of Amax Gold to approximately 58.8 percent. Additional Amax Gold common stock may be issued to Cyprus Amax in the future if more reserves are acquired in Russia outside of the Kubaka concession area.
The Kubaka acquisition has been recorded as a transfer between companies under common control, which requires the transfer of the assets and liabilities acquired at their net book values. Approximately $121.1 million in property, plant and equipment and $10.4 million in net working capital were acquired, offset by the assumption of $79.5 million in debt and the issuance of $52 million in equity. As of December 31, 1997, the Kubaka project was funded through $86 million of equity contributions from the partners, on a pro rata basis to their ownership interests, and borrowings of $147 million. Accounts payable includes approximately $6 million of advances to Omolon by Cyprus Amax for which Amax Gold agreed to reimburse Cyprus Amax under certain circumstances, offset in part by approximately $3 million in accounts receivable, the net amount the Company would expect to receive.
ASSET WRITE-DOWNS
As a result of a detailed study of the continuity of ore, costs and production rates at the Company's Guanaco mine, the Company recorded a $35.5 million pre- tax write-down during the fourth quarter of 1996. Included in the write-down were $9.4 million of heap leach inventories, which were impaired due to lower actual and expected future recovery rates. Mining was completed at Guanaco in July 1997 with residual leaching continuing into 1998.
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
7. LONG-TERM DEBT
Scheduled debt maturities as of December 31, 1997, (in millions) were $81.4, $73.2, $74.3, $81.5, $45.7 and $71.0 for the years 1998 through 2002 and thereafter, respectively.
During December 1997, the Company refinanced the remaining $34 million balance of the Refugio gold loan with approximately $28 million borrowed under a new $40 million credit facility. The new credit facility is a five year term loan with a $40 million bullet payment due in December 2002. The loan bears interest at LIBOR plus 1.0 percent. Cyprus Amax has guaranteed this loan and the Company pays 0.75 percent to Cyprus Amax as a guaranty fee. The Company has also agreed to reimburse Cyprus Amax for any payments made under the guaranty. The decline in gold prices since the gold was borrowed under the original Refugio gold loan in early 1995 resulted in a gain of approximately $6 million, which will be amortized, net of approximately $2 million in deferred financing costs, over the four remaining years of the original loan life.
During the second quarter, the Company completed a $71 million tax-exempt industrial revenue bond financing for the solid waste disposal facility at the Fort Knox mine. The 12-year variable rate bonds were issued by the Alaska Industrial Development and Export Authority and are backed by a letter of credit guaranteed by Cyprus Amax. The Company's interest rate on the bonds is currently approximately 4.5 percent and an additional 1.75 percent interest differential is paid to Cyprus Amax as a guaranty fee. Amax Gold has agreed to reimburse Cyprus Amax for any payments made or costs incurred under the guaranty. The Company received proceeds of approximately $66.3 million with the remaining approximately $4.7 million maintained in an interest-bearing escrow account that becomes available to the Company over the next three years as additional funds are spent on the solid waste disposal facility. Through December 31, 1997, approximately $3.5 million remained restricted. The Company expects to fund the solid waste expansion and draw down the remaining amount during 1998. Proceeds were used to repay amounts borrowed under the Cyprus Amax demand loan facility.
In connection with the Kubaka acquisition, the Company assumed approximately $79.5 million in debt. Project financing of $130 million was provided by the European Bank for Reconstruction and Development and the U.S. Overseas Private Investment Corporation while a bank licensed to do business in Russia provided $14 million in subordinated debt and a $15 million working capital line of credit. Approximately $12.4 million of the project financing was repaid during 1997. Interest on the project financing is variable based upon LIBOR and currently is approximately 9 percent with final maturity in December 2001. The subordinated debt and working capital line of credit also have variable interest rates based on LIBOR, which are both currently approximately 12 percent. The
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
subordinated debt does not have a defined term for repayment but will be repaid out of available cash, while the working capital line of credit expires in April 1998. These financings are guaranteed by Cyprus Amax and the Company agreed to reimburse Cyprus Amax under certain circumstances for guaranty payments. As a guaranty fee for the subordinated debt and the working capital line of credit, Cyprus Amax receives a portion of the interest. Omolon also is seeking to arrange additional working capital financing.
In August 1996, the Company completed a sale-leaseback of Fort Knox mobile mining equipment for proceeds of $24.3 million, which were used primarily to fund construction of the Fort Knox mine. Lease payments are due quarterly with maturity in 2004. Interest rates on the equipment leases range from 7.7 percent to 8.7 percent with approximately 73 percent of the equipment leases at 8.4 percent, maturing in 2001.
During October 1995, the Company completed a term loan agreement for $250 million to be used for construction of the Fort Knox mine and repayment of certain existing debt obligations. The loan has a six-year term with repayments beginning in 1997. As of December 31, 1997, the Company owes $23.1 million in gold at $381 per ounce and the remaining $199.1 million in currency. Interest on the loan is calculated at LIBOR for the dollar portion and at the bank's lease rate for the gold portion, plus 2.25 or 2.0 percent at certain intervals of construction or plus 1.75 percent after completion tests are passed. Collateral for the loan includes the assets and production of the Fort Knox and Hayden Hill mines and the stock of the subsidiaries owning the Sleeper and Guanaco mines. The loan agreement places restrictions on proceeds of future equity offerings and borrowings, restricts dividends and requires certain net worth and cash ratios be maintained. Interest rate protection agreements must be in place for at least 50 percent of any dollar portion of the borrowing. In addition, Amax Gold must maintain gold reserve minimums and hedge a portion of future production in order to obtain specified minimum cash flows.
In March 1996, as a result of projected higher capital costs to complete the Fort Knox mine and other cash needs anticipated in 1996, the Company renegotiated the Fort Knox loan and entered into certain other financial arrangements with Cyprus Amax. See "Financing Arrangements" in Note 3 for further discussion. Cyprus Amax has guaranteed the loan until economic completion of the Fort Knox mine, as defined in the loan agreement, and the Company has agreed not to borrow without the consent of Cyprus Amax under the $100 million credit line previously provided by Cyprus Amax, which forms part of the guaranty.
8. DERIVATIVE CONTRACTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
COMMODITY DERIVATIVE CONTRACTS
Precious metal contracts include forward sales and purchase contracts, spot deferred forward sales, put and call options and compound options and are entered into by the Company to manage the effect of price changes on the Company's precious metals that are produced and sold. Realization under these contracts is dependent upon the counterparties performing in accordance with the terms of the contracts. The Company does not anticipate non-performance 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, at the option of the counterparty, to defer the delivery of gold to a later date at a renegotiated gold price. Forward purchase contracts, which require the future purchase of gold at a specified price, were established to take advantage of a rising market and are offset by purchased puts. Various factors influence the decision to close a spot deferred forward sales contract or to roll the contract forward to a later date.
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
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. The Company also uses compound options to protect against decreases in gold prices and to reduce the initial cash outlay needed to provide this protection. The call portion of a compound option allows the Company to purchase a put. The Company's risk in purchasing compound options is limited to the premium paid.
Historically, the Company's price risk management activities have utilized principally derivative instruments and strategies that qualified for hedge accounting. The Company increased its use of derivative instruments during 1997 and the total program has put the Company in the position whereby it is partially protected from further downward pressure in the price of gold during 1998 and future years and at the same time will enable the Company to participate in any upward price movement. Some of the instruments utilized in this program do not qualify for hedge accounting and, consequently, must be marked to market. At December 31, 1997, the mark to market gain on this program was $5.0 million, which has been reflected in the 1997 results.
As of December 31, 1997, the Company's outstanding hedge contracts were as follows:
/(1)/Primarily on a spot deferred forward basis, which allows for deferral of the delivery of gold ounces to a later date at a renegotiated gold price.
As of December 31, 1997, the Company's outstanding commodity derivative contracts which are marked to market are as follows:
The market value of the Company's forward contracts and put and call options at December 31, 1997 and 1996, was approximately $51.0 million and $25.1 million. Market valuations for these contracts are dependent on gold market prices, option volatility and interest rates, which can vary significantly.
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
INTEREST RATE PROTECTION AGREEMENTS
As a requirement of the Fort Knox loan, the Company has entered into interest rate swaps and swap option agreements to reduce the impact of changes in interest rates. At December 31, 1997, the Company had interest rate swaps and swap option sales contracts that if exercised between January 1998 and April 1998 would obligate the Company to pay a fixed rate of 5.97 percent over an average term of 0.8 years on a principal amount of $205 million. The Company also purchased swap options with the right to pay 6.9 percent over an average term of 1.5 years on a principal amount of $138 million. Gains or losses realized on these contracts will be amortized over the term of the loan. Amax Gold would break even if required to terminate these interest rate swap agreements, given market interest rates at December 31, 1997. Due to the requirements placed on the Company as a condition of its Fort Knox borrowings, the Company does not expect to close these contracts.
CREDIT RISK
Amax Gold is exposed to credit losses in the event of non-performance by counterparties to financial instruments, but does not expect any counterparties to fail to meet their obligations. The Company generally does not obtain collateral or other security to support financial instruments subject to credit risk but monitors the credit standing of counterparties.
The estimated fair values for financial instruments under SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair values of the Company's financial instruments, as measured on December 31, 1997 and 1996, are as follows:
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
CASH AND EQUIVALENTS The carrying amounts approximate fair value because of the short maturity of these instruments.
LONG-TERM RECEIVABLES The fair value is estimated based on expected discounted future cash flows, including applicable interest.
LONG-TERM DEBT The fair value is estimated based on the quoted market prices for the same or similar issues offered to the Company for debt of similar maturities.
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
DERIVATIVE CONTRACTS The fair value of options is estimated based on market prices, volatilities and interest rates, while the fair value of forward sales and purchases are estimated based on the quoted market price for the contracts at December 31, 1997 and 1996. The net asset of $10.0 million and $10.7 million recorded on the financial statements as of December 31, 1997 and 1996, respectively, is comprised of $14.7 million and $11.7 million in prepaid option costs, $0.8 million and $6.3 million in deferred option costs and net of $5.5 million and $7.3 million in current deferred premiums, respectively.
INTEREST RATE PROTECTION AGREEMENTS The fair value of interest rate protection agreements is estimated by obtaining quotes from financial institutions and represents the cost to buy out the swaps and options at December 31, 1997 and 1996. The Company does not expect to buy out these agreements.
9. EMPLOYEE BENEFITS
PENSION PLAN
Substantially all employees in the United States are covered by a non- contributory defined benefit pension plan. Benefits are based generally on years of service and compensation levels prior to retirement. The Company makes annual contributions to the plan in accordance with the requirements of the Employee Retirement Income Security Act of 1974 (ERISA). Plan assets are invested in a balanced fund and small capital equity fund.
Net annual pension cost includes the following components:
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
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:
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company also provides certain health care and life insurance benefits for retired employees in the United States. The postretirement health care plans are contributory in certain cases based upon years of service, age and retirement date. The Company currently does not fund postretirement benefits and may modify plan provisions at its discretion. Net periodic postretirement benefit costs for the years ended December 31, 1997, 1996 and 1995, 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:
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
The accumulated postretirement benefit obligation was determined using a weighted average annual discount rate of 7.25 percent in 1997 and 7.75 percent in 1996. The assumed health care cost trend rate for 1998 is 10.0 percent, declining to 9.5 percent in 1999 and thereafter when Company costs associated with the plan are capped. A one percent increase in the health care cost trend rate used would have resulted in an insignificant increase in the 1997 postretirement benefit cost and the accumulated postretirement benefit obligation at December 31, 1997.
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. At December 31, 1997 and 1996, the Company's liability for postemployment benefits totaled $2.7 million and $3.9 million, respectively, and is included in other liabilities.
10. PREFERRED STOCK
In August 1994, the Company sold publicly 1.8 million shares of $3.75 Series B Convertible Preferred Stock (Preferred Stock) for net proceeds of $88.3 million. The 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 11.2 million 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 are payable quarterly on each November 15, February 15, May 15 and August 15, as and if declared by the Board of Directors.
11. 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 Common Stock 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.
In 1994, the Company's shareholders approved a plan to grant Common Shares to non-employee directors, under which 100,000 shares of Common Stock were reserved for issuance. Through December 31, 1997, a total of 30,000 shares had been issued.
During 1995, Amax Gold was reincorporated in Delaware and elected not to be governed by Section 203 of the Delaware General Corporation Law, permitting the Company to engage in business transactions with Cyprus Amax without requiring the approval of 66 2/3 percent of all shareholders excluding Cyprus Amax and its affiliates and associates. As a result of the reincorporation, Amax Gold's treasury stock was canceled.
12. STOCK-BASED COMPENSATION PLANS
At December 31, 1997, the Company has two stock-based compensation plans, which are described below. The Company applies APB Opinion 25 and related interpretations in accounting for its plans. Accordingly, no
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
compensation cost has been recognized for its fixed stock option plan. The compensation cost that has been charged against income for its long-term incentive plan was insignificant for 1997 and 1996. Had compensation cost for the Company's two stock based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, the difference in the Company's net loss and loss per share would have been immaterial. 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 for grants in 1997 and 1996, respectively: no dividend payments; expected volatility of 172 and 37 percent; risk-free interest rates of 6.08 and 6.02 percent; and expected lives of 3.00 and 3.18 years.
The Company maintains a fixed stock option 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 remain exercisable until 10 years from date of grant. As of December 31, 1997, 1.9 million Common Shares are reserved for future grants.
A summary of the status of the Company's fixed stock option plan as of December 31, 1997 and 1996 and changes during the years ending on those dates is presented below:
During 1993, Amax Gold implemented a long-term incentive plan. Under this plan, officers of the Company may receive restricted stock awards based on the rate of return received by investors in the Company's Common Stock, compared with that of its peers in the gold industry. Such awards may be deferred, accelerated or otherwise adjusted based upon a strategic and comparative performance assessment. At December 31, 1997, cumulative shares awarded were 143,750 and 706,250 were authorized and unissued. On January 2, 1998, an additional 70,910 shares were awarded. The valuation of the shares issued under the performance share plan as calculated under SFAS No. 123 approximates the amounts recorded as compensation expense by the Company and is insignificant for the years ended December 31, 1997 and 1996.
13. DOMESTIC AND FOREIGN OPERATIONS
The Company's foreign operations consist of the Kubaka mine in Russia and the Guanaco and Refugio mines in Chile. The components of the Company's domestic and foreign operations were as follows:
Substantially all of the Company's 1997, 1996 and 1995 sales were made in Europe through a wholly owned subsidiary of the Company. The Company's sales to major customers that exceeded 10 percent of total sales were $138 million to three customers during 1997, $95 million to four customers in 1996 and $58 million to two customers in 1995. 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.
14. COMMITMENTS AND CONTINGENCIES
The Company estimates future reclamation and closure costs for properties operated by the Company to be approximately $49.5 million based on currently applicable federal, state and foreign laws and regulations. At December 31, 1997, $21.8 million has been accrued. Changes in applicable laws and regulations could have a significant impact on estimates of future costs.
The Company used a gold price of $330 per ounce for 1998 and $375 per ounce for 1999 and beyond to evaluate any impairment of long lived assets. Management's estimate of long-term gold prices may change if the gold price remains at the current low level, which could result in an asset impairment.
Russian tax legislation is subject to varying interpretations and constant changes, which may be retroactive. Further, the interpretation of tax legislation by tax authorities as applied to the transactions and activity of the Company may not
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
coincide with that of management. As a result, transactions may be challenged by tax authorities and the Company may be assessed additional taxes, penalties and interest, which can be significant. Tax periods remain open to review by the tax authorities for six years.
15. QUARTERLY DATA (UNAUDITED)
Quarterly earnings data for the years ended December 31, 1997 and 1996, follow:
Fourth quarter 1996 results included a pre-tax charge of $35.5 million due to the write-down of the Guanaco mine and an unrelated $10 million deferred tax benefit.
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
16. RESERVE DATA (UNAUDITED)
The following table presents proven and probable ore reserves by property at December 31. Ore reserves are calculated by the Company and verified by independent mining engineers with respect to the Fort Knox mine and Haile property.
Ore Reserves/(1)/ (thousands, except average grades)
The following table presents the Company's share of other mineralized material for each of the three new mines as of December 31, 1997, as calculated by the Company.
/(1)/ RESERVES. That part of a mineral deposit that could be economically and legally extracted or produced at the time of the reserve determination. Reserves have been calculated using a $375 per ounce gold price at all properties except for Haile, for which a $400 per ounce gold price was used. The Company has determined that calculating the Fort Knox and Kubaka reserves at $350 per ounce would not materially change the results;
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
however, calculating the Refugio reserves at $350 per ounce would result in a decrease in proven and probable reserves of approximately 10 percent.
PROVEN RESERVES. Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established.
PROBABLE RESERVES. Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation.
These definitions comply with those issued by the Securities and Exchange Commission, which are based on definitions used by the United States Bureau of Mines and the United States Geological Survey.
OTHER MINERALIZED MATERIAL. A mineralized body that has been physically delineated by drilling, underground work, surface trenching, etc., and found to contain a sufficient amount of mineralized material with an average grade of metal or metals to warrant further exploration expenditures. The Company's reported mineralized material must be defined by a conceptual mine plan and have established geologic continuity but does not qualify as a commercially mineable ore body until final legal, technical and economic factors have been resolved. /(2)/ Commercial production at the Fort Knox mine commenced on March 1, 1997. /(3)/ Amax Gold acquired the Kubaka mine from Cyprus Amax in May 1997. Commercial production at the Kubaka mine commenced on June 1, 1997. /(4)/ Commercial production at the Refugio mine commenced on October 1, 1996. /(5)/ The Company owns a 90 percent interest in the Guanaco mine and under existing shareholder arrangements receives 100 percent of production until certain conditions are met. Based on management's belief that those conditions would not be met, 100 percent of Guanaco's reserves were included in the Company's reserve table for 1996 and 1995. /(6)/ The Company has not yet reached a decision regarding whether to proceed with development of the property.
The Company reports extractable (mineable) ore reserves. Reserves do not reflect losses in the milling or heap leaching processes, but do include allowance for ore dilution in the mining process.
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
Recovery rates for 1997 were as follows:
17. SUBSEQUENT EVENT
On February 9, 1998, the Company announced that they entered into a merger agreement with Kinross Gold Corporation (Kinross) providing for a combination of their businesses. In the merger, each share of the Company's common stock will be converted into 0.8 of a share of Kinross common stock. Cyprus Amax agreed to contribute $135 million of cash and indebtedness to Kinross at the effective time of the merger in exchange for approximately 35 million shares of Kinross common stock. The merger will result in the current shareholders of Kinross owning 50 percent of the new Kinross and the current shareholders of Amax Gold (after giving effect to the infusion of the $135 million) owning 50 percent of the new Kinross.
AMAX GOLD INC. AND SUBSIDIARIES 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 Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be filed by amendment to the Company's Annual Report on Form 10-K within 120 days after the end of the fiscal year.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be filed by amendment to the Company's Annual Report on Form 10-K 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 will be filed by amendment to the Company's Annual Report on Form 10-K 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 will be filed by amendment to the Company's Annual Report on Form 10-K within 120 days after the end of the fiscal year.
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:
10-K Page --------- 1. Financial Statements
Report of Independent Accountants 24 Consolidated Statement of Operations for each of the three years in the period ended December 31, 1997 25 Consolidated Balance Sheet at December 31, 1997 and 1996 26 Consolidated Statement of Cash Flows for each of the three years in the period ended December 31, 1997 27 Consolidated Statement of Shareholders' Equity for each of the three years in the period ended December 31, 1997 28 Notes to Consolidated Financial Statements 29 - 49
2. Financial Statement Schedules
Financial statement schedules are not included in this Annual Report on Form 10-K because they are not applicable.
3. Exhibits
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
3(ii) By-Laws, dated April 27, 1995, adopted on April 26, 1995, as amended and restated effective June 21, 1995, filed as Exhibit 3(ii) to the Company's Registration Statement on Form 8-B filed June 21, 1995 and incorporated herein by reference.
4.1 Certificate of Designations for the $2.25 Series A Convertible Preferred Stock, filed as Exhibit 4.1 to the Company's Registration Statement on Form 8-B filed June 21, 1995 and incorporated herein by reference.
4.2 Certificate of Designations for the $3.75 Series B Convertible Preferred Stock, filed as Exhibit 4.2 to the Company's Form 8-B filed June 21, 1995 and incorporated herein by reference.
10.1 Agreement regarding issuance of stock dated September 29, 1995 between the Company and Cyprus Amax, filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 and incorporated herein by reference.
10.2 Directors' Deferred Compensation Plan for Members of the Board of Directors of Amax Gold Inc., filed as Exhibit 10.14.2 to the Company's Registration Statement No. 33-22645 and incorporated herein by reference. Second Amendment to the Deferred Compensation Plan for Members of the Board of Directors of Amax Gold Inc. filed as Exhibit (10)(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, and incorporated herein by reference.
10.3 Amax Gold Inc. Excess Benefit Plan, filed as Exhibit EX-10(g) to the Company's Annual Report on Form 10-K for the year-ended December 31, 1993 and incorporated herein by reference.
10.4 Amax Gold Inc. Deferred Compensation Plan, filed as Exhibit EX-10(h) to the Company's Annual Report on Form 10-K for the year-ended December 31, 1993 and incorporated herein by reference.
10.5 Amax Gold Inc. 1992 Stock Option Plan, filed as Exhibit A to the Company's Proxy Statement for the 1993 Annual Meeting of Stockholders and incorporated herein by reference. First Amendment to the Amax Gold Inc. 1992 Stock Option Plan, filed as Exhibit (10)(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, and incorporated herein by reference.
10.6 Amax Gold Inc. Key Executive Long-Term Incentive Plan (formerly the Amax Gold Performance Share Plan), filed as Exhibit B to the Company's Proxy Statement for the 1993 Annual Meeting of Stockholders and incorporated herein by reference. First and Second Amendments to the Amax Gold Inc. Key Employee Long-Term Incentive Plan filed as Exhibit (10)(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, and incorporated herein by reference.
10.7 Term Loan Agreement, dated October 31, 1995, between Amax Gold Inc., Fairbanks Mining, Inc., Guanaco Mining Company, Inc., Lassen Gold Mining, Inc., Melba Creek Mining Inc., Nevada Gold Mining, Inc. and a group of banks, filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 and incorporated herein by reference; Amendment to Term Loan Agreement dated December 7, 1995; Amendment to Term Loan Agreement dated March 19, 1996; and Cyprus Amax Guaranty, dated as of March 19, 1996 by Cyprus Amax, in favor of the administrative agent for the group of banks, filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference; Third Amendment Agreement, dated as
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
of March 24, 1997, filed as Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, and incorporated herein by reference.
10.8 Exploration Joint Venture Agreement, effective January 1, 1994, between the Company and Cyprus Amax, filed as Exhibit 10.1 to the Company's Registration Statement on Form S-3 (Registration No. 33-53963) and incorporated herein by reference; and Amendment to Exploration Joint Venture Agreement, dated December 29, 1995, between the Company and Cyprus Amax, filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference; and Amendment to
Exploration Joint Venture Agreement dated as of December 15, 1997, between the Company and Cyprus Amax.
10.9 Revolving Credit Agreement, dated as of April 15, 1994 between the Company and Cyprus Amax, filed as Appendix A to the Company's Proxy Statement for the July 26, 1994 Special Meeting of Stockholders and incorporated herein by reference; and Amendment to Revolving Credit Agreement, dated as of March 10, 1994, between the Company and Cyprus Amax, filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year-ended December 31, 1994 and incorporated herein by reference.
10.10 Loan Agreement, dated as of November 23, 1994, amended February 7 and 14, 1995, among Compania Minera Maricunga, as borrower, Amax Gold Inc. and Bema Gold Corporation, as guarantors, and certain banks, and related documents, as amended, filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year-ended December 31, 1994 and incorporated herein by reference; as amended by Letter Agreement, dated as of November 1, 1996, and Letter Agreement, dated as of December 19, 1996, filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference.
10.11 Credit Agreement, dated as of March 19, 1996, between the Company and Cyprus Amax; Guaranty Fee Agreement, dated as of March 19, 1996, between the Company and Cyprus Amax; and Reimbursement Agreement, dated as of March 19, 1996, between the Company and Cyprus Amax filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year-ended December 31, 1995 and incorporated herein by reference; Amendment Agreement dated October 31, 1996, amending the Credit Agreement dated March 19, 1996 between the Company and Cyprus Amax, filed as Exhibit (10b) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 and incorporated herein by reference.
10.12 Services Agreement, dated as of January 1, 1994, between the Company and Cyprus Amax, filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year-ended December 31, 1995 and incorporated herein by reference.
10.13 Amended and Restated Agreement and Plan of Merger and Reorganization, dated as of October 9, 1996 among the Company, Amax Russia Corporation, Cyprus Amax, Cyprus Gold Company and Cyprus Magadan Gold Company, filed as Exhibit (10a) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 and incorporated herein by reference.
10.14 Loan Agreement, dated as of May 1, 1997, between Alaska Development Export Authority and Fairbanks Gold Mining, Inc.; Reimbursement Agreement, dated as of May 1, 1997, between Fairbanks Gold Mining, Inc. And Union Bank of Switzerland, New York Branch; Guaranty, dated May 22, 1997, of Cyprus Amax in favor of Union Bank of Switzerland, New York Branch; and Reimbursement Agreement, dated May 22, 1997, of the Company in favor of Cyprus Amax, filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, and incorporated herein by reference.
10.15 Finance Agreement, dated as of June 30, 1995, between Omolon and Overseas Private Investment Corporation ("OPIC"); First Amendment to Finance Agreement, dated as of April 22, 1996, between Omolon Gold Mining Company and OPIC, amending the Finance Agreement dated June 30, 1995 between Omolon and OPIC; and Second Amendment to Finance Agreement, dated as of January 28, 1997, between Omolon and OPIC, amending the Finance Agreement dated June 30, 1995 between Omolon and OPIC,
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, and incorporated herein by reference.
10.16 Loan Agreement, dated as of June 30, 1995, between Omolon and European Bank for Reconstruction and Development ("EBRD"); Amendment Agreement to Loan Agreement, dated November 7, 1995, between Omolon and EBRD, amending the Loan Agreement dated June 30, 1995 between Omolon and EBRD; Second Amendment Agreement to Loan Agreement, dated April 22, 1996, between Omolon and EBRD, amending the Loan Agreement dated June 30, 1995 between Omolon and EBRD; and Third Amendment to Loan Agreement, dated November 20, 1996, between Omolon and EBRD, amending the Loan Agreement dated as of June 30, 1995 between Omolon and EBRD, filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, and incorporated herein by reference.
10.17 Support Agreement, dated as of August 30, 1995, among Omolon, Cyprus Amax, Cyprus Magadan Gold Corporation, EBRD and OPIC; and Amendment Agreement to Support Agreement, dated as of January 28, 1997 among Omolon, Cyprus Amax, Cyprus Magadan Gold Corporation and EBRD, amending the Support Agreement dated as of August 30, 1995 among the parties, filed as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, and incorporated herein by reference.
10.18 Guaranty Agreement, dated as of August 30, 1995, among Cyprus Amax, EBRD and OPIC; and Amendment Agreement to Cyprus Amax Guaranty, dated January 30, 1997, among Cyprus Amax, EBRD and OPIC, amending the Guaranty Agreement dated as of August 30, 1995 among the parties, filed as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, and incorporated herein by reference.
10.19 Loan Agreement, dated as of November 29, 1996, between Omolon and ABN Amro Bank (Moscow) Ltd.; and Guaranty and Indemnity Agreement, dated as of November 26, 1996, by Cyprus Amax in favor of ABN Amro Bank NV, filed as Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, and incorporated herein by reference.
10.20 Agreement, dated April 8, 197, between Omolon Gold Mining Company and ABN Amro Bank (Moscow) Ltd.; and Guaranty and Indemnity Agreement, dated as of April 1, 1997, by Cyprus Amax in favor of ABN Amro Bank NV, filed as Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, and incorporated herein by reference.
10.21 Loan Agreement, dated as of December 18, 1997, between Amax Gold Inc., various banks and other financial institutions and Standard Bank London Limited as the agent for the lenders.
10.22 Guaranty Agreement, dated as of December 18, 1997, between Cyprus Amax Minerals Company and Standard Bank London Limited.
10.23 Agreement dated March 24, 1997 between the Company and Leland O. Erdahl, filed as Exhibit (10)(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, and incorporated herein by reference. Amendment dated September 11, 1997 to Agreement between the Company and Leland O. Erdahl, filed as Exhibit (10)(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference.
10.24 Amax Gold Inc. Separation Plan for Key Employees, effective March 5, 1997.
10.25 Merger Agreement among Kinross Gold Corporation, Kinross Merger Corporation, and Amax Gold Inc., dated February 9, 1998.
10.26 Stockholder Agreement dated as of February 9, 1998, among Kinross Gold Corporation, Kinross Merger Corporation, Cyprus Amax Minerals Company and each of the other persons identified on Exhibit A.
10.27 Restructuring Agreement dated as of December 18, 1997, between COMPANIA MINERA MARICUNGA as borrower and the other parties and Banks named therein.
AMAX GOLD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions unless otherwise indicated and except per share amounts and amounts per ounce)
21 Subsidiaries of the Company.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Mineral Resources Development, Inc.
23.3 Consent of Derry, Michner, Booth & Wahl.
27 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter of 1997.
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.
Date: February 11, 1998 By /s/ Leland O. Erdahl ----------------------------------------- Leland O. Erdahl Vice President and Chief Financing 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 February 11, 1998.
Signature Title - -------------------------------------- --------------------------------------
/s/ Milton H. Ward Chairman of the Board, Chief - -------------------------------------- Executive Officer (principal Milton H. Ward executive officer) and Director
/s/ Leland O. Erdahl Vice President, Chief Financial - -------------------------------------- Officer (principal Leland O. Erdahl financial officer) and Director
/s/ David L. Mueller Vice President, Controller and - -------------------------------------- Assistant Secretary (principal David L. Mueller accounting officer)
/s/ Richard H. Block Director - -------------------------------------- Richard H. Block
/s/ Allen Born Director - -------------------------------------- Allen Born
/s/ Gerald J. Malys Director - -------------------------------------- Gerald J. Malys
/s/ Vernon F. Taylor, Jr. Director - -------------------------------------- Vernon F. Taylor, Jr.
/s/ Russell L. Wood Director - -------------------------------------- Russell L. Wood