Date: Thu, 20 Nov 1997 22:07:54 GMT Server: Apache/1.2.4 Last-Modified: Tue, 03 Jun 1997 18:05:46 GMT ETag: "3d0f5-7331-33945cfa" Content-Length: 29489 Accept-Ranges: bytes Connection: close Content-Type: text/html
Notes to Consolidated Financial Statements
(Tabular information in thousands of United States dollars, except share data)
Vista Gold Corp., formerly Granges Inc. (see B below) is engaged in gold mining and related activities in the United States, Canada, and Latin America, including exploration, extraction, processing, refining and reclamation. Gold bullion is the Company's principal product, which is a commodity produced primarily in South Africa, the United States, Canada, Australia, and Latin America.
The Company's results are impacted by the price of gold. Gold prices fluctuate and are affected by numerous factors, including, but not limited to, expectations with respect to the rate of inflation, exchange rates (specifically, the U.S. dollar relative to other currencies), interest rates, global and regional political and economic crises and governmental policies with respect to gold holdings by central banks. The demand for and supply of gold affect gold prices, but not necessarily in the same manner as demand and supply affect the prices of other commodities. The supply of gold consists of a combination of new mine production and existing stocks of bullion and fabricated gold held by governments, public and private financial institutions, industrial organizations and private individuals. The demand for gold consists of jewelry and investment demand, as well as consumer and speculator hedging activities. Gold can be readily sold on numerous markets throughout the world and its market value can be readily ascertained at any particular time. As a result, the Company is not dependent upon any one customer for the sale of its product.
On July 31, 1996, the boards of directors of Granges Inc. ("Granges") and Da Capo Resources Ltd. ("Da Capo") unanimously approved the amalgamation of the two companies to form a new gold mining company ("Vista Gold Corp."), subject to shareholder, court, and regulatory approval; entering into a definitive amalgamation agreement; and satisfactory completion of due diligence by Granges and Da Capo by August 6, 1996.
The Supreme Court of British Columbia approved the amalgamation, effective November 1, 1996 under the name "Vista Gold Corp." Under the terms of the agreement, each holder of Granges shares received one Vista Gold Corp. share for each Granges share, and each holder of Da Capo shares received two Vista Gold Corp. shares for each Da Capo share. Vista Gold Corp. is owned 66.25 percent by Granges shareholders and 33.75 percent by Da Capo shareholders on a fully diluted basis.
Self-sustaining foreign operations are translated using the current rate method. Under this method, assets and liabilities are translated at the rate of exchange on the balance sheet date, and revenue and expenses at the average rate of exchange during the period. Exchange gains and losses are deferred and shown as a currency translation adjustment in shareholders' equity until transferred to earnings when the net investment in the foreign operation is reduced.
Integrated foreign operations are translated using the temporal method. Under this method, monetary assets and liabilities are translated at the rate of exchange in effect at the balance sheet date and non-monetary assets and liabilities are translated at historical exchange rates, unless such items are carried at market, in which case they are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the rate of exchange in effect on the dates that they occur and depreciation and amortization of assets translated at historical rate are translated at the same exchange rates as the assets to which they relate. Exchange gains and losses are included in the determination of net income for the current period.
Foreign currency denominated monetary items of the Company, excluding its foreign operations, are translated at the year-end exchange rate. Exchange gains and losses on these items are recognized in earnings in the year they arise.
Parts and supplies are valued at the lower of average cost or net replacement value.
Property acquisition and development costs are carried at cost less accumulated amortization and write downs. Amortization is provided on the unit-of-production method based on proven and probable reserves. Management reviews quarterly the carrying value of the Company's interest in each property and, where necessary, these properties are written down to their estimated recoverable amount determined on a non-discounted basis. Management's estimate of gold price, recoverable proven and probable reserves, operating, capital and reclamation costs are subject to risks and uncertainties affecting the recoverability of the Company's investment in property, plant and equipment. Although management has made its best estimate of these factors based on current conditions, it is possible that changes could occur in the near term that could adversely affect management's estimate of net cash flows expected to be generated from its operating properties and the need for possible asset impairment write downs.
Plant and equipment are recorded at cost and depreciated using the units of production method or the straight-line method over their estimated useful lives.
During production, mining costs associated with waste rock removal are deferred and charged to operations on the basis of the average strip ratio for the life of the mine. The average strip ratio is calculated as a ratio of the tons of waste expected to be mined to the tons of ore estimated to be mined. Although management has made its best estimate of these factors based on current conditions, it is possible that changes could occur in the near term that could adversely affect management's estimate of ore and waste in proven and probable reserves and the need for a change in the amortization rate of deferred stripping cost.
In October 1995, the Company completed a private placement with Zamora Gold Corp. (Zamora) for the issuance of 8,000,000 units at US$0.60 per unit. Each unit consists of one common share of Zamora and one common share purchase warrant entitling Granges to purchase one common share for US$0.75 until October 4, 1997. The Company's 8,000,000 shares represent 41 percent of the issued and outstanding shares of Zamora and the investment is accounted for using the equity method with the investment balance as follows.
The Lewis property at the Hycroft mine is subject to a five percent net smelter royalty. During 1996, 1995 and 1994, only nominal minimum royalties were required in relation to this property.
During 1995, options to purchase 35,000 shares at Cdn$ 3.30 per share were repriced to Cdn$2.78 per share.
On July 3, 1996, the Company filed a final short form prospectus with the securities commissions in British Columbia and Ontario relating to the private placement. The funds held in escrow were released to the Company on July 8, 1996. Net proceeds received were Cdn$23,684,564 (US$17,308,329).
On July 10, 1996, all of the 9,699,800 outstanding special warrants were exercised, and 9,699,800 common shares in the capital of the Company and 4,849,900 common share purchase warrants were issued to the holders of the special warrants.
The Company is committed to U.S. dollar payments under certain operating leases for mining equipment. Future payments under these leases in each of the next five years and in the aggregate are:
A reconciliation of the combined Canadian federal and provincial income taxes at statutory rates and the Company's effective income tax expenses is as follows:
During 1995, the Company received notification from the Manitoba Department of Finance of proposed assessments for the years 1983 to 1993 under the Mining Tax Act and for the period March 1, 1989 to December 31, 1994 under the Retail Sales Tax Act. The Company, subsequent to the end of the year, arrived at a settlement with the Department under which the total taxes and interest payable under both Acts amounted to $242,000 (Cdn$330,000), with $89,000 (Cdn$120,000) previously paid. This settlement has been treated as a prior period adjustment and the effect has been to increase mineral properties by $54,000, increase accounts payable by $154,000 at December 31, 1995, and by $242,000 at December 31, 1994 and to reduce retained earnings by $188,000 at December 31, 1994.
On March 30, 1995, the shareholders of Granges Inc. (Granges) and its 50.5 percent owned subsidiary, Hycroft Resources & Development Corporation (Hycroft), approved the amalgamation of the two companies, effective May 1, 1995 under the name Granges Inc. (Amalco).
Under the terms of the amalgamation, the outstanding common shares of each of Granges and Hycroft were exchanged or cancelled on the following basis:
No fractional shares of Amalco were issued and the number of shares received by a Hycroft shareholder was rounded down to the nearest whole number of shares of Amalco, if such a shareholder were otherwise entitled to receive a fraction of a share of Amalco. Immediately after the amalgamation, shareholders of Granges beneficially owned 34,214,500 common shares of Amalco and shareholders of Hycroft beneficially owned 11,718,411 common shares of Amalco, representing 74.5 percent and 25.5 percent of the issued and outstanding common shares of Amalco, respectively.
As Granges already controlled Hycroft, the amalgamation was treated in a manner similar to a pooling of interest. Accordingly, the 1995 results of Amalco represent the consolidated results of Granges for the four months ended April 30, 1995 and the consolidated results of Amalco for the eight months ended December 31, 1995, with all comparative figures being the consolidated results of Granges.
$1.2 million of costs to carry out the amalgamation have been treated as a capital transaction and charged directly to the deficit on the date of amalgamation.
The Company sponsors a qualified tax deferred savings plan in accordance with the provision of Section 401(K) of the U.S. Internal Revenue Service code, which is available to permanent U.S. employees. The Company makes contributions of up to four percent of eligible employee's salaries. The Company's contribution in 1996 was $323,000 (1995 - $113,000).
The Company operates in the mining industry in Canada and the United States, and has exploration and development properties in Latin America. Its major product is gold, and prior to 1995, it also produced copper and zinc. Geographic segments are presented below.
Subsequent to the end of the year, the Company, through its subsidiary, Hycroft Resources & Development Inc., arranged a $13 million revolving credit facility which bears interest at 1.5 percent above LIBOR. Withdrawals under the credit facility are limited to 80 percent of recoverable gold inventory at the Hycroft mine and are collateralized by the assets of Hycroft and a guarantee of the parent company. The borrowings under the facility are repayable after two years. The facility is renewable for two renewal periods of one year each.
The significant differences between generally accepted accounting principles (GAAP) in Canada and in the United States are as follows:
With regard to the purchase of Da Capo, under U.S. GAAP, the excess of purchase price over net book value acquired would be tax affected giving rise to a credit to deferred income taxes and a debit to mineral properties. This would result in a corresponding reduction in the valuation allowance with the resulting credit being allocated against mineral properties.
The significant differences in the consolidated statements of earnings and deficit relative to U.S. GAAP were as follows:
Supplemental Disclosures of Cash Flow Information
Page design copyright © 1996 Palomar Media Corporation. All rights reserved.