UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9025
VISTA GOLD CORP.
(Exact name of registrant as specified in its charter)
Continued under the laws of the Yukon Territory 98-0066159
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7961 Shaffer Parkway
Suite 5
Littleton, Colorado 80127
(Address of principal executive offices) (Zip Code)
(720) 981-1185
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
9,306,504
---------
Common Shares, without par value, outstanding at November 12, 2002
VISTA GOLD CORP.
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited) 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
ITEM 3. CONTROLS AND PROCEDURES 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 16
In this Report, unless otherwise indicated, all dollar amounts are expressed in
United States dollars.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VISTA GOLD CORP.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, December 31,
2002 2001
(U.S. DOLLARS IN THOUSANDS) ------------- ------------
ASSETS: (unaudited)
Cash and cash equivalents $ 1,265 $ 674
Marketable securities 171 -
Accounts receivable 314 180
Supplies and other 192 301
---------- ----------
Current assets 1,942 1,155
Property, plant and equipment - Note 3 14,538 12,734
---------- ----------
Total assets $ 16,480 $ 13,889
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 127 $ 145
Accrued liabilities and other - Note 6 524 1,209
---------- ----------
Current liabilities 651 1,354
Payables to be settled with equity 15 -
Accrued reclamation and closure costs 3,106 3,134
---------- ----------
Total liabilities 3,772 4,488
---------- ----------
Capital stock, no par value per share: - Note 4
Preferred-unlimited shares authorized;
no shares outstanding
Common-unlimited shares authorized;
shares outstanding:
2002 - 8,856,268 and 2001 - 4,535,752 125,711 121,146
Deficit (111,517) (110,260)
Currency translation adjustment (1,486) (1,485)
---------- ----------
Total shareholders' equity 12,708 9,401
---------- ----------
Total liabilities and shareholders' equity $ 16,480 $ 13,889
========== ==========
Nature of operations - Note 2
Commitments and contingencies - Note 5
3
VISTA GOLD CORP.
CONSOLIDATED STATEMENTS OF LOSS
Three Months Ended Nine Months Ended
September 30 September 30
(U.S. DOLLARS IN THOUSANDS, ------------------ -----------------
EXCEPT SHARE DATA) 2002 2001 2002 2001
------ ------ ------ ------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES:
Gold sales - Note 7 $ - $ 195 $ - $ 817
COSTS AND EXPENSES:
Production costs - Note 7 - 150 - 674
Depreciation, depletion and amortization 18 47 56 151
Exploration, property evaluation and holding costs 84 361 525 905
Corporate administration and investor relations 284 267 938 899
Interest expense 6 1 14 20
Loss (gain) on disposal of assets - (37) (83) (77)
Other expense (income) (3) 26 (2) 9
Cost recoveries related to USF&G lawsuit - Note 8 - - (240) -
Write down of marketable securities 49 - 49 -
--------- --------- --------- ---------
Total costs and expenses 438 815 1,257 2,581
Net loss $ (438) $ (620) $ (1,257) $ (1,764)
========= ========= ========= =========
Weighted average shares outstanding 7,308,224 4,535,752 5,969,703 4,535,752
Basic and diluted loss per share $ (0.06) $ (0.14) $ (0.21) $ (0.39)
VISTA GOLD CORP.
CONSOLIDATED STATEMENTS OF DEFICIT
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
(U.S. DOLLARS IN THOUSANDS) 2002 2001 2002 2001
------ ------ ------ ------
(UNAUDITED) (Unaudited) (UNAUDITED) (Unaudited)
Deficit, beginning of period $(111,079) $(108,129) $(110,260) $(106,985)
Net Loss (438) (620) (1,257) (1,764)
--------- --------- --------- ---------
Deficit, end of period $(111,517) $(108,749) $(111,517) $(108,749)
========= ========= ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
4
VISTA GOLD CORP.
CONSOLIDATED STATEMENTS OF CASHFLOW
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
(U.S. DOLLARS IN THOUSANDS) 2002 2001 2002 2001
------ ------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Loss for the period $ (438) $ (620) $ (1,257) $ (1,764)
ADJUSTMENTS TO RECONCILE LOSS FOR THE
PERIOD TO CASH PROVIDED BY (USED IN)
OPERATIONS:
Depreciation, depletion and amortization 18 47 56 151
Reclamation and closure costs paid (32) (62) (28) (137)
Loss (gain) on disposal of assets - (37) (83) (77)
Cost recoveries related to USF&G lawsuit - Note 8 - - (240) -
Write-down of marketable securities 49 - 49 -
Gain on currency translation (1) (4) (1) (4)
Other non-cash items 15 - 15 (6)
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable (148) 616 (134) 467
Supplies inventory and prepaid expenses 52 136 110 97
Accounts payable and accrued liabilities 59 6 (898) (162)
-------- -------- -------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (426) 82 (2,411) (1,435)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (866) - (866) -
Proceeds on disposal of fixed assets and supplies - 291 246 2,908
-------- -------- -------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES (866) 291 (620) 2,908
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt - - - (619)
Net proceeds from (costs of) private
placement - Note 4 (31) - 813 -
Net proceeds from convertible debentures - Note 4 - - 2,774 -
Proceeds from the exercise of stock options - - 35 -
-------- -------- -------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (31) - 3,622 (619)
Net increase (decrease) in cash and
cash equivalents (1,323) 373 591 854
-------- -------- -------- --------
Cash and cash equivalents, beginning of period 2,588 577 674 96
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,265 $ 950 $ 1,265 $ 950
======== ======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
FOR INFORMATION ABOUT MATERIAL NON-CASH TRANSACTIONS, SEE NOTES 3, 4 AND 8.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars unless specified otherwise)
1. General
The consolidated interim financial statements of Vista Gold Corp. (the
"Corporation") as of September 30, 2002 for the three and nine month periods
ended September 30, 2002, have been prepared by the Corporation without audit
and do not include all of the disclosures required by generally accepted
accounting principles in Canada for annual financial statements. As described in
Note 10, generally accepted accounting principles in Canada differ in certain
material respects from generally accepted accounting principles in the United
States. In the opinion of management, all of the adjustments necessary to fairly
present the interim financial information set forth herein have been made. The
results of operations for interim periods are not necessarily indicative of the
operating results of a full year or of future years. These interim financial
statements should be read in conjunction with the financial statements and
related footnotes included in the Corporation's Annual Report on Form 10-KSB, as
amended, for the year ended December 31, 2001.
On June 19, 2002, the Corporation effected a consolidation of its common shares
on a 1-for-20 basis. The shares began trading on a post-consolidation basis on
that date. All references to common shares in this document are on a
post-consolidation basis, unless otherwise indicated.
These interim financial statements follow the same accounting policies and
methods of their application as the most recent annual financial statements,
except as follows:
(a) On January 1, 2002, the Corporation adopted the new recommendations of the
Canadian Institute of Chartered Accountants, CICA 3870, for the
recognition, measurement and disclosure of stock-based compensation and
other stock-based payments made in exchange for goods and services. The
Corporation has chosen not to apply the fair value based method of
accounting for employee stock-based compensation plans. Awards granted to
non-employees will be accounted for using the fair value method. This new
standard was adopted prospectively for awards granted on or after
January 1, 2002.
(b) Marketable securities are stated at the lower of cost or market value.
Under U.S. GAAP, securities that are available-for-sale are recorded at
fair value and unrealized gains or losses are included as part of
comprehensive income.
2. Nature of operations
The Corporation is engaged in the evaluation, acquisition, and exploration of
mineral properties with the potential to host gold deposits, as well as
development and operation of gold properties in the Americas.
Mining activities were suspended at the Hycroft mine in 1998. Currently,
solution is being circulated over the heap leach pads at the mine to enhance
evaporation. As the solution is circulated, it is passed through a carbon plant
where small amounts of gold are adsorbed onto activated carbon. The gold is
subsequently stripped from the carbon, refined and sold to defray the property
holding costs. The amount of gold recovered from the heap leach pads has
declined gradually, as expected, since 1998.
The Amayapampa project in Bolivia is being held for development, pending higher
gold prices. The Paredones Amarillos project in Mexico, acquired on August 29,
2002, will be studied to identify operating and cost improvement opportunities.
Management has estimated that the Corporation will have adequate funds, from
existing working capital and proceeds from warrants exercised subsequent to the
period, to meet its obligations for the coming year. If the Corporation were to
acquire additional gold projects, it would be necessary to obtain additional
funding. The Corporation has reserved 3,999,987 common shares to be issued upon
exercise of warrants (Note 4) which have an exercise price of $1.50 per share,
and a five-year term, some of which have already been exercised. The current
value of the Corporation's shares is substantially higher than $1.50,
consequently, the Corporation expects the holders of the warrants to continue to
exercise their warrants. Exercise is at the option of the warrant holder. If all
6
warrants were exercised, the Corporation would receive an aggregate of
$6.0 million. However, there can be no assurance that all or any additional
warrants will be exercised.
3. Property, plant and equipment
Property, plant and equipment is comprised of the following:
($ 000's) September 30, 2002 December 31, 2001
-------------------------------- --------------------------------
Accumulated Accumulated
Depreciation, Depreciation,
Amortization, Amortization,
MINERAL PROPERTIES Cost Write-downs Net Cost Write-downs Net
-------------------------------- --------------------------------
Hycroft mine, United States $ 21,917 $21,917 $ - $ 29,917 $21,917 $ -
Nevada projects, United States 78 - 78 - - -
Amayapampa, Bolivia 57,624 46,894 10,730 57,624 46,894 10,730
Paredones Amarillos, Mexico 2,048 - 2,048 - - -
-------------------------------- --------------------------------
$ 81,667 $68,811 $12,856 $ 79,541 $68,811 10,730
-------------------------------- --------------------------------
PLANT & EQUIPMENT
Hycroft mine, United States $ 30,072 $28,395 $ 1,677 $ 31,278 $29,397 $ 1,881
Amayapampa, Bolivia 181 181 - 181 181 -
Corporate, United States 331 326 5 467 344 123
-------------------------------- --------------------------------
$ 30,584 $28,902 $ 1,682 $ 31,926 $29,922 $ 2,004
-------------------------------- --------------------------------
Total property, plant and
equipment $112,251 97,713 $14,538 $111,467 $98,733 $12,734
-------------------------------- --------------------------------
The recoverability of the carrying values of the Hycroft mine and the Amayapampa
project is dependent upon the successful start-up or the sale of these
properties. Restart of the Hycroft mine and development of the Amayapampa
project will depend, among other things, on management's ability to raise
additional capital for these purposes. Although the Corporation has been
successful in raising such capital in the past, there can be no assurance that
it will be able to do so in the future. The acquisition of the Paredones
Amarillos gold project in Mexico was completed on August 29, 2002, as disclosed
in the Corporations' Current Report on Form 8-K filed with the SEC on August 30,
2002. The total cost of this project included cash payments of $788,000 for
acquisition and related costs, the issuance of equity units valued at $943,000
(Note 4) and a future cash payment of $317,000 due August 29, 2003. The Nevada
projects are more fully discussed in Note 11.
4. Capital stock
COMMON SHARES ISSUED AND OUTSTANDING
Number of shares Value (000's)
---------------------------------
At December 31, 2001, outstanding* 4,535,752 $121,146
Private placement, net 1,296,296 813
Conversion of convertible debentures 2,703,690 2,774
Shares issued for acquisition of gold properties, net 303,030 943
Exercise of stock options 17,500 35
---------------------------------
8,856,268 $125,711
=================================
* On June 19, 2002, the Corporation effected a consolidation of its common
shares on a 1-for-20 basis. At December 31, 2001, pre-consolidation shares
outstanding = 90,715,040
7
As previously disclosed in the Corporation's Quarterly Reports on Form 10-QSB
for the quarters ended March 31, 2002, and June 30, 2002, the Corporation
effected a two-step private placement transaction (the "Private Placement") in
February and March 2002. In the first step of the Private Placement (the "Unit
Offering"), the Corporation issued 1,000,000 units to Stockscape.com
Technologies Inc. (since amalgamated into Quest Investment Corporation), at a
price of $1.026 per unit for an aggregate purchase price of $1,026,000. Each
unit consisted of one common share and one share purchase warrant exercisable
for one additional common share at $1.50, until February 1, 2007. The
Corporation also issued 80,000 units to Global Resource Investments Ltd.
("Global") as consideration for its services as agent in connection with the
Unit Offering. In the second step of the Private Placement (the "Debenture
Offering"), the Corporation issued $2,774,000 aggregate principal amount of
convertible debentures. The debentures were convertible into debenture units at
a price of $1.026 per debenture unit, each consisting of one common share and
one 5-year warrant (termed a "debenture warrant") entitling the holder to
purchase one common share at a price of $1.50 until March 18, 2007. As
consideration for its services as agent in connection with the Debenture
Offering, the Corporation issued to Global special warrants exercisable for
216,296 units, with each unit consisting of one common share and one warrant
with the same terms as the share and warrant components, respectively, of the
debenture units. The Corporation incurred $213,000 in direct costs connected
with the Private Placement.
On September 19, 2002, a Registration Statement on Form S-3 filed under the
Securities Act of 1933 for the registration for resale of 7,999,974 common
shares (including shares already issued as well as shares to be issued, all in
connection with the Private Placement), was declared effective by the SEC. As a
result of this registration statement becoming effective, the Corporation's
$2,774,000 convertible debentures issued in the Debenture Offering were
automatically converted, pursuant to their terms, into 2,703,690 common shares
and the same number of debenture warrants. The registration included
3,999,987 shares issuable upon the exercise of warrants, including the warrants
issued in the Unit Offering and the debenture warrants, having the respective
expiration dates as noted in the preceding paragraph. As of September 30, 2002,
none of these warrants have been exercised.
On August 29, 2002, the Corporation issued 303,030 equity units priced at
Cdn.$4.95 (approximately U.S.$3.17) with each unit including one common share
and one two-year warrant to purchase one common share at a price of Cdn.
$6.88 (approximately U.S.$4.40), as partial consideration for the acquisition
of the Paredones Amarillos gold project (Note 3). As of September 30, 2002,
none of these warrants have been exercised.
17,500 options issued under the Corporation's Stock Option Plan were to purchase
the Corporation's common shares for an aggregate price of $35,000.
The Corporation applies the recommendations of the Canadian Institute of
Chartered Accountants ("CICA") Handbook Section 3870 in accounting for
Stock-Based Compensation. Under the Corporation's Stock Option Plan,
10,000 stock options (200,000 on a pre-consolidation basis) were issued to
directors of the Corporation in March 2002. Subject to regulatory and
shareholder approval, 619,500 stock options were issued to directors, officers
and employees in July 2002, half of which were vested immediately and half of
which will vest in July 2003. Had compensation been recorded using the
fair-value method for the stock options granted since January 1, 2002, the
Corporation's loss and loss per share for Canadian GAAP would have been adjusted
to the pro forma amounts indicated below:
Nine Months Ended
September 30, 2002
Net loss - as reported (000's) $(1,257)
Net loss - pro forma (000's) (1,743)
Loss per share - as reported (0.21)
Loss per share - pro forma (0.29)
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for the grants:
8
March Options July Options
Expected volatility 50.0% 50.0%
Risk-free interest rate 3.50% 3.50%
Expected lives 5 years 3 years
Dividend yield 0% 0%
5. Commitments and contingencies
The Corporation has provided a guarantee of $5.1 million with respect to
reclamation obligations under an approved reclamation plan at the Hycroft mine.
It is possible that the Corporation's estimates of its reclamation and closure
liability and related bonding could change as a result of changes in regulations
and/or cost estimates.
6. Accrued liabilities and other
As discussed in "Part II - Item 1. Legal Proceedings" in the Corporation's Form
10-QSB for the quarter ended June 30, 2002, the Corporation settled the USF&G
lawsuit for which it had previously provided $0.8 million.
7. Gold sales and production costs
Gold production has gradually declined since mining activities were suspended at
the Hycroft mine in 1998. Effective at the beginning of fiscal 2002, gold
production is considered incidental to the activities at the Hycroft mine, and
reporting the associated sales proceeds as revenue is no longer warranted.
Accordingly, proceeds from gold sales, are netted against `Exploration, property
evaluation and holding costs.' Similarly, gold production costs, which
approximately offset the proceeds from gold sales, are included in `Exploration,
property evaluation and holding costs.'
8. Cost recoveries related to USF&G lawsuit
The Corporation has received from Golden Phoenix Minerals, Inc. ("GPMI"), the
current owner of the Mineral Ridge Mine, 628,931 common shares, valued at
$220,000 in consideration for benefits GPMI received as a direct result of the
Corporation's facilitation of the USF&G settlement. In addition, the final
settlement amount for the USF&G lawsuit was $20,000 less than originally
estimated and provided for.
9. Geographic and segment information
The Corporation operates in the gold mining industry, has gold projects in the
United States, Mexico and South America and has exploration properties in the
United States, Canada and South America. Its major product and only identifiable
segment is gold, and all gold revenues and substantially all operating costs are
derived in the United States. Geographic segmentation of capital assets is
provided in Note 3.
10. Differences between Canadian and United States generally accepted
accounting principles
The Corporation prepares its financial statements in accordance with accounting
principles generally accepted in Canada, which differ in some respects from
those in the United States. The measurement effect of these GAAP differences on
the consolidated statements of loss were as follows:
9
CONSOLIDATED STATEMENTS OF LOSS
Three Months Ended Nine Months Ended
Sept. 30, 2002 Sept. 30, 2001 Sept. 30, 2002 Sept. 30, 2001
-------------------------------- ---------------------------------
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net loss - Canadian GAAP $ (438) $ (620) $(1,257) $(1,257)
Financing costs (111) - (222) -
Revenue recognition - 77 150 37
Unrealized loss on marketable securities 49 - 49 -
Benficial conversion feature (2,494) - (2,774) -
-------------------------------- ---------------------------------
Net loss - U.S. GAAP (2,994) (543) (4,054) (1,220)
Unrealized loss on marketable securities (49) - (49) -
Unrealized foreign currency gain (loss) (1) 1 (1) -
-------------------------------- ---------------------------------
Comprehensive loss - U.S. GAAP $(3,044) $ (542) $(4,104) $(1,220)
================================ =================================
Basic loss per share - U.S. GAAP $ (0.42) $(0.12) $ (0.69) $ (0.27)
In 2001, the Corporation recognized revenue upon adsorption of gold onto carbon.
In accordance with U.S. GAAP, revenue is not recorded before title is passed.
Also in accordance with U.S. GAAP, unrealized gains or losses on marketable
securities are segregated for the derivation of comprehensive income.
The special warrants issued to the agent as compensation for its services in
connection with the Debenture Offering (Note 4) are valued and included as a
financing cost of the related debentures.
The measurement effect of GAAP differences on the consolidated balance sheets
were as follows:
CONSOLIDATED BALANCE SHEETS
September 30, 2002 December 31, 2001
--------------------------------------- --------------------------------------
Per Cdn. Cdn./U.S. Per U.S. Per Cdn. Cdn./U.S. Per U.S.
GAAP Adj. GAAP GAAP Adj. GAAP
(U.S. DOLLARS IN THOUSANDS) (Unaudited)
Current assets and deferred costs $ 1,942 $ - $ 1,942 $ 1,155 $ (150) $ 1,005
Property, plant and equipment 14,538 (7,637) 6,901 12,734 (7,637) 5,097
Current liabilities 651 - 651 1,354 - 1,354
Long term liabilities 3,121 - 3,121 3,134 - 3,134
Capital stock 125,711 76,754 202,465 121,146 76,754 197,900
Special warrants - 222 222 - - -
Contributed surplus - 5,560 5,560 - 2,786 2,786
Other comprehensive income (1,486) (49) (1,535) (1,485) - (1,485)
Deficit (111,517) (90,123) (201,640) (110,260) (83,327) (197,587)
The conversion feature of the convertible debentures (the "Beneficial Conversion
Feature") was in the money at the date of issue. The debentures were fully
converted on September 19, 2002 (Note 4), accordingly the fair value of the
Beneficial Conversion Feature is recognized as a charge to net loss and as an
addition to contributed surplus.
11. Subsequent events
As previously disclosed in the Corporations' Current Report on Form 8-K filed
with the SEC on October 9, 2002, the Corporation completed a transaction for the
acquisition of a 100% interest in each of two Nevada gold projects from Newmont
USA Limited, doing business as Newmont Mining Corporation ("Newmont"). Under
10
the terms of the transaction, the total purchase price for both projects
includes the Corporation assuming all of Newmont's obligations with respect to
the properties, including work commitments; and paying Newmont $1.5 million,
comprised of $300,000 in cash and $700,000 in Equity Units (defined below)
priced at $3.54, paid and issued, respectively, at closing; and $500,000 in
Equity Units to be issued on the first anniversary of the closing, with pricing
based on the weighted average closing price of the Corporation's common shares
on the 10 trading days immediately preceding the first anniversary date. The
equity units (the "Equity Units") consist of one common share and one common
share purchase warrant. The warrants in both installments will have a two-year
term and will be priced at 125% of the respective Equity Unit valuation.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(U.S. dollars in thousands, unless specified otherwise)
RECENT DEVELOPMENTS
On September 19, 2002, a Registration Statement on Form S-3 filed under the
Securities Act of 1933 for the registration for resale of 7,999,974 common
shares already issued, as well as shares to be issued, all in connection with
the Corporation's Private Placement (as defined in the Financial Statements
- Note 4), was declared effective by the SEC. As a result of this registration
statement becoming effective, the Corporation's $2,774,000 convertible
debentures were automatically converted into 2,703,690 common shares and the
same number of warrants. The registration included 3,999,987 shares issuable
upon the exercise of warrants, including those warrants issued upon conversion
of the convertible debentures. Each warrant entitles the holder to purchase one
common share of the Corporation at $1.50 until February 1, 2007 (as to warrants
issued in the first step of the Private Placement as described in Note 4), and
until March 18, 2007 (as to warrants issued upon conversion of the convertible
debentures).
RESULTS OF OPERATIONS
The Hycroft mine is on care and maintenance. Mining activities were suspended at
Hycroft in 1998 and, as expected, gold production has declined steadily since
that time. Currently, solution is being circulated over the heap leach pads to
enhance evaporation. As the solution is circulated over the heap leach pads, it
is passed through a carbon plant, where small amounts of gold are adsorbed onto
activated carbon. Subsequently the gold is stripped from the carbon, refined and
sold. As discussed in the Financial Statements - Note 7, gold sales are no
longer recorded as such, but are accounted for as an offset to exploration,
property evaluation and holding costs. Accordingly, gold revenues in the three
and nine months ended September 30, 2002 were nil, compared to $0.2 million and
$0.8 million for the respective periods in 2001. The 2001 gold revenues were a
result of 580 ounces of gold production. Similarly, production costs were nil
for the three and nine months ended September 30, 2002 compared to production
costs of $0.2 million and $0.7 million for the respective periods in 2001.
Depreciation, depletion and amortization for the three months ended
September 30, 2002 totalled $18,000, compared to $47,000 for the same period in
2001. Depreciation, depletion and amortization for the nine months ended
September 30, 2002 totalled $56,000, compared to $151,000 for the same period in
2001. A significant portion of the Hycroft property, plant and equipment has
been sold and a substantial portion of the remaining equipment has been fully
depreciated.
Exploration, property evaluation and holding costs, for the three months ended
September 30, 2002 totaled $0.1 million, compared to $0.4 million for the same
period in 2001; and $0.5 million for the nine months ended September 30, 2002
compared to $0.9 million for the same period in 2001. The 2002 costs reflect
cost reduction initiatives at the Hycroft mine and in Bolivia.
Corporate administration costs for the three month and nine month periods ended
September 30, 2002 were $0.3 million and $0.9 million respectively, similar to
the costs incurred for the same periods in 2001. Future corporate administration
costs are expected to increase slightly because of renewed business development
and investor relations programs.
Net gains from disposals of Hycroft equipment during the nine months ended
September 30, 2002 totalled $30,000, compared to net gains of $77,000 for the
same period in 2001. Net gains from disposals of assets during the nine months
ended September 30, 2002 include a gain of $53,000 from the disposal of Canadian
exploration claims.
As described in Financial Statements - Note 8, the Corporation received from
Golden Phoenix Minerals, Inc. ("GPMI"), the current owner of the Mineral Ridge
Mine, 628,931 common shares in consideration for benefits GPMI received as a
direct result of the Corporation's facilitation of the USF&G settlement. The
Corporation has recorded these as marketable securities. A $49,000 write-down to
market value has been made to reflect an estimated $171,000 fair value of these
shares.
12
Net cash used in operations was $0.4 million for the three months ended
September 30, 2002 and $2.4 million for the nine months ended September 30,
2002. This compares to $0.1 million cash provided and $1.4 cash used
respectively for the same periods in 2001. The increased cash usage for the
three-month period results mainly from differences with respect to the timing of
gold sales, partially offset by lower operating costs in 2002. The increased net
cash used in operations for the nine months ended September 30, 2002 is a result
of the use of $0.8 million for the settlement of the USF&G lawsuit as discussed
in the Financial Statements - Note 6, and the timing of gold sales, offset by
lower severance payments and lower operating costs in 2002. For the nine months
ended September 30, 2002, $0.2 million was provided from the sale of equipment
and mining claims, compared to $2.9 million provided in the same period in 2001,
which involved the sale of four haul trucks and one shovel from the Hycroft
mine. The Corporation used $0.9 million as partial consideration in acquiring
the Paredones Amarillos gold project in Mexico, and to evaluate for acquisition,
two gold projects in Nevada (see Financial Statements - Note 3). The Corporation
made no capital expenditures in 2001. As discussed in the Financial Statements -
Note 4, for the nine months ended September 30, 2002, the Corporation raised
$3.6 million, net of associated costs, from a private placement of equity and
convertible debentures, which were fully converted on September 19, 2002. The
Corporation also received $35,000 from the exercise of stock options during the
nine month period ended September 30, 2002. $0.6 million was used in financing
activities to repay a long-term equipment loan in the same period in 2001.
FINANCIAL CONDITION
The Corporation's consolidated cash balance at September 30, 2002 was
$1.3 million, compared to a cash balance of $0.7 million at December 31, 2001;
working capital was $1.3 million as of September 30, 2002 compared to a working
capital deficit of $0.2 million at December 31, 2001. This improvement resulted
from the Private Placement financing as discussed in the Financial Statements -
Note 4, and above in RESULTS OF OPERATIONS.
Management has estimated that the Corporation will have adequate funds, from
existing working capital and proceeds from warrants exercised subsequent to the
period, to meet its obligations for the coming year. Pursuant to the Private
Placement as discussed in the Financial Statements - Note 4, the Corporation has
reserved 3,999,987 common shares to be issued upon exercise of warrants, which
have an exercise price of $1.50 per share, and a five-year term, some of which
have already been exercised. The current value of the Corporation's shares is
substantially higher than $1.50, consequently, the Corporation expects the
holders of the warrants to continue to exercise their warrants during the fourth
quarter of 2002. Exercise is at the option of the warrant holder. If all
warrants were exercised, the Corporation would received an aggregate of
$6.0 million. However, there can be no assurance that all or any additional
warrants will be exercised.
OUTLOOK
Management believes that the Corporation's current working capital together with
the potential for raising additional funds upon the exercise of the warrants
will be adequate to allow the Corporation to fully apply its technical expertise
to evaluate, acquire and enhance gold properties with the potential to host
commercially feasible gold deposits, while maintaining and improving its
existing gold properties in Nevada, Mexico and Bolivia.
On October 8, 2002, the Corporation completed the acquisition of two gold
projects from Newmont USA Limited, doing business as Newmont Mining Corporation
("Newmont"). Under the terms of the transaction, the total purchase price for
both projects includes the Corporation assuming all of Newmont's obligations
with respect to the properties, including work commitments; and paying Newmont
$1.5 million, comprised of $300,000 in cash and $700,000 in Equity Units
(defined in the Financial Statements - Note 11) priced at $3.54, paid and
issued, respectively, at closing; and $500,000 in Equity Units to be issued on
the first anniversary of the closing, with pricing based on the weighted average
closing price of the Corporation's common shares on the 10 trading days
immediately preceding the first anniversary date. As part of the transaction,
the Corporation has agreed to complete at least 20,000 feet of drilling at the
Maverick Springs project and 4,000 feet of drilling at the Mountain View
project, within two years.
Although management believes that the resumption of mining at Hycroft would be
economic at current gold price levels, the Corporation is under no pressure to
make any short-term production decisions which could
13
prematurely deplete this potentially valuable gold resource. Hycroft is a large
epithermal gold system with multiple targets for high-grade mineralization, it
remains one of the most under-explored gold systems in Nevada. Management
believes there is good potential to add oxide reserves and to discover
high-grade zones.
The Paredones Amarillos project will be held pending improved gold prices.
Management will be reviewing ways to reduce the holding costs of this property.
In addition, management plans to review the key assumptions employed in the
feasibility study completed on this project in 1996, and consider alternative
operating methods designed to improve the economics of the project.
In Bolivia, holding costs have been reduced to a minimum and the project will be
held pending improved gold prices.
ITEM 3. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Based on their
evaluation as of a date within 90 days prior to the filing date of this
Quarterly Report on Form 10-QSB, the Corporation's principal executive officer
and principal financial officer have concluded that the Corporation's disclosure
controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934 (the "Exchange Act")) are effective to ensure
that information required to be disclosed by the Corporation in reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms.
(b) CHANGES IN INTERNAL CONTROLS. There were no significant changes in the
Corporation's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as described below, the Corporation is not aware of any material pending
or threatened litigation or of any proceedings known to be contemplated by
governmental authorities which is, or would be, likely to have a material
adverse effect upon the Corporation or its operations, taken as a whole.
In April 1998, a legal dispute was initiated in Bolivia by a Mr. Estanislao
Radic who brought legal proceedings in the lower penal court against Mr. Raul
Garafulic and the Corporation, questioning the validity of the Mr. Garafulic's
ownership of the Amayapampa property. Please see "Part I - Item 3. Legal
Proceedings" as included in the Corporation's Annual Report on Form 10-KSB for
the year ended December 31, 2001, as amended, for information about this matter.
ITEM 2. CHANGES IN SECURITIES
On August 29, 2002, at the closing of the Paredones Amarillos gold project
acquisition, the Corporation issued to Viceroy Resource Corporation
303,030 equity units priced at Cdn $4.95 per unit (approximately U.S.$3.17),
each consisting of one common share and one two-year warrant to purchase one
common share for Cdn $6.88 (approximately U.S.$4.40).
On September 19, 2002, a Registration Statement on Form S-3 filed under the
Securities Act of 1933 for the registration for resale of 7,999,974 common
shares, including shares already issued as well as shares to be issued, all in
connection with the Corporation's Private Placement announced January 22, 2002
(see Financial Statements -- Note 4), was declared effective. As a result, all
of the $2,774,000 convertible debentures issued in the second part of the
Private Placement, the closing of which was announced March 20, 2002, were
automatically converted to common shares and warrants to purchase common shares,
pursuant to the debenture terms as previously disclosed in reports including the
Corporation's 2001 Annual Report on Form 10-KSB, as amended. Of the
7,999,974 common shares registered, 1,514,617 common shares had already been
issued. An additional 2,485,370 shares and the same number of share purchase
warrants were issued as a result of the automatic conversion of the convertible
debentures. The registration included 3,999,987 shares issuable upon the
exercise of warrants, including those warrants issued upon conversion of the
convertible debentures. Each warrant entitles the holder to purchase one common
share of the Corporation at $1.50 until February 1, 2007 (as to warrants issued
in the first step of the Private Placement as described in Note 4), and until
March 18, 2007 (as to warrants issued upon conversion of the convertible
debentures).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
The following Current Reports on Form 8-K were filed by the
Corporation during the quarter ended September 30, 2002:
1. Report dated July 23, 2002, pursuant to Item 5,
regarding the completion of due diligence on the
Paredones Amarillos gold project.
2. Report dated August 29, 2002, pursuant to Item 5,
regarding the completion of the acquisition of the
Paredones Amarillos gold project and the engagement of
a financial adviser.
3. Report dated September 3, 2002, pursuant to Item 5,
regarding a non-binding letter of intent to purchase
projects from Newmont.
4. Report dated September 19, 2002, pursuant to Item 5,
regarding the effective date of the Form S-3
registration statement and the automatic conversion of
convertible debentures.
SIGNATURES
Pursuant to the requirements 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.
VISTA GOLD CORP.
(Registrant)
Date: November 12, 2002 By: /s/ Ronald J. McGregor
-------------------------------------
Ronald J. McGregor
President and Chief Executive Officer
Date: November 12, 2002 By: /s/ John F. Engele
-------------------------------------
John F. Engele
Vice President Finance and
Chief Financial Officer
16
CERTIFICATION
I, Ronald J. McGregor, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Vista Gold Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: November 12, 2002 /s/ RONALD J. MCGREGOR
----------------------
Ronald J. McGregor,
President and Chief Executive Officer
(Principal Executive Officer)
17
CERTIFICATION
I, John F. Engele, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Vista Gold Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: November 12, 2002 /s/ JOHN F. ENGELE
--------------------------------------------
John F. Engele,
Vice President Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
18