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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 2003
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, Canada None
(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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act)
Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
13,922,530
Common Shares, without par value, outstanding at November 5, 2003
VISTA GOLD CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2003
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 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16
ITEM 4. CONTROLS AND PROCEDURES 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 2. CHANGES IN SECURITIES 17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
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. (A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(U.S. DOLLARS IN THOUSANDS) SEPTEMBER 30, 2003 December 31, 2002
------------------ -----------------
ASSETS:
Cash and cash equivalents $ 4,470 $ 3,443
Marketable securities 35 135
Accounts receivable - Note 12 436 185
Supplies and other 220 342
------------------ -----------------
Current assets 5,161 4,105
Restricted cash - Note 3 1,684 -
Mineral properties - Note 4 16,355 14,919
Plant & equipment - Note 5 1,692 1,664
------------------ -----------------
Property, plant & equipment 18,047 16,583
------------------ -----------------
Total assets $ 24,892 $ 20,688
------------------ -----------------
------------------ -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 167 $ 228
Accrued liabilities and other 631 370
------------------ -----------------
Current liabilities 798 598
Payables to be settled with equity - Notes 6 500 510
Accrued reclamation and closure costs - Note 9 4,155 4,155
------------------ -----------------
Total liabilities 5,453 5,263
------------------ -----------------
Capital stock, no par value per share: - Note 7
Preferred - unlimited shares authorized; no shares outstanding
Common - unlimited shares authorized; shares outstanding:
2003 - 13,627,871 and 2002 - 10,744,613 135,575 129,575
Warrants - Note 8 345 345
Contributed surplus 13 -
Options - Note 7 12 25
Deficit (116,506) (114,520)
------------------ -----------------
Total shareholders' equity 19,439 15,425
------------------ -----------------
Total liabilities and shareholders' equity $ 24,892 $ 20,688
------------------ -----------------
------------------ -----------------
Nature of operations - Note 2
Commitments and contingencies - Note 9
Subsequent events - Note 13
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
VISTA GOLD CORP. (A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF LOSS - UNAUDITED
Three Months Ended Nine Months Ended Cumulative
September 30, September 30, during
------------------------- ------------------------- Development
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 2003 2002 2003 2002 Stage
----------- ---------- ----------- ---------- ------------
COSTS AND EXPENSES:
Exploration, property evaluation and holding costs $ 196 $ 84 $ 796 $ 525 $ 1,438
Corporate administration and investor relations 383 284 1,246 938 2,503
Depreciation, depletion and amortization 5 18 32 56 106
Provision for reclamation and closure costs - - - - 1,048
Interest expense - 6 - 14 14
(Gain)/loss on disposal of assets - - - (83) (83)
Other expense (income) (11) (3) (30) (2) (52)
Cost recoveries related to USF&G lawsuit - - - (240) (240)
Loss on currency translation 9 - 34 - 34
Write-down of marketable securities - - 33 - 118
(Gain)/loss on sale of marketable securities (51) 49 (125) 49 (125)
----------- ---------- ----------- ---------- ------------
Total costs and expenses 531 438 1,986 1,257 4,761
----------- ---------- ----------- ---------- ------------
Net loss $ (531) $ (438) $ (1,986) $ (1,257) $(4,761)
----------- ---------- ----------- ---------- ------------
----------- ---------- ----------- ---------- ------------
Weighted average shares outstanding 13,010,050 7,308,224 12,325,786 5,969,703
Basic and diluted loss per share $ (0.04) $ (0.06) $ (0.16) $ (0.21)
VISTA GOLD CORP. (A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF DEFICIT - UNAUDITED
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
(U.S. DOLLARS IN THOUSANDS) 2003 2002 2003 2002
--------- --------- --------- ---------
Deficit, beginning of period $(115,975) $(111,079) $(114,520) $(110,260)
Net Loss (531) (438) (1,986) (1,257)
--------- --------- --------- ---------
Deficit, end of period $(116,506) $(111,517) $(116,506) $(111,517)
--------- --------- --------- ---------
--------- --------- --------- ---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
CONSOLIDATED STATEMENTS OF CASH FLOW - UNAUDITED
Three Months Ended Nine Months Ended Cumulative
September 30, September 30, during
--------------------- -------------------- Development
(U.S. DOLLARS IN THOUSANDS) 2003 2002 2003 2002 Stage
-------- -------- -------- -------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss for the period $ (531) $ (438) $(1,986) $(1,257) $(4,761)
ADJUSTMENTS TO RECONCILE LOSS FOR THE PERIOD TO CASH
PROVIDED BY (USED IN) OPERATIONS:
Depreciation, depletion and amortization 5 18 32 56 106
Provision for reclamation and closure costs - - - - 1,048
Reclamation and closure costs accrued/(paid), net - (32) - (28) (27)
(Gain)/loss on disposal of assets - - - (83) (83)
Cost recoveries related to USF&G lawsuit - - - (240) (240)
Write-down of marketable securities - 49 33 49 118
Gain on sale of marketable securities (51) - (125) - (125)
Unrealized loss on currency translation 9 (1) 34 (1) 34
Other non-cash items 25 15 85 15 155
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable (306) (148) (251) (134) (256)
Supplies inventory and prepaid expenses 42 52 122 110 81
Accounts payable and accrued liabilities (73) 59 (44) (898) (997)
-------- -------- ------- ------- --------
NET CASH USED IN OPERATING ACTIVITIES (880) (426) (2,100) (2,411) (4,947)
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash - Note 3 (1,241) - (1,684) - (1,684)
Acquisition of marketable securities - - (40) - (40)
Proceeds from sale of marketable securities 78 - 232 - 232
Recovery/(additions) to mineral properties, net (1,184) - (1,236) - (2,693)
Additions to plant & equipment (11) (866) (60) (866) (60)
Proceeds on disposal of fixed assets and supplies - - - 246 246
-------- -------- ------- ------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,358) (866) (2,788) (620) (3,999)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (cost of) private placements - Note 7 (1) (31) 2,873 813 9,721
Cost to issue equities for other transactions - - - - (55)
Proceeds from exercise of warrants - Note 7 2,051 - 2,782 2,774 2,782
Proceeds from the exercise of stock options - Note 7 223 - 260 35 294
-------- -------- ------- ------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES 2,273 (31) 5,915 3,622 12,742
Net increase/(decrease) in cash and cash equivalents (965) (1,323) 1,027 591 3,796
-------- -------- ------- ------- --------
Cash and cash equivalents, beginning of period 5,435 2,588 3,443 674 674
-------- -------- ------- ------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,470 $ 1,265 $ 4,470 $ 1,265 $ 4,470
-------- -------- ------- ------- --------
-------- -------- ------- ------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars unless specified otherwise)
1. GENERAL
The consolidated interim financial statements of Vista Gold Corp. (a Development
Stage Enterprise) (the "Corporation"), as of September 30, 2003 and for the
three month and nine month periods ended September 30, 2003, 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 11, 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. These adjustments are of a normal and recurring
nature. 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-K for the year ended December 31, 2002.
These interim financial statements follow the same accounting policies and
methods of their application as the most recent annual financial statements,
with the exception that on January 1, 2003, the Corporation adopted CICA 3110
"Asset Retirement Obligations," which is similar to SFAS 143 "Accounting for
Asset Retirement Obligations," addressing financial accounting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The Corporation has determined that its liabilities with
respect to asset retirement obligations, as reported in its financial statements
for the year ended December 31, 2002, approximated fair value. Accordingly,
adoption of this standard has had no effect on the Corporation's consolidated
financial position or results of operations.
2. NATURE OF OPERATIONS
The Corporation operates in the gold mining sector. Gold production has
gradually declined since mining activities were suspended at the Hycroft mine in
1998. Effective January 1, 2002 gold production is considered incidental and the
Corporation stopped reporting the associated sales proceeds as revenue. As the
Corporation does not currently produce gold in commercial quantities, the
Corporation is considered a Development Stage Enterprise. The Corporation
evaluates, acquires and improves gold exploration and potential development
projects. The Corporation's approach to acquisitions of gold projects has
generally been to seek projects within political jurisdictions with well
established mining, land ownership and tax laws, which have adequate drilling
and geological data to support the completion of a third-party review of the
geological data and to complete an estimate of gold mineralization. In addition,
the Corporation looks for opportunities to improve the value of its gold
projects through exploration drilling, and/or reengineering the operating
assumptions underlying previous engineering work.
Management has estimated that the Corporation will have adequate funds from
existing working capital to meet its corporate administrative and property
obligations for the coming year. If the Corporation is to advance or develop its
mineral properties further, it will be necessary to obtain additional funding.
Although in the past the Corporation has been successful in obtaining financing,
there can be no assurance that it will be successful in the future.
The Bureau of Land Management, Nevada State Office ("BLM") has required the
Corporation to provide a total surety amount of $6.8 million for the approved
Hycroft mine reclamation plan. The Corporation has provided a surety bond in the
amount of $5.1 million and irrevocable letters of credit in the amount of $1.7
million to the BLM in respect of reclamation obligations under the approved
reclamation plan. Furthermore, the Corporation has been requested to pledge
collateral in order to provide this surety bond. The amount and the nature of
the collateral are subject to negotiation. Although in the past the Corporation
has been successful in arranging bonding, there can be no assurance that the
Corporation will be successful in providing acceptable collateral.
6
3. RESTRICTED CASH
The Corporation has pledged cash as collateral for irrevocable standby letters
of credit totalling $1,684,007 to the BLM for interim fluid management and to
cover increased reclamation cost estimates at the Hycroft mine (Note 9).
4. MINERAL PROPERTIES
2002 2003
------------ --------------------------------------------------------------------------
September
December 31, Acquisition Option Exploration & Cost Year to date 30, Ending
($ 000'S) net balance costs payments land costs recovery activity Balance
------------ -------------------------------------------------------------- ----------
Maverick Springs, United States $ 1,521 $ 50 $ - $ 224 $ (720) $ (446) $ 1,075
Mountain View, United States 303 - - 68 - 68 371
Long Valley, United States 48 22 100 22 - 144 192
Wildcat, United States - 250 - 52 - 302 302
Hasbrouck and Three Hills, United States - 280 - 60 - 340 340
Paredones Amarillos, Mexico 2,317 - 358 115 - 473 2,790
Amayapampa, Bolivia 10,730 - - - - - 10,730
Guadalupe de los Reyes, Mexico - 332 - 177 - 509 509
Other - 23 23 - - 46 46
------------ -------------------------------------------------------------- ----------
$ 14,919 $ 957 $ 481 $ 718 $ (720) $ 1,436 $ 16,355
------------ -------------------------------------------------------------- ----------
------------ -------------------------------------------------------------- ----------
The recoverability of the carrying values of the Corporation's mineral
properties is dependent upon the successful start-up and commercial production
from, or sale, or lease, of these properties. Development and/or start-up of any
of these projects 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.
5. PLANT AND EQUIPMENT
September 30, 2003 December 31, 2002
----------------------------------- -----------------------------------
Accumulated Accumulated
Depreciation Depreciation
and Write- and Write-
Cost downs Net Cost downs Net
----------------------------------- -----------------------------------
($ 000'S)
Hycroft mine, United States $ 12,031 $ 10,350 $ 1,681 $ 11,982 $ 10,318 $ 1,664
Corporate, United States 342 331 12 331 331 -
----------------------------------- -----------------------------------
$ 12,373 $ 10,681 $ 1,692 $ 12,313 $ 10,649 $ 1,664
----------------------------------- -----------------------------------
----------------------------------- -----------------------------------
6. PAYABLES TO BE SETTLED WITH EQUITY
Pursuant to the terms of the acquisition agreement with respect to the Maverick
Springs project, in October 2003, the Corporation will issue common shares with
an approximate market value of $500,000, together with an equivalent number of
two year warrants. The warrants will be valued and recorded at the time of
issue.
In accordance with the acquisition agreement, the Corporation issued 122,923
common shares valued at $4.07 per share to Newmont Mining Corporation in October
2003. In addition, an equivalent number of outstanding two year warrants have
been issued at an exercise price set at $5.08 at the time of issue.
7
7. CAPITAL STOCK
COMMON SHARES ISSUED AND OUTSTANDING
Number of Capital stock
shares issued ($ 000's)
------------- -------------
DECEMBER 31, 2002 10,744,613 $ 129,575
Warrants exercised from February - March 2002 private placement 246,729 370
Private placement February 2003, net 1,400,000 2,902
Shares issued for services 7,352 30
Exercise of stock options 23,125 37
------------- -------------
Issued during three months ending March 31, 2003 1,677,206 3,339
AS OF MARCH 31, 2003 12,421,819 132,914
Warrants exercised from February - March 2002 private placement 220,428 331
Warrants exercised from December 2002 private placement 10,000 30
Shares issued for services 9,040 30
Cost to issue equities - (28)
------------- -------------
Issued during three months ending June 30, 2003 239,468 363
AS OF JUNE 30, 2003 12,661,287 $ 133,277
Warrants exercised from February 2003 private placement 90,000 283
Warrants exercised from February - March 2002 private placement 427,596 641
Warrants exercised from December 2002 private placement 370,635 1,127
Shares issued for services 7,103 25
Exercise of stock options 71,250 223
Cost to issue equities - (1)
------------- -------------
Issued during three months ending September 30, 2003 966,584 2,298
AS OF SEPTEMBER 30, 2003 13,627,871 $ 135,575
------------- -------------
------------- -------------
On June 19, 2002, the Corporation effected a 1-for-20 consolidation of its
common shares and the number of common shares outstanding, on a
pre-consolidation basis was restated, giving effect to the consolidation. All
references in this document to common shares, loss per share and value per share
or value per unit, are on a post-consolidation basis, unless otherwise
indicated.
WARRANTS EXERCISED FROM FEBRUARY - MARCH 2002 PRIVATE PLACEMENT
During the nine months ended September 30, 2003, 894,753 of the warrants issued
in the February - March 2002 private placement were exercised for gross proceeds
of $1,342,130.
WARRANTS EXERCISED FROM DECEMBER 2002 PRIVATE PLACEMENT
During the nine months ended September 30, 2003, 380,635 of the warrants issued
in the December 2002 private placement were exercised for gross proceeds of
$1,157,130.
PRIVATE PLACEMENT FEBRUARY 2003, NET
On February 7, 2003, the Corporation completed a $3.4 million private placement
financing. The gross proceeds were placed in escrow pending shareholder
approval. On February 27, 2003, at a Special General Meeting of the
Shareholders, shareholders voted in favour of the financing and on February 28,
2003, the gross proceeds were released to the Corporation from escrow. The
private placement consisted of the sale of 1.4 million special warrants, each
priced at $2.43. The special warrants were automatically converted into equity
units upon shareholder approval. Each equity unit consists of one common share
and a warrant, exercisable over a four-year
8
period, to purchase one common share for $3.14 during the first year, $3.56
during the second year, $3.92 during the third year and $4.28 during the fourth
year. Starting on the second anniversary of the closing of this private
placement (February 7, 2005), if the common shares of the Corporation trade at a
value of 150% or more of the respective exercise price for a period of 15
consecutive trading days on the American Stock Exchange, then the Corporation
has the option to request that the warrants be exercised. If the warrants are
not exercised within 15 business days following this request, they will be
cancelled. A 10% cash finder's commission totalling $340,200 was paid in
connection with the private placement (Note 12); in addition, the Corporation
incurred $188,000 in direct costs connected with this private placement.
During the nine months ended September 30, 2003, 90,000 of the warrants issued
in the February 2003 private placement were exercised for gross proceeds of
$282,600.
SHARES ISSUED FOR SERVICES
Pursuant to an agreement with Endeavour Financial Corporation Inc.
("Endeavour"), Endeavour is to provide financial advisory services to the
Corporation for a monthly fee of $10,000. The monthly fee is payable by the
issuance to Endeavour of a non-transferable convertible promissory note, which
is automatically converted into common shares of the Corporation at a price per
share equal to the weighted average closing price of the shares on the American
Stock Exchange on the last 10 trading days of the month prior to the business
day on which the fee becomes due. The term of the agreement was not to exceed
one year and it expired during the three month period ending September 30, 2003.
During the nine months ended September 30, 2003, the Corporation issued 23,495
common shares valued at $85,000 to Endeavour under the terms of this agreement.
STOCK BASED COMPENSATION
Under the Corporation's Stock Option Plan, 20,000 stock options were issued to
officers of the Corporation in March 2003. All of the options vested
immediately. In June 2003, 20,000 stock options were issued to an employee of
the Corporation. Of these employee options 10,000 vested immediately and the
remaining 10,000 options will vest in one year. In September 2003, 30,000 stock
options were issued to an employee of the Corporation. Of these employee
options, 15,000 vested immediately and the remaining 15,000 options will vest in
one year.
The total numbers of options outstanding at the end of the quarter are 620,125
with prices ranging from approximately $1.76 to $4.18 and remaining lives of
1.25 to 5 years. The total number of options outstanding represents 4.4% of
issued capital.
Compensation expense for options vesting over time is recognized over the
vesting period. Had compensation expense for the stock options granted, the
Corporation's loss and loss per share for Canadian GAAP would have been adjusted
to the pro forma amounts indicated below:
Three months ended Three months ended Nine months ended Nine months ended
September 30, 2003 September 30, 2002 September 30, 2003 September 30, 2002
------------------ ------------------ ------------------ ------------------
Net loss - as reported (000's) $ (531) $ (438) $ (1,986) $ (1,257)
Net loss - pro forma (000's) (567) (924) (2,221) (1,743)
Loss per share - as reported (0.04) (0.06) (0.16) (0.21)
Loss per share - pro forma (0.04) (0.13) (0.18) (0.29)
9
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:
September 2003 June 2003 March 2003
Options Options Options
-------------- --------- ----------
Expected volatility 50.00% 50.00% 50.00%
Risk-free interest rate 3.50% 3.50% 3.50%
Expected lives (years) 5 5 5
Dividend yield 0% 0% 0%
8. WARRANTS
Weighted
average Weighted
exercise average
Warrants Warrants Warrants prices Expiry remaining Valuation
granted(1) exercised outstanding (U.S. $) date life (yrs) (000's)
--------- ----------- ----------- -------- ------ ---------- ---------
AS OF DECEMBER 31, 2002 5,500,757 (679,736) 4,821,021 $2.12 $ 345
Private placement February 2003 1,400,000 - 1,400,000 3.14(2) Feb-07 3.6 -
Private placement February-March 2002 - (246,729) (246,729) 1.50 -
--------- ----------- ----------- ---------
For the three months ended March 31, 2003 1,400,000 (246,729) 1,153,271 -
AS OF MARCH 31, 2003 6,900,757 (926,465) 5,974,292 $2.39 $ 345
Private placement December 2002 - (10,000) (10,000) 3.04 -
Private placement February-March 2002 - (220,428) (220,428) 1.50 -
--------- ----------- ----------- ---------
For the three months ended June 30, 2003 - (230,428) (230,428) -
AS OF JUNE 30, 2003 6,900,757 (1,156,893) 5,743,864 $2.42 $ 345
Private placement December 2002 - (370,635) (370,635) 3.04 -
Private placement February-March 2002 - (427,596) (427,596) 1.50 -
Private placement February 2003 - (90,000) (90,000) 3.14(2) -
--------- ----------- ----------- ---------
For the three months ended September 30, 2003 - (888,231) (888,231) -
AS OF SEPTEMBER 30, 2003 6,900,757 (2,045,124) 4,855,633 $2.44 $ 345
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
1 Each warrant entitles the holder to purchase one common share.
2 The exercise price increases to $3.56 in February 2004, to $3.92 in
February 2005 and $4.28 in February 2006.
9. COMMITMENTS AND CONTINGENCIES
The Bureau of Land Management, Nevada State Office ("BLM") has required the
Corporation to provide a total surety amount of $6.8 million for the approved
Hycroft mine reclamation plan. The Corporation has provided a surety bond in the
amount of $5.1 million and irrevocable letters of credit in the amount of $1.7
million to the BLM for reclamation obligations under the approved reclamation
plan. Furthermore, the Corporation has been requested to pledge collateral in
order to provide this surety bond. The amount and the nature of the collateral
are subject to negotiation. Although in the past the Corporation has been
successful in arranging bonding, there can be no assurance that the Corporation
will be successful in providing acceptable collateral.
The Corporation estimates that the related asset retirement expenditures will
commence approximately five years after the start-up of the Hycroft mine (an
event not scheduled) and continue for several years after that time. Using a
credit-adjusted rate of 7.75%, the fair value of the estimated $6.8 million
obligation is $4.1 million, as accrued in these financial statements.
10
10. GEOGRAPHIC AND SEGMENT INFORMATION
The Corporation's core business is evaluating, acquiring, exploring and
improving gold exploration and potential development projects. These activities
are focused principally in North and South America. Substantially all related
costs are derived in the United States. The Corporation reported no revenues in
the nine months ended September 30, 2003 or for the same period in 2002.
Geographic segmentation of capital assets is provided in Notes 4 and 5.
11. 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 significant differences between generally
accepted accounting principles (GAAP) in Canada and in the United States, as
they relate to these financial statements are as follows:
(a) In accordance with U.S. GAAP, exploration, mineral property
evaluation, holding costs, option payments and related acquisition
costs for mineral properties acquired under an option agreement are
expensed as incurred. When proven and probable reserves are determined
for a property and a bankable feasibility study is completed, then
subsequent exploration and development costs on the property would be
capitalized. In accordance with U.S. GAAP, cash flows for
"Exploration, property evaluation and holding costs" of $501,000 for
the nine months ended September 30, 2003 would be classified as "Cash
used in operations" for cash flow reporting purposes, as opposed to
"Cash used in investing activities" as presented in the Canadian GAAP
Statements of Cash Flow.
(b) In accordance with U.S. GAAP, items such as marketable securities are
to be measured at fair value at the balance sheet date and related
unrealized gains and losses are required to be shown separately in the
derivation of comprehensive income.
The measurement effect of these GAAP differences on the consolidated statements
of loss were as follows:
In 2002, proceeds from gold sales, which had been recognized in 2001 under
Canadian GAAP, were recognized for U.S. GAAP and credited to "Exploration,
property evaluation and holding costs."
CONSOLIDATED STATEMENT OF LOSS - UNAUDITED
Cumulative
Three Months Ended, Nine Months Ended, during
September 30, September 30, Development
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 2003 2002 2003 2002 Stage
------------------- -------------------- -----------
Net loss - Canadian GAAP $ (531) $ (438) $(1,986) $(1,257) $(4,761)
Unrealized loss on marketable securities - 49 - 49 85
Revenue recognition - - - 150 -
Exploration, property evaluation and holding costs (a) (222) - (501) - (588)
Financing costs - (111) - (222) (222)
Beneficial conversion feature - (2,494) - (2,774) (2,774)
------------------- -------------------- -----------
Net loss - U.S. GAAP (753) (2,994) (2,487) (4,054) (8,260)
Unrealized gain/(loss) on marketable securities (b) 331 (49) 331 (49) 298
------------------- -------------------- -----------
Comprehensive loss - U.S. GAAP $ (422) $(3,043) $(2,156) $(4,103) $(7,962)
------------------- -------------------- -----------
------------------- -------------------- -----------
Basic loss per share - U.S. GAAP $(0.03) $ (0.42) $ (0.17) $ (0.69)
11
The measurement effect of GAAP differences on the consolidated balance sheets
were as follows:
CONSOLIDATED BALANCE SHEET - UNAUDITED
September 30, 2003 December 31, 2002
------------------------------------- ---------------------------------------
Per Cdn. Cdn./U.S. Per U.S. Per Cdn. Cdn./U.S. Per U.S.
GAAP Adj. GAAP GAAP Adj. GAAP
------------------------------------- --------------------------------------
(U.S. $ 000'S)
Current assets (b) $ 5,161 $ 331 $ 5,492 $ 4,105 $ - $ 4,105
Restricted cash 1,684 - 1,684 - - -
Property, plant and equipment (a) 18,047 (8,375) 9,672 16,583 (7,874) 8,709
------------------------------------- --------------------------------------
Total assets $ 24,892 $ (8,044) $ 16,848 $ 20,688 $ (7,874) $ 12,814
------------------------------------- --------------------------------------
------------------------------------- --------------------------------------
Current liabilities 798 - 798 598 - 598
Long term liabilities 4,655 - 4,655 4,665 - 4,665
------------------------------------- --------------------------------------
Total liabilities 5,453 - 5,453 5,263 - 5,263
Capital stock 135,575 76,754 212,329 129,575 76,754 206,329
Special warrants - 222 222 - 222 222
Contributed surplus 13 5,560 5,573 - 5,560 5,560
Warrants and options 357 - 357 370 - 370
Other comprehensive loss - 246 246 - (85) (85)
Deficit (a, b) (116,506) (90,826) (207,332) (114,520) (90,325) (204,845)
------------------------------------- --------------------------------------
Total shareholders' equity 19,439 (8,044) 11,395 15,425 (7,874) 7,551
------------------------------------- --------------------------------------
Total liabilities & shareholders' equity $ 24,892 $ (8,044) $ 16,848 $ 20,688 $ (7,874) $ 12,814
------------------------------------- --------------------------------------
------------------------------------- --------------------------------------
12. RELATED PARTY TRANSACTIONS
GLOBAL RESOURCE INVESTMENTS LTD.
On February 7, 2003, the Corporation completed a $3.4 million private placement
financing of Special Warrants as discussed in Financial Statements - Note 7. The
Corporation retained Global Resource Investments Ltd. ("Global") to find
investors to purchase the Special Warrants and paid Global a cash commission of
$340,200, equal to 10% of the proceeds of the Special Warrant Offering as
consideration for Global's services as finder. In addition, the Corporation
agreed to pay reasonable legal costs incurred by Global in connection with the
Special Warrant Offering up to a maximum of $15,000. The Corporation understands
that all of the shares of Global are beneficially owned by an individual that
beneficially owned approximately 19.4% of the common shares of the Corporation
as at February 7, 2003, and also beneficially owns more than 10% of the shares
of Quest Investment Corporation (successor by amalgamation to Stockscape.com
Technologies Inc.) ("Quest"). As at February 7, 2003, Quest beneficially owned
approximately 9.9% of the common shares of the Corporation.
MAVERICK SPRINGS
In June 2003, the Corporation formalized an agreement to grant to Silver
Standard Resources Inc., (Silver Standard) an option to acquire the
Corporation's interest in the silver resources hosted in the Maverick Springs
project in Nevada. The Corporation and Silver Standard have a common director.
Under the terms of the agreement, the Corporation will retain its 100% interest
in the gold resources, Silver Standard will pay the Corporation $1.5 million
over four years including a cash payment of $300,000 at closing. The remaining
$1.2 million will be used to fund exploration programs, land holding costs and
option payments on the Maverick Springs project. At the time the transaction was
completed, Silver Standard paid the Corporation $488,891, comprised of the
required $300,000 payment due at closing plus $188,891 in exploration costs
incurred through December 31, 2002. As of September 30, 2003, included in
current assets is a receivable amount due from Silver Standard in the amount of
$231,222 to reimburse the Corporation for exploration expenditures incurred on
the Maverick Springs project.
12
13. SUBSEQUENT EVENTS
In accordance with the acquisition agreement with respect to the Maverick
Springs project, the Corporation settled the amount payable with equity of
$500,000 (Note 6) in October 2003. Payment of the payable was completed with the
remittance of 122,923 common shares valued at $4.07 per share to Newmont Mining
Corporation. In addition, an equivalent number of outstanding two year warrants
have been issued at an exercise price set at $5.08 at the time of issue.
The Corporation executed and finalized three option purchase agreements for 100%
interest in the Wildcat project in October 2003. The three transactions include
aggregate payments of 50,000 shares and $250,000 due upon signing. Additional
payments of $300,000 payable in August 2004 and $50,000 payable in October 2004
are at the option of the Corporation. Termination of any of the finalized
agreements shall result in the Corporation having no future obligation to make
any of the option payments described above. An option purchase agreement was
completed prior to the September 30, 2003 balance sheet date and the payment due
upon signing of $200,000 has been included in the financial statements as of
September 30, 2003. Payments and liabilities set forth in additional agreements
finalized subsequent to the balance sheet date are not included and do not
require adjustment to the financial statements for the three and nine month
periods ending September 30, 2003.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in thousands, unless specified otherwise)
RESULTS OF OPERATIONS
Total Exploration, property evaluation and holding costs were $196,000 for the
three months ended September 30, 2003, compared to $84,000 for the same period
in 2002. Total Exploration, property evaluation and holding costs were $796,000
for the nine months ended September 30, 2003, compared to $525,000 for the same
period in 2002. These costs are comprised principally of costs related to
holding the Hycroft mine, but also include the costs to hold the Amayapampa
project and costs to maintain the Corporation's Canadian exploration claims. The
increase in costs in 2003 compared to 2002 is principally a result of the
declining amount of gold recovered from the circulating solutions at the Hycroft
mine.
Corporate administration costs for the three months ended September 30, 2003
were $383,000 compared to $284,000 for the same period in 2002. Corporate
administration costs for the nine months ended September 30, 2003 were
$1,246,000 compared to $938,000 for the same period in 2002. Corporate
administration costs have increased, as expected, as a result of business
development initiatives and an expanded investor relations program. This trend
is expected to continue.
Depreciation, depletion and amortization for the three months ended September
30, 2003 totalled $5,000, compared to $18,000 for the same period in 2002.
Depreciation, depletion and amortization for the nine months ended September 30,
2003 totalled $32,000, compared to $56,000 for the same period in 2002. 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.
The Corporation did not dispose of any assets during the three months and nine
months ended September 30, 2003 and therefore did not realize any related gains
or losses. An $83,000 gain from the disposal of assets was realized during the
same nine months ended in 2002.
Other expense and income gains during the three and nine months ended September
30, 2003 were $11,000 and $30,000, respectively, compared to $3,000 and $2,000
during the same periods in 2002. The increased gains of $8,000 and $28,000 are
the result of earned interest on cash equivalent balances which have increased
from the prior year.
The Corporation realized a gain of $51,000 on the sale of marketable securities
during the three months ended September 30, 2003, compared to a loss of $49,000
during the same period in 2002. A $125,000 gain on the sale of marketable
securities was realized for the nine month period ended September 30, 2003,
compared to a loss of $49,000 during the same period in 2002.
The Corporation used $880,000 net cash for operating activities for the three
months and $2,100,000 for the nine months ended September 30, 2003. This is
an increase of $454,000 and a decrease of $311,000 from net cash used for
operating activities of $426,000 and $2,411,000, respectively, for the same
periods ended September 30, 2002. The increase for the comparable three month
period is primarily attributed to an increase in the net loss for the period
of $93,000, an increase in receivables of $158,000 and a decrease in
liabilities of $132,000. The decrease in cash usage for the nine month period
results primarily from the 2002 settlement of the USF&G lawsuit of $814,000
which is offset by the increase in receivables and decrease in liabilities as
previously noted.
For the three months ended September 30, 2003, the Corporation used a net of
$2,358,000 in investing activities. Investing activities during the three months
primarily include an additional restricted cash investment of $1.2 million
certificate of deposit pledged as collateral for a standby letter of credit
(Financial Statements - Note 3) and $1.2 million used for the acquisition of
gold projects and related costs. Additional investing activities during the
three month period include additions to plant and equipment of $11,000 and an
offset of $78,000 in proceeds from the sale of marketable securities. During the
same period in 2002, the Corporation used $866,000 in the acquisition of gold
projects and related costs. For the nine months ended September 30, 2003, the
Corporation used a net of $2,788,000 comprised of $1.7 million of restricted
cash invested in certificates of deposit pledged as collateral for standby
letters of credit (Financial Statements - Note 3) and $1.2 million for the
acquisition of gold projects and related costs, Additional investing activities
during the nine month period include $49,000 for the
14
replacement of light vehicles at the Hycroft mine, $11,000 for Corporate office
information system enhancements and a net of $182,000 for the acquisition of and
proceeds from the sale of marketable securities. Cash used during the same
period in 2002 consists of $620,000 related to the acquisition of gold projects
and related costs offset by the sale of Hycroft fixed assets and supplies.
As discussed in the Financial Statements - Note 7, for the nine months ended
September 30, 2003, the Corporation raised $2.9 million, net proceeds, from a
private placement financing which closed on February 7, 2003. During the same
nine months ended in 2002, the Corporation raised net proceeds of $3.6 million
from a private placement and the exercise of warrants. Warrants issued in
previous private placement financings were exercised during 2003 providing the
Corporation with $2,051,000 and $2,782,000 during the three months and nine
months ended September 30, 2003, respectively. During the same nine months ended
in 2002, the Corporation was provided with $2,774,000 from warrant exercises.
The Corporation also received $223,000 and $260,000 from the exercise of stock
options during the three and nine months ended September 30, 2003, respectively,
as compared to $35,000 for the same nine months ended in 2002.
FINANCIAL CONDITION
The Corporation's consolidated cash balance at September 30, 2003 was $4.5
million, compared to a cash balance of $3.4 million at December 31, 2002;
working capital was $4.4 million as of September 30, 2003 compared to $3.5
million at December 31, 2002. This improvement resulted from the private
placement financing and the exercise of warrants as discussed in the Financial
Statements - Note 7, and above in RESULTS OF OPERATIONS.
OUTLOOK
The Corporation does not currently generate operating cash flows. Management has
estimated that the Corporation will have adequate funds from existing working
capital to meet its administrative and property obligations for the coming year
and to make additional gold project acquisitions and to look for opportunities
to improve these projects, currently projected to be approximately $225,000 for
the remainder of 2003.
The Corporation expects that emphasis on gold project acquisition and
improvement will continue in the future. Subject to sustained higher gold
prices, management expects that it can generate revenues and cash flows, in the
future, from its portfolio of gold projects by several means, including, but not
limited to: options or leases to third parties, joint venture arrangements with
other gold producers, outright sale for cash and/or royalties. The Corporation
does not have adequate cash to begin development of any its projects, and would
need to seek additional financing in order to construct and operate a gold mine.
Although the Corporation has been successful in obtaining such financing in the
past, there can be no assurance that it will be able to do so in the future.
The Bureau of Land Management, Nevada State Office ("BLM") has required the
Corporation to provide a total surety amount of $6.8 million for the approved
Hycroft mine reclamation plan. The Corporation has provided a surety bond in the
amount of $5.1 million and irrevocable letters of credit in the amount of $1.7
million to the BLM ensuring reclamation obligations under the approved
reclamation plan. Furthermore, the Corporation has been requested to pledge
collateral in order to provide this surety bond. The amount and the nature of
the collateral are subject to negotiation. Although in the past the Corporation
has been successful in arranging bonding, there can be no assurance that the
Corporation will be successful in providing acceptable collateral.
15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The registrant is a "small business issuer" as such term is defined in Rule
12b-2 of the Exchange Act, and accordingly is not required to provide the
information under this Item.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of
the Corporation's management, including the principal executive and financial
officer, of the effectiveness of the design and operation of the Corporation's
disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of
the Securities Exchange Act of 1934 (the "Exchange Act") as of September 30,
2003. Based upon that evaluation, the Corporation's principal executive and
financial officer concluded that the Corporation's disclosure controls and
procedures 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.
There has been no change in the Corporation's internal control over financial
reporting (as defined in Rules 13a-15(f) under the Exchange Act) during the
quarterly period ended September 30, 2003, that has materially affected, or is
reasonably likely to materially affect, the Corporation's internal control over
financial reporting.
16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as described below, the Corporation is not aware of any material pending
litigation or of any proceeding 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 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-K for the
year ended December 31, 2002, for information about this matter.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification of Principal Executive Officer and Principal
Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended
32.1 Statement 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, 2003:
1. Report dated July 31, 2003, pursuant to Item 5, regarding
the completion of resource studies for the Hasbrouck and
Three Hills projects and the start of a drilling program
at the Maverick Springs project.
2. Report dated August 20, 2003, pursuant to Item 5,
regarding second quarter activities and results, and the
resignation of the Chief Financial Officer.
3. Report dated September 29, 2003, pursuant to Item 5,
regarding the completion of the acquisition of the
Guadalupe De Los Reyes gold project and the issuance of a
standby letter of credit to the Bureau of Land Management,
Nevada State Office.
17
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 5, 2003 By: /s/ Ronald J. McGregor
-------------------------------------
Ronald J. McGregor
President and Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)
18