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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997.
Commission file number 0-12132
SILVERADO GOLD MINES LTD.
(Exact name of registrant as specified in its charter)
British Columbia, Canada 98-0045034
- ----------------------------------- -----------------------------------
(State or other jurisdiction (IRS Employer ID No.)
of incorporation or organization)
Suite 505, 1111 West Georgia Street
Vancouver, British Columbia, Canada
V6E 4M3 (604) 689-1535
- ----------------------------------- -----------------------------------
(Address of Principal Executive (Registrant's telephone number)
Offices)
Securities registered pursuant to
section 12(b) of the Act:
None
- -----------------------------------
Securities registered pursuant to The Company's Common Stock trades
section 12(g) of the Act: on the NASDAQ Small Cap Market
Common Shares, no par value under the trading symbol GOLDF
- ----------------------------------- -----------------------------------
(Title of Class) (Name of each exchange on which
registered)
Indicate by check mark 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 if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
|_|
The aggregate market value of voting stock held by non-affiliates on January 30,
1998 was $19,794,384
The number of shares outstanding on January 30, 1998 was 81,062,218
Total number of pages, including cover page: 47
PART I
ITEM 1 BUSINESS
FORWARD-LOOKING STATEMENTS
Certain statements contained herein are "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and
are intended to be covered by the safe harbors created thereby. Such
forward-looking statements involve risks and uncertainties regarding the market
price of gold, availablity of funds, government regulations, common share
prices, operating costs, capital costs, outcomes of ore reserve development and
other factors.
These risks and uncertainties may cause actual outcomes to materially differ
from those forecasted or suggested. Where the Company makes statements of
expectation or belief as to future outcomes, such expectation or belief is
expressed in good faith and believed to have a reasonable basis. Forward-looking
statements are made, without limitation, in relation to operating plans,
property exploration and development, availablity of funds, environmental
reclamation, operating costs and permit acquisition.
Given these uncertainties, readers are cautioned not to place undue reliance on
such forward-looking statements.
(a) GENERAL DEVELOPMENT OF BUSINESS
Silverado Gold Mines Ltd. ("Silverado" or "the Company"), formerly Silverado
Mines Ltd., is engaged in the acquisition, exploration and development of
mineral properties. Silverado was incorporated under the laws of British
Columbia, Canada, in June, 1963, and operates in the United States through a
wholly-owned subsidiary, Silverado Gold Mines Inc., formerly Silverado Mines
(U.S.) Inc., incorporated in the State of Alaska in 1981.
Silverado's exploration and development activities are managed and conducted by
an affiliated company, Tri-Con Mining Ltd. ("Tri-Con") pursuant to a written
operating agreement. Tri-Con is a privately owned corporation controlled by
Garry L. Anselmo, who is Chairman and a director of Silverado.
The Company holds interests in seven groups of mineral properties in Alaska and
in British Columbia, Canada. Silverado's main projects are exploration and
development of the Ester Dome Gold Project, located 10 miles northwest of
Fairbanks, Alaska, and of the Nolan Gold Project, located 175 miles north of
Fairbanks, Alaska.
The Ester Dome Project comprises a contiguous group of 11 Federal claims and 435
State claims totaling 24 square miles, including the Grant Mine, Range Minerals,
May / Barelka (St. Paul) and Dobb's Properties, all located within the Fairbanks
Mining District in Alaska. The Company continued exploring the St. Paul gold
deposit through drilling and trenching and has outlined a body of gold
mineralization of economic interest.
The Company entered into negotiations with La Teko Resources Ltd. ("La Teko") to
acquire the Ryan Lode property which adjoins the Ester Dome property on the
southeast, near Silverado's Grant Mill. In July, the Company commenced a due
diligence investigative program consisting of drilling, environmental review,
title review, and economic analysis. Favorable findings from this work led the
Company to enter into an option agreement for the Ryan Lode property in December
1997.
Also subsequent to year end, the company completed an option agreement with
Placer Dome U.S. Inc. ("PDUS") for that company to continue exploration of 20.5
square miles of Silverado's Ester Dome property. The agreement excludes the St.
Paul, Grant Mine and Mill, and Ryan Lode areas which Silverado retained and
intends to develop, subject to the availability of financing.
The Nolan Gold Project consists of 208 Federal placer claims and 179 Federal
lode claims located eight miles west of Wiseman, Alaska. Included in the Project
are the Nolan Placer, Nolan Lode, Thompson's Pup, Dionne (Mary's Bench) and
Smith Creek properties. The Company limited its work in 1997 on this area to
reclamation and planning of future work, as it continued to focus its efforts on
its Fairbanks District properties.
The Hammond Property, immediately north of the Nolan Gold Project and consisting
of 28 Federal placer and 36 Federal lode claims, was acquired by the Company in
December 1994 to increase potential for reserve development in conjunction with
the Company's operations at Nolan.
The Marshall Dome Property consists of 38 State claims. It was acquired by the
Company in 1995 due to its proximity and similar geological setting to Newmont
Mining Company's "True North" gold property, immediately to the southwest. It
covers an area of two and one-half square miles, and is located eighteen miles
northeast of Fairbanks.
The Whiskey Gulch Property, consisting of four claims adjoining Newmont's "True
North" property, was acquired by the Company in 1996 to further enhance its
Marshall Dome Property by virtue of its proximity to those claims.
The Chatanika Property consists of 752 mining claims and 16 prospecting sites
covering 52 square miles which were located by the Company in 1996. This
property is approximately 20 miles northwest of Fairbanks.
The French Peak Property consists of four mineral claims totaling approximately
one square mile, located 40 miles northwest of Smithers, British Columbia.
(b) FINANCIAL INFORMATION RE: INDUSTRY SEGMENTS
The Company operates in one industry segment, mining.
(c) PLAN OF OPERATION
The Company's plan of operation is to further develop the Ryan Lode Gold
Deposit, optioned from La Teko Resources Ltd. subsequent to year end. Silverado
believes that its existing mill facilities, located at the nearby Grant Mine,
could greatly assist it in making the Ryan Lode a viable project. It also
intends to resume development of its Nolan claims, subject to available
financing.
In response to the increased activity of major mining companies in the Fairbanks
area the Company has spent the past two years actively exploring its existing
properties, particularly Ester Dome, and enhancing its property inventory by
locating and purchasing new claims of interest. It re-evaluated data from work
performed by ACNC (American Copper and Nickel Company, a previous joint-venture
partner of Silverado) during 1990 - 1993, and developed additional data from its
own drilling and trenching conducted during the past two years. Subsequent to
year-end, but based upon the results it developed during the year, the Company
was successful in negotiating an option agreement with Placer Dome U.S. Inc. to
conduct exploration and development on 20.5 square miles of the Company's Ester
Dome properties. This agreement, which specifies five years of conditional work
requirements in conjunction with conditional requirements to purchase shares of
Silverado's stock over the next four years, is intended to provide the means to
bring these claims into production, if economically feasible. In that event,
Silverado would retain a 15% net profits interest in the property which would be
operated directly by Placer Dome. This agreement excludes the areas of the St.
Paul gold deposit, the Grant Mine and Mill, and the Ryan Lode property.
Because of its focus on its Fairbanks properties, above, the Company limited its
activities at the Nolan Gold Project near Wiseman, Alaska, to maintenance and
reclamation work in 1997. The Company has recovered almost 14,000 ounces of gold
from this project since 1994 and plans to resume its process of reserve
development subject to available funds. The Company also plans to continue
exploration of its Hammond Property as funds become available.
Silverado, on August 4, 1989, assigned its Eagle Creek Property to Can-Ex
Resources (U.S.), Inc. ("Can-Ex") for a 15% net profits interest to a maximum of
$5,000,000. Subsequently, on February 19, 1997, Can-Ex was dissolved and the
Eagle Creek property, along with all of Can-Ex's other assets, became the
property of its parent corporation, Kintana Resources Ltd. The Company's royalty
interest in the property remains unaffected by this event. At this time there is
no development activity at the site, though the property is kept in good
standing, pending future development.
In Canada, the Company intends to keep its French Peak Property in good
standing, especially given the recent rise in silver prices, though no
development work is scheduled there at this time.
The Company expects to receive additional capital for its activities on the Ryan
Lode and other properties through either equity or debt financing, though there
is no commitment by any party to provide such financing at this time, nor
assurance that such capital will be available on terms favorable to the Company.
From time to time as conditions or funds warrant, the Company may re-evaluate
its development programs in response to changing economic or environmental
conditions. Such re-evaluation may result in the Company either changing its
development priorities or allowing certain properties or portions thereof to
lapse.
(d) MINING AND ENVIRONMENTAL REGULATION
Mining activities in the U.S. are subject to regulation and inspection by the
Mining Safety and Health Administration of the United States Department of
Labor. In addition, the Company's activities are regulated by a variety of
Federal, state, provincial and local laws and regulationsrelating to protection
of the environment and other matters. Many agencies have the authority to
require the Company to cease or curtail operations due to noncompliance with
laws administered by those agencies. The operation of mining properties also
requires a variety of permits from government agencies.
Management believes that it has in place or will be able to obtain as necessary
all required permits for the Company's planned operations. Management knows of
no areas of noncompliance with laws or regulations which could close or curtail
operations.
The Company has accrued a total of $41,000 for further reclamation on the Nolan
Gold Project, and an additional amount of $155,000 for reclamation at the Grant
Mill site on Ester Dome. Additional remediation work takes place during the
normal course of mining.
In the event of closure or abandonment of its facilities, the Company estimates
that any additional reclamation costs, net of recovery, would be immaterial.
(e) NATURE OF CLAIMS UNDER FEDERAL AND STATE LAW
The Company's properties consist of unpatented Federal mining claims and state
mining claims. Titles to unpatented claims are subject to inherent
uncertainties, such as whether there has been a discovery of valuable minerals
on each claim and whether proper locating and filing prerequisites have been
met, and such title can only be maintained by the performance of adequate annual
assessment work and / or the payment of prescribed rental fees. While the
Company believes that all claims which it holds were properly located under
applicable law, no assurances can be given in that regard. To date, the Company
believes that it has conducted and recorded all annual assessment work necessary
to maintain the claims in good standing. Changes to U.S. mining laws currently
under consideration would, if enacted, substantially affect all holders of
unpatented Federal mining claims by imposing royalty fees on removal of minerals
and fundamentally changing the rights and status of unpatented claim holders.
Although management believes that the imposition of royalty fees as described
above, at a minimal level, would not have a material adverse effect on the
Company, it is impossible to predict the extent to which mining or environmental
legislation may be enacted or amended nor the effect that such legislation could
have on the Company.
(f) INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The following table sets forth selected financial data for each of Silverado's
fiscal years ended November 30, 1997, 1996 and 1995, by country of origin for
information purposes only.
YEAR ENDED NOVEMBER 30,
1997 1996 1995
--------------------------------------------
REVENUE (UNITED STATES) $ 168,924 $ 298,124 $ 3,053,289
============================================
Income (loss) for the year
Canada $ (3,594,229) $ (3,461,717) $ (1,615,286)
United States (820,543) (868,543) (2,479,270)
============================================
$ (4,414,772) $ (4,330,260) $ (4,094,556)
============================================
END OF PERIOD
Identifiable assets
Canada $ 576,513 $ 1,318,233 $ 777,156
United States 17,654,718 17,143,111 14,362,432
============================================
$ 18,231,231 $ 18,461,344 $ 15,139,588
--------------------------------------------
For each of the three years ended November 30, 1997, 1996 and 1995, there have
been no transfers between geographic segments, nor have there been export sales.
Revenue for each of the three years is from sales of gold from inventory derived
from the Nolan Gold Project.
ITEM 2 PROPERTIES
(a) REGISTRANT'S INTEREST
Silverado holds interests in mineral properties in the State of Alaska, and the
Province of British Columbia. On the Ryan Lode property, for which the Company
acquired an option to purchase subsequent to year end, La Teko Resources Ltd.
had reported proven and probable reserves. As these reserves were determined at
a gold price of $375 per ounce, and Silverado has not yet conducted a
feasibility analysis at current gold prices (approximately $300 per ounce),
there can be no assurance that these reserves can be economically developed.
On its other properties, the Company has not conducted sufficient exploration
and development work to delineate material proven or probable ore reserves.
(b) GENERAL CHARACTER AND TECHNICAL DESCRIPTION OF EACH PROPERTY
(1) Ester Dome Gold Project
The Ester Dome Project encompasses all of Silverado's optioned properties on
Ester Dome, and is accessible by road 10 miles northwest of Fairbanks, Alaska.
The specific properties at this site are as follows:
(a) Grant Mine:
This property consists of 19 State mineral claims and 6 unpatented
Federal mineral claims subject to payments of 15% of net profits until
$2,000,000 has been paid and 3% of net profits thereafter. Subsequent
to year end and for the purpose of facilitating an agreement with
Placer Dome U.S. Inc., and in consideration of a payment by the
Company of $20,000, this conditional purchase and sale agreement was
amended to reduce the royalty payments to 3% of net profits as defined
in the agreement.
(b) Range Minerals #1:
This property consists of 6 State mineral claims subject to payments
of 15% of net profits until $1,500,000 has been paid and 2% of net
profits thereafter.
(c) Range Minerals #2:
This property consists of 388 State mineral claims and two Federal
claims subject to annual payments of $30,000, 2% of net smelter
returns until $20,000,000 has been paid, and 5% of net profits
thereafter. Subsequent to year end and for the purpose of facilitating
an agreement with Placer Dome U.S. Inc., and in consideration of a
payment by the Company of $60,000, this option agreement was amended
to extend the term of the agreement for an additional period of ten
years and to modify the royalty provisions to 5% of net profits as
defined in the agreement during the first five years that profits are
first generated from operations, and the greater of 5% of net profits
or 3% of net smelter returns as defined in the agreement until such
time as the option price of the property has been paid in full.
(d) May (St. Paul) / Barelka:
This gold property consists of 22 State mineral claims subject to
payments of 15% of net profits until $2,000,000 (inflation indexed
from 1979) has been paid and 3% of net profits thereafter.
(e) Dobb's:
This property consists of three unpatented Federal mineral claims
subject to payments of 15% of net profits until $1,500,000 has been
paid and 3% of the net profits thereafter.
The above properties, totaling 24 square miles in area, cover most of Ester
Dome. The stream drainages from Ester Dome have yielded approximately 3,000,000
ounces of gold, 95% of which was placer gold. This was produced mostly from
operations conducted by Alaska Gold Company prior to 1965. The Company's claims
were located to acquire lode sources from which this placer gold was derived.
Lode gold has been discovered in veins, shears, and disseminated into the
country rock at a number of locations on the Company's properties.
The main thrust of Silverado's exploration and development work on Ester Dome
from 1978 to 1989 was on the Grant Mine area, including a Joint Venture (Grant
Mine Project) initiated in April 1984 between Silverado and Aurex, Inc., a
subsidiary of Marubeni America Corporation, and a period of production by
Silverado from 1987 to 1989. The Joint Venture, with Tri-Con Mining, Inc. as
operator, explored and developed the O'Dea vein and constructed a gravity /
carbon-in-pulp mill. From 1978 to 1989, a total of 111,852 tons of ore were
processed, yielding 11,215 ounces of gold and 8,231 ounces of silver.
From June, 1990 to November, 1993 ACNC conducted exploration programs as
operator of the Ester Dome Joint Venture, including 45,162 feet of drilling. On
the O'Dea Shear, results from drilling by ACNC and prior results of Silverado's
work were sufficient for ACNC to define a gold ore resource.
During 1996 and 1997 the Company continued definition of the St. Paul ore zone
by completing over 10,000 feet of trenching and ninety-one drill holes totaling
over 19,200 feet. Further, the Company conducted a drilling program consisting
of 38 holes totaling approximately 9,000 feet as part of its due-diligence
investigation of the Ryan Lode property.
(2) Marshall Dome Property
The Marshall Dome Gold Project was acquired by the Company in 1995. It covers an
area of two and one-half square miles, and is located eighteen miles northeast
of Fairbanks and is on the same geological trend as the "True North" gold
deposit one mile to the southwest, which is being developed by Newmont
Exploration Limited.
(3) Whiskey Gulch Property
This property, acquired by the Company in 1996, is one-half mile southwest of
the Marshall Dome Property, and adjoins the "True North" property.
(4) Chatanika Property
This property was newly staked by the Company in 1996 in response to aerial
observations and preliminary geochemical sampling. The property is located
approximately 20 miles northwest of Fairbanks, and presently consists of 752
mining claims and 16 prospecting sites, with a total area of 52 square miles.
(5) Nolan Placer And Lode Claims
The Nolan Project consists of five contiguous properties covering approximately
6 square miles, 8 miles west of Wiseman, and 175 miles north of Fairbanks,
Alaska. These properties are as follows:
(a) Nolan Placer:
This property consists of 152 unpatented Federal placer claims 100
percent owned by Silverado.
(b) Thompson's Pup:
This property consists of 6 unpatented Federal placer claims, and is
subject to a royalty of 3 percent of net profits on 80% of production.
(c) Dionne (Mary's Bench):
This property, consisting of 15 unpatented Federal placer claims and
miscellaneous mining equipment, was purchased in 1993 for $1,000,000
payable over five years. Payments were completed in 1997.
(d) Smith Creek:
This property, consisting of 5 unpatented Federal placer claims and
miscellaneous mining equipment, was purchased in 1993 for $200,000
payable over five years with payments scheduled to be completed in
1998.
(e) Nolan Lode:
This property consists of 179 unpatented Federal lode claims 100
percent owned by Silverado. The lode claims overlie much of the placer
properties and extend beyond them.
Production of placer gold from Nolan Creek and its tributaries originally
commenced in 1903. Silverado began acquiring claims in the area and developing
the placer gold deposits in 1979. Through 1988, Silverado and a lessee produced
2,400 ounces of gold nuggets. Due to the angular nature and attachment to quartz
of much of the placer gold recovered, Silverado believes the lode source should
be nearby and has staked lode claims to cover the potential source areas. These
claims are in an active exploration stage, and quartz veins containing gold have
been discovered in place.
From 1990 to 1993, Silverado conducted reclamation, exploration and development
in preparation for commencement of production. Initially, production was carried
out on the Thompson's Pup property. Then, in November 1993, the Company
commenced production on the Dionne (Mary's Bench) Property. Gold bearing gravels
were mined by underground methods from a frozen bench deposit. Since the Winter
of 1994/95 almost 14,000 ounces of gold have been recovered by Silverado from
these sites, primarily in the form of high-quality nuggets which sell at premium
prices.
Subsequent to 1995, the Company restricted its activities at Nolan as it
refocused its resources on its Ester Dome properties. It has substantially
reclaimed its previous disturbances.
(6) Hammond Property
The Hammond Property, consisting of 28 Federal placer claims and 36 Federal lode
claims covering one and one-half square miles, was acquired by the Company in
December 1994. The Company completed a drilling program in 1995 which identified
placer gold deposits similar to those on the adjoining Nolan Gold Project. The
lode claims also extended the area of interest for exploration for the lode
sources of the placer gold.
(7) Eagle Creek Royalty Interest
The Eagle Creek Property consists of 77 State mineral claims with a total area
of 4.8 square miles, located 11 miles north of Fairbanks, Alaska. The property
was formerly a producer of antimony and is situated in a 20 mile long belt of
lode and placer gold deposits. It is currently being explored as a gold
prospect.
Silverado acquired the property in 1976. From 1984 to 1988 Silverado explored
several geochemical / geophysical targets and discovered gold bearing veins and
disseminated gold mineralization of economic interest.
The property was assigned to Can-Ex Resources (U.S.), Inc. on August 4, 1989 for
a retained 15 percent net profits interest from production to a maximum of
$5,000,000. On February 19, 1997, Can-Ex Resources (U.S.) Inc. was dissolved,
and the Eagle Creek property, along with all of Can-Ex's other assets, became
the property of its parent corporation, Kintana Resources Ltd. The Company's
interest in the property remains unaffected by this event.
(8) French Peak Property
The French Peak property consists of four mineral claims totaling approximately
one square mile, located 40 miles northwest of Smithers, British Columbia.
The known mineralization consists of silver, gold, copper, lead and zinc in a
number of vein and bedded deposits. From one of these veins, a test shipment of
52.4 tons of hand-sorted ore was sent to a smelter and averaged 204 oz. silver
per ton.
Silverado acquired the property in 1976 and has conducted surface exploration,
including diamond drilling, to expand the known extent of the mineralization.
Several geochemical / geophysical targets remain to be tested. The property is
in an advanced exploration stage.
(c) GLOSSARY OF TECHNICAL TERMS
Anomaly.
- ----------
A concentration of an element or a physical feature which may indicate the
presence of a mineral deposit.
Development.
- --------------
The process following exploration, whereby a mineral deposit is further
evaluated and prepared for production. This generally involves significant
drilling and may include underground work.
Drilling.
- -----------
The process of boring a hole in the rock to obtain a sample for determination of
metal content. "Diamond Drilling" involves the use of a hollow bit with diamonds
on the cutting surface to recover a cylindrical core of rock. "Reverse
Circulation Drilling" involves chips of rock being forced back through the
center of the drill pipe using air or water.
Exploration.
- --------------
The process of using prospecting, geological mapping, geochemical and
geophysical surveys, drilling, sampling and other means to detect and perform
initial evaluations of mineral deposits.
Federal Lode Claims, Federal Placer Claims.
- -------------------------------------------------
Mineral claims up to 20 acres, located on federal land under the U.S. Mining Law
of 1872. See below for definitions of "Lode" and "Placer".
Geochemical Survey.
- ---------------------
Sample of soil, rock, silt, water or vegetation analyzed to detect the presence
of valuable metals or other metals which may accompany them. E.g., Arsenic may
indicate the presence of gold.
Geophysical Survey.
- ---------------------
Electrical, magnetic and other means used to detect features which may be
associated with mineral deposits.
Gold Deposit.
- ---------------
A concentration of gold in rock sufficient to be of economic interest.
Gravity / Carbon-in-Pulp Mill.
- ----------------------------------
A gold processing plant wherein gold ore is finely ground and the coarse gold
particles are removed by mechanical means with the balance dissolved by weak
cyanide solution. The dissolved gold is absorbed onto carbon then recovered by
electrowinning.
Lode.
- -------
Mineral in place in the host rock, as in "lode gold".
Lode Source.
- --------------
The lode mineral deposit from which placer minerals have been derived by
erosion.
Mineral Claims.
- -----------------
General term used to describe the manner of land acquisition under which the
right to explore, develop and extract metals is established.
Placer.
- ---------
Mineral which has been separated from its host rock by natural processes and is
often reconcentrated in streams as "placer deposits" or "placer gold".
Prospecting Sites.
- ---------------------
Areas up to 160 acres on Alaska State lands where the exclusive right to explore
for minerals is granted for one year, extendible for additional years.
Reserve.
- ----------
A body of ore sufficiently sampled to establish continuity, and determined by
feasibility analysis to be economically and legally mineable.
Resource.
- -----------
A body of ore sufficiently sampled to establish continuity, but not constrained
by a mining plan or feasibility analysis.
State Claims.
- ---------------
Mineral claims up to 40 acres, located on State of Alaska lands.
ITEM 3 LEGAL PROCEEDINGS
On March 14, 1997, the Company filed a Quiet Title Action in the Alaska Superior
Court, Fourth Judicial District, in order to assure its clear title to the
Marshall Dome property. Subsequently, on June 18, 1997, the vendors of the
property filed a counterclaim opposing the Company's action. In the course of
their opposition, the vendors demanded that the Company encumber the property
with a lien or other equitable relief in their favor for the remaining purchase
price of the property, and stated a claim for alleged damages in such amount as
may be proven at trial. Silverado believes the complaint is without merit, and
has moved for Summary Judgment on the basis that it has exclusive possessory
rights to the property as evidenced by the purchase documents executed by the
vendors. As at February 28, 1998, a decision has not been rendered on the
Company's motion.
ITEM 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security holders through the solicitation of proxies or
otherwise.
PART II
ITEM 5 MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) MARKET INFORMATION
Silverado's common stock trades on the NASDAQ Small-Cap Market under the symbol
"GOLDF." The following table indicates the high and low bid prices of the common
shares during the periods indicated, as published by NASDAQ:
QUARTER ENDED HIGH BID LOW BID
-------------------------------------------------
Feb 29, 1996 7/8 3/8
May 31, 1996 3/4 15/32
Aug 31, 1996 21/32 13/32
Nov 30, 1996 23/32 1/2
Feb 28, 1997 7/16 11/32
May 31, 1997 1/2 5/16
Aug 31, 1997 11/32 5/16
Nov 30, 1997 7/16 9/32
The foregoing prices represent inter-dealer quotations without retail markups,
markdowns, or commissions and do not necessarily represent actual transactions.
(b) HOLDERS OF COMMON SHARES
As at January 30, 1998, there were 3,576 registered holders of Silverado's
common shares, approximately 91% of whom were located in the United States.
(c) DIVIDENDS AND INTEREST
Silverado Gold Mines Ltd. has not declared dividends on its common stock in the
two most recent fiscal years.
Silverado is restricted in its ability to pay dividends by limitations under
British Columbia law relating to the sufficiency of profits from which dividends
may be paid. In addition, Silverado's Articles (the equivalent of the Bylaws of
a United States corporation) provide that no dividend shall be paid otherwise
than out of funds or assets properly available for the payment of dividends and
declaration by the directors as to the amount of such funds or assets available
for dividends shall be conclusive.
The Canadian Income Tax Act (the "Tax Act") provides in subsection 212(2) that
dividends and other distributions deemed to be dividends paid or deemed to be
paid by a Canadian resident company to a non-resident person shall be subject to
a non-resident withholding tax of 25 percent on the gross amount of the
dividend. Subject to certain exceptions, paragraph 212(1)(b) of the Tax Act
similarly imposes a 25 percent withholding tax on the gross amount of interest
paid by a Canadian resident to a non-resident person.
Subsection 115 (1) and Subsection 2 (3) of the Tax Act provide that a
non-resident person is subject to tax at the rates generally applicable to
persons resident in Canada on any "Taxable capital gain" arising on the
disposition of shares of a corporation that is listed on a prescribed stock
exchange (which includes NASDAQ) if:
(i) such non-resident, together with persons with whom he does not deal at
arm's length, has held 25% or more of the outstanding shares of any class
of stock of the corporation at any time during the five years preceding
such disposition; or
(ii) the shares disposed of were used by such non-resident in carrying on a
business in Canada.
A taxable capital gain is presently equal to three quarters of a capital gain.
Provisions in the Tax Act relating to dividend and interest payments by Canadian
residents to persons resident in the United States are subject to the 1980
Canada - United States Income Tax Convention (the "1980 Convention"). Article X
of the 1980 Convention provides that the rate of non resident withholding tax on
dividends shall not exceed 10 percent (6 percent for 1996 and 5% for 1997 and
subsequent years) of the gross amount of the dividends where the non-resident
person who is the beneficial owner of the shares is a corporation which owns at
least 10 percent of the voting stock of the corporation paying the dividend. In
other cases, the rate of non-resident withholding tax shall not exceed 15
percent.
Article XI of the 1980 Convention provides that the rate of non-resident
withholding tax on interest shall not generally exceed 15 percent (10% for 1996
and subsequent years) of the gross amount of the interest.
The reduced rates of non-resident withholding relating to dividends and interest
provided by the 1980 Convention do not apply if the recipient carries on
business or provides independent personal services through a permanent
establishment situated in Canada, and the shareholding or debt claim is
effectively connected with that permanent establishment. In that case, the
dividends and interest as the case may be, are subject to tax at the rates
generally applicable to persons resident in Canada.
Article XIII of the 1980 Convention provides that gains realized by a United
States resident on the sale of shares such as those of Silverado may be taxed in
both Canada and the United States. However, taxes paid in Canada by a United
States resident would, subject to certain limitations, be eligible for foreign
tax credit treatment in the United States, thereby minimizing the element of
double taxation.
Except as described above, there are no government laws, decrees, regulations or
treaties that materially restrict the export or import of capital, including
foreign exchange controls, or which impose taxes, including withholding
provisions, to which United States shareholders are subject.
ITEM 6 SELECTED FINANCIAL DATA
The following table sets forth selected financial data for each of Silverado's
fiscal years ended November 30, 1997, 1996, 1995 , 1994 and 1993.
YEARS ENDED NOVEMBER 30,
1997 1996 1995 1994 1993
--------------------------------------------------------
000's except per share amounts
Revenues $ 169 $ 298 $ 3,053 $ 1,516 $ --
Net Earnings (Loss) for $ (4,415) $ (4,330) $ (4,095) $ (3,120) $ 143
the Year (1)
Earnings (Loss) Per $ (0.07) $ (0.09) $ (0.11) $ (0.09) $ 0.01
Share
END OF PERIOD
Assets $ 18,231 $ 18,461 $ 15,140 $ 16,496 $ 15,929
Gold Inventory (3) $ 49 $ 213 $ 389 $ 2,028 $ 446
Long-term Obligations $ 2,010 $ 2,092 $ 2,395 $ 2,543 $ --
(1) For 1993, after extraordinary item, forgiveness of debt of $1,295,000.
(2) Loss per share for 1993 was $0.04 before extraordinary item.
(3) Gold inventory is valued at the lower of weighted average cost or net
realizable value.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The table below sets forth Silverado's working capital and liquidity at the
dates indicated:
November 30,
1997 1996 1995
---------------------------------------
Cash and cash equivalents $ 20,914 $ 1,925,469 $ 155,849
Other current assets 423,475 704,228 462,134
---------------------------------------
444,389 2,629,697 617,983
---------------------------------------
Accounts payable and accrued liabilities (597,478) (252,923) (527,352)
Loans payable secured by gold inventory -- (66,511) (176,568)
Payable to related parties -- -- (851,610)
Current portion of mineral claims payable -- (179,000) (330,000)
Current portion of capital lease obligation (81,749) (64,939) (203,203)
---------------------------------------
(679,227) (563,373) (2,088,733)
---------------------------------------
Working capital (deficiency) $ (234,838) $ 2,066,324 $(1,470,750)
---------------------------------------
During 1997 the Company continued to receive funds through private placements
and the exercise of options, and applied those funds to exploration and
development expenses on its Fairbanks properties, and reclamation costs on its
Nolan properties. The Company also incurred costs associated with its due
diligence investigation of the Ryan Lode property, in advance of entering into
an option agreement to acquire that property entered into subsequent to year
end. The decrease in the Company's working capital from $2,066,324 to a
deficiency of $234,838 at the end of 1997 reflects the excess of those various
expenditures over the funds received during 1997. In addition, the Company
advanced $480,236 to Tri-Con, an affiliated company, during the year which
further contributed to the decrease in working capital in 1997. The Company's
short term liabilities consist primarily of trade payables, accrued interest and
reclamation expenses; long term liabilities consist of the long term portion of
the Company's remaining capital lease obligation, and a $2,000,000 convertible
debenture which has a maturity of July 2, 1999, if not sooner converted.
From the $3,453,000 which the Company received from shares issued for cash
during the year, it applied $2,290,000 to exploration and development
expenditures, and $110,000 to mineral claims and options on its Alaska
properties. $1,246,000 of these expenditures occurred on the Company's Ester
Dome Project; $478,000 on the Ryan Lode Gold Project; and $274,000 on the Nolan
Gold Project - mostly for reclamation work. $292,000 was applied to its other
properties, including the French Peak silver property in British Columbia.
A more detailed discussion of the use of these funds, and the results of the
Company's work is presented below.
Ester Dome Gold Project
-----------------------
The Company continued to explore and develop gold deposits on its 24 square
mile Ester Dome property. On the St. Paul deposit, 31 trenches totaling
10,000 lineal feet and 91 drill holes totaling 19,200 feet have been
completed. Gold mineralization has been traced for 3,000 feet along the
surface, up to 600 feet deep, and remains open to extension in all
directions. Detailed drilling on a 500-foot long section of the deposit has
shown gold grades, from 50 holes, averaging 0.085 oz/ton across an average
width of 40 feet and to an average depth of 125 feet. Several more
potential ore zones will need to be defined before the St. Paul Deposit can
support a stand-alone feasibility study. However, if other deposits on
Ester Dome, such as the Ryan Lode, are considered for production, then the
St. Paul would be evaluated as part of that planning.
Elsewhere on Ester Dome, the Company began surface exploration on the
Rhyolite target area and completed a data compilation and evaluation on the
Ready Bullion area, all preparatory to commencement of drilling. Subsequent
to year end, the Company completed an agreement with Placer Dome U.S. Inc.
granting Placer Dome an option to explore 20.5 square miles of Ester Dome.
The optioned claims include the Rhyolite and Ready Bullion targets, but
exclude the St. Paul, Grant Mine and Mill, and Ryan Lode areas.
Ryan Lode Gold Project
----------------------
In July, 1997, the Company began an environmental, technical, and legal due
diligence investigation of the Ryan Lode property preparatory to acquiring
an option on the property from La Teko Resources Ltd. La Teko had reported
a significant mineable reserve based on a bulk tonnage / heap leach mining
concept, at an average grade of 0.056 ounces of gold per ton of ore. The
Company completed 38 drill holes totaling 8,855 feet to confirm the
continuity of gold mineralization above 0.10 ounces per ton to support the
concept of a smaller tonnage, higher grade operation using Silverado's
existing Grant Mill facilities. The Company considered the drilling
successful and, subsequent to year end, completed an Option to Purchase
Agreement with La Teko for the Ryan Lode property.
Nolan Gold Project
------------------
In November, 1993, the Company commenced production of placer gold from
frozen bench deposits on the Mary's Bench portion of the Dionne Property.
Since then, almost 14,000 ounces of gold have been recovered. The Company
continued a limited production program in 1996 then suspended production
altogether in 1997 as it focused its efforts entirely on the expansion,
exploration, and development of its Fairbanks properties in response to
increased competitive activity in that area. It did, however, conduct
reclamation activities on the site. The Company intends to continue
development of both placer and lode gold deposits at Nolan at a future
time, subject to the availability of financing.
Other Properties
----------------
The Company maintained its other properties in good standing.
During 1998, the Company has property commitments totaling $620,600 which must
be paid in order to keep its various properties in good standing. This amount is
made up of mineral property lease payments, various regulatory charges and fees,
and property work requirements. In addition, the option agreement signed after
year end to acquire the Ryan Lode property requires the Company to pay La Teko
$650,000 and perform $1,000,000 of work on the property before November 30,
1998. Finally, the Company has various other commitments to meet over the coming
year including interest payments on a $2,000,000 convertible debenture, various
office and equipment leases and reclamation costs. Together, they total
approximately $500,000 for the year to November 30, 1998.
The funds to make these payments are expected to come in part from receipts from
Placer Dome U.S. Inc. under the agreement signed subsequent to year end
regarding a portion of the Company's Ester Dome properties. Under this
agreement, which Placer Dome U.S. Inc. is entitled to terminate annually at
November 30, the Company can receive $1,100,000 in cash consideration and
receipts upon issue of shares. Management expects that it will be able to raise
additional capital for its activities on its properties through either equity or
debt financing, or additional joint-ventures, though there is no commitment by
any party to provide such financing at this time, nor assurance that such
capital will be available or that an additional joint-venture can be negotiated
on terms favorable to the Company. In the event that sufficient funds do not
become available to carry out its planned operations, the Company may elect to
reprioritize its operations and sell or abandon certain properties as necessary
to meet its cash requirements.
In 1998, the Company intends to further develop the Ryan Lode property under the
terms of its option agreement with La Teko. The purpose of this work would be to
determine whether a feasibility study, suitable for institutional financing,
could be prepared so as to finance the capital costs associated with returning
the Ryan Lode to commercial production. The Company also intends to resume
development of its Nolan claims, subject to available financing.
OPERATING RESULTS
The Company continued to engage in only limited gold sales in 1997, reflecting
its own reduced inventory, the current suspension of all production activities,
and the lower prices for gold. The Company expects to maintain only minimal
inventory until such time as it either resumes production from its Nolan
properties, or brings its newly-acquired Ryan Lode property into production.
Similarly, operating costs in 1997 were lower than in the two previous years, in
which production was conducted at varying levels. However, the company did some
reclamation work at several sites, principally at the Nolan Gold Project. As
this reclamation work is recorded as an operating expense, and the sales during
the year were for inventory held at the end of 1996, the operating margin for
1997 is lower than previous years.
As with most companies involved in the mining industry, the price of the
Company's product (mainly gold) can have a significant impact upon the Company.
During the latter quarter of 1997, the price of gold fell significantly to a
range of $285 to $295 per ounce. However, as the Company is not currently
producing gold, and as its properties do not yet have substantial reserves
developed, the drop in gold price has not affected the Company's operating
results
Mining activities in the United States are subject to regulation and inspection
by the Mining, Safety and Health Administration of the United States Department
of Labor. In addition, Silverado's activities are regulated by a variety of
Federal, state, provincial and local laws and regulations relating to protection
of the environment. The operation of mining properties also requires a variety
of permits from governmental agencies. While there can be no assurance that in
the future environmental concerns will not lead to restrictions upon Silverado's
operations at one or more properties, Silverado believes it has either obtained
all permits necessary for planned operations in 1998, or that any other permits
necessary can be obtained without undue restriction
Other Expenses
- --------------
Years ended November 30,
--------------------------------------------
Other Expenses $4,205,381 $4,077,978 $2,074,626
Despite significant decreases in employment contract expenses (see Note 6 (d) to
the consolidated financial statements included elsewhere in this document) and
the cessation of salary payments to the Company's former President who resigned
in the first quarter of 1997, the Company's Other Expenses increased over the
1996 total. Legal and financing expenses of the Company increased in 1997,
primarily as a result of work performed in negotiating contracts with La Teko
and Placer Dome, both of which were finalized after year end. In addition,
management services provided by Tri-Con increased significantly in 1997. This
management services overhead increase resulted from the need to maintain staff
and infrastructure at a certain level in preparation for expected increases in
development and operational activities in 1998 and 1999, despite relatively low
activity levels in the current year.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements listed below were prepared on the basis of
accounting principles generally accepted in the United States and are expressed
in U.S. dollars. These principles conform, in all material respects, with those
generally accepted in Canada.
PAGE
- -----------------------------------------------------------------------------------------
Auditor's Report F-1
- -----------------------------------------------------------------------------------------
Comments by Auditors for U.S. Readers on Canada - U.S. Reporting Conflict F-1
- -----------------------------------------------------------------------------------------
Consolidated Balance Sheets, November 30, 1997 and 1996 F-2
- -----------------------------------------------------------------------------------------
Consolidated Statements of Operations and Accumulated Deficit,
Years Ended November 30, 1997, 1996 and 1995 F-3
- -----------------------------------------------------------------------------------------
Consolidated Statements of Cash Flows,
Years Ended November 30, 1997, 1996 and 1995 F-4
- -----------------------------------------------------------------------------------------
Consolidated Statements of Changes in Share Capital and Capital Surplus,
Years ended November 30, 1997, 1996 and 1995 F-5
- -----------------------------------------------------------------------------------------
Notes to Consolidated Financial Statements F-6 to F-20
- -----------------------------------------------------------------------------------------
No schedules are presented either because the required information is disclosed
elsewhere in the financial statements, or the schedules are not applicable.
- -----------------------------------------------------------------------------------------
F-1
AUDITORS' REPORT
To the Shareholders of Silverado Gold Mines Ltd. (formerly Silverado Mines Ltd.)
We have audited the consolidated balance sheets of Silverado Gold Mines Ltd. as
at November 30, 1997 and 1996, and the consolidated statements of operations and
accumulated deficit, cash flows and changes in share capital and capital surplus
for each of the years in the three year period ended November 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at November 30, 1997
and 1996, and the results of its operations and the changes in its financial
position for each of the years in the three year period ended November 30, 1997
in accordance with generally accepted accounting principles in the United
States. As required by the Company Act (British Columbia), we report, that in
our opinion, these principles have been applied on a consistent basis.
/s/ KPMG
- ---------
KPMG
Chartered Accountants
Vancouver, Canada February 5, 1998 except as to notes 5, 6(c) and 10, which are
as at March 16, 1998
COMMENTS BY AUDITORS FOR U.S. READERS
ON CANADA-U.S. REPORTING CONFLICT
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the company's ability to continue as a going concern, such as those described in
Note 1(a) to the financial statements. My report to the shareholders dated
February 5, 1998, except as to notes 5, 6(c) and 10, which are as at March 16,
1998, is expressed in accordance with the Canadian reporting standards which do
not permit a reference to such events and conditions in the auditor's report
when these are adequately disclosed in the financial statements.
/s/ KPMG
- ---------
KPMG
Chartered Accountants
Vancouver, Canada February 5, 1998 except as to notes 5, 6(c) and 10, which are
as at March 16, 1998
SILVERADO GOLD MINES LTD. (formerly Silverado Mines Ltd.) F-2
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN U.S. DOLLARS
- -------------------------------------------------------------------------------------------------
Years Ended November 30 1997 1996
- -------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 20,914 $ 1,925,469
Gold inventory 48,875 213,004
Accounts receivable 8,297 11,265
Prepaid expenses paid to related parties 366,303 479,959
------------------------------
444,389 2,629,697
Mineral Properties and Development (Note 2)
Claims and options 2,436,972 2,327,025
Deferred exploration and development expenditures 13,576,470 11,286,816
------------------------------
16,013,442 13,613,841
Less accumulated amortization (1,384,338) (1,384,338)
------------------------------
14,629,104 12,229,503
Buildings, Plant and Equipment (Note 3) 4,481,399 4,423,428
Less accumulated depreciation (1,385,423) (920,246)
------------------------------
3,095,976 3,503,182
Deferred Financing Fees
(net of amortization of $124,238; 1996 - $87,038) 61,762 98,962
------------------------------
$ 18,231,231 $ 18,461,344
==============================
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities (Note 4) $ 597,478 $ 252,923
Loans payable secured by gold inventory -- 66,511
Current portion of mineral claims payable -- 179,000
Capital lease obligations - current (Note 9(b)) 81,749 64,939
------------------------------
679,227 563,373
Long Term Liabilities
Capital lease obligations (Note 9(b)) 9,741 92,214
Convertible debenture (Note 5) 2,000,000 2,000,000
------------------------------
2,009,741 2,092,214
Shareholders' Equity
Share capital (Note 6)
Issued and outstanding November 30, 1997 - 80,012,218 shares 43,084,420 38,651,294
November 30, 1996 - 56,406,493 shares
Unamortized stock compensation expense (151,612) (350,000)
Advances to related parties secured by
common shares in the company (Note 7) (480,236) --
Deficit (26,910,309) (22,495,537)
------------------------------
15,542,263 15,805,757
------------------------------
$ 18,231,231 $ 18,461,344
==============================
Continuing operations (Note 1(a))
Subsequent events (Notes 5, 6(c) and 10)
Commitments and contingencies (Notes 2 and 9)
See accompanying notes to consolidated financial statements.
SILVERADO GOLD MINES LTD. (formerly Silverado Mines Ltd.) F-3
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
EXPRESSED IN U.S. DOLLARS
----------------------------------------------
Years Ended November 30 1997 1996 1995
----------------------------------------------
Revenue from gold sales $ 168,924 $ 298,124 $ 3,053,289
----------------------------------------------
Operating costs
Mining and processing costs 164,835 366,249 4,515,138
Amortization of property and development costs -- 123,504 431,384
Reclamation expense (Note 9(d)) 213,480 31,993 29,397
Production related depreciation expense -- 28,660 97,300
----------------------------------------------
378,315 550,406 5,073,219
----------------------------------------------
Loss from operations (209,391) (252,282) (2,019,930)
Other expenses
Accounting and audit 93,450 69,331 62,891
Amortization of deferred financing fees 37,200 37,200 37,200
Corporate capital taxes 21,934 (5,967) 32,014
Depreciation 475,175 447,222 86,346
Employment contract expense 1,099,340 1,910,060 223,273
Financing activities 100,847 35,159 18,900
General exploration and development 75,566 13,980 --
Interest on long term debt 160,000 160,000 160,000
Legal 206,740 35,733 114,294
Loss on disposal of buildings, plant and equipment 1,557 -- --
Loss (gain) on foreign exchange 55,335 (5,298) (5,332)
Management salaries 65,744 263,000 184,349
Management services from related party (Note 7) 992,646 323,108 190,009
Office expenses 318,463 262,333 387,498
Other interest and bank charges (net) 7,356 4,908 82,928
Printing and publicity 293,095 371,281 410,195
Reporting and investor relations 52,576 26,833 24,447
Transfer agent fees and mailing expenses 148,357 129,095 65,614
----------------------------------------------
4,205,381 4,077,978 2,074,626
Loss for the year (4,414,772) (4,330,260) (4,094,556)
Accumulated deficit at beginning of year (22,495,537) (18,165,277) (14,070,721)
----------------------------------------------
Accumulated deficit at end of year $ (26,910,309) $ (22,495,537) $ (18,165,277)
==============================================
Loss per share (Note 1(g)) $ (0.07) $ (0.09) $ (0.11)
==============================================
See accompanying notes to consolidated financial statements.
SILVERADO GOLD MINES LTD. (formerly Silverado Mines Ltd.) F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
EXPRESSED IN U.S. DOLLARS
- -------------------------------------------------------------------------------------------------------------------
Years Ended November 30 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR):
Operations:
Loss for the year $ (4,414,772) $ (4,330,260) $ (4,094,556)
Items not involving cash:
Employment contract expense 1,099,340 1,910,060 223,273
Consulting services expense 78,945 -- --
Depreciation 475,175 475,882 183,646
Amortization of deferred financing fees 37,200 37,200 37,200
Loss on disposal of buildings, plant and equipment 1,557 -- --
Amortization of property and development costs -- 123,504 431,384
Changes in non-cash operating working capital:
Decrease (increase) in accounts receivable 2,968 (10,255) (1,010)
Decrease (increase) in gold inventory 164,129 176,115 1,638,670
Decrease (increase) in prepaid expenses paid to related parties 113,656 -- --
Increase (decrease) in accounts payable and accrued liabilities 344,555 (274,429) 282,488
--------------------------------------------
(2,097,247) (1,892,183) (1,298,905)
Financing:
Shares issued for cash 3,453,229 7,610,000 1,104,600
Decrease (increase) in advances/payable to related parties (480,236) (1,299,893) 972,445
Increase (decrease) in loans payable secured by gold inventory (66,511) (110,057) 176,568
Decrease in mineral claims payable (179,000) (351,000) (70,000)
Increase (decrease) in capital lease obligation (65,663) (240,619) 85,072
--------------------------------------------
2,661,819 5,608,431 2,268,685
Investments:
Mineral claims and options (109,947) (571,214) (32,900)
Deferred exploration and development expenditures (2,289,654) (1,202,700) (617,118)
Purchases of equipment (69,526) (172,714) (354,637)
--------------------------------------------
(2,469,127) (1,946,628) (1,004,655)
--------------------------------------------
Increase (decrease) in cash and cash equivalents (1,904,555) 1,769,620 (34,875)
Cash and cash equivalents at beginning of year 1,925,469 155,849 190,724
--------------------------------------------
Cash and cash equivalents at end of the year $ 20,914 $ 1,925,469 $ 155,849
============================================
Supplemental cash flow information
Interest paid $ 181,436 $ 242,562 $ 233,942
============================================
Issue of shares for purchase of mineral property, a non-cash
financing and investing activity $ -- $ -- $ 43,750
============================================
See accompanying notes to consolidated financial statements.
SILVERADO GOLD MINES LTD. (formerly Silverado Mines Ltd.) F-5
CONSOLIDATED STATEMENTS OF CHANGES IN SHARE CAPITAL
AND CAPITAL SURPLUS
EXPRESSED IN U.S. DOLLARS
Years ended November 30, 1997, 1996, and 1995
Number of Share Capital
shares Capital Surplus
---------- ------------ ------------
Balance as at November 30, 1994 35,027,993 $ 27,054,191 $ 46,352
---------- ------------ ------------
Year ended November 30, 1995
Shares issued:
On exercise of contract employee share options 2,303,500 1,104,600
For mineral property 100,000 43,750
Value of share options granted to contract employees 572,670
---------- ------------ ------------
2,403,500 1,721,020 --
---------- ------------ ------------
Balance as at November 30, 1995 37,431,493 28,775,211 46,352
---------- ------------ ------------
Year ended November 30, 1996
Shares issued:
On exercise of contract employee share options 18,050,000 7,180,000
Private placements for cash 925,000 430,000
Capital surplus reallocated 46,352 (46,352)
Fair value of share options granted to contract employees 2,219,731
---------- ------------ ------------
18,975,000 9,876,083 (46,352)
---------- ------------ ------------
Balance as at November 30, 1996 56,406,493 38,651,294 --
---------- ------------ ------------
Year ended November 30, 1997
Shares issued:
Stock split 4,934,725
On exercise of contract employee share options 3,390,000 487,500
On exercise of warrants 600,000 102,000
Private placements for cash 14,181,000 2,863,229
Private placement for consulting services: 500,000
For cash 500
For consulting services 169,500
Fair value of share options granted to contract employees 771,389
Fair value of share options granted to consultants 39,008
---------- ------------ ------------
23,605,725 4,433,126 --
---------- ------------ ------------
Balance as at November 30, 1997 80,012,218 $ 43,084,420 $ --
========== ============ ============
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
SILVERADO GOLD MINES LTD. F-6
(FORMERLY SILVERADO MINES LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements for the years ended November
30, 1997, 1996 and 1995 are prepared in conformity with accounting
principles generally accepted in the United States. During the year
ended November 30, 1997, the Company changed its name from Silverado
Mines Ltd. to Silverado Gold Mines Ltd.
(a) Continuing Operations
During the year ended November 30, 1997, the Company continued to
focus its efforts on its properties within the Fairbanks mining
district, primarily at Ester Dome. It continued its drilling program
on several sites within the Ester Dome Project, and funded its
exploration activities by generating $3,450,000 in capital through
private placements and the exercise of options and warrants.
These financial statements have been prepared on a going concern
basis, which assumes the realization of assets and liquidation of
liabilities in the normal course of business. The application of the
going concern concept and the recovery of amounts recorded as mineral
properties and development is dependent on the Company's ability to
obtain the continued forbearance of certain creditors, to obtain
additional financing to fund its operations and acquisition,
exploration and development activities, the discovery of economically
recoverable ore on its properties, and the attainment of profitable
operations. Current uncertainty with regard to each of these matters
raises substantial doubt about the Company's ability to continue as a
going concern, and the financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
(b) Basis of Consolidation
The consolidated financial statements include the accounts of
Silverado Gold Mines Inc., (formerly Silverado Mines (U.S.), Inc.), a
wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
(c) Gold Inventory
Gold inventory is valued at the lower of weighted average cost and
estimated net realizable value. At November 30, 1997, 1996 and 1995,
gold inventory is valued at net realizable value. Any write-down of
inventory to net realizable value is included in mining and processing
costs.
(d) Mineral Properties and Development
The Company confines its exploration activities to areas from which
gold has previously been produced or to properties which are
contiguous to such areas and have demonstrated mineralization.
Accordingly, the Company capitalizes costs of acquiring, exploring and
developing mineral claims and options until such time as the
properties are placed into production or abandoned; at that time costs
are amortized or written off.
F-7
Effective December 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 ("FAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." On an ongoing basis, the Company evaluates each property
based on exploration results to date, and considering facts and
circumstances such as operating results, cash flows and material
changes in the business climate, determines whether any of the
properties may be impaired. The carrying value of a long-lived asset
is considered impaired when the anticipated undiscounted cash flow
from such asset is separately identifiable and is less that its
carrying value. In that event, a loss is recognized based on the
amount by which the carrying value exceeds the fair market value of
the long-lived asset. Fair market value is determined primarily using
the anticipated cash flows discounted at a rate commensurate with the
risk involved. Losses on long-lived assets to be disposed of are
determined in a similar manner, except that fair market values are
reduced for the cost to dispose. The adoption of this accounting
standard did not have a material effect on the Company's consolidated
operating results or financial position.
The amounts shown for mineral properties and development for mineral
properties which have not yet commenced commercial production
represent costs incurred to date, net of recoveries from developmental
production, and are not intended to reflect present or future values.
Amortization of mineral properties and development costs of properties
in production is provided during periods of production using the
units-of-production method based on an estimated economic life of the
ore reserves.
The Company's accounting policy for reclamation expenses is contained
in note 9(d).
(e) Buildings, Plant and Equipment
Buildings, plant and equipment are stated at cost. Depreciation is
provided on buildings, plant and equipment using the straight-line
method based on estimated lives of 3 to 20 years.
(f) Foreign Currencies
The Company considers its functional currency to be the U.S. dollar
for its U.S. and Canadian operations. Monetary assets and liabilities
denominated in foreign currencies are translated into U.S. funds at
the rates of exchange in effect at the year end. Revenue and expense
transactions are translated at the rate in effect at the time at which
the transactions took place. Foreign exchange gains and losses are
included in the determination of income.
(g) Loss Per Share
Loss per share has been calculated based on the weighted average
number of shares outstanding during the year. During the current year,
the outstanding share capital in the Company was split on a 14:13
basis. The effect of the stock split was given retroactive recognition
in all periods presented. The weighted average number of shares
outstanding, for the purpose of loss per share calculations, is as
follows:
F-8
Year to November 30, 1997 66,999,559
Year to November 30, 1996 49,120,290
Year to November 30, 1995 38,423,001
Loss per share does not include the effect of the potential conversions
of options, warrants, and debentures as their effect would be
anti-dilutive.
(h) Revenue Recognition
Gold sales are recognized when title passes to the purchaser.
(i) Accounting for Stock Based Compensation
The Company uses the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB Opinion No. 25") in accounting
for its stock based incentive plans to directors. Under the intrinsic
value based method, compensation cost is the excess, if any, of the
quoted market price of the stock at grant date over the amount an
employee or director must pay to acquire the stock. The Company's
accounting policy for stock based incentive plans to contract
employees and consultants is contained in Notes 9(d) and 9(e).
(j) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Significant areas requiring
the use of management estimates relate to the amortization and
depreciation rates of mineral properties and development and
buildings, plant and equipment, accrued remediation expense and the
recoverability of capital and other assets. Actual results could
differ from those estimates.
(k) Financial Instruments
The carrying amounts reported in the balance sheet for cash and cash
equivalents, accounts receivable, accounts payable and accrued
liabilities approximate fair values due to the short-term maturity of
these instruments. The carrying amounts reported in the balance sheet
for gold inventory approximate fair values as gold inventory is
carried at estimated net realizable value. The carrying amounts
reported in the balance sheet for capital lease obligations and
convertible debenture approximate their fair value as they bear
interest at rates which approximate market rates.
(l) Comparative Figures
Certain comparative figures have been reclassified to conform with the
financial statement presentation adopted in the current year.
F-9
2. MINERAL PROPERTIES AND DEVELOPMENT
(a) Mineral Properties
Ester Dome Properties, Fairbanks Mining District, Alaska
--------------------------------------------------------
These properties, which include the Grant Mine (Burggraf), Range
Minerals #1, Range Minerals #2, May / Barelka (St. Paul), and Dobb's
properties, make up a contiguous group of claims covering 24 square
miles. The Company's property holdings in this area were expanded by
the acquisition of five additional claims in October, 1997, known as
the "Alaska Gold" property.
Ryan Lode Property, Fairbanks Mining District, Alaska
-----------------------------------------------------
Significant due diligence work was performed in 1997 following a
letter of understanding with La Teko Resources Ltd., resulting in an
agreement in December 1997 granting the Company an option to acquire
this property which consists of 63 mining claims covering
approximately one and one-half square miles (see Note 10). The
property is situated next to the Company's Ester Dome properties near
Fairbanks, Alaska.
Marshall Dome Property, Fairbanks Mining District, Alaska
---------------------------------------------------------
The Company acquired this property in 1995. It covers an area of two
and one-half square miles, and is located eighteen miles northeast of
Fairbanks.
Whiskey Gulch Property, Fairbanks Mining District, Alaska
---------------------------------------------------------
The Company acquired four claims collectively known as "Whiskey Gulch"
in 1996. These claims are located near the Company's Marshall Dome
property.
Chatanika Property, Fairbanks Mining District, Alaska
------------------------------------------------------
The Company originally staked this property 1996. It consists of 752
mining claims and 16 prospecting sites covering an area of
approximately 52 square miles, located 20 miles northwest of
Fairbanks.
Nolan Properties, Wiseman Mining District, Alaska
-------------------------------------------------
These properties, which include the Nolan Placer, Nolan Lode,
Thompson's Pup, Dionne (Mary's Bench), and Smith Creek properties,
make up a contiguous group of claims, covering approximately four
square miles.
Hammond Property, Wiseman Mining District, Alaska
-------------------------------------------------
The Company acquired this two square mile property, adjoining the
Nolan Gold Properties, in 1994.
Eagle Creek Property, Fairbanks Mining District, Alaska
-------------------------------------------------------
The Company assigned its interest and obligations related to this
property to Can-Ex Resources (U.S.), Inc. ("Can-Ex"), a related
company (see Note 7), and retained a 15 percent net profit interest
from production to a maximum of $5,000,000. Can-Ex was subsequently
dissolved in 1997 at which time its assets passed to its parent
company, Kintana Resources Ltd., which now has the obligation for
Silverado's net profit interest.
French Peak Property, Omineca Mining District, British Columbia
---------------------------------------------------------------
Anselmo Holdings Ltd., a related company, has a 10 percent net profits
interest in this property, which consists of four mineral claims
covering approximately one square mile located 40 miles northwest of
Smithers, British Columbia.
F-10
Property Commitments
--------------------
As at November 30, 1997, minimum aggregate future expenditures
required in the next five years to maintain the properties which the
Company held at November 30, 1997 in good standing are as follows:
Year Commitment
1998 $ 620,600
1999 540,600
2000 500,600
2001 400,600
2002 400,600
(b) Claims and Options and Deferred Exploration and Development Expenditures
Cumulative claims and options and deferred exploration and development
expenditures are as follows:
Net book value 1997 Net book value
Nov. 30, 1996 Expenditures Nov. 30, 1997
---------------------------------------------
Cumulative net mineral
claims and option payments $ 1,591,111 $ 109,948 $ 1,701,059
---------------------------------------------
Deferred exploration and
development expenditures
Alaska
Ester Dome Gold Project 5,169,208 1,245,522 6,414,730
Ryan Lode Gold Project 477,858 477,858
Marshall Dome 179,028 1,866 180,894
Nolan Gold Project 4,590,191 273,624 4,863,815
Hammond Property 270,856 41,438 312,294
Eagle Creek Royalty Interest 133,347 7,004 140,351
Whiskey Gulch 21,791 144,678 166,469
Chatanika 12,861 97,663 110,524
British Columbia
French Peak 261,110 261,110
---------------------------------------------
10,638,392 2,289,653 12,928,045
---------------------------------------------
Total mineral properties and
development expenditures $ 12,229,503 $ 2,399,601 $ 14,629,104
=============================================
3. BUILDINGS, PLANT AND EQUIPMENT
Buildings, plant and equipment primarily include the mill facility and
equipment of the Ester Dome/Grant Mine Gold Project and mining
equipment and camp facilities at the Nolan Gold Project.
F-11
1997 1996
Accumulated Net Book Net Book
Cost Depreciation Value Value
----------------------------------------------------------
Grant Mine Mill Equipment $ 2,248,780 $ (613,486) $ 1,635,294 $ 1,837,926
Nolan Gold Project Mining Equipment 60,757 (19,553) 41,204 46,274
Mining Equipment 1,788,132 (602,160) 1,185,972 1,348,775
Other Equipment, Leasehold Improvements 383,730 (150,224) 233,506 270,207
----------------------------------------------------------
$ 4,481,399 $ (1,385,423) $ 3,095,976 $ 3,503,182
----------------------------------------------------------
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of:
1997 1996
-------------------
Accounts payable $334,812 $118,858
Accrued interest 66,666 64,065
Accrued reclamation expense 196,000 70,000
-------------------
$597,478 $252,923
-------------------
5. CONVERTIBLE DEBENTURE
In July 1994, the Company issued a convertible callable debenture with
interest payable at the rate of 8.0% per annum on December 31 and June
30 each year. The debenture is unsecured and is due July 2, 1999,
subject to prior redemption or conversion. The debenture may be
converted in whole or in part by the holder into common shares of the
Company at a conversion price of $1.857 U.S. per share (the
"Conversion Price"). In addition, conversion of the debenture may be
called by the Company provided that the average trading price of the
Company's common stock has exceeded 125% of the Conversion Price for
the period of 20 consecutive trading days. Financing fees paid related
to the debenture have been deferred and are being amortized on a
straight line basis over the debenture term of 60 months. Subsequent
to year end, the Company requested and was granted a deferral of its
December 31, 1997 interest payment of $80,000 until February 21, 1998.
The Company paid $20,000 on February 1, 1998, and has been granted a
further deferral for the remaining payment until March 17, 1998.
Arrangements are in place for a private placement of shares which
will be made on March 17, 1998 and provide sufficient funds to pay
the outstanding amount (see Note 10(d)).
6. SHARE CAPITAL
(a) Common Shares
By Special Resolution passed May 21, 1997, the Company subdivided its
75,000,000 common shares without par value into 80,769,230 common
shares without par value, each 13 shares being subdivided into 14
shares.
By Special Resolution passed May 21, 1997, the Company increased its
authorized capital to 100,000,000 common shares without par value
(1996: 75,000,000 common shares).
F-12
(b) Directors' Options
Directors' options for 450,000 common shares originally granted in May
of 1992, exercisable at Cdn. $0.37 per share and which were to expire
June 1, 1997, were extended during the 1997 fiscal year to June 1,
2002. These options were outstanding at November 30, 1997, 1996 and
1995.
In addition, the following director and employee options to purchase
common shares were granted in accordance with the provisions of the
Company's 1994 Stock Option Plans. These options are exercisable until
August 14, 2004 at the exercise prices stated below, being the market
price of the underlying shares at the date of grant of the options.
Exercise
Grant Date Granted Exercised Outstanding Price
---------- ------- --------- ----------- -----
December 12, 1994 1,100,000 1,100,000 $ 0.88
December 12, 1995 100,000 100,000 $ 0.49
December 12, 1996 100,000 100,000 $ 0.53
September 25, 1997 400,000 400,000 $ 0.40
----------------------------------
Total at Nov. 30, 1997 1,700,000 1,700,000
----------------------------------
The Company accounts for stock compensation arising from options to
directors in accordance with APB No. 25. Under both option plans, the
exercise price of the options is equal to the market price of the
underlying shares on the date of grant of the options. Therefore no
compensation cost arises when the options are granted. If, at the time
of any alteration to the terms of an option, the market price of the
Company's shares exceeds the exercise price of the option at that
date, then this excess is credited to share capital and expensed over
the term of the service period.
Had compensation cost for the Company's directors options been
determined based on fair value at the grant dates, consistent with the
method of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation", the Company's net loss and
loss per share would have been increased to the pro forma amounts
indicated below:
Loss for the year 1997 1996
---------- ----------
As reported: $4,414,772 $4,330,260
Pro forma: $4,543,773 $4,358,886
Loss per common share
As reported: $ 0.07 $ 0.09
Pro forma: $ 0.07 $ 0.09
The estimated weighted average fair value of options granted during
the year was prepared assuming a risk-free rate of 6% (1996: 6%), an
expected dividend yield of 0% (1996: 0%), an expected volatility of
57% (1996: 57%), and a weighted average life of 9 years (1996: 10
years). The estimate was made using the Black-Scholes Pricing Model.
The weighted average remaining contractual life of the options
outstanding at November 30, 1997, was one year (1996: 1 year).
F-13
(c) Warrants
In conjunction with the private placement of common shares the Company
has issued and has outstanding at November 30, 1997, the following
warrants to purchase common shares:
Balance Issued Exercised Canceled Outstanding Exercise Expiry
Nov 30, 1996 in 1997 in 1997 in 1997 at Nov 30, 1997 Price Date
---------------------------------------------------------------------------------------
600,000 600,000 $ 0.60 n/a
600,000 600,000 0.70 n/a
600,000 600,000 0.17 n/a
382,000 382,000 0.20 Sep-98
510,000 510,000 0.20 Sep-98
360,000 360,000 0.30 Oct-98
2,000,000 2,000,000 0.42 Mar-99
1,000,000 1,000,000 0.28 Aug-99
600,000 600,000 0.17 Sep-99
---------------------------------------------------------------------------------------
1,200,000 5,452,000 600,000 1,200,000 4,852,000
------------------------------------------------------------------
Subsequent to year end, warrants for 50,000 common shares which were
outstanding at November 30, 1997, were exercised at $0.17 per share.
(d) Contract Employee Options
From time to time, the Company issues options for the purchase of
common shares to selected part time independent contract employees as
sole compensation for contracted services. The options are exercisable
either at the date the options are granted, or in increments over the
terms of the employment contracts.
The Company accounts for stock compensation arising from these options
in accordance with Statement of Financial Standards No. 123,
"Accounting for Stock Based Compensation". Under this statement, stock
compensation cost to contract employees is measured at the grant date
of the stock option based on the value of the award and is recognized
over the service period.
The following contract employee stock options were granted, exercised,
cancelled and expired during the years ended November 30, 1995, 1996
and 1997 and were outstanding at these dates:
Weighted Average
Number of Shares Exercise Price
Outstanding at November 30, 1994 1,418,250 $ 0.60
Granted 3,240,000 $ 0.47
Exercised (2,303,500) $ 0.48
Expired or cancelled (1,050,000) $ 0.60
Outstanding at November 30, 1995 1,304,750 $ 0.49
Granted 19,840,000 $ 0.42
Exercised (18,050,000) $ 0.40
Expired or cancelled (214,250) $ 0.77
F-14
Outstanding at November 30, 1996 2,880,500 $ 0.56
Granted 3,690,000 $ 0.18
Exercised (3,390,000) $ 0.14
Expired or cancelled (2,596,500) $ 0.57
Outstanding at November 30, 1997 584,000 $ 0.52
The estimated weighted average fair value of options granted during
the year was prepared assuming a risk-free rate of 6% (1996: 6%), an
expected volatility of 57% (1996: 57%), an expected dividend yield of
0% (1996: 0%) and a weighted average life of 3 months (1996: 2
months). The estimate was made using the Black-Scholes Pricing Model.
The weighted average remaining contractual life of the options
outstanding at November 30, 1997, was 1 month (1996: 9 months).
(e) Other Share Transactions
The Company issued the following common shares for cash by way of
private placements during the year ended November 30, 1997:
Less: Net Cash
Issued Issue Gross Fees or Received
in 1997 Price Proceeds Commissions on Issue
-------------------------------------------------------------
1,080,000 $ 0.31 $ 334,800 $ 26,820 $ 307,980
4,000,000 0.25 1,008,000 90,760 917,240
1,620,000 0.20 324,000 31,561 292,439
2,000,000 0.15 300,000 27,000 273,000
989,000 0.17 168,130 -- 168,130
382,000 0.17 64,940 -- 64,940
1,000,000 0.20 200,000 -- 200,000
1,750,000 0.20 350,000 -- 350,000
360,000 0.25 90,000 -- 90,000
1,000,000 0.20 200,000 500 199,500
-------------------------------------------------------------
14,181,000 $ 3,039,870 $ 176,641 $ 2,863,229
---------- ----------- ----------- -----------
The Company also issued 500,000 common shares with a fair value of
$0.34 per share and agreed to grant options to purchase 500,000 common
shares at an exercise price of $0.001 per share, exercisable until
September 5, 1999, to Millennium Holdings Group Inc. ("Millennium") as
partial consideration for a consulting agreement of September, 1997.
The Company has estimated the fair value of options which will be
granted to Millennium using the Black-Scholes Pricing Model. This
estimate assumes a risk free rate of 6%, an expected volatility of
57%, and a life of two years. The cost of this compensation is being
recognized over the term of the contract, being one year.
The Company has reserved 1,076,923 shares for issuance upon the
potential conversion of a convertible debenture.
Subsequent to year end, the Company issued 1,000,000 of its common
shares as partial consideration under an agreement to acquire the Ryan
Lode mineral property (see Note 10).
F-15
7. RELATED PARTY TRANSACTIONS
The Company has had related party transactions with Tri-Con Mining
Ltd., Tri-Con Mining, Inc., Tri-Con Mining Alaska Inc. (formerly
Tri-Con Mining, Arizona, Inc.), collectively the "Tri-Con Group"; and
Anselmo Holdings Ltd., all of which are controlled by a director of
the Company, and Kintana Resources Ltd., a company related by virtue
of common directors.
The Tri-Con Group are operations, exploration and development
contractors, and have been employed by the Company under contract
since 1972 to carry out all its field work and to provide
administrative and management services. Under the current contract of
January, 1997, work is charged at cost plus 15 percent (1996 and 1995:
8 percent) for operations, and cost plus 25 percent (1996 and 1995: 25
percent) for exploration and development. Cost includes a 15 percent
(1996 and 1995: 12 percent) charge for office overhead. Services of
the directors of the Tri-Con Group are charged at the rate of Cdn. $75
per hour. Services of the directors of the Tri-Con Group who are also
Officers and Directors of the Company are not charged.
The aggregate amounts paid to the Tri-Con Group each year by category,
including amounts relating to the Grant Mine Project and Nolan
properties, for disbursements and for services rendered by the Tri-Con
Group personnel working on the Company's projects, and including
interest charged on outstanding balances at the Tri-Con Group's
borrowing costs are shown below.
1997 1996 1995
-------------------------------------
Operations and Field Services $ 277,479 $ 715,558 $ 420,296
Exploration and Development Services 2,190,240 596,561 3,841,471
Administrative and Management Services 992,646 323,108 190,009
-------------------------------------
$ 3,460,365 $ 1,635,227 $ 4,451,776
-------------------------------------
Amount of total charges in excess of
Tri-Con costs incurred $ 395,240 $ 163,493 $ 281,441
-------------------------------------
Excess amount charged as a percentage
of actual costs incurred 12.8% 11.1% 6.7%
-------------------------------------
During the year, the Tri-Con Group charged the Company an additional
amount of $460,463 for management services, which is included in the
table above. During the year, Tri-Con was requested to maintain a
certain level of staff and infrastructure in excess of current year
requirements, in preparation for expected increases in development and
operational activities in 1998 and 1999. These costs were charged with
no markup to the company and were expensed in the current year.
In addition, the Company advanced a further $480,236 to the Tri-Con
Group during the year. This advance is expected to be recovered,
although there is no contractual time frame for repayment. Interest is
not being charged by the Company on this advance. The advance is
secured by that portion of the 2,119,384 common shares of the Company
owned by Tri-Con which is sufficient to fully amortize the advance
given the trading price of the stock. This amount has been classified
as a deduction from shareholders equity, as the security for the
advance is common shares of the Company.
F-16
In 1989, the Company assigned its interest in and obligations related
to the Eagle Creek property to Can-Ex Resources (U.S.), Inc., a
subsidiary of Kintana Resources Ltd., for a net profit interest from
production of 15 percent to a maximum of $5,000,000 U.S. In 1997
Can-Ex was dissolved, and at that time the net-profits obligation was
assumed by its parent, Kintana Resources Ltd.
Anselmo Holdings Ltd. has a right to 10 percent of net profits derived
from the French Peak Property.
8. INCOME TAXES
Tax effects of temporary differences that give rise to deferred tax
assets at November 30, 1997 and 1996 are as follows:
1997 1996
----------------------------
Net operating loss carry forwards $ 7,219,900 $ 7,012,800
Valuation allowance (2,040,000) (2,474,600)
----------------------------
Net deferred tax assets 5,179,900 4,539,200
Deferred tax liability
Temporary differences arising from mineral
properties and buildings, plant and equipment (5,179,900) (4,539,200)
-----------------------------------------------------------------------------
Net deferred tax asset $ -- $ --
-----------------------------------------------------------------------------
At November 30, 1997, the Company has the following losses carried
forward available to reduce future years' income for U.S. income tax
purposes. The tax effect of these losses has not been recorded in the
accounts.
Available Until Losses Carried Forward
---------------------------------------
1998 $ 546,000
1999 667,000
2000 1,235,000
2001 2,749,000
2002 1,178,000
2003 1,504,000
2004 1,161,000
2005 742,000
2006 431,000
2007 747,000
2008 2,101,000
2009 2,011,000
2010 2,786,000
2011 1,781,000
2012 1,596,000
---------------------------------------
$ 21,235,000
F-17
Income tax expense attributable to net losses was nil and nil for the
years ended November 30, 1997 and 1996 respectively. The differences
between the total income tax benefit from operations and the income
tax expense (benefit) computed using the Federal income tax rate of
34% in 1997 and 34% in 1996 were as follows:
1997 1996
--------- ---------
Computed "expected" tax benefit $(542,600) $(605,500)
Tax loss expired during the year 335,600 927,200
Change in valuation allowance (434,600) (321,700)
Change in temporary differences during year 641,600 --
--------- ---------
Effective tax rate $ 0% $ 0%
9. COMMITMENTS AND CONTINGENCIES
(a) Office Lease
On January 20, 1994 , the Company entered into a lease agreement for
office premises for a term of 10 years commencing April 1, 1994, with
an approximate annual rental of $120,000 (Cdn) including operating
costs.
(b) Equipment Leases
During 1994 and 1995 the Company entered into capital leases for
mining equipment with the following future minimum lease payments:
F-18
Year ending November 30 - 1998 $ 88,391
1999 9,821
--------
Total minimum lease payments 98,212
Less: interest payable (6,722)
--------
91,490
Less: current portion (81,749)
--------
$ 9,741
========
(c) Severance Agreements with Directors
The Company has entered into compensation agreements with the three
directors of the Company. The agreements provide for severance
arrangements where a change of control of the Company occurs, as
defined, and the directors are terminated. The compensation payable to
the directors aggregates $4,200,000 (1996: $6,200,000) plus the amount
of annual bonuses and other benefits that they would have received in
the eighteen months following termination.
(d) Reclamation
The Company's operations are affected by federal, state, provincial
and local laws and regulations regarding environmental protection. The
Company estimates the cost of reclamation based primarily upon
environmental and regulatory requirements. These costs are accrued
F-18
annually and the accrued liability is reduced as reclamation
expenditures are made. Details of the Company's accrued liability at
November 30, 1997 and 1996 are as follows:
1997 1996
-----------------------
Balance, beginning of year $ 70,000 $ 100,000
Cost incurred in year (87,480) (61,993)
Amount expensed in year 213,480 31,993
-----------------------
Balance, end of year $ 196,000 $ 70,000
10. SUBSEQUENT EVENTS
(a) On December 19, 1997, the Company entered into an Option Agreement
with La Teko Resources Ltd. ("La Teko") granting Silverado the
exclusive right and option to acquire 100% of the Ryan Lode mineral
property near Fairbanks, Alaska for a total purchase price of
$12,000,000. The Company issued 1,000,000 of its common shares as
consideration to La Teko for granting the right and option to acquire
the mineral properties under the terms of this agreement. The
agreement provides that in order to keep the option in good standing,
Silverado shall:
Between December 1, 1997 and November 30, 1998, pay La Teko
$650,000 and commit to spend not less than $1,000,000 on work on
the property; and
Between December 1, 1998 and November 30, 1999 pay La Teko
$300,000 and commit to spend not less than an additional
$1,000,000 on work on the property; and
Between December 1, 1999 and November 30, 2000 pay La Teko
$400,000 and unless the Company has otherwise paid $3,000,000 to
La Teko, commit to spend an additional $1,000,000 on work on the
property; and
On or before December 1, 2000 pay La Teko $700,000 and, provided
that all requisite permits for construction have been issued,
commence construction of milling facilities reasonably necessary
to place the property into commercial production; and
Pay La Teko $3,000,000 upon the earlier of completion of the
milling facility, including a 30 day "mill tune-up" period, or 30
days after the commencement of commercial production; and
Pay La Teko the balance of the purchase price six months
following the date for payment of the $3,000,000 referenced
above, after credit of $4,900,000 for all previous payments.
The first two cash payments to La Teko under this contract of $200,000
and $450,000 which were originally scheduled for January 30, 1998 and
February 27, 1998 respectively are presently being re-negotiated based
on the following schedule:
$100,000 due on March 31, 1998;
$100,000 due on April 30, 1998;
$100,000 due on May 31, 1998;
$150,000 due on June 30, 1998; and
$250,000 due on July 31, 1998.
F-19
La Teko has indicated that it is prepared to consider such an extension,
and negotiations are currently under way concerning any additional penalty
for the failure to make any payment under the amended schedule.
If the Company were to default on any payment its interest in the property
would lapse, and the Company would write-off any deferred costs relating to
the property.
(b) On February 6, 1998, the Company announced that it had completed an
agreement with Placer Dome U.S. Inc. ("PDUS") which provides for PDUS to
explore and develop the Company's May / Barelka and Range Minerals
properties on Ester Dome, and ultimately provides the right to earn a 51%
interest in these properties. The Company received the sum of $400,000 as
partial consideration under the terms of this agreement. The agreement
provides that in order to keep its option in good standing, PDUS must:
On or before November 30, 1998 perform at least $1,000,000 of work on
the property and purchase 1,000,000 common shares of the Company at a
price of $0.70 per share; and
On or before November 30, 1999 perform an additional amount of
$1,500,000 of work on the property and purchase an additional
1,000,000 common shares of the Company at a price of $1.25 per share;
and
On or before November 30, 2000 perform an additional amount of
$2,000,000 of work on the property and purchase an additional
1,000,000 common shares of the Company at a price of $1.50 per share;
and
On or before November 30, 2001 perform an additional amount of
$2,500,000 of work on the property and purchase an additional
1,000,000 common shares of the Company at a price of $2.00 per share;
and
On or before November 30, 2002 perform an additional amount of
$3,000,000 of work on the property.
Upon completion of all the work and purchase of the common shares of the
Company detailed above, PDUS shall have the right to acquire the additional
49% interest in the property by producing a feasibility study and obtaining
all relevant permits. The Company would then retain a 15% net profits
interest in the property. If PDUS does not complete the feasibility study
or obtain the permits, then PDUS will convey all of its interest in the
property to the Company with PDUS retaining a 15% net proceeds interest in
the property.
(c) On February 28, 1998, the Company failed to make a royalty payment of
$80,000 to the Alaska Mining Company Inc. on its lease of a portion of the
Nolan Gold Project property. This payment was originally deferred from the
contractual due date of December 15, 1997. Alaska Mining Company Inc. has
subsequently granted a further deferral of the payment, with $40,000 being
due on March 27, 1998 and the balance due 30 days later.
If the Company were to default on any payment under this revised schedule
its interest in the property would lapse, and the Company would write-off
any deferred assets relating to the property.
F-20
(d) On March 16, 1998, arrangements were finalized for the placement of
1,600,000 units of securities in the Company at a price of $0.125 per
unit. Each unit is made up of one common share and one-half of a common
share warrant. Each common share warrant entitles the holder to purchase
one common share at a price of $0.21 during a period of two years from
issue of the warrant.
(e) On March 12, 1998, the exercise price on the following warrants
outstanding at November 30, 1997 was reduced a follows:
Number of Previous Reduced Expiration
Warrants Exercise Price Exercise Price Date
2,000,000 $0.42 $0.10 March 1999
1,000,000 0.28 0.10 August, 1999
On March 16, 1998, negotiations were in progress for the holders of
these warrants to exercise them at the reduced exercise prices.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required by Part III of this report:
Item 10 Directors and Executive Officers,
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners of Management; and
Item 13 Certain Relationships and Related Transactions
is incorporated herein by reference from the Company's definitive proxy
statement with respect to the 1998 Annual Meeting of the Shareholders to be held
in May, 1998. The Company's definitive proxy statement will be filed with the
Securities and Exchange Commission pursuant to Rule 14a-6(c) promulgated under
the Securities Exchange Act of 1934 not later than 120 days after the end of the
fiscal year covered by this report.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) FINANCIAL STATEMENTS
(1) The following financial statements are included in Part II, Item 8 to this
report:
Auditors' Report
Comments by Auditors for U.S. Readers on Canada - U.S. Reporting Conflict
Consolidated Balance Sheets at November 30, 1997 and 1996
Consolidated Statements of Operations and Accumulated Deficit, years ended
November 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows, years ended November 30, 1997, 1996
and 1995
Consolidated Statements of Changes in Share Capital and Capital Surplus,
years ended November 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) Financial statement schedules
No schedules are presented either because the required information is
disclosed elsewhere in the financial statements, or the schedules are not
applicable.
(3) Exhibits required to be filed are listed in Item 14(c).
(b) REPORTS ON FORM 8-K
A Form 8-K Current Report dated August 22, 1997 was filed by the Company on
September 19, 1997, reporting information pursuant to Item 9. No financial
statements were filed with this report.
A Form 8-K Current Report dated October 31, 1997 was filed by the company
on November 5, 1997, reporting information pursuant to Item 9. No financial
statements were filed with this report.
(c) EXHIBITS
None.
(3) Articles of Incorporation and Bylaws
(i)(a) Ordinary Resolution of Silverado increasing the authorized capital
to 100,000,000 shares without par value and changing the Company's name
from "Silverado Mines Ltd." to "Silverado Gold Mines Ltd." is incorporated
by reference to Exhibit 3 to Silverado's 10-Q for the quarter ended May 31,
1997.
(4) Instruments Defining Rights of Security Holders, Including Indentures
(a) Specimen certificate representing shares of the capital stock of
Silverado is incorporated by reference to Exhibit 4(a) to Silverado's
Report on Form 10, No. 0-12132, filed May 11, 1984, as amended on Form 8,
filed July 10, 1984.
(10) Material Contracts
(a) Management Compensatory Plan - Silverado Mines Ltd. 1994 Stock Option
and Bonus Plan. Incorporated by reference to Exhibit 10.4 to Silverado's
Registration Statement on Form S-3, File No. 33-76880.
(b) Operating Agreement between Silverado and Tri-Con Mining Ltd. filed
herewith.
(c) Purchase Agreement between Silverado and Alaska Gold Company filed
herewith.
(b) Property Option Agreements.
(i) Grant Mine Property
(a) Agreement for Conditional Purchase and Sale of Mining Property -
Silverado/Burggraf (10/6/78) is incorporated by reference to Exhibit
10(e)(i)(a) to Silverado's Registration Statement on Form 10, No. 0-12132,
filed May 11, 1984, as amended on Form 8, filed July 10, 1984.
(d) Exploration and Mining Lease - Silverado Mines (U.S.), Inc./ Gilbert
Dobbs (11/6/84) is incorporated by reference to Exhibit 10(e)(f) to the
Registrant's Report on Form 10-K for the fiscal year ended November 30,
1984.
(ii) Range Minerals Property
(a) Agreement #1 Silverado/Taylor (8/30/80) is incorporated by reference to
Exhibit 10(e)(ii)(a) to Silverado's Registration Statement on Form 10,
0-12132, filed May 11, 1984, as amended on Form 8, filed July 10, 1984.
(b) Agreement #2 Silverado/Taylor (8/30/80) is incorporated by reference to
Exhibit 10(e)(ii)(b) to Silverado's Registration Statement on Form 10, No.
0-12132, filed May 11, 1984, as amended on Form 8, filed July 10, 1984.
(iii) St. Paul Barelka Property
(a) Equity Agreement - Silverado/Barelka/May/Thoennes (5/12/79) is
incorporated by reference to Exhibit 10(e)(iii)(a) to Silverado's
Registration Statement on Form 10, No. 0-12132, filed May 11, 1984, as
amended on Form 8, filed July 10, 1984.
(iv) Eagle Creek Property
(a) Option Agreement - Taylor/O'Hara/Tan (7/9/76) is incorporated by
reference to Exhibit 10(e)(v)(a) to Silverado's Registration Statement on
Form 10, No. 0-12132, filed May 11, 1984, as amended on Form 8, filed July
10, 1984.
(b) Assignment of Option - Aalenian (now Silverado)/Tan (8/26/76) is
incorporated by reference to Exhibit 10(e)(v)(b) to Silverado's
Registration on Form 10, No. 0-12132, filed May 11, 1984, as amended on
Form 8, filed July 10, 1984.
(c) Assignment of Option - Can-Ex. (8/4/89) is incorporated by reference to
Exhibit 10(e)(v)(c) to Silverado's Report on Form 10-K, for the fiscal year
ended November 30, 1989.
(v) Thompson Pup Property
(a) Option Agreement Figlenski/Carlson/Silverado (6/9/81) is incorporated
by reference to Exhibit 0(e)(vi)(a) to Silverado's Registration Statement
on Form 10, No. 0-12132, filed May 11, 1984, as amended on Form 8, filed
July 10, 1984.
(vi) French Peak Property
(a) Amendment of Agreement - Silverado / Can-Ex (now Anselmo
Holdings)(9/19/80) is incorporated by reference to Exhibit 10(e)(ix)(d) to
Silverado's Registration Statement on Form 10, No. 0-12132 filed May 11,
1984, as amended on Form 8, filed July 10, 1984.
(b) Amendment of Agreement (7/21/83) is incorporated by reference to
Exhibit 10(e)(ix)(e) to Silverado's Registration Statement on Form 10, No.
0-12132, filed May 11, 1984, as amended on Form 8, filed July 10, 1984.
(vii) Smith Creek Property
(a) Purchase and Sales Agreement - Mickelson / Anderson / Silverado
(08/20/93) is incorporated by reference to Exhibit 10(vii)(a) to the
Registrants Report on Form 10-K for the fiscal year ended November 30,
1993.
(viii) Mary's Bench Property
(a) Purchase and Sales Agreement - Dionne / Dionne / Deveny / Silverado
(09/21/93) is incorporated by reference to Exhibit 10(viii)(a) to the
Registrants Report on Form 10-K for the fiscal year ended November 30,
1993.
(ix) Marshall Dome Property
Agreement for Purchase and Sale - Raymond Moore / "BJ" Hall / Silverado,
dated October 9, 1995 is incorporated herein by reference to Exhibit
(10)(ix) to the Registrants Report on Form 10-K for the fiscal year ended
November 30, 1995.
(x) Hammond Property
Lease of Mining Claims with Option to Purchase - Alaska Mining Company Inc.
("ALMINCO") / Silverado, dated February 3, 1995, is incorporated by
reference to Exhibit (10)(x) to the Registrants Report on Form 10-K for the
fiscal year ended November 30, 1995.
(11) Statement Re Computation of Per Share Earnings
The computation of per share net earnings/loss as described in Note 1(h) to
the financial statements set forth in Item 8 of this report is by this
reference incorporated herein.
(21) Subsidiaries of Registrant
The information required in Exhibit 21 is set forth in Item 1(a) of this
report and by this reference incorporated herein.
(23) Consents of Experts and Counsel
(a) Consent of KPMG, formerly known as "KPMG Peat Marwick Thorne", filed
herewith.
(b) Consent of KPMG, formerly known as "KPMG Peat Marwick Thorne" regarding
Form S-8, filed herewith.
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears below
hereby constitutes and appoints Garry L. Anselmo his true and lawful
attorney-in-fact and agent, with full power of substitution and restitution, for
him and in his name, place and stead, in any and all capacities, to sign any and
all amendments to this annual report on Form 10-K, and to file the same with all
exhibits thereto and any other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities on the dates indicated:
/s/ Garry L. Anselmo February 25, 1998
- ------------------------------------------- ------------------------
Garry L. Anselmo Date
Chairman of the Board of Directors
/s/ James F. Dixon February 25, 1998
- ------------------------------------------- ------------------------
James F. Dixon Date
Director
/s/ K. Maxwell Fleming February 25, 1998
- -------------------------------------------- ------------------------
K. Maxwell Fleming Date
Director
SIGNATURES
PURSUANT to the requirements of Section 1 of 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SILVERADO GOLD MINES LTD.
By /s/ G. L. Anselmo March 16, 1998
------------------ ------------------
G. L. Anselmo, Chairman Date
Chief Financial Officer
EXHIBITS INDEX
SILVERADO GOLD MINES LTD.
Exhibits Filed with Report on Form 10-K
Fiscal year ended November 30, 1997
Exhibit (10(b)) Operating Agreement between Silverado and Tri-Con Mining
Ltd.
Exhibit (10(c)) Purchase Agreement between Silverado and Alaska Gold
Company.
Exhibit (23(a)) Consent of KPMG.
Exhibit (23(b)) Consent of KPMG regarding Form S-8.