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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended
December 31, 2000
or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
to
Commission file number 0-17480
CROWN RESOURCES CORPORATION
(Exact name of registrant as specified in charter)
Washington 84-1097086
(State or other jurisdiction of (IRS Employer Identification
No.)
incorporation or organization)
1675 Broadway, Suite 2400, Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303)534-1030
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate by check mark if 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 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 nonaffiliates of
the registrant was approximately $ 5,119,000 based upon the closing
price on March 20, 2001.
There were 14,553,302 shares of common stock, $0.01 par value,
outstanding on March 20, 2001.
This Form 10-K consists of 40 pages
Exhibit Index Begins on Page 37
TABLE OF CONTENTS
Page
PART I
m 1. Business . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings . . . . . . . . . . . . . . . 18
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . 19
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters . . . . . . . 20
Item 6. Selected Financial Data . . . . . . . . . . . . 21
Item 7. Management's Discussion and Analysis of
Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . 22
Item 8. Financial Statements and Supplementary Data . . 29
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . 30
PART III
Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . 30
Item 11. Executive Compensation . . . . . . . . . . . . . 30
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . 30
Item 13. Certain Relationships and Related Transactions . 30
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . 36
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 41
PART I
The information set forth in Business, Properties and
Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources includes
"forward looking statements" within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, and is subject to the safe harbor created by
those sections. Factors that realistically could cause results to
differ materially from those projected in the forward looking
statements are set forth in Business, Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity
and Capital Resources and Considerations Related to Crown's
Business below.
Item 1. Business
(a) Overview
Crown Resources Corporation ("Crown" or the "Company") is a
precious metals exploration company operating in the western United
States and Mexico. Crown owns 41.3% of Solitario Resources
Corporation ("Solitario"), which was consolidated prior to
Solitario's acquisition of Altoro Gold Corporation ("Altoro").
Crown's investment in Solitario since October 18, 2000 is accounted
for under the equity method of accounting. Solitario operates as
a precious and base metals exploration company in Brazil, Bolivia
and Peru.
Crown's principal expertise is in identifying properties with
promising mineral potential, acquiring these properties and
exploring them to an advanced stage. Crown's goal is to advance
its properties, either on its own or through joint ventures, to
the feasibility study stage. Furthermore, Crown intends to pursue
development of the properties, typically through a joint venture
with a partner that has expertise in mining operations. Crown has
in the past recognized, and expects in the future to recognize,
revenues from the option and sale of property interests to joint
venture partners and from the sale of its share of metals produced
on its properties.
Crown was incorporated under the laws of the State of
Washington in August 1988. Unless otherwise indicated by the
context, all references to Crown or the Company in this report
shall be read to refer to Crown Resources Corporation and its
subsidiaries taken together.
(b) Recent Developments
On March 22, 2001, Crown paid the interest payment on its $15
million 5.75% Convertible Subordinated Debentures ("the
Debentures") which was due on February 27, 2001. By making the
payment within 30 days of the due date, Crown remained in
compliance with the terms of the Debentures. The last interest
payment and the $15 million principal are due August 27, 2001.
Crown has announced that it is seeking outside secured financing to
raise additional cash to facilitate restructuring the Debentures
and to maintain and enhance its assets. There can be no assurance
that Crown will be able to complete this financing, raise other
capital or sell assets to allow for repayment, or negotiated
restructure of the Debentures on acceptable terms. Crown's
potential inability to pay the interest and principal on the
Debentures raises substantial doubt as to Crown's ability to
continue as a going concern. There can be no assurance that Crown
will be able to remove this uncertainty in the near or long term
future. As a result of the above, Crown may be forced to seek
protection from its creditors under the bankruptcy laws.
On January 18, 2001, Crown reached an agreement with Canyon
Resources Corporation ("Canyon") whereby Crown exchanged 100% of
the shares in its wholly-owned subsidiary, Judith Gold Corporation,
for 200,000 shares of Canyon common stock. Crown had previously
fully amortized its holdings in Judith, which consisted of a
royalty on the Lamefoot deposit at the Kettle River mine in
Washington and certain land and mineral rights at the Kendall mine
in Montana. Production ceased at the Lamefoot deposit in the
fourth quarter of 2000 and at the Kendall mine in 1998. Crown
expects to record a gain on sale from the transaction of
approximately $200,000 in the first quarter of 2001.
On October 18, 2000,(the "Effective Date") Solitario,
completed a Plan of Arrangement (the "Plan") with Altoro Gold Corp.
of Vancouver, Canada ("Altoro"), whereby Altoro became a wholly-
owned subsidiary of Solitario. In connection with the Plan,
Solitario issued 6,228,894 shares to Altoro shareholders and option
holders. Solitario also reserved 825,241 Solitario shares for
issuance upon the exercise of 825,241 warrants which were exchanged
for outstanding Altoro warrants. On October 24, 2000, Solitario
issued 261,232 shares upon the exercise of the above warrants and
286,231 warrants expired unexercised. After the issuance of the
shares in connection with the Arrangement and exercise of the
warrants discussed above, Solitario has 23,344,647 shares
outstanding of which Crown owns 9,633,585 shares. Primarily as a
result of the issuance of Solitario shares in connection with the
Plan, Crown's ownership percentage of Solitario was reduced from
57.2% to 41.3% at December 31, 2000. Accordingly, Crown has
accounted for its investment in Solitario under the equity method
since the Effective Date. Solitario's income, expense and minority
interest are included in the Consolidated Statement of Operations
of Crown through the Effective Date. Crown's interest in the net
assets of Solitario are shown on the Consolidated Balance Sheet as
of December 31, 2000 as equity in unconsolidated subsidiary.
Crown's share of Solitario's net loss from the Effective Date
through December 31, 2000 is shown as equity in loss of
unconsolidated subsidiary in the Consolidated Statement of
Operations.
(c) Considerations Related to Crown's Business
Exploration and Development.
Crown's mineral properties are located in the United States
and consist of a variety of interests including unpatented and
patented claims and fee land held 100% by Crown or under lease or
option or purchase agreements. The properties are located in
Nevada, Washington, and Utah. Crown's interest in Latin American
properties are held by Solitario which has interests in properties
located in Peru, Bolivia and Brazil. Crown acts as operator on all
of its properties that are not held in joint ventures. The success
of projects held under joint ventures that are not operated by
Crown is substantially dependent on the joint venture partner. In
particular, the operating success of the Crown Jewel Project is
largely dependent on Battle Mountain Gold, a subsidiary of Newmont
Mining Corporation (both companies collectively, "Newmont"),
Crown's joint venture partner. See Properties - Crown Jewel
Project.
After selecting a possible exploration area through its own
efforts or with others, Crown compiles reports, reviews past
production records, and geologic surveys concerning the area.
Crown then undertakes a field exploration program to determine
whether the area merits work. Initial field exploration on a
property normally consists of geologic mapping and geochemical
and/or geophysical surveys, together with selected sampling to
identify host environments that may contain specific mineral
occurrences. If an area shows promise, Crown will generally either
conduct geologic drilling programs in an effort to locate the
existence of economic mineralization or seek a joint venture
partner to undertake such work. If mineralization is delineated,
further work will be undertaken to estimate ore reserves, evaluate
the feasibility for the development of a mining project, obtain
permits for commercial development and, if the project appears to
be economically viable, proceed to place the ore deposit into
commercial production.
Foreign Operations.
During 1998, 1999 and 2000, Crown had property interests in
Mexico and through Solitario, interests in properties located in
Argentina, Peru, Bolivia and Brazil. As of December 31, 2000,
Crown does not hold any direct property interests outside of the
United States. Crown holds a significant investment in Solitario,
which is subject to the laws of Peru, Bolivia and Brazil, where it
operates. These countries have, from time to time, experienced
periods of political and economic instability. Foreign properties,
operations and investments may be adversely affected by local
political and economic developments, including nationalization,
exchange controls, currency fluctuations, taxation and laws or
policies as well as, bylaws and policies of the United States
affecting foreign trade, investment and taxation. Certain other
regions in which Crown may conduct operations have also been
subject to political and economic instability, creating uncertainty
and the potential for a loss of resources located in these regions.
Management Services
Management and technical services are provided to Solitario by
Crown pursuant to a management agreement for which Crown receives
management fees. Certain directors and officers of Crown are also
directors and officers of Solitario. As such, certain of these
officers devote a portion of their time to Solitario matters from
which Crown may not receive the full benefit. Additionally, the
fact that these officers receive cash compensation from Crown and
not from Solitario may give rise to certain conflicts of interest
between these officers' duties to Crown and to Solitario.
Sources of Financing.
The capital required for exploration and development of
properties is substantial. Crown has financed operations through
the issuance of convertible debentures, utilization of joint
venture arrangements with third parties (generally providing that
the third party will obtain a specified percentage of Crown's
interest in a certain property in exchange for the expenditure of
a specified amount), the sale by Crown of interests in properties
or other assets, and the issuance of common stock. Crown will
either need to raise cash to fund repayment of its convertible
debentures that mature in August 2001 or renegotiate the repayment
terms of the debentures. New financing or renegotiated terms may
or may not be available on a basis that is acceptable to Crown. As
a result, there is substantial doubt about Crown's ability to
continue as a going concern. Crown's consolidated financial
statements do not include any adjustments that might result from
the outcome of that uncertainty. If Crown is not successful in
generating cash from operating activities or capital raising
efforts or is unable to renegotiate the payment terms of current
liabilities, Crown may default on its obligations under the
debentures. Crown also could be forced to seek protection from its
creditors under the bankruptcy laws. There is no assurance that
Crown will be able to continue operations. See Properties - Crown
Jewel Project-Financing, and Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and
Capital Resources.
Competition and Markets.
A large number of companies are engaged in the exploration and
development of mineral properties, many of which have substantially
greater technical and financial resources than Crown. Therefore,
Crown may be at a disadvantage with respect to many of its
competitors in the acquisition, exploration and development of
mining properties.
The marketing of minerals is affected by numerous factors,
many of which are beyond the control of Crown. Among factors
beyond the control of Crown are the price of the raw or refined
minerals in the marketplace, imports of minerals from other
countries, the availability of adequate milling and smelting
facilities, the price of fuel, the availability and the cost of
labor, and the market price of competitive minerals.
Title. U.S. Properties.
Crown's domestic properties consist, to a large extent, of
unpatented mining claims on unappropriated federal land pursuant to
procedures established by the Mining Law of 1872 and other federal
and state laws. These acts generally provide that a citizen of the
United States (including corporations) may acquire a possessory
right to develop and mine valuable mineral deposits discovered upon
unappropriated federal lands, provided that such lands have not
been withdrawn from mineral location, e.g., national parks,
military reservations and lands designated as part of the National
Wilderness Preservation System. These laws also provide for the
location of unpatented millsite claims for the purpose of mining
and milling minerals from valid mining claims. The validity of all
unpatented mining claims is dependent upon inherent uncertainties
and conditions. These uncertainties relate to such non-record
facts as the sufficiency of the discovery of minerals, proper
posting and marking of boundaries, and possible conflicts with
other claims not determinable from descriptions of record.
Furthermore, the acquisition of unpatented millsite claims may be
limited by several factors which include the number of valid
unpatented mining claims.
Crown's Crown Jewel project, as proposed by Newmont, has
located necessary millsite claims in excess of the number of
unpatented mining claims to be developed. In November 1997 the
Solicitor of the Department of the Interior issued an opinion which
stated among other things, that the Bureau of Land Management
should not approve plans of operation that rely on a greater number
of millsite claims than the number of mining claims being
developed. Federal Public Law 106-31 mandated reinstatement of the
Record of Decision for the Crown Jewel Project and approval of the
Plan of Operations, which had respectively been revoked and denied
based upon the Solicitor's opinion. An appeal of the approval of
the Plan of Operations by project opponents has been denied.
Prior to discovery of a locatable mineral thereon, a mining
claim may be open to location by others unless the owner is in
possession of the claim. In the event that the discovery of a
valuable mineral deposit is made on unpatented mining claims in the
exploratory stage, Crown may not be able to assure clear title.
The Budget Reconciliation Act of 1993 (the "1993 Act"),
requires the holder of each unpatented mining claim to pay a "claim
maintenance fee" of $100 per claim on or before August 31 of each
year. To locate new unpatented claims, Crown must pay the $100 per
claim maintenance fee for the initial assessment year and a $25 per
claim location fee. If Crown fails to pay a claim maintenance fee
or a location fee as required by the 1993 Act, it conclusively
forfeits the related unpatented claim.
In connection with the acquisition of Crown's properties,
Crown conducts limited reviews of title and related matters, and
obtains certain representations regarding ownership. Although
Crown believes it has conducted reasonable investigations (in
accordance with standard mining practice) of the validity of
ownership, there can be no assurance that it holds good and
marketable title to all of its properties.
Latin American Properties.
Mexico
Since 1997, Crown, through contractors and its own employees,
has conducted exploration activities in Mexico focusing in the
state of Durango. As of December 31, 2000 Crown holds no
concessions in Mexico and does not anticipate conducting any work
there in 2001.
Regulation.
The development, production and sale of minerals is subject to
federal, state, provincial and local regulation in a variety of
ways, including environmental regulation and taxation. Federal,
state, and local environmental regulations generally have a
significant effect on all companies, including Crown, engaged in
mining or other extractive activities, particularly with respect to
the permitting requirements imposed on such companies, the
possibilities of project delays, and the increased expense required
to comply with such regulations. Crown believes it is in
substantial compliance with all such regulations in all the
jurisdictions in which it operates.
Crown is subject to income taxes, state and local franchise
taxes, personal property taxes, and state severance taxes levied by
various governmental units in the countries in which Crown
operates. State severance taxes vary between the states and,
within a single state, the amount of tax, based on a percentage of
the value of the mineral being extracted, varies from mineral to
mineral. Crown's operations are also subject to taxation by each
locality in which it owns mineral properties or does business.
The domestic exploration programs conducted by Crown are
subject to federal, state and local environmental regulations. A
substantial portion of Crown's mining claims are on U.S. public
lands. The United States Forest Service ("USFS") and Bureau of
Land Management ("BLM") extensively regulate mining operations
conducted on public lands. Most operations involving the
exploration for minerals are subject to existing laws and
regulations relating to exploration procedures, safety precautions,
employee health and safety, air quality standards, pollution of
stream and fresh water sources, odor, noise, dust, and other
environmental protection controls adopted by federal, state, and
local governmental authorities as well as the rights of adjoining
property owners. Crown may be required to prepare and present to
federal, state, or local authorities data pertaining to the effect
or impact that any proposed exploration or mining activity may have
upon the environment. All requirements imposed by any such
authorities may be costly and time-consuming and may delay
commencement or continuation of exploration or production
operations.
Future legislation and regulations are expected to continue to
emphasize the protection of the environment and, as a consequence,
the activities of Crown may be more closely regulated to further
the cause of environmental protection. Such legislati
United States
The following map shows the location of the primary properties
in which Crown has interests in the western United States.
(This is a map illustrating Crown's four properties in the
western United States; Lamefoot and Crown Jewel in Washington,
Kendall in Montana, Cord Ranch in Nevada and Kings Canyon in Utah.)
Development Property (Crown Jewel)
Exploration Property, carrying value
written down, fourth quarter 2000 (Cord Ranch, Kings Canyon)
Royalty Property, sold in January, 2001 (Kendalland Lamefoot)
on and regulations, as well as future interpretation of existing
laws, may require substantial increases in capital and operating
costs to Crown and delays, interruptions, or a termination of
operations, the extent of which cannot be predicted.
Bills proposing major changes to the mining laws of the United
States have been considered by Congress. If these bills, which may
include royalty fees or net profits interests, are enacted in the
future, they could have a significant effect on the ownership and
operation of patented and unpatented mining claims in the United
States including claims owned or held by Crown. Although it is not
possible to predict whether or in what form Congress might enact
changes to the mining laws, amendments to current laws and
regulations governing operations and activities of mining companies
or more stringent implementation thereof could have a material
adverse impact on Crown.
Applicable laws and regulations require Crown to make certain
capital and operating expenditures to maintain current operations
and initiate new operations. Crown's estimate of expenditures
required to comply with applicable regulations are included in all
of its budgets for its projects. Although these costs are
difficult to determine, Crown is not currently aware of any
expenditures that are required in excess of budgeted amounts.
Crown incurs expenditures for land reclamation undertaken in the
normal course of operations in compliance with federal and state
land restoration laws and regulations. Under certain
circumstances, it may be required to close an operation until a
particular problem is remedied or to undertake other remedial
actions. However, Crown is not aware of the existence of any such
circumstances at this time.
Gold Price.
The future profitability of Crown's operations is
significantly dependent on the price of gold. The gold price has
fluctuated widely over time due to factors beyond Crown's control
and, in the third quarter of 1999, reached a twenty-year low of
$251 per ounce. The gold price continued to remain at depressed
levels during most of 2000. Many factors influence the price of
gold including interest rates, rate of inflation, the strength of
the U.S. dollar in relation to other currencies, supply and demand,
economic conditions, and political turmoil. Crown cannot predict
whether gold prices will remain at a level at which its reserves
can be mined profitably.
Insurance.
The gold mining industry is subject to risks of human injury,
environmental liability and loss of assets. Crown maintains
insurance coverage consistent with industry practice, but can give
no assurance that this level of insurance can cover all risks of
harm to Crown associated with being involved in the mining
business.
Employees.
As of March 5, 2000, Crown employed eight persons, including
seven on a full-time basis in the U.S. and one part-time person in
Peru. Crown considers its relations with employees to be
excellent. All employees are eligible to participate in Crown's
stock option plans. None of Crown's employees are covered by a
collective bargaining agreement.
Item 2. Properties
Reserves and Mineral Deposits
The following table shows gold reserves net to Crown at
December 31, 2000:
Mineable Proven and Probable Reserves
Ore Gold Grade Contained Gold
(Millions of tons) (oz/ton) (000 ozs)
Crown Jewel Project 2.14 0.392 839
Crown's proven and probable reserves are reported as mineable
(extractable) ore reserves. Reserves do not reflect recovery
losses in the milling process, but do include allowance for
dilution of ore in the mining process. Metallurgical recovery of
85% was estimated. Due to the continued low price of gold, a gold
price of $280 per ounce has been applied to the reserves as of
December 31, 2000, compared to a gold price of $325 utilized in
1999. The reserves have been revised downward from the balance at
December 31, 1999 due a higher cut-off grade based upon an
independent analysis performed by MRA in March 2000 and assuming
100% ownership by Crown. See Crown Jewel Project.
While Crown has 100% ownership of the Crown Jewel project, the
project is currently subject to Newmont's right to acquire a 54%
interest under the terms of the Crown Jewel Venture Agreement
("Venture Agreement"). In February 2000, Newmont reclassified its
interest in the Crown Jewel project from proven and probable
reserves to mineralized materials and wrote off its investment in
the Crown Jewel Project as of December 31, 1999. See Crown Jewel
Project.
In addition to the proven and probable reserves shown above,
the Crown Jewel Project contains mineral resource deposits (using
the lower gold price and higher cut-off grade) reported by MRA of
1,184,000 tons at a grade of 0.403 ounces of gold per ton for a
total of 477,000 contained ounces of gold. These tons are included
to be mined and processed in the mine plan developed by MRA.
In addition to the above, Crown has identified mineral
deposits on the Cord Ranch and Kings Canyon properties.
The following discussion summarizes the primary mining
properties in which Crown has interests. Company management
believes the properties described below are favorable for mineral
development, although there is no assurance that any of the
properties in which Crown has or may acquire an interest will be
economically viable.
Crown Jewel Project
General. The Crown Jewel project is located on an approximate
8,000-acre property 24 miles east of Oroville, Washington. Crown
discovered the Crown Jewel gold deposit in 1988, and has a carrying
value of approximately $13.9 million in land, acquisition and
exploration costs as of December 31, 2000. The project is
currently under joint venture with Newmont.
The property is held by a combination of fee ownership,
private mining leases with options to purchase, state mining
leases, with the balance being unpatented mining claims. Royalties
payable to third parties vary from 4%-5% net smelter return
royalties ("NSR") on certain private parcels, however, the ore body
as currently defined is not subject to royalties payable to any
third party.
Geology and Land. The Crown Jewel deposit occurs within a
large skarn system formed at the southern contact of the Buckhorn
Mountain Cretaceous-aged diorite-granodiorite pluton with Triassic-
aged limestones and andesites. Both the skarn system and ore body
are relatively tabular and flat-lying in geometry. The skarn
system is compositionally zoned in relation to the intrusive pluton
with gold mineralization both concordant and crosscutting to the
various skarn assemblages.
Newmont Joint Venture. In March 1990, Crown entered into an
agreement with Battle Mountain Gold Corporation which was acquired
by Newmont Mining Corporation in January 2001 (both companies
referred to as "Newmont"). The agreement was subsequently modified
in May 1994. Under the agreement as modified, Newmont has paid to
Crown $18,500,000, and since March 14, 1990, has funded all
exploration and permitting on Crown Jewel. Crown does not
anticipate receiving additional payments from Newmont under the
joint venture agreement. In order to acquire a 51% interest in the
project, and an additional 3% interest (to 54%) in the first
1,600,000 ounces of gold from the project, Newmont is required to
construct a facility to treat a minimum of 3,000 tons of ore per
day and to fully fund exploration and development costs through the
commencement of commercial production to acquire its interest. No
monies are repayable by Crown to Newmont for the costs Newmont
incurs prior to commercial production.
In January 2000, the State of Washington Pollution Control
Hearings Board ("PCHB") issued a ruling vacating the previously
granted 401 Water Quality Permit for the Crown Jewel Project issued
by the Washington Department of Ecology ("WDOE"). The ruling also
reversed certain water rights issued by the WDOE for the Crown
Jewel Project. In March 2000, Newmont filed an appeal in Superior
Court for the State of Washington for Okanogan County, challenging
the PCHB ruling. A hearing date has been set for March 2002 in the
appeal. The PCHB ruling creates further delay and uncertainty
regarding a timetable for the construction of the project.
Reserves. In February 2000, in light of the January 2000
PCHB ruling, Newmont reclassified its interest in the Crown Jewel
project from proven and probable reserves to mineralized materials
and wrote off its investment in the Crown Jewel Project as of
December 31, 1999. Newmont based its decision on the uncertainty
about the ability to obtain permits for the Newmont mine plan which
contemplates an open-pit mine capable of supporting a 3,000 ton per
day mining facility. In February 2000 Crown engaged MRA to conduct
an independent analysis of an alternative mine plan that reduces
environmental impacts. Crown also engaged Gochnour and Associates
("Gochnour") to evaluate the ability to obtain permits for the
alternate mine plan. Based upon the reports of MRA and Gochnour,
Crown has determined that the Crown Jewel Project contains
sufficient reserves to recover Crown's investment whether developed
under the current joint venture agreement or independently by
Crown. At December 31, 2000, Crown revised the reserves based upon
an analysis by MRA which increased the cut-off grade from 0.155
ounces per ton to 0.20 ounces per ton. The gold price was reduced
for Crown's economic analysis of the project from $325 to $280 per
ounce.
The following table summarizes the Crown Jewel reserves as of
December 31, 2000, as provided by MRA:
Proven and Probable Reserves (100% basis)
Grade Contained
Tons (oz/ton) Ounces
Crown Jewel 2,139,000 0.392 839,000
Reserve Study. The MRA study indicates the deposit could be
mined in a combination of underground operations with a small open-
cut, with ore processed on site in a mill processing 1,850 tons per
day.
The reserve analysis was based on results from 765 drill holes
totaling 307,038 feet. MRA's mine design utilizes a 0.20 ounces of
gold per ton ("opt") cutoff grade with an 85% metallurgical
recovery factor for gold. The assumed economic parameters applied
to the design included a $280 gold price, mining costs of $26.20
per ton for underground and $25.74 per ton of ore, including
stripping costs, for the open cut. The open cut is assumed to
produce 308,000 tons of ore at an average grade of 0.289 opt with
a strip ratio of 10.7:1. The MRA design utilizes the waste rock
from the open cut for tailings dam construction and to backfill the
underground mining areas to reduce subsidence and increase the
recoverable underground ounces. The underground mine is assumed to
produce 1,831,000 tons of ore at an average grade of 0.410 opt.
The design calls for a processing facility rated at 1,850 tons per
day utilizing the parameters developed in the 1992 feasibility
study, updated for subsequent engineering studies, for a carbon in
leach mill with an 85% recovery factor. The estimated milling
costs are $13.60 per ton with project administration estimated at
$2.00 per ton.
Based upon the same cutoff grade, MRA has estimated other
mineral deposits of 1,184,000 tons grading 0.403 opt for a total of
477,000 contained ounces within the currently designed underground
workings at Crown Jewel.
The cash operating costs to mine proven and probable reserves
and deposits within the underground workings have been estimated by
MRA to be approximately $124 per ounce, with capital costs of
approximately $91 million (including $21 million of contingency) to
bring the project into production.
Exploration. Crown began an exploration program at Crown
Jewel in mid-1988 and by the end of 1989 had drilled approximately
200 holes on the property. Between March 1990 and December 1992,
Newmont drilled over 550 holes designed to both confirm and expand
the known reserve. To date, only 500 acres of the approximate
2,000 acres of prospective skarn geology have been drill-tested.
Feasibility Study. Prior to the MRA study and Newmont's
decision to write off its investment in the Crown Jewel project,
Crown relied upon the results of an independent feasibility study
commissioned by Newmont in March of 1992. Based on this study,
Newmont began development of the Crown Jewel gold deposit based on
a mine design utilizing an open pit and a 3,000 ton per day mining
facility. Further engineering and reserve studies by Newmont
estimated direct cash production costs at approximately $165 per
ounce of gold produced. Newmont's mine design estimated capital
costs at approximately $80 million to achieve commercial
production. Should the joint venture proceed, Newmont will be
responsible for funding capital costs. The studies indicated an
approximate eight-year mine life with production averaging 175,000
ounces (100% basis) of gold per year.
Permitting and Development. Newmont submitted its original
Plan of Operations to the Washington Department of Ecology ("WDOE")
and the United Stated Forest Service ("USFS") in January 1992. In
February 1997, the Final Environmental Impact Statement ("FEIS")
was filed by the USFS and the WDOE. The FEIS describes the
environmental effects of the plan to construct and operate the
Crown Jewel mine, and alternatives to that plan. Also, in February
1997, the USFS and the Bureau of Land Management issued a favorable
Record of Decision ("ROD") selecting Newmont's open pit mining
alternative.
Several appeals by certain persons and special interest groups
contesting the FEIS were filed with the USFS in 1997. In May of
1997, the USFS Deputy Regional Forester upheld the ROD to approve
the Crown Jewel mine project, denying four appeals which had been
filed in March 1997. In May 1997, an action was filed in U.S.
District Court against the USFS appealing certain issues. In
January 1999, the Court ruled in favor of the USFS and denied all
claims of the plaintiffs.
In September 1997, an action was filed before PCHB challenging
the FEIS and certain permit decisions. On January 19, 2000 PCHB
issued a ruling vacating the previously granted 401 Water Quality
Permit for the Crown Jewel Project issued by the WDOE. The ruling
also reversed certain water rights issued by the WDOE for the Crown
Jewel Project. On March 14, 2000, Newmont appealed the PCHB ruling
in Superior Court for the State of Washington for Okanogan County.
A hearing date of March 2002 has been set in the appeal.
Only one major permit necessary to begin construction remained
outstanding prior to the negative PCHB ruling. It is not known if
other permits previously granted to the project may be subject to
review as a result of the PCHB ruling.
As part of the analysis of the Crown Jewel reserves subsequent
to the January 2000 PCHB ruling, Crown retained Gochnour, an
independent mining environmental consultant, to review the required
permits for the mine design as proposed in the MRA report.
Gochnour indicates the MRA design would require conducting
additional baseline studies and collecting data for modeling to
amend previously approved permits as well as to obtain permits for
activities that were not previously contemplated, for example the
underground mining effects on ground water. Gochnour indicated the
underground alternative will also require mitigation of
environmental impacts. The Gochnour report concludes the MRA mine
design is legally permittable. Although Crown and Gochnour are not
aware of any laws or regulations which would be violated by the
mine design proposed by MRA, there will continue to be uncertainty
regarding the ability of Crown obtaining the necessary permits from
the regulatory authorities in a timely manner, if ever.
Construction of the Crown Jewel project will not begin prior
to the successful completion of the remaining permit applications
and resolution of the legal and administrative challenges.
Potential delays due to the appeals process, permit process or
litigation are difficult to quantify. See Legal Proceedings.
Financing. In the event that Newmont is unable to proceed with
the project and must relinquish its right to acquire a 54%
interest, Crown would then make a decision to either proceed with
the project alone or seek a similar joint venture situation with
another major mining company. There is no assurance that Crown
could successfully pursue either strategy.
In order to acquire its 54% interest in the project, Newmont
is currently funding all general property, exploration and
development costs through the start of commercial production,
including the construction of a mill facility capable of processing
a minimum of 3,000 tons of ore per day. No monies are repayable by
Crown to Newmont for the costs incurred through the pre-commercial
production stage. Crown will be required to fund its 46% share of
production costs upon the start of commercial production.
Other Property Interests
Cord Ranch Project. In 1989, Crown entered into an exploration
and mining agreement with the surface and mineral rights owners of
the 34,000-acre Cord Ranch located in Elko County, Nevada. The
lease agreement was originally for a term of five years from August
31, 1989 and renewable thereafter. Following several amendments to
the agreement Crown terminated its option to earn an interest in
the leased property. Crown is not planning any future exploration
on the Cord Ranch leased property.
Two property acquisitions, the Pinon and Dixie Creek
properties (collectively the "Pinon Project") immediately adjacent
to the Cord Ranch were made in 1990. The Pinon project consisting
of approximately 1,880 acres of unpatented claims, was acquired
under agreements entered into in October 1990.
The Pinon Project properties are subject to a joint venture
with Royal Standard Minerals Inc. ("Royal Standard") whereby Royal
Standard has earned a 70% interest in these properties. In the
fourth quarter of 2000, Crown wrote off its remaining land and
leasehold investment in the Pinon Project properties due to
continued low gold prices with a charge to abandonment expense of
$695,000. However, Crown will continue hold the properties while
Royal Standard seeks a joint venture partner to further evaluate
and develop the deposits.
Kings Canyon. The Kings Canyon property in Utah consists of
1,525 acres of state leases and unpatented claims. Crown holds a
100% interest in the property, subject to a 1-4% NSR royalty to
third parties.
Crown estimates the Kings Canyon property hosts a mineral
deposit that contains 6.8 million tons of material grading 0.030
opt of gold at a cutoff grade of 0.013 opt gold. The gold occurs
as sediment-hosted disseminated mineralization in Paleozoic
carbonate rocks.
In the fourth quarter of 2000, Crown wrote off its remaining
land and leasehold investment in the Kings Canyon property due to
continued low gold prices with a charge to abandonment expense of
$578,000. Crown will however continue maintain the property and
seek a joint venture partner to further evaluate and develop Kings
Canyon.
Kendall Mine Property. In September 1991, Crown acquired
Judith Gold Corporation, whose primary asset was the Kendall
property located near Lewiston, Montana. Canyon Resources
Corporation leased the Kendall property which entitled Crown to
receive a 5% NSR royalty on production at the Kendall gold mine.
Mining of ore at the Kendall mine ceased 1998 and the mine site is
presently in reclamation. In January 2001, Crown sold its holding
in Judith Gold Corporation to Canyon Resources Corporation for
200,000 shares of Canyon common stock.
Lamefoot Mine Royalty. In 1992, Crown acquired from various
underlying lease holders a 0.75% NSR royalty interest in the
Lamefoot deposit for $306,000. This property lies approximately
three miles from the Kettle River Project mill, operated by Echo
Bay Mines Ltd. in northeastern Washington state. Crown received
approximately $112,000 in royalties from Lamefoot during 2000.
Mining ceased at the Lamefoot deposit during the fourth quarter of
2000. In January 2001, Crown sold its holding in Judith Gold
Corporation which included the Lamefoot deposit.
MEXICO
Since 1997, Crown has conducted exploration and reconnaissance
activities in Mexico, focusing its efforts in the state of Durango.
San Juan
During 1999 Crown entered into agreements which provided that
Crown could earn a 100% interest in the 700-acre San Juan property,
by making cash payments to concession holders totaling $232,000
over four years, an additional balloon payment of $800,000 as well
as meet certain work commitment and payment of taxes. Crown
completed a six-hole 3,300 foot drilling program at San Juan during
the first quarter of 2000. Based upon the results of that program
and the continued low gold price, Crown elected to abandon its
interest in the San Juan property during the second quarter of 2000
with a charge to abandonment expense of $59,000. No further work
is planned in Mexico as of December 31, 2000.
PERU
Primarily as a result of the issuance of Solitario shares in
connection with the Plan, Crown's ownership percentage of Solitario
was reduced from 57.2% to 41.3% at December 31, 2000. Accordingly
Crown has accounted for its investment in Solitario under the
equity method since the Effective Date. Crown's interest in the
net assets of Solitario are shown in the Consolidated Balance Sheet
as of December 31, 2000 as equity in unconsolidated subsidiary. As
of December 31, 2000, Crown has no direct interest in properties
outside of the United States.
Exploration Expenditure Overview
During 2000, Crown incurred $903,000 in expenditures
conducting exploration activities on its properties which included
approximately $703,000 in expenditures in South America through
Solitario prior to October 18, 2000. Several of Crown's properties
are subject to leases and/or options to purchase. Crown was
required to make approximately $3,000 in payments for its share of
2000 annual lease and rental obligations and option payments for
properties it currently holds. Certain other mining claims and
properties not subject to leases were acquired by Crown either by
deed or were located by Crown. With respect to the claims and
other properties acquired by deed or located by Crown, the
obligation required to hold the claims is to pay ad valorem
property taxes in the case of the patented mining claims and fee
land, and annual rental fees in the case of the unpatented mining
claims. See Considerations Related to Crown's Business.
2001 WORK COMMITMENTS
Crown has no work commitments remaining to be fulfilled in
2001.
ANNUAL RENTALS
Annual Rentals
Rental on and Option Payments
Unpatented for Property Crown's Share
Claims and Subject to of Costs
Property Concessions Lease in 2001 in 2001(1)
U.S.
Crown Jewel $ 65,000 $ 35,000 $ -
Cord Ranch 12,000 - -
Kings Canyon 3,000 - 3,000
MEXICO - - -
TOTAL: $ 80,000 $ 35,000 $ 3,000
(1) Represents Crown's estimated share of rentals and option
payments in 2001 based upon existing joint venture or leasing
arrangements. (This estimate does not include costs to be borne by
other joint venturers.)
Item 3. Legal Proceedings
In March 1997, administrative appeals of the ROD for the Final
Environmental Impact Statement ("FEIS") for the Crown Jewel Project
were filed against the United States Forest Service, ("USFS") by
members of the following parties: (i) a joint appeal by the
Okanogan Highlands Alliance, Washington Environmental Council,
Colville Indian Environmental Protection Alliance, Washington
Wilderness Coalition, Rivers Council of Washington, and Sierra
Club, Cascade Chapter; (ii) Confederated Tribes of the Colville
Reservation; (iii) Columbia River Bioregional Education Project;
and (iv) Kettle Range Conservation Group; (all groups collectively
the "Plaintiffs"). The appeals were denied in May 1997.
Pollution Control Hearings Board
Since the fourth quarter of 1997, members of the Plaintiffs,
and others filed a total of seven actions (PCHB Nos. 97-146, 97-
182, 97-183, 97-185, 97-186, 98-019 and 99-019) against the
Washington Department of Ecology ("WDOE") before the Pollution
Control Hearings Board ("PCHB"), a state administrative tribunal,
challenging the FEIS and certain permit decisions. Although the
PCHB dismissed or ruled in favor of the WDOE on three of the
actions (PCHB 97-146, 97-185 and 98-019), after a consolidated
hearing on the remaining actions, in January of 2000, the PCHB
issued a ruling vacating the previously granted 401 Water Quality
Permit for the Crown Jewel Project issued by WDOE. The ruling also
reversed certain water rights issued by the WDOE for the Crown
Jewel Project. On March 14, 2000, Newmont filed an appeal in
Superior Court of the State of Washington for Okanogan County
challenging the PCHB ruling. A hearing date has been set for March
2002 in the appeal.
United States District Court
In late May 1997, members of the Plaintiffs filed an action in
United States District Court for the District of Oregon against the
USFS appealing the Forest Service's issuance of the FEIS, its
decision to uphold the ROD and the denial of administrative
appeals. On December 31, 1998 the Court affirmed the decisions of
the USFS on the adequacy of the FEIS by granting all motions for
summary judgement on behalf of the USFS and BMG, while denying all
motions of the Plaintiffs. Members of the Plaintiffs appealed the
decision to the Ninth Circuit Court of Appeals in April of 1999.
The appeal was denied in December of 2000.
Thurston County Superior Court
In December of 1997, the members of the Plaintiffs filed three
separate actions against the WDOE in Superior Court of the State of
Washington for Thurston County. The actions challenge the WDOE's
approval of permits issued to BMG for water resource mitigation and
solid waste permit rulings. In April 1998, members of the
Plaintiffs dismissed one of the three actions related to the
tailings and solid waste permits without prejudice. In November
1998, the remaining two actions were consolidated. The case is
currently pending and no trial date has been set.
United States District Court for the District of Oregon
This action, commenced in November 1999 by members of the
Plaintiffs against the Department of the Interior, et al.,
challenges the reinstatement of the Crown Jewel Record of Decision
and the grant of the Plan of Operations for the project. In July
2000, Newmont filed non-merits dispositive motions. Responses and
reply briefs on the motions have been received and oral arguments
on the dispositive motions were held November 6, 2000. A decision
on the motions is expected during the second quarter of 2001.
Department of the Interior
In May 2000, members of the Plaintiffs filed a protest of the
patent application for the grand-fathered Crown Jewel lode claims.
The protest was filed in the Washington/Oregon State Bureau of Land
Management office. The Department of the Interior has invited
Newmont and/or Crown to submit a response to the protest, but has
not set a date for such response or a time frame for the resolution
of the protest.
The impact and timing of resolutions of these and any other
appeals related to the permitting process cannot be determined with
any accuracy at this time. See Properties - Crown Jewel Project -
Permitting and Development.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders
during the fourth quarter of 2000
EXECUTIVE OFFICERS
The executive officers of Crown are as follows:
Name and municipality Position with Crown and business
of residence Age experience within the last five years
MARK E. JONES, III 61 Chairman of Crown since 1987,
Houston, Texas Chief Executive Officer from 1987 to
1993 and President from September 1989
to November 1990; Chairman of Solitario
since August 1993.
CHRISTOPHER E. HERALD 47 Chief Executive Officer of Crown
Golden, Colorado since June of 1999, the President of
Crown since November 1990.
Chief Executive Officer of Solitario
since June of 1999, President of
Solitario since August 1993.
JAMES R. MARONICK 45 Chief Financial Officer of Crown
Lakewood, Colorado since June 1999, Vice President -
Finance and Secretary/Treasurer of the
Company and Solitario since September
1997; Vice President - Finance and
Secretary/Treasurer of Consolidated
Nevada Goldfields Corporation from
November 1994 to September 1997.
DEBBIE W. MINO 48 Vice President - Investor Relations
Sugar Land, Texas of Crown since 1989.
WALTER H. HUNT 49 Vice President - South American
Lima, Peru Operations of Crown since July
1994; President - South American
Operations, Solitario since June
1999; Vice President - Peru Operations
of Solitario since July 1994.
Officers of Crown are appointed by the Board of Directors.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The common stock of Crown had been listed and traded on the
Nasdaq National Market under the symbol CRRS since 1989. On
October 20, 2000 the Nasdaq Stock Market notified Crown that its
common stock was no longer listed on the Nasdaq National Market
because the stock had failed to maintain a minimum bid price of
$1.00 for 30 consecutive trading days as required for continued
listing on the Nasdaq National Market. The common shares of Crown
are now traded on the Over the Counter Bulletin Board (OTCBB) under
the symbol OTCBB:CRRS.
Crown's stock has been listed and traded in Canada on The
Toronto Stock Exchange ("TSE") since December 10, 1991, under the
symbol CRO. In March 2001 the TSE conducted a hearing to review
Crown's listing for possible suspension. As a result of that
hearing, Crown remains listed and the TSE has deferred
consideration of Crown's eligibility for continued listing until
July 2001. There can be no assurance that Crown will be able to
maintain its current listing on the TSE.
The following table sets forth the high and low sales prices
on the OTCBB and Nasdaq National Market for Crown's common stock
for the quarterly periods from January 1, 1999 to December 31,
2000.
Prices (US$)
High Low
1999:
First Quarter 3.00 1.50
Second Quarter 2.25 0.81
Third Quarter 3.06 1.25
Fourth Quarter 4.75 1.66
2000:
First Quarter 2.00 0.94
Second Quarter 1.19 0.63
Third Quarter 0.96 0.38
Fourth Quarter 0.56 0.23
Holders of common stock are entitled to receive such dividends
as may be declared by the Board of Directors. Crown has not paid
any dividends on its common stock and does not anticipate paying
any dividends in the foreseeable future. At March 5, 2001, there
were 1,199 record holders of Crown's common stock.
Item 6. Selected Financial Data
The selected consolidated financial data set forth below for
each of the five years in the period ended December 31, 2000 and as
of the years then ended has been derived from the audited
consolidated financial statements of Crown (not all of which
financial statements are presented herein). The selected
consolidated financial data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and
Results of Operations and the audited consolidated financial
statements and related notes thereto included elsewhere in this
report.
Balance sheet data: As of December 31,
(in thousands) 2000 1999 1998 1997 1996
Total assets $20,095 $22,709 $36,500 $34,338 $37,113
Current portion
long term debt 15,000 - - - -
Long term debt - 15,000 15,000 15,000 15,000
Working capital (deficit) (14,211) 4,881 7,839 5,521 5,384
Stockholders' equity 4,695 5,980 17,182 13,979 17,197
Income statement Years ended December 31,
data: (in thousands, 2000(1) 1999 (2) 1998 1999 1998
except per share
amounts)
Revenues $ 6,401 $ 538 $ 610 $ 685 $ 803
Net loss before change
in accounting
principle (1,659) (2,666) (1,928) (4,979) (1,571)
Change in accounting
principle - 8,451 - - -
Net loss $(1,659) $(11,117) $(1,928) $(4,979) $(1,571)
Basic loss per share
before change in
accounting principle $(0.11) $(0.18) $(0.13) $(0.38) $(0.12)
Change in accounting
principle - (0.58) - - -
Basic loss per share $(0.11) $(0.76) $(0.13) $(0.38) $(0.12)
(1) Includes the operations of Solitario on a consolidated basis
through October 18, 2000. Subsequent to October 18, 2000, the
results of Solitario are reflected under the equity method of
accounting.
(2) Crown changed its method of accounting for exploration costs
and recorded a $8.5 million charge related to the cumulative
effect of the change in accounting principle to operations in
1999.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with
Crown's consolidated financial statements for the years ended
December 31, 2000, 1999 and 1998, included elsewhere in this
report. Crown's financial condition and results of operations are
not necessarily indicative of what may be expected in future years.
On October 18, 2000,(the "Effective Date") Solitario,
completed a Plan of Arrangement (the "Plan") with Altoro Gold Corp.
of Vancouver, Canada ("Altoro"), whereby Altoro became a wholly-
owned subsidiary of Solitario. In connection with the Plan,
Solitario issued 6,228,894 shares to Altoro shareholders and option
holders. Solitario also reserved 825,241 Solitario shares for
issuance upon the exercise of 825,241 warrants in exchange for
Altoro warrants. On October 24, 2000, Solitario issued 261,232
shares upon the exercise of the above warrants and 286,231 warrants
expired unexercised. After the issuance of the shares in
connection with the Arrangement and exercise of the warrants
discussed above, Solitario has 23,344,647 shares outstanding of
which Crown owns 9,633,585 shares. Primarily as a result of the
issuance of Solitario shares in connection with the Plan, Crown's
ownership percentage of Solitario was reduced from 57.2% to 41.3%
at December 31, 2000. Accordingly Crown has accounted for its
investment in Solitario under the equity method since the Effective
Date. Solitario's income, expense and minority interest are
included in the Consolidated Statement of Operations of Crown
through the Effective Date. Crown's interest in the net assets of
Solitario are shown on the Consolidated Balance Sheet as of
December 31, 2000 as equity in unconsolidated subsidiary. Crown's
share of Solitario's net loss from the Effective Date through
December 31, 2000 is shown as equity in earnings of unconsolidated
subsidiary in the Consolidated Statement of Operations.
Results of Operations
Crown has historically derived its revenues from the option
and sale of property interests, from royalty interests, interest
income and from the sale of its share of gold produced on its
properties. Revenues from the option and sale of property
interests have consisted of a small number of relatively large
transactions. Such transactions have occurred, and in the future
are likely to occur, if at all, at irregular intervals and have a
significant impact on operating results in the periods in which
they occur.
Crown had a net loss of $1.7 million or $0.11 per share in
2000 compared with a net loss before cumulative effect of an
accounting change of $2.7 million in 1999 or $0.18 per share and a
net loss of 1.9 million or $0.13 per share in 1998.
Total revenues were $6.4 million in 2000 compared to $0.5
million in 1999 and $0.6 million in 1998. On April 26, 2000
Solitario completed a transaction with an affiliate of Newmont
Mining Corporation ("Newmont") and sold its interest in its
Yanacocha property for $6 million and a sliding scale net smelter
return royalty that varies with the price of gold. In order to
effect the transaction, Solitario transferred all of the operating
assets and liabilities, excluding its interest in Yanacocha, of its
Peru operating subsidiary, Minera Los Tapados ("Los Tapados"), to
a new operating subsidiary, Minera Solitario Peru. Newmont
received all of the outstanding shares of Los Tapados for cash
consideration of $5.6 million. The balance of the $6 million, $0.4
million, is being held in a reserve by Newmont and, pending release
of certain contingent liabilities, will be paid in four annual
payments of $0.1 million plus interest. Crown recorded a gain on
the sale of Solitario's Yanacocha property of $5.8 million during
the second quarter of 2000, which was partially offset by the
minority interest portion of Solitario's net income through the
Effective Date. Crown also recorded $100,000 in mineral option
proceeds during the first quarter of 2000 from payments related to
Solitario's Bongara joint venture in Peru.
Crown's recurring revenues have been primarily derived from its
royalty interests and from interest income. Royalty income was
$0.1 million in 2000, 1999 and 1998. Royalty income has been from
Crown's interest in the Lamefoot deposit at the Kettle River mine
in Washington. The Lamefoot deposit was mined out during the
fourth quarter of 2000 and in January 2001, Crown sold its interest
in Judith Gold, which held the Lamefoot royalty. No future royalty
income is expected. See Liquidity and capital resources.
Interest income was $0.3 million in 2000, compared with $0.3
million in 1999 and $0.5 million in 1998. Fluctuations are due to
changes in Crown's average invested cash balances. The primary
factors resulting in increases in cash balances have been from
proceeds received from sales of Solitario's Yanacocha property and
the sale of Crown's common stock during 1998. Additionally, the
level of exploration activity carried on by Crown has affected the
amount of cash available for investment. See Liquidity and Capital
Resources.
During the fourth quarter of 1999, Crown changed its method of
accounting for exploration costs on properties without proven and
probable reserves from capitalizing all expenditures to expensing
all costs, other than acquisition costs, prior to the establishment
of proven and probable reserves. This brings Crown's accounting
method in accordance with the predominant practice in the U.S.
mining industry. The $8.5 million cumulative effect of the change
on prior years is included in the loss for 1999. The effect of the
change on 1999 was to increase the loss before cumulative effect of
change in accounting principle by $0.1 million or $0.01 per share.
Exploration expense was $0.9 million in 2000 compared to $1.0
million in 1999 primarily as a result of the deconsolidation of
Solitario as of the Effective Date and a reduction of exploration
activities by Crown in both the United States and Mexico.
General and administrative expenses in 2000 were $1.2 million
compared to $1.4 million in 1999 and $1.5 million in 1998. The
lower costs in 2000 and 1999 are the result of decreased
exploration activity especially with regard to the United States,
the deconsolidation of Solitario, as well as reduced administrative
staff and travel.
Interest expense was $1.0 million in each of 2000, 1999 and
1998 and related exclusively to Crown's convertible debentures.
Included in interest expense is amortization of deferred offering
costs of $0.1 million in each of 2000, 1999 and 1998.
Crown regularly performs evaluations of its assets to assess
the recoverability of its investments in these assets. All long-
lived assets are reviewed for impairment whenever events or
circumstances change which indicate the carrying amount of an asset
may not be recoverable utilizing established guidelines based upon
estimated future net cash flows from the asset. Write-downs
relating to exploration properties amounted to $2.5 million in 2000
compared to $0.2 million in 1999 and $0.9 million in 1998.
Included in the write-down for 2000 was the abandonment of the
Cord Ranch lease property with a charge to asset write-downs of
$1.2 million. Additionally Crown recorded an asset write-down of
$1.3 million for the impairment of Crown's interest in the Pinon
Range and Dixie Creek prospects at Cord Ranch as well as the
impairment of the King's Canyon property in Utah. These
impairments of all of Crown's investment is attributable to
continued low gold prices and an inability of Crown to complete
acceptable joint ventures to explore and develop these properties.
Minority interest in (income) loss of subsidiary $(2.1)
million in 2000 compared to $0.4 million in 1999 and $0.2 million
in 1998. The income from Solitario in 2000 was primarily due to
Solitario's gain on sale of the Yanacocha property of $5.8 million.
Liquidity and Capital Resources
Due to the nature of the mining business, the acquisition,
exploration and development of mineral properties requires
significant expenditures prior to the commencement of production.
Crown has in the past financed its activities through the sale of
gold, the sale of securities, joint venture arrangements (including
project financing) and the sale of interests in its properties. To
the extent necessary, Crown expects to continue to use similar
financing techniques.
Crown's exploration and development activities and funding
opportunities, as well as those of its joint venture partners, may
be materially affected by gold price and mineral commodity levels
and changes in those levels. The market price of gold and mineral
commodities is determined in world markets and is affected by
numerous factors which are beyond Crown's control.
Net cash used in operating activities was $2.4 million in 2000
compared to $2.7 million in 1999 and $1.7 million in 1998. During
2000 the inclusion of Crown's share of Solitario's gain on sale of
the Yanacocha property mitigated by the minority interest in the
transaction accounted for a significant portion of the change. The
change between 1999 and 1998 primarily relate to differences as a
result of the inclusion of exploration expenses as an operating
cost after the adoption of the change in accounting principle in
1999, rather than as additions to mineral properties in 1998.
Net cash used in investing activities in 2000 was $1.8 million
compared to $0.3 million in 1999 and $1.1 million in 1998. The
inclusion of Solitario's $5.6 million proceeds from the Yanacocha
sale was offset by the elimination of Solitario's cash as of the
Effective Date of $6.9 million when Crown no longer consolidated
Solitario and accounted for its investment under the equity method.
The primary differences between 1998 and 1999 related to the
reductions in property additions which were included as exploration
expense of $1.0 million in 1999. Net cash provided by financing
activities was $5.1 million during 1998 primarily from the sale of
Crown's common stock. There were no such sales of stock in 1999 or
2000
Crown has budgeted $0.1 million for exploration and
development expenditures in 2001 as a result of the deconsolidation
of Solitario and the write-down of its exploration properties.
Currently Crown is only planning for capital property expenditures
related to its Crown Jewel Project. These costs include certain
maintenance and legal expenses to maintain Crown's interest as
Newmont is paying for 100% of the cost to develop the Project. In
the past, Crown's exploration expenditures have constituted the
bulk of its activities. Accordingly, the deconsolidation as of
the Effective Date and the reduction in Crown's assets related to
the change in accounting principle, has affected the comparability
of its assets, income and cash flows for the three years ended
December 31, 2000.
During 1999, less than $0.1 million was received from the
exercise of stock options. Crown does not anticipate significant
exercises of stock options in the foreseeable future.
Cash and cash equivalents amounted to $1.0 million at December
31, 2000. These funds are generally invested in short-term
interest-bearing deposits and securities, pending investment in
current and future projects. Working capital at December 31, 2000
was a negative $14.2 million.
The accompanying financial statements have been prepared
assuming that Crown will continue as a going concern. As of
December 31, 2000, Crown has a working capital deficiency of
$14,211,000 and its $15,000,000 convertible debentures, discussed
in Note 4 to the accompanying financial statements, are due in
August 2001. Crown currently has insufficient liquidity to pay
these debentures when due. Management is seeking outside financing
to raise additional funds through either borrowing arrangements or
the sale of assets to facilitate payment of the debentures.
Additionally, management may seek to restructure the terms of the
debentures. There is no assurance that Crown will be able to raise
sufficient funds or to restructure the debentures on acceptable
terms. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Convertible Debentures
On March 22, 2001, Crown paid the interest payment on its $15
million 5.75% Convertible Subordinated Debentures (the
"Debentures") which was due on February 27, 2001. By making the
payment within 30 days of the due date, Crown remained in
compliance with the terms of the Debentures. The last interest
payment and the principal are due August 27, 2001. Crown has
announced that it is seeking outside secured financing to raise
additional cash to facilitate restructuring the Debentures and to
maintain and enhance its assets. There can be no assurance that
Crown will be able to complete this financing, raise other capital
or sell assets to allow for repayment, or restructure of the
Debentures on acceptable terms. Under the terms of the Debentures,
Crown will be in default if it is unable to pay the final interest
or principle when due in August 2001. Should Crown be in default,
the Debenture holders have the right to seek a judgement against
Crown to obtain payment. Crown's potential inability to pay the
interest and principal on the Debentures raises significant doubt
as to Crown's ability to continue as a going concern. There can be
no assurance that Crown will be able to remove this uncertainty in
the near or long term future. As a result of the above, Crown may
be forced to seek protection from its creditors under the
bankruptcy laws.
Exploration Activities
A significant part of Crown's business involves the review of
potential property acquisitions and continuing review and analysis
of properties in which it has an interest, to determine the
exploration and development potential of the properties. In
analyzing expected levels of expenditures for work commitments and
lease obligations, Crown considers the fact that its obligations to
make such payments fluctuate greatly depending on whether, among
other things, Crown makes a decision to sell a property interest,
convey a property interest to a joint venture, or allow its
interest in a property to lapse by not making the work commitment
or payment required.
Crown estimates during 2001 there will be no work commitments
remaining to be fulfilled by Crown on its existing properties.
Crown's estimates it will pay approximately $3,000 for its share of
rental obligations and other property payments for 2001.
New Accounting Pronouncements
In June of 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The standard,
which is effective for fiscal years beginning after June 15, 2000,
sets forth guidelines for recording derivative instruments as
assets and liabilities to be reported in the financial statements
at fair value and that changes in the fair value of the instruments
shall be recognized in the results of operations. This standard,
was adopted by the Company in 2001 and did not have a material
effect on the Company's financial position, results of operations
and cash flows.
In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). SAB 101 summarizes certain of
the SEC views in applying generally accepted accounting principles
to revenue recognition as it relates to, among other things, the
revenue recognition from non-refundable, up-front payments in
connection with service contracts. Crown adopted the provisions of
SAB 101 in the fourth quarter of 2000. The adoption of SAB 101 did
not have a material effect on Crown's financial condition or
results of operations.
Environmental, Permitting and Legal
The Final Environmental Impact Statement ("FEIS") on the Crown
Jewel project was issued to the public in February 1997. In May of
1997, the United States Forest Service ("USFS") upheld the Record
of Decision ("ROD") to approve the Crown Jewel project. In May
1997, an action was filed in U.S. District Court against the USFS
appealing its decision to uphold the ROD. This action was
dismissed on December 31, 1998. As of December 31, 1999, all
substantive permit applications necessary to begin construction
have been filed with the various local, state and federal agencies
and are undergoing review. As of December 31, 1999, the Crown
Jewel project had received favorable decisions on 57 of 70, or 81%,
of the total permits necessary on the project. In January of 2000,
the Pollution Control Hearings Board ("PCHB"), a state
administrative tribunal, vacated the previously granted 401 Water
Quality Permit for the Crown Jewel Project issued by Washington
Department of Ecology ("WDOE"). The ruling also reversed certain
water rights issued by the WDOE for the Crown Jewel Project. On
March 14, 2000, Newmont filed an appeal in Superior Court of the
State of Washington for Okanogan County challenging the PCHB
ruling. A hearing date has been set for March 2002 in the appeal.
It has not been determined what effect, if any, this ruling will
have on other previously issued permits.
As a result of the PCHB ruling, on February 4, 2000, Newmont
announced it was writing off its entire investment in the Crown
Jewel Project as of December 31, 1999, and reclassifying the proven
and probable reserves to mineralized materials. Because Crown is
the holder of 100% of the Crown Jewel project, subject to Newmont's
potential earn-in, and that the basis and economics of Crown's
interest is materially different than Newmont's interest, Crown
engaged Mine Reserves Associates ("MRA") to conduct an independent
analysis of its Crown Jewel project reserves in March 2000. Per
the MRA report, Crown is reporting proven and probable reserves of
2,139,000 tons at a grade of 0.392 for a total of 839,000 contained
ounces. The MRA design would use the bulk of the waste rock
material from mine design for tailings dam construction and to
backfill the underground mining areas, in order to increase the
recoverable underground ounces.
As part of the analysis of the Crown Jewel reserves subsequent
to the January 2000 PCHB ruling, Crown retained Gochnour and
Associates ("Gouchnour"), an independent mining environmental
consultant, to review the required permits for the mine design as
proposed in the MRA report. Gochnour indicates the MRA design
would require conducting additional baseline studies and collecting
data for modeling to amend previously approved permits as well as
to obtain permits for activities that were not previously
contemplated, for example the underground mining effects on ground
water. Gochnour indicated the underground alternative will also
require mitigation of environmental impacts. The Gochnour report
concluded the MRA mine design is legally permittable. Although
Crown and Gochnour are not aware of any laws or regulations which
would be violated by the mine design proposed by MRA, there will
continue to be uncertainty regarding the ability of Crown obtaining
the necessary permits from the regulatory authorities in a timely
manner, if ever.
There are no assurances that required permits will be issued in a
timely fashion, that Crown or Newmont will prevail in current or
future legal actions or that conditions contained in permits issued
by the agencies will not be so onerous as to preclude construction
or operation of the project.
Uncertainties which exist with respect to timing of commercial
production at Crown Jewel, and the potential fluctuation in gold
prices, could have a material effect upon Crown's ability to fund
its operating activities in the long term. There is no assurance
that such funding will or can be secured on terms favorable to
Crown.
Item 7a. Quantitative and Qualitative Disclosure About Market Risk
Crown is exposed to market risks associated with changes in
interest rates as it relates to its cash and short term
investments, and commodity price risks for changes in the price of
precious and base metals insofar as such changes may affect the
economic viability of its exploration and development projects.
The $15,000,000, 5.75% convertible debentures due in 2001 are not
subject to market risk because they have a fixed interest rate and
a repayment amount payable either in cash or common stock of Crown.
Crown does not use financial or other derivative instruments to
manage market risk. A hypothetical change of one percent in the
interest rate earned on short term investments during 2000 would
have resulted in an increase or decrease of less than $0.1 million
in net income. A change of 10% in the price of gold, silver or
zinc would not have had a material change in the assets,
liabilities or net income.
Item 8. Financial Statements and Supplementary Data
CROWN RESOURCES CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report . . . . . . . . . . . . . . . . F-1
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31,
2000 and 1999 . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the years
ended December 31, 2000, 1999 and 1998 . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 2000, 1999 and 1998 . . . . F-4
Consolidated Statements of Cash Flows for the years
ended December 31, 2000, 1999 and 1998 . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . F-6
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Crown Resources Corporation
Denver, Colorado
We have audited the consolidated balance sheets of Crown Resources
Corporation and subsidiaries (Crown) as of December 31, 2000 and
1999, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 2000. These financial statements are
the responsibility of Crown's management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Crown
Resources Corporation and subsidiaries as of December 31, 2000 and
1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the
United States of America.
The accompanying consolidated financial statements for the year
ended December 31, 2000, have been prepared assuming that Crown
will continue as a going concern. As discussed in Note 1, Crown
has insufficient liquidity to pay its $15,000,000 convertible
debentures, which are due August 2001, which raises substantial
doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also described in
Note 1. The financial statements do not contain any adjustments
that might result from the outcome of this uncertainty.
As discussed in Note 2 to the financial statements, Crown changed
its method of accounting for exploration costs on properties
without proven and probable reserves in 1999.
Deloitte & Touche LLP
Denver, Colorado
March 23, 2001
F-1
CROWN RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31,
2000 1999
(in thousands)
Assets
Current assets:
Cash and cash equivalents $ 971 $ 5,174
Short-term investments 79 87
Prepaid expenses and other 139 114
Total current assets 1,189 5,375
Mineral properties, net 13,902 16,772
Other assets:
Equity in unconsolidated subsidiary 4,873 -
Debt issuance costs, net 68 170
Marketable equity securities, at fair value - 103
Assets held for disposition - 178
Other 63 111
Total other assets 5,004 562
$20,095 $22,709
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 111 $ 205
Convertible debentures 15,000 -
Other 289 289
Total current liabilities 15,400 494
Long term liabilities:
Convertible debentures - 15,000
Minority interest in consolidated
subsidiary - 1,235
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value;
authorized 20,000,000 shares;
none outstanding - -
Common stock, $0.01 par value;
authorized 50,000,000 shares;
issued and outstanding 14,553,302
and 14,539,697 shares 146 145
Additional paid-in capital 35,045 34,803
Accumulated deficit (30,496) (28,837)
Accumulated other comprehensive loss - (131)
Total stockholders' equity 4,695 5,980
$20,095 $22,709
See notes to consolidated financial statements.
F-2
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per Years Ended December 31,
share amounts) 2000 1999 1998
Revenues:
Mineral property option proceeds $ 100 $ 100 $ -
Royalty income 112 104 139
Interest income 344 337 471
Gain (loss) on sale of assets
and mineral properties 5,845 (3) -
Total revenues 6,401 538 610
Costs and expenses:
Exploration 903 1,025 -
Depreciation, depletion and
amortization 39 65 101
General and administrative 1,171 1,367 1,526
Interest 971 971 971
Asset write-downs 2,542 166 867
Other, net (2) (1) (22)
Total costs and expenses 5,624 3,593 3,443
Operating income (loss) 777 (3,055) (2,833)
Equity in loss of unconsolidated
subsidiary (295) - -
Income (loss) before income
taxes and minority interest
and cumulative effect of change
in accounting principle 482 (3,055) (2,833)
Income tax benefit ( - ) ( - ) (731)
Income (loss) before minority interest 482 (3,055) (2,102)
Minority interest in (income)
loss of subsidiary (2,141) 389 174
Net loss before cumulative effect of
change in accounting principle (1,659) (2,666) (1,928)
Cumulative effect of change in
accounting principle - (8 451) -
Net loss $ (1,659) $(11,117) $ (1,928)
Per common share:
Basic and diluted loss
before cumulative effect of
change in accounting principle $ (0.11) $ (0.18) $ (0.13)
Change in accounting principle ( - ) (0.58) -
Basic and diluted loss $ (0.11) $ (0.76) $ (0.13)
Basic and diluted weighted average
number of common and common
equivalent shares outstanding 14,553 14,534 14,345
Pro forma amounts assuming the method
of expensing exploration costs as
incurred is applied retroactively:
Net loss $ (1,659) $ (2,666) $ (2,878)
Basic and diluted loss per common
share $ (0.11) $ (0.18) $ (0.20)
See notes to consolidated financial statements.
F-3
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Additional Other
(in thousands, except share Common Stock Paid-in Accumulated Comprehensive
amounts) Shares Amount Capital Deficit Loss Total
Balance, January 1, 1998 13,312,829 133 29,653 (15,792) (15) 13,979
Issuance of shares:
Exercise of stock options 159,166 2 493 - - 495
For services 8,730 - 32 - - 32
In private placement 1,040,000 10 4,590 - - 4,600
Comprehensive income (loss):
Net loss - - - (1,928) - (1,928)
Net unrealized gain on
marketable equity securities - - - - 4 4
Comprehensive loss - - - - - (1,924)
Balance, December 31, 1998 14,520,725 145 34,768 (17,720) (11) 17,182
Issuance of shares:
Exercise of stock options 6,275 - 11 - - 11
For services 12,697 - 24 - - 24
Comprehensive income (loss):
Net loss - - - (11,117) - (11,117)
Net unrealized loss on
marketable equity securities - - - - (120) (120)
Comprehensive loss - - - - - (11,237)
Balance, December 31, 1999 14,539,697 $ 145 $ 34,803 $(28,837) $(131) $ 5,980
Issuance of shares:
For services 13,605 1 24 - - 25
Disproportionate share of sale of
subsidiary stock 218 218
Comprehensive income (loss):
Net loss - - - (1,659) - (1,659)
Net unrealized gain on
marketable equity securities - - - - 131 131
Comprehensive loss - - - - - (1,528)
Balance, December 31, 2000 14,553,302 $ 146 $ 35,045 $(30,496) $ - $ 4,695
See notes to consolidated financial statements.
F-4
CROWN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(in thousands) 2000 1999 1998
Operating Activities:
Net loss $ (1,659) $(11,117) $(1,928)
Adjustments:
Depreciation, depletion and amortization 141 167 204
Deferred income taxes - - (731)
Asset write-downs 2,542 166 867
Common stock issued for services 25 24 32
Minority interest 2,141 (389) (174)
Equity in loss of unconsolidated subsidiary 295
Cumulative effect of change in
accounting principle - 8,451 -
Loss (gain) on sale of assets (5,845) 3 -
Changes in operating assets and liabilities,
excluding effects of
Solitario deconsolidation:
Bullion inventories - - 96
Prepaid expenses and other (59) (1) 32
Accounts payable and
other current liabilities 3 (18) (136)
Net cash used in operating activities (2,416) (2,714) (1,738)
Investing Activities:
Additions to mineral properties (258) (217) (1,511)
Receipts on mineral property transactions - - 464
Proceeds from asset sales 5,725 22 (1)
Cash effect of Solitario deconsolidation (6,908) - -
Increase in other assets (346) (64) (30)
Net cash used in investing activities (1,787) (259) (1,078)
Financing Activities:
Sale of common stock - - 4,600
Common stock issued under options
and warrants - 11 495
Net cash provided by financing
activities - 11 5,095
Net increase (decrease) in cash and
cash equivalents (4,203) (2,962) 2,279
Cash and cash equivalents, beginning of year 5,174 8,136 5,857
Cash and cash equivalents, end of year $ 971 $ 5,174 $ 8,136
Supplemental disclosure of cash flow
information:
Non-cash transactions:
Securities received for mineral
property transactions $ - $ 21 $ 212
Disposition of interest in subsidiary 218 - -
Cash paid for interest 868 868 868
Increase in accounts receivable from sale of
subsidiary - - 29
See notes to consolidated financial statements.
F-5
1. Business and Summary of Significant Accounting Policies:
Business
Crown Resources Corporation (the "Company" or "Crown") engages
principally in the acquisition, exploration and development of
mineral properties, which presently exist in the western United
States and Mexico. Prior to October 18, 2000 Crown held properties
in Peru through Solitario Resources Corporation ("Solitario"),
which is currently a 41.3%-owned unconsolidated subsidiary.
Crown's operations constitute a single business segment.
Crown has historically derived its revenues principally from
royalty interests and interest income and to a lesser extent from
the option and sale of property interests and from the sale of its
share of gold produced from its properties.
Basis of presentation
The accompanying financial statements have been prepared
assuming that Crown will continue as a going concern. As of
December 31, 2000, Crown has a working capital deficiency of
$14,211,000 and its $15,000,000 convertible debentures, discussed
in Note 4, are due in August 2001. Crown currently has
insufficient liquidity to pay these debentures when due.
Management is seeking outside financing to raise additional funds
through either borrowing arrangements or the sale of assets to
facilitate payment of the debentures. Additionally, management may
seek to restructure the terms of the debentures. There is no
assurance that Crown will be able to raise sufficient funds or to
restructure the debentures on acceptable terms. The accompanying
financial statements do not include any adjustments that might
result from the outcome of this uncertainty. Under the terms of
the debentures, Crown will be in default if it is unable to pay the
final interest or principle when due in August 2001. Should Crown
be in default, the debenture holders have the right to seek a
judgement against Crown to obtain payment.
Financial reporting
The consolidated financial statements include the accounts of
Crown and its wholly- and majority-owned subsidiaries. All
material intercompany accounts and transactions have been
eliminated in consolidation. Undivided interests in mineral
properties are accounted for by the proportionate consolidation
method in accordance with standard practice in the mining industry.
F-6
1. Business and Summary of Significant Accounting Policies
(Continued):
On October 18, 2000,("the Effective Date") Solitario,
completed a Plan of Arrangement ("the Plan") with Altoro Gold Corp.
of Vancouver, Canada ("Altoro"), whereby Altoro became a wholly-
owned subsidiary of Solitario. In connection with the Plan,
Solitario issued 6,228,894 shares to Altoro shareholders and option
holders. Solitario also reserved 825,241 Solitario shares for
issuance upon the exercise of 825,241 warrants issued in exchange
for Altoro warrants. On October 24, 2000, Solitario issued 261,232
shares upon the exercise of the above warrants and 286,231 the
warrants expired unexercised. After the issuance of the shares in
connection with the Arrangement and exercise of the warrants
discussed above, Solitario has 23,344,647 shares outstanding of
which Crown owns 9,633,585 shares. Primarily as a result of the
issuance of Solitario shares in connection with the Plan, Crown's
ownership percentage in Solitario was reduced from 57.2% to 41.3%
at December 31, 2000.
Basis of presentation
Accordingly, Crown has accounted for its investment in
Solitario under the equity method since the Effective Date.
Solitario's income, expense and minority interest are included in
the Consolidated Statement of Operations of Crown through the
Effective Date. Crown's interest in the net assets of Solitario
are shown the Consolidated Balance Sheet as of December 31, 2000 as
equity in unconsolidated subsidiary. Crown's share of Solitario's
net loss from the Effective Date through December 31, 2000 is shown
as equity in loss of unconsolidated subsidiary in the Consolidated
Statement of Operations.
Use of estimates
The preparation of financial statements, in conformity with
accounting principles generally accepted in the United States
America, 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. Actual results could differ
from those estimates.
Cash equivalents
Cash equivalents include investments in highly-liquid debt
securities with maturities of three months or less when purchased.
Investments with longer maturities at the date of purchase are
classified as short-term investments.
F-7
1. Business and Summary of Significant Accounting Policies
(Continued):
Mineral properties
Land and leasehold acquisition costs are capitalized in cost
centers and are depleted on the basis of the cost centers'
economic reserves (estimated recoverable, proven and probable
reserves) using the units-of-production method. If there are
insufficient economic reserves to use as a basis for depleting such
costs, they are expensed as a mineral property write-off in the
period in which the determination is made.
During 1999, Crown changed its method of accounting for
exploration costs on properties without proven and probable
reserves from capitalizing all expenditures to expensing all costs
incurred, other than acquisition costs, prior to the establishment
of proven and probable reserves (See Note 2).
Crown records the proceeds from the sale of property interests
as a reduction of the related property's capitalized cost.
Proceeds which exceed the capital cost of the property are recorded
as revenue. When such proceeds are associated with properties
subject to a joint venture, they are recorded as revenue in
accordance with the terms of the joint venture and the transfer of
the property interest to the joint venture partner during the term
of the joint venture.
Asset write-downs
Crown regularly performs evaluations of its assets to assess
the recoverability of its investments in these assets. All long-
lived assets are reviewed for impairment whenever events or
circumstances change which indicate the carrying amount of an asset
may not be recoverable utilizing established guidelines based upon
future net cash flows from the asset. Write-downs relating to
exploration properties were to $2,542,000 in 2000, $166,000 in 1999
and $867,000 in 1998. The write-down for 2000 included Crown's
decision to write off its Cord Ranch and Kings Canyon properties
due to low gold prices resulting in a $2,482,000 charge to
operations.
Marketable equity securities
Crown's equity securities are classified as available-for-sale
and are carried at fair value. The cost of marketable equity
securities sold is determined by the specific identification
method.
F-8
1. Business and Summary of Significant Accounting Policies
(Continued):
Foreign exchange
The United States dollar is the functional currency for all
Crown's foreign subsidiaries. Foreign currency gains and losses
are included in the results of operations in the periods in which
they occur.
Revenue recognition
Royalty revenue is recognized when product is delivered in-
kind or cash payments are received.
Income taxes
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently
due plus deferred taxes related to certain income and expenses
recognized in different periods for financial and income tax
reporting purposes. Deferred tax assets and liabilities represent
the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are
recovered or settled. Deferred taxes also are recognized for
operating losses and tax credits that are available to offset
future taxable income and income taxes, respectively. A valuation
allowance is provided if it is more likely than not that some or
all of the deferred tax assets will not be realized.
Loss per share
The calculation of basic and diluted loss per share is based
on the weighted average number of common shares outstanding during
the years ended December 31, 2000, 1999, and 1998. Securities that
could potentially dilute earnings per share, which include stock
options, warrants and convertible debt securities, were
approximately 3,618,000 shares in 2000, 3,193,000 shares in 1999
and 3,214,000 shares in 1998. The effects of these securities are
not included in the computation of diluted per share amounts where
their inclusion would be anti-dilutive.
Employee stock compensation plans
Crown follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Under the terms of
Crowns's stock option plans, the exercise price of options issued
to employees and directors equals the market price of the stock on
the date of grant and, therefore, Crown records no compensation
expense on stock options granted to employees and directors.
F-9
1. Business and Summary of Significant Accounting Policies
(Continued):
Minority interest
Minority interest represents the minority stockholders'
proportionate interest in the equity of Solitario prior to 0ctober
18, 2000. Crown owned 41.3% of Solitario at December 31, 2000 and
57.2% of Solitario at December 31, 1999 and 1998.
New accounting pronouncements
In June of 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The standard,
which is effective for fiscal years beginning after June 15, 2000,
sets forth guidelines for recording derivative instruments as
assets and liabilities to be reported in the financial statements
at fair value and that changes in the fair value of the instruments
shall be recognized in the results of operations. This standard
was adopted by Crown in 2001 and did not have a material effect on
Crown's financial position, results of operations and cash flows.
In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). SAB 101 summarizes certain of
the SEC views in applying generally accepted accounting principles
to revenue recognition as it relates to, among other things, the
revenue recognition from non-refundable, up-front payments in
connection with service contracts. Crown adopted the provisions of
SAB 101 in the fourth quarter of 2000. The adoption of SAB 101 did
not have a material effect on Crown's financial condition or
results of operations.
2. Mineral Properties:
Change in accounting principle
During the fourth quarter of 1999, Crown changed its method of
accounting for exploration costs on properties without proven and
probable reserves from capitalizing all expenditures to expensing
all costs, other than acquisition costs, prior to the establishment
of proven and probable reserves. This conforms Crown's accounting
method to the predominant practice in the U.S. mining industry.
The $8,451,0000 cumulative effect of the change on prior years is
included in the loss for 1999. The effect of the change on 1999
was to increase the loss before cumulative effect of change in
accounting principle by $83,000 or $0.01 per share.
F-10
2. Mineral Properties (Continued):
United States
Crown Jewel Project
In March 1990, Crown entered into an agreement with Battle
Mountain Gold Company, which was modified in May 1994. Battle
Mountain Gold Company was subsequently acquired by Newmont Mining
Corporation (both companies referred to as "Newmont"). In order to
acquire a 51% interest in the project, and an additional 3%
interest in the first 1,600,000 ounces of gold from the project,
Newmont is required to fund all development and capital costs to
commencement of commercial production. Crown is not required to
fund or repay costs related to the development and capital costs of
the project prior to commercial production.
On the January 19, 2000, the State of Washington Pollution
Control Hearings Board ("PCHB") issued a ruling vacating the
previously granted 401 Water Quality Permit for the Crown Jewel
Project issued by the Washington Department of Ecology ("WDOE").
The ruling also reversed certain water rights issued by the WDOE
for the Crown Jewel Project.
In light of the ruling by the PCHB, Newmont reclassified its
interest in the Crown Jewel project from proven and probable
reserves to mineralized materials and wrote off its investment in
the Crown Jewel Project as of December 31, 1999. Crown engaged an
independent mining engineering firm Mine Reserves Associates
("MRA") to evaluate an alternative mine plan that would have
reduced environmental impacts. Crown also engaged Gochnour and
Associates, ("Gochnour") an independent permitting consultant to
evaluate the ability to obtain permits for the alternative mine
plan. Based upon reports from MRA and Gochnour, Crown has
determined the Crown Jewel Project contains sufficient reserves as
of December 31, 2000 to recover Crown's investment whether
developed under the current joint venture agreement or
independently by Crown.
Cord Ranch
Crown held a lease for the right to explore and develop the
Cord Ranch prospect, a 34,000 acre ranch in the southern portion of
the Carlin Gold Trend of Nevada. During 2000, Crown elected not to
maintain its interest in the Cord Ranch lease and wrote off its
investment with a charge to property abandonment of $1,209,000.
F-11
2. Mineral Properties (Continued):
Crown also holds certain mineral claims in the Dixie Creek and
Pinon Range prospects adjacent to Cord Ranch. In September 1994,
Crown signed an agreement which has been assigned to a subsidiary
of Royal Standard Minerals Inc. ("Royal Standard"). As of December
31, 1998, Royal Standard had earned a 70% interest in these
properties. Under the terms of the agreement, Royal Standard must
provide Crown's share of expenditures through the completion of a
favorable feasibility study, with such expenditures to be repaid
from Crown's share of production from the properties. In the
fourth quarter of 2000, Crown wrote down its entire investment in
these prospects with a charge to abandonment expense of $695,000,
but still holds the properties while Royal Standard looks for a
joint venture partner.
Mexico
Since 1997 Crown has conducted exploration and reconnaissance
activities in Mexico, focusing its efforts in the state of Durango.
In early 1999, Crown acquired the San Juan de Minas property
covering approximately 700 acres. During 2000 Crown dropped the
San Juan de Minas property resulting in a $59,000 write down.
Crown is planning no additional exploration and reconnaissance work
in Mexico during 2001.
Peru
Crown, through Solitario, held exploration concessions or has
filed applications for concessions in Peru. At December 31, 2000,
Crown holds no direct interest properties located in Peru.
Land leasehold and exploration and development costs
Mineral property costs for all Crown's properties are
comprised of the following:
December 31,
1999 1999
(in thousands)
Land and leasehold costs $11,176 $14,205
Exploration and development
costs 3,550 3,391
14,726 17,596
Less accumulated depreciation,
depletion and amortization 824 824
$13,902 $16,772
There were no land and leasehold costs related to mineral
properties for which exploration activities had not yet identified
the presence of economic reserves as of December 31, 2000. This
amount totaled $3,035,000 at December 31, 1999.
F-12
2. Mineral Properties (Continued):
At December 31, 2000 and 1999, the carrying value of the Crown
Jewel project amounted to $13,902,000 and $13,737,000 respectively.
The Crown Jewel project represents Crown's total proven and
probable gold reserves and its only property in development.
Crown had no foreign assets at December 31, 2000. The net
assets of Crown's foreign operations located in Peru and Mexico and
included in the consolidated balance sheet are $ 406,000 at
December 31, 1999. Crown is exposed to risks normally associated
with foreign investments, including political, economic and social
instabilities, as well as foreign exchange controls and currency
fluctuations. Foreign investments may also be subject to laws and
policies of the United States affecting foreign trade, investment
and taxation which could affect the conduct or profitability of
future operations.
Crown's royalty on the Lamefoot deposit in Washington state,
which ceased mining during 2000, and the Kendall Mine in Montana,
which ceased mining during 1998, were held through its 100% owned-
subsidiary, Judith Gold Corporation. In January 2001, Crown sold
its entire holding in Judith Gold Corporation to Canyon Resources
Corporation for 200,000 shares of Canyon common stock. Crown had
completely amortized its investment in Judith Gold Corporation as
of December 31, 2000 and will record a gain on sale of
approximately $200,000 during the first quarter of 2001.
3. Investment in Unconsolidated Subsidiary:
As discussed in Note 1, effective October 18, 2000, Crown
accounts for its investment in Solitario under the equity method.
The market value of Crown's 9,633,585 shares was $5,673,000 at
December 31, 2000. Condensed financial information of Solitario is
as follows:
Balance Sheets As of December 31,
(in thousands) 2000 1999
Assets
Current assets $ 6,490 $2,429
Mineral properties, net 4,873 53
Mineral properties, net 597 314
Total assets $11,960 $2,796
Total liabilities and
stockholders' equity
Current liabilities $ 151 46
Stockholders' equity 11,809 2,750
Total liabilities and
stockholders' equity $11,960 $2,796
F-13
3. Investment in Unconsolidated Subsidiary (continued):
Statements of Operations Year ended December 31,
(in thousands) 2000 1999 1998
Revenues $6,271 $ 263 $ 200
Costs and Expenses 1,986 1,172 605
Income (loss before cumulative effect
of change in accounting principle 4,285 (909) (405)
Change in accounting principle - (5,094) -
Net income (loss) $4,285 $(6,003) $ (405)
4. Convertible Debentures:
On August 27, 1991 Crown completed a European offering for $15
million of 5 % Convertible Subordinated Debentures due 2001
("Debentures"). The Debentures are convertible into approximately
1,523,000 shares of Crown common stock at $9.85 per share, and are
redeemable at the option of Crown on certain terms and conditions.
Interest on the Debentures is payable semiannually in arrears, each
February and August.
On March 22, 2001, Crown paid the interest payment on its $15
million 5.75% Convertible Subordinated Debentures ("the
Debentures") which was due on February 27, 2001. By making the
payment within 30 days of the due date, Crown remained in
compliance with the terms of the Debentures. The last interest
payment and the principal are due August 27, 2001. As discussed in
Note 1, Crown is seeking alternatives to provide sufficient
liquidity to renegotiate or repay the debentures.
Neither the Debentures nor the common stock issuable upon
conversion of the Debentures are registered under the Securities
Act of 1933. Debt offering costs are being amortized over the life
of the Debentures.
5. Income Taxes:
Crown's income tax expense (benefit) from continuing
operations consists of the following:
(in thousands) 2000 1999 1998
Deferred:
U.S. $(1,486) $ 23 $ 59
Foreign (347) 126 85
Operating loss and credit
carryovers:
U.S. 1,486 (23) (790)
Foreign 347 (126) (85)
Income tax expense (benefit) $ - $ - $ (731)
F-14
5. Income Taxes (Continued):
Consolidated loss before income taxes includes losses from
foreign operations of $750,000, $1,030,000, and $542,000 in 2000,
1999 and 1998, respectively.
Deferred income taxes result from temporary differences in the
timing of income and expenses for financial and income tax
reporting purposes. The primary components of deferred income
taxes result from exploration and development costs, depreciation,
depletion and amortization expenses, and property abandonments.
During 1999 and 1998 Crown recognized income tax deductions of
$18,000, and $200,000, respectively, from the exercise of non-
qualified stock options. There were no such exercises during 2000.
Stockholders' equity has been credited in the amount of $68,000
in 1998, for the income tax benefits of these income tax deductions
net of valuation allowances. There were no such amounts credited
to stockholders' equity in 2000 and 1999 as a valuation allowance
has been provided.
The net deferred tax (assets)/liabilities in the accompanying
December 31, 2000 and 1999 balance sheets include the following
components:
(in thousands) 2000 1999
Deferred tax assets:
Net operating loss (NOL)
carryovers $ 8,060 $9,610
Capital loss carryovers 261 2,127
Alternative minimum tax (AMT)
credit carryovers 325 325
Investment in Peru subsidiary - 2,722
Investment in equity method
investee 1,110 -
Other 78 121
Valuation allowance (5,569) (10,285)
Deferred tax assets 4,265 4,620
Deferred tax liabilities:
Exploration and development
costs 3,819 4,161
Depreciation, depletion and
amortization 446 459
Other - -
Deferred tax liabilities 4,265 4,620
Net deferred tax (assets)
liabilities $ - $ -
F-15
5. Income Taxes (Continued):
During 1999, Crown recognized a deferred tax asset relating to
its investment in its Peru subsidiary which was disposed of in
2000. A full valuation allowance has been provided against this
deferred tax asset.
A reconciliation of expected federal income tax expense
(benefit) from continuing operations at the U.S. Federal tax rate
of 34% with the expense (benefit) for income taxes is as follows:
(in thousands) 2000 1999 1998
Expected income tax (benefit) $ 164 $(1,039) $ (963)
Nondeductible foreign
expenditures 62 31 26
Disposition and deconsolidation
of investment in Argentina - - 2,480
Disposition of investment
in Peru 1,916 (2,373) -
Deconsolidation of Solitario 2,240 - -
State income tax benefit 309 (363) (4)
Change in valuation allowance (4,663) 3,742 (2,057)
Other (28) 2 (213)
Income tax (benefit) $ - $ - $ (731)
At December 31, 2000 Crown had unused U.S. NOL and capital
loss carryovers of approximately $22,613,000 and $768,000,
respectively, which begin to expire in 2004. In addition, Crown
has approximately $325,000 of U.S. AMT credit carryovers which can
be carried forward indefinitely. At December 31, 2000, Crown has
Mexico NOL carryovers of $1,093,000 which begin to expire as early
as 2003.
6. Fair Value of Financial Instruments:
For certain of Crown's financial instruments, including cash
and cash equivalents, short-term investments, accounts payable and
other accrued liabilities, the carrying amounts approximate fair
value due to their short maturities. Crown's marketable equity
securities are carried at their estimated fair value, based on
quoted market prices. The estimated fair value of the Company's
Debentures was $3,000,000 and $8,250,000 at December 31 2000 and
1999, respectively, based on quoted market prices.
F-16
7. Commitments and Contingencies:
In acquiring its interests in minerals claims and leases,
Crown has entered into lease agreements which generally may be
canceled at its option. Crown is required to make work commitments
and minimum rental payments in order to maintain its interests in
certain claims and leases. Crown estimates its 2001 mineral
property rentals and option payments to be approximately $115,000.
Based upon existing joint venture or leasing arrangements, the
entire amount of these payments will be made by Crown's joint
venture partners. Additionally, Crown has no estimated work
commitments for 2001.
Crown has a defined-contribution retirement plan covering all
full-time U.S. employees. The plan provides for Company matching,
at the rate of 75%, of employee savings contributions of up to 9%
of compensation, subject to ERISA limitations. The cost of Company
contributions in 2000, 1999 and 1998 was $45,000, $49,000 and
$53,000, respectively.
Crown leases office space under non-cancelable operating
leases providing for minimum annual rent payments of $33,000 in
2001, with no fixed commitments thereafter. Rent expense for all
leases was $78,000, $83,000 and $82,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.
8. Stock Option Plans:
Under Crown's 1988 Stock Benefit Plan ("1988 Plan"), the Board
of Directors granted:(a) incentive stock options, as defined in
Section 422A of the Internal Revenue Code of 1986, as amended, to
any employee of Crown or to any employee of any parent or
subsidiary of Crown; (b)options other than incentive stock options
(non-qualified stock options); (c) grant stock appreciation rights
or cash bonus rights; (d) award stock bonuses; and (e) grant stock
purchase rights and sell stock subject to certain restrictions.
Up to 1,500,000 shares were reserved for issue under the 1988
Plan. Grants may no longer be made under the 1988 Plan. As of
December 31, 2000, 545,000 shares remained available for future
issuance under the 1988 Plan consisting of those already granted.
Stock options that have been granted under the 1988 Plan have been
issued at the market price of the common stock at the date of the
grant.
On June 27, 1991, Crown's shareholders approved the Crown
Resources Corporation 1991 Stock Incentive Plan ("1991 Plan"). The
Board of Directors has reserved 1,500,000 shares of Crown common
stock for grants under the 1991 Plan. Options granted under both
plans generally expire five years from the date of grant.
F-17
8. Stock Option Plans (Continued):
Generally, the terms and conditions of the 1991 Plan are
similar to those of the 1988 Plan described above, except that
members of the Board of Directors are eligible only to receive
formula grants of non-qualified stock options. Each member of the
Board of Directors who is also an employee of Crown or any parent
or subsidiary of Crown will be entitled to receive, automatically,
an award of non-qualified stock options on grant dates defined in
the 1991 Plan. Each option will cover a number of shares
determined by dividing the employee-director's annual base
compensation rate on the grant date by three. Each director who is
not an employee will receive an award of non-qualified stock
options covering 10,000 shares of Crown common stock.
Options granted under the 1991 Plan are granted at the market
price of the common stock at the date of grant, except for non-
qualified options granted to non-directors, which price cannot be
less than the average price for the five business days immediately
preceding the date of grant. As of December 31, 2000, shares
available for issue, including those already granted, totaled
1,116,251 shares.
The activity in the 1988 Plan for the three years ended
December 31, 2000 is as follows:
2000 1999 1998
Weighted Weighted Weighted
Average Average Average
Amount Price Amount Price(1) Amount Price(1)
Outstanding,
beginning
of year 557,500 2.13 576,250 4.22 576,250 5.74
Granted - - -
Exercised - (3,000) 1.75 -
Expired (12,500) 1.75 (15,750) 4.06 -
Outstanding,
end of year 545,000 2.14 557,500 2.13 576,250 4.22
Exercisable,
end of year 545,000 2.14 493,250 2.07 425,250 4.17
(1) In June 1999 and 1998, the board of directors voted to
reprice existing options for current employees, officers
and directors to $1.75 per share and $4.06 per share,
respectively, which was the market price of Crown's
stock.
The options outstanding under the 1988 Plan have a weighted
average remaining contractual life of 1.0 years.
F-18
8. Stock Option Plans (Continued):
The activity in the 1991 Plan for the three years ended
December 31, 2000 is as follows:
2000 1999 1998
Weighted Weighted Weighted
Average Average Average
Amount Price(1) Amount Price(1) Amount Price(1)
Outstanding,
beginning
of year 1,112,600 1.93 1,115,616 4.16 1,026,432 4.97
Granted 296,455 1.04 326,547 1.76 257,080 4.05
Exercised (13,605) 1.75 (15,972) 1.85 (167,896) 3.14
Forfeited - - -
Expired (295,575) 1.85 (313,591) 4.50 -
Outstanding,
end of year 1,099,875 1.71 1,112,600 1.93 1,115,616 4.16
Exercisable,
end of year 900,625 1.77 886,850 1.93 982,991 4.16
(1) In June 1999 and June 1998, the board of directors voted
to reprice all existing options for current employees,
officers and directors to $1.75 per share and $4.06 per
share, respectively, which was the market price of
Crown's stock.
The options outstanding under the 1991 Plan have a weighted
average remaining contractual life of 2.4 years.
As a result of the repricing of existing options in 1998 and
1999, (under both the 1988 and 1991 Plans) Crown began to account
for the awards as variable as of July 1, 2000, in accordance with
FASB Interpretation No. 44, "Accounting for Certain Transactions
involving Stock Compensation" (an interpretation of APB 25).
Accordingly, an increase in the current market price of Crown
common stock above the higher of the option strike price and the
market price of Crown's common stock as of July 1, 2000, multiplied
by vested options outstanding will be recorded as compensation
expense in the period of the price increase. A subsequent
reduction in the current market price, to the extent of previously
recorded compensation expense will be credited as a reduction of
compensation expense. There was no compensation expense recorded
during 2000 as a result of variable accounting for the repriced
options.
F-19
8. Stock Option Plans (Continued):
Pro forma information has been computed as if Crown had
accounted for its stock options under the fair value method of SFAS
No. 123. The fair values of these options were estimated at the
date of grant using a Black-Scholes option pricing model with the
following assumptions for 2000, 1999 and 1998 grants, respectively:
risk-free interest rates of 6.65%, 5.69%, and 5.52%; dividend
yields of 0%; volatility factors of the expected market price of
Crown's common stock of 66%, 66% and 43%; and a weighted average
expected life of the options of 4.2 years in 2000, 2.4 years in
1999 and 2.8 years in 1998. The weighted average fair values of
the options granted are estimated at $0.59, $0.76, and $1.35 per
share in 2000, 1999 and 1998, respectively. Had Crown accounted for
its stock options under the fair value method of SFAS No. 123, the
following results would have been reported:
(In thousands, except
per share amounts) 2000 1999 1998
Net loss
As reported $ (1,659) $(11,177) $(1,928)
Pro forma (1,826) (12,297) (3,179)
Basic and diluted
loss per share
As reported $ (0.11) $ (0.76) (0.13)
Pro forma (0.13) (0.85) (0.22)
9. Stockholders' Equity:
Crown is authorized to issue 20,000,000 shares of $0.01 par
value preferred stock and has issued 1,000,000 shares of
nonconvertible preferred stock to a subsidiary which is eliminated
in consolidation.
On July 25, 1995, Crown adopted a shareholder rights plan
pursuant to which rights ("Rights") to acquire shares of Series B
Preferred Stock were distributed to shareholders of Crown, with the
right to buy 1/100 share of Series B Preferred Stock for each
common share held, at an initial exercise price of $25.00. Crown
also designated 500,000 shares of preferred stock as Series B
Preferred Stock with each 1/100 share having economic terms
substantially equivalent to one common share.
Generally, the Rights will become exercisable if a shareholder
or group of shareholders becomes the beneficial owner of or
announces the intention to acquire common shares of 15 percent or
more of the outstanding common shares of Crown. If the Rights
become exercisable, each Right (other than Rights held by the
acquiring person or group) will entitle the holder to purchase, at
the exercise price, common stock having a market value equal to
twice the exercise price.
F-20
10. Pro Forma Consolidated Financial Information - Unaudited:
As described in Note 1, Solitario acquired 100% of the
outstanding common stock of Altoro (the "Transaction"). Subsequent
to the Effective date and as a result of the Transaction, Crown has
been accounting for its interest in Solitario under the equity
method. Accordingly the accompanying consolidated statements of
operations do not include any revenue or expense of Solitario after
the Effective Date. The pro forma results, assuming the
transaction occurred January 1, 1999 are as follows:
Year ended December 31,
(in thousands) 2000 1999
Revenues $ 232 $ 276
Net loss $2,795 $9,049
Basic and diluted loss per share $ 0.19 $ 0.62
11. Selected Quarterly Financial Data (Unaudited):
(in thousands) 2000 1999
March June Sept. March June Sept.
31, 30, 30, 31, 30, 30,
Revenues $ 190 $5,955 $ 187 $ 211 $ 127 $ 92
Net income (loss) $ (813) $1,493 $ (446) $ (731) $ (679) $ (679)
Basic and diluted
income (loss) per share $(0.06) $ 0.10 $(0.03) $(0.05) $(0.05) $(0.04)
The above quarterly data do not reflect any pro forma
adjustments to give effect to the deconsolidation of Solitario as
disclosed in Note 1 and 10. During the fourth quarter of 1999,
Crown changed its method of accounting for exploration costs as
described in Note 2. This change in accounting principle was
applied retroactively to January 1, 1999. The above quarterly
financial data for 1999 are the amounts as reported during 2000 to
reflect the restatement of the amounts previously reported during
1999.
F-21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Directors.
The information with respect to directors required under this
item is incorporated herein by reference to the table set forth
under the section captioned Election of Directors in Crown's Proxy
Statement in connection with the annual meeting of shareholders to
be held on June 26, 2001 filed with the Securities and Exchange
Commission pursuant to Section 14(a) of the Securities Exchange Act
of 1934.
(b) Executive Officers.
The information with respect to executive officers required
under this item is incorporated herein by reference to Part I of
this Report.
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
The information required under Item 11, Item 12 and Item 13 is
incorporated herein by reference to the sections entitled Executive
Compensation, Security Ownership of Certain Beneficial Owners and
Management and Executive Compensation, respectively, in Crown's
Proxy Statement in connection with the annual meeting of
shareholders to be held June 26, 2001, filed with the Securities
and Exchange Commission pursuant to Section 14(a) of the Securities
Exchange Act of 1934.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) 1. Consolidated Financial Statements: Index on page 29 of
this Report.
2. Exhibits. The exhibits as indexed on pages 37 through 40
of this Report are included as a part of this Form 10-K.
(b) Reports on Form 8-K:
On October 18, 2000 a report on form 8-K regarding the
completion of a Plan of Arrangement whereby Solitario acquired 100%
of the outstanding shares of Altoro Gold Corp.
On February 9, 2001, a report on form 8-K/A with the pro forma
financial information relating Solitario merger with Solitario
Altoro as described in the current report 8K dated October 18,
2000.
(d) 1. Consolidated balance sheets of unconsolidated subsidiary,
Solitario Resources Corporation, as of December 31, 2000
and 1999 and the related consolidated statements of
operations, stockholders's equity and cash flows for the
three years ended December 31, 2000.
Exhibit
Number Description
3.1 The Company's Articles of Incorporation
(incorporated by reference to Exhibit 3.1 to
Registration Statement on Form S-4, Commission
File No. 33-25033 (the "1989 S-4 Registration
Statement")).
3.2 The Company's Bylaws (incorporated by
reference to Exhibit 3.2 to the 1989 S-4
Registration Statement).
3.3 Statement of Rights and Preferences of Series
A Nonconvertible Preferred Stock (issued to a
subsidiary) as filed with the Secretary of
State, State of Washington, which forms part
of the Company's Articles of Incorporation
(incorporated by reference to Exhibit 3.3 to
the Company's Form 10-K for the year ended
December 31, 1989).
4.1 Form of Rights Agreement, dated as of July 25,
1995, between the Company and American Stock
Transfer & Trust Company (incorporated by reference
to Exhibit 4.1 to the Company's Form 8-K dated July
25, 1995).
10.1 1988 Stock Benefit Plan of the Company
(incorporated by reference to Exhibit 10.11 to
Amendment No. 2 to the Registration
Statement).
10.2 1991 Stock Incentive Plan of the Company
(incorporated by reference to Exhibit 10.13 to
Crown Resources Corporation's Registration
Statement on Form S-4 dated May 17, 1991,
Commission file no. 33-40642 (the "1991 S-4
Registration Statement")).
10.3 Crown Jewel Venture Agreement, dated effective
January 4, 1991, between Crown Resources
Corporation, Crown Resource Corp. of Colorado, Gold
Texas Resources U.S., Inc., and Newmont Gold
Company (incorporated by reference to Exhibit 10.10
to the 1991 S-4 Registration Statement).
10.4 Agreement and Plan of Merger, dated April 16,
1991, between Crown Resources Corporation,
Crown Resources Property Corporation and
Judith Gold Corporation (incorporated by
reference to Exhibit 2.1 to Crown Resources
Corporation's Form 8-K dated April 16, 1991).
10.5 Mining Lease, dated September 1, 1987, between
Judith Gold Corporation and Canyon Resources
Corporation (incorporated by reference to Exhibit
10.14 to the 1991 S-4 Registration Statement).
10.6 Settlement Agreement, dated September 29, 1992,
between Battle Mountain Gold Company, Crown
Resource Corp. of Colorado, Keystone Surveys, Inc.,
and Spenst M. Hansen (incorporated by reference to
Exhibit 10.18 to Crown Resources Corporation's Form
10-K for the year ended December 31, 1992).
10.7 First Amendment to Mining Agreement, dated October
25, 1993, between Crown Resource Corp. of Colorado
and United States National Bank of Oregon, as
Trustee for William Cord Pereira, Virginia Lee
Pereira, Philip Kirk Pereira, Patrick Clay Pereira
and Susan Michele Pereira (incorporated by
reference to Exhibit 10.20 to Crown Resources
Corporation's Form 10-K for the year ended December
31, 1993).
10.8 Second Amendment to Mining Agreement, dated April
28, 1994, between Crown Resource Corp. of Colorado
and United States National Bank of Oregon, as
Trustee for William Cord Pereira, Virginia Lee
Pereira, Philip Kirk Pereira, Patrick Clay Pereira
and Susan Michele Pereira (incorporated by
reference to Exhibit 10.1 to Crown Resources
Corporation's Form 10-Q for the quarter ended March
31, 1994).
10.9 Settlement Agreement, dated May 6, 1994, between
Crown Resources Corporation, Crown Resource Corp.
of Colorado, Gold Texas Resources U.S., Inc. and
Battle Mountain Gold Company (incorporated by
reference to Exhibit 10.2 to Crown Resources
Corporation's Form 10-Q for the quarter ended March
31, 1994).
10.10 Second Amendment to Crown Jewel Venture
Agreement, dated April 27, 1994, between Crown
Resources Corporation, Crown Resource Corp. of
Colorado, Gold Texas Resources U.S., Inc. and
Battle Mountain Gold Company (incorporated by
reference to Exhibit 10.1 to Crown Resources
Corporation's Form 10-Q for the quarter ended
June 30, 1994).
10.11 Agreement, dated September 8, 1994, between
Crown Resource Corp. of Colorado and Pinon
Exploration Corporation (incorporated by
reference to Exhibit 10.1 to Crown Resources
Corporation's Form 10-Q for the quarter ended
September 30, 1994).
10.12 Stock Purchase Agreement, dated September 9,
1994, between Cyprus Gold Exploration
Corporation and Crown Resource Corp. of
Colorado, relating to the Shares of Capital
Stock of Pinon Exploration Corporation
(incorporated by reference to Exhibit 10.2 to
Crown Resources Corporation's Form 10-Q for
the quarter ended September 30, 1994).
10.13 First Amendment to Agreement between Crown
Resource Corp. of Colorado and Pinon
Exploration Corporation (incorporated by
reference to Exhibit 10.18 to Crown Resources
Corporation's Form 10-K for the year ended
December 31, 1995).
10.14 Third Amendment to Mining Agreement between
United States National Bank of Oregon, as
Trustee for William Cord Pereira, Virginia Lee
Pereira, Philip Kirk Pereira, Patrick Clay
Pereira and Susan Michael Pereira, as
Beneficiaries of the Pereira Children's Trust
and Crown Resource Corp. of Colorado
(incorporated by reference to Exhibit 10.19 to
Crown Resources Corporation's Form 10-K for
the year ended December 31, 1995).
10.15 Letter Agreement, dated December 24, 1996,
between Cominco Peru s.r.l. and Mineral Los
Tapados S.A. (incorporated by reference to
Exhibit 10.18 to Crown Resources Corporation's
Form 10K for the year ended December 31,
1996).
10.16 Subscription Agreement and Warrant, dated
February 27, 1997, between Crown Resource
Corp. of Colorado and Solitario Resources
Corporation subscribing for 1,500,000 units (a
unit consisting of one share of common stock
and one share purchase warrant) of Solitario
Resources Corporation common stock.
10.17 Stock Purchase Agreement, dated February 23,
1998, between Crown Resources Corporation and
The Equitable Life Assurance Society
(incorporated by reference to Exhibit 10.1 to
Crown Resources Corporation's Form 8-K, dated
February 27, 1998).
10.18 Restated Agreement, dated December 15, 1998
between Minera Los Tapados and Cominco, to
amend the agreement dated December 24, 1996.
10.19 Letter Agreement, dated October 7, 1998
between Minera Los Tapados and Billiton
Exploration and Mining Peru, B.V. regarding
the exploration and development of the
Company's Soloco property in Peru.
10.20 Letter Agreement, dated January 22, 1999
between Minera Los Tapados and Placer Dome del
Peru, S.A.C. regarding exploration and
development of the Company's Yanacocha
property in Peru.
10.21 Stock Purchase Agreement dated February 2,
2000 between Newmont Peru Limited and
Solitario Resources Corporation.
10.22 First Amendment to Stock Purchase Agreement,
dated April 26, 2000, between Newmont Peru
Limited and Solitario Resources Corporation.
10.23 Change in Control Agreement, dated June 19,
2000, between Crown Resources Corporation and
Christopher E. Herald.
10.24 Change in Control Agreement, dated June 19,
2000, between Crown Resources Corporation and
Mark E. Jones, III.
10.25 Change in Control Agreement, dated June 19,
2000, between Crown Resources Corporation and
James R. Maronick.
10.26 Arrangement Agreement between Altoro Gold Corp
of Vancouver, B.C. and Solitario Resources
Corporation to proceed with a merger by way of
a Plan of Arrangement.
18.1 Deloitte and Touche letter regarding change in
accounting principle.
11 Statement regarding computation of per share
earnings.
21 Subsidiaries of the registrant.
23.1 Consent of Deloitte & Touche LLP.
25 Powers of attorney.
99 Consolidated balance sheets of unconsolidated
subsidiary, Solitario Resources Corporation,
as of December 31, 2000 and 1999 and the
related consolidated statements of operations,
stockholders's equity and cash flows for the
three years ended December 31, 2000.
For the purpose of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities
Act of 1933, as amended ("Act"), the registrant hereby undertakes
as follows, which undertaking shall be incorporated by reference
into the registrant's Registration Statement on Form S-8, Nos. 33-
31754 (filed October 24, 1989) and 33-57306 (filed January 22,
1993).
Insofar as indemnification for liabilities arising under the
Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CROWN RESOURCES CORPORATION
By: /s/ James R. Maronick
James R. Maronick
Vice President - Finance
Date: March 30, 2001
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 and on the dates
indicated.
Signature Title Date
/s/ Christopher E. Herald Principal Executive March 30, 2001
Christopher E. Herald Officer and Director
Chief Executive Officer
/s/ James R. Maronick Principal Financial March 30, 2001
James R. Maronick and Accounting Officer
Vice President - Finance
/s/ Mark E. Jones, III *
Mark E. Jones, III
/s/ J. Michael Kenyon *
J. Michael Kenyon
A majority of
/s/ Linder G. Mundy * the Board of March 30, 2001
Linder G. Mundy Directors
/s/ Steven A. Webster *
Steven A. Webster
/s/ David R. Williamson *
David R. Williamson
* By:/s/ James R. Maronick
James R. Maronick, Attorney-in-fact
INDEX TO EXHIBITS
Exhibit
Number Description Page
3.1 The Company's Articles of Incorporation
(incorporated by reference to Exhibit 3.1 to
Registration Statement on Form S-4, Commission
File No. 33-25033 (the "1989 S-4 Registration
Statement")).
3.2 The Company's Bylaws (incorporated by reference to
Exhibit 3.2 to the 1989 S-4 Registration
Statement).
3.3 Statement of Rights and Preferences of Series A
Nonconvertible Preferred Stock (issued to a
subsidiary) as filed with the Secretary of State,
State of Washington, which forms part of the
Company's Articles of Incorporation (incorporated
by reference to Exhibit 3.3 to the Company's Form
10-K for the year ended December 31, 1989).
4.1 Form of Rights Agreement, dated as of July 25,
1995, between the Company and American Stock
Transfer & Trust Company (incorporated by
reference to Exhibit 4.1 to the Company's Form 8-K
dated July 25, 1995).
10.1 1988 Stock Benefit Plan of the Company
(incorporated by reference to Exhibit 10.11 to
Amendment No. 2 to the Registration Statement).
10.2 1991 Stock Incentive Plan of the Company
(incorporated by reference to Exhibit 10.13 to
Crown Resources Corporation's Registration
Statement on Form S-4 dated May 17, 1991,
Commission file no. 33-40642 (the "1991 S-4
Registration Statement")).
10.3 Crown Jewel Venture Agreement, dated effective
January 4, 1991, between Crown Resources
Corporation, Crown Resource Corp. of Colorado,
Gold Texas Resources U.S., Inc., and Battle
Mountain Gold Company (incorporated by reference
to Exhibit 10.10 to the 1991 S-4 Registration
Statement).
10.4 Agreement and Plan of Merger, dated April 16,
1991, between Crown Resources Corporation, Crown
Resources Property Corporation and Judith Gold
Corporation (incorporated by reference to Exhibit
2.1 to Crown Resources Corporation's Form 8-K
dated April 16, 1991).
10.5 Mining Lease, dated September 1, 1987, between
Judith Gold Corporation and Canyon Resources
Corporation (incorporated by reference to Exhibit
10.14 to the 1991 S-4 Registration Statement).
10.6 Settlement Agreement, dated September 29, 1992,
between Battle Mountain Gold Company, Crown
Resource Corp. of Colorado, Keystone Surveys,
Inc., and Spenst M. Hansen (incorporated by
reference to Exhibit 10.18 to Crown Resources
Corporation's Form 10-K for the year ended
December 31, 1992).
10.7 First Amendment to Mining Agreement, dated October
25, 1993, between Crown Resource Corp. of Colorado
and United States National Bank of Oregon, as
Trustee for William Cord Pereira, Virginia Lee
Pereira, Philip Kirk Pereira, Patrick Clay Pereira
and Susan Michele Pereira (incorporated by
reference to Exhibit 10.20 to Crown Resources
Corporation's Form 10-K for the year ended
December 31, 1993).
10.8 Second Amendment to Mining Agreement, dated April
28, 1994, between Crown Resource Corp. of Colorado
and United States National Bank of Oregon, as
Trustee for William Cord Pereira, Virginia Lee
Pereira, Philip Kirk Pereira, Patrick Clay Pereira
and Susan Michele Pereira (incorporated by
reference to Exhibit 10.1 to Crown Resources
Corporation's Form 10-Q for the quarter ended
March 31, 1994).
10.9 Settlement Agreement, dated May 6, 1994, between
Crown Resources Corporation, Crown Resource Corp.
of Colorado, Gold Texas Resources U.S., Inc. and
Battle Mountain Gold Company (incorporated by
reference to Exhibit 10.2 to Crown Resources
Corporation's Form 10-Q for the quarter ended
March 31, 1994).
10.10 Second Amendment to Crown Jewel Venture Agreement,
dated April 27, 1994, between Crown Resources
Corporation, Crown Resource Corp. of Colorado,
Gold Texas Resources U.S., Inc. and Battle
Mountain Gold Company (incorporated by reference
to Exhibit 10.1 to Crown Resources Corporation's
Form 10-Q for the quarter ended June 30, 1994).
3427: 10.11 Agreement, dated September 8, 1994, between Crown
Resource Corp. of Colorado and Pinon Exploration
Corporation (incorporated by reference to Exhibit
3430: 10.1 to Crown Resources Corporation's Form 10-Q
for the quarter ended September 30, 1994).
3433: 10.12 Stock Purchase Agreement, dated September 9, 1994,
3434: between Cyprus Gold Exploration Corporation and
3435: Crown Resource Corp. of Colorado, relating to the
Shares of Capital Stock of Pinon Exploration
3437: Corporation (incorporated by reference to Exhibit
10.18 to Crown Resources Corporation's Form 10-K
for the year ended December 31, 1995).
3442: 10.13 First Amendment to Agreement between Crown
Resource Corp. Of Colorado and Pinon Exploration
Corporation (incorporated by reference to Exhibit
3445: 10.18 to Crown Resources Corporation's Form 10-K
3446: for the year ended December 13, 1995).
3448: 10.14 Third Amendment to Mining Agreement between United
States National Bank of Oregon, as Trustee for
William Cord Pereira, Virginia Lee Pereira, Philip
Kirk Pereira, Patrick Clay Pereira and Susan
Michael Pereira, as Beneficiaries of the Pereira
3453: Children's Trust and Crown Resource Corp. of
Colorado (incorporated by reference to Exhibit
3455: 10.19 to Crown Resources Corporation's Form 10-K
3456: for the year ended December 31, 1995).
3458: 10.15 Letter Agreement, dated December 24, 1996, between
Cominco Peru s.r.l. and Minera Los Tapados S.A.
(incorporated by reference to Exhibit 10.18 to
Crown Resources Corporation's Form 10K for the
3462: year ended December 31, 1996).
Subscription Agreement and Warrant, dated February
3465: 27, 1997, between Crown Resource Corp. of
3466: Colorado and Solitario Resources Corporation
3467: subscribing for 1,500,000 units (a unit consisting
3468: of one share of common stock and one share
purchase warrant) of Solitario Resources
3470: Corporation common stock.
3472: 10.17 Stock Purchase Agreement, dated February 23, 1998,
3473: between Crown Resources Corporation and The
3474: Equitable Life Assurance Society (incorporated by
reference to Exhibit 10.1 to Crown Resources
Corporation's Form 8-K, dated February 27, 1998).
3479: 10.18 Restated Agreement, dated December 15, 1998
3480: between Minera Los Tapados and Cominco, to amend
3481: the agreement dated December 24, 1996.
10.19 Letter Agreement, dated October 7, 1998 between
3484: Minera Los Tapados and Billiton Exploration and
3485: Mining Peru, B.V. regarding the exploration and
3486: development of the Company's Soloco property in
3487: Peru.
3489: 10.20 Letter Agreement, dated January 22, 1999 between
3490: Minera Los Tapados and Placer Dome del Peru,
3491: S.A.C. regarding exploration and development of
3492: the Company's Yanacocha property in Peru.
3494: 10.21 Stock Purchase Agreement dated February 2, 2000
between Newmont Peru Limited and Solitario
3496: Resources Corporation.
10.22 First Amendment to Stock Purchase Agreement, dated
April 26, 2000, between Newmont Peru Limited and
Solitario Resources Corporation.
10.23Change in Control Agreement, dated June 19, 2000,
3503: between Crown Resources Corporation and
Christopher E. Herald.
10.24 Change in Control Agreement, dated June 19, 2000,
3507: between Crown Resources Corporation and Mark E.
Jones, III.
10.25 Change in Control Agreement, dated June 19, 2000,
3511: between Crown Resources Corporation and James R.
3512: Maronick.
10.26 Arrangement Agreement between Altoro Gold Corp of
Vancouver, B.C. and Solitario Resources
Corporation to proceed with a merger by way of a
Plan of Arrangement.
11 Statement regarding computation of per share
earnings.
18.1 Deloitte and Touche letter regarding change
in accounting principle
21 Subsidiaries of the registrant.
23.1 Consent of Deloitte & Touche LLP.
25 Powers of attorney.
99 Consolidated balance sheets of unconsolidated
subsidiary, Solitario Resources Corporation, as of
December 31, 2000 and 1999 and the related
consolidated statements of operations,
stockholders's equity and cash flows for the three
years ended December 31, 2000.
Exhibit 11
CROWN RESOURCES CORPORATION
Statement Re: Computation of Per Share Earnings
(in thousands, except per share amounts)
December 31, December 31, December 31,
2000 1999 1998
Outstanding at
beginning of year 14,540 14,521 13,313
Issued during the year 13 19 1,208
Outstanding at end of year 14,553 14,540 14,521
Weighted average number
of shares outstanding
during the year 14,553 14,534 14,345
Net loss for year $ (1,659) $(11,117) $(1,928)
Basic and diluted loss
per common share $ (0.11) $ (0.76) $ (0.13)
Exhibit 21
CROWN RESOURCES CORPORATION
Schedule of Subsidiaries
December 31, 2000
Crown Resource Corp. of Colorado (100%, incorporated in
Colorado)
Solitario Resources Corporation (formerly Crown Minerals
Corp.) (41.3%-owned subsidiary of Crown Resource Corp. of
Colorado, incorporated in Colorado)
Crown Minerals Corporation (100%-owned subsidiary of Crown
Resource Corp. of Colorado, incorporated in Colorado)
Gold Texas Resources U.S., Inc. (100%, incorporated in Texas)
Crownex Resources (Canada) Ltd. (100%, incorporated in British
Columbia, Canada)
Gold Capital Corporation (100%, incorporated in the state of
Washington)
Gold Texas Resources Ltd. (100%-owned subsidiary of Gold
Capital Corporation, incorporated in British Columbia,
Canada)
Judith Gold Corporation (100%, incorporated in Montana)
Group Crown Exploration (100%, incorporated in Mexico City,
Mexico)
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement Nos. 33-31754 and 33-57306 of Crown Resources Corporation
on Form S-8 of our report dated March 23, 2001, appearing in this
Annual Report on Form 10-K of Crown Resources Corporation for the
year ended December 31, 2000.
DELOITTE & TOUCHE LLP
Denver, Colorado
March 23, 2001
Exhibit 25
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints James R. Maronick,
his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign the Annual Report on Form
10-K for the fiscal year ended December 31, 1999, of Crown
Resources Corporation and any and all amendments thereto, and to
file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, 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.
NAME DATE
Mark E. Jones, III
Christopher E. Herald
J. Michael Kenyon
Linder G. Mundy
Steven A. Webster
David R. Williamson
Exhibit 99
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Solitario Resources Corporation
Denver, Colorado
We have audited the consolidated balance sheets of Solitario
Resources Corporation and subsidiaries (the Company) as of
December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 2000
which, as described in Note 1, have been prepared on the basis of
accounting principles generally accepted in the United States of
America. 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 auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Solitario Resources Corporation and subsidiaries as of December
31, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 2 to the consolidated financial statements,
the consolidated balance sheet at December 31, 2000 includes land
and leasehold costs of $4,873,000. Note 1 to the consolidated
financial statements emphasizes that the recovery of these costs
is ultimately dependent upon the development of economically
recoverable ore reserves, the ability of the Company to obtain
the necessary permits and financing to successfully place the
properties into production, and upon future profitable
operations.
As discussed in Note 2 to the consolidated financial statements,
the Company changed its method of accounting for exploration
costs on properties without proven and probable reserves in 1999.
Deloitte & Touche LLP
Denver, Colorado
March 23, 2001
COMMENTS BY INDEPENDENT AUDITORS FOR CANADIAN READERS ON U.S.-
CANADA REPORTING CONFLICT
To the Board of Directors and Stockholders
of Solitario Resources Corporation
Denver, Colorado
In Canada, reporting standards for auditors do not permit the
addition of explanatory paragraphs in the auditors' report to
emphasize a matter when such matter is adequately disclosed in
the notes to the financial statements. Our report to the Board
of Directors and Stockholders dated March 23, 2001 is expressed
in accordance with auditing standards generally accepted in the
United States of America, which permits the inclusion of an
explanatory paragraphs in the auditors' report to emphasize a
matter regarding the financial statements.
Deloitte & Touche LLP
Denver, Colorado
March 23, 2001
SOLITARIO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31,
(in thousands of U.S. dollars, 2000 1999
except share amounts)
Assets
Current assets:
Cash and cash equivalents $ 6,334 $ 2,386
Restricted cash 116 -
Prepaid expenses and other 40 43
Total current assets 6,490 2,429
Mineral properties, net 4,873 53
Assets held for sale - 178
Marketable equity securities, at fair value 220 103
Other assets 377 33
$11,960 $ 2,796
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 70 $ 7
Due to CRCC 81 39
Total current liabilities 151 46
Stockholders' equity:
Preferred stock, $0.01 par value;
authorized 10,000,000 shares;
none outstanding - -
Common stock, $0.01 par value;
authorized 50,000,000 shares;
issued and outstanding 23,344,647
and 16,854,521 234 169
Additional paid-in capital 21,147 16,507
Accumulated deficit (9,510) (13,795)
Accumulated other comprehensive income (62) (131)
Total stockholders' equity 11,809 2,750
$11,960 $ 2,796
See notes to consolidated financial statements.
On behalf of the Board:
Christopher E. Herald, Daniel Leonard,
Director Director
SOLITARIO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of U.S. dollars, Years ended December 31,
except per share amounts) 2000 1999 1998
Revenues:
Mineral property option
proceeds $ 100 $ 100 $ -
Gain on sale of assets 5,811 19 -
Interest income 360 144 200
6,271 263 200
Costs and expenses:
Exploration 1,182 666 -
Depreciation, depletion and
amortization 18 35 10
General and administrative 372 75 112
Management fees - CRCC 414 333 89
Asset write-downs - 63 403
Other, net - - (9)
1,986 1,172 605
Net income (loss) before
cumulative effect of change in
accounting principle 4,285 (909) (405)
Cumulative effect of change in
accounting principle - (5,094) -
Net income (loss) $ 4,285 $ (6,003) $ (405)
Earnings (loss) per common share:
Basic before cumulative effect of
change in accounting principle $ 0.24 $ (0.05) $ (0.02)
Change in accounting principle - (0.31) -
Basic earnings (loss) per share $ 0.24 $ (0.36) $ (0.02)
Diluted before cumulative effect of
change in accounting principle $ 0.23 $ (0.05) $ (0.02)
Change in accounting principle - (0.31) -
Diluted earnings (loss) per share $ 0.23 $ (0.36) $ (0.02)
Weighted average of shares outstanding:
Basic 18,163 16,855 16,855
Diluted 18,350 16,855 16,855
Pro forma amounts assuming the method
of expensing exploration costs as
incurred is applied retroactively:
Net income (loss) $ 4,285 $ (909) $ (923)
Basic income (loss) per common
share $ 0.24 $ (0.05) $ (0.05)
See notes to consolidated financial statements.
SOLITARIO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
(in thousands of U.S. Additional Other
dollars except share Common Stock Paid-in Accumulated Comprehensive
amounts) Shares Amount Capital Deficit Income Total
Balance at January 1,
1998 16,854,521 $ 169 $16,507 $(7,387) $ - $ 9,289
Comprehensive income (loss):
Net loss - - - (405) - (405)
Net unrealized gain on
marketable equity
securities - - - - 17 17
Comprehensive loss - - (388)
Balance at December 31,
1998 16,854,521 169 16,507 (7,792) 17 8,901
Comprehensive income (loss):
Net loss - - - (6,003) - (6,003)
Net unrealized loss on
marketable equity
securities - - - - (148) (148)
Comprehensive loss - (6,151)
Balance at December 31,
1999 16,854,521 169 16,507 (13,795) (131) 2,750
Shares issued:
Acquisition of Altoro 6,228,894 62 4,464 - - 4,526
Exercise of warrants 261,232 3 176 - - 179
Comprehensive income (loss):
Net income - - - 4,285 - 4,285
Net unrealized gain on
marketable equity
securities - - - - 69 69
Comprehensive income - 4,354
Balance at December 31,
2000 23,344,647 $ 234 $21,147 $ (9,510) $ (62) $11,809
See notes to consolidated financial statements.
SOLITARIO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars) Years ended December 31,
2000 1999 1998
Operating activities:
Net income (loss) $ 4,285 $(6,003) $ (405)
Adjustments:
Depreciation, depletion and amortization 18 35 10
Asset write-downs - 63 403
Gain on asset sales (5,811) (19) -
Cumulative effect of change in
accounting principle - 5,094 -
Other 99 - -
Changes in operating assets and liabilities,
excluding effects of acquisition:
Prepaid expenses and other current
assets (77) (11) 24
Accounts payable (73) (12) (61)
Due to CRCC 42 34 (8)
Net cash used in operating activities (1,517) (819) (37)
Investing activities:
Payments for acquisition, net
of cash acquired (374) - -
Additions to mineral properties and other (55) - (991)
Receipts on mineral property transactions - - 434
Proceeds from asset and mineral
property sales 5,715 19 -
Decrease (increase) in other assets - (59) (11)
Net cash provided by (used in)
investing activities 5,286 (40) (568)
Financing activities:
Issuance of common stock 179 - -
Net cash provided by financing activities 179 - -
Net increase (decrease) in cash and
cash equivalents 3,948 (859) (605)
Cash and cash equivalents, beginning
of year 2,386 3,245 3,850
Cash and cash equivalents, end of year $ 6,334 $ 2,386 $ 3,245
Supplemental disclosure of cash flow
information:
Noncash investing and financing activities:
Securities received for mineral property
transactions, sale of Argentina subsidiary - 21 212
Increase in accounts receivable from sale
of Argentina subsidiary - - 29
See notes to consolidated financial statements.
1. Business and Summary of Significant Accounting Policies:
Business and company formation
Solitario Resources Corporation (the "Company" or
"Solitario") engages principally in the acquisition, exploration,
and development of mineral properties. Solitario's mineral
properties are located in Brazil, Bolivia and Peru. The Company
was incorporated in the state of Colorado on November 15, 1984 as
a wholly-owned subsidiary of Crown Resource Corp. of Colorado
("CRCC"). On October 18, 2000 Solitario completed a Plan of
Arrangement ("the Plan") whereby Solitario issued 6,228,894
shares of its stock to the shareholders of Altoro Gold Corp.
("Altoro") in exchange for 100% of the outstanding shares of
Altoro. After the issuance of shares in connection with the
Plan, CRCC owns 41.3% of Solitario as of December 31, 2000. See
Note 9.
Financial reporting
The consolidated financial statements include the accounts
of Solitario and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation. The consolidated financial statements are
prepared in accordance with accounting principles generally
accepted in the United States of America, and are expressed in
U.S. dollars. See Note 11 for differences between Canadian and
U.S. generally accepted accounting principles.
In performing its activities, the Company has incurred
certain costs for land and leasehold interests. The recovery of
these costs is ultimately dependent upon the development of
economically recoverable ore reserves, the ability of the Company
to obtain the necessary permits and financing to successfully
place the properties into production, and upon future profitable
operations, none of which is assured.
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. Actual results could differ from those estimates.
1. Business and Summary of Significant Accounting Policies
(continued):
Cash equivalents
Cash equivalents include investments in highly-liquid debt
securities with maturities of three months or less when
purchased. Investments with longer maturities at the date of
purchase are classified as short-term investments.
Mineral properties
Land and leasehold costs are capitalized in cost centers and
will be depleted on the basis of economic reserves using the
units-of-production method. If there are insufficient economic
reserves to use as a basis for depleting such costs, a mineral
property write-off will be made in the period in which the
determination is made.
During 1999, the Company changed its method of accounting
for exploration costs on properties without proven and probable
reserves from capitalizing all expenditures to expensing all
costs incurred, other than acquisition costs, prior to the
establishment of proven and probable reserves (See Note 2).
The Company records the proceeds from the sale of property
interests to joint ventures as a reduction of the related
property's capitalized cost. Proceeds which exceed the
capitalized cost of property are recognized as revenue. When
such proceeds are associated with properties subject to a joint
venture, they are recorded as revenue in accordance with the
terms of the joint venture and the transfer of the property
interest to the joint venture partner during the term of the
joint venture.
Marketable equity securities
The Company's equity securities are classified as available-
for-sale and are carried at fair value which is based upon market
quotes of the underlying securities. The cost of marketable
equity securities sold is determined by the specific
identification method.
1. Business and Summary of Significant Accounting Policies
(continued):
Foreign exchange
The United States dollar is the functional currency for all
of the Company's foreign subsidiaries. Although the Company's
exploration activities have been conducted primarily in Brazil,
Bolivia and Peru, substantially all of the land, leasehold, and
exploration agreements of the Company are denominated in United
States dollars. The Company expects that a significant portion
of its required and discretionary expenditures in the foreseeable
future will also be denominated in United States dollars.
Foreign currency gains and losses are included in the results of
operations in the period in which they occur.
Income taxes
Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of
taxes currently due plus deferred taxes related to certain income
and expenses recognized in different periods for financial and
income tax reporting purposes. Deferred tax assets and
liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. Deferred taxes
are also recognized for operating losses and tax credits that are
available to offset future taxable income and income taxes,
respectively. A valuation allowance is provided if it is more
likely than not that some portion or all of the deferred tax
assets will not be realized.
Earnings per share
The calculation of basic earnings per share, "Earnings Per
Share," is based on the weighted average number of common shares
outstanding during the years ended December 31, 2000, 1999 and
1998. The calculation of diluted earnings per share for the year
ended December 31, 2000 includes the effect of common stock
equivalents, which include employee stock options and warrants,
unless inclusion would be anti-dilutive. The potentially
dilutive securities, which include stock options and warrants
were 1,615,000, 1,178,000 and 2,681,000 at December 31, 2000,
1999 and 1998, respectively. The effects of these securities
are not included in the computation of diluted earnings per share
where their inclusion would be anti-dilutive.
1. Business and Summary of Significant Accounting Policies
(continued):
Employee stock compensation plans
The Company follows Accounting Principles Board Opinion
("APBO") No. 25, "Accounting for Stock Issued to Employees."
Under the Company's stock option plans, the exercise price of
stock options issued to employees equals the market price of the
stock on the measurement date. As a result of repricing of its
options in 1999, the Company accounts for all grants which have
been repriced as variable awards and records increases and
decreases in compensation expense during the period based upon
changes in the market price of Solitario's stock as required by
APBO 25.
Segment reporting
The Company operates in one segment, minerals exploration.
All of the Company's operations are located in South America as
further described in note 2. Solitario's United States assets
consist primarily of cash and cash equivalents at December 31,
2000 of $6,379,000 and conducts certain administrative functions
in the United States. Solitario holds certain South American
assets through its Canadian wholly-owned subsidiary, Altoro.
New accounting pronouncements
In June of 1998, the FASB issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities". The
standard, which is effective for fiscal years beginning after
June 15, 2000, sets forth guidelines for recording derivative
instruments as assets and liabilities to be reported in the
financial statements at fair value and that changes in the fair
value of the instruments shall be recognized in the results of
operations. This standard, was adopted by Solitario in 2001 and
did not have a material effect on Solitario's financial position,
results of operations and cash flows.
1. Business and Summary of Significant Accounting Policies
(continued):
In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). SAB 101 summarizes certain of
the SEC views in applying generally accepted accounting
principles to revenue recognition as it relates to, among other
things, the revenue recognition from non-refundable, up-front
payments in connection with service contracts. Solitario adopted
the provisions of SAB 101 in the fourth quarter of 2000. The
adoption of SAB 101 did not have a material effect on Solitario's
financial condition or results of operations.
2. Mineral Properties:
Change in accounting principle
During 1999, the Company changed its method of accounting
for exploration costs on properties without proven and probable
reserves from capitalizing all expenditures to expensing all
costs, other than acquisition costs, prior to the establishment
of proven and probable reserves. This will bring the Company's
accounting method in accordance with the predominant practice in
the U.S. mining industry. The $5,094,000 cumulative effect of
the change on prior years is included in the loss for 1999. The
effect of the change in 1999 was to increase the loss before
cumulative effect of change in accounting principle by $69,000 or
$0.00 per share.
Peru
The Company, holds exploration concessions or has filed
applications for concessions covering approximately 179,000 acres
in Peru. These applications are subject to normal administrative
approvals and the properties are subject to an annual rental of
$5.00 per hectare (approximately 2.47 acres per hectare) in June
of each year.
Bongara
Since 1993, the Company acquired exploration concessions or
has filed claims for concessions currently covering approximately
111,000 acres in northern Peru (the "Bongara project").
2. Mineral Properties (continued):
In December 1996, Solitario signed an agreement regarding
the Bongara project with a subsidiary of Cominco Ltd. ("Cominco")
of Vancouver, B.C., Canada. After a modification signed in
1999, Cominco had the right to earn a 65% interest in the Bongara
project by spending a minimum of $17,000,000 over a five year
period from January 1999 forward on exploration and development
and by making annual cash payments to the Company of between
$100,000 and $500,000 (depending on the price of zinc), as well
as fully funding the project through a bankable feasibility
study. Cash payments of $118,000, $118,000, and $354,000,
including value added taxes of 18%, have been paid to the Company
by Cominco in January 2000, 1999 and 1998, respectively. In
February 2001 Cominco terminated their option to acquire an
interest in the Bongara project. As of that date, Cominco had
spent approximately $16 million and drilled eighty holes totaling
approximately 81,000 feet. Solitario currently holds 100%
interest in the property and may seek a new joint venture partner
to explore and develop this property.
Yanacocha
On April 26, 2000 Solitario completed a transaction with an
affiliate of Newmont Mining Corporation ("Newmont") and sold its
interest in its Yanacocha property for $6 million and a sliding
scale net smelter return royalty ("NSR") that varies with the
price of gold. In order to effect the transaction, Solitario
transferred all of the operating assets and liabilities,
excluding its interest in Yanacocha, of its Peru operating
subsidiary, Minera Los Tapados ("Los Tapados"), to a new
operating subsidiary, Minera Solitario Peru. Newmont received
all of the outstanding shares of Los Tapados for cash
consideration of $5.6 million. The balance of the $6 million,
$0.4 million, is being held in a reserve by Newmont and, pending
release of certain contingent liabilities, will be paid in four
annual payments of $0.1 million plus interest. Solitario recorded
a gain on the sale of the Yanacocha property of $5.8 million
during the second quarter of 2000.
Other Peruvian properties
Solitario holds concessions comprising approximately 67,000
acres on the La Pampa, Sapalache and Esmeralda exploration
properties. Solitario will conduct limited exploration
activities while it seeks joint venture partners to explore and
develop these properties.
2. Mineral Properties (continued):
Brazil
Pedra Branca
With the completion of the acquisition of Altoro in October
2000, Solitario acquired the Pedra Branca platinum-palladium
(PGM) project located in Ceara state in Brazil. Altoro signed an
agreement in May of 1999 with Eldorado Gold Corporation
("Eldorado") whereby Solitario can earn a 70% interest in
concessions covering approximately 24,000 acres, by spending $2
million on exploration over three years. Solitario can earn an
additional 20% (90% total) by spending an extra $1 million within
five years of the signature date. Should Eldorado be diluted to
10% this interest converts to a 2% NSR. Additionally, Solitario
(through Altoro) has applied for concessions in its own name
covering approximately 141,000 acres.
On February 18, 2000, Altoro signed a letter of intent
granting Hunter Dickinson Group, Inc., of Vancouver Canada an
option to earn a 60% interest in the Pedra Branca project which
has been assigned to Rockwell Ventures, Inc. of Vancouver, Canada
("Rockwell") a publicly-traded exploration company. Under the
terms of the agreement, Rockwell has the right to earn a 60%
interest in Pedra Branca by spending $7 million on exploration
within four years from July 2000, with a minimum expenditure of
$1 million during the first year. In addition Rockwell must
issue to Solitario a total of 500,000 shares of Rockwell common
shares over four years in five equal installments with a minimum
value of US$100,000 per allotment. Rockwell delivered 125,433
shares and $50,000 in cash May 2000 upon regulatory approval of
the agreement to satisfy the first payment under the agreement.
Upon Rockwell earning its 60% interest, Solitario will have the
right to put its interest in Pedra Branca to Rockwell (the "Put
Option") in exchange for ownership of 40% of Rockwell's market
capitalization after exercise of the Put Option(the Purchase
Price). The Purchase Price may be paid, at Solitario's option,
in shares of Rockwell or 25% in cash and 75% in shares of
Rockwell. Rockwell is responsible for making all payments
related to the properties during the earn in period.
In October 2000, Solitario recorded $3,627,000 in mineral
property additions for the Pedra Branca project in connection
with the acquisition of Altoro.
2. Mineral Properties (continued):
Tocantinzinho
In November 1998 Altoro entered into an option agreement
(subsequently modified) to acquire a 100% interest in the
Tocantinzinho gold property in Brazil. The agreement covers
washing licences for approximately 10,000 acres located in the
Para state in Brazil. In order to keep the option in force under
the terms of the agreement, Solitario will have to pay the former
title holder of the licences $40,000 in each of the years 2001
and 2002 and $50,000 annually thereafter until commercial
production is achieved. At that time Solitario will be required
to make a lump-sum payment of $1.0 million. The owner retains a
0.5% royalty from any production which may be purchased for
$500,000. Solitario expects to convert the washing licenses to
exploration concessions in 2001. Additionally, Solitario has the
right under a separate agreement to convert about 10,000 acres in
additional washing licenses to exploration licenses. No
underlying payments are associated with this agreement. A
payment to the Brazilian government of $0.55 per hectare is
required to keep the washing licenses in force totaling about
$4,400 in 2001.
In October 2000, Solitario recorded $621,000 in mineral
property additions for the Tocantinzinho property in connection
with the acquisition of Altoro.
Bolivia
Rincon del Tigre
Since April 1999 Altoro entered into a series of agreements
which allow Solitario to earn a 100% interest in concessions
covering 127,000 acres at the Rincon del Tigre PGM property
located in Santa Cruz state in southeastern Bolivia. The
agreements require Solitario to spend $3.15 million on
exploration over six years and to issue 800,000 shares of Altoro,
100,000 shares of which were issued in 1999 and 2000. The
remaining 700,000 shares of Altoro will be issued as 233,333
shares of Solitario, with 45,833 shares due in 2001, 58,333 due
in 2002, 70,834 shares due in 2003, 37,500 shares due in 2004 and
20,833 due in 2005. Solitario's share payments are cancelable if
Solitario elects not to exercise its purchase option. The owner
of the Rincon del Tigre concessions retains a 2% NSR on the
concessions, which can be purchased for $2 million at any time
subject to regulatory approval. Annual payments are required by
the Bolivian government in order to keep the claims in good
standing. Solitario's has estimated these payments to be
approximately $25,000 for 2001.
2. Mineral Properties (continued):
In October 2000, Solitario recorded $558,000 in mineral
property additions for the Rincon del Tigre property in
connection with the acquisition of Altoro.
Land and leasehold and exploration costs
Mineral property costs for all the Company's properties are
comprised of land and leasehold costs at December 31, 2000 and
1999. Mineral property costs at December 31, 1998 include land
and leasehold costs as well as exploration costs related to
mineral properties for which exploration activities had not yet
identified the presence of economic reserves. The following items
comprised the additions to exploration costs:
Expensed Capitalized
(in thousands) 2000 1999 1998
Geologic, drilling, and assay $ 284 $ 179 $ 240
Field expenses 394 76
400
Administrative 504 411 237
Total exploration costs $1,182 $ 666 $ 877
Included in the consolidated balance sheet at December 31,
2000 are total assets of $5,124,000 related to the Company's
foreign operations. Assets totaling $5,037,000 are located in
South America in Brazil, Bolivia, and Peru. Assets totaling
$87,000 are located in Canada.
Asset write downs
The Company regularly performs evaluations of its assets to
assess the recoverability of its investments in these assets.
Upon determining that certain properties did not have sufficient
potential for economic mineralization the Company recorded write-
downs to exploration properties of $63,000 and $403,000 in 1999
and 1998 respectively. There were no write-downs to exploration
properties in 2000.
3. Acquisitions:
As described in Note 9, Solitario acquired 100% of the
outstanding common stock of Altoro (the "Transaction").
Solitario accounted for the Transaction using the purchase method
of accounting. The purchase price was $4,996,000 which included
the issuance of 6,228,884 shares valued at $4,526,000. The fair
value of assets acquired was $666,000 and the fair value of the
liabilities assumed was $136,000. The excess purchase cost of
$4,466,000 was allocated to mineral properties acquired as
follows: Pedra Branca in Brazil, $3,573,000; Tocantinzinho in
Brazil, $447,000; and Rincon del Tigre in Bolivia, $447,000.
The pro forma results, assuming the transaction occurred as of
January 1, 1999 are as follows:
Year ended
December 31,
(in thousands) 2000 1999
Revenues $6,278 $
280
Net income (loss) $3,410 $(8,495)
Basic and diluted income (loss) per share $ 0.15 $ (0.37)
4. Related Party Transactions:
CRCC provides management and technical services to Solitario
under a management agreement originally signed in 1994 and
modified in April 1999 and again in December 2000. The modified
agreement, which has a three year term, provides for
reimbursement to CRCC of direct out-of-pocket costs; payment of
seventy-five percent of executive and administrative salaries and
benefits, rent, insurance and investor relations costs
("Administrative Costs") and payment of certain allocated
indirect costs and expenses paid by CRCC on behalf of Solitario.
Prior to December 2000, Administrative Costs were reimbursed at
fifty percent and a management fee of 2% was charged on direct
Solitario expenses paid by CRCC. Prior to April 1999, the
agreement reimbursed CRCC direct out-of-pocket costs; for certain
allocated indirect costs; and payment of a service fee equal to
7% of expenditures. Management service fees paid to CRCC by
Solitario in 2000, 1999 and 1998 were $414,000, $333,000 and
$89,000, respectively. Net advances due to CRCC as of December
31, 2000 and 1999 were $81,000 and $39,000, respectively, related
to the management services and fee.
5. Income Taxes:
The Company's income tax expense (benefit) consists of the
following:
(in thousands) 2000 1999 1998
Deferred
U.S. $ - $ - $105
Foreign (347) 1 85
Operating loss and
credit carryovers:
U.S. - - (105)
Foreign 347 (1) (85)
Income tax benefit $ - $ - $ -
Consolidated income (loss) before income taxes includes
losses from foreign operations of $1,275,000, $664,000, and
$441,000 in 2000, 1999 and 1998, respectively.
Deferred income taxes result from temporary differences in
the timing of income and expenses for financial and income tax
reporting purposes. The primary component of deferred income
taxes relates to exploration and development costs.
The net deferred tax assets/liabilities in the December 31,
2000 and 1999 balance sheets include the following components:
(in thousands) 2000
1999
Deferred tax assets:
Net operating loss (NOL) carryovers $ 2,791 $ 2,596
Capital loss carryovers 711 1,874
Investment in Peru - 2,722
Royalty 1,560 -
Other 32 63
Valuation allowance (3,510) (7,255)
Deferred tax assets 1,584 -
Deferred tax liabilities:
Exploration and development costs 1,584 -
Other - -
Deferred tax liabilities 1,584 -
Net deferred tax assets/liabilities $ - $ -
The change in accounting principle discussed in Note 2 had
the effect of increasing the 1999 valuation allowance offset to
deferred tax assets and decreasing the exploration and
development costs deferred tax liability by $1,642,000
5. Income Taxes (continued):
A reconciliation of expected federal income tax benefit on
loss from continuing operations at the U.S. Federal tax rate of
34% with the benefit for income taxes is as follows:
(in thousands) 2000 1999 1998
Expected income tax $ 1,457 $ (309) $ (138)
Non-deductible foreign
expenses 109 32 26
Deconsolidation of Argentine NOL - - 2,480
Disposition of investment
in Peru 1,818 (2,373) -
Foreign tax rate differences 12 21 9
State income tax 351 (363) (4)
Valuation allowance (3,727) 2,992 (2,374)
Other (20) - 1
Income tax benefit $ - $ - $ -
At December 31, 2000, the Company has unused U.S. Net
Operating Loss ("NOL") and capital loss carryovers of $2,248,000
and $1,822,000, respectively, which begin to expire commencing
2008 and 2004, respectively. The Company also has Foreign NOL
carryovers at December 31, 2000 of $5,539,000 which begin to
expire four years after the first year in which taxable income
arises.
6. Fair Value of Financial Instruments:
For certain of the Company's financial instruments,
including cash and cash equivalents, accounts payable, and due to
CRCC, the carrying amounts approximate fair value due to their
short maturities. The Company's marketable equity securities are
carried at their estimated fair value based on quoted market
prices.
7. Commitments and Contingencies:
In acquiring its interests in minerals claims and leases,
the Company has entered into lease agreements which generally may
be canceled at its option. The Company is required to make
minimum rental and option payments in order to maintain its
interests in certain claims and leases. See Note 2. The Company
estimates its 2001 mineral property rental and option payments to
be approximately $168,000. Based upon existing joint venture or
leasing arrangements, the Company's share of these costs is
approximately $108,000.
8. Stock Option Plan:
On March 4, 1994, the Company's board of directors (the
"Board") adopted the 1994 Stock Option Plan (the "Plan"). Up to
1,100,000 shares of the Company's common stock were authorized
for issuance under the Plan. The Board of Directors voted for,
and shareholders approved, amendments that have increased the
authorized shares under the Plan to 2,336,000 as of June 2000.
All options have been granted at exercise prices which are
determined by the Board to be the fair market value on the date
of grant. The options expire five years from the date of grant,
and are subject to certain vesting provisions, as determined by
the Board.
The activity in the Plan for the three years ended December
31, 2000 is as follows:
2000 1999 1998
Weighted Weighted Weighted
Average Average Average
Options Price(1) Options Price(1) Options Price
Outstanding, (Cdn$) (Cdn$) (Cdn$)
beginning
of year 1,704,750 1.23 1,263,750 2.51 1,203,750 2.49
Granted 45,000 1.30 1,162,000 1.19 60,000 3.00
Exercised - - - - -
Forfeited (25,000)1.17 (15,000) 2.25 -
Expired - - (706,000) 2.41 - -
Outstanding,
end of year 1,724,750 1.22 1,704,750 1.22 1,263,750 2.51
Exercisable,
end of year 1,472,750 1.22 1,231,750 1.23 1,181,250 2.48
(1) In March 1999, the shareholders of the Company approved a
repricing of existing options for current employees, officers
and directors to Cdn$1.16 per share, which was the market price
of the Company's stock.
The options outstanding at December 31, 2000 have a range of
exercise prices of between Cdn$1.16 and Cdn$1.30 and a weighted
average remaining contractual life of 2.7 years.
8. Stock Option Plan (continued):
As a result of the repricing of existing options in 1999,
Solitario began to account for the awards as variable as of July 1,
2000, in accordance with FASB Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation" (an interpretation
of APB 25). Accordingly, an increase in the current market price of
Solitario common stock above the higher of the option strike price
and the market price of Solitario's common stock as of July 1, 2000,
multiplied by vested options outstanding will be recorded as
compensation expense in the period of the price increase. A
subsequent reduction in the current market price, to the extent of
previously recorded compensation expense will be credited as a
reduction of compensation expense. There was no compensation expense
recorded during 2000 as a result of variable accounting for the
repriced options.
Pro forma information has been computed as if the Company had
accounted for its stock options under the fair value method of SFAS
No. 123. The fair values of these options were estimated at the date
of grant using a Black-Scholes option pricing model with the
following assumptions for 2000, 1999 and 1998, respectively: risk-
free interest rate of 6.1%, 5.31% and 5.52%; dividend yield of 0
percent; volatility factor of the expected market price of the
Company's common stock of 65%, 68% and 75%; and a weighted average
expected life of the options of 4.0 years, 3.6 years and 4.0 years.
The weighted average fair value of the options granted is estimated
at $0.48, $0.40 and $1.36 per share in 2000, 1999 and 1998,
respectively.
Had the Company accounted for its stock options under the fair
value method of SFAS No. 123, the following results would have been
reported:
(in thousands, except per share amounts)
2000 1999 1998
Net income (loss)
As reported $ 4,285 $(6,003) $ (405)
Pro forma 4,306 (6,661) (459)
Net income (loss) per share
As reported $(0.24) $(0.36) $(0.02)
Pro forma (0.24) (0.40) (0.03)
9. Stockholders' Equity:
On October 18, 2000, Solitario, completed a Plan of Arrangement
("the Plan") with Altoro Gold Corp. of Vancouver, Canada ("Altoro"),
whereby Altoro became a wholly-owned subsidiary of Solitario. In
connection with the Plan, Solitario issued 6,228,894 shares to Altoro
shareholders and option holders. Solitario also reserved 825,241
Solitario shares for issuance upon the exercise of 825,241 warrants
issued in exchange for Altoro warrants. On October 24, 2000,
Solitario issued 261,232 shares upon the exercise of the above
warrants and 286,231 of the warrants expired unexercised. An
additional 16,667 warrants expired unexercised in December 2000. As
of December 31, 2000, warrants to purchase 261,111 shares of
Solitario shares were outstanding including warrants to purchase
100,000 shares at Cdn$1.05 per share expiring on July 27, 2001 and
warrants to purchase 161,111 shares at Cdn$1.80 expiring on May 9,
2001. After the issuance of the shares in connection with the
Arrangement and exercise of the warrants discussed above, Solitario
has 23,344,647 shares outstanding as of December 31, 2000 of which
CRCC owns 9,633,585 shares. These transactions reduced CRCC's
ownership of Solitario from 57.2% prior to the transactions to 41.3%
at December 31, 2000.
10. Earnings Per Share:
Diluted earnings per share for the year ended December 31, 2000
include the effect of stock options which are dilutive. The proceeds
from the issuance of shares are assumed to be used to purchase common
stock in accordance with the treasury stock method. Weighted average
number of shares outstanding increased from 18,162,549 to 18,350,069
as a result of the assumption of the exercise of options which are
dilutive common stock equivalents. There is no change to the income
available to common shareholders as a result of the assumption of
conversion of dilutive common stock equivalents. Basic and diluted
earnings per share were the same for the years ended December 31,
1999 and 1998 as the conversions of common stock equivalents would be
anti-dilutive.
11. Differences between Canadian and U.S. GAAP:
The consolidated financial statements have been prepared in
accordance with U.S. Generally Accepted Accounting Principles
("GAAP") which differ in some respects from Canadian GAAP. The
material differences, in respect to these financial statements
between U.S. and Canadian GAAP, and their effect on the Company's
financial statements, are summarized below:
11. Differences between Canadian and U.S. GAAP (Continued):
Change in accounting principle - Under Canadian GAAP the change
in accounting principle, as described in Note 2, requires
restatement of prior periods.
Marketable equity securities - Under Canadian GAAP, marketable
equity securities are valued at cost, unless a decline in the value
of the securities is permanent.
The effect on the consolidated statement of operations of this
item would be as follows:
(in thousands, except per
share amounts) 2000 1999 1998
Net income (loss) under U.S. GAAP $ 4,285 $(6,003) $ (405)
Effect of change in accounting principle:
Mineral property option proceeds - - 300
Exploration - - (896)
Reduction in asset write-downs - - 78
Cumulative effect of change
in accounting principle - 5,094 -
Net income (loss) under
Canadian GAAP $ 4,285 $ (909) $ (923)
Income (loss) per share
under Canadian GAAP:
Basic $ 0.24 $(0.05) $(0.05)
Diluted $ 0.23 $(0.05) $(0.05)
As a result of the above, under Canadian GAAP, the following
line items in the consolidated balance sheets would be presented as
follows:
(in thousands) 2000 1999
Mineral properties, net $ 4,873 $ 53
Marketable equity securities $ 282 $ 234
Total assets $ 12,022 $ 2,927
Additional paid-in capital $ 21,147 $ 16,972
Accumulated deficit $ (9,510) $(14,260)
Accumulated other comprehensive income $ - $ -
Total stockholders' equity $ 11,871 $ 2,881
Total liabilities and
stockholders' equity $ 12,022 $ 2,927
As a result of the above, under Canadian GAAP, the following
line items in the consolidated statements of cash flows would be
presented as follows:
11. Differences between Canadian and U.S. GAAP (Continued):
Operating activities: 2000 1999 1998
Net income (loss) $ 4,285 $ (909) $ (923)
Asset write-downs $ - $ 63 $ 325
Cumulative effect of
change in accounting
principle $ - $ - $ -
Net cash used in
operating activities $(1,517) $ (819) $ (633)
Investing activities:
Additions to mineral
properties $ (55) $ - $ (95)
Receipts on mineral
property transactions $ - $ - $ 134
Net cash provided by
(used in) investing
activities $ 5,286 $ (40) $ 28
12. Selected Quarterly Financial Data (Unaudited):
(in thousands) 2000 1999
March June Sept. March June Sept.
31, 30, 30, 31, 30, 30,
Revenues $ 129 $5,905 $ 135 $ 137 $ 36 $ 35
Net income (loss) $ (272) $5,470 $ (199) $ (46) $ (294) $ (251)
Earnings (loss) per
common and common
equivalent share:
Basic $(0.02) $ 0.33 $(0.01) $(0.00) $(0.02) $(0.02)
Fully diluted $(0.02) $ 0.32 $(0.01) $(0.00) $(0.02) $(0.02)
The above quarterly data do not reflect any pro forma
adjustments to give effect to acquisition of Altoro as disclosed in
Notes 9 and 3. During the fourth quarter of 1999, Solitario changed
its method of accounting for exploration costs as described in Note
2. This change in accounting principle was applied retroactively to
January 1, 1999. The above quarterly financial data for 1999 are the
amounts as reported during 2000 to reflect the restatement of the
amounts previously reported during 1999.