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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2002

OR

For the transition period from                              to                             

Commission File No. 0-23042

MK GOLD COMPANY
(Exact name of registrant as specified in charter)

60 East South Temple, Suite 2100
Salt Lake City, Utah 84111
(801) 297-6900
(Address of principal executive offices and telephone number)

        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 ý    No o

        On August 5, 2002, there were 37,395,649 outstanding shares of the registrant's common stock, par value $.01 per share.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

        You should read the following unaudited interim consolidated financial statements and the accompanying notes together with our Annual Report on Form 10-K for the year ended December 31, 2001. Our 2001 Annual Report contains information that may be helpful in analyzing the financial information contained in this report and in comparing our results of operations for the three and six month periods ended June 30, 2002 with the same periods in 2001.

MK GOLD COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Thousands of dollars except per share data)

The accompanying notes are an integral part of the consolidated financial statements.

MK GOLD COMPANY

CONSOLIDATED BALANCE SHEETS

(Thousands of dollars except per share data)

The accompanying notes are an integral part of the consolidated financial statements.

MK GOLD COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Thousands of dollars)

The accompanying notes are an integral part of the interim consolidated financial statements.

MK GOLD COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

For the six months ended June 30, 2002 and 2001

(Thousands of dollars except per share data)

The accompanying notes are an integral part of the consolidated financial statements.

MK GOLD COMPANY

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(All dollar amounts in thousands)

1. UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

        The interim financial information included herein is unaudited; however, the information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for the fair presentation of the consolidated financial position, results of operations and cash flows for the interim periods. The consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2001, which are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001 ("2001 10-K"). The results of operations for the six months ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year. The consolidated balance sheet at December 31, 2001 was extracted from the audited consolidated financial statements contained in the 2001 10-K and does not include all disclosures required by generally accepted accounting principles for annual consolidated financial statements.

2. MINING JOINT VENTURE

        The Company owns a 25% undivided interest in the Castle Mountain Venture ("CMV"), which prior to May 2001 operated a gold mine in San Bernardino County, California. During the second quarter of 2001, gold reserves at the mine were exhausted, mining operations ceased, and mine closure and reclamation activities began. Mining closure and reclamation activities continued during the second quarter of 2002. The results for the CMV have been proportionally reflected in the accompanying consolidated financial statements.

        Gold production at the Castle Mountain Mine continued during the second quarter of 2002 as residual gold was recovered from the leach pads during the closure and reclamation phase. Residual gold production is expected to continue into 2003. As part of closure activities at the mine, mining equipment and assets were sold during the first and second quarters of 2002, resulting in a gain on sale of assets of $575.

3. UNCONSOLIDATED AFFILIATE

        In July 2000, the Company acquired 20 of 39 limited partner units of Peru Exploration Venture LLLP, an Arizona limited liability limited partnership. The partnership was formed in June 2000 with Bear Creek Mining Company, an Arizona corporation, as the general partner. The Company's commitment to the partnership was $1 million over a two-year period, which it had fully funded as of December 31, 2001.

        The principal objective of the partnership is to acquire precious and base metal properties in Peru. Activities during the first six months of 2002 included the acquisition of two properties and mapping and sampling of previously acquired properties. The results of these activities are being evaluated. The Company's share of loss from the partnership for the three and six month periods ended June 30, 2002 was $152 and $280, respectively. The Company's share of loss from the partnership for the three and six month periods ended June 30, 2001 was $125 and $232, respectively.

        On May 29, 2002, the partnership entered into a letter agreement with EVEolution Ventures, Inc., a Canadian-based company, pursuant to which EVEolution Ventures will acquire all outstanding limited partnership interests and all outstanding shares of Bear Creek Mining Company in exchange for shares in EVEolution. If this transaction is completed, the Company will be a minority shareholder of EVEolution.

4. PROJECT DEVELOPMENT

        The Company, through its wholly owned subsidiary Cobre Las Cruces, S.A., owns the exploration and mineral rights to the Las Cruces project, a development stage copper project in the Pyrite Belt of Spain. The Las Cruces project was acquired by the Company on September 1, 1999 when the Company acquired Cobre Las Cruces from Rio Tinto plc. All development costs since the date of acquisition, including interest and costs for the feasibility study, have been capitalized. The principal source of funding for project development has been the Company's $35,000 credit facility ("Credit Facility") with Leucadia National Corporation.

        In May 2002, the Department of Environment of the Regional Government of Andalusia, Spain issued a positive Declaration of Environmental Impact for the Las Cruces project. Receipt of the positive declaration is a key milestone in the project's permitting process and indicates the government's environmental approval of the project. The positive declaration is also a prerequisite for the regional government to issue a mining concession and allows the regional water authority to finalize the processing of the water permit applications. The mining concession will give the Company the mining rights and access to all the necessary utilities required to develop the project. The Company expects all necessary operating permits to be granted by the end of 2002.

        Mining at the Las Cruces project will be subject to permitting, obtaining financing, engineering and construction. Although the Company believes necessary permitting for the project will be obtained, the Company cannot guarantee that such will be the case, and no assurance can be given that the Company will obtain financing for the project. Further, there may be other political and economic circumstances that could prevent the Company from completing development of the project.

5. INDUSTRY SEGMENT INFORMATION

        The Company is not economically dependent on a limited number of customers for the sale of its gold because gold commodity markets are well-developed worldwide. The Company operates primarily in two industry segments, gold sales and copper project. The Company operated in a third industry segment, mining services, through the second quarter of 2001, when mining operations ceased. Mining service revenues were derived from one customer, the CMV. During 1999, the Company acquired the Las Cruces project, which is a copper project in the development stage.

6. RELATED PARTY TRANSACTIONS

        Interest and commitment fees paid to Leucadia under the Credit Facility for the three and six month periods ended June 30, 2002 were approximately $360 and $710, respectively, compared to $491 and $1,021 for the same periods in 2001. Capitalized interest relating to the Las Cruces project for the three and six month periods ended June 30, 2002 was approximately $355 and $699 respectively, compared to $487 and $1,012 for the same periods in 2001. At June 30, 2002, the Company had outstanding borrowings under the Credit Facility of $30 million. Loans outstanding under the Credit Facility, which are due January 2, 2003, bear interest equal to the prime rate and interest and commitment fees are payable quarterly. The prime rate at June 30, 2002 was 4.75%.

7. LEGAL CONTINGENCIES

        The Company is subject to various litigation which arises in the course of its business. Based on discussions with counsel, management is of the opinion that such litigation will have no material adverse effect on the consolidated financial position of the Company, its consolidated results of operations or liquidity.

8. INCOME TAX PROVISION

        Due to past net operating losses, the Company has recorded a gross deferred tax asset of approximately $18,400 as of June 30, 2002. The Company has also recorded a valuation allowance against a substantial portion of this asset, resulting in a deferred tax asset of $1,600. Deferred tax liabilities are partly offset by this deferred tax asset, resulting in a net deferred tax liability of $3,967. A portion of the net operating losses was used to offset income generated during the three and six months ended June 30, 2002.

9. BANKRUPTCY RECOVERY

        As part of a court approved bankruptcy settlement, unsecured creditors of Washington Group International, Inc. ("Washington Group") will receive 15% of the common stock of Washington Group. As an unsecured creditor, in the second quarter of 2002 the Company received an initial distribution of 13,889 shares and warrants to purchase an additional 23,667 shares in Washington Group, with a combined market value of $298. The Company recorded this amount as income in the second quarter. The securities are classified as available for sale and any unrealized gains and losses are reflected as a component of other comprehensive income.

10. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

        The following is a summary of accumulated other comprehensive income (loss) at June 30, 2002 and December 31, 2001:

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        This section discusses our consolidated financial condition, liquidity and capital resources and results of operations. You should read this analysis in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2001. This section also contains certain forward-looking statements that involve risks and uncertainties, including statements regarding our plans, objectives, goals, strategies and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under "Cautionary Statement for Forward-Looking Information" below.

General

        On September 1, 1999, we acquired the entire share capital and subordinated debt of Riomin Exploraciones, S.A., from Rio Tinto plc. After this acquisition, we changed the name of Riomin Exploraciones, S.A., to Cobre Las Cruces, S.A. Cobre Las Cruces has permits to investigate four contiguous areas in southwestern Spain, one of which contains the Las Cruces copper deposit. Las Cruces is 20 kilometers northwest of Seville, in an area with a well-developed infrastructure that will support the project's needs for water, power and transportation.

        We forecast that the Las Cruces project will be a low cost producer, with an operating cash cost per pound of copper produced estimated to average $0.33, based on the feasibility study relating to the project. Based on an assumed copper price of $0.80 per pound, we believe the Las Cruces project will have the potential for strong margins and after-tax internal rate of return, assuming that we fund 70% of the project's capital expenditures through debt financing. As of August 5, 2002, the spot price for copper was approximately $0.67 per pound. However, based on historical fluctuations in copper prices, which have ranged from a high of $1.60 in 1989 to a low of $0.59 in 2001, we believe $0.80 per pound is a reasonable price for purposes of estimating the internal rate of return of the project.

        Our forecasts regarding the Las Cruces project are subject to a number of risks and uncertainties. Actual results could differ materially from our forecasts as a result of our need for financing, potential delays in development of the Las Cruces project, the imprecision of estimates, the uncertainty of government subsidies, uncertainties associated with closure guarantees or other requirements that may be imposed by the Spanish government, volatility of copper prices and other factors, including those set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Cautionary Statement for Forward Looking Information."

        In June and July 2001, we submitted subsidy applications to central and regional governments in Spain. During the second half of 2002, we expect these governments to indicate the amount of subsidies they will recommend for grant, if any. If the total subsidies recommended for grant exceed 50 million euros, or approximately $49 million, the subsidies must be approved by a commission of the European Union.

        We submitted a water permit application in December 2000 to the regional water authority of the Spanish central government. In March 2001, we submitted to the government of Andalusia a mining concession application accompanied by environmental impact and project feasibility studies. We submitted additional water permit applications in April and May 2001, including a permit application for effluent discharge. We have had frequent and responsive interaction with local, regional and central governments in Spain to resolve technical issues and to facilitate the permitting process.

        In May 2002, the Department of Environment of the Regional Government of Andalusia, Spain issued a positive Declaration of Environmental Impact for the Las Cruces project. Receipt of the positive declaration is a key milestone in the project's permitting process and indicates the government's environmental approval of the project. The positive declaration is also a prerequisite for the regional government to issue a mining concession and allows the regional water authority to finalize the processing of the water permit applications. The mining concession will give us the mining rights and access to all the necessary utilities required to develop the project. We expect all necessary operating permits to be granted by the end of 2002. While we believe that we will receive the necessary permits, we could encounter unexpected difficulties or delays. Therefore, we cannot assure you that we will receive them on a timely basis or at all.

        We need to purchase 1,174 hectares, or approximately 4.5 square kilometers, of land and associated rights-of-way to complete the final processing of certain of our water permit applications. If negotiations with a landowner are unsuccessful, we will initiate proceedings to cause the regional government to expropriate that land. Expropriation is commonly used in Spain, in accordance with government laws. Land acquisition activities are expected to begin once the necessary permits are granted and to take approximately nine months to complete. Construction and mine development can begin before all land acquisition is finalized.

        Bechtel International, Inc., an international engineering and construction company, completed the feasibility study for the Las Cruces project in 2001. The feasibility study incorporated the results of an environmental impact study completed by FRASA Ingenieros Consultores, a team of national and international environmental engineering experts based in Madrid. During the permitting process, no material changes to the feasibility study have been identified.

        Since our acquisition of the Las Cruces project, we have focused our efforts primarily on developing the project into a low cost, environmentally responsible copper mine. We have given environmental considerations high priority in project design and development at the Las Cruces project. Waste dumps will be continually contoured and reclaimed to enhance the appearance of the Las Cruces project. Protection of the area's water resources affected by the mine has been carefully studied and planned. Water Management Consultants, a hydrological engineering and design company, developed the water management plan, including the extraction system for dewatering the overlying sandstone aquifer and re-injection into the aquifer. Water needed to process the ore will be pumped 15 kilometers from a sewage processing plant and treated before use.

        Funding for the development and advancement of the Las Cruces project has principally come from our operating cash flows, cash reserves and credit facility with Leucadia National Corporation. We estimate that the total capital costs to bring the Las Cruces project into commercial production are approximately $290 million, including working capital, land purchases and contingencies, but excluding interest and other financing costs. Our current cash resources will not be sufficient to cover all projected expenses necessary to bring the Las Cruces project into commercial production.

        We are evaluating various financing alternatives for projected costs and expenses associated with the Las Cruces project. We will not be able to fund the project solely from debt financing. We will need to raise a significant amount of the funds from equity investors, which we are considering doing through a subscription rights offering to our existing stockholders. In such a rights offering, our stockholders would receive the right to purchase additional shares of our common stock on a pro rata basis. We believe that a rights offering is an excellent way to raise equity capital because it provides our stockholders with the opportunity to avoid dilution by participating in the issuance of shares of our common stock on a pro rata basis. Although we believe that a rights offering is a viable option, we cannot assure you that we will actually commence a rights offering or that, if commenced, such a rights offering will be successful. If we commence a rights offering, we do not expect to do so until the key water permits have been obtained for the Las Cruces project.

        We are also considering other sources of financing, including product off-take agreements, which are a type of product sales agreement, supplier financing and equipment leasing. We plan to secure debt financing for approximately 70% of the project's capital requirements. We expect debt financing to be primarily funded through a syndicated project financing facility using a lead international bank experienced in mining project financing.

        While we believe that we will be able to obtain financing for the Las Cruces project, we cannot assure you that we will be able to obtain financing on favorable terms or at all. If we are unable to obtain financing when needed, the development of the Las Cruces project could be delayed significantly. Any significant delay could increase the costs of developing the Las Cruces project or prohibit us from completing development of the project.

Results of Operations

        Gold Production.    Our attributable share of gold production from the Castle Mountain Venture for the three and six month periods ended June 30, 2002 was 4,896 ounces and 8,812 ounces, respectively, compared to 5,260 ounces and 11,799 ounces for the three and six month periods ended June 30, 2001. This represents a decrease in production of 7% for the three month period and 25% for the six month period, compared to the same periods in 2001. The decrease in production is due to the completion of mining activities at the Castle Mountain Mine in May 2001. Future gold production will continue to decline as residual gold is recovered from the leach pads during the closing and reclamation phase at the mine. Residual gold production is expected to end in 2003.

        Product sales revenue for the three and six month periods ended June 30, 2002 was $1.1 million and $2.6 million, respectively, compared to $2.8 million and $3.8 million, respectively, for the same periods in 2001. Product sales revenue for the three and six month periods ended June 30, 2001 includes the recognition of $0.18 million and $0.36 million of deferred revenue. During the three and six month periods ended June 30, 2002, no ounces of gold were sold under forward sales contracts and 3,420 and 8,470 ounces of gold, respectively, were sold on the spot market. During the three and six month periods ended June 30, 2001, 2,000 and 2,900 ounces of gold, respectively were sold under forward sales contracts and 7,700 and 9,700 ounces of gold, respectively, were sold on the spot market. Future product sales revenue will decline as residual gold production decreases during the reclamation and closure phase at the Castle Mountain Mine.

        There was no revenue from mining services for the three and six month periods ended June 30, 2002, compared to $0.2 million and $1.3 million, respectively, for the three and six month periods ended June 30, 2001. As a result of the completion of mining activities at the Castle Mountain Mine in May 2001, there will be no future mining services revenue from the mine.

        Forward Sales Activity.    For the six month period ended June 30, 2002, the average price realized per ounce of gold was $301, compared to $273 per ounce for the six months ended June 30, 2001. The average spot price for the six month period ended June 30, 2002 was $302 per ounce. We had no ounces of gold sold under forward sales contracts as of June 30, 2002. While we have used forward sales contracts in the past, we expect that our gold sales from residual production at the Castle Mountain Mine will be made primarily at spot prices.

        Gross Profit.    We recognized a gross profit from product sales for the three and six month periods ended June 30, 2002 of $0.7 million and $1.0 million, compared to a gross loss of $0.08 million and a gross profit of $0.2 million, respectively, for the same periods in 2001. The higher gross profit in 2002 is due to higher realized gold prices and lower production costs. Future gross profit should decline as residual gold production decreases at the Castle Mountain Mine.

        There was no gross profit from contract mining operations for the three and six month periods ended June 30, 2002, compared to gross losses from contract mining operations of $0.1 million and $0.02 million for the same periods in 2001. Mining operations were completed at the Castle Mountain Mine in 2001.

        Exploration Costs.    Exploration costs for the three and six month periods ended June 30, 2002 were $0.15 million and $0.24 million, respectively, compared to $0.22 million and $0.4 million, respectively, for the three and six month periods ended June 30, 2001. The decrease in expenditures is due to the absence of drilling activities in 2002 on properties being evaluated. During the six months ended June 30, 2002, we focused our exploration efforts on exploration programs in Nevada and Spain.

        General and Administrative Expenses.    General and administrative expenses increased 1% and decreased 33%, respectively, for the three and six month periods ended June 30, 2002, compared to the same periods in 2001. The higher expenses in the six month period ended June 30, 2001 were due to legal and non-recurring payroll related costs.

        Gain on Sale of Assets.    As part of closure activities at the Castle Mountain Mine, mining equipment and assets were sold during the six month periods ended June 30, 2002 and 2001, resulting in a gain on sale of assets for these periods of $0.6 million and $0.1 million, respectively.

        Unconsolidated Affiliate.    In July 2000, we became a limited partner in Peru Exploration Venture LLLP. The general partner is Bear Creek Mining Company. The principal objective of the partnership is to acquire precious and base metal properties in Peru. We account for this investment using the equity method of accounting. Our commitment to the partnership is $1.0 million over a two-year period, which we fully funded as of December 31, 2001. Our share of loss from the partnership for the three and six month periods ended June 30, 2002 was $0.2 million and $0.3 million, respectively. Our share of loss from the partnership for the three and six month periods ended June 30, 2001 was $0.1 million and $0.2 million, respectively.

        On May 29, 2002, the partnership entered into a letter agreement with EVEolution Ventures, Inc., a Canadian-based company, pursuant to which EVEolution Ventures will acquire all outstanding limited partnership interests and all outstanding shares of Bear Creek Mining Company in exchange for shares in EVEolution. If this transaction is completed, we will be a minority shareholder of EVEolution.

        Litigation Settlement.    During the three and six month periods ended June 30, 2001, we recognized a gain on litigation settlement of $0.6 million after deducting related legal expenses.

        Bankruptcy Recovery.    As part of a court approved bankruptcy settlement, unsecured creditors of Washington Group International, Inc. will receive 15% of the common stock of Washington Group. As an unsecured creditor, in the second quarter of 2002 we received an initial distribution of 13,889 shares and warrants to purchase an additional 23,667 shares in Washington Group, with a combined market value of $0.3 million. We recorded this amount as income in the second quarter. The securities are classified as available for sale and any unrealized gains and losses are reflected as a component of other comprehensive income.

        Income Tax Provision.    Due to past net operating losses, we have recorded a gross deferred tax asset of approximately $18.4 million as of June 30, 2002. We have also recorded a valuation allowance against a substantial portion of this asset, resulting in a deferred tax asset of $1.6 million. Deferred tax liabilities are partly offset by this deferred tax asset, resulting in a net deferred tax liability of $4.0 million. A portion of the net operating losses was used to offset income generated during the three and six months ended June 30, 2002.

Liquidity and Capital Resources

        Our principal sources of funds are our cash and cash equivalents, cash generated from residual gold production at the Castle Mountain Mine and our credit facility. At June 30, 2002, we had cash and cash equivalents of $1.0 million and gold bullion of $0.2 million, representing a decrease in cash and cash equivalents and gold bullion of $0.6 million from December 31, 2001. We expect that our cash and cash equivalents and available borrowings under our credit facility will be sufficient to cover operating expenses through 2002. However, we will need additional funding for development costs at the Las Cruces project, including land acquisition and basic engineering costs. We estimate that the capital cost will be approximately $290 million to bring the Las Cruces project into production.

        Until May 2001, our revenues came from two sources: contract mining at the Castle Mountain Mine and the sale of gold from the mine. Since the completion of mining activities at the Castle Mountain Mine in May 2001, our only source of revenue has been sales of residual gold recovered from the leach pads during the closure and reclamation phase at the mine. Based on our current operations, expected overhead expenses and exploration costs, we will not have significant positive cash flow from operations until production of refined copper begins at the Las Cruces project.

        Net cash provided by operating activities was $0.8 million for the six months ended June 30, 2002 compared to net cash used of $0.3 million for the same period in 2001. The increase in cash from operations during the first half of 2002 compared to the same period in 2001 is due primarily to higher realized gold prices, lower production costs and decreased exploration and general and administrative expenditures. We expect that our cash and cash equivalents, operating cash flows and available borrowings on our credit agreement will be sufficient to cover operating expenses into 2003. However, our cash resources will not be sufficient to cover all projected costs and expenses necessary to commence mining at the Las Cruces project. Basic engineering and land acquisition activities are scheduled to begin at the project once the required permits have been granted. We will require financing in order to proceed with basic engineering and land acquisition activities.

        In March 1998, we entered into a $20 million credit facility with Leucadia National Corporation. Effective March 1, 2000, the credit facility was amended to increase the amount of the facility to $30 million. Effective April 1, 2001, the credit facility was amended to extend the expiration to July 1, 2002. Effective July 1, 2001, the credit facility was amended to increase the amount of the facility to $35 million and to extend the expiration to January 2, 2003. Leucadia may terminate the credit facility on December 15 of any year, provided Leucadia notifies us of the termination prior to September 15 of that year. Leucadia has indicated that it does not intend to exercise this early termination right in 2002. At June 30, 2002, we had outstanding borrowings under the credit facility of $30 million. Loans outstanding under the credit facility bear interest equal to the prime rate and interest and commitment fees are payable quarterly. The prime rate at June 30, 2002 was 4.75%.

        Because our credit facility expires on January 2, 2003, all outstanding borrowings under the credit facility have been classified as a current liability. Classifying borrowings under the credit facility as a current liability caused us to be out of compliance with two financial ratio requirements under the credit facility. Effective January 2, 2002, we obtained a waiver from compliance with these ratios. This waiver allows us to continue to borrow funds under the credit facility during its remaining term. We are compliant with all other requirements under the credit facility.

        We are exploring various financing alternatives for projected costs and expenses associated with the Las Cruces project. In addition, we will need to repay our credit facility. We will not be able to fund the project and repay the credit facility solely from debt financing. We will need to raise a significant amount of the funds from equity investors, which we are considering doing through a subscription rights offering to our existing stockholders. Although we believe that a rights offering is a viable option, we cannot assure you that we will actually commence a rights offering or that, if commenced, such a rights offering will be successful. If we commence a rights offering, we do not expect to do so until the key water permits have been obtained for the Las Cruces project. Since this may not happen by the end of this year and our credit facility expires on January 2, 2003, we will likely have to seek an extension of the term of the credit facility from Leucadia. If we are unable to obtain an extension from Leucadia, we may need to seek alternative financing, which may not be available on favorable terms, if at all.

        We are also considering other sources of financing, including product off-take agreements, which are a type of product sales agreement, supplier financing and equipment leasing. We plan to secure debt financing for approximately 70% of the project's capital requirements. We expect debt financing to be primarily funded through a syndicated project financing facility using a lead international bank experienced in mining project financing. While we believe that we will be able to obtain financing for the Las Cruces project, we cannot assure you that we will be able to obtain financing on favorable terms or at all. If we are unable to obtain financing when needed, the development of the Las Cruces project could be delayed significantly. Any significant delay could increase the costs of developing the Las Cruces project or prohibit us from completing development of the project.

        Our sources of funds available to fund new mining projects are limited. We used a significant portion of our existing sources of funds to acquire the Las Cruces project for $42 million in September 1999. Accordingly, our ability to begin new mining projects depends on our ability to obtain additional sources of funds to finance these mining projects. While we believe that we may be able to obtain financing for new mining projects through project financing or otherwise, we cannot assure you that we will be able to obtain financing on favorable terms or at all.

        Additions to mining properties, plant and mine development totaled $1.8 million for the six months ended June 30, 2002, compared to $2.7 million for the same period in 2001. For all periods presented, additions to mining properties, plant and mine development consisted of: (1) mine development expenditures; (2) construction expenditures for buildings, machinery, plant and equipment; and (3) expenditures for mobile mining service equipment. Development costs incurred at the Las Cruces project, including interest and the costs of a feasibility study, are capitalized and are reflected as investing activities in our consolidated statements of cash flows. The principal source of funds that we used to fund project development at the Las Cruces project was our credit facility with Leucadia.

        Upon completion of production at a mine, we must make expenditures for reclamation and closure of the mine. We provide for future reclamation and mine closure liabilities on a units-of-production basis. At June 30, 2002, we had accrued $2.0 million for these costs, including $1.8 million for the Castle Mountain Mine. In addition to the accruals, we and Viceroy Resource Corporation, the owner of the remaining 75% interest in the Castle Mountain Venture, have deposited cash, including proceeds from the sale of plant and equipment, in a separate fund to cover future reclamation costs at the venture properties. Our contributions to this fund totaled $2.0 million at June 30, 2002. We review the adequacy of our reclamation and mine closure liabilities in light of current laws and regulations and adjust our liabilities as necessary.

        In October 1998, we announced a share repurchase program. Our board of directors authorized the repurchase of up to 2 million shares. As of August 5, 2002, we had repurchased 173,700 shares under the repurchase program.

Cautionary Statement for Forward Looking Information

        Certain information set forth in this report contains "forward-looking statements" within the meaning of federal securities laws. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, exploration efforts, financing needs, plans or intentions relating to acquisitions by us and other information that is not historical information. When used in this report, the words "estimates," "expects," "anticipates," "forecasts," "plans," "intends," "believes" and variations of such words or similar expressions are intended to identify forward-looking statements. Additional forward-looking statements may be made by us from time to time. All such subsequent forward-looking statements, whether written or oral and whether made by or on behalf of us, are also expressly qualified by these cautionary statements.

        Our forward-looking statements are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and are believed by us to have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in our records and other data available from third parties, but there can be no assurance that management's expectations, beliefs and projections will result or be achieved or accomplished. Our forward-looking statements apply only as of the date made. Except as required by law, we undertake no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.

        There are a number of risks and uncertainties that could cause actual results to differ materially from those set forth in, contemplated by or underlying the forward-looking statements contained in this report. These risks include, but are not limited to, dependence on a single mining project, our need for financing, potential delays in development of the Las Cruces project, imprecision of estimates, uncertainty of government subsidies, volatility of copper prices, currency fluctuations, significant indebtedness, risks associated with mining activities, risks of development in foreign countries, environmental and other laws and regulations, competition, reliance upon key executives and having a controlling shareholder. Each of these risks and certain other uncertainties are discussed in more detail in our Annual Report on Form 10-K for the year ended December 31, 2001. There may also be other factors, including those discussed elsewhere in this report, that may cause our actual results to differ materially from the forward-looking statements. Any forward-looking statements made by or on our behalf should be considered in light of these factors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        See note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2001 for additional information regarding forward sales activities and our adoption of Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities."

Copper Price Risk

        Our future profitability and long-term viability will depend, in large part, on the market price of copper. Market prices for copper are volatile and are affected by numerous factors beyond our control, including expectations regarding inflation, global and regional demand, speculative activities, political and economic conditions, and production costs in major copper producing regions. The aggregate effect of these factors on copper prices is impossible for us to predict. A decrease in copper prices could adversely affect our ability to finance the development of the Las Cruces project, which would have a material adverse affect on our results of operations and financial condition.

        From time to time, we may seek to mitigate the risk of fluctuations in copper prices through periodic forward sales. Forward sales transactions result in a reduction in possible revenue if the contract price is less than the market price at the time of settlement. Additional risks associated with forward sales activities could result if we are unable to meet the delivery requirements of forward sales contracts or to extend delivery dates if necessary. The relative risks and benefits of engaging in forward sales activities depend on prevailing market conditions.

Gold Price Risk

        The results of our operations from residual gold production at the Castle Mountain Mine are affected significantly by the market price of gold. Gold prices are influenced by numerous factors over which we have no control, including expectations with respect to the rate of inflation, the relative strength of the United States dollar and other currencies, interest rates, global or regional political or economic crises, demand for gold for jewelry and industrial products and sales by holders and producers of gold in response to these factors. In the past we have entered into option contracts and forward sales contracts to establish a minimum selling price on some of the ounces of gold that we produce. We do not enter into option or sales contracts for the purpose of speculative trading. Our current policy provides for the use of forward sales contracts for up to 80% of the remaining residual production at the Castle Mountain Mine. However, we expect to sell the remaining production primarily at spot prices at various times. At June 30, 2002, we had no ounces of gold sold under forward sales contracts.

Foreign Currency Exchange Rate Risk

        Portions of our activities are located in Spain and Peru. We also conduct exploration activities in other countries from time to time. Our future profitability could be impacted by fluctuations in foreign currencies relative to the United States dollar. We have not entered into any foreign currency contracts or other derivatives to establish a foreign currency protection program.

Interest Rate Risk

        At June 30, 2002, we had borrowed $30 million under our credit facility with Leucadia National Corporation. The credit facility carries a variable interest rate equal to the prime rate. At June 30, 2002, the prime rate was 4.75%. The credit facility will expire on January 2, 2003, unless terminated earlier. Leucadia may terminate the credit facility on December 15 of any year, provided Leucadia notifies us of the termination before September 15 of that year. Leucadia has indicated that it does not intend to exercise this early termination right in 2002. We have not undertaken any hedging activities with respect to the credit facility.

PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        On May 23, 2002, we held our annual meeting of stockholders in Salt Lake City, Utah. The first item of business was the election of two directors. The votes were tabulated as follows: Thomas E. Mara received 36,456,484 votes and 7,629 votes were withheld; and James P. Miscoll received 36,456,484 votes and 7,629 votes were withheld. Five directors who were not up for re-election continue to serve as directors: Ian M. Cumming, G. Frank Joklik, H. E. Scruggs, Robert S. Shriver and Joseph S. Steinberg. The second item of business was a proposal to ratify the selection of PricewaterhouseCoopers LLP as independent accountants to audit our consolidated financial statements for the year ending December 31, 2002. The votes were tabulated as follows: 36,370,576 were cast for, 33,000 were cast against, and 60,600 abstained. The third item of business was a proposal to amend our certificate of incorporation to increase the authorized shares of our common stock from 80 million to 380 million. The votes were tabulated as follows: 36,353,558 were cast for, 100,418 were cast against, and 10,200 abstained. We will not amend our certificate of incorporation unless we commence a subscription rights offering to our existing stockholders, which we do not expect to do before the fourth quarter of 2002, if at all.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)

The following exhibits are filed with this report:



99.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



99.2

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarabanes-Oxley Act of 2002.




(b)

No report on Form 8-K was filed during the quarter for which this report is filed.

SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 14, 2002

INDEX TO EXHIBITS

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ITEM 1. FINANCIAL STATEMENTS

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K