Back to GetFilings.com

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the period ended September 30, 2002
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 1-11887

CANYON RESOURCES CORPORATION

I.R.S. Employer Identification Number 84-0800747

14142 Denver West Parkway, Suite 250
Golden, CO 80401
(303) 278-8464

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act. Yes [  ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 20,148,102 shares of the Company’s Common Stock were outstanding as of November 1, 2002.

Table of Contents

CANYON RESOURCES CORPORATION
FORM 10-Q
For the Quarter ended September 30, 2002

TABLE OF CONTENTS

Table of Contents

Item 1. Financial Statements

	The following consolidated financial statements have been prepared by Canyon Resources Corporation (“the Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations.
	These consolidated financial statements should be read in conjunction with the financial statements and accompanying notes included in the Company’s Form 10-K for the year ended December 31, 2001.

3

Table of Contents

CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)

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

4

Table of Contents

CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

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

5

Table of Contents

CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

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

6

Table of Contents

CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(Unaudited)

Supplemental disclosures of cash flow information:

1.		The Company paid $154,100 of interest during the first nine months of 2002, and $357,600 during the corresponding period of 2001.
2.		The Company paid no income taxes during the first nine months of 2002 nor the corresponding period of 2001.

Supplemental schedule of noncash investing and financing activities:

1.		The Company issued 1,881,000 shares of common stock with a fair market value of $2,679,200 to certain creditors as payment for goods and services during the first nine months of 2002.
2.		The Company issued 66,600 shares of common stock with a fair market value of $61,200 to an employee as compensation for services during the first nine months of 2002.
3.		The Company issued 2,500 shares of common stock with a fair market value of $5,000 as consideration for a mining lease during the first nine months of 2002.
4.		The Company purchased a net smelter return royalty during the first nine months of 2001 by agreeing to issue 1,050,000 shares of its common stock with a fair market value of $1,207,500.
5.		The Company acquired certain real property interests during the first nine months of 2001 by issuing 200,000 shares of its common stock with a fair market value of $200,000.
6.		Capital lease obligations of $443,900 were incurred during the first nine months of 2001.
7.		The Company financed an equipment lease buy-out in the amount of $167,400 during the first nine months of 2001.

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

7

Table of Contents

CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)

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

8

Table of Contents

CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.		Basis of Presentation:
		During interim periods, Canyon Resources (the Company) follows the accounting policies set forth in its Annual Report to Stockholders and its Report on Form 10-K filed with the Securities and Exchange Commission. Users of financial information produced for interim periods are encouraged to refer to the footnotes contained in the Annual Report to Stockholders when reviewing interim financial results.
		In the opinion of management, the accompanying interim financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial position, the results of operations, and the cash flows of Canyon Resources and its consolidated subsidiaries for interim periods. These interim results are not necessarily indicative of the results of operations or cash flows for the full year ending December 31, 2002.
2.		Management Estimates and Assumptions:
		Certain amounts included in or affecting the Company’s financial statements and related disclosures must be estimated, requiring that certain assumptions be made with respect to values or conditions which cannot be made with certainty at the time the financial statements are prepared. Therefore, the reported amounts of the Company’s assets and liabilities, revenues and expenses, and associated disclosures with respect to contingent assets and obligations are necessarily affected by these estimates. The Company evaluates these estimates on an ongoing basis, utilizing historical experience, consultation with experts, and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from the Company’s estimates.
3.		Adoption of New Accounting Standard:
		On January 1, 2002, the Company became subject to the accounting and reporting requirements of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 supercedes Statement of Financial Accounting Standards No. 121 but retains the requirement to recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and to measure an impairment loss as the difference between the carrying amount and fair value of the asset. SFAS No. 144 eliminates the requirement to allocate goodwill to long-lived assets to be tested for impairment. SFAS No. 144 also requires that a long-lived asset to be abandoned, exchanged for a similar productive asset, or distributed to owners in a spin off be considered held and used until it is disposed of by sale, whether previously held and used or newly acquired. SFAS No.144 additionally broadens the

9

Table of Contents

CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3.		Adoption of New Accounting Standard, continued:
		presentation of discontinued operations in the income statement to include a component of an entity rather than a segment of a business. Upon adoption, there was no impact on the Company’s results of operations or financial position.
4.		Restricted Cash:
		Restricted cash consisted of the following at:

	(a)		In connection with the issuance of certain bonds for the performance of reclamation obligations and other contingent events at the Briggs Mine, a bank Letter of Credit was provided in favor of the Surety as partial collateral for such bond obligations. The Letter of Credit is fully collateralized with cash and will expire no earlier than December 31, 2002, and at the bank’s option, may be renewed for successive one-year periods.
	(b)		Held directly by the Surety in an interest bearing account as partial collateral for reclamation and other contingent events at the Briggs Mine.
	(c)		Held directly by the Montana Department of Environmental Quality in an interest bearing account for use in continuing reclamation at the Kendall minesite.
	(d)		The Briggs Mine loan facility requires all proceeds from gold sales to be held in trust and disbursed from the collected credit balance in certain orders of priority.

10

Table of Contents

CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

4.

Restricted Cash, continued:

(e)

Certain proceeds received by the Company from an auction of mineral rights and fee lands in western Montana have been sequestered in connection with a lawsuit. (See Note 7(e)).

5.		Inventories:
		Inventories consisted of the following at:

(a)

Includes all direct and indirect costs of mining, crushing, processing, and site overhead expenses.

6.		Notes Payable:
		Notes payable consisted of the following at:

(a)

During the third quarter of 2002, the weighted average interest rate on the loan facility was 4.3%. For the comparable period in 2001, the weighted average interest rate was 6.2%. For the nine months ended September 30, 2002, the weighted average interest rate was 4.3%. For the comparable period in 2001, the weighted average interest rate was 7.3%.

11

Table of Contents

CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

6.		Notes Payable, continued:
		At September 30, 2002, remaining scheduled principal payments are as follows:

7.

Commitments and Contingencies:

	(a)		Kendall Mine Reclamation
			The Kendall Mine operates under permits granted by the Montana Department of Environmental Quality (DEQ). In January 2002, the DEQ issued a decision that a comprehensive Environmental Impact Statement (EIS) is needed for completion of reclamation at Kendall. The Company feels that it is crucial that reclamation proceed at Kendall without further delay and, therefore, disagrees with the agency decision. The Company has filed an appeal with respect to the DEQ decision to conduct an EIS and that appeal is currently stayed pending further discussions with the DEQ. The Company’s estimate of costs remaining to achieve mine closure of approximately $1.5 million could be impacted by the outcome of an agency decision following an EIS.
	(b)		Surety Bonds
			The Briggs Mine operates under permits granted by various agencies including the U.S. Bureau of Land Management (BLM), Inyo County, the California Department of Conservation, and the Lahontan Regional Water Quality Control Board (Lahontan). These agencies have jointly required the Company to post a reclamation bond in the amount of $3,030,000 to ensure appropriate reclamation. Additionally, the Company was required by Lahontan to post a $1,010,000 bond to ensure adequate funds to mitigate any “foreseeable release”, as defined, of pollutants to state waters. Both bonds are subject to annual review and adjustment. At September 30, 2002, the Surety issuing the bonds held the following collateral: (i) cash in the amount of $149,000; (ii) a bank Letter of Credit in the amount of $249,000 which is collateralized with cash; and (iii) a security interest in 28,000 acres of real property mineral interests in Montana. In addition, the Company agreed to make additional cash deposits with the Surety totaling $1.5 million over a three year period at the rate of $0.5 million per year, commencing June 30, 2001. The Company has not made the $0.5 million

12

Table of Contents

CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

7.

Commitments and Contingencies, continued:

			deposit due on June 30, 2001, nor the $0.5 million deposit due on June 30, 2002, and is in discussions with the Surety to reschedule the deposit requirements.
			On or before October 20, 2002, the Company was required to replace a $0.5 million surety bond supported by Newmont Capital Limited (Newmont), the successor-in-interest to Franco-Nevada Mining Corporation in connection with reclamation obligations at the McDonald Gold Project. The Company has not yet replaced the bond and is in discussions with Newmont for disposition of this matter.

	(c)		Contingent Liability:
			On September 25, 1997, the Company, together with its wholly-owned subsidiary, CR Montana Corporation (CR Montana), purchased a 72.25% participating interest and underlying assets in the Seven-Up Pete Venture (SPV) from CR Montana’s partner in the SPV, Phelps Dodge Corporation (Phelps Dodge). The Company and its wholly-owned subsidiary now own 100% of the SPV. The SPV includes the McDonald Gold Project near Lincoln, Montana.
			The Company made an initial payment of $5 million and is required to make a final payment of $10 million upon issuance of all permits required for construction of the McDonald Gold Project, or alternatively, one-third of any proceeds received from a takings lawsuit. Due to the contingent nature of the transaction, the Company recorded only the initial payment of $5 million as additions to mining claims and leases.
			The purchase payments are collateralized only by the 72.25% participating interest and underlying assets in the SPV transferred from Phelps Dodge to the Company and CR Montana in this transaction, and the 50% co-tenancy interest in certain real property also transferred to the Company and CR Montana.

	(d)		Anti-Cyanide Mining Initiative (I-137)
			In November 1998, the Montana electorate passed an anti-cyanide mining initiative (I-137) by a vote of 52% to 48%. I-137, as modified by the State Legislature in April 1999, bans development of new gold and silver mines, which use open-pit mining methods and cyanide in the treatment and recovery process. In April 2000, the SPV filed lawsuits in Montana State District Court and in the United States District Court, seeking to have I-137 declared unconstitutional, or, alternatively, to obtain a “takings” or damage award for the lost value of the McDonald, Seven-Up Pete and

13

Table of Contents

CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

7.

Commitments and Contingencies, continued:

			Keep Cool mineral properties. These lawsuits are based on, amongst others, (i) the right not to be deprived of property without due process of law; (ii) the right to equal protection under the laws; and (iii) the right to be protected against laws which impair the obligations of existing contracts. The United States District Court issued a ruling August 30, 2001 in which the Court dismissed the SPV’s substantive due process claim but, as requested by the SPV, ruled that the remainder of the SPV’s claims could be pursued at such time as the State lawsuit was resolved. The Montana State District Court issued a ruling November 1, 2001 in response to a Motion to Dismiss and a Motion For Summary Judgment by the State of Montana. In this ruling, the Court dismissed four of the SPV’s fourteen counts, including its substantive due process and equal protection challenges to I-137’s validity. The decision maintained for adjudication the contract impairment validity challenge, contract damage claims, and all of the takings claims. Following the November 2001 ruling by the State District Court, the State filed a new Motion for Summary Judgment as to all claims. The State’s position is that I-137 should have been reasonably anticipated by the SPV under the terms of the SPV’s State mineral leases and therefore, SPV has no valid claims. The State’s Motion was heard by the Court on August 12, 2002 and the Court’s decision on the Motion is expected shortly. The Company’s legal counsel, Gough, Shanahan, Johnson & Waterman of Helena, Montana, believes, based on discovery information and extensive case law, that the State’s contentions are not well founded and that it is likely that I-137 will be overturned, declared invalid, or modified so as to allow permitting of an application for an open-pit, cyanide heap-leaching operation at the McDonald Gold Project.
	(e)		Kendall Mine Lawsuit:
			In October 2001, a Plaintiff group filed suit in Montana District Court against the Company and its wholly-owned subsidiary, CR Kendall Corporation, alleging violation of water rights and other torts in connection with the operation of the Kendall Mine. The Complaint seeks unspecified damages and punitive damages. The Company believes the allegations are completely without merit and that the Company will prevail in this matter.
			In August 2002, a Preliminary Injunction was issued in Montana District Court on behalf of the Plaintiff group in connection with the Company’s auction of certain mineral rights and fee lands in Western Montana. In October 2002, the Court issued a Supplemental Order which will sequester up to $528,000 of any proceeds realized from the auction until such time as the lawsuit is concluded. The Company has filed an appeal to this Order with the Montana State Supreme Court.

14

Table of Contents

CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

8.		Derivative Instruments and Price Protection Arrangements:
		The Company, as required by its Briggs Mine loan facility, utilizes forward sales contracts to limit or reduce market exposure from the sale of gold from the Briggs Mine. At September 30, 2002, the Company had outstanding contracts on 21,900 ounces of gold at an average price of approximately $270 per ounce with a fair market value that was $1,197,300 less than contractual amounts. At June 30, 2002, the fair market value of the Company’s forward contracts (36,600 ounces of gold at an average price of approximately $269 per ounce) was $1,649,800 less than contractual amounts. At December 31, 2001, the fair market value of the Company’s forward contracts (51,600 ounces at an average price of approximately $268 per ounce) was $597,600 less than contractual amounts. For the three and nine months ended September 30, 2002, the changes in the mark-to-market calculations of the contracts of $452,500 and ($599,700), respectively, are shown as a separate line item in the other income (expense) section on the Statement of Operations.
		On June 30, 1999, the Company converted its Briggs Mine gold loan to a cash loan. In connection with the conversion, the Company reduced the monetized amount of the debt to fair value, resulting in a gain of $2.5 million, which was deferred. During the third quarters of 2002 and 2001, $0.3 million of the gain was recognized in each period. For the nine months ended September 30, 2002 and 2001, $0.9 million of the gain was recognized in each period. The gains are included in revenues on the Statement of Operations.
		The Company liquidated certain gold contracts in 1999. The gain on the liquidation was deferred and has been recognized in operations based on the original expected settlement dates of the forward contracts. For the nine months ended September 30, 2001, deferred income of $0.3 million is included in revenues on the Statement of Operations in connection with the transaction.
		During the first nine months of 2001, the Company entered into a forward position on 20,000 ounces and financially settled the contract with its counterparty, which resulted in a gain of $164,600. This amount is included in other income on the Statement of Operations.
9.		Earnings per Share (EPS):
		The Company computes EPS by applying the provisions of Financial Accounting Standards No. 128, Earnings per Share. Inclusion of common stock equivalents had no effect on per share amounts for three months ended September 30, 2002. As the Company reported net losses for all other periods presented, inclusion of common stock equivalents would have an antidilutive effect on per share amounts. Accordingly, the Company’s basic and diluted EPS computations are the same for the periods presented. Common stock equivalents that were not included in the computation of diluted EPS for the three months ended September 30, 2002

15

Table of Contents

CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

9.		Earnings per Share (EPS), continued:
		and 2001, were 116,800 and 776,400, respectively. For the nine months ended September 30, 2002 and 2001, common stock equivalents that were not included in the computation of diluted EPS were 1,816,200 and 763,900, respectively.
10.		Income Taxes:
		The Company has not recorded a current tax benefit as the benefit is not expected to be realized during the year. The benefit is also not realizable as a deferred tax asset as the Company records a full valuation allowance for all deferred tax assets, except to the extent of offsetting reversals of expected deferred tax liabilities.
11.		Recently Issued Financial Accounting Standards:
		In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (SFAS No. 143). SFAS No.143 establishes accounting and reporting standards for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 contains disclosure requirements that provide descriptions of asset retirement obligations and reconciliations of changes in the components of those obligations. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002 (January 1, 2003 for the Company). The Company cannot presently determine the future impact that the adoption of SFAS No. 143 may have on its results of operations or financial position.
		In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS No. 145) which is generally effective for transactions occurring after May 15, 2002. Through the rescission of FASB Statements 4 and 64, SFAS No. 145 eliminates the requirement that gains and losses from extinguishment of debt be aggregated and, if material, be classified as an extraordinary item net of any income tax effect. SFAS No. 145 made several other technical corrections to existing pronouncements that may change accounting practice. The Company does not believe SFAS No. 145 will have a material impact on its results of operations or financial position.
		In June 2002, the Financial Accounting Standards Board issued Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS No. 146). SFAS No. 146 is effective for exit or disposal activities that are initiated after

16

Table of Contents

CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

11.		Recently Issued Financial Accounting Standards, continued:
		December 31, 2002. This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The Company does not believe that SFAS No. 146 will have a material impact on its results of operations or financial position.
12.		Securities and Exchange Commission Review of Company’s Filings
		The Company’s recent filings under the Securities Exchange Act of 1934 have been reviewed by the Securities and Exchange Commission (SEC) in connection with a registration statement filed by the Company in May 2002. As a result of that review, the SEC staff has commented on, among other matters, (i) certain aspects of the Company’s accounting with respect to capitalizing approximately $13 million of development costs on the McDonald Gold Project and (ii) limiting disclosures in the Company’s filings to only minimal existing geologic information and no forward looking information with respect to developing the McDonald and Seven-Up Pete properties due to the legal impediment (I-137) that currently exists. The Company is continuing to discuss these matters with the SEC staff and has made submissions in response to the comments. Depending on the outcome of the ongoing discussions with the SEC staff, it is possible that some or all of the $13 million of development costs may be written off against earnings in prior periods. No final determinations will be made until the conclusion of those discussions.

17

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995.

     The matters discussed in this report on Form 10-Q, when not historical matters, are forward-looking statements that involve a number of risks and uncertainties that could cause actual results to differ materially from projected results. Such factors include, among others, the speculative nature of mineral exploration, commodity prices, production and reserve estimates, environmental and government regulations, availability of financing, force majeure events, and other risk factors as described from time to time in the Company’s filings with the Securities and Exchange Commission. Many of these factors are beyond the Company’s ability to control or predict. The Company disclaims any intent or obligation to update its forward-looking statements, whether as a result of receiving new information, the occurrence of future events, or otherwise.

Results of Operations

     The Company recorded net income of $0.2 million, or $0.01 per share, on revenues of $4.9 million for the third quarter of 2002 and a net loss of $2.9 million, or $0.16 per share, on revenues of $11.8 million during the first nine months of 2002. This compares to a net loss of $2.2 million, or $0.16 per share, on revenues of $8.9 million for the third quarter of 2001 and a net loss of $4.9 million, or $0.37 per share, on revenues of $22.4 million during the first nine months of 2001. Results for the three and nine months ended September 30, 2002, were favorably impacted by gains on asset dispositions of $1.3 million and $2.7 million, respectively.

     For the three months ended September 30, 2002, the Company sold 16,700 ounces of gold and 2,500 ounces of silver at an average price of $294 per equivalent gold ounce. For the comparable period of 2001, the Company sold 31,800 ounces of gold and 8,000 ounces of silver at an average realized price of $281 per equivalent gold ounce. The New York Commodity Exchange (COMEX) gold price averaged $314 and $274 per ounce for the three months ended September 30, 2002 and 2001, respectively.

     The following table summarizes the Company’s gold deliveries and revenues for the three months ended September 30, 2002 and the comparable period for 2001:

18

Table of Contents

     For the nine months ended September 30, 2002, the Company sold 38,938 ounces of gold and 11,554 ounces of silver at an average price of $303 per equivalent gold ounce. For the comparable period of 2001, the Company sold 77,643 ounces of gold and 17,400 ounces of silver at an average realized price of $289 per equivalent gold ounce. The COMEX gold price averaged $306 and $268 per ounce for the nine months ended September 30, 2002 and 2001, respectively.

     The following table summarizes the Company’s gold deliveries and revenues for the nine months ended September 30, 2002 and the comparable period for 2001.