Table
of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
|
QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the quarterly period ended June 30, 2008
|
|
|
OR
|
|
|
o
|
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
Commission File Number 1-9025
VISTA GOLD CORP.
(Exact name of registrant as specified in its charter)
Continued
under the laws of the Yukon Territory, Canada
|
|
None
|
(State or
other jurisdiction of incorporation or organization)
|
|
(IRS
Employer Identification No.)
|
|
|
|
7961
Shaffer Parkway
|
|
|
Suite 5
|
|
|
Littleton,
Colorado
|
|
80127
|
(Address of
principal executive offices)
|
|
(Zip Code)
|
|
|
|
(720)
981-1185
|
(Registrants
telephone number, including area code)
|
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports); and (2) has
been subject to the filing requirements for the past 90 days:
Yes
x
No
o
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of large accelerated filer, accelerated filer, and
smaller reporting company in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer
o
|
|
Accelerated
filer
x
|
|
|
|
Non-accelerated
filer
o
|
|
Smaller
reporting company
o
|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act):
Yes
o
No
x
Indicate the
number of shares outstanding of each of the issuers classes of common stock,
as of the latest practicable date:
34,452,117
Common Shares,
without par value, outstanding at August 8, 2008
Table
of Contents
VISTA GOLD CORP.
(An Exploration Stage Enterprise)
FORM 10-Q
For the Quarter Ended June 30, 2008
INDEX
In this Report, unless otherwise indicated,
all dollar amounts are expressed in United States dollars.
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
VISTA GOLD
CORP. (An Exploration Stage Enterprise)
CONSOLIDATED
BALANCE SHEETS - UNAUDITED
(U.S. dollars in thousands)
|
|
June 30,
2008
|
|
December 31,
2007
|
|
Assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
23,205
|
|
$
|
16,686
|
|
Marketable securities - Note 4
|
|
10,229
|
|
10,882
|
|
Accounts receivable
|
|
157
|
|
91
|
|
Short-term loans receivable - Note 3
|
|
350
|
|
|
|
Prepaids and other
|
|
580
|
|
289
|
|
Current assets
|
|
34,521
|
|
27,948
|
|
|
|
|
|
|
|
Mineral properties - Note 5
|
|
24,523
|
|
18,052
|
|
Amayapampa disposal consideration - Note 3
|
|
4,813
|
|
|
|
Plant and equipment - Note 6
|
|
17,023
|
|
467
|
|
Other long-term receivables
|
|
16
|
|
66
|
|
Assets held for sale
|
|
|
|
4,813
|
|
|
|
46,375
|
|
23,398
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
80,896
|
|
$
|
51,346
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity:
|
|
|
|
|
|
Accounts payable
|
|
$
|
19
|
|
$
|
102
|
|
Accrued liabilities and other
|
|
1,121
|
|
592
|
|
Current liabilities
|
|
1,140
|
|
694
|
|
|
|
|
|
|
|
Convertible notes - Note 7
|
|
22,415
|
|
|
|
Total liabilities
|
|
23,555
|
|
694
|
|
|
|
|
|
|
|
Capital stock, no par value: - Note 8
|
|
|
|
|
|
Common - unlimited shares authorized;
shares outstanding:
2008 - 34,452,117 and 2007 - 33,257,906
|
|
224,946
|
|
220,772
|
|
Warrants - Note 9
|
|
867
|
|
531
|
|
Options - Note 10
|
|
4,397
|
|
3,824
|
|
Contributed surplus
|
|
253
|
|
253
|
|
Equity component of convertible notes -
Note 7
|
|
6,308
|
|
|
|
Accumulated other comprehensive income -
Note 11
|
|
6,923
|
|
7,547
|
|
Deficit
|
|
(186,353
|
)
|
(182,275
|
)
|
Total shareholders equity
|
|
57,341
|
|
50,652
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
80,896
|
|
$
|
51,346
|
|
|
|
|
|
|
|
Subsequent events - Note 16
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
1
Table
of Contents
VISTA GOLD CORP. (An Exploration Stage Enterprise)
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS -
UNAUDITED
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
Cumulative
during
Exploration
|
|
(U.S. dollars in thousands, except share data)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Stage
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
171
|
|
$
|
342
|
|
$
|
280
|
|
$
|
758
|
|
$
|
2,299
|
|
Other income
|
|
11
|
|
2
|
|
14
|
|
4
|
|
434
|
|
Cost recoveries related to USF&G
lawsuit
|
|
|
|
|
|
|
|
|
|
240
|
|
Total other income
|
|
$
|
182
|
|
$
|
344
|
|
$
|
294
|
|
$
|
762
|
|
$
|
2,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Exploration, property evaluation and
holding costs
|
|
$
|
(252
|
)
|
$
|
(202
|
)
|
$
|
(497
|
)
|
$
|
(478
|
)
|
$
|
(2,292
|
)
|
Corporate administration and investor
relations
|
|
(1,253
|
)
|
(917
|
)
|
(2,540
|
)
|
(1,635
|
)
|
(17,009
|
)
|
Costs of Arrangement
|
|
|
|
(2,352
|
)
|
|
|
(2,352
|
)
|
(2,901
|
)
|
Depreciation and amortization
|
|
(40
|
)
|
(27
|
)
|
(79
|
)
|
(53
|
)
|
(279
|
)
|
Gain/(loss) on currency translation
|
|
13
|
|
41
|
|
6
|
|
37
|
|
(36
|
)
|
Interest expense
|
|
(585
|
)
|
|
|
(769
|
)
|
|
|
(769
|
)
|
Gain/(loss) on disposal of marketable
securities
|
|
(88
|
)
|
|
|
(67
|
)
|
140
|
|
264
|
|
Costs of Amayapampa disposal - Note 3
|
|
(132
|
)
|
|
|
(132
|
)
|
|
|
(132
|
)
|
Other expense
|
|
|
|
|
|
|
|
|
|
(418
|
)
|
Total costs and expenses
|
|
(2,337
|
)
|
(3,457
|
)
|
(4,078
|
)
|
(4,341
|
)
|
(23,572
|
)
|
Loss from continuing operations
|
|
$
|
(2,155
|
)
|
$
|
(3,113
|
)
|
$
|
(3,784
|
)
|
$
|
(3,579
|
)
|
$
|
(20,599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(72
|
)
|
$
|
(115
|
)
|
$
|
(294
|
)
|
$
|
(425
|
)
|
$
|
(16,879
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,227
|
)
|
$
|
(3,228
|
)
|
$
|
(4,078
|
)
|
$
|
(4,004
|
)
|
$
|
(37,478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized fair-value increase/(decrease)
of available-for-sale securities
|
|
1,101
|
|
4,296
|
|
(691
|
)
|
4,287
|
|
|
|
Realized (gain)/loss on available-for-sale
securities
|
|
88
|
|
|
|
67
|
|
(140
|
)
|
|
|
|
|
1,189
|
|
4,296
|
|
(624
|
)
|
4,147
|
|
|
|
Comprehensive income
|
|
$
|
(1,038
|
)
|
$
|
1,068
|
|
$
|
(4,702
|
)
|
$
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
outstanding
|
|
34,420,130
|
|
32,045,503
|
|
34,211,221
|
|
31,987,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share from
continuing operations
|
|
$
|
(0.06
|
)
|
$
|
(0.10
|
)
|
$
|
(0.11
|
)
|
$
|
(0.11
|
)
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.06
|
)
|
$
|
(0.10
|
)
|
$
|
(0.12
|
)
|
$
|
(0.13
|
)
|
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
VISTA GOLD CORP. (An Exploration Stage Enterprise)
CONSOLIDATED STATEMENTS OF DEFICIT - UNAUDITED
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(U.S. dollars in thousands)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Deficit, beginning of period
|
|
$
|
(184,126
|
)
|
$
|
(132,691
|
)
|
$
|
(182,275
|
)
|
$
|
(131,915
|
)
|
Net loss
|
|
(2,227
|
)
|
(3,228
|
)
|
(4,078
|
)
|
(4,004
|
)
|
Dividend-in-kind
|
|
|
|
(36,159
|
)
|
|
|
(36,159
|
)
|
Deficit, end of period
|
|
$
|
(186,353
|
)
|
$
|
(172,078
|
)
|
$
|
(186,353
|
)
|
$
|
(172,078
|
)
|
The accompanying notes are an integral part
of these consolidated financial statements.
2
Table of Contents
VISTA GOLD CORP. (An Exploration Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
Cumulative
during
Exploration
|
|
(U.S. dollars in thousands)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Stage
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period - continuing operations
|
|
$
|
(2,155
|
)
|
$
|
(3,113
|
)
|
$
|
(3,784
|
)
|
$
|
(3,579
|
)
|
$
|
(20,599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile loss for the
period to cash provided by / (used in) operations:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
40
|
|
29
|
|
79
|
|
55
|
|
302
|
|
Stock-based compensation
|
|
309
|
|
179
|
|
605
|
|
313
|
|
4,898
|
|
(Gain)/loss on disposal of marketable
securities
|
|
88
|
|
|
|
67
|
|
(202
|
)
|
(526
|
)
|
Accretion of convertible notes
|
|
233
|
|
|
|
314
|
|
|
|
314
|
|
Accrued interest
|
|
352
|
|
|
|
456
|
|
|
|
456
|
|
Costs of disposal of Amayapampa
|
|
132
|
|
|
|
132
|
|
|
|
132
|
|
Prepaid transaction costs
|
|
|
|
2,119
|
|
|
|
1,841
|
|
1,841
|
|
Other non-cash items
|
|
|
|
|
|
|
|
|
|
(170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(61
|
)
|
(30
|
)
|
(66
|
)
|
(376
|
)
|
(521
|
)
|
Interest paid
|
|
(842
|
)
|
|
|
(842
|
)
|
|
|
(842
|
)
|
Prepaids and other
|
|
(304
|
)
|
(317
|
)
|
(261
|
)
|
(442
|
)
|
(370
|
)
|
Accounts payable and accrued liabilities
and other
|
|
135
|
|
(622
|
)
|
21
|
|
(316
|
)
|
(655
|
)
|
Net cash used in operating activities
|
|
(2,073
|
)
|
(1,755
|
)
|
(3,279
|
)
|
(2,706
|
)
|
(15,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of marketable securities
|
|
(51
|
)
|
(31
|
)
|
(77
|
)
|
(115
|
)
|
(1,011
|
)
|
Proceeds from sale of marketable securities
|
|
31
|
|
|
|
89
|
|
218
|
|
1,073
|
|
Additions to mineral properties, net of
cost recoveries - Note 5
|
|
(2,498
|
)
|
(1,816
|
)
|
(3,883
|
)
|
(3,619
|
)
|
(15,770
|
)
|
Acquisition of mineral property
|
|
|
|
|
|
(452
|
)
|
|
|
(3,332
|
)
|
Additions to plant and equipment - Note 6
|
|
(327
|
)
|
(58
|
)
|
(16,635
|
)
|
(325
|
)
|
(17,306
|
)
|
Proceeds on disposal of plant and equipment
|
|
|
|
|
|
|
|
|
|
52
|
|
Short-term loan receivable - Note 3
|
|
(350
|
)
|
|
|
(350
|
)
|
|
|
(350
|
)
|
Cash transferred to Allied Nevada Gold
Corp., net of receivable
|
|
|
|
(24,384
|
)
|
|
|
(24,384
|
)
|
(24,517
|
)
|
Net cash used in investing activities
|
|
(3,195
|
)
|
(26,289
|
)
|
(21,308
|
)
|
(28,225
|
)
|
(61,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from equity financings - Note
8
|
|
|
|
|
|
|
|
|
|
54,409
|
|
Proceeds from exercise of warrants - Note 8
|
|
|
|
250
|
|
2,941
|
|
1,495
|
|
39,020
|
|
Proceeds from exercise of stock options -
Note 8
|
|
|
|
|
|
69
|
|
17
|
|
2,724
|
|
Issuance of convertible notes, net of
issuance costs - Note 7
|
|
(144
|
)
|
|
|
28,390
|
|
|
|
28,390
|
|
Prepaid transaction costs
|
|
|
|
|
|
|
|
|
|
(1,841
|
)
|
Net cash provided by financing activities
|
|
(144
|
)
|
250
|
|
31,400
|
|
1,512
|
|
122,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash
equivalents - continuing operations
|
|
(5,412
|
)
|
(27,794
|
)
|
6,813
|
|
(29,419
|
)
|
45,801
|
|
Net decrease in cash and cash equivalents -
discontinued operations
|
|
(72
|
)
|
(14
|
)
|
(294
|
)
|
(322
|
)
|
(23,270
|
)
|
Net increase/(decrease) in cash and cash
equivalents
|
|
(5,484
|
)
|
(27,808
|
)
|
6,519
|
|
(29,741
|
)
|
22,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of
period - continuing operations
|
|
28,689
|
|
46,765
|
|
16,686
|
|
48,698
|
|
674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
23,205
|
|
$
|
18,957
|
|
$
|
23,205
|
|
$
|
18,957
|
|
$
|
23,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information - Note
13
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
3
Table
of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(U.S. dollars unless specified otherwise)
1.
General
The consolidated interim financial statements of Vista Gold Corp. (an
Exploration Stage Enterprise) (the Corporation), as of June 30, 2008,
and
for
the three-month and six-month periods ended June 30, 2008, have been
prepared by the Corporation without audit and do not include all of the
disclosures required by generally accepted accounting principles in Canada for
annual financial statements. As described in Note 15, generally accepted
accounting principles in Canada differ in certain material respects from
generally accepted accounting principles in the United States. In the opinion of management, all of the
adjustments necessary to fairly present the interim financial information set
forth herein have been made. These
adjustments are of a normal and recurring nature. The results of operations for
interim periods are not necessarily indicative of the operating results of a
full year or of future years. These
interim financial statements should be read in conjunction with the financial
statements and related footnotes included in the Corporations Annual Report on
Form 10-K for the year ended December 31, 2007.
2.
Nature of operations and
changes in accounting policies
Nature of operations
The Corporation evaluates, acquires and explores gold exploration and
potential development projects. As such, the Corporation is considered an
Exploration Stage Enterprise. The Corporations approach to acquisitions of
gold projects has generally been to seek projects within political
jurisdictions with well established mining, land ownership and tax laws, which
have adequate drilling and geological data to support the completion of a
third-party review of the geological data and to complete an estimate of the
gold mineralization. In addition, the Corporation looks for opportunities to
improve the value of its gold projects through exploration drilling, and/or
reengineering the operating assumptions underlying previous engineering work.
In 2007, the Board of Directors and management reevaluated the
corporate strategy regarding the development of the Corporations more advanced
projects. As of result of this
reevaluation, the Corporation has begun moving its more advanced projects
through advanced and pre-feasibility studies in preparation for mine
development so that production decisions can be made on those projects.
Although the Corporation has reviewed and is satisfied with the title
for all mineral properties in which it has a material interest, there is no
guarantee that title to such concessions will not be challenged or impugned.
Changes in accounting policies
Effective January 1, 2008, the Corporation adopted the following
standards updates by the Canadian Institute of Chartered Accountants (CICA). These new standards have been adopted on a
prospective basis with no restatement to prior period financial statements.
CICA Section 1535, Capital Disclosures requires the disclosure
of an entitys objectives, policies and processes for managing capital,
quantitative data about what the entity regards as capital and whether the
entity has complied with any capital requirements and, if it has not complied,
the consequences of such noncompliance.
The Corporations objective is to ensure the Corporations ability to
continue as a going concern, so that it can continue to provide returns for
shareholders.
The Corporation considers items included in its shareholders equity
and its convertible debt as capital. The
Corporation manages the capital structure and makes adjustments to it in the
light of changes in economic conditions and the risk characteristics of the underlying
assets. In order to maintain or adjust
the capital structure, the Corporation may issue new shares through equity
financings to reduce debt. The
Corporation is not subject to externally imposed capital requirements. See Notes 7, 8, 9 and 10.
CICA Section 1400, General Standards of Financial Statement
Presentation, was amended to include requirements to assess and disclose an
entitys ability to continue as a going concern. The new requirements are effective for
interim and annual financial statements relating to fiscal years beginning on
or after January 1, 2008. The
adoption of this statement did not have an impact on the consolidated financial
statements.
4
Table
of Contents
CICA
Section 3862, Financial Instruments-Disclosures and Section 3863, Financial
Instruments-Presentations are two standards that replace Section 3861, Financial
Instruments-Disclosure and Presentation, revising disclosures related to
financial instruments and carry forward unchanged presentation
requirements. These standards increase
the disclosures currently required, which will enable users to evaluate the significance
of financial instruments for an entitys financial position and performance,
including disclosures about fair value.
In addition, disclosure is required of qualitative and quantitative
information about exposure to risks arising from financial instruments,
including specified minimum disclosure about credit risk, liquidity and market
risk. The quantitative disclosures must
provide information about the extent to which the entity is exposed to risk,
based on information provided internally to the entitys key management
personnel.
Recent
accounting pronouncement not yet adopted
In
February 2008, the CICA issued Section 3064, Goodwill
and Intangible Assets, which replaces Section 3062, Goodwill
and Intangible Assets, and results in a withdrawal of CICA Section 3450,
Research and Development Costs, and amendments to Accounting Guideline
(AcG) 11, Enterprises in the Development Stage, and CICA Section 1000, Financial
Statement Concepts. The standard intends to reduce the differences with
International Financial Reporting Standards (IFRS) in the accounting for
intangible assets and results in closer alignment with U.S. GAAP. Under
current Canadian standards, more items are recognized as assets than under IFRS
or U.S. GAAP. The objectives of CICA Section 3064 are to reinforce
the principle-based approach to the recognition of assets only in accordance
with the definition of an asset and the criteria for asset recognition; and
clarify the application of the concept of matching revenues and expenses such
that the current practice of recognizing assets that do not meet the definition
and recognition criteria are eliminated. This standard will be effective for
fiscal years beginning on or after October 1, 2008. The Corporation is
currently evaluating the impact of adopting this standard in 2009.
3.
Disposal of Amayapampa gold
project
On April 7,
2008, the Corporation announced an agreement to dispose of its wholly-owned
subsidiary Vista Gold (Antigua) Corp. (Vista Gold Antigua) to Republic Gold
Limited (Republic). Vista Gold Antigua indirectly held the Corporations
interest in the Amayapampa gold project in Bolivia. Under the terms of the
transaction, Republic has agreed to pay to the Corporation, $3.0 million in
three payments of $1.0 million. The first of these payments is due and payable
upon the start of commercial production (as defined in the purchase and sale
agreement) at Amayapampa followed by $1.0 million payments on each of the first
and second anniversaries of the start of commercial production. In addition, Republic has agreed to pay to
the Corporation a net smelter return royalty (NSR) on the gold produced by or
on behalf of Republic from the Amayapampa project in varying percentages
depending on the price of gold per ounce. When gold is between $500.01 and
$650.00 per ounce, a 2% NSR is payable, when the price of gold is between
$650.01 and $750.00 per ounce, a 3% NSR is payable, and when the price of gold
is $750.01 per ounce and above, an NSR of 3.5% is payable. The NSR is capped at
720,000 gold equivalent ounces and no NSR payments are due to the Corporation
if the gold price is below $500 per ounce. The Corporation will retain a first
right of refusal in the event Republic decides to sell the property and will
also retain a right to re-acquire the property if Republic or Vista Gold
Antigua have not moved to close a financing under a project financing facility
within five years. Under the terms of
the transaction, the Corporation agreed to lend $350,000 to Republic for
ongoing expenses on the Amayapampa gold project. The loan was completed on April 7,
2008. Interest on the loan accrues and
is payable at the rate of 10% per annum, payable monthly. The principal is due on or before the earlier
of (a) September 30, 2008, (b) the date that a bankable
feasibility study is completed with respect to the Amayapampa gold project or (c) such
earlier date in the event the Corporation makes demand for full payment upon
the occurrence of an event of default.
The fair value of the consideration received on disposal of the Amayapampa
project has been calculated as of June 30, 2008 using probability weighted
cash flow scenarios and assumptions including future gold prices, estimated
gold production and the timing of commencement of commercial production. These inputs in the income approach
valuation model used by the Corporation are considered to be level three
unobservable inputs as defined by SFAS No. 157, Fair Value Measurements. These are the Corporations own assumptions
based on managements best estimates and the best information available at the
time.
Prime
Corporate Finance Pty Limited (PCF) of West Perth, Australia served as
corporate advisor to the Corporation in connection with the above
transaction. In compensation for the
advisory services provided by PCF, the Corporation had agreed to pay PCF a
success fee of 5% of the face value of any transaction completed with a party
introduced by PCF. Republic was
introduced to the Corporation by PCF. On
April 8, 2008, the Corporation and PCF agreed that the success fee payable
to PCF was $165,000, such amount being equivalent to Cdn. $166,815. In addition, on April 8, 2008, PCF and
the Corporation agreed that the success fee would be payable in common shares
of the Corporation. Based on the market
price of the Corporations common shares at the close of business on April 7,
2008 of Cdn. $4.47, 37,318 common shares of the Corporation were issuable to
PCF. This issuance was completed on June 17,
2008.
5
Table of Contents
4. Marketable
securities
|
|
At June 30, 2008
|
|
At December 31, 2007
|
|
(U.S. dollars in thousands)
|
|
Cost
|
|
Unrealized
gain/(loss)
|
|
Fair value
|
|
Cost
|
|
Unrealized
gain/(loss)
|
|
Fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allied Nevada Gold Corp.
|
|
$
|
2,194
|
|
$
|
6,817
|
|
$
|
9,011
|
|
$
|
2,194
|
|
$
|
7,322
|
|
$
|
9,516
|
|
Esperanza Silver Corp.
|
|
10
|
|
87
|
|
97
|
|
10
|
|
134
|
|
144
|
|
Luzon Minerals Ltd.
|
|
342
|
|
(240
|
)
|
102
|
|
462
|
|
(322
|
)
|
140
|
|
Nevgold Resources Corp.
|
|
217
|
|
(49
|
)
|
168
|
|
177
|
|
(4
|
)
|
173
|
|
Other marketable securities
|
|
543
|
|
308
|
|
851
|
|
492
|
|
417
|
|
909
|
|
|
|
$
|
3,306
|
|
$
|
6,923
|
|
$
|
10,229
|
|
$
|
3,335
|
|
$
|
7,547
|
|
$
|
10,882
|
|
5.
Mineral properties
|
|
2007
|
|
2008
|
|
(U.S. dollars in thousands)
|
|
December 31,
net balance
|
|
Acquisition
costs
|
|
Option
payments
|
|
Exploration &
land costs
|
|
Capitalized
interest
|
|
Year to date
activity
|
|
June 30, ending
balance
|
|
Long Valley, United States
|
|
948
|
|
|
|
|
|
2
|
|
|
|
2
|
|
950
|
|
Yellow Pine, United States
|
|
739
|
|
|
|
|
|
29
|
|
|
|
29
|
|
768
|
|
Paredones Amarillos, Mexico
|
|
3,987
|
|
|
|
|
|
1,659
|
|
867
|
|
2,526
|
|
6,513
|
|
Guadalupe de
los Reyes, Mexico
|
|
1,389
|
|
1,452
|
|
|
|
150
|
|
|
|
1,602
|
|
2,991
|
|
Awak Mas, Indonesia
|
|
3,269
|
|
|
|
|
|
219
|
|
|
|
219
|
|
3,488
|
|
Mt. Todd, Australia
|
|
7,330
|
|
|
|
|
|
2,052
|
|
|
|
2,052
|
|
9,382
|
|
Other
|
|
390
|
|
|
|
40
|
|
1
|
|
|
|
41
|
|
431
|
|
|
|
$
|
18,052
|
|
$
|
1,452
|
|
$
|
40
|
|
$
|
4,112
|
|
$
|
867
|
|
$
|
6,471
|
|
$
|
24,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On January 24, 2008, the Corporation completed
the acquisition of interests in various mineral properties adjacent to the
Corporations Guadalupe de los Reyes project in Mexico. The consideration paid by the Corporation for
the acquisition of these interests included cash payments totalling $452,000
and the issuance of a total of 213,503 common shares of the Corporation (with
an aggregate fair value of $1,000,000), to various parties.
The recoverability of the carrying values of the
Corporations mineral properties is dependent upon the successful start-up and
commercial production from, or sale, or lease, of these properties and upon
economic reserves being discovered or developed on the properties. Development and/or start-up of any of these
projects will depend, among other things, on managements ability to raise
additional capital for these purposes.
Although the Corporation has been successful in raising such capital in
the past, there can be no assurance that it will be able to do so in the
future.
The Corporation believes that the fair value of its
mineral properties exceeds the carrying value; however, a write-down in the
carrying values of the Corporations properties may be required in the future
as a result of events and circumstances, such as the Corporations inability to
obtain all the necessary permits, resulting in an evaluation of gold resources
and the application of an impairment test which is based on estimates of gold
resources and gold prices.
6.
Plant and equipment
|
|
June 30, 2008
|
|
December 31, 2007
|
|
(U.S. dollars in thousands)
|
|
Cost
|
|
Accumulated
Depreciation and
Write-downs
|
|
Net
|
|
Cost
|
|
Accumulated
Depreciation and
Write-downs
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paredones Amarillos, Mexico
|
|
16,452
|
|
2
|
|
16,450
|
|
33
|
|
2
|
|
31
|
|
Awak Mas, Indonesia
|
|
112
|
|
55
|
|
57
|
|
98
|
|
43
|
|
55
|
|
Mt. Todd, Australia
|
|
598
|
|
130
|
|
468
|
|
397
|
|
54
|
|
343
|
|
Corporate, United States
|
|
195
|
|
147
|
|
48
|
|
455
|
|
417
|
|
38
|
|
|
|
$
|
17,357
|
|
$
|
334
|
|
$
|
17,023
|
|
$
|
983
|
|
$
|
516
|
|
$
|
467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On January
7, 2008, the Corporation entered into an agreement with A.M. King
Industries, Inc. (A.M. King) and Del Norte Company Ltd., a wholly-owned
subsidiary of A.M. King, to purchase gold processing equipment to be used
at the
6
Table of Contents
Corporations Paredones Amarillos project. The aggregate purchase price was
approximately $16.0 million. The
purchase price includes the cost of relocating the equipment to Edmonton,
Alberta, Canada. From this point, the
Corporation is responsible for the reconditioning and transportation of the
equipment to Paredones Amarillos. The
equipment includes a 10,000 tonne per day semi-autogenous grinding mill, two
ball mills, gyratory crusher and a shorthead cone crusher, along with other
related components, spare parts and other process plant equipment. On April 17, 2008, the Corporation
announced that it had finalized the purchase of the gold processing equipment,
with the conclusion on that date of the transportation of the major equipment
items to the Corporations lay-down yard in Edmonton.
7.
Brokered
private placement of convertible notes
On
March 4, 2008, the Corporation completed a private placement in which the
Corporation issued and sold $30 million in aggregate principal amount of senior
secured convertible notes (the Notes).
The Notes were issued on March 4, 2008 and mature at face value on March 4,
2011 (the Maturity Date). The Notes
pay interest of 10% per annum. Interest is payable each year in two
installments on June 15 and December 15, and the principal is payable
on the Maturity Date.
The
Notes are convertible at the holders or issuers discretion in accordance with
the terms of the Notes. The holder can
convert all or part of the debt at any time prior to the Maturity Date or the
business day immediately preceding the Redemption Date at a price of $6.00 per
common share, subject to adjustment in certain circumstances. The Redemption Date represents the date
that the Notes will be redeemed in the event that the Corporation redeems the
Notes.
The
Corporation can convert all, but not part, of the Notes after March 4,
2009 if the weighted-average price of the Corporations common shares as quoted
on the American Stock Exchange (AMEX) has been equal to or greater than $9.00
per share for 15 consecutive trading days.
The notice of conversion must occur within 10 days of any such 15-day
period and the share price must be equal to or greater than $9.00 on the date
the notice is delivered. The conversion
price is $6.00 per common share subject to adjustments in certain
circumstances.
The
conversion price will be adjusted on March 4, 2009, being the first
anniversary of the issuance of the Notes, to the lesser of the current
conversion price or 120% of the 20-day weighted average share price of the common
shares as quoted on AMEX. The conversion
price can also be adjusted in certain circumstances such as issuance of
warrants, additional common shares or distribution of assets. The conversion price shall not be adjusted
below $4.80 per share.
Simultaneous
with the issuance of the Notes, the Corporation issued to Casimir Capital LP
200,000 common share purchase warrants with an exercise price of $6.00 per
warrant and expiration date of March 4, 2011, as partial consideration for
serving as agent for the transaction (Note 9).
The Corporation also paid to Casimir Capital a cash fee of $1.2 million,
being 4% of the gross proceeds of the offering of the Notes. The warrants provide for cashless exercise if
the market price of the Corporations common shares is above the exercise
price. In addition, the exercise price
is subject to standard anti-dilution adjustment provisions.
The Notes have been accounted for in accordance with EIC 164, Convertible
and other Debt Instruments with Embedded Derivatives. Under EIC 164, the fair value of the
conversion feature is recorded as equity.
The issuance date fair value of the conversion feature was originally
estimated to be $11.5 million and was classified as the equity component of
convertible notes with the residual balance of $18.5 million being recorded as
long-term debt. However, subsequent to
the initial estimation and recognition of the equity component it was
determined that a risk-free rate of return would provide a more conservative
estimate of the expected return an investor would expect to receive as compared
to the expected return on the Corporations common shares, which was originally
used. This risk neutral approach was
applied and the issuance date fair value of the convertible feature was revised. The revised issuance date fair value of the
conversion feature was estimated to be $6.8 million and the residual balance of
$23.2 million was recorded as the fair value of the Corporations obligation to
make principal and interest payments and has been classified as long-term
debt. This change in estimate has been
applied on a prospective basis by adjusting the carrying values of the equity
component and long-term debt on the balance sheet.
The issuance date fair value of the warrants of $336,000 and legal fees
and other expenses of $1.9 million related to the issuance of these Notes have
been allocated pro-rata between debt issuance costs of $1,496,000 and equity
issuance costs of $447,000. The
transaction costs are added to the cost of the convertible debt and presented
as a reduction of the related debt and equity portions. The issuance costs related to the debt
portion will be amortized over the term of the Notes using the effective
interest rate method. The Corporation
will capitalize interest and accretion based on expenditures on qualifying
assets. As of June 30, 2008, the
Corporation had qualifying expenditures of approximately $16.0 million related
to the equipment purchase for the Paredones Amarillos project.
7
Table
of Contents
The
Corporation has used approximately $17.5 million for ongoing operations at the
Paredones Amarillos project. This
includes approximately $16.0 million towards
the purchase of gold
processing equipment to be used at the Paredones Amarillos project. The remaining $10.6 million raised from the
private placement will be used for ongoing operations at the Paredones
Amarillos project.
8. Capital
stock
|
|
Number of
shares issued
|
|
Capital stock
($ 000s)
|
|
As of December 31, 2007
|
|
33,257,906
|
|
$
|
220,772
|
|
|
|
|
|
|
|
Warrants exercised from February 2006
private placement - Note 9
|
|
928,390
|
|
2,941
|
|
Shares issued for acquisition of gold
properties
|
|
213,503
|
|
1,000
|
|
Exercise of stock options, cash - Note 10
|
|
15,000
|
|
69
|
|
Exercise of stock options, fair value -
Note 10
|
|
|
|
32
|
|
|
|
|
|
|
|
Issued during the three months ended
March 31, 2008
|
|
1,156,893
|
|
4,042
|
|
|
|
|
|
|
|
As of March 31, 2008
|
|
34,414,799
|
|
$
|
224,814
|
|
|
|
|
|
|
|
Shares issued for services
|
|
37,318
|
|
132
|
|
|
|
|
|
|
|
Issued during the three months ended
June 30, 2008
|
|
37,318
|
|
132
|
|
|
|
|
|
|
|
As of June 30, 2008
|
|
34,452,117
|
|
$
|
224,946
|
|
9.
Warrants
Warrants
granted, exercised and outstanding during the period are summarized in the
following table:
|
|
Warrants
granted(3)
|
|
Valuation
($ 000s)
|
|
Warrants
exercised
|
|
Warrants
expired
|
|
Warrants
outstanding
|
|
Weighted
average
exercise prices
( $ USD)
|
|
Expiry date
|
|
Weighted
average
remaining
life (yrs)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2007 (1)
|
|
12,208,917
|
|
531
|
|
(11,193,666
|
)
|
(337,163
|
)
|
678,088
|
|
$
|
6.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private placement
February 2006 (1)
|
|
|
|
|
|
(494,684
|
)
|
|
|
(494,684
|
)
|
6.00
|
|
Feb-08
|
|
|
|
Convertible notes
broker warrants (2)
|
|
200,000
|
|
336
|
|
|
|
|
|
200,000
|
|
6.00
|
|
Mar-11
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
June 30, 2008
|
|
12,408,917
|
|
867
|
|
(11,688,350
|
)
|
(337,163
|
)
|
383,404
|
|
$
|
5.74
|
|
|
|
|
|
(1)
Each warrant entitled the holder to purchase common shares as adjusted in
accordance with the warrant terms pursuant to the previously announced Plan of
Arrangement transaction involving the Corporation, Allied Nevada Gold Corp. and
Carl and Janet Pescio that closed on May 10, 2007 (the Plan of
Arrangement).
(2) Each warrant
entitles the holder to purchase one common share. See Note 7.
(3) The value of all warrants issued in conjunction with private
placements is allocated to common stock upon exercise.
During the
six-month period ended June 30, 2008, all remaining warrants issued in
conjunction with the February 2006 private placement were exercised prior
to their expiry date of February 1, 2008.
Upon exercise of these warrants, holders received 1.894 common shares
per warrant as adjusted in accordance with the warrant terms pursuant to the
Plan of Arrangement. There were no
warrants exercised during the three-month period ended June 30, 2008.
8
Table of Contents
10.
Options
to purchase Common Shares
Under the Corporations
Stock Option Plan (the Plan), the Corporation may grant options to directors,
officers, employees and consultants of the Corporation or its
subsidiaries. The maximum number of
common shares of the Corporation that may be reserved for issuance under the
Plan is a variable number equal to 10% of the issued and outstanding common
shares on a non-diluted basis. Under the
Plan, the exercise price of each option shall not be less than the market price
of the Corporations common shares on the date preceding the date of grant, and
an options maximum term is 10 years or such other shorter term as stipulated
in a stock option agreement between the Corporation and the optionee. Options under the Plan are granted from time
to time at the discretion of the Board of Directors, with vesting periods and
other terms as determined by the Board.
The
fair value of stock options granted to employees and directors was estimated at
the grant date using the Hull-White trinomial lattice option pricing model,
using the following weighted average assumptions:
|
|
June 2008
|
|
|
|
|
|
Expected volatility
|
|
53.97
|
%
|
Risk-free interest rate
|
|
3.25
|
%
|
Expected lives (years)
|
|
5
|
|
Option pricing models require the input of highly subjective
assumptions including the expected price volatility. Expected price volatility is based on the
historical volatility of the Corporations common shares. Changes in the subjective input assumptions
can materially affect the fair value estimate, and therefore, the existing
models do not necessarily provide a reliable measure of the fair value of the
Corporations stock options. The
expected term of the options granted is derived from the output of the option
pricing model and represents the period of time that the options granted are
expected to be outstanding. The
risk-free rate for the periods within the contractual term of the option is
based on the U.S. Treasury yield curve in effect at the date of grant.
A summary of option
activity under the Plan as of June 30, 2008, and changes during the
six-month period then ended is set forth in the following table:
|
|
Number of
Shares Issuable
upon Option
Exercise
|
|
Weighted-
Average
Exercise Price
($ USD)
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic Value
($ 000)
|
|
Outstanding - December 31, 2007
|
|
1,630,213
|
|
$
|
4.99
|
|
3.44
|
|
$
|
1,112
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(15,000
|
)
|
4.58
|
|
|
|
|
|
Forfeited
|
|
(25,000
|
)
|
4.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding - March 31, 2008
|
|
1,590,213
|
|
$
|
4.99
|
|
3.05
|
|
$
|
1,106
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable - March 31, 2008
|
|
1,096,241
|
|
$
|
4.74
|
|
3.44
|
|
$
|
978
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
10,000
|
|
3.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding - June 30, 2008
|
|
1,600,213
|
|
$
|
4.98
|
|
3.20
|
|
$
|
286
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable - June 30, 2008
|
|
1,126,241
|
|
$
|
4.80
|
|
2.80
|
|
$
|
285
|
|
9
Table
of Contents
A summary of the
fair-value changes included in options within Shareholders Equity as of June 30,
2008, and the six-month period then ended is set forth in the following table:
|
|
Options
($ 000s)
|
|
As of December 31, 2007
|
|
$
|
3,824
|
|
|
|
|
|
Expensed
|
|
332
|
|
Exercised
|
|
(32
|
)
|
Forfeited
|
|
(37
|
)
|
|
|
|
|
As of March 31, 2008
|
|
$
|
4,087
|
|
|
|
|
|
Granted
|
|
7
|
|
Expensed
|
|
303
|
|
|
|
|
|
As of June 30, 2008
|
|
$
|
4,397
|
|
The total number of
options outstanding at the end of the quarter is 1,600,213 with exercise prices
ranging from approximately $2.09 to $7.66 and remaining lives of 0.25 to 4.91
years. The total number of options
outstanding represents 4.6% of issued capital.
A summary of the status of
the Corporations unvested stock options as of June 30, 2008, and changes
during the six-month period then ended, is set forth below:
|
|
Number of
Shares Issuable
upon Option
Exercise
|
|
Weighted-
Average Grant
Date Fair
Value ($ USD)
|
|
Unvested - December 31, 2007
|
|
513,972
|
|
$
|
2.64
|
|
|
|
|
|
|
|
Forfeited
|
|
(20,000
|
)
|
2.13
|
|
|
|
|
|
|
|
Unvested - March 31, 2008
|
|
493,972
|
|
$
|
2.53
|
|
|
|
|
|
|
|
Vested
|
|
(25,000
|
)
|
3.40
|
|
Granted
|
|
5,000
|
|
1.49
|
|
|
|
|
|
|
|
Unvested - June 30, 2008
|
|
473,972
|
|
$
|
2.48
|
|
As of June 30, 2008,
there was $233,801 of unrecognized compensation expense related to the unvested
portion of options outstanding. This
expense is expected to be recognized over a weighted-average period of 0.3
years.
10
Table
of Contents
11.
Accumulated
other comprehensive income
A reconciliation of the amounts
contained in accumulated other comprehensive income is as follows:
|
|
Accumulated other
comprehensive income
($ 000s)
|
|
As of December 31, 2007
|
|
$
|
7,547
|
|
|
|
|
|
Decreases to fair market value during
period
|
|
(1,792
|
)
|
Decreases due to realization of gain
|
|
(21
|
)
|
|
|
|
|
As of March 31, 2008
|
|
$
|
5,734
|
|
|
|
|
|
Increases to fair market value during
period
|
|
1,101
|
|
Increases due to realization of loss
|
|
88
|
|
|
|
|
|
As of June 30, 2008
|
|
$
|
6,923
|
|
12.
Financial
instruments
Financial
assets and financial liabilities are classified into one of five
categories: held-to-maturity,
available-for-sale, held-for-trading, loans and receivables and other financial
liabilities.
All
financial instruments classified as available-for-sale or held-for-trading are
subsequently measured at fair value.
Changes in the fair value of financial instruments designated as
held-for-trading are charged or credited to the statement of loss for the
relevant period, while changes in the fair value of financial instruments
designated as available-for-sale, excluding impairments, are charged or
credited to other comprehensive income until the instrument is realized. All other financial assets and liabilities
are accounted for at cost or at amortized cost depending upon the nature of the
instrument. After their initial fair
value measurement, they are measured at amortized cost using the effective
interest rate method.
Financial Assets
The
carrying amounts and fair values of financial assets are as follows:
|
|
|
|
June 30, 2008
|
|
December 31, 2007
|
|
U.S. dollars in thousands
|
|
Category
|
|
Estimated
Fair Value
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
Carrying
Value
|
|
Cash and
cash equivalents (1)
|
|
Held-for-trading
|
|
$
|
23,205
|
|
$
|
23,205
|
|
$
|
16,686
|
|
$
|
16,686
|
|
Accounts
receivable (1)
|
|
Loans and receivables
|
|
157
|
|
157
|
|
91
|
|
91
|
|
Short-term
loans receivable (1)
|
|
Loans and receivables
|
|
350
|
|
350
|
|
|
|
|
|
Amayapampa
disposal consideration
|
|
Held-for-trading
|
|
4,813
|
|
4,813
|
|
|
|
|
|
Marketable
securities (2)
|
|
Available-for-sale
|
|
10,229
|
|
10,229
|
|
10,882
|
|
10,882
|
|
Total
financial assets
|
|
|
|
$
|
38,754
|
|
$
|
38,754
|
|
$
|
27,659
|
|
$
|
27,659
|
|
(1)
Carrying
amount is a reasonable approximation of fair value.
(2)
The
fair value represents quoted market prices in an active market.
11
Table of Contents
Financial
liabilities
The
carrying amounts and fair values of financial liabilities are as follows:
|
|
|
|
June 30, 2008
|
|
December 31, 2007
|
|
U.S. dollars in thousands
|
|
Category
|
|
Estimated
Fair Value
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
Carrying
Value
|
|
Accounts
payable and
accrued liabilities (1)
|
|
Other financial liabilities
|
|
$
|
1,084
|
|
$
|
1,084
|
|
$
|
664
|
|
$
|
664
|
|
Convertible
notes (2)
|
|
Other financial liabilities
|
|
23,245
|
|
22,415
|
|
|
|
|
|
Total
financial assets
|
|
|
|
$
|
24,329
|
|
$
|
23,499
|
|
$
|
664
|
|
$
|
664
|
|
(1)
Carrying
amount is a reasonable approximation of fair value.
(2)
The carrying value of the convertible notes is being accreted to their
maturity value over their expected life using the effective interest rate
method.
Financial instrument
risk exposure and risk management
The
Corporation is exposed in varying degrees to a variety of financial instrument
related risks. Management approves and
monitors the risk management processes.
The types of risk exposure and the way in which such exposure is managed
is provided as follows:
Credit risk
The
Corporations credit risk is primarily attributable to its cash and cash
equivalents. The Corporation maintains
its cash and cash equivalents in order to limit its exposure to credit risk. The Corporation does not have any financial
assets that are invested in asset-backed commercial paper.
Liquidity risk
The
Corporation ensures that there is sufficient capital in order to meet short
term business requirements, after taking into account the Corporations
holdings of cash and cash equivalents and cash flows from financing
activities. The Corporation believes
that these sources will be sufficient to cover the likely short and long term
cash requirements. The Corporations
cash and cash equivalents are held in interest bearing liquid savings accounts.
Market risk
The
significant market risk exposure to which the Corporation is exposed is
interest rate risk. The Corporations
policy is to invest cash at floating rates of interest in highly liquid cash
savings accounts in order to maintain liquidity. Fluctuations in interest therefore impact on
the value of cash equivalents and short term investments. With respect to financial liabilities, the
convertible notes are not subject to interest rate risk because they bear
interest at a fixed rate and are not subject to fluctuations in interest.
12
Table of Contents
13.
Supplemental
cash flow information
Significant non-cash transactions
during the six months ended June 30, 2008 included: (a) the Corporations issuance of 37,318
common shares as a success fee payment to Prime Corporate Finance Pty Limited as
compensation for advisory services provided to the Corporation in connection
with the Corporations disposition of the Amayapampa project to Republic Gold
Limited (Note 3); (b) the Corporations issuance of 213,503 common shares as
partial compensation for the acquisition of interests in various mineral
properties adjacent to the Corporations Guadalupe de los Reyes project in
Mexico (Note 5); and (c) the Corporations issuance of 200,000 common share
purchase warrants to Casimir Capital LP as partial compensation for serving as
agent for the Corporations private placement of convertible notes (Note
7). There were no significant non-cash
transactions during the same period in 2007.
14.
Geographic
and segment information
The
Corporation evaluates, acquires and explores gold exploration and potential
development projects. These activities
are focused principally in South America, Australia, North America and
Indonesia. The Corporation reported no revenues in the three-month and six-month
periods ended June 30, 2008, or for the same periods in 2007. Geographic segmentation of mineral properties
and plant and equipment is provided in Notes 5 and 6.
15.
Differences
between Canadian and United States generally accepted accounting principles
The Corporation prepares its financial
statements in accordance with accounting principles generally accepted in
Canada, which differ in some respects from those in the United States. The significant differences between generally
accepted accounting principles (GAAP) in Canada and in the United States, as
they relate to these financial statements, are as follows:
(a)
In
accordance with U.S. GAAP, exploration, mineral property evaluation and holding
costs are expensed as incurred. When
proven and probable reserves are determined for a property and a bankable
feasibility study is completed, then subsequent development costs on the
property would be capitalized. Total
capitalized cost of such properties is measured periodically for recoverability
of carrying value under SFAS No. 144.
Under Canadian GAAP, all such costs are permitted to be capitalized.
(b)
In
accordance with U.S. GAAP (SFAS No. 115), marketable securities considered
to be available-for-sale are to be measured at a fair value at the balance
sheet date and related unrealized gains and losses are required to be shown
separately in comprehensive income. On January 1,
2007, the Corporation adopted CICA 3855 Financial Instruments - Recognition
and Measurement. This standard
essentially aligns Canadian GAAP with U.S. GAAP for accounting for marketable
securities considered to be available-for-sale.
(c)
Under
Canadian corporate law, the Corporation underwent a capital reduction in
connection with the amalgamation of Granges, Inc. (Granges) and Hycroft
Resources & Development, Inc. whereby share capital and
contributed surplus were reduced to eliminate the consolidated accumulated
deficit of Granges as of December 31, 1994, after giving effect to the
estimated costs of amalgamation. Under U.S. corporate law, no such transaction
is available and accordingly is not allowed under U.S. GAAP.
(d)
In
accordance with U.S. GAAP (SFAS No. 123R), the fair value of all options
granted after January 1, 2006 is calculated at the date of grant and
expensed over the expected vesting period.
On transition to this new standard, the unvested portion of options
granted to employees before January 1, 2006 is expensed over the remaining
vesting period using the fair value on the date of grant. Prior to January 1, 2006, the
Corporation did not record any compensation cost on the granting of stock
options to employees and directors as the exercise price was equal to or
greater than the market price at the date of grants for U.S. GAAP purposes
under APB Opinion No. 25. SFAS No. 123R
essentially aligns U.S. GAAP with Canadian GAAP for accounting for stock-based
compensation.
(e)
In
accordance with U.S. GAAP, the entire amount of convertible debt is classified
as a liability and recorded at fair value on the date of issuance. Under Canadian GAAP, the fair value of the
conversion feature of convertible debt is classified as equity and the residual
balance is classified as a liability.
The liability portion is accreted each period in amounts which will
increase the liability to its full face amount of the convertible instrument as
of the maturity date. In
accordance with SFAS No. 34, the Corporation capitalizes interest based on
the pro rata amount of qualifying expenditures, with the remaining amount
recorded as interest expense.
13
Table
of Contents
The
significant differences in the consolidated statements of loss and
comprehensive loss relative to U.S. GAAP were:
CONSOLIDATED
STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
-
UNAUDITED
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
Cumulative
during
Exploration
|
|
(U.S. dollars in thousands, except share data)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Stage
|
|
Net loss Canadian GAAP
|
|
$
|
(2,227
|
)
|
$
|
(3,228
|
)
|
$
|
(4,078
|
)
|
$
|
(4,004
|
)
|
$
|
(37,478
|
)
|
Exploration, property evaluation and
holding costs continuing operations
(a)
|
|
(2,900
|
)
|
(2,129
|
)
|
(4,382
|
)
|
(3,682
|
)
|
(9,162
|
)
|
Exploration, property evaluation and
holding costs discontinued operations
(a)
|
|
|
|
|
|
|
|
(4
|
)
|
4,016
|
|
Interest
accretion on convertible notes
(e)
|
|
313
|
|
|
|
313
|
|
|
|
313
|
|
Amortization of debt issuance costs
(e)
|
|
(74
|
)
|
|
|
(74
|
)
|
|
|
(74
|
)
|
Financing costs
|
|
|
|
|
|
|
|
|
|
(222
|
)
|
Stock-based compensation expense
(d)
|
|
|
|
|
|
|
|
|
|
2,251
|
|
Beneficial conversion feature
|
|
|
|
|
|
|
|
|
|
(2,774
|
)
|
Net loss U.S. GAAP
|
|
(4,888
|
)
|
(5,357
|
)
|
(8,221
|
)
|
(7,690
|
)
|
(43,130
|
)
|
Unrealized gain/(loss) on marketable
securities
(b)
|
|
1,189
|
|
4,296
|
|
(624
|
)
|
4,147
|
|
(662
|
)
|
Comprehensive loss U.S. GAAP
|
|
$
|
(3,699
|
)
|
$
|
(1,061
|
)
|
$
|
(8,845
|
)
|
$
|
(3,543
|
)
|
$
|
(43,792
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share U.S.
GAAP
|
|
$
|
(0.11
|
)
|
$
|
(0.03
|
)
|
$
|
(0.26
|
)
|
$
|
(0.11
|
)
|
|
|
The
significant differences in the consolidated statements of cash flows relative
to U.S. GAAP were:
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
Cumulative
during
Exploration
|
|
(U.S. dollars in thousands)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Stage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities,
Canadian GAAP
|
|
$
|
(2,073
|
)
|
$
|
(1,755
|
)
|
$
|
(3,279
|
)
|
$
|
(2,706
|
)
|
$
|
(15,740
|
)
|
Additions to mineral properties, net
(a)
|
|
(2,631
|
)
|
(2,129
|
)
|
(4,113
|
)
|
(3,686
|
)
|
(10,626
|
)
|
Cash flows from operating activities, U.S.
GAAP
|
|
(4,704
|
)
|
(3,884
|
)
|
(7,392
|
)
|
(6,392
|
)
|
(26,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities,
Canadian GAAP
|
|
(3,195
|
)
|
(26,289
|
)
|
(21,308
|
)
|
(28,225
|
)
|
(61,161
|
)
|
Additions to mineral properties, net
(a)
|
|
2,631
|
|
2,129
|
|
4,113
|
|
3,686
|
|
10,626
|
|
Cash flows from investing activities, U.S.
GAAP
|
|
(564
|
)
|
(24,160
|
)
|
(17,195
|
)
|
(24,539
|
)
|
(50,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities,
Canadian GAAP
|
|
(144
|
)
|
250
|
|
31,400
|
|
1,512
|
|
122,702
|
|
Cash flows from financing activities, U.S.
GAAP
|
|
(144
|
)
|
250
|
|
31,400
|
|
1,512
|
|
122,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash
equivalents - continuing operations
|
|
(5,412
|
)
|
(27,794
|
)
|
6,813
|
|
(29,419
|
)
|
45,801
|
|
Net increase/(decrease) in cash and cash
equivalents - discontinued operations
|
|
(72
|
)
|
(14
|
)
|
(294
|
)
|
(322
|
)
|
(23,270
|
)
|
|
|
(5,484
|
)
|
(27,808
|
)
|
6,519
|
|
(29,741
|
)
|
22,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of
period
|
|
28,689
|
|
46,765
|
|
16,686
|
|
48,698
|
|
674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
23,205
|
|
$
|
18,957
|
|
$
|
23,205
|
|
$
|
18,957
|
|
$
|
23,205
|
|
14
Table
of Contents
The significant differences in the consolidated balance sheets as at June 30,
2008, and December 31, 2007, relative to U.S. GAAP were:
CONSOLIDATED BALANCE SHEETS - UNAUDITED
|
|
June 30, 2008
|
|
December 31, 2007
|
|
(U.S. $ 000s)
|
|
Per Cdn.
GAAP
|
|
Cdn./U.S.
Adj.
|
|
Per U.S.
GAAP
|
|
Per Cdn.
GAAP
|
|
Cdn./U.S.
Adj.
|
|
Per U.S.
GAAP
|
|
Current assets
|
|
$
|
34,521
|
|
$
|
|
|
$
|
34,521
|
|
$
|
27,948
|
|
$
|
|
|
$
|
27,948
|
|
Property, plant and equipment
(a)
|
|
41,546
|
|
(15,721
|
)
|
25,825
|
|
18,519
|
|
(11,339
|
)
|
7,180
|
|
Other assets
|
|
4,829
|
|
(2,124
|
)
|
2,705
|
|
66
|
|
|
|
66
|
|
Assets held for sale
(a)
|
|
|
|
|
|
|
|
4,813
|
|
(2,124
|
)
|
2,689
|
|
Total assets
|
|
$
|
80,896
|
|
$
|
(17,845
|
)
|
$
|
63,051
|
|
$
|
51,346
|
|
$
|
(13,463
|
)
|
$
|
37,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
1,140
|
|
|
|
1,140
|
|
694
|
|
|
|
694
|
|
Convertible notes
(e)
|
|
22,415
|
|
6,308
|
|
28,723
|
|
|
|
|
|
|
|
Total liabilities
|
|
23,555
|
|
6,308
|
|
29,863
|
|
694
|
|
|
|
694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock
(c,d)
|
|
224,946
|
|
75,364
|
|
300,310
|
|
220,772
|
|
75,364
|
|
296,136
|
|
Special warrants
|
|
|
|
222
|
|
222
|
|
|
|
222
|
|
222
|
|
Warrants and options
(d)
|
|
5,264
|
|
(647
|
)
|
4,617
|
|
4,355
|
|
(647
|
)
|
3,708
|
|
Contributed surplus
(c,d)
|
|
253
|
|
5,526
|
|
5,779
|
|
253
|
|
5,526
|
|
5,779
|
|
Equity component of convertible notes
(e)
|
|
6,308
|
|
(6,308
|
)
|
|
|
|
|
|
|
|
|
Other comprehensive income
(b)
|
|
6,923
|
|
90
|
|
7,013
|
|
7,547
|
|
90
|
|
7,637
|
|
Deficit
(a,b,c,d)
|
|
(186,353
|
)
|
(98,400
|
)
|
(284,753
|
)
|
(182,275
|
)
|
(94,018
|
)
|
(276,293
|
)
|
Total shareholders equity
|
|
57,341
|
|
(24,153
|
)
|
33,188
|
|
50,652
|
|
(13,463
|
)
|
37,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities & shareholders
equity
|
|
$
|
80,896
|
|
$
|
(17,845
|
)
|
$
|
63,051
|
|
$
|
51,346
|
|
$
|
(13,463
|
)
|
$
|
37,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In February 2007, the
FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities - Including an Amendment of FASB Statement No. 115.
SFAS No. 159 provides companies with an option to measure, at specified
election dates, financial instruments and certain other items at fair value
that are not currently measured at fair value.
For those items for which the fair value option is elected, unrealized
gains and losses will be recognized in earnings for each subsequent reporting
period. SFAS No. 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between entities that choose
different measurement attributes for similar types of assets and liabilities.
This Statement is effective for years beginning after November 15, 2007.
The adoption of this statement did not have an impact on the consolidated
financial statements.
In September 2006, the
FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. In February 2008, the FASB staff issued Staff Position
No. 157-2 Effective Date of FASB Statement No. 157 (FSP FAS 157-2).
FSP FAS 157-2 delayed the effective date of SFAS No. 157 for nonfinancial
assets and nonfinancial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually). The provisions of FSP FAS 157-2 are effective for the
Corporations fiscal year beginning January 1, 2009. The Corporation
adopted SFAS No. 157 effective January 1, 2008 for financial assets
and liabilities.
SFAS No. 157
establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurements) and the lowest priority to unobservable inputs (Level 3
measurements). The three levels of the fair value hierarchy under FAS 157 are
described below:
Level 1
|
|
Unadjusted quoted prices
in active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities;
|
Level 2
|
|
Quoted prices in markets
that are not active, or inputs that are observable, either directly or
indirectly, for substantially the full term of the asset or liability;
|
15
Table of Contents
Level 3
|
|
Prices or valuation
techniques that require inputs that are both significant to the fair value
measurement and unobservable (supported by little or no market activity).
|
In March 2008, the
Financial Accounting Standards Board (FASB) issued Statement No. 161, Disclosures about Derivative Instruments and
Hedging Activities
.
The
new standard is intended to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced disclosures to enable
investors to better understand their effects on an entitys financial position,
financial performance, and cash flows. It is effective for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008, with early application encouraged. The Corporation is currently
evaluating the impact of this standard on its consolidated financial
statements.
In December 2007, the
FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141(R)).
SFAS No. 141(R) establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non-controlling interest in the
acquiree and the goodwill acquired. SFAS No. 141(R) also establishes
disclosure requirements to enable the evaluation of the nature and financial
effects of the business combination. SFAS No. 141(R) is effective for
fiscal years beginning after December 15, 2008. The Corporation is
currently evaluating the potential impact, if any, of the adoption of SFAS No. 141(R) on
its consolidated statements of loss and financial condition.
16.
Subsequent
events
Updated
status of change of land use permit for Paredones Amarillos project and
expected development timetable
As previously reported, on April 30, 2008, the Corporation
announced that it had received correspondence from the local La Paz office of
the Mexican Environmental and Natural Resource Service (SEMARNAT) which
indicates that staff in that office are of the opinion that the Change of Land
Use Permit approved by SEMARNAT in 1997 in relation to the Corporations
Paredones Amarillos Project in Baja California Sur (BCS), Mexico, is no
longer valid. The Corporations legal
counsel in Mexico remains of the view that the original permit is valid and has
advised the Corporation to proceed with a judicial appeal of the opinion issued
by the BCS office of SEMARNAT to preserve certain legal rights, but has also
recommended that a new application is likely to be the most expeditious way to
obtain the necessary approvals.
On July 2, 2008, the Corporation reported that it has taken steps
to preserve its right
to proceed with a judicial appeal of the opinion issued by the BCS
office SEMARNAT and has also completed a number of prerequisite steps to
submitting an application for a new Change of Land Use Permit. As well, we plan to submit an
application for an interim Change of Land Use Permit for the drilling
program. The Corporation has recently
received a certificate from the General Direction of Mines of the General
Coordinator of Mines in the Ministry of Economy verifying that the
Corporations Mexican subsidiary, Minera Paredones Amarillos S.A. de C.V.
(MPA), is the rightful holder of valid mineral rights for the Paredones
Amarillos Project. Under Mexican mining
statutes, MPA has the constitutional right to use the surface for mining
activities, subject to applicable environmental permits and federal
authorizations. This position has been further confirmed in the foregoing
certificate issued by the General Direction of Mines of the General Coordinator
of Mines in the Ministry of Economy. One of the mechanisms for authorizing the
use of federal land for mining activities is a Temporary Occupation Permit
(lasting the life of the mining activity).
The Corporation is preparing an application for a Temporary Occupation
Permit and plans to submit the application shortly. The Corporation has signed an agreement with
a private landowner for the purchase of the remaining surface land required by
the project. This land covers the area
of the mill site, tailings impoundment and various ancillary facilities. The
documents supporting the Corporations right to use the surface, together with
the existing and valid environmental permit and other supporting documents
currently being prepared, will form the basis of the new Change of Land Use
Permit application. The Corporation plans to submit this application within the
next few weeks. Based on earlier discussions with the Secretary of SEMARNAT,
management expects the application to be processed promptly and by law within
60 working days; the foregoing in accordance with those terms established in
the applicable legal provisions.
16
Table of Contents
ITEM 2
.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Managements Discussion
and Analysis (MD&A) of the consolidated operating results and financial
condition of Vista Gold Corp. for the three and six months ended June 30,
2008 has been prepared based on information available to us as of July 21,
2008. MD&A should be read in
conjunction with the consolidated financial statements of the Corporation for
the three years ended December 31, 2007 and the related notes thereto,
which have been prepared in accordance with generally accepted accounting
principles (GAAP) in Canada. Reference
to Note 17 to the consolidated annual financial statements should be made for a
discussion of differences between Canadian and United States GAAP and their
effect on the financial statements. All
amounts stated herein are in U.S. dollars in thousands, except loss per share
and per ounce amounts, unless otherwise noted.
Results from Operations
Our consolidated net loss
for the three-month period ended June 30, 2008, was $2,227 or $0.06 per
share compared to a consolidated net loss of $3,228 or $0.10 per share for the
same period in 2007. Our consolidated
net loss for the six-month period ended June 30, 2008, was $4,078 or $0.12
per share, which was approximately level with the consolidated net loss of
$4,004 or $0.13 per share for the same period in 2007. For the three-month period, the decrease in
the consolidated loss of $1,001 from the respective prior period is primarily
due to a decrease in costs of $2,352
related to the completion in May 2007 of the Plan of Arrangement
involving Vista, Allied Nevada Gold Corp. (Allied Nevada) and the Pescios,
which is partially offset by an increase in interest expense of $585, an
increase in fees associated with the disposal of our Amayapampa project of
$132, an increase in corporate administration and investor relations costs of
$336, an increase in the loss on disposal of marketable securities of $88 and a
decrease in interest income of $171. The
slight increase in the consolidated net loss of $74 for the six-month period
from the prior year period is largely due to an increase in corporate administration
and investor relations costs of $905, an increase in interest expense of $769,
an increase in the loss on disposal of marketable securities of $207, an
increase in fees associated with the disposal of our Amayapampa project of $132
and a decrease in interest income of $478.
These amounts are offset by the decrease in costs related to the Plan of
Arrangement of $2,352, as noted above.
Exploration, property evaluation
and holding costs
Exploration, property
evaluation and holding costs were $252 for the three-month period ended June 30,
2008 and $497 for the six-month period ended June 30, 2008, approximately
level with $202 and $478 for the same periods in 2007. For both the three-month
and six-month periods, there were no significant variances as we continue to
move our projects towards development decisions.
Corporate administration and
investor relations
Corporate administration and investor relations
costs increased to $1,253 during the three-month period ended June 30,
2008 and $2,540 for the six-month period ended June 30, 2008, compared to
$917 and $1,635 for the same periods in 2007.
The increases of $336 and $905 from the respective prior periods are
primarily due to the following:
·
Stock-based compensation
expense increased by $155 and $357, respectively, for the three- and six-month
periods ended June 30, 2008. This
is due to an increase in the number of options granted during the prior year
and vesting over time as compared to the prior period.
·
Employee costs increased by
$116 and $140, respectively, for the three- and six-month periods ended June 30,
2008. These costs reflect higher
employee benefit costs and salaries.
·
Also contributing to the
increase was the elimination of $73 and $383, respectively, for the three- and
six-month periods ended June 30, 2008, in the allocation of certain
corporate overhead expenses to Allied Nevada following completion of the Plan
of Arrangement. Until May 10, 2007, Allied Nevada had been a
wholly-owned subsidiary of Vista. Since
the completion on that date of the Plan of Arrangement that resulted in, among
other things, the formation of Allied Nevada as a newly independent entity,
Vista no longer allocated overhead expenses to Allied Nevada.
Depreciation and amortization
Depreciation and amortization expense increased to
$40 during the three-month period ended June 30, 2008 and $79 for the
six-month period ended June 30, 2008, compared to $27 and $53 for the same
periods in 2007. The increases of $13
and $26 from the respective prior periods are mostly due to capital
expenditures at the Mt. Todd gold project during 2007 that have begun to be
depreciated.
17
Table of Contents
Other income and expense
Gain/(loss) on disposal of marketable securities
For the three-month period ended June 30, 2008
we realized a loss of $88 on the disposal of marketable securities, compared to
no gains or losses for the same period in 2007.
The loss for the 2008 period resulted from the sale of securities that
had a book value of $120.
For the six-month period ended June 30, 2008,
we realized a loss on the disposal of marketable securities of $67 compared to
a gain on the disposal of marketable securities of $140 ($202 prior to the
allocation to Allied Nevada) for the same period in 2007. The loss for the 2008 period resulted from
the sale of securities that had a book value of $157 and the gain for the 2007
period resulted from the sale of securities that had a book value of $16.
At June 30, 2008, we held marketable securities
available for sale with a quoted market value of $10,229. With the exception of
our shares of Allied Nevada common stock, as discussed herein, we purchased the
securities for investing purposes with the intent to hold the securities until
such time it would be advantageous to sell the securities at a gain. Although
there can be no reasonable assurance that a gain will be realized from the sale
of the securities, we monitor the market status of the securities consistently
in order to mitigate the risk of loss on the investment. At June 30, 2008,
also included in marketable securities were 1,529,848 shares of Allied
Nevada at a quoted market value of $9,011. We continue to hold these shares of
Allied Nevada, which we retained as part of the closing of the Plan of
Arrangement to facilitate payment of any taxes payable by Vista as a result of
the Plan of Arrangement. These shares
are restricted securities as defined in Rule 144 under the Securities
Act of 1933 (the Securities Act) and cannot be resold by us in the absence of
registration under the Securities Act unless an exemption from registration is
available.
On November 15,
2007, the SEC adopted proposed revisions to Rule 144, the most commonly
available exemption for resales. Among
other things, these revisions shortened the one-year holding period under Rule 144
to six months as to restricted securities issued by companies that are
subject to the reporting requirements of the U.S. Securities Exchange Act of
1934, such as Allied Nevada. The revisions to Rule 144 became effective on
February 15, 2008. Since we acquired our Allied Nevada shares in May 2007,
we have met the required six-month holding period and can commence resales in
reliance on the Rule 144 exemption. If there are no taxes to be paid as
part of the Arrangement, then we will hold these shares until such time that it
would be advantageous to sell the securities at a gain.
Interest income
During the three months ended June 30, 2008 we
realized $171 in interest income as compared to $342 for the same period in
2007. During the six months ended June 30,
2008 we realized $280 in interest income as compared to $758 for the same
period in 2007. The decreases of $171
and $478, from the respective prior periods are primarily attributable to a
decrease in interest earned on our liquid savings accounts as compared to the
same period in 2007. This decrease is
due to Vistas decision to no longer purchase short-term commercial paper due
to the declining interest rates in the market.
Interest
expense
During the three-month period and six-month period ended June 30,
2008, interest expense was $585 and $769, respectively. Of these amounts, $232 and $313,
respectively, are attributable to the accretion of the debt discount and $353
and $456, respectively, are attributable to interest expense. These amounts are approximately 47% of the
full interest expense associated with the issuance of the Notes (as defined
under Financing Activities below). We
are able to capitalize the remaining 53% as additions to mineral properties in
accordance with SFAS No. 34 and our accounting policy.
Financial Position, Liquidity and Capital
Resources
Cash used in operations
Net cash used in operating activities was $2,073 for
the three-month period ended June 30, 2008, compared to $1,755 for the
same period in 2007. The increase of
$318 is the result of an interest payment of $842 made on June 15, 2008
for the Notes and a decrease of non-cash items of $1,173 which is offset by a
decrease in the loss for the period from continuing operations of $958 and a
decrease in cash used for accounts payable, accrued liabilities and other of
$757.
Net cash used in operating activities was $3,279 for
the six-month period ended June 30, 2008, compared to $2,706 for the
18
Table of Contents
same period in 2007.
The increase of $573 is mostly the result of the interest payment of
$842 noted above, which is partially offset by a decrease in cash used for
receivables of $310.
Investing activities
Net cash used in investing activities decreased to
$3,195 for the three-month period ended June 30, 2008, from $26,289 for
the same period in 2007. The decrease of
$23,094 mostly reflects the $24,384 cash transferred to Allied Nevada in
conjunction with the completion of the Plan of Arrangement during May 2007,
which was partially offset by the following:
·
An increase in the additions
to mineral properties of $682, which is mostly the result of an increase in
expenditures at the Paredones Amarillos project as we move towards a production
decision.
·
An increase of $350 for a
loan made to Republic Gold Limited (Republic) in conjunction with the
disposal of the Amayapampa project.
·
An increase in the additions
to plant and equipment of $269, which is mostly the result of an increase in
equipment purchases at the Paredones Amarillos project and the Mt. Todd
project.
Net cash used for investing activities decreased to
$21,308 for the six-month period ended June 30, 2008, from $28,225 for the
same period in 2007. The decrease of
$6,917 is mostly the result of a decrease of $24,384 in the cash transferred to
Allied Nevada as noted above, which has been offset by the following:
·
An increase in additions to
plant and equipment of $16,310. On March 4,
2008, with the completion of a brokered private placement of $30,000 principal
amount of the Notes (see Financing activities below) we used $16,000 of the
proceeds towards the purchase of gold processing equipment to be used at our
Paredones Amarillos project. The
aggregate purchase price was approximately $16,000, which included the costs of
relocating the equipment to Edmonton, Alberta, Canada. The purchase was finalized in April 2008
with the completion of the relocation of the major equipment components to
Edmonton. There were no similar
purchases during the 2007 period.
·
An increase in the
acquisition of mineral properties of $452.
On January 24, 2008, we completed the acquisition of interests in
various mineral properties adjacent to our Guadalupe de los Reyes project in
Mexico. The consideration paid by Vista
for the acquisition of these interests included cash payments totalling $452
and the issuance of a total of 213,503 common shares of Vista (with an
aggregate fair value of $1,000), to various parties.
·
An increase in the additions
to mineral properties of $264.
·
An increase of $350 for a
loan made to Republic in connection with the disposal of the Amayapampa
project, as noted above.
Financing activities
Net cash used in financing activities was $144 for
the three-month period ended June 30, 2008, as compared to net cash
provided by financing activities of $250 for the same period in 2007. During the three-month period ended June 30,
2008 cash was used in financing activities, reflecting the payment of
additional debt issuance costs resulting from the completion of the brokered
private placement of the Notes during the first quarter, discussed below. For the same period in 2007, cash was
provided by financing activities due to proceeds received from the exercise of
warrants.
Net cash provided by financing activities was
$31,400 for the six-month period ended June 30, 2008, as compared to
$1,512 for the same period in 2007. This
increase is primarily the result of the completion of a brokered private
placement on March 4, 2008 in which we offered and sold $30,000 in
aggregate principal amount of senior
secured convertible notes (the Notes) (see unaudited Consolidated Financial
Statements Note 7). Proceeds to Vista
after legal and other fees were $28,390.
There were no similar transactions during the 2007 period.
There were no warrant exercises during the
three-month period ended June 30, 2008 as compared to $250 for the same
period in 2007. Warrant exercises during
the six-month period ended June 30, 2008 produced cash proceeds of $2,941
as compared to $1,495 for the same period in 2007.
Liquidity and Capital Resources
At June 30, 2008,
our total assets were $80,896 compared to $51,346 at December 31, 2007,
representing an increase of $29,550. At June 30,
2008, we had working capital of $33,381 compared to $27,254 at December 31,
2007, representing an increase of $6,127.
This increase relates primarily to an increase in cash balances from
year end as a result of the completion of the brokered private placement of
Notes as discussed below.
19
Table of
Contents
The principal component
of working capital at both June 30, 2008 and December 31, 2007, is
cash and cash equivalents of $23,205 and $16,686, respectively. Other components include marketable
securities (June 30, 2008 $10,229; December 31, 2007 $10,882) and
other liquid assets (June 30, 2008 - $1,087; December 31, 2007 -
$380).
On March 4, 2008, we
completed a private placement in which we issued and sold $30 million in
aggregate principal amount of the Notes.
The Notes mature at face value on March 4, 2011 (the Maturity Date). The Notes pay interest of 10% per annum.
Interest is payable each year in two installments on June 15 and December 15
and the principal is payable on the Maturity Date.
The Notes are convertible
at the holders or issuers discretion in accordance with the terms of the
Notes. The holder can convert all or
part of the debt at any time prior to the Maturity Date or the business day
immediately preceding the Redemption Date at a price of $6.00 per common share,
subject to adjustment in certain circumstances.
The Redemption Date represents the date that the Notes will be redeemed
in the event that we redeem the Notes.
We can convert all, but
not part, of the Notes after March 4, 2009 if the weighted-average price
of our shares as quoted on the American Stock Exchange (AMEX) has been equal
to or greater than $9.00 per share for 15 consecutive trading days. The notice of conversion must occur within 10
days of any such 15-day period and the share price must be equal to or greater
than $9.00 on the date the notice is delivered.
The conversion price is $6.00 per common share subject to adjustment in certain
circumstances.
The conversion price will
be adjusted on March 4, 2009, being the first anniversary of the issuance
of the Notes, to the lesser of the current conversion price or 120% of the
20-day weighted average price of the common shares as quoted on AMEX. The conversion price will also be adjusted in
certain circumstances such as issuance of warrants, additional common shares or
distribution of assets. The conversion
price shall not be adjusted below $4.80 per share.
The
Notes have been accounted for in accordance with EIC 164, Convertible and
other Debt Instruments with Embedded Derivatives. Under EIC 164, the fair value of the
conversion feature is recorded as equity.
The issuance date fair value of the conversion feature was originally
estimated to be $11.5 million and was classified as the equity component of
convertible notes with the residual balance of $18.5 million being recorded as
long-term debt. However, subsequent to
the initial estimation and recognition of the equity component it was
determined that a risk-free rate of return would provide a more conservative
estimate of the expected return an investor would expect to receive as compared
to the expected return on Vistas common shares, which was originally
used. This risk neutral approach was
applied and the issuance date fair value of the convertible feature was
revised. The revised issuance date fair
value of the conversion feature was estimated to be $6.8 million and the
residual balance of $23.2 million was recorded as the fair value of Vistas
obligation to make principal and interest payments and has been classified as
long-term debt. This change in estimate
has been applied on a prospective basis by adjusting the carrying values of the
equity component and long-term debt on the balance sheet.
We used approximately
$16,000 of the proceeds from the sale of the Notes
for advance payments towards
the purchase of gold processing equipment to be used at our Paredones Amarillos
project. The remaining balance of the
funds raised from the private placement will be used for ongoing operations at
the Paredones Amarillos project.
Off-Balance Sheet Arrangements
We have no off-balance
sheet arrangements required to be disclosed in this Quarterly Report on Form 10-Q.
Other
Disposal of Amayapampa project
On April 7,
2008, we announced an agreement to dispose of our wholly-owned subsidiary Vista
Gold (Antigua) Corp. (Vista Gold Antigua) to Republic Gold Limited (Republic).
Vista Gold Antigua indirectly held our interest in the Amayapampa gold project
in Bolivia. Under the terms of the transaction, Republic has agreed to pay
Vista $3.0 million in three payments of $1.0 million. The first of these
payments is due and payable upon the start of commercial production (as defined
in the purchase and sale agreement) at Amayapampa followed by $1.0 million
payments on each of the first and second anniversaries of the start of
commercial production. In addition,
Republic has agreed to pay Vista a net smelter return royalty (NSR) on the
gold produced by or on behalf of Republic from the Amayapampa project in
varying percentages depending on the price of gold per ounce. When gold is
between $500.01 and $650.00 per ounce, a 2% NSR is payable, when the price of
gold is between $650.01 and $750.00 per ounce, a 3% NSR is payable, and when
the price of gold is $750.01 per ounce and above, an NSR of 3.5% is payable.
The NSR is capped at 720,000 gold equivalent ounces and no NSR payments are due
to Vista if the gold price is below $500 per ounce.
20
Table of Contents
Vista will
retain a first right of refusal in the event Republic decides to sell the
property and will also retain a right to re-acquire the property if Republic or
Vista Gold Antigua have not moved to close a financing under a project
financing facility within five years.
Under the terms of the transaction, Vista agreed to lend $350 to
Republic for ongoing expenses on the Amayapampa gold project. The loan was completed on April 7,
2008. Interest on the loan accrues and
is payable at the rate of 10% per annum, payable monthly. The principal is due on or before the earlier
of (a) September 30, 2008, (b) the date that a bankable
feasibility study is completed with respect to the Amayapampa gold project or (c) such
earlier date in the event Vista makes demand for full payment upon the
occurrence of an event of default.
The fair value of the consideration received on disposal of the Amayapampa
project has been calculated as of June 30, 2008 using probability weighted
cash flow scenarios and assumptions including future gold prices, estimated
gold production and the timing of commencement of commercial production. These inputs in the income approach
valuation model used by Vista are considered to be level three unobservable
inputs as defined by SFAS No. 157, Fair Value Measurements. These are Vistas own assumptions based on our
best estimates and the best information available at the time.
Prime
Corporate Finance Pty Limited (PCF) of West Perth, Australia served as
corporate advisor to Vista in connection with the above transaction. In compensation for the advisory services
provided by PCF, Vista had agreed to pay PCF a success fee of 5% of the face
value of any transaction completed with a party introduced by PCF. Republic was introduced to Vista by PCF. On April 8, 2008, Vista and PCF agreed
that the success fee payable to PCF was $165, such amount being equivalent to
Cdn. $166.8. In addition, on April 8,
2008, PCF and Vista agreed that the success fee would be payable in Common
Shares of Vista. Based on the market
price of Vistas Shares at the close of business on April 7, 2008 of Cdn.
$4.47 per common share, 37,318 Vista Shares were issuable to PCF. Completion of the issuance occurred on June 17,
2008.
Mt.
Todd Gold Project resource update
On April 24,
2008, we announced that Canadian National Instrument 43-101 (43-101) silver
and copper resource estimates for the Batman deposit at the Mt. Todd Gold
Project in Northern Territory, Australia had been completed by Tetra Tech, Inc.
of Golden, Colorado. These silver and
copper resource estimates were completed under the direction of Mr. John
Rozelle, P.G., an independent Qualified Person as defined in 43-101, utilizing
standard industry software and resource estimation methodology. The new silver resource estimates and new
copper resource estimates, reported at a cutoff grade of 0.015 gold ounces per
ton, are set forth below. The gold resource remained the same as reported in
our Quarterly Report on Form 10-Q for the quarter ended March 31,
2008, under Part I Financial Information Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations Other - Updated gold resource
estimate for the Mt. Todd gold project.
For further information on the updated gold resource estimate, see our
press release dated April 24, 2008 and see our technical report entitled
Mt. Todd gold project - resource update, Northern Territory, Australia dated
May 15, 2008 as filed with the Canadian Securities Commissions.
Silver Resource Estimate
Resource
Classification(1)
|
|
Short Tons
|
|
Average Grade
|
|
|
|
(x1000)
|
|
(ounces/ton)
|
|
Measured(2)
|
|
47,987
|
|
0.042
|
|
Indicated(2)
|
|
50,425
|
|
0.045
|
|
Measured and Indicated(2)
|
|
98,413
|
|
0.043
|
|
Resource
Classification(1)
|
|
Short Tons
|
|
Average Grade
|
|
|
|
(x1000)
|
|
(ounces/ton)
|
|
Inferred(3)
|
|
64,832
|
|
0.050
|
|
Copper Resource Estimate
Resource
Classification(1)
|
|
Short Tons
|
|
Average Grade
|
|
|
|
(x1000)
|
|
(% Cu)
|
|
Measured(2)
|
|
47,987
|
|
0.05
|
|
Indicated(2)
|
|
50,425
|
|
0.05
|
|
Measured and Indicated(2)
|
|
98,413
|
|
0.05
|
|
Resource
Classification(1)
|
|
Short Tons
|
|
Average Grade
|
|
|
|
(x1000)
|
|
(% Cu)
|
|
Inferred(3)
|
|
64,832
|
|
0.05
|
|
21
Table of
Contents
Cautionary Notes Concerning Resource Estimates
(1)
We report mineralized
material under two separate standards to meet the requirements for reporting in
both the U.S. and Canada. U.S. reporting
requirements for disclosure of mineral properties are governed by the United
States Securities and Exchange Commission (SEC) Industry Guide 7. Canadian reporting requirements for
disclosure of mineral properties are governed by 43-101. Canadian and United States standards are
substantially different. In particular,
the term resource does not equate to the term reserves. In the United States, an issuer is not
generally permitted to disclose mineralization unless such mineralization
satisfies the definitional requirements of proven or probable mineral reserve
in accordance with SEC Industry Guide 7, which defines mineral reserve as a
part of a mineral deposit, which could be economically and legally extracted or
produced at the time the reserve determination is made. Accordingly, information contained in this Form 10-Q
containing descriptions of our mineral deposits in accordance with 43-101 may
not be comparable to similar information made public by other U.S. companies
under the United States federal securities laws and the rules and
regulations thereunder.
(2)
Cautionary Note to U.S. Investors concerning estimates
of Measured and Indicated Resources:
This document uses the terms measured resources and indicated
resources. We advise investors that
while these terms are recognized and required by Canadian regulations, the SEC
does not recognize them.
Investors are cautioned not to assume that any part or
all of the mineral deposits in these categories will ever be converted into
mineral reserves.
(3)
Cautionary Note to U.S. Investors concerning estimates
of Inferred Resources:
This
document uses the term inferred resources.
We advise investors that while this term is recognized and required by
Canadian regulations, the SEC does not recognize it. Inferred mineral resources have a great
amount of uncertainty as to their existence, and great uncertainty as to their
economic and legal feasibility. It
cannot be assumed that all or any part of an inferred mineral resource will
ever be upgraded to a higher category.
In accordance with Canadian rules, estimates of inferred mineral
resources cannot form the basis of feasibility or other economic studies.
Investors are cautioned
not to assume that any part or all of the inferred mineral resource exists or
is economically or legally mineable.
Subsequent
events
Updated Report on Status of
Change of Land Use Permit for Paredones Amarillos Project and Expected
Development Timetable
As previously
reported, on April 30, 2008, Vista announced that it had received
correspondence from the local La Paz office of the Mexican Environmental and
Natural Resource Service (SEMARNAT) which indicates that staff in that office
are of the opinion that the Change of Land Use Permit approved by SEMARNAT in
1997 in relation to Vistas Paredones Amarillos Project in Baja California Sur
(BCS), Mexico, is no longer valid.
This permit is necessary for the development of the Paredones Amarillos
Project to proceed. Vistas advisors and
counsel in Mexico have advised Vista that they believe that the permit remains
valid. Vistas legal counsel in Mexico
has advised Vista to proceed with a judicial appeal of the opinion issued by
the BCS office of SEMARNAT to preserve certain legal rights, but has also
recommended that a new application is likely to be the most expeditious way to
obtain the necessary approvals.
On
July 2, 2008, Vista reported that it has taken steps to preserve its right
to proceed with a judicial appeal of the opinion issued by the BCS
office of SEMARNAT and has also completed a number of steps prerequisite to
submitting an application for a new
Change of Land Use Permit. As well, we plan to submit an application for
an interim Change of Land Use Permit for the drilling program
.
Changes in the
law governing the Change of Land Use Permit require Vista to demonstrate that
it has the right to use the surface affected by the permit. Vista has recently
received a certificate from the General Direction of Mines of the General
Coordinator of Mines in the Ministry of Economy verifying that Vistas Mexican
subsidiary, Minera Paredones Amarillos S.A. de C.V. (MPA), is the rightful
holder of valid mineral rights for the Paredones Amarillos Project. Vista has also recently received an official
appraisal of the surface land in the project area from the National Institute
for the Appraisal and Administration of National Property (INDAABIN) confirming
that the surface overlying a significant part of these mineral rights
(including the proposed pit and most of the dumps) is federal land. Under
Mexican mining statutes, MPA has the constitutional right to use the surface
for mining activities, subject to applicable environmental permits and federal
authorizations. This position has been further confirmed in the foregoing
certificate issued by the General Direction of Mines of the General Coordinator
of Mines in the Ministry of Economy. One of the mechanisms for authorizing the
use of federal land for mining activities is a Temporary Occupation Permit
(lasting the life of the mining activity).
Vista is preparing an application for a Temporary Occupation Permit and
plans to submit the application shortly.
Vista has signed an agreement with a private landowner for the purchase
of the remaining surface land required by the project. This land covers the area of the mill site,
tailing
22
Table of
Contents
impoundment
and various ancillary facilities. The documents supporting Vistas right to use
the surface, together with the existing and valid environmental permit and
other supporting documents currently being prepared, will form the basis of the
new Change of Land Use Permit application. Vista plans to submit this
application within the next few weeks. Based on earlier discussions with the
Secretary of SEMARNAT as previously reported, Vistas management expects the
application to be processed promptly and by law within 60 working days; the
foregoing in accordance with those terms established in the applicable legal
provisions.
Vista
expects to complete the definitive feasibility study for the Paredones Amarillos
Project by mid-August and will commence activities to arrange financing
shortly afterwards. Based on a
preliminary schedule and assuming favorable results from the definitive
feasibility study, the successful completion of project financing, and the
issuance of a new Change of Land Use Permit, construction of the Paredones
Amarillos Project is expected to commence before the end of 2008, with first
gold production planned to commence before the end of 2009. A detailed project
schedule is currently under preparation and will be made public as part of the
feasibility study results
Changes in
Accounting Policies
and Recent Accounting Pronouncements
Changes in accounting policies
Effective
January 1, 2008, we adopted the following standards updates by the
Canadian Institute of Chartered Accountants (CICA). These new standards have been adopted on a
prospective basis with no restatement to prior period financial statements.
CICA
Section 1535, Capital Disclosures requires the disclosure of an entitys
objectives, policies and processes for managing capital, quantitative data
about what the entity regards as capital and whether the entity has complied
with any capital requirements and, if it has not complied, the consequences of
such noncompliance. Our objective is to
ensure our ability to continue as a going concern, so that we can continue to
provide returns for our shareholders.
We
consider items included in our shareholders equity and our convertible debt as
capital. We manage our capital structure
and make adjustments to it in the light of changes in economic conditions and
the risk characteristics of the underlying assets. In order to maintain or adjust the capital
structure, we may issue new shares through equity financings to reduce debt. We are not subject to externally imposed
capital requirements. See Unaudited
Consolidated Financial Statements - Notes 7, 8, 9 and 10.
CICA
Section 1400, General Standards of Financial Statement Presentation, was
amended to include requirements to assess and disclose an entitys ability to
continue as a going concern. The new
requirements are effective for interim and annual financial statements relating
to fiscal years beginning on or after January 1, 2008. The adoption of this statement did not have
an impact on the consolidated financial statements.
CICA Section 3862, Financial
InstrumentsDisclosures and Section 3863, Financial
InstrumentsPresentations are two standards that replace Section 3861, Financial
InstrumentsDisclosure and Presentation, revising disclosures related to
financial instruments and carry forward unchanged presentation
requirements. These standards increase
the disclosures currently required, which will enable users to evaluate the significance
of financial instruments for an entitys financial position and performance,
including disclosures about fair value.
In addition, disclosure is required of qualitative and quantitative
information about exposure to risks arising from financial instruments,
including specified minimum disclosure about credit risk, liquidity and market
risk. The quantitative disclosures must
provide information about the extent to which the entity is exposed to risk,
based on information provided internally to the entitys key management
personnel.
Recent accounting pronouncement
not yet adopted
In February 2008,
the CICA issued Section 3064, Goodwill and Intangible Assets, which
replaces Section 3062, Goodwill and Intangible Assets, and results
in a withdrawal of CICA Section 3450, Research and Development
Costs, and amendments to Accounting Guideline (AcG) 11, Enterprises in the
Development Stage, and CICA Section 1000, Financial Statement Concepts.
The standard intends to reduce the differences with International Financial
Reporting Standards (IFRS) in the accounting for intangible assets and
results in closer alignment with U.S. GAAP. Under current Canadian
standards, more items are recognized as assets than under IFRS or
U.S. GAAP. The objectives of CICA Section 3064 are to reinforce the
principle-based approach to the recognition of assets only in accordance with
the definition of an asset and the criteria for asset recognition; and clarify
the application of the concept of matching revenues and expenses such that the
current practice of recognizing assets that do not meet the definition and
recognition criteria are eliminated. The standard will also provide guidance
for the recognition of internally developed intangible assets (including
research and development activities), ensuring consistent treatment of all
intangible assets, whether separately acquired or internally developed.
23
Table
of Contents
This standard will be
effective for fiscal years beginning on or after October 1, 2008. We are currently evaluating the impact of
adopting this standard in 2009.
Certain U.S. Federal Income Tax
Considerations
NOTICE PURSUANT TO IRS CIRCULAR 230: NOTHING CONTAINED IN
THIS SUMMARY CONCERNING ANY U.S. FEDERAL TAX ISSUE IS INTENDED OR WRITTEN
TO BE USED, AND IT CANNOT BE USED, BY A U.S. HOLDER (AS DEFINED IN
MATERIAL REFERENCED BELOW), FOR THE PURPOSE OF AVOIDING U.S. FEDERAL TAX
PENALTIES UNDER THE CODE (AS DEFINED BELOW). THIS SUMMARY WAS WRITTEN TO
SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED BY
THIS DOCUMENT. EACH U.S. HOLDER SHOULD SEEK U.S. FEDERAL TAX ADVICE,
BASED ON SUCH U.S. HOLDERS PARTICULAR CIRCUMSTANCES, FROM AN INDEPENDENT
TAX ADVISOR.
Vista has been
a passive foreign investment company (PFIC) as defined under Section 1297
of the U.S. Internal Revenue Code of 1986, as amended (the Code), in recent
years and expects to continue to be a PFIC in the future. Current and prospective United States
shareholders should consult their tax advisors as to the tax consequences of
PFIC classification and the U.S. federal tax treatment of PFICs. Additional information on this matter is included
in Vistas Annual Report on Form 10-K for the year ended December 31,
2007 under Part II. Item 5. Market for Registrants Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities Certain
U.S. Federal Income Tax Considerations.
24
Table of Contents
Note
Regarding Forward-Looking Statements
This
document contains forward-looking statements within the meaning of Section 27A
of the U.S. Securities Act of 1933, as amended, and 21E of the U.S. Securities
Exchange Act of 1934, as amended, and forward-looking information under
Canadian securities laws, that are intended to be covered by the safe harbor
created by such legislation. All
statements, other than statements of historical facts, included in this
document, our other filings with the SEC and Canadian securities commissions
and in press releases and public statements by our officers or representatives,
that address activities, events or developments that we expect or anticipate
will or may occur in the future are forward-looking statements, including, but
not limited to, such things as those listed below:
·
financial and operating results and estimates;
·
potential funding requirements and sources of capital;
·
the timing, performance and results of feasibility
studies including the ongoing bankable feasibility study for the Paredones
Amarillos project;
·
timing and receipt of required land use, environmental
and other permits for the Paredones Amarillos Project and timing for starting
and completion of drilling and testing programs at the Paredones Amarillos
Project;
·
plans to confirm the validity of the Change of Land
Use Permit for the Paredones Amarillos Project and timing and outcome for
confirmation of the status of this permit and timing and outcome for
alternative application for an interim Change of Land Use Permit for the
drilling program and a new Change of Land Use Permit for the Paredones
Amarillos Project;
·
timing and outcome for application for Temporary
Occupation Permit for mining activities at the Paredones Amarillos Project;
·
plans to purchase remaining surface land required by
the Paredones Amarillos Project;
·
capital and operating cost estimates for the Paredones
Amarillos Project, and anticipated timing of commencement of construction at
the Paredones Amarillos Project;
·
plans for evaluation of the Mt. Todd Project including
estimates of silver, copper and gold resources; preliminary assessment results
and plans for a feasibility study at the Mt. Todd project;
·
results of drilling programs and prospects for
exploration and conversion of resources at the Mt. Todd Project;
·
potential for gold production at the Amayapampa gold
project, timing and receipt of future payments in connection with the disposal
of the Amayapampa gold project and status of legal proceedings in Bolivia;
·
ongoing debt service requirements for the Notes and
potential redemption or conversion of the Notes;
·
future gold prices;
·
future business strategy, competitive strengths, goals
and expansion and growth of our business;
·
Vistas potential status as a producer;
·
plans and estimates concerning potential project
development including matters such as schedules, estimated completion dates and
estimated capital and operating costs;
·
plans and proposed timetables for exploration
programs, and estimates of exploration expenditures;
·
estimates of mineral reserves, mineral resources and
mineralized material; and
·
future share price and valuation for Vista and for
marketable securities held by Vista.
The
words estimate, plan, anticipate, expect, intend, believe, will
and similar expressions are intended to identify forward-looking statements.
These statements involve known and unknown risks, uncertainties, assumptions
and other factors which may cause our actual results, performance or
achievements to be materially different from any results, performance or
achievements expressed or implied by such forward-looking statements. These
factors include, among others, the risk that we may be subject to
U.S. federal corporate income tax and Canadian income taxes in connection
with our distribution of Allied Nevada shares to our shareholders as part of
the Arrangement. These also include other risks such as our likely status as a passive
foreign investment company for U.S. federal tax purposes, and business
risks including:
·
risks relating
to delays and incurrence of additional costs in connection with the feasibility
study underway at our Paredones Amarillos Project including uncertainty
relating to timing and receipt for required governmental permits;
·
uncertainty relating to timing and
receipt for confirmation of the validity of the Change of Land Use Permit for
the Paredones Amarillos Project;
·
uncertainty relating to timing and
outcome of alternative application process for an interim Change of Land Use
Permit for the drilling program and a new Change of Land Use Permit for the Paredones
Amarillos Project;
·
uncertainty relating to timing and
outcome for application for Temporary Occupation Permit for mining activities
at the Paredones Amarillos Project;
25
Table of
Contents
·
uncertainty relating to completion of
agreement for purchase of remaining surface land required by the Paredones
Amarillos Project;
·
uncertainty of
feasibility study results and preliminary assessments and of estimates on which
such results are based;
·
risks relating
to delays in commencement and completion of construction at the Paredones
Amarillos Project and Mt. Todd Project;
·
uncertainty relating to potential for
gold production at the Amayapampa gold project and timing for commencement of
production and timing and receipt of future payments in connection with the
disposal of the Amayapampa gold project;
·
risks of
significant cost increases;
·
uncertainties
concerning availability of equipment or supplies;
·
the risk that
our acquisition, exploration and property advancement efforts will not be
successful;
·
risks relating
to fluctuations in the price of gold;
·
the inherently
hazardous nature of mining-related activities;
·
uncertainties
concerning estimates of mineral reserves, mineral resources and mineralized
material;
·
potential
effects on our operations of environmental regulations in the countries in
which we operate;
·
risks related
to repayment of debts;
·
risks related
to increased leverage;
·
intense
competition in the mining industry;
·
risks due to
legal proceedings and possible challenges to title to our properties;
·
uncertainty of
being able to raise capital on favorable terms or at all; and
·
risks from
political and economic instability in the countries in which we operate.
For
a more detailed discussion of such risks and other important factors that could
cause actual results to differ materially from those in such forward-looking
statements please see Part II Item IA.
Risk Factors in this Quarterly Report on Form 10-Q, and see also
our Annual Report on Form 10-K for the year ended December 31, 2007,
under Part IItem 1A. Risk Factors. The foregoing section of our
2007 Form 10-K is incorporated in this filing, subject to the updates as
set forth in Part II Item 1A.
Risk Factors herein, and investors should refer to it. Although we have attempted to identify
important factors that could cause actual results to differ materially from
those described in forward-looking statements, there may be other factors that
cause results not to be as anticipated, estimated or intended. There can be no
assurance that these statements will prove to be accurate as actual results and
future events could differ materially from those anticipated in the statements.
Except as required by law, we assume no obligation to publicly update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
26
Table of
Contents
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are engaged in the
acquisition of gold projects and related activities including exploration
engineering, permitting and the preparation of feasibility studies. The value of our properties is related to the
price of gold and changes in the price of gold could affect our ability to
generate revenue from our portfolio of gold projects.
Gold prices may fluctuate
widely from time to time and are affected by numerous factors, including the
following: expectations with respect to the rate of inflation, exchange rates,
interest rates, global and regional political and economic circumstances and
governmental policies, including those with respect to gold holdings by central
banks. The price of gold fell to a
20-year low of $253 in July 1999 and has risen significantly since that
time to reach a level of $837 by December 31, 2007 and was $930 at June 30,
2008 and $961 at July 21, 2008. The
demand for, and supply of, gold affect gold prices, but not necessarily in the
same manner as demand and supply affect the prices of other commodities. The supply of gold consists of a combination
of new mine production and existing stocks of bullion and fabricated gold held
by governments, public and private financial institutions, industrial
organizations and private individuals.
The demand for gold primarily consists of jewelry and investments. Additionally, hedging activities by
producers, consumers, financial institutions and individuals can affect gold
supply and demand. While gold can be
readily sold on numerous markets throughout the world, its market value cannot
be predicted for any particular time.
Because we have
exploration operations in North America, South America, Indonesia and Australia
we are subject to foreign currency fluctuations. We do not engage in currency hedging to
offset any risk of currency fluctuations as insignificant monetary amounts are
held in foreign currencies for land holding costs related to the properties
owned.
On March 7,
2008, we announced the closing of a private placement in which we offered and
sold $30 million in aggregate principal amount of the Notes (see Unaudited
Consolidated Financial Statements Note 7). The Notes bear interest at a rate
of 10% per annum (calculated and payable semi-annually in arrears) and will
mature on March 4, 2011. We do not consider our interest rate risk
exposure to be significant at this time.
ITEM 4.
CONTROLS AND PROCEDURES
The principal executive
officer and principal financial officer have evaluated the effectiveness of the
Corporations disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act) as of
June 30, 2008. Based on the evaluation, the principal executive officer
and principal financial officer concluded that the disclosure controls and
procedures in place are effective to ensure that information required to be
disclosed by the Corporation, including consolidated subsidiaries, in reports
that the Corporation files or submits under the Exchange Act, is recorded,
processed, summarized and reported on a timely basis in accordance with
applicable time periods specified by the Securities and Exchange Commission rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Corporation in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the Corporations management, including its
principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure. There has been no change in the Corporations internal control over
financial reporting during the quarter ended June 30, 2008, that has
materially affected, or is reasonably likely to materially affect, the
Corporations internal control over financial reporting.
27
Table of
Contents
PART II -
OTHER INFORMATION
ITEM
1.
LEGAL PROCEEDINGS
As
previously reported in our Annual Report on Form 10-K for the year ended December 31,
2007 under the heading Part I Item 3. Legal Proceedings, a number of
legal proceedings have been initiated in Bolivia with respect to ownership interests
in the mining concessions comprising the Amayapampa gold project. These proceedings involve Minera Nueva Vista
S.A., Mr. Estanislao Radic and/or Mr. Raul Garafulic. As part of the sale of our wholly-owned
subsidiary, Vista Gold (Antigua) Corp., Minera Nueva Vista S.A. was sold to
Republic Gold Limited on April 4, 2008 (see above Part I Financial
Information Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations Other Disposal of Amayapampa project). With the disposition of our Bolivia holdings,
we are evaluating the procedural status
of these actions with respect to Vista following the disposition. We continue to believe that foregoing legal
proceedings will not result in any material adverse impact on Vista.
ITEM 1A.
RISK
FACTORS
Our Annual Report on
Form 10-K for the year ended December 31, 2007 includes discussions of our
risk factors. The information presented
below updates risk factors previously set forth with respect to our Paredones
Amarillos Project and our discussion concerning risks relating to feasibility
studies and preliminary assessments in general, and also includes a new risk
factor with respect to our recent disposal of our Amayapampa project. The information below should be read in
conjunction with the risk factors and information disclosed in our 2007 Form 10-K. Other than with respect to the risk factors
below, there have been no material changes from the risk factors set forth in
our 2007 Form 10-K
The feasibility study underway at our Paredones
Amarillos Project may be subject to delays and other risks, including possible
delays relating to receipt of required governmental permits, that could result
in our incurring additional costs for the study or require us to postpone the
study indefinitely.
We have commenced
a definitive feasibility study at our Paredones Amarillos Project in Mexico and
have retained consulting firms to supervise and assist in the preparation of
this study. We have also presented studies
and permitting documents to the Mexican governmental authorities for our
proposed core drilling program at the Project.
We are seeking to confirm the validity of the Change of Land Use Permit
for the Paredones Amarillos Project and, in the alternative, apply for an interim
Change of Land Use Permit for the drilling program and a new Change of Land Use
Permit for the Project. See discussions
of Paredones Amarillos permit status under Part I Financial Information
Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations Subsequent Events. When the interim permit is received, we plan
to expedite the start of drilling and the related test programs, which are
expected to be completed in the fourth quarter of 2008. Delays in obtaining the permit have resulted
in the company undertaking other engineering studies to confirm previous
results of some data (i.e., metallurgical test results) and has resulted in
slightly decreased levels of confidence in other areas of the feasibility study
(i.e., geotechnical designs). The
feasibility study will reflect these results and establish the need for the
planned testing prior to the completion of detailed engineering. Further delays in completing the drilling
could result in delays to the completion of detailed engineering which could
delay the start of construction and negatively affect our financial position
and results of operations. Delays in
either confirming the validity of the Change of Land Use Permit for the Project
or obtaining an interim permit for the drilling program or a new Change of Land
Use Permit for the Project could also delay development of the project and
negatively impact our financial position and results of operations. Although we anticipate that we will receive
the required permits, we cannot provide assurance that these permits will be
received on a timely basis or at all.
Feasibility study results and preliminary assessment results
are based on estimates that are subject to uncertainty.
Feasibility studies are used
to determine the economic viability of a deposit, as are pre-feasibility
studies and preliminary assessments.
Feasibility studies are the most detailed and reflect a higher level of
confidence in the reported capital and operating costs. Generally accepted levels of confidence are
plus or minus 15% for feasibility studies, plus or minus 25-30% for
pre-feasibility studies and plus or minus 35-40% for preliminary
assessments. These levels reflect the
levels of confidence that exist at the time the study is completed. While these studies are based on the best
information available to us for the level of study, we cannot be certain that
actual costs will not significantly exceed the estimated cost. While Vista incorporates what it believes is
an appropriate contingency factor in cost estimates to account for this
uncertainty, there can be no assurance that the contingency factor is adequate.
28
Table of
Contents
The economic viability of a deposit is based on many factors
that are subject to uncertainty.
Many factors are involved
in the determination of the economic viability of a deposit, including the
achievement of satisfactory mineral reserve estimates, the level of estimated
metallurgical recoveries, capital and operating cost estimates and estimates of
future gold prices. Resource estimates
are based on the assay results of many intervals from many drill holes and the
interpolation of those results between holes.
There is no certainty that metallurgical recoveries obtained in bench
scale or pilot plant scale tests will be achieved in commercial operations. Capital and operating cost estimates are
based upon many factors, including anticipated tonnage and grades of ore to be
mined and processed, the configuration of the orebody, ground and mining
conditions, expected recovery rates of the gold from the ore and anticipated
environmental and regulatory compliance costs.
Each of these factors involves uncertainties and as a result, we cannot
give any assurance that our development or exploration projects will become
operating mines. Further, it may take many years from the initial phase of
drilling before production is possible and, during that time, the economic
feasibility of exploiting a discovery may change as the result of changing
commodity and supply costs. If a mine is
developed, actual operating results may differ from those anticipated in a
feasibility study.
We may be subject to delays in commencement of construction
on the Paredones Amarillos Project.
We may not be able to
commence construction on the Paredones Amarillos Project in the last quarter of
2008 as currently planned. Delays in
commencement of construction could result from delays in completion of the
definitive feasibility study currently underway, delays in receiving the
required governmental permits including the Change of Land Use and Temporary
Occupation (for the life of the project) Permits, or from factors such as
availability and performance of engineering and construction contractors,
suppliers and consultants, availability of required equipment and receipt of
required governmental approvals. Any
delay in the performance of any one or more of the contractors, suppliers,
consultants or other persons on which we depend, or lack of availability of
required equipment, or delay or failure to receive required governmental
approvals, could delay or prevent commencement of construction on the Paredones
Amarillos Project. There can be no
assurance whether or when construction at the Paredones Amarillos Project will
commence or that the necessary personnel, equipment or supplies will be
available to us if and when construction is commenced.
As well, the discussion
of Mexico Laws under the risk factor entitled Our exploration and
development operations are subject to environmental regulations, which could
result in our incurring additional costs and operational delays is accordingly
restated as follows:
Mexico
Laws
We are required under
Mexican laws and regulations to acquire permits and other authorizations before
the Paredones Amarillos or Guadalupe de los Reyes projects can be developed and
mined. Since the passage of Mexicos
1988 General Law on Ecological Equilibrium and Environmental Protection, a
sophisticated system for environmental regulation has evolved. In addition, the North American Free Trade
Agreement requirements for regulatory standards in Mexico equivalent to those
of the United States and Canada have obligated the Mexican government to
continue further development of environmental regulation. Most regulatory programs are implemented by
various divisions of the Secretariat of Environment and Natural Resources of
Mexico (SEMARNAT). While we believe
that we have or will be able to obtain on a timely
basis the necessary
permits to place the Paredones Amarillos project into production, there can be
no assurance that we will be able to acquire updates to necessary permits or
authorizations on a timely basis. See
discussions of Paredones Amarillos permit status under Part I Financial
Information Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations
Subsequent Events. Likewise, there can
be no assurance that we will be able to acquire the necessary permits or
authorizations on a timely basis to place the Guadalupe de los Reyes project
into production. Delays in acquiring any
permit, authorization or updates could increase the development cost of the
Paredones Amarillos project or the Guadalupe de los Reyes project, or delay the
start of production. The most
significant environmental permitting requirements, as they relate to the
Paredones Amarillos and the Guadalupe de los Reyes projects are developing
reports on environmental impacts; regulation and permitting of discharges to
air, water and land; new source performance standards for specific air and
water pollutant emitting sources; solid and hazardous waste management
regulations; developing risk assessment reports; developing evacuation plans;
and monitoring inventories of hazardous materials.
If the Paredones Amarillos or the
Guadalupe de los Reyes projects are found to not be in compliance with any of
these requirements, we could incur significant compliance costs, or might have
to delay the start of production.
29
Table of
Contents
Disposal
of Amayapampa Project
Our receipt of future payments in connection with our
disposal of the Amayapampa project is subject to uncertainty.
In April 2008, we announced the disposal of our wholly-owned
subsidiary Vista Gold (Antigua) Corp. (Vista Gold Antigua) to Republic Gold
Limited (Republic). Vista Gold Antigua
indirectly held our interest in the Amayapampa gold project in Bolivia.
See Part I Financial Information Item
2. Managements Discussion and Analysis
of Financial Condition and Results of Operations Other Disposal of
Amayapampa project.
Under
the terms of the transaction, Republic has agreed to pay Vista $3.0 million in
three payments of $1.0 million. The
first of these payments is due and payable upon the start of commercial
production (as defined in the purchase and sale agreement) at Amayapampa
followed by $1.0 million payments on each of the first and second anniversaries
of the start of commercial production.
In addition, Republic has agreed to pay Vista a net smelter return
royalty on the gold produced by or on behalf of Republic from the Amayapampa
project in varying percentages depending on the price of gold per ounce. The Amayapampa gold project is not currently
in production and we cannot assure that it will ever become a producing mine
or, if production is commenced at the mine, the timing and amounts for any such
production. Further, having disposed of
the Amayapampa project, Vista will have no control over the development of this
project. Depending on whether and when
production commences at Amayapampa and levels of production achieved, receipt
by of Vista of the future payments contemplated by the purchase and sale
agreement for the Amayapampa gold project or repayment of the $350,000 it
loaned to Republic to provide cash for ongoing expenses at the project is
subject to uncertainty.
30
Table of
Contents
ITEM 2.
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
As previously reported,
in connection with our agreement with Republic Gold Limited involving the
disposal to Republic of our wholly-owned subsidiary Vista Gold (Antigua) Corp.,
which indirectly held our interest in the Amayapampa gold project in Bolivia,
we agreed to pay an advisory fee to Prime Corporate Finance Pty Limited of West
Perth, Australia (PCF) for serving as corporate advisor to Vista in
connection with the disposal by Vista of its interest in the Amayapampa gold
project. See Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations Other Disposal of Amayapampa
project. On April 8, 2008, Vista
and PCF agreed that the success fee payable to PCF was $165, such amount being
equivalent to Cdn. $166.8. In addition,
on April 8, 2008, PCF and Vista agreed that the success fee would be
payable in common shares of Vista. Based
on the market price of Vistas shares at the close of business on April 7,
2008 of Cdn. $4.47 per share, 37,318 Vista shares were issuable to PCF. Completion of the issuance occurred on June 17,
2008. The issuance was made in reliance
on the exemption from registration requirements under the Securities Act of
1933 pursuant to Section 4(2) thereof as a transaction by an issuer
not involving a public offering.
ITEM
3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4.
SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
At
the Annual General Shareholders Meeting of the Corporation held on May 5,
2008, the following matters were submitted to a vote of the shareholders.
(i)
Election of directors to the Corporations
Board of Directors for a one-year term, being:
John M. Clark, W. Durand Eppler, C. Thomas Ogryzlo, Tracy A. Stevenson,
Michael B. Richings and Frederick H. Earnest.
The motions were approved as follows:
John M. Clark with 25,236,665 votes for and 378,832 withheld, W. Durand
Eppler with 25,235,602 votes for and 379,895 withheld, C. Thomas Ogryzlo with
25,160,437 votes for and 455,060 withheld, Tracy A. Stevenson with 25,203,011
votes for and 412,486 withheld, Michael B. Richings with 25,161,812 votes for
and 453,685 withheld and Frederick H. Earnest with 25,202,937 votes for and
412,560 withheld.
(ii)
Appointment of PricewaterhouseCoopers LLP,
Chartered Accountants, as auditor to hold office until the next annual general
meeting. The motion was approved with
25,346,748 votes for and 268,475 votes withheld.
ITEM
5.
OTHER INFORMATION
None.
31
Table of
Contents
ITEM
6.
EXHIBITS
(a)
|
|
Exhibits
|
|
|
|
10.1
|
|
Amendment
Agreement dated as of May 29, 2008, to Purchase and Sale Agreement dated
April 4, 2008 among Vista Gold Corp., Vista Gold (Antigua) Corp. and
Republic Gold Limited
|
|
|
|
23.1
|
|
Consent
of Tetra Tech, Inc.
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934
, as amended
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934
, as amended
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley
Act of 2002
|
|
|
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley
Act of 2002
|
32
Table of
Contents
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
|
|
VISTA GOLD CORP.
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
Date: August 8, 2008
|
|
By:
|
/s/
Michael B. Richings
|
|
|
|
Michael B. Richings
|
|
|
|
Executive Chairman and Chief Executive
Officer
|
|
|
|
|
|
|
|
|
Date: August 8, 2008
|
|
By:
|
/s/
Gregory G. Marlier
|
|
|
|
Gregory G. Marlier
|
|
|
|
Chief Financial Officer
|
33
Vista Gold (AMEX:VGZ)
Historical Stock Chart
Von Jun 2024 bis Jul 2024
Vista Gold (AMEX:VGZ)
Historical Stock Chart
Von Jul 2023 bis Jul 2024