-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RrvN8mrjOLvIvHunPqB2dxIf/7mEkQOYqFcQokE0OjXnN7ea1gKXn8BbZ68Rgwoy T20hM2aVscN5Jx2ZoNOxdg== 0000731727-98-000008.txt : 19980317 0000731727-98-000008.hdr.sgml : 19980317 ACCESSION NUMBER: 0000731727-98-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980316 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILVERADO GOLD MINES LTD CENTRAL INDEX KEY: 0000731727 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 980045034 FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-12132 FILM NUMBER: 98566281 BUSINESS ADDRESS: STREET 1: SUITE 505 1111 WEST GEORGIA ST STREET 2: STE 505 CITY: VANCOUVER BC CANADA STATE: A1 BUSINESS PHONE: 6046891535 MAIL ADDRESS: STREET 1: 1111 WEST GEORGIA STREET STREET 2: STE 505 CITY: VANCOUVER BC STATE: A1 FORMER COMPANY: FORMER CONFORMED NAME: SILVERADO MINES LTD DATE OF NAME CHANGE: 19940722 10-K 1 FORM 10-K FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997. Commission file number 0-12132 SILVERADO GOLD MINES LTD. (Exact name of registrant as specified in its charter) British Columbia, Canada 98-0045034 - ----------------------------------- ----------------------------------- (State or other jurisdiction (IRS Employer ID No.) of incorporation or organization) Suite 505, 1111 West Georgia Street Vancouver, British Columbia, Canada V6E 4M3 (604) 689-1535 - ----------------------------------- ----------------------------------- (Address of Principal Executive (Registrant's telephone number) Offices) Securities registered pursuant to section 12(b) of the Act: None - ----------------------------------- Securities registered pursuant to The Company's Common Stock trades section 12(g) of the Act: on the NASDAQ Small Cap Market Common Shares, no par value under the trading symbol GOLDF - ----------------------------------- ----------------------------------- (Title of Class) (Name of each exchange on which registered) Indicate by check mark the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| The aggregate market value of voting stock held by non-affiliates on January 30, 1998 was $19,794,384 The number of shares outstanding on January 30, 1998 was 81,062,218 Total number of pages, including cover page: 47 PART I ITEM 1 BUSINESS FORWARD-LOOKING STATEMENTS Certain statements contained herein are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbors created thereby. Such forward-looking statements involve risks and uncertainties regarding the market price of gold, availablity of funds, government regulations, common share prices, operating costs, capital costs, outcomes of ore reserve development and other factors. These risks and uncertainties may cause actual outcomes to materially differ from those forecasted or suggested. Where the Company makes statements of expectation or belief as to future outcomes, such expectation or belief is expressed in good faith and believed to have a reasonable basis. Forward-looking statements are made, without limitation, in relation to operating plans, property exploration and development, availablity of funds, environmental reclamation, operating costs and permit acquisition. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. (a) GENERAL DEVELOPMENT OF BUSINESS Silverado Gold Mines Ltd. ("Silverado" or "the Company"), formerly Silverado Mines Ltd., is engaged in the acquisition, exploration and development of mineral properties. Silverado was incorporated under the laws of British Columbia, Canada, in June, 1963, and operates in the United States through a wholly-owned subsidiary, Silverado Gold Mines Inc., formerly Silverado Mines (U.S.) Inc., incorporated in the State of Alaska in 1981. Silverado's exploration and development activities are managed and conducted by an affiliated company, Tri-Con Mining Ltd. ("Tri-Con") pursuant to a written operating agreement. Tri-Con is a privately owned corporation controlled by Garry L. Anselmo, who is Chairman and a director of Silverado. The Company holds interests in seven groups of mineral properties in Alaska and in British Columbia, Canada. Silverado's main projects are exploration and development of the Ester Dome Gold Project, located 10 miles northwest of Fairbanks, Alaska, and of the Nolan Gold Project, located 175 miles north of Fairbanks, Alaska. The Ester Dome Project comprises a contiguous group of 11 Federal claims and 435 State claims totaling 24 square miles, including the Grant Mine, Range Minerals, May / Barelka (St. Paul) and Dobb's Properties, all located within the Fairbanks Mining District in Alaska. The Company continued exploring the St. Paul gold deposit through drilling and trenching and has outlined a body of gold mineralization of economic interest. The Company entered into negotiations with La Teko Resources Ltd. ("La Teko") to acquire the Ryan Lode property which adjoins the Ester Dome property on the southeast, near Silverado's Grant Mill. In July, the Company commenced a due diligence investigative program consisting of drilling, environmental review, title review, and economic analysis. Favorable findings from this work led the Company to enter into an option agreement for the Ryan Lode property in December 1997. Also subsequent to year end, the company completed an option agreement with Placer Dome U.S. Inc. ("PDUS") for that company to continue exploration of 20.5 square miles of Silverado's Ester Dome property. The agreement excludes the St. Paul, Grant Mine and Mill, and Ryan Lode areas which Silverado retained and intends to develop, subject to the availability of financing. The Nolan Gold Project consists of 208 Federal placer claims and 179 Federal lode claims located eight miles west of Wiseman, Alaska. Included in the Project are the Nolan Placer, Nolan Lode, Thompson's Pup, Dionne (Mary's Bench) and Smith Creek properties. The Company limited its work in 1997 on this area to reclamation and planning of future work, as it continued to focus its efforts on its Fairbanks District properties. The Hammond Property, immediately north of the Nolan Gold Project and consisting of 28 Federal placer and 36 Federal lode claims, was acquired by the Company in December 1994 to increase potential for reserve development in conjunction with the Company's operations at Nolan. The Marshall Dome Property consists of 38 State claims. It was acquired by the Company in 1995 due to its proximity and similar geological setting to Newmont Mining Company's "True North" gold property, immediately to the southwest. It covers an area of two and one-half square miles, and is located eighteen miles northeast of Fairbanks. The Whiskey Gulch Property, consisting of four claims adjoining Newmont's "True North" property, was acquired by the Company in 1996 to further enhance its Marshall Dome Property by virtue of its proximity to those claims. The Chatanika Property consists of 752 mining claims and 16 prospecting sites covering 52 square miles which were located by the Company in 1996. This property is approximately 20 miles northwest of Fairbanks. The French Peak Property consists of four mineral claims totaling approximately one square mile, located 40 miles northwest of Smithers, British Columbia. (b) FINANCIAL INFORMATION RE: INDUSTRY SEGMENTS The Company operates in one industry segment, mining. (c) PLAN OF OPERATION The Company's plan of operation is to further develop the Ryan Lode Gold Deposit, optioned from La Teko Resources Ltd. subsequent to year end. Silverado believes that its existing mill facilities, located at the nearby Grant Mine, could greatly assist it in making the Ryan Lode a viable project. It also intends to resume development of its Nolan claims, subject to available financing. In response to the increased activity of major mining companies in the Fairbanks area the Company has spent the past two years actively exploring its existing properties, particularly Ester Dome, and enhancing its property inventory by locating and purchasing new claims of interest. It re-evaluated data from work performed by ACNC (American Copper and Nickel Company, a previous joint-venture partner of Silverado) during 1990 - 1993, and developed additional data from its own drilling and trenching conducted during the past two years. Subsequent to year-end, but based upon the results it developed during the year, the Company was successful in negotiating an option agreement with Placer Dome U.S. Inc. to conduct exploration and development on 20.5 square miles of the Company's Ester Dome properties. This agreement, which specifies five years of conditional work requirements in conjunction with conditional requirements to purchase shares of Silverado's stock over the next four years, is intended to provide the means to bring these claims into production, if economically feasible. In that event, Silverado would retain a 15% net profits interest in the property which would be operated directly by Placer Dome. This agreement excludes the areas of the St. Paul gold deposit, the Grant Mine and Mill, and the Ryan Lode property. Because of its focus on its Fairbanks properties, above, the Company limited its activities at the Nolan Gold Project near Wiseman, Alaska, to maintenance and reclamation work in 1997. The Company has recovered almost 14,000 ounces of gold from this project since 1994 and plans to resume its process of reserve development subject to available funds. The Company also plans to continue exploration of its Hammond Property as funds become available. Silverado, on August 4, 1989, assigned its Eagle Creek Property to Can-Ex Resources (U.S.), Inc. ("Can-Ex") for a 15% net profits interest to a maximum of $5,000,000. Subsequently, on February 19, 1997, Can-Ex was dissolved and the Eagle Creek property, along with all of Can-Ex's other assets, became the property of its parent corporation, Kintana Resources Ltd. The Company's royalty interest in the property remains unaffected by this event. At this time there is no development activity at the site, though the property is kept in good standing, pending future development. In Canada, the Company intends to keep its French Peak Property in good standing, especially given the recent rise in silver prices, though no development work is scheduled there at this time. The Company expects to receive additional capital for its activities on the Ryan Lode and other properties through either equity or debt financing, though there is no commitment by any party to provide such financing at this time, nor assurance that such capital will be available on terms favorable to the Company. From time to time as conditions or funds warrant, the Company may re-evaluate its development programs in response to changing economic or environmental conditions. Such re-evaluation may result in the Company either changing its development priorities or allowing certain properties or portions thereof to lapse. (d) MINING AND ENVIRONMENTAL REGULATION Mining activities in the U.S. are subject to regulation and inspection by the Mining Safety and Health Administration of the United States Department of Labor. In addition, the Company's activities are regulated by a variety of Federal, state, provincial and local laws and regulationsrelating to protection of the environment and other matters. Many agencies have the authority to require the Company to cease or curtail operations due to noncompliance with laws administered by those agencies. The operation of mining properties also requires a variety of permits from government agencies. Management believes that it has in place or will be able to obtain as necessary all required permits for the Company's planned operations. Management knows of no areas of noncompliance with laws or regulations which could close or curtail operations. The Company has accrued a total of $41,000 for further reclamation on the Nolan Gold Project, and an additional amount of $155,000 for reclamation at the Grant Mill site on Ester Dome. Additional remediation work takes place during the normal course of mining. In the event of closure or abandonment of its facilities, the Company estimates that any additional reclamation costs, net of recovery, would be immaterial. (e) NATURE OF CLAIMS UNDER FEDERAL AND STATE LAW The Company's properties consist of unpatented Federal mining claims and state mining claims. Titles to unpatented claims are subject to inherent uncertainties, such as whether there has been a discovery of valuable minerals on each claim and whether proper locating and filing prerequisites have been met, and such title can only be maintained by the performance of adequate annual assessment work and / or the payment of prescribed rental fees. While the Company believes that all claims which it holds were properly located under applicable law, no assurances can be given in that regard. To date, the Company believes that it has conducted and recorded all annual assessment work necessary to maintain the claims in good standing. Changes to U.S. mining laws currently under consideration would, if enacted, substantially affect all holders of unpatented Federal mining claims by imposing royalty fees on removal of minerals and fundamentally changing the rights and status of unpatented claim holders. Although management believes that the imposition of royalty fees as described above, at a minimal level, would not have a material adverse effect on the Company, it is impossible to predict the extent to which mining or environmental legislation may be enacted or amended nor the effect that such legislation could have on the Company. (f) INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES The following table sets forth selected financial data for each of Silverado's fiscal years ended November 30, 1997, 1996 and 1995, by country of origin for information purposes only. YEAR ENDED NOVEMBER 30, 1997 1996 1995 -------------------------------------------- REVENUE (UNITED STATES) $ 168,924 $ 298,124 $ 3,053,289 ============================================ Income (loss) for the year Canada $ (3,594,229) $ (3,461,717) $ (1,615,286) United States (820,543) (868,543) (2,479,270) ============================================ $ (4,414,772) $ (4,330,260) $ (4,094,556) ============================================ END OF PERIOD Identifiable assets Canada $ 576,513 $ 1,318,233 $ 777,156 United States 17,654,718 17,143,111 14,362,432 ============================================ $ 18,231,231 $ 18,461,344 $ 15,139,588 -------------------------------------------- For each of the three years ended November 30, 1997, 1996 and 1995, there have been no transfers between geographic segments, nor have there been export sales. Revenue for each of the three years is from sales of gold from inventory derived from the Nolan Gold Project. ITEM 2 PROPERTIES (a) REGISTRANT'S INTEREST Silverado holds interests in mineral properties in the State of Alaska, and the Province of British Columbia. On the Ryan Lode property, for which the Company acquired an option to purchase subsequent to year end, La Teko Resources Ltd. had reported proven and probable reserves. As these reserves were determined at a gold price of $375 per ounce, and Silverado has not yet conducted a feasibility analysis at current gold prices (approximately $300 per ounce), there can be no assurance that these reserves can be economically developed. On its other properties, the Company has not conducted sufficient exploration and development work to delineate material proven or probable ore reserves. (b) GENERAL CHARACTER AND TECHNICAL DESCRIPTION OF EACH PROPERTY (1) Ester Dome Gold Project The Ester Dome Project encompasses all of Silverado's optioned properties on Ester Dome, and is accessible by road 10 miles northwest of Fairbanks, Alaska. The specific properties at this site are as follows: (a) Grant Mine: This property consists of 19 State mineral claims and 6 unpatented Federal mineral claims subject to payments of 15% of net profits until $2,000,000 has been paid and 3% of net profits thereafter. Subsequent to year end and for the purpose of facilitating an agreement with Placer Dome U.S. Inc., and in consideration of a payment by the Company of $20,000, this conditional purchase and sale agreement was amended to reduce the royalty payments to 3% of net profits as defined in the agreement. (b) Range Minerals #1: This property consists of 6 State mineral claims subject to payments of 15% of net profits until $1,500,000 has been paid and 2% of net profits thereafter. (c) Range Minerals #2: This property consists of 388 State mineral claims and two Federal claims subject to annual payments of $30,000, 2% of net smelter returns until $20,000,000 has been paid, and 5% of net profits thereafter. Subsequent to year end and for the purpose of facilitating an agreement with Placer Dome U.S. Inc., and in consideration of a payment by the Company of $60,000, this option agreement was amended to extend the term of the agreement for an additional period of ten years and to modify the royalty provisions to 5% of net profits as defined in the agreement during the first five years that profits are first generated from operations, and the greater of 5% of net profits or 3% of net smelter returns as defined in the agreement until such time as the option price of the property has been paid in full. (d) May (St. Paul) / Barelka: This gold property consists of 22 State mineral claims subject to payments of 15% of net profits until $2,000,000 (inflation indexed from 1979) has been paid and 3% of net profits thereafter. (e) Dobb's: This property consists of three unpatented Federal mineral claims subject to payments of 15% of net profits until $1,500,000 has been paid and 3% of the net profits thereafter. The above properties, totaling 24 square miles in area, cover most of Ester Dome. The stream drainages from Ester Dome have yielded approximately 3,000,000 ounces of gold, 95% of which was placer gold. This was produced mostly from operations conducted by Alaska Gold Company prior to 1965. The Company's claims were located to acquire lode sources from which this placer gold was derived. Lode gold has been discovered in veins, shears, and disseminated into the country rock at a number of locations on the Company's properties. The main thrust of Silverado's exploration and development work on Ester Dome from 1978 to 1989 was on the Grant Mine area, including a Joint Venture (Grant Mine Project) initiated in April 1984 between Silverado and Aurex, Inc., a subsidiary of Marubeni America Corporation, and a period of production by Silverado from 1987 to 1989. The Joint Venture, with Tri-Con Mining, Inc. as operator, explored and developed the O'Dea vein and constructed a gravity / carbon-in-pulp mill. From 1978 to 1989, a total of 111,852 tons of ore were processed, yielding 11,215 ounces of gold and 8,231 ounces of silver. From June, 1990 to November, 1993 ACNC conducted exploration programs as operator of the Ester Dome Joint Venture, including 45,162 feet of drilling. On the O'Dea Shear, results from drilling by ACNC and prior results of Silverado's work were sufficient for ACNC to define a gold ore resource. During 1996 and 1997 the Company continued definition of the St. Paul ore zone by completing over 10,000 feet of trenching and ninety-one drill holes totaling over 19,200 feet. Further, the Company conducted a drilling program consisting of 38 holes totaling approximately 9,000 feet as part of its due-diligence investigation of the Ryan Lode property. (2) Marshall Dome Property The Marshall Dome Gold Project was acquired by the Company in 1995. It covers an area of two and one-half square miles, and is located eighteen miles northeast of Fairbanks and is on the same geological trend as the "True North" gold deposit one mile to the southwest, which is being developed by Newmont Exploration Limited. (3) Whiskey Gulch Property This property, acquired by the Company in 1996, is one-half mile southwest of the Marshall Dome Property, and adjoins the "True North" property. (4) Chatanika Property This property was newly staked by the Company in 1996 in response to aerial observations and preliminary geochemical sampling. The property is located approximately 20 miles northwest of Fairbanks, and presently consists of 752 mining claims and 16 prospecting sites, with a total area of 52 square miles. (5) Nolan Placer And Lode Claims The Nolan Project consists of five contiguous properties covering approximately 6 square miles, 8 miles west of Wiseman, and 175 miles north of Fairbanks, Alaska. These properties are as follows: (a) Nolan Placer: This property consists of 152 unpatented Federal placer claims 100 percent owned by Silverado. (b) Thompson's Pup: This property consists of 6 unpatented Federal placer claims, and is subject to a royalty of 3 percent of net profits on 80% of production. (c) Dionne (Mary's Bench): This property, consisting of 15 unpatented Federal placer claims and miscellaneous mining equipment, was purchased in 1993 for $1,000,000 payable over five years. Payments were completed in 1997. (d) Smith Creek: This property, consisting of 5 unpatented Federal placer claims and miscellaneous mining equipment, was purchased in 1993 for $200,000 payable over five years with payments scheduled to be completed in 1998. (e) Nolan Lode: This property consists of 179 unpatented Federal lode claims 100 percent owned by Silverado. The lode claims overlie much of the placer properties and extend beyond them. Production of placer gold from Nolan Creek and its tributaries originally commenced in 1903. Silverado began acquiring claims in the area and developing the placer gold deposits in 1979. Through 1988, Silverado and a lessee produced 2,400 ounces of gold nuggets. Due to the angular nature and attachment to quartz of much of the placer gold recovered, Silverado believes the lode source should be nearby and has staked lode claims to cover the potential source areas. These claims are in an active exploration stage, and quartz veins containing gold have been discovered in place. From 1990 to 1993, Silverado conducted reclamation, exploration and development in preparation for commencement of production. Initially, production was carried out on the Thompson's Pup property. Then, in November 1993, the Company commenced production on the Dionne (Mary's Bench) Property. Gold bearing gravels were mined by underground methods from a frozen bench deposit. Since the Winter of 1994/95 almost 14,000 ounces of gold have been recovered by Silverado from these sites, primarily in the form of high-quality nuggets which sell at premium prices. Subsequent to 1995, the Company restricted its activities at Nolan as it refocused its resources on its Ester Dome properties. It has substantially reclaimed its previous disturbances. (6) Hammond Property The Hammond Property, consisting of 28 Federal placer claims and 36 Federal lode claims covering one and one-half square miles, was acquired by the Company in December 1994. The Company completed a drilling program in 1995 which identified placer gold deposits similar to those on the adjoining Nolan Gold Project. The lode claims also extended the area of interest for exploration for the lode sources of the placer gold. (7) Eagle Creek Royalty Interest The Eagle Creek Property consists of 77 State mineral claims with a total area of 4.8 square miles, located 11 miles north of Fairbanks, Alaska. The property was formerly a producer of antimony and is situated in a 20 mile long belt of lode and placer gold deposits. It is currently being explored as a gold prospect. Silverado acquired the property in 1976. From 1984 to 1988 Silverado explored several geochemical / geophysical targets and discovered gold bearing veins and disseminated gold mineralization of economic interest. The property was assigned to Can-Ex Resources (U.S.), Inc. on August 4, 1989 for a retained 15 percent net profits interest from production to a maximum of $5,000,000. On February 19, 1997, Can-Ex Resources (U.S.) Inc. was dissolved, and the Eagle Creek property, along with all of Can-Ex's other assets, became the property of its parent corporation, Kintana Resources Ltd. The Company's interest in the property remains unaffected by this event. (8) French Peak Property The French Peak property consists of four mineral claims totaling approximately one square mile, located 40 miles northwest of Smithers, British Columbia. The known mineralization consists of silver, gold, copper, lead and zinc in a number of vein and bedded deposits. From one of these veins, a test shipment of 52.4 tons of hand-sorted ore was sent to a smelter and averaged 204 oz. silver per ton. Silverado acquired the property in 1976 and has conducted surface exploration, including diamond drilling, to expand the known extent of the mineralization. Several geochemical / geophysical targets remain to be tested. The property is in an advanced exploration stage. (c) GLOSSARY OF TECHNICAL TERMS Anomaly. - ---------- A concentration of an element or a physical feature which may indicate the presence of a mineral deposit. Development. - -------------- The process following exploration, whereby a mineral deposit is further evaluated and prepared for production. This generally involves significant drilling and may include underground work. Drilling. - ----------- The process of boring a hole in the rock to obtain a sample for determination of metal content. "Diamond Drilling" involves the use of a hollow bit with diamonds on the cutting surface to recover a cylindrical core of rock. "Reverse Circulation Drilling" involves chips of rock being forced back through the center of the drill pipe using air or water. Exploration. - -------------- The process of using prospecting, geological mapping, geochemical and geophysical surveys, drilling, sampling and other means to detect and perform initial evaluations of mineral deposits. Federal Lode Claims, Federal Placer Claims. - ------------------------------------------------- Mineral claims up to 20 acres, located on federal land under the U.S. Mining Law of 1872. See below for definitions of "Lode" and "Placer". Geochemical Survey. - --------------------- Sample of soil, rock, silt, water or vegetation analyzed to detect the presence of valuable metals or other metals which may accompany them. E.g., Arsenic may indicate the presence of gold. Geophysical Survey. - --------------------- Electrical, magnetic and other means used to detect features which may be associated with mineral deposits. Gold Deposit. - --------------- A concentration of gold in rock sufficient to be of economic interest. Gravity / Carbon-in-Pulp Mill. - ---------------------------------- A gold processing plant wherein gold ore is finely ground and the coarse gold particles are removed by mechanical means with the balance dissolved by weak cyanide solution. The dissolved gold is absorbed onto carbon then recovered by electrowinning. Lode. - ------- Mineral in place in the host rock, as in "lode gold". Lode Source. - -------------- The lode mineral deposit from which placer minerals have been derived by erosion. Mineral Claims. - ----------------- General term used to describe the manner of land acquisition under which the right to explore, develop and extract metals is established. Placer. - --------- Mineral which has been separated from its host rock by natural processes and is often reconcentrated in streams as "placer deposits" or "placer gold". Prospecting Sites. - --------------------- Areas up to 160 acres on Alaska State lands where the exclusive right to explore for minerals is granted for one year, extendible for additional years. Reserve. - ---------- A body of ore sufficiently sampled to establish continuity, and determined by feasibility analysis to be economically and legally mineable. Resource. - ----------- A body of ore sufficiently sampled to establish continuity, but not constrained by a mining plan or feasibility analysis. State Claims. - --------------- Mineral claims up to 40 acres, located on State of Alaska lands. ITEM 3 LEGAL PROCEEDINGS On March 14, 1997, the Company filed a Quiet Title Action in the Alaska Superior Court, Fourth Judicial District, in order to assure its clear title to the Marshall Dome property. Subsequently, on June 18, 1997, the vendors of the property filed a counterclaim opposing the Company's action. In the course of their opposition, the vendors demanded that the Company encumber the property with a lien or other equitable relief in their favor for the remaining purchase price of the property, and stated a claim for alleged damages in such amount as may be proven at trial. Silverado believes the complaint is without merit, and has moved for Summary Judgment on the basis that it has exclusive possessory rights to the property as evidenced by the purchase documents executed by the vendors. As at February 28, 1998, a decision has not been rendered on the Company's motion. ITEM 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders through the solicitation of proxies or otherwise. PART II ITEM 5 MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) MARKET INFORMATION Silverado's common stock trades on the NASDAQ Small-Cap Market under the symbol "GOLDF." The following table indicates the high and low bid prices of the common shares during the periods indicated, as published by NASDAQ: QUARTER ENDED HIGH BID LOW BID ------------------------------------------------- Feb 29, 1996 7/8 3/8 May 31, 1996 3/4 15/32 Aug 31, 1996 21/32 13/32 Nov 30, 1996 23/32 1/2 Feb 28, 1997 7/16 11/32 May 31, 1997 1/2 5/16 Aug 31, 1997 11/32 5/16 Nov 30, 1997 7/16 9/32 The foregoing prices represent inter-dealer quotations without retail markups, markdowns, or commissions and do not necessarily represent actual transactions. (b) HOLDERS OF COMMON SHARES As at January 30, 1998, there were 3,576 registered holders of Silverado's common shares, approximately 91% of whom were located in the United States. (c) DIVIDENDS AND INTEREST Silverado Gold Mines Ltd. has not declared dividends on its common stock in the two most recent fiscal years. Silverado is restricted in its ability to pay dividends by limitations under British Columbia law relating to the sufficiency of profits from which dividends may be paid. In addition, Silverado's Articles (the equivalent of the Bylaws of a United States corporation) provide that no dividend shall be paid otherwise than out of funds or assets properly available for the payment of dividends and declaration by the directors as to the amount of such funds or assets available for dividends shall be conclusive. The Canadian Income Tax Act (the "Tax Act") provides in subsection 212(2) that dividends and other distributions deemed to be dividends paid or deemed to be paid by a Canadian resident company to a non-resident person shall be subject to a non-resident withholding tax of 25 percent on the gross amount of the dividend. Subject to certain exceptions, paragraph 212(1)(b) of the Tax Act similarly imposes a 25 percent withholding tax on the gross amount of interest paid by a Canadian resident to a non-resident person. Subsection 115 (1) and Subsection 2 (3) of the Tax Act provide that a non-resident person is subject to tax at the rates generally applicable to persons resident in Canada on any "Taxable capital gain" arising on the disposition of shares of a corporation that is listed on a prescribed stock exchange (which includes NASDAQ) if: (i) such non-resident, together with persons with whom he does not deal at arm's length, has held 25% or more of the outstanding shares of any class of stock of the corporation at any time during the five years preceding such disposition; or (ii) the shares disposed of were used by such non-resident in carrying on a business in Canada. A taxable capital gain is presently equal to three quarters of a capital gain. Provisions in the Tax Act relating to dividend and interest payments by Canadian residents to persons resident in the United States are subject to the 1980 Canada - United States Income Tax Convention (the "1980 Convention"). Article X of the 1980 Convention provides that the rate of non resident withholding tax on dividends shall not exceed 10 percent (6 percent for 1996 and 5% for 1997 and subsequent years) of the gross amount of the dividends where the non-resident person who is the beneficial owner of the shares is a corporation which owns at least 10 percent of the voting stock of the corporation paying the dividend. In other cases, the rate of non-resident withholding tax shall not exceed 15 percent. Article XI of the 1980 Convention provides that the rate of non-resident withholding tax on interest shall not generally exceed 15 percent (10% for 1996 and subsequent years) of the gross amount of the interest. The reduced rates of non-resident withholding relating to dividends and interest provided by the 1980 Convention do not apply if the recipient carries on business or provides independent personal services through a permanent establishment situated in Canada, and the shareholding or debt claim is effectively connected with that permanent establishment. In that case, the dividends and interest as the case may be, are subject to tax at the rates generally applicable to persons resident in Canada. Article XIII of the 1980 Convention provides that gains realized by a United States resident on the sale of shares such as those of Silverado may be taxed in both Canada and the United States. However, taxes paid in Canada by a United States resident would, subject to certain limitations, be eligible for foreign tax credit treatment in the United States, thereby minimizing the element of double taxation. Except as described above, there are no government laws, decrees, regulations or treaties that materially restrict the export or import of capital, including foreign exchange controls, or which impose taxes, including withholding provisions, to which United States shareholders are subject. ITEM 6 SELECTED FINANCIAL DATA The following table sets forth selected financial data for each of Silverado's fiscal years ended November 30, 1997, 1996, 1995 , 1994 and 1993.
YEARS ENDED NOVEMBER 30, 1997 1996 1995 1994 1993 -------------------------------------------------------- 000's except per share amounts Revenues $ 169 $ 298 $ 3,053 $ 1,516 $ -- Net Earnings (Loss) for $ (4,415) $ (4,330) $ (4,095) $ (3,120) $ 143 the Year (1) Earnings (Loss) Per $ (0.07) $ (0.09) $ (0.11) $ (0.09) $ 0.01 Share END OF PERIOD Assets $ 18,231 $ 18,461 $ 15,140 $ 16,496 $ 15,929 Gold Inventory (3) $ 49 $ 213 $ 389 $ 2,028 $ 446 Long-term Obligations $ 2,010 $ 2,092 $ 2,395 $ 2,543 $ -- (1) For 1993, after extraordinary item, forgiveness of debt of $1,295,000. (2) Loss per share for 1993 was $0.04 before extraordinary item. (3) Gold inventory is valued at the lower of weighted average cost or net realizable value.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The table below sets forth Silverado's working capital and liquidity at the dates indicated:
November 30, 1997 1996 1995 --------------------------------------- Cash and cash equivalents $ 20,914 $ 1,925,469 $ 155,849 Other current assets 423,475 704,228 462,134 --------------------------------------- 444,389 2,629,697 617,983 --------------------------------------- Accounts payable and accrued liabilities (597,478) (252,923) (527,352) Loans payable secured by gold inventory -- (66,511) (176,568) Payable to related parties -- -- (851,610) Current portion of mineral claims payable -- (179,000) (330,000) Current portion of capital lease obligation (81,749) (64,939) (203,203) --------------------------------------- (679,227) (563,373) (2,088,733) --------------------------------------- Working capital (deficiency) $ (234,838) $ 2,066,324 $(1,470,750) ---------------------------------------
During 1997 the Company continued to receive funds through private placements and the exercise of options, and applied those funds to exploration and development expenses on its Fairbanks properties, and reclamation costs on its Nolan properties. The Company also incurred costs associated with its due diligence investigation of the Ryan Lode property, in advance of entering into an option agreement to acquire that property entered into subsequent to year end. The decrease in the Company's working capital from $2,066,324 to a deficiency of $234,838 at the end of 1997 reflects the excess of those various expenditures over the funds received during 1997. In addition, the Company advanced $480,236 to Tri-Con, an affiliated company, during the year which further contributed to the decrease in working capital in 1997. The Company's short term liabilities consist primarily of trade payables, accrued interest and reclamation expenses; long term liabilities consist of the long term portion of the Company's remaining capital lease obligation, and a $2,000,000 convertible debenture which has a maturity of July 2, 1999, if not sooner converted. From the $3,453,000 which the Company received from shares issued for cash during the year, it applied $2,290,000 to exploration and development expenditures, and $110,000 to mineral claims and options on its Alaska properties. $1,246,000 of these expenditures occurred on the Company's Ester Dome Project; $478,000 on the Ryan Lode Gold Project; and $274,000 on the Nolan Gold Project - mostly for reclamation work. $292,000 was applied to its other properties, including the French Peak silver property in British Columbia. A more detailed discussion of the use of these funds, and the results of the Company's work is presented below. Ester Dome Gold Project ----------------------- The Company continued to explore and develop gold deposits on its 24 square mile Ester Dome property. On the St. Paul deposit, 31 trenches totaling 10,000 lineal feet and 91 drill holes totaling 19,200 feet have been completed. Gold mineralization has been traced for 3,000 feet along the surface, up to 600 feet deep, and remains open to extension in all directions. Detailed drilling on a 500-foot long section of the deposit has shown gold grades, from 50 holes, averaging 0.085 oz/ton across an average width of 40 feet and to an average depth of 125 feet. Several more potential ore zones will need to be defined before the St. Paul Deposit can support a stand-alone feasibility study. However, if other deposits on Ester Dome, such as the Ryan Lode, are considered for production, then the St. Paul would be evaluated as part of that planning. Elsewhere on Ester Dome, the Company began surface exploration on the Rhyolite target area and completed a data compilation and evaluation on the Ready Bullion area, all preparatory to commencement of drilling. Subsequent to year end, the Company completed an agreement with Placer Dome U.S. Inc. granting Placer Dome an option to explore 20.5 square miles of Ester Dome. The optioned claims include the Rhyolite and Ready Bullion targets, but exclude the St. Paul, Grant Mine and Mill, and Ryan Lode areas. Ryan Lode Gold Project ---------------------- In July, 1997, the Company began an environmental, technical, and legal due diligence investigation of the Ryan Lode property preparatory to acquiring an option on the property from La Teko Resources Ltd. La Teko had reported a significant mineable reserve based on a bulk tonnage / heap leach mining concept, at an average grade of 0.056 ounces of gold per ton of ore. The Company completed 38 drill holes totaling 8,855 feet to confirm the continuity of gold mineralization above 0.10 ounces per ton to support the concept of a smaller tonnage, higher grade operation using Silverado's existing Grant Mill facilities. The Company considered the drilling successful and, subsequent to year end, completed an Option to Purchase Agreement with La Teko for the Ryan Lode property. Nolan Gold Project ------------------ In November, 1993, the Company commenced production of placer gold from frozen bench deposits on the Mary's Bench portion of the Dionne Property. Since then, almost 14,000 ounces of gold have been recovered. The Company continued a limited production program in 1996 then suspended production altogether in 1997 as it focused its efforts entirely on the expansion, exploration, and development of its Fairbanks properties in response to increased competitive activity in that area. It did, however, conduct reclamation activities on the site. The Company intends to continue development of both placer and lode gold deposits at Nolan at a future time, subject to the availability of financing. Other Properties ---------------- The Company maintained its other properties in good standing. During 1998, the Company has property commitments totaling $620,600 which must be paid in order to keep its various properties in good standing. This amount is made up of mineral property lease payments, various regulatory charges and fees, and property work requirements. In addition, the option agreement signed after year end to acquire the Ryan Lode property requires the Company to pay La Teko $650,000 and perform $1,000,000 of work on the property before November 30, 1998. Finally, the Company has various other commitments to meet over the coming year including interest payments on a $2,000,000 convertible debenture, various office and equipment leases and reclamation costs. Together, they total approximately $500,000 for the year to November 30, 1998. The funds to make these payments are expected to come in part from receipts from Placer Dome U.S. Inc. under the agreement signed subsequent to year end regarding a portion of the Company's Ester Dome properties. Under this agreement, which Placer Dome U.S. Inc. is entitled to terminate annually at November 30, the Company can receive $1,100,000 in cash consideration and receipts upon issue of shares. Management expects that it will be able to raise additional capital for its activities on its properties through either equity or debt financing, or additional joint-ventures, though there is no commitment by any party to provide such financing at this time, nor assurance that such capital will be available or that an additional joint-venture can be negotiated on terms favorable to the Company. In the event that sufficient funds do not become available to carry out its planned operations, the Company may elect to reprioritize its operations and sell or abandon certain properties as necessary to meet its cash requirements. In 1998, the Company intends to further develop the Ryan Lode property under the terms of its option agreement with La Teko. The purpose of this work would be to determine whether a feasibility study, suitable for institutional financing, could be prepared so as to finance the capital costs associated with returning the Ryan Lode to commercial production. The Company also intends to resume development of its Nolan claims, subject to available financing. OPERATING RESULTS The Company continued to engage in only limited gold sales in 1997, reflecting its own reduced inventory, the current suspension of all production activities, and the lower prices for gold. The Company expects to maintain only minimal inventory until such time as it either resumes production from its Nolan properties, or brings its newly-acquired Ryan Lode property into production. Similarly, operating costs in 1997 were lower than in the two previous years, in which production was conducted at varying levels. However, the company did some reclamation work at several sites, principally at the Nolan Gold Project. As this reclamation work is recorded as an operating expense, and the sales during the year were for inventory held at the end of 1996, the operating margin for 1997 is lower than previous years. As with most companies involved in the mining industry, the price of the Company's product (mainly gold) can have a significant impact upon the Company. During the latter quarter of 1997, the price of gold fell significantly to a range of $285 to $295 per ounce. However, as the Company is not currently producing gold, and as its properties do not yet have substantial reserves developed, the drop in gold price has not affected the Company's operating results Mining activities in the United States are subject to regulation and inspection by the Mining, Safety and Health Administration of the United States Department of Labor. In addition, Silverado's activities are regulated by a variety of Federal, state, provincial and local laws and regulations relating to protection of the environment. The operation of mining properties also requires a variety of permits from governmental agencies. While there can be no assurance that in the future environmental concerns will not lead to restrictions upon Silverado's operations at one or more properties, Silverado believes it has either obtained all permits necessary for planned operations in 1998, or that any other permits necessary can be obtained without undue restriction Other Expenses - -------------- Years ended November 30, -------------------------------------------- Other Expenses $4,205,381 $4,077,978 $2,074,626 Despite significant decreases in employment contract expenses (see Note 6 (d) to the consolidated financial statements included elsewhere in this document) and the cessation of salary payments to the Company's former President who resigned in the first quarter of 1997, the Company's Other Expenses increased over the 1996 total. Legal and financing expenses of the Company increased in 1997, primarily as a result of work performed in negotiating contracts with La Teko and Placer Dome, both of which were finalized after year end. In addition, management services provided by Tri-Con increased significantly in 1997. This management services overhead increase resulted from the need to maintain staff and infrastructure at a certain level in preparation for expected increases in development and operational activities in 1998 and 1999, despite relatively low activity levels in the current year. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements listed below were prepared on the basis of accounting principles generally accepted in the United States and are expressed in U.S. dollars. These principles conform, in all material respects, with those generally accepted in Canada.
PAGE - ----------------------------------------------------------------------------------------- Auditor's Report F-1 - ----------------------------------------------------------------------------------------- Comments by Auditors for U.S. Readers on Canada - U.S. Reporting Conflict F-1 - ----------------------------------------------------------------------------------------- Consolidated Balance Sheets, November 30, 1997 and 1996 F-2 - ----------------------------------------------------------------------------------------- Consolidated Statements of Operations and Accumulated Deficit, Years Ended November 30, 1997, 1996 and 1995 F-3 - ----------------------------------------------------------------------------------------- Consolidated Statements of Cash Flows, Years Ended November 30, 1997, 1996 and 1995 F-4 - ----------------------------------------------------------------------------------------- Consolidated Statements of Changes in Share Capital and Capital Surplus, Years ended November 30, 1997, 1996 and 1995 F-5 - ----------------------------------------------------------------------------------------- Notes to Consolidated Financial Statements F-6 to F-20 - ----------------------------------------------------------------------------------------- No schedules are presented either because the required information is disclosed elsewhere in the financial statements, or the schedules are not applicable. - -----------------------------------------------------------------------------------------
F-1 AUDITORS' REPORT To the Shareholders of Silverado Gold Mines Ltd. (formerly Silverado Mines Ltd.) We have audited the consolidated balance sheets of Silverado Gold Mines Ltd. as at November 30, 1997 and 1996, and the consolidated statements of operations and accumulated deficit, cash flows and changes in share capital and capital surplus for each of the years in the three year period ended November 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at November 30, 1997 and 1996, and the results of its operations and the changes in its financial position for each of the years in the three year period ended November 30, 1997 in accordance with generally accepted accounting principles in the United States. As required by the Company Act (British Columbia), we report, that in our opinion, these principles have been applied on a consistent basis. /s/ KPMG - --------- KPMG Chartered Accountants Vancouver, Canada February 5, 1998 except as to notes 5, 6(c) and 10, which are as at March 16, 1998 COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING CONFLICT In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by conditions and events that cast substantial doubt on the company's ability to continue as a going concern, such as those described in Note 1(a) to the financial statements. My report to the shareholders dated February 5, 1998, except as to notes 5, 6(c) and 10, which are as at March 16, 1998, is expressed in accordance with the Canadian reporting standards which do not permit a reference to such events and conditions in the auditor's report when these are adequately disclosed in the financial statements. /s/ KPMG - --------- KPMG Chartered Accountants Vancouver, Canada February 5, 1998 except as to notes 5, 6(c) and 10, which are as at March 16, 1998 SILVERADO GOLD MINES LTD. (formerly Silverado Mines Ltd.) F-2 CONSOLIDATED BALANCE SHEETS EXPRESSED IN U.S. DOLLARS - -------------------------------------------------------------------------------------------------
Years Ended November 30 1997 1996 - ------------------------------------------------------------------------------------------------- Assets Current Assets Cash and cash equivalents $ 20,914 $ 1,925,469 Gold inventory 48,875 213,004 Accounts receivable 8,297 11,265 Prepaid expenses paid to related parties 366,303 479,959 ------------------------------ 444,389 2,629,697 Mineral Properties and Development (Note 2) Claims and options 2,436,972 2,327,025 Deferred exploration and development expenditures 13,576,470 11,286,816 ------------------------------ 16,013,442 13,613,841 Less accumulated amortization (1,384,338) (1,384,338) ------------------------------ 14,629,104 12,229,503 Buildings, Plant and Equipment (Note 3) 4,481,399 4,423,428 Less accumulated depreciation (1,385,423) (920,246) ------------------------------ 3,095,976 3,503,182 Deferred Financing Fees (net of amortization of $124,238; 1996 - $87,038) 61,762 98,962 ------------------------------ $ 18,231,231 $ 18,461,344 ============================== Liabilities and Shareholders' Equity Current Liabilities Accounts payable and accrued liabilities (Note 4) $ 597,478 $ 252,923 Loans payable secured by gold inventory -- 66,511 Current portion of mineral claims payable -- 179,000 Capital lease obligations - current (Note 9(b)) 81,749 64,939 ------------------------------ 679,227 563,373 Long Term Liabilities Capital lease obligations (Note 9(b)) 9,741 92,214 Convertible debenture (Note 5) 2,000,000 2,000,000 ------------------------------ 2,009,741 2,092,214 Shareholders' Equity Share capital (Note 6) Issued and outstanding November 30, 1997 - 80,012,218 shares 43,084,420 38,651,294 November 30, 1996 - 56,406,493 shares Unamortized stock compensation expense (151,612) (350,000) Advances to related parties secured by common shares in the company (Note 7) (480,236) -- Deficit (26,910,309) (22,495,537) ------------------------------ 15,542,263 15,805,757 ------------------------------ $ 18,231,231 $ 18,461,344 ============================== Continuing operations (Note 1(a)) Subsequent events (Notes 5, 6(c) and 10) Commitments and contingencies (Notes 2 and 9) See accompanying notes to consolidated financial statements.
SILVERADO GOLD MINES LTD. (formerly Silverado Mines Ltd.) F-3 CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT EXPRESSED IN U.S. DOLLARS ----------------------------------------------
Years Ended November 30 1997 1996 1995 ---------------------------------------------- Revenue from gold sales $ 168,924 $ 298,124 $ 3,053,289 ---------------------------------------------- Operating costs Mining and processing costs 164,835 366,249 4,515,138 Amortization of property and development costs -- 123,504 431,384 Reclamation expense (Note 9(d)) 213,480 31,993 29,397 Production related depreciation expense -- 28,660 97,300 ---------------------------------------------- 378,315 550,406 5,073,219 ---------------------------------------------- Loss from operations (209,391) (252,282) (2,019,930) Other expenses Accounting and audit 93,450 69,331 62,891 Amortization of deferred financing fees 37,200 37,200 37,200 Corporate capital taxes 21,934 (5,967) 32,014 Depreciation 475,175 447,222 86,346 Employment contract expense 1,099,340 1,910,060 223,273 Financing activities 100,847 35,159 18,900 General exploration and development 75,566 13,980 -- Interest on long term debt 160,000 160,000 160,000 Legal 206,740 35,733 114,294 Loss on disposal of buildings, plant and equipment 1,557 -- -- Loss (gain) on foreign exchange 55,335 (5,298) (5,332) Management salaries 65,744 263,000 184,349 Management services from related party (Note 7) 992,646 323,108 190,009 Office expenses 318,463 262,333 387,498 Other interest and bank charges (net) 7,356 4,908 82,928 Printing and publicity 293,095 371,281 410,195 Reporting and investor relations 52,576 26,833 24,447 Transfer agent fees and mailing expenses 148,357 129,095 65,614 ---------------------------------------------- 4,205,381 4,077,978 2,074,626 Loss for the year (4,414,772) (4,330,260) (4,094,556) Accumulated deficit at beginning of year (22,495,537) (18,165,277) (14,070,721) ---------------------------------------------- Accumulated deficit at end of year $ (26,910,309) $ (22,495,537) $ (18,165,277) ============================================== Loss per share (Note 1(g)) $ (0.07) $ (0.09) $ (0.11) ============================================== See accompanying notes to consolidated financial statements.
SILVERADO GOLD MINES LTD. (formerly Silverado Mines Ltd.) F-4 CONSOLIDATED STATEMENTS OF CASH FLOWS EXPRESSED IN U.S. DOLLARS - -------------------------------------------------------------------------------------------------------------------
Years Ended November 30 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- CASH PROVIDED BY (USED FOR): Operations: Loss for the year $ (4,414,772) $ (4,330,260) $ (4,094,556) Items not involving cash: Employment contract expense 1,099,340 1,910,060 223,273 Consulting services expense 78,945 -- -- Depreciation 475,175 475,882 183,646 Amortization of deferred financing fees 37,200 37,200 37,200 Loss on disposal of buildings, plant and equipment 1,557 -- -- Amortization of property and development costs -- 123,504 431,384 Changes in non-cash operating working capital: Decrease (increase) in accounts receivable 2,968 (10,255) (1,010) Decrease (increase) in gold inventory 164,129 176,115 1,638,670 Decrease (increase) in prepaid expenses paid to related parties 113,656 -- -- Increase (decrease) in accounts payable and accrued liabilities 344,555 (274,429) 282,488 -------------------------------------------- (2,097,247) (1,892,183) (1,298,905) Financing: Shares issued for cash 3,453,229 7,610,000 1,104,600 Decrease (increase) in advances/payable to related parties (480,236) (1,299,893) 972,445 Increase (decrease) in loans payable secured by gold inventory (66,511) (110,057) 176,568 Decrease in mineral claims payable (179,000) (351,000) (70,000) Increase (decrease) in capital lease obligation (65,663) (240,619) 85,072 -------------------------------------------- 2,661,819 5,608,431 2,268,685 Investments: Mineral claims and options (109,947) (571,214) (32,900) Deferred exploration and development expenditures (2,289,654) (1,202,700) (617,118) Purchases of equipment (69,526) (172,714) (354,637) -------------------------------------------- (2,469,127) (1,946,628) (1,004,655) -------------------------------------------- Increase (decrease) in cash and cash equivalents (1,904,555) 1,769,620 (34,875) Cash and cash equivalents at beginning of year 1,925,469 155,849 190,724 -------------------------------------------- Cash and cash equivalents at end of the year $ 20,914 $ 1,925,469 $ 155,849 ============================================ Supplemental cash flow information Interest paid $ 181,436 $ 242,562 $ 233,942 ============================================ Issue of shares for purchase of mineral property, a non-cash financing and investing activity $ -- $ -- $ 43,750 ============================================ See accompanying notes to consolidated financial statements.
SILVERADO GOLD MINES LTD. (formerly Silverado Mines Ltd.) F-5 CONSOLIDATED STATEMENTS OF CHANGES IN SHARE CAPITAL AND CAPITAL SURPLUS EXPRESSED IN U.S. DOLLARS Years ended November 30, 1997, 1996, and 1995
Number of Share Capital shares Capital Surplus ---------- ------------ ------------ Balance as at November 30, 1994 35,027,993 $ 27,054,191 $ 46,352 ---------- ------------ ------------ Year ended November 30, 1995 Shares issued: On exercise of contract employee share options 2,303,500 1,104,600 For mineral property 100,000 43,750 Value of share options granted to contract employees 572,670 ---------- ------------ ------------ 2,403,500 1,721,020 -- ---------- ------------ ------------ Balance as at November 30, 1995 37,431,493 28,775,211 46,352 ---------- ------------ ------------ Year ended November 30, 1996 Shares issued: On exercise of contract employee share options 18,050,000 7,180,000 Private placements for cash 925,000 430,000 Capital surplus reallocated 46,352 (46,352) Fair value of share options granted to contract employees 2,219,731 ---------- ------------ ------------ 18,975,000 9,876,083 (46,352) ---------- ------------ ------------ Balance as at November 30, 1996 56,406,493 38,651,294 -- ---------- ------------ ------------ Year ended November 30, 1997 Shares issued: Stock split 4,934,725 On exercise of contract employee share options 3,390,000 487,500 On exercise of warrants 600,000 102,000 Private placements for cash 14,181,000 2,863,229 Private placement for consulting services: 500,000 For cash 500 For consulting services 169,500 Fair value of share options granted to contract employees 771,389 Fair value of share options granted to consultants 39,008 ---------- ------------ ------------ 23,605,725 4,433,126 -- ---------- ------------ ------------ Balance as at November 30, 1997 80,012,218 $ 43,084,420 $ -- ========== ============ ============ See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------- SILVERADO GOLD MINES LTD. F-6 (FORMERLY SILVERADO MINES LTD.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN U.S. DOLLARS) YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995 - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These consolidated financial statements for the years ended November 30, 1997, 1996 and 1995 are prepared in conformity with accounting principles generally accepted in the United States. During the year ended November 30, 1997, the Company changed its name from Silverado Mines Ltd. to Silverado Gold Mines Ltd. (a) Continuing Operations During the year ended November 30, 1997, the Company continued to focus its efforts on its properties within the Fairbanks mining district, primarily at Ester Dome. It continued its drilling program on several sites within the Ester Dome Project, and funded its exploration activities by generating $3,450,000 in capital through private placements and the exercise of options and warrants. These financial statements have been prepared on a going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of business. The application of the going concern concept and the recovery of amounts recorded as mineral properties and development is dependent on the Company's ability to obtain the continued forbearance of certain creditors, to obtain additional financing to fund its operations and acquisition, exploration and development activities, the discovery of economically recoverable ore on its properties, and the attainment of profitable operations. Current uncertainty with regard to each of these matters raises substantial doubt about the Company's ability to continue as a going concern, and the financial statements do not include any adjustments that might result from the outcome of this uncertainty. (b) Basis of Consolidation The consolidated financial statements include the accounts of Silverado Gold Mines Inc., (formerly Silverado Mines (U.S.), Inc.), a wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated. (c) Gold Inventory Gold inventory is valued at the lower of weighted average cost and estimated net realizable value. At November 30, 1997, 1996 and 1995, gold inventory is valued at net realizable value. Any write-down of inventory to net realizable value is included in mining and processing costs. (d) Mineral Properties and Development The Company confines its exploration activities to areas from which gold has previously been produced or to properties which are contiguous to such areas and have demonstrated mineralization. Accordingly, the Company capitalizes costs of acquiring, exploring and developing mineral claims and options until such time as the properties are placed into production or abandoned; at that time costs are amortized or written off. F-7 Effective December 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121 ("FAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." On an ongoing basis, the Company evaluates each property based on exploration results to date, and considering facts and circumstances such as operating results, cash flows and material changes in the business climate, determines whether any of the properties may be impaired. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less that its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose. The adoption of this accounting standard did not have a material effect on the Company's consolidated operating results or financial position. The amounts shown for mineral properties and development for mineral properties which have not yet commenced commercial production represent costs incurred to date, net of recoveries from developmental production, and are not intended to reflect present or future values. Amortization of mineral properties and development costs of properties in production is provided during periods of production using the units-of-production method based on an estimated economic life of the ore reserves. The Company's accounting policy for reclamation expenses is contained in note 9(d). (e) Buildings, Plant and Equipment Buildings, plant and equipment are stated at cost. Depreciation is provided on buildings, plant and equipment using the straight-line method based on estimated lives of 3 to 20 years. (f) Foreign Currencies The Company considers its functional currency to be the U.S. dollar for its U.S. and Canadian operations. Monetary assets and liabilities denominated in foreign currencies are translated into U.S. funds at the rates of exchange in effect at the year end. Revenue and expense transactions are translated at the rate in effect at the time at which the transactions took place. Foreign exchange gains and losses are included in the determination of income. (g) Loss Per Share Loss per share has been calculated based on the weighted average number of shares outstanding during the year. During the current year, the outstanding share capital in the Company was split on a 14:13 basis. The effect of the stock split was given retroactive recognition in all periods presented. The weighted average number of shares outstanding, for the purpose of loss per share calculations, is as follows: F-8 Year to November 30, 1997 66,999,559 Year to November 30, 1996 49,120,290 Year to November 30, 1995 38,423,001 Loss per share does not include the effect of the potential conversions of options, warrants, and debentures as their effect would be anti-dilutive. (h) Revenue Recognition Gold sales are recognized when title passes to the purchaser. (i) Accounting for Stock Based Compensation The Company uses the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion No. 25") in accounting for its stock based incentive plans to directors. Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date over the amount an employee or director must pay to acquire the stock. The Company's accounting policy for stock based incentive plans to contract employees and consultants is contained in Notes 9(d) and 9(e). (j) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates relate to the amortization and depreciation rates of mineral properties and development and buildings, plant and equipment, accrued remediation expense and the recoverability of capital and other assets. Actual results could differ from those estimates. (k) Financial Instruments The carrying amounts reported in the balance sheet for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair values due to the short-term maturity of these instruments. The carrying amounts reported in the balance sheet for gold inventory approximate fair values as gold inventory is carried at estimated net realizable value. The carrying amounts reported in the balance sheet for capital lease obligations and convertible debenture approximate their fair value as they bear interest at rates which approximate market rates. (l) Comparative Figures Certain comparative figures have been reclassified to conform with the financial statement presentation adopted in the current year. F-9 2. MINERAL PROPERTIES AND DEVELOPMENT (a) Mineral Properties Ester Dome Properties, Fairbanks Mining District, Alaska -------------------------------------------------------- These properties, which include the Grant Mine (Burggraf), Range Minerals #1, Range Minerals #2, May / Barelka (St. Paul), and Dobb's properties, make up a contiguous group of claims covering 24 square miles. The Company's property holdings in this area were expanded by the acquisition of five additional claims in October, 1997, known as the "Alaska Gold" property. Ryan Lode Property, Fairbanks Mining District, Alaska ----------------------------------------------------- Significant due diligence work was performed in 1997 following a letter of understanding with La Teko Resources Ltd., resulting in an agreement in December 1997 granting the Company an option to acquire this property which consists of 63 mining claims covering approximately one and one-half square miles (see Note 10). The property is situated next to the Company's Ester Dome properties near Fairbanks, Alaska. Marshall Dome Property, Fairbanks Mining District, Alaska --------------------------------------------------------- The Company acquired this property in 1995. It covers an area of two and one-half square miles, and is located eighteen miles northeast of Fairbanks. Whiskey Gulch Property, Fairbanks Mining District, Alaska --------------------------------------------------------- The Company acquired four claims collectively known as "Whiskey Gulch" in 1996. These claims are located near the Company's Marshall Dome property. Chatanika Property, Fairbanks Mining District, Alaska ------------------------------------------------------ The Company originally staked this property 1996. It consists of 752 mining claims and 16 prospecting sites covering an area of approximately 52 square miles, located 20 miles northwest of Fairbanks. Nolan Properties, Wiseman Mining District, Alaska ------------------------------------------------- These properties, which include the Nolan Placer, Nolan Lode, Thompson's Pup, Dionne (Mary's Bench), and Smith Creek properties, make up a contiguous group of claims, covering approximately four square miles. Hammond Property, Wiseman Mining District, Alaska ------------------------------------------------- The Company acquired this two square mile property, adjoining the Nolan Gold Properties, in 1994. Eagle Creek Property, Fairbanks Mining District, Alaska ------------------------------------------------------- The Company assigned its interest and obligations related to this property to Can-Ex Resources (U.S.), Inc. ("Can-Ex"), a related company (see Note 7), and retained a 15 percent net profit interest from production to a maximum of $5,000,000. Can-Ex was subsequently dissolved in 1997 at which time its assets passed to its parent company, Kintana Resources Ltd., which now has the obligation for Silverado's net profit interest. French Peak Property, Omineca Mining District, British Columbia --------------------------------------------------------------- Anselmo Holdings Ltd., a related company, has a 10 percent net profits interest in this property, which consists of four mineral claims covering approximately one square mile located 40 miles northwest of Smithers, British Columbia. F-10 Property Commitments -------------------- As at November 30, 1997, minimum aggregate future expenditures required in the next five years to maintain the properties which the Company held at November 30, 1997 in good standing are as follows: Year Commitment 1998 $ 620,600 1999 540,600 2000 500,600 2001 400,600 2002 400,600 (b) Claims and Options and Deferred Exploration and Development Expenditures Cumulative claims and options and deferred exploration and development expenditures are as follows:
Net book value 1997 Net book value Nov. 30, 1996 Expenditures Nov. 30, 1997 --------------------------------------------- Cumulative net mineral claims and option payments $ 1,591,111 $ 109,948 $ 1,701,059 --------------------------------------------- Deferred exploration and development expenditures Alaska Ester Dome Gold Project 5,169,208 1,245,522 6,414,730 Ryan Lode Gold Project 477,858 477,858 Marshall Dome 179,028 1,866 180,894 Nolan Gold Project 4,590,191 273,624 4,863,815 Hammond Property 270,856 41,438 312,294 Eagle Creek Royalty Interest 133,347 7,004 140,351 Whiskey Gulch 21,791 144,678 166,469 Chatanika 12,861 97,663 110,524 British Columbia French Peak 261,110 261,110 --------------------------------------------- 10,638,392 2,289,653 12,928,045 --------------------------------------------- Total mineral properties and development expenditures $ 12,229,503 $ 2,399,601 $ 14,629,104 =============================================
3. BUILDINGS, PLANT AND EQUIPMENT Buildings, plant and equipment primarily include the mill facility and equipment of the Ester Dome/Grant Mine Gold Project and mining equipment and camp facilities at the Nolan Gold Project. F-11
1997 1996 Accumulated Net Book Net Book Cost Depreciation Value Value ---------------------------------------------------------- Grant Mine Mill Equipment $ 2,248,780 $ (613,486) $ 1,635,294 $ 1,837,926 Nolan Gold Project Mining Equipment 60,757 (19,553) 41,204 46,274 Mining Equipment 1,788,132 (602,160) 1,185,972 1,348,775 Other Equipment, Leasehold Improvements 383,730 (150,224) 233,506 270,207 ---------------------------------------------------------- $ 4,481,399 $ (1,385,423) $ 3,095,976 $ 3,503,182 ----------------------------------------------------------
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities consist of:
1997 1996 ------------------- Accounts payable $334,812 $118,858 Accrued interest 66,666 64,065 Accrued reclamation expense 196,000 70,000 ------------------- $597,478 $252,923 -------------------
5. CONVERTIBLE DEBENTURE In July 1994, the Company issued a convertible callable debenture with interest payable at the rate of 8.0% per annum on December 31 and June 30 each year. The debenture is unsecured and is due July 2, 1999, subject to prior redemption or conversion. The debenture may be converted in whole or in part by the holder into common shares of the Company at a conversion price of $1.857 U.S. per share (the "Conversion Price"). In addition, conversion of the debenture may be called by the Company provided that the average trading price of the Company's common stock has exceeded 125% of the Conversion Price for the period of 20 consecutive trading days. Financing fees paid related to the debenture have been deferred and are being amortized on a straight line basis over the debenture term of 60 months. Subsequent to year end, the Company requested and was granted a deferral of its December 31, 1997 interest payment of $80,000 until February 21, 1998. The Company paid $20,000 on February 1, 1998, and has been granted a further deferral for the remaining payment until March 17, 1998. Arrangements are in place for a private placement of shares which will be made on March 17, 1998 and provide sufficient funds to pay the outstanding amount (see Note 10(d)). 6. SHARE CAPITAL (a) Common Shares By Special Resolution passed May 21, 1997, the Company subdivided its 75,000,000 common shares without par value into 80,769,230 common shares without par value, each 13 shares being subdivided into 14 shares. By Special Resolution passed May 21, 1997, the Company increased its authorized capital to 100,000,000 common shares without par value (1996: 75,000,000 common shares). F-12 (b) Directors' Options Directors' options for 450,000 common shares originally granted in May of 1992, exercisable at Cdn. $0.37 per share and which were to expire June 1, 1997, were extended during the 1997 fiscal year to June 1, 2002. These options were outstanding at November 30, 1997, 1996 and 1995. In addition, the following director and employee options to purchase common shares were granted in accordance with the provisions of the Company's 1994 Stock Option Plans. These options are exercisable until August 14, 2004 at the exercise prices stated below, being the market price of the underlying shares at the date of grant of the options. Exercise Grant Date Granted Exercised Outstanding Price ---------- ------- --------- ----------- ----- December 12, 1994 1,100,000 1,100,000 $ 0.88 December 12, 1995 100,000 100,000 $ 0.49 December 12, 1996 100,000 100,000 $ 0.53 September 25, 1997 400,000 400,000 $ 0.40 ---------------------------------- Total at Nov. 30, 1997 1,700,000 1,700,000 ---------------------------------- The Company accounts for stock compensation arising from options to directors in accordance with APB No. 25. Under both option plans, the exercise price of the options is equal to the market price of the underlying shares on the date of grant of the options. Therefore no compensation cost arises when the options are granted. If, at the time of any alteration to the terms of an option, the market price of the Company's shares exceeds the exercise price of the option at that date, then this excess is credited to share capital and expensed over the term of the service period. Had compensation cost for the Company's directors options been determined based on fair value at the grant dates, consistent with the method of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation", the Company's net loss and loss per share would have been increased to the pro forma amounts indicated below: Loss for the year 1997 1996 ---------- ---------- As reported: $4,414,772 $4,330,260 Pro forma: $4,543,773 $4,358,886 Loss per common share As reported: $ 0.07 $ 0.09 Pro forma: $ 0.07 $ 0.09 The estimated weighted average fair value of options granted during the year was prepared assuming a risk-free rate of 6% (1996: 6%), an expected dividend yield of 0% (1996: 0%), an expected volatility of 57% (1996: 57%), and a weighted average life of 9 years (1996: 10 years). The estimate was made using the Black-Scholes Pricing Model. The weighted average remaining contractual life of the options outstanding at November 30, 1997, was one year (1996: 1 year). F-13 (c) Warrants In conjunction with the private placement of common shares the Company has issued and has outstanding at November 30, 1997, the following warrants to purchase common shares:
Balance Issued Exercised Canceled Outstanding Exercise Expiry Nov 30, 1996 in 1997 in 1997 in 1997 at Nov 30, 1997 Price Date --------------------------------------------------------------------------------------- 600,000 600,000 $ 0.60 n/a 600,000 600,000 0.70 n/a 600,000 600,000 0.17 n/a 382,000 382,000 0.20 Sep-98 510,000 510,000 0.20 Sep-98 360,000 360,000 0.30 Oct-98 2,000,000 2,000,000 0.42 Mar-99 1,000,000 1,000,000 0.28 Aug-99 600,000 600,000 0.17 Sep-99 --------------------------------------------------------------------------------------- 1,200,000 5,452,000 600,000 1,200,000 4,852,000 ------------------------------------------------------------------
Subsequent to year end, warrants for 50,000 common shares which were outstanding at November 30, 1997, were exercised at $0.17 per share. (d) Contract Employee Options From time to time, the Company issues options for the purchase of common shares to selected part time independent contract employees as sole compensation for contracted services. The options are exercisable either at the date the options are granted, or in increments over the terms of the employment contracts. The Company accounts for stock compensation arising from these options in accordance with Statement of Financial Standards No. 123, "Accounting for Stock Based Compensation". Under this statement, stock compensation cost to contract employees is measured at the grant date of the stock option based on the value of the award and is recognized over the service period. The following contract employee stock options were granted, exercised, cancelled and expired during the years ended November 30, 1995, 1996 and 1997 and were outstanding at these dates:
Weighted Average Number of Shares Exercise Price Outstanding at November 30, 1994 1,418,250 $ 0.60 Granted 3,240,000 $ 0.47 Exercised (2,303,500) $ 0.48 Expired or cancelled (1,050,000) $ 0.60 Outstanding at November 30, 1995 1,304,750 $ 0.49 Granted 19,840,000 $ 0.42 Exercised (18,050,000) $ 0.40 Expired or cancelled (214,250) $ 0.77 F-14 Outstanding at November 30, 1996 2,880,500 $ 0.56 Granted 3,690,000 $ 0.18 Exercised (3,390,000) $ 0.14 Expired or cancelled (2,596,500) $ 0.57 Outstanding at November 30, 1997 584,000 $ 0.52
The estimated weighted average fair value of options granted during the year was prepared assuming a risk-free rate of 6% (1996: 6%), an expected volatility of 57% (1996: 57%), an expected dividend yield of 0% (1996: 0%) and a weighted average life of 3 months (1996: 2 months). The estimate was made using the Black-Scholes Pricing Model. The weighted average remaining contractual life of the options outstanding at November 30, 1997, was 1 month (1996: 9 months). (e) Other Share Transactions The Company issued the following common shares for cash by way of private placements during the year ended November 30, 1997:
Less: Net Cash Issued Issue Gross Fees or Received in 1997 Price Proceeds Commissions on Issue ------------------------------------------------------------- 1,080,000 $ 0.31 $ 334,800 $ 26,820 $ 307,980 4,000,000 0.25 1,008,000 90,760 917,240 1,620,000 0.20 324,000 31,561 292,439 2,000,000 0.15 300,000 27,000 273,000 989,000 0.17 168,130 -- 168,130 382,000 0.17 64,940 -- 64,940 1,000,000 0.20 200,000 -- 200,000 1,750,000 0.20 350,000 -- 350,000 360,000 0.25 90,000 -- 90,000 1,000,000 0.20 200,000 500 199,500 ------------------------------------------------------------- 14,181,000 $ 3,039,870 $ 176,641 $ 2,863,229 ---------- ----------- ----------- -----------
The Company also issued 500,000 common shares with a fair value of $0.34 per share and agreed to grant options to purchase 500,000 common shares at an exercise price of $0.001 per share, exercisable until September 5, 1999, to Millennium Holdings Group Inc. ("Millennium") as partial consideration for a consulting agreement of September, 1997. The Company has estimated the fair value of options which will be granted to Millennium using the Black-Scholes Pricing Model. This estimate assumes a risk free rate of 6%, an expected volatility of 57%, and a life of two years. The cost of this compensation is being recognized over the term of the contract, being one year. The Company has reserved 1,076,923 shares for issuance upon the potential conversion of a convertible debenture. Subsequent to year end, the Company issued 1,000,000 of its common shares as partial consideration under an agreement to acquire the Ryan Lode mineral property (see Note 10). F-15 7. RELATED PARTY TRANSACTIONS The Company has had related party transactions with Tri-Con Mining Ltd., Tri-Con Mining, Inc., Tri-Con Mining Alaska Inc. (formerly Tri-Con Mining, Arizona, Inc.), collectively the "Tri-Con Group"; and Anselmo Holdings Ltd., all of which are controlled by a director of the Company, and Kintana Resources Ltd., a company related by virtue of common directors. The Tri-Con Group are operations, exploration and development contractors, and have been employed by the Company under contract since 1972 to carry out all its field work and to provide administrative and management services. Under the current contract of January, 1997, work is charged at cost plus 15 percent (1996 and 1995: 8 percent) for operations, and cost plus 25 percent (1996 and 1995: 25 percent) for exploration and development. Cost includes a 15 percent (1996 and 1995: 12 percent) charge for office overhead. Services of the directors of the Tri-Con Group are charged at the rate of Cdn. $75 per hour. Services of the directors of the Tri-Con Group who are also Officers and Directors of the Company are not charged. The aggregate amounts paid to the Tri-Con Group each year by category, including amounts relating to the Grant Mine Project and Nolan properties, for disbursements and for services rendered by the Tri-Con Group personnel working on the Company's projects, and including interest charged on outstanding balances at the Tri-Con Group's borrowing costs are shown below.
1997 1996 1995 ------------------------------------- Operations and Field Services $ 277,479 $ 715,558 $ 420,296 Exploration and Development Services 2,190,240 596,561 3,841,471 Administrative and Management Services 992,646 323,108 190,009 ------------------------------------- $ 3,460,365 $ 1,635,227 $ 4,451,776 ------------------------------------- Amount of total charges in excess of Tri-Con costs incurred $ 395,240 $ 163,493 $ 281,441 ------------------------------------- Excess amount charged as a percentage of actual costs incurred 12.8% 11.1% 6.7% -------------------------------------
During the year, the Tri-Con Group charged the Company an additional amount of $460,463 for management services, which is included in the table above. During the year, Tri-Con was requested to maintain a certain level of staff and infrastructure in excess of current year requirements, in preparation for expected increases in development and operational activities in 1998 and 1999. These costs were charged with no markup to the company and were expensed in the current year. In addition, the Company advanced a further $480,236 to the Tri-Con Group during the year. This advance is expected to be recovered, although there is no contractual time frame for repayment. Interest is not being charged by the Company on this advance. The advance is secured by that portion of the 2,119,384 common shares of the Company owned by Tri-Con which is sufficient to fully amortize the advance given the trading price of the stock. This amount has been classified as a deduction from shareholders equity, as the security for the advance is common shares of the Company. F-16 In 1989, the Company assigned its interest in and obligations related to the Eagle Creek property to Can-Ex Resources (U.S.), Inc., a subsidiary of Kintana Resources Ltd., for a net profit interest from production of 15 percent to a maximum of $5,000,000 U.S. In 1997 Can-Ex was dissolved, and at that time the net-profits obligation was assumed by its parent, Kintana Resources Ltd. Anselmo Holdings Ltd. has a right to 10 percent of net profits derived from the French Peak Property. 8. INCOME TAXES Tax effects of temporary differences that give rise to deferred tax assets at November 30, 1997 and 1996 are as follows:
1997 1996 ---------------------------- Net operating loss carry forwards $ 7,219,900 $ 7,012,800 Valuation allowance (2,040,000) (2,474,600) ---------------------------- Net deferred tax assets 5,179,900 4,539,200 Deferred tax liability Temporary differences arising from mineral properties and buildings, plant and equipment (5,179,900) (4,539,200) ----------------------------------------------------------------------------- Net deferred tax asset $ -- $ -- -----------------------------------------------------------------------------
At November 30, 1997, the Company has the following losses carried forward available to reduce future years' income for U.S. income tax purposes. The tax effect of these losses has not been recorded in the accounts. Available Until Losses Carried Forward --------------------------------------- 1998 $ 546,000 1999 667,000 2000 1,235,000 2001 2,749,000 2002 1,178,000 2003 1,504,000 2004 1,161,000 2005 742,000 2006 431,000 2007 747,000 2008 2,101,000 2009 2,011,000 2010 2,786,000 2011 1,781,000 2012 1,596,000 --------------------------------------- $ 21,235,000 F-17 Income tax expense attributable to net losses was nil and nil for the years ended November 30, 1997 and 1996 respectively. The differences between the total income tax benefit from operations and the income tax expense (benefit) computed using the Federal income tax rate of 34% in 1997 and 34% in 1996 were as follows: 1997 1996 --------- --------- Computed "expected" tax benefit $(542,600) $(605,500) Tax loss expired during the year 335,600 927,200 Change in valuation allowance (434,600) (321,700) Change in temporary differences during year 641,600 -- --------- --------- Effective tax rate $ 0% $ 0% 9. COMMITMENTS AND CONTINGENCIES (a) Office Lease On January 20, 1994 , the Company entered into a lease agreement for office premises for a term of 10 years commencing April 1, 1994, with an approximate annual rental of $120,000 (Cdn) including operating costs. (b) Equipment Leases During 1994 and 1995 the Company entered into capital leases for mining equipment with the following future minimum lease payments: F-18 Year ending November 30 - 1998 $ 88,391 1999 9,821 -------- Total minimum lease payments 98,212 Less: interest payable (6,722) -------- 91,490 Less: current portion (81,749) -------- $ 9,741 ======== (c) Severance Agreements with Directors The Company has entered into compensation agreements with the three directors of the Company. The agreements provide for severance arrangements where a change of control of the Company occurs, as defined, and the directors are terminated. The compensation payable to the directors aggregates $4,200,000 (1996: $6,200,000) plus the amount of annual bonuses and other benefits that they would have received in the eighteen months following termination. (d) Reclamation The Company's operations are affected by federal, state, provincial and local laws and regulations regarding environmental protection. The Company estimates the cost of reclamation based primarily upon environmental and regulatory requirements. These costs are accrued F-18 annually and the accrued liability is reduced as reclamation expenditures are made. Details of the Company's accrued liability at November 30, 1997 and 1996 are as follows: 1997 1996 ----------------------- Balance, beginning of year $ 70,000 $ 100,000 Cost incurred in year (87,480) (61,993) Amount expensed in year 213,480 31,993 ----------------------- Balance, end of year $ 196,000 $ 70,000 10. SUBSEQUENT EVENTS (a) On December 19, 1997, the Company entered into an Option Agreement with La Teko Resources Ltd. ("La Teko") granting Silverado the exclusive right and option to acquire 100% of the Ryan Lode mineral property near Fairbanks, Alaska for a total purchase price of $12,000,000. The Company issued 1,000,000 of its common shares as consideration to La Teko for granting the right and option to acquire the mineral properties under the terms of this agreement. The agreement provides that in order to keep the option in good standing, Silverado shall: Between December 1, 1997 and November 30, 1998, pay La Teko $650,000 and commit to spend not less than $1,000,000 on work on the property; and Between December 1, 1998 and November 30, 1999 pay La Teko $300,000 and commit to spend not less than an additional $1,000,000 on work on the property; and Between December 1, 1999 and November 30, 2000 pay La Teko $400,000 and unless the Company has otherwise paid $3,000,000 to La Teko, commit to spend an additional $1,000,000 on work on the property; and On or before December 1, 2000 pay La Teko $700,000 and, provided that all requisite permits for construction have been issued, commence construction of milling facilities reasonably necessary to place the property into commercial production; and Pay La Teko $3,000,000 upon the earlier of completion of the milling facility, including a 30 day "mill tune-up" period, or 30 days after the commencement of commercial production; and Pay La Teko the balance of the purchase price six months following the date for payment of the $3,000,000 referenced above, after credit of $4,900,000 for all previous payments. The first two cash payments to La Teko under this contract of $200,000 and $450,000 which were originally scheduled for January 30, 1998 and February 27, 1998 respectively are presently being re-negotiated based on the following schedule: $100,000 due on March 31, 1998; $100,000 due on April 30, 1998; $100,000 due on May 31, 1998; $150,000 due on June 30, 1998; and $250,000 due on July 31, 1998. F-19 La Teko has indicated that it is prepared to consider such an extension, and negotiations are currently under way concerning any additional penalty for the failure to make any payment under the amended schedule. If the Company were to default on any payment its interest in the property would lapse, and the Company would write-off any deferred costs relating to the property. (b) On February 6, 1998, the Company announced that it had completed an agreement with Placer Dome U.S. Inc. ("PDUS") which provides for PDUS to explore and develop the Company's May / Barelka and Range Minerals properties on Ester Dome, and ultimately provides the right to earn a 51% interest in these properties. The Company received the sum of $400,000 as partial consideration under the terms of this agreement. The agreement provides that in order to keep its option in good standing, PDUS must: On or before November 30, 1998 perform at least $1,000,000 of work on the property and purchase 1,000,000 common shares of the Company at a price of $0.70 per share; and On or before November 30, 1999 perform an additional amount of $1,500,000 of work on the property and purchase an additional 1,000,000 common shares of the Company at a price of $1.25 per share; and On or before November 30, 2000 perform an additional amount of $2,000,000 of work on the property and purchase an additional 1,000,000 common shares of the Company at a price of $1.50 per share; and On or before November 30, 2001 perform an additional amount of $2,500,000 of work on the property and purchase an additional 1,000,000 common shares of the Company at a price of $2.00 per share; and On or before November 30, 2002 perform an additional amount of $3,000,000 of work on the property. Upon completion of all the work and purchase of the common shares of the Company detailed above, PDUS shall have the right to acquire the additional 49% interest in the property by producing a feasibility study and obtaining all relevant permits. The Company would then retain a 15% net profits interest in the property. If PDUS does not complete the feasibility study or obtain the permits, then PDUS will convey all of its interest in the property to the Company with PDUS retaining a 15% net proceeds interest in the property. (c) On February 28, 1998, the Company failed to make a royalty payment of $80,000 to the Alaska Mining Company Inc. on its lease of a portion of the Nolan Gold Project property. This payment was originally deferred from the contractual due date of December 15, 1997. Alaska Mining Company Inc. has subsequently granted a further deferral of the payment, with $40,000 being due on March 27, 1998 and the balance due 30 days later. If the Company were to default on any payment under this revised schedule its interest in the property would lapse, and the Company would write-off any deferred assets relating to the property. F-20 (d) On March 16, 1998, arrangements were finalized for the placement of 1,600,000 units of securities in the Company at a price of $0.125 per unit. Each unit is made up of one common share and one-half of a common share warrant. Each common share warrant entitles the holder to purchase one common share at a price of $0.21 during a period of two years from issue of the warrant. (e) On March 12, 1998, the exercise price on the following warrants outstanding at November 30, 1997 was reduced a follows: Number of Previous Reduced Expiration Warrants Exercise Price Exercise Price Date 2,000,000 $0.42 $0.10 March 1999 1,000,000 0.28 0.10 August, 1999 On March 16, 1998, negotiations were in progress for the holders of these warrants to exercise them at the reduced exercise prices. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III The information required by Part III of this report: Item 10 Directors and Executive Officers, Item 11 Executive Compensation Item 12 Security Ownership of Certain Beneficial Owners of Management; and Item 13 Certain Relationships and Related Transactions is incorporated herein by reference from the Company's definitive proxy statement with respect to the 1998 Annual Meeting of the Shareholders to be held in May, 1998. The Company's definitive proxy statement will be filed with the Securities and Exchange Commission pursuant to Rule 14a-6(c) promulgated under the Securities Exchange Act of 1934 not later than 120 days after the end of the fiscal year covered by this report. PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) FINANCIAL STATEMENTS (1) The following financial statements are included in Part II, Item 8 to this report: Auditors' Report Comments by Auditors for U.S. Readers on Canada - U.S. Reporting Conflict Consolidated Balance Sheets at November 30, 1997 and 1996 Consolidated Statements of Operations and Accumulated Deficit, years ended November 30, 1997, 1996 and 1995 Consolidated Statements of Cash Flows, years ended November 30, 1997, 1996 and 1995 Consolidated Statements of Changes in Share Capital and Capital Surplus, years ended November 30, 1997, 1996 and 1995 Notes to Consolidated Financial Statements (2) Financial statement schedules No schedules are presented either because the required information is disclosed elsewhere in the financial statements, or the schedules are not applicable. (3) Exhibits required to be filed are listed in Item 14(c). (b) REPORTS ON FORM 8-K A Form 8-K Current Report dated August 22, 1997 was filed by the Company on September 19, 1997, reporting information pursuant to Item 9. No financial statements were filed with this report. A Form 8-K Current Report dated October 31, 1997 was filed by the company on November 5, 1997, reporting information pursuant to Item 9. No financial statements were filed with this report. (c) EXHIBITS None. (3) Articles of Incorporation and Bylaws (i)(a) Ordinary Resolution of Silverado increasing the authorized capital to 100,000,000 shares without par value and changing the Company's name from "Silverado Mines Ltd." to "Silverado Gold Mines Ltd." is incorporated by reference to Exhibit 3 to Silverado's 10-Q for the quarter ended May 31, 1997. (4) Instruments Defining Rights of Security Holders, Including Indentures (a) Specimen certificate representing shares of the capital stock of Silverado is incorporated by reference to Exhibit 4(a) to Silverado's Report on Form 10, No. 0-12132, filed May 11, 1984, as amended on Form 8, filed July 10, 1984. (10) Material Contracts (a) Management Compensatory Plan - Silverado Mines Ltd. 1994 Stock Option and Bonus Plan. Incorporated by reference to Exhibit 10.4 to Silverado's Registration Statement on Form S-3, File No. 33-76880. (b) Operating Agreement between Silverado and Tri-Con Mining Ltd. filed herewith. (c) Purchase Agreement between Silverado and Alaska Gold Company filed herewith. (b) Property Option Agreements. (i) Grant Mine Property (a) Agreement for Conditional Purchase and Sale of Mining Property - Silverado/Burggraf (10/6/78) is incorporated by reference to Exhibit 10(e)(i)(a) to Silverado's Registration Statement on Form 10, No. 0-12132, filed May 11, 1984, as amended on Form 8, filed July 10, 1984. (d) Exploration and Mining Lease - Silverado Mines (U.S.), Inc./ Gilbert Dobbs (11/6/84) is incorporated by reference to Exhibit 10(e)(f) to the Registrant's Report on Form 10-K for the fiscal year ended November 30, 1984. (ii) Range Minerals Property (a) Agreement #1 Silverado/Taylor (8/30/80) is incorporated by reference to Exhibit 10(e)(ii)(a) to Silverado's Registration Statement on Form 10, 0-12132, filed May 11, 1984, as amended on Form 8, filed July 10, 1984. (b) Agreement #2 Silverado/Taylor (8/30/80) is incorporated by reference to Exhibit 10(e)(ii)(b) to Silverado's Registration Statement on Form 10, No. 0-12132, filed May 11, 1984, as amended on Form 8, filed July 10, 1984. (iii) St. Paul Barelka Property (a) Equity Agreement - Silverado/Barelka/May/Thoennes (5/12/79) is incorporated by reference to Exhibit 10(e)(iii)(a) to Silverado's Registration Statement on Form 10, No. 0-12132, filed May 11, 1984, as amended on Form 8, filed July 10, 1984. (iv) Eagle Creek Property (a) Option Agreement - Taylor/O'Hara/Tan (7/9/76) is incorporated by reference to Exhibit 10(e)(v)(a) to Silverado's Registration Statement on Form 10, No. 0-12132, filed May 11, 1984, as amended on Form 8, filed July 10, 1984. (b) Assignment of Option - Aalenian (now Silverado)/Tan (8/26/76) is incorporated by reference to Exhibit 10(e)(v)(b) to Silverado's Registration on Form 10, No. 0-12132, filed May 11, 1984, as amended on Form 8, filed July 10, 1984. (c) Assignment of Option - Can-Ex. (8/4/89) is incorporated by reference to Exhibit 10(e)(v)(c) to Silverado's Report on Form 10-K, for the fiscal year ended November 30, 1989. (v) Thompson Pup Property (a) Option Agreement Figlenski/Carlson/Silverado (6/9/81) is incorporated by reference to Exhibit 0(e)(vi)(a) to Silverado's Registration Statement on Form 10, No. 0-12132, filed May 11, 1984, as amended on Form 8, filed July 10, 1984. (vi) French Peak Property (a) Amendment of Agreement - Silverado / Can-Ex (now Anselmo Holdings)(9/19/80) is incorporated by reference to Exhibit 10(e)(ix)(d) to Silverado's Registration Statement on Form 10, No. 0-12132 filed May 11, 1984, as amended on Form 8, filed July 10, 1984. (b) Amendment of Agreement (7/21/83) is incorporated by reference to Exhibit 10(e)(ix)(e) to Silverado's Registration Statement on Form 10, No. 0-12132, filed May 11, 1984, as amended on Form 8, filed July 10, 1984. (vii) Smith Creek Property (a) Purchase and Sales Agreement - Mickelson / Anderson / Silverado (08/20/93) is incorporated by reference to Exhibit 10(vii)(a) to the Registrants Report on Form 10-K for the fiscal year ended November 30, 1993. (viii) Mary's Bench Property (a) Purchase and Sales Agreement - Dionne / Dionne / Deveny / Silverado (09/21/93) is incorporated by reference to Exhibit 10(viii)(a) to the Registrants Report on Form 10-K for the fiscal year ended November 30, 1993. (ix) Marshall Dome Property Agreement for Purchase and Sale - Raymond Moore / "BJ" Hall / Silverado, dated October 9, 1995 is incorporated herein by reference to Exhibit (10)(ix) to the Registrants Report on Form 10-K for the fiscal year ended November 30, 1995. (x) Hammond Property Lease of Mining Claims with Option to Purchase - Alaska Mining Company Inc. ("ALMINCO") / Silverado, dated February 3, 1995, is incorporated by reference to Exhibit (10)(x) to the Registrants Report on Form 10-K for the fiscal year ended November 30, 1995. (11) Statement Re Computation of Per Share Earnings The computation of per share net earnings/loss as described in Note 1(h) to the financial statements set forth in Item 8 of this report is by this reference incorporated herein. (21) Subsidiaries of Registrant The information required in Exhibit 21 is set forth in Item 1(a) of this report and by this reference incorporated herein. (23) Consents of Experts and Counsel (a) Consent of KPMG, formerly known as "KPMG Peat Marwick Thorne", filed herewith. (b) Consent of KPMG, formerly known as "KPMG Peat Marwick Thorne" regarding Form S-8, filed herewith. POWER OF ATTORNEY KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Garry L. Anselmo his true and lawful attorney-in-fact and agent, with full power of substitution and restitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this annual report on Form 10-K, and to file the same with all exhibits thereto and any other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on the dates indicated: /s/ Garry L. Anselmo February 25, 1998 - ------------------------------------------- ------------------------ Garry L. Anselmo Date Chairman of the Board of Directors /s/ James F. Dixon February 25, 1998 - ------------------------------------------- ------------------------ James F. Dixon Date Director /s/ K. Maxwell Fleming February 25, 1998 - -------------------------------------------- ------------------------ K. Maxwell Fleming Date Director SIGNATURES PURSUANT to the requirements of Section 1 of 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SILVERADO GOLD MINES LTD. By /s/ G. L. Anselmo March 16, 1998 ------------------ ------------------ G. L. Anselmo, Chairman Date Chief Financial Officer EXHIBITS INDEX SILVERADO GOLD MINES LTD. Exhibits Filed with Report on Form 10-K Fiscal year ended November 30, 1997 Exhibit (10(b)) Operating Agreement between Silverado and Tri-Con Mining Ltd. Exhibit (10(c)) Purchase Agreement between Silverado and Alaska Gold Company. Exhibit (23(a)) Consent of KPMG. Exhibit (23(b)) Consent of KPMG regarding Form S-8. EX-10 2 EXHIBIT 10(B) AGREEMENT This Agreement made and effective this first day of January, 1997, by and between TRI-CON MINING LTD. (hereinafter "TCML") a British Columbia corporation whose address is 505 -1111 West Georgia Street, Vancouver, B.C. V6E 4M3 AND SILVERADO MINES LTD. (hereinafter "SML") a British Columbia corporation whose address is also 505 - 1111 West Georgia Street, Vancouver, B.C. V6E 4M3. WITNESSETH: A. WHEREAS, SML desires to retain TCML to serve as administrator and operator of mining claims situate within Canada and the United States, and B. WHEREAS, TCML desires to serve as administrator and operator for SML on the said claims, NOW THEREFORE, in consideration of these premises, SML hereby appoints TCML as administrator and operator, and TCML hereby accepts such appointment, subject to the terms and conditions hereinafter set forth. 1. TERM The term of this Agreement shall be perpetual, unless cancelled by thirty days advance written notice by one party to the other. 2. WARRANTIES AND REPRESENTATIONS SML warrants that it has the full right and power to enter into this Agreement on the terms and conditions contained herein. 3. UNDERTAKINGS BY TCML 3.1 TCML undertakes to administer, explore, develop, operate, and reclaim the said claims in a professional and workmanlike manner. Further, at SML's specific written direction, TCML also agrees to assist SML in vending its claims to those prospective purchasers specifically identified to TCML by SML. 1 3.2 TCML may construct, maintain, use and at its election remove such structures, facilities, equipment, roadways, haulageways and such other improvements located on the said claims as it may deem necessary, useful or convenient in the conduct of its operations upon the said claims. 3.3 TCML may also use and consume so much of the surface of the said claims as may be necessary, useful, or convenient for carrying out the purposes of this Agreement. 3.4 TCML shall make available, for use in connection with the operations on the said claims, the knowledge and experience of such officers and employees as are reasonably required for the proper performance of such services. 3.5 TCML acknowledges that its operation on the said claims shall always be subject to general directions from SML. 4. PAYMENTS TO TCML FOR ADMINISTRATION AND OPERATION 4.1 TCML shall administer said claims for a base fee of Ten Thousand Dollars ($10,000.00) per month, plus costs, below. 4.2 TCML shall explore, develop, mine, and reclaim said claims at SML's cost. For the purpose of this Agreement, the term "cost" shall mean 115% of all costs incurred by TCML which are reasonably attributable to its operations on the said claims including but not limited to the following: a) the cost of all full time and part time employees; and cost of contractors; b) the actual costs incurred in mobilization and demobilization; c) reasonable travel and lodging expenses; d) insurance premiums; e) the cost of renting equipment; f) the actual costs of material and supplies consumed by the work; g) support charges - a sum equal to twenty-five percent (25%) per annum on all project acquisition, exploration, and development expenditures; fifteen percent (15%) annum for all operating expenditures; and fifteen percent (15%) per annum for all reclamation expenditures. Capital purchases shall be exempt from additional charges. h) a "stand by" charge of 150% of (a)-(g) when TCML is on site and prepared to perform work, but unable to do so for causes attributable to SML; 2 i) a charge of seventy-five dollars ($75.00) per hour for the time spent by each of TCML's officers on SML's behalf; j) notwithstanding any of the above, no TCML employee who serves as a director on SML's behalf shall bill SML for any of his time. 4.3 SML shall make payments to the account of TCML substantially in accordance with a budget submitted to and accepted by SML. SML shall from time to time advance to TCML's account funds to cover anticipated costs in conjunction with the requirements of the approved budget. TCML may draw from such account the costs incurred by it at cost plus fifteen percent (15%), and shall account monthly in writing to SML for the amounts drawn in sufficient detail to enable SML to determine the correctness thereof. Amounts unpaid by SML to TCML within 30 days of the date the subject cost is incurred by TCML shall be deemed as an unsecured loan from TCML to SML, with interest due and payable at a rate of twelve percent (12%) per annum. 4.4 TCML will submit to SML written progress reports on the operations on the development of the said claims. 4.5 SML shall have the right to enter upon the said claims and inspect the same at all times with or without notice to TCML, at SML's sole risk and expense. 4.6 Within ninety (90) days after the end of each calendar year, TCML shall submit an annual cost report to SML, at which time SML will have thirty (30) additional days to notify TCML of SML's intention to audit the report, at its own cost and expense. If notice of an audit is not received by TCML within 30 days of delivery of its report to SML, then the costs of the work, and all reports, reconciliation's, and invoices of TCML shall be conclusively deemed to be true and correct. 5. COST ADJUSTMENT 5.1 TCML may increase its hourly rates each year beginning one year after the effective date of this agreement, by the percentage increase in the CPI where "CPI" means the "Canadian Price Index" as published by Statistics Canada. 6. OBLIGATION AND INDEMNITY BY PARTIES 6.1 TCML agrees to comply with valid and applicable local, state, provincial and federal laws and regulations governing its operations hereunder. 6.2 TCML shall pay all expenses incurred by it in its operations on the said claims and shall allow no liens to remain upon the said claims; provided however, that if TCML disputes the validity or amount of any lien asserted against the said claims, it shall not be 3 required to discharge the same until the amount and validity thereof have been finally determined. 6.3 TCML shall indemnify and defend SML against any suit, claim, judgment or demand whatsoever arising out of the negligence of TCML, provided however that this provision shall not apply to any such suit, claim, judgment or demand caused in whole or in part by SML. 6.4 During the term of this Agreement and any extension thereof, TCML shall procure and maintain comprehensive general liability insurance having the following coverage limits per occurrence: Property Damage Insurance: $2,000,000.00 Comprehensive General Liability: $1,500,000.00 TCML shall cause SML to be added to such policy as an additional named insured. 7. TERMINATION 7.1 TCML shall have the right to terminate this Agreement in its entirety at any time upon 30 days advance written notice to SML in the manner provided in paragraph 12. 7.2 Upon the date sixty (60) days after notice of termination, all rights and interest of TCML under this Agreement shall terminate and TCML shall not be required to perform any further obligations hereunder concerning the said claims, except as to obligations, if any, the occurrence of which precedes termination. 8. PROTECTION OF PROPRIETARY INFORMATION Nothing contained herein is intended to prevent TCML from performing services for other companies similar to those undertaken herein; provided that the performance of such services shall not interfere with the proper and efficient performance by TCML or the services to be rendered hereunder; provided further that TCML shall not make use of or divulge to others any trade information of proprietary nature of which it becomes aware as a result of this Agreement with SML. 9. FORCE MAJEURE 9.1 TCML shall not be liable for failure to perform any of its obligations hereunder during periods in which performance is prevented by any cause hereinafter called "force majeure" 4 9.2 For purpose of the Agreement, the term force majeure shall include Acts of God, fire, flood, undue shortage of power, strikes, insurrection or mob violence, requirements or regulations of the government and other causes of a similar nature. 10. DISPUTES NOT TO INTERRUPT OPERATIONS, ARBITRATION 10.1 In the event of any dispute between parties hereto, operations shall be continued in the same manner as prior to the dispute until the matters in dispute have been finally resolved between the parties. 10.2 The parties hereto may agree to submit any dispute arising out of, or relating to, this Agreement to arbitration. 10.2.1. The place of any such arbitration shall be at Vancouver, British Columbia. 10.2.2. The right to invoke arbitration is not in derogation of any other rights that the parties may have to settle disputes through compromise or litigation. 11. NOTICE 11.1 Any notice or communication required or permitted hereunder shall be in writing and shall be effective when personally delivered or shall be effective when addressed: If to SML: SML Mines Ltd. 505 - 1111 West Georgia Street Vancouver, B.C. V6E 4M3 If to TCML: Tri-Con Mining Ltd. 505 - 1111 West Georgia Street Vancouver, B.C. V6E 4M3 and deposited, postage prepaid, certified, in the United States or Canadian mail. 11.2 Either party may, by notice to the other as aforesaid, change its mailing address for future notice hereunder. 12. BINDING EFFECT, ASSIGNMENT 5 12.1 If SML assigns the said claims in whole or in part to any third party, the provisions hereof shall inure to the benefit of and be binding upon its respective successors and assigns, but no change or division of ownership of the said claims however accomplished, shall operate to enlarge the obligations or diminish the rights of TCML hereunder. 12.2 TCML shall have no right to assign its rights or obligations under this Agreement without the express prior written consent of SML. 13. CONSTRUCTION: ENTIRE AGREEMENT 13.1 The Agreement shall be construed in accordance with the laws of the State of Alaska. 13.2 The headings and subheadings used herein are for convenience only and shall not be deemed to be a part of the Agreement for purposes of construction thereof. 13.3 All of the agreements and understandings of the parties with reference to the said claims are embodied in this Agreement, which supersedes all prior Agreements or understandings between the parties with reference thereto. 13.4 The compensation herein provided shall be deemed to be full payment to TCML for its operations hereunder. 13.5 Should any part of this Agreement be declared invalid for any reason by a court of competent jurisdiction such declaration shall not affect the balance of this Agreement. 13.6 All dollar amounts herein are stated in Canadian currency. IN WITNESS WHEREOF, the parties have executed this Agreement at Vancouver, British Columbia, the day and year first above written. Tri-Con Mining Ltd. by: Silverado Mines Ltd. by: Alex Homenuke Garry L. Anselmo - ----------------------- ------------------------ Its Senior Vice President Its President 6 EX-10 3 EXHIBIT 10(C) AGREEMENT THIS AGREEMENT, dated effective this 30th day of October, 1997 is entered into by and between ALASKA GOLD COMPANY, whose address is 340 Hardscrabble Road, Helper, Utah 84526 ("AGC") and SlLVERADO GOLD MINES, INC., an Alaskan corporation, whose address is Suite 505 - 1111 W. Georgia Street, Vancouver, B.C. V6E4M3 ("Silverado" or "Purchaser"). RECITAL AGC is the owner of a gold dredge located in the Sheep Creek area, Alaska and Silverado desires to purchase the dredge together with certain real property, and AGC is willing to sell the same on the terms and conditions hereinafter set forth. NOW, THEREFORE, the parties agree as follows: A. For the consideration hereafter set forth, AGC agrees: (1) to sell to Sllverado all of its right, title and interest in and to the following property situated in Township 1 North, Range 2 West, Fairbanks Meridian: (a) Gold Dredge #6 together with attached equipment (the "Dredge") located on the Independence Association Placer Mining Claim, M.S. #2197; and (b) Independence Association Placer Mining Claim, M.S. #2197; and (c) State of Alaska Leases: ADL 524262 ADL 524263 ADL 524988 ADL 524989 (2) to warrant that AGC has good title to the Dredge and other described property and that it is free and clear of any liens and encumbrances but AGC does not in any way warrant the condition of the Dredge nor any part thereof nor does AGC warrant the Dredge's merchantability or fitness for a particular purpose, it being understood that Sllverado is acquainted with and accepts the Dredge and the other described property "as is" and "where is" in their present condition. B. Silverado agrees to purchase the Dredge and the other described property for a total purchase price of One Hundred Twenty Thousand Dollars (US$120,000) payable to AGC as follows: (1) $40,000 in cash on the closing of this transaction; and (2) a Promissory Note for the balance of the purchase price in the amount of $80,000 payable in two (2) equal installments of $40,000 each on the anniversary of the closing of this transaction and secured by a mortgage or deed of trust satisfactory to AGC. C. Silverado also agrees: (1) to assume all obligations and liabilities respecting the Dredge and the other described property and, except as may be provided by law to the contrary, to indemnify, defend and hold harmless AGC from and against any damage, loss, claim, demand or liability arising out of or resulting in any way from Silverado's ownership, use, operation, dismantling and/or removal of the Dredge and/or from failure of Silverado to perform all its obligations under this Agreement; and (2) to carry at all times during the term of this Agreement and until completion of all payments under the Promissory Note, with insurance companies satisfactory to AGC, the following minimum insurance coverages: (i) Workmen's compensation insurance (including occupational disease insurance) as required by law; (ii) Employer's liability insurance with limits of not less than Five Hundred Thousand Dollars ($500,000) each accident or bodily injury by accident or Five Hundred Thousand Dollars ($500,000) each employee for bodily injury or disease; (iii) Commercial general liability insurance (CGL) with a limit of not less than Two Million Dollars ($2,000,000) each occurrence. If such CGL insurance contains a general aggregate limit, it shall apply separately to the other described property location; and (iv) Business automobile liability insurance with a limit of not less than One Million Dollars ($1,000,000) each accident. Such insurance shall cover liability arising out of any automobile (including own, hired and non-owned autos). Policies providing coverage under this Agreement shall not be subject to cancellation or material change except upon thirty (30) days prior written notice to AGC. AGC shall be named as an additional insured on all policies providing coverage under this Agreement. Silverado shall provide 2 evidence in the form of a certificate of such insurance promptly following the execution of this Agreement, annually thereafter, and at such other times as AGC may reasonably request. D. The parties mutually agree that as soon as possible but not later than thirty (30) days from the date of this Agreement, the transaction shall close on a date and place convenient to the parties at which the following shall occur: (1) AGC shall execute, acknowledge and deliver to Silverado conveyance instruments in the forms of the Deed and the Bill of Sale attached hereto as Exhibits A and B respectively; and (2) Silverado shall deliver to AGC: - Cash payment of US$40,000 by certified check or bank wire transfer; - Promissory Note in the form of Exhibit C hereto for the balance of the purchase price; and - Security document satisfactory to AGC. (3) Parties will execute such other documents as are appropriate to complete this transaction. Upon delivery of documents and the purchase price, Silverado shall be responsible for any and all obligations relating to the dredge and other described property and deemed to have assumed possession and orderly supervision thereafter. IN WITNESS WHEREOF, the parties have executed this Agreement this 30th day of October, 1997. ALASKA GOLD COMPANY /s/ Michael P. Watson --------------------- By: Michael P. Watson V.P. Land --------------------------- SlLVERADO GOLD MINES, INC. /s/ Garry L. Anselmo -------------------- By: Garry L. Anselmo C.E.O. --------------------------- 3 EX-23 4 EXHIBIT 23(A) March 16 1998 The Board of Directors Silverado Gold Mines Ltd. Suite 505 1111 West Georgia Street Vancouver BC V6L 4M3 We consent to the use of our reports included in the Form 1OK of Silverado Gold Mines Ltd. (formerly Silverado Mines Ltd.) for the year ended November 30, 1997. Our auditors report referred to in the preceding paragraph is supplemented by a report entitled "Comments By Auditors For U.S. Readers On Canada-U.S. Reporting Conflict" that states that Canadian reporting standards do not permit reference to uncertainties such as the Company's ability to continue as a going concern as discussed in Note 1(a) to the consolidated financial statements when the uncertainties are adequately disclosed in the financial statements and accompanying notes. Under United States reporting standards such uncertainties would be described in an explanatory paragraph following the opinion paragraph. /s/ KPMG KPMG Chartered Accountants Vancouver, Canada March 16 1998 EX-23 5 EXHIBIT 23(B) The Board of Directors Silverado Gold Mines Ltd. Suite 505 1111 West Georgia Street Vancouver BC V6L 4M3 We Consent to incorporation by reference in the registration statement on the Form S-8 ~ of Silverado Gold Mines Ltd. (formerly Silverado Mines Ltd.) of our report dated February 5. 1 IQ which are as of February 21 1998 relating to the consolidated balance sheets of Silverado Gold Mines Ltd. as at November 30 1997 and 1996 and the related consolidated statements of operations and accumulated deficit cash flows and changes in share capital and capital surplus for each of the years in the three year period ended November 30 1997 which report appears in the November 30 1997 annual report on Form 1 0-K of Silverado Gold Mines Ltd. and to the reference to our firm under the heading "experts" in the prospectus. Our auditors report referred to in the preceding paragraph is supplemented by a report entitled Comments By Auditors For U.S. Readers On Canada-U.S. Reporting Conflict" that states that Canadian reporting standards do not permit reference to uncertainties such as the Company's ability to continue as a going concern as discussed in Note 1(a) to the consolidated financial statements when the uncertainties are adequately disclosed in the financial statements and accompanying notes. Under United States reporting standards such uncertainties would be described in an explanatory paragraph following the opinion paragraph. /s/ KPMG KPMG Chartered Accountants Vancouver. Canada EX-27 6 ART. 5 FDS FOR 1997 10-K
5 YEAR NOV-30-1997 NOV-30-1997 20914 0 8297 0 48875 444389 4481399 1385423 18231231 679227 0 0 0 43084420 0 18231231 168124 168124 164835 378315 4205381 0 0 0 0 0 0 0 0 (4414772) (0.07) 0
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