-----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, OQJUUkZzuMHpHrihZsehhJBIxCt6vyEpx7UORqmDamU4uzyjHvNzK9foJsR41w3G qOKmVAgfZp2py0RiGZmKXQ== 0000731727-99-000018.txt : 19990510 0000731727-99-000018.hdr.sgml : 19990510 ACCESSION NUMBER: 0000731727-99-000018 CONFORMED SUBMISSION TYPE: 10-K/A CONFIRMING COPY: PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILVERADO GOLD MINES LTD CENTRAL INDEX KEY: 0000731727 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 980045034 STATE OF INCORPORATION: A1 FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-12132 FILM NUMBER: 00000000 BUSINESS ADDRESS: STREET 1: 1111 WEST GEORGIA ST STE 505 STREET 2: VANCOUVER BRITISH COLUMBIA CANADA CITY: V6E 4M3 STATE: A1 BUSINESS PHONE: 6046891535 MAIL ADDRESS: STREET 1: 1111 WEST GEORGIA ST STE 505 STREET 2: VANCOUVER BRITISH COLUMBIA CANADA CITY: V6E 4M3 STATE: A1 FORMER COMPANY: FORMER CONFORMED NAME: SILVERADO MINES LTD DATE OF NAME CHANGE: 19940722 10-K/A 1 FORM 10-K/A FORM 10-K/A 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, 1998. Commission file number 0-12132 SILVERADO GOLD MINES LTD. (Exact name of registrant as specified in its charter) British Columbia, Canada (State or other jurisdiction of incorporation or organization) 98-0045034 (IRS Employer ID No.) Suite 505, 1111 West Georgia Street Vancouver, British Columbia, Canada V6E 4M3 ------------------------------------------- (Address of Principal Executive Offices) (604) 689-1535 -------------- (Registrant's telephone number) Securities registered pursuant to section 12(b) of the Act : None - ------------------------------------------------------------ Securities registered pursuant to section 12(g) of the Act: Common Shares, no par value - ------------------------------------------------------------ (Title of Class) The Company's Common Stock trades on the OTC Bulletin Board under the trading symbol GOLDF.OB - ------------------------------------------------------------ (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 | | No |X| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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. |X| The aggregate market value of voting stock held by non-affiliates on March 18, 1999 was $2,016,975. The number of shares outstanding on March 18, 1999 was 11,864,557 Total number of pages, including cover page:37. 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"), 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., 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 six groups of mineral properties in Alaska and one 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 1 Federal claim, 1 patented mining claim and 472 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. On December 19, 1997, the Company entered into an Option Agreement with LaTeko Resources Ltd. ("LaTeko") granting Silverado the exclusive right and option to acquire 100% of the Ryan Lode property, a property situated next to the Company's Ester Dome properties near Fairbanks, Alaska, for a total purchase price of $12,000,000. The Company issued 1,000,000 of its common shares (pre-share consolidation) with a fair value of $250,000 based on quoted market values at the time to LaTeko as consideration for granting the right and option to acquire the mineral property. In March of 1998, the Company terminated its option to purchase the property. Costs of $227,449 incurred during 1998 relating to the Ryan Lode property and all previous deferred costs were written off during 1998. The Company completed an option agreement with Placer Dome U.S. Inc. ("PDUS") on February 6, 1998 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. Under the agreement, PDUS was to earn a 51.5% interest by performing a minimum of $10,000,000 of work on the property and purchasing 4,000,000 common shares of the Company over a period of five years at an assigned value of $5,450,000. During 1998, the Company received $400,000 in cash as consideration for entering into the agreement and PDUS performed approximately $1,000,000 of work on the property. On November 9, 1998, PDUS exercised its option to terminate the agreement with the Company. The Nolan Gold Project consists of 216 Federal placer claims and 239 Federal lode claims located eight miles west of Wiseman, Alaska. Included in the Project are the Nolan Placer, Nolan Lode, Thompson's Pup, Dionne and Smith Creek properties. During 1998 the Company concentrated its activities on Archibald Creek, which is located within Nolan Placer. Limited mining of the Swede Channel, located within Dionne, was also undertaken during 1998. The Company's share of total gold recovered from the Nolan Gold Project in 1998 amounted to 144 ounces. 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. Thirty-five of the 38 claims were 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. The remaining three adjacent claims were located and acquired by the Company prior to 1995. The Marshall Dome Property 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. On November 30, 1998, the Company chose to relinquish its interest in this property. The French Peak Property consists of four mineral claims totaling approximately one square mile, and is located 40 miles northwest of Smithers, British Columbia. (b) FINANCIAL INFORMATION RE: OPERATING SEGMENTS The Company has one operating segment, being mineral exploration, development and mining. (c) PLAN OF OPERATION The Company's plan of operation is to continue to develop and mine its Nolan properties specifically the Swede Channel, Archibald Creek and Smith Creek areas. In this area the Company has recovered almost 14,000 ounces of gold since 1994. The Company is currently stock piling ore through the winter months. When the snow melts in May-June the ore will be processed and the recovered gold will be marketed. The Company is also planning to mine this summer with concurrent processing and gold recovery from summer operations on Archibald and Smith Creek areas. During 1998 the Company successfully negotiated 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. On November 9, 1998, PDUS exercised its option to terminate the agreement with the Company. The Company has subsequently entered in negotiations with several other companies to possibly joint venture or vend the property. For the period between December 1997 and March 1998 the Company completed environmental impact studies, both independent and internal, on the Ryan Lode property, the results of which determined the potential environmental liability of the property to be excessive. The Company terminated its option with LaTeko. Since then the Company has re-focused its efforts in the Nolan area. The Company also plans to continue exploration of its Hammond, St.Paul, Grant, and O'Dea properties. The extent of activity will be dependent on available financing. On August 4, 1989, Silverado 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. On February 19, 1997, Can-Ex was dissolved and the Eagle Creek property became the property of its parent corporation, Kintana Resources Ltd., a company controlled by Garry Anselmo who is President and a director of Silverado. The Company's royalty interest in the property remains unaffected by this event. There has been no development activity on the property during the year. In Canada, the Company intends to keep its French Peak Property in good standing, though no development work is scheduled there at this time. From time to time as conditions or funds warrant, the Company may reevaluate its development programs in response to changing economic or environmental conditions. Such reevaluation 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 regulations relating 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 of the 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 $196,000 for further reclamation on the Nolan Gold Project and Grant Mine 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 the accrual for reclamation, net of recoveries, is sufficient to meet its obligations. (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. 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, 1998, 1997 and 1996, by country of origin for information purposes only.
YEAR ENDED NOVEMBER 30, 1998 1997 1996 ------------- ------------ ------------ Loss for the year Canada $ (1,469,472) $(3,594,229) $(3,461,717) United States (15,469,431) (820,543) (868,543) ------------- ------------ ------------ $(16,938,903) $(4,414,772) $(4,330,260) ============= ============ ============ Identifiable assets,at end of period Canada $ 373,446 $ 576,513 $ 1,318,233 United States 3,103,226 17,654,718 17,143,111 ------------- ------------ ------------ $ 3,476,672 $18,231,231 $18,461,344 ============= ============ ============
For each of the three years ended November 30, 1998, 1997 and 1996, 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 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. 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, which 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 subject to payments of 15% of net profits until $2,000,000 has been paid and 3% of net profits thereafter. In December of 1997, 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, the 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 419 State mineral claims and one Federal claim subject to annual payments of $50,000, 2% of net smelter returns until $20,000,000 has been paid, and 5% of net profits thereafter. In December of 1997, 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 $20,000,000 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 one unpatented Federal mineral claims and four State 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. During 1998, PDUS performed approximately $1,000,000 of exploration work on the property prior to terminating its option to acquire a 51% interest in approximately 20.5 square miles of the property. (2) Marshall Dome Property The Marshall Dome Gold Project, consists of 38 State claims, 35 of which were 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. The remaining three adjacent claims were located and acquired by the Company prior to 1995. The project 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. On November 30, 1998, the Company chose to relinquish its interest in this property. (5) Nolan Gold Project 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 160 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 35 unpatented Federal placer claims and miscellaneous mining equipment, was purchased in 1993 for $200,000 payable over five years with payments originally scheduled to be completed in 1998, $60,000 remains to be paid in 1999. (e) Nolan Lode: This property consists of 239 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. 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. From 1995 to 1997, the Company restricted its activities at Nolan as it refocused its resources on its Ester Dome properties. During the time, the Company substantially reclaimed its previous disturbances. During 1998, the Company recommenced mining operations. The Company concentrated its activities on the Archibald Creek area, located within Nolan Placer. Limited mining on the Swede Channel located within Dionne was also undertaken by a third party. The Company's share of total gold recovered from the Nolan Gold Project in 1998 amounted to 144 ounces. (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, became the property of its parent corporation, Kintana Resources Ltd, a company controlled by Garry Anselmo, who is the President and director of Silverado. 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. In 1964, 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. (c) GLOSSARY OF TECHNICAL TERMS 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". 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. - -------- That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Reserves are customarily stated in terms of "ore" when dealing with metalliferous minerals. 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. 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. Silverado believed the complaint was without merit, and 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. During 1998, the case was tried in the Alaska Superior Court. The court found in favour of Silverado and denied the vendors any monetary compensation, other than $18,400 attorneys fees. A former employee of the Tri-Con Group has initiated a claim against that company for wrongful dismissal/breach of contract in the amount of $150,000. The Company has been named as a co-defendant in the suit. No provision for this litigation has been made in the financial statements for the year ended November 30, 1998 as the amount of the loss, if any, is indeterminable at this time. 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 OTC bulletin board under the symbol "GOLDF.OB" The following table indicates the high and low bid prices of the common shares during the periods indicated: QUARTER ENDED HIGH BID LOW BID Feb 28, 1997 4 3/8 3 9/16 May 31, 1997 4 3/8 2 9/16 Aug 31, 1997 3 3/8 2 9/16 Nov 30, 1997 4 1/2 3 7/16 Feb 28, 1998 2 15/16 2 9/32 May 31, 1998 1 31/32 1 5/16 Aug 31, 1998 5/16 3/8 Nov 30, 1998 9/32 7/32 On May 25, 1998, the Company consolidated its shares on a 1 for 10 basis and the amounts above have been restated to reflect the effect of the share consolidation. 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 April 30, 1999 there were 3,684 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 OTC bulletin board) 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 5 percent 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 10 percent 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, 1998, 1997, 1996 , 1995 and 1994.
YEARS ENDED NOVEMBER 30, 1998 1997 1996 1995 1994 --------- -------- -------- -------- -------- 000's except per share amounts Revenues $ 58 $ 169 $ 298 $ 3,053 $ 1,516 Loss for the Year $(16,939) $(4,415) $(4,330) $(4,095) $(3,120) Loss per Share (1) $ (1.89) $ (0.66) $ (0.88) $ (1.10) $ (0.90) END OF PERIOD Assets $ 3,477 $18,231 $18,461 $15,140 $16,496 Gold Inventory (2) $ 23 $ 49 $ 213 $ 389 $ 2,028 Long term Obligations $ -- $ 2,010 $ 2,092 $ 2,395 $ 2,543
(1) In 1998 the Company consolidated its share capital on a 1 for 10 basis. The effect of the share consolidation has been applied to all per share amounts presented. (2) 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, 1998 1997 1996 ------------ ------------ ------------ Cash $ -- $ 20,914 $ 1,925,469 Other current assets 27,208 423,475 704,228 ------------ ------------ ------------ 27,208 444,389 2,629,697 ------------ ------------ ------------ Bank indebtedness (4,396) -- -- Accounts payable and accrued liabilities (904,568) (597,478) (252,923) Mineral claims payable (342,000) -- (179,000) Loans payable secured by gold inventory -- -- (66,511) Current portion of capital lease obligation -- (81,749) (64,939) Convertible debenture, current portion (2,000,000) -- -- ------------ ------------ ------------ (3,250,964) (679,227) (563,373) ------------ ------------ ------------ Working capital (deficiency) $(3,223,756) $ (234,838) $ 2,066,324 ============ ============ ============
During 1998 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 Nolan properties. The Company also received funding of $718,977 through the sale of excess equipment. Placer Dome contributed $400,000 as part of the option agreement entered into during the year. On November 9, 1998, PDUS exercised its option to terminate the agreement with the Company. The increase in the Company's working capital deficiency from $234,838 to $3,223,756 reflects the excess of those various expenditures over the funds received during 1998 and the maturity of the $2,000,000 convertible debenture in July 1999. The Company's short term liabilities consist primarily of trade payables, accrued interest and reclamation expenses. During the year the Company received a total cash inflow of $1,765,692 primarily from shares issued for cash, the sale of fixed assets for cash, the sale of gold and the receipt of cash from Placer Dome under the now canceled option agreement. From these funds, the Company applied $1,172,888 to exploration and development expenditures, and $107,200 to mineral claims and options on its mineral properties; $588,284 on the Nolan Gold Project, $337,375 on the Ester Dome Project, $227,449 on the Ryan Lode Gold Project, and $126,981 was applied to its other properties. Ester Dome Gold Project ----------------------- During 1998, the Company limited its activities on this property as efforts were concentrated on the Ryan Lode Gold Project in the early part of the year and the Nolan Gold Project in the latter part of the year. However, Placer Dome U.S. Inc. (PDUS) was actively involved on this property. PDUS and the Company entered into an agreement in February 1998 under which, PDUS could earn a 51.5% interest by performing a minimum of $10,000,000 of work on the property and purchasing 4,000,000 common shares of the Company with an assigned value of $5,450,000 over a period of five years. During 1998, the Company received $400,000 in cash in consideration for entering into the agreement and PDUS performed approximately $1,000,000 of work on the property. The work consisted of integrated surface and drilling programs employing mechanized soil sampling and trenching, as well as both reverse circulation and core drilling. Active field exploration took place continuously from March through October 1998. PDUS succeeded in indentifying four prospects containing greater than 0.03gm/tonne over significant trench and drill thickness: the Silver Dollar and Ready Bullion on the south side of Ester Dome and Rhyolite and McQueen on the north side of Ester Dome. PDUS also generated one new prospect on the Irad claim. Activities included 1,385 soil samples taken, 12 trenches totalling 975 feet, 10 reverse circulation holes measuring 2,600 feet and 21 core drilling holes measuring 9,780 feet. On November 9, 1998, PDUS exercised its option to terminate the agreement with the Company. 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"). 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, entered into an Option to Purchase Agreement with La Teko for the Ryan Lode property. In March of 1998 the Company completed the environmental studies and determined that the potential environmental liability would be excessive therefore the Company decided to terminate the agreement. Nolan Gold Project ------------------ From November 1993 to April 1994, the Company commenced production of placer gold from frozen bench deposits on the Mary's Bench portion of the Dionne Property, recovering almost 14,000 ounces of gold. 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. During 1998, limited mining of the Swede Channel, located within the Dionne property, was also undertaken. The Company's share of total gold recovered from the Nolan Gold Project in 1998 amounted to 144 ounces. Continued development and mining is being done through the winter months in this area and after the thaw in May-June, processing will begin. Two other areas, Archibald Creek and Smith Creek will be summer mined and processed in fiscal 1999. The extent of activities will be dependent on available funding. Other Properties ---------------- On November 30,1998, the Company relinquished its interest in the Chatanika Property. The Company maintained all of its other properties in good standing. In addition to amounts accrued for, the Company has property commitments during 1999 totaling $291,500 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. The Company also has interest commitments of $160,000 on a $2,000,000 convertible debenture. The debenture matures and is due and payable in July 1999. The Company has a significant working capital deficiency at November 30, 1998. As of that date, uncertainty as to the Company's ability to meet its liabilities and commitments as they become payable causes doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern and recover the amounts recorded as mineral properties is dependent on its ability to obtain the continued forbearance of its creditors, to obtain additional financing and/or the entering into of joint venture agreements with third parties in order to complete exploration, development and production of its mineral properties, the continued delineation of reserves on its properties and the attainment of profitable operations. There is no assurance that such items can be obtained by the Company. Failure to obtain these may cause the Company to significantly decrease its level of exploration and operations and to possibly sell or abandon certain mineral properties or capital assets to reduce commitments or raise cash as required. OPERATING RESULTS The Company incurred only limited gold sales in 1998. The Company expects to maintain only minimal inventory until production from its Nolan properties resume in the spring of 1999. Operating costs in 1998 were higher than the previous year. Included in operating costs for the year are mining and processing costs, reclamation costs and amortization of mineral property and development costs. The price of the gold has an impact upon the Company's results of operations. The price of gold has maintained a range of $285 to $295 per ounce, down from the 1996 level of $400 per ounce. 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 1999, or that any other permits necessary can be obtained without undue restriction Other Expenses
1998 1997 1996 ----------- ---------- ---------- Other Expenses $ 2,474,849 $4,205,381 $4,077,978 Write down of mineral properties 14,464,054 -- -- ----------- ---------- ---------- $16,938,903 $4,205,381 $4,077,978 =========== ========== ==========
During 1998, the Company evaluated its mineral properties and recorded a writedown of $14,464,054 based on this evaluation. The writedown related primarily to deferred exploration and development which was capitalized in previous years and reflects a more conservative on-going carrying value. 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 Auditors' Report F-1 - ------------------------------------------------------------------------------- Comments by Auditors for U.S. Readers on Canada - U.S. Reporting Conflict F-1 - -------------------------------------------------------------------------------- Consolidated Balance Sheets, November 30, 1998 and 1997 F-2 - -------------------------------------------------------------------------------- Consolidated Statements of Operations and Accumulated Deficit, Years Ended November 30, 1998, 1997, and 1996 F-3 - -------------------------------------------------------------------------------- Consolidated Statements of Cash Flows, Years Ended November 30, 1998, 1997 and 1996 F-4 - -------------------------------------------------------------------------------- Consolidated Statements of Changes in Share Capital, Capital Surplus, Unamortized Stock Compensation expense and Advances to Related Parties Years Ended November 30, 1998, 1997 and 1996. F-5 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements F-6 to F-15 - -------------------------------------------------------------------------------- No schedules are presented either because the required information is disclosed elsewhere in the financial statements, or the schedules are not applicable. AUDITORS' REPORT TO THE SHAREHOLDERS We have audited the consolidated balance sheets of Silverado Gold Mines Ltd. as at November 30, 1998 and 1997 and the consolidated statements of operations and accumulated deficit, changes in share capital, capital surplus, unamortized stock compensation expense and advances to related parties, and cash flows for each of the years ended November 30, 1998, 1997, and 1996. 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 in Canada. 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, 1998 and 1997 and the results of its operations and its cash flow for the years ended November 30, 1998, 1997 and 1996 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 March 16, 1999 COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE 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. Our report to the shareholders dated March 16, 1999 , is expressed in accordance with the Canadian reporting standards which do not permit a reference to such events and conditions in the auditors' report when these are adequately disclosed in the financial statements. /s/ KPMG - -------- KPMG Chartered Accountants Vancouver, Canada March 16, 1999 SILVERADO GOLD MINES LTD. F-2 CONSOLIDATED BALANCE SHEETS EXPRESSED IN U.S. DOLLARS
November 30, November 30, 1998 1997 --------------- --------------- Assets Current Assets Cash .................................................................. $ -- $ 20,914 Gold inventory ........................................................ 23,448 48,875 Accounts receivable ................................................... 3,760 8,297 Prepaid expenses paid to related parties (Note 7) ..................... -- 366,303 --------------- --------------- 27,208 444,389 Mineral Properties and Development, net of accumulated amortization (Note 2) 1,600,000 14,629,104 Buildings, Plant and Equipment (Note 3) .................................. 3,114,785 4,481,399 Less accumulated depreciation ......................................... (1,289,883) (1,385,423) --------------- --------------- 1,824,902 3,095,976 Deferred Financing Fees (net of accumulated amortization of $161,438: 1997-$124,238) .......... 24,562 61,762 --------------- --------------- $ 3,476,672 $ 18,231,231 =============== =============== Liabilities and Shareholders' Equity Current Liabilities Bank indebtedness ..................................................... $ 4,396 $ -- Accounts payable and accrued liabilities (Note 4) ..................... 904,568 597,478 Mineral claims payable (Note 2(a)) .................................... 342,000 -- Capital lease obligations (Note 9(b)) ................................. -- 81,749 Convertible debenture (Note 5) ........................................ 2,000,000 -- --------------- --------------- 3,250,964 679,227 Long Term Liabilities Capital lease obligations (Note 9(b)) ................................. -- 9,741 Convertible debenture (Note 5) ........................................ -- 2,000,000 --------------- --------------- -- 2,009,741 Shareholders' Equity Common Shares (Note 6) Authorized: 100,000,000 (1997-100,000,000) common shares Issued and outstanding:November 30, 1998 - 10,997,890 common shares ... 44,074,920 43,084,420 November 30, 1997 - 8,001,222 common shares Unamortized stock compensation expense ................................ -- (151,612) Advances to related parties secured by common shares in the company ... -- (480,236) Accumulated Deficit ................................................... (43,849,212) (26,910,309) --------------- --------------- 225,708 15,542,263 --------------- --------------- $ 3,476,672 $ 18,231,231 =============== =============== Continuing operations (Note 1(a)) Subsequent events (Notes 1 and 10) Commitments and contingencies (Notes 2 and 9) See accompanying notes to the consolidated financial statements.
SILVERADO GOLD MINES LTD. F-3 CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT EXPRESSED IN U.S. DOLLARS
Year ended Year ended Year ended November 30, November 30, November 30, 1998 1997 1996 --------------- --------------- --------------- Revenue from gold sales ................................................. $ 57,915 $ 168,924 $ 298,124 Operating costs Mining and processing costs ........................................... 232,405 164,835 394,909 Amortization of mineral properties and development .................... 43,264 -- 123,504 Reclamation expense (Note 9(d)) ....................................... 60,575 213,480 31,993 --------------- --------------- --------------- 336,244 378,315 550,406 --------------- --------------- --------------- Loss from Operations .................................................... (278,329) (209,391) (252,282) Other Expenses Accounting and audit .................................................. 69,054 93,450 69,331 Amortization of deferred financing fees ............................... 37,200 37,200 37,200 Consulting expense .................................................... 185,813 78,945 -- Corporate capital taxes ............................................... -- 21,934 (5,967) Depreciation .......................................................... 378,471 475,175 447,222 Employment contract expense ........................................... 22,049 1,099,340 1,910,060 Financing activities .................................................. -- 100,847 35,159 General exploration and development ................................... -- 75,566 13,980 Interest on long term liabilities...................................... 161,381 160,000 160,000 Legal ................................................................. 145,102 206,740 35,733 Loss on disposal of buildings, plant and equipment .................... 178,916 1,557 -- Loss (gain) on foreign exchange ....................................... (28,467) 55,335 (5,298) Management salaries ................................................... -- 65,744 263,000 Management services from related party (Note 7) ....................... 321,513 992,646 323,108 Office expenses ....................................................... 174,910 239,518 262,333 Other interest and bank charges (net) ................................. 29,228 7,356 4,908 Printing and publicity ................................................ 38,712 293,095 371,281 Receivable allowance .................................................. 363,667 -- -- Reporting and investor relations ...................................... 55,279 52,576 26,833 Transfer agent fees and mailing expenses .............................. 63,692 148,357 129,095 Write down of deferred mineral properties and development ............. 14,464,054 -- -- --------------- --------------- --------------- 16,660,574 4,205,381 4,077,978 Loss for the year ....................................................... (16,938,903) (4,414,772) (4,330,260) Accumulated deficit at beginning of the year ............................ (26,910,309) (22,495,537) (18,165,277) --------------- --------------- --------------- Accumulated deficit at end of the year .................................. $ (43,849,212) $ (26,910,309) $ (22,495,537) =============== =============== =============== Loss per share(Note 1(g)) ............................................... $ (1.89) $ (0.66) $ (0.88) =============== =============== =============== See accompanying notes to the consolidated financial statements.
SILVERADO GOLD MINES LTD. F-4 CONSOLIDATED STATEMENTS OF CASH FLOWS EXPRESSED IN U.S. DOLLARS
Year ended Year ended Year ended November 30, November 30, November 30, 1998 1997 1996 -------------- ------------- ------------- CASH PROVIDED BY (USED FOR): Operations: Loss for the year ..................................................... $ (16,938,903) $ (4,414,772) $ (4,330,260) Items not involving cash: Writedown of deferred mineral properties and development ........... 14,464,054 -- -- Employment contract expense ........................................ 22,049 1,099,340 1,910,060 Consulting services expense ........................................ 167,063 78,945 -- Depreciation ....................................................... 378,471 475,175 475,882 Amortization of deferred financing fees ............................ 37,200 37,200 37,200 Loss on disposal of buildings, plant and equipment ................. 178,916 1,557 -- Amortization of mineral properties and development ................. 43,264 -- 123,504 Changes in non-cash operating working capital: Decrease (increase) in accounts receivable ......................... 4,537 2,968 (10,255) Decrease in gold inventory ......................................... 25,427 164,129 176,115 Decrease in prepaid expenses paid to related parties ............... 366,303 113,656 -- Increase (decrease) in mineral claim payable ....................... 342,000 (179,000) (351,000) Increase (decrease) in accounts payable and accrued liabilities .... 382,090 344,555 (274,429) -------------- ------------- ------------- (527,529) (2,276,247) (2,243,183) Financing: Bank indebtedness .................................................. 4,396 -- -- Shares issued for cash ............................................. 588,800 3,453,229 7,610,000 Decrease (increase) in secured advances to related parties ......... 480,236 (480,236) (1,299,893) Decrease in loans payable secured by gold inventory ................ -- (66,511) (110,057) Decrease in capital lease obligation ............................... (91,490) (65,663) (240,619) -------------- ------------- ------------- 981,942 2,840,819 5,959,431 Investments: Mineral claims and options expenditures, net of recoveries ......... (276,127) (109,947) (571,214) Deferred exploration and development expenditures, net of recoveries (912,888) (2,289,654) (1,202,700) Proceeds from sale of equipment .................................... 718,977 -- -- Purchases of equipment ............................................. (5,289) (69,526) (172,714) -------------- ------------- ------------- (475,327) (2,469,127) (1,946,628) Increase (decrease) in cash ........................................... (20,914) (1,904,555) 1,769,620 Cash at beginning of the year ......................................... 20,914 1,925,469 155,849 -------------- ------------- ------------- Cash at end of the year ............................................... $ -- $ 20,914 $ 1,925,469 ============== ============= ============= Supplemental cash flow information not reflected in the statement of cash flows Interest paid ...................................................... $ 80,000 $ 181,436 $ 242,562 ============== ============= ============= Issue of shares for purchase of mineral property ................... $ 289,200 $ -- $ -- ============== ============= ============= Issue of shares for consulting services in lieu of payment of cash . $ 75,000 $ -- $ -- ============== ============= ============= See accompanying notes to the consolidated financial statements.
SILVERADO GOLD MINES LTD. F-5 CONSOLIDATED STATEMENTS OF CHANGES IN SHARE CAPITAL, CAPITAL SURPLUS,UNAMORTIZED STOCK COMPENSATION EXPENSE AND ADVANCES TO RELATED PARTIES EXPRESSED IN U.S. DOLLARS
Years ended November 30, 1998, 1997, and 1996 Unamortized Advances to Related Stock Parties secured by Number of Share Capital Compensation Common Shares shares Capital Surplus Expense in the Company 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: Share 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 Stock compensation cost ................................ (151,612) Amortization of stock compensation Advances to related party .............................. (480,236) 23,605,725 4,433,126 ------------ ----------- --------- ------------- -------------------- Balance as at November 30, 1997 .......................... 80,012,218 43,084,420 -- (151,612) (480,236) ------------ ----------- --------- ------------- -------------------- Year ended November 30, 1998 Share consolidation (72,010,996) Shares issued: On exercise of warrants for cash ....................... 255,000 216,200 Private placements for cash ............................ 2,446,668 372,600 Private placement for consulting services .............. 125,000 112,500 Fair value of shares issued for mineral property ....... 170,000 289,200 Amortization of stock compensation ..................... 151,612 Cash received on sale of common shares by related party. 225,448 Uncollected balance recorded as receivable allowance ... 254,788 ------------ ----------- --------- ------------- -------------------- (69,014,328) 990,500 151,612 480,236 ------------ ----------- --------- ------------- -------------------- Balance as at November 30, 1998 .......................... 10,997,890 $44,074,920 $ -- $ -- $ -- ============ =========== ========= ============= ==================== See accompanying notes to the consolidated financial statements.
SILVERADO GOLD MINES LTD. F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN U.S. DOLLARS) YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996 - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These consolidated financial statements for the years ended November 30, 1998, 1997, and 1996 are prepared in conformity with accounting principles generally accepted in the United States. (a) Continuing Operations During the year ended November 30, 1998, the Company continued to focus its efforts on the Nolan Properties. It continued its drilling program on the Ryan Lode project, and funded its exploration activities by generating $588,800 in capital through private placements and the exercise of options and warrants; $718,977 from sale of equipment, and a $400,000 option payment from Placer Dome Inc. At November 30, 1998, the Company had a working capital deficiency of $3,223,756 including a $2,000,000 convertible debenture which is due on July 2, 1999, subject to prior redemption or conversion. The Company did not make a required interest payment of $80,000 on June 30, 1998 and subsequent to year end did not make a required interest payment of $80,000 on December 31, 1998. In addition, the Company did not make $342,000 of required mineral claims and option payments for certain of its mineral properties during the year ended November 30, 1998 and therefore the Company's rights to these properties with a carrying value of $947,050 may be adversely affected as a result of this non-payment. 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. The Company plans to continue to raise capital through private placements and warrant issues. The Company also plans to complete a property option agreement for the Ester Dome Gold Project and other properties. Production is set to begin after the winter thaw in May-June and the Company expects gold sales to supplement financing activities. (b) Basis of Consolidation The consolidated financial statements include the accounts of Silverado Gold Mines 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, 1998, 1997 and 1996, 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 the costs of acquiring 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. Effective December 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121 ("FAS 121"), "Accounting for the Impairment of 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 than 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 F-7 this accounting standard did not have a material effect on the Company's consolidated operating results or financial position. During 1998, the Company evaluated its mineral properties and recorded a writedown of $14,464,054 based on this evaluation. The writedown related primarily to deferred exploration and development which was capitalized in previous years and reflects a more conservative on-going carrying value. The amounts shown for claims and options 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 claims and options relating to 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 fiscal 1998, the outstanding share capital of the Company was consolidated on a 1:10 basis. The effect of the share consolidation 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: Year to November 30, 1998 8,942,186 Year to November 30, 1997 6,699,956 Year to November 30, 1996 4,912,029 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 the 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 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 6(d). (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, 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 capital lease obligations and convertible debenture approximate their fair market value as they bear interest at rates which approximate market rates. F-8 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 Grant Mine (Burggraf) property is subject to payments of 15% of net profits until $2,000,000 has been paid and 3% of net profits thererafter. The Range Minerals #1 property is subject to payments of 15% of net profits until $1,500,000 has been paid and 2% of net profits thereafter. The Range Minerals #2 property is subject to annual payments of $50,000, 2% of net smelter returns until $20,000,000 has been paid, and 5% of net profits thereafter. The May/Barelka (St.Paul) property is 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. The Dobb's properties are subject to payments of 15% of net profits until $1,500,000 has been paid and 3% of the net profits thereafter. 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. On February 6, 1998 the Company entered into an agreement with Placer Dome US Inc. ("PDUS") which provided for PDUS to explore and develop the Company's May/Barelka and Range Minerals properties on Ester Dome. Under the agreement, PDUS was to earn a 51.5% interest by performing a minimum of $10,000,000 of work on the property and purchasing 4,000,000 common shares of the Company with an assigned value of $5,450,000 over a period of five years. During fiscal 1998, the Company received $400,000 in cash as consideration for entering into the agreement and PDUS performed approximately $1,000,000 of work on the property. On November 9, 1998, PDUS exercised its option to terminate the agreement with the Company. Ryan Lode Property, Fairbanks Mining District, Alaska ----------------------------------------------------- On December 19, 1997, the Company entered into an Option Agreement with LaTeko Resources Ltd. ("LaTeko") granting Silverado the exclusive right and option to acquire 100% of the Ryan Lode property, which is situated next to the Company's Ester Dome properties near Fairbanks, Alaska, for a total purchase price of $12,000,000. The Company issued 1,000,000 of its common shares (pre-share consolidation) with a fair value of $250,000 based on quoted market values at the time to LaTeko as consideration for granting the right and option to acquire the mineral property. In March of 1998, the Company terminated its option to purchase the property. Costs of $227,449 were incurred during 1998 on the Ryan Lode property. All previously deferred costs were written off during the 1998. 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 in 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. On November 30, 1998, the Company chose to relinquish its interest in this property. Total current costs of $124,361 were written off. 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. The Thompson's Pup property is subject to payments of 3% of net profits on 80% of production. 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 party and retained a 15% net profit interest from production to a maximum value of $5,000,000. Can-Ex was dissolved in 1997 at which time its assets passed to its parent company Kintana Resources Ltd., a related party (see Note 7), which now has the obligation for Silverado's net profit interest. F-9 French Peak Property, Omineca Mining District, British Columbia ------------------------------------------------------------------- Anselmo Holdings, a related company has 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. Property Commitments -------------------- As at November 30, 1998, minimum aggregate future cash expenditures required in the next five years to maintain the properties in good standing are as follows: Year Option Payments Work Commitment Total ---- --------------- --------------- -------- 1999 $ 140,000 $ 151,500 $291,500 2000 60,000 50,000 110,000 2001 60,000 50,000 110,000 2002 60,000 50,000 110,000 2003 60,000 50,000 110,000 (b) Claims and Options and Deferred Explorations and Development Expenditures Cumulative claims and options and deferred exploration and development expenditures are as follows:
Mineral properties and development Net Book Value November 30 Net book value Nov. 30, 1997 Year ended November 30, 1998 1998 ---------------------------- ------------------------------------------------------------- ----------- Mineral Mineral claims Exploration claims Exploration and option and and option and payments and development payments development accruals expenditures Recoveries Amortization Write-down ---------- ----------- ------------ ------------ ---------- ------------ ---------- Alaska - ---------------------------- Ester Dome Gold Project $ 315,425 $ 6,414,730 $ 299,200 $ 230,172 $(400,000) $ -- $ (6,109,527) $ 750,000 Ryan Lode Gold Project -- 477,858 250,000 227,449 -- -- (955,307) -- Marshall Dome 389,758 180,894 -- 28,555 -- -- (249,207) 350,000 Nolan Gold Project 751,268 4,863,815 60,000 588,284 -- (43,264) (5,870,103) 350,000 Hammond Property 88,650 312,294 80,000 42,598 -- -- (438,542) 85,000 Eagle Creek Royalty Interest 84,963 140,351 10,000 176 -- -- (235,490) -- Whiskey Gulch 50,000 166,469 -- 39,791 -- -- (206,260) 50,000 Chatanika -- 110,524 -- 13,837 -- -- (124,361) -- General Properties -- -- -- 1,001 -- -- (1,001) -- ---------- ----------- ------------ ----------- ---------- ------------ ------------- ---------- 1,680,064 12,666,935 699,200 1,171,863 (400,000) (43,264) (14,189,798) 1,585,000 British Columbia - ---------------------------- French Peak 20,995 261,110 6,126 1,025 -- -- (274,256) 15,000 ---------- ----------- ------------ ----------- ---------- ------------ ------------- ---------- $1,701,059 $12,928,045 $ 705,326 $ 1,172,888 $(400,000) $ (43,264) $(14,464,054) $1,600,000 ========== =========== ============ =========== ========== ============ ============= ==========
F-10 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.
Accumulated 1998 Net Cost Depreciation Book Value Grant Mine Mill Equipment $ 2,076,780 $ (799,282) $ 1,277,498 Nolan Gold Project Mining Equipment 60,757 (24,579) 36,178 Mining Equipment 591,651 (277,917) 313,734 Other Equipment, Leasehold Improvements 385,597 (188,105) 197,492 ------------ ------------- ------------ $ 3,114,785 $ (1,289,883) $ 1,824,902 ============ ============= ============ Accumulated 1997 Net Cost Depreciation Book Value Grant Mine Mill Equipment $ 2,248,780 $ (613,486) $ 1,635,294 Nolan Gold Project Mining Equipment 60,757 (19,553) 41,204 Mining Equipment 1,788,132 (602,160) 1,185,972 Other Equipment, Leasehold Improvements 383,730 (150,224) 233,506 ------------ ------------- ------------ $ 4,481,399 $ (1,385,423) $ 3,095,976 ============ ============= ============
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities consist of: 1998 1997 -------- -------- Accounts payable $561,902 $334,812 Accrued interest 146,666 66,666 Accrued reclamation expense (Note 9(d)) 196,000 196,000 -------- -------- $904,568 $597,478 ======== ======== 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 $18.57 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 twenty 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. The Company did not make required payments of $80,000 on June 30,1998 and subsequent to year end on December 31, 1998. Total interest payable at November 30, 1998, amounting to $146,666 has been recorded as a current liability. 6. SHARE CAPITAL (a) Common Shares By Special Resolution passed May 25, 1998, the Company consolidated its 85,512,218 common shares without par value into 8,551,222 common shares without par value, each 10 shares being consolidated into 1 common shares. By Special Resolution passed May 25, 1998, the Company increased its authorized capital to 100,000,000 common shares without par value. By special resolution passed on 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. The effect of the 1:10 consolidation during 1998 and the 14:13 share split during fiscal 1997 has been retroactively applied to all share capital balances disclosed in this note. (b) Director's Options Directors options for 48,461 common shares originally granted in May of 1992, exercisable at Cdn. $3.44 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, 1998, 1997, and 1996. F-11 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 have vested and are exercisable for a period of ten years from the grant date at the exercise prices stated below, being the market price of the underlying shares at the date of grant of the options. Grant Date Granted Exercised Outstanding Price ---------- ------- --------- ----------- ------ December 12, 1994 118,462 118,462 $ 8.17 December 12, 1995 10,769 10,769 $ 4.55 December 12, 1996 10,769 10,769 $ 4.92 September 25, 1997 40,000 40,000 $ 4.00 December 12, 1997 10,000 10,000 $ 2.80 ------- ---------- ----------- Totals 190,000 -- 190,000 ======= ========== =========== The weighted average remaining contractual life of the options outstanding at November 30, 1998 was 7 years (1997 - 8 years). 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 the compensation cost for these options been determined based on fair value at the grant dates, consistent with the requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation", the Company's net loss and loss per share for options granted in 1997 and 1996 would have been increased to the pro forma amounts indicated below. The net loss and loss per share for 1998 would not have been materially affected for options granted in 1998. 1997 1996 ---------- ---------- Loss for the year: As reported $4,414,772 $4,330,260 Pro forma 4,543,773 4,358,886 Loss per common share: As reported $0.66 $0.88 Pro forma 0.68 0.89 The estimated weighted average fair value of options granted during 1997 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 expected life of nine years (1996:10years). The estimate was made using the Black-Scholes Pricing Model. (c) Warrants In conjunction with the private placement of common shares the Company has issued and has outstanding at November 30, 1998, the following share purchase warrants. Eash share purchase warrant entitles the holder to acquire one common share of the Company.
Balance Issued Exercised Canceled Outstanding Exercise Expiry Nov. 30,1997 in 1998 in 1998 in 1998 Nov. 30,1998 Price Date ------------ --------- --------- --------- ------------ -------- ------ 215,385 215,385 $3.90 Mar99 38,200 38,200 2.00 Sep99 51,000 51,000 2.00 Sep99 36,000 36,000 3.00 Oct99 100,000 100,000 -- 2.80 Aug99 60,000 5,000 55,000 1.70 Sep99 250,000 250,000 -- 1.00 Mar98 250,000 250,000 2.20 Mar00 250,000 250,000 -- 1.00 Jun98 250,000 250,000 2.20 Mar00 200,000 200,000 0.25 Jun00 140,000 140,000 0.30 Aug00 216,667 216,667 0.18 Sep00 533,334 533,334 0.20 Sep00 800,000 800,000 0.20 Oct00 ------- --------- ------- ------- --------- 500,585 2,890,001 255,000 350,000 2,785,586 ======= ========= ======= ======= =========
F-12 (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, canceled and expired during the years ended November 30, 1996, 1997, and 1998 and were outstanding at these dates: Weighted Average Number of shares Exercise Price ---------------- ---------------- Outstanding at November 30, 1995 140,512 $ 4.55 Granted 2,136,615 $ 3.90 Exercised (1,943,846) $ 3.71 Expired or canceled (23,073) $ 7.15 ---------------- ---------------- Outstanding at November 30, 1996 310,208 $ 5.20 Granted 397,385 $ 1.67 Exercised (365,077) $ 1.30 Expired or canceled (279,623) $ 5.29 ---------------- ---------------- Outstanding at November 30, 1997 62,892 $ 4.83 Granted -- $ -- Exercised -- $ -- Expired or canceled (46,738) $ 4.54 ---------------- ---------------- Outstanding at November 30, 1998 16,154 $ 5.57 ---------------- ---------------- The weighted average remaining contractual life of the options outstanding at November 30, 1998 was 7 months (1997: 1 months). The estimated weighted average fair value of options granted during 1997 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 expected life of 3 months (1996: 2 months). The estimate was made using the Black-Scholes Pricing Model. (e) Other Share Transactions The Company issued the following common shares for cash by way of private placements during the year ended November 30, 1998. Issued Issue Gross Less: Fees or Net Cash in 1998 Price Proceeds Commission received on Issue --------- ----- -------- ---------- ----------------- 400,000 0.20 $ 80,000 $ $ 80,000 280,000 0.25 70,000 70,000 433,334 0.15 65,000 65,000 533,334 0.15 80,000 16,000 64,000 800,000 0.15 120,000 26,000 94,000 --------- -------- ---------- ----------------- 2,446,668 $415,000 $ 42,000 $ 373,000 ========= ======== ========== ================= During 1998, the Company issued 170,000 common shares as partial consideration to acquire the Ryan Lode mineral property and the Range Minerals #2 mineral property (note 2). The shares were recorded at a value of $289,200, which is based on the then recent quoted market value, at the time. In 1997, the Company issued 50,000 common shares with a fair value of $3.40 per share and agreed to grant options to purchase 50,000 common shares at an exercise price of $2.80 per share exercisable until September 5, 1999, to Millennium Holdings Group Ltd. ("Millennium") as partial consideration for a consulting agreement of September 1997. As at November 30, 1998, there are 50,000 (1997:nil) options outstanding. In 1997, the Company estimated the fair value of options which were granted to Millennium in 1998 using the Black-Scholes Pricing Model. This estimate assumed a risk free rate of 6%, an expected volatility of 57%, and a life of two years. The cost of this compensation was recognized over the term of the contract. F-13 In 1998, the Company issued 125,000 common shares with a fair value of $0.90 per share in exchange for consulting services. The Company has reserved 107,692 shares for issuance upon the potential conversion of a convertible debenture. 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. collectively the "Tri-Con Mining 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% for operations and cost plus 25 percent for exploration and development. Cost includes a 15 percent charge for office overhead. Services of the directors of the Tri-Con Group are charged at a rate of Cdn. $75 per hour. Services of the directors of the Tri-Con Group who are also Directors of the Company are not charged. At November 30, 1998, the Company had paid $363,667 (1997:$366,303) to the Tri-Con Group for exploration, development and administration services to be performed during fiscal 1999 on behalf of the Company. 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 balance at the Tri-Con Group's borrowing costs are shown below:
1998 1997 1996 ---------- ---------- ---------- Operations and Field Services $ 192,706 $ 277,479 $ 715,558 Exploration and Development Services 1,160,169 2,190,240 596,561 Administrative and Management Services 321,513 992,646 323,108 ---------- ---------- ---------- $1,674,388 $3,460,365 $1,635,227 ---------- ---------- ---------- Amount of total charges in excess of Tri-Con costs incurred $ 248,858 $ 395,240 $ 163,493 Excess amount charged as a percentage of actual costs incurred 17.5% 12.8% 11.1%
During fiscal 1997, the Company advanced $480,236 to the Tri-Con Group secured by that portion of the 2,119,834 common shares of the Company owned by Tri-Con which is sufficient to fully amortize the advance given the trading price of the stock. During fiscal 1998, the Tri-Con Group sold all of the 2,119,934 common shares held in the Company for net proceeds of $225,448. The Company received $225,448 from the Tri-Con Group as part payment of the $480,236 advance receivable at November 30, 1997. The remaining unpaid amount was written-off as a receivable allowance. 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% 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. F-14 8. INCOME TAXES Tax effects of temporary differences that give rise to deferred tax assets at November 30, 1998 and 1997 are as follows:
1998 1997 ------------ ------------ Net operating loss carry forward $ 5,602,000 $ 7,219,900 Valuation allowance (4,980,000) (2,040,000) ------------ ------------- Net deferred tax assets 622,000 5,179,900 Deferred tax liability Temporary differences arising from mineral (622,000) (5,179,900) properties and building, plant and equipment ------------ ------------- Net deferred tax asset $ -- $ -- ============ =============
At November 30, 1998, 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 Losses Carried Until Forward --------- -------------- 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 2013 1,050,000 -------------- $ 21,739,000 ============== Income tax expense attributable to net losses for the year ended November 30, 1998 was nil(1997:nil). The differences between the total income tax benefit from operations and the income tax from operations and the income tax expense (benefit) computed using the Federal income tax rate of 34% (1997:34%) were as follows:
1998 1997 1996 ------------ ----------- ---------- Computed "expected" tax benefit $ (357,000) $ (542,600) $(605,500) Tax loss expired during the year 1,974,900 335,600 927,200 Change in valuation allowance 2,940,000 (434,600) (321,700) Change in temporary difference during year (4,557,900) 641,600 -- ------------ ----------- ---------- Effective tax rate $ 0% $ 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: 1998 1997 ------------ ----------- Total minimum lease payments $ -- $ 98,212 Less: interest payable -- (6,722) ------------ ----------- -- 91,490 Less: current portion -- (81,749) ------------ ----------- $ -- $ 9,741 ============ =========== During the year the Company sold the mining equipment and repaid the lease payments due. F-15 (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 (1997: $4,200,000) 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 annually and the accrued liability is reduced as reclamation expenditures are made. Details of the Company's accrued liability at November 30, 1998 and 1997 are as follows: 1998 1997 ---------- ---------- Balance, beginning of year $ 196,000 $ 70,000 Cost incurred in year (60,575) (87,480) Amount expensed in year 60,575 213,480 ---------- ---------- Balance, end of year $ 196,000 $ 196,000 ========== ========== (e) Litigation A former employee of the Tri-Con Group has initiated a claim against that company for wrongful dismissal/breach of contract in the amount of $150,000. The Company has been named as a co-defendant in the suit. No provision for this litigation has been made in these financial statements as the amount of the loss, if any, is indeterminable at this time. (f) Uncertainty due to the Year 2000 Issue The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using the year 2000 dates is processed. In addition, similar problems may arise in some systems which use certain dates in 1999 to represent something other than a date. The effect of the Year 2000 Issue may be experienced before, on, or after January 1, 2000, and, if not addressed, the impact on operations and financial reporting may range from minor errors to significant systems failure which could affect an entity's ability to conduct normal business operations. It is not possible to be certain that all aspects of the Year 2000 Issue affecting the Company, including those related to the efforts of customers, suppliers or other third parties, will be fully resolved. 10. SUBSEQUENT EVENTS (a) On December 23, 1998, the Company issued 866,667 units at $0.15 per unit by way of a non-brokered placement for gross proceeds of $130,000. Each unit consists of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to acquire an additional common share at an exercise price of $0.20 for a two year period. (b) On December 12, 1998, the Company cancelled all director and employee options outstanding at November 30, 1998 and granted 3,500,000 new director and employee options to purchase one common share of the Company with an exercise price of $0.10 per common share expiring December 1, 2008. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - -------------------------------------------------------------------------------- FINANCIAL DISCLOSURE - ------------------------------ None. PART III Item 10. Directors and Executive Officers of the Registrant. - ------------------------------------------------------------ (a) (b) Identification of Directors and Executive Officers. The executive officers and directors of the Company are listed below. The directors of the Company are elected to hold office until the next annual meeting of the shareholders and until their respective successors have been elected and qualified. Executive officers of the Company are elected by the Board of Directors and hold office until their successors are elected and qualified. The current executive officers and directors of the Company are: Name Age Position - ---- --- -------- Garry L. Anselmo, B.A. (1) 55 Chairman of the Board and Chief Operating Officer since May 4, 1973; President and Chief Executive Officer from May 1, 1979 to November 4, 1994, and from March 1, 1997 to present. K. Maxwell Fleming, C.A. (1) (2) 62 Director since July 24, 1979 James F. Dixon (1) (2) 51 Director since May 6, 1988 - ------------------------------------------------------------------------------- (1) Members of Silverado's Audit Committee (2) Members of Silverado's Compensation Committee (c) Significant Employees. Not applicable to reporting registrant. (d) Family Relationships. There are no family relationships among any of the Company's officers and/or directors. (e) Business Experience of Directors and Executive Officers. Mr. Anselmo is presently the Chairman of the Board of Directors, President, Chief Executive and Chief Financial Officer of Silverado. He is also the Chairman, Chief Executive Officer and Chief Financial Officer of its wholly owned subsidiary, Silverado Gold Mines Inc. He resumed his duties as President, Chief Executive Officer, and Chief Financial Officer on March 1, 1997, after transferring those duties to J.P. Tangen from November 1, 1994, until March 1, 1997. Prior to the arrival of Mr. Tangen, he held those duties from May of 1973. Mr. Anselmo founded Tri-Con Mining Ltd., a private mining service company, in 1968, and is currently a shareholder, Director, and President of Tri-Con. He is also Chairman and a Director of Tri-Con's United States operating subsidiaries, Tri-Con Mining Inc. and Tri-Con Mining Alaska, Inc. Mr. Fleming is a Director of Silverado and a member of Silverado's Audit Committee. He serves as a Director of Silverado Gold Mines Inc., the wholly owned subsidiary of Silverado. Mr. Fleming is a Chartered Accountant. Mr. Dixon is a Director of the Company and its U.S. subsidiary. Mr. Dixon holds a Bachelor of Commerce Degree and has been engaged in the practice of law since 1973. He is a lawyer and a partner in the law firm of Shandro Dixon Edgson, Barristers and Solicitors, of Vancouver, British Columbia. (f) Involvement in Certain Legal Proceedings. During the past five years, no director or executive officer of the Company has been involved in legal proceedings of the nature required to be disclosed by this Item. (g) Promoters and Control Persons. Not applicable to reporting registrant. Compliance with Section 16 of the Securities Exchange Act. The Company's executive officers and directors are required under Section 16 of the U.S. Securities Exchange Act of 1934 to file reports of ownership and changes in ownership with the U.S. Securities and Exchange Commission. Copies of those reports must also be furnished to the Company. Based solely on a review of the copies of reports furnished to the Company and written representations that no other reports were required, the Company believes that during the fiscal year ended November 30, 1998 each of its officers and directors timely complied with all filing requirements. Item 11. Executive Compensation. - -------------------------------- (a) (b) Summary Compensation Table
Annual Long Term Compensation and Compensation Awards - ----------------------------------------------------- Name and Securities Underlying Principal Position Year $ Salary ($) Bonus ($) Other ($) Options/SAR's (#) All Other ($) - ------------------ ---- - ---------- --------- --------- ----------------- ------------- Garry L. Anselmo (1) (3) 1998 Cdn $0 $0 $0 $0 Chairman, President, 1997 Cdn $0 $0 $0 $0 CEO & CFO 1996 Cdn $0 $0 $0 107,692 $0 1995 Cdn $0 $0 $0 $0 J.P. Tangen (1) (2) 1997 Cdn $ 87,060 $0 $259,326 $0 President, CEO & CFO 1996 Cdn $ 345,768 $0 $0 $0 1995 US $ 91,244 $0 $0 200,000 $0 1995 Cdn $ 172,884 $0 $0 $0
(1) Mr. Tangen was elected to serve as the Company's President, CEO, and CFO from November 1, 1994 until March 1, 1997. Those positions have otherwise been held by Mr. Anselmo. (2) Mr. Tangen's salary was specified as $10,000 per month (U.S.), or the Canadian equivalent thereof, net of withholding and other taxes, resulting in an annual salary equal to $120,000 (U.S.) plus taxes due on that net amount. In 1995 Mr. Tangen received a portion of his salary in Canadian dollars, and a portion in U.S. dollars, which in the aggregate summed to the U.S. dollar equivalent of his contractual salary. In 1997 Mr. Tangen received $87,060 (Cdn.) in salary, and $259,326 (Cdn.) in severance (see also Item 11(h)). (3) Mr. Anselmo is employed and compensated by Tri-Con Mining Ltd., which provides management and mining exploration and development services for the Company. (c) (d) Option/SAR Grants and Exercises and Year End Values. During the fiscal year ended November 30, 1998, no stock options were granted to or exercised by any named executive officer. The following table shows the value of unexercised options held at fiscal year-end by each names executive officer. # Securities Exercise Value of Unexercised Underlying (Base) in-the-money Executive Unexercised Price Expiration Options at Officer Options ($/share) Date November 10, 1998 - ------------ ------------ --------- ----------- -------------------- G.L. Anselmo 107,692 $ 8.17 Dec.11,2004 $ 0.00 (e) (f) Long-Term Incentive Plans and Defined Benefit Plans. The Company does not have any long-term incentive plan, pension plan, or similar compensatory plan for its Executive Officers. (g) Compensation of Directors. Directors of the Company receive no fees on an annual or per meeting basis, but the Company has periodically granted to directors Options to purchase Common Shares. (h) Employment Contracts and Termination and Change in Control Arrangements. Mr. J.P. Tangen was employed as the Company's President, CEO and CFO commencing November 1, 1994, until March 1, 1997, pursuant to an employment contract providing for a salary of $10,000 per month (U.S.), net of withholdings and other taxes. Pursuant to this contract, Mr. Tangen was entitled to receive a termination payment equal to one year's salary as a result of his employment being voluntarily terminated on February 28, 1997. (i) Report on Repricing of Options/SAR's. During the fiscal year ended November 30, 1997, the company did not amend the terms of any stock options or SAR's previously awarded to any of the named executive officers. Item 12. Security Ownership of Certain Beneficial Owners and Management. - ------------------------------------------------------------------------ (a) (b) Security Ownership of Certain Beneficial Owners and Management. The following table sets forth information as of December 10, 1998, as to the beneficial ownership of shares of the Company's only outstanding class of securities, its Common Stock: by each person or group who, to the knowledge of the Company at that date, was a beneficial owner of 5% or more of the outstanding shares of Common Stock; by all directors; by each executive officer required to be named in the summary compensation table; and by all directors and executive officers as a group. The table does not include information regarding shares of Common Stock held in the names of certain depositories/clearing agencies as nominee for various brokers and individuals.
Amount and Nature Percent of Name/Address of Beneficial Owner Beneficial Ownership Outstanding Shares - ------------------------------------------------ -------------------- ------------------ Garry L. Anselmo (1) 107,867 0.9 K. Maxwell Fleming (2) 42,799 0.4 James F. Dixon (3) 64,407 0.5 All Directors and Executive Officers as a group 215,073 1.8 (three persons) Tri-Con Group 168 0.0 Suite 505, 1111 West Georgia Street, Vancouver, B.C., V6E 4M3
(1) Comprised of 168 shares owned by Tri-Con Mining Ltd., of which Garry Anselmo owns 75%; 107,692 in exercisable stock options, and 7 shares held directly by Mr. Anselmo. (2) Includes directors options for 42,691 shares. (3) Includes directors options for 48,076 shares. Item 13. Certain Relationships and Related Transactions. - -------------------------------------------------------- The Company has had related party transactions with Tri-Con Mining Ltd., Tri-Con Mining Inc., Tri-Con Mining Alaska Inc. collectively the "Tri-Con Mining 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% for operations and cost plus 25 percent for exploration and development. Cost includes a 15 percent charge for office overhead. Services of the directors of the Tri-Con Group are charged at a rate of Cdn. $75 per hour. Services of the directors of the Tri-Con Group who are also Directors of the Company are not charged. At November 30, 1998, the Company had paid $363,667 (1997:$366,303) to the Tri-Con Group for exploration, development and administration services to be performed during fiscal 1999 on behalf of the Company. 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, 1998 and 1997 Consolidated Statements of Operations and Accumulated Deficit, years ended November 30, 1998, 1997, and 1996 Consolidated Statements of Cash Flows, years ended November 30, 1998, 1997 and 1996 Consolidated Statements of Changes in Share Capital, Capital Surplus, Unamortized Stock Compensation expense and Advances to Related Parties, years ended November 30, 1998, 1997 and 1996 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 September 25, 1998 was filed by the Company on December 9, 1998, reporting information pursuant to Item 9. No financial statements were filed with this report. A Form 8-K Current Report dated October 23, 1998 was filed by the Company on December 9, 1998, reporting information pursuant to Item 9. No financial statements were filed with this report. (c) EXHIBITS None. 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 May 6, 1999 - ---------------------------------- ----------- Garry L. Anselmo Date Chairman of the Board of Directors /s/ James F. Dixon May 6, 1999 - ---------------------------------- ----------- James F. Dixon Date Director /s/ Stuart McCulloch May 6, 1999 - ---------------------------------- ----------- Stuart McCulloch Date Director SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SILVERADO GOLD MINES LTD. Date: May 6, 1999 By: /s/ G.L. Anselmo ------------------------------------- G.L. Anselmo, President, CEO, and CFO EX-27 2 FDS --
5 (Replace this text with legend, if applicable) 0000731727 Silverado Gold Mines Ltd. 12-mos Nov-30-1998 Dec-1-1998 Nov-30-1998 0 0 3,760 0 23,448 27,208 3,114,785 (1,289,883) 3,476,672 3,250,964 0 0 0 44,074,920 0 3,476,672 57,915 57,915 232,405 336,244 16,660,574 0 0 (16,938,903) 0 0 0 0 0 (16,938,903) (1.89) 0
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