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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from - to -
Commission File Number 1-9025
- ------------------------------------------------------------------------------
VISTA GOLD CORP.
(Exact Name of Registrant as Specified in its Charter)
Continued under the laws of the None
Yukon Territory (IRS Employer Identification
(State or other Jurisdiction of Number)
Incorporation or Organization)
Suite 3000
370 Seventeenth Street
Denver, Colorado 80202
(Address of Principal Executive Offices) (Zip Code)
(303) 629-2450
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
- ------------------------------------------------------------------------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common shares without par value American Stock Exchange
The Toronto Stock Exchange
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS); AND (2) HAS BEEN SUBJECT TO
THE FILING REQUIREMENTS FOR THE PAST 90 DAYS: Yes /X/ No / /
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 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/
AGGREGATE MARKET VALUE OF OUTSTANDING COMMON SHARES HELD BY NON-AFFILIATES:
As of March 24, 1999, the aggregate market value of outstanding Common Shares
of the registrant held by non-affiliates was approximately $15,485,880.
OUTSTANDING COMMON SHARES:
As of March 24, 1999, 90,715,040 Common Shares of the registrant were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
To the extent herein specifically referenced in Parts III and IV, the
Management Information and Proxy Circular for the registrant's 1999 Annual
General Meeting. See Parts III and IV.
TABLE OF CONTENTS
GLOSSARY . . . . . . . . . . . . . . . . . . 1
CURRENCY . . . . . . . . . . . . . . . . . . 3
METRIC CONVERSION TABLE. . . . . . . . . . . 3
UNCERTAINTY OF FORWARD-LOOKING
STATEMENTS . . . . . . . . . . . . . . . . 3
PART I
ITEM 1. BUSINESS . . . . . . . . . . . . . . 4
Overview . . . . . . . . . . . . . . . . 4
Segmented Financial Information. . . . . 5
Corporate Organization Chart . . . . . . 5
Significant Developments in 1998 . . . . 5
Refining and Marketing . . . . . . . . . 7
Exploration and Business Development . . 8
Property Interests and Mining Claims . . 9
Reclamation. . . . . . . . . . . . . . . 9
Government Regulation. . . . . . . . . .10
Environmental Regulation . . . . . . . .10
Competition. . . . . . . . . . . . . . .10
Employees. . . . . . . . . . . . . . . .11
Risk Factors . . . . . . . . . . . . . .11
ITEM 2. PROPERTIES . . . . . . . . . . . . .13
Operations . . . . . . . . . . . . . . .13
Hycroft Mine . . . . . . . . . . . . . .13
Amayapampa and Capa Circa Properties . .21
Exploration Properties . . . . . . . . .30
1998 Exploration Expenditures. . . . . .33
1999 Exploration Plan. . . . . . . . . .33
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . .33
ITEM 4. SUBMISSION OF MATTERS TO
VOTE OF SECURITY HOLDERS . . . . . . . . .34
PART II
ITEM 5. MARKET FOR REGISTRANT'S
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS. . . . . . . . . . . .34
Price Range of Common Shares . . . . . .34
Dividends. . . . . . . . . . . . . . . .34
Exchange Controls. . . . . . . . . . . .34
Certain Canadian Income Tax
Considerations for Non-Residents
of Canada . . . . . . . . . . . . .35
ITEM 6. SELECTED FINANCIAL DATA. . . . . . .36
Selected Financial Data. . . . . . . . .36
United States$/Canadian$
Exchange Rates . . . . . . . . . . . .37
ITEM 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . .38
Introduction . . . . . . . . . . . . . .38
Results of Operations. . . . . . . . . .38
Outlook. . . . . . . . . . . . . . . . .43
ITEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES
ABOUT MARKET RISK. . . . . . . . . . . . .44
Commodity Price Risk . . . . . . . . . .44
Interest Rate Risk . . . . . . . . . . .45
Foreign Currency Exchange Rate Risk. . .45
ITEM 8. CONSOLIDATED FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA. . . . .46
Report of Independent Accountants. . . .46
Consolidated Financial Statements. . . .47
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . .51
ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.. . . . . . . . .68
PART III
ITEM 10. DIRECTORS AND OFFICERS
OF REGISTRANT. . . . . . . . . . . . . . .68
Directors. . . . . . . . . . . . . . . .68
Executive Officers . . . . . . . . . . .69
Executive and Audit Committees . . . . .70
ITEM 11. COMPENSATION OF
DIRECTORS AND OFFICERS . . . . . . . . . .70
ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.. . . . . . . . . . . . . . . .71
ITEM 13. CERTAIN RELATIONSHIP AND
RELATED TRANSACTIONS . . . . . . . . . . .71
PART IV
ITEM 14. EXHIBITS, FINANCIAL
STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K. . . . . . . . . . . .72
Documents Filed as Part of Report. . . .72
Reports on Form 8-K. . . . . . . . . . .76
SUPPLEMENTAL INFORMATION . . . . . . . . . .76
SIGNATURES . . . . . . . . . . . . . . . . .77
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GLOSSARY
"ADIT" means a horizontal or nearly horizontal passage driven from the
surface for the working or unwatering of a mine.
"AMALGAMATION" means the amalgamation of Granges and Da Capo effective on
November 1, 1996.
"ASSAY" means to test ores or minerals by chemical or other methods for the
purpose of determining the amount of valuable metals contained.
"BRECCIA" means rock consisting of fragments, more or less angular, in a
matrix of finer-grained material or of cementing material.
"CLAIM" means a mining title giving its holder the right to prospect, explore
for and exploit minerals within a defined area.
"COMMON SHARES" means common shares without par value of Vista Gold.
"CORPORATION" means the consolidated group consisting of Vista Gold Corp. and
its subsidiaries Hycroft Resources & Development, Inc., Hycroft Lewis Mine,
Inc., Vista Gold Holdings Inc., Vista Gold U.S. Inc., Granges Inc., Vista
Gold (Antigua) Corp., Sociedad Industrial Yamin Limitada and Mineral Ridge
Resources Inc.
"CUT-OFF GRADE" means the minimum grade of ore used to establish reserves.
"DA CAPO" means Da Capo Resources Ltd., a predecessor of Vista Gold.
"DEPOSIT" means an informal term for an accumulation of mineral ores.
"DIAMOND DRILL" means a rotary type of rock drill that cuts a core of rock
and is recovered in long cylindrical sections, two centimetres or more in
diameter.
"DOR" means unrefined gold and silver bullion consisting of approximately 90%
precious metals which will be further refined to almost pure metal.
"FLOTATION" means a process whereby value minerals are separated from waste
by attaching them to air bubbles in a pulp by the use of small amounts of
chemicals.
"GRANGES" means Granges Inc., a predecessor of Vista Gold.
"HEAP LEACH" means a gold extraction method that percolates a cyanide
solution through crushed ore heaped on an impervious pad or base.
"HYCROFT INC." means Hycroft Resources & Development, Inc., an indirect
wholly-owned subsidiary of Vista Gold.
"HYCROFT LEWIS" means Hycroft Lewis Mine, Inc., an indirect wholly-owned
subsidiary of Vista Gold.
"MERRILL-CROWE" means a process for recovering gold from solution by
precipitation with zinc dust.
"MINERALIZATION" means material containing valuable minerals.
"MINERAL RIDGE INC." means Mineral Ridge Resources Inc., an indirect
wholly-owned subsidiary of Vista Gold.
"MONTREAL TRUST" means Vista Gold's registrar and transfer agent, Montreal
Trust Company of Canada.
"ORE" means material containing valuable minerals that can be economically
extracted.
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"OXIDE RESERVE" or "OXIDE RESOURCE" means mineralized rock in which some of
the original minerals have been oxidized. Oxidation tends to make the ore
more porous and permits a more complete permeation of cyanide solutions so
that minute particles of gold in the interior of the minerals will be more
readily dissolved.
"PROBABLE RESERVES" means reserves for which quantity and grade and/or
quality are computed from information similar to that used for proven
reserves, but the sites for inspection, sampling and measurement are farther
apart or are otherwise less adequately spaced. The degree of assurance,
although lower than that for proven reserves, is high enough to assume
continuity between points of observation.
"PROVEN RESERVES" means reserves for which (a) quantity is computed from
dimensions revealed in outcrops, trenches, workings or drill holes; grade
and/or quality are computed from the results of detailed sampling and (b) the
sites for inspection, sampling and measurement are spaced so closely and the
geologic character is so well defined that size, shape, depth, and mineral
content of reserves are well-established.
"RECOVERY" means that portion of the metal contained in the ore that is
successfully extracted by processing, expressed as a percentage.
"RESERVES" or "ORE RESERVES" mean that part of a mineral deposit which could
be economically and legally extracted or produced at the time of the reserve
determination.
"RESOURCE" or "MINERAL RESOURCE" means a deposit or concentration of minerals
for which there is sampling information and geologic understanding for an
estimate to be made of the contained minerals.
"RUN-OF-MINE" refers to ore of a size that can be mined without further
crushing.
"SAMPLING" means selecting a fractional, but representative, part of a
mineral deposit for analysis.
"STOPE" means an underground excavation that is made by removing ore from the
surrounding rock.
"STRIKE", when used as a noun, means the direction, course or bearing of a
vein or rock formation measured on a level surface and, when used as a verb,
means to take such direction, course or bearing.
"STRIKE LENGTH" means the longest horizontal dimension of an ore body or zone
of mineralization.
"STRIPPING RATIO" means the ratio between waste and ore in an open pit mine.
"SULFIDE" means a compound of sulfur and some other element.
"TAILINGS" means material rejected from a mill after most of the valuable
minerals have been extracted.
"TRENCHING" means prospecting in which subsurface strata are exposed by
digging pits across the strike of a lode.
"VEIN" means a fissure, fault or crack in a rock filled by minerals that have
travelled upwards from some deep source.
"VISTA GOLD" means Vista Gold Corp.
"VOLCANICLASTIC" means derived by ejection of volcanic material from a
volcanic vent.
"WASTE" means rock lacking sufficient grade and/or other characteristics of
ore.
"YAMIN" means Sociedad Industrial Yamin Limitada, a direct wholly-owned
subsidiary of Vista Gold.
"ZAMORA" means Zamora Gold Corp.
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CURRENCY
Unless otherwise specified, all dollar amounts in this report are expressed
in United States dollars.
The exchange rate at the end of each of the five years to December 31, 1998,
and the average, the high and the low rates of exchange for each year in that
five year period, are set forth in "Item 6. Selected Financial Data - United
States$/Canadian$ Exchange Rates". These exchange rates are expressed as the
amount of United States funds equivalent to one Canadian dollar, being the
noon buying rates in New York City for cable transfers in Canadian dollars,
as certified for customs purposes by the Federal Reserve Bank of New York.
On March 24, 1999, this noon buying rate was $1.5040 (Cdn.$1.00 equals
U.S.$0.6649).
METRIC CONVERSION TABLE
TO CONVERT IMPERIAL MEASUREMENT UNITS TO METRIC MEASUREMENT UNITS MULTIPLY BY
Acres................................ Hectares................... 0.4047
Feet................................. Metres..................... 0.3048
Miles................................ Kilometres................. 1.6093
Tons (short)......................... Tonnes..................... 0.9071
Gallons.............................. Litres..................... 3.7850
Ounces (troy)........................ Grams...................... 31.103
Ounces (troy) per ton (short)........ Grams per tonne............ 34.286
UNCERTAINTY OF FORWARD-LOOKING STATEMENTS
This document, including any documents that are incorporated by reference as
set forth on the face page under "Documents incorporated by reference",
contains forwarding-looking statements concerning, among other things,
projected annual gold production, mineral resources, proven or probable
reserves and cash operating costs. Such statements are typically punctuated
by words or phrases such as "anticipates", "estimates", "projects",
"foresees", "management believes", "believes" and words or phrases of similar
import. Such statements are subject to certain risks, uncertainties or
assumptions. If one or more of these risks or uncertainties materialize, or
if underlying assumptions prove incorrect, actual results may vary materially
from those anticipated, estimated or projected. Important factors that could
cause actual results to differ materially from those in such forward-looking
statements are identified in this document under "Item 1. Business - Risk
Factors". Vista Gold assumes no obligation to update these forward-looking
statements to reflect actual results, changes in assumptions or changes in
other factors affecting such statements.
-3-
PART I
ITEM 1. BUSINESS.
OVERVIEW
The Corporation is engaged, directly and through joint ventures, in the
exploration for and the acquisition, development and operation of mineral
properties in North and South America. Since 1971, the Corporation and its
predecessor companies have held participating interests in seven mines, four
of which were discovered by the Corporation. The Corporation has also
operated five of the seven mines.
During 1998, the Corporation's primary mining operation and principal source
of earnings was the Hycroft mine (formerly known as the Crofoot/Lewis mine)
in Nevada, U.S.A. which produces gold and by-product silver. See "Item 2.
Properties - Hycroft Mine". In 1998, the Corporation acquired the Mineral
Ridge mine, a gold property also located in Nevada. See "Item 2. Properties -
Mineral Ridge Mine". The Corporation owns the Amayapampa and Capa Circa gold
properties in Bolivia for which a feasibility study was completed in 1997.
See "Item 2. Properties - Amayapampa and Capa Circa Properties". The
Corporation has approximately 12 additional mineral properties in North and
South America covering approximately 123,500 acres (50,000 hectares) in
various stages of evaluation. Vista Gold owns a 26.5% equity interest in
Zamora Gold Corp., a Canadian mineral exploration company with interests in
mineral concessions in southern Ecuador. See "Item 2. Properties -
Exploration Properties - Ecuador". The Corporation has approximately 427
full-time permanent employees.
The Corporation derives all of its current revenues from the sale of gold
extracted from the Hycroft mine and the Mineral Ridge mine. In fiscal 1996,
1997 and 1998, revenues from sales of gold were $35 million, $40 million and
$37 million, respectively.
Vista Gold was originally incorporated on November 28, 1983 under the name
"Granges Exploration Ltd.". In November 1983, Granges Exploration Ltd.
acquired all the mining interests of Granges AB in Canada. On June 28, 1985,
Granges Exploration Ltd. and Pecos Resources Ltd. amalgamated under the name
"Granges Exploration Ltd." and on June 9, 1989, Granges Exploration Ltd.
changed its name to "Granges Inc.". On May 1, 1995, Granges and Hycroft
Resources & Development Corporation were amalgamated under the name "Granges
Inc.". Effective November 1, 1996, Granges and Da Capo amalgamated under the
name "Vista Gold Corp.". Effective December 19, 1997, Vista Gold was
continued from British Columbia to the Yukon Territory, Canada under the
BUSINESS CORPORATIONS ACT (Yukon Territory).
The current addresses, telephone and facsimile numbers of the offices of
Vista Gold are:
EXECUTIVE OFFICE REGISTERED AND RECORDS OFFICE
Suite 3000 - 370 Seventeenth Street 200 - 204 Lambert Street
Denver, Colorado, USA Whitehorse, Yukon Territory, Canada
80202 Y1A 3T2
Telephone: (303) 629-2450 Telephone: (867) 667-7600
Facsimile: (303) 629-2499 Facsimile: (867) 667-7885
-4-
SEGMENTED FINANCIAL INFORMATION
The Corporation operates in the mining industry in Canada, the United States
and Latin America. For information on the Corporation's sales, earnings from
operations and identifiable assets by geographic area, see note 11 to the
consolidated financial statements for the year ended December 31, 1998 under
"Item 8. Consolidated Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements".
CORPORATE ORGANIZATION CHART
The name, place of incorporation, continuance or organization, and percent of
voting securities owned or controlled by Vista Gold as of December 31, 1998
for each subsidiary of Vista Gold is set out below.
[CHART]
SIGNIFICANT DEVELOPMENTS IN 1998
ACQUISITION OF MINERAL RIDGE MINE
On October 21, 1998, the Corporation acquired the Mineral Ridge mine through
the purchase of all of the shares of Mineral Ridge Resources Inc. from
Cornucopia Resources Ltd. in consideration for 1,562,000 Common Shares of
Vista Gold with an aggregate value of $250,000 and Vista Gold subscribing on
a private placement basis for 2,777,777 common shares of Cornucopia with an
aggregate value of $250,000. At December 31, 1998, proven and probable
reserves at the Mineral Ridge mine were estimated at 4 million tons at a
grade of 0.06 ounces per ton containing 243,000 ounces of gold. Prior to the
acquisition of the Mineral Ridge mine by the Corporation, the mine had been
shut down since December 1997. Gold production for 1999 is estimated to be
between 40,000 to 45,000 ounces.
HYCROFT MINE
In 1998, the Hycroft mine produced 112,685 ounces of gold and 235,636 ounces
of silver. The Corporation had previously announced that mining activities
would be suspended in May 1998, but
-5-
mining activities were extended until December 1998 as a result of higher
than expected grades at the Brimstone pit. Mining activities were reduced and
subsequently suspended in December 1998. Production of gold will continue
from ore stockpiled on the heaps leach pads during previous years. Gold
production for 1999 is estimated to be approximately 25,000 ounces. In
December, Vista Gold accepted an offer to sell four of the eight remaining
150-ton haul trucks at the Hycroft mine for $2.2 million.
ZAMORA GOLD CORP.
Effective July 8, 1998, Zamora Gold Corp., a corporation in which Vista Gold
is a significant shareholder, completed the acquisition of various property
interests in Ecuador from Compania Minera Gribipe S.A., an Ecuadorian mineral
exploration company. As a condition of the transaction, Zamora issued 39.5
million common shares to Gribipe for the acquisition of the property interest
and an additional 7.6 million common shares to Vista Gold in settlement of
debts owed to Vista Gold by Zamora. As a result of these transactions, Vista
Gold's ownership of Zamora was reduced from 48.7% to 26.5%.
EXPLORATION
In 1998, exploration was curtailed due to lack of sufficient funds to operate
a program. Nevertheless, Vista Gold was able to compile data from ongoing
projects to further some of its goals. Vista Gold also conducted numerous
exploration reviews and reserve audits for acquisition and development
opportunities.
The Capa Circa project in Bolivia underwent a sampling and close-spaced
resampling program of underground workings, finished in December 1998.
Underground workings were resampled at an average sparing of approximately
one metre (three feet) and compared to earlier five metre (16 foot) samples.
In addition, the sampling program encountered new mineralization in the lower
workings of the Capa Circa mine.
The Capa Circa program established the existence of five gold bearing vein
sets that continue through the lowest levels and sublevels of the mine. A
resource has been calculated at 179,600 tonnes of material containing 46,021
ounces of gold, with an average grade of eight grams per tonne (0.23 ounces
per ton). The resource includes a dip extent of 100 metres (328 feet),
however further drilling or underground exploration may extend both the
strike and dip of these veins.
At the newly acquired Mineral Ridge project, the Corporation drilled 30
reverse-circulation drill holes. The program consisted of 4,750 feet (1,448
metres) of drilling. Mineralization was encountered at the Blue Lite zone,
extending known mineralization 250 feet (76 metres) to the south. In the Mary
Pit area, 13 of 23 holes intersected mineralization above the cutoff grade.
These holes were drilled around the margins of the Mary Pit to increase
reserves and to attempt to reduce the stripping ratio in critical areas.
Further drilling and analysis in 1999 will complete the program.
Joint venture-funded exploration totalled $290,000 on two properties located
in Canada and one located in Bolivia. Falconbridge Limited performed initial
drill testing on the Manville project. Phelps Dodge Corp. performed initial
drill testing on the Isle project. Broken Hill Proprietary Company Limited
("BHP") performed wide spaced drilling at the Iroco project in Bolivia. BHP
terminated its option to explore the Iroco project in Bolivia.
-6-
The Blackwater-Davidson joint venture in British Columbia Kennecott Canada
Exploration Inc. was terminated, as well as the Dave Option in British
Columbia.
In 1998, exploration by Zamora was focused on developing gold reserves at the
formerly producing, Campanillas mine. Also, reconnaissance exploration was
carried out on the Campanillas mine and Nambija I concessions.
REFINING AND MARKETING
The Hycroft mine produces dore which is processed by Metalor USA Refining
Corporation in North Attleboro, Massachusetts. Gold and silver can be sold on
numerous markets throughout the world, and the market price is readily
ascertainable. Alternate refiners for silver and gold produced from the
Hycroft mine are available if necessary. As a result of the large number of
available gold and silver purchasers, the Corporation is not dependent upon
the sale to any one customer of either its gold or silver.
GOLD AND SILVER SALES
The profitability of gold and silver mining is directly related to the market
price of the metal compared with the cost of production. The following is a
brief description of factors affecting, and historical trends in, the market
prices of gold and silver, which account for most of the Corporation's
revenue. A description of the Corporation's hedging and forward sales
commitments also follows.
Gold prices fluctuate widely and are affected by numerous factors, including
expectations with respect to the rate of inflation, the market value of
various currencies (specifically, the United States dollar relative to other
currencies), interest rates, global and regional political and economic
circumstances and governmental policies with respect to gold holdings by a
nation or its citizens.
The demand for and supply of gold affect gold prices but not necessarily in
the same manner as supply and demand affect the prices of other commodities.
The supply of gold consists of a combination of new mine production and
existing stocks of bullion and fabricated gold held by governments, public
and private financial institutions, industrial organizations and private
individuals.
The price of silver, while related somewhat to the price of and affected to
some extent by the same factors as gold, is more subject to normal supply and
demand factors. Silver has a wide range of industrial uses on the demand side
and is subject to both mine production and substantial secondary supply from
scrap and dishoarding on the supply side. Silver inventories held by metal
exchanges remained high during the 1980s and 1990s and lower industrial and
consumer demand and relatively high interest rates continued to depress the
price of silver during much of that period.
The following table sets out the annual high and low gold prices per troy
ounce in the London bullion market in United States dollars for the years
indicated:
HIGH LOW
---- ----
1998 $313 $273
1997 367 283
1996 415 367
1995 396 372
1994 396 370
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On December 30, 1998, the afternoon fixing price of gold on the London
bullion market was $287.80 per ounce.
The following table sets out the annual high and low silver price per ounce
(Handy & Harman New York Prices) in United States dollars for the years
indicated:
HIGH LOW
----- -----
1998 $7.31 $4.72
1997 6.21 4.18
1996 5.79 4.67
1995 6.01 4.36
1994 5.80 4.63
On December 31, 1998, the Handy & Harman price for silver was $5.05 per ounce.
HEDGING AND METAL SALES COMMITMENTS
The Corporation may from time to time protect against falling gold prices
through forward sales of future production. Under this hedging process, the
sale price of gold to be delivered at a future date is fixed at the time the
forward sale is made, thus eliminating the effect of any future gold price
fluctuations. Revenue from these forward sales is recognized when the gold is
due to be delivered. At December 31, 1998, the Corporation had forward sales
commitments covering approximately 100,000 ounces of gold at an average price
of $330 with various expiration dates up to December 1999. Vista Gold's Board
of Directors regularly reviews the Corporation's forward sales arrangements.
The level of future forward sales will depend in part upon the Corporation's
assessment of gold market conditions at the relevant time.
EXPLORATION AND BUSINESS DEVELOPMENT
The Corporation's exploration and business development activities are focused
on gold. In the United States, the Corporation has exploration projects at
the Hycroft mine and the Mineral Ridge mine located in Nevada. In Bolivia,
the Amayapampa properties represent both a development and an exploration
project. The Capa Circa, Copacabana and Iroco properties in Bolivia represent
exploration targets. In Ecuador, the exploration program in the Nambija gold
district primarily on the Mina Real and Comcumay properties will be continued
by Zamora, which is 26.5% owned by Vista Gold.
The Corporation's exploration activities are headquartered in Denver,
Colorado, with one district exploration office in La Paz, Bolivia. The
exploration department has a permanent staff of two geologists. Consultants
and contract personnel are used for specific projects and tasks.
The 1998 exploration program was focused on the Capa Circa, Mineral Ridge and
Iroco properties.
Early-stage exploration expenditures of $185,000 were carried out by
Falconbridge Limited and Phelps Dodge Corp. on the Corporation's Manville and
Isle Projects in Canada. A limited amount of exploration was carried out in
Ecuador by Zamora.
During 1999, a total of $0.5 million is expected to be spent on exploration.
Of the $0.5 million, it is expected that $0.2 million will be spent in Nevada
at the Hycroft mine, $0.2 million will be spent on the Mineral Ridge mine and
$0.1 million will be spent in Latin America. See "Item 2. Properties - 1999
-8-
Exploration Plan". Actual expenditures will vary because of the acquisition
of new properties, the results of planned exploration activities and the
availability of funds to complete planned and additional exploration and
development activities.
PROPERTY INTERESTS AND MINING CLAIMS
In the United States, most of the Corporation's exploration activities are
conducted in the state of Nevada. Mineral interests may be owned in Nevada by
(i) the United States, (ii) the state of Nevada, or (iii) private parties.
Where prospective mineral properties are owned by private parties or by the
state, some type of property acquisition agreement is necessary in order for
the Corporation to explore or develop such property. Generally, these
agreements take the form of long term mineral leases under which the
Corporation acquires the right to explore and develop the property in
exchange for periodic cash payments during the exploration and development
phase and a royalty, usually expressed as a percentage of gross production or
net profits derived from the leased properties if and when mines on the
properties are brought into production. Other forms of acquisition agreements
are exploration agreements coupled with options to purchase and joint venture
agreements. Where prospective mineral properties are held by the United
States, mineral rights may be acquired through the location of unpatented
mineral claims upon unappropriated federal land. If the statutes and
regulations for the location of a mining claim are complied with, the locator
obtains a valid possessory right to develop and produce minerals from the
claim. The right can be freely transferred and, provided that the locator is
able to prove the discovery of locatable minerals on the claims, is protected
against appropriation by the government without just compensation. The claim
locator also acquires the right to obtain a patent or fee title to his claim
from the federal government upon compliance with certain additional
procedures.
Mining claims are subject to the same risk of defective title that is common
to all real property interests. Additionally, mining claims are
self-initiated and self-maintained and therefore, possess some unique
vulnerabilities not associated with other types of property interests. It is
impossible to ascertain the validity of unpatented mining claims solely from
an examination of the public real estate records and, therefore, it can be
difficult or impossible to confirm that all of the requisite steps have been
followed for location and maintenance of a claim. If the validity of a
patented mining claim is challenged by the Bureau of Land Management or
Forest Service on the grounds that mineralization has not been demonstrated,
the claimant has the burden of proving the present economic feasibility of
mining minerals located thereon. Such a challenge might be raised when a
patent application is submitted or when the government seeks to include the
land in an area to be dedicated to another use.
RECLAMATION
Although reclamation is conducted concurrently with mining whenever feasible,
the Corporation generally is required to mitigate long-term environmental
impacts by stabilizing, contouring, resloping, and revegetating various
portions of a site once mining and mineral processing operations are
completed. These reclamation efforts are conducted in accordance with
detailed plans which have been reviewed and approved by the appropriate
regulatory agencies.
-9-
The reclamation and closure costs for the Corporation's mines are estimated
by management as follows:
Hycroft mine(1)......................................... $5.4 million
------------
Mineral Ridge mine(2).................................... $1.8 million
------------
------------
Total Estimated Costs.................................... $7.2 million
------------
------------
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(1) As reported in the Corporation's annual report on Form 20-F for 1994, an
amended Crofoot/Lewis Mine Reclamation Plan that included the new Brimstone
deposit was submitted to the Nevada Bureau of Land Management (the "BLM")
in March 1994. In April 1995, the BLM approved the plan and a surety bond
in the amount of $5.1 million was posted to secure reclamation obligations
under the plan.
(2) In September 1996, the BLM approved the Mineral Ridge mine plan of
operations and surety bond in the amount of $1.6 million. Cash collateral
in the amount of $0.9 million has been posted as security for the surety
bond.
These costs are charged to earnings over the life of the mine and the
provision to date is $6.4 million.
GOVERNMENT REGULATION
Mining operations and exploration activities are subject to various national,
state, provincial and local laws and regulations in the United States,
Bolivia, Canada and other jurisdictions, which govern prospecting,
development, mining, production, exports, taxes, labour standards,
occupational health, waste disposal, protection of the environment, mine
safety, hazardous substances and other matters. The Corporation has obtained
or has pending applications for those licences, permits or other
authorizations currently required to conduct its operations. The Corporation
believes that it is complying in all material respects with applicable
mining, health, safety and environmental statutes and the regulations passed
thereunder in the United States, Canada, Bolivia and the other jurisdictions
in which the Corporation operates. There are no current orders or directions
with respect to the foregoing laws and regulations.
ENVIRONMENTAL REGULATION
The Corporation's mining operations and exploration activities are subject to
various federal, state and local laws and regulations governing protection of
the environment. These laws are continually changing and, as a general
matter, are becoming more restrictive. The Corporation's policy is to conduct
business in a way that safeguards public health and the environment. The
Corporation believes that its operations are conducted in material compliance
with applicable laws and regulations.
Changes to current local, state or federal laws and regulations in the
jurisdictions where the Corporation operates could require additional capital
expenditures and increase operating and/or reclamation costs. Although the
Corporation is unable to predict what additional legislation, if any, might
be proposed or enacted, additional regulatory requirements could render
certain mining operations uneconomic.
During 1998, there were no material environmental incidents or non-compliance
with any applicable environmental regulations.
COMPETITION
The Corporation competes with other mining companies in connection with the
acquisition of gold and other precious metals properties. There is
significant and increasing competition for the limited number of gold
acquisition opportunities, some of which is with other companies having
substantially greater financial resources than the Corporation. As a result,
the Corporation may eventually be unable to
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acquire attractive gold mining properties. The Corporation believes no single
company has sufficient market power to affect the price or supply of gold in
the world market.
EMPLOYEES
As at December 31, 1998, the Corporation had approximately 427 permanent
full-time employees, of which 43 were employed at the Hycroft mine site, 75
were employed at the Mineral Ridge mine site, 299 were employed at the
Amayapampa and Capa Circa properties, two were employed in exploration
activities in Denver, Colorado and Vancouver, British Columbia, and eight
were employed at Vista Gold's executive office (other than in exploration
activities). 268 of the Corporation's employees are represented by a labour
union in Bolivia. Neither the Hycroft mine nor the Mineral Ridge mine have
ever experienced a loss of production due to work stoppages. The Corporation
considers its relations with its employees to be satisfactory.
RISK FACTORS
FLUCTUATING PRICES
The Corporation's revenues are expected to be, in large part, derived from
the mining and sale of gold and other precious metals or interests related
thereto. The price of those commodities has fluctuated widely, particularly
in recent years, and is affected by numerous factors beyond the control of
the Corporation, including international, economic and political trends,
expectations of inflation, currency exchange fluctuations, central bank
activities, interest rates, global or regional consumption patterns (such as
the development of gold coin programs), speculative activities and increased
production due to new mine developments and improved mining and production
methods. The effect of these factors on the price of precious metals, and
therefore the economic viability of any of the Corporation's projects, cannot
accurately be predicted.
EXPLORATION AND DEVELOPMENT
All of the mineral properties which the Corporation owns, other than the
Hycroft mine and Mineral Ridge mine, are in the exploration and development
stages. Mineral exploration and development involves a high degree of risk
and few properties which are explored are ultimately developed into producing
mines. There is no assurance that the Corporation's mineral exploration and
development activities will result in any discoveries of commercial bodies of
ore. The long-term profitability of the Corporation's operations will be in
part directly related to the cost and success of its exploration programs,
which may be affected by a number of factors beyond the control of the
Corporation.
Substantial expenditures are required to establish ore reserves through
drilling and analysis, to develop metallurgical processes to extract metal
from the ore and, in the case of new properties, to develop the mining and
processing facilities and infrastructure at any site chosen for mining.
Although substantial benefits may be derived from the discovery of a major
mineralized deposit, no assurance can be given that minerals will be
discovered in sufficient quantities to justify commercial operations or that
the funds required for development can be obtained on a timely basis.
OPERATING HAZARDS AND RISKS
Mineral exploration involves many risks, which even a combination of
experience, knowledge and careful evaluation may not be able to overcome.
Operations in which the Corporation has direct or indirect interests will be
subject to all the hazards and risks normally incidental to exploration,
-11-
development and production of gold and other metals, any of which could
result in work stoppages, damage to property and possible environmental
damage. Although the Corporation has obtained liability insurance in an
amount which they consider adequate, the nature of these risks is such that
liabilities might exceed policy limits, the liabilities and hazards might not
be insurable, or the Corporation might elect not to insure itself against
such liabilities due to high premium costs or other reasons, in which event
the Corporation could incur significant costs that could have a materially
adverse effect upon their financial condition.
MINORITY INTEREST IN PROPERTIES
Third parties hold minority interests in certain of the Corporation's
properties. Under Bolivian law, a minority interest in a mining concession is
an undivided interest in that concession and the holder of such a minority
interest may take action to restrict all exploration and development of the
mining concessions by the holder of the majority interest if such exploration
and development is conducted without the minority owner's permission.
Furthermore, if the majority and minority parties wish to separate their
interests, but are unable to agree as to the method of division or purchase
of the property, the parties must file a request for division before a
Bolivian civil court.
CALCULATION OF RESERVES AND GOLD RECOVERY
There is a degree of uncertainty attributable to the calculation of reserves
and corresponding grades being mined or dedicated to future production. Until
reserves are actually mined and processed, the quantity of ore and grades
must be considered as an estimate only. In addition, the quantity of reserves
and ore may vary depending on metal prices. Any material change in the
quantity of reserves, mineralization, grade or stripping ratio may affect the
economic viability of the Corporation's properties. In addition, there can be
no assurance that gold recoveries or other metal recoveries in small scale
laboratory tests will be duplicated in larger scale tests under on-site
conditions or during production.
ENVIRONMENTAL FACTORS
All phases of the Corporation's operations are subject to environmental
regulation. Environmental legislation is evolving in a manner which will
require stricter standards and enforcement, increased fines and penalties for
non-compliance, more stringent environmental assessments of proposed projects
and a heightened degree of responsibility for companies and their officers,
directors and employees. There is no assurance that future changes in
environmental regulation, if any, will not adversely affect the Corporation's
operations.
COMPETITION AND AGREEMENTS WITH OTHER PARTIES
The mining industry is intensely competitive in all of its phases, and the
Corporation competes with many companies possessing greater financial
resources and technical facilities than themselves. Competition in the mining
business could adversely affect the Corporation's ability to acquire suitable
producing properties or prospects for mineral exploration in the future.
CONFLICTS OF INTEREST
Certain directors of the Corporation are officers and/or directors of, or are
associated with other natural resource companies that acquire interests in
mineral properties. Such associations may give rise to conflicts of interest
from time to time. In the event that any such conflict of interest arises, a
director who has such a conflict will disclose the conflict to a meeting of
the directors of the company in question
-12-
and will abstain from voting for or against approval of any matter in which
such director may have a conflict. In appropriate cases, the company in
question will establish a special committee of independent directors to
review a matter in which several directors, or management, may have a
conflict. In accordance with the laws of the Yukon Territory, the directors
of all companies are required to act honestly, in good faith and in the best
interests of a company for which they serve as a director.
TITLE TO ASSETS
Although the Corporation has reviewed and is satisfied with the title for all
mineral properties in which they have a material interest, there is no
guarantee that title to such concessions will not be challenged or impugned.
POLITICAL AND ECONOMIC INSTABILITY IN SOUTH AMERICA
Certain of the Corporation's exploration and development activities occur in
Bolivia and Ecuador. As a result, the Corporation may be affected by risks
associated with political or economic instability in those countries. The
risks include, but are not limited to: military repression, extreme
fluctuations in currency exchange rates, labour instability or militancy,
mineral title irregularities and high rates of inflation. Changes in mining
or investment policies or shifts in political attitude in the aforementioned
countries may adversely affect the Corporation's business. Operations may be
affected in varying degrees by government regulation with respect to
restrictions on production, price controls, export controls, income taxes,
expropriation of property, maintenance of claims, environmental legislation,
land use, land claims of local people, water use and mine safety. The effect
of these factors cannot be accurately predicted.
FOREIGN CURRENCY
The Corporation's operations throughout North and South America render the
Corporation subject to foreign currency fluctuations which may materially
affect financial position and results. The Corporation does not engage in
currency hedging to offset any risk of currency fluctuations.
ITEM 2. PROPERTIES.
OPERATIONS
Detailed information is contained herein with respect to the Hycroft mine
(formerly known as the Crofoot/Lewis mine), the Mineral Ridge mine, and the
Amayapampa and Capa Circa properties. Vista Gold holds the Hycroft mine
through its wholly-owned subsidiaries, Vista Gold Holdings Inc., Hycroft Inc.
and Hycroft Lewis. The reserves and average grades provided herein for the
Hycroft mine have been estimated by the Corporation. Vista Gold holds the
Mineral Ridge mine through its wholly-owned subsidiaries, Vista Gold Holdings
Inc. and Mineral Ridge Inc. Vista Gold holds the Amayapampa and Capa Circa
properties through its 100% interest in Sociedad Industrial Yamin Limitada, a
Bolivian limited partnership. Estimates of reserves and production herein are
subject to the effect of changes in metal prices and to the risks inherent in
mining and processing operations.
HYCROFT MINE
The Hycroft mine and related facilities are located 54 miles (86 kilometres)
west of Winnemucca, Nevada. The mine is an open-pit, heap leaching operation
which produces gold and by-product silver. The Lewis mine was originally a
sulphur mine. In 1983, it commenced operation as a small heap leach
-13-
gold mine. The Corporation acquired the Lewis mine in early 1987 and
completed construction of the adjacent Crofoot mine project in April 1988. In
early 1989, the two mines were consolidated into a single operation under an
ore purchase agreement, with ore from both properties processed through the
larger and more efficient Crofoot plant. Hycroft Inc. began stripping at the
new Brimstone pit, located one mile to the east of the existing Central Fault
pit, in April 1996 and commenced construction of a new 3 million square foot
leach pad and a 2,800 gallon-per-minute (10,598 litre-per-minute) leach
solution processing plant in the summer of the same year. Ore from the
Brimstone pit was hauled to the new leach pad beginning in September 1996 and
the Brimstone plant commenced operation in February 1997. In 1998, the
Hycroft mine produced 112,685 ounces of gold and 235,636 ounces of silver.
Mining operations at the Hycroft mine were suspended in December 1998.
Gold production is expected to continue in 1999 and 2000 from gold contained
in the heap leach pads. The Corporation will continue to review the economic
situation and gold resources to determine whether operations can be
restarted. Reclamation will proceed in areas which will not be disturbed by
future operations.
DESCRIPTION OF PROPERTIES
The Crofoot and Lewis properties together comprise approximately 9,600 acres
(3,885 hectares). The Crofoot property, originally held under two leases,
covers approximately 3,600 acres (1,460 hectares). The Lewis property, which
virtually surrounds the Crofoot property, is held through a lease which
covers approximately 6,000 acres (2,430 hectares). The mine is accessible by
road and has access to adequate supplies of water and power. The major mining
facilities consist of mobile mining equipment, a three stage crushing and
conveying system (currently idle), four leach pads, two Merrill-Crowe
gold-silver recovery plants and associated maintenance and support facilities.
GEOLOGY AND HISTORY
The Hycroft mine is located on the western flank of the Kamma Mountains. The
deposit is hosted in a volcanic eruptive breccia and conglomerates associated
with the tertiary Kamma Mountain volcanics. The volcanics are mainly acidic
to intermediate tuffs, flows and coarse volcaniclastic rocks. Fragments of
these units dominate the clasts in the eruptive breccia. Volcanic rocks have
been block-faulted by dominant north trending structures which have affected
the distribution of alteration and mineralization. The Central Fault and East
Fault control the distribution of mineralization and subsequent oxidation. A
post-mineral range-front fault separates the ore body from the adjacent
Pleistocene Lahontan Lake sediments in the Black Rock desert. The geological
events have created a physical setting ideally suited to the open-pit, heap
leach mining operation at the Hycroft mine. The heap leach method is widely
used in the southwestern United States and allows the economical treatment of
oxidized low-grade ore deposits in large volumes.
The known gold mineralization within the Crofoot and Lewis properties extends
for a distance of three miles (4.8 kilometres) in a north-south direction by
1.5 miles (2.5 kilometres) in an east-west direction. Mineralization extends
to a depth of less than 330 feet (100 metres) in the outcropping to
near-outcropping portion of the deposit on the northwest side to over 990
feet (300 metres) in the Brimstone deposit in the east. Not all the
mineralization is oxidized and the depth of oxide ore varies considerably
over the area of mineralization. The determination of whether mineralization
can be mined economically is dependent on the grade of mineralization, the
depth of overburden and the degree of oxidation.
-14-
In 1992, Hycroft Inc. exercised its options to convert its leasehold
interests in the Crofoot property into a 100% ownership interest in the
patented mining claims, a 100% possessory interest in the unpatented claims
and a 100% interest in the incidental rights thereto, all subject to 4% net
profits royalties and excluding rights to sulphur. No royalty payments were
made in 1995, 1994 and 1993 because minimum royalty payments made prior to
1993 aggregating $2.8 million were available for credit against the royalty
obligations. The Crofoot lease/purchase agreement was amended in 1996 to
provide for minimum advance royalty payments of $120,000 on January 1 of each
year in which mining occurs. An additional $120,000 payment is due if ore
production exceeds 5.0 million tons from the Crofoot property in any calendar
year. All advance royalty payments are available as credit against the 4% net
profits royalty. The aggregate acquisition cost to Hycroft Inc. was
$6,881,481 and was financed by the issuance of Common Shares and the
assumption of certain debts associated with the Lewis mine. The leasehold
interest in the Lewis property extends until January 1, 2013 or for so long
thereafter as Hycroft Lewis continues to conduct commercial mining operations
on the property.
The Lewis lease provides for the payment to the lessor of a 5% net smelter
return royalty on gold production. The royalty increases for ore grades above
0.05 ounce per ton and is offset by annual advance minimum royalties. The
Corporation has the right to commingle the ore from the Lewis property with
ore from the adjoining Crofoot property under an agreement with the lessor of
the Lewis property.
The ore reserves mined in 1998 in the Brimstone deposit, which lies partially
on the Crofoot property and partially on the Lewis property, were processed
on both the newly constructed Brimstone leach pad and the older Crofoot pad.
The allocation of metal produced from the commingled Crofoot and Lewis ores
is calculated using methods consistent with industry standards. The same
method will be employed during 1999 if gold mining is restarted.
MINING AND PROCESSING
During 1998, Hycroft Inc. excavated a total of 7.1 million tons of ore. For
each ton of ore mined, 0.42 tons of waste was excavated. Waste stripping was
suspended in January 1998. Ore mining was suspended in December 1998.
Until November 1996, higher grade ore was crushed prior to treatment on the
leach pads. From November 1996 to December 1998, all ore was hauled directly
to the leach pads without crushing. Dilute alkaline cyanide solution is
pumped from a pond to the heap surface and distributed evenly over the
crushed and run-of-mine ore through a network of pipes and irrigation
sprinklers or drip emitters. The solution percolates down through the layers
of ore, preferentially leaching gold and silver from the rock. This pregnant
solution, containing dissolved gold and silver, flows along the surface of
the impervious leach pad to a collection ditch from which it drains into one
of two pregnant solution ponds. The low-grade solutions are recirculated to
the heaps to increase the amount of gold in the solution, and the high-grade
solution is pumped directly to the recovery plant where the gold and silver
are extracted. The process is a zero-discharge closed circuit.
The Crofoot recovery plant can process up to 3,000 gallons (11,355 litres) of
solution per minute from leach pads 1, 2, 3 and 5 (18,000 tons of solution
per day) and the Brimstone recovery plant can process up to 2,800
gallons-per-minute (10,600 litres-per-minute) of solution from the Brimstone
leach pad (also referred to as pad 4). This process includes filtering to
remove particulates, de-aeration to remove dissolved oxygen and introduction
of small quantities of zinc dust. The dissolved gold and silver precipitate
out of the solution onto the zinc particles which are then removed by a
second stage of filtration. The barren solution is returned to the leaching
circuit. The precipitate is treated to remove
-15-
mercury, then mixed with fluxes and smelted to yield a dore bar. Dore bars
are shipped offsite for refining and sale. Gold and silver production from
the Hycroft mine is refined by Metalor USA Refining Corporation. Alternate
refiners are available if necessary.
ORE RESERVES
At January 1, 1999, the Corporation had no ore reserves estimates for the
Hycroft mine. This compares to proven and probable reserves at January 1,
1998 of approximately 25.2 million tons grading 0.02 ounces of gold per ton,
with 23.4 million tons identified as proven reserves and 1.8 million tons as
probable reserves in total containing 515,000 ounces of gold. As of January
1, 1999, the Corporation had estimated, measured and indicated resources in
the Brimstone Pit of 15.4 million tons at a grade of 0.0194 ounces of gold
per ton (containing 299,000 ounces of gold). These resources are contained in
a designed excavation (pit) that would be economic at a price of $350 per
ounce. The reduction in ore reserves was due in part to ore mined during 1998
and to some mineralization becoming uneconomic to mine due to a lower gold
price.
In 1998, no gold reserves were added to the Hycroft mine. A comparison of
estimated reserves actually mined at Brimstone compared to reserves estimated
to be present based on exploration results indicated a positive variance of
33%. The Corporation intends to review the reasons for this variance and
carry out further exploration drilling to better sample the orebody. If the
upgrading is confirmed, it is possible that the Brimstone deposit could
contain mineable reserves.
Ore reserves are adjusted annually by the Corporation by the amount extracted
in the previous year, by the additions and deletions resulting from new
geological information and interpretation and from changes in operating costs
and metal prices. Ore reserves are not revised in response to short-term
cyclical price variations in metal markets.
OPERATING STATISTICS
Operating statistics for the Hycroft mine for the period 1994 to 1998 were as
follows:
YEARS ENDED DECEMBER 31
---------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------ ------- ------
Ore and waste material mined (000's of tons)..... 10,127 37,531 36,882 37,279 26,438
Strip ratio...................................... 0.42 2.53 1.8 2.7 2.0
Ore processed (000's of tons)(1)................. 7,117 10,629 13,060 9,931 9,255
Ore grade (oz. gold/ton)......................... 0.018 0.020 0.018 0.019 0.020
Ounces of gold produced.......................... 112,685 117,378 89,381 101,128 94,868
Direct cash operating costs ($/oz. of gold)(2)... $222 $246 $274 $272 $294
- ----------
(1) Ore processed means ore placed on pads but not necessarily leached
during the year.
(2) Direct cash operating costs which is the sum of mining costs (excluding
deferred waste stripping) and processing and mine administration cost,
net of silver credits.
-16-
Gold production for 1998 was down 4% from 1997. Decreased gold production was
due to fewer ore tons being placed on the pads for processing as a result of
the reduction of mining activities and subsequent suspension in December
1998. The decrease in ore tons placed on the pads was partially offset by
higher average ore grades.
MINE SITE EXPLORATION
In 1998, exploration activity at the Hycroft mine was limited due to
depressed metal prices. There is significant potential to extend oxide
mineralization to the south, along strike, at both the Central Fault and
Brimstone deposits, but the greatest upside lies in the largely unexplored
sulfide mineralization below the Brimstone deposit.
Current resources at Brimstone are limited to the oxide cap of an apparently
large but previously unexplored gold-bearing sulfide system. Two diamond
drill holes, drilled in 1996 and earlier, have intercepted mineralized
sulfides averaging 0.023 ounces per ton gold and 0.5 ounces per ton silver
over intervals exceeding 500 feet (153 metres) in thickness. Vista Gold
intends to investigate this resource when market conditions improve.
MINERAL RIDGE MINE
SUMMARY
On October 21, 1998, the Corporation acquired the Mineral Ridge mine through
the purchase of all of the shares of Mineral Ridge Resources Inc. from
Cornucopia Resources Ltd. ("Cornucopia") in consideration for 1,562,000
Common Shares of Vista Gold with an aggregate value of $250,000 and Vista
Gold having subscribed on a private placement basis for 2,777,777 common
shares of Cornucopia with an aggregate value of $250,000. As part of the
transaction, Mineral Ridge Inc. amended an existing loan agreement with
Dresdner Bank AG ("Dresdner"). The amended agreement revised the terms of
repayment of the previously outstanding loan and accrued interest totalling
approximately $13.5 million and provided additional loans to Mineral Ridge
Inc. totalling $1.6 million which will be used to pay amounts owing to other
creditors of Mineral Ridge Inc. The revised agreement required the
contribution of $5.0 million of mining equipment to the project by Vista
Gold. Net cash flow from the project will be distributed on the basis of 70%
to Dresdner and 30% to the Vista Gold after deduction of $800,000 of
management fees payable to Vista Gold over the next two years and rescheduled
principal payments on the additional loans used to repay other creditors. The
interest rate on the loans will be LIBOR plus 2% and the loans, which will
not be guaranteed by Vista Gold, will be collateralized by the assets of
Mineral Ridge Inc. and the $5 million of mining equipment contributed by
Vista Gold. As part of the agreement with Dresdner, Mineral Ridge Inc.
liquidated forward gold hedges to provide $3.5 million, which is to be used
as working capital and to pay for capital improvements on the project.
Prior to the acquisition of the Mineral Ridge mine by the Corporation, the
mine had been shut down since December 1997. The mining operation has been
restarted and the processing plant is now undergoing start-up and
commissioning. The plant commissioning activities include a number of
significant modifications which were identified prior to the acquisition. In
addition, a critical ore feeding arrangement, which was identified as
inadequate during start-up, was replaced during the month of February 1999.
-17-
DESCRIPTION OF PROPERTY
The Mineral Ridge property is located near the town of Silver Peak,
approximately 35 miles (56 kilometres) southwest of Tonopah, Nevada and
covers approximately 3,130 acres (1,267 hectares). The Mineral Ridge mine is
an open pit, heap leach mining operation owned by Mineral Ridge Inc., an
indirect wholly-owned subsidiary of Vista Gold. The mine achieved mechanical
completion on May 29, 1997 and poured its first gold on June 24, 1997.
Operations at the Mineral Ridge mine consist of open pit mining, four-stage
crushing, agglomeration and heap leach extraction of gold using conventional
cyanide and carbon adsorption methods. The processing facilities are designed
to handle a minimum of 2,700 tons of ore per day over a 350 day operating
year. Nine separate mineable gold deposits have been defined on the property
with several additional areas of inferred mineralization identified.
LAND STATUS
The land package controlled by Mineral Ridge Inc. consists of a total of 195
claims in four separate parcels of land, covering approximately 3,130 acres
(1,267 hectares). The four parcels include the Mineral Ridge minesite, the
Valcalda spring deeded land west of the minesite, the Blair townsite and two
patented millsites adjacent to the town of Silver Peak.
Mineral Ridge Inc. acquired its interest in the properties through agreements
with the underlying land owners, the Mary Mining Company and Benguetcorp USA,
Inc.
The Mary Mining Company land covers the Mary and Drinkwater deposits, which
make up most of the known reserves on the properties. Mineral Ridge Inc.
optioned the Mary properties in April 1993, paying $10,000 for an exploration
and due diligence period, and exercised the Lease Option in July 1993 for
$200,000. Production royalties based upon a percentage of net smelter returns
from production tied to the prevailing gold price, are payable to Mary Mining
Company for the properties. The net smelter return for the price of gold
under $500 per ounce is 4%. Minimum advance royalty payments totalling
$130,000 have been made which will be credited cumulatively against the
production royalties. The minimum advance royalties are due on July 15th of
each year and total $60,000 annually.
Mineral Ridge Inc. acquired the Oromonte claims block from Benguetcorp USA,
Inc., in June 1996 upon payment of $1,200,000. This ground covers the plant
facility site and includes the Oromonte pits mined in 1996 and the Brodie,
Soleberry and Blue Lite deposits. The only portion of mineable reserve
affected by underlying net smelter return royalties (2.5%) for the
Benguetcorp properties is in the Brodie pit, on the Soda patented claim.
GEOLOGY
The Mineral Ridge gold deposits are located on the northeast flank of the
Silver Peak Mountain Range in south eastern Nevada. The Silver Peak Mountain
Range consists of two northwest trending parallel belts of pre-Tertiary
sedimentary and metamorphic rocks, which are separated and partially overlain
by Tertiary felsic volcanics of the Silver Peak caldera. The southern
sedimentary belt is comprised of Cambrian and Ordovician sediments which have
been intruded by a Mesozoic to Tertiary granitic pluton. The northern belt,
which forms Mineral Ridge, is comprised of a northwest-trending early
Tertiary granitic uplift capped by Precambrian metasediments and Tertiary
volcanics. The gold deposits of Mineral Ridge are localized along shallow,
northeast-dipping faults within the lower Wyman Formation of Precambrian age.
This range is situated within the central Walker Lane structural zone, a
region of extensive Late Cenozoic right-lateral wrench-faulting, which
separates the Great Basin geomorphic province from the
-18-
Sierra Nevada Mountains to the west. The Walker Lane Belt formed in response
to the onset of crustal extension in the early Tertiary. The complex
structure of the belt includes both high-angle strike-slip faulting and
low-angle thrust faulting, with a principle strike direction of northwest
trend, along with northeast trending left-lateral secondary structures
separating structural blocks along the trend. Other features characteristic
of the Walker Lane Belt include areas of large scale extension, detachment
faults and metamorphic core complexes. With the onset of extension, magma
rose in the crust and numerous shallow intrusions and associated volcanic
centers were emplaced of various compositions. Precious and base metal
mineral deposits ranging from epithermal to porphyry style formed in the
belt, often associated with these late intrusions. The Walker Lane Belt hosts
numerous famous mining districts including the Comstock, Yerrington, Rawhide,
Candelaria, Tonopah, Goldfield and Silver Peak mining camps.
GEOLOGY AND MINERALIZATION
The Mineral Ridge gold deposits are detachment-fault hosted mesothermal
quartz vein and replacement deposits localized on the crest and flanks of an
early Tertiary metamorphic core complex. Mineral Ridge is a northwest
tending, doubly plunging, antiformal uplift of intermediate to felsic
granitic rocks, varying from granodiorite to alaskite; capped by a
metamorphic carapace of Precambrian metasediments which host the gold
deposits. The core granite exhibits foliation and lineation parallel to the
contact with the overlying metasediments, with the deformation extending up
to one hundred feet into the upper portion of the intrusive. The Precambrian
metasediments are comprised of the Wyman Formation, a sequence of thin-bedded
mica schist, calc-silicate rocks and calcite marble after original
interlayered limestone and shale paleolith. The Wyman Formation is overlain
in low-angle fault contact by the Reed Dolomite, which is in turn covered by
Cambrian sediments. The core granite and sediments are cut by several ages of
dikes and sills ranging in composition from granite pegmatite to diabase,
with the mafic varieties often closely associated with the gold
mineralization.
Precious metal mineralization at Mineral Ridge is found in three types of
deposits, with the most important styles being lenticular quartz bodies and
manto replacements in the Wyman Formation limestone/marble beds. The quartz
veins occur within the sheared contact zone between the core granite and
Wyman Formation, usually in zones of dilation located on the eastern flank of
anticlinal folds and where more brittle beds or intrusive rocks have been
fractured and mineralized.
The Mary Limestone, a blue-gray, finely crystalline marble containing boudins
and augen of quartz, calcite and granitic to felsic intrusives within
intensely folded groundmass, is the host for silicic replacement ore formed
adjacent to the veins. Up to 5% disseminated pyrite and lesser galena and
sphalerite occurs in the Mary Limestone ore, with replacement of the
limestone by silica, chlorite and calcite. The ore bodies can occur as a
single lens or as a stack of lenses separated by mylonite and/or intrusive
sills, with an aggregate thickness of up to one hundred and forty feet of
mineable ore.
The ore zones on Mineral Ridge occur as north-south to north-west trending
lenses of mineralization which rake at a shallow angle to the dip of the
formations and structural contacts. The most favourable orientation for
forming an ore shoot includes the steeply dipping east flank of anticlinal
folds and the intersection of north-south strike faults of reverse
displacement. The ore zones are cut by east-west to north-east trending high
angle post-mineral faults of minor vertical displacement. Individual ore
bodies mined underground in the past totalled several tens of thousands of
tons at around 0.25 ounces per ton. The average size of open pit deposit on
Mineral Ridge is about 450,000 tons at 0.065 ounces per ton. Exploration
potential on the Mineral Ridge claims is considered excellent based upon
widespread drilling, underground exposures and surface geology. Several
targets have been partially tested by widespread drilling, surface sampling
and mapping.
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HISTORY
The Mineral Ridge mine was constructed by Cornucopia for a cost of
approximately $17 million. The project was completed on May 17, 1997 and the
first gold was poured on June 20, 1997. However, the project failed to meet
commercial production loan tests and was shutdown in December 1997. Vista
Gold has completed an in-depth technical review and has undertaken a number
of modifications to the facility prior to the restart of operations intended
to eliminate the problems experienced by Cornucopia. The improvements include
changes to the crushing and agglomeration circuits, the addition of surge
capacity to the crushing plant, employment of a coarser crusher product size
and the introduction of strong leach solutions during the agglomeration
process, all of which Vista Gold believes will improve the rate of recovery
of gold.
MINING AND PROCESSING
Vista Gold has moved a portion of its mining fleet, including four 150-ton
trucks and a 23 cubic-yard (17.6 cubic-metre) hydraulic shovel, from the
Hycroft mine to the Mineral Ridge property. The open-pit operations will
require the mining of approximately 4,000 tons of ore and 16,000 tons of
waste rock each day. The plant, which uses four-stage crushing and heap
leaching is estimated to achieve a metallurgical recovery of 75% on ore at an
average grade of 0.06 ounces per ton.
The mine and plant were in production for just one month in 1998. During that
time, Mineral Ridge mined 3.44 tons of waste for every ton of ore mined. In
1999 ore will be mined at the rate of 4,000 tons per day and the Corporation
expects to mine 3.84 tons of waste for every ton of ore mined.
The process plant consists of a four-stage crushing plant, which reduces the
rock size to -1/4 inch (-0.6 centimetre) prior to agglomeration with cyanide
solution. The agglomerated ore is then placed in approximately 25 feet (7.6
metres) lifts on a heap leach pad. Leaching is carried out using a dilute
alkali cyanide solution which is distributed over the surface of the ore
through a network of pipes and drip emitters. The solution percolates down
through the layers of ore preferentially leaching gold from the rock. This
pregnant solution containing dissolved gold then flows along the surface of
the impervious synthetic liner of the leach pad into the pregnant solution
pond. From the pond the solution is pumped through a gold recovery plant at a
rate of up to 1000 gallons-per-minute (3,785 litres-per-minute). The gold
recovery plant consists of five carbon columns where activated coconut-shell
charcoal (carbon) adsorbs the dissolved gold from the pregnant solution.
Solution exiting the carbon plant flows into a barren pond, pH and cyanide
levels are adjusted and the solution is pumped back to the heaps for reuse.
This is a closed-circuit process with zero discharge.
Periodically carbon loaded with gold is removed from the columns and the gold
is stripped off into a more concentrated solution using a strong, caustic
cyanide solution at elevated temperature and pressure. The stripped carbon is
reconditioned and returned to the carbon column. The gold-rich strip solution
is pumped through electrowinning cells and the gold in solution plates out as
metal on stainless steel wool. At regular intervals the wool is removed from
the electrowinning cells and the gold is washed off as sludge. The gold
sludge is then filtered, dried and melted into dore bars. The dore bars are
shipped off site for refining and sale. Gold from the Mineral Ridge mine is
refined at Handy & Harman but alternate refineries are available if necessary.
ORE RESERVES
As at December 31, 1998, the Corporation estimates the proven and probable
reserves to be 4 million tons at a grade of 0.06 ounces per ton containing
241,000 ounces of gold. The average estimated cash
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production costs will be $226 per ounce and production is planned to be
between 40,000 to 45,000 ounces in 1999.
OPERATING STATISTICS
Start-up activities at the Mineral Ridge mine were commenced in November
1998. Operating statistics for the Mineral Ridge mine during this initial
start-up period (from November 1, 1998 to December 31, 1998) are set out
below.
TWO MONTHS ENDED
DECEMBER 31, 1998
-----------------
Ore and waste material mined (000's of tons).... 310
Strip ratio..................................... 3.44
Ore mined (000's of tons)....................... 70
Ore crushed (000's of tons)(1).................. 39
Ore grade (oz. gold/ton)........................ 0.052
Ounces of gold produced......................... 153
Cash operating costs ($/oz. of gold)(2)......... -(3)
- ----------
(1) Ore crushed means ore introduced to the four-stage crushing circuit and
placed on the pads but not necessarily leached during the year.
(2) Cash operating costs is composed of all direct mining expenses including
inventory changes, refining and transportation costs, less by-product
silver credits.
(3) The cash operating costs have been omitted because the mine is in the
initial start-up phase and accordingly, it is not possible to accurately
determine the true cash operating costs.
MINE SITE EXPLORATION
In December 1998, the Corporation started a drilling program designed to add
reserves to the project. Thirty reverse-circulation holes totalling 4,750
feet (1,450 metres) were drilled. Seven holes were drilled in the Blue Lite
prospect, and 23 holes were drilled in the Mary mine area.
Drilling at Blue Lite showed that mineralization extends to the south, and
three holes intersected mineralization greater than cutoff. Further drilling
will be completed in 1999 with the intent of adding the Blue Lite area to the
current reserve base at Mineral Ridge.
Of 23 holes drilled in the Mary area, 12 intersected mineralization over the
current cut-off grade. It is expected that this drilling will add 5,000 to
10,000 ounces to the current Mary resource. After further drilling at the
Mary deposit in 1999, a new mineable reserve will be calculated.
AMAYAPAMPA AND CAPA CIRCA PROPERTIES
AMAYAPAMPA PROPERTY
SUMMARY
The Amayapampa property consists of 24 mining concessions covering 1,989
acres (805 hectares) plus an additional 16,803 acres (6,800 hectares) in
regional exploration and exploitation concessions. The deposit is
approximately 1,970 feet (600 metres) in strike length, 98 to 230 feet (30 to
70 metres) in
-21-
width, and extends to over 656 feet (200 metres) in depth. Gold occurs free
and associated with sulfides in a structural zone in which quartz veins were
emplaced then sheared prior to introduction of sulfides and gold mineralizing
solutions. Prior to the Amalgamation, CEM mined the Amayapampa deposit using
primarily open-stope methods at a rate of approximately 220 tons of ore per
day, and processed the ore in two mills on site. See "Ownership" and
"History" below.
In 1998, the Corporation completed a development plan to reopen the Capa
Circa underground mine approximately six miles from the Amayapampa site and
supply ore to a processing plant which would be built at Amayapampa to treat
ores from both properties. The Corporation also began optimizing the
feasibility study on the Amayapampa property in late 1998 and completed this
work during the first quarter of 1999. Under the optimized feasibility study,
nearly 505,000 gold ounces could be produced over the 12-year life, at an
average rate of almost 43,000 ounces per year. Gold production from
Amayapampa and Capa Circa during the first five years of operations when Capa
Circa is in production will average 50,100 ounces per year, and this level of
production can be sustained with continued exploration/development success at
Capa Circa. The initial capital costs are estimated to be about $26 million,
including a 20% contingency, and necessary working capital. Average operating
costs are estimated to be $7.89 per tonne of ore for a total cash cost of
$157 per gold ounce. At a gold price of $300 per ounce, the project is
expected to generate an after-tax internal rate of return of approximately
17%.
Approval of the permit to construct and operate, called the DECLATORIA DE
IIMPACTO AMBIENTAL under Article 24 of the Environmental Law, was received on
May 6, 1998. This permit was based on a 3,300-tonne-per-day ore processing
project, and once financing arrangements are in place, the Corporation will
request a modification of the permit to allow operation at the lower
production rate.
LOCATION AND ACCESS
The Amayapampa property is located 186 miles (300 kilometres) southeast of La
Paz in the Chayanta Municipality, Bustillos Province, Department of Potosi,
in southwestern Bolivia (Latitude: 18DEG.34.5"S, Longitude: 66DEG.22.4"W).
Access is via 167 miles (268 kilometres) of paved road from La Paz to
Machacamarca near Oruro, followed by 62 miles (100 kilometres) of gravel road
to Lagunillas, then nine miles (14 kilometres) of dirt road to Amayapampa.
Total driving time is about six hours. Charter air service is available to
Uncia, 22 miles (35 kilometres) from the project.
The Amayapampa property is situated within the moderately rugged Eastern
Cordilleran region of Bolivia with elevations varying from 12,300 to 13,450
feet (3,750 metres to 4,100 metres) above sea level. The area is generally
arid with a defined rainy season during the summer months of November through
April. There is little or no precipitation during the rest of the year.
OWNERSHIP
On April 28, 1994, Da Capo entered into an agreement with Mr. David Anthony
O'Connor of Casilla 11314, La Paz, Bolivia and La Compania Minera Altoro
S.R.L. ("Altoro") of Casilla 11314, La Paz, Bolivia, both parties at arm's
length to Da Capo, which was amended by agreements dated June 10, 1994 and
July 15, 1994 (the "Altoro/O'Connor Agreement"), pursuant to which Mr.
O'Connor and Altoro assigned to Da Capo:
(a) Altoro's exclusive right and option to acquire a 51% interest in eight
mining concessions that constitute a part of the Amayapampa property (and
a further option to acquire an additional 19% interest in such
concessions), pursuant to an option agreement dated March 22, 1994 (the
-22-
"Amayapampa Option") between Altoro and Raul Garafulic Gutierrez
("R. Garafulic") of Ave. Argentina No. 2057, Casilla 9285, La Paz, Bolivia
and Compania Explotadora de Minas S.A. ("CEM", and collectively with
R. Garafulic, the "Amayapampa Vendors") of Calle San Salvador 1421,
Casilla 4962, La Paz, Bolivia. The Amayapampa Vendors are both parties
at arm's length to Da Capo;
(b) Mr. O'Connor's exclusive right and option to acquire the Capa Circa
property pursuant to an option agreement dated January 12, 1994 (the
"Yamin Option Agreement") between Mr. O'Connor and Yamin. See "Capa Circa
Property - Ownership"; and
(c) a 100% interest in the Santa Isabel Property, for which an exploration
concession application had been made on behalf of Altoro.
As consideration for the assignment of the above interests, Da Capo issued a
total of 1,000,000 Da Capo common shares to Mr. O'Connor between June 30,
1994 and April 16, 1996.
On February 5, 1996, Da Capo exercised the Amayapampa Option and acquired a
51% interest in the eight mining concessions that constitute a part of the
Amayapampa property in consideration for: (i) the cancellation of a loan in
the amount of $2,425,000 which had been previously made by Da Capo to R.
Garafulic on December 22, 1994; and (ii) payment of $75,000 by Da Capo to R.
Garafulic between March 22, 1994 and September 22, 1994.
On March 8, 1996, Da Capo entered into an agreement (the "Amayapampa
Acquisition Agreement") with the Amayapampa Vendors to acquire the following
interests in the Amayapampa property:
(a) R. Garafulic's remaining 24% interest in two mining concessions (the Gran
Porvenir and Chayentena concessions) that are part of the Amayapampa
property;
(b) R. Garafulic's 49% interest in six mining concessions that are part of
the Amayapampa property; and
(c) CEM's 100% interest in 16 mining concessions that are part of the
Amayapampa property.
In consideration for these interests, Da Capo:
(a) issued 1,000,000 special warrants (the "Amayapampa Special Warrants"),
each exercisable to acquire one Da Capo Common Share without further
payment, to a nominee of the Amayapampa Vendors on April 11, 1996; and
(b) made a non-recourse, interest-free loan of $3.24 million (the "Amayapampa
Loan") to a nominee of the Amayapampa Vendors on April 11, 1996.
The Amayapampa Loan was secured by an assignment of all proceeds from the
sale of any of 1,000,000 Da Capo common shares held by such nominee. The
Amayapampa Loan was cancelled on April 29, 1996 upon the sale of such Da Capo
common shares and Cdn.$4,355,000 received from the proceeds of such sale on
or before May 7, 1996.
After being acquired by the Amayapampa Vendors, the Amayapampa Special
Warrants were transferred to third parties at arm's length to Da Capo in
transactions exempt from prospectus requirements under the relevant
securities legislation.
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On August 14, 1996, Da Capo issued 1,000,000 Da Capo common shares without
payment of any additional consideration upon the deemed exercise of the
Amayapampa Special Warrants.
All of Da Capo's interests in the Amayapampa property were transferred into
the name of its subsidiary, Yamin, on April 11, 1996.
Ms. Elizabeth Mirabel, a resident of Bolivia at arm's length to Vista Gold,
holds the remaining 25% interest in the Gran Porvenir and Chayentena mining
concessions, which constitute 604 hectares of the Amayapampa property. On
June 28, 1996, Da Capo and Ms. Mirabel entered into a lease agreement (the
"Lease") under which Ms. Mirabel granted a lease for her 25% interest in the
two mining concessions in favour of Da Capo for a term of ten years
commencing July 10, 1996 and renewable for an additional ten year term.
During the first two years of the Lease, Da Capo will pay Ms. Mirabel $7,000
per month, and $10,000 per month for the subsequent eight years.
As a result of the Amalgamation with Da Capo, Vista Gold acquired the
Amayapampa property.
A legal dispute in Bolivia in which a Mr. Estanislao Radic brought legal
proceedings in the lower penal court in Bolivia against Raul Garufulich,
resulted in comments in the Bolivian press questioning the validity of the
Corporation's ownership of the Amayapampa property. In May 1998, a judge in
the Bolivian penal court found that there was no justifiable case. In June
1998, a judge of the Superior Court of the District of Potosi dismissed the
appeal of the case and indicated that there could be no further appeals on
the matter in the Bolivian penal courts. The Corporation was, and remains,
satisfied that its title to the Amayapampa property is secure.
HISTORY
The Amayapampa district was initially mined on a very small scale by
indigenous peoples prior to the arrival of the Spanish conquistadors and
small-scale mining continued during the Spanish colonial period into modern
times. Prior to the Amalgamation, CEM mined the Amayapampa deposit using
primarily open-stope methods at a rate of about 220 tons of ore per day and
processed the ore in two mills on site. At that time, the Amayapampa mine was
one of the largest producing underground gold mines in Bolivia and consisted
of 32 levels of underground development. Upper level, generally oxidized ore
was removed via the upper Virtus Adit (13,450 feet/4,100 metres) and trucked
to the Porvenir mill, while lower sulfide ore was dropped by ore passes to
the 2,790 foot (850-metre) long Virquicocha Adit (13,025 feet/3,970 metres)
and taken out by electric locomotives to the Virquicocha mill. At both mills,
gold was recovered via amalgam plates and gravity tables. The lower mill
included a flotation circuit to upgrade the pyrite concentrate. Approximately
150 people worked at the mine and lived locally at the village of Amayapampa
and at other small camps near the mine.
Since the Amalgamation, mining has ceased and the old mills removed as per an
agreement with the previous owner. The Corporation has kept the miners
employed in exploration, development and socio-economic projects during the
period when the feasibility study was being prepared.
GEOLOGY
The Amayapampa property is located along the east flank of a north-south
trending regional anticline near the top of the Ordovician sequence. The
Amayapampa deposit underlies a north-northwest trending ridge approximately
0.3 miles (0.5 kilometres) east of the town of Amayapampa. The deposit is
defined by about 48 diamond drill holes; 96 reverse-circulation drill holes;
and 315 underground channel samples totalling 17,585 feet (5,360 metres) from
more than 200 accessible cross-cuts in 43 different levels and
-24-
sub-levels extending over a vertical distance of 682 feet (208 metres). The
deposit is approximately 1,969 feet (600 metres) in strike length, 98 to 230
feet (30 to 70 metres) in width and has an overall dip of the mineralized
envelope of 80 to 90 degrees west. The depth extent of continuous
mineralization is in excess of 656 feet (200 metres) to about the 12,795 foot
(3,900 metre) elevation, although some mineralization is present below this
depth.
Da Capo channel, core drill and reverse-circulation drill hole samples were
analyzed at Bondar-Clegg Laboratories in Oruro, Bolivia, with check samples
analyzed at Chemex Laboratories in Vancouver, British Columbia. Because of
the coarse gold particles and concerns about nugget effect, all samples were
processed using the Hammer Mill Process (similar to a metallic screen assay).
In addition to check assaying, Vista Gold has continued to use Bondar-Clegg
and the Hammer Mill Process to analyze its samples, and in addition, has had
an on-going check assay program in place for samples generated by Vista
Gold's exploration and development program. Approximately 225 random assay
pulps were check-assayed by three laboratories (American Assay Laboratory in
Reno, Nevada, Cone Geochemical Inc. in Lakewood, Colorado, and Rocky Mountain
Geochemical in Salt Lake City, Utah) and compared to original pulp assays
with generally good agreement. Approximately 600 reverse-circulation drill
hole sample splits from the Da Capo program were assayed and used to verify
assays obtained from the original reverse-circulation sample splits. Sample
splits are duplicate samples taken at the drill rig at the time of drilling.
Sample splits show good correlation with original samples with some
dispersion expected for this type of deposit.
Currently, the check assay results are being analyzed and reports being
drafted, but initial indications are that assay results are in generally good
agreement, with the possible exception of some early channel sample assays.
Check assays show that assaying precision meets industry standards.
The host rocks are composed of black shales, sandstones, and siltstones which
were weakly metamorphosed to argillites, quartzites, and siltites,
respectively. Bedding dips are steep at 60 to 80 degrees west, with the east
limb of the anticline being overturned and thus, also dipping steeply west.
The mineralized envelope is best described as a structural zone, within which
were emplaced quartz vein sets along a preferential pre-quartz-vein fracture
direction and post-quartz-vein faults and shears which were probably the
conduits for gold-bearing fluids.
Most faults, shears and fractures are north-northeast to north-northwest
trending and steeply dipping, both east and west, at 60 to 90 degrees. Quartz
veins predominantly dip east. Locally within the zone of mineralization, are
relatively flat, thrust-like faults which have offset quartz veins to a minor
extent. These flat faults, commonly west-dipping at 40 to 45 degrees, are not
generally mappable outside of the main structural zone which hosts the gold
mineralization. A west-dipping, 45 degree fault projects into the pit on the
northeast side of the deposit and was intersected by two vertical,
geotechnical core holes. The base of mineralization may also be slightly
offset by a similar west-dipping, 45 degree fault.
Oxidation effects are pervasive from the surface to depths of 66 to 98 feet
(20 to 30 metres), with only partial oxidization below those depths.
Hydrothermal alteration effects evident in fresh rock are minor, and occur as
coarse sericite (muscovite) in thin (0.08 to 0.20 inch/2 to 5 millimetre)
selvages along some quartz veins. In addition, chlorite is present in and
adjacent to some quartz veins, but this presence may be a product of low
grade metamorphism. Alteration effects are minimal overall, except for
surface oxidization.
Mineralization is composed of quartz veins and sulfides and both constitute a
visual guide to ore. Quartz veins, actually pre-gold, are a locus for later
gold mineralization. Quartz veins are typically a few
-25-
centimetres to two feet (0.5 metres) in width and commonly occur as
sub-parallel vein sets. The strike extent can be 164 to 246 feet (50 to 75
metres) or more for any one vein or vein set, but the dip extent is not as
well established and probably ranges up to 66 to 98 feet (20 to 30 metres).
Multiple vein sets are present in the overall mineralized envelope and veins
commonly pinch and swell along strike and down dip.
Sulfide mineralization entered the multiple fractures to deposit
predominantly pyrite within and adjacent to quartz veins, as sulfide veinlets
in the host rocks and as clots of coarse sulfides and disseminations of
sulfide grains along fractures in the black argillites. Locally, sulfide
disseminations are more prevalent in the quartzite/siltite interbeds than in
the argillites. The total sulfide concentration for the overall mineralized
zone is estimated at 3 to 5%.
Petrographic examination of the sulfide mineralization shows pyrite to
dominate at plus 95% of the total sulfides; arsenopyrite is also present, as
are minor amounts of chalcopyrite, galena, sphalerite, stibnite and
tetrahedrite. Gold is present as free gold in association with pyrite, on
fractures within pyrite and attached to the surface of pyrite and is often
visible as discrete grains on fractures in quartz and argillite. Gold grains
exhibit a large size-range, with much of the gold being relatively coarse at
40 to 180 microns. All gold grains display irregular shapes with large
surface areas. No gold was noted to be encapsulated in either quartz or
sulfide. The content of gold grains was verified as over 97% gold by
scanning-electron-microprobe analysis.
EXPLORATION
In 1998, no exploration was undertaken at Amayapampa.
District-scale exploration potential exists for defining styles of gold
mineralization similar to Amayapampa, which could be developed as satellite
ore bodies. Specific targets on the Corporation's properties include the
drill-inferred, potentially underground mineable, vein mineralization at Capa
Circa, an untested surface geochemical target at Irpa Irpa, and raw
exploration targets elsewhere within a 10 kilometre radius of Amayapampa.
UPDATED FEASIBILITY STUDY
The Corporation began optimizing the feasibility study on the Amayapampa
property in late 1998 and completed this work during the first quarter of
1999. The optimized study projected that nearly 505,000 gold ounces will be
produced over the 12-year life, at an average rate of almost 43,000 ounces
per year. Gold production from Amayapampa and Capa Circa during the first
five years of operations when Capa Circa is in production will average 50,100
ounces per year, and this level of production can be sustained with continued
exploration/development success at Capa Circa. The initial capital costs are
estimated to be about $26 million, including a 20% contingency, and necessary
working capital. Average operating costs are estimated to be $7.89 per tonne
($8.70 per ton) of ore for a total cash cost of $157 per gold ounce. At a
gold price of $300 per ounce, the project is expected to generate an
after-tax internal rate of return of approximately 17%.
The optimized project has smaller annual production than originally
contemplated, but has higher annual production than considered in the revised
feasibility study produced by the Corporation in November 1997. The optimized
study includes the same flow sheet consisting of a gravity and
carbon-in-leach circuit with a projected metallurgical recovery of 85% and
operating at a rate of 2,475 tons of ore per day.
-26-
Based on a gold price of $300 per ounce, the proven and probable reserves at
Amayapampa are calculated to be 10.7 million tons grading 0.051 ounces per
ton including dilution, containing 548,000 ounces of gold. Indicated
resources at Capa Circa are 187,700 tons grading 0.23 ounces per ton
including dilution, containing 46,000 ounces of gold.
The Corporation is investigating means of obtaining finances in order to move
the project into design and construction. Approval of the permit to construct
and operate, called the DECLATORIA DE IMPACTO AMBIENTAL under Article 24 of
the Environmental Law, was received on May 6, 1998. This permit was based on
a 3,300-tonne-per-day ore processing project, and once financing arrangements
are in place, the corporation will request a modification of the permit to
allow operation at the lower production rate.
CAPA CIRCA PROPERTY
SUMMARY
The Capa Circa property consists of four partly overlapping mining
concessions covering 289 acres (117 hectares). Until the Amalgamation became
effective, the Capa Circa property was mined primarily by open stoping
methods at a rate of approximately 22 tons per day. Mineralization on the
Capa Circa property is similar to that of the Amayapampa deposit, but
consists of discrete veins within a mineralized zone approximately 490 feet
(150 metres) wide that can be traced for about 1,970 feet (600 metres) along
strike.
LOCATION AND ACCESS
The four overlapping mining concessions that constitute the Capa Circa
property cover a total area of 289 acres (117 hectares).
The Capa Circa property is located 186 miles (300 kilometres) southeast of La
Paz in Bustillo Province, Department of Potosi, in south-central Bolivia
(Latitude: 18DEG. 34.5" S; Longitude: 66DEG. 22.4" W). The Capa Circa
property is accessible via gravel road from Oruro to Llallagua/Uncia (68
miles/110 kilometres or approximately 2 1/2 hours) and a dirt road southeast
from Uncia to the villages of Lagunillas and Chuqui Uta (approximately 1/2
hour). A short 1.2 mile (two kilometre) spur road leads east to the Capa
Circa property from a point approximately 4.3 miles (seven kilometres) south
of Lagunillas. A local power line runs along the east side of the Capa Circa
property and supplies power to the present Capa Circa mine.
The property is situated within the moderately rugged Eastern Cordilleran
region of Bolivia with elevations varying from 12,300 to 13,450 feet (3,750
to 4,100 metres) above sea level. The area is arid with rain falling
minimally as thunder showers during the summer months of January to March.
Occasional snow is reported during the drier winter months of May to August.
OWNERSHIP
On April 28, 1994, Da Capo was assigned an option to acquire the Capa Circa
property pursuant to the Altoro/O'Connor Agreement. See "Amayapampa Property
- -Ownership".
Pursuant to the terms of the option agreement (the "Capa Circa Option
Agreement") dated January 12, 1994 between Yamin and David Anthony O'Connor
("O'Connor"), which was assigned to Da Capo, Da Capo had the option to
acquire all of Yamin's interest in three Bolivian mining concessions (the
Santa Rosa, San Mateo and Innocentes concessions) which constitute a part of
the Capa Circa property by
-27-
making a payment of $4.8 million to Yamin on or before January 12, 1996.
During the term of the Capa Circa Option Agreement, Da Capo was also required
to pay to Yamin a total of $200,000, as follows:
(a) $50,000 on April 12, 1994;
(b) $50,000 on July 12, 1994;
(c) $50,000 on January 12, 1995; and
(d) $50,000 on July 12, 1995.
All of the above amounts were paid by Da Capo to Yamin and accepted by Yamin.
On January 12, 1996, the Capa Circa Option Agreement expired.
Under the terms of a letter agreement (the "Yamin Letter Agreement") dated
January 22, 1996 between Da Capo and Boris Yaksic and other members of the
Yaksic family (collectively, the "Capa Circa Vendors") of Santa Rosa de Capa
Circa, Casilla 3544, Cochabamba, Bolivia, who are all parties at arm's length
to Da Capo and who collectively owned a 100% interest in Yamin, Da Capo would
acquire a 100% beneficial interest in Yamin in consideration for payment of
$500,000 and the issuance of 700,000 Common Shares with a guaranteed value of
$1,555,000 to the Capa Circa Vendors on the date of signing a more formal
agreement. The Yamin Letter Agreement was formalized by a purchase and sale
agreement (the "Yamin Acquisition Agreement") dated as of March 1, 1996 among
Da Capo, O'Connor and the Capa Circa Vendors, pursuant to which Da Capo and
O'Connor acquired an 80% and 20% interest, respectively, in the shares of
Yamin in consideration for payment of $500,000 and the issuance of 700,000
special warrants (the "Capa Circa Special Warrants") with a guaranteed value
of $1,555,000. On August 14, 1996, Da Capo issued 700,000 Common Shares for
no additional consideration upon the deemed exercise of the Capa Circa
Special Warrants. Under the terms of a separate trust agreement (the "Trust
Agreement") dated March 1, 1996 between Da Capo and O'Connor, O'Connor held
his shares of Yamin as trustee for the benefit of Da Capo, with the result
that Da Capo was effectively the beneficial owner of 100% of the shares of
Yamin.
Yamin is a Bolivian limited liability company and was, at the time of the
Yamin Acquisition Agreement, the sole owner of: (a) a 100% interest in the
four mining concessions (the Santa Rosa, San Mateo, Innocentes and Santa
Benigna concessions), which comprise the Capa Circa property; (b) the mill,
machinery, tools, equipment and vehicles employed in Yamin's small-scale
underground gold mining operations on the Capa Circa property; and (c)
approximately 16,536 tons (15,000 tonnes) of pyritic tailings located on the
Capa Circa property.
The other material terms of the Yamin Acquisition Agreement are as follows:
(a) all machinery, tools, equipment and vehicles owned by Yamin on April 1,
1996 remain the property of Yamin and may be freely used for continuing
small-scale underground mining operations at the Capa Circa mine until
such time as Da Capo terminates the current operations of the mine to
permit the development of a larger mine on the Capa Circa property. At
such time, ownership of the machinery, tools, equipment and vehicles
will revert to the Capa Circa Vendors, who will have 90 days to remove
such machinery, tools, equipment and vehicles from the Capa Circa
property;
(b) title to the pyritic tailings located on the Capa Circa property was
transferred to the Capa Circa Vendors on April 1, 1996. Upon the
termination of current small-scale underground mining operations by Yamin
at the Capa Circa mine, the Capa Circa Vendors will be permitted to treat
such tailings in the existing concentrator at the Capa Circa Mine until
the supply of tailings is
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exhausted. Treatment of these tailings will be conducted in such a way
that the development of a larger mine on the Capa Circa property will not
be adversely affected; and
(c) upon termination of the current small-scale underground mining operations
at the Capa Circa mine, the Capa Circa Vendors will pay all severance
benefits and indemnities in excess of $300,000 that are required under
Bolivian law to be paid to mining personnel employed by Yamin.
As a result of the Amalgamation with Da Capo, Vista Gold acquired the Capa
Circa property.
HISTORY
The district in which the Capa Circa property is located was first mined
during the colonial period. Small-scale mining continued on until modern
times and recently the main deposits have been exploited by mechanized means.
The Capa Circa property and mine was purchased in 1938 as an antimony mine by
the Yaksic family. Antimony mining continued at the Capa Circa property until
approximately 1981 when declining antimony prices and probably declining
reserves resulted in a conversion to gold mining.
The previous owners mined the Capa Circa deposit using underground methods
at an estimated rate of 20 to 30 tonnes per day until shutdown upon the
Amalgamation becoming effective.
GEOLOGY
The Capa Circa geology and mineralization are similar to the Amayapampa
property. The Capa Circa property is hosted by Upper Ordovician shales and
sandstones on the east limb of a regional anticline. The Capa Circa
mineralization is hosted by a series of high angle, east dipping quartz veins
in a 429 foot (150 metre) wide envelope. The mineralization is zoned, with
antimony mineralization more prevalent in the eastern section. The Capa Circa
mineralization is approximately 1,970 feet (600 metres) in length along
strike and 820 feet (250 metres) down near-vertical dip. Further exploration
may extend the strike length and may find down-dip extensions.
PREVIOUS EXPLORATION
Exploration by the Corporation consisted of surface trenching, underground
mapping and channel sampling, and core drilling. Thirteen core holes were
drilled in 1995 for a total of 8,022 feet (2,445 metres). The holes were
drilled largely with HQ size core and total recovery averaged 93% overall.
Several of the holes were drilled from underground locations. Sample
intervals were selected geologically, and in some cases were up to 19.7 feet
(six metres) in length.
Channel samples were collected from 8,054 feet (2,455 metres) of underground
workings representing 20 different levels and sublevels, extending over a
vertical distance of 459 feet (140 metres). Channel samples are collected at
five metre intervals, with channels four to six inches (10 to 15 centimetres)
wide and 0.8 to 1.2 inches (two to three centimetres) deep.
All exploration samples in the Capa Circa database were analyzed at
Bondar-Clegg Laboratories in Oruro, Bolivia. Because of the coarse gold
particles and concerns about nugget effect, all samples were processed using
the Hammer Mill Process (similar to a metallic screen assay).
During 1997, over 1,895 channel samples were taken on drifts and cross-cuts
in the Capa Circa mine. The results of these assays, taken with earlier
drilling and channel sampling, confirm the presence of
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high-grade shoots of mineralization in the lower portions of the mine. The
Capa Circa mine has essentially identical geology to Amayapampa, except that
the gold bearing veins and structures are more widely spaced. The presence of
at least six zones of lower grade mineralization surrounding the veins has
been established. These zones are 328 to 492 feet (100 to 150 metres) in
strike extent and are 98 to 164 feet (30 to 50 metres) in width, and may
represent bulk mining targets.
1998 EXPLORATION
A review of the 1997 Capa Circa sampling program was completed in 1998. The
program in 1997 consisted of 1,895 underground channel samples, over a
vertical extent of 230 feet (70 metres) and a horizontal extent of 656 feet
(200 metres). The program has outlined a resource of 198,000 tonnes (180,000
tonnes), at a grade of 0.23 ounces per tonne (eight grams per tonne)
containing 46,000 gold ounces. The resource is hosted by five veins with an
average horizontal width of 5.2 feet (1.6 metres), steep easterly dips and a
total strike length of 1,394 feet (425 metres).
The resources are from the lowest portions of the mine (San Andres level), an
area only recently accessed by traditional miners. The strike lengths of at
least three of these vein sets may be extended with further exploration. The
dip extent of mineralization for the resource estimate is 330 feet (100
metres) and may extend below that depth.
MINERAL INVENTORY
Sufficient data is lacking to determine a mineral inventory, but the
Corporation's preliminary investigations indicated that the mineralization
encountered by drilling and underground sampling in Da Capo's explorations
program will require extraction by underground mining methods.
EXPLORATION POTENTIAL
At the Capa Circa property, the mineralization is open at depth. Additional
potential also exists along strike in the mineralized zone. Significant
additional drilling is required to determine a Capa Circa mineral inventory
and to test the mineralized zone at depth and along strike.
EXPLORATION PROPERTIES
UNITED STATES
The only exploration performed by the Corporation in the United States was at
the Hycroft and Mineral Ridge mines. See "Item 2. Properties - Hycroft Mine
- -Mine Site Exploration" and "Item 2. Properties - Mineral Ridge Mine - Mine
Site Exploration".
VENEZUELA
In 1998, the Corporation terminated an option agreement with L.B. Mining Co.
entered into in 1996 which granted an option to the Corporation to purchase a
100% interest in mining concessions comprising the Guariche gold properties
in southeastern Venezuela. The Corporation terminated the option agreement
because the economic terms were unacceptable in the current gold market.
BOLIVIA
The Corporation's Bolivian properties include the Amayapampa, Capa Circa,
Iroco, Irpa Irpa and Copacabana gold properties.
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COPACABANA PROPERTY
This project, located in south-central Bolivia, shows similarities to the
Amayapampa property. An initial geochemical survey indicated the possibility
of a large deposit. The survey showed a 500 foot (150 metre) by 2,000 foot
(600 metre) long soil geochemical anomaly.
After an initial mapping program was completed, a reverse-circulation drill
program was conducted. Of the seven holes completed, six had significant gold
intercepts. The drilling indicated that the possibility of both bulk tonnage
and high grade vein mineralization exists on this property. The best results
from drill hole RC3 had 0.41 ounces per ton over 39 feet (12 metres).
A trenching and mapping program is planned for this property, followed by
further diamond and reverse-circulation drilling programs. This project is an
excellent early stage exploration target with the potential to be another
Amayapampa-type deposit.
The Copacabana project was explored with diamond drilling and trenching in
1997. The drilling and trenching were performed along a 2,297 foot (700
metre) strike length of mineralized Ordovician shales. Wide zones of
anomalous gold values were intersected in core drilling and trenching, and
the property requires more exploration to define its potential. No
exploration was performed in 1998.
IRPA IRPA PROPERTY
The Irpa Irpa property is situated three miles south of Capa Circa, with
similarities to Amayapampa.
IROCO PROPERTY
The Iroco project is a gold project adjacent to one of Bolivia's largest
silver mines at Oruro. The Corporation has an option to earn a 100% interest.
Although no resource has been outlined as yet, drill hole results as high as
0.16 ounces per ton over 180 feet (55 metres) have been obtained.
The Iroco project, located three miles (five kilometres) west of Oruro,
Bolivia has been farmed out to BHP. BHP has the right to earn a 60% joint
venture interest in the property by performing $1 million in exploration by
November 1999 and by making a cash payment of $500,000 each to Vista Gold and
Compania Minera Altoro by November 2000. BHP conducted exploration on the
Iroco project in 1998. BHP completed 7 holes, at wide intervals (250 metres).
No significant results were achieved and BHP terminated its option.
ECUADOR
Effective July 8, 1998, Zamora, a corporation in which Vista Gold is a
significant shareholder, completed the acquisition of various property
interests in Ecuador from Compania Minera Gribipe S.A. ("Gribipe"), an
Ecuadorian mineral exploration company. As a condition of the transaction,
Zamora issued 39.5 million common shares to Gribipe for the acquisition of
the property interests and an additional 7.6 million common shares to Vista
Gold in settlement of debts owed to Vista Gold by Zamora. As a result of the
transaction, Vista Gold's ownership of Zamora was reduced from 48.7% to 26.5%.
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Under the transaction, Zamora acquired:
(a) Gribipe's 48.33% interest in the Mina Real and Mina Real 1 concessions,
in which Zamora already held a 50% interest, for 17.0 million common
shares at Cdn.$0.20 per share and 1,721,520 common share purchase
warrants exercisable at Cdn.$0.20 per warrant; and
(b) Gribipe's 75% interest in the Nambija 1 concession for 22.5 million
common shares at Cdn.$0.20 per share and 2,278,480 common share purchase
warrants exercisable at Cdn.$0.20 per warrant.
Gribipe and Vista Gold have entered into a shareholders agreement under which
they have agreed to vote their shares for a board of directors comprising of
three nominees of Gribipe, one nominee of Vista Gold and one independent
director.
Vista Gold will also continue to provide management support to Zamora for a
period of at least one year under a management services agreement. In
addition, Vista Gold has received 7,575,944 common shares of Zamora as
consideration for the settlement of debts in the amount of Cdn.$1,515,188.71
owed by Zamora to Vista Gold. As a result of the private placements to
Gribipe and Vista Gold, Gribipe owns approximately 57.0% and Vista Gold owns
approximately 26.5% of the outstanding common shares of Zamora. The warrants
will provide Gribipe with a mechanism to fund further exploration and
development of the major properties now under Zamora's control. If the
warrants are exercised in full, Gribipe will hold approximately 59.3% and
Vista Gold will hold approximately 25.0% of the outstanding common shares of
Zamora.
Gribipe is one of the largest mineral exploration companies in Ecuador and
has been involved in a number of important exploration projects in Ecuador.
Gribipe is now commencing studies to determine the feasibility of a limited
mining and processing operation at the Campanillas mine. At Campanillas,
Zamora has exercised an option to purchase a modern 150-tonne per day cyanide
mill and is undertaking sampling and geologic studies to determine if there
is sufficient ore available on Zamora's concessions to justify reactivation
of the mill. Zamora now controls over 86,000 acres (35,000 hectares) of
concessions in the Nambija region.
At the Campanillas mine, a complete survey of underground workings was
completed.
Resampling and mapping of underground workings was completed, comprising 600
channel samples and 800 chip samples. Eighteen core holes were completed for
a total of 1,814 feet (553 metres).
Zamora reports a mineable reserve of 13,230 tons at a grade of 0.32 ounces
per ton of gold. On the Campanillas concession, mineralization was located in
the Katy area, approximately 820 feet (250 metres) north of the Campanillas
mines. Three parallel, gold bearing veins are considered to have the
potential to contain at least double the current Campanillas reserve. On the
Nambija I concession, areas of skarn mineralization have been identified.
The Campanillas mine has been rehabilitated and an overhaul of the crushing
plant, ball mill and power generators were completed.
CANADA
The Corporation holds interests in two properties in Canada which continue to
be explored by joint venture partners. They are the Manville project in
Ontario and the Isle project in Manitoba.
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Falconbridge Limited performed initial drill testing on the Manville project
and Phelps Dodge Corp. performed initial drill testing on the Isle project.
1998 EXPLORATION EXPENDITURES
In the last two completed financial years, the Corporation incurred
expenditures of the following approximate dollar amounts on explor