Item 1. Financial Statements (unaudited)
Revett Mining
Company, Inc. and Subsidiaries
|
Contents
|
3
Revett Mining Company, Inc.
Consolidated Balance
Sheets
at June 30, 2014 and December 31, 2013
(expressed in thousands of United States dollars except share
and per share amounts)
(Unaudited)
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
6,060
|
|
$
|
7,951
|
|
Concentrate settlement and other receivables
|
|
4
|
|
|
1,164
|
|
Inventories
|
|
4,215
|
|
|
4,133
|
|
Prepaid expenses and deposits
|
|
486
|
|
|
414
|
|
Total current assets
|
|
10,765
|
|
|
13,662
|
|
Property, plant, and equipment (net)
|
|
68,794
|
|
|
65,108
|
|
Restricted cash
|
|
6,547
|
|
|
6,542
|
|
Available for sale securities
|
|
-
|
|
|
600
|
|
Other long term assets
|
|
735
|
|
|
736
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
86,841
|
|
$
|
86,648
|
|
|
|
|
|
|
|
|
Liabilities and shareholders
equity
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Trade accounts payable
|
$
|
1,000
|
|
$
|
954
|
|
Payroll liabilities
|
|
646
|
|
|
604
|
|
Income, property and mining taxes
|
|
144
|
|
|
588
|
|
Other accrued payable
|
|
57
|
|
|
19
|
|
Current portion of capital lease
obligations and note payable
|
|
401
|
|
|
925
|
|
Total current liabilities
|
|
2,248
|
|
|
3,090
|
|
|
|
|
|
|
|
|
Long term portion of capital lease obligations and note
payable
|
|
-
|
|
|
364
|
|
Reclamation and remediation liability
|
|
4,805
|
|
|
4,613
|
|
Deferred income taxes
|
|
-
|
|
|
25
|
|
Total liabilities
|
|
7,053
|
|
|
8,092
|
|
|
|
|
|
|
|
|
Commitments and contingencies (note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 25,000,000 authorized, no
shares issued and outstanding
|
|
-
|
|
|
-
|
|
Common stock, $0.01 par value 100,000,000
authorized, 39,148,989 and 34,596,387 shares issued and outstanding at
June 30, 2014 and December 31, 2013.
|
|
391
|
|
|
88,495
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
91,850
|
|
|
-
|
|
Accumulated other comprehensive gain, net of tax
|
|
-
|
|
|
45
|
|
Retained earnings (deficit)
|
|
(12,453
|
)
|
|
(9,984
|
)
|
Total equity
|
|
79,788
|
|
|
78,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
$
|
86,841
|
|
$
|
86,648
|
|
See accompanying notes to unaudited interim consolidated
financial statements.
4
Revett Mining Company, Inc.
Consolidated
Statements of Operations and Comprehensive income (loss)
Three and
six months ended June 30, 2014 and 2013
(expressed in
thousands of United States dollars except share and per share amounts)
(unaudited)
|
|
Three month
|
|
|
Three month
|
|
|
Six month
|
|
|
Six month
|
|
|
|
period ended
|
|
|
period ended
|
|
|
period ended
|
|
|
period ended
|
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
-
|
|
$
|
-
|
|
$
|
6
|
|
$
|
216
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Troy Mine suspension related costs
|
|
642
|
|
|
3,919
|
|
|
1,663
|
|
|
8,339
|
|
Depreciation and depletion
|
|
5
|
|
|
8
|
|
|
11
|
|
|
16
|
|
Exploration and development
|
|
196
|
|
|
322
|
|
|
432
|
|
|
639
|
|
General & administrative:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
26
|
|
|
142
|
|
|
394
|
|
|
333
|
|
Other
|
|
665
|
|
|
784
|
|
|
1,509
|
|
|
1,801
|
|
Accretion of reclamation and remediation liability
|
|
96
|
|
|
119
|
|
|
191
|
|
|
238
|
|
|
|
1,630
|
|
|
5,294
|
|
|
4,200
|
|
|
11,366
|
|
Income (loss) from operations
|
|
(1,630
|
)
|
|
(5,294
|
)
|
|
(4,194
|
)
|
|
(11,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
(2
|
)
|
|
(60
|
)
|
|
11
|
|
|
(672
|
)
|
Interest and other income
|
|
(3
|
)
|
|
15
|
|
|
1,285
|
|
|
11
|
|
Gain (loss) on available for sale
securities
|
|
-
|
|
|
(1,114
|
)
|
|
429
|
|
|
(1,376
|
)
|
Gain on warrant derivative
|
|
-
|
|
|
21
|
|
|
-
|
|
|
63
|
|
Total other income
(expenses)
|
|
(5
|
)
|
|
(1,138
|
)
|
|
1,725
|
|
|
(1,974
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
(1,635
|
)
|
|
(6,432
|
)
|
|
(2,469
|
)
|
|
(13,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax benefit (expense)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income benefit (expense)
|
|
-
|
|
|
2,377
|
|
|
-
|
|
|
4,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(1,635
|
)
|
$
|
(4,055
|
)
|
$
|
(2,469
|
)
|
$
|
(8,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
-
|
|
|
437
|
|
|
45
|
|
|
538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
(1,635
|
)
|
$
|
(3,618
|
)
|
$
|
(2,424
|
)
|
$
|
(7,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for basic earnings per
share
|
|
(1,635
|
)
|
$
|
(4,055
|
)
|
$
|
(2,469
|
)
|
$
|
(8,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for diluted earnings per
share
|
|
(1,635
|
)
|
$
|
(4,055
|
)
|
$
|
(2,469
|
)
|
$
|
(8,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
$
|
(0.04
|
)
|
$
|
(0.12
|
)
|
$
|
(0.07
|
)
|
$
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
$
|
( 0.04
|
)
|
$
|
(0.12
|
)
|
$
|
(0.07
|
)
|
$
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
outstanding
|
|
39,138,758
|
|
|
34,596,387
|
|
|
36,946,491
|
|
|
34,587,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of diluted shares
outstanding
|
|
39,138,758
|
|
|
34,596,387
|
|
|
36,946,491
|
|
|
34,587,785
|
|
See accompanying notes to unaudited interim consolidated
financial statements.
5
Revett Mining Company, Inc.
Consolidated
Statements of Cash Flows
Six months ended June 30, 2014 and 2013
(expressed in thousands of United States dollars except share
and per share amounts)
(unaudited)
|
|
Six month
|
|
|
Six month
|
|
|
|
period ended
|
|
|
period ended
|
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
Net income (loss) for the period
|
$
|
(2,469
|
)
|
$
|
(8,174
|
)
|
Adjustment to reconcile net income (loss)
to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
11
|
|
|
16
|
|
Deferred financing fee amortization
|
|
-
|
|
|
556
|
|
Accretion of reclamation and remediation liability
|
|
191
|
|
|
238
|
|
Loss on impairment of available for sale
securities
|
|
-
|
|
|
969
|
|
Stock based compensation
|
|
394
|
|
|
333
|
|
Loss (gain)on disposal of fixed assets
|
|
-
|
|
|
(22
|
)
|
Accrued interest from reclamation trust fund
|
|
(5
|
)
|
|
(6
|
)
|
Gain on insurance recovery for damage
equipment
|
|
(785
|
)
|
|
-
|
|
Gain on warrant derivative
|
|
-
|
|
|
(63
|
)
|
Deferred income tax
|
|
-
|
|
|
(4,950
|
)
|
Loss (gain) on sale of securities
|
|
(429
|
)
|
|
407
|
|
Changes in:
|
|
|
|
|
|
|
Concentrate settlement and other receivable
|
|
63
|
|
|
357
|
|
Inventories
|
|
(83
|
)
|
|
33
|
|
Prepaid expenses and other assets
|
|
(72
|
)
|
|
10
|
|
Accounts payable and accrued liabilities
|
|
(316
|
)
|
|
(2,697
|
)
|
Net cash provided (used) by operating activities
|
|
(3,500
|
)
|
|
(12,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
Purchase of plant and equipment
|
|
(3,696
|
)
|
|
(222
|
)
|
Proceeds from the sale of short term
investments
|
|
-
|
|
|
2,610
|
|
Proceeds from insurance recovery
|
|
1,882
|
|
|
-
|
|
Proceeds from the sale of fixed assets
|
|
-
|
|
|
35
|
|
Proceeds from sale of available for sale securities
|
|
959
|
|
|
352
|
|
Purchase of short term investments
|
|
-
|
|
|
-
|
|
Net cash provided (used) in investing activities
|
|
(855
|
)
|
|
2,775
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Proceeds from the sale of shares and
exercise of options, net
|
|
3,352
|
|
|
120
|
|
Repayment of capital leases and note payable
|
|
(888
|
)
|
|
(496
|
)
|
Net cash provided (used) by financing
activities
|
|
2,464
|
|
|
(376
|
)
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents
|
|
(1,891
|
)
|
|
(10,594
|
)
|
Cash and cash equivalents, beginning of period
|
|
7,951
|
|
|
18,986
|
|
Cash and cash equivalents, end of period
|
$
|
6,060
|
|
$
|
8,392
|
|
See accompanying notes to unaudited interim consolidated
financial statements.
6
Revett Mining Company, Inc.
Consolidated
Statements of Shareholders Equity
Six months ended June 30, 2014
and year ended December 31, 2013
(expressed in thousands of
United States dollars except share and per share amounts)
(unaudited)
|
|
Common Shares
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
other
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
earnings
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (loss)
|
|
|
(deficit)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012
|
|
34,492,389
|
|
$
|
87,727
|
|
$
|
|
|
|
(538
|
)
|
$
|
1,591
|
|
$
|
88,780
|
|
Issue of shares for exercise of options
|
|
49,000
|
|
|
25
|
|
|
|
|
|
-
|
|
|
-
|
|
|
25
|
|
Issue of shares for exercise of warrants
|
|
55,000
|
|
|
125
|
|
|
|
|
|
-
|
|
|
-
|
|
|
125
|
|
Unrealized gain on marketable securities, net of tax
|
|
-
|
|
|
-
|
|
|
|
|
|
583
|
|
|
-
|
|
|
583
|
|
Stock-based compensation on options granted
|
|
-
|
|
|
618
|
|
|
|
|
|
-
|
|
|
-
|
|
|
618
|
|
Net income for the period
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
(11,575
|
)
|
|
(11,575
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013
|
|
34,596,389
|
|
$
|
88,495
|
|
$
|
|
|
|
45
|
|
$
|
(9,984
|
)
|
$
|
78,556
|
|
Reclassification due to change in par value
of common shares
|
|
|
|
|
(88,149
|
)
|
$
|
88,149
|
|
|
|
|
|
|
|
|
|
|
Issue of shares for exercise of options
|
|
33,500
|
|
|
|
|
|
15
|
|
|
-
|
|
|
-
|
|
|
15
|
|
Issue of shares
|
|
4,499,100
|
|
|
45
|
|
|
3,292
|
|
|
-
|
|
|
-
|
|
|
3,337
|
|
Issue of shares for compensation
|
|
20,000
|
|
|
-
|
|
|
16
|
|
|
-
|
|
|
-
|
|
|
16
|
|
Unrealized gain on marketable securities,
net of tax
|
|
-
|
|
|
-
|
|
|
|
|
|
(45
|
)
|
|
-
|
|
|
(45
|
)
|
Stock-based compensation on options granted
|
|
-
|
|
|
|
|
|
378
|
|
|
-
|
|
|
-
|
|
|
378
|
|
Net loss for the period
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,469
|
)
|
|
(2,469
|
)
|
Balance, June 30, 2014
|
|
39,148,989
|
|
$
|
391
|
|
|
91,850 $
|
|
|
-
|
|
$
|
(12,453
|
)
|
$
|
79,788
|
|
See accompanying notes to unaudited interim consolidated
financial statements
7
Revett Mining Company, Inc.
Notes to Consolidated
Financial Statements
Three and six months ended June 30, 2014 and
2013
(expressed in thousands of United States dollars unless
otherwise stated)
(unaudited)
1. Basis of Presentation:
In the opinion of management, the accompanying unaudited
interim consolidated balance sheets and consolidated statements of operations
and comprehensive income (loss), cash flows, and shareholders equity contain
all adjustments, consisting of normal recurring items, necessary to present
fairly, in all material respects, the financial position of Revett Mining
Company, Inc. (Revett Mining Company or the Company) as of June 30, 2014,
and the results of its operations and its cash flows for the three and six month
periods ended June 30, 2014 and 2013. The operating and financial results for
Revett Mining Company for the three and six months ended June 30, 2014 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2014.
These unaudited interim financial statements have been prepared
by management in accordance with generally accepted accounting principles used
in the United States of America (U.S. GAAP) and are presented in U.S. dollars.
These unaudited interim consolidated financial statements do not include all
note disclosures required by U.S. GAAP on an annual basis, and therefore should
be read in conjunction with the annual audited consolidated financial statements
for the year ended December 31, 2013 filed with the appropriate securities
regulatory authorities.
Revett Mining Company, Inc. (formerly known as Revett Minerals
Inc.) was incorporated in Canada in August 2004 to acquire Revett Silver Company
and undertake a public offering of its common shares, transactions that were
completed in February 2005. Revett Silver Company, a Montana corporation, was
organized in April 1999 to acquire the Troy mine (Troy) and the Rock Creek
project (Rock Creek) from ASARCO Incorporated and Kennecott Montana Company,
transactions that were completed in October 1999 and February 2000. Revett
Mining Company changed its jurisdiction of incorporation (from Canada to
Delaware) and its name (from Revett Minerals, Inc. to Revett Mining Company,
Inc.) on February 18, 2014, following approval by shareholders at a special
meeting held on January 24, 2014. The Company conducts business through four
Montana corporations, all subsidiaries of its wholly-owned Revett Silver Company
subsidiary: Troy Mine, Inc., RC Resources, Inc., Revett Exploration, Inc. and
Revett Holdings, Inc.
Troy is an underground silver and copper mine located in
Lincoln County in northwestern Montana. ASARCO operated the mine from 1981 to
1993, and then placed it on care and maintenance because of low metals prices.
We restarted mining operations in late 2004 and commenced commercial production
in early 2005. We operated Troy continuously until December 2012, when
operations were suspended due to unstable underground conditions in portions of
the mine. After an unsuccessful attempt to find an alternative route to our
reserve mining areas, a decision was made to construct a new decline from the
service adit to the North C Beds, giving access to the A and C Beds, and then
continue to the undeveloped I Bed mining areas.
The Rock Creek project is located in Sanders County in
northwestern Montana, approximately sixteen air miles southeast of the Troy
Mine. Our proposed development of Rock Creek will occur in two phases. The first
phase entails a two year evaluation program to reconfirm geotechnical
assumptions and better define the economic and technical viability of the
project. The second phase will encompass underground mine and surface mill and
ancillary facilities construction. We cannot begin the evaluation program until we
receive final permits and approvals from the various Federal and State agencies
that exercise jurisdiction over the project.
8
Revett Mining Company, Inc.
Notes to Consolidated
Financial Statements
Three and six months ended June 30, 2014 and
2013
(expressed in thousands of United States dollars unless
otherwise stated)
(unaudited)
2. Changes affecting consolidated financial statements and
future accounting changes:
Accounting principles:
In May 2014, the FASB issued Accounting Standards Update No.
2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes
nearly all existing revenue recognition guidance under U.S. GAAP. The core
principle of ASU 2014-09 is to recognize revenues when promised goods or
services are transferred to customers in an amount that reflects the
consideration to which an entity expects to be entitled for those goods or
services. ASU 2014-09 defines a five step process to achieve this core principle
and, in doing so, more judgment and estimates may be required within the revenue
recognition process than are required under existing U.S. GAAP.
The standard is effective for annual periods beginning after
December 15, 2016, and interim periods therein, using either of the following
transition methods: (i) a full retrospective approach reflecting the application
of the standard in each prior reporting period with the option to elect certain
practical expedients, or (ii) a retrospective approach with the cumulative
effect of initially adopting ASU 2014-09 recognized at the date of adoption
(which includes additional footnote disclosures). We are currently evaluating
the impact of our pending adoption of ASU 2014-09 on our consolidated financial
statements and have not yet determined the method by which we will adopt the
standard in 2017.
3. Inventory
The major components of the Companys inventory accounts are as
follows:
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Concentrate inventory
|
$
|
524
|
|
$
|
530
|
|
Material and supplies
|
|
3,691
|
|
|
3,603
|
|
|
$
|
4,215
|
|
$
|
4,133
|
|
9
Revett Mining Company, Inc.
Notes to Consolidated
Financial Statements
Three and six months ended June 30, 2014 and
2013
(expressed in thousands of United States dollars unless
otherwise stated)
(unaudited)
4. Property, Plant and Equipment
The major components of the Companys mineral property, plant,
and equipment accounts are as follows:
|
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
Troy:
|
|
|
|
|
|
|
|
Property acquisition
and development costs
|
$
|
18,322
|
|
$
|
18,322
|
|
|
Plant and equipment
|
|
14,009
|
|
|
13,931
|
|
|
Construction in
progress
|
|
4,413
|
|
|
808
|
|
|
Buildings and structures
|
|
5,613
|
|
|
5,613
|
|
|
|
|
42,357
|
|
|
38,674
|
|
|
Rock Creek:
|
|
|
|
|
|
|
|
Property acquisition
costs
|
|
34,976
|
|
|
34,976
|
|
|
|
|
|
|
|
|
|
|
Other, corporate
|
|
4,330
|
|
|
4,330
|
|
|
Other, mineral properties
|
|
118
|
|
|
118
|
|
|
|
|
81,781
|
|
|
78,098
|
|
|
Accumulated depreciation and depletion:
|
|
|
|
|
|
|
|
Troy Property
acquisition and development costs
|
|
(7,332
|
)
|
|
(7,332
|
)
|
|
Troy plant and equipment
|
|
(3,861
|
)
|
|
(3,861
|
)
|
|
Troy buildings and
structures
|
|
(1,630
|
)
|
|
(1,630
|
)
|
|
|
|
(12,823
|
)
|
|
(12,823
|
)
|
|
Other corporate assets
|
|
(164
|
)
|
|
(167
|
)
|
|
|
|
(12,987
|
)
|
|
(12,990
|
)
|
|
|
$
|
68,794
|
|
$
|
65,108
|
|
The net book value of assets under capital leases at June 30,
2014 and December 31, 2013 was $1.6 million and $2.1 million, respectively.
Included in other corporate assets is Revett Holdings Inc., a
wholly owned subsidiary of Revett Silver Company, which owns mitigation lands
with a carrying value of $3.6 million. This land and other land not essential to
our mining operations are designated as grizzly bear habitat mitigation land.
The property costs for Rock Creek will be amortized when the property is placed
into production, or written off if it is determined that Rock Creek cannot be
developed.
5.
Available for sale securities
Available for sale securities are comprised of publically
traded common stocks which have been valued using quoted market prices in active
markets. The following table summarizes the Companys available for sale
securities at December 31, 2013:
Cost
|
$
|
1,499
|
|
Other than temporary impairment charge
|
|
(969
|
)
|
Unrealized gain
|
|
70
|
|
Fair value
|
$
|
600
|
|
10
Revett Mining Company, Inc.
Notes to Consolidated
Financial Statements
Three and six months ended June 30, 2014 and
2013
(expressed in thousands of United States dollars unless
otherwise stated)
(unaudited)
During the quarter ended March 31, 2014, the Company sold all
of its available for sale equity securities for approximately $1.0 million, and
recognized a gain of $0.4 million.
6. Long-term debt
(a) Capital leases and note payable
:
At June 30, 2014 and December 31, 2013, the balance of the
Companys note payable and capital lease obligations were as follows:
|
|
June 30,
|
|
|
Dec. 31,
|
|
|
|
2014
|
|
|
2013
|
|
Capital leases and note
payable
|
$
|
401
|
|
$
|
1,289
|
|
Less current portion
|
|
(401
|
)
|
|
(925
|
)
|
Long-term portion
|
$
|
-
|
|
$
|
364
|
|
The Company has a number of capital leases for mining equipment
for use at Troy. Minimum capital lease repayments for the next twelve months are
$403, of which $2 is interest at rates ranging from 1.6% to 4.1% .
(b) Revolving credit facility:
On December 10, 2011, the Company entered into a revolving
credit agreement with Societe Generale. No funds were drawn under the facility.
On February 28, 2013, primarily based upon the suspension of mining operations
at the Troy Mine, the Company and Societe Generale agreed to suspend the
facility. During the three months ended March 31, 2013, the Company expensed the
remaining unamortized deferred loan fee balance of $0.6 million, which is
included in interest expense. No expenses were incurred against this credit
facility during the six months ended June 30, 2014. There is no assurance that
this credit facility will be renewed.
11
Revett Mining Company, Inc.
Notes to Consolidated
Financial Statements
Three and six months ended June 30, 2014 and
2013
(expressed in thousands of United States dollars unless
otherwise stated)
(unaudited)
7. Share Capital
(a) Common Stock
During the first quarter 2014, the Company shareholders
approved a change of jurisdiction of incorporation from Canada to the United
States (the Domestication). As a result, the Company became Revett Mining
Company, Inc., a Delaware corporation. As a result of this change, a par value
of $0.01 was established for shares of common stock which previously had no par
value. The Company has one class of $0.01 par value common stock of which
100,000,000 are authorized for issue. The holders of common stock are entitled
to receive dividends without restriction when and if declared by the board of
directors. Holders of the Companys common stock are not entitled to preemptive
rights to acquire additional shares of common stock and do not have cumulative
voting rights.
During the six months ended June 30, 2014, the Company issued
33,500 common shares on exercise of stock options for cash proceeds of $15
thousand, issued 4,499,100 common shares on sale of common shares through a
private placement for cash proceeds of $3.3 million and issued 20,000 common
shares for compensation with a fair value of $16 thousand.
During the six months ended June 30, 2013, the Company issued
49,000 common shares on exercise of stock options and 55,000 common shares on
exercise of warrants for cash proceeds of $0.12 million.
12
Revett Mining Company, Inc.
Notes to Consolidated
Financial Statements
Three and six months ended June 30, 2014 and
2013
(expressed in thousands of United States dollars unless
otherwise stated)
(unaudited)
(b) Preferred Stock
The Company is authorized to issue 25,000,000 shares with a
$0.01 par value of preferred stock. The Companys board of directors is
authorized to create any series and, in connection with the creation of each
series, to fix by resolution the number of shares of each series, and the
designations, powers, preferences and rights; including liquidation, dividends,
conversion and voting rights, as they may determine. At June 30, 2014, no
preferred stock was issued or outstanding.
(c) Stock options
The Companys Equity Incentive Plan authorizes the Company to
reserve and have available for issue, 6,500,000 shares of common stock. There
were 1,045,000 stock options granted to employees during the six months ended
June 30, 2014 with an exercise price of $0.77 to $0.79, expiring in 2019. The
Company used the Black-Scholes option pricing model with a risk-free interest
rate of 0.58% - 0.67%, volatility of 69.22% -71.87% and an expected life of the
options of 30 months to estimate the fair values of the options. The weighted
average fair value per share was $0.344 for a total value of $0.4 million. These
stock options vest 100% on the date of issue. In addition, there were 60,000
stock options granted to consultants during the three months ended March 31,
2014 with an exercise price of $0.79, expiring on March 29, 2017. The Company
used the Black-Scholes option pricing model with a risk-free interest rate of
0.285%, volatility of 87.45% and an expected life of the options of 18 months to
estimate the fair values of the options. The weighted average fair value per
share was $0.32 for a total value of $2 thousand. These stock options vest 100%
on the date of issue. There were 1,094,500 stock options granted during the six
months ended June 30, 2013 with an exercise price of $2.16, expiring on March
21, 2018. The Company used the Black-Scholes option pricing model with a
risk-free interest rate of 0.33%, volatility of 52.16% and an expected life of
the options of 30 months to estimate the fair values of the options. The
weighted average fair value per share was $0.69 for a total value of $0.8
million. These stock options vest 25% at the end of each quarter in 2013. As at
June 30, 2014 and 2013, there was $0 and $0.3 million, respectively, of
unrecognized compensation costs relating to unvested stock options.
During the six months ended June 30, 2014, 281,500 options were
cancelled or expired and 33,500 options were exercised. As of June 30, 2014 and
2013, the intrinsic value of options outstanding and exercisable was $0.3
million and $0.03 million, respectively.
Total stock-based compensation recognized during the three and
six months ended June 30, 2014 was $0.02 million and $0.4 million, respectively
(2013 - $0.1 million and $0.3 million, respectively). During the three and six
months ended June 30, 2014, a total of $0.2 million and $0.02 million,
respectively (2013 - $0.1 million and $0.3 million, respectively) stock option
compensation was attributable to the Troy Mine employees and is included in the
amounts reported in general and administrative expense.
13
Revett Mining Company, Inc.
Notes to Consolidated
Financial Statements
Three and six months ended June 30, 2014 and
2013
(expressed in thousands of United States dollars unless
otherwise stated)
(unaudited)
As of June 30, 2014, the following stock options were
outstanding:
Options
|
Options
|
Exercise
|
Expiration
|
Granted
|
Exercisable
|
Price
|
Date
|
|
|
|
|
2,000
|
2,000
|
2.15
|
August 2, 2014
|
4,000
|
4,000
|
4.98
|
August 2, 2014
|
5,000
|
5,000
|
4.18
|
August 2, 2014
|
5,000
|
5,000
|
2.16
|
August 2, 2014
|
110,000
|
110,000
|
0.45
|
September 10, 2014
|
10,000
|
10,000
|
1.05
|
October 31, 2014
|
16,500
|
16,500
|
4.98
|
October 31, 2014
|
17,000
|
17,000
|
4.18
|
October 31, 2014
|
6,000
|
6,000
|
2.15
|
October 31, 2014
|
17,500
|
17,500
|
2.16
|
October 31, 2014
|
5,000
|
5,000
|
1.05
|
November 2, 2014
|
30,000
|
30,000
|
1.65
|
December 30, 2014
|
183,000
|
183,000
|
2.15
|
March 15, 2015
|
10,000
|
10,000
|
1.17
|
September 6, 2015
|
20,000
|
20,000
|
2.50
|
November 1, 2015
|
479,500
|
479,500
|
4.98
|
March 21, 2016
|
2,500
|
2,500
|
5.93
|
April 8, 2016
|
20,000
|
20,000
|
1.17
|
September 6, 2016
|
60,000
|
60,000
|
0.79
|
March 29, 2017
|
609,500
|
609,500
|
4.18
|
April 1, 2017
|
20,000
|
20,000
|
3.77
|
May 3, 2017
|
624,000
|
624,000
|
2.16
|
March 21, 2018
|
1,007,500
|
1,007,500
|
0.79
|
March 29, 2019
|
30,000
|
30,000
|
0.77
|
May 29, 2019
|
3,294,000
|
3,294,000
|
$2.46
|
|
(d) Stock Purchase Warrants
The following stock purchase warrants were outstanding at June
30, 2014 for the purchase of common shares of Revett Mining Company, Inc.:
Number
|
|
|
Exercise price
|
|
|
Expiration
|
|
|
|
|
|
|
|
|
|
1,153,844
|
|
|
USD $ 1.00
|
|
|
March 26, 2016
|
|
1,095,705
|
|
|
USD $ 1.00
|
|
|
March 31, 2016
|
|
2,249,549
|
|
|
|
|
|
|
|
14
Revett Mining Company, Inc.
Notes to Consolidated
Financial Statements
Three and six months ended June 30, 2014 and
2013
(expressed in thousands of United States dollars unless
otherwise stated)
(unaudited)
During the six months ended June 30, 2014, 2,249,549 new
warrants were issued and there were no warrants exercised. During the six months
ended June 30, 2013, 55,000 warrants were exercised and no warrants were issued.
8. Commitments and Contingencies
a) Reclamation
The following table shows the changes in the reclamation
liability for the periods indicated.
|
|
Six months ended
|
|
|
Six months ended
|
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
Reclamation and remediation
liability beginning of period
|
$
|
4,613
|
|
$
|
5,598
|
|
Accretion expense, year to date
|
|
192
|
|
|
238
|
|
Ending balance
|
$
|
4,805
|
|
$
|
5,836
|
|
b) Rock Creek Development
The Rock Creek project is located in Sanders County, Montana,
approximately five miles northeast of Noxon, Montana and sixteen air miles
southeast of Troy Mine. The project comprises 99 patented lode-mining claims,
370 unpatented lode-mining claims, five tunnel site claims, 85 mill site claims
and 754 acres of fee land. The patented claims lying within the Cabinet Mountain
Wilderness Area convey mineral rights only; the patented claims lying outside
the wilderness area convey both mineral and surface rights and title. The
patented claims were legally surveyed in 1983, patented in 1989, and occupy an
area of approximately 1,809 acres. We conduct our development activities at Rock
Creek through RC Resources Inc., another of our second-tier operating
subsidiaries. RC Resources Inc. is also the record holder of the various claims
and fee lands comprising the project.
Our proposed development of Rock Creek will occur in two
phases. The first phase, a two year evaluation program, will confirm and better
define the economic and technical viability of the project and reconfirm
geotechnical assumptions. This initial phase will include the construction of a
7,000 foot evaluation adit to collect additional technical information;
underground infill drilling to establish and confirm mineral resource estimates;
geotechnical design studies; bulk sampling of the mineralization for use in
metallurgical testing; and, to collect and evaluate hydrologic information. We
estimate the evaluation program will cost $25 million to $30 million. Once the
program is completed, we will commission a feasibility study and, if it is
positive, seek financing to construct a 10,000 tons per day mine and process
facility. More specific information concerning our proposed development of Rock
Creek is set forth in Item 2 of this report.
15
Revett Mining Company, Inc.
Notes to Consolidated
Financial Statements
Three and six months ended June 30, 2014 and
2013
(expressed in thousands of United States dollars unless
otherwise stated)
(unaudited)
We cannot begin the evaluation program until we receive final
permits and approvals from the various Federal and State agencies that exercise
jurisdiction over the project. Rock Creek is partially located on United States
Forest Service (the Forest Service) land within the Kootenai National Forest
and under the Cabinet Mountains Wilderness Area, and federal and state approval
is required before development can commence. In 2001, the Forest Service issued
a Final Environmental Impact Statement (Final EIS) under the National
Environmental Policy Act (NEPA). In 2003, the Forest Service and the Montana
Department of Environmental Quality (the DEQ) issued a joint administrative
decision approving our proposed plan of operations at Rock Creek (the Record of
Decision). The Record of Decision was based primarily on the findings in the
Final EIS and a companion biological opinion (the Biological Opinion) issued
by the U.S. Fish and Wildlife Service (USFWS) in 2003, pursuant to the
requirements of the Endangered Species Act (ESA). The project was challenged
by several regional and national environmental advocacy groups, culminating in a
May 2010 Montana Federal District Court decision that upheld the Biological
Opinion but remanded the Record of Decision to the Forest Service to address
several NEPA procedural deficiencies. The Federal District Court decision
upholding the Biological Opinion was affirmed by the Ninth Circuit Court of
Appeals in November 2012. The Forest Service is currently working to develop a
Supplemental EIS that will comply with the Federal District Courts decision.
We are also working to satisfy other federal and state
permitting requirements that are required for phase 1 development. These include
reclamation bonding, designing and constructing a water treatment facility, and
improving the road leading to the proposed evaluation adit site.
We currently own approximately 673 acres of fee land, located
in Lincoln and Sanders Counties, that has been designated for Grizzly bear
habitat mitigation lands as the Rock Creek project is developed. This land and
other current and future real estate holdings that are not essential to our day
to day mining operations are; or will be, held by Revett Holdings, Inc., a
wholly-owned Montana subsidiary of Revett Silver. Certain of these lands may
later be selected for management under the Revett Foundation according to a
best-use philosophy.
Although the Company believes that it will ultimately receive
all environmental and operating permits, it is possible that successful
challenges to the project could delay or prevent the Company from developing
Rock Creek which could result in the impairment and write-down of the carrying
value related to the Rock Creek property.
16
Revett Mining Company, Inc.
Notes to Consolidated
Financial Statements
Three and six months ended June 30, 2014 and
2013
(expressed in thousands of United States dollars unless
otherwise stated)
(unaudited)
9. Derivative instruments
Concentrate Sales Contracts
The Company enters into concentrate sales contracts with
buyers. The contracts, in general, provide for a provisional payment based upon
provisional assays and quoted metal prices and the provisionally priced sales
contain an embedded derivative that is required to be separated from the host
contract for accounting purposes. The host contract is the receivable from the
sale of concentrates at the forward price at the time of sale. The embedded
derivative, which is the final settlement based on a future price, does not
qualify for hedge accounting. These embedded derivatives are recorded in
Concentrate settlement and other receivables on the consolidated balance sheet
and are adjusted to fair value through earnings each period until the date of
final settlement.
Fixed Forward Contracts
At June 30, 2014, the Company did not have any fixed forward
contracts to sell silver or copper.
10. Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts
receivable, restricted cash, and accounts payable and accrued liabilities
approximate fair value due to their short time to maturity or ability to
immediately convert them to cash in the normal course. The carrying value of
concentrate settlement payable or receivable are marked to market each month
using quoted forward prices as at the last trading day of each month, and
accordingly are recognized at fair value. The carrying values of capital lease
obligations approximate fair market values as they are based on market rates of
interest.
The Company classifies financial instruments recognized at fair
value in accordance with a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value. The three levels of the fair
value hierarchy are described below:
Level 1
|
Unadjusted quoted prices in active markets that are
accessible at the measurement date for identical, unrestricted assets or
liabilities;
|
|
|
Level 2
|
Quoted prices in markets that are not active, or inputs
that are observable, either directly or indirectly, for substantially the
full term of the asset or liability; and
|
|
|
Level 3
|
Prices or valuation techniques that require inputs that
are both significant to the fair value measurement and unobservable
(supported by little or no market activity).
|
17
Revett Mining Company, Inc.
Notes to Consolidated
Financial Statements
Three and six months ended June 30, 2014 and
2013
(expressed in thousands of United States dollars unless
otherwise stated)
(unaudited)
The following table sets forth the Companys financial assets
and liabilities measured at fair value on a recurring basis by level within the
fair value hierarchy. Assets and liabilities are classified in their entirety
based on the lowest level of input that is significant to the fair value
measurement.
|
|
Fair value at June 30, 2014
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
6,060
|
|
$
|
6,060
|
|
$
|
-
|
|
$
|
-
|
|
|
|
Fair value at December 31, 2013
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
7,951
|
|
$
|
7,951
|
|
$
|
-
|
|
$
|
-
|
|
Available for sale securities
|
|
600
|
|
|
600
|
|
|
-
|
|
|
-
|
|
The Companys cash and cash equivalent instruments are
classified within Level 1 of the fair value hierarchy because they are valued
using quoted market prices.
The Companys available for sale securities are valued using
quoted market prices, and accordingly, are included in Level 1.
The Companys concentrate receivable embedded derivative, which
includes provisionally priced sales, are valued using pricing models and the
Company generally uses similar models to value similar instruments. Where
possible, the Company verifies the values produced by its pricing models to
market prices. Valuation models require a variety of inputs, including
contractual terms, market prices, and correlations of such inputs. Such
instruments are typically classified within Level 2 of the fair value hierarchy.
There were no such amounts existing at June 30, 2014 or December 31, 2013.
11. Income Taxes
For the three and six month periods ended June 30, 2014, the
Company did not report an income tax provision or benefit compared to an income
tax benefit of approximately $2.4 million and $4.9 million for the three and six
month periods ended June 30, 2013, respectively. The following table summarizes
the components of the Companys income tax provision (benefit) for the three and
six months ended June 30, 2014 and 2013:
18
Revett Mining Company, Inc.
Notes to Consolidated
Financial Statements
Three and six months ended June 30, 2014 and
2013
(expressed in thousands of United States dollars unless
otherwise stated)
(unaudited)
|
|
|
Three months
|
|
|
Three month
|
|
|
Six months
|
|
|
Six months
|
|
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
Deferred
|
|
-
|
|
|
(2,128
|
)
|
|
-
|
|
|
(4,432
|
)
|
|
Total
|
|
-
|
|
|
(2,128
|
)
|
|
-
|
|
|
(4,432
|
)
|
|
State:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Deferred
|
|
-
|
|
|
(249
|
)
|
|
-
|
|
|
(518
|
)
|
|
Total
|
$
|
-
|
|
$
|
(2,377
|
)
|
$
|
-
|
|
$
|
(4,950
|
)
|
As of June 30, 2014 management of the Company used the
guidelines contained in ASC 740 and evaluated the positive and negative evidence
available to determine whether a valuation allowance against the deferred tax
assets should be established. Management has determined that the Companys
negative evidence of a cumulative loss position after significant permanent
differences and the lack of future taxable income based on current conditions
regarding the Troy Mine outweighed the positive evidence. Management believes
that it is more likely than not the deferred tax assets will not be recovered.
Therefore a valuation allowance equal to 100% of the deferred tax assets has
been recorded.
The income tax provision (benefit) for the three and six months
ended June 30, 2014 and 2013 varies from the statutory rate primarily because of
the change in valuation allowance for net deferred tax assets and depletion. The
Company has estimated an effective tax rate of zero for 2014.
The Company has U.S. net operating loss carry forward of $44.0
million that expires at various dates between 2019 and 2034. Montana state net
operating losses of $34.0 million expire at various dates between 2014 and 2021.
The Company has a net capital loss carry forward of approximately $1.5 million
that expires in 2017 and 2018.
As a result of the reorganization of the Canadian company to a
U.S. company, the Canadian net operating loss of approximately $10.7 million was
forfeited upon the reorganization. Therefore, the Companys deferred tax asset
and valuation allowance has been reduced by approximately $2.8 million.
12. Earnings Per Common Share
For the three and six months ended June 30, 2014 and 2013,
options and warrants to purchase 5,543,549 and 4,470,938 shares, respectively,
of the Companys common stock were excluded from the computation of diluted
earnings per share because they were anti-dilutive.
19
Revett Mining Company, Inc.
Notes to Consolidated
Financial Statements
Three and six months ended June 30, 2014 and
2013
(expressed in thousands of United States dollars unless
otherwise stated)
(unaudited)
13. Comprehensive income
The components of other comprehensive income are as follows:
|
|
|
Three
|
|
|
Three
|
|
|
Six
|
|
|
Six
|
|
|
|
|
months
|
|
|
months
|
|
|
months
|
|
|
months
|
|
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
|
|
June
|
|
|
June
|
|
|
June
|
|
|
June
|
|
|
|
|
30,
|
|
|
30,
|
|
|
30,
|
|
|
30,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for sale
securities before tax
|
$
|
-
|
|
$
|
(442
|
)
|
$
|
-
|
|
$
|
(550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax effect
|
|
-
|
|
|
156
|
|
|
-
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for sale
securities, net of tax
|
|
-
|
|
|
(286
|
)
|
|
-
|
|
|
(356
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of loss on securities
included in net income (loss)
|
|
-
|
|
|
1,114
|
|
|
70
|
|
|
1,376
|
|
|
Related deferred tax effect
|
|
-
|
|
|
(391
|
)
|
|
(25
|
)
|
|
(482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
$
|
437
|
|
$
|
45
|
|
$
|
538
|
|
20
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
This Managements Discussion and Analysis (MD&A) of the
financial results of Revett Mining Company, Inc. (Revett Mining or the
Company) for the six month period ended June 30, 2014 should be read in
conjunction with the unaudited interim financial statements and notes as at and
for the six months ended June 30, 2014 which form part of this report. In
addition, this MD&A and related financial statements should be read in
conjunction with the 2013 audited consolidated financial statements, the related
Managements Discussion and Analysis, and the Form 10-K filed in in the United
States with the Securities and Exchange Commission (SEC) or on EDGAR, or on
file in Canada on SEDAR. These financial statements are expressed in United
States dollars, unless otherwise stated, and they are prepared in accordance
with United States generally accepted accounting principles (GAAP).
These unaudited interim consolidated financial statements have
been prepared by management in accordance with generally accepted accounting
principles used in the United States of America (U.S. GAAP) and are presented in
U.S. dollars.
Some of the statements in this MD&A are forward looking
statements that are subject to risk factors set out in the cautionary note
contained in this MD&A.
Overview and Important Factors Influencing Results for the
Six Months Ended June 30, 2014
The Company owns a 100% interest in Revett Silver Company
(Revett Silver), which in turn owns 100% of Troy Mine, Inc., RC Resources,
Inc., Revett Exploration, Inc. and Revett Holdings, Inc. Troy Mine is an
operating underground silver and copper mine and Rock Creek is a development
stage silver and copper property. Both properties are located in northwest
Montana.
We suspended operations at Troy Mine in December 2012 due to
unstable underground conditions in portions of the mine. In November 2013, after
unsuccessful attempts to find alternative routes to our reserve mining areas and
with approval from the Mine Safety and Health Administration (MSHA), we
commenced construction of a new decline from the main service adit to access the
North C Beds and the undeveloped I Beds. The initial decline totaling
approximately 7,500 feet (including dual drifts, cross-overs, muck bays, etc.)
to the North C Beds is forecasted to take approximately ten months which would
enable us to return to limited commercial production in the fourth quarter 2014.
Continued development to the deeper I Beds will require us to construct an
additional 5,900 feet of decline including an accompanying borehole for
secondary egress and ventilation. We anticipate this continued development will
take an additional six to nine months to complete; following which, we expect to
resume full production. The cost of constructing the decline to the North C Beds
in order to resume production is estimated to be approximately $5.9 million; the
total cost of the decline, including the extension to the undeveloped I Bed
area, is currently estimated to be approximately $12 million. Although we took
significant steps to improve our liquidity during the first half of 2014, we
currently do not have enough cash on hand to complete the I-Bed development and
are reviewing alternative sources of finance to meet our capital spending
requirements.
Overall Performance
As at June 30, 2014 the Company has working capital of $8.5
million. Due to the suspension of mining operations since December of 2012,
during 2013 and the first half of 2014 we were unable to generate production
revenues, which resulted in a net loss. For the three and six month periods ended June 30, 2014, the Company reported a net loss after
taxes of $1.6 million and $2.5 million or $0.04 and $0.07 a share, respectively,
compared to a net loss after taxes of $4.0 and $8.2 million or $0.12 and $0.24
per share, respectively, for the three and six months periods ended June 30,
2013.
21
Results of Operations for the Three and Six Months Ended
June 30, 2014 compared to the same periods in 2013.
Financial Results:
|
a)
|
Revenue:
Revenue for the first half of 2013
reflects the settlement of a few outstanding invoices. There was no
invoicing for concentrate sales during the first half of 2014 and 2013 due
to the suspension of mining activities described above.
|
|
|
|
|
b)
|
Troy Mine suspension related costs:
2013 spending reflects the costs related to attempts to repair access to the mine along with general costs of maintaining the Troy mine. 2014 spending reflects both the cost of I Bed development along with the general cost of maintaining the Troy mine. All of the spending related to the I Bed development was capitalized ($3.6 million for the six months ended June 30, 2014). The 2013 spending reflects the efforts to design a plan to resume mining operations and to maintain our staffing levels as we did not layoff any employees until May of 2013. In May, and again, in October of 2013, we reduced our staffing levels from over 200 employees to just over 60 employees at the Troy Mine.
|
|
|
|
|
c)
|
Depreciation and depletion:
For the three and six
month periods of 2014 and 2013, the depreciation expense is significantly
lower. The majority of the plant and equipment at Troy is depreciated
using the units-of-production method and the effect of the suspension of
mining operations resulted in no depreciation expense for the Troy
Mine.
|
|
|
|
|
d)
|
Exploration and development:
This expense includes
$0.4 million in 2014 spending for Rock Creek permitting. The spending in
2014 is lower than 2013 ($0.6 million) due to efforts to conserve cash. We
did not have any exploration spending during the first half of
2014.
|
|
|
|
|
e)
|
General and administration costs:
The decrease in
the corporate administration costs during the first half of 2014 and 2013
is a result of efforts to conserve cash due to suspension of mining
activities at the Troy Mine.
|
|
|
|
|
f)
|
Other income:
During the first half of 2014 we
sold our available for sale securities for a gain of $0.4 million and
recorded a gain of $1.3 million on the recovery of insurance proceeds
related to the damaged mine equipment.
|
|
|
|
|
g)
|
Net loss:
The net loss for the first half 2014 and
2013 reflects the suspension of mining activities at the Troy
Mine.
|
22
Summarized Financial Results by Quarter
|
2012
|
2013
|
2013
|
2013
|
2013
|
2014
|
2014
|
|
4Q
|
1Q
|
2Q
|
3Q
|
4Q
|
1Q
|
2Q
|
Cu Production
(million lbs)
|
1.0
|
-
|
-
|
-
|
-
|
-
|
-
|
Ag Production
(000s ozs)
|
161
|
-
|
-
|
-
|
-
|
-
|
-
|
Total Sales
(millions)
|
$7.2
|
$0.2
|
$0.0
|
$(0.1)
|
$0.0
|
$0.0
|
$0.0
|
Cash Flow from Operations before changes in
working capital (1) (millions)
|
$(0.02)
|
$(4.7)
|
$(3.9)
|
$(2.1)
|
$(1.4)
|
$(3.0)
|
$(4.2)
|
Net Income (loss)
(millions)
|
$(1.8)
|
$(4.1)
|
$(4.1)
|
$(0.6)
|
$(2.8)
|
$(0.8)
|
$(1.6)
|
EPS-
Basic
|
$(0.05)
|
$(0.12)
|
$(0.12)
|
$(0.02)
|
$(0.05)
|
$(0.02)
|
$(0.04)
|
EPS-
Fully diluted
|
$(0.05)
|
$(0.12)
|
$(0.12)
|
$(0.02)
|
$(0.05)
|
$(0.02)
|
$(0.04)
|
Cash and Cash Equivalents & Short term
Investments (millions)
|
$28.3
|
$21.0
|
$15.0
|
$12.1
|
$8.0
|
$9.0
|
$6.1
|
Total Assets ending
(millions)
|
$108.0
|
$100.2
|
$92.7
|
$91.2
|
$86.6
|
$89.8
|
$86.8
|
Total liabilities
(millions)
|
$19.2
|
$15.1
|
$11.1
|
$10.0
|
$8.1
|
$8.4
|
$7.0
|
Total Equity
(millions)
|
$88.8
|
$85.1
|
$81.7
|
$81.2
|
$78.5
|
$81.4
|
$79.8
|
(1) This is a non-GAAP measurement. These amounts reflect the
net cash flow from the Troy Mine before capital spending, equipment payments and
changes in working capital.
Financing Activities
During the first half of 2014, the Company did not enter into
any new capital leases. The Company has the following contractual financial
obligations (in thousands of USD):
|
|
|
|
|
Current
|
|
|
1 to 3
|
|
|
3 to 5
|
|
|
5 years or
|
|
Contractual obligation
|
|
Total
|
|
|
portion
|
|
|
years
|
|
|
years
|
|
|
more
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
$
|
401
|
|
$
|
401
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Long term reclamation costs
|
|
12,743
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
12,743
|
|
Total contractual
obligations
|
$
|
13,144
|
|
$
|
401
|
|
|
-
|
|
|
-
|
|
$
|
12,743
|
|
23
Revett Silver has also entered into a number of operating
leases relating to the production and transportation of the copper concentrate
produced at Troy. All such leases expire in 2014 and many may be renewed
annually. The obligations in 2014 under the terms of these leases are $0.4
million.
Liquidity and Capital Resources
The Companys liquidity position is directly related to the
level of concentrate production, cost of this production and the provisional and
final prices received for the copper and silver in the concentrate that is sold.
At June 30, 2014, working capital was $8.5 million, including cash and cash
equivalents of $6.1 million. At June 30, 2014, concentrate receivable and other
receivables was $0.004 million compared to $1.2 million at December 31, 2013. In
early April, 2014, we received the final settlement for an insurance claim for a
net cash proceeds of $1.9 million.
Delays in recommencing production at Troy could erode our cash
and working capital position. We continue to have discussions with interested
parties in possibly obtaining capital, however, no assurance can be given that
these efforts will prove successful. Given current market conditions, we may
experience difficulties in raising sufficient funds to meet our obligations and
complete construction of the development decline to gain access to the deeper
ore reserves at Troy. Because of our need to conserve cash, nearly all
discretionary capital spending and exploration spending has been placed on hold.
If we do not obtain additional financing, we may have to consider placing Troy
on care and maintenance status.
Off Balance Sheet Arrangements
Royal Gold, Inc. holds a 3% gross smelter royalty on a defined
area of production from Troy Mine and a 1% net smelter royalty on production
from Rock Creek pursuant to the terms of an amended royalty agreement dated
October 13, 2009.
Related Party Transactions
Trafigura AG is the sole purchaser of the silver and copper
concentrate we produce at Troy. It is also the beneficial owner of more than
five percent of our outstanding common shares, and is therefore a related party.
During the six months ended June 30, 2014 and 2013, there were no sales
transactions with Trafigura AG. However, during the six months ended June 30,
2014, Trafigura AG paid us $0.3 million for the purchase of 320,512 shares of
common stock (see note 7).
Principal Risks and Uncertainties
The following risk factors and other information in this report
contain forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. If any of the following
events or developments described below actually occur, our business, financial
condition or operating results could be materially harmed. This could cause the
market price of our common stock to decline.
24
Production Operations at Troy are currently suspended.
We suspended production operations at Troy in December 2012 due to
unstable underground conditions in portions of the mine. In November 2013, after
unsuccessful attempts to find alternative routes to our reserve mining areas and
with approval from the Mine Safety and Health Administration (MSHA), we
commenced construction of a new decline from the main service adit to
access the North C Beds and the undeveloped I Beds. The initial decline totaling
approximately 7,500 feet (including dual drifts, cross-overs, muck bays, etc.)
to the North C Beds will take approximately ten months which should enable us to
return to limited commercial production in the fourth quarter 2014. Continued
development to the deeper I Beds will require us to construct an additional
5,900 feet of decline including an accompanying borehole for secondary egress
and ventilation. We anticipate this continued development will take an
additional six to nine months to complete, following which we expect to resume
full production. The cost of constructing the decline to the North C Beds in
order to resume production is estimated to be approximately $5.9 million; the
total cost of the decline, including the extension to the undeveloped I Bed
area, is currently estimated to be approximately $12 million. Although we took
significant steps to improve our liquidity during the first quarter of 2014, we
currently do not have enough cash on hand to complete the I-Bed development and
are reviewing alternative sources of finance to meet our capital spending
requirements. There is no assurance our financing efforts will be successful
under current market conditions. Our business has been materially and adversely
affected by the suspension of commercial mining operations at Troy. This will
continue until we resume production.
Copper and silver prices fluctuate markedly.
Our
operations are significantly influenced by the prices of copper and silver.
Copper and silver prices fluctuate widely and are affected by numerous factors
that are beyond our control, such as the strength of the United States dollar,
global and regional industrial demand, and the political and economic conditions
of major producing countries throughout the world. During the last four years,
annual average copper prices have fluctuated from a low of $2.34 per pound in
2009 to a high of $4.00 per pound in 2011, and world average annual silver
prices have fluctuated from a low of $14.38 per ounce in 2009 to a high of
$35.11 per ounce in 2011.
There are other formidable risks to mining.
We
are subject to all of the risks inherent in the mining industry, including
industrial accidents, labor disputes, environmental related issues, unusual or
unexpected geologic formations, cave-ins, surface subsidence, flooding, power
disruptions and periodic interruptions due to inclement weather. These risks
could result in damage to or destruction of our mineral properties and
production facilities, personal injury, environmental damage, delays, monetary
losses and legal liability. In addition, we are subject to competition for new
minerals properties, management and skilled miners from other mining companies,
many of which have significantly greater resources than we do. We also have no
direct control over changes in governmental regulation of mining activities, the
speculative nature of mineral exploration and development, operating hazards,
fluctuating metal prices and inflation and other economic conditions.
Legal challenges could prevent us from ever developing
Rock Creek.
Our proposed development of Rock Creek has been challenged
by several regional and national conservation groups at various times since the
Forest Service issued its initial Record of Decision in 2003 approving our plan
of operation. Some of these challenges have alleged violations of a variety of
federal and state laws and regulations pertaining to our permitting activities
at Rock Creek, including the Endangered Species Act, the National Environmental
Policy Act, the 1872 Mining Law, the Federal Land Policy Management Act, the
Wilderness Act, the National Forest Management Act, the Clean Water Act, the
Clean Air Act, the Forest Service Organic Act of 1897 and the Administrative
Procedural Act. Although we have successfully addressed most all of these
challenges, we were directed by the Montana Federal District Court in May 2010
to produce a Supplemental EIS (SEIS) to address NEPA procedural deficiencies
identified by the court. We cannot predict with any degree of certainty how
possible future challenges will be resolved. Rock Creek is potentially the more
significant of our two mining assets. New court challenges to the Supplemental
EIS and a revised Record of Decision may delay us from proceeding with our
planned development at Rock Creek. If we are successful in completing the SEIS
and defending any challenges, we still must comply with a number of requirements
and conditions as development progresses, failing which we could be denied the
ability to continue with our proposed activities.
25
Our reclamation liability at Troy Mine could be
substantial.
Our financial obligations to reclaim, restore and close
Troy are presently covered by a $12.9 million surety bond, which includes $6.5
million in a restricted cash account. In late 2012, Montana DEQ and the U.S.
Forest Service issued a new EIS and Record of Decision pertaining to the Troy
reclamation. We do not presently know whether the revised reclamation plan will
increase our bonding costs. Laws governing the closure of mining operations in
Montana have become more stringent since Troy Mine was first placed into
production. These factors could result in the imposition of a higher performance
bond. Our reclamation liability for Troy is not limited by the amount of the
performance bond itself; the bond serves only as security for the payment of
these obligations. We would necessarily have to pay for any substantial increase
in actual costs over and above the maximum allowed under the bond.
We presently do not have the financial resources to
complete the construction of the new decline at Troy or to develop Rock Creek.
Although we are continuing efforts to procure financing, we presently do
not have sufficient funds to complete the construction of a new decline to the
North C Bed and deeper I Bed areas at Troy. We also do not have sufficient cash
to develop a mine or begin mining operations at Rock Creek should it prove
feasible to do so.
The Rock Creek mineral resources are not equivalent to
reserves.
This report includes information concerning the estimated size
of our mineral resource at Rock Creek and supplemental information concerning
the extent of the remaining mineral resource at Troy. Although we believe these
mineral resources are significant, it does not mean they can be economically
mined. A mineral resource is not equivalent to proven reserves or probable
reserves under standards promulgated by the SEC, principally because of the
absence of sufficient quantifiable data. We will not be able to determine
whether Rock Creek contains a commercially mineable ore body until our
evaluation program has been completed and we have obtained a final, economic and
technical feasibility study that will include an analysis of the amount of ore
that can be economically produced under then-prevailing market conditions.
Similarly, we will not be able to determine whether the supplemental mineral
resources at Troy can be commercially mined without further exploration and
study.
Stockholders are cautioned not to assume that mineral resources will
ever be converted into proven reserves or probable reserves.
Future accounting changes
In May 2014, the FASB issued Accounting Standards Update No.
2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes
nearly all existing revenue recognition guidance under U.S. GAAP. The core
principle of ASU 2014-09 is to recognize revenues when promised goods or
services are transferred to customers in an amount that reflects the
consideration to which an entity expects to be entitled for those goods or
services. ASU 2014-09 defines a five step process to achieve this core principle
and, in doing so, more judgment and estimates may be required within the revenue
recognition process than are required under existing U.S. GAAP.
The standard is effective for annual periods beginning after
December 15, 2016, and interim periods therein, using either of the following
transition methods: (i) a full retrospective approach reflecting the application
of the standard in each prior reporting period with the option to elect certain
practical expedients, or (ii) a retrospective approach with the cumulative
effect of initially adopting ASU 2014-09 recognized at the date of adoption
(which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU
2014-09 on our consolidated financial statements and have not yet determined the
method by which we will adopt the standard in 2017.
26
Financial Instruments, Hedging Activities and Other
Instruments
The largest market risk the Company is exposed to is changes in
the prices of copper and silver will have a significant effect on revenue, cash
flow and the value of concentrate receivables or payables because a significant
portion of the Companys sales are subject to a future pricing mechanism and
changes in metal prices will change both revenue and the value of concentrate
receivables or payables. The Company does have a hedging policy which permits
the Company to fix the sales price of copper and silver in concentrate to be
produced in the future or for which concentrate has been sold and for which
final settlement has not occurred.
For financial statement purposes, the Company records at fair
value the amount of silver and copper in concentrate sold to its customer for
which final prices have not yet been determined. At each month-end, the Company
adjusts its revenue to account for expected future prices and the corresponding
expected future revenue and cash flow. In order to do this, the Company must
make estimates of the future prices expected to prevail when final settlement
occurs. The Company uses published forward prices for the period of expected
settlement to estimate these expected prices.
As at June 30, 2014, the Company had no contracts outstanding
to sell silver or copper
Forward Looking Statements
Cautionary Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995.
With the exception of historical
matters, the matters discussed in this report are forward- looking statements
that involve risk and uncertainties that could cause actual results to differ
materially from projections or estimates contained herein. The words believe,
estimate, anticipate, expect, and project and similar expressions are
included to identify forward-looking statements. Such forward looking-statements
include statements regarding future production levels and operating costs at the
Troy mine, future levels of capital expenditures at both Troy and Rock Creek,
the reserve and resource estimates at both Troy and Rock Creek, the adequacy of
the financial resources and funds to cover operating and exploration costs at
Troy and the cost of exploration at Rock Creek, the timing of certain litigation
activities which have delayed exploration activities at Rock Creek, the adequacy
of third party financing to complete certain corporate development activities,
and the expectation that the Troy mine will be able to generate positive cash
flow in future periods. Factors that could cause actual results to differ
materially from these forward looking statements include, among others:
-
changes in copper and silver prices;
-
the operating performance of the Troy mine;
-
geological conditions at the Troy mine;
-
the need for copper concentrate by copper smelters and the costs
associated with selling such concentrate to the smelters;
-
the ability of the Company to complete exploration activities at the Rock
Creek project;
-
activities of certain environmental groups opposed to the Companys
activities in the United States;
-
changes in the planned Rock Creek project parameters;
27
-
changes in estimates of the reserves and resources at all the properties
owned or controlled by the Company;
-
economic and market conditions;
-
future financial needs and the Companys ability to secure such financing
under reasonable terms and conditions;
-
changes in federal or state legislation and regulations governing our
operations and projects;
-
risks of future unknown lawsuits respecting future planned activities on
our projects or past activities by the Company.
As well as other factors described elsewhere in our annual Form
10-K and the various regulatory filings with United States and Canadian and
provincial regulatory bodies which are available in Canada at www.sedar.com or
in the United States on EDGAR. Future events and actual results could differ
materially from those set forth in, contemplated by, or underlying the
forward-looking statements. Most of these factors are beyond our ability to
predict or control. Future events and actual results could differ materially
from those set forth in, contemplated by, or underlying the forward looking
statements. We disclaim any obligation to update any forward-looking statement
made here-in except as required by law. Readers are cautioned not to put undue
reliance on forward looking statements.