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| CGLD.OB > SEC Filings for CGLD.OB > Form 10-Q on 12-Mar-2009 | All Recent SEC Filings |
12-Mar-2009
Quarterly Report
Cautionary Statement on Forward-Looking Statements
Certain statements in this report constitute "forwarding-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Certain of such forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. All statements, other than statements of historical fact, included in this report regarding our financial position, business and plans or objectives for future operations are forward-looking statements. Without limiting the broader description of forward-looking statements above, we specifically note that statements regarding exploration, costs, grade, production and recovery rates, permitting, financing needs and the availability of financing on acceptable terms or other sources of funding are all forward-looking in nature.
Such forward-looking statements involve known and unknown risks, uncertainties and other factors, including, but not limited to, the factors discussed below in Part II; Item 1A. "Risk Factors," which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements and other factors referenced in this report. We do not undertake and specifically decline any obligation to publicly release the results of any revisions which may be made to any forward-looking statement to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
General
Through wholly owned subsidiaries, Capital Gold Corporation (the "Company" or "we") owns 100% of 16 mining concessions located in the Municipality of Altar, State of Sonora, Republic of Mexico totaling approximately 3,544 hectares (8,756 acres or 13.7 square miles). We commenced mining operations on two of these concessions in late March 2007 and achieved gold production and revenue from operations in early August 2007. We sometimes refer to the operations on these two concessions as the El Chanate Project.
On August 30, 2007, Independent Mining Consultants, Inc. ("IMC") of Tucson, AZ delivered to us an updated resource block model and an updated mine plan and mine production schedule (the "2007 Report"). According to the 2007 Report, our proven and probable reserve tonnage increased by approximately 98% from 19.9 million to 39.5 million metric tonnes with a gold grade of 0.66 grams per tonne (43.5 million US short tons at 0.019 ounces per ton). The open pit stripping ratio is 0.6:1 (0.6 tonnes of waste to one tonne of ore). The updated pit design for the revised plan in the 2007 Report is based on a plant recovery of gold that varies by rock types, but is expected to average 66.8%. A gold price of US$550 (three year average as of July 31, 2007 as determined by IMC) per ounce was used to re-estimate the reserves compared with a gold price of $450 per ounce used in the previous estimate.
The following production summary estimate has been extracted from the 2007 Report. Please note that the reserves as stated are an estimate of what can be economically and legally recovered from the mine and, as such, incorporate losses for dilution and mining recovery. The 832,280 ounces of contained gold represent ounces of gold contained in ore in the ground, and therefore do not reflect losses in the recovery process. Total gold produced is estimated to be 555,960 ounces, or approximately 66.8%
of the contained gold. The gold recovery rate is expected to average approximately 66.8% for the entire ore body. Individual portions of the ore body may experience varying recovery rates ranging from about 73% to 48%. Oxidized and sandstone ore types may have recoveries of about 73%; fault zone ore type recoveries may be about 64%; siltstone ore type recoveries may be about 48% and latite intrusive ore type recoveries may be about 50%.
Metric U.S.
Materials
Reserves
Proven 26.7 Million Tonnes 29.4 Million Tons @
Probable @ 0.68 g/t* 0.0198 opt*
Total Reserves 12.8 Million 14.1 Million Tons @
Waste Tonnes @ 0.61 g/t* 0.0179 opt*
Total 39.5 Million 43.5 Million Tons @
Tonnes @ 0.66 g/t* 0.0192 opt*
Contained Gold 24.1 Million Tonnes 26.6 Million Tons
63.6 Million Tonnes 70.1 Million tons
Production
Ore Crushed** 25.89 Million grams 832,280 Oz
Operating Days/Year 2.6 Million Tonnes 2.87 Million Tons/Year
Gold Plant Average Recovery /Year 8,267 t/d
Average Annual Production** 7,500 Mt/d
Total Gold Produced 365 Days per year
365 Days per year 66.8 %
66.8 % 43,414 Oz
1.35 Million grams 555,960 Oz
17.29 Million grams
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* "g/t" means grams per metric tonne, "opt" means ounces per ton, "Mt/d" means metric tonnes per day and "t/d" means tons per day. The reserve estimates are based on a recovered gold cutoff grade of 0.17 to 0.21 grams per metric tonne, depending on the operating year, and as described below.
** Based on mining rate of 7,500 metric tonnes per day of ore. It does not take into account the anticipated increase of 10,000 metric tonnes per day or more.
El Chanate Project
Production Summary
In the mineral resource block model developed, with blocks 6m (meters) x 6m x 6m high, Measured and Indicated resources (corresponding to Proven and Probable reserves, respectively, when within the pit design) were classified in accordance with the following scheme:
· Blocks with 2 or more drill holes within a search radius of 80m x 70m x 40m and with a relative kriging (a geostatistical calculation technique) standard deviation less than or equal to 0.45 were classified as Measured (corresponding to Proven);
· Blocks with 1 hole within the search radius of 80m x 70m x 40m and with a relative kriging standard deviation of 0.60 or less, blocks with 2 holes and a kriging standard deviation of 0.70 or less, blocks with 3 holes and a kriging standard deviation of 0.80 or less, blocks with 4 holes and a relative kriging standard deviation of 0.90 or less and all blocks with 5 or more holes within the search radius were classified as Indicated (corresponding to Probable), unless they met the above criterion for Proven;
· Blocks with a grade estimate that did not meet the above criteria were classified as Inferred (and were classed as waste material in the mining reserves estimate);
· Blocks outside the above search radii or outside suitable geological zones were not assigned a gold grade or a resource classification.
The proven and probable reserve estimates are based on a recovered gold cutoff grade of 0.17 to 0.21 grams/tonne, depending on the operating year. The variation is due to balancing the mine and plant production capacities on a year by year basis for the plan. (A recovered gold cutoff grade was used for reserves calculation as the head gold grade cutoff varies with the different ore types due to their variable gold recoveries.) The internal (in-pit) and break even cutoff grade calculations are as follows:
Cutoff Grade Calculation Internal Cutoff Grade Break Even Cutoff Grade Basic Parameters Gold Price US$550/oz US$550/oz Shipping and Refining US$ 4.14/oz US$ 4.14/oz Gold Recovery 66.8% 66.8% Royalty 4% of NSR 4% of NSR Operating Costs per Tonne of Ore $ per Tonne of Ore $ per Tonne of Ore Mining * 0.070 1.360 Processing/Leach Pad 1.980 1.980 G&A 0.800 0.800 Total 2.850 4.140 Internal Cutoff Grade Grams per Tonne Grams per Tonne Head Grade Cutoff (66.8% recov.) 0.25 0.37 Recovered Gold Grade Cutoff 0.17 0.25 |
* The calculation of an internal cutoff grade does not include the basic mining costs (which are considered to be sunk costs for material within the designed pit). The $0.07 per tonne cost included is the incremental (added) cost of hauling ore over hauling waste, and which is included in the calculation.
We commenced production at the El Chanate property on July 31, 2007. For the six months ended January 31, 2009 and 2008, we sold 24,690 and 18,744 ounces of gold, respectively. Gold production at El Chanate is currently at a level of approximately 5,000 ounces of gold per month. We have implemented steps which we anticipate will effectively increase annualized production rates to approximately 70,000 ounces per year in 2009. We have paid $674 over the past few months as deposits on the procurement of a new secondary crusher with the intention of increasing the throughput within the crushing circuit The total cost for this piece of equipment is approximately $1,012. We completed the leach pad expansion and ADR plant improvements in January 2009. Management has been, and anticipates that it will continue to, fund expansion costs with its cash on hand as well as through revenues from gold sales.
The following table represents a summary of our proven and probable mineral reserves.
January 31, July 31,
Proven and probable mineral reserve (Ktonnes of ore) 2009 2008
Ore - -
Beginning balance (Ktonnes) 35,286 38,785
Additions - -
Reductions (1,905 ) (3,499 )
Ending Balance 33,381 35,286
Contained gold
Beginning balance (thousand of ounces) 719 814
Additions - -
Reductions (53 ) (95 )
Ending Balance 666 719
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In September 2008, we initiated a 10 hole deep core drilling campaign at our El Chanate mine consisting of 2,500 meters, which targeted the southern extremity of the main pit. Once this data has been compiled and analyzed, it will be combined with results from a previous drilling campaign initiated in December 2007 which consisted of 26 reverse circulation holes amounting to 4,912 meters. These drill holes were mainly positioned to test the outer limits of the currently known ore zones within the main pit. All data will be combined with the intention of increasing proven and probable reserves.
We recently leased 12 mining concessions totaling 1,790 hectares located northwest of Saric, Sonora. In addition, we own a claim for approximately 2,200 additional hectares adjacent to this property. These concessions and this claim are about a 60 mile drive northeast of the El Chanate project. Mineralization is evident throughout and is hosted by shear zones and quartz veins in granite intrusive. A short drill program, along with geochemical work, remains underway.
We continue to actively investigate other exploration projects in northern Mexico.
Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited interim financial statements and related notes included elsewhere in this report.
The Company reports total cash cost on a sales basis. Total cash cost includes mine site operating costs such as mining, processing, administration, royalties and production taxes, but is exclusive of amortization, reclamation, capital and exploration costs. Total cash cost is then divided by ounces sold to arrive at the total cash cost of sales. The measure, along with sales, is considered to be a key indicator of a company's ability to generate operating earnings and cash flow from its mining operations. This data is furnished to provide additional information and is a non-GAAP measure. It should not be considered in isolation as a substitute for measures of performance prepared in accordance with GAAP and is not necessarily indicative of operating costs presented under GAAP.
Three months ended January 31, 2009 compared to three months ended January 31, 2008
Net income for the three months ended January 31, 2009 and 2008 was approximately $3,196 and $2,126, respectively, representing an increase of approximately 50% over the prior period. Net income before income taxes was $4,978 and $2,291 for the three months ended January 31, 2009 and 2008, respectively, which represented an increase of 117%. Net income and net income before tax increased primarily as a result of higher revenues and ounces sold during the current quarter as compared to the same period a year ago. There was minimal income tax expense in the prior period due to a net operating loss carryforward within our wholly-owned subsidiary, MSR, that offset tax that would otherwise have been due. This loss carry-forward was fully utilized as of December 31, 2007. Net income per common share was $0.02 and $0.01 for the three months ended January 31, 2009 and 2008, on both a basic and diluted basis, respectively.
Revenues & Costs Applicable to Sales
Gold sales in the current period totaled approximately $11,369 as compared to $8,043 in the prior period representing an increase of approximately $3,326 or 41%. We sold 13,277 ounces at an average realizable price per ounce of approximately $856 in the current period. We sold 9,550 ounces at an average realizable price per ounce of $843 during the same period last year.
Costs applicable to sales were approximately $3,655 and $2,419, respectively, for the three months ended January 31, 2009 and 2008, an increase of approximately $1,236 or 51%, which increased in conjunction with our increase in revenues. Our cash cost and total cost per ounce sold, including royalties, was $251 and $290, respectively, for the three months ended January 31, 2009. For the three months ended January 31, 2008, cash and total cost per ounce sold was $252 and $315, respectively. Cash costs in the current period were consistent with the same period in the prior year. Total costs per ounce sold decreased versus the same period last year primarily due to 3,727 more gold ounces being sold during the current period versus the prior period.
Revenues from by-product sales (silver) are credited to Costs applicable to sales as a by-product credit. Silver sales totaled 20,000 ounces amounting to approximately $225 during the three months ended January 31, 2009. There were no silver sales during the same period last year.
Depreciation and Amortization
Depreciation and amortization expense during the three months ended January 31, 2009 and 2008 was approximately $755 and $881, respectively. The primary reason for the decrease of approximately $126 was due to amortization charges recorded in the prior period related to the repurchase of the 5% net profit interest acquired in 2006 for $500. This was fully amortized during the quarterly period ended April 30, 2008. Depreciation and amortization also includes deferred financing costs resulting from the credit arrangements entered into with Standard Bank Plc. This accounted for approximately $247 and $272 of depreciation and amortization expense during the three months ended January 31, 2009 and 2008, respectively.
General and Administration Expense
General and administrative expenses during the three months ended January 31, 2009 were approximately $1,061, a decrease of approximately $310 or 23% from the three months ended January 31, 2008. The decrease in general and administrative expenses was primarily due to smaller bonuses paid in the three months ended January 31, 2009 compared to the three months ended January 31, 2008.
Exploration Expense
Exploration expense during the three months ended January 31, 2009 and 2008 was approximately $406 and $496, respectively, or a decrease of $90 or 18%. Exploration costs during the current period mainly consisted of on-going exploration and geochemical work being conducted on our leased concessions located northwest of Saric, Sonora. Exploration expense in the prior period included a drilling campaign initiated in December 2007 which consisted of 26 reverse circulation holes amounting to 4,912 meters which represented the primary reason for costs decreasing during the current period.
Other Income and Expense
Our loss on the change in fair value of derivative instruments during the three months ended January 31, 2009 and 2008, was approximately $274 and $342, respectively, and was reflected as an "Other Expense." This was primarily due to the change in fair value of our two identically structured derivative contracts with Standard Bank which correlates to fluctuations in the gold price. These contracts were not designated as hedging derivatives; and therefore, special hedge accounting does not apply.
Interest expense was approximately $227 for the three months ended January 31, 2009 compared to approximately $288 for the same period a year earlier. This decrease was mainly due to lower interest charges incurred during the current period related to our credit arrangements with Standard Bank. As of January 31, 2009, there was $10,250 outstanding on our term note.
Six months ended January 31, 2009 compared to six months ended January 31, 2008
Net income for the six months ended January 31, 2009 and 2008 was approximately $5,133 and $3,873, respectively, representing an increase of approximately 33% over the prior period. Net income before income taxes was $7,842 and $4,038 for the six months ended January 31, 2009 and 2008, respectively, which represented an increase of 94%. Net income and net income before tax increased primarily as a result of higher revenues and ounces sold during the six months ended January 31, 2009, as compared to the same period a year ago. There was minimal income tax expense in the prior period due to a net operating loss carryforward within our wholly-owned subsidiary, MSR, that offset tax that would otherwise would have been due. This loss carry-forward was fully utilized as of December 31, 2007. Net income per common share was $0.03 and $0.02 for the six months ended January 31, 2009 and 2008, on both a basic and diluted basis, respectively.
Revenues & Costs Applicable to Sales
Gold sales in the current period totaled approximately $20,544 as compared to $14,569 in the prior period representing an increase of approximately $5,975 or 41%. We sold 24,690 ounces at an average realizable price per ounce of approximately $832 in the current period. We sold 18,744 ounces at an average realizable price per ounce of $779 during the same period last year.
Costs applicable to sales were approximately $6,697 and $4,568, respectively, for the six months ended January 31, 2009 and 2008, an increase of approximately $2,129 or 47%, which increased in conjunction with our increase in revenues. Our cash cost and total cost per ounce sold, including royalties, was $260 and $299, respectively, for the six months ended January 31, 2009. For the six months ended January 31, 2008, cash and total cost per ounce sold was $246 and $314, respectively. The primary reason we experienced a cash cost increase this period versus the prior period was attributable to the Company incurring $806 on the net profit interest due to Royal Gold. As of January 31, 2009, we had approximately $1,000 accrued towards this net profit interest which represents the total amount due under our agreement.
Revenues from by-product sales, which consist of silver, are credited to Costs applicable to sales as a by-product credit. By-product sales amounted to $524 and $145 for the six months ended January 31, 2009 and 2008, on silver ounces sold of 45,334 and 10,000, respectively.
Depreciation and Amortization
Depreciation and amortization expense during the six months ended January 31, 2009 and 2008 was approximately $1,458 and $1,830, respectively. The primary reason for the decrease of approximately $372 or 20% was due to amortization charges recorded in the prior period related to the repurchase of the 5% net profit interest acquired in 2006 for $500. This was fully amortized during the quarterly period ended April 30, 2008 and $378 was amortized through January 31, 2008. Depreciation and amortization also includes deferred financing costs resulting from the credit arrangements entered into with Standard Bank Plc. This accounted for approximately $484 and $544 of depreciation and amortization expense during the six months ended January 31, 2009 and 2008, respectively.
General and Administration Expense
General and administrative expenses during the six months ended January 31, 2009 were approximately $2,438, an increase of approximately $158 or 7% from the six months ended January 31, 2008. The increase in general and administrative expenses resulted primarily from: 1) higher salaries and wages due to the hiring of additional finance and administrative personnel, 2) the effect of compensation increases to executives enacted in the prior year to levels more commensurate with industry rates, and 3) higher stock compensation expense resulting from the vesting of certain stock options and restricted stock grants issued to officers, directors and employees in the prior year. The above mentioned increases in compensation, as well as the stock option and restricted stock awards, were granted based upon recommendations from an independent report on executive compensation in the prior year. This independent report, requested by our Compensation Committee, was obtained in order to assist us in attracting and retaining individuals of experience and ability, to provide incentive to our employees and directors, to encourage employee and director proprietary interests in the Company, and to encourage employees to remain in our employ.
Exploration Expense
Exploration expense during the six months ended January 31, 2009 and 2008 was approximately $896 and $631, respectively, or an increase of $265 or 42%. The primary reason for the increase can be attributable to increased activity during the current period associated with on-going exploration and geochemical work being conducted on our leased concessions located northwest of Saric, Sonora. Exploration expense for the current period also included costs incurred from a 10 hole deep core drilling campaign at our El Chanate mine totaling 2,500 meters which targeted the southern extremity of the main pit. Exploration expense in the prior period included a drilling campaign initiated in December 2007 which consisted of 26 reverse circulation holes amounting to 4,912 meters. These drill holes were mainly positioned to test the outer limits of the currently known ore zones within the main pit. All data will be combined with the intention of increasing proven and probable reserves.
Other Income and Expense
Our loss on the change in fair value of derivative instruments during the six months ended January 31, 2009 and 2008, was approximately $578 and $703, respectively, and was reflected as an "Other Expense." This was primarily due to the change in fair value of our two identically structured derivative contracts with Standard Bank, which correlates to fluctuations in the gold price. These contracts were not designated as hedging derivatives and, therefore, special hedge accounting does not apply.
Interest expense was approximately $427 for the six months ended January 31, 2009 compared to approximately $569 for the six months ended January 31, 2008. This decrease was mainly due to lower interest charges incurred during the current period related to our credit arrangements with Standard Bank. As of January 31, 2009, there was $10,250 outstanding on our term note.
Changes in Foreign Exchange Rates
During the six months ended January 31, 2009 and 2008, we recorded equity
adjustments from foreign currency translations of approximately $3,530 and $27,
respectively. These translation adjustments are related to changes in the rates
of exchange between the Mexican Peso and the U.S. dollar and are included as a
component of other comprehensive income. The Mexican Peso and the U.S. dollar
exchange rate as of January 31, 2009 was 14.2847. As of July 31, 2008, such
exchange rate was 10.0483.
Summary of Quarterly Results
(000's except per share Data)
For the three For the three For the six For the six
months ended months ended months ended months ended
January 31, January 31, January 31, January 31,
2009 2008 2009 2008
Revenues $ 11,369 $ 8,043 $ 20,544 $ 14,569
Net Income $ 3,196 $ 2,126 $ 5,133 $ 3,873
Basic net income
per share $ 0.02 $ 0.01 $ 0.03 $ 0.02
Diluted net
income per share $ 0.02 $ 0.01 $ 0.03 $ 0.02
Gold ounces sold $ 13,277 $ 9,550 $ 24,690 $ 18,744
Average price
received $ 856 $ 843 $ 832 $ 779
Cash cost per
ounce sold $ 251 $ 252 $ 260 $ 246
Total cost per
ounce sold $ 290 $ 315 $ 299 $ 314
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