Vista Gold - 10-Q quarterly report FY

Washington, D.C.  20549

FORM 10-Q

(Mark One)

Commission File Number 1-9025

VISTA GOLD CORP.

(Exact name of registrant as specified in its charter)

(720) 981-1185

(Registrant’s telephone number, including area code)

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 such filing requirements for the past 90 days.

Yes  ý  No  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

Yes  o  No  ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

17,924,007

Common Shares, without par value, outstanding at November 9, 2004

VISTA GOLD CORP.

(An Exploration Stage Enterprise)

FORM 10-Q

For the Quarter Ended September 30, 2004

INDEX

In this Report, unless otherwise indicated, all dollar amounts are expressed in United States dollars.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars unless specified otherwise)

1.                                      General

The consolidated interim financial statements of Vista Gold Corp. (an Exploration Stage Enterprise) (the “Corporation”), as of September 30, 2004, and for the three-month and nine-month periods ended September 30, 2004, have been prepared by the Corporation without audit and do not include all of the disclosures required by generally accepted accounting principles in Canada for annual financial statements. As described in Note 11, generally accepted accounting principles in Canada differ in certain material respects from generally accepted accounting principles in the United States.  In the opinion of management, all of the adjustments necessary to fairly present the interim financial information set forth herein have been made.  These adjustments are of a normal and recurring nature. The results of operations for interim periods are not necessarily indicative of the operating results of a full year or of future years.  These interim financial statements should be read in conjunction with the financial statements and related footnotes included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003.

These interim financial statements follow the same accounting policies and methods of their application as the most recent annual financial statements, with the exception that on January 1, 2004, the Corporation adopted the fair value based method of accounting for stock-based compensation. Previously, the Corporation did not record any compensation cost on the granting of stock options to employees and directors as the exercise price was equal to or greater than the market price at the date of the grants. The adoption of the fair value method resulted in a cumulative increase of $971,000 to the opening deficit at January 1, 2004 and increases of $139,000 and $832,000 to common share capital and stock options, respectively, at January 1, 2004.

2.                                      Nature of operations

The Corporation evaluates, acquires and explores gold exploration and potential development projects. As such, the Corporation is considered an Exploration Stage Enterprise and has been since January 1, 2002.  The Corporation’s approach to acquisitions of gold projects has generally been to seek projects within political jurisdictions with well established mining, land ownership and tax laws, which have adequate drilling and geological data to support the completion of a third-party review of the geological data and to complete an estimate of the gold mineralization.  In addition, the Corporation looks for opportunities to improve the value of its gold projects through exploration drilling, and/or reengineering the operating assumptions underlying previous engineering work.

3.                                      Restricted cash

The Corporation has paid $3.4 million and assigned collateralized letters of credit for $1.7 million, for an aggregate amount of $5.1 million, for a new bonding instrument provided by member companies of American International Group, Inc. which includes an insurance component and covers all existing reclamation liabilities at the Hycroft mine (Note 9).

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4.                                      Mineral properties

The recoverability of the carrying values of the Corporation’s mineral properties is dependent upon the successful start-up and commercial production from, or sale, or lease, of these properties and upon economic reserves being discovered or developed on the properties.  Development and/or start-up of any of these projects will depend, among other things, on management’s ability to raise additional capital for these purposes.  Although the Corporation has been successful in raising such capital in the past, there can be no assurance that it will be able to do so in the future.

5.                                      Plant and equipment

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6.                                      Capital stock

Common Shares issued and outstanding

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7.                                      Warrants

Warrants granted, exercised and outstanding during the period are summarized in the following table:

8.                                      Stock options

The total number of options outstanding at the end of the quarter is 705,125 with exercise prices ranging from approximately $1.86 to $4.76 and remaining lives of 1.6 to 4.9 years.  The total number of options outstanding represents 4.0% of issued capital.

Under the Corporation’s Stock Option Plan, 30,000 stock options were issued to non-employees of the Corporation in March 2004 and have been recorded at an estimated fair value of $93,387 using the Black-Scholes option pricing model.  In May 2004, 10,000 stock options were issued to an employee and have been recorded at fair value of $12,229. Also, in August 2004, 60,000 stock options were issued to an employee and have been recorded at fair value of $66,135. In addition, compensation expense of $176,745 was recognized during the nine months ended September 30, 2004, for options previously granted and vesting over time.

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Effective January 1, 2004, the Corporation adopted the fair value method of accounting for stock-based compensation (Note 1). Had compensation expense been recorded using the fair value method for the nine months ended September 30, 2003, the Corporation’s loss and loss per share would have been adjusted to the pro forma amounts indicated below:

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The fair value of stock options granted to employees and directors was estimated at the grant date based on the Black-Scholes option pricing model, using the following weighted average assumptions:

Option pricing models require the input of highly subjective assumptions including the expected price volatility.  Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore, the existing models do not necessarily provide a reliable measure of the fair value of the Corporation’s stock options.

9.                                      Commitments and contingencies

The Bureau of Land Management, Nevada State Office (“BLM”) has required the Corporation to provide a total surety amount of $6.8 million for the approved Hycroft mine reclamation plan.  In December 2003, the Corporation’s wholly-owned subsidiary Hycroft Resources & Development, Inc. (“HRDI”) reached agreement with member companies of American International Group, Inc. for a new bond package for the Hycroft mine which includes an insurance component and covers all existing reclamation liabilities at Hycroft.  The new bond calls for an initial payment of $4.0 million and two additional payments of $1.3 million each due July 22, 2004, and December 22, 2004; the July 22, 2004 payment was made.  The Corporation has remitted payment of $3.4 million and assigned letters of credit for $1.7 million to be applied to the initial payment amount.  On April 16, 2004, the BLM approved the new insurance/assurance bonding instrument which has accordingly replaced the former bond made up of a $5.1 million non-cash collateralized bond from American Home Insurance Company, letters of credit of $1.7 million posted directly with the BLM and the existing indemnity agreement between the Corporation and its HRDI subsidiary.

The Corporation estimates that the related asset retirement expenditures will commence approximately five years after the start-up of the Hycroft mine (an event not scheduled) and continue for several years after that time.  Using a credit-adjusted rate of 7.75%, the fair value of the estimated $6.8 million obligation is $4.2 million, as accrued in these financial statements.

10.                               Geographic and segment information

The Corporation evaluates, acquires and explores gold exploration and potential development projects.  These activities are focused principally in North America and South America. Substantially all related costs are incurred in the United States. The Corporation reported no revenues in the three-month or nine-month periods ended September 30, 2004, or for the same periods in 2003.  Geographic segmentation of capital assets is provided in Notes 4 and 5.

11.                               Differences between Canadian and United States generally accepted accounting principles

The Corporation prepares its financial statements in accordance with accounting principles generally accepted in Canada, which differ in some respects from those in the United States.  The significant differences between generally accepted accounting principles (“GAAP”) in Canada and in the United States, as they relate to these financial statements, are as follows:

(a)                               In accordance with U.S. GAAP, exploration, mineral property evaluation, holding costs, option payments and related acquisition costs for mineral properties acquired under an option agreement are expensed as incurred.  When proven and probable reserves are determined for a property and a bankable feasibility study is completed, then subsequent exploration and development costs on the

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property would be capitalized.  Total capitalized cost of such properties is measured periodically for recoverability of carrying value under SFAS No. 144.

(b)                               In accordance with U.S. GAAP, items such as marketable securities are to be measured at fair value at the balance sheet date and related unrealized gains and losses are required to be shown separately in the derivation of comprehensive income.

(c)                                Under Canadian corporate law, the Corporation underwent a capital reduction in connection with the amalgamation of Granges, Inc. (“Granges”) and Hycroft Resources & Development, Inc. whereby share capital and contributed surplus were reduced to eliminate the consolidated accumulated deficit of Granges as of December 31, 1994, after giving effect to the estimated costs of the amalgamation.  Under U.S. corporate law, no such transaction is available and accordingly is not allowed under U.S. GAAP.

The significant differences in the consolidated statements of loss relative to U.S. GAAP were:

CONSOLIDATED STATEMENTS OF LOSS - UNAUDITED

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The significant differences in the consolidated statements of cash flows relative to U.S. GAAP were:

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

The significant differences in the consolidated balance sheets as at September 30, 2004, and December 31, 2003, relative to U.S. GAAP were:

CONSOLIDATED BALANCE SHEETS - UNAUDITED

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12.                               Related party transactions

Maverick Springs

In June 2003, the Corporation formalized an agreement to grant to Silver Standard Resources Inc. (“SSRI”) an option to acquire the Corporation’s interest in the silver resources hosted in the Maverick Springs project in Nevada. The Corporation and SSRI have a common director.  Under the terms of the agreement, the Corporation will retain its 100% interest in the gold mineralized material, and SSRI will pay the Corporation $1.5 million over four years including a cash payment of $300,000 which was paid at closing.  The remaining $1.2 million will be used to fund exploration programs, land holding costs and option payments on the Maverick Springs project.  As of September 30, 2004, the Corporation has received payments from SSRI aggregating $973,233 and included in current assets is a receivable due from SSRI in the amount of $291,404 to reimburse the Corporation for exploration expenditures incurred on the Maverick Springs project.

13.                               Subsequent events

On October 13, 2004, the Corporation announced that W. Durand Eppler was appointed to the Board of Directors.  Mr. Eppler fills a Board vacancy created by the unexpected passing of Corporation President Ronald J. (Jock) McGregor in late May, 2004.  Mr. Eppler’s term will expire at the next general meeting of shareholders.

On November 2, 2004, the Corporation announced that it had signed an option agreement to acquire the Awak Mas gold deposit located in Sulawesi, Indonesia, for a purchase price of $1,500,000.  Under the terms of the agreement, the Corporation will have up to six months to conduct due diligence while paying the owners $15,000 per month.  The monthly option payments, as well as costs up to $150,000 expended to correct any deficiencies in asset standing, will be credited towards the purchase price.

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ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(U.S. dollars in thousands, unless specified otherwise)

The following discussion and analysis should be read in conjunction with the consolidated financial statements of the Corporation for the three years ended December 31, 2003 and the related notes thereto, which have been prepared in accordance with generally accepted accounting principles (“GAAP”) in Canada.  Reference to Note 18 to the consolidated financial statements should be made for a discussion of differences between Canadian and United States GAAP and their effect on the financial statements.  All amounts stated herein are in U.S. dollars, unless otherwise noted.

Results from Operations

The Corporation’s consolidated net loss for the three-month period ended September 30, 2004, was $1.0 million or $0.07 per share compared to a consolidated net loss of $0.5 million or $0.04 per share for the same period in 2003.  The Corporation’s consolidated net loss for the nine-month period ended September 30, 2004 was $3.6 million or $0.23 per share compared to a consolidated net loss of $2.0 million or $0.16 per share for the same period in 2003.  The increases in the consolidated losses of $0.5 million and $1.6 million from the respective prior periods are the result of increased exploration, property evaluation and holding costs of $0.3 million and $0.65 million from the respective prior periods; corporate administration and investor relations costs that decreased by $0.01 million and increased by $0.5 million from the respective prior periods; and increased stock-based compensation of $0.12 million and $0.35 million from the respective prior periods.

Exploration, property and holding costs

Exploration, property and holding costs increased to $501,000 during the three-month period ended September 30, 2004, compared to $196,000 for the same period in 2003.  Exploration, property and holding costs increased to $1,450,000 for the nine-month period ended September 30, 2004, compared to $796,000 for the same period in 2003.  The increase for the three-month period ended September 30, 2004 compared to the same period of 2003, is principally the result of the reclassification of tax expense of $204,000 relating to the Hycroft reclamation bond which was previously stated as restricted cash; a $73,000 reduction in gold sales and increased property evaluation costs of $83,000.  The increase for the nine-month period ended September 30, 2004 compared to the same period of 2003, is principally the result of increased reclamation bond expense of $170,000 (reflecting the tax expense reclassification as previously noted), a reduction of $174,000 in gold sales; an increase of $130,000 in professional and legal fees and the $83,000 increase in property evaluation costs in the third quarter.

Corporate administration and investor relations

Corporate administration and investor relations costs decreased to $373,000 during the three-month period ended September 30, 2004, compared to $383,000 for the same period in 2003.  Corporate administration and investor relations costs increased to $1,702,000 during the nine-month period ended September 30, 2004, compared to $1,246,000 for the same period in 2003.  The increased costs are attributable to increased activity in the Corporation’s investor relations program and related travel and entertainment expenses; and legal, professional and regulatory fees.

Depreciation, depletion and amortization

Depreciation, depletion and amortization increased to $53,000 during the three-month period ended September 30, 2004, compared to $5,000 for the same period in 2003.  Depreciation, depletion and amortization increased to $157,000 during the nine-month period ended September 30, 2004, compared to $32,000 for the same period

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29, 2004 private placement, $3,039,000 from the exercise of warrants and $332,000 from stock options.  During the 2003 period, the Corporation had raised $5,915,000 in net proceeds from exercises of stock options, warrants and proceeds from the private placement completed in February 2003, in which the Corporation had raised net proceeds of $2,873,000 million.

Liquidity and capital resources

At September 30, 2004, the Corporation’s total assets were $33.2 million compared to $26.3 million at December 31, 2003, representing an increase of $6.9 million.  At September 30, 2004, the Corporation had working capital of $8.6 million compared to $6.1 million at December 31, 2003, representing an increase of $2.5 million.  This increase primarily reflects the $6.1 million net proceeds raised by the Corporation in the September 2004 private placement, offset by payments of $3.6 million ($0.2 million of this was for a Colorado state tax)made in conjunction with the Hycroft reclamation bond package (Note 9).

The principal component of working capital at both September 30, 2004, and December 31, 2003, is cash and cash equivalents of $8.1 million and $5.5 million, respectively.  At September 30, 2004, the Corporation held no debt with banks or financial institutions.

Major cash commitments for the remainder of 2004 are related to corporate administration and operations of approximately $0.4 million, property options and expenditure commitments of approximately $0.25 million, and bonding package cash requirements of $1.3 million for an aggregate cash usage of approximately $2.0 million.

On September 29, 2004, the Corporation completed a private placement financing in which it sold and issued a total of 1,966,456 units (the “Units”), at a price of $3.30 per Unit for aggregate gross proceeds of $6,489,304.80.  Net proceeds to the Corporation were approximately $6,112,000.  Each Unit consists of one common share and one common share purchase warrant to acquire an additional common share of the Corporation.

Each warrant will entitle the holder to acquire one common share at an exercise price of $4.75 for a period of two years from the date of issue, provided a registration statement is declared effective by the U.S. Securities and Exchange Commission within six months of the closing date; otherwise, the exercise price of each warrant will be reduced automatically to $4.25.

Starting six months after the share registration is declared effective, if the closing price of the Corporation’s common shares on the American Stock Exchange is $5.50 or more for a period of 20 consecutive trading days, then for 15 business days the Corporation will have the option to request that the warrants be exercised.  If the warrants are not exercised within 15 business days following this request, they will be cancelled.

A cash finder’s fee of 5% of the gross proceeds raised (such fee amounting to $324,465.24) was paid to an advisor to the Corporation in conjunction with the private placement.

The net proceeds from the private placement will be used for continuation of the Corporation’s strategy of acquiring additional gold resources, as suitable opportunities arise; improving the Corporation’s gold projects through additional drilling, re-engineering and feasibility studies; and also to provide for on-going administration costs.

At September 30, 2004, warrants outstanding to purchase common shares of the Corporation totaled 5,226,758 with a weighted average exercise price of $3.32 and potential gross proceeds of $17.4 million.  Although the Corporation has received significant cash proceeds from the exercise of warrants issued in private placements, there can be no assurance that cash proceeds from the exercise of warrants will be received in the future.

Uncertainty of Forward-Looking Statements

This document contains forward-looking statements concerning, among other things, the Corporation’s financial and operating results and estimates, and business prospects.  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

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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 the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003, under “Part I – Item 1. Business – Risk Factors”.  That section of that Form 10-K is incorporated in this filing and investors should refer to it.  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.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Corporation is engaged in the acquisition of gold projects and related activities including exploration engineering, permitting and the preparation of feasibility studies.  The value of the Corporation’s properties is related to gold price and changes in the price of gold could affect the Corporation’s ability to generate revenue from its portfolio of gold projects.

Gold prices may fluctuate widely from time to time and are affected by numerous factors, including the following: expectations with respect to the rate of inflation, exchange rates, interest rates, global and regional political and economic circumstances and governmental policies, including those with respect to gold holdings by central banks.  The gold price fell to a 20-year low of $253 in July 1999 and recovered significantly since that time to reach a level of $415 by December 31, 2003 and was $416 at September 30, 2004.  The demand for, and supply of, gold affect gold prices, but not necessarily in the same manner as demand and supply 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 demand for gold primarily consists of jewelry and investments.  Additionally, hedging activities by producers, consumers, financial institutions and individuals can affect gold supply and demand.  While gold can be readily sold on numerous markets throughout the world, its market value cannot be predicted for any particular time.

Because the Corporation has several exploration operations in North and South America, it is subject to foreign currency fluctuations.  The Corporation does not engage in currency hedging to offset any risk of currency fluctuations as insignificant monetary amounts are held for immaterial land holding costs related to the properties owned.

The Corporation has no debt outstanding, nor does it have any investment in debt instruments other than highly liquid short-term investments.  Accordingly, the Corporation considers its interest rate risk exposure to be insignificant at this time.

ITEM 4.     CONTROLS AND PROCEDURES

The principal executive officer and principal financial officer have evaluated the effectiveness of the Corporation’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the United States Securities Exchange Act of 1934, as amended) as of September 30, 2004.  Based on the evaluation, the principal executive officer and principal financial officer have concluded that the disclosure controls and procedures in place are adequate to ensure that information required to be disclosed by the Corporation, including consolidated subsidiaries, in reports that the Corporation files or submits under the Exchange Act, is recorded, processed, summarized and reported on a timely basis in accordance with applicable time periods specified by the Securities and Exchange Commission rules and forms.  There has been no change in the Corporation’s internal control over financial reporting during the quarter ended September 30, 2004, that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1.                                                     LEGAL PROCEEDINGS

Please see “Part I – Item 3. Legal Proceedings” as included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2002, for information about a legal dispute initiated in Bolivia in April 1998 by a Mr. Estanislao Radic who brought legal proceedings in the lower penal court against Mr. Raul Garafulic and the Corporation, questioning the validity of Mr. Garafulic’s ownership of the Amayapampa property.  The Corporation does not anticipate that this dispute will result in any material adverse impact on the Corporation or the value of its holdings in Bolivia; however, in the interest of full disclosure, this matter is reported herein.

ITEM 2.                                                     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The information required pursuant to Item 701 of Regulation S-K concerning the Corporation’s private placement financing completed on September 29, 2004 has previously been included in the Corporation’s current report on Form 8-K filed with the Commission on October 1, 2004.

ITEM 3.                                                                                                                               & #160;                     DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.                                                                                                                        0;                             SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.                                                                                                                        0;                             OTHER INFORMATION

None.

ITEM 6.                                                                                                                        0;                             EXHIBITS

4.1                                 Warrant Indenture dated September 29, 2004 between Vista Gold Corp. and Computershare Trust Company of Canada, as Trustee

10.1                           Finder’s Fee Agreement and Indemnity Agreement amended and restated as of September 1, 2004 between Vista Gold Corp. and Global Resource Investments Ltd.

10.2                           Form of Subscription Agreement dated September 29, 2004, between Vista Gold Corp. and each Purchaser as defined therein

31.1                           Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended

31.2                           Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended

32.1                           Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2                           Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.