Vista Gold - 10-Q quarterly report FY

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

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:

18,218,022

Common Shares, without par value, outstanding at August 12, 2005

VISTA GOLD CORP.

(An Exploration Stage Enterprise)

FORM 10-Q

For the Quarter Ended June 30, 2005

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—UNAUDITED

(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 June 30, 2005, and for the three-month and six-month periods ended June 30, 2005, 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 12, 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, 2004, as amended by Amendment No. 1 thereto filed with the Commission on August 12, 2005.

2.             Nature of operations and going concern

(a)   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. 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.

Gold production has gradually declined since mining activities were suspended at the Hycroft mine in 1998. Effective January 1, 2002, gold production is considered incidental and the Corporation stopped reporting the associated sales proceeds as revenue. Based on that, management of the Corporation decided during 2003 that the Corporation was an exploration-stage enterprise. For financial reporting purposes, commencing with the Corporation’s audited financial statements for the year ended December 31, 2003, the Corporation was characterized as an exploration-stage enterprise and its consolidated statements of loss, deficit and cash flows include columns showing cumulative amounts during the exploration stage (i.e., from January 1, 2002, the effective date when gold production was considered incidental).

Although the Corporation has reviewed and is satisfied with the title for all mineral properties in which it has a material interest, there is no guarantee that title to such concessions will not be challenged or impugned.

(b)   Going concern

These unaudited consolidated financial statements have been prepared on a going concern basis, which assumes that the Corporation will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.  At June 30, 2005, the Corporation holds working capital of $2.7 million which is not sufficient to satisfy current general and administrative activities, Hycroft holding costs and property obligations which will be approximately $3.2 million over the next twelve months.  Therefore, there is substantial doubt about the Corporation’s ability to continue as a going concern.

The Corporation is investigating the possibility of raising additional capital through private placements and, although management has been successful in the past, there can be no assurance that it will be able to raise additional capital in the future.  The Corporation continues to actively pursue alternatives to monetize its assets and attract other investors.

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The ability of the Corporation to continue as a going concern and to realize the carrying values of its assets and discharge its liabilities and obligations when due is dependent upon the successful completion of the planned actions or other alternatives noted above.  Management believes successful completion of raising additional capital will mitigate the adverse conditions and events which raise doubt about the validity of the going concern assumption used in preparing these financial statements.  These financial statements do not give effect to any adjustments, which may be necessary should the Corporation be unable to continue as a going concern and such adjustments may be material.

3.             Restricted cash

The Corporation has pledged cash as collateral totalling $5.0 million to the U.S. Bureau of Land Management, Nevada State Office, to cover increased reclamation cost estimates at the Hycroft mine (Note 10).

4.             Acquisition of PT Masmindo Dwi (Awak Mas Project)

On May 27, 2005, the Corporation completed its acquisition of the Awak Mas gold deposit in Sulawesi, Indonesia, pursuant to the exercise of its option to purchase the deposit for a purchase price of $1.5 million, as previously reported.  Under the terms of the option agreement, the Corporation had a six-month option period in which to conduct due diligence while paying the owners $15,000 per month.  The monthly option payments, as well as costs of up to $150,000 expended to correct any deficiencies in asset standing, were to be credited towards the purchase price.  On May 12, 2005, the Corporation transferred $1.2 million to an escrow account.  These funds were released to the ultimate vendors of the Awak Mas deposit, Weston and ORT (as defined below), upon completion of the final transaction documents.  The amount of $1.2 million represented the $1.5 million purchase price less:  the $150,000 deposit previously paid by the Corporation (which included $75,000 in aggregate option payments made by the Corporation); and $150,000 expended by the Corporation to correct deficiencies in asset standing.

The acquisition of the Awak Mas Project involved the Corporation’s purchase, through its wholly-owned subsidiary Vista Gold (Barbados) Corp. (“Vista Barbados”), of all of the outstanding shares of Salu Siwa Pty Ltd, an Australian company (“Salu Siwa”) from the two owners of Salu Siwa:  Weston Investments Pty Ltd., an Australian company (“Weston”) and Organic Resource Technology Limited, an Australian company (“ORT”).  Weston and ORT respectively owned 66% and 34% of the outstanding Salu Siwa shares.  Salu Siwa in turn owns 99% of the outstanding shares of PT Masmindo Dwi, an Indonesian company (“PT Masmindo”), which is the direct holder of the Awak Mas Project.  The remaining 1% of the outstanding PT Masmindo shares is held by ORT.  Transfer of this remaining 1% to Vista Barbados is subject to any approvals, consents or other statutory requirements of the Indonesian authorities that will be required to effect the completion of such share purchase.

Also in connection with this acquisition, certain creditors of PT Masmindo agreed to assign to Vista Gold Corp. (parent) an aggregate of $857,973 of notes payable owed by PT Masmindo to the creditors, as follows:  ORT Limited (of Australia) (previously known as Masmindo Mining Corp.) - $612,555.75; PT Masmindo Eka Sakti (of Indonesia) - $217,469.08; and Continental Goldfields Limited (of Western Australia) - $27,948.00.

This acquisition has been accounted for using the purchase method and results of operations have been consolidated since the date of acquisition. The following table summarizes the purchase price allocation based on preliminary estimates of the fair values of the assets acquired and liabilities assumed; appraisals and valuations are being conducted and final allocation will be made upon completion.

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As of June 30, 2005, the consolidated capitalized mineral property costs for the Awak Mas Project (Note 5) were $1,529,797.

5              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.

6.             Plant and equipment

Measurement Uncertainty

The Corporation believes that the fair value of its mineral properties exceeds the carrying value, however, a write-down in the carrying values of the Corporation’s properties may be required as a result of independent evaluation of gold resources and application of a ceiling test which is based on estimates of gold resources and gold prices.

These consolidated financial statements have been prepared using the going concern basis (note 2).  In the event that the Corporation does not continue as a going concern, then the net book value of the property, plant and equipment and mineral properties may not be recoverable. In addition, in these circumstances the valuation of certain other recorded assets and liabilities could also be materially different.

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7.             Capital stock

Common Shares issued and outstanding

8.             Warrants

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

(1) Each warrant entitles the holder to purchase one common share.

9.             Options to purchase Common Shares

The total number of options outstanding at the end of the quarter is 875,625 with exercise prices ranging from approximately $3.86 to $4.76 and remaining lives of 0.2 to 6.7 years.  The total number of options outstanding represents 5.0% of issued capital.

There were 10,000 stock options issued by the Corporation during the quarter ended June 30, 2005.  Compensation expense of $172,651 was recognized during the six months ended June 30, 2005, for options previously granted and vesting over time.

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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.

10.          Commitments and contingencies

The U. S. 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.  The Corporation has pledged cash as collateral totaling $5.0 million to the BLM (Note 3).

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.

11.          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. On April 15, 2005 the Corporation’s Board of Directors approved the Corporation’s exercise of its purchase option for the Awak Mas gold deposit located in Sulawesi, Indonesia. which was finalized on May 27, 2005.  Substantially all related costs are incurred in the United States. The Corporation reported no revenues in the three-month or six-month periods ended June 30, 2005, or for the same periods in 2004.  Geographic segmentation of capital assets is provided in Notes 5 and 6.

12.          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 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.

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(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 amalgamation. Under U.S. corporate law, no such transaction is available and accordingly is not allowed under U.S. GAAP.

(d)           In accordance with U.S. GAAP, only those options granted to non-employees of the Corporation are recorded for financial statement purposes using the fair value on the date of grant.

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

CONSOLIDATED STATEMENTS OF LOSS - UNAUDITED

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 June 30, 2005, and December 31, 2004, relative to U.S. GAAP were:

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CONSOLIDATED BALANCE SHEETS - UNAUDITED

13.          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 mineralized material 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 would 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 would be used to fund exploration programs, land holding costs and option payments on the Maverick Springs project.  As of June 30, 2005, the Corporation has received payments from SSRI aggregating $1,388,775 and included in current assets is a receivable amount due from SSRI in the amount of $37,982 to reimburse the Corporation for exploration expenditures incurred on the Maverick Springs project.

14.          Subsequent events

Amendments to Agreement to Sell Amayapampa

 On July 18, 2005, the Corporation agreed with Luzon Minerals Ltd. (“Luzon”), subject to regulatory approval, to further amend the terms of the original purchase option agreement between the companies concerning the Corporation’s Amayapampa gold project in Bolivia with respect to the payments previously due on June 15, 2005 and June 15, 2006. The agreement had been most recently amended in January 2005, in connection with Luzon’s decision to exercise its option to purchase the Amayapampa project from the Corporation, as previously reported. The amendment calls for an aggregate purchase price comprising: $2,700,000 (including $100,000 previously paid); either 3,250,000 or 4,250,000 common shares in the capital of Luzon (including 250,000 already issued to the Corporation), and 1,000,000 common share purchase warrants; and a net smelter return royalty to the Corporation,  payable as follows:

•      Within five days of receiving approval of the TSX Venture Exchange, Luzon will issue to the Corporation 3,000,000 Luzon common shares and 1,000,000 warrants, each warrant entitling the holder to acquire one common share of Luzon at an exercise price of CDN $0.20 for a period of three years from the date of issuance, and, on the earlier of December 31, 2005 or the date of the closing of the next debt,

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equity or other financing completed by Luzon after July 15, 2005, Luzon will pay to the Corporation $100,000 in cash.

•      Within five days of the date that is the earlier of December 31, 2006 or the date Luzon completes or obtains financing sufficient to commence construction at the Amayapampa project, Luzon will pay to the Corporation $2,500,000.

•      In the event that Luzon completes a feasibility study or technical report for the Amayapampa project that discloses recovered gold of more than 400,000 ounces, Luzon shall issue to the Corporation an additional 1,000,000 common shares.

•      If Luzon completes the acquisition of the Amayapampa project, Luzon will grant the Corporation a net smelter return royalty as follows: (i) on the first 440,000 ounces of gold production, a 4.5% net smelter return royalty where the gold price is less than $450 per ounce and a 5.5% net smelter return royalty where the gold price is $450 per ounce or more, and (ii) thereafter, a 1.0% net smelter return royalty.

•      In addition, effective from July 29, 2004, Luzon will pay all costs associated with holding and maintaining the Amayapampa project, including reimbursement of outlays made by the Corporation (approximately $51,000, as of June 30, 2005). Other terms of the agreement remain unchanged.

Hycroft Mine – Canyon Resources Elects Not to Exercise Purchase Option

On August 4, 2005, the Corporation announced that Canyon Resources Corporation had advised the Corporation that Canyon will not be exercising its option to acquire the Hycroft mine near Winnemucca, Nevada. As previously reported, in January 2005, Canyon entered into a six month option agreement with the Corporation to expend $0.5 million for drilling, engineering and due-diligence review to acquire the mine for $4.0 million in cash plus $6.0 million in Canyon equity units consisting of one common share and one warrant for half a share.

Canyon completed a 33-hole drilling program totaling 12,475 feet and undertook a comprehensive study to restart operations at Hycroft. The drilling program confirmed average grades for the ore body but Canyon noted that increased costs, as well as shortages of labor and large mining equipment were contributing factors in its decision not to proceed.

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, 2004 and the related notes thereto, which have been prepared in accordance with generally accepted accounting principles (“GAAP”) in Canada.  Reference should be made 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 June 30, 2005, was $1.5 million or $0.08 per share compared to a consolidated net loss of $1.4 million or $0.09 per share for the same period in 2004.  The Corporation’s consolidated net loss for the six-month period ended June 30, 2005 was $2.4 million or $0.13 per share compared to a consolidated net loss of $2.5 million or $0.17 per share for the same period in 2004.  The net losses for the three-month and six-month periods were minimally different from those for the prior-year periods, primarily reflecting slightly decreased exploration, property evaluation and holding costs, and increased corporate administration and investor relations costs of $0.1 million for the three-month period due to a mass mailing marketing campaign, with slightly decreased costs for the six-month period.

Exploration, property and holding costs

Exploration, property and holding costs increased to $461,000 during the three-month period ended June 30, 2005, compared to $465,000 for the same period in 2004.  Exploration, property and holding costs decreased to

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Investing activities

Net cash used for investing activities increased to $1,964,000 for the three-month period ended June 30, 2005, compared to $70,000 for the same period in 2004.  The increase of $1,894,000 in 2005 was due to the purchase of the Awak Mas Project in May 2005 for $1.5 million and exploration activities in Paredones Amarillos of $0.4 million.  For the six-month period ended June 30, 2005, net cash used for investing activities decreased by $279,000 to $2,228,000 compared to $2,507,000 for the same period in 2004. Overall expenditures were higher during the 2004 period, primarily reflecting the restricted cash payment of $2.3 million made by the Corporation in the first quarter of 2004, in connection with bonding requirements for the Hycroft mine.

Financing activities

Net cash provided by financing activities was $0 in the three-month period ended June 30, 2005 compared to $853,000 for the same period in 2004, all of which was attributable to the exercise of warrants.  Net cash provided by financing activities was $398,000 for the six-month period ended June 30, 2005 compared to $3,056,000 for the same period in 2004. The amounts raised in the 2005 six-month period were from the exercise of warrants in the amount of $373,000 and stock options in the amount of $25,000, all during the first quarter. The aggregate $3,056,000 proceeds in the 2004 six-month period were from the exercise of warrants in the amount of $3,039,000 and stock options in the amount of $17,000.

Liquidity and Capital Resources

At June 30, 2005, the Corporation’s total assets were $31.0 million compared to $32.8 million at December 31, 2004, representing a decrease of $1.8 million.  At June 30, 2005, the Corporation had working capital of $2.7 million compared to $6.6 million at December 31, 2004, representing a decrease of $3.9 million.  This decrease is primarily attributed to the net loss of $1.4 million, the decrease in accounts receivable of $0.3 million, increase in exploration activities of $0.7 million and the purchase of the Awak Mas Project for $1.5 million.

The principal component of working capital at both June 30, 2005 and December 31, 2004, is cash and cash equivalents of $2.3 million and $5.9 million, respectively.  At June 30, 2005, the Corporation had no outstanding debt to banks or financial institutions.

Major cash commitments for the remainder of 2005 are related to corporate administration and operations of approximately $1.3 million, and property options and expenditure commitments of approximately $0.4 million.  For the first six months of 2005, the Corporation’s cash expenditures aggregated $3.6 million, including $1.5 million for the purchase of the Awak Mas project in May 2005 (see Note 4 to the consolidated financial statements).

Subsequent Events

Amendments to Agreement to Sell Amayapampa

On July 18, 2005, the Corporation agreed with Luzon Minerals Ltd. (“Luzon”), subject to regulatory approval, to further amend the terms of the original purchase option agreement between the companies concerning the Corporation’s Amayapampa gold project in Bolivia with respect to the payments previously due on June 15, 2005 and June 15, 2006. The agreement had been most recently amended in January 2005, in connection with Luzon’s decision to exercise its option to purchase the Amayapampa project from the Corporation, as previously reported. The amendment calls for an aggregate purchase price comprising: $2,700,000 (including $100,000 previously paid); either 3,250,000 or 4,250,000 common shares in the capital of Luzon (including 250,000 already issued to the Corporation), and 1,000,000 common share purchase warrants; and a net smelter return royalty to the Corporation, payable as follows:

•      Within five days of receiving approval of the TSX Venture Exchange, Luzon will issue to the Corporation 3,000,000 Luzon common shares and 1,000,000 warrants, each warrant entitling the holder to acquire one common share of Luzon at an exercise price of CDN $0.20 for a period of three years from the date of issuance, and, on the earlier of December 31, 2005 or the date of the closing of the next debt, equity or other financing completed by Luzon after July 15, 2005, Luzon will pay to the Corporation $100,000 in cash.

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•      Within five days of the date that is the earlier of December 31, 2006 or the date Luzon completes or obtains financing sufficient to commence construction at the Amayapampa project, Luzon will pay to the Corporation $2,500,000.

•      In the event that Luzon completes a feasibility study or technical report for the Amayapampa project that discloses recovered gold of more than 400,000 ounces, Luzon shall issue to the Corporation an additional 1,000,000 common shares.

•      If Luzon completes the acquisition of the Amayapampa project, Luzon will grant the Corporation a net smelter return royalty as follows: (i) on the first 440,000 ounces of gold production, a 4.5% net smelter return royalty where the gold price is less than $450 per ounce and a 5.5% net smelter return royalty where the gold price is $450 per ounce or more, and (ii) thereafter, a 1.0% net smelter return royalty.

•      In addition, effective from July 29, 2004, Luzon will pay all costs associated with holding and maintaining the Amayapampa project, including reimbursement of outlays made by the Corporation (approximately $51,000, as of June 30, 2005). Other terms of the agreement remain unchanged.

Hycroft Mine — Canyon Resources Elects Not to Exercise Purchase Option

On August 4, 2005, the Corporation announced that Canyon Resources Corporation had advised the Corporation that Canyon will not be exercising its option to acquire the Hycroft mine near Winnemucca, Nevada.  As previously reported, in January 2005, Canyon entered into a six month option agreement with the Corporation to expend $0.5 million for drilling, engineering and due-diligence review to acquire the mine for $4.0 million in cash plus $6.0 million in Canyon equity units consisting of one common share and one warrant for half a share.

Canyon completed a 33-hole drilling program totaling 12,475 feet and undertook a comprehensive study to restart operations at Hycroft. Assaying was done by American Assay Laboratories of Sparks, Nevada.  The drilling program confirmed average grades for the ore body but Canyon noted that increased costs, as well as shortages of labor and large mining equipment were contributing factors in its decision not to proceed.  The Corporation received the data from Canyon’s work at the time of notification and has not completed a review of all the information as of the date of this Form 10-Q.  However, a resource study in accordance with Canadian National Instrument 43-101 guidelines was completed by Ore Reserves Engineering of Lakewood, Colorado, under the direction of Mr. Alan Noble, P. Eng., a qualified person independent of Canyon or the Corporation.

The re-estimation of gold resources was based on 587 drill holes with a total of 52,889 assay intervals covering 267,280 feet.  A comparison of the study results with the previous estimates by Mine Development Associates of Reno, Nevada, as announced by the Corporation in September 2004, is shown in the following table.