Quarterly report pursuant to Section 13 or 15(d)

INVESTMENT IN AMAK

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INVESTMENT IN AMAK
9 Months Ended
Sep. 30, 2016
INVESTMENT IN AMAK [Abstract]  
INVESTMENT IN AMAK
16. INVESTMENT IN AMAK

In July 2016 AMAK issued four million shares to provide additional funds for ongoing exploration work and mine start-up activities.  Arab Mining Co. (“Armico”) purchased 3.75 million shares at 20 Saudi Riyals per share (USD$5.33 per share) and the remaining 250,000 shares are for future use as employee incentives.  We did not participate in the offering, thereby reducing our ownership percentage in AMAK to 33.44% from 35.25%.

As of September 30, 2016, and December 31, 2015, the Company had a non-controlling equity interest of 33.44% and 35.25%, respectively in AMAK of approximately $52.8 million and $47.7 million, respectively. This investment is accounted for under the equity method. There were no events or changes in circumstances that may have an adverse effect on the fair value of our investment in AMAK at September 30, 2016.

AMAK’s financial statements were prepared in the functional currency of AMAK which is the Saudi Riyal (SR).  In June 1986 the SR was officially pegged to the U. S. Dollar (USD) at a fixed exchange rate of 1 USD to 3.75 SR.

The summarized results of operation and financial position for AMAK are as follows:

Results of Operations

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2016
   
2015
   
2016
   
2015
 
   
(Thousands of Dollars)
 
Sales
  $ 318     $ 19,874     $ 9,921     $ 38,458  
Gross profit (loss)
    (4,747 )     (2,711 )     (7,556 )     35  
General, administrative and other expenses
    2,796       4,067       6,986       9,605  
Loss from operations
  $ (7,543 )   $ (6,778 )   $ (14,542 )   $ (9,570 )
Gain on settlement with former operator
    14       -       25,434       -  
Net income (loss)
  $ (7,529 )   $ (6,778 )   $ 10,892     $ (9,570 )

Gain on settlement with former operator of approximately $25.4 million during the nine months ended September 30, 2016, relates to a settlement with the former operator of the mine resulting in a reduction of previously accrued operating expenses and recognition of spare part inventory.

Depreciation and amortization was $3.2 million and $4.2 million for the three months and $8.6 million and $15.3 million for the nine months ended September 30, 2016, and 2015, respectively.  Therefore, net income (loss) before depreciation and amortization was as follows:

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2016
   
2015
   
2016
   
2015
 
   
(Thousands of Dollars)
 
Net income (loss) before depreciation and amortization
  $ (4,341 )   $ (2,543 )   $ 19,498     $ 5,680  

Financial Position

   
September 30,
   
December 31,
 
   
2016
   
2015
 
   
(Thousands of Dollars)
 
Current assets
  $ 35,153     $ 26,078  
Noncurrent assets
    260,142       259,527  
Total assets
  $ 295,295     $ 285,605  
                 
Current liabilities
  $ 2,883     $ 22,740  
Long term liabilities
    87,994       89,364  
Shareholders' equity
    204,418       173,501  
    $ 295,295     $ 285,605  
 
The equity in the income or loss of AMAK reflected on the consolidated statements of income for the three and nine months ended September 30, 2016, and 2015, is comprised of the following:

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2016
   
2015
   
2016
   
2015
 
   
(Thousands of Dollars)
 
Company’s share of income (loss) reported by AMAK
  $ (2,426 )   $ (2,391 )   $ 4,068     $ (3,375 )
Amortization of difference between Company’s investment in AMAK and Company’s share of net assets of AMAK
    337       337       1,011       1,011  
Equity in earnings (loss) of AMAK
  $ (2,089 )   $ (2,054 )   $ 5,079     $ (2,364 )

See our Annual Report on Form 10-K for the year ended December 31, 2015, for additional information.