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
17. 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 a result of this equity raise, our share of the net assets of AMAK increased approximately $3.2 million which we recognized as a gain (with a corresponding increase in its investment) in accordance with ASC 323-10-40-1.

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 $53.1 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
(restated)
    
2015
    
2016
(restated)
    
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
    
2,463
      
4,067
      
6,986
      
9,605
  
Loss from operations
  
$
(7,210
)
  
$
(6,778
)
  
$
(14,542
)
  
$
(9,570
)
Gain on settlement with former operator
    
-
      
-
      
17,440
      
-
  
Net income (loss)
  
$
(7,210
)
  
$
(6,778
)
  
$
2,898
    
$
(9,570
)

Gain on settlement with former operator of approximately $17.4 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.

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
(restated)
    
2015
    
2016
(restated)
    
2015
  
   
(Thousands of Dollars)
  
Net income (loss) before depreciation and amortization
  
$
(4,021
)
  
$
(2,543
)
  
$
11,504
    
$
5,680
  

Financial Position

   
September 30,
    
December 31,
  
   
2016
(restated)
    
2015
  
   
(Thousands of Dollars)
  
Current assets
  
$
27,159
    
$
26,078
  
Noncurrent assets
    
260,142
      
259,527
  
Total assets
  
$
287,301
    
$
285,605
  
                 
Current liabilities
  
$
2,883
    
$
22,740
  
Long term liabilities
    
87,994
      
89,364
  
Shareholders' equity
    
196,424
      
173,501
  
   
$
287,301
    
$
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
(restated)
    
2015
  
   
(Thousands of Dollars)
  
AMAK Net Income (Loss)    $   (7,210 )    $   (6,778 )    $   2,898     $   (9,570 ) 
Zakat tax applicable to Saudi Arabian shareholders only       -        -        320        -  
AMAK Net Income (Loss) before Saudi Arabian shareholders' portion of Zakat    $   (7,210 )    $   (6,778 )    $   3,218     $   (9,570 ) 
                                 
Company’s share of income (loss) reported by AMAK
  
$
(2,426
)
  
$
(2,391
)
  
$
1,250
    
$
(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
)
  
$
2,261
    
$
(2,364
)
 
The difference between our effective share of income (loss) from our investment and our actual ownership percentage is attributable to the changes in our ownership percentage during the third quarter as well as, the portion of net income (loss) in the first six months of 2016.
 
See our Annual Report on Form 10-K for the year ended December 31, 2015, for additional information.