Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
x
|
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
|
|
|
For
the quarterly period ended September 30,
2007
|
|
|
|
o
|
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from
to
General
Moly, Inc.
(Name
of
small business issuer in its charter)
DELAWARE
|
|
001-32986
|
|
91-0232000
|
(State
or other jurisdiction
|
|
Commission
File Number
|
|
(I.R.S.
Employer
|
of
incorporation or organization)
|
|
|
|
Identification
No.)
|
1726
Cole Blvd., Suite 115
Lakewood,
CO 80401
Telephone:
(303) 928-8599
(Address
and telephone number of principal executive offices)
Idaho
General Mines, Inc.
10
North
Post St., Suite 610
Spokane,
WA 99201
(Former
name, former address and former fiscal year, if changed since last
report)
Check
whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 at least the past
90 days. YES x NO o
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES o NO x
The
number of shares outstanding of registrant’s common stock as of November 13,
2007 was 56,986,882.
Transitional
Small Business Disclosure Format (check one): YES o NO x
PART
I
FINANCIAL
INFORMATION
ITEM
1. FINANCIAL
STATEMENTS
GENERAL
MOLY, INC.
(AN EXPLORATION
STAGE COMPANY)
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited
- Dollars in thousands except per share amounts)
|
|
At
September
30,
2007
|
|
At
December
31,
2006
|
|
ASSETS:
|
|
|
|
(Restated
-
Note
2)
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
24,127
|
|
$
|
17,882
|
|
Deposits
|
|
|
61
|
|
|
147
|
|
Prepaid
expense and other assets
|
|
|
84
|
|
|
46
|
|
Total
Current Assets
|
|
|
24,272
|
|
|
18,075
|
|
Mining
properties, land and water rights
|
|
|
17,871
|
|
|
8,598
|
|
Property
and equipment, net
|
|
|
1,051
|
|
|
431
|
|
Restricted
cash held for reclamation bonds
|
|
|
541
|
|
|
—
|
|
TOTAL
ASSETS
|
|
$
|
43,735
|
|
$
|
27,104
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
8,594
|
|
$
|
1,076
|
|
Provision
for post closure reclamation and remediation costs
|
|
|
99
|
|
|
—
|
|
Current
portion of long term debt
|
|
|
42
|
|
|
19
|
|
Total
Current Liabilities
|
|
|
8,735
|
|
|
1,095
|
|
Provision
for post closure reclamation and remediation costs, net of current
portion
|
|
|
422
|
|
|
—
|
|
Long
term debt, net of current portion
|
|
|
82
|
|
|
58
|
|
Total
Liabilities
|
|
|
9,239
|
|
|
1,153
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
Preferred
stock, Series A, $0.001 par value; 10,000,000 shares
authorized,
no shares issued and outstanding
|
|
|
—
|
|
|
—
|
|
Common
stock, $0.001 par value; 200,000,000 shares authorized,
56,806,774
and 43,397,540 shares issued and outstanding,
respectively
|
|
|
57
|
|
|
43
|
|
Additional
paid-in capital
|
|
|
85,163
|
|
|
46,017
|
|
Accumulated
deficit before exploration stage
|
|
|
(213
|
)
|
|
(213
|
)
|
Accumulated
deficit during exploration stage
|
|
|
(50,511
|
)
|
|
(19,896
|
)
|
Total
Stockholders’ Equity
|
|
|
34,496
|
|
|
25,951
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
43,735
|
|
$
|
27,104
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
GENERAL
MOLY, INC.
(AN EXPLORATION
STAGE COMPANY)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In
thousands, except per share amounts - Unaudited)
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
January
1, 2002
(Inception
of Exploration Stage) to September 30, 2007
|
|
|
|
September
30, 2007
|
|
September
30, 2006
|
|
September
30, 2007
|
|
September
30, 2006
|
|
|
|
|
|
(Restated
-
Note
2)
|
|
|
|
(Restated
-
Note
2)
|
|
(Restated
-
Note
2)
|
|
REVENUES
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
and evaluation
|
|
|
6,028
|
|
|
1,785
|
|
|
16,183
|
|
|
4,725
|
|
|
26,535
|
|
General
and administrative expense
|
|
|
6,374
|
|
|
1,030
|
|
|
15,306
|
|
|
5,375
|
|
|
25,851
|
|
TOTAL
OPERATING EXPENSES
|
|
|
12,402
|
|
|
2,815
|
|
|
31,489
|
|
|
10,100
|
|
|
52,386
|
|
LOSS
FROM OPERATIONS
|
|
|
(12,402
|
)
|
|
(2,815
|
)
|
|
(31,489
|
)
|
|
(10,100
|
)
|
|
(52,386
|
)
|
OTHER
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and dividend income
|
|
|
346
|
|
|
358
|
|
|
875
|
|
|
688
|
|
|
1,811
|
|
Realized
gains
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
64
|
|
TOTAL
OTHER INCOME
|
|
|
346
|
|
|
358
|
|
|
875
|
|
|
688
|
|
|
1,875
|
|
LOSS
BEFORE TAXES
|
|
|
(12,056
|
)
|
|
(2,457
|
)
|
|
(30,614
|
)
|
|
(9,412
|
)
|
|
(50,511
|
)
|
INCOME
TAXES
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
NET
LOSS
|
|
$
|
(12,056
|
)
|
$
|
(2,457
|
)
|
$
|
(30,614
|
)
|
$
|
(9,412
|
)
|
$
|
(50,511
|
)
|
BASIC
AND DILUTED NET LOSS PER SHARE OF COMMON STOCK
|
|
$
|
(0.22
|
)
|
$
|
(0.06
|
)
|
$
|
(0.60
|
)
|
$
|
(0.26
|
)
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON
SHARES
OUTSTANDING BASIC
AND FULLY DILUTED
|
|
|
55,979
|
|
|
40,227
|
|
|
51,193
|
|
|
35,754
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
GENERAL
MOLY, INC.
(AN EXPLORATION
STAGE COMPANY)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands - Unaudited)
|
|
Nine
Months Ended September 30, 2007
|
|
Nine
Months Ended September 30, 2006
|
|
January
1, 2002 (Inception of Exploration Stage to September 30,
2007
|
|
|
|
|
|
(Restated
-
Note
2)
|
|
(Restated
-
Note
2)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(30,614
|
)
|
$
|
(9,412
|
)
|
$
|
(50,511
|
)
|
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Services
and expenses paid with common stock
|
|
|
304
|
|
|
214
|
|
|
1,990
|
|
Depreciation
and amortization
|
|
|
129
|
|
|
32
|
|
|
203
|
|
Equity
compensation for management and directors
|
|
|
5,546
|
|
|
1,638
|
|
|
8,856
|
|
Decrease
(increase) in restricted cash
|
|
|
(50
|
)
|
|
—
|
|
|
(50
|
)
|
Decrease
(increase) in deposits, prepaid expenses and other
|
|
|
49
|
|
|
(217
|
)
|
|
(156
|
)
|
(Decrease)
increase in accounts payable and accrued liabilities
|
|
|
7,464
|
|
|
(49
|
)
|
|
8,540
|
|
(Decrease)
increase in post closure reclamation and remediation costs
|
|
|
312
|
|
|
—
|
|
|
312
|
|
Net
cash used by operating activities
|
|
|
(16,860
|
)
|
|
(7,794
|
)
|
|
(30,816
|
)
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Payments
for the purchase of equipment
|
|
|
(752
|
)
|
|
(262
|
)
|
|
(1,130
|
)
|
Purchase
of securities
|
|
|
—
|
|
|
—
|
|
|
(137
|
)
|
Purchase
of mining property, claims, options
|
|
|
(8,675
|
)
|
|
(6,327
|
)
|
|
(16,462
|
)
|
Net
increase in debt
|
|
|
47
|
|
|
—
|
|
|
47
|
|
Cash
provided by sale of marketable securities
|
|
|
—
|
|
|
—
|
|
|
247
|
|
Net
cash used by investing activities
|
|
|
(9,380
|
)
|
|
(6,589
|
)
|
|
(17,435
|
)
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of stock
|
|
|
32,485
|
|
|
33,482
|
|
|
72,332
|
|
Net
cash provided by financing activities
|
|
|
32,485
|
|
|
33,482
|
|
|
72,332
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
6,245
|
|
|
19,099
|
|
|
24,081
|
|
Cash
and cash equivalents, beginning of period
|
|
|
17,882
|
|
|
257
|
|
|
46
|
|
Cash
and cash equivalents, end of period
|
|
$
|
24,127
|
|
$
|
19,356
|
|
$
|
24,127
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW
INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
Income
taxes paid
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Interest
paid
|
|
$
|
5
|
|
$
|
—
|
|
$
|
5
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for equipment
|
|
$
|
—
|
|
$
|
11
|
|
$
|
11
|
|
Common
stock and warrants issued for property
|
|
$
|
826
|
|
$
|
—
|
|
$
|
1,201
|
|
Restricted
cash held for reclamation bond acquired in an
acquisition
|
|
$
|
491
|
|
$
|
—
|
|
$
|
491
|
|
Post
closure reclamation and remediation costs assumed in an
acquisition
|
|
$
|
209
|
|
$
|
—
|
|
$
|
209
|
|
Accounts
payable and accrued expenses assumed in an acquisition
|
|
$
|
54
|
|
$
|
—
|
|
$
|
54
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
GENERAL
MOLY,
INC.
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1—BASIS OF PRESENTATION
General
Moly, Inc. (the “Company” or “GMO”) is a Delaware Corporation originally
incorporated as General Mines Corporation on November 23, 1925. In 1966,
the
Company amended its articles of incorporation to change its name to Idaho
General Petroleum and Mines Corporation, and amended its articles again in
1967
changing its name to Idaho General Mines, Inc. On October 8, 2007, Idaho
General
Mines reincorporated the Company in the State of Delaware (the
"Reincorporation") through a merger involving Idaho General Mines, Inc. and
General Moly, Inc., a newly-formed Delaware corporation that was a wholly
owned
subsidiary of Idaho General Mines, Inc. The Reincorporation was effected
by
merging Idaho General Mines, Inc. with and into GMO, with GMO being the
surviving entity. For purposes of the Company’s reporting status with the
Securities and Exchange Commission, GMO is deemed a successor to Idaho
General Mines, Inc.
The
interim Condensed Consolidated Financial Statements of General Moly, Inc. and
its subsidiaries (collectively, “GMO” or the “Company”) are unaudited. In the
opinion of management, all adjustments and disclosures necessary for a fair
presentation of these interim statements have been included. All such
adjustments are, in the opinion of management, of a normal recurring nature.
The
results reported in these interim Condensed Consolidated Financial Statements
are not necessarily indicative of the results that may be reported for the
entire year. These interim Condensed Consolidated Financial Statements should
be
read in conjunction with GMO’s Consolidated Financial Statements included in its
Annual Report on Form 10-KSB/A for the year ended December 31,
2006.
On
January 30, 2007, the Company completed the acquisition of all of the
issued and outstanding shares of a corporation that owned a royalty interest
in
our Hall-Tonopah Property (see note 5). Upon its acquisition, the
corporation was consolidated as a wholly owned subsidiary of the
Company.
Certain
amounts for the three and nine months ended September 30, 2006 have been
reclassified to conform to the 2007 presentation.
NOTE
2 - RESTATEMENT OF PRIOR YEAR FINANCIAL STATEMENTS
The
Company has corrected its accounting treatment for certain non-cash adjustments
primarily related to the calculation of and recognition of compensation expense
and the valuation of warrants to purchase common shares of the Company under
FASB Statement 123 - Accounting
for Stock-Based Compensation, FASB
Statement 123(R) -Share
Based Payment
and EITF
96-18 - Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
or
in Connection with Selling Goods and Services.
The
Company had utilized volatility assumptions which were too low in determining
the value of certain equity instruments issued during the periods and failed
to
attribute value to certain warrants included as consideration in transactions
with third parties. This resulted in the Company valuing equity instruments
granted and/or issued at too low of a value and, accordingly, the amounts
recorded for these non-cash transactions were understated.
Additionally
during the periods, the Company did not account for forfeitures of employee
options which occurred prior to vesting, resulting in an overstatement of
non-cash compensation expense, and allocated stock-related compensation costs
to
the incorrect service periods. Furthermore, in the year ended December 31,
2006,
the Company incorrectly allocated a portion of the cash consideration paid
for
water rights to non marketable securities and subsequently impaired such
securities, rather than allocating this portion of the consideration to the
purchase of such water rights.
In
addition, the Company has corrected certain other immaterial errors.
The
restatements were made for the years ended December 31, 2004, 2005, and 2006
and
the six months ended June 30, 2007. At June 30, 2007 the cumulative
effect of all corrections was an increase to the cost of our land and
mining claims of $713,000, an increase in property research, exploration
and
development expense of $423,000, an increase in general and administration
expense of $186,000, a decrease in realized loss on marketable securities
of $
321,000, and an increase to our net equity of $363,000.
The
impact of these errors on each of the Company's previously issued financial
statements, are set forth in the table below (in thousands except per share
amounts).
|
|
As
Originally Reported
|
|
As
Restated
|
|
Impact
of the error Increase (Decrease)
|
|
Income
Statement for the nine months ended September 30,
2006
|
|
|
|
|
|
|
|
Property
research, exploration and development expenses
|
|
$
|
4,600
|
|
$
|
4,725
|
|
$
|
125
|
|
General
and administrative expenses
|
|
|
5,445 |
|
|
5,375 |
|
|
(70 |
) |
Net
loss
|
|
|
9,357 |
|
|
9,412 |
|
|
55 |
|
Basic
and fully diluted loss per share
|
|
|
.26 |
|
|
.26 |
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet at December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
Land
and Mining Claims
|
|
|
7,885
|
|
|
8,598
|
|
|
713
|
|
Total
Assets
|
|
|
26,391
|
|
|
27,104
|
|
|
713
|
|
Total
Current Liabilities
|
|
|
970
|
|
|
1,095
|
|
|
125
|
|
Additional
Paid in Capital
|
|
|
45,221
|
|
|
46,017
|
|
|
796
|
|
Accumulated
Deficit
|
|
|
(19,902
|
)
|
|
(20,109
|
)
|
|
(207
|
)
|
Total
Stockholders’ Equity
|
|
|
25,362
|
|
|
25,951
|
|
|
589
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE
3—LIQUIDITY AND CAPITAL REQUIREMENTS
On
October 4, 2007 the Company’s Board
of
Directors approved the development of the Mount Hope Project as contemplated
in
the Bankable Feasibility Study. The development of the Mount Hope Project
has an
estimated total capital requirement of approximately $1 billion comprised
of
initial construction cost in excess of $850 million; $50 to $70 million in
cash
bonding requirements; $27 million in advance royalty payments; and amounts
necessary for financing costs and working capital. Such capital requirements
are
management's best estimates based on the Bankable Feasibility Study and other
available information, and are subject to change, which changes could be
material. The Company will also require additional capital to continue the
exploration and evaluation of Hall-Tonopah, as well as continue payment of
ongoing general, administrative and operations costs associated with supporting
its planned operations, the amounts of which are presently unknown.
The
capital will be required through the commencement of Mount Hope production
estimated to be in the second half of 2010. Our ability to develop the project
on time and on budget is dependent on, among other things, our ability to
raise
the necessary capital to fund the Mount Hope Project both in sufficient quantity
of capital and at the time such capital is needed. Additionally, if the
estimated costs of the Mount Hope Project are exceeded we will need to raise
additional capital to fund such overruns.
The
Company does not currently have the capital necessary to complete the Mount
Hope
Project and, accordingly, plans to raise the capital on an ongoing basis
when
needed. Our current business plan and project time schedule will require
the
Company to raise approximately $200 million in capital from now through December
31, 2008 with $10 to $20 million of such amount required by December 31,
2007.
If the Company is unable to raise sufficient quantities of capital when needed,
it will be necessary to develop alternative plans that would likely delay
the
development and completion of the Mount Hope Project. There is no assurance
that
we will be able to obtain the necessary financing for the Mt. Hope Project
on
customary terms, or at all.
NOTE
4—SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
This
summary of significant accounting policies is presented to assist in
understanding the financial statements. The financial statements and notes
are
representations of the Company’s management, which is responsible for their
integrity and objectivity. These accounting policies conform to accounting
principles generally accepted in the United States of America and have been
consistently applied in the preparation of the financial
statements.
Accounting
Pronouncements—Recent
In
June
2006, the Financial Accounting Standards Board issued FASB Interpretation
No.
48, “Accounting for Uncertainty in Income Taxes an interpretation of FASB
Statement No 109” (hereinafter “FIN 48”), which prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and
measurement of tax position taken or expected to be taken in a tax return.
FIN
48 also provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. FIN
48 is
effective for fiscal years beginning after December 15, 2006. The Company’s
adoption of FIN 48 did not have any impact on the Company’s previously reported
financial position as it has no uncertain tax positions.
Cash
and
Cash
Equivalents
For
the
purposes of the statement of cash flows, the Company considers all highly
liquid
investments with original maturities of three months or less to be cash
equivalents.
Investments
The
Company accounts for its investments in debt and equity securities in accordance
with the provisions of Statement of Financial Accounting Standards No. 115,
“Accounting for Certain Investments in Debt and Equity Securities,” and reports
its investments in available for sale securities at their fair value, with
unrealized gains and losses excluded from income or loss and included in
other
comprehensive income or loss.
Estimates
The
process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
use
of estimates and assumptions regarding certain types of assets, liabilities,
revenues, and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements. Accordingly,
upon settlement, actual results may differ from estimated amounts.
Development
Stage
Activities
The
Company was in the exploration stage from January 2002 through September
2007.
In October 2007 the Company established proven and probable reserves at the
Mount Hope Project and approved the development of the project. The Company
has
not realized any revenue from operations. It will be primarily engaged in
minerals development and exploration until it enters the operations
stage.
Fair
Value of
Financial Instruments
The
Company’s financial instruments include cash, accounts payable and accrued
liabilities. All instruments are accounted for on a historical cost basis,
which, due to the short maturity of these financial instruments, approximates
fair value at September 30, 2007 and December 31, 2006.
Mining
Properties, Land and Water Rights
Costs
of
acquiring and developing mining properties, land and water rights are
capitalized as appropriate by project area. Exploration and related costs
and
costs to maintain mining properties, land and water rights are expensed as
incurred. When a property reaches the production stage, the related capitalized
costs are amortized using the units-of-production method on the basis of
periodic estimates of ore reserves. Mining properties, land and water rights
are
periodically assessed for impairment of value, and any subsequent losses
are
charged to operations at the time of impairment. If a property is abandoned
or
sold, a gain or loss is recognized and included in operations.
Mineral
Exploration,
Evaluation and Development Costs
All
exploration and evaluation expenditures are expensed as incurred. Significant
property acquisition payments for active exploration properties are capitalized.
If no minable ore body is discovered, previously capitalized costs are expensed
in the period the property is abandoned. Expenditures to develop new mines,
to
define further mineralization in existing ore bodies, and to expand the capacity
of operating mines, are capitalized and amortized on a units-of-production
basis
over proven and probable reserves.
Should
a
property be abandoned, its capitalized costs are charged to operations. The
Company charges to operations the allocable portion of capitalized costs
attributable to properties sold. Capitalized costs are allocated to properties
sold based on the proportion of claims sold to the claims remaining within
the
project area.
Reclamation
and Remediation
Expenditures
for ongoing compliance with environmental regulations that relate to current
exploration operations are expensed. Expenditures resulting from the remediation
of existing conditions caused by past operations that do not contribute to
future revenue generations are expensed. Liabilities are recognized when
environmental assessments indicate that remediation efforts are probable
and the
costs can be reasonably estimated.
Estimates
of such liabilities are based upon currently available facts, existing
technology and presently enacted laws and regulations taking into consideration
the likely effects of inflation and other societal and economic factors,
and
include estimates of associated legal costs. These amounts also reflect prior
experience in remediating contaminated sites, other companies’ clean-up
experience and data released by The Environmental Protection Agency or other
organizations. Such estimates are by their nature imprecise and can be expected
to be revised over time because of changes in government regulations,
operations, technology and inflation. Recoveries are evaluated separately
from
the liability and, when recovery is assured, the Company records and reports
an
asset separately from the associated liability.
Provision
for
Taxes
Income
taxes are provided based upon the liability method of accounting pursuant
to
Statement of Financial Accounting Standards No. 109, “Accounting for Income
Taxes” (hereinafter “SFAS No. 109”). Under this approach, deferred income
taxes are recorded to reflect the tax consequences in future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts at each year-end. A valuation allowance is recorded against
the deferred tax asset if management does not believe the Company has met
the
“more likely than not” standard imposed by SFAS No. 109 to allow
recognition of such an asset.
Basic
and
Diluted Net Loss Per Share
Net
loss
per share was computed by dividing the net loss by the weighted average number
of shares outstanding during the period. The weighted average number of shares
was calculated by taking the number of shares outstanding and weighting them
by
the amount of time that they were outstanding. Diluted net loss per share
for
GMO is the same as basic net loss per share, as the inclusion of common stock
equivalents would be antidilutive.
NOTE
5—MINING
PROPERTIES, LAND AND WATER RIGHTS
Mount
Hope. The
Company is currently in the process of developing the Mount Hope molybdenum
project.
In
November 2004, GMO entered into an option to lease all property and assets
of
the Mount Hope Molybdenum Property from Mt. Hope Mines, Inc. and in
October 2005 exercised its rights under the option. The renewable lease
allows GMO to proceed for the next 30 years with permitting, developing and
mining the deposit and for so long thereafter as GMO maintains an active
operation. In 2004, the Company paid $.2 million cash and issued 500,000
shares
of common stock with warrants to purchase 500,000 shares of common stock
for the
Mount Hope option.
Pursuant
to the terms of the lease, the underlying total royalty on production payable
to
Mt. Hope Mines, Inc., less certain deductions, is three percent for a
molybdenum price up to $12 per pound, four percent for a molybdenum
price up to $15 per pound, and five percent for a molybdenum price above
$15 per pound (the “Production Royalties”). GMO is subject to certain
periodic payments as set forth in Note 11 “Commitments and Contingencies.”
Additionally, GMO is obligated to pay Exxon Mineral Company a one percent
net smelter royalty on all production.
In
July
2006, the Company purchased deeded land which includes certain BLM grazing
rights and certain water rights for $1.9 million. The primary purpose for
the
purchase of this asset was to acquire the water rights for use by the Mount
Hope
operations.
In
November 2006, the Company purchased from Atlas Precious Metals, Inc. patented
millsite claims, water rights and fee land in Eureka, Nevada for $.1 million.
As
part of the purchase the Company paid $.3 million for 150,000 shares of
Atlas Precious Metals, Inc. common stock. The investment was capitalized
into
mining properties, land and water rights, as the primary purpose of this
purchase was to acquire the water rights for the Mount Hope
operation.
In
April
2007, the Company purchased land including all water rights and various personal
property for cash of $3.2 million and 50,000 shares of common stock valued
at $.3 million. The primary purpose of this purchase was to acquire the water
rights for the Mount Hope operation.
In
May
2007, the Company purchased water rights for cash of $1.4 million and
17,000 shares of common stock valued at $.1 million. The primary purpose of
this purchase was to acquire the water rights for the Mount Hope
operation.
In
August
2007, the Company completed a Bankable Feasibility Study on the Mount Hope
Project, which provided data on the viability and expected economics of the
project. Based on the findings in the study, the Company reported 1.31 billion
pounds of contained molybdenum in Proven and Probable Reserves.
In
October 2007, the Board of Directors approved the transition of the project
into
the development phase and authorized our management to proceed with the
execution of the project as outlined in the Bankable Feasibility Study.
Accordingly, we have commenced placing long-lead equipment orders and we
anticipate receiving the required permits in the second quarter of
2009.
Hall-Tonopah.
The
Company is currently in the process of exploration and evaluation of the
Hall-Tonopah molybdenum project.
During
the year ended December 31, 2005, the Company entered into an option
agreement with High Desert Winds LLC (“High Desert”) for High Desert’s
approximately ten square mile property in Nye County, Nevada, including water
rights, mineral and surface rights, buildings and certain equipment (the
“Hall-Tonopah Property”). On March 17, 2006, the Company entered into a
purchase agreement with High Desert whereby it purchased a substantial portion
of the Hall-Tonopah Property. At closing, the Company paid High Desert a
cash
payment of $4.5 million for the portion of the Hall-Tonopah Property that
it
purchased and made an additional payment of $1.0 million in November of 2006
for
the purchase of the remaining portion of this property for the total purchase
price of $5.5 million including buildings and equipment at the Hall-Tonopah
site. The primary purpose of the Hall-Tonopah purchase was to further the
Company’s strategy of exploring and developing potential molybdenum
properties.
At
December 31, 2006, the Hall-Tonopah Property was subject to a
12 percent royalty payable with respect to the net revenues generated from
molybdenum or copper minerals removed from the properties purchased. In January
2007, the Company completed the acquisition of all of the issued and outstanding
shares of the corporation that held the 12 percent net smelter royalty
interest in the mineral rights of the Hall-Tonopah Property and, as a result
of
this purchase, the Company now owns the Hall-Tonopah Property and all associated
mineral rights without future royalty obligations. As set forth in the Purchase
Agreement, the Company paid approximately $3.7 million in cash at closing,
net
of cash acquired of $1.2 million. At first commercial production of the
property, the Company has agreed to pay an additional $6.0 million. Because
the
Company cannot determine beyond a reasonable doubt that the mine will attain
commercial production, the Company has not recognized the $6.0 million liability
in its financial statements. In connection with the acquisition, the Company
also received restricted cash totaling $.5 million and assumed reclamation
and
remediation costs, accounts payable and accrued liabilities of $.3
million.
In
March
2007, the Company purchased a patented lode mining claim adjacent to the
Hall-Tonopah Property for $.2 million cash. Additionally, in March 2007,
the
Company completed the purchase of certain patented lode mining claims referred
to as the Liberty Claims on property adjacent to the Hall-Tonopah Property
for
cash of $.1 million and 150,000 shares of common stock valued at $.4
million. These two acquisitions of mining claims were completed to control
additional mineral rights needed for the development of the Hall-Tonopah
Property. The Company currently believes that it has all the mineral, water
and
surface rights necessary to develop the Hall-Tonopah Property.
Other
Properties. The
Company’s mining claims and land purchased prior to 2006 consist in part of
(a) approximately 107 acres of fee simple land in the Little Pine
Creek area of Shoshone County, Idaho, (b) six patented mining claims known
as Chicago-London group, located near the town of Murray in Shoshone County,
Idaho, and (c) 265 acres of private land with three unpatented claims in
Josephine County, Oregon, known as the Turner Gold project.
Summary.
The
following is a summary of mining properties, land and water rights at
September 30, 2007 and December 31, 2006 (in thousands):
|
|
At
September 30, 2007
|
|
At
December 31,
2006
|
|
Mount
Hope:
|
|
|
|
|
|
Real
estate and water rights
|
|
$
|
7,325
|
|
$
|
2,292
|
|
Total
Mount Hope
|
|
|
7,325
|
|
|
2,292
|
|
Hall-Tonopah:
|
|
|
|
|
|
|
|
Hall-Tonopah
Property
|
|
|
9,162
|
|
|
5,417
|
|
Liberty
claims
|
|
|
495
|
|
|
—
|
|
Total
Hall-Tonopah
|
|
|
9,657
|
|
|
5,417
|
|
Other
Properties:
|
|
|
|
|
|
|
|
Little
Pine Creek land
|
|
|
1
|
|
|
1
|
|
Chicago-London
group
|
|
|
80
|
|
|
80
|
|
Turner
Gold land
|
|
|
808
|
|
|
808
|
|
Total
Other Properties
|
|
|
889
|
|
|
889
|
|
Total
|
|
$
|
17,871
|
|
$
|
8,598
|
|
NOTE
6—PROPERTY
AND EQUIPMENT
During
the nine months ended September 30, 2007, the Company purchased depreciable
assets such as vehicles, equipment and computers in the amount of $.8 million.
The vehicles, equipment and computers will be depreciated over useful lives
of
three to seven years using straight line depreciation. Depreciation expense
for
the nine months ended September 30, 2007 was $.1 million.
Capital
assets are recorded at cost. Depreciation is calculated using the straight-line
method over three to twenty years. The following is a summary of property,
equipment, and accumulated depreciation at September 30, 2007 and
December 31, 2006 (in thousands):
|
|
Cost
|
|
Accumulated
Depreciation
|
|
Net
Book Value at September 30, 2007
|
|
Net
Book Value at December 31,
2006
|
|
Field
Equipment and Vehicles
|
|
$
|
391
|
|
$
|
87
|
|
$
|
304
|
|
$
|
167
|
|
Office
Furniture and Computers
|
|
|
354
|
|
|
87
|
|
|
267
|
|
|
209
|
|
Buildings
and Improvements
|
|
|
508
|
|
|
28
|
|
|
480
|
|
|
55
|
|
Total
|
|
$
|
1,253
|
|
$
|
202
|
|
$
|
1,051
|
|
$
|
431
|
|
NOTE
7—RELATED
PARTY TRANSACTIONS
In
January 2007, the Company entered into an employment agreement with a son
of the
Company’s Former Chairman for services as Director of Projects and Operations.
Under this agreement, the Company granted a stock option to purchase
140,000 shares at $2.78 per share, the closing price of the Company’s
stock on January 30, 2007. Also under this agreement the Company issued an
additional 90,000 shares of nonvested common stock at $2.78 that will vest
based on certain performance based milestones. The Company has recorded the
expense associated with these shares this period as per the accounting
guidelines of SFAS No. 123(R), Share-Based
Payment.
Additional
related party transactions are included as part of Note 10.
NOTE
8—COMMON
STOCK AND COMMON STOCK WARRANTS
Nine
months ended September 30, 2007
In
April 2007, the Company completed the private placement of units for gross
proceeds of $25.0 million less placement agent and finder’s fees of $1.5
million. In the aggregate, the Company issued 7,352,942 units at a price
of
$3.40 per unit. Each unit consisted of one share of common stock and a
warrant to purchase one half of one share of common stock. Each warrant will
be
exercisable at a price of $5.20 per whole share for a period of one year
from the date of closing. The Units were offered and sold pursuant to exemptions
from registration under Regulation S of the Securities Act of 1933, as amended
(the “Securities Act”), for offers and sales occurring outside the United
States, and Rule 506 of Regulation D and Section 4(2) of the
Securities Act, as a transaction not involving any public offering.
During
the nine months ending September 30, 2007, the Company had the following
issuances of common stock. The Company issued 369,715 shares of common
stock upon the cashless exercise of 542,000 warrants and 323,661 shares of
common stock upon the cashless exercise of 670,000 stock options. Warrants
and
options in the amount of 3,481,131 and 1,365,833 were exercised for cash
in the
amount of $7.9 million and $1.1 million, respectively. The Company issued
150,000 shares of common stock in the completion of the Liberty Claims
purchase valued at $.4 million, issued 17,000 shares of common stock in the
completion of a water rights purchase associated with Mount Hope valued at
$.1 million, issued 50,000 shares of common stock as part of the
consideration paid for property in the Mount Hope vicinity valued at $.3
million, and issued 75,000 shares of common stock in exchange for services
valued at $.3 million. During the first nine months of 2007, shareholders
returned to the Company 38,998 shares of common stock due to a stock option
exercise pricing error in 2006.
Year
ended December 31, 2006
During
the year ended December 31, 2006 the Company had two private placements
of
Common Stock Units. In the first private placement, the Company sold 3,021,936
common stock units for $1.10 per unit. The Company received cash of $3,324,130
less cash placement agent and finder’s fees of $157,699 and issued 170,550
Common Stock Units for finder’s fees valued at $1.80 per unit for a total value
of $307,511. Each unit consisted of one share of common stock with warrants
to
purchase one-half share of common stock at a price of $1.75 for each whole
share
for a period of two years. In the second private placement, the Company
sold
15,000,000 common stock units for $2.00 per unit. Each unit consisted of
one of
share of common stock with warrants to purchase one-half share of common
stock
at a price of $3.75 for each whole share for a period of five years. The
Company
received cash of $30,000,000 less cash placement agent and finder’s fees of
$2,125,000 and issued 800,000 warrants to purchase shares of common stock
at a
price of $3.75 for each whole share for a period of five years for finder’s fees
valued at $2.17 per warrant for a total value of $1,725,216.
Also
in
the year ended December 31, 2006, the Company issued 1,482,147 shares of
common
stock for the cashless exercise of warrants and 1,008,837 shares of common
stock
for the cashless exercise of stock options. Warrants and options in the
amount
of 5,838,055 and 340,000 were exercised for cash in the amount of $4,476,927
and
$60,670 respectively, less combined brokerage fees of $230,684. The Company
issued 50,000 shares of common stock for services valued at $112,566. The
Company issued 75,000 warrants to purchase shares of common stock at a
price of
$2.10 for a period of two years in exchange for services valued at $1.07
per
warrant for a total value of $79,946.
The
following is a summary of common stock warrant activity for the nine months
ended September 30, 2007:
|
|
Number
of Shares Under Warrants
|
|
Exercise
Price
|
|
Balance
at December 31, 2006
|
|
|
12,267,675
|
|
$
|
0.80
to $3.75
|
|
Issued
in connection with a private placement
|
|
|
3,676,471
|
|
$
|
5.20
|
|
Exercised
for cash
|
|
|
(3,481,131
|
)
|
$
|
0.80
to $3.75
|
|
Exercised
in cashless exchange
|
|
|
(542,000
|
)
|
$
|
1.00
to $3.75
|
|
Expired
|
|
|
(60,000
|
)
|
$
|
1.00
|
|
Balance
at September 30, 2007
|
|
|
11,861,015
|
|
$
|
0.80
to $5.20
|
|
Weighted
average exercise price
|
|
$
|
3.93
|
|
|
|
|
Of
the
warrants outstanding at September 30, 2007, 6,802,000 are exercisable at
$3.75
per warrant and expire February 2011; 3,676,471 are exercisable at $5.20
per
share and expire April 2008; and the remaining 1,382,544 are exercisable
at
prices ranging from $.80 to $2.10 and expire through November 2010.
NOTE
9—PREFERRED
STOCK
In
October 2004, shareholders of the Company authorized 10,000,000 shares of
no par value preferred stock. The authorized but unissued shares of preferred
stock may be issued in designated series from time to time by one or more
resolutions adopted by the board of directors. The directors have the power
to
determine the preferences, limitations and relative rights of each series
of
preferred stock.
In
November 2004, the board of directors unanimously consented to amend the
articles of incorporation of the Company. The amendment reclassified
10,000,000 shares of the Company’s no par value preferred stock into
10,000,000 shares of $0.001 par value Series A preferred stock. At
September 30, 2007 and December 31, 2006, no shares of $0.001 par value
Series A preferred stock were issued or outstanding.
NOTE
10—STOCK
BASED COMPENSATION
Stock
Based
Compensation Plans
During
2006, the board of directors and shareholders adopted the General
Moly, Inc. 2006 Equity Incentive Plan (the “2006 Plan”). In October 2007
the shareholders approved an amendment to the 2006 Plan increasing the amount
of
shares that may be issued under the 2006 Plan from 3,500,000 to 5,100,000.
During 2004, the board of directors and shareholders adopted the General
Moly, Inc. 2003 Stock Option Plan (the “2003 Plan” and together with the
2006 Plan, the “Plans”). The purpose of the Plans is to give the Company greater
ability to attract, retain, and motivate its officers and key employees.
The
Plans are intended to provide the Company with the ability to provide incentives
more directly linked to the success of the Company’s business and increases in
shareholder value.
Under
the
2006 Plan, the board of directors is authorized to grant incentive stock
options
(“ISOs”) to employees (pursuant to Internal Revenue Code 422),
non-statutory stock options, restricted stock awards, restricted stock units
and
stock appreciation rights. The aggregate number of shares of common stock
that
may be issued pursuant to awards granted under the 2006 Plan will not exceed
5,100,000 plus the number of shares that are ungranted and those that are
subject to reversion under the 2003 Plan. As of September 30, 2007, the
maximum number of shares available for issuance under the 2003 Plan was
360,000 shares. Shares under the 2003 Plan that become eligible for awards
under the 2006 Plan may not be granted again under the 2003 Plan.
Stock
Options
During
the nine months ending September 30, 2007, the Company issued 2,280,000
options under the 2006 Plan with an exercise price ranging from $2.41 to
$7.37
with vesting at various dates through 2009. These options were granted to
members of the board of directors, officers, employees and consultants of
the
Company. The fair value of each option is estimated on the issue date using
the
Black-Scholes Option Price Calculation. The following assumptions were made
in
estimating the fair value: risk free interest of 4.14% to 4.96%; volatility
of
87% to 93%; dividend rate of 0%; and expected life of 2.0 years. The total
value of options awarded during the first nine months of 2007 was calculated
at
$5.3 million. Expense was recorded of $3.8 million for the options which
were
earned in the first nine months ended September 30, 2007.
During
the year ended December 31, 2006, the Company granted 1,665,000
non-qualified stock options outside of the Plans with an exercise price ranging
from $2.25 to $3.68 with vesting at various dates through 2008. These options
were granted to members of the board of directors, officers, and employees
of
the Company. The Company issued 60,000 of ISOs within the 2003 Plan with
an
exercise price of $2.10 with vesting at various dates through 2008. The fair
value of each option is estimated on the issue date using the Black-Scholes
Option Price Calculation. The following assumptions were made in estimating
the
fair value: risk free interest of 5%; volatility of 101%; dividend rate of
0%
and expected life of 2.4 years. The total value of options awarded during
2006
was calculated at $3.3 million. Expense was recorded of $2.3 million for
the
options which were earned in 2006.
The
following is a summary of the Company’s stock option plans as of
September 30, 2007:
|
|
Number
of securities to be issued upon exercise of outstanding
options
|
|
Weighted
average exercise price of outstanding options
|
|
Number
of securities remaining available for future issuance under equity
compensation plans
|
|
Equity
compensation plans not
approved
by security holders
|
|
|
1,467,500
|
|
$
|
1.34
|
|
|
n/a
|
|
Equity
compensation plans
approved
by security holders:
|
|
|
|
|
|
|
|
|
|
|
2006
Plan
|
|
|
2,220,000
|
|
|
4.44
|
|
|
2,200,000
|
(1)
|
2003
Plan
|
|
|
90,000
|
|
|
1.55
|
|
|
360,000
|
|
Total
|
|
|
3,777,500
|
|
$
|
3.15
|
|
|
2,560,000
|
|
(1) The
aggregate number of shares of common stock that may be issued pursuant to
awards
granted under the 2006 Equity Incentive Plan will not exceed 5,100,000 plus
the
number of shares that are ungranted and those that are subject to reversion
under the 2003 Stock Plan. Shares under the 2003 Plan that become eligible
for
awards under the 2006 Plan may not be granted again under the 2003
Plan.
The
following is a summary of stock option activity in 2006 and 2007:
|
|
Number
of Shares
Under
Options
|
|
Exercise
Price
|
|
Outstanding
January 1, 2006
|
|
|
4,020,000
|
|
$
|
0.43
|
|
Granted
|
|
|
1,725,000
|
|
|
3.01
|
|
Exercised
|
|
|
(1,615,000
|
)
|
|
0.49
|
|
Forfeited
|
|
|
(480,000
|
)
|
|
1.57
|
|
Expired
|
|
|
—
|
|
|
—
|
|
Outstanding
at December 31, 2006
|
|
|
3,650,000
|
|
$
|
1.48
|
|
Options
exercisable at December 31, 2006
|
|
|
2,705,000
|
|
|
|
|
Weighted
average fair value of options granted during 2006
|
|
$
|
3.10
|
|
|
|
|
Outstanding
January 1, 2007
|
|
|
3,650,000
|
|
$
|
1.48
|
|
Granted
|
|
|
2,280,000
|
|
|
4.40
|
|
Exercised
|
|
|
(2,035,833
|
)
|
|
1.55
|
|
Forfeited
|
|
|
(116,667
|
)
|
|
2.71
|
|
Expired
|
|
|
—
|
|
|
—
|
|
Outstanding
September 30, 2007
|
|
|
3,777,500
|
|
$
|
3.17
|
|
Exercisable
at September 30, 2007
|
|
|
2,435,832
|
|
|
|
|
Weighted
Average Fair Value Granted During 2007
|
|
$
|
2.34
|
|
|
|
|
Stock
awards
under the 2006 Plan
During
the nine months ended September 30, 2007, the Company issued 250,000 shares
of common stock to an officer of the Company that were earned based on achieving
certain performance based milestones established.
Additionally, during the nine months ending September 30, 2007, the Company
reserved for issuance an additional 270,000 shares of non-vested common
stock for officers and employees of the Company that will vest and be issued
based on the achievement of certain performance based milestones
established for each person.
The
total value of the stock awards granted and expensed during the first nine
months of 2007 was calculated at $1.7 million.
NOTE
11—INCOME
TAXES
At
September 30, 2007 and December 31, 2006, the Company had deferred tax
assets principally arising from the net operating loss carry forwards for income
tax purposes multiplied by an expected rate of 34%. As management of the Company
cannot determine that it is more likely than not that the Company will realize
the benefit of the deferred tax assets, a valuation allowance equal to the
deferred tax asset has been established at September 30, 2007 and
December 31, 2006. The significant components of the deferred tax asset at
September 30, 2007 and December 31, 2006 were as follows (in
thousands):
|
|
September
30,
2007
|
|
December
31,
2006
|
|
Operating
loss carry forward
|
|
$
|
35,160
|
|
$
|
14,092
|
|
Unamortized
exploration costs
|
|
$
|
6,899
|
|
$
|
2,672
|
|
Total
Net operating loss carry forward
|
|
$
|
42,059
|
|
$
|
16,764
|
|
Total
deferred tax asset
|
|
|
14,300
|
|
|
5,700
|
|
Deferred
tax asset valuation allowance
|
|
$
|
(14,300
|
)
|
$
|
(5,700
|
)
|
Net
deferred tax asset
|
|
|
—
|
|
|
—
|
|
At
September 30, 2007 and December 31, 2006, the Company had a net
operating loss carry forward of approximately $42,059,000 and $16,764,000
respectively, which expire in the years 2022 through 2027. The change in the
valuation allowance from December 31, 2006 to September 30, 2007 was
$8,600,000.
NOTE
12—COMMITMENTS
AND CONTINGENCIES
Mount
Hope
The
Mount
Hope Lease may be terminated upon the expiration of its 30-year term, earlier
at
our election, or upon our material breach and failure to cure such breach.
If we
terminate the lease, termination is effective 30 days after receipt by MHMI
of
our written notice to terminate the Mount Hope Lease. In order to maintain
the
lease, the Company must pay certain deferral fees and advance royalties as
discussed below.
The
Mount
Hope Lease Agreement requires a royalty advance (the “Construction Royalty
Advance”) of the greater of $2.5 million or 3% of the construction capital cost
estimate upon the earliest of the Company’s securing project financing in
sufficient amounts to develop and put into operation the Mount Hope property
at
a production level of at least 10 million pounds of annual production or
October 19, 2008. Based upon 3% of the current construction capital cost
estimate as set forth in the bankable feasibility study, the Construction
Royalty Advance is estimated to be $25.5 million.
The
Company has the right to defer the Construction Royalty Advance for one or
two
years by payment of a deferral fee (the “Deferral Fee”) in the amount of $.4
million on or before October 19, 2008 and October 19, 2009 in the
event project financing for the project has not been secured by each of the
dates. By October 19, 2010, the Company must pay at a minimum $2.5 million
of the Construction Royalty Advance with the remainder due upon securing project
financing or 50% of the remainder on October 19, 2011 and the other 50% due
on October 19, 2012.
Once
the
Company has paid in full the Construction Royalty Advance, the Company is
obligated to pay an advance royalty (the “Annual Advance Royalty”) each
October 19 thereafter in the amount of $.5 million per year. The
Construction Royalty Advance and the Annual Advance Royalty are collectively
referred to as the “Advance Royalties”. All Advance Royalties are credited
against the Production Royalties (see note 4) once the mine has achieved
commercial production. (The Deferral Fees are not recoverable against Production
Royalties.)
Based
on
the Company’s current estimate of developing and operating the mine, we believe
our contractual obligations under the Mount Hope Lease Agreement will be
as
shown in the following table. This estimate is based on our current estimates
of
the timing of securing project financing and construction capital costs.
Year
|
|
Deferral
Fees
|
|
Advance
Royalties
|
|
Total
|
|
2007
|
|
$
|
350
|
|
$
|
—
|
|
$
|
350
|
|
2008
|
|
|
350
|
|
|
—
|
|
|
350
|
|
2009
|
|
|
—
|
|
|
25,500
|
|
|
25,500
|
|
2010
|
|
|
—
|
|
|
500
|
|
|
500
|
|
2011
|
|
|
—
|
|
|
500
|
|
|
500
|
|
Thereafter
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
700
|
|
$
|
26,500
|
|
$
|
27,200
|
|
(1) After
the first full year of production the Company estimates that the Production
Royalties will fully recover the Advance Royalties for the life of the project
and, further, the Advance Royalties will be fully recovered (credited against
Production Royalties) by the end of 2012.
Long
lead items (including subsequent events)
As
a
continuing part of the development of the Mount Hope Project, the Company
has
begun to place orders for mining and milling equipment that must be built
to the
mine’s specifications and requires a long lead time for engineering and
manufacturing. Contractual commitments for long lead items require progress
payments during the engineering and construction of the equipment and have
cancellation penalties in the event the company cancels the contract. In
September and October 2007 the Company entered into three contracts to purchase
a primary crusher, a semi-autogenous mill, two ball mills and various motors
for
the mills. The following are the total amounts due under the contracts by
year
(in thousands).
Year
|
|
Total
|
|
2007
|
|
$
|
490
|
|
2008
|
|
|
14,710
|
|
2009
|
|
|
34,656
|
|
2010
|
|
|
—
|
|
Total
|
|
$
|
49,856
|
|
Environmental
Considerations
The
Company owns and has owned mineral property interests on certain public and
private lands in Shoshone County, Idaho. The Company’s mineral property holdings
known as the Little Pine Creek and the Chicago-London properties include
lands
contained in mining districts that have been designated as “Superfund” sites
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act. The Company and its properties have been and are subject to
a
variety of federal and state regulations governing land use and environmental
matters. The Company believes it has been in substantial compliance with
all
such regulations, and is unaware of any pending action or proceeding relating
to
regulatory matters that would affect the financial position of the Company.
The
Company’s management acknowledges, however, that the possibility exists that the
Company may be subject to further environmental liabilities associated with
its
properties in the future, and that the amount and nature of any liabilities
the
Company may be held responsible for is impossible to estimate.
Other
Commitments and Contingencies
The
Company has entered into miscellaneous notes for vehicles and leases for
office
equipment at various interest rates and terms totaling $230,000. The table
below
shows these obligations over the next five years (in thousands).
Year
|
|
Lease
Payment
|
|
Interest
on Leases
|
|
Note
Payment
|
|
Note
Interest
|
|
2007
(Remaining portion)
|
|
$
|
4
|
|
$
|
1
|
|
$
|
13
|
|
$
|
2
|
|
2008
|
|
|
17
|
|
|
3
|
|
|
56
|
|
|
5
|
|
2009
|
|
|
18
|
|
|
3
|
|
|
49
|
|
|
5
|
|
2010
|
|
|
17
|
|
|
2
|
|
|
16
|
|
|
1
|
|
2011
|
|
|
17
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
73
|
|
$
|
10
|
|
$
|
134
|
|
$
|
13
|
|
ITEM
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The
following discussion of our financial condition and plan of operations
constitutes management’s review of the factors that affected our financial and
operating performance for the nine months ended September 30, 2007 and
2006. This discussion should be read in conjunction with the financial
statements and notes thereto contained elsewhere in this report and in our
Form 10-KSB/A, for the year ended December 31, 2006.
Overview
We
are in
the business of the exploration, development and, if warranted, the mining
of
properties containing molybdenum. We currently have a 30-year renewable lease
for the lands, surface rights, patented and unpatented claims related to
the
Mount Hope Project, a primary molybdenum property, located in Eureka County,
Nevada. In 2006, we acquired a second significant molybdenum project, the
Hall-Tonopah project, located in Nye County, Nevada. We also own other
properties and mineral rights on which we intend to conduct mineral exploration
and evaluation for determining economic viability for further development.
Mount
Hope.
In
November 2004, we entered into an option agreement with Mt. Hope
Mines, Inc., or MHMI, pursuant to which we were granted an exclusive
one-year option to enter into a lease agreement for Mount Hope’s previously
drilled molybdenum deposit consisting of 13 patented claims and
109 unpatented claims in Eureka County, Nevada, for a lease period of
30 years. In April 2005, we completed a Phase 1 Mine Feasibility Study
with respect to Mount Hope and began the permitting process for placing into
production an open pit molybdenum mine, concentrator and processing facility
capable of producing 44,000 short tons (40,000 metric tons) of ore per day.
In
October 2005, we exercised the option and our lease agreement with MHMI
became effective.
In
August
2007, the Company completed a Bankable Feasibility Study on the Mount Hope
Project, which provided data on the viability and expected economics of the
project. The Bankable Feasibility Study indicated a Net Present Value (NPV)
of
$1.4 billion for the Mt. Hope project, an Internal Rate of Return (IRR) of
over
37% and capital payback of approximately 2.0 years. Molybdenum production
over
the first five years of the project is expected to be approximately 38 million
pounds per year at a projected average direct operating cost of $4.42 per
pound
of molybdenum over the first five years and royalties of $1.15 per pound
of
molybdenum. Processed ore grades are expected to average 0.100% over the
first
five years. Based on the findings in the study, the Company reported 1.31
billion pounds of contained molybdenum in Proven and Probable Reserves. The
study estimated the required capital costs for the project at $852 million,
based on the assumptions contained therein.
In
October 2007, the Board of Directors approved the transition of the project
into
the development phase and authorized our management to proceed with the
execution of the project as outlined in the Bankable Feasibility Study.
Accordingly, we have commenced placing long-lead equipment orders and we
anticipate receiving the required permits in the second quarter of 2009.
We do
not expect to generate revenues from operations before production of molybdenum
begins at the Mount Hope project. Based on the foregoing assumptions, we
estimate that mine production at the Mount Hope Project will commence in
the
second half of 2010.
Hall-Tonopah.
In
March 2006, we purchased from High Desert Winds LLC it’s approximately ten
square mile property in Nye County, Nevada, including water rights, mineral
and
surface rights, buildings and certain equipment. The property includes the
former Hall molybdenum and copper deposit which was mined by open pit methods
between 1982 and 1985 by the Anaconda Minerals Company and between 1988 and
1991
by Cyprus Metals Company for molybdenum. Equatorial Tonopah, Inc. mined
copper from 1999 to 2000 on this property. Much of the deposit was drilled
but
not developed or mined.
In
January 2007, we purchased 100% of the corporation which owned a 12% net
smelter
returns royalty on the Hall-Tonopah Property, effectively eliminating the
royalty on the property.
From
January 2007 through April 2007, we completed a drilling program at Hall-Tonopah
on the molybdenum mineralization of the existing molybdenum pit developed
by
Cyprus and an east extension mineralized area near the top of the east side
of
the existing pit. This program included 13 reverse circulation drill holes
and
nine diamond drill holes.
The
drilling program was designed to validate and confirm the continuity of
mineralization indicated in the previous results of drilling by Anaconda
and
Cyprus. The new drilling confirmed previous drill results for the upper ore
body, and has indicated near surface high grade mineralization greater than
0.10% on the east side of the existing molybdenum pit.
The
Company is conducting a pre-feasibility study on the Hall-Tonopah Property,
which it expects to complete before year-end 2007.
Other
Properties.
We also
currently own several other properties located in the western United States.
These properties include additional molybdenum deposits as well as copper
and
gold deposits.
Results
of Operations for the Nine
Months Ended September 30, 2007
Compared
to Nine Months Ended September 30, 2006
Beginning
in October 2007, we are classified as a development stage company with no
producing mines and, accordingly, we do not produce income. Our net loss
for the
nine months ended September 30, 2007 was $30.6 million as compared to a net
loss of $9.4 million for the nine months ended September 30, 2006. The
increase of $21.2 million is attributable primarily to increased level of
expenditures in exploration and evaluation required to complete our
Environmental Impact Statement and our bankable feasibility study at Mount
Hope
as well as continuing and exploration and evaluation at Hall-Tonopah as we
continue to evaluate our molybdenum resources there. General and administrative
costs are also increasing as we continue to expand our support personnel
for the higher levels of activity in our development and exploration
efforts.
Exploration
and evaluation expenditures of $16.2 million were incurred at the Mount Hope
Project and the Hall-Tonopah Project during the nine months ended
September 30, 2007, as we continued to drill and evaluate our properties.
This is consistent with our stated objective to complete our Mount Hope Project
development plans and to focus on the permitting required to bring the
project to commercial production and to confirm existing mineralization as
well
as identify additional molybdenum resources at Hall-Tonopah. The expenditures
during the nine months ended September 30, 2007 were related to this
objective, including associated costs involved in properly evaluating and
developing our Bankable Feasibility Study for the Mount Hope Project which
was
completed in August 2007.
We
also
incurred corporate and administrative costs of $15.3 million for the nine
months
ended September 30, 2007 compared with $5.4 million for the nine months
ended September 30, 2006 consistent with our increased activity levels.
These costs include employee compensation expenses, increase in staffing
levels
of corporate personnel and associated costs, marketing and investor relations
expenses, general legal expenses, and accounting and compliance issues
reflecting the greater complexity of our operations.
During
the nine months ended September 30, 2007, we added key Officers, Directors
and
employees as a continuation of our previously announced reorganization of
the
executive team to keep up with our significant growth. In connection with
our
compensation programs we granted stock options and unvested common shares
to
attract, retain and motivate our Officers, Directors and key employees. As
a
result, we incurred non-cash equity compensation costs of $5.5 million in
the
nine months ended September 30, 2007 compared with $1.6 million in the nine
months ended September 30, 2006. Over one half of the amount for the nine
months
ended September 30, 2007 was as a result of the initial retention of Officers,
Directors and employees and, accordingly, is not expected to be of a recurring
nature.
Liquidity
and Capital Resources
On
October 4, 2007 the Company's Board of Directors approved the development
of the
Mount Hope Project as contemplated in the Bankable Feasibility Study. The
development of the Mount Hope Project has an estimated total capital requirement
of approximately $1 billion comprised of initial construction cost in excess
of
$850 million; $50 to $70 million in cash bonding requirements; $27 million
in advance royalty payments; and amounts necessary for financing costs and
working capital. Such capital requirements are management's best estimates
based
on the Bankable Feasibility Study and other available information, and are
subject to change, which changes could be material. The Company will also
require additional capital to continue the exploration and evaluation of
Hall-Tonopah, as well as continue payment of ongoing general, administrative
and
operations costs associated with supporting its planned operations, the amounts
of which are presently unknown.
The
capital will be required through the commencement of Mount Hope production
estimated to be in the second half of 2010. Our ability to develop the project
on time and on budget is dependent on, among other things, our ability to
raise
the necessary capital to fund the Mount Hope Project both in sufficient quantity
of capital and at the time such capital is needed. Additionally, if the
estimated costs of the Mount Hope Project are exceeded we will need to raise
additional capital to fund such overruns.
The
Company does not currently have the capital necessary to complete the Mount
Hope
Project and, accordingly, plans to raise the capital on an ongoing basis
when
needed. Our current business plan will require the Company to raise
approximately $200 million in capital from now through December 31, 2008
with
$10 to $20 million of such amount required by December 31, 2007. If the Company
is unable to raise sufficient quantities of capital when needed, it will
be
necessary to develop alternative plans that would likely delay the development
and completion of the Mount Hope Project. There is no assurance that we will
be
able to obtain the necessary financing for the Mt. Hope Project
on customary terms, or at all.
Our
cash
balance at September 30, 2007 was $24.1 million compared to $19.4 million
at September 30, 2006. Total assets at September 30, 2007 were $43.8
million compared to $27.5 million at September 30, 2006. The change in
these balances reflects the purchase of property and water rights for our
Mount
Hope Project and the purchase of a corporation to secure the royalty at our
Hall-Tonopah project offset by proceeds received in March 2007, from a private
placement of equity. Current liabilities at September 30, 2007 were $8.8
million compared to $.7 million at September 30, 2006. This increase in
current liabilities reflects our increased accounts payable due to increased
drilling expenses and expenses related to the preparation of our bankable
feasibility study, and due to the increase in our required provision for
post
closure reclamation and remediation costs.
On
January 10, 2006, we concluded a private placement of 3,021,936 units at a
price of $1.10 per unit. Each unit consisted of one share of our common
stock and one-half of one warrant to purchase one share of our common stock.
Each whole warrant is exercisable for 24 months from the date of issuance
and carries an exercise price of $1.75 per whole share. The gross proceeds
of this offering were $3.3 million and, after payment of sales commissions
and
finder’s fees, we received net proceeds of $3.2 million.
On
February 15, 2006, we concluded a private placement of 15,000,000 units at
a price of $2.00 per unit. Each unit consisted of one share of our common
stock and a warrant to purchase one-half of a share of our common stock.
Each
whole warrant is exercisable for five years from the date of issuance and
carries an exercise price of $3.75 per whole share. The gross proceeds of
this offering were $30.0 million and, after payment of sales commissions
and
finder’s fees, we received net proceeds of $27.9 million. In the aggregate, we
issued 15 million shares of common stock and warrants to purchase an
additional 8.3 million shares, including warrants issued as compensation to
the placement agent.
On
January 30, 2007, the Company completed its previously announced
acquisition of all of the issued and outstanding shares of a corporation
that
held a 12 percent net smelter royalty interest in the mineral rights of the
Company’s Hall-Tonopah molybdenum-copper property in Nye County, Nevada. The
Company now owns the Hall-Tonopah Property and all associated mineral rights
without future royalty obligations. As set forth in the Purchase Agreement,
the
Company paid approximately $4.9 in cash at closing. At first commercial
production of the property, the Company has agreed to pay an additional $6.0
million.
In
April
2007, we concluded a private placement of 7,352,942 units for gross proceeds
of
$25.0 million, with net proceeds to the Company of approximately $23.5 million
after legal and other related expenses. In the aggregate, the Company issued
the
units at a price of $3.40 per unit. Each unit consisted of one share of
common stock and a warrant to purchase one half of one share of common stock.
Each warrant will be exercisable at a price of $5.20 per whole share for a
period of one year from the date of closing.
See
note 12 to the condensed consolidated notes to the financial statements for
a discussion of commitments and contingencies.
Changes
in Accounting Policies
We
did
not change our accounting policies during the nine months ended
September 30, 2007.
Special
Note Regarding Forward-Looking Statements
Certain
statements in this report may constitute forward-looking statements, which
involve known and unknown risks, uncertainties and other factors, which may
cause actual results, performance or achievements of our company, the Mount
Hope
Project, Hall-Tonopah project and our other projects, or industry results,
to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. We use the words
“may”,
“will”, “believe”, “expect”, “anticipate”, “intend”, “future”, “plan”,
“estimate”, “potential” and other similar expressions to identify
forward-looking statements. Forward-looking statements may include, but are
not
limited to, statements with respect to the following:
· |
the
timing and possible outcome of pending regulatory and permitting
matters;
|
· |
the
parameters and design of our planned initial mining facilities at
the
Mount Hope Project;
|
· |
future
financial or operating performances of our company and our
projects;
|
· |
the
estimation and realization of mineral reserves, if
any;
|
· |
the
timing of exploration, development and production activities and
estimated
future production, if any;
|
· |
estimates
related to costs of production, capital, operating and exploration
expenditures;
|
· |
requirements
for additional capital;
|
· |
government
regulation of mining operations, environmental conditions and risks,
reclamation and rehabilitation expenses;
|
· |
title
disputes or claims;
|
· |
limitations
of insurance coverage; and
|
· |
the
future price of molybdenum, gold, silver or other
metals.
|
You
should not place undue reliance on these forward-looking statements, which
speak
only as of the date of this report. These forward-looking statements are
based
on our current expectations and are subject to a number of risks and
uncertainties, including those set forth above. Although we believe that
the
expectations reflected in these forward-looking statements are reasonable,
our
actual results could differ materially from those expressed in these
forward-looking statements, and any events anticipated in the forward-looking
statements may not actually occur. Except as required by law, we undertake
no
duty to update any forward-looking statements after the date of this report
to
conform those statements to actual results or to reflect the occurrence of
unanticipated events. We qualify all forward-looking statements contained
in
this report by the foregoing cautionary statements.
ITEM
3. CONTROLS
AND PROCEDURES
An
evaluation was performed under the supervision and with the participation
of our
management, including our principal executive officer and principal financial
officer, of the effectiveness of our disclosure controls and procedures
(as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of
1934) as of the end of the period covered by this Quarterly Report on Form
10-QSB. Based on the foregoing and in light of the material weakness due
to the
lack of effective controls over the valuation and accuracy of stock compensation
expense and valuation of warrants to purchase common stock (as previously
disclosed in our Annual Report on Form 10-KSB/A for the year ended December
31,
2006), our principal executive officer and principal financial officer
have
concluded that our disclosure controls and procedures are not effective,
as of
the end of the period covered by this report, to ensure that information
required to be disclosed by us in reports that we file or submit under
the
Exchange Act is recorded, processed, summarized and reported within the
time
periods specified in the Securities and Exchange Commission rules and forms
and
such information is accumulated and communicated to our management, including
our principal executive officer and principal financial officer, to allow
timely
decisions regarding required disclosure.
As
more
fully described in our Annual Report on Form 10-KSB/A for the year ended
December 31, 2006, the Company has implemented a number of internal control
procedures to remediate the material weakness discussed above. As a result
of
these internal control improvements, we believe the material weakness that
existed at September 30, 2007 has been remediated as of the date of this
filing.
The
Company intends to continually review and evaluate the design and effectiveness
of our disclosure controls and procedures as well as our internal control
over
financial reporting to improve our controls and procedures over time as
the
Company’s business transitions into mining operations and to correct any
deficiencies that we may discover in the future. The Company anticipates
that
additional changes to our internal control and procedures will be made
as we
takes steps to become compliant with Section 404 of the Sarbanes-Oxley Act
of 2002, which we anticipates will apply for our annual report for the
year
ended December 31, 2007.
PART
II
OTHER
INFORMATION
ITEM
4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We
held
our
Annual Meeting of Shareholders on October 4, 2007 to (1) elect members of
the
Company’s Board of Directors, (2) to approve the reincorporation of Idaho
General Mines, Inc. (“Idaho General”) into the State of Delaware through a
merger with and into the Company, (3) to approve an amendment to the Company’s
2006 Equity Incentive Plan; and (4) to approve an amendment to accelerate
the
termination of the Company’s Shareholders Rights Plan. The results of the Annual
Meeting are as follows:
(1)
Election of Seven Members of the Board of Directors
The
shareholders elected the following seven individuals to serve as directors
of
the Company for terms expiring at our next annual meeting and until their
successors are elected and qualified:
Name
|
|
Votes
For
|
|
Votes
Withheld
|
Bruce
D. Hansen
|
|
48,572,297
|
|
92,124
|
Gene
W. Pierson
|
|
46,724,755
|
|
1,939,666
|
Norman
A. Radford
|
|
46,496,170
|
|
2,168,251
|
R.
David Russell
|
|
46,708,655
|
|
1,955,766
|
Richard
F. Nanna
|
|
46,495,970
|
|
2,168,451
|
Ricardo
M. Campoy
|
|
48,464,035
|
|
200,386
|
Mark
A. Lettes
|
|
48,351,079
|
|
313,342
|
(2)
Approval of Reincorporation of Idaho General into the State of
Delaware
The
shareholders approved the reincorporation of Idaho General into the State
of
Delaware through a merger with and into the Company by the following vote:
For
|
|
|
33,130,638
|
|
Against
|
|
|
2,622,959
|
|
Abstain
|
|
|
28,372
|
|
Broker
Non-Vote
|
|
|
12,882,452
|
|
(3)
Approval of Amendment to the 2006 Equity Incentive Plan
The
shareholders approved an amendment to the Company’s 2006 Equity Incentive Plan
by the following vote:
For
|
|
|
28,435,756
|
|
Against
|
|
|
6,108,901
|
|
Abstain
|
|
|
1,237,312
|
|
Broker
Non-Vote
|
|
|
12,882,452
|
|
(4) Approval
of an Amendment to Accelerate the Termination of the Shareholders Rights
Plan
The
shareholders approved an amendment to the Shareholders
Rights Agreement dated as of September 22, 2005 (as amended from time to
time,
the “Shareholders Rights Plan”), to accelerate the termination of the
Shareholders Rights Plan, by the
following vote:
For
|
|
|
35,409,932
|
|
Against
|
|
|
247,912
|
|
Abstain
|
|
|
124,125
|
|
Broker
Non-Vote
|
|
|
12,882,452
|
|
ITEM
6. EXHIBITS
Exhibit
Number
|
|
Description
of Exhibit
|
2.1
|
|
Agreement
and Plan of Merger dated October 5, 2007 (1)
|
3.1
|
|
Certificate
of Incorporation (1)
|
3.2
|
|
Bylaws
(1)
|
4.13
|
|
Fourth
Amendment to Shareholders Rights Agreement (1)
|
10.8
|
|
Amended
and Restated Employment Agreement between the Company and Bruce
D. Hansen
dated September 13, 2007 (2)
|
31.1
|
|
Certification
of CEO pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
Exchange Act
|
31.2
|
|
Certification
of CFO pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
Exchange Act
|
32.1
|
|
Certification
of CEO pursuant to 18 U.S.C. Section 1350
|
32.2
|
|
Certification
of CFO pursuant to 18 U.S.C.
Section 1350
|
(1)
Incorporated by reference to the Current Report of the registrant on Form
8-K
filed on October 5, 2007.
(2)
Incorporated by reference to the Current Report of the registrant on Form
8-K
filed on September 18, 2007.
SIGNATURES
In
accordance with the requirements of the Exchange Act, the Registrant has
duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly
authorized.
|
|
|
|
GENERAL
MOLY,
INC. |
|
|
|
|
|
/s/ Bruce
D.
Hansen
|
|
Bruce
D. Hansen
|
|
Chief
Executive Officer |