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DISCONTINUED OPERATIONS
 12 Months Ended
Dec. 31, 2015
Discontinued Operations and Disposal Groups [Abstract]  
DISCONTINUED OPERATIONS
6. DISCONTINUED OPERATIONS

 

Disposition of Mining Segment

 

In February 2006, the Company reacquired the Mt. Emmons molybdenum mining properties (the “Property”). The Company has not conducted any extractive mining operations at the Property since its reacquisition but the Company was obligated under existing permits to operate a water treatment plant (“WTP”) and to incur holding costs associated with the retention of the mining properties, which resulted in aggregate annual expenses of approximately $3,000 during each of the three years in the period ended December 31, 2015.

 

The market price for molybdenum oxide was approximately $11 per pound during 2013 and 2014 with a decrease to approximately $5 per pound by the fourth quarter of 2015. In light of the considerable ongoing costs related to the Property and the deteriorating market for molybdenum, during 2015 the Company began to explore the viability of alternative structures to the development of the Property that could result in a sharing or elimination of the ongoing costs and liabilities.

 

In February 2016, the Company’s Board of Directors decided to dispose of the Property rather than continuing the Company’s long-term development strategy whereby the Company entered into the following agreements:

 

  A. The Company entered into an Acquisition Agreement (the “Acquisition Agreement”) with Mt. Emmons Mining Company, a subsidiary of Freeport-McMoRan Inc. (“MEM”), whereby MEM acquired the Property which consists of the Mt. Emmons mine site located in Gunnison County, Colorado, including the Keystone Mine, the WTP and other related properties. Under the Acquisition Agreement, MEM replaced the Company as the permittee and operator of the WTP and will discharge the obligation of the Company to operate the WTP from and after the closing in accordance with the applicable permits issued by the Colorado Department of Public Health and Environment. The Company did not receive any cash consideration for the disposition; the sole consideration for the transfer was that MEM assumed the Company’s obligations to operate the WTP and to pay the future mine holding costs for portions of the Property that it desires to retain.

 

As a result of the subsequent disposition of the Property as described above, the Company determined that an impairment charge of $22,620 was required to be recorded in the fourth quarter of 2015. Presented below is calculation of the impairment charge:

 

Net book value of assets conveyed   $ 22,824  
Asset retirement obligations assumed by Purchaser     (204 )
         
Impairment charge recognized in 2015   $ 22,620  

 

Under U.S. GAAP, the disposal of a segment is reported as discontinued operations in the Company’s financial statements. Presented below are the assets and liabilities associated with the Company’s mining segment as of December 31, 2015 and 2014, along with the impact of the impairment charge:

 

    2015     2014  
             
Assets retained by the Company:                
Performance bonds   $ 114     $ 530  
                 
Net assets conveyed to Purchaser:                
Undeveloped mining claims     21,942       21,942  
Mining equipment     1,774       1,773  
Less accumulated depreciation of mining equipment     (892 )     (770 )
Less write-down due to impairment     (22,620 )     -  
                 
Net book value of assets conveyed     204       22,945  
                 
Total assets of discontinued operations   $ 318     $ 23,475  
                 
Asset retirement obligations assumed by Purchaser   $ 204     $ 188  

 

  B. Concurrent with entry into the Acquisition Agreement and as additional consideration for MEM to accept transfer of the Property, the Company entered into a Series A Convertible Preferred Stock Purchase Agreement (the “Series A Purchase Agreement”) with MEM, whereby the Company issued 50,000 shares of newly designated Series A Convertible Preferred Stock (the “Preferred Stock”) in exchange for (i) MEM accepting the transfer of the Property and replacing the Company as the permittee and operator of the WTP, and (ii) the payment of $1 to the Company. The Series A Purchase Agreement contains customary representations and warranties on the part of the Company. As contemplated by the Acquisition Agreement and the Series A Purchase Agreement and as approved by the Company’s Board of Directors, the Company filed with the Secretary of State of the State of Wyoming Articles of Amendment containing a Certificate of Designations with respect to the Preferred Stock (the “Certificate of Designations”). Pursuant to the Certificate of Designations, the Company designated 50,000 shares of its authorized preferred stock as Series A Convertible Preferred Stock. The Preferred Stock will accrue dividends at a rate of 12.25% per annum of the Adjusted Liquidation Preference (as defined); such dividends are not payable in cash but are accrued and compounded quarterly in arrears. The “Adjusted Liquidation Preference” is initially $40 per share of Preferred Stock for an aggregate of $2,000, with increases each quarter by the accrued quarterly dividend. The Preferred Stock is senior to other classes or series of shares of the Company with respect to dividend rights and rights upon liquidation. No dividend or distribution will be declared or paid on junior stock, including the Company’s common stock, (1) unless approved by the holders of Preferred Stock and (2) unless and until a like dividend has been declared and paid on the Preferred Stock on an as-converted basis.

 

At the option of the holder, each share of Preferred Stock may initially be converted into 80 shares of the Company’s $0.01 par value Common Stock (the “Conversion Rate”) for an aggregate of 4,000,000 shares. The Conversion Rate is subject to anti-dilution adjustments for stock splits, stock dividends and certain reorganization events and to price-based anti-dilution protections. Each share of Preferred Stock will be convertible into a number of shares of Common Stock equal to the ratio of the initial conversion value to the conversion value as adjusted for accumulated dividends multiplied by the Conversion Rate. In no event will the aggregate number of shares of Common Stock issued upon conversion be greater than 4,760,095 shares. The Preferred Stock will generally not vote with the Company’s Common Stock on an as-converted basis on matters put before the Company’s shareholders. The holders of the Preferred Stock have the right to approve specified matters as set forth in the Certificate of Designations and have the right to require the Company to repurchase the Preferred Stock in connection with a change of control.

 

 During the first quarter of 2016, the Company expects to record the fair value of the Preferred Stock based on the initial liquidation preference of $2,000. Since the cash consideration paid by MEM for the Preferred Stock was a nominal amount, the Company expects to record a charge to operations of approximately $2,000 associated with the issuance.

 

  C. Concurrent with entry into the Acquisition Agreement and the Series A Purchase Agreement, the Company and MEM entered into an Investor Rights Agreement, which provides MEM rights to certain information and Board observer rights. MEM has agreed that it, along with its affiliates, will not acquire more than 16.86% of the Company’s issued and outstanding shares of Common Stock. In addition, MEM has the right to demand registration of the shares of Common Stock issuable upon conversion of the Preferred Stock under the Securities Act of 1933, as amended.

 

Disposition of Apartment Complex

 

In September 2013, the Company completed the sale of the Remington Village Apartment Complex in Gillette Wyoming (“Remington Village”) for approximately $15,000. The $9,500 balance on the commercial note relating to Remington Village was paid in full at closing. After repayment of the debt balance, commission and other closing costs, the net proceeds to the Company were approximately $5,000. Upon closing this transaction, a loss of $120 was recorded on the sale of discontinued operations.

 

Combined Results of Operations for Discontinued Operations

 

The results of operations of the discontinued mining and apartment complex operations are presented separately for all periods presented in the accompanying financial statements. Presented below are the components for the years ended December 31, 2015, 2014 and 2013:

 

    2015     2014     2013  
                   
Operating results for apartment complex:                        
Rental revenue   $ -     $ -     $ 1,271  
Operating expenses     -       -       (844 )
                         
Net earnings for apartment complex     -       -       427  
                         
Operating expenses of mining segment:                        
Water treatment plant     (1,737 )     (1,875 )     (1,817 )
Mine property holding costs     (1,134 )     (1,110 )     (1,228 )
Depreciation of mine equipment     (122 )     (123 )     (126 )
                         
Total expenses for mining segment     (2,993 )     (3,108 )     (3,171 )
                         
Total results for discontinued operations   $ (2,993 )   $ (3,108 )   $ (2,744 )