NOTE 10 - INVESTMENT IN AL MASANE AL KOBRA MINING COMPANY (“AMAK”)

We have concluded that we have significant influence over the operating and financial policies of AMAK and, accordingly, should account for our investment in AMAK using the equity method. As of December 31, 2014, and 2013, we had a non-controlling equity interest of approximately $53.0 million and $54.1 million, respectively.

We have received and attached to this Form 10-K the financial statements of AMAK prepared in accordance with generally accepted accounting principles in the United States of America as of December 31, 2014, and 2013, and for each of the three years ended December 31, 2014. These financial statements have been 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

	Years Ended December 31,
	2014			2013		2012
	(Thousands of Dollars)
Sales	$	63,300		$	104,990	$	15,594
Gross Profit		3,624			21,881		3,825
General, administrative and other expenses		10,487			12,360		6,328
Net Income (loss)	$	(6,863	)	$	9,521	$	(2,503	)

Depreciation and amortization for the years ended December 31, 2014, 2013, and 2012 was $23.7 million, $24.4 million and $9.6 million, respectively. Therefore, net income before depreciation and amortization was as follows:

	Years Ended December 31,
	2014		2013		2012
	(Thousands of Dollars)
Net income before depreciation and amortization	$	16,845	$	33,878	$	7,144

Financial Position

	December 31,
	2014		2013
	(Thousands of Dollars)
Current assets	$	17,782	$	32,923
Noncurrent assets		265,584		264,997
Total assets	$	283,366	$	297,920

Current liabilities	$	23,034	$	22,497
Long term liabilities		67,598		75,826
Shareholders' equity		192,734		199,597
Total liabilities and equity	$	283,366	$	297,920

The equity in the income or loss of AMAK reflected on the consolidated statements of income for the years ended December 31, 2014, 2013, and 2012, is comprised of the following:

	2014			2013		2012
Company’s share of earnings (loss) reported by AMAK	$	(2,419	)	$	3,356	$	(885	)
Amortization of difference between Company’s investment in AMAK
and Company’s share of net assets of AMAK		1,347			1,347		674
Equity in earnings (loss) of AMAK	$	(1,072	)	$	4,703	$	(211	)

A gain of approximately $16.2 million for the difference between our initial investment in AMAK and our share of AMAK’s initial assets recorded at fair value was not recognized in 2008. This basis difference is being amortized over the life of AMAK’s mine which is estimated to be twelve years beginning with its commencement of production in July 2012 as an adjustment to our equity in AMAK’s income or loss.

In December 2012 the Board of Directors of AMAK authorized the issuance of additional shares of AMAK in an amount equal to ten percent of the then outstanding shares to raise funds for working capital requirements and retirement of construction debt. In January 2013 we entered into an agreement with AMAK to purchase an additional 937,500 shares of AMAK at 30 Saudi Riyals (USD $8.00) per share, for a total of USD $7.5 million. Due to the continued improvement in the operations of AMAK and a desire to prevent a substantial dilution of its investment, we elected to purchase these additional shares. As a result of this purchase and upon completion of the raise on May 27, 2013, our ownership percentage in AMAK became approximately 35%. All existing AMAK shareholders had the opportunity to buy into the issue and all shares were placed within that group. As a result of the equity raise in 2013, the Company’s share of the net assets of AMAK increased approximately $4.0 million which the Company recognized as a gain (with a corresponding increase in its investment) in accordance with ASC 323-10-40-1.

In July 2011 Arab Mining Company (“ARMICO”) invested US $37.3 million in AMAK and acquired 5 million shares, representing a 10% interest in AMAK. ARMICO also acquired a seat on AMAK’s board which is being held by Mr. Sultan Al-Shawli, Saudi Deputy Minister for Petroleum and Minerals. Mr. Al-Shawli’s election increased the total number of board members to nine with us retaining four. This transaction changed our ownership percentage in AMAK to 37% and the ownership interest of the Saudi shareholders to 53%. As a result of the ARMICO transaction, our share of the net assets of AMAK increased by approximately $8.9 million which we recognized as a gain (with a corresponding increase in its investment) in 2011 in accordance with ASC 323-10-40-1.

We assess our investment in AMAK for impairment when events are identified, or there are changes in circumstances that may have an adverse effect on the fair value of the investment. We consider recoverable ore reserves and the amount and timing of the cash flows to be generated by the production of those reserves, as well as, recent equity transactions within AMAK. No impairment charges were recorded in 2014, 2013, or 2012.

Working Capital Advances to AMAK

During 2012 we advanced $2,041,000 to AMAK for working capital purposes of which approximately $2,016,000 was repaid in May of 2013. Additional amounts have been paid on behalf of AMAK during 2013 for marketing advisory services and spare parts inventory management. Those amounts were repaid during 2014. The amounts due from AMAK at December 31, 2014, and 2013, were approximately $0 and $536,000, respectively.