INVESTMENT IN AMAK

9 Months Ended

Sep. 30, 2016

16. INVESTMENT IN AMAK

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

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

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

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

Results of Operations

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

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

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

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

Financial Position

	September 30,		December 31,
	2016		2015
	(Thousands of Dollars)
Current assets	$	35,153	$	26,078
Noncurrent assets		260,142		259,527
Total assets	$	295,295	$	285,605

Current liabilities	$	2,883	$	22,740
Long term liabilities		87,994		89,364
Shareholders' equity		204,418		173,501
	$	295,295	$	285,605

The equity in the income or loss of AMAK reflected on the consolidated statements of income for the three and nine months ended September 30, 2016, and 2015, is comprised of the following:

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

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