SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
Under the Securities Exchange Act of 1934
GOLDEN QUEEN MINING CO. LTD.
(Exact name of registrant as specified in its charter)
Province of British Columbia Not Applicable
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
Green Flag Building, Suite 211-A
104 South Freya
Spokane, Washington 99202
(Address of principal executive offices)
Registrant's telephone number, including area code: (509) 535-4022
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
without par value
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS.
Golden Queen Mining Co. Ltd. (the "Company") was incorporated under the laws
of the Province of British Columbia on November 21, 1985. The registered
office of the Company is located at 1600 - 925 West Georgia Street,
Vancouver, British Columbia V6C 3L2; the executive offices of the Company
are located at Suite 211-A, Green Flag Building, 104 South Freya, Spokane,
Washington 99202. The Company conducts its business through its sole and
wholly-owned subsidiary, Golden Queen Mining Company, Inc. (the
"Subsidiary"), a corporation incorporated under the laws of the State of
California. Unless otherwise indicated, all references to "Golden Queen"
mean Golden Queen Mining Co. Ltd. and all references to the "Company" include
Golden Queen and the Subsidiary.
The Company is a precious metals exploration and development company
currently engaged, through the Subsidiary, in the exploration of certain
mineral properties located in the Mojave Mining District, Kern County,
California comprising the Company's Soledad Mountain Project. The Company's
principal objective is to undertake the development and exploitation of such
properties.
The Company acquired its initial interest in the Soledad Mountain Project in
1986, through the acquisition of all of the outstanding shares of the
Subsidiary which, at that time, held an interest in certain mining properties
in the Mojave Mining District. Since that time, the Company has been
principally engaged in acquiring an interest in other properties and
exploring for gold and other minerals in the area.
In the five years preceding the date of this registration statement on Form
10-SB, the Company has focused its efforts on the exploration of the
properties comprising the Soledad Mountain Project. After a small reserve
was outlined in 1988, the Soledad Mountain Project remained dormant for
several years due to unfavorable project economics. The Company committed
certain private placement funds received by it to an exploration program
which was completed in October 1994 and which outlined 562,000 ounces of gold
equivalent. By October 1996, following further exploration, the Company
concluded that proven and probable ore reserves had increased to 24.8 million
tonnes (27.3 million tons) at an average grade of 0.84 grams per tonne (0.024
ounces per ton) of gold and 14.70 grams per tonne (0.428 ounces per ton) of
silver. Total contained ounces are estimated at 666,400 ounces of gold and
11,695,000 ounces of silver, or approximately 791,500 ounces of gold
equivalent.
The Company intends to develop the Soledad Mountain Project as an open pit
gold and silver mining and cyanide heap leach recovery operation. The
Company's plans include the construction of facilities, mining by open pit
methods and processing precious metals ores at a rate of up to 3.6 million
tonnes per year for at least seven years. This period will be followed by
heap detoxification and reclamation of the project site. The Company has
decided to move the Soledad Mountain Project into the development stages with
production scheduled to commence in early 1998.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following is a discussion of the operating results of the Company for the
fiscal years ended May 31, 1996 and 1995 and for the period from inception
(November 21, 1985) through May 31, 1996, and for the three-month periods
ended August 31, 1996 and 1995. Effective May 21, 1996, the Company changed
the currency in which it reports its financial results from the Canadian
dollar to the U.S. dollar. All comparative figures in the Company's
consolidated financial statements included in this Form 10-SB and the
discussion which follows have been restated to U.S. dollars, as set out in
Note 2(c) to the consolidated financial statements. The selected
consolidated financial information set out below and certain of the comments
which follow have been derived from the consolidated financial statements of
the Company included elsewhere in this Form 10-SB and should be read in
conjunction with such financial statements and the notes thereto.
On May 21, 1996, the board of directors of the Company approved the adoption
of a change in the fiscal year-end of the Company, from May 31st to December
31st. Such change will take effect with the year ending December 31, 1996.
SELECTED CONSOLIDATED FINANCIAL INFORMATION.
STATEMENTS OF OPERATIONS AND DEFICIT AND CHANGES IN FINANCIAL POSITION DATA.
Three Months Ended
August 31,
1996 1995
---- ----
Deferred exploration and
development expenditures
for the period $ 621,514 $ 197,505
Loss (earnings) for the
period 106,737 22,952
Deficit at the end of the
period 1,869,274 1,186,823
Cash provided by (used in)
financing activities (23,334) 1,776,270
Years Ended May 31,
1996 1995 1994
---- ---- ----
Deferred exploration and
development expenditures
for the period $ 1,848,009 $ 519,370 $ 493,647
Loss (earnings) for the
period 426,380 219,576 158,193
Deficit at the end of the
period 1,690,977 1,163,871 944,295
Cash provided by (used in)
financing activities 12,537,475 273,018 1,432,285
BALANCE SHEET DATA.
Three Months Ended
August 31,
1996 1995
---- ----
Current assets $ 8,571,915 $ 1,641,929
Mineral properties 2,679,776 2,056,926
Deferred exploration and
development expenditures 8,623,875 6,351,857
Total assets 20,389,859 10,183,336
Current liabilities 299,256 779,009
Long-term notes payable 1,076,687 75,587
Total liabilities 1,375,943 854,596
Shareholder's equity 19,013,916 9,328,740
Years Ended May 31,
1996 1995 1994
---- ---- ----
Current assets $ 9,877,992 $ 165,023 $ 768,119
Mineral properties 2,401,023 1,978,320 1,873,683
Deferred exploration and
development expenditures 8,002,361 6,154,352 5,634,982
Total assets 20,711,808 8,423,014 8,320,424
Current liabilities 481,586 780,759 623,167
Long-term notes payable 1,045,230 78,144 87,436
Total liabilities 1,526,816 858,903 710,603
Shareholder's equity 19,184,992 7,573,111 7,609,821
RESULTS OF OPERATIONS.
OVERVIEW. During the periods indicated in the discussion which follows, the
Company has been in the exploration stage of its business and therefore has
earned no revenue from its operations. Variations in the level of expenses
between periods have been as a result of the nature, timing and cost of the
activities undertaken in the various periods. Financing of the continued
exploration of the Soledad Mountain Project during such periods has been
obtained through the sale of shares of common stock of the Company in
predominantly offshore transactions, and through borrowings.
THREE MONTHS ENDED AUGUST 31, 1996 COMPARED TO THREE MONTHS ENDED AUGUST 31,
1995. Exploration and development expenditures of $621,514 for the three-
month period ending August 31, 1996 exceeded exploration and development
expenditures for the three-month period ended August 31, 1995 by $424,009.
The increase in expenditures resulted from an extensive drilling program
conducted to verify reserves at the Soledad Mountain Project, permitting
expenses and increased personnel at the project site. The loss of $106,737
for the three-month period ending August 31, 1996 exceeded the loss for the
corresponding period in the previous year by $83,785. This was due to an
increase in administrative expenditures resulting from the hiring of
management personnel in December 1995 and February and May 1996. Cash
provided by financing activities decreased from $1,776,270 for the three
months ended August 31, 1995 to ($23,334 for the three months ended August
31, 1996. During the period ended August 31, 1995, the Company issued shares
of its common stock for cash in a private placement; no comparable
transaction occurred during the period ended August 31, 1996.
YEAR ENDED MAY 31, 1996 COMPARED TO YEAR ENDED MAY 31, 1995. Exploration and
development expenditures of $1,848,009 for the year ended May 31, 1996
exceeded exploration and development expenditures for the year ended May 31,
1995 by $891,073 (before a recovery of cost in the amount of $437,566 for the
year ended May 31, 1995). The increase in expenditures resulted from an
extensive drilling program conducted to verify reserves at the Soledad
Mountain Project. The loss of $426,380 for the year ended May 31, 1996
exceeded the loss for the previous year by $206,804. This was due to an
increase in administrative expenditures resulting from the hiring of
additional management personnel in December 1995. Cash provided by financing
activities increased from $273,018 during the year ended May 31, 1995 to
$$12,537,475 during the year ended May 31, 1996. This increase is
attributable to the Company's issuance and sale of special warrants during
the year.
YEAR ENDED MAY 31, 1995 COMPARED TO YEAR ENDED MAY 31, 1994. Exploration and
development expenditures of $956,936 (before a recovery of cost received in
the amount of $437,566) for the year ended May 31, 1995 increased by $463,289
over exploration and development expenditures for the year ended May 31,
1994. This increase was largely due to an increase in expenditures for
drilling and consultants. The loss of $219,576 for fiscal 1995 increased by
$61,383 over the loss for fiscal 1994. This was due primarily to
professional fees, which increased by $75,000 between these periods. Cash
provided by financing activities decreased from $1,432,285 for the year ended
May 31, 1994 to $273,018 for the year ended May 31, 1995. The cash provided
by financing activities during the year ended May 31, 1994 resulted largely
from the issuance by Golden Queen of Common Shares as described under the
heading "Certain Relationships and Related Transactions".
LIQUIDITY AND CAPITAL RESOURCES.
INVESTING ACTIVITIES. The Company acquired the Soledad Mountain Project in
1986 and since then has been engaged in solidifying its land position and
conducting several drilling and sampling programs in order to delineate ore
reserves on the project. The Company continues to focus its attention on
exploring and developing the project, with a view toward commencing
production in early 1998.
During the three months ended August 31, 1996, the Company expended
approximately $900,000 on the Soledad Mountain Project. On a cumulative
basis since inception, the Company has expended approximately $11,800,000 on
the project. These cumulative costs consist of acquisition costs of
approximately $2,680,000 and capitalized development and exploration costs of
$8,620,000.
FINANCING ACTIVITIES. Since inception, the Company has raised approximately
$19,940,000 from the sale of equity securities to support its business
activities. These transactions consisted of: the issuance in fiscal 1986 of
1,425,001 shares of common stock for cash, at the price of approximately
$0.10 per share, resulting in proceeds to the Company of $141,313; the
issuance in fiscal 1987 of 550,000 shares of common stock for cash, at the
price of approximately $0.47 per share, resulting in proceeds to the Company
of $256,971, and the issuance in such year of an additional 25,000 shares of
common stock for property valued at $13,742; the issuance in fiscal 1988 of
1,858,748 shares of common stock for cash, at the price of approximately
$0.94 per share, resulting in proceeds to the Company of $1,753,413; the
issuance in fiscal 1989 of 1,328,750 shares of common stock for cash, at the
price of approximately $1.36 per share, resulting in proceeds to the Company
of $1,814,133, and the issuance in such year of an additional 100,000 shares
of common stock for property valued at $227,819; the issuance in fiscal 1990
of 1,769,767 shares of common stock for cash, at the price of approximately
$1.57 per share, resulting in proceeds to the Company of $2,771,815, and the
issuance in such year of an additional 8,875 shares of common stock for
property valued at $14,855; the issuance in fiscal 1994 of 5,834,491 shares
of common stock for cash, at the price of approximately $0.26 per share,
resulting in proceeds to the Company of $1,536,260, and the issuance in such
year of an additional 128,493 shares of common stock for property valued at
$23,795; the issuance in fiscal 1995 of 648,900 shares of common stock for
cash, at the price of approximately $0.28 per share, resulting in proceeds to
the Company of $182,866; and the issuance in fiscal 1996 of 2,349,160 shares
of common stock for cash, at the price of approximately $0.86 per share,
resulting in proceeds to the Company of $2,023,268, the issuance in such year
of an additional 506,215 shares of common stock in exchange for indebtedness
of $662,282, and the issuance in such year of special warrants (each of which
is exercisable for 1.1 shares of common stock and a warrant to purchase an
additional 0.55 shares of common stock), resulting in proceeds to the Company
of $9,453,437.
As of October 15, 1996, the Company held approximately $7,400,000 in
unrestricted cash and held-to-maturity securities. Whether and to what
extent additional or alternative financing options are pursued by the Company
will depend on a number of important factors, including: the results of
further exploration and development activities at the Soledad Mountain
Project; management's assessment of the financial markets; the successful
acquisition of additional properties or projects, if any; and the overall
capital requirements for development of the project. At this time,
management estimates that the capital costs of developing the Soledad
Mountain Project will be approximately $69,100,000, consisting of an initial
capital component of approximately $54,200,000 for the purchase of equipment
and facilities and a future component of approximately $14,900,000 for
deferred and replacement capital, including reclamation. (More specific
information concerning the Company's plan of operation for the Soledad
Mountain Project is described below in Item 3 of this registration statement,
under the sections entitled "The Soledad Mountain Project" and "Mining Ore
and Recovery Plan".) The Company presently has no commitments for such
additional financing.
Item 3. DESCRIPTION OF PROPERTY.
The Soledad Mountain Project.
In May 1996, the Company retained Pincock, Allen & Holt of Lakewood, Colorado
to review an internal preliminary feasibility study prepared by the Company
(the "Prefeasibility Study") which outlines, among other things, the
exploration to date of the properties comprising the Soledad Mountain Project
and the Company's plans for the development of the project. Except for the
following subsections entitled "Land Ownership and Mining Rights", "Property
Acquisitions", "Permitting Process" and "Environmental Issues", this section
summarizes the Pincock Report.
Location and Access.
The Soledad Mountain Project is located in the Mojave Mining District in Kern
County in southern California, approximately 2.4 kilometers from Highway 14,
a paved, four-lane highway. Los Angeles, California is about 145 kilometers
south of the project and the metropolitan area of Lancaster/Palmdale,
California is less than 48 kilometers to the south by Highway 14. Secondary
paved access roads extend from Highway 14 and encircle Soledad Mountain,
providing access to the project site. Major power lines come to within a few
hundred meters of the plant electrical substation on the north-east corner of
the project.
While there is no source of water naturally occurring on the site in
quantities sufficient for the expected needs of the project, an area
controlled by the Company to the north of Soledad Mountain is recommended for
well development at an estimated depth of 61 to 122 meters. An alternate
site, also controlled by the Company, to the west of Soledad Mountain is
estimated to require drilling to a depth of 213 meters.
The population centers of Mojave, Lancaster, Bakersfield and Los Angeles, all
located within a 161-kilometer radius of the project, are sources for the
labor, supplies, material and equipment needed for the project. The Santa Fe
Railway line runs parallel to, and just east of, Highway 14. The town of
Mojave, California provides a convenient railhead for delivery of large
pieces of equipment. Other aspects of regional infrastructure already in
place and available to support the Soledad Mountain Project include
hospitals, ambulance service, fire fighting service, garbage disposal,
schools, living accommodations, shopping, airline services and recreational
areas.
Local climatic conditions reflect the high desert environment of the Mojave
Desert in southern California. Conditions are variable, with temperatures
ranging from below freezing in the winter to more than 40.6 degrees Celsius
in the summer. Wind is a factor with respect to structural stability, as
gusts frequently reach 100 to 130 kilometers per hour. Flora and fauna are
sparse in the project area, reflective of the Mojave Desert environment. No
perennial streams or springs exist in the project area and the only surface
run-off occurs during the heavy rainstorms that are most prevalent from
December through March of each year.
Land Ownership and Mining Rights.
The legal description of the Soledad Mountain Project area includes portions
of Sections 5, 6, 7 and 8 in Township 10 North, Range 12 West and Sections 1
and 12 in Township 10 North, Range 13 West, San Bernardino Baseline and
Meridian. Most of the mining and processing facilities will be located in
Section 6 in Township 10 North, Range 12 West. The project area is a 497-
hectare contiguous block within an area of approximately 1,012 hectares held
by the Company. The project property is comprised of 33 patented lode mining
claims, 123 unpatented lode mining claims, one unpatented placer mining
claim, one patented mill site claim, six unpatented mill site claims and 379
hectares of fee land. One hectare is approximately equal to 2.471 acres.
The project property is held by the Company through the Subsidiary under a
variety of agreements with 79 property owners. These agreements include 64
mining leases, two exploration agreements with options to purchase and five
purchase agreements that are in various stages of completion. The Company
believes that all of the land necessary for the development of the project
has either been secured under one of these agreements or is controlled by the
Company through ownership of the land in fee or where the Company is the
holder of unpatented claims.
The Company commissioned a formal title opinion covering the project property
which was rendered in August and September 1996. With such a complicated
ownership history as is common in historic mining districts, it is typical
for title problems to exist with respect to properties in the area in which
the project is located. The title opinion reveals that the few title
questions which exist with respect to title to the property do not present a
material threat to the project. The Company is attempting to resolve the
title issues of which it is currently aware with the assistance of its
California counsel, a law firm with experience in title matters relating to
properties in the Mojave Mining District.
A comprehensive land survey of the project area has not yet been undertaken.
Since 1993, the whole of the project area and much of the immediate
surrounding area has been segregated from appropriation under the United
States General Mining Law of 1872. The segregation terminates May 8, 2000
and is additional protection to the Company in the event open ground exists
in the project area.
The various property purchase agreements to which the Company is a party
typically require payment by the Company of the purchase price over an
extended period of time. In most cases, a somewhat larger advance payment
was made at the time the agreement was entered into and, in some instances, a
larger payment is due at the time the purchase is completed. Certain of the
property purchase agreements require the payment by the Company of royalties
upon the commencement of commercial production from the project. As of the
date of this registration statement, approximately $2,800,000 remained to be
paid by the Company under these various property purchase agreements.
Approximately $450,000 of this amount is due within the ensuing twelve
months.
The leases to which the Company is a party typically require payment in the
form of advance minimum royalties. With one exception, these payments are
subject to a credit when production from the project starts. In both the
leases and the purchase agreements, applicable royalties are restricted to
the property covered by the lease or agreement, as the case may be. Most of
the royalties are of the net smelter return ("NSR") type and are based on a
sliding scale, with the percentage amount of the royalty being a function of
the ore grade on the property to which the royalty relates. Typically, the
royalties are 5% NSR or less, with an expected average of 3.1% NSR based on
the sliding scale royalty percentage and the modest grade of the deposit.
Many of the leases provide that the royalty payable to the lessor is subject
to adjustment in the event that the interest of such lessor in the property
leased to the Company is greater or less than represented by the lessor in
such lease. A number of the agreements have an additional modest royalty
consideration which applies in the event that non-mineral commodities, such
as aggregates, from the property are sold.
Property Acquisitions.
In the three years preceding the date of this registration statement, the
Subsidiary acquired a number of property interests in the Soledad Mountain
Project area, at a total cost of approximately $2,700,000, in the following
transactions.
In March 1995, the Subsidiary acquired 1.2 hectares of fee land from William
and Dorothy Meier of Valley County, Idaho. In April 1995, the Subsidiary
acquired an option to purchase all of the outstanding shares of Karma Wegmann
Corp., a California corporation, from Grace W. Meehl, Madge W. Wolff,
Stephen G. Wegmann, Michael L. Wegmann, John G. Hodgson, Virginia L. Sigl,
Patrick L. Wolff and George P. Wolff, most of whom reside in California.
Karma Wegmann Corp. owns an aggregate of six patented lode mining claims,
seven unpatented lode mining claims and one patented mill site claim in the
project area. In January 1996, the Subsidiary exercised its option to
purchase such shares. Pursuant to the terms of the Subsidiary's agreement
with the owners of the shares of Karma Wegmann Corp., such shares will be
held in escrow and will remain registered in the names of the vendors until
the vendors have received the final instalment of the purchase price, which
is payable on the earlier of July 1, 1999 or whenever the Soledad Mountain
Project is brought into sustained production. In September 1995, the
Subsidiary acquired 16.2 hectares of fee land from the Paveen Gupta Medical
Corporate Defined Benefit Pension Plan of Culver City, California. This
property is presently being held in escrow pending completion of the
transaction, which is expected to occur in October 1996. In March 1996, the
Subsidiary acquired three unpatented mining claims from Eric W. Godfrey,
James P. Sigl, the Joseph Meehl Estate, John G. Meehl and the Meehl Family
Trust of Venice, California. In June 1996, the Subsidiary acquired two
parcels of property aggregating approximately four hectares from the Federal
Home Loan Mortgage Corporation of Texas and Rolando and Delin Cruz of
California. One of such parcels is adjacent to the project area and the
other is within the project area. In August 1996, the Subsidiary entered
into a purchase agreement with Southwestern Refining Corporation of
California to acquire approximately twelve hectares of property within the
project area. This transaction closed in September 1996. In September 1996,
the Subsidiary purchased approximately two hectares of property within the
project area from James and Diane Prentice of California.
Project Background.
The Soledad Mountain Project is located within the Mojave Mining District,
along with the nearby Cactus Gold Mine, Standard Hill Mine and Tropico Mine.
Mining in the area dates back into the late 19th century, but the most
significant production occurred from the 1930s to 1942, when Gold Fields
Mining Company of South Africa operated a 272-ton per day cyanide mill,
evidenced by the large piled tailings on the north slope of Soledad Mountain.
No historical operators attempted open-pit mining in the project area.
The Company was introduced to the Soledad Mountain deposit in the mid-1980s
by George Phelps, who held an interest in certain mining properties in the
area through the Subsidiary. On reviewing old maps of the underground
mining, management of the Company was impressed with the horizontal extent to
which the significant precious metals extended into the foot and hanging
walls of the major veins. Golden Queen acquired Mr. Phelps' property
interests in 1986 by acquiring all of the outstanding shares of the
Subsidiary. Shortly thereafter, land consolidation began in earnest and the
Company commenced an initial program of 12 diamond drill holes and limited
underground check sampling. The next phases of exploration, lasting through
1990, consisted of reverse circulation drilling and more extensive
underground check sampling.
By the end of 1995, a total of 587 surface drill holes had probed the
numerous structures of the project area for ore reserves. In addition, 7,994
meters of underground drilling and cross-cuts were sampled to bolster the
understanding of surface drilling results and provide assay data in deeper
portions of ore-bearing structures.
Geology.
Regional Geology. The structural history of the western United States is
complex, with orogenic events occurring from the Late Cretaceous Period to
the Middle Miocene Epoch (approximately 74.5 million to 16 million years
ago). The Sierra Nevada Range and the San Bernardino Mountains, the
principal arcs surrounding the Soledad Mountain area, are relatively narrow,
with well-defined zones of calc-alkaline volcanic and plutonic activity.
Deposits of copper, iron, molybdenum, tungsten, gold and silver are
associated with these orogenic events.
Miocene volcanic units rest unconformably on Late Cretaceous quartz monzonite
(Sierra Nevada Batholith) basement. This suggests that the volcanic center
at Soledad Mountain may lie in a domed or tectonically-elevated area, perhaps
the topographic margin of a caldera with the central collapsed area
represented by the accumulation of tuffaceous sediments south of Soledad
Mountain in the Rosamond Hills area.
Site Geology. Soledad Mountain is a moderately-eroded silicic volcanic
center of Middle-to-Late Miocene Epoch (approximately 21.5 million to 16.9
million years ago) and is interpreted as part of a large caldera. Volcanics
consist of felsic flows, tuffs and breccias with rock types ranging from
quartz latite to rhyolite. Faults have disrupted all major rock types with
the major faults trending N10 degrees E to N40 degrees W. The faults dip
from 70 degrees to 90 degrees near the surface and 45 degrees to 60 degrees
at depth. On the north-east side of the project area, the faults tend to dip
toward the north-east, while the faults on the south-west side tend to dip
towards the south-west. From east to west, the principal veins crop out
within a north-west-trending belt about 1,219 meters wide and about
1,981 meters long.
Soledad Mountain consists of coalescing and interpenetrating volcanic domes,
along with lava flows and pyroclastic ash-fall tuffs and flows. Volcanic
compositions range from quartz latite to rhyolites with ages ranging from
21.5 to 16.9 million years. Other past gold producing structures in the
district show similar characteristics to Soledad Mountain. Common features
are an epithermal hot spring style of mineralization, host rocks consisting
of calc-alkaline volcanics and structurally controlled mineralization.
The gold mines within the Mojave Mining District appear to line the rim of a
collapsed caldera. The center of the caldera is south-east of Soledad
Mountain, north of the Tropico Mine and south-east of the Cactus Gold Mine.
The Standard Hill Mine, north-east of Soledad Mountain, consists of faults
filled with quartz veins that cross-cut quartz monzonite and quartz latite
volcanics. The veins strike north to north-west with shallow dips towards
the east and north-east, respectively. This deposit represents a
mineralization lower in the system than Soledad Mountain.
The Tropico Mine, seven miles to the south, consists of Cretaceous quartz
monzonite overlain by volcanics of quartz latite flow-banded rhyolite and
rhyolite porphyry similar to those of Soledad Mountain. The veins strike
east to west and dip 65 to 70 degrees to the south. Quartz veins fill pre-
mineral faults, with movement continuing during and after mineralization.
The Cactus Gold Mine, five miles to the west, consists of quartz latite to
rhyolite flows, resting unconformably on quartz monzonite. The strikes of
the veins vary from north-east to north-west, with the dips varying from the
south-east to north-east. Mineralization is associated with quartz-filled
faults, fault breccia and zones of silicification and argillization of the
wall rock.
The mineralized faults at Soledad Mountain show two distinct dip directions.
The faults on the north-east portion of Soledad Mountain dip 60 to 85 degrees
to the north-east. Faults on the south-west portion of Soledad Mountain dip
60 to 85 degrees to the south-west. The area between these sets of faults
represents a vent axis trending north-west, forming an elevated crest with an
underlying competent root system. Upon the collapse of the caldera, block
faulting along the slopes was deflected away from the vent axis and its
competent root system.
Mineralization occurs in a series of epithermal veins, faults and shear
zones. Vein widths vary up to fifteen meters and are consistent along strike
and down dip. Some of them have been mined to a vertical depth of 305
meters. Testing has shown that the principal ore minerals are native gold,
electrum and a suite of silver minerals consisting of acanthite, native
silver, pyrargyrite and polybasite in a gangue of oxidized, brecciated,
quartz with minor pyrite. Traces of sphalerite, chalcopyrite and galena are
also present.
The lateral extent of mineralization in the different volcanic units at
Soledad Mountain varies. Mineralization of the volcanic flow units of quartz
latite, flow-banded rhyolite and porphryitic rhyolite is generally confined
to faults and fault breccias and shows a weak lateral potential for
mineralization into the wall rock. Where mineralized faults and veins cross-
cut the middle and upper pyroclastic units, a wider halo of mineralization
into the host rock occurs. This indicates penetration of hydrothermal
solutions into the more permeable and porous tuffaceous units of the Soledad
Mountain complex.
Exploration.
General. Several major drilling campaigns and a program to resample the
underground workings have been completed, along with metallurgical testing
for process amenability. Aerial survey topographic mapping and collection of
baseline data for environmental permitting have also been conducted.
High grade precious metal mineralization is associated with steeply-dipping
epithermal fissure veins occupying faults and fracture zones that cross-cut
the rock units in a general north-west trend. This is the ore that was mined
and processed by the previous mining operation of Gold Fields Mining Company
in the 1930s and early 1940s, but a considerable amount of this material
remains and is incorporated into the present reserves. Surrounding the veins
are siliceous envelopes that contain lower grade, but still ore-grade,
material that forms the major portion of the reserve tonnage.
Sampling. Samples were derived through diamond drilling, reverse circulation
drilling, underground drilling and channel sampling of the underground
workings. The assay database has a total of 64,081.7 meters, testing
fourteen different vein systems in the district, summarized as follows:
Diamond drilling 2,169.4 meters
Reverse circulation drilling 53,918.2 meters
Old cross-cuts (1930s) 3,290.2 meters
Underground drilling (1930s) 3,235.8 meters
Recent cross-cuts (1980s) 1,468.1 meters
---------------
64,081.7 meters
===============
The database incorporates drill hole collar surveys, down hole assays and
underground assays from old workings. There are 587 drill holes currently
stored in the data files. Of these, 564 were completed by the reverse
circulation method, 15 are diamond core and eight are open hole rotary. Also
stored in the database are 279 underground cross-cut channels and drill
holes, which include a mix of values from Gold Fields Mining Company's
production records and those collected more recently by the Company.
Block Model Construction. A computer model was constructed for the Soledad
Mountain Project based on a geological interpretation developed by the
Company. Rock types, veins, low-grade disseminated surrounding envelopes,
mined-out stopes and zones of internal waste were delineated on cross-
sections, transferred to bench plans, digitized and loaded into the model.
Plan block maps were plotted from the model to check the block code
assignments and corrections were made where necessary. For this study, veins
were defined as outlined areas containing grades greater than 3.43 grams per
tonne (0.100 ounces per ton) of gold equivalent and lower grade disseminated
envelopes enclosed material that ranged from 3.43 to 0.34 grams per tonne
(0.100 to 0.010 ounces per ton) of gold equivalent. All the remaining blocks
in the model that did not fall into one of the described ore categories were
considered waste. Since ore and waste zones were defined in the model blocks
but not in the drill hole composites, the code of the block penetrated by the
drill hole was assigned back to the composite to ensure a consistent one-to-
one match during the grade assignment process.
Linear kriging was used to estimate gold block grades in the model. Grades
were estimated for the veins and disseminated areas independently to maintain
the integrity of each zone. The separation of vein, disseminated and waste
zones was maintained by allowing only composites coded as vein to be used to
estimate a block designated as vein and, similarly, only disseminated
composites influenced disseminated blocks. Each structural zone was kriged
separately.
A gold equivalent grade was then calculated based on assumed prices for gold
and silver and an expected silver recovery rate. The calculation was done
for all blocks containing estimated gold and silver grades and the resulting
value was stored back into the block. Minable reserves and all subsequent
mine planning work were based on this value.
Geological Resource. The geological resource includes all blocks within the
model limits, but with no assumptions as to economic viability. The
geological resource, based on a cut-off grade of 0.342 grams per tonne (0.010
ounces per ton) of gold equivalent, is comprised of 73,703,000 tonnes
(81,261,000 tons) averaging 0.82 grams per tonne (0.024 ounces per ton) of
gold and 13.06 grams per tonne (0.381 ounces per ton) of silver, or 0.99
grams per tonne (0.029 ounces per ton) of gold equivalent.
Floating Cone Resources. The calculation of the ore reserve portion of the
geological resource base was made by the application of the following
economic cut-off criteria in floating cone analyses for preliminary pit
design: gold prices of $375 and $400 per ounce; a development rock mining
cost per tonne of waste and ore of $0.77; internal costs of $3.64 per tonne,
comprised of processing and general/administrative costs of $2.98 and $0.66
per tonne, respectively; a design cost of $4.41 per tonne, comprised of
processing, mining and general/administrative costs of $2.98, $0.77 and $0.66
per tonne, respectively; a design cut-off grade of 0.404 grams per tonne of
gold and an internal cut-off grade of 0.342 grams per tonne of gold; a
refining recovery rate of 100%; and process recovery rates of 80% for gold
and 70% for silver.
A floating cone represents an inverted cone designed without regard to
practical considerations that make ore extraction economically effective.
The pit outlines require optimization procedures to adjust pit outlines for
mining and final calculation of minable ore reserves. Such optimization
procedures include the smoothing of abrupt changes in pit wall configuration
for slope stability, the smoothing of intermediate benches and pit floors for
efficient equipment utilization and the addition of haul roads.
Once floating cone pits are modified to represent minable pits, pit phasing
analyses investigate the sequencing of individual pits and portions of pits
in an effort to maximize profitability. Maximizing profitability implies
minimizing costs through efficient haul profiles and associated cost-
effective load-haul match up of mining equipment and maximizing the ore grade
delivered to the crusher. Pit phasing analyses involve an iterative process
of comparing one scenario to another.
The result of this optimization process is a report summarizing practical pit
shapes, minable reserves and an associated production schedule that reflects
pit phasing. The haul profiles developed for the production schedule provide
the basis for estimating mine capital and operating costs.
Floating cone reserves for gold prices of $375 per ounce ($12.06 per gram)
and $400 per ounce ($12.86 per gram) are as follows:
$375 opt Au $400 opt Au
--------------- ----------------
Tonnes 25,220,000 Tons 40,824,000
AuEq g/t 1.029 AuEq g/t 1.097
Au g/t 0.857 Au g/t 0.926
Ag g/t 14.572 Ag g/t 13.646
In the $375 per ounce of gold floating cone reserve, material classified as
vein represents 2.5% of the tons and 12% of the contained gold equivalent.
Ore Reserves. As described in the Pincock Report, the geological resource
contains a current minable ore reserve, classified as proven and probable,
totaling 24.8 million tonnes (27.3 million tons) averaging 0.84 grams per
tonne (0.024 ounces per ton) of gold and 14.70 grams per tonne (0.428 ounces
per ton) of silver. Total contained ounces are 666,400 ounces of gold and
11,695,000 ounces of silver, or approximately 791,500 ounces of gold
equivalent.
The Company estimates that the current minable ore reserve will support ore
production at a rate of up to 3.6 million tonnes per year for at least seven
years. Considering a possible three-year period of heap detoxification, gold
production could extend the life of the project to ten years. Further
extension is a possibility if additional drilling provides better definition
of minable reserves in those areas that currently have limited drilling
intercepts and/or limited underground sampling. The average stripping ratio
is projected to be approximately 2.4 to 1.
Metallurgy.
There are three principal types of ore represented in the Soledad Mountain
reserves: quartz latite, rhyolites and pyroclastics. Metallurgical testing
has been performed on more than 200 samples of these ore types from the
Project Area over a period of eight years.
The following ore processing methods were evaluated in the assessment of the
Soledad Mountain Project: slurry cyanide leaching, gravity separation,
flotation and heap leaching. The tests confirmed heap leaching as the best
processing method for the Project, largely as a result of the relatively low
grade of the ore to be processed. The location of the Project and the
climate in the Project Area are well adapted to heap leaching and the process
has been successfully applied by other mining companies to nearby orebodies.
Based on the high ratio of silver to gold in the deposits, the Merrill-Crowe
process is considered to be the most appropriate process for the recovery of
gold and silver from the leaching solution. As a consequence of the presence
of trace elements of mercury in the ore, the recovery plant for the project
will be required to incorporate a mercury retort to remove mercury from the
precipitate.
The test data indicate that crush size is the most important factor affecting
metal recovery and that crushing the ore to a size of 10 mesh, about the
finest size possible using crushers without milling, will be required to
realize optimal recoveries. It is anticipated that the ore will be
agglomerated with cement as a binding agent at the rate of five kilograms of
cement per tonne of ore. The average cyanide consumption rate for the
project is expected to be 0.25 kilograms of cyanide per tonne of ore
processed. The tests indicate average expected ultimate gold and silver
recoveries of 75% to 80% and 65% to 75%, respectively.
Mining and Ore Recovery Plan.
Mining. Mining at the Soledad Mountain Project is proposed to be conducted
by conventional open pit techniques. It is anticipated that operations will
be carried out by the Company's own employees.
Open pit mining is generally associated with a spiral haulage ramp that is
extended as the pit deepens. At Soledad Mountain, the majority of the ore
will be excavated by cutting back into canyons or along hillsides. As well,
the ore is not in a single pit, but in a network of smaller pits with pit
walls frequently overlapping. The current mining plan involves initial low
elevation mining for the first two years of production, followed by mining at
the higher levels in subsequent years. The road extending from the ore
stockpile area at the process plant site up to the highest elevations on
Soledad Mountain must be built before any excavation can begin on the highest
benches in each pit area. A total of about 6,400 meters of road will be
required: 2,500 meters to facilitate the first two years of mining at low
elevations and then further extensions to the highest benches of Soledad
Mountain for the remaining mine life.
The Company is planning to mine at a rate of up to 3.6 million tonnes of ore
per year on the basis of two 10-hour shifts per day, 355 days per year. This
schedule would provide ore to the crusher at a rate of 10,250 tonnes per day
and an average of 24,490 tonnes of waste per day. All waste will be
deposited on a series of dump sites east, south and west of the pit areas.
Ground water has been reported only in the deepest gold mine workings below
823 meters in elevation. All open pit mining is expected to be dry, except
for occasional rains and very occasional winter snow. Old workings from
historical underground mining will be encountered. However, based on the
experience of other operations, it is not expected that the old mine workings
will significantly interfere with mining operations.
Crushing, Conveying and Stacking. An 726-tonne per hour, four-stage crushing
circuit will be installed at the Soledad Mountain Project. The primary
crushing system will be comprised of a vibrating grizzly feeder with 12.7-
centimeter apertures and a 0.12 meter by 0.15-meter jaw crusher with a closed
side setting of 12.7 centimeters. The grizzly undersize and the jaw crusher
product will be combined and conveyed to the secondary crushing circuit.
Secondary crushing will be done in a 2.13-meter standard cone crusher. Third
and fourth stage crushing will be done in two identical circuits. Abrasion
index tests indicate that the ore is fairly abrasive and can be expected to
result in higher than average wear rates for crushing equipment.
Crushed ore will be combined on a single belt conveyor for sampling and
agglomeration. Cement will be added to the belt conveyor at the rate of five
kilograms per tonne of ore by a variable speed screw conveyor. The belt
conveyor will discharge directly into an agglomeration drum. Water and
barren solution will be added in increments in the agglomerator to bring the
ore to an 11% moisture content. A totalizing belt scale on the final product
belt will control the cement and water additions and record daily tonnages.
The agglomeration drum will discharge onto a conveyor that feeds the heap
conveying and stacking system.
In the primary crushing circuit, dust will be controlled by high pressure
water sprays. In the secondary, tertiary and quarternary crushing circuits,
dust will be controlled by central dry bag dust collectors. Individual dry
dust collectors will be used on the cement silo and at outlying conveyor
transfers.
The agglomerated ores will be conveyed to a radial stacking system by a
series of portable and semi portable conveyors. The conveying system will
consist of a series of 0.914-meter wide semi-portable and portable conveyors.
The semi-portable conveyors will transport the crushed ore to the central
area of the leach pad and the portable conveyors will transport crushed ore
to the stacker. The stacking system will consist of a self-propelled bin
conveyor and a 39.6-meter long radial stacker with a 6.1-meter long slinger.
The radial stacker will be equipped for lifting and hydraulic wheel
positioning. The hydraulic drive will be sized for the slopes of the leach
pad.
Leaching. The heap leach pad will be located on the north slope of Soledad
Mountain. It will be a side hill pad with a perimeter dike to support the
toe of the heap and to create solution storage capacity. The leach pad is
designed to minimize impacts on the surrounding environment, wildlife and
waters. It is designed as a dedicated pad; that is, ore is stacked, leached,
rinsed and left in place for reclamation. The pad will be located downslope
of the proposed mine pit along the base of Soledad Mountain and will be
divided into four cells to correspond with ore production and pad capacity
requirements. The capacity of the pool in each cell is designed to have
sufficient storage for up to eight hours of solution application and 12 hours
of drain down in the event of a pump or power failure and to store the
estimated precipitation from a 100-year 24-hour storm event. Additional
storage is currently required for three of the four cells, as presently
designed, and is expected to be obtained by subexcavating the leach pad
foundation within the solution storage area.
Leach solution will be distributed over the heap by a system of pipes and
emitters. Once the solution is applied to the ore and percolates throughout
the heap, it will drain along the base of the heap. The solution flow will
be intercepted and collected by 10-centimeter diameter perforated pipes
installed on top of the liner system and routed into one of three solid
manifold pipes. The manifold pipe will then route the solution to the
solution collection sump. This drainage system is designed to minimize the
hydraulic head applied over the composite liner system and increase the rate
of solution recovery.
Solution will be recovered from the heap by a submerged sump pump in the low
area of the cell. The sump pump will be used to recover solutions to a tank
and booster pump station that will then pump solution to the solution storage
tanks at the Merrill-Crowe plant. The pipelines will be located within the
lined cell for containment in the event of a pipe leak. The pad for the pump
will be designed to drain into the leach pad to control leaks from the pump.
The pad liner system will consist of four components: the prepared subgrade,
the liner material, a solution collection system on top of the liner and a
protective overliner material. The prepared subgrade will be a well-graded
material prepared and compacted to a surface for placement of the appropriate
liner material. The pad liner will be constructed as a double-liner system
with two different sections. The liner within the solution storage area will
be double-lined with HDPE material and a leak collection and recovery system,
including leak detection monitors and a pipe collection system, between the
two liners. The lower liner placed on the subgrade will be 40-mil thick HDPE
and the upper liner will be 60-mil thick HDPE. Pad liner placed upslope of
the solution storage area will be a composite liner that will consist of low-
permeability soil liner directly overlain by a 60-mil thick HDPE liner. The
60-mil thick HDPE liner will be continuous with the 60-mil thick liner in the
solution storage area. Protective overliner material will be crushed ore
placed in a 0.5 to one-meter thick lift over the lined area. This protective
overliner will serve to secure the solution collection piping and provide
direct access in the pad area for lightweight vehicles and the conveyor
system. Initial placement of the material will be integrated with pad
construction to create a working area of sufficient size for production.
Thereafter, laying of the pipes and spreading of the overliner will be done
in conjunction with the pad loading plans.
The leach recovery schedule is based on three parameters: the metallurgical
characteristics of the ore, physical delays in the handling of ore and
solutions and the retention of values in solution within the heap. Once the
heap has been under leach for a complete leach cycle and a constant daily
tonnage is being stacked, estimated recoveries are as follows:
Percentage of 80% Gold, 75% Silver
Days Au Ag
---- -- --
90 60 40
180 15 25
270 10 15
360 7.5 10
450 5.0 5
540 2.5 5
--- ---
100 100
=== ===
Additional recovery on a 100% recovery basis is expected to be as follows:
Days Au Ag
---- -- --
960 2.0 3.0
1320 1.0 2.0
The modification for the first year's production schedule must take into
account the load-to-leach delays, delays from the additional lifts and, most
importantly, the values retained in heap solutions.
The heaps will be detoxified prior to closure by a rinse of a combination of
fresh water and peroxide-treated recycled water. The heap will be rinsed by
cells. Each cell is estimated to require a two-year period to detoxify to
required cyanide levels. The amount of fresh water available is limited by
the well source and the other demands of production: agglomeration and dust
suppression. During the production years, 18.9 liters per second will be
available. After mining has ceased, 37.9 liters per second will be
available. The addition of fresh water must be matched by the loss of water
to evaporation.
Production during the detoxification period will come from two sources. Gold
and silver will be recovered as a result of extending the leach cycle and
from the solutions entrained in the heap that are rinsed during the period.
Recovery. The Soledad Mountain Project gold recovery plant will be a
conventional Merrill-Crowe circuit because of the high silver content in the
ore. The ore body average silver content is 14.78 grams per tonne but the
silver content of the feed will occasionally exceed 34.3 grams per tonne.
During heap detoxification, when cyanide levels drop below levels suitable
for Merrill-Crowe processing, a small carbon plant will be used.
Closure, Reclamation and Bonding. The reclamation requirement for the
Soledad Mountain Project includes removal of all structures, shaping and
seeding of the heaps, seeding of portions of the waste dumps and the ripping
up or removal of all roads. The mine pits will require little or no
reclamation. Reclamation requirements are influenced by the fact that the
Soledad Mountain Project is located in a desert climate, with less than 14.5
centimeters of annual rainfall. Reclaimed slopes may be as steep as 1:1 and
there is no requirement for demonstration of re-vegetation. Growth media
(generally, the top five centimeters of cover) will be removed from the waste
dump and heap leach sites and stockpiled for final reclamation. It is
expected that the growth media will contain most of the seeds necessary for
the reclamation. The waste dumps and heaps will be benched by bulldozer upon
the completion of mining and roadways will be ripped up. The growth media
will be distributed along the benches and in the roadways.
Several bonds will be required for the Soledad Mountain Project: a Surface
Mining and Reclamation Act bond, to be held by Kern County, to cover the
general reclamation of the site, including the waste dumps, roads, mine pits
and building removal; a detoxification and closure bond, to be held by the
Lahontan Regional Water Quality Control Board (the "LRWQCB"), relating to the
heap back process areas; and an "unforeseen event bond", to be held by the
LRWQCB, which is intended to bond for a catastrophe that would contaminate
surface or ground water with processed water. As there are no surface
streams at Soledad Mountain, the bond would apply to ground water only. The
amounts of these bonds will be determined by the regulatory authorities when
permits are granted for the Soledad Mountain Project.
Permitting Process.
A number of permits and approvals are required with respect to all aspects of
construction, operations and closure of a mine at the Soledad Mountain
Project. While approvals do not constitute a permit as such, they are an
integral part of the permit process and have significant importance. The
Company expects the permitting process for the Soledad Mountain Project to be
relatively straightforward. There is a long mining tradition in the area of
the project and the surrounding area and Kern County has designated mining as
one of the best uses for land in the area of the project. Two similar
projects are located nearby, one in the final phases of operation and the
other in closure. The Company is not aware of any sensitive plants or
animals in or near the project area.
The Kern County Planning and Development Department has the lead role in the
development and review of the environmental documents in accordance with the
Memorandum of Understanding between Kern County and the United States
Department of the Interior's Bureau of Land Management (the "BLM"). An
environmental impact report ("EIR") is required by the California
Environmental Quality Act wherever cyanide is used to process precious metal
ores and the United States National Environmental Policy Act requires some
form of environmental review, with an environmental impact statement ("EIS")
being the most comprehensive of these.
In February 1996, the Company submitted a draft combined EIR/EIS report,
prepared by an independent contractor, to Kern County and the BLM. The
permitting process provides for public comments and two public meetings were
held by the BLM in April 1996. There is also opportunity for the public to
provide written comments.
The public comment period ended June 30, 1996; the Company received comments
directed toward the project's effect on ground water quality and quantity,
air quality, the effect of development on native species of plants and
animals, the visual impact of the project and the potential hazards
associated with transporting supplies and chemicals to the project site.
These comments and the results of specific studies undertaken partially in
response to the comments will be incorporated in the combined EIR/EIS report,
and this document will then be released to the public for three months, after
which time the BLM will give its "Record of Decision" and Kern County will
provide its decision. The Company expects that it will receive the final
decisions on its permitting application by July 1997.
The Pincock Report concludes that the receipt by the Company of required
construction and operating permits for the Project seems likely and that the
Company's projected schedule for the receipt of required permits appears to
be feasible.
Environmental Issues.
Acid Generation. A number of samples representing different rock types from
the Project site were tested for acid generation/neutralization potential.
Two methods for evaluating acid generation/neutralization potential were used
in the review of each of the samples. Under one method, none of the samples
were found to be acid generating or acid toxic as indicated by pH level.
Using a second technique, one sample was found to be marginally acid
generating. Because the rock type represented by this one sample would
constitute approximately 10% of the waste and will be disbursed throughout
the several dumps with overwhelming volumes of rock that have an excess of
buffering capacity, the Company is of the view that this waste is unlikely to
create an acid generation problem.
To meet closure requirements, all of the processed material will remain on
the lined pad following rinsing. The Company believes that this, along with
large amounts of cement and other basic compounds used in solution to be used
in acidity control, will mean that there will be no material risk of acid
generation in the heaps.
Hydrologic Data. The Soledad Mountain Project is in the northern portion of
the Antelope Valley ground water basin and experiences an average annual
rainfall of less than 14.5 centimeters. There are no surface waters of any
kind, other than the periodic runoff that follows the rare heavy rains that
typically occur during the winter months. Drainage in the area of the
project is controlled by a series of deeply incised gullies and channels that
ultimately drain to the north-west into the Chaffee hydrologic area. The
water that does not evaporate typically percolates into the Antelope Valley
ground water. No water quality data are available for surface runoff.
Ground water in the bedrock underlying the area is almost certainly very
modest in quantity and is restricted to fractures. The alluvial cover on the
valley fill are known sources of important amounts of ground water. Water in
these cases is typically at 55 to 61 meters in depth.
Wells in the shallow alluvium are historically low yield in nature, while
those in areas with a substantial amount of alluvial fill can be important
producers. Water quality data are limited; however, sufficient data are
available to confirm that the water is acceptable for the process
applications proposed.
Water Quality Issues. Once mining at the project has commenced, control of
surface water in the area will be achieved through the construction of
intercept trenches to preclude the uncontrolled runoff from coming into
contact with the leach heaps or other materials that might degrade water
quality. Also, the heap leach process that the Company intends to employ
does not include direct or indirect waste water discharges.
Ground water protection from leaching solutions will be achieved through the
use of a double liner system augmented by a leachate collection and recovery
system. A monitoring system below the liner will also be incorporated for
leak detection. Additional monitoring wells will be placed down gradient in
the direction of probable flow as an additional protective feature.
Air Quality Issues. The project lies within the Southeast Desert Air Basin,
which is under the jurisdiction of the Kern County Air Pollution Control
District. The area is designated as unclassified for PM(10) emissions (that
portion of the total suspended particulates less than 10 microns in size) and
as a non-attainment area for ozone. The typically windy conditions and very
dry nature of the area are probably responsible for the high PM(10)
background levels recorded at several nearby monitoring stations. On-site
air sampling was conducted for approximately one year with high background
PM(10) levels found.
Fugitive dust, when combined with the background dust, may cause unacceptable
levels of PM(10) emissions off-site, and may represent the greatest potential
environmental issue. A PM(10) level of 45.15 micrograms per cubic meter is
projected by computer modelling, below the California attainment standard of
50 micrograms per cubic meter and the Federal standard of 150 micrograms per
cubic metre. However, the Company believes that it will achieve compliance
with applicable standards by a greater margin, as a result of the fact that
the modelling methodology assumes worst likely case conditions which are
considered unlikely to be encountered in actual operations and based on the
use by the Company of commonly-accepted dust control techniques in all phases
of mining and crushing.
Capital and Operating Costs.
The total capital cost of the Soledad Mountain Project is estimated to be
$69,100,000, consisting of an initial capital component and a future
component covering deferred and replacement capital, including reclamation.
Initial capital costs required to put the project into production are
estimated to be $54,200,000. This estimate is based on a 12-month
construction period starting immediately after permits are received. The
estimate includes purchases of all equipment and facilities, including mobile
equipment. Deferred and replacement capital costs required to complete all
facilities to accommodate life-of-mine ore production are estimated to be
$14,900,000, including continuation of land acquisition payments, leach pad
additions, equipment replacement and/or major overhauls and heap rinse down.
Reclamation occurring during mine operation will be carried as an operating
expense.
Based on a stripping ratio of 2.4 to 1, the Company estimates total operating
costs of $5.65 per tonne of ore processed, comprised of mining costs of $2.04
per tonne, processing costs of $3.05 per tonne and general and administrative
costs of $0.56 per tonne. The Pincock Report concludes that these proposed
operating costs have been estimated in accordance with industry practice.
The Company estimates that 100,000 ounces per year of gold equivalent can be
sustained at a cash cost of under $220 per ounce.
All cost estimates are stated in first quarter 1996 U.S. dollars and are
considered to be accurate to within plus or minus 25%, as stated in the
Pincock Report.
Proposed Work Program and Application of Funds.
The best potential for identifying additional ore at the Soledad Mountain
Project is to continue to test known, under-developed veins and to conduct an
on-going program designed to locate undiscovered structures. Underground
cross-cut assays from the 1930s and 1940s indicate substantial minable
reserves (13.6 million tonnes) from 152 to 366 meters from the surface;
however, this reserve is generally untested by drilling. Drilling of this
target by a combination of reverse circulation and diamond drilling has an
excellent potential for adding these reserves to the proven and probable
category. A deep drilling program using existing underground workings has
been developed. The Company has budgeted $2,200,000 for this work. The
Pincock Report concludes that this expenditure is warranted in order to bring
the project to full production.
Mineralization at the stockworks is hosted in silica-flooded zones in quartz
latite and porphyritic rhyolite with quartz veinlets. The overall geometric
shape of the deposit is currently unknown and additional drilling is required
at different orientations to delineate the true shape of the deposit. The
Company has budgeted $300,000 for delineation of this ore. The Pincock
Report concludes that this expenditure is warranted to bring the deposit into
full production.
The Company has budgeted a total of $1,400,000 for in-fill drilling the first
two years of mine production to enable detailed mine planning in those areas.
The Pincock Report concludes that this expenditure is warranted in order to
better define the location of additional in-pit reserves and the location of
the ultimate pit walls.
Several "wildcat" drill holes on the south-east extension of one of the
identified ore veins indicate the continuation of the structure. Cross-cut
information and recent drilling by other parties reviewing the Soledad
Mountain Project show potential to extend proven and probable reserves
towards the south-east. The Company has budgeted a total of $1,500,000 for
continued exploration of this area. The Pincock Report concludes that this
expenditure is warranted in order to bring these additional areas into the
proven and probable reserve categories.
The Company anticipates expenditures of approximately $2,000,000 to complete
a final bankable feasibility study currently being prepared by Pincock, Allen
& Holt and conduct related detailed engineering.
[The balance of this page has been intentionally left blank.]
<PAGE>
Item 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of October 15, 1996, the names of, and
number of shares of common stock of the Company beneficially owned by,
persons known to the Company to own more than five percent (5%) of the
Company's common stock; the names of, and number of shares beneficially owned
by each director and executive officer of the Company; and the number of
shares beneficially owned by, of all directors and executive officers as a
group. At such date, the number of shares of common stock of the Company
outstanding or deemed outstanding pursuant to presently exercisable options
and warrants was 24,223,400 shares.
Amount and Nature of
Beneficial Ownership
(all direct unless Percent
Name of Owner otherwise noted) of Class
- ------------- --------------------- --------
Paul A. Bailly (1), (2) 325,176 1.34 %
Steven W. Banning (1), (3) 1,000,000 4.13 %
Bernard Goodson (1), (4) 100,000 0.41 %
Richard W. Graeme (1), (5) 200,000 0.82 %
Gordon C. Gutrath (1), (6) 195,000 0.81 %
Jerrold W. Schramm (1), 0 0.00 %
Chester Shynkaryk (1), (7) 389,508 1.61 %
Edward G. Thompson (8) 148,300 0.61 %
All Directors and
Executive Officers
as a Group (8 persons) (9) 2,357,984 9.73 %
VenturesTrident II, L.P. (10) 4,758,061 19.64%
____________________
(1) Director of the Company.
(2) Includes presently exercisable options for the purchase of 120,000
shares of Common Stock.
(3) Includes presently exercisable options for the purchase of 333,333
shares of Common Stock.
(4) Includes presently exercisable options for the purchase of 33,333 shares
of Common Stock.
(5) Includes presently exercisable options for the purchase of 66,666 shares
of Common Stock.
(6) Includes presently exercisable options for the purchase of 90,000 shares
of Common Stock.
(7) Includes presently exercisable options for the purchase of 175,000
shares of Common Stock.
(8) Includes presently exercisable options for the purchase of 90,000 shares
of Common Stock.
(9) Includes presently exercisable options for the purchase of 908,332
shares of Common Stock.
(10) VenturesTrident II, L.P. is an investment limited partnership, the
general partner of which is Fulcrum Management Partners II, L.P.
Item 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The names, ages, business experience for at least the past five years and
positions of the directors and executive officers of the Company as of
October 15, 1996 are as follows. The Company's board of directors consists
of six directors. All directors serve until the next annual meeting of the
Company's stockholders or until their successors are elected and qualified.
Executive officers of the Company are appointed by the board of directors.
Name and Age
of Director or Position with
Executive Officer the Company Principal Occupation
- ------------------ ------------- --------------------
Paul A. Bailly (1)
Age: 70 Director and Chairman Chairman of Castle
of the Board Inc. (a gold mining
investment company)
Steven W. Banning (2)
Age: 45 President, Chief Executive
Officer and Director Officer of the Company
Bernard F. Goodson
Age: 59 Vice-President - Administra-
tion and Controller Officer of the Company
Richard W. Graeme
Age: 55 Vice-President - Operations Officer of the Company
Gordon C. Gutrath (2)
Age: 59 Director Chairman of Queenstake
Resources Ltd. (a
mineral exploration
company)
Jerrold W. Schramm (1)
Age: 36 Director Partner, Lawson
Lundell Lawson
& McIntosh (barristers
and solicitors)
Chester Shynkaryk (1)
Age: 52 Secretary and Director President of Visionary
Mining Corporation (a
mineral exploration
company)
Edward G. Thompson (2)
Age: 60 Director President of E.G.
Thompson Mining
Consultants Inc.
____________________
(1) Member of the compensation committee of the board of directors.
(2) Member of the audit committee of the board of directors.
Brief Biographical Information Concerning Directors and Executive Officers.
Mr. Bailly was President of Fulcrum Management Inc. until November 1992. Mr.
Banning was Vice-President, Operations of Pegasus Gold Inc. until December
1995. Mr. Goodson was Vice-President-Finance of Pintlar Corporation (a
mining company) from May 1991 to January 1996. Mr. Graeme was Principal Mine
Engineer, Mine Development Associates from January 1994 to February 1996 and
President and Chief Executive Officer of Mining Remedial Recovery Corp. from
January 1991 to January 1994. Mr. Gutrath was President of Queenstake
Resources Ltd. until November 1995. Mr. Schramm was an associate with Lawson
Lundell Lawson & McIntosh until February 1, 1994. Mr. Shynkaryk was the
President of Golden Queen until December 1, 1995. Mr. Thompson has been the
President of E.G. Thompson Mining Consultants Inc. during the past five
years.
[The balance of this page has been intentionally left blank.]
<PAGE>
Item 6. EXECUTIVE COMPENSATION.
Summary Compensation Table.
The following table discloses compensation received by the Company's Chief
Executive Officer, its President, its Vice President of Administration and
Controller, and its Vice President of Operations for the years ended May 31,
1996, 1995 and 1994.
Annual Compensation
- ----------------------------------------------------------------------------
Other
Executive Annual
Officer Year Salary Bonus Compensation
- --------- ---- ------ ----- ------------
Paul A. Bailly (1) 1996 - - -
Chief Executive Officer 1995 - - -
(former) 1994 - - -
Steven W. Banning (2) 1996 $100,000 - $1,800 (3)
President and Chief 1995 - - -
Executive Officer 1994 - - -
Bernard F. Goodson (5) 1996 $ 6,667 - $ 300 (3)
Vice President of 1995 - - -
Administration and 1994 - - -
Controller
Richard W. Graeme(6) 1996 $ 36,667 - -
Vice President of 1995 - - -
Operations 1994 - - -
Long-Term Compensation
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Dollar Value Securities All Other
Executive of Restricted Underlying LTIP Compen-
Officer Year Stock Awards Options/SARS Payouts sation
- --------- ----- ------------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C>
Paul A. Bailly (1) 1996 - 120,000 - -
Chief Executive Officer 1995 - 50,000 - -
(former) 1994 - 40,000 - -
Steven W. Banning (2) 1996 - - - 810,000 (4)
President and Chief 1995 - - - -
Executive Officer 1994 - - - -
Bernard F. Goodson (5) 1996 - 100,000 - -
Vice President of 1995 - - - -
Administration and 1994 - - - -
Controller
Richard W. Graeme (6) 1996 - 200,000 - -
Vice President of 1995 - - - -
Operations 1994 - - - -
</TABLE>
___________________
(1) Mr. Bailly was Chief Executive Officer of the Company until December 1,
1995.
(2) Mr. Banning was not employed by the Company until December 1, 1995 and,
accordingly, was employed by the Company for six months during the
fiscal year ended May 31, 1996.
(3) Represents automobile allowances paid to Mr. Banning and Mr. Goodson.
(4) Pursuant to Mr. Banning's employment agreement, the Company has granted
Mr. Banning options to purchase an aggregate of 1,000,000 shares of
common stock of the Company and has agreed to make certain payments on
Mr. Banning's behalf in connection with the exercise of such options.
(5) Mr. Goodson was not employed by the Company until May 1, 1996 and,
accordingly, was employed by the Company for one month during the fiscal
year ended May 31, 1996.
(6) Mr. Graeme was not employed by the Company until February 1, 1996 and,
accordingly, was employed by the Company for four months during the
fiscal year ended May 31, 1996.
[The balance of this page has been intentionally left blank.]
<PAGE>
Table of Aggregated Options Exercised During the Fiscal Year Ended May 31,
1996 and Fiscal Year-End Option Values.
The following table sets out certain information with respect to options to
purchase shares of the common stock of the Company exercised during the
fiscal year ended May 31, 1996 by the Company's Chief Executive Officer, its
President, its Vice President of Administration and Controller, and its Vice
President of Operations, and options held by such person at the end of such
year. Information with respect the value of such options is set forth in
Canadian dollars, being the currency in which such options are denominated.
At October 15, 1996, each Canadian dollar was approximately equal to
U.S.$1.35.
<TABLE>
<CAPTION>
Securities Value of Unexercised in-the-
Acquired Aggregate Unexercised Options at Money Options at
on Value May 31, 1996 May 31, 1996
Exercise Realized (#) (C$)
Name (#) (C$) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- -------- ---------- ------------------------- --------------------------
<S> <C> <C> <C> <C>
Paul A. Bailly 90,000 65,820 120,000 / 0 184,800 / 0
Steven W. Banning 0 0 269,999 / 540,001 452,065 / 904,135
Bernard F. Goodson 0 0 33,333 / 66,667 101,666 / 203,334
Richard W. Graeme 0 0 66,666 / 133,334 203,331 / 406,667
____________________
(1) The closing price of the common stock of the Company on The Toronto Stock Exchange on May 31, 1996 was
C$3.05.
(2) Of such options, options to purchase an aggregate of 40,000 shares of common stock were exercisable at
C$0.592 per share and options to purchase an aggregate of 50,000 shares of common stock were
exercisable at C$0.55 per share. All of these options were exercised on July 19, 1995.
</TABLE>
Table of Options Granted During the Fiscal Year ended May 31, 1996.
The following table sets out certain information with respect to options to
purchase shares of common stock of the Company granted to the Company's Chief
Executive Officer, its President, its Vice President of Administration and
Controller, and its Vice President of Operations during the fiscal year ended
May 31, 1996. None of the other named executive officers of the Company were
granted options during such year.
<TABLE>
<CAPTION>
Percent of Market Value of
Securities Under Total Options Shares Underlying
Options Granted to Exercise or Options on the
Granted Employees in Base Price Date of Grant
Name (#) Financial Yr. (C$/Share) (C$/Share) Expiration Date
- ---- ----------------- ------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Paul A. Bailly 120,000 (1) 8.36% 1.51 1.51 August 24, 1999
Steven W. Banning(1) 680,000 47.39 1.35 1.35 December 1, 2000
130,000 9.06 1.51 1.51 February 21, 2001
Bernard F. Goodson 100,000 6.97 3.00 3.00 May 21, 2001
Richard W. Graeme 200,000 13.94 1.51 1.51 February 21, 2001
____________________
(1) Subsequent to May 31, 1996, the Company granted Mr. Banning options to purchase an additional
190,000 shares of Common Stock. Such options are exercisable on or before October 4, 2001 at the
price of C$2.43.
</TABLE>
Termination of Employment, Change in Responsibilities and Employment
Contracts.
There are no employment agreements between either the Company or the
Subsidiary and Mr. Bailly, and no plans or arrangements pursuant to which Mr.
Bailly would be compensated in the event of a change in control of the
Company or the Subsidiary or a change in Mr. Bailly's responsibilities
following any such change in control.
During the fiscal year ended May 31, 1996, the Company entered into
employment agreements with Mr. Banning, its President and Chief Executive
Officer; Mr. Goodson, its Vice President of Administration and Controller;
and Mr. Graeme, its Vice President of Operations. Each of such agreements
provides for the payment of salary and bonuses, the granting of certain
options to purchase shares of common stock to the employee and the provision
of certain benefits, including those offered to employees generally.
In addition, such agreements also contain certain provisions relating to the
compensation of the employee in the event of termination of employment other
than for cause. If the Company terminates an employee's employment for any
reason other than for cause, the Company is required to pay the employee an
amount equal to 24 months' salary in the case of Mr. Banning and Mr. Graeme,
and 12 months' salary in the case of Mr. Goodson. The employee may terminate
his employment upon six months' prior written notice to the Company.
The agreements also provide that if there is a "change in control" (as
defined in the agreements) of the Company and the employee's employment is
subsequently terminated (unless such termination is for cause or by the
employee for other than "good reason" (as defined in the agreements)), the
employee is entitled to receive a lump sum severance payment equal to two
times the employee's then current annual base salary in the case of Mr.
Banning and Mr. Graeme, and one times the employee's then current annual base
salary in the case of Mr. Goodson. In addition, all benefits then provided
to the employee will be continued for a period of 24 months after termination
in the case of Mr. Banning and Mr. Graeme, and 12 months after termination in
the case of Mr. Goodson. Any existing stock options then held by the
employee will vest immediately and may be exercised by the employee at any
time within three months following the date of his termination.
Pursuant to Mr. Banning's employment agreement, the Company has agreed to
grant to Mr. Banning options to purchase an aggregate of 1,000,000 shares of
common stock. Options to purchase 810,000 shares of common stock have been
granted to Mr. Banning, subject to the approval of The Toronto Stock Exchange
(the "TSE") and the Company's shareholders. See the section of this
registration statement entitled "Options to Purchase Securities" below.
Options to purchase the remaining 190,000 shares of common stock will be
granted to Mr. Banning when the Company's stock option plan has been amended
and approved as is further described in this registration statement under the
section entitled "Stock Option Plan" below. In addition, the Company has
agreed to pay to Mr. Banning, on the exercise by him in the future of options
to purchase each of 130,000 shares of common stock, the difference between
C$1.51 per share (the exercise price of such options on the date of grant)
and C$1.35 per share (the market price of the common stock on the date the
Company agreed to grant such options to him) and, on the exercise by him in
the future of options to purchase each of 190,000 shares of common stock, the
difference between the exercise price in respect of such options and C$1.35
per share.
Mr. Banning receives an annual salary of $200,000, Mr. Graeme receives an
annual salary of $110,000 and Mr. Goodson receives an annual salary of
$80,000.
Compensation of Directors.
The Company does not pay directors' fees. While the Company has no written
policy or standard arrangements in this regard, it is currently the policy of
the Company to grant options to purchase shares of its common stock to its
directors under the stock option plan described below under the heading
"Stock Option Plan". Generally, each director is granted options to purchase
an aggregate of 90,000 shares of common stock and such additional number of
shares of common stock as may be appropriate in particular circumstances
given other responsibilities assumed by the director in the Company's affairs
and contributions made by such director to the Company.
The following table sets out certain information with respect to options to
purchase shares of common stock of the Company granted to the directors of
the Company, other than the Company's Chief Executive Officer, during the
fiscal year ended May 31, 1996.
<TABLE>
<CAPTION>
% of Total
Options Market Value
Securities Granted to of Securities
Name of Director Under All Underlying
and Office at Options Employees in Exercise or Options on the
Financial Granted the Financial Base Price Date of Grant Date of Expiration
Year-End (#) Year (C$/Share) (C$/Share) Grant Date
---------------- ---------- ------------- ----------- ------------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Edward G. Thompson 20,000 1.39% 1.51 1.51 February February
21, 1996 21, 2001
</TABLE>
There are no other arrangements under which directors of the Company were
compensated by the Company during the year ended May 31, 1996 for their
services in their capacity as directors and, without limiting the generality
of the foregoing, no additional amounts are payable under any standard
arrangements for committee participation or special assignments, except that
the articles of incorporation of the Company provide that the directors are
entitled to be paid reasonable travelling, hotel and other expenses incurred
by them in the performance of their duties as directors. The Company's
articles of incorporation also provide that if a director is called upon to
perform any professional or other services for the Company that, in the
opinion of the directors, is outside of the ordinary duties of a director,
such director may be paid a remuneration to be fixed by the directors and
such remuneration may be either in addition to or in substitution for any
other remuneration that such director may be entitled to receive.
During the fiscal years ended May 31, 1996 and 1995, the Company paid
consulting fees of C$50,000 and C$30,000, respectively, to a private company
controlled by Chester Shynkaryk.
Stock Option Plan.
On November 27, 1992, the shareholders of the Company approved the
establishment of a stock option plan (the "Stock Option Plan") for directors,
officers and employees of the Company and its subsidiaries. The Stock Option
Plan is administered by the Compensation Committee of the board of directors
of the Company. The Stock Option Plan provides that a maximum of 10% of the
number of shares of common stock issued and outstanding from time to time
will be reserved, set aside and made available for issuance pursuant to
options granted from time to time under such plan, provided that, under the
terms of the Stock Option Plan, no person is entitled to be granted options
to purchase shares of common stock constituting more than 5% of the number of
outstanding shares of common stock.
The Stock Option Plan provides that the exercise price of each option granted
shall not be less than the market price of the common stock on the TSE as of
the date the option is granted. The Stock Option Plan provides that all
options granted under such plan will expire not later than five years after
the date of grant.
Options granted under the Stock Option Plan are not transferable, other than
by will or other testamentary instrument or the laws of succession. In the
event that an optionee is dismissed, removed or otherwise ceases to be a
director, officer or employee of the Company or its subsidiaries (other than
for cause or as a result of his or her death), all unexercised options held
by such person terminate on the earlier of 30 days after the optionee ceases
to be a director, officer or employee of the Company or its subsidiaries or
the normal expiration date of such unexercised options. In the event that an
optionee is dismissed as a director, officer or employee of the Company or
one of its subsidiaries for cause, all unexercised options held by such
person immediately terminate.
On February 21, 1996, the board of directors authorized the amendment of the
Stock Option Plan to replace the current "rolling maximum" limitation on the
number of shares of common stock issuable pursuant to the exercise of options
granted under such plan with a fixed maximum of 2,200,000 shares of common
stock. It is expected that additional amendments will be made to the Stock
Option Plan to, among other things, provide that options granted to officers
of the Company and its subsidiaries vest as to one-third of the number of
shares of common stock issuable upon the exercise of the options granted on
the date of grant and as to an additional one-third of such number of shares
on each of the next two anniversaries of such date. Such amendments to the
Stock Option Plan will be subject to the approval of the TSE and the
shareholders of the Company. Management of the Company has presented an
amended Stock Option Plan to its shareholders for approval at the annual
general meeting of shareholders of the Company to be held on November 13,
1996.
[The balance of this page has been intentionally left blank.]
<PAGE>
Options to Purchase Securities.
As at May 31, 1996, options to acquire an aggregate of 1,950,000 shares of
common stock were outstanding under the Stock Option Plan as follows:
<TABLE>
<CAPTION>
Number of
Common Exercise Price
Shares under per Common
Class of Optionees Date of Grant Expiration Date Option (1) Share
- ------------------ ------------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Executive officers
of Golden Queen December 1, 1995 December 1, 2000 680,000 (2) C$1.35
(four persons) February 21, 1996 February 21, 2001 450,000 (2) 1.51
May 21, 1996 May 21, 2001 100,000 3.00
Directors of Golden Queen
who are not also December 21, 1993 December 21, 1998 75,000 C$0.592
executive officers August 24, 1994 August 24, 1999 100,000 0.55
of Golden Queen September 21, 1994 September 21, 1999 90,000 1.50
(three persons) December 2, 1994 December 2, 1999 70,000 1.45
February 21, 1996 February 21, 2001 20,000 1.51
Executive officers of
the Subsidiary who September 21, 1994 September 21, 1999 130,000 C$1.50
are not also executive February 21, 1996 February 21, 2001 90,000 1.51
officers or directors
of Golden Queen
(two persons)
All other employees
of the Subsidiary March 4, 1994 March 4, 1999 30,000 C$0.76
(five persons) August 24, 1994 August 24, 1999 45,000 0.55
July 20, 1995 July 20, 2000 70,000 1.35
____________________
(1) Includes all shares of common stock issuable upon the exercise of options granted, including those
that have not vested as at May 31, 1996 and those that remain, as at such date, subject to the
approval of the TSE and the Company's shareholders.
(2) Certain of these options are held by Steven W. Banning. In addition, the employment agreement between
the Company and Mr. Banning provides that the Company is required to grant to Mr. Banning options to
acquire an additional 190,000 shares of common stock. See the section of this registration statement
entitled "Executive Compensation - Termination of Employment, Change in Responsibilities and
Employment Contracts" above.
</TABLE>
At the next annual general meeting, the shareholders of the Company will be
asked to approve, among other things, the grant to officers and directors of
the Company and the Subsidiary of options to purchase an aggregate of
1,340,000 shares of common stock as follows:
Number of Common
Optionee Shares Under Option
-------- -------------------
Paul A. Bailly 120,000
Steven W. Banning 810,000
Richard W. Graeme 200,000
Raymond E. Grant 90,000
Bernard Goodson 100,000
Edward G. Thompson 20,000
Such options were granted pursuant to the Stock Option Plan, as such plan is
proposed to be amended, but are subject to approval by the TSE and the
shareholders of the Company.
Item 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
VenturesTrident II, L.P. ("VT II") is a Massachusetts limited partnership
which, as of the date of this registration statement owns 4,758,061 shares of
common stock, or approximately 19.6% of the common stock then outstanding.
Landon T. Clay is one of the two general partners of Fulcrum Management
Partners II, L.P., a limited partnership which is the general partner of
VT II and VenturesTrident, L.P. ("VT I"). Accordingly, Mr. Clay may be
considered to be associated with VT II and VT I (which may be considered to
be an affiliate of VT II). Mr. Clay is related to five trusts which hold an
aggregate of 824,933 shares of common stock of the Company, or approximately
3.7% of the common stock outstanding as of October 15, 1996.
In December 1993, the Company issued to various purchasers an aggregate of
5,748,491 shares of common stock at an issue price of C$0.35 per share. Of
such shares, 1,500,000 shares were issued to VT II, 375,939 shares were
issued to Chester Shynkaryk (at that time the President and a director of the
Company), 375,939 shares were issued to the Landon T. Clay Lead Trust and
107,142 shares were issued to Paul A. Bailly (at that time the Chief
Executive Officer and a director of the Company).
During the fiscal year ended May 31, 1994, the Company paid consulting fees
of C$24,000 to a private company controlled by Mr. Shynkaryk.
During such year, the Subsidiary obtained a short-term loan from VT II for
$200,000 bearing interest at 8% per annum. This loan was repaid during the
year by the issuance by the Company of 759,714 shares of common stock at a
price of C$0.35 per share as part of a private placement by the Company of
5,748,491 shares of common stock to various purchasers.
Also during such fiscal year, loans (the "1994 Loans") previously made to the
Company by VT I (at that time, a major shareholder of the Company), VT II and
Tamarack Mining, Inc. ("Tamarack"), a company related to VT I, were
outstanding as follows:
Creditor Amount Interest Rate Maturity Date
-------- ------ ------------- -------------
VT II $130,000 11% November 1, 1995
VT II 75,000 12% November 1, 1995
VT I 70,000 11% November 1, 1995
Tamarack 25,000 12% November 1, 1995
During the fiscal year ended May 31, 1995, the Company paid consulting fees
of C$30,000 to a private company controlled by Mr. Shynkaryk. During such
year, the Company also obtained a short-term loan from VT II for $250,000
bearing interest at 12% per annum and payable on November 1, 1995 (the "1995
Loan").
During the fiscal year ended May 31, 1996, the Company paid consulting fees
of C$50,000 to a private company controlled by Mr. Shynkaryk and paid
management fees of $102,500 to Castle Group, Inc., a corporation which
manages VT II and is associated with Christopher M.T. Thompson, who was a
director of the Company until February 21, 1996.
In August 1995, Golden Queen completed a private placement of 1,929,160
shares of common stock at a price of C$1.25 per share. Of such shares,
272,600 shares were issued to the Landon T. Clay Charitable Lead Trust and
163,560 shares were issued to the Landon T. Clay Charitable Lead Trust II.
In October 1995, the Company issued an aggregate of 506,215 shares of common
stock at a price of C$1.78 per share in settlement of all amounts then owing
by it with respect to the 1994 Loans and the 1995 Loan.
On March 19, 1996, the Subsidiary issued two debentures in the aggregate
principal amount of $1,000,000 to the Landon T. Clay Charitable Lead Trust II
and the Landon T. Clay Charitable Lead Trust dated 11/30/83. The principal
amounts of the debentures are convertible at the option of their holders into
shares of common stock at a conversion price of C$2.00 per share, subject to
customary "anti-dilution" provisions set out in the debenture instruments.
The debentures have a two-year term and bear interest at a rate of 9.5% per
annum. If the principal amounts of the debentures were converted into shares
of common stock, an aggregate of 686,100 shares of common stock would be
issued to the holders of the debentures. The debentures have not been
converted as of October 15, 1996.
Jerrold W. Schramm, a director of Golden Queen, is a partner of the law firm
of Lawson Lundell Lawson & McIntosh, which was retained as counsel to the
Company during the fiscal year ended May 31, 1996. During such year, the
Company paid Lawson Lundell Lawson & McIntosh $19,384 for legal services
rendered on the Company's and the Subsidiary's behalf. No members of the
firm of Lawson Lundell Lawson & McIntosh, inclusive of Mr. Schramm, owned any
shares of common stock of the Company as at October 15, 1996.
Item 8. DESCRIPTION OF SECURITIES.
Authorized Capital.
The authorized capital of the Company consists of 100,000,000 shares of
common stock and 3,000,000 shares of preferred stock, without par value, of
which 22,046,400 shares of common stock and no shares of preferred stock were
outstanding as at October 15, 1996.
Common Stock.
Each share of common stock entitles the holder thereof to receive notice of
and to attend all meetings of shareholders of the Company, other than
meetings at which only the holders of a specified class or series of shares
other than the common stock are entitled to vote, and to one vote at each
such meeting. The holders of shares of common stock are entitled to receive,
out of the funds of the Company legally available for the payment of
dividends, any dividends declared by the board of directors of the Company.
Subject to the prior rights of the holders of shares of preferred stock, the
holders of shares of common stock are entitled to participate in the
distribution of the remaining property of the Company upon the liquidation,
dissolution or winding-up of the Company or other distribution of its assets
among its shareholders for the purpose of winding up its affairs.
The holders of shares of preferred stock are not entitled to receive
dividends other than dividends payable upon liquidation. As a class, shares
of preferred stock are entitled to priority over shares of common stock and
all other shares ranking junior to the preferred stock with respect to the
distribution of the assets of the Company in the event of any liquidation,
dissolution or winding-up of the Company.
Warrants.
As at October 15, 1996, warrants (the "Warrants") for the purchase of
2,250,000 shares of common stock of the Company were issued and outstanding.
Such Warrants were issued pursuant to the terms of an underwriting agreement
dated May 23, 1996 between the Company and Goepel Shields & Partners Inc. and
Midland Walwyn Capital Inc. (collectively, the "Underwriters") governing the
offering by the Company of 5,500,000 special warrants (the "Special
Warrants"), each of which entitled its holder to receive upon exercise one
share of common stock and one-half of one transferable Warrant.
The Warrants were issued under a warrant indenture dated as of May 23, 1996
(the "Warrant Indenture") between the Company and Montreal Trust Company of
Canada, as trustee. The following is a summary of the material attributes of
the Warrants and the Warrant Indenture and is subject to the detailed
provisions of the Warrant Indenture.
Each whole Warrant will entitle its holder to purchase one share of common
stock of the Company upon payment of the exercise price of C$2.90 prior to
4:00 p.m. (Vancouver time) on November 28, 1997. The Warrant Indenture
provides that the number and kind of shares issuable on the exercise of a
Warrant will be subject to adjustment in certain events, including:
a subdivision, consolidation, change or reclassification of the common stock,
any amalgamation or merger of the Company that results in the
reclassification of, or change in, the common stock or a transaction under
which all or substantially all of the Company's undertaking and assets become
the property of another corporation; the issue by the Company of common stock
to all or substantially all of the holders of shares of common stock by way
of a stock dividend, other than dividends paid in the ordinary course (as
defined in the Warrant Indenture); and the issue by the Company of rights,
options or warrants to all or substantially all of the holders of shares of
common stock entitling them to acquire common stock or securities convertible
into common stock (other than rights, options or warrants entitling such
persons, during a period ending not more than 45 days after the date of issue
thereof, to acquire common stock at a price, or securities convertible into
common stock at a conversion price, of not less than 95% of the current
market price of the common stock, as determined pursuant to the Warrant
Indenture).
No adjustment to the number of shares of common stock that may be purchased
on the exercise of a Warrant will be required to be made in any such event:
unless the cumulative effect of such adjustment would change the number of
shares of common stock that may be purchased on the exercise of a Warrant by
at least 1%; if the holders of the Warrants are entitled to participate in
such event on effectively the same basis as holders of shares of common
stock; or in respect of the issue of common stock pursuant to the exercise of
Special Warrants or Warrants, or pursuant to any stock option or purchase
plan for officers or employees of the Company or a subsidiary of the Company.
The Company is required under the Warrant Indenture to provide notice to the
trustee and the holders of the Warrants of any event that requires or might
require an adjustment to the number of shares of common stock that may be
acquired on the exercise of Warrants. Any such notice must be given at least
fourteen days before the effective date of, or record date for, the event.
Such notice need set out only those particulars of the event as have been
determined at the date the notice is given.
The Warrant Indenture contains certain provisions permitting the Company and
the trustee to amend the Warrant Indenture or any indenture supplemental
thereto or the rights of the holders of the Warrants, but, if any such
amendment or supplemental indenture would be prejudicial to the holders of
the Warrants as a group, only with the approval of the holders of the
Warrants given by resolution passed by the affirmative votes of the holders
of two-thirds of the Warrants voted at a meeting at which a quorum of holders
of Warrants is present or signed by the holders of two-thirds of the Warrants
then outstanding.
No fractional shares of common stock will be issued upon the exercise of any
Warrant.
The common stock issuable upon the exercise of the Warrants has not been and
is not intended to be registered under the Securities Act of 1933, as
amended, (the "Securities Act") or the securities laws of any state of the
United States, and the Warrants may not be exercised in the United States by
or for the account or benefit of a U.S. person or a person in the United
States, nor will certificates representing shares of common stock issuable
upon the exercise of the Warrants be delivered to an address in the United
States, unless the common stock has been registered under the Securities Act
and all applicable state securities law, or unless exemptions from such
registration are available and an opinion to such effect is delivered to the
Company and the trustee. Original U.S. purchasers of the Special Warrants
are not required to furnish a legal opinion in connection with the exercise
of the Warrants issued to them on the exercise of the Special Warrants.
Certificates representing shares of common stock issuable upon the exercise
of Warrants exercised by or for the account or benefit of U.S. persons or
persons in the United States bear legends restricting transfer.
[The balance of this page has been intentionally left blank.]
<PAGE>
PART II
Item 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
Price Range of Common Shares.
The common stock of the Company is listed and traded on the Toronto Stock
Exchange ("TSE"). The following table sets out the price range and trading
volume of the common stock as reported by the TSE for the calendar periods
indicated.
1994 High Low Volume
---- ---- --- ------
Second Quarter C$0.92 C$0.50 232,750
Third Quarter 1.65 0.50 1,233,820
Fourth Quarter 2.00 1.25 1,319,111
1995
----
First Quarter C$1.90 C$1.30 394,354
Second Quarter 1.95 1.00 519,212
Third Quarter 1.84 1.26 523,681
Fourth Quarter 1.65 1.20 337,824
1996
----
First Quarter C$2.55 C$1.29 1,680,721
Second Quarter 3.20 2.09 2,225,114
Third Quarter 2.55 1.87 733,706
Dividend Policy and Record.
The Company has never paid dividends on its Common Stock. The Company's
present policy is to retain any earnings for use in its business and it does
not intend to pay dividends on the common stock in the foreseeable future.
Payment of any cash dividends in the future will depend upon the earnings and
financial condition of the Company, any covenants in loan documents and other
factors the board of directors of the Company may consider to be appropriate.
Item 2. LEGAL PROCEEDINGS.
Neither the Company nor the Subsidiary is presently a party to, nor are they
threatened by, any material legal proceeding.
Item 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
On October 4, 1996, audit committee of the board of directors of the Company
and the board of directors itself, each acting in accordance with the prior
determination of the Company's management, determined to replace Chambers,
Phillips & Co., the Company's current accountants, with BDO Dunwoody. Such
change is expected to be approved by the Company's shareholders at the annual
general meeting of shareholders to be held on November 13, 1996.
This change was recommended by management based upon the fact that BDO
Dunwoody's United States affiliated firm, BDO Seidman, maintains offices in
Spokane, Washington, where the Company's executive offices are located.
During the fiscal years ended May 31, 1996 and 1995, Chambers, Phillips &
Co.'s reports on the financial statements of the Company contained no adverse
opinion or disclaimer of opinion, or were qualified or modified as to
uncertainty, audit scope or accounting principles. During such periods,
there were no disagreements with Chambers, Phillips & Co. on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure which, if not resolved to the satisfaction of
such firm, would have caused them to make reference to the subject matter of
such disagreement in their reports on such financial statements.
Item 4. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth for the periods indicated information
concerning the issuance by Golden Queen of shares of its Common Stock in
transactions which were not registered under the Securities Act.
(a) On July 19, 1995, the Company issued 50,000 shares of common stock to
certain directors, officers and employees of the Company at the price of
C$0.55 per share pursuant to presently exercisable stock options.
(b) On July 19, 1995, the Company also issued and additional 40,000 shares
of common stock to certain directors, officers and employees of the Company
at the price of C$0.592 per share pursuant to presently exercisable stock
options.
(c) On August 3, 1995, the Company issued 1,929,160 shares of common stock
to various purchasers at the price of C$1.25 per share in a private
placement.
(d) On October 13, 1995, the Company issued 506,215 shares of common stock
to VenturesTrident L.P. and VenturesTrident II L.P. at the price of C$1.25 in
a private placement.
(e) On January 16, 1996, the Company issued 20,000 shares of common stock to
certain directors, officers and employees of the Company at the price of
C$1.45 per share pursuant to presently exercisable stock options.
(f) On January 30, 1996, the Company issued 125,000 shares of common stock
to certain directors, officers and employees of the Company at the price of
C$0.53 per share pursuant to presently exercisable stock options.
(g) On January 30, 1996, the Company also issued an additional 120,000
shares of common stock to certain directors, officers and employees of the
Company at the price of C$1.50 per share pursuant to presently exercisable
stock options.
(h) On February 6, 1996, the Company issued 30,000 shares of common stock to
certain directors, officers and employees of the Company at the price of
C$0.592 per share pursuant to presently exercisable stock options.
(i) On April 12, 1996, the Company issued 25,000 shares of common stock to
certain directors, officers and employees of the Company at the price of
C$1.35 per share pursuant to presently exercisable stock options.
(j) On April 12, 1996, the Company also issued an additional 10,000 shares
of common stock to certain directors, officers and employees of the Company
at the price of C$0.76 per share pursuant to presently exercisable stock
options.
(k) On August 31, 1996, the Company issued 13,000 shares of common stock to
certain directors, officers and employees of the Company at the price of
C$0.76 per share pursuant to presently exercisable stock options.
(l) On September 10, 1996, the Company issued 5,500,000 shares of common
stock and warrants to purchase an additional 2,250,000 shares of common stock
to certain offshore investors and one investor resident in the United States
pursuant to the exercise of special warrants previously issued on May 13,
1996.
All of the transactions, other than those made to persons resident in the
United States (including directors, executive officers or employees of the
Company resident in the United States) were offshore transactions made in
reliance on Regulation S of the Securities Act of 1933, as amended. The
remaining transactions were made in reliance on the exemption from the
registration requirements of Section 5 of the Securities Act afforded by
Section 4(2) thereof.
Item 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statutes, charter provisions, by-laws, contracts or other
arrangements under which a controlling person, director or officer of the
Company is insured or indemnified in any manner against liability which he
may incur in his capacity as such are Section 152 of the Company Act of
British Columbia and Part 15 of the Company's articles of incorporation.
Taken together, these statutory and charter provisions generally allow the
Company to indemnify its directors (including former directors) and their
heirs and personal representatives against liability, provided (i) the
director or officer was acting on behalf of the Company in his or her
official capacity as a director or officer and (ii) such director or officer
conducted himself in good faith and believed his conduct was in, or not
opposed to, the best interests of the Company (or in the case of any criminal
proceeding, that he had no reasonable cause to believe his conduct was
unlawful. These statutory and charter provisions also generally allow the
Company to indemnify its officers, employees and agents against liability
unless the liability for which indemnification is sought arose from a failure
to comply with instructions, was the result of a willful act or default, or
was the result of fraud, in which events such persons shall be indemnified
only if the directors of the Company by resolution so direct.
Indemnification permitted by these provisions is limited to reasonable
expenses incurred in connection with the proceeding upon which liability is
predicated, which includes the amount of any such liability actually imposed.
[The balance of this page has been intentionally left blank.]
<PAGE>
PART F/S
The unaudited consolidated financial statements of the Company for the three
month periods ended August 31, 1996 and 1995, and as of August 31, 1996 and
1995, and the audited consolidated financial statements of the Company for
the years ended May 31, 1996 and 1995 and for the period from inception
(November 21, 1985) through May 31, 1996, and as of May 31, 1996, 1995 and
1994 are set forth in the following pages to this registration statement.
The audited year-end consolidated financial statements have been audited by
Chambers, Phillips & Co., Vancouver, British Columbia, and are included
herein in reliance upon the report of such firm as experts in accounting and
auditing.
[The balance of this page has been intentionally left blank.]
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Consolidated Balance Sheets
Three Months Ended August 31, 1996
(Unaudited)
August 31, August 31,
1996 1995
---- ----
ASSETS
CURRENT
Cash and term deposits $8,448,199 $1,624,887
Accounts receivable 25,089 16,762
Prepaid expenses and deposits 98,627 280
--------- ---------
8,571,915 1,641,929
CAPITAL ASSETS (Note 3) 164,293 32,624
MINERAL PROPERTIES (Note 4) 2,679,776 2,056,926
DEFERRED EXPLORATION AND DEVELOPMENT
EXPENDITURES (Note 5) 8,623,875 6,351,857
OTHER ASSETS (Note 6) 350,000 100,000
---------- ----------
$20,389,859 $10,183,336
========== ==========
LIABILITIES
CURRENT
Accounts payable $ 117,498 $ 99,327
Accrued liabilities 80,439 119,793
Current portion of notes payable 101,319 559,889
---------- ----------
299,256 779,009
LONG-TERM NOTES PAYABLE (Note 7) 1,076,687 75,587
---------- ----------
1,375,943 854,596
---------- ----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 8) $20,883,190 $10,515,563
DEFICIT (1,869,274) (1,186,823)
---------- ----------
19,013,916 9,328,740
---------- ----------
$20,389,859 $10,183,336
========== ==========
SUBSEQUENT EVENTS (Note 10)
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Consolidated Statements of Loss and Deficit
Three Months Ended August 31, 1996
(Unaudited)
August 31, August 31,
1996 1995
---- ----
REVENUES
Interest $ 126,375 $ 4,084
Other - -
--------- ---------
126,375 4,084
EXPENSES
General and administrative 208,834 12,924
Interest 24,278 14,112
Exploration and development 621,514 197,505
Less: Deferred exploration
and development 621,514 197,505
--------- ---------
Write-off of mineral properties - -
Loss on disposition of capital assets - -
--------- ---------
233,112 27,036
--------- ---------
NET LOSS 106,737 22,952
DEFICIT, BEGINNING 1,690,977 1,163,871
Share issue costs 71,560 -
--------- ---------
DEFICIT, ENDING $1,869,274 $1,186,823
========= =========
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Consolidated Statements of Cash Flows
Three Months Ended August 31, 1996
(Unaudited)
August 31, August 31,
1996 1995
---- ----
OPERATING ACTIVITIES
Net Loss ($ 106,737) ($ 22,952)
Adjustments to reconcile net loss
to cash used in operating activities
Amortization & depreciation 4,640 1,695
Changes in operating working capital
Accounts & interest receivable (17,874) 1,894
Prepaid expenses, deposits
and other (35,853) 5,113
Accounts payable & accrued
liabilities (191,878) (1,996)
---------- ----------
Cash used in operating activities (347,702) (16,246)
---------- ----------
FINANCING ACTIVITIES
Borrowing under long term debt 47,333 -
Payment of long term debt (6,328) (2,311)
Issuance of shares for cash 7,221 1,778,581
Share issue costs (71,560) -
---------- ----------
Cash provided by financing
activities (23,334) 1,776,270
---------- ----------
INVESTMENT ACTIVITIES
Deferred exploration &
development expenditures (621,514) (197,505)
Non-refundable deposits on mineral
properties - -
Purchase of mineral properties (278,753) (78,606)
Purchase of capital assets, (98,501) -
Proceeds from sale of assets - -
Cash used in investment ---------- ----------
activities (998,768) (276,111)
---------- ----------
NET CHANGE IN CASH AND CASH
EQUIVALENTS (1,369,804) 1,483,913
CASH AND CASH EQUIVALENTS, 9,818,003 140,974
beginning balance ---------- ----------
CASH AND CASH EQUIVALENTS, $8,448,199 $1,624,887
ending balance ========= =========
<PAGE>
Golden Queen Mining Co. Ltd.
Consolidated Statements of Changes In Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Accumulated
Shares Amount Deficit
------------ ---------- -----------
<S> <C> <C> <C>
Issuance of shares - for cash 1,425,001 $ 141,313 $ (15,032)
Loss for the year ---------- --------- ---------
Balance @ May 31, 1986 1,425,001 141,313 (15,032)
Issuance of shares
- for cash 550,000 256,971
- for property 25,000 13,742
Loss for the year (58,907)
---------- --------- ---------
Balance @ May 31, 1987 2,000,001 412,026 (73,939)
Issuance of shares - for cash 1,858,748 1,753,413
Earnings for the year 38,739
---------- --------- ---------
Balance @ May 31, 1988 3,858,749 2,165,439 (35,200)
Issuance of shares
- for cash 1,328,750 1,814,133
- for property 100,000 227,819
Loss for the year (202,160)
---------- --------- ---------
Balance @ May 31, 1989 5,287,499 4,207,391 (237,360)
Issuance of shares
- for cash 1,769,767 2,771,815
- for property 8,875 14,855
Loss for the year (115,966)
---------- --------- ---------
Balance @ May 31, 1990 7,066,141 6,994,061 (353,326)
Earnings for the year 28,706
---------- --------- ---------
Balance @ May 31, 1991 7,066,141 6,994,061 (324,620)
Loss for the year (157,931)
---------- --------- ---------
Balance @ May 31, 1992 7,066,141 6,994,061 (482,551)
Loss for the year (285,391)
---------- --------- ---------
Balance @ May 31, 1993 7,066,141 6,994,061 (767,942)
Issuance of shares
- for cash 5,834,491 1,536,260
- for property 128,493 23,795
Loss for the year (158,193)
Share issue costs (18,160)
---------- --------- ---------
Balance @ May 31, 1994 $13,029,125 $8,554,116 $(944,295)
</TABLE>
<PAGE>
Golden Queen Mining Co. Ltd.
Consolidated Statements of Changes In Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Accumulated
Shares Amount Deficit
------------ ---------- -----------
<S> <C> <C> <C>
Issuance of shares
- for cash 648,900 $ 182,866
- for property
Loss for the year $ (219,576)
---------- --------- ----------
Balance @ May 31, 1995 13,678,025 8,736,982 (1,163,871)
Issuance of shares
- for cash 2,349,160 2,023,268
- for debt 506,215 662,282
Issuance of special warrants - 9,453,437
Loss for the year (426,380)
Special warrants issue cost (100,726)
---------- --------- ----------
Balance @ May 31, 1996 16,533,400 20,875,969 (1,690,977)
Issuance of shares
- for cash 13,000 7,221
Loss for the quarter (106,737)
Special warrants issue cost (71,560)
---------- ---------- ----------
Balance @ August 31, 1996 16,546,400 $20,883,190 $(1,869,274)
========== ========== ==========
</TABLE>
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Three Months Ended August 31, 1996 and 1995
(Unaudited)
1. NATURE OF OPERATIONS
The company is in the development stage with respect to its interest in
certain mineral properties. The underlying value of the mineral
properties and related deferred exploration and development expenditures
is dependent on the existence and anticipated economic recovery of ore
reserves, confirmation and retention of the Company's interest in the
underlying mineral claims, the ability to obtain necessary financing to
complete the development, and future profitable production or proceeds
from the disposition thereof.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Generally Accepted Accounting Principles
The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in Canada,
which differ in some respects from those in the United States. No
differences have been disclosed, they are not considered
significant.
(b) Principles of Consolidation
These consolidated financial statements include the accounts of
Golden Queen Mining Co. Ltd. ("Golden Queen") and its wholly-owned
subsidiary, Golden Queen Mining Company, Inc. (the "Subsidiary").
(c) Mineral Properties and Related Deferred Exploration and Development
Expenditures
The company follows the method of accounting for its mineral
properties whereby all costs related to acquisition, exploration
and development, including directly associated technical and
administrative expenses (including interest), are capitalized by
property. These costs will be written off against subsequent
revenues, or to operations at such time that the properties are
determined to have no recoverable value.
Mineral properties and related deferred exploration and development
expenditures stated at the lower of their historical cost on
estimated net recoverable value.
(d) Reporting Currency and Translation of Foreign Currency
Golden Queen has adopted the United States dollar as its reporting
currency for its financial statements prepared after May 21, 1996
as the United States dollar is the currency of the primary economic
environment in which Golden Queen and the Subsidiary conduct
business and is considered the appropriate functional currency for
the Company's operations. Accordingly, the financial statements of
the Company have been translated by the temporal method with
translation gains and losses included in earnings. Under this
method, the operations of the company have been converted into U.S.
dollars at the following rates of exchange:
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Three Months Ended August 31, 1996 and 1995
(Unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(i) Monetary assets and monetary liabilities - at a rate of
exchange prevailing at the balance sheet date;
(ii) All other assets - at a rate of exchange prevailing at
the time of the transactions;
(iii) Revenue and expenses - at the average rate of exchange
prevailing during the period
(e) Amortization
Amortization is provided using the straight-line method over five
(5) years on capital assets. One-half of the normal rate was used
in the year of acquisition.
(f) Earnings Per Share
Earnings per share have not been disclosed as they are not
considered meaningful in the circumstances.
(g) Comparative Figures
Certain figures have been reclassified to conform to the
presentation adopted in the current year. These changes have no
effect on the earnings.
3. PROPERTY AND EQUIPMENT
August 31, 1996 August 31, 1995
--------------- ---------------
Furniture and fixtures $ 35,058 $ 45,518
Office equipment 104,500 14,862
Automobiles 66,821 21,134
Capital leased equipment 13,281 0
-------- -------
219,660 81,514
Less accumulated depreciation 55,367 48,890
-------- -------
Net property and equipment $ 164,293 $ 32,624
======== =======
4. MINERAL PROPERTIES
(a) By an agreement dated April 22, 1986, the Subsidiary has acquired
an exclusive lease to explore, develop and mine certain mining
claims known as the Soledad-Starlight Property, Mojave Mining
District, Kern County, California.
The lease is for a twenty year period and for so long thereafter as
the property remains in production, subject to processing a minimum
of 12,000 tons of ore per year. The lease is subject to production
royalties of 3% to 7.5% of net smelter returns depending on the
quality of ore. All advance minimum royalties paid will be applied
against any future production royalties.
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Three Months Ended August 31, 1996 and 1995
(Unaudited)
4. MINERAL PROPERTIES (continued)
Cash and share consideration payments for acquiring the lease are as
follows:
August 31, August 31,
1996 1995
---------- ----------
Advance minimum royalties
i) Payments of $50,000 are
required on May 1 & November
1 of each year 751,456 651,456
Cash and share payments
i) $100,000 (paid) 100,000 100,000
ii) 25,000 shares at a deemed value
of C$0.75 and 100,000 shares
at a deemed value of C$2.75 231,139 231,139
b) The subsidiary has entered into
various exploration right, lease
option and property acquisition
agreements on mining claims noted
earlier. The lease agreements have
various terms and require annual
payments of approximately $275,000.
All are subject to a sliding scale
royalty on net smelter returns
beginning at 3%. 1,209,781 1,044,331
(c) The Subsidiary purchased adjacent
property for consideration of
$150,000, $45,000 was paid in cash
and a note payable was given for the
balance of $105,000 payable in
monthly installments of $1,500,
including interest at 10% per annum
until December 22, 1996, or when
development financing is in place,
whichever occurs first. A balloon
payment of $77,305 will be due on
December 22, 1996. 150,000 150,000
(d) On September 19, 1994 the Subsidiary
entered into a mining lease agreement
granting exclusive exploration and
development rights on property
adjacent to claims previously described.
The term of the agreement is for
20 years and consideration included
a cash payment of $30,000 and annual
minimum lease payment of $10,000. 40,000 30,000
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Three Months Ended August 31, 1996 and 1995
(Unaudited)
4. MINERAL PROPERTIES (continued)
August 31, August 31,
1996 1995
---------- ----------
(e) On September 22, 1995, the
Subsidiary entered into an agreement
to purchase approximately 40 acres;
a deposit of $37,500 was placed in
escrow and an additional $150,000
will be paid at closing, before
October 31, 1996. The seller will
finance a note for $187,500 at 12%
interest for one (1) year. 37,500 -
(f) On November 8, 1995, the Subsidiary
signed a letter agreement option
to purchase certain mining claims
and millsites for a total purchase
price of $65,000. $13,000 has been
paid and a note payable for $52,000
at 10% interest with monthly payments
of $1,500 is outstanding. All
principal will be due in three years
or at the start of production,
whichever occurs first. The Subsidiary
will pay a 3% net smelter return
royalty not to exceed $500,000. 65,000 -
(g) On June 18, 1996, a property was
purchased adjacent to the proposed
mine site area for $79,900 by the
Subsidiary. 79,900 -
(h) On June 27, 1996, the Subsidiary
acquired the property within the
proposed mine site area pursuant to
a purchase agreement dated February
7, 1996 for a purchase price of
$65,000. A payment was made and a
note in the amount of $47,333 was
given for the balance of the
purchase price. 65,000 -
(i) On August 1, 1995, the Subsidiary
entered into an agreement to
purchase approximately 29 acres;
a deposit of $100,000 was placed
in escrow. At the closing in September
1996, the Seller will finance a note
for $850,000 at an interest rate of
prime plus two (2) %. 100,000 -
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Three Months Ended August 31, 1996 and 1995
(Unaudited)
4. MINERAL PROPERTIES (continued)
August 31, August 31,
1996 1995
---------- ----------
(j) On December 30, 1994, the
Subsidiary signed an amendment
to a September 25, 1989 agreement
of purchase for certain leasehold
interests and unpatented claims.
Under the terms of the amendment,
the outstanding balance on the
$150,000 note was canceled and
production royalty granted on all
products produced from the property
up to a maximum payment of $300,000
plus simple interest. The
outstanding balance on the
canceled note has been credited
to mineral properties. (150,000) (150,000)
--------- ---------
$2,679,776 $2,056,926
========= =========
5. DEFERRED EXPLORATION AND DEVELOPMENT EXPENDITURES
August 31, August 31,
1996 1995
---------- ----------
EXPLORATION & DEVELOPMENT
Administration $ 224,203 $ 46,467
Engineering 137,342 37,787
Geology/drilling 116,436 72,125
Permitting/environmental 133,836 30,326
Metallurgical testing 9,697 10,800
--------- ---------
Total expenditures for the period 621,514 197,505
BALANCE, BEGINNING 8,002,361 6,154,352
--------- ---------
BALANCE, ENDING $8,623,875 $6,351,857
========= =========
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Three Months Ended August 31, 1996 and 1995
(Unaudited)
6. OTHER ASSETS
On April 1, 1995, the Subsidiary acquired an option to purchase all of
the issued and outstanding shares of a privately held California
corporation with an interest in a previously uncontracted tract of land
surrounded by the Subsidiary's land holdings and contiguous to the known
reserves. The terms of the agreement stipulate that upon an initial
non-refundable payment of $100,000 (paid), the Subsidiary may access the
property for a period of nine months to evaluate the presence of mineral
reserves. At the end of the nine month period (January 1996), the
Subsidiary may choose to exercise its option to purchase the shares of
the corporation by making the initial purchase payment of $250,000
(paid). Total consideration for the purchase is $1,600,000 with the
balance to be paid in installments as follows:
$500,000 - upon commencement of construction
$750,000 - upon reaching sustained production
Upon commencement of commercial production, the Subsidiary will pay a
royalty of 1% of gross smelter returns for a period of up to 60 years,
but total payments are not to exceed US $60 million.
This agreement has been guaranteed by Golden Queen Mining Co. Ltd.
7. LONG TERM DEBT
August 31, August 31,
1996 1995
---------- ----------
(a) Interest at a rate of 10% per
annum, payable in monthly
installments of principal and
interest over the period ending
December 22, 1996. The notes are
secured by deeds of trust held by
a third party. $ 75,587 $ 85,476
(b) Interest at a rate of 11% per
annum payable on November 1, 1995,
secured by a deed of trust.
Principal and accrued interest
paid by the issue of shares. - 130,000
(c) Interest at a rate of 12% per
annum payable on November 1, 1995,
secured by a deed of trust.
Principal and accrued interest paid
by the issue of shares. - 100,000
(d) Interest at a rate of 11% per annum
payable on November 1, 1995, secured
by a deed of trust. Principal and
accrued interest paid by the
issue of shares. - 70,000
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Three Months Ended August 31, 1996 and 1995
(Unaudited)
7. LONG TERM DEBT (continued)
August 31, August 31,
1996 1995
---------- ----------
(e) Interest at a rate of 12%
per annum payable on November
1, 1995. Principal and accrued
interest paid by the issue
of shares. - 250,000
(f) Non-interest bearing note repayable
in two installments: $5,000 on July
1, 1997 and $4,000 July 1, 1999,
secured by a grant deed. 9,000 -
(g) Debenture convertible at the option
of the holder into common shares at
a conversion price of C$2.00 ($1.46)
per common share. The debenture bears
interest at 9.5% per annum and is
due March 18, 1998. 400,000 -
(h) Debenture convertible at the option
of the holder into common shares at
a conversion price of C$2.00 ($1.46)
per common share. The debenture bears
interest at 9.5% per annum and is
due March 18, 1998. 600,000 -
(i) Payable in monthly installments of
$1,500 including interest at 10%
per annum, balance due in three years
from the date of note or start of
mineral production whichever comes
first. 46,577 -
(j) Payable in monthly installments of
$600 including interest at 9%
per annum. 46,842 -
--------- --------
Total 1,178,006 635,476
Current portion 101,319 559,889
--------- --------
$1,076,687 $ 75,587
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Three Months Ended August 31, 1996 and 1995
(Unaudited)
8. SHARE CAPITAL
(a) Authorized Capitalization
100,000,000 common shares without par value
3,000,000 preferred shares without par value
(b) Common Shares Issued and Special Warrants
<TABLE>
<CAPTION>
August 31, 1996 August 31, 1995
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance,
beginning 16,533,400 $11,422,532 13,678,025 $ 8,736,982
Issued for
cash:
Private
placement - - 1,929,160 1,741,475
Exercise of
options 13,000 7,221 90,000 37,106
Issued for
debt - - - -
---------- ---------- ---------- ----------
Common
Shares
issued 16,546,400 $11,429,753 15,697,185 $10,515,563
Special
Warrants - 9,453,437 - -
---------- ---------- ---------- ----------
Total
capital-
ization 16,546,400 $20,883,190 15,697,185 $10,515,563
========== ========== ========== ==========
</TABLE>
Golden Queen issued 5,500,000 Special Warrants and completed the
final filing of the final prospectus on August 30, 1996. The
Special Warrants were issuable under a Special Warrant indenture
dated as of May 23, 1996. Each Special Warrant is exercisable,
without additional payment, for one Common Share and one-half of
one warrant, provided that if a receipt for the prospectus has not
been issued by the securities regulatory authority of each of the
Provinces of British Columbia, Ontario and Quebec by September 20,
1996, each Special Warrant will be exercisable for 1.1 Common
Shares and 0.55 warrants, except that each Special Warrant held by
an "insider" of Golden Queen will be exercisable for 1.06 Common
Shares and 0.55 warrants. The Special Warrants may be exercised at
any time prior to the earlier of the sixth business day after
receipts have been issued for the prospectus and May 22, 1997. Any
Special Warrants that have not been exercised immediately prior to
the time of expiry will be deemed to be exercised.
Each warrant will entitle its holder to purchase one Common Share
at a price of C$2.90 ($2.13) and are exercisable at any time prior
to 4:00 p.m. (Vancouver time) on November 28, 1997.
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Three Months Ended August 31, 1996 and 1995
(Unaudited)
8. SHARE CAPITAL (continued)
(c) Options
As at August 31, 1996, there are director and employee stock
options outstanding for the purchase of up to 1,987,000 common
shares as follows:
Exercise Price Number Expiry Date
-------------- ------ -----------
C$0.592 ($0.44) 75,000 December 21, 1998
C$0.76 ($0.56) 17,000 March 4, 1999
C$0.55 ($0.40) 145,000 August 24, 1999
C$1.50 ($1.10) 220,000 September 21, 1999
C$1.45 ($1.07) 70,000 November 24, 1999
C$1.35 ($0.99) 70,000 July 20, 2000
C$1.35 ($0.99) 680,000 December 1, 2000
C$1.51 ($1.11) 560,000 February 21, 2001
C$3.00 ($2.18) 100,000 May 21, 2001
C$2.30 ($1.69) 50,000 June 27, 2001
---------
1,987,000
(d) During the period, 13,000 shares were issued for C$9,880 ($7,221)
upon the exercise of Directors and Employee stock options. Also,
50,000 stock options were granted for Directors and Employees at an
exercise price of C$2.30 ($1.69).
9. RELATED PARTY TRANSACTIONS
(a) During the period, transactions were incurred with related parties
as follows:
August 31, 1996 August 31, 1995
--------------- ---------------
Consulting fees $0 $5,497
-- ------
Office and administration $0 $1,253
-- ------
(b) Until March 1996, office space and secretarial services were
provided to the Subsidiary for nil consideration by a company with
directors in common.
10. SUBSEQUENT EVENTS
(a) On September 10, 1996, the 5,500,000 Special Warrants were
converted to 5,500,000 common shares and 2,750,000 transferable
common share purchase warrants.
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Three Months Ended August 31, 1996 and 1995
(Unaudited)
10. SUBSEQUENT EVENTS (continued)
(b) On September 11, 1996, the purchase of the Birtle property closed.
The down payment of $100,000 was placed in escrow on August 1,
1996. The seller financed the balance of $850,000 with a note at
an interest rate of prime plus 2% and monthly payments of
$9,300.00.
<PAGE>
FOR THE QUARTER ENDED AUGUST 31, 1996
MANAGEMENT DISCUSSION
During the quarter ended August 31, 1996, the company carried out development
works on the Soledad Mountain Project in Kern County, California. Activities
were focused on the underground rehabilitation program that will allow an
underground core drilling program to start in November 1996.
A preliminary feasibility study was completed in August and the final or
bankable feasibility study should be completed in October 1996.
Work also continued on the permitting process with the lead governmental
agencies.
Preliminary contacts have been made regarding the financing of the project
construction which is scheduled to begin in the third quarter of 1997.
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Golden Queen Mining Co. Ltd.
We have audited the consolidated balance sheets of Golden Queen Mining Co.
Ltd. as at May 31, 1996 and 1995 and the consolidated statements of loss and
deficit, cash flows, and changes in shareholders' equity for the years then
ended. These consolidated financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statements
presentation.
In our opinion, these consolidated financial statements present fairly in all
material respects, the financial position of the company as at May 31, 1996
and 1995 and the results of its operations and its cash flow for the years
then ended in accordance with Canadian generally accepted accounting
principles. As required by the Company Act of the Province of British
Columbia, we report that, in our opinion, these principles have been applied
on a consistent basis.
Chambers, Phillips & Co.
Vancouver, B.C. Chartered Accountants
July 12, 1996
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Consolidated Balance Sheets
May 31, May 31,
1996 1995
---- ----
ASSETS
CURRENT:
Cash and term deposits $ 9,818,003 $ 140,974
Accounts receivable 7,215 18,656
Prepaid expenses and deposits 62,774 5,393
---------- ---------
9,887,992 165,023
PROPERTY AND EQUIPMENT Net (Note 3) 70,432 34,319
MINERAL PROPERTIES (Note 4) 2,401,023 1,978,320
DEFERRED EXPLORATION AND DEVELOPMENT
EXPENDITURES - (Note 5) 8,002,361 6,154,352
OTHER ASSETS (Note 6) 350,000 100,000
---------- ---------
$20,711,808 $8,432,014
========== =========
LIABILITIES
CURRENT:
Accounts payable $ 347,121 $ 67,875
Accrued liabilities 42,694 153,241
Current maturities of long term debt 91,771 559,643
---------- ---------
481,586 780,759
LONG-TERM DEBT less current maturities
(Note 7) 1,045,230 78,144
---------- ---------
1,526,816 858,903
---------- ---------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 8) $20,875,969 $8,736,982
DEFICIT (1,690,977) (1,163,871)
---------- ---------
19,184,992 7,573,111
---------- ---------
$20,711,808 $8,432,014
========== =========
SUBSEQUENT EVENTS (Note 10)
APPROVED BY DIRECTORS
Paul A. Bailly Gordon Gutrath Edward G. Thompson
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Consolidated Statements of Loss and Deficit Accumulated
During the Development Stage
<TABLE>
<CAPTION>
From November 21, 1985
May 31, May 31, (inception) through May 31,
1996 1995 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Interest $ 50,539 $ 8,845 $ 472,731
Other - - -
--------- --------- ---------
$ 50,539 $ 8,845 $ 472,731
EXPENSES
General and administrative 437,131 184,719 1,606,726
Interest 35,167 40,249 150,110
Exploration and development 1,848,009 519,370 8,002,361
Less: Deferred exploration
and development 1,848,009 519,370 8,002,361
---------
Write-off of mineral properties - 2,693 277,251
Loss on disposition
of capital assets 4,621 760 10,735
--------- --------- ---------
476,919 228,421 2,044,822
--------- --------- ---------
NET LOSS 426,380 219,576 1,572,091
DEFICIT, BEGINNING 1,163,871 944,295 -
Share issue costs 100,726 - 118,886
--------- --------- ---------
DEFICIT, ENDING $1,690,977 $1,163,871 $1,690,977
========= ========= =========
</TABLE>
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
From November 21, 1985
May 31, May 31, (inception) through May 31,
1996 1995 1996
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss ($ 426,380) ($219,576) ($ 1,572,091)
Adjustments to reconcile
net loss to cash used in
operating activities
Write-off of mineral properties - 2,693 277,251
Amortization & depreciation 20,982 69 22,674
Loss on disposition of
capital assets 4,621 760 10,735
Changes in assets and liabilities
Accounts & interest receivable 11,441 (15,617) (7,215)
Prepaid expenses, deposits
and other (57,381) (2,302) (62,774)
Accounts payable & accrued
liabilities 168,699 58,148 389,815
--------- -------- ---------
Cash used in operating
activities (278,018) (175,825) (941,605)
--------- -------- ---------
FINANCING ACTIVITIES
Borrowing under long term debt 1,173,281 250,000 2,681,669
Payment of long term debt (11,785) (9,848) (732,386)
Issuance of shares for cash 2,023,268 182,866 10,480,039
Share issue costs (100,726) - (118,886)
Issuance of Special Warrants 9,453,437 - 9,453,437
--------- -------- ----------
Cash provided by financing
activities 12,537,475 423,018 21,763,873
INVESTMENT ACTIVITIES ---------- -------- ----------
Deferred exploration & develop-
ment expenditures (1,848,009) (519,370) (8,165,390)
Nonrefundable deposits on mineral
properties (250,000) (100,000) (350,000)
Purchase of mineral properties (422,703) (257,330) (2,385,034)
Purchase of capital assets (61,716) (112,333)
Proceeds from sale of assets - 8,492 8,492
---------- -------- ----------
Cash used in investment
activities (2,582,428) (868,208) (11,004,265)
---------- -------- ----------
NET CHANGE IN CASH AND
CASH EQUIVALENTS 9,677,029 (621,015) 9,818,003
CASH AND CASH EQUIVALENTS,
beginning balance 140,974 761,989 -
---------- -------- ----------
CASH AND CASH EQUIVALENTS,
ending balance $9,818,003 $140,974 $9,818,003
========= ======= =========
NON-CASH ACTIVITIES:
Exchange of notes for
common stock $ 662,282 $662,282
Exchange of note for future
royalty payments $150,000 $150,000
Shares for mineral property $280,211
</TABLE>
<PAGE>
Golden Queen Mining Co. Ltd.
Consolidated Statements of Changes In Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Accumulated
Shares Amount Deficit
------------ ---------- -----------
<S> <C> <C> <C>
Issuance of shares - for cash 1,425,001 $ 141,313 $ (15,032)
Loss for the year ---------- --------- --------
Balance @ May 31, 1986 1,425,001 141,313 (15,032)
Issuance of shares
- for cash 550,000 256,971
- for property 25,000 13,742
Loss for the year (58,907)
--------- --------- --------
Balance @ May 31, 1987 2,000,001 412,026 (73,939)
Issuance of shares - for cash 1,858,748 1,753,413
Earnings for the year 38,739
--------- --------- --------
Balance @ May 31, 1988 3,858,749 2,165,439 (35,200)
Issuance of shares
- for cash 1,328,750 1,814,133
- for property 100,000 227,819
Loss for the year (202,160)
--------- --------- --------
Balance @ May 31, 1989 5,287,499 4,207,391 (237,360)
Issuance of shares
- for cash 1,769,767 2,771,815
- for property 8,875 14,855
Loss for the year (115,966)
--------- --------- --------
Balance @ May 31, 1990 7,066,141 6,994,061 (353,326)
Earnings for the year 28,706
--------- --------- --------
Balance @ May 31, 1991 7,066,141 6,994,061 (324,620)
Loss for the year (157,931)
--------- --------- --------
Balance @ May 31, 1992 7,066,141 6,994,061 (482,551)
Loss for the year (285,391)
--------- --------- --------
Balance @ May 31, 1993 7,066,141 6,994,061 (767,942)
Issuance of shares
- for cash 5,834,491 1,536,260
- for property 128,493 23,795
Loss for the year (158,193)
Share issue costs (18,160)
---------- --------- --------
Balance @ May 31, 1994 13,029,125 $8,554,116 $(944,295)
</TABLE>
<PAGE>
Golden Queen Mining Co. Ltd.
Consolidated Statements of Changes In Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Accumulated
Shares Amount Deficit
------------ ---------- -----------
<S> <C> <C> <C>
Issuance of shares
- for cash 648,900 $ 182,866
- for property
Loss for the year $ (219,576)
---------- ---------- ---------
Balance @ May 31, 1995 13,678,025 8,736,982 (1,163,871)
Issuance of shares
- for cash 2,349,160 2,023,268
- for debt 506,215 662,282
Issuance of special warrants - 9,453,437
Loss for the year (426,380)
Special warrants issue cost (100,726)
---------- ---------- ----------
Balance @ May 31, 1996 16,533,400 $20,875,969 $(1,690,977)
========== ========== ==========
</TABLE>
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended May 31, 1996 and 1995
1. NATURE OF OPERATIONS
The company is in the development stage with respect to its interest in
certain mineral properties. The underlying value of the mineral
properties and related deferred exploration and development expenditures
is dependent on the existence and anticipated economic recovery of ore
reserves, confirmation and retention of the Company's interest in the
underlying mineral claims, the ability to obtain necessary financing to
complete the development, and future profitable production or proceeds
from the disposition thereof.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Generally Accepted Accounting Principles
The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in Canada,
which differ in some respects from those in the United States. No
differences have been disclosed, they are not considered
significant.
(b) Principles of Consolidation
These consolidated financial statements include the accounts of
Golden Queen Mining Co. Ltd. ("Golden Queen") and its wholly-owned
subsidiary, Golden Queen Mining Company, Inc. (the "Subsidiary").
(c) Mineral Properties and Related Deferred Exploration and Development
Expenditures
The company follows the method of accounting for its mineral
properties whereby all costs related to acquisition, exploration
and development, including directly associated technical and
administrative expenses (including interest), are capitalized by
property. These costs will be written off against subsequent
revenues, or to operations at such time that the properties are
determined to have no recoverable value.
Recorded costs of mineral properties and related deferred
exploration and development expenditures are not intended to
reflect present or future values of mineral properties.
(d) Reporting Currency and Translation of Foreign Currency
Golden Queen has adopted the United States dollar as its reporting
currency for its financial statements prepared after May 21, 1996
as the United States dollar is the currency of the primary economic
environment in which Golden Queen and the Subsidiary conduct
business and is considered the appropriate functional currency for
the Company's operations. Accordingly, the financial statements of
the Company have been translated by the temporal method with
translation gains and losses included in earnings. Under this
method, the operations of the company have been converted into U.S.
dollars at the following rates of exchange:
(i) Monetary assets and monetary liabilities - at a rate of
exchange prevailing at the balance sheet date;
(ii) All other assets - at a rate of exchange prevailing at
the time of the acquisition;
(iii) Revenue and expenses - at the average rate of exchange
prevailing during the period
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended May 31, 1996 and 1995
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(e) Amortization
Amortization was changed from the diminishing balance method at 20%
per annum, to the straight-line method over five (5) years on
capital assets. One-half of the normal rate was used in the year
of acquisition. The change resulted in additional amortization of
$7,494 which was charged to deferred development amortization for
the year ended May 31, 1996.
(f) Earnings Per Share
Earnings per share have not been disclosed as they are not
considered meaningful in the circumstances.
(g) Comparative Figures
Certain figures have been reclassified to conform to the
presentation adopted in the current year. These changes have no
effect on the earnings.
3. PROPERTY AND EQUIPMENT
May 31, 1996 May 31, 1995
------------ ------------
Furniture and fixtures $ 35,058 $ 45,518
Office Equipment 51,686 14,862
Automobiles 21,134 21,134
Capital leased equipment 13,281 0
------- ------
121,169 81,514
Less accumulated depreciation 50,727 47,195
------- ------
Net property and equipment $ 70,432 $ 34,319
======= ======
4. MINERAL PROPERTIES
(a) By an agreement dated April 22, 1986, the Subsidiary has acquired
an exclusive lease to explore, develop and mine certain mining
claims known as the Soledad-Starlight Property, Mojave Mining
District, Kern County, California.
The lease is for a twenty year period and for so long thereafter as
the property remains in production, subject to processing a minimum
of 12,000 tons of ore per year. The lease is subject to production
royalties of 3% to 7.5% of net smelter returns depending on the
quality of ore. All advance minimum royalties paid will be applied
against any future production royalties.
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended May 31, 1996 and 1995
4. MINERAL PROPERTIES (continued)
Cash and share consideration payments for acquiring the lease are as
follows:
May 31, May 31,
1996 1995
---------- ----------
Advance minimum royalties
i) Payments of $50,000 are
required on May 1 & November
1 of each year $ 751,456 $ 651,456
Cash and share payments
i) $100,000 (paid) 100,000 100,000
ii) 25,000 shares at a deemed value
of C$0.75 and 100,000 shares
at a deemed value of C$2.75 231,139 231,139
b) The subsidiary has entered into
various exploration right, lease
option and property acquisition
agreements on mining claims noted
earlier. The lease agreements have
various terms and require annual
payments of approximately $275,000.
All are subject to a sliding scale
royalty on net smelter returns
beginning at 3%. 1,175,928 965,725
c) The Subsidiary purchased adjacent
property for consideration of $150,000,
$45,000 was paid in cash and a note
payable was given for the balance of
$105,000 payable in monthly installments
of $1,500, including interest at 10%
per annum until December 22, 1996,
or when development financing is in
place, whichever occurs first. A
balloon payment of $77,305 will be
due on December 22, 1996. 150,000 150,000
d) On September 19, 1994 the Subsidiary
entered into a mining lease agreement
granting exclusive exploration and
development rights on property adjacent
to claims previously described. The
term of the agreement is for 20 years
and consideration included a cash
payment of $30,000 and annual minimum
lease payment of $10,000. 40,000 30,000
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended May 31, 1996 and 1995
4. MINERAL PROPERTIES (continued)
May 31, May 31,
1996 1995
---------- ----------
e) On September 22, 1995, the
Subsidiary entered into an
agreement to purchase approximately
40 acres; a deposit of $37,500
was placed in escrow and an
additional $150,000 will be paid
at closing, on August 30, 1996.
The seller will finance a note for
$187,500 at 12% interest for
one (1) year. 37,500 -
f) On November 8, 1995, the Subsidiary
signed a letter agreement option
to purchase certain mining claims
and millsites for a total purchase
price of $65,000. $13,000 has been
paid and a note payable for $52,000
at 10% interest with monthly payments
of $1,500 is outstanding. All principal
will be due in three years or at the
start of production, whichever occurs
first. The Subsidiary will pay a 3%
net smelter return royalty not to
exceed $500,000. 65,000 -
g) On December 30, 1994, the Subsidiary
signed an amendment to a September 25,
1989 agreement of purchase for certain
leasehold interests and unpatented claims.
Under the terms of the amendment, the
outstanding balance on the $150,000 note
was canceled and production royalty granted
on all products produced from the property
up to a maximum payment of $300,000
plus simple interest. The
outstanding balance on the canceled
note has been credited to mineral
properties. (150,000) (150,000)
--------- ---------
$2,401,023 $1,978,320
========= =========
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended May 31, 1996 and 1995
5. DEFERRED EXPLORATION AND DEVELOPMENT EXPENDITURES
<TABLE>
<CAPTION>
From November 21, 1985
May 31, May 31, (inception) through May 31,
1996 1995 1996
---- ---- ----
<S> <C> <C> <C>
Exploration and Development
Administration $ 314,800 $ 260,115 $2,318,143
Engineering 335,284 107,224 976,366
Geology/drilling 718,895 377,472 4,385,248
Permitting/environmental 276,080 166,790 585,743
--------- --------- ---------
Metallurgical testing 202,950 45,335 337,456
Total expenditures 1,848,009 956,936 8,602,956
Less: recovery - (437,566) (437,566)
--------- --------- ---------
1,848,009 519,370 8,165,390
BALANCE, BEGINNING 6,154,352 5,634,982 0
WRITE-OFFS - - (163,029)
--------- --------- ---------
BALANCE, ENDING $8,002,361 $6,154,352 $8,002,361
========= ========= =========
</TABLE>
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended May 31, 1996 and 1995
6. OTHER ASSETS
On April 1, 1995, the Subsidiary acquired an option to purchase all of
the issued and outstanding shares of a privately held California
corporation with an interest in a previously uncontracted tract of land
surrounded by the Subsidiary's land holdings and contiguous to the known
reserves. The terms of the agreement stipulate that upon an initial
non-refundable payment of $100,000 (paid), the Subsidiary may access the
property for a period of nine months to evaluate the presence of mineral
reserves. At the end of the nine month period (January 1996), the
Subsidiary may choose to exercise its option to purchase the shares of
the corporation by making the initial purchase payment of $250,000
(paid). Total consideration for the purchase is $1,600,000 with the
balance to be paid in installments as follows:
$500,000 - upon commencement of construction
$750,000 - upon reaching sustained production
Upon commencement of commercial production, the Subsidiary will pay a
royalty of 1% of gross smelter returns for a period of up to 60 years,
but total payments are not to exceed US $60 million.
This agreement has been guaranteed by Golden Queen Mining Co. Ltd.
7. LONG TERM DEBT
May 31, May 31,
1996 1995
---------- ----------
(a) Interest at a rate of 10% per
annum, payable in monthly
installments of principal and
interest over the period ending
December 22, 1996. The notes are
secured by deeds of trust held by
a third party. $ 78,143 $ 87,787
(b) Interest at a rate of 11% per
annum payable on November 1, 1995,
secured by a deed of trust.
Principal and accrued interest paid
by the issue of shares. - 130,000
(c) Interest at a rate of 12% per annum
payable on November 1, 1995, secured
by a deed of trust. Principal and
accrued interest paid by the issue
of shares. - 100,000
(d) Interest at a rate of 11% per annum
payable on November 1, 1995, secured
by a deed of trust. Principal and
accrued interest paid by the issue
of shares. - 70,000
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended May 31, 1996 and 1995
7. LONG TERM DEBT (continued)
May 31, May 31,
1996 1995
---------- ----------
(e) Interest at a rate of 12%
per annum payable on November
1, 1995. Principal and accrued
interest paid by the issue
of shares. - 250,000
(f) Non-interest bearing note repayable
in two installments: $5,000 on July
1, 1997 and $4,000 July 1, 1999,
secured by a grant deed. 9,000 -
(g) Debenture convertible at the
option of the holder into common
shares at a conversion price of
C$2.00 ($1.46) per common share.
The debenture bears interest at
9.5% per annum and is due
March 18, 1998. 400,000 -
(h) Debenture convertible at the
option of the holder into common
shares at a conversion price of
C$2.00 ($1.46) per common share.
The debenture bears interest at
9.5% per annum and is due March
18, 1998. 600,000 -
(i) Payable in monthly installments
of $1,500 including interest at
10% per annum, balance due in three
years from the date of note or
start of mineral production
whichever comes first. 49,858 -
--------- -------
Total 1,137,001 637,787
Current Maturities 91,771 559,643
--------- -------
$1,045,230 $ 78,144
8. SHARE CAPITAL
(a) Authorized Capitalization
100,000,000 common shares without par value
3,000,000 preferred shares without par value
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended May 31, 1996 and 1995
8. SHARE CAPITAL (continued)
(b) Common Shares Issued and Special Warrants
<TABLE>
<CAPTION>
May 31, 1996 May 31, 1995
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance,
beginning 13,678,025 $ 8,736,982 13,029,125 $8,554,116
Issued for
cash:
Private
placement 1,929,160 1,741,475 - -
Exercise of
options 420,000 281,793 648,900 182,866
Issued for
debt 506,215 662,282 - -
---------- ----------- ---------- ---------
Common
Shares
issued 16,533,400 $11,422,532 13,678,025 $8,736,982
Special
Warrants - 9,453,437 - -
---------- ----------- ---------- ---------
Total
capital-
ization 16,533,400 $20,875,969 13,678,025 $8,736,982
========== ========== ========== =========
</TABLE>
Golden Queen issued 5,500,000 Special Warrants and filed a preliminary
prospectus on July 2, 1996. The Special Warrants were issuable under a
Special Warrant indenture dated as of May 23, 1996. Each Special
Warrant is exercisable, without additional payment, for one Common Share
and one-half of one warrant, provided that if a receipt for the
prospectus has not been issued by the securities regulatory authority of
each of the Provinces of British Columbia, Ontario and Quebec by
September 20, 1996, each Special Warrant will be exercisable for 1.1
Common Shares and 0.55 warrants, except that each Special Warrant held
by an "insider" of Golden Queen will be exercisable for 1.06 Common
Shares and 0.55 warrants. The Special Warrants may be exercised at any
time prior to the earlier of the sixth business day after receipts have
been issued for the prospectus and May 22, 1997. Any Special Warrants
that have not been exercised immediately prior to the time of expiry
will be deemed to be exercised.
Each warrant will entitle its holder to purchase one Common Share at a
price of C$2.90 ($2.13) and are exercisable at any time prior to 4:00
p.m. (Vancouver time) on November 28, 1997.
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended May 31, 1996 and 1995
8. SHARE CAPITAL (continued)
(c) Options
As at May 31, 1996, there are director and employee stock options
outstanding for the purchase of up to 1,950,000 common shares as
follows:
Exercise Price Number Expiry Date
-------------- ------ -----------
C$0.592 ($0.44) 75,000 December 21, 1998
C$0.76 ($0.56) 30,000 March 4, 1999
C$0.55 ($0.40) 145,000 August 24, 1999
C$1.50 ($1.10) 220,000 September 21, 1999
C$1.45 ($1.07) 70,000 November 24, 1999
C$1.35 ($0.99) 70,000 July 20, 2000
C$1.35 ($0.99) 680,000 December 1, 2000
C$1.51 ($1.11) 560,000 February 21, 2001
C$3.00 ($2.18) 100,000 May 21, 2001
---------
1,950,000
9. RELATED PARTY TRANSACTIONS
(a) During the period, transactions were incurred with related parties
as follows:
Year Ended Year Ended
May 31, 1996 May 31, 1995
------------ ------------
Consulting fees $ 138,996 $ 21,741
--------- --------
Office and administration $ 3,745 $ 5,602
--------- --------
(b) Until March 1996, office space and secretarial services were
provided to the Subsidiary for nil consideration by a company with
directors in common.
(c) Notes payable and accrued interest, which were paid during the year
end May 31, 1996 by the issue of common shares (see Notes 6 and 7),
were previously granted by related parties.
10. SUBSEQUENT EVENTS
(a) Subsequent to May 31, 1996, additional stock options were granted
for the purchase of up to 50,000 common shares at C$2.30 ($1.69)
per share exercisable to June 27, 2001.
(b) On June 18, 1996 a property was purchased adjacent to the proposed
mine site area for $79,900 by the Subsidiary.
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended May 31, 1996 and 1995
10. SUBSEQUENT EVENTS (continued)
(c) On June 27, 1996 the Subsidiary acquired the property within the
proposed mine site area pursuant to the Cruz purchase agreement
dated February 7, 1996 for a purchase price of $65,000. A payment
was made and a note in the amount of $47,333 was given for the
balance of the purchase price.
<PAGE>
PART III
Items 1 and 2. Exhibits.
The following exhibits are filed as part of this registration statement.
Exhibit No.
- -----------
3.1(P) Articles of Incorporation of the Registrant.
To be filed by amendment.
3.2(P) Bylaws of the Registrant. To be filed by amendment.
21.0 Subsidiaries of the Registrant. Filed herewith.
24.0 Power of attorney and consent on Form F-X.
Filed herewith.
27.0 Financial Data Schedule. Filed herewith.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this registration statement to be signed on this behalf
by the undersigned, thereunto duly authorized.
GOLDEN QUEEN MINING CO. LTD.
By: /s/ Bernard F. Goodson
-----------------------------------------
its Vice President of
Administration and Controller
Dated: October 31, 1996
Exhibit 21.0
SUBSIDIARIES OF THE REGISTRANT
Golden Queen Mining Company, Inc., a California corporation
Exhibit 24.0
FORM F-X
APPOINTMENT OF AGENT FOR SERVICE OF
PROCESS AND UNDERTAKING
I. Form F-X shall be filed with the Commission:
A. by any issuer registering securities on Form F-8, F-9, F-10 or F-
80 under the Securities Act of 1933;
B. by any issuer registering securities on Form 40-F under the
Securities Exchange Act of 1934 (the "Exchange Act");
C. by any issuer filing a periodic report on Form 40-F, if it has
not previously filed a Form F-X in connection with the class of securities
in relation to which the obligation to file a report on Form 40-F arises;
D. by any issuer or other non-U.S. person filing tender offer
documents on Schedule 13E-4F, 14D-1F or 14D-9F;
E. by any non-U.S. person acting as trustee with respect to
securities registered on Form F-7, F-8, F-9, F-10, F-80 or SB-2; and
F. by a Canadian issuer qualifying an offering statement pursuant to
the provisions of Regulation A, or registering securities on Form SB-2.
A Form F-X filed in connection with any other Commission form should not be
bound together with, or be included only as an exhibit to, such other form.
II. Six copies of the Form F-X, one of which must be manually signed,
shall be filed with the Commission at its principal office.
A. Name of issuer or person filing ("Filer"): Golden Queen Mining
Co. Ltd.
B. This is [check one]
[X] an original filing for the Filer
[ ] an amended filing for the Filer
C. Identify the filing in conjunction with which this Form is being
filed:
Name of registrant: Golden Queen Mining Co. Ltd.
Form type: Form 10-SB
File number (if known): Not presently known
Filed by: Randall & Danskin, P.S., counsel to the registrant
Date filed (if filed concurrently, so indicate): Filed
concurrently herewith.
D. The Filer is incorporated or organized under the laws of the
Province of British Columbia, Canada, and has its principal place of
business at Green Flag Building, Suite 211-A, 104 South Freya, Spokane,
Washington 99202. The telephone number of the Filer at such address is
(509) 535-4022.
E. The Filer designates and appoints Bernard F. Goodson ("Agent"),
located at Green Flag Building, Suite 211-A, 104 South Freya, Spokane,
Washington 99202 (telephone: (509) 535-4022) as the agent of the Filer upon
whom may be served any process, pleadings, subpoenas, or other papers in
1. any investigation or administrative proceeding conducted by
the Commission; and
2. any civil suit or action brought against the Filer or to
which the Filer has been joined as defendant or respondent, in any
appropriate court in any place subject to the jurisdiction of any state or
of the United States, or of any of its territories or possession, or of the
District of Columbia, where the investigation, proceeding or cause of
action arises out of, relates to or concerns (a) any offering made or
purported to be made in connection with the securities registered or
qualified by the Filer on Form 10-SB on October __, 1996, or any purchases
or sales of any security in connection therewith; (b) the securities in
relation to which the obligation to file an annual report on Form 40-F
arises, or any purchases or sales of such securities; (c) any tender offer
for the securities of a Canadian issuer with respect to which filings are
made by the Filer with the Commission on Schedule 13D-4F, 14D-1F or 14D-9F;
or (d) the securities in relation to which the Filer acts as trustee
pursuant to an exemption under Rule 10a-5 under the Trust Indenture Act of
1939. The Filer stipulates and agrees that any such civil suit or action
or administrative proceeding may be commenced by the service of process
upon, and that service of an administrative proceeding may be commenced by
the service of process upon, and that service of an administrative subpoena
shall be effected by service upon such agent for service of process, and
that service as aforesaid shall be taken and held in all courts and
administrative tribunals to be valid and binding as if personal service
thereof had been made. (Amended in Release N. 33-6949 [paragraph 72,439],
effective August 13, 1992, 57 F.R. 36442.)
F. Each person filing this Form in connection with:
1. the use of Form F-9, F-10, 40-F, or SB-2 or Schedule 13K-4F,
14D-1F or 14D-9F stipulates and agrees to appoint a successor agent for
service of process and file an amended Form F-X if the Filer discharges the
Agent or the Agent is unwilling or unable to accept service on behalf of
the Filer at any time under six years have elapsed from the date the issuer
of the securities to which such Forms and Schedules relate has ceased
reporting under the Exchange Act;
2. the use of Form F-8 or Form F-80 stipulates and agrees to
appoint a successor agent for service of process and file an amended Form
F-X if the Filer discharges the Agent or the Agent is unwilling or unable
to accept service on behalf of the Filer at any time until six years have
elapsed following the effective date of the latest amendment to such Form
F-8 or Form F-80;
3. its status as trustee with respect to securities registered
on Form F-7, F-8, F-9, F-10, F-80 or SB-2 stipulates and agrees to appoint
a successor agent for service of process and file an amended Form F-X if
the Filer discharges the Agent or the Agent is unwilling or unable to
accept service on behalf of the Filer at any time during which any of the
securities subject to the indenture remain outstanding; and
4. the use of Form 1-A or other Commission form for an offering
pursuant to Regulation A stipulates and agrees to appoint a successor agent
for service of process and file an amended Form F-X if the Filer discharges
the Agent or the Agent is unwilling or unable to accept service on behalf
of the Filer at any time until six years have elapsed from the date of the
last sale of securities in reliance upon the Regulation A exemption.
Each Filer further undertakes to advise the Commission promptly of any
change to the Agent's name and address during the applicable period by
amendment of this Form, referencing the file number of the relevant form in
conjunction with which the amendment is being filed. (Amended in Release
No. 33-6949 [paragraph 72,439], effective August 13, 1992, 57 F.R. 36442.)
G. Each person filing this Form, other than a trustee filing in
accordance with General Instruction I.E of this Form, undertakes to make
available, in person or by telephone, representatives to respond to
inquiries made by the Commission staff, and to furnish promptly when
requested to do so by the Commission staff, information relating to: the
Forms, Schedules and offering statements described in General Instructions
I.A, I.B, I.C., I.D and I.F. of this Form, as applicable; the securities to
which such Forms, Schedules and offering statements relate; and the
transactions in such securities. (Added in Release No. 33-6949 [paragraph
72,439], effective August 13, 1992, 57 F.R. 36442.)
The Filer certifies that it has duly caused this power of attorney,
consent, stipulation and agreement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Spokane, Washington
this 31 day of October, 1996.
FILER:
GOLDEN QUEEN MINING CO. LTD.
By: /s/ Bernard F. Goodson
--------------------------------------
its Vice President of
Administration and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM the
Company's unaudited consolidated financial statements for the three-month period
ended August 31, 1996, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 8,448,199
<SECURITIES> 0
<RECEIVABLES> 123,716<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,571,915
<PP&E> 11,817,944<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,389,859
<CURRENT-LIABILITIES> 299,256
<BONDS> 1,076,687<F3>
0
0
<COMMON> 19,013,916<F4>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 20,389,859
<SALES> 126,375
<TOTAL-REVENUES> 126,375
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 208,834
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,278
<INCOME-PRETAX> (106,737)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (106,737)
<EPS-PRIMARY> (.006)
<EPS-DILUTED> (.006)
<FN>
<F1>Includes prepaid expenses and deposits of $98,627.
<F2>Consists of property and equipment of $164,293; mineral properties of
$2,679,776, at cost; deferred exploration and development expenditures of
$8,623,875; and other assets of $350,000.
<F3>Consists of long-term notes and debentures.
<F4>Consists of paid-in capital of $20,883,190, less deficit of $1,869,274
documented during the development stage.
</FN>
</TABLE>
