FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
GOLDEN QUEEN MINING CO. LTD.
(Exact name of registrant as specified in its charter)
Province of British Columbia 0-21777 Not Applicable
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) 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
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ ] No [X]
The number of outstanding shares of the issuer's common stock at June 30,
1997 was 22,208,400 shares.
Transitional Small Business Disclosure Format. Yes [ ] No [X]
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 1997
TABLE OF CONTENTS
SAFE HARBOR STATEMENT
Page
PART I
Item 1: Consolidated Financial Statements 1
Item 2: Management's Discussion and Analysis or Plan
of Operation 9
PART II
Item 1: Legal Proceedings 11
Item 2: Changes in Securities 11
Item 3: Defaults Upon Senior Securities 11
Item 4: Submission of Matters to a Vote of
Security Holders 11
Item 5: Other Information 11
Item 6: Exhibits and Reports on Form 8-K 12
SIGNATURES
(i)
<PAGE>
SAFE HARBOR STATEMENT
Except for the historical information contained herein, certain of the
matters discussed in this report are "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995, which
involve risks and uncertainties. Potential risks and uncertainties
include, without limitation, the likelihood of continued losses from
operations pending development of the Company's Soledad Mountain Project in
Kern County, California, the need to obtain significant additional
financing in order to develop the project, risks associated with the mining
industry generally, environmental risks associated with mining, fluctuating
gold prices, and other factors that may affect future results as described
below.
The Company has no revenue from mining operations and has experienced
losses from operations for each of the last ten years. This trend is
expected to continue for at least the next two years and is expected to
reverse only if, as and when gold is produced from the Soledad Mountain
Project.
No assurance can be given that the Soledad Mountain Project will be placed
into production. Based upon currently available information, the Company
estimates that it will need approximately $47,800,000 to begin production,
which is expected to come from additional sales of common stock and from
bank borrowings or other means. Alternatively, the Company may determine
that it is in the best interests of its shareholders to enter into a joint
development or similar arrangement with another mining company to develop
the Soledad Mountain Project.
The Company does not have a commitment for bank financing or for the
underwriting of additional shares of its common stock, and is not a party
to any agreement or arrangement providing for the joint development of the
Soledad Mountain Project. Whether and to what extent such financing can be
obtained will depend on a number of factors, not the least of which is the
price of gold. Gold prices fluctuate widely and are affected by numerous
factors beyond the Company's control, such as inflation, the strength of
the United States dollar and foreign currencies, global and regional
demand, and the political and economic conditions of major gold producing
countries throughout the world. As of June 30, 1997, world gold prices
were approximately $335 per ounce, a reduction of approximately 15% from
prices at the end of 1996. If gold prices do not strengthen, it may not be
economical for the Company to place the Soledad Mountain Project into
production.
The Company is subject to all of the risks inherent in the mining industry,
including environmental hazards, industrial accidents, labor disputes,
unusual or unexpected geologic formations, cave-ins, flooding and periodic
interruptions due to inclement weather. These risks could result in damage
to, or destruction of, mineral properties and production facilities,
personal injury, environmental damage, delays, monetary losses and legal
liability. Although the Company maintains or can be expected to maintain
insurance within ranges of coverage consistent with industry practice, no
assurance can be given that such insurance will be available at
economically feasible premiums. Insurance against environmental risks
(including pollution or other hazards resulting from the disposal of waste
products generated from exploration and production activities) is not
generally available to the Company. Were the Company subjected to
environmental liabilities, the payment of such liabilities would reduce the
funds available to the Company. Were the Company unable to fund fully the
cost of remedying an environmental problem, it might be required to suspend
operations or enter into interim compliance measures pending completion of
remedial activities.
(ii)
<PAGE>
PART I
Item 1. FINANCIAL STATEMENTS.
The unaudited consolidated financial statements of the Company for the
periods covered by this report are set forth at pages 2 through 8.
[The balance of this page has been intentionally left blank.]
1
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Balance Sheets
(U.S. dollars)
June 30, 1997 December 31, 1996
(U.S. Dollars) (unaudited) (audited)
- -------------- ------------ -----------------
Assets
Current Assets
Cash and cash equivalents $ 4,639,956 $ 5,436,497
Accounts receivable 15,956 133,164
Prepaid expenses and other
current assets 78,694 55,603
----------- ------------
Total current assets 4,734,606 5,625,264
Properties and equipment, net 1,196,958 683,310
Mineral properties 5,296,931 4,941,839
Deferred exploration and development 14,674,430 9,799,839
Other assets 353,500 353,500
----------- -----------
Total assets $ 26,256,425 $ 21,403,752
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 496,800 $ 507,713
Accrued liabilities 66,235 69,046
Current maturities of
long-term debt 1,126,339 203,175
----------- -----------
Total current liabilities 1,689,374 779,934
Long-term debt,
less current maturities 876,742 1,901,520
----------- -----------
Total liabilities 2,566,116 2,681,454
=========== ===========
Shareholders' Equity
Preferred shares, without par,
3,000,000 shares authorized;
0 shares outstanding 0 0
Common shares, without par,
100,000,000 shares authorized;
22,208,400 and 22,051,400 shares
issued (Note 2) 26,342,268 20,886,029
Deficit accumulated during
the development stage (2,651,959) (2,163,731)
----------- -----------
Total shareholders' equity 23,690,309 18,722,298
----------- -----------
Liabilities and
shareholders' equity $ 26,256,425 $ 21,403,752
=========== ===========
2
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Statements of Loss
(Unaudited)
<TABLE>
<CAPTION>
Cumulative Amounts
Three Month Period Ended Six Month Period Ended From Date of Inception
June 30, May 31, June 30, May 31, (November 21, 1985)
(U.S. Dollars) 1997 1996 1997 1996 through June 30, 1997
- -------------- ------------------------ ---------------------- ----------------------
<S> <C> <C> <C> <C> <C>
General & admin-
istration expenses $ 336,835 $ 263,413 $ 503,956 $ 375,049 $ 2,645,813
Interest expense 24,014 20,980 47,764 21,055 254,346
Interest income (36,200) (16,861) (91,176) (28,515) (802,196)
Other expense 1,923 5,371 2,376 5,371 8,745
Write-off of mineral
properties 0 0 0 0 277,251
-----------------------------------------------------------------------------
Net loss $ 326,572 $ 272,903 $ 462,920 $ 372,960 $ 2,383,959
=============================================================================
Net loss per share $ 0.01 $ 0.02 $ 0.02 $ 0.02 N/A
-----------------------------------------------------------------------------
Weighted average shares
outstanding 22,208,400 16,516,280 22,198,468 16,384,193 N/A
</TABLE>
3
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Cumulative Amounts
From Date of Inception
(November 21, 1985)
Six Month Period Ended through
(U.S. Dollars) June 30, 1997 May 31, 1996 June 30, 1997
- -------------- ------------- -------------- ----------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (462,920) $ (372,960) $ (2,383,959)
Adjustments to reconcile net loss to
cash used in operating activities:
Write-off of mineral properties 0 0 277,251
Amortization and depreciation 30,578 15,618 72,488
Loss on disposition of property
and equipment 0 4,621 10,949
Changes in assets and liabilities:
Accounts receivable 117,208 (4,323) (15,956)
Prepaid expenses and other
current assets (23,091) (47,856) (78,694)
Accounts payable and accrued
liabilities (13,724) 137,574 563,035
--------------------------------------------------------------
Cash used in operating activities (351,949) (267,326) (1,554,886)
--------------------------------------------------------------
FINANCING ACTIVITIES:
Borrowing under long-term debt 0 1,154,962 2,681,669
Payment of long-term debt (101,614) (7,109) (951,139)
Issuance of common shares for cash 157,050 244,677 10,647,149
Share issue costs (25,308) (100,726) (268,000)
Issuance of special warrants 5,299,189 9,453,437 14,752,626
--------------------------------------------------------------
Cash provided by financing activities 5,329,317 10,745,241 26,862,305
--------------------------------------------------------------
INVESTING ACTIVITIES:
Deferred exploration and
development expenditures (4,874,591) (994,948) (15,833,618)
Deposits on mineral properties 0 (250,000) (353,500)
Purchase of mineral properties (355,092) (314,779) (3,199,950)
Purchase of property and equipment (544,226) (51,017) (1,288,887)
Proceeds from sale of assets 0 0 8,492
--------------------------------------------------------------
Cash used in investing activities (5,773,909) (1,610,744) (20,667,463)
--------------------------------------------------------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS (796,541) 8,867,171 4,639,956
CASH AND CASH EQUIVALENTS,
beginning balance 5,436,497 950,832 0
--------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
ending balance $4,639,956 $9,818,003 $ 4,639,956
==============================================================
4
<PAGE>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for:
Interest $ 93,952 $ 4,891 $ 392,899
Income Taxes 0 0 0
NON-CASH FINANCING AND INVESTING
ACTIVITIES:
Exchange of notes for common shares 0 0 $ 682,282
Exchange of note for future royalty
payments 0 0 $ 150,000
Shares for mineral property 0 0 $ 280,211
</TABLE>
[The balance of this page has been intentionally left blank.]
5
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Statements of Changes in Shareholders' Equity
(U.S. Dollars)
<TABLE>
<CAPTION>
From the Date of Inception
(November 21, 1985) Common Shares Accumulated
Through June 30, 1997 Shares Amount Deficit Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
November 21, 1985
Issuance of shares for cash 1,425,001 $ 141,313 $ $ 141,313
Loss for the year (15,032) (15,032)
------------------------------------------------------------------
Balance, May 31, 1986 1,425,001 141,313 (15,032) 126,281
Issuance of shares
for cash 550,000 256,971 256,971
for property 25,000 13,742 13,742
Loss for the year (58,907) (58,907)
------------------------------------------------------------------
Balance, May 31, 1987 2,000,001 412,026 (73,939) 338,087
Issuance of shares - for cash 1,858,748 1,753,413 1,753,413
Earnings for the year 38,739 38,739
------------------------------------------------------------------
Balance, May 31, 1988 3,858,749 2,165,439 (35,200) 2,130,239
Issuance of shares
for cash 1,328,750 1,814,133 1,814,133
for property 100,000 227,819 227,819
Loss for the year (202,160) (202,160)
------------------------------------------------------------------
Balance, May 31, 1989 5,287,499 4,207,391 (237,360) 3,970,031
Issuance of shares
for cash 1,769,767 2,771,815 2,771,815
for property 8,875 14,855 14,855
Loss for the year (115,966) (115,966)
------------------------------------------------------------------
Balance, May 31, 1990 7,066,141 6,994,061 (353,326) 6,640,735
Earnings for the year 28,706 28,706
------------------------------------------------------------------
Balance, May 31, 1991 7,066,141 6,994,061 (324,620) 6,669,441
Loss for the year (157,931) (157,931)
------------------------------------------------------------------
Balance, May 31, 1992 7,066,141 6,994,061 (482,551) 6,511,510
Loss for the year (285,391) (285,391)
------------------------------------------------------------------
Balance, May 31, 1993 7,066,141 6,994,061 (767,942) 6,226,119
Issuance of shares
for cash 5,834,491 1,536,260 1,536,260
for property 128,493 23,795 23,795
Loss for the year (158,193) (158,193)
Share issue costs (18,160) ( 18,160)
------------------------------------------------------------------
Balance, May 31, 1994 13,029,125 8,554,116 (944,295) 7,609,821
</TABLE>
6
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Statements of Changes in Shareholders' Equity
(U.S. Dollars)
(Continued)
<TABLE>
<CAPTION>
From the Date of Inception
(November 21, 1985) Common Shares Accumulated
Through June 30, 1997 Shares Amount Deficit Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of shares
for cash 648,900
for property 182,866 182,866
Loss for the year (219,576) (219,576)
------------------------------------------------------------------
Balance, May 31, 1995 13,678,025 $ 8,736,982 $(1,163,871) $ 7,573,111
Issuance of common shares
for cash 2,349,160 2,023,268 0 2,023,268
Issuance of common shares
for debt 506,215 662,282 0 662,282
Issuance of 5,500,000
special warrants 0 9,453,437 0 9,453,437
Special warrants issue cost 0 0 (100,726) (100,726)
Net loss for the year 0 0 (426,380) (426,380)
------------------------------------------------------------------
Balance, May 31, 1996 16,533,400 20,875,969 (1,690,977) 19,184,992
Issuance of common shares
for cash 18,000 10,060 0 10,060
Issuance of common shares
for special warrants 5,500,000 0 0 0
Special warrants issue cost 0 0 (123,806) (123,806)
Net loss for the period 0 0 (348,948) (348,948)
------------------------------------------------------------------
Balance, December 31, 1996 22,051,400 20,886,029 (2,163,731) 18,722,298
Issuance of common shares
for cash 157,000 157,050 0 157,050
Issuance of 3,500,000
special warrants 0 5,299,189 5,299,189
Special warrant issue cost 0 (25,308) (25,308)
Net loss for the period 0 0 (462,920) (462,920)
------------------------------------------------------------------
Balance, June 30, 1997 22,208,400 $26,342,268 $(2,651,959) $23,690,309
</TABLE>
7
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
Note 1: Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instruction to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
thereto included in the Company's 1996 annual report on Form 10-KSB. In
the opinion of management, all adjustments, consisting only of normal
recurring accruals, considered necessary for a fair presentation have been
included. Operating results for the six month period ended June 30, 1997
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997.
During 1996, the Company elected to change its fiscal year end from May 31
to December 31. Financial information presented in this Form 10-QSB for
the preceding fiscal year is for the six month period ended May 31, 1996.
In order to maintain consistency of financial information contained in
regulatory filings in both Canada and the United States, management of the
Company has elected not to recast its operations from the preceding fiscal
year to parallel the 1997 quarterly results. Management of the Company
believes there are no seasonal or other factors which would affect the
comparability of this information.
Note 2: Share Capital
The Company issued 3,500,000 special warrants under a special warrant
indenture dated as of May 29, 1997, at the price of C$2.20 (US$1.59). Each
special warrant is exercisable, without additional payment, for one share
of common stock of the Company, at any time prior to 4:00 p.m. (Vancouver,
British Columbia time) at the Time of Expiry, which is defined in the
special warrant indenture to be the earlier of (i) the sixth business day
after receipts have been issued by the securities regulatory authorities of
the Provinces of British Columbia and Ontario (the "Designated Provinces")
for the final version of a prospectus filed by the Company in such
provinces and (ii) May 28, 1998. In addition, if receipts for the final
version of the prospectus have not been issued by the Designated Provinces
by August 27, 1997, each special warrant will be exercisable for 1.035
shares of common stock. Securities regulatory authorities of the special
warrants are also subject to customary anti-dilution provisions set out in
the special warrant indenture. Any special warrants that have not been
exercised immediately prior to the Time of Expiry will be deemed to be
exercised, without any further action on behalf of the holders thereof,
immediately prior to the Time of Expiry.
Through this placement of special warrants, the Company raised gross
proceeds of C$7,700,000 (US$5,570,000). The net proceeds of the offering
will be used to fund the ongoing capital expenditures at the Soledad
Mountain Project and for general corporate purposes.
The special warrants were issued (and the shares of common stock issuable
upon their exercise will be issued) primarily to Canadian investors, in
reliance on Regulation S adopted under the Securities Act of 1933, as
amended (the "Securities Act"). The issuance of the special warrants to
several United States investors was made in reliance on the exemption from
the registration requirements of the Securities Act afforded by Section
4(2).
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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 JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED MAY 31,
1996
General and administrative expenses increased to $337,000 for the three
months ended June 30, 1997, from $263,000 for the three month period ended
May 31, 1996. The increase is primarily due to costs associated with
professional fees and printing. Interest income increased to $36,000 for
the three months ended March 31, 1997, from $17,000 for the three months
ended May 31, 1996, primarily as a result of an increase in the average
balance of invested funds. As a result of the foregoing factors, the
Company incurred a net loss of $327,000 for the three months ended June 30,
1997, versus a net loss of $273,000 for the three month period ended May
31, 1996.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED MAY 31, 1996
General and administrative expenses increased to $504,000 for the six
months ended June 30, 1997, from $375,000 for the six months ended May 31,
1996. The increase is primarily due to additional management staffing
added during 1996 and expenditures for professional fees and printing.
Interest increased to $48,000 for the six month period ended June 30, 1997,
from $21,000 for the six month period ended May 31, 1996, as a result of
borrowing made in late March, 1996. Interest increased to $91,000 for the
six months ended June 30, 1997, from $28,000 for the six months ended May
31, 1996, primarily as a result of a significant increase in the average
balance of invested funds. As a result of the foregoing factors, the
Company incurred a net loss of $463,000 for the six months ended June 30,
1997, versus a net loss of $373,000 for the six month period ended May 31,
1996.
LIQUIDITY AND CAPITAL RESOURCES.
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 the
second half of 1998. During the six months ended June 30, 1997, the
Company expended approximately $5,774,000 on the Soledad Mountain Project.
On a cumulative basis since inception, the Company has expended
approximately $20, 667,000 on the project.
As of June 30, 1997, the Company held approximately $4,640,000 in cash and
$3,045,000 in working capital. Based upon currently available information,
the Company estimates that it will need approximately $47,800,000 to begin
production at the Soledad Mountain Project. This financing is expected to
be derived from additional sales of common stock and from bank borrowings.
Alternatively, the Company may determine that it is in the best interests
of its shareholders to enter into a joint development or similar
arrangement with another mining company to develop the Soledad Mountain
Project.
9
<PAGE>
As is disclosed in note 2 to the financial statements accompanying this
report, and in Item 5 of this report, the Company issued 3,500,000 special
warrants under a special warrant indenture dated as of May 29, 1997 at the
price of C$2.20 (US$1.59). Through this placement of special warrants, the
Company raised proceeds of C$7,700,000 (US$5,570,000). The proceeds of the
offering will be used to fund the ongoing capital expenditures at the
Soledad Mountain Project and for general corporate purposes.
The Company does not have any commitment for bank financing or for the
underwriting of additional shares of its common stock, and is not a party
to any agreement or arrangement providing for the joint development of the
Soledad Mountain Project. 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 development
activities at the Soledad Mountain Project, management's assessment of the
financial markets, the overall capital requirements for development of the
project, and the price of gold. Gold prices fluctuate widely and are
affected by numerous factors beyond the Company's control, such as
inflation, the strength of the United States dollar and foreign currencies,
global and regional demand, and the political and economic conditions of
major gold producing countries throughout the world. As of June 30, 1997,
world gold prices were approximately $335 per ounce, a reduction of
approximately 15% from prices at the end of 1996. If gold prices do not
strengthen, it may not be economical for the Company to place the Soledad
Mountain Project into production.
PLAN OF OPERATIONS.
The Company has substantially completed its exploration of the Soledad
Mountain Project and intends to develop the 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 5.4 million tonnes
(6 million tons) per year for at least seven years. This will be followed
by heap detoxification and reclamation of the project site. The Company
expects to begin producing gold and silver from the project in the second
half of 1998.
The Company is presently updating the Soledad Mountain Project feasibility
study to reflect an ore mining and processing rate of 5.4 million tonnes
per year. This 50% increase in planned production is expected to result in
lower operating cost than the previous study. A slight increase in the
capital estimate is projected.
The previous bankable feasibility study was completed in January 1997, for
a 3.6 million ore tonnes per year facility. The total capital cost of the
Project was estimated to be $59,500,000, 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 $47,800,000. This estimate was based
on a 12-month construction period starting immediately after permits are
received. The estimate included 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 were estimated to be $11,700,000, 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 2.49 to 1, the Company estimates total
operating costs of $5.92 per tonne ($5.36 per ton) of ore processed,
comprised of mining costs of $2.79 per tonne ($2.53 per ton), processing
costs of $2.59 per tonne ($2.34 per ton) and general and administrative
costs of $0.55 per tonne ($0.50 per ton). The feasibility report prepared
for the Company by Pincock, Allen & Holt described below concludes that
these proposed operating costs were estimated in accordance with industry
practice. The Company estimates that 94,300 ounces per year of gold
equivalent could be produced at a direct cash cost of $223 per ounce and a
total operating cost, including royalties and local taxes, of $245 per
ounce. Total production cost, including capital but excluding sunk cost,
was estimated at $334 per ounce of gold equivalent.
10
<PAGE>
Approximately 25,000 meters of drilling was completed during the past 12
months which doubled the proven and probable ore reserve to 1.64 million
ounces. This reserve and accompanying mining schedule has become the
basis for the updated feasibility study. Proven and probable reserves,
as prepared by Mine Reserves Associates of Denver, Colorado are as follows:
RESERVE TABLE
Mineralized
Material
Gold Price (U.S.) $350 $375 Inventory
- -------------------------------------------------------------------------
Tonnes (millions) 31.6 55.1 100.6
Grade Au (g/t) 0.86 0.79 0.69
Grade Ag (g/t) 13.30 11.48 10.97
Grade Au Equivalent (g/t) 1.00 0.93 0.79
Total Ounces Au Equivalent 1,012,000 1,643,000 2,554,000
Cut-Off Grade (Au Equivalent) 0.41 0.34 0.27
Strip Ratio 2.1:1 3.25:1 N/A
The Company is adequately funded, with $4.6 million in cash, to complete
the feasibility study and maintain all other commitments through the end of
the year.
The following table summarizes the activities proposed to be undertaken by
the Company during the twelve-month period commencing January 1, 1997, and
the estimated costs of such activities.
Underground drilling $2,000,000
Surface drilling 1,000,000
Engineering design 2,400,000
Permitting and feasibility study 1,000,000
---------
Total $6,400,000
=========
The Company has expended approximately $371,000 on the current bankable
feasibility study being prepared by Bateman Engineering, Inc. of Denver,
Colorado, which is scheduled for completion in the fourth quarter of 1997.
This expenditure is necessary for the development of the planned operations
for the Soledad Mountain Project of 5.4 million tonnes per year, with a gold
equivalent production target of 130,000 to 150,000 ounces per year. The
new bankable feasibility study will also be used for project financing and
basic engineering design purposes.
[The balance of this page has been intentionally left blank.]
11
<PAGE>
PART II
Item 1. LEGAL PROCEEDINGS.
Neither the Company nor its subsidiary, Golden Queen Mining Company, Inc.,
is a party to, nor are they threatened by, any material legal proceeding as
of the date of this report.
Item 2. CHANGES IN SECURITIES.
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's shareholders during
the second quarter of 1997.
Item 5. OTHER INFORMATION.
The Company issued 3,500,000 special warrants under a special warrant
indenture dated as of May 29, 1997, at the price of C$2.20 (US$1.59). Each
special warrant is exercisable, without additional payment, for one share
of common stock of the Company, at any time prior to 4:00 p.m. (Vancouver,
British Columbia time) at the Time of Expiry, which is defined in the
special warrant indenture to be the earlier of (i) the sixth business day
after receipts have been issued by the securities regulatory authorities of
the provinces of British Columbia and Ontario (the "Designated Provinces")
for the final version of a prospectus filed by the Company in such
provinces and (ii) May 28, 1998. In addition, if receipts for the final
version of the prospectus have not been issued by the securities regulatory
authorities of the Designated Provinces by August 27, 1997, each special
warrant will be exercisable for 1.035 shares of common stock. The special
warrants are also subject to customary anti-dilution provisions set out in
the special warrant indenture. Any special warrants that have not been
exercised immediately prior to the Time of Expiry will be deemed to be
exercised, without any further action on behalf of the holders thereof,
immediately prior to the Time of Expiry.
Through this placement of special warrants, the Company raised proceeds of
C$7,700,000 (US$5,570,000). The proceeds of the offering will be used to
fund the ongoing capital expenditures at the Soledad Mountain Project and
for general corporate purposes.
The special warrants were issued (and the shares of common stock issuable
upon their exercise will be issued) primarily to Canadian investors, in
reliance on Regulation S adopted under the Securities Act of 1933, as
amended (the "Securities Act"). The issuance of the special warrants to
several United States investors was made in reliance on the exemption from
the registration requirements of the Securities Act afforded by Section
4(2).
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS. A financial data schedule is filed as exhibit no. 27 to this
report. No other exhibits are filed as part of this report.
FORM 8-K REPORTS. The Company filed no reports on Form 8-K during the
second quarter of 1997.
12
<PAGE>
SIGNATURES
In accordance with section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GOLDEN QUEEN MINING CO. LTD.
By: /s/ Bernard F. Goodson
-----------------------------------
its Vice President of Administration
and Controller
August 8, 1997
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD
ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,639,956
<SECURITIES> 0
<RECEIVABLES> 15,956
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,734,606<F1>
<PP&E> 21,521,819<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,256,425
<CURRENT-LIABILITIES> 1,689,374
<BONDS> 0
0
0
<COMMON> 23,690,309
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 26,256,425
<SALES> 0
<TOTAL-REVENUES> 36,200<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 362,772<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,014
<INCOME-PRETAX> (362,572)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (362,572)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
<FN>
<F1>Includes prepaid expenses and other current assets of $78,694.
<F2>Consists of: properties and equipment, net of depreciation, of $1,196,958;
mineral properties of $5,296,931; deferred exploration and development of
$14,674,430; and other assets of $353,500.
<F3>Consists of interest income.
<F4>Consists of general and administrative expenses of $336,835, interest
expense of $24,014 and other expenses of $1,923.
</FN>
</TABLE>
