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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO
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
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SAFE HARBOR STATEMENT
Except for the historical information contained herein, certain of the matters
discussed in this registration statement 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 March 1, 1997, world gold prices were approximately $365 per ounce, a
reduction of approximately 10% from prices a year ago. 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 or other companies in the mining
industry. 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.
(i)
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GLOSSARY
Certain terms used throughout this registration statement are defined below.
AG. silver.
AU. gold.
AUEQ. Gold equivalent, being a measurement of gold and silver on a
combined basis calculated to reflect the price and recovery differentials
between the two metals.
ALLUVIAL. Adjectivally used to identify minerals deposited over time by
moving water.
BASEMENT or BEDROCK. Solid rock underlying an alluvial deposit.
CRETACEOUS PERIOD. A period in geologic time approximately 65 to 141
million years ago.
DEPOSIT. A mineral deposit or mineralized material is a mineralized
underground body which has been intersected by sufficient closely-spaced drill
holes or underground sampling to support sufficient tonnage and average grade(s)
of metal(s) to warrant further exploration or development activities. A deposit
does not qualify as a commercially minable ore body (reserves) under standards
promulgated by the Securities and Exchange Commission until a final,
comprehensive economic, technical and legal feasibility study based upon test
results has been concluded.
DEVELOPMENT STAGE. Activities related to the preparation of a commercially
minable deposit for extraction.
EXPLORATION STAGE. Activities such as drilling, bulk sampling, assaying
and surveying related to the search for minable deposits.
FAULT or FAULTING. A fracture in the earth's crust accompanied by a
displacement of one side of the fracture with respect to the other and in a
direction parallel to the fracture.
FLOATING CONE and INVERTED CONE. A computerized methodology used to
approximate the shape of a near-optimal economic open pit mine plan based on
applied cutoff grade criteria and pit slopes.
GRADE. A term used to assign value to reserves, such as ounces per ton or
carats per ton.
HDPE. High density polyethylene, which is a plastic used to create an
impervious membrane.
HEAP LEACHING. A gold extraction process involving the percolation of
cyanide solution through crushed ore heaped on an impervious pad or base.
HECTARE. A metric measurement of area equivalent to 10,000 square meters.
IGNEOUS. Rocks formed by the cooling and solidifying of magna or lava.
INTRUSIVE. Rock which while molten penetrated into or between other rocks,
but solidified before reaching the surface.
LODE MINING. The extraction of ore from a deposit occurring in place
within definite boundaries separating it from the adjoining rocks
LINEAR KRIGING. A geostatistical method of resource analysis.
MAGNETIC SURVEYING. A mineral exploration technique which employs a
magnetometer to measure the magnetic intensity of an area to determine possible
mineralization.
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MERRILL-CROWE PROCESS. A process used to recover soluble gold and silver
from a leaching solution by precipitating with zinc dust after the solution has
been clarified and deoxygenated by vacuum treatment.
MIDDLE MIOCENE EPOCH. A period in geologic time approximately 6 to 22
million years ago.
MILL SITE CLAIMS. A plot of ground suitable for the erection of a mill or
reduction works to be used in connection with mining operations.
MINERALIZATION. The presence of minerals in a specific area or geological
formation.
MOLYBDENITE. A mineral containing molybdenum disulfide, a source of
molybdenum.
ORE. A natural aggregate of one or more minerals which, at a specified
time and place, may be mined and sold at a profit or from which some part may be
profitably separated.
OVERBURDEN. Waste rock and other materials which must be removed from the
surface in order to mine underlying mineralization.
PIT PHASING ANALYSIS. A method used to optimize the mining sequence in an
open pit mine design.
PLACER MINING. The extraction of ore from sediment rich in concentrated
mineralization due to the high specific gravity of the mineralization.
POLYMETALLIC. Adjectivally used to describe a deposit or formation
containing many minerals.
PRODUCTION STAGE. Activities related to the actual exploitation or
extraction of a mineral deposit.
RESERVES. That part of a mineral deposit which could be economically and
legally extracted or produced at the time of determination. Reserves are
subcategorized as either PROVEN (MEASURED) RESERVES, for which (a) quantity is
computed from dimensions revealed in outcrops, trenches, workings or drill
holes, and grade and/or quality are computed from the results of detailed
sampling, and (b) the sites for inspection, sampling and measurement are spaced
so closely and geologic character is so well defined that size, shape, depth and
mineral content are well-established; or PROBABLE (INDICATED) RESERVES, for
which quantity and grade and/or quality are computed from information similar to
that used for proven (measured) reserves, yet the sites for inspection, sampling
and measurement are farther apart.
SHEAR ZONE. A tabular zone of rock which has been crushed and fragmented
by parallel fractures due to "shearing" along a fault or zone of weakness.
Shear zones can be mineralized with ore-forming solutions.
SCHISTS. A strongly foliated crystalline rock which readily splits into
sheets or slabs as a result of the planar alignment of the constituent crystals.
STRIPPING RATIO. The tonnage of waste material removed to allow the mining
of one ton of ore in an open pit.
SULFIDES or SULFIDE BODIES. Compounds of sulphur with other metallic
elements.
TREND. The directional line of a rock bed or formation.
VOLCANIC, VOLCANICLASTIC or VOLCANOGENIC ROCK. Rock composed of clasts or
pieces that are of volcanic composition.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS. Golden Queen Mining Co. Ltd. (the "Company")
is engaged in the development of certain mineral properties located in the
Mojave Mining District of Kern County, California known as the Soledad Mountain
Project. The Company was incorporated under the laws of the Province of
British Columbia on November 21, 1985. It acquired its initial interest in
the Soledad Mountain Project in 1986 through the acquisition of all of the
outstanding shares of Golden Queen Mining Company, Inc. (the "Subsidiary"), a
California corporation through which the Company conducts all of its
business. Since 1986 the Company has been engaged in acquiring additional
interests in the project area, and in exploring for gold and other minerals.
A gold deposit was first outlined by the Company at the Soledad Mountain Project
in 1988, although the size of the deposit was insufficient to justify further
development; consequently, the project remained dormant for several years.
Beginning in 1994, the Company renewed its exploration activities on the project
using funds obtained in a 1993 private placement of its common stock. This
exploration program was completed in October 1994 and 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.
Substantially all exploration activities at the project have been completed.
The Company now 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 3.6 million tonnes (4 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 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. 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.
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
(26,220 feet) 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.
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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 AND BLOCK MODEL CONSTRUCTION. Sampling and block model computer
modeling are analytical tools used by the mining industry to test the economic
validity of an ore deposit. Gold and silver content data derived from drill
hole samples is introduced into a three-dimensional computer model of the
project area. Different variables, such as mining costs, ore processing costs
and metals prices, are then introduced into the model to determine the economic
viability of mining all or a portion of the deposit. To facilitate the testing
of the Soledad Mountain deposit, a block model was constructed and values were
ascribed to each 25-foot by 25-foot by 20-foot block of material within the
deposit. These values were derived from the gold and silver content of ore
samples taken from diamond and reverse circulation drill holes, surface trenches
and underground cross-cuts in the vicinity of each block. The data used in the
block model analysis comprises 64,081.7 meters (210,188 feet) of assayed
material, taken from fourteen different vein systems in the district. This data
is summarized as follows:
Diamond drilling 2,169.4 meters (7,116 feet)
Reverse circulation drilling 53,918.2 meters (176,851 feet)
Old cross-cuts (1930s) 3,290.2 meters (10,792 feet)
Underground drilling (1930s) 3,235.8 meters (10,614 feet)
Recent cross-cuts (1980s) 1,468.1 meters ( 4,815 feet)
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64,081.7 meters (210,188 feet)
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--------------- --------------
There are 587 drill holes currently stored in the Company's 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.
The computer model constructed for the Soledad Mountain Project was 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.
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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 ($0.70 per ton); internal costs of $3.64 per tonne ($3.30
per ton), comprised of processing and general/administrative costs of $2.98 and
$0.66 per tonne, ($2.70 and $0.60 per ton), respectively; a design cost of $4.41
per tonne ($4.00 per ton), comprised of processing, mining and
general/administrative costs of $2.98, $0.77 and $0.66 per tonne ($2.70, $0.70
and $0.60 per ton), respectively; a design cut-off grade of 0.404 grams per
tonne (0.012 ounces per ton) of gold and an internal cut-off grade of 0.342
grams per tonne (0.010 ounces per ton) 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 Tonnes 40,824,000
Tons 27,800,000 Tons 45,000,000
AuEq g/t 1.029 AuEq g/t 1.097
AuEq oz/ton .030 AuEq oz/ton .032
Au g/t 0.857 Au g/t 0.926
Au oz/ton .025 Au oz/ton .027
Ag g/t 14.572 Ag g/t 13.646
Ag oz/ton .427 Ag oz/ton .400
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. 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 (4.0 million tons) 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
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sampling. The average stripping ratio is projected to be approximately 2.4 to
1. The projected mine life, stripping ratios and ore production rates at the
Soledad Mountain Project are believed by the Company to be well within industry
standards.
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 4.5 kilograms of cement per tonne (10
lbs. per ton) of ore. The average cyanide consumption rate for the project is
expected to be 0.23 kilograms of cyanide per tonne (0.5 lbs. per ton) 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 (20,992 feet) of road will be required: 2,500
meters (8,200 feet) 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 (4.0
million tons) 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 (11,299 tons) per day and an average of 24,490 tonnes (26,995
tons) 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 (2,699 feet) 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 (800 tons) 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 (5.0-in.) apertures and a 1.2-meter (48-inch) by 1.5-meter
(60-inch) jaw crusher with a closed side setting of 12.7 centimeters (5.0 in.).
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 (7-foot) 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.
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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 (3-foot) 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 (130-foot) long radial stacker with a 6.1-meter (20-foot) 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 (4.0 in.) 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 1.0-meter (1.6 feet to 3.3 feet) 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.
5
<PAGE>
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 (5 gallons) per second will be available. After
mining has ceased, 37.9 liters (10 gallons) 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 (.43 oz. per
ton) but the silver content of the feed will occasionally exceed 34.3 grams per
tonne (1.0 oz. per ton). 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 (5.7 in.) 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 5.0
centimeters [2 in.] 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.
6
<PAGE>
The amounts of these bonds will be determined by the regulatory authorities when
permits are granted for the Soledad Mountain Project. Based on currently
available information, the Company estimates that these costs will be
approximately $3,000,000 once production at the mine commences, increasing to
$5,000,000 by the end of the life of the mine. The Company expects to meet
these bonding requirements by purchasing surety bonds from one or more insurers.
Alternatively, the Company may post money market securities, such as
certificates of deposit, or bank letters of credit in lieu of, or in addition
to, such surety bonds.
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 late 1997.
The Company believes that an unfavorable decision by either the BLM or Kern
County would become known before the EIR/EIS is complete, since both agencies
are expected to express their preferred alternative in the draft EIR/EIS. If
the project is viewed disfavorably, the Company will either continue to mitigate
the BLM's and Kern County's concerns until approval is granted, or redesign the
plan of operation to an acceptable standard. Were the plan of operation to be
redesigned, the permitting process could begin anew.
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.
7
<PAGE>
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 (5.7 in.). 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 (180 to 200 feet) 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 44 micrograms per cubic meter is
projected by computer modelling utilizing a mining rate of 30 million tons per
year of oreand waste. This level is below the California attainment standard
of 50 micrograms per cubic meter and the Federal standard of 150 micrograms per
cubic meter. 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.
FACILITIES AND EMPLOYEES. The Company's principal executive offices are located
in a 1,200-square foot facility at 104 South Freya Street in Spokane,
Washington. The Company also leased facilities at Rosamond, California until
December, 1996. At March 1, 1997, the Company employed three full-time and zero
part-time management, finance and administrative employees at its Spokane
office, and 12 full-time and zero part-time employees at its Mojave office.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
INTRODUCTION. 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 six-month
periods ended November 30, 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.
This change took effect with the year ending December 31, 1996.
8
<PAGE>
STATEMENTS OF OPERATIONS AND DEFICIT AND CHANGES IN FINANCIAL POSITION DATA.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30, YEARS ENDED MAY 31,
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Deferred exploration and
development expenditures
for the period $ 2,049,569 $ 906,571 $ 1,848,009 $ 519,370 $ 493,647
Loss (earnings) for the
period 236,631 53,420 426,380 219,576 158,193
Deficit at the end of the
period 2,051,518 1,217,291 1,690,977 1,163,871 944,295
Cash provided by (used in)
financing activities 951,910 1,886,187 12,537,475 273,018 1,432,285
</TABLE>
BALANCE SHEET DATA.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30, YEARS ENDED MAY 31,
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current assets $ 6,486,649 $ 968,642 $ 9,877,992 $ 165,023 $ 768,119
Mineral properties 3,885,847 2,125,070 2,401,023 1,978,320 1,873,683
Deferred exploration and
development expenditures 10,051,930 7,060,923 8,002,361 6,154,352 5,634,982
Total assets 21,264,995 10,295,906 20,711,808 8,423,014 8,320,424
Current liabilities 521,219 262,397 481,586 780,759 623,167
Long-term notes payable 1,909,265 72,955 1,045,230 78,144 87,436
Total liabilities 2,430,484 335,352 1,526,816 858,903 710,603
Shareholder's equity 18,834,511 9,960,554 19,184,992 7,573,111 7,609,821
</TABLE>
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.
SIX MONTHS ENDED NOVEMBER 30, 1996 COMPARED TO SIX MONTHS ENDED NOVEMBER 30,
1995. Exploration and development expenditures of $2,049,569 for the six-month
period ending November 30, 1996 exceeded exploration and development
expenditures for the six-month period ended November 30, 1995 by $1,142,998.
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 $236,631 for
the six-month period ending November 30, 1996 exceeded the loss for the
corresponding period in the previous year by $183,211. 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 $1,886,187 for the six months ended November
30, 1995 to $951,932 for the six months ended November 30, 1996. During the
period ended November 30, 1995, the Company issued shares of its common stock
for cash in a private placement; no comparable transaction occurred during the
period ended November 30, 1996.
9
<PAGE>
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 the second
half of 1998.
During the six months ended November 30, 1996, the Company expended
approximately $3,960,000 on the Soledad Mountain Project. On a cumulative basis
since inception, the Company has expended approximately $14,750,000 on the
project. These cumulative costs consist of acquisition costs of approximately
$4,235,000, capitalized development and exploration costs of $10,050,000 and
capital assets of $465,000.
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; 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 fiscal 1996
of an additional 506,215 shares of common stock in exchange for indebtedness of
$662,282; and the issuance in fiscal 1996 of 5,500,000 special warrants
(resulting in proceeds to the Company of $9,453,437), which special warrants
were subsequently exchanged for 5,500,000 common shares and warrants to purchase
an additional 2,750,000 shares of common stock.
10
<PAGE>
PLAN OF OPERATIONS.
PROPOSED ACTIVITIES AND ESTIMATED COSTS. As is more specifically disclosed in
Item 1 of this registration statement, in the subsection entitled "Mining Ore
and Recovery Plan," 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 3.6 million tonnes (4 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 total capital cost of the Soledad Mountain Project is 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 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 $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 have been
estimated in accordance with industry practice. The Company estimates that
94,300 ounces per year of gold equivalent can 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, is estimated at $334 per ounce of gold equivalent.
In addition, the Company had budgeted $5,400,000 for additional on-going
drilling to further delineate ore at the Soledad Mountain Project. These
proposed drilling activities include: a $2,200,000 deep drilling program to
determine whether substantial minable reserves, estimated on the basis of
underground cross-cut assays from the 1930s and 1940s to be approximately 13.6
million tonnes (15.0 million tons), exist at 152 to 366 meters (500 to 1,200
feet) below the surface of the project; a $300,000 drilling program to further
delineate ore at the stockworks area of the proposed mine; a $1,400,000 in-fill
drilling program to be conducted during the first two years of mine production
to facilitate detailed mine planning; and a $1,500,000 program to explore the
south-east extension of one identified ore vein to determine whether there is a
continuation of the structure.
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 $2,000,000 to complete a final bankable
feasibility study prepared by Pincock, Allen & Holt of Lakewood, Colorado in
December 1996. This expenditure was necessary to complete the design of the
crushing plant, or heap, solution handling systems, haul roads and associated
surface infrastructure at the Soledad Mountain Project. The bankable
feasibility study is now at a level of accuracy deemed appropriate for project
financing purposes. An internal preliminary feasibility study was prepared by
the Company and reviewed by Pincock, Allen & Holt in early 1996; that report,
however, was a study of the project generated solely for internal purposes, to
ascertain the economic viability of the project. It was not prepared for
purposes of obtaining bankable feasibility.
11
<PAGE>
SOURCES OF FINANCING. As of December 31, 1996, the Company held approximately
$5,400,000 in unrestricted cash and held-to-maturity securities. As is disclosed
in the foregoing table, 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 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 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 March 1, 1997, world gold prices were approximately $365 per
ounce, a reduction of approximately 8% from prices a year ago. If gold prices
do not strengthen, it may not be economical for the Company to place the Soledad
Mountain Project into production.
ITEM 3. DESCRIPTION OF PROPERTY.
LOCATION AND ACCESS. The Soledad Mountain Project is located in the Mojave
Mining District in Kern County in southern California, approximately
2.4 kilometers (1.5 miles) from Highway 14, a paved, four-lane highway. Los
Angeles, California is about 145 kilometers (90 miles) south of the project and
the metropolitan area of Lancaster/Palmdale, California is less than 48
kilometers (30 miles) 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 (200 to 400 feet). 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 (699 feet).
The population centers of Mojave, Lancaster, Bakersfield and Los Angeles, all
located within a 161-kilometer (100-mile) 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 (105
DEGREES F) in the summer. Wind is a factor with respect to structural
stability, as gusts frequently reach 100 to 130 kilometers (62 to 81 miles) 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 (1,228 acres) contiguous block within an area of
approximately 1,012 hectares (2,501 acres) 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 (937 acres) of fee land. One
hectare is approximately equal to 2.471 acres.
12
<PAGE>
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 $1,100,000 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 (3 acres) 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 (40 acres)
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 (10
acres) from the Federal Home Loan Mortgage Corporation of Texas and Rolando and
Delia Cruz of Texas.
13
<PAGE>
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 (30 acres) of property within the project area. This
transaction closed in September 1996. In September 1996, the Subsidiary
purchased approximately two hectares (4.9 acres) of property outside the project
area from James and Diane Prentice of California. The Subsidiary has purchased
the following parcels outside of the mine site area. In June, 1996, a home and
two hectares (5.0 acres) from Federal Home Loan Mortgage Corporation. In
September, 1996, a home and two hectares (5.0 acres) from James and Diane
Prentice of California. In December, 1996, a home and two hectares (5.0 acres)
from Richard and Kimberly Smith of California. In January, 1997, a home and two
hectares (5.0 acres) from Guadalupe and Enriqueta Munoz of California. In
January, 1997, one hectare (2.5 acres) from Larry Mettert of California.
The Company does not require additional properties to place the Soledad Mountain
Project into production, and has no present plans to acquire any properties
within the mine area. The Company continually evaluates other precious metals
mining opportunities for possible acquisition or joint venture, and from
time-to-time engages in exploratory discussions regarding such opportunities.
As of the date of this registration statement, the Company has no agreement,
undertaking or other arrangement with any person regarding the acquisition of
mining properties outside the Soledad Mountain Project area.
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 (3,998 feet) wide and about
1,981 meters (6,498 feet) long.
The 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
14
<PAGE>
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 (1,000 feet). 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.
The Company believes the geology of the Soledad Mountain Project area is
conducive to its intended operations.
[The balance of this page has been intentionally left blank.]
15
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of March 1, 1997, 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
27,874,500 shares.
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
(ALL DIRECT UNLESS PERCENT
NAME OF OWNER OTHERWISE NOTED) OF CLASS
- ------------- ---------------------- --------
Paul A. Bailly(1) 306,176 1.10%
Steven W. Banning(2), (3) 1,000,000 3.58%
Bernard Goodson(4) 100,000 0.36%
Richard W. Graeme(5) 200,000 0.72%
Gordon C. Gutrath(2), (6) 195,000 0.70%
Jerrold W. Schramm(2), (7) 90,000 0.32%
Chester Shynkaryk(2), (8) 389,508 1.40%
Edward G. Thompson(2), (9) 183,200 0.66%
Christopher M.T. Thompson(10) 462,866 1.66%
All directors and executive
officers as a group
(9 persons)(11) 2,926,750 10.50%
VenturesTrident II, L.P.(12) 4,758,061 17.07%
Landon T. Clay(13) 1,511,033 5.42%
- --------------------
(1) Mr. Bailey's tenure as a director of the Company ended on December 31,
1996.
(2) Currently a director of the Company.
(3) Includes presently exercisable options for the purchase of 580,000 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 133,333 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 90,000 shares of
common stock.
(8) Includes presently exercisable options for the purchase of 175,000 shares
of common stock.
(9) Includes presently exercisable options for the purchase of 130,000 shares
of common stock.
(10) Mr. Thompson's tenure as a director of the Company commenced January 29,
1997. Includes presently exercisable options for the purchase of 130,000
shares of common stock.
(11) Excluding Mr. Bailey, who ceased being a director December 31, 1996, the
number of shares of common stock held by all directors and executive
officers of the Company as a group was 2,620,574 shares or approximately
9.40% of the outstanding common stock. Included in such amount are
presently exercisable options for the purchase of 1,361,666 shares.
[Footnotes continued on following page.]
16
<PAGE>
(12) VenturesTrident II, L.P. is an investment limited partnership, the general
partner of which is Fulcrum Management Partners II, L.P.
(13) Consists of shares of common stock of the Company held in five trusts to
which Mr. Clay is related. Mr. Clay is also one of two general partners of
Fulcrum Management Partners II, L.P., the general partner of
VenturesTrident II, L.P. The shares of common stock of the company held
beneficially and of record by VenturesTrident II, L.P. have not been
attributed to Mr. Clay in the foregoing table. Includes presently
exercisable options for the purchase of 686,100 shares of common stock.
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 March 1,
1997, 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.
<TABLE>
<CAPTION>
NAME AND AGE OF POSITION WITH
DIRECTOR OR EXECUTIVE OFFICER THE COMPANY PRINCIPAL OCCUPATION
- ----------------------------- ------------- --------------------
<S> <C> <C>
Paul A. Bailly(1) Director and Chairman of the Chairman of Castle Group, Inc.
Age: 70 Board until December 31, 1996 (a gold mining investment company)
Steven W. Banning(2) President, Chief Executive Officer Officer of the Company
Age: 45 and Director
Bernard F. Goodson Vice-President - Administration Officer of the Company
Age: 59 and Controller
Richard W. Graeme Vice-President - Operations Officer of the Company
Age: 55
Gordon C. Gutrath(2) Director Chairman of Queenstake Resources Ltd.
Age: 59 (a mineral exploration company)
Jerrold W. Schramm(1)
Age: 36 Director Partner, Lawson Lundell Lawson & McIntosh
(barristers and solicitors)
Chester Shynkaryk(1) Secretary and Director President of Visionary Mining Corporation
Age: 52 (a mineral exploration company)
Edward G. Thompson(2) Director and Chairman of the Board President of E.G. Thompson Mining
Age: 60 as of January 29, 1997 Consultants Inc.
Christopher M.T. Thompson Director as of January 29, 1997 President of Castle Group, Inc.
Age: 49
</TABLE>
- ---------------
(1) Member of the compensation committee of the board of directors.
(2) Member of the audit committee of the board of directors.
BIOGRAPHICAL INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS.
PAUL A. BAILLY was a director of the Company from 1987 through December 31,
1996, last serving as Chairman. He is also chairman of Castle Group, Inc., a
position he has held since 1992. From 1984 to 1992, Mr. Bailly served as
president of Fulcrum Management, Inc. He graduated from the University of Nance
in France in 1948 with a master of sciences degree in geology and mineralogy,
and later received a degree in geological engineering from the same institution.
17
<PAGE>
STEVEN W. BANNING has been president and chief executive officer of the Company
since 1995. From 1984 through 1995, he was employed by Pegasus Gold Inc., last
serving as its vice president of operations. Mr. Banning graduated from Montana
College of Mineral Science and Technology in 1974 with a degree in mineral
dressing engineering.
BERNARD F. GOODSON has been vice president of administration and controller of
the Company since April 1996. From May 1991 to January 1996, he was vice
president of finance of Pintlar Corporation, a mining company headquartered in
Kellogg, Idaho. Mr. Goodson graduated from Lewis and Clark State College in
1981 with a degree in management technology.
RICHARD W. GRAEME has been executive vice president of operations of the Company
since November 1996, and for ten month prior to that was vice president of
operations. From January 1994 to February 1996, he was principal mine engineer
for Mine Development Associates, and from January 1991 to January 1994, he
served as chief executive officer of Mining Remedial Recovery Corp. Mr. Graeme
graduated from the University of Arizona in 1972 with a degree in Geological
Engineering.
GORDON C. GUTRATH has been a director of the Company since 1987. Since November
of 1995, he has also served as chairman of Queenstake Resources, which he
founded in 1977; he served as its president from 1977 until November 1995. Mr.
Gutrath is a professional geologist and a registered professional engineer in
British Columbia. He graduated from the University of British Columbia in 1960
with a degree in Geology.
JERROLD W. SCHRAMM has been a director of the Company since 1996. He is also a
partner in the law firm Lawson Lundell Lawson & McIntosh, a position he has held
since February 1994, and for approximately six and one-half years prior to that
was an associate of the firm. He obtained an undergraduate degree in commerce
from the University of British Columbia in 1983 and a law degree from the
University of Toronto in 1986.
CHESTER SHYNKARYK has been a director of the Company since 1985, and from 1985
to 1995, served as its president. Since 1996, he has also served as president
of Visionary Mining Corporation, a mineral exploration company.
EDWARD G. THOMPSON has been a director of the Company since 1994, and was
elected its chairman effective January 29, 1997. Since 1990 he has also served
as president of E. G. Thompson Mining Consultants, Inc., which he owns. Mr.
Thompson graduated from the University of Toronto in 1959 with a degree in
mining geology and in 1960 earned a degree in economic geology.
CHRISTOPHER M. T. THOMPSON has been a director of the Company since January
1997. Since 1992 he has also served as president of Castle Group, Inc., and
from January 1984 to October 1992, he was employed by Fulcrum Management, Inc.,
last serving as its chief financial officer. Mr. Thompson received a degree in
law and economics from Rhodes University in South Africa in 1969 and a Master of
Science degree from Bradford University in the United Kingdom in 1971.
[The balance of this page has been intentionally left blank.]
18
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE.
The following table discloses compensation received by the Company's former
chief executive officer, its president and current chief executive officer, its
vice president of administration and controller, and its vice president of
operations for the years ended May 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
- -------------------------------------------------------------------------- ------------------------------------------------
OTHER DOLLAR VALUE SECURITIES ALL OTHER
EXECUTIVE ANNUAL OF RESTRICTED UNDERLYING LTIP COMPEN-
OFFICER YEAR SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS/SARS PAYOUTS SATION
--------- ---- ------ ----- ------------ ------------ ------------ ------- ------
<S> <C> <C> <C> <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 $100,000 - $1,800(3) - 810,000(4) - -
President and Chief 1995 - - - - - - -
Executive Officer 1994 - - - - - - -
BERNARD F. GOODSON(5) 1996 $ 6,667 - $ 300(3) - 100,000 - -
Vice President of 1995 - - - - - - -
Administration and 1994 - - - - - - -
Controller
RICHARD W. GRAEME(6) 1996 $ 36,667 - - - 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 is obligated to
grant Mr. Banning options to purchase an aggregate of 1,000,000 shares of
common stock, exercisable at the closing price of the common stock on the
Toronto Stock Exchange as of the date of grant. Pursuant to this
agreement, Mr. Banning was granted options for the purchase of 680,000
shares on December 1, 1995, which options are exercisable at C$1.35 ($0.99)
per share, and was granted options for the purchase of an additional
130,000 shares on February 21, 1996, which options are exercisable at
C$1.51 ($1.11) per share. Options to purchase the remaining 190,000 shares
were granted to Mr. Banning in November 1996, following shareholder
approval of certain amendments to the Company's stock option plan. These
options are exercisable at C$2.43 ($1.79) per share.
(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.
19
<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
former chief executive officer, its president and current chief executive
officer, its vice president of administration and controller, and its vice
president of operations, and options held by such persons 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
March 1, 1997, each Canadian dollar was approximately equal to $1.3679.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS AT
SECURITIES ACQUIRED AGGREGATE VALUE MAY 31, 1996 MAY 31, 1996
ON EXERCISE REALIZED (#) (C$)
NAME (#) (C$) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
---- ------------------- --------------- ------------------------- ----------------------------
<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
</TABLE>
- ---------------
(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 ($0.44) per share and options to
purchase an aggregate of 50,000 shares of common stock were exercisable at
C$0.55 ($0.40) per share. All of these options were exercised on July 19,
1995.
[The balance of this page has been intentionally left blank.]
20
<PAGE>
TABLE OF OPTIONS GRANTED DURING THE FISCAL YEAR ENDED MAY 31, 1996. The
following table sets out certain information with respect to options to purchase
shares of common stock of the Company granted to the Company's then chief
executive officer, its president and current chief executive officer, its vice
president of administration and controller, and its vice president of operations
during the fiscal year ended May 31, 1996. None of the other named executive
officers of the Company were granted options during such year.
<TABLE>
<CAPTION>
SECURITIES UNDER % OF TOTAL OPTIONS MARKET VALUE OF SHARES
OPTIONS GRANTED TO EXERCISE OR UNDERLYING OPTIONS ON
GRANTED EMPLOYEES IN THE BASE PRICE THE DATE OF GRANT
NAME (#) FINANCIAL YEAR (C$-US$/SHARE) (C$-US$/SHARE) EXPIRATION DATE
- ---- ----------- ------------------- -------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Paul A. Bailly 120,000(1) 8.36% 1.51 (1.11) 1.51 (1.11) August 24, 1999
Steven W. Banning(1) 680,000 47.39 1.35 (0.99) 1.35 (0.99) December 1, 2000
130,000 9.06 1.51 (1.11) 1.51 (1.11) February 21, 2001
Bernard F. Goodson 100,000 6.97 3.00 (2.18) 3.00 (2.18) May 21, 2001
Richard W. Graeme 200,000 13.94 1.51 (1.11) 1.51 (1.11) February 21, 2001
</TABLE>
- ---------------
(1) Pursuant to Mr. Banning's employment agreement, the Company agreed to grant
Mr. Banning options to purchase an aggregate of 1,000,000 shares of common
stock of the Company. Options to purchase 810,000 of these shares had been
granted to Mr. Banning as of May 31, 1996. Options to purchase the
remaining 190,000 shares were granted to Mr. Banning in November 1996,
following shareholder approval of certain amendments to the Company's stock
option plan. The Company has also agreed to pay to Mr. Banning certain
amounts upon the exercise by him of certain of these options, which amounts
are equal to the difference between the exercise price of the options as of
the date they were granted to Mr. Banning and the market price of the stock
on the date the Company agreed to grant him such options. With respect to
options to purchase 130,000 shares of common stock expiring on February 21,
2001, such amount is equal to the difference between C$1.51 ($1.11) per
share (the exercise price of such options on the date of grant) and C$1.35
($0.99) per share (the market price of the common stock on the date the
Company agreed to grant such options), and with respect to options to
purchase 190,000 shares of common stock expiring on October 4, 2001, such
amount is equal to the difference between C$2.43 ($1.79) per share (the
exercise price of such options on the date of grant) and C$1.35 ($0.99) per
share (the market price of the common stock on the date the Company agreed
to grant such options).
TERMINATION OF EMPLOYMENT, CHANGE IN RESPONSIBILITIES AND EMPLOYMENT CONTRACTS.
EMPLOYMENT AGREEMENTS WITH STEVEN W. BANNING, BERNARD F. GOODSON AND RICHARD W.
GRAEME. 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. Mr. Banning receives
an annual salary of $200,000 pursuant to his employment agreement with the
Company. Mr. Goodson and Mr. Graeme receive annual salaries of $80,000 and
$110,000, respectively, pursuant to their agreements.
The employment agreements with Mr. Banning, Mr. Goodson and Mr. Graeme also
contain provisions relating to their compensation in the event of termination of
employment other than for cause. If the Company terminates Mr. Banning's or Mr.
Graeme's employment for any reason other than for cause, the Company is required
to pay the terminated employee an amount equal to 24 months' salary. In the
event Mr. Goodson's employment is terminated for any reason other than for
cause, the Company is obligated to pay him an amount equal to 12 months' salary.
Finally, the agreements 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. The agreements provide for the continuation of benefits then
21
<PAGE>
provided to the employee 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.
The employment agreements with Mr. Banning and Mr. Graeme are each for a term of
two years. The employment agreement with Mr. Goodson is for a term of one year.
Each provides, however, that the employee may terminate his employment upon six
months' prior written notice to the Company.
CONSULTING AGREEMENT WITH ERIC W. KINNEBERG. Pursuant to the terms of a
consulting agreement dated February 1, 1996 between the Subsidiary and Mr.
Kinneberg, Mr. Kinneberg has agreed to serve as a consultant to the Subsidiary
with respect to financial and related matters, and to perform such other
consulting services to the Subsidiary, as the Subsidiary may propose. As
consideration for such services, the Subsidiary has agreed to pay Mr. Kinneberg
at the rate of $1,000 per day for services rendered and has further agreed to
reimburse him for out-of-pocket expenses incurred in the performance of his
services. The consulting agreement obligates Mr. Kinneberg to submit invoices
to the Subsidiary no less often than monthly, specifying the services rendered
during the month, and allows the Company to deduct $325 per month from amounts
otherwise payable to Mr. Kinneberg for use of the Company's offices.
The consulting agreement with Mr. Kinneberg was for a term of one month and is
thereafter renewable, unless terminated either by the Company or Mr. Kinneberg,
on a month-to-month basis. Since February 1, 1996, the Company has paid Mr.
Kinneberg approximately $72,000 pursuant to the agreement.
COMPENSATION OF DIRECTORS. The Company does not pay directors' fees. While the
Company has no written policy or standard arrangements in this regard, it is
currently the policy of the Company to grant options to purchase shares of its
common stock to its directors under the stock option plan described below under
the heading "Stock Option Plan". Generally, each director is granted options to
purchase an aggregate of 90,000 shares of common stock and such additional
number of shares of common stock as may be appropriate in particular
circumstances given other responsibilities assumed by the director in the
Company's affairs and contributions made by such director to the Company.
The following table sets out certain information with respect to options to
purchase shares of common stock of the Company granted to the directors of the
Company, other than directors who are also executive officers, during the fiscal
year ended May 31, 1996.
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS MARKET VALUE
SECURITIES GRANTED TO OF SECURITIES
UNDER ALL EXERCISE OR UNDERLYING
NAME OF DIRECTOR OPTIONS EMPLOYEES IN BASE PRICE OPTIONS ON THE
AS AT FINANCIAL GRANTED THE FINANCIAL (C$- DATE OF GRANT DATE OF EXPIRATION
YEAR-END (#) YEAR US$/SHARE) (C$-US$/SHARE) GRANT DATE
---------------- ---------- ------------- ----------- -------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Edward G. Thompson 20,000 1.39% 1.51 (1.11) 1.51 (1.11) 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.
22
<PAGE>
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 Toronto Stock
Exchange 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 3,300,000 shares of common
stock. The directors also approved amendments 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.
The amendments to the Stock Option Plan were approved by the stockholders of the
Company at the annual general meeting of stockholders held on November 13, 1996,
and were subsequently also approved by the Toronto Stock Exchange.
[The balance of this page has been intentionally left blank.]
23
<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 EXPIRY DATE OPTION(1) SHARE (C$-US$)
------------------ ------------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Executive officers of Golden Queen December 1, 1995 December 1, 2000 680,000(2) C$1.35 (0.99)
(four persons) February 21, 1996 February 21, 2001 450,000(2) 1.51 (1.11)
May 21, 1996 May 21, 2001 100,000 3.00 (2.18)
Directors of Golden Queen who are December 21, 1993 December 21, 1998 75,000 C$0.592(0.44)
not also executive officers of August 24, 1994 August 24, 1999 100,000 0.55 (0.40)
Golden Queen September 21, 1994 September 21, 1999 90,000 1.50 (1.10)
(three persons) December 2, 1994 December 2, 1999 70,000 1.45 (1.07)
February 21, 1996 February 21, 2001 20,000 1.51 (1.11)
Executive officers of the Subsidiary September 21, 1994 September 21, 1999 130,000 C$1.50 (1.10)
who are not also executive officers February 21, 1996 February 21, 2001 90,000 1.51 (1.11)
or directors of Golden Queen
(two persons)
All other employees of the Subsidiary March 4, 1994 March 4, 1999 30,000 C$0.76 (0.56)
(five persons) August 24, 1994 August 24, 1999 45,000 0.55 (0.40)
July 20, 1995 July 20, 2000 70,000 1.35 (0.99)
</TABLE>
- --------------------
(1) Includes all shares of common stock issuable upon the exercise of
options granted as at May 31, 1996, including those that had not
vested at such date and those that were subject to approval of the
Company's stockholders and the Toronto Stock Exchange. As noted
above, such approvals were obtained in November 1996.
(2) Certain of these options are held by Steven W. Banning. As noted
above in the section of this registration statement entitled
"-Termination of Employment, Change in Responsibilities and Employment
Contracts," the Company granted Mr. Banning options to acquire an
additional 190,000 shares of common stock in November 1996 pursuant to
the terms of his employment agreement with the Company.
At the annual general meeting of stockholders of the Company held on November
13, 1996, the shareholders of the Company approved, 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 amended at the
annual general meeting of stockholders. See the section of this registration
statement entitled "-Stock Option Plan" above.
24
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TRANSACTIONS WITH VENTURESTRIDENT II, L.P. VenturesTrident II, L.P. ("VT II")
is a Massachusetts limited partnership which as of March 1, 1997 owns 4,758,061
shares of common stock of the Company, or approximately 19.6% of the outstanding
common stock at such date. VT II acquired its shares as follows:
During December 1993, the Company issued an aggregate of 5,748,491 shares
of common stock to various purchasers at the price of C$0.35 ($0.26) per
share; 1,500,000 of these shares were issued to VT II.
During the fiscal year ended May 31, 1994, the Subsidiary entered into a
short-term borrowing arrangement with VT II. The Subsidiary borrowed
$200,000 from VT II pursuant to this arrangement and agreed to pay VT II
interest at the rate of 8% per annum. The loan was repaid during the year
through the issuance of 759,714 shares of common stock of the Company to VT
II, at the price of C$0.35 ($0.26) per share. Such issuance was as part of
a private placement by the Company of 5,748,491 shares of common stock to
various purchasers.
During the fiscal year ended May 31, 1993, the Company entered into two
short-term borrowing arrangements with VT II L.P. The Company borrowed
$130,000 from VT II and $70,000 from VT I LP pursuant to these arrangements
and agreed to pay VT II interest at the rate of 11% per annum. The loans
were repaid in October 1995 through the issuance of 137,179 shares of
common stock of the Company to VT II and 73,495 shares to VT I LP, at the
price of C$1.78 ($1.31) per share.
During the fiscal year ended May 31, 1994, the Company entered into
borrowing arrangements with VenturesTrident I, L.P. ("VT I"), which is
affiliated with VT II, and with Tamarack Mining Inc., a corporation related
to VT I. The Company borrowed $75,000 from VT II and $25,000 from Tamarack
pursuant to these arrangements, and agreed to pay the lenders interest at
the rates of 11% and 12% per annum, respectively. The Tamarack note was
assigned to VT I in June, 1995. The loans were repaid in October 1995
through the issuance of 73,977 shares and 24,659 shares of common stock of
the Company to VT II and VT I respectively, at the price of C$1.78 ($1.31)
per share.
During the fiscal year ended May 31, 1995, the Company entered into a
short-term borrowing arrangement with VT II. The Company borrowed $250,000
from VT II pursuant to this arrangement and agreed to pay VT II interest at
the rate of 12% per annum. The loan became due on November 1, 1995 and was
repaid in October 1995 through the issuance of 196,905 shares of common
stock of the Company to VT II, at the price of C$1.78 ($1.31).
On October 13, 1995, the Company issued 408,061 shares of common stock to
VT II and 98,154 shares of common stock to VT I at the price of C$1.78
($1.31) per share.
TRANSACTIONS WITH LANDON T. CLAY AND AFFILIATED ENTITIES. Landon T. Clay is one
of the two general partners of Fulcrum Management Partners II, L.P. ("Fulcrum
Management"), a limited partnership which is the general partner of VT II.
Accordingly, Mr. Clay may be considered to be affiliated with VT II. In
addition, 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 March 1, 1997.
The transactions between the Company or the Subsidiary and VT II described in
the preceding subsection may be attributable to Mr. Clay by virtue of his
affiliation with Fulcrum Management and VT II. In addition, the Company, Golden
Queen and the Subsidiary entered into the following additional transactions with
Mr. Clay or his affiliates:
In December 1993, the Company issued an aggregate of 5,748,491 shares of
common stock to various purchasers at the price of C$0.35 ($0.26) per
share; 375,939 of such shares were issued to the Landon T. Clay Lead Trust.
In August 1995, Golden Queen completed a private placement of 1,929,160
shares of common stock at a price of C$1.25 ($0.92) per share. 272,600 of
these 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.
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 of the Company at a conversion
25
<PAGE>
price of C$2.00 ($1.46) 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. As of March 1, 1997, the debentures had not
been converted.
TRANSACTIONS WITH CHESTER SHYNKARYK AND AFFILIATED ENTITIES. In December 1993,
the Company issued an aggregate of 5,748,491 shares of common stock to various
purchasers at the price of C$0.35 ($0.26) per share; 375,939 of such shares were
issued to Chester Shynkaryk, who at the time was the president and a director of
the Company.
During the fiscal years ended May 31, 1996, 1995 and 1994, the Company paid
consulting fees of C$50,000, C$30,000 and C$24,000 to Mr. Shynkaryk pursuant to
the terms of a management agreement dated June 30, 1986, as amended January 30,
1990. Mr. Shynkaryk is obligated under the agreement to provide the Company
with opportunities to participate in the exploration and development of resource
properties, to use his best efforts to obtain financing for the Company when
required, and, in general, to assist in the general administration of the
Company, for which he receives C$3,500 per month. The agreement is terminable
by the Company or Mr. Shynkaryk on one month's written notice.
TRANSACTIONS WITH CASTLE GROUP, INC. During the year ended May 31, 1996, the
Company paid management fees of $102,500 to Castle Group, Inc. Castle Group,
Inc. manages VT II; in addition, Paul A. Bailly, who was a director and chairman
of the Company until December 31, 1996, was also chairman of Castle Group, Inc.
TRANSACTIONS WITH LAWSON LUNDELL LAWSON & MCINTOSH. 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 at March 1, 1997.
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 22,208,400 shares of common stock and no shares of
preferred stock were outstanding at March 1, 1997.
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. At March 1, 1997, 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.
26
<PAGE>
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.]
27
<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. The following table sets out the price
range and trading volume of the common stock as reported by the Toronto Stock
Exchange 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
Fourth Quarter 2.90 2.27 1,419,050
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 was approved by the Company's shareholders at the annual general meeting
of shareholders 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.
28
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Information concerning the issuance by Golden Queen of shares of its common
stock during the last three years in transactions which were not registered
under the Securities Act is set forth below.
(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
($0.40) per share pursuant to presently exercisable stock options.
(b) On July 19, 1995, the Company issued an additional 40,000 shares of
common stock to certain directors, officers and employees of the Company at the
price of C$0.592 ($0.39) 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 ($0.92) per share.
(d) On October 13, 1995, the Company issued 506,215 shares of common stock to
VenturesTrident I L.P. and VenturesTrident II L.P. at the price of C$1.78
($1.31) per share.
(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
($1.07) 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
($0.39) 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 ($1.10) 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
($0.44) 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
($0.99) 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 ($0.56) 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
($0.56) 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 2,750,000 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.
(m) On November 20, 1996, the Company issued 5,000 shares of common stock to
certain directors, officers and employees of the Company at the price of C$0.76
($0.56) per share pursuant to presently exercisable stock options.
(n) On January 7, 1997, the Company issued 100,000 shares of common stock to
certain directors, officers and employees of the Company at the price of C$1.51
($1.11) per share pursuant to presently exercisable stock options.
(o) On January 10, 1997, the Company issued 15,000 shares of common stock to
certain directors, officers and employees of the Company at the price of C$0.55
($0.40) per share pursuant to presently exercisable stock options.
(p) On January 10, 1997, the Company issued 10,000 shares of common stock to
certain directors, officers and employees of the Company at the price of C$1.35
($0.99) per share pursuant to presently exercisable stock options.
29
<PAGE>
(q) On January 28, 1997, the Company issued 12,000 shares of common stock to
certain directors, officers and employees of the Company at the price of C$0.76
($0.56) per share pursuant to presently exercisable stock options.
(r) On January 28, 1997, the Company issued 20,000 shares of common stock to
certain directors, officers and employees of the Company at the price of C$1.51
($1.11) per share pursuant to presently exercisable stock options. The Company
also issued additional stock options for the purchase of up to 130,000 shares of
common stock on such date at C$2.70 ($2.01) per share, which options are
exercisable on or before January 29, 2002.
The transactions identified in subparagraphs (a), (b), (d), (f), (g), (h), (i),
(j), (k), (m), (n), (o), (p), (q) and (r) above were made in reliance on the
exemption from the registration requirements of Section 5 of the Securities Act
afforded by Sections 4(2) and 4(6) thereof. Such purchasers were either
directors or executive officers of the Company or the Subsidiary, or
institutional investors who were also accredited and sophisticated investors
within the meaning of Rules 501(a) and 506(b)(ii), respectively, under the
Securities Act.
The transaction identified in subparagraph (e) above was made in reliance on
Regulation S of the Securities Act of 1933, as amended. No offers and sales of
the Company's common stock in such transactions were made to a person in the
United States, no directed selling efforts were made in the United States, and
no substantial market interest for the common stock existed in the United
States. Further, the Company undertook reasonable precautions to ensure that
the common stock issued in such transactions would not be resold into the United
States for a period of one year following the transaction.
The transactions identified in subparagraphs (c) and (l) above were made to
purchasers residing in the United States and in Canada. Those transactions
involving purchasers residing in the United States were made in reliance on the
exemption from the registration requirements of Section 5 of the Securities Act
afforded by Sections 4(2) and 4(6) thereof. Such purchasers were either
directors or executive officers of the Company or the Subsidiary, or
institutional investors who were also accredited and sophisticated investors
within the meaning of Rules 501(a) and 506(b)(ii), respectively, under the
Securities Act. Those transactions involving purchasers in Canada were made in
reliance on Regulation S of the Securities Act of 1933, as amended.
Each of the transactions identified above, with the exception of the offer and
sale of special warrants of the Company on May 13, 1996 (the transaction
identified in subparagraph (l) above) was self-underwritten by the Company. The
offer and sale of the special warrants by the Company were underwritten by
Goepel Shields & Partners Inc. and Midland Walwyn Capital Inc. Such firms
received aggregate underwriting commissions of C$752,250 ($550,200) and were
reimbursed by the Company for out-of-pocket expenses incurred in the
transaction. All of the purchasers of such special warrants were
either qualified institutional buyers within the meaning of Rule 144A adopted
under the Securities Act or accredited and sophisticated investors within the
meaning of Rules 501(a)(1), (2), (3) and (7) and Rule 506(b)(ii), respectively,
under the Securities Act.
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.
30
<PAGE>
PART F/S
The unaudited consolidated financial statements of the Company for the six month
periods ended November 30, 1996 and 1995, and as of November 30, 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 MacKay & Partners
(formerly 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.]
31
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1996 AND 1995
(UNAUDITED)
NOVEMBER 30, 1996 NOVEMBER 30, 1995
ASSETS
CURRENT
Cash and term deposits$ $ 6,326,222 $ 950,832
Accounts receivable 98,680 2,892
Prepaid expenses and deposits 61,747 14,918
------------ ------------
$ 6,486,649 $ 968,642
CAPITAL ASSETS (Note 3) 490,569 41,271
MINERAL PROPERTIES (Note 4) 3,885,847 2,125,070
DEFERRED EXPLORATION & DEVELOPMENT
EXPENDITURES (Note 5) 10,051,930 7,060,923
OTHER ASSETS (Note 6) 350,000 100,000
------------ ------------
$ 21,264,995 $ 10,295,906
------------ ------------
------------ ------------
LIABILITIES
CURRENT
Accounts payable $ 176,150 $ 236,437
Accrued liabilities 45,573 15,804
Current portion of notes payable 299,496 10,156
------------ ------------
$ 521,219 $ 262,397
LONG-TERM NOTES PAYABLE (Note 7) 1,909,265 72,955
------------ ------------
2,430,484 332,352
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 8) $ 20,886,029 $ 11,177,845
DEFICIT (2,051,518) (1,217,291)
------------ ------------
18,834,511 9,960,554
------------ ------------
$ 21,264,995 $ 10,295,906
------------ ------------
------------ ------------
SUBSEQUENT EVENTS (Note 10)
APPROVED BY DIRECTORS
JERROLD W. SCHRAMM STEVEN W. BANNING
-----------------------------------------------
Director Director
See Accompanying Notes to Consolidated Financial Statements
32
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
NOVEMBER 30, 1996 AND 1995
(UNAUDITED)
NOVEMBER 30, 1996 NOVEMBER 30, 1995
REVENUES
Interest $ 235,040 $ 22,024
Other 3,805 750
----------- -----------
$ 238,845 $ 22,774
EXPENSES
General and administrative 426,970 62,082
Interest 48,292 14,112
Exploration and development expenditures 2,049,569 709,067
(2,049,569) (709,067)
----------- -----------
475,262 76,194
----------- -----------
Write-off of mineral properties - -
Loss on disposition of capital assets 214 -
----------- -----------
475,476 76,194
NET LOSS 236,631 53,420
DEFICIT, BEGINNING 1,690,977 1,163,871
Share issue costs 123,910 -
----------- -----------
DEFICIT, ENDING $ 2,051,518 $ 1,217,291
----------- -----------
----------- -----------
Net Loss Per Common Share $ 0.0126 $ 0.0035
----------- -----------
----------- -----------
Weighted Average Number of Shares Outstanding 19,005,149 15,282,243
----------- -----------
See Accompanying Notes to Consolidated Financial Statements
33
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOVEMBER 30, 1996 AND 1995
(UNAUDITED)
NOVEMBER 30, 1996 NOVEMBER 30, 1995
OPERATING ACTIVITIES
Net Loss $(236,631) $(53,420)
Adjustments to reconcile net loss
to cash used in operating activities
Amortization and depreciation 13,243 3,748
Changes in operating working capital
Accounts and interest receivable (91,477) 15,764
Prepaid expenses, deposits and other 1,039 (9,525)
Accounts payable and accrued liabilities (162,092) 31,125
----------- -----------
Cash used in operating activities $(475,918) $(12,308)
----------- -----------
FINANCING ACTIVITIES
Borrowing under long term debt 1,084,833 -
Payment of long term debt (19,073) 107,606
Issuance of shares for cash 10,060 1,778,581
Share issue costs (123,910) -
----------- -----------
Cash provided by financing activities 951,910 1,886,187
----------- -----------
INVESTMENT ACTIVITIES
Deferred exploration and development
expenditures (2,049,569) (906,571)
Purchase of mineral properties (1,484,824) (146,750)
Purchase of capital assets (433,380) (10,700)
Proceeds from sale of assets - -
----------- -----------
Cash used in investment activities (3,967,773) (1,064,021)
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (3,491,781) 809,858
CASH AND CASH EQUIVALENTS,
Beginning balance 9,818,003 140,974
----------- -----------
CASH AND CASH EQUIVALENTS,
Ending balance $ 6,326,222 $ 950,832
----------- -----------
----------- -----------
NON CASH ACTIVITIES
Exchange of notes for common shares $662,282
See Accompanying Notes to Consolidated Financial Statements
34
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
COMMON ACCUMULATED
SHARES AMOUNT DEFICIT
----------------------------------------
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 2,000,00 1,412,026 (73,939)
Issuance of shares - for cash 1,858,748 1,753,413 38,739
Earnings for the year
----------------------------------------
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)
Issuance of shares
for cash 648,900
for property 182,866
Loss for the year (219,576)
----------------------------------------
Balance @ May 31, 1995 13,678,025 $8,736,982 $(1,163,871)
35
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
COMMON ACCUMULATED
SHARES AMOUNT DEFICIT
-----------------------------------------
Issuance of shares
for cash 2,349,160 $2,023,268
for debt 506,215 662,282
Issuance of 5,500,000 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 18,000 10,060
special warrants 5,500,000
Loss for the six months (236,631)
Special warrants issue cost (123,910)
-----------------------------------------
Balance @ November 30, 1996 $ 22,051,400 $ 20,886,029 $ (2,051,518)
-----------------------------------------
-----------------------------------------
36
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 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 economic recovery of ore reserves, confirmation 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 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 transactions;
37
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 1996 AND 1995
(UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(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) Net Loss Per Share
Net loss per share is computed on the basis of weighted average common
shares and common stock equivalent shares outstanding, if dilutive.
(g) Accounting for Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123 "Accounting for
Stock-Based compensation". The statement encourages all entities to
adopt a new method of accounting to measure compensation cost of all
employee stock compensation plans based on the estimated fair value of
the award at the date it is granted. Companies are, however, allowed
to continue to measure compensation cost for those plans using the
intrinsic value based method of accounting, which generally does not
result in compensation expense recognition for most plans. Companies
that elect to remain with the existing accounting are required to
disclose in a footnote to the financial statements pro forma net
income and, if presented, earnings per share, as if SFAS No. 123 had
been adopted. The accounting requirements of SFAS No. 123 are
effective for transactions entered into in fiscal years that begin
after December 15, 1995; however, companies are required to disclose
information for awards granted in their first fiscal year beginning
after December 15, 1995. Currently, the Company's stock-based
compensation plan is accounted for using Canadian generally accepted
accounting principles similar to the intrinsic value method prescribed
by APB No. 25. The Company is in the process of computing the effect
of adopting SFAS No. 123 and has not yet made a decision on whether to
adopt the U.S. accounting policy for the fiscal period ended December
31, 1996. Management believes the financial impact of adopting SFAS
No. 123 would be immaterial.
3. PROPERTY AND EQUIPMENT
November 30, 1996 November 30, 1995
----------------- -----------------
Land and buildings $ 171,342 $ 0
Furniture and fixtures 34,523 49,053
Office equipment 95,467 22,026
Automobiles 92,278 21,134
Capital leased equipment 13,281 0
Construction in progress 147,648 0
----------- ----------
Sub-Total 554,539 92,213
Less accumulated depreciation 63,970 50,942
----------- ----------
Net property and equipment $ 490,569 $ 41,271
----------- ----------
----------- ----------
38
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 1996 AND 1995
(UNAUDITED)
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.
Cash and share consideration payments for acquiring the lease are as
follows:
November 30, November 30,
1996 1995
----------- -----------
Advance minimum royalties
i) Payments of $50,000 are required on
May 1 and November 1 of each year $ 801,456 $ 701,456
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%. 1,255,624 1,062,475
(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
39
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 1996 AND 1995
(UNAUDITED)
4. MINERAL PROPERTIES (continued)
November 30, November 30,
1996 1995
----------- -----------
(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
payments of $10,000. 40,000 30,000
(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 $152,628 was paid at closing,
on November 7, 1996. The seller financed
a note for $187,500 at 12% interest for
one (1) year. 377,628 -
(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 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 purchased price. 65,000 -
40
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 1996 AND 1995
(UNAUDITED)
4. MINERAL PROPERTIES (continued)
November 30, November 30,
1996 1995
----------- -----------
(h) 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
financed a note for $850,000 at an
interest rate of prime plus two (2)% 950,000 -
(i) 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)
----------- -----------
$ 3,885,847 $ 2,125,070
----------- -----------
----------- -----------
5. DEFERRED EXPLORATION EXPENDITURES
November 30, November 30,
1996 1995
----------- -----------
EXPLORATION
Administration $ 523,556 $ 93,671
Engineering 276,989 103,908
Geology/drilling 844,624 509,133
Permitting/environmental 375,373 125,889
Metallurgical testing 29,027 73,970
----------- -----------
Total Expenditures for the period 2,049,569 906,571
BALANCE BEGINNING 8,002,361 6,154,352
----------- -----------
BALANCE ENDING $10,051,930 $ 7,060,923
----------- -----------
----------- -----------
41
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 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.
7. LONG TERM DEBT
November 30, November 30,
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. $ 72,955 $ 83,111
(b) Non-interest bearing note repayable in
two installments: $5,000 on July 1,
1997 and $4,000 on July 1, 1999, secured
by a grant deed. 9,000 -
(c) 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 -
42
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 1996 AND 1995
(UNAUDITED)
7. LONG TERM DEBT (continued)
November 30, November 30,
1996 1995
----------- -----------
(d) 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 -
(e) Payable in monthly installments of $1,500
including interest at 10% per annum, balance
is due in three years from the date of note
or start of mineral production, whichever
comes first. 43,214 -
(f) Payable in monthly installments of $600
including interest at 9% per annum. 46,092 -
(g) Note payable in monthly installments of
$9,275 including interest at prime plus
2% per annum regarding purchase of
approximately 29 acres. 850,000 -
(h) Payable in monthly installments of $16,659
including interest at 12% per annum. 187,500 -
----------- -----------
Total 2,208,761 83,111
Current Portion 299,496 10,156
----------- -----------
$ 1,909,265 $ 72,995
----------- -----------
----------- -----------
43
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 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
November 30, 1996 November 30, 1995
------------------- -------------------
Shares Amount Shares Amount
------ ------ ------ ------
Balance, beginning 16,533,400 $20,875,969 13,678,025 $ 8,736,982
Issued for debt: 506,215 662,282
Private placement - - 1,929,160 1,741,475
Exercise of options 18,000 10,060 90,000 37,106
Issued for 5,500,000
special warrants (i) 5,500,000 - - -
--------- ----------- ---------- -----------
Total capitalization 22,051,400 $20,886,029 16,203,400 $11,177,845
--------- ----------- ---------- -----------
--------- ----------- ---------- -----------
(i) Received $9,453,437 on May 23, 1996 for the Special Warrants.
Golden Queen completed the filing of the final prospectus relating to
5,500,000 common shares and 2,750,000 common share purchase warrants
issuable upon exercise of 5,500,000 Special Warrants on August 30,
1996. The Special Warrants were issued under a Special Warrant
Indenture dated as of May 23, 1996. Pursuant to the Special Warrant
Indenture, each Special Warrant was exercisable, without additional
payment, for one common share and one-half of one common share
purchase warrant, subject to adjustment in certain circumstances.
Shortly after the issuance by relevant Canadian securities regulators
of receipts for the final prospectus, an aggregate of 5,500,000 common
shares and 2,750,000 common share purchase warrants were issued by
Golden Queen.
Each warrant entitles its holder to purchase one common share at a
price of C$2.90 ($2.13) at any time prior to 4:00 p.m. (Vancouver
time) on November 28, 1997.
44
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 1996 AND 1995
(UNAUDITED)
8. SHARE CAPITAL (continued)
(c) Stock Options
Activity during six months ended November 31, 1996 and 1995.
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
November 30, 1996 November 30, 1995
----------------- -----------------
Number of Price Range Number of Price Range
Shares Per Share Shares Per Share
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Outstanding May 31 1,950,000 $0.44 - 2.18 935,000 $0.39 - 1.10
Options Granted 325,000 1.69 - 1.94 95,000 0.99 - 0.99
Options Exercised (18,000) 0.56 - 0.56 (90,000) 0.40 - 0.44
Options Canceled 0 - 0 -
--------- ----------- ------- -----------
Outstanding November 30 2,257,000 0.44 - 2.18 940,000 0.39 - 1.10
--------- ----------- ------- -----------
Exercisable 1,333,666 0.44 - 2.18 940,000 0.39 - 1.10
</TABLE>
Option prices represent the market price at the date of grant. Shares
issued under options are recorded in the common stock account at the
option price.
(d) During the period ended November 30, 1996, 18,000 common shares were
issued for C$13,680 ($10,072) upon the exercise of stock options by
directors and employees. Also, 50,000 stock options were granted at
an exercise price of C$2.30 ($1.69), 190,000 stock options were
granted at an exercise price of $C2.43 ($1.79) and, 85,000 stock
options were granted at an exercise price of $C2.60 ($1.94) to
directors and employees.
9. RELATED PARTY TRANSACTIONS
(a) During the period, transactions were incurred with related parties as
follows:
November 30, 1996 November 30, 1995
--------------------------------------
Consulting fees $ 0 $ 11,053
---------- ------------
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.
45
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 1996 AND 1995
(UNAUDITED)
10. SUBSEQUENT EVENTS
(a) Directors and Employee Stock Options
(i) During January 1997, 157,000 options were exercised as follows:
Exercise Price Number of Options Expiry Date
-------------- ----------------- -----------
C$0.55 ($0.40) 15,000 August 24, 1999
C$0.76 ($0.56) 12,000 March 4, 1999
C$1.35 ($0.99) 10,000 July 20, 2000
C$1.51 ($1.11) 120,000 February 21, 2001
(ii) Also, as on January 29, 1997, 130,000 options were granted at
$C2.70 ($2.01) with an expiry date of January 29, 2002.
(b) Property Purchases
(i) On December 10, 1996 land and building was purchased for $90,847.
(ii) On January 8, 1997 land and building was purchased for $80,300.
(iii)On January 23, 1997, land and building was purchased for $70,440.
46
<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 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.
Management has subsequently added additional information to the consolidated
financial statements and amended certain note disclosures. These amendments
include the addition of loss per share and weighted average number of shares
outstanding to the statements of loss and deficit, amendment to Note 2(c), 2(f)
and 8(c) and the addition of Note 2(h). These amendments were made for
clarification purposes only and have no effect on previously reported financial
position or results of operations.
Vancouver, B.C. MacKay & Partners
July 12, 1996, except for amendments Chartered Accountants
described above, which are as of
March 2, 1997.
47
<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 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)
APROVED BY DIRECTORS
Paul A. Bailly Gordon Gutrath Edward G. Thompson
See Accompanying Notes to Consolidated Financial Statements
48
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT ACCUMULATED
DURING THE DEVELOPMENT STAGE
From
November 21,
1985
(inception)
through
May 31, May 31, May 31,
1996 1995 1996
----------- ---------- ----------
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
----------- ---------- ----------
----------- ---------- ----------
Net Loss per Common Share $ 0.0269 $ 0.0163 $ N/A
----------- ---------- ----------
----------- ---------- ----------
Weighted average number of shares
outstanding 15,832,203 13,443,748 N/A
----------- ---------- ----------
----------- ---------- ----------
See Accompanying Notes to Consolidated Financial Statements
49
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
From
November 21,
1985
(inception)
through
May 31, May 31, May 31,
1996 1995 1996
----------- ----------- -----------
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 58,148 398,815
----------- ----------- -----------
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
See Accompanying Notes to Consolidated Financial Statements
50
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON ACCUMULATED
SHARES AMOUNT DEFICIT
---------------------------------------
Issuance of shares - for 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)
51
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON ACCUMULATED
SHARES AMOUNT DEFICIT
---------------------------------------
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)
----------- ----------- -----------
----------- ----------- -----------
52
<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 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:
53
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1996 AND 1995
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 acquisition;
(iii) Revenue and expenses - at the average rate of exchange
prevailing during the period
(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) Net Loss Per Share
Net loss per share is computed on the basis of weighted average common
shares and common stock equivalent shares outstanding, if dilutive.
(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.
(h) Accounting for Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123 "Accounting for
Stock-Based Compensation". The statement encourages all entities to
adopt a new method of accounting to measure compensation cost of all
employee stock compensation plans based on the estimated fair value of
the award at the date it is granted. Companies are, however, allowed
to continue to measure compensation cost for those plans using the
intrinsic value based method of accounting, which generally does not
result in compensation expense recognition for most plans. Companies
that elect to remain with the existing accounting are required to
disclose in a footnote to the financial statements pro forma net
income and, if presented, earnings per share, as if SFAS No. 123 had
been adopted. The accounting requirements of SFAS No. 123 are
effective for transactions entered into in fiscal years that begin
after December 15, 1995; however, companies are required to disclose
information for awards granted in their first fiscal year beginning
after December 15, 1994. Currently, the Company's stock-based
compensation plans are accounted for using Canadian generally accepted
accounting principles similar to the intrinsic value method prescribed
by APB No. 25. The Company is in the process of computing the effect
of adopting SFAS No. 123 and has not yet made a decision on whether to
adopt the U.S. accounting policy for the fiscal period ended December
31, 1996. Management believes the financial impact adopting SFAS No.
123 would be immaterial.
54
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1996 AND 1995
3. PROPERTY AND EQUIPMENT
May 31, May 31,
---------- ----------
1996 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.
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
55
<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
---- ----
(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 install-
ments 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
(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 -
56
<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
---- ----
(g) On December 30, 1994, the Subsidiary
signed an amendment to a September
25, 1989 agreement of purchase for
certain leasehold interests and un-
patented 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 cancelled
note has been credited to mineral
properties. $ (150,000) $ (150,000)
------------ ------------
$ 2,401,023 $ 1,978,320
------------ ------------
------------ ------------
5. DEFERRED EXPLORATION AND DEVELOPMENT EXPENDITURES
<TABLE>
<CAPTION>
From November 21, 1985
(inception) through
May 31, May 31, 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>
57
<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, pay-
able in monthly installments of principal
and interest over the period ending Dec-
ember 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
58
<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
59
<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
May 31, 1996 May 31, 1995
Shares Amount Shares Amount
------ ------ ------ ------
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
capitalization 16,533,400 $20,875,969 13,678,025 $8,736,982
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
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.
60
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1996 AND 1995
8. SHARE CAPITAL (continued)
(c) Stock Options
Activity during years ended May 31, 1996 and 1995.
YEAR ENDED MAY 31,1996 YEAR ENDED MAY 31, 1995
Number of Price Range Number of Price Range
Shares Per Share Shares Per Share
- --------------------------------------------------------------------------------
Beginning of Year 935,000 $ 0.39 - 1.10 958,900 $ 0.18 - 0.56
Options Granted 1,435,000 0.99 - 2.18 625,000 0.40 - 1.40
Options Exercised (420,000) 0.39 - 1.07 (648,900) 0.18 - 0.44
Options Canceled 0 - 0 -
End of Year 1,950,000 0.44 - 2.18 935,000 0.39 - 1.10
Exercisable 1,210,000 0.44 - 2.18 935,000 0.39 - 1.10
Option prices represent the market price at the date of grant. Shares issued
under options are recorded in the common stock account at the option price.
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.
(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.
61
<PAGE>
PART III
ITEMS 1 AND 2. EXHIBITS.
The following exhibits filed as part of this registration statement.
EXHIBIT NO.
3.1 Certificates and Articles of Incorporation of the Registrant
under the Company Act of British Columbia, as amended.
Previously filed.
10.1 Warrant Indenture dated May 23, 1996 between the Registrant and
Montreal Trust Company of Canada, as trustee. Previously filed.
10.2 Employment agreement dated April 2, 1996 among the Company,
Castle Group, Inc. and Steven W. Banning. Previously filed.
10.3 Employment agreement dated May 8, 1996 between the Company and
Richard W. Graeme. Previously filed.
10.4 Employment agreement dated May 24, 1996 between the Company and
Bernard F. Goodson. Previously filed.
10.5 Lease dated October 20, 1994 between the Subsidiary and
William J. Warner with respect to certain property within the
project area. Previously filed.
10.6 Lease dated September 19, 1994 between the Subsidiary and Western
Centennials, Inc. with respect to certain property within the
project area. Previously filed.
10.7 Purchase agreement dated March 8, 1995 between the Subsidiary and
William and Dorothy Meier with respect to the acquisition by the
Subsidiary of certain property within the project area.
Previously filed.
10.8 Stock option purchase agreement dated April 1, 1995 between the
Subsidiary and 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 with respect to the
acquisition by the Subsidiary of an option to purchase all of the
outstanding shares of KWC. Previously filed.
10.9 Purchase agreement dated September 22, 1995 between the
Subsidiary and the Paveen Gupta Medical Corporate Defined Benefit
Pension Plan with respect to the acquisition by the Subsidiary of
certain property within the project area. Previously filed.
10.10 Purchase agreement dated March 29, 1996 between the Subsidiary
and the Meehl Family Trust and others with respect to the
acquisition by the Subsidiary of certain property within the
project area. Previously filed.
10.11 Mineral exploration agreement and option to lease or purchase
dated January 25, 1996 between the Soledad-Mojave Mining
Syndicate and the Subsidiary with respect to the potential
acquisition by the Subsidiary of 129.5 hectares of fee land
within the project area. Previously filed.
62
<PAGE>
10.12 Purchase agreement dated August 1, 1996 between the Subsidiary
and Southwestern Refining Corporation with respect to the
acquisition by the Subsidiary of certain property and mill
tailings within the project area. Previously filed.
10.13 Stock option plan of the registrant, as amended. To be filed by
amendment.
10.14 Management agreement dated June 30, 1986, as amended January 30,
1990, between the registrant and Chester Shynkaryk. To be filed
by amendment.
10.15 Forms of debentures issued by the registrant to Landon T. Clay
Charitable Lead Trust II and Landon T. Clay Charitable Lead Trust
dated November 30, 1983. To be filed by amendment.
10.16 Consulting agreement dated February 1, 1996 between the
registrant and Eric E. Kinneberg. To be filed by amendment.
21.0 Subsidiaries of the Registrant. Previously filed.
24.0 Power of attorney and consent on Form F-X. Previously filed.
27.0 Financial Data Schedule. Filed herewith.
63
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this amendment to registration statement to be signed on this
behalf by the undersigned, thereunto duly authorized.
GOLDEN QUEEN MINING CO. LTD.
By: /s/ Bernard F. Goodson
-------------------------------------
Bernard F. Goodson, its Vice President
of Administration and Controller
Dated: March 14, 1997
64
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD
ENDED NOVEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 6,326,222
<SECURITIES> 0
<RECEIVABLES> 160,427<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,486,649
<PP&E> 14,778,346<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,264,995
<CURRENT-LIABILITIES> 521,219
<BONDS> 1,909,265<F3>
0
0
<COMMON> 18,834,511<F4>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 21,264,995
<SALES> 3,805
<TOTAL-REVENUES> 238,845
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 475,262
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,292
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (236,631)
<EPS-PRIMARY> (0.013)
<EPS-DILUTED> (0.013)
<FN>
<F1>INCLUDES PREPAID EXPENSES AND DEPOSITS OF $61,747.
<F2>CONSISTS OF CAPITAL ASSETS OF $490,569, MINERAL PROPERTIES OF $3,885,847,
DEFERRED EXPLORATION AND DEVELOPMENT EXPENDITURES OF $10,051,930, AND OTHER
ASSETS OF $350,000.
<F3>CONSISTS OF A LONG-TERM NOTE AND DEBENTURES.
<F4>CONSISTS OF PAID-IN CAPITAL OF $20,886,029, LESS DEFICIT OF $2,051,518
ACCUMULATED DURING THE DEVELOPMENT STAGE.
</FN>
</TABLE>
