FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
GOLDEN QUEEN MINING CO. LTD.
(Exact name of registrant as specified in its charter)
Province of British Columbia 0-21777 Not Applicable
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
Green Flag Building, Suite 211-A
104 South Freya
Spokane, Washington 99202
(Address of principal executive offices)
Registrant's telephone number, including area code: (509) 535-4022
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, without par value
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ ] No [X]
The number of outstanding shares of the issuer's common stock at September
30, 1997 was 25,708,400 shares.
Transitional Small Business Disclosure Format. Yes [ ] No [X]
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
SAFE HARBOR STATEMENT
Page
PART I
Item 1: Consolidated Financial Statements 1
Item 2: Management's Discussion and Analysis or
Plan of Operation 9
PART II
Item 1: Legal Proceedings 12
Item 2: Changes in Securities 12
Item 3: Defaults Upon Senior Securities 12
Item 4: Submission of Matters to a Vote of Security Holders 12
Item 5: Other Information 12
Item 6: Exhibits and Reports on Form 8-K 12
SIGNATURES
(i)
<PAGE>
SAFE HARBOR STATEMENT
Except for the historical information contained herein, certain of the
matters discussed in this report are "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995, which
involve risks and uncertainties. Potential risks and uncertainties
include, without limitation, the likelihood of continued losses from
operations pending development of the Company's Soledad Mountain Project in
Kern County, California, the need to obtain significant additional
financing in order to develop the project, risks associated with the mining
industry generally, environmental risks associated with mining, fluctuating
gold prices, and other factors that may affect future results as described
below.
The Company has no revenue from mining operations and has experienced
losses from operations for each of the last ten years. This trend is
expected to continue for at least the next two years and is expected to
reverse only if, as and when gold is produced from the Soledad Mountain
Project.
No assurance can be given that the Soledad Mountain Project will be placed
into production. Based upon currently available information, the Company
estimates that it will need up to $65,000,000 to begin production, which
may 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 September 30, 1997, world gold
prices were approximately $332 per ounce, a reduction of approximately 16%
from prices at the end of 1996. Also, on November 6, 1997, the world gold
prices were approximately $312 per ounce, a reduction of approximately 21%
from prices at the end of 1996. If gold prices do not strengthen, it may
not be economical for the Company to place the Soledad Mountain Project
into production.
The Company is subject to all of the risks inherent in the mining industry,
including environmental hazards, industrial accidents, labor disputes,
unusual or unexpected geologic formations, cave-ins, flooding and periodic
interruptions due to inclement weather. These risks could result in damage
to, or destruction of, mineral properties and production facilities,
personal injury, environmental damage, delays, monetary losses and legal
liability. Although the Company maintains or can be expected to maintain
insurance within ranges of coverage consistent with industry practice, no
assurance can be given that such insurance will be available at
economically feasible premiums. Insurance against environmental risks
(including pollution or other hazards resulting from the disposal of waste
products generated from exploration and production activities) is not
generally available to the Company. Were the Company subjected to
environmental liabilities, the payment of such liabilities would reduce the
funds available to the Company. Were the Company unable to fund fully the
cost of remedying an environmental problem, it might be required to suspend
operations or enter into interim compliance measures pending completion of
remedial activities.
(ii)
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited consolidated financial statements of the Company for the
periods covered by this report are set forth at pages 2 through 8.
[The balance of this page has been intentionally left blank.]
1
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Balance Sheets
September 30, 1997 December 31, 1996
(U.S. Dollars) (unaudited) (audited)
- -------------- ------------------ -----------------
Assets
Current Assets
Cash and cash equivalents $ 2,274,739 $ 5,436,497
Accounts receivable 21,119 133,164
Prepaid expenses and
other current assets 107,954 55,603
--------- ---------
Total current assets 2,403,812 5,625,264
Properties and equipment, net 1,182,729 683,310
Mineral properties 5,314,667 4,941,839
Deferred exploration
and development 15,722,949 9,799,839
Other assets 856,622 353,500
---------- ---------
Total assets $ 25,480,779 $ 21,403,752
========== ==========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 219,598 $ 507,713
Accrued liabilities 53,204 69,046
Current maturities of
long-term debt 1,075,481 203,175
--------- ---------
Total current liabilities 1,348,283 779,934
Long-term debt,
less current maturities 869,076 1,901,520
--------- ---------
Total liabilities 2,217,359 2,681,454
--------- ---------
Shareholders' Equity
Preferred shares, without par,
3,000,000 shares authorized;
0 shares outstanding - -
Common shares, without par,
100,000,000 shares authorized;
25,708,400 and 22,051,400 shares
issued (Note 2) 26,412,468 20,886,029
Deficit accumulated during the
development stage (3,149,048) (2,163,731)
---------- ----------
Total shareholders' equity 23,263,420 18,722,298
---------- ----------
Liabilities and
shareholders' equity $ 25,480,779 $ 21,403,752
========== ==========
2
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Statements of Loss
(Unaudited)
(U.S. Dollars)
<TABLE>
<CAPTION>
Cumulative Amounts
From Date of Inception
Nine Month Period Ended Nine Month Period Ended (November 21, 1985)
September 30, August 31, September 30, August 31, through September 30,
1997 1996 1997 1996 1997
------------------------ ---------------------- ----------------------
<S> <C> <C> <C> <C> <C>
General and
administrative
expenses $ 364,348 $ 208,834 $ 906,035 $ 583,883 $ 3,047,892
Interest expense 24,278 24,278 72,042 45,333 278,624
Interest income (43,887) (126,375) (13,506) (154,890) (846,081)
Other expense 5,763 - 8,139 5,371 14,508
Write-off of mineral
properties - - - - 277,251
---------- ---------- ---------- ---------- ----------
Net loss $ 350,502 $ 106,737 $ 851,155 $ 479,697 $ 2,772,194
========== ========== ========== ========== ==========
Net loss per share 0.02 0.01 0.04 0.03 N/A
---------- ---------- ---------- ---------- ----------
Weighted average
shares
outstanding 23,159,487 16,533,824 22,522,902 16,449,324 N/A
</TABLE>
3
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Statements of Changes in Shareholders' Equity
(U.S. Dollars)
<TABLE>
<CAPTION>
From the Date of Inception
(November 21, 1985) Common Shares Accumulated
Through September 30, 1997 Shares Amount Deficit Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
November 21, 1985
Issuance of shares for cash 1,425,001 $ 141,313 $ $ 141,313
Loss for the year (15,032) (15,032)
-------------------------------------------------------------------
Balance, May 31, 1986 1,425,001 141,313 (15,032) 126,281
Issuance of shares
for cash 550,000 256,971 256,971
for property 25,000 13,742 13,742
Loss for the year (58,907) (58,907)
-------------------------------------------------------------------
Balance, May 31, 1987 2,000,001 412,026 (73,939) 338,087
Issuance of shares - for cash 1,858,748 1,753,413 1,753,413
Earnings for the year 38,739 38,739
-------------------------------------------------------------------
Balance, May 31, 1988 3,858,749 2,165,439 (35,200) 2,130,239
Issuance of shares
for cash 1,328,750 1,814,133 1,814,133
for property 100,000 227,819 227,819
Loss for the year (202,160) (202,160)
-------------------------------------------------------------------
Balance, May 31, 1989 5,287,499 4,207,391 (237,360) 3,970,031
Issuance of shares
for cash 1,769,767 2,771,815 2,771,815
for property 8,875 14,855 14,855
Loss for the year (115,966) (115,966)
-------------------------------------------------------------------
Balance, May 31, 1990 7,066,141 6,994,061 (353,326) 6,640,735
Earnings for the year 28,706 28,706
-------------------------------------------------------------------
Balance, May 31, 1991 7,066,141 6,994,061 (324,620) 6,669,441
Loss for the year (157,931) (157,931)
-------------------------------------------------------------------
Balance, May 31, 1992 7,066,141 6,994,061 (482,551) 6,511,510
Loss for the year (285,391) (285,391)
-------------------------------------------------------------------
Balance, May 31, 1993 7,066,141 6,994,061 (767,942) 6,226,119
Issuance of shares
for cash 5,834,491 1,536,260 1,536,260
for property 128,493 23,795 23,795
Loss for the year (158,193) (158,193)
Share issue costs (18,160) ( 18,160)
-------------------------------------------------------------------
Balance, May 31, 1994 13,029,125 8,554,116 (944,295) 7,609,821
</TABLE>
4
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Statements of Changes in Shareholders' Equity
(U.S. Dollars)
(Continued)
<TABLE>
<CAPTION>
From the Date of Inception
(November 21, 1985) Common Shares Accumulated
Through September 30, 1997 Shares Amount Deficit Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of shares
for cash 648,900
for property 182,866 182,866
Loss for the year (219,576) (219,576)
------------------------------------------------------------------
Balance, May 31, 1995 13,678,025 $ 8,736,982 $ (1,163,871) $ 7,573,111
Issuance of common shares
for cash 2,349,160 2,023,268 - 2,023,268
Issuance of common shares
for debt 506,215 662,282 - 662,282
Issuance of 5,500,000
special warrants - 9,453,437 - 9,453,437
Special warrants issue cost - - (100,726) (100,726)
Net loss for the year - - (426,380) (426,380)
------------------------------------------------------------------
Balance, May 31, 1996 16,533,400 20,875,969 (1,690,977) 19,184,992
Issuance of common shares
for cash 18,000 10,060 - 10,060
Issuance of common shares
for special warrants 5,500,000 - - -
Special warrants issue cost - - (123,806) (123,806)
Net loss for the period - - (348,948) (348,948)
------------------------------------------------------------------
Balance, December 31, 1996 22,051,400 20,886,029 (2,163,731) 18,722,298
Issuance of common shares
for cash 157,000 157,050 - 157,050
Issuance of 3,500,000
Special Warrants - 5,299,189 - 5,299,189
Issuance of common shares
for special warrants 3,500,000 - - -
Options to non-employee directors - 70,200 - 70,200
Special Warrant Issue Cost - - (134,162) (134,162)
Net loss for the period - - (851,155) (851,155)
------------------------------------------------------------------
Balance, September 30, 1997 25,708,400 $26,412,468 $(3,149,048) $23,263,420
==================================================================
</TABLE>
5
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Cumulative Amounts
From Date of Inception
(November 21, 1985)
Nine Month Period Ended through
September 30, 1997 August 30, 1996 September 30, 1997
------------------ --------------- ----------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (851,155) $ (479,697) $ (2,772,194)
Adjustments to reconcile net loss to
cash used in operating activities:
Write-off of mineral properties - - 277,251
Amortization and depreciation 48,586 20,229 90,496
Loss on disposition of property
and equipment - 4,621 10,949
Options to directors 70,200 - 70,200
Changes in assets and liabilities:
Accounts receivable 112,045 (22,197) (21,119)
Prepaid expenses and other
current assets (52,351) (83,709) (107,954)
Accounts payable and accrued
liabilities (303,957) 183,574 272,802
----------------------------------------------------
Cash used in operating activities (976,632) (377,179) (2,179,569)
----------------------------------------------------
FINANCING ACTIVITIES:
Borrowing under long-term debt - 1,202,295 2,681,669
Payment of long-term debt (160,138) (16,018) (1,009,663)
Issuance of common shares for cash 157,050 251,908 10,647,149
Share issue costs (134,162) (172,286) (376,854)
Issuance of special warrants 5,299,189 9,453,437 14,752,626
----------------------------------------------------
Cash provided by financing activities 5,161,939 10,719,336 26,694,927
----------------------------------------------------
INVESTING ACTIVITIES:
Deferred exploration and
development expenditures (5,923,110) ( 1,933,643) (16,882,137)
Deposits on mineral properties (503,122) (250,000) (856,622)
Purchase of mineral properties (372,828) (511,628) (3,217,686)
Purchase of property and equipment (548,005) (149,519) (1,292,666)
Proceeds from sale of assets - - 8,492
----------------------------------------------------
Cash used in investing activities (7,347,065) (2,844,790) (22,240,619)
----------------------------------------------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS (3,161,758) 7,497,367 2,274,739
CASH AND CASH EQUIVALENTS,
beginning balance 5,436,497 950,832 -
----------------------------------------------------
CASH AND CASH EQUIVALENTS,
ending balance $ 2,274,739 $ 8,448,199 $ 2,274,739
====================================================
6
<PAGE>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for:
Interest $ 167,029 $ 8,839 $ 516,634
Income taxes - - -
NON-CASH FINANCING AND INVESTING
ACTIVITIES:
Exchange of notes for common shares - - $ 662,282
Exchange of note for future royalty
payments - - $ 150,000
Shares for mineral property - - $ 280,211
Mineral property acquired through the
issuance of long-term debt - - $ 1,084,833
</TABLE>
[The balance of this page has been intentionally left blank.]
7
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
Note 1: Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instruction to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
thereto included in the Company's 1996 annual report on Form 10-KSB. In
the opinion of management, all adjustments, consisting only of normal
recurring accruals, considered necessary for a fair presentation have been
included. Operating results for the nine month period ended September 30,
1997 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997.
During 1996, the Company elected to change its fiscal year end from May 31
to December 31. Financial information presented in this Form 10-QSB for
the preceding fiscal year is for the nine month period ended August 31,
1996. In order to maintain consistency of financial information contained
in regulatory filings in both Canada and the United States, management of
the Company has elected not to recast its operations from the preceding
fiscal year to parallel the 1997 quarterly results. Management of the
Company believes there are no seasonal or other factors which would affect
the comparability of this information.
Note 2: Share Capital
(a) The Company issued 3,5000,000 special warrants, at a price of US$1.59
(C$2.20) per special warrant for gross proceeds of US$5,565,000, under a
Special Warrant Indenture dated as of May 29, 1997. Each special warrant
was exercisable, without additional payment, for one common share, subject
to customary "anti-dilution" provisions set out in the Special Warrant
Indenture, provided that if a receipt for the final prospectus relating to
the common shares issuable upon exercise of the special warrants was not
issued by the securities regulatory authority of each of the Provinces of
British Columbia and Ontario by August 27, 1997, each special warrant would
have been exercisable for 1.035 common shares. Receipts were obtained from
such authorities by such deadline and, on September 6, 1997, 3,500,000
common shares were issued on the exercise of the special warrants.
The net proceeds of the offering have been, and will be, used to fund the
ongoing capital expenditures at the Soledad Mountain Project and for
general corporate purposes.
The special warrants were issued (and the shares of common stock issued
upon their exercise were issued) primarily to Canadian investors, in
reliance on Regulation S adopted under the Securities Act of 1933, as
amended (the "Securities Act"). The issuance of the special warrants to
several United States investors was made in reliance on the exemption from
the registration requirements of the Securities Act afforded by Section
4(2).
(b) During the nine month period ended September 30, 1997, the Company
issued 130,000 options to purchase common shares to two non-employee
directors. These options were valued at US$0.54 (C$0.74) per option,
resulting in a total value of US$70,200 (C$96,200). The Company accounts
for these options under Statement of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation" ("SFAS No. 123"). Under SFAS No.
123, the options were recorded as a charge to directors expense, which is
included within general and administrative expenses.
The transaction was recorded at the fair value of the options issued as
management believes that amount was more readily determinable. The fair
value at the date of grant was estimated using the Black-Scholes option
pricing model, utilizing the following weighted average assumptions for
grants in 1997: no dividend yield, expected volatility of 40% and a risk-
free interest rate approximating 4%.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS.
OVERVIEW. During the periods indicated in the discussion which follows,
the Company has been in the exploration stage of its business and therefore
has earned no revenue from its operations. Variations in the level of
expenses between periods have been as a result of the nature, timing and
cost of the activities undertaken in the various periods. Financing of the
continued exploration of the Soledad Mountain Project during such periods
has been obtained through the sale of shares of common stock of the Company
in predominantly offshore transactions and through borrowings.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
AUGUST 31, 1996
General and administrative expenses increased to $364,000 for the three
months ended September 30, 1997, from $208,000 for the three month period
ended August 31, 1996. The increase is primarily due to costs associated
with professional fees and recognizing compensation cost on stock options
to directors. Interest income decreased to $44,000 for the three months
ended September 30, 1997, from $126,000 for the three months ended August
31, 1996, primarily as a result of a decrease in the average balance of
invested funds. As a result of the foregoing factors, the Company incurred
a net loss of $351,000 for the three months ended September 30, 1997,
versus a net loss of $106,000 for the three month period ended August 31,
1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
AUGUST 31, 1996
General and administrative expenses increased to $906,000 for the nine
months ended September 30, 1997, from $584,000 for the nine months ended
August 31, 1996. The increase is primarily due to additional management
staffing added during 1996 and expenditures for professional fees, printing
and recognizing compensation cost on stock options to directors
Interest income decreased to $135,000 for the nine month period ended
September 30, 1997, from $155,000 for the nine month period ended August
31, 1996, as a result of a decrease in the average balance of invested
funds. Interest expense increased to $72,000 for the nine months ended
September 30, 1997, from $45,000 for the nine months ended August 31, 1996.
As a result of the foregoing factors, the Company incurred a net loss of
$851,000 for the nine months ended September 30, 1997, versus a net loss of
$480,000 for the nine month period ended August 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES.
The Company acquired the Soledad Mountain Project in 1986 and since then
has been engaged in solidifying its land position and conducting several
drilling and sampling programs in order to delineate ore reserves on the
project. The Company continues to focus its attention on exploring and
developing the project, with a view toward commencing production in the
first half of 1999. During the nine months ended September 30, 1997, the
Company expended approximately $7,347,000 on the Soledad Mountain Project.
On a cumulative basis since inception, the Company has expended
approximately $22,241,000 on the project.
As of September 30, 1997, the Company had approximately $2,275,000 in cash
and $1,056,000 in working capital. Based upon currently available
information, the Company estimates that it will need up to $65,000,000 to
begin production at the Soledad Mountain Project subject to the outcome of
the feasibility study currently being completed. The Company has expected
that this financing would be derived from additional sales of common stock
and from bank borrowings. However, recent developments in the project debt
and equity markets make it unlikely that the Company would be able to, in
the short term, raise all of the funds required to develop the Soledad
Mountain Project from these sources. The Company may determine that it is
in the best interests of its shareholders to enter into a joint development
or similar arrangement with another mining company to develop the Soledad
Mountain Project.
9
<PAGE>
As is disclosed in note 2 to the financial statements accompanying this
report, and in Item 5 of this report, the Company issued 3,500,000 special
warrants under a special warrant indenture dated as of May 29, 1997, at the
price of C$2.20 (US$1.59). Through this placement of special warrants, the
Company raised proceeds of US$5,565,000 (C$7,700,000). The proceeds of the
offering have been, and will be, used to fund the ongoing capital
expenditures at the Soledad Mountain Project and for general corporate
purposes.
The Company does not have any commitment for bank financing or for the
underwriting of additional shares of its common stock, and is not a party
to any agreement or arrangement providing for a merger or 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
September 30, 1997, world gold prices were approximately $332 per ounce, a
reduction of approximately 16% from prices at the end of 1996. Also, on
November 6, 1997, the world gold prices were approximately $312 per ounce,
a reduction of approximately 21% from prices at the end of 1996. If gold
prices do not strengthen, it may not be economical for the Company to place
the Soledad Mountain Project into production.
PLAN OF OPERATIONS.
The Company has substantially completed its exploration of the Soledad
Mountain Project and intends to develop the project as an open pit gold and
silver mining and cyanide heap leach recovery operation. The Company's
plans include the construction of facilities, mining by open pit methods
and processing precious metals ores at a rate of up to 5.4 million tonnes
(6 million tons) per year for at least seven years. This will be followed
by heap detoxification and reclamation of the project site. The Company's
plans call for commencement of production of gold and silver from the
project in the first half of 1999.
The Company is presently updating the Soledad Mountain Project feasibility
study to reflect an ore mining and processing rate of 5.4 million tonnes
per year. This 50% increase in planned production is expected to result in
lower operating cost than the previous study. An increase in the capital
estimate to between $60,000,000 and $65,000,000 is projected.
The previous bankable feasibility study was completed in January 1997, for
a 3.6 million ore tonnes per year facility. The total capital cost of the
Project was estimated to be $59,500,000, consisting of an initial capital
component and a future component covering deferred and replacement capital,
including reclamation. Initial capital costs required to put the project
into production were estimated to be $47,800,000. This estimate was based
on a 12-month construction period starting immediately after receiving
permits. The estimate included purchases of all equipment and facilities,
including mobile equipment. Deferred and replacement capital costs
required to complete all facilities to accommodate life-of-mine ore
production were estimated to be $11,700,000, including continuation of land
acquisition payments, leach pad additions, equipment replacement and/or
major overhauls and heap rinse down. Reclamation occurring during mine
operation was carried as an operating expense in this study.
Based on a stripping ratio of 2.49 to 1, the Company estimated in the
previous study 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). This previous
feasibility report prepared for the Company by Pincock, Allen & Holt
concluded that these proposed operating costs were estimated in accordance
with industry practice. The Company estimated that 94,300 ounces per year
of gold equivalent could be produced at a direct cash cost of $223 per
ounce and a total operating cost, including royalties and local taxes, of
$245 per ounce. Total production cost, including capital but excluding
sunk cost, was estimated at $334 per ounce of gold equivalent.
10
<PAGE>
Approximately 25,000 meters of drilling was completed during the past 12
months which doubled the proven and probable ore reserve to 1.64 million
ounces. This reserve and accompanying mining schedule have become the
basis for the updated feasibility study. Proven and probable reserves, as
prepared by Mine Reserves Associates of Denver, Colorado are as follows:
Reserve Table
- ------------------------------------------------------------------------
Mineralized
Material
Gold Price (U.S.) $350 $375 Inventory
- ------------------------------------------------------------------------
Tonnes (millions) 31.6 55.1 100.6
Grade Au (g/t) 0.86 0.79 0.69
Grade Ag (g/t) 13.30 11.48 10.97
Grade Au Equivalent (g/t) 1.00 0.93 0.79
Total Ounces Au Equivalent 1,012,000 1,643,000 2,554,000
Cut-Off Grade (Au Equivalent) 0.41 0.34 0.27
Strip Ratio 2.1:1 3.25:1 N/A
- ------------------------------------------------------------------------
The Company is adequately funded, with $2.3 million in cash, to complete
the feasibility study and maintain all other commitments through the end of
the year.
The following table summarizes the activities proposed to be undertaken by
the Company during the twelve-month period commencing January 1, 1997, and
the estimated costs of such activities.
Underground drilling $2,000,000
Surface drilling 1,000,000
Engineering design 2,400,000
Permitting and feasibility study 1,000,000
---------
Total $6,400,000
=========
The Company has expended approximately $598,000 on the current bankable
feasibility study, which is scheduled for completion in the fourth quarter
of 1997. This expenditure is necessary for the development of the planned
operations for the Soledad Mountain Project of 5.4 million tonnes per year,
with a gold equivalent production target of 130,000 to 150,000 ounces per
year. The new bankable feasibility study will also be used for project
financing and basic engineering design purposes.
PERMITTING. Permitting began in February 1996 with the submission of
permit applications to the Bureau of Land Management and Kern County,
California, representing the State of California. State and county
approvals were received on September 8, 1997, approximately nineteen months
after the permitting process was initiated. Also, on November 3, 1997, the
federal record of decision was issued by the Bureau of Land Management,
approving the Company's permit. With these milestones complete, the
Authority to Construct (ATC) is expected soon by the Kern County Air
Pollution Control District. The Company can then begin project
construction once project financing has been obtained. A twelve month
construction period is projected.
11
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS.
Neither the Company nor its subsidiary, Golden Queen Mining Company, Inc.,
is a party to, nor are they threatened by, any material legal proceeding as
of the date of this report.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's shareholders during
the third quarter of 1997.
ITEM 5. OTHER INFORMATION.
The Company issued 3,5000,000 special warrants, at a price of US$1.59
(C$2.20) per special warrant for gross proceeds of US$5,565,000, under a
Special Warrant Indenture dated as of May 29, 1997. Each special warrant
was exercisable, without additional payment, for one common share, subject
to customary "anti-dilution" provisions set out in the Special Warrant
Indenture, provided that if a receipt for the final prospectus relating to
the common shares issuable upon exercise of the special warrants was not
issued by the securities regulatory authority of each of the Provinces of
British Columbia and Ontario by August 27, 1997, each special warrant would
have been exercisable for 1.035 common shares. Receipts were obtained from
such authorities by such deadline and, on September 6, 1997, 3,500,000
common shares were issued on the exercise of the special warrants.
The proceeds of the offering have been, and will be, used to fund the
ongoing capital expenditures at the Soledad Mountain Project and for
general corporate purposes.
The special warrants were issued (and the shares of common stock issued
upon their exercise were issued) primarily to Canadian investors, in
reliance on Regulation S adopted under the Securities Act of 1933, as
amended (the "Securities Act"). The issuance of the special warrants to
several United States investors was made in reliance on the exemption from
the registration requirements of the Securities Act afforded by Section
4(2).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS. A financial data schedule is filed as exhibit no. 27 to this
report. No other exhibits are filed as part of this report.
FORM 8-K REPORTS. The Company filed no reports on Form 8-K during the
third quarter of 1997.
12
<PAGE>
SIGNATURES
In accordance with section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GOLDEN QUEEN MINING CO. LTD.
By: /s/ Bernard F. Goodson
--------------------------------
its Vice President of
Administration and Controller
November 7, 1997
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM the
Company's unaudited consolidated financial statements for the nine-month period
ended September 30, 1997, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,274,739
<SECURITIES> 0
<RECEIVABLES> 21,119
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,403,812<F1>
<PP&E> 23,076,967<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,480,779
<CURRENT-LIABILITIES> 1,348,283
<BONDS> 0
0
0
<COMMON> 23,263,420
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 25,480,779
<SALES> 0
<TOTAL-REVENUES> 43,887<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 350,502<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,278
<INCOME-PRETAX> (350,502)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (350,502)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
<FN>
<F1>Includes prepaid expenses and other current assets of $107,954.
<F2>Consists of: properties and equipment, net of depreciation, of $1,182,729;
mineral properties of $5,314,667; deferred exploration and development costs of
$15,722,949; and other assets of $856,622.
<F3>Consists of interest income.
<F4>Consists of general and administrative expenses of $364,348; interest
expense of $24,278; and other expenses of $5,763.
</FN>
</TABLE>
