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 March 31, 1998
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.)
104 South Freya, Suite 211-A
Green Flag Building
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 March 31,
1998 was 29,560,641 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 MARCH 31, 1998
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 Operations 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 13
(i)
<PAGE>
SAFE HARBOR STATEMENT
This report contains both historical and prospective statements concerning
the Company and its operations. Historical statements are based on events
that have already happened; examples include the reported financial and
operating results, descriptions of pending and completed transactions, and
management and compensation matters. Prospective statements, on the other
hand, are based on events that are reasonably expected to happen in the
future; examples include the timing of projected operations, the likely
effect or resolution of known contingencies or other foreseeable events,
and projected operating results.
Prospective statements (which are known as "forward-looking statements"
under the Private Securities Litigation Reform Act of 1995) may or may not
prove true with the passage of time because of future risks and
uncertainties. The risks and uncertainties associated with prospective
statements contained in this report include, among others, the following:
THE LIKELIHOOD OF CONTINUED LOSSES FROM OPERATIONS. The Company has no
revenue from mining operations and has incurred losses from inception
through March 31, 1998 of approximately $3,201,000. 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.
THE NEED FOR SIGNIFICANT ADDITIONAL FINANCING. The Company needs
approximately $77,600,000 in additional financing to put the Soledad
Mountain Project into production; $66,300,000 of this will be used for
capital expenditures and $11,300,000 will be used as working capital and
for start-up expenditures. Although the Company expects to finance
development from additional sales of common stock, from bank or other
borrowings (or, alternatively, through joint development with another
mining company), it has no commitment for bank financing or for the
underwriting of additional stock, and it is not a party to any agreement or
arrangement providing for joint development. Whether and to what extent
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 31, 1998,
world gold prices were approximately $299 per ounce, a reduction of
approximately 12% from prices a year ago. If gold prices do not
strengthen, it may not be economical for the Company to put the Soledad
Mountain Project into production.
RISKS AND CONTINGENCIES ASSOCIATED WITH THE MINING INDUSTRY GENERALLY. The
Company is subject to all of the risks inherent in the mining industry,
including environmental risks, fluctuating metals prices, 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.
(ii)
<PAGE>
PART 1
Item 1. FINANCIAL STATEMENTS
The unaudited consolidated financial statements of the Company for the
periods covered by this report are set forth at pages 2 through 8.
[The balance of this page has been intentionally left blank.]
1
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Balance Sheets
(U.S. dollars)
March 31, 1998 December 31, 1996
(unaudited) (audited)
------------------ -----------------
Assets
Current Assets:
Cash and cash equivalents $ 933,368 $ 1,127,234
Receivables 4,968 14,798
Prepaid expenses and
other current assets 42,181 77,773
----------- ------------
Total current assets 980,517 1,219,805
Property and equipment, net 1,146,635 1,164,651
Mineral properties 22,652,354 22,104,335
Other assets 898,362 892,928
----------- ------------
$ 25,677,868 $ 25,381,719
=========== ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 93,976 $ 384,388
Accrued liabilities 31,017 69,427
Current maturities of
long-term debt 46,192 45,034
----------- ------------
Total current liabilities 171,185 498,849
Long-term debt, less current
maturities (Note 2) 845,197 1,857,189
----------- ------------
Total liabilities 1,016,382 2,356,038
----------- ------------
Commitments and Contingencies
Shareholders' equity:
Preferred shares, no par,
3,000,000 shares authorized;
no shares outstanding - -
Common shares, without par,
100,000,000 shares authorized;
29,560,641 and 25,708,400
shares issued (Note 2) 28,268,777 26,400,594
Deficit accumulated during
the development stage (3,607,291) (3,374,913)
----------- ------------
Total shareholders' equity 24,661,486 23,025,681
----------- ------------
Liabilities and shareholders'
equity $ 25,677,868 $ 25,381,719
=========== ============
2
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Statements of Loss
(Unaudited)
(U.S. dollars)
<TABLE>
<CAPTION>
Cumulative Amounts
Three Month Three Month From Date of Inception
Period Ended Period Ended (November 21, 1985)
March 31, 1998 March 31, 1997 through March 31, 1998
-------------- -------------- ----------------------
<S> <C> <C> <C>
General and admin-
instrative expense $ 216,754 $ 198,621 $ 3,454,554
Interest expense 20,583 23,750 323,485
Interest income (9,047) (54,970) (874,771)
Other expense, net 3,636 453 20,315
Write-off of mineral
properties - - 277,251
---------- ---------- ----------
Net loss $ (231,926) $ (167,854) $(3,200,834)
========== ========== ==========
Net loss per share $ (0.01) $ (0.01)
========== ==========
Weighted average shares
outstanding 25,821,455 22,187,622
========== ==========
</TABLE>
3
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Statements of Changes in Shareholders' Equity
(U.S. dollars)
<TABLE>
<CAPTION>
Deficit
Accumulated
From the Date of Inception During the
(November 21, 1985) Common Shares Development
Through March 31, 1998 Shares Amount Stage Total Equity
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
November 21, 1985
Issuance of common shares for cash 1,425,001 $ 141,313 $ $ 141,313
Net loss for the year (15,032) (15,032)
--------------------------------------------------------------
Balance, May 31, 1986 1,425,001 141,313 (15,032) 126,281
Issuance of common shares for cash 550,000 256,971 256,971
Issuance of common shares for
mineral property 25,000 13,742 13,742
Net loss for the year (58,907) (58,907)
--------------------------------------------------------------
Balance, May 31, 1987 2,000,001 412,026 (73,939) 338,087
Issuance of common shares for cash 1,858,748 1,753,413 1,753,413
Net income for the year 38,739 38,739
--------------------------------------------------------------
Balance, May 31, 1988 3,858,749 2,165,439 (35,200) 2,130,239
Issuance of common shares for cash 1,328,750 1,814,133 1,814,133
Issuance of common shares for
mineral property 100,000 227,819 227,819
Net 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 common shares for cash 1,769,767 2,771,815 2,771,815
Issuance of common shares for
mineral property 8,875 14,855 14,855
Net loss for the year (115,966) (115,966)
--------------------------------------------------------------
Balance, May 31, 1990 7,066,141 6,994,061 (353,326) 6,640,735
Net income for the year 28,706 28,706
--------------------------------------------------------------
Balance, May 31, 1991 7,066,141 6,994,061 (324,620) 6,669,441
Net loss for the year (157,931) (157,931)
--------------------------------------------------------------
Balance, May 31, 1992 7,066,141 6,994,061 (482,551) 6,511,510
Net 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 common shares for cash 5,834,491 1,536,260 1,536,260
Share issue costs (18,160) (18,160)
Issuance of common shares for
mineral property 128,493 23,795 23,795
Net Loss for the year (158,193) (158,193)
--------------------------------------------------------------
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)
<TABLE>
<CAPTION>
Deficit
Accumulated
From the Date of Inception During the
(November 21, 1985) Common Shares Development
Through March 31, 1998 Shares Amount Stage Total Equity
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of common shares for cash 648,900 182,866 182,866
Net 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 5,287,315 5,287,315
Issuance of common shares for
special warrants 3,500,000
Options to non-employee directors - 70,200 70,200
Special warrants issue cost - (163,313) (163,313)
Net loss for the year - (1,047,869) (1,047,869)
--------------------------------------------------------------
Balance, December 31, 1997 25,708,400 26,400,594 (3,374,913) 23,025,681
Issuance of common shares for
warrants 1,834,300 857,283 857,283
Issuance of common shares through
conversion of debt 2,017,941 1,000,000 1,000,000
Share issuance costs (452) (452)
Net loss for the period (221,026) (221,026)
--------------------------------------------------------------
Balance, March 31, 1998 (unaudited) 29,560,641 $28,257,877 (3,596,391) 24,661,486
--------------------------------------------------------------
</TABLE>
5
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Statements of Cash Flows
(Unaudited)
(U.S. dollars)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Cumulative Amounts
Three Month Three Month From Date of Inception
Period Ended Period Ended (November 21, 1985)
Operating Activities March 31, 1998 March 31, 1997 through March 31, 1998
- -------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
Net loss $ (231,926) $ (167,854) $ (3,200,834)
Adjustments to reconcile net loss to
cash used in operating activities:
Write-off of mineral properties - - 277,251
Amortization and depreciation 21,476 13,585 130,348
Loss on disposition of property
and equipment - - 10,949
Options to directors 10,900 - 81,100
Changes in assets and liabilities:
Receivables 9,830 121,398 (4,968)
Prepaid expenses and other
current assets 35,592 24,287 (42,181)
Accounts payable and accrued
liabilities (328,822) (142,598) 124,993
------------ ------------ --------------
Cash used in operating activities (482,950) (151,173) (2,623,342)
------------ ------------ --------------
Investment Activities:
Deferred exploration and development
expenditures (473,696) (1,978,073) (18,335,191)
Deposits on mineral properties (5,434) - (898,362)
Purchase of mineral properties (74,323) (197,622) (4,464,203)
Purchase of property and equipment (3,460) (477,108) (1,296,424)
Proceeds from sale of property and
equipment - - 8,492
------------ ------------ --------------
Cash used in investment activities (556,913) (2,652,803) (24,985,688)
------------ ------------ --------------
Financing Activities:
Borrowing under long-term debt - - 3,766,502
Payment of long-term debt (10,834) (39,421) (1,062,831)
Issuance of common stock for cash - 157,252 10,647,149
Share issuance costs (452) - (406,457)
Issuance of common shares for
warrants 857,283 - 15,598,035
------------ ------------ --------------
Cash provided by financing
activities 845,997 117,831 28,542,398
------------ ------------ --------------
</TABLE>
6
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Statements of Cash Flows
(U.S. dollars)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Cumulative Amounts
Three Month Three Month From Date of Inception
Period Ended Period Ended (November 21, 1985)
March 31, 1998 March 31, 1997 through March 31, 1998
-------------- -------------- ----------------------
<S> <C> <C> <C>
Net change in cash and
cash equivalents (193,866) (2,686,145) 933,368
Cash and cash equivalents, beginning
balance 1,127,234 5,436,497 -
--------- ----------- -----------
Cash and cash equivalents, ending
balance $ 933,368 $ 2,750,352 $ 933,368
========= =========== ===========
Supplemental disclosures of cash
flow information:
Cash paid during period for:
Interest $ 73,398 $ 67,043 $ 622,117
Income taxes $ - $ - $ -
Non-cash financing and investing
activities:
Exchange of notes for common shares $1,000,000 $ - $ 1,662,282
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>
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 instructions 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 1997 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 three month period ended March 31,
1998 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998.
Note 2: Share Capital
(a) On January 28, 1998, the conversion price of the Company's debentures
in the principal amount of US $1,000,000 was reduced from C$2.00 ($1.46)
per share to C$0.68 ($0.50) per share. The conversion price reduction was
subsequently approved by the Toronto Stock Exchange, and on March 18, 1998
the convertible debentures were converted to 2,017,941 common shares.
(b) On February 19, 1998, the exercise price of the common share purchase
warrants issued by the Company pursuant to a special warrant offering
completed in May 1996 was reduced to C$0.68 ($0.49) per share from C$1.525
($1.07) per share. The exercise price reduction was subsequently approved
by the Toronto Stock Exchange. 1,834,300 warrants were exercised at C$0.68
($0.49) for 1,834,300 common shares. The Company received net proceeds of
C$1,216,142 ($857,283).
(c) On January 28, 1998, stock options to purchase up to 25,000 shares of
common stock were granted to each of the Company's five non-employee
directors. The options are exercisable at the price of C$1.00 ($0.69) and
expire on January 28, 2003. The resulting charge to directors' expense
during the three month period ending March 31, 1998 was $10,900.
(d) Also, on January 28, 1998, the exercise price of all outstanding
options held by directors and employees of the Company and its subsidiary
with an exercise price of more than C$1.00 ($0.69) per share was reduced to
C$1.00 ($0.69) per share, subject to the approval of the Toronto Stock
Exchange and the Company's shareholders. The Toronto Stock Exchange
approved the repricing of the options, subject to the satisfaction of
customary conditions. Shareholder approval will be sought at the next
annual general meeting of shareholders of the Company.
(e) Subsequent to the balance sheet date, the Company initiated a private
placement of 5,236,000 common shares at an issue price of C$0.68 for
aggregate proceeds of C$3,560,480 (approximately $2,483,940). The
transaction is expected to close on or about May 13, 1998, subject to
certain conditions, including the receipt of regulatory approvals.
8
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
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 MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
General and administrative expenses increased to $217,000 for the three
months ended March 31, 1998, from $199,000 for the three month period ended
March 31, 1997 primarily as a result of options issued to directors of
$11,000. Interest income decreased to $9,000 for the three months ended
March 31, 1998, from $55,000 for the three months ended March 31, 1997,
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 $232,000 for the three months ended March 31, 1998, versus a net
loss of $168,000 for the three month period ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES.
GENERAL. The Company acquired the Soledad Mountain Project in 1986. Since
then it has solidified its land position, conducted several drilling and
sampling programs to delineate ore reserves, and taken steps to secure
permits and approvals necessary to production activities. The Company
previously reported that it expected to begin producing gold and silver
from the project during the second half of 1998, once permitting was
completed. Because of the downturn in world gold prices during the second
half of 1997, however, the Company was not able to obtain financing for
construction. As a consequence, production will be delayed until gold
prices improve.
The Company has had no reported revenues from operations since inception,
and is in the exploration or development stage. During the period from
inception through March 31, 1998, the Company has used $2,600,000 in
operating activities, primarily as the result of cumulative losses of
$3,200,000 for the same period. During the same period, the Company has
used $24,986,000 in investing activities; these consisted of $23,697,756 in
expenditures related to the Soledad Mountain Project and fixed asset
purchases of $1,296,000. These operating and investing activities were
financed by net borrowings of $2,073,671 under various long-term debt
arrangements and from the sale of $25,838,727 of equity securities.
At March 31, 1998, the Company held $933,368 in cash and cash equivalents.
As is discussed below under the heading "Plan of Operations", significant
additional funds will be needed to put the Soledad Mountain Project into
production. These funds are expected to come from additional sales of
common stock and from bank or other borrowings. Alternatively, the Company
may decide to enter into a joint development or other similar arrangement
with another mining company to develop the 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
9
<PAGE>
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 31, 1998,
world gold prices were approximately $299 per ounce, a reduction of
approximately 12% from prices a year ago. The project is not economical at
current world gold prices and will not be economical until prices
strengthen.
PLAN OF OPERATIONS.
PROPOSED ACTIVITIES AND ESTIMATED COSTS. As is more specifically disclosed
in Item 1 of this report, the Company has substantially completed
exploration of the Soledad Mountain Project and intends to develop the
project as an open pit gold and silver mine employing a cyanide heap leach
recovery system. Development plans include the construction of
infrastructure and processing facilities, mining by open pit methods and
processing precious metals ores at a rate of up to 5.67 million tonnes
(6.25 million tons) per year for at least nine years. Concurrent heap
detoxification will be employed, followed by reclamation of the project
site.
The initial capital costs of bringing the project into production are
estimated to be $77,600,000; these include costs associated with the
purchase of all necessary facilities and equipment, construction costs,
start-up costs, working capital and contingency costs over a projected
thirteen-month construction period. The Company presently cannot secure
the financing needed to bring the project into production, and will not be
able to do so unless gold prices and the conditions in the gold equity
markets improve. Based on current project cost information, the Company
believes world gold prices would have to achieve sustained levels of $340
per ounce or better before such financing could be obtained. The Company
believes it is well-positioned to obtain this financing when market
conditions improve.
The Company estimates that total average operating costs will be $5.87 per
tonne ($5.32 per ton) of ore processed, based on a stripping ratio of 4.1
to 1. These operating costs consist of mining costs of $3.39 per tonne
($3.07 per ton), processing costs of $1.78 per tonne ($1.61 per ton) and
general and administrative costs of $0.70 per tonne ($0.64 per ton). The
Company also estimates that average annual production rates of 127,000
ounces of gold and 1,500,000 ounces of silver can be maintained for at
least nine years, at an average cash cost (consisting of operating and
royalty costs) of $182 per ounce of gold, net of silver credits. With the
benefit of these higher production rates, the project is economically
viable at a gold price of $340 per ounce and a silver price of $5.00 per
ounce.
The Company has budgeted $1,950,000 for a additional development of the
Soledad Mountain Project in 1998 to delineate additional ore. The program
has three components: a 9,000 meter underground sampling of the major ore-
bearing structures now accessible through 22 kilometers of underground
workings; approximately 12,000 meters of reverse circulation drilling at
five locations on the perimeter of the known proven and probable reserve
area; and up to 6,000 meters of core drilling to test several high-priority
exploration targets having the potential to improve overall grade or strip
ratios. The Company is currently pursuing the additional financing
necessary to fund the 1998 program.
10
<PAGE>
The following table summarizes the activities proposed to be undertaken by
the Company during the twelve-month period commencing January 1, 1998, and
the estimated costs of such activities.
Underground drilling $ 300,000
Reverse circulation drilling 1,490,000
Core drilling 160,000
----------
Total $ 1,950,000
==========
These development plans are based on a February 1998 feasibility study
prepared for the Company by M3 Engineering and Technology Corporation
incorporating the results of the Company's 1997 drilling program. The
study was commissioned by the Company to obtain project financing, and to
provide basic project engineering information. Ore reserve estimates and
mine design features incorporated into the study were prepared by Mine
Reserve Associates, in collaboration with the Company; basic engineering
information was prepared by Bateman Engineering, Inc., and supplemented by
M3 Engineering and Technology. The total cost of the feasibility study was
$1,036,000.
The M3 Engineering and Technology study modifies and supersedes an earlier
feasibility study completed in January 1997 by Pincock, Allen & Holt of
Lakewood, Colorado, based on the Company's estimate of ore reserves prior
to the 1997 drilling program and a different throughput design. The
Pincock study included initial designs of the crushing plant, ore heap,
solution handling systems, haul roads and associated surface infrastructure
at the Soledad Mountain Project, and was prepared at a cost of $2,000,000.
The Company is currently evaluating the production and sale of aggregates
from the Soledad Mountain Project. The Company believes waste rock and
leached ore have several construction-related applications, and that the
project's proximity to major north-south and east-west railroad lines
enhances the potential of such a business. Neither the feasibility studies
referred to above not any other revenue and cost figures contained in this
report take such business into account.
PERMITTING.
All major permitting requirements were concluded late in 1997 in a hearing
of the Kern County Board of Supervisors and the subsequent positive Record
of Decision rendered by the Bureau of Land Management. In addition, Kern
County recently issued the Authority to Construct Permit and the Lahontan
Water Quality Control Board recently issued the Report of Waste Discharge
Permit. These permits are the final clearances required to construct and
operate the project.
Now that the project is fully permitted and a favorable bankable-level
feasibility study is in hand, all that remains to put the project into
production is a slight improvement in market conditions. Project financing
can then be obtained and, following a 13-month surface facility
construction period, production will commence.
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 first quarter of 1998.
Item 5. OTHER INFORMATION.
Subsequent to the balance sheet date, the Company initiated private
placement of 5,236,000 common shares at an issue price of C$0.68 for
aggregate proceeds of C$3,560,480 (approximately $2,483,940). The
transaction is expected to close on or about May 13, 1998, subject to
certain conditions, including the receipt of regulatory approvals.
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
first quarter of 1998.
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
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE COMPANY FOR THE THREE-MONTH PERIOD ENDED MARCH 31,
1998, AND SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED IN ITS ENTIRETY
BY, SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 933,368
<SECURITIES> 0
<RECEIVABLES> 4,968
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 980,517<F1>
<PP&E> 24,697,351<F2>
<DEPRECIATION> 158,078
<TOTAL-ASSETS> 25,677,868
<CURRENT-LIABILITIES> 171,185
<BONDS> 0
0
0
<COMMON> 28,257,877
<OTHER-SE> (3,596,391)<F3>
<TOTAL-LIABILITY-AND-EQUITY> 25,677,868
<SALES> 0
<TOTAL-REVENUES> 9,047<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 209,490<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,583
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (221,026)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
<FN>
<F1>Includes prepaid expenses and other current assets of $42,181.
<F2>Consists of properties and equipment, net of depreciation, of $1,146,635;
mineral properties of $22,652,354; and other long-term assets of $898,362.
<F3>Consists of $3,596,391 of deficit accumulated during the development stage.
<F4>Consists of interest income of $9,047.
<F5>Consists of general and administrative expenses of $205,854 and other expenses
of $3,636.
</FN>
</TABLE>
