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, 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 of (Commission File (IRS Employer
incorporation) 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 [X] No [ ]
The number of outstanding shares of the issuer's common stock at October 30,
1998 was 34,796,641 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 SEPTEMBER 30, 1998
TABLE OF CONTENTS
SAFE HARBOR STATEMENT
PART I: Financial Information Page
Item 1: Consolidated Financial Statements .......................... 1
Item 2: Management's Discussion and Analysis or Plan of Operations .. 10
Part II: Other Information
Item 1: Legal Proceedings .......................................... 14
Item 2: Changes in Securities ....................................... 14
Item 3: Defaults Upon Senior Securities ............................. 14
Item 4: Submission of Matters to a Vote of Security Holders ......... 14
Item 5: Other Information ........................................... 14
Item 6: Exhibits and Reports on Form 8-K ............................ 14
SIGNATURES .................................................................. 15
EXHIBIT NO. 27 .............................................................. 16
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 September
30, 1998 of approximately $3,660,000. 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 anticipates that it
will need approximately $77,600,000 in additional financing to put the Soledad
Mountain Project into production; an anticipated $66,300,000 will be used for
capital expenditures and $11,300,000 will be used as working capital and for
start-up expenditures. 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. However,
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
September 30, 1998, world gold prices were approximately $294 per ounce, a
reduction of approximately 11% from prices a year ago, and a reduction of
approximately 26% from prices two years 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. The Company is also subject to the uncertainty about its ability to
identify and address all Year 2000 issues. 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 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 9.
[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)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
(unaudited) (audited)
-------------------- -------------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,794,723 $ 1,127,234
Receivables 7,250 14,798
Prepaid expenses and other current assets 69,192 77,773
------------ ------------
Total current assets 1,871,165 1,219,805
Property and equipment, net 1,106,435 1,164,651
Mineral properties 23,741,578 22,104,335
Other assets 907,733 892,928
------------ ------------
$ 27,626,911 $ 25,381,719
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 59,141 $ 384,388
Accrued liabilities 46,253 69,427
Current maturities of long-term debt 52,723 45,034
------------ ------------
Total current liabilities 158,117 498,849
Long-term debt, less current maturities (Note 2a) 816,157 1,857,189
------------ ------------
Total liabilities 974,274 2,356,038
------------ ------------
Commitments and Contingencies
Shareholders' equity:
Preferred shares, no par, 3,000,000 shares
authorized; no shares outstanding
Common shares, no par, 100,000,000 shares
authorized; 34,796,641 and 25,708,400
shares issued (Note 2) 30,725,064 26,400,594
Deficit accumulated during the development
stage (4,072,427) (3,374,913)
------------ ------------
Total shareholders' equity 26,652,637 23,025,681
------------ ------------
Liabilities and shareholders' equity $ 27,626,911 $ 25,381,719
============ ============
</TABLE>
2
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Statements of Loss
(U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Amounts From
Date of Inception
Three Month Period Ended Nine Month Period Ended (November 21,
----------------------------- ------------------------------- 1985) through
September 30, September 30, September 30, September 30, September 30,
1998 1997 1998 1997 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
General and
administrative
expense $ 170,258 $ 364,348 $ 705,777 $ 906,035 $ 3,943,577
Interest expense -- 24,278 20,583 72,042 323,485
Interest income (29,202) (43,887) (52,660) (135,061) (918,384)
Other expense, net 10,241 5,763 17,673 8,139 34,352
Write-off of
mineral
properties -- -- -- -- 277,251
---------- ------------- ------------- ------------- -------------
Net loss $ (151,297) $ (350,502) $ (691,373) $ (851,155) $ (3,660,281)
========== ============= ============= ============= =============
Net loss per
share $ (0.01) $ (0.02) $ (0.02) $ (0.04)
========== ============= ============= =============
Weighted average
shares
outstanding 34,796,641 23,159,487 31,297,104 22,522,902
========== ============= ============= =============
</TABLE>
3
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Statements of Changes in Shareholders' Equity
(U.S. dollars)
(Unaudited)
From the Date of Deficit
Inception Accumulated
(November 21, 1985) During the
Through Common Shares Development
September 30, 1998 Shares Amount Stage Total Equity
- ---------------------------------------------------------------------------
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
4
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Statements of Changes in Shareholders' Equity
(U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
From the Date of Deficit
Inception Accumulated
(November 21, 1985) During the
Through Common Shares Development
September 30, 1998 Shares Amount Stage Total Equity
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 -- 1,536,620
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
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
</TABLE>
5
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Statements of Changes in Shareholders' Equity
(U.S. dollars)
(Unaudited)
From the Date of Deficit
Inception Accumulated
(November 21, 1985) During the
Through Common Shares Development
September 30, 1998 Shares Amount Stage Total Equity
- -------------------------------------------------------------------------------
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 cost -- -- (6,141) (6,141)
Issuance of common
shares for cash 5,236,000 2,439,753 -- 2,439,753
Options and re-priced
options to non-
employee directors -- 27,434 -- 27,434
Net loss for the period -- -- (691,373) (691,373)
-----------------------------------------------------
Balance, September 30,
1998 34,796,641 $30,725,064 $(4,072,427) $ 26,652,637
========== =========== =========== ============
6
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Statements of Cash Flow
(U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash Equivalents
Cumulative Amounts
From Date of
Nine Month Period Nine Month Period Inception (November
Ended Ended 21, 1985) through
September 30, 1998 September 30, 1997 September 30, 1998
-------------------- --------------------- ---------------------
Operating Activities
<S> <C> <C> <C>
Net loss $ (691,373) $ (851,155) $ (3,660,281)
Adjustments to reconcile net
loss to cash used in operating
activities:
Write-off of mineral properties -- -- 277,251
Amortization and depreciation 64,632 48,586 173,504
Loss on disposition of property
and equipment -- -- 10,949
Options to directors 27,434 70,200 97,634
Changes in assets and liabilities:
Receivables 7,548 112,045 (7,250)
Prepaid expenses and other
current assets 8,581 (52,351) (69,192)
Accounts payable and accrued
liabilities (348,421) (303,957) 105,394
----------- ----------- ------------
Cash used in operating activities (931,599) (976,632) (3,071,991)
----------- ----------- ------------
Investment Activities:
Deferred exploration and
development expenditures (1,413,917) (5,923,110) (19,275,412)
Deposits on mineral properties (14,805) (503,122) (907,733)
Purchase of mineral properties (223,326) (372,828) (4,613,206)
Purchase of property and
equipment (6,416) (548,005) (1,299,380)
Proceeds from sale of property
and equipment -- -- 8,492
----------- ----------- ------------
Cash used in investment
activities (1,658,464) (7,347,065) (26,087,239)
----------- ----------- ------------
Financing Activities:
Borrowing under long-term debt -- -- 3,766,502
Payment of long-term debt (33,343) (160,138) (1,085,340)
</TABLE>
7
<PAGE>
GOLDEN QUEEN MINING CO. LTD.
(a development stage company)
Consolidated Statements of Cash Flow
(U.S. dollars)
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Cumulative Amounts
From Date of
Nine Month Period Nine Month Period Inception (November
Ended Ended 21, 1985) through
September 30, 1998 September 30, 1997 September 30, 1998
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Issuance of common stock for
cash 2,439,753 157,050 13,086,902
Share issuance costs (6,141) (134,162) (412,146)
Issuance of special warrants -- 5,299,189 --
Issuance of common shares for
warrants 857,283 -- 15,598,035
----------- ----------- ------------
Cash provided by (used in)
financing activities 3,257,552 5,161,939 30,953,953
----------- ----------- ------------
Net change in cash and cash
equivalents 667,489 (3,161,758) 1,794,723
Cash and cash equivalents,
beginning balance 1,127,234 5,436,497 --
----------- ----------- ------------
Cash and cash equivalents,
ending balance $ 1,794,723 $ 2,274,739 $ 1,794,723
=========== =========== ============
Supplemental disclosures of cash
flow information:
Cash paid during period for:
Interest $ 111,692 $ 167,029 $ 660,411
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>
8
<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 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 nine-month period
ended September 30, 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
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 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, additional 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) 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, and at the Annual General Meeting of shareholders, held on
June 2, 1998, the shareholders approved the repricing.
e) On May 14, 1998 the Company completed a private placement of 5,236,000
common shares at an issue price of C$0.68 ($0.47) per share for aggregate
net proceeds of C$3,560,480 ($2,439,753). The net proceeds of the private
placement will be used to fund ongoing capital expenditures at the
Company's Soledad Mountain Project and for general corporate purposes.
9
<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 OPERATIONS.
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, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997.
General and administrative expenses decreased to $170,000 for the three months
ended September 30, 1998, from $364,000 for the three-month period ended
September 30, 1997. The decrease is primarily due to a reduction in marketing
expenditures during the period, and the recognition of compensation cost on
repriced stock options issued to non-employee directors of the Company.
No interest expense was recognized for the three months ended September 30, 1998
compared to interest expense of $24,000 for the three-month period ended
September 30, 1997, as a result of the conversion of convertible debentures into
common shares in March 1998. Interest incurred on debt relating to the Company's
investment in the Soledad Mountain Project is capitalized as part of mineral
properties.
Interest income decreased to $29,000 for the three months ended September 30,
1998, from $44,000 for the three month period ended September 30, 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 $151,000
for the three months ended September 30, 1998, versus a net loss of $351,000 for
the three-month period ended September 30, 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997.
General and administrative expenses decreased to $706,000 for the nine months
ended September 30, 1998, from $906,000 for the nine-month period ended
September 30, 1997. The decrease is primarily due to recognizing compensation
cost of stock options and repriced options to non-employee directors, and
marketing expenditures.
Interest expense decreased to $21,000 for the nine months ended September 30,
1998, from $72,000 for the nine-month period ended September 30, 1997, as a
result of the conversion of convertible debentures that were exchanged for
common shares in March 1998.
Interest income decreased to $53,000 for the nine months ended September 30,
1998, from $135,000 for the nine-month period ended September 30, 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 $691,000
for the nine months ended September 30, 1998, versus a net loss of $851,000 for
the nine-month period ended September 30, 1997.
10
<PAGE>
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 needed for 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 has not
been able to obtain financing for construction. As a consequence, production
will be delayed until construction financing can be raised.
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 September 30, 1998, the Company used $3,072,000 in operating activities,
primarily as the result of cumulative losses of $3,660,000 for the same period.
During the same period, the Company used $26,087,000 in investing activities;
these consisted of $24,796,000 in expenditures related to the Soledad Mountain
Project and fixed asset purchases of $1,299,000. These operating and investing
activities were financed by net borrowings of $2,681,000 under various long-term
debt arrangements, and from the sale of $28,273,000 of equity securities.
At September 30, 1998, the Company held $1,795,000 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 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, 1998, world gold
prices were approximately $294 per ounce, a reduction of approximately 11% from
prices a year ago, and a reduction of approximately 26% from prices two years
ago. The project may not be economical at current world gold prices and may not
be economical until prices strengthen.
PLAN OF OPERATIONS.
The work program for 1998 has consisted of intense geological examination and
interpretation within the 22 kilometers of now-accessible underground workings
comprising the Soledad Mountain Project area. As a result of this work, the new
ore reserve upgrade reflects an increase in the estimated mineable reserve grade
at the Soledad Mountain open-pit, heap-leach project to 1.0 grams of gold per
tonne and 14.4 grams of silver per tonne contained in 44.6 million tonnes of
ore, representing increases of approximately 16% for gold and 13% for silver.
This ore reserve update includes new information generated from ten months of
geologic mapping and sampling of large portions of the 22 kilometers of
underground workings existing on the property, much of which were re-opened in
1997 and 1998. Mine Reserves Associates (MRA) of Wheatridge, Colorado are in the
process of reviewing the ore reserve model and mineable reserve estimate for the
project.
The ore reserve update reflects the results of the 1998 sampling program as well
as factoring in a lower gold price. Approximately 6,100 meters of new sampling
within the deposit was added to the data base, bringing the total to over
100,000 meters of sample data. This additional sampling provided definition of
the mineralized structures further along strike and down dip as well as improved
continuity along the high grade veins within the mineralized envelopes.
Furthermore, the cut off grade was increased to reflect a decrease in the gold
price used in the reserve estimate ($350/oz) to $325 per ounce. The net effect
of the changes is an 11% increase in estimated mineable gold equivalent ounces
from 1.56 million to 1.74 million. At a gold-equivalent cut off grade of 0.4
grams per tonne, the
11
<PAGE>
estimated mineralized material inventory now totals 86.5 million tonnes and
contains 2.43 million ounces of gold and 39.6 million ounces of silver.
SOLEDAD MOUNTAIN PROJECT
ESTIMATED MINEABLE ORE RESERVE
UPDATED
PREVIOUS ORE RESERVE ORE RESERVE
(M3 FEASIBILITY STUDY) ESTIMATE
(US DOLLARS) @$350/OZ AU @$325/OZ AU
- --------------------------------------------------------------------------------
Ore tonnes, millions 48.6 44.6
Gold grade, g/t 0.86 1.0
Silver grade, g/t 12.69 14.4
Contained gold ounces 1,344,000 1,426,000
Contained silver ounces 19,828,000 20,658,000
Contained gold equivalent ounces 1,560,000 1,736,000
Waste-to-ore strip ratio 4.1 4.5
The bankable-level feasibility study by M3 Engineering and Technology
Corporation, released earlier this year, is currently being amended to reflect
the updated ore reserve estimate. This improved grade and size of the ore
reserve is expected to enhance the Company's ability to finance the project. The
estimated total cash costs are expected to be below the $182 per-ounce level
projected in the M3 feasibility study.
Assuming project finance can be obtained and in place within the next eight
months, the current plan is to commence construction of the project during the
first half of 1999 and be in production during the first half of 2000. The
Company intends to finance the project with a combination of debt and equity and
will begin the process of raising the project debt financing immediately.
The Company is exploring the potential for the Soledad Mountain Project to
provide aggregates to the Southern California market. Soledad's heap residue is
ideally suited for the manufactured sands component of superpave mix - a
component that is in very short supply in Southern California and will be
required in order to meet federal superpave specifications. Because the cost of
beneficiation will already be applied to extract the gold/silver values and due
to the project's location next to major north/south and east/west rail lines,
the tailings material is anticipated to be competitive in the surrounding
markets. It is expected that there will be a market for a majority of the
manufactured sand produced each year. Neither the feasibility studies referred
to above nor any other revenue and cost figures contained in this report take
such business into account.
PERMITTING.
All permitting requirements for the Soledad Mountain Project were completed in
late 1997. Pending the procurement of project financing, the Company can
commence construction of surface infrastructure and processing facilities, and,
following that, can begin commercial production of gold and silver from the
project.
YEAR 2000.
The "Year 2000" issue is the result of computer systems that were programmed in
prior years using a two digit representation for the year. Consequently, in the
Year 2000, date sensitive computer programs may interpret the date "00" as 1900
rather than 2000 causing varied and uncertain results. The Company is in the
process of reviewing its business and processing systems and believes that the
majority of its systems are already year 2000 compliant. At this time, the
internal exposure of the Company to the year 2000 problem, due to the nature of
its development stage
12
<PAGE>
activities is limited to the use of computers for accounting, computer aided
design, and general office and clerical applications. As of September 30, 1998,
the Company has incurred less than $5,000 of costs related to year 2000 issues.
Management believes that the cost of completing its investigation and
remediation activities in regard to the year 2000 issue will not exceed $25,000.
The Company has initiated formal communications with all of its significant
suppliers and vendors, including site utility providers and project contractors
to determine the extent to which the Company's systems and activities are
vulnerable to those third parties' failure to remediate their own Year 2000
issues. While the Company believes that the Year 2000 issue will not have a
material adverse effect on the Company's financial position, liquidity or
results of operations, there is no guarantee that the systems of other companies
on which the Company's systems rely will be timely converted and would not have
an adverse effect on the Company's systems.
[The balance of this page has been intentionally left blank.]
13
<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.
ITEM 5. OTHER INFORMATION.
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 1998.
14
<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
---------------------------------
Bernard F. Goodson, its Vice
President of Administration
and Controller
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of the Company for the nine month period ended September
30, 1998 and should be read in conjunction with, and is qualified in its
entirety by, such financial statements.
</LEGEND>
<CIK> 0001025362
<NAME> GOLDEN QUEEN MINING CO. LTD.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,794,723
<SECURITIES> 0
<RECEIVABLES> 7,250
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,871,165 <F1>
<PP&E> 25,755,746 <F2>
<DEPRECIATION> 201,334
<TOTAL-ASSETS> 27,626,911
<CURRENT-LIABILITIES> 158,117
<BONDS> 0
0
0
<COMMON> 30,725,064
<OTHER-SE> (4,072,427)<F3>
<TOTAL-LIABILITY-AND-EQUITY> 27,626,911
<SALES> 0
<TOTAL-REVENUES> 52,660 <F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 723,450 <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> (691,373)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
<FN>
<F1> Includes prepaid expenses and other current assets of $69,192.
<F2> Consists of properties and equipment, net of depreciation of $1,106,435;
mineral properties of $23,741,578; and other long-term assets of $907,733.
<F3> Consists of $4,072,427 of deficit accumulated during the development
stage.
<F4> Consists of interest income of $52,660.
<F5> Consists of general and administrative expenses of $705,777 and other
expenses of $17,673.
</FN>
</TABLE>
