FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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 File Number) (IRS Employer
of incorporation) 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 June 30, 1999
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 JUNE 30, 1999
TABLE OF CONTENTS
PART I: Financial Information Page
Item 1: Consolidated Financial Statements .......................... 1
Item 2: Management's Discussion and Analysis or Plan of Operations . 12
Part II: Other Information
Item 4: Submission of Matters to a Vote of Security Holders ........ 15
Item 6: Exhibits and Reports on Form 8-K ........................... 16
SIGNATURES ................................................................. 17
EXHIBIT NO. 27 ............................................................. 18
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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 10.
[The balance of this page has been intentionally left blank.]
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<CAPTION>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS)
June 30, 1999 December 31, 1998
(unaudited) (audited)
------------- -----------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,674,720 $ 1,197,029
Receivables 33,298 12,692
Prepaid expenses and other current assets 64,091 72,942
------------ ------------
Total current assets 1,772,109 1,282,663
Property and equipment, net 1,053,028 1,090,536
Mineral properties 25,280,999 24,148,316
Other assets (Note 2) 1,000,702 921,576
------------ ------------
$ 29,106,838 $ 27,443,091
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 224,544 $ 87,201
Accrued liabilities 27,656 43,948
Current maturities of long-term debt 34,079 51,686
------------ ------------
Total current liabilities 286,279 182,835
Long-term debt, less current maturities 790,272 807,750
------------ ------------
Total liabilities 1,076,551 990,585
------------ ------------
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 shares issued and
outstanding (Note 3) 34,168,458 30,805,074
Receivable from sale of special warrants (Note 3) (1,340,366) --
Deficit accumulated during the development stage (4,797,805) (4,352,568)
------------ ------------
Total shareholders' equity 28,030,287 26,452,506
------------ ------------
$ 29,106,838 $ 27,443,091
============ ============
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<TABLE>
<CAPTION>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF LOSS
(U.S. DOLLARS)
(UNAUDITED)
Cumulative
Amounts From
Date of
Inception
Three Month Three Month Six Month Six Month (November 21,
Period Ended Period Ended Period Ended Period Ended 1985) through
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998 June 30, 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
General and
administrative expense $ 136,346 $ 264,904 $ 367,657 $ 488,707 $ 4,606,519
Interest expense -- -- -- 20,583 323,485
Interest income (26,049) (15,400) (35,230) (24,447) (975,600)
Other expense
(income), net (2,753) 4,770 3,084 8,407 44,359
Abandoned mineral
properties -- -- -- -- 277,251
----------- ----------- ----------- ----------- -----------
Net loss $ (107,544) $ (254,274) $ (335,511) (493,250) $(4,276,014)
=========== =========== =========== =========== ===========
Net loss per share $ (0.00) $ (0.01) (0.01) (0.02)
=========== =========== =========== ===========
Weighted average
shares outstanding 34,796,641 32,388,816 34,796,641 29,484,985
=========== =========== =========== ===========
</TABLE>
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<TABLE>
<CAPTION>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(U.S. DOLLARS)
(UNAUDITED)
Deficit
From the Date of Inception Receivable Accumulated
(November 21, 1985) From Sale During the Total
through Common Of Special Development Shareholders'
June 30, 1999 Shares Amount Warrants Stage Equity
- ---------------------------------------------------------------------------------------------------
<S> <C> <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
</TABLE>
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<TABLE>
<CAPTION>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(U.S. DOLLARS)
(UNAUDITED)
Deficit
From the Date of Inception Receivable Accumulated
(November 21, 1985) From Sale During the Total
through Common Of Special Development Shareholders'
June 30, 1999 Shares Amount Warrants Stage Equity
- ------------------------------------------------------------------------------------------------------
<S> <C> <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 -- -- 1,536,260
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
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>
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<TABLE>
<CAPTION>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(U.S. DOLLARS)
(UNAUDITED)
Deficit
From the Date of Inception Receivable Accumulated
(November 21, 1985) From Sale During the Total
through Common Of Special Development Shareholders'
June 30, 1999 Shares Amount Warrants Stage Equity
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 upon exercise
of 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 -- -- -- (6,060) (6,060)
Issuance of common
shares for cash 5,236,000 2,439,753 -- -- 2,439,753
Options and re-priced
options to non-
employee directors -- 107,444 -- -- 107,444
Net loss for the year -- -- -- (971,595) (971,595)
--------------------------------------------------------------------------
Balance, December 31, 1998 34,796,641 30,805,074 -- (4,352,568) 26,452,506
Options to non-
employee directors -- 12,469 -- -- 12,469
Issuance of 13,250,000
special warrants (Note 3) -- 3,350,915 (1,340,366) -- 2,010,549
Special warrants issue cost -- -- -- (109,726) (109,726)
Net loss for the period -- -- -- (335,511) (335,511)
--------------------------------------------------------------------------
Balance, June 30, 1999 34,796,641 $ 34,168,458 $ (1,340,366) $ (4,797,805) $ 28,030,287
==========================================================================
</TABLE>
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<TABLE>
<CAPTION>
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
Cumulative Amounts
From Date of
Six Month Period Six Month Period Inception (November
Ended Ended 21, 1985) through
June 30, 1999 June 30, 1998 June 30, 1999
---------------- ---------------- -------------------
<S> <C> <C> <C>
Operating activities:
Net loss $ (335,511) $ (493,250) $ (4,276,014)
Adjustments to reconcile net
loss to cash used in operating
activities:
Abandoned mineral properties -- -- 277,251
Amortization and depreciation 41,420 42,954 237,261
Loss on disposition of property
and equipment 1,216 -- 12,155
Options to directors 12,469 27,434 190,113
Changes in assets and liabilities:
Receivables (20,606) (1,008) (33,298)
Prepaid expenses and other
current assets 8,851 22,697 (64,081)
Accounts payable and accrued
liabilities 121,051 (373,586) 252,200
------------ ------------ ------------
Cash used in operating activities (171,110) (774,759) (3,404,413)
------------ ------------ ------------
Investment activities:
Deferred exploration and
development expenditures (861,715) (992,026) (20,492,990)
Deposits on mineral properties (79,126) (5,434) (1,000,702)
Purchase of mineral properties (270,968) (194,744) (4,935,049)
Purchase of property and
equipment (5,128) (6,416) (1,310,946)
Proceeds from sale of property
and equipment -- -- 8,492
------------ ------------ ------------
Cash used in investment
activities (1,216,937) (1,198,620) (27,731,195)
------------ ------------ ------------
Financing activities:
Borrowing under long-term debt -- -- 3,766,502
Payment of long-term debt (35,085) (21,945) (1,129,869)
</TABLE>
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<TABLE>
<CAPTION>
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
Cumulative Amounts
From Date of
Six Month Period Six Month Period Inception (November 21,
Ended Ended 1985) through
June 30, 1999 June 30, 1998 June 30 1999
---------------- ---------------- -----------------------
<S> <C> <C> <C>
Issuance of common stock for
cash -- 2,439,753 13,086,902
Share issuance costs (109,726) (3,519) (521,791)
Net cash received from issuance
of special warrants 2,010,549 -- 16,751,301
Issuance of common shares upon
exercise of warrants -- 857,283 857,283
------------ ------------ ------------
Cash provided by financing
activities 1,865,738 3,271,572 32,810,328
------------ ------------ ------------
Net change in cash and cash
equivalents 477,691 1,298,193 1,674,720
Cash and cash equivalents,
beginning balance 1,197,029 1,127,234 --
------------ ------------ ------------
Cash and cash equivalents,
ending balance $ 1,674,720 $ 2,425,427 $ 1,674,720
============ ============ ============
Supplemental disclosures of cash
flow information:
Cash paid during period for:
Interest $ 37,166 $ 88,967 $ 712,343
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>
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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 1998
annual report on Form 10-KSB. In the opinion of management, all adjustments,
consisting only of normal recurring accruals, considered necessary for a fair
presentation have been included. Operating results for the six-month period
ended June 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
Note 2: Other Assets
On April 1, 1995, the Company acquired, through its subsidiary, Golden Queen
Mining Company, Inc. (the "Subsidiary"), an option to purchase all of the issued
and outstanding shares of a privately held California corporation holding an
interest in a previously uncontracted tract of land located near the Soledad
site. The option called for an initial non-refundable payment of $100,000 in
exchange for access to the property for a period of nine months to evaluate the
presence of mineral reserves. At the end of the nine month period, the Company
chose to exercise its option to purchase the shares of the corporation by making
the initial purchase payment of $250,000. This was followed by a second payment
of $500,000 on July 1, 1997. An additional $750,000 was due upon reaching
sustained production or July 1, 1999, whichever came first. The Company has no
legal obligation to continue making payment and cannot perfect its rights as a
shareholder of the corporation until full payment under the option is made. Upon
commencement of commercial production, the Company will pay a royalty of 1% of
gross smelter returns for a period of up to 60 years, not to exceed $60,000,000.
In June 1999, the Subsidiary and Karma Wegmann Corporation shareholders signed
an amendment to the original stock purchase agreement. The amendment provides
that if the full purchase price of $1,600,000 was not made on or before July 1,
1999, all rights of the Subsidiary to purchase the stock would terminate unless
the Subsidiary paid $75,000, which would extend the termination date to July 1,
2000. If on or before July 1, 2000, the Subsidiary pays an additional $75,000,
the termination date will be extended to July 1, 2001. These additional payments
do not apply to the balance of the $1,600,000 purchase price. In addition, the
amendment provides for the payment of the balance of the purchase price upon the
earlier of a determination of sustained production or the termination date,
which may be extended to July 1, 2000 or July 1, 2001. On June 30, 1999, the
Subsidiary made the required payment to extend the termination date to July 1,
2000.
Note 3: Share Capital
On January 19, 1999, additional stock options to purchase up to 75,000 shares
were granted to a non-employee director. The options are exercisable at the
price of C$0.50 per share and expire on January 19, 2004.
On March 15, 1999, in connection with a private placement the Company issued
13,250,000 special warrants, exchangeable into common shares of the Company at
no additional cost at C$0.40 per warrant for gross proceeds of approximately
$3,472,500 (C$5,300,000). At closing, the Company paid agent fees of
approximately $121,730 (C$185,500) and issued to the agent an option exercisable
for broker warrants to purchase up to an aggregate of 463,750 common shares at a
conversion price of C$0.60 for a two year period following the closing. The
Company received approximately $670,183 (C$1,022,900) on March 15, 1999 and the
remaining funds totaling $2,680,732 (C$4,091,600) were placed in escrow.
One-half of the escrowed funds were released to the Company upon
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shareholder approval at the May 5, 1999 Annual and Extraordinary General Meeting
and the remaining escrowed funds were released to the Company on July 13, 1999
when receipts for a final prospectus related to the offering were obtained from
relevant Canadian securities regulatory authorities. On July 20, 1999, an
aggregate of 13,250,000 Common Shares were issued on the exercise of the special
warrants.
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GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FORWARD LOOKING 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 June 30,
1999 of approximately $4,276,000. It is anticipated that additional financing
will be required in the first half of 2000 for continued operations. 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 with an estimated thirteen-month construction period 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 June 30, 1999, world gold prices were approximately
$263 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. 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
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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.
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 June 30, 1999 Compared to Three Months Ended June 30, 1998.
- ------------------------------------------------------------------------------
General and administrative expenses decreased to $136,000 for the three months
ended June 30, 1999, from $265,000 for the three-month period ended June 30,
1998. The decrease is primarily due to lower consulting fees, reporting
expenditures and foreign exchange gains.
Interest income was approximately $26,000 for the three months ended June 30,
1999, and $15,000 for the three-month period ended June 30, 1998 resulting from
a higher balance of invested funds. As a result of the foregoing factors, the
Company incurred a net loss of $108,000 for the three months ended June 30,
1999, versus a net loss of $254,000 for the three-month period ended June 30,
1998.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
- -------------------------------------------------------------------------
General and administrative expenses decreased to $368,000 for the three months
ended June 30, 1999, from $489,000 for the three-month period ended June 30,
1998. The decrease is primarily due to lower expenditures for consulting fees,
reporting expenses and foreign exchange gains.
No interest expense was recognized for the six months ended June 30, 1999
compared to interest expense of $21,000 for the six-month period ended June 30,
1998, 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 was approximately $35,000 for the six months ended June 30,
1999, and $24,000 for the six-month period ended June 30, 1998. As a result of
the foregoing factors, the Company incurred a net loss of $336,000 for the six
months ended June 30, 1999, versus a net loss of $493,000 for the six-month
period ended June 30, 1998.
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 June 30, 1999, the Company used $3,404,000 in operating activities,
primarily as the result of cumulative losses of $4,276,000 for the same period.
During the same period, the Company used $27,731,000 in investing activities;
these consisted of $26,429,000 in expenditures related
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to the Soledad Mountain Project and fixed asset purchases of $1,311,000. These
operating and investing activities were financed by net borrowings of $2,637,000
under various long-term debt arrangements, and from the sale of $29,316,000 of
equity securities.
At June 30, 1999, the Company held $1,674,700 in cash and cash equivalents and a
receivable in the amount of $1,340,366 from the sale of special warrants in
March 1999. 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 June 30, 1999, world gold prices
were approximately $263 per ounce, a reduction of approximately 12% from prices
a year ago, and a reduction of approximately 21% 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.
PROPOSED ACTIVITIES AND ESTIMATED COSTS. 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 5.76 million tonnes (6.35 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 $325 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 $6.03 per tonne
($5.47 per ton) of ore processed, based on a stripping ratio of 4.1 to 1. These
operating costs consist of mining costs of $3.74 per tonne ($3.39 per ton),
processing costs of $1.73 per tonne ($1.57 per ton) and general and
administrative costs of $0.56 per tonne ($0.51 per ton). The Company also
estimates that average annual production rates of 130,000 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 $176 per ounce
of gold, net of silver credits.
These development plans are based on a February 1998 feasibility study that was
updated by the Company in December 1998. The early 1998 study was prepared for
the Company by M3 Engineering and Technology Corporation incorporating the
results of the Company's 1997 drilling program. The updated study also included
the results of the 1998 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 Reserves 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 $1,549,618.
13
<PAGE>
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 nor any other
revenue and cost figures contained in this report take such business into
account.
Phase 1 of the work program, consisting of approximately 12,000 meters of
drilling, is expected to be completed and the results available in September
1999. In light of present market conditions, the Company intends to delay the
commencement of the second phase of the program until there is a significant and
sustained improvement in gold prices. In the interim, a resource and reserve
audit will be completed and the Company's feasibility study will be updated
internally to advance the status of the Project. The Company will also complete
a materials testing program to continue its assessment of the potential for the
development of a by-product aggregates business at the Project. Given current
gold prices, there can be no assurance that the Company will be able to raise
further development funds and consequently may be required to delay the
development activities on the Project indefinitely.
To reduce costs and consolidate administrative functions, the head office of the
Company will be relocated from Spokane, Washington to the project site in
Mojave, California effective September 1. The Company will continue to seek to
maximize shareholder value by conserving cash while maintaining its interest in
the Project for development under improved market conditions. To achieve this
objective, the Company will continue to review various potential alternatives,
including mergers or strategic alliances and reduced staffing levels.
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 activities is limited to the use of computers for
accounting, computer aided design, and general office and clerical applications.
As of June 30, 1999, 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.
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14
<PAGE>
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual General and Extraordinary Meeting of the holders of Common Shares
of the Company held on May 5, 1999, the shareholders voted on the following
matters:
1. ELECTION OF DIRECTORS. The following nominees were elected as directors
to serve until the next annual general meeting of the shareholders:
Steven W. Banning
For: 8,090,657
Against or Withheld: 1,300
Brokers' Abstention of Non-Votes: 6,801
Gordon Gutrath
For: 8,089,657
Against or Withheld: 2,300
Brokers' Abstention of Non-Votes: 6,801
Jerrold W. Schramm
For: 8,090,657
Against or Withheld: 1,300
Brokers' Abstention of Non-Votes: 6,801
Chester Shynkaryk
For: 8,089,657
Against or Withheld: 2,300
Brokers' Abstention of Non-Votes: 6,801
Edward G. Thompson
For: 8,089,657
Against or Withheld: 2,300
Brokers' Abstention of Non-Votes: 6,801
15
<PAGE>
2. APPOINTMENT OF AUDITORS. The shareholders approved the reappointment of
BDO Dunwoody as auditor of the Company until the next annual general
shareholder meeting and authorized the directors to fix the
remuneration to be paid the auditors.
For: 8,074,073
Against or Withheld: 2,583
Brokers' Abstention or Non-Votes: 22,102
3. APPROVAL OF PRIVATE PLACEMENT OF SPECIAL WARRANTS AND ISSUANCE OF
BROKER WARRANTS: The shareholders approved a private placement
involving the issuance and sale of an aggregate of 13,250,000 special
warrants, each exercisable for one Common Share of the Company, and the
issuance of warrants to purchase up to 463,750 Common Shares of the
Company to the Agent, Dundee Securities Corporation.
For: 6,317,176
Against or Withheld: 55,656
Brokers' Abstention or Non-Votes: 58,700
4. ADVANCE SHAREHOLDER APPROVAL OF THE ISSUANCE OF A NUMBER OF SHARES BY
PRIVATE PLACEMENT THAT EXCEED 25% OF THE COMPANY'S ISSUED SHARE
CAPITAL. The shareholders approved the future issuance by the Company
of up to 2,000,000 Common Shares on a private placement basis in
payment of certain required land payments relating to the Company's
Soledad Mountain Project.
For: 4,275,118
Against or Withheld: 32,902
Brokers' Abstention or Non-Votes: 30,900
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS. A financial data schedule is filed as exhibit no. 27 to this report.
No other exhibits are filed as part of this report.
FORM 8-K REPORTS. The Company filed no reports on Form 8-K during the second
quarter of 1999.
[The balance of this page has been intentionally left blank.]
16
<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
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of the Company for the six-month period ended June 30, 1999
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,674,720
<SECURITIES> 0
<RECEIVABLES> 33,298
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,772,109 <F1>
<PP&E> 27,334,729 <F2>
<DEPRECIATION> 264,991
<TOTAL-ASSETS> 29,106,838
<CURRENT-LIABILITIES> 286,279
<BONDS> 790,272
0
0
<COMMON> 32,828,092
<OTHER-SE> (4,797,805) <F3>
<TOTAL-LIABILITY-AND-EQUITY> 29,106,838
<SALES> 0
<TOTAL-REVENUES> 35,230 <F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 370,741 <F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (335,511)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
<FN>
<F1> Includes prepaid expenses and other current assets of $64,091.
<F2> Consists of properties and equipment, net of depreciation of $1,053,028;
mineral properties of $25,280,999; and other long-term assets of
$1,000,702.
<F3> Consists of $4,797,805 of deficit accumulated during the development
stage.
<F4> Consists of interest income of $35,230.
<F5> Consists of general and administrative expenses of $367,657 and other
expenses of $3,084.
</FN>
</TABLE>
