FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURUSANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 May 7, 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 MARCH 31, 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 .. 11
Part II: Other Information
Item 6: Exhibits and Reports on Form 8-K ............................ 14
SIGNATURES ............................................................... 15
EXHIBIT NO. 27 ........................................................... 16
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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 9.
[The balance of this page has been intentionally left blank.]
1
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<TABLE>
<CAPTION>
GOLDEN QUEEN MINING CO. LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS)
March 31, December 31,
1999 1998
(unaudited) (audited)
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,163,737 $ 1,197,029
Receivables 5,291 12,692
Prepaid expenses and other current assets 38,039 72,942
------------ ------------
Total current assets 1,207,067 1,282,663
Property and equipment, net 1,074,520 1,090,536
Mineral properties 24,617,828 24,148,316
Other assets 921,576 921,576
------------ ------------
$ 27,820,991 $ 27,443,091
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 51,487 $ 87,201
Accrued liabilities 23,768 43,948
Current maturities of long-term debt 46,074 51,686
------------ ------------
Total current liabilities 121,329 182,835
Long-term debt, less current maturities 799,123 807,750
------------ ------------
Total liabilities 920,452 990,585
------------ ------------
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 (Note 2) 34,168,458 30,805,074
Receivable from sale of special warrants (Note 2) (2,680,732) --
Deficit accumulated during the development stage (4,587,187) (4,352,568)
------------ ------------
Total shareholders' equity 26,900,539 26,452,506
------------ ------------
$ 27,820,991 $ 27,443,091
============ ============
</TABLE>
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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 (November 21,
Period Ended Period Ended 1985) through
March 31, March 31, March 31,
1999 1998 1999
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
General and administrative expense $ 230,197 $ 216,754 $ 4,469,059
Interest expense 20,583 323,485
--
Interest income (9,047) (949,669)
(9,299)
Other expense, net 5,838 3,636 47,113
Abandoned mineral properties -- 277,251
----------- ----------- -----------
Net loss $ (226,736) $ (231,926) $(4,167,239)
=========== =========== ===========
Net loss per share $ (0.01) $ (0.01)
=========== ===========
Weighted average shares outstanding 34,796,641 25,821,455
=========== ===========
</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'
March 31, 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'
March 31, 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'
March 31, 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 2) -- 3,350,915 (2,680,732) -- 670,183
Special warrants issue cost -- -- -- (7,883) (7,883)
Net loss for the period -- -- -- (226,736) (226,736)
------------------------------------------------------------------------
Balance, March 31, 1999 34,796,641 $ 34,168,458 $ (2,680,732) $ (4,587,187) $ 26,900,539
========================================================================
</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
Inception
Three Month Three Month (November 21,
Period Ended Period Ended 1985 through
March 31, March 31, March 31,
1999 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net loss $ (226,736) $ (231,926) $ (4,167,239)
Adjustments to reconcile net
loss to cash used in operating
activities:
Abandoned mineral properties -- -- 277,251
Amortization and depreciation 20,693 21,476 216,534
Loss on disposition of property
and equipment -- -- 10,949
Options to directors 12,469 10,900 190,113
Changes in assets and liabilities:
Receivables 7,401 9,830 (5,291)
Prepaid expenses and other
current assets 34,903 35,592 (38,039)
Accounts payable and accrued
liabilities (55,894) (328,822) 75,255
------------ ------------ ------------
Cash used in operating activities (207,164) (482,950) (3,440,467)
------------ ------------ ------------
Investment activities:
Deferred exploration and
development expenditures (295,505) (473,696) (19,926,780)
Deposits on mineral properties -- (5,434) (921,576)
Purchase of mineral properties (174,007) (74,323) (4,838,088)
Purchase of property and
equipment (4,677) (3,460) (1,310,495)
Proceeds from sale of property
and equipment -- -- 8,492
------------ ------------ ------------
Cash used in investment
activities (474,189) (556,913) (26,988,447)
------------ ------------ ------------
Financing activities:
Borrowing under long-term debt -- -- 3,766,502
Payment of long-term debt (14,239) (10,834) (1,109,023)
</TABLE>
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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
Inception
Three Month Three Month (November 21,
Period Ended Period Ended 1985 through
March 31, March 31, March 31,
1999 1998 1999
------------ ------------ ------------
Issuance of common stock for
cash -- -- 13,086,902
Share issuance costs (7,883) (452) (419,948)
Net cash received from issuance
of special warrants 670,183 -- 15,410,935
Issuance of common shares upon
exercise of warrants -- 857,283 857,283
------------ ------------ ------------
Cash provided by financing
activities 648,061 845,997 31,592,651
------------ ------------ ------------
Net change in cash and cash
equivalents (33,292) (193,866) 1,163,737
Cash and cash equivalents,
beginning balance 1,197,029 1,127,234 --
------------ ------------ ------------
Cash and cash equivalents,
ending balance $ 1,163,737 $ 933,368 $ 1,163,737
============ ============ ============
Supplemental disclosures of cash
flow information:
Cash paid during period for:
Interest $ 15,455 $ 73,398 $ 690,632
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
8
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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 three-month period
ended March 31, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
Note 2: 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 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 to be released: 50% pending shareholder
approval of the transaction which was received at the Annual General Meeting on
May 5, 1999; and 50% upon receipt of the final prospectus. If receipts for a
final prospectus qualifying the distribution of the common shares issuable upon
the exercise of the special warrants have not been issued by the relevant
securities regulatory authorities by July 13, 1999, each special warrant will be
exchangeable, at the option of the holder, for 1.1 common shares. The number of
common shares issuable upon the exercise of each special warrant is also subject
to customary "anti-dilution" provisions, as provided for in the special warrant
indenture governing the issuance of the special warrants. The Toronto Stock
Exchange has approved the private placement.
9
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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 March 31,
1999 of approximately $4,167,000. 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 March 31 1999, world gold prices were approximately
$280 per ounce, a reduction of approximately 6% 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
10
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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 MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998.
General and administrative expenses increased to $230,000 for the three months
ended March 31, 1999, from $217,000 for the three-month period ended March 31,
1998. The increase is primarily due to the recognition of compensation cost on
stock options issued to non-employee directors of the Company.
No interest expense was recognized for the three months ended March 31, 1999
compared to interest expense of $21,000 for the three-month period ended March
31, 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 $9,000 for both the three months ended March
31, 1999, and the three month period ended March 31, 1998. As a result of the
foregoing factors, the Company incurred a net loss of $227,000 for the three
months ended March 31, 1999, versus a net loss of $232,000 for the three-month
period ended March 31, 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 March 31, 1999, the Company used $3,440,000 in operating activities,
primarily as the result of cumulative losses of $4,167,000 for the same period.
During the same period, the Company used $26,988,000 in investing activities;
these consisted of $25,686,000 in expenditures related to the Soledad Mountain
Project and fixed asset purchases of $1,310,000. These operating and investing
activities were financed by net borrowings of $2,657,000 under various long-term
debt arrangements, and from the sale of $28,078,000 of equity securities.
At March 31, 1999, the Company held $1,164,000 in cash and cash equivalents and
a receivable in the amount of $2,680,732 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
11
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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 March 31, 1999, world gold
prices were approximately $280 per ounce, a reduction of approximately 6% from
prices a year ago, and a reduction of approximately 18% 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 a
reclamation of the project site.
The initial capital costs of bringing the project into production are estimated
to be $78,000,000; 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.
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.
12
<PAGE>
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 March 31, 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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13
<PAGE>
PART II
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 1999.
[The balance of this page has been intentionally left blank.]
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 three month period ended March 31,
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,163,737
<SECURITIES> 0
<RECEIVABLES> 5,291
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,207,067 <F1>
<PP&E> 26,613,924 <F2>
<DEPRECIATION> 244,264
<TOTAL-ASSETS> 27,820,991
<CURRENT-LIABILITIES> 121,329
<BONDS> 799,122
0
0
<COMMON> 31,487,726
<OTHER-SE> (4,587,187) <F3>
<TOTAL-LIABILITY-AND-EQUITY> 27,820,991
<SALES> 0
<TOTAL-REVENUES> 9,299 <F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 236,035 <F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (226,736)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
<FN>
<F1> Includes prepaid expenses and other current assets of $38,039.
<F2> Consists of properties and equipment, net of depreciation of $1,074,520;
mineral properties of $24,617,828; and other long-term assets of $921,576.
<F3> Consists of $4,587,187 of deficit accumulated during the development
stage.
<F4> Consists of interest income of $9,299.
<F5> Consists of general and administrative expenses of $230,197 and other
expenses of $5,838.
</FN>
</TABLE>
