<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
__________
FORM 10-Q
__________
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period ended March 31, 1996
or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________.
Commission file number 0-21708
GOLDEN STAR RESOURCES LTD.
(Exact Name of Registrant as Specified in Its Charter)
Canada 98-0101955
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Norwest Center, 1700
Lincoln Street,
Suite 1950, Denver, Colorado 80203
(Address of Principal Executive Office) (Zip Code)
(303) 830-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (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 [_]
Number of Common Shares outstanding as of May 10, 1996: 25,054,253.
<PAGE>
GOLDEN STAR RESOURCES LTD.
INDEX
Part I - Financial Information
Item 1. Financial Statements.......................................... 1
Item 2. Management's Discussion and Analysis of Financial Condition,
Results of Operations and Recent Developments................. 13
Part II - Other Information
Item 1. Legal Proceedings............................................. 18
Item 6. Exhibits and Reports on Form 8-K.............................. 18
Signatures................................................................. 19
i
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED BALANCE SHEETS
(Stated in thousands of United States Dollars except share amounts)
<TABLE>
<CAPTION>
(Unaudited)
As of March 31, As of December 31,
ASSETS 1996 1995
------------ -------------
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $ 25,537 $ 9,498
Marketable securities, at cost which
approximates market 800 800
Accounts receivable 3,265 4,200
Inventories 1,782 1,132
Other assets 517 444
-------- ---------
Total Current Assets 31,901 16,074
RESTRICTED CASH 2,465 2,465
DEFERRED EXPLORATION 55,030 51,447
INVESTMENT IN OMAI GOLD MINES LIMITED 3,798 3,798
FIXED ASSETS 4,090 3,627
OTHER ASSETS 1 198
-------- ---------
Total Assets $ 97,285 $ 77,609
======== =========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilties $ 3,582 $ 3,925
Accrued wages and payroll taxes 996 1,057
-------- ---------
Total Current Liabilities 4,578 4,982
OTHER LIABILITIES 35 36
-------- ---------
Total Liabilities 4,613 5,018
-------- ---------
MINORITY INTEREST 8,825 4,203
-------- ---------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY
SHARE CAPITAL 121,528 106,344
(Common shares, without par value, unlimited shares
authorized. Shares issued and outstanding:
March 31, 1996- 24,844,203;
December 31, 1995 - 22,769,872)
Stock option loans (2,642) (1,170)
DEFICIT (35,039) (36,786)
-------- ---------
Total Shareholders' Equity 83,847 68,388
-------- ---------
Total Liabilities and Shareholder's Equity $ 97,285 $ 77,609
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
1
<PAGE>
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of United States Dollars except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
------------------ ------------------
REVENUE
<S> <C> <C>
Precious metals sales $ 838 $ 865
Interest and other 212 393
------- -------
1,050 1,258
------- -------
COSTS AND EXPENSES
Cost of goods sold 1,180 1,512
Depreciation 295 142
General and administrative 1,970 1,850
Exploration expense 13 -
Abandonment of mineral properties - 155
Foreign exchange loss 77 11
------- -------
3,535 3,670
------- -------
PROFIT (LOSS) BEFORE THE UNDERNOTED (2,485) (2,412)
Gain on subsidiary's issuance of common stock 3,783 1,649
Omai preferred share redemptions - 252
------- -------
Net profit (loss) before minority interest 1,298 (511)
Minority interest loss 449 194
------- -------
NET PROFIT (LOSS) $ 1,747 $ (317)
======= =======
NET PROFIT (LOSS) PER SHARE $ 0.07 $ (0.01)
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
2
<PAGE>
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of United States Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
----------------- ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net profit (loss) $ 1,747 $ (317)
Reconciliation of net income to net cash in operations:
Depreciation 295 142
Premium on Omai Preferred
Share Redemptions - (252)
Abandonment of mineral
properties - 155
Gain on issuance of common
stock by subsidiary (3,783) (1,649)
Minority interest (449) (194)
Changes in non-cash operating (191) (339)
working capital ------- -------
Net Cash Flows Used in Operating Activites (2,381) (2,454)
------- -------
INVESTING ACTIVITIES:
Expenditures on mineral properties,
net of joint venture recoveries (3,583) (6,184)
Equipment purchases (758) (137)
Omai Preferred Share Redemption - 461
Other assets and investments 7 621
------- -------
Net Cash Flows Used in (4,334) (5,239)
Investing Activities ------- -------
FINANCING ACTIVITIES:
Proceeds from issuance of 9,021 8,228
subsidiary's stock
Offering costs of subsidiary (126) (928)
Increase in minority interest 147 587
Issuance of share capital and 12,897 442
warrants, net
Issuance of share capital under 2,287 103
options
Stock option loan additions (1,472) -
Other - (22)
------- -------
Net Cash Flows Provided by 22,754 8,410
Financing Activities ------- -------
Increase in cash 16,039 717
Cash and short-term investments, 9,498 34,387
beginning of period ------- -------
Cash and short-term investments, end of $25,537 $35,104
period ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
These financial statements and notes thereto should be read in conjunction with
the financial statements and related notes included in the annual report on Form
10-K for Golden Star Resources Ltd. (the "Company") for the fiscal year ended
December 31, 1995 on file with the Securities and Exchange Commission and with
the Ontario Securities Commission (hereinafter referred to as "the Company's
1995 10-K"). All amounts are in United States dollars unless otherwise stated.
The unaudited financial statements as of March 31, 1996 and 1995, and for the
three months ended March 31, 1996 and 1995, reflect all adjustments, consisting
solely of normal recurring items, which are necessary for a fair presentation of
financial position, results of operations, and cash flows on a basis consistent
with that of the prior audited consolidated financial statements.
Investments in marketable securities are stated at cost which approximates
market value and are capable of reasonably prompt liquidation.
(1) INVENTORIES
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------- -------
<S> <C> <C>
Precious Metals Inventory $ 870 $ 383
Materials and Supplies 912 749
------- -------
$ 1,782 $ 1,132
======= =======
</TABLE>
(2) FIXED ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------- -------
<S> <C> <C>
Building $ 921 $ 903
Machinery & Equipment 4,994 4,254
------- -------
5,915 5,157
Accumulated Depreciation (1,825) (1,530)
------- -------
$ 4,090 $ 3,627
======= =======
</TABLE>
4
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- ------------------------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
(3) DEFERRED EXPLORATION
<TABLE>
<CAPTION>
Deferred Deferred
Exploration Exploration
Expenditures Capitalized Capitalized Joint Expenditures
as at Exploration Acquisition Venture Property as at
Dec 31, 1995 Expenditures Expenditures Recoveries Abandonments March 31, 1996
=====================================================================================
<S> <C> <C> <C> <C> <C> <C>
GUYANA
Eagle Mountain $ 38 - - - - $ 38
Quartz Hill 1,347 - - - - 1,347
Upper Potaro Diamond
Reconnaissance 836 - - - - 836
Mazaruni / Upper Mazaruni
Diamond Reconnaissance 2,028 16 - - - 2,044
Wenamu Gold
Reconnaissance 512 113 276 - - 901
Wenamu Diamond
Reconnaissance - 359 76 - - 435
Five Stars / Five Stars Gold
Reconnaissance 3,651 - - - - 3,651
Five Stars Diamond
Reconnaissance 389 - - - - 389
Other 1,171 213 - - - 1,384
------------------------------------------------------------------------------------
Sub-total 9,972 701 352 - - 11,025
------------------------------------------------------------------------------------
SURINAME
South Benzdorp 2,842 152 - - - 2,994
Gross Rosebel 6,286 1,311 - (1,311) - 6,286
Headley's Right of
Exploration 311 - - - - 311
Thunder Mountain 405 43 - - - 448
Saramacca 1,255 178 - - - 1,433
Other 357 303 10 - - 670
------------------------------------------------------------------------------------
Sub-total 11,456 1,987 10 (1,311) 12,142
------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- ------------------------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
<TABLE>
<CAPTION>
Deferred Deferred
Exploration Exploration
Expenditures Capitalized Capitalized Joint Expenditures
as at Exploration Acquisition Venture Property as at
Dec 31, 1995 Expenditures Expenditures Recoveries Abandonments March 31, 1996
=====================================================================================
<S> <C> <C> <C> <C> <C> <C>
FRENCH GUIANA
(GUYANOR RESSOURCES S.A.)
Dorlin 609 89 - (89) - 609
St-Elie 1,973 472 - (472) - 1,973
Yaou 6,991 85 - (85) - 6,991
SOTRAPMAG /
Paul Isnard 4,790 226 - (244) - 4,772
Dachine 449 217 - (176) - 490
Other 1,295 74 - (37) - 1,332
-----------------------------------------------------------------------------------
Sub-total 16,107 1,163 - (1,103) - 16,167
-----------------------------------------------------------------------------------
AFRICA (PAN AFRICAN
RESOURCES CORPORATION)
Gabon / Eteke 5,247 191 - - - 5,438
Ivory Coast / Comoe 2,859 216 - - - 3,075
Mali / Dioulafoundou 1,940 261 56 - - 2,257
Mali / Melgue - 45 - - - 45
Ethiopia / Dul 2,635 380 - - - 3,015
Eritrea / Galla Valley 426 13 439
Other - 46 - - - 46
-----------------------------------------------------------------------------------
Sub-total 13,107 1,152 56 - - 14,315
-----------------------------------------------------------------------------------
LATIN AMERICA (SOUTHERN STAR RESOURCES
LTD.)
Brazil 415 455 - - - 870
Bolivia 377 121 - - - 498
-----------------------------------------------------------------------------------
Sub-total 792 576 - - - 1,368
-----------------------------------------------------------------------------------
OTHER 13 - - - - 13
-----------------------------------------------------------------------------------
TOTAL $51,447 $5,579 $418 $(2,414) - $55,030
===================================================================================
</TABLE>
The recoverability of amounts shown for deferred exploration is dependent upon
the sale or discovery of economically recoverable reserves, the ability of the
Company to obtain necessary financing to complete the development, and upon
future profitable production or proceeds from the disposition
6
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- ------------------------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
thereof. The amounts deferred represent costs to be charged to operations in the
future and do not necessarily reflect the present or future values of the
properties.
(4) INVESTMENT IN OMAI GOLD MINES LIMITED
Details regarding the Company's investment in the common and preferred share
equity of Omai Gold Mines Ltd. and its share of equity losses not recorded for
the year ended December 31, 1995 and the quarter ended March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Common Preferred
Shares Shares
------ ---------
<S> <C> <C>
December 31, 1995 $ - $ $3,798
Less:
Preferred Share Redemption - -
Add:
Premium on Preferred Share Redemption - -
------ ---------
March 31, 1996 $ - $ $3,798
====== =========
</TABLE>
The Company's share of Accumulated Losses at:
December 31, 1995 ($3,401)
========
March 31, 1996 ($3,846)
========
The Company received no proceeds from redemption of preferred shares during the
quarter ended March 31, 1996.
(5) PAN AFRICAN RESOURCES CORPORATION PRIVATE PLACEMENT AND AMALGAMATION
On February 5, 1996, Pan African Resources Corporation, a Yukon company ("PARC
Yukon"), completed a private placement of 13.2 million units at Cdn$1.00 per
unit. Each unit consisted of one common share and one-half of one common share
purchase warrant of PARC Yukon. Each whole warrant entitles the holder to
purchase one common share of PARC Yukon at Cdn$1.25 until November 1, 1996. The
private placement generated net proceeds of approximately $9.0 million after
payment of commissions and expenses. Because the price per common share issued
exceeded the net book value per common share, a gain of approximately $3.8
million was recorded by the Company in the first quarter of 1996.
On February 6, 1996, PARC Yukon was amalgamated under the Yukon Business
Corporation Act with Humlin Red Lake Mines Limited ("Humlin"), an Ontario
corporation. As a result of the private placement and the amalgamation, the
Company now holds approximately 60% of the 45.3 million outstanding shares of
PARC, the amalgamated company. PARC, as a result of the amalgamation, became a
publicly traded company in Canada on February 8, 1996, with its common shares
quoted on the Canadian Dealing Network.
Prior to the amalgamation with Humlin, indebtedness totaling $12.3 million owed
by PARC Barbados to the Company as of December 11, 1995, was converted by the
Company, under the terms of two convertible debentures between PARC Barbados and
the Company, into 24.9 million common shares
7
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- ------------------------------------------------------------
(UNAUDITED)
(ALL tabular amounts in thousands of United States Dollars)
of PARC Barbados. Upon completion of these loan conversions, 24.9 million PARC
Barbados shares held by the Company were surrendered for cancellation in
exchange for the issuance to the Company of 7.975 million warrants of PARC
Barbados, each warrant entitling the Company to purchase one share of PARC
Barbados at Cdn$1.50 until July 15, 1997. After the PARC Amalgamation, the PARC
Barbados warrants were surrendered to PARC Barbados in exchange for the issuance
by PARC to the Company of 7.975 million PARC Series B warrants. Each PARC Series
B warrant entitles the Company to purchase one PARC common share at Cdn$1.50
until July 15, 1997. In addition, the Company forgave indebtedness owed to it by
PARC Barbados of $0.3 million, incurred for funding of PARC Barbados'
exploration activities from December 1995 through completion of the private
placement.
(6) CHANGES TO SHARE CAPITAL
During the three months ended March 31, 1996, 293,619 shares were issued for
options previously granted under the Company's Employees' Stock Option Plan.
GOLDEN STAR UNIT OFFERING
On March 6, 1996, the Company effected a public offering in Canada of 1.75
million units at a price of Cdn$10.50 per unit for total proceeds of $12.9
million (Cdn$18.375 million). Each unit consisted of one common share and one-
half a common share purchase warrant. Each whole warrant is exercisable into
one common share of the Company until March 1997 at a price of Cdn$11.00.
STOCK BONUS PLAN
On February 1, 1995, a total of 95,000 bonus common shares were issued to three
employees of the Company under the Bonus Plan. These bonus common shares are
being distributed in accordance with a specific distribution schedule. Each
distribution will be conditional upon such person being in the employ of the
Company at the time of the distribution. In connection with the bonus common
shares allocated to them, two of the employees will also be entitled to receive
from the Company an amount equal to any applicable income taxes which may be
payable by them as a result of the issuance of such bonus common shares.
Compensation expense related to the shares distributed during the three months
ended March 31, 1996 of $43,802 is included in the determination of net income
for the period.
On January 1, 1996, bonuses totaling $0.2 million were declared for certain
employees under the Bonus Plan as compensation for 1995. A total of 30,712
common shares were issued in January 1996 pursuant to the January 1, 1996
bonuses. In connection with the bonus common shares allocated to them, each of
the employees is responsible to pay any applicable income taxes which may be
payable by them as a result of the issuance of such bonus common shares.
(7) EARNINGS PER SHARE
Earnings per share is computed by dividing net profit (loss) by the weighted
average number of common shares outstanding during the period. Fully diluted
earnings per share is computed by dividing net profit (loss) by the weighted
average fully diluted shares, which include common share
8
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- ------------------------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
equivalents during the period. As of March 31, 1996, fully diluted outstanding
shares were 29,713,957. Fully diluted earnings per share for the three months
ended March 31, 1996 is $0.06.
Common share equivalents are not included for 1995 as the effect would be
antidilutive.
(8) GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") in Canada which differ in certain
respects from those principles that the Company would have followed had its
financial statements been prepared in accordance with generally accepted
accounting principles in the United States. Differences which materially affect
these consolidated financial statements are:
(a) For United States GAAP ("U.S. GAAP"), exploration and general and
administrative costs related to projects are normally charged to expense as
incurred. As such, the majority of costs charged to Exploration Expense
and Abandonment of Mineral Properties under Canadian GAAP would have been
charged to earnings in prior periods under U.S. GAAP. Property acquisition
costs are capitalized for both Canadian and U.S. GAAP.
(b) For periods prior to May 15, 1992 (the "Amalgamation"), the Company's
reporting currency was the Canadian dollar. Subsequent to the Company's
Amalgamation and moving of corporate headquarters to the United States, the
reporting currency was changed to the U.S. dollar. As such, for the
financial statements for periods prior to May 15, 1992, the Company's
financial statements were translated into U.S. dollars using a translation
of convenience. U.S. GAAP requires translation in accordance with the
current rate method.
(a) Under U.S. GAAP, the investment in Omai Gold Mines Limited would have been
written off in prior years and, therefore, the entire Omai Preferred Share
Redemption would have been included in income. Under Canadian GAAP, a
portion of the Omai Preferred Share Redemption is included in income with
the remainder reducing the carrying value of the Company's preferred stock
investment.
(d) U.S. GAAP requires that compensation expense be recorded for the excess of
the quoted market price over the option price granted to employees and
directors under stock option plans. Under Canadian GAAP, no compensation
expense is recorded for such awards.
(e) Canadian GAAP allows classification of investments which are capable of
reasonably prompt liquidation as current assets. As such, all of the
Company's investments are included under the caption "short-term
investments" on the balance sheet under current assets. U.S. GAAP requires
classification as current or long term assets based upon the anticipated
maturity date of such instruments.
(f) The gains on subsidiary's issuance of common stock recorded under Canadian
GAAP in respect of the Guyanor initial public offering in 1995 and the PARC
private placements in 1995 and 1996 (as discussed in Note 5) is not
appropriate under U.S. GAAP.
9
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- ------------------------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
(g) The Company eliminated its accumulated deficit through the amalgamation
(defined as a quasi-reorganization under U.S. GAAP) effective May 15, 1992.
Under U.S. GAAP, the cumulative deficit was greater than the deficit under
Canadian GAAP due to the write-off of certain deferred exploration costs
described in (a) above.
(a) Under U.S. GAAP, cash (and cash equivalents) includes bank deposits, money
market instruments, and commercial paper with original maturities of three
months or less. Canadian GAAP permits the inclusion of temporary
investments with maturities greater than 90 days in cash.
(i) Under U.S. GAAP, available-for-sale securities are recorded at fair value
and unrealized gains and losses are recorded as a separate component of
shareholders' equity. Fair value is determined by quoted market prices.
At March 31, 1996, the Company held one type of available-for-sale
security.
Had the Company followed U.S. GAAP, certain items on the statements of
operations and balance sheets would have been reported as follows:
<TABLE>
<CAPTION>
For the three months ended
March 31, 1996 March 31, 1995
--------------- ---------------
<S> <C> <C>
Net profit (loss) under Canadian GAAP $ 1,747 $ (317)
Net effect of the deferred exploration
expenditures on loss for the period (a) (3,165) (6,059)
Effect of recording compensation
expense under stock option plans (d) (34) (50)
Reversal of the gain on subsidiary's
issuance of common stock (3,783) (1,649)
Effect of Omai preferred share - 209
redemption (c) ------- -------
Loss under U.S. GAAP before minority
interest (5,235) (7,866)
Adjustment to minority interest 182 693
------- -------
Loss under U.S. GAAP $(5,053) $(7,173)
======= =======
Loss per share under U.S. GAAP $( 0.20) $( 0.32)
======= =======
</TABLE>
10
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- ------------------------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
The effect of the differences in accounting under Canadian GAAP and U.S. GAAP on
the balance sheets and statements of cash flows are as follows:
BALANCE SHEET
<TABLE>
<CAPTION>
As of March 31, 1996 As of December 31, 1995
----------------------------- ------------------------------
Canadian GAAP U.S. GAAP Canadian GAAP U.S. GAAP
-------------- --------- ---------------- ---------
<S> <C> <C> <C> <C>
Cash (h) $ 17,144 $ 17,144 $ 5,800 $ 3,320
Short term investments (e) 8,393 6,893 3,698 2,480
Marketable securities (i) 800 928 800 927
Other current assets 5,564 5,564 5,776 5,776
Restricted cash 2,465 2,465 2,465 2,465
Deferred exploration (a) 55,030 15,986 51,447 15,568
Investment in Omai Gold
Mines Limited (c) 3,798 - 3,798 -
Long-term investments (e) - 1,500 - 3,698
Other assets 4,091 4,091 3,825 3,825
-------- -------- -------- ---------
Total Assets $ 97,285 $ 54,571 $ 77,609 $ 38,059
======== ======== ======== =========
Liabilities 4,613 4,613 5,018 5,018
Minority interest (a) 8,825 7,408 4,203 2,968
Share capital, net of stock option
loans (g) 118,886 112,025 105,174 94,496
Cumulative translation
adjustments (b) - 1,595 - 1,595
Accumulated unrealized gains on
investments (i) - 128 - 127
Deficit (a) (c) (d) (f) (35,039) (71,198) (36,786) (66,145)
-------- -------- -------- --------
Total Liabilities and
Shareholders' Equity $ 97,285 $ 54,571 $ 77,609 $ 38,059
======== ======== ======== ========
STATEMENTS OF CASH FLOWS
OPERATING INVESTING FINANCING
NET CASH PROVIDED BY (USED IN): ACTIVITIES ACTIVITIES ACTIVITIES
------------------ ------------------- ------------------
Canadian U.S. Canadian U.S. Canadian U.S.
GAAP GAAP GAAP GAAP GAAP GAAP
-------- ------- --------- -------- -------- ---------
For the three months ended
March 31, 1996 ($2,381) ($5,399) ($4,334) ($3,382) $22,754 $ 22,605
For the three months ended March 31,
1995 ($2,454) ($1,294) ($5,239) $ 1,905 $ 8,410 $ 8,307
</TABLE>
The statements of cash flows reflect the impact of the previously discussed
adjustments (a) (c) (d) (f) and the following non-cash items:
11
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- ------------------------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
U.S. GAAP does not permit the presentation of non-cash items in investing
or financing activities in the consolidated statements of cash flows. Non-
cash items in investing activities were $0 for the three months ended March
31, 1996, and $772 for the year ended December 31, 1995.
NEW ACCOUNTING STANDARDS
In 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", effective for fiscal years beginning after December 15, 1995.
SFAS No. 121 requires that long-lived assets and associated intangibles be
written down to fair value whenever an impairment review indicates that the
carrying value cannot be recovered on an undiscounted cash flow basis.
Management does not believe that adoption of SFAS No. 121 would have a material
impact on its U.S. GAAP disclosures.
In 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based Compensation",
effective for fiscal years beginning after December 15, 1995. This standard
establishes a fair value method for accounting for stock-based compensation
plans either through recognition or disclosure. Management anticipates electing
the disclosure option under the standard for its annual U.S. GAAP disclosures
for the year ended December 31, 1996.
(9) SUBSEQUENT EVENTS
On April 22, 1996, the Company and PARC announced the signing of an Exploration
License Agreement (the "Exploration License") with the Government of Eritrea,
represented by the Ministry of Energy, Mines and Water Resources, over the Galla
Valley property. The initial period of the Exploration License is three years.
The Company and PARC have committed to spend $1.25 million on exploration of the
property in the first year of the Exploration License. As part of the
Exploration License, the Company and PARC are required to provide the Ministry
of Energy, Mines and Water Resources within 60 days from the date of signing, a
bank guarantee in an amount equal to the minimum expenditure obligation
(approximately $1.25 million) for the first year of the initial three-year
exploration period.
On May 14, 1996, the Company announced that its subsidiary Southern Star
Resources Ltd. ("Southern Star") signed the final document with Companhia Vale
do Rio Doce ("CVRD") for the Andorinhas project in Brazil. Southern Star has
also reached agreement with certain of the principal landowners in the
Andorinhas district for an option to purchase certain surface rights and assets.
Under the agreement with CVRD, Southern Star must match CVRD's previous
exploration expenditures of approximately $5.5 million, as well as 50% of any
additional costs required to complete a positive feasibility study to earn a 50%
interest in the Andorinhas project, subject to final approval of the Brazilian
government. Southern Star must also effect agreements with additional landowners
which may be necessary to conduct its exploration activities.
(10) COMMITMENTS AND CONTINGENCIES
Letters of Credit and Guarantee
On July 26, 1995, the Company entered into a $2.15 million letter of credit
application and agreement (the "Letter of Credit Documents") with a major
commercial bank (the "Bank"). Pursuant to the Letter of Credit Documents, the
Bank issued an irrevocable standby letter of credit in favor of The Commercial
Bank of Ethiopia ("CBE"). Based on the letter of credit, the CBE, in turn,
issued a bank guarantee or performance bond for the benefit of the Ministry of
Mines and Energy for Ethiopia ("MMEE") guaranteeing the first year's exploration
program at the Dul Project in Ethiopia. The CBE performance bond (and,
concurrently, the Bank letter of credit) may be drawn upon following the end of
the first exploration year (April 30, 1996) in the event the Company fails to
expend a minimum of $2.15 million on the first year's exploration program
previously submitted by the Company and approved by the MMEE, but only in the
amount of the difference between the amount actually spent and $2.15 million.
The performance bond expires on September 30, 1996, subject to one possible
12
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- ------------------------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
extension of 90 days, and the Bank letter of credit expires 15 days after the
performance bond. The Company has provided cash collateral in the amount of
$2.15 million for the letter of credit. The Company is currently negotiating
with the Ethiopian government for a release of collateral securing this letter
of credit in the amount of exploration expenditures made to date under the
Company's obligations.
The Company expects to provide a bank guarantee in 1996 for $1.25 million with
respect to the Exploration License for the Galla Valley Property (see Note 9).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, RESULTS OF
OPERATIONS AND RECENT DEVELOPMENTS
The following discussion should be read in conjunction with the accompanying
consolidated financial statements and related notes. The financial statements
have been prepared in accordance with Canadian generally accepted accounting
principles ("GAAP"). For U.S. GAAP reconciliation see attached financial
statement Note 8.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to the Three Months Ended March 31,
1995
During the first quarter of 1996, the Company reported a net profit of $1.7
million as compared to a net loss of $0.3 million for the first quarter of 1995.
This amount reflected a gain on issuance of common stock of Pan African
Resources Corporation of $3.8 million realized on February 5, 1996, offset by
increased expenditures for administration.
Total revenues of $1.1 million for the first quarter of 1996 (as compared to
$1.3 million the first quarter of 1995) decreased slightly due to reduced gold
sales in French Guiana from Societe de Travaux Publics et de Mines Auriferes en
Guyane ("SOTRAPMAG"), with interest and other income decreased from the prior
period due to reduced average cash balances invested.
Costs of goods sold decreased by $0.3 million as a result of the reduced
production of gold in French Guiana by SOTRAPMAG. Revenue from gold sales for
the first quarter of 1996 was $0.8 million at an average realized gold price of
$402 per ounce sold. Cash operating costs amounted to $566 per ounce sold.
Total gold production at SOTRAPMAG in the first quarter of 1996 was 64,206 grams
(approximately 2,064 oz). SOTRAPMAG's cost of goods sold exceeded revenues in
the first quarter of 1996 by $0.3 million. Construction of a new processing
plant continued during the first quarter of 1996 with approximately $0.5 million
spent on improvements in infrastructure and mining and recovery processes in
order to increase production and lower unit operating costs. The Company will
continue to evaluate the profitability and performance of SOTRAPMAG's operations
and implement actions as necessary to eliminate operating losses.
General and administrative expenditures of $2.0 million (as compared to $1.8
million in the previous period) increased reflecting the necessary growth in the
Company's level of support to service the increased size of the portfolio of
exploration projects throughout the world. Depreciation expense increased as a
result of an increase in the depreciable asset base through the asset additions
in 1995 and the first quarter of 1996.
13
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- ------------------------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
Omai Gold Mines Limited ("OGML"), in which the Company maintains a 30% common
share equity interest, reported a net loss of $1.4 million for the first quarter
of 1996 compared to a net loss of $0.8 million in the first quarter of 1995.
Losses resulted from the suspension of operations at Omai due to a failure in
the tailings dam in August 1995. The resumption of operations during the first
quarter of 1996 allowed for the production of 27,204 ounces of gold (64,435
ounces in the first quarter of 1995). OGML anticipates gradually improving
results over the remaining quarters of 1996 as the Omai operation regains full
access to the Fennell pit by mid year and benefits from the mill expansion into
the second half of this year. There were no redemptions of Class "I" preferred
shares during the three months ended March 31, 1996, as compared to $0.5 million
during the first quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company held cash and short term investments of $25.5
million ($35.1 million as of March 31, 1995) and working capital of $27.3
million ($36.0 million as of March 31, 1995). The decrease in cash resources
and working capital resulted from expenditures on the Company's exploration
activities during 1995 and the first quarter of 1996, offset by the proceeds
from the PARC private placement ($9.0 million in February 1996) and the
Company's unit offering ($12.9 million in March 1996).
Other sources of funding during the first quarter of 1996 included the exercise
of stock options for proceeds of $2.3 million and joint venture arrangements
which provided $2.5 million in cash recoveries of exploration expenditures.
Product and supplies inventories, accounts receivables and other current assets
decreased $0.2 million during the quarter in the aggregate reflecting payments
made by joint venture partners, the absence of Preferred Share Redemptions from
OGML during the 1995 first quarter and the continued exploration and development
of the Company's existing projects.
Cash used in investing activities of $4.3 million for the three months ended
March 31, 1996 as compared to $5.2 million for the three months ended March 31,
1995 decreased primarily due to the increase in joint venture recoveries related
to the Company's operations in French Guiana.
Cash provided by financing activities of $22.8 million for the three months
ended March 31, 1996 increased by $14.4 million as compared to $8.4 million for
the three months ended March 31, 1995. The increase results from the Company's
unit offering and the PARC private placement. Share capital increased by $15.2
million for the three months ended March 31, 1996 compared with $0.5 million
during the three months ended March 31, 1995, reflecting proceeds from the
exercise of stock options and the unit offering.
Africa (Pan African Resources Corporation)
Total exploration and acquisition expenditures in Africa for the first quarter
of 1996 amounted to $1.2 million, and primarily reflect expenditures on
exploration activities in the Ivory Coast, Mali, Ethiopia and Gabon. General
and administrative expenditures for the first quarter of 1996 totaled $0.5
million.
14
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- ------------------------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
Pan African Resources Corporation Private Placement and Amalgamation
On February 5, 1996, Pan African Resources Corporation, a Yukon company ("PARC
Yukon"), completed a private placement of 13.2 million units at Cdn$1.00 per
unit. Each unit consisted of one common share and one-half of one common share
purchase warrant of PARC Yukon. Each whole warrant entitles the holder to
purchase one common share of PARC Yukon at Cdn$1.25 until November 1, 1996. The
private placement generated net proceeds of approximately $9.0 million after
payment of commissions and expenses. Because the price per common share issued
exceeded the net book value per common share, a gain of approximately $3.8
million was recorded by the Company.
On February 6, 1996, PARC Yukon was amalgamated under the Yukon Business
Corporation Act with Humlin Red Lake Mines Limited ("Humlin"), an Ontario
corporation. As a result of the private placement and the amalgamation, the
Company now holds approximately 60% of the 45.3 million outstanding shares of
PARC, the amalgamated company. PARC, as a result of the amalgamation, became a
publicly traded company in Canada on February 8, 1996, with its common shares
quoted on the Canadian Dealing Network.
Prior to the amalgamation with Humlin, indebtedness totaling $12.3 million owed
by PARC Barbados to the Company as of December 11, 1995 was converted by the
Company, under the terms of two convertible debentures between PARC and the
Company, into 24.9 million common shares of PARC Barbados. Upon completion of
these loan conversions, 24.9 million PARC Barbados shares held by the Company
were surrendered for cancellation in exchange for the issuance to the Company of
7.975 million warrants of PARC Barbados, each warrant entitling the Company to
purchase one share of PARC Barbados at Cdn$1.50 until July 15, 1997. After the
PARC Amalgamation, the PARC Barbados warrants were surrendered to PARC Barbados
in exchange for the issuance by PARC to the Company of 7.975 million PARC Series
B warrants. Each PARC Series B warrant entitles the Company to purchase one
PARC common share at Cdn$1.50 until July 15, 1997. In addition, the Company
forgave indebtedness owed to it by PARC of $0.3 million, incurred for funding of
PARC's exploration activities from December 1995 through completion of the
private placement.
On March 28, 1996, PARC was advised that the Company was granted nine mineral
exploration permits in the Ivory Coast covering a total of 2,104 km/2/. These
permits are in addition to the Kregbe permit covering 225 km/2 /granted December
13, 1995. All permits granted result from an agreement signed in January 1995
providing exclusive rights to a 15,000 km/2/ (3.71 million acre) area in eastern
Ivory Coast over which PARC completed a comprehensive program of geophysical,
geochemical and geological investigation in 1995. By November of 1995, the
Company had applied for 14 exploration permits aggregating 3,750 km/2/. Ten of
the 14 permits have now been granted. The Company will transfer those permits
to PARC, subject to government approval, as soon as possible.
On April 22, 1996, the Company and PARC announced the signing of an Exploration
License Agreement (the "Exploration License") with the Government of Eritrea,
represented by the Ministry of Energy, Mines and Water Resources, over the Galla
Valley property. The initial period of the Exploration License is three years.
The Company and PARC have committed to spend $1.25 million on exploration of the
property in the first year of the Exploration License. As part of the
Exploration License, the Company and PARC are required to provide the Ministry
of Energy, Mines and Water Resources within 60 days from the date of signing, a
bank guarantee in an amount equal to the
15
<PAGE>
minimum expenditure obligation (approximately $1.25 million) for the first year
of the initial three-year exploration period.
French Guiana (Guyanor Ressources S.A.)
Total exploration expenditures by Guyanor Ressources S.A. ("Guyanor") for the
first quarter amounted to $1.2 million, offset by joint venture recoveries of
$1.1 million. Activities in French Guiana focused primarily on further work at
St-Elie, Paul Isnard and Dachine. General and administrative expenditures for
Guyanor which were not reimbursed by joint venture partners amounted to $0.5
million for the quarter ended March 31, 1996.
The Company and Guyanor reported the discovery within the Dachine permit area in
French Guiana of a metamorphosed ultramafic rock, probably kimberlitic, that can
be traced over a dimension of 3.5 km in length and 0.5 km in width. Guyanor and
BHP Minerals International ("BHP") signed a Heads of Agreement in December 1995
to jointly explore for the source of a secondary diamond occurrence identified
by the BRGM in the 1970's. BHP is the project manager under the Heads of
Agreement and must spend $3.5 million on the project by May 31, 1998 in order to
earn a 51% interest therein. In addition, Guyanor's interest could vary from
31.5% to 39% depending upon certain elections by Guyanor and BHP under the Heads
of Agreement.
Guyana
Exploration and acquisition expenditures in the first quarter of 1996 in Guyana
amounted to $1.1 million. Activities in Guyana focused primarily on the Wenamu
gold and diamond reconnaissance area.
On August 19, 1995, a failure occurred in the main section of the tailings dam
at the Omai Mine. The failure resulted in the discharge of cyanide-contaminated
water into the Omai River, which in turn flowed into the Essequibo River. The
discharge began on August 19, 1995 and continued until the leakage was fully
controlled by Omai personnel on August 24, 1995. To minimize environmental
damage, a portion of the discharged water was diverted into the Fennell Pit, the
main source of gold at the Omai Mine. Production at the Omai Mine was suspended
from August 19, 1995 until February 4, 1996, when operations resumed.
Suriname
Exploration expenditures in Suriname during the first quarter of 1996 focused
principally on the Gross Rosebel gold project in joint venture with Cambior Inc.
("Cambior"). Total spending in Suriname in the first quarter of 1996 of $2.0
million was offset by joint venture recoveries from Cambior of $1.3 million.
On March 26, 1996, Cambior and the Company announced mining reserves of 24
million tonnes grading 1.4 g Au/t on the Gross Rosebel property representing 1.1
million ounces of gold in situ. This reserve estimate is based on results from
420 diamond drill holes for a total of over 37,500 m, 4,064 auger holes for a
total of 25,000 m and 14 km of trenches. Mining reserves identified to date lie
16
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- ------------------------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
in two areas of the Gross Rosebel property: the South block containing the
Mayo, Royal Hill and Rosebel deposits and the North block hosting the Pay Caro
and Koolhoven deposits.
Southern Star Resources Ltd.
Exploration expenditures for the first quarter of 1996 of $0.6 million by
Southern Star focused on the Andorinhas and Abacaxis projects in Brazil and the
San Simon project in Bolivia.
On May 14, 1996, the Company announced that Southern Star signed the final
document with Companhia Vale do Rio Doce ("CVRD") for the Andorinhas project in
Brazil. Southern Star has also reached agreement with certain of the principal
landowners in the Andorinhas district for an option to purchase certain surface
rights and assets. Under the agreement with CVRD, Southern Star must match
CVRD's previous exploration expenditures of approximately $5.5 million, as well
as pay 50% of any additional costs required to complete a positive feasibility
study to earn a 50% interest in the Andorinhas project, subject to final
approval of the Brazilian government. Southern Star must also effect agreements
with additional landowners which may be necessary to conduct its exploration
activities.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are currently no material pending legal proceedings to which the Company
or any of its subsidiaries is a party or to which any of it properties or those
of any of its subsidiaries is subject. The Company and its subsidiaries are,
however, engaged in routine litigation incidental to their business. No
material legal proceedings involving the Company are pending, or, to the
knowledge of the Company, contemplated, by any governmental authority. The
Company is not aware of any material events of noncompliance with environmental
laws and regulations. The exact nature of environmental control problems, if
any, which the Company may encounter in the future cannot be predicted,
primarily because of the changing character of environmental regulations that
may be enacted within foreign jurisdictions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) The Company filed with the Securities and Exchange Commission ("SEC") on
January 10, 1996, a Form 8-K concerning Cambior's decision to exercise its
option at the Gross Rosebel project.
The Company filed with the SEC on February 7, 1996, a Form 8-K concerning
the Amalgamation and Private Placement of its subsidiary, Pan African
Resources Corporation.
The Company filed with the SEC on February 7, 1996, a Form 8-K announcing
the resumption of operations at the Omai Gold Mine in Guyana, South America.
The Company filed with the SEC on March 4, 1996, a Form 8-K containing the
Underwriting Agreement dated February 9, 1996, for the sale of 1.75 million
units of the Company.
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Golden Star Resources Ltd.
By: /s/ David A. Fennell
-----------------------------
David A. Fennell
President and
Chief Executive Officer
By: /s/ Gordon J. Bell
-------------------------------
Gordon J. Bell
Vice President and Chief
Financial Officer
Date: May 13, 1996
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1996 FORM
10-Q MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 25,537
<SECURITIES> 800
<RECEIVABLES> 3,265
<ALLOWANCES> 0
<INVENTORY> 1,782
<CURRENT-ASSETS> 31,901
<PP&E> 5,915
<DEPRECIATION> (1,825)
<TOTAL-ASSETS> 97,285
<CURRENT-LIABILITIES> 4,578
<BONDS> 0
0
0
<COMMON> 121,528
<OTHER-SE> (2,642)
<TOTAL-LIABILITY-AND-EQUITY> 97,285
<SALES> 835
<TOTAL-REVENUES> 1,050
<CGS> 1,180
<TOTAL-COSTS> 3,535
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,747
<INCOME-TAX> 0
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,747
<EPS-PRIMARY> 0.07
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</TABLE>
