<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 June 30, 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 August 7, 1996: 25,777,903.
<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...................................15
Part II - Other Information
Item 1. Legal Proceedings.........................................20
Item 4. Submission of Matters to a Vote of the Security Holders...20
Item 6. Exhibits and Reports on Form 8-K..........................22
Signatures...................................................................25
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)
- --------------------------------------------------------------------------------
(Unaudited) As of
As of June 30, December 31,
ASSETS 1996 1995
------------ ------------
CURRENT ASSETS
Cash and short-term investments $ 22,686 $ 9,498
Marketable securities, at cost - 800
which approximates market
Accounts receivable 5,637 4,200
Inventories 1,456 1,132
Other assets 557 444
-------- --------
Total Current Assets 30,336 16,074
RESTRICTED CASH $ 2,465 $ 2,465
DEFERRED EXPLORATION 61,268 51,447
INVESTMENT IN OMAI GOLD MINES LIMITED 3,798 3,798
FIXED ASSETS 4,236 3,627
OTHER ASSETS - 198
-------- --------
Total Assets $102,103 $ 77,609
======== ========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued $ 3,522 $ 3,925
liabilities
Accrued wages and payroll taxes 908 1,057
-------- --------
Total Current Liabilities 4,430 4,982
OTHER LIABILITIES 12 36
-------- --------
Total Liabilities 4,442 5,018
-------- --------
MINORITY INTEREST 9,592 4,203
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY
SHARE CAPITAL 128,660 106,344
(Common shares, without par value,
unlimited shares authorized.
Shares issued and outstanding:
June 30, 1996 - 25,716,303 ;
December 31, 1995 - 22,769,872)
Stock option loans (3,926) (1,170)
DEFICIT (36,665) (36,786)
-------- --------
Total Shareholders' Equity 88,069 68,388
-------- --------
Total Liabilities and $102,103 $ 77,609
Shareholders' Equity ======== ========
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 Six Months
Ended June 30 Ended June 30
-------------------- -------------------
1996 1995 1996 1995
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
REVENUE
Precious metals sales $ 331 $ 909 $ 1,169 $ 1,774
Interest and other 364 634 576 1,027
-------- -------- ------- --------
695 1,543 1,745 2,801
COSTS AND EXPENSES
Cost of goods sold 1,043 1,696 2,223 3,208
Depreciation 288 245 583 387
General and administrative 2,631 2,578 4,601 4,428
Exploration expense 6 - 19 -
Recovery of Abandonment Loss (936) - (936) -
Abandonment of mineral properties - 1,341 - 1,496
Loss (Gain) on sale of assets (58) - (58) -
Foreign exchange loss (gain) - (205) 77 (194)
-------- -------- ------- --------
2,974 5,655 6,509 9,325
PROFIT (LOSS) BEFORE THE UNDERNOTED (2,279) (4,112) (4,764) (6,524)
Gain on subsidiary's issuance of common - 926 3,783 2,575
stock
Omai Preferred Share Redemptions - 409 - 661
-------- -------- ------- --------
Net profit (loss) before minority (2,279) (2,777) (981) (3,288)
interest
Minority interest loss 653 518 1,102 712
-------- -------- ------- --------
NET PROFIT (LOSS) ($1,626) ($2,259) $ 121 ($2,576)
======== ======== ======= ========
NET PROFIT (LOSS) PER SHARE $(0.06) $(0.10) $0.01 $(0.11)
======== ======== ======= ========
</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>
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net profit (loss) $ 121 $ (2,576)
Reconciliation of net income to net
cash used in operations:
Depreciation 583 387
Premium on Omai Preferred Share Redemptions - (661)
Recovery of abandonment loss (936) 1,496
Gain on issuance of common stock by subsidiary (3,783) (2,575)
Minority interest (1,102) (712)
Changes in non-cash operating working capital (1,488) (1,467)
-------- -------
Net Cash Flows Used in Operating Activities (6,605) (6,108)
-------- -------
INVESTING ACTIVITIES:
Expenditures on mineral properties, net of joint venture
recoveries (9,821) (11,440)
Equipment purchases (1,192) (347)
Omai Preferred Share Redemptions - 1,209
Other assets and investments 787 597
-------- -------
Net Cash Flows Used in Investing Activities (10,226) (9,981)
-------- -------
FINANCING ACTIVITIES:
Proceeds from issuance of subsidiary's stock 10,261 9,426
Offering costs of subsidiary (126) (928)
Increase in minority interest 327 1,355
Issuance of share capital 12,886 -
Issuance of share capital under warrants 3,979 739
Issuance of share capital under options 5,451 -
Stock option loan receipts (additions) (2,756) -
Other (3) (27)
-------- --------
Net Cash Flows Provided by Financing Activities 30,019 10,565
-------- --------
Increase (Decrease) in cash 13,188 (5,524)
Cash and short-term investments, beginning of period 9,498 34,387
-------- --------
Cash and short-term investments, end of period $ 22,686 $ 28,863
======== ========
</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 in the
United States and with the provincial securities commissions in Canada
(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 June 30, 1996, and for the six months
ended June 30, 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
------------
June 30, December 31,
1996 1995
------- ------------
Precious Metals Inventory $ 375 $ 383
Materials and Supplies 1,081 749
------- -------
$ 1,456 $ 1,132
======= =======
(2) FIXED ASSETS
------------
June 30, December 31,
1996 1995
------- ------------
Building $ 921 $ 903
Machinery & Equipment 5,020 4,254
------- -------
5,941 5,157
Accumulated Depreciation (1,705) (1,530)
------- -------
$ 4,236 $ 3,627
======== =======
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 June 30, 1996
============================================================================================
<S> <C> <C> <C> <C> <C> <C>
GUYANA
Eagle Mountain $ 38 - - - - $ 38
Upper Potaro Diamond 836 64 37 - - 937
Mazaruni / Upper Mazaruni
Diamond 2,028 308 154 - - 2,490
Wenamu Gold 512 - - - - 512
Five Stars / Five Stars Gold 3,651 463 510 - - 4,624
Five Stars Diamond 389 401 80 - - 870
Other 2,518 179 - - - 2,697
--------------------------------------------------------------------------------------------
Sub-total 9,972 1,415 781 - - 12,168
--------------------------------------------------------------------------------------------
SURINAME
South Benzdorp 2,842 337 - - - 3,179
Gross Rosebel 6,286 3,204 450 (2,443) - 7,497
Headley's Right of
Exploration 311 - - - - 311
Thunder Mountain 405 52 - - - 457
Saramacca 1,255 272 - - - 1,527
Sara Kreek 131 221 - - - 352
Other 226 550 30 - - 806
--------------------------------------------------------------------------------------------
Sub-total 11,456 4,636 480 (2,443) 14,129
--------------------------------------------------------------------------------------------
</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 June 30, 1996
=====================================================================================
<S> <C> <C> <C> <C> <C> <C>
FRENCH GUIANA
(GUYANOR RESSOURCES S.A.)
Dorlin 609 370 - (370) - 609
St-Elie 1,973 1,509 - (1,509) - 1,973
Yaou 6,991 170 - (170) - 6,991
SOTRAPMAG /
Paul Isnard 4,790 855 - (647) - 4,998
Dachine 449 574 - (574) - 449
Other 1,295 43 - - - 1,338
-------------------------------------------------------------------------------------
Sub-total 16,107 3,521 - (3,270) - 16,358
-------------------------------------------------------------------------------------
AFRICA (PAN AFRICAN
RESOURCES CORPORATION)
Gabon / Eteke 5,247 441 - - - 5,688
Ivory Coast / Comoe 2,859 529 - - - 3,388
Mali / Dioulafoundou 1,940 524 56 - - 2,520
Mali / Melgue - 46 - - - 46
Ethiopia / Dul 2,635 743 - - 3,378
Eritrea / Galla Valley 426 195 - - - 621
Eritrea / Other - 82 - - - 82
Other - 44 - - 44
-------------------------------------------------------------------------------------
Sub-total 13,107 2,604 56 - - 15,767
-------------------------------------------------------------------------------------
LATIN AMERICA (SOUTHERN STAR RESOURCES
LTD.)
Brazil/Andorinhas 123 394 601 - - 1,118
Brazil/Abacaxis 162 371 91 - - 624
Bolivia/San Simon 205 160 22 - - 387
Bolivia/Sunsas 6 12 - - - 18
Other 296 289 - - - 585
-------------------------------------------------------------------------------------
Sub-total 792 1,226 714 - - 2,732
-------------------------------------------------------------------------------------
OTHER 13 101 - - - 114
-------------------------------------------------------------------------------------
TOTAL $51,447 $13,503 $2,031 $(5,713) - $ 61,268
=====================================================================================
</TABLE>
6
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
- ----------------------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
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 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 six months ended June 30, 1996 are as
follows:
Common Preferred
Shares Shares
------ ---------
December 31, 1995 $ - $3,798
Less:
Preferred Share Redemption - -
Add:
Premium on Preferred Share Redemption - -
------ ---------
June 30, 1996 $ - $3,798
====== =========
The Company's share of Accumulated Losses at:
December 31, 1995 $(3,401)
========
June 30, 1996 $(3,974)
========
The Company received no proceeds from redemption of preferred shares during the
six months ended June 30, 1996.
(5) PAN AFRICAN RESOURCES CORPORATION PRIVATE PLACEMENT AND AMALGAMATION
--------------------------------------------------------------------
On February 5, 1996, Pan African Resources Corporation, a Yukon company ("PARC
Yukon") and a subsidiary of the Company, 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. During the quarter ended June 30, 1996, PARC (as defined below) received
$1.0 million in proceeds from exercise of 1,063,500 of the Cdn$1.25 warrants.
On February 6, 1996, PARC Yukon was amalgamated under the Yukon Business
Corporation Act with Humlin Red Lake Mines Limited, an Ontario corporation
("Humlin"). As a result of the private placement and the amalgamation, the
Company's interest was reduced to approximately 60% of the 45.3 million
outstanding shares of Pan African Resources Corporation, the amalgamated company
("PARC"). 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.
7
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
- ----------------------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
Prior to the amalgamation with Humlin, indebtedness totaling $12.3 million owed
by Pan African Resources Corporation, a Barbados company ("PARC Barbados"), and
a wholly-owned subsidiary of PARC Yukon, 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 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 six months ended June 30, 1996, 1,165,719 common shares were issued
by the Company pursuant to exercised options previously granted under the
Company's Employees' Stock Option Plan. During the six months ended June 30,
1996, 129,250 of the Company's Cdn$25.00 common share purchase warrants were
exercised for proceeds of $2.4 million. On July 31, 1996, the remaining
1,120,750 of these warrants expired unexercised.
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 6, 1997 at a price of Cdn$11.00.
During the six months ended June 30, 1996, 201,300 of the Cdn$11.00 warrants
were exercised for proceeds of $1.6 million.
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 six months
ended June 30, 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
8
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
- ----------------------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
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 equivalents during the
period. As of June 30, 1996, fully diluted outstanding shares were 29,916,957.
Earnings per share and fully diluted earnings per share are not materially
different for the six months ended June 30, 1996.
Common share equivalents are not included for 1995 as the effect would be
antidilutive.
(8) SETTLEMENT OF VENEZUELA PUT OPTION
----------------------------------
On July 18, 1995, the Company announced that Venhold Investments (1994) Ltd.,
its indirectly controlled subsidiary, and BPC Corporation (collectively, the
"VenStar Purchasers") had given notice to Lindley Associated S.A. ("Lindley") of
their election to exercise their option ("Put Option") to "put" back to Lindley
their common and preferred shares in VenStar Gold Ltd. ("VenStar") in return for
the repayment by Lindley of all purchase price payments and all exploration
expenditures of the VenStar Purchasers. The aggregate amount owed to the
Company under the Put Option was approximately $1.6 million.
VenStar, through its subsidiaries, holds several gold exploration properties,
being the Increible 6 concession, the Valle Hondo concession and six Valle Hondo
"CVG" (Corporacion Venezolana de Guayana) contract permit areas dominated Valle
Hondo 89 through 94, all located in the Bolivar State in eastern Venezuela. The
election by the VenStar Purchasers to exercise the Put Option was due to the
inability of Lindley to obtain the final "veta" (vein) mineral rights to the
Valle Hondo concession within the time period required in the stock purchase
agreement between the VenStar Purchasers and Lindley and in view of unresolved
issues with respect to investment in the mining industry in Venezuela.
In February 1996, Lindley indicated to the VenStar Purchasers that it would not
pay the amounts owed under the Put Option until it had found another purchaser
or joint venture partner for the Venezuelan Properties. As a result of the
notification, the Company decided to write off the capitalized deferred
exploration in Venhold Investments (1994) Ltd., and the related entities. The
amount charged to property abandonments for these costs for the period ended
December 31, 1995 was $4.5 million. The Company also wrote off $0.8 million of
costs incurred by the Company related to the Venezuelan properties.
In June 1996, Lindley informed the Company that it had found a purchaser for the
Venezuelan Properties and intended to pay the amounts owed under the Put Option.
The Company agreed to a final termination and settlement agreement in connection
with the "unwinding" of its purchase of an interest in VenStar in June 1996.
Under the terms of the settlement, the Company, through Venhold, received a cash
reimbursement in the amount of $1.6 million from Lindley, consisting of $1.3
million in cash from Lindley and $0.3 million in cash held in the management
company. This amount represents a
9
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
- ----------------------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
recovery of certain purchase price payments and exploration expenditures
incurred through July 18, 1995 which were previously written off. As such, the
Company recorded a gain of approximately $0.9 million in the second quarter as a
result of the transaction, and has no remaining interests in Venezuela at this
time.
(9) 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.
(c) 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.
10
<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.
(h) 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 June 30, 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:
For the six months ended
June 30, 1996 June 30, 1995
-------------- --------------
Net profit (loss) under Canadian GAAP $ 121 $ (2,576)
Net effect of the deferred exploration
expenditures on loss for the period (a) (7,790) (9,818)
Effect of recording compensation
expense under stock option plans (d) (68) (112)
Reversal of the gain on subsidiary's
issuance of common stock (3,783) (2,575)
Effect of Omai preferred share - 548
redemption (c)
-------- --------
Loss under U.S. GAAP before minority (11,520) (14,533)
interest
Adjustment to minority interest 796 1,442
-------- --------
Loss under U.S. GAAP $(10,724) $(13,091)
======== ========
Loss per share under U.S. GAAP $(0.43) $(0.58)
======== ========
11
<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:
<TABLE>
<CAPTION>
BALANCE SHEET
As of June 30, 1996 As of December 31, 1995
------------------------------- -------------------------------
Canadian GAAP U.S. GAAP Canadian GAAP U.S. GAAP
--------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Cash (h) $ 20,212 20,212 $ 5,800 $ 3,320
Short term investments (e) 2,474 2,474 3,698 2,480
Marketable securities (i) - - 800 927
Other current assets 7,650 7,650 5,776 5,776
Restricted cash 2,465 2,465 2,465 2,465
Deferred exploration (a) 61,268 17,599 51,447 15,568
Investment in Omai Gold
Mines Limited (c) 3,798 - 3,798 -
Long-term investments (e) - - - 3,698
Other assets 4,236 4,236 3,825 3,825
--------------- ----------- --------------- -----------
Total Assets $ 102,103 $ 54,636 $ 77,609 $ 38,059
=============== =========== =============== ===========
Liabilities 4,442 4,442 5,018 5,018
Minority interest (a) 9,592 7,561 4,203 2,968
Share capital, net of stock option
loans (g) 124,734 117,907 105,174 94,496
Cumulative translation
adjustments (b) - 1,595 - 1,595
Accumulated unrealized gains on
investments (i) - - - 127
Deficit (a) (c) (d) (f) (36,665) (76,869) (36,786) (66,145)
--------------- ----------- --------------- -----------
Total Liabilities and
Shareholders' Equity $ 102,103 $ 54,636 $ 77,609 $ 38,059
=============== =========== =============== ===========
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
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
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
For the six months ended
June 30, 1996 ($6,605) ($14,489) ($10,226) $ 1,290 $ 30,019 $ 30,019
For the six months ended
June 30, 1995 ($6,108) ($ 4,072) ($9,981) $ 2,750 $ 10,565 $ 10,677
</TABLE>
12
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
- ----------------------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
The statements of cash flows reflect the impact of the previously discussed
adjustments (a) (c) (d) (f) and the following non-cash items:
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 six months ended June 30,
1996, and $0.8 million for the year ended December 31, 1995. Non-cash items
in financing activities were $2.8 million for the six months ended June 30,
1996 and $0 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 believes that adoption of SFAS No. 121 would not 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.
(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
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. In July 1996, the performance bond
requirements for Ethiopia were reduced. (See Note 11)
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
13
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
- ----------------------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
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 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. The Company and
PARC are currently awaiting the government approved format for the Bank
guarantee prior to entering into a letter of credit or similar agreement with a
financial institution.
(11) SUBSEQUENT EVENTS
-----------------
On July 17, 1996, the requirements for the Ethiopian performance bond were
reduced to $1.15 million by the MMEE and the Bank consequently released $1.0
million from the letter of credit. (See Note 10)
On July 31, 1996, 1,120,750 of the Company's remaining Cdn$25.00 warrants issued
on January 1994 expired unexercised. (See Note 6)
14
<PAGE>
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 9.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 Compared to the Six Months Ended June 30, 1995
- -----------------------------------------------------------------------------
During the second quarter of 1996, the Company reported a net loss of $1.6
million as compared to a net loss of $2.3 million for the second quarter of
1995. The second quarter results include gains of $0.1 million on the sale of
marketable equity securities, and $0.9 million for recovery of Venezuelan
investments previously written off.
Total revenues of $0.7 million for the second quarter of 1996 (as compared to
$1.5 million for the second quarter of 1995) decreased due to reduced gold sales
by Societe de Travaux Publics et de Mines Auriferes en Guyane, a subsidiary of
Guyanor Resources S.A. ("SOTRAPMAG"). Interest and other income decreased from
the prior period due to reduced average cash balances invested.
Operating and financial results at SOTRAPMAG were negatively impacted by a
strike by certain employees at the mine which closed operations as of June 3,
1996. Total gold production at SOTRAPMAG was 25,443 grams (818 ounces), down
from 64,206 grams (2,064 ounces) in the first quarter of 1996 due to the strike,
re-deployment of certain equipment for construction of the new Barthelemy plant
and heavy rainfall. Revenue from gold sales for the second quarter of 1996 was
$0.3 million at an average gold price of $405 per ounce. Cost of goods sold for
the period exceeded revenue by $0.7 million.
Construction continued in the second quarter on the new Barthelemy ore treatment
plant with approximately $0.4 million spent on plant and infrastructure
construction. Plant construction was nearing completion when the strike
occurred. Commissioning and trial start-up of the plant was delayed pending
resolution of the labor situation. Employees returned to work in July when the
labor situation was resolved.
Guyanor Resources S.A., a subsidiary of the Company ("Guyanor"), has retained
the services of outside consultants to analyze SOTRAPMAG's alluvial operation
and make recommendations on how to render the operation profitable. Engineering
and processing consultants engaged by Guyanor continued their review of mining
plans, operating methodology, equipment, and personnel during the quarter in
order to identify potential cost saving measures and productivity enhancements
to increase gold production and reduce operating costs to profitable levels. The
Company will continue to evaluate the profitability and performance of
SOTRAPMAG's operations and implement actions as necessary to eliminate operating
losses. There can be no assurance, however, that it will be possible to render
the operation profitable or that management will not decide at some point to
close the operation.
General and administrative expenditures of $2.6 million (as compared to $2.6
million in the second quarter of 1995) reflected the Company's continued support
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 second quarter of 1996.
Omai Gold Mines Limited ("OGML"), in which the Company maintains a 30% common
share equity interest, reported a net loss of $0.3 million for the second
quarter of 1996 and $1.8 million for the six months ended June 30, 1996 compared
to a net income of $4.5 million in the second quarter of 1995
15
<PAGE>
and $5.4 million for the six months ended June 30, 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 85,192 ounces of gold during the six months ended
June 30, 1996 (134,440 ounces in the first six months of 1995). Since the
resumption of operations in February, production has gradually increased and
reached full capacity by June 1996. The mill expansion was successfully
commissioned in early July and is expected to gradually reach its design
capacity during the third quarter. There were no redemptions of Class "I"
preferred shares during the six months ended June 30, 1996, as compared to $2.2
million during the first six months of 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company held cash and short term investments of $22.7
million ($28.9 million as of June 30, 1995) and working capital of $25.9 million
($30.6 million as of June 30, 1995). The decrease in cash resources and working
capital resulted from expenditures on the Company's exploration activities
during 1995 and the first six months of 1996, offset by the proceeds from the
PARC Yukon 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 second quarter of 1996 included the exercise
of stock options for proceeds of $3.2 million, exercise of warrants for proceeds
of $4.0 million, and joint venture arrangements which provided $3.2 million in
cash recoveries of exploration expenditures.
Product and supplies inventories, accounts receivables and other current assets
increased $1.3 million during the quarter in the aggregate, reflecting increases
in accounts receivable due from joint venture partners and the addition of
accounts receivable of $1.3 million due from the Company's Venezuelan partners
as a result of settlement of the VenStar transaction, offset by 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 $10.2 million for the six months ended June
30, 1996 as compared to $10.0 million for the six months ended June 30, 1995
increased primarily due to additional fixed asset purchases offset by the
increase in joint venture recoveries related to the Company's operations in
French Guiana and Suriname.
Cash provided by financing activities of $30.0 million for the six months ended
June 30, 1996 increased by $19.4 million as compared to $10.6 million for the
six months ended June 30, 1995. The increase results from the Company's unit
offering and the PARC Yukon private placement. Share capital increased by $22.3
million for the six months ended June 30, 1996 compared with $0.7 million during
the six months ended June 30, 1995, reflecting proceeds from the exercise of
stock options and warrants and the unit offering.
16
<PAGE>
Africa (Pan African Resources Corporation)
- ------------------------------------------
Total exploration and acquisition expenditures in Africa for the second quarter
of 1996 amounted to $1.5 million, and primarily reflect expenditures on
exploration activities in the Ivory Coast, Mali, Ethiopia and Gabon. General
and administrative expenditures for the second quarter of 1996 totaled $0.4
million, with interest earned on invested cash balances totaling $0.1 million
for the quarter.
Pan African Resources Corporation Private Placement and Amalgamation
On February 5, 1996, Pan African Resources Corporation, a Yukon company and a
subsidiary of the 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, an Ontario corporation
("Humlin"). As a result of the private placement and the amalgamation, the
Company's interest was reduced to approximately 60% of the 45.3 million
outstanding shares of Pan African Resources Corporation, the amalgamated company
(`PARC"). 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 Pan African Resources Corporation, a Barbados Company and a wholly owned
subsidiary of PARC Yukon ("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 km2. These
permits are in addition to the Kregbe permit covering 225 km2 granted December
13, 1995. All permits granted result from an agreement signed in January 1995
providing exclusive rights to a 15,000 km2 (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 km2. 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.
17
<PAGE>
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. The Company and PARC are currently awaiting the government
approved format for the bank guarantee prior to entering into a letter of credit
or similar agreement with a financial institution.
During the second quarter, $1.0 million in proceeds from exercise of PARC
warrants was received by PARC. The exercise of the PARC warrants reduced the
Company's interest in PARC to approximately 59%.
French Guiana (Guyanor Ressources S.A.)
- ---------------------------------------
Total exploration expenditures by Guyanor for the second quarter amounted to
$2.4 million, offset by joint venture recoveries of $2.2 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 $0.4 million for the quarter
ended June 30, 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 approximately 3.5 km in length and 0.5 km in
width. Guyanor and BHP Minerals International Inc. ("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. BHP could acquire up
to an additional 17.5% interest in the project pursuant to certain elections by
Guyanor and BHP under the Heads of Agreement.
On May 22, 1996, Guyanor announced the final approval of the title transfer for
the St-Elie concession by the French administration.
In June 1996, SOTRAPMAG entered into an option and a joint venture agreement
(the "Paul-Isnard Agreement) with LaSource Developpment S.A. ("LaSource") and
ASARCO Exploration Company ("ASARCO') for the exploration and potential
exploitation of the Paul-Isnard and Eau-Blanche properties in French Guiana.
Under the Paul-Isnard Agreement, two separate joint ventures were created: the
Paul-Isnard joint venture and the Eau-Blanche joint venture. LaSource holds a
25% participating interest in the each joint venture (excluding any alluvial
gold deposits) and must contribute, subject to dilution, its 25% share of all
future exploration and development costs, once Guyanor has incurred an initial
$1.0 million in financing work programs and budgets adopted by the joint
ventures. ASARCO has two separate options to acquire 50% of SOTRAPMAG's
participating interest in each joint venture which, based on Guyanor's current
75% interest, represent at this time a 37.5 % interest in each joint venture, by
completing a feasibility study within a five-year period on either the Paul-
Isnard or Eau-Blanche property and meeting certain minimum funding obligations.
More specifically, in order to maintain its rights in each joint venture, ASARCO
must incur expenditures on behalf of SOTRAPMAG on the property of such joint
venture in an amount of at least $10 million. ASARCO also has the option to
combine the two properties into a single joint venture in which case its
spending obligation will be a combined $20 million. Guyanor has
18
<PAGE>
the right to act as project manager for the exploration phase of the project
while ASARCO, once vested, has the right to act as manager of any resulting
feasibility study and exploitation.
During the second quarter, $0.1 million was received by Guyanor from the
exercise of stock options.
Guyana
- ------
Exploration and acquisition expenditures in the second quarter of 1996 in Guyana
amounted to $1.1 million. Activities in Guyana focused primarily on the Five
Stars gold and diamond reconnaissance area.
On August 19, 1995, a failure occurred in the main section of the tailings dam
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 second quarter of 1996 focused
principally on the Gross Rosebel gold project in joint venture with Cambior Inc.
("Cambior"). Total spending in Suriname in the second quarter of 1996 of $3.1
million was offset by joint venture recoveries from Cambior of $1.1 million. As
a result of Cambior's fulfillment of certain option conditions and the exercise
of its option in the Gross Rosebel project, the Company is now required to
contribute 50% of adopted work programs and budgets regarding the project.
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
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. An extensive exploration program has been initiated to
increase the mineable reserves in anticipation of a feasibility study to be
initiated in the second half of 1996.
Southern Star Resources Ltd.
- ----------------------------
Exploration expenditures for the second quarter of 1996 of $1.4 million by
Southern Star Resources Ltd. a wholly owned subsidiary of the Company ("Southern
Star") focused primarily 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. During the quarter ended June 30, 1996, Southern Star finalized an
agreement with the largest landholder and made a payment of $0.6 million in
connection with the agreement.
19
<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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
At the Annual General Meeting of the Shareholders of the Company held on June
11, 1996, shareholders were asked to (i) re-elect the seven directors,
including Messrs. Fagin, Fennell, Lefebvre, Mazankowski, Mercier, Morton and
Stark, and to elect as additional directors, Messrs. Pierre Gousseland and
Bernard Poznanski, (ii) approve the selection of auditors for 1996, (iii)
approve the shareholder rights plan, (iv) approve the amendments to the articles
of the Company, (v) approve amendments to the Company's Employees' Stock Option
Plan (the "E.S.O.P."), and (vi) approve amendments to the Company's Non-
Discretionary Directors Stock Option Plan (the "N.D.D.S.O.P.").
On April 11, 1996, the Board of Directors of the Company adopted, subject to
regulatory approvals, a shareholder's rights plan (the "Rights Plan"). The
principal purpose of the Shareholder Rights Plan was to ensure that all
shareholders receive fair treatment in the event of a take-over bid or tender
offer or other acquisition that could lead to a change in control of the
Company. Under the Rights Plan, the Company issued one right (a "Right") for
each Common Share of the Company outstanding on April 24, 1996. While the
Rights Plan became effective upon entering into the rights agreement on April
24, 1996, under the provisions of the Rights Agreement, the Rights were to
terminate if the rights agreement was not confirmed by the shareholders at their
annual general meeting.
The purpose of the amendment to the Articles of the Company was to allow the
Board of Directors to appoint one or more directors to hold office for a term
expiring not later than the close of the next annual meeting of the
shareholders, providing the total number of directors so appointed did not
exceed one-third of the number of directors elected at the previous annual
general meeting.
The purpose of the amendments to the E.S.O.P. were to allow the Board to extend
the exercise period of an option held by an employee who had ceased employment
with the Company or its subsidiaries for a period of up to 12 months instead of
30 days otherwise provided for and to ensure that if there is a take-over bid or
tender offer of the Company all options granted under the Employees' Plan would
become immediately exercisable without the need for a decision by the
Compensation Committee.
The purpose of the amendments to the N.D.D.S.O.P. were (i) to extend the period
during which directors are entitled to exercise their stock options after they
cease to be directors from 30 days to a period of up to 12 months, (ii) to allow
the Company to make amendments to the N.D.D.S.O.P. at any time as opposed to no
more than one amendment per six-month period and (iii) to comply with certain
technical amendments required by The Toronto Stock Exchange in connection with
the exercise of an option prior to its expiration date.
20
<PAGE>
(i) Votes cast in the election of directors were as follows:
Number of Shares
----------------
For Withheld
--- --------
David K. Fagin 16,732,443 -0-
David A. Fennell 16,632,443 -0-
Pierre Gousseland 16,731,392 -0-
Jean-Pierre Lefebvre 16,732,443 -0-
Donald Mazankowski 16,732,443 -0-
Ernest Mercier 16,732,443 -0-
Roger D. Morton 16,732,443 -0-
Bernard Poznanski 16,732,443 -0-
Richard A. Stark 16,732,392 -0-
(ii) Votes cast for the selection of auditors for 1996:
For Against Withheld
--- ------- --------
16,727,935 -0- 8,074
(iii) Votes cast for the Rights Plan:
For Against Withheld
--- ------- --------
10,121,975 1,117,603 65,031
(iv) Votes cast for the Amendment to the Articles of the Company:
For Against Withheld
--- ------- --------
16,665,068 76,892 38,107
(v) Votes cast for the Amendment to the Company's Employees' Stock Option
Plan:
For Against Withheld
--- ------- --------
16,145,179 530,061 94,969
(vi) Votes cast for the Amendment to the Company's Non-Discretionary Directors'
Stock Option Plan:
For Against Withheld
--- ------- --------
16,109,473 533,279 100,457
21
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits - (3) (i) Certificate of Amendments of the Articles of the
Corporation dated July 29, 1996.
(b) The Company filed with the Securities and Exchange Commission ("SEC") on
April 2, 1996, a Form 8-K, dated March 29, 1996, concerning the mining
Reserves at the Gros Rosebel project, which is herein incorporated by
reference.
The Company filed with the SEC on May 8, 1996, a Form 8-K, dated May 7,
1996, its Shareholder Rights Plan, which is herein incorporated by
reference.
22
<PAGE>
Industry Canada Industrie Canada
CERTIFICATE CERTIFICAT
OF AMENDMENT DE MODIFICATION
CANADA BUSINESS LOI CANADIENNE SUR
CORPORATIONS ACT LES SOCIETES PAR ACTIONS
GOLDEN STAR RESOURCES LTD. 282128-1
__________________________ __________________________
Name of corporation-Denomination Corporation number-Numero de la societe
de la societe
I hereby certify that the articles Je certifie que les statuts de la
of the above-named corporation were societe susmentionnee ont ete modifies:
amended
(a) under section 13 of the [_] a) en vertu del l'article 13 de la Loi
Canada Business Corporations Act canadienne sur les societes par actions,
in accordance with the attached conformement a l'avis ci-joint;
notice;
(b) under section 27 of the [_] b) en vertu de l'article 27 de la Loi
Canada Business Corporations Act canadienne sur les societes par actions,
as set out in the attached tel qu'il est indique dans les clauses
articles of amendment designating modificatrices ci-jointes designant une
a series of shares; serie d'actions;
(c) under section 179 of the [X] b) en vertu de l'article 179 de la Loi
Canada Business Corporations Act canadienne sur les societes par actions,
as set out in the attached tel qu'il est indique dans les clauses
articles of amendment; modificatrices ci-jointes
(d) under section 191 of the [_] b) en vertu de l'article 191 de la Loi
Canada Business Corporations Act canadienne sur les societes par actions,
as set out in the attached tel qu'il est indique dans les clauses
of reorganization. de reorganisation ci-jointes.
/s/ Director - Directeur July 29, 1996/le 29 juillet 1996
Date of Amendment - Date de modification
Canada
23
<PAGE>
CANADA BUSINESS CORPORATIONS ACT
FORM 4
ARTICLES OF AMENDMENT
(SECTION 27 OR 177)
- --------------------------------------------------------------------------------
1 - Name of Corporation 2 - Corporation No.
GOLDEN STAR RESOURCES LTD. 282128-1
- --------------------------------------------------------------------------------
3 - The articles of the above-named corporation are amended as follows:
The following provision be added to Section 7 :
"The directors may appoint one or more directors, who shall hold office for
a term expiring not later than the close of the next annual general meeting
of shareholders, provided that the total number of directors so appointed
may not exceed one-third of the number of directors elected at the previous
annual meeting of shareholders.
- --------------------------------------------------------------------------------
Date Signature Description of Office
July 25, 1996 /s/ Louis O. Peloquin Vice President & General Counsel
- --------------------------------------------------------------------------------
JUL 29 1996
24
<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: August 14, 1996
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1996 FORM
10-Q FOR JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 22,686
<SECURITIES> 0
<RECEIVABLES> 5,637
<ALLOWANCES> 0
<INVENTORY> 1,456
<CURRENT-ASSETS> 30,336
<PP&E> 5,941
<DEPRECIATION> (1,705)
<TOTAL-ASSETS> 102,103
<CURRENT-LIABILITIES> 4,442
<BONDS> 0
0
0
<COMMON> 128,660
<OTHER-SE> (3,926)
<TOTAL-LIABILITY-AND-EQUITY> 102,103
<SALES> 1,169
<TOTAL-REVENUES> 1,745
<CGS> 2,223
<TOTAL-COSTS> 6,509
<OTHER-EXPENSES> (3,783)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 121
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.004
</TABLE>
