GOLDEN STAR RESOURCES LTD
10-Q, 1997-11-14
GOLD AND SILVER ORES
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<PAGE>   1


                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 September 30, 1997

                                       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.)


     1660 Lincoln Street,
     Suite 3000, Denver, Colorado                                    80264
     (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 November 7, 1997: 29,737,136.

<PAGE>   2



                           GOLDEN STAR RESOURCES LTD.

                                      INDEX


<TABLE>
<S>                                                                                                    <C>
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.....................................................................19

         Item 6.  Exhibits and Reports on Form 8-K......................................................19


Signatures..............................................................................................20 
</TABLE>




                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this report constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual results,
performance, or achievements of the company to be materially different from any
future results, performance, or achievements express or implied by such
forward-looking statements. Such factors include, among others, gold and diamond
exploration and development costs and results, fluctuation of gold prices,
foreign operations and foreign government regulation, competition, uninsured
risks, recovery of reserves, capitalization and commercial viability and
requirements for obtaining permits and licenses.



                                       i
<PAGE>   3



                         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 September 30,  As of December 31,
ASSETS                                                                    1997                1996
                                                                  -------------------  ------------------
<S>                                                                 <C>                 <C>             
CURRENT ASSETS
         Cash and short-term investments                            $         21,250    $         15,663
         Accounts receivable                                                   3,026               5,116
         Inventories                                                             569               1,027
         Other assets                                                            370                 376
                                                                    ----------------    ----------------
                  Total Current Assets                                        25,215              22,182

RESTRICTED CASH                                                     $            765    $          2,015
DEFERRED EXPLORATION                                                          73,574              64,721
INVESTMENT IN OMAI GOLD MINES LIMITED                                          2,407               3,279
FIXED ASSETS                                                                   1,382               3,666
OTHER ASSETS                                                                     116                 420
                                                                    ----------------    ----------------
                  Total Assets                                      $        103,459    $         96,283
                                                                    ================    ================

LIABILITIES

CURRENT LIABILITIES
         Accounts payable and accrued liabilities                   $          2,899    $          5,830
         Accrued wages and payroll taxes                                         726               1,065
                                                                    ----------------    ----------------
                  Total Current Liabilities                         $          3,625    $          6,895

OTHER LIABILITIES                                                                104                  92
                                                                    ----------------    ----------------
                  Total Liabilities                                            3,729               6,987
                                                                    ----------------    ----------------

MINORITY INTEREST                                                              8,248              11,202
                                                                    ----------------    ----------------

COMMITMENTS AND CONTINGENCIES (Note 8)

SHAREHOLDERS' EQUITY

SHARE CAPITAL                                                                157,767             129,954
      (Common shares, without par value, unlimited shares
      authorized. Shares issued and outstanding: September 30,
      1997 - 29,690,136; December 31, 1996 - 25,941,103)


         Stock option loans                                                   (4,011)             (4,012)
DEFICIT                                                                      (62,274)            (47,848)
                                                                    ----------------    ----------------
         Total Shareholders' Equity                                           91,482              78,094
                                                                    ----------------    ----------------
                  Total Liabilities and Shareholders' Equity        $        103,459    $         96,283
                                                                    ================    ================
</TABLE>


              The accompanying notes are an integral part of these
                        consolidated financial statements



                                       1
<PAGE>   4



                           GOLDEN STAR RESOURCES LTD.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
     (Stated in thousands of United States Dollars except per share amounts)
                                   (Unaudited)

- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                          Three Months             Nine Months
                                                        Ended September 30      Ended September 30
                                                       --------------------    --------------------
                                                         1997        1996        1997        1996
                                                       --------    --------    --------    --------
<S>                                                    <C>         <C>         <C>         <C>     
REVENUE
    Precious metals sales                              $      4    $    184    $    443    $  1,353
    Interest and other                                      346         249         871         825
                                                       --------    --------    --------    --------
                                                            350         433       1,314       2,178

COSTS AND EXPENSES
    Cost of goods sold                                        9         843         987       3,066
    Depreciation                                            151         291         711         874
    General and administrative                            2,148       1,806       6,483       6,315
    Exploration expense                                     275          51         754         162
    Recovery of abandonment loss                             --          --          --        (936)
    Abandonment and impairment of mineral properties      3,503          --       9,573          --
    Gain on sale of assets                                 (301)         --        (302)        (58)
    Loss on impairment of assets                          1,522          --       1,522          --
    Interest and bank charges                                (6)         --          15          --
    Foreign exchange loss                                    27          37          50         114
                                                       --------    --------    --------    --------
                                                          7,328       3,028      19,793       9,537

PROFIT (LOSS) BEFORE THE UNDERNOTED                      (6,978)     (2,595)    (18,479)     (7,359)

Gain on subsidiary's issuance of common stock                --          --          --       2,001
Omai Preferred Share Redemptions                            151          --       1,050          --
                                                       --------    --------    --------    --------
Net profit (loss) before minority interest               (6,827)     (2,595)    (17,429)     (5,358)
Minority interest loss                                    1,707         588       3,003       1,690
                                                       --------    --------    --------    --------

NET PROFIT (LOSS)                                      $ (5,120)   $ (2,007)   $(14,426)   $ (3,668)
                                                       ========    ========    ========    ========

NET PROFIT (LOSS) PER SHARE                            $  (0.17)   $  (0.09)   $  (0.50)   $  (0.15)
                                                       ========    ========    ========    ========

Weighted Average Shares Outstanding
(Millions of shares)                                       29.7        22.3        28.8        25.1
                                                       ========    ========    ========    ========
</TABLE>


              The accompanying notes are an integral part of these
                        consolidated financial statements



                                       2
<PAGE>   5

                           GOLDEN STAR RESOURCES LTD.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 (Stated in thousands of United States Dollars)
                                   (Unaudited)

- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                   Nine Months Ended    Nine Months Ended
                                                                   September 30, 1997  September 30, 1996
                                                                   ------------------  ------------------
<S>                                                                 <C>                 <C>              
OPERATING ACTIVITIES:
     Net loss                                                       $        (14,426)   $         (3,668)
     Reconciliation of net loss to net cash used in operations:
         Depreciation                                                            711                 874
         Premium on Omai Preferred Share Redemptions                          (1,050)                 --
         Recovery of abandonment loss                                             --                (936)
         Gain on sale of assets                                                 (302)                (58)
         Loss on impairment of assets                                          1,522                  --
         Abandonment and write-down of mineral properties                      9,573                  --
         Gain on issuance of common stock by subsidiary                           --              (2,001)
         Minority interest                                                    (3,003)             (1,690)
     Changes in non-cash operating working capital                              (796)                660
                                                                    ----------------    ----------------
                  Net Cash Flows Used in Operating Activities                 (7,771)             (6,819)
                                                                    ----------------    ----------------

INVESTING ACTIVITIES:
     Expenditures on mineral properties, net of joint venture
        recoveries                                                           (18,426)            (15,670)
     Fixed asset purchases                                                      (327)             (1,517)
     Depreciation capitalized as deferred exploration                            264                  --
     Proceeds from sale of equipment                                             486                  --
     Omai Preferred Share Redemptions                                          1,922                  --
     Other assets                                                                 10                  --
     Other assets and investments                                                 41                 786
                                                                    ----------------    ----------------
                  Net Cash Flows Used in Investing Activities                (16,030)            (16,401)
                                                                    ----------------    ----------------

FINANCING ACTIVITIES:
     Restricted cash                                                           1,250              (3,550)
     Line of credit                                                               --               5,000
     Proceeds from issuance of subsidiary's stock                                 29              10,545
     Offering costs of subsidiary                                                (25)               (273)
     Increase in minority interest                                                45                 274
     Issuance of share capital                                                22,513              12,886
     Issuance of share capital under warrants                                  5,429               3,979
     Issuance of share capital under options                                     140               6,476
     Stock option loan receipts (additions)                                        1              (2,653)
     Other                                                                         6                  16
                                                                    ----------------    ----------------
                  Net Cash Flows Provided by Financing Activities             29,388              32,700
                                                                    ----------------    ----------------

Increase in cash                                                               5,587               9,480
Cash and short-term investments, beginning of period                          15,663               9,498
                                                                    ----------------    ----------------
Cash and short-term investments, end of period                      $         21,250    $         18,978
                                                                    ================    ================
</TABLE>

              The accompanying notes are an integral part of these
                        consolidated financial statements



                                       3
<PAGE>   6



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, 1996 on file with the Securities and Exchange Commission in the
United States and the provincial securities commissions in Canada (hereinafter
referred to as "the Company's 1996 10-K"). All amounts are in United States
dollars unless otherwise stated.

The unaudited financial statements as of September 30, 1997, and for the nine
months ended September 30, 1997 and 1996, 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.


(1)      INVENTORIES

<TABLE>
<CAPTION>
                                  September 30, 1997      December 31, 1996
                                  ------------------      -----------------
<S>                                     <C>                      <C>   
Precious Metals Inventory               $   53                   $  384
Materials and Supplies                     516                      643
                                        ------                   ------
                                        $  569                   $1,027
                                        ======                   ======
</TABLE>

In the third quarter of 1997, the Company recorded an impairment reserve for
certain materials and supplies inventories at its SOTRAPMAG subsidiary which may
have future recoverable values less than recorded amounts. The charge for this
write-down was $0.1 million.

(2)      FIXED ASSETS

<TABLE>
<CAPTION>
                                     September 30, 1997    December 31, 1996
                                     ------------------    -----------------
<S>                                     <C>                    <C>          
Building                                $         --           $      1,833 
Machinery & Equipment                          3,105                  4,676 
                                        ------------           ------------ 
                                               3,105                  6,509 
                                                                            
Accumulated Depreciation                      (1,723)                (2,843)
                                        ------------           ------------ 
                                        $      1,382           $      3,666 
                                        ============           ============ 
</TABLE>

During the second quarter of 1997, SOTRAPMAG initiated a plan to sell certain
equipment and machinery from the mine site. Sales of $0.5 million were completed
as of September 30, 1997, with gains of $0.3 million recorded on the sales.

In the third quarter of 1997, the Company recorded an impairment reserve for the
remaining buildings, machinery, and equipment at SOTRAPMAG which may have future
recoverable values less than recorded amounts. The charge for this write-down
was $1.4 million.

The Company intends to continue efforts to sell equipment and other fixed assets
formerly used at the SOTRAPMAG operations. Any proceeds from such asset sales
would be used to offset the impairment charges in future periods.





                                       4
<PAGE>   7



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           Property        Expenditures
                              as at          Exploration     Acquisition     Venture         Impairments &   as at 
                              Dec. 31, 1996  Expenditures    Expenditures    Recoveries      Abandonments    September 30, 1997
                              -------------  ------------    ------------    ------------    ------------    ------------------
<S>                           <C>            <C>             <C>             <C>             <C>             <C>         
UYANA
  Eagle Mountain              $        111   $        716    $         --    $         --    $         --    $        827
  Quartz Hill                        1,347             --              --              --              --           1,347
  Upper Potaro Diamond /
     Amatuk Diamond                  1,010            137               8              --              --           1,155
  Mazaruni / Upper
     Mazaruni Diamond                2,729            101             (60)             --          (2,429)            341
  Wenamu Gold                          512             --              --              --              --             512
  Five Stars Gold                    5,767            569            (108)             --          (2,308)          3,920
  Five Stars Diamond                 1,097            776              48              --             (41)          1,880
  BHP Gold Projects                    151            152              --              --              --             303
  Guyana Diamond Permits                27            201              --            (119)             --             109
  Other                              1,376           (129)             --              --              --           1,247
                              ------------   ------------    ------------    ------------    ------------    ------------
     Sub-total                      14,127          2,523            (112)           (119)         (4,778)         11,641
                              ------------   ------------    ------------    ------------    ------------    ------------
SURINAME
  Benzdorp / Lawa                    3,341              3              --              --              --           3,344
  Gross Rosebel                      9,494          8,043              --          (4,205)             --          13,332
  Headley's Right of                   311             --              --              --              --             311
  Exploration
  Thunder Mountain                     453             --              --              --              --             453
  Saramacca                          1,569            152              98             (33)             --           1,786
  Sara Kreek                           155            339              75               4              --             573
  Tempati Reconnaissance               161             42              75               7              --             285
  Tapanahony Reconnaissance             86             46              75               4              --             211
  Kleine Saramacca                     104              3              --              --              --             107
  Lawa Antino                          764          1,273              --              --              --           2,037
  Suriname Diamond Projects            310            159              --              --              --             469
  Ulemari Reconnaissance                53            195              --             (16)             --             232
  Other                                252              9              --              --              --             261
                              ------------   ------------    ------------    ------------    ------------    ------------ 
     Sub-total                      17,053         10,264             323          (4,239)             --          23,401 
                              ------------   ------------    ------------    ------------    ------------    ------------ 
FRENCH GUIANA                                                                                                             
(GUYANOR RESSOURCES S.A.)                                                                                                 
  Dorlin                               628          2,476              --          (2,324)             --             780 
  St-Elie                            1,973          1,661              --          (1,661)             --           1,973 
  Dieu-Merci                           382            475              --            (475)             --             382 
  Yaou                               7,087          1,223              --          (1,023)             --           7,287 
  Paul Isnard / Eau Blanche          3,629          1,081              --          (1,081)             --           3,629 
  SOTRAPMAG                          1,520            333             134              --              --           1,987 
  Dachine                              575            611               2              --              --           1,188 
  Other                              1,331            (25)             --              --            (913)            393 
  Diamond Projects                     204             (1)             --              --              --             203 
                              ------------   ------------    ------------    ------------    ------------    ------------ 
     Sub-total                      17,329          7,834             136          (6,564)           (913)         17,822 
                              ------------   ------------    ------------    ------------    ------------    ------------ 
AFRICA (PAN AFRICAN                                                                                                       
RESOURCES CORPORATION)                                                                                                    
  Ivory Coast / Comoe                3,951            745              --              --            (399)          4,297 
  Mali / Dioulafoundou               2,763            352              42              --          (2,250)            907 
  Mali / Melgue                         56             63              --              --              --             119 
  Mali / Other                          30             31              --              --              --              61 
  Eritrea / Galla Valley             1,317            480               4              --              --           1,801 
  Eritrea / Other                       55             --              --              --              --              55 
  Kenya / Ndori                        901            644              --              --              --           1,545 
  Burkina Faso                          --             13              --              --              --              13 
  Other                                 53            (18)             --              --              --              35 
                              ------------   ------------    ------------    ------------    ------------    ------------ 
     Sub-total                       9,126          2,310              46              --          (2,649)          8,833 
                              ------------   ------------    ------------    ------------    ------------    ------------ 
</TABLE>



                                       5
<PAGE>   8
                                                                             

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           Property        Expenditures
                              as at          Exploration     Acquisition     Venture         Impairments &   as at 
                              Dec. 31, 1996  Expenditures    Expenditures    Recoveries      Abandonments    September 30, 1997
                              -------------  ------------    ------------    ------------    ------------    ------------------
<S>                           <C>            <C>             <C>             <C>             <C>             <C>         
LATIN AMERICA  (SOUTHERN STAR
RESOURCES LTD.)
  Brazil / Andorinhas                3,371          3,433             533              --              --           7,337
  Brazil / Abacaxis                  1,307            677               7              --              --           1,991
  Brazil / Other                       869            672              --              --              --           1,541
  Bolivia / San Simon                  768             20              --              --            (473)            315
  Bolivia / Sunsas                     198            176               1              --            (338)             37
  Bolivia / Other                      584            348              24              --            (422)            534
      Other                            (11)            68              --              --              --              57
                              ------------   ------------    ------------    ------------    ------------    ------------
     Sub-total                       7,086          5,394             565              --          (1,233)         11,812
                              ------------   ------------    ------------    ------------    ------------    ------------
OTHER                                   --             65              --              --              --              65
                              ============   ============    ============    ============    ============    ============
TOTAL                         $     64,721   $     28,390    $        958    $    (10,922)   $     (9,573)   $     73,574
                              ============   ============    ============    ============    ============    ============
</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 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.

During the quarter ended June 30, 1997, the Company relinquished five
prospecting licenses in the Upper Mazaruni and Five Stars areas in Guyana and,
as a consequence, recognized property abandonment losses of $4.8 million during
the period.

Also during the second quarter of 1997, Guyanor recorded a property write-down
charge of $0.9 million for the Regina Est property as Guyanor relinquished the
property in the third quarter of 1997.

In addition, the Company recorded a property write-down charge of $0.3 million
for the Sunsas property area in Bolivia during the nine months ended September
30, 1997. The Company relinquished certain portions of the Sunsas property area
in the third quarter of 1997. During the third quarter of 1997, the Company
recorded property write-down charges for a portion of the San Simon property
totaling $0.5 million and write-off of capitalized administrative costs for the
Bolivian operations totaling $0.4 million. The Company closed its Bolivia office
in the third quarter and suspended its Bolivia operations indefinitely.

The Company, through PARC, recorded property write-down charges of $2.6 million
during the third quarter, consisting of $0.4 million for impairment of certain
diamond projects in the Ivory Coast and $2.2 million for impairment of a portion
of the Dioulafoundou project area in Mali. In September, the Company and PARC
were notified that African Selection Mining Corporation ("ASM") would
discontinue funding exploration to earn a 50% interest in the Dioulafoundou
project. Subsequently, PARC formally terminated its interest in d'Almeida Freres
et Compagnie ("AFC") on September 9, 1997. This decision was based on the
exploration results obtained by ASM.



                                       6

<PAGE>   9


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 
(UNAUDITED) 
(All tabular amounts in thousands of United States Dollars)


(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, 1996 and the nine months ended September 30, 1997
are as follows:

<TABLE>
<CAPTION>
                                                   Common Shares  Preferred Shares
                                                   -------------  ----------------
<S>                                                 <C>            <C>         
December 31, 1996                                             --   $      3,279
Less: Preferred Share Redemption                              --         (1,014)
Add: Premium on Preferred Share Redemption          $         --            554
                                                    ------------   ------------
March 31, 1997                                      $              $      2,819
                                                    ------------   ------------
Less: Preferred Share Redemption                              --           (632)
Add: Premium on Preferred Share Redemption                    --            345
                                                    ------------   ------------
June 30, 1997                                       $         --   $      2,532
                                                    ------------   ------------
Less: Preferred Share Redemptions                             --           (276)
Add: Premium on Preferred Share Redemptions                   --            151
                                                    ------------   ------------
September 30, 1997                                  $              $      2,407
                                                    ============   ============
</TABLE>

The Company's share of Accumulated Losses at:

<TABLE>
       <S>                                   <C>     
       December 31, 1996                     $(2,713)
                                             =======
       September 30, 1997                    $(1,299)
                                             =======
</TABLE>

The Company recorded proceeds of $1.9 million from redemption of preferred
shares during the nine months ended September 30, 1997.

(5)      CHANGES TO SHARE CAPITAL

During the nine months ended September 30, 1997, 50,833 common shares were
issued by the Company pursuant to exercised options previously granted under the
Company's Employees' Stock Option plan for proceeds of $0.1 million. During the
nine months ended September 30, 1997, 673,200 shares were issued for the
exercise of all of the Company's outstanding Cdn$11.00 common share purchase
warrants, providing proceeds of $5.4 million.

On May 5, 1997, the Company sold through a prospectus offering 3,025,000 common
shares at $7.50 per share for total proceeds of $22.7 million. The shares were
issued under the Company's shelf prospectus in the United States and Canada.

On August 8, 1997, the Company filed with the SEC a shelf registration statement
on Form S-3 (the "Registration Statement"), with respect to the proposed
issuance by the Company from time to time of up to an additional $47,687,500 of
its common shares, preferred shares, convertible debt securities and/or
warrants. The Registration Statement also includes $52,312,500 in securities
previously registered by the Company pursuant to a Registration Statement
declared effective by the SEC on November 8, 1996. The Company filed an
Amendment to this Registration Statement on October 2, 1997, and the
Registration Statement was declared effective on October 2, 1997.

On August 13, 1997, the Company filed with nine Canadian provincial securities
commissions a short-form shelf prospectus, with respect to the proposed issuance
by the Company from time to time of up to 12 million common shares and/or 12
million common share purchase warrants and a short-form shelf



                                       7
<PAGE>   10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 
(UNAUDITED) 
(All tabular amounts in thousands of United States Dollars)



prospectus with respect to the proposed issuance from time to time of up to $100
million of convertible debt securities. The Canadian prospectuses relate to the
same securities being registered with the SEC. The Company filed the final
Canadian prospectuses relating to these securities on October 2, 1997, and they
became effective on October 7, 1997.

(6)      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 GAAP 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
         abandonment and impairment 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 relocation of its 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 public offerings in 1995 and
         1996 and the PARC private placements in 1995 and 1996 are not
         appropriate under U.S. GAAP.



                                       8
<PAGE>   11

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.

(j)      Under U.S. GAAP, accrued severance and social charges of $1.1 million
         resulting from suspension of alluvial mining operations at SOTRAPMAG
         would not have been recorded as of December 31, 1996, as the
         requirements for accrual under U.S. GAAP were not satisfied. Under U.S.
         GAAP, such costs and related accruals have been recorded in the first
         quarter of 1997.


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 nine months ended
                                                                         September 30, 1997   September 30, 1996
                                                                         ------------------   ------------------
<S>                                                                           <C>             <C>          
Net loss under Canadian GAAP                                                  $    (14,426)   $     (3,668)
Net effect of the deferred exploration expenditures on loss for
   the period (a)                                                                   (8,253)        (12,770)
Effect of recording compensation expense under stock option
   plans (d)                                                                           (42)            (79)
Record loss for severance accruals (j)                                              (1,115)             --
Reversal of the gain on subsidiary's issuance of common stock (f)                       --          (2,001)
Effect of Omai preferred share redemption (c)                                          871              --
                                                                              ------------    ------------
Loss under U.S. GAAP before minority interest                                      (22,965)        (18,518)
Adjustment to minority interest                                                        500           1,613
                                                                              ------------    ------------
Loss under U.S. GAAP                                                          $    (22,465)   $    (16,905)
                                                                              ============    ============
Loss per share under U.S. GAAP                                                $      (0.78)   $      (0.67)
                                                                              ============    ============
</TABLE>


                                       9

<PAGE>   12

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 September 30, 1997        As of December 31, 1996
                                       ------------------------        -----------------------
                                     Canadian GAAP     U.S. GAAP     Canadian GAAP    U.S. GAAP
                                     -------------   ------------    -------------   ------------
<S>                                  <C>             <C>             <C>             <C>         
Cash (h)                             $     17,635          15,636    $      9,664    $      9,664
Short term investments (e)                  3,615           1,999           5,999           2,500
Other current assets                        3,965           3,965           6,519           6,519
Restricted cash                               765             765           2,015           2,015
Deferred exploration (a)                   73,574          19,211          64,721          18,611
Investment in Omai Gold
   Mines Limited (c)                        2,407              --           3,279              --

Long-term investments (e)                      --           3,615              --           3,499
Other assets                                1,498           1,498           4,086           4,087
                                     ------------    ------------    ------------    ------------
         Total Assets                $    103,459    $     46,689    $     96,283    $     46,895
                                     ============    ============    ============    ============

Liabilities                                 3,729           3,729           6,987           5,872
Minority interest (a)                       8,248           7,610          11,202          11,064
Share capital, net of stock option
   loans (g)                              153,756         150,924         125,942         123,068

Cumulative translation
   adjustments (b)                             --           1,595              --           1,595

Deficit (a) (c) (d) (f)                   (62,274)       (117,169)        (47,848)        (94,704)
                                     ------------    ------------    ------------    ------------
         Total Liabilities and
         Shareholders' Equity        $    103,459    $     46,689    $     96,283    $     46,895
                                     ============    ============    ============    ============
</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 nine months ended
   September 30, 1997       $     (7,771)   $    (23,722)   $    (16,030)   $       (240)   $     29,388   $     29,433
For the nine months ended
   September 30, 1996       $     (6,819)   $    (19,657)   $    (16,401)   $     (5,847)   $     32,700   $     32,766
</TABLE>




                                       10

<PAGE>   13

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).

Non-cash transactions impacting the statement of cash flows for the nine months
ended September 30, 1997, totaled $0.3 million in financing activities. Non-cash
items in investing activities were $0.1 million for the nine months ended
September 30, 1996.

(7)         TRANSACTIONS WITH SUBSIDIARIES

In May 1997, PARC entered into a demand revolving line of credit with the
Company, whereby the Company would loan PARC up to $2.0 million. On June 27,
1997, the principal and interest on outstanding advances due from PARC totaling
$2,018,591 were converted into 7,333,328 common shares of PARC at a conversion
price of Cdn$0.38 per share. As a result, the Company's interest in PARC was
increased to 63.89%.

On October 1, 1997, the Company agreed, subject to regulatory approval, to
acquire an additional 1,000,000 Class B common shares of Guyanor. (See Note 9)

(8)         COMMITMENTS AND CONTINGENCIES

In June 1997, PARC's performance bond requirements under its Exploration License
Agreement with the Government of Eritrea were reduced to $0.7 million. As a
result, the bank guarantee and restricted cash collateral supporting the
performance bond were reduced by $0.6 million.

In August 1997, the remaining performance bond requirements were released by the
Government of Eritrea and the bank guarantee and restricted cash collateral
supporting the performance bond were reduced by a further $0.7 million. As of
September 30, 1997, the Company had no remaining restricted cash balances
relating to Eritrea.

The Company's performance bond of $0.45 million for the benefit of the Ministry
of Mines and Energy in Ethiopia guaranteeing the second year exploration program
at the Dul project in Ethiopia expired on October 16, 1997.
(See Note 9.)

(9)         SUBSEQUENT EVENTS

The Company's Shelf Registration Statement on Form S-3, as amended, filed by the
Company with the SEC was declared effective on October 2, 1997. The Company also
filed final Canadian prospectuses on October 2, 1997.
(See Note 5)

On October 1, 1997, the Company agreed to acquire an additional 1,000,000 Class
B common shares of Guyanor at a price of FF11.57 or Cdn$2.71. The total
consideration of FF11,570,000 or Cdn$2,710,000 for the shares will be satisfied
by reducing the equivalent amount of funds advanced to Guyanor by the Company.
The Class B common shares were issued as of October 1, 1997, and the transaction
resulted in an increase in the Company's interest in Guyanor from 68.5% to
69.3%. Guyanor is in the process of having these shares listed on the Nouveau
Marche of Paris and the Toronto Stock Exchange. The Company has agreed not to
sell or otherwise dispose of these shares for a period of six months.





                                       11

<PAGE>   14

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 
(UNAUDITED) 
(All tabular amounts in thousands of United States Dollars)


The Company's performance bond of $0.45 million for the benefit of the Ministry
of Mines and Energy in Ethiopia guaranteeing the second year exploration program
at the Dul project in Ethiopia expired on October 16, 1997. The letter of credit
collateralizing the performance bond expired on October 31, 1997, and the funds
held as restricted cash collateral for the letter of credit are expected to be
released in November 1997.




                                       12
<PAGE>   15

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

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 6.

CAUTIONARY STATEMENT FOR THE PURPOSES OF THE REFORM ACT

The following contains certain forward-looking statements within the meaning of
the Reform Act. Actual results, performance or achievements of the Company could
differ materially from those projected in the forward-looking statements due to
a number of factors, including those set forth under "Risk Factors" in the
Company's Annual Report on Form 10-K. Readers are cautioned not to put undue
reliance on forward-looking statements. The Company disclaims any intent or
obligation to update publicly these forward-looking statements, whether as a
result of new information, future events or otherwise. (See "Special Note
Regarding Forward-Looking Statements" above.)

RESULTS OF OPERATIONS

Nine Months Ended September 30, 1997 Compared to the Nine Months Ended 
September 30, 1996

During the third quarter of 1997, the Company recognized a net loss of $5.1
million or $0.17 per share as compared to a net loss of $2.0 million or $0.09
per share for the third quarter of 1996. During the third quarter of 1997, the
Company recorded property abandonment and impairment charges of $3.5 million,
including $2.6 million for portions of property areas in the Ivory Coast and
Mali and $0.8 million related to property interests in Bolivia. There were no
property abandonment or write down charges during the third quarter of 1996.

For the nine months ended September 30, 1997, the Company recognized a net loss
of $14.4 million or $0.50 per share, compared to a loss of $3.7 million or $0.15
per share for the first nine months of 1996. The increased loss in the 1997
period is primarily attributable to increased property write-downs in 1997 ($9.6
million) and gains recorded in 1996 which did not recur in 1997 ($0.9 million
for recovery of abandonment losses and $2.0 million for gains on sale of
subsidiary shares). These increased losses were offset by reduced production
losses at Societe de Travaux Publics et de Mines Auriferes en Guyane, a
subsidiary of Guyanor Ressources S.A. ("SOTRAPMAG") in 1997 as compared to 1996
($1.2 million) and redemptions of Omai Gold Mines Ltd. preferred shares in 1997
which did not occur in 1996 ($1.1 million).

During the first quarter of 1997, the Company, through Guyanor Ressources S.A.
("Guyanor"), began implementation of a program to discontinue the alluvial
operations conducted at SOTRAPMAG. Mining operations were suspended on April 17,
1997 after receipt of regulatory approvals for SOTRAPMAG's closure plan.
Alluvial gold production continued to the date of closure, with operating losses
of $0.5 million incurred during the period from January 1 to April 17, 1997.
Closure procedures, including land rehabilitation and company-provided
outplacement services, were conducted during the quarter and are expected to be
substantially complete by year end 1997. During the second quarter of 1997,
SOTRAPMAG initiated a plan to sell certain equipment and machinery from the mine
site. Sales of $0.5 million were completed as of September 30, 1997 with gains
of $0.3 million recorded on the sales.




                                       13

<PAGE>   16

In the third quarter of 1997, the Company recorded impairment reserves for the
remaining inventories and equipment at SOTRAPMAG which may have future
recoverable values less than recorded amounts. The charge for this write-down
was $1.5 million. The Company intends to continue efforts to sell equipment and
other assets formerly used at the SOTRAPMAG operations. Any proceeds from such
asset sales would be used to offset the impairment charges in future periods.

As mining operations were discontinued in April 1997, there were no significant
mining revenues during the third quarter of 1997 (as compared to $0.2 million
for the third quarter of 1996).

General and administrative expenditures of $2.1 million (as compared to $1.8
million in the third quarter of 1996) reflected the Company's continued support
of the portfolio of exploration projects in South America and Africa and the
cost of maintaining two publicly traded subsidiaries. Depreciation expense in
the third quarter of 1997 decreased by $0.1 million as compared to the third
quarter of 1996 as a result of the shut down of the SOTRAPMAG mine. Exploration
expense of $0.3 million during the third quarter of 1997 (compared to $0.1
million during the third quarter of 1996) resulted primarily from project
generation expenditures on potential new areas of interest, as well as
additional expenditures on properties previously written-off.

Omai Gold Mines Limited ("OGML"), in which the Company maintains a 30% common
share equity interest, reported a net loss of $0.4 million for the third quarter
of 1997 and net income of $5.2 million for the nine months ended September 30,
1997, compared to net income of $2.6 million in the third quarter of 1996 and
$1.4 million for the nine months ended September 30, 1996. During the nine
months ended September 30, 1997, OGML produced 255,430 ounces of gold, compared
to 162,117 ounces during the first nine months of 1996. Cash operating costs for
the third quarter of 1997 were $257.74 per ounce, compared to $232.83 per ounce
for the corresponding period in 1996. Production during the first nine months of
1996 was adversely impacted by the tailings dam failure in August 1995, with
production resuming in February 1996 and returning to full capacity in June
1996. The Company recorded Class "I" preferred share redemptions from OGML of
$1.1 million for the nine months ended September 30, 1997. There were no
redemptions of Class "I" preferred shares during the nine months ended 
September 30, 1996.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 1997, the Company held cash and short term investments of
$21.3 million ($19.0 million as of September 30, 1996 and $15.7 million as of
December 31, 1996) and working capital of $21.6 million ($15.1 million as of
September 30, 1996, and $15.3 million as of December 31, 1996). The increase in
cash resources and working capital since September 30, 1996, resulted from
proceeds from the issuance of Guyanor shares in conjunction with the listing of
the Nouveau Marche in the fourth quarter of 1996 ($8.9 million), proceeds from
the exercises of the Company's Cdn$11.00 warrants in the first quarter of 1997
($5.4 million) and proceeds from the Company's common share offering in May 1997
($22.7 million), offset by expenditures on the Company's exploration activities
during the period.

Cash used in investing activities of $16.0 million for the nine months ended
September 30, 1997 (as compared to $16.4 million for the nine months ended
September 30, 1996) consisted primarily of expenditures on exploration projects
which totaled $18.4 million (compared to $15.7 million for the nine months ended
September 30, 1996), including the Gross Rosebel project in Suriname ($3.8
million net of joint venture recoveries) and the Andorinhas project in Brazil
($4.0 million), offset by Omai preferred share redemptions of $1.9 million.



                                       14
<PAGE>   17

Cash provided by financing activities of $29.4 million for the nine months ended
September 30, 1997 decreased by $3.3 million as compared to $32.7 million for
the nine months ended September 30, 1996. The decrease results from offerings by
the Company's subsidiaries in the first nine months of 1996 which did not recur
in 1997. Share capital increased by $27.8 million for the nine months ended
September 30, 1997 compared with $23.3 million during the nine months ended
September 30, 1996, reflecting proceeds from warrant exercises and the May 1997
common stock offering.

On August 8, 1997, the Company filed a shelf registration statement on Form S-3
with the SEC (the "Registration Statement"), with respect to the proposed
issuance by the Company from time to time of up to an additional $47,687,500 of
its common shares, preferred shares, convertible debt securities and/or
warrants. The Registration Statement also includes $52,312,500 in securities
previously registered by the Company pursuant to a Registration Statement
declared effective by the SEC on November 8, 1996. The Company filed an
Amendment to this Registration Statement on October 2, 1997, and the
Registration Statement was declared effective on October 2, 1997

On August 13, 1997, the Company filed with nine Canadian provincial securities
commissions a short-form shelf prospectus, with respect to the proposed issuance
by the Company from time to time of up to 12 million common shares and/or 12
million common share purchase warrants and a short-form shelf prospectus with
respect to the proposed issuance from time to time of up to $100 million of
convertible debt securities. The Canadian prospectuses relate to the same
securities being registered with the SEC. The Company filed the final Canadian
prospectuses relating to these securities on October 2, 1997, and they became
effective on October 7, 1997.

In response to continuing weak gold prices, which could impact the Company's
ability to raise capital through the equity markets, management implemented a
program in July 1997 to conserve cash by reducing administrative expenses and
exploration spending. The Company's exploration efforts continue to focus on
advanced stage projects and the higher priority earlier stage projects.
Management has assessed and prioritized exploration projects in order to ensure
continued progress on the most promising projects in the Company's portfolio
over a prolonged period of time should the currently weak gold environment
persist. The objective of the revised budgets is to fund those programs that the
Company believes offer the greatest potential for meaningful results and that
will generate new resources and reserves. As of September 30, 1997, the Company
had approximately $22.0 million in cash and restricted cash. The Company's
consolidated exploration spending for the fourth quarter of 1997 is budgeted to
be $8.0 million, with recoveries from joint venture partners of $3.6 million,
resulting in net exploration expenditures totaling $4.4 million. The Company
expects that its existing cash resources will be sufficient to fund these
expenditures.

The Company's primary efforts for the remainder of 1997 are planned to focus on
six projects: Andorinhas in Brazil, Yaou, Dorlin, St-Elie and Paul Isnard in
French Guiana, and Eagle Mountain in Guyana. Development of the Gross Rosebel
project in Suriname has been deferred pending receipt of the necessary
government approvals, resolution of certain issues related to development and
improved gold prices. Work is continuing on an update of the feasibility study
which is expected to be completed in the fourth quarter of 1997. Work is also
expected to continue on gold anomalies established through joint ventures with
BHP in Suriname and Guyana, as well as programs recently initiated on the
Dachine diamond project in French Guiana and the Five Stars diamond projects in
northwestern Guyana. Most other earlier stage projects have been put on care and
maintenance while awaiting improved conditions, while seeking joint venture
partners where appropriate. Certain early stage projects have been reassessed
and those which do not warrant further work abandoned (see Results of
Operations).


                                       15
<PAGE>   18


Africa (Pan African Resources Corporation)

Total exploration and acquisition expenditures in Africa for the third quarter
of 1997 amounted to $0.7 million (compared to $1.8 million during the third
quarter of 1996) and $2.4 million for the first nine months of 1997 (compared to
$4.5 million for the first nine months of 1996). Expenditures in 1997 primarily
reflect exploration activities in the Ivory Coast, Kenya and Eritrea. General
and administrative expenditures for the third quarter of 1997 totaled $0.2
million (compared to $0.2 million for the third quarter of 1996) and $0.5
million for the first nine months of 1997 (compared to $0.9 million for the nine
month period ended September 30, 1996). PARC recorded exploration expense of
$0.1 million and $0.5 million during the third quarter and nine months ended
September 30, 1997, respectively, (as compared to $46,000 and $0.1 million for
the third quarter and nine months ended September 30, 1996, respectively)
representing preliminary project reconnaissance and additional expenditures for
projects previously written down.

The Company, through PARC, recorded property write-down charges of $2.6 million
during the third quarter, consisting of $0.4 million for impairment of certain
diamond projects in the Ivory Coast and $2.2 million for impairment of a portion
of the Dioulafoundou project area in Mali. In September, the Company and PARC
were notified that African Selection Mining Corporation ("ASM") would
discontinue funding exploration to earn a 50% interest in the Dioulafoundou
project. Subsequently, PARC formally terminated its interest in d'Almeida Freres
et Compagnie ("AFC") on September 9, 1997. This decision was based on the
exploration results obtained by ASM.

In May 1997, PARC entered into a demand revolving line of credit with the
Company, whereby the Company would loan PARC up to $2.0 million. On June 27,
1997, the principal and interest on outstanding advances due from PARC totaling
$2,018,591 were converted into 7,333,328 common shares of PARC at a conversion
price of Cdn$0.38 per share. As a result, the Company's interest in PARC as of
June 30, 1997 was increased to 63.89%.

On June 5, 1997, PARC's performance bond requirements under its Exploration
License Agreement with the Government of Eritrea were reduced from $1.3 million
to $0.7 million. As a result, the bank guarantee and restricted cash collateral
supporting the performance bond were reduced by $0.6 million.

In August 1997, the remaining performance bond requirements were released by the
Government of Eritrea and the bank guarantee and restricted cash collateral
supporting the performance bond were reduced by a further $0.7 million. As of
September 30, 1997, the Company had no remaining restricted cash balances
relating to Eritrea.

The Company's performance bond of $0.45 million for the benefit of the Ministry
of Mines and Energy in Ethiopia guaranteeing the second year exploration program
at the Dul project in Ethiopia expired on October 16, 1997. The letter of credit
collateralizing the performance bond expired on October 31, 1997, and the funds
held as restricted cash collateral for the letter of credit are expected to be
released in November 1997.

French Guiana (Guyanor Ressources S.A.)

Total exploration expenditures by Guyanor for the third quarter of 1997 amounted
to $2.9 million, offset by joint venture recoveries of $2.3 million as compared
to $2.6 million in expenditures and $1.7 million in joint venture recoveries in
the third quarter of 1996. Total exploration expenditures and joint venture
recoveries by Guyanor for the nine months ended September 30, 1997 were $8.0
million and $6.6 


                                       16
<PAGE>   19

million, respectively (compared to $6.1 million in expenditures and $5.0 million
in joint venture recoveries for the first nine months of 1996). Activities in
French Guiana focused primarily on further work at the St-Elie/Dieu-Merci,
Paul-Isnard/Eau Blanche and Yaou/Dorlin properties. General and administrative
expenditures for Guyanor which were not reimbursed by joint venture partners
amounted to $0.5 million and $1.4 million for the quarter and nine months ended
September 30, 1997, respectively (compared to $0.4 million and $1.5 million for
the three and nine months ended September 30, 1996, respectively).

During the nine months ended September 30, 1997, Guyanor recorded property
write-downs of $0.9 million for the Regina Est property as Guyanor relinquished
the property in the third quarter of 1997. Guyanor began contributing its 50%
share of expenditures at Yaou / Dorlin in September 1997.

On October 9, 1997, the Company and Guyanor announced that the Company has
agreed to acquire an additional 1,000,000 Class B common shares of Guyanor at a
price of FF11.57 or Cdn$2.71. The total consideration of FF11,570,000 or
Cdn$2,710,000 for the shares will be satisfied by reducing the equivalent amount
of funds advanced to Guyanor by the Company. The Class B common shares were
issued on October 30, 1997, and the transaction resulted in an increase in the
Company's interest in Guyanor from 68.5% to 69.3%.

Guyana

Exploration and acquisition expenditures in the third quarter of 1997 in Guyana
amounted to $1.1 million (compared to $0.7 million during the third quarter of
1996) and $2.4 million for the nine months ended September 30, 1997 (compared to
$2.9 million for the first nine months of 1996). Joint venture recoveries from
the Company's BHP projects totaled $1.0 million for the nine months ended
September 30, 1997, compared to recoveries of $0.1 million for the period ended
September 30, 1996. Activities during 1997 in Guyana have focused primarily on
the Five Stars gold and diamond reconnaissance areas and the Eagle Mountain
project. During the nine months ended September 30, 1997, the Company
relinquished five prospecting licenses in the Upper Mazaruni and Five Stars
areas in Guyana and, as a consequence, recognized property abandonment losses of
$4.8 million during the period.

Suriname

During 1997, exploration and acquisition expenditures in Suriname have focused
principally on the Gross Rosebel gold project in joint venture with Cambior Inc.
("Cambior"). Total spending in Suriname in the third quarter of 1997 of $3.1
million was offset by recoveries from joint venture partners of $2.4 million
(compared to $3.5 million in expenditures and $2.3 million in recoveries for the
third quarter of 1996), as Cambior has met its earn-in requirements at Gross
Rosebel in April 1996 and all subsequent expenditures are shared equally.
Exploration expenditures for the first nine months of 1997 of $10.6 million
(compared to $8.6 million for the nine months ended September 30, 1996) were
offset by $4.2 million in joint venture recoveries (compared to $4.7 million in
recoveries for the first nine months of 1996).

Southern Star Resources Ltd.

Exploration and acquisition expenditures by Southern Star for the third quarter
of 1997 were $1.5 million ($1.4 million for the third quarter of 1996) and $6.0
million for the first nine months of 1997 



                                       17

<PAGE>   20

(compared to $3.3 for the first nine months of 1996). Exploration work focused
primarily on the Andorinhas and Abacaxis properties in Brazil.

The Company recorded a property write-down charge of $0.3 million for the Sunsas
property area in Bolivia during the nine months ended September 30, 1997. In the
third quarter of 1997, the Company relinquished certain portions of the Sunsas
property area. Also in the third quarter of 1997, the Company recorded property
write-down charges for a portion of the San Simon property totaling $0.5 million
and write-off of capitalized administrative costs for the Bolivian operations
totaling $0.4 million. The Company closed its Bolivia office in the third
quarter and suspended its Bolivia operations indefinitely.



                                       18
<PAGE>   21

                           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 its 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)  Exhibit 27    Financial Data Schedule

(b)  The Company filed with the Securities and Exchange Commission on September
     23, 1997, a Form 8-K concerning recent developments of the Company
     including (i) drilling results on the Andorinhas gold project in Brazil,
     (ii) the completion of an offering of 3,025,000 common shares of the
     Company, (iii) the increase of the estimated mining reserves at Gross
     Rosebel in Suriname, (iv) the joint announcement with Pan African Resources
     Corporation ("PARC"), its approximately 58% owned subsidiary, of the
     exploration update on the Ndori property in Kenya, (v) the conversion of a
     US$2 million, plus interest, loan from the Company to PARC into 7,333,328
     common shares of PARC, (vi) the resignation of Jean-Pierre Lefebvre as
     director of the Company, (vii) core drilling results from the St-Elie and
     Dieu-Merci projects in French Guiana, (viii) the estimated mineralized
     inventory at the Yaou and Dorlin projects in French Guiana, (ix) the
     implementation of a program for the second half of 1997 to conserve cash,
     and (x) the announcement by Guyanor Ressources S.A., the Company's 68%
     owned public subsidiary, that 10 core holes were completed at the
     Paul-Isnard project in French Guiana.



                                       19
<PAGE>   22

                                    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:  November 14, 1997



                                       20



<PAGE>   23

                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT NO.              DESCRIPTION
- -----------              -----------
<S>                 <C>                       
     27             FINANCIAL DATA SCHEDULE
</TABLE>


<TABLE> <S> <C>

<ARTICLE> 5
<MULTIPLIER> 1000
       
<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-START>                             JUL-01-1997
<PERIOD-END>                               SEP-30-1997
<CASH>                                          21,250
<SECURITIES>                                         0
<RECEIVABLES>                                    3,026
<ALLOWANCES>                                         0
<INVENTORY>                                        569
<CURRENT-ASSETS>                                25,215
<PP&E>                                           3,105
<DEPRECIATION>                                 (1,723)
<TOTAL-ASSETS>                                 103,459
<CURRENT-LIABILITIES>                            3,625
<BONDS>                                              0
                                0
                                          0
<COMMON>                                       157,767
<OTHER-SE>                                     (4,011)
<TOTAL-LIABILITY-AND-EQUITY>                   103,459
<SALES>                                              4
<TOTAL-REVENUES>                                   350
<CGS>                                                9
<TOTAL-COSTS>                                    7,328
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                                (5,120)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                            (5,120)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                   (5,120)
<EPS-PRIMARY>                                   (0.17)
<EPS-DILUTED>                                        0
        

</TABLE>


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