<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, 1998
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 August 14, 1998: 30,282,338.
<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............... 12
Part II - Other Information
Item 1. Legal Proceedings........................................... 16
Item 4. Submission of Matters to a Vote of the Security Holders..... 16
Item 6. Exhibits and Reports on Form 8-K............................ 16
Signatures................................................................... 18
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, the establishment and the recovery of reserves, capitalization and
commercial viability and requirements for obtaining permits and licenses.
i
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED BALANCE SHEETS
(Stated in thousands of United States Dollars except share amounts)
________________________________________________________________________________
<TABLE>
<CAPTION>
(Unaudited)
As of June 30, As of December 31,
ASSETS 1998 1997
---------------- ------------------
CURRENT ASSETS
<S> <C> <C>
Cash and short-term investments $ 11,053 $ 17,399
Accounts receivable 1,416 2,238
Inventories 256 356
Other assets 279 159
-------- --------
Total Current Assets 13,004 20,152
RESTRICTED CASH $ - $ 250
DEFERRED EXPLORATION 71,210 65,160
INVESTMENT IN OMAI GOLD MINES LIMITED 1,608 2,126
FIXED ASSETS 998 1,280
OTHER ASSETS 116 154
-------- --------
Total Assets $ 86,936 $ 89,122
======== ========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 1,478 $ 2,825
Accrued wages and payroll taxes 291 900
-------- --------
Total Current Liabilities $ 1,769 3,725
OTHER LIABILITIES 154 115
-------- --------
Total Liabilities 1,923 3,840
-------- --------
MINORITY INTEREST 6,177 5,725
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY
SHARE CAPITAL 159,129 158,001
(Common shares, without par value, unlimited shares
authorized. Shares issued and outstanding: June 30, 1998 -
30,282,338; December 31, 1997 - 29,797,432)
Stock option loans (4,012) (4,012)
DEFICIT (76,281) (74,432)
-------- --------
Total Shareholders' Equity 78,836 79,557
-------- --------
Total Liabilities and Shareholders' Equity $ 86,936 $ 89,122
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
1
<PAGE>
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of United States Dollars except per share amounts)
(Unaudited)
_______________________________________________________________________________
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
--------------------------------- ------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
REVENUE
<S> <C> <C> <C> <C>
Precious metals sales $ - $ 38 $ - $ 439
Interest and other 156 338 417 525
------- ------- ------- --------
156 376 417 964
COSTS AND EXPENSES
Cost of goods sold - 112 - 978
Depreciation 61 248 120 560
General and administrative 1,927 2,255 3,456 4,335
Exploration expense 83 339 241 479
Abandonment and impairment of mineral properties - 6,070 - 6,070
Gain on sale of assets - (1) - (1)
Interest and bank charges 4 (2) 15 21
Foreign exchange loss (gain) 22 (68) (82) 23
------- ------- ------- --------
2,097 8,953 3,750 12,465
PROFIT (LOSS) BEFORE THE UNDERNOTED (1,941) (8,577) (3,333) (11,501)
Equity in earnings of Omai Gold Mines Limited 170 - 170 -
Omai Preferred Share Redemptions 268 345 829 899
------- ------- ------- --------
Net profit (loss) before minority interest (1,503) (8,232) (2,334) (10,602)
Minority interest loss 260 756 469 1,296
------- ------- ------- --------
NET PROFIT (LOSS) $(1,243) $(7,476) $(1,865) $ (9,306)
======= ======= ======= ========
BASIC AND DILUTED NET PROFIT (LOSS) PER SHARE $(0.04) $(0.25) $(0.06) $(0.32)
======= ======= ======= ========
Weighted Average Shares Outstanding
(Millions of shares) 30.0 29.6 30.0 28.8
======= ======= ======= =======
</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, 1998 June 30, 1997
---------------- -----------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (1,865) $ (9,306)
Reconciliation of net loss to net cash used in operations:
Depreciation 120 560
Premium on Omai Preferred Share Redemptions (829) (899)
Abandonment and write-down of mineral properties - 6,070
Equity in earnings of OGML (170) -
Minority interest loss 469 (1,296)
Changes in non-cash operating working capital (1,155) 425
-------- -------
Net Cash Used in Operating Activities (3,430) (4,446)
-------- -------
INVESTING ACTIVITIES:
Expenditures on mineral properties, net of joint venture
recoveries (6,050) (14,006)
Depreciation charged to projects 184 -
Equipment purchases (22) (20)
Proceeds from sale of equipment - 132
Omai Preferred Share Redemptions 1,517 1,646
Other assets 38 3
------- -------
Net Cash Used in Investing Activities (4,333) (12,245)
------- -------
FINANCING ACTIVITIES:
Restricted cash 250 572
Offering costs of subsidiary - (25)
Issuance of share capital 923 22,513
Issuance of share capital under warrants - 5,429
Issuance of share capital under options 205 50
Other 39 15
------- -------
Net Cash Provided by Financing Activities 1,417 28,554
------- -------
Increase (Decrease) in cash (6,346) 11,863
Cash and short-term investments, beginning of period 17,399 15,663
------- -------
Cash and short-term investments, end of period $11,053 $27,526
======= =======
</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, 1997, on file with the Securities and Exchange Commission and the
Ontario Securities Commission (hereinafter referred to as "the Company's 1997
10-K"). All amounts are in United States dollars unless otherwise stated.
The unaudited financial statements as of June 30, 1998, and for the six months
ended June 30, 1998 and 1997, 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
-----------
June 30, 1998 December 31, 1997
------------- -----------------
Gold Inventory $ - $ 53
Materials and Supplies 256 303
----- -----
$ 256 $ 356
===== =====
(2) FIXED ASSETS
------------
June 30, 1998 December 31, 1997
------------- -----------------
Machinery & Equipment $3,261 $3,239
Accumulated Depreciation (2,263) (1,959)
------ ------
$ 998 $1,280
====== ======
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
Exploration Deferred Exploration
Expenditures Capitalized Capitalized Joint Property Expenditures
as at Exploration Acquisition Venture Impairments & as at
Dec. 31, 1997 Expenditures Expenditures Recoveries Abandonments June 30, 1998
==============================================================================================
GUYANA
<S> <C> <C> <C> <C> <C> <C>
Eagle Mountain $ 1,136 $ 178 $ - $ - $ - $ 1,314
Quartz Hill 1,347 - - - - 1,347
Five Stars Gold 3,684 264 - - - 3,948
Five Stars Diamond 2,360 211 - - - 2,571
BHP Gold Projects 333 - - (65) - 268
Guyana Diamond Permits 109 - - - - 109
Other 97 11 - - - 12
----------------------------------------------------------------------------------------------
Sub-total 9,066 664 - (65) - 9,665
----------------------------------------------------------------------------------------------
SURINAME
Benzdorp/Lawa 3,344 - - - - 3,344
Gross Rosebel 13,892 359 - (94) - 14,157
Headley's Right of Exploration 311 - - - - 311
Thunder Mountain 453 - - - - 453
Saramacca 1,862 357 - (267) - 1,952
Sara Kreek 581 3 - - - 584
Tempati Reconnaissance 344 14 - (17) - 341
Tapanahony Reconnaissance 251 4 - (25) - 230
Kleine Saramacca 107 - - - - 107
Lawa Antino 2,096 16 - - - 2,112
Ulemari Reconnaissance 291 2 - (59) - 234
Other (17) 105 - - - 88
----------------------------------------------------------------------------------------------
Sub-total 23,515 860 - (462) - 23,913
----------------------------------------------------------------------------------------------
FRENCH GUIANA
(Guyanor Ressources S.A.)
Dorlin 1,330 699 - (350) - 1,679
St-Elie 1,973 155 - (74) - 2,054
Dieu-Merci 382 339 - (254) - 467
Yaou 7,130 200 - (100) - 7,230
Paul Isnard/Eau Blanche 3,629 412 - 17 - 4,058
SOTRAPMAG 1,987 - - - - 1,987
Dachine 1,234 124 - - - 1,358
Other 81 - - - - 81
----------------------------------------------------------------------------------------------
Sub-total 17,746 1,929 - (761) - 18,914
----------------------------------------------------------------------------------------------
AFRICA (PAN AFRICAN RESOURCES CORPORATION)
Ivory Coast/Comoe 2,092 1,574 - - - 3,666
Kenya/Ndori 1,677 821 - - - 2,498
Burkina Faso 8 - - - - 8
----------------------------------------------------------------------------------------------
Sub-total 3,777 2,395 - - - 6,172
----------------------------------------------------------------------------------------------
LATIN AMERICA (SOUTHERN STAR RESOURCES LTD.)
Brazil/Andorinhas 8,490 656 200 - - 9,346
Brazil/Abacaxis 2,096 88 - - - 2,184
Brazil/Other 189 393 - - - 582
Bolivia/San Simon 173 - - - - 173
----------------------------------------------------------------------------------------------
Sub-total 10,948 1,137 200 - - 12,285
----------------------------------------------------------------------------------------------
OTHER 108 153 - - - 261
----------------------------------------------------------------------------------------------
TOTAL $65,160 $7,138 200 $(1,288) $ - $71,210
==============================================================================================
</TABLE>
5
<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.
On May 27, 1998, Golden Star and Guyanor announced the resolution of the budget
deadlock with ASARCO Incorporated ("Asarco") regarding the spending levels and
work programs at the Paul Isnard/Eau Blanche and St-Elie/Dieu-Merci gold
projects. Under the termination and settlement agreement reached between Guyanor
and Asarco and subject to certain conditions, Asarco was required to pay Guyanor
amounts totaling approximately $1.0 million. Upon settlement, Asarco
relinquished all rights and obligations under the joint venture agreements.
Accordingly, Guyanor now holds a 100% interest in the St-Elie/Dieu-Merci
projects, and subject to the consent of LaSource Developement S.A.S.
("LaSource"), approximately 87% of the Paul Isnard/Eau Blanche project, with
LaSource holding the remaining 13% interest in Paul Isnard/Eau Blanche. During
July 1998, Guyanor obtained the consent of LaSource and all amounts owing
Guyanor by Asarco were fully paid.
It has recently come to the Company's attention that the extension of its
mineral rights to the Eagle Mountain project may not have conformed in all
material respects with the terms of the mining act. The Company is investigating
this matter with the assistance of local counsel. The Government of Guyana
recently indicated its willingness to issue a new prospecting license to Golden
Star to cure any default relating to the previous extension. However, there can
be no assurance that such title will be granted. As of June 30, 1998, the
Company had incurred $1.3 million of costs of the Eagle Mountain project.
(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, 1997 and the six months ended June 30, 1998, are as
follows:
Common Shares Preferred Shares
------------- ----------------
December 31, 1997 $ - $ 2,126
Less: Preferred Share Redemption - (1,517)
Add: Premium on Preferred Share Redemption - 829
------ -------
Add: Equity Earning on Common Investment $ 170 $ -
------ -------
June 30, 1998 $ 170 $ 1,438
====== =======
The Company's share of Accumulated Losses at:
December 31, 1997 $(1,507)
=======
June 30, 1998 $ -
=======
The Company recorded proceeds of $1.5 million from redemption of preferred
shares during the six months ended June 30, 1998. During the second quarter of
1998, the Company's share of accumulated income exceeded the amount of
unrecognized equity losses. Accordingly, the Company recognized $170,000 of
equity income.
(5) PURCHASE OF PARC MINORITY INTEREST
----------------------------------
On April 21, 1998, the Company completed a Plan of Arrangement that resulted in
the purchase of all of the outstanding shares held by minority shareholders of
PARC. As a result the Company issued 388,574 of its common
6
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(Unaudited)
(All tabular amounts in thousands of United States Dollars)
shares with a market value of $0.9 million to the minority shareholders of PARC.
As a result of this transaction, the Company allocated goodwill of approximately
$1.8 million to the Comoe and Ndori Properties.
The following is the pro-forma income and loss for the six months ended June 30,
1998 and 1997, showing the results of operations had the transaction been
completed on January 1, 1997:
For the Six Months For the Six Months
Ended June 30, 1998 Ended June 30, 1997
------------------------ -------------------
Revenue $ 586 $ 96
Net Profit (Loss) $(1,940) $(9,532)
Net Profit (Loss) per share $ (0.06) $ (0.33)
(6) CHANGES TO SHARE CAPITAL
------------------------
During the six months ended June 30, 1998, 73,460 shares were issued for options
previously granted under the Company's Stock Option Plan and 22,872 shares were
issued under the Company's Employees' Stock Bonus Plan.
On April 21, 1998, 388,574 shares were issued to the shareholders of Pan African
Resources Corporation under a Plan of Arrangement that resulted in the
acquisition of the outstanding common shares of PARC not already owned by
Golden Star. (See Note 5.)
(7) 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
7
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(Unaudited)
(All tabular amounts in thousands of United States Dollars)
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. 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.
(f) 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.
(g) 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.
(The Company has available-for-sale securities as of June 31, 1998.)
(h) 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 accruals
were recorded in the first quarter of 1997.
8
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(Unaudited)
(All tabular amounts in thousands of United States Dollars)
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 six months ended
June 30, 1998 June 30, 1997
----------------------- ---------------------
<S> <C> <C>
Net loss under Canadian GAAP $(1,865) $(9,306)
Net effect of the deferred exploration expenditures on
loss for the period (a) (5,850) (7,125)
Effect of recording compensation expense under stock
option plans (d) - (42)
Record loss for severance accruals (h) - (1,115)
Effect of Omai preferred share redemption (c) 688 747
------- --------
Loss under U.S. GAAP before minority interest (7,027) (16,841)
Adjustment to minority interest 361 978
------- --------
Loss under U.S. GAAP $(6,666) $(15,863)
======= ========
Basic and diluted loss per share under U.S. GAAP $ (0.22) $ (0.55)
======= ========
</TABLE>
9
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(Unaudited)
(All tabular amounts in thousands of United States Dollars)
The effect of the differences in accounting under Canadian GAAP and U.S. GAAP on
the balance sheets and statements of cash flows are as follows:
BALANCE SHEET
<TABLE>
<CAPTION>
As of June 30, 1998 As of December 31, 1997
-------------------------- --------------------------
Canadian GAAP U.S. GAAP Canadian GAAP U.S. GAAP
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Cash (e) $ 11,053 $ 3,622 $ 12,458 $ 12,458
Short-term investments (e) - 2,001 4,941 1,999
Other current assets 1,951 1,951 2,753 2,753
Restricted cash - - 250 250
Deferred exploration (a) 71,210 20,437 65,160 20,239
Investment in Omai Gold 1,608 170 2,126 -
Mines Limited (c)
Long-term investments (e) - 5,431 - 2,942
Other assets 1,114 1,114 1,434 1,435
-------- --------- -------- ---------
Total Assets $ 86,936 $ 34,726 $ 89,122 $ 42,076
======== ========= ======== =========
Liabilities 1,923 1,922 3,840 3,840
Minority interest (a) 6,177 7,055 5,725 7,076
Share capital, net of stock option 155,117 152,328 153,989 151,200
loans (f)
Cumulative translation - 1,595 - 1,595
adjustments (b)
Deficit (a) (c) (d) (e) (76,281) (128,174) (74,432) (121,635)
-------- --------- -------- ---------
Total Liabilities and
Shareholders' Equity $ 86,936 $ 34,726 $ 89,122 $ 42,076
======== ========= ======== =========
</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, 1998 ($3,430) ($7,534) ($4,333) ($2,680) $ 1,417 $ 1,378
For the six months ended
June 30, 1997 ($4,446) ($16,038) ($12,245) $2,303 $28,554 $28,596
</TABLE>
The statements of cash flows reflect the impact of the previously discussed
adjustments (a) (c) (d) (f).
There were no significant non-cash transactions impacting the statement of cash
flows for the six months ended June 30, 1998. Non-cash items in financing
activities were $0.9 million for the six months ended June 30, 1997.
10
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(UNAUDITED_
(All tabular amounts in thousands of United States Dollars)
(8) SUBSEQUENT EVENTS
-----------------
On July 30, 1998, Golden Star announced that an agreement was reached on the
material terms for the exploration and development of Golden Star's Eagle
Mountain property. Under the terms of the agreement, Omai Gold Mines Limited
("OGML"), in which Cambior Inc., Golden Star and the Government of Guyana hold
65%, 30% and 5% equity interests, respectively, can earn a 100% interest in
Eagle Mountain by (i) paying Golden Star $80,000 upon closing contingent on
approval of the OGML Board of Directors and acceptance by the government of
Guyana of the transfer of Eagle Mountain to OGML and conversion of the
exploration permit to a mining lease; (ii) advancing Golden Star $3.7 million,
as a non-interest bearing loan to be repaid through the normal redemption of
Class I Preference shares owed to Golden Star; and (iii) funding 100% of
exploration and feasibility costs associated with future programs at Eagle
Mountain through completion of a final feasibility study. Additionally, if
exploration is successful in defining a mining resource resulting in a positive
feasibility study and mine development, OGML will pay a 1.5% net smelter royalty
to Golden Star upon achievement of commercial production. OGML will also pay to
Golden Star an amount equal to $1.0 million at the end of each year of
commercial production for a period of five years.
On July 24, 1998, the Company announced an agreement had been reached with North
Exploration (Overseas) Pty Limited ("North") for the exploration and development
of the Company's Tanda property, located in central eastern Cote d'Ivoire. Under
the terms of the agreement, North may earn a 60% participating interest in the
Tanda property by spending a minimum of $400,000 on exploration during the first
12 months of the joint venture and a minimum of $3.0 million over a total of 36
months. North also has the option of earning an additional 10% interest, for a
total of 70%, by fully funding feasibility work and providing or arranging, on a
best efforts basis, project financing for any eventual development. North will
act as manager and operator of the joint venture.
On August 14, 1998, the Company and Guyanor announced a restatement of
mineralized inventory estimates for the Paul Isnard Project in French Guiana. An
internal review of the estimates of mineralized inventory published in February
1998 identified several inappropriate parameters which led to an over-estimation
of open pit mineralized inventory and, to a much lessor degree, geologic
inventories. A new estimate was prepared using more appropriate parameters which
take into consideration the overall confidence of the geologic model and grade
estimations given the wide spaced drilling information for the project. The
revised estimates are being independently reviewed by SRK Consulting, an
international consulting firm. The restatement reduces open pit mineralized
inventories at the Montagne d'Or deposit at Paul Isnard from 16.3 million tonnes
grading 2.5 g Au/t to 4.6 million tonnes grading 2.6 g Au/t. Geologic
mineralized inventories were modified from 28.6 million tonnes grading 2.0 g
Au/t to 34.7 million tonnes grading 1.4 g Au/t.
The restatement more appropriately reflects the current level of information for
the Montagne d'Or project and does not reduce the Company's enthusiasm for the
project. As a result of the restatement, a full review of the Company's
technical management structure, policies and procedures for mineralized
inventory and reserve estimation is underway. Appropriate action will be taken
following completion of the review.
11
<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 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.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1998 Compared to the Six Months Ended June 30, 1997
- -----------------------------------------------------------------------------
During the second quarter of 1998, the Company recognized a net loss of $1.2
million or $0.04 per share as compared to a net loss of $7.5 million or $0.25
per share for the second quarter of 1997. During the second quarter of 1998,
the Company recorded no property abandonment charges and write-downs compared to
$6.1 million for the similar period in 1997.
For the six months ended June 30, 1998, the Company recognized a net loss of
$1.9 million or $0.06 per share, compared to a loss of $9.3 million or $0.32 per
share for the similar period in 1997. The decreased loss in the 1998 period is
primarily attributable to decreased property write-downs in 1998 ($6.1 million)
and no production losses at SOTRAPMAG in 1998 as compared to 1997 ($0.5
million), and a reduction in general and administrative expenditures in 1998 of
$0.9 million.
Total revenues of $0.2 million during the second quarter of 1998 (as compared to
$0.4 million for the second quarter of 1997) decreased due to the suspension of
gold production at SOTRAPMAG as well as lower interest income due to reduced
cash balances.
General and administrative expenditures decreased to $1.9 million during the
second quarter of 1998 as compared to $2.2 million during the second quarter of
1997. For the six months ended June 30, 1998, general and administrative
expenditures decreased to $3.5 million as compared to $4.3 million for the
similar period last year. These decreases were due to the Company's ongoing
cost reduction efforts. Depreciation expense for the second quarter and six
months ended June 30, 1998, decreased as a result of the decrease in the
depreciable asset base due to the write-down of equipment at SOTRAPMAG in 1997.
Omai Gold Mines Limited ("OGML"), in which the Company maintains a 30% common
share equity interest, reported net income of $2.0 million for the second
quarter of 1998 and $5.9 million for the six months ended June 30, 1998,
compared to a net income of $1.3 million in the second quarter of 1997 and a net
income of $5.5 million for the six months ended June 30, 1997. During the second
quarter of 1998, the Company's share of accumulated income exceeded the amount
of unrecognized equity losses. Accordingly, the Company recognized $170,000 of
equity income. During the six months ended June 30, 1998, OGML produced 163,363
ounces of gold, compared to 174,770 ounces during the first six
12
<PAGE>
months of 1997. The Company recorded Class "I" preferred share redemptions from
OGML of $1.5 million for the six months ended June 30, 1998, as compared to $1.6
million in the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company held cash and short term investments of $11.1
million ($27.5 million as of June 30, 1997) and working capital of $11.2 million
($26.7 million as of June 30, 1997). The decrease in cash resources and working
capital resulted from the expenditures on the Company's exploration activities
during the second half of 1997 and the first six months of 1998.
Cash used in investing activities of $4.3 million for the six months ended June
30, 1998 (as compared to $12.2 million for the six months ended June 30, 1997)
decreased primarily due to the reduction in expenditures on exploration
projects.
Cash provided by financing activities of $1.4 million for the six months ended
June 30, 1998 decreased by $27.2 million as compared to $28.6 million for the
six months ended June 30, 1997. The decrease results from offerings by the
Company in the first six months of 1997 which did not recur in 1998. Share
capital increased by $1.1 million for the six months ended June 30, 1998,
compared with $28.0 million during the six months ended June 30, 1997,
reflecting proceeds from warrant exercises and the May 1997 common stock
offering which did not recur in 1998.
Golden Star continues to closely monitor exploration progress at each of its
prioritized projects to ensure work programs and capital are allocated to those
projects that offer the greatest potential to generate additional reserves and
resources. Comprehensive cost reduction efforts continue at all operating
divisions and at the corporate headquarters to conserve cash resources. Most of
the exploration and development spending for the Company and its subsidiaries
represent discretionary spending and can be adjusted to reflect, among other
things, results of exploration and development activities, the successful
acquisition of additional properties or projects, the price of gold and
Management's assessment of capital markets.
The Company anticipates that its current cash balances, together with proceeds
from the redemption of preferred shares of OGML, proceeds from the exercise of
options and warrants, financing provided by joint venture partners, the sale of
property interests or assets and the sale of common shares and/or debt
securities will be sufficient to fund anticipated operating and exploration
expenditures for 1998. Whether, and to what extent, such alternative financing
options are pursued by the Company or its subsidiaries in 1998 will depend on a
number of factors including, among others, results of exploration and
development activities, the successful acquisition of additional properties or
projects, the price of gold and Management's assessment of the capital markets.
Africa (Pan African Resources Corporation)
- ------------------------------------------
Total exploration and acquisition expenditures in Africa for the second quarter
of 1998 amounted to $2.1 million (compared to $0.8 million during the second
quarter of 1997) and $2.4 million for the first six months of 1998 (compared to
$1.7 million for the first six months of 1997). Expenditures in 1998 primarily
reflect exploration activities in the Ivory Coast and Kenya and the allocation
of goodwill to these properties as a result of the Plan of Arrangement between
the Company and PARC. General and administrative expenditures for the second
quarter of 1998 totaled $0.1 million (compared to $0.2 million for the second
quarter of 1997) and $0.3 million for the first six months of 1998 (compared to
$0.3 million for the six month period ended June 30, 1997).
13
<PAGE>
French Guiana (Guyanor Ressources S.A.)
- ---------------------------------------
Total exploration expenditures by Guyanor for the second quarter of 1998
amounted to $0.9 million, offset by joint venture recoveries of $0.1 million as
compared to $3.0 million in expenditures and $2.5 million in joint venture
recoveries in 1997. Total exploration expenditures and joint venture recoveries
for Guyanor for the six months ended June 30, 1998 were $2.0 million and $0.8
million, respectively (compared to $5.1 million in expenditures and $4.3 million
in joint venture recoveries for the first six months of 1997). 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 $0.6 million and $1.1 million for the quarter and six months ended
June 30, 1998, respectively (compared to $0.4 million and $0.9 million for the
three and six months ended June 30, 1997, respectively). During the second
quarter of 1998, Guyanor recorded no property write-downs as compared to
property write-downs of $0.9 million for the Regina Est property in the second
quarter of 1997.
On May 27, 1998, Golden Star and Guyanor announced the resolution of the budget
deadlock with ASARCO Incorporated ("Asarco") regarding the spending levels and
work programs at the Paul Isnard/Eau Blanche and St-Elie/Dieu-Merci gold
projects. Under the termination and settlement agreement reached between Guyanor
and Asarco and subject to certain conditions, Asarco was required to pay Guyanor
amounts totaling approximately $1.0 million. Upon settlement, Asarco
relinquished all rights and obligations under the joint venture agreements.
Accordingly, Guyanor now holds a 100% interest in the St-Elie/Dieu-Merci
projects, and subject to the consent of LaSource Developement S.A.S.
("LaSource"), approximately 87% of the Paul Isnard/Eau Blanche project, with
LaSource holding the remaining 13% interest in Paul Isnard/Eau Blanche. During
July 1998, Guyanor obtained the consent of LaSource and all amounts owing
Guyanor by Asarco were fully paid.
The Company owned approximately 71% of the outstanding shares of Guyanor as of
June 30, 1998.
Guyana
- ------
Exploration and acquisition expenditures in the second quarter of 1998 in Guyana
amounted to $0.1 million (compared to $0.8 million during the second quarter of
1997) and $0.7 million for the six months ended June 30, 1998 (compared to $1.4
million for the first six months of 1997). Joint venture recoveries from the
Company's BHP Minerals International Inc. ("BHP") projects totaled $0.1 million
for the six months ended June 30, 1998. Activities in Guyana focused primarily
on the Makapa Hills and Eagle Mountain projects.
It has recently come to the Company's attention that the extension of its
mineral rights to the Eagle Mountain project may not have conformed in all
material respects with the terms of the mining act. The Company is investigating
this matter with the assistance of local counsel. The Government of Guyana
recently indicated its willingness to issue a new prospecting license to Golden
Star to cure any default relating to the previous extension. However, there can
be no assurance that such title will be granted. As of June 30 1998, the Company
had incurred $1.3 million of costs on the Eagle Mountain project.
Suriname
- --------
Exploration expenditures in Suriname during the second quarter and six months
ended June 30, 1998 focused principally on the Saramacca gold project in joint
venture with BHP. Total spending in Suriname in the second quarter of 1998 of
$0.4 million was offset by recoveries from joint venture partners of $0.1
million (compared to $3.6 million in expenditures and $0.7 million in
14
<PAGE>
recoveries for the second quarter of 1997. Exploration expenditures of $0.9
million for the first six months of 1998 (compared to $7.5 million for the six
months ended June 30, 1997) were offset by $0.5 million in joint venture
recoveries (compared to $1.8 million in recoveries for the first six months of
1997). The reduction is primarily a result of the placement of the Gross Rosebel
project on care and maintenance pending improved gold prices and resolution of
certain development issues.
Southern Star Resources Ltd.
- ----------------------------
Exploration expenditures by Southern Star for the second quarter of 1998 were
$0.8 million ($2.5 million for the second quarter of 1997) and $1.3 million for
the first six months of 1998 (compared to $4.5 for the first six months of
1997). Exploration work focused primarily on the Andorinhas project in Brazil.
The Company recorded no property write-downs during the quarter and six months
ended June 30, 1998, compared with a write-down of $0.4 million during the
similar period of 1997.
15
<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 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
At the Annual General Meeting of the Shareholders of the Company held on June
16, 1998, shareholders were asked to (i) elect ten directors, Messrs. David K.
Fagin, David A. Fennell, Pierre Gousseland, Philip Martin, Donald Mazankowski,
Ernest Mercier, Robert Minto, Roger Morton, Richard Stark and Robert Stone and
(ii) approve the appointment of auditors for 1998.
(i) Votes cast in the election of directors were as follows:
Number of Shares
----------------
For Withheld
--- --------
David K. Fagin 22,612,850 36,710
David A. Fennell 22,612,850 36,710
Pierre Gousseland 22,612,850 36,710
Philip Martin 22,612,850 36,710
Donald Mazankowski 22,612,850 36,710
Ernest Mercier 22,612,850 36,710
Robert Minto 22,612,850 36,710
Roger D. Morton 22,612,850 36,710
Richard A. Stark 22,612,850 36,710
Robert Stone 22,612,850 36,710
(ii) Votes cast for the appointment of PricewaterhouseCoopers as auditors for
1998:
For Against Withheld
--- ------- --------
22,546,622 -0- 64,795
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 ("SEC") on
May 7, 1998, a Form 8-K, dated May 6, 1998, concerning the acquisition of
all the issued and outstanding
16
<PAGE>
common shares of Pan African Resources Corporation ("PARC") that were not
already held by the Company pursuant to a share exchange agreement among
PARC and its shareholders.
The Company filed with the SEC on May 29, 1998, a Form 8-K dated May 27,
1998, concerning the terms and impact of the withdrawal of ASARCO
Incorporated from its joint venture agreements with Guyanor Ressources
S.A., a 69% subsidiary of the Company, on the St-Elie and Paul-Isnard
projects in French Guiana.
17
<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, 1998
18
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