<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 September 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)
<TABLE>
<S> <C>
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)
</TABLE>
(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 10, 1998: 30,292,249.
<PAGE>
GOLDEN STAR RESOURCES LTD.
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information
<C> <S> <C>
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............................................. 17
Item 4. Submission of Matters to a Vote of the Security Holders....... 17
Item 6. Exhibits and Reports on Form 8-K.............................. 17
Signatures....................................................................... 18
</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, the establishment, quantification and the recovery of reserves and
mineralized inventories, capitalization and commercial viability and
requirements for obtaining permits and licenses.
The mineralized inventories mentioned in this report do not qualify as reserves.
They were prepared only to give an idea of the portion of the geological
inventories that could be exploited economically utilizing open pit mining
methods through the application of certain economical and technical parameters
in a mathematical algorithm. This estimation of resource will not qualify as a
reserve until a more comprehensive evaluation based upon unit cost, grade,
recoveries and other material factors is concluded. Consequently, there can be
no assurance that the mineralized inventories will ever become ore reserves.
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 September 30, As of December 31,
1998 1997
ASSETS ------------------- ------------------
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $ 7,688 $ 17,399
Accounts receivable 1,165 2,238
Inventories 278 356
Other assets 97 159
-------- --------
Total Current Assets 9,228 20,152
RESTRICTED CASH - 250
DEFERRED EXPLORATION 72,635 65,160
INVESTMENT IN OMAI GOLD MINES LIMITED 1,409 2,126
FIXED ASSETS 837 1,280
OTHER ASSETS 297 154
-------- --------
Total Assets $ 84,406 $ 89,122
======== ========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 1,785 $ 2,825
Accrued wages and payroll taxes - 900
-------- --------
Total Current Liabilities 1,785 3,725
OTHER LIABILITIES 67 115
-------- --------
Total Liabilities 1,852 3,840
-------- --------
MINORITY INTEREST 5,859 5,725
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY
SHARE CAPITAL 159,140 158,001
(Common shares, without par value, unlimited shares
authorized. Shares issued and outstanding: September 30,
1998 - 30,290,588; December 31, 1997 - 29,797,432)
Stock option loans (4,012) (4,012)
ACCUMULATED DEFICIT (78,433) (74,432)
-------- --------
Total Shareholders' Equity 76,695 79,557
-------- --------
Total Liabilities and Shareholders' Equity $ 84,406 $ 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 Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
1998 1997 1998 1997
--------- -------- -------- ---------
REVENUE
<S> <C> <C> <C> <C>
Precious metals sales $ - $ 4 $ - $ 443
Interest and other 189 346 606 871
------- ------- ------- --------
189 350 606 1,314
COSTS AND EXPENSES
Cost of goods sold - 9 - 987
Depreciation 60 151 180 711
General and administrative 1,971 2,148 5,427 6,483
Exploration expense 26 275 267 754
Abandonment and impairment of mineral properties 199 3,503 199 9,573
Gain on sale of assets - (301) - (302)
Loss on impairment of assets - 1,522 - 1,522
Interest and bank charges 111 (6) 126 15
Foreign exchange loss (gain) 140 27 58 50
------- ------- ------- --------
2,507 7,328 6,257 19,793
PROFIT (LOSS) BEFORE THE UNDERNOTED (2,318) (6,978) (5,651) (18,479)
Equity in earnings of Omai Gold Mines Limited (170) - - -
Premium on Omai Preferred Class Share Redemptions 34 151 863 1,050
------- ------- ------- --------
Net profit (loss) before minority interest (2,454) (6,827) (4,788) (17,429)
Minority interest share of loss 318 1,707 787 3,003
------- ------- ------- --------
NET PROFIT (LOSS) $(2,136) $(5,120) $(4,001) $(14,426)
======= ======= ======= ========
BASIC AND DILUTED NET PROFIT (LOSS) PER SHARE $(0.07) $(0.17) $(0.13) $(0.50)
======= ======= ======= ========
Weighted Average Shares Outstanding
(Millions of shares) 30.0 29.7 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>
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
OPERATING ACTIVITIES: -------------------- --------------------
<S> <C> <C>
Net loss $(4,001) $(14,426)
Reconciliation of net loss to net cash used in operations:
Depreciation 180 711
Premium on Omai Preferred Share Redemptions (863) (1,050)
Gain on sale of assets - (302)
Loss on impairment of assets - 1,522
Abandonment and write-down of mineral properties 199 9,573
Minority interest loss (787) (3,003)
Changes in non-cash operating working capital (727) (796)
------- --------
Net Cash Used in Operating Activities (5,999) (7,771)
------- --------
INVESTING ACTIVITIES:
Expenditures on mineral properties, net of joint venture
recoveries (7,674) (18,426)
Depreciation charged to projects 280 264
Equipment purchases (49) (327)
Proceeds from sale of equipment 32 486
Omai Preferred Share Redemptions 1,580 1,922
Other assets (149) 51
------- --------
Net Cash Used in Investing Activities (5,980) (16,030)
------- --------
FINANCING ACTIVITIES:
Restricted cash 250 1,250
Proceeds from issuance of subsidiary's stock - 29
Offering costs of subsidiary 6 (25)
Issuance of share capital 1,139 22,513
Issuance of share capital under warrants - 5,429
Issuance of share capital under options - 140
Increase (Decrease) in minority interest 921 45
Stock option loan receipts (additions) - 1
Other (48) 6
------- --------
Net Cash Provided by Financing Activities 2,268 29,388
------- --------
Increase (Decrease) in cash (9,711) 5,587
Cash and short-term investments, beginning of period 17,399 15,663
------- --------
Cash and short-term investments, end of period $ 7,688 $ 21,250
======= ========
</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 September 30, 1998, and for the nine
months ended September 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) LIQUIDITY
---------
During 1998, the Company has substantially curtailed its exploration activities
and general and administrative expenses in the field and at the corporate
headquarters in an effort to conserve cash resources. Capital is allocated to
projects which offer the greatest potential to generate additional reserves and
resources. Most of the exploration and development expenditures for the Company
and its subsidiaries represent discretionary spending and can be adjusted to
reflect, among other things, results of exploration and development activities
and the Company's capital resources.
In order to prepare for the possibility that the current depressed market for
gold prices and gold shares may continue into 1999, the Company plans a
further reduction in activity and general and administrative expenses. The
Company anticipates that additional capital will be required in 1999 in order to
fund operations and exploration activities. Sources for such capital may
include, among other things, the establishment of joint ventures, sale of
property interests or assets and issuance of debt or equity securities.
The level of exploration activity over this period is dependent on the Company's
ability to raise capital. Without additional capital during this period, the
Company's exploration activities and expenditures will be significantly reduced
from previous levels. Whether and to what extent alternative financing options
are pursued by the Company or its subsidiaries will depend on a number of
factors including, among others, the successful acquisition of additional
properties or projects, the price of gold and management's assessment of the
capital markets. No assurance can be given that the Company will be able to
access such financing on terms which are favorable to the Company.
(2) INVENTORIES
-----------
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Gold Inventory $ - $ 53
Materials and Supplies 278 303
---- ----
$278 $356
==== ====
</TABLE>
(3) FIXED ASSETS
------------
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Machinery & Equipment $ 3,254 $ 3,239
Accumulated Depreciation (2,417) (1,959)
------- -------
$ 837 $ 1,280
======= =======
</TABLE>
4
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- - ----------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
(4) DEFERRED EXPLORATION
--------------------
<TABLE>
<CAPTION>
Deferred Deferred
Exploration Property Exploration
Expenditures Capitalized Capitalized Joint Impairments Expenditures
as at Exploration Acquisition Venture & as at
Dec. 31, 1997 Expenditures Expenditures Recoveries Abandonments September 30, 1998
====================================================================================================
<S> <C> <C> <C> <C> <C> <C>
GUYANA
Eagle Mountain $ 1,136 $ 216 $ - $ - $ - $ 1,352
Quartz Hill 1,347 - - - - 1,347
Five Stars Gold 3,684 361 - - - 4,045
Five Stars Diamond 2,360 188 - - - 2,548
BHP Gold Projects 333 - - (65) - 268
Guyana Diamond Permits 109 - - - - 109
Other 97 263 - - - 360
----------------------------------------------------------------------------------------------------
Sub-total 9,066 1,028 - (65) - 10,029
----------------------------------------------------------------------------------------------------
SURINAME
Benzdorp / Lawa 3,344 8 - - - 3,352
Gross Rosebel 13,892 587 - (278) - 14,201
Headley's Right of Exploration 311 2 - - - 313
Thunder Mountain 453 2 - - - 455
Saramacca 1,862 373 - (263) - 1,972
Sara Kreek 581 6 - - - 587
Tempati Reconnaissance 344 18 - (16) - 346
Tapanahony Reconnaissance 251 7 - (25) - 233
Kleine Saramacca 107 - - - - 107
Lawa Antino 2,096 76 - (56) - 2,116
Ulemari Reconnaissance 291 (54) - - - 237
Other (17) 191 - - - 174
----------------------------------------------------------------------------------------------------
Sub-total 23,515 1,216 - (638) - 24,093
----------------------------------------------------------------------------------------------------
FRENCH GUIANA
(Guyanor Ressources S.A.)
Dorlin 1,330 938 - (468) - 1,800
St-Elie 1,973 484 - (253) - 2,204
Dieu-Merci 382 480 - (109) - 753
Yaou 7,130 286 - (143) - 7,273
Paul Isnard / Eau Blanche 3,629 933 - (285) - 4,277
SOTRAPMAG 1,987 (22) - - - 1,965
Dachine 1,234 190 - - - 1,424
Other 81 (5) - - - 76
----------------------------------------------------------------------------------------------------
Sub-total 17,746 3,284 - (1,258) - 19,772
----------------------------------------------------------------------------------------------------
AFRICA (PAN AFRICAN RESOURCES
CORPORATION)
Ivory Coast / Comoe 2,092 1,748 - - - 3,840
Kenya / Ndori 1,677 829 - - - 2,506
Burkina Faso 8 18 - - (26) -
----------------------------------------------------------------------------------------------------
Sub-total 3,777 2,595 - - (26) 6,346
----------------------------------------------------------------------------------------------------
LATIN AMERICA (SOUTHERN STAR
RESOUCES LTD.)
Brazil / Andorinhas 8,490 620 200 - - 9,310
Brazil / Abacaxis 2,096 168 - - - 2,264
Brazil / Other 189 404 - - - 593
Bolivia / San Simon 173 - - - (173) -
----------------------------------------------------------------------------------------------------
Sub-total 10,948 1,192 200 - (173) 12,167
----------------------------------------------------------------------------------------------------
OTHER 108 120 - - - 228
----------------------------------------------------------------------------------------------------
TOTAL $65,160 $9,435 $200 $(1,961) $(199) $72,635
====================================================================================================
</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
5
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- - ----------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
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.
It has 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 of Guyana. As a result, the Government of
Guyana recently issued a new prospecting license to the Company to
cure any default relating to the previous extension. As of September 30, 1998,
the Company had incurred $1.3 million of costs on the Eagle Mountain project.
On July 30, 1998, the Company announced that a preliminary agreement was reached
on the material terms for the exploration and development of the Company's Eagle
Mountain property. Under the terms of the agreement, Omai Gold Mines Limited
("OGML") in which Cambior Inc., the Company and the Government of Guyana hold
65%, 30% and 5% equity interests, respectively, can acquire a 100% interest in
Eagle Mountain by (i) paying the Company $80,000: and (ii) advancing the Company
$3.1 million, as a non-interest bearing loan to be repaid through the normal
redemption of Class I Preference shares owed to the Company. After closing, OGML
will fund 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 the Company upon achievement of commercial
production. OGML will also pay to the Company an amount equal to $1.0 million at
the end of each year of commercial production for a period of five years. The
closing of the acquisition is subject to the fulfillment of certain conditions,
including the approval by the Government of Guyana of the transfer of the Eagle
Mountain title to OGML.
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.
6
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- - ----------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
(5) 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 nine months ended September 30, 1998,
are as follows:
<TABLE>
<CAPTION>
Common Shares Preferred Shares
-------------- ----------------
<S> <C> <C>
December 31, 1997 $ - $ 2,126
------
Less: Preferred Share Redemption - (1,580)
Add: Premium on Preferred Share Redemption $ - 863
------ -------
September 30, 1998 $ - $ 1,409
====== =======
</TABLE>
The Company's share of Accumulated Losses at:
<TABLE>
<S> <C>
December 31, 1997 $(1,507)
=======
September 30, 1998 $ (264)
=======
</TABLE>
The Company recorded proceeds of $1.6 million from redemption of preferred
shares during the nine months ended September 30, 1998. During the third
quarter of 1998, the Company's share of accumulated losses exceeded the amount
of recognized equity income. Accordingly, the Company recognized $0.2 million
of equity loss, which equals the previously recorded equity income.
(6) 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 shares with a market
value of $0.9 million to the minority shareholders of Pan African Resources
Corporation ("PARC"). As a result of this transaction, the Company allocated
goodwill of approximately $1.8 million to the Comoe and Ndori properties.
7
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- - ----------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
The following is the pro-forma income and loss for the nine months ended
September 30, 1998 and 1997, showing the results of operations had the
transaction been completed on January 1, 1997:
<TABLE>
<CAPTION>
For the Nine Months For the Nine Months
Ended September 30, 1998 Ended September 30, 1997
------------------------ ------------------------
<S> <C> <C>
Revenue $ 606 $ 1,314
Net Profit (Loss) $(4,092) $(15,651)
Net Profit (Loss) per Share $ (0.13) $ (0.54)
</TABLE>
(7) CHANGES TO SHARE CAPITAL
------------------------
During the nine months ended September 30, 1998, 73,460 shares were issued for
options previously granted under the Company's Stock Option Plan and 31,122
shares were issued under the Company's Employees' Stock Bonus Plan.
On April 21, 1998, 388,574 shares were issued to the shareholders of PARC under
a Plan of Arrangement that resulted in the acquisition of the outstanding common
shares of PARC not already owned by the Company. (See Note 6.)
(8) GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
------------------------------------------------------------------------
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") in Canada which differ in certain
respects from those principles that the Company would have followed had its
financial statements been prepared in accordance with 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.
8
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- - ----------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
(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.
9
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- - ----------------------------------------------
(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 nine months ended
September 30, 1998 September 30, 1997
------------------------ ------------------------
<S> <C> <C>
Net loss under Canadian GAAP $ (4,001) $(14,426)
Net effect of the deferred exploration expenditures on
loss for the period (a) (7,275) (8,253)
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) 717 871
-------- --------
Loss under U.S. GAAP before minority interest (10,559) (22,965)
Adjustment to minority interest 588 500
-------- --------
Loss under U.S. GAAP $ (9,971) $(22,465)
======== ========
Basic and diluted loss per share under U.S. GAAP $ (0.33) $ (0.78)
======== ========
</TABLE>
10
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- - ----------------------------------------------
(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, 1998 As of December 31, 1997
--------------------------- ---------------------------
Canadian GAAP U.S. GAAP Canadian GAAP U.S. GAAP
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Cash (e) $ 7,688 $ 702 $ 12,458 $ 12,458
Short-term investments (e) - 3,156 4,941 1,999
Other current assets 1,540 1,540 2,753 2,753
Restricted cash - - 250 250
Deferred exploration (a) 72,635 20,437 65,160 20,239
Investment in Omai Gold 1,409 - 2,126 -
Mines Limited (c)
Long-term investments (e) - 3,830 - 2,942
Other assets 1,134 1,134 1,434 1,435
-------- --------- -------- ---------
Total Assets $ 84,406 $ 30,801 $ 89,122 $ 42,076
======== ========= ======== =========
Liabilities 1,852 1,852 3,840 3,840
Minority interest (a) 5,859 6,986 5,725 7,076
Share capital, net of stock option 155,128 152,338 153,989 151,200
loans (f)
Cumulative translation - 1,595 - 1,595
adjustments (b)
Deficit (a) (c) (d) (e) (78,433) (131,970) (74,432) (121,635)
-------- --------- -------- ---------
Total Liabilities and
Shareholders' Equity $ 84,406 $ 30,801 $ 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 nine months ended
September 30, 1998 ($5,999) ($11,941) ($ 5,980) ($ 967) $ 2,268 $ 2,309
For the nine months ended
September 30, 1997 ($7,771) ($23,722) ($16,030) ($ 240) $29,388 $29,433
</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 nine months ended September 30, 1998. Non-cash items in financing
activities were $0.3 million for the nine months ended September 30, 1997.
11
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- - ----------------------------------------------
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
(9) SUBSEQUENT EVENTS
-----------------
On October 30, 1998, the Company announced that David A. Fennell resigned from
his position as President and Chief Executive Officer of the Company. He also
resigned as President of the Board of Directors and director of Guyanor
Ressources S.A., the Company's 71% owned subsidiary. Under a Separation
Agreement and Release which became irrevocable on November 7, 1998, the Company
paid to Mr. Fennell $597,000, (the equivalent of two years of salary). Under the
agreement, the Company is obligated to reimburse Mr. Fennell for up to $81,200
of expenses.
Mr. Pierre Gousseland, currently Chairman of the Company, has been appointed
Acting Chief Executive Officer on an interim basis. The Board of Directors of
the Company is currently conducting a search for a new President and Chief
Executive Officer.
A new geologic model and estimation of the mineralized inventories at St-Elie
has been completed. The new estimate is less than 50% of the February estimate,
however, the reduction in mineralized inventories at St-Elie does not affect
proven and probable mining reserves. Furthermore, the February estimate for St-
Elie accounts for only approximately 10% of the Company's (1.0 of 10.4 million
tonnes) and Guyanor's (1.4 of 14.6 million tonnes) total open pit mineralized
inventory tonnage and approximately 3% and 6% of total geologic inventory
tonnage for the Company (2.3 of 82 million tonnes) and Guyanor (3.3 of 55.8
million tonnes), respectively. The February estimates and the lower new
estimates for St-Elie are not material in relation to the Company's and
Guyanor's total open pit and geologic mineralized inventories and, as a result,
estimates of mineralized inventories at St-Elie will no longer be reported
unless material.
12
<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 7.
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
Nine Months Ended September 30, 1998 Compared to the Nine Months Ended September
- - --------------------------------------------------------------------------------
30, 1997
- - --------
During the third quarter of 1998, the Company recognized a net loss of $2.1
million or $0.07 per share as compared to a net loss of $5.1 million or $0.17
per share for the third quarter of 1997. During the third quarter of 1998, the
Company recorded $0.2 million in property abandonment charges and write-downs
compared to $3.5 million for the similar period in 1997.
For the nine months ended September 30, 1998, the Company recognized a net loss
of $4.0 million or $0.13 per share, compared to a loss of $14.4 million or $0.50
per share for the similar period in 1997. The decreased loss in the 1998 period
is primarily attributable to a decrease of $9.4 million in property write-downs
in 1998, 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
$1.1 million.
Total revenues of $0.2 million during the third quarter of 1998 (as compared to
$0.4 million for the third quarter of 1997) decreased due to lower interest
income from lower available cash balances.
General and administrative expenditures decreased to $2.0 million during the
third quarter of 1998 as compared to $2.1 million during the third quarter of
1997. For the nine months ended September 30, 1998, general and administrative
expenditures decreased to $5.4 million as compared to $6.5 million for the
similar period last year. These decreases were due to the Company's ongoing
cost reduction efforts. Depreciation expense for the third quarter and nine
months ended September 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 loss of $1.3 million for the third quarter
of 1998 and $4.6 million for the nine months ended September 30, 1998, compared
to a net loss of $0.4 million in the third quarter of 1997 and a net income of
$5.2 million for the nine months ended September 30, 1997. During the third
quarter of 1998, the Company's share of accumulated losses exceeded the amount
of recognized equity
13
<PAGE>
income. Accordingly, the Company recognized a $0.2 million loss on its equity
investment in OGML. During the nine months ended September 30, 1998, OGML
produced 238,421 ounces of gold, compared to 255,430 ounces during the first
nine months of 1997. The Company recorded Class "I" preferred share redemptions
from OGML of $0.9 million for the nine months ended September 30, 1998, as
compared to $1.1 million in the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company held cash and short term investments of
$7.7 million ($17.4 million as of December 31, 1997) and working capital of
$7.4 million ($16.5 million as of December 31, 1997). The decrease in cash
resources and working capital resulted from the expenditures on the Company's
exploration activities during the first nine months of 1998.
Under the terms of an agreement reached between OGML, the Company and Cambior
Inc. for exploration and development of the Eagle Mountain property in Guyana,
the Company expects to receive in the fourth quarter, an additional $80,000 cash
payment and an advance of the remaining $3.1 million of Class I Preferred Shares
of OGML.
Cash used in investing activities of $6.0 million for the nine months ended
September 30, 1998 (as compared to $16.0 million for the nine months ended
September 30, 1997) decreased primarily due to the reduction in expenditures on
exploration projects.
Cash provided by financing activities of $2.3 million for the nine months ended
September 30, 1998 decreased by $27.1 million as compared to $29.4 million for
the nine months ended September 30, 1997. The decrease results from offerings
by the Company in the first nine months of 1997 which did not recur in 1998.
Share capital increased by $1.1 million for the nine months ended September 30,
1998, compared with $28.1 million during the nine months ended September 30,
1997, reflecting proceeds from warrant exercises and the May 1997 common stock
offering which did not recur in 1998.
During 1998, the Company has substantially curtailed its exploration activities
and general and administrative expenses in the field and at the corporate
headquarters in an effort to conserve cash resources. Capital is allocated to
projects which offer the greatest potential to generate additional reserves and
resources. Most of the exploration and development expenditures for the Company
and its subsidiaries represent discretionary spending and can be adjusted to
reflect, among other things, results of exploration and development activities
and the Company's capital resources.
In order to prepare for the possibility that the current depressed market for
gold prices and gold shares may continue into 1999, the Company plans a
further reduction in activity and general and administrative expenses. The
Company anticipates that additional capital will be required in 1999 in order to
fund operations and exploration activities. Sources for such capital may
include, among other things, the establishment of joint ventures, sale of
property interests or assets and issuance of debt or equity securities.
The level of exploration activity over this period is dependent on the Company's
ability to raise capital. Without additional capital during this period, the
Company's exploration activities and expenditures will be significantly reduced
from previous levels. Whether and to what extent alternative financing options
are pursued by the Company or its subsidiaries will depend on a number of
factors including, among others, the successful acquisition of additional
properties or projects, the price of gold and management's assessment of the
capital markets. No assurance can be given that the Company will be able to
access such financing on terms which are favorable to the Company.
Africa (Pan African Resources Corporation)
- - ------------------------------------------
Total exploration and acquisition expenditures in Africa for the third quarter
of 1998 amounted to $0.2 million (compared to $0.7 million during the third
quarter of 1997) and $2.6 million for the first nine months of 1998 (compared to
$2.4 million for the first nine months of 1997). Expenditures in 1998 primarily
reflect exploration activities in the Ivory Coast and Kenya and the allocation
of excess purchase price over the value of the assets acquired to these
properties as a result of the Plan of Arrangement between the Company and PARC.
General and
14
<PAGE>
administrative expenditures for the third quarter of 1998 totaled $0.1 million
(compared to $0.2 million for the third quarter of 1997) and $0.3 million for
the first nine months of 1998 (compared to $0.5 million for the nine month
period ended September 30, 1997).
French Guiana (Guyanor Ressources S.A.)
- - ---------------------------------------
Total exploration expenditures by Guyanor for the third quarter of 1998 amounted
to $1.4 million, offset by joint venture recoveries of $0.5 million as compared
to $2.9 million in expenditures and $2.3 million in joint venture recoveries in
1997. Total exploration expenditures and joint venture recoveries for Guyanor
for the nine months ended September 30, 1998 were $3.3 million and $1.3 million,
respectively (compared to $8.0 million in expenditures and $6.6 million in joint
venture recoveries for the first nine 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 $0.8 million and $1.9 million for the quarter and nine months ended
September 30, 1998, respectively (compared to $0.5 million and $1.4 million for
the three and nine months ended September 30, 1997, respectively).
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 lesser degree,
geologic inventories. A new estimate was prepared using more appropriate
parameters taking into consideration the overall confidence of the geologic
model and grade estimations given the wide spaced drilling information for the
project. The revised estimates were independently reviewed and confirmed by SRK
Consulting, an international consulting firm. The restatement reduced 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.
On May 27, 1998, the Company 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 Developpement S.A.S.
("LaSource"), approximately 89% of the Paul Isnard/Eau Blanche project, with
LaSource holding the remaining 11% interest in Paul Isnard/Eau Blanche. During
July 1998, all amounts owing Guyanor by Asarco were fully paid.
The Company owned approximately 71% of the outstanding shares of Guyanor as of
September 30, 1998.
Guyana
- - ------
Exploration and acquisition expenditures in the third quarter of 1998 in Guyana
amounted to $0.3 million (compared to $1.1 million during the third quarter of
1997) and $1.0 million for the nine months ended September 30, 1998 (compared to
$2.4 million for the first nine months of 1997). Joint venture recoveries from
the Company's BHP Minerals International Inc. ("BHP") projects totaled $0.1
million for the nine months ended September 30, 1998. Activities in Guyana
focused primarily on the Makapa Hills and Eagle Mountain projects.
Suriname
- - --------
15
<PAGE>
Exploration expenditures in Suriname during the third quarter and nine months
ended September 30, 1998 focused principally on the Saramacca gold project in
joint venture with BHP and additional feasibility study work on Gross Rosebel.
Total spending in Suriname in the third quarter of 1998 of $0.4 million was
offset by recoveries from joint venture partners of $0.2 million (compared to
$3.1 million in expenditures and $2.4 million in recoveries for the third
quarter of 1997). Exploration expenditures of $1.2 million for the first nine
months of 1998 (compared to $10.6 million for the nine months ended September
30, 1997) were offset by $0.6 million in joint venture recoveries (compared to
$4.2 million in recoveries for the first nine 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 third quarter of 1998 were
$0.1 million ($1.5 million for the third quarter of 1997) and $1.2 million for
the first nine months of 1998 (compared to $6.0 million for the first nine
months of 1997). Exploration work focused primarily on the Abacaxis project in
Brazil.
The Company recorded property write-down charges of $0.2 million for the San
Simon property in Bolivia during the quarter and nine months ended September 30,
1998, as compared with write-downs of $1.2 million during the similar period of
1997.
Year 2000 Compliance
- - --------------------
The Company recognizes the importance of ensuring that its business operations
are not disrupted as a result of Year 2000 problems. The Company has prepared a
three step plan to identify and resolve Year 2000 issues. First, the Company is
compiling an inventory of its Information Technology ("IT") systems, and non-IT
systems (which are those which typically include "embedded" technology such as
microprocessors or chips) and performing a survey of the state of Year 2000
readiness of third party suppliers and vendors. Second, the Company is
prioritizing the IT and non-IT systems and vendor responses. Third, the Company
has prepared a Year 2000 testing plan to assess the ability of IT and non-IT
systems to handle the Year 2000. Those systems that not Year 2000 compliant are
being modified or replaced to ensure that they are Year 2000 compliant. These
steps are in various stages of completion. The Company anticipates that all
steps will be completed by June 30, 1999. The Company estimates the internal and
external cost of Year 2000 compliance to be approximately $0.1 million.
The Company believes that the greatest risk presented by the Year 2000 problem
is from third parties, such as suppliers and financial institutions who may not
have adequately addressed the problem. A failure of any such third party's
computer or other applicable systems in sufficient magnitude could materially
and adversely impact the Company. The Company is not presently able to quantify
this risk but believes that it is minimal based upon the survey responses
received to date from third party suppliers and vendors.
The Company is undertaking a contingency planning effort to identify
alternatives that could be used to mitigate the effects of Year 2000 related
failures. The Company keeps printed back-up of all material transactions which
could facilitate the continuation of business operations and remediation of data
loss in the event of a system failure.
16
<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
---------------------------------------------------
None
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 August 17,
1998, a Form 8-K concerning the completion by the Company and its
approximately 71% owned public French subsidiary, Guyanor Ressources S.A.,
of an internal review of the mineralized inventory estimates for the Paul
Isnard project in French Guiana, which were made public in February 1998.
The review identified inappropriate parameters used in the mineralized
inventory calculations which led to an overestimation of open pit
mineralized inventories and, to a much lesser degree, geologic inventories.
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/ Pierre Gousseland
------------------------
Pierre Gousseland
President and Chief Executive Officer
By: /s/ Gordon J. Bell
---------------------
Gordon J. Bell
Vice President and Chief Financial Officer
Date: November 16, 1998
18
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