Pursuant to Rule 424(b)(3)
Registration File No. 333-33237
DATED AUGUST 16, 1999
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 2, 1997)
$7,616,500
GOLDEN STAR RESOURCES LTD.
$4,155,000 PRINCIPAL AMOUNT OF 7.50% SUBORDINATED CONVERTIBLE DEBENTURES
DUE 2004
UP TO 6,923,000 UNITS REPRESENTING
6,923,000 COMMON SHARES AND WARRANTS TO PURCHASE 3,461,500 COMMON SHARES
CONVERTIBLE DEBENTURES
MATURITY; INTEREST
The debentures will mature on August 24, 2004. Interest is fixed at an annual
rate of 7.50%. Interest is payable on the debentures on February 15 and August
15 of each year, beginning on February 15, 2000. Interest on the debentures will
accrue from August 24, 1999.
CONVERSION
The holder of a debenture has the option to convert any part of his debenture
into common shares of our company at a conversion price of $0.70 per common
share, subject to adjustment.
REDEMPTION
The debentures may not be redeemed by us before August 24, 2002. On and after
August 24, 2002, we may redeem the debentures at a redemption price as set forth
herein if the closing trading price of the common shares as reported on the
close of business for any 20 consecutive trading days ending not more than five
business days before the date the notice of redemption is given is equal to or
greater than 125% of the conversion price stated above.
RANKING
The debentures are unsecured and will rank behind all existing and future senior
indebtedness, and are effectively subordinated in right of payment to all
indebtedness and other liabilities of our subsidiaries. As of June 30, 1999, we
had approximately $2.7 million of indebtedness and our subsidiaries had
approximately $0.9 million of indebtedness and other liabilities.
FOUR-YEAR WARRANTS
Each $1,000 principal amount of debentures entitles the holder to warrants
exercisable for 200 common shares at a price of $1.50 per share until August 24,
2001, and $1.75 per share for the remaining two years until August 24, 2003.
LISTING
We will use our best efforts to list the debentures on a stock exchange in
Canada.
UNITS
The units consist of one common share and one-half common share purchase
warrant. The price per unit is $0.50.
COMMON SHARES
Our common shares are traded on the American Stock Exchange under the symbol
"GSR" and on the Toronto Stock Exchange under the symbol "GSC." On August 12,
1999, the closing trading price of our common shares on the American Stock
Exchange was $0.56 and the closing trading price of our common shares on the
Toronto Stock Exchange was Cdn. $0.80.
WARRANTS
Each whole eighteen-month warrant is exercisable for one of our common shares at
a price of $0.70 for a period of 18 months after the closing of this offering.
ESCROW
Fifty percent of this offering is contingent upon the closing of the acquisition
described in this prospectus supplement. Upon the closing of this offering, the
securities and 50% of the gross proceeds will be placed in escrow pending
completion of the acquisition and the remaining 50% of the proceeds will be
directly delivered to us. If we do not complete the acquisition by December 10,
1999, then (1) the escrowed proceeds from the sale of the units, plus interest
thereon, will be returned to you, (2) the escrowed proceeds from the sale of the
debentures will be delivered to us and all of the debentures will be delivered
to you, and we will then be required to repurchase 50% of the principal amount
of the debentures from each of you pursuant to a special mandatory redemption
and (3) 50% of the units and 50% of the four-year warrants will be delivered to
you and will remain outstanding.
OVER-ALLOTMENT OPTION
We have granted to the agent an option, exercisable prior to the closing of
this offering, to place up to an additional $2,000,000 principal amount of
debentures plus four-year warrants or units to cover over-allotment options, if
any.
INVESTING IN THESE SECURITIES INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE S-11 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 6 OF
THE ACCOMPANYING PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
We expect the closing of this offering to occur on August 24, 1999.
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TD SECURITIES (USA) INC.
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No person is authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
prospectus supplement or the prospectus. If given or made, such information or
representations must not be relied upon as having been authorized. This
prospectus supplement and the prospectus do not constitute an offer to sell or
the solicitation of an offer to buy any securities other than the securities
described in this prospectus supplement or an offer to sell or the solicitation
of an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this prospectus supplement or
the prospectus, nor any sale made under this prospectus supplement or the
prospectus shall, under any circumstances, create any implication that there has
been no change in our affairs since the date of this prospectus supplement or
that the information contained or incorporated by reference is correct as of any
time subsequent to the date of such information.
TABLE OF CONTENTS Page
Prospectus Supplement
Financial Information........................................................S-1
Gold Prices and Exchange Rates...............................................S-1
Summary ....................................................................S-2
Risk Factors................................................................S-11
Special Note Regarding Forward-Looking Statements...........................S-21
The Acquisition.............................................................S-22
The Bogoso Property.........................................................S-33
Use of Proceeds.............................................................S-44
Price Range of Common Shares................................................S-45
Dividend Policy.............................................................S-46
Description of the Convertible Debentures...................................S-46
Description of the Common Shares............................................S-58
Description of the Warrants.................................................S-58
Certain United States Federal Income Tax Considerations.....................S-59
Certain Canadian Federal Income Tax Considerations..........................S-65
Plan of Distribution........................................................S-67
Experts ...................................................................S-69
Legal Matters...............................................................S-70
Glossary of Terms...........................................................S-70
Index to Financial Statements...............................................S-71
Prospectus
Available Information..........................................................2
Enforcement of Certain Civil Liabilities.......................................3
Incorporation of Certain Documents by Reference................................3
Canadian Prospectus............................................................4
Special Note Regarding Forward-Looking Statements..............................4
Reporting Currency and Financial Information...................................4
The Company....................................................................5
Risk Factors...................................................................5
Use of Proceeds...............................................................13
Ratio of Earnings to Fixed Charges............................................13
Description of Share Capital..................................................15
Description of Warrants.......................................................17
Description of Convertible Debt Securities....................................17
Plan of Distribution..........................................................28
Experts.......................................................................29
Legal Matters.................................................................29
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FINANCIAL INFORMATION
Since May 1992, our reporting currency has been the United States
dollar. Historically, however, we have raised a substantial amount of our equity
capital in Canadian dollars through offerings in Canada.
Financial information and the financial statements have been prepared
in accordance with generally accepted accounting principles in Canada ("Canadian
GAAP"). Differences between generally accepted accounting principles in the
United States ("U.S. GAAP") and Canadian GAAP are explained in the notes to our
financial statements, in the notes to Bogoso Gold Limited's financial statements
and in the notes to the pro forma financial information set forth in this
prospectus supplement.
All amounts in this prospectus supplement and the accompanying
prospectus or incorporated by reference herein or therein are expressed in
United States dollars, unless otherwise indicated.
References to "Cdn." are to Canadian dollars.
GOLD PRICES AND EXCHANGE RATES
The high and low closing trading price of gold, as provided by the New
York Commodities Exchange ("COMEX"), for the year ended December 31, 1998 were
$314.50 and $274.60, respectively. The closing trading price per ounce of gold
quoted by the COMEX on August 12, 1999 was $261.70. See "Risk Factors--Declines
in the price of gold have an adverse effect on our stock price and business
plan."
S-1
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SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS SUPPLEMENT OR IN THE PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF
THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE DEBENTURES OR
THE UNITS. YOU SHOULD READ THE ENTIRE PROSPECTUS SUPPLEMENT AND PROSPECTUS
CAREFULLY AND THE FINANCIAL STATEMENTS AND THE RELATED NOTES INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. YOU SHOULD ALSO
CONSIDER CAREFULLY THE INFORMATION SET FORTH UNDER THE CAPTIONS "RISK FACTORS"
AND "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
THE COMPANY
Golden Star Resources Ltd. ("Golden Star," the "Company" or "we") is an
international gold and diamond exploration and development company with a
diverse portfolio of projects, and a 30% non-operating equity interest in the
Omai mine in Guyana. The proposed acquisition (the "Acquisition") of Bogoso Gold
Limited ("BGL") referred to below represents a major shift in our business
strategy from exploration and development into gold production as a mine
operator. Prior to the Acquisition, our core focus has been on the acquisition,
exploration and development of gold and diamond projects and, if appropriate,
the execution of partnership arrangements with major mining companies to develop
and operate mines. We currently have projects in various stages of advancement
in Guyana, French Guiana (through our approximately 71% owned publicly-traded
subsidiary, Guyanor Ressources S.A.), Suriname and Brazil in South America, and
in Ivory Coast and Kenya in Africa.
THE ACQUISITION
BGL is the owner of an operating gold mine and related assets (the
"Bogoso Property") located on the Ashanti Trend in the Republic of Ghana. The
outstanding common shares of BGL (the "BGL Shares") are now owned as follows:
o The Government of Ghana (10%)
o A consortium of banks (the "Banks") (90%)
The Banks acquired their ownership interest in the BGL Shares in
exchange for a portion of the debt owed to them by BGL. BGL owes a total of
approximately $33.6 million (the "BGL Debt") to certain of the Banks. See "The
Acquisition--The Acquisition Agreement--Overview." The Acquisition involves the
purchase of the BGL Shares owned by the Banks and all of the BGL Debt by us and
Anvil Mining NL, a public exploration and development company whose shares are
listed on the Australian Stock Exchange ("Anvil"). The BGL Debt consists of
approximately $28.3 million of interest bearing debt plus accrued interest and
$5.3 million of shareholder advances ("Shareholder Advances") made to BGL by one
of the Banks. The Government of Ghana is entitled to receive approximately
$460,000 of the Shareholder Advances to be repaid by BGL. The remaining BGL Debt
will be repaid by BGL 100% to us and Anvil.
The Acquisition Agreement requires our company and Anvil to pay the
Banks an initial purchase price of $12 million on the day (the "Acquisition
Date") that we complete the Acquisition and, if we commence commercial
production from sulphide mineralized material at the Bogoso Property in the
future, an additional payment of $5 million on the first anniversary of
such commencement. The Banks subsequently agreed, subject to the approvals of
their respective boards of directors, to reduce the initial purchase price from
$12 million to $6.5 million. In addition, we and Anvil agreed to pay the Banks
at a later date an additional top-up payment (the "Top-Up
S-2
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Payment"). The Top-Up Payment will be equal to 183,333 multiplied by the amount,
if any, by which the average daily price of gold between the Acquisition Date
and the top-up payment date exceeds US$255 per ounce, up to a maximum of $10
million. Irrespective of the price of gold, if we and Anvil acquire an
additional minable ore reserve in Ghana that can be processed at BGL's
facilities equivalent to at least 50,000 ounces of gold, we and Anvil will pay
the Banks a non-refundable payment of $2 million that will be applied against
any Top-Up Payment that may become payable. See "The Acquisition--The
Acquisition Agreement--Purchase Price."
Assuming the completion of the total offering covered by this
prospectus supplement, and without giving effect to the exercise of the
Warrants, we expect to receive net proceeds, after deducting approximately $1.3
million for agency fees and offering expenses, of approximately $6.2 million.
Any remaining cash requirements for the $12 million (or $6.5 million) initial
purchase price for the acquisition will be funded out of working capital. To the
extent that the net proceeds of this offering are less than $6.5 million, we
intend to borrow the balance of the initial purchase price for the Bogoso
Property under a credit facility (the "Credit Facility").
On completion of the Acquisition, the BGL Shares and BGL Debt will be,
directly or indirectly, owned as follows:
% of BGL Shares % of BGL Debt
--------------- -------------
Golden Star 70% 77.8%
Anvil 20% 22.2%
The Government of Ghana 10% Nil
The Acquisition represents a major shift in our business strategy.
Prior to the Acquisition, we have historically operated as an exploration and
development company rather than a production company. The Acquisition represents
our initial move into mine operations. We are also pursuing other mining
opportunities including, without limitation, opportunities within Ghana.
We believe that we enhance our financial and operational flexibility by
expanding our production activities through selective acquisition of producing
mines. The enhanced cash flows and liquidity provided by production activities
can be used to cover debt service, operations and development costs while we
consolidate and rationalize our exploration and development activities. We
intend to continue to focus primarily on the gold and diamond sectors, our
historical areas of expertise, within focused geographic areas to achieve
synergies and economies of scale across separately acquired businesses.
As discussed in more detail under the captions "The Bogoso
Property--Reserves and Mineralized Material," we currently estimate that BGL's
mining operations have a life of approximately 12 months based upon existing
reserves of oxide and transition ore at current rates of production. Existing
mineralized material, if converted to reserves at historical conversion rates,
would be expected to extend the existing mine life by up to 8 months, and
sub-grade stockpile material is expected to be sufficient for a further six
months of production, for total anticipated mine life of up to 26 months,
effective March 31, 1999. During this time, we currently anticipate that cash
flow from operations will be sufficient to fund the operating and exploration
costs of the Bogoso Property, our debt service obligations on the Debentures and
on the Credit Facility, if any.
S-3
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BGL also has existing sulphide mineralized material of approximately
10.3 million tonnes grading 3.3 grams gold per tonne. While the type of mineral
process used by previous owners of the BGL Property to process sulphide ore at
BGL proved unsuccessful, we intend to re-examine the feasibility of processing
the sulphide mineralized material using technology currently used in other
mining operations on similar sulphide mineralized material on the Ashanti Trend.
We are also considering various other transactions that offer the
potential to enhance our operations and financial flexibility at the Bogoso
Property. In particular, we are exploring other mining opportunities in the
region of the Bogoso Property that would provide us with the opportunity to
extend the mine life of the Bogoso Property.
RECENT DEVELOPMENTS
LIQUIDITY AND CAPITAL RESOURCES
As at June 30, 1999, we held cash and short term investments of
approximately $0.9 million as compared to cash and short term investments of
$11.0 million as at June 30, 1998 and $7.4 million as at December 31, 1998. The
June 30, 1999 cash balance excludes $2.2 million of cash provided as a deposit
to a lending institution as credit support for a letter of credit issued by such
lending institution for a $2.0 million deposit for the Acquisition. The Banks
may draw on the $2.0 million letter of credit and retain the $2 million if we
breach our obligations under the acquisition agreement for the purchase of the
Bogoso Property. The letter of credit is cancelable only in limited
circumstances. If the Acquisition is not completed and we lose our deposit, our
ability to continue as a going concern could be materially and adversely
affected. See "Risk Factors--We currently lack adequate liquidity and capital
resources."
We currently anticipate consolidated total expenditures of $2.9 million
for the balance of 1999, before giving effect to the Acquisition or costs
relating to the Acquisition and to this offering, with consolidated net
expenditures of $2.8 million after recoveries from joint venture partners and
other working capital changes.
Based on current gold prices of approximately $256, revenues from the
Bogoso Property are anticipated to be sufficient to cover all operating and
capital costs for BGL. Cash flow from the Bogoso Property in excess of operating
and capital costs will be used to pay interest and principal on the BGL Debt
purchased by us and Anvil. Any remaining cash will be distributed to us through
dividends on BGL common shares. We will receive all of the interest and
principal distributions from BGL until we recover the initial purchase price
plus all associated acquisition and financing costs incurred by us, including
any purchase price adjustment for the acquisition of the Bogoso Property. Based
on current gold prices, cash distributions to us from Bogoso are expected to be
sufficient to cover the interest on the Debentures and to fund Golden Star's
other operating requirements for at least the next 12 months.
If all of the necessary approvals from the Government of Ghana are not
provided or the Acquisition is not completed, although we will retain 50% of the
offering proceeds for working capital, we will need to seek alternative sources
of financing to continue to implement our business strategy and fund our
exploration and development activities. To the extent we are unable to secure
such additional financing, our ability to continue as a going concern could be
materially and adversely affected. See "Risk Factors--We currently lack adequate
liquidity and capital resources."
S-4
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MANAGEMENT CHANGES
Following completion of the Acquisition, Mr. James Askew, the President
and Chief Executive Officer of our company, will become Chairman of BGL's Board
of Directors and Mr. Peter Bradford, the current Managing Director of Anvil,
will become Managing Director of BGL. Mr. Colin Smith, formerly General Manager
of Ashanti Goldfield's Obuasi mine, will continue in his role as a consultant to
BGL.
We also made important changes in our management in late 1998 and 1999.
Mr. Askew was appointed our President and Chief Executive Officer on March 8,
1999. Prior to joining us, Mr. Askew was President and Chief Executive Officer
of Rayrock Resources, Inc. from September 1998 to March 1999. From 1986 to 1996,
Mr. Askew served as President and Chief Executive Officer of Golden Shamrock
Mines, Ltd. Before being acquired by Ashanti Goldfields Limited in October 1996,
Golden Shamrock operated four mines, including two mines in Ghana, and had a $20
million annual exploration budget. Mr. Pierre Gousseland, Chairman of the
Company since January 1, 1998, acted as Chief Executive Officer during the
interim period following Mr. David Fennell's resignation as President and Chief
Executive Officer on October 27, 1998. In addition, our current Chief Financial
Officer will resign effective August 31, 1999. Our Controller and Chief
Executive Officer have begun to, and will continue to, assume responsibility for
most of the functions now carried out by our Chief Financial Officer, allowing
for an internal succession to the latter's position.
GROSS ROSEBEL SCOPING STUDY
On August 5, 1999 we announced results of an independently conducted
scoping study for the potential development of a 5,000 tonne per day heap leach
operation at the Gross Rosebel project in Suriname which is 50% held by Golden
Star and 50% by Cambior Inc. ("Cambior"), manager and operator of the project
under the existing agreement with Golden Star. We updated the existing block
model prepared by Cambior to reflect a $200 and a $250 gold price as well as
appropriate heap leach operating costs and cutoff grades. The resulting estimate
of mineralized material (equivalent to measured and indicated resources under
Canadian and Australian definitions) based on a $200 gold price is approximately
9.8 million tonnes at a grade of 2.4 grams gold per tonne, including 10% mining
dilution, with a stripping ratio of 1.4 tonnes of waste per tonne of mineralized
material. The resulting estimate of mineralized material based on a $250 gold
price is approximately 26.8 million tonnes at a grade of 1.7 grams gold per
tonne, including 10% mining dilution, with a stripping ratio of 1.6 tonnes of
waste per tonne of mineralized material. In both cases, over 97% of the revised
mineralized material represents soft rock material.
On completion of both models, conceptual mine designs were created
assuming an average gold price of $250 throughout the life of each operation. In
the case of the $200 model, this resulted in a six-year mine life. However, it
also included a significant safety margin should the gold price drop below $250
during the life of the operation. In the case of the $250 model, this resulted
in a 16-year mine life.
Messrs. John Danio PE, an independent mining consultant, and Herbert
Osborne, an independent metallurgical consultant, prepared the scoping study on
the basis of the revised estimates of mineralized material, previous
metallurgical test work results and site visits. The project would utilize
conventional open pit mining techniques performed by a mining contractor. Given
the tropical environment at the Gross Rosebel property, the project budget
includes the installation of rain covers over the heaps to control water
balances. The key elements of the process plant contemplate a processing
capacity of up to 10,000 tonnes of mineralized material per day to accommodate
possible production increases.
S-5
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In both cases, total estimated capital costs for a 5,000 tonne per day
heap leach operation at Gross Rosebel are approximately $27 million, including
costs of a feasibility study, construction costs, owner's cost, a 10%
contingency allowance and necessary working capital. Estimated total operating
costs, including royalties, for the life of a mine based on the $200 and $250
per ounce mineralized material estimates are, respectively, less than $140 and
$165 per ounce. Total costs, including capital, for the life of a mine under
both scenarios are estimated to be less than $190 per ounce.
The scoping study indicates the potential for commercial development of
Gross Rosebel as a smaller, relatively high grade, heap leach gold operation,
even at current gold prices. It is, however, a preliminary study and more work
is required before a final feasibility study can be commenced, including further
agglomeration test work, load permeability tests and further heap design, water
balance, and solution management studies. Golden Star has apprised Cambior of
the study and its results and discussions are underway between the parties
regarding the best approach to advance the project in light of the scoping
study. Grassalco, the Surinamese state mining company, has an option to acquire
a 20% interest in Gross Rosebel and will be informed of the study and any
further evaluation work.
Mineralized material does not qualify under the United States
Securities and Exchange Commission standards as being commercially minable until
further drilling, metallurgical work and other economic and technical
feasibility factors based upon this work are resolved. Mineralized material is
reported only if the potential exists for reclassification to reserves following
additional drilling and/or final technical, economic, and legal factors have
been determined for the project.
RIO TINTO JOINT VENTURE
Through our 71% owned subsidiary, Guyanor Ressources S.A., we have
entered into a joint venture with Rio Tinto Mining and Exploration Limited with
respect to all diamond exploration and development conducted in French Guiana.
Under the terms of the agreement, Rio Tinto has an option to earn a 70%
participating interest by funding exploration and development expenditures to a
total of $17 million or by having reached a decision to commence with the
development and mining of diamonds in French Guiana, whichever first occurs. As
part of its total expenditure commitments, Rio Tinto must complete a minimum
expenditure of $750,000 by the first anniversary of the agreement and incur
expenditures of not less than $3.75 million by the fifth anniversary of the
agreement.
RESULTS OF OPERATIONS
We incurred a loss for the second quarter of 1999 totaling $4.0 million
or 0.13 per share, compared to $1.2 million or $0.04 per share during the second
quarter of 1998. During the second quarter of 1999, we recorded property
abandonment charges and write-downs of $3.3 million compared to nil for the
similar period of last year.
For the six months ended June 30, 1999, we recognized a net loss of
$4.3 million or $0.14 per share, compared to a loss of $1.9 million or $0.06 per
share for the similar period in 1998. The increased loss in 1999 is primarily
attributable to the increased property writedowns in 1999 of $3.3 million offset
by decreased general and administrative expenditures.
BUSINESS STRATEGY
Our business strategy is to pursue, by way of exploration, development
and acquisition, significant interests in gold and diamond mines that generate
shareholder value in a low gold price
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environment. Our business strategy is dependent on the availability of adequate
capital and is comprised of the following elements:
o MERGERS AND ACQUISITIONS. In view of the current gold market environment, we
intend to focus on transactions that offer the potential to provide cash or cash
flows. Such transactions will be evaluated based on the then prevailing gold
price. We continue to pursue new opportunities and may, if warranted, make
selective acquisitions, particularly when such acquisitions complement our shift
toward emphasizing production activities. Various transactions being considered
include merging with other companies and acquisitions of operating mines, such
as the Bogoso Property.
o JOINT VENTURES WITH MAJOR MINING COMPANIES. We intend to continue to leverage
our capital by entering into partnership arrangements with major mining
companies that have the technical skills and financial resources to explore and
develop existing mineral exploration properties. This strategy enables us to
transfer a portion of the business and financial risks associated with
particular projects to our partners and, therefore, minimize our expenditures.
Our recently announced agreement with Rio Tinto is an example of this strategy.
o CONSOLIDATE EXPLORATION AND DEVELOPMENT ACTIVITIES. We plan to continue to
rationalize our existing portfolio of exploration and development properties,
advancing only the most promising projects and generally reducing general and
administrative costs wherever feasible. We also intend to evaluate our most
advanced projects to determine possible development scenarios using the existing
gold price. To preserve financial resources, early and intermediate stage
exploration and development projects have been or are being placed on care and
maintenance.
THE OFFERING
Use of Proceeds........................... We intend to use approximately $6.5
million of the net proceeds from
this offering, together with
existing working capital, to
finance the Acquisition referred to
in this prospectus supplement. If
we raise less than $6.5 million in
net proceeds from this offering, or
if we are unable to reduce the
initial purchase price of the
Bogoso Property to approximately
$6.5 million from $12 million, we
intend to borrow the balance of the
initial purchase price for the
Bogoso Property under the Credit
Facility. See "Use of Proceeds."
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Escrow Arrangements; Return of
Purchase Price........................ Fifty percent of this offering is
contingent upon the closing of the
Acquisition. Upon the closing of
this offering, the securities and
50% of the gross proceeds will be
placed in escrow pending completion
of the Acquisition and the remaining
50% of the proceeds will be directly
delivered to us. If we do not
complete the acquisition by December
10, 1999, then (1) the escrowed
proceeds from the sale of the Units,
plus interest thereon, less any
Canadian withholding taxes, will be
returned to you, (2) the escrowed
proceeds from the sale of the
Debentures will be delivered to us
and all of the Debentures will be
delivered to you, and we will then
be required to repurchase 50% of the
principal amount of the Debentures
from each of you pursuant to a
special mandatory redemption and (3)
50% of the Units and 50% of the
four-year warrants (the "Four-Year
Warrants") will be delivered to you
and will remain outstanding. See
"The Acquisition--The Acquisition
Agreement--Conditions for Closing"
and "Use of Proceeds--Escrow
Arrangements" and "Description of
the Debentures--Special Mandatory
Redemption."
Broker Warrants........................... As part of the compensation payable
to the agent in connection with
this offering, and assuming the
completion of the total offering
covered by this prospectus
supplement, we will issue to the
agent (1) upon completion of this
offering, common share purchase
warrants to purchase 380,825 common
shares and (2) upon completion
of the Acquisition, common share
purchase warrants to purchase an
additional 380,825 common shares.
See "Plan of Distribution."
Exchange Listings for Common
Shares................................ Our common shares trade on the
American Stock Exchange under the
symbol "GSR" and on the Toronto
Stock Exchange under the symbol
"GSC."
THE DEBENTURES
Debentures Offered(1)..................... $4,155,000 aggregate principal
amount of 7.50% Subordinated
Convertible Debentures due 2004.
Maturity.................................. August 24, 2004.
Interest.................................. 7.50% per annum on the principal
amount, payable semi- annually in
arrears in cash on February 15 and
August 15 of each year, commencing
on February 15, 2000.
- ------------------------------------
(1) Does not include up to $2,000,000 principal amount of Debentures plus
Four-Year Warrants subject to an over-allotment option granted to the
agent by us. See "Plan of Distribution."
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Conversion Rights......................... The Debentures will be convertible
into common shares of our company
at any time, at the conversion
price of $0.70 per share, subject
to adjustment (approximately 1,429
common shares per $1,000 principal
amount of Debentures). Holders of
Debentures called for redemption
will be entitled to convert the
Debentures up to and including, but
not after, the date fixed for
redemption.
Four-Year Warrants........................ Each $1,000 principal amount of
debentures will entitle the holder
to 200 Four-Year Warrants. Each
Four-Year Warrant entitles the
holder to purchase one common share
at a price of $1.50 until August 24,
2001, and $1.75 for the remaining
two years until August 24, 2003.
Subordination............................. The Debentures are subordinated to
our present and future Senior
Indebtedness (as defined below).
The Debentures are also effectively
subordinated in right of payment to
all indebtedness and other
liabilities of our subsidiaries. As
of June 30, 1999, the aggregate
amount of outstanding consolidated
Senior Indebtedness of our company
was approximately $2.7 million. As
of June 30, 1999, our subsidiaries
owed approximately $0.9 million of
indebtedness. The indenture will
not restrict the incurrence of
Senior Indebtedness or other
indebtedness by us or any of our
subsidiaries.
Optional Redemption....................... The Debentures are not redeemable
before August 24, 2002. The
Debentures shall be redeemable at
our option at the redemption prices
set forth herein, plus any accrued
interest on and after August 24,
2002 if the last reported Market
Price (as defined below) of our
common shares as reported on the
close of business for any 20
consecutive trading days ending not
more than five business days before
the giving of notice of such
redemption is at least 125% of the
conversion price. See "Description
of the Convertible
Debentures--Redemption --Optional
Redemption."
Additional Amounts and Redemption We will pay Additional Amounts (as
for Taxation Reasons defined below), subject to certain
exceptions, in order that the
holders of the Debentures receive
the full amount of the principal,
premium, if any, and interest
specified therein without deduction
for or on account of Canadian
withholding taxes. In the event
that we must pay Additional
Amounts, the Tax Affected
Debentures (as defined below) will
be redeemable at our option, in
whole but not in part, at 100% of
the principal amount thereof, plus
any accrued interest to the
redemption date (together with any
Additional Amounts payable in
respect of Canadian withholding
taxes).
Exchange Listing for Debentures........... We will use our best efforts to
list the Debentures on a stock
exchange in Canada.
S-9
<PAGE>
THE UNITS
Units(1) ................................. Each Unit consists of one Common
Share and one-half of one eighteen-
month warrant (the "Eighteen-Month
Warrant," and, together with the
Four-Year Warrants, the "Warrants")
at no additional cost. The price per
unit is $0.50. Each whole
Eighteen-Month Warrant entitles the
holder to purchase one common share
for a price of $0.70 for a period of
18 months after the closing of this
offering.
Common Shares Outstanding
Following the Offering................ 36,561,231 shares, excluding
5,723,150 shares to be reserved for
issuance upon exercise of Warrants
issued to purchasers of common
shares and warrants held by the
lender under the Credit Facility.
This amount excludes 3,907,924
shares to be reserved for issuance
pursuant to other warrants and
employee benefit and stock option
plans.
RATIO OF EARNINGS TO FIXED CHARGES
We have not had earnings as described in Rule S-X Item 503 for any of the
last five years. As such we have had a deficiency in the ratio of earnings to
fixed charges as follows:
Ratio of Earnings
to Fixed Charges
Deficiency
-----------------
June 30, 1999 $ 12,000
1998 $ 36,000
1997 $ 22,000
1996 $ 189,000
1995 $ 8,000
1994 $ --
----------------------
Our head office is located at 1660 Lincoln Street, Suite 3000, Denver,
Colorado 80264-3001, and our registered and records office is located at 19th
Floor, 885 West Georgia Street, Vancouver, British Columbia V6C 3H4. The main
telephone number of our head office is (303) 830-9000.
- ------------------------------------
(1) Does not include up to 4,000,000 Units subject to an over-allotment option
granted to the agent by us. See "Plan of Distribution."
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<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS AND THE RISKS SET
FORTH IN THE ACCOMPANYING PROSPECTUS AS WELL AS THE OTHER INFORMATION CONTAINED
OR INCORPORATED BY REFERENCE INTO THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS BEFORE PURCHASING THE DEBENTURES OR THE UNITS.
WE CURRENTLY LACK ADEQUATE LIQUIDITY AND CAPITAL RESOURCES.
We have limited financial resources. To date, and for the reasonably
foreseeable future, our existing exploration and development activities have not
generated, and are not expected to generate, substantial cash flows.
As at June 30, 1999, we held cash and short term investments of
approximately $0.9 million as compared to cash and short term investments of
$11.0 million as at June 30, 1998 and $7.4 million as at December 31, 1998. The
June 30, 1999 cash balance excludes $2.2 million of cash provided as a deposit
to a lending institution as credit support for a letter of credit issued by such
lending institution for a $2.0 million deposit for the Acquisition. The Banks
may draw on the $2.0 million letter of credit and retain the $2 million if we
breach our obligations under the acquisition agreement for the purchase of the
Bogoso Property. The letter of credit is cancelable only in limited
circumstances. If the Acquisition is not completed and we lose our deposit, our
ability to continue as a going concern could be materially and adversely
affected.
The execution of our business strategy going forward will require
significant expenditures, including debt service on the Debentures and, to the
extent that the net proceeds from this offering are less than $6.5 million or we
are unable to reduce the initial purchase price to $6.5 million from $12
million, on the Credit Facility. Following the Acquisition, such expenditures
may exceed revenues and free cash flows generated by BGL and our other
operations.
Although we will retain 50% of the gross proceeds of this offering if
we do not complete the Acquisition, we would need to pursue other capital
raising activities. As stated in Note 3 to our consolidated financial statements
for the fiscal year ended December 31, 1998 incorporated by reference in this
prospectus supplement and in our auditors' report with respect to the financial
statements, the failure to raise additional capital could materially and
adversely affect our operations and our ability to continue as a going concern.
The current low world market price of gold adversely affects our
ability to obtain financing and therefore our abilities to develop our current
portfolio of properties. If these conditions persist for an extended period of
time, we may, in the future, be unable to continue our exploration or
development programs and fulfill our obligations under our agreements with our
partners or under our permits and licenses. We cannot assure you that in the
future we will be able to obtain adequate financing on acceptable terms. If we
are unable to obtain such additional financing, we may need to delay or
indefinitely postpone further exploration and development of our properties. As
a result we may lose our interest in some of our properties and may be forced to
sell some of our properties.
OUR COMMON SHARES MAY BE DELISTED.
We have been notified by the American Stock Exchange that we currently
do not meet certain of its continued listing guidelines and that our common
shares may be delisted. Specifically, the American Stock Exchange has identified
the fact that (i) we have sustained losses in each of the past five fiscal years
accompanied by operating cash outflows, (ii) if we were subject to U.S. GAAP, we
would have received a going concern opinion from our auditors for the fiscal
year ended December
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<PAGE>
31, 1998, and (iii) our stock price has recently been trading below $1.00. The
American Stock Exchange has determined to continue our listing at least until
November 15, 1999, when they will perform a further review of our financial
condition following the filing of our Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1999. At that time, we expect to have
completed the Acquisition, which in turn we expect will have a positive impact
on our financial condition. However, even if we complete the Acquisition, we
cannot assure you that the American Stock Exchange will not determine to delist
us. If we do not complete the Acquisition it is likely that our common shares
would be delisted.
In connection with the Credit Facility, we issued 1,500,000 common
share purchase warrants to the Lender. We are required to list the shares
underlying the warrants with at least one of the American Stock Exchange, the
New York Stock Exchange or the Nasdaq National Market or Nasdaq Smallcap Market.
If our common shares are delisted from the American Stock Exchange before the
earlier of (I) the sale of all of the shares underlying the warrants or (ii)
June 9, 2003, we will endeavor to list the shares on one of the other acceptable
exchanges. However, if our common shares are not accepted for listing on one of
the other exchanges, we will be required to pay a cash penalty to the Lender
equal to 3% per month of the aggregate value of the shares underlying the
Lender's warrants. In addition, if we were required to pay this penalty for at
least six months, the Lender could require us to repurchase its warrants or
common shares at a premium over the fair market value of our common shares. If
we were required to pay this cash penalty for several months or to repurchase
the Lender's warrants or common shares, it would have a negative impact on our
cash flow and could prevent us from meeting certain other of our financial
obligations. See "The Acquisition--The Credit Facility--Share Registration" and
"--Default Payments and Redemption."
If our common shares are delisted and are not accepted for listing on
another exchange, trading in our common shares in the U.S., if any, might then
be conducted in the over-the-counter market on an electronic bulletin board, or
in what are commonly referred to as the "pink sheets." There would likely be a
less active trading market for our common shares and you would then find it more
difficult to sell, or to quickly and accurately obtain pricing information for,
our common shares.
DECLINES IN THE PRICE OF GOLD HAVE AN ADVERSE EFFECT ON OUR STOCK PRICE AND
BUSINESS PLAN.
We described certain risks associated with fluctuating gold prices
under "Risk Factors--Risks Associated With The Fluctuation of Gold Prices" in
the accompanying prospectus. The price of our common shares and our business
plan have been and may in the future be significantly adversely affected by
recent or sustained declines in the price of gold. Gold prices often vary widely
and are affected by numerous factors beyond our control, such as the sale or
purchase of gold by various central banks and financial institutions, inflation
or deflationary conditions, fluctuation of the United States dollar and foreign
currencies, global and regional demand, and the political and economic
conditions of major gold-producing countries throughout the world. The weakness
of gold prices is illustrated in the following table which sets forth the
average of the daily closing price per ounce for gold for the periods indicated:
S-12
<PAGE>
Year Ended
January 1, 1999 December 31,
to ----------------------------------------------
August 12, 1999 1998 1997 1996 1995 1994
----------------------------------------------------------------------
$278.74 $294.30 $340.00 $388.00 $384.00 $384.00
At August 12, 1999, the closing price for gold was $261.70 per ounce.
WE CONTINUE TO EXPERIENCE SUBSTANTIAL LOSSES.
We have reported net losses of approximately $22.2 million in 1998,
$26.6 million in 1997, $7.8 million in 1996, $12.2 million in 1995 and $8.8
million in 1994. We expect to report a net loss in the current year and may
incur losses in the future. Future operating losses may make financing our
operations and our business strategy or raising additional capital difficult or
impossible, materially and adversely affecting our operations and our ability to
continue as a going concern.
THROUGH THE ACQUISITION, WE ARE SHIFTING OUR BUSINESS STRATEGY AWAY FROM MINERAL
EXPLORATION TOWARD AN EMPHASIS ON MINING OPERATIONS.
The Acquisition represents a shift in our business strategy toward
mining production rather than focusing on mineral exploration. We are also
currently pursuing other mining opportunities. We may not be successful in
implementing this shift in strategy. Any business acquired, including the Bogoso
Property, may be difficult to integrate into our existing operations or may not
perform as well as expected. If we are unable to successfully implement our
business strategy, this could have a material adverse effect on our financial
condition and results of operations.
Our shift in business strategy could strain our managerial, financial
and other resources. We also cannot assure you that this shift in business
strategy will not interfere with our existing operations. Following the
Acquisition, we intend to operate the Bogoso mine, a role in which we have
limited experience. The Acquisition will also demand substantial management
resources and the shifting of our management focus away from other business
concerns.
WE MAY NOT BE ABLE TO REDUCE THE PURCHASE PRICE FOR THE ACQUISITION.
Although the Banks agreed to reduce the initial purchase price from $12
million to $6.5 million, this agreement is subject to the approval of their
respective boards of directors. We can give no assurance that the approvals will
be given. If the approvals are not given, we and Anvil will remain bound by the
original $12 million initial purchase price. If the approvals are given and the
initial purchase price is reduced, we and Anvil will be required to pay at a
later date an additional payment (the "Top-Up Payment") to the Banks up to a
maximum of $10 million. The amount of the Top-Up Payment will depend on the
average daily price of gold between the Acquisition Date and the Top-Up Payment
date. The Top-Up Payment will exceed the $5.5 million reduction in the initial
purchase price if this average gold price exceeds $285 per ounce. See "The
Acquisition--The Acquisition Agreement--Purchase Price."
S-13
<PAGE>
WE MAY NOT BE ABLE TO EXTEND THE LIFE OF THE MINE BEYOND EXISTING RESERVES.
Existing oxide and transition ore reserves at the Bogoso Property are
expected to be sufficient to maintain feed to the processing mill for
approximately 12 months, effective March 31, 1999, and sub-grade stockpile
material is expected to be sufficient for a further 6 months of production.
While existing mineralized material, if converted to reserves at historical
conversion rates, is anticipated to extend mine life by up to a further 8
months, there is no assurance that such mineralized material will ever be
classified as reserves or will prove to be economic. In addition, the potential
to discover additional oxide mineralized material and establish reserves is
limited. Actual results from mining and processing existing resources of mill
feed may also differ materially from historical production rates and costs. Any
of these factors could result in our inability to generate sufficient cash flow
to cover our operating and exploration expenses on the Bogoso Property and to
service the Debentures and any amounts under the Credit Facility, which would
adversely affect our financial liquidity and results of operations.
THE TECHNOLOGY AND COST OF PRODUCTION OF SULPHIDE MINERALIZED MATERIAL AT THE
BOGOSO PROPERTY MAY PROVE INFEASIBLE OR UNECONOMIC TO WARRANT PROCESSING THE
MATERIAL.
While sulphide mineralized material exists on the Bogoso Property,
technology used by previous owners to process sulphide ore has proved
unsuccessful. While we intend to re-examine the feasibility of processing the
sulphide mineralized material using other proven technology, there can be no
assurance this would become feasible under any circumstances.
If we determine that mining of sulphide mineralized material is
feasible, we would need to establish sufficient reserves of sulphide ore to
justify establishing such an operation. There is no assurance that such reserves
exists, or can be established. Furthermore, mining and processing of sulphide
ore would require significant amounts of capital necessary for the design and
construction of such an operation. We do not currently have access to such
capital and funding may be unavailable, whether from internal or external
sources, in the necessary amounts and on acceptable terms, or at all.
CASH FLOWS FROM OPERATION OF THE BOGOSO PROPERTY MAY BE INSUFFICIENT TO MEET OUR
OBLIGATIONS.
Cash flows from operation of the Bogoso Property may be insufficient to
cover future operating and exploration costs at the mine and to service the
Debentures and any amounts owing under the Credit Facility. In addition,
operating and exploration costs could be materially higher than previously
estimated. Insufficient cash flows at BGL or higher than expected costs could
result in a significant deterioration in our ability to conduct mining and
exploration activities as well as significant penalties under the Credit
Facility if drawn upon.
IF WE DO NOT COMPLETE THE ACQUISITION, WE WILL RETAIN 50% OF YOUR INVESTMENT AND
RETURN THE BALANCE TO YOU WITH INTEREST.
The completion of the Acquisition is dependent upon, among other
things, the receipt of all prior approvals of the Ghanaian government, a process
which could require several months to complete. Fifty percent of your investment
in this offering will be placed in escrow and will not be released until
immediately before the completion of the Acquisition to fund a portion of the
initial payment for the Bogoso Property. If we do not complete the Acquisition,
we will return to you your proportionate share of the escrowed proceeds from the
sale of the Units with interest, less any Canadian withholding taxes, and will
deliver to you your proportionate interest in 50% of the Units held in escrow.
The escrowed proceeds from the sale of the Debentures will be delivered to
S-14
<PAGE>
us, the Debentures will be released to you and we will be required to repurchase
50% of the principal amount of the Debentures (on a pro rata basis) pursuant to
a special mandatory redemption at a purchase price equal to the principal amount
of the Debentures being purchased, plus accrued and unpaid interest, and your
proportionate interest in 50% of the Four-Year Warrants held in escrow will be
returned to you. We will also retain 50% of the gross proceeds from the sale of
the Debentures and Four-Year Warrants and the Units. There can be no assurance
as to the duration of the governmental approval process or that we will
ultimately receive approval to complete the Acquisition. See "The
Acquisition--The Acquisition Agreement--Conditions for Closing" and "Description
of the Convertible Debentures--Special Mandatory Redemption."
WE MAY HAVE INSUFFICIENT FUNDS AVAILABLE TO SERVICE OUR OBLIGATIONS UNDER THE
DEBENTURES AFTER THE ANTICIPATED MINE LIFE AT THE BOGOSO PROPERTY EXPIRES.
We may experience difficulties in satisfying our obligations under the
Debentures because the mine life at the Bogoso Property is expected to be
shorter than the term of the Debentures. Currently, we anticipate the mine life
to be 26 months from March 31, 1999 while the term of the Debentures is five
years. If we are unable to extend the mine life beyond its anticipated
usefulness or are not successful in generating sufficient free cash flow from
other operations or sources, our ability to repay amounts outstanding under the
Debentures would be materially and adversely affected.
OUR OBLIGATIONS FOLLOWING THIS OFFERING MAY STRAIN OUR FINANCIAL POSITION AND
IMPEDE OUR BUSINESS STRATEGY.
After this offering, we will have a significant amount of indebtedness
under the Debentures and, potentially, the Credit Facility. This indebtedness
may have important consequences, including the following:
o increasing our vulnerability to general adverse economic and
industry conditions;
o limiting our ability to obtain additional financing to fund
future working capital, capital expenditures, operating and
exploration costs and other general corporate requirements;
o requiring us to dedicate a significant portion of our cash flow
from operations to make debt service payments, which would reduce
our ability to fund working capital, capital expenditures,
operating and exploration costs and other general corporate
requirements;
o limiting our flexibility in planning for, or reacting to, changes
in our business and the industry; and
o placing us at a disadvantage when compared to those of our
competitors that have less debt relative to their capitalization.
THE PAYMENT OF PRINCIPAL AND INTEREST ON OUR INDEBTEDNESS IS DEPENDENT ON THE
ABILITY OF OUR SUBSIDIARIES AND JOINT VENTURES TO MAKE DISTRIBUTIONS TO US.
We are a holding company that conducts a significant amount of our
operations through foreign (African and South American) subsidiaries and joint
ventures, and substantially all of our assets consist of equity in such
subsidiaries and joint ventures. Accordingly, we are and will be dependent on
our ability to obtain funds from our subsidiaries and joint ventures to service
our indebtedness, including the Debentures and the Credit Facility, if drawn
upon.
S-15
<PAGE>
PAYMENT OF PRINCIPAL AND INTEREST ON THE DEBENTURES IS JUNIOR IN RIGHT OF
PAYMENT TO EXISTING AND FUTURE SENIOR DEBT, AND EFFECTIVELY JUNIOR IN RIGHT OF
PAYMENT TO THE OBLIGATIONS OF OUR SUBSIDIARIES.
The Debentures will be unsecured and subordinated in right of payment
in full to all existing and future Senior Indebtedness of our company. As a
result of such subordination, in the event of a bankruptcy, liquidation or
reorganization of our company or upon acceleration of the Debentures due to an
event of default, our assets would be available to pay obligations on the
Debentures only after all Senior Indebtedness had been paid in full, and there
might not be sufficient assets remaining to pay amounts due on any or all of the
Debentures then outstanding. The Debentures are structurally subordinated to the
liabilities, including trade payables, of our subsidiaries.
The indenture governing the Debentures does not prohibit or limit the
incurrence of Senior Indebtedness or the incurrence of other indebtedness and
other liabilities by our company or our subsidiaries, and the incurrence of
additional indebtedness and other liabilities by us or our subsidiaries could
adversely affect our ability to pay our obligations on the Debentures. At March
31, 1999, we had approximately $2.5 million of outstanding consolidated Senior
Indebtedness and our subsidiaries had approximately $1.0 million of outstanding
indebtedness. We may from time to time incur additional indebtedness, including
Senior Indebtedness, and our subsidiaries may from time to time incur other
additional indebtedness and liabilities. See "Description of the
Debentures--Subordination" and "Use of Proceeds."
A COURT COULD TAKE ACTION DETRIMENTAL TO THE INTEREST OF HOLDERS OF THE
DEBENTURES.
The rights of the trustee under the indenture governing the Debentures
to enforce remedies are likely to be significantly impaired by the restructuring
provisions of applicable Canadian federal bankruptcy, insolvency and other
restructuring legislation if the benefit of such legislation is sought with
respect to our company. For example, both the Bankruptcy and Insolvency Act
(Canada) and the Companies' Creditors Arrangements Act (Canada) contain
provisions enabling an "insolvent person" to obtain a stay of proceedings
against its creditors and others and to prepare and file a proposal for
consideration by some or all of its creditors to be voted on by the various
other classes of its creditors. Such a restructuring proposal, if accepted by
the requisite majorities of the creditors and if approved by the court, would be
binding on persons (such as holders of the Debentures) who might not otherwise
be willing to accept it. Moreover, this legislation permits, in certain
circumstances, the insolvent debtor to retain possession and administration of
its property, even though it may be in default under the applicable debt
instrument.
The powers of the court under the Bankruptcy and Insolvency Act and
particularly under the Companies' Creditors Arrangements Act have ben exercised
broadly to protect a restructuring entity from actions taken by creditors and
other parties. Accordingly, it is impossible to predict if payments under the
Debentures would be made following commencement of or during such a proceeding,
whether or when the trustee could exercise its rights under the indenture or
whether and to what extent holders of the Debentures would be compensated for
any delays in payments, if any, of principal and interest.
IT MAY BE DIFFICULT TO RESELL THE DEBENTURES.
Prior to this offering, there has been no trading market for the
Debentures. We will use our best efforts to list the Debentures on an exchange
in Canada. However, we may not be successful. Although the agent has advised
us that it currently intends to make a market in the Debentures, it is not
obligated to do so and may discontinue such market making at any time without
notice.
S-16
<PAGE>
In addition, such market making activity will be subject to the limits imposed
by the Securities Act of 1933 and the Securities Exchange Act of 1934.
Accordingly, there can be no assurance that any market for the Debentures will
develop or, if one does develop, that it will be maintained. This would be
particularly true if we do not complete the Acquisition and only 50% of the
Debentures remain outstanding following the termination of the Acquisition. If
an active market for the Debentures fails to develop or be sustained, the
trading price of the Debentures could be materially adversely affected.
DIFFICULTIES IN PRESERVING RELATIONS WITH EMPLOYEES AT BGL COULD HAVE AN ADVERSE
EFFECT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Thirty-two percent of the staff at BGL currently work in the mining
department and all of the junior staff are members of the Ghana Mineworkers'
Union. The management at BGL are presently involved in the renegotiation of the
collective agreement covering the junior staff. In the event those or other
future staff members were to engage in a strike or other work stoppage because
of disagreement over the collective agreement or otherwise, we could experience
a significant disruption of our operations at the Bogoso Property and higher
ongoing labor costs, which could have a material adverse effect on our business,
financial condition and results of operations.
THE TAX IMPLICATIONS OF THE ACQUISITION ARE NOT FREE FROM DOUBT.
Although we have analyzed the tax implications of the acquisition of
the Bogoso Property and believe that there is no tax impact in Ghana, there can
be no assurance that the Government of Ghana will not reach a different
conclusion and assess a tax on the acquisition. If we were subject to taxation
on the acquisition by the Ghanaian government, it could materially and adversely
affect our cash flow projections.
WE ARE SUBJECT TO CHANGES IN THE REGULATORY ENVIRONMENT IN GHANA.
Our mining operations and exploration activities in Ghana will be
subject to extensive regulation governing licensing, development, production,
exports, taxes, labor standards, occupational health and safety, water disposal,
toxic substances, environmental protection, mine safety and other matters.
Compliance with these regulation increases the costs of planning, designing,
drilling, developing, constructing, operating and closing mines and other
facilities. We believe that BGL is currently in substantial compliance with
current laws and regulations. However, such laws and regulations are subject to
constant change. Amendments to current laws and regulations governing operations
and activities of mining companies or more stringent implementation or
interpretation thereof could have a material adverse impact on us, cause a
reduction in levels of production and delay or prevent the development our
expansion of the Bogoso Property.
Government regulations limit the proceeds from gold sales which may be
withdrawn from Ghana. Changes in regulations which increase these restrictions
would have a material adverse impact on us as the Bogoso Property will be our
principal cash generating asset.
WE ARE SUBJECT TO FLUCTUATIONS IN CURRENCY EXCHANGE RATES.
We conduct all of our exploration and development in countries other
than Canada and the United States. Much of our funding has historically been
through equity financing transactions completed in Canada and in Canadian
currency. We currently maintain all or the majority of our working capital in
U.S. dollars or U.S. dollar denominated securities and convert funds to foreign
currencies as payment obligations come due. In addition, we currently have
future obligations which
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<PAGE>
are payable in French francs and receivables collectible in French francs.
Finally, a significant portion of the operating costs at the Bogoso Property are
based on the Ghanaian currency, the Cedis. BGL is currently required to convert
only 20% of the foreign exchange proceeds that BGL receives from selling gold
into Ghanaian Cedis, but the Government of Ghana may require BGL to convert a
higher percentage of such sales proceeds into Ghanaian Cedis in the future.
We currently do not actively take steps to hedge against currency
exchange risks. Accordingly, we are subject to fluctuations in the rates of
currency exchange between the U.S. dollar and these currencies, and such
fluctuations may materially affect our financial position and results of
operations.
THE REGULATORY FRAMEWORK IN GHANA MAY DELAY THE COMPLETION OF THE ACQUISITION.
The Government of Ghana imposes close control over the ownership and
control of the shares and external debts of Ghanaian mining companies. We and
Anvil may not complete the Acquisition until the Acquisition has been approved
by the Minister of Mines and Energy and the Bank of Ghana. We have received the
necessary approvals for the acquisition of the BGL Shares, but have not yet
received the approval required from the Bank of Ghana for the acquisition of the
BGL Debt, and can give no assurance that such approval will be received in time
or at all.
THE GOVERNMENT OF GHANA HAS THE RIGHT TO PARTICIPATE IN THE OWNERSHIP AND
CONTROL OF BGL.
The Ghanaian government currently has a 10% carried interest in BGL.
The Ghanaian Government also has the right to acquire an additional 20% equity
interest in BGL for a price to be determined by agreement or arbitration. There
can be no assurance that the government will not seek to acquire an additional
equity interest in the mine, or as to the purchase price that the Government of
Ghana will pay for any additional equity interest. A reduction in our equity
interest could reduce our income or cash flows from BGL or the Bogoso Property
and amounts available for reinvestment or distribution. The Government of Ghana
also has the right to receive a special share of BGL that will entitle it to
receive notices of and attend but not vote at meetings of the BGL shareholders
and that will require the Government of Ghana to consent to certain
transactions. See "The Bogoso Property--Mining Regime."
OUR INSURANCE COVERAGE MAY BE INSUFFICIENT.
Although we maintain insurance in amounts which we believe to be
reasonable, this insurance may not cover the risks associated with our business.
We may also be unable to maintain insurance to cover these risks at economically
feasible premiums. Such insurance may not continue to be available or may not be
adequate to cover any resulting liability. Moreover, insurance against risks
such as environmental pollution or other hazards as a result of exploration and
production is not generally available to us or to other companies in the
industry on acceptable terms. We might also become subject to liability for
pollution or other hazards which we cannot insure against or which we may elect
not to insure against because of premium costs or other reasons. Losses from
such events may cause us to incur significant costs that could have a material
adverse effect upon our financial performance and results of operations.
WE HAVE HAD TO RESTATE ESTIMATES OF MINERALIZED INVENTORIES IN THE PAST.
We described certain risks and uncertainties inherent in estimating
reserves and mineralized inventories under "Risk Factors--Uncertainty of Reserve
and Other Mineralization Estimates" in the accompanying prospectus. In the past,
we have had to revise certain estimates we made in calculating
S-18
<PAGE>
mineralized inventory at two of our projects. Consequently, we prepared new
estimates and put controls in place to address past estimation methods. However,
we cannot assure you that revisions to our estimates will not be required in the
future.
REDUCED ESTIMATES OF RESERVES AND DELAYS IN DEVELOPMENT DUE TO RECENT DECLINES
IN THE PRICE OF GOLD.
We described certain risks associated with fluctuating gold prices
under "Risk Factors--Risks Associated With The Fluctuation of Gold Prices" in
the accompanying prospectus. In the past year some of these risks have
materialized because of a continued decline in world gold prices. Accordingly,
over the last year, we have reduced the estimates of our reserves on various
properties. These reductions reflect our decision to re-estimate our reserves
using significantly lower gold prices. If gold prices continue at current levels
or decline further we may initiate additional significant write-downs of these
reserves.
In addition, because of continued lagging gold prices we have postponed
development of the Gross Rosebel project. Should gold prices remain at their
current levels or decline further for an extended period, we may further
postpone development at Gross Rosebel.
RECENT DECLINES IN THE PRICE OF GOLD REQUIRE A HEDGING PROGRAM AGAINST GOLD
PRODUCTION AT THE BOGOSO PROPERTY.
Upon completion of the Acquisition, BGL intends to establish a hedging
program against the production of gold. Gold prices may decline further and the
implementation of any hedging program may not serve to protect adequately
against these declines. In addition, if unsuccessful, the costs of any hedging
program may further deplete BGL's financial resources.
Although the hedging program may protect us from a further decline in
the price of gold, it may also prevent us from benefiting fully from price
increases up to a specific level. For example, as part of the hedging program,
we may be obligated to sell gold at a price lower than the then-current market
price. This result may adversely affect our ability to generate sufficient cash
flow at a specified price level in order to pay any top-up payment.
THE PRICE OF GOLD MAY IMPACT THE PURCHASE PRICE FOR THE BOGOSO PROPERTY.
If the initial purchase price is reduced to $6.5 million, we and Anvil
will be required to make a Top-Up Payment to the Banks. The amount of the Top-Up
Payment depends on the average daily price of gold. Our company has agreed to
fund any Top-Up Payment that may become payable. We will be required to make a
non-refundable payment equal to 50% of the estimated Top-Up Payment one year
after the Acquisition Date based on the average daily gold price for the prior
year. If the average price of gold decreases substantially after that date, we
will have paid more money for the Bogoso Property than we might have otherwise
paid if the Top-Up Payment were made in full on the second anniversary of the
Acquisition Date.
WE HAVE EXPERIENCED SEVERAL MANAGEMENT AND PERSONNEL CHANGES.
We described certain risks associated with our dependence on key
personnel under "Risk Factors-Dependence On Key Personnel" in the accompanying
prospectus. Due to recent changes in our management structure adopted by the
Board of Directors in October 1998, certain key personnel referred to no longer
work for Golden Star. These include our former President and Chief Executive
Officer, David A. Fennell, who resigned in October 1998, and our former
Executive Vice President,
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Exploration, Adrian Fleming, who resigned in November 1998. James E. Askew was
appointed President and Chief Executive Officer on March 8, 1999, prior to which
time Pierre Gousseland served as Acting Chief Executive Officer. The functions
previously carried out by Mr. Fleming are now delegated to several of our other
employees. In addition, our current Chief Financial Officer will resign
effective August 31, 1999.
WE FACE POLITICAL RISKS IN FRENCH GUIANA.
French Guiana has no history or tradition of large-scale commercial
mining. Regulatory risk may increase as projects become more advanced and
applications are made for all of the various permits required to develop a
modern mining operation. This risk includes regulatory-related delays and/or
failures to receive required permits. French Guiana's mining tradition is
small-scale, alluvial gold mining, which began in 1855 and is reported to have
resulted in approximately 5.4 million ounces (175 tonnes) produced since. These
small-scale miners, called orpailleurs, often operate in or near the area being
explored by Guyanor as well as areas most other firms actively explore. Certain
groups of orpailleurs have organized and represent a political force locally
that has sought to gain exclusive preference to near-surface mineralization
throughout French Guiana, regardless of the legal rights of legitimate permit
holders under French law. The issues of orpailleurs preference to near-surface
mineralization is a political risk specific to French Guiana that could lead to
project delays and/or disputes regarding the rights to the near-surface portion
of commercial gold deposits in French Guiana.
YOU MAY BE SUBJECT TO ADVERSE TAX CONSEQUENCES IF WE ARE CLASSIFIED AS A PASSIVE
FOREIGN INVESTMENT COMPANY.
Under the United States Internal Revenue Code of 1986, we may be
classified as a passive foreign investment company (a "PFIC"). United States
shareholders of a PFIC are subject to certain adverse tax consequences, as
discussed below. The consequences can be mitigated, under certain circumstances,
if the United States shareholder makes a timely election to treat our company as
a "qualified electing fund" (a "QEF").
We have been advised by PricewaterhouseCoopers LLP that we should not
be treated as a PFIC with respect to shares purchased by United States
shareholders during the years 1993 through 1998, although we could potentially
be a PFIC with respect to shares acquired by United States shareholders prior to
1993. We also intend to engage PricewaterhouseCoopers LLP, or such other
advisor, in the future to analyze whether we are a PFIC in 1999 and subsequent
years and will continue to notify shareholders of the results of such future
analyses.
There can be no assurance, with or without giving effect to the
contemplated Acquisition, as to whether or not PricewaterhouseCoopers LLP, or
such other advisor, will conclude that we are a PFIC for such period. Moreover,
even if PricewaterhouseCoopers LLP, or such other advisor, concludes that we are
not a PFIC, its conclusion is not binding on the United States Internal Revenue
Service. Accordingly, it is possible that the PFIC rules will apply with respect
to the Debentures and Units purchased in this offering.
You are urged to consult your own tax advisor about the advisability of
making a QEF election with respect to our company and about the possibility of
crediting Canadian taxes paid against United States taxes payable. See "Certain
United States Federal Income Tax Considerations" in this prospectus supplement
and in the accompanying prospectus and "Market for the Registrant's Common
Equity and Related Stockholder Matters--Certain United States Income Tax
Considerations" in our
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Annual Report on Form 10-K for the year ended December 31, 1998, incorporated by
reference in this prospectus supplement and in the accompanying prospectus.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements that are not historical facts contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus are
forward-looking statements. Such forward-looking statements include statements
regarding:
o the timing, costs and terms of the Acquisition and the financing
of the Acquisition;
o the impact the Acquisition has on our future liquidity, cash
flows, financial requirements, operating results and capital
resources;
o the operational and financial performance of BGL following the
Acquisition;
o targets for gold production;
o the impact of our shift in business strategy;
o cash operating costs and expenses;
o percentage increases and decreases in production from our mines;
o schedules for completion of detailed feasibility studies and
initial feasibility studies;
o potential increases in reserves and production;
o the timing and scope of future drilling and other exploration
activities;
o expectations regarding receipt of permits and commencement of
mining or production;
o the factors set forth under the caption "Risk Factors" in this
prospectus supplement, the prospectus and in our Report on Form
10-K for the year ended December 31, 1998;
o anticipated recovery rates; and
o potential acquisitions or increases in property interests.
Factors that could cause our actual results to differ materially from
these statements include changes in gold prices, unanticipated grade recovery,
geological, metallurgical, processing, access, transportation of supplies, water
availability or other problems, results of current and future exploration
activities, results of pending and future feasibility studies, changes in
project parameters as plans continue to be refined, political, economic and
operational risks of foreign operations, joint venture relationships,
availability of materials and equipment, the timing of receipt of governmental
permits, capitalization and commercial viability, the failure of plant,
equipment or processes to operate in accordance with specifications or
expectations, accidents, labor disputes, delays in start-up dates, environmental
costs and risks, the outcome of acquisition negotiations and general domestic
and international economic and political conditions.
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These and other factors are discussed in "Risk Factors," "The
Acquisition," "The Bogoso Property," and "Recent Developments" in this
prospectus supplement and "Risk Factors" in the accompanying prospectus. You are
cautioned not to put undue reliance on forward-looking statements. We disclaim
any intent or obligation to update publicly these forward-looking statements,
whether as a result of new information, future events or otherwise.
THE ACQUISITION
OVERVIEW OF ACQUISITION
The Bogoso Property is an operating gold mine located in Ghana, a
country situated on the west coast of Africa. BGL, a Ghanaian company, owns the
Bogoso Property. The Government of Ghana owns 10% of the BGL Shares. A
consortium of Banks represented by the International Finance Corporation ("IFC")
owns 90% of the BGL Shares. BGL owes the BGL Debt of approximately $33.6 million
to two of the Banks. In the Acquisition, we and Anvil propose to acquire
directly or indirectly all of the BGL Shares owned by the Banks and all of the
BGL Debt. The BGL Debt consists of approximately $28.3 million of
interest-bearing debt plus accrued interest and $5.3 million of Shareholder
Advances made to BGL. The Government of Ghana is entitled to receive
approximately $460,000 of the Shareholder Advances to be repaid by BGL. We and
Anvil will be entitled to receive 100% of the remaining BGL Debt.
The Acquisition involves the payment of an initial purchase price on
the Acquisition Date and one or more additional subsequent payments if certain
events occur. We and Anvil originally agreed to pay the Banks an initial
purchase price of $12 million and an additional $5 million if we commence
commercial production from sulphide mineralized material at the Bogoso Property
in the future. However, subject to the approval of the respective boards of
directors of the Banks, the Banks subsequently agreed to reduce the initial
purchase price to $6.5 million and we agreed to pay an additional Top-Up Payment
to the Banks either if the average daily price of gold between the Acquisition
Date and the Top-Up Payment date exceeds $255 per ounce, or if we and Anvil
acquire in Ghana an additional minable ore reserve that can be processed at
BGL's facilities equivalent to at least 50,000 ounces of gold. See "The
Acquisition--The Acquisition Agreement--Purchase Price."
Assuming the completion of the total offering covered by this
prospectus supplement, and without giving effect to the exercise of the
Warrants, we expect to receive net proceeds, after deducting approximately $1.3
million for agency fees and offering expenses, of approximately $6.2 million.
The remaining cash requirements for the initial purchase price for the
Acquisition, including any purchase price adjustment, will be provided by
existing working capital. To the extent that the net proceeds of this offering
are less than $6.5 million, or we are unable to reduce the initial purchase
price to $6.5 million, we intend to borrow, or arrange for one of our affiliates
to borrow, the difference under the Credit Facility for purposes of paying the
initial purchase price.
PURPOSES AND EFFECTS OF THE ACQUISITION
On completion of the Acquisition, the BGL Shares and BGL Debt will be
owned directly or indirectly as follows:
% of BGL Shares % of BGL Debt
--------------- -------------
Golden Star 70% 77.8%
Anvil 20% 22.2%
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% of BGL Shares % of BGL Debt
--------------- -------------
The Government of Ghana 10% Nil
The Acquisition represents a major shift in our business strategy.
Prior to the Acquisition, we have historically operated as an exploration and
development company rather than a production company. The Acquisition represents
our initial move into mine operations. We are also pursuing other mining
opportunities including, without limitation, opportunities within Ghana.
We believe that we may enhance our financial and operational
flexibility by expanding our production activities through selective acquisition
of producing mines. The enhanced cash flows and liquidity provided by production
activities can be used to cover debt service, operations and development costs
while we consolidate and rationalize our exploration and development activities.
We intend to continue to focus primarily on the gold and diamond sectors, our
historical areas of expertise, within focused geographic areas to achieve
synergies and economies of scale across separately acquired businesses.
As discussed in more detail under the captions "The Bogoso
Property--Reserves and Mineralized Material," we currently estimate that BGL's
mining operations have a life of approximately 12 months based upon existing
reserves of oxide and transition ore at current rates of production. Existing
mineralized material, if converted to reserves at historical conversion rates,
would be expected to extend the mine life by up to 8 months, and sub-grade
stockpile material is expected to be sufficient for a further 6 months of
production, for a total anticipated mine life of up to 26 months, effective
March 31, 1999. During this time, we currently anticipate that cash flow from
operations will be sufficient to fund the operating and exploration costs of the
Bogoso Property, the debt service obligations on the Debentures and on the
Credit Facility, if any. On a longer term basis, we hope to examine the
feasibility of introducing a new sulphide mining and processing operation for
the sulphide mineralized material.
We are also considering various other transactions that offer the
potential to enhance our operations and financial flexibility at the Bogoso
Property. In particular, we are exploring other mining opportunities in the
region of the Bogoso Property that would provide us with the opportunity to
extend the life of the Bogoso Property. See "The Bogoso Property--Reserves and
Mineralized Material."
HEADS OF AGREEMENT WITH ANVIL
OVERVIEW
We entered into a Heads of Agreement (the "Anvil Agreement") with Anvil
under which we and Anvil, pursuant to a joint venture or other arrangement that
we and Anvil will establish, agreed to acquire the BGL Shares and the BGL Debt
and operate the Bogoso Property jointly. Our company will hold a direct or
indirect 77.8% interest ("Participating Interest") in, and Anvil will hold a
direct or indirect 22.2% Participating Interest and our company will control,
the arrangement.
LOAN TO ANVIL
Our company or one of our affiliates will provide all of the funds for
the initial purchase price and other acquisition costs for the Acquisition,
including any costs associated with the Credit Facility or any purchase price
adjustment (collectively, the "Bogoso Acquisition Costs"). We or our affiliate
will provide Anvil or one of its affiliates a loan (the "Anvil Loan") to fund
Anvil's share of the
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Bogoso Acquisition Costs. We will charge Anvil interest at a rate of 15% per
year compounded monthly. All of the cash distributions from the Bogoso Property,
including Anvil's share, that are not paid to the Government of Ghana, will be
paid to our company until we have received all of the Bogoso Acquisition Costs.
SECURITY FOR ANVIL LOAN
Anvil will grant a security interest over Anvil's Participating
Interest in the BGL Shares and BGL Debt, and will also cause BGL to grant a
security interest in all of BGL's assets, including the Bogoso Property. In the
event we or our affiliate draw down any funds under the Credit Facility, the
security granted by Anvil will rank second in right of payment behind the
similar security that the lender of the Credit Facility will hold to secure its
repayment. See "--The Credit Facility." If Anvil does not repay the Anvil Loan,
we will be able to enforce the security interests against Anvil's Participating
Interest in the BGL Shares and BGL Debt and against BGL's assets, but we will
not have any other rights against Anvil or Anvil's other assets.
ANVIL'S SHARE OF THE DEPOSIT
If we do not complete the Acquisition for reasons that are not our
fault, but the Banks draw on the $2 million letter of credit for the deposit
referred to under "--The Acquisition Agreement--$2 Million Deposit," Anvil will
pay us Anvil's 22.2% share of such deposit and the other Bogoso Acquisition
Costs. Anvil will make this payment by issuing Anvil common shares ("Anvil
Shares") to us. The number of Anvil Shares that Anvil will issue will be equal
to the amount owed by Anvil divided by the weighted average price of the Anvil
Shares on the Australian Stock Exchange for the ten trading days before the date
that the Banks draw on the letter of credit.
ANVIL SHARES AND OPTIONS
In consideration for the Anvil Loan, Anvil will issue to us options
(the "Anvil Options") that will entitle us to purchase, at any time during the
two-year period after we complete the Acquisition, up to 7 million Anvil Shares
at a price of Australian $0.10 per share. Anvil will issue Anvil Options for 3.5
million Anvil Shares as of the date we signed the acquisition agreement and will
issue Anvil Options for the remaining 3.5 million Anvil Shares when we complete
the Acquisition. Anvil will not issue the Anvil Options unless it receives
approval to do so from the Australian Stock Exchange. If Anvil does not receive
approval to issue such Anvil Options to us, Anvil will instead issue 3 million
Anvil Shares to us, 1.5 million to be issued as of the date we signed the
Acquisition Agreement and another 1.5 million when we complete the Acquisition.
In addition, before issuing any Anvil Shares, Anvil will give us a pre-emptive
right to purchase as many Anvil Shares as will result in our company owning
19.9% of Anvil's common shares after we complete such purchase.
BGL'S EXCESS CASH FLOW
After BGL has paid sufficient amounts to enable us to repay the Bogoso
Acquisition Costs and interest thereon, excess cash flow from BGL not paid to
the Government of Ghana will be used to repay the BGL Debt to our company and
Anvil (or our respective affiliates) in proportion to our respective
Participating Interests. After BGL has repaid the BGL Debt, excess cash flow may
be used to pay dividends to its shareholders. BGL will pay 10% of the dividends
to the Government of Ghana in proportion to its 10% interest and 90% of the
dividends to our company and Anvil (or our respective affiliates) in proportion
to our respective Participating Interests.
FUNDING OF EXPENSES
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The Government of Ghana's 10% interest in BGL is a carried interest
that entitles it to share rateably in the profits of BGL but does not require it
to pay for any of the associated expenses. We currently expect BGL to generate
sufficient cash flow to cover all of the operating and capital expenses of its
current operations. However, if such cash flow is not sufficient or if BGL
incurs any extraordinary operating or capital costs, our company and Anvil (or
our respective affiliates) will be required to contribute on a pro rata basis
the funds required by advancing shareholder loans to BGL at an interest rate of
the London Inter-Bank Offered Rate ("LIBOR") plus 2%.
DILUTION OF PARTICIPATING INTEREST
If our company or Anvil (or our respective affiliates) fails to pay or
cause to pay its share of any approved BGL expense, the other party may advance
the required funds on its behalf. The advance will be treated as a demand loan
bearing interest at LIBOR plus 3%. If the defaulting party fails to repay that
loan within 60 days, its Participating Interest will be diluted. The dilution
will be a "straightline" dilution under which the Participating Interest of the
defaulting party will be reduced to the percentage that the total of its BGL
contributions bears to the total BGL contributions made by both the defaulting
party and the non-defaulting party. The Participating Interest of the
non-defaulting party will be increased by the corresponding amount.
CONVERSION TO NET PROCEEDS INTEREST
If the Participating Interest of either our company or Anvil is diluted
to less than 10%, the remaining Participating Interest of that party will be
automatically converted into a right to receive 5% of the net profits received
from BGL after our company has recouped all of the Bogoso Acquisition Costs,
plus interest thereon.
MANAGEMENT OF BGL
So long as we or our affiliate hold at least a 50% Participating
Interest, we will have the right to nominate a majority of the members of the
board of directors of BGL (the "BGL Board"). Immediately after the closing of
the Acquisition, the shareholders of BGL will appoint a new BGL Board
comprising:
o 3 persons nominated by our company;
o one person nominated by Anvil; and
o one person nominated by the Government of Ghana.
We will have the right to nominate the Chairman of the BGL Board as well as the
Managing Director. The Managing Director will be the chief executive officer of
BGL, and will be responsible for the day-to-day management of the Bogoso
Property under the general direction of the BGL Board and will implement work
plans and budgets approved by the BGL Board. Mr. James Askew, the President and
Chief Executive Officer of our company, will become Chairman of BGL's Board and
Mr. Peter Bradford, the current Managing Director of Anvil, will become Managing
Director of BGL.
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AREA OF INTEREST
If either our company or Anvil acquires any mineral interest within 50
kilometers of the outer boundaries of the Bogoso Property, it will be obligated
to offer to sell that property to BGL on the same terms and conditions on which
it acquired such mineral interest. We and Anvil also agreed not to compete with
each other with respect to any potential acquisition of any mineral property
within this area of interest.
TRANSFER OF PARTICIPATING INTEREST
Neither our company nor Anvil may sell or cause to be sold all or any
portion of our respective Participating Interest in any BGL Shares or the BGL
Debt to any third party except after first granting the other party a first
right to purchase such Participating Interest on the same terms and conditions
offered by such third party. If our company or Anvil becomes insolvent, is
petitioned into bankruptcy, makes an assignment in favor of its creditors, or
commits a material breach of the Anvil Agreement, the other party will have the
right to purchase its Participating Interest for its fair market value as
determined under the Anvil Agreement.
THE ACQUISITION AGREEMENT
OVERVIEW
We and Anvil executed and delivered an agreement (the "Acquisition
Agreement") dated as of June 1, 1999 under which we jointly agreed to purchase
the Banks' interests in BGL. On the completion date of the Acquisition, the
Banks will:
o transfer to us and Anvil (or our respective affiliates) all of the BGL
Shares owned by the Bank Consortium, together with all dividends or
distributions declared or paid on such shares on or after April 1,
1999;
o assign to us and Anvil (or our respective affiliates) the BGL Debt;
o assign to us and Anvil (or our respective affiliates) the security
interests over the Bogoso Property and other assets of BGL that BGL
granted to the Banks as security for the repayment of the BGL Debt (the
"BGL Security"); and
o release BGL from all claims that the Banks may have against BGL other
than the BGL Debt and the BGL Security.
PURCHASE PRICE
Under the Acquisition Agreement, we and Anvil agreed to pay the Banks:
o an initial purchase price of $12 million on the completion of the
acquisition (the "Acquisition Date"); and
o if we commence commercial production from sulphide mineralized material
at the Bogoso Property in the future, an additional payment of $5
million on the first anniversary of such commencement.
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We and the Banks reached a subsequent agreement, which remains subject to the
approval of the Banks' respective boards of directors, under which the Banks
agreed to reduce the initial purchase price from $12 million to $6.5 million and
we and Anvil agreed, among other things, that:
o no later than the close of business on August 20, 1999, we will deposit
$4.5 million of the reduced initial purchase price into an escrow
account, this amount to be held and released on terms to be agreed;
o on the second anniversary of the Acquisition Date or if the Bogoso mine
closes before that day, on the later of the closure date and the 547th
day after the Completion Date (the "Top-Up Date"), we will pay the
Banks an additional payment (the "Top-Up Payment");
o subject to the maximum and minimum amounts set out below, the Top-Up
Payment will be equal to 183,333 multiplied by the amount, if any, by
which the average daily price of gold (in the London Bullion Market
Association afternoon gold fix) for all the trading days between the
Acquisition Date and the Top-Up Date exceeds $255 per ounce;
o the maximum Top-Up Payment will be $10 million (applicable if such
average price of gold is equal to $310 per ounce or more);
o irrespective of the price of gold, if we and Anvil acquire in Ghana an
additional minable ore reserve that can be processed at BGL's
facilities equivalent to at least 50,000 ounces of gold, we and Anvil
will pay the Banks a non-refundable payment of $2 million on the Top-Up
Date that will be applied against any Top-Up Payment that may become
payable;
o within 6 months after the Acquisition Date, we will procure the
establishment of a cash reserve account into which payments may be made
from BGL revenues for the purpose of paying any Top-Up Payment that may
become payable;
o on the first anniversary of the Acquisition Date, we will pay the
Banks, to be applied against the Top-Up Payment, a non-refundable
payment equal to 50% of the estimated Top-Up Payment calculated as of
the Top-Up Date on the basis of the average daily price of gold during
the year following the Acquisition Date;
o we will take steps towards the procurement by BGL of a performance bond
in the amount of $6 million that will be used to reimburse BGL for the
environmental rehabilitation expenses that BGL will be required to
incur at the Bogoso Property;
o the Banks will ensure that BGL will not, except after consulting with
our company and Anvil, incur any expenditure prior to the Acquisition
Date that would cause BGL's environmental rehabilitation reserve to be
less than $6 million as of the Acquisition Date. The Banks will also
ensure that BGL will not, except with the consent of our company and
Anvil, incur any expenditure that would result in this reserve amount
being less than $5.75 million as of the Acquisition Date; and
o subject to the Banks complying with the above requirements regarding
BGL's environmental rehabilitation reserve and further subject to BGL
not incurring any capital expenditure before the Acquisition Date other
than those that we and Anvil previously approved, if BGL's
environmental rehabilitation reserve is less than $6 million on the
Acquisition Date, neither we nor Anvil nor the Banks will be
responsible for the shortfall.
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$2 MILLION DEPOSIT
We provided a $2 million deposit, refundable only in limited
circumstances, to the Banks by arranging for a letter of credit in that amount,
which our company caused to be delivered to the Banks. The Banks will be
entitled to draw on the letter of credit and apply the deposit against the
initial purchase price on the Acquisition Date. However, if we breach our
obligations under the acquisition agreement or fail to complete the Acquisition
for reasons other than those set forth under "--Conditions for Closing" below,
the Banks will be entitled to draw on the letter of credit and retain the
deposit.
REPRESENTATIONS AND COVENANTS OF THE BANKS
The Banks represented that they own the BGL Shares to be sold to us and
the BGL Debt free and clear of encumbrances, and agreed that BGL would not
engage in any extraordinary transactions prior to the Acquisition Date without
our approval. However, the Banks made no representations or warranties about BGL
or the Bogoso Property or about the collectability of the loans that they will
assign to us.
CONDITIONS FOR CLOSING
Neither we nor the Banks are obligated to complete the Acquisition
unless we have obtained all of the following approvals:
o approval for the sale of the BGL Shares from the Minister of Mines and
Energy of the Government of Ghana under the Ghanaian mining laws, which
we have received;
o approval for the sale of the BGL Shares from the Bank of Ghana under
the Ghanaian exchange control laws, which we have received; and
o approval for the sale of the BGL Debt from the Bank of Ghana.
We will not be required to complete the Acquisition if:
o any of the Bank's warranties is untrue;
o the Banks breach their obligations;
o an event ("Force Majeure Event") occurs not within our control or the
control of BGL, such as an earthquake, flood, war or similar event,
that prevents the operation of the Bogoso mine.
DEADLINE FOR SATISFYING CONDITIONS
We are required to obtain all the above approvals by no later than
August 30, 1999. We may extend this deadline for no more than 90 days on the
occurrence of a Force Majeure Event.
CLOSING DATE
We will be required to complete the Acquisition on the tenth business
day after we have obtained the above approvals if all the other conditions have
been satisfied.
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TERMINATION OF BGL EMPLOYEES
TERMINATION OF BGL EMPLOYEES
In accordance with the Acquisition Agreement, BGL terminated employment
of its union and several of its non-union employees on July 31, 1999, with the
termination of all expatriate contracts to be effective September 30, 1999. The
termination of these employees required the payment by BGL of approximately $3
million in severance pay, accrued holiday entitlements and other redundancy
payments and was funded by BGL's cash balances. On August 1, 1999, BGL rehired
535 employees. The new employment and re-commencement of operations was
implemented on schedule and without incident. The following table illustrates
the effects of the termination according to job category:
Job Category Pre-Termination Post-Termination Reduction Reduction %
- ------------ --------------- ---------------- --------- -----------
Expatriate 20 17 3 15%
Senior Staff 97 73 24 25%
Junior Staff 676 445 231 34%
- ------------ --- --- --- ---
Total 793 535 258 33%
ALLOCATION OF BGL'S CASH
As at March 31, 1999, BGL had approximately $10.7 million of cash on
hand. The Acquisition Agreement requires BGL to use approximately $10 million of
this cash as follows:
o BGL has spent $3 million to pay the severance pay, accrued holiday
entitlements and other redundancy payments that BGL was required to pay
to its employees as a result of the termination of their employment on
July 31, 1999.
o BGL will deposit $6 million into a special purpose bank account on the
Acquisition Date. These funds may be used only to complete
environmental rehabilitation work on the Bogoso Property.
o BGL will spend approximately $1 million on programs for the social and
economic development of the community affected by BGL's operations to
help offset the impact of the eventual closure of the Bogoso Property.
All other cash and cash flow from and after March 31, 1999 will accrue to our
benefit and there will be no payments of dividends or interest to the Banks
between April 1, 1999 and the Acquisition Date.
THE CREDIT FACILITY
OVERVIEW
We signed a credit facility letter agreement on May 5, 1999 under which
Elliott Associates, L.P. (the "Lender") agreed to lend to us or our designee up
to $12 million under the Credit Facility for the purpose of financing a portion
of the Acquisition. Assuming that we receive net proceeds from this offering of
approximately $8.7 million and are able to reduce the initial purchase price for
the Acquisition to $6.5 million, we currently do not intend to borrow any
amounts under the Credit Facility from the Lender; rather we expect to finance
the initial purchase price with the net proceeds
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of this offering and with existing working capital. If the net proceeds of this
offering are less than $6.5 million or we are unable to reduce the initial
purchase price to $6.5 million, we intend to borrow or cause one of our
affiliates to borrow the balance of the initial purchase price under the Credit
Facility simultaneously upon completion of the Acquisition. See "--The
Acquisition Agreement--Purchase Price."
INTEREST
We or our affiliate will pay interest on any amounts outstanding under
the Credit Facility at the rate of 15% per year compounded monthly, payable
monthly in arrears. If we breach our obligations under the Credit Facility, the
interest rate will be increased to 25% per year until we cure the default.
REPAYMENT
If we draw down on the Credit Facility, we will start repaying any
amounts outstanding thereunder 60 days after the date of the Credit Facility
advance in 12 equal monthly instalments, subject to a maximum of $750,000 per
payment, plus interest. We must repay within seven days any principal remaining
unpaid following the final monthly repayment. We are entitled to prepay the
Credit Facility at any time without penalty.
SECURITY
As security for the repayment of any amounts outstanding under the
Credit Facility:
o Golden Star will guarantee the repayment of the Credit Facility;
o we and Anvil (or our respective affiliates) will pledge our respective
BGL Shares and the BGL Debt to the Lender; and
o BGL will grant the Lender a first charge on the Bogoso Property and
other assets of BGL.
Our company will subordinate any security that we receive to secure the
repayment of the Anvil Loan and we and Anvil will subordinate any security that
we or Anvil will receive to secure the repayment of the BGL Debt, in favor of
any similar security that the Lender may receive to secure the repayment of the
Credit Facility.
WARRANTS
In connection with the Credit Facility, we issued 1,500,000 common
share purchase warrants to the Lender, each warrant entitling it to purchase one
of our common shares at an exercise price equal to $0.7063, subject to
antidilution adjustments. The Lender's right to exercise these warrants will
expire on June 9, 2002. We have also agreed that we will issue a further number
of warrants, at the time any amounts under the Credit Facility are advanced,
equal to 3,000,000 multiplied by the ratio of (a) the amount of the Credit
Facility divided by (b) $12 million, less 1,500,000. Accordingly, if we borrow
less than $6 million, we will not issue any additional warrants to the Lender.
Each subsequently issued warrant will entitle the Lender to purchase
one of our common shares at an exercise price equal to the average of the
closing prices of our shares on the American Stock Exchange ("AMEX") for the 10
trading days immediately preceding their issuance. In addition,
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these warrants will expire three years after the date of their issuance. If we
issue any shares or rights or warrants to purchase our shares for an actual or
implied price below 95% of the exercise price of the existing or any
subsequently issued warrants, the warrant exercise price will be reset to a
price equal to such actual or implied price. The Lender may pay the exercise
price for any of the warrants by reducing any amount outstanding under the
Credit Facility.
CALLABILITY OF WARRANTS
If at any time after the date which is the later of 12 months after
issuance or the most recent price reset of the warrants, the closing price for
our shares for 30 consecutive trading days on the AMEX is greater than 200% of
the exercise price of the warrants, we will have the right to redeem up to 50%
of the warrants originally issued on 30 days' notice at no charge to us. If at
any time after the date which is the later of 24 months after issuance or the
most recent price reset, the closing price for our shares for 30 consecutive
trading days on the AMEX is greater than 250% of the exercise price of the
warrants, we will have the right to redeem up to an additional 50% of the
warrants originally issued on 30 days notice at no charge to us.
SHARE REGISTRATION
We are required to register for resale or establish free tradeability
of the shares underlying the warrants and to list such shares for trading on the
AMEX and the Toronto Stock Exchange (the "TSE") by the earlier of:
o the date we register any other shares (excluding any registration of
director, officer or employee, stock option or stock bonus shares on
Form S-8 and as soon as is practicable after the effectiveness of any
registration statement on Form S-4);
o 180 days following the closing or abandonment of the Acquisition; or
o January 31, 2000.
DEFAULT PAYMENTS AND REDEMPTION
Upon any listing and/or registration failure relating to both the AMEX
and the TSE, we will be required to pay a cash penalty equal to 3% per month of
the aggregate value of such shares. Upon any listing and/or registration failure
relating only to the TSE, the penalty will be 1% per month of the aggregate
value of such shares. In the event we fail to make a monthly cash payment on
more than one occasion or continue to make monthly cash payments for a period of
six months or more, we may be required to redeem the warrants and/or any
underlying common shares at a premium over the exercise price or market value of
the warrants or shares, respectively.
OPTION PREMIUM
We paid a $250,000 option premium to the Lender when we signed the
commitment letter covering the Credit Facility.
FUNDING PAYMENT
If we (or our affiliates) close the Acquisition, we (or our affiliates)
will pay an additional interest payment of $250,000 to the Lender on the date we
complete the Acquisition.
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PRODUCTION BONUS
Regardless of whether the Credit Facility is established or used, for
each continuous 12 month period (the "Production Interval") during the first 72
months following the Acquisition that total production from the Bogoso Property
exceeds 75,000 ounces, we will pay or cause our affiliate to pay the Lender a
production bonus of $250,000 up to a maximum aggregate production bonus of
$1,250,000.
CONDITIONS PRECEDENT
We will not be entitled to draw down on the Credit Facility unless each
of the following conditions is satisfied:
o we have delivered satisfactory loan documentation and legal opinions to
the Lender;
o the Government of Ghana has approved the Acquisition;
o we have obtained all other applicable governmental and regulatory
approvals;
o we have simultaneously completed the Acquisition; and
o no material adverse change or Force Majeure Event has occurred.
NEGATIVE COVENANTS
While any amounts are outstanding under the Credit Facility, Golden
Star, the borrower under the Credit Facility and BGL will not be permitted to
incur any indebtedness senior to or equal in right of payment to the Credit
Facility, or to make any distributions or debt repayments except as follows:
o to repay the Credit Facility;
o to repay principal and interest owing on the loans Golden Star borrowed
for the Omai mine; or
o to pay Golden Star's ordinary expenses, but only if the borrower under
the Credit Facility holds sufficient funds in escrow to cover Credit
Facility payments for two monthly payment periods.
THE BOGOSO PROPERTY
INTRODUCTION
The Bogoso Property comprises an operating gold mine and two mining
leases covering an aggregate area of 95 square kilometers. BGL owns the Bogoso
Property and mines ore from several open pits and processes the ore at a
processing plant that it built on the property in 1991. The plant uses
conventional carbon in leach ("CIL") technology to extract gold from the ore and
has been producing approximately 100,000 to 110,000 ounces of gold each year
since it was built.
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The information which follows is extracted in part from a report of SRK
Consulting Engineers and Scientists ("SRK") dated April 1999, entitled "Bogoso
Gold Limited, Validation of Oxide and Sulphide Resources and Reserves" (the "SRK
Report"), and a report of Associated Mining Consultants Ltd. ("AMCL") dated June
1999, as modified by an Addendum, dated August 10, 1999, and entitled "Bogoso
Gold Limited Independent Engineering Report (the "AMCL Report").
BACKGROUND INFORMATION ON GHANA
Ghana is situated on the west coast of Africa, approximately 750
kilometers north of the equator on the Gulf of Guinea. Accra, the capital city
of Ghana, is on the Greenwich Meridian, the zero line of longitude. Ghana was a
British colony until it achieved independence in 1957. It is now a republic with
a democratically elected government. Ghana has a population of approximately 18
million people. English is the official and commercial language. The total land
area of the country is approximately 238,000 square kilometers in size and is
relatively flat. Ghana has a tropical climate with two rainy seasons and two dry
seasons.
LOCATION OF AND ACCESS TO BOGOSO PROPERTY
The Bogoso Property is located in western Ghana approximately 35
kilometers northwest of the town of Tarkwa from where it can be reached by
accessible roads. A paved road runs down most of the 18.5 kilometers length of
the property with mining areas connected by gravel haul roads. The road connects
the town of Bogoso in the northeast with the town of Prestea in the southwest. A
sealed road provides access to a sealed airstrip located at the town of Obuasi,
some 115 kilometers to the north.
MINING LAWS OF GHANA
The mining sector in Ghana is governed primarily by six main laws:
o The Minerals and Mining Law;
o The Minerals and Mining (Amendment) Act;
o the Minerals Royalties Regulations;
o The Minerals Commission Law; and
o The Small Scale Mining Law.
The Exchange Control Act governs the holding and borrowing of foreign
exchange by Ghanian companies, including mining companies.
MINING LEASES
The Government of Ghana issued a gold prospecting license to BGL on
November 7, 1986, granting BGL the right to prospect for and prove gold in a
prospecting area of approximately 148 square kilometers for a three-year term
commencing on May 12, 1986. On August 21, 1987, the Government of Ghana granted
BGL a 30-year mining lease giving BGL the exclusive right to work, develop and
produce gold in a mining area of 50 square kilometers within this prospecting
area. On August 16, 1988, the Government of Ghana granted BGL a second 30-year
gold mining lease covering an additional 45 square kilometers area adjacent to
the first mining area. Under the above
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mining leases (the "Mining Leases"), BGL now holds gold mining rights in a
mining area totaling 95 square kilometers, subject to the payment of nominal
annual rents.
DEED OF WARRANTY
On December 17, 1987, the Government of Ghana and BGL entered into a
Deed of Warranty (the "Deed of Warranty") that sets out:
o certain rights of the Government of Ghana to participate in BGL;
o certain restrictions relating to the holding of foreign exchange
and the sale of gold by BGL; and
o certain tax concessions and investment assurances granted by the
Government of Ghana.
MINING REGIME
The following summarizes the principal aspects of the mining regime
under which BGL owns and operates the Bogoso Property, as set out in the
Ghanaian mining laws, the Mining Leases and the Deed of Warranty.
GOVERNMENT'S 10% CARRIED INTEREST
The Government of Ghana is entitled at all times to hold a 10% carried
interest in all the rights and obligations of BGL. The Government acquired this
interest for no consideration and is not required to contribute any funds to pay
any BGL expenses.
GOVERNMENT'S RIGHT TO ACQUIRE ADDITIONAL INTERESTS
The Government of Ghana is entitled to acquire an additional 20%
interest in BGL. If the Government of Ghana wishes to exercise this right, it
must give reasonable notice to BGL. It must also pay such purchase price for the
additional 20% interest as the Government of Ghana and BGL may agree on at the
time. If they do not agree on the purchase price, the purchase price will be the
fair market value of such interest as determined by arbitration conducted by the
International Centre for the Settlement of Investment Disputes. The Government
of Ghana may also acquire further interests in BGL on terms mutually acceptable
to the Government and BGL.
SPECIAL GOVERNMENT SHARE
The Government of Ghana is entitled to acquire a special share in any
mining company at any time for no consideration or such consideration as the
Government of Ghana and BGL may agree. The special share will constitute a
separate class of shares with such rights as the Government of Ghana and BGL may
agree. In the absence of such agreement, the special share will have the
following rights:
o the special share will carry no voting rights, but the holder
will be entitled to receive notice of and attend and speak at
any general meeting of the members or any separate meeting of
the holders of any class of shares;
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o the special share may only be issued to, held by or
transferred to the Government or a person acting on behalf of
the Government;
o the written consent of the holder of such special share must
be obtained for all amendments to the organizational documents
of the company, the voluntary winding-up or liquidation of the
company or the disposal of any mining lease or the whole or
any material part of the assets of the company; and
o the holder of the special share will be entitled to the
payment of a nominal sum of 1,000 Ghanaian Cedis in a
winding-up or liquidation of the company in priority to any
payment to other members and may require the company to redeem
the special share at any time for a nominal sum of 1,000
Cedis.
BGL has not issued or been requested to issue, any such special share to the
Government of Ghana.
GOVERNMENT'S RIGHTS TO PURCHASE GOLD
The Government of Ghana has a pre-emptive right to purchase all gold
and other minerals produced by BGL. The purchase price will be such price as the
Government of Ghana and BGL may agree on, or the price established by any gold
hedging arrangement between BGL and any third party approved by the Government,
or the publicly quoted market price prevailing for the minerals or products as
delivered at the mine or plant where the right of preemption was exercised. The
purchase price must be paid in foreign exchange. The Government of Ghana has
agreed to take no preemptive action pursuant to its right to purchase such gold
or other minerals so long as BGL sells gold in accordance with procedures for
selling gold approved by the Bank of Ghana.
EXTERNAL BANK ACCOUNTs
BGL is entitled to establish and maintain external bank accounts
outside of Ghana that are held in trust for BGL by a trustee approved by the
Government of Ghana. BGL must deposit into these external accounts such
percentage of the gross proceeds of all sales of gold in foreign currency as the
Minister for Finance and Economic Planning of Ghana may approve. BGL is
currently permitted to deposit 80% of such sales proceeds into its external
accounts. BGL is required to pay the other 20% to the Central Bank of Ghana
which then converts the same into Ghanaian Cedis for deposit into BGL's internal
account.
BGL is entitled to use funds in such external accounts to pay the
following:
o principal, interest and other costs and fees of foreign exchange
loans borrowed for the Bogoso Property;
o compensation payable in foreign exchange to expatriate personnel,
suppliers, consultants and contractors and acquiring spare parts
and other inputs required for its mining operations;
o the costs of recovery, export and sale of gold, silver or other
minerals from the Bogoso Property; and
o dividends to the BGL shareholders.
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ROYALTIES
A holder of a mining lease is required to pay a royalty of not less
than 3% and not more than 12% of the total revenues earned from the lease area.
The royalty is payable on a quarterly basis. The Government of Ghana levies a
royalty on BGL based on the profitability of its mining operations. The royalty
is determined by the application of an operating ratio expressed in terms of the
percentage which the operating margin bears to the value of gold from mining
operations in every year.
INCOME TAX
BGL is required to pay income tax on profits from its mining operations
up to a maximum rate of 35%. BGL may also incur an additional profit tax under
the Additional Profit Tax Law chargeable on the value at the end of each tax
year of its carry-forward cash balance at the rate of 25%. BGL has to date not
been liable to pay any such additional profit tax.
TAX CONCESSIONS
BGL is not required to deduct or withhold taxes from any payment made
from its external account of:
o any interest or other costs paid by BGL in respect of any foreign
exchange loans borrowed by BGL;
o any payments made by BGL in foreign exchange for fees payable to
contractors or consultants; or
o any dividends paid by BGL to its shareholders.
EMPLOYMENT OF GHANAIAN CITIZENS
BGL is required to give preference for employment to citizens of Ghana
to the maximum possible extent consistent with safety, efficiency and economy.
BGL is also required to provide appropriate training programs for Ghanaian
employees. Except with respect to unskilled personnel, BGL may employ
non-Ghanaian personnel subject to quotas that the Government of Ghana has
established.
PREFERENCE FOR GHANAIAN GOODS AND SERVICES
BGL is required to give preference to Ghanaian materials, products and
services if their prices, quality and delivery dates are comparable to or better
than those of foreign suppliers.
TERMINATION OF MINING LEASE
BGL is entitled to terminate any of its Mining Leases by giving nine
months' written notice to the Government of Ghana at any time. The Government of
Ghana is entitled to terminate any Mining Lease if:
o BGL fails to make any required payments on time or fails to comply
with any other obligation under the Mining Lease after
receiving three months' written notice; or
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o BGL becomes insolvent or bankrupt, enters into an arrangement
with its creditors or goes into voluntary or involuntary
liquidation; or
o BGL makes a false or reckless statement to the Government relating
to the Mining Lease.
DISPOSITION OF ASSETS UPON TERMINATION OR EXPIRY
Upon the termination or expiration of any Mining Lease, all of BGL's
immovable assets and fully depreciated moveable assets in the lease area will
become the property of the Government of Ghana at no cost to the government. In
addition, the Government of Ghana will have a right of first refusal to purchase
any of BGL's moveable assets that have not been fully depreciated for their
depreciated cost. The Government of Ghana may also require BGL to remove or
destroy any of BGL's assets in the lease area, or remove or destroy such assets
at BGL's cost.
REMEDIATION OF MINING AREA
BGL is required to take all reasonable measures to leave the mining
areas in good condition following the termination or expiration of any Mining
Lease.
TRANSFER RESTRICTIONS
BGL may not assign its rights under the Mining Leases or permit a
change of control of its stock to take place except with the prior written
consent of the Government of Ghana.
INVESTMENT ASSURANCES
The Government of Ghana has agreed that:
o it will not expropriate BGL's interest in the Bogoso Property
unless it pays prompt, fair and reasonable compensation in such
amount as may be determined by agreement or by arbitration by the
International Centre for the Settlement of Investment Disputes;
o no BGL shareholder will be compelled to cede any interest in BGL
or the Bogoso Property to any person except to the Government of
Ghana through the exercise of its rights to participate in BGL as
expressly set out in the Concession Agreement (as defined below);
and
o if new laws and conditions come into effect that unfairly affect
the interests of either BGL or the Government of Ghana, they will
each make every effort to agree, cooperate, negotiate and take
such other action as may be necessary to redress the imbalance
that the new laws or conditions created.
GEOLOGY OF THE SURROUNDING REGION
The Bogoso Property lies within the West African Precambrian shield, a
geological formation that hosts three important Lower Proterozoic sedimentary
and volcanic sequences that are particularly important for gold mining: the
Lower Birimian, Upper Birimian and the Tarkwaian. The area is dominated by a
major northeast-southwest trending structural feature referred to as the Ashanti
Trend,
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which extends for over 200 kilometers and hosts the main deposits of the Ghana
Gold Belt. This structure is closely aligned with the faulted contact zone
between the metasedimentary and metavolcanic units of the Birimian and the
clastic rocks of the Tarkwaian.
GEOLOGY OF THE BOGOSO PROPERTY
In the Bogoso area, the faulted contact zone is known as the Main Crush
Zone and passes through the central part of the Bogoso Property for its entire
18.5 kilometers length. The Main Crush Zone lies within a structural corridor
that varies in width from 1,000 to 2,500 meters. Some 90% of the gold mined to
date at the Bogoso Property has come from the Main Crush Zone with the larger
deposits being located at bends and junctions along this major fault. Additional
faults and splays in the structural corridor may also be prospective for gold,
but very little work has been undertaken historically in this area. The area's
oxide ores tend to have fine grained free gold that has been liberated during
the weathering of preexisting sulphides. Oxidation extends from the top of hills
to the valley floors and below into a transition zone of up to 20 meters thick
that directly overlies sulphide mineralization.
HISTORICAL MINING OPERATIONS
Gold was first mined at the Bogoso Property at the beginning of this
century. In 1935, Marlu Gold Mining Areas Ltd. started mining high grade oxide
ore from a series of open pits extending south from Bogoso North to Buesichem,
just beyond the southern boundary of the Bogoso Property. Marlu also mined a
small amount of ore from underground at Bogoso North, Marlu and Bogoso South.
Marlu was mining the Buesichem pit when it shut down the mine operations in
1955. According to BGL's records, during its 20-year period of operations
between 1935 and 1955, Marlu produced over 900,000 ounces of gold at an average
recovered grade of 3.73 grams gold per tonne.
DESCRIPTION OF THE BOGOSO PROPERTY
RECENT HISTORY
Billiton PLC, then a unit of Royal Dutch Shell group, took control of
the Bogoso Property in the late 1980s. The initial feasibility study established
a mineable reserve of 5.96 million tonnes grading 4.0 grams of gold per tonne,
of which 461,000 tonnes (or less than 8%) comprised oxide ore. The feasibility
study forecast gold recoveries of 83% from sulphide ores and 78% from oxide ore,
and estimated a waste-to-ore ratio of 5.6:1. Construction of a mining and
processing facility was completed in 1991. The facility was designed to process
oxide ores by using conventional CIL technology at a design capacity of 1.36
million tonnes per annum, and to process sulphide ores by using flotation,
fluid-bed roasting and CIL technology at a design capacity of 0.9 million tonnes
per annum.
Billiton encountered serious operational difficulties with the
fluid-bed roaster, which did not function as anticipated because the sulphide
level in the concentrate was less than expected and because the clay content of
the feed was higher than expected. Mechanical problems also occurred. As a
result, Billiton closed the flotation circuit and roaster in early 1994.
Following closure of the roaster, Billiton focused the Bogoso operations on
oxide ore. The CIL plant had an annual capacity of approximately two million
tonnes of oxide ore. However, only a few months of oxide ore reserves were
available at that time. Basic exploration has been successful in adding to the
available quantity of oxide ore since 1994. In that time the mine has operated
as an oxide-only operation. Operating cash flows have funded all the exploration
costs.
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PRODUCTION HISTORY
Since commencing operations in 1991, the Bogoso plant has processed
over 13 million tonnes of oxide and sulphide ore to produce over 800,000 ounces
of gold. The average waste-to-ore ratio has been approximately 4.6:1. The
following table summarizes the production statistics for the Bogoso mine since
commencement of operations.
TOTAL GOLD
OXIDE ORE SULPHIDE ORE PRODUCTION
---------------------- --------------------- ----------
YEAR ENDED GRAMS GOLD GRAMS GOLD
JUNE 30, TONNES PER TONNE TONNES PER TONNE OUNCES
- ------------ ---------- ---------- --------- ---------- ----------
1991 444,090 3.87 448,140 4.85 61,848
1992 459,453 2.68 601,364 5.02 78,077
1993 204,688 2.85 912,533 3.82 89,507
1994 1,398,782 2.70 101,054 3.50 98,832
1995(1) 827,250 2.37 0 -- 50,945
1996 1,767,043 2.27 0 -- 111,495
1997 1,972,214 1.91 0 -- 103,719
1998 1,916,824 2.12 0 -- 110,837
July 1998 to
June 1999 2,219,366 2.20 0 136,096
========== ==== ========= ====== =======
Total/Wt.
Average 11,209,710 2.36 2,063,091 4.38 841,356
(1) In 1995 the Bogoso plant operated for only six months as the change to an
oxide only operation was completed.
RESERVES AND MINERALIZED MATERIAL
The following table sets out BGL's reported current proven and
probable, open pittable oxide and transition reserves as well as other
mineralized material in addition to reserves as at March 31, 1999, as confirmed
by SRK. BGL performs assaying on site using the fire assay technique. BGL also
engages third parties to perform regular independent check assays. SRK
independently audited BGL's reserves and mineralized material in April 1999. In
addition to reserves and mineralized material, we also intend to process
existing low grade stockpiles and such additional material that will be added
through the mining of current reserves and mineralized material. We expect gold
recoveries for oxide and transition material to be approximately 86% and 60%,
respectively.
Mineralized material does not represent reserves and has not been
included in the proven and probable reserve estimates below because even though
enough drilling and trenching indicate a sufficient amount and grade to warrant
further exploration or development expenditures, these mineral deposits do not
qualify under the United States Securities and Exchange Commission standards as
being commercially minable until further drilling, metallurgical work and other
economic and technical feasibility factors based upon such work are resolved.
Mineralized material is reported only if the potential exists for
reclassification to reserves following additional drilling and/or final
technical, economic, and legal factors have been determined for the project.
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BGL's mining operations has an estimated mine life of 12 months
effective March 31, 1999, based upon existing reserves of oxide and transition
ore at current rates of production. Existing mineralized material, if converted
to reserves at historical conversion rates, would be expected to extend the
existing mine life by up to 8 months, and sub-grade stockpile material is
expected to be sufficient for a further six months of production, for a total
anticipated mine life of up to 26 months at March 31, 1999. The potential to
discover additional mineralized material and to establish reserves may be
limited.
BGL MINE RESERVES AND MINERALIZED MATERIAL AS OF MARCH 31, 1999
GRADE
'000 GRAMS GOLD IN SITU
RESERVES AND MINERALIZED MATERIAL TONNES PER TONNE OUNCES
- ----------------------------------------------- ------ ---------- -------
OXIDE
Proven and Probable Reserves................... 1,963 2.6 164,091
Mineralized Material(1)(2)..................... 905 1.7 N/A
TRANSITION
Proven and Probable Reserves................... 232 3.3 24,615
Mineralized Material(3)........................ 2,767 2.8 N/A
TOTAL OXIDE AND TRANSITION
Proven and Probable Reserves................... 2,195 2.7 187,156
Mineralized Material........................... 3,672 2.6 N/A
- -----------------
(1) Mineralized Material is equivalent to measured and indicated resources
exclusive of any material reported as proven or probable reserves.
(2) BGL's historical conversion rate of oxide mineralized material to reserves
is approximately 70%.
(3) BGL's historical conversion rate of transition mineralized material to
reserves is approximately 35%.
BGL also has existing sulphide mineralized material totaling
approximately 10.3 million tonnes grading 3.3 grams gold per tonne. While
technology used by previous owners of the BGL Property to process sulphide ore
at BGL proved unsuccessful, we intend to re-examine the feasibility of
processing the sulphide mineralized material using technology currently used in
other mining operations on similar sulphide mineralized material on the Ashanti
Trend.
OXIDE EXPLORATION
Although the oxide resources within the Main Crush Zone have largely
been identified, three other prospective areas remain: Coffee Plantation, Bogoso
South and Boppo North. Several prospects have also been identified on
subordinate splays to the Main Crush Zone. AMCL is of the opinion that
additional oxide resources remain to be identified in small (20,000 ounces)
deposits.
We believe that the potential for discovering additional oxide
mineralization is limited. Exploration for oxide resources would require a
sustained effort for the foreseeable future in order to maintain the feed from
the Bogoso concession to the mill. BGL currently expects to spend approximately
$1.0 million the next 12 months in connection with such exploration.
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SULPHIDE PLANS
BGL's defined sulphide mineralized material lies beneath only five of
the existing 37 open pits from which oxide mineralization has been mined (Bogoso
North, Marlu, Dumasi, Chujah and Nankafa). Most of the exploration and
evaluation work associated with the sulphide mineralized material took place in
the late 1980s and served as the basis for Billiton's feasibility study which
led to the construction of BGL's mining and processing facilities.
We intend to initiate studies to investigate the work required for
additional exploration metallurgical test work and engineering that would be
needed to conduct a full feasibility study for the potential development of a
new sulphide mining and processing operation on the Bogoso Property. See "Risk
Factors--The technology and cost of production of sulphide mineralized material
at the Bogoso Property may prove infeasible to warrant processing the material."
THE BOGOSO MINE
INFRASTRUCTURE
A 15 to 20 meter wide, well-maintained gravel haul road connecting the
mining operations runs through the Bogoso Property. The Bogoso Property is
connected to the national hydroelectric power grid and also has its own
multi-unit power generating backup system (6.4 Megawatts).
Telephone, fax and e-mail connections operate at the mine site.
MINING OPERATIONS
Since 1991, the mine has conducted open pit mining from 37 separate
pits. Currently, BGL is working five open pits (Chujah 3 South, Ablifa, Big Hill
West, Dumasi, and Boppoz) for oxide ore. BGL operates the mine 24 hours a day,
359 days per year. The pits are developed on lenses, or pods, of mineralization
that may be as narrow as 2 meters or may be in excess of 20 meters wide. Ore pod
lengths range from 10 meters to in excess of 100 meters and repeat at various
intervals along the strike. Any one pit may exploit one or more pods. BGL uses a
cut off grade of approximately 1.0 to 1.2 grams gold per tonne depending on the
haul distances. The mine carries out drill and blast (light) operations on 6
meter lifts with mining on 3 meter benches, using dozer rip lines and rotary air
blast drilling for grade control.
MINING FLEET
The mining fleet consists of excavators, 50 tonne haul trucks, front
end loaders, bulldozers, graders and other vehicles. Fleet capacity is
approximately 25,000 tons of ore and waste per day. Most of the fleet has been
in operation since 1991 and, without refurbishment, would be nearing the end of
normal, current economic life. BGL recently started purchasing additional
second-hand equipment and commenced a program to refurbish and/or overhaul
existing equipment that may be successful in extending equipment life for
several more years.
PROCESSING PLANT
Ore from the mine is crushed and conveyed to a crushed ore stockpile.
Stockpile ore is conveyed to a two-stage grinding circuit consisting of a
semi-autogenous grinding mill and a ball mill. The CIL circuit consists of five
tanks equipped with mechanical agitators. Gold recovery has ranged between 80 to
90% (average 86%) depending on the type of material being processed. The
sulphide flotation and thickening circuit is still in place, but the roaster and
associated equipment has been
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sold. An oxygen injection facility is currently being added to the leach tanks.
Gold ore is produced on site and transported weekly to Accra before being flown
out to Europe or South Africa for refining.
ENVIRONMENTAL AND REHABILITATION COSTS
BGL has adopted World Bank environmental standards and complied with
the environmental requirements imposed by Ghanaian laws and guidelines. In
addition, BGL has completed significant work over the past 12 to 18 months to
identify the outstanding reclamation liability and commenced rehabilitation
work. Such rehabilitation work includes:
o stabilize, contour and vegetate waste dumps;
o stabilize and vegetate open excavations, and in those cases where
transition or sulphide ore is exposed, to backfill all or part of the
pit; and
o carry out studies and trials on revegetation concepts, mine closure
liabilities and acid rock drainage.
Monthly expenditures for ongoing rehabilitation work, including the
capping of sulphide material and the contouring and revegetation of waste dumps,
have been approximately $170,000. On the Acquisition Date, BGL is required to
set aside $6 million from BGL's existing cash into a special-purpose bank
account that will be used to fund environmental rehabilitation work. Based on
current available information, we believe that this amount will be sufficient to
cover existing environmental rehabilitation work. See "The Acquisition--The
Acquisition Agreement--Allocation of BGL's Cash."
PERSONNEL
BGL currently employs approximately 535 employees. The following table
sets out the percentage split among the various departments:
MANNING
DEPARTMENT LEVEL
- ------------------------------------------------------- -------
Mining.............................................. 32%
Maintenance......................................... 27%
Metallurgy.......................................... 18%
Finance, Administration, Supply, Other.............. 23%
TOTAL............................................... 100%
BGL employs approximately 445 junior staff. Most of them are Ghanaians
and all of them are members of the Ghana Mineworkers' Union. That union and BGL
signed a collective agreement that sets out the terms and conditions of the
employment of BGL's junior staff. BGL employs approximately 73 senior staff,
excluding approximately 17 expatriate employees, pursuant to individual
employment agreements.
In accordance with the Acquisition Agreement, BGL terminated employment
of its union and several of its non-union employees on July 29, 1999. The
termination of these employees required the payment of $3 million in severance
pay, accrued holiday entitlements and other redundancy payments and was funded
by BGL's cash balances.
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CONTRACT WORK
BGL contracts catering, brush cutting, specialist mechanical,
exploration drilling, tire repair and fuel supply.
CURRENT PRODUCTION AND OPERATING COSTS
In 1998, BGL produced approximately 110,000 ounces of gold from mining
and processing approximately 1.9 million tonnes of ore at an average head grade
of approximately 2.2 grams gold per tonne and a stripping ratio of approximately
5.3:1. For the six months from July to December 1998, cash operating costs
averaged $234 per ounce. The costs during this period were inflated by
non-recurring contract mining charges related to a temporary increase in waste
stripping in the Chujah 3 South and the Chujah 2 East pits. BGL completed the
stripping before the end of November 1998. The BGL mining fleet has now been
increased and the ad-hoc use of contractors is not expected to be required in
the future.
For the 6 months from January 1999 to June 1999, cash operating costs
averaged $204 per ounce, which indicates a decrease in cash operating costs from
levels experienced in previous years. Cost reductions in 1999 have resulted
primarily from (a) increased ore production, (b) improved productivity, (c)
marginally better recoveries on the ore coming from the Chujah 3 South and
Chujah 2 East pits and (d) more competent drill and blast material.
POTENTIAL OPERATING COST IMPROVEMENTS
Based on our due diligence in preparation for the Acquisition and on
the information currently available to us, we anticipate that cost reductions
achieved over the last nine months can be maintained or improved. We intend to
attempt to achieve further savings from measures such as the following:
GRADE CONTROL
The mining operation consistently shows a positive ore variance and a
negative grade variance. These variances also suggest that the size of the
variance is related to the grade of the ore mined. Recently these variances have
been approximately 10%, while historical averages have been approximately 5%.
Better grade control methods should generate improved mill head grades that will
reduce cash operating costs.
OXYGEN PLANT
BGL recently completed the installation of an oxygen plant at a total
capital cost of $160,000. The oxygen plant is intended to enhance recoveries in
the mill process.
LABOR COSTS
Labor charges represent a high proportion of cash operating costs.
Based on our preliminary review in conjunction with existing BGL management, we
believe that cost savings can be achieved through the reduced number of local
and expatriate staff and through improved productivity.
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CAPITAL COSTS
We anticipate that budgeted capital expenditures of approximately $2.0
million for the next 12 months at the Bogoso Property will be covered by cash
flows from operations at the Bogoso Property.
GOLD SALES
BGL currently sells gold produced at the Bogoso Property on the spot
market. We intend to implement, at the earliest possible date after the
completion of the Acquisition, a gold hedging program to protect against
declines in the price of gold while maintaining to some degree participation in
upward movements in the gold price. Such a hedging program and any gold sales or
marketing agreements that BGL may enter into will require the approval of the
Government of Ghana.
USE OF PROCEEDS
Assuming the completion of the total offering covered by this
prospectus supplement, and without giving effect to the exercise of the
Warrants, we estimate the net proceeds to us from the sale of the Debentures and
Units, after deducting an estimated $1.3 million for agency fees and offering
expenses, to be approximately $6.2 million. We will pay 50% of the agent's fees
upon completion of this offering and, if the Acquisition is completed, the
remaining 50% upon completion of the Acquisition. We will use $4.5 million of
net proceeds to fund the Acquisition. We will use any remaining net proceeds for
working capital and general corporate purposes. To the extent the net proceeds
of this offering are less than $6.5 million, or if we are unable to reduce the
initial purchase price for the Bogoso Property, we intend to borrow the balance
of the initial purchase price for the Bogoso Property under the Credit Facility.
See "The Acquisition--The Credit Facility."
ESCROW ARRANGEMENTS
Fifty percent of this offering is contingent on the completion of the
Acquisition. We will retain 50% of the gross proceeds from this offering for our
general working capital needs, whether or not we complete the Acquisition. Fifty
percent of the gross proceeds from this offering, together with all of the
Debentures, Four-Year Warrants and the Units, will be deposited with IBJ
Whitehall Bank & Trust Company, as escrow agent, in an escrow account pursuant
to Rule 15c2-4 promulgated under the United States Securities Exchange Act of
1934 in equal proportions of Debentures, Four-Year Warrants and Units. IBJ
Whitehall will invest and reinvest the gross proceeds in the escrow account into
investments such as direct U.S. government obligations, certificates of deposit
with banks that are members of the Federal Reserve System, or commercial paper
of U.S. corporations having high credit ratings among various applicable U.S.
credit ratings agencies.
The funds and securities placed in escrow will be released immediately
before completion of the Acquisition. If we do not complete the Acquisition by
December 10, 1999, you will receive your Debentures, together with 50% of the
Four-Year Warrants, and 50% of the Units purchased and 50% of the gross proceeds
attributable to the sale of the Units, together with interest from the date we
complete this offering subject to deduction for Canadian withholding tax. See
"Canadian Federal Income Tax Considerations--Taxation of Common Shares and
Warrants--Interest." We will receive 50% of the Four-Year Warrants and 50% of
the Units, all of which we will cancel, and the escrowed proceeds attributable
to the sale of the Debentures. We will then be required to repurchase 50% of the
principal amount of the Debentures (on a pro rata basis) pursuant to a special
mandatory redemption at a purchase price equal to the principal amount being
repurchased, plus accrued and unpaid interest. See "The Acquisition--The
Acquisition Agreement--Conditions for Closing," "--Deadline for Satisfying
Conditions" and "Description of the Debentures--Special Mandatory Redemption."
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PRICE RANGE OF COMMON SHARES
Our common shares are traded on the American Stock Exchange under the
symbol "GSR" and on the Toronto Stock Exchange under the symbol "GSC." The
following table sets forth, for the periods indicated, the high and low sale
prices of our common shares for the American Stock Exchange and the Toronto
Stock Exchange.
AMERICAN TORONTO
STOCK EXCHANGE STOCK EXCHANGE
HIGH LOW HIGH LOW
(U.S.$) (CDN.$)
1996
First Quarter....... $ 16.25 $ 5.19 $ 22.00 $ 7.25
Second Quarter...... 19.13 12.88 26.00 17.25
Third Quarter....... 19.75 11.75 27.10 16.75
Fourth Quarter...... 21.00 12.75 28.25 18.00
1997
First Quarter....... $ 16.75 $ 10.13 $ 22.45 $ 14.25
Second Quarter...... 10.75 6.50 14.80 9.25
Third Quarter....... 8.13 4.00 11.00 5.55
Fourth Quarter...... 6.75 2.19 9.65 3.20
1998
First Quarter....... $ 4.81 $ 2.75 $ 7.00 $ 4.00
Second Quarter...... 4.50 2.06 6.50 3.05
Third Quarter....... 2.19 0.94 3.10 1.51
Fourth Quarter...... 2.75 0.94 4.10 1.45
1999
First Quarter....... $ 1.31 $ 0.68 $ 1.95 $ 0.95
Second Quarter...... 1.06 0.62 1.56 0.86
July 1 through
August 12.......... 0.81 0.44 1.05 0.75
DIVIDEND POLICY
We have not declared or paid cash dividends on our common shares since our
inception and do not expect to do so in the near future. In determining whether
to pay dividends in the future, our Board of Directors will consider our then
current business results, cash requirements and financial condition.
DESCRIPTION OF THE CONVERTIBLE DEBENTURES
The Debentures will be issued under a supplemental indenture, to be dated
the date of this closing of this offering, between our company and IBJ Whitehall
Bank & Trust Company, as trustee. The summary of certain provisions of the
indenture and the Debentures combined in this prospectus supplement or the
prospectus does not purport to be complete and are subject to, and are qualified
in their entirety by reference to, the detailed provisions of the Debentures and
the indenture, including the definitions of certain terms in the indenture.
References to interest and any other amounts payable in respect of the
Debentures shall include any Additional Amounts payable in respect of the
Debentures.
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GENERAL
The Debentures will be unsecured subordinated obligations of our company
and will mature on August 24, 2004. The Debentures will bear interest at the
rate of 7.50% per annum from August 24, 1999, payable semiannually on February
15 and August 15 of each year, commencing on February 15, 2000.
The Debentures will be convertible into common shares at the conversion
price of $0.70 subject to adjustment upon the occurrence of certain events
described under "--Conversion Rights," at any time prior to the close of
business on the maturity date, unless previously redeemed.
The Debentures will be redeemable by us (1) in the event of certain
developments involving Canadian withholding taxes as described below under
"--Redemption--Redemption for Taxation Reasons," at a redemption price of 100%
of the principal amount of the Debentures to be redeemed, plus accrued interest
to the redemption date and (2) at the option of our company, on or after August
, 2002 if the reported closing trading price on the American Stock Exchange (the
"Market Price") of our common shares as reported on the close of business for
any 20 of the 25 consecutive trading days immediately prior to the date notice
of redemption is given is at least 125% of the Conversion Price.
The Debentures will be unsecured obligations of our company and are
subordinated in right of payment to all our existing and future Senior
Indebtedness (as defined) and are effectively subordinated in right of payment
to all indebtedness and other liabilities of our subsidiaries. Neither the
Debentures nor the indenture limits or restricts the amount of or the terms and
conditions of other indebtedness which may be incurred or issued by us or our
subsidiaries or contains any financial or similar covenants of, or restrictions
on, our company.
FORM AND DENOMINATION
The Debentures will be issued only in fully registered form, without
exception. The Debentures may be issued in denominations of $1,000 and integral
multiples thereof. No service charge will be made for any registration of
transfer or exchange of Debentures, but we may require payment of a sum
sufficient to cover any tax or other government charge payable in connection
therewith.
We will issue certificates for the Debentures in definitive, fully
registered, non-global form, without interest coupons.
We have initially appointed the trustee at its corporate trust office as
paying agent, transfer agent, registrar and conversion agent for the Debentures.
In such capacities, the trustee will be responsible for, among other things:
o keeping a record of the holdings of Debentures and accepting
Debentures for exchange and registration of transfer;
o disbursing the payments of principal, premium, if any, and interest in
respect of the Debentures received by the trustee from our company in
due course to the Holders (as defined below) of Debentures;
o transmitting to our company any notices from holders;
o accepting conversion notices and related documents, and transmitting
these items to our company; and
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o delivering certificates for common shares issued on conversion of the
Debentures.
We will cause each transfer agent to act as a registrar and will cause to
be kept at the office of each transfer agent a register in which, subject to
such reasonable regulations as it may prescribe, we will provide for the
registration of the Debentures and registration of transfers of the Debentures.
We may designate one or more other offices or agencies where the Debentures may
be presented or surrendered for any or all of such purposes and may from time to
time rescind such designations. However, no such designation or rescission will
in any manner relieve us of our obligation to maintain an office or agency in
New York City. We will cause notice of any resignation, termination or
appointment of the trustee or any paying agent, transfer agent or conversion
agent, and of any change in the office through which any such agent will act, to
be provided to holders of the Debentures.
CONVERSION RIGHTS
The registered holder of any Debenture has the right, at the Holder's
option, to convert any portion of the principal amount of a Debenture that is an
integral multiple of $1,000 into common shares at any time prior to the close of
business on the maturity date, unless previously redeemed, at a conversion price
of $0.70 per share (subject to adjustment as described below). The right to
convert a Debenture called for redemption will terminate at the close of
business on the date of redemption (the "Redemption Date") for such Debenture.
The right of conversion attaching to any Debenture may be exercised by the
holder by delivering the Debenture at the specified office of IBJ Whitehall in
its capacity as conversion agent (see "--Payment and Conversion"), accompanied
by a duly signed and completed notice of conversion. The conversion date will be
the date on which the Debenture and the duly signed and completed notice of
conversion are so delivered. As promptly as practicable on or after the
conversion date, we will issue and deliver to the trustee a certificate or
certificates for the number of full common shares issuable upon conversion,
together with payment in lieu of any fraction of a share; such certificate will
be sent by the trustee to the appropriate Conversion Agent for delivery to the
holder. The common shares issuable upon conversion of the Debentures will be
fully paid and nonassessable and will rank equal in right of payment with our
other common shares outstanding from time to time. Any Debenture surrendered for
conversion during the period from the close of business on any Regular Record
Date to the opening of business on the next succeeding Interest Payment Date
(except Debentures called for redemption on a Redemption Date during such
period) must be accompanied by payment of an amount equal to the interest
payable on such Interest Payment Date on the principal amount of Debentures
being surrendered for conversion. In the case of any Debenture which has been
converted after any Regular Record Date but before the next Interest Payment
Date, interest which is payable on such Interest Payment Date shall be payable
on such Interest Payment Date notwithstanding such conversion, and such interest
shall be paid to the holder of such Debenture on such Regular Record Date. No
other payment or adjustment for interest, or for any dividends in respect of
common shares, will be made upon conversion. Holders of common shares issued
upon conversion will not be entitled to receive any dividends payable to holders
of common shares as of any record time before the close of business on the
conversion date. No fractional shares will be issued upon conversion but, in
lieu thereof, an appropriate amount will be paid in cash by our company based on
the Market Price of our common shares at the close of business on the day of
conversion.
A holder delivering a Debenture for conversion will not be required to pay
any taxes or duties in respect of the issue or delivery of common shares on
conversion but will be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue or delivery of the common shares
in a name other than that of the holder of the Debenture. Certificates
representing
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common shares will not be issued or delivered unless all taxes and duties, if
any, payable by the holder have been paid.
The conversion price is subject to adjustment upon the occurrence of
certain events, including, without duplication:
(1) the payment of dividends (and other distributions) in any class of our
equity capital;
(2) the issuance to all holders of our common shares of rights or warrants
entitling them to subscribe for or purchase common shares at less than
the then current market price (determined as of the record date for
stockholders entitled to receive such rights, option or warrants) of
such common shares;
(3) the subdivision, consolidation and reclassification of common shares;
(4) a distribution consisting exclusively of cash (excluding any cash
portion of distributions referred to in (6) below, or cash distributed
upon a consolidation, amalgamation, arrangement or merger to which the
next succeeding paragraph applies) to all holders of any class of
common shares in an aggregate amount that, combined together with:
(A) other such all-cash distributions made within the preceding 12
months in respect of which no adjustment has been made; and
(B) any cash plus the fair market value of other consideration
payable in respect of any tender offer (of the type described in
(5) below) by our company or any of our subsidiaries for any
class of common shares concluded within the preceding 12 months
in respect of which no adjustment has been made,
exceeding 12.5% of our market capitalization (for this purpose being
the product of the current Market Price per share of the applicable
common shares on the record date for such distribution times the
number of shares of all classes of common shares outstanding) on such
date;
(5) the payment to holders of any class of our common shares in respect of
an issuer bid, tender offer or other offer to purchase made by us or
any subsidiary of our company for common shares at a price in excess
of 110% of the current market price per share of such common shares on
the trading day next succeeding the last date tenders or other
available actions may be made pursuant to such issuer bid, tender
offer or other offer or exchange offer; and
(6) the distribution to all holders of common shares of evidences of
indebtedness of our company, shares of capital shares, cash or assets
(including securities, but excluding those dividends, rights, warrants
and distributions referred to above, dividends and distributions paid
exclusively in cash and consolidations, amalgamations, arrangements
and mergers to which paragraph (4) applies).
In case of any consolidation, or merger of our company with or into any
other corporation (other than a wholly-owned subsidiary of our company) or any
merger of any other corporation (other than a wholly-owned subsidiary of our
company) into our company (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of our common shares), or
in case of any sale or transfer of all or substantially all of the assets of our
company to any other corporation (other than a wholly-owned subsidiary of our
company) and treating our company and each of our
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subsidiaries as a single consolidated entity and treating any sale by a
subsidiary as a sale of our company for such purpose, each Debenture then
outstanding will, during the period such Debenture will be convertible (as
described below), become convertible only into the kind and amount of securities
and other property receivable upon such consolidation, merger, sale or transfer
by a holder of the number of common shares into which such Debenture was
convertible immediately prior thereto (assuming such holder of common shares
failed to exercise any rights of election and that such Debenture was then
convertible); provided that such securities and other property receivable
constitutes a "prescribed security," as that term is defined under the Income
Tax Act (Canada). See "Certain Canadian Federal Income Tax Considerations."
If at any time we make a distribution of property to our shareholders which
would be taxable to such shareholders as a dividend for United States federal
income tax purposes (E.G., distributions of evidences of indebtedness or assets
of our company, but generally not dividends on common shares or rights to
subscribe for common shares) and, pursuant to the anti-dilution provisions of
the indenture, the number of shares into which Debentures are convertible is
increased, such increase may be deemed for U.S. federal income tax purposes to
be the payment of a taxable dividend to holders of Debentures. See "Certain
United States Federal Income Tax Considerations--Adjustments to Conversion
Price."
SUBORDINATION
The payment of the principal of, premium, if any, and interest on, and the
redemption of, the Debentures is subordinated in right of payment to the extent
set forth in the indenture to the prior payment in full of the principal of,
premium, if any, interest and other amounts owing in respect of all Senior
Indebtedness of our company. The principal amount of outstanding unconsolidated
Senior Indebtedness of our company was approximately $2.7 million at June 30,
1999. Senior Indebtedness includes:
(1) indebtedness, obligations and other liabilities (contingent or
otherwise) of our company for money borrowed, or evidenced by bonds,
debentures, notes or similar instruments;
(2) reimbursement obligations and other liabilities (contingent or
otherwise) of our company with respect to letters of credit or
banker's acceptances issued for the account of our company and
interest rate protection agreements and currency exchange or purchase
agreements;
(3) obligations and liabilities (contingent or otherwise) related to
capitalized lease obligations;
(4) indebtedness, obligations and other liabilities (contingent or
otherwise) of our company related to agreements or arrangements
designed to protect our company or any of our subsidiaries against
fluctuations in commodity prices, including, without limitation,
commodity futures contracts or similar hedging instruments;
(5) indebtedness of others of kinds described in the preceding clauses (1)
through (4) that we have assumed, guaranteed or otherwise assured the
payment of directly or indirectly;
(6) any indebtedness of another person of the type described in the
preceding clauses (1) through (5) secured by any mortgage, pledge,
lien or other encumbrance on property owned or held by our company;
and
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(7) any and all deferrals, renewals, extensions and refundings of, or
amendments, modifications or supplements to, any indebtedness,
obligation or liability described in clauses (1) through (6) whether
or not there is any notice to or consent of the holders of Debentures;
unless, in any case, in the instrument creating or evidencing such
indebtedness, obligation, liability, guaranty, assumption, deferral,
renewal, extension or refunding, it is expressly stated that such
indebtedness, obligation, liability, guarantee, assumption, deferral,
renewal, extension or refunding, it is expressly stated that such
indebtedness, obligation, liability, guarantee, assumption, deferral,
renewal, extension or refunding is not senior in right of payment to the
Debentures or that such indebtedness is equal in right of payment with or
junior to the Debentures.
Such Senior Indebtedness shall continue to be Senior Indebtedness and be
entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any term of such Senior Indebtedness.
No payment on account of principal of, premium, if any, or interest on, or
redemption of, the Debentures may be made by us if there is a default in the
payment of principal, premium, if any, or interest (including a default under
any redemption obligation) or other amounts with respect to any Senior
Indebtedness beyond any applicable grace period or if any other event of default
with respect to any Senior Indebtedness, permitting the holders thereof to
accelerate the maturity thereof, has occurred and have not been cured or waived
or has not ceased to exist after written notice to us and the trustee by any
holder of Senior Indebtedness. Upon any acceleration of the principal due on the
Debentures or payment or distribution of assets of our company to creditors upon
any dissolution, winding up, liquidation or reorganization, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other proceedings,
all principal, premium, if any, and interest or other amounts due on all Senior
Indebtedness must be paid in full before the holders of the Debentures are
entitled to receive any payment thereon. By reason of such subordination, in the
event of insolvency, creditors of our company who are holders of Senior
Indebtedness may recover more, ratably, than the holders of the Debentures, and
such subordination may result in a reduction or elimination of payments to the
holders of the Debentures.
In addition, the Debentures are structurally subordinated to all
indebtedness and other liabilities (including trade payables and lease
obligations) of our subsidiaries, as any right of our company to receive any
assets of our subsidiaries upon their liquidation or reorganization (and the
consequent right of the holders of the Debentures to participate in those
assets) will be effectively subordinated to the claims of that subsidiary's
creditors (including trade creditors), except to the extent that we are
recognized as a creditor of such subsidiary, in which case the claims of our
company would still be subordinate to any security interest in the assets of
such subsidiary and any indebtedness of such subsidiary senior to that held by
our company. As of June 30, 1999, there was outstanding approximately $0.9
million of indebtedness and other liabilities of subsidiaries of our company
(excluding intercompany indebtedness).
The indenture does not limit our ability to incur Senior Indebtedness or
any other indebtedness.
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REDEMPTION
OPTIONAL REDEMPTION
Subject to the discussion under "--Redemption for Taxation Reasons" below,
the Debentures may not be redeemed at our option before August 24, 2002. The
Debentures may be redeemed, in whole or in part, at our option on or after
August 24, 2002 and before August 24, 2004, at the redemption prices specified
below, upon not less than 30 nor more than 60 days' prior notice as provided
under "--Notices" below. However, the Debentures will be redeemable at our
option on or after August 24, 2002 if the last reported Market Price of our
common shares as reported on the close of business for any 20 of the 25
consecutive trading days immediately prior to the date notice of redemption is
given is equal to or greater than 125% of the Conversion Price.
The redemption prices (expressed as a percentage of principal amount) are
as follows for the 12-month period beginning on August 24 of the following
years, in each case together with accrued interest to the date of redemption:
Redemption
YEAR Price
---- -----
2002.................................................... 103.750%
2003.................................................... 101.875%
2004.................................................... 100.000%
After August 24, 2004, the Redemption Price will be equal to 100% of the
principal amount of the Debentures to be redeemed, together with accrued
interest to the date of redemption.
REDEMPTION FOR TAXATION REASONS
We may redeem the Debentures, in whole but not in part, at 100% of the
principal amount thereof, together with accrued interest thereon to the
redemption date, if we have become or would become obligated to pay, on the next
date on which any amount would be payable with respect to the Debentures, any
Additional Amounts (as described below under "--Payment of Additional Amounts)
as a result of a change in the laws (including any regulations promulgated
thereunder) of Canada (or any political subdivision or taxing authority thereof
or therein), or any change in any official position regarding the application or
interpretation of such laws or regulations, which change is announced or becomes
effective after the date the Debentures are issued; provided that we determine,
in our business judgment, that our obligation to pay Additional Amounts cannot
be avoided by our use of reasonable measures available to us (not including
substitution of our company as the obligor under the Debentures).
SPECIAL MANDATORY REDEMPTION
If we do not complete the Acquisition by the earlier of (i) December 10,
1999 and (2) that date on which the Acquisition is terminated or abandoned (the
"Acquisition Failure Date"), each holder of Debentures will receive delivery of
the Debentures purchased, and the escrowed proceeds from the sale of the
Debentures will be delivered to us. We will then be required to repurchase, as
soon as possible but in any event, within 30 days of the Acquisition Failure
Date, 50% of the principal amount of the Debentures (on a pro rata basis)
pursuant to a special mandatory redemption at a purchase price equal to the
principal amount of the Debentures being purchased plus accrued and unpaid
interest. Failure to complete the Acquisition will not constitute an event of
default under the
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indenture. Failure to comply with the provisions of the special mandatory
redemption will, however, constitute an event of default under the indenture.
Holders of Debentures will be obligated to surrender Debentures held by
them to us pursuant to the special mandatory redemption. Notice of the special
mandatory redemption will be delivered to holders of Debentures promptly
following the Acquisition Failure Date.
PAYMENT AND CONVERSION
The principal of Debentures is payable in U.S. dollars, against surrender
thereof at the Corporate Trust Office of the trustee in the Borough of
Manhattan, The City of New York. Payment of any installment of interest on the
Debentures will be made to the person in whose name such Debentures (or any
predecessor Debenture) is registered at the close of business on the February 1
or August 1 (whether or not a Business Day) immediately preceding the relevant
Interest Payment Date (a "Regular Record Date"). Payments of such interest will
be made at the office or agency maintained for that purpose, or, at our option,
by a dollar check drawn on a bank in New York City mailed to the holder at such
holder's registered address.
Any payment on the Debentures due on any day which is not a Business Day
need not be made on such day, but may be made on the succeeding Business Day
with the same force and effect as if made on such due date, and no interest
shall accrue on such payment for the period from and after such date. "Business
Day," when used with respect to any place of payment, place of conversion or any
other place, as the case may be, means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in such place of
payment, place of conversion or other place, as the case may be, are authorized
or obligated by law or executive order to close; provided, however, that a day
on which banking institutions in New York, New York are authorized or obligated
by law or executive order to close shall not be a Business Day for certain
purposes.
Debentures may be surrendered for conversion at the Corporate Trust Office
of the trustee in the Borough of Manhattan, The City of New York. Debentures
surrendered for conversion must be accompanied by appropriate notices and any
payments in respect of interest or taxes, as applicable, as described above
under "--Conversion Rights."
We have initially appointed the Trustee as Paying Agent and Conversion
Agent. The Company may at any time terminate the appointment of any Paying Agent
or Conversion Agent and appoint additional or other Paying Agents and Conversion
Agents, except that until the Debentures have been delivered to the Trustee for
cancellation, or monies sufficient to pay the principal of, premium, if any, and
interest on the Debentures have been made available for payment and either paid
or returned to our company as provided in the indenture, we will maintain an
office or agency in the Borough of Manhattan, The City of New York for surrender
of Debentures for conversion (but only in the circumstances described in the
second sentence of the immediately preceding paragraph). Notice of any such
termination or appointment and of any change in the office through which any
Paying Agent or Conversion Agent will act will be given in accordance with
"--Notices" below.
Interest payable on Debentures on any redemption date that is an Interest
Payment Date will be paid to the holders of record as of the immediately
preceding Regular Record Date.
All monies deposited with the Trustee or any Paying Agent, or then held by
our company, in trust for the payment of principal of, premium, if any, or
interest on any Debentures which remain unclaimed at the end of two years after
such payment has become due and payable will be repaid to
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our company, and the holder of such Debenture will thereafter look only to our
company for payment thereof.
PAYMENT OF ADDITIONAL AMOUNTS
All payments made by our company under or with respect to the Debentures
will be made free and clear of and without withholding or deduction for or on
account of any present or future tax, duty, levy, impost, assessment or other
governmental charge imposed or levied by or on behalf of the Government of
Canada or of any province or territory thereof or by any authority or agency
therein or thereof having power to tax (collectively, "Taxes"), unless we are
required to withhold or deduct Taxes by law or by the interpretation or
administration thereof. If we are so required to withhold or deduct any amount
for or on account of Taxes from any payment made under or with respect to the
Debentures, we will pay such additional amounts ("Additional Amounts") as may be
necessary so that the net amount received by each holder (including Additional
Amounts) after such withholding or deduction will not be less than the amount
the holder would have received if such Taxes had not been withheld or deducted;
provided that no Additional Amounts will be payable with respect to a payment
made to a holder (an "Excluded Holder") (1) with which we do not deal at arm's
length (within the meaning of the Income Tax Act (Canada)) at the time of making
such payment or (2) which is subject to such Taxes by reason of its being
connected with Canada or any province or territory thereof otherwise than by the
mere holding of Debentures or the receipt of payments thereunder. We will also
(1) make such withholding or deduction and (2) remit the full amount deducted or
withheld to the relevant authority in accordance with applicable law. We will
furnish to the holders of the Debentures, within 30 days after the date the
payment of any Taxes is due pursuant to applicable law, certified copies of tax
receipts evidencing such payment by our company. We will indemnify and hold
harmless each holder (other than an Excluded Holder) and upon written request
reimburse each such holder for the amount of (a) any Taxes so levied or imposed
and paid by such holder as a result of payments made under or with respect to
the Debentures, (b) any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto, and (c) any Taxes imposed with
respect to any reimbursement under (a) or (b), but excluding any such Taxes on
such holders' net income.
At least 30 days before each date on which any payment under or with
respect to the Debentures is due and payable, if we will be obligated to pay
Additional Amounts with respect to such payment, we will deliver to the trustee
an Officers' Certificate stating the fact that such Additional Amounts will be
payable, stating the amounts so payable and setting forth such other information
as is necessary to enable the trustee to pay such Additional Amounts to holders
on the payment date.
AMALGAMATIONS, MERGERS AND SALES OF ASSETS BY OUR COMPANY
The indenture provides that we will not consolidate with or merge into any
other corporation (other than a wholly-owned subsidiary of our company) or
convey, transfer, sell or lease our properties and assets substantially as an
entirety (treating our company and each subsidiary of our company as a single
consolidated entity and treating any sale by a subsidiary or of a subsidiary
(including a merger) as a sale by our company for such purpose) to any
corporation (other than a wholly-owned subsidiary of the company), and that we
will not permit any corporation (other than a wholly owned subsidiary of our
company) to consolidate with or merge into our company or convey, transfer or
lease its properties and assets substantially as an entirety to our company,
unless:
o we will consolidate with or merge into another corporation or convey,
transfer or lease our properties and assets substantially as an
entirety (treating our company and each subsidiary of our company as a
single consolidated entity and treating any sale by a subsidiary or of
a
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subsidiary (including a merger) as a sale by our company for such
purpose) to any corporation, where the corporation formed by such
consolidation or into which we are merged or the corporation which
acquires by conveyance or transfer, or which leases, the properties
and assets of our company substantially as an entirety (treating our
company and each subsidiary of our company as a single consolidated
entity and treating any sale by a subsidiary or of a subsidiary
(including by merger) as a sale by our company for such purpose), will
be organized and existing under the laws of the United States of
America or a state thereof or the District of Columbia, or the laws of
Canada or a province thereof, and such corporation will expressly
assume, by an indenture supplemental hereto, executed and delivered to
the trustee, in form satisfactory to the trustee, the due and punctual
payment of the principal of and any premium and interest on all the
Debentures and the performance or observance of every covenant of the
indenture on the part of our company to be performed or observed;
o the trustee will have received an opinion of counsel to the effect
that the transaction will not result in the successor being required
to make any deduction or withholding on account of any Taxes from any
payments in respect of the Debentures, which deduction or withholding
is greater than any deduction or withholding to which we were subject
prior to the transaction;
o immediately after giving effect to such transaction (treating any
indebtedness which becomes an obligation of our company, or any
subsidiary, as a result of such transaction as having been incurred by
our company, or such subsidiary, at the time of such transaction), no
Event of Default, and no event which, after notice or lapse of time or
both, would become an Event of Default, will have happened and be
continuing;
o we have delivered to the trustee an officers' certificate and an
opinion of counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is
required in connection with such transaction, such supplemental
indenture, comply with the article of the indenture addressing such
consolidation, merger, conveyance, transfer or lease, and that all
conditions precedent herein provided for relating to such transaction
have been complied with; and
o the securities or other property receivable in connection with such
transaction constitute prescribed securities.
EVENTS OF DEFAULT
Events of Default under the indenture include, among others:
o a default in the payment of any interest upon any Debentures when the
same becomes due and payable, and continuance of such default for the
period of 30 days (whether or not such failure is a result of the
subordination provisions relating to the Debentures);
o a default in the payment of the principal of (or premium, if any, on)
any Debenture at its maturity (whether or not such failure is a result
of the subordination provisions relating to the Debentures);
o a default in the performance of our company, or a breach of any
covenant or warranty of our company in the indenture or of any other
covenant to which we or any Significant Subsidiary may become subject,
with respect to the Debentures and continuance of such default or
breach for a period of 90 days after written notice to our company by
the trustee or to our company
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and the trustee by the holders of at least 25% in principal amount of
the Debentures outstanding;
o a default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by our company or any Significant
Subsidiary having an aggregate principal amount outstanding of at
least $10,000,000 or under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed by our company or any
Significant Subsidiary having an aggregate principal amount
outstanding of at least $10,000,000, whether such indebtedness now
exists or shall hereafter be created, after the expiration of any
applicable grace period with respect thereto;
o failure to comply with the provisions of the special mandatory
redemption; and
o certain events of bankruptcy, insolvency or reorganization involving
our company or any Significant Subsidiary.
As used in this document, "Significant Subsidiary" means any subsidiary
that would be a significant subsidiary as defined under the Regulation S-X under
the Securities Act of 1933 and Securities Exchange Act of 1934.
Subject to the provisions of the indenture relating to the duties of the
trustee in case an Event of Default shall occur and be continuing, the trustee
is under no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any of the holders, unless such holders
have offered to the Trustee reasonable indemnity. Subject to such provisions for
the indemnification of the trustee, the holders of a majority in aggregate
principal amount of the outstanding Debentures have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the trustee or exercising any trust or power conferred on the trustee.
If an Event of Default has occurred and is continuing, either the trustee
or the holders of at least 25% in principal amount of the outstanding Debentures
may accelerate the maturity of all Debentures. However, after such acceleration,
but before a judgment or decree based on acceleration, the holders of a majority
in aggregate principal amount of outstanding Debentures may, under certain
circumstances, rescind and annul such acceleration, if all Events of Default,
other than the non-payment of accelerated principal, have been cured or waived
as provided in the indenture. For information as to the waiver of defaults, see
"--Modification and Waiver."
No holder of any Debenture has any right to institute any proceeding with
respect to the indenture or for any remedy thereunder, unless the holder has
previously given to the trustee written notice of a continuing Event of Default
and the holders of at least 25% in aggregate principal amount of the outstanding
Debentures have made written request, and offered reasonable indemnity, to the
trustee to institute such proceeding as trustee. In addition, the trustee must
not have received from the holders of a majority in aggregate principal amount
of the outstanding Debentures a direction inconsistent with such request or
failed to institute any such proceeding within 60 days. However, such
limitations do not apply to a suit instituted by a holder of a Debenture for the
enforcement of payment of the principal of, premium, if any, or interest on such
Debenture on or after the respective due dates expressed in such Debenture or of
the right to convert such Debenture in accordance with the indenture.
We are required to furnish to the trustee annually a statement as to our
performance of certain of our obligations under the indenture and as to any
default in such performance. We are further required to furnish to the Trustee
an officer's certificate which indicates when any Event of Default has occurred
or is continuing under the indenture within five business days of the
occurrence of the Event of Default.
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MODIFICATION AND WAIVER
Modifications and amendments of the indenture may be made, and certain past
defaults by our company may be waived, with the consent of the holders of not
less than a majority in aggregate principal amount of the Debentures at the time
outstanding. However, no such modification or amendment may, without the consent
of the holder of each outstanding Debenture affected thereby:
o change the maturity or stated maturity of the principal of, or any
installment of interest on, any Debenture;
o reduce the principal amount of, or the premium, if any, or interest
on, any Debenture;
o reduce the amount payable upon a redemption;
o change the place or currency of payment of principal of, premium, if
any, or interest on, any Debenture;
o impair the right to institute suit for the enforcement of any payment
on or with respect to any Debenture;
o adversely affect the right to convert Debentures;
o modify the subordination provisions in a manner adverse to the holders
of the Debentures;
o reduce the above-stated percentage of outstanding Debentures necessary
to modify or amend the indenture; or
o reduce the percentage of aggregate principal amount of outstanding
Debentures necessary for waiver of compliance with certain provisions
of the indenture or for waiver of certain defaults.
The holders of a majority in aggregate principal amount of the outstanding
Debentures may waive compliance by our company with certain restrictive
provisions of the indenture by written consent. The holders of a majority in
aggregate principal amount of the outstanding Debentures also may waive any past
default under the indenture, except a default in the payment of principal,
premium, if any, or interest, by written consent.
TRANSFER AND EXCHANGE
We have initially appointed the trustee as security registrar and transfer
agent, acting through its Corporate Trust Offices in New York City. We reserve
the right to vary or terminate the appointment of the security registrar or of
any transfer agent or to appoint additional or other transfer agents or to
approve any change in the office through which any security registrar or any
transfer agent acts.
In the event of a redemption of less than all of the Debentures for any of
the reasons set forth above under "--Redemption," we will not be required (1) to
issue or register the transfer or exchange of Debentures during a period
beginning at the opening of business 15 days before the day of the mailing of a
notice of redemption of Debentures and ending at the close of business on the
day of such mailing, or (2) to register the transfer of or exchange any
Debenture, or portion thereof, called
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for redemption, except that in the case of any Debenture to be redeemed in part,
the portion thereof may not be redeemed.
NOTICES
Notices to holders of Debentures will be given by mail to the addresses of
such holders as they appear in the Security Register. Such notices will be
deemed to have been given on the date of such mailing.
Notice of a redemption of Debentures will be given at least once not less
than 30 nor more than 60 days prior to the redemption date (which notice shall
be published in accordance with the procedures described above) and will specify
the redemption date.
REPLACEMENT OF DEBENTURES
Debentures that become mutilated, destroyed, stolen or lost will be
replaced by our company at the expense of the holder upon delivery to the
trustee of the mutilated Debentures or evidence of the loss, theft or
destruction thereof satisfactory to our company and the trustee. In the case of
a lost, stolen or destroyed Debenture, indemnity satisfactory to the trustee and
our company may be required at the expense of the holder of such Debenture
before a replacement Debenture will be issued.
GOVERNING LAW
The Indenture and the Debentures are governed by and construed in
accordance with the laws of the State of New York, United States of America. We
will submit to the jurisdiction of any federal or state court in New York City,
Borough of Manhattan, for purpose of all legal actions and proceedings
instituted in connection with the Debentures and the indenture. We have
appointed CT Corporation, New York, New York as our authorized agent upon which
process may be served in any such action.
THE TRUSTEE
In case an Event of Default occurs (and is not cured), the trustee will be
required to use the degree of care of a prudent person in the conduct of his own
affairs in the exercise of its powers. Subject to such provisions, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request of any of the holders of Debentures, unless they shall
have offered to the trustee reasonable security or indemnity.
DESCRIPTION OF THE COMMON SHARES
As at June 30, 1999, there were 29,638,231 common shares of our company
outstanding and held of record by approximately 833 shareholders. Our
shareholders are entitled to receive dividends as, when and if declared by our
board of directors out of funds legally available therefor, except that if any
preferred shares of our company are outstanding at the time, the payment of
dividends on common shares will be subject to any preferential rights attaching
to any other class or series of shares of our company.
Our shareholders are entitled to one vote for each common share on all
matters voted on by shareholders, including the election of directors.
Shareholders do not have any conversion,
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redemption or preemptive rights. In the event of dissolution, liquidation or
winding up of our company, shareholders are entitled to share rateably in any
assets remaining after the satisfaction in full of the prior rights of
creditors, including holders of our company's indebtedness, and the aggregate
liquidation preference of any other class or series of shares then outstanding.
All outstanding common shares are fully paid and non-assessable.
At our June 15, 1999 annual general meeting, we extended our Shareholders'
Rights Plan, dated April 24, 1996, to June 30, 2004.
DESCRIPTION OF THE WARRANTS
The Warrants will be issued directly from our company to the
warrantholders. The Warrants are subject to the terms stated in each Warrant
certificate and warrantholders are referred to the Warrant certificates for a
statement thereof. The following summaries of certain provisions of the Warrants
do not purport to be complete, and are subject to the principal provisions to be
included in the Warrant certificates. Except as described below, (1) each whole
Eighteen-Month Warrant will entitle a warrantholder to purchase one common share
of our company at the exercise price of $0.70 per share, and (2) each whole
Four-Year Warrant will entitle a warrantholder to purchase one common share at
the exercise price of $1.50 per share until August 24, 2001, and $1.75 until
August 24, 2003, in each case subject to certain adjustments upon the occurrence
of certain events as described below. The Warrants will be exercisable
immediately upon the closing of the offering. Warrants not exercised on or prior
to the date which is 18 months after the completion of this offering, in the
case of the Eighteen-Month Warrants, or four years thereafter in the case of the
Four-Year Warrants, will become void and all rights in respect thereof will
cease as of that time.
The Warrants provide that the exercise price and the number of common
shares issuable upon exercise of each Warrant will be adjusted in the event of
any stock split, a stock combination, a stock dividend or a spin-off with
respect to our common shares. If we conduct certain rights offerings, the
Warrants provide that the exercise price will be adjusted, or, in certain
situations, a warrantholder will instead receive cash. The Warrants further
provide that in case of any capital reorganization of our company, any
reclassification of our company's common shares, any consolidation or merger of
our company with or into any other person, or any sale, lease or transfer to any
person of all or substantially all of the assets of our company to any other
person, the warrantholder of each outstanding Warrant will have the right, upon
subsequent exercise of the Warrant, to receive the kind and amount of stock,
other securities or assets receivable upon such reorganization,
reclassification, consolidation, merger or sale, lease or transfer that would
have been received by such warrantholder upon the exercise of the Warrant had
such Warrant been exercised immediately prior to that event, and the exercise
price will be adjusted appropriately.
Fractional common shares will not be issued upon exercise of the Warrants.
Instead, a cash adjustment based on the last sale price of our common shares as
reported on the American Stock Exchange on the date of exercise will be made.
The Warrants do not confer upon a warrantholder any voting, preemptive or other
rights as a shareholder of our company.
Warrants may be exercised at any time between the date we complete this
offering and 18 months thereafter, in the case of the Eighteen-Month Warrants,
and four years thereafter in the case of the Four-Year Warrants, by the
surrender to our company of a duly executed certificate evidencing the Warrants
accompanied by payment in full by a certified or official bank check, payable to
the order of our company, for the exercise price multiplied by the number of
common shares to be acquired pursuant to such exercise.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States federal income tax
considerations applicable to holders of the Warrants ("U.S. Warrant Holders"),
Common Shares ("U.S. Shareholders") and Debentures that acquire the Debentures
at their original issue at their original offering price ("U.S. Debenture
Holders") who are U.S. persons (together, "U.S. Holders"). This summary is for
general information purposes only and is based on the United States Internal
Revenue Code of 1986, Treasury regulations promulgated thereunder, and judicial
and administrative interpretations thereof, all as in effect on this date and
all of which are subject to change. We have not sought a ruling from the
Internal Revenue Service ("IRS") with respect to the application of any of the
foregoing authorities to the operation of our company. The tax treatment to a
U.S. Holder may vary depending upon his particular situation. Certain holders
(including, but not limited to, persons that are not United States persons,
banks, insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, persons subject to the alternative minimum tax, persons having a
"functional currency" other than the United States dollar and holders that will
hold Debentures or Units as a position in a "straddle," as part of a "synthetic
security" or hedge, or a part of a "conversion transaction" or other integrated
investment) may be subject to special rules not discussed below. The following
summary is limited to U.S. Holders who will hold the Common Shares and
Debentures as "capital assets" within the meaning of Section 1221 of the
Internal Revenue Code and do not actually or constructively own 10% or more of
our voting stock. Additionally, the discussion below does not address the effect
of any state, local or foreign tax law on a U.S. Holder.
Accordingly, all prospective U.S. Holders are urged to consult their own
tax advisors with respect to the purchase, ownership and disposition of Common
Shares, Warrants and Debentures.
As used herein, the term "United States person" means:
o an individual who is citizen or resident of the United States;
o a partnership, corporation or other entity organized in or under the laws
of the United States or any state thereof;
o an estate, the income of which is subject to U.S. federal income tax,
regardless of source; or
o a trust if (a) a court within the United States is able to exercise primary
supervision over the administration of the trust, and (b) one or more
United States persons have the authority to control all substantial
decisions of the trust.
TAXATION OF DEBENTURES
INCOME INCLUSION
For United States federal income tax purposes payments, including any
Additional Amounts and any amount of Canadian tax withheld with respect to such
payments, with respect to the Debentures should constitute interest that will
generally be taxable to a U.S. Note Holder as ordinary income at the time
received or accrued, in accordance with such holder's method of accounting.
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SOURCE OF INTEREST AND FOREIGN TAX CREDIT
Interest paid with respect to the Debentures generally will be treated as
having a source outside of the United States. Subject to certain complex
limitations set forth in the Internal Revenue Code, as modified by the United
States-Canada income tax treaty, U.S. Note Holders may elect to claim a credit
against their United States federal income tax liability for Canadian income tax
withheld (if any) from interest received in respect of Debentures. Interest paid
with respect to the Debentures will be treated as "passive" or "financial
services" income (or, if Canadian withholding tax at a rate of 5% or more were
to be imposed, as "high withholding tax interest" income) for purposes of
computing the foreign tax credit. The rules relating to the determination of the
foreign tax credit are complex and prospective purchasers should consult their
personal tax advisors to determine whether and to what extent they would be
entitled to such credit. U.S. Note Holders that do not elect to claim foreign
tax credits may instead claim a deduction for Canadian income tax withheld (if
any).
SALE, EXCHANGE AND RETIREMENT
Subject to the "PFIC" discussion below, upon the sale, exchange, retirement
or redemption of a Note, a U.S. Note Holder generally will recognize capital
gain or loss equal to the difference between the amount realized upon the sale,
exchange, retirement or redemption (other than amounts received that are
attributable to accrued interest not previously included in income, which
amounts will be taxable as ordinary income) and the adjusted tax basis of the
Note. Capital gain or loss will be long-term capital gain or loss if the holding
period for the Note is more than one year. For U.S. Note Holders that are not
corporations, including individuals, the maximum federal income tax rate for
such holders on long-term capital gain will be 20% for most capital assets
(including the Debentures) held for more than one year. The deductibility of
capital losses sustained with respect to the Debentures is subject to
limitations. In the case of a U.S. Note Holder who is a "United States resident"
as defined in Section 865 of the Internal Revenue Code, any gain with respect to
Debentures will generally be treated as U.S. source. Losses with respect to
Debentures in the case of a U.S. Note Holder who is a United States resident as
defined in Section 865 of the Internal Revenue Code will generally be allocated
to reduce United States source income.
ADJUSTMENTS TO CONVERSION PRICE
The conversion price of the Debentures is subject to adjustment under
certain circumstances. SEE "Description of Debentures - Conversion Rights."
Section 305 of the Internal Revenue Code may treat a U.S. Note Holder as
receiving a constructive distribution, taxable as a dividend to the extent of
our company's current or accumulated earnings and profits, in the case of
certain adjustments in the conversion rate of the Debentures that may occur in
limited circumstances, particularly an adjustment to reflect a taxable dividend
to holders of the Common Shares. See "Passive Foreign Investment Company Rules."
CONVERSION OF DEBENTURES INTO COMMON SHARES
Generally, no gain or loss will be recognized for United States federal
income tax purposes on a conversion of the Debentures into Common Shares. Cash
paid instead of fractional shares of Common Shares will, however, result in
capital gain (or loss) to the extent of the difference between the amount of
cash paid and the portion of the adjusted basis of the Note allocable to such
fractional share. The adjusted basis of Common Shares received on conversion
will equal the adjusted basis of the Note converted, reduced by the portion of
such adjusted basis allocated to any fractional Common Share deemed exchanged
for cash and increased by any additional amount paid upon such conversion. The
holding period of the Common Shares received on conversion will include the
period during
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which the converted Debentures were held. As further described below and subject
to the PFIC discussion below, gain or loss will be recognized upon the
subsequent sale or exchange of the Common Shares acquired by conversion of
Debentures, measured by the difference between the amount realized upon the sale
or exchange and the cost basis of the Common Shares so acquired.
TAXATION OF WARRANTS
EXERCISE OF WARRANT
No gain or loss will be recognized by U.S. Warrant Holders upon the
exercise of any Warrant. The cost basis of the Common Shares acquired upon such
exercise will be the cost basis of the Warrant plus any additional amount paid
upon the exercise of the Warrant. As further described below, gain or loss will
be recognized upon the subsequent sale or exchange of the Common Shares acquired
by the exercise of the Warrant, measured by the difference between the amount
realized upon the sale or exchange and the cost basis of the Common Shares so
acquired.
SALE OR EXCHANGE OF WARRANT
If a Warrant is not exercised, but is sold or exchanged (whether pursuant
to redemption or otherwise), gain or loss will be recognized upon such event,
measured by the difference between the amount realized by the holder of the
Warrant as a result of sale, exchange or redemption and the cost basis of the
Warrant. See "- Taxation of Debentures - Sale, Exchange, Retirement" for a
description of the rules applicable to capital gains and losses.
EXPIRATION OF WARRANT
If a Warrant is not exercised and is allowed to expire, the Warrant will be
deemed to be sold or exchanged on the date of expiration. In this event, the
holder of the Warrant will recognize a capital loss to the extent of the cost
basis of the Warrant.
TAXATION OF COMMON SHARES
AMOUNT INCLUDIBLE IN INCOME
Subject to the PFIC rules described below, for United States federal income
tax purposes, dividends paid by our company (including any Canadian tax withheld
thereon) will constitute ordinary dividend income to the extent of our company's
current or accumulated earnings and profits as determined for U.S. Federal
income tax purposes, and to the extent in excess of earnings and profits, will
first be applied against and reduce the shareholder's basis in such holder's
stock, and to the extent in excess of such basis will be treated as gain from
the sale or exchange of property. Because we are not a U.S. corporation,
dividends that we pay will not be eligible for the dividends-received deduction
generally available to corporations.
FOREIGN TAX CREDIT
Subject to limitations set forth in the Internal Revenue Code, as modified
by the United States-Canada income tax treaty, U.S. Shareholders may elect to
claim a credit against their United States federal income tax liability for
Canadian income tax withheld from dividends received in respect of Common
Shares. Dividends paid with respect to the Common Shares will be treated as
"passive" income (or, if Canadian withholding tax at a rate of 5% or more were
to be imposed, as "high withholding tax interest" income) for purposes of
computing the foreign tax credit. The rules relating
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to the determination of the foreign tax credit are complex and prospective U.S.
Shareholders should consult their personal tax advisors to determine whether and
to what extent they would be entitled to such credit. U.S. Shareholders that do
not elect to claim foreign tax credits may instead claim a deduction for
Canadian income tax withheld.
SALE OF COMMON SHARES
Subject to the "PFIC" discussion below, the sale of Common Shares generally
will result in the recognition of gain or loss in an amount equal to the
difference between the amount realized on the sale and the holder's adjusted
basis in the Common Shares. SEE "--Taxation of Debentures--Sale, Exchange,
Retirement" for a description of the rules applicable to capital gains and
losses.
PASSIVE FOREIGN INVESTMENT COMPANY RULES
Under the Internal Revenue Code, we may be classified as a PFIC. U.S.
shareholders of a PFIC and holders of options (such as the Warrants and
Debentures) to acquire PFIC stock are subject to certain adverse tax
consequences. These consequences can be mitigated for a U.S. shareholder (but
not for holders of options), under certain circumstances, if such shareholder
makes a timely election to treat our company as a QEF. ALL U.S. HOLDERS ARE
THEREFORE URGED TO CONSULT THEIR OWN TAX ADVISORS ABOUT THE ADVISABILITY OF
MAKING A QEF ELECTION WITH RESPECT TO OUR COMPANY. ALL U.S. HOLDERS ARE ALSO
URGED TO CONSULT THEIR OWN TAX ADVISERS ABOUT THE POSSIBILITY OF CREDITING
CANADIAN TAXES PAID BY OUR COMPANY AGAINST U.S. TAX PAYABLE.
DEFINITION OF A PFIC
A PFIC is a corporation not formed in the United States (a "Non-U.S.
Corporation") and either (1) 75% or more of its gross income is passive income
or (2) 50% or more of the average value of its assets produce, or are held for
the production of, passive income. Passive income for these purposes includes
interest, dividends, and certain rents and royalties. For purposes of the
foregoing tests, if a Non-U.S. Corporation owns at least 25% by value of the
stock of another corporation, it is treated as if it instead owned its
proportionate share of the other corporation's assets and received directly its
proportionate share of the other corporation's income.
We have been advised by PricewaterhouseCoopers LLP that we should not be
treated as a PFIC with respect to shares purchased by U.S. shareholders during
1993, 1994, 1995, 1996, 1997 and 1998, although we could potentially be a PFIC
with respect to shares acquired by U.S. shareholders prior to 1993. We also
intend to engage PricewaterhouseCoopers LLP or such other advisor in the future
to analyze whether we are a PFIC in 1999 and subsequent years and will continue
to notify shareholders of the results of such future analyses. The PFIC analysis
involves a complex analysis of many factors, including, among other things, the
price of gold and the cash flow of OGML. For example, without increasing the
amount of income and assets that produce active income through the development
or acquisition of producing mines, a modest increase in the specific factors
mentioned in the preceding sentence could result in our becoming a PFIC.
For purposes of determining our PFIC qualification, we take into
consideration our proportionate share of the income and assets attributable to
our subsidiaries in which we hold at least a 25% interest (by value). If as a
result of the contemplated acquisition, we generate gross income from mining
operations, it is possible that we will not qualify as a PFIC in future years
due to improvement in our ratio of active to passive income.
S-62
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There can be no assurance, with or without the contemplated acquisition, as
to whether or not PricewaterhouseCoopers LLP, or such other advisor, will
conclude that we are a PFIC for such period. Moreover, even if
PricewaterhouseCoopers LLP, or such other advisor, concludes that we are not a
PFIC, its conclusion is not binding on the United States Internal Revenue
Service. Accordingly, it is possible that the PFIC rules will apply with respect
to the Units and Debentures purchased in this offering.
CONSEQUENCES OF PFIC CLASSIFICATION IF NO QEF ELECTION MADE
If we are classified as a PFIC, U.S. Shareholders who do not make timely
QEF Elections (as discussed below) will be subject to a number of special
adverse tax rules. For example, gain recognized on disposition of PFIC stock or
the receipt of an "excess distribution" from a PFIC is (1) treated as if it were
ordinary income earned ratably on each day in the taxpayer's holding period for
the stock at the highest marginal rate in effect during the period in which it
was deemed earned and (2) subject to an interest charge as if the resulting tax
had actually been due in such earlier year or years. (An excess distribution is
the amount of any distribution received by the U.S. Shareholder during the
taxable year that exceeds 125% of the immediately preceding three year average
of distributions received from the corporation, subject to certain adjustments.)
Although the matter is not free from doubt, it is likely that proposed United
States Treasury Regulations would be interpreted as applying the foregoing rules
to gain on the disposition of convertible debt such as the Debentures and
possibly to amounts that would otherwise be treatable as dividend. These
proposed regulations also provide that the holding period of PFIC stock acquired
upon the exercise of an option would include the period the option was held. The
applicability of the QEF Election to such stock will not, however, avoid the
adverse tax consequences upon its disposition unless the holder makes a Deemed
Sale Election described below.
Proposed United States Treasury Regulations broadly define a disposition to
include, subject to certain exceptions, any transaction or event that
constitutes an actual or deemed transfer of property for any purpose under the
Internal Revenue Code, including a sale, exchange, gift, transfer at death, and
the pledging of PFIC stock to secure a loan. The foregoing rules will continue
to apply with respect to a U.S. Holder who held our common shares while we met
the definition of a PFIC even if we cease to meet the definition of a PFIC.
Again, although the matter is not free from doubt, it is likely that proposed
United States Treasury Regulations would be interpreted as applying the
foregoing rules to a disposition of convertible debt such as the Debentures.
The proposed PFIC regulations herein were proposed to be effective in April
1992 and may apply to all post-1986 years. However, there can be no assurance
that such regulations will be adopted in their present form.
CONSEQUENCES OF PFIC CLASSIFICATION IF QEF ELECTION MADE
Most of the foregoing adverse tax consequences can be avoided if (1) the
U.S. shareholder makes a timely election to treat our Company as a QEF (a "QEF
Election") for the first year of the shareholder's holding period in which we
are a PFIC, or in a year for which the shareholder also makes the "Deemed Sale
Election" described below and (2) we provide the U.S. shareholder with a "PFIC
Annual Information Statement" pursuant to temporary Regulations issued by the
United States Internal Revenue Service. An election to treat our company as a
QEF would not, however, apply to convertible debt such as the Debentures or the
Warrants, although it would apply to stock acquired upon conversion or exercise.
S-63
<PAGE>
U.S. shareholders of a PFIC who make a QEF Election, however, will be
taxable currently on their pro rata share of the PFIC's ordinary earnings and
net capital gain, unless they make a further election to defer payments of tax
on amounts included in income for which no distribution has been received,
subject to an interest charge. Special adjustments are provided to prevent
inappropriate double taxation of amounts so included in a U.S. shareholder's
income upon a subsequent distribution or disposition of the stock.
A U.S. shareholder makes a QEF Election by filing a Form 8621 with its tax
return. In the case of stock owned through a U.S. entity, the election generally
must be made at the entity level. A QEF Election must be filed by the due date,
taking into account extensions, for filing the U.S. shareholder's income tax
return for the taxable year for which the election is made. A copy of the Form
8621 must also be filed with the Philadelphia Internal Revenue Service Center.
Once made, the election is effective for the shareholder's taxable year for
which it is made and all subsequent taxable years, and may not be revoked
without the consent of the Secretary of the Treasury. If a U.S. shareholder
wishes to make a QEF Election subsequent to the first year of his holding period
for stock of a Non-U.S. Corporation that is a PFIC, the U.S. shareholder may
further elect to recognize gain (the "Deemed Sale Election") as if it had sold
the QEF stock on the first day of the taxable year in which the QEF election is
made if (1) the U.S. shareholder holds stock in the PFIC on that day and (2) the
shareholder can establish the fair market value of such stock on that day.
In the event that we are classified as a PFIC, we intend to comply with the
reporting requirements prescribed by temporary Treasury regulations. In
particular, we will maintain information so that ordinary earnings and net
capital gains of our company may be determined. However, future regulations may
contain reporting and record-keeping requirements that are so onerous that it
would not be practicable for our company to comply. If, after review of the
requirements, we determine that it would not be practicable to comply, we will
so notify our shareholders.
MARK TO MARKET ELECTION
A U.S. Holder of "marketable stock" under the PFIC rules may be able to
avoid the imposition of the special tax and interest charge by making a
"mark-to-market election." For these purposes, the Treasury is authorized to
issue regulations that would treat options as "marketable stock." The Treasury
has not, however, issued any guidance with respect to this issue at the current
time, so it is unclear whether a "mark-to-market election" can be made in
respect of an option such as the Warrants and the Debentures.
Generally, pursuant to this election, a U.S. holder would include in
ordinary income, for each taxable year during which such stock is held, an
amount equal to the increase in value of the stock, which increase will be
determined by reference to the value of such stock at the end of the current
taxable year as compared with its value as of the end of the prior taxable year.
U.S. Holders desiring to make the mark-to-market election should consult their
tax advisors with respect to the application and effect of making such election.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Certain information reporting requirements may apply to the payments with
respect to and the proceeds from the sale, exchange or redemption of the
Debentures made to U..S. Holders, other than certain exempt recipients such as
corporations. A 31% backup withholding tax will apply to these payments if the
holder fails to provide a taxpayer identification number or certification of
foreign or other exempt status or fails to report in full dividend and interest
income.
S-64
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Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such U.S. Holder's federal income tax liability if
the required information is furnished to the United States Internal Revenue
Service.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the material Canadian federal
income tax consequences generally applicable to the acquisition, ownership and
disposition of the Debentures, Common Shares and Warrants offered hereunder.
This summary addresses such consequences only to persons who at all times are at
arm's length with our company and are not, and are not deemed to be, residents
of Canada for purposes of the Income Tax Act (Canada) (the "ITA"), who are
United States persons who will hold such Debentures and Units as capital
property and who will not use or hold such property in carrying on a business in
Canada (a "Non-Resident Holder"). For this purpose, United States person has the
meaning given above (under the heading "Certain United States Income Tax
Considerations").
This summary is based on the current provisions of the ITA and regulations
thereunder and all specific proposals to amend the ITA publicly announced prior
to the date hereof by the Minister of Finance (Canada) and the current
administrative practices and policies of Revenue Canada, Customs, Excise and
Taxation ("Revenue Canada"). It has been assumed that all specific proposals to
amend the ITA will be enacted in substantially their present form and that no
other relevant amendments to the ITA will come into force. However, no assurance
can be given to this effect. Except for the foregoing, this summary does not
take into account or anticipate any changes in law, whether by legislative,
administrative or judicial decision or action, nor does it take into account
provincial, territorial or foreign income tax legislation or considerations
which may differ from those described herein. See "Certain United States Federal
Income Tax Considerations" herein.
This summary is not exhaustive of all possible Canadian federal income tax
consequences to all Non-Resident Holders and in particular: (1) may not be
applicable where the Non-Resident Holder is a non-resident insurer carrying on
an insurance business in Canada and elsewhere; and (2) is not applicable to a
Non-Resident Holder that is not liable to tax in the United States such as a
limited liability company. Nor should these comments be interpreted as legal or
tax advice to any particular Non-Resident Holder, each of whom should consult
its own tax advisors with respect to their particular circumstances.
TAXATION OF COMMON SHARES AND WARRANTS
COST OF COMMON SHARES AND WARRANTS
Each Unit acquired hereunder will have a cost of $0.50. Non-Resident
Holders will be required to allocate the cost of each Unit on a reasonable basis
between the Common Share and Eighteen-Month Warrant in order to determine their
respective costs for purposes of the ITA. We will allocate the full amount of
$0.50 received for each Unit to the Common Share and a nil amount to the
Eighteen-Month Warrant. We will also allocate a nil cost to the Four-Year
Warrants. We believe such allocations to be reasonable, but it will not be
binding on Revenue Canada.
The cost of each Common Share and each Warrant acquired by a Non-Resident
Holder will be averaged with the adjusted cost base of identical Common Shares
or Warrants then owned by the Non-Resident Holder for the purpose of determining
the adjusted cost base of each Common Share and each Warrant to the Non-Resident
Holder.
S-65
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EXERCISE, OR EXPIRY OF WARRANTS
No gain or loss will be realized by a Non-Resident Holder of a Warrant upon
the exercise of the Warrant and the consequent acquisition of Common Shares.
When Warrants are exercised, the Non-Resident Holder's cost of the Common Shares
acquired thereby will generally be the aggregate of the Non-Resident Holder's
adjusted cost base of the Warrant immediately before its exercise and the
exercise price paid for the Common Share, which cost must then be averaged with
the adjusted cost base of all Common Shares of the Non-Resident Holder for
purposes of subsequently computing the adjusted cost base of each Common Share
of the Non-Resident Holder. In the event of the expiry of an unexercised
Warrant, the warrant holder will realize a capital loss equal to the adjusted
cost base, if any, of the Warrant to such Non-Resident Holder.
INTEREST
Interest paid or credited to a Non-Resident Holder on return of the
escrowed proceeds of sale of the Units will be subject to withholding tax in
Canada. The Canada-United States Income Tax Convention, 1980, as amended (the
"Treaty") provides that the normal 25% rate of withholding tax on interest is
reduced to 10% if paid to a Non-Resident Holder.
DIVIDENDS
Dividends (including deemed dividends) paid or credited on the Common
Shares to a NonResident Holder will be subject to withholding tax in Canada. The
Treaty provides that the normal 25% rate of withholding tax on the gross amount
of such dividends is reduced to 15% if paid to a Non-Resident Holder. The Treaty
provides for a further reduction of the withholding tax rate to 5% if the
Non-Resident Holder is a company ( any body corporate or any entity which is
treated as a body corporate for tax purposes) which is a resident of the United
States and which owns at least 10% of our voting stock.
DISPOSITION OF COMMON SHARES AND WARRANTS
A Non-Resident Holder will not be subject to tax under the ITA in respect
of a capital gain realized upon the disposition or deemed disposition (such as
would arise on the death of an individual Non-Resident Holder) of a Common Share
or Warrant unless such property is "taxable Canadian property" to the
Non-Resident Holder. A Common Share or Warrant will be taxable Canadian property
to a Non-Resident Holder if at any time during the 60-month period ending at the
time of disposition of such property, the Non-Resident Holder, persons with whom
the Non-Resident Holder did not deal at arm's length, or the Non-Resident Holder
together with all such persons owned (or had an option, including a conversion
right, to acquire) 25% or more of the issued shares of any class of our capital
stock.
However, under the Treaty, a Non-Resident Holder to whom a Common Share or
Warrant represents taxable Canadian property will not be liable to tax in Canada
in respect of a capital gain realized on the disposition of such property
unless:
o the value of our common shares is derived principally from real property
situated in Canada (including mineral properties in Canada and rights in
relation thereto), or
o the Non-Resident Holder was a resident of Canada for 120 months during any
period of 20 consecutive years preceding the disposition of such property
and was a resident of Canada at any time during the 10 years immediately
preceding such disposition and owned such property (or
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property for which the property was substituted) at the time the
Non-Resident Holder ceased to be a resident of Canada.
TAXATION OF DEBENTURES
NO WITHHOLDING TAX ON PAYMENTS
The payment by our company of interest, principal or premium, if any, on
the Debentures and the redemption of the Debentures will be exempt from Canadian
withholding tax.
CONVERSION OF DEBENTURES
The conversion of a Debenture into Common Shares pursuant to the terms of
the Debenture will be deemed not to be a disposition by a Non-Resident Holder of
the Debenture for purposes of the ITA. The cost to such holder of the Common
Shares so acquired will be deemed to be the adjusted cost base to such holder of
the Debenture immediately before conversion.
DISPOSITION OF DEBENTURE
No taxes imposed by the ITA will be payable by a Non-Resident Holder of a
Debenture upon the disposition or redemption of such Debenture, unless such
Debenture constitutes taxable Canadian property of such holder by virtue of the
conversion privilege attached thereto and the Treaty relief referred to above is
not available. See the discussion of taxable Canadian property under the heading
"Disposition of Common Shares and Warrants."
PLAN OF DISTRIBUTION
Under an Agency Agreement, dated August 16, 1999 (the "Agency Agreement"),
TD Securities (USA) Inc. (the "Agent") has agreed to act as our agent in
offering the Securities to the public on a best efforts basis. Pursuant to the
Agency Agreement, TD Securities (USA) Inc. has been retained in connection with
the offering in the United States and, through their affiliates, elsewhere,
except in Canada.
We have agreed to pay the Agent an agency fee of 2.75% of our gross
proceeds upon closing, and a further 2.75% of the gross proceeds upon completion
of the Acquisition, and to reimburse the Agent for certain expenses incurred in
connection with this offering. The Agent proposes to offer the Debentures (with
Four-Year Warrants) and the Units directly to the public at the offering price
set forth in this prospectus supplement.
The Agent is not obligated to and does not intend to purchase any of the
Securities. We anticipate that the Agent will obtain indications of interest
from potential investors for a portion or all of the offering, and the filing of
the final prospectus supplement will occur upon indications of interest having
been received by the Agent for a portion or all of the offering. Confirmations
and prospectuses will be delivered to all investors at the time of pricing,
informing investors of the closing date.
We will retain 50% of the gross proceeds from this offering for our general
working capital needs, whether or not we complete the Acquisition. Fifty percent
of the gross proceeds from this offering, together with the Debentures, the
Four-Year Warrants and the Units, will be deposited with IBJ Whitehall. The
funds will be placed in escrow pursuant to Rule 15c2-4 promulgated under the
United States Securities Exchange Act of 1934 in equal proportions of
Debentures, Four-Year Warrants and Units. IBJ Whitehall will invest and reinvest
the gross proceeds in the escrow account into investments such as direct U.S.
government obligations, certificates of deposit with banks that are members of
the Federal Reserve System, or commercial paper of U.S. corporations having high
credit ratings among various applicable U.S. credit ratings agencies.
The funds and securities placed in escrow will be released immediately
before completion of the Acquisition. If we do not complete the Acquisition by
December 10, 1999, each investor will receive its portion of the funds placed in
the escrow account, attributable to the Units, together with interest from the
date we complete this offering, subject to any deductions for Canadian
withholding tax, and the investor's proportionate interest in 50% of the Units
held in escrow. The purchaser's proportionate interest in the remaining Units
would then be returned to us for cancellation. The escrowed proceeds from the
sale of the Debentures will, however, be delivered to us and the Debentures will
be delivered to each holder thereof along with the holder's proportionate
interest in 50% of the Four-Year Warrants held in escrow. We will then be
required to repurchase 50% of the principal amount of the Debentures (on a pro
rata basis) pursuant to a special mandatory redemption of a purchase price equal
to the principal amount being repurchased, plus accrued and unpaid interest. The
remaining Four-Year Warrants would also be returned to us for cancellation. See
"The Acquisition -- The Acquisition Agreement -- Conditions for Closing" and
"--Deadline for Satisfying Conditions."
We have agreed to indemnify the Agent against certain liabilities,
including liabilities under the United States Securities Act of 1933, and to
contribute to payments that the Agent may be required to make in respect
thereof.
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Assuming the completion of the total offering covered by this prospectus
supplement, we will issue and deliver to the Agent (1) upon the closing of this
offering, common share purchase warrants to purchase 380,825 common shares and
(2) upon completion of the Acquisition, common share purchase warrants to
purchase an additional 380,825 common shares. Each warrant is exercisable for
one of our common shares at a cost of $0.70 per common share. These common share
purchase warrants will be exercisable for 12 months from the time of closing of
this offering.
We have granted to the Agent an option to place up to an additional
$2,000,000 principal amount of Debentures plus Four-Year Warrants or Units,
solely to cover over-allotments, if any. Such option may be exercised at any
time prior to the closing of this offering.
We will enter into a registration rights agreement with the Agent requiring
us to register for resale the common shares underlying the Agent's warrants on
any registration statement filed on behalf of the Lender. See "The
Acquisition--The Credit Facility--Share Registration."
We and our directors and officers have agreed that we will not issue or
sell any common shares or financial instruments convertible or exchangeable into
common shares until 90 days after the closing date, without prior consent of the
Agent.
The securities and any common shares into which the securities are
convertible or exercisable have not been and will not be qualified for
distribution and sale under the securities legislation of any province or
territory of Canada and may not be offered or sold, directly or indirectly, in
Canada. The agent has agreed that no securities will be offered to any resident
of Canada. The securities and any such common shares may not, for a period of 90
days after the closing of this offering, be traded through the facilities of the
Toronto Stock Exchange or sold or otherwise transferred to a Canadian resident,
except pursuant to exemptions from the registration and prospectus requirements
of applicable securities legislation in Canada.
EXPERTS
The consolidated balance sheets of our company as of December 31, 1998 and
1997 and the consolidated statements of operations, shareholders' equity and
cash flows for each of the three years ended December 31, 1998, 1997 and 1996,
included in our annual report on Form 10-K for the year ended December 31, 1998,
incorporated by reference in this prospectus supplement have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The balance sheets of BGL as of June 30, 1998 and 1997 and the statements
of income and expenditure, accumulated deficit and cash flow for the years ended
June 30, 1998, 1997 and 1996, included in this prospectus supplement have been
so included in reliance on the report of PricewaterhouseCoopers, chartered
accountants, given on the authority of that firm as experts in accounting and
auditing.
Our ore reserves and mineralized material set forth in the table under the
heading "The Bogoso Property--Description of the Bogoso Property--Reserves and
Mineralized Material" have been verified by SRK Consulting Engineers and
Scientists. The information regarding production and grading under the heading
"The Summary--Recent Developments--Gross Rosebel Scoping Study" has been
verified by Messrs. John Danio PE and Herbert Osborne, independent
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consultants. All other information with respect to production, grade and mine
life under the heading "The Bogoso Property" has been verified by Associated
Mining Consultants, Ltd., subject to the assumptions and qualifications stated
in their report dated June 30, 1999, as modified by an Addendum dated August
10, 1999, and entitled "Bogoso Gold Limited, Ghana, Independent Engineering
Report," and such information has been included in this prospectus supplement
in reliance upon the authority of said firms as experts in mining, geology and
ore reserve and mineralized material determinations.
LEGAL MATTERS
Koffman Kalef, Vancouver, British Columbia, will issue opinions relating to
the validity of the Common Shares covered by this document, the corporate
standing of our company and certain tax matters. Paul, Weiss, Rifkind, Wharton &
Garrison, New York, New York, will issue an opinion relating to the validity of
the Debentures and the Warrants covered by this document and to certain tax
matters.
GLOSSARY OF TERMS
Oxide Resources: Those mineralized resources where sulphide minerals
have been oxidized as a result of the action of
groundwater.
Sulphide Resources: Those mineralized resources occurring principally as
sulphide minerals which have not been weathered or
oxidized.
Transition Resources: Those mineral resources which have been partially
oxidized by the action of groundwater and consist of
a mixture of sulphide and oxide minerals.
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Index to Financial Statements
A. Bogoso Gold Limited - Historical Financial Statements
1. Auditors' Opinion................................................S-71
2. Balance Sheets as of March 31, 1999
and June 30, 1998 and 1997.......................................S-72
3. Statements of Income and Expenditure
for the nine months ended March 31, 1999 and 1998
and for the years ended June 30, 1998, 1997 and 1996.............S-73
4. Statements of Accumulated Deficit for
the nine months ended March 31,
1999 and for the years ended
June 30, 1998, 1997 and 1996.....................................S-74
5. Statements of Cash Flow for the nine months
ended March 31, 1999 and 1998 and for the
years ended June 30, 1998, 1997 and 1996.........................S-75
6. Notes to the Financial Statements.........................S-76 - S-98
B. Golden Star Resources Ltd. - Pro Forma Consolidated Financial Statements
1. Overview.........................................................S-99
2. Pro Forma Consolidated Balance Sheet as of March 31, 1999.......S-100
3. Pro Forma Consolidated Statement of Operations for
the year ended December 31, 1998................................S-101
4. Pro Forma Consolidated Statement of Operations for the
three months ended March 31, 1999...............................S-102
5. Notes to the Pro Forma Consolidated Balance Sheet
as of March 31, 1999 and Statements of Operations for
the three months ended March 31, 1999 and the year
ended December 31, 1998.................................S-103 - S-105
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<PAGE>
AUDITORS' REPORT TO THE MEMBERS OF
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
We have examined the financial statements of Bogoso Gold Limited for the
three years ended June 30, 1998, 1997 and 1996.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The company's Directors are responsible for the preparation of the
financial statements. It is our responsibility to express an independent
opinion, based on our audit, on those financial statements prepared by the
Directors.
BASIS OF OPINION
We conducted our audits in accordance with generally accepted auditing
standards, which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. It also includes an assessment of the accounting principles
used and significant estimates and judgments made by the directors, and an
evaluation of the overall adequacy of the presentation of the financial
statements.
We planned and performed our audits so as to obtain all the information
and explanations which we considered necessary for the purposes of our
audit. We believe that our audits provide us with a reasonable basis for
our opinion.
As discussed in Note 20 of the financial statements, the company had
accumulated losses as of June 30, 1998. This factor along with other
matters set forth in Note 20 indicates that the company's ability to
continue as a going concern requires continued support from existing
and/or prospective shareholders.
OPINION
In our opinion, the company has kept proper books and the financial
statements, which are in agreement with the books, give a true and fair
view of the state of the company's affairs at June 30, 1998, 1997 and 1996
and of the loss and cash flow of the company for the years ended June 30,
1998, 1997 and 1996 in conformity with generally accepted accounting
principles and comply with the Ghana Companies Code 1963, (Act 179).
Chartered Accountants September 11, 1998
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<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSO GOLD LIMITED)
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30, June 30,
1999 1998 1997
Note US $`000 US $'000 US $'000
--------- -------- --------
<S> <C> <C> <C> <C>
FIXED ASSETS 3 24,232 27,692 30,591
DEVELOPMENT EXPENDITURE 4 14,155 18,648 24,430
DEFERRED ASSETS 5 1,573 973 3,709
------- ------- -------
39,960 47,313 58,730
------ ------ -------
CURRENT ASSETS
Inventories 6 8,002 6,041 9,332
Accounts receivable 7 1,494 1,396 1,025
Cash and short term deposits 8 10,673 15,901 16,620
------ ------ -------
20,169 23,338 26,977
------ ------- -------
CURRENT LIABILITIES 9 (8,693) (11,882) (24,848)
------- ------- -------
NET CURRENT ASSETS 11,476 11,456 2,129
------ ------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 51,436 58,769 60,859
------ ------- -------
Less:
Long term liabilities 10 (29,647) (28,232) (58,616)
Environmental rehabilitation provision 11 (12,980) (12,105) (10,500)
------- ------- -------
(42,627) (40,337) (69,116)
------- ------- -------
8,809 18,432 (8,257)
======= ======= =======
REPRESENTED BY:
Stated capital 12 78,293 78,292 18,222
Accumulated deficit (69,484) (59,860) (51,150)
Shareholders'advances 13 -- -- 24,671
------- ------- -------
8,809 18,432 (8,257)
======= ======= =======
</TABLE>
Director....... Approved by and signed on behalf of the Board
of Directors on ..................... 1998
Director ......
The notes on pages S-75 to S-97 form an integral part
of these financial statements.
S-72
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
STATEMENTS OF INCOME AND EXPENDITURE
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Nine Nine
months months Year Year Year
ended ended ended ended ended
March 31, March 31, June 30, June 30, June 30,
1999 1998 1998 1997 1996
Note US$'000 US$'000 US$'000 US$'000 US$'000
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SALES PROCEEDS 29,713 28,300 35,872 38,856 43,985
Less: Royalties on sales (889) (846) (1,076) (1,166) (1,290)
------- ------- ------- ------- -------
NET SALE PROCEEDS 28,824 27,454 34,796 37,690 42,695
COST OF SALES
Depreciation of fixed assets 2(b) (6,657) (2,892) (5,990) (4,107) (9,801)
Amortization of development
expenditure 2(c) (4,493) (2,272) (5,856) (2,537) (3,534)
Other cost of sales (19,303) (15,890) (19,286) (18,651) (13,130)
------- ------- ------- ------- -------
(30,453) (21,054) (31,132) (25,295) (26,465)
GROSS OPERATING PROFIT (LOSS) (1,629) 6,400 3,664 12,395 16,230
General and administrative expenses
(6,425) (6,639) (12,332) (14,427) (18,247)
Loan and other interest waived
10(d) -- -- 6,293 -- --
Other income 309 1,167 778 2,533 2,136
------- ------- ------- ------- -------
NET OPERATING (LOSS)/ PROFIT BEFORE
INTEREST EXPENSE (7,745) 928 (1,597) 501 119
Interest expense (1,879) (5,315) (7,113) (7,190) (7,625)
------- ------- ------- ------- -------
NET LOSS BEFORE TAXATION 15 (9,624) (4,387) (8,710) (6,689) (7,506)
Taxation 16 -- -- -- -- --
------- ------- ------- ------- -------
Net loss for the year (9,624) (4,387) (8,710) (6,689) (7,506)
======= ======= ======= ======= =======
</TABLE>
The notes on pages S-75 to S-97 form an integral part
of these financial statements.
S-73
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
STATEMENTS OF ACCUMULATED DEFICIT
(Unaudited)
Nine
months Year Year Year
ended ended ended ended
March 31, June 30, June 30, June 30,
1998 1998 1997 1996
US$'000 US$'000 US$'000 US$'000
------- ------- ------- -------
Accumulated deficit brought forward (59,860) (51,150) (44,461) (36,955)
Loss for the year transferred from
statement of income and expenditure (9,624) (8,710) (6,689) (7,506)
------- ------- ------- -------
ACCUMULATED DEFICIT CARRIED FORWARD (69,484) (59,860) (51,150) (44,461)
======= ======= ======= =======
The notes on pages S-75 to S-97 form an integral part of these
financial statements.
S-74
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Nine Nine
months months Year Year Year
ended ended ended ended ended
March 31, March 31, June 30, June 30, June 30,
1999 1998 1998 1997 1996
Note US$'000 US$'000 US$'000 US$'000 US$'000
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET CASH INFLOW FROM OPERATING
ACTIVITIES (A) 19 3,512 8,935 8,882 17,476 19,338
------ ------ ------ ------ ------
NET CASH OUTFLOW FROM INVESTMENT
AND SERVICING OF FINANCE:
Interest paid
Interest received (2,205) (1,820) (1,773) (1,327) (3,977)
310 544 415 785 450
------ ------ ------ ------ ------
NET CASH OUTFLOW FROM INVESTMENT
AND SERVICING OF FINANCE (B) (1,895) (1,276) (1,358) (542) (3,527)
------ ------ ------ ------ ------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of tangible fixed assets
and development expenditure
Sale of tangible fixed assets (3,197) (3,776) (3,187) (3,251) (2,945)
Deferred mine and plant expenditure
16 (1) 5 116 146
(1,223) -- (1,128) (2,199) (1,273)
------ ------ ------ ------ ------
NET CASH OUTFLOW FROM INVESTING
ACTIVITIES (C) (4,404) (3,777) (4,310) (5,334) (4,072)
------ ------ ------ ------ ------
NET INFLOW BEFORE FINANCING (A+B+C) (2,787) 3,882 3,214 11,600 11,739
------ ------ ------ ------ ------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of deferred liabilities -- -- -- -- (3,471)
Repayment of loans (2,411) (3,462) (3,933) (4,082) (3,672)
------ ------ ------ ------ ------
NET CASH OUTFLOW FROM FINANCING (D) (2,441) (3,462) (3,933) (4,082) (7,143)
------ ------ ------ ------ ------
(DECREASE)/ INCREASE IN CASH AND CASH
EQUIVALENTS (A+B+C+D) (5,228) 420 (719) 7,518 4,596
Cash and cash equivalents at beginning
of period 15,901 16,620 16,620 9,102 4,506
------ ------ ------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD 10,673 17,040 15,901 16,620 9,102
====== ====== ====== ====== ======
</TABLE>
The notes on pages S-75 to S-97 form an integral part of these
financial statements.
S-75
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS
1. THE COMPANY
Bogoso Gold Limited (the company), formerly known as Billiton Bogosu Gold
Limited until November 14, 1997, was granted a prospecting licence by the
Government of Ghana on August 16, 1988 to work, develop and produce gold in
a defined concession area at Bogoso, Western Region, Ghana, for a period of
thirty years.
Under an agreement signed on November 30, 1994, and effective July 1, 1994,
the Shell Group transferred its assets of Billiton Group to Billiton Group
(BVI) Limited, a company incorporated in the British Virgin Islands whose
ultimate holding company was Gencor Limited, a company incorporated in
South Africa.
On July 1, 1997, the company was owned 82% by Billiton Group (BVI) Limited,
with 8% held by International Finance Corporation and the remaining 10%
held by the Government of Ghana.
On April 27, 1998, the 82% holding was transferred to Orogen Holdings (BVI)
Limited due to a reorganisation within Gencor Limited. Subsequently, this
shareholding was transferred to Gencor Bogoso Holdings (BVI) Limited on May
19, 1998.
As part of a Shareholders Reorganisation Agreement effective June 30, 1998,
the 82% shareholding of Gencor was transferred to a Consortium of nine
banks, namely, International Finance Corporation, Credit Lyonnais, The
Sumitomo Bank Limited, Ecobank Transnational Inc., Societe Generale, Bank
Austria, Bank Internationale a Luxembourg, DB (Belgium) Finance N.V./S.A.
and Deutsche Investitions und Entwicklungsgesellschaft GmbH. In addition,
advances, loans and interest payable of US$60,070,000 effective June 30,
1998 was converted into 540,639 Class A Shares. See Note 12 to the
financial statements for details of the shareholdings as at June 30, 1998.
2. ACCOUNTING POLICIES
The following are the significant accounting policies adopted by the
company in the preparation of these financial statements:
(a) Basis of accounting
The financial statements have been prepared under the historical cost
convention.
S-76
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1998
2. ACCOUNTING POLICIES (CONTINUED)
(b) Fixed assets
These assets have been valued at cost less accumulated depreciation.
They are depreciated over their expected useful lives, with varying
lives between different groups of assets ranging from five to ten
years.
Change in method of depreciation:
With effect from July 1, 1997, the company changed its estimate in
calculating the depreciation charge for the plant and machinery only.
The new method assumes the estimated remaining economic life of the
assets to be to June 30, 2003. Previously these assets were
depreciated over lives of between five and ten years.
The change in estimate was adopted as the board of directors
considered at its meeting on September 8, 1998 that the remaining life
of the assets was limited based on the present economic projections.
As a result of this change in estimated remaining economic life of the
assets, the selected assets carried on the balance sheet at July 1,
1997 will be written off in the profit and loss account over an
estimated remaining economic life to June 30, 2003. The financial
effect was that at June 30, 1998 the net book value of fixed assets
was reduced by an additional depreciation charge of $735,000 to
$5,990,000 for the year.
(c) Development expenditure
Development expenditure is valued at cost and is amortised on a
straight line basis, taking into consideration the estimated economic
life of the specific project, which is reviewed on a regular basis and
to the extent to which this value exceeds its recoverable amount that
excess is fully written off in the financial year in which this is
determined.
Change in method of amortisation:
With effect from July 1, 1997, the company changed its method of
calculating the amortisation charge on its development expenditure
from a unit of production basis to straight line. In addition, the new
method assumes the estimated remaining economic life of the project to
be to June 30, 2003.
S-77
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
(c) Development expenditure (Continued)
The change in method and estimate were adopted as the board of
directors considered at its meeting on September 8, 1998 that the
remaining life of the project was limited based on the present
economic projections.
As a result of this change in method of amortisation and estimated
remaining economic life of the project, the development expenditure on
the balance sheet at July 1, 1997 will be written off in the profit
and loss account over an estimated remaining economic life to June 30,
2003. The financial effect was that at June 30, 1998, the net book
value of development expenditure was reduced by additional
amortisation of $3,377,000 to $5,856,000 for the year.
(d) Deferred assets
Deferred assets mainly represent costs for major overhauls of
equipment to improve the equipment or extend their useful lives. These
costs are deferred and amortised over the remaining useful lives of
the equipment.
(e) Functional currency
The functional currency of the company is the United States dollar
since the capital invested, the financing of the company and all sales
proceeds are in United States dollars, and approximately 70% of
expenditures are dollar related, with the remaining 30% being in
Ghanaian currency.
(f) Foreign currency translation
Current assets and liabilities denominated in foreign currencies are
translated into the functional currency (United States dollars) at the
rates of exchange ruling at the balance sheet date. Items in the
statement of income and expenditure are translated at the average rate
for the period. Gains and losses arising from the translation of
balances are dealt with through the income and expenditure statement.
(g) Inventories
Inventories have been valued at the lower of cost (weighted average
cost basis), and net realisable value (being estimated sales proceeds
less expenses incurred in making the sale).
S-78
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
(g) Inventories (Continued)
For ore and gold inventories, cost comprises all direct production
costs and attributable operating expenses, including depreciation.
For consumable and spare parts, cost comprises direct purchase costs.
Where appropriate, provision for obsolescence has been included in the
inventory valuation.
(h) Accounts receivable
Accounts receivable are shown at nominal value less, where necessary,
provision for bad and doubtful debts.
(i) Cash and short term deposits
Cash and short term deposits includes all cash balances and highly
liquid investments with an original maturity of three months or less.
Cash at bank and in hand is shown at nominal value.
(j) Long-term and short-term liabilities
These are shown at nominal value.
(k) Net sales proceeds
These are the proceeds from the sale of gold bullion, after deduction
of sales taxes, discounts, excise duties, and similar levies.
The sale of gold bullion was to Billiton Marketing and Trading B.V.
(BMT), under the terms of the Gold Refining and Marketing Agreement
dated January 18, 1990. This agreement ended on June 30, 1998. An
agreement for gold purchase and refining has been agreed with Societe
Generale and is pending execution upon formal termination of the BMT
agreement.
(l) Cost of sales
These are the historical costs of direct production and production
support activities, including related depreciation, salaries and
wages.
(m) General and administrative expenses
The administrative expenses include related depreciation, salaries and
wages.
All amounts as of and for the nine months ended March 31, 1999 and 1998 are
unaudited.
S-79
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3. FIXED ASSETS
<TABLE>
<CAPTION>
Land & Plant & Mobile Other Capital
Buildings Machinery Equipment Equipment WIP Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------- ------- ------- ------- ------- -------
COST
<S> <C> <C> <C> <C> <C> <C>
At July 1, 1997 9,024 39,060 13,511 3,689 1,606 66,890
Additions 12 50 858 367 1,900 3,187
Transfers/ disposals 37 130 (299) 100 (607) (639)
------- ------- ------- ------- ------- -------
At June 30, 1998 9,073 39,240 14,070 4,156 2,899 69,438
------- ------- ------- ------- ------- -------
Additions 85 1,306 454 400 965 3,210
Transfers/ disposals -- -- (478) -- -- (478)
------- ------- ------- ------- ------- -------
At March 31, 1999 9,158 40,546 14,046 4,556 3,864 72,170
------- ------- ------- ------- ------- -------
ACCUMULATED DEPRECIATION
At July 1, 1997 4,095 17,557 11,511 3,136 -- 36,299
Charge for the year 1,267 3,477 1,188 58 -- 5,990
Transfers/ disposals -- -- (532) (11) -- (543)
------- ------- ------- ------- ------- -------
At June 30, 1998 5,362 21,034 12,167 3,183 -- 41,746
------- ------- ------- ------- ------- -------
Charge for the year 1,419 4,127 797 314 -- 6,657
Transfers/ disposals -- -- (465) -- -- (465)
------- ------- ------- ------- ------- -------
At March 31, 1999 6,781 25,161 12,499 3,497 -- 47,938
------- ------- ------- ------- ------- -------
NET BOOK VALUE
At March 31, 1999 2,377 15,385 1,547 1,059 3,864 24,232
======= ======= ======= ======= ======= =======
At June 30, 1998 3,711 18,206 1,903 973 2,899 27,692
======= ======= ======= ======= ======= =======
At June 30, 1997 4,929 21,503 2,000 553 1,606 30,591
======= ======= ======= ======= ======= =======
</TABLE>
4. DEVELOPMENT EXPENDITURE
(Unaudited)
March 31, 1999 June 30, 1998 June 30, 1997
US$'000 US$'000 US$'000
------- ------- -------
Balance at beginning of year 18,648 24,430 25,370
Expenditure for the year -- 74 1,597
Less: Amortisation during the
year (See Note 2(c)) (4,493) (5,856) (2,537)
------ ------ ------
Balance at end of year 14,155 18,648 24,430
====== ====== ======
S-80
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5. DEFERRED ASSETS
(Unaudited)
March 31, June 30, June 30,
1999 1998 1997
US$'000 US$'000 US$'000
------- ------- -------
Balance at beginning of year 973 3,709 4,733
Expenditure for the year 1,223 1,128 2,199
Less: Amortisation during the year
(see Note 2(d)) (623) (3,864) (3,223)
----- ------ ------
Balance at end of year 1,573 973 3,709
===== ====== ======
6. INVENTORIES
Ore 1,915 784 1,568
In-process 734 563 1,083
Finished -- 398 --
----- ----- ------
2,649 1,745 2,651
Consumables and spare parts 5,353 4,296 6,681
----- ----- ------
8,002 6,041 9,332
===== ===== ======
S-81
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
7. ACCOUNTS RECEIVABLE
(Unaudited)
March 31, June 30, June 30,
1999 1998 1997
Note US$'000 US$'000 US$'000
------- ------- -------
Sundry receivables 1,052 914 654
Employee advances 271 186 56
Prepaid expenses 171 296 315
------ ------ ------
1,494 1,396 1,025
====== ====== ======
8. CASH AND SHORT TERM DEPOSITS
Balance held within Ghana 505 320 1,177
Balances held externally 10,168 15,581 15,443
------ ------ ------
10,673 15,901 16,620
====== ====== ======
9. CURRENT LIABILITIES
Long-term liabilities - current
portion 9(a) 3,952 3,956 15,152
Loan interest payable 9(b),10 -- 4,049 5,300
Amounts owed to suppliers 1,143 1,490 975
Amounts owed to group companies -- -- 157
Accruals and other payables 22 3,598 2,387 3,264
------ ------ ------
8,693 11,882 24,848
====== ====== ======
S-82
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
9. CURRENT LIABILITIES (CONTINUED)
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30, June 30,
1999 1998 1997
Note US$'000 US$'000 US$'000
<S> <C> <C> <C> <C>
(a) Long-term liabilities - current portion
International Finance Corporation 10 2,937 2,937 7,707
Deutsche Investitions und Entwicklungsgesellschaft GmbH
10 1,015 1,019 2,615
Consortium of Banks (ex New Billiton loan) 10 -- -- 4,830
------- ------- -------
(b) Loan interest payable 3,952 3,956 15,152
======= ======= =======
International Finance Corporation -- 3,024 2,328
Deutsche Investitions und Entwicklungsgesellschaft GmbH
-- 1,025 816
Consortium of Banks (ex New Billiton loan) -- -- 2,156
------- ------- -------
-- 4,049 5,300
======= ======= =======
10. LONG TERM LIABILITIES
International Finance Corporation 10(b)
Tranche 1 4,826 6,608 9,544
Tranche 2 13,630 13,630 13,630
------- ------- -------
18,456 20,238 23,174
Less: Current portion Tranche 1 9(a) (2,937) (2,937) (7,707)
------- ------- -------
15,519 17,301 15,467
------- ------- -------
Deutsche Investitions und Entwicklungsgesellschaft GmbH 10(c)
Tranche 1 1,619 2,150 3,207
Tranche 2 4,471 4,471 4,525
------- ------- -------
6,090 6,621 7,732
Less: Current portion Tranche 1 9(a) (1,015) (1,019) (2,615)
------- ------- -------
5,075 5,602 5,117
------- ------- -------
Consortium of Banks (ex New Billiton loan) 10(d) -- -- 13,800
Less: Current portion 9(a) -- -- (4,830)
------- ------- -------
-- -- 8,970
------- ------- -------
International Finance Corporation - advance 5,329 5,329 5,329
Interest payable on International Finance
Corporation Loan
2,775 -- --
Interest payable on DEG loan 949 -- --
Interest payable on shareholders advances 10(e) -- -- 21,324
Due to Billiton International Metals B.V. 10(f) -- -- 2,409
------- ------- -------
29,647 28,232 58,616
======= ======= =======
</TABLE>
S-83
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. LONG TERM LIABILITIES (CONTINUED)
(a) The loans are secured by a first fixed and floating charge on fixed
assets and the mining leases; the assignment of the rights of the
company under the Gold Refining and Marketing Agreement; a charge on
the foreign exchange retention accounts of the company under the
Foreign Exchange Retention Account Agreement; and the assignment of
insurances.
(b) International Finance Corporation loans, which totaled US$43,000,000
are divided into six loans comprising an A1 loan of US$9,570,000, an
A2 loan of US$4,430,000, a B1 loan of US$16,400,000, a B2 loan of
US$7,600,000, a C1 loan of US$3,400,000 and a C2 loan of US$1,600,000.
The A1, B1 and C1 loans were repayable in 15 semi-annual instalments
which commenced on October 1, 1993 and thereafter each six months,
with the final instalment due on October 1, 2000, attracting interest
at libor plus 2.125% per annum on the principal outstanding.
The A2, B2 and C2 loans are repayable in 20 semi-annual instalments
which were to commence on April 1, 1995 and thereafter each six months
with the final instalment due on October 1, 2004, attracting interest
at libor plus 2.5% per annum on the principal outstanding. BGL has
notified IFC pursuant to Section 3.03 (h) of the IFC Rescheduling and
Amendatory Agreement that there is insufficient cash available to be
able to repay the respective principal instalments of the A2, B2 and
C2 loans which fell due commencing April 1, 1995.
The company did make payments of interest in respect of the A2, B2,
and C2 loans in October 1997 but not in April 1998 for the year ended
June 30, 1998 and such interest is due on the next interest payment
date thereafter unless demanded or paid beforehand. In respect of the
amount of such payment due and unpaid, interest at 1% above libor plus
2.125% per annum is in effect from the date any such amount became due
until the date of actual payment.
(c) Deutsche Investitions und Entwicklungsgesellschaft GmbH loans, which
totaled DM25,000,000 (approximately US$14.1 million at June 30, 1998)
are divided into two loans comprising an A1 loan of DM17,100,000
(approximately US$9.6 million) and an A2 loan of DM7,900,000
(approximately US$4.5 million).
S-84
<PAGE>
(d) BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. LONG TERM LIABILITIES (CONTINUED)
The A1 loan was repayable in 15 semi-annual instalments which
commenced on October 1, 1993 and thereafter each six months with the
final instalment due on October 1, 2000 attracting interest at the
rate of 8.125% per annum on the principal outstanding.
The A2 loan is repayable in 20 semi-annual instalments which commenced
on April 1, 1995 and thereafter each six months with the final
instalment due on October 1, 2004, attracting interest at the rate of
8.75% per annum on the principal balance outstanding. BGL has notified
the DEG, pursuant to Article 7.1 (d) that the relevant Tranche 2 cash
availability is insufficient for the company to be able to repay the
respective principal instalments of the A2 loan which fell due
commencing April 1, 1995.
The company did make a payment of interest in respect of the A2 loan
in October 1997 but not in April 1998 for the year ended June 30, 1998
and such interest shall be payable on the next interest payment date
thereafter, unless demanded or paid beforehand. Interest at 10.75% per
annum on the balance outstanding is in effect from the date any such
amount became due until the date of actual payment.
(d) The company obtained loans totaling US$13,800,000 divided into a
Tranche A loan of US$8,800,000 and Tranche B loan of US$5,000,000,
under the terms of the Billiton Loan Amending Agreement.
The Tranche A loan is repayable in 20 semi-annual installments
commencing on April 1, 1995 and thereafter each six months with the
final installment due on October 1, 2004, attracting interest at the
rate of libor plus 2.5% per annum on the principal balance
outstanding. Penalty interest is charged at 1% above the relevant
interest rate if payment is not made.
The Tranche A loan was transferred to the Consortium of nine banks,
the main shareholders of the company effective June 30, 1998. At this
date, the Consortium converted the Tranche A loan of US$8,800,000 and
the cumulative interest of US$2,275,000 into Class A Shares (See Note
14).
The Tranche B loan of US$5,000,000 and the cumulative interest of
US$1,293,000 was waived on June 30, 1998.
S-85
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. LONG TERM LIABILITIES (CONTINUED)
(e) Interest on shareholders' advances of US$24,324,000 was converted into
Class A Shares effective June 30, 1998 (See Note 14).
(f) This represents the balance of the Billiton International Metals (BIM)
current account with Billiton Bogosu Gold Limited prior to Gencor's
takeover of Shell's interest in the Company. The balance of
US$2,409,000 was written off during the year.
11. ENVIRONMENTAL REHABILITATION PROVISION
Costs are estimated based primarily upon environmental and regulatory
requirements and are accrued and charged to expense over the expected
economic life of the operation. The environmental rehabilitation provision
to meet closure costs is currently made at the rate of US$1 per milled ton
of ore
12. STATED CAPITAL
(Unaudited)
March 31, June 30, June 30,
1999 1998 1997
No. of shares No. of shares No. of shares
------------- ------------- -------------
Authorised shares
Class A shares 18,000,000 18,000,000 18,000,000
Class B shares 2,000,000 2,000,000 2,000,000
---------- ---------- ---------
20,000,000 20,000,000 20,000,000
========== ========== ==========
(Unaudited)
March 31, June 30, June 30,
1999 1998 1997
----------------- ----------------- -----------------
No. of Amount No. of Amount No. of Amount
shares US$'000 shares US$'000 shares US$'000
------ ------- ------ ------- ------ -------
Issued:
Class A shares 704,639 78,293 704,639 78,293 164,000 18,222
Class B shares 78,293 -- 78,293 -- 18,222 --
------- ------ ------- ------ ------- ------
782,932 78,293 782,932 78,293 182,222 18,222
======= ====== ======= ====== ======= ======
The company issued 540,639 additional Class A Shares for the conversion of
advances, loans and interest payable of US$60,070,000 as at June 30, 1998 (See
Note 14).
S-86
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1998
12. STATED CAPITAL (CONTINUED)
In addition, the Government of Ghana was issued 60,071 Class B Shares for
no consideration, to maintain their proportionate 10% ownership of the
company.
The shareholders of the company as at March 31, 1999, June 30, 1998 and
1997 are as follows:
(Unaudited)
March 31, June 30, June 30,
1999 1998 1997
Number Number Number
------ ------ ------
CLASS A SHARES
International Finance Corporation 216,270 216,270 14,578
DEG-Deutsche Investitions und
Entwicklungsgesellschaft mbH 158,004 158,004 --
Societe Generale 91,140 91,140 --
Credit Lyonnais 76,897 76,897 --
Bank Austria AG 45,566 45,566 --
DB (Belgium) Finance N.V./S.A 45,566 45,566 --
The Sumitomo Bank Limited 31,331 31,331 --
Banque International a Luxembourg 28,477 28,477 --
Transnational Incorporated 11,388 11,388 --
Gencor Bogoso Holdings (BVI) Limited -- -- 149,422
------- ------- -------
704,639 704,639 164,000
CLASS B SHARES
Government of Ghana 78,293 78,293 18,222
------- ------- -------
TOTAL SHARES 782,932 782,932 182,222
======= ======= =======
13. SHAREHOLDERS' ADVANCES
(Unaudited)
March 31, June 30, June 30,
1999 1998 1997
Note Number Number Number
------ ------ ------
Consortium of Banks 14 -- -- 24,671
------ ------ ------
-- -- 24,671
====== ====== ======
S-87
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
13. SHAREHOLDERS' ADVANCES (CONTINUED)
Shareholders' advances represented interest bearing foreign currency
advances made under the terms of the Revised Shareholders Financing
Agreement of March 22, 1994. These advances attracted interest at the rate
of 10% per annum.
In accordance with letters of consent from the shareholders, the Consortium
of Banks advance amounting to US$24,671,000 and accrued interest of
US$20,008,000 were converted into Class A Shares effective June 30, 1998.
The IFC accrued interest of US$4,316,000 was also converted into Class A
Shares effective June 30, 1998, however, the advance of US$5,329,000 was
reclassified as a long-term liability and will not accrue any further
interest on the remaining principal from June 30, 1998 (See Note 14).
14. ADVANCES, LOANS AND INTEREST PAYABLE CONVERTED INTO CLASS A SHARES
A summary of the components of advances, loans and interest payable
converted into 540,639 Class A Shares effective June 30, 1998 is as
follows:
US$'000
Note Principal Interest Total
---- --------- -------- -----
Consortium of Banks
- Advance 13 24,671 20,008 44,679
- Loan 10(d) 8,800 2,275 11,075
----- ------ ------
33,471 22,283 55,754
------ ------ ------
International Finance Corporation 13 -- 4,316 4,316
------ ------ ------
33,471 26,599 60,070
====== ====== ======
S-88
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
15. NET LOSS BEFORE TAXATION IS STATED
AFTER CHARGING/(CREDITING)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
March 31, March 31, June 30, June 30, June 30,
1999 1998 1998 1997 1996
US$'000 US$'000 US$'000 US$'000 US$'000
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Auditors' remuneration 19 11 22 13 12
Bad and doubtful debts 2 136 350 47 --
Directors' fees 22 5 6 6 --
Director's emoluments 100 162 162 125 6
Director's compensation for loss of office
6 62 68 -- --
Exchange (gain)/loss 143 (470) (210) (1,599) --
Interest received (310) (543) (415) (785) --
Inventory write down 38 1,791 2,078 64 791
Loss/(profit) on disposal of assets (16) 1 16 (116) --
Roaster write--off -- -- -- -- 4,921
Rehabilitation expenditure 1,570 1,648 2,125 6,363 4,500
</TABLE>
16. TAXATION
The company has no taxation charge for the nine months ended March 31, 1999
or the year ended June 30, 1998 (1997: Nil) as there are significant tax
losses to carry forward.
17. CAPITAL COMMITMENTS
Capital expenditure authorised but not yet expended as at March 31, 1999
and at June 30, 1998 was $1,081,000 and $6,483,000, respectively (1997:
$4,488,000).
S-89
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
18. CONTINGENT LIABILITIES
(a) Hedged gold
The company had no hedged gold contracts as at March 31, 1999 and June
30, 1998 (1997: $8,090,584).
(b) Staff car loans
The company has guaranteed car loans to senior staff provided through
Barclays Bank of Ghana Limited. The balance guaranteed as at March 31,
1999 and June 30, 1998 amounted to $28,361 and $43,085, respectively
(1997: $67,302).
19. NET CASH INFLOW FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Nine Nine
months months Year Year Year
ended ended ended ended ended
March 31, March 31, June 30, June 30, June 30,
1999 1998 1998 1997 1996
US$'000 US$'000 US$'000 US$'000 US$'000
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net operating (loss)/profit before
interest expense (7,745) 928 (1,597) 501 119
Depreciation 6,657 2,892 5,990 4,107 9,801
Amortisation of development expenditure
4,493 2,272 5,856 2,537 3,534
Amortisation of deferred assets
623 972 3,864 3,223 --
Decrease in inventories (1,961) 2,934 3,291 860 3,298
(Increase)/decrease in accounts
receivable (98) (449) (371) 2,008 511
(Decrease)/increase in creditors
864 (507) (519) 852 149
(Decrease)/increase in long term
liabilities 648 831 (735) 6,000 3,763
Loan and interest waiver -- -- (6,293) -- --
Exchange (gain)/loss on loans
357 (395) (205) (1,711) (1,424)
Loss/(profit) on disposal of assets
(16) 1 16 (116) 37
Interest income (310) (544) (415) (785) (450)
------- ------- ------- ------- -------
3,512 8,935 8,882 17,476 19,338
======= ======= ======= ======= =======
</TABLE>
S-90
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
20. GOING CONCERN
The company has accumulated losses of $59,860,000 as at June 30, 1998 due
to trading losses over the past years as a result of high cost of servicing
a heavy debt portfolio and the declining gold price, as well as working
capital problems with the non-payment of external debt and limited finance
available for an on-going capital renewal program. Shareholders have
converted $60,070,000 of advances, loans and interest payable into stated
capital (See Note 14) in addition to deferring payments due on long terms
loans (See Note 10). The company is also actively looking for a strategic
investor to provide additional funds for future expansion of operations
based on the ore availability.
A major exploration program has been undertaken to identify oxide proved
and probable ore reserves to extend the life of the mine. In addition, the
exploration work has identified highly prospective targets and
investigations are underway into alternative sources of ore such as the
treatment of tailings.
21. RECLASSIFICATION
The prior years comparative figures have been reclassified where applicable
to be consistent with the current year's presentation.
22. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES AND CANADA
The financial statements have been prepared in accordance with accounting
principles generally accepted in and in compliance with the Ghana Companies
Code 1963 (Act 179), which differ in certain respects from those principles
that the company would have followed had its financial statements been
prepared in accordance with accounting principles generally accepted in the
United States or Canada. Differences which materially affect these
financial statements are:
(a) Under U.S. GAAP, items such as foreign exchange gains and losses are
required to be shown separately in the derivation of comprehensive
income. Under Canadian GAAP, foreign exchange gains and losses related
to the translation of foreign currency loans would be deferred and
amortised over the remaining period of the loan. As the currency of
measurement is the U.S. Dollar, loans denominated in deutschmarks are
considered foreign currency loans.
(b) Under U.S. GAAP, changes in accounting policies are accounted for in
the year of change and includes the cumulative effect of that
accounting change. Under Canadian GAAP, changes are applied
retroactively to prior period financial statements by restating the
prior years' financial statements and the prior year opening retained
earnings balance in the earliest year reported. In June 1998, the
company changed its method of amortization of development expenditure
costs from units of production to straight line.
S-91
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES AND CANADA
(CONTINUED)
(c) Under U.S. GAAP, extraordinary items are usually limited to unusual
and infrequent events. Such items are reported separately in the
statement of operations, net of taxes, and included in the
determination of net income. Under Canadian GAAP, gains and losses
from the extinguishment of debt generally do not meet the criteria for
extraordinary items. During the year ended June 30, 1998, creditors
forgave portions of certain loans as discussed Note 10.
(d) Under U.S. and Canadian GAAP, basic earnings per share of common stock
is calculated on the weighted average number of common shares
outstanding during the period and is required for each period
presented. Per share amounts are reflected for income before
extraordinary items, the cumulative effect of a change in accounting
principle and for net income.
(e) Under U.S. and Canadian GAAP, the impact of a change in accounting
estimate is recorded in the current reporting period, typically
three-month quarters. As of June 30, 1998, the company changed the
estimated remaining useful lives of its plant and machinery and mine
to five years, effective as of July 1, 1997. Under U.S. and Canadian
GAAP, the impact of the change in estimate would have been recorded as
of April 1, 1998, resulting in a lower charge for depreciation and
amortization for the year ended June 30, 1998.
S-92
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES AND CANADA
(CONTINUED)
Had the company followed GAAP in the United States, certain items on the
statements of operations would have been reported as follows:
STATEMENT OF OPERATIONS
(Stated in thousands of United States Dollars except per share amounts)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Nine Nine
months months Year Year
ended ended ended ended
March 31, March 31, June 30, June 30,
1999 1998 1998 1997
US$'000 US$'000 US$'000 US$'000
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net loss as presented (9,624) (4,387) (8,710) (6,689)
Foreign exchange gain (a) (214) (75) (6) (75)
Change in accounting estimate (e) -- -- 3,084 --
Extraordinary gain on extinguishment
of debt (c)
-- -- (6,293) --
------- ------- ------- -------
Income before extraordinary item (9,838) (4,462) (11,925) (6,764)
Extraordinary gain on extinguishment
of debt (c)
-- -- 6,293 --
Cumulative effect of change in accounting
principle (b) -- -- 1,083 --
------- ------- ------- -------
Net income (loss) under U.S. GAAP (9,838) (4,462) (4,549) (6,764)
Other comprehensive income - foreign
exchange gain (a)
214 75 6 75
------- ------- ------- -------
Comprehensive income (a) (9,624) (4,387) (4,543) (6,689)
======= ======= ======= =======
Per share data (d):
Extraordinary gain on extinguishment
of debt -- -- 34.32 --
======= ======= ======= =======
Cumulative effect of change in accounting
principle -- -- 5.91 --
======= ======= ======= =======
Basic and diluted net loss per share under
U.S. GAAP (12.29) (24.07) (24.77) (36.71)
======= ======= ======= =======
Weighted average shares outstanding (basic
and diluted) 782,932 182,222 183,369 182,222
======= ======= ======= =======
Reconciliation to Canadian GAAP:
Net loss under U.S. GAAP (9,838) (4,462) (4,549) (6,764)
Amortisation of foreign exchange gain (a) 91 47 28 50
Cumulative effect of change in accounting
principle applied retroactively 2,797 1,140 1,521 1,083
------- ------- ------- -------
Net loss under Canadian GAAP (6,950) (3,275) (3,000) (5,631)
======= ======= ======= =======
Net loss per share under Canadian GAAP (8.88) (17.97) (16.36) (30.90)
======= ======= ======= =======
</TABLE>
S-93
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES AND CANADA
(CONTINUED)
The effect of differences in accounting under U.S. GAAP and Canadian GAAP
on the balance sheets, statement of changes in shareholders' equity and
statements of cash flow are as follows:
BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
---------------------------- -----------------------------
As Canadian U.S. As Canadian U.S.
presented GAAP GAAP presented GAAP GAAP
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Fixed assets 27,692 28,243 28,243 30,591 30,591 30,591
Development expenditure (b) 18,648 22,702 21,181 24,430 25,513 24,430
Accumulated comprehensive
income -- -- 81 -- -- 75
Accumulated deficit (59,860) (54,253) (55,774) (51,150) (50,142) (51,225)
Total shareholders' equity 18,432 24,121 22,600 (8,257) (7,174) (8,257)
</TABLE>
(Unaudited)
March 31, 1999
--------------
As presented Canadian GAAP U.S GAAP
US$'000 US$'000 US$'000
------- ------- -------
Fixed assets 24,232 24,658 24,658
Development expenditure (b) 14,155 20,730 17,933
Accumulated comprehensive income -- -- 295
Accumulated deficit (69,484) (62,815) (65,612)
Total shareholders' equity 8,809 15,773 12,976
Under U.S. GAAP, accruals and other payables would be separately disclosed as
follows:
March 31, June 30, June 30,
1999 1998 1997
US$'000 US$'000 US$'000
------- ------- -------
Accrued payroll, taxes and bonus 597 494 779
Accrued redundancy costs 355 356 208
Accrued royalties 345 222 296
Accrued electricity 400 116 244
Accrued mining department costs 434 -- --
Other accrued liabilities 1,467 1,199 1,737
----- ----- -----
Total accruals and other payables 3,598 2,387 3,264
===== ===== =====
S-94
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES AND CANADA
(CONTINUED)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY UNDER U.S. GAAP
<TABLE>
<CAPTION>
Accumulated
Other Total
Stated Comprehensive Shareholder Shareholders'
Class A Class B Capital Deficit Income Advances Equity
Shares Shares US$'000 US$'000 US$'000 US$'000 US$'000
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1996 164,000 18,222 18,222 (44,461) -- 24,671 (1,568)
Comprehensive Income:
Net income (loss) 1997 (6,764) (6,764)
Translation adjustments 75 75
-------
Comprehensive Income: (6,689)
Shares issued
Issue costs
Shareholder advances -- -- -- -- -- --
------- ------ ------ ------- --- ------- -------
BALANCE AT JUNE 30, 1997 164,000 18,222 18,222 (51,225) 75 24,671 (8,257)
Comprehensive Income:
Net income (loss) 1998 (4,549) (4,549)
Translation adjustments 6 6
-------
Comprehensive Income: (4,543)
Shares issued 540,639 60,071 60,071 60,071
Shareholder advances -- -- -- -- -- (24,671) (24,671)
------- ------ ------ ------- --- ------- -------
BALANCE AT JUNE 30, 1998 704,639 78,293 78,293 (55,774) 81 -- 22,600
Comprehensive Income:
Net income (loss) 1999 (9,838) (9,838)
Translation adjustments 214 214
------- -------
Comprehensive Income: (9,624)
Shares issued
Shareholder advances -- -- -- -- -- -- --
------- ------ ------ ------- --- ------- -------
BALANCE AT MARCH 31, 1999 704,639 78,293 78,293 (65,612) 295 -- 12,976
======= ====== ====== ======= === ======= =======
</TABLE>
S-95
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES AND CANADA
(CONTINUED)
STATEMENTS OF CASH FLOW UNDER U.S. GAAP
(STATED IN THOUSANDS OF UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
NET CASH PROVIDED BY (USED IN): Operating Activities Investing Activities Financing Activities
-------------------- -------------------- --------------------
As presented U.S. GAAP As presented U.S. GAAP As presented U.S. GAAP
For the Nine months ended US$'000 US$'000 US$'000 US $'000 US$'000 US$'000
- -------------------------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1999 (Unaudited) 3,512 1,633 (6,299) (4,420) (2,441) (2,441)
For the Years ended,
June 30, 1998 8,882 7,524 (5,668) (4,310) (3,933) (3,933)
June 39, 1997 17,746 16,934 (5,876) (5,334) (4,082) (4,082)
</TABLE>
Cash paid for interest for the nine months ended March 31, 199 and the
years ended June 30, 1998 and 1997 was $2,205,000, $1,773,000 and
$1,327,000 respectively.
U.S. GAAP does not permit the presentation of non-cash items in investing
or financing activities in the statements of cash flows. Under the
company's current reporting, no such transactions were included in the
statements of cash flows. The company did, however, convert $60,070,000 in
shareholder advances plus accrued interest to Class A shares as described
in Note 14.
US GAAP TAX CONSIDERATIONS
U.S. GAAP changes the company's method of accounting for income taxes to an
asset and liability approach. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributed to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Use of the assets and liability method has no effect on the U.S.
GAAP financial statements as the company as concluded that a full valuation
allowance must be applied to the deferred tax assets resulting from the
company's net operating loss carryforwards. For the years ended June 30,
1998 and 1997 and the nine months in the periods ended March 31, 1999 and
1998, the company has recorded no current tax expense under U.S. GAAP due
to the cumulative net losses incurred by the company. Under U.S. GAAP, the
company would not record any deferred tax expense based on the same
rationale.
S-96
<PAGE>
Summarized below are the components of deferred taxes:
<TABLE>
<CAPTION>
(Unaudited)
As of March 31, As of June 30, As of June 30,
1999 1998 1997
US$'000 US$`000 US$`000
--------------- -------------- --------------
<S> <C> <C> <C>
Temporary differences relating to net liabilities:
Accrued environmental liabilities 4,543 4,237 3,675
Tax loss and credit carryforwards 7,415 10,347 10,924
------- ------ -------
Gross deferred tax asset 11,958 14,584 14,599
Valuation allowance (11,958) (14,584) (14,599)
------- ------- -------
Net deferred tax assets -- -- --
======= ======= =======
</TABLE>
The valuation allowance decreased by approximately $2.6 million due to smaller
capital expenditure allowances in the current period based on the company's
curtailed spending. The statuatory tax rate in Ghana is 35%, while the company's
effective rate is nil.
S-97
<PAGE>
BOGOSO GOLD LIMITED
(FORMERLY BILLITON BOGOSU GOLD LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES AND CANADA
(CONTINUED)
IMPACT OF RECENTLY LSSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", effective for financial statements for periods ending after
December 15, 1997. The Statement requires dual presentation of basic and
diluted earnings per share on the face of the income statement. The company
has complied with the requirements of this statement.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", effective for financial statements for periods beginning after
December 15, 1997. The Statement establishes standards for reporting and
display of comprehensive income and its components in financial statements.
Comprehensive income for the company will include items which have
historically been included in Shareholders' Equity, such as unrealized
gains or losses on marketable equity securities and foreign exchange gains
and losses. The company has complied with the requirements of this
statement.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No.
133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge
transaction add, if it is, the type of hedge transaction. At this time the
company has no derivative instruments that are subject to the requirement
of this statement.
S-98
<PAGE>
GOLDEN STAR RESOURCES LTD.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The accompanying Pro Forma Consolidated Balance Sheet as of March 31, 1999, and
the Pro Forma Consolidated Statements of Operations for the year ended December
31, 1998 and for the three months ended March 31, 1999 give effect to the
acquisition of Bogoso Gold Limited ("BGL").
We and Anvil Mining N.L. ("Anvil") intend to acquire BGL from a consortium of
banks (the "Banks") by purchasing 90% of the common shares of BGL and 100% of
the debt (the "Debt") owed by BGL to the Banks for $6.5 million. We will own 70%
of the common shares of BGL and 77.8% of the Debt. Anvil will own a 20% common
share interest and 22.2% of the Debt. The remaining 10% common share interest
will continue to be held by the Government of Ghana. After completion of the
acquisition, all of the debt previously owed by BGL to the consortium of banks
will be owed to us and Anvil.
The purchase price for the Acquisition is an initial payment by us of $6.5
million, of which $5,056,000 is for our account and $1,444,000 is for the
account of Anvil. The Purchase Agreement also calls for a payment to the sellers
based upon the average spot price of gold in the two years subsequent to closing
(the "Calculation Period "). The payment will be calculated on a pro-rata basis
if the average afternoon gold price fixing by the London Bullion Market
Association over the Calculation Period (the "Average Gold Price") is between
$255 and $310 per ounce and will be capped at $10.0 million. If we acquire
additional mineable ore reserves that can be processed at the Bogoso facility
equivalent to at least 50,000 ounces of gold output, we will make a minimum
payment of $2.0 million one and half years after the closing of the Bogoso
Purchase transaction. This payment will be applied towards the $10.0 million cap
mentioned above. We will record these payments at their fair value at the date
they are determinable. These amounts will be amortized over the remaining life
of the mine. Under an agreement with Anvil, our Company will provide all of the
funds for the initial $6.5 million purchase price and all other acquisition
costs collectively (the "Acquisition Costs"). We will provide a loan to Anvil
(the "Note Receivable") to fund Anvil's share of the Acquisition Costs. The Note
Receivable will bear an annual interest rate of 15% compounded monthly. All cash
distributions from the Bogoso Property will be paid to us until we have received
all of the Acquisition Costs plus interest thereon.
The Company will also be required to pay the sellers an additional $5,000,000 on
the first anniversary of commencement of sulfide production at BGL. Due to the
uncertain nature of this contingent consideration, no liability has been
recorded as part of the purchase price allocation. This payment, if made, will
be amortized over the remaining life of the mine.
The Pro Forma Consolidated Financial Statements give effect to the acquisition
described above under the purchase method of accounting and are based on the
assumptions and adjustments described in the Notes to the Pro Forma Consolidated
Financial Statements contained elsewhere in this Prospectus Supplement. For
purposes of these Consolidated Pro Forma Financial Statements, it was assumed
that the transactions for which the pro forma effects are shown were completed
March 31, 1999 for the Pro Forma Consolidated Balance Sheet and January 1, 1998
for the Pro Forma Consolidated Statements of Operations.
The fair value of the consideration will be allocated to the assets and
liabilities acquired based upon the fair values of such assets and liabilities
at the date of the acquisition and may be revised subject to final purchase
price allocation and valuation. The preliminary estimates and assumptions as to
the value of the assets and liabilities of BGL are based upon information
available at the date of preparation of the Pro Forma Consolidated Financial
Statements, and will be adjusted upon the final determination of such fair
values. The items awaiting final allocation include materials and supplies
inventories and certain liabilities. It is anticipated that final allocation of
the BGL purchase price will not differ materially from the preliminary
allocation.
The unaudited Pro Forma Consolidated Financial Statements should be read in
conjunction with the historical financial statements included and incorporated
by reference herein, and other financial data of GSR and BGL included elsewhere
in this Prospectus Supplement.
THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS BELOW DO NOT PURPORT TO
REPRESENT WHAT THE RESULTS OF OPERATIONS OR FINANCIAL CONDITION WOULD HAVE
ACTUALLY BEEN OR WHAT OPERATIONS WOULD BE IF THE TRANSACTIONS THAT GIVE RISE TO
THE PRO FORMA ADJUSTMENTS HAD OCCURRED ON THE DATES ASSUMED AND ARE NOT
INDICATIVE OF FUTURE RESULTS.
S-99
<PAGE>
GOLDEN STAR RESOURCES LTD.
PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL MARCH
MARCH 31, 1999 31, 1999 PRO FORMA
GSR BGL ADJUSTMENTS COMBINED
ASSETS
<S> <C> <C> <C> <C> <C>
Cash and Short Term Investments $ 5,158 $ 10,673 1 $ 10,000 $ 8,831
1 (500)
1 (6,500)
1 (3,000)
1 (7,000)
Accounts Receivable 506 1,494 2,000
Note Receivable from Anvil -- -- 1 1,444 1,444
Inventories 172 8,002 -- 8,174
Other Assets 91 -- -- 91
-------- -------- -------- --------
Total Current Assets 5,927 20,169 (5,556) 20,540
Restricted Cash -- -- 1 10,000 10,000
Deferred Exploration 59,621 -- 59,621
Mining Properties -- 39,960 1 (36,615) 3,345
Investment in Omai Gold Mines Limited] 1,150 -- -- 1,150
Fixed Assets 537 -- -- 537
Other Assets 136 -- 1 500 636
-------- -------- -------- --------
$ 67,371 $ 60,129 $(31,671) $ 95,829
======== ======== ======== ========
CURRENT LIABILITIES
Accounts Payable and Accrued Liabilities 575 4,742 1 1,300 6,617
Current Portion of Long Term Debt 3,951 1 (3,701) 250
Accrued Wages and Payroll Taxes 724 -- 1 3,000 3,724
-------- -------- -------- --------
Total Current Liabilities 1,299 8,693 599 10,591
Long Term Debt 2,536 29,647 1 (29,647) 2,536
Convertible Debentures -- -- 1 5,989 5,989
Other Liabilities 35 12,980 1 (5,980) 7,035
-------- -------- -------- --------
Total Liabilities 3,870 51,320 (29,039) 26,151
Minority Interest 5,303 -- 1 2,166 7,469
Share Capital 159,163 78,293 1 2,000 161,163
1 (78,293)
Equity Component of Convertible
Debentures -- -- 1 2,011 2,011
Stock Option Loans (4,012) -- -- (4,012)
Accumulated Deficit (96,953) (69,484) 1 69,484 (96,953)
-------- -------- -------- --------
Total Shareholders' Equity 58,198 8,809 (4,798) 62,209
------- -------- -------- --------
Total Liabilities and Shareholders' Equity $ 67,371 $ 60,129 $(31,671) $ 95,829
======== ======== ========= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS PRO FORMA
CONSOLIDATED BALANCE SHEET.
S-100
<PAGE>
GOLDEN STAR RESOURCES LTD.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(STATED IN THOUSANDS OF UNITED STATES DOLLARS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR PRO FORMA
ENDED ENDED FOR THE YEAR
DECEMBER 31, DECEMBER 31, ENDED
1998 1998 PRO FORMA DECEMBER 31,
GSR BGL ADJUSTMENTS 1998
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
REVENUE
Gold Sales $ -- $ 35,432 $ -- $ 35,432
Interest and Other 635 227 -- 862
-------- -------- -------- --------
635 35,659 -- 36,294
COSTS AND EXPENSES
Cost of Goods Sold -- 23,130 -- 23,130
Royalties -- 1,062 -- 1,062
Depreciation 230 13,258 (A) (12,682) 806
Amortization -- 1,325 (A) (1,325) --
General and Administrative 7,712 10,097 -- 17,809
Exploration Expense 443 -- -- 443
Write--Offs & Abandonment of Mineral
Properties 16,600 -- -- 16,600
Interest Expense 36 4,936 (B) (4,936) 1,314
(C) 600
(C) 250
(C) 428
Other Income -- (6,419) (B) 6,293 (126)
Foreign Exchange Loss (Gain) 26 236 (B) (236) 26
-------- -------- -------- --------
25,047 47,625 (11,608) 61,064
LOSS BEFORE THE UNDERNOTED (24,412) (11,966) 11,608 (24,770)
Omai Preferred Share Redemption Surplus 950 -- -- 950
-------- -------- -------- --------
Net Loss before Minority Interest (23,462) (11,966) 11,608 (23,820)
Minority Interest Loss 1,214 (D) (1,268) (54)
-------- -------- -------- --------
Net Loss $(22,248) $(11,966) $ 10,340 $(23,874)
-------- -------- -------- --------
BASIC AND FULLY DILUTED NET LOSS PER SHARE
$ (0.74) $ -- $ (0.70)
======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
30.2 -- 3.9 34.1
======== ======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS.
S-101
<PAGE>
GOLDEN STAR RESOURCES LTD.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(STATED IN THOUSANDS OF UNITED STATES DOLLARS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE PRO FORMA
MONTHS ENDED MONTHS ENDED FOR THE THREE
MARCH 31, 1999 MARCH 31, 1999 PRO FORMA MONTHS ENDED
GSR BGL ADJUSTMENTS MARCH 31, 1999
-------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
REVENUE
Gold Sales $ -- $11,145 $ -- $11,145
Interest and Other 166 25 -- 191
------ ------- ------- -------
166 11,170 -- 11,336
COSTS AND EXPENSES
Cost of Goods Sold -- 7,253 -- 7,253
Royalties -- 337 -- 337
Depreciation 54 2,384 (A) (2,240) 198
Amortization -- 307 (A) (307) --
General and Administrative 698 1,641 -- 2,339
Exploration Expense 47 -- -- 47
Other Income -- (79) -- (79)
Interest Expense 6 616 (B) (616) 291
(C) 150
(C) 72
(C) 63
Foreign Exchange Loss (Gain) (22) (202) (B) 202 (22)
------ ------- ------- -------
783 12,257 (2,676) 10,364
INCOME (LOSS) BEFORE THE UNDERNOTED
(617) (1,087) 2,676 972
Omai Preferred Share Redemption Surplus
225 -- -- 225
------ ------- ------- -------
Net Loss before Minority Interest (392) (1,087) 2,676 1,197
Minority Interest Loss 119 -- (D) (209) (90)
------ ------- ------- -------
Net Income (Loss) $ (273) $(1,087) $ 2,467 $ 1,107
------ ------- ------- -------
Net Income (Loss) Per Share -- Basic $(0.01) $ -- $ 0.03
====== ======= =======
Net Income (Loss) Per Share -- Fully
Diluted $ -- $ -- $ 0.02
====== ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING -- BASIC
30.2 -- 4.0 34.2
====== ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING -- DILUTED
-- -- 54.1 54.1
====== ======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS.
S-102
<PAGE>
GOLDEN STAR RESOURCES LTD.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION OF PRO FORMA CONSOLIDATED BALANCE SHEET
The accompanying Pro Forma Consolidated Balance Sheet as of March 31, 1999
gives effect to the proposed acquisition of BGL as if such transaction had
occurred on March 31, 1999.
We and Anvil Mining N.L. ("Anvil") intend to acquire BGL from a consortium
of banks (the "Banks") by purchasing 90% of the common shares of BGL and
100% of the debt (the "Debt") owed by BGL to the Banks for $6,500,000. We
will own 70% of the common shares of BGL and 77.8% of the Debt. Anvil will
own a 20% common share interest and 22.2% of the Debt. The remaining 10%
common share interest will continue to be held by the Government of Ghana.
After completion of the acquisition, all of the debt previously owed by BGL
to the consortium of banks will be owed to us and Anvil.
The purchase price for the Acquisition is an initial payment by us of $6.5
million, of which $5,056,000 is for our account and $1,444,000 is for the
account of Anvil. The Purchase Agreement also calls for a payment to the
sellers based upon the average price spot price of gold in the two years
subsequent to closing (the "Calculation Period "). The payment will be
calculated on a pro-rata basis if the average afternoon gold price fixing
by the London Bullion Market Association over the Calculation Period (the
"Average Gold Price") is between $255 and $310 per ounce and will be capped
at $10.0 million. If we acquire additional mineable ore reserves that can
be processed at the Bogoso facility equivalent to at least 50,000 ounces of
gold output, we will make a minimum payment of $2.0 million one and half
years after the closing of the Bogoso Purchase transaction. This payment
will be applied towards the $10.0 million cap mentioned above. The Company
will record these payments at their fair value at the date they are
determinable. These amounts will be amortized over the remaining life of
the mine. Under an agreement with Anvil, our Company will provide all of
the funds for the initial $6.5 million purchase price and all other
acquisition costs collectively (the "Acquisition Costs"). We will provide a
loan to Anvil (the "Note Receivable") to fund Anvil's share of the
Acquisition Costs. The Note Receivable will bear an annual interest rate of
15% compounded monthly. All cash distributions from the Bogoso Property
will be paid to us until we have received all of the Acquisition Costs plus
interest thereon.
Assets and liabilities assumed have been recorded at estimated fair market
value. After completion of the acquisition, approximately $3,000,000 will
be paid out to BGL employees as a result of the termination of these
employees on the Acquisition Date. This amount has been reflected as
restricted cash. In addition, $7,000,000 of cash acquired has been
reflected as restricted cash to pay for the assumed mine site
rehabilitation ($6,000,000) and economic and social development for the
mine area community at the eventual closure of the Bogoso Property
($1,000,000).
The Company will also be required to pay the sellers an additional
$5,000,000 on the first anniversary of commencement of sulfide production
at BGL. Due to the uncertain nature of this contingent consideration, no
liability has been recorded as part of the purchase price allocation. This
payment, if made, will be amortized over the remaining life of the mine.
The Company will obtain the funds necessary tho complete the acquistion of
Bogoso through the issuance of $8,000,000 of 7.5% convertible debentures
due in August 2004 and $2,000,000 in equity units. The convertible
debentures may be converted into commons shares of the Company upon the
payment of $0.70 per common share. The equity units are comprised of one
common share at $0.50 and one half of a common share purchase warrant.
Approximately, 4,000,000 common shares will be issued inconjuction with the
equity unit issuance. Each common share purchase warrant is convertible to
common shares of the Company at $0.70. The Company expects to incur
acquisition and offering costs of $1,800,000; approximately $500,000 of
which has been paid to date.
S-103
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following allocation of the purchase price reflects the estimated fair
market values of assets and liabilities acquired in the contemplated
transaction as of March 31, 1999.
COSTS OF ACQUISITION (IN THOUSANDS)
Purchase Price $6,500
Transaction Costs 1,800
Less:
Anvil Note Receivable (1,444)
------
Cost of Acquisition $6,856
======
Allocation of Purchase Price
Cash $10,673
Accounts Receivable 1,494
Inventories 8,002
Mining Assets 3,345
Deferred Financing Costs 500
Accounts Payable (7,992)
Long-Term Liabilities (7,000)
Minority Interest (2,166)
------
Total Purchase Price Allocated $6,856
======
2. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENT
The accompanying Pro Forma Consolidated Statements of Operations assume
that the proposed acquisition of BGL had occurred on January 1, 1998.
The acquisition adjustments are as follows:
a. To record the elimination of depreciation and amortization expense on
mining assets acquired as of January 1, 1998.
b. To record the elimination of interest expense and foreign exchange
gains/losses and forgiveness of debt included as other income related
to the debt of BGL.
c. To record the estimated interest expense related to debt incurred of
$8.0 million at 7.5% as part of the funding for the acquisition of
BGL. To record the accrual of deemed interest expense for the $250,000
production bonus accrual payable under the credit facility and the
amortization of $500,000 in financing costs under the credit facility.
d. To record the 30% minority interest share in the earnings of BGL.
e. No tax expense is recognized as the Company would have had sufficient
net operating losses to carry forward and offset against taxable
income.
3. RECONCILIATION OF PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS TO UNITED
STATES GAAP
The Pro Forma Consolidated Financial Statements have been prepared using
the financial statements of GSR which are in accordance with Canadian
generally accepted accounting principles ("GAAP") which differ in certain
respects from those principles that the Company would have followed had its
financial statements been prepared in accordance with generally accepted
accounting prinicples in the United States ("U.S. GAAP"). The presentation
of BGL after the purchase price allocation is consistent with U.S. GAAP.
Differences which materially affect these Pro Forma Consolidated Financial
Statements are:
S-104
<PAGE>
a. For U.S. GAAP, exploration and general and administrative costs
related to projects are charged to expense as incurred. As such, the
majority of costs charged to Exploration Expense and Abandonment of
Mineral Properties under Canadian GAAP would have been charged to
earnings in prior periods under U.S. GAAP. Property acquisition costs
are capitalized for both Canadian and U.S. GAAP. The impact of this
adjustment on the Pro Forma
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consolidated Balance Sheets would be a reduction of deferred
exploration by $41.4 million. For the Pro Forma Consolidated
Statements of Operations the impact of this adjustment would be $4.9
million for the year ended December 31, 1998 and $1.4 million for the
three months ended March 31, 1999.
b. 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. The impact of this
adjustment on the Pro Forma Consolidated Balance Sheet would be a
reduction of Investment in OGML of $1.1 million. For the Pro Forma
Consolidated Statements of Operations, the impact of this adjustment
would be $0.8 million for the year ended December 31, 1998 and $0.2
million for the three months ended March 31, 1999.
c. Under U.S. GAAP, no portion of proceeds from the issuance of
convertible debt securities is accounted for as attributable to a
conversion feature. Under Canadian GAAP, this element of the proceeds
would be treated as additional capital, and accreted over the period
of optional conversion as interest expense. The impact of this
adjustment would increase the Convertible Debentures balance by
$2,011,000 and reduce the Equity Component of Convertible Debentures
as recorded under Canadian GAAP by a corresponding amount.
The following table summarizes the effect of the above material adjustments
on the Pro Forma Financial Statements:
AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
PRO FORMA CANADIAN GAAP PRO FORMA U.S. GAAP
<S> <C> <C>
Assets $ 95,829 $ 53,242
Liabilities 26,151 28,162
Minority Interest 7,469 7,517
Stockholders' Equity 62,209 17,563
FOR THE YEAR ENDED DECEMBER 31, 1998
Net (Loss)/Income $(23,874) $(29,375)
FOR THE THREE MONTHS ENDED MARCH 31, 1999
Net (Loss)/Income $ 1,107 $ (309)
</TABLE>
S-105
