<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period ended March 31, 1999
or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________ to ________.
Commission file number 0-21708
GOLDEN STAR RESOURCES LTD.
(Registrant's telephone number, including area code)
Canada 98-0101955
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1660 Lincoln Street
Suite 3000
Denver, Colorado 80264
(Address of Principal Executive Office) (Zip Code)
(303) 830-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
Yes X No
----- -----
Number of Common Shares outstanding as of May 10, 1999: 29,649,451
<PAGE>
GOLDEN STAR RESOURCES LTD.
INDEX
<TABLE>
<S> <C> <C>
Part I Financial Information
Item 1. Financial Statements........................................................... 1
Item 2. Management's Discussion and Analysis of Financial Condition,
Results of Operations and Recent Developments.................................. 11
Part II Other Information
Item 1. Legal Proceedings.............................................................. 16
Item 6. Exhibits and Reports on Form 8-K............................................... 16
Signatures....................................................................................... 17
</TABLE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual results,
performance, or achievements of the company to be materially different from any
future results, performance, or achievements express or implied by such forward-
looking statements. Such factors include, among others, gold and diamond
exploration and development costs and results, fluctuation of gold prices,
foreign operations and foreign government regulation, competition, uninsured
risks, recovery of reserves, capitalization and commercial viability and
requirements for obtaining permits and licenses.
ii
<PAGE>
Part I - Financial Information
ITEM 1. FINANCIAL STATEMENTS
--------------------
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED BALANCE SHEETS
(Stated in thousands of United States Dollars except share amounts)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
As of March 31, As of December 31,
1999 1998
-------- --------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and short-term investments $ 5,158 $ 7,350
Accounts receivable 506 511
Inventories 172 181
Other assets 91 174
-------- --------
Total Current Assets 5,927 8,216
DEFERRED EXPLORATION 59,621 58,203
INVESTMENT IN OMAI GOLD MINES LIMITED 1,150 1,337
FIXED ASSETS 537 685
OTHER ASSETS 136 156
-------- --------
Total Assets $ 67,371 $ 68,597
======== ========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 575 $ 921
Accrued wages and payroll taxes 724 779
-------- --------
Total Current Liabilities 1,299 1,700
LONG-TERM DEBT 2,536 2,948
OTHER LIABILITIES 35 56
-------- --------
Total Liabilities 3,870 4,704
-------- --------
MINORITY INTEREST 5,303 5,422
-------- --------
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
SHARE CAPITAL 159,163 159,163
(Common shares, without par value, unlimited shares
authorized. Shares issued and outstanding: March
31, 1999 - 30,292,249; December 31, 1998 - 30,292,249)
Stock option loans (4,012) (4,012)
DEFICIT (96,953) (96,680)
-------- --------
Total Shareholders' Equity 58,198 58,471
-------- --------
Total Liabilities and Shareholders' Equity $ 67,371 $ 68,597
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
1
<PAGE>
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of United States Dollars except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
-------------------------- --------------------------
<S> <C> <C>
REVENUE
Interest and other $ 166 $ 261
------ -------
166 261
------ -------
COSTS AND EXPENSES
Depreciation 54 59
General and administrative 698 1,529
Exploration expense 47 158
Interest expense 6 11
Foreign exchange loss (gain) (22) (104)
------ -------
783 1,653
------ -------
LOSS BEFORE THE UNDERNOTED (617) (1,392)
Omai preferred share redemptions surplus 225 561
------ -------
Net loss before minority interest (392) (831)
Minority interest loss 119 209
------ -------
NET LOSS $ (273) $ (622)
====== =======
BASIC AND DILUTED NET LOSS PER SHARE $(0.01) $ (0.02)
====== =======
Weighted average shares outstanding 30.2 29.8
(millions of shares) ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
2
<PAGE>
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of United States Dollars except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------------ ------------------------
<S> <C> <C>
Operating Activities:
Net loss $ (273) $ (622)
Reconciliation of net income to net cash used in operations:
Depreciation 54 59
Premium on Omai Preferred Share Redemptions (226) (561)
Minority interest loss (119) (209)
Changes in non-cash operating working capital (304) (2,413)
------- -------
Net Cash Used in Operating Activities (868) (3,746)
------- -------
Investing Activities:
Expenditures on mineral properties, net of joint venture
recoveries (1,418) (1,862)
Depreciation charged to projects 94 66
Equipment purchases - (8)
Omai Preferred Share Redemption 413 1,027
Other assets and investments 19 37
------- -------
Net Cash Used in Investing Activities (892) (740)
------- -------
Financing Activities:
Repayment of long-term debt (413) -
Issuance of share capital under options - 120
Other (19) (50)
------- -------
Net Cash Used in Financing Activities (432) 70
======= -------
Decrease in cash (2,192) (4,416)
Cash and short-term investments, beginning of period 7,350 17,399
------- -------
Cash and short-term investments, end of period $ 5,158 $12,983
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
(Unaudited)
(All tabular amounts in thousands of United States Dollars)
These financial statements and the accompanying notes should be read in
conjunction with the financial statements and related notes included in the
annual report on Form 10-K for Golden Star Resources Ltd. (the "Company") for
the fiscal year ended December 31, 1998, on file with the Securities and
Exchange Commission and with the Ontario Securities Commission (hereinafter
referred to as "the Company's 1998 10-K"). All amounts are in United States
Dollars unless otherwise stated.
The unaudited financial statements for the three months ended March 31, 1999 and
1998, reflect all adjustments, consisting solely of normal recurring items,
which are necessary for a fair presentation of financial position, results of
operations, and cash flows on a basis consistent with that of the prior audited
consolidated financial statements.
(1) LIQUIDITY AND GOING CONCERN
---------------------------
The Company must rely primarily on the capital markets to fund its operations
and exploration activities until it can achieve sustained positive cash flow
from mining operations. The Company's ability to continue as a going concern is
dependent upon its ability to raise additional capital to fund its exploration
and development efforts. The current market for gold shares is weak and equity
capital is difficult to obtain. The Company anticipates that additional capital
will be required in 1999 in order to fund operations and exploration activities.
The Company is exploring various transactions which would enable it to have
sufficient capital to continue its operations. Various transactions being
considered include mergers with other companies, acquisitions, and the issuance
of new equity. Other sources for such capital may include, among other things,
the establishment of joint ventures and sale of property interests.
If the current depressed market for gold prices and gold shares continues into
1999, it may be necessary for the Company to modify its 1999 budget to achieve
further reductions in activity and general and administrative expenses. Capital
is allocated to those projects which in the opinion of management, offer the
greatest potential to generate additional reserves and mineralized material. A
significant portion of the exploration and development expenditures for the
Company and its subsidiaries represent discretionary spending and can be
adjusted to reflect, among other things, results of exploration and development
activities and the Company's capital resources. In 1999, the Company is
required to make property rental payments and minimum exploration expenditures
totaling $0.6 million in order to maintain its current property interests per
existing mineral agreements. The Company is negotiating the reduction or
deferral of these payments where possible.
Whether and to what extent alternative financing options are completed by the
Company or its subsidiaries will depend on a number of factors including, among
others, the successful acquisition of additional properties or projects, the
price of gold and management's assessment of the capital markets. The low gold
price adversely affects our ability to obtain financing and therefore our
abilities to develop our current portfolio of properties. We cannot assure you
that additional funding will be available in 1999. This situation affects our
flexibility to invest funds in exploration and development. We may, in the
future, be unable to continue our exploration and development programs and
fulfill our obligations under our agreements with our partners or under or
permits and licenses. Although we have been successful in the past in obtaining
financing though partnership arrangements and sale of equity securities, we
cannot assure you that 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 obliged to sell some of our properties.
4
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
(Unaudited)
(All tabular amounts in thousands of United States Dollars)
<TABLE>
<CAPTION>
(2) INVENTORIES
-----------
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Materials and Supplies $172 $181
---- ----
$172 $181
==== ====
(3) FIXED ASSETS
--------------
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Machinery & Equipment $ 2,851 $ 2,851
Accumulated Depreciation (2,314) (2,166)
------- -------
$ 537 $ 685
======= =======
</TABLE>
5
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
(Unaudited)
(All tabular amounts in thousands of United States Dollars)
<TABLE>
<CAPTION>
(4) DEFERRED EXPLORATION
----------------------
Deferred
Deferred Exploration
Exploration Capitalized Capitalized Expenditures
Expenditures as Exploration Acquisition Joint Venture Property as at
at Dec. 31, 1998 Expenditures Expenditures Recoveries Abandonments March 31, 1999
=========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
GUYANA
Eagle Mountain $ 1,364 - - - - $ 1,364
Quartz Hill 1,347 - - - - 1,347
Five Stars Gold (Makapa) 819 - - - - 819
Other 57 321 - - - 378
---------------------------------------------------------------------------------------------------------
Sub-total 3,587 321 - - - 3,908
---------------------------------------------------------------------------------------------------------
SURINAME
Benzdorp / Lawa 3,352 - - - - 3,352
Gross Rosebel 14,543 171 - (86) - 14,628
Headley's Right of
Exploration 313 1 - - - 314
Thunder Mountain 456 1 - - - 457
Saramacca 1,973 3 - - - 1,976
Sara Kreek 588 - - - - 588
Tempati Reconnaissance 347 - - - - 347
Tapanahony
Reconnaissance 234 - - - - 234
Kleine Saramacca 107 - - - - 107
Lawa Antino 2,109 1 - - - 2,110
Ulemari Reconnaissance 237 - - - - 237
Other 283 36 - - - 319
---------------------------------------------------------------------------------------------------------
Sub-total 24,542 213 - (86) - 24,669
---------------------------------------------------------------------------------------------------------
FRENCH GUIANA
(Guyanor Ressources S.A.)
Dorlin 2,363 215 - (114) - 2,464
St-Elie 2,377 108 - - - 2,485
Yaou 7,486 129 - (63) - 7,552
Paul Isnard / Eau
Blanche 4,650 241 - - - 4,891
Paul Isnard Alluvials 1,987 - - - - 1,987
Dachine 1,481 53 - - - 1,534
---------------------------------------------------------------------------------------------------------
Sub-total 20,344 746 - (177) - 20,913
---------------------------------------------------------------------------------------------------------
AFRICA (Pan African
Resources Corporation)
Ivory Coast / Comoe 4,304 73 - - - 4,377
Kenya / Ndori 2,565 37 - - - 2,602
---------------------------------------------------------------------------------------------------------
Sub-total 6,869 110 - - - 6,979
---------------------------------------------------------------------------------------------------------
LATIN AMERICA (Southern
Star Resources Ltd.)
Brazil / Abacaxis 2,498 191 - - - 2,689
Brazil / Other 275 99 - - - 374
---------------------------------------------------------------------------------------------------------
Sub-total 2,773 290 - - - 3,063
---------------------------------------------------------------------------------------------------------
OTHER 88 1 - - - 89
---------------------------------------------------------------------------------------------------------
TOTAL $58,203 1,681 - (263) - 59,621
=========================================================================================================
</TABLE>
The recoverability of amounts shown for deferred exploration is dependent upon
the sale or discovery of economically recoverable reserves, the ability of the
Company to obtain necessary financing to complete the development, and upon
future profitable production or proceeds from the disposition thereof. The
amounts deferred represent costs to be charged to operations in the future and
do not necessarily reflect the present or future values of the properties.
6
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
(Unaudited)
(All tabular amounts in thousands of United States Dollars)
(5) INVESTMENT IN OMAI GOLD MINES LIMITED
-------------------------------------
Details regarding the Company's investment in the common and preferred share
equity of Omai Gold Mines Ltd. and its share of equity losses not recorded for
the year ended December 31, 1997 and the quarter ended March 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Common Shares Preferred Shares
--------------------- ----------------------
<S> <C> <C>
December 31, 1998 $ - $1,337
Less: Preferred Share Redemption - (413)
Add: Premium on Preferred Share Redemption - 226
---- ------
March 31, 1999 $ - $1,150
==== ======
</TABLE>
The Company's share of Accumulated Losses at:
<TABLE>
<S> <C>
December 31, 1998 $(628)
=====
March 31, 1999 $(586)
=====
</TABLE>
The $0.4 million of preferred shares redeemed in the first quarter were used to
reduce the outstanding loan balance to OGML to $2.5 million.
(6) CHANGES TO SHARE CAPITAL
------------------------
During the three months ended March 31, 1999, no shares were issued under
options previously granted under the Company's 1997 Stock Option Plan, as
amended.
(7) GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
------------------------------------------------------------------------
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") in Canada which differ in certain
respects from those principles that the Company would have followed had its
financial statements been prepared in accordance with generally accepted
accounting principles in the United States. Differences which materially affect
these consolidated financial statements are:
(a) For United States GAAP ("U.S. GAAP"), exploration and general and
administrative costs related to projects are charged to expense as
incurred. As such, the majority of costs charged to Exploration Expense
and Abandonment of Mineral Properties under Canadian GAAP would have been
charged to earnings in prior periods under U.S. GAAP. Property acquisition
costs are capitalized for both Canadian and U.S. GAAP.
(b) For periods prior to May 15, 1992 (the "Amalgamation"), the Company's
reporting currency was the Canadian dollar. Subsequent to the Company's
Amalgamation and moving of corporate headquarters to the United States, the
reporting currency was changed to the U.S. dollar. As such, for the
financial statements for periods prior to May 15, 1992, the Company's
financial statements were translated into U.S. dollars using a translation
of convenience. U.S. GAAP requires translation in accordance with the
current rate method.
7
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
(Unaudited)
(All tabular amounts in thousands of United States Dollars)
(c) Under U.S. GAAP, the investment in Omai Gold Mines Limited would have been
written off in prior years and, therefore, the entire Omai Preferred Share
Redemption would have been included in income. Under Canadian GAAP, a
portion of the Omai Preferred Share Redemption is included in income with
the remainder reducing the carrying value of the Company's preferred stock
investment.
(d) Canadian GAAP allows classification of investments which are capable of
reasonably prompt liquidation as current assets. As such, all of the
Company's investments are included under the caption "short-term
investments" on the balance sheet under current assets. U.S. GAAP requires
classification as current or long term assets based upon the anticipated
maturity date of such instruments. Under U.S. GAAP, cash (and cash
equivalents) includes bank deposits, money market instruments, and
commercial paper with original maturities of three months or less.
Canadian GAAP permits the inclusion of temporary investments with
maturities greater than 90 days in cash.
(e) The Company eliminated its accumulated deficit through the amalgamation
(defined as a quasi-reorganization under U.S. GAAP) effective May 15, 1992.
Under U.S. GAAP, the cumulative deficit was greater than the deficit under
Canadian GAAP due to the write-off of certain deferred exploration costs
described in (a) above.
(f) Under U.S. GAAP, available-for-sale securities are recorded at fair value
and unrealized gains and losses are recorded as a separate component of
shareholders' equity. Fair value is determined by quoted market prices.
The Company has available-for-sale securities as of March 31, 1998.
(g) Under U.S. GAAP, items such as foreign exchange gain and losses are
required to be shown separately in derivation of Comprehensive Income.
Had the Company followed U.S. GAAP, certain items on the statements of
operations and balance sheets would have been reported as follows:
<TABLE>
<CAPTION>
For the three months ended
March 31, 1999 March 31, 1998
---------------------------- --------------------------
<S> <C> <C>
Net profit (loss) under Canadian GAAP $ (273) $ (622)
Net effect of the deferred exploration expenditures on
loss for the period (a) (1,418) (1,662)
Effect of Omai preferred share redemption (c) 189 466
Foreign exchange loss (gain) (g) (22) (104)
------- -------
Loss under U.S. GAAP before minority interest (1,524) (1,922)
Adjustment to minority interest 165 185
------- -------
Loss under U.S. GAAP (1,359) (1,737)
Other comprehensive income foreign exchange loss 22 104
------- -------
Comprehensive income (g) $(1,337) $(1,633)
======= =======
Loss per share under U.S. GAAP $(0.04) $(0.05)
======= =======
</TABLE>
8
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
(Unaudited)
(All tabular amounts in thousands of United States Dollars)
The effect of the differences in accounting under Canadian GAAP and U.S. GAAP on
the balance sheets and statements of cash flows are as follows:
Balance Sheet
<TABLE>
<CAPTION>
As of March 31, 1999 As of December 31, 1998
--------------------------------------- -----------------------------------
Canadian GAAP U.S. GAAP Canadian GAAP U.S. GAAP
------------------ ------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Cash (d) $ 5,158 $ 2,168 $ 7,350 $ 3,145
Short term investments (d) - 1,590 - 1,590
Other current assets 769 769 866 866
Restricted cash - - - -
Deferred exploration (a) 59,621 18,183 58,203 18,183
Investment in Omai Gold Mines Limited (c) 1,150 - 1,337 -
Long-term investments (d) - 1,400 - 2,615
Other assets 673 673 841 841
-------- --------- -------- ---------
Total Assets $ 67,371 $ 24,783 $ 68,597 $ 27,240
======== ========= ======== =========
Liabilities 3,870 3,870 4,704 4,704
Minority interest (a) 5,303 5,351 5,422 5,637
Share capital, net of stock option loans (e) 155,151 152,360 155,151 152,360
Cumulative translation adjustments (b) - 1,595 - 1,595
Accumulated comprehensive income (g) - (571) - (593)
Deficit (a)(c) (96,953) (137,822) (96,680) (136,463)
-------- --------- -------- ---------
Total Liabilities and Shareholders' Equity
$ 67,371 $ 24,783 $ 68,597 $ 27,240
======== ========= ======== =========
</TABLE>
Statements of Cash Flows
<TABLE>
<CAPTION>
Net cash provided by (used in):
Operating Activities Investing Activities Financing Activities
-------------------- -------------------- --------------------
Canadian U.S. Canadian U.S. Canadian U.S.
GAAP GAAP GAAP GAAP GAAP GAAP
------- ------- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
For the three months ended
March 31, 1999 $ (868) $(1,873) (892) 1,328 (432) (432)
For the three months ended
March 31, 1998 $(3,746) $(4,342) $(740) $(2,681) $ 70 $ 119
</TABLE>
The statements of cash flows reflect the impact of the previously discussed
adjustments (a) and (c). There were no significant non-cash transactions
impacting the statement of cash flows for the quarters ended March 31, 1999 and
1998.
9
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
(Unaudited)
(All tabular amounts in thousands of United States Dollars)
<TABLE>
<CAPTION>
Operating Revenues Net Loss Identifiable Assets
<S> <C> <C> <C>
For the 3 months ended
March 31, 1999
South America $ 2 $(1,178) $18,418
Africa - (110) 1,051
Corporate 164 (71) 5,314
---- ------- -------
$166 $(1,359) $24,783
==== ======= =======
For the 3 months ended
March 31, 1998
South America $ 1 $(1,281) $23,672
Africa - (198) 1,061
Corporate 260 (258) 14,079
---- ------- -------
$261 $(1,737) $38,812
==== ======= =======
</TABLE>
(8) COMMITMENTS AND CONTINGENIES
----------------------------
Potential Litigation
On December 17, 1998, SMSE notified Texmine of its intention to terminate the
Dieu-Merci option agreement. After several attempts to substantially reduce or
eliminate the minimum commitments and property payments specified in the
agreement failed, SMSE decided to withdraw from the option agreement. Following
the termination of the option agreement, the owner of the Dieu-Merci project
demanded from SMSE the sum of ff 2,000,0000 (approximately $350,000), which
according to Texmine is owed to it in spite of the termination of the option
agreement. SMSE does not believe that such sum is owed and , therefore, intends
to defend itself vigorously against any legal action that Texmine may take to
obtain payment. There can be no assurance, however, that SMSE will be
successful.
(9) SUBSEQUENT EVENTS
-----------------
On April 5, 1999, the Company completed the cancellation of David Fennell's
stock option loans. As a result of this cancellation of the loans, the issued
and outstanding Common Shares of the Company were reduced by 667,792.
On May 5, 1999, the Company agreed to the early repayment of a former executive
officer's stock option loan at a discount of 8.8% to its face value resulting in
a cash inflow to the Company of $0.6 million.
On May 18, 1999, the Company and Anvil Mining NL ("Anvil") announced that they
had been informed by the International Finance Corporation ("IFC") of the
acceptance of their offer to purchase 90% of the shares of Bogoso Gold Limited
("BGL") from a consortium of banks led by IFC and Deutsche Investitions und
Entwicklungsgesellschaft mbH ("DEG") of Germany, subject to the approval of the
boards of the IFC and DEG. Following the completion of the purchase, the
Company and Anvil will hold equity interests of 70% and 20%, respectively, in
BGL with the Government of Ghana retaining its 10% equity interest. In addition
to acquiring 90% of the shares in BGL, the purchase includes the acquisition of
existing bank debt of approximately $34 million owed by BGL to the consortium
of banks selling BGL. The Company and Anvil will acquire 77.8% and 22.2% of
this debt, respectively, and as a result, BGL will have no external bank debt
other than the debt acquired by the Company and
10
<PAGE>
Anvil. The acquisition agreement will be signed by the parties once ratified by
the boards of directors of IFC and DEG (expected by May 25). The acquisition of
the shares and debt of BGL is subject to approval by the Government and Bank of
Ghana.
The total purchase consideration for the acquisition of BGL is $17 million,
comprising the following: (1) $12 million payable on closing; and (2) $5
million as a deferred payment, payable on the first anniversary of the
commencement of commercial mining of the sulfide ore as part of a new sulfide
project. Funding for the first $12 million of the acquisition cost will be
borne by the Company. The acquisition costs and all other associated costs with
interest will be reimbursed from BGL to Golden Star, prior to Anvil receiving
any cash flow from BGL.
A standby credit facility for up to US$12 million has been arranged by the
Company to effect the purchase. As part of the agreement with the bank vendors
the Company has arranged a $2.0 million letter of credit in favor of the
vendors, which is non-refundable if the Company fails to meet its obligations
under the purchase agreement. As part of the standby credit facility the
Company will issue a minimum of 1.5 million common share purchase warrants
following the signing of the acquisition agreement and up to an additional 1.5
million under draw down depending on the amount utilized under the facility.
The warrants will have a three year term and will be priced at the signing of
the acquisition agreement by the parties, using the 10 day weighted average
closing price for the Company shares on the American Stock Exchange. The
warrants will be callable by the Company under certain conditions. For each
year during the first six years following the acquisition that total production
from the Bogoso mine concession is greater than 75,000 ounces, the lender of the
credit facility will receive a cash payment of $250,000 per 12 month period,
totaling not more than $1,250,000. The loan will bear interest at a rate of
15% per annum compounded monthly, payable in arrears, such rate to be increased
to 25% per annum in the event of default until the default is cured. The loan
will be secured by a full recourse guarantee by the Company, a first charge on
the assets of BGL and a pledge of the common stock and debt of BGL. The Company
will have to pay to the lender $250,000 upon signing of the acquisition
agreement and an additional $250,000 upon closing of the acquisition.
In May 1999, the Company and certain key executives mutually agreed upon
revisions in their employment agreements. In exchange for reductions in their
base salaries, the employees if they chose to leave the Company on their own
volition before December 31, 1999, will receive a severance package including a
lump sum payment representing and agreed upon portion of their salary they would
have been entitled to receive through the end of 1999. As of May 1999, the
salary component of the voluntary separation severance packages that would be
paid under these lump sum payments was approximately $0.4 million. The revised
employment contracts include provisions for termination of the employees by the
Company "without cause" or as a result of a "change in control". As of May
1999, the salary component of the severance packages that would be paid under
the "without cause" and "change in control" provisions was approximately $0.7
million.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
--------------------------------------------------
CONDITION, RESULTS OF OPERATIONS AND RECENT DEVELOPMENTS
--------------------------------------------------------
The following discussion should be read in conjunction with the accompanying
consolidated financial statements and related notes. The financial statements
have been prepared in accordance with Canadian generally accepted accounting
principles ("GAAP"). For U.S. GAAP reconciliation see attached financial
statement Note 7.
Cautionary Statement for the Purposes of the Reform Act
The following contains certain forward-looking statements within the meaning of
the Reform Act. Actual results, performance or achievements of the Company could
differ materially from those projected in the forward-looking statements due to
a number of factors, including those set forth under "Risk Factors" in the
Company's Annual Report on Form 10-K. Readers are cautioned not to put undue
reliance on forward-looking statements. The Company disclaims any intent or
obligation to update publicly these forward-looking statements, whether as a
result of new information, future events or otherwise.
Results of Operations
Three Months Ended March 31, 1999 Compared to the Three Months Ended March 31,
- ------------------------------------------------------------------------------
1998
- ----
During the first quarter of 1999, the Company reported a net loss of $0.3
million or $0.01 per share as compared to a net loss of $0.6 million or $0.02
per share for the first quarter of 1998.
Total revenues during the first quarter of 1999 decreased to $0.2 million as
compared to $0.3 million during first quarter of 1998, due to the lower average
cash balance invested during the period.
General and administrative expenditures decreased to $0.7 million during the
first quarter of 1999 as compared to $1.5 million during the first quarter of
1998 due to the Company's cost reduction efforts. Exploration expense for the
quarter decreased $0.1 million as a result of reduced exploration activities.
Omai Gold Mines Limited ("OGML"), in which the Company maintains a 30% common
share equity interest, reported net income of $0.3 million for the first quarter
of 1999 compared to a net income of $3.9 million in the first quarter of 1998.
The Omai mine produced 80,694 ounces of gold in the first quarter of 1999.
During the first quarter of 1999, the Company recorded redemptions of Class "I"
preferred shares of OGML of $0.4 million as compared to $1.0 million in the same
period in 1998.
Liquidity and Capital Resources
As of March 31, 1999, the Company held cash and short term investments of $5.1
million ($13.0 million as of March 31, 1998 and $7.4 million as of December 31,
1998) and working capital of $4.6 million ($14.4 million as of March 31, 1998
and $6.5 million as of December 31, 1998).
The Company must rely primarily on the capital markets to fund its operations
and exploration activities until it can achieve sustained positive cash flow
from mining operations. The Company's ability to continue as a going concern is
dependent upon its ability to raise additional capital to fund its exploration
and development efforts. The current market for gold shares is weak and equity
capital is difficult to obtain. The Company anticipates that additional capital
will be required in 1999 in order to fund operations and exploration activities.
The Company is exploring various transactions which would enable it to have
sufficient capital to continue its operations. Various transactions being
considered
12
<PAGE>
include mergers with other companies, acquisitions, and the issuance of new
equity. Other sources for such capital may include, among other things, the
establishment of joint ventures and sale of property interests.
If the current depressed market for gold prices and gold shares continues into
1999, it may be necessary for the Company to modify its 1999 budget to achieve
further reductions in activity and general and administrative expenses. Capital
is allocated to those projects which in the opinion of management, offer the
greatest potential to generate additional reserves and mineralized material. A
significant portion of the exploration and development expenditures for the
Company and its subsidiaries represent discretionary spending and can be
adjusted to reflect, among other things, results of exploration and development
activities and the Company's capital resources. In 1999, the Company is
required to make property rental payments and minimum exploration expenditures
totaling $0.6 million in order to maintain its current property interests per
existing mineral agreements. The Company is negotiating the reduction or
deferral of these payments where possible.
Whether and to what extent alternative financing options are completed by the
Company or its subsidiaries will depend on a number of factors including, among
others, the successful acquisition of additional properties or projects, the
price of gold and management's assessment of the capital markets. The low gold
price adversely affects our ability to obtain financing and therefore our
abilities to develop our current portfolio of properties. We cannot assure you
that additional funding will be available in 1999. This situation affects our
flexibility to invest funds in exploration and development. We may, in the
future, be unable to continue our exploration and development programs and
fulfill our obligations under our agreements with our partners or under or
permits and licenses. Although we have been successful in the past in obtaining
financing though partnership arrangements and sale of equity securities, we
cannot assure you that 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 obliged to sell some of our properties.
As described in Footnote 9 to the Company's Consolidated Financial Statements
included herein, the Company and Anvil Mining NL ("Anvil") currently intend to
acquire equity interests in Bogoso Gold Limited ("BGL") from a consortium of
banks. Total consideration for the acquisition of BGL is $17 million, consisting
of $12 million on closing and $5 million on the first anniversary of the
commencement of commercial mining of sulphide ore as part of a new sulphide
project. BGL operates the Bogoso gold mine in Ghana, a plus 100,000 ounce per
year gold mine located on the Ashanti trend. The Bogoso mine is currently
processing oxide and transition ore and has a 2-year mine life on the basis of
current reserves. Bogoso also hosts substantial sulphide mineralization, the
potential of which will require additional exploration, metallurgical testwork
and engineering to confirm its feasibility. Through the transaction, the Company
will purchase a 70% common share interest in BGL and 78% of the debt owed to the
bank vendors.
The Company currently expects that the acquisition agreement will be signed by
the parties once ratified by the boards of directors of International Finance
Corporation and Deutsche Investitions and Entwicklungsgesellschaft mbH,
anticipated to occur in late May. The acquisition is also subject to approval by
the Government and Bank of Ghana. The Company now anticipates closing on the
acquisition in July 1999.
The Company provided a $2 million deposit to the sellers by arranging for a
letter of credit in that amount to be opened in their favor. If the Company
breaches its obligations under the acquisition agreement for BGL, the Company
will lose this deposit, materially adversely affecting the Company's liquidity.
The Company is entitled to seek cancellation of this letter of credit if the
conditions for closing are not satisfied or if the sellers breach their
obligations under the acquisition agreement.
Funding of the $12 million purchase price plus costs of the acquisition will
also be borne by the Company. For the purpose of obtaining bridge financing for
the BGL acquisition, the Company has entered into a bridge facility agreement
with a third party financial institution (the "Lender"). The Company expects to
fund the $12 million purchase price at least in part with borrowings under this
bridge financing. The Company may also use the proceeds of an offering of equity
securities of the Company to reduce the amount of this borrowing. The
acquisition costs plus all other associated costs plus interest will be repaid
from BGL to Golden Star prior to Anvil receiving any cash flow from BGL.
Interest on the bridge financing at the rate of 15% per year will be payable
monthly. Upon certain defaults under the bridge financing, the interest rate
will be increased to 25% per year until cured. Principal repayments under the
bridge financing commence 60 days after the date of the advance and are in 12
equal monthly installments, subject to a maximum of $750,000 per payment plus
interest. Any principal remaining unpaid following the final monthly repayment
must be repaid within 7 days after such final monthly repayment. The bridge
financing may be prepaid at any time without penalty. As security for the
repayment of the bridge financing, the Company will guarantee repayment, the
common stock and debt of BGL will be pledged to the Lender; and BGL will grant
the Lender a first charge on BGL's assets.
For each 12-month period during the first six years following the BGL
acquisition that total production from the Bogoso mine concession is greater
than 75,000 ounces, the Lender will receive a cash payment of $250,000 per
12-month period, totaling not more than $1.25 million.
Cash used in investing activities of $0.9 million for the three months ended
March 31, 1999 increased as compared to $0.7 million for the three months ended
March 31, 1998, primarily due to a decrease in OGML preferred share redemptions
of $0.6 million offset by a reduction in exploration spending of $0.4 million.
Cash used in financing activities of $0.4 million for period increased as
compared to cash provided by $0.1 million for the corresponding period in 1998
due to the repayment of long-term debt due to OGML of $0.4 million. There were
no issuances of share capital as compared to $0.1 million in the first quarter
of 1998.
As at March 31, 1999, the Company held consolidated cash and short-term
investments of $5.2 million. The Company has budgeted expenditures of $4.4
million for the remainder of 1999, excluding the effect of the BGL acquisition.
Without any other financing or capital raising transaction such as the sale of
assets, and excluding the effect of the BGL acquisition, the Company anticipates
it will have a consolidated cash position of $0.9 million at the end of 1999.
This would materially and adversely affect our ability to continue as a going
concern. The Company expects that cash flow from operations of BGL will be
sufficient to cover debt service and principal payments on the bridge financing.
The extent of any additional cash flow from BGL in excess of debt service and
principal payments will depend on the amount, if any, of proceeds from an
offering of equity securities to reduce the amount of the BGL bridge facility.
Africa (Pan African Resources Corporation)
- ------------------------------------------
Total exploration expenditures by PARC in Africa for the first quarter of 1999
amounted to $0.1 million (compared to $0.3 million in the first quarter of
1998), and primarily reflect expenditures on exploration activities in the Ivory
Coast and Kenya.
French Guiana (Guyanor Ressources S.A.)
- ---------------------------------------
Total exploration expenditures by Guyanor for the first quarter amounted to $0.7
million, offset by joint venture recoveries
13
<PAGE>
of $0.2 million (compared to expenditures of $1.0 million and joint venture
recoveries of $0.7 million in the first quarter of 1998). Activities in French
Guiana focused primarily on further work at Yaou and Dorlin, St-Elie and Paul
Isnard. General and administrative expenditures for Guyanor which were not
reimbursed by joint venture partners amounted to $0.4 million for the quarter
ended March 31, 1999 (compared to $0.5 million in the first quarter of 1998).
Guyana
- ------
Exploration and acquisition expenditures in the first quarter of 1999 in Guyana
amounted to $0.3 million (compared to $0.5 million during the first quarter of
1998). Activities in Guyana focused primarily on the restructuring of the
Guyana exploration activities and the recovery of cash to property bonds on
projects abandoned.
Suriname
- --------
Exploration expenditures in Suriname during the first quarter of 1999 focused
principally on the Gross Rosebel project. Total spending in Suriname in the
period of $0.2 million was offset by joint venture recoveries of $0.1 million
(as compared to expenditures of $0.5 million and recoveries of $0.4 million
during the first quarter of 1998). The reduction is primarily a result of the
placement of the Gross Rosebel project on care and maintenance pending improved
gold prices and resolution of certain development issues.
Southern Star Resources Ltd.
- ----------------------------
Exploration expenditures for the first quarter of 1999 of $0.3 million as
compared to $0.7 million during the first quarter of 1998 by Southern Star
decreased due to decreased exploration activities. Expenditures related
primarily to the Abacaxis project in Brazil.
Year 2000 Compliance
The Company recognizes the importance of ensuring that its business operations
are not disrupted as a result of Year 2000 problems. The Company has prepared a
three step plan to identify and resolve Year 2000 issues. First, the Company
has compiled an inventory of its Information Technology ("IT") systems, and non-
IT systems (which are those which typically include "embedded" technology such
as microprocessors or chips) and performing a survey of the state of Year 2000
readiness of third party suppliers, vendors, joint venture partners and OGML.
Second, the Company has prioritized the IT and non-IT systems and vendor
responses. Third, the Company has prepared a Year 2000 testing plan to assess
the ability of IT and non-IT systems to handle the Year 2000. Those systems
that are not Year 2000 compliant are being modified or replaced to ensure that
they are Year 2000 compliant. These steps are in various stages of completion.
The Company anticipates that all steps will be completed by June 30, 1999. The
Company estimates the internal and external cost of Year 2000 compliance to be
approximately $0.1 million. To date the Company has spent approximately 15% of
this estimated goal.
The Company believes that the greatest risk presented by the Year 2000 problem
is from third parties, such as suppliers and financial institutions who may not
have adequately addressed the problem. A failure of any such third party's
computer or other applicable systems in sufficient magnitude could materially
and adversely impact the Company. The Company is not presently able to quantify
this risk but believes that it is minimal based upon the survey responses
received to date from third party suppliers, vendors, joint venture partners and
OGML.
14
<PAGE>
The Company is undertaking a contingency planning effort to identify
alternatives that could be used to mitigate the effects of Year 2000 related
failures. The Company maintains printed back-up of all material transactions
which could facilitate the continuation of business operations and remediation
of data loss in the event of a system failure.
15
<PAGE>
Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS
-----------------
There are currently no pending legal proceedings to which the Company or any of
its subsidiaries is a party or to which any of its properties or those of any of
its subsidiaries is subject. The Company and its subsidiaries are, however,
engaged in routine litigation incidental to their business. No material legal
proceedings involving the company are pending, or, to the knowledge of the
Company, contemplated, by any governmental authority. The Company is not aware
of any material events of noncompliance with environmental laws and regulations.
The exact nature of environmental control problems, if any, which the Company
may encounter in the future cannot be predicted, primarily because of the
changing character of environmental regulations that may be enacted with foreign
jurisdictions.
On December 17, 1998, SMSE notified Texmine of its intention to terminate the
Dieu-Merci option agreement. After several attempts to substantially reduce or
eliminate the minimum commitments and property payments specified in the
agreement failed, SMSE decided to withdraw from the option agreement. Following
the termination of the option agreement, the owner of the Dieu-Merci project
demanded from SMSE the sum of FF 2,000,0000 (approximately $350,000), which
according to Texmine is owed to it in spite of the termination of the option
agreement. SMSE does not believe that such sum is owed and , therefore, intends
to defend itself vigorously against any legal action that Texmine may take to
obtain payment. There can be no assurance, however, that SMSE will be
successful.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
27 Financial Data Schedule
(b) The Company filed with the Securities and Exchange Commission ("SEC")
on February 5, 1999 a Form 8-K concerning changes in the management of
the Company as well as a business update. The Company also filed with
the SEC on March 1, 1999 a Form 8-K announcing the appointment of Mr.
James E. Askew as President and Chief Executive Officer of the
Company.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOLDEN STAR RESOURCES LTD.
By: /s/ James E. Askew
------------------------------------------
James E. Askew
President and Chief Executive Officer
By: /s/ Gordon J. Bell
------------------------------------------
Gordon J. Bell
Vice President and Chief Financial Officer
May 24, 1999
17
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