<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------
FORM 10-Q
-------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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 1-12284
GOLDEN STAR RESOURCES LTD.
(Exact name of registrant as specified in its charter)
Canada 98-0101955
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1660 Lincoln Street
Suite 3000
Denver, Colorado 80264
(Address of principal executive office) (Zip Code)
(303) 830-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
Yes X No_____
-----
Number of Common Shares outstanding as of July 31, 2000: 37,588,988
================================================================================
<PAGE>
GOLDEN STAR RESOURCES LTD.
INDEX
<TABLE>
<S> <C>
Part I Financial Information
Item 1. Financial Statements................................................................... 3
Item 2. Management's Discussion and Analysis of Financial Condition,
Results of Operations and Recent Developments.......................................... 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................. 15
Part II Other Information
Item 1. Legal Proceedings...................................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders.................................... 16
Item 6. Exhibits and Reports on Form 8-K....................................................... 17
Signatures................................................................................................ 18
</TABLE>
SPECIAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains "forward-looking statements" within the meaning of the
U.S. securities laws. Forward-looking statements include statements concerning
plans, objectives, goals, strategies, future events, capital expenditure,
exploration efforts, financial needs, and other information that is not
historical information. The Golden Star Resources Ltd. (the "Company") forward-
looking statements are based on the Company's current expectations and various
assumptions as of the date such statements are made. The Company cannot give
assurance that such statements will prove to be correct.
These forward-looking statements include statements regarding: the impact of our
shift in business strategy; the impact that the Bogoso mine may have on our
future liquidity, cash flows, financial requirements, operating results and
capital resources; the operational and financial performance of the Bogoso mine;
targets for gold production; cash operating costs and expenses; increases or
decreases in production from our mining operations; schedules for completion of
feasibility studies; potential increases in reserves and production; the timing
and scope of future drilling and other exploration activities; expectations
regarding receipt of permits and commencement of mining or production;
anticipated recovery rates; and potential acquisitions or increases in property
interests in the region of the Bogoso mine.
Factors that could cause our actual results to differ materially from these
statements include changes in gold prices, unanticipated grade changes,
unanticipated changes and recovery problems, mining and milling costs, geology,
metallurgy, processing, access, transportation of supplies, water availability,
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 approvals for new permits or renewal of 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, local and community impacts and issues, and general domestic and
international economic and political conditions.
2
<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)
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As of As of
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 3,623 $ 2,905
Accounts receivable 1,229 1,976
Inventories (Note 3) 9,807 8,905
Other assets 171 171
--------- ---------
Total Current Assets 14,830 13,957
RESTRICTED CASH (Note 9) 5,000 6,000
NOTE RECEIVABLE 4,092 3,784
ACQUISITION, DEFERRED EXPLORATION AND DEVELOPMENT COSTS (Note 4) 40,129 37,922
INVESTMENT IN OMAI GOLD MINES LIMITED 769 1,023
MINING PROPERTIES (Net of accumulated depreciation of $6,859 and $2,777, respectively) 6,395 10,413
FIXED ASSETS (Net of accumulated depreciation of $2,945 and $2,587, respectively) 2,055 1,175
OTHER ASSETS 79 78
--------- ---------
Total Assets $ 73,349 $ 74,352
========= =========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 4,031 $ 4,414
Accrued wages and payroll taxes 260 315
Current portion of amount payable to financial institutions 3,208 3,208
--------- ---------
Total Current Liabilities 7,499 7,937
LONG-TERM DEBT 1,696 2,254
AMOUNT PAYABLE TO FINANCIAL INSTITUTIONS 3,708 3,708
CONVERTIBLE DEBENTURES (Note 5) 3,074 3,184
ENVIRONMENTAL REHABILITATION LIABILITY (Note 9) 6,301 6,721
OTHER LIABILITIES 22 24
--------- ---------
Total Liabilities 22,300 23,828
MINORITY INTEREST 10,354 10,023
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 6) 160,922 160,502
Common shares, without par value, unlimited shares authorized. Shares issued
and outstanding: June 30, 2000 - 37,588,988; December 31, 1999 - 36,943,731
Equity component of convertible debentures (Note 5) 1,045 1,045
DEFICIT (121,272) (121,046)
--------- ---------
Total Shareholders' Equity 40,695 40,501
--------- ---------
Total Liabilities and Shareholders' Equity $ 73,349 $ 74,352
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE>
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of United States Dollars except share amounts)
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE
Gold sales $ 8,815 $ - $ 17,508 $ -
Interest and other 295 56 593 222
----------- ---------- ----------- ----------
9,110 56 18,101 222
COSTS AND EXPENSES
Mining operations 6,128 11,647
Depreciation, depletion and amortization 2,363 28 4,527 82
Exploration expense 300 5 660 52
General and administrative 703 1,164 1,253 1,862
Abandonment and impairment of mineral
Properties - 3,263 - 3,263
Gain on disposal of assets (41) (8) (74) (8)
Interest expense 254 6 510 12
Foreign exchange gain (207) (9) (204) (31)
----------- ---------- ----------- ----------
9,500 4,449 18,319 5,232
----------- ---------- ----------- ----------
INCOME/(LOSS) BEFORE THE UNDERNOTED (390) (4,393) (218) (5,010)
Omai preferred share redemption premium 268 297 305 522
----------- ---------- ----------- ----------
Income/(Loss) before minority interest (122) (4,096) 87 (4,488)
Minority interest (34) 103 (313) 222
----------- ---------- ----------- ----------
NET LOSS $ (156) $ (3,993) $ (226) $ (4,266)
=========== ========== =========== ==========
BASIC AND DILUTED NET LOSS PER SHARE $ (0.00) $ (0.13) $ (0.01) $ (0.14)
=========== ========== =========== ==========
Weighted Average Shares Outstanding
(in millions of shares) 37.6 30.0 37.5 30.0
=========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
4
<PAGE>
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of United States Dollars)
(Unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Six Months Six Months
Ended Ended
June 30, 2000 June 30,1999
------------- ------------
<S> <C> <C>
Operating Activities:
Net loss $ (226) $(4,266)
Reconciliation of net loss to net cash used in operating activities:
Depreciation, depletion and amortization 4,527 82
Accretion of equity component of convertible debentures 104 -
Non-cash compensation 35 -
Premium on Omai preferred share redemption (305) (522)
Abandonment and impairment of mineral properties - 3,263
Gain on disposal of assets (74) (70)
Minority interest 313 (222)
Increase in note receivable (308) -
Decrease in environmental rehabilitation liability (420) -
Change in other liabilities (2) (25)
Changes in non-cash operating working capital
Accounts receivable 746 117
Inventories (902) 18
Accounts payable and accrued liabilities (437) (80)
Other current assets - 86
------- -------
Total changes in non-cash operating working capital (593) 141
------- -------
Net Cash Provided by (Used in) Operating Activities 3,051 (1,619)
------- -------
Investing Activities:
Expenditures on mineral properties, net of joint venture recoveries (2,152) (2,377)
Expenditures on mining properties (64) -
Equipment purchases (1,381) (5)
Omai preferred share redemption 558 956
Increase in deferred acquisition costs - (1,085)
Proceeds from sale of equipment 75 94
Other assets 18 62
------- -------
Net Cash Used in Investing Activities (2,946) (2,355)
------- -------
Financing Activities:
Repayment of long-term debt (558) (956)
Restricted Cash 1,000 (2,200)
Loss on settlement of stock option loans - 62
Repayment of stock option loans - 638
Issuance of share capital, net of issue costs 171 22
------- -------
Net Cash Provided by (Used in) Financing Activities 613 (2,434)
------- -------
Increase/(Decrease) in cash and short-term investments 718 (6,408)
Cash and short-term investments, beginning of period 2,905 7,350
------- -------
Cash and short-term investments, end of period $ 3,623 $ 942
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
5
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(Unaudited)
(All amounts are in thousands of United States Dollars, unless otherwise
indicated)
These financial statements and the accompanying notes should be read in
conjunction with the consolidated financial statements and related notes
included in the annual report on Form 10-K for the Company for the fiscal year
ended December 31, 1999, on file with the Securities and Exchange Commission and
with the Ontario Securities Commission (hereinafter referred to as "the
Company's 1999 10-K"). All amounts are in United States Dollars unless otherwise
stated.
The unaudited financial statements for the three month and six month periods
ended June 30, 2000 and 1999, 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) SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
------------- -------------
Shares issued under Stock Bonus Plan $ 35 $ -
Depreciation charged to projects $ 55 $ 103
Shares issued upon conversion of $ 214 $ -
convertible debentures (Note 6)
Conversion of convertible debentures $ (214) $ -
(Note 6)
(2) NEW ACCOUNTING STANDARDS
------------------------
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities (FAS 133). FAS
133 is effective for all fiscal years beginning after June 15, 2000. FAS 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 and, if it is, the type
of hedge transaction. In June, 2000, the FASB issued Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an amendment of FAS 133
(FAS 138), under which certain hedging activities could be excluded from the
accounting requirements of FAS 133 provided they meet certain criteria to
qualify as normal purchase and sale transactions. The Company is in the process
of determining the impact that applying FAS 133 and FAS 138 may have on its
results of operations and financial position and the effects of adopting the new
standards are not reasonably determinable at this time. The Company expects to
adopt FAS 133 and FAS 138 effective January 1, 2001.
In December 1999, the Securities and Exchange Commission (SEC) released Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements
that provides guidance on the recognition, presentation and disclosure of
revenue in financial statements filed with the SEC. SAB 101 outlines the basic
criteria that must be met to recognize revenue and provides guidance for
disclosures related to revenue recognition policies. Citing numerous requests
from groups requesting additional time to determine the effect on revenue
recognition practices, the SEC issued SAB No. 101B in June, 2000, which delayed
the implementation of SAB 101 to no later than the fourth fiscal quarter of
2000. We are currently awaiting additional guidance from the SEC on the
application of SAB 101 in order to evaluate the effect this bulletin may have,
if any, on our consolidated financial statements.
6
<PAGE>
(3) INVENTORIES
-----------
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Broken Ore $3,146 $2,862
In-process 1,130 836
Materials and Supplies 5,531 5,207
------ ------
$9,807 $8,905
====== ======
</TABLE>
(4) ACQUISITION, DEFERRED EXPLORATION AND DEVELOPMENT COSTS
-------------------------------------------------------
<TABLE>
<CAPTION>
Acquisition, Deferred 2000 2000 Acquisition, Deferred
Exploration and Capitalized Capitalized 2000 Property Exploration and
Development Costs Exploration Acquisition Joint Venture Abandonments/ Development Costs
as at Dec. 31, 1999 Expenditures Expenditures Recoveries Write-downs as at June 30, 2000
------------------- ------------ ------------ ---------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C>
GUYANA
Eagle Mountain $ 1,364 $ - $ - $ - $ - $ 1,364
Other 123 (103) - - - 20
------- ------- ------ ------ ------ --------
Sub-total 1,487 (103) - - - 1,384
------- ------- ------ ------ ------ --------
SURINAME - - - - -
Gross Rosebel 14,913 340 - (183) - 15,070
Other 212 83 - - - 295
------- ------- ------ ------ ------ --------
Sub-total 15,125 423 - (183) - 15,365
------- ------- ------ ------ ------ --------
FRENCH GUIANA
(Guyanor Ressources S.A.)
Dorlin 2,608 83 - (42) - 2,649
Yaou 7,633 101 - (51) - 7,683
Paul Isnard / Eau Blanche 5,446 227 - - - 5,673
Paul Isnard Alluvials 1,987 - - - - 1,987
Dachine 1,720 568 - (541) - 1,747
------- ------- ------ ------ ------ --------
Sub-total 19,394 979 - (634) - 19,739
------- ------- ------ ------ ------ --------
AFRICA
(Pan African Resources
Corporation)
Ivory Coast / Tanda 1,681 - - - - 1,681
(Bogoso Gold Limited)
Riyadh 75 117 - - - 192
Bogoso Sulfide 160 1,608 - - - 1,768
------ ------- ------ ------ ------ --------
Sub-total 1,916 1,725 - - - 3,641
------- ------- ------ ------ ------ --------
TOTAL $37,922 $ 3,024 $ - $ (817) $ - $40,129
======= ======= ====== ====== ====== ========
</TABLE>
The recoverability of amounts shown for acquisition, deferred exploration and
development costs 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.
(5) CONVERTIBLE DEBENTURES
----------------------
On August 24, 1999, the Company issued $4,155,000 (principal) in subordinated
convertible debentures to raise financing for the acquisition of Bogoso Gold
Limited. The debentures mature on August 24, 2004 and bear interest at the rate
of 7.5% per annum from the date of issue, payable semi-annually on February 15
and August 15, to the debenture-holders as of February 1 and August 1,
respectively, commencing on February 15, 2000.
(6) CHANGES TO SHARE CAPITAL
------------------------
During the six months ended June 30, 2000, the Company issued 62,400 shares on
the exercise of options and 150,000 shares on the exercise of warrants. Also
during the six months convertible debentures were converted into 392,857 shares
and 40,000 shares were issued under provisions of the Company's Stock Bonus
Plan.
7
<PAGE>
(7) PURCHASE OF BOGOSO GOLD LIMITED
-------------------------------
On September 30, 1999 the Company and Anvil Mining NL ("Anvil") purchased 90% of
the shares of BGL.
The following is the pro-forma income and loss for the six months ended June 30,
1999, showing the results had the transaction been completed on January 1, 1999:
Six Months Ended
June 30, 1999
-------------
Revenue $ 19,943
Net Loss $ (3,518)
Net Loss Per Share $ (0.12)
(8) GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED
-----------------------------------------------------------------
STATES
------
The financial statements have been prepared in accordance with accounting
principles generally accepted in Canada (Canadian 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 principles in the United States. Differences which materially affect
these consolidated financial statements are:
(a) For United States GAAP ("US 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 US GAAP. Prior to
January 1, 2000, acquisition costs for exploration properties were
capitalized under US GAAP. The Company changed its method effective
January 1, 2000, whereby the Company expensed previously capitalized
acquisition costs related to exploration projects (totaling $11,302,000
or $0.30 per share in the three months ended March 31, 2000 and the six
months ended June 30, 2000), based upon the uncertainty of the ultimate
recoverability of these costs under FAS 121. Under US GAAP, the Company
now expenses all exploration costs, including property acquisition
costs, for exploration projects.
(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 US Dollar. As such, for the
financial statements for the period prior to May 15, 1992, the
Company's financial statements were translated into US Dollars using a
translation of convenience. US GAAP requires translation in accordance
with the current rate method.
(c) Under US GAAP, the preferred share investment in OGML would have a
carrying value of nil since the preferred shares were received in
recognition of past exploration costs incurred by the Company, all of
which were expensed for US GAAP purposes. Therefore, the entire Omai
preferred share redemption premium would have been included in income.
Under Canadian GAAP, a portion of the premium on the Omai preferred
share redemption is included in income with the remainder reducing the
carrying value of the Company's preferred stock investment.
(d) US GAAP requires that compensation expense be recorded for the excess
of the quoted market price over the option price granted to employees
and directors under stock option plans. Under Canadian GAAP, no
compensation expense is required to be recorded for such awards.
(e) Canadian GAAP requires that convertible debentures should be classified
into their component parts, as either a liability or equity, in
accordance with the substance of the contractual agreement. Also, under
Canadian GAAP the accretion is calculated from the equity component and
charged to interest expense. Under US GAAP, the convertible debenture
would be classified entirely as a liability.
8
<PAGE>
(f) The gains on subsidiaries' issuance of common shares recorded under
Canadian GAAP in respect of the Guyanor public offering and the PARC
private placement are not appropriate under US GAAP.
(g) The Company eliminated its accumulated deficit through the amalgamation
(defined as a reorganization under US GAAP) effective May 15, 1992.
Under US GAAP the cumulative deficit was greater than the deficit under
Canadian GAAP due to the write-off of certain deferred exploration
costs described in (a) above.
(h) Under US GAAP, items such as foreign exchange gains and losses are
required to be shown separately in the derivation of Comprehensive
Income.
(i) Under US GAAP, the fair value of warrants issued in connection with the
credit facility that was arranged for, but not used to effect, the
purchase of Bogoso Gold Limited ("BGL"), is required to be expensed.
Under Canadian GAAP, the fair value was treated as additional purchase
price. The difference in basis creates differences in the related
depletion.
Had the Company followed GAAP in the United States, certain items on the
statements of operations and balance sheets would have been reported as follows:
<TABLE>
<CAPTION>
For the six months ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Net loss under Canadian GAAP $ (226) $ (4,266)
Net effect of expensing previously capitalized acquisition
costs for exploration projects (a) (11,301) -
Net effect of the deferred exploration expenditures on loss
for the period (a) (2,207) 429
Effect of depletion adjustment (i) 482 -
Other (c) (d) (e) 136 402
--------- ---------
Loss under US GAAP before minority interest (13,116) (3,435)
Minority interest adjustment 373 515
--------- ---------
Net loss under US GAAP (12,743) (2,920)
Other comprehensive income foreign exchange gain (h) 204 31
--------- ---------
Comprehensive income (loss) $ (12,539) $ (2,889)
========= =========
Basic and diluted Net loss per share under US GAAP $ (0.34) $ (0.10)
========= =========
</TABLE>
9
<PAGE>
The effect of the differences in accounting under Canadian GAAP and US GAAP on
the balance sheets and statements of cash flows are as follows:
Balance Sheet
<TABLE>
<CAPTION>
As of June 30, 2000 As of December 31, 1999
------------------- -----------------------
Cdn GAAP US GAAP Cdn GAAP US GAAP
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Cash $ 3,623 $ 3,623 $ 2,905 $ 2,905
Other current assets 11,207 11,207 11,052 11,052
Restricted cash 5,000 5,000 6,000 6,000
Acquisition, deferred exploration and
development (a) 40,129 - 37,922 11,302
Investment in OGML (c) 769 - 1,023 -
Mining properties (i) 6,395 5,644 10,413 9,180
Other assets 6,226 6,367 5,037 5,196
--------- --------- --------- ---------
Total Assets $ 73,349 $ 31,841 $ 74,352 $ 45,635
========= ========= ========= =========
Liabilities $ 22,300 $ 23,103 $ 23,828 $ 24,799
Minority interest 10,354 6,670 10,023 9,690
Share capital, net of stock option loans (e) 161,967 158,415 161,547 157,932
Cumulative translation adjustments (b) - 1,595 - 1,595
Accumulated comprehensive income - (379) - (583)
Deficit (a)(i)(e)(f)(g) (121,272) (157,563) (121,046) (147,798)
--------- --------- --------- ---------
Total Liabilities and Shareholders'
Equity $ 73,349 $ 31,841 $ 74,352 $ 45,635
========= ========= ========= =========
</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 six months ended
June 30, 2000 $ 3,051 $ 1,765 $(2,946) $(1,660) $ 613 $ 613
For the six months ended
June 30, 1999 $(1,619) $(3,120) $(2,355) $ 3,196 $(2,434) $(2,459)
</TABLE>
The statements of cash flows reflect the impact of the previously discussed
adjustments (a) (c) (d) (e).
Operations by geographic area under US GAAP:
<TABLE>
<CAPTION>
Operating Revenues Net Loss Identifiable Assets
------------------ -------- -------------------
<S> <C> <C> <C>
For the six months ended
June 30, 2000
South America $ 23 $ (12,094) $ 583
Africa 18,078 (670) 20,500
Corporate - 21 10,758
--------- ---------- ---------
$ 18,101 $ (12,743) $ 31,841
========= ========== =========
For the six months ended
June 30, 1999
South America $ 9 $ (2,654) $ 17,863
Africa - (195) 1,015
Corporate 213 (71) 4,398
--------- ---------- ---------
$ 222 $ (2,920) $ 23,276
========= ========== =========
</TABLE>
10
<PAGE>
(9) COMMITMENTS AND CONTINGENCIES
-----------------------------
Environmental Regulations
The Company is not aware of any events of material non-compliance in its
operations with environmental laws and regulations which could have a material
adverse effect on the Company's operations or financial condition. 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 requirements that may be enacted within foreign
jurisdictions. The environmental rehabilitation liability for reclamation and
closure costs at the Bogoso mine at June 30, 2000 was $6.3 million.
Restricted Cash
Upon the closing of the acquisition of BGL in 1999, the Company was required,
under to the acquisition agreement, to restrict $6 million in cash. These funds
are being used for the ongoing, final reclamation and closure costs relating to
the Bogoso mine site, and the withdrawal of these funds must be agreed to by the
sellers of BGL, who are ultimately responsible for the reclamation in the event
of non-performance by Golden Star and Anvil. The restricted cash was reduced by
$1 million, to a balance of $5 million, at the end of the second quarter, as
agreed with the sellers of BGL.
(10) RELATED PARTIES
---------------
During 1999, the Company, in conjunction with Anvil Mining NL, acquired BGL. The
current President and CEO of the Company, Peter J. Bradford, is also a Director
of Anvil Mining NL and this relationship constitutes a related party. Based on
the heads of agreement with Anvil to effect the BGL acquisition, the Company
provided Anvil with a promissory note for their share of the purchase price and
also a note for their share of the acquisition costs. Additionally Anvil is
responsible for their share of the additional acquisition costs. The total of
these amounts owed to the Company at June 30, 2000 was $4.1 million. The Company
is entitled to preferential repayment of its investment in BGL from the BGL cash
flow until it has recouped its purchase costs and related transaction expenses,
including the repayment of the Anvil note receivable.
(11) SUBSEQUENT EVENTS
-----------------
On August 3, 2000, the Company signed a letter of intent to acquire a mining
property which adjoins the Company's 70%-owned Bogoso mine. The total purchase
consideration indicated in the letter of intent is $12 million, of which $8
million would be payable in cash on closing and $4 million would be payable on
September 30, 2002. The acquisition is subject to the completion of due
diligence, the negotiation of definitive agreements, the obtaining of necessary
consents and approvals (including that of the Government of Ghana, which has
agreed in principle to the transaction) and the Company obtaining the necessary
funding for the acquisition.
On August 8, 2000, Mr. Peter J. Bradford, President and Chief Executive Officer,
was appointed a director of the Company.
On August 11, 2000, the Company received regulatory approval to extend the
expiration date of warrants to purchase a total of 761,250 common shares of the
Company at an exercise price of $0.70, scheduled to expire on August 24, 2000,
until the earlier of (i) February 24, 2001 and (ii) the 30/th/ calendar day
following the determination that the 10-day weighted average trading price of
the common shares for any 10 consecutive trading days is greater than Cdn$1.22.
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 the US GAAP reconciliation, see Note 8 to the attached
unaudited consolidated financial statements. All amounts are in US Dollars.
Special Note Regarding Forward Looking Statements
-------------------------------------------------
The U.S. securities laws provide a "safe harbor" for certain forward-looking
statements. The Management's Discussion and Analysis contains "forward-looking
statements" that express expectations of future events or results. All
statements based on future expectations rather than historical facts are
forward-looking statements that involve a number of risks and uncertainties, and
the Company cannot give assurance that such statements will prove to be correct.
Refer to the "Special Notice regarding Forward-Looking Statements" on page 2 of
this Form 10-Q.
RESULTS OF OPERATIONS
---------------------
Overview
On September 30, 1999, the Company and Anvil Mining NL, an Australian company
("Anvil"), completed the acquisition of 70% and 20% respectively, of the common
shares of Bogoso Gold Limited ("BGL"). The Government of Ghana retained its 10%
equity interest in BGL. BGL is the owner of the Bogoso Mine, an operating gold
mine in the Republic of Ghana, which the Company and Anvil intend to continue to
operate. The initial purchase price for BGL was $6.5 million, which was funded
by the Company from working capital and the proceeds from the August 24, 1999
offerings of convertible debentures, common shares and warrants. The acquisition
agreement also provides for additional purchase price payments to the IFC (on
behalf of the consortium of banks that sold BGL). The Company has accrued $6.4
million to reflect these future additional purchase price payments, based on its
estimate that, if the gold price averages $290 per ounce for the remainder of
the Bogoso mine life, Golden Star and Anvil would have to pay the consortium of
banks this amount as a purchase price adjustment. The Company and Anvil also
acquired by way of assignment all the outstanding debt owed to the sellers. The
Company will receive preferential repayment of its acquisition costs, including
the amount owed to it by Anvil, and all inter-company debt and interest will be
repaid prior to any distribution to shareholders.
This acquisition is consistent with the Company's shift in focus away from being
a pure exploration company, to becoming a production, development and advanced
stage exploration company. Prior to September 30, 1999, the Company's focus was
solely on the exploration and development (if warranted) of precious metal and
diamond deposits within specific geological domains. The Company's results of
operations, discussed below, include results of BGL for the three months and six
months ended June 30, 2000.
Three Months and Six Months Ended June 30, 2000 compared to the Three Months and
Six Months Ended June 30, 1999
During the second quarter of 2000, the Company recognized a net loss of $0.2
million (less than $0.01 per share) as compared to a net loss of $4.0 million or
$0.13 per share for the second quarter of 1999. For the six months ended June
30, 2000, the Company had a net loss of $0.2 million (less than $0.01 per share)
compared to a net loss of $4.3 million ($0.14 per share) for the first half of
1999. The Company had revenue and costs from BGL in the second quarter and first
half of 2000 (see below, with zero in the second quarter and first half of 1999,
before the acquisition of the interest in BGL). The Company had recorded $3.3
million in property abandonment and write-downs in the second quarter of 1999,
compared with no similar charges in the second quarter this year. The Company
recognized premium income of $0.3 million from the redemption of its preferred
shares in Omai Gold Mines Limited in the second quarter and first half of 2000,
compared with $0.3 million and $0.5 million in the second quarter and first half
of 1999, respectively.
Total revenues were $9.1 million for the second quarter of 2000 and $18.1
million for the six months to June 30,
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2000, with the production and sale of gold from Bogoso of 31,626 ounces in the
second quarter and 62,063 ounces in the six months. Total revenues for the
corresponding periods in 1999 were $0.1 million and $0.2 million respectively
from interest and other. The Company acquired its interest in the Bogoso gold
mine on September 30, 1999. For the second quarter and first six months of 2000,
the average gold prices realized per ounce were $279 and $282, respectively,
with total cash costs per ounce of $194 and $188, respectively.
General and administrative expenditures decreased to $0.7 million during the
second quarter of 2000 as compared to $1.2 million during the second quarter of
1999 as a result of the Company's on-going cost reduction efforts. For the six
months ended June 30, 2000, general and administrative expenditures decreased to
$1.3 million as compared to $1.9 million for the same period last year.
Exploration expense for the quarter increased to $0.3 million from almost zero
in the second quarter last year (with expenses of $0.7 million and $0.1 million
for the first six months of 2000 and 1999, respectively) as a result of closure
costs in 2000 for exploration offices in Africa and Guyana. (Most of the
Company's exploration projects are on care and maintenance or are being funded
by our joint venture partners.) Interest expense increased to $0.3 million
during the second quarter of 2000 and to $0.5 million for the first six months,
as compared to almost zero in the same periods in 1999. The increases in the
2000 periods are a result of interest on the convertible debentures (issued in
August of 1999) and penalty interest from February 2000 as a result of the delay
in registration of the Company's shares under the registration statement on Form
S-3 with the SEC (for shares to be issued upon the exercise of warrants granted
to brokers and lenders in June and August, 1999). The Form S-3 was declared
effective by the SEC on July 26, 2000, and the penalty interest ceased as of
that date.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At June 30, 2000, the Company held cash and short-term investments of $3.6
million and working capital of $7.3 million compared to December 31, 1999
balances of $2.9 million and $6.0 million, respectively. During the first half
of 2000, the Company benefited from the production and sale of gold following
the acquisition of the Bogoso mine, with net cash provided by operating
activities of $3.1 million for the six months, compared with net cash used in
operating activities of $1.6 million in the first six months of 1999, which was
before the BGL acquisition.
Cash used in investing activities for the six months ended June 30, 2000 was
$2.9 million as compared to $2.4 million for the six months ended June 30, 1999,
with the net increase arising from equipment purchases at the Bogoso mine in the
period this year, while expenditures on mineral properties decreased slightly as
compared to the 1999 period.
Cash provided by financing activities amounted to $0.6 million for the six
months ended June 30, 2000 compared with cash used in financing activities of
$2.4 million for the corresponding period in 1999. Financing activities in the
2000 period reflected the release of $1.0 million from the Bogoso restricted
cash, while the 1999 period included the restricting of $2.2 million in cash
pending the BGL acquisition. Repayment of long-term debt due to OGML amounted to
$0.6 million in the first six months of 2000, compared with $1.0 million in the
same period last year. Issuances of share capital amounted to $0.2 million in
the first six months of 2000 as compared to less than $0.1 million in the first
half of 1999.
Bogoso Gold Limited
Total exploration expenditures by BGL in Ghana for the second quarter and the
first six months of 2000 amounted to $0.7 million and $1.7 million, respectively
(compared to nil in the first quarter and first six months of 1999, prior to the
Company's acquisition of BGL). These costs were primarily for additional
drilling and other costs for the preparation of the feasibility study on the
Bogoso sulfide mineralized material.
French Guiana (Guyanor Ressources S.A.)
Total exploration expenditures by Guyanor for the second quarter amounted to
$0.4 million, offset by joint venture recoveries of $0.2 million (compared to
expenditures of $0.8 million and joint venture recoveries of $0.2 million in the
second quarter of 1999). Activities in French Guiana focused primarily on
further work at Yaou and Dorlin, Dachine and Paul Isnard. General and
administrative expenditures for Guyanor, which were not reimbursed by joint
venture partners, amounted to $0.3 million for the quarter ended June 30, 2000
(compared to $0.4 million in the second quarter of 1999).
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<PAGE>
Guyana
There were no capitalized exploration and acquisition expenditures in the second
quarter of 2000 in Guyana (compared to $0.3 million during the second quarter of
1999). Activities in Guyana focused primarily on the closing of the Guyana
office (effective as of March 31, 2000), restructuring of the Guyana exploration
activities and the recovery of cash for property bonds on projects abandoned
with all related costs being expensed.
Suriname
Exploration expenditures in Suriname during the second quarter of 2000 focused
primarily on the Gross Rosebel project. Total spending in Suriname in the second
quarter of $0.1 million was offset by joint venture recoveries (as compared to
expenditures of $0.5 million and recoveries of $0.2 million during the second
quarter of 1999). This reduction primarily results from the Gross Rosebel
project being on care and maintenance pending improved gold prices, the
resolution of various technical matters and joint venture partner Cambior's
future development plans.
Outlook
In prior years the Company has relied primarily on the capital markets to fund
its acquisitions, operations and exploration activities. Following the
acquisition of BGL and its operating gold mine, effective September 30, 1999,
the Company has a source of positive cash flow from mining operations through at
least mid-2001 although we still have limited cash resources. The current market
for gold shares continues to be weak and equity capital is difficult to obtain,
but, as the Company demonstrated in 1999 through its capital raising activities
(from the issuance of shares and convertible debentures), it is somewhat easier
to raise funds to acquire producing mining assets compared with the challenge of
raising capital primarily for exploration. The Company is projected to generate
sufficient cash flow for the next twelve months through mid-2001 to cover its
exploration obligations and general and administrative expenses, however
additional capital will be required for major capital expenditure, development
or acquisitions (including the funding of the acquisition, as discussed below).
At June 30, 2000, the Company held consolidated cash and short-term investments
of $3.6 million.
As noted above, the Company and Anvil will be required to make payments of the
additional purchase price to the IFC (on behalf of the consortium of banks that
sold BGL) over the next 15 months. This additional purchase price is estimated
to be $6.4 million (7/9 payable by the Company and 2/9 payable by Anvil), of
which an estimated $3.2 million will be payable on September 30, 2000. Included
in the Company's cash and short-term investments at June 30, 2000 is
approximately $1.7 million held in a segregated account towards the Company's
share of that liability. The Company expects that the full amount of their
liability should be met from cash generated from BGL, even with gold prices
remaining at their current depressed levels, however this liability will put a
constraint on the Company over the next 18 months. This constraint will
negatively impact the Company's financial position and liquidity over this
period. The Company will continue to explore various possibilities for raising
capital, which might include, among other things, the establishment of
additional joint ventures, the sale of property interests, debt financing and
the issuance of new equity.
As described in Footnote 11 to the Company's Consolidated Financial Statements
included herein, the Company intends to acquire the mining property which lies
immediately to the south of and adjoins the Bogoso property in Ghana. Total
purchase consideration for the property to be acquired indicated in the letter
of intent is $12 million, of which $8 million would be payable in cash on
closing and $4.0 million would be payable on September 30, 2002. The acquisition
is subject to the completion of due diligence, the negotiation of definitive
agreements, the obtaining of necessary consents and approvals (including that of
the Government of Ghana, which has agreed in principle to the transaction) and
the Company obtaining the necessary funding for the acquisition. The property to
be acquired has open-pittable oxide mineralized material that the Company would
process through the Bogoso mill, which should significantly extend the life of
Bogoso. The property to be acquired also has sulfide mineralized material which
is expected to substantially enhance the results of the feasibility study on the
Bogoso sulfide mineralized material (which feasibility study is expected to be
completed early in 2001). The Company is presently involved in discussions on
financing alternatives with a number of financial institutions and investors.
Such financing would likely be in the form of equity, debt or a combination of
equity and debt. While the Company is working on various plans to obtain such
financing there can be no assurance that such financing will be available to the
Company on favorable terms. The completion of the acquisition will be dependent
on concluding such financing.
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New Accounting Standards
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities (FAS 133). FAS
133 is effective for all fiscal years beginning after June 15, 2000. FAS 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 and, if it is, the type
of hedge transaction. In June, 2000, the FASB issued Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an amendment of FAS 133
(FAS 138), under which certain hedging activities could be excluded from the
accounting requirements of FAS 133 provided they meet certain criteria to
qualify as normal purchase and sale transactions. The Company is in the process
of determining the impact that applying FAS 133 and FAS 138 may have on its
results of operations and financial position and the effects of adopting the new
standards are not reasonably determinable at this time. The Company expects to
adopt FAS 133 and FAS 138 effective January 1, 2001.
In December 1999, the Securities and Exchange Commission (SEC) released Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements
that provides guidance on the recognition, presentation and disclosure of
revenue in financial statements filed with the SEC. SAB 101 outlines the basic
criteria that must be met to recognize revenue and provides guidance for
disclosures related to revenue recognition policies. Citing numerous requests
from groups requesting additional time to determine the effect on revenue
recognition practices, the SEC issued SAB No. 101B in June, 2000, which delayed
the implementation of SAB 101 to no later than the fourth fiscal quarter of
2000. We are currently awaiting additional guidance from the SEC on the
application of SAB 101 in order to evaluate the effect this bulletin may have,
if any, on our consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company's exposure to market risk includes, but is not limited to, the
following risks: changes in interest rates on the Company's investment
portfolio, changes in foreign currency exchanges rates and commodity price
fluctuations. The Company also has various agreements that are classified as
derivative financial instruments.
Interest Rate Risk
The Company may from time to time invest its cash in debt instruments of the
U.S. Government and its agencies, and in high-quality corporate issuers, and
limits the amount of exposure to any one issuer. Investments in both fixed rate
and floating rate interest earning instruments carry a degree of interest rate
risk. Fixed rate securities may have their fair market value adversely impacted
due to a rise in interest rates, while floating rate securities may produce less
income than expected if interest rates fall. Due in part to these factors the
Company's future investment income may fall short of expectations due to changes
in interest rates or the Company may suffer losses in principal if forced to
sell securities which have declined in market value due to changes in interest
rates. For example, if interest rates on the Company's current interest bearing
deposits were to change by 1%, the Company's revenue could increase or decrease
by approximately $0.1 million per year. The Company may in the future actively
manage its exposure to interest rate risk.
Foreign Currency Exchange Rate Risk
The price of gold is denominated in U.S. dollars and the majority of the
Company's revenues and expenses are denominated in U.S. dollars. As a result of
the limited exposure, management considers that the Company is not exposed to a
material risk as a result of any changes in foreign currency exchange rate
changes, so the Company does not utilize foreign exchange risk sensitive
instruments to manage its exposure.
Commodity Price Risk
The Company is engaged in gold mining and related activities, including
exploration, extraction, processing and reclamation. Gold bullion is the
Company's primary product and, as a result, changes in the price of gold could
significantly affect the Company's results of operations and cash flows.
According to current estimates, a $25
15
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change in the price of gold could result in a $1.0 million (annual) effect on
the results of operations and cash flows. The Company currently does not have a
program for hedging, or to otherwise manage its exposure to gold price risk. The
Company may in the future manage its exposure through appropriate hedging
programs.
Derivative Financial Instruments
The Company entered into various agreements in relation to the acquisition of
BGL that may be classified as derivative financial instruments. The Company and
Anvil will be required to make additional future payments to the consortium of
banks, depending on the then-current price of gold and the potential acquisition
of ore in Ghana outside the region of BGL's mining interests. The gold price
related payments are due as to 50% one year after closing and 50% at the earlier
of production of gold ceasing or the second anniversary after closing. The
Company is obligated to escrow the estimated payments six months and 18 months
after closing, respectively. These payments are equal to the product (in U.S.
dollars) of 183,333 and the amount, if any, that the average daily gold price
(in U.S. dollars in the London Bullion Market Association p.m. gold fix) over
the period from closing to the payment dates exceeds $255 per ounce. Such
payments are capped at $10.0 million in total. The Company has accrued $6.4
million, based on its estimate that, if the gold price averages $290 per ounce
for the remainder of the Bogoso mine life, Golden Star and Anvil would have to
pay the consortium of banks this amount as a purchase price adjustment. The
payment made on the first anniversary of the acquisition will be non-refundable
and credited against any payment due on the second anniversary. The Company is
depleting this amount over production from proven and probable reserves. The
actual amount of the additional purchase price cannot be determined as it could
be significantly impacted by changes in the price of gold. The Company is also
required to make production related payments to the provider of the credit
facility arranged for, but not used, to effect the acquisition of BGL. The
Company is required to pay $0.3 million for every 12-month period that BGL
produces over 75,000 ounces of gold. Based on proven and probable reserves, the
Company has accrued $0.5 million (for two years' production) and is depleting
this amount over production from proven and probable reserves. This payment
extends over six years and is capped at $1.3 million.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
At the Annual and Special General Meetings of the Shareholders of the Company
held on May 18, 2000, shareholders were asked to (i) elect five directors,
Messrs. James Askew, David Fagin, Ian MacGregor, Ernest Mercier and Robert
Stone, (ii) approve the re-appointment of auditor, and (iii) approve amendments
to the Company's Stock Bonus Plan.
(i) Votes cast in the election of directors were as follows:
For Withheld
--- --------
James Askew 28,441,860 176,087
David Fagin 28,441,860 176,087
Ian MacGregor 28,441,860 176,087
Ernest Mercier 28,441,860 176,087
Robert Stone 28,441,860 176,087
(ii) Votes cast for the appointment of PricewaterhouseCoopers LLP, Chartered
Accountants as auditor of the
16
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Company until the next annual general meeting of shareholders at a remuneration
to be fixed by the directors:
For Against Withheld
---- ------- --------
28,475,532 -0- 66,765
(iii) Votes cast on a proposal to amend the Employees Stock Bonus Plan:
For Against Withheld
---- ------- --------
26,910,490 1,484,524 224,009
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
27 Financial Data Schedule
(b) Reports filed on Form 8-K during the quarter ended June 30, 2000
None
17
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SIGNATURES
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/ Peter J. Bradford
--------------------------------------------
Peter J. Bradford
President and Chief Executive Officer
By: /s/ Allan J. Marter
--------------------------------------------
Allan J. Marter
Vice President and Chief Financial Officer
August 21, 2000
18
