<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------
FORM 10-Q/A-2
-------------
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 25, 2000: 37,588,988
================================================================================
<PAGE>
GOLDEN STAR RESOURCES LTD.
INDEX
<TABLE>
<CAPTION>
Part I Financial Information
<S> <C> <C>
Item 1. Financial Statements..................................................... 3
Item 2. Management's Discussion and Analysis of Financial Condition,
Results of Operations and Recent Developments............................ 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk............... 14
Part II Other Information
Item 1. Legal Proceedings........................................................ 15
Item 6. Exhibits and Reports on Form 8-K......................................... 15
Signatures.................................................................................... 16
</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. 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>
<S> <C> <C>
As of As of
March 31, December 31,
2000 1999
-------- -----------
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 2,384 $ 2,905
Accounts receivable 1,293 1,976
Inventories (Note 3) 9,708 8,905
Other assets 174 171
--------- ---------
Total Current Assets 13,559 13,957
RESTRICTED CASH (Note 9) 6,000 6,000
NOTE RECEIVABLE 3,934 3,784
ACQUISITION, DEFERRED EXPLORATION AND DEVELOPMENT COSTS (Note 4) 39,317 37,922
INVESTMENT IN OMAI GOLD MINES LIMITED 992 1,023
MINING PROPERTIES (Net of accumulated depreciation of $4,753 and $2,777, respectively) 8,475 10,413
FIXED ASSETS (Net of accumulated depreciation of $2,648 and $2,587, respectively) 1,796 1,175
OTHER ASSETS 80 78
--------- ---------
Total Assets $ 74,153 $ 74,352
========= =========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 4,063 $ 4,414
Accrued wages and payroll taxes 261 315
Current portion of amount payable to financial institutions 3,208 3,208
--------- ---------
Total Current Liabilities 7,532 7,937
LONG-TERM DEBT 2,188 2,254
AMOUNT PAYABLE TO FINANCIAL INSTITUTIONS 3,708 3,708
CONVERTIBLE DEBENTURES (Note 5) 3,022 3,184
ENVIRONMENTAL REHABILITATION LIABILITY (Note 9) 6,549 6,721
OTHER LIABILITIES 24 24
--------- ---------
Total Liabilities 23,023 23,828
MINORITY INTEREST 10,314 10,023
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 6) 160,887 160,502
Common shares, without par value, unlimited shares authorized. Shares issued and
outstanding: March 31, 2000 - 37,548,988; December 31, 1999 - 36,943,731
Equity component of convertible debentures (Note 5) 1,045 1,045
DEFICIT (121,116) (121,046)
--------- ---------
Total Shareholders' Equity 40,816 40,501
--------- ---------
Total Liabilities and Shareholders' Equity $ 74,153 $ 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 Ended Three Months Ended
March 31, 2000 March 31, 1999
------------------- -------------------
<S> <C> <C>
REVENUE
Gold sales $8,693 $ -
Interest and other 298 166
------ ------
8,991 166
------ ------
COSTS AND EXPENSES
Mining operations 5,518 -
Depreciation, depletion and amortization 2,164 54
Exploration expense 360 47
General and administrative 550 698
Gain on disposal of assets (33) -
Interest expense 257 6
Foreign exchange loss (gain) 3 (22)
------ ------
8,819 783
------ ------
INCOME/(LOSS) BEFORE THE UNDERNOTED 172 (617)
Omai preferred share redemption premium 36 225
------ ------
Income/(Loss) before minority interest 208 (392)
Minority interest (278) 119
------ ------
NET LOSS $ (70) $ (273)
====== ======
BASIC AND DILUTED NET LOSS PER SHARE $(0.00) $(0.01)
====== ======
Weighted Average Shares Outstanding 37.4 30.2
(in millions of shares) ====== ======
</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>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Operating Activities:
Net loss $ (70) $ (273)
Reconciliation of net loss to net cash used in operating activities:
Depreciation, depletion and amortization 2,164 54
Accretion of equity component of convertible debentures 52 -
Premium on Omai preferred share redemption (36) (226)
Gain on disposal of assets (33) -
Minority interest 278 (119)
Expenditures incurred for reclamation (172) -
Changes in non-cash operating working capital
Accounts receivable 683 5
Inventories (803) 9
Accounts payable and accrued liabilities (351) (346)
Accrued wages and payroll taxes (54) (55)
Other current assets (3) 83
------- -------
Total changes in non-cash operating working capital (528) (304)
------- -------
Net Cash Provided by (Used in) Operating Activities 1,655 (868)
------- -------
Investing Activities:
Expenditures on mineral properties, net of joint venture recoveries (1,466) (1,324)
Expenditures on mining property (38) -
Equipment purchases (841) -
Omai preferred share redemption 66 413
Proceeds from sale of equipment 39 -
Other - 19
------- -------
Net Cash Used in Investing Activities (2,240) (892)
------- -------
Financing Activities:
Repayment of long-term debt (66) (413)
Issuance of share capital, net of issue costs 131 -
Other (1) (19)
------- -------
Net Cash Provided by (Used in) Financing Activities 64 (432)
------- -------
Decrease in cash and short-term investments (521) (2,192)
Cash and short-term investments, beginning of period 2,905 7,350
------- -------
Cash and short-term investments, end of period $ 2,384 $ 5,158
======= =======
</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 months ended March 31, 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
----------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
Depreciation charged to projects $ 27 $94
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. The Company is in the process of determining the impact
that applying FAS 133 may have on its results of operations and financial
position.
In December 1999, the Securities and Exchange Commission (SEC) released Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements.
The objective of this SAB is to provide additional guidance on revenue
recognition issues in the absence of authoritative accounting literature
addressing a specific arrangement or a specific industry. In March 2000, the
SEC released SAB No. 101A, which delays the implementation date of SAB 101 for
registrants with fiscal years that begin between December 16, 1999 and March 15,
2000 until the second fiscal quarter of the first fiscal year beginning after
December 15, 1999. The effect on the Company's financial position or results of
operations has not yet been determined.
(3) INVENTORIES
-----------
March 31, 2000 December 31, 1999
-------------- -----------------
Broken Ore $3,110 $2,862
In-process 1,228 836
Materials and Supplies 5,370 5,207
------ ------
$9,708 $8,905
====== ======
6
<PAGE>
(4) ACQUISITION, DEFERRED EXPLORATION AND DEVELOPMENT COSTS
-------------------------------------------------------
<TABLE>
<CAPTION>
Acquisition, Acquisition,
Deferred Property Deferred
Exploration and Abandon- Exploration and
Development Capitalized Capitalized Joint ments/ Development Costs
Costs as at Exploration Acquisition Venture Write- as at
Dec. 31, 1999 Expenditures Expenditures Recoveries downs March 31, 2000
=============================================================================================
<S> <C> <C> <C> <C> <C> <C>
GUYANA
Eagle Mountain $ 1,364 $ - $ - $ - $ - $ 1,364
Other 123 2 - - - 125
---------------------------------------------------------------------------------------------
Sub-total 1,487 2 - - - 1,489
---------------------------------------------------------------------------------------------
SURINAME
Gross Rosebel 14,913 304 - (183) - 15,034
Other 212 46 - - - 258
---------------------------------------------------------------------------------------------
Sub-total 15,125 350 - (183) - 15,292
---------------------------------------------------------------------------------------------
FRENCH GUIANA
(Guyanor Ressources S.A.)
Dorlin 2,608 101 - (54) - 2,655
Yaou 7,633 43 - (23) - 7,653
Paul Isnard / Eau Blanche 5,446 140 - - - 5,586
Paul Isnard Alluvials 1,987 - - - - 1,987
Dachine 1,720 339 - (324) - 1,735
---------------------------------------------------------------------------------------------
Sub-total 19,394 623 - (401) - 19,616
---------------------------------------------------------------------------------------------
AFRICA
(Pan African Resources
Corporation)
Ivory Coast / Tanda 1,681 - - - - 1,681
(Bogoso Gold Limited)
Riyadh 75 21 - - - 96
Bogoso Sulfide 160 983 - - - 1,143
---------------------------------------------------------------------------------------------
Sub-total 1,916 1,004 - - - 2,920
---------------------------------------------------------------------------------------------
OTHER - - - - - -
---------------------------------------------------------------------------------------------
TOTAL $37,922 $1,979 $ - $(584) $ - $39,317
=============================================================================================
</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
----------------------
Liability Equity
Component Component
--------- ---------
Balance at December 31, 1999 $3,184 $1,045
Conversion to shares (214) -
Accretion 52 -
------ ------
Balance at March 31, 2000 $3,022 $1,045
====== ======
On August 24, 1999, the Company issued the principal amount of $4,155,000 in
subordinated convertible debentures to raise financing for the acquisition of
Bogoso Gold Limited (BGL). 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.
7
<PAGE>
(6) CHANGES TO SHARE CAPITAL
------------------------
During the quarter ended March 31, 2000, the Company issued 62,400 shares under
options and 150,000 shares under warrants. Also during the quarter, $275,000 of
previously issued convertible debentures were converted into 392,857 shares.
(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 three months ended March
31, 2000 and 1999, showing the results had the transaction been completed on
January 1, 1999:
For the three months ended
March 31, 2000 March 31, 1999
-------------- --------------
Revenue $8,991 $11,311
Net Loss $ (70) $ (239)
Net Loss Per Share $(0.00) $ (0.01)
(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 has expensed previously capitalized acquisition costs related
to exploration projects (totaling $11,302,000 or $0.30 per share for the
three months ended March 31, 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.
8
<PAGE>
Under US GAAP, the convertible debenture would be classified entirely as a
liability.
(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, accrued severance and social charges of $1.1 million
resulting from suspension of alluvial mining operations at SOTRAPMAG would
not have been recorded as the requirements for accrual under US GAAP were
not satisfied as of December 31, 1996. These charges were recorded in 1997
as all requirements had been met.
(i) Under US GAAP, items such as foreign exchange gains and losses are required
to be shown separately in the derivation of Comprehensive Income.
(j) 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 three months ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Net loss under Canadian GAAP $ (70) $ (273)
Net effect of expensing previously capitalized acquisition
costs for exploration projects (a) (11,302) -
Net effect of the deferred exploration expenditures on loss
for the period (a) (1,394) (1,418)
Effect of capitalized acquisition costs net of related
depletion (j) 234 -
Other (c) (d) (e) 67 167
-------- -------
Loss under US GAAP before minority interest (12,465) (1,524)
Minority interest 366 165
-------- -------
Net loss under US GAAP (12,099) (1,359)
Other comprehensive income foreign exchange gain (i) 5 22
-------- -------
Comprehensive income $(12,094) $(1,337)
======== =======
Basic and diluted Net loss per share under US GAAP $ (0.32) $ (0.04)
======== =======
</TABLE>
9
<PAGE>
The effect of the differences in accounting under Cdn GAAP and US GAAP on the
balance sheets and statements of cash flows are as follows:
Balance Sheet
<TABLE>
<CAPTION>
As of March 31, 2000 As of December 31, 1999
---------------------- -------------------------
Cdn GAAP US GAAP Cdn GAAP US GAAP
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Cash $ 2,384 $ 2,384 $ 2,905 $ 2,905
Other current assets 11,175 11,175 11,052 11,052
Restricted cash 6,000 6,000 6,000 6,000
Acquisition, deferred exploration and
development (a) 39,317 - 37,922 11,302
Investment in OGML (c) 992 - 1,023 -
Mining properties (j) 8,475 7,476 10,413 9,180
Other assets 5,810 5,960 5,037 5,196
--------- --------- --------- ---------
Total Assets $ 74,153 $ 32,995 $ 74,352 $ 45,635
========= ========= ========= =========
Liabilities $ 23,023 $ 23,881 $ 23,828 $ 24,799
Minority interest 10,314 9,616 10,023 9,690
Share capital, net of stock option loans (e) 161,932 158,378 161,547 157,932
Cumulative translation adjustments (b) - 1,595 - 1,595
Accumulated comprehensive income - (578) - (583)
Deficit (a)(j)(e) (121,116) (159,897) (121,046) (147,798)
--------- --------- --------- ---------
Total Liabilities and Shareholders' Equity
$ 74,153 $ 32,995 $ 74,352 $ 45,635
========= ========= ========= =========
</TABLE>
Statements of Cash Flows
<TABLE>
<CAPTION>
Net cash Provided By (Used In):
Operating Activities Investing Activities Financing Activities
-------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Cdn GAAP U.S. GAAP Cdn GAAP U.S. GAAP Cdn GAAP U.S. GAAP
For the three months ended
March 31, 2000 $1,655 $ 302 $(2,240) $ (887) $ 64 $ 64
For the three months ended
March 31, 1999 $ (868) $(1,873) $ (892) $1,328 $(432) $(432)
</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
------------------ --------- -------------------
For the three months ended
March 31, 2000
<S> <C> <C> <C>
South America $ 5 $ (11,874) $ 610
Africa 8,946 17 21,818
Corporate 40 (242) 10,567
------ -------- -------
$8,991 $ (12,099) $32,995
====== ========= =======
For the three 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
====== ========= =======
</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 March 31, 2000 was $6.5 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 to be used for the ongoing, final reclamation and closure costs relating to
the Bogoso mine site. 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.
(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 March 31, 2000 was $3.9 million.
This amount will be repaid through the cash flow from BGL.
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 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
11
<PAGE>
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 ended
March 31, 2000.
Three Months Ended March 31, 2000 compared to the Three Months Ended March 31,
------------------------------------------------------------------------------
1999
----
During the first quarter of 2000, the Company reported a net loss of $0.1
million or $0.00 per share as compared to a net loss of $0.3 million or $0.01
per share for the first quarter of 1999. The Company had revenue and costs
from BGL in the first quarter of 2000 (see below, with zero in the first quarter
of 1999, before the acquisition of the interest in BGL). The Company also
received premium income of $0.04 million in this period from the redemption of
its preferred shares in Omai Gold Mines Limited, compared to $0.2 million in the
first quarter of 1999.
Total revenues during the first quarter of 2000 increased to $9.0 million with
the production and sale of 29,923 ounces of gold from Bogoso (as compared to
$0.2 million from interest and other during the first quarter of 1999). The
Company acquired its interest in the Bogoso gold mine on September 30, 1999.
The average gold price realized during the quarter was $291 per ounce and cash
costs were $184 per ounce.
General and administrative expenditures decreased to $0.6 million during the
first quarter of 2000 as compared to $0.7 million during the first quarter of
1999 due to the Company's on going cost reduction efforts. Exploration expense
for the quarter increased $0.3 million to $0.4 million in the first quarter of
2000 as a result of closure costs for exploration offices. Interest expense
increased to $0.3 million during the first quarter of 2000, as compared to less
than $0.1 million in 1999.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At March 31, 2000, the Company held cash and short term investments of $2.4
million ($5.2 million as of March 31, 1999 and $2.9 million as of December 31,
1999) and working capital of $6.0 million ($4.6 million as of March 31, 1999 and
$6.0 million as of December 31, 1999).
Cash used in investing activities increased to $2.2 million for the three months
ended March 31, 2000 as compared to $0.9 million for the three months ended
March 31, 1999, primarily due to expenditures on mineral properties and
equipment purchases.
Cash provided by financing activities amounted to $0.1 million for the period in
2000, compared with cash used in financing activities of $0.4 million for the
corresponding period in 1999 (which included the repayment of long-term debt due
to OGML of $0.4 million). There were no issuances of share capital in the first
quarter of 1999 as compared to $0.1 million in the first quarter of 2000.
Bogoso Gold Limited
Total exploration expenditures by BGL in Ghana for the first quarter of 2000
amounted to $1.0 million (compared to nil in the first quarter 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.
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French Guiana (Guyanor Ressources S.A.)
Total exploration expenditures by Guyanor for the first quarter amounted to $0.6
million, offset by joint venture recoveries of $0.4 million (compared to
expenditures of $0.7 million and joint venture recoveries of $0.2 million in the
first 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 $0.2 million for the quarter ended March 31, 2000
(compared to $0.4 million in the first quarter of 1999).
Guyana
Capitalized exploration and acquisition expenditures in the first quarter of
2000 in Guyana were nil (compared to $0.3 million during the first quarter of
1999). Activities in Guyana focused primarily on the restructuring of the
Guyana exploration activities and the recovery of cash for property bonds on
projects abandoned, the related costs were expensed. The Guyana office was
closed as of March 31, 2000.
Suriname
Exploration expenditures in Suriname during the first quarter of 2000 focused
primarily on the Gross Rosebel project. Total spending in Suriname in the
period of $0.4 million was offset by joint venture recoveries of $0.2 million
(as compared to expenditures of $0.2 million and recoveries of $0.1 million
during the first quarter of 1999). The reduction is primarily a result of the
placement of the Gross Rosebel project 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. With the acquisition
of BGL and its operating gold mine, effective September 30, 1999, the Company
now has a source of positive cash flow from mining operations through at least
the end of 2000. 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
through the balance of 2000 to cover its exploration obligations and general and
administrative expenses, however additional capital would be required for major
capital expenditure, development or acquisitions. At March 31, 2000, the Company
held consolidated cash and short term investments of $2.4 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 18 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 March 31, 2000 is
approximately $1.25 million held in a segregated account towards the Company's
share of that liability. The Company expects that the full amount of the
liability will 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.
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,
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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. The Company is in the process of
determining the impact that applying FAS 133 may have on its results of
operations and financial position.
In December 1999, the Securities and Exchange Commission (SEC) released Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements.
The objective of this SAB is to provide additional guidance on revenue
recognition issues in the absence of authoritative accounting literature
addressing a specific arrangement or a specific industry. In March 2000, the
SEC released SAB No. 101A, which delays the implementation date of SAB 101 for
registrants with fiscal years that begin between December 16, 1999 and March 15,
2000 until the second fiscal quarter of the first fiscal year beginning after
December 15, 1999. The effect on the Company's financial position or results of
operations has not yet been determined.
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 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
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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 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 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 March 31, 2000
None
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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/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
May 10, 2000
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