<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 September 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 October 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................................. 17
Part II Other Information
Item 1. Legal Proceedings.......................................................................... 18
Item 6. Exhibits and Reports on Form 8-K........................................................... 18
Signatures.................................................................................................... 19
</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 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
September 30, December 31,
ASSETS 2000 1999
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $ 2,641 $ 2,905
Accounts receivable 1,411 1,976
Inventories (Note 3) 9,723 8,905
Other assets 224 171
------------ ------------
Total Current Assets 13,999 13,957
RESTRICTED CASH (Note 9) 5,000 6,000
NOTE RECEIVABLE 2,638 3,784
ACQUISITION, DEFERRED EXPLORATION AND DEVELOPMENT COSTS (Note 4 and 11) 38,926 37,922
INVESTMENT IN OMAI GOLD MINES LIMITED 654 1,023
MINING PROPERTIES (Net of accumulated depreciation of $8,193 and $2,777, respectively) 5,059 10,413
FIXED ASSETS (Net of accumulated depreciation of $3,167 and $2,587, respectively) 2,269 1,175
OTHER ASSETS 52 78
------------ ------------
Total Assets $ 68,597 $ 74,352
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 3,454 $ 4,414
Accrued wages and payroll taxes 251 315
Current portion of amount payable to financial institutions (Note 9) 6,666 3,208
------------ ------------
Total Current Liabilities 10,371 7,937
LONG-TERM DEBT 1,441 2,254
AMOUNT PAYABLE TO FINANCIAL INSTITUTIONS 250 3,708
CONVERTIBLE DEBENTURES (Note 5) 3,127 3,184
ENVIRONMENTAL REHABILITATION LIABILITY (Note 9) 5,831 6,721
OTHER LIABILITIES 17 24
------------ ------------
Total Liabilities 21,037 23,828
MINORITY INTEREST 8,556 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: September 30, 2000 - 37,588,988; December 31, 1999 -36,943,731
Equity component of convertible debentures (Note 5) 1,045 1,045
DEFICIT (122,961) (121,046)
------------ ------------
Total Shareholders' Equity 39,004 40,501
------------ ------------
Total Liabilities and Shareholders' Equity $ 68,597 $ 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 Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
------------ ------------ ------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE
Gold sales $ 7,729 $ -- $ 25,237 $ --
Interest and other 13 65 606 287
-------- -------- -------- --------
7,742 65 25,843 287
COSTS AND EXPENSES
Mining operations 5,422 -- 17,069 --
Depreciation, depletion and amortization 1,551 33 6,078 115
Exploration expense 209 77 869 129
General and administrative 1,003 488 2,256 2,350
Abandonment and impairment of mineral
Properties 1,750 20,482 1,750 23,745
(Gain)/Loss on disposal of assets (18) 16 (92) 8
Interest expense 197 37 707 49
Foreign exchange (gain)/loss (83) 13 (287) (18)
-------- -------- -------- --------
10,031 21,146 28,350 26,378
-------- -------- -------- --------
LOSS BEFORE THE UNDERNOTED (2,289) (21,081) (2,507) (26,091)
Omai preferred share redemption premium 139 (143) 444 379
-------- -------- -------- --------
Loss before minority interest (2,150) (21,224) (2,063) (25,712)
Minority interest 461 834 148 1,056
-------- -------- -------- --------
NET LOSS $ (1,689) $(20,390) $ (1,915) $(24,656)
======== ======== ======== ========
BASIC AND DILUTED NET LOSS PER SHARE $ (0.04) $ (0.65) $ (0.05) $ (0.79)
======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
(in millions of shares) 37.6 31.4 37.5 31.4
======== ======== ======== ========
</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>
Nine Months Nine Months
Ended Ended
September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
Operating Activities:
Net loss $ (1,915) $(24,656)
Reconciliation of net loss to net cash used in operating activities:
Depreciation, depletion and amortization 6,078 115
Convertible debenture accretion and other non cash items 192 --
Premium on Omai preferred share redemption (444) (379)
Abandonment and impairment of mineral properties 1,750 23,745
(Gain)/Loss on disposal of assets (92) 8
Minority interest (148) (1,056)
Increase in note receivable (193) --
Expenditures and other decreases in environmental rehabilitation liability (890) --
Change in other liabilities (4) --
Changes in non-cash operating working capital:
Accounts receivable 565 (381)
Inventories (819) 27
Accounts payable and accrued liabilities (1,026) 9
Other current assets -- 107
-------- --------
Total changes in non-cash operating working capital (1,280) (238)
-------- --------
Net Cash Provided by (Used in) Operating Activities 3,054 (2,461)
-------- --------
Investing Activities:
Expenditures on mineral properties, net of joint venture recoveries (2,710) (2,790)
Expenditures on mining properties (64) --
Equipment purchases (1,826) (5)
Omai preferred share redemption 813 693
Increase in deferred acquisition costs -- (1,525)
Restricted cash for Bogoso rehabilitation 1,000 (6,000)
Proceeds from sale of equipment 93 90
Other assets 18 69
-------- --------
Net Cash Used in Investing Activities (2,676) (9,468)
-------- --------
Financing Activities:
Repayment of long-term debt (813) (693)
Issuance of Convertible Debentures -- 4,155
Repayment of stock option loans -- 638
Issuance of share capital, net of issue costs 171 2,905
Other -- (28)
-------- --------
Net Cash Provided by (Used in) Financing Activities (642) 6,977
-------- --------
Increase/(Decrease) in cash and short-term investments (264) (4,952)
Cash and short-term investments, beginning of period 2,905 7,350
-------- --------
Cash and short-term investments, end of period $ 2,641 $ 2,398
======== ========
</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 nine month periods
ended September 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
----------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
Shares issued under Stock Bonus Plan $ 35 $ --
Depreciation charged to projects $ 44 $ 125
Shares issued upon conversion of $ 214 $ --
convertible debentures (Note 6)
Conversion of convertible debentures $ (214) $ --
(Note 6)
Distribution to minority interest $(1,399) $ --
Repayment of note receivable from minority $ 1,399 $ --
interest
Cancellation of stock option loan $ (3,312)
Cancellation of stock option related shares $ 3,312
</TABLE>
(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 commencing January 1, 2001. 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. The effects of adopting the new standards are not
reasonably determinable at this time.
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 revenues and provides guidance for
disclosures related to revenue recognition policies. The Company believes that
its existing revenue policies are in compliance with this pronouncement and does
not anticipate any changes in its revenue accounting policy or procedures when
adopted in the fourth quarter of 2000.
6
<PAGE>
(3) INVENTORIES
-----------
September 30, 2000 December 31, 1999
------------------ -----------------
Broken Ore $2,892 $2,862
In-process 1,092 836
Materials and Supplies 5,739 5,207
------ ------
$9,723 $8,905
====== ======
(4) ACQUISITION, DEFERRED EXPLORATION AND DEVELOPMENT COSTS
-------------------------------------------------------
<TABLE>
<CAPTION>
Acquisition,
Deferred Exploration
Acquisition, Deferred 2000 2000 2000 and Development
Exploration and Capitalized Capitalized Joint Property Costs
Development Costs Exploration Acquisition Venture Abandonments/ as at September 30,
as at Dec. 31, 1999 Expenditures Expenditures Recoveries Write-downs 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 14,913 282 -- (86) -- 15,109
Other 212 116 -- -- -- 328
------- ------- ------- --------- ------- ---------
Sub-total 15,125 398 -- (86) -- 15,437
------- ------- ------- --------- ------- ---------
FRENCH GUIANA
(Guyanor
Ressources S.A.)
Dorlin 2,608 34 -- -- -- 2,642
Yaou 7,633 83 -- -- -- 7,716
Paul Isnard / 5,446 279 -- -- -- 5,725
Eau Blanche
Paul Isnard 1,987 -- -- -- -- 1,987
Alluvials
Dachine 1,720 708 -- (678) (1,750) --
------- ------- ------- --------- ------- ---------
Sub-total 19,394 1,104 -- (678) (1,750) 18,070
------- ------- ------- --------- ------- ---------
AFRICA
(Pan African
Resources
Corporation)
Ivory Coast / 1,681 -- -- -- -- 1,681
Tanda
(Bogoso Gold
Limited)
Riyadh 75 146 -- -- -- 221
Bogoso Sulfide 160 1,973 -- -- -- 2,133
------- ------- ------- --------- ------- ---------
Sub-total 1,916 2,119 -- -- -- 4,035
------- ------- ------- --------- ------- ---------
TOTAL $37,922 $ 3,518 $ -- $ (764) $(1,750) $ 38,926
======= ======= ======= ========= ======= =========
</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.
As a result of the disappointing results from the bulk sampling program on the
Dachine project and the subsequent withdrawal of Rio Tinto from the joint
venture, the Dachine deferred exploration expenditures have been impaired,
however the Company is continuing to pursue other joint venture opportunities
for the project
On August 3, 2000, the Company signed a letter of intent with Barnato
Exploration Limited ("Barnex") and Western Areas Limited ("Western Areas") to
acquire a 90% interest in the Prestea gold project in Ghana by purchasing a 90%
interest in Barnex Prestea Limited. The Prestea property is located immediately
to the south of the Bogoso mine, in which the Company acquired a 70% interest in
September 1999. The total purchase consideration indicated in the letter of
intent was $12 million. Negotiations have been ongoing between the Company,
Barnex and Western Areas on the final commercial terms and the definitive
agreements. On November 6, 2000, the Company and Barnex agreed to an extension
of time until November 17, 2000 to complete the acquisition of Prestea.
7
<PAGE>
The acquisition would have been subject to the completion of due
diligence,necessary funding, the negotiation of definitive agreements and the
obtaining of necessary consents and approvals. On November 15, 2000, Barnex
advised the Company that the Government of Ghana is seeking to abrogate the
mining lease and related rights that Barnex has in Ghana. The Government has
initiated discussions with Barnex regarding the payment of compensation, while
Barnex has reserved its rights and is taking legal advice. The Company has not
been advised formally by the Government and will be contacting senior Government
officials to assess the situation and, once it has gathered all relevant
information, will promptly make the decisions to deal with this situation that
are in the best interests of its shareholders.
(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 90% of Bogoso
Gold Limited (BGL), the company operating the Bogoso gold mine in Ghana. 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, which
commenced on February 15, 2000.
(6) CHANGES TO SHARE CAPITAL
------------------------
During the nine months ended September 30, 2000, the Company issued 62,400
shares ($66,000) on the exercise of options and 150,000 shares ($105,000) on the
exercise of warrants. Also during the nine months convertible debentures were
converted into 392,857 shares ($214,000) and 40,000 shares ($35,000) were issued
under provisions of the Company's Stock Bonus Plan.
(7) PURCHASE OF BOGOSO GOLD LIMITED
-------------------------------
On September 30, 1999 the Company and Anvil Mining NL ("Anvil") acquired 70% and
20% respectively, of the shares of Bogoso Gold Ltd, a Ghana company (BGL). The
government of Ghana retained a 10% equity interest in BGL. BGL is the owner and
operator of the Bogoso gold mine in the republic of Ghana.
The following is the pro-forma income and loss for the nine months ended
September 30, 1999, showing the results had the transaction been completed on
January 1, 1999:
Nine Months Ended
September 30, 1999
------------------
Revenue $ 27,964
Net Loss $(21,595)
Net Loss Per Share $ (0.59)
(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 exploration 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 $11,301,000 or
$0.30 per share in the three months ended March 31, 2000 and the nine
months ended September 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
8
<PAGE>
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, which is based upon the amount of the equity portion, is
charged to interest expense. 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, 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 nine months ended
September 30, September 30,
------------- -------------
2000 1999
---- ----
<S> <C> <C>
Net loss under Canadian GAAP $ (1,915) $(24,656)
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) (1,004) 13,844
Effect of depletion adjustment (i) 575 (702)
Effect of Omai preferred share redemption (c) 369 314
Other (d), (e), (h), (i) (158) (18)
-------- --------
Loss under US GAAP before minority interest (13,434) (11,218)
Minority interest adjustment (36) 425
-------- --------
Net loss under US GAAP (13,470) (10,793)
Other comprehensive income foreign exchange gain (h) 287 18
Comprehensive income (loss) $(13,183) $(10,775)
======== ========
Basic and diluted Net loss per share under US GAAP $ (0.36) $ (0.34)
======== ========
</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 September 30, 2000 As of December 31, 1999
-------------------------- --------------------------
Cdn GAAP US GAAP Cdn GAAP US GAAP
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Cash $ 2,641 $ 2,641 $ 2,905 $ 2,905
Other current assets 11,358 11,306 11,052 11,052
Restricted cash 5,000 5,000 6,000 6,000
Acquisition, deferred exploration and
development (a) 38,926 - 37,922 11,302
Investment in OGML (c) 654 - 1,023 -
Mining properties (i) 5,059 4,401 10,413 9,180
Other assets 4,959 5,245 5.037 5,196
--------- --------- --------- ---------
Total Assets $ 68,597 $ 28,593 $ 74,352 $ 45,635
========= ========= ========= =========
Liabilities $ 21,037 $ 21,789 $ 23,828 $ 24,799
Minority interest 8,556 5,280 10,023 9,690
Share capital, net of stock option loans (e) 161,967 158,518 161,547 157,932
Cumulative translation adjustments (b) - 1,595 - 1,595
Accumulated comprehensive income - (296) - (583)
Deficit (a)(i)(e)(f)(g) (122,961) (158,293) (121,046) (147,798)
--------- --------- --------- ---------
Total Liabilities and Shareholders'
Equity $ 68,597 $ 28,593 $ 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 nine months ended
September 30, 2000 $ 3,054 $ 1,188 $(2,676) $ (810) $ (642) $ (642)
For the nine months ended
September 30, 1999 $ (2,461) $ (4,719) $(9,468) $(3,005) $ 6,977 $6,977
</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:
Operating Net Loss Identifiable
--------- -------- ------------
Revenues Assets
-------- ------
For the nine months ended September 30, 2000
South America $ 28 $(12,989) $ 637
Africa 25,815 284 18,292
Corporate - (197) 9,664
-------- -------- --------
$ 25,843 $(13,470) $ 28,593
======== ======== ========
For the Nine months ended September 30, 1999
South America $ 13 $ (8,137) $ 12,555
Africa - (1,307) 10,894
Corporate 274 (1,349) 13,280
-------- -------- --------
$ 287 $(10,793) $ 37,009
======== ======== ========
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 September 30, 2000 was $5.8 million.
Restricted Cash
Upon the closing of the acquisition of BGL in 1999, the Company was required,
under the acquisition agreement, to restrict $6.0 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
$1.0 million, to a balance of $5.0 million, at the end of the second quarter, as
agreed with the sellers of BGL.
Payments to IFC
Under the terms of the purchase agreement between the Company, Anvil and the
IFC, the Company and Anvil together were required to make a payment to the IFC
on September 30, 2000 in the amount of $2.8 million. The amount of the payment
was determined using a formula in the purchase agreement, which incorporates the
average price of gold during the twelve months ended September 30, 2000. The
Company paid the IFC $1.4 million on November 9, 2000, and has reached agreement
with the IFC that the balance, plus interest at 10% per annum, is to be paid by
December 22, 2000. The Company is currently in the process of negotiating a line
of credit of $2.0 million from a financial institution that would allow
fulfillment of this obligation, although there can be no assurance that its
efforts will be successful.
(10) RELATED PARTIES
---------------
During 1999, the Company, in conjunction with Anvil Mining NL, acquired 90% of
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,
although he was not employed by the Company at the September 30, 1999
transaction date. 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 September 30, 2000 was
$2.6 million.
During the quarter ended September 30, 2000, Anvil and the Company reached
agreement on a revised interpretation of certain sections of the heads of
agreement dealing with the timing of cash distributions from BGL and the
allocation of the funds between the two partners. The new interpretation allows
Anvil credit for its 22.2% share of cash distributions from BGL, as cash
proceeds are received by the Company. Prior to the new interpretation it was
assumed that the heads of agreement called for proceeds to be credited only to
the Company until such time as the Company's original investment had been
recovered. Following the Company's recovery of its initial investment Anvil is
to receive its share of subsequent distributions. Until this time all cash
distributions will continue to be made directly to the Company. Upon receipt of
the cash, the Company will credit Anvil with their share of the distribution and
then apply the Anvil credit against the Company's note receivable from Anvil
until such time as the note has been repaid in full. Based on the new
interpretation the note receivable from Anvil has been credited with Anvil's
22.2% portion of all past cash disbursements from BGL to the Company, thereby
reducing the note receivable balance to $2.6 million at September 30, 2000.
(11) SUBSEQUENT EVENTS
-----------------
At the end of September 2000, the American Stock Exchange (Amex) notified the
Company that it intended to proceed with de-listing the Company's shares from
the Amex. The Company appealed against the Amex
11
<PAGE>
determination and this appeal is expected to be heard by the Amex Committee on
Securities in November with a decision expected in December. Trading on the
Toronto Stock Exchange should not be affected by the ultimate Amex decision. The
Company is utilizing the appeal period to review the alternatives available to
the Company in the event that the appeal is unsuccessful and an alternative
listing forum is required in the United States.
On October 12, 2000, the Company announced the results from the bulk sampling
program undertaken by Guyanor and its joint venture partner, Rio Tinto Mining
and Exploration, on the Dachine Diamond project in French Guiana. While
diamonds were found to be present in the sampled material, Rio Tinto considered
that they were not sufficient to justify additional work at this time. Rio
Tinto withdrew from the joint venture but remains liable for environmental
remediation. As a result of the disappointing results from the bulk sampling
program and the subsequent withdrawal of Rio Tinto from the joint venture, the
Dachine deferred exploration expenditures have been impaired as of September 30,
2000, however the Company is continuing to pursue other joint venture
opportunities for the project.
On November 6, 2000, the Company and Barnex agreed to an extension of time until
November 17, 2000 to complete the acquisition of Prestea. The acquisition would
have been subject to the completion of due diligence, necessary funding, the
negotiation of definitive agreements and the obtaining of necessary consents and
approvals. On November 15, 2000, Barnex advised the Company that the Government
of Ghana is seeking to abrogate the mining lease and related rights that Barnex
has in Ghana. The Government has initiated discussions with Barnex regarding
the payment of compensation, while Barnex has reserved its rights and is taking
legal advice. The Company has not been advised formally by the Government and
will be contacting senior Government officials to assess the situation and, once
it has gathered all relevant information, will promptly make the decisions to
deal with this situation that are in the best interests of its shareholders.
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 over the two
years ending September 30, 2001, 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, but because of the improbability that
sufficient cash can be generated by BGL over the remaining life of the reserve
base to repay any of the assigned outstanding debts, it was deemed appropriate
by Anvil and the Company to assign no value to this receivable.
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
nine months ended September 30, 2000.
12
<PAGE>
Three Months and Nine Months Ended September 30, 2000 compared to the Three
Months and Nine Months Ended September 30, 1999
The Company incurred net losses of $1.7 million and $1.9 million for the third
quarter and nine months ended September 30, 2000 respectively. These figures
compare to losses of $20.4 million and $24.7 million in the third quarter and
nine months of 1999. The losses in 1999 were mostly attributable to the
impairment of deferred exploration expenses of $20.5 million in the third
quarter and $23.7 million for the nine months ended September 30, 1999, while
losses in 2000 include a $1.8 million non-cash impairment of the Dachine project
in French Guiana.
Results for the third quarter and for the nine months of 2000 include
operational activities of the Bogoso mine, which was acquired by the Company on
September 30, 1999. The Bogoso operations contributed $7.7 million of revenues
to the third quarter results and $25.2 million to the nine months results. Third
quarter gold revenues were based on sales of 27,899 ounces at an average price
of $277.02 per ounce. For the nine months gold sales totaled 89,448 ounces at an
average price of $281.88 per ounce. Cash operating costs including royalties
averaged $195.04 in the quarter and $191.04 for the full nine months. Mill feed
grades averaged 2.60 grams per tonne for the nine months and 2.30 grams per
tonne for the quarter.
As a result of the disappointing results from the bulk sampling program and the
subsequent withdrawal of Rio Tinto from the joint venture, the Dachine deferred
exploration expenditures have been impaired with a charge to operations of $1.8
million for the third quarter and for the nine months ended September 30, 2000.
The Company is continuing to pursue other joint venture opportunities for the
Dachine project.
For the nine months ended September 30, 2000, general and administrative
expenditures decreased slightly to $2.3 million as compared to $2.4 million for
the same period last year. Exploration expense for the third quarter increased
to $0.2 million from $0.1 million last year. Even though exploration offices
were closed in Africa and in Guyana, the lower level of exploration activity
overall resulted in less costs being allocated to projects. Most of the
Company's exploration projects are currently on a care and maintenance basis.
Third quarter and nine month 2000 interest expenses were $0.2 million and $0.7
million respectively, up from less than $0.1 million in both comparative periods
of 1999. The increases in the 2000 periods are a result of interest on the
convertible debentures (issued in August of 1999) and penalty interest 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. The increases in foreign exchange gains
in the current periods are related to significant decreases in the value of the
local currency during 2000 in Ghana where the Bogoso mine operates.
On August 11, 2000, the Company received regulatory approval to extend the
expiration date of warrants to purchase a total of 761,650 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 or (ii) the 30th 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.
On August 3, 2000, the Company signed a letter of intent with Barnato
Exploration Limited ("Barnex") and Western Areas Limited ("Western Areas") to
acquire a 90% interest in the Prestea gold project in Ghana by purchasing a 90%
interest in Barnex Prestea Limited. The Prestea property is located immediately
to the south of the Bogoso mine, in which the Company acquired a 70% interest in
September 1999. The total purchase consideration indicated in the letter of
intent was $12 million. Negotiations have been ongoing between the Company,
Barnex and Western Areas on the final commercial terms and the definitive
agreements. On November 6, 2000, the Company and Barnex agreed to an extension
of time until November 17, 2000 to complete the acquisition of Prestea. The
acquisition would have been subject to the completion of due diligence,
necessary funding, the negotiation of definitive agreements and the obtaining of
necessary consents and approvals. On November 15, 2000, Barnex advised the
Company that the Government of Ghana is seeking to abrogate the mining lease and
related rights that Barnex has in Ghana. The Government has initiated
discussions with Barnex regarding the payment of compensation, while Barnex has
reserved its rights and is taking legal advice. The Company has not been
advised formally by the Government and will be contacting senior Government
officials to assess the situation and, once it has gathered all relevant
information, will promptly make the decisions to deal with this situation that
are in the best interests of its shareholders.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At September 30, 2000, the Company held cash and short-term investments of $ 2.6
million and working capital of $3.6 million compared to December 31, 1999
balances of $2.9 million and $6.0 million, respectively. The decrease in working
capital is mostly related to the reclassifying of amounts due to lenders, from
long term liabilities to current liabilities under terms of the loan agreements.
Net cash provided by operating activities totaled $3.1 million for the nine
months ended September 30, 2000, compared with net cash used in operating
activities of $2.5 million in
13
<PAGE>
the first nine months of 1999. Cash generated by operations at the Bogoso mine,
acquired in September 1999 was responsible for the improvement in cash from
operations as compared to 1999. The Company also has $5.0 million in cash at
September 30, 2000, which is restricted, in accordance with the BGL acquisition
agreement, to be used for environmental rehabilitation at the Bogoso mine. The
Company drew down $1.0 million from the restricted cash account in the second
quarter and anticipates being able to draw down a further $1.0 million by
December 31, 2000, to reimburse the Company for rehabilitation expenditures
since the acquisition of BGL.
Cash used in investing activities for the nine months ended September 30, 2000
was $2.7 million as compared to $9.5 million for the nine months ended September
30, 1999. The 1999 figure includes cash used to acquire the Bogoso property and
associated restrictions of cash for eventual reclamation and closure of the
Bogoso mine. Spending on capitalized exploration was essentially unchanged in
the nine months of 2000 versus the nine months of 1999, but $1.8 million was
used in the current nine months for equipment at the Bogoso mine versus no
spending in the same period of 1999 prior to the acquisition of the mine.
Cash used by financing activities amounted to $0.6 million for the nine months
ended September 30, 2000 compared with cash provided by financing activities of
$7.0 million for the corresponding period in 1999. Financing activities in the
2000 period included a $0.8 million repayment of the Omai project debt. The 1999
period included issuance of convertible debentures and common stock used to
finance the Bogoso mine acquisition.
Under the terms of the purchase agreement between the Company, Anvil and the
IFC, the Company and Anvil together were required to make a payment to the IFC
on September 30, 2000 in the amount of $2.8 million. The amount of the payment
was determined using a formula in the purchase agreement, which incorporates the
average price of gold during the twelve months ended September 30, 2000. The
Company paid the IFC $1.4 million on November 9, 2000, and has reached agreement
with the IFC that the balance, plus interest at 10% per annum, is to be paid by
December 22, 2000. The Company is currently in the process of negotiating a line
of credit of $2.0 million from a financial institution that would allow
fulfillment of this obligation, although there can be no assurance that its
efforts will be successful.
Bogoso Gold Limited
Total capitalized exploration expenditures by BGL in Ghana for the third quarter
and the first nine months of 2000 amounted to $0.4 million and $2.1 million,
respectively (compared to nil in the third quarter and first nine 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. With the current uncertainty
as to the likelihood of the Prestea acquisition proceeding, it is expected that
employee layoffs will be required at Bogoso, because the current plan at Bogoso
projects oxide ore reserve mining to cease in the first half of 2001, although
production of gold will continue from oxide ore stockpiles through to the end of
2001.
French Guiana (Guyanor Ressources S.A.)
Total capitalized exploration expenditures by Guyanor for the third quarter
amounted to $0.1 million, offset by joint venture recoveries of $0.1 million
(compared to expenditures of $0.4 million and joint venture recoveries of $0.2
million in the third 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 $0.1 million for the quarter ended September 30,
2000 (compared to $0.2 million in the third quarter of 1999). The Company has
committed to funding the operations of Guyanor through 2000.
Rio Tinto notified the Company at the end of the third quarter that their
evaluation and bulk sampling of the Dachine diamond prospect in French Guiana
had been completed. While diamonds were found to be present in the sampled
material, Rio Tinto considered that they were not sufficient to justify
additional work and evaluation at this time. Rio Tinto withdrew from the joint
venture but remains liable for environmental remediation. As a result of the
disappointing results from the bulk sampling program and the subsequent
withdrawal of Rio Tinto from the joint venture, the Dachine deferred exploration
expenditures have been impaired, with a charge to operations in the third
quarter of $1.8 million. The Company is continuing to pursue other joint venture
opportunities for the project.
Guyana
There were no capitalized exploration and acquisition expenditures in the third
quarter of 2000 in Guyana compared
14
<PAGE>
to less than $0.1 million during the third quarter of 1999. Activities in Guyana
during 2000 have 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
Capitalized exploration expenditures in Suriname during the third quarter of
2000 focused primarily on the Gross Rosebel project. Total spending in Suriname
in the third quarter was less than $0.1 million, or approximately the same as in
the same period in 1999. The Gross Rosebel project is being maintained on a care
and maintenance basis 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 cash flow from mining operations through at least
mid-2001, although it still has 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 through the end of 2001 to cover its exploration
obligations and general and administrative expenses, although if gold prices
continue at the current depressed levels or fall lower, this will reduce the
cash available to the Company and this may in turn result in further office
closures and staffing cutbacks. Also, because of capital expenditures which will
extend the economic mine life at Bogoso, the Company's cash position during the
fourth quarter of 2000 is projected to be close to minimum operating levels.
Additional capital will be required for major capital expenditures, development
or acquisitions (including the funding of the Prestea acquisition, as discussed
below). At September 30, 2000, the Company held consolidated cash and short-term
investments of $2.6 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 12 months. This additional purchase price has been
estimated at $6.4 million (7/9 payable by the Company and 2/9 payable by Anvil),
of which $2.8 million was payable on September 30, 2000. The Company paid the
IFC $1.4 million on November 9, 2000, and has reached agreement with the IFC
that the balance, plus interest at 10% per annum, is to be paid by December 22,
2000. The Company is currently in the process of negotiating a line of credit of
$2.0 million from a financial institution that would allow fulfillment of this
obligation, although there can be no assurance that its efforts will be
successful. Cash commitments, including scheduled purchase price payments to be
made to the IFC and amounts due other financial institutions will negatively
impact the Company's financial position and liquidity over the next 12 months.
The Company is, and will continue, exploring 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.
At the end of September 2000, the American Stock Exchange (Amex) notified the
Company that it intended to proceed with de-listing the Company's shares from
the Amex. The Company appealed against the Amex determination and this appeal
is expected to be heard by the Amex Committee on Securities in November with a
decision expected in December. Trading on the Toronto Stock Exchange should not
be affected by the ultimate Amex decision. The Company is utilizing the appeal
period to review the alternatives available to the Company in the event that the
appeal is unsuccessful and an alternative listing forum is required in the
United States.
As described in Footnotes 4 and 11 to the Company's Consolidated Financial
Statements included herein, the Company had intended to acquire the Prestea
property which lies immediately to the south of and adjoins the Bogoso property
in Ghana. The Prestea property has open-pittable oxide mineralized material
that the Company had intended to process through the Bogoso mill. Management
expected that the acquisition of the Prestea property would have extended the
life of Bogoso by up to six years. With the current uncertainty as to the
likelihood of the Prestea acquisition proceeding, it is expected that employee
layoffs will be required at Bogoso, because the current plan at Bogoso projects
mining to cease in the first half of 2001, although production of gold will
continue from oxide ore stockpiles through to the end of 2001.
15
<PAGE>
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 commencing January 1, 2001. 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.
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. The Company believes that
its existing revenue policies are in compliance with this pronouncement and does
not anticipate changes in its revenue accounting policy or procedures when SAB
101 is adopted in the fourth quarter of 2000.
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 exchange 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 US dollars and the majority of the Company's
revenues and expenses are denominated in US 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 per
16
<PAGE>
ounce change in the price of gold could result in a $2.9 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. The amount of the future payments is depending on the average price of
gold over a two year period following September 30, 1999 and upon 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. These payments are equal to the product (in US dollars) of 183,333 and
the amount, if any, that the average daily gold price (in US 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 due 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 and gold production to date, 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 September 30, 2000
None
17
<PAGE>
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
November 20, 2000
18
