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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
----------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
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.)
10579 BRADFORD ROAD, SUITE 103
LITTLETON, COLORADO 80127
(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 April 25, 2002: 64,168,859
INDEX
Part I Financial Information
Item 1. Financial Statements........................................................................3
Item 2. Management's Discussion and Analysis of Financial Condition, and
Results of Operations......................................................................13
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................15
Part II Other Information
Item 1. Legal Proceedings..........................................................................17
Item 4. Submission of Matters to a Vote of Security Holders........................................17
Item 6. Exhibits and Reports on Form 8-K...........................................................17
Signatures.......................................................................................................18
REPORTING CURRENCY AND FINANCIAL INFORMATION
All amounts in this Report are expressed in United States dollars, unless
otherwise indicated. References to "Cdn" are to Canadian dollars. Financial
information is presented in accordance with accounting principles generally
accepted in Canada. Differences between accounting principles generally accepted
in the United States and those applied in Canada, as applicable to the
Registrant, are explained in Note 8 to the Consolidated Financial Statements.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains "forward-looking statements" within the meaning of the
United States 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 forward-looking statements contained herein are
based on Golden Star's current expectations and various assumptions as of the
date such statements are made. Golden Star cannot give assurance that such
statements will prove to be correct. These forward-looking statements include
statements regarding: the impact that mining from Bogoso/Prestea may have on our
future liquidity, cash flows, financial requirements, operating results and
capital resources; the operational and financial performance of mining from
Bogoso/Prestea; targets for gold production; cash operating costs and expenses;
percentage increases and decreases in production from Bogoso/ Prestea; schedules
for completion of feasibility studies; potential increases or decreases 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.
Factors that could cause our actual results to differ materially from these
statements include, but are not limited to, changes in gold prices, the timing
and amount of estimated future production, unanticipated grade changes,
unanticipated recovery problems, mining and milling costs, determination of
reserves, costs and timing of the development of new deposits, 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
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)
As of As of
March 31, December 31,
ASSETS 2002 2001
------------ ------------
CURRENT ASSETS
Cash and short-term investments $ 2,405 $ 509
Restricted cash (Note 6) 2,580 --
Accounts receivable 1,458 1,231
Inventories (Note 3) 7,521 7,666
Other assets 179 230
------------ ------------
Total Current Assets 14,143 9,636
RESTRICTED CASH (Note 9) 3,365 3,365
ACQUISITION, DEFERRED EXPLORATION
AND DEVELOPMENT COSTS (Note 5) 12,319 12,280
INVESTMENT IN OMAI GOLD MINES LIMITED -- 141
MINING PROPERTIES (Net of accumulated depreciation of $11,326 and $10,852,
respectively) 9,411 8,353
FIXED ASSETS (Net of accumulated depreciation of $5,331 and $5,134, respectively) 2,096 2,268
OTHER ASSETS 467 509
------------ ------------
Total Assets $ 41,801 $ 36,552
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 2,731 $ 4,365
Accrued liabilities 2,172 2,783
Accrued wages and payroll taxes 189 124
Advance payment Guiana Shield transaction (Note 10) 3,000 --
Current debt (Note 4) 3,527 6,954
------------ ------------
Total Current Liabilities 11,619 14,226
CONVERTIBLE DEBENTURES (Note 4) 1,302 2,358
LONG TERM BANK DEBT (Note 4) 975 559
ENVIRONMENTAL REHABILITATION LIABILITY (Note 9) 5,342 5,407
------------ ------------
Total Liabilities 19,238 22,550
------------ ------------
MINORITY INTEREST 1,878 1,660
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 6)
First Preferred Shares, without par value, unlimited shares authorized.
No shares issued -- --
Common shares, without par value, unlimited shares authorized. Shares
issued and outstanding: 62,886,717 at March, 31 2002, 49,259,548 at 175,370 168,308
December 31, 2001
Equity component of convertible debentures 372 545
DEFICIT (155,057) (156,511)
------------ ------------
Total Shareholders' Equity 20,685 12,342
------------ ------------
Total Liabilities and Shareholders' Equity $ 41,801 $ 36,552
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
3
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of United States Dollars except per share amounts)
(Unaudited)
Three Months Three Months
Ended March 31 Ended March 31
2002 2001
-------------- --------------
REVENUE
Gold sales $ 9,164 $ 4,678
Interest and other 168 157
------------ ------------
9,332 4,835
------------ ------------
COSTS AND EXPENSES
Mining operations 6,133 4,979
Depreciation and depletion 652 822
Exploration expense 100 60
General and administrative 859 949
Loss on disposal of assets -- 6
Interest expense 108 229
Foreign exchange loss/(gain) (23) 15
------------ ------------
7,829 7,060
INCOME/(LOSS) BEFORE THE UNDERNOTED 1,503 (2,225)
Omai preferred share redemption premium 169 14
------------ ------------
Income/(loss) before minority interest 1,672 (2,211)
Minority interest (218) 360
------------ ------------
NET INCOME/(LOSS) 1,454 (1,851)
DEFICIT, BEGINNING OF PERIOD (156,511) (135,927)
------------ ------------
DEFICIT, END OF PERIOD $ (155,057) $ (137,778)
------------ ------------
NET INCOME/(LOSS) PER COMMON SHARE - BASIC $ 0.02 $ (0.05)
NET INCOME/(LOSS) PER COMMON SHARE - DILUTED $ 0.02 $ (0.05)
WEIGHTED AVERAGE SHARES OUTSTANDING
(in millions of shares) 61.8 38.0
The accompanying notes are an integral part of these consolidated
financial statements.
4
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of United States Dollars)
(Unaudited)
Three Months Three Months
Ended March 31 Ended March 31
2002 2001
-------------- --------------
OPERATING ACTIVITIES:
NET INCOME/(LOSS) $ 1,454 $ (1,851)
RECONCILIATION OF NET INCOME/(LOSS) TO NET CASH USED IN
OPERATING ACTIVITIES:
Depreciation, depletion and amortization 652 824
Convertible debentures accretion 28 52
Premium on Omai preferred share redemption (169) (14)
Non-cash employee compensation 77 --
Loss on disposal of assets -- 6
Accrued interest on notes receivable -- (33)
Reclamation expenditures (65) (85)
Minority interest 218 (360)
Changes in assets and liabilities:
Accounts receivable (227) 345
Inventories 145 (38)
Accounts payable (2,180) 1,233
Other 51 55
------------ ------------
Total changes in non-cash operating working capital (2,211) 1,595
------------ ------------
Net Cash Provided by/(Used in) Operating Activities (16) 134
------------ ------------
INVESTING ACTIVITIES:
Expenditures on mineral properties, net of joint venture
recoveries (39) (700)
Expenditures on mining properties (1,113) (9)
Equipment purchases (25) (608)
Omai preferred share redemption 310 31
Increase in restricted cash -- (654)
Advance payment on Guiana Shield transaction 3,000 --
Other 42 27
------------ ------------
Net Cash Provided by/(Used in) Investing Activities 2,175 (1,913)
------------ ------------
FINANCING ACTIVITIES:
Issuance of share capital, net of issue costs (Note 6) 5,371 1,000
Restriction of equity proceeds (Note 6) (2,580) --
Repayment of short-term debt (3,864) (31)
Issuance of short term debt 800 --
Increase in current portion of amounts due financial
institutions 53 268
Other (43)
------------ ------------
Net Cash Provided by/(Used in) Financing Activities (263) 1,237
------------ ------------
Increase/(Decrease) in cash and short-term investments 1,896 (542)
Cash and short-term investments, beginning of period 509 991
------------ ------------
Cash and short-term investments, end of period $ 2,405 $ 449
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
5
GOLDEN STAR RESOURCES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands of United States Dollars unless noted otherwise)
(Unaudited)
These consolidated financial statements and the accompanying notes are unaudited
and should be read in conjunction with the audited consolidated financial
statements and related notes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 2001, on file with the Securities and
Exchange Commission and with the Canadian securities commissions (referred to as
"the Company's 2001 Form 10-K").
The unaudited consolidated financial statements for the three months ended March
31, 2002 and 2001, 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. OPERATIONS
Golden Star Resources Ltd. ("Golden Star", the "Company" or "we") is an
international mining company and gold producer. Since 1999, we have sought to
move from a primarily exploration focus, with operations in several areas in
Africa and South America, to a primarily production focus, concentrating on
operations in Ghana. We own a 90% equity interest in Bogoso Gold Limited
("BGL"), which owns the Bogoso gold mine in Ghana ("Bogoso Mine"), and have
recently acquired mineral rights in the adjacent Prestea property. These two
properties are now referred to as "Bogoso/Prestea". We are in the process of
selling our interest in the Gross Rosebel project in Suriname ("Gross Rosebel")
to our partner in the project and expect to use the proceeds of this sale and
the proceeds of our recent equity financing to provide a portion of the equity
base to expand our Ghana operations. Through our 73%-owned subsidiary, Guyanor
Ressources S.A., ("Guyanor") we have interests in several gold exploration
properties in French Guiana.
2. SUPPLEMENTAL CASH FLOW INFORMATION
The following is a summary of non-cash transactions:
Three Months Three Months
Ended March 31 Ended March 31
2002 2001
-------------- --------------
Shares issued upon conversion of convertible
debentures (Note 6) $ 1,214 $ --
Equity component of convertible debentures (173) --
Conversion of convertible debentures (Note 6) (1,041) --
Shares issued for Prestea related acquisition costs 400 --
Acquisition costs paid for with shares (400) --
3. INVENTORIES
March 31, December 31,
2002 2001
-------------- --------------
Stockpiled ore $ 1,488 $ 1,278
In-process 724 951
Materials and supplies 5,309 5,437
-------------- --------------
$ 7,521 $ 7,666
============== ==============
6
4. CURRENT AND LONG TERM DEBT
March 31, December 31,
2002 2001
-------------- --------------
Note due Omai Gold Mines Limited (Note 4a) $ -- $ 310
Amounts due to the Sellers of BGL (Note 4b) -- 2,874
Due financial institution (Note 4c) 250 500
Overdraft facility at BGL (Note 4d) 626 1,003
Bank loan at BGL (Note 4e) 651 267
Accrual of possible liability to Sellers of BGL
(Notes 4f) 2,000 2,000
-------------- --------------
Total Current Debt $ 3,527 $ 6,954
============== ==============
Convertible debentures 1,302 2,358
Long term portion of bank loan at BGL (Note 4e) 975 559
-------------- --------------
Total long term debt (Note 4g) $ 2,277 $ 2,917
============== ==============
(a) NOTE DUE OMAI GOLD MINES LIMITED
On December 23, 1998, OGML advanced $3.2 million to us as an unsecured loan to
be repaid as and when Class I preferred shares of OGML held by us are redeemed
by OGML. The loan is non-interest bearing until September 30, 2010. Subsequent
redemption of preferred shares has reduced the liability and the final payment
was made on this note in the first quarter of 2002.
(b) AMOUNTS DUE TO THE SELLERS OF BOGOSO GOLD LIMITED
Represents amounts owed to the original Sellers of BGL per terms of the
September 1999 Bogoso purchase agreement. The remaining $2.9 million was paid
during the first quarter of 2002.
(c) DUE TO A FINANCIAL INSTITUTION
This amount represents gold production related payments due to a financial
institution retained in 1999 to provide bridge financing for the BGL
acquisition. The first payment of $0.25 million, due September 30, 2001, was
made in January 2002, and the second and final payment of $0.25 million is due
September 30, 2002.
(d) OVERDRAFT FACILITY AT BGL
Over-draft facility of BGL from Barclays Bank in Ghana.
(e) BANK LOANS AT BGL
Term loans from CAL Merchant Bank, Ghana to BGL. One loan, of $0.8 million is
denominated in Ghanaian cedis, has a six-month repayment holiday and a two-year
maturity. The second loan of $0.8 million is denominated in United States
dollars and has a two-year maturity.
(f) ACCRUAL OF POSSIBLE LIABILITY TO SELLERS
The original BGL purchase agreement of September 1999 included a reserve
acquisition payment due the Sellers. The reserve acquisition payment would be
triggered if minable reserves equivalent to 50,000 ounces of gold or greater
were to be acquired by BGL prior to September 30, 2001 from elsewhere in Ghana
for processing at the Bogoso mill. The acquisition of the surface mining lease
at the Prestea property may have triggered the reserve acquisition payment and
the associated $2.0 million liability. While the Company's liability for this
payment and the exact due date of this liability is yet to be established, the
$2.0 million contingent liability was accrued in the fourth quarter of 2001.
7
(g) CONVERTIBLE DEBENTURES
On August 24, 1999, we issued $4.2 million of subordinated convertible
debentures. 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. The debentures are convertible at
the option of the holder into common shares of Golden Star at a conversion price
of $0.70 per share, prior to the maturity date of August 24, 2004.
During the first quarter of 2002, $0.9 million of debentures were converted to
1,328,569 shares of common stock. Changes in the liability and equity components
since the debentures were issued are shown in the following table:
Liability Component Equity Component
------------------- ----------------
Upon issuance, August 1999 $ 3,110 $ 1,045
Accretion since issuance 492 --
Conversions since issuance (2,300) (673)
-------------- --------------
March 31, 2002 $ 1,302 $ 372
============== ==============
5. ACQUISITION, DEFERRED EXPLORATION AND DEVELOPMENT COSTS
The consolidated property expenditures and abandonment costs for our exploration
projects for the three months ended March 31, 2002 were as follows:
Acquisition, Acquisition,
Deferred Deferred
Exploration Property Exploration
and Capitalized Capitalized Joint Abandonments and
Development Exploration Acquisition Venture and Development
Costs as of Expenditures Expenditures Recoveries Adjustments Costs as of
12/31/01 in 2002 in 2002 in 2002 in 2002 3/31/02
------------ ------------ ------------ ------------ ------------ ------------
SURINAME
Gross Rosebel (1) $ 8,066 $ -- $ -- $ -- $ -- $ 8,066
------------ ------------ ------------ ------------ ------------ ------------
Sub-total 8,066 -- -- -- -- 8,066
------------ ------------ ------------ ------------ ------------ ------------
AFRICA
(BOGOSO GOLD LIMITED)
Riyadh 274 1 -- -- -- 275
Pampe/Flagbase 330 10 340
Bogoso Sulfide Project 3,572 1 -- -- -- 3,573
Other Bogoso Area
Projects 38 27 65
------------ ------------ ------------ ------------ ------------ ------------
Sub-total 4,214 39 -- -- -- 4,253
------------ ------------ ------------ ------------ ------------ ------------
TOTAL $ 12,280 $ 39 $ -- $ -- $ -- $ 12,319
============ ============ ============ ============ ============ ============
(1) Subject to sale to Cambior. See note 10.
6. SHARE CAPITAL
During the quarter we sold 11,516,000 units, each unit comprised of one common
share and one half warrant, in a private placement for net proceeds of $5.2
million. Half of the proceeds were immediately released to the Company. The
remaining $2.6 million was placed in escrow pending: (i) registration of the
common shares underlying the units; (ii) closing of the Guiana Shield
transaction; and (iii) closing of the Wassa acquisition. In April 2002,
following the Registration Statement on Form S-3 being declared effective, the
escrowed funds were transferred to Golden Star.
Other share capital activity included the exercise of 225,600 stock options,
which generated $0.2 million of cash, while 608,000 options were granted to
employees. In addition 450,000 shares of common stock were issued to pay $0.4
million of Prestea acquisition related costs, and a stock bonus totaling 107,000
shares was paid to certain managers during the first quarter. Convertible
debenture conversions added 1,328,569 shares during the quarter.
8
7. OPERATIONS BY GEOGRAPHIC AREA
The following geographic data includes revenues based on product shipment origin
and long-lived assets based on physical location:
NET IDENTIFIABLE
REVENUES INCOME(LOSS) ASSETS
------------ ------------ ------------
FOR THE QUARTER ENDED MARCH 31, 2002
South America $ 143 $ (366) $ 8,386
Africa 9,187 2,088 30,018
Corporate 2 (268) 3,397
------------ ------------ ------------
Total $ 9,332 $ 1,454 $ 41,801
============ ============ ============
FOR THE QUARTER ENDED MARCH 31, 2001
South America $ 11 $ (338) $ 22,206
Africa 4,758 (715) 24,560
Corporate 66 (798) 2,918
------------ ------------ ------------
Total $ 4,835 $ (1,851) $ 49,684
============ ============ ============
8. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
The following Golden Star consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
(US GAAP). (Stated in thousands of United States Dollars except for per share
amounts)
(a) BALANCE SHEETS UNDER US GAAP
As of March 31 As of December 31,
2002 2001
-------------- ------------------
Cash $ 2,405 $ 509
Restricted cash 2,580 --
Trade accounts receivable, net 1,458 1,231
Inventories 7,521 7,666
Other Assets 179 230
-------------- --------------
Total current assets 14,143 9,636
Restricted cash 3,365 3,365
Acquisition, deferred exploration and development
costs (note 1) -- --
Investment in OGML (note 2) -- --
Mining property (note 1) 9,185 8,303
Fixed Assets, net 2,096 2,268
Other assets 603 660
-------------- --------------
Total Assets $ 29,392 $ 24,232
============== ==============
Current liabilities $ 11,619 $ 14,785
Convertible debentures (note 3) 1,482 2,411
Long term bank debt 975 --
Environmental rehabilitation liability 5,342 5,407
Other -- --
-------------- --------------
Total Liabilities 19,418 22,603
Minority interest 310 96
Share capital (notes 3 and 4) 172,609 165,833
Equity component of the convertible debentures (note 3) -- --
Cumulative translation adjustments 1,595 1,595
Accumulated comprehensive income (Note 5) (255) (279)
Deficit (164,285) (165,616)
-------------- --------------
Total Liabilities and Shareholders' Equity $ 29,392 $ 24,232
============== ==============
9
(b) STATEMENTS OF OPERATIONS UNDER US GAAP
For the Three months Ended March 31,
2002 2001
-------------- --------------
Net Income/(loss) under Canadian GAAP $ 1,454 $ (1,851)
Net effect of acquisition and deferred exploration
expenditures (note 1) (215) (626)
Effect of mining property depletion (note 6) -- 100
Other (notes 2, 3, and 5) 88 69
-------------- --------------
Net income/(loss) under US GAAP before minority interest 1,327 (2,308)
Minority interest, as adjusted (notes 1, 2, 3 and 5) 4 110
-------------- --------------
Net income/(loss) under US GAAP 1,331 (2,198)
Other comprehensive income foreign exchange gain/(loss) (note 5) 24 (15)
-------------- --------------
Comprehensive income/(loss) $ 1,355 $ (2,213)
============== ==============
Basic net income/(loss) per share under US GAAP $ 0.02 $ (0.06)
Diluted net income/(loss) per share under US GAAP $ 0.02 $ (0.06)
Weighted average common shares outstanding are the same under US GAAP as under
Cdn GAAP for the periods presented.
Under US GAAP the Omai preferred share redemption premium is included with
"Other" before the caption "Net income/(loss) under US GAAP before minority
interest" on the consolidated statements of operations.
(c) STATEMENTS OF CASH FLOWS UNDER US GAAP
For the Three For the Three
Months ended Months ended
March 31, March 31,
2002 2001
-------------- --------------
Cash provided by/(used in):
Operating Activities $ 39 $ (576)
Investing activities 2,076 (1,203)
Financing activities (219) 1,237
-------------- --------------
Increase/(decrease) in cash and cash equivalents for the quarter 1,896 (542)
Cash and cash equivalent beginning of period 509 991
-------------- --------------
Cash and cash equivalents end of period $ 2,405 $ 449
============== ==============
(d) FOOTNOTES
(1) Under US GAAP, acquisition costs, exploration costs 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 Cdn GAAP would have been charged to earnings in prior
periods under US GAAP.
(2) 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 Cdn GAAP, a portion of the premium on
the Omai preferred share redemption premium is included in income with the
remainder reducing the carrying value of the Company's preferred stock
investment.
(3) Cdn 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. Under US GAAP, the convertible debenture
would be classified entirely as a liability.
(4) We eliminated our 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 Cdn GAAP due to the
write-off of certain deferred exploration costs described in 1 above.
10
(5) Under US GAAP, items such as foreign exchange gains and losses are required
to be shown separately in derivation of Comprehensive Income.
(6) 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
BGL, is required to be expensed. Such costs were capitalized as part of the
purchase cost of BGL for Canadian GAAP.
9. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL REGULATIONS
We are not aware of any events of material non-compliance in our operations with
environmental laws and regulations, which could have a material adverse effect
on our operations or financial condition. The exact nature of environmental
control problems, if any, which we 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
was $5.3 million at March 31, 2002 and $5.4 million at December 31, 2001.
Estimates of the final reclamation and closure costs for the new Prestea
property are currently being prepared and once available a provision will be
established.
RESTRICTED CASH LONG-TERM (FOR THE ENVIRONMENTAL REHABILITATION LIABILITY)
Upon the closing of the acquisition of BGL in 1999, we were required, according
to the acquisition agreement, to restrict $6.0 million in cash. These funds are
to be used for the ongoing, and 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. During 2001 and 2000, we were allowed to draw
down $0.8 million and $1.9 million respectively of the restricted cash to cover
ongoing reclamation costs incurred since the September 1999 project acquisition.
No cash was drawn during the first quarter of 2002. At March 31, 2002, the
remaining balance in the BGL reclamation cash fund was $3.3 million.
10. SUBSEQUENT EVENTS
NEW AGREEMENT WITH PRESTEA GOLD RESOURCES LIMITED
In March 2002, BGL reached an agreement with Prestea Gold Resources Limited
("PGR"), the Ghana Mineworkers Union and the Government of Ghana and related
parties to form a joint venture, to be managed by BGL, for the assessment and
future operations of the Prestea underground mine. BGL will contribute $2.4
million to become a 45% joint venture partner, with PGR also holding 45% and the
Government of Ghana holding a 10% carried interest. Under the agreement, the
funds provided to PGR will be used to pay arrears of salary and termination
benefits to the Prestea underground miners. Payments totaling $1.9 million were
made to the underground miners in April 2002 for arrears of salaries and
termination benefits under the agreement. It is the intent of the joint venture
to place the underground operation on care and maintenance pending completion of
an assessment, which will include a comprehensive review of the safety and
economic viability of the mine, as well as a review of past environmental
practices. BGL's new joint venture interest in the Prestea underground mine is
in addition to BGL's 100% interest in the Prestea surface lease.
GUIANA SHIELD TRANSACTION
We have agreed to sell our interest in the Gross Rosebel project in Suriname to
our partner in the project, Cambior Inc., in accordance with the following
terms: Golden Star will sell its 50% interest in Gross Rosebel in Suriname to
Cambior for a total purchase consideration of $8.0 million in cash plus a price
participation royalty on the first seven million ounces of future gold
production from the project. In exchange for the Gross Rosebel property, Golden
Star will receive $5.0 million cash from Cambior on closing (of which $3.0
million was received in January 2002) and three deferred payments of $1.0
million each no later than the second, third, and fourth anniversaries of the
closing. Once commercial production begins, Cambior will also pay a price
participation royalty, equal to the excess of the average market price for gold
for each quarter above a hurdle gold price multiplied by 10% of the gold
production for the quarter, less the 2% royalty payable in Suriname. For soft
ores, the hurdle gold price will be $300 per ounce.
11
For hard ores, the hurdle gold price will be $350 per ounce. We anticipate
closing the Gross Rosebel sale in May 2002. As a part of this transaction, we
will also transfer to Cambior our interest in the Headley's Reef and Thunder
Mountain properties, contiguous to the Gross Rosebel property, and our 30%
interest in the Omai Gold Mine in Guyana. Cambior will concurrently transfer to
Golden Star its 50% interests in the Yaou and Dorlin properties and its 100%
interest in the Bois Canon property (all in French Guiana).
11. INCOME TAXES
No provision has been recorded for income taxes in the current period because
there are sufficient tax losses from prior periods to fully offset the current
period's liability.
12. STOCK BASED COMPENSATION
We apply the intrinsic value-based method of accounting for stock-based
compensation awards granted to employees and non-employees directors.
Accordingly no compensation cost has been recognized in the consolidated
statements of operations for common share options granted. Had compensation
costs been determined, based on the fair values at the dates of the grants for
those options vested in the period, our net income and earnings per share would
have been reduced to the amounts shown below:
For the Three
Months Ended
March 31, 2002
--------------
Net income As reported $1,454
Pro forma $1,235
Basic earnings per share As reported $ 0.02
Pro forma $ 0.02
Diluted earnings per share As reported $ 0.02
Pro forma $ 0.02
The fair value of options vested during the first quarter of 2002 was estimated
as at the grant date using the Black-Scholes option-pricing model with the
following weighted average assumptions:
For the Three Months
Ended March 31, 2002
--------------------
GSR Plan
--------------------
Expected volatility 81.9%
Risk-free interest rate 4.47%
Expected lives 5 years
Dividend yield 0%
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
accompanying consolidated financial statements and related notes. The financial
statements have been prepared in accordance with Cdn GAAP. For the US GAAP
reconciliation, see Note 8 to the attached consolidated financial statements, as
well as "Results of Operations" below.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2001
OPERATIONS
Net income for the first quarter of 2002 totaled $1.5 million, versus a net loss
of $1.9 million in the first quarter of 2001. Higher mill through-put, improved
gold recoveries, lower unit costs and higher gold prices all contributed to the
improvement over the first quarter of 2001. Gold sales totaled 31,645 ounces in
the first quarter of 2002, compared with sales of 17,812 ounces in the same
quarter last year.
The Bogoso mill processed oxide ores from our Prestea surface concession
throughout the quarter, achieving a 70% gold recovery versus a recovery of only
47% in the first quarter of 2001 when significant quantities of Bogoso
transition ore were processed. Cash costs in the first quarter of 2002 were $174
per ounce compared to $275 per ounce in the same quarter last year, while total
cash costs, including all royalties, averaged $194 per ounce for the first
quarter, down from $297 per ounce in the first quarter in 2001. As with the
recovery, the change in ore types, from transition ore in 2001 to oxide ore in
2002 was responsible for the lower cost. The average realized gold price rose to
$290 per ounce, up from $262 per ounces in the first quarter of 2001. Mill feed
grade averaged 2.61 grams per tonne during the quarter, up slightly from 2.59
grams per tonne in the first quarter of 2001. Lower depreciation in the current
quarter versus a year ago reflects the reserve base for the Prestea surface
concession, which allows amortization of costs over a larger number of ounces.
Additionally, many of the assets associated with the Bogoso operation were fully
amortized over the two-year life of the Bogoso oxide mining operation, which
ended in late 2001.
SIGNIFICANT EVENTS DURING THE FIRST QUARTER OF 2002
GUIANA SHIELD TRANSACTION - Under the terms of the Guiana Shield Transaction
(the "Transaction") agreement Cambior was required to advance $3.0 million to us
as an initial payment against the eventual closing of the Transaction. This
payment was triggered because the Transaction could not be consummated prior to
the end of 2001. The agreement defined the payment as an advance and, as such,
we have recorded a $3.0 million liability for the cash received. Once the
Transaction is completed, the liability will be treated as revenue from the sale
of the property. In April 2002, Cambior was successful in obtaining approvals
from the government of Suriname required to proceed with the Transaction and it
is now expected that the Transaction will be completed by the middle of the
second quarter of 2002. At the completion of the transaction, Cambior will make
a further cash payment of $2.0 million and a receivable will be recorded for the
$3.0 million of future payments to be received from Cambior under the
Transaction.
PRIVATE PLACEMENT - A private placement was undertaken in January of 2002, which
resulted in the sale of 11,516,000 units, each unit consisting of one common
share and one half warrant, for net proceeds of $5.2 million. Under the terms of
the placement agreement, $2.6 million of the cash was temporarily restricted in
an escrow account pending the occurrence of certain events. In late April 2002,
following the Registration Statement on Form S-3 being declared effective, the
escrowed funds were transferred to Golden Star. The $2.6 million in escrow has
been recorded as restricted cash at March 31, 2002.
FINAL INSTALLMENT ON THE PRESTEA PURCHASE AGREEMENT - In January our 90% owned
subsidiary, BGL obtained a $0.8 million loan from a bank in Ghana and used the
proceeds to make a payment to PGR for the purchase of an option related to the
Prestea property. Subsequent to the payment, a new agreement was entered into
with PGR and others to acquire a 45% managing interest in a joint venture on the
Prestea underground mining lease. BGL's new
13
joint venture interest in the Prestea underground mine is in addition to BGL's
100% interest in the Prestea surface lease. See the Subsequent Events section
below for additional discussion of this transaction.
FINAL PAYMENT TO THE SELLERS OF BGL - A $2.9 million gold-price related payment
was made to the Sellers of Bogoso in January 2002. This liability was
established under the terms of the original September 1999 BGL purchase
agreement and the amount of the payment was determined by a formula which was
based on the average price of gold over the two-year period following our
purchase of the interest in September 1999.
LIQUIDITY AND CAPITAL RESOURCES
FIRST QUARTER OF 2002
Cash flow from operations was nil during the first quarter of 2002, compared to
cash provided by operations of $0.1 million in the first quarter of 2001. A
total of $2.2 million of cash was consumed in the first quarter of 2002 in
reducing current payables. Payables had increased in late 2001 when Bogoso
transition ores were being processed, which depressed gold recoveries and
reduced gold revenues.
Investing activities included receipt of a $3.0 million advance payment from
Cambior against the ultimate settlement of the Guiana Shield Transaction now
expected to close in the second quarter of 2002. $1.4 million of cash was used
to fund new capital projects, mostly associated with the acquisition and
development of Prestea.
A private placement in January 2002 provided a net $5.2 million of cash of which
$2.6 million was temporarily restricted under the terms of the private
placement. Exercises of stock options yielded an additional $0.2 million during
the quarter. Liquidation of several liabilities, including the amount due the
Sellers of BGL, consumed $3.9 million. A second bank loan in Ghana to BGL
brought in $0.8 million.
At March 31, 2002, we had cash and short-term investments of $2.4 million, up
from $0.4 million at March 31, 2001 and up from $0.5 million at the end of 2001.
Working capital was $2.5 million at March 31, 2002, up from a deficit in working
capital of $4.6 million at the end of 2001. Cash from the private placement and
reductions in accounts payable were mostly responsible for the marked
improvement in working capital.
OUTLOOK
The three main objectives for 2002 are: (i) orderly and efficient development of
the Prestea surface lease reserves allowing an adequate flow of oxide and other
non-refractory ores to the Bogoso mill; (ii) successful acquisition of the Wassa
property; and (iii) development of the Wassa property. We are continuing to work
on the documentation and structure for the Wassa acquisition and expect to close
this in the second quarter of 2002. In addition, we plan to continue to evaluate
acquisition and growth opportunities in Ghana and elsewhere in West Africa. We
will also strive to maximize the value of our South American assets via joint
venture financed exploration activities where possible. Adequate access to
capital is critical to many of our objectives in 2002. While the $5.6 million
private placement was completed in January 2002 and a $3.0 million down payment
on the Guiana Shield Transaction was received in early 2002 significant
additional capital will be required during the remainder of 2002. Given the
recent improvements in gold prices and increased interest in gold investing in
recent months, we are encouraged that capital may be more readily available in
2002 than in the past few years. However, we cannot assure you that we will be
successful in raising the amounts needed to execute all of our planned
activities during 2002. We will continue to explore various possibilities for
raising capital, which might include, among other things, the further
establishment of joint ventures, the sale of property interests, debt financing
and the issuance of additional equity.
We have budgeted consolidated revenue of approximately $37 million in 2002 and
total operating and general and administrative expenditures of approximately $32
million. Consolidated net exploration and development expenditures, after
recoveries from joint venture partners, are budgeted at approximately $1.4
million, most of which will be spent in Ghana. We have budgeted production from
the Bogoso/Prestea Mine at 134,000 ounces at an average cash cost of $175 per
ounce during 2002. Meanwhile our activities in the Guiana Shield will be
primarily care and maintenance, although we will continue to seek joint venture
funded opportunities in Suriname and Guyana. There is minimal budgeted
exploration spending at Guyanor in 2002, although we are actively seeking joint
venture partners that could fund additional work at Paul Isnard or at our other
properties. As more fully
14
disclosed under Risk Factors in the Company's 2001 Form 10-K, numerous factors
could cause our budget estimates to be wrong or could lead our management to
make changes in our plans and budgets.
SUBSEQUENT EVENTS
NEW PGR AGREEMENT
In March 2002, BGL reached an agreement with PGR, the Ghana Mineworkers Union
and the Government of Ghana and related parties to form a joint venture, to be
managed by BGL, for the assessment and future operations of the Prestea
underground mine. BGL will contribute $2.4 million to become a 45% joint venture
partner, with PGR also holding 45% and the Government of Ghana holding a 10%
carried interest. Under the agreement, the funds provided to PGR will be used to
pay arrears of salary and termination benefits to the Prestea underground
miners. Payments totaling $1.9 million were made to the underground miners in
April 2002 for arrears of salary and termination benefits under the agreement.
It is the intent of the joint venture to place the underground operation on care
and maintenance pending completion of an assessment, which will include a
comprehensive review of the safety and economic viability of the mine, as well
as a review of past environmental practices. BGL's new joint venture interest in
the Prestea underground mine is in addition to BGL's 100% interest in the
Prestea surface lease.
GUIANA SHIELD TRANSACTION
We have agreed to sell our interest in the Gross Rosebel project in Suriname to
our partner in the project, Cambior Inc., in accordance with the following
terms: Golden Star will sell its 50% interest in Gross Rosebel in Suriname to
Cambior for a total purchase consideration of $8.0 million in cash plus a price
participation royalty on the first seven million ounces of future gold
production from the project. In exchange for the Gross Rosebel property, Golden
Star will receive $5.0 million cash from Cambior on closing (of which $3.0
million was received in January 2002) and three deferred payments of $1.0
million each no later than the second, third, and fourth anniversaries of the
closing. Once commercial production begins, Cambior will also pay a price
participation royalty, equal to the excess of the average market price for gold
for each quarter above a hurdle gold price multiplied by 10% of the gold
production for the quarter, less the 2% royalty payable in Suriname. For soft
ores, the hurdle gold price will be $300 per ounce. For hard ores, the hurdle
gold price will be $350 per ounce. We anticipate closing the Gross Rosebel sale
in May 2002. As a part of this transaction, we will also transfer to Cambior our
interest in the Headley's Reef and Thunder Mountain properties, contiguous to
the Gross Rosebel property, and our 30% interest in the Omai Gold Mine in
Guyana. Cambior will concurrently transfer to Golden Star its 50% interests in
the Yaou and Dorlin properties and its 100% interest in the Bois Canon property
(all in French Guiana).
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk includes, but is not limited to, the following
risks: changes in interest rates on our investment portfolio, changes in foreign
currency exchange rates and commodity price fluctuations.
INTEREST RATE RISK
We may invest our cash in debt instruments of the United States Government and
its agencies, and in high-quality corporate issuers. 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 our future investment income may fall short of expectations due to
changes in interest rates or we may suffer losses in principal if forced to sell
securities which have declined in market value due to changes in interest rates.
Given the relatively low amounts of cash on hand in recent years, the impact on
revenues from changes in interest rates would be immaterial. We may in the
future actively manage our exposure to interest rate risk.
15
FOREIGN CURRENCY EXCHANGE RATE RISK
The price of gold is denominated in United States dollars and the majority of
our revenues and expenses are denominated in United States dollars. As a result
of the limited exposure, we believe that we are not exposed to a material risk
as a result of any changes in foreign currency exchange rate changes, so we
currently do not utilize market risk sensitive instruments to manage our
exposure.
COMMODITY PRICE RISK
We are engaged in gold mining and related activities, including exploration,
extraction, processing and reclamation. Gold bullion is our primary product and,
as a result, changes in the price of gold could significantly affect results of
operations and cash flows. According to current estimates, a $25 change in the
price of gold could result in an annual $2.9 million effect on the results of
operations and cash flows. We currently do not have a program for hedging, or to
otherwise manage exposure to commodity price risk. We may in the future manage
our exposure through hedging programs.
16
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 our business. No material legal
proceedings involving the company are pending, or, to the knowledge of the
Company, contemplated, by any governmental authority. The Company is not aware
of any material events of noncompliance with environmental laws and regulations.
The exact nature of environmental control problems, if any, which the Company
may encounter in the future, cannot be predicted, primarily because of the
changing character of environmental regulations that may be enacted with foreign
jurisdictions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS, REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K during the quarter ended March 31, 2002
On March 6, 2002, the Company filed a Form 8-K with the Securities and Exchange
Commission, detailing the following Other Events: (i) the progress on the
acquisition of additional interests in the Bogoso mine and adjacent properties;
(ii) the status of the acquisition of the Wassa property; (iii) the sale of our
interest in the Gross Rosebel project, as part of the Guiana Shield Transaction;
(iv) the completion of the private placement in January 2002; (v) the impairment
of our investment in the Paul Isnard property; and (vi) our estimates of capital
requirements for 2002 and 2003.
17
SIGNATURES
Pursuant to the requirements of the Securities 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 CEO
By: /s/ Allan J. Marter
------------------------------------------
Allan J. Marter
Vice-President and Chief Financial Officer
May 2, 2002
18