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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
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[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission file number 0-21708
GOLDEN STAR RESOURCES LTD.
(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 80127-4247
(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 30, 2001: 38,088,988
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GOLDEN STAR RESOURCES LTD.
INDEX
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..............................................11
Item 3. Quantitative and Qualitative Disclosures about Market Risk................................15
Part II Other Information
Item 1. Legal Proceedings..........................................................................16
Item 6. Exhibits and Reports on Form 8-K...........................................................16
Signatures.......................................................................................................17
SPECIAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains "forward-looking statements" within the meaning of the
U.S. securities laws. Forward-looking statements include statements concerning
plans, objectives, goals, strategies, future events, capital expenditure,
exploration efforts, financial needs, and other information that is not
historical information. Golden Star Resources Ltd. (the "Company")
forward-looking statements are based on the Company's current expectations and
various assumptions as of the date such statements are made. The Company cannot
give assurance that such statements will prove to be correct.
These forward-looking statements include statements regarding: the impact of our
shift in business strategy; the impact that the Bogoso mine may have on our
future liquidity, cash flows, financial requirements, operating results and
capital resources; the operational and financial performance of the Bogoso mine;
targets for gold production; cash operating costs and expenses; increases or
decreases in production from our mining operations; schedules for completion of
feasibility studies; potential increases in reserves and production; the timing
and scope of future drilling and other exploration activities; expectations
regarding receipt of permits and commencement of mining or production;
anticipated recovery rates; and potential acquisitions or increases in property
interests in the region of the Bogoso mine.
Factors that could cause our actual results to differ materially from these
statements include changes in gold prices, unanticipated grade changes,
unanticipated changes and recovery problems, mining and milling costs, geology,
metallurgy, processing, access, transportation of supplies, water availability,
results of current and future exploration activities, results of pending and
future feasibility studies, changes in project parameters as plans continue to
be refined, political, economic and operational risks of foreign operations,
joint venture relationships, availability of materials and equipment, the timing
of receipt of governmental approvals for new permits or renewal of permits,
capitalization and commercial viability, the failure of plant, equipment or
processes to operate in accordance with specifications or expectations,
accidents, labor disputes, delays in start-up dates, environmental costs and
risks, local and community impacts and issues, and general domestic and
international economic and political conditions.
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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,
2001 2000
--------- ------------
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 449 $ 991
Accounts receivable 631 976
Inventories (Note 3) 10,843 10,805
Other assets 133 188
--------- ---------
Total Current Assets 12,056 12,960
RESTRICTED CASH (Note 8) 4,801 4,147
NOTE RECEIVABLE 1,940 1,918
ACQUISITION, DEFERRED EXPLORATION AND DEVELOPMENT COSTS (Note 4) 25,192 24,492
INVESTMENT IN OMAI GOLD MINES LIMITED 608 625
MINING PROPERTIES (Net of accumulated depreciation of $9,498 and $9,111, respectively) 1,544 1,922
FIXED ASSETS (Net of accumulated depreciation of $3,890 and $3,508, respectively) 3,101 2,937
OTHER ASSETS 442 468
--------- ---------
Total Assets $ 49,684 $ 49,469
========= =========
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 3,485 $ 2,565
Accrued liabilities 2,038 1,727
Accrued wages and payroll taxes 240 238
Current portion of amount payable to financial institutions 4,246 3,978
--------- ---------
Total Current Liabilities 10,009 8,508
LONG-TERM DEBT 1,347 1,378
AMOUNT PAYABLE TO FINANCIAL INSTITUTIONS 250 250
CONVERTIBLE DEBENTURES (Note 5) 3,231 3,179
ENVIRONMENTAL REHABILITATION LIABILITY (Note 8) 5,566 5,651
OTHER LIABILITIES 19 19
--------- ---------
Total Liabilities 20,422 18,985
--------- ---------
MINORITY INTEREST 4,073 4,444
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 6) 161,922 160,922
Common shares, without par value, unlimited shares authorized. Shares issued
and outstanding: March 31, 2001 - 38,088,988; December 31, 2000 - 37,588,988
Equity component of convertible debentures (Note 5) 1,045 1,045
DEFICIT (137,778) (135,927)
--------- ---------
Total Shareholders' Equity 25,189 26,040
--------- ---------
Total Liabilities and Shareholders' Equity $ 49,684 $ 49,469
========= =========
The accompanying notes are an integral part of these
consolidated financial statements
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GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of United States Dollars except
share amounts)
(Unaudited)
-------------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
March 31, 2001 March 31, 2000
-------------- ------------------
REVENUE
Gold sales $ 4,678 $ 8,693
Interest and other 157 298
-------------- --------------
4,835 8,991
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COSTS AND EXPENSES
Mining operations 4,979 5,518
Depreciation, depletion and amortization 822 2,164
Exploration expense 60 360
General and administrative 949 550
(Gain)/Loss on disposal of assets 6 (33)
Interest expense 229 257
Foreign exchange loss 15 3
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7,060 8,819
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INCOME/(LOSS) BEFORE THE UNDERNOTED (2,225) 172
Omai preferred share redemption premium 14 36
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Income/(Loss) before minority interest (2,211) 208
Minority interest 360 (278)
-------------- --------------
NET LOSS $ (1,851) $ (70)
============== ==============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.05) $ (0.00)
============== ==============
Weighted Average Shares Outstanding
(in millions of shares) 38.0 37.4
============== ==============
The accompanying notes are an integral part of these
consolidated financial statements
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GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of United States Dollars)
(Unaudited)
-------------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
March 31, 2001 March 31, 2000
------------------ ------------------
OPERATING ACTIVITIES:
NET LOSS $ (1,851) $ (70)
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:
Depreciation, depletion and amortization 824 2,164
Accretion of convertible debentures 52 52
Premium on Omai preferred share redemption (14) (36)
Loss/(Gain) on disposal of assets 6 (33)
Minority interest (360) 278
Accrued Interest on notes receivable (33) --
Reclamation expenditures (85) (172)
Changes in non-cash operating working capital
Accounts receivable 345 683
Inventories (38) (803)
Accounts payable and accrued liabilities 1,233 (405)
Other current assets 55 (3)
-------------- --------------
Total changes in non-cash operating working capital 1,595 (528)
-------------- --------------
Net Cash Provided by Operating Activities 134 1,655
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INVESTING ACTIVITIES:
Expenditures on mineral properties, net of joint venture recoveries (700) (1,466)
Expenditures on mining property (9) (38)
Equipment purchases (608) (841)
Increase in restricted cash (654) --
Omai preferred share redemption 31 66
Other 27 39
-------------- --------------
Net Cash Used in Investing Activities (1,913) (2,240)
-------------- --------------
FINANCING ACTIVITIES:
Repayment of long-term debt (31) (66)
Increase in current portion of amounts payable to financial 268 --
institutions
Issuance of share capital, net of issue costs 1,000 131
Other -- (1)
-------------- --------------
Net Cash Provided by Financing Activities 1,237 64
-------------- --------------
Decrease in cash and short-term investments (542) (521)
Cash and short-term investments, beginning of period 991 2,905
-------------- --------------
Cash and short-term investments, end of period $ 449 $ 2,384
============== ==============
The accompanying notes are an integral part of these
consolidated financial statements
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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, 2000, on file with the Securities and Exchange Commission and
with the Canadian securities commissions (hereinafter referred to as "the
Company's 2000 10-K"). All amounts are in United States Dollars unless otherwise
stated.
The unaudited financial statements for the three months ended March 31, 2001 and
2000, 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 AND GOING CONCERN
The Company's ability to continue as a going concern after 2001 is dependent on
its ability to obtain funding for acquisitions and development projects during
2001. Mining at the Company's only producing mine (the Bogoso Mine in Ghana) is
expected to be completed by mid-2001. While low-grade stock pile material will
allow the Bogoso mill to continue operating into early 2002, additional ore
reserves will be required by the beginning of 2002 to avoid mill closure. The
Company is currently involved in advanced negotiations to acquire the Prestea
property, contiguous with the Bogoso Mine, that contains mineralized material
that, if acquired, would be expected to provide mill feed for several years into
the future. Additional funding would be required for this acquisition and, while
the Company is currently engaged in financing negotiations, there is no
assurance such funding can be obtained. Historically low gold prices continue to
adversely affect the ability to obtain financing and therefore the Company's
abilities to proceed with its current operational and development plans.
The Company may experience difficulties in satisfying its obligations under its
convertible debentures because the Bogoso Mine life is expected to be shorter
than the term of the debentures. Currently, the Company anticipates production
from the Bogoso Mine to continue until early 2002, while the term of the
debentures is five years, maturing in August 2004. If the Company is unable to
extend the mine life beyond its anticipated usefulness or is not successful in
generating sufficient free cash flow from other operations or sources, the
ability to repay amounts outstanding under the debentures would be materially
and adversely affected.
The Company and Anvil, the minority interest holder in BGL, together were
scheduled to make the interim payment to the Sellers of BGL on September 30,
2000 in the amount of $2.8 million. On November 9, 2000 the Company paid the
Sellers $1.4 million of the $2.8 million due, and reached agreement with the
Sellers that the balance, plus interest at 10% per annum, was to be paid by
December 22, 2000. The Company has been in discussions with representatives of
the Sellers, but the remaining balance and accrued interest is still unpaid.
The Company's shares were de-listed from the American Stock Exchange (Amex) on
January 26, 2001. Although the Company has not experienced any material direct
impact on its financial position, results of operations and liquidity as a
result of the de-listing, the Company may, in the longer term, have more
difficulty raising financing in the U.S. market.
De-listing from the Amex has triggered penalties on 1.5 million of outstanding
warrants. The penalties include cash payments to the warrant holders equal to 3%
per month of the aggregate value of the shares underlying the warrants, which
would cost approximately $19,000 per month. The Company is now in financing
discussions with the warrant holders and will propose alternatives to resolve
the penalty situation and, as a result, the warrant holders have, in the
interim, agreed to defer any penalty payments until the end of June 2001. If the
Company is required to pay this penalty for more than six months, the warrant
agreement would then require repurchase of the warrants or, if the warrant
holders elect to exercise the warrants, to repurchase the warrant holder's
common shares at a premium over the fair market value of the common shares.
Payment of the penalties and repurchase of the warrants or shares would
adversely impact the Company's financial condition, results of operations and
liquidity. See note 10 "SUBSEQUENT EVENTS" for additional discussion of
delisting penalties.
The Company is exploring various transactions which would enable it to have
sufficient capital to continue its operations. The transactions being considered
include mergers with other companies, the issuance of new equity, establishment
of additional joint ventures and the sale of property interests. Whether and to
what extent alternative
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financing options are completed by the Company or its subsidiaries will depend
on a number of factors including, among others, the successful acquisition of
additional properties or projects, the price of gold and management's assessment
of the capital markets. Although there can be no assurance that the Company will
be successful in these actions, management believes that they will be able to
conclude property acquisitions and to secure the necessary financing to enable
the Company to continue as a going concern. These financial statements do not
reflect going concern adjustments to the carrying value of assets and
liabilities. If the going concern assumption were not appropriate, such
adjustments could be material.
(2) SUPPLEMENTAL CASH FLOW INFORMATION
March 31, 2001 March 31, 2000
-------------- --------------
Depreciation charged to projects $ 1 $ 27
Shares issued upon conversion of -- $ 214
convertible debentures
Conversion of convertible debentures -- $ (214)
(3) INVENTORIES
March 31, 2001 December 31, 2000
-------------- -----------------
Broken Ore $ 3,113 $ 2,736
In-process 2,165 2,361
Materials and Supplies 5,565 5,708
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$10,843 $10,805
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(4) ACQUISITION, DEFERRED EXPLORATION AND DEVELOPMENT COSTS
Acquisition, Acquisition,
Deferred Deferred
Exploration Exploration
and and
Development Capitalized Capitalized Joint Property Development
Costs as at Exploration Acquisition Venture Abandonments Costs as at
Dec. 31, 2000 Expenditures Expenditures Recoveries Write-downs March 31, 2001
------------- ------------ ------------ ---------- ------------ --------------
SURINAME
Gross Rosebel $ 15,818 $ 166 $ -- $ (90) $ -- $ 15,894
-------- ----- ------- ------ ------ --------
Sub-total 15,818 166 -- (90) -- 15,894
-------- ----- ------- ------ ------ --------
FRENCH GUIANA
(GUYANOR RESSOURCES S.A.)
Paul Isnard 5,827 157 -- -- -- 5,984
-------- ----- ------- ------ ------ --------
Sub-total 5,827 157 -- -- -- 5,984
-------- ----- ------- ------ ------ --------
AFRICA
(BOGOSO GOLD LIMITED)
Riyadh 239 16 -- -- -- 255
Bogoso Sulfide 2,608 451 -- -- -- 3,059
-------- ----- ------- ------ ------ --------
Sub-total 2,847 467 -- -- -- 3,314
-------- ----- ------- ------ ------ --------
TOTAL $ 24,492 $ 790 $ -- $ (90) $ -- $ 25,192
======== ===== ======= ====== ====== ========
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.
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(5) CONVERTIBLE DEBENTURES
Liability Equity
Component Component
--------- ---------
Balance at December 31, 2000 $3,179 $1,045
Conversion to shares -- --
Accretion 52 --
------ ------
Balance at March 31, 2001 $3,231 $1,045
====== ======
On August 24, 1999, the Company issued the principal amount of $4,155,000 in
subordinated convertible debentures to raise financing for the acquisition of
Bogoso Gold Limited (BGL). The debentures mature on August 24, 2004 and bear
interest at the rate of 7.5% per annum from the date of issue, payable
semi-annually on February 15 and August 15, to the debenture-holders as of
February 1 and August 1, respectively, commencing on February 15, 2000.
(6) CHANGES TO SHARE CAPITAL
During the quarter ended March 31, 2001, the Company issued 500,000 shares at
$2.00 per share in a private placement raising $1.0 million.
(7) 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 US GAAP, exploration costs, including property acquisition costs
for exploration projects and general and administrative costs related
to projects, are charged to expense as incurred. As such, 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.
(b) 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.
(c) 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 Cdn GAAP, no compensation
expense is required to be recorded for such awards.
(d) 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.
(e) The gains on subsidiaries' issuance of common shares recorded under Cdn
GAAP in respect of the Guyanor public offering and the PARC private
placement are not appropriate under US GAAP.
(f) 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
Cdn GAAP due to the write-off of certain deferred exploration costs
described in (a) above.
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(g) Under US GAAP, items such as foreign currency translation adjustments
are required to be shown separately in derivation of Comprehensive
Income.
(h) 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.
(i) For periods prior to May 15, 1992 the Company's reporting currency was
the Canadian dollar. Financial statements for the periods prior to May
15, 1992 were translated onto United States dollars using a translation
of convenience. US GAAP requires translation in accordance with the
current rate method.
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:
For the three months ended
March 31, 2001 March 31, 2000
-------------- --------------
Net loss under Canadian GAAP $ (1,851) $ (70)
Net affect of expensing previously capitalized acquisition
costs for exploration projects (a) -- (11,302)
Net effect of the deferred exploration expenditures on loss
for the period (a) (626) (1,394)
Effect of capitalized acquisition costs net of related
depletion (h) 100 234
Other (b) (d) (g) (h) 69 67
-------------- --------------
Loss under US GAAP before minority interest adjustment (2,308) (12,465)
Minority interest adjustment (a) (h) 110 366
-------------- --------------
Net loss under US GAAP (2,198) (12,099)
Other comprehensive income foreign currency translation
adjustment (g) (15) 5
-------------- --------------
Comprehensive income $ (2,213) $ (12,094)
============== ==============
Basic and diluted net loss per share under US GAAP $ (0.06) $ (0.32)
============== ==============
The effect of the differences in accounting under Cdn GAAP and US GAAP on the
balance sheets and statements of cash flows are as follows:
BALANCE SHEET
As of March 31, 2001 As of December 31, 2000
------------------------- -------------------------
US GAAP Cdn GAAP US GAAP Cdn GAAP
--------- --------- --------- ----------
Cash $ 449 $ 449 $ 991 $ 991
Other current assets 11,607 11,607 11,969 11,969
Restricted cash 4,801 4,801 4,147 4,147
Acquisition, deferred exploration and
development (a) -- 25,192 -- 24,492
Investment in OGML (b) -- 608 -- 625
Mining properties (h) 1,047 1,544 1,371 1,922
Other assets 5,687 5,483 5,542 5,323
--------- --------- --------- ----------
Total Assets $ 23,591 $ 49,684 $ 24,020 $ 49,469
========= ========= ========= ==========
Liabilities (d) $ 21,067 $ 20,422 $ 19,681 $ 18,985
Minority interest (a) (h) 4,215 4,073 4,817 4,444
Share capital, net of stock option loans (f) 159,519 162,967 158,519 161,967
Cumulative translation adjustments (i) 1,595 -- 1,595 --
Accumulated comprehensive income (g) (344) -- (329) --
Deficit (a)(j)(e) (162,461) (137,778) (160,263) (135,927)
--------- --------- --------- ----------
Total Liabilities and Shareholders'
Equity $ 23,591 $ 49,684 $ 24,020 $ 49,469
========= ========= ========= ==========
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STATEMENTS OF CASH FLOWS
NET CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES INVESTING ACTIVITIES FINANCING ACTIVITIES
-------------------- -------------------- --------------------
Cdn GAAP U.S. GAAP Cdn GAAP U.S. GAAP Cdn GAAP U.S. GAAP
-------- --------- -------- --------- -------- ---------
For the three months ended
March 31, 2001 $ 134 $ (576) $(1,913) $ (1,203) $ 1,237 $ 1,237
For the three months ended
March 31, 2000 $1,655 $ 302 $(2,240) $ (887) $ 64 $ 64
Operations by geographic area under US GAAP:
OPERATING REVENUES NET LOSS IDENTIFIABLE ASSETS
------------------ -------- -------------------
For the three months ended
March 31, 2001
South America $ 11 $ (558) $ 360
Africa 4,758 (966) 20,171
Corporate 66 (674) 3,060
------- -------- -------
$ 4,835 $ (2,198) $23,591
======= ======== =======
For the three months ended March
31, 2000
South America $ 5 $(11,874) $ 610
Africa 8,946 17 21,818
Corporate 40 (242) 10,567
------- -------- -------
$ 8,991 $(12,099) $32,995
======= ======== =======
(8) COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL REGULATIONS
The Company is not aware of any events of material non-compliance in its
operations with environmental laws and regulations which could have a material
adverse effect on the Company's operations or financial condition. The exact
nature of environmental control problems, if any, which the Company may
encounter in the future cannot be predicted, primarily because of the changing
character of environmental requirements that may be enacted within foreign
jurisdictions. The environmental rehabilitation liability for reclamation and
closure costs at the Bogoso Mine at March 31, 2001 was $5.6 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 to be used for the ongoing, final reclamation and closure costs relating to
the Bogoso mine site. The withdrawal of these funds must be agreed to by the
Sellers of BGL, who are ultimately responsible for the reclamation in the event
of non-performance by Golden Star and Anvil. At March 31, 2001 there was $4.1
million of cash in this fund. In addition there was $0.7 million restricted
under agreement with Rio Tinto to be used to fund exploration work on the Paul
Isnard project in French Guiana during 2001. (See Item 2. "Guyanor Ressources
S.A." for additional discussion of the 2001 Paul Isnard funding arrangement.)
PAYMENTS TO THE SELLERS OF BOGOSO
The Company and Anvil, the minority interest holder in BGL, together were
scheduled to make the interim payment to the Sellers of BGL on September 30,
2000 in the amount of $2.8 million. On November 9, 2000 the Company paid the
Sellers $1.4 million of the $2.8 million due, and reached agreement with the
Sellers that the balance, plus interest at 10% per annum, was to be paid by
December 22, 2000. The Company has been in discussions with representatives of
the Sellers, but the remaining balance and accrued interest is still unpaid.
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(9) RELATED PARTIES
During 1999, the Company, in conjunction with Anvil Mining NL, acquired BGL. The
current President and CEO of the Company, Peter J. Bradford, is also a Director
of Anvil Mining NL and this relationship constitutes a related party. Based on
the heads of agreement with Anvil to effect the BGL acquisition, the Company
provided Anvil with a promissory note for their share of the purchase price and
also a note for their share of the acquisition costs. On April 4, 2001 the
Company announced that it had entered into an agreement to acquire Anvil's 20%
equity interest in BGL in return for the issuance of 3,000,000 common shares of
Golden Star.
(10) SUBSEQUENT EVENTS
On May 18, 2001, the Company signed an agreement with the holders of warrants to
purchase 1,500,000 common shares, whereby (i) the warrant holders agreed to
exercise their warrants (at $0.425/share for total proceeds to the Company of
$637,500); (ii) the Company agreed to pay the warrant holders the penalties
accrued to date, arising from the de-listing of the Company's shares from the
Amex (totaling $83,000); and (iii) the warrant holders agreed to release and
discharge the Company from any past, present or future liabilities and
obligations arising from the de-listing from the Amex.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, RESULTS OF
OPERATIONS AND RECENT DEVELOPMENTS
The following discussion should be read in conjunction with the accompanying
consolidated financial statements and related notes. The financial statements
have been prepared in accordance with Canadian generally accepted accounting
principles ("GAAP"). For US GAAP reconciliation see Note 7 to the attached
unaudited consolidated financial statements. All amounts are in United States
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
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2000
During the first quarter of 2001, the Company reported a net loss of $1.9
million or $0.05 per share as compared to a net loss of less than $0.1 million
or $0.00 per share for the first quarter of 2000. Lower gold prices and an
increase in unit costs, due to lower gold output, at the Company's Bogoso Mine
during the first quarter of 2001 were the major factors responsible for the
larger loss than in the same period of 2000.
Lower production levels and lower average gold prices in the first quarter ($262
realized per ounce in 2001 vs. $290 in 2000) combined to yield gold revenues of
$4.7 million, down from $8.7 million in the first quarter of 2000. Cash
operating costs dropped to $5.0 million from $5.5 million in the first quarter
of 2000.
Depreciation, depletion and amortization charges fell sharply to $0.8 million
the first quarter of 2001 from $2.2 million in the same period of 2000. Several
factors combined to yield the reduction, including lower gold production in the
first quarter of 2001, reserve increases identified in mid-2000 and a reduction
in the carrying value of the Bogoso Mine acquisition costs at December 31, 2000.
Administrative expenditures increased to $0.9 million during the first quarter
of 2001 as compared to $0.6 million during the first quarter of 2000. Severance
costs, timing of professional services and accrual of delisting penalties
account for the increase. Exploration expense for the first quarter dropped to
$0.1 million from $0.4 million in the first quarter of 2000 as a result of
closure of exploration offices and lower over-all exploration activity than a
year ago. Interest expense decreased slightly to $0.2 million during the first
quarter of 2001, from $0.3 million in the same period of 2000.
BOGOSO GOLD LIMITED
Gold output from the Bogoso Mine totaled 17,812 ounces in the first quarter of
2001, down from 29,923 ounces in the same period of 2000. Gold sales yielded
$4.7 million of revenues versus $8.7 million during the first quarter of 2000
and total cash costs were $5.0 million and $5.5 million respectively during the
first quarters of 2001 and 2000. Total cash cost per ounce averaged $274.73 in
the first quarter versus $191.77 in the same period of 2000.
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Lower production and sales revenues in the first quarter, as compared to the
same period of 2000, were related to the first quarter 2001 commissioning of new
mill circuits and mill modifications installed in the fourth quarter of 2000.
The mill modifications are designed to allow the processing of transition ores
which are expected to be a major source of mill feed during 2001. To process
transition ores, the mill was upgraded between August and December 2000 to add a
spiral gravity circuit (to produce a sulfide concentrate from the transition
ore) and a regrind and intensive cyanide leach circuit (CIIL) (to recover gold
from the transition ore concentrate). The initial phase of the new circuit
commissioning was completed by February. In March the mill returned to
processing oxide ores and gold output returned to more typical levels.
GUYANOR RESSOURCES S.A.
On January 10, 2001, the Company and Guyanor announced that a heads of agreement
had been concluded between Guyanor and Rio Tinto, with respect to the Paul
Isnard gold project in French Guiana. Under the terms of the agreement, Rio
Tinto can earn a participating interest of up to 70% in a joint venture relating
to the Paul Isnard property, by spending a total of $9.0 million on exploration
and development on the Paul Isnard property.
On January 17, 2001, Rio Tinto purchased by way of private placement 500,000
common shares of Golden Star at a price of $2.00 per common share, for total
proceeds of $1,000,000. The Company has committed to advance all $1.0 million of
the proceeds to Guyanor. Of the $1.0 million total, $0.75 million will be used
to fund a work program in 2001 on the Paul Isnard gold project and $250,000 will
be used to partially fund the cost of a re-organization of Guyanor, aimed at
reducing ongoing costs.
Exploration spending by Guyanor totaled $0.2 million in the first quarter of
2001, the same as in the first quarter of 2000. All of Guyanor project spending
in the first quarter was related to the Paul Isnard project carried out per
terms of the Rio Tinto funding arrangement.
SURINAME
Activities in Suriname focused on the Gross Rosebel gold project during the
first quarter of 2001. The Gross Rosebel project is held in a 50/50 joint
venture with Cambior. Total spending at the Gross Rosebel project, amounted to
$0.2 million in the first quarter off-set by joint venture recoveries of $0.1
million. This compares to Suriname project spending of $0.4 million and joint
venture recoveries of $0.2 million in the first quarter of 2000.
The Company's believes that the Gross Rosebel project could be profitably
developed in a low gold price environment by applying a low cost heap leach
processing approach. A portion of the 2001 budgeted expenditures are expected to
relate to a revised feasibility study, to be conducted by Cambior, for the lower
cost, smaller scale operation at the Gross Rosebel property.
At such time as the decision may be made to proceed with the development of
Gross Rosebel, the Company will evaluate various funding alternatives including
the issuance of debt or equity securities or the sale of other assets to fund
its share of the development costs.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company held cash and short-term investments of $0.4
million and working capital of $2.0 million. Respectively these figures were
down from $1.0 million and $4.5 million at December 31, 2000. Lower cash
balances and higher payables as compared to December 31, 2000 accounted for most
of the reduction in working capital. Operating activities generated $0.1 million
of cash in the first quarter versus $1.7 million for the same period of 2000.
Lower gold revenues were the major contributing factor to the decline.
Cash used in investing activities decreased to $1.9 million for the three months
ended March 31, 2001 as compared to $2.2 million for the three months ended
March 31, 2000. Lower spending on capitalized exploration and capital equipment
was mostly off set by the restriction of cash dedicated to the Paul Isnard
project.
Cash provided by financing activities amounted to $1.2 million in the first
quarter of 2001, of which the Rio Tinto private placement in January 2001
provided $1.0 million, compared with $0.1 million in financing activities for
the corresponding period in 2000.
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The Company had $4.1 million of cash at March 31, 2001 which is restricted, in
accordance with the BGL acquisition agreement, to be used for environmental
rehabilitation at the Bogoso Mine. Additionally $0.7 million of cash was
restricted under terms of the agreement with Rio Tinto, to fund 2001 work on the
Paul Isnard project.
Cash for corporate needs and to maintain the various exploration projects in
South America were met during the first quarter by distributions from the Bogoso
Mine in Ghana but in reduced amounts due to the lower gold output at the Bogoso
Mine. As a result, certain short-term liabilities of the Company have not been
paid, such as the amount due the Sellers of Bogoso (see foot note 1 to the
Company's Consolidated financial Statements). To reduce the cash requirements in
the first quarter, all directors and certain executive officers of the Company
have agreed to defer payment of their compensation until such time as the
Company's cash availability improves.
The Company's ability to continue as a going concern after 2001 is dependent on
its ability to obtain funding for acquisitions and development projects during
2001. Mining at the Company's only producing mine (the Bogoso Mine) is expected
to be completed by mid-2001. While low-grade stock pile material will allow the
Bogoso mill to continue operating into early 2002, additional ore reserves will
be required by the beginning of 2002 to avoid mill closure. The Company is
currently involved in advanced negotiations to acquire a property contiguous
with the Bogoso Mine in Ghana that contains zones of gold mineralization that,
if acquired, would be expected to provide mill feed for several years into the
future. Additional funding would be required for this acquisition and, while the
Company is currently engaged in financing negotiations, there is no assurance
such funding can be obtained. The current market for gold shares is weak and
equity capital is difficult to obtain.
Under the terms of the 1999 Bogoso purchase agreement between the Company, Anvil
and the Sellers, the Company and Anvil together were required to make payment to
the Sellers 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. On November 9, 2000 the Company paid to the Sellers $1.4 million of
the $2.8 million due, and reached agreement with the Sellers that the balance,
plus interest at 10% per annum, was to be paid by December 22, 2000. As of the
date of this report, the Company is in discussions with the representatives of
the Sellers, but the remaining balance and accrued interest has still not been
paid.
OUTLOOK
In years prior to 2000 the Company relied primarily on the capital markets to
fund its acquisitions, operations and exploration activities. With the
acquisition of BGL and its operating gold mine, effective September 30, 1999 the
Company gained a source of positive cash flow from mining operations which is
expected to continue through 2001, although the Company will still have limited
cash resources. The current market for gold shares continues to be weak and
equity capital is difficult to obtain; but, as the Company demonstrated in 1999
through its capital raising activities (from the issuance of shares and
convertible debentures), it is somewhat easier to raise funds to acquire
producing mining assets compared with the challenge of raising capital primarily
for exploration. The Company will continue to explore various possibilities for
raising capital, which might include, among other things, the establishment of
additional joint ventures, the sale of property interests, debt financing and
the issuance of additional equity.
Whether and to what extent alternative financing options are completed by the
Company or its subsidiaries will depend on a number of factors including, among
others, the successful acquisition of additional properties or projects, the
price of gold and management's assessment of the capital markets. The low gold
price adversely affects the Company's ability to obtain financing and therefore
its ability to acquire additional properties and to explore and develop its
current portfolio of properties. Assurance cannot be provided that additional
funding will be available in 2001. The Company may, in the future, be unable to
continue its exploration and development programs and fulfill its obligations
under its agreements with partners or retain permits and licenses. Although the
Company has been successful in the past in obtaining financing though
partnership arrangements and through sale of equity securities, there can be no
assurance in the future that adequate financing can be obtained on acceptable
terms. If the Company is unable to obtain such additional financing, the Company
may need to delay, or indefinitely postpone, further exploration and development
of its properties. As a result the Company may lose its interest in some
projects and may be obliged to sell some properties. The loss of any of its
interests in exploration and mining properties would give rise to write-offs,
under Canadian GAAP, of any capitalized costs and this would negatively impact
the results of operations. The impact would also be shown in reduction of the
assets in the balance sheet, which in turn may
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reduce the Company's ability to raise additional funds from equity or debt
sources.
The Company has budgeted production from the Bogoso Mine of 99,000 ounces during
2001. While mining operations at the Bogoso Mine are expected to end by
mid-2001, stockpiled ores should allow the mill to continue operations into
early 2002. Budget projections indicate that Bogoso Mine is expected to generate
sufficient cash flow during 2001 to meet its own needs as well as to distribute
minor amounts cash to other entities within the Company. The Company's planned
exploration and development spending during 2001 is primarily for completion of
the feasibility study on the Bogoso sulfide project, exploration work at the
Paul Isnard property in French Guiana, and the new feasibility study at Gross
Rosebel in Suriname.
OTHER MATTERS
DE-LISTING FROM THE AMERICA STOCK EXCHANGE AND TRADING ON THE OVER-THE-COUNTER
BULLETIN BOARD
The Company's shares were de-listed from the American Stock Exchange (Amex) on
January 26, 2001. The Amex noted the Company's stock price trading below one
dollar per share, continuing losses and total shareholder equity below the Amex
minimum requirements, on a U.S GAAP basis, as the reasons for their decision.
The Company now trades on the NASDAQ Over-the-Counter Bulletin Board under the
symbol GSRSF and continues to trade on the Toronto Stock Exchange under the
symbol GSC.
PENALTIES ARISING FROM THE AMEX DE-LISTING
Delisting from the Amex has triggered penalties on 1.5 million of outstanding
warrants. The warrants were issued with the agreement that if the Company's
stock was to be delisted from the Amex and not subsequently relisted on either
the New York Stock Exchange, the NASDAQ National Market or the NASDAQ Smallcap
Market, that cash payments and other remedies would be made available to the
holders of the warrants. At this time the Company's stock does not qualify for
listing on these three exchanges thus triggering the penalties.
The penalties include cash payments to the warrant holders equal to 3% per month
of the aggregate value of the shares underlying the warrants, being
approximately $19,000 per month. The warrant holders have agreed to defer any
penalty payments until the end of June 2001 and discussions are ongoing
regarding a potential financing and resolution of this matter.
If the Company is required to pay this penalty for more than six months, i.e.,
through July 2001, the warrant agreement would then require repurchase of the
warrants (or if the warrant holders elect to exercise the warrants, to
repurchase the warrant holder's common stocks at a premium over the fair market
value of the common shares). Payment of the penalties and repurchase of the
warrants (shares) would adversely impact the Company's financial condition,
results of operations and liquidity. See Subsequent Events section below for
additional information on the resolution of this matter.
PRESTEA PROPERTY ACQUISITION ACTIVITIES
Since the beginning of 2000, the Company has endeavored to acquire the property
located along the southern boundary of the existing Bogoso concession, known as
the "Prestea Property". The Prestea Property is known to contain at least three
prospective oxide gold deposits amenable to open-pit mining methods and CIL
processing. Negotiations with the owner of the Prestea Property during 2000 led
to the signing of a letter of intent on August 24, 2000, which would have
allowed the Company to proceed with the acquisition. On October 25, 2000 the
Government of Ghana advised its decision to abrogate the existing rights over
the mining lease on the Prestea Property. On November 1, 2000 the Government of
Ghana granted a new mining lease over the Prestea property to a company that was
mining the underground mine on the Prestea Property. The letter of intent was
subsequently allowed to expire.
In February 2001, following a change of government in Ghana and other
developments, the Company again entered into negotiations to obtain the Prestea
Property. The Company is also currently in discussions with a number of
financial institutions to obtain the funding required to proceed with the
acquisition and to provide for near-term working capital needs for the Company,
although there can be no assurance that the Prestea acquisition will be
successful and that funding can be obtained
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SUBSEQUENT EVENTS
ANVIL BUYOUT
On April 4, 2001, the Company announced that, subject to regulatory and
shareholder approval, it had entered into an agreement to acquire Anvil's 20%
equity interest in BGL in return for the issuance of 3,000,000 common shares of
Golden Star.
WARRANT EXERCISE
On May 14, 2001, the Company determined that the 10-day weighted average trading
price of the Company's common shares for the preceding ten trading days had
exceeded $0.62 per share. As a result, a total of 1,858,150 warrants and broker
warrants became exercisable, at a price of $0.52 per share, for 30 calendar
days. Warrant holders have until June 13, 2001 to exercise these warrants.
DELISTING PENALTIES
On May 18, 2001, the Company signed an agreement with the holders of warrants to
purchase 1,500,000 common shares, whereby (i) the warrant holders agreed to
exercise their warrants (at $0.425/share for total proceeds to the Company of
$637,500); (ii) the Company agreed to pay the warrant holders the penalties
accrued to date, arising from the de-listing of the Company's shares from the
Amex (totaling $83,000); and (iii) the warrant holders agreed to release and
discharge the Company from any past, present or future liabilities and
obligations arising from the de-listing from the Amex.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk includes, but is not limited to, the
following risks: changes in interest rates on the Company's investment
portfolio, changes in foreign currency exchanges rates and commodity price
fluctuations.
INTEREST RATE RISK
The Company may invest its cash in debt instruments of the United States
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.
Given the relatively low amounts of cash on hand in recent quarters, the impact
on the Company's revenues from changes in interest rates would be nil. 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 United States dollars and the majority of
the Company's revenues and expenses are denominated in United States 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 market 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
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significantly affect the Company's results of operations and cash flows.
According to current estimates, a $25 change in the price of gold could result
in a $2.5 million annual effect on the results of operations and cash flows. The
Company currently does not have a program for hedging, or otherwise manage its
exposure to commodity price risk. The Company may in the future manage its
exposure through hedging programs.
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
(b) Reports filed on Form 8-K during the quarter ended March 31, 2000
The Company filed with the Securities and Exchange Commission ("SEC") on January
16, 2001 a Form 8-K concerning the decision of the American Stock Exchange to
delist the Company's shares from trading on the Amex effective January 26, 2001.
The Company also filed a Form 8-K with the SEC on January 19, 2001 announcing
the closing of the agreement with Rio Tinto Mining and Exploration Limited
relating to the private placement of 500,000 common shares of Golden Star at a
price of $2.00 per share, and the earn-in joint venture agreement on the Paul
Isnard gold project whereby Rio Tinto may earn up to a 70% interest in the
project by spending $9.0 million on exploration and development of the property.
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOLDEN STAR RESOURCES LTD.
By: /s/ Peter J. Bradford
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Peter J. Bradford
President and Chief Executive Officer
By: /s/ Allan J. Marter
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Allan J. Marter
Vice President and Chief Financial Officer
May 18, 2001
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