1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
----------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 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 July 31, 2001: 41,259,076
================================================================================
GOLDEN STAR RESOURCES LTD.
1
2
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..............................................12
Item 3. Quantitative and Qualitative Disclosures about Market Risk................................16
Part II Other Information
Item 1. Legal Proceedings..........................................................................16
Item 6. Exhibits and Reports on Form 8-K...........................................................16
Signatures.......................................................................................................17
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 7 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 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; percentage increases and
decreases in production from the Bogoso mine; 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
3
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
June 30, December 31,
ASSETS 2001 2000
--------- ------------
CURRENT ASSETS
Cash and short-term investments $ 1,306 $ 991
Accounts receivable 589 976
Inventories (Note 3) 9,177 10,805
Other assets 255 188
--------- ------------
Total Current Assets 11,327 12,960
RESTRICTED CASH (Note 8) 3,515 4,147
NOTE RECEIVABLE 1,884 1,918
ACQUISITION, DEFERRED EXPLORATION AND DEVELOPMENT COSTS (Note 4) 26,184 24,492
INVESTMENT IN OMAI GOLD MINES LIMITED 557 625
MINING PROPERTIES (Net of accumulated depreciation of $10,034 and $9,111, respectively) 1,596 1,922
FIXED ASSETS (Net of accumulated depreciation of $4,356 and $3,508, respectively) 2,981 2,937
OTHER ASSETS 471 468
--------- ------------
Total Assets $ 48,515 $ 49,469
========= ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 4,141 $ 2,565
Accrued liabilities 1,632 1,727
Accrued wages and payroll taxes 99 238
Current portion of long-term debt (Note 5) 3,780 3,978
--------- ------------
Total Current Liabilities 9,652 8,508
LONG-TERM DEBT (Note 5) 4,682 4,807
ENVIRONMENTAL REHABILITATION LIABILITY (Note 8) 5,522 5,651
OTHER LIABILITIES -- 19
--------- ------------
Total Liabilities 19,856 18,985
MINORITY INTEREST 3,532 4,444
COMMITMENTS AND CONTINGENCIES (Note 8)
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: June 30, 2001 - 40,970,505; December 31, 2000 - 37,588,988 163,282 160,922
Equity component of convertible debentures (Note 5c) 1,045 1,045
DEFICIT (139,200) (135,927)
--------- ------------
Total Shareholders' Equity 25,127 26,040
--------- ------------
Total Liabilities and Shareholders' Equity $ 48,515 $ 49,469
========= ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
4
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of United States Dollars except share amounts)
(Unaudited)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------- ------------- ------------- -------------
REVENUE
Gold sales $ 6,602 $ 8,815 $ 11,280 $ 17,508
Interest and other 304 295 461 593
------------- ------------- ------------- -------------
6,906 9,110 11,741 18,101
COSTS AND EXPENSES
Mining operations 7,068 6,128 12,047 11,647
Depreciation, depletion and amortization 1,002 2,363 1,824 4,527
Exploration expense 10 300 70 660
General and administrative 591 703 1,541 1,253
Loss/(Gain) on disposal of assets -- (41) 6 (74)
Interest expense 225 254 453 510
Foreign exchange gain (47) (207) (32) (204)
------------- ------------- ------------- -------------
8,849 9,500 15,909 18,319
------------- ------------- ------------- -------------
LOSS BEFORE THE UNDERNOTED (1,943) (390) (4,168) (218)
Omai preferred share redemption premium 69 268 83 305
------------- ------------- ------------- -------------
Profit/(loss) before minority interest (1,874) (122) (4,085) 87
Minority interest 452 (34) 812 (313)
------------- ------------- ------------- -------------
NET LOSS (1,422) (156) (3,273) (226)
DEFICIT, BEGINNING OF THE PERIOD (137,778) (121,116) (135,927) (121,046)
------------- ------------- ------------- -------------
DEFICIT, END OF THE PERIOD $ (139,200) $ (121,272) $ (139,200) $ (121,272)
============= ============= ============= =============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.04) $ (0.00) $ (0.08) $ (0.01)
============= ============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING
(in millions of shares) 39.7 37.6 38.8 37.5
============= ============= ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
4
5
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of United States Dollars)
(Unaudited)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------- ------------- ------------- -------------
OPERATING ACTIVITIES:
Net loss $ (1,422) $ (156) $ (3,273) $ (226)
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING
ACTIVITIES:
Depreciation, depletion and amortization 1,002 2,363 1,826 4,527
Convertible debenture accretion 52 52 104 104
Premium on Omai preferred share redemption (69) (269) (83) (305)
Non-cash compensation -- 35 -- 35
(Gain)/Loss on disposal of assets -- (41) 6 (74)
Minority interest (452) 35 (812) 313
Restricted cash 1,286 -- 632 --
Change in note receivable (33) (308) (66) (308)
Expenditures and other decreases in environmental
rehabilitation liability (44) (248) (129) (420)
Change in other liabilities -- -- -- (2)
Changes in non-cash operating working capital:
Accounts receivable 42 63 387 746
Inventories 1,666 (99) 1,628 (902)
Accounts payable and accrued liabilities 109 (32) 1,342 (437)
Other current assets (122) 3 (67) --
------------- ------------- ------------- -------------
Total changes in non-cash operating working capital 1,695 (65) 3,290 (593)
------------- ------------- ------------- -------------
Net Cash Provided by Operating Activities 2,015 1,398 1,495 3,051
------------- ------------- ------------- -------------
INVESTING ACTIVITIES:
Expenditures on mineral properties, net of joint venture
recoveries (992) (686) (1,692) (2,152)
Expenditures on mining properties (588) (26) (597) (64)
Equipment purchases (345) (540) (953) (1,381)
Omai preferred share redemption 120 492 151 558
Proceeds from sale of equipment -- 36 -- 75
Other (48) 16 (21) 18
------------- ------------- ------------- -------------
Net Cash Used in Investing Activities (1,853) (708) (3,112) (2,946)
------------- ------------- ------------- -------------
FINANCING ACTIVITIES:
Repayment of debt (677) (492) (440) (558)
Restricted cash -- 1,000 -- 1,000
Issuance of share capital, net of issue costs 1,282 40 2,282 171
Other 90 1 90 --
------------- ------------- ------------- -------------
Net Cash Provided by Financing Activities 695 549 1,932 613
------------- ------------- ------------- -------------
Increase in cash and short-term investments 857 1,239 315 718
Cash and short-term investments, beginning of period 449 2,384 991 2,905
------------- ------------- ------------- -------------
Cash and short-term investments, end of period $ 1,306 $ 3,623 $ 1,306 $ 3,623
============= ============= ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
5
6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(Unaudited)
(All amounts are in thousands of United States Dollars, unless otherwise
indicated)
These consolidated financial statements and the accompanying notes should be
read in conjunction with the audited 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 six months ended June 30, 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 in the third quarter of 2001. While low-grade
stock-pile material will allow the Bogoso mill to continue operating into early
2002, additional oxide ore reserves will be required by the beginning of 2002 to
avoid mill closure. The Company signed agreements in May and June 2001 with
various parties 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 is
required for this acquisition and, while the Company is currently engaged in
financing negotiations, there is no assurance such funding can be obtained. 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 if the Prestea acquisition is not completed, 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. A
second and final interim payment is due to the Sellers on September 30, 2001 in
the amount of approximately $1.4 million. The total payment due on September,
30, 2001, including the $1.4 million due in 2000, accrued interest, and the
final 2001 interim payment, is approximately $2.9 million.
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
triggered penalties on 1.5 million of outstanding warrants. During the second
quarter of 2001, the warrants associated with the penalties were exercised and a
cash penalty of $83,000 was paid to the warrant holders in final resolution of
this matter.
The Company is exploring various transactions, which would enable it to have
sufficient capital to continue its operations. The transactions being considered
include the raising of debt, the issuance of new equity, establishment of
additional joint ventures, mergers with other companies and the sale of property
interests. 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.
Although there can be no
6
7
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
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------- ------------- ------------- -------------
Depreciation charged to projects $ 1 $ 28 $ 2 $ 55
Shares issued under stock bonus plan -- -- -- 35
Shares issued upon conversion of 78 -- 78 214
convertible debentures
Conversion of convertible debentures (78) -- (78) (214)
(3) INVENTORIES
June 30, 2001 December 31, 2000
------------- -----------------
Broken Ore $ 2,651 $ 2,736
In-process 1,065 2,361
Materials and Supplies 5,461 5,708
------- -------
$ 9,177 $10,805
======= =======
(4) ACQUISITION, DEFERRED EXPLORATION AND DEVELOPMENT COSTS
Acquisition,
Deferred Property Acquisition,
Exploration and Venture Abandon- Deferred
Development Capitalized Capitalized Joint ments Exploration and
Costs as at Exploration Acquisition Venture Write- Development Costs
Dec. 31, 2000 Expenditures Expenditures Recoveries downs as at June 30, 2001
=============== ============ ============ ========== ========== ===================
SURINAME
Gross Rosebel $ 15,818 $ 324 $ -- $ (96) $ -- $ 16,046
-------- ------- ---- ----- ---- --------
Sub-total 15,818 324 -- (96) -- 16,046
-------- ------- ---- ----- ---- --------
FRENCH GUIANA
(Guyanor Ressources S.A.)
Paul Isnard 5,827 603 -- -- -- 6,430
-------- ------- ---- ----- ---- --------
Sub-total 5,827 603 -- -- -- 6,430
-------- ------- ---- ----- ---- --------
AFRICA
(Bogoso Gold Limited)
Riyadh 239 19 -- -- -- 258
Bogoso Sulfide 2,608 764 -- -- -- 3,372
Other -- 78 -- -- -- 78
-------- ------- ---- ----- ---- --------
Sub-total 2,847 861 -- -- -- 3,708
-------- ------- ---- ----- ---- --------
TOTAL $ 24,492 $ 1,788 $ -- $ (96) $ -- $ 26,184
======== ======= ==== ===== ==== ========
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.
7
8
(5) LONG-TERM DEBT
June 30, December 31
2001 2000
-------- -----------
Note due Omai Mines Limited (Note 5a) $ 1,227 $ 1,378
Amounts due Sellers of Bogoso Gold Ltd. (Note 5b) 2,871 2,781
Convertible debentures (Note 5c) 3,205 3,179
Due financial institution (Note 5d) 500 500
Line of credit at BGL 659 947
-------- -----------
Total Debt 8,462 8,785
Less current portion (3,780) (3,978)
-------- -----------
Long Term Debt $ 4,682 $ 4,807
======== ===========
(a) NOTE DUE OMAI MINES LIMITED
On December 23, 1998 OGML advanced $3.2 million to the Company as an unsecured
loan to be repaid as and when Class I preferred shares of OGML held by the
Company are redeemed by OGML. The loan is non-interest bearing until September
30, 2010.
(b) AMOUNTS DUE THE SELLERS OF BOGOSO GOLD LIMITED
The Bogoso Gold Limited ("BGL") purchase agreement provide for three payments to
the Sellers of BGL, the first at the signing of the purchase agreement on
September 30, 1999, the second on the first anniversary of the purchase
agreement ("first interim payment") and the third on the second anniversary of
the purchase agreement ("second interim payment"). The amounts of the two
interim payments were dependent upon the average price of gold over the two
years following the date of the purchase agreement.
The Company and Anvil, the minority interest holder in BGL, together were
scheduled to make the first interim payment to the Sellers 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. To date this payment has not been made. The second interim payment is due
September 30, 2001 in the amount of approximately $1.4 million. The total
payment due the Sellers on September, 30, 2001, including the balance of the
first interim payment and accrued interest and the second interim payment, is
approximately $2.9 million.
(c) CONVERTIBLE DEBENTURES
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
BGL. The debentures, which are convertible into common shares at a conversion
price of $0.70 per share, 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
Liability Equity
Component Component
--------- ---------
Balance at December 31, 2000 $ 3,179 $ 1,045
Conversion to shares (78) --
Accretion 104 --
--------- ---------
Balance at June 30, 2001 $ 3,205 $ 1,045
========= =========
(d) DUE FINANCIAL INSTITUTION
Represents gold production related payments due to a financial institution
retained in 1999 to provide bridge financing for the BGL purchase. The first
payment of $0.25 million is due September 30, 2001, and the second and final
payment of $0.25 million is due September 30, 2002.
8
9
(6) CHANGES TO SHARE CAPITAL
During the six months ended June 30, 2001, the Company issued 3,381,517 shares
for a total increase in share capital of $2.4 million. Details of the new shares
are:
Dollar Shares Share
Amount Issued Price
-------- ---------- -------
Private placement Rio Tinto $ 1,000 500,000 $ 2.00
Warrant exercise 1,281 2,738,660 $ 0.47
Debenture conversion 79 142,857 $ 0.70
-------- ----------
$ 2,360 3,381,517
======== ==========
(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) 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.
(d) 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.
(e) 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.
(f) Under US GAAP, items such as foreign currency translation adjustments
are required to be shown separately in derivation of Comprehensive
Income.
(g) 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.
(h) 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.
9
10
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:
CONSOLIDATED STATEMENTS OF EARNINGS
For the six months ended
June 30, 2001 June 30, 2000
------------- -------------
Net loss under Canadian GAAP $ (3,273) $ (226)
Net affect of capitalized acquisition costs (a) -- (11,301)
Net effect of the deferred exploration expenditures on loss
for the period (a) (1,452) (2,207)
Effect of capitalized acquisition costs net of related depletion (g) 238 482
Other (b)(c)(f) 173 136
------------- -------------
Loss under US GAAP before minority interest adjustment (4,314) (13,116)
Minority interest adjustment (a)(g) 185 373
------------- -------------
Net loss under US GAAP (4,129) (12,743)
Other comprehensive income foreign currency translation
adjustment (f) (32) 204
------------- -------------
Comprehensive income $ (4,161) $ (12,539)
============= =============
Basic and diluted net loss per share under US GAAP $ (0.11) $ (0.34)
============= =============
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 SHEETS
As of June 30, 2001 As of December 31, 2000
---------------------- -----------------------
US GAAP Cdn GAAP US GAAP Cdn GAAP
--------- --------- --------- ---------
Cash $ 1,306 $ 1,306 $ 991 $ 991
Other current assets 10,021 10,021 11,969 11,969
Restricted cash 3,515 3,515 4,147 4,147
Acquisition, deferred exploration and
development (a) -- 26,184 -- 24,492
Investment in OGML (b) -- 556 -- 625
Mining properties (g) 1,284 1,596 1,371 1,922
Other assets 5,525 5,337 5,542 5,323
--------- --------- --------- ---------
Total Assets $ 21,651 $ 48,515 $ 24,020 $ 49,469
========= ========= ========= =========
Liabilities (c) $ 20,430 $ 19,856 $ 19,681 $ 18,985
Minority interest (a) (g) 3,479 3,532 4,817 4,444
Share capital (e) 160,900 164,327 158,519 161,967
Cumulative translation adjustments (h) 1,595 -- 1,595 --
Accumulated comprehensive income (f) (361) -- (329) --
Deficit (164,392) (139,200) (160,263) (135,927)
--------- --------- --------- ---------
Total Liabilities and Shareholders' Equity $ 21,651 $ 48,515 $ 24,020 $ 49,469
========= ========= ========= =========
STATEMENTS OF CASH FLOWS
NET CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES INVESTING ACTIVITIES FINANCING ACTIVITIES
---------------------- ---------------------- ---------------------
U.S. GAAP Cdn GAAP U.S. GAAP Cdn GAAP U.S. GAAP Cdn GAAP
--------- --------- --------- --------- --------- ---------
For the six months ended
June 30, 2001 $ (64) $ 1,495 $ (1,553) $ (3,112) $ 1,932 $ 1,932
For the six months ended
June 30, 2000 $ 1,765 $ 3,051 $ (1,660) $ (2,946) $ 613 $ 613
For the three months ended
June 30, 2001 $ 512 $ 1,361 $ (350) $ (1,199) $ 695 $ 695
For the three months ended $ 1,463 $ 1,396 $ (773) $ (706) $ 549 $ 549
June 30, 2000
10
11
Operations by geographic area under US GAAP:
OPERATING REVENUES NET LOSS IDENTIFIABLE ASSETS
------------------ -------- -------------------
For the six months ended
June 30, 2001
South America $ 227 $ (981) $ 419
Africa 11,402 (2,067) 18,305
Corporate 112 (1,081) 2,927
--------- -------- --------
$ 11,741 $ (4,129) $ 21,651
========= ======== ========
For the six months ended
June 30, 2000
South America $ 23 $(12,904) $ 583
Africa 18,078 (670) 20,500
Corporate -- 21 10,758
--------- -------- --------
$ 18,101 $(12,743) $ 31,841
========= ======== ========
(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 estimated environmental rehabilitation liability for
reclamation and closure costs at the Bogoso Mine at June 30, 2001 was $5.5
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 June 30, 2001 there was $3.3
million of cash in this fund. In addition there was $0.2 million restricted
under agreement with Rio Tinto to be used to fund exploration work on the Paul
Isnard project in French Guiana during 2001.
(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.
At the Company's annual general meeting shareholders approved the issuance of
3,000,000 common shares of Golden Star to Anvil Mining NL ("Anvil") for the
acquisition of all of Anvil's rights and obligations (including the outstanding
note receivable) in Bogoso Gold Limited ("BGL") which includes Anvil's 20%
equity share of BGL and Anvil's 22.2% share of the US$28 million owed to Golden
Star and Anvil by BGL. Subject to the receipt of the Ghanaian governmental
approval for the transaction and the final approval of the Toronto Stock
Exchange in respect of the issuance of the common stock to Anvil, the
transaction is expected to close in August 2001. Golden Star will then own 90%
of BGL with the remaining 10% being owned by the Government of Ghana.
11
12
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.
See the "Special Note Regarding Forward-Looking Statements" on page 2 of this
Form 10-Q.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2000
A net loss of $1.4 million was incurred for the three months ended June 30, 2001
versus a loss of $0.2 million for the same three-month period in 2000. While
depreciation, exploration expense, general and administrative costs and interest
expense were lower than during the same three month period in 2000, lower gold
revenues (resulting from lower ounces produced and lower gold prices) and higher
mine operating costs were the main factors behind the larger loss during the
second quarter of 2001.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000
The Company incurred a net loss of $3.3 million in the first six months of 2001,
compared to a loss of $0.2 million in the same period during 2000. As with the
three month period ended June 30, 2001, lower gold revenues, on lower but more
costly mine production was the major factor contributing to the larger loss for
the six months. Costs and expenses dropped to $15.9 million for the six months
versus $18.3 million during the first six months of 2000. Depreciation was
sharply lower, reflecting lower gold output and a lower depreciable assets cost
basis at December 31, 2000. The Bogoso depreciable assets were reduced by $2.7
million in December 2000 when it became apparent that gold prices were trending
lower than initially anticipated, which, per the terms of the Bogoso purchase
agreement resulted in a lower ultimate cost for the property. Lower exploration
costs reflect the closure of exploration offices in 2000. General and
administrative costs for the first six months were $0.3 million higher than
during the same period in 2000. Severance pay, as the Company continued to
downsize its corporate overhead, and recognition of a bad debt in the six months
of 2001 accounted for most of the increase versus the same period in 2000.
BOGOSO GOLD LIMITED
Gold output from the Bogoso Mine totaled 24,694 ounces in the second quarter of
2001, down from 31,626 ounces in the same period of 2000 yielding revenues of
$6.6 million versus $8.8 million during the second quarter of 2000. Lower mill
recovery rates (49.7% in the second quarter of 2001 versus 66% in the second
quarter of 2000) associated with the transition ore processed in the second
quarter of 2001 and lower gold prices ($267 per ounce in the second quarter of
2001 versus $279 per ounce a year earlier ) caused the drop. Second quarter cash
costs averaged $280 per ounce as compared to $187 in the same quarter of 2000.
For the first six months of 2001, the Bogoso mine shipped 42,506 ounces of gold,
down from 62,063 in the same period last year. While mill throughput was
essentially the same this period as last year, mill feed grades were lower (2.62
g/t in 2001 versus 2.77 g/t in the 2000 period), and recoveries for the first
six months of 2001 declined from the same period in 2000 due to the increased
complexity of the ores milled in 2001 and the problems encountered in
commissioning the new mill modifications in the first quarter of 2001. Cash
operating costs cost averaged $274 per ounce during the first six months of
2001, while the comparable figure for 2000 was $185 per ounce. Total cash costs
averaged $282 for the six months versus $194 during the first six months in
2000.
12
13
Mining activity on the Bogoso property is now scheduled to end in the third
quarter of 2001. It is then expected that stock-piled material will be used as
mill feed source through early 2002. Ore from the Prestea property could be
available as Bogoso mill feed source within a month following completion of the
Prestea purchase. Prestea ore would be processed ahead of stock pile material
should it become available before the stock-pile ores are exhausted.
Work on the Sulfide Project Feasibility Study is almost complete, but it is
expected that, on the closing of the Prestea acquisition (expected to be in
August 2001), the study will be expanded to include the sulfide mineralized
material from the Buesichem pit in the north of the Prestea property.
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 a private placement, 500,000
common shares of Golden Star at a price of $2.00 per common share, for total
proceeds of $1 million. The Company has committed to advance all 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 $0.25 million will be used
to partially fund the cost of a re-organization of Guyanor, aimed at reducing
ongoing costs.
Exploration spending by Guyanor totaled $0.6 million in the first six months of
2001, all of which was related to the Paul Isnard Joint venture. Comparative
spending in the first six months of 2000 included $1.0 million of total spending
less $0.6 million of joint venture recoveries.
Guyanor Ressources, announced in July that Mr. Carlos Bertoni, president of
Guyanor for the last nine years has resigned to pursue other interests.
Subsequently Mr. Michel Juilland was elected to the board of directors of
Guyanor Ressources and appointed president of Guyanor.
SURINAME
Activities in Suriname focused on the Gross Rosebel gold project during the
first six months of 2001. The Gross Rosebel project is held as a 50/50 joint
venture with Cambior. Total spending at the Gross Rosebel project, amounted to
$0.3 million in the first six months of 2001, 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 same period 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 a 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 June 30, 2001, the Company held cash and short-term investments of $1.3
million and working capital of $1.7 million. Respectively these figures were
changed from $1.0 million and $4.5 million at December 31, 2000. Lower inventory
levels, and an increase in payables as compared to December 31, 2000 accounted
for most of the reduction in working capital. Operating activities generated
$1.5 million of cash in the first six months of 2001 versus $3.1 million for the
same period of 2000. Lower gold revenue on lower gold prices and lower shipments
were the major contributing factors to the decline.
13
14
Cash used in investing activities increased to $3.1 million for the six months
ended June 30, 2001, up from $2.9 million in the first six months of 2000. The
lower spending on capitalized exploration in Ghana and lower capital equipment
purchases at the Bogoso Mine were more than offset by spending on mine property
and lower Omai preferred share redemptions.
Cash provided by financing activities totaled $1.9 million during the first six
months of 2001. The Rio Tinto private placement in January 2001 provided $1.0
million and warrant exercises in May and June yielded $1.3 million. Repayment of
Omai debt and reductions in the Bogoso line of credit balance used $0.4 million
of cash during the first six months of 2001.
The Company had $3.3 million of cash at June 30, 2001, which is restricted, in
accordance with the BGL acquisition agreement, to be used for environmental
rehabilitation at the Bogoso Mine. Additionally $0.2 million of cash was
restricted under terms of the agreement with Rio Tinto, to fund 2001 work on the
Paul Isnard project later in the year. Cash needs for corporate purposes and to
maintain the various exploration projects in South America were met during the
six months by distributions from the Bogoso Mine in Ghana and from warrant
exercises.
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 in the third quarter of 2001. While low-grade stockpile 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 signed agreements in May and June 2001 with various parties to acquire
the Prestea property, contiguous with the Bogoso Mine, which contains
mineralized material that, if acquired, would be expected to provide mill feed
for several years into the future. Additional funding is required for this
acquisition and, while the Company is currently engaged in financing
negotiations, there is no assurance that such funding can be obtained.
The Company and Anvil, the minority interest holder in BGL, together were
required to make payment to the Sellers of BGL 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.
A second and final interim payment is due to the Sellers on September 30, 2001
in the amount of approximately $1.4 million. The total payment due on September,
30, 2001, including the $1.4 million due in 2000, accrued interest thereon and
the final 2001 interim payment, is approximately $2.9 million. In addition a
$250,000 payment, based upon gold production is due to a financial institution,
also on September 30, 2001
OUTLOOK
While mining operations at the Bogoso Mine are expected to end in the third
quarter of 2001, stockpiled ores should allow the mill to continue operations
into early 2002. Budget projections indicate that the Bogoso Mine should
generate sufficient cash flow during 2001 to meet its own needs as well as to
distribute minor amounts of 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. The Company signed agreements in
May and June 2001 with various parties to acquire the Prestea property,
contiguous with the Bogoso Mine, which contains mineralized material that, if
acquired, would be expected to provide mill feed for several years into the
future. Additional funding is required for this acquisition and, while the
Company is currently engaged in financing negotiations, there is no assurance
that such funding can be obtained.
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
14
15
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 reduce the Company's ability to
raise additional funds from equity or debt sources.
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 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
De-listing from the Amex in January 2001 triggered penalties on 1.5 million of
outstanding warrants. During the second quarter of 2001, the warrants associated
with the penalties were exercised and a cash penalty of $83,000 was paid to the
warrant holders in final resolution of this matter.
ANVIL BUYOUT
At the Company's annual general meeting shareholders approved the issuance of
3,000,000 common shares of Golden Star to Anvil Mining NL ("Anvil") for the
acquisition of all of Anvil's rights and obligations in BGL which includes
Anvil's 20% equity share of BGL and Anvil's 22.2% share of the US$28 million
owed to Golden Star and Anvil by BGL. Subject to the receipt of the Ghanaian
governmental approval for the transaction and the final approval of the Toronto
Stock Exchange in respect of the issuance of the common stock to Anvil, the
transaction is expected to close in August 2001. Golden Star will then own 90%
of BGL with the remaining 10% being owned by the Government of Ghana.
SUBSEQUENT EVENTS
NEW PRESIDENT AT GUYANOR
The Company's 73% owned subsidiary, Guyanor Ressources, announced in July that
Mr. Carlos Bertoni, president of Guyanor for the last nine years has resigned to
pursue other interests. Subsequently Mr. Michel Juilland was elected to the
board of directors of Guyanor Ressources and appointed president of Guyanor.
15
16
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
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
None
(b) Reports filed on Form 8-K during the quarter ended June 30, 2001
None
16
17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOLDEN STAR RESOURCES LTD.
By: /s/ Peter J. Bradford
--------------------------------------------
Peter J. Bradford
President and Chief Executive Officer
By: /s/ Allan J. Marter
--------------------------------------------
Allan J. Marter
Vice President and Chief Financial Officer
August 6, 2001
17