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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year ended December 31, 1999
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.)
1660 Lincoln Street, Suite 3000
Denver, Colorado 80264-3001
(Address of Principal Executive Office) (Zip Code)
(303) 830-9000
(Registrant's telephone number, including area code)
Securities registered or to be registered pursuant to Section 12 (b) of the
Act:
Name of Exchange
Title of Each Class on which Registered
------------------- -------------------
Common Shares American Stock Exchange
Toronto Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the
Act: NONE
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 ______
---
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form l0-K. ______
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $52 million as of March 1, 2000, based on
the closing price of the shares on the American Stock Exchange of $1.44 per
share.
Number of Common Shares outstanding as at March 1, 2000: 37,123,131
TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS
ITEM 2. DESCRIPTION OF PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
The Registrant will furnish a copy of any exhibit filed as part of this
report to any shareholder of record upon receipt of a written request from
such person and payment of the Registrant's reasonable expenses for
furnishing such exhibit. Requests should be made to the Secretary of the
Registrant at the address set forth on the cover page of this report.
REPORTING CURRENCY AND FINANCIAL INFORMATION
All amounts in this Report are expressed in United States dollars, unless
otherwise indicated. References to (i) "Cdn" are to Canadian dollars, (ii)
"FF" are to French francs, (iii) "Cedi" or "Cedis" are to Ghanaian cedis,
and (iv) "Aus" are to Australian 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 Company, are explained in Note 17 to the Consolidated
Financial Statements.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K contains "forward-looking statements" within the meaning of
the U.S. securities laws. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events, capital
expenditure, exploration efforts, financial needs, and other information
that is not historical information. The Company's 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
. percentage increases and decreases in production from our mines
. schedules for completion of feasibility studies
. potential increases in reserves and production
. the timing and scope of future drilling and other exploration
activities
. expectations regarding receipt of permits and commencement of
mining or production
. anticipated recovery rates, and
. potential acquisitions or increases in property interests in the
region of the Bogoso mine.
Factors that could cause our actual results to differ materially from these
statements include changes in gold prices, unanticipated grade changes,
unanticipated recovery problems, mining and milling costs, geology,
metallurgy, processing, access, transportation of supplies, water
availability or other problems, 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. See the factors set forth
under the caption "Risk Factors" in Item 1 of this Form 10-K.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
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Overview
Golden Star Resources Ltd. ("Golden Star" or the "Company" or "we") is an
international mining and exploration company with a diverse portfolio of
projects including a 70% operating equity interest in the Bogoso mine in the
Republic of Ghana and a 30% non-operating equity interest in the Omai mine in
Guyana. The Company's core focus is on the acquisition, discovery, development
and operation of gold and diamond projects and, where appropriate, the execution
of partnership arrangements with major mining companies to develop and operate
mines. The Company currently has projects in various stages of development in
Guyana, French Guiana, through its approximately 71% owned publicly traded
subsidiary, Guyanor Ressources S.A. ("Guyanor"), and Suriname in South America,
and in Ivory Coast, Kenya and Ghana in Africa.
The Company's exploration efforts are concentrated in geologic domains known as
greenstone belts, which are ancient volcano/sedimentary rock assemblages.
Greenstone belts are known to be favorable geologic environments for gold
mineralization and account for a significant proportion of the world's
historical gold production. The Company began its exploration activities in
1985 in the tropical, Proterozoic greenstone belts of the Guiana Shield, and
extended its activities in the 1990's to other geologically related greenstone
belts elsewhere in South America and Africa.
As at March 1, 2000, the Company's interest in gold production was in the form
of (i) a 70% equity interest in Bogoso Gold Limited, a company incorporated
under the laws of Ghana ("BGL") and the owner and operator of the Bogoso gold
mine in Ghana (the "Bogoso Mine") (see "Item 2. Description of Properties - The
Bogoso Gold Mine") and (ii) a 30% common share equity interest in Omai Gold
Mines Limited, a company incorporated under the laws of Guyana ("OGML") and the
owner and operator of the Omai gold mine in Guyana (the "Omai Mine"). (See
"Item 2. Description of Properties - The Omai Gold Mine").
Business Strategy
Faced with a continuing low gold price environment and the difficulty in raising
funds from the equity markets for pure exploration companies, management
abandoned or suspended its activities on several of its projects during 1998 and
1999 to focus its resources on its most promising prospects. Management also
decided in 1999 to change its business strategy from a pure exploration company
to a production, development and advanced stage exploration company. The first
step in the implementation of this new strategy was the acquisition in September
1999 of the Bogoso Mine in Ghana. The Bogoso acquisition was intended to
provide the Company with a source of internally generated cash flow from oxide
operations at least through the end of the year 2000. One of the Company's main
objectives in the short term is, therefore, to acquire additional sources of
oxide ore to extend Bogoso's mine life. In the long term, however, gold price
permitting, the Company intends to develop a sulfide operation at the Bogoso
Mine to treat the already identified sulfide mineralization located in and
around the property. For this purpose, the Company is currently conducting a
feasibility study to assess the potential of a sulfide operation at Bogoso. The
results of the study are expected before year-end. If the results of the
feasibility study are positive, the Company would begin construction of a
sulfide treatment plant at the end of 2000, with the aim of commencing
commercial production sometime during the course of 2001.
In addition to Bogoso, the Company is evaluating other potential mining
opportunities, such as the development of its Gross Rosebel project in Suriname
which is held in a 50/50 joint venture with Cambior Inc. of Canada or through
the acquisition of mining assets from other companies in its geographical areas
of expertise. The Company and Cambior have budgeted $0.5 million for the year
2000 to conduct additional studies to evaluate low cost processing and
development alternatives for the Gross Rosebel project. Results are expected
during 2000 and will serve as the basis for a development decision.
Gold and diamond exploration is still an important element of the Company's
strategy although it has not been management's top priority over the last two
years due to the difficulty of raising funds, at attractive prices, solely for
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exploration. The Company's exploration strategy is to focus on its skills in
gold and diamond exploration in specific tropical geological environments and
its ability to conclude advantageous property acquisitions in developing and
less developed countries, with the ultimate goal of holding significant
interests in gold and diamond mines. In the future, as part of its new strategy
of being a producer, the Company intends to act more often as operator of its
own discoveries although it may still decide, given the nature and size of a
project and its resources, to joint venture projects to larger mining companies.
The Company's business strategy is dependent on availability of adequate capital
(see "Risk Factors - We currently have limited liquidity and capital resources")
and is comprised of the following elements:
. Production and Development Strategy. The Company believes that in the
current low gold price environment, only companies with the ability to
generate cash from operations will survive. For this reason, the Company
intends in the short term to become a medium size producer by either
acquiring operating mines or developing some of its most advanced projects.
The funds so generated will then be used partly to finance its further
business development strategy, therefore lessening the need to raise
capital from the equity markets at inauspicious times.
. Exploration Strategy. The Company still believes that the greatest
potential increase in shareholder value in the gold and diamond sector
comes from the discovery and development of new mineral deposits. The
Company generally intends to concentrate its exploration efforts in its
areas of expertise, gold and diamond exploration, in the tropical
greenstone belts of the Guiana Shield and the West African Shield.
. Concentrate on current portfolio of properties. The Company intends to
focus its efforts on advancing the most promising projects within its
portfolio of properties to the feasibility stage. To preserve cash, our
early and intermediate stage projects were abandoned or placed on care and
maintenance awaiting a more favorable environment for gold exploration and
development. The Company continues to pursue new opportunities and may, if
warranted, make selective additional acquisitions of promising properties.
. Corporate Transactions. In view of the current gold market environment, the
Company intends to continue to focus on corporate transactions that offer
the potential to provide cash flow to fund exploration and development.
Various transactions that may be considered include mergers with, and
acquisitions of, other companies.
. Partner with major mining companies. The Company intends to continue to
leverage its exploration capital by entering into partnership arrangements
with major mining companies that have the technical skills and financial
resources to develop and operate large modern mining operations. Under this
strategy, the Company may transfer a portion of the business and financial
risks associated with exploration and development to its partners and,
therefore, utilize a greater portion of its funds to explore and develop
additional projects.
. Maintain a strong local presence in the countries where the Company
operates. The Company intends to continue its practice of locating offices,
the majority of its employees and certain of its executives in countries
where the Company has exploration, development and mining interests. Many
of the Company's employees are from countries in which the Company
operates. The Company believes that its local presence and hiring practices
support its exploration efforts by enabling the Company to establish and
maintain good communications with local government officials and business
leaders. In addition, the Company believes that its decentralized local
management structure enables it to make more efficient exploration and
management decisions.
Incorporation
The Company was established under the Canada Business Corporations Act on May
15, 1992 as a result of the amalgamation of South American Goldfields Inc., a
corporation incorporated under the federal laws of Canada, and Golden Star
Resources Ltd., a corporation originally incorporated under the provisions of
the Alberta Business Corporations Act on March 7, 1984 as Southern Star
Resources Ltd. Concurrent with the amalgamation, the common shares of the
Company were consolidated on a one-for-two basis. All references to "common
shares" in this document mean the common shares of the Company after the
amalgamation and the share consolidation. The fiscal year of the Company ends
on December 31 of each year.
5
The head office of the Company is located at 1660 Lincoln Street, Suite 3000,
Denver, Colorado 80264-3001, and the registered and records office is located at
19th Floor, 885 West Georgia Street, Vancouver, British Columbia, Canada V6C
3H4.
Employee Relations
As at March 1, 2000, the Company and its subsidiaries had a total of
approximately 634 full-time employees and contractors. Eleven employees are
based at the headquarters in Denver. Approximately 365 full-time employees and
140 full-time contractors are working for BGL in Ghana. The BGL employees are
currently not members of a union but they are entitled to join one. (See "Item
1. Risk Factors - Certain employees' rights at BGL could have an adverse effect
on our financial condition and results of operation.") As at March 1, 2000,
Guyanor employed 39 full-time employees in French Guiana. The other employees
are located in South America and Africa where the Company and its subsidiaries
carry on exploration.
Reserves
The following table presents current reported reserves for both the Bogoso and
Omai mines. Reserves for Bogoso have been estimated by BGL. SRK (UK) Limited
have confirmed that the format of the reporting of the ore reserves and mineral
resources (mineralized material) closely follows the guidelines and terminology
set out in the Australasian Code for reporting of Identified Mineral Resources
and Ore Reserves (the JORC Code). Reserves for Omai have been estimated by
Cambior Inc. the operator of the mine and have not been reviewed independently
by the Company. See "Item 2. Description of Properties" for a description of
the Bogoso Gold Mine and the Omai Gold Mine and "Risk Factors" for a discussion
of factors that could affect the following reserve estimates.
RESERVES (Proven and Probable)
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Tonnes Gold Grade Contained Ounces Contained Ounces
Project (100%) g/t (100%) (Golden Star 's share)
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Bogoso Mine/1/ 3,263,000 2.2 229,300 160,500
Omai Mine/2/ 36,742,000 1.3 1,591,000 477,300
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Total 40,005,000 1.4 1,820,300 637,800
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(1) This estimation has assumed a $290/oz gold price. Results reported by BGL
as of December 31, 1999.
(2) This estimation has assumed a $325/oz gold price. Results reported by
Cambior as of December 31, 1999.
The definitions of Proven (Measured) and Probable (Indicated) Reserves (see
glossary of terms) are those prescribed for use in the United States by the
Securities and Exchange Commission and set forth in SEC Industry Guide 7. These
definitions are substantially the same as those applied in Canada as set forth
in proposed National Instrument 43-101, the proposed successor to National
Policy 2-A and in Australia as set forth in the Australasian Code for Reporting
of Mineral Resources and Ore Reserves (the JORC code). National Instrument 43-
101 has yet to be adopted by the Canadian securities commissions, but reporting
issuers are strongly encouraged to report their reserve estimates in compliance
with the proposed policy.
Mineralized Material
The following table presents information with respect to mineralized material by
property. Mineralized material has been estimated either by Cambior Inc. or the
Company, as indicated below. See "Item 2. Description of Properties" for a
description of each property and see "Risk Factors" below for a discussion of
factors that could affect the estimates of mineralized material.
Mineralized material does not represent reserves and has not been included in
the Proven and Probable Reserve estimates above. Even though drilling and
trenching indicate sufficient tonnage and grade to warrant further exploration
or development expenditures, the mineralized material does not qualify under the
U.S. Securities and Exchange Commission standards as being commercially minable
until further drilling, metallurgical work and other
6
economic and technical feasibility factors based upon such work are resolved.
However, the Company only reports mineralized material if the potential exists
for reclassification to reserves following additional drilling and/or final
technical, economic, and legal factors have been determined for the project.
Mineralized material is only disclosed if it could be reported as Measured,
Indicated and/or Inferred resources as required in Canada as set forth in
proposed National Instrument 43-101 or in Australia as set forth in the
Australasian Code for Reporting of Mineral Resources and Ore Reserves (the JORC
code).
MINERALIZED MATERIAL/1/
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Tonnes Tonnes Gold Grade
Project (100%) (Golden Star's share) g/t
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Bogoso (oxide and 4,799,000 3,359,000 2.1
transition)/2/
Bogoso (sulfide)/2/ 11,095,000 7,767,000 3.3
Omai/3/ 6,100,000 1,830,000 1.5
Gross Rosebel/3/ 41,350,000 20,675,000 1.6
Yaou/3/ 9,280,000 3,294,000 2.4
Dorlin/3/ 7,207,000 2,558,000 1.3
Paul Isnard/4/ 6,178,000 4,386,000 2.8
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Total 86,009,000 43,869,000 2.5
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(1) All estimates reflect mineralized material in stock piles or within open
pits designed using geologic, economic and design constraints that the
Company believes are realistic. See "Item 2. Description of Properties"
for more detail information on each project.
(2) Results reported by BGL as of December 31, 1999 and based on a $325 gold
price.
(3) Results reported by Cambior as of December 31, 1999 and based on a $325
gold price.
(4) Results estimated by the Company in February 1999 and based on a $325 gold
price.
Certain Significant Events in 1999
The Company has seen a number of management changes over the past year. James
E. Askew was appointed President and Chief Executive Officer in March 1999, but
after his work to re-focus the Company and to acquire the operating Bogoso mine,
he resigned in October 1999 to take a position in his native Australia. Mr.
Askew continues as a member of the board of directors.
On November 1, 1999, Peter J. Bradford replaced Mr. Askew as our President and
Chief Executive Officer. Mr. Bradford was instrumental in bringing the Bogoso
acquisition to the Company's attention and served most recently as Managing
Director of Anvil Mining NL, the Company's 20% joint venture partner in the
Bogoso project. In addition to Mr. Askew, our Chief Financial Officer, our Vice
President, Corporate Development, our previous Controller, and a member of our
board of directors all resigned since the last meeting of the shareholders of
the Company in June 1999. On November 9, 1999, the board of directors of the
Company appointed Allan J. Marter as Chief Financial Officer. Mr. Marter, an
experienced mining industry executive, together with our new Controller, has
assumed responsibility for the financial and accounting matters of the Company
whilst Mr. Peloquin, the Company's General Counsel, has taken over the
responsibility for Corporate Development.
Following the decision of our board of directors to reduce its size in early
1999, Donald Mazankowski and Robert Minto resigned as directors of the Company.
In addition, Pierre Gousseland, Richard Stark and Philip Martin decided not to
seek reelection as directors at the 1999 meeting of our shareholders. In
September 1999, Dr. Roger Morton, director of the Company since its
organization, resigned due to the demands of his principal occupation.
These resignations, with the exception of Mr. Askew, mostly resulted from the
reorganization of the Company's management to reduce costs and focus activities
during the continuing low gold price period. (See "Risk Factors - We have
experienced several, recent management and personnel changes".)
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On June 9, 1999, Guyanor Ressources entered into a joint venture agreement with
Rio Tinto Mining and Exploration Limited ("Rio Tinto") with respect to diamond
exploration and development in French Guiana, including the Dachine property.
Under the agreement, Rio Tinto can earn a 70% interest in the joint venture by
funding exploration and development expenditures up to a total of US$17 million
or by reaching a decision to commence with the development and mining of any
diamonds within the area of interest of the joint venture in French Guiana,
whichever comes first. (See "Item 2. Description of Properties - Dachine".)
On August 24, 1999, the Company completed a United States offering of $7,616,500
comprised of: (a) $4,155,000 of 7.5% Subordinated Convertible Debentures (the
"Debentures"), with interest to be paid semi-annually, together with 200 common
share purchase warrants for each $1,000 face value of Debentures issued (each
warrant, a "Debenture Warrant"), entitling the holder to purchase one common
share of the Company for a four-year term after the closing of the offering at
$1.50 during the first two years of the term and at $1.75 during the balance of
the term (The Debentures, which mature in 2004, are not redeemable prior to
August 2002 and are convertible into Golden Star common shares at a rate of
$0.70 per share.); and (b) 6,923,000 units at $0.50 per unit, each unit
consisting of one common share and one-half of a common share purchase warrant
(each whole warrant, a "Unit Warrant", entitling the holder to purchase one
additional common share at $0.70 for a period of 18 months).
On September 30, 1999, the Company completed the acquisition of the Bogoso Mine
in Ghana from a consortium of banks represented by the International Finance
Corporation and the Deutsche Investitions and Entwicklungsgesellschaft mbH of
Germany. As a result of the acquisition, the Company and Anvil Mining NL
acquired equity interests of 70% and 20%, respectively in BGL (with the
Government of Ghana retaining a 10% equity interest) as well as 78% and 22%,
respectively, of the debt owed by BGL to the consortium of banks as of the date
of the acquisition. (See "Item 2. Description of Properties - The Bogoso Gold
Mine".)
RISK FACTORS
READERS SHOULD CAREFULLY CONSIDER THE RISK FACTORS SET FORTH BELOW.
We currently have limited liquidity and capital resources.
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We have limited financial resources. As at December 31, 1999, we held cash and
short-term investments of approximately $2.9 million as compared to cash and
short-term investments of $7.4 million as at December 31, 1998. The execution of
our business strategy going forward will require significant expenditures,
including debt service on $4.2 million aggregate principal amount of our 7.5%
subordinated convertible debentures. These expenditures may exceed revenues and
free cash flows generated by BGL and our other operations and could affect our
ability to make distributions on our common shares. We have not, however, made
distributions on our common shares since our inception and do not presently
intend to make future distributions.
The lagging world market price of gold has adversely affected our ability to
obtain financing and therefore our abilities to develop our current portfolio of
properties. If these conditions persist for an extended period of time, we may,
in the future, be unable to continue our operations and fulfill our obligations
under our agreements with our partners or under our permits and licenses. We
cannot assure you that in the future we will be able to obtain adequate
financing on acceptable terms. If we are unable to obtain additional financing,
we may need to delay or indefinitely postpone further exploration and
development of our properties. As a result, we may lose our interest in some of
our properties and may be forced to sell some of our properties.
The loss of any of our interests in exploration and mining properties would give
rise to write-offs, under both U.S. and Canadian GAAP, of any capitalized costs
and this would negatively impact the results of operations. The impact would
also be shown in reduction of assets in our balance sheet, which in turn may
reduce our ability to raise additional funds through equity or debt sources.
Our common shares may be de-listed from the American Stock Exchange.
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The American Stock Exchange notified us in July 1999 that our common shares
might be de-listed. Specifically, the American Stock Exchange identified the
following factors as possible cause to de-list our shares:
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. we sustained losses in each of the past five fiscal years accompanied by
operating cash outflows
. if we were a U.S. corporation, the report of our auditors would have
included an additional explanatory paragraph in the auditors' report since
the 1998 financial statements were affected by conditions and events that
at the time of their preparation cast substantial doubt about our ability
to continue as a going concern.
. our stock price was, at the time, trading below $1.00.
After reviewing our submissions/answers in December 1999, the American Stock
Exchange determined to continue our listing pending a review of this Annual
Report on Form 10-K. Although we expect the recently completed Bogoso
acquisition to have a positive impact on our financial condition, we cannot
assure you that the American Stock Exchange will not in the final analysis
determine to de-list our shares from the exchange.
We issued 1,500,000 common share purchase warrants to two lenders under a credit
facility commitment letter. We are required to list the shares underlying the
warrants with at least either the American Stock Exchange, the New York Stock
Exchange or the NASDAQ National Market or NASDAQ Smallcap Market. If our common
shares were to be de-listed from the American Stock Exchange before the earlier
of (1) the sale of all of the shares underlying the warrants or (2) June 9,
2003, we would endeavor to list the shares on one of the other acceptable
exchanges. However, if our common shares are not accepted for listing on one of
the other exchanges, we would be required to pay a cash penalty to the lender
equal to 3% per month of the aggregate value of the shares underlying the
lender's warrants. In addition, if we were required to pay this penalty for at
least six months, the lender could require us to repurchase its warrants or
common shares at a premium over the fair market value of our common shares. If
we were required to pay this cash penalty for several months or to repurchase
the lenders warrants or common shares, it would have a negative impact on our
cash flow and could prevent us from meeting other of our financial obligations.
If our common shares were to be de-listed from the American Stock Exchange and
were not accepted for listing on another exchange, trading in our common shares
in the U.S., if any, might then be conducted in the over-the-counter market on
an electronic bulletin board, or in what are commonly referred to as the "pink
sheets". There would likely be a less active trading market for our common
shares and you would then find it more difficult to sell, or to quickly and
accurately obtain pricing information for, our common shares.
De-listing from the American Stock Exchange would impact the Company, although
we would still retain our listing on the Toronto Stock Exchange. We could also
continue trading in the over-the-counter market. This would not be expected to
have any immediate, direct impact on our financial position, results of
operations and liquidity in future periods. In the longer term, however, it
might be more difficult to raise funds. However, the failure to have the common
shares accepted for listing in the agreed manner would result in penalty
interest costs, and these costs would adversely impact our financial condition,
results of operations and liquidity. Similarly, if we were required to
repurchase the warrants or shares, that cost would immediately result in a less
positive financial condition, and the cost of any buy-back would negatively
impact both our financial position and liquidity.
If our common shares were deemed to be a "penny stock," the level of trading
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activity in our common shares could be reduced and its marketability affected.
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Broker-dealer practices in connection with transactions in "penny stocks" are
regulated by penny stock rules adopted by the Securities and Exchange
Commission. Penny stocks generally are equity securities with a price of less
than $5.00, other than securities registered on specified national securities
exchanges or quoted on the National Association of Securities Dealers Automated
Quotation System - American Stock Exchange. Our shares are not presently subject
to the penny stock rules because of exceptions relating to registration and the
level of our net tangible assets.
The penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver to its customer a
standardized risk disclosure document that provides information about penny
stocks and the nature and level of risks in the penny stock market. The broker-
dealer also must provide the customer with the following:
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. current bid and offer quotations for the penny stock
. the compensation of the broker-dealer and its salesperson in the
transaction
. the broker-dealer must disclose if it is the sole market maker and
it's presumed control over the market in this case, and
. monthly account statements showing the market value of each penny
stock held in the customer's account.
In addition, broker-dealers who sell these securities to persons other than
established customers and "accredited investors" within the meaning of the
federal securities laws must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. Consequently, these requirements may have
the effect of reducing the level of trading activity, if any, in the secondary
market for a security subject to the penny stock rules. Thus, if our common
shares were ever to become subject to these rules, a transaction in our
securities would subject the broker-dealer to sales practice and disclosure
requirements that could make the trading of our common shares more cumbersome,
which could in turn materially adversely affect the marketability of our shares.
Declines in the price of gold have an adverse effect on our stock price and
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business plan.
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The price of our common shares and our business plan have been and may in the
future be significantly adversely affected by recent or sustained declines in
the price of gold. Gold prices often vary widely and are affected by numerous
factors beyond our control, such as the sale or purchase of gold by various
central banks and financial institutions, inflation or deflationary conditions,
fluctuation of the U.S. dollar and foreign currencies, global and regional
demand, and the political and economic conditions of major gold-producing
countries throughout the world. The following table sets forth for the last ten
years the high and low selling prices of gold:
Year High Low
---- ---- ---
1990 $422.40 $346.80
1991 $403.20 $344.30
1992 $359.30 $329.70
1993 $407.00 $326.30
1994 $398.00 $370.60
1995 $395.40 $371.20
1996 $414.70 $368.00
1997 $360.00 $283.00
1998 $314.70 $275.60
1999 $324.50 $253.00
The closing trading price per ounce of gold quoted by the New York Commodities
Exchange on March 1, 2000 was $291.50.
We continue to experience substantial losses.
- ---------------------------------------------
We have reported net losses of approximately $24.4 million in 1999, $22.2
million in 1998, $26.6 million in 1997, $7.8 million in 1996,and $12.2 million
in 1995 and may continue to incur losses in the future. Future operating losses
may make financing our operations and our business strategy or raising
additional capital difficult or impossible, materially and adversely affecting
our operations.
10
We are shifting our business strategy away from mineral exploration toward an
- -----------------------------------------------------------------------------
emphasis on mining operations.
- ------------------------------
With the acquisition of the Bogoso Mine in Ghana, we have undertaken a shift in
our business strategy toward mining production rather than focusing only on
mineral exploration. We are also currently pursuing other mining opportunities.
We may not be successful in implementing this shift in strategy. Any business
acquired, including the Bogoso Mine, may be difficult to integrate into our
existing operations or may not perform as well as expected. If we are unable to
successfully implement our business strategy, this could have a material adverse
effect on our financial condition and results of operations.
Our shift in business strategy could strain our managerial, financial and other
resources. We also cannot assure you that this shift in business strategy will
not interfere with our existing operations. The operation of the Bogoso Mine
demands substantial management resources and the shifting of our management
focus away from other business opportunities.
We may not be able to extend the life of the Bogoso mine beyond existing
- ------------------------------------------------------------------------
reserves.
- ---------
At March 1, 2000, existing oxide and transition ore reserves at the Bogoso
property were expected to be sufficient to continue mining operation until the
third quarter of 2000, with processing operations and gold production continuing
from stockpiles until mid-2001. There can be no assurance at this time however
that the treatment of transition ore reserves will be as efficient as we
anticipate. The potential within the property to discover additional oxide
mineralized material and establish reserves is limited. Actual results from
mining and processing existing resources or mill feed may also differ materially
from historical production rates and costs. Any of these factors could result in
our inability to generate sufficient cash flow to cover our operating and
exploration expenses on the Bogoso property, which would adversely affect our
financial liquidity and results of operations and our ability to make
distributions on our common shares.
Exploration is ongoing at Bogoso to identify reserves to extend the life of the
mine and investigations are underway into alternative sources of ore, such as
transitional mineralization and lower grade stockpile. In addition, based on
the results of an internal pre-feasibility study on the sulfide resource at
Bogoso, the Company has committed to additional drilling to increase the open
pittable sulfide reserves and to prepare a bankable feasibility study. It is
currently estimated that the study should be completed by the end of 2000. The
Company is also actively pursuing opportunities in the region that could expand
the life of the existing oxide operation at Bogoso and has recently concluded an
option agreement on a nearby property.
The technology and cost of production of sulfide mineralized material at the
- ----------------------------------------------------------------------------
Bogoso property may prove infeasible or uneconomic to warrant processing the
- ----------------------------------------------------------------------------
material.
- ---------
While sulfide mineralized material exists on the Bogoso property, technology
used by previous owners to process sulfide ore proved unsuccessful. While we
intend to re-examine the feasibility of processing sulfide mineralized material
using other proven technology, there can be no assurance this would become
feasible under any circumstances.
If we determine that mining of sulfide mineralized material is feasible, we
would need to establish sufficient reserves of sulfide ore to justify
establishing a sulfide operation. There is no assurance that sufficient reserves
exist, or can be established. Furthermore, mining and processing of sulfide ore
would require significant amounts of capital necessary for the design and
construction of a sulfide operation. We do not currently have access to this
capital and funding may be unavailable, whether from internal or external
sources, in the necessary amounts and on acceptable terms, or at all.
11
Cash flows from operation of the Bogoso property may be insufficient to meet our
- --------------------------------------------------------------------------------
obligations.
- ------------
Cash flows from operation of the Bogoso property may be insufficient to cover
future operating and exploration costs at the mine and to service our
debentures. In addition, operating and exploration costs could be materially
higher than previously estimated. Insufficient cash flows at BGL or higher than
expected costs could result in a significant deterioration in our ability to
conduct mining and exploration activities. We refer you to the discussion under
"We may not be able to extend the life of the Bogoso Mine beyond existing
reserves" above.
Our obligations may strain our financial position and impede our business
- -------------------------------------------------------------------------
strategy.
- ----------
We have a debt of $4.2 million under our debentures. This indebtedness may have
important consequences, including the following:
. increasing our vulnerability to general adverse economic and industry
conditions;
. limiting our ability to obtain additional financing to fund future
working capital, capital expenditures, operating and exploration costs
and other general corporate requirements;
. requiring us to dedicate a significant portion of our cash flow from
operations to make debt service payments, which would reduce our
ability to fund working capital, capital expenditures, operating and
exploration costs and other general corporate requirements;
. limiting our flexibility in planning for, or reacting to, changes in
our business and the industry; and
. placing us at a disadvantage when compared to those of our competitors
that have less debt relative to their capitalization.
We may have insufficient funds available to service our obligations under our
- -----------------------------------------------------------------------------
debentures after the anticipated mine life at the Bogoso property expires.
- --------------------------------------------------------------------------
We may experience difficulties in satisfying our obligations under our
debentures because the mine life at the Bogoso property is expected to be
shorter than the term of the debentures. Currently, we anticipate production
from the Bogoso mine to continue until mid-2001, while the term of the
debentures is five years, maturing in August 2004. If we are unable to extend
the mine life beyond its anticipated usefulness or are not successful in
generating sufficient free cash flow from other operations or sources, our
ability to repay amounts outstanding under the debentures would be materially
and adversely affected.
As a holding company, our operations are dependent on the ability of our
- ------------------------------------------------------------------------
subsidiaries and joint ventures to make distributions to us.
- ------------------------------------------------------------
We are a holding company that conducts a significant amount of our operations
through foreign (African and South American) subsidiaries and joint ventures,
and substantially all of our assets consist of equity in such subsidiaries and
joint ventures. Accordingly, we are and will be dependent on our ability to
obtain funds from our subsidiaries and joint ventures to make distributions to
our stockholders.
Ghanaian Tax Implications of the BGL Acquisition could affect our cash flow
- ---------------------------------------------------------------------------
projections.
- ------------
We believe that there are no negative Ghanaian tax implications of the
acquisition of BGL for the Company, and that the Government of Ghana will come
to the same conclusion, but there can be no assurance of this. If we were
subject to taxation on the Bogoso acquisition by the Ghanaian government, it
could materially and adversely affect our cash flow projections.
Certain employees' rights at BGL could have an adverse effect on our financial
- ------------------------------------------------------------------------------
condition and results of operation.
- -----------------------------------
12
In connection with the acquisition of BGL, the junior staff employees, most of
whom are Ghanaians and all of whom were members of a union, were terminated.
Immediately after the acquisition, BGL rehired approximately 272 junior staff
employees. The new employees have completed a probation period and have been
entitled since February to become members of a union. As a consequence, BGL
anticipates having to negotiate a collective agreement with a union in the next
six months. In the event those or other future staff members were to engage in
a strike or other work stoppage because of a disagreement over the collective
agreement or otherwise, we could experience a significant disruption of our
operations at the Bogoso Mine and higher ongoing labor costs, which could have a
material adverse effect on our business, financial condition and results of
operation.
We are subject to changes in the regulatory environment in Ghana.
- -----------------------------------------------------------------
Our mining operations and exploration activities in Ghana will be subject to
extensive regulation governing various matters, including:
. licensing . development
. production . exports
. taxes . labor standards
. water disposal . occupational health and safety
. toxic substances . environmental protection
. mine safety
Compliance with these regulations increases the costs of the following:
. planning
. designing
. drilling
. developing
. constructing
. operating, and
. mine and other facilities closure.
We believe that our operations and activities are currently in substantial
compliance with current laws and regulations. However, these laws and
regulations are subject to constant change. For example, the Ghanaian
government has recently adopted new, more stringent environmental regulations.
Amendments to current laws and regulations governing operations and activities
of mining companies or more stringent implementation or interpretation of these
laws and regulations could have a material adverse impact on us, cause a
reduction in levels of production and delay or prevent the development or
expansion of our properties in Ghana.
Government regulations limit the proceeds from gold sales that may be withdrawn
from Ghana. Changes in regulations that increase these restrictions would have
a material adverse impact on us as the Bogoso property will be our principal
source of cash.
We are subject to fluctuations in currency exchange rates.
- ----------------------------------------------------------
We conduct all of our exploration and development in countries other than Canada
and the United States. Our two most recent equity financing transactions were
in U.S. dollars but our funding has historically been through equity financing
transactions completed in Canada and in Canadian currency. We currently
maintain all or the majority of our working capital in U.S. dollars or U.S.
dollar denominated securities and convert funds to foreign currencies as payment
obligations become due. In addition, we currently have future obligations which
are payable in French francs and receivables collectible in French francs.
Finally, a significant portion of the operating costs at the Bogoso property is
based on the Ghanaian currency, the Cedi. BGL is required to convert only 20%
of the foreign exchange proceeds that BGL receives from selling gold into
Ghanaian Cedis, but the Government of Ghana could require BGL to convert a
higher percentage of such sales proceeds into Ghanaian Cedis in the future.
13
We currently do not actively take steps to hedge against currency exchange
risks. Accordingly, we are subject to fluctuations in the rates of currency
exchange between the U.S. dollar and these currencies, and such fluctuations may
materially affect our financial position and results of operations.
The Government of Ghana has the right to participate in the ownership and
- -------------------------------------------------------------------------
control of BGL.
- ---------------
The Ghanaian government currently has a 10% carried interest in BGL. The
Ghanaian government also has the right to acquire an additional 20% equity
interest in BGL for a price to be determined by agreement or arbitration. There
can be no assurance that the government will not seek to acquire an additional
equity interest in the mine, or as to the purchase price that the Government of
Ghana will pay for any additional equity interest. A reduction in our equity
interest could reduce our income or cash flows from BGL or the Bogoso property
and amounts available for reinvestment or distribution. (See "Item 2.
Description of Properties - The Bogoso Gold Mine - Government of Ghana Special
Rights".)
We have had to restate estimates of mineralized material in the past.
- ---------------------------------------------------------------------
There are numerous uncertainties inherent in estimating proven and probable
reserves and mineralized material, including many factors beyond our control.
The estimation of reserves and mineralized material is a subjective process and
the accuracy of any such estimate is a function of the quantity and quality of
available data and of the assumptions made and judgments used in engineering and
geological interpretation. Results of drilling, metallurgical testing and
production and the evaluation of mine plans subsequent to the date of any
estimate may justify revision of such estimates.
In the past, we have had to revise estimates of mineralized material disclosed
with respect to two of our projects. During the planning for additional
exploration work on these projects, it became apparent that the Company may not
have consistently applied industry and reporting standards in arriving at its
estimates and that additional controls were required. Consequently, we
disclosed new, revised estimates and put controls in place in the third quarter
of 1998 to address deficiencies in past estimation methods. These new controls
and procedures reflect standards recently adopted by the Toronto Stock Exchange
in Canada. The controls call for an internal or external review of all
estimates (prepared by the Company) of mineralized material and reserves by a
qualified person recognized professionally as competent for this type of review.
Under our new policy, it is only after the review that estimates of mineralized
material and reserves may be disclosed. These controls are aimed at insuring
that our estimates of mineralized material and reserves are made in accordance
with the best practices in the industry. We cannot, however, guarantee that
revisions to our estimates will not be required in the future.
Other things being equal, declining gold prices reduce our preexisting estimates
- --------------------------------------------------------------------------------
of mineralized material and reserves and can result in delays in development
- ----------------------------------------------------------------------------
until we can make new estimates using lower gold prices and determine new
- -------------------------------------------------------------------------
potential economic development options under the lower gold price assumptions.
- ------------------------------------------------------------------------------
Over the past few years, there has been a continued decline in world gold
prices. Accordingly, over the last year, we have reduced the estimates of our
mineralized material and reserves on various properties. These reductions
reflect our decision to re-estimate our mineralized material and reserves using
significantly lower gold prices. If gold prices continue at current levels or
decline further we may initiate additional significant write-downs of these
mineralized material and reserves.
In addition, because of lagging gold prices we have postponed development of the
Gross Rosebel project in Suriname. Should gold prices remain at their current
levels or decline further for an extended period, we may further postpone
development at Gross Rosebel until such time as alternative development options
involving other technologies or smaller scale operations can be defined and
determined by both the Company and its joint venture partner to be feasible
under lower gold price assumptions.
14
Recent low gold prices may require a hedging program against gold production at
- -------------------------------------------------------------------------------
the Bogoso property.
- --------------------
BGL is constantly reviewing whether or not, in light of recent low gold prices,
it would be appropriate to establish a hedging program against the production of
gold to protect the Company against further gold price decreases, but to date,
BGL and the Company have not decided to implement such a program. The
implementation of any hedging program may not, however, serve to protect
adequately against declines in the price of gold. In addition, if unsuccessful,
the costs of any hedging program may further deplete BGL financial resources.
Although a hedging program may protect us from a decline in the price of gold,
it may also prevent us from benefiting fully from price increases. For example,
as part of a hedging program, we may be obligated to sell gold at a price lower
than the then-current market price. This result may adversely affect our
ability to generate sufficient cash flow at a specified price level in order to
pay any top-up payments described below.
The price of gold may impact the purchase price for the Bogoso property.
- ------------------------------------------------------------------------
Our company and Anvil Mining NL, the other party to the Bogoso acquisition, will
be required to pay the consortium of banks that formerly owned BGL an amount in
U.S. dollars equal to the product of 183,333 multiplied by the amount by which
the average daily price of gold, also expressed in U.S. dollars, between the
date of the Bogoso acquisition and the top-up payment date (the second
anniversary of the acquisition date) exceeds $255 per ounce, up to a maximum of
$10 million (the "Top-Up Payment"). Our company has agreed to fund any Top-Up
Payment that may become payable. We are required to make a non-refundable
payment equal to 50% of the estimated Top-Up Payment one year after the date of
the Bogoso acquisition based on the average daily gold price for the prior year.
If the average price of gold decreases substantially after that date, we will
have paid more money for the Bogoso property than we might have otherwise paid
if the Top-Up Payment were made in full on the second anniversary of the date of
the Bogoso acquisition, when the remainder of this payment is due.
Certain of our mineral rights are subject to governmental approvals.
- --------------------------------------------------------------------
Guyanor currently holds ten type "B" permits, two of the Yaou permits initially
granted having expired in February 1998. Applications for the renewal of the
ten permits were filed within the legal deadline in 1996 and 1997 and are still
pending. The period of validity of the permits are, by law, extended until the
French administration takes a decision on the application. If renewed, the
permits would be valid for two years. The Company also filed two applications
for type "A" permits in 1997. One application covers the Yaou project and the
other covers the Dorlin project. The applications have been approved by the
DRIRE and were submitted to the Ministry of Mines for final approval. The type
"A" permits, if granted, would replace the type "B" permits. It is currently
contemplated that the type "A" permits will be granted directly to Societe
Miniere Yaou-Dorlin ("SMYD"), a French company, created by Cambior and Guyanor
to hold the Yaou and Dorlin mineral rights. Cambior and Guyanor will each hold
50% of the shares of SMYD. The applications are currently under review. It is
the Company's understanding that they could be granted by the end of March 2000.
In addition, French Guiana has no history or tradition of large-scale commercial
mining. Regulatory risk may increase as projects become more advanced and
applications are made for all of the various permits required to develop a
modern mining operation. This risk includes regulatory-related delays and/or
failures to receive required permits.
At Gross Rosebel, our Right of Exploration was scheduled to expire on March 21,
1997. The Government of Suriname has not yet approved the application for
renewal. Under the Mining Decree (Article 31), an existing right of exploration
remains legally in force until a decision on the application for renewal of the
right of exploration has been taken.
On May 7, 1997, Cambior and our company submitted a feasibility study and an
executive summary of the environmental impact study to the Government of
Suriname. The Government of Suriname has not yet approved the Feasibility Study
and EIS.
15
Operational hazards and responsibilities
- ----------------------------------------
Our activities are subject to a number of risks and hazards including:
. environmental hazards
. discharge of pollutants or hazardous chemicals
. industrial accidents
. labor disputes
. unusual or unexpected geological or operating conditions
. slope failures
. cave-ins
. failure of pit walls or dams
. fire
. changes in the regulatory environment
. natural phenomena such as inclement weather conditions, floods and
earthquakes, and
. other hazards.
These occurrences could result in damage to, or destruction of, mineral
properties or production facilities, personal injury or death, environmental
damage, delays in mining, monetary losses and possible legal liability. We may
incur liability as a result of pollution and other casualties. We may not be
able to insure fully or at all against such risks, due to political or other
reasons, or we may decide not to insure against such risks as a result of high
premiums or for other reasons. This can result in delayed production, increase
in production costs or liability. Paying compensation for obligations resulting
from such liability may be very costly and could have an adverse effect on our
financial position. Furthermore, insurance against certain risks (including
certain liabilities for environmental pollution or other hazards as result of
exploration and production) is not generally available.
Compliance with environmental regulations
- -----------------------------------------
We cannot assure you that compliance with existing regulations governing the
discharge of materials into the environment, or otherwise relating to
environmental protection, in the jurisdictions where we have projects will not
have a material adverse effect in the future on our exploration activities,
earnings, expenditures or competitive position. New or expanded regulations, if
adopted, could affect the exploration or development of our projects or
otherwise have a material adverse effect on our operations.
As a result of the foregoing risks, expenditures on any and all projects, actual
production quantities and rates and cash operating costs, among other things,
may be materially and adversely affected and may differ materially from
anticipated expenditures, production quantities and rates, and costs, just as
estimated production dates may be delayed materially, in each case. Any such
events can materially and adversely affect our business, financial condition,
results of operations and cash flows.
Gold exploration is speculative in nature.
- ------------------------------------------
Gold exploration involves a high degree of risk and exploration projects are
frequently unsuccessful. Few prospects that are explored end up being
ultimately developed into producing mines. The long-term success of our
operations is directly related to the cost and success of our exploration
programs. We cannot assure you that our gold exploration efforts will be
successful. The risks associated with gold exploration include:
. the identification of potential gold mineralization based on surficial
analysis
. the quality of our management and our geological and technical
expertise, and
. the capital available for exploration and development.
Substantial expenditures are required to determine if a project has economically
minable mineralization. It may take several years to establish proven and
probable reserves and to develop and construct mining and processing facilities.
As a result of these uncertainties, we cannot assure you that current and future
exploration programs will result in the discovery of ore reserves, the expansion
of our existing reserves and the development of mines.
16
Uncertainty involved in the development and operation of mining projects
- ------------------------------------------------------------------------
Mining projects frequently require a number of years and significant
expenditures during the mine development phase before production is possible.
Development projects are subject to the completion of successful feasibility
studies, issuance of necessary governmental permits and receipt of adequate
financing. The economic feasibility of such development projects is based on
many factors such as:
. estimation of reserves
. metallurgical recoveries
. future gold prices, and
. capital and operating costs of such projects.
For example, we have deferred the development of our Gross Rosebel project
until, among other things, we see improvements in gold prices.
Exploration and development projects have no operating history upon which to
base estimates of future operating costs and capital requirements. Estimates of
proven and probable reserves and operating costs determined in the feasibility
studies are based on geologic and engineering analyses. As a result, the risks
and uncertainties attached to an exploration company are very high.
We have a 70% interest in the Bogoso Mine in Ghana and a 30% interest in the
Omai Mine in Guyana. To that extent, we are subject to risks and hazards
inherent to the mining industry, including:
. unanticipated grade and tonnage of ore to be mined and processed
. unanticipated adverse geotechnical conditions
. costs of constructing and operating a mine in a specific environment
. processing and refining facilities
. availability of economic sources of energy
. adequacy of water supply
. adequate access to the site, unanticipated transportation costs
. government regulations (including regulations relating to prices,
royalties, duties, taxes, restrictions on production, quotas on
exportation of minerals, as well as the costs of protection of the
environment and agricultural lands)
. fluctuations in gold prices, and
. accidents, labor actions and force majeure factors.
The occurrence of any of these factors could materially and adversely affect the
development of a project and as a result our business, financial condition,
results of operations and cash flow. For example, the recovery rates at the
Bogoso mine have been lower than anticipated since the processing was switched
to transition ores in early March 2000. Although we are confident that
management will quickly resolves the problems, there can be no assurance the
recovery rates will be as projected.
Diamond exploration is highly speculative.
- ------------------------------------------
The exploration and development of diamond deposits involve exposure to
significant financial risks over a significant period of time. Very few
properties that are explored are ultimately developed into producing mines.
Major expenses over a period of several years may be required to establish
reserves by sampling and drilling and to construct mining and processing
facilities at a site. We cannot assure you that our current or future
exploration programs will result in profitable commercial diamond mining
operations.
Whether a diamond deposit will be commercially viable depends on a number of
factors, including the size of the deposit, the size, quantity and quality of
the diamonds, proximity to infrastructure, financing costs and governmental
regulations, including regulations relating to prices, taxes, royalties, land
tenure, land use, importing and exporting
17
of diamonds and environmental protection. We cannot accurately predict the
effect of these factors. We may not be able to receive an adequate return on
invested capital.
Marketability of diamonds depends on several factors.
- -----------------------------------------------------
If we discover an economically exploitable diamond deposit, the marketability of
the diamonds will be affected by numerous factors beyond our control. These
factors include the structure of the world diamond market, market fluctuations,
governmental regulations, including regulations relating to prices, taxes,
royalties, land tenure, land use, importing and exporting of diamonds and
environmental protection. We cannot accurately predict the exact effect of
these factors. The combination of these factors can impair our ability to
receive an adequate return on invested capital. The price for diamonds is,
among other things, based on the size, cut, color and quality of individual
diamonds sold and, to a lesser extent, the market supply and demand for diamonds
in general.
Our insurance coverage may be insufficient.
- -------------------------------------------
Although we maintain insurance in amounts that we believe to be reasonable, our
insurance may not cover the risks associated with our business. We may also be
unable to maintain insurance to cover these risks at economically feasible
premiums. Insurance coverage may not continue to be available or may not be
adequate to cover any resulting liability. Moreover, insurance against risks
such as environmental pollution or other hazards as a result of exploration and
production is not generally available to us or to other companies in the
industry on acceptable terms. We might also become subject to liability for
pollution or other hazards which we cannot insure against or which we may elect
not to insure against because of premium costs or other reasons. Losses from
these events may cause us to incur significant costs that could have a material
adverse effect upon our financial performance and results of operations.
We have experienced several, recent management and personnel changes.
- ---------------------------------------------------------------------
The departure of our former President and Chief Executive Officer, David A.
Fennell, in October 1998, combined with management's decision to reduce costs
during the continuing low gold price period, was followed by other resignations
of senior officers and directors during 1998 and 1999.
In addition, our Chief Financial Officer, our Controller, and a member of our
board resigned during the third quarter of 1999 and our Vice President,
Corporate Development resigned in January 2000. As a result of the upcoming
closure of our office in Guyana, it is anticipated that the Vice President in
charge of exploration for Guyana will cease to be a full-time employee of the
Company, but he has agreed to continue to represent the Company in Guyana as a
part-time consultant.
James E. Askew was appointed President and Chief Executive Officer in March 1999
but after his work to re-focus the Company and acquire the operating Bogoso
mine, he resigned in October 1999 to take a position in his native Australia.
Mr. Askew continues as a member of the board of directors. Mr. Peter J.
Bradford was appointed as his replacement effective November 1, 1999.
We currently do not anticipate any more resignations of senior management in the
short term but there can be no assurance of that. If we experience internal
changes involving key personnel in the future, finding replacements for them
could result in delays in carrying out our operational plans or significant
additional expenditures, which in turn could adversely affect our results of
operations.
Competition
- -----------
We compete with major mining companies and other natural resource companies in
the acquisition, exploration, financing and development of new prospects. Many
of these companies are more experienced, larger, and better capitalized than us.
There is significant competition for the limited number of gold and diamond
acquisition and exploration opportunities. Our competitive position depends
upon our ability to successfully and economically explore, acquire and develop
new and existing mineral prospects. Factors which allow producers to remain
competitive in the market over the long term are the quality and size of the ore
body, cost of operation, and
18
proximity to market. We also compete with other mining companies for skilled
geologists, geophysicists and other technical personnel. This may result in
higher turnover and greater labor costs.
Risks associated with illegal mining
- ------------------------------------
In French Guiana, Suriname, Ghana and Guyana, illegal miners have been working
on our properties despite the fact that we have hired security personnel to
protect our properties. The issue of illegal miners could lead to project
delays and disputes regarding the development or operation of commercial gold
deposits. The work performed by the illegal workers could cause environmental
damages for which we could potentially be held responsible.
In the event of a dispute arising at our foreign operations, we may be subject
to the exclusive jurisdiction of foreign courts or may not be successful in
subjecting foreign persons to the jurisdiction of courts in the United States or
Canada. We may also be hindered or prevented from enforcing our rights with
respect to a governmental entity because of the doctrine of sovereign immunity.
Risk associated with Cambior's financial problems and its possible impact on the
- --------------------------------------------------------------------------------
development of our projects
- ---------------------------
Cambior Inc., our 50% joint venture partner on the Gross Rosebel, Yaou and
Dorlin projects and the owner of a 65% common share equity interest in OGML, has
recently experienced serious financial problems as a result of the effect of
last fall's surge in the price of gold on its obligations under its bullion
hedging portfolio. In response thereof, Cambior announced a standstill
agreement with its financial creditors on October 27, 1999, whereby they took
additional security and increased interest rates and Cambior agreed, in part, to
modify its gold hedging position and to consider all possible courses of action
with a view to maximizing shareholder value, which actions may include
injections of additional equity or subordinated loan capital, asset sales, the
accelerated development of priority projects, business combinations, corporate
transactions and other alternatives. Moreover, in December 1999, Cambior
announced an agreement with its financial creditors, in which it agreed, amongst
other things, to reduce its debt by $75 million by June 30, 2000. Cambior has
since retained the services of a Canadian investment bank to maximize
shareholder value through the sale of its assets or other similar transactions.
As a result, the future of Cambior as a separate entity or the ownership of its
assets is uncertain (or in considerable doubt). The Company is therefore at
risk that Cambior (or its successor) could elect to defer or not to progress
exploration and development of any joint venture property. This, in turn, could
materially adversely affect the value of our investment in one or several of the
projects we have in joint ventures with Cambior. However, under the terms of
our joint venture agreements with Cambior, we have certain rights to prevent
Cambior from disposing of its interest in our projects to third parties,
including rights of first refusal. There can be no assurance however that we
will be able to successfully exercise any of these rights.
You may be subject to adverse tax consequences if we are classified as a Passive
- --------------------------------------------------------------------------------
Foreign Investment Company.
- ---------------------------
Under the United States Internal Revenue Code of 1986, we may be classified as a
passive foreign investment company (a "PFIC"). United States shareholders of a
PFIC are subject to certain adverse tax consequences, as discussed below. The
consequences can be mitigated, under certain circumstances, if the United States
shareholder makes a timely election to treat our company as a "qualified
electing fund".
PricewaterhouseCoopers LLP has advised us that we should not be treated as a
PFIC with respect to shares purchased by United States shareholders during the
years 1993 through 1999, although we could potentially be a PFIC with respect to
shares acquired by United States shareholders prior to 1993. We intend to
engage PricewaterhouseCoopers LLP, or any other advisor, in the future to
analyze whether we are a PFIC in subsequent years and will continue to notify
shareholders of the results of such future analyses.
There can be no assurance as to whether or not PricewaterhouseCoopers LLP, or
any other advisor, will conclude that we are a PFIC for such period. Moreover,
even if PricewaterhouseCoopers LLP, or any other advisor, concludes that we are
not a PFIC, its conclusion is not binding on the United States Internal Revenue
Service.
See Item 5. "Market for the Registrant's Common Equity and Related Stockholder
Matters--Certain United States Income Tax Considerations".
19
CONVERSION FACTORS AND ABBREVIATIONS
For ease of reference, the following conversion factors are provided:
1 acre = 0.4047 hectare 1 mile = 1.6093 kilometres
1 foot = 0.3048 metre 1 troy ounce = 31.1035 grams
1 gram per tonne = 0.0292 ounce per short ton 1 square mile = 2.59 square kilometres
1 short ton (2000 = 0.9072 tonne 1 square kilometre = 100 hectares
pounds)
1 metric tonne = 1,000 kg or 2,204.6 pounds
1 kilogram = 2.2 pounds or 32.151 troy ounce
The following abbreviations of measurements are used herein:
Au = gold m = metre
Ct = carat m2 = square metre
Ct/m2 = carats per square metre m3 = cubic metre
g = gram mg = milligram
g/t = grams of gold per tonne mg/m3 = milligrams per cubic metre
Ha = hectare t = metric tonne
Km = kilometre oz = troy ounce
Km2 = square kilometres ppb = parts per billion
Kg = kilogram
Note: All units in the text are stated in metric measurements unless otherwise
noted.
20
GLOSSARY OF TERMS
Note: The definitions of Proven (Measured) and Probable (Indicated) reserves set
forth below are those used in the United States by the Securities and Exchange
Commission and are set forth in SEC Industry Guide 7. (Formerly Form S-18, Item
17A.)
These definitions are substantially the same as those applied in Canada as set
forth in proposed National Instrument 43-101, the successor to National Policy
2-A and in Australia as set forth in the Australasian Code for Reporting of
Mineral Resources and Ore Reserves (the JORC code).
Reserve That part of a mineral deposit which could be
economically and legally extracted or produced at
the time of the reserve determination.
Proven (Measured) Reserves Reserves for which (a) quantity is computed from
dimensions revealed in outcrops, trenches,
workings or drill holes; grade and/or quality are
computed from the results of detailed sampling and
(b) the sites for inspection, sampling and
measurement are spaced so closely and the geologic
character is so well defined that size, shape,
depth, and mineral content of reserves are well-
established.
Probable (Indicated) Reserves Reserves for which quantity and grade and/or
quality are computed from information similar to
that used for proven (measured) reserves, but the
sites for inspection, sampling and measurement are
farther apart or are otherwise less adequately
spaced. The degree of assurance, although lower
than that for proven (measured) reserves, is high
enough to assume continuity between points of
observation.
The following definitions of the stages of the exploration and development
process are used by the Company. There can be no assurance that the terminology
used by the Company is consistent with the terminology used by other companies
in the mining industry or by industry analysts.
early stage an early stage exploration prospect typically involves one
or more targets within an area which have been determined to
merit further follow-up work based on a combination of
geological, geochemical and geophysical analysis. The
objective of an early stage prospect typically is to better
define targets that have the potential to be advanced to the
next state of exploration and level of financial commitment.
advanced stage an advanced exploration stage prospect typically involves
testing targets at depth and generating the information
necessary to develop a three dimensional geologic model of
the mineralized zone, which may be used to demonstrate
mineralized materials and/or reserves. This typically is
accomplished by trenching and drilling.
feasibility stage during the feasibility stage, exploration continues to
further increase confidence in mineralization while
attempting to further expand them. During this stage,
management of the project is often transferred to the
operating partner which develops in detail the necessary
engineering and costing for mining, processing, power and
infrastructure, as well as the designs for the plant and
equipment required to construct and operate a modern mining
operation. It is at the end of this stage that
mineralization may be categorized as proven and/or probable
reserves if a positive mining decision is justified. The
feasibility stage normally incorporates several phases of
work which involve increasing levels of detail including (i)
scoping study, (ii) pre-feasibility study, and (iii)
bankable feasibility study.
mine mining is the process of transforming a reserve into
benefits for its owners (debt, equity and employees),
governments and communities. Exploration continues during
the
21
mining process and, in many cases, reserves are expanded
during the life of the mine operations as the exploration
potential of the deposit is realized.
- --------------------------------------------------------------------------------
alluvium, alluvials a general term for clay, silt, sand, gravel or other
material deposited by a body of water usually during recent geological time
alteration any change in the mineral composition of a rock brought about by
physical or chemical means
anomaly a deviation from uniformity or regularity in geochemical or geophysical
quantities
assay to analyze the proportions of metals in an ore
basic an igneous rock having a relatively low silica content, sometimes
delimited arbitrarily as less than 54%
biooxidation a processing method which uses bacteria to oxidize refractory
sulfide ore to make it amenable to normal oxide ore processing techniques such
as carbon in leach
BLEG (Bulk Leach Extractable Gold) an analytical method for determining very
low levels of gold in material
Birimian a thick and extensive sequence of proterozoic age metamorphosed
sediments and volcanics first identified in the Birim region of southern Ghana
carbon in leach (CIL) an ore processing method involving the use of cyanide
where activated carbon which has been added to the leach tanks is used to absorb
gold containing solutions
caustic digestion a technique involving the application of strong acid to a
potentially diamond bearing rock sample so as to dissolve minerals completely
which are more susceptible to solution on exposure to acid. The remaining
undissolved minerals which are artificially concentrated may be studied to
determine the presence of diamonds or diamond indicator minerals
clastic a rock or sediment composed of broken fragments derived from
preexisting rocks or minerals
diamond drilling a variety of rotary drilling in which diamond bits are used as
the rock-cutting tool to produce a recoverable core of rock for observation and
assay
dilation deformation by an increase in volume
dyke a near vertical fracture in the earths crust which has been filled by an
intrusive rock
dip the angle that a structural surface, a bedding or fault plane, makes with
the horizontal, measured perpendicular to the strike of the structure
disseminated where minerals occur as scattered particles in the rock
elluvial an incoherent ore deposit resulting from decomposition or
disintegration of rock in place
fault a surface or zone of rock fracture along which there has been
displacement
felsic an adjective describing an igneous rock having most light colored
minerals and rich in Si, K and Na
fold a curve or bend of a planar structure such as rock strata, bedding planes,
foliation, or cleavage
formation a distinct layer of sedimentary rock of similar composition
geochemistry the study of the distribution and amounts of the chemical elements
in minerals, ores, rocks, solids, water, and the atmosphere
geological mapping the recording of geologic information such as the
distribution and nature of rock units and the occurrence of structural features,
mineral deposits, and fossil localities
geophysics the study of the earth; in particular the physics of the solid
earth, the atmosphere and the earth's magnetosphere
granodiorite a medium to coarse-grained intrusive igneous rock, intermediate in
composition between quartz diorite and quartz monzonite
granite a medium to coarse grained igneous intrusive rock in which quartz
constitutes 10 to 50 percent of the felsic components
greenstone a sequence of usually metamorphosed volcanic-sedimentary rock
assemblages
heap leach a mineral processing method involving the crushing and stacking of
an ore on an impermeable liner upon which solutions may be sprayed that dissolve
metals i.e. gold/copper etc.; the solutions containing the metals are then
collected and treated to recover the metals
hydrothermal the products of the actions of heated water, such as a mineral
deposit precipitated from a hot solution
Intrusion; Intrusive molten rock which is intruded (injected) into spaces or
fractures created in existing rock; spaces are created by a combination of
melting and displacement
Island-Arc Sequence rocks which originally formed adjacent to a continental
margin; Island-Arc sequences frequently contain rocks of both volcanic and
sedimentary origin
kimberlite an intrusive ultra-mafic rock which has ascended rapidly from the
mantle/lower crust margin to the surface of the earth; kimberlites frequently
contain diamonds
laterite highly weathered residual surficial soils and decomposed rocks, rich
in iron and aluminum oxides that are characteristically developed in tropical
climates
lamproite lamproites are ultra-mafic intrusive rocks with intrusion mechanisms
similar to kimberlites but with distinctly different chemical compositions;
lamproites have greater mineralogical and textural variations than kimberlites
mafic an adjective describing an igneous rock composed mostly of one or more
ferromagnesian, dark-colored minerals; also, said of those minerals
massive said of a mineral deposit, especially sulfides, characterized by a great
concentration of ore in one place, as opposed to a disseminated or veinlike
deposit
metasediment a sedimentary rock which shows evidence of having been subjected
to metamorphism
metavolcanic a volcanic rock which shows evidence of having been subjected to
metamorphism
mineral a naturally formed chemical element of compound having a definite
chemical composition and, usually, a characteristic crystal form
mineralization a natural occurrence in rocks or soil of one or more
metalliferous minerals
22
Mobile Metal Ion (MMI) a special geochemical method which detects low levels of
metals in soil and other surface samples
outcrop that part of a geologic formation or structure that appears at the
surface of the earth
polymetallic a deposit containing more than one metal
pyritization the in situ alteration of a rock involving the additional of
sulfur to the rock mass in fluids which reacts with both iron oxides and mafic
minerals resulting in the formation of Iron Sulfide (Pyrite) often referred to
as "fools gold"
Proterozoic the more recent time division of the Precambrian; rocks aged between
2500 and 550 million years old
pyritization the in situ alteration of a rock involving the additional of
sulfur to the rock mass in fluids which reacts with both iron oxides and mafic
minerals resulting in the formation of Iron Sulfide (Pyrite) often referred to
as "fools gold"
quartz crystalline silica; silicon dioxide
refractory ore containing gold that cannot be satisfactorily recovered by basic
gravity concentration or simple cyanidation
reverse circulation drilling (RC) a drilling method used in geological
appraisals whereby the drilling fluid passes inside the drill stem to a down-
the-hole precision bit and returns to the surface outside the drill stem
carrying chips of rock
rotary air blast drilling (RAB), a drilling method used in geological appraisals
whereby air or drilling fluid passes inside the inner tube of a double tube
system to a down-the-hole percussion bit and returns to the surface outside the
inner tube but inside the outer tube carrying chips of rock
saprolite a soft, earthy, clay-rich and thoroughly decomposed rock formed in
place by chemical weathering of igneous, sedimentary or metamorphic rocks which
retains the original structure of the unweathered rock
shear zone a tabular zone of rock that has been crushed and brecciated by many
parallel fractures due to shear strain
shear a form of strain resulting from stresses that cause or tend to cause
contiguous parts of a body of rock to slide relatively to each other in a
direction parallel to their plane of contact
shield a large area of exposed basement rocks often surrounded by younger
rocks, e.g. Guyana Shield
silicification the in situ alteration of a rock which involves an increase in
the proportion of silica minerals including quartz. The silica is frequently
introduced by hydrothermal solutions as for example in hot springs.
sill a near horizontal fracture in the earth's crust which has been filled by
an intrusive rock
stock an igneous intrusion that is less than 100 square kilometres in surface
exposure
stockwork a mineral deposit in the form of a network of veinlets diffused in
the country rock
strike the direction or trend that a structural surface, e.g. a bedding or
fault plane, takes as it intersects the horizontal
strip to remove overburden in order to expose ore
sulfide a mineral including sulfur (S) and Iron (Fe) as well as other elements
surficial situated, formed, or occurring on or close to the Earth's surface
syncline a concave downward fold, the core of which contains the
stratigraphically younger rocks
Tarkwaian a scattered group of mainly shallow water sedimentary rocks of
proterozoic age named after the town of Tarkwa in southern Ghana where they were
found to be gold bearing
tourmalinization the in situ alteration of a rock which involves the
development of tourmaline type minerals. The alteration is generally medium to
high temperature and is frequently accompanied by silicification
tuff volcanic rocks which consist of generally fine grained material ejected
from a volcano; particle sizes vary from very fine grained ash to coarser, bean
to nut size pebbles which are known as "Lapilli"
ultramafic an igneous rock composed chiefly of mafic minerals with unusually
high % of Mg, Ca and Fe
vein a thin, sheetlike crosscutting body of hydrothermal mineralization,
principally quartz
volcanic massive sulfide (VMS) mineral deposits formed by volcanic processes
and the activities of thermal springs at the bottom of bodies of water
volcanics those originally molten rocks, generally fine grained, that have
reached or nearly reached the Earth's surface before solidifying
volcano/sedimentary rocks composed of materials of both volcanic and sedimentary
origin
wall rock the rock adjacent to a vein
weathering the destructive process constituting that part of erosion whereby
earthy and rocky materials on exposure to atmospheric agents at or near the
Earth's surface are changed in character with little or no transport of the
loosened or altered material
23
FIGURE 1
MAP - SOUTH AMERICA
Map of "OPERATIONS IN SOUTH AMERICA" showing significant project locations in
Guyana, Suriname, and French Guiana.
FIGURE 2
MAP - AFRICA
Map of "OPERATIONS IN AFRICA" showing significant project locations in Ghana
and Ivory Coast.
24
ITEM 2. DESCRIPTION OF PROPERTIES
- ------- -------------------------
Introduction
As of March 1, 2000, the Company owned, or had entered into agreements to
acquire, direct and indirect, interests in mineral properties located in the
following countries: Guyana, France (French Guiana), Suriname, and Brazil in
South America as well as Ghana, Kenya and the Ivory Coast in Africa.
As a result of our change of corporate strategy in 1999 and the acquisition of
the Bogoso mine in Ghana, and with the continuing weak gold prices, the Company
has decided to close its offices in Ivory Coast and Kenya and to relinquish its
rights on the Abacaxis and Andorinhas projects in Brazil, the Tortiya and
Koutoukounou projects in Ivory Coast and all of its projects in Bolivia. In
addition, the Company has decided to close its permanent office in Guyana
although it will maintain a presence in the country. The Company's other early
stage projects continue to be on care and maintenance. The locations of the
Company's most significant projects are indicated in Figures 1 and 2 above.
The Company's projects are situated in geologic domains known as greenstone
belts, which are ancient volcanic-sedimentary rock assemblages. Greenstone
belts are known to be favorable geologic environments for gold mineralization
and account for a significant proportion of the world's gold production, (e.g.,
the greenstone belts of the Canadian Shield in Eastern Canada, the Pilbara and
Yilgarn Blocks of Western Australia, the greenstone belts of East and West
Africa and the Guiana and Brazilian Shields of South America). In addition, as
a result of the Company's expertise in the Guiana Shield, a regional exploration
program was also conducted to search for possible primary diamond sources. The
diamond exploration program has led to the identification of diamond targets in
French Guiana, Suriname and Guyana. In light of the need to reduce exploration
expenditures, the Company's diamond exploration efforts are currently focused in
French Guiana.
Gold exploration and mining have, in the past, been conducted within most of the
areas where the Company's properties are located. However, with a few
exceptions, including in particular the Bogoso gold mine in Ghana, the areas
have yielded comparatively few large-scale mining operations, due largely to a
difficult physical environment, poor infrastructure, and until recently, adverse
political and business conditions. Although there are, or have been, numerous
artisanal mining operations scattered throughout the areas where the Company's
properties are located, with very few exceptions, these areas had not until
recently been fully explored and mined with modern techniques and equipment.
All of the Company's mineral properties are located in developing countries,
with the exception of France (French Guiana). There are certain business and
political risks inherent in doing business in developing countries. In
particular, the regulatory framework for conducting mining and exploration
activities in these countries, including the tax and general fiscal regimes and
the manner in which rights and title to mineral properties are established and
maintained, are often uncertain, incomplete, in a state of flux or subject to
change without notice. Further, in many of the countries in which the Company's
projects are located, it may not be economically feasible to develop a
commercial mine unless special tax or other fiscal and regulatory concessions
are obtained from the applicable governmental and regulatory authorities. Such
concessions are typically sought in a mineral agreement (also known as foreign
investment agreements and establishment agreements). A mineral agreement thus
serves to establish the legal and financial framework pursuant to which mining
will take place in countries where such framework might be otherwise unclear,
uncertain or not commercially viable. There can be no assurance, however, that
the Company will be able to execute or enforce satisfactory mineral agreements
or obtain satisfactory political risk insurance on commercially reasonable terms
for any or all of its properties. Consequently, the Company may have to abandon
or relinquish otherwise valuable mineral rights if it determines that it will
not be able to profitably exploit any discovery under existing laws and
regulations.
25
Total consolidated expenditures and property abandonment costs for the Company's
exploration projects for the fiscal year ended December 31, 1999 under Canadian
GAAP were as follows:
Acquisition, Acquisition,
Deferred Property Deferred
Exploration Joint Abandon- Exploration
and Capitalized Capitalized Venture ments / and
Development Exploration Acquisition Recov- Write- Development
Costs as at Expenditures Expenditures eries in downs in Costs as at
12/31/98 in 1999 in 1999 1999 1999 12/31/99 (5)
=============================================================================================
In Thousands of Dollars
GUYANA (1)
Eagle Mountain $ 1,364 $ - $ - $ - $ - $ 1,364
Quartz Hill 1,347 - - - (1,347) -
Five Stars Gold 819 9 - - (828) -
Other 57 376 - - (310) 123
---------------------------------------------------------------------------------------------
Sub-total 3,587 385 - - (2,485) 1,487
---------------------------------------------------------------------------------------------
SURINAME (1)
Benzdorp / Lawa 3,352 - - - (3,352) -
Gross Rosebel 14,543 742 - (372) - 14,913
Headley's Right of Exploration
313 1 - - (314) -
Thunder Mountain 456 1 - - (457) -
Saramacca 1,973 2 - (6) (1,969) -
Sara Kreek 588 - - - (588) -
Tempati Reconnaissance 347 1 - - (348) -
Tapanahony Reconnaissance 234 - - - (234) -
Kleine Saramacca 107 - - - (107) -
Lawa Antino 2,109 36 - - (2,145) -
Ulemari Reconnaissance 237 - - - (237) -
Other 283 227 - - (298) 212
---------------------------------------------------------------------------------------------
Sub-total 24,542 1,010 - (378) (10,049) 15,125
---------------------------------------------------------------------------------------------
FRENCH GUIANA (2)
(Guyanor Ressources S.A.)
Dorlin 2,363 796 - (551) - 2,608
St-Elie 2,377 209 - - (2,586) -
Yaou 7,486 413 - (266) - 7,633
Paul Isnard / Eau Blanche 4,650 796 - - - 5,446
Paul Isnard Alluvials 1,987 - - - - 1,987
Dachine 1,481 764 - (525) - 1,720
Other - 51 - (51) - -
---------------------------------------------------------------------------------------------
Sub-total 20,344 3,029 - (1,393) (2,586) 19,394
---------------------------------------------------------------------------------------------
AFRICA
(Pan African
Resources Corporation (3))
Ivory Coast / Tanda 4,304 222 - - (2,845) 1,681
Kenya / Ndori 2,565 52 - - (2,617) -
(Bogoso Gold Limited (4))
Riyadh - 5 70 - - 75
Bogoso Sulfide - 160 - - - 160
---------------------------------------------------------------------------------------------
Sub-total 6,869 439 70 - (5,462) 1,916
---------------------------------------------------------------------------------------------
LATIN AMERICA (1)
Brazil / Abacaxis 2,498 400 - - (2,898) -
Brazil / Other 275 90 - - (365) -
---------------------------------------------------------------------------------------------
Sub-total 2,773 490 - - (3,263) -
---------------------------------------------------------------------------------------------
OTHER 88 - - - (88) -
---------------------------------------------------------------------------------------------
TOTAL $58,203 $ 5,353 $ 70 $(1,771) $ (23,933) $37,922
=============================================================================================
(1) A division of the Company.
(2) Approximately 71% owned by the Company.
(3) A wholly-owned subsidiary of the Company.
(4) A 70% owned subsidiary of the Company.
(5) Our holdings include ownership interests, royalty interests, leases, options
and joint venture interests in varying percentages.
26
THE BOGOSO GOLD MINE
Bogoso Gold Limited ("BGL") is the owner of an operating gold mine and related
assets (the "Bogoso Property") located on the Ashanti Trend in the Republic of
Ghana. Golden Star controls 70% of the common shares of BGL and Anvil Mining
NL, a public exploration and development company whose shares are listed on the
Australian Stock Exchange ("Anvil"), controls another 20%. The Government of
Ghana controls the remaining 10%. The Government of Ghana is entitled at all
times to hold a 10% carried interest in all the rights and obligations of BGL.
The Government acquired this interest for no consideration and is not required
to contribute any funds to pay any BGL expenses.
Ghana is situated on the West Coast of Africa, approximately 750 kilometers
north of the equator on the Gulf of Guinea, and Accra, the capital city of
Ghana, is located on the Greenwich Meridian. After a period as a British
colony, Ghana achieved independence in 1957 and it is now a republic with a
democratically elected government. Ghana has a population of approximately 18
million people, with English being the official and commercial language. The
total land area of the country is approximately 238,000 km2 and the topography
is relatively flat. Ghana has a tropical climate with two rainy seasons and two
dry seasons.
The Bogoso Property comprises an operating gold mine on two mining leases,
covering an aggregate area of 95 square kilometers. BGL owns the Bogoso
Property, mines ore from several open pits and processes the ore at a processing
plant that it built on the property in 1991. The plant uses conventional
carbon-in-leach (CIL) technology to extract gold from the ore and has been
producing approximately 100,000 to 110,000 ounces of gold per year since it was
built.
The Bogoso Property is located in western Ghana approximately 35 kilometers
northwest of the town of Tarkwa from where it can be reached by accessible
roads. A paved road runs down most of the 18.5 kilometers length of the
property and connects the town of Bogoso in the northeast with the town of
Prestea in the southwest. Another paved road provides access to a sealed
airstrip located at the town of Obuasi, some 115 km to the north. The mining
areas are connected by gravel haul-roads to the treatment plant.
The Government of Ghana issued a gold prospecting license to BGL on November 7,
1986, granting BGL the right to prospect for gold in a prospecting area of
approximately 148 square kilometers for a three-year term commencing on May 12,
1986. On August 21, 1987, the Government of Ghana granted BGL a 30-year mining
lease giving BGL the exclusive right to work, develop and produce gold in a
mining area of 50 square kilometers within this prospecting area. On August 16,
1988, the Government of Ghana granted BGL a second 30-year gold mining lease
covering an additional 45 square kilometers area adjacent to the first mining
area. Under the above mining leases (the "Mining Leases"), BGL now holds gold
mining rights in a mining area totaling 95 square kilometers, subject to the
payment of nominal annual rents.
The Acquisition
The acquisition by Golden Star and Anvil of 70% and 20%, respectively, of the
shares of BGL was completed on September 30, 1999 pursuant to a purchase
agreement among the Company, Anvil and a consortium of banks led by the
International Finance Corporation ("IFC") and Deutsche Investitions und
Entwicklungsgesellschaft mbH of Germany ("DEG"). The transaction also included
the acquisition by way of assignment to Golden Star and Anvil of 78% and 22%,
respectively, of the existing indebtedness of BGL (the "BGL Debt"), which
represented at closing approximately $34 million now owed by BGL to Golden Star
and Anvil. The Government of Ghana is entitled to receive approximately
$460,000 of the shareholder advances to be repaid by BGL following the repayment
of the principal and interest accrued thereon remaining owed under the BGL Debt.
The principal and interest accrued under the BGL Debt and the outstanding
shareholder advances will have to be repaid to Golden Star and Anvil in
proportion to their respective interests before any dividend is declared to the
shareholders of BGL. BGL has no external debt other than that acquired by and
owed to Golden Star and Anvil.
The Company and Anvil will be required to make additional future payments to the
consortium of banks, depending on the then current price of gold and the
potential acquisition of ore in Ghana outside of the region of BGL's mining
interests. These additional payments are capped at $10 million in total. The
gold price related payments are due as
27
to 50% one year after closing and 50% at the earlier of production of gold
ceasing or the second anniversary after closing. The Company is obligated to
escrow the estimated payments six months and 18 months after closing,
respectively. These payments are equal to the product (in U.S. dollars) of
183,333 and the amount, if any, that the average daily gold price (in U.S.
dollars in the London Bullion Market Association p.m. gold fix) over the period
from closing to the payment dates exceeds $255 per ounce. The Company has
accrued $6.4 million in additional purchase price in the fourth quarter, based
on its estimate that the gold price will average $290 per ounce for the
remainder of the Bogoso mine life. The payment made on the first anniversary of
the acquisition will be non-refundable and will be credited against any payment
due on the second anniversary. The Company is depleting this amount on a units-
of-production basis over production from proven and probable reserves.
The resource acquisition linked payment will be triggered if minable reserves
equivalent to 50,000 ounces of gold are acquired elsewhere in Ghana for
processing at the Bogoso mill. In this case, Golden Star and Anvil will make an
additional payment to the consortium of banks on the second anniversary of
closing of $2.0 million, irrespective of the gold price, but subject to the $10
million cap.
The Company is also required to make production related payments to the provider
of the credit facility arranged for, but not used to effect, the acquisition of
BGL. The Company is required to pay $0.25 million for every 12- month period
that BGL produces over 75,000 ounces of gold. Based on proven and probable
reserves, the Company has accrued $0.5 million (for two years' production) and
is depleting this amount over production from proven and probable reserves.
This payment is capped at $1.3 million and extends over six years. In
connection with the credit facility arranged for, but not used, the Company
issued three-year warrants to acquire 1.5 million common shares of the Company
(see Note 12).
The Company and Anvil will be required to pay the selling consortium of banks
led by the IFC and DEG an additional $5.0 million on the first anniversary of
the commencement of treatment of sulfide ore at BGL's facility, for which a
feasibility study has been recently initiated. Management currently expects
that this payment will not be due before 2002. This payment, if made, will be
amortized over the remaining life of the mine. Due to the contingent nature of
this consideration, the Company has not recorded any liability as part of the
purchase price allocation for the BGL acquisition.
Based on current gold prices, revenues from the Bogoso Property are anticipated
to be sufficient to cover all operating and capital costs for BGL. Cash flow
from the Bogoso Property in excess of operating and capital costs will be used
to pay interest and principal on the BGL Debt acquired by way of assignment to
the Company and Anvil. Any remaining cash will be distributed to the
shareholders of BGL, including Golden Star through dividends on BGL common
shares. The Company will receive all of the interest and principal
distributions from BGL until it recovers the initial purchase price plus all
associated acquisition and financing costs incurred by it, including any
purchase price adjustment for the acquisition of the Bogoso Property. Based on
current gold prices, cash distributions to the Company from Bogoso are expected
to be sufficient to cover the interest on debentures issued on August 1999 as
part of a public offering and to fund Golden Star's other operating requirements
at least until mid-2001.
Government of Ghana Special Rights
The Government of Ghana is entitled to acquire an additional 20% interest in
BGL. If the Government of Ghana wishes to exercise this right, it must give
reasonable notice to BGL. It must also pay such purchase price for the
additional 20% interest as the Government of Ghana and BGL may agree on at the
time. If there is no agreement, the purchase price will be the fair market
value of such interest at such time as determined by arbitration conducted by
the International Centre for the Settlement of Investment Disputes. The
Government of Ghana may also acquire further interests in BGL on terms mutually
acceptable to the Government and BGL.
The Government of Ghana is entitled to acquire a special or golden share in any
mining company at any time for no consideration or such consideration as the
Government of Ghana and BGL may agree. The special share will constitute a
separate class of shares with such rights as the Government of Ghana and BGL may
agree. In the absence of such agreement, the special share will have the
following rights:
28
. the special share will carry no voting rights, but the holder will be
entitled to receive notice of and attend and speak at any general meeting
of the members or any separate meeting of the holders of any class of
shares;
. the special share may only be issued to, held by or transferred to the
Government or a person acting on behalf of the Government;
. the written consent of the holder of such special share must be obtained
for all amendments to the organizational documents of the company, the
voluntary winding-up or liquidation of the company or the disposal of any
mining lease or the whole or any material part of the assets of the
company; and
. the holder of the special share will be entitled to the payment of a
nominal sum of 1,000 Ghanaian Cedis in a winding-up or liquidation of the
company in priority to any payment to other members and may require the
company to redeem the special share at any time for a nominal sum of 1,000
Cedis.
BGL has not issued or been requested to issue to date, any such special share to
the Government of Ghana.
The Government of Ghana has a pre-emptive right to purchase all gold and other
minerals produced by BGL. The purchase price will be such price as the
Government of Ghana and BGL may agree on, or the price established by any gold
hedging arrangement between BGL and any third party approved by the Government,
or the publicly quoted market price prevailing for the minerals or products as
delivered at the mine or plant where the right of preemption was exercised. The
purchase price must be paid in foreign exchange. The Government of Ghana has
agreed to take no preemptive action pursuant to its right to purchase such gold
or other minerals so long as BGL sells gold in accordance with certain
procedures for selling gold approved by the Bank of Ghana.
Royalties
Under the laws of Ghana, a holder of a mining lease is required to pay a royalty
of not less than 3% and not more than 12% of the total revenues earned from the
lease area. The royalty is payable on a quarterly basis. The Government of
Ghana levies a royalty on BGL based on the profitability of its mining
operations. The royalty is determined by the application of an operating ratio
expressed in terms of the percentage that the operating margin bears to the
value of gold from mining operations in every year. The total royalty paid in
1999 was 3% of total revenues.
Heads of Agreement with Anvil
The Company entered into a Heads of Agreement with Anvil (the "Anvil Agreement")
outlining the key commercial terms and conditions under which the Company and
Anvil agreed to associate themselves in a joint venture for the acquisition of
BGL. The Company agreed to provide all of the funds for the initial purchase
price and other acquisition costs for the acquisition of BGL. The Company
provided Anvil a loan of $2.3 million (the "Anvil Loan") to fund Anvil's share
of the BGL acquisition costs. The Company charges Anvil interest at a rate of
15% per year compounded monthly. In addition, Anvil's share of the accrued
additional purchase price at December 31, 1999 was $1.5 million. All of the
cash distributions from BGL, including Anvil's share, that are not paid to the
Government of Ghana, will be paid to the Company until all of the acquisition
costs, including interest, have been repaid. Anvil granted the Company a
security interest in its share of BGL's shares and debt. If Anvil does not
repay the Anvil Loan, the Company has certain security interests granted by
Anvil but the Company will not have any other rights against Anvil or Anvil's
other assets. In consideration for the Anvil Loan, Anvil issued to the Company
two options (the "Anvil Options") that entitle the Company to purchase, at any
time prior to September 30, 2001, up to 7 million Anvil shares at a price of
Aus$0.10 per share.
If the Company or Anvil fails to pay or cause to pay its share of any approved
BGL expense, the other party may advance the required funds on its behalf. The
advance will be treated as a demand loan bearing interest at LIBOR plus 3%. If
the defaulting party fails to repay that loan within 60 days, its participating
interest in BGL will be diluted. The dilution will be a "straight-line"
dilution under which the participating interest of the defaulting party will be
reduced to the percentage that the total of its BGL contributions bears to the
total BGL contributions made by both the defaulting party and the non-defaulting
party. The participating interest of the non-defaulting party will be increased
by the corresponding amount. If the participating interest of either the
Company or Anvil is diluted to less than 10%, the remaining participating
interest of that party in BGL will be automatically converted into a right
29
to receive 5% of the net profits received from BGL after Golden Star has
recouped all of the Bogoso Acquisition Costs, plus accrued interest thereon.
So long as the Company holds at least a 50% equity interest, it will have the
right to nominate a majority of the members of the board of directors of BGL.
It will also have the right to nominate the Chairman of the BGL board as well as
the managing director of BGL. Mr. Peter Bradford, President and Chief Executive
Officer of the Company is the current Chairman of the BGL board and Mr. Richard
Gray is the Managing Director of BGL.
Geology
The Bogoso Property lies within the West African Precambrian shield, a
geological formation that hosts three important Lower Proterozoic
volcano/sedimentary sequences that are particularly important for gold mining:
the Lower Birmian, the Upper Birimian and the Tarkwaian. The area is dominated
by a major northeast-southwest trending structural feature referred to as the
"Ashanti Trend" which extends over 200 kilometers and hosts deposits of the
Ghana Gold Belt. This structure is closely aligned with the faulted contact
zone between the metasedimentary and metavolcanic units of the Birimian and the
clastic rocks of the Tarkwaian.
In the Bogoso area, the faulted contact zone is known as the "Main Crush Zone"
and passes through the central part of the Bogoso Property for its entire 18.5-
kilometer length. The Main Crush Zone lies within a structural corridor that
varies in width from 1,000 to 2,500 meters. Some 90% of the gold mined to date
at the Bogoso Property has come from the Main Crush Zone with the larger
deposits being located at bends and junctions along this major fault.
Additional faults and splays in the structural corridor may also be prospective
for gold. The oxide ores tend to have fine-grained free gold that has been
liberated during the weathering of pre-existing sulfides and oxidation extends
from surface down to the approximate elevation of the water table. Below this,
a transition zone of up to 20 meters of partially oxidized material directly
overlies fresh sulfide mineralization.
Historical Mining Operations
Gold was first commercially mined at the Bogoso Property in the early 20th
century. In 1935, Marlu Gold Mining Areas Ltd. started mining high-grade oxide
ore from a series of open pits extending south from Bogoso North to Buesichem,
just south of the Bogoso Property. Marlu also mined a small amount of ore from
underground at Bogoso North, Marlu and Bogoso South. Marlu was mining the
Buesichem pit when it shut down the mine operations in 1955. According to BGL's
records, during its 20-year period of operations from 1935 to 1955, Marlu
produced over 900,000 ounces of gold at an average recovered grade of 3.73 g/t.
Billiton PLC, then a unit of the Royal Dutch Shell group, took control of the
Bogoso Property in the late 1980's. The initial feasibility study established a
minable reserve of 5.96 million tonnes grading 4.0 grams gold per tonne, of
which 461,000 tonnes (or less than 8%) comprised oxide ore. The feasibility
study forecast gold recoveries of 83% from sulfide ore and 78% from oxide ore
and estimated a waste to ore ratio of 5.6:1. Construction of a mining and
processing facility was completed in 1991. The facility was designed to process
oxide ores by using conventional CIL technology at a design capacity of 1.36
million tonnes per year and to process sulfide ores by using flotation, fluid
bed roasting and CIL technology at a design capacity of 0.9 million tonnes per
year.
Billiton encountered serious operation difficulties with the fluid bed roaster,
which did not function as anticipated because the sulfide level in the
concentrate was less than expected and because the clay content of the feed was
higher than expected. Mechanical problems also occurred. As a result, Billiton
closed the flotation circuit and roaster in early 1994. Following closure of
the roaster, Billiton focused the Bogoso operations on oxide ore. The CIL plant
has a capacity of approximately two million tonnes of oxide ore per year.
However, only a few months of oxide ore were available at that time. Basic
exploration has been successful in adding to the available quantity of oxide ore
and the mine has operated as an oxide-only operation since 1994. Operating cash
flows funded all the exploration costs.
Production and Reserves of Bogoso
Gold production from 1991 through 1999 totaled 901,902 ounces. Gold production
from January to December 1999 was 130,465 ounces, compared to 122,585 ounces in
1998 and 108,186 ounces in 1997. The 6.4% increase in
30
production in 1999 was primarily attributable to a higher average head grade of
2.31 g/t compared to 2.19 g/t in 1998 and to 2.05 g/t in 1997. Throughput
averaged approximately 5,958 tonnes per day during 1999, compared to 5,553
tonnes per day during 1998 and 5,229 tonnes per day during 1997. Gold recovery
rates were 81.4% in 1999 compared to 85.8% in 1998, while direct operating
costs, including royalties, were $190 per ounce in 1999 compared to $215 per
ounce experienced in 1998. Quarterly production statistics for the Bogoso Mine
for 1999 are as follows:
--------------------------------------------------------------------
1999
- -------------------------------------------------------------------------------------
First Second Third Fourth Total / Average
Quarter Quarter Quarter Quarter 1999
- -------------------------------------------------------------------------------------
Ore milled (T) 521,613 533,657 524,131 577,457 2,156,858
- -------------------------------------------------------------------------------------
Rate (T/day) 5,796 5,864 5,697 6,277 5,958
- -------------------------------------------------------------------------------------
Grade (g/t) 2.31 2.25 2.20 2.47 2.31
- -------------------------------------------------------------------------------------
Recovery (%) 89.2 81.7 76.3 78.7 81.4
- -------------------------------------------------------------------------------------
Gold Production (oz) 34,516 31,555 28,317 36,074 130,465
- -------------------------------------------------------------------------------------
Cash cost of production ($/oz) 199 209 206 152 190
- -------------------------------------------------------------------------------------
For 2000, the Bogoso Gold Mine is expected to produce approximately 114,000
ounces of gold at a direct operating cost of approximately $194 per ounce.
Throughput is budgeted at approximately 5,748 tonnes per day. Head grades are
anticipated to average 2.45 g/t with a budgeted gold recovery of 69%. During
2000, the stripping of waste is expected to result in a waste to ore ratio of
approximately 2.6:1.
BGL has reported its Proven and Probable Reserves for year-end 1999 using a $290
gold price. BGL's Proven and Probable Reserves at December 31, 1999 stood at
3.263 million tonnes at an average grade of 2.2 g/t, representing approximately
0.230 million ounces of gold. This is compared to Proven and Probable Reserves
at December 31, 1998 of 1.685 million tonnes at an average grade of 2.8 g/t,
representing approximately 0.150 million ounces of gold. The increase
represents the results of additional drilling of previously identified
mineralized material and its subsequent conversion to reserves and the inclusion
of low grade stockpiled material. The qualified person responsible for the
estimation of reserves at Bogoso Gold Mine is Mr. Emmanuel Mensah-Aborampah,
Projects Superintendent. SRK (UK) Limited have confirmed that the format of the
reporting of the ore reserves and mineral resources (mineralized material)
closely follows the guidelines and terminology set out in the Australasian Code
for reporting of Identified Mineral Resources and Ore Reserves (the JORC Code).
Reserves at Bogoso are derived from multiple sources including the Southern
pits, Central pits, Northern pits and Stockpiles. The following table
summarizes reserves from these sources at year-end 1998 and 1999:
---------------------------------------------------------------------------------------
December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------------------
Proven and Probable Grade Contained Proven and Probable Grade Contained
Reserves (1) (g/t) Gold (oz) Reserves (1) (g/t) Gold (oz)
(tonnes) (tonnes)
- --------------------------------------------------------------------------------------------------------------
Southern Pits 237,000 2.5 19,255
- --------------------------------------------------------------------------------------------------------------
Central Pits 500,000 2.9 45,976 1,342,000 2.9 122,967
- --------------------------------------------------------------------------------------------------------------
Northern Pits 857,000 3.3 90,666 257,000 2.7 22,144
- --------------------------------------------------------------------------------------------------------------
Stockpiles 1,669,000 1.4 73,372 86,000 1.6 4,424
- --------------------------------------------------------------------------------------------------------------
Total 3,263,000 2.2 229,269 1,685,000 2.8 149,535
- --------------------------------------------------------------------------------------------------------------
(1) Reserves are calculated using a price of gold $290 per ounce with a cutoff
grade of 1.2g/t
The Company has estimated its 70% share of Proven and Probable Reserves at
Bogoso, as 2.28 million tonnes grading 2.2 g/t.
Mineralized Material
At year-end 1999, BGL reported mineralized material for the Bogoso Gold Mine,
using a $325 gold price, as 15.89 million tonnes grading 2.9 g/t. Mineralized
material is reported exclusive of reserves that have been reported above. The
Company has estimated its 70% share of mineralized material at Bogoso, as 11.13
million tonnes grading 2.9
31
g/t. The qualified person responsible for the estimation of mineralized material
at Bogoso Gold Mine is Mr. Albert Soboh, Chief Geologist. SRK (UK) Limited have
confirmed that the format of the reporting of the ore reserves and mineral
resources (mineralized material) closely follows the guidelines and terminology
set out in the Australasian Code for reporting of Identified Mineral Resources
and Ore Reserves (the JORC Code).
Mineralized material at Bogoso is derived from three sources: the Northern Pits,
the Central Pits and the Southern Pits. The following table summarizes
mineralized material for these sources at year-end 1999:
----------------------------------------------------------------------------------------------------------------------
Oxide Transition Sulfide
----------------------------------------------------------------------------------------------------------------------
Location Tonnes Grade (g/t) Tonnes Grade (g/t) Tonnes Grade (g/t)
----------------------------------------------------------------------------------------------------------------------
Northern Pits 953,000 1.5 755,000 2.7 1,262,000 4.3
----------------------------------------------------------------------------------------------------------------------
Central Pits 161,000 2.1 1,328,000 2.7 8,787,000 3.2
----------------------------------------------------------------------------------------------------------------------
Southern Pits 549,000 1.5 1,053,000 2.0 1,046,000 2.7
----------------------------------------------------------------------------------------------------------------------
Total(1) 1,663,000 1.6 3,136,000 2.4 11,095,000 3.3
----------------------------------------------------------------------------------------------------------------------
(1) Under the Australian JORC standards used by BGL, the mineralized material
reported above would have been reported as Measured Resources of 2,343,000
tonnes, grading 1.9 g/t, Indicated Resources of 12,502,000 tonnes, grading 3.1
g/t and Inferred Resources of 1,049,000 tonnes, grading 2.4 g/t.
Mineralized material does not represent reserves and has not been included in
the Company's proven and probable reserve estimates. Even though drilling and
trenching indicate sufficient tonnage and grade to warrant further exploration
or development expenditures, this mineralized material does not qualify under
the U.S. Securities and Exchange Commission standards as being commercially
minable until further drilling, metallurgical work and other economic and
technical feasibility factors based upon such work are resolved.
Work Program
During 1999, mine exploration activities were performed to upgrade known zones
of oxide mineralized material to reserves so as to provide feed for the plant.
In addition, shallow drilling programs were performed by the mine exploration
team to identify other mineralized zones with the potential for conversion to
mineralized material.
The Company recently approved a program to delineate and expand the current
sulfide resource. The program consisting of combined reverse circulation (RC)
and diamond drilling (DD) commenced in late 1999 and will continue during 2000.
The objectives of the program are: to validate historical drilling data; to fill
in gaps between previously drilled holes; to test sulfide mineralization at
depth and along strike; to delineate oxide and transition surfaces; to provide
geotechnical and hydrogeological information for pit design and de-watering; to
provide material for metallurgical and environmental testing.
The initial drilling program consists of two phases. Phase one includes
approximately 3,000 meters of HQ diamond drilling and 8,000 meters of reverse
circulation drilling. The second drilling phase, which is contingent on the
results from phase one, will consist of approximately 3,500 meters of HQ diamond
drilling and 3,500 meters of reverse circulation drilling. Management expects
the initial program to be completed by the end of the first quarter 2000 and the
estimated cost of the drilling program is $1.4 million.
In conjunction with the sulfide drilling campaign, exploration will be conducted
both within the BGL leases as well as within surrounding exploration permits
that have been optioned by BGL, to identify additional sources of oxide and
transition mineralization.
Historical mining and exploration on the Bogoso Property has produced large
amounts of data which are being combined into a central database. The
exploration database, together with additional pit mapping and sampling will be
used to delineate further oxide, transition and sulfide targets.
32
Environment
BGL has adopted World Bank environmental standards and is in substantial
compliance with the environmental requirements imposed by Ghanaian laws and
guidelines. BGL has completed significant work during 1999 to identify the
outstanding reclamation liability and commenced rehabilitation work. Monthly
expenditures for ongoing rehabilitation work, including the capping of sulfide
material and the contouring and re-vegetation of waste dumps, have been
approximately $150,000 per month. In connection with the acquisition of BGL,
the Company and Anvil have reviewed the information and reports available and
they agreed to restrict $6 million from BGL's existing cash to be used
exclusively to fund environmental rehabilitation work.
Riyadh
The Company and BGL entered into an option agreement with Orovi Corporation
("Orovi") under which BGL may acquire a 100% interest in the Riyadh property in
Ghana. The 49 km2 Riyadh property is located northwest of the Bogoso Property.
Orovi Ghana Ltd., a wholly owned subsidiary of Orovi of Denver, Colorado, owns
the rights to the Riyadh prospecting license. Gold mineralization hosted by
quartz veins within shear zones has previously been identified in the western
half of the Riyadh property, approximately 15 kilometers northwest of the Bogoso
mill. Previous exploration work by Orovi has indicated the existence of eight
separate veins. Only the principal known vein, the "R Reef", has been subject
to trenching and drilling.
An initial payment of $70,000 was made to Orovi. Under the agreement, in order
to exercise its option, the Company must deliver a feasibility study by May 1,
2001, at which time a payment to Orovi equal to $10/ounce for the proven and
probable reserves defined in the study, subject to independent verification,
less any amounts previously paid to Orovi, will be due. The $10/ounce payment
is payable 70% in cash and the remaining 30% in cash or the Company's shares, at
its option, based on a 10-day average share price at the time the payment is
due. Also, the Company and BGL will have to pay $5/ounce for any additional
proven and probable reserves subsequently defined in excess of those determined
in the feasibility study, to be assessed and paid biannually in cash. Upon
completion of the feasibility study, BGL intends to apply for a mining lease
under Ghanaian law in order to conduct mining operations on the Riyadh property
for processing at the Bogoso mill.
Exploration at the Riyadh concession started during the first quarter of 2000.
Exploration work to date includes digital data compilation, trench and drill
hole surveys and sampling of trenches and road cuts. Exploration work planned
on the Riyadh concession will progress in phases and will be dependent on
results of earlier work.
THE OMAI GOLD MINE
The operating Omai gold mine is located in the Co-operative Republic of Guyana
("Guyana"), a former British colony, which obtained independence in 1966.
Guyana has a surface area of 216,000 km2 with a population of approximately
800,000. The official language is English and the climate is tropical. Guyana
is governed as a democratic republic, and the legal and land title systems are
based on the English common law.
Omai Gold Mines Limited ("OGML") is an equity joint venture of the Government of
Guyana, the Company and Cambior Inc. ("Cambior"). The Company owns a 30% common
share equity interest in OGML. Cambior and the Government of Guyana own 65% and
5% of OGML, respectively. OGML owns the Omai Mining License and the Eagle
Mountain, Omai River and Quartz Hill prospecting licenses.
The Omai mine is owned by OGML. Cambior is the manager of all mining and
related operations. The mine is located on a 52 km2 mining license on the
Essequibo River, approximately 160 km southwest of Georgetown, Guyana. Access
to the mine is by improved road and ferry or by fixed-wing aircraft to an all-
weather airstrip.
The Company and Cambior entered into an agreement with the Guyana Geology and
Mines Commission ("GGMC") and the Government of Guyana on August 16, 1991 (the
"Omai Mineral Agreement"), whereby, among other things, OGML was granted the
right to obtain a mining license (which was granted on December 12, 1991 for a
term of 20 years), and to carry out mining operations in accordance with the
terms of the Omai Mineral Agreement. In addition, the Omai Mineral Agreement
provides for the payment to the Government of Guyana of a
33
5% in-kind royalty from the Omai Mine. It also provides that capital and profits
may be repatriated without restrictions.
Pursuant to the articles of association of OGML, the Government of Guyana has
the right to a 5% carried interest in OGML and the subsequent right to acquire
from the combined holdings of the Company and Cambior in the common shares of
OGML (i) after the expiration of eight years from commencement of commercial
production at the Omai Mine (which was achieved in January 1993), but before the
expiration of the tenth year, 5% of the common shares of OGML issued and
outstanding at such time; and (ii) after the expiration of ten years from
commencement of commercial production, but before the expiration of the twelfth
year, an additional 22% of the common shares of OGML issued and outstanding at
such time. The purchase price will be the market value of the OGML shares based
upon the North American stock market value of common shares of gold mining
companies having similar production levels and potential, based upon the average
market capitalization of such comparable companies taking into account their
relative long term debt position. Should the government decide to exercise the
options mentioned above, the Company and Cambior have each agreed to sell and
deliver to the Government of Guyana one-half of the total number of common
shares of OGML required to give effect to the Government of Guyana's right. If
the Government of Guyana were to exercise both of its options as set forth
above, the Company's common share equity interest in OGML would be reduced to
16.5%. The exercise of the options by the Government is not likely to affect
the Company's financial position, results of operations and liquidity since the
Company is not expecting to receive any cash flow from the operations of OGML in
the near future. The articles of association contain a right of first refusal
as typical in shareholder agreements.
Pursuant to OGML's articles of association, the Company received approximately
$11.0 million of Class I redeemable preferred shares of OGML in recognition of
past exploration costs incurred by the Company. Pursuant to their terms, these
preferred shares must be redeemed prior to any distribution to the common
shareholders of OGML out of 10% of net cash flow from operations of OGML (as
defined in the Omai Mineral Agreement). The reimbursements must be calculated
and paid quarterly to the Company. During the fiscal year ended December 31,
1999, the Company received $0.7 million as a result of the redemption of Class
I preferred shares, for a total of $8.7 million in redemption of Class I
preferred shares since the beginning of production in 1993. The amount so
received was applied against the reimbursement of the loan made by OMGL to the
Company. The Company does not expect to receive dividends from its common share
holdings in OGML until debt owed by OGML and guaranteed by Cambior is repaid and
Class II and III preferred shares held by Cambior are redeemed. As of December
31, 1999, OGML had $162 million in debt and a total of $50 million worth of
Class II and III preferred shares outstanding. The Class III preferred shares
have past cumulative unpaid dividends totaling $74 million as of December 31,
1999.
On August 19, 1995, a failure occurred in the main section of the tailings dam
at the Omai Mine. The failure resulted in the discharge of cyanide-contaminated
water into the Omai River, which in turn flowed into the Essequibo River.
Production at the Omai Mine was suspended from August 19, 1995, and resumed on
February 4, 1996, after the Government of Guyana and OGML had executed an
agreement authorizing, under certain conditions, OGML to recommence commercial
production at the Omai Mine.
As of December 31, 1999, approximately 1,000 individual claims have been made
against OMGL in Guyana in connection with the tailings dam failure, of which 282
have been settled for an aggregate dollar amount of less than $1 million. Of
the claims that remain unsettled, legal proceedings have been instituted against
OGML with respect to approximately 300 individual claims and one class action
(on behalf of 244 claimants). According to the management of Cambior, as
disclosed in their public filings with the Securities and Exchange Commission,
these claims are expected to be settled for amounts totaling less than $1
million, of which $600,000 has already been funded in advance by an insurance
company as part of a settlement with OGML and Cambior.
Another class action (claiming to represent 23,000 claimants) was filed in
August 1998 in the High Court of the Supreme Court of Judicature, Civil
Jurisdiction in Guyana but was not served on the defendants (OGML, Cambior, two
engineering firms and one insurance company) until August 1999. This class
action is essentially an outgrowth of a class action initiated in 1997 and later
dismissed by a Quebec court. The class action was amended in May 1999 to
include Golden Star as defendant and then served on Golden Star in July 1999.
The class action claims from the defendants, including Golden Star, $100 million
in damages, allegedly resulting from the tailings dam failure. Management
believes that, in addition to being without merit, the class action is open to
attack on a number
34
of procedural grounds. A motion to have the action dismissed against Golden Star
was filed in September 1999. The motion has not been heard yet. The Company
intends to defend itself vigorously against this action.
The three-year limitation period for bringing legal proceedings against OGML and
its shareholders, in Guyana or elsewhere, with respect to the tailings dam
failure expired on August 19, 1998.
Geology
The Omai region is underlain by a series of Precambrian mafic to felsic
volcanics and clastic sedimentary rocks of the Barama-Mazaruni Supergroup.
These strata were intruded by intermediate to felsic plutons of the Younger
Granite Group and mafic dykes of the Younger Basic Group. Prolonged uplift and
weathering resulted in the development of thick latosols. Gold mineralization
at Omai is hosted within three distinct settings: a) the Omai Intrusive
Complex, b) the Wenot Lake zone weathered profile and c) alluvial deposits.
The Omai Intrusive Complex consists of an approximately 400m by 500m lobate,
altered quartz diorite pluton that intrudes mafic volcanic rocks. Gold
mineralization within quartz diorite is confined to widespread, narrow,
regularly spaced and discrete but discontinuous quartz and ferroan calcite and
pyrite veins. Alterations associated with gold mineralization include
carbonitization, sulphidation and silicification.
The Wenot Lake zone is an elongated lateritic and saprolitic gold deposit
developed over a sequence of interbedded mafic to felsic volcanic flows and
tuffs. This sequence of rocks underwent weathering under humid, tropical
conditions, leading to the formation of a well- developed weathered profile.
Primary gold mineralization is found in anastomosing stratabound quartz-
carbonate veins filling shears. Secondary gold is found in both the saprolitic
and lateritic horizons. Laterites contain the bulk of the mineralization in the
Wenot zone.
Alluvial gold deposits at Omai are contained in small drainage systems made up
largely of tailings from hydraulic mining of latosols over the Omai Intrusive
complex and Wenot Lake Zone.
Production and Reserves of Omai Mine
The Omai Mine was brought into commercial production in January 1993. Gold
production from 1993 through the end of 1999 totaled 1,858,818 ounces.
Gold production in 1999 was 306,063 ounces, compared to 327,546 ounces in 1998
and 338,496 ounces in 1997. The 7% decrease in production in 1999 was primarily
attributable to a lower average head grade of 1.35 g/t compared to 1.44 g/t in
1998, while throughput averaged approximately 20,950 tonnes per day during 1999,
compared to 21,100 tonnes per day in 1998. Gold recovery rates were 92% in 1999
and 1998, while direct mining costs, including royalties, were $235 per ounce in
1999, a slight improvement over the $240 per ounce experienced in 1998.
Quarterly production statistics for the Omai mine for 1999 are as follows:
----------------------------------------------------------------------
1999
- ---------------------------------------------------------------------------------------
First Second Third Fourth Total / Average
Quarter Quarter Quarter Quarter 1999
- ---------------------------------------------------------------------------------------
Ore milled (T) 1,843,326 1,922,309 1,927,284 1,953,871 7,646,790
- ---------------------------------------------------------------------------------------
Rate (T/day) 20,481 21,124 20,949 21,238 20,950
- ---------------------------------------------------------------------------------------
Grade (g/t) 1.47 1.27 1.30 1.35 1.35
- ---------------------------------------------------------------------------------------
Recovery (%) 92 92 91 94 92
- ---------------------------------------------------------------------------------------
Gold Production (oz) 80,694 71,865 73,550 79,954 306,063
- ---------------------------------------------------------------------------------------
Cash cost of production
($/oz) 231 244 245 222 235
- ---------------------------------------------------------------------------------------
For 2000, the Omai mine is expected to produce approximately 300,000 ounces of
gold at a direct mining cost of approximately $241 per ounce. Throughput is
budgeted at approximately 21,095 tonnes per day processing approximately 62%
hard rock. Head grades are anticipated to average 1.33 g/t with a budgeted gold
recovery of
35
91%. During 2000, the continued stripping of waste is expected to result in a
waste to ore ratio of approximately 2.8:1, compared to a life of mine waste to
ore ratio of 1.8:1.
OGML has reported its Proven and Probable Reserves for year-end 1999 using a
$325 gold price as in 1998. On the basis of a $325 gold price, Omai's Proven
and Probable Reserves at December 31, 1999 stood at 36.7 million tonnes at an
average grade of 1.3 g/t, representing approximately 1.59 million ounces of
gold. This is compared to Proven and Probable Reserves at December 31, 1998 of
42.9 million tonnes at an average grade of 1.4 g/t, representing approximately
1.89 million ounces of gold. The qualified person responsible for the
estimation of the reserves of the Omai Gold Mine is Francois Viens, General
Manager Mining Geology, Cambior. The Company has not independently verified the
Proven and Probable Reserves reported by Cambior.
Reserves at Omai are derived from four sources: the Fennell Pit, the Wenot Lake
Pit, alluvial deposits and stockpiles. The following table summarizes the
reserves for these sources at year-end 1998 and 1999:
--------------------------------------------------------------------------------------------------
December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------------------
Proven and Probable Grade Contained Proven and Probable Grade Contained
Reserves/(1)/ (g/t) Gold (oz) Reserves/(1)/ (g/t) Gold (oz)
(tonnes) (tonnes)
- --------------------------------------------------------------------------------------------------------------
Fennell Pit 19,898,000 1.49 953,900 22,894,000 1.47 1,086,600
- --------------------------------------------------------------------------------------------------------------
Wenot Lake Pit 6,656,000 1.66 355,700 9,420,000 1.69 511,200
- --------------------------------------------------------------------------------------------------------------
Alluvials 1,117,000 0.90 32,300 1,117,000 0.90 32,300
- --------------------------------------------------------------------------------------------------------------
Stockpiles 9,071,000 0.85 248,800 9,498,000 0.84 257,900
- --------------------------------------------------------------------------------------------------------------
TOTAL 36,742,000 1.34 1,590,700 42,929,000 1.37 1,888,000
- --------------------------------------------------------------------------------------------------------------
(1) Reserves are calculated using a price of gold $325 per ounce with a cutoff
grade of 0.35 g/t for soft rock reserves and 0.70 g/t for hard rock
reserves.
Mineralized Material
At year-end 1999, Cambior reported mineralized material for Omai, using a $325
gold price, as 6.1 million tonnes grading 1.5g/t. As a Canadian reporting
company, Cambior reported this result as inferred resources in compliance with
Canadian legal reporting requirements. The qualified person responsible for the
estimation of mineralized material for the Omai mine is Francois Viens, General
Manager Mining Geology, Cambior. The Company has not independently verified the
estimate of mineralized material reported by Cambior.
Mineralized material does not represent reserves and has not been included in
the Company's proven and probable reserve estimates because even though enough
drilling and trenching indicate a sufficient amount and grade to warrant further
exploration or development expenditures, these mineral deposits do not qualify
under the U.S. Securities and Exchange Commission standards as being
commercially minable until further drilling, metallurgical work and other
economic and technical feasibility factors based upon such work are resolved.
Eagle Mountain
The Eagle Mountain project is located in Central Guyana, 50 km from the Omai
Mine. Prior to its sale in December 1998, the Company owned a 100% interest in
the Eagle Mountain Prospecting License. The transfer of the Eagle Mountain
License by the Company to OGML was approved by the government of Guyana on
December 21, 1998. The purchase agreement between the Company, OGML and Cambior
Inc. was executed on December 23, 1998 and, in accordance with the agreement,
the Company received $80,000. As a result of the transfer to OGML, the Company
now has a 30% indirect interest in the Eagle Mountain project. In consideration
for receiving a 5% free carried interest (its interest in OGML), the government
of Guyana has accepted to charge a consumption tax of only 5% on fuel used with
respect to the Eagle Mountain property.
GROSS ROSEBEL
The Gross Rosebel project is located in Suriname, a former Dutch colony that
became independent in 1975. Suriname has a surface area of 163,000 km2, a
tropical climate and a population of approximately 470,000. The
36
official language is Dutch with English spoken as a second, commercial and
technical language. Suriname has a democratically elected government.
The Company's operations in Suriname in 1999 consisted primarily of care and
maintenance for Gross Rosebel and continued engineering evaluation of the
project. During 1999, the Company incurred total expenditures for Gross Rosebel
of $0.7 million, $0.4 million of which was reimbursed by the Company's joint
venture partners. Total expenditures during 1998 amounted to $2.0 million, $1.0
million of which was reimbursed by the Company's joint venture partners.
Pursuant to a mineral agreement, dated May 8, 1992, as amended and restated on
April 7, 1994 (the "Gross Rosebel Agreement"), between the Company, the
Government of Suriname and the state mining company, Grasshopper Aluminum
Company N.V. ("Grassalco"), Grassalco assigned to the Company its interest in
the Gross Rosebel right of exploration, a 170 km2 area in north-central
Suriname. The National Assembly of Suriname ratified the Gross Rosebel
Agreement on March 1, 1994.
The Gross Rosebel Right of Exploration originally transferred to the Company was
for a term of three years expiring in March 1995. It was then renewed for an
additional term of two years expiring in March 1997. The Company filed an
application for the additional two-year extension it is entitled to pursuant to
the mining laws of Suriname. The application is still pending. Under the
mining laws of Suriname, a right of exploration does not terminate by expiration
of its term if the holder has in time applied for prolongation of such right and
such application has not been denied. Moreover, under the mining laws of
Suriname, an existing right of exploration remains legally in force until a
decision on the application for a right of exploitation has been taken.
As partial consideration for the transfer of the Gross Rosebel right of
exploration, the Company issued 60,000 common shares to Grassalco on June 28,
1994. Under the terms of the Gross Rosebel Agreement, the Company committed to
expend an aggregate of $8.0 million on exploration activities over a five-year
period commencing on May 8, 1992. As of May 8, 1997, the Company had spent
approximately $25.8 million on the Gross Rosebel property and, as a result,
fulfilled its expenditure requirement. Of the amounts expended by the Company,
Cambior has contributed $14.1 million by way of joint venture recoveries (see
discussion of Cambior Joint Venture below). In addition, in consideration for
Grassalco making the Gross Rosebel property available for exploration, the
Company paid $1.0 million to Grassalco pursuant to the terms of the Gross
Rosebel Agreement. Under the terms of the Gross Rosebel Agreement, the Company
had the obligation to submit to the Republic of Suriname's Minister in charge of
mining activities and Grassalco a feasibility study and an environmental impact
statement (as these terms are defined in the Gross Rosebel Agreement) on or
prior to May 8, 1997. In the event that Golden Star failed to timely submit
such feasibility study and environmental impact statement, Golden Star was
deemed to have waived its rights resulting from the Gross Rosebel Agreement and
was obliged to reassign the Right of Exploration to Grassalco at its demand,
whereupon the Gross Rosebel Agreement was to terminate. On May 7, 1997, a
feasibility study and an executive summary of the environmental impact statement
were submitted to the Government of Suriname. In June 1997, a more detailed
environmental impact statement was submitted. The Government of Suriname has
not yet approved the feasibility study or the environmental impact statement.
There can be no assurance that the Government of Suriname will approve the
feasibility study and grant a right of exploitation to the operating company to
be formed by the two joint venture partners.
Upon approval by the Suriname Government of the feasibility study and the
environmental impact statement, the Gross Rosebel right of exploration may be
converted into a right of exploitation for an initial term of 25 years. The
right of exploitation is to be granted to an operating company (the "Operating
Company"). Within 30 days of the grant of the right of exploitation, the
Company and Cambior will be obligated to pay to Grassalco the total sum of $2.5
million as compensation for previous exploration expenditures incurred by
Grassalco.
Upon the grant of a right of exploitation to the Operating Company, Grassalco
will have the option, for a period of 60 days, to purchase an undiluted 20%
common share equity interest in the Operating Company by paying 20% of all
exploration costs previously incurred by the Company and 20% of all subsequent
costs of the Operating Company. Grassalco has a further option to purchase a
second undiluted 20% interest in the shares of the Operating Company eight years
following the date of commencement of commercial production (as defined in the
Gross Rosebel Agreement) in consideration for the payment of a sum equal to 90%
of the market value of such shares, as determined in accordance with the terms
of the Gross Rosebel Agreement.
37
The Gross Rosebel Agreement provides that (i) a royalty of two percent of the
gold produced from the Gross Rosebel property is payable in kind to Grassalco
and (ii) an additional one-quarter of one percent royalty is payable for the
life of the project to a charitable fund to promote natural resources
development in Suriname. In addition, a royalty of two percent of the proceeds
received on any other minerals produced (less transportation and processing
costs) is also payable to Grassalco. An advance royalty payment against the
above-mentioned royalties of $6.5 million must be made to Grassalco within 90
days of receipt of the first proceeds from the sale of minerals at Gross Rosebel
and a further $6.5 million must be made 12 months later. Further, in the event
the price of gold exceeds $500 per ounce Grassalco is entitled to an additional
6.5% royalty on that portion of the sales price which exceeds $500 per ounce.
The Cambior Joint Venture
The Company and Cambior entered into an agreement on June 7, 1994, pursuant to
which Cambior was granted the option to earn an undivided 50% interest in the
Company's rights in the Gross Rosebel Agreement and Gross Rosebel property. On
January 8, 1996, Cambior announced its decision to exercise its option to
acquire 50% of the Company's rights in the Gross Rosebel property after
expending $6.0 million in exploration and development activities on the
property, as required by the June 1994 option agreement. As also required under
the agreement, Cambior advanced a further $2.5 million in expenditures to be
repaid out of initial project earnings. Since April 1996, when Cambior earned a
50% interest in Gross Rosebel, the Company and Cambior have been contributing
equally to programs and budgets with respect to the Gross Rosebel property.
Under the June 1994 option agreement, Cambior must use its best efforts to
secure financing for at least 65% of eventual mine development costs from third
parties. Cambior assumed managerial responsibility for the preparation of the
feasibility study. Cambior has the right to be appointed manager of all
subsequent mining and related operations of the project. The option agreement
provides for the customary right of first refusal typical found in such
agreements.
The Property
The Gross Rosebel right of exploration covers 170 km/2/ (17,000 ha.) and is
located 80 km south of the capital city of Paramaribo. Access is via a paved
highway followed by an all-weather laterite surface road. Gold was reportedly
first discovered in the area in 1879 and since then more than half of Suriname's
recorded production has been produced from the district by dredging and small
artisanal surface and underground workings. Commencing in 1974, Surplacer N.V.,
a subsidiary of Placer Development, a Canadian mining company (now Placer Dome),
conducted an extensive exploration program of trenching, hand augering and
rotary drilling over a period of three years. Subsequent field work was
conducted by Grassalco over a period of seven years and a feasibility study was
prepared and completed in 1984 by a Canadian engineering firm controlled by
Grassalco.
Geology
The Gross Rosebel property is underlain by Proterozoic Armina, Paramaca, and
Rosebel metasedimentary and metavolcanic greenstone formations. These units are
intruded by a large tonalitic stock near the southern boundary of the property,
which has resulted in doming of the adjacent Armina rocks and the development of
steep reverse faults. The greenstone units are folded into a broad east-west
trending and westerly plunging synclinal structure. Gold mineralization
associated with at least five generations of hydrothermal quartz veins occur
over large areas both in the south and north limbs of the syncline where these
are cut by strong west-northwest trending shear zones. Locally, mineralization
is controlled by zones of dilation along the shear planes and by drag folding.
Intense tropical weathering has developed a residual surface laterite and
saprolite profile of up to 50 m thick, overlying bedrock. Gold mineralization
has been established by the Company within at least ten separate target areas
including Royal Hill, Mayo, Rosebel, Koolhoven, Pay Caro, East Pay Caro, "J"
Zone, Bigi Asanjangmoni, Mama Kreek and Spin Zone. All of these target areas
are capped by mineralized laterite blankets typically between 3 to 10 m in
thickness overlying less continuous shear and/or fold related mineralization in
saprolite and bedrock. Both types of deposits are being defined for potential
mining.
38
Mine Development
A formal feasibility study was submitted to the Government of Suriname in May
1997. The study contained a description and analysis of the economic and
commercial viability of bringing into production and operating a mine on Gross
Rosebel assuming a gold price of between $380 and $400 during the life of the
mine. Development of the Gross Rosebel project has been deferred by the joint
venture partners pending receipt of necessary governmental approvals including
approval of the feasibility study, resolution of several development issues,
economic concessions from the government and improved gold prices. There can be
no assurance that the government of Suriname will approve the May 1997
feasibility study and the environmental impact statement and therefore grant a
right of exploitation to the Operating Company until an acceptable feasibility
study, based on current gold prices, is produced by the joint venture. Some of
the development issues that must be resolved prior to development, include,
amongst other things, the structure of the Operating Company, the ability to
secure foreign investment insurance, availability of financing from banks and
other financial institutions, and relocation of Nieuw Koffiekamp, a small
village located within the concession. Although the Company believes that these
issues can be resolved, there can be no assurance that it will be the case. The
project will continue to be on care and maintenance until these issues are
resolved.
Work Program
Metallurgical tests were performed during 1998 on representative soft rock ores
from Gross Rosebel. The tests demonstrated favorable agglomeration and gold
recovery characteristics for soft ore with average recoveries of 88% obtained
over a 30-day leach cycle in large column heap leach test. Equivalent
metallurgical tests were also completed on representative hard rock ores,
yielding average gold recoveries in the range of 40% to 50% over a 30 day period
in column tests.
Engineering activities performed during 1999 were largely directed at
determining development alternatives for the project. In August the company
announced the outcome of an independent scoping study. This was performed to
model the potential benefits of applying a low cost heap leach processing
approach to the project. Results of the study tend to support the Company's
belief that the project could be developed at a profit even in a low gold price
environment. The outcome of the study has prompted further discussions to
consider additional suitable mining and processing methods.
A primary consideration of the studies and discussions performed to date has
been the tropical environmental conditions experienced at Gross Rosebel and, in
particular. the above average amount of rainfall. As part of the study,
modifications were made to the standard heap leach design to take into account
the additional rainfall utilizing rain covers over the heaps to help control
water balances. Oversized evaporation systems and a cyanide destruction system
were built into the design to cope with the need to treat water during periods
of particularly heavy rainfalls.
The Company plans to perform additional test work to confirm the findings of the
scoping study and to provide assurance that the heaps will be capable of
withstanding periods of high rainfall. Discussions are ongoing with our joint
venture partner to develop the optimum strategy for developing the project.
The Company's budgeted expenditures in 2000 on Gross Rosebel are $0.5 million
(before joint venture recoveries) and will consist of a modest level of
engineering studies to consider a number of low cost development and processing
alternatives including conventional CIP, vat and heap leaching as well as other
saprolite-only and staged development mining alternatives. These studies are
intended to determine the viability of alternative processing designs that may
make the project feasible at lower gold prices by reducing capital and operating
costs. These studies are anticipated to be completed during 2000 and will
determine scope of further evaluation work and/or development programs.
Mineralized Material
Cambior recently announced its year-end 1999 mining reserves and mineral
resources with respect to the Gross Rosebel project. For year-end 1999 Cambior
reported their 50% share of mineralized material (reported by Cambior as
measured and indicated resources under National Instrument 43-101 of the
Canadian securities commissions) at
39
Gross Rosebel, at 20.7 million tonnes grading 1.6 g/t. This estimate was
calculated by Cambior on the basis of a $325 gold price. This estimate is
unchanged from the estimate reported at year-end 1998. The Company is reporting
Cambior's results for Gross Rosebel as mineralized material. (See "Item 1.
Mineralized Material Table".) The Company's share of the mineralized material
for Gross Rosebel is 20.7 million tonnes grading 1.6 g/t. The Company has not
independently verified the estimate reported by Cambior.
Mineralized material does not represent reserves and has not been included in
the Company's proven and probable reserve estimates because even though enough
drilling and trenching indicate a sufficient amount and grade to warrant further
exploration or development expenditures, these mineral deposits do not qualify
under the U.S. Securities and Exchange Commission standards as being
commercially minable until further drilling, metallurgical work and other
economic and technical feasibility factors based upon such work are resolved.
FRENCH GUIANA PROPERTIES
General
French Guiana is part of the French national territory and has been an overseas
"Departement" of France since 1946. The Departement, with an area of 84,000
km/2/ and a population of approximately 130,000, has two representatives in the
French National Assembly and one representative in the French Senate. Under the
French Constitution, French Guiana is governed by the same laws as metropolitan
France, subject to modifications (including those affecting tax and mining laws
and regulations) that may be adopted to reflect the historical, cultural,
geographical and economic characteristics of French Guiana and provide for
regional administration. An appointed Prefect, representing the Government of
France, holds governmental and administrative powers locally. A 19-member,
locally-elected General Council votes on departmental budget and other local
matters.
The mineral rights held by our French subsidiaries are subject to French mining
laws applicable in French Guiana, the most important being Decrees no.55-586 of
May 20, 1955 and no. 56-1039 of October 5, 1956 (the "1955 and 1956 Decrees"),
and the law no. 98-297 of April 21, 1998 (the "1998 Law") that partially
extended and adapted the French Mining Code to the French overseas departments
(including French Guiana). The 1998 Law provides that all existing permits
continue to have full force and effect during their terms and that all
applications for extension of existing permits filed before the publication of
the 1998 Law remain subject to the 1955 and 1956 Decrees. Permits granted or
extended since the publication of the 1998 Law are subject to the French Mining
Code.
The grant of mining titles in French Guiana is administered by the Direction
Regionale de l'Industrie, de la Recherche et de l'Environnement ("DRIRE") and
the Ministry of Industry. There are two different types of mining titles under
French law: permits and concessions. Under the 1955 and 1956 Decrees, two types
of exploration permits could be obtained, the A and B types. An exploration
permit conveys for a specific area of land the exclusive right of prospecting
and exploration for the substances to which it relates. Permits of Type "B" are
valid for two years and renewable twice for periods of two years each. The
surface of type "B" permits covers a square area of 25 km/2/ each. Type "A"
permits are valid for five years and can be renewed at least once for an
additional five-year term. The French Mining Code (now partially applicable to
French Guiana) provides for only one type of exploration permit called Permis
exclusif de recherche ("PER"). PER can be granted for a period of up to five
years and can be renewed for two additional periods of up to five years each.
The holder of an exploration permit who can demonstrate the presence of an
exploitable mineral deposit within the area covered by the exploration permit
and has the financial and technical capacity to bring the project to
exploitation can obtain a mineral concession. A mineral concession confers upon
its holder an immovable right, which is distinct from the actual ownership of
the underlying land for a term of up to 50 years. The 1998 Law provides that
all concessions that were granted for an unlimited amount of time under the 1955
and 1956 Decrees will expire on December 31, 2018 subject to being renewed twice
for up to 25 additional years. Concessions may be mortgaged, leased, sold or
otherwise transferred or inherited, in whole or in part and may be merged or
subdivided, subject to authorization for the transaction being granted by a
decree issued by the French government after consultation with specific
agencies.
40
Guyanor Ressources S.A.
All of the Company's mineral interests in French Guiana are held through its 71%
owned publicly traded subsidiary Guyanor Ressources. Guyanor is a societe
anonyme incorporated under the laws of France on April 20, 1993 with its head
and registered offices located at Lot. Calimbe 2, Route du Tigre, B.P. 750,
97300 Cayenne, French Guiana.
Guyanor owns mineral rights (either directly or through its subsidiaries) for
the Yaou, Dorlin, Paul Isnard, Eau-Blanche and St-Elie gold projects and the
Dachine diamond project. All of the properties are in the exploration stage,
except for the Yaou and Dorlin projects, which are at the pre-feasibility stage.
Except for Dachine, the other projects were in care and maintenance for part of
1999.
During 1999, Guyanor spent $3.0 million on exploration and in care and
maintenance expenditures, of which $1.4 million was reimbursed by joint venture
partners. In 1998, Guyanor had spent $4.7 million, $1.2 million of which was
reimbursed by joint venture partners. The Company advanced $3.5 million to
Guyanor in 1999. Total budgeted exploration expenditures by Guyanor for 2000
are $0.7 million. The Company has committed, subject to availability of
adequate funding, to continue funding on a reasonable best effort basis the
operations of Guyanor for the remainder of 2000.
YAOU AND DORLIN
Pursuant to an agreement, dated July 16, 1993, the Company acquired from BHP for
$4.3 million a 63.3% participating interest in a joint venture between BHP and
the Bureau de recherches geologiques et minieres or BRGM with respect to six
type "B" exploration permits covering an area known as Yaou and six type "B"
exploration permits covering an area known as Dorlin in French Guiana. In
August 1993, the Company transferred its 63.3% participating interest in the
joint venture to Guyanor at cost. Further to an agreement dated August 3, 1993,
between the Company and BRGM and a subsequent agreement, dated September 23,
1993, among the Company, Guyanor and BRGM, Guyanor acquired for $2.5 million
BRGM's 36.7% interest in the joint venture assets owned for the benefit of the
joint venture by BRGM. In addition, Guyanor agreed to pay to BRGM a further
FF14.0 million (approximately $2.1 million) as follows: FF7.0 million at the
time of completion of a bankable feasibility study on either the Yaou or Dorlin
properties and FF7.0 million at the time of commencement of commercial
production on either of these properties. The transfer of the Yaou and Dorlin
permits from the BRGM to Guyanor was approved by the relevant French regulatory
authorities on May 25, 1994. Both BHP and BRGM are arms' length parties to
Guyanor and the Company.
Guyanor and the Company entered into an option agreement with Cambior, dated as
of May 11, 1994, pursuant to which Cambior was granted the option to acquire a
50% interest in the operating company to hold the Yaou and Dorlin permits in
French Guiana. Cambior exercised the option after having spent the $11.0
million expenditure commitment in September 1997. Since then, Cambior and
Guyanor have participated equally in the funding of the joint venture's
expenditures. The acquisition by Cambior of any interest in the Yaou and Dorlin
permits is subject to French governmental approval. There can be no assurance
that such approval will be granted. Cambior is responsible for the preparation
of a feasibility study on the properties and will, if warranted, manage the
development and operation of future mining operations.
Guyanor currently holds ten type "B" permits, two of the Yaou permits initially
granted having expired in February 1998. Applications for the renewal of the
ten permits were filed within the legal deadline in 1996 and 1997 and are still
pending. The period of validity of the permits are, by law, extended until the
French administration takes a decision on the application. If renewed, the
permits would be valid for two years. The Company also filed two applications
for type "A" permits in 1997. One application covers the Yaou project and the
other covers the Dorlin project. The applications have been approved by the
DRIRE and were submitted to the Ministry of Mines for final approval. The type
"A" permits, if granted, would replace the type "B" permits. It is currently
contemplated that the type "A" permits will be granted directly to Societe
Miniere Yaou-Dorlin ("SMYD"), a French company, created by Cambior and Guyanor
to hold the Yaou and Dorlin mineral rights. Cambior and Guyanor will each hold
50% of the shares of SMYD. The applications are currently under review. It is
the Company's understanding that they could be granted by the end of March 2000.
41
The Properties
The Yaou permits currently cover a total area of 100 km/2/ (10,000 ha.) located
some 210 km southwest of Cayenne. Access to the property is by helicopter or
four-wheel drive vehicle on 17 km of dirt road from the town of Maripasoula,
which is accessible by chartered and daily scheduled fixed-wing aircraft from
Cayenne.
The Dorlin permits cover a total area of 150 km/2/ (15,000 ha.) and are located
some 180 km southwest of Cayenne and 60 km east of Maripasoula. The property is
accessible by helicopter and a 500 m airstrip located on the property is
suitable for fixed wing aircraft. Access is also available by boat during the
rainy season.
Geology
The geology of the Yaou project area consists of a folded and sheared sequence
of Lower Proterozoic mafic and ultramafic volcanics and volcaniclastics, with
minor intercalations of fine-grained clastic sediments. Prior to folding, these
were intruded by dioritic bodies. Two generations of granitic plutons bound the
property to the east and south. A north-north-west striking dolerite dyke of
Permo-Triassic age cuts through the property. Exploration has defined three
principal zones of gold mineralisation, mainly associated with narrow, deformed
felsic intrusive bodies and finely laminated felsic tuffs. These zones, Yaou
Central, Chaina and IJK, have been evaluated by intensive deep augering,
trenching and core drilling.
The geology of the Dorlin project area consists of sheared and folded greenstone
units of Lower Paramaca sequence. Exploration has identified an 11km long zone
of soil geochemistry anomalies associated with a radiometric potassium anomaly.
Within this anomalous zone one major, N-S trending gold mineralized system,
Montagne Nivre, associated with tourmalinization, silicification and
pyritization, has been intensively explored by deep auger, trenching and core
drilling.
Work Program
During 1999, efforts at Yaou and Dorlin focused on the completion and submission
of the "Memoires Techniques", or development studies, required for planned
mining concession applications. The completed studies were submitted as
required on March 31, 1999. The development concept proposed in the Memoires
Techniques, involved consideration of a 10,000 tonne per day milling operation
at Yaou and concurrent development of a 5,000 tonne per day heap leach operation
for soft rock mineralization at Dorlin. Following completion of mining at Yaou,
the milling facilities would be moved to Dorlin, approximately 45 kilometers
east of Yaou, where hard rock mining and milling would then begin. The
principal result of the Memoires Techniques studies indicated the need to
increase mineralized material so as to justify project development. Additional
environmental and engineering test work was also identified as being required.
Following submission of the Memoires Techniques the "A" permit applications were
submitted to the French authorities so as to provide time to perform additional
exploration work. During the remainder of 1999 both projects were placed under
care and maintenance. Work was confined to ongoing environmental monitoring.
The Company is currently considering whether to demobilize the camps until
proper authorization to continue exploration activities has been received. The
Company is also holding discussions to establish the infra-structural
requirements upon which feasibility of development will depend. There can be no
assurance that the projects will prove to be economically feasible in the
future.
During 1999, Guyanor's expenditures on Yaou and Dorlin totaled $1.2 million,
$0.8 million of which was reimbursed by Cambior under the above-mentioned
agreement. During 1998, Guyanor spent a total of $2.1 million on the Yaou
project, of which Cambior reimbursed $0.7 million. Guyanor has budgeted $0.1
million in 2000 for its shares of expenditures at Yaou and Dorlin.
42
Mineralized Material
Cambior recently announced its year-end 1999 mining reserves and measured and
indicated resources (mineralized material), reported on the basis of a $325 gold
price as previously reported for year end 1998. At year-end 1999, Cambior
reported its 50% share of mineralized material for Yaou and Dorlin, using a $325
gold price, as 8.2 million tonnes grading 1.9g/t. The Company's share of the
mineralized material for Yaou and Dorlin is 5.9 million tonnes grading 1.9 g/t.
As a Canadian reporting company, Cambior reported these results as measured and
indicated resources in compliance with Canadian securities law reporting
requirements. There is no change of tonnage or grade between this result and
that reported at year- end 1998. The qualified person responsible for the
estimation of mineralized material for the Yaou and Dorlin project is Francois
Viens, General Manager Mining Geology, Cambior. The Company has not
independently verified the estimates reported by Cambior for Yaou and Dorlin.
The above results reflect work performed by Cambior to investigate the potential
of mining these mineral deposits. Open pits have been modeled using reasonable
slopes and using average mining and milling costs for Yaou of $1.10 per tonne
and $7.50 per tonne respectively and using average mining and milling costs for
Dorlin of $0.90 per tonne and $6.50 per tonne respectively. These results only
reflect mineralized material from within the pits modeled.
The Company is reporting these results as mineralized material. Mineralized
material does not represent reserves and has not been included in the Company's
proven and probable reserve estimates because even though enough drilling and
trenching indicate a sufficient amount and grade to warrant further exploration
or development expenditures, these mineral deposits do not qualify under the
U.S. Securities and Exchange Commission standards as being commercially minable
until further drilling, metallurgical work and other economic and technical
feasibility factors based upon such work are resolved.
PAUL ISNARD AND EAU-BLANCHE
On October 29, 1994, Guyanor acquired an interest in the Paul Isnard and Eau-
Blanche properties by way of the acquisition of all of the outstanding shares of
Societe de Travaux Publics et de Mines Auriferes en Guyane ("SOTRAPMAG")
SOTRAPMAG held, directly or indirectly, eight mineral concessions (the "Paul
Isnard Concessions") and four type "B" exploration permits. Since then, all
type "B" permits have expired or were relinquished. The concessions will expire
on December 31, 2018 but can be renewed for an additional 25 years.
A type "A" permit (referred to as the "Eau-Blanche Permit") covering an area of
approximately 326 km/2/ was granted to Guyanor on November 30, 1999 for an
initial period of three years. The type "A" permit includes most of the area
covered by the four type "B" permits as well as a new area adjacent to the Paul
Isnard property.
Agreement with LaSource
In conjunction with Guyanor's acquisition of SOTRAPMAG, BRGM relinquished its
rights under an option from Alcatel Alsthom Compagnie Generale d'Electricite to
acquire any primary deposit located within the Paul Isnard Concessions. In
consideration therefor, Guyanor paid to BRGM the sum of FF2.5 million
(approximately $505,000) and LaSource Developpement S.A., a company affiliated
to BRGM ("LaSource"), received an initial 25% participating interest in two
joint ventures for the exploration and exploitation of primary gold deposits on
the Paul Isnard and Eau-Blanche projects. LaSource did not contribute its share
of 1997, 1998 and 1999 exploration expenditures. By July 31, 1999, Guyanor's
interest in the Paul Isnard and Eau-Blanche projects had increased to
approximately 90.2% and 91.2%, respectively. As a result of LaSource's
participating interest having decreased below 10%, LaSource's interest in the
joint ventures was automatically converted to a 2.5% of net profits in each
project. Therefore, Guyanor has now a 100% interest in the Paul Isnard and Eau
Blanche properties.
The Properties
The Paul Isnard and Eau-Blanche properties are located in the western part of
French Guiana, some 200 km west of Cayenne. The properties are accessed from
St-Laurent-du-Maroni, either by air, at a distance of 75 km to the south, or by
means of a 115 km-long laterite road. The first 62-km section of this road is
maintained by the government and the remaining 53-km section by SOTRAPMAG.
43
There are two prominent mountain chains bordering the properties that form the
edges of a basin in which alluvial gold deposits have accumulated. Management
believes this alluvial gold originated from gold-bearing rocks from the Decou-
Decou and Lucifer mountains and was transported downward by high-energy streams,
concentrating the gold in the gravel beds of streams in the Citron area of the
Paul Isnard property.
Geology
The Paul Isnard project covers a Lower Proterozoic greenstone belt comprised
dominantly of mafic metavolcanic rocks with lesser felsic meta volcanic rocks,
metavolcaniclastics and meta sediments. These have been intruded by
intermediate granitic rocks of similar age.
The Decou-Decou mountain located to the south of the property is formed of
volcanic rocks that, at the summit, are covered by degraded lateritic layers.
The Lucifer mountain to the north-east is formed of basic intrusive rocks. The
basin between the mountains is underlain by a Proterozoic sequence of mafic to
felsic volcanics and clastic sediments of the Paramaca and Orapu groups, cut by
ultramafic to felsic intrusives.
At Montagne D'Or the host stratigraphy for mineralization is a 400+ meter thick
section of bi-modal felsic and mafic volcanics with lesser volcaniclastics,
particularly at the base. The eastern part of the section contains more mafic
volcanics than the western section. The section is intruded by a largely post
mineral and later deformation swarm of mafic dykes or sills. The section
contains at least three unique time stratigraphic horizons marked by chemical
sediments and thin lithologically distinctive flows designated as "favorable
sequences".
Mineralization consists of two principal types: disseminated zones or stringer
mineralization and semi-massive (SMS) mineralization. The SMS occurs mainly
within the favorable sequences that can be reasonably correlated between the
widely spaced (200m) drill sections. Both contain mainly pyrite with lesser
pyrrhotite, chalcopyrite, sphalerite and arsenopyrite. A third more localized
mineralization type, "highly chloritic one" has also been identified.
Work Program
During 1999 Guyanor retained the services of a notable Volcanic Massive Sulfide
(VMS) specialist from Canada to evaluate the potential of the Paul Isnard and
Eau Blanche areas to host gold rich, polymetallic VMS deposits that might be
associated with the Montagne d'Or deposit. This work, utilizing geologic,
geophysical, geochemical and whole rock geochemistry data suggested that the
area is very similar to other VMS districts, especially in Canada and
Scandinavia. Furthermore, the study indicated that the mineralization at
Montagne d'Or is similar to known deposits in the Snow Lake Camp district of
Manitoba. Such districts tend to host multiple base metal/precious metal
deposits.
In light of depressed gold prices during 1999, Guyanor restricted field
activities to follow-up geochemical evaluation and trenching at the Elysee
target, northwest of the Montagne d'Or deposit and continued evaluation of the
Montagne d'Or VMS setting.
Total expenditures in 1999 were $0.8 million for Paul Isnard and Eau-Blanche.
Total expenditures in 1998 were $1.0 million for Paul Isnard and $0.1 million
for Eau-Blanche, of which $0.1 million wase reimbursed through the previous
joint venture. Exploration expenditures for Paul Isnard in 2000 are budgeted to
be up to $0.4 million (depending on market conditions and joint venture
interest). Efforts in 2000 will focus primarily on identification of additional
targets to supplement what had been previously outlined at Montagne d'Or. Work
will include follow-up geochemical evaluation and trenching at the Elysee
target, northwest of the Montagne d'Or deposit and continued evaluation of the
Montagne d'Or VMS setting. Additional work may include, subject to availability
of funding, an airborne geophysical survey of the entire project area to
investigate the possibility of additional geologic settings similar to that
found at Montagne d'Or.
Mineralized Material
In February 1999, Guyanor updated its geologic model following the deepening of
one drillhole and the addition of eight new drillholes. A new estimate takes
into account of the additional information gained from the drilling
44
program and the subsequent increase in confidence. Open pits were modeled using
reasonable slopes and using average mining and milling cost of $1.10 per tonne
and $9.10 per tonne respectively. The Company has estimated its 71% share of
Paul Isnard, using a $325 gold price, as 4.4 million tonnes grading 2.8 g/t.
This report only reflects mineralized material estimated to be present within
the open pits modeled by the Company. The qualified person responsible for the
estimation of mineralized material for the Paul Isnard project is Declan
Costelloe, Manager Mining Geology, Golden Star Resources.
Mineralized material does not represent reserves and has not been included in
the Company's proven and probable reserve estimates because even though enough
drilling and trenching indicate a sufficient amount and grade to warrant further
exploration or development expenditures, these mineral deposits do not qualify
under the U.S. Securities and Exchange Commission standards as being
commercially minable until further drilling, metallurgical work and other
economic and technical feasibility factors based upon such work are resolved.
Exploitation Authorization
During the fourth quarter 1999 and the first quarter 2000, Guyanor has granted
the right to five small scale mining companies to apply for Exploitation
Authorization on specific areas located within the Paul Isnard concessions and
the Type A permit. The French government created this new type of mining title
in connection with the recent revisions to the Mining Code. This new title,
referred to as "AEX", grants to small-scale alluvial miners the right to mine
within a specific area of 1 km/2/. The titleholder of an AEX is responsible for
all potential environmental damages. The applications for AEX have been
submitted to the DRIRE and if the applicants meet the DRIRE requirements, the
AEX will be granted for a term of two years. Under separate agreements with
each applicant, Guyanor will be entitled to receive as compensation a certain
percentage of the value of the gold extracted.
DACHINE
The Dachine property is accessible only by helicopter or, during the rainy
season, by canoe from Maripasoula. Microdiamonds were found for the first time
in 1983 in alluvium/colluvium by BRGM during strategic prospecting work for the
Mineral Inventory of French Guiana. No further exploration was conducted at
Dachine until Guyanor, after examining the existing literature and conducting
preliminary reconnaissance in the field, was granted a type "B" exploration
permit by the French government covering a 25 km/2/ area in southwest French
Guiana known as Dachine (formerly known as IT-33). An application was filed in
December of 1995 for a type "A" permit covering an area of 337 km/2/ that would
include the current type "B" permit. As of March 1, 2000, the type "A" permit
has still not been granted.
Joint Venture with Rio Tinto
On June 9, 1999, Guyanor entered into a Heads of Agreement with Rio Tinto Mining
and Exploration Limited ("Rio Tinto") with respect to the exploration and, if
considered commercially feasible, the development and mining of diamonds within
the whole territory of French Guiana excluding the St-Elie, Paul Isnard and
Yaou-Dorlin properties (the "Area of Interest"). The Heads of Agreement gives
Rio Tinto the right to earn a 70% participating interest in a Joint Venture
between Guyanor and Rio Tinto. Rio Tinto shall be vested with a 70%
participating interest in the Joint Venture by funding all exploration and
evaluation work in the Area of Interest up to and including the earlier of the
date on which: (i) the Board of directors of Rio Tinto resolves to commence the
development and mining of diamonds within the Area of Interest, or (ii) Rio
Tinto incurs at least $17 million in exploration work within the Area of
Interest. Rio Tinto must earn its interest by June 9, 2009 or the agreement
will terminate. Upon Rio Tinto earning its 70% participating interest in the
joint venture, both parties will fund the joint venture in proportion to their
participating interests.
To maintain its right to earn a 70% participating interest in the joint venture,
Rio Tinto must spend at least $750,000 (the "Minimum Expenditures") within the
Area of Interest by June 9, 2000 and at least $3.75 million by June 9, 2004.
After incurring expenditures of US$3.75 million within the Area of Interest, Rio
Tinto will have the right to excise from the joint venture any prospect within
the Area of Interest that does not meet its criteria for further expenditures
and it will be deemed to have earned a 51% interest in any such prospect. Rio
Tinto will hold its 51% interest in any such prospects for a period of one year.
After one year, Rio Tinto's 51% interest would revert back
45
to Guyanor and Rio Tinto would be entitled to retain a 0.3% net smelter royalty
interest in any eventual diamond production that might be realized from the
prospect.
Geology
The diamond occurrence at Dachine is hosted in a volcaniclastic komatiite - an
unusual type of volcanic rock which differs from more well-known diamond host
rocks such as kimberlite and lamproite. These komatiites once formed part of an
island-arc sequence, a tectonic setting distinct from all other currently
exploited diamond deposits.
Work Program
Work performed under the joint venture agreement included geologic mapping to
better understand the limits of the deposit, grid loam (soil) sampling to better
determine diamond distribution and limited trenching.
Access to the site was significantly improved following the mobilization of a
bulldozer from the Dorlin project. A substantial bulk sample is being collected
by excavating a trench through the central part of the deposit. Concentration
of this bulk sample is being performed on site, followed by shipment of the
concentrate for further testwork including caustic digestion to recover
diamonds. Results from this testwork will not be available until mid 2000.
Regional geologic mapping has been intensified on similar geological units to
determine the potential for locating additional sources of diamond.
In 1999, $0.8 million was spent on exploration and care and maintenance work for
Dachine, of which $0.5 million was reimbursed by Rio Tinto. During 1998, $0.2
million was spent by Guyanor for the care and maintenance of the project.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
A representative action (claiming to represent 23,000 claimants) was filed in
August 1998 in the High Court of the Supreme Court of Judicature, Civil
Jurisdiction in Guyana but was not served on the defendants (OGML, Cambior, two
engineering firms and one insurance company) until August 1999. This
representative action is essentially an outgrowth of a class action initiated in
1997 and later dismissed by a Quebec court. The representative action was
amended to include Golden Star as defendant and then served on Golden Star in
July 1999. The representative action claims $100 million in damages, allegedly
resulting from the tailings dam failure that occurred in Guyana in 1995. Golden
Star believes that, in addition to being without merit, the representative
action is open to attack on a number of procedural grounds. A motion to have
the action dismissed against Golden Star was filed in September 1999. The
Company and the other defendants intend to defend themselves vigorously against
this action.
There are currently no other material 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 non-compliance 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
requirements that may be enacted within foreign jurisdictions. For a
description of the type of legal and regulatory environment in which the Company
does business, see "Item 1. Description of Business - Risk Factors" and "Item 2.
Description of Properties - General".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
46
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
- ------- -----------------------------------------------------
STOCKHOLDER MATTERS
-------------------
The Company's common shares are listed on the Toronto Stock Exchange ("TSE")
under the trading symbol "GSC" and the American Stock Exchange ("AMEX") under
the trading symbol "GSR". As at March 1, 2000, 37,123,131 common shares were
outstanding and the Company had 836 shareholders of record. On March 1, 2000,
the closing price per share for the Company's common shares, as reported by the
TSE was Cdn$2.00 and as reported by the AMEX was $1.44. The following table
sets forth, for the periods indicated, the high and low market closing prices
per share of the Company's common shares as reported by the TSE and the AMEX.
Toronto Stock Exchange American Stock Exchange
------------------------ -----------------------
Cdn$ Cdn$ $ $
High Low High Low
---- --- ---- ---
1999:
First Quarter 1.85 1.00 1.31 0.69
Second Quarter 1.50 0.86 1.00 0.63
Third Quarter 1.10 0.57 0.69 0.38
Fourth Quarter 2.70 1.03 1.87 0.69
1998:
First Quarter 7.00 4.00 4.81 2.75
Second Quarter 6.50 3.05 4.50 2.06
Third Quarter 3.10 1.51 2.19 0.94
Fourth Quarter 4.10 1.45 2.75 0.94
The Company has not declared or paid cash dividends on its common shares since
its inception. The Company's dividend policy is reviewed from time to time by
its Board of Directors. Future dividend decisions will consider then current
business results, cash requirements and the financial condition of the Company.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
- --------------------------------------------------
The following summarizes the principal Canadian federal income tax
considerations applicable to the holding and disposition of a common share of
the Company (a "Common Share") by a holder (the "Holder") of one or more Common
Shares who is resident in the United States of America and holds the Common
Shares as capital property. This summary is based on the current provisions of
the Canada-United States Income Tax Convention (1980) (the "Treaty"), Income Tax
Act (Canada) (the "Tax Act"), the regulations thereunder and all amendments to
the Tax Act publicly proposed by the government of Canada to the date hereof.
It is assumed that each such amendment will be enacted as proposed and there is
no other relevant change in any governing law, although no assurance can be
given in these respects.
Every Holder is liable to pay a withholding tax on every dividend that is or is
deemed to be paid or credited to him on his Common Shares. Under the Treaty,
the rate of withholding tax is 5% of the gross amount of the dividend where the
Holder is a company that owns at least 10% of the voting stock of the Company
and beneficially owns the dividend, and 15% in any other case.
Under the Tax Act, a Holder will not be subject to Canadian tax on any capital
gain realized on an actual or deemed disposition of a Common Share, including a
deemed disposition at death, provided that he did not hold the Common Share as
capital property used in carrying on a business in Canada, and that neither he
nor persons with whom he did not deal at arm's length alone or together owned
25% or more of the issued shares of any class of the Company at any time in the
five years immediately preceding the disposition.
47
A Holder who is liable under the Tax Act for Canadian tax in respect of a
capital gain realized on an actual or deemed disposition of a Common Share will
be relieved under the Treaty from such liability unless
(a) the Common Share formed part of the business property of a permanent
establishment or fixed base in Canada that the Holder has or had within the
twelve-month period preceding the disposition, or
(b) the Holder
(i) was resident in Canada for 120 months during any period of 20
consecutive years preceding the disposition, and
(ii) was resident in Canada at any time during the ten years immediately
preceding the disposition, and
(iii) owned the Common Share when he ceased to be a resident of Canada.
This summary is of a general nature and is not intended, nor should it be
construed, to be legal or tax advice to any particular Shareholder.
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS AS TO THE INCOME AND OTHER
TAX CONSEQUENCES ARISING IN THEIR PARTICULAR CIRCUMSTANCES.
CERTAIN UNITED STATES INCOME TAX CONSIDERATIONS
Passive Foreign Investment Company Rules
Under the United States Internal Revenue Code of 1986, as amended (the "Code"),
the Company may be classified as a passive foreign investment company (a
"PFIC"). U.S. shareholders of a PFIC are subject to certain adverse tax
consequences. These consequences can be mitigated, under certain circumstances,
if the U.S. shareholder makes a timely election to treat the Company as a
"qualified electing fund" (a "QEF"). ALL U.S. SHAREHOLDERS ARE THEREFORE URGED
TO CONSULT THEIR OWN TAX ADVISORS ABOUT THE ADVISABILITY OF MAKING A QEF
ELECTION WITH RESPECT TO THE COMPANY. ALL U.S. SHAREHOLDERS ARE ALSO URGED TO
CONSULT THEIR OWN TAX ADVISERS ABOUT THE POSSIBILITY OF CREDITING CANADIAN TAXES
PAID AGAINST U.S. TAX PAYABLE.
Definition of a PFIC
A PFIC is a corporation not formed in the United States (a "Non-U.S.
Corporation") and either (i) 75% or more of its gross income is passive income
or (ii) 50% or more of the average value of its assets produce, or are held for
the production of, passive income. Passive income for these purposes includes
interest, dividends, and certain rents and royalties. For purposes of the
foregoing tests, if a Non-U.S. Corporation owns at least 25% by value of the
stock of another corporation, it is treated as if it instead owned its
proportionate share of the other corporation's assets and received directly its
proportionate share of the other corporation's income.
The Company has been advised by PricewaterhouseCoopers LLP that it should not be
treated as a PFIC with respect to shares purchased by U.S. shareholders during
the years 1993 through 1999, although it could potentially be a PFIC with
respect to shares acquired by U.S. shareholders prior to 1993. The Company also
intends to engage PricewaterhouseCoopers LLP in the future to analyze whether it
is a PFIC in 2000 and subsequent years and will continue to notify shareholders
of the results of such future analyses. The PFIC analysis involves a complex
analysis of many factors, including, among other things, the price of gold,
production and cash flow from BGL and the cash flow of OGML
48
Consequence of PFIC Classification if No QEF Election Made
If the Company is classified as a PFIC, U.S. shareholders who do not make timely
QEF Elections (as discussed below) will be subject to a number of special
adverse tax rules. For example, gain recognized on disposition of PFIC stock or
the receipt of an "excess distribution" from a PFIC is (i) treated as if it were
ordinary income earned ratably on each day in the taxpayer's holding period for
the stock at the highest marginal rate in effect during the period in which it
was deemed earned and (ii) subject to an interest charge as if the resulting tax
had actually been due in such earlier year or years. (An excess distribution is
the amount of any distribution received by the U.S. shareholder during the
taxable year that exceeds 125% of the immediately preceding three year average
of distributions received from the corporation, subject to certain adjustments.)
Proposed United States Treasury Regulations broadly define a disposition to
include any transaction or event that constitutes an actual or deemed transfer
of property for any purpose under the Code, including (but not limited to) a
sale, exchange, gift, transfer at death, and the pledging of PFIC stock to
secure a loan. If the tax described above is not imposed on a transfer at
death, the recipient of the PFIC stock receives a basis in the transferred stock
equal to the lesser of the fair market value or the adjusted basis of the stock
in the hands of the shareholder immediately before death. Finally, the
foregoing rules will continue to apply with respect to a U.S. shareholder who
held the stock of the Company while the Company met the definition of a PFIC
even if the Company ceases to meet the definition of a PFIC.
The proposed PFIC regulations herein were proposed to be effective in April 1992
and may apply to all post-1986 years. However, there can be no assurance that
such regulations will be adopted in their present form.
Consequences of PFIC Classification if QEF Election Made
Most of the foregoing adverse tax consequences can be avoided if (i) the U.S.
shareholder makes a timely election to treat the Company as a QEF (a "QEF
Election") for the first year of the shareholder's holding period in which the
Company is a PFIC (or in a year for which the Shareholder also makes the "Deemed
Sale Election" described below) and (ii) the Company provides the U.S.
shareholder with a "PFIC Annual Information Statement" pursuant to Temporary
Regulations issued by the Internal Revenue Service. U.S. shareholders of a PFIC
who make a QEF Election, however, will be taxable currently on their pro rata
share of the PFIC's ordinary earnings and net capital gain, unless they make a
further election to defer payments of tax on amounts included in income for
which no distribution has been received (subject to an interest charge).
Special adjustments are provided to prevent inappropriate double taxation of
amounts so included in a U.S. shareholder's income upon a subsequent
distribution or disposition of the stock.
A U.S. shareholder makes a QEF Election by filing a Form 8621 with its tax
return. In the case of stock owned through a U.S. entity, the election
generally must be made at the entity level. A QEF Election must be filed by the
due date (taking into account extensions) for filing the U.S. shareholder's
income tax return for the taxable year for which the election is made. A copy
of the Form 8621 must also be filed with the Philadelphia Internal Revenue
Service Center. Once made, the election is effective for the shareholder's
taxable year for which it is made and all subsequent taxable years, and may not
be revoked without consent of the Secretary of the Treasury. If a U.S.
shareholder wishes to make a QEF Election subsequent to the first year of his
holding period for stock of a Non-U.S. Corporation that is a PFIC, the U.S.
shareholder may further elect to recognize gain (the "Deemed Sale Election") as
if it had sold the QEF stock on the first day of the taxable year in which the
QEF election is made if (i) the U.S. shareholder holds stock in the PFIC on that
day and (ii) the shareholder can establish the fair market value of such stock
on that day.
In the event that the Company is classified as a PFIC, the Company intends to
comply with the reporting requirements prescribed by Temporary Treasury
regulations. In particular, the Company will maintain information so that the
ordinary earnings and net capital gains of the Company may be determined.
However, future regulations may contain reporting and record-keeping
requirements that are so onerous that it would not be practicable for the
Company to comply. If, after review of the requirements, the Company determines
that it would not be practicable to comply, it will so notify its shareholders.
49
Mark to Market Election
Under the recently enacted Taxpayer Relief Act of 1997, a U.S. holder of
"marketable stock" under the PFIC rules may be able to avoid the imposition of
the special tax and interest charge by making a "mark-to-market election".
Generally, pursuant to this election, such U.S. holder would include in ordinary
income, for each taxable year during which such stock is held, an amount equal
to the increase in value of the stock, which increase will be determined by
reference to the value of such stock at the end of the current taxable year as
compared with its value as of the end of the prior taxable year. U.S. holders
desiring to make the mark-to-market election should consult their tax advisors
with respect to the application and effect of making such election.
Taxation of Dividends on the Company's Stock
Subject to the PFIC rules described above for U.S. Federal income tax purposes,
dividends paid by the Company (including any Canadian tax withheld thereon) will
constitute ordinary dividend income to the extent of the Company's current or
accumulated earnings and profits as determined for U.S. Federal income tax
purposes, and to the extent in excess of earnings and profits, will first be
applied against and reduce the shareholder's basis in such holder's stock, and
to the extent in excess of such basis will be treated as gain from the sale or
exchange of property. Because the Company is not a U.S. corporation, dividends
that it pays will not be eligible for the dividends-received deduction provided
for in Section 243 of the Code. If a U.S. shareholder receives a dividend
payment in any currency other than U.S. dollars, the amount of the dividend
payment for United States Federal income tax purposes will be the U.S. dollar
value of the dividend payment (determined at the spot rate on the date of such
payment) regardless of whether the payment is in fact converted into U.S.
dollars. In such case, U.S. shareholders may recognize ordinary income or loss
as a result of currency fluctuations during the period between the date of a
dividend payment and the date such dividend payment is converted into U.S.
dollars.
Subject to the limitations provided in the Code, the Canadian tax withheld with
respect to such dividends should be eligible for the benefits of the foreign tax
credit rules of the Code. A shareholder who does not elect the benefits of the
foreign tax credit provisions of the Code will be entitled to a deduction for
the amount of the Canadian tax withheld.
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
The selected financial data set forth below are derived from the audited
consolidated financial statements of the Company for the years ended December
31, 1999, 1998, 1997, 1996 and 1995, included elsewhere herein, and should be
read in conjunction with those financial statements and the footnotes thereto.
The consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles ("GAAP"). Selected financial
data derived in accordance with United States GAAP has also been provided and
should be read in conjunction with Footnote 15 to the financial statements. For
United States GAAP reconciliation items, see the attached consolidated financial
statements and notes. Reference should also be made to "Item 7. Management's
Discussion and Analysis of Financial Conditions and Results of Operations".
50
Summary of Financial Condition Data at End of Period
(Amounts in thousands except per share data)
----------------------------------------------------------------------------------------------------------------------
As of December As of December As of December As of December As of December
CDN GAAP 31, 1999 31, 1998 31, 1997 31, 1996 31, 1995
----------------------------------------------------------------------------------------------------------------------
Working capital $ 6,020 $ 6,516 $16,427 $15,287 $11,092
----------------------------------------------------------------------------------------------------------------------
Current assets 13,957 8,216 20,152 22,182 16,074
----------------------------------------------------------------------------------------------------------------------
Total assets 74,352 68,597 89,122 96,283 77,609
----------------------------------------------------------------------------------------------------------------------
Current liabilities 7,937 1,700 3,725 6,895 4,982
----------------------------------------------------------------------------------------------------------------------
Shareholders' equity 40,501 58,471 79,557 78,094 68,388
----------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
For the Year Ended For the Year Ended For the Year Ended For the Year Ended For the Year Ended
CDN GAAP December 31, 1999 December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
---------------------------------------------------------------------------------------------------------------------------
Revenue $ 11,254 $ 635 $ 1,698 $ 2,801 $ 5,590
---------------------------------------------------------------------------------------------------------------------------
Net loss (24,366) (22,248) (26,584) (7,780) (12,181)
---------------------------------------------------------------------------------------------------------------------------
Net loss per share (0.76) (0.74) (0.92) (0.31) (0.54)
---------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
As of December As of December As of December As of December As of December
US GAAP 31, 1999 31, 1998 31, 1997 31, 1996 31, 1995
----------------------------------------------------------------------------------------------------------------------
Working capital $ 6,020 $ 3,901 $13,485 $11,788 $ 7,521
----------------------------------------------------------------------------------------------------------------------
Current assets 13,957 5,601 17,210 18,683 12,503
----------------------------------------------------------------------------------------------------------------------
Total assets 45,635 27,240 42,076 46,895 38,059
----------------------------------------------------------------------------------------------------------------------
Current liabilities 7,937 1,700 3,725 6,895 4,982
----------------------------------------------------------------------------------------------------------------------
Shareholders' equity 11,145 16,899 31,160 29,959 30,073
----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
For the Year Ended For the Year Ended For the Year Ended For the Year Ended For the Year Ended
US GAAP December 31, 1998 December 31, 1998 December 31,1997 December 31, 1996 December 31, 1995
-----------------------------------------------------------------------------------------------------------------------------
Revenue $ 11,254 $ 635 $ 1,698 $ 2,801 $ 5,590
-----------------------------------------------------------------------------------------------------------------------------
Net loss (11,335) (15,395) (26,838) (25,279) (28,330)
-----------------------------------------------------------------------------------------------------------------------------
Net loss per share (0.35) (0.51) (0.94) (1.00) (1.24)
-----------------------------------------------------------------------------------------------------------------------------
Note: Golden Star did not pay any cash dividends during the fiscal years
indicated above.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following discussion and analysis should be read in conjunction with the
accompanying consolidated financial statements and related notes. The financial
statements have been prepared in accordance with Canadian GAAP ("Cdn GAAP").
For the US GAAP reconciliation, see attached consolidated financial statements,
as well as "Results of Operations" below.
The following contains certain forward-looking statements within the meaning of
the U.S. securities laws. Actual results, performance or achievements of the
Company could differ materially from those projected in the forward-looking
statements due to a number of factors, including those set forth under "Risk
Factors" and elsewhere in this Annual Report on Form 10-K. Readers are
cautioned not to place undue reliance on forward-looking statements. The
Company disclaims any intent or obligation to update publicly these forward-
looking statements, whether as a result of new information, future events or
otherwise.
51
RESULTS OF OPERATIONS
- ---------------------
Overview
On September 30, 1999, the Company and Anvil Mining NL, an Australian company
("Anvil"), completed the acquisition of 70% and 20% respectively, of the common
shares of Bogoso Gold Limited ("BGL"). The Government of Ghana retained its 10%
equity interest in BGL. BGL is the owner of the Bogoso Mine, an operating gold
mine in the Republic of Ghana, which the Company and Anvil intend to continue to
operate. The initial purchase price for BGL was $6.5 million, which was funded
by the Company from working capital and the proceeds from the August 24, 1999
offerings of convertible debentures, common shares and warrants. The
acquisition agreement also provides for additional purchase price payments to
the IFC (on behalf of the consortium of banks that sold Bogoso). The Company
and Anvil also acquired by way of assignment all the outstanding debt owed to
the sellers. The Company will receive preferential repayment of its acquisition
costs, including the amount owed to it by Anvil, and all inter-company debt and
interest will be repaid prior to any distribution to shareholders.
The acquisition of BGL included the assignment of certain rights to Golden Star
and Anvil of certain indebtedness of BGL to the sellers. The indebtedness to
Anvil at the purchase date approximated $7.5 million and will be repaid at such
time as Net Proceeds, as defined, from BGL production are available to fund the
debt. Management estimates that, due to the provisions of the acquisition
agreement that grant Golden Star first preference on cash flow from BGL until it
has recovered its investment in BGL, including its related purchase costs,
transaction expenses and repayment of the Anvil note receivable, that it is
unlikely that any of the indebtedness will be repaid to Anvil. Accordingly, no
liability was recorded upon purchase of BGL. As of December 31, 1999,
management continues to believe that it is unlikely that any indebtedness will
be repaid to Anvil.
This acquisition is consistent with the Company's shift in focus away from being
a pure exploration company, to becoming a production, development and advanced
stage exploration company. The Company's results of operations, discussed
below, include results from BGL for the three months ended December 31, 1999.
Prior to September 30, 1999, the Company's focus was solely on the exploration
and development (if warranted) of precious metal and diamond deposits within
specific geological domains. Under Cdn GAAP, expenditures relating to these
activities are capitalized in recognition of the potential future value of
prospective targets. Upon completion of the exploration phase, and upon a
decision to proceed to the development phase, these accumulated expenditures
reflect the cost of the resultant reserves that will be depleted on the units-
of-production basis over the estimated total reserve to be mined. A decision to
discontinue exploration or not to proceed to the development stage for a
specific project would result in reducing the capitalized total cost of the
exploration program and charging those costs against income.
Under US GAAP, exploration and general and administrative expenses related to
projects are charged to expense as incurred, whereas under Cdn GAAP, such
expenses are capitalized as discussed above. Property acquisition costs are
deferred under both Canadian and US GAAP until it is determined whether a
project is commercially feasible. In addition, under US GAAP, internal
acquisition costs are charged to expense as incurred, whereas under Cdn GAAP
such amounts are capitalized.
52
The effect of the differences in accounting under Cdn GAAP and US GAAP on the
statement of net loss is as follows:
For the Years Ended December 31,
1999 1998 1997
----------- ---------- ----------
Net loss under Cdn GAAP $(24,366) $(22,248) $(26,584)
Net effect of the deferred exploration expenditures on loss
for the period 13,403 4,901 1,189
Effect of capitalized acquisition costs net of related
depletion (1,233) - -
Other 315 814 46
-------- -------- --------
Loss under US GAAP before minority interest (11,881) (16,533) (25,349)
Minority interest, as adjusted 546 1,138 (1,489)
-------- -------- --------
Net loss under US GAAP (11,335) (15,395) (26,838)
Other comprehensive income foreign exchange loss 10 (26) (92)
-------- -------- --------
Comprehensive income $(11,325) $(15,421) $(26,930)
======== ======== ========
Basic and diluted Net loss per share under US GAAP $ (0.35) $ (0.51) $ (0.94)
======== ======== ========
The Company currently has limited cash resources. See "Item 1. - Risk Factors -
We currently have limited liquidity and capital resources" and "Liquidity and
Capital Resources" and "Outlook" below.
1999 Compared to 1998
The Company reported a net loss of $24.4 million in 1999 as compared to a net
loss of $22.2 million in 1998. The most significant aspects of the 1999 results
were the revenue and operating costs from gold production at the Bogoso Mine
which was acquired on September 30, 1999, and the impact of property abandonment
charges and write-downs of $23.9 million in 1999 compared with $16.6 million in
1998. The write-downs on exploration properties totaled $10.0 million for
properties in Suriname, $2.5 million for properties in Guyana, $2.6 million for
properties in French Guiana, $3.3 million for properties in Brazil, and $5.5
million for properties in Africa. The write-downs in 1999 were due to the
fundamental shift in the direction and focus of the Company from a pure
exploration company, to a production, development and advanced stage exploration
company. With the consummation of the acquisition of BGL, the Company completed
the first major objective of management's shift of the Company's focus. Also,
as a result of the shift of focus and with the prioritization of available
funding, the Company must continually consolidate and rationalize exploration
and development activities, which could impact its corporate and project
budgets. Available funds will be more focused on the development and
acquisition of advanced stage exploration projects, rather than on grass roots
projects. During 1999, the Company undertook a review of the carrying value of
all of its exploration properties and, as a result, the Company expensed $23.9
million for the write-down or abandonment of several projects and prospecting
licenses. A number of these properties will be retained and could be actively
explored in the future, but the write-down reflects their present potential, in
view of the continuing low gold price and depressed markets for gold equities.
Total revenues in 1999 were $11.2 million, of which $10.6 million came from
revenue from gold sales. The Bogoso Mine produced and sold 36,074 ounces of
gold during the three months ended December 31, 1999, with an average $293 per
ounce gold price realized and total cash costs of $165 per ounce. Depreciation
and depletion expense increased to $3.0 million from $0.2 million, primarily as
a result of the acquisition of the Bogoso Mine in September 1999.
Interest and other revenues of $0.7 million were comparable to the 1998 amount
of $0.6 million.
General and administrative expenditures totaled $3.7 million in 1999, as
compared to $7.7 million for 1998. The decrease in general and administrative
expenditures resulted from the Company's ongoing cost reduction efforts.
1998 Compared to 1997
The Company reported a net loss of $22.2 million in 1998 as compared to a net
loss of $26.6 million in 1997. During 1998, the Company recorded property
abandonment charges of $16.6 million, including $2.6 million and $3.7 million,
respectively, from the relinquishment of certain diamond and gold properties in
Guyana, $0.9 million
53
for the Dieu Merci project in French Guiana, $8.8 million for the Andorinhas
project, $0.3 million for other properties in Brazil, and $0.2 million related
to various property interests in Bolivia. The abandonment of these projects was
the result of several factors including exploration results and the assessment
and prioritization of exploration projects by management to ensure continued
focus on the most promising projects in the Company's portfolio in light of
limited capital available to fund exploration projects. The objective of the
project prioritization was to ensure continued funding of projects that the
Company believed offered the greatest potential for meaningful results and new
reserves and mineralized material. Of the $16.6 million of property abandonments
described above, $16.4 million were recorded in the fourth quarter of 1998. The
abandonments taken in the fourth quarter resulted from the company's review of
exploration results to date, prioritization of projects, and results of
negotiations with property owners.
Total revenues in 1998 decreased to $0.6 million, as compared to $1.7 million in
1997 due to the shutdown during 1997 of the alluvial mining operations at
SOTRAPMAG in April 1997 and the lower interest income earned. Interest and
other revenues decreased from $1.3 million in 1997 to $0.6 million in 1998 due
to the decrease in the average cash balance invested during 1998 as compared to
1997 combined with lower interest rates during the period. Cost of mining
operations were nil for 1998 as compared to $1.0 million for 1997 as a result of
the discontinuation of production at SOTRAPMAG during 1997, with no revenue from
gold sales in 1998, compared to revenue of $0.4 million in 1997. SOTRAPMAG's
cost of mining operations exceeded revenues in 1997 by $0.5 million.
General and administrative expenditures totaled $7.7 million for 1998, as
compared to $8.9 million for 1997. The decrease in general and administrative
expenditures resulted from a $1.8 million reduction in expenses due to the
Company's cost reduction efforts offset by the $0.6 million paid to the former
President and CEO of the Company under a separation and release agreement.
Depreciation expense decreased $0.6 million as a result of the decrease in the
depreciable asset base due to the write-down of equipment at SOTRAPMAG.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Consolidated cash and short-term investments as of December 31, 1999 were $2.9
million, down from $7.4 million as of December 31, 1998. This reduction is the
net result of the issuance of convertible debentures and common shares, the
acquisition of BGL, the generation of net cash from BGL operations and ongoing
expenditures on mineral exploration properties. Working capital as of December
31, 1999 had decreased to $6.0 million from the level of $6.5 million at
December 31, 1998, mainly as a result of the additional receivables and
inventories from the producing mine at BGL offset by the addition of the current
portion of the amount payable to financial institutions. The Company
anticipates that its current cash balance and the operating cash flows from the
Bogoso Mine will be sufficient to fund planned operating and exploration
expenditures for the year 2000.
Cash used in investing activities of $11.3 million in 1999 increased from $5.7
million in 1998. The decrease in exploration expenditures related to the
Company's operations in South America and Africa was more than offset by
expenditures for the Bogoso acquisition and the environmental rehabilitation
bonding.
Cash provided by financing activities in 1999 increased to $7.0 million from
$3.4 million in 1998. This increase results from the net effect of the
following: increased cash from the issuance of shares ($3.2 million in 1999
compared with $0.2 million from the exercise of warrants in 1998); cash from the
issuance of convertible debentures in 1999 of $4.2 million (with zero in 1998)
and $3.2 million in cash received in 1998 from OGML (with zero in 1999) as an
interest-free loan to be repaid at the same time as OGML preferred shares are
redeemed). The Company received $6.9 million in cash through the acquisition of
BGL but $6.0 million is restricted, in accordance with the BGL acquisition
agreement, to be used for environmental rehabilitation at the Bogoso Mine. The
restricted cash is therefore deducted from cash flows and is not included in the
cash and short term investments at the end of the year.
On August 8, 1997, the Company filed with the SEC a shelf registration statement
on Form S-3, with respect to the proposed issuance by the Company from time to
time of up to $47,687,500 of its common shares, preferred shares, convertible
debt securities and/or warrants.
On August 24, 1999, the Company completed a financing for total proceeds of $3.4
million from the issuance of 6,923,000 units representing 6,923,000 common
shares and 18-month warrants to purchase 3,461,500 common
54
shares at an exercise price of $0.70 per share. In connection with this
financing, the Company issued 12-month brokers' warrants to purchase 761,650
common shares at an exercise price of $0.70 per share. On August 24, 1999, the
Company also completed a financing for $4.2 million by the issuance of
subordinated convertible debentures. The debentures, which mature on August 24,
2004, bear interest at 7.5% per annum and are convertible at the option of the
holder at a conversion price of $0.70 per share. The debentures are also
redeemable by the Company under certain circumstances and each principal amount
of $1,000 entitles the holder to warrants exercisable for 200 common shares at a
price of $1.50 per share for three years and $1.75 per share for the fourth and
fifth years. The purpose of the issuance of the equity and convertible debt
units, issued under the Company's shelf Registration Statement in the United
States dated August 8, 1997, was to raise funds for the acquisition of BGL.
In anticipation of the BGL acquisition, the Company established a credit
facility that was not used in the transaction. As consideration for setting up
this facility, the Company issued three-year warrants to purchase 1,500,000
common shares (the "Credit Facility Warrants"). The Credit Facility Warrants
were originally priced at $0.71 per share but, as per the credit facility
agreement, they were re-priced in October to $0.425 per share. The Company
filed a Registration Statement on Form S-3 on October 27, 1999, covering the
Credit Facility Warrants and the brokers' warrants, which is not yet effective.
Bogoso Gold Limited
Production from the Bogoso mine amounted to 36,074 ounces for the last quarter
of 1999, the first quarter of its operations under the Company. The realized
gold price was $293 per ounce and, with total cash costs of $165 per ounce,
Bogoso generated positive cash flow to the Company.
In the last quarter of 1999, BGL commenced additional drilling to increase the
open-pit sulfide mineralized material at Bogoso and plans to prepare a bankable
feasibility study on the sulfide mineralized material.
Guyanor Ressources S.A.
Total exploration expenditures for the year ended December 31, 1999, amounted to
$3.0 million, offset by joint venture recoveries of $1.4 million, compared to
1998 expenditures of $4.7 million, offset by 1998 joint venture recoveries of
$1.2 million. Guyanor recorded property write-downs of $2.6 million in 1999
with respect to the St-Elie property, as compared to $0.9 in write-downs in 1998
related to the relinquishment of the Dieu Merci project.
On June 12, 1998, the Company acquired an additional 2,380,000 Class B common
shares of Guyanor at a price of FF9.53 or Cdn$2.314 for total consideration of
FF22.7 million or Cdn$5.6 million (satisfied by reducing the receivable for the
equivalent amount of funds advanced to Guyanor by the Company. This transaction
resulted in an increase in the Company's interest in Guyanor from 69.3% to 71%.
A preliminary budget prepared by Guyanor estimates total spending for 2000 of
approximately $1.8 million with recoveries from joint venture partners of
approximately $1.2 million for net expenditures of $0.6 million. As at December
31, 1999, Guyanor had a cash deficiency of $0.1 million. Net expenditures are
expected to be funded by collection of receivables from joint venture partners
for work conducted in 1999 and from working capital loans provided by Golden
Star.
Guyana
Total 1999 spending on the Company's projects in Guyana amounted to $0.4 million
compared to 1998 net spending of $0.9 million. The company wrote-off deferred
project expenditures of $2.5 million in 1999 following management's decision to
release prospecting licenses and property agreements on the various properties.
This compares with $6.4 million of property abandonment charges in 1998. The
Company plans to close the Guyana office in 2000 and has only budgeted
approximately $0.2 million for administration expenses and limited exploration
in Guyana during 2000.
55
Suriname
Activities in Suriname during 1999 focused principally on the Gross Rosebel gold
project held in joint venture with Cambior. Total Gross Rosebel spending in 1999
amounted to $0.7 million offset by joint venture recoveries of $0.4 million, as
compared to 1998 spending of $2.0 million, which was offset by joint venture
recoveries of $1.0 million. The reduction is the result of putting all
properties in Suriname, including the Gross Rosebel project on care and
maintenance pending improved gold prices, the resolution of various technical
matters and Cambior's future development plans. After no property write-downs in
1998, the Company recorded $10.0 million in property write-downs in 1999,
following the termination of the South Benzdorp joint venture and management's
decision to allocate budgeted funds in Suriname only to Gross Rosebel.
In August 1999, the Company announced the results of its scoping study for a
smaller, less capital intensive development plan at Gross Rosebel. These
results supported the Company's belief that the project could be profitably
developed in a low gold price environment by applying a low cost heap leach
processing approach. Budgeted 2000 exploration and acquisition expenditures for
Gross Rosebel are $0.53 million, with budgeted joint venture recoveries of $0.26
million. Expenditures at the Gross Rosebel project are shared equally between
the Company and Cambior.
At such time as the decision is 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.
Brazil
During 1999, the Company spent approximately $0.5 million on exploration
compared with $1.1 million in 1998. The Company recorded write-downs totaling
$3.3 million in 1999 for all its remaining Brazilian properties, following
property write-downs of $9.1 million in 1998. The write-downs were a result of
poor exploration results and management's decision to reduce exploration
expenditures.
Pan African Resources Corporation
Prior to the acquisition of BGL, all the Company's exploration activities in
Africa were conducted through Pan African Resources Corporation ("PARC") which
became a wholly-owned subsidiary of the Company in April 1998. The Company
spent $0.3 million on PARC exploration properties in 1999, compared with $3.1
million in 1998. During 1999, the Company recorded property write-downs of $5.5
million as compared to $0.01 million in 1998.
Year 2000 Compliance
The Company recognized the importance of ensuring that its business operations
were not disrupted as a result of Year 2000 problems. The Company addressed the
issues based on its prepared plan and completed its plan prior to December 31,
1999. The Company experienced limited and isolated internal effects from the
Year 2000 date change and these were easily resolved. The Company has also
experienced no effects from third-party suppliers, financial institutions,
vendors, joint venture partners and OGML.
Effects of the European Monetary Union Currency
Effective January 1, 1999, eleven of the fifteen member countries of the
European Monetary Union ("EMU") adopted a single European currency, the "Euro",
as their common legal currency. During the years 1999 through 2001, business
conducted within the EMU will be conducted in both the existing national
currency and the Euro. As a result, companies operating in EMU member states
will need to ensure that their financial systems are capable of processing
transactions and properly handle these currencies, including the Euro. The
operations of the Company's 71% owned subsidiary Guyanor Ressources S.A. are
affected by this change. The Company has not had and does not expect a material
impact on its results of operations from foreign currency gains or losses as a
result of the transition to the Euro.
56
Other Matters
The Company conducts all of its operations, exploration and development of
mineral properties in countries other than Canada and the United States directly
and through joint ventures. To date, the majority of the Company's funding had
come from equity financing transactions completed in Canada and in Canadian
currency. The Company currently maintains all or the majority of its working
capital in U.S. dollars or U.S. dollar denominated securities and its practice
has been to converts funds to foreign currencies as payment obligations come
due. Accordingly, the Company is subject to fluctuations in the rates of
currency exchange between the U.S. dollar and other currencies, and such
fluctuations may materially affect the Company's financial position and results
of operations. The Company currently has future obligations payable and
receivables collectible in Cedis and French francs. The Company's share of BGL
gold sales (net of operating expenses and capital expenditures) will, however,
be in U.S. dollars. The Company currently does not actively hedge against such
currency risks.
The Company believes that its current activities are in material compliance with
applicable laws and regulations designed to protect the environment. The
Company periodically engages specialists to evaluate potential environmental
issues for specific projects. The results of these evaluations are utilized in
the property evaluation process, where applicable. The Company also evaluates
the need for reclamation reserves in light of current laws and regulations and
will make provisions for such reserves as they become necessary based on the
Company's activities in South America. In accordance with the acquisition
agreement for BGL, the Company has $6.0 million restricted for the final
environmental rehabilitation of the Bogoso mine site. These funds are
classified as restricted cash on the December 31, 1999 balance sheet.
Management
The Company has seen significant management changes since October 1998, when
David Fennell resigned as President and Chief Executive Officer. James E. Askew
was appointed President and Chief Executive Officer in March 1999 and, after his
work to re-focus the Company and to acquire the operating Bogoso mine, he
resigned in October 1999 to take a position in his native Australia. Mr. Askew
continues as a member of the board of directors. On November 1, 1999, Peter J.
Bradford was appointed President and Chief Executive Officer. Mr. Bradford was
instrumental in bringing the BGL opportunity to the Company's attention and,
after many years of development and operating gold mining experience (including
seven years in Ghana), he brings appropriate skills to this phase of the
Company's development. In addition to Mr. Askew, the Company's Chief Financial
Officer, Vice President, Corporate Development, and Controller also resigned
during 1999 and early 2000. These latter resignations mostly resulted from the
reorganization and re-focusing of the Company, combined with the objectives of
cost reduction to accommodate the continuing low gold price environment. The
board of directors was also reduced in size during 1999 to a level of five
directors, all of whom are currently independent of management.
Outlook
In prior years the Company has had to rely primarily on the capital markets to
fund its acquisitions, operations and exploration activities. With the
acquisition of BGL and its operating gold mine, effective September 30, 1999,
the Company now has a source of positive cash flow from mining operations
through at least the end of 2000. The current market for gold shares continues
to be weak and equity capital is difficult to obtain; but, as the Company
demonstrated in 1999 through its capital raising activities (from the issuance
of shares and convertible debentures), it is somewhat easier to raise funds to
acquire producing mining assets compared with the challenge of raising capital
primarily for exploration. The Company is projected to generate sufficient cash
flow in 2000 to cover its exploration obligations and general and administrative
expenses, however additional capital would be required for any acquisitions.
The Company will continue to explore various possibilities for raising capital,
which might include, among other things, the establishment of additional joint
ventures, the sale of property interests, debt financing and the issuance of new
equity.
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 our ability to obtain financing and therefore our
ability to acquire additional properties and to explore and develop our current
portfolio of properties. We cannot assure you that additional funding will be
available in 2000.
57
We may, in the future, be unable to continue our exploration and development
programs and fulfill our obligations under our agreements with our partners or
under our permits and licenses. Although we have been successful in the past in
obtaining financing though partnership arrangements and sale of equity
securities, we cannot assure you that we will be able to obtain adequate
financing on acceptable terms. If we are unable to obtain such additional
financing, we may need to delay, or indefinitely postpone, further exploration
and development of our properties. As a result we may lose our interest in some
of our projects and may be obliged to sell some of our properties.
As at December 31, 1999, the Company held consolidated cash and short-term
investments of $2.9 million. Management has budgeted consolidated total revenue
of approximately $32 - 34 million and total operating and general and
administrative expenditures of approximately $30 million for 2000. Consolidated
net exploration and development expenditures, after recoveries from joint
venture partners and other working capital changes are budgeted at approximately
$2.8 million.
The Company has budgeted production from the Bogoso mine of 114,000 ounces
during 2000. Free cash flow, after all operating expenses, overheads, financing
costs, exploration and development, net environmental rehabilitation costs and
deferred purchase price repayments to the consortium of banks, is forecast to be
between $1 - 2 million for 2000. The Company's planned exploration and
development spending during 2000 is primarily for the feasibility study on the
Bogoso sulfide project, the acquisition of additional properties with oxide
mineralized material close to Bogoso, pre-feasibility work at the Yaou and
Dorlin projects, exploration work at Paul Isnard in French Guiana, and continued
engineering work at Gross Rosebel in Suriname. No field work is planned for
Gross Rosebel other than property care and maintenance, however expenditures
have been budgeted for additional work on engineering and metallurgical studies
on the investigation of heap leaching alternatives and ongoing holding costs of
the project.
The Company will not receive cash flow from OGML in 2000 through redemptions of
Class I preferred shares, as any redemptions will be utilized to reduce the debt
owed to OGML. The amount of redemptions, if any, is dependent on the net cash
flow of OGML. In 1999, the Company booked $0.7 million from the redemption of
Class I preferred shares.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------- ----------------------------------------------------------
The Company's exposure to market risk includes, but is not limited to, the
following risks: changes in interest rates on the Company's investment
portfolio, changes in foreign currency exchanges rates and commodity price
fluctuations. The Company also has various agreements that are classified as
derivative financial instruments. (See also "Risk Factors" in Part I of this
Form 10-K.)
Interest Rate Risk
The Company invests its cash in debt instruments of the U.S. Government and its
agencies, and in high-quality corporate issuers, and limits the amount of
exposure to any one issuer. Investments in both fixed rate and floating rate
interest earning instruments carry a degree of interest rate risk. Fixed rate
securities may have their fair market value adversely impacted due to a rise in
interest rates, while floating rate securities may produce less income than
expected if interest rates fall. Due in part to these factors the Company's
future investment income may fall short of expectations due to changes in
interest rates or the Company may suffer losses in principal if forced to sell
securities which have declined in market value due to changes in interest rates.
For example, if interest rates were to change 1%, the Company's revenue could
increase or decrease by approximately $0.1 million for year. The Company may in
the future actively manage its exposure to interest rate risk.
Foreign Currency Exchange Rate Risk
The price of gold is denominated in U.S. dollars and the majority of the
Company's revenues and expenses are denominated in U.S. dollars. As a result of
the limited exposure, management considers that the Company is not exposed to a
material risk as a result of any changes in foreign currency exchange rate
changes, so the Company does not utilize market risk sensitive instruments to
manage its exposure.
58
Commodity Price Risk
The Company is engaged in gold mining and related activities, including
exploration, extraction, processing and reclamation. Gold bullion is the
Company's primary product and, as a result, changes in the price of gold could
significantly affect the Company's results of operations and cash flows.
According to current estimates, a $25 change in the price of gold could result
in a $1.0 million effect on the results of operations and cash flows. The
Company currently does not have a program for hedging, or in otherwise managing
its exposure to commodity price risk. The Company may in the future manage its
exposure through hedging programs.
Derivative Financial Instruments
The Company entered into various agreements in relation to the acquisition of
BGL that are classified as derivative financial instruments. The Company and
Anvil will be required to make additional future payments to the consortium of
banks, depending on the then-current price of gold and the potential acquisition
of ore in Ghana outside the region of BGL's mining interests. The gold price
related payments are due as to 50% one year after closing and 50% at the earlier
of production of gold ceasing or the second anniversary after closing. The
Company is obligated to escrow the estimated payments six months and 18 months
after closing, respectively. These payments are equal to the product (in U.S.
dollars) of 183,333 and the amount, if any, that the average daily gold price
(in U.S. dollars in the London Bullion Market Association p.m. gold fix) over
the period from closing to the payment dates exceeds $255 per ounce. Such
payments are capped at $10.0 million in total. The Company has accrued $6.4
million, based on its estimate that, if the gold price averages $290 per ounce
for the remainder of the Bogoso mine life, Golden Star and Anvil would have to
pay the consortium of banks this amount as a purchase price adjustment. The
payment made on the first anniversary of the acquisition will be non-refundable
and credited against any payment due on the second anniversary. The Company is
depleting this amount over production from proven and probable reserves. The
actual amount of the additional purchase price cannot be determined as it could
be significantly impacted by changes in the price of gold. The Company is also
required to make production related payments to the provider of the credit
facility arranged for, but not used, to effect the acquisition of BGL. The
Company is required to pay $0.3 million for every 12-month period that BGL
produces over 75,000 ounces of gold. Based on proven and probable reserves, the
Company has accrued $0.5 million (for two years' production) and is depleting
this amount over production from proven and probable reserves. This payment
extends over six years and is capped at $1.3 million.
59
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
Index to Consolidated Financial Statements
of Golden Star Resources Ltd. and Subsidiaries
Management's Responsibility for Financial Information............................ 61
Auditors' Report................................................................. 62
Consolidated Balance Sheets as of December 31, 1999 and 1998..................... 63
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997............................................ 64
Consolidated Statement of Changes in Shareholders' Equity for the years ended
December 31, 1999, 1998 and 1997............................................ 65
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997............................................ 66
Notes to the Consolidated Financial Statements................................... 67-87
60
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL INFORMATION
To the Shareholders of Golden Star Resources Ltd.
The consolidated financial statements and all information in the Annual Report
are the responsibility of the Board of Directors and management. The
consolidated financial statements have been prepared by management based on
information available to March 1, 2000, and are in accordance with accounting
principles generally accepted in Canada.
A system of internal accounting and administrative controls is maintained by
management in order to provide reasonable assurance that financial information
is accurate and reliable, and that the Company's assets are safeguarded.
Limitations exist in all cost effective systems of internal controls. The
Company's systems have been designed to provide reasonable but not absolute
assurance that financial records are adequate to allow for the completion of
reliable financial information and the safeguarding of its assets.
The Company believes that the systems are adequate to achieve the stated
objectives. Regular testing of these systems is employed to ensure continued
effectiveness of the controls, and actions are taken when necessary to correct
deficiencies when they are identified.
The Audit and Corporate Governance Committee of the Board of Directors is
comprised of three outside directors, and meets regularly with management and
the independent auditors to ensure that management is maintaining adequate
internal controls and systems and to approve the annual and quarterly
consolidated financial statements of the Company. The committee also reviews the
audit plan of the independent auditors and discusses the results of their audit
and their report prior to submitting the consolidated financial statements to
the Board of Directors for approval.
The consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, Chartered Accountants, who were appointed by the
shareholders. The auditors' report outlines the scope of their examination and
their opinion on the consolidated financial statements.
/s/ Peter J. Bradford /s/ Allan J. Marter
- --------------------------------- ----------------------------------
Peter J. Bradford Allan J. Marter
President and Vice President and
Chief Executive Officer Chief Financial Officer
March 24, 2000
61
AUDITORS' REPORT
To the Shareholders of
Golden Star Resources Ltd.:
We have audited the consolidated balance sheets of Golden Star Resources Ltd. as
of December 31, 1999 and 1998 and the consolidated statements of operations,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1999 and 1998, and the consolidated results of
its operations and cash flows for each of the three years in the period ended
December 31, 1999, in accordance with accounting principles generally accepted
in Canada.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Calgary, Canada
March 24, 2000
62
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED BALANCE SHEET
(Stated in thousands of United States Dollars except share amounts)
- --------------------------------------------------------------------------------
ASSETS As of December 31,
1999 1998
---- ----
CURRENT ASSETS
Cash and short-term investments $ 2,905 $ 7,350
Accounts receivable 1,976 511
Inventories 8,905 181
Other assets 171 174
--------- --------
Total Current Assets 13,957 8,216
RESTRICTED CASH (Note 17) 6,000 -
NOTES RECEIVABLE (Note 7) 3,784 -
ACQUISITION, DEFERRED EXPLORATION
AND DEVELOPMENT COSTS (Note 10) 37,922 58,203
INVESTMENT IN OMAI GOLD MINES LIMITED (Note 11) 1,023 1,337
MINING PROPERTIES (Net of accumulated depreciation of $2,777 and $0, respectively) (Note 9) 10,413 -
FIXED ASSETS (Net of accumulated depreciation of $2,587 and $2,166, respectively) 1,175 685
OTHER ASSETS 78 156
--------- --------
Total Assets $ 74,352 $ 68,597
========= ========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 4,414 $ 921
Accrued wages and payroll taxes 315 779
Current portion of amount payable to financial institutions (Note 9) 3,208 -
--------- --------
Total Current Liabilities 7,937 1,700
LONG-TERM DEBT (Note 11c) 2,254 2,948
AMOUNT PAYABLE TO FINANCIAL INSTITUTIONS (Note 9) 3,708 -
CONVERTIBLE DEBENTURES (Note 8) 3,184 -
ENVIRONMENTAL REHABILITATION LIABILITY (Note 17) 6,721 -
OTHER LIABILITIES 24 56
--------- --------
Total Liabilities 23,828 4,704
--------- --------
MINORITY INTEREST 10,023 5,422
COMMITMENTS AND CONTINGENCIES (Note 17)
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 12)
Common shares, without par value, unlimited shares authorized. Shares issued and
outstanding in 1999 of 36,943,731 and in 1998 of 30,292,249. 160,502 159,163
Equity component of convertible debentures (Note 8) 1,045 -
Stock option loans - (4,012)
DEFICIT (121,046) (96,680)
--------- --------
Total Shareholders' Equity 40,501 58,471
--------- --------
Total Liabilities and Shareholders' Equity $ 74,352 $ 68,597
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
Approved by the Board:
By: /s/ Robert R. Stone By: /s/ David K. Fagin
------------------------ --------------------
Director Director
63
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of United States Dollars except per share amounts)
-----------------------------------------------------------------------
For the Years Ended December 31,
1999 1998 1997
---- ---- ----
REVENUE
Gold sales $ 10,581 $ - $ 443
Interest and other 673 635 1,255
-------- -------- --------
11,254 635 1,698
-------- -------- --------
COSTS AND EXPENSES
Mining Operations 5,966 - 987
Depreciation and depletion 2,971 230 772
Exploration expense 468 443 779
General and administrative 3,734 7,712 8,936
Write-downs and abandonment of mineral properties 23,933 16,600 22,437
Gain on disposal of assets (139) - (302)
Interest expense 203 36 22
Foreign exchange loss (gain) (508) 26 92
Loss on impairment of inventories and fixed assets - - 1,522
-------- -------- --------
36,628 25,047 35,245
-------- -------- --------
LOSS BEFORE THE UNDERNOTED (25,374) (24,412) (33,547)
Omai preferred share redemption premium 379 950 1,388
-------- -------- --------
Loss before minority interest (24,995) (23,462) (32,159)
Minority interest 629 1,214 5,575
-------- -------- --------
NET LOSS $(24,366) $(22,248) $(26,584)
======== ======== ========
BASIC AND DILUTED NET LOSS PER SHARE $ (0.76) $ (0.74) $ (0.92)
======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING (in millions of shares) 32.4 30.2 28.8
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
64
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Stated in thousands of United States Dollars except share amounts)
----------------------------------------------------------------------
Equity
Common Component
Stock Stock of
Number of Share Option Convertible
------
Shares Capital Warrants Loans Debentures Deficit
------ ------- -------- ----- ---------- -------
Balance at December 31, 1996 25,941,103 $129,954 $ - $(4,012) $ - $ (47,848)
Shares Issued 3,085,296 22,840 - - - -
Shares Issued Under Options 97,833 235 - - - -
Shares Issued Under Warrants 673,200 5,429 - - - -
Issue Costs - (457) - - - -
Net Loss - - - - - (26,584)
---------- -------- ------ ------- ------- ---------
Balance at December 31, 1997 29,797,432 158,001 - (4,012) - (74,432)
Shares Issued 421,357 987 - - - -
Shares Issued Under Options 73,460 175 - - - -
Net Loss - - - - - (22,248)
---------- -------- ------ ------- ------- ---------
Balance at December 31, 1998 30,292,249 159,163 - (4,012) - ( 96,680)
Shares Issued 6,947,994 3,484 - - - -
Shares Canceled (679,012) (3,312) - - - -
Shares Issued Under Options 17,500 12 - - - -
Shares Issued Under Warrants 365,000 255 - - - -
Issue Costs - (441) - - - -
Warrants Issued - - 1,341 - - -
Stock Option Loan -
Repayment/Cancellation - - - 4,012 -
Equity Component of Convertible
Debentures - - - 1,045 -
Net Loss - - - - - (24,366)
---------- -------- ------ ------- ------- ---------
Balance at December 31, 1999 36,943,731 $159,161 $1,341 $ - $ 1,045 $(121,046)
========== ======== ====== ======= ======= =========
The accompanying notes are an integral part of these consolidated financial
statements.
65
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of United States Dollars)
----------------------------------------------------------------------
For the Years Ended December 31,
Operating Activities: 1999 1998 1997
---- ---- ----
Net Loss $(24,366) $(22,248) $(26,584)
Reconciliation of net loss to net cash used in operating activities:
Depreciation, depletion and amortization 2,971 230 772
Accretion of convertible dentures 74 - -
Premium on Omai preferred share redemption (379) (950) (1,388)
Gain on disposal of assets (139) - (302)
Write down and abandonment of mineral properties 23,933 16,600 22,437
Write-down of equipment - - 1,522
Minority interest (629) (1,214) (5,575)
Changes in non-cash operating working capital
Accounts receivable (12) 1,727 2,878
Inventories (340) 175 671
Accounts payable (1,335) (2,025) (3,170)
Other current assets 125 (14) 137
-------- -------- --------
Total changes in non-cash operating working capital (1,562) (137) 516
-------- -------- --------
Net Cash Used in Operating Activities (97) (7,719) (8,602)
-------- -------- --------
Investing Activities:
Expenditures on mineral properties, net of joint venture
recoveries (3,597) (7,443) (22,506)
Expenditures on mining property (303) - -
Equipment purchases (920) (50) (353)
Omai Preferred Share Redemption 694 1,738 2,541
Proceeds from sale of equipment 245 47 486
Environment rehabilitation bonding (6,000) - -
Payments for acquisition, net of cash acquired (1,525) - -
Other 75 (8) 2
-------- -------- --------
Net Cash Used in Investing Activities (11,331) (5,716) (19,830)
-------- -------- --------
Financing Activities:
Restricted cash - 250 1,765
Repayment of stock option loan 637 - -
Change in other liabilities (310) (52) 22
Offering costs of subsidiary stock issues - - (25)
Issuance of convertible debentures 4,155 - -
Issuance of long-term debt - 3,169 -
Repayment of long-term debt (694) (220) -
Decrease in deferred financing costs - - 263
Issuance of share capital, net of issue costs 3,195 239 28,143
-------- -------- --------
Net Cash Provided by Financing Activities 6,983 3,386 30,168
-------- -------- --------
Increase (Decrease) in cash and short-term investments (4,445) (10,049) 1,736
Cash and short-term investments, beginning of year 7,350 17,399 15,663
-------- -------- --------
Cash and short-term investments, end of year $ 2,905 $ 7,350 $ 17,399
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
(All tabular amounts in thousands of United States Dollars)
1. Formation of the Company
- -----------------------------
In May of 1992, the shareholders of Golden Star Resources Ltd. ("Golden Star" or
the "Company") and South American Goldfields Inc. ("South American"),
respectively agreed to a business combination of the two companies. Neither
company was under common control prior to the amalgamation. This combination
was considered to be an amalgamation under the Canada Business Corporations Act
and was effective May 15, 1992. The amalgamation was treated as a purchase by
the Company for accounting purposes. Concurrent with the amalgamation, the
common shares of the Company were consolidated on a one-for-two basis. The
Company's fiscal year-end is December 31, and commencing on May 15, 1992, the
Company changed its reporting currency to the U.S. dollar. However, if the
Company were to declare a dividend to its shareholders, it would be paid in
Canadian dollars.
2. Description of Business
- ----------------------------
The Company is engaged in the business of gold production in West Africa, and
the acquisition, exploration and development of precious metals deposits in both
South America and Africa and holds a 30% equity interest in the producing Omai
mine in Guyana.
Efforts in Africa are focused on the producing Bogoso Mine in Ghana and are
conducted through the Company's 70% owned subsidiary, Bogoso Gold Limited.
Other efforts are conducted on property interests in Kenya and Ivory Coast
through the Company's wholly owned subsidiary, Pan African Resources
Corporation.
Efforts in South America are focused on property interests in Guyana, Suriname,
French Guiana (through its 71%-owned subsidiary Guyanor Ressources S.A.), and
Brazil (through its wholly-owned Southern Star Resources Ltd.). The Company is
also actively pursuing new projects in these countries in addition to other
South American countries.
All of the Company's projects are conducted through agreements with third
parties, national governments and/or pursuant to permits and licenses granted by
other appropriate authorities. When deemed appropriate, certain projects are
pursued on a joint venture basis to share the associated risk and to assist in
project funding.
3. Summary of Significant Accounting Policies
- -----------------------------------------------
These consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. The following
policies have been adopted by the Company.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its more than 50%-owned subsidiaries. All material intercompany balances and
transactions have been eliminated. Certain reclassifications have been made in
the 1998 and 1997 consolidated financial statements to conform to the 1999
presentation. The consolidated group includes the following as of December 31,
(all entities are 100%-owned by the Company, unless otherwise noted):
67
1999: 1998:
- ----- -----
Golden Star Holdings Ltd. Golden Star Holdings Ltd.
Venezuela Investments Ltd. Venezuela Investments Ltd.
Golden Star Management Ltd. Golden Star Management Ltd.
Pan African Resources Corporation Pan African Resources Corporation
Southern Star Resources Ltd. Southern Star Resources Ltd.
Guyanor Resources S.A. (71%) Guyanor Resources S.A. (71%)
Societe de Travaux Publics Societe de Travaux Publics
et de Mines Auriferes en et de Mines Auriferes en
Guyane ("SOTRAPMAG") Guyane ("SOTRAPMAG")
Societe des Mines de St-Elie ("SMSE") Societe des Mines de St-Elie ("SMSE")
Caystar Holdings Caystar Holdings
Bogoso Holdings
Bogoso Gold Limited ("BGL") (70%)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Cash and Short-term Investments
Cash and short-term investments consist primarily of high credit quality United
States and Canadian money market investments and fixed and variable income
commercial paper, which are capable of reasonably prompt liquidation, and are
stated at amortized cost, which approximates market value.
Inventories
Ore, in-process and finished inventory are recorded at the lower of cost or
market, including direct production costs and attributable operating expenses.
Materials and supplies are valued at the lower of average cost or replacement
cost.
Restricted Cash
In certain countries where the Company conducts business, governments may
require performance bonds to be placed for certain amounts of the agreed-upon
exploration expenditures. The cash collateral for these bonds is shown as a
non-current asset as the funds are not available for use in operations until the
bond amounts are reduced or released by the governments. In relation to the
Bogoso Mine in Ghana, funds are restricted in accordance with the BGL
acquisition agreement for the final environmental rehabilitation of the mine
site.
Acquisition, Deferred Exploration and Development Costs
Acquisition, administration, exploration and development costs of mineral
properties are capitalized.
Management periodically reviews the carrying value of its investments in
acquisition, deferred exploration and development costs. A decision to abandon,
reduce or expand a specific project is based upon many factors including general
and specific assessments of mineral inventory, anticipated future mineral
prices, the anticipated future costs of exploring, developing and operating a
producing mine, the expiration term and ongoing expenses of maintaining leased
mineral properties and the general likelihood that the Company will continue
exploration. The Company does not set a pre-determined holding period for
properties with unproven reserves; however, properties which have not
demonstrated suitable metal concentrations at the conclusion of each phase of an
exploration program are re-evaluated to determine if future exploration is
warranted and their carrying values are appropriate.
68
If a mineral property is abandoned or it is determined that its carrying value
cannot be supported by future production or sale, the related costs are charged
against operations in the year of abandonment or determination of value.
The accumulated costs of mineral properties are depleted on a units-of-
production basis at such time as production commences.
Mining Property Impairments
The Company evaluates its mining properties for impairment when events or
circumstances indicate that the related carrying value may not be recoverable.
If the sum of estimated future net cash flows on an undiscounted basis is less
than the carrying amount of the related asset, an impairment is considered to
exist.
Investment in Omai Gold Mines Limited
The common share investment in Omai Gold Mines Limited ("OGML") is accounted for
using the equity method. As of December 31, 1999, the Company's share of
cumulative losses of OGML had exceeded the cost of the original investment in
common shares.
In addition, the Company holds Class I redeemable preferred shares of OGML which
were recorded at the cost of the mineral interest exchanged. The preferred
shares are required to be redeemed quarterly based upon a percentage of cash
flows from the Omai Mine (Note 11), which proceeds are applied to the Investment
in Omai Gold Mines Limited balance based upon the relationship that the
Company's original investment in deferred exploration costs ($5 million) bore to
the original value of the redeemable preferred shares ($11 million). The
remainder of the preferred share proceeds is recognized as "Omai preferred share
redemption premium" in the consolidated statement of operations.
Fixed Assets
Fixed assets are stated at cost and include buildings, machinery, equipment and
vehicles. Depreciation is computed using the straight-line method or the units-
of-production method if assets cannot be economically transferred to another
project or sold. Major overhauls of mining equipment that extend the life of
such equipment are capitalized and depreciated on a units-of-production basis.
The net book value of fixed assets at property locations is charged against
income if the site is abandoned and it is determined that the assets cannot be
economically transferred to another project or sold.
Environmental Rehabilitation
Costs are estimated based primarily upon environmental and regulatory
requirements to fund the ongoing and final reclamation and closing costs
relating to the Bogoso mine site.
Foreign Currencies and Foreign Currency Translation
Certain South American and African currencies are not readily negotiable outside
their respective countries. United States of America funds transferred to these
countries are used to purchase local currency to be used for labor, local
supplies, and other items associated with the exploration and development of
mineral properties.
As the functional currency of the Company is the U.S. Dollar, monetary assets
and liabilities are translated at the rate of exchange prevailing at the end of
the period. Non-monetary assets and liabilities are translated at the rates of
exchange prevailing when the assets were acquired or the liabilities assumed.
Revenue and expense items are translated at the average rate of exchange during
the year. Translation gains or losses are included in the determination of net
income for the period. Fully integrated foreign subsidiary accounts are
translated using the same method.
Canadian currency in these financial statements is denoted as "Cdn$", French
currency is denoted as "FF", Ghanaian currency is denoted as "Cedi" or "Cedis"
and Australian currency is denoted as "Aus$".
69
Net Loss per Share
Net loss per share is computed by dividing net loss by the weighted average
number of common shares outstanding during the year. Common share equivalents
are not included as the effect would be anti-dilutive.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of cash investments and trade accounts receivable.
The Company restricts investment of temporary cash balances to financial
institutions with high credit standing. The Company strives to minimize its
credit risk through diversification of its holdings with financial institutions.
All gold sales are under one customer contract.
Revenue Recognition
Sales are recorded when the gold is shipped from the mine site to the refinery.
4. Supplemental Cash Flow Information
- ---------------------------------------
The following is a summary of non-cash transactions:
1999 1998 1997
---- ---- ----
Depreciation capitalized as acquisition, deferred
exploration and development costs $ 193 $ 367 $ 342
Note receivable from minority interest holder for
acquisition costs (Note 7) (3,784) - -
Additional non-cash purchase price allocation (Note 9) (8,258) - -
Increase in amount payable to financial institutions (Note 9) 6,917 - -
Issuance of warrants for credit facility (Note 9) 1,341 - -
Cancellation of stock option loans (Note 12) (3,312) - -
Cancellation of stock option loan related shares (Note 12) 3,312 - -
5. Fair Value of Financial Instruments
- ----------------------------------------
The Company's financial instruments are comprised of short-term investments,
accounts receivable, restricted cash, the investment in OGML, accounts payable,
accrued liabilities, accrued wages, payroll taxes and long-term debt. The fair
value of cash and short-term investments, accounts receivable, accounts payable,
accrued liabilities and accrued wages and payroll taxes equals their carrying
value due to the short-term nature of these items. The fair value of restricted
cash is equal to the carrying value as the cash is invested in short-term, high-
quality instruments. The fair value of the Company's investment in OGML cannot
be determined with sufficient reliability, and information concerning the terms
and conditions of this investment is contained in Note 11(b).
6. Inventories
- ----------------
December 31, December 31,
1999 1998
---- ----
Broken Ore $2,862 $ -
In-process 836 -
Materials and Supplies 5,207 181
------ -----
$8,905 $ 181
====== =====
7. Notes Receivable
- ---------------------
By agreement between the Company and Anvil Mining NL ("Anvil"), the Company
funded the entire acquisition cost of BGL at September 30, 1999. (See Note 9.)
The Company received two promissory notes totaling $2.3 million from Anvil for
their share of the purchase price and the related transaction costs. This
receivable is non-
70
recourse and bears interest at 15% per annum, compounded monthly. In addition,
Anvil is liable for its share of the additional purchase price payments (as
discussed in Note 9) estimated to be $1.5 million, which brings the total notes
receivable from Anvil to $3.8 million. The Company is entitled to preferential
repayment of its investment in BGL from the BGL cash flow until it has recouped
its purchase costs and related transaction expenses, including the repayment of
the Anvil notes.
8. Convertible Debentures
- ---------------------------
Liability Equity
Component Component
--------- ---------
Upon issuance, August 1999 $3,110 $1,045
Accretion 74 -
--------- ---------
December 31, 1999 $3,184 $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
BGL (See also Note 9). The debentures mature on August 24, 2004 and bear
interest at the rate of 7.5% per annum from the date of issue, payable semi-
annually on February 15 and August 15, to the debenture-holders as of February 1
and August 1, respectively, commencing on February 15, 2000.
The debentures are convertible at the option of the holder into common shares of
the Company at a conversion price of $0.70 per share, subject to adjustment upon
the occurrence of certain events, such as but not limited to the payment of
dividends in the Company's share capital. Any portion of the debenture that is
a multiple of $1,000 may be converted into common shares at any time prior to
the maturity date of August 24, 2004, unless previously redeemed. The holder's
right of conversion will terminate on the date of redemption, if the Company has
chosen to redeem the debentures. Each $1,000 principal amount of debentures
also entitles the holder to warrants exercisable for 200 common shares of the
Company at a price of $1.50 per share until August 24, 2001, and $1.75 per share
for the remaining two years until August 24, 2003.
The debentures are redeemable by the Company (1) in the event of certain
developments involving Canadian withholding taxes at a redemption price of 100%
of the principal amount of the debentures to be redeemed, plus accrued interest
to the redemption date and (2) at the option of the Company on or after August,
2002 if the reported closing trading price on the American Stock Exchange of the
common shares as reported on the close of business for any 20 of the 25
consecutive trading days immediately prior to the date notice of redemption is
given is at least 125% of the conversion price.
The debentures are unsecured obligations of the Company and are subordinated in
right of payment to all existing and future indebtedness and other liabilities
of the Company and its subsidiaries. There are no financial restrictions or
covenants contained in the debentures.
The following schedule shows the obligations of the Company for the next five
years in relation to interest and principal payments on the convertible
debentures.
Year Obligation
---- ----------
2000 $ 312
2001 312
2002 312
2003 312
2004 4,467
------
Total $5,715
======
9. Acquisition of BGL
- -----------------------
On September 30, 1999, the Company and Anvil Mining NL, an Australian company
("Anvil"), acquired 70% and 20%, respectively, of the common shares of Bogoso
Gold Limited, a Ghanaian company ("BGL"). The
71
Government of Ghana retained its remaining 10% equity interest in BGL. BGL is
the owner of an operating gold mine in the Republic of Ghana, which the Company
and Anvil intend to continue to operate.
The acquisition was completed pursuant to a purchase agreement among the
Company, Anvil and a consortium of banks. The initial purchase price for BGL
was $6.5 million, which was funded using working capital and proceeds from the
Company's August 24, 1999 offering of its subordinated convertible debentures,
common shares and warrants (See also Note 8).
The Company and Anvil will be required to make additional future payments to the
consortium of banks, depending on the then current price of gold and the
potential acquisition of ore in Ghana outside of the region of BGL's mining
interests. These additional payments are capped at $10 million in total. The
gold price related payments are due as to 50% one year after closing and 50% at
the earlier of production of gold ceasing or the second anniversary after
closing. The Company is obligated to escrow the estimated payments six months
and 18 months after closing, respectively. These payments are equal to the
product (in U.S. dollars) of 183,333 and the amount, if any, that the average
daily gold price (in U.S. dollars in the London Bullion Market Association p.m.
gold fix) over the period from closing to the payment dates exceeds $255 per
ounce. The Company has accrued $6.4 million in additional purchase price in the
fourth quarter, based on its estimate that the gold price will average $290 per
ounce for the remainder of the Bogoso mine life. The payment made on the first
anniversary of the acquisition will be non-refundable and will be credited
against any payment due on the second anniversary. The Company is depleting
this amount on a units-of-production basis over production from proven and
probable reserves.
The resource acquisition linked payment will be triggered if minable reserves
equivalent to 50,000 ounces of gold are acquired elsewhere in Ghana for
processing at the Bogoso mill. In this case, Golden Star and Anvil will make an
additional payment to the consortium of banks on the second anniversary of
closing of $2.0 million, irrespective of the gold price, but subject to the $10
million cap.
On June 9, 1999, the Company issued two warrants to a financial institution to
purchase 1,500,000 common shares of the Company, in connection with the credit
facility that was arranged, but not used to effect, the purchase of BGL. These
warrants were exercisable at a price of $0.7063 each and expire June 9, 2002.
In October 1999, the Company reduced the exercise price of these warrants from
$0.7063 to $0.425. The fair value of the warrants of approximately $1.3 million
is included in share capital, and is reflected as a purchase price adjustment in
the fourth quarter. The credit facility was canceled on August 18, 1999.
The Company is also required to make production related payments to the provider
of the credit facility arranged for, but not used to effect, the acquisition of
BGL. The Company is required to pay $0.25 million for every 12- month period
that BGL produces over 75,000 ounces of gold. Based on proven and probable
reserves, the Company has accrued $0.5 million (for two years' production) and
is depleting this amount over production from proven and probable reserves.
This payment is capped at $1.3 million and extends over six years.
The acquisition of BGL is accounted for under the purchase method of accounting
for business combinations.
72
The following allocation of the purchase price reflects the estimated fair
market values of all the assets and all the liabilities acquired as of September
30, 1999, adjusted for subsequent purchase price consideration.
Cost of acquisition
-------------------
Purchase price $14,758
Transaction costs 2,250
-------
Cost of acquisition $17,008
=======
Allocation of purchase price
----------------------------
Cash $ 6,923
Accounts receivable 1,453
Inventories 8,383
Other current assets 122
Mining property 13,189
Accounts payable (4,362)
Environmental rehabilitation provision (7,000)
Minority interest (1,701)
-------
Total purchase price allocated $17,008
=======
The Company and Anvil will also be required to pay the sellers an additional
$5.0 million on the first anniversary of commencement of sulphide production at
BGL. Due to the uncertain nature of this contingent consideration, no liability
has been recorded as part of the purchase price allocation. This payment, if
made, will be amortized over the life of the sulphide reserves on a units-of-
production basis.
The acquisition of BGL included the assignment of certain rights to Golden Star
and Anvil of certain indebtedness of BGL to the sellers. The indebtedness to
Anvil at the purchase date approximated $7.5 million and will be repaid at such
time as Net Proceeds, as defined, from BGL production are available to fund the
debt. Management estimates that, due to the provisions of the acquisition
agreement that grant Golden Star first preference on cash flow from BGL until it
has recovered its investment in BGL, including its related purchase costs,
transaction expenses and repayment of the Anvil note receivable, that it is
unlikely that any of the indebtedness will be repaid to Anvil. Accordingly, no
liability was recorded upon purchase of BGL. As of December 31, 1999,
management continues to believe that it is unlikely that any indebtedness will
be repaid to Anvil.
The following is the pro-forma income and loss for the Company for the twelve
months ended December 31, 1999, and 1998 (in summary form), showing the results
of operations had the BGL acquisition been completed on January 1, 1999, and
1998, respectively. The pro-forma information is presented for informational
purposes only and is not necessarily indicative of the results of operations
that actually would have been achieved had the transaction been consummated as
of that time.
(unaudited) (unaudited)
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
Revenue $ 38,931 $ 36,294
Net operating profit before abandonment and
impairment of deferred exploration $ 2,909 $ (8,903)
Abandonment and impairment of deferred
exploration $(23,933) $(16,600)
Net loss $(22,666) $(26,215)
Net loss per share $ (0.62) $ (0.71)
73
10. Acquisition, Deferred Exploration and Development Costs
- ---------------------------------------------------------------
Acquisition, Acquisition,
Deferred Property Deferred
Exploration Joint Abandon- Exploration
and Capitalized Capitalized Venture ments / and
Development Exploration Acquisition Recov- Write- Development
Costs as at Expenditures Expenditures eries downs in Costs as at
12/31/98 in 1999 in 1999 in 1999 1999 12/31/99 (5)
===================================================================================
In Thousands of Dollars
GUYANA (1)
Eagle Mountain $ 1,364 $ - $ - $ - $ - $ 1,364
Quartz Hill 1,347 - - - (1,347) -
Five Stars Gold 819 9 - - (828) -
Other 57 376 - - (310) 123
--------------------------------------------------------------------------------
Sub-total 3,587 385 - - (2,485) 1,487
--------------------------------------------------------------------------------
SURINAME (1)
Benzdorp / Lawa 3,352 - - - (3,352) -
Gross Rosebel 14,543 742 - (372) - 14,913
Headley's Right of Exploration 313 1 - - (314) -
Thunder Mountain 456 1 - - (457) -
Saramacca 1,973 2 - (6) (1,969) -
Sara Kreek 588 - - - (588) -
Tempati Reconnaissance 347 1 - - (348) -
Tapanahony Reconnaissance 234 - - - (234) -
Kleine Saramacca 107 - - - (107) -
Lawa Antino 2,109 36 - - (2,145) -
Ulemari Reconnaissance 237 - - - (237) -
Other 283 227 - - (298) 212
--------------------------------------------------------------------------------
Sub-total 24,542 1,010 - (378) (10,049) 15,125
--------------------------------------------------------------------------------
FRENCH GUIANA (2)
(Guyanor Ressources S.A.)
Dorlin 2,363 796 - (551) - 2,608
St-Elie 2,377 209 - - (2,586) -
Yaou 7,486 413 - (266) - 7,633
Paul Isnard / Eau Blanche 4,650 796 - - - 5,446
Paul Isnard Alluvials 1,987 - - - - 1,987
Dachine 1,481 764 - (525) - 1,720
Other - 51 - (51) - -
--------------------------------------------------------------------------------
Sub-total 20,344 3,029 - (1,393) (2,586) 19,394
--------------------------------------------------------------------------------
AFRICA
(Pan African
Resources Corporation (3))
Ivory Coast / Tanda 4,304 222 - - (2,845) 1,681
Kenya / Ndori 2,565 52 - - (2,617) -
(Bogoso Gold Limited (4))
Riyadh - 5 70 - - 75
Bogoso Sulfide - 160 - - - 160
--------------------------------------------------------------------------------
Sub-total 6,869 439 70 - (5,462) 1,916
--------------------------------------------------------------------------------
LATIN AMERICA (1)
Brazil / Abacaxis 2,498 400 - - (2,898) -
Brazil / Other 275 90 - - (365) -
--------------------------------------------------------------------------------
Sub-total 2,773 490 - - (3,263) -
--------------------------------------------------------------------------------
OTHER 88 - - - (88) -
--------------------------------------------------------------------------------
TOTAL $ 58,203 $ 5,353 $ 70 $ (1,771) $ (23,933) $ 37,922
================================================================================
(1) A division of the Company.
(2) Approximately 71% owned by the Company.
(3) A wholly-owned subsidiary of the Company.
(4) A 70% owned subsidiary of the Company.
(5) Our holdings include ownership interests, royalty interests, leases,
options and joint venture interests in varying percentages.
74
Acquisition, Acquisition,
Deferred Property Deferred
Exploration Abandon- Exploration
and Capitalized Capitalized Joint ments / and
Development Exploration Acquisition Venture Write- Development
Costs as at Expenditures Expenditures Recoveries downs in Costs as at
12/31/97 in 1998 in 1998 in 1998 1998 12/31/98 (4)
===================================================================================================
In Thousands of Dollars
GUYANA (1)
Eagle Mountain $ 1,136 $ 228 $ - $ - $ - $ 1,364
Quartz Hill 1,347 - - - - 1,347
Mazaruni / Upper
Mazaruni Diamond (4) - - - 4
Five Stars Gold (Makapa) 3,684 501 - - (3,366) 819
Five Stars Diamond 2,360 179 - - (2,539) -
BHP Gold Projects 333 70 - (65) (338) -
Guyana Diamond Permits 109 - - - (109) -
Other 101 (10) - - (34) 57
---------------------------------------------------------------------------------------------------
Sub-total 9,066 968 - (65) (6,382) 3,587
---------------------------------------------------------------------------------------------------
SURINAME (1)
Benzdorp / Lawa 3,344 8 - - - 3,352
Gross Rosebel 13,892 1,275 - (624) - 14,543
Headley's Right of
Exploration 311 2 - - - 313
Thunder Mountain 453 3 - - - 456
Saramacca 1,862 374 - (263) - 1,973
Sara Kreek 581 7 - - - 588
Tempati Reconnaissance 344 19 - (16) - 347
Tapanahony Reconnaissance 251 8 - (25) - 234
Kleine Saramacca 107 - - - - 107
Lawa Antino 2,096 69 - (56) - 2,109
Ulemari Reconnaissance 291 (54) - - - 237
Other (17) 300 - - - 283
---------------------------------------------------------------------------------------------------
Sub-total 23,515 2,011 - (984) - 24,542
---------------------------------------------------------------------------------------------------
FRENCH GUIANA (2)
(Guyanor Ressources S.A.)
Dorlin 1,330 1,551 - (518) - 2,363
St-Elie 1,973 672 - (268) - 2,377
Dieu-Merci 382 644 - (109) (917) -
Yaou 7,130 533 - (177) - 7,486
Paul Isnard / Eau Blanche 3,629 1,139 - (118) - 4,650
Paul Isnard Alluvials 1,987 - - - - 1,987
Dachine 1,234 247 - - - 1,481
Other 81 (81) - - - -
---------------------------------------------------------------------------------------------------
Sub-total 17,746 4,705 - (1,190) (917) 20,344
---------------------------------------------------------------------------------------------------
AFRICA (3)
(Pan African
Resources Corporation)
Ivory Coast / Comoe 2,092 2,212 - - - 4,304
Kenya / Ndori 1,677 888 - - - 2,565
Burkina Faso 8 - - - (8) -
---------------------------------------------------------------------------------------------------
Sub-total 3,777 3,100 - - (8) 6,869
---------------------------------------------------------------------------------------------------
LATIN AMERICA (1)
Brazil / Andorinhas 8,490 129 200 - (8,819) -
Brazil / Abacaxis 2,096 352 50 - - 2,498
Brazil / Other 189 387 - - (301) 275
Bolivia / Other 173 - - - (173) -
---------------------------------------------------------------------------------------------------
Sub-total 10,948 868 250 - (9,293) 2,773
---------------------------------------------------------------------------------------------------
OTHER 108 (20) - - - 88
---------------------------------------------------------------------------------------------------
TOTAL $65,160 $11,632 $ 250 $(2,239) $(16,600) $ 58,203
===================================================================================================
(1) A division of the Company.
(2) Approximately 71% owned by the Company.
(3) A wholly owned subsidiary of the Company.
(4) Our holdings include ownership interests, royalty interests, leases, options
and joint venture interests in varying percentages.
75
The recoverability of amounts shown for deferred exploration is dependent upon
sale or the 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.
11. Investment in Omai Gold Mines Limited
- -------------------------------------------
(a) Common Share Investment
The Company has a 30% common share equity interest in OGML, a Guyana company
established to build and operate the Omai Mine in Guyana. The common share
investment in OGML is accounted for using the equity method but, as of December
31, 1997, 1998 and 1999, the Company's share of cumulative losses of OGML
exceeded the value of its initial common equity investment and accordingly, the
Company discontinued applying the equity method in these years. The Company has
not recorded its share of OGML's loss for the years ended December 31, 1997,
1998 and 1999, of $1.5 million, $0.6 million and $7.9 million, respectively. As
of December 31, 1999, the cumulative balance of unrecognized losses was $7.9
million.
(b) Preferred Share Investment
The Company acquired a preferred share equity interest in recognition of
cumulative exploration costs of $5.0 million incurred by the Company on the Omai
project. The aggregate redemption value of these shares approximated $11.0
million of which $8.7 million had been received by the Company through December
31, 1999.
(c) Note Payable
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. Of the $1.7 million and $0.7 million of Class I preferred shares
redeemed in 1998 and 1999, approximately $0.2 million and $0.7 million
respectively, were used to reduce the outstanding loan balance. As of December
31, 1999, the Company owed OGML approximately $2.3 million under this loan, all
of which has been classified as long-term debt.
12. Share Capital
- -------------------
(a) Stock Option Plan
Stock Options
The Company has one stock option plan, the 1997 Stock Option Plan (the "1997
Plan"). Options granted under the 1997 Plan are non-assignable and are
exercisable for a period of ten years or such other date as stipulated in a
stock option agreement between the Company and an optionee. The maximum number
of shares issuable under the plan is 5,600,000. The number of common shares
vested and exercisable under the plan at December 31, 1999, was 3,126,547. The
number of common shares vested and exercisable under the plan as of December 31,
1998, was 3,317,770.
Stock Option Loans
As of December 31, 1998, employees had exercised their rights under employee
stock option loan agreements and purchased 1,029,012 common shares against which
there were outstanding loans of Cdn$5.3 million which related to loans to two
employees, one a former officer and currently a director, and the other a former
officer of the Company. These loans were non-interest bearing, collateralized
by the Company's common shares issued under the agreement, and repayable within
five years from the date of exercise unless the loan term is extended by vote of
the Board of Directors.
76
During 1999, 679,012 shares were canceled that were previously issued for
options granted under the Company's Stock Option Plan and the remaining balance
related stock option loans, principally to one former officer, amounting to $3.3
million and collateralized by the shares, were also canceled. During 1999, the
Company negotiated repayment of the stock option loans in the amount of
approximately $0.7 million with the former officer and current director, and it
was paid in full in May 1999. There were no stock option loans outstanding as
of December 31, 1999.
Schedule of Stock Option Activity
Shares Under Option Price (Cdn$)
------------------- ------------
Shares Under Option at
December 31, 1996 2,884,231 $2.76 to $24.40
Granted 1,221,450 $3.40 to $18.50
Exercised (97,833) $2.76 to $ 9.25
Canceled (50,500) $7.63 to $16.20
----------
Shares Under Option at
December 31, 1997 3,957,348 $3.40 to $24.40
Granted 209,500 $1.55 to $ 6.65
Exercised (73,460) $ 3.40
Canceled (596,658) $3.40 to $23.00
----------
Shares Under Option at
December 31, 1998 3,496,730 $1.55 to $24.40
Granted 2,012,750 $1.05 to $ 1.55
Exercised (17,500) $ 1.08
Canceled (1,761,766) $3.40 to $24.40
----------
Shares Under Option at
December 31, 1999 3,730,214 $1.05 to $ 3.40
========== ===============
b) Stock Bonus Plan
In December 1992, the Company established an Employees' Stock Bonus Plan (the
"Bonus Plan") for any full-time or part-time employee (whether or not a
director) of the Company or any of its subsidiaries who has rendered meritorious
services which contributed to the success of the Company or any of its
subsidiaries. The Bonus Plan provides that a specifically designated committee
of the Board of Directors of the Company may grant bonus common shares on terms
that it may determine, within the limitations of the Bonus Plan and subject to
the rules of applicable regulatory authorities. The maximum number of common
shares issuable under the Bonus Plan is 320,000.
During 1997, 1998 and 1999, a total of 60,296, 32,783 and 24,994 common shares
respectively were issued to certain employees pursuant to the Bonus Plan. The
Company recognized compensation expense related to bonuses under the Bonus Plan
during 1997, 1998 and 1999 of $0.1 million, $0.1 million and $0.02 million,
respectively.
c) Warrants
On August 24, 1999 the Company completed a financing with total proceeds from
the sale of equity units of $3.4 million, comprised of 6,923,000 common shares
and warrants to purchase 3,461,500 common shares. The exercise price of these
warrants is $0.70 and the expiration date is February 24, 2001. In conjunction
with the convertible debenture financing (also completed on August 24, 1999)
which totaled $4,155,000, the Company also issued warrants ("four year
warrants") to the holders of the debentures to purchase up to 831,000 common
shares. The exercise prices for the four-year warrants are $1.50 if exercised
prior to August 24, 2001 and $1.75 if exercised after August 24, 2001 but before
August 24, 2003. The four-year warrants expire August 24, 2003.
Also on August 24, 1999, the Company issued warrants to purchase a total of
380,825 common shares of the Company, in connection with the equity financing
completed on the same date. These warrants have an exercise price of $0.70 and
an expiration date of August 24, 2000.
77
On June 9, 1999, the Company issued two warrants to a financial institution to
purchase 1,500,000 common shares of the Company, in connection with the credit
facility that was arranged, but not used to effect, the purchase of BGL. These
warrants were exercisable at a price of $0.7063 each and expire June 9, 2002.
In October 1999, the Company reduced the exercise price of these warrants from
$0.7063 to $0.425. The fair value of the warrants of approximately $1.3 million
is included in share capital, and is reflected as a purchase price adjustment in
the fourth quarter. The credit facility was canceled on August 18, 1999.
On October 26, 1999, the Company issued two warrants to brokerage firms to
purchase a total of 380,825 common shares of the Company, in connection with the
completion of the August 24 equity financing and the closing of the BGL
acquisition. These warrants also have an exercise price of $0.70 and an
expiration date of August 24, 2000.
13. Income Taxes
- ------------------
Losses carried forward for income tax purposes in Canada, approximating Cdn$41.2
million are available for the reduction of future years' taxable incomes. These
losses expire as follows (in thousands):
Cdn$
----
2000 $ 1,664
2001 1,702
2002 5,524
2003 7,016
2004 5,755
2005 9,752
2006 9,743
-------
Total $41,156
=======
No recognition has been given in these financial statements to any potential tax
savings that may arise from the application of these losses. The Company's
effective tax rate is currently nil.
The Company operates in Africa, French Guiana, Guyana, Suriname and Brazil. In
Africa and French Guiana, the Company is currently negotiating its tax position
with the related governments and as such, the differences between the book bases
and tax bases of the Company's assets and liabilities cannot be determined.
Certain of the Company's operations are subject to Canadian taxes including the
office headquarters, Guyana and Suriname which are all divisions of the Company.
14. Operations by Geographic Area
- -----------------------------------
Information on the Company's continuing operations by geographic area for the
years ended December 31, 1999, 1998 and 1997 is shown below. During the periods
presented, the Company had one customer who accounted for 100% of sales.
However, because the Company is principally selling a commodity, concentration
of credit risk is not considered significant.
78
Net Identifiable
Revenues (Loss) Assets
-------- ----- ------
1999
South America $ 345 $(19,176) $36,800
Africa 10,611 (1,508) 26,364
Corporate 298 (3,682) 11,188
- --------------------------------------------------------------------------------------
Total $11,254 $(24,366) $74,352
======================================================================================
1998
South America $ 8 $(18,448) $52,711
Africa - (6) 6,865
Corporate 627 (3,794) 9,021
- --------------------------------------------------------------------------------------
Total $ 635 $(22,248) $68,597
======================================================================================
1997
South America $ 539 $(16,833) $64,702
Africa 71 (6,237) 3,936
Corporate 1,088 (3,514) 20,484
- --------------------------------------------------------------------------------------
Total $ 1,698 $(26,584) $89,122
======================================================================================
15. 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 which differ in certain respects from
those principles that the Company would have followed had its financial
statements been prepared in accordance with accounting principles generally
accepted in the United States. Differences which materially affect these
consolidated financial statements are:
(a) For United States GAAP ("US GAAP") exploration and general and
administrative costs related to projects are charged to expense as
incurred. As such, the majority of costs charged to Exploration Expense
and Abandonment of Mineral Properties under Cdn GAAP would have been
charged to earnings in prior periods under US GAAP. Prior to development,
only property acquisition costs are capitalized for both Canadian and US
GAAP.
(b) For periods prior to May 15, 1992, (the "amalgamation"), the Company's
reporting currency was the Canadian Dollar. Subsequent to the Company's
amalgamation and moving of corporate headquarters to the United States, the
reporting currency was changed to the U.S. Dollar. As such, for the
financial statements for the period prior to May 15, 1992, the Company's
financial statements were translated into U.S. Dollars using a translation
of convenience. US GAAP requires translation in accordance with the
current rate method.
(c) Under US GAAP, the preferred share investment in OGML would have a carrying
value of nil since the preferred shares were received in recognition of
past exploration costs incurred by the Company, all of which were expensed
for US GAAP purposes. Therefore, the entire Omai preferred share
redemption premium would have been included in income. Under 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 (Note 3).
(d) US GAAP requires that compensation expense be recorded for the excess of
the quoted market price over the option price granted to employees and
directors under stock option plans. Under Cdn GAAP, no compensation
expense is required to be recorded for such awards.
(e) 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.
79
(f) 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.
(g) The Company eliminated its accumulated deficit through the amalgamation
(defined as a reorganization under US GAAP) effective May 15, 1992. Under
US GAAP the cumulative deficit was greater than the deficit under Cdn GAAP
due to the write-off of certain deferred exploration costs described in (a)
above.
(h) Under US GAAP, accrued severance and social charges of $1.1 million
resulting from suspension of alluvial mining operations at SOTRAPMAG would
not have been recorded as the requirements for accrual under US GAAP were
not satisfied as of December 31, 1996. These charges were recorded in 1997
as all requirements had been met.
(i) Under US GAAP, items such as foreign exchange gain and losses are required
to be shown separately in derivation of Comprehensive Income.
(j) Under US GAAP, the fair value of warrants issued in connection with the
credit facility that was arranged for, but not used to effect, the purchase
of BGL, is required to be expensed.
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 Years Ended December 31,
1999 1998 1997
---- ---- ----
Net loss under Cdn GAAP $(24,366) $(22,248) $(26,584)
Net effect of the deferred exploration expenditures on loss
for the period (a) 13,403 4,901 1,189
Effect of capitalized acquisition costs net of
related depletion (j) (1,233) - -
Other (c) (d) (e) (f) (h) 315 814 46
-------- -------- --------
Loss under US GAAP before minority interest (11,881) (16,533) (25,349)
Minority interest, as adjusted 546 1,138 (1,489)
-------- -------- --------
Net loss under US GAAP (11,335) (15,395) (26,838)
Other comprehensive income foreign exchange gain (loss) (i) 10 (26) (92)
-------- -------- --------
Comprehensive income $(11,325) $(15,421) $(26,930)
======== ======== ========
Basic and diluted Net loss per share under US GAAP $ (0.35) $ (0.51) $ (0.94)
======== ======== ========
Under US GAAP the Omai preferred share redemption premium would be included with
costs and expenses before the caption "Loss Before the Undernoted" on the
consolidated statements of operations. Weighted average common shares
outstanding are substantially the same under US GAAP as under Cdn GAAP for the
periods presented.
80
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
December 31, 1999 December 31, 1998
---------------------- ---------------------
Cdn GAAP US GAAP Cdn GAAP US GAAP
---------- ---------- --------- ----------
Cash $ 2,905 $ 2,905 $ 7,350 $ 3,145
Short term investments - - - 1,590
Other current assets 11,052 11,052 866 866
Restricted cash 6,000 6,000 - -
Acquisition, deferred
exploration and development (a) 37,922 11,302 58,203 18,183
Investment in OGML (c) 1,023 - 1,337 -
Mining property (j) 10,413 9,180 - -
Long-term investments - - - 2,615
Other assets (j) 5,037 5,196 841 841
--------- --------- -------- ---------
Total Assets $ 74,352 $ 45,635 $ 68,597 $ 27,240
========= ========= ======== =========
Liabilities (e) $ 23,828 $ 24,799 $ 4,704 $ 4,704
Minority interest (a) 10,023 9,690 5,422 5,637
Share capital, net of stock
option loans (g) 161,547 157,932 155,151 152,360
Cumulative translation
adjustments (b) - 1,595 - 1,595
Accumulated comprehensive
income (i) - (583) - (593)
Deficit (a) (b) (c) (d) (e) (f)
(g) (i) (j) (121,046) (147,798) (96,680) (136,463)
--------- --------- -------- ---------
Total Liabilities and
Shareholders' Equity $ 74,352 $ 45,635 $ 68,597 $ 27,240
========= ========= ======== =========
(For items (a) to (j), see page 79.)
Under US GAAP, receivables would be separately disclosed as follows:
1999 1998
------ -----
Receivables from employees $ 119 $ 55
Receivables from joint venture partners 334 96
Interest receivable 16 72
Trade receivables 1,507 288
Allowance for doubtful accounts - -
------ -----
Total Receivables $1,976 $ 511
------ -----
81
Statement of Changes in Shareholders' Equity Under US GAAP
Common (b) (i) Accum. Accum.
Stock Stock Cumulative Unrealized Compre
Number of Shares Option Translation Gains on -hensive
Share Capital Loans Warrants Adjustment Investments Deficit Income
----- ------- ----- -------- ---------- ----------- ------- ------
Balance at December 31, 1996 25,941,103 $ 127,080 $ (4,012) $ - $ 1,595 $ - $ (94,229) $ (475)
Shares Issued 3,085,296 22,840 - - - - - -
Shares Issued Under Options 97,833 235 - - - - - -
Shares Issued Under Warrants 673,200 5,429 - - - - - -
Issue Costs - (457) - - - - - -
Stock Based Compensation
Expense (d) - 83 - - - - - -
Comprehensive Income (i) - - - - - - - (92)
Net Loss (a)(c)(d)(f)(h)(i) - - - - - - (26,838) -
---------- --------- --------- ----------- ---------- --------- --------- ------
Balance at December 31, 1997 29,797,432 155,210 (4,012) - 1,595 - (121,068) (567)
Shares Issued 421,357 987 - - - - - -
Shares Issued under Options 73,460 175 - - - - - -
Comprehensive Income (i) - - - - - - - (26)
Net Loss (a)(c)(d)(f)(h)(i) - - - - - - (15,395) -
---------- --------- --------- ----------- ---------- --------- --------- ------
Balance at December 31, 1998 30,292,249 156,372 (4,012) - 1,595 - (136,463) (593)
Shares Issued 6,947,994 3,484 - - - - - -
Shares Canceled (679,012) (3,312) - - - - - -
Shares Issued Under Options 17,500 12 - - - - -
Shares Issued Under Warrants 365,000 255 - - - - - -
Issue Costs - (441) - - - - - -
Stock Based Compensation
Expense (d) - 52 - - - - - -
Warrants Issued - - - 1,510 - - - -
Stock Option Loan
Repayments / Cancellations - - 4,012 - - - - -
Comprehensive Income (i) - - - - - - - 10
Net Loss (a)(c)(d)(e)(i)(j) - - - - - - (11,335) -
---------- --------- --------- ----------- ---------- --------- --------- ------
Balance at December 31, 1999 36,943,731 $ 156,422 $ - $ 1,510 $ 1,595 $ - $(147,798) $(583)
========== ========= ========= =========== ========== ========= ========= ======
(For items (a) to (j), see page 79.)
Statements of Cash Flows Under US GAAP
Net Cash Provided By (Used In): Operating Activities Investing Activities Financing Activities
-------------------- -------------------- --------------------
Cdn GAAP US GAAP Cdn GAAP US GAAP Cdn GAAP US GAAP
For the Years Ended,
- -------------------
December 31, 1999 $ (97) $ (3,144) $(11,331) $(4,079) $ 6,983 $ 6,983
December 31, 1998 $(7,719) $(14,792) $ (5,716) $ 2,743 $ 3,386 $ 2,327
December 31, 1997 $(8,602) $(27,045) $(19,830) $(2,670) $30,168 $30,009
US GAAP Tax Considerations
US GAAP changes the Company's method of accounting for income taxes from
the deferred method, as recorded under Cdn GAAP, to an asset and liability
approach. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributed to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Use of the asset and
liability method has no effect on the US GAAP financial statements as the
Company has concluded that a full valuation allowance must be applied to
the deferred tax asset resulting from the Company's net operating loss
carryforwards. (See note 13) For the years ended December 31,
82
1998 and 1999, the Company has recorded no current tax expense under
Canadian or US GAAP due to the cumulative net losses incurred by the
Company. Under US GAAP, the Company would not record any deferred tax
expense based on the same rationale.
Summarized below are the components of deferred taxes:
As of December 31,
--------------------
1999 1998
---- ----
Temporary differences relating to net assets:
Other current assets $ 62 $ 62
Property & equipment 575 405
Deferred exploration 27,377 21,076
Investment in OGML 1,029 1,120
Offering costs 1,324 1,103
Tax loss and credit carryforwards 18,775 10,201
-------- --------
Gross deferred tax asset 49,142 33,967
-------- --------
Valuation allowance (49,142) (33,967)
-------- --------
Net deferred tax assets $ - $ -
======== ========
The valuation allowance increased by $15.2 million in 1999 due to the taxable
losses and increase in temporary differences. Any income tax benefits resulting
from utilization of net operating loss carry forwards existing at May 15, 1992,
the date of the quasi-reorganization under US GAAP, would be excluded from
results of operations and credited directly to share capital, resulting in lower
earnings than would be reported absent the quasi-reorganization. (See (g)
above.)
US GAAP Stock Based Compensation Plans
At December 31, 1999, the Company has two stock-based compensations plans, which
are described below. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its plans in its US GAAP presentations. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under the plans
consistent with the method described in Statement of Financial Accounting
Standards No. 123, the Company's consolidated net loss and loss per share under
US GAAP would have been increased to the pro forma amounts indicated below:
1999 1998 1997
---- ---- ----
Net loss under US GAAP As reported $(11,335) $(15,395) $(26,838)
Pro forma $(12,584) $(19,831) $(32,384)
Net loss per share under US GAAP As reported $ (0.35) $ (0.51) $ (0.94)
Pro forma $ (0.39) $ (0.66) $ (1.12)
Under the 1997 Stock Option Plan ("GSR Plan"), the Company may grant options to
employees, consultants and directors of the Company or its subsidiaries for up
to 5,600,000 shares of common stock. Under the GSR Plan, the options may take
the form of non-qualified stock options, the exercise price of each option shall
not be less than the market price of the Company's stock on the date of grant,
and an option's maximum term is ten years or such other shorter term as
stipulated in a stock option agreement between the Company and the optionee.
Options under the GSR Plan are granted from time to time at the discretion of
the Board of Directors. Options granted under the GSR Plan vest over periods
ranging from immediately to four years from the date of grant and vesting
periods are determined at the discretion of the Board of Directors.
Under the Guyanor Ressources S.A. Stock Option Plan (the "Guyanor Plan"),
Guyanor may grant options to its employees for up to 4,367,889 shares of Class B
common shares. The options may take the form of non-qualified stock options,
the exercise price of each option shall not be less than (i) the equivalent of
the Canadian Dollar amount equal to the closing price of the shares on the
Toronto Stock Exchange on the trading day immediately prior to the day the
option is granted and (ii) 80% of the average closing price on the Noveau Marche
of the Bourse de Paris during the 20 consecutive trading days immediately
preceding the date the option is granted. An option's term is ten years.
Options under the Guyanor Plan are granted from time to time at the discretion
of Guyanor's Board of Directors and vest over periods ranging from immediately
to three years.
83
Following the Plan of Arrangement whereby PARC became a wholly-owned subsidiary
of the Company, stock options are still outstanding but there is no market to
trade the shares.
During 1999, certain employee stock options were repriced. On January 15, 1999,
the Board of Directors of the Company approved, subject to any necessary
regulatory and shareholder approvals, the amendment of certain stock options.
The number of shares that can be purchased under these outstanding options has
been reduced by 20%. The exercise price of outstanding stock options previously
granted by the Company to certain directors and officers ("Insiders"), employees
and consultants ("Non-Insiders") of the Company was amended to Cdn$1.80 (if the
exercise price was larger than Cdn$1.80). The exercise price of the stock
options being repriced ranges from Cdn$2.76 to Cdn$22.40. The total number of
shares of the stock options repriced was 2,525,780. Of that amount 2,026,780
were held by Insiders and 499,000 were held by Non-Insiders. All the necessary
approvals were obtained and the Insiders' options were reduced to 1,621,424 (a
reduction of 405,356) and the Non-Insiders' options were reduced to 399,200 (a
reduction of 99,800).
The fair value of each option grant is estimated on the date of grant for all
plans using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1999, 1998 and 1997:
1999
-------------------------------------------------
GSR Plan Guyanor Plan PARC Plan
-------------------------------------------------
Expected volatility 82.2% 90.3% N/A
Risk-free interest rate 4.65% - 6.08% 5.15% N/A
Expected lives 5 years 5 years N/A
Dividend yield 0% 0% N/A
1998
-------------------------------------------------
Expected volatility 105.9% N/A N/A
Risk-free interest rate 4.37% to 5.70% N/A N/A
Expected lives 5 years N/A N/A
Dividend yield 0% N/A N/A
1997
-------------------------------------------------
GSR Plan Guyanor Plan PARC Plan
-------------------------------------------------
Expected volatility 79% 56% 81%
Risk-free interest rate 5.74% - 6.55% 5.92% 6.16% - 6.53%
Expected lives 5 years 5 years 5 years
Dividend yield 0% 0% 0%
The following tables summarize information about stock options under the GSR
Plan:
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
GSR Plan (000) (Cdn$) (000) (Cdn$) (000) (Cdn$)
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 3,497 $10.40 3,957 $10.79 2,884 $13.07
Granted 2,013 $ 1.42 210 $ 2.47 1,221 $ 5.08
Exercised (18) $ 1.08 (73) $ 3.40 (98) $ 3.30
Forfeited (1,762) $ 7.55 (597) $15.27 (50) $17.31
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 3,730 $ 1.86 3,497 $10.40 3,957 $10.79
Options exercisable at year-end 3,127 3,318 3,353
Weighted-average fair value of
options granted during the year $ 1.86 $ 1.90 $ 5.08
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------
84
Number Number
GSR Plan Outstanding at Weighted-Average Weighted-Average Exercisable at Weighted-Average
Range of Exercise Dec. 31, 1999 Remaining Exercise Price Dec. 31, 1999 Exercise Price
Prices (Cdn$) (000) Contractual Life (Cdn$) (000) (Cdn$)
- ---------------------------------------------------------------------------------------------------------------------------------
$1.00 to $1.15 174 9.22 $1.08 130 $1.08
$1.17 to $1.55 780 9.55 $1.36 280 $1.36
$1.65 to $1.80 2,337 6.12 $1.79 2,278 $1.79
$3.40 to $6.65 439 7.76 $3.46 439 $3.46
- ---------------------------------------------------------------------------------------------------------------------------------
3,730 $1.86 3,127
The following tables summarize information about stock options for the Guyanor
plan:
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
Guyanor Plan (000) (Cdn$) (000) (Cdn$) (000) (Cdn$)
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 3,035 $3.56 3,143 $3.60 2,726 $3.97
Granted 181 $0.72 - - 511 $1.64
Exercised - - (11) $1.64 (40) $2.68
Forfeited - - (97) $5.07 (54) $5.08
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 3,216 $3.40 3,035 $3.56 3,143 $3.60
Options exercisable at year-end 3,095 3,035 2,213
Weighted-average fair value of N/A
options granted during the year $0.72 $1.64
Options Outstanding Options Exercisable
- -----------------------------------------------------------------------------------------------------------------------------------
Number Number
Guyanor Plan Outstanding at Weighted-Average Weighted-Average Exercisable at Weighted-Average
Range of Exercise Dec. 31, 1999 Remaining Exercise Price Dec. 31, 1999 Exercise Price
Prices (Cdn$) (000) Contractual Life (Cdn$) (000) (Cdn$)
- -----------------------------------------------------------------------------------------------------------------------------------
$0.72 to $1.64 661 8.12 $ 1.39 540 $ 1.54
$2.10 to $3.30 2,078 5.28 $ 2.52 2,078 $ 2.52
$9.20 to $12.40 477 6.59 $10.04 477 $11.04
- -----------------------------------------------------------------------------------------------------------------------------------
3,216 3,095
The following tables summarize information about stock options for the PARC
plan:
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
PARC Plan (000) (Cdn$) (000) (Cdn$) (000) (Cdn$)
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year N/A N/A 2,338 $0.90 2,357 $0.90
Granted N/A N/A - - 48 $0.69
Exercised N/A N/A - 0 -
Forfeited N/A N/A (2,338) $0.90 (67) $0.86
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year N/A N/A - - 2,338 $0.90
Options exercisable at year-end N/A N/A - 1,765
Weighted-average fair value of
options granted during the year N/A N/A N/A $0.69
Impact of Recently Issued Accounting Standards
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities (FAS 133).
FAS 133 is effective for all fiscal years beginning after June 15, 2000. FAS
133 requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The Company is in the process of determining the impact
that applying FAS 133 may have on its results of operations and financial
position.
85
Operations by Geographic Area under US GAAP
Information on the Company's continuing operations by geographic area under US
GAAP for the years ended December 31, 1999, 1998 and 1997 is shown below.
Operating earnings from continuing operations are total revenues less operating
expenses of the geographic areas.
Operating Net Identifiable
Revenues Loss Assets
-------- ---- ------
1999
South America $ 345 $ (9,381) $12,038
Africa 10,611 2,547 23,246
Corporate 298 (4,501) 10,351
- -----------------------------------------------------------------------------------
Total $11,254 $(11,335) $45,635
===================================================================================
1998
South America $ 8 $ (8,626) $18,520
Africa - (3,002) 1,034
Corporate 627 (3,767) 7,686
- -----------------------------------------------------------------------------------
Total $ 635 $(15,395) $27,240
===================================================================================
1997
South America $ 539 $(21,500) $22,666
Africa 71 (2,876) 1,197
Corporate 1,088 (2,462) 18,213
- -----------------------------------------------------------------------------------
Total $ 1,698 $(26,838) $42,076
===================================================================================
16. Related Parties
- ---------------------
During 1999, the Company, in conjunction with Anvil Mining NL, acquired BGL (see
Note 9). The current President and CEO of the Company, Peter J. Bradford, is
also a Director of Anvil Mining NL and this relationship constitutes a related
party. Based on the heads of agreement with Anvil to effect the BGL
acquisition, the Company provided Anvil with a promissory note for their share
of the purchase price and also a note for their share of the acquisition costs.
Additionally Anvil, is responsible for their share of the additional acquisition
costs. The total of these amounts owing to the Company at December 31, 1999 was
$3.8 million (see Note 7). This amount will be repaid through the cash flow
from BGL.
17. 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 December 31, 1999 was $6.7 million.
Potential Litigation
A representative action (claiming to represent 23,000 claimants) was filed in
August 1998 in the High Court of the Supreme Court of Judicature, Civil
Jurisdiction in Guyana but was not served on the defendants (OGML, Cambior, two
engineering firms and one insurance company) until August 1999. This
representative action is essentially an outgrowth of a class action initiated in
1997 and later dismissed by a Quebec court. The representative action was
amended to include Golden Star as defendant and then served on Golden Star in
July 1999. The representative action claims $100 million in damages, allegedly
resulting from the tailings dam failure that occurred in Guyana in 1995. Golden
Star believes that, in addition to being without merit, the representative
action is open to attack on a number of procedural grounds. A motion to have
the action dismissed against Golden Star was filed in September 1999. The
Company and the other defendants intend to defend themselves vigorously against
this action.
86
Restricted Cash (for the Environmental Rehabilitation Liability)
Upon the closing of the acquisition of BGL in 1999, the Company was required,
according to the acquisition agreement, to restrict $6 million in cash. These
funds are to be used for the ongoing, final reclamation and closure costs
relating to the Bogoso mine site. The withdrawal of these funds must be agreed
to by the sellers of BGL, who are ultimately responsible for the reclamation in
the event of non-performance by Golden Star and Anvil.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
There have been no disagreements with PricewaterhouseCoopers LLP, the Company's
chartered accountants, regarding any matter of accounting principles or
practices or financial statement disclosure.
87
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
Directors of the Registrant
---------------------------
(as of March 1, 2000)
The directors of the Company, their ages and their business experience and
principal occupation during the past five years are:
Name Age Office and Experience Director
---- --- --------------------- --------
since
-----
JAMES E. ASKEW 51 Mr. Askew has been Managing Director and Chief Executive Officer of 1999
Black Range Minerals NL since November 1999. He also serves as a
director of Ausdrill Limited, Semafo Ltd. and Nord Resources Corp.
Prior thereto, Mr. Askew was President and Chief Executive Officer
of the Company from March 1999 to October 1999 and President and
Chief Executive Officer of Rayrock Resources Inc. from September
1998 to March 1999. Mr. Askew has also been President and Chairman
of International Mining and Finance Company since 1997. From 1986
to 1996, Mr. Askew was President and Chief Executive Officer of
Golden Shamrock Mines Ltd.
DAVID K. FAGIN 61 Mr. Fagin currently serves as a director on the boards of Western 1992
Exploration and Development Ltd. and Dayton Mining Company, and of
various public mutual funds of T. Rowe Price Associates, Inc. Mr.
Fagin was Chairman and Chief Executive Officer of Western
Exploration from July 1997 to January 2000. Prior thereto, Mr.
Fagin was Chairman and Chief Executive Officer of the Company from
May 1992 until May 1996 and Chairman of the Board from May 1996
until December 31, 1997.
ERNEST C. MERCIER 67 Mr. Mercier currently serves as Chairman of the Board of Oxford 1995
Properties Group Inc. and as a director of Cascade Corporation and
Camvec Ltd. Mr. Mercier retired as Executive Vice President,
Corporate & Investment Banking and as Co-Chairman, Toronto-Dominion
Securities Inc. in 1993.
JOHN W. SABINE 54 Mr. Sabine has been a partner at the law firm of Donahue & Partners 1999
in Toronto since January 2000. Prior thereto, he was the managing
partner and a member of the corporate and securities group of the
law of firm Bennett Jones in Toronto from April 1995. Previously,
Mr. Sabine was the President and Chief Executive Officer of Arbor
Memorial Services Inc. from October 1992 to March 1995.
ROBERT R. STONE 56 Mr. Stone has been non-executive Chairman of the Company since June 1997
1999. He also serves as a director of Boliden Limited, Manhattan
Minerals Corp. (Chairman), United Bolero Development Corp., TVI
Pacific Inc. and Mainsborne Communications International Inc.
(Chairman). Prior thereto, Mr. Stone was employed from 1973 until
1997 by Cominco Ltd., most recently as Vice-President, Finance,
Chief Financial Officer and Director. Mr. Stone retired from
Cominco Ltd. in 1997.
88
EXECUTIVE OFFICERS
Executive Officers of the Registrant
------------------------------------
(as of March 1, 2000)
The executive officers of the Company, their ages and their business experience
and principal occupation during the past five years are:
Name Age Office and Experience Officer
---- --- --------------------- -------
Since
-----
CARLOS H. BERTONI 48 President of Guyanor Ressources S.A. since December 1998; Vice 1993
President, Exploration of the Company since 1993.
PETER J. BRADFORD 41 President and Chief Executive Officer of the Company since 1999
November 1999. Mr. Bradford has also been a director of Anvil
Mining N.L. since 1998; prior thereto, Managing Director of Anvil
Mining from May 1998 to October 1999; Managing Director of
Strategic Planning & New Business of Ashanti Goldfields Company
Ltd. from October 1996 to April 1998; General Manager West Africa
of Golden Shamrock Mines Ltd. from 1991 to 1996.
RICHARD Q. GRAY 41 Vice President, Ghana of the Company since January 2000 and 2000
Managing Director of Bogoso Gold Limited since November 1999; from
March 1998 to October 1999, General Manager of Bogoso Gold Mine;
from April 1996 to February 1998, Operations Director of Gencor
International Gold; prior thereto, held various positions from
1983 to 1996 for Gencor Ltd. including Manager of Mining at Oryx
Gold Mine.
ALLAN J. MARTER 52 Vice President and Chief Financial Officer of the Company since 1999
November 1999; from 1996 to 1999, principal of Waiata Resources,
Littleton (Mining financial advisory services); from 1992 to 1996,
Director of Endeavour Financial Inc., Denver (Mining financial
advisory services.)
LOUIS O. PELOQUIN 42 Vice President, General Counsel and Secretary of the Company since 1993
June 1993.
There are no family relationships between any of the directors or executive
officers of the Company. The directors were elected to hold office until the
next annual meeting of the shareholders or until his successor is elected or
appointed pursuant to relevant provisions of the Bylaws of the Company or the
Company's governing statute.
89
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
The following table sets forth in summary form the compensation received during
each of the Company's last three fiscal years by the Chief Executive Officer of
the Company and by the five most highly compensated officers during the fiscal
year ended December 31, 1999 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation (1)
--------------------------------------------------------------------------------------------------
Awards
=======================================================
Number of
Securities Number of
Underlying Securities
Other Options Granted Underlying
Annual By the Options Granted All Other
Name and Principal Salary Bonus Compensation Company by Guyanor Compensation
Position Year (US$)(2) (US$)(3) (US$) (#)(6) (#) (US$)
- ------------------------------------------------------------------------------------------------------------------------------------
Peter Bradford 1999 119,167(10) 0 (4) 600,000 0 0
President and Chief
Executive Officer (7)
- ------------------------------------------------------------------------------------------------------------------------------------
James Askew 1999 132,052 0 (4) 250,000(11) 5,000 1,580(14)
President and Chief
Executive Officer (7)
- ------------------------------------------------------------------------------------------------------------------------------------
Pierre Gousseland 1999 24,229 0 N/A 74,000(12) 10,000(13) 0
Chairman and Chief 1998 33,600 0 N/A 50,000 0 0
Executive Officer (8)
- ------------------------------------------------------------------------------------------------------------------------------------
Louis Peloquin 1999 151,669 25,000 (4) 144,000(12) 10,000 5,704(15)
Vice-President, 1998 160,000 0 (4) 0 0 6,421
General Counsel and 1997 160,000 10,000 (4) 40,000 20,000 5,424
Secretary
- ------------------------------------------------------------------------------------------------------------------------------------
Hilbert Shields 1999 146,667 0 (4) 120,000(12) 10,000 4,718(16)
Vice President, 1998 190,000 0 (4) 0 0 5,040
Guyana 1997 190,000 0 (4) 35,000 18,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Carlos Bertoni 1999 125,000 0 (4) 140,000(12) 10,000 4,625(17)
Vice President, 1998 190,000 0 (4) 0 0 5,220
Exploration 1997 190,000 0 (4) 35,000 18,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Richard Winters Vice 1999 119,816 0 1,089 (5) 153,024(12) 10,000 63,928(18)
President, Corporate 1998 120,000 40,000 4,184 (5) 0 0 3,002
Development (9) 1997 121,613 10,000 4,184 (5) 40,000 20,000 886
- ------------------------------------------------------------------------------------------------------------------------------------
Gordon Bell 1999 111,083 0 (4) 256,000(12) 10,000 95,447(19)
Vice-President and 1998 186,500 0 (4) 0 0 6,202
Chief Financial 1997 186,500 10,000 (4) 40,000 20,000 4,016
Officer (9)
- ------------------------------------------------------------------------------------------------------------------------------------
(1) There were no long-term incentive plan pay-outs during the periods
indicated.
(2) The dollar value of base salary (cash and non-cash) earned.
(3) The dollar value of bonuses (cash and non-cash) earned.
90
(4) Other annual compensation, including perquisites and other personal
benefits, securities or property, did not exceed 10% of the total of the
annual salary and bonus, if applicable.
(5) Pertains to deemed taxable benefit of interest free loans from the Company.
See "Indebtedness of Directors and Officers."
(6) Upon exercise of the options granted prior to March 14, 1995, the holder
will receive one-fifth of one Class B share of Guyanor for each one Common
Share acquired.
(7) Mr. Peter Bradford was appointed President and Chief Executive Officer as
of November 1, 1999. Mr. James Askew was President and Chief Executive
Officer from March 8, 1999 to October 31, 1999.
(8) Mr. Pierre Gousseland, then Chairman of the Company, was appointed Acting
Chief Executive Officer for an interim period starting October 1998 until
the appointment of Mr. Askew on March 8, 1999. The compensation was paid
to Mr. Gousseland as non-executive Chairman.
(9) Mr. Bell and Mr. Winters resigned effective August 31, 1999 and January 31,
2000, respectively.
(10) This amount includes the sums paid to Mr. Bradford for services rendered in
connection with the acquisition of Bogoso Gold Limited between May 1999 and
October 1999.
(11) On March 8, 1999, the Company granted to Mr. Askew an option to purchase
1,000,000 common shares. As a result of Mr. Askew's resignation on October
31, 1999, the stock option was reduced to 250,000.
(12) Includes repriced options.
(13) As a result of Mr. Gousseland being a non-employee director, the Company
(and not Guyanor) granted these options.
(14) This amount represents premiums paid for life insurance for the benefit of
this executive.
(15) This amount includes $4,200 for contribution to this executive's 401(k)
Plan and $1,504 for premiums paid for life insurance for the benefit of
this executive.
(16) This amount includes $3,750 for contribution to this executive's saving
plan and $968 for premiums paid for life insurance for the benefit of this
executive.
(17) This amount includes $4,025 for contribution to this executive's saving
plan and $600 for premiums paid for life insurance for the benefit of this
executive.
(18) This amount includes $60,000 of severance payments accrued in 1999 but paid
in 2000, $2,810 for contribution to this executive's 401 (k) Plan and
$1,118 for premiums paid for life insurance for the benefit of this
executive.
(19) This amount includes $93,333 of severance payments, $932 for contribution
to this executive's 401 (k) Plan and $1,182 for premiums paid for life
insurance for the benefit of this executive.
91
Stock Option Grants
OPTION GRANTS IN LAST FISCAL YEAR
(all $ amounts in Canadian dollars)
- -----------------------------------------------------------------------------------------------------------------------------
Potential Realizable
Value at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
- -----------------------------------------------------------------------------------------------------------------------------
Number of
Securities % of Total
Underlying Options Granted Exercise or
Options Granted to Employees in Base Price Expiration
Name (#) Fiscal Year (4) ($/Sh) Date 5% ($) 10% ($)
- -----------------------------------------------------------------------------------------------------------------------------
Peter Bradford
Company 600,000 26.0% 1.34 10/5/09 461,884 1,120,085
- -----------------------------------------------------------------------------------------------------------------------------
James Askew
Company 250,000 (1) 10.9% 1.80 3/8/09 77,452 351,702
Guyanor 5,000 (5) 0.45 6/15/09 1,318 3,174
- -----------------------------------------------------------------------------------------------------------------------------
Pierre Gousseland
Company 64,000 (2) 2.8% (5) 1.80 6/15/01 0 0
10,000 0.4% (5) 1.08 6/15/01 4,194 5,656
Guyanor 10,000 (5) 0.45 6/15/09 2,636 6,347
- -----------------------------------------------------------------------------------------------------------------------------
Louis Peloquin
Company 144,000 (2) 6.3% 1.80 (3) 4,088 56,114
Guyanor 10,000 5.5% 0.72 4/21/09 0 3,647
- -----------------------------------------------------------------------------------------------------------------------------
Hilbert Shields
Company 120,000 (2) 5.2% 1.80 (3) 3,633 52,510
Guyanor 10,000 5.5% 0.72 4/21/09 0 3,647
- -----------------------------------------------------------------------------------------------------------------------------
Carlos Bertoni
Company 140,000 (2) 6.1% 1.80 (3) 3,633 52,510
Guyanor 10,000 5.5% 0.72 4/21/09 0 3,647
- -----------------------------------------------------------------------------------------------------------------------------
Richard Winters
Company 103,024 (2) 4.5% 1.80 (3) 4,250 43,782
50,000 2.2% 1.65 (10/21/09) 22,990 77,840
Guyanor 10,000 5.5% 0.72 (4/21/09) 0 3,647
- -----------------------------------------------------------------------------------------------------------------------------
Gordon Bell
Company 256,000 (2) 11.1% 1.80 8/31/01 0 0
Guyanor 10,000 5.5% 0.72 8/31/01 0 0
- -----------------------------------------------------------------------------------------------------------------------------
(1) On March 8, 1999, the Company granted to Mr. Askew an option to purchase
1,000,000 common shares. As a result of Mr. Askew's resignation on October
31, 1999, the Company and Mr. Askew mutually agreed to reduce the stock
option to 250,000.
(2) This number represents options repriced in 1999.
(3) The expiration dates of each option repriced were not modified. The
original expiration dates range between December 2002 and December 2007.
(4) The total number of options taken for the calculation of this column
includes the employees' repriced options.
(5) The Company (and not Guyanor) privately granted to Messrs. Askew and
Gousseland the Guyanor options.
92
Stock Option Exercises and Year-End Option Values
The following table sets forth information concerning the fiscal year-end value
of unexercised options held by the Named Executive Officers. There were no
exercises of stock options to purchase Common Shares or Class B shares of
Guyanor during the fiscal year ended December 31, 1999 by the Named Executive
Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
- ---------------------------------------------------------------------------------------------------------------------------
Common
Shares Value of Unexercised
Acquired Number of Securities Underlying In-the-money Options at Fiscal
on Exercise Value Realized Unexercised Options at Fiscal Year End (Cdn$) (2)
Name (#) (Cdn$) Year End
=======================================================================
Exercisable Un-exercisable Exercisable Un-exercisable
- ---------------------------------------------------------------------------------------------------------------------------
Peter Bradford
Company 0 N/A 200,000 400,000 4,000 8,000
Guyanor 0 N/A 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
James Askew
Company 0 N/A 250,000 0 0 0
Guyanor 0 N/A 5,000 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
Pierre Gousseland
Company 0 N/A 114,000 0 2,800 0
Guyanor 0 N/A 90,000 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
Louis Peloquin
Company 0 N/A 144,000 (1) 0 0 0
Guyanor 0 N/A 120,000 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
Hilbert Shields
Company 0 N/A 120,000 (1) 0 0 0
Guyanor 0 N/A 118,000 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
Carlos Bertoni
Company 0 N/A 140,000 (1) 0 0 0
Guyanor 0 N/A 428,000 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
Richard Winters
Company 0 N/A 123,024 30,000 0 0
Guyanor 0 N/A 68,051 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
Gordon Bell
Company 0 N/A 256,000 (1) 0 0 0
Guyanor 0 N/A 143,051 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
(1) Upon exercise of options granted prior to March 14, 1995, the holder will,
in addition, be entitled to receive one-fifth of one Class B share of
Guyanor for each Common Share acquired.
(2) For all unexercised options held as of December 31, 1999, the aggregate
dollar value of the excess of the market value of the shares underlying
those options over the exercise price of those unexercised options. On
December 31, 1999, the closing price of the Common Shares was Cdn$1.36 on
the TSE and the closing price of the Guyanor Class B shares was Cdn$0.46 on
the TSE. On March 1, 2000, the closing price of the Common Shares was
Cdn$2.00 on the TSE and the closing sale price of the Guyanor Class B
shares was Cdn$0.70 on the TSE.
93
Report on Repricing of Options
On January 15, 1999, the Board of Directors of the Company approved a resolution
amending certain outstanding stock options (the "Repriced Options") held by non-
employee directors, executive officers and employees. The amendments to the
Repriced Options provide for (i) a reduction of the exercise price of each
Repriced Option from its original price to Cdn.$1.80 (the closing price of the
Common Shares on the Toronto Stock Exchange on January 14, 1999) and (ii) a 20%
reduction of the number of shares that can be purchased under each Repriced
Option. The other terms of the Repriced Options were not changed. On March 10,
1999, the Toronto Stock Exchange consented to the amendments of all such
Repriced Options granted to non-employee directors and to executive officers,
subject to receiving the approval of disinterested shareholders at the Meeting.
The resolution was approved by a majority of the votes cast by the disinterested
holders of Common Shares at the June 15, 1999 Annual General Meeting of the
shareholders of the Company. The Company has not done any other repricing of
stock options since its establishment in 1992.
TEN-YEAR OPTION REPRICINGS
- ------------------------------------------------------------------------------------------------------------------------------------
Number of New Number of Length of
Securities Market Price of Exercise Price Securities Original Option
Underlying Stock at Time of at Time of New Underlying Term Remaining
Options Repricing or Repricing or Exercise Options at Date of
Repriced or Amendment (Cdn$) Amendment (Cdn$) Price (Cdn$) (#) Repricing or
Name Date Amended (#) Amendment
- ------------------------------------------------------------------------------------------------------------------------------------
Louis Peloquin 1/15/99 50,000 1.80 13.05 1.80 40,000 4 yrs 5 mths
25,000 1.80 16.20 1.80 20,000 5 yrs 8 mths
40,000 1.80 7.63 1.80 32,000 6 yrs 11 mths
25,000 1.80 18.45 1.80 20,000 7 yrs 11 mths
40,000 1.80 3.40 1.80 32,000 8 yrs 11 mths
- ------------------------------------------------------------------------------------------------------------------------------------
Hilbert Shields 1/15/99 25,000 1.80 12.15 1.80 20,000 4 yrs 9 mths
25,000 1.80 16.20 1.80 20,000 5 yrs 8 mths
40,000 1.80 7.63 1.80 32,000 6 yrs 11 mths
25,000 1.80 18.45 1.80 20,000 7 yrs 11 mths
35,000 1.80 3.40 1.80 28,000 8 yrs 11 mths
- ------------------------------------------------------------------------------------------------------------------------------------
Carlos Bertoni 1/15/99 25,000 1.80 5.50 1.80 20,000 3 yrs 11 mths
25,000 1.80 12.15 1.80 20,000 4 yrs 9 mths
25,000 1.80 16.20 1.80 20,000 5 yrs 8 mths
40,000 1.80 7.63 1.80 32,000 6 yrs 11 mths
25,000 1.80 18.45 1.80 20,000 7 yrs 11 mths
35,000 1.80 3.40 1.80 28,000 8 yrs 11 mths
- ------------------------------------------------------------------------------------------------------------------------------------
Richard Winters 1/15/99 21,780 1.80 9.13 1.80 17,424 6 yrs 7 mths
33,000 1.80 7.63 1.80 26,400 6 yrs 11 mths
34,000 1.80 18.45 1.80 27,200 7 yrs 11 mths
40,000 1.80 3.40 1.80 32,000 8 yrs 11 mths
- ------------------------------------------------------------------------------------------------------------------------------------
Gordon Bell 1/15/99 250,000 1.80 6.38 1.80 200,000 6 yrs 10 mths
30,000 1.80 18.45 1.80 24,000 7 yrs 11 mths
40,000 1.80 3.40 1.80 32,000 8 yrs 11 mths
- ------------------------------------------------------------------------------------------------------------------------------------
94
Employment Contracts and Termination Arrangements
All the Named Executive Officer currently employed by the Company (i.e. Mr.
Bradford, Peloquin, Bertoni and Shields) have agreements with the Company in
respect of their employment with the Company. The base salary amounts payable
under these employment agreements are reviewed annually by such amount, if any,
as the Compensation Committee determines following annual reviews.
The employment agreement with Mr. Bradford is for an indefinite term and may be
terminated by the Company without cause provided that the Company pays in cash
to Mr. Bradford in a lump sum at the time of termination the following amounts:
(i) if terminated prior to May 1, 2000: six months of salary and benefits; or
(ii) if terminated after May 1, 2000: six months of salary and benefits plus one
additional month of salary and benefits for each additional full month
worked for the Company up to a maximum of 24 months of salary and benefits.
If Mr. Bradford's employment is terminated as a result of a change in control
of the Company, the Company shall pay in cash to Mr. Bradford in a lump sum at
the time of termination a sum equal to 24 months of salary and benefits. A
change in control includes: (i) the acquisition by any person of a sufficient
number of the outstanding voting securities of the Company to materially affect
the control of the Company; (ii) a majority of the board of Directors of the
Company shall be individuals who are not nominated by the Board of Directors of
the Company; (iii) the Company is merged or consolidated with any person (and
the Company is not the surviving corporation); (iv) all or substantially all of
the assets of the Company are acquired by another person; or (v) Mr. Bradford's
office, station or duties are materially reduced or adversely changed as a
result of the occurrence of one of the events mentioned above in this paragraph
in (i), (ii), (iii) and (iv).
In the case of Mr. Peloquin, his employment can be terminated by the Company or
as a result of a change in control (as defined above) by paying in cash to Mr.
Peloquin in a lump sum the amount of $75,000 (less applicable deduction) plus
the amount necessary to maintain his benefits for a period of one year.
The Company can terminate the employment agreements with Messrs. Bertoni and
Shields by giving them a 12-month notice in writing.
Compensation of Directors
During the year ended December 31, 1999, the Company paid a total of $83,440 to
its non-employee directors in respect of Board and committee participation.
For the period from January 1 to June 15, 1999, Mr. Pierre Gousseland received a
monthly payment of $3,000 as non-executive Chairman and Mr. Richard A. Stark
received $2,000 a month as Chairman of the Audit and Governance Committee. All
other non-employee directors from January 1 to June 15, 1999 received $1,000 a
month.
On June 15, 1999, the Company adopted a new compensation schedule for its non-
employee directors.
Annual fees
The Company pays an annual fee of:
. $18,000 to its non-executive Chaiman;
. $6,000 to the Chaiman of the Audit Committee;
. $2,000 to the Chairman of the Compensation and Corporate Governance
Committee;
. $2,000 to the Chairman of the Environment Committee; and
. $6,000 to the other directors.
95
Attendance fees
The Company pays the following fees for attending a meeting in person or by
telephone:
. $1,500 to its non-executive Chaiman for attending a Board meeting;
. $750 to its non-executive directors for attending a Board meeting;
. $500 to its non-executive directors for attending a committee meeting.
The non-executive directors are also reimbursed for transportation and other
out-of-pocket expenses reasonably incurred for attendance at Board and committee
meetings and in connection with the performance of their duties as directors.
Stock Options
The Company's 1997 Stock Option Plan (the "Plan") provides for an automatic
grant of an option to purchase 40,000 Common Shares to each person who becomes
non-employee director, as of the date such person first becomes non-employee
director, provided that, within the previous year, such person was not granted
any other stock options by the Company.
Until June 1999, a non-employee director was entitled to receive an automatic
stock option to purchase 10,000 Common Shares on each anniversary of his
appointment to the Board. On June 15, 1999, the Board approved an amendment to
the Plan that modified the timing of the annual grants to the non-employee
directors. The amendment provides that a non-employee director will
automatically be granted an additional stock option to purchase 10,000 Common
Shares as of the date such non-employee director will be re-elected at an annual
general meeting of the Company, provided that in respect of the first additional
option to be granted at least 8 months shall have elapsed since the initial
automatic option grant of 40,000 common shares. The Board may, at its
discretion, grant additional options to non-employee directors from time to
time. All options granted to the non-employee directors vested immediately and
have a ten-year term. See "Stock Option Plan" below for other particulars of
the Plan.
In January 1999, the Board approved amendments to stock options granted by the
Company to certain directors and former directors. The amendments provide for
(i) a reduction of the exercise price of each repriced option from its original
price to Cdn.$1.80 (the closing price of the Common Shares on the Toronto Stock
Exchange on January 14, 1999) and (ii) a 20% reduction of the number of shares
that can be purchased under each repriced option. The other terms of the
repriced options do not change. The amendments were approved by the
shareholders of the Company at their June 15, 1999 Annual Meeting. The original
exercise price of the repriced options ranged between Cdn.$2.76 and Cdn.$24.40.
During the financial year ended December 31, 1999, the Company granted to its
non-employee directors options to purchase a total of 121,500 Common Shares at
an exercise price ranging from Cdn.$1.05 and Cdn.$1.17.
Because the non-employee directors of the Company are not employed by Guyanor,
they are not eligible to participate in Guyanor's Stock Option Plan. Therefore,
once a year, the Company grants as additional compensation to its non-employee
directors options to purchase Class B shares of Guyanor from the Class B shares
that the Company owns. The term of each option is ten years and the options
granted so far vested immediately. During the fiscal year ended December 31,
1999, the Company granted to its non-employee directors options to purchase a
total of 30,000 Guyanor Class B shares.
96
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- ----------------------------------------------------------------
The following table shows the number of Common Shares beneficially owned by each
person known to the Company or its directors or senior officers to be the
beneficial owner of more than 5% of its outstanding Common Shares, by each
director of the Company, by each executive officer named in the table titled
"Summary Compensation Table" which appears in Item 11 of this Form 10-K, and by
all directors and executive officers of the Company as a group at March 1, 2000.
It also shows the number of shares that those beneficial owner, directors and
executives have a right to acquire on or before May 1, 2000. Unless otherwise
noted, each shareholder has sole investment and voting power over the Common
Shares owned.
- -----------------------------------------------------------------------------------------------------------------------------
Number of Total
Common Beneficially
Shares Owned and
Name of Beneficial Owner and Beneficially Right to Acquire Right to Acquire Percent of Common
Address if required Owned Common Shares Common Shares Shares
- -----------------------------------------------------------------------------------------------------------------------------
Snyder Capital Management Inc. 4,934,786 797,500 7,518,000 (1) 20.3%
350 California Street, Suite 1460 1,785,714
San Francisco, CA 94104
- ----------------------------------------------------------------------------------------------------------------------------
David M. Knott 0 480,000 3,908,571 (1) 10.5%
485 Underhill Boulevard 3,428,571
Suite 205
Syosset, New York 11791
- ----------------------------------------------------------------------------------------------------------------------------
David Fagin 579,987 379,400 959,387 2.6%
- ----------------------------------------------------------------------------------------------------------------------------
James Askew 205,000 250,000 455,000 *
- ----------------------------------------------------------------------------------------------------------------------------
Gordon Bell 13,904 256,000 269,904 *
- ----------------------------------------------------------------------------------------------------------------------------
Peter Bradford -0- 200,000 200,000 *
- ----------------------------------------------------------------------------------------------------------------------------
Carlos Bertoni 39,156 140,000 179,156 *
- ----------------------------------------------------------------------------------------------------------------------------
Louis Peloquin -0- 144,000 144,000 *
- ----------------------------------------------------------------------------------------------------------------------------
Richard Winters 16,854 123,024 139,878 *
- ----------------------------------------------------------------------------------------------------------------------------
Hilbert Shields 11,056 120,000 131,056 *
- ----------------------------------------------------------------------------------------------------------------------------
Pierre Gousseland 3,040 114,000 117,040
- ----------------------------------------------------------------------------------------------------------------------------
Robert Stone 5,000 69,500 74,500 *
- ----------------------------------------------------------------------------------------------------------------------------
Ernest Mercier 3,300 62,000 65,300 *
- ----------------------------------------------------------------------------------------------------------------------------
John Sabine -0- 40,000 40,000 *
- ----------------------------------------------------------------------------------------------------------------------------
Directors and Executive Officers 882,297 2,049,924 2,932,221 7.9%
as a group (2)
- ----------------------------------------------------------------------------------------------------------------------------
* Indicates less than one percent.
(1) This information was taken from the most current Schedule 13-G provided to
the Company by this beneficial owner.
(2) Includes the executive officers listed above and two other executive
officers.
97
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on the review of the section 16(a) reports filed by the directors
and executives officers, and upon representations from those persons, all
reports required to be filed by our reporting persons during 1999 were filed on
time except for Mr. Louis Peloquin who inadvertently filed one report late with
respect to one transaction (the sale of a small amount of common shares of the
Company), and Mr. James Askew who inadvertently filed one report late with
respect to one transaction (the purchase of common shares of the Company).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
Certain directors and officers of the Company are and may continue to be
involved in the mining and mineral exploration industry through their direct and
indirect participation in corporations, partnerships or joint ventures, which
are potential competitors. Situations may arise in connection with potential
acquisitions and investments where the other interests of these directors and
officers may conflict with the interests of the Company. As required by law,
each of the directors of the Company is required to disclose any potential
conflict of interest and to act honestly, in good faith and in the best
interests of the Company.
When the Company acquired a 70% interest in Bogoso Gold Limited ("BGL") in
September 1999, Mr. Peter Bradford, our current President and Chief Executive
Officer of the Company, was Managing Director of Anvil Mining NL ("Anvil").
Anvil acquired a 20% interest in BGL. After joining the Company, Mr. Bradford
continues to serve as director on the Board of Anvil Mining NL.
Except as otherwise disclosed herein, no insider of the Company, nor any
associate or affiliate of an insider, has had any material interest in any
transaction or proposed transaction which has materially affected or would
materially affect the Company or any of its subsidiaries, nor has any director
of the Company been involved, directly or indirectly, in any business or
professional relationship with the Company in connection with the provision by
the director or the Company of property, services or financing to the other
since January 1, 1999.
Indebtedness of Directors and Officers
There was no indebtedness outstanding at March 1, 2000 in connection with a
purchase of securities of the Company by directors, officers and employees of
the Company or any of its subsidiaries. The following table sets forth
information with respect to indebtedness incurred by any director or officer of
the Company in connection with an acquisition by such officer or director of
Common Shares. The loan indicated was granted pursuant to the Company's 1997
Stock Option Plan.
TABLE OF INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS
AND SENIOR OFFICERS UNDER SECURITIES PURCHASE PROGRAMS
- ----------------------------------------------------------------------------------------------------------------------------------
Financially Assisted
Largest Amount Amount Securities Purchases
Outstanding During Outstanding as During the
Involvement of the Financial Year at Financial Year
Name and Issuer or Ended March 1, 2000 Ended Security for
Principal Position Subsidiary Dec. 31, 1999 (Cdn$) (Cdn$) Dec. 31, 1999 (#) Indebtedness
- ----------------------------------------------------------------------------------------------------------------------------------
Richard Winters Lender 102,439 0 0 Common Shares
Vice-President,
Corporate
Development
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Mr. Winters surrendered his 11,220 common shares for cancellation and the
loan was forgiven as of April 5, 1999.
98
At March 1, 2000, the total amount of indebtedness outstanding to the Company
which was entered into other than in connection with a purchase of securities of
the Company by directors, officers and employees of the Company or any of its
subsidiaries was $16,929. The following table sets forth information with
respect to such indebtedness incurred by any director or officer of the Company.
TABLE OF INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
OTHER THAN UNDER SECURITIES PURCHASE PROGRAMS
- -------------------------------------------------------------------------------------------------------------------------------
Largest Amount Outstanding
During the Financial Year Amount Outstanding as at
Involvement of issuer or Ended December 31, 1999 March 1, 2000
Name and Principal Position Subsidiary (US$) (US$)
- -------------------------------------------------------------------------------------------------------------------------------
Louis Peloquin (1) Lender 16,860 16,929
Vice-President, General Counsel and
Secretary
- -------------------------------------------------------------------------------------------------------------------------------
David Fagin (2) Lender 667,699 0
Director
- -------------------------------------------------------------------------------------------------------------------------------
(1) The loan to Mr. Peloquin was made for the purpose of purchasing a residence
at the time of his relocation to Denver, Colorado. The loan bears interest
at the prime rate.
(2) The loan to Mr. Fagin was made when he was an employee of the Company in
connection with different exercises of options under the Plan. Mr. Fagin
ceased to be an employee on December 31, 1997 and the loan became due 30
days later in accordance with the Plan. The Board granted him an extension
for the repayment of the loan. The loan was to be repayable in eight
consecutive monthly installments starting July 1, 1999. In exchange for an
earlier repayment of the loan, the Company agreed to reduce the loan by
approximately $30,652. Mr. Fagin paid the Company $637,047 on May 11, 1999
to fully discharge the loan.
99
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
- -------- -------------------------------------------------------
FORM 8-K
--------
(a) The following documents are filed as part of this Report:
1. Financial Statements
Management's Report
Auditors' Report
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations Years Ended December 31, 1999,
1998 and 1997
Consolidated Statement of Changes in Shareholders' Equity Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows Years Ended December 31, 1999,
1998 and 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Financial Statement schedules have been omitted since they are either
not required, are not applicable, or the required information is shown
in the financial statements or related notes.
(b) Reports on Form 8-K.
On December 14, 1999, the Company filed with the Securities and Exchange
Commission a Form 8-K/A amending a Form 8-K dated September 30, 1999
regarding the completion of the acquisition by the Company and Anvil
Mining NL of 70% and 20%, respectively, of the common shares of Bogoso
Gold Mine. The purpose of the amendment was to file the financial
information required by Item 7 of Form 8-K.
EXHIBITS
--------
Seq. Page No.
-------------
2.1 Articles of Arrangement dated March 7, 1995 with Plan of Arrangement
attached (incorporated by reference to Exhibit 2.1 to the Company's
Form 10-K for the year ended December 31, 1994)
3.1 Articles of Amalgamation of the Company (incorporated by reference to
Exhibit 1.1 to the Company's Registration Statement on Form 20-F,
filed on May 10, 1993)
3.2 By-laws of the Company (incorporated by reference to Exhibit 1.2 to
the Company's Registration Statement on Form 20-F, filed on May 10,
1993)
3.2(a) By-law Number One amended and restated (incorporated by reference to
Exhibit 3 to the Company's Form 10-Q for quarter ended June 30, 1995)
4.1 Form of Stock Certificate (incorporated by reference to Exhibit 4.3 to
the Company's Registration Statement on Form S-8 filed on July 15,
1994)
4.1(a) Registration Statement Form S-3 (333-12673) (incorporated by reference
as filed on October 2, 1997)
4.2 Omitted
100
4.3 Rights Agreement dated April 24, 1996, between the Company and The R-M
Trust Company (incorporated by reference to Exhibit 4.1 to the
Company's Form 8-K dated May 7, 1996)
4.3(a) Amendment to Rights Agreement between the Company and CIBC Mellon
Trust Company (formerly, the R-M Trust Company) dated as of June 30,
1999 (incorporated by reference to Exhibit 10.1 to the Company's Form
10-Q for the period ended June 30, 1999)
4.4 Indenture, dated as of August 24, 1999, between the Company and IBJ
Whitehall Bank & Trust Company, as trustee (the "Trustee")
(incorporated by reference to Exhibit 4.1 to the Company's Form 8-K
dated August 24, 1999)
4.5 Indenture Supplement, dated as of August 24, 1999, between the Company
and the Trustee (incorporated by reference to Exhibit 4.2 to the
Company's Form 8-K dated August 24, 1999)
4.6 Form of Specimen of Debenture (incorporated by reference to Exhibit
4.3 to the Company's Form 8-K dated August 24, 1999)
4.7 Form of Specimen of Four-Year Warrant (incorporated by reference to
Exhibit 4.4 to the Company's Form 8-K dated August 24, 1999)
4.8 Form of Specimen of Eighteen-Month Warrant (incorporated by reference
to Exhibit 4.5 to the Company's Form 8-K dated August 24, 1999)
4.9 Form of Specimen of Broker Warrant (incorporated by reference to
Exhibit 4.6 to the Company's Form 8-K dated August 24, 1999)
10.1 Omitted
10.2 Memorandum of Association of Omai Gold Mines dated August 15, 1990 and
entered into among Cambior, the Company and the Government of Guyana
(incorporated by reference to Exhibit 3.4 to the Company's
Registration Statement on Form 20-F, filed on May 10, 1993)
10.3 Omai Mineral Agreement dated August 16, 1992 respecting the Omai Gold
Mine (incorporated by reference to Exhibit 3.10 to the Company's
Registration Statement on Form 20-F, filed on May 10, 1993)
10.4 Omitted
10.5 Omitted
10.6 Gross Rosebel Mineral Agreement dated April 7, 1994 between The
Republic of Suriname, Grasshopper Aluminum Company N.V. and the
Company (English translation) (incorporated by reference to Exhibit
10.9 to the Company's Form 10-K for the year ended December 31, 1994)
10.7 Option Agreement dated June 1, 1994 between Cambior Inc. and the
Company regarding the Gross Rosebel property (incorporated by
reference to Exhibit 10.10 to the Company's Form 10-K for the year
ended December 31, 1994)
10.8 Option Agreement dated May 11, 1994 between Cambior Inc. and the
Company regarding Yaou and Dorlin properties (incorporated by
reference to Exhibit 10.11 to the Company's Form 10-K for the year
ended December 31, 1994)
101
10.9 Omitted
10.10 Omitted
10.11 Omitted
10.12 Omitted
10.13 Omitted
10.14 Omitted
10.15 Omitted
10.16 Omitted
10.17 Omitted
10.18 Management Services Agreement dated January 1, 1995 between the
Company and Guyanor Ressources S.A. (incorporated by reference to
Exhibit 10.18 to the Company's Form 10-K for the year ended December
31, 1995)
10.19 Omitted
10.20 Omitted
10.21 Omitted
10.22 Omitted
10.23 Omitted
10.24 English translation of the Exploration Agreement dated May 13, 1996,
between the Company's wholly owned subsidiary Southern Star Resources
Ltd. and its wholly-owned Brazilian subsidiary, Estrela Sul do Brasil
Empreendimentos Ltda. and Companhia Vale do Rio Doce and its
subsidiary Rio Doce Geologia e Mineracao S.A. (incorporated by
reference to Exhibit 10.24 to the Company's Form 10-K for the year
ended December 31, 1996)
10.25 Omitted
10.26 English translation of the Option and Joint Venture Agreement dated
June 26, 1996, between Societe de Travaux Publics et de Mines
Aurifiere en Guyane, Societe Guyanaise des Mines, LaSource
Developpement SAS and ASARCO Exploration Company for the Paul Isnard
property (incorporated by reference to Exhibit 10.26 to the Company's
Form 10-K for the year ended December 31, 1996)
10.27 Heads of Agreement dated July 22, 1996, between the Company and BHP
Minerals International Exploration Inc. regarding the Guyana
Reconnaissance Project (incorporated by reference to Exhibit 10.27 to
the Company's Form 10-K for the year ended December 31, 1996)
10.28 Heads of Agreement dated November 13, 1996, between the Company and
BHP Minerals International Exploration Inc. regarding the South
Benzdorp Project in Suriname (incorporated by reference to Exhibit
10.28 to the Company's Form 10-K for the year ended December 31, 1996)
102
10.29 Heads of Agreement dated August 19, 1996, and amendment No. 1 dated
October 25, 1996, between the Company and BHP Minerals International
Exploration Inc. regarding the Suriname Reconnaissance Project
(incorporated by reference to Exhibit 10.29 to the Company's Form 10-K
for the year ended December 31, 1996)
10.30 Omitted
10.31 Omitted
10.32 Omitted
10.33 Omitted
10.33(b) 1997 Stock Option Plan as amended and restated to June 14, 1999
10.34 Employees' Stock Bonus Plan amended and restated to June 7, 1995
(incorporated by reference to Exhibit 10.25 to the Company's Form 10-K
for the year ended December 31, 1995)
10.35(a) Guyanor Ressources S.A. Stock Option Plan amended and restated as of
June 15, 1999 (English translation)
10.36 Pan African Resources Corporation Stock Option Plan (incorporated by
reference to Exhibit 10.27 to the Company's Form 10-K for the year
ended December 31, 1995)
10.37 Standardized Adoption Agreement for a 401-K Savings Plan adopted
January 1, 1996 (incorporated by reference to Exhibit 10.28 to the
Company's Form 10-K for the year ended December 31, 1995)
10.38 Employment Contracts of Messrs. Bertoni and Shields, dated May 15,
1992, January 1, 1994, and January 1, 1994, respectively (incorporated
by reference to Exhibit 10.29 to the Company's Form 10-K for the year
ended December 31, 1995)
10.38(a) Employment contracts of Messrs. Bell, Peloquin and Winters dated
October 24, 1995, November 25, 1997, and August 7, 1995, respectively
(incorporated by reference to Exhibit 10.38(a) to the Company's Form
10-K for the year ended December 31, 1997)
10.38(b) Change In Control Agreements between the Company and Messrs. Bell,
Fennell, Fleming, Peloquin and Winters dated December 17, 1997
(incorporated by reference to Exhibit 10.38(b) to the Company's Form
10-K for the year ended December 31, 1997)
10.38(c) Employment contract with Mr. Peter Bradford dated November 1, 1999
10.39 Agreements between the Company and its outside directors, dated
December 8, 1995, and December 10, 1996 (incorporated by reference as
Exhibit 10.39 to the Company's Form 10-K for the year ended December
31, 1996) granting them options to purchase Guyanor Class "B" common
shares
10.39(a) Agreements between the Company and its outside directors, dated
December 9, 1997 granting them options to purchase Guyanor Class "B"
common shares (incorporated by reference to Exhibit 10.39(b) to the
Company's Form 10-K for the year ended December 31, 1997)
10.39(b) Agreements between the Company and its outside directors dated
December 8, 1998 granting them options to purchase Guyanor Class "B"
common shares.
103
10.39(c) Agreements between the Company and certain directors dated June 15,
1999 granting them options to purchase Guyanor Class "B" common shares
10.40 Amendment of Employment Agreement dated May 1, 1996, amending the
Employment Agreement dated May 15, 1992, between the Company and David
K. Fagin (incorporated by reference to Exhibit 10.40 to the Company's
Form 10-K for the year ended December 31, 1996)
10.41 Omitted
10.43 Registration Rights Agreement between the Company, Elliott Associates,
L.P. and Westgate International L.P. (incorporated by reference to
Exhibit 10.2 to the Company's Form 10-Q for the period ended June 30,
1999)
10.44 Warrant to purchase common stock granted by the Company to Elliott
Associates, L.P. dated June 9, 1999 (incorporated by reference to
Exhibit 10.3 to the Company's Form 10-Q for the period ended June 30,
1999)
10.45 Agreement for the sale and purchase of debt and 90% of the shares of
Bogoso Gold Limited dated as of June 1, 1999 (incorporated by
reference to Exhibit 10.4 to the Company's Form 10-Q for the period
ended June 30, 1999)
10.45(a) Revised and Restated Agreement, dated as of June 1, 1999, among the
Company, Anvil and the other parties signatory thereto Agent
(incorporated by reference to Exhibit 2.1 to the Company's Form 8-K
dated September 30, 1999)
10.46 Credit Facility letter and Option Premium Letter between Elliott
Associates L.P. and the Company entered into on May 5, 1999 in
connection with the purchase of 90% interest in Bogoso Gold Mine Ltd.
(incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q
for the period ended June 30, 1999)
10.47 Agency Agreement, dated August 16, 1999, between the Company and TD
Securities (USA) Inc, as agent (the "Agent") (incorporated by
reference to Exhibit 10.1 to the Company's Form 8-K dated August 24,
1999)
10.48 Registration Rights Agreement, dated as of August 24, 1999, between
the Company and the Agent (incorporated by reference to Exhibit 10.2
to the Company's Form 8-K dated August 24, 1999)
10.49 Escrow Agreement, dated as of August 24, 1999, among the Company, the
Agent, IBJ Whitehall Bank & Trust Company, as escrow agent, and
International Finance Corporation (incorporated by reference to
Exhibit 10.3 to the Company's Form 8-K dated August 24, 1999)
10.50 Heads of Agreement dated June 9, 1999, between Guyanor Ressources S.A.
and Rio Tinto Mining and Exploration Limited regarding the Dachine
project in French Guiana
21.1 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP, Chartered Accountants
27.1 Financial Data Schedule
104
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GOLDEN STAR RESOURCES LTD.
Registrant
By: /s/ Peter J. Bradford
---------------------------------------------
Peter J. Bradford
President and Chief Executive Officer
Date: March 24, 2000
---------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
By: /s/ Peter J. Bradford By: /s/ Allan J. Marter
------------------------- ------------------------------------------
Name: PeterJ. Bradford Name: Allan J. Marter
------------------------- ------------------------------------------
Title: President and CEO Title: Vice-President and Chief Financial Officer
------------------------- ------------------------------------------
Date: March 24, 2000 Date: March 24, 2000
------------------------- ------------------------------------------
By: /s/ James E. Askew By: /s/ David K. Fagin
------------------------- ------------------------------------------
Name: James E. Askew Name: David K. Fagin
------------------------- ------------------------------------------
Title: Director Title: Director
------------------------- ------------------------------------------
Date: March 24, 2000 Date: March 24, 2000
------------------------- ------------------------------------------
By: /s/ Ernest C. Mercier By: /s/ John W. Sabine
------------------------- ------------------------------------------
Name: Ernest C. Mercier Name: John W. Sabine
------------------------- ------------------------------------------
Title: Director Title: Director
------------------------- ------------------------------------------
Date: March 24, 2000 Date: March 24, 2000
------------------------- ------------------------------------------
By: /s/ Robert R. Stone
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Name: Robert R. Stone
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Title: Director
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Date: March 24, 2000
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