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UNITED STATES 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 (Fee Required)
For the Fiscal Year ended December 31, 1996
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
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.)
One Norwest Center, 1700 Lincoln Street,
Suite 1950, Denver, Colorado 80203
(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 $369 million as of March 14, 1997,
based on the closing price of the shares on the American Stock Exchange
of $13.875 per share.
Number of Common Shares outstanding as of March 14, 1997: 26,622,636.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's 1997 Proxy Statement and Information Circular for the
1997 Annual Meeting of Shareholders, which will be filed with the
Securities and Exchange Commission within 120 days after December 31,
1996 pursuant to Regulation 14A under the Securities Exchange Act of
1934, is incorporated by reference into Part III hereof.
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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 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 and (iii) "R" are to Brazilian reals.
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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-K constitute "forward-looking statements"
within the meaning of The Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Such forward-looking statements involve known and unknown
risks, uncertainties, and other factors which may cause the actual results,
performance, or achievements of the Company to be materially different from any
future results, performance, or achievements expressly stated or implied by
such forward-looking statements. Such factors include, among others, the
following: gold and diamond exploration and development costs and results,
fluctuation of gold prices, foreign operations and foreign government
regulation, competition, uninsured risks, recovery of reserves, capitalization
and commercial viability and requirement for obtaining permits and licenses.
(See "Item 1. Risk Factors".)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Golden Star Resources Ltd. (the "Registrant" or the "Company") is an
international gold and diamond exploration company with a diverse portfolio of
active exploration and development projects, and an operating mine, in over ten
countries on two continents. The Company's core focus is on the acquisition,
discovery and development of gold and diamond projects. Once it identifies
such projects, the Company's business strategy is, if appropriate, to enter
into partnership arrangements with major mining companies to develop and
operate mines. The Company currently has interests in properties in various
stages of development in Guyana, French Guiana, Suriname, Brazil and Bolivia in
South America, and Eritrea, Ethiopia, Gabon, Ivory Coast, Kenya, Mali and
Sierra Leone in Africa.
The Company's efforts are concentrated in a geologic domain 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 historic gold
production. The Company began its exploration activities in 1985 in the
tropical, Proterozoic greenstone belts of the Guiana Shield, and more recently
extended its activities to the geologically related greenstone belts of the
Brazilian Shield and the West African Shield, and finally to the greenstone
belts of eastern Africa.
The Company's interest in gold production as at March 14, 1997, was in the form
of a 30% common share equity interest in Omai Gold Mines Limited, a company
incorporated under the laws of Guyana ("OGML"), the owner and operator of the
Omai Gold Mine in Guyana (the "Omai Mine") (see "Item 2. Description of
Property - Guyana Properties - Producing Property: Omai Mine"). A final
feasibility study is expected to be completed on the Company's second major
project, Gross Rosebel, located in Suriname during 1997.
The head office of the Company is located at One Norwest Center, 1700 Lincoln
Street, Suite 1950, Denver, Colorado 80203, and the Company's registered and
records office is located at 19th Floor, 885 West Georgia Street, Vancouver,
British Columbia V6C 3H4. As at March 14, 1997, the Company and its
subsidiaries had a total of 658 full-time employees, of which 33 were based in
Denver, one in Miami and the balance were employed in the various countries of
South America and Africa in which the Company and its subsidiaries carry on
their operations.
The Company was established under the Canada Business Corporations Act on May
15, 1992 as a result of the amalgamation (the "Amalgamation") of South American
Goldfields Inc. ("South American"), a Canadian corporation, and Golden Star
Resources Ltd. ("Golden Star"), an Alberta corporation. Golden Star was
originally incorporated under the provisions of the Alberta Business
Corporations Act on March 7, 1984 as Southern Star Resources Ltd., and its name
was changed on February 25, 1985 to Golden Star Resources Ltd. Concurrent with
the Amalgamation, the common shares of the Company were consolidated on a
one-for-two basis (the "Share Consolidation"). Reference to common shares
herein shall, unless otherwise indicated, mean common shares of the Company
after the Amalgamation and the Share Consolidation. The fiscal year-end of the
Company is December 31.
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The Company has established a decentralized structure through region-specific
subsidiaries in order to facilitate effective management of its geographically
diverse portfolio of mineral properties, to improve access to capital markets
and to better allow the equity markets to value the Company's mineral property
portfolio. The Company currently directly manages all activities in Guyana and
Suriname and indirectly manages activities outside Guyana and Suriname through
its subsidiaries. The Company has created two publicly traded subsidiaries.
Guyanor Ressources S.A. ("Guyanor") is approximately 68% owned by Golden Star
and is incorporated under the laws of France. Guyanor was established in order
to comply with the laws of France which require that mining titles be held by a
French company. Guyanor's Class B common shares are listed on the Toronto
Stock Exchange under the symbol "GRL.B" and on the Nouveau Marche of the Bourse
de Paris under the symbol "GUYN". Pan African Resources Corporation, a
corporation incorporated under the laws of Yukon in Canada ("PARC"), is
approximately 58% owned by Golden Star and was created in recognition of the
unique risk profile of establishing exploration projects in Africa. PARC's
common shares are quoted on the Canadian Dealing Network under the symbol
"PARC". Southern Star Resources Ltd., a corporation incorporated under the
laws of Barbados ("Southern Star"), is a wholly owned subsidiary of the Company
and was created in 1995 to conduct activities in South America outside of the
Guiana Shield.
BUSINESS STRATEGY
The Company's business strategy is to focus on its core skills of gold and
diamond exploration and property acquisition, with the ultimate goal of holding
significant interests in large scale gold and diamond mines. The Company's
business strategy is comprised of the following elements:
# Focus on exploration. The Company believes that the greatest increase in
shareholder value in the gold and diamond mining sector comes from the
discovery of mineral deposits. The Company intends to continue to
concentrate its exploration efforts in its areas of expertise, gold and
diamond exploration, in the tropical greenstone belts of the Guiana Shield,
Brazilian Shield, West African Shield and the greenstone belts of eastern
Africa.
# Concentrate on current portfolio of properties. The Company intends to
focus its efforts on advancing the most promising projects within its
current portfolio of properties to the feasibility stage. The Company
continues to pursue new opportunities and may make selective additional
acquisitions of promising properties.
# 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. This
strategy enables the Company to transfer a portion of the business and
financial risks associated with exploration and development to its partners
and 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 relationships with local government officials and
business leaders. In addition, the Company believes that its decentralized
local management structure enables it to make better informed exploration
and management decisions.
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CERTAIN SIGNIFICANT EVENTS IN 1996 AND RECENT DEVELOPMENTS
On January 8, 1996, Cambior Inc. ("Cambior") exercised its option to acquire a
50% interest in the Company's Gross Rosebel project in Suriname. Cambior
fulfilled the condition to exercise its option under the option agreement
signed in June of 1994, having spent $6.0 million for exploration and
development activities on the property. (See "Item 2. Description of
Properties - Suriname Properties - Gross Rosebel".)
In February 1996, the Government of Guyana approved the resumption of
operations at the Omai Gold Mine following a tailings pond incident in August
1995 and construction of the first stage of the new tailings pond was
completed. Appropriate measures were taken to ensure safe and environmentally
sound operations. The mine resumed operations on February 4, 1996. The total
incident-related costs at the Omai Mine for the shutdown period are estimated
at $11.3 million. (See "Item 2. Guyana Prospectus - Producing Property: Omai
Mine")
On February 5, 1996, Pan African Resources Corporation, a company incorporated
under the laws of Yukon ("PARC Yukon"), which was, prior to that date,
approximately 85% owned by the Company, completed a private placement (the
"Private Placement") of 13.2 million units at Cdn$1.00 per unit. Each unit
consisted of one common share and one-half of one common share purchase warrant
of PARC Yukon. The Private Placement generated net proceeds to PARC Yukon of
approximately $9.0 million after payment of commissions and expenses. Each
warrant entitled the holder to purchase one common share of PARC Yukon at
Cdn$1.25 until January 31, 1997. A total of 1,063,500 warrants were exercised
providing proceeds of an additional $1.0 million. (See "Item 2. African
Properties - General".)
On February 6, 1996, PARC Yukon was amalgamated (the "PARC Amalgamation") under
the Yukon Business Corporation Act with Humlin Red Lake Mines Limited, an
Ontario corporation. As a result of the Private Placement and the PARC
Amalgamation, the Company's interest was reduced to approximately 60% of the
45.3 million outstanding shares of PARC, the amalgamated company. On February 8,
1996, PARC became a publicly traded company in Canada with its common shares
quoted on the Canadian Dealing Network. (See "Item 2. African Properties -
General".)
On March 6, 1996, the Company effected a public offering in Canada of 1.75
million units at a price of Cdn$10.50 per unit for total proceeds of Cdn$18.375
million. Each unit consisted of one common share and one-half of one common
share purchase warrant (each whole warrant being designated as a "Warrant") of
the Company. Each Warrant was exercisable into one common share of the Company
on or prior to March 6, 1997, at a price of Cdn$11.00. As at March 6, 1997, all
875,000 Warrants have been exercised providing proceeds of $7.0 million.
On March 26, 1996, Cambior and the Company announced estimated mining reserves
of 24 million tonnes grading 1.4 g Au/t on the Gross Rosebel property in
Suriname, representing 1.1 million ounces of gold in situ.
On April 24, 1996, the Company announced the adoption by its Board of Directors
of a Shareholder Rights Plan (the "Rights Plan") designed to encourage the fair
treatment of shareholders in connection with any tender offer for the Company's
shares. The Rights Plan provides the Board of Directors of the Company and
shareholders with more time to fully consider any unsolicited tender offer for
the
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Company. It also allows more time for the Board of Directors to pursue, if
appropriate, other alternatives to maximize shareholder value. The shareholders
of the Company ratified the adoption of the Rights Plan at their June 11, 1996
annual general meeting. The Plan will expire in 1999. Under the Rights Plan,
the Company issued one right (a "Right") for each common share of the Company
outstanding on April 24, 1996. The Company will also issue one Right for each
common share issued in the future. The Rights issued under the Rights Plan
become exercisable only when a person, including any party related to it,
acquires or announces its intention to acquire 20% or more of the Company's
outstanding common shares without complying with the "Permitted Bid" provisions
of the Rights Plan or without approval of the Board of Directors of the Company.
Should such an acquisition occur, each right would, upon exercise, entitle a
rights holder, other than the acquiring person and persons related to it, to
purchase common shares of the Company at a 50% discount to the market price at
the time. (See "Item 8. Financial Statements and Supplementary Data - Notes to
the Consolidated Financial Statements - 14. Share Capital.")
In August 1996, the Company announced that Venhold Investments (1994) Ltd., an
indirectly controlled subsidiary of the Company, concluded a final termination
and settlement agreement in connection with the "unwinding" of its purchase of
controlling interests in certain mineral properties located in Venezuela.
Therefore, the Company has no remaining interest in Venezuela. The Company
recorded a gain of $0.9 million in 1996 as a result of a settlement payment of
$1.6 million.
In September 1996, the Company and Cambior announced an increase in estimated
proven and probable mining reserves at the Gross Rosebel project in Suriname.
Proven and probable mining reserves at Gross Rosebel were calculated to be in
excess of 30 million tonnes grading 1.5 g Au/t, representing approximately 1.4
million ounces of gold in situ, a 25% increase over the March 1996 estimate at
a higher grade and lower overall strip ratio. This increase reflected a new
reserve calculation completed on the Pay Caro zone, which includes both the
former Pay Caro and East Pay Caro zones. Information included in the
calculation was based on drilling and trenching completed through June 30,
1996. The reserve calculation did not include drilling and trenching completed
through June 30, 1996, on the Koolhoven and Bigi Asanjangmoni trends on the
North Block of the Gross Rosebel property. Saprolite (soft rock)
mineralization constituted 72% of the updated reserves.
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RESERVE HARD ROCK (1) SOFT ROCK (2) TOTAL STRIP
ESTIMATE AS OF ('000 TONNES @ G AU/T) ('000 TONNES @ G AU/T) ('000 TONNES @ G AU/T) RATIO
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September 1996 8,590 @ 1.8 21,860 @ 1.3 30,450 @ 1.5 2.8:1
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March 1996 3,459 @ 1.8 20,594 @ 1.3 24,053 @ 1.4 2.9:1
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(1) Hard rock cutoff grade of 0.7 g Au/t
(2) Soft rock cutoff grade of 0.5 g Au/t
On September 25, 1996, the Company announced the filing with the Securities and
Exchange Commission ("SEC") of a shelf registration statement on Form S-3 (the
"Registration Statement"), with respect to the proposed issuance by the Company
from time to time of up to $75.0 million of its common shares, preferred shares,
convertible debt securities and/or warrants. On November 6, 1996, the Company
filed an amendment to the Registration Statement with the SEC and the
Registration Statement, as amended, was declared effective by the SEC on
November 8, 1996.
On October 15, 1996, the Company filed with nine Canadian provincial securities
commissions (i) a short-form shelf prospectus, with respect to the proposed
issuance by the Company from time to time of up to 5.0 million common shares
and/or 5.0 million common share purchase warrants and (ii) a short-form shelf
prospectus with respect to the proposed issuance of up to $75.0 million of
convertible debt securities. Final short-form shelf prospectuses were filed on
November 7, 1996, and the filing became effective on November 8, 1996.
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On October 30, 1996, a final prospectus was approved by French regulatory
authorities entitling Guyanor to (i) list its Class B common shares for trading
on the Nouveau Marche of the Bourse de Paris in France, and (ii) sell 1.0
million of its Class B common shares. Trading of Guyanor's Class B common
shares on the Nouveau Marche began on October 30, 1996. A placement of Guyanor
shares in Europe was completed on November 5, 1996. In connection therewith,
Guyanor received net proceeds of approximately 45.5 million French francs
(approximately $8.9 million), and the Company's interest in Guyanor was reduced
to approximately 68%.
On January 10, 1997, PARC sold its interest in Lafayette Mining Gabon Ltd.
("LMG"), which holds an exploration permit on the Eteke property, pursuant to
the exercise of a right of first refusal by Lafayette Holdings Corp.
("Lafayette") under an option agreement (dated September 4, 1994) and a joint
venture agreement (dated May 5, 1995) between Lafayette and PARC. Under its
first right of refusal, Lafayette purchased all of PARC's interest in LMG and
all related rights and obligations of PARC under the joint venture agreement,
the option agreement and any other related agreement for the sum of $640,000.
As a result, the Company and PARC incurred a charge in the fourth quarter of
1996 of $5.3 million for the write-down of capitalized exploration expenditures
for the Eteke property.
On January 30, 1997, Guyanor and the Company announced their intent to
discontinue alluvial gold production in French Guiana by Societe de Travaux
Publics et de Mines Auriferes en Guyane ("SOTRAPMAG"), a wholly-owned
subsidiary of Guyanor. SOTRAPMAG has experienced continuing operating losses
since its acquisition in 1994. Outside consultants engaged in 1996 to review
the operation and make recommendations on how to make the operation profitable
concluded that without a significant capital investment to increase production,
changes in certain work practices and a reduction in fuel taxes, the operation
could not achieve profitability. As a result of these factors, Guyanor has
begun implementation of a program to discontinue SOTRAPMAG's alluvial operation
in the first quarter of 1997. The Company and Guyanor incurred a fourth
quarter charge to 1996 earnings of $3.2 million for the write down of assets
and accrual of closure costs. (See "Item 2. Guyanor Ressources S.A. - Paul
Isnard and Eau Blanche - Mining Operations.")
On February 19, 1997, an option agreement was signed between Societe des Mines
de St-Elie, SARL and a French company pursuant to which SMSE may acquire three
concessions and one exploration permit immediately adjacent to the east and the
south of the St-Elie concession, over a 155 km(2) area known as "Dieu-Merci".
(See "Item 2. Guyanor Ressources S.A. - St-Elie and Dieu-Merci.")
In March of 1997, the Company decided to write-down as at December 31, 1996 the
capitalized deferred exploration in the Dul Mountain project in Ethiopia. The
charge to earnings was $4.0 million. The Company's share of this charge,
after minority interest, was $2.3 million. (See "Item 2. African Properties -
Ethiopia property.")
RISK FACTORS
The following contains certain forward-looking statements within the meaning of
the Reform Act. 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 below and elsewhere in
this Annual Report on Form 10-K.
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1. RISKS OF EXPLORATION AND DEVELOPMENT
Mineral exploration and development involves a high degree of risk and few
properties which are explored ultimately are developed into commercially
producing mines. The long-term success of the Company's operations will be
substantially and directly related to the cost and success of its exploration
programs. The risks associated with the exploration for new mineralization
include the identification of potential gold mineralization based on surficial
analysis, the attraction and retention of experienced geologists and drilling
personnel, the quality and availability of third party assaying, sampling
errors, geological, geophysical, geochemical and other technical analyses and
other factors. Substantial early stage expenditures are required to outline
mineralized prospects and establish ore reserves through, among other things,
drilling and the preparation of feasibility studies and mine plans, and to
develop and construct the mining and processing facilities at any site chosen
for mining. Although substantial benefits may be derived from the discovery of
a major mineralized deposit, no assurance can be given that (i) minerals will
be discovered in sufficient quantities and/or grades to constitute reserves or
justify commercial operations, (ii) the Company will be successful in
partnering with companies to develop and operate those properties that are
commercially attractive on acceptable or attractive terms or (iii) the funds
required for development can be obtained by the Company or any of its partners
on a timely or commercially reasonable basis. Further, even if reserves are
delineated, it may require a number of years and significant expenditures until
production is possible, during which time the economic feasibility of a
property may change. Additionally, the Company will be reliant on its partners
in each project for technical expertise in the development and operation phases
of the project, and, in certain instances, for financing, until cash flow is
generated from the property for the Company's account. Finally, to the extent
the Company's mineral reserves are produced and sold, the Company must
continually acquire new mineral prospects and explore for and develop new
mineral reserves to replace such reserves.
2. UNCERTAINTY OF RESERVE AND OTHER MINERALIZATION ESTIMATES
There are numerous uncertainties inherent in estimating proven and probable
reserves and other mineralization, including many factors beyond the control of
the Company. The estimation of reserves and other mineralization is a
subjective process and the accuracy of any such estimate is a function of the
quality of available data and of engineering and geological interpretation and
judgment. 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. No assurance can be given that the volume and
grade of reserves recovered and rates of production will not be less than
anticipated. Assumptions about prices are subject to great uncertainty and
gold prices have fluctuated widely in the past. Declines in the market price
of gold or other precious metals also may render reserves or other
mineralization containing relatively lower grades of mineralization or
requiring more extensive processing uneconomic to exploit. If the price
realized by the Company for its gold bullion were to decline substantially
below the price at which ore reserves were calculated for a sustained period of
time, the Company potentially could experience reductions in reserves and asset
write-downs. Under such circumstances, the Company may discontinue the
development of a project or mining at one or more of its properties. Further,
changes in operating and capital costs and other factors, including, but not
limited to, short- term operating factors such as the need for sequential
development of ore bodies and the processing of new or different ore grades,
may materially and adversely affect reserves.
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3. RISKS ASSOCIATED WITH THE FLUCTUATION OF GOLD PRICES
To the extent that the Company has any revenues from operations, such revenues
are expected to be in large part derived from the mining and sale of gold.
Gold prices fluctuate widely and are affected by numerous factors beyond the
Company's control, including international economic and political trends,
inflation expectations, interest rates, central bank sales and purchases,
global or regional consumptive patterns (such as the development of gold coin
programs), speculative activities and increased production due to new mine
developments and improved mining and production methods. The effect of these
and other factors on the price of gold cannot be predicted accurately.
The current demand for, and supply of, gold affect gold prices but not
necessarily in the same manner as current demand and supply affect the prices
of other commodities. The potential supply of gold consists of new mine
production plus existing stocks of bullion and fabricated gold held by
governments, financial institutions, industrial organizations and individuals.
Since mine production in any single year constitutes a very small portion of
the total potential supply of gold, normal variations in current production do
not necessarily have a significant effect on the supply of gold or on its
price. If gold prices should decline below the Company's cash costs of
production at existing operations, or estimated cash costs of production at any
of its exploration and development properties, and remain at such levels for
any sustained period, the Company could determine that it is not economically
feasible to continue commercial production at any or all of its mines or to
pursue further exploration or development activities on such properties.
Moreover, on any given date, the prices used in estimating the Company's ore
reserves are based on the price of gold on such date. If the Company were to
determine that its reserves and future cash flows should be calculated at
significantly lower gold prices than those used on the measurement date, there
would be a material reduction in the amount of its gold reserves. Should such
reductions occur, material write-downs of the Company's investment in mining
properties may be required.
The following table sets forth for the last ten years the high and low selling
prices of gold, as provided by the New York Commodities Exchange ("COMEX"):
Year High Low
---- ---- ---
1987 $497.10 $392.10
1988 $487.00 $394.00
1989 $418.90 $358.10
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
The closing trading price per ounce of gold quoted by COMEX on March 14, 1997
was $352.60.
4. CAPITALIZATION AND COMMERCIAL VIABILITY
The Company has limited financial resources. To date, and for the reasonably
foreseeable future, its exploration and development activities have not
generated and are not expected to generate substantial
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revenues, which has caused, and is expected to continue for the reasonably
foreseeable future to cause, the Company to incur losses. In addition, the
Company historically has incurred significant expenditures in connection with
its exploration activities and contemplates doing so for the foreseeable
future. There can be no assurance that additional funding will be available to
the Company for further exploration or development of its properties or to
fulfill its obligations under any applicable agreements with its partners or
the nations in which the Company is operating. Although the Company has been
successful in the past in obtaining financing through the sale of equity
securities and through partnership arrangements involving several of the
Company's properties, there can be no assurance that the Company will be able
to obtain adequate financing in the future or that the terms of such financing
will be favorable, or that such partnership arrangements will continue to be
available for the Company's properties on acceptable terms. Failure to obtain
such additional financing could result in delay or indefinite postponement of
further exploration and development of the Company's properties with the
possible loss of the Company's interest in such properties.
If the Company proceeds to production on a particular property, commercial
viability will be affected by certain factors that are beyond the Company's
control, including the specific attributes of the deposit (such as mineral
grade and stripping ratio), the fluctuation in metal prices, the costs of
constructing and operating a mine in a specific environment, processing and
refining facilities, the availability of economic sources of energy, adequacy
of water supply, adequate access, 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. The occurrence of any such factors may
materially and adversely affect the Company's business, financial condition,
results of operations and cash flow.
5. RISKS ASSOCIATED WITH DIAMOND EXPLORATION
The exploration and development of diamond deposits involve exposure to
significant financial risks over a significant period of time. Very few
properties which are explored are ultimately developed into producing diamond
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. It is impossible to ensure that the current
exploration programs of the Company, or any programs undertaken in the future,
will result in a profitable commercial diamond mining operation. (See "Item 2.
Guyanor Ressources S.A. - Dachine").
Whether a diamond deposit will be commercially viable depends on a number of
factors, some of which are the particular attributes of the deposit, such as its
size, 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 of diamonds and environmental protection. The effect of
these factors cannot be accurately predicted, but the combination of these
factors may result in the Company not receiving an adequate return on invested
capital.
6. MARKETABILITY OF DIAMONDS
The marketability of diamonds which may result from projects undertaken by the
Company will be affected by numerous factors beyond the control of the Company.
These factors include market fluctuations, government regulations, including
regulations relating to prices, taxes, royalties, land tenure, land use,
importing and exporting of diamonds and environmental protection. The exact
effect of these factors cannot be accurately predicted, but the combination of
these factors may result in the
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Company not receiving 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.
7. RISKS OF FOREIGN OPERATIONS
In certain countries in which the Company has mineral rights (whether held
directly or indirectly), there are certain laws, regulations and statutory
provisions which, as currently written, could have a material negative impact
on the ability of the Company to develop a commercial mine in such countries.
The range and diversity of such laws and regulations are such that the Company
could not adequately summarize them in this document. Through, among other
things, the negotiation of mineral agreements with the governments of these
countries, management of the Company intends to seek variances or otherwise to
be exempted from the provisions of these laws, regulations and/or statutory
provisions. There can be no assurance, however, that the Company will be
successful in obtaining such mineral agreements, that any such variances or
exemptions can be obtained on commercially acceptable terms or that such
agreements will be enforceable in accordance with their terms.
Further, many of the mineral rights and interests of the Company are subject to
government approvals, licenses and permits. Such approvals, licenses and
permits are, as a practical matter, subject to the discretion of the applicable
governments or governmental officials. No assurance can be given that the
Company will be successful in obtaining any or all of such approvals, licenses
and permits, will obtain them in a timely fashion or will be able to maintain
them in full force and effect without modification or revocation.
The Company's assets and operations are subject to various political, economic
and other uncertainties, including, among other things, the risks of war or
civil unrest, expropriation, nationalization, renegotiation or nullification of
existing concessions, licenses, permits, approvals and contracts, taxation
policies, foreign exchange and repatriation restrictions, changing political
conditions, international monetary fluctuations, currency controls and foreign
governmental regulations that favor or require the awarding of drilling
contracts to local contractors or require foreign contractors to employ
citizens of, or purchase supplies from, a particular jurisdiction. In
addition, in the event of a dispute arising from foreign operations, the
Company 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. The Company also may be hindered or prevented
from enforcing its rights with respect to a governmental instrumentality
because of the doctrine of sovereign immunity. The Company has suspended its
operations in Sierra Leone due to the unstable political situation there and
has invoked the force majeure provisions of the contracts pertaining to its
Sierra Leone operations. Currently, it is not possible for the Company to
accurately predict such developments or changes of law or policy and which, if
any, of such developments or changes may have a material adverse impact on the
Company's operations.
8. REQUIREMENTS FOR PERMITS AND LICENSES
The operations of the Company require licenses and permits from various
governmental authorities. Except as otherwise described in "Business and
Properties" herein, management believes that the Company presently holds
substantially all necessary licenses and permits to carry on the activities
which it currently is conducting or expects to conduct in the near term under
applicable laws and regulations in respect of its properties, and also believes
the Company is presently complying in all material respects with the terms of
such laws, regulations, licenses and permits, although the Company
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is in breach of certain provisions of such laws, regulations, licenses and
permits from time to time. Such licenses and permits are subject to
modification or revocation as discussed above in "Risks of Foreign Operations",
as well as changes in regulations and in various operating circumstances.
While the Company does not believe that any such breaches will have a material
adverse effect on its operations, there can be no assurance that the Company
will be able to obtain or maintain in force all necessary licenses and permits
that may be required for it to conduct further exploration or commence
construction or operation of mining facilities at properties under exploration
or to maintain continued operations at economically justifiable costs.
9. DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the services of certain key officers and employees,
including its Chief Executive Officer, its Chief Financial Officer and certain
of its geologists. Competition in the mining exploration industry for
qualified individuals is intense, and the loss of any of these key officers or
employees if not replaced could have a material adverse effect on the Company's
business and its operations. The Company has entered into agreements with
certain of its officers which provide for payments upon termination without
cause or, in certain cases, upon a change in control of the Company.
10. OPERATION HAZARDS AND RESPONSIBILITIES
The business of gold mining is generally subject to a number of risks and
hazards, including environmental hazards, the discharge of pollutants or
hazardous chemicals, industrial accidents, labor disputes, encountering unusual
or unexpected geological or operating conditions, slope failures, cave-ins,
failure of pit walls or dams and fire, changes in the regulatory environment
and natural phenomena such as inclement weather conditions, floods and
earthquakes, as well as other hazards. Such 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. The Company or its subsidiaries or partnership
arrangements to which they are parties also may incur liability as a result of
pollution and other casualties. The Company may not be able to insure fully or
at all against such risks, due to political or other reasons, or the Company
may decide not to insure against such risks as a result of high premiums or for
other reasons. Such occurrences, against which it cannot insure, or may elect
not to insure, may delay production, increase production costs or result in
liability. Paying compensation for obligations resulting from such liability
may entail significant costs for the Company and may have an adverse effect on
the Company's 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 to the Company
or to other companies within the industry.
11. MINING AND PROCESSING
The Company's business operations are subject to risks and hazards inherent in
the mining industry, including, but not limited to, unanticipated grade and
other geological problems, water conditions, surface or underground conditions,
metallurgical and other processing problems and mechanical equipment
performance problems, the unavailability of materials and equipment, accidents,
labor force and force majeure factors, unanticipated transportation costs and
weather conditions, and prices and production levels of by-products, any of
which can materially and adversely affect, among other things, the development
of properties, production quantities and rates, costs and expenditures and
production
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commencement dates. In addition, the Company relies upon its partners to
manage the development and operating stages of the projects in which it has an
interest and, therefore, has less control over such matters than would be the
case if the Company were the operator.
In the case of the Company's exploration properties, there generally is no
operating history upon which to base estimates of future operating costs and
capital requirements. The economic feasibility of any individual project is
based upon, among other things, the interpretation of geological data obtained
from drill holes and other sampling techniques, feasibility studies, which
derive estimates of cash operating costs based upon anticipated tonnage and
grades of ore to be mined and processed, the configuration of the ore body,
expected recovery rates of metals from the ore, comparable facility and
equipments costs, anticipated climatic conditions, estimates of labor
productivity and other factors. Such exploration properties also are subject to
the successful completion of final feasibility studies, issuance of necessary
permits and receipt of adequate financing. Accordingly, uncertainties related
to operations are magnified in the case of exploration properties.
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, especially
to the extent exploration properties are involved. Any such events can
materially and adversely affect the Company's business, financial condition,
results of operations and cash flows.
12. COMPETITION
The Company competes with major mining companies and other natural resource
companies in the acquisition, exploration, financing and development of new
properties and projects. Many of these companies are more experienced, larger,
and better capitalized than the Company. The Company's competitive position
will depend upon its ability to successfully and economically explore, acquire
and develop new and existing mineral resource properties or projects. 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 production and operation
generally, and proximity to market. The Company also competes with other
mining companies for skilled geologists, geophysicists and other technical
personnel, which may result in higher turnover and greater labor costs for the
Company.
13. CURRENCY
The Company historically has raised most of its equity capital in Canadian
dollars, primarily maintains its accounts in U.S. dollars and converts such
U.S. dollars into various local currencies on an as needed basis in order to
conduct local operations. The Company currently maintains all or the majority
of its working capital in U.S. dollars or U.S. dollar denominated securities
and 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 these currencies, and such fluctuations
may materially affect the Company's financial position and results of
operations. The Company currently has future obligations which are payable in
French francs and Brazilian reals and receivables payable in French francs.
The Company currently does not actively take steps to hedge against such risks.
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14. GOVERNMENTAL REGULATIONS
Management believes that compliance with existing regulations in the
jurisdictions in which the Company operates which are applicable to the
discharge of materials into the environment, or otherwise relating to
environmental protection, will not have a material adverse effect on the
Company's exploration activities, earnings, expenditures or competitive
position. However, there can be no assurance that this will always be the
case. New or expanded regulations, if adopted, could affect the exploration or
development of the Company's mining projects or otherwise have a material
adverse effect on the operations of the Company.
15. RISK OF COMPANY BEING CLASSIFIED AS A PASSIVE FOREIGN INVESTMENT COMPANY
Under the United State Internal Revenue Code of 1986, as amended (the "Code"),
the Company may be classified as a passive foreign investment company (a
"PFIC"). United States shareholders of a PFIC are subject to certain adverse
tax consequences. These consequences can be mitigated, under certain
circumstances, if the United States shareholder makes a timely election to
treat the Company as a "qualified electing fund" (a "QEF"). The Company has
been advised by Coopers & Lybrand L.L.P. that it should not be treated as a
PFIC with respect to shares purchased by United States shareholders during the
years 1993 through 1996, although it could potentially be a PFIC with respect
to shares acquired by United States shareholders prior to 1993. The Company
also intends to engage Coopers & Lybrand L.L.P. in the future to analyze
whether it is a PFIC in 1997 and 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 Coopers & Lybrand L.L.P. will conclude that the Company is
a PFIC for any such period. Moreover, even if Coopers & Lybrand L.L.P.
concludes that the Company is not a PFIC, its conclusion is not binding on the
United States Internal Revenue Service. Accordingly, it is possible that the
PFIC rules will apply to holders of common shares. (See "Item 5. Market for
the Registrant's Common Equity and Related Stockholder Matters - Certain
Canadian Federal Income Tax Considerations and Certain United States Federal
Income Tax Considerations".)
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CONVERSION FACTORS AND ABBREVIATIONS
For ease of reference, the following conversion factors are provided:
1 acre = 0.4047 hectare 1 mile = 1.6093 kilometers
1 foot = 0.3048 meter 1 troy ounce = 31.1035 grams
1 gram per tonne = 0.0292 ounce per ton 1 square mile = 2.59 square kilometers
1 ton (2000 pounds) = 0.9072 tonne 1 square kilometer = 100 hectares
1 metric tonne = 1,000 kg or 2,204.6 pounds
1 kilogram = 2.2 pounds or 32.151 oz
The following abbreviations of measurements are used herein:
Au = gold m(2) = square meter
ct = carats m(3) = cubic meter
ct/m(2) = carats per square meter mg = milligrams
gm = grams mg/m(3) = milligrams per cubic meter
g/t = grams per tonne mt = metric tonne
ha = hectares oz = troy ounces
km = kilometers oz/t = troy ounces per ton
km(2) = square kilometers t = ton (2,000 pounds)
kg = kilogram ppb = parts per billion
m = meter
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GLOSSARY OF TERMS
Note: The definitions of proven (measured) and probable (indicated) reserves
(ore) set forth below are those used in Canada by certain provincial securities
regulatory authorities and are set forth in National Policy No. 2-A (of
Canada).
These definitions are substantially the same as those applied in the United
States by the Securities and Exchange Commission, and those accepted by the
United States Bureau of Mines and the United States Geological Survey.
PROBABLE RESERVES
(INDICATED RESERVES) that material for which tonnage and grade are computed partly from specific
measurements, samples or production data, and partly from projection for a reasonable distance
on geological evidence, and for which the sites available for inspection, measurement and
sampling are too widely or otherwise inappropriately spaced to outline the material completely
or to establish its grade throughout
PROVEN RESERVES
(MEASURED RESERVES) that material for which tonnage is computed from dimensions revealed in outcrops or
trenches or underground workings or drill holes and for which the grade is computed from the
results of adequate sampling, and for which the sites for inspection, sampling and measurement
are so spaced and the geological character so well defined that the size, shape and mineral
content are established and for which the computed tonnage and grade are judged to be accurate
within limits which shall be stated and for which it shall be stated whether the tonnage and
grade of proven ore or measured ore are in situ or extractable, with dilution factors shown,
and reasons for the use of these dilution factors clearly explained
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 project 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 project
typically is to better define targets that have the potential to be advanced to the next state
of exploration and level of financial commitment.
INTERMEDIATE STAGE an intermediate stage exploration project typically involves establishing near surface
mineralization through such techniques as deep augering and trenching. Depending on
spacing, drilling (both reverse circulation ("RC") and core) may be an intermediate
stage exploration tool. The objective of the intermediate exploration stage is to
advance a project by identifying a well defined zone of mineralization that suggests
the potential of mineralization continuing to depth.
ADVANCED STAGE an advanced exploration stage project 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 both core and RC drilling, although reserves also can be
established through trenching.
PRE-FEASIBILITY STAGE a pre-feasibility stage project typically involves a target for which sufficient
geologic information exists about the mineralized zone to determine reserves. During the pre-
feasibility stage, drilling often is done to infill the information set on the mineralized zone
in order to increase the certainly of calculated reserves. Wider spaced step-out drilling also
is conducted to extend upon known mineralized zones or to test for additional zones. The
objective of the pre-feasibility stage is to prove sufficient reserves to allow for a rate of
production over a sufficient period of time to justify the investment of capital to extract the
reserves, based on various economic and financial assumptions.
FEASIBILITY STAGE during the feasibility stage, exploration continues in order to better define known
reserves of a project while attempting to further expand them. During this stage, management
of the project often is transferred to the operating partner which develops 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.
MINE mining is the process of transforming a valuable mineral reserve or deposit into
benefits for its owners (debt, equity and employees), governments and communities. Exploration
continues during the mining process and, in many cases, reserves are expanded during the early
years of mine operations as the exploration potential of the deposit is realized.
ACIDIC said of an igneous rock based with a high silica content, generally
greater than 65%
AEROMAGNETIC a magnetic survey made with an airborne magnetometer
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
AMPHIBOLE a group of dark, rock-forming, ferromagnesian silicate minerals
closely related in crystal form and chemical composition
AMPHIBOLITE FACIES metamorphic rock formed by moderate to high pressures and
temperatures
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ANDESITE a dark-colored, fine-grained volcanic rock
ANOMALY a deviation from uniformity or regularity in geophysical quantities
ARCHAEN ancient rocks, generally older than 2,400 million years
ARKOSIC a feldspar-rich typically coarse-grained sandstone
ARSENOPYRITE a white or gray mineral, non-arsenic sulfide
ASSAY to analyze the proportions of metals in an ore
BASEMENT COMPLEX a complex of undifferentiated rocks that underlie the oldest
identifiable rocks in an area
BASIC an igneous rock having a relatively low silica content, sometimes
delimited arbitrarily as less than 54%
BATHOLITH a large, generally discordant, plutonic mass that has more than 100
km in surface exposure and is composed mostly of medium to coarse-grained rocks
BEDDING the arrangement of a sedimentary rock in beds or layers of varying
thickness and character
BIF (BANDED IRONSTONE FORMATION) a rock formation of iron oxides and amorphous
silica occurring in distinguishable layers of brown, red and black
BRECCIA a coarse-grained rock composed of large angular pieces of broken rock
CARBONATE a mineral compound characterized by a fundamental structure of
carbon and oxygen
CARBONACEOUS a rock or sediment rich in carbon
CLASTIC a rock or sediment composed of broken fragments derived from
preexisting rocks or minerals
CONGLOMERATE a coarse-grained, clastic sedimentary rock composed of rounded or
subangular fragments
CONTINENTAL FRACTURE the breaking apart of ancient continents as a result of
plate tectonics
CRATON a part of the Earth's crust which is stable and has not undergone
deformation over a significant period of time
CUPOLA an upward projection of an igneous intrusion into its roof
DACITE a fine-grained volcanic-type rock with the same chemical composition as
andesite but having slightly different mineral assemblage
DEGRADATION the wearing down or away, and the general lowering or reduction of
the Earth's surface by the natural processes of weathering and erosion
DETRITAL pertaining to fragmented material worn off or removed by mechanical
means
DIABASE an intrusive rock whose main components are two specific dark minerals
and characterized by a distinctive mineral structure
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
DIKE a tabular igneous intrusion that cuts across the planar structures of the
surrounding rock
DILATION deformation by a change in volume but not shape
DIORITE a group of plutonic rocks intermediate in composition with a specific
mineral assemblage - the intrusive equivalent of andesite
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 said of a mineral deposit in which the minerals occur as
scattered particles in the rock that make the deposit a worthwhile ore
ELUVIAL an incoherent ore deposit resulting from decomposition or
disintegration of rock in place
EN-ECHELON geologic features that are in an overlapping or staggered
arrangement, e.g. faults
FAULT a surface or zone of rock fracture along which there has been
displacement
FELSIC applied to an igneous rock having mostly light colored minerals
FOLD AXIS a line that connects the central point of each constituent stratum
of the fold, from which its limbs bend
FOLD CLOSURE the vertical distance between the top of the fold and its lowest
point
FOLD a curve or bend of a planar structure such as rock strata, bedding
planes, foliation, or cleavage
FORMATION the basic rock-stratigraphic unit in the local classification of
rocks
GABBRO a group of dark-colored, basic intrusive igneous rocks composed
principally of two specific minerals
GEOCHEMISTRY the study of the distribution and amounts of the chemical
elements in minerals, ores, rocks, solids, water, and the atmosphere
GEOLOGICAL MAPPING mapping based on recorded 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 as a planet with three areas of study:
solid-earth, atmosphere and hydrosphere, and magnetosphere
GNEISS a foliated rock formed by regional metamorphism in which bands or
lenticles of granular minerals alternate with bands and lenticles with flaky or
elongate prismatic appearance
GRANODIORITE a group of coarse-grained plutonic rocks intermediate in
composition between quartz diorite and quartz monzonite
GRANITE a plutonic rock in which quartz constitutes 10 to 50 percent of the
felsic components
GRANITOID an nonporphyritic igneous rock in which all the constituents,
apparently the product of continuous crystallization, are incomplete crystals
and of approximately the same size
GRAPHITE a hexagonal mineral, representing a naturally occurring crystalline
form of carbon
GRAYWACKE a rock name that applies to dark, hard, tough, and firmly indurated,
coarse-grained sandstone
GREENSTONE ancient volcanic-sedimentary rock assemblages
HORIZON a plane of stratification assumed to have been once horizontal and
continuous
HYDROTHERMAL the products of the actions of heated water, such as a mineral
deposit precipitated from a hot solution
IMBRICATION the steeply inclined, overlapping arrangement of thrust sheets
INCLUSION a fragment of older, previously crystallized rock within an
igneous rock to which it may or may not be genetically related
INTERBEDDED said of rock beds laid between or alternating with others of
different character
INTERCALATION the existence of a layer or layers between other layers
INTERMEDIATE an igneous rock that is transitional between basic and acidic,
generally having a silica content of 54% to 65%
INTERSTRATIFIED layers of strata laid between or alternating with others of
different character; especially said of sedimentary rocks laid down in sequence
in an alternating arrangement
INTRUSION the process of replacement of magma (naturally occurring mobile rock
material generated within the Earth) in pre-existing rock
LANDSAT a recently launched artificial satellite which provides various
images of the Earth's surface
LATERITE highly weathered residual surficial soils and decomposed rocks, rich
in iron and aluminum oxides that are characteristically developed in tropical
climates
LODE a mineral deposit consisting of a zone of veins
LOELLINGITE a silver-white mineral of iron and arsenic sulfide
MAFIC an igneous rock composed mostly of one or more ferromagnesian,
dark-colored minerals in its mode; also, said of those minerals
MANGANIFERROUS rich in manganese and iron
MAGNETITE a black, isometric, strongly magnetic, opaque mineral of the spinel
group
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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
METABASIC a basic rock that has been metamorphosed
METALLURGY the science and art of separating metals from their ores by
mechanical and chemical processes
METAMORPHOSED the mineralogical and structural adjustment of solid rocks to
physical and chemical conditions which have been imposed at depth below the
surface zones of weathering and cementation
METAPELITE a sedimentary rock composed of clay that has been metamorphosed
METASEDIMENT a sediment or sedimentary rock which shows evidence of having
been subjected to metamorphism
METAVOLCANIC a volcanic rock which shows evidence of having been subjected to
metamorphism
MICA SCHIST a schist whose essential constituents are mica and quartz
MICROGRANITE an igneous rock of granitic composition that appears
crystalline-grained only under the microscope
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
MONOGENETIC resulting, originating or developing from one formation or derived
from one source
ORTHOGNEISS gneiss derived from an igneous rock
OXIDE a mineral compound characterized by the linkage of oxygen with one
metallic element
OUTCROP that part of a geologic formation or structure that appears at the
surface of the earth; also, bedrock that is covered only by surficial deposits
such as alluvium
OVERBURDEN barren rock material overlying a mineral deposit
OVERTHRUST a low-angle thrust fault of large scale, generally measured in
kilometers
PALEOPLACER an ancient surficial mineral deposit formed by mechanical
concentration of mineral particles from weathered debris
PAN CONCENTRATE a small proportion, generally of heavy minerals, typically of
a weathered rock or stream sediment, obtained by manual use of a "gold pan".
PELITIC composed of the finest detritus, generally clays
PHOTOGEOLOGY the identification, recording, and study of geologic features and
structures by means of photography
PILLOW LAVA a general term for those lavas displaying pillow structure and
considered to have formed in an underwater environment
PLACER a surficial mineral deposit formed by mechanical concentration of
mineral particles from weathered debris
PLUG a vertical pipe-like body of solidified magma that represents the
conduit to a former volcanic vent
PLUNGE the inclination of a fold axis or other geological structure, measured
by its departure from the horizontal
PLUTON an igneous intrusion or a body of rock formed by the replacement of
existing rock
POLYGENETIC resulting from more than one process of formation or derived from
more than one source
PORPHYRITIC an igneous rock in which larger crystals are set in a finer
groundmass which may be crystalline or glassy or both
PORPHYRY an igneous rock of any composition that contains conspicuous larger
fully-formed crystals in a fine-grained groundmass;
PORPHYRY COPPER a copper deposit in which the copper-bearing minerals occur as
disseminated grains and/or veinlets through a large volume of rock
PROTEROZOIC the more recent division of the Precambrian
PROXIMAL a sedimentary deposit consisting of coarse clastics and formed
nearest the source area
PYROCLASTIC clastic rock material formed by volcanic explosion or aerial
expulsion from a volcanic vent
PYRRHOTITE a common reddish-brown hexagonal iron sulfide mineral
PYRITE a common, pale-bronze or brass-yellow, isometric iron sulfide mineral
QUARTZ crystalline silica; silicon dioxide
QUARTZ DIORITE a group of plutonic rocks having the composition of diorite but
with an appreciable amount of quartz
QUARTZ MONZONITE intermediate intrusive rock of a particular mineralogy in
which quartz comprises 10 to 50% of the felsic constituents
QUARTZITE a very hard but unmetamorphosed sandstone consisting chiefly of
cemented quartz grains
RADIOMETRIC SURVEY survey using a radiation-measuring instrument, usually to
detect specific elements in the ground
REFRACTORY ORE an ore from which it is difficult or expensive to recover its
valuable constituents
REVERSE CIRCULATION DRILLING 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
REVERSE FAULT a thrust fault with a dip of 45" or less in which the hanging
wall appears to have moved upward relative to the footwall
SANDSTONE a medium-grained sedimentary rock composed of abundant fragments of
sand size set in a fine-grained matrix of silt or clay
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
SCHIST a strongly foliated crystalline rock formed by dynamic metamorphism
SERICITE a white fine-grained potassium mica which results from the alteration
of various rock-forming minerals
SHALE a fine-grained detrital sedimentary rock formed by the consolidation of
clay, silt, or mud, and characterized by finely stratified structure
SHEAR ZONE a tabular zone of rock that has been crushed and brecciated by many
parallel fractures due to shear strain
SHEAR a 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 in a craton commonly with a very
gently convex surface, surrounded by sediment-covered platforms SILICEOUS a
rock containing abundant silica
SILICIFIED the introduction of, or replacement by silica, generally resulting
in the formation of fine-grained quartz
STOCK an igneous intrusion that is less than 100 square kilometers in surface
exposure
STOCKWORK a mineral deposit in the form of a network of veinlets diffused in
the country rock
STRATIFORM having the form of a layer, bed, or stratum; consisting of roughly
parallel bands or sheets
STRIKE the direction or trend that a structural surface, e.g. a bedding or
fault plane, takes as it intersects the horizontal
STRIKE-SLIP the component of the movement or slip that is parallel to the
strike of the fault
STRINGER a mineral veinlet or filament occurring in a discontinuous pattern in
the host rock
STRIP to remove overburden in order to expose ore
SUBPARALLEL somewhat parallel
SUPERGENE a mineral deposit or enrichment formed by descending solutions
SUPERGROUP a formally named assemblage of related groups, or of formations and
groups, having significant lithologic features in common
SUPRACRUSTAL rocks that overlie the basement
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SURFICIAL situated, formed, or occurring on the Earth's surface
SYNCLINE a concave upward fold, the core of which contains the
stratigraphically younger rocks
TONALITE a rock similar to quartz diorite
TOURMALINE a group of minerals commonly found as an accessory mineral in
coarse-grained granitic rocks widely distributed in acid igneous rocks,
metamorphic rocks, and clay slates
TUFF a compacted pyroclastic deposit of volcanic ash and dust that may or may
not contain up to 50% sediments such as sand or clay
ULTRAMAFIC an igneous rock composed chiefly of mafic minerals
VEIN a thin, sheetlike igneous intrusion into a crevice
VLF-EM SURVEY Very Low Frequency ElectroMagnetic Survey: a survey utilizing a
worldwide-generated radio signal
VOLCANICLASTIC a clastic rock containing volcanic material in whatever
proportion, and without regard to its origin or environment
VOLCANICS those igneous rocks that have reached or nearly reached the Earth's
surface before solidifying
WALL ROCK the rock enclosing 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
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20
FIGURE 1
Map of "GOLDEN STAR RESOURCES LTD - OPERATIONS IN SOUTH AMERICA," showing
specific project locations in Guyana, Suriname, French Guiana, Brazil and
Bolivia.
20
21
FIGURE 2
Map of "PAN AFRICAN RESOURCES CORPORATION - OPERATIONS IN AFRICA," showing
specific project locations in Ivory Coast, Mali, Gabon, Eritrea, Ethiopia and
Kenya.
21
22
ITEM 2. DESCRIPTION OF PROPERTIES
The following contains certain forward-looking statements within the meaning of
the Reform Act. 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.
GENERAL
As of March 14, 1997, the Company owned, or had entered into agreements to
acquire, direct and indirect, interests in mineral properties located in the
following countries:
In South America: In Africa:
# Guyana # Kenya
# French Guiana # Ivory Coast
# Suriname # Mali
# Bolivia # Eritrea
# Brazil # Gabon
# Sierra Leone
# Ethiopia
All of the properties in which the Company had an interest as of March 14,
1997, are situated in geologic domain 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 Australian Shield of
Western Australia, the African Shield of west Africa and the Guiana and
Brazilian Shields of northern South America. The Company currently has active
projects in the greenstone belts of the Guiana Shield (Guyana, Suriname, and
French Guiana), the Brazilian Shield (Bolivia and Brazil), the West African
Shield (Mali and Ivory Coast) and other greenstone belts in Eritrea, Kenya and
Ethiopia. As a result of the Company's regional exploration activity for gold
in the Guiana Shield, a regional exploration program was also established to
search for possible primary diamond sources. So far, the diamond exploration
program has led to the identification of diamond targets in French Guiana and
Guyana. Regional geophysical surveys conducted in Suriname and Ivory Coast
have also led to the identification of targets in countries which have the
potential to contain diamond bearing structures. The location of the Company's
interests in South America and Africa are illustrated in Figures 1 and 2 above,
respectively.
Gold exploration and mining have, in the past, been conducted within most of
the areas where the Company's properties are located. However, the areas have
comparatively few large scale mining operations, due in some cases to a
difficult physical environment, poor infrastructure, and until recently,
adverse political and business conditions. Though there are, or have been,
numerous artisanal mining operations scattered throughout the areas where the
Company's properties are located, with a few exceptions, these areas have
generally not yet been fully explored using modern techniques and equipment.
All of the Company's mineral properties are located in developing countries,
with the exception of Brazil and French Guiana, a Departement of France. 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
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regimes and the manner in which mineral 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 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 and maintained from the applicable government 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 under 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 certain mineral
rights if it determines that it will not be able to profitably exploit any
anticipated mineral discovery under existing laws and regulations. (See "Item
1. Risk Factors - "Risks of Foreign Operations" and "Requirements for Permits
and Licenses".")
Total consolidated expenditures and property abandonment for the various
exploration projects for the fiscal year ended December 31, 1996 were as
follows:
Deferred Proceeds Property Deferred
Exploration Joint From Abandon- Exploration
Expenditures Capitalized Capitalized Venture Sale of ments/ Expenditures
In Thousands of Dollars as at Exploration Acquisition Recov- Property write- as at
12/31/95 Expenditures Expenditures eries Interest downs 12/31/96
------- ------ --- ------ ---- ---- -------
GUYANA (1)
Eagle Mountain $ 38 36 37 - - - $ 111
Quartz Hill 1,347 - - - - - 1,347
Upper Potaro Diamond /
Amatuk Diamond 836 137 37 - - - 1,010
Mazaruni /
Upper Mazaruni Diamond 2,028 480 221 - - - 2,729
Wenamu Gold 512 - - - - - 512
Five Stars Gold 3,651 1,639 477 - - - 5,767
Five Stars Diamond 389 668 40 - - - 1,097
BHP Gold Projects - 281 - (130) - - 151
Guyana Diamond Permits - 27 - - - - 27
Other 1,171 214 - - - (9) 1,376
------- ------ --- ------ ---- ---- -------
Sub-total 9,972 3,482 812 (130) - (9) 14,127
------- ------ --- ------ ---- ---- -------
SURINAME (1)
Benzdorp / Lawa 2,842 499 - - - - 3,341
Gross Rosebel 6,286 7,777 450 (5,019) - - 9,494
Headley's Right of 311 - - - - - 311
Exploration
Thunder Mountain 405 48 - - - - 453
Saramacca 1,255 547 - (233) - - 1,569
Sara Kreek 131 306 75 (357) - - 155
Tempati Reconnaissance - 421 135 (395) - - 161
Tapanahony Reconnaissance - 300 75 (289) - - 86
Kleine Saramacca - 98 20 (14) - - 104
Lawa Antino - 764 - - - - 764
Suriname Diamond Projects - 295 15 - - - 310
Ulemari Reconnaissance - 151 - (98) - - 53
Other Exploration - 20 - - - - 20
Other 226 6 - - - - 232
------- ------ --- ------ ---- ---- -------
Sub-total 11,456 11,232 770 (6,405) - - 17,053
------- ------ --- ------ ---- ---- -------
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Deferred Proceeds Property Deferred
Exploration Joint From Abandon- Exploration
Expenditures Capitalized Capitalized Venture Sale of ments/ Expenditures
In Thousands of Dollars as at Exploration Acquisition Recov- Property write- as at
12/31/95 Expenditures Expenditures eries Interest downs 12/31/96
------- ------- ------ -------- ----- -------- -------
FRENCH GUIANA (2)
(GUYANOR RESSOURCES S.A.)
Dorlin 609 990 - (971) - - 628
St-Elie 1,973 2,386 21 (2,407) - - 1,973
Dieu-Merci - - 382 - - - 382
Yaou 6,991 1,100 - (1,004) - - 7,087
Paul-Isnard / Eau Blanche 3,629 1,459 - (1,459) - - 3,629
SOTRAPMAG 1,161 1,485 - - - (1,126) 1,520
Dachine 449 1,179 - (1,053) - - 575
Other 1,295 36 - - - - 1,331
Diamond Projects - 243 - (39) - - 204
------- ------- ------ -------- ----- -------- -------
Sub-total 16,107 8,878 403 (6,933) - (1,126) 17,329
------- ------- ------ -------- ----- -------- -------
AFRICA (3)
(PAN AFRICAN
RESOURCES CORPORATION)
Gabon / Eteke 5,247 656 - - (640) (5,263) -
Ivory Coast / Comoe 2,859 1,092 - - - - 3,951
Mali / Dioulafoundou 1,940 680 143 - - - 2,763
Mali / Melgue - 56 - - - - 56
Mali / Other - 30 - - - - 30
Ethiopia / Dul 2,635 1,315 17 - - (3,967) -
Eritrea / Galla Valley 426 883 8 - - - 1,317
Eritrea / Other - 55 - - - - 55
Kenya / Ndori - 301 600 - - - 901
Other - 53 - - - - 53
------- ------- ------ -------- ----- -------- -------
Sub-total 13,107 5,121 768 - (640) (9,230) 9,126
------- ------- ------ -------- ----- -------- -------
LATIN AMERICA (4)
(SOUTHERN STAR RESOURCES
LTD.)
Brazil / Andorinhas 123 2,286 1,138 - - - 3,547
Brazil / Abacaxis 162 966 247 - - - 1,375
Brazil / Other 129 454 - - - - 583
Bolivia / San Simon 205 610 43 - - - 858
Bolivia / Sunsas 6 165 50 - - - 221
Bolivia / Other 167 287 48 - - - 502
------- ------- ------ -------- ----- -------- -------
Sub-total 792 4,768 1,526 - - - 7,086
------- ------- ------ -------- ----- -------- -------
OTHER 13 (13) - - - - -
------- ------- ------ -------- ----- -------- -------
TOTAL $51,447 $33,468 $4,279 $(13,468) $(640) $(10,365) $64,721
------- ------- ------ -------- ----- -------- -------
(1) A division of Golden Star Resources Ltd.
(2) Approximately 68% owned by the Company as of March 14, 1997.
(3) Approximately 58% owned by the Company as of March 14, 1997.
(4) Wholly owned by the Company.
The following is a description of the mineral property interests held by the
Company and its subsidiaries as of March 14, 1997, in (i) Guyana, (ii)
Suriname, (iii) French Guiana (Guyanor), (iv) elsewhere in Latin America
(Southern Star), and (v) in Africa (PARC).
GUYANA PROPERTIES
GENERAL
The Co-operative Republic of Guyana ("Guyana"), a former British colony,
obtained independence in 1966. It has a surface area of 216,000 km(2) with a
population of approximately 750,000. 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 English common law.
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PRODUCING PROPERTY: OMAI MINE
The Company owns a 30% common share equity interest in OGML, the company which
owns and operates the Omai Mine. The mine is located on a 52 km(2) mining
license on the Essequibo River, approximately 160 km southwest of Georgetown,
Guyana. The mine is operated as an equity joint venture of the Government of
Guyana, the Company and Cambior, the operator. Cambior and the Government of
Guyana own 65% and 5% of OGML, respectively. 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), 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 5% in-kind royalty from the Omai Mine. It also
provides that capital and profits may be repatriated without restriction.
Pursuant to the articles of incorporation of OGML, the Government of Guyana was
granted the option 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 from 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, at a price to be
established based upon the then current capital market values of the common
shares of OGML. The Company and Cambior have each undertaken to sell and
deliver to the Government of Guyana one-half of the total number of common
shares of OGML required to be sold to the Government of Guyana upon exercise of
the options mentioned above. 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%. Pursuant to the articles of incorporation
of OGML, the Company is entitled to reimbursement of the sum of $11.0 million,
representing exploration expenses incurred since 1985, directly or indirectly
by the Company, its predecessors or by former joint venture partners, prior to
any distribution to the common shareholders of OGML. The Company is entitled
to receive 10% of net cash flow from operations of OGML (as defined in the Omai
Mineral Agreement). This amount is calculated and paid quarterly to the
Company by way of redemption of the preferred shares of OGML held by the
Company. During the fiscal years ended December 31, 1993, 1994, 1995, and
1996, the Company received $413,000, $1,005,000, $1,209,467, and $1,144,876
respectively, by way of redemption of Class I preferred shares. 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, 1996,
OGML had $174.3 million in debt and a total of 53.2 million in Class II and
III preferred shares outstanding.
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. The report of a Commission of Inquiry appointed by the
Government of Guyana was submitted on January 8, 1996, and stated that the
Commission of Inquiry could see no justifiable reason for OGML not being
permitted to resume production at the Omai Mine. The
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Commission of Inquiry also made a number of recommendations in its report
relating, among other things, to the construction of the new tailings pond, the
treatment of water before its release into receiving waters and the
implementation of other environmental safeguards. Production at the Omai Mine
was suspended from August 19, 1995, until February 4, 1996.
As a consequence of the Omai tailings dam failure, OGML was as of March 7, 1997
named as a defendant in approximately 500 civil proceedings in Guyana. Such
proceedings are currently being settled, without admission of liability, or
being contested in good faith, as applicable. Amounts claimed under currently
instituted proceedings against OGML do not exceed $1.5 million in the aggregate
and insurance coverage may be available to OGML in relation to a substantial
portion of these claims.
OGML and its shareholders, including the Company, may become involved as
defendants, plaintiffs or otherwise in a variety of additional legal
proceedings in Guyana or elsewhere in relation to this incident. There can be
no assurance that such additional litigation will not result in material
additional costs arising from out-of-court settlements, damage awards or other
sanctions against OGML or the Company. Moreover, there can be no assurance
that all or any of such additional costs will be covered by appropriate
insurance.
Operations at the Omai Mine resumed on February 4, 1996, after the Government
of Guyana and OGML executed an agreement authorizing OGML to recommence
commercial production at the Omai Mine in accordance with the terms of the
Mineral Agreement and the Mining License issued to OGML. Under the terms of
the agreement to resume production, OGML agreed to: provide an independent
geotechnical review of the new tailings pond constructed at the Omai Mine;
install additional equipment to ensure compliance with the original discharge
criteria set forth in the Project Environmental Impact Statement dated January
1991; study alternative technologies for cyanide reduction and plan and
implement a public education program regarding cyanide; comply with new
environmental legislation to be enacted by the Government of Guyana; conduct
additional environmental monitoring of tailings, surface and ground waters;
provide technical and financial assistance to the Government of Guyana,
including the allocation of $0.1 million for laboratory equipment for
environmental monitoring purposes; cooperate in the creation of a National
Disaster Response Agency or similar body; prepare a closure plan in connection
with the ultimate cessation of operations at the Omai Mine and for the
reclamation of the original tailings pond together with appropriate measures to
ensure the adequate funding of such closure plans; and create a Consultative
Committee regarding environmental matters.
The primary direct financial impact of the Omai incident on the Company was the
deferral of approximately $1.0 million of expected preferred share redemptions
in 1995.
The Omai Mine was brought into commercial production in January 1993 and
currently is the Company's only significant producing property. Gold
production for 1993, 1994 and 1995 totaled 206,537 oz, 250,642 oz and 175,080
oz of gold, respectively. Gold production in 1996 of 254,950 oz was lower than
the budgeted amount of 276,030 oz due primarily to the August 19, 1995 tailings
dam failure and resulting reduced levels of production in early 1996 although
production consistently improved during every quarter in 1996. The mine
achieved record quarterly and monthly production of 92,834 oz of gold in the
fourth quarter of 1996 and 35,403 oz in December 1996. The commissioning of
the expanded mill facilities in the third quarter of 1996 contributed to higher
production levels.
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Quarterly gold production at the Omai Mine(1) for 1996 was as follows:
First Second Third Quarter Fourth Total
Quarter (2) Quarter Quarter 1996 (2)
- -----------------------------------------------------------------------------------------------------------------
Tonnage milled 725,203 1,160,413 1,679,890 1,881,248 5,446,754
Rate (t/day) 12,950 12,752 18,260 20,448 16,455
Grade (g/t) 1.6 1.8 1.6 1.7 1.7
Recovery (%) 85% 89% 92% 93% 91%
Gold production (oz) 27,204 57,987 76,925 92,834 254,950
Cash cost of production $294 $281 $233 $238 $252
(1) The Company has a 30% equity interest in OGML which owns the Omai Mine.
(2) There was no production at the Omai Mine from August 19, 1995 to February
4, 1996, due to the Omai dam failure.
(3) Cash cost of production includes mining and milling costs, power generation
and general services charges.
In 1996, OGML completed its mill expansion program at the Omai Mine at an
approximate cost of $51.0 million, $7.0 million below budget, adding a
semi-autogenous ("SAG") grinding mill and two ball mills to increase rated
daily processing capacity from 12,000 tonnes to 18,000 tonnes per day.
Moreover, electric generation at the mine was enhanced with the installation of
additional generators for an 87% increase in power potential. OGML also
completed a new tailings pond and waste water treatment facility at the mine.
Excess process water is treated at the facility in accordance with
environmental standards of Guyana, the United States and Quebec, Canada, prior
to discharge into the Essequibo river.
Ore reserves at the Omai Mine are derived from four sources: the Fennell pit,
the Wenot Lake pit, the alluvial deposits and stockpiles. In 1996, ore was
processed from the Fennell pit, the Wenot Lake pit, alluvial deposits and the
stockpiles. The average mined waste to ore ratio for 1996 was 2.2. Cash costs
at the Omai Mine for 1996 and 1995 amounted to $252 and $224 per oz produced,
respectively.
At December 31, 1996, proven and probable reserves totaled 66,612,000 tonnes
grading 1.5 g Au/t representing 3,207,600 oz of contained gold.
December 31, 1996 December 31, 1995
--------------------------------------------- --------------------------------------------
Proven and Proven and
Probable Probable
Reserves Grade Contained Reserves Grade Contained
(tonnes) (1) (g Au/t) Gold (oz) (tonnes) (1) (g Au/t) Gold (oz)
-------------------------------------------------------------------------------------------
Fennell Pit 40,427,000 1.6 2,054,800 43,450,000 1.6 2,217,800
Wenot Lake Pit 15,559,000 1.7 859,500 14,127,000 1.6 708,100
Alluvials 1,119,000 0.9 34,900 1,237,000 0.9 38,100
Stockpiles 9,507,000 0.8 258,400 10,094,000 0.9 296,600
-------------------------------------------------------------------------------------------
TOTAL 66,612,000 1.5 3,207,600 68,908,000 1.5 3,260,600
===========================================================================================
(1) Reserves are calculated using a gold price of $425 per ounce with a cutoff
grade of 0.35 g Au/t for soft rock reserves and 0.70 g Au/t for hard rock
reserves. Recovery rates range between 85% and 90%, depending on grade.
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EXPLORATION PROPERTIES
Total exploration expenditures in Guyana during 1996 amounted to $4.3 million,
including $0.1 million reimbursed by the Company's joint venture partners.
Total budgeted 1997 exploration, acquisition and reconnaissance expenditures in
Guyana are $7.5 million, including budgeted joint venture recoveries of $1.1
million.
QUARTZ HILL AND OMAI RIVER
In January 1997, OGML was awarded prospecting licenses with respect to the
Quartz Hill and the Omai River areas adjacent to the Omai Mine permit area. A
budget of $1.0 million to be funded by OGML has been allocated in 1997, to
conduct data compilation, line cutting, reconnaissance mapping and geophysical
and geochemical surveys on these properties as well as the Omai Mine license.
The Quartz Hill property, located 3 km west of the Omai Mine, covers
approximately 52 km(2). The Quartz Hill Prospecting License was previously
acquired by the Company through the Amalgamation with South American. The
Company carried out exploration work on Quartz Hill from 1992 through 1996. To
consolidate exploration and possible development of the Quartz Hill area with
the adjacent Omai property, the Company entered into a letter agreement in 1995
with OGML whereby the Company relinquished all of its right, title and interest
in the Quartz Hill prospecting license in exchange for a beneficial interest in
any prospecting license granted to OGML with respect to the same area. Under
the agreement, OGML may acquire 100% of the Company's beneficial interest by
either: (i) making quarterly payments to the Company equal to 25% of net cash
flow generated from mining activity on the Quartz Hill property; or (ii)
issuing to the Company, upon commencement of production at Quartz Hill,
1,386,000 Class IV Preference Shares with a par value of $1.00 per share, i.e.,
the equivalent of the approximate historical book value of the Company's
investment in the Quartz Hill property. Such shares would be fully redeemable
in equal quarterly installments during the 36-month period following
commencement of commercial production from Quartz Hill.
The 1997 exploration program for the Omai Mine and these two adjacent
properties includes 3,500 m of development drilling to delineate economic zones
in soft rock at the mine and 2,000 m of core drilling at Quartz Hill.
Execution of a definitive agreement between Cambior, OGML and the Company is
subject to execution of an acceptable mineral agreement with the Government of
Guyana regarding the Quartz Hill and Omai River properties. This agreement is
subject to approval by the Board of Directors of OGML, and, for certain
matters, approval of OGML's shareholders. There can be no assurance that an
acceptable mineral agreement will be obtained from the Government of Guyana.
FIVE STARS GOLD AREAS, AND UPPER MAZARUNI AND UPPER POTARO DIAMOND AREAS
During 1996, the Government of Guyana granted to the Company 15 prospecting
licenses for gold, precious metals and diamonds in northwestern Guyana. Each
prospecting license covers an area of approximately 5,200 ha. Opposition to
the grant of five of the Company's 15 prospecting license applications was made
by a timber company claiming to have, under a previous agreement with the
Government of Guyana, rights of first refusal to the grant of such licenses.
Subsequently, an agreement was reached between the Company and the timber
company pursuant to which the timber company was granted the option to either
receive a 5% net profit interest or purchase up to a 20% undivided
participating interest in any entity formed for the exploitation of the five
prospecting licenses. The objections were dropped. The term of each license
is three years, renewable twice for a
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period of up to one year each. The minimum expenditures commitment for the
first year work program on each license varies between $0.1 million and $0.2
million.
The Properties
The Five Stars gold area is underlain by the Barama-Mazaruni supergroup of
greenstone rocks. The typical rock types are metavolcanic, ranging from felsic
to mafic flows, and intrusives, and include pyroclastic and volcaniclastic
units. The metavolcanics are interstratified with a range of clastic,
manganiferrous and carbonaceous metasediments. These units are intruded by
small granitoid stocks, some of which are sub-volcanic porphyries associated
with felsic volcanism. Others are cupolas of larger underlying granitoid
intrusives. The Barama-Mazaruni supergroup of rocks are continuous across
Guyana's western border and into Venezuela where, as a result of better access
and infrastructure, there are many known gold occurrences.
The Upper Mazaruni and Upper Potaro diamond areas are, for the most part,
underlain by Roraima Supergroup sedimentary and metasedimentary rocks which
have historically been regarded as the source of alluvial diamond deposits. In
addition, the areas are located over the sites of intersecting crustal
extension zones. The alluvial diamond deposits found throughout the Guiana
Shield are generally regarded as having been derived from the degradation of
the conglomeratic horizons within the 2,000 m thick sediments of the Roraima
Formation.
Gold Exploration Work Program
During 1996, follow-up exploration was conducted over anomalous areas identified
during the 1995 reconnaissance program on 13 prospecting licenses located in the
Five Stars reconnaissance block. Soil sampling, totaling approximately 4,000
samples, was conducted on 800 meter by 100 m grids, augmented by stream sediment
sampling. Significant (+50 ppb) gold anomalies were identified on seven
prospecting licenses within the Five Stars area which warrant further follow-up
work. No significant gold anomalies were identified on six of the Five Stars
prospecting licenses, which are of primary interest for continued diamond
exploration. On the Fish Creek One prospecting license deep augering and core
drilling was conducted to test for depth extension of a major gold anomaly
covering an area approximately 1,000 by 5,000 m. This work included tighter
spaced soil sampling, deep augering, totaling 466 auger holes, and 17
exploratory core drill holes totaling 2,285 m. To date, the work at Fish Creek
One has failed to identify a near surface locus of gold mineralization that
could account for the significant gold anomaly previously identified. At the
Whana East prospecting license to the west of Fish Creek One, a 400 by 50 m
auger grid was established involving 1,596 two meter auger holes, which
identified a significant anomaly measuring approximately 500 by 2,400 m.
The work program for 1997 involves follow-up work on the Fish Creek One, Whana
East, Whana West, Rocky River, Erakiri, and Makapa prospecting licenses, all
located within the Five Stars area. Detailed soil sampling on 200 by 50 m
grids is planned to confirm anomalies identified on 800 by 100 m grids. Deep
auger programs will be conducted on gold anomalies resulting from the detailed
soil sampling programs. Additional core drilling is anticipated at Fish Creek
One to test for the potential of a primary source of gold mineralization at
depth.
Diamond Exploration Work Program
During 1996, diamond exploration was conducted over six prospecting licenses in
the Five Stars, Upper Mazaruni and Upper Potaro areas of north western Guyana.
In addition, the Company's diamond
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exploration group, based in Guyana, conducted initial field reconnaissance and
follow-up programs on three prospective diamond areas in Suriname, eight areas
in French Guiana and assisted in the evaluation of prospective diamond targets
in Cote d'Ivoire, west Africa. Work consisted primarily of stream sediment and
soil sampling for heavy mineral examination, limited bulk sampling of potential
diamond bearing rock and limited core drilling. Kimberlitic chromites were
discovered on five of the areas explored in Guyana, while two areas yielded
diamonds.
On one prospecting license in the Five Stars area, three diamond anomalies
ranging in size from less than 1 to 4 ha. were investigated by core drilling,
totaling approximately 1,000 m in nine holes, three holes on each target.
Examination of the drill core from two of the three targets indicated diatreme
and crater facies metamorphosed kimberlite. Two diamonds and a significant
number of diamond indicator minerals were recovered from caustic fusion
processing of drill core at Lakefield Laboratories in Toronto, Canada. The
three targets drilled are part of a cluster of up to 70 potential kimberlites
on the basis of the interpreted geophysical survey previously conducted.
During 1997, follow-up work is anticipated on the five areas in Guyana which
yielded kimberlitic chromites and/or diamonds. Additional work on another five
areas will be conducted, depending upon positive results from sampling programs
completed in late 1996. The 1997 programs are anticipated to involve
additional stream sediment and soil sampling, small scale bulk sampling, ground
geophysical surveys to better locate potentially diamond bearing bodies, and
finally core drilling to test select targets to obtain fresh rock samples for
analysis.
GUYANA RECONNAISSANCE PROJECT
BHP Minerals International Exploration Inc. ("BHP") was granted a two-year
non-renewable reconnaissance permit on June 19, 1996, for all minerals
(excluding bauxite in those areas where prospecting licenses for bauxite
already exist) covering three areas totaling approximately 2.5 million acres in
Guyana. Under the terms of the reconnaissance permit, BHP is entitled to apply
for prospecting licenses for precious metals and precious stones by June 19,
1998 covering up to 10% of the original area of the reconnaissance permit.
Pursuant to a Heads of Agreement dated July 22, 1996, the Company and BHP
formed a joint venture to conduct an evaluation of minerals located within the
permit area (excluding diamonds and iron ore.) The Company holds a 40%
participating interest in the joint venture and BHP holds a 60% participating
interest. BHP and the Company are participating jointly in all operations on
the basis of their respective participating interests, and failure by either
company to advance its share of funds will result in dilution of its
participating interest. BHP and the Company each may withdraw from the joint
venture upon 30 days' notice. BHP is the manager of the project. The Company
will, however, carry out exploration programs approved by the joint venture
until completion of a feasibility study.
Work program
During the latter half of 1996, the Company completed a bulk leach geochemistry
("BLEG") sampling program over most of all the three areas with a sampling
density of approximately one sample per 15 km(2). Anomalous gold targets were
identified on Area 1 located North of the Company's Five Stars area and in the
western sector of Area 3. No significant anomalous gold targets warranting
follow-up work were identified on Area 2.
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The program during 1997 will focus on better defining anomalies in Area 1
defined by the first phase of the BLEG survey. The second phase of work
involves continued, and more densely spaced BLEG sampling. Results of the
second phase of BLEG sampling will determine further follow-up programs.
SURINAME PROPERTIES
GENERAL
The Company is currently active in many gold exploration projects in The
Republic of Suriname ("Suriname"). These include, among others, the Gross
Rosebel, Headley's, Thunder Mountain, Saramacca, Kleine Saramacca, Antino, De
Goeje, Yau Passi, Sara Kreek East Rights of Exploration and Sipaliwini Rights
of Reconnaissance. Individual properties range from early to advanced stage
exploration.
Suriname, a former Dutch colony, became independent in 1975. It has a surface
area of 163,000 km(2), a tropical climate, and a population of approximately
470,000. The official language is Dutch with English spoken as a second
commercial and technical language. Suriname has a democratically elected
government.
During 1996, the Company incurred total exploration expenditures in Suriname of
$12.0 million, including $6.4 million reimbursed by the Company's joint venture
partners. Total 1997 budgeted exploration and acquisition expenditures are
$10.2 million, including $4.5 million budgeted for joint venture recoveries.
In addition, the Company has budgeted to incur mine development expenditures in
1997 of $14.0 million with respect to Gross Rosebel.
GROSS ROSEBEL
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 a state mining company, Grasshopper Aluminum Company
("Grassalco"), Grassalco assigned to the Company its interest in the Gross
Rosebel Right of Exploration, which covers exploration rights to a 170 km(2)
area in north-central Suriname. The Gross Rosebel Agreement was ratified by the
National Assembly of Suriname on March 1, 1994.
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 May 8, 1992, as follows: $0.3 million in the first year,
$0.5 million in the second year, $1.2 million in the third year, $1.5 million
in the fourth year and $4.5 million in the fifth year. Through December 31,
1996, the Company had spent approximately $21.1 million on the Gross Rosebel
property and, as a result, fulfilled its expenditure requirement. Of the
amounts expended by the Company, Cambior has contributed $11.6 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 pursuant to the terms of the Gross
Rosebel Agreement $1.0 million to Grassalco. The Company is required to submit
a feasibility study and environmental impact statement to the Government of
Suriname by May 8, 1997.
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 a period not exceeding 25 years.
Prior to the issuance of a Right of Exploitation, an operating company
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(the "Operating Company") would be formed to develop and operate a mine on the
Gross Rosebel property in accordance with the terms of the Gross Rosebel
Agreement. Within 30 days of the grant of the Right of Exploitation, the
Company is obligated to pay to Grassalco the 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, plus 20% of all
subsequently incurred unfinanced capital 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.
The Gross Rosebel Agreement provides that a royalty of two percent of the gold
produced from the Gross Rosebel property is payable in kind to Grassalco for
the life of the project. 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 within 90 days of
receipt of the first proceeds from the sale of minerals at Gross Rosebel and a
further $6.5 million will be due 12 months later. Further, in the event the
price of gold exceeds $500 per oz, Grassalco is entitled to an additional 6.5%
royalty on that portion of the sales price which exceeds $500 per oz.
The Cambior Joint Venture
The Company 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. Cambior
became eligible to exercise its option 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 option agreement, Cambior has
funded a further $2.5 million in expenditures. Since April 1996, the Company
and Cambior have been contributing equally in the expenditures on the Gross
Rosebel property.
Under the option agreement, Cambior must use its best efforts to secure
financing of at least 65% of eventual mine development costs from third
parties. Cambior has assumed managerial responsibility for the preparation of
a feasibility study. Cambior will also, if warranted, assume managerial
responsibility for subsequent mine development and operation of the project.
The Company continues to manage the exploration programs for the Gross Rosebel
property.
A feasibility study is currently being finalized to be submitted to the
Government of Suriname on or before May 8, 1997. The Company and Cambior are
currently negotiating with the Government and representatives of the Niew Koffie
camp village about the relocation of the village outside of the Gross Rosebel
property. There can be no assurance that these negotiations will not delay the
grant of the Right of Exploitation to the Operating Company.
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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, Suriname. 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 that time 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 reverse circulation 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.
The Gross Rosebel Right of Exploration 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.
Work Program
The 1996 exploration program focused on diamond drilling, with both infill and
exploration holes totaling over 40,000 m (in excess of 80,000 m in 720 holes
since the start of the program in 1992) with approximately 26,000 core samples
assayed. Infill drilling in Pay Caro, East Pay Caro, Koolhoven, Bigi
Asanjangmoni and Royal Hill defined the preliminary open pits and increased
gold reserves. Exploration drilling, combined with 7,400 trench samples from
over 27,700 m of trenching, uncovered several additional gold-mineralized shear
zones, to the west of Pay Caro, to the south of the main zone in Koolhoven, in
"J" Zone, and at the Mama Kreek and Spin Zone prospects. Pre-feasibility work
delineated possible location for the tailings pond and mill site. Condemnation
drilling was initiated, followed by geotechnical drilling and test pitting.
As part of a pre-feasibility study completed in April 1996, Cambior calculated
proven and probable gold reserves of approximately 24 million tonnes grading
1.4 g Au/t, representing 1.1 million oz in situ. These reserves lie in the
South block, containing the Royal Hill, Mayo and Rosebel deposits, and the
North block, containing the Pay Caro and Koolhoven deposits. On September 26,
1996, the Company and Cambior announced a new mining reserve that resulted in
an overall improvement in reserve grade as well as a slightly lower stripping
ratio and expanded the proven and probable mining
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reserve base by approximately 25%, to over 30 million tonnes grading 1.5 g
Au/t, or approximately 1.4 million oz of gold in situ. There can be no
assurance that this reserve calculation will be confirmed by the final
feasibility study.
Reconnaissance work during 1996 involved approximately 300 km of line cutting
to extend the one-meter auger grid to cover all of the North Limb prospects,
with 1,300 holes sampled. Follow-up deep augering over soil anomalies provided
4,900 samples, and defined targets for trenching and diamond drilling. During
1996, the Company spent approximately $8.2 million on continued exploration
expenditures and property payments, with $5.0 million contributed by Cambior.
The 1997 work program involves the continuation of intensive core drilling
through to completion of the Gross Rosebel Project final feasibility study.
Infill and pit definition drilling, anticipated to total approximately 13,500
m, will be concentrated at Koolhoven, Bigi Asanjangmoni and "J" Zone. The
Noutoe zone will be tested by a series of trenches and an additional 1,750 m of
trenching is planned for the Royal Hill zone. Ground geophysical surveys
totaling 300 line km will help delineate future drill targets along the entire
mineralized trend between Koolhoven and East Pay Caro. Condemnation and
geotechnical drilling will be completed at the tailings pond, dump, plant and
stockpile sites. A detailed topographic survey of the Gross Rosebel
concessions is planned, requiring 170 km of line cutting.
Surficial exploration is planned with detailed soil sampling over Monsanto Hill
involving 6 km of line cutting and 220 samples. Pending positive results,
follow-up deep augering and trenching will be carried out. Reconnaissance
sampling is planned to cover newly-acquired ground between the north and south
limbs of the concession as well as the area between Mayo and Royal Hill to the
southern granite contact of the large tonalitic stock to the south. A total of
100 km of line cutting and 2,000 soil samples have been budgeted for both
areas.
Gross Rosebel is the most advanced of the Company's exploration projects. The
objective of the 1997 work program is to continue exploration required to
complete the final feasibility study for a full scale mining operation and to
initiate construction.
KLEINE SARAMACCA, SARAMACCA, THUNDER MOUNTAIN AND HEADLEY'S RIGHTS OF
EXPLORATION
On November 25, 1996, the Company entered into a preliminary option agreement
with Mr. Lafantie regarding the Kleine Saramacca Right of Exploration covering
approximately 198 km(2) (19,780 ha.). In order to maintain its rights under the
option, the Company must (i) make aggregate annual payments over a five-year
period totaling $280,000 and (ii) incur expenditures on the property of up to a
total amount of $3.5 million. Such minimum expenditure requirements are
conditional upon the optionor executing a mineral agreement with the Government
of Suriname satisfactory to the Company. Upon exercise of the option, the
Company will earn a 100% interest in the mineral rights to the Kleine Saramacca
property, subject to governmental approval and a 12% net profit interest being
retained by the optionor. The Company may elect to terminate the option at any
time without further liabilities or obligations.
Pursuant to a decree dated March 7, 1992, the Government of Suriname granted to
the Company the Headley's Reef Right of Reconnaissance, covering an area of
approximately 2,022 km(2) (202,200 ha.), for a period of two years. On April 6,
1994, the Headley's Reef Right of Reconnaissance was converted into three
Rights of Exploration covering in the aggregate an area of approximately 1,000
km(2) (100,000 ha.). The three Rights of Exploration are now referred to as
Saramacca, Thunder Mountain and Headley's. They were granted for an initial
period of three years ending in April 1997
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and may be extended until 2001. An application for a two-year extension of the
three Rights of Exploration was filed in March 1997. Under the terms of the
Rights of Exploration, the Company has committed to spend $0.6 million during
that three-year period on each Right of Exploration granted. As at March 14,
1997, the Company had only spent the required minimum expenditures on the
Saramacca Right of Exploration. Therefore, there can be no assurance that the
Thunder Mountain and Headley's Rights of Exploration will be renewed. However,
management believes that due to the significant amount of money spent on the
whole project so far, the other two Rights of Exploration should also be
renewed. At any time after governmental acceptance of a feasibility study, the
Company may apply for Rights of Exploitation for an initial period of up to 25
years.
The Company has spent an aggregate of $2.7 million as of December 31, 1996 on
the exploration programs on the Kleine Saramacca, Saramacca, Thunder Mountain
and Headley's group of properties including expenditures transferred from the
Company's prior Headley's Reef Right of Reconnaissance. The entire area was
flown on a 200 m line spacing as part of the Company's multi-country airborne
magnetic and radiometric survey. This data, in conjunction with other sources
of information, including extensive surface exploration work, has been used to
prioritize target areas within the individual Rights of Exploration.
In 1996, the Company reached an understanding with BHP pursuant to which BHP
will have a 60% participating interest and the Company a 40% participating
interest in joint ventures covering the Kleine Saramacca and the Saramacca
Rights of Exploration. BHP will be obligated to advance the Company's pro rata
share of the exploration cost through completion of a final feasibility study.
A formal joint venture agreement has not yet been executed. The Company has
recovered $0.2 million from BHP for these two projects.
KLEINE SARAMACCA
The 198 km(2) (19,780 ha.) Kleine Saramacca Right of Exploration is in the
Sipaliwini and Brokopondo districts between the Kleine Saramacca River and the
road from Paramaribo to Pokigron. It is contiguous with, and to the southeast
of, the Saramacca Right of Exploration. Access is either by road to the
eastern portion of the concession, or by boat up the Saramacca and Kleine
Saramacca Rivers. A grass airstrip south of the confluence of these two rivers
can also be used for access by air.
The Kleine Saramacca Right of Exploration is underlain in the north and central
portions by metavolcanic rocks, flanked on the southeast and southwest by
granitic and tonalitic basement rocks. The volcanics are predominantly
metabasalts and amphibolites.
Work Program
An initial reconnaissance exploration program was begun at Kleine Saramacca
during 1996, involving the completion of 129 km of line cutting and the
collection of 81 stream sediment samples from major drainages present on the
property. During 1997, information gathered from the 1996 program will be used
to plan a follow-up sediment sampling program in anomalous drainages.
Anomalies identified from the more closely spaced steam sediment sampling
program will be followed-up by grid line cutting and soil sampling to develop
targets that warrant further tested by close spaced soil sampling and augering.
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SARAMACCA
The Saramacca Right of Exploration covers approximately 382 km(2) (38,225 ha.)
in the Brokopondo, Para and Sipaliwini districts both to the east and west of
the Saramacca River, 80 to 110 km southwest of Paramaribo and 40 km west of the
Gross Rosebel Right of Exploration.
Although remote, the entire length of the Saramacca Right of Exploration can be
reached by motorized cargo canoe capable of carrying equipment up to the size
of a small bulldozer in six hours or less from the nearest road. An unimproved
dirt track is passable for heavy loads by four wheel drive trucks into the
northwestern one-third of the concession. A grass airstrip located within the
central-eastern portion of the area is suitable for small aircraft up to Twin
Otter size.
The northern two-thirds of the Saramacca Right of Exploration is underlain by
intermediate to basic metavolcanics of the Paramaca Formation intruded in
places by small tonalitic plugs. To the southwest, ultramafics of the Bemau
complex are the dominant rock type. A granite batholith is exposed within the
northern belt. A second larger granite batholith separates the northern
metavolcanics from the Bemau ultramafics. Gold mineralization within the
northern volcanics appears to be associated with both tonalitic intrusives and
basic metavolcanics. In the southwest, gold appears to be associated with the
Bemau ultramafics. Mechanized artisanal mining is present in the Saramacca
River and its tributaries within the central Brokolonko area, with several
smaller operations currently active in the Goensi area within the northern
metavolcanics.
Work Program
Work on the Saramacca property during 1995 at the Read-Pompoekampoe prospect
indicated the presence of an underlying gold-mineralized structure. Deep
augering (average depth of 9 m) on a 50x25 m spacing identified a gold-bearing
zone (with grades greater than 0.25 g/t) ranging from 25 to 200 m in width,
with a strike length of at least 700 m and open to the west. The Goensi deep
augering program defined what appears to be two converging 50 m wide
gold-mineralized zones (greater than 0.50 g/t), which have a combined strike
length of approximately 700 m.
The 1996 exploration program was designed to determine the gold potential of
areas not yet explored by the Company. A regional reconnaissance program
utilizing panned concentrate and BLEG sampling tested creeks flowing from
potential gold-mineralized areas. Field work for 1996 included 365 km of line
cutting, 1,139 one-meter soil samples, 120 deep auger holes, 31 grab samples,
17 panned concentrate stream gravel samples and 298 stream silt samples. Total
exploration spending on these areas during 1996 was $0.5 million, including
joint venture recoveries of $0.2 million.
During 1997, new targets generated in 1996 will be followed-up by closer spaced
stream sampling, grid line cutting and soil sampling. Work on existing targets
in Goensi and Brokolonko is anticipated to involve deep augering and, if
warranted, core drilling to better define zones of mineralization laterally and
at depth.
THUNDER MOUNTAIN
The Thunder Mountain Right of Exploration covers approximately 380 km(2) (37,908
ha.) in the Brokopondo and Para districts between the Suriname and Saramacca
rivers, 70 to 90 km south of Paramaribo. The property surrounds three sides of
the Gross Rosebel Right of Exploration.
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Most of the central and southwestern portion of the Thunder Mountain Right of
Exploration lies within three to six km of a system of all weather dirt roads
which traverse the Gross Rosebel area. The northwestern corner of the Right of
Exploration is accessible from the Saramacca River or from an all-weather dirt
road immediately north of the concession.
The Thunder Mountain Right of Exploration is underlain by the same
Paramaca-Armina volcanic greenstone assemblage that hosts shear and quartz vein
hosted gold mineralization in the Gross Rosebel concession. The large Brinks
tonalitic intrusive crops out within the southern portion of the concession
immediately south of the Gross Rosebel property. The airborne magnetic and
radiometric survey has defined a northwest trending regional lineament
(possibly a shear zone) just east of the Gross Rosebel property.
Work Program
Reconnaissance work during 1996 included 55 km of line cutting and
approximately 1,400 one-meter auger samples over pan sample anomalies at the
Berg en Dal, Kompanie Kreek and Dabikwen Kreek prospects. Follow-up deep
augering was carried out over a 200 x 800 m soil anomaly at Dabikwen Kreek.
Anomalous gold values were found around a late-stage diabase dike at Kompanie
Kreek. Analysis of the airborne geophysical data by a Canadian consulting
group assisted with the geological and structural interpretation of the area,
with several targets being identified for further evaluation.
Following the expected signing of a mineral agreement, multi-element stream
sediment and BLEG sampling is scheduled to be carried out in 1997 over the
Fossi Bergi and Berg en Dal - Dabikwen Savannah prospects. The planned program
involves up to 80 km of line cutting and collection of 300 stream samples.
Resulting anomalies in Fossi Bergi will be followed-up by soil sampling on an
initial 400 x 50 m grid. The grid will be reduced as soil anomalies are
delineated, with a total of 30 km of line cutting and 900 samples budgeted.
Core drilling is anticipated to evaluate the underground gold potential at the
Headley's Reef deposit (drilled by Kennecott in the mid 1950s) as a possible
source of high-grade feed for the Gross Rosebel mill. Initially 10 holes
totaling 800 m will test the mineralized structure to a depth of 75 m.
HEADLEY'S
The Headley's Right of Exploration covers approximately 209 km(2) (20,860 ha.)
in the Brokopondo District, 90 km southwest of Paramaribo. The property lies
immediately southwest of the Gross Rosebel property. Small scale artisanal
mining occurs in a number of locations within the concession.
The southeastern one-third of the Headley's Right of Exploration lies within 3
to 10 km of an all weather dirt road. The northwestern two-thirds is remote
ranging from 7 to 16 km from road access.
The Headley's Right of Exploration is underlain by a continuation of the same
volcano-sedimentary sequence of the Paramaca, Armina, and Rosebel formations
extending west and southwest of the Gross Rosebel concession. The Moeroe
Moeroe area in the northern portion of the concession immediately west of the
Company's Mayo exploration target at Gross Rosebel is cut by a number of
westerly trending shear zones permissive for gold mineralization.
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Work Program
Exploration work in 1996 concentrated on field data compilation and
interpretation, with soil sampling grids being designed to investigate pan
sampling anomalies on Kraboe Doin Gebergte defined by the Company's regional
reconnaissance program in 1995. Analysis of the airborne geophysical data by a
Canadian consulting group has assisted with the geological and structural
interpretation of the area.
Soil sampling will be carried out in 1997 over the stream sample anomaly on
Kraboe Doin Gebergte, initially on a 200 x 50 meter grid. The sample grid will
be reduced to 100 x 25 m over any resulting anomalies. A total of 12 km of
line cutting and 440 soil samples have been budgeted for this work.
Multi-element analysis will be carried out on an additional 200 samples from
streams previously sampled by the Company exclusively for gold.
SOUTH BENZDORP PROJECT: ANTINO, DE GOEJE AND YAU PASSI RIGHTS OF EXPLORATION
Pursuant to a letter agreement dated January 22, 1993, between the Company and
NANA Resources N.V., a Surinamese corporation ("NANA"), the Company entered
into a service contract with respect to a Right of Reconnaissance located on an
area known in Suriname as "South Benzdorp", which was issued to NANA in 1992.
The essential terms of the letter agreement were restated in an option
agreement dated as of January 22, 1994 (the "South Benzdorp Option Agreement").
Pursuant to the South Benzdorp Option Agreement, NANA granted the Company the
option to acquire, subject to governmental approval, a 100% interest in any
Right of Exploration issued to NANA pursuant to the South Benzdorp Right of
Reconnaissance. Three Rights of Exploration, known as Antino (24,000 ha.),
De Goeje (37,000 ha.), and Yau Passi (40,000 ha.) were granted to NANA in 1996.
The Rights of Exploration are valid for three years and may be extended until
2003. The option is valid until the expiration of such Rights of Exploration
and any extension thereof. Under the South Benzdorp Option Agreement, the
Company had to expend a minimum of $250,000 on the South Benzdorp property.
The minimum expenditure requirement has been met and, as a result, the Company
may, subject to governmental approval, at any time prior to expiration, exercise
its option to acquire a 100% interest in the Rights of Exploration.
Assuming exercise of the South Benzdorp option, the Company must complete a
feasibility study in respect of one or more of the three Rights of Exploration
six months prior to the expiration of such Rights or any extension thereof or
reassign the Rights of Exploration to NANA, subject to governmental approval.
In the event the Company or a related party enters into a mineral agreement
with the Government of Suriname with respect to any portion of the Rights of
Exploration, the Company will be obligated to pay NANA the sum of $50,000. The
Company has also agreed to grant NANA a 10% net profit interest with respect to
any portion of the Rights of Exploration which may be brought into commercial
production, subject to the Company's right to repurchase half of such
entitlement, within 60 days of obtaining a Right of Exploitation, for the sum
of $3.0 million.
THE ANTINO RIGHT OF EXPLORATION
The Antino property covers an area of 370 km(2) and is located in the Sipaliwini
District in Southeastern Suriname along the Lawa River, on the border of French
Guiana, in the locality of Benzdorp.
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Benzdorp, a former gold trade center, is 240 km southeast of Paramaribo and 220
km south and upstream from Albina on the lower Marowijne River (also called
Maroni River in French Guiana).
Gold bearing alluvials in the area of the Antino property were discovered around
1885. From 1895 to 1928 the Compagnie d'Or de la Guyane Hollandaise recorded a
production of 9,854 kg of gold from the area of the property. During the period
of 1928 to 1963, a further 2,657 kg of gold were reportedly produced. Some
dredging was carried out from 1963 to 1969, after which activity was limited to
local artisanal miners.
Access to the area is by air or by boat. Small fixed wing aircraft are able to
land at a maintained grass strip on an island in Lawa River in front of the
Benzdorp landing. The entire eastern boundary of the Antino property is
accessible from the Lawa River. Access into the property is by 30 km of
wilderness road passable by four wheel drive vehicles. The main camp at Fatoe
Switie is 17 km from the Benzdorp landing. The camp is fully equipped with
lodging for 37 people.The Antino area contains a northwest striking Proterozoic
greenstone belt of volcanic-sedimentary rocks surrounded by granitic gneissic
terrain. The greenstone units, locally named the Fatoe Switi belt, are composed
of basic and intermediate volcanic rocks, intermediate volcaniclastic rocks and
fine grained sedimentary rocks intruded by several tonalitic plugs.
Structurally, the Fatoe Switi greenstone belt is characterized by strong north
and northwest trending lineaments as defined by regional foliation. These
lineaments are cross-cut by east and northeast lineaments representing probable
late shear zones which contain the main alluvial gold deposits.
Work Program
Field work during the first half of 1996 was concentrated on infill and step-out
deep augering over the Upper Antino and Lower Antino targets as follow-up to the
Company's 1995 program of mechanized deep augering. Approximately 1,500 m of
deep augering was completed at Upper Antino (project to date total of 8,000 m)
and approximately 550 m was completed in Lower Antino (project to date total of
2,900 m). Additionally, approximately 3,000 m of grid line were cut (project to
date total of 413 km) and 5 km of new road was constructed to provide access to
drilling sites in the Upper and Lower Antino areas.
On October 14, 1996, the Company announced the results of 51 close spaced deep
auger holes at Upper Antino, which exhibited near surface, saprolite
mineralization with a weighted average grade of approximately 8.1 g Au/t over a
strike length of approximately one kilometer, widths of up to approximately 65 m
and depths ranging from approximately 5 to 30 m. A core drilling program was
initiated to establish the continuity of higher grade shear zone hosted
mineralization at depth in hard rock below the saprolite mineralization defined
by this deep augering.
On January 8, 1997, the Company announced the results from the first phase of
the core drilling program on the Antino project. The drilling program
involving 20 holes drilled on 50 m centers, verified the existence of a
mineralized shear zone over a strike length of approximately 350 m to a
vertical depth of approximately 100 m. Based upon the first phase of drilling,
mineralization within the shear zone exhibits a weighted average grade of
approximately 12.8 g Au/t over an average true thickness of approximately 4 m.
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In Lower Antino, limited core drilling indicated good continuity at depth of
mineralization indicated by deep augering. Mineralization is hosted by a
tabular shaped felsic intrusive body (sill) with a 20 m minimum true thickness.
Gold grades vary from 0.9 to 7 g/t with significant drill intersections up to
28 m thick with an average grade of 1.2 g/t.
The budgeted 1997 exploration program at Antino consists of core drilling and
ground geophysical surveys. The drilling program is anticipated to involve
6,000 to 8,000 m of core drilling over the Upper and Lower Antino targets.
Drilling will focus on extensions of the known zones along strike and at depth.
Ground geophysics utilizing induced polarization (IP) is scheduled to provide
better definition of the plunging structures hosting strong sulphide, carbonate
and chlorite alteration and high gold grades. Ground magnetics and VLF-EM will
also be carried out over both targets to better define the location of specific
lithologic units and shear zones. In conjunction with core drilling, a deep
augering program totaling 150 holes (2,250 m) is scheduled to be carried out
over the Upper Antino target area, to test for potential mineralization along
strike to the south. In Lower Antino, the Company has planned to drill an
additional 100 deep auger holes (1,500 m) over the western most anomalous area.
THE DE GOEJE AND YAU PASSI RIGHTS OF EXPLORATION
The De Goeje property covers an area of 370 km(2) and is located in the
Sipaliwini District in Southeastern Suriname west of the Lawa River, close to
the border with French Guiana, in the locality of Benzdorp. The Yau Passi
property covers an area of 400 km(2) and is located in the Sipaliwini District
in Southeastern Suriname along the Lawa River, on the border with French Guiana,
in the locality of Benzdorp.
In November 1996, the Company and BHP entered into a Heads of Agreement with
respect to the De Goeje and Yau Passi Rights of Exploration pursuant to which
BHP has a 60% participating interest and the Company a 40% participating
interest in a joint venture with respect to the De Goeje and Yau Passi Rights
of Exploration. The term of the De Goeje / Yau Passi agreement commenced on
November 13, 1996 and will continue until the last surviving mineral right with
respect to the properties has expired. BHP and the Company have agreed to
associate themselves to conduct a detailed evaluation of minerals on the areas
covered by the De Goeje and Yau Passi Rights of Exploration. Each party is
required to pay its pro rata share of work programs and budgets, provided that
BHP must carry the Company by advancing its share of work programs and budgets
until completion of a feasibility study regarding the properties. Upon
delivery of such feasibility study, the Company will have 90 days to elect
whether to withdraw from, or participate in, the project described in the
feasibility study. If the Company withdraws, it will have no obligation to
reimburse BHP for its pro rata share of expenditures. If the Company elects to
participate, it will have to immediately reimburse BHP of 40% of all
expenditures incurred on behalf of the joint venture. Each party may withdraw
from the Heads of Agreement upon 30 days' notice.
Work Program
In 1996, field work included 277 stream sediment BLEG samples on a wide-spaced
reconnaissance pattern of one sample per 10 km(2). Objectives for 1997
are to define anomalous drainage targets to be sampled at closer spacing,
followed by grid line cutting and soil sampling.
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SARA KREEK EAST
Pursuant to an option agreement among the Company, Sitex Gold N.V. ("Sitex")
and Elkor Investment Company Ltd. ("Elkor"), dated July 11, 1996, the Company
was granted the right to acquire a 100% interest in the Sara Kreek East Right
of Exploration, which covers approximately 59 km(2) (5,940 ha.). Upon the
exercise of the Sara Kreek East option, Sitex and Elkor will be entitled to
receive 8.125% and 4.375% net profit interests, respectively, from all future
profits derived from the Sara Kreek East Right of Exploration.
In order to maintain its rights under the Sara Kreek East option, the Company
must (i) make aggregate annual payments over a five-year period totaling
$525,000 and (ii) incur minimum expenditures on the property of $4,750,000,
ranging from $0.5 million in year one to $1.5 million in year five, on each
option. Such minimum expenditure requirements are conditional upon the
optionors executing a mineral agreement with the Government of Suriname with
respect to each property on terms satisfactory to the Company.
During 1996, the Company spent $0.4 million on development of the Sara Kreek
Right of Exploration, the majority of which was recovered from BHP. In 1996,
the Company had reached an understanding with BHP with respect to a possible
joint venture covering the Sara Kreek East Right of Exploration. Later in
1996, BHP indicated that it did not want to pursue this opportunity.
The Property
The Sara Kreek East property is accessible from Paramaribo by small aircraft to
grass air strips in each area, as well as by river during the rain season.
Sara Kreek East is underlain by a north-northwest trending Proterozoic
volcaniclastic greenstone belt. The rocks show strong shearing, with
development of quartz veins, stringers and silicification. An intrusive rock
of ultramafic composition cuts through the central portion of the area.
Work Program
Work on the Sara Kreek East property during 1996 included 162 km of line
cutting, 134 stream sediment samples, 2,987 soil samples and 57 deep auger
holes.
In 1997, untested stream anomalies will be covered by a grid of soil samples.
Close spaced augering will follow-up on the high grade deep auger intersections
in evidence from 1996 deep auger holes.
SIPALIWINI
On April 23, 1996, the Company entered into a services contract and option
agreement with NANA the recorded owner of the Sipaliwini Right of
Reconnaissance. Under the terms of the agreement with NANA, the Company has
the right to perform reconnaissance work on the Sipaliwini Right of
Reconnaissance at its own cost. Provided such services are rendered until the
issuance of a Right of Exploration on the Sipaliwini property, NANA will be
deemed to have granted to the Company a five-year option to acquire a 100%
interest in any Right of Exploration or other successor mineral rights granted
on the property, subject to a 12.5% net profit interest to be held by the
optionor. In order to maintain its rights under the agreement, the Company
must (i) make payments of $15,000 on the signing of the agreement, $75,000 in
year two, and $125,000 in each of years three through five, and (ii) incur
minimum expenditures on the property of $4.5 million ranging from $0.3 million
in year one
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to $1.5 million in year five. Prior to the execution of a mineral agreement
with the Government of Suriname with respect to the Sipaliwini property, the
Company's sole obligation is to carry-out sufficient exploration work to
maintain the mineral right in good standing. The Company may elect to
terminate the agreement at any time without further liabilities or obligations.
The Property
The Sipaliwini Right of Reconnaissance covers an area of 2,000 km(2) located in
the Sipaliwini District in Southern Suriname along the opposite banks of
Sipaliwini River and Akalapi Creek. The area is accessible by air using three
grass airstrips in the region. The area is covered by heavy tropical forest,
with the exception of the southeast portion close to the border with Brazil,
where the typical landscape is open savanna. The area is inhabited by small
nomadic groups of Amerindians.
Geologically it is composed of Middle Proterozoic low grade metamorphic acid to
intermediate metavolcanics of continental origin, and leucogranites, granite
porphyries and granophyres, possibly representing the feeders of the
metavolcanics. This assemblage is intruded by large bodies of medium to coarse
crystalline biotite granite. A conspicuous feature is the large number of
small bodies of mafic to ultramafic composition intrusive into the
metavolcanics and granophyres.
Work program
Work during 1996 included 142 stream gravel pan concentrates, 135 stream silt
samples for BLEG and conventional gold assay as well as 30 element ICP, and
five bulk samples of 4m(3) each for diamond indicator minerals. To December 31,
1996 the lab had returned 120 assays.
Work for 1997 is expected to include wide spaced drainage sampling of those
areas in the property not covered by the 1996 survey, and follow-up sampling on
a closer spacing of anomalous areas as indicated by the phase one sampling.
SURINAME RECONNAISSANCE PROJECTS
On August 19, 1996, the Company entered into a heads of agreement with BHP
covering different project areas in Suriname. Included in the project areas
are areas covered by applications for Rights of Reconnaissance filed or to be
filed with the Government of Suriname by the Company or BHP. The project areas
may be modified by the parties from time to time. Under the heads of
agreement, BHP shall have a 60% participating interest and the Company a 40%
participating interest in any joint venture to be entered into with respect to
a specific area. BHP and the Company participate jointly in the exploration
costs of each different project area on the basis of their respective
participating interest. BHP and the Company may withdraw from the agreement by
giving 30 days' notice.
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, which has an area of
84,000 km(2) and a population of approximately 130,000, is represented by two
members of the French National Assembly and by one member of the French Senate.
Pursuant to the French Constitution, French Guiana is governed by the
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same laws as metropolitan France, subject to modifications to French law
(including those affecting tax and mining laws and regulations) that may be
adopted by France or French Guiana to reflect the historical, cultural,
geographical and economic characteristics of French Guiana and to provide for
administrative structures and regional administration. French mining laws have
recently undergone revisions insofar as they apply to metropolitan France. The
French Government is in the process of determining the extent to which the
revised mining laws should apply to French Guiana. The text of the revised
mining laws was adopted by the French Senate on February 27, 1997. The revised
laws are now subject to the approval of the French National Assembly in order
to be applicable. 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 local
regulation matters.
The granting of mining titles in French Guiana is administered, depending upon
the type of mining title, by the Direction Regionale de l'Industrie, de la
Recherche et de l'Environnement ("DRIRE"), the Ministry of Industry and the
Conseil d'Etat in France. To apply for and acquire a mining title, a company
must obtain a Personal Mining Authorization, or "Autorisation Personnelle
Miniere" ("APM"). Under an APM, a company is granted the right to hold up to a
certain number of permits. Guyanor was granted an APM on October 6, 1993,
effective January 7, 1994, authorizing it to hold up to 15 mining titles for
gold and related substances. This APM was amended to include precious metals
or precious stones on March 21, 1995. The APM was further amended on August 13,
1996 to allow Guyanor to hold ten additional mining titles. SOTRAPMAG and
Societe Guyanaise des Mines ("SGM") (see below - "SOTRAPMAG and Paul-Isnard
and Eau-Blanche Properties") each have APMs authorizing them to hold 11
permits and three permits, respectively.
GUYANOR RESSOURCES S.A.
All of the Company's interests in mineral properties located in French Guiana
are held through Guyanor, an approximately 68% owned subsidiary of the Company,
incorporated under the laws of France as a societe anonyme on April 20, 1993.
Guyanor's head office and registered office are located at Lot. Calimbe 2,
Route du Tigre, B.P. 750, 97300 Cayenne, French Guiana.
PROPERTIES OF GUYANOR
The mineral properties in which Guyanor has an interest (either directly or
through its subsidiaries) consist of the St-Elie, Dieu-Merci, Yaou, Dorlin,
Paul-Isnard, Eau-Blanche, Regina Est and Dachine properties, all located in
French Guiana. Guyanor's interests in the properties are held by way of
exploration permits, concessions, property purchase agreements and joint
venture and option agreements. All of the properties are in the exploration or
pre-exploration stage, except the Yaou project which is already at an advanced
stage.
During 1996, Guyanor spent $9.3 million in continuing exploration and
acquisition expenditures, with $6.9 million reimbursed by joint venture
partners. Budgeted 1997 exploration and acquisition expenditures total $17.9
million, with $13.0 million in budgeted joint venture recoveries.
Guyanor currently holds, directly, or indirectly through SOTRAPMAG and SGM, a
total of 18 permits, 12 for the Yaou and Dorlin properties, four for the
Paul-Isnard property, one for the Regina Est property and one permit for the
Dachine.
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ST-ELIE AND DIEU-MERCI
On October 25, 1993, Guyanor entered into an agreement to acquire the St-Elie
concession for FF1.0 million (approximately $0.2 million). Guyanor also paid
approximately $0.9 million to Compagnie Miniere Esperance S.A. ("CME") in
consideration of the relinquishment of certain contractual rights which CME
held in the St-Elie concession. The aggregate amount of $1.1 million
represented the Company's original expenditure for the St-Elie concession and
was satisfied by Guyanor's issuance of a $1.1 million promissory note payable
to the Company. This amount was canceled in March 1995 in consideration for
the issuance to the Company of Guyanor shares. Pursuant to an agreement dated
October 22, 1993, CME agreed to relinquish to Guyanor certain residual alluvial
exploitation rights in consideration for $0.5 million and a royalty of 5% of
any fine gold extracted from the concession, up to a maximum of 3,215 oz.
By agreement dated February 18, 1995, Guyanor agreed to transfer to ASARCO Inc.
("ASARCO") a 50% equity interest in Societe des Mines de St-Elie S.A.R.L.
("SMSE"), a company wholly owned by Guyanor and to which the St-Elie concession
was transferred by decree of the French government dated April 24, 1996. SMSE
was granted an APM, authorizing it to hold up to three mining titles. Under
the terms of the agreement, ASARCO must fund 100% of all costs required to
advance the St-Elie concession to the development stage for a mining operation,
including reimbursement of certain expenses incurred by Guyanor and completion
of a feasibility study within five years or any shorter period as provided in
the agreement with respect to Guyanor's acquisition of the St-Elie concession.
ASARCO is required to spend $10.0 million on the concession over a five-year
period. If ASARCO completes the feasibility study for less than $10.0 million,
ASARCO must expend the remaining balance on the St-Elie concession before
Guyanor is required to contribute its proportionate share of expenses. ASARCO
and Guyanor will be entitled to reimbursement of all expenses related to the
St-Elie concession incurred by each of them and Guyanor will be entitled to a
finder's fee of $1.8 million, on a pro rata basis, prior to any distribution of
revenues based upon each party's participating interest in SMSE. The agreement
provides that ASARCO's 50% interest in SMSE will return automatically to
Guyanor if ASARCO's various commitments described above are not met. ASARCO
may decide at any time to terminate its obligations under the agreement and
stop funding the project.
On February 19, 1997, SMSE and a French company entered into an agreement
pursuant to which SMSE was granted the four-year option to acquire a
100% undivided interest in three concessions and one exploration permit
immediately adjacent to the St-Elie property and covering a 155 km(2) (15,500
ha.) area known in French Guiana as Dieu-Merci. In order to maintain its
rights under the Dieu-Merci option, SMSE must (i) make annual payments of FF4.0
million in year one, FF1.5 million in year two, FF2.0 million in year three and
FF2.5 million in year four and (ii) incur minimum expenditures on the
Dieu-Merci property of FF5.5 million (including a 3,000 meter core drilling
campaign) during year one and FF5.0 million during each subsequent year of the
option period. SMSE may exercise the option at any time by paying the
difference between FF21.5 million and the annual payments made as of the
exercise date. In addition, upon exercise of the option, the optionor will be
entitled to receive a 3% net smelter royalty from future production from the
Dieu-Merci property. In the event the St-Elie property is mined first, the
optionor will be entitled to a 1% net smelter royalty from the St-Elie
property. The Dieu-Merci property is subject to the ASARCO joint venture
regarding the St-Elie property. SMSE has already made the first payment of
FF4.0 million which was funded equally by Guyanor and ASARCO.
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The Property
The St-Elie concession was originally constituted by the government of France
in 1889 and covers a rectangular area of 99 km(2) (9,900 ha.) located in north
central French Guiana, 110 km west of Cayenne, the departmental capital. The
Dieu-Merci property covers an area of 155 km(2) (15,500 ha.) adjacent to the
eastern and southeastern portions of the St-Elie concession. The Dieu-Merci
property is composed of three concessions (Dieu-Merci, La Victoire and
Renaissance) and one exploration permit (Couriege). St-Elie and Dieu-Merci are
located in a region which remains virtually undeveloped. Access to the
concession is currently by helicopter, airplane, or by a recently completed 20
km private road from Tigre Creek.
The first gold discoveries in the St-Elie region were made in 1873, when two
placer deposits were discovered within the limits of the present St-Elie
concession. During the period from 1878 to 1923, approximately 11 tonnes of
gold production was recorded from the concession. Following a change in the
concession's ownership in 1923, a mill was installed on the property and from
1923 to 1955, approximately 3,625 kg of gold were produced. From 1956 to 1993,
mining activities on the concession were intermittent and consisted only of
local, small-scale operations.
The basement rocks of the St-Elie region, including Dieu-Merci, consist of four
geological units, all Precambrian in age: (i) a Paramaca volcano-sedimentary
unit; (ii) Caribbean granites; (iii) Guianese granites; and (iv) the Bonidoro
sedimentary unit. The Paramaca volcano-sedimentary rocks are oriented
north-northwest and consist of schists, quartzites, lavas and amphibolites,
uniformly metamorphosed to the amphibolite facies by the Caribbean granites.
There are six known plutons of Caribbean granites which intrude the Paramaca
sequence. Several of the plutons may be connected at depth and most are
aligned along an east-west direction. The Bonidoro sedimentary unit is composed
of quartzite, schists and conglomerates.
To the Company's knowledge, gold extracted to date from the St-Elie, Michel and
Devis sectors of the concession was from both alluvials and weathered bedrock,
but in unknown proportions, possibly one-third from altered bedrock which
comprises both saprolite and quartz veins. The saprolite was mined by surface
washing and the quartz veins were mined either by small-scale open-pit or
underground methods. Other sources of gold which have been identified include
recent and ancient alluvial deposits, re-worked lateritic deposits, eluvial and
surficial deposits and mining residues. However, on the basis of present
knowledge of the areas, bedrock sources appear to be the most promising and,
Guyanor believes, the most recommended for exploration.
Work Program
During 1996, Guyanor's exploration spending on the St-Elie concession totaled
$2.4 million, all of which was reimbursed by ASARCO pursuant to its agreement
with Guyanor regarding the St-Elie concession.
Extensive exploration work began at St-Elie in late October 1995. Geological,
geochemical and geophysical work completed in 1995 identified nine primary
drill targets on the property. During the first half of 1996, 34 holes were
drilled, totaling 4,982 m, on the Devis and Michel zones of the property. In
May 1996, Guyanor completed 23 holes for 3,202 m in the Devis zone.
Mineralization was encountered in approximately 57% of the core holes drilled,
illustrating a mineralized zone approximately 550 m in length by 200 m wide and
exhibiting average intersection widths of 8.5 m at a weighted average grade of
2.6 g Au/t. In July 1996, Guyanor completed an initial 11 hole, 1,780 m
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drilling campaign in the Michel zone over an area of mineralization
approximately 1.2 km in length by 200 m wide. At the Michel zone,
mineralization was encountered in approximately 82% of the core holes drilled,
with average intersection widths of 4.3 m at a weighted average grade of 3.9 g
Au/t.
Line cutting and hand auger soil sampling were continued over the southeastern
part of the St-Elie concession (1,933 samples collected in 1996, 50 m spaced at
100 to 200 m line spacing) and several 300 m wide x 1,000 m long NW trending
100 ppb Au anomalies have outlined the new target areas of Chemin de
Fer-Giraud, St-Auguste-Madeleine and Sable-Jonquemont areas. These anomalous
areas have been confirmed by the existence of coincident geophysical anomalies
corresponding to zones of quartz veining and hydrothermal alteration. During
1996, 48 trenches (2,200 m) were dug over the Pactole-Courriege, Chemin de
Fer-Giraud, Sable-Jonquemont and St-Auguste-Madeleine areas. The most
significant results have been obtained from the Chemin de Fer-Giraud area where
four trenches over a 1,200 m long x 40 m wide NNW trending zone of intense
quartz veining yielded an average mineralized interval of approximately 12 m
with a weighted average grade of 3.0 g Au/t.
Previous exploration work on the Dieu-Merci project included a soil geochemical
survey conducted by the Bureau de Recherches Geologiques et Minieres ("BRGM")
on a 100 x 100 m grid, totaling approximately 900 samples over an area of 4 x 2
km approximately 2 km southeast of the St-Elie concession. This survey
identified four different 400 to 600 m anomalous areas with values greater than
0.9 g Au/t; Kerouani, Virgile, Cesar and Devis Sud. Work conducted by the
previous owner included augering (190 holes), trenching and drilling 18 shallow
core holes. At Kerouani, five trenches excavated across the zone over a strike
length of approximately 350 m exhibited an average mineralized interval of
approximately 18 m with a weighted average gold grade of 10.7 g Au/t. At
Virgile, five trenches over a strike length of approximately 450 m exhibited an
average mineralized interval of approximately 10 m with a weighted average gold
grade of 7.6 g Au/t. At Cesar, five trenches excavated over a strike length of
approximately 500 m exhibited an average mineralized interval of approximately
18 m with a weighted average gold grade of 6.0 g Au/t.
The 1997 work program plans trenching over the St-Auguste-Madeleine area and
conducting a 15,000 m drilling campaign with two drills. The first phase of
this campaign is scheduled for a minimum of 4,500 m over the Chemin de
Fer-Giraud and Michel zones (infill drilling) and a minimum of 3,000 m over the
new target areas of Kerouani and Virgile on the Dieu-Merci project. The second
phase of the program has scheduled 4,500 m of core drilling over the
Sable-Jonquemont, Pactole-Couriege and St-Auguste-Madeleine areas, as well as
3,000 m over other target areas on Dieu-Merci. Extensions of the soil
geochemistry grids are planned throughout the area as well as limited ground
geophysical surveys.
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
BRGM with respect to six type "B" exploration permits covering an area known as
Yaou (the "Yaou Permits") and six type "B" exploration permits covering an area
known as Dorlin (the "Dorlin Permits") 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 $2.8 million) as follows: FF7.0 million at the time of
completion of a feasibility
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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 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, under which Cambior was granted the option to acquire a 50%
interest in a sole purpose company holding Guyanor's Yaou and Dorlin permits
interests in French Guiana. Cambior may exercise the option by spending $11.0
million on the Yaou and Dorlin permits by June 30, 1998. The agreement also
provides that Guyanor is to manage the exploration of the Yaou and Dorlin
Permits and Cambior is to undertake the preparation of a feasibility study on
the properties and to manage the development and operation of future mining
operations. The acquisition by Cambior of any interest in the Yaou and Dorlin
Permits is subject to French government approval. There can be no assurance
that such approval will be granted. After having met its initial funding
requirement, Cambior may elect to terminate the agreement and stop funding the
project at any time. As at December 31, 1996, Cambior had expended $4.3
million and $2.0 million at Yaou and Dorlin, respectively.
A renewal of four type "B" permits for Yaou was approved for a two-year period
from March 31, 1995, ending March 31, 1997. Application for another two-year
period was submitted on December 24, 1996. Renewal of the two other "B"
permits for Yaou was approved for a two-year period from March 1, 1996, ending
March 1, 1998. A renewal of the six type "B" permits for Dorlin was approved
for a two-year period from May 31, 1995, ending May 31, 1997. Applications for
further renewals of the six Dorlin permits was submitted in March of 1997.
However, there can be no assurance that the Yaou and Dorlin permits will be
renewed.
The Yaou Property
The Yaou Permits cover a total area of 150 km(2) (15,000 ha.) and are located
some 210 km southwest of Cayenne, French Guiana. Access to the property is by
helicopter or four wheel drive vehicle on 17 km of dirt road northwest from the
town of Maripasoula, which is accessible by chartered and daily scheduled
fixed-wing aircraft from Cayenne.
The property is underlain by a meta-volcano-sedimentary sequence of the
Paramaca Formation. Gold mineralization, generally associated with pyrite and
quartz-carbonate veins and veinlets, is hosted in two distinct units of this
volcano-sedimentary sequence. These units are lens-shaped bodies of felsic
intrusive, described for the most part as a quartz-monzonite (A and C-L zones),
and mylonitic, sericitized rocks, associated with felsic volcanics and tuffs (B
zone). Both contain more or less intense quartz veining, with pyrite and
carbonate alteration.
From 1989 to 1993, 70 core drill holes totaling 12,548 m, over 13,000 m of
motorized auger drilling (to an average depth of 25 m), 10,000 m of hand
auguring, 4,000 soil samples and 1,990 m of trenching were undertaken by the
BHP/BRGM joint venture on the Yaou permits. Four exploration core drilling
target areas in the central Yaou area were identified.
Yaou - Work Program
During 1996, Guyanor spent a total of $1.1 million the Yaou project, of which
$1.0 million was reimbursed by Cambior under the above-mentioned agreement.
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During the first six months of 1996, an evaluation was completed using all
exploration data gathered at Yaou by both Guyanor and the previous owners, BRGM
and BHP, with the purpose of developing a new geologic model of the known
mineralized area. On September 11, 1996, Guyanor and the Company announced the
results of this work. A reserve estimation was completed on the Yaou Central
and Chaina zones based on results from 130 drill holes for a total of 24,416 m,
approximately 40,000 m of augering and approximately 10 km of trenching.
Cambior calculated a probable reserve of approximately 10.3 million tonnes
grading 2.7 g Au/t, representing approximately 876,000 oz of gold in situ. The
probable reserve is part of total ore zone established by Cambior at July 31,
1996 of approximately 13 million tonnes grading 2.5 g Au/t. Over 90% of the
probable reserves at Yaou are hosted at Yaou Central, totaling 9.2 million
tonnes grading 2.8 g Au/t.
In late 1996, 30 core holes, totaling 4,394 m, were drilled to confirm and add
to the databases on the mineralized deposits at Yaou Central and Chaina and to
expand the known deposits. Drilling in the "A" zone of Yaou Central
intercepted mineralization in each of nine holes exhibiting a weighted average
grade of approximately 3.6 g Au/t with an average intercept length of
approximately 18 m. In the "B" zone, three of four holes intercepted
mineralization exhibiting a weighted average grade of approximately 4.0 g Au/t
over an average intercept length of approximately 15 m. Drilling in the "C-L"
zone intercepted mineralization exhibiting a weighted average grade of
approximately 2.2 g Au/t over an average intercept length of approximately 7 m.
At the lower grade Chaina zone, six of nine drill holes intercepted
mineralization exhibiting a weighted average grade of approximately 1.5 g Au/t
over an average intercept length of 12 m.
The 1997 budget for the Yaou project anticipates 10,000 m of core drilling.
The purpose of this drilling includes step- out and infill drilling to expand
the known deposits laterally and at depth as well as identify new zones of
mineralization within the Yaou Central and Chaina areas that could be mined by
open pit and provide sufficient resource potential to justify commencing a
feasibility study for the development of a full scale mining operation.
Outside the Yaou Central and Chaina zones, drilling is also planned for the I, J
and K zones located approximately 1.5 km northeast of Yaou Central, along the
same strike orientation. Continued regional exploration to define additional
mineralization which could be mined by open pit on the remainder of the 150
km(2) Yaou property is planned on three zones of interest which have been
identified and warrant follow-up exploration, Yaou Nord, Tomantoni and Bois
Blanc. The Bois Blanc zone, approximately 10 km north of Yaou Central, will be
the initial focus of this work.
The Dorlin Property
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 some 150 km southwest from the airport at Cayenne.
A 500 m airstrip located on the property was re-opened and is suitable for
fixed wing aircraft. Access is also available by boat during the rainy season.
The property is underlain by a volcano-sedimentary sequence of the Paramaca
Formation lying east of and intruded by younger granitic intrusive rocks. The
contact trends generally north-south the length of the property with local
inferred offsetting faults. The presence of a basic to ultrabasic north-south
lineament has been identified based on a distinctive chromium and nickel
geochemical soil anomaly.
Exploration efforts by BRGM and BHP since 1986 consisted of soil geochemical
and geological surveys, together with hand auger holes and a total of 19 core
drill holes totaling 4,323 m. Core
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drilling and surface mapping at the Montagne Nivre area has outlined a
hydrothermally altered facies trending north- south intermittently for a strike
length of some 5 km with two parallel hydrothermal breccia zones.
Dorlin - Work Program
Exploration work on the Dorlin permits has focused on two zones, the
South-Inini and North-Inini zones, situated on two different permits and
covering a large area. During 1995, a total of 55 km of lines were cut on
these two sectors and a total of 838 soil samples by manual augering and 242
samples by deep augering were taken. Extensive channel sampling of outcrop on
the southern end of Montagne Nivre began.
In 1996, outcrop sampling continued and 57 deep auger holes for a total of 565
m were drilled. In the second half of the year, Guyanor drilled 31 core holes,
totaling approximately 2,000 m, and recompiled results from the 1986 BRGM-BHP
drilling program, 19 holes, totaling approximately 4,323 m. Guyanor's drilling
focused on the Sud Nivre zone on a prominent ridge known as Montagne Nivre
while the BRGM-BHP drilling focused on the West Nivre zone to the north of Sud
Nivre and on the west flank of Montagne Nivre. Guyanor established the
presence of two zones of mineralization approximately 40 to 50 m wide over a
strike length of approximately 750 m. Mineralization was encountered in
approximately 74% of the core holes drilled by Guyanor, exhibiting average
widths of 9.8 m at a weighted average grade of 1.9 g Au/t. Drilling conducted
by the BRGM and BHP on the West Nivre zone and across the northern extension of
the zones drilled by Guyanor encountered mineralization in approximately 79% of
the core holes drilled, exhibiting average widths of 9.9 m at a weighted
average grade of 1.9 g Au/t. Drilling to date has indicated the presence of
mineralization over a strike length of approximately 1.5 km on the far southern
end of a major hydrothermal breccia system which has been identified
continuously over 5 km and discontinuously over an additional 4 km.
Late in 1996, a second, 2,400 m drilling campaign was initiated to test gold
mineralization discovered by Guyanor at greater depths and to infill drill on
the zones of mineralization discovered by BRGM-BHP. By the end of the year, 4
holes, totaling 607 m, were completed. A bulldozer was also shipped in parts
up the Inini River and reassembled on the project. Trenching was initiated and
199 m of trenches were opened. Guyanor incurred exploration expenditures for
the Dorlin project of $1.0 million for 1996, all of which were reimbursed by
Cambior under the above-mentioned agreement.
The work program for 1997 calls for continued soil and auger sampling,
trenching and 8,000 m of core drilling. The objectives for the program are to
develop minable resources on the South-Inini area and carry out the
investigation in the North-Inini area, which host three intrusive related
targets known as Jadfar, Sept Kilo and Dartagnan.
PAUL-ISNARD AND EAU-BLANCHE
On October 29, 1994, Guyanor acquired its interest in the Paul-Isnard and
Eau-Blanche properties by way of its acquisition of all of the outstanding
shares of SOTRAPMAG, a company incorporated under the laws of France and based
in French Guiana. SOTRAPMAG holds a 99.7% interest in SGM, a societe en nom
collectif incorporated under the laws of France, also based in French Guiana.
Guyanor also directly acquired the 0.3% interest in SGM not owned by SOTRAPMAG.
SOTRAPMAG holds, directly or indirectly, eight mineral concessions (the
"Paul-Isnard Concessions") and four type "B" exploration permits (the
"Eau-Blanche Permits").
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Pursuant to an agreement (the "Cermi Agreement") dated October 29, 1994,
between SOTRAPMAG and Cermi S.A.R.L. ("Cermi"), a corporation owned by the
previous owners of SOTRAPMAG, SOTRAPMAG granted Cermi the exclusive right to
exploit alluvial minerals on a portion (the "Elysee Creek area") of two of the
Paul-Isnard Concessions for a period of three years, renewable for an
additional seven years. During the renewal period, SOTRAPMAG may, at its
discretion, terminate the Cermi Agreement upon 90 days' notice. In
consideration for this grant, Cermi agreed to pay SOTRAPMAG a royalty of 2.5%
of the gross proceeds from the sale of gold produced from Cermi's alluvial
operations in the Elysee Creek area. Cermi is also allowed to build an
airstrip near the Elysee Creek area provided it allows SOTRAPMAG use of the
airstrip. SOTRAPMAG reserved the right to conduct exploration in the Elysee
Creek area provided Cermi's exploitation rights are not interfered with. In
addition, SOTRAPMAG has reserved the right under certain limited conditions to
carry out any alluvial operations in the Elysee Creek area which it considers
necessary to maintain its alluvial exploitation on the Paul-Isnard Concessions
in the event it does not have exploitable reserves elsewhere on the Paul-Isnard
Concessions. Cermi has granted SOTRAPMAG the option to acquire an interest in
any primary mineral deposits discovered under any exploration permits which
Cermi may obtain in the future covering areas adjacent to the Paul-Isnard
property.
Joint Venture with LaSource and ASARCO
In conjunction with Guyanor's acquisition of SOTRAPMAG, BRGM has renounced in
favor of Guyanor, an option which BRGM received from Alcatel Alsthom Compagnie
Generale d'Electricite to the primary deposits under the eight Paul-Isnard
Concessions. In consideration for such renunciation, Guyanor agreed to pay
BRGM FF2.5 million (approximately $505,000) in four installments ending
December 31, 1996.
On June 26, 1996, SOTRAPMAG entered into a joint venture agreement to give
LaSource Developpement S.A. ("LaSource") a 25% participating interest in the
exploration and exploitation of primary gold deposits on the Paul-Isnard and
Eau- Blanche projects. Pursuant to the joint venture agreement, ASARCO has two
separate options to acquire a 50% interest in SOTRAPMAG's remaining interest in
the primary deposits on each of the Paul-Isnard and Eau-Blanche projects. In
order to acquire its interests in one of these projects, ASARCO is obligated,
by June 2001, to complete a feasibility study on the project and to spend at
least $10 million on such project, or to combine the Paul-Isnard and
Eau-Blanche projects into a single project. SOTRAPMAG's share of expenditures
will be funded by ASARCO. ASARCO is also obligated to use its best efforts to
obtain financing on a project finance basis for 80% of project development
costs, with SOTRAPMAG and ASARCO each contributing 37.5% and LaSource
contributing 25% of the remainder of such costs. Guyanor will act as project
manager for the exploration phase at the Paul-Isnard and Eau Blanche project
areas, while ASARCO, once vested, has the right to act as the manager of any
resulting feasibility study and exploitation.
ASARCO may withdraw from either project and terminate its right to vest its
participating interest in such project at any time by giving written notice to
SOTRAPMAG 90 days prior to the end of the current program period for such joint
venture.
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The Properties
The Paul-Isnard and Eau-Blanche properties are located in the western part of
French Guiana, some 200 km west of the capital city 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 is maintained by SOTRAPMAG.
There are two prominent mountain chains bordering the properties which form the
edges of a basin in which alluvial gold deposits have accumulated. The Company
believes this alluvial gold originated from gold-bearing rocks from 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. The Decou-Decou mountain 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 Bonidoro
groups, cut by ultramafics to felsic intrusives.
Work Program
To the Company's knowledge, little systematic exploration has been conducted on
the Paul-Isnard and Eau-Blanche properties in search of primary gold.
Management believes that there are at least two virtually unexplored
occurrences which may constitute possible sources of alluvial gold on the
properties. An airborne radiometric and magnetometric geophysical survey over
the properties was carried out recently by Guyanor as part of a survey of all
of Guyanor's properties.
Guyanor began an exploration program in 1995 to identify and define the primary
deposits that may have contributed to the formation of the alluvial gold
deposits. An outcrop sampling program, involving approximately 746 channel
samples, outlined a zone of strongly sheared, mineralized felsic volcanic rocks
approximately 2 km in length yielding an average gold grade of approximately
2.0 g Au/t over significant widths.
A core drilling campaign in 1996 targeted approximately 1.1 km of the strike
length of this zone and involved the completion of 18 holes totaling 3,232 m.
Gold mineralization was found to be associated with the presence of sulfides,
primarily pyrite, pyrrhotite, arsenopyrite and chalcopyrite. Mineralization
encountered within the felsic volcanic unit at depth over the strike length
drilled appears to be consistent with a massive sulfide ("VMS") type of
mineralization similar to deposits currently being mined along the Cadillac
Break in Quebec, Canada. Of particular interest is semi- massive to massive
sulfide mineralization encountered in two holes. Polymetallic assays on
semi-massive to massive sulfide mineralization intersected in one hole yielded
weighted average metal grades of 3.7 g Au/t, 17 g/t silver, approximately 0.3%
copper and trace zinc values, within a larger, 25 m interval with an average
weighted grade of 2.8 g Au/t.
On the Paul-Isnard project, two new prospective zones were identified during
1996, Emmanuel and Elysee. At Emmanuel, geological mapping, rock channel
sampling, soil geochemistry and ground magnetic surveys have been carried out.
The Emmanuel gold anomaly appears to be situated at the contact between the
Paramaca greenstone and the Upper Detritic sedimentary formation.
Mineralization is associated with quartz veining. At Elysee, channel sampling
inside old adits from the Bureau Minier Guyanais indicated anomalous grades of
gold. A detailed geological survey was
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initiated. Total expenditures by all parties for 1996 were $1.4 million for
Paul-Isnard and $0.1 million for Eau-Blanche, with joint venture recoveries
totaling $1.5 million for the two projects in 1996. Guyanor's share of these
expenditures were funded by ASARCO.
The work program planned for 1997 includes ground geophysical surveys on
Montagne d'Or, including induced polarization ("IP"), magnetics and downhole
electro magnetics ("EM"). This work is intended to assist in preparing a core
drilling program at Montagne d'Or. Additional geochemistry, ground magnetic
surveys and trenching are planned for Emmanuel and Elysee in order to prepare
core drilling program for the targets. A core drilling budget of 4,500 m has
been budgeted to test the Paul-Isnard targets during 1997.
Mining Operations
SOTRAPMAG commenced alluvial gold production at the Paul-Isnard property in
1987. SOTRAPMAG has experienced continuing operating losses since its
acquisition by Guyanor in 1994 with operating losses of $1.8 million in 1995
and $2.4 million in 1996. Outside consultants engaged in 1996 to review the
operations and make recommendations on how to make the operations profitable
concluded that without a significant capital investment to increase production,
changes in certain work practices and a reduction in fuel taxes, the operation
could not achieve profitability. As a result of these conclusions, Guyanor
began implementation of a program to discontinue alluvial operations conducted
by SOTRAPMAG and lay off all of SOTRAPMAG's employees. This procedure is
subject to negotiations with the representatives of the workers and French
authorities. The French government was formally notified of the closure plans
in January 1997. In March 1997, the deadline for French government opposition
to the closure plan expired, with no such opposition expressed by the
government. Management currently anticipates to substantially complete the
closure of the plan and local rehabilitation in the second quarter of 1997.
Guyanor and the Company, through its ownership interest in Guyanor, incurred a
fourth quarter charge to 1996 earnings of $3.2 million resulting from the
write-down of certain fixed assets, inventories, capitalized exploration costs
related to the alluvial mining operations, accrual of land rehabilitation and
mine closure costs, and accrual of the severance and other costs associated
with the discontinuation of alluvial production. The Company's share of these
losses at December 31, 1996, was $2.2 million, after minority interest.
Certain fixed assets, equipment and inventories owned by SOTRAPMAG will be
utilized in the ongoing exploration at the Paul-Isnard project area and were
not subject to the write-down. The final amount of severance and other costs
associated with the discontinuation of alluvial production are contingent upon
negotiations with the representatives of the workers and the French government.
Guyanor also expects to incur operating losses of approximately $0.5 million
during the first quarter of 1997.
Exploration efforts conducted in 1996 have identified several target areas
which hold potential to establish near surface mining reserves. Guyanor has
budgeted approximately $1.0 million in 1997 for prospecting activities aimed at
quantifying a near-surface mineralized inventory at the Paul-Isnard project
area. This program is in addition to the hard rock exploration planned for
1997 which will be funded by ASARCO and LaSource, the Company's joint venture
partners at the Paul-Isnard project area.
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REGINA EST
On April 26, 1994, Guyanor was granted a type "B" exploration permit covering a
property known as Regina Est, located in northeastern French Guiana, 15 km
southeast of the town of Regina and 80 km southeast of Cayenne. No significant
work was conducted on the property in 1996. The permit, unless renewed, will
expire on May 1, 1998.
DACHINE
In June 1995, Guyanor 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 Inini). An application was filed in December of 1995 for a
type "A" permit covering an area of 337 km(2) which would include the current
type "B" permit.
BHP and Guyanor entered into an agreement in December 1995 whereby BHP would
earn a 51% interest in the Dachine project by spending $3.5 million by May 31,
1998. In March 1997, BHP gave notice of its intent to withdraw from the
agreement effective as of March 31, 1997. The Company and Guyanor intend to
continue diamond exploration on the Dachine area and may seek new joint venture
partners. There can be no assurance that Guyanor will be successful in finding
a partner or that the funds required for the development of the Dachine project
can be obtained by Guyanor.
The Property
The property is a square, 5x5 km permit area 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,
applied for a type B permit, which was granted in June 1995.
Work Program
In August 1994, an aeromagnetic and radiometric survey was carried out over the
area of the B permit. Specific magnetic anomalies were highlighted by the
geologists to be potential kimberlitic-type anomalies. In October 1995,
petrographic facies were identified as being meta-kimberlite and/or
meta-lamproite rocks, hosted in metavolcanics and volcaniclastics. In late
1995, a core drilling program was initiated at the Dachine site involving 10
holes totaling approximately 970 m.
On March 1, 1996, the Company and Guyanor reported the discovery within the
Dachine permit area of a metamorphosed ultramafic structure that can be traced
over a minimum dimension of approximately 3.5 km in length and 0.5 km in width.
Final results from the initial exploration program, announced on May 22, 1996,
exhibited significant diamond counts from microdiamond analysis on auger and
core drill holes that intersected the main body with a total of 8,970 stones
recovered from approximately 1,164 kg of core and auger samples. Additionally,
a total of 976 stones were recovered from microdiamond analysis on
approximately 387 kg of outcrop and soil samples collected during the initial
exploration program.
Additional exploration activity at the Dachine project during the summer of
1996 focused on geologic mapping, auger drilling and stream sediment sample
processing. An additional 30 deep auger holes
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were drilled in fences across the Dachine diamondiferous body to determine
geologic contacts and better define the surface expression of the body. This
work, in addition to the discovery of additional outcrop, has confirmed the
continuation of the diamondiferous body over the entire distance of the Dachine
"B" permit (5 km) with widths varying from approximately 350 m to 1,000 m.
Results were reported from processing completed at the Company's Georgetown,
Guyana laboratory of 31 stream sediment samples collected from creeks draining
the Dachine body. A total of 7,824 diamonds were recovered from 700 liters of
samples, including 7,009 microdiamonds (measuring less than 0.5 mm across their
longest dimension) and 815 macrodiamonds (measuring greater than 0.5 mm across
their longest dimension). Macrodiamonds were reported in all the samples, the
largest stone measuring 2.7 mm in its longest dimension.
These results led to the decision to proceed with an initial bulk sample at
Dachine. Following the evaluation of various alternatives to conduct a small
initial bulk sample for diamond recovery and macrodiamond analysis, logistical
considerations dictated the excavation of pits to collect approximately 200
tonnes of material. Sample collection began in late August. A gravity jig
plant was subsequently commissioned at the Dachine site and began operating in
September 1996. Excavation was completed in ten pits (DAC-01 - 10) collected
at select sites over the strike length of the diamondiferous body, totaling
approximately 207 tonnes of material. Processing of approximately 186 tonnes
of material was completed in December 1996 to produce approximately 3,000 kg of
heavy mineral concentrate. The heavy mineral concentrate was shipped to BHP's
Mineral Laboratory in Reno, Nevada for diamond recovery in late December.
Processing of the heavy mineral concentrate sample was undertaken to recover
only macrodiamonds larger than 1.25 mm in their longest dimension. On February
24, 1997, the Company and Guyanor announced that processing of the bulk sample
recovered an insignificant number of stones larger than 1.25 mm. Upon review
of final results, BHP decided to withdraw from the Heads of Agreement with
Guyanor. Guyanor intends to continue diamond exploration in the Dachine area
and may seek new joint venture partners. There can be no assurance that
Guyanor will be successful in finding a new partner or that funds required for
the development of the Dachine project can be obtained by Guyanor.
Guyanor is presently in the process of developing a program for additional
exploration at Dachine. The object of the program will be to try and better
characterize the geology and commercial potential of the large, Dachine
diamondiferous ultramafic body. During 1996, Guyanor spent $1.2 million for
exploration at the Dachine property, $1.1 million of which was reimbursed by BHP
under the above-mentioned agreement.
AFRICAN PROPERTIES
GENERAL
All of the Company's interests in mineral properties located in Africa are held
through PARC. PARC was established under the Yukon Business Corporations Act
on February 6, 1996, as a result of the amalgamation, i.e., the merger and
continuation as one company (the "PARC Amalgamation"), of Humlin Red Lake Mines
Limited, an Ontario corporation ("Humlin"), and PARC Yukon, which was then an
approximately 85% owned subsidiary of the Company. As a result of the PARC
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Amalgamation, PARC was vested with all former assets and liabilities of PARC
Yukon and Humlin and is engaged in the business carried on by them, being the
exploration for and development of precious mineral properties.
As a result of the completion of a private placement of 13.2 million units of
PARC Yukon on February 5, 1996 (as described below) and the completion of the
PARC Amalgamation, PARC became approximately 60% owned by the Company. PARC
also became a publicly traded company on February 8, 1996, with its common
shares quoted on the Canadian Dealing Network.
The private placement of 13.2 million units at Cdn$1.00 per unit generated net
proceeds to PARC Yukon of approximately $9.0 million after payment of
commissions and expenses. Each unit consisted of one PARC Yukon common share
and one-half of one PARC Yukon Series A warrant. Each whole Series A warrant
entitles the holder to purchase one PARC Yukon common share at a price of
Cdn$1.25 until November 1, 1996. On October 31, 1996, the expiration date of
the Series A warrants was extended to January 31, 1997. As at January 31,
1997, 1,063,500 warrants were exercised providing proceeds of $1.0 million.
The remaining 5,536,500 warrants expired unexercised. As a result of the PARC
Amalgamation, all outstanding PARC Yukon and Humlin shares were exchanged for
PARC shares according to ratios approved by their respective shareholders at a
special meeting held on January 12, 1996. In addition, all outstanding PARC
Yukon Series A warrants were exchanged for PARC Series A warrants.
Prior to the PARC Amalgamation, indebtedness in the amount of $12.3 million
owed to the Company by PARC Barbados as of December 11, 1995, was converted
under the terms of two convertible debentures by the Company into 24,881,632
common shares of PARC Barbados. Upon completion of these loan conversions,
24,881,632 shares held by the Company in PARC Barbados were surrendered for
cancellation in exchange for the issuance to the Company of 7,975,000 warrants
of PARC Barbados, each warrant entitling the Company to purchase one share of
PARC Barbados at Cdn$1.50 until July 15, 1997. After the PARC Amalgamation,
the PARC Barbados warrants were surrendered to PARC Barbados in exchange for
the issuance by PARC to the Company of 7,975,000 PARC Series B warrants. Each
PARC Series B warrant entitles the Company to purchase one PARC common share at
Cdn$1.50 until July 15, 1997.
The mineral properties in which PARC has an interest are located in several
countries in Africa: Eritrea, Ethiopia, Gabon, Ivory Coast, Kenya, Mali and
Sierra Leone. PARC's interests in the properties are held by way of option
agreements or exploitation, exploration, prospecting or reconnaissance permits,
licenses, authorizations or rights. PARC's indirect acquisition of certain of
its interests are still subject to applicable governmental approvals. There
can be no assurance that such approvals will be granted. Moreover, all of the
properties are without a known body of commercial ore and the limited
activities by PARC on the properties to date have been exploratory in nature
and the results have been disappointing. PARC's principal objectives are to
explore and continue to acquire mineral properties in Africa with significant
potential as and when appropriate opportunities present themselves and to
conduct exploration and, if warranted, subsequent development of mineral
deposits on its properties.
PARC and its wholly owned subsidiary, PARC Barbados, are hereinafter referred
to collectively as "PARC".
During 1996, PARC spent $5.9 million on continued exploration and property
acquisition. Budgeted 1997 exploration and reconnaissance expenditures for
PARC total $4.5 million.
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GABON PROPERTIES
The Republique Gabonaise ("Gabon") is located on the west coast of Africa along
the equator, covers an area of 268,000 km(2) and has a population of about 1.1
million people. Formerly a French colony, Gabon gained independence in 1960
and is currently governed as a democratic republic. The legal and land title
systems are based on French law, the official language is French, and the
government retains strong ties with France.
KOLISSEN
The Company was granted a three-year exploration permit (the "Kolissen
Exploration Permit"), expiring on August 22, 1998, covering over 2,670 km(2) of
the Kolissen property. As of November 29, 1995, the Company formally assigned
its rights to the Kolissen Exploration Permit to PARC, subject to approval of
the Gabon government. The Kolissen Exploration Permit requires a minimum of
approximately $0.5 million to be expended on exploration work on the property
during the three-year term and preparation of a geological map of the Kolissen
property at 1:100,000 scale.
On February 18, 1997, the Company and PARC signed an option agreement with
Adamas Resources Corp. ("Adamas") granting Adamas the sole and exclusive option
to acquire a 50% interest in all of the Company's current and future rights to
the Kolissen property. The option agreement is subject to acceptance by the
Vancouver Stock Exchange ("VSE"). In order to maintain its rights under the
option, Adamas must incur minimum exploration expenditures on the Kolissen
property of at least $0.5 million during the first 12 months following the date
Adamas receives regulatory approval from the VSE and $1.5 million during the
following 18-month period. Should Adamas fail to make the required
expenditures within the prescribed deadlines, it will be required to pay the
amount of the shortfall to PARC in cash or capital stock in Adamas or an
interest in mineral rights owned by Adamas with a fair value equivalent to the
shortfall, subject to PARC's approval. Assuming VSE approval is obtained,
Adamas intends to conduct the work program on the Kolissen property during
1997.
MALI PROPERTIES
PARC has indirect interests in the Dioulafoundou and Melgue properties located
in the Republique du Mali ("Mali"). Mali is a land-locked country covering an
area of 1.24 million km(2) in Northwest Africa. Mali has a population of
approximately nine million people, most of whom are Muslim. The country
borders the southern edge of the Sahara desert and over 70% of its land
area is desert or semi-desert. Formerly a French colony, Mali achieved
independence in 1960 and has been governed as a democratic republic since 1992.
The legal and land title systems of the country are based on French law and the
official language is French.
DIOULAFOUNDOU
PARC has an indirect interest in a small scale exploitation authorization and
an exploration permit, which cover a 28 km(2) area in Mali referred to as the
Dioulafoundou property.
Dioulafoundou Exploitation Authorization
PARC's interest in the exploitation authorization comprising part of the
Dioulafoundou property was formalized in an agreement dated October 13, 1995
(the "AFC Agreement"), among PARC,
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D'Almeida Freres et Compagnie ("AFC"), an unrelated Mali corporation, the four
shareholders of AFC (the "AFC Shareholders") and the Company. PARC
subsequently transferred its rights to PARC Dioulafoundou Ltd., a wholly owned
subsidiary of PARC. AFC is the holder of the Dioulafoundou exploitation
authorization which was granted on December 6, 1993 for a term of five years,
subject to renewal for a further five years. The exploitation authorization
covers 4 km(2) and is located in the Kenieba District, Administrative Region I,
of Mali.
Pursuant to the AFC Agreement, PARC Dioulafoundou acquired from the AFC
Shareholders an aggregate of 75% of the outstanding shares of AFC (the "AFC
Shares"), subject to satisfaction of certain conditions. The purchase price of
the AFC Shares totaled $520,000, less the amount of certain of AFC's
liabilities at the date of the transfer of the shares. The purchase price, as
so adjusted, is payable as to $80,000 on each of October 31, 1995, 1996, 1997
and 1998 and the balance by October 31, 1999, subject to acceleration of the
payments to the date a feasibility study commissioned by PARC Dioulafoundou on
the property is accepted by the Mali government. PARC Dioulafoundou may
terminate the agreement at any time without any further obligations or
liabilities. Prior to entering into the AFC Agreement, PARC had paid a total
of $175,000 in connection with an initial 180-day option on the Dioulafoundou
exploitation authorization.
Pursuant to the AFC Agreement, PARC Dioulafoundou granted to Mr. D'Almeida (a
previous shareholder of AFC) the right to conduct the alluvial operation on the
Dioulafoundou exploitation authorization. During 1996, neither Mr. D'Almeida
nor PARC Dioulafoundou conducted any exploitation operations as
required under the exploitation authorization. As a result, the Government of
Mali could, pursuant to the Mining Code of Mali, send to AFC a three-month
notice asking AFC to conduct exploitation activities in accordance with the
exploitation authorization failing which AFC could lose title to the property.
To the knowledge of the Company, management of AFC has not received such notice
from the Government of Mali. Should AFC receive such notice, PARC
Dioulafoundou would try to cure such default.
The Dioulafoundou exploitation authorization is located in a district where only
small scale mining operations are generally allowed by the Mali government (for
example, each exploitation authorization is generally for a deposit not
exceeding five tonnes of gold). Since there can be no assurance that, in the
event of the discovery of a larger mineral deposit, an exploitation permit (for
larger deposit) covering the entire deposit will be obtainable, it is the
intention of PARC Dioulafoundou to apply for the issuance of an exploration
permit covering the existing Dioulafoundou exploitation authorization area so as
to avoid the incurrence of significant exploration expenditures without the
assurance of obtaining, if warranted, an authorization permit for a larger
mineral deposit. Such an exploration permit is only available for potentially
larger scale mineral deposits and would be for a term of three years, with up to
two renewals of one year each. The holder of such an exploration permit also
obtains the first right to acquire an exploitation permit for the applicable
area, entitling the holder to exclusive exploitation rights in relation to the
area for a maximum period of up to 30 years (including renewals). There can be
no assurance, however, that the Mali government will grant the desired
exploration permit or any eventual exploitation permits to PARC.
Fougala Exploration Permit
In May 1995 PARC acquired, subject to governmental approval, three contiguous
prospecting authorizations of 8 km(2) each from three individuals unrelated to
PARC. The prospecting authorization
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entitles its holder to a small scale exploitation authorization with the
problems described above. Consequently, PARC, with the approval of the three
prospecting authorization holders, created a company under the laws of Mali
(PARC Fougala S.A.) and applied for an exploitation permit covering the three
prospecting authorizations. In January 1997, PARC Fougala was granted an
exploration permit covering the three prospecting authorizations. The
exploration permit is now referred to as the Fougala Exploration Permit. In
February 1997, PARC Fougala entered into an agreement with the three owners of
the previous prospecting authorizations. Pursuant to the agreement, they will
be entitled to receive as a group a net smelter royalty of 1.6% on any gold
production on the Fougala permit. PARC Fougala must also complete a feasibility
study by February 2002. Should PARC Fougala fail to do so, it will have to
transfer its interest in the exploration permit to the previous owners of the
prospecting authorizations.
Option granted to African Selection Mining Corporation
On March 7, 1997, PARC granted African Selection Mining Corporation ("ASM") the
three-year option to acquire 50% of the issued and outstanding shares of PARC
Dioulafoundou and PARC Fougala (see below). In order to maintain its rights
under the option, ASM must incur exploration expenditures on the properties of
at least $4.5 million prior to October 31, 1999 with $450,000 during the period
commencing March 1, 1997 and ending September 30, 1997 ("Phase I"), $1.5
million during the period commencing October 1, 1997 and ending September 30,
1998, and $2.5 million during the period commencing October 1, 1998 and ending
October 31, 1999. Should ASM fail to make the required $450,000 in
expenditures for Phase I within the prescribed deadline, it will be required to
pay the amount of the shortfall to PARC in cash, subject to certain
contingencies.
The Property
The Dioulafoundou property is located in the Kenieba District of western Mali,
situated approximately 350 km west of Bamako, the country's capital, and 170 km
south of the town of Kayes (population 50,000). The Dioulafoundou property is
accessible by four wheel drive vehicle from Kayes over 228 km of dirt road. A
1,500 m gravel airstrip, accessible by fixed wing charter aircraft from Bamako,
is located 10 km south-southeast of the property.
Local miners have long produced unknown quantities of gold from alluvial
deposits in the Kenieba district. Modern exploration of the Dioulafoundou
property commenced in 1993, and pitting and sampling programs, as well as some
small- scale alluvial mining, were carried on during the next year.
The region in which the Dioulafoundou property lies is part of the West African
Shield. The property area lies within the exposed early Proterozoic Kenieba
inlier that straddles the Mali/Senegal border, composed primarily of thick
Birimian volcanic and sedimentary formations that trend generally north-south
and northeast-southwest.
Work Program
The main objective of PARC's work completed to date at the Dioulafoundou
project has been to establish the presence of economically attractive gold
mineralization within the prospect area. During the first half of 1996, PARC
completed a mechanical augering program for geochemical analysis consisting of
355 holes totaling 4,548 m over the whole of the Dioulafoundou project. A
65-hole, 4,200 m reverse circulation ("RC") drilling program was completed in
July 1996. This RC program confirmed the north-south striking mineralization
identified by previous core drilling with near surface
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mineralized intersections with an average width of 2.9 m and a weighted average
grade of 2.4 g Au/t. Gold mineralization also was encountered on part of the
Fougala permit which comprises the south and southeast border of the
Dioulafoundou project. These mineralized zones are characterized as near
surface, narrow zones with gold grades ranging from 1.3 to 3.2 g Au/t. An
early and intense rainy season caused postponement of RC drilling near the
extensive Kerekou artisanal working on the Magassa permit.
During the second half of 1996, PARC conducted a systematic termite mound
sampling program over the entire property involving approximately 250 samples.
This work identified additional area of anomalous gold values on the on the
border of the Fougala and AFC permits. During 1996, the Company spent $0.8
million on exploration at the Dioulafoundou project.
The work program for 1997 to be conducted by ASM is anticipated to involve
induced polarization ("IP") geophysical surveys to assist in better defining
potential gold bearing structures. Additional geochemistry, including termite
mound sampling, will be completed. Based upon results of this work, it is
anticipated that ASM will conduct a core and RC drilling program to continue
the evaluation of the property during 1997.
MELGUE
PARC entered into a mineral agreement dated October 18, 1995 (the "Melgue
Mineral Agreement") with the Government of Mali represented by the Ministry of
Mines, Energy and Hydrology for the Melgue property. The Melgue Mineral
Agreement has a term of up to 30 years and provides for the issuance of an
exploration permit for a 220 km(2) area of the Melgue property and, if
applicable, the issuance of further mining permits for the development and
exploitation of the property. The exploration permit covering the Melgue
property was granted to PARC on December 11, 1995, for a period of three years.
PARC has committed to spend at least $680,000 in connection with the Melgue
property during the first 24 months following the grant of the exploration
permit on December 11, 1995. A three-phase initial work program is planned,
with the first phase to be completed within one year at a minimum expenditure
of $180,000. Estimated work expenditures for the second and third phases are
$0.5 million and $1.6 million, respectively.
The Property
The Melgue property is located approximately 60 km north of the regional centre
of Kayes in western Mali. The project area is just west of the village of
Aourou, which is about a 4 to 5 hour drive from Kayes in a 4-wheel drive
vehicle. The permit area is flat with sparse vegetation as it is on the edge
of the Sahara desert. Very high temperatures during both day and night are
common in the period from February to April making field work difficult.
Regional scale soil sampling was carried out by Kloeckner, a German company,
over the property as part of a larger survey in the late 1980s. The Kloeckner
work identified a number of distinct gold anomalies which require more detailed
investigation. Limited follow-up work in this area by the Mali Ministry of
Geology and Mines has shown encouraging results.
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PARC geologists conducted a preliminary examination of the property in late
1994 and visited the area again in early 1995. They visited five different
areas which are identified by soil sample values ranging from 75 to 103 ppb Au.
Soil sample values of this magnitude are considered anomalous. Rock chip
samples collected by the Mali Ministry of Geology and Mines on one of these
features assayed up to 3.1 g Au/t. Panned samples collected by PARC from four
of these areas contained gold grains. Among the geological features indicative
of mineralization seen at these locations were altered, sulphide bearing
diorite and andesite, breccia, quartz stockworks and altered carbonate units.
The local geology of the property area consists of Lower Proterozoic
metavolcanics and pyroclastic rocks of the Boutounguissi Formation. These were
intruded by granites and granodiorites in the eastern third of the property
area.
Work Program
Initial exploration activity on the Melgue property consisted of a detailed
stream sediment geochemistry program. Samples were collected at a density of
approximately one per km(2) and analyzed for gold. During 1996, soil sampling,
mapping and rock chip sampling were also carried out. Approximately 67 km of
line was cut with 675 soil and 77 rock samples collected. This work identified
two principal anomalous areas trending north-south through the center of the
property. During 1996, $0.1 million was spent for exploration on the Melgue
property. During 1997, additional close spaced soil sampling and geologic
mapping is planned to further define the anomalies. This is expected to be
followed by RC drilling to test the anomalous zones at depth.
IVORY COAST PROPERTIES
Subject to relevant governmental approval, PARC has acquired an indirect
interest in certain exploration permits with respect to the Comoe property,
located in the Republique de Cote d'Ivoire ("Ivory Coast"). Ivory Coast is
located on the southern coastline of West Africa, covers an area of 322,000
km(2) and has a population of about 12 million people. Formerly a French
colony, Ivory Coast achieved independence in 1960 and is currently governed as a
democratic republic. The legal and land title systems of the country are based
on French law and the official language is French.
COMOE
On January 10, 1995, the Company and the Ministry of Mines and Energy of the
Ivory Coast executed a Protocole d'Accord (the "Comoe Agreement") authorizing
the Company to prospect in the Nassian-Bondoukou area, also known in the Ivory
Coast as the Comoe area. Under the terms of the Comoe Agreement, the Company
was granted exclusive reconnaissance rights over a 15,000 km(2) area of the
Comoe property until December 1, 1995, together with the right to apply for
exploration permits in respect of up to 25% of the Comoe property area (i.e., up
to 3,750 km(2)) by that date. The reconnaissance work included an airborne
geophysical survey and ground reconnaissance programs in respect of up to 25% of
the Comoe property area. Where the existence of a commercially exploitable
deposit is demonstrated, an exploration permit may subsequently be converted,
under certain conditions, into an exploitation permit covering the deposit area.
As of December 1996, the Company had been granted 12 exploration permits for
gold, diamonds and other precious metals and minerals (with the exception of
hydrocarbons) covering a total of approximately 2,760 km(2). The permits are
valid for three years and are renewable for up to four additional years. The
minimum expenditure requirements for each permit is approximately $170,000
during the three-year permit.
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The Company formally assigned as of November 29, 1995 its rights in the Comoe
Agreement (and any permits derived therefrom) to PARC, subject to approval of
the Ivory Coast government. Prior to the assignment, all work and expenditures
relating to the Comoe property in furtherance of the Comoe Agreement had
already been supervised and funded through PARC.
The Property
The center of the Comoe property is located approximately 240 km due north of
Abidjan, the principal city in Ivory Coast.
The Comoe property is for the most part underlain by Lower Proterozoic Birimian
volcano-sedimentary formations of the West African Shield. The central portion
of the property is inferred to be underlain predominately by metasedimentary
formations. Basic to intermediate volcanics with overlying probably Tarkwan
sediments occur within the northeast corner of the property. Granite
intrusives occur as small plutons within the central portion of the permit
area. Due to limited outcrop, the property is relatively unexplored. Work by
SODEMI, a mining company owned by the Republic of Ivory Coast, has confirmed
the location of some old artisan gold workings, indicating the possibility of
gold source rocks within the permit area.
Work Program
During 1996, follow-up geochemical evaluation of selected gold targets on the
Kregbe, Padanian, Tanda and Koutoukounou permits was initiated. A total of
6,641 soil samples, 364 termite mound samples and 251 rock samples were
collected and analyzed and 38 old artisanal mining sites were visited. The
most prospective anomalies on the Kregbe permit were tested with rotary air
blast ("RAB") drilling to a depth of 25 to 30 m. A total of 2,764 m were
drilled in 116 holes on 50 m centers. Follow-up ground magnetic surveys were
completed over potentially diamond bearing, pipelike structures identified
during the 1995 airborne geophysical survey on the Amoriakro, Aougnanou,
Dihezue, Klebo, Ouakabessi, Sirakoro and Tetessi permits. Pitting was
conducted over the more prospective areas of the magnetic anomalies to provide
large samples of in situ rock for mineral analysis. During 1996, the Company
spent $1.1 million exploring the Comoe property.
The work program for 1997 is anticipated to involve continued geochemical and
geological sampling of additional targets identified during the 1995
reconnaissance exploration program. Infill sampling is planned for the more
prospective gold anomalies identified during 1996 on the Padenian, Tanda and
Koutoukounou permits to identify targets to be followed-up and tested at depth
by RAB drilling. Infill RAB drilling or core drilling is planned for the later
half of 1997 to better define the depth extension of mineralization at the
principal anomalies on the Kregbe permit.
ETHIOPIA PROPERTIES
Ethiopia, located in northeastern Africa, is the third most populous country in
Africa, with approximately 54 million people, and is one of the poorest
countries in the world. Ethiopia is one of the few African countries that has
never been colonized, except for a limited period of Italian occupation during
World War II. The official language is Amharic, but English is commonly
spoken. From the mid-1970s to 1991, Ethiopia was in a period of turmoil during
which it was engaged in warfare with Eritrea and Tigrai to the north and
Somalia to the east, and experienced intermittent years of catastrophic drought
leading to famine. Since 1991, Ethiopia has been ruled by the Transitional
Government of Ethiopia established by the Ethiopian People's Revolutionary
Democratic Front.
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DUL MOUNTAIN
PARC has indirectly acquired, subject to relevant governmental approval, an
interest in 90 exclusive exploration licenses to explore for gold (the "Dul
Mountain Exploration Licenses") for the Dul Mountain property, located in
western Ethiopia.
The Dul Mountain Exploration Licenses were granted to the Company pursuant to
an agreement dated April 30, 1995 (the "Dul Mountain Agreement") between the
Ministry of Mines and Energy of Ethiopia (the "MMEE") and the Company. The
Company formally assigned as of November 29, 1995 its rights in the Dul
Mountain Agreement (and the exploration licenses and any further licenses) to
PARC, subject to approval of the Ethiopian government. Prior to the
assignment, all work and expenditures relating to the Dul Mountain property in
furtherance of the Dul Mountain Agreement had already been supervised and
funded through PARC.
The 90 exploration licenses cover an area of 1,800 km(2), each license being for
a 20 km(2) area. The licenses have a term of three years, renewable twice for a
period of one year, subject to the license area being reduced by at least 25%
upon the first renewal and being further reduced with the subsequent renewal.
During 1995, a Phase I work program was undertaken by PARC at a cost of $2.6
million. During the second year, the exploration expenditures commitment were,
after negotiation with the government, reduced from $4.05 million to $450,000.
Pursuant to the terms of the Dul Mountain Agreement, a further minimum of $9.75
million on exploration of the Dul Mountain property is to be expended over the
course of the ensuing three years. The Company provided a bank guarantee of
$450,000 with respect to the second year exploration expenditure commitments.
The Company must provide a bank guarantee with respect to the exploration
expenditures of each year during the term of the licenses, to be drawn on by
MMEE in the event and to the extent that the work program has not been carried
or out expenditure commitments have not been met.
After reviewing the results of the exploration conducted on the Dul Mountain
property, management of PARC concluded in March of 1997 that a large portion of
the property does not meet PARC's expectations. The Company and PARC intend to
(i) relinquish approximately 75% of the area covered by the Dul Mountain
Exploration Licenses during 1997 and (ii) negotiate with MMEE the reduction of
the third-year expenditures commitment from $4.5 million to $50,000. There can
be no assurance that the MMEE will accept to reduce the third-year work program.
As a result of the disappointing results of the exploration program, the Company
decided to write-down as at December 31, 1996 capitalized expenditures totaling
$4.0 million. The Company's share of this charge was $2.3 million after minority
interest.
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The Property
The Dul Mountain Exploration License is located approximately 500 km
west-northwest of Addis Ababa, the capital of Ethiopia, and the western border
of the license forms part of Ethiopia's border with Sudan. Access to the
property from Addis Ababa, which is serviced by international airlines, is by a
combination of asphalt and gravel roads.
History and Previous Work
There are records of small-scale alluvial gold production on the Dul Mountain
property for most of this century, with unrecorded production by local miners
continuing today. Evidence of previous mining activity on Dul Mountain
consists of an old adit and scattered waste/tailing piles. Systematic
geological mapping and an airborne geophysical survey in a portion of the
property commenced in 1967. Over the ensuing 27 years, four separate
exploration programs were carried out on portions of the property, consisting
of regional steam sediment and limited soil sampling, further geological
mapping and establishment of grids on the three main prospects on the property
(Dul, Azale and Ashashire prospects), and, most recently (1993-1994), a program
of road building, 850 m of trenching, channel sampling and 697 m of diamond
drilling by the Ethiopian Geological Survey.
Geology
The area covered by the Dul Mountain Exploration License lies within the
western Ethiopian Shield, which is part of the north-south trending
Pan-African-Mozambique Precambrian belt that extends along the east coast of
Africa. Previous exploration has identified three gold prospects on the
property: Dul Mountain, Azale-Akendeyu and Ashashire. Gold values, generally
associated with quartz veining, have been obtained in metavolcanics, cherts and
phyllites. Quartz veins varying in width from one centimeter to one meter,
follow major shear and foliation directions.
The Dul Mountain property is underlain by north-south trending Precambrian
rocks characterized by four lithological groups: metamorphic high grade
gneisses, low-grade volcano-sedimentary formations which occur throughout the
property, post-syntectonic intrusives of basic and acidic composition; and
Cenozoic volcanic rocks consisting of granodiorite, diorite and granite.
The Azale-Akendeyu prospect, located 5 km southwest of the Dul Mountain
prospect, covers a north-northeast trending ridge 10 km long, underlain by
metamorphosed volcano-sedimentary formations intruded by granitic and
ultramafic rocks bounded by older Kurmuk gneisses to the west.
The Ashashire prospect lies immediately northeast of the Dul Mountain prospect
and is underlain by rocks that represent a continuation of the metamorphosed
volcano-sedimentary formations with ultramafic and granitic intrusions that
occur on the Dul Mountain prospect.
Work Program
The main objective of the exploration conducted to date has been to evaluate
the entire 1,800 km(2) concession area.
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During 1996, continued work in the western part of the property (Dul Mountain,
Azale and Ashashire) indicated low potential for defining economically
attractive, bulk minable gold deposits and further evaluation ceased. At the
Balaute prospect, additional trenching failed to identify gold mineralization
below two principal surface anomalies and no further work was undertaken.
Following the completion of work at Dul Mountain, Azale, Ashashire and Belaute,
PARC's exploration camp was moved to the eastern half of the concession area
near the Menghi prospect.
An intensive work program was undertaken at Menghi in an area where extensive
artisanal gold mining was being conducted. Following soil sampling and a
ground magnetics geophysical survey, trenching was conducted on the principal
target at Menghi, a north striking, quartz ridge approximately 600 m long which
exhibited strong shearing, alteration and well developed sulfides over from 20
to 40 m with gold mineralization hosted by diorite intrusives in the south and
granite in the north. Sixteen trenches were excavated along the strike length
of the zone, totaling approximately 555 m, with good results. A 10 hole core
drilling program, totaling 1,372 m, was completed to test the potential depth
extension of gold mineralization identified in the trenches. Despite the
indication of wide zones of economic mineralization in trenches, the core
drilling at Menghi failed to replicate economic widths at depth with only
narrow quartz veins being intersected. No further work is planned at Menghi.
Some potential still exists in the far eastern part of the Dul Mountain
property. This is demonstrated by results from stream sediment geochemistry.
The Company is following-up with soil sampling, a program which is still
ongoing and will likely not be completed in the current second permit year.
The Company intends to relinquish approximately 75% of the concession area, but
maintain the balance in the eastern portion so the evaluation of these targets
can be completed in the third permit year. It is proposed that a program of
approximately $50,000 will be submitted to the Ethiopian authorities for the
third-year permit which commences in May 1997.
ERITREA PROPERTIES
Eritrea, located in northeastern Africa, is the newest nation in Africa, having
gained its independence from Ethiopia in 1991 after a 30 year civil war. The
State of Eritrea consists of ten provinces covering an area of 125,000 km(2)
with a population of approximately 3.5 million. Tigrinya, Arabic and English
are spoken in Eritrea. A competitive mining code was adopted by the National
Assembly in 1995 and a tender for several exploration areas was completed in
late 1995, attracting bids from approximately 30 international mining companies.
As one of the poorest nations in Africa, Eritrea is actively encouraging
development of the country's mineral resources.
GALLA VALLEY
Pursuant to an agreement dated April 19, 1996, with the Ministry of Energy,
Mines and Water Resources of Eritrea ("MEMWRE"), the Company and PARC were
granted an exclusive exploration license with an initial term of three years
and two renewal terms of one year each. The agreement grants the Company and
PARC the right to explore over six license areas of 50 km(2) each, for a total
area of 300 km(2) in an area known as Galla Valley. The term of the exploration
period began on June 3, 1996.
The Company and PARC committed to spend $1.25 million on exploration of the
Galla Valley property in the first year of the license. Subject to first year
results and final approval, the minimum initial budgeted expenditures by the
Company and PARC pursuant to the agreement are $3.0 million in the second year
and $5.0 million in the third year of the license. The Company and PARC have
provided
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a bank guarantee with respect to the exploration expenditure commitment of the
first year and must provide a bank guarantee with respect to the exploration
expenditures of each other subsequent year during the term of the license, to
be drawn on by the MEMWRE in the event and to the extent that the expenditure
commitments have not been met.
The Property
The Galla Valley License covers an area 30 km long and 10 km wide, and is
located due south of the capital city of Asmara. Infrastructure is good, with
a major road on the west side of the License and several roads traversing the
License area.
Geology
The greenstones of Eritrea lie within the northern extent of the north-south
trending Pan African - Mozambique Precambrian belt that extends along the east
coast of Africa. The Galla Valley License is underlain by Proterozoic
greenstones and encompasses part of a major hydrothermal system localized by a
major, north trending structural break, tens of kilometers long running under
the capital city of Asmara. In the early 1900s, vigorous gold mining activity
was conducted on the Galla Valley License. At least six small gold recovery
plants using stamp mills and cyanide recovery were operated, exploiting both
open pit and underground ore bodies. Most notably were the Adi Rassi
copper/gold occurrence, mined several times since the sixteenth century, and
the Torat gold mine, exploited by the Italians in the early 1900s up to World
War II.
Work Program
The Company's Phase I work program for 1996 had two objectives, including the
initiation of exploration at the more significant former known gold mines on
the License area, Adi Rassi, Torat and Adi Casci, and the initiation of a
systematic reconnaissance exploration program over the whole of the Galla
Valley License area. During 1996, the Company spent $0.9 million on
exploration with respect to the Galla Valley License.
Geochemical surveys were completed over the known gold occurrences, with
approximately 1,600 soil samples collected at the Adi Rassi and Adi Casci
targets. At Adi Rassi, an initial exploratory core drilling program consisting
of four holes totaling approximately 1,134 m was completed to confirm
mineralization identified by three previous core drilling campaigns conducted
by the Italians in the 1930s, the Ethiopians in the 1960s and the Japanese in
the 1970s. The Company's drilling confirmed the existence of wide zones of
disseminated copper/gold mineralization related to sulfides, primarily
chalcopyrite and to a lesser extent pyrite. In addition to the confirmation of
the sulfide related mineralization, drilling also exhibited the presence of
sheared and folded quartz veining and stockworks. Though copper/gold
mineralization was encountered, sufficient data does not yet exist to confirm
or deny resource estimates previous calculated on the basis of the Ethiopian
drilling program of 9.8 million tonnes grading approximately 1.3% copper and
0.8 g Au/t. The evaluation of all current and prior information on Adi Rassi
will be evaluated to determine if any additional follow-up work at the target
is justified.
Limited core drilling was also conducted at the Torat and Adi Casci targets in
late 1996. At Torat, two drill holes failed to intersect economically
attractive gold mineralization at depth below the existing workings. At Adi
Casci, 1,743 m of trenching was completed over a broad anomalous zone
identified by soil geochemistry. An initial core drill hole under the Adi
Casci trenches intercepted economically
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attractive gold mineralization in surficially altered material. Additional
follow-up core drilling is planned during 1997 to test the depth potential of
mineralization identified by trenching.
As part of the property-wide reconnaissance exploration program, 1,377 soil
samples were collected during 1996 along established grid lines. During 1997,
the interpretation and integration of all results received during the first
year of exploration will be used to determine the second year work program for
Galla Valley. Currently, additional drilling is planned at Adi Casci as well
as Adi Caieh, an existing target due south of Adi Acasci where encouraging
trenching results have warranted follow-up work. Reconnaissance exploration
over the whole of the Galla Valley area will be completed and new areas of
anomalous gold will be followed-up with closely spaced soil sampling and
trenching.
KENYA PROPERTY
Kenya, located in eastern Africa on the equator, is a former British colony
which gained independence in 1963. The country has a population of
approximately 28 million and covers an area of approximately 583,000 km(2). The
official language is English. The government of Kenya is a democratic republic
and the current head of state, President Daniel arap Moi, has been in power
since 1978 with the last multi-party elections held in 1992. Kenya had a
vigorous gold mining industry during the early 1900s up to World War II.
During the period of political turmoil in the 1950s and early 1960s leading up
to independence, the Kenyan gold mining industry declined significantly. The
current economy is dominated by tourism, coffee and other agricultural exports.
NDORI
Pursuant to an agreement dated December 12, 1996, with San Martin Mining
Research and Investment Company ("San Martin") and San Martin 96 S.A., PARC was
granted the immediate and exclusive right to conduct prospecting, exploration,
development or related activities on properties covering an area of
approximately 1,300 km(2) known as Ndori in the Kisumu region of Kenya. The
Ndori License, which permits prospecting and exploration for gold and other
precious metals, became effective on March 29, 1988, and expires on December
31, 1997. PARC was also granted an exclusive option to apply for and acquire a
75% or greater interest in a mining lease or leases pursuant to the license and
any successor rights. In order to maintain the working right and option, PARC
made a payment of $0.6 million concurrent with the execution of the agreement,
and agreed to expenditures of at least $0.6 million during each of the first
and second twelve month periods of the agreement. Any first year expenditures
by PARC in excess of $0.6 million shall be credited against PARC's expenditure
commitments during the second year. PARC committed to make minimum
expenditures during the third, fourth and fifth years of the agreement
sufficient to maintain the Ndori License in good standing.
The Property
The Ndori property covers 1,300 km(2) in western Kenya on the shores of Lake
Victoria, due northwest of the city of Kisumu. Access to the property is good
with a major road through the center of the property and several other
traversing roads.
Geology
The geology of the Ndori property is an extension of the Tanzanian gold fields
to the south and beneath Lake Victoria, with the property lying within a well
differentiated suite of Archean volcanics. Available geologic data from
previous exploration programs by the United Nations Development
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Program ("UNDP") and previous owners suggest the potential for quartz reef
hosted, shear zone hosted and intrusive related gold mineralization.
Approximately 40 old mines at one time or another have been exploited on the
property, 20 of which included milling facilities. Available records from
exploration carried out in the 1980s by third parties indicate an existing
calculated mineralized inventory of 100,000 tonnes grading 11.4 g Au/t at the
Ngiga mine, 100,000 tonnes grading 13.7 g Au/t at the Coronation mine and
75,000 tonnes grading 9.5 g Au/t at the Kidson mine, totaling approximately
104,000 oz.
Work Program
Previous exploration programs of the UNDP and others have primarily focused on
the potential for high grade but low tonnage quartz vein and reef hosted gold
mineralization. The principal objective of PARC's first year's work program in
1997 is the first investigation of the potential of the property to host bulk
minable deposits capable of supporting large scale, modern mining operations.
During 1997, a comprehensive survey of all the existing old gold workings on
the Ndori property is expected to be completed as well as a reconnaissance
program over the whole of the property involving geologic mapping, termite
mound sampling and auger drilling.
Results from the ongoing inventory program are being interpreted and integrated
into a geological information system data base, and remote sensing and airborne
geophysical survey data will be used to identify favorable structural and
lithologic settings for gold mineralization. To date, 205 rock samples have
been collected at old mine sites and a total of 586 termite mound samples have
been collected. Following completion of this work, follow-up work involving
augering and trenching is planned over identified anomalous areas.
LATIN AMERICA PROPERTIES OUTSIDE OF GUIANA SHIELD
SOUTHERN STAR RESOURCES LTD.
In March 1995, the Company formed Southern Star Resources Ltd. ("Southern
Star"), a Barbados corporation and its 100% owned subsidiary, to hold, explore,
develop and exploit all of its mineral interests in Latin America outside of
the Guiana Shield. Southern Star has been actively investigating opportunities
throughout Latin America. To date, Southern Star's acquisitions have been
focused in two countries: Brazil and Bolivia. Capitalized exploration costs
for Southern Star as of December 31, 1996 totaled $7.1 million, with a total of
$6.3 million spent during 1996 on continued exploration and property
acquisition. Budgeted 1997 exploration and preliminary reconnaissance
expenditures for Southern Star total $9.0 million.
BRAZIL PROPERTIES
Brazil is the fifth largest country in the world with an area of 8,510,700
km(2), which is equivalent to almost half of the entire South American
continent. The majority of the country is located in a tropical zone and the
Amazon river system drains over half of Brazil's area. Brazil comprises 27
states and the Federal District of Brasilia, the capital city. With a
population of over 152 million people, its two main cities are Sao Paulo and Rio
de Janeiro. Brazil declared its independence in 1822 and has been a republic
since 1889. From 1964 to 1985, although under a military regime, Brazil
experienced considerable economic growth and development. In 1985, the country
returned to democracy and a new Constitution was implemented in 1988. Even
though Brazil has a free enterprise system, there is still considerable state
and semi-state participation in various strategic sectors, such as
transportation
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and utilities. Special legislation was enacted to privatize many companies,
but the process is moving at a slow pace. The government has been successful
in the last year in reducing the rate of inflation. Brazil hosts the world's
largest iron ore deposits and is the world's largest producer. Major export
products include soybeans, orange juice, cocoa, coffee and manufactured goods.
Southern Star's property interests are located in the central and eastern
Amazon region, with administrative offices in Brasilia, the capital of Brazil,
in the State of Goias.
ANDORINHAS
On December 5, 1995, Companhia Vale do Rio Doce ("CVRD") announced that
Southern Star was selected by CVRD as the successful bidder to earn a right to
associate with CVRD for the possible future development and exploitation of the
Andorinhas gold property in Brazil. CVRD is one of the world's largest
resource and transportation logistics companies. In mining, CVRD ranks as the
world's largest producer of iron ore and ranks as a major producer of bauxite,
manganese, precious metals and other mineral products. CVRD is the largest
individual producer of gold in Latin America and has extensive land holdings
in Brazil. CVRD is currently approximately 51% owned by the Brazilian
government and is currently in the process of a privatization effort. The
Andorinhas tender represents CVRD's first effort to secure outside partners to
assist in the development of CVRD's gold resource potential in Brazil.
An agreement with CVRD was executed in May 1996 by Southern Star and Estrela
Sul Do Brasil Empreendimentos Ltda., Southern Star's wholly owned Brazilian
subsidiary ("Estrela Sul"). Under the agreement, Southern Star's exclusive
right to earn a 50% participating interest in an association with CVRD created
to exploit any gold discovered on the property is conditional upon Southern
Star matching CVRD's previous exploration expenditures of R5.2 million
(approximately $5.5 million, subject to monthly adjustments to account for
Brazilian inflation), completion of a positive feasibility study, and CVRD
obtaining any necessary legal or governmental approvals to form an association
for development and exploitation of a mine. Southern Star must spend a minimum
of R3.7 million (approximately $3.9 million on the property, subject to monthly
adjustments to account for Brazilian inflation). Upon making exploration
expenditures of R5.2 million, CVRD will share equally in all remaining
exploration and development costs. Southern Star has the right to terminate
the agreement and let its right to form an association lapse without any
further obligations at any time as long as it has fulfilled the minimum
exploration commitment of R3.7 million. Otherwise, Southern Star must pay CVRD
the difference between the minimum commitment and the actual amount of
expenditures it has made to the date of the termination.
As part of an agreement with CVRD, and in lieu of cash property payments to
CVRD, Southern Star must also reach agreements with the surface owners and
occupants of portions of the land covered by the three exploration licenses
comprising Andorinhas in connection with its exercise of the exploration
activities. Agreements have been reached with several key land owners to
acquire improvements and surface rights over the two principal target areas on
the property, Mamao and Babacu. These agreements contemplate aggregate cash
payments by Southern Star of approximately $7.1 million payable over four
years. More than a dozen additional people own areas less critical and
peripheral to the main target areas. There can be no assurance that
satisfactory agreements will be concluded with these remaining land owners.
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The Property
The Andorinhas project covers approximately 25,000 ha. and is located in the
state of Para in the eastern Amazon near the town of Rio Maria and is
approximately 150 km south of the Carajas district. The property is located in
the central Para State of northeastern Brazil about 670 km south-southwest of
the city of Belem. It is accessible by paved road to Rio Maria and then dirt
road for 35 km. Scheduled planes service the city of Redencao about 100 km
south of Rio Maria.
Andorinhas is an advanced stage exploration project. Gold mineralization was
discovered at Andorinhas in the late 1970s by Rio Doce Geologia e Mineracao
S.A., CVRD's exploration subsidiary. The geologic setting and mineralization of
discoveries in the area share the same characteristics of many of the notable
underground mines in the Abitibi mineral province in Canada, with high grade
gold-quartz vein mineralization occurring in multiple zones. Surface work and
approximately 15,000 m of drilling by CVRD in late 1970s identified three
primary zones of interest, Mamao and Babacu along a 14 km shear zone trending
northeast-southwest through the southern leg of the property and Lagoa Seca on
a parallel 8 km shear zone to the north. The drilling results averaged 2.7 m
at 17.1 g Au/t from 11 holes at the Mamao prospect, 19.8 m at 4.7 g Au/t from 9
holes at the Lagoa Seca prospect and 2 m at 8.1 g Au/t from 6 holes at Babacu.
In the early 1980s, the Andorinhas area experienced a significant influx of
garimpeiros (illegal miners) who caused most legitimate exploration activity to
cease in the area during that period and who mined multiple surface zones of
enriched mineralization along the shear zones. Garimpeiro mining diminished
significantly in the mid 1980s as gold prices fell and pits from the surface
mining of gold bearing material began to encounter the water table. Several
such pits exist at the two primary target areas on the southern 14 km regional
shear, Mamao and Babacu. At the Mamao area five distinct pits remain:
Melechete, Matinha, Cantina, Maria Bonita and Mandioca. One garimpeiro
established an underground mine on the Melechete ore shoot from the bottom of
the Melechete pit. Access roads were improved, a power line was brought to the
property and a small mill and carbon treatment plant were constructed.
Work Program
During 1996, regional exploration included 65 km of line cutting, 50 km(2) of
surface mapping, and approximately 5,700 line km of airborne geophysical
surveys over the property. A total of 356 deep auger holes, totaling
approximately 2,850 m, were drilled on the Mamao and Babacu zones. Southern
Star's underground sampling of the Melechete ore shoot at the Mamao area during
1996 consisted of a carefully cut series of 675 samples in 78 channels
systematically distributed throughout the 27 levels of the existing underground
workings. The sampling evaluated an ore body whose minimum dimensions, as
defined by the mined out workings, extend from surface down plunge for 270 m,
with a width of up to 150 m, and a thickness of 2.5 to 7 m. Encouraging
results have been received from the sampling with an uncut weighted average
grade of all samples of 20 g Au/t. The cut weighted average grade (cut at the
98th percentile of 125 g Au/t) is 13.7 g Au/t. A core drilling program was
initiated to test for the possible extension of gold mineralization to the west
of the Melechete zone toward the Matinha zone as well as for potentially new
mineralization at the Cantina and Maria Bonita zones.
During 1996, 18 core holes were completed totaling approximately 2,370 m. At
the Matinha zone, located west of the known Melechete orebody, mineralization
was intersected in 8 of 10 holes drilled on approximately 50 m centers to the
northwest of the existing Melechete pit. The most significant five holes
drilled in the Matinha zone, exhibited an uncut, weighted average grade of
approximately
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9.7 g Au/t over an average intercept length of 2.1 m. This drilling in the
Melechete/Matinha area suggests that the Melechete and Matinha zones are part
of one continuously mineralized zone with a strike length of at least 300 m and
variable thickness. The first phase of drilling resulted in a better than
doubling of the strike length of mineralization in the Melechete/Matinha area,
which remains open down plunge. Core holes drilled in the Cantina and Maria
Bonita zones intercepted mineralized shear zones with average grades of 0.5 to
2.0 g Au/t, though it is not yet certain how this shear-related mineralization
can be correlated with that discovered in the Melechete/Matinha area to the
west. Total exploration and acquisition expenditures in 1996 on the Andorinhas
property were $3.4 million.
The work program for Andorinhas during 1997 involves a minimum of 12,000 m of
core drilling. The principal objective for the second phase of core drilling
in the Mamao area will be to complete an initial evaluation of the
Melechete/Matinha mineralized zone on 50 to 100 m centers over a strike length
of 400 m and down plunge 700 m. This part of the program will require a
minimum of 20 holes, totaling approximately 8,000 m. A second core drill is
scheduled to begin the first phase of core drilling at the "Babacu" area,
anticipated to involve approximately 4,800 m of core drilling. A systematic
deep augering program, a geologic mapping effort and sampling of other old
surface workings will continue on targets to the north of the Mamao area as
well as testing for extensions of the Mamao-Babacu regional shear. A ground
geophysical survey is anticipated to better evaluate anomalies identified by
the 1996 airborne geophysical survey, particularly to the south of the Mamao
area. Budgeted 1997 exploration expenditures total $5.3 million for the
Andorinhas property.
ABACAXIS PROPERTY
Pursuant to an option agreement dated as of June 19, 1996, among Estrela Sul,
Matapi Exploracao, Mineral Ltda. ("Matapi") and Ourobras Pesquisas e Mineracao
da Amazonia Ltda. ("Ourobras"), Estrela Sul acquired a working right and
five-year option to acquire 100% of the right, title and interest of Matapi and
Ourobras to three "alvaras", or exploration licenses, issued in favor of
Matapi, collectively known as the Abacaxis property. Ourobras has a
preexisting joint venture agreement with Matapi with respect to the Abacaxis
property.
Estrela Sul has paid Matapi and Ourobras approximately $0.2 million to date in
connection with the option. Additionally, to keep its option and working right
in force, Estrela Sul must: (i) pay Matapi approximately $150,000 on December
1, 1997 and $0.3 million on December 1, 1998 and (ii) incur expenditures on the
property of at least $0.2 million by June 19, 1997, an aggregate of $0.5
million by June 19, 1998, an aggregate of $1.1 million by June 19, 1999 and an
aggregate of $2.0 million by June 19, 2000. Estrela Sul may exercise its
option at any time after completing the payment and expenditure obligations set
forth above up to the fifth anniversary of the option agreement. Following
exercise of the option, Matapi and Ourobras will be jointly entitled to a
royalty of 2% of all net smelter returns from any mine developed on the
property, provided that Estrela Sul has the perpetual right to purchase 50% of
such interest for $0.8 million which, if exercised, would leave Matapi and
Ourobras with a net smelter royalty of 1%. Estrela Sul must make two advance
payments of the royalty, in the amount of $0.5 million each (or $250,000 after
purchase of 50% of the royalty) within 10 days after June 19, 2000 and June 19,
2001, respectively.
The Property
The Abacaxis property covers approximately 30,000 ha. and is located
approximately 270 km southeast of the city of Manaus, in the District of Maues,
State of Amazonas, Brazil. It is accessible by boat, small fixed-wing aircraft
or helicopter. Abacaxis is in the Tapajos area, which is one of the most
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actively worked areas mined by garimpeiros in Brazil. At Abacaxis, narrow
quartz-sulfide-gold veins cut Proterozoic metasedimentary rocks. The veins are
exceptionally high grade, at more than 30 g Au/t. Adjacent wall rocks also
locally contain anomalous values of gold with as much as 2 to 4 g Au/t. The
area is at the margin of a failed Proterozoic rift that may have been
remobilized during younger tectonic events.
Work Program
Work began at Abacaxis in December 1995 with camp construction access and grid
line cutting. During 1996, gold exploration at Abacaxis took place at both
regional grid-controlled scales. Fixed-wing airborne geophysical surveys were
completed, totaling 4,024 line km of magnetic and radiometric surveys on a 200
m line spacing over the whole of the 30,000 ha. property. A total of 207 line
km of follow-up stream sediment traverses was completed involving 305 rock and
555 stream sediment samples. A preliminary 4 by 4 km grid totaling 52 line km
at a 400 m line spacing was established in the central part of the property. A
more detailed grid totaling 25.7 line km at a 100 m line-spacing with an
additional 5.2 km of base line extension was then established over an area
which includes four principal +200 ppb anomalies: Airstrip, Main Pit, Tatu and
RG-25. Approximately 770 soil samples, 375 rock samples and 136 stream
sediments samples were collected from the combined grid areas and analyzed for
gold.
During the second half of 1996, 595 deep auger holes, totaling approximately
4,525 m were systematically drilled every 40 m along the 100 m grid, yielding a
weighted average grade of approximately 1.0 g Au/t across the four anomalies.
The zones range from 300 m to 800 m in strike length, and up to 400 m in width.
Two of the anomalous areas (Main Pit and Airstrip) contain bedrock occurrences
of gold bearing quartz veins. Late in 1996, infill deep auger drilling was
initiated to test the continuity of gold in saprolite in the Tatu zone. Total
1996 exploration and acquisition expenditures for Abacaxis were $1.2 million.
The 1997 exploration program at Abacaxis anticipates the refinement of the
central grid utilizing additional deep augering, ground geophysics and core
drilling. A core drilling program will be developed to test each zone,
Airstrip, Main Pit, Tatu and RG-25, with three holes. Additional
reconnaissance work is scheduled on an area of interest identified in 1996 to
the east of the central grid. Reconnaissance work is anticipated to involve
establishing a grid through linecutting followed by geologic mapping and
preliminary deep augering. Total 1997 budgeted exploration expenditures for
Abacaxis are $0.8 million.
BOLIVIA PROPERTIES
Bolivia is located in the western part of South America and has an area of 1.1
million km(2). The western part of the country, the high Altiplano, averages
over 3,800 m in elevation, while the eastern portion of the country is a
tropical lowland. Bolivia has been an independent nation since 1825. Although
there has been a history of military regimes through the 1970s, all governments
since 1982 have been democratically elected. The country has nine Departments
with a total population of approximately 10 million. The capital and principal
city, located in western Bolivia, is La Paz. Southern Star has established an
administrative office in the city of Santa Cruz in central Bolivia. In addition
to the San Simon and Sunsas South properties described below, Southern Star has
acquired or is in the process of acquiring rights on at least 15 other early
stage gold and diamond exploration properties in Bolivia.
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SAN SIMON
Pursuant to a joint venture agreement dated as of February 23, 1996 among Jean
Marc Marie Teisseire Bellini and Nelson Herrera Ribera, two Bolivian nationals
(collectively, "Teisseire and Herrera") and Southern Star Bolivia S.R.L., the
wholly owned subsidiary of Southern Star, Southern Star Bolivia acquired the
right to undertake exploration, development and exploitation activities on the
five concessions in the San Simon region of northeastern Bolivia, covering an
aggregate of approximately 14,600 ha. Southern Star Bolivia, in its
discretion, may exclude all or portions of the five concessions from the joint
venture at any time, subject to certain limitations, and may terminate the
joint venture at any time without further obligation. In October 1996,
Southern Star Bolivia opted to exclude three of the five concessions (covering
approximately 6,000 ha) from the joint venture and relinquished any further
rights with respect thereto. The two concessions remaining in the joint
venture are known as Marco Maria (approximately 5,200 ha.) and Ibere
(approximately 3,300 ha.).
As of December 31, 1996, Southern Star Bolivia has made cash payments to
Teisseire and Herrera of approximately $0.1 million in connection with the
joint venture. Additionally, Southern Star Bolivia must pay: $7 per hectare
for each hectare remaining subject to the joint venture as of October 31, 1997;
and $10 per hectare for each hectare remaining subject to the joint venture as
of October 31, 1998.
Commencing on October 31, 1999, and each six months thereafter, Southern Star
Bolivia must pay Teisseire and Herrera (jointly) advance royalty payments of
$15,000 until the commencement of commercial production on a mine, which
amounts shall be offset by deducting 50% of all future royalty payments earned
until the amounts advanced are repaid in full. Teisseire and Herrera are
jointly entitled to a royalty equal to 3% of the net smelter returns from any
mine developed on the two remaining properties. Southern Star Bolivia has the
right, during the first two years after commencement of commercial production,
to purchase 41.66% of the original royalty from Teisseire and Herrera for $1.0
million and an additional 41.66% (for an aggregate of 83.3%) of the original
royalty for an additional $1.5 million which, if exercised, would leave
Teisseire and Herrera with a net smelter royalty of 0.5%.
In early 1996, claims of "denouncement" of title were filed against virtually
all the mineral concessions then existing in the San Simon region, including
the Marco Maria and Ibere properties, alleging a technical default relating to
the "form" used by the various concession holders to file their annual patent
payments. After consulting with local Bolivian counsel, management does not
believe this poses a major risk to title to the concessions. However, no
assurance can be given with respect to the outcome of those claims at this
time. The acquisition of mineral title under the Bolivia mining code is
extremely technical and, in many cases, technical defaults cannot be cured and
can result in the loss of title. Jorge Forgues Valverde, a Bolivian national
("Forgues"), has filed a claim for the rights to the Marco Maria concession,
alleging that the rights of Teisseire and Herrera have expired or are otherwise
invalid. Southern Star Bolivia has an understanding with Forgues pursuant to
which Southern Star Bolivia would enter a joint venture agreement with Forgues
and a third party, on substantially the same terms as its current agreement
with Teisseire and Herrera in the event Forgues' claim to Marco Maria should be
legally recognized. In addition, Southern Star Bolivia has a preliminary
agreement with Forgues and a third party with regard to a joint venture on two
prospective gold exploration properties in the San Simon region known as Joe
(550 ha.) and Laurencio (775 ha.) over which Forgues has pending title claims.
There can be no assurance as to the outcome of Forgues' pending title claims to
the Marco Maria, Joe or Laurencio concessions, nor with respect to the
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consummation by Southern Star Bolivia of a formal agreement or agreements with
Forgues with respect to those properties.
The Property
The San Simon area is located in northeastern Bolivia, in the Department of
Beni, in the Itenez province, near the Brazilian border. The existing and
pending concessions mentioned above, totaling approximately 9,825 ha., are
located in the Serrania San Simon, which is comprised of a series of ridges and
flat-topped mesas rising up to 400 m above the jungle. From Santa Cruz, the
area is accessed by paved and dirt roads (approximately 250 km and 520 km
respectively), or by plane. The gold deposits in the Serrania San Simon were
first worked by the Jesuits during the colonization period (1688-1767). Mining
activity was renewed in the late nineteenth century and peaked during the first
rubber boom (1905-1918). Currently, local minors are working on a small scale
on two concessions belonging to other companies.
Weakly metamorphosed folded and faulted Proterozoic sediments underlie much of
the area. Gold-bearing quartz veins, commonly with arsenopyrite, occur in the
El Colorado Quartzite and Bonanza Metasubgraywacke. Rock samples from
concessions adjacent to Southern Star's have yielded up to 12 g Au/t. Placer
gold occurs downstream from some of Southern Star concessions.
Work Program
During 1996, reconnaissance work was conducted throughout the property and
involved the collection of approximately 488 rock samples, 2,910 soil samples,
115 stream sediment samples, and 10 BLEG samples. This work resulted in the
identification of the anomalous Marco Maria zone. Follow-up work included 32
deep auger holes and a ground geophysical survey totaling approximately 23 line
km. During 1996, the Company spent $0.7 million on exploration at the San
Simon area.
Work during 1997 has been scheduled to focus on better definition of the Marco
Maria anomaly through additional deep augering and trenching in order to plan
an initial core drilling campaign.
SUNSAS SOUTH
Southern Star Bolivia has entered into a preliminary agreement with Goran
Matcovic Vranjican ("Matcovic"), pursuant to which Matcovic has granted
Southern Star Bolivia the option to earn an 85% interest in two exploration
concessions, known as Marioly (of approximately 19,500 ha.) and Mira Maria
Magdalena (of approximately 11,200 ha.) in the southern Sunsas region of
Bolivia, subject to completing a due diligence investigation and consummation
of a formal option agreement meeting all the requirements of Bolivian law.
Southern Star Bolivia has additionally obtained a 100% interest in an
exploration concession in the southern Sunsas region known as Santo Corazon (of
approximately 14,700 ha.).
Southern Star Bolivia has made cash payments to Matcovic of $50,000 to date in
connection with the option on the Marioly and Mira Maria Magdalena concessions.
Another cash payment of $70,000 is due on August 15, 1997. Additionally, to
earn its 85% interest, Southern Star Bolivia must (i) incur minimum
expenditures of $350,000 and complete a minimum of 2,000 m of diamond drilling
on the concessions within 24 months after execution of a formal option
agreement and (ii) complete at some point (no fixed time limit) a
"pre-feasibility study" on the concessions sufficient, in Southern Star
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Bolivia's judgment, to justify commissioning a formal feasibility study
thereon. Southern Star Bolivia may terminate the preliminary option agreement
at any time without further obligation.
The Property
The Sunsas area is located in southeastern Bolivia, in the Department of Santa
Cruz, in the Angel Sandoval Province, approximately 400 km from Santa Cruz.
The area of the concession consists of the Goran Matkovic options and the Santo
Corazon concession. From Santa Cruz, the area is accessed by dirt road.
Work Program
During 1996, the regional exploration effort comprised 66 rock, 639 soil, 256
pan concentrate and 14 BLEG samples. Gold was panned in the majority of the
Matkovic block drainages, with up to 3 relatively coarse gold colors (up to 1
mm). Santo Corazon does not appear to contain coarse gold; however, the area
to the west does and is presently being solicited. Soil sampling has proven
unsuccessful due to the veneer of piedmont coverage and the BLEG sampling has
proven inconclusive.
Work during 1997 will focus on the remainder of the Matkovic claim block
(presently 60% explored) with first pass sampling. Follow-up detailed sampling
will be conducted on favorable zones. Ground magnetics will be carried out
across selected areas of interest as well.
ITEM 3. LEGAL PROCEEDINGS
There are currently no 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 Property - General".)
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Executive Officers of the Registrant
(as of March 14, 1997)
The executive officers of the Company, their ages and their business experience
and principal occupations during the past five years are:
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Name Age Office and Experience Officer Since
-------------------------------------------------------------------------------------------------------------
Jeffrey T. Abbott 55 President of Southern Star Resources Ltd. since March 1995; 1995
prior thereto Manager of the Latin America division from
October 1994; prior thereto Vice President of Homestake
International & Minera Homestake Chile.
-------------------------------------------------------------------------------------------------------------
Gordon J. Bell 39 Vice President and Chief Financial Officer of the Company 1995
since November, 1995; prior thereto, Vice President and
Director, RBC Dominion Securities Inc. from October, 1994;
Vice President, RBC Dominion Securities Inc. from December,
1991 to October, 1994.
-------------------------------------------------------------------------------------------------------------
Carlos H. Bertoni 45 Vice President, Exploration (Eastern Division) since 1993 and 1993
prior thereto, Exploration Manager. Mr. Bertoni joined
Golden Star in 1988 as a Senior Geologist.
-------------------------------------------------------------------------------------------------------------
David A. Fennell 44 Chief Executive Officer of the Company since May 1996; 1992
President of the Company since May, 1992.
-------------------------------------------------------------------------------------------------------------
Adrian W. Fleming 48 Executive Vice President, Exploration of the Company since 1994
May 1996. President of PARC since 1995 and of PARC Barbados
since 1994; Director, Barnu Pty Limited (industrial minerals
mining company) from 1990 to 1993.
-------------------------------------------------------------------------------------------------------------
Louis O. Peloquin 39 Vice President, General Counsel and Secretary of the Company 1993
since June, 1993; Attorney, McCarthy, Tetrault (law firm)
from 1991 to June, 1993.
-------------------------------------------------------------------------------------------------------------
Hilbert N. Shields 41 Vice President, Exploration (Western Division) since 1993 and 1993
prior thereto, Exploration Manager. Mr. Shields joined
Golden Star in 1988 as a Senior Geologist.
-------------------------------------------------------------------------------------------------------------
Richard A. Winters 34 Vice President, Corporate Development since August 1995; 1995
prior thereto Senior Analyst, Robertson Stephens & Co. from
August 1994; prior thereto Senior Engineer, Phelps Dodge
Mining Co. from January 1993 to August 1994; prior thereto
Instructor Mineral Economics, Colorado School of Mines from
June 1991.
-------------------------------------------------------------------------------------------------------------
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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 of March 14, 1997, 26,622,636 common shares were
outstanding and the Company had 645 shareholders of record. On March 14, 1997,
the closing sale price per share for the Company's common shares, as reported
by the TSE was Cdn$18.85 and as reported by the AMEX was $13.88. The following
table sets forth, for the periods indicated, the high and low market closing
prices per share of the Company's common shares as reported by the TSE and the
AMEX.
Toronto Stock Exchange American Stock Exchange
-------------------------- -----------------------
Cdn$ Cdn$ $ $
High Low High Low
---- --- ---- ---
1996:
First Quarter 22.00 7.25 16.25 5.19
Second Quarter 26.00 17.25 19.13 12.88
Third Quarter 27.10 16.75 19.75 11.75
Fourth Quarter 28.25 18.00 21.00 12.75
1995:
First Quarter 11.75 9.25 8.50 6.58
Second Quarter 12.00 9.25 8.75 6.63
Third Quarter 9.88 6.75 7.00 4.88
Fourth Quarter 8.00 6.25 6.00 4.50
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 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
Canada-United States Income Tax Convention (1980) (the "Treaty"), the rate of
withholding tax is 6% for 1996 and 5% thereafter of the gross amount
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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.
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.
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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 (or, if the corporation elects, the
adjusted basis) 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 Coopers & Lybrand L.L.P. that it should not be
treated as a PFIC with respect to shares purchased by U.S. shareholders during
1993, 1994, 1995 and 1996, 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 Coopers & Lybrand L.L.P. in the future to analyze whether it
is a PFIC in 1997 and subsequent years and will continue to notify shareholders
of the results of such future analyses.
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 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.
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 "Mark
to Market Election" described below) and (ii) the Company provides the U.S.
shareholder with an "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
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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 "Shareholder Section 1295
Election Statement", a "PFIC Annual Information Statement", and Form 8621 with
its tax return. In the case of stock owned through a U.S. entity, the election
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
Election Statement 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 "Mark to Market 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 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.
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.
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
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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, 1996, 1995, 1994 and 1993 and for the periods from May 16, 1992 to December
31, 1992 and July 1, 1991 to May 15, 1992. Consolidated financial statements of
the Company included elsewhere herein 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"). For United States GAAP reconciliation, 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."
SUMMARY OF FINANCIAL CONDITION DATA AT END OF PERIOD
(Amounts in thousands except per share data)
As of As of As of As of As of As of
December 31, December 31, December 31, December 31, December 31, May 15,
1996 1995 1994 1993 1992 1992(1)
Working capital $15,287 $11,092 $ 34,940 $ 16,735 $ 1,613 $ (621)
Current assets 22,182 16,074 38,603 17,574 4,148 1,442
Total assets 96,283 77,609 85,540 47,299 19,221 15,471
Current liabilities 6,895 4,982 3,663 839 2,535 2,063
Long-term debt - - - - - -
Shareholders'
equity $78,094 $68,388 $ 79,695 $ 46,460 $ 16,686 $ 13,407
For the For the
For the Year For the Year For the Year For the Year Period from Period from
Ended Ended Ended Ended May 16, 1992 July 1, 1991
December 31, December 31, December 31, December 31, to December to May 15,
1996 1995 1994 1993 31, 1992 1992(1)
Revenue $2,801 $ 5,590 $ 2,736 $ 772 $ 138 $ 245
Net loss (7,780) (12,181) (8,785) (1,650) (14,170) (1,207)
Net loss per share $(0.31) $ (0.54) $ (0.42) $ (0.10) $ (1.14) $ (0.10)
(1) On May 13, 1992 and May 12, 1992, the shareholders of each of Golden
Star and South American, respectively agreed to a business
combination. This combination, which for accounting purposes is
treated as a purchase by Golden Star, became effective May 15, 1992,
the date at which the companies legally amalgamated to become a single
company named "Golden Star Resources Ltd.". In conjunction with the
amalgamation, the Company changed its fiscal year end from June 30 to
December 31. See additional discussion in Note 1 to the financial
statements.
(2) Neither the Company nor Golden Star paid any cash dividends during the
fiscal years/periods indicated above.
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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. For
the U.S. GAAP reconciliation see attached consolidated financial statements as
well as "Results of Operations" below.
CAUTIONARY STATEMENT FOR PURPOSES OF REFORM ACT
The following contains certain forward-looking statements within the meaning of
the Reform Act. 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 put
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.
RESULTS OF OPERATIONS
OVERVIEW
The Company's current business activity focus is the exploration and
development (if warranted) of precious metal and diamond deposits within
specific geological domains. Under Canadian GAAP, expenditures relating to
these activities are capitalized in recognition of the potential future value
of prospective targets. Upon completion of the exploration phase, a decision
to proceed to the development phase requires that these expenditures reflect
the cost of the resultant reserves and be depleted on the unit of production
basis over the estimated total reserve as 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. As such, reported net income or loss
for the Company may be volatile and principally represents investment revenues
received through the investment of idle funds, the surplus received on
redemption of preferred shares in OGML held by the Company, and other revenues,
as offset by those expenditures which cannot be directly attributed to a
specific project and those costs for projects the Company has elected to
abandon.
Under U.S. GAAP, exploration and general and administrative expenses related to
projects are charged to expense as incurred, whereas under Canadian GAAP, such
expenses are capitalized as discussed above. Property acquisition costs are
deferred for both Canadian and U.S. GAAP until it is determined whether a
project is commercially feasible. In addition, under U.S. GAAP, compensation
expense is recorded for the excess of the quoted market price over the option
price granted to employees and directors at the date of grant under stock
option plans. Under Canadian GAAP, no compensation expense is recorded for
such awards. The gains on issuance of subsidiary's common stock recorded under
Canadian GAAP in respect of the PARC and Guyanor equity financings would not be
recorded under U.S. GAAP. Under U.S. GAAP, accrued severance and social
charges resulting from the shut-down of alluvial mining operations at SOTRAPMAG
would not have been recorded as the requirements for accrual were not satisfied
as of December 31, 1996.
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The effect of the differences in accounting under Canadian GAAP and U.S. GAAP
on the statement of net loss is as follows:
For the years ended December 31,
(In thousands except per share amounts)
1996 1995 1994
---- ---- ----
Net loss under Canadian GAAP $ (7,780) $ (12,181) $ (8,785)
Effect of the deferred exploration
expenditures on loss for the period (10,231) (13,610) (7,797)
Effect of recording compensation expense
under stock option plans (85) (256) (708)
Reversal of the gain on subsidiary's issuance
of common stock (7,719) (2,575) (738)
Reversal of accruals for severance costs 1,115 - -
Effect of Omai Preferred Share Redemption 520 548 456
------- ------- -------
Net loss under U.S. GAAP before minority
interest (24,180) (28,074) (17,572)
-------- -------- --------
Minority interest (1,097) (256) 1,491
-------- -------- -------
Net loss under U.S. GAAP $(25,277) $(28,330) $ (16,081)
========= ========= ==========
Net loss per share under U.S. GAAP $ (1.00) $ (1.24) $ (0.76)
========== ========== ==========
1996 COMPARED TO 1995
The Company reported a net loss of $7.8 million in 1996 as compared to a net
loss of $12.2 million in 1995. During 1996, the Company incurred a charge of
$5.3 million for the write-off of capitalized exploration for the Eteke project
in Gabon, as a result of the sale of the Company's interest in the Eteke
project in January. The Company and PARC decided to discontinue exploration
activities at Eteke as the project did not meet the standards required by the
Company for further exploration activities and the 20% minority interest owner
exercised its right of first refusal under the property agreement, purchasing
all of PARC's interest for $0.6 million. The Company also incurred a charge to
earnings of $4.0 million for write-down of costs capitalized for the Dul
Mountain project in Ethiopia. The majority of the property area of the Dul
project did not meet the Company's standards and the Company intends to
relinquish approximately 75% of the concession area, with minimal exploration
on the area budgeted for 1997. The Company's consolidated share of the
write-downs for the Eteke and Dul projects was $3.1 million and $2.3 million,
respectively, net of minority shareholders' portion of the loss.
The Company, through Guyanor, incurred losses totaling $3.2 million in the
fourth quarter for write-downs and accruals related to the shutdown of alluvial
mining operations at SOTRAPMAG. (See below.) The Company's consolidated share
of these losses net of minority interests was approximately $2.2 million.
Offsetting these charges were dilution gains totaling $7.7 million resulting
from the sale of shares by and exercise of stock options and warrants in the
Company's publicly traded subsidiaries PARC and Guyanor. The Company also
recorded a gain of $0.9 million on the recovery of abandonment losses recorded
in 1995 resulting from the exit of activities in Venezuela.
Total revenues decreased to $2.8 million as compared to $5.6 million in 1995
principally due to operating difficulties and reduced production by SOTRAPMAG.
Interest and other revenues decreased from $1.6 million in 1995 to $1.1 million
in 1996 due to the decrease in the average cash balance invested during 1996 as
compared to 1995. Cost of goods sold decreased to $4.1 million for 1996 as
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compared to $5.8 million for 1995 as a result of the reduced production levels
at SOTRAPMAG during 1996, with revenue from gold sales in 1996 of $1.7 million,
compared to revenue of $4.0 million in 1995. Total gold production at
SOTRAPMAG in 1996 was 143,562 grams (4,616 ounces) compared to 1995 production
of 347,295 grams (approximately 11,165 oz). SOTRAPMAG's cost of goods sold
exceeded revenues in 1996 by $2.4 million and in 1995 by $1.8 million primarily
as a result of higher unit operating costs resulting from lower than expected
grades of gold ore mined, lower than planned recoveries of gold due to the
delays in changing the recovery methods used, and inefficiencies due to
inherited plant operating design and methods. During 1996 and 1995,
approximately $0.9 million and $1.0 million, respectively, was spent on
improvements in infrastructure and mining and recovery processes at SOTRAPMAG
in an effort to increase production and lower unit operating costs.
The alluvial operations being conducted through SOTRAPMAG experienced
continuing operating losses since its acquisition in 1994. Outside consultants
engaged in 1996 to review the operations and make recommendations on how to
render the operation profitable concluded that without a significant capital
investment to increase production, changes in certain work practices and a
reduction in fuel taxes, the operation could not achieve profitability. As a
result, the Company, through Guyanor, has begun implementation of a program to
discontinue the alluvial operations conducted by SOTRAPMAG. The Company
incurred charges to fourth quarter 1996 earnings totaling $3.2 million,
including $0.8 million resulting from the write-down of certain fixed assets
and inventories, $1.1 million for the write-down of certain capitalized
exploration costs related to the alluvial mining operations, $0.1 million for
accrual of land rehabilitation and mine closure costs, and $1.1 million for
accrual of the severance and other social costs associated with the
discontinuation of alluvial production. The Company's share of these losses as
of December 31, 1996, was $2.2 million after minority interest. Certain fixed
assets, equipment and inventories owned by SOTRAPMAG will be utilized in the
ongoing exploration at the Paul-Isnard project area and were not subject to a
write-down. The final amount of severance and other costs associated with the
discontinuation of alluvial production are contingent upon negotiation with the
representative of the workers and the French government. The Company also
expects to incur operating losses of approximately $0.5 million during the
shut-down process during the first quarter of 1997.
General and administrative expenditures totaled $9.1 million for 1996, as
compared to $9.4 million for 1995. Depreciation expense increased $0.2 million
as a result of an increase in the depreciable asset base through equipment
purchases of $1.7 million during 1996 for exploration and support services and
inclusion of a full year of depreciation for assets purchased in 1995.
OGML, in which the Company maintains a 30% common share equity interest,
reported net income of $2.7 million for the year ended December 31, 1996,
compared to a net loss of $2.1 million for the year ended December 31,1995.
The Omai mine produced 254,950 oz of gold in 1996 versus 175,080 oz of gold in
1995. The increase in both earnings and production was achieved after the
temporary shut down of the mine resulting from the tailings dam failure in
August 1995. The mine re- opened on February 4, 1996. Although the first
quarter of 1996 was adversely impacted by the mine closure, the mine achieved
record quarterly production in the fourth quarter of 1996. The commissioning
of the expanded mill facilities in the third quarter of 1996 contributed to
higher production levels. Approximately $1.1 million was distributed to the
Company in 1996 via the redemption of Class "I" preferred shares of OGML as
compared to $1.2 million during 1995.
Under the equity method of accounting, the Company is required to record its
share of OGML's losses to the extent that the losses do not exceed the cost of
the common share investment in OGML.
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Accordingly, the Company has not recorded the loss amount, and will commence
recognition of future income when its share of accumulated income exceeds its
share of accumulated losses. As of December 31, 1996, the Company's share of
cumulative equity loss was $2.7 million.
Various factors, such as market price fluctuations of gold, increased
production costs and/or reduced recovery rates may render ore reserves
uneconomic or may ultimately result in a restatement of ore reserves or asset
write-down. Moreover, short term factors relating to the ore reserves, such as
the need for orderly development of ore bodies, the processing of variable ore
grades, and/or other potential problems, may impair the profitability of the
Omai mine.
The minority interest share of the Company's consolidated losses increased to
$7.6 million in 1996 from $4.9 million in 1995 due to the increase in minority
ownership of PARC resulting from the private placement in February 1996,
increase in minority ownership of Guyanor resulting from the October 1996
offering, and the minority interest shares of property abandonments and
operating losses in 1996 for both PARC and Guyanor.
1995 COMPARED TO 1994
The Company reported a net loss of $12.2 million in 1995 as compared to a net
loss of $8.8 million in 1994. During 1995, the Company abandoned the Aranka
project in Guyana as it did not meet the standards required by the Company for
further work, incurring a charge against earnings of $1.4 million. In
addition, $0.4 million of capitalized costs were charged to property
abandonment for a prospecting area in Guyana which will not be pursued in the
future. The Company also wrote off the costs associated with the Baomahun
project in Sierra Leone in recognition of continuing security problems and
civil unrest in Sierra Leone that may not be resolved in the near term,
incurring a charge against earnings of $1.2 million. In addition, certain 1994
capitalized exploration expenditures for PARC, totaling $0.2 million were
charged to property abandonments as of December 31, 1995, as the exploration
areas associated with these costs will not be pursued in the foreseeable
future.
As a result of the 1996 budgeting process and related project prioritization,
the Company charged costs related to various exploration prospects in Latin
America incurred by Southern Star to exploration expense as of December 31,
1995. The expense charge against earnings was $0.9 million. In addition,
certain related costs incurred during 1994 were charged to property
abandonment, totaling $0.1 million. In February 1996, the Company determined
that the capitalized deferred exploration costs in VenStar and the related
entities were not recoverable in the foreseeable future. As such, all related
capitalized exploration costs were charged to property abandonment as of
December 31, 1995. The total charge was $4.5 million. The Company's share of
this charge, after minority interest, was $1.4 million. The Company also wrote
off $0.8 million in costs incurred by the Company related to the Venezuelan
properties.
Total revenues increased to $5.6 million as compared to $2.7 million in 1994
principally due to a full year of gold sales by SOTRAPMAG. Revenue from gold
sales in 1995 was $4.0 million at an average realized gold price of $388 per
ounce sold. Interest and other revenues decreased from $2.2 million in 1994 to
$1.6 million in 1995 due to the reduction in the average cash balance invested
during 1995 as compared to 1994.
Cost of goods sold increased to $5.8 million for 1995 as compared to $0.7
million for 1994 as the result of the inclusion of SOTRAPMAG's production costs
for a full year in 1995. Cash operating
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costs amounted to $562 per ounce sold. Total gold production at SOTRAPMAG in
1995 was 347,295 grams (approximately 11,165 oz). SOTRAPMAG's cost of goods
sold exceeded revenues in 1995 by $1.8 million primarily as a result of higher
unit operating costs resulting from lower than expected grades of gold ore
mined, lower than planned recoveries of gold due to the delays in changing the
recovery methods used, and inefficiencies due to inherited plant operating
design and methods. During 1995, approximately $1.0 million was spent on
improvements in infrastructure and mining and recovery processes in order to
increase production and lower unit operating costs.
General and administrative expenditures increased to $9.4 million (as compared
to $4.7 million in 1994) reflecting the necessary growth in the level of
support necessary to service the increased size of the Company's portfolio of
exploration projects throughout South America and Africa, and the costs
associated with creating and maintaining a public listing for Guyanor and PARC.
Depreciation expense increased as a result of an increase in the depreciable
asset base through the various acquisitions made in 1994 and an increase in
equipment purchases of $0.9 million for the period for exploration and support
services.
During 1995, the Company recorded an additional charge of $0.2 million relating
to disposal of assets associated with the sale of the Company's drilling
division and other assets. The Company realized a gain on issuance of Class B
common shares of Guyanor of $1.6 million on March 14, 1995, which issuance
reduced the Company's ownership interest in Guyanor from 100% to approximately
70% and a gain on the issuance of common shares of PARC of $0.9 million in May
1995, which issuance reduced the Company's ownership interest in PARC to
approximately 85%.
OGML reported a net loss of $2.1 million in 1995 versus a loss of $1.5 in 1994.
Omai produced 175,080 oz of gold in 1995 versus 250,644 oz in 1994 as a result
of the shut down of the mine from August 19, 1995, to February 4, 1996, due to
the tailings dam failure. Operating cash flows of $1.2 million were
distributed to the Company via the redemption of Class "I" preferred shares as
compared to $1.0 million during 1994. As of December 31, 1995, the Company's
share of cumulative equity loss was $3.4 million.
Minority interest share of loss increased to $4.9 million primarily due to the
initial public offering of Guyanor on March 14, 1995, the issuance of common
shares by PARC in May 1995, and the write off of deferred exploration
expenditures in Venezuela.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated cash and short term investments as of December 31, 1996 of $15.7
million increased $6.2 million from $9.5 million as of December 31, 1995 as a
result of the Company's public offering in March 1996 ($12.9 million), PARC's
equity offering in February 1996 ($9.0 million), and Guyanor's offering of its
Class B common shares on the Nouveau Marche in November 1996 ($8.9 million),
principally offset by net exploration expenditures of $24.3 million and
administrative expenditures of $9.1 million during 1996. Working capital as of
December 31, 1996, increased $4.2 million to $15.3 million as compared to $11.1
million as of December 31, 1995.
Product and supplies inventories, accounts receivable and other current assets
increased $0.1 million during the year resulting primarily from an increase in
accounts receivable due to the exit of activities in Gabon ($0.6 million),
offset by inventory and accounts receivable write-downs totaling $0.4 million
related to the shut-down of alluvial mining operations at SOTRAPMAG.
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Cash used in investing activities of $23.4 million in 1996 increased from $21.2
million in 1995 primarily due to the increase in exploration expenditures
related to the Company's operations in Latin America, the gold and diamond
reconnaissance projects in Guyana and the purchase of equipment for use at
SOTRAPMAG.
Cash provided by financing activities increased to $40.3 million from $7.8
million in 1995. On March 6, 1996, the Company effected a public offering in
Canada of 1.75 million units at Cdn$10.50 per unit for net proceeds of $12.9
million (Cdn$18.4 million). Each unit consisted of one common share and
one-half common share purchase warrant. Each whole warrant was exercisable
into one common share until March 6, 1997 at a price of Cdn$11.00. In
addition, the Company received $9.0 million from the February 1996 PARC private
placement and $8.9 million from the November 1996 Guyanor offering of its Class
B common shares on the Nouveau Marche. During 1996 the Company received $0.3
million from the exercise of Guyanor stock options and $1.0 million from the
exercise of PARC stock options and warrants, as well as $6.7 million and $4.0
million from the exercise of the Company's stock options and warrants,
respectively, as compared to stock option exercise proceeds of $0.3 million in
1995. During the year ended December 31, 1996, restricted cash balances
decreased by $0.5 million to $2.0 million, reflecting the reduction in the
Company's work program obligation in Ethiopia, offset by new program funding
obligations in Eritrea.
On September 25, 1996, the Company filed with the SEC a shelf Registration
Statement, with respect to the proposed issuance by the Company from time to
time of up to $75.0 million of its common shares, preferred shares, convertible
debt securities and/or warrants. On November 6, 1996, the Company filed an
amendment to the Registration Statement with the SEC and the Registration
Statement as amended was deemed effective on November 8, 1996.
On October 15, 1996, the Company filed with nine Canadian provincial securities
commissions a short-form shelf prospectus, with respect to the proposed
issuance by the Company from time to time of up to 5.0 million common shares
and/or 5.0 million common share purchase warrants and a short-form shelf
prospectus with respect to the proposed issuance from time to time of up to
$75.0 million of convertible debt securities. The final short-form shelf
prospectuses were filed on November 7, 1996, and the filings became effective
on November 8, 1996.
No securities were issued under either the Registration Statement or the
Canadian prospectuses as of March 14, 1997.
PAN AFRICAN RESOURCES CORPORATION
On February 5, 1996, PARC Yukon completed a private placement of 13.2 million
units at Cdn$1.00 per unit. Each unit consisted of one common share and
one-half of one Series A common share purchase warrant of PARC Yukon. Each
whole Series A warrant entitled the holder to purchase one common share of PARC
Yukon at Cdn$1.25 until November 1, 1996. The private placement generated net
proceeds to PARC of approximately $9.0 million after payment of commissions and
expenses. Because the price per common share issued exceeded the net book
value per common share, a gain of approximately $2.0 million was recorded by
the Company.
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On February 6, 1996, PARC Yukon was amalgamated under the Yukon Business
Corporation Act with Humlin Red Lake Mines Limited ("Humlin"), an Ontario
corporation. As a result of the private placement and the amalgamation, the
Company's interest in PARC was reduced to approximately 60% of the 45.3 million
outstanding shares of PARC, the amalgamated company. PARC, as a result of the
amalgamation, became a publicly traded company in Canada on February 8, 1996,
with its common shares quoted on the Canadian Dealing Network.
Prior to the amalgamation with Humlin, indebtedness totaling $12.3 million owed
by PARC Barbados (a wholly owned subsidiary of PARC) to the Company as of
December 11, 1995 was converted by the Company, under the terms of two
convertible debentures between PARC and the Company, into 24,881,632 common
shares of PARC Barbados. Upon completion of these loan conversions, 24,881,632
PARC Barbados shares held by the Company were surrendered for cancellation in
exchange for the issuance to the Company of 7,975,000 warrants of PARC
Barbados, each warrant entitling the Company to purchase one share of PARC
Barbados at Cdn$1.50 until July 15, 1997. After the PARC Amalgamation, the PARC
Barbados warrants were surrendered to PARC Barbados in exchange for the
issuance by PARC to the Company of 7,975,000 PARC Series B warrants. Each PARC
Series B warrant entitles the Company to purchase one PARC common share at
Cdn$1.50 until July 15, 1997. In addition, the Company forgave indebtedness
owed to it by PARC of $0.3 million, incurred for funding of PARC's exploration
activities from December 1995 through completion of the February 1996 private
placement.
During 1996, 1,063,500 Series A warrants were exercised providing proceeds of
$1.0 million. On October 31, 1996, the expiration date of the Series A
warrants issued on February 5, 1996, was extended to January 31, 1997. On
January 31, 1997, the remaining 5,536,500 outstanding Series A warrants expired
unexercised.
Total expenditures by PARC in 1996 were $5.9 million, as compared to 1995
expenditures of $10.6 million. During 1996, the Company recorded property
abandonments of $5.3 million as a result of the sale of the interest in the
Eteke property and $4.0 million for the write-down of the Dul Mountain
Property in Ethiopia. During 1995, the Company recorded property write-offs of
$1.4 million for expenditures made on property areas not pursued in 1996,
including $1.2 million for Sierra Leone and $0.2 million for other areas.
Anticipated exploration and reconnaissance expenditures of $4.5 million are
planned for 1997.
As of December 31, 1996, the Company owned approximately 58% of the outstanding
shares of PARC.
On April 22, 1996, the Company and PARC announced the signing of an Exploration
License Agreement (the "Exploration License") with the Government of Eritrea,
represented by the Ministry of Energy, Mines and Water Resources ("MEMWR"),
over the Galla Valley property. The initial period of the Exploration License
is three years. The Company and PARC have committed to spend $1.25 million on
exploration of the property in the first year of the Exploration License. As
part of the Exploration License, the Company and PARC are required to provide
MEMWR a bank guarantee in an amount equal to the minimum expenditure obligation
(approximately $1.25 million) for the first year of the initial three-year
exploration period. In October 1996, the Company and PARC entered into a bank
guarantee application and related agreements with a major commercial bank (the
"Bank"). On October 11, 1996, the Bank issued its bank guarantee for $1.25
million to the MEMWR to guarantee the first year's work expenditure commitment
of the Company and PARC. The bank guarantee expires
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on August 19, 1997, and may be drawn on by the MEMWR in the event the Company
and PARC fail to meet the minimum expenditure requirement in the first
exploration year, but only in the amount of the difference between actual
expenditures and the minimum requirement. PARC has provided cash collateral to
the second Bank totaling $1.25 million for the bank guarantee.
GUYANOR RESSOURCES S.A.
Total exploration expenditures for the year ended December 31, 1996 amounted to
$9.3 million, offset by joint venture recoveries of $6.9 million, compared to
1995 expenditures of $6.5 million, offset by 1995 joint venture recoveries of
$5.2 million. Budgeted exploration and acquisition expenditures for 1997 are
$17.9 million, with budgeted joint venture recoveries of $13.0 million.
On October 30, 1996, Guyanor obtained the approval of a final prospectus
entitling Guyanor to list its Class B common shares for trading on the Nouveau
Marche of the Bourse de Paris in France, and for the sale of 1.0 million of its
Class B shares. Trading of Guyanor's Class B shares on the Nouveau Marche
began on October 30, 1996. The offering of Guyanor shares in Europe was
completed on November 5, 1996, and as a result, Guyanor received net proceeds
of approximately FF45.5 million (approximately $8.9 million), and the Company's
interest in Guyanor was reduced to approximately 68%. Because the price per
Class B share issued exceeded the net book value per common share (including
both Class A and Class B shares), the Company recorded a gain of approximately
$5.4 million in connection with this transaction.
As of December 31, 1996, the Company owned approximately 68% of the outstanding
common shares of Guyanor.
In February 1997, the Company and Guyanor announced the results of a small
initial bulk sample from the Dachine permit area in French Guiana. Based on
the results of the sample testing, the Company's joint venture partner, BHP
Minerals International, decided to discontinue funding diamond exploration on
the Dachine permit under its agreement with Guyanor. The Company and Guyanor
intend to continue diamond exploration in the Dachine area and may seek new
joint venture partners.
GUYANA
Total 1996 spending on the Company's projects in Guyana amounted to $4.3
million with joint venture recoveries of $0.1 million, compared to 1995
spending of $4.4 million. During 1996, the Company incurred no material
property abandonment charges in Guyana, as compared to property abandonments of
$1.8 million during 1995. The Company plans to spend approximately $7.5 million
on projects in Guyana during 1997, offset by budgeted joint venture recoveries
of $1.1 million. Additional amounts received and attributable to Guyana include
the redemption of $1.1 million of Class "I" preferred shares in OGML during
1996, compared to $1.2 million in 1995. The Omai Mine resumed operations on
February 4, 1996 after a temporary shutdown caused by the failure of the
tailings dam on August 24, 1995.
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SURINAME
Activities in Suriname during 1996 focused principally on the Gross Rosebel
gold project in joint venture with Cambior. Total Suriname spending in 1996
amounted to $12.0 million, offset by joint venture recoveries of $6.4 million,
as compared to 1995 spending of $6.9 million, which was offset by joint venture
recoveries of $4.3 million. Budgeted 1997 exploration and acquisition
expenditures for Suriname are $10.2 million, with budgeted joint venture
recoveries of $4.5 million.
As part of a prefeasibility study of the Gross Rosebel project completed in
April 1996, Cambior calculated proven and probable gold reserves of
approximately 24 million tonnes grading 1.4 g Au/t, representing 1.1 million
ounces in situ. Reserves have been subsequently increased by Cambior to 30.5
million tonnes grading 1.5 g Au/t, representing approximately 1.4 million
ounces in situ. The Company expects the final feasibility study at the Gross
Rosebel project to be completed during the second quarter of 1997. Cambior is
obligated to use its best efforts to arrange debt financing for 65% of mine
construction and related costs, with the Company and Cambior each contributing
50% of the remainder of such costs. The Company's share of 1997 mine
development costs for Gross Rosebel will be determined by the results of the
feasibility study but is currently estimated at $14.0 million.
SOUTHERN STAR RESOURCES LTD.
During 1996, Southern Star spent approximately $6.3 million on exploration and
project acquisition, compared to $0.8 million in 1995. Anticipated
reconnaissance and exploration expenditures for 1997 of $9.0 million relate
primarily to exploration efforts and property acquisition costs for the
Andorinhas and Abacaxis projects in Brazil and the San Simon and Sunsas
projects in Bolivia.
OTHER MATTERS
The Company conducts all of its exploration and development of mineral
properties in countries other than Canada and the United States. To date, the
vast majority of all funding has been through equity financing transactions
completed in Canada and in Canadian currency (with the exception of the Guyanor
offering of its Class B shares on the Nouveau Marche). The Company currently
maintains all or the majority of its working capital in U.S. dollars or U.S.
dollar denominated securities and 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
these currencies, and such fluctuations may materially affect the Company's
financial position and results of operations. The Company currently has future
obligations which are payable in French francs and Brazilian reals and
receivables payable in French francs. The Company currently does not actively
take steps to hedge against such risks. The Company also utilizes the services
of outside advisors who provide the Company with market information and
strategies to employ in protecting the cash and short term investments held by
the Company.
The Company believes that its current activities are in 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 Africa and South America.
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OUTLOOK
Total budgeted expenditures on exploration, mine development, acquisitions and
preliminary reconnaissance for 1997 approved by the Company's Board of
Directors are set out below by geographic region. The 1997 budget plans total
expenditures for exploration, mine development and property acquisition of
$63.1 million including $3.3 million for diamond projects (approximately 5% of
the gross budget) and the balance for gold projects. The Company currently
expects to recover approximately $18.6 million of these expenditures from
various joint venture partners which are funding such programs to earn
interests in the Company's projects based on existing agreements. No assurance
can be given, however, as to the actual amounts, if any, that the Company will
receive from joint venture partners.
The following budgeted 1997 expenditures are estimated expenditures and certain
of these expenditures may be reduced or reallocated based, among other things,
on exploration results, the completion of joint venture arrangements with
respect to certain of the properties or available funding.
CERTAIN BUDGETED 1997 EXPENDITURES
(IN MILLIONS OF DOLLARS)
Other South
Guyana Suriname French Guiana America Africa Total
--------------------------------------------------------------------------------------------------------------
Exploration $5.0 $ 9.6 $17.5 $7.8 $4.0 $43.9
Acquisition 0.6 0.6 0.4 - - 1.6
Mine
Development - 14.0 - - - 14.0
Preliminary
Reconnaissance 1.9 - - 1.2 0.5 3.6
JV Recoveries (1.1) (4.5) (13.0) - - (18.6)
-----------------------------------------------------------------------------------------
TOTAL $6.4 $19.7 $ 4.9 $9.0 $4.5 $44.5
=========================================================================================
The Company does not presently have sufficient financial resources to undertake
large scale mining development projects. Financing for development of those
projects would be dependent upon the Company's ability to raise the necessary
funds or secure financing for project development through joint venture
partners.
As at December 31, 1996, the Company held consolidated cash and short-term
investments of $15.7 million. Subsequent to December 31, 1996, $5.4 million
was received by the Company for the exercise of its remaining 673,200 Cdn$11.00
warrants issued on March 6, 1996. Most of the exploration and development
spending for the Company and its subsidiaries represents discretionary spending
and can be adjusted to reflect, among other things, results of exploration and
development activities, the successful acquisition of additional properties or
projects, the price of gold and management's assessment of the capital markets.
The Company anticipates that its current cash balances (including proceeds from
the exercise of the Company's warrants during the first quarter of 1997),
together with proceeds from the redemption of preferred shares of OGML,
proceeds from the exercise of options and warrants, financing provided by joint
venture partners and the sale of common shares and/or debt securities will be
sufficient to fund budgeted operating and exploration expenditures for the next
twelve months.
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In 1997, the consolidated Company is required to make property rental payments
and minimum exploration expenditures totaling $8.9 million in order to maintain
its current property interests per existing mineral agreements.
The Company expects to receive cash flow from OGML in 1997 through redemptions
of Class "I" preferred shares. The amount of redemptions, if any, is
dependent on the net cash flow of OGML. The Company received $1.1 million of
Class "I" preferred share redemptions in 1996.
Similarly, most of the budgeted exploration and development spending for
Guyanor and PARC is discretionary spending. Guyanor and PARC do not have
sufficient cash on hand to fund budgeted 1997 operating and exploration
expenditures. Both Guyanor and PARC will be required to access alternative
sources of capital in order to fund budgeted 1997 expenditures. The Company
intends to provide financial support to Guyanor and PARC, if required, until
such capital can be accessed.
Alternative sources of capital available to the Company and its subsidiaries
include the sale of equity or debt securities, sale of assets or entering into
new joint venture partnerships. Whether, and to what extent, such alternative
financing options are pursued by the Company or its subsidiaries in 1997 will
depend on a number of factors including, among others, results of exploration
and development activities; the successful acquisition of additional properties
or projects; the price of gold and management's assessment of the capital
markets.
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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 . . . . . . . . . . . . . . . . . . . . . 93
Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Consolidated Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . 95
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Consolidated Statement of Changes in Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 99 - 132
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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 14, 1997, 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 five 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 Coopers & Lybrand,
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.
DAVID A. FENNELL GORDON J. BELL
President and Vice President and
Chief Executive Officer Chief Financial Officer
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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, 1996 and 1995 and the consolidated statements of operations,
changes in shareholders' equity, and cash flows for the years ended December
31, 1996, 1995 and 1994. 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 generally accepted auditing
standards. Those standards require that we plan and perform the 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Golden Star
Resources Ltd. as of December 31, 1996 and 1995, and the consolidated results
of its operations and cash flows for the years ended December 31, 1996, 1995
and 1994, in accordance with accounting principles generally accepted in
Canada.
/s/ Coopers & Lybrand
Chartered Accountants
Calgary, Canada
March 14, 1997
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GOLDEN STAR RESOURCES LTD.
CONSOLIDATED BALANCE SHEETS
(Stated in thousands of United States Dollars except share amounts)
ASSETS As of December 31,
1996 1995
------- -------
CURRENT ASSETS
Cash and short-term investments $15,663 $9,498
Marketable securities, at cost which approximates market - 800
Accounts receivable 5,116 4,200
Inventories 1,027 1,132
Other assets 376 444
------- -------
Total Current Assets 22,182 16,074
RESTRICTED CASH 2,015 2,465
DEFERRED EXPLORATION 64,721 51,447
INVESTMENT IN OMAI GOLD MINES LIMITED 3,279 3,798
FIXED ASSETS 3,666 3,627
OTHER ASSETS 420 198
------- -------
Total Assets $96,283 $77,609
======= =======
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 5,830 $ 3,925
Accrued wages and payroll taxes 1,065 1,057
------- ------
Total Current Liabilities 6,895 4,982
OTHER LIABILITIES 92 36
------- -------
Total Liabilities 6,987 5,018
------- -------
MINORITY INTEREST 11,202 4,203
------- -------
COMMITMENTS AND CONTINGENCIES (Note 20)
SHAREHOLDERS' EQUITY
SHARE CAPITAL 129,954 106,344
(Common shares, without par value,
unlimited shares authorized.
Shares issued and outstanding:
1996 - 25,941,103; and 1995 - 22,769,872
Stock option loans (4,012) (1,170)
DEFICIT (47,848) (36,786)
------- -------
Total Shareholders' Equity 78,094 68,388
------- --------
Total Liabilities and
Shareholders' Equity $96,283 $77,609
======= =======
The accompanying notes are an integral part of these
consolidated financial statements
Approved by the Board:
By: /s/ David K. Fagin By: /s/ Richard A. Stark
------------------------------ --------------------------------
Director Director
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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,
1996 1995 1994
-------- --------- --------
REVENUE
Precious metals sales $1,723 $ 4,007 $ 580
Interest and other 1,078 1,583 2,156
-------- --------- --------
2,801 5,590 2,736
-------- --------- --------
COSTS AND EXPENSES
Cost of goods sold 4,097 5,805 738
Depreciation and depletion 1,246 1,084 263
Exploration expense 408 977 149
General and administrative 9,114 9,358 4,721
Write offs & abandonment of mineral
properties 10,365 8,750 6,401
Loss (gain) on disposal of assets (33) 152 475
Interest expense 189 8 -
Foreign exchange loss (gain) (2) (211) 68
Loss on suspension of mining activities 2,085 - -
Recovery of abandonment loss (936) - -
-------- --------- --------
26,533 25,923 12,815
-------- --------- --------
PROFIT (LOSS) BEFORE THE UNDERNOTED (23,732) (20,333) (10,079)
Gain on subsidiaries issuance of common shares 7,719 2,575 738
Omai preferred share redemption surplus 626 661 549
-------- --------- --------
Net profit (loss) before minority interest (15,387) (17,097) (8,792)
-------- --------- --------
Minority interest 7,607 4,916 7
-------- --------- --------
NET PROFIT (LOSS) $(7,780) $(12,181) $(8,785)
======= ======== =======
NET PROFIT (LOSS) PER SHARE $(0.31) $(0.54) $(0.42)
======== ========= ========
WEIGHTED AVERAGE SHARES OUTSTANDING (in millions of
shares) 25.2 22.7 21.1
======== ========= ========
The accompanying notes are an integral part of these consolidated financial
statements
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GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Stated in thousands of United States Dollars except share amounts)
COMMON STOCK SHARE STOCK
NUMBER OF SHARES CAPITAL OPTION LOANS DEFICIT
---------- -------- --------- ----------
Balance at December 31, 1993 19,209,722 $ 62,913 $ (633) $(15,820)
Shares Issued 2,560,000 40,008 - -
Shares Issued Under Options 324,000 909 - -
Shares Issued Under Warrants 476,250 3,668 - -
Issue Costs - (2,118) - -
Stock Option Loans - - (498) -
Stock Option Loan Repayments - - 51 -
Net Profit (Loss) - - - (8,785)
---------- -------- --------- ----------
Balance at December 31, 1994 22,569,972 $105,380 $ (1,080) $(24,605)
Shares Issued 105,208 659 - -
Shares Issued Under Options 94,692 285 - -
Issue Costs - 20 - -
Stock Option Loans - - (90) -
Net Profit (Loss) - - - (12,181)
---------- -------- --------- ----------
Balance at December 31, 1995 22,769,872 $106,344 $ (1,170) $ (36,786)
Shares Issued 1,780,712 13,574 - -
Shares Issued Under Options 1,059,469 6,744 - -
Shares Issued Under Warrants 331,050 3,983 - -
Issue Costs - (691) - -
Stock Option Loans - - (2,902) -
Stock Option Loan Repayments - - 60 -
Other - - - (3,282)
Net Profit (Loss) - - - (7,780)
---------- -------- --------- ----------
Balance at December 31, 1996 25,941,103 $129,954 $ (4,012) $ (47,848)
========== ======== ========= ==========
The accompanying notes are an integral part of these consolidated financial
statements
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GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of United States Dollars)
For the Years Ended December 31,
1996 1995 1994
OPERATING ACTIVITIES: ------- -------- --------
NET PROFIT (LOSS) $(7,780) $ (12,181) $ (8,785)
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:
Depreciation 1,246 1,034 263
Depletion - 50 -
Premium on Omai preferred share redemption (626) (661) (549)
Loss (Gain) on disposal of assets (33) 152 475
Write offs and abandonment of mineral properties 10,365 8,750 6,401
Recovery of abandonment loss (936) - -
Gain on issuance of common shares by subsidiary (7,719) (2,575) (738)
Write-down of equipment 450 - -
Minority interest (7,607) (4,916) 7
Changes in non-cash operating working capital 1,990 (1,176) (1,436)
------- -------- --------
Net Cash Used in Operating Activities (10,650) (11,523) (4,362)
------- -------- --------
INVESTING ACTIVITIES:
Expenditures on mineral properties, net of joint venture recoveries (24,279) (21,295) (15,163)
Proceeds from sale of property interest 640 - -
Purchase of SOTRAPMAG, net of cash acquired - - (4,273)
Purchase of VenStar, net of cash acquired - - (566)
Equipment purchases (1,735) (1,723) (777)
Omai Preferred Share Redemption 1,145 1,209 1,005
Other assets and investment 787 652 (859)
------- -------- --------
Net Cash Used in Investing Activities (23,442) (21,157) (20,633)
------- -------- --------
FINANCING ACTIVITIES:
Restricted cash 450 (2,465) -
Other liabilities (6) (4) 43
Proceeds from issuance of subsidiary stock 19,987 9,426 781
Offering costs of subsidiary stock issues (1,461) (1,118) -
Increase in minority interest 518 1,078 860
Payments of long term debt - - (1,396)
Issuance of share capital and warrants, net of issue costs 23,610 964 4,901
Issuance of special warrants, net - - 37,068
Stock option loan receipts (additions) (2,841) (90) 51
------- -------- --------
Net Cash Provided by Financing Activities 40,257 7,791 42,308
------- -------- --------
Increase (Decrease) in cash and short-term investments 6,165 (24,889) 17,313
Cash and short-term investments, beginning of period 9,498 34,387 17,074
------- -------- --------
Cash and short-term investments, end of period $15,663 $ 9,498 $ 34,387
======= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements
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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. (the "Company")
and South American Goldfields ("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 United States 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 exploration, acquisition, development
and operation (if warranted) of precious minerals deposits in both South
America and Africa. The Company's common shares trade on the Toronto Stock
Exchange under the symbol "GSC", and on the American Stock Exchange under the
symbol "GSR".
Efforts in South America are focused on property interests in Guyana, Suriname,
French Guiana (through Guyanor Ressources S.A.), and Brazil and Bolivia
(through Southern Star Resources Ltd.). The Company is also actively pursuing
new projects in these countries in addition to other South American countries.
Efforts in Africa are focused on property interests in Mali, Eritrea, Ethiopia,
Gabon, Kenya and Ivory Coast and are conducted through the Company's majority
owned subsidiary, Pan African Resources Corporation. Additional efforts are
being directed toward acquiring projects in other African countries.
All of the Company's projects are conducted through agreements with third
parties and national governments and/or pursuant to permits and licenses
granted by 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
Canadian generally accepted accounting principles ("GAAP"). The following
policies have been adopted by the Company.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
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. The consolidated group includes the
following as of December 31, (all entities are 100% owned by the Company,
unless otherwise noted):
1996: 1995:
----- -----
Golden Star Holdings Ltd. Golden Star Holdings Ltd.
Venezuela Investments Ltd. Venezuela Investments Ltd.
Golden Star Management Ltd. Venhold Investments 1994 Ltd. (59%)
Pan African Resources Corporation (58%) Golden Star Management Ltd.
Southern Star Resources Ltd. Pan African Resources Corporation (85%)
Guyanor Ressources S.A. (68%) Southern Star Resources Ltd.
Societe de Travaux Publics Guyanor Ressources S.A. (70%)
et de Mines Auriferes en Societe de Travaux Publics
Guyane ("SOTRAPMAG") (99%) et de Mines Auriferes en
Guyane ("SOTRAPMAG") (99%)
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.
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of temporary cash investments. 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 investment and financial institutions.
GOLD INVENTORY
Gold inventory includes gold and gold concentrate and is recorded at its
estimated market value.
INVENTORIES - MATERIALS AND SUPPLIES
Materials and supplies are valued at the lower of average cost or replacement
cost.
RESTRICTED CASH
In certain countries where the Company conducts business, the governments
require performance bonds to be placed for certain amounts of the agreed upon
exploration expenditures. The cash collateralizing 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.
100
101
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
DEFERRED EXPLORATION
Acquisition, administration, exploration and development costs of mineral
properties are capitalized and will be depleted on a unit of production basis
at such time as production commences or charged against income if the
property is abandoned. Administration costs incurred after commencement of
production will be charged against operations in the period incurred.
FIXED ASSETS
Fixed assets are stated at cost and include buildings, machinery, equipment and
vehicles. Depreciation is computed using the straight-line method at rates
calculated to depreciate the cost of the assets less their anticipated residual
values, if any, over their estimated useful lives. 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.
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. Accordingly, cash balances in these countries have been
reclassified to deferred exploration.
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. Nonmonetary 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", and Brazilian currency is denoted as "R".
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.
INVESTMENT IN OMAI GOLD MINES LIMITED
The investment in Omai Gold Mines Limited ("OGML") is accounted for by using
the equity method. Redemption of preferred shares of OGML are allocated to the
Investment In Omai account and to Premium on Omai Preferred Share Redemption on
the basis of the Company's share of costs incurred as a percentage of the total
value of the preferred shares.
101
102
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are comprised of cash and short-term
investments, accounts receivable, restricted cash, the investment in OGML,
accounts payable, accrued liabilities and accrued wages and payroll taxes. 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.
4. INVENTORIES
December 31, December 31,
1996 1995
--------------- --------------
Gold Inventory $384 $ 383
Materials and Supplies 643 749
------ -------
$1,027 $ 1,132
====== =======
In December 1996, the Company initiated a program to discontinue alluvial
mining operations conducted by SOTRAPMAG. An evaluation of the materials and
supplies inventories held by SOTRAPMAG and used in the alluvial mining
operations was conducted. As a result, inventories totaling $0.3 million were
deemed obsolete and were charged to loss in 1996. (See Note 9.)
5. LINE OF CREDIT
On September 5, 1996, the Company's approximately 68% owned subsidiary, Guyanor
Ressources S.A. ("Guyanor"), under an agreement with a major commercial bank,
borrowed $5.0 million. The debt was collateralized by cash balances of the
Company totaling $5.25 million held as restricted cash. The line of credit
bears interest at the bank's prime rate per year and is due in full by July 30,
1997. In November 1996, amounts owed under the line of credit by Guyanor were
repaid in full. The line of credit remains available for use by Guyanor until
the expiration date of July 30, 1997.
6. ACQUISITIONS
VENHOLD INVESTMENTS
In July 1994, the Company, through its wholly owned subsidiary, Venezuela
Investments Ltd., acquired a 59.3% interest in Venhold Investments (1994) Ltd.
("Venhold") through the purchase of common shares. Venhold held a 50.6%
interest in VenStar Gold Ltd. ("VenStar"), a Venezuelan company which had
interests in various mineral exploration properties in Venezuela. The
resulting
102
103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
consolidation provided the Company with an approximate 30% indirect interest in
the mineral properties. A wholly owned subsidiary of the Company managed the
operations of VenStar pursuant to a management agreement. The purchase price
of the interest was $3.0 million. Of this amount, payments totaling $2.4
million were contingent on resolution of certain title issues and other
conditions. The acquisition was accounted for using the purchase method
and the allocation of the net purchase price to identifiable assets did not
result in any goodwill.
Assets acquired $2,003
Liabilities assumed (69)
------
Net assets 1,934
Less: Additional cash contributions made by
the Company prior to acquisition for
preferred shares (125)
------
Adjusted net assets 1,809
Minority interest share of net asset
as of date of acquisition (1,209)
------
Net assets acquired before contingent
consideration $ 600
======
Consideration:
Cash before contingent consideration $ 600
======
Cash acquired in acquisition $ 34
======
The payment schedule for this remaining $2.4 million was as follows: $1.2
million in July 1995, $0.6 million in December 1995, and $0.6 million in July
1996. Pursuant to the purchase agreement, a payment of $0.6 million due in
December 1994 was deferred until July 1995.
On July 18, 1995, the Company announced it gave notice to sellers of election
to exercise their option to resell or "put" to the Seller their common and
preferred shares in VenStar Gold Ltd. In February 1996, the Company determined
that the capitalized deferred exploration costs were not recoverable in the
foreseeable future. As such, all capitalized exploration costs were charged to
property abandonment as of December 31, 1995. In June 1996, the Company agreed
to a final termination and settlement agreement in connection with the
"unwinding" of its purchase of an interest in VenStar. As a result, the
Company received a cash reimbursement of $1.6 million and recorded a gain of
$0.9 million in the period ended June 30, 1996. (See further discussion at
Note 10).
SOCIETE DE TRAVAUX PUBLICS ET DE MINES AURIFPRES EN GUYANE ("SOTRAPMAG")
In October 1994, Guyanor acquired all of the outstanding shares of Societe de
Travaux Publics et de Mines Auriferes en Guyane, societe a responsabilite
limitee ("SOTRAPMAG"), a French company based in French Guiana, in
consideration for FF21.8 million ($4.2 million), plus acquisition costs of $0.2
million. In addition, Guyanor repaid existing SOTRAPMAG long term debt of
approximately $1.4 million immediately following the purchase. This debt is
included in the net assets acquired. The acquisition has been accounted for
using the purchase method. The Company's assessment of the fair market value
equaled the carrying value for all identifiable assets and liabilities of
SOTRAPMAG, except for mining and mineral exploration properties, which had a
net book value of approximately $1.3 million at the date of acquisition and was
increased by $3.1 million through the allocation of the purchase price.
103
104
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
Assets acquired $7,186
Liabilities assumed (2,804)
------
Net Assets acquired $4,382
======
Consideration:
Cash $4,154
Acquisition costs 153
Balance of purchase price due to seller 75
------
$4,382
======
Cash acquired in acquisition $ 34
======
In connection with the purchase, the vendors agreed to indemnify Guyanor for any
losses incurred as a result of misrepresentations made for an amount not to
exceed FF4.0 million. As collateral for such indemnification, Guyanor held a
balance of the purchase price of $0.3 million. As of December 31, 1995, all of
this balance had been paid to the vendors. The period for which claims can be
made under the indemnity was limited to six months from the date of acquisition.
In the fourth quarter of 1996, the Company initiated a plan to discontinue the
alluvial operations conducted by SOTRAPMAG (See Note 9).
7. SALE OF COMMON SHARES AND WARRANTS BY SUBSIDIARIES
GUYANOR RESSOURCES S.A. PLAN OF ARRANGEMENT AND PUBLIC OFFERINGS
On March 14, 1995, the Company completed a Plan of Arrangement under the Canada
Business Corporations Act involving its subsidiary, Guyanor. As part of the
arrangement, the Company distributed to each of its shareholders one new Golden
Star common share and one-fifth of one Class B common share in exchange for
each outstanding Golden Star common share as at the record date for the
arrangement. Prior to the effectiveness of the arrangement, Guyanor's share
capital was increased to permit the issuance of additional common shares which
were subdivided and redesignated as Class A common shares and to permit the
creation and issuance of Class B common shares. The Class A common shares and
Class B common shares are equal in all respects except the holders of Class A
common shares are entitled to receive the par value of their Class A common
shares in priority to holders of Class B common shares in the event of a
distribution of assets upon liquidation, dissolution or winding up of Guyanor.
Concurrent with the arrangement, Guyanor completed an initial public offering
in Canada of 6,000,000 Class B common shares at a price of Cdn$2.10 per share.
The net proceeds of the offering, after commissions and expenses, were
approximately $8.2 million (Cdn$11.6 million). As a result of this offering,
the Company recorded a gain of $1.6 million in March of 1995.
Immediately prior to the effectiveness of the arrangement and the closing of
the offering, the Company converted all of the outstanding debt owed to it at
January 31, 1995 by Guyanor with accrued interest, aggregating $22.1 million,
as follows: (i) Guyanor issued to the Company 13,250 common shares in exchange
for $8.8 million in debts and accrued interest which, following subdivision and
redesignation of the common shares as Class A common shares and the transfer to
the Company by each holder of "qualifying" shares all but one common share,
equaled 22.5 million Class A common shares, and (ii) 8,837,802 Class B common
shares at an issue price of Cdn$2.10 per share reducing the debt by a
104
105
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
further $13.3 million. After the arrangement and the public offering, the
Company owned approximately 70% of the outstanding voting shares of Guyanor.
On October 30, 1996, Guyanor obtained the approval of a final prospectus
entitling Guyanor to list its Class B common shares for trading on the Nouveau
Marche of the Bourse de Paris in France, and for the sale of 1.0 million of its
Class B shares (the "Offering"). Trading of Guyanor's Class B shares on the
Nouveau Marche began on October 30, 1996. The offering of Guyanor shares in
Europe was completed on November 5, 1996, and as a result, Guyanor received net
proceeds of approximately FF45.5 million (approximately $8.9 million), and the
Company's interest in Guyanor was reduced to approximately 68%. Because the
price per Class B share issued exceeded the net book value per common share
(including both Class A and Class B shares), the Company recorded a gain of
approximately $5.4 million in connection with this transaction.
ISSUANCES OF COMMON SHARES AND WARRANTS BY PAN AFRICAN RESOURCES CORPORATION
On November 7, 1994, the Company's wholly owned subsidiary Pan African
Resources Corporation ("PARC") completed an equity financing of 2.4 million
units for Cdn$0.45 per unit. Each unit consisted of one PARC common share and
one PARC common share purchase warrant. The net proceeds of the placement was
$0.8 million. In addition, the Company subscribed for 1.5 million common share
purchase warrants of PARC, whereby each warrant entitled the holder to purchase
one common share of PARC for Cdn$0.70. As a result of the offering, the
Company's ownership percentage of PARC was reduced to approximately 91.4%.
Because the price per common share issued exceeded the net book value per
common share, a gain of $0.7 million was recorded by the Company in connection
with this transaction.
On May 15, 1995, the Company exercised 1.5 million warrants to purchase PARC
common shares, after extension of the exercise period by PARC. In
consideration for the exercise price of the warrants, the debt due to the
Company by PARC was reduced by $0.8 million. In addition, 2,374,000 common
share purchase warrants held by third parties were exercised in May for total
net proceeds of $1.2 million. The remaining outstanding 26,000 warrants
expired. Because the price per common share issued exceeded the net book value
per common share, a gain of $0.9 million was recorded by the Company in
connection with this transaction. As of December 31, 1995, the Company
beneficially owned approximately 85% of the outstanding common shares of PARC.
On February 5, 1996, Pan African Resources Corporation, a Yukon company ("PARC
Yukon"), and a subsidiary of the Company, completed a private placement of 13.2
million units at Cdn$1.00 per unit. Each unit consisted of one common share and
one-half of one common share purchase warrant of PARC Yukon. Each whole
warrant ("Series A Warrant") entitled the holder to purchase one common share
of PARC Yukon at Cdn$1.25 until November 1, 1996. The private placement
generated net proceeds of approximately $9.0 million after payment of
commissions and expenses. Because the price per common share issued exceeded
the net book value per common share, a gain of approximately $2.0 million was
recorded by the Company in the first quarter of 1996. During the year ended
December 31, 1996, PARC (as defined below) received $1.0 million in proceeds
from exercise of 1,063,500 of the Series A warrants. On October 31, 1996, PARC
(as defined below) extended the exercise date of its $1.25 Series A Warrants
issued from November 1, 1996, to January 31, 1997. On January 31, 1997, the
remaining 5,536,500 unexercised warrants expired.
105
106
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
On February 6, 1996, PARC Yukon was amalgamated under the Yukon Business
Corporation Act with Humlin Red Lake Mines Limited, an Ontario corporation
("Humlin"). As a result of the amalgamation, each share issued under the PARC
Yukon private placement was deemed exchanged for 1.001 share of PARC (as
defined below) and each series A Warrant was deemed exchanged for one PARC (as
defined below) Series A Warrant. As a result of the private placement and the
amalgamation, the Company's interest was reduced to approximately 60% of the
45.3 million outstanding shares of Pan African Resources Corporation, the
amalgamated company. PARC, as a result of the amalgamation, became a publicly
traded company in Canada on February 8, 1996, with its common shares quoted on
the Canadian Dealing Network.
Prior to the amalgamation with Humlin, indebtedness totaling $12.3 million owed
by Pan African Resources Corporation, a Barbados company ("PARC Barbados"), and
a wholly-owned subsidiary of PARC Yukon, to the Company as of December 11,
1995, was converted by the Company, under the terms of two convertible
debentures between PARC Barbados and the Company, into 24.9 million common
shares of PARC Barbados. Upon completion of these loan conversions, 24.9
million PARC Barbados shares held by the Company were surrendered for
cancellation in exchange for the issuance to the Company of 7.975 million
warrants of PARC Barbados, each warrant entitling the Company to purchase one
share of PARC Barbados at Cdn$1.50 until July 15, 1997. After the PARC
amalgamation, the PARC Barbados warrants were surrendered to PARC Barbados in
exchange for the issuance by PARC to the Company of 7.975 million PARC Series B
warrants. Each PARC Series B warrant entitles the Company to purchase one PARC
common share at Cdn$1.50 until July 15, 1997. In addition, the Company forgave
indebtedness owed to it by PARC Barbados of $0.3 million, incurred for funding
of PARC Barbados' exploration activities from December 1995 through completion
of the private placement.
8. ASSETS HELD FOR SALE
Effective February 27, 1995, the Company sold equipment and inventories related
to its drilling department and activities to Major Drilling Group International
Inc. ("Major"). The purchase price for the assets was $0.8 million, which was
satisfied by the issuance of 173,957 common shares of Major, at a deemed price
of Cdn$6.50 per share. The Company recorded the assets held for sale at their
net realizable value as of December 31, 1994 and recognized a loss on the sale
of the assets of $0.5 million in 1994. The Major common shares were recorded
as marketable equity securities by the Company as of December 31, 1995. In
1996, the Company sold the Major common shares and recorded a gain of $0.1
million on the sale.
9. SUSPENSION OF ALLUVIAL MINING OPERATIONS AT SOTRAPMAG
The alluvial operations being conducted through SOTRAPMAG experienced continuing
operating losses since its acquisition in 1994. Outside consultants engaged in
1996 to review the operations and make recommendations on how to render the
operations profitable concluded that without a significant capital investment to
increase production, changes in certain work practices and a reduction in fuel
taxes, the operation could not achieve profitability. As a result of these
conclusions, in the fourth quarter of 1996, management decided to discontinue
the alluvial operations conducted by SOTRAPMAG.
The Company, through its ownership interest in Guyanor, incurred fourth quarter
charges to 1996 earnings totaling $3.2 million, including $0.8 million
resulting from the write-down of certain fixed assets and inventories, $1.1
million for the write-down of certain capitalized exploration costs related to
106
107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
the alluvial mining operations, $0.1 million for accrual of land rehabilitation
and mine closure costs, and $1.1 million for accrual of the severance and other
social costs associated with the discontinuation of alluvial production. All
accruals for future obligations are included in current liabilities. Guyanor
expects that certain fixed assets, equipment and inventories owned by SOTRAPMAG
will be utilized in the ongoing exploration at the Paul-Isnard project area and
were not subject to a write-down. The amount of severance and other costs
associated with the discontinuation of alluvial production are contingent upon
negotiations with representatives of the workers and the French government.
The French government was formally notified of the closure plans in January
1997. In March 1997, the deadline for French government opposition to the
closure plan passed, with no such opposition expressed by the government.
Closure of the plant and processing facilities and land rehabilitation are
scheduled to be completed by the end of the second quarter of 1997. Relocation
and retraining of certain employees, as well as company-provided outplacement
services is anticipated to be complete by the end of the third quarter of 1997.
The Company also expects to incur operating losses of approximately $0.5
million during the shut-down process during the first quarter of 1997.
107
108
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
10. DEFERRED EXPLORATION
December 31, December 31,
1996 1995
------------ ------------
GUYANA
Eagle Mountain $ 111 $ 38
Quartz Hill 1,347 1,347
Upper Potaro Diamond / Amatuk Diamond 1,010 836
Mazaruni / Upper Mazaruni Diamond 2,729 2,028
Five Star Diamond 1,097 389
Wenamu Gold 512 512
Five Stars Gold 5,767 3,651
BHP Gold Projects 151 -
Guyana Diamond Permits 27 -
Other 1,376 1,171
------ -----
14,127 9,972
------ -----
SURINAME
Benzdorp / Lawa 3,341 2,842
Gross Rosebel 9,494 6,286
Headley's Right of Exploration 311 311
Thunder Mountain 453 405
Saramacca 1,569 1,255
Sara Kreek 155 131
Tempati Reconnaissance 161 -
Tapanahony Reconnaissance 86 -
Kleine Saramacca 104 -
Lawa / Antino 764 -
Suriname Diamond Projects 310 -
Ulemani Reconnaissance 53 -
Other Exploration Projects 20 -
Other 232 226
------ ------
17,053 11,456
------ ------
FRENCH GUIANA (GUYANOR RESSOURCES S.A.)
Dorlin 628 609
St-Elie 1,973 1,973
Dieu-Merci 382 -
Yaou 7,087 6,991
Paul-Isnard / Eau Blanche 3,629 3,629
SOTRAPMAG 1,520 1,161
Dachine 575 449
Other Diamond Projects 204 -
Other 1,331 1,295
------ ------
17,329 16,107
------ ------
108
109
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
December 31, December 31,
1996 1995
---------- ------------
AFRICA (PAN AFRICAN RESOURCES CORPORATION)
Gabon / Eteke $ - $ 5,247
Mali / Dioulafoundou 2,763 1,940
Mali / Melgue 56 -
Mali / Other 30 -
Ivory Coast / Comoe 3,951 2,859
Ethiopia / Dul - 2,635
Eritrea / Galla Valley 1,317 426
Eritrea / Other 55 -
Kenya / Ndori 901 -
Other 53 -
------- -------
9,126 13,107
======= =======
LATIN AMERICAN (SOUTHERN STAR RESOURCES LTD.)
Brazil / Andorinhas 3,547 123
Brazil / Abacaxis 1,375 162
Brazil / Other 583 129
Bolivia / San Simon 858 205
Bolivia / Sunsas 221 6
Bolivia / Other 502 167
------- -------
7,086 792
------- -------
OTHER - 13
------- -------
TOTAL DEFERRED EXPLORATION COSTS $64,721 $51,447
======= =======
109
110
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
DEFERRED EXPLORATION BY COUNTRY / GEOGRAPHIC REGION
FRENCH LATIN
TOTAL GUYANA SURINAME GUIANA VENEZUELA AFRICA AMERICA OTHER
--------------------------------------------------------------------------------------------
DECEMBER 31, 1993 $24,555 $ 9,231 $ 5,038 $ 9,933 $ 273 $ - $ - $ 80
Deferred Exploration
Expenditures 19,238 5,353 6,101 2,434 2,168 3,111 71 -
Additions & Acquisitions 6,601 - - 4,026 1,752 823 - -
Write-offs & Property
Abandonments (6,401) (6,401) - - - - - -
Joint Venture Recoveries (4,152) (353) (2,294) (1,505) - - - -
Net Drilling (Recoveries)
Expenditures (580) (418) (268) 106 - - - -
Reclass to other
properties (309) - - - (273) - - (36)
--------------------------------------------------------------------------------------------
DECEMBER 31, 1994 38,952 7,412 8,577 14,994 3,920 3,934 71 44
Deferred Exploration
Expenditures 29,844 4,358 6,924 6,547 1,398 9,872 745 -
Additions & Acquisitions 775 29 - - - 705 41 -
Write-offs & Property
Abandonments (8,750) (1,786) - (156) (5,318) (1,404) (65) (21)
Joint Venture Recoveries (9,485) - (4,313) (5,172) - - - -
Net Drilling (Recoveries)
Expenditures 121 (41) 268 (106) - - - -
Reclass to other
properties (10) - - - - - - (10)
--------------------------------------------------------------------------------------------
DECEMBER 31, 1995 51,447 9,972 11,456 16,107 - 13,107 792 $13
Deferred Exploration
Expenditures 33,481 3,482 11,232 8,878 - 5,121 4,768
Additions & Acquisitions 4,279 812 770 403 - 768 1,526
Write-offs & Property
Abandonments (10,365) (9) - (1,126) - (9,230) -
Joint Venture Recoveries (13,468) (130) (6,405) (6,933) - - -
Proceeds From Sale of
Property Interest (640) - - - - (640) -
Reclass to other
properties (13) - - - - - - (13)
============================================================================================
DECEMBER 31, 1996 $64,721 $14,127 $17,053 $17,329 - $9,126 $7,086 $-
============================================================================================
In 1997, the Company is required to make property rental payments and minimum
exploration expenditures totaling $8.9 million in order to maintain its current
property interests per existing mineral agreements.
In December 1996, PARC was granted an option by San Martin Mining and
Investment Company Limited ("San Martin") relating to the Ndori property in
Kenya. Under the terms of PARC's option to acquire 75% of the Ndori property,
PARC has made payments to San Martin totaling $0.6 million and must make
minimum annual expenditures of $0.6 million for each of two years. In
addition, PARC must relinquish 50% of the original property area after 24
months and a further 25% of the original area after 36 months.
In January 1997, PARC announced the sale of its 80% interest in Lafayette
Mining Gabon Ltd. ("LMGL"), the indirect holder of the Eteke Exploration
Permit, to Lafayette Holdings Corp., the 20% minority interest owner of LMGL.
Lafayette Holdings Corp. exercised its right of first refusal under
110
111
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
the LMGL shareholder agreement and purchased PARC's 80% interest in LMGL for
$640,000. As a result, the Company wrote off deferred exploration expenses
related to the Eteke Exploration Permit totaling $5.3 million in the fourth
quarter of 1996. The Company's share of this charge, after minority interest,
was $3.1 million.
The Company also incurred a charge to earnings in the fourth quarter of 1996 of
$4.0 million for write-down of capitalized costs for the Dul Mountain Project
in Ethiopia. The majority of the property area did not meet the Company's
standards and the Company intends to relinquish approximately 75% of the
Concession area, with minimal work on the area budgeted for 1997. The
Company's share of this write-down was $2.3 million after minority interest.
In the fourth quarter of 1996, the Company decided to discontinue alluvial
mining operations at SOTRAPMAG and, as a result, wrote-off certain capitalized
exploration costs related to the alluvial operations in 1996 totaling $1.1
million. (See Note 9.)
On December 8, 1995, the Company announced its plan to write off past
expenditures covering the Baomahun gold property in Sierra Leone, Africa. On
October 19, 1994, PARC signed an option agreement covering the Baomahun
property. Due to increasing security problems and civil unrest in Sierra
Leone, the Company announced a temporary suspension of activities in Sierra
Leone on March 6, 1995. Since that time, the Baomahun option agreement has
been under force majeure. The decision to write off the expenditure is a
result of the 1996 budgeting and project prioritization process for PARC and
recognition of continuing security problems and civil unrest in Sierra Leone
that may not be resolved in the near term. The expenditures in Sierra Leone
written off by the Company in the fourth quarter of 1995 totaled $1.2 million.
In addition, certain 1994 capitalized exploration expenditures for PARC
totaling $0.2 million were charged to property abandonments as of December 31,
1995, as the exploration areas associated with these costs will not be pursued
in the foreseeable future.
As a result of the 1996 budgeting process and related project prioritization,
the Company decided to charge costs related to various exploration prospects in
Latin America by Southern Star to exploration expense as of December 31, 1995.
The charge against earnings was $0.9 million. In addition, certain related
costs incurred during 1994 were charged to property abandonment, totaling $0.1
million.
On July 18, 1995, the Company announced that Venhold Investments (1994) Ltd.,
its indirectly controlled subsidiary, and BPC Corporation (collectively, the
"VenStar Purchasers") had given notice to Lindley Associated S.A. ("Lindley")
of their election to exercise their option ("Put Option") to "put" back to
Lindley their common and preferred shares in VenStar Gold Ltd. ("VenStar") in
return for the reimbursement by Lindley of all purchase price payments and all
exploration expenditures of the VenStar Purchasers. The aggregate amount owed
to the Company under the Put Option was approximately $1.6 million.
In February 1996, Lindley indicated to the VenStar Purchasers that it would not
pay the amounts owed under the Put Option until it had found another purchaser
or joint venture partner for the Venezuelan properties. As a result of the
notification, the Company incurred a charge of $4.5 million to write off the
capitalized deferred exploration in Venhold Investments (1994) Ltd., and the
related entities as of December 31, 1995. The Company's share of this charge,
after minority interest, was $1.4 million.
111
112
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
The Company also wrote off $0.8 million in costs incurred by the Company
related to the Venezuelan properties.
In June 1996, Lindley informed the Company that it had found a purchaser for
the Venezuelan properties and intended to pay the amounts owed under the Put
Option. The Company agreed to a final termination and settlement agreement in
June 1996 in connection with the "unwinding" of its purchase of an interest in
VenStar. Under the terms of the settlement, the Company, through Venhold,
received a cash reimbursement in the amount of $1.6 million from Lindley,
consisting of $1.3 million in cash from Lindley and $0.3 million in cash held
in the management company. This amount represents a recovery of certain
purchase price payments and exploration expenditures incurred through July 18,
1996, which were previously written off. As such, the Company recorded a gain
of approximately $0.9 million in the second quarter of 1996 as a result of the
transaction, and has no remaining interests in Venezuela at this time.
On July 11, 1995, the Company gave formal notice to the Company's joint venture
partner of its election not to exercise its option on the Aranka property in
Guyana and to terminate its agreement relating thereto. This decision was made
during the second quarter of 1995 after the Company's geologists concluded that
the geological potential of the property failed to meet the company's standards
for further exploration and development. The charge against earnings for the
year ended December 31, 1995 is $1.4 million. In addition, $0.4 million of
capitalized costs were charged to property abandonment for a prospecting area
in Guyana which will not be pursued in the future.
On March 31, 1993, Guyanor signed an option agreement with CME under which it
could earn a 100% interest in an exploration permit on a property known as
EspJrance. In March 1995, Guyanor elected not to exercise this option. The
option lapsed on March 31, 1995. This decision was made after Guyanor's
geologists concluded that the potential for a large tonnage disseminated gold
deposit on the property was limited. The charge against earnings for the
twelve months ended December 31, 1995 was $0.2 million.
During 1994, the Company abandoned its work program and relinquished its
mineral rights in two of three contiguous prospecting licenses known at the
Mahdia Prospect, and returned them to the Government of Guyana. The decision
to relinquish the licenses was based on a thorough review by a potential
partner which declined to develop the project. The known deposit did not
prove, in view of the economic terms of the Mineral Agreement and other
factors, to meet the standards required by the Company. The charge against
earnings for the period ended December 31, 1994 was $6.4 million.
The Company's drilling program during 1994 resulted in cost recoveries whereby
revenue earned through drilling for third parties exceeded the cost of drilling
both for third parties' and the Company's drilling projects. The net credit
amounts are reflected as a reduction of deferred exploration, with individual
projects bearing the net cost of their drilling programs. The Company sold the
assets associated with the drilling department in February 1995 and
discontinued its drilling efforts (see Note 8).
The recoverability of amounts shown for deferred exploration is dependent upon
the sale or discovery of economically recoverable reserves, the ability of the
Company to obtain necessary financing to complete the development, and upon
future profitable production or proceeds from the disposition thereof. The
amounts deferred represent costs to be charged to operations in the future and
do not necessarily reflect the present or future values of the properties.
112
113
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
11. INVESTMENT IN OMAI GOLD MINES LIMITED
During 1991, the Company acquired a 35% common share equity interest for a
nominal amount in Omai Gold Mines Limited ("OGML"), a Guyanese company
established to build and operate the Omai Mine in Guyana. This common share
equity interest was reduced to 30% on April 1, 1993 pursuant to the exercise of
an option granted to Cambior.
In addition, the Company received approximately $11.0 million of Class "I"
redeemable preferred shares of OGML in recognition of cumulative exploration
costs amounting to $5.0 million incurred to date by the Company on the Omai
project with the remainder incurred by a former joint venture partner. In
accordance with the Omai Mineral Agreement these preferred shares are required
to be redeemed quarterly with a minimum redemption amount equal to 10% of the
operating cash flow, as defined, of OGML. The Company received preferred share
redemptions of $ 1.0 million, $1.2 million and $1.1 million in 1994, 1995 and
1996 respectively. These amounts are allocated to the Investment in OGML
account and to Premium on Omai Preferred Share Redemption on the basis of the
Company's share of costs incurred as a percentage of the total value of the
Class "I" preferred shares.
Under the equity method of accounting, equity investors are required to record
their share of the net loss of the investee to the extent that these losses do
not exceed the investment in common share equity of the investee. Accordingly,
the Company has not recorded its share of OGML's loss for the years ended
December 31, 1994, 1995 and 1996. The Company will commence recognition of
equity income when its share of accumulated income exceeds the amount of
unrecognized equity losses.
113
114
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
Details regarding the Company's investment in the common and preferred share
equity and its share of equity losses not recorded are as follows:
Common Preferred
Shares Shares
------- ------
December 31, 1993 - $ 4,802
Less:
Preferred Share Redemptions - (1,005)
Add:
Premium on Preferred Share Redemptions - 549
--------- ----------
December 31, 1994 $ - $ 4,346
Less:
Preferred Share Redemptions - (1,209)
Add:
Premium on Preferred Share Redemptions - 661
--------- ---------
December 31, 1995 $ - $ 3,798
Less:
Preferred Share Redemptions - (1,145)
Add:
Premium on Preferred Share Redemptions - 626
--------- ---------
December 31, 1996 $ - $3,279
========= =======
THE COMPANY'S SHARE OF
ACCUMULATED LOSSES AT:
December 31, 1994 $(2,672)
========
December 31, 1995 $(3,401)
========
December 31, 1996 $(2,713)
========
114
115
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
SUMMARIZED FINANCIAL INFORMATION OF OGML:
As of December 31,
1996 1995
-------- --------
Current assets $ 29,923 $ 24,767
Non-current assets 219,997 212,527
Current liabilities 25,904 29,076
Non-current liabilities 180,938 164,280
Redeemable preferred shares:
Class I 7,886 8,372
Class II 2,919 2,919
Class III $ 50,242 $ 45,466
For the Years Ended December 31,
1996 1995 1994
-------- -------- --------
Revenues $107,199 $ 74,622 $ 98,688
Expenses 104,463 78,584 100,956
Net income (loss) $ 2,736 $ (2,125) $ (1,503)
At December 31, 1996 and 1995, the difference between the Company's carrying
value of its investment in OGML and its equity share of net assets was as
follows:
As of December 31,
1996 1995
-------- --------
30% of OGML net assets $12,923 $13,181
Carrying value of investments 3,279 3,798
------- -------
Difference $ 9,644 $ 9,383
======= =======
This difference between the Company's equity share of OGML net assets and its
carrying value has not been recorded.
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. The discharge began on August 19, 1995 and continued until
the leakage was fully controlled by Omai personnel on August 24, 1995. To
minimize environmental damage, a portion of the discharged water was diverted
into the Fennell Pit, the main source of gold at the Omai Mine. Production at
the Omai Mine was suspended from August 19, 1995 until February 4, 1996, when
operations resumed.
As a consequence of the Omai tailings dam failure, OGML has been named as a
defendant in a variety of civil proceedings in Guyana. Such proceedings are
currently being settled, without admission of liability, or being contested in
good faith, as applicable. Amounts claimed under currently instituted
proceedings against OGML do not exceed $1.5 million in the aggregate and
insurance coverage may be available to OGML in relation to a substantial
portion of these claims.
OGML and its shareholders, including the Company, may become involved as
defendants, plaintiffs or otherwise in a variety of additional legal
proceedings in Guyana or elsewhere in relation to this incident. There can be
no assurance that such additional litigation will not result in material
additional costs arising from out-of-court settlements, damage awards or other
sanctions against OGML or
115
116
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
the Company. Moreover, there can be no assurance that all or any of such
additional costs will be covered by appropriate insurance.
12. FIXED ASSETS
December 31, December 31,
1996 1995
------------- -----------------
Building $1,833 $ 903
Machinery & equipment 4,676 4,134
------- -------
6,509 5,037
Accumulated depreciation (2,843) (1,410)
------- -------
$3,666 $3,627
====== ======
In December 1996, the Company initiated a program to discontinue alluvial
mining operations conducted by SOTRAPMAG. An evaluation of the fixed assets
held by SOTRAPMAG and used in the alluvial mining operations was conducted. As
a result, fixed assets totaling $0.4 million were deemed obsolete and were
charged to income for 1996. (See Note 9.) In addition, certain fixed assets
have been identified for future sale. The net book value of these assets as of
December 31, 1996 is $0.5 million. The Company does not have a purchaser
identified for these assets and there can be no assurance that these assets
will be sold in 1997. As such, the assets are recorded as non-current.
13. LONG-TERM DEBT
In connection with the acquisition of SOTRAPMAG (see Note 6) in October 1994,
the Company repaid existing SOTRAPMAG long term debt of approximately $1.4
million, bearing 7.5% interest, immediately following the purchase.
14. SHARE CAPITAL
a) ISSUANCE OF SHARE CAPITAL
On September 25, 1996, the Company filed with the U.S. Securities and Exchange
Commission (the "SEC") a shelf Registration Statement, with respect to the
proposed issuance by the Company from time to time of up to $75.0 million of
its common shares, preferred shares, convertible debt securities and/or
warrants. On November 6, 1996, the Company filed an amendment to the
Registration Statement with the SEC and the Registration Statement as amended
was deemed effective on November 8, 1996.
On October 15, 1996, the Company filed with nine Canadian provincial securities
commissions a short-form shelf prospectus, with respect to the proposed
issuance by the Company from time to time of up to 5.0 million common shares
and/or 5.0 million common share purchase warrants and a short-form shelf
prospectus with respect to the proposed issuance from time to time of up to
$75.0 million of convertible debt securities. The final short-form shelf
prospectuses were filed on November 7, 1996, and the filings became effective
on November 8, 1996.
No shares were issued under either the Registration Statement or the Canadian
prospectuses as of December 31, 1996.
116
117
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
On March 6, 1996, the Company effected a public offering in Canada of 1.75
million units at a price of Cdn$10.50 per unit for total proceeds of $12.9
million (Cdn$18.375 million). Each unit consists of one common share and
one-half of a common share purchase warrant. Each whole warrant is exercisable
into one common share of the Company for a period of 12 months at a price of
Cdn$11.00.
b) STOCK OPTION PLANS
STOCK OPTIONS
Options granted pursuant to the 1992 Non-Discretionary Directors' Stock Option
Plan ("DSOP") as amended (as approved by the shareholders) and the 1992
Employees' Stock Option Plan ("ESOP") 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 common
shares issuable under the DSOP is 627,500 and under the ESOP is 3,591,994. The
number of common shares vested and exercisable under these plans at December
31, 1996 and 1995 was 2,221,227 and 2,341,300, respectively.
STOCK OPTION LOANS
As of December 31, 1996 and 1995, employees had exercised their rights under
employee stock option loan agreements and purchased 1,029,012 and 450,192
common shares, respectively, against which there were outstanding loans of $4.0
million and $1.2 million, respectively. Of the 1996 and 1995 outstanding loan
balances, approximately $4.0 million and $1.1 million, respectively, relates to
loans to two officers of the Company. These loans are non-interest bearing and
must be repaid within five years from the date of exercise unless the loan term
is extended by vote of the Board of Directors. The shares are held by a
trustee and, in the event of non-payment, the sole recourse for repayment and
recovery of the loans shall be as against pledged shares. In the event that
the loans are not repaid and the shares are sold at a loss, only the net
proceeds will be credited to share capital. The average exercise price of the
underlying shares regarding outstanding loans as at December 31, 1996 and 1995
was Cdn$5.26 and Cdn$3.37, respectively. The loans outstanding at December 31,
1996, are due as follows:
1997 $ 499
1998 19
1999 497
2000 94
2001 2,903
------
$4,012
======
117
118
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
SCHEDULE OF STOCK OPTION ACTIVITY
SHARES UNDER OPTION PRICE (CDN$)
ESOP DSOP ESOP DSOP
---- ---- ---- ----
SHARES UNDER OPTION AT
DECEMBER 31, 1993 1,504,192 227,500 $2.30 TO $17.10 $2.30 TO $14.85
Activity:
Granted 510,400 115,000 $11.93 to $17.70 $13.75 to $16.88
Exercised (324,000) - $2.30 to $12.15 -
Canceled (35,500) - $5.50 to $17.70 -
---------- ---------
SHARES UNDER OPTION AT DECEMBER 31,
1994 1,655,092 342,500 $2.30 TO $17.10 $2.30 TO $16.88
Activity:
Granted 1,101,550 80,000 $6.38 to $9.38 $8.67 to $10.50
Exercised (62,192) (32,500) $2.30 to $5.50 $2.30 to $4.50
Canceled (92,900) - $9.38 to $17.10 -
---------- ------------
SHARES UNDER OPTION AT DECEMBER 31,
1995 2,601,550 390,000 $2.76 TO $17.00 $2.76 TO $16.88
Activity:
Granted 862,250 130,000 $18.45 to $23.00 $9.50 to $24.40
Exercised (1,039,469) (20,000) $2.76 to $16.20 $2.76 to $8.67
Canceled (40,100) - $7.63 to $16.20 -
----------- --------
SHARES UNDER OPTION AT DECEMBER 31,
1996 2,384,231 500,000 $2.76 TO $23.00 $2.76 TO $24.40
========= ==========
c) 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 (currently the Compensation
Committee) may grant bonus common shares on terms that the Compensation
Committee 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.
On February 1, 1995, a total of 95,000 bonus common shares were issued to three
employees of the Company under the Bonus Plan. These bonus common shares were
distributed in accordance with a specific distribution schedule. In connection
with the bonus common shares allocated to them, two of the employees will also
be entitled to receive from the Company an amount equal to any applicable
income taxes which may be payable by them as a result of the issuance of such
bonus common shares.
118
119
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
As of December 31, 1996, no additional amounts have been paid by the Company
for any related tax liabilities of these employees.
On April 1, 1995, a total of 10,208 bonus common shares were issued to certain
employees under the Bonus Plan. On January 1, 1996, bonuses totaling $0.2
million were declared for certain employees under the Bonus Plan as
compensation for 1995. A total of 30,712 common shares were issued in January
1996 pursuant to the January 1, 1996 bonuses. In connection with the bonus
common shares allocated to them, each of the employees is responsible to pay
any applicable income taxes which may be payable by them as a result of the
issuance of such bonus common shares. Compensation expense related to bonuses
under the Bonus Plan during the year ended December 31, 1995 of $0.8 million is
included in the determination of net loss.
d) WARRANTS
The Company issued 500,000 (1,000,000 before the consolidation referred to in
Note 1) Special Units in March of 1992 receiving net consideration of Cdn$1.0
million. Each Special Unit entitled the holder thereof, at no additional
charge, to one common share and one common share purchase warrant. As a result
of the amalgamation the units were exchanged for one common share and one
common share purchase warrant. The warrants had an exercise price to September
23, 1992 of Cdn$2.34 per share, to March 23, 1993 of Cdn$2.50 per share, and to
March 23, 1994 of Cdn$3.00 per share. As at December 31, 1994, all of these
warrants were exercised.
The Company issued 1.2 million Special Warrants in March of 1993 at a price of
Cdn$9.25 per Special Warrant. Each Special Warrant entitled the holder
thereof, at no additional charge, to one unit consisting of one common share
and one common share purchase warrant. Two common share purchase warrants
entitled the holder to purchase one additional common share at Cdn$10.25 until
February 15, 1994, and thereafter at a price of Cdn$11.00 until August 15,
1994. During 1994, 952,500 common share purchase warrants (representing
476,250 common shares) were exercised and the remaining 50,000 warrants
expired.
The Company issued 1.5 million Special Warrants in June of 1993 at a price of
Cdn$14.25 per Special Warrant. Each Special Warrant entitled the holder
thereof, at no additional charge, to one common share.
On February 2, 1994, the Company closed a private placement of 2.5 million
Special Warrants at a price of Cdn$21.00 per Special Warrant for gross proceeds
of Cdn$52.5 million. Each Special Warrant entitles the holder thereof to
receive one common share and one half of one common share purchase warrant at
no additional cost. One whole common share purchase warrant was exercisable at
a price of Cdn$25.00 up to July 31, 1995. As a result of the Plan of
Arrangement between the Company and its shareholders effected on March 14,
1995, a warrant holder is entitled to receive, upon the exercise of two
warrants and a payment of Cdn$25.00, one common share of the Company and
one-fifth of one Class B common share of Guyanor. On July 24, 1995 the Company
announced that it obtained all necessary approvals for a one-year extension of
the expiration date of the Company's common share purchase warrants to July 31,
1996. During 1996, 129,250 of the Company's common share purchase warrants
were exercised for proceeds of $2.4 million. On July 31, 1996, the remaining
1,120,750 of these warrants expired unexercised.
119
120
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
On March 6, 1996, the Company completed a public offering in Canada of 1.75
million units at a price of Cdn$10.50 per unit for total proceeds of $12.9
million (Cdn$18.375 million). Each unit consists of one common share and
one-half of a common share purchase warrant. Each whole warrant is exercisable
into one common share of the company for a period of 12 months at a price of
Cdn$11.00. During 1996, 201,800 of the Company's Cdn$11.00 warrants were
exercised for proceeds of $1.6 million.
e) SHAREHOLDER RIGHTS PLAN
In April 1996, the Company's Board of Directors adopted a Shareholder Rights
Plan (the "Rights Plan"). The Rights Plan is designed to expire in June 1999.
Under the Rights Plan, the Company issued one right (a "Right") for each common
share of the Company outstanding on April 24, 1996. The Company will also issue
one Right for each common share issued in the future. The Rights were issued
pursuant to the Rights Agreement dated April 24, 1996, between the Company and
The R-M Trust Company as rights agent. Each Right will entitle the holder to
purchase from the Company one common share at $200, subject to adjustments and
the provisions of the Rights Plan. The Board may, at any time, redeem the
rights until their expiration and may amend the rights under certain limited
circumstances until they become exercisable.
f) OTHER
Under the terms of an agreement dated September 10, 1987, South American
acquired all of the outstanding interest in the GuyGold Syndicate ("Syndicate")
for consideration of Cdn$1,750,000. The assets of the Syndicate consisted of
interest in mineral properties, each of which consisted of a 20 square mile
block, pursuant to an agreement negotiated with the Government of Guyana. As
at December 31, 1996, all of the mineral properties were abandoned except for
the Quartz Hill property. A further 76,923 common shares will be issued if and
when Quartz Hill is brought into production. All members of the Syndicate were
directors or former directors of the Company and three were former officers.
The Company's potential obligations under this agreement may be affected by the
terms of the new agreement with OGML (see Note 19).
15. INCOME TAXES
Losses carried forward for income tax purposes in Canada, approximating
Cdn$23.3 million are available for the reduction of future years' taxable
incomes. These losses expire as follows (in thousands):
CDN$
----
1997 3,081
1998 2,515
1999 2,266
2000 1,664
2001 1,702
2002 5,524
2003 6,525
-------
Total $23,277
=======
120
121
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
No recognition has been given in these financial statements to any potential
tax savings that may arise from the application of these losses.
16. OPERATIONS BY GEOGRAPHIC AREA
Information on the Company's continuing operations by geographic area for the
years ended December 31, 1996, 1995 and 1994 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.
OPERATING NET IDENTIFIABLE
REVENUES (LOSS) ASSETS
1996
South America $1,811 $(5,760) $65,283
Africa 224 (5,706) 12,893
Corporate 766 3,686 18,107
- ------------------------------------------------------------------------------------------------------------------
Total $2,801 $(7,780) $96,283
==================================================================================================================
1995
South America $4,435 $(8,978) $48,430
Africa 1 (2,288) 13,383
Corporate 1,154 (915) 15,796
- ------------------------------------------------------------------------------------------------------------------
Total $5,590 $(12,181) $77,609
==================================================================================================================
1994
South America $ 736 $ (7,848) $41,666
Africa - - 3,934
Corporate 2,000 (937) 39,940
- ------------------------------------------------------------------------------------------------------------------
Total $2,736 $ (8,785) $85,540
==================================================================================================================
17. 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 ("U.S. 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 Canadian GAAP
would have been charged to earnings in prior periods under U.S. GAAP.
Property acquisition costs are capitalized for both Canadian and U.S.
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
121
122
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
financial statements were translated into U.S. dollars using a
translation of convenience. U.S. GAAP requires translation in
accordance with the current rate method.
(c) Under U.S. GAAP, the investment in OGML would have been written off in
prior years and, therefore, the entire Omai Preferred Share Redemption
would have been included in income. Under Canadian GAAP a portion of
the Omai Preferred Share Redemption is included in income with the
remainder reducing the carrying value of the Company's preferred stock
investment.
(d) U.S. 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, since the Company
has adopted the disclosure provisions of SFAS 123 "Accounting for
Stock Compensation". Under Canadian GAAP, no compensation expense is
recorded for such awards.
(e) Canadian GAAP allows classification of investments which are capable
of reasonably prompt liquidation as current assets. As such, all of
the Company's investments are included under the caption "short-term
investments" on the balance sheet under current assets. U.S. GAAP
requires classification as current or long term assets based upon the
anticipated maturity date of such instruments.
(f) The gains on subsidiary's issuance of common shares recorded under
Canadian GAAP in respect of the Guyanor public offering and the PARC
private placement as discussed in Note 7 are not appropriate under
U.S. GAAP.
(g) The Company eliminated its accumulated deficit through the
amalgamation (defined as a reorganization under U.S. GAAP) effective
May 15, 1992. Under U.S. GAAP the cumulative deficit was greater than
the deficit under Canadian GAAP due to the write-off of certain
deferred exploration costs described in (a) above.
(h) Under U.S. GAAP, cash (and cash equivalents) includes bank deposits,
money market instruments, and commercial paper with original
maturities of three months or less. Canadian GAAP permits the
inclusion of temporary investments with maturities greater than 90
days in cash.
(i) Under U.S. GAAP, available-for-sale securities are recorded at fair
value and unrealized gains and losses are recorded as a separate
component of shareholders' equity. Fair value is determined by quoted
market prices. At December 31, 1995, the Company held one type of
available-for-sale security. The Company held no available-for-sale
securities as of December 31, 1996.
(j) Under U.S. 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
U.S. GAAP were not satisfied as of December 31, 1996.
122
123
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
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,
1996 1995 1994
-------- -------- --------
Net loss under Canadian GAAP $ (7,780) $(12,181) $ (8,785)
Net effect of the deferred exploration expenditures
on loss for the period (a) (10,231) (13,610) (7,797)
Effect of recording compensation expense under
stock option plans (d) (85) (256) (708)
Reversal of the gain on subsidiary's issuance of
common stock (f) (7,719) (2,575) (738)
Reversal of the loss for severance accruals (j) 1,115 - -
Effect of Omai Preferred Share Redemption (c) 520 548 456
-------- -------- --------
Loss under U.S. GAAP before minority interest (24,180) (28,074) (17,572)
Minority interest as adjusted (1,097) (256) 1,491
-------- -------- --------
Loss under U.S. GAAP $(25,277) $(28,330) $(16,081)
======== ======== ========
Loss per share under U.S. GAAP $ (1.00) $ (1.24) $ (0.76)
======== ======== ========
(For items (a) to (j), see pages 121 and 122.)
Under U.S. GAAP the Omai preferred share redemption would be included with
costs and expenses before the caption "Loss Before the Undernoted" on the
consolidated statements of loss and deficit. Weighted average common shares
outstanding are substantially the same under U.S. GAAP as under Canadian GAAP
for the periods presented.
123
124
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
The effect of the differences in accounting under Canadian GAAP and U.S. GAAP
on the balance sheets and statements of cash flows are as follows:
BALANCE SHEET
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
CANADIAN GAAP U.S. GAAP CANADIAN GAAP U.S. GAAP
------------- --------- ------------- ---------
Cash (h) $9,664 $9,664 $ 5,800 $ 3,320
Short term investments (e) 5,999 2,500 3,698 2,480
Marketable securities (i) - - 800 927
Other current assets 6,519 6,519 5,776 5,776
Restricted cash 2,015 2,015 2,465 2,465
Deferred exploration 64,721 18,611 51,447 15,568
Investment in Omai Gold
Mines Limited (c) 3,279 - 3,798 -
Long-term investments (e) - 3,499 - 3,698
Other assets 4,086 4,087 3,825 3,825
------- ------- ------- -------
Total Assets $96,283 $46,895 $77,609 $38,059
======= ======= ======= =======
Liabilities (j) $ 6,987 $ 5,872 5,018 5,018
Minority interest (a) 11,202 11,064 4,203 2,968
Share capital, net of stock
option loans (g) 125,942 123,068 105,174 94,496
Cumulative translation
adjustments (b) - 1,595 - 1,595
Accumulated unrealized
gains on investments (i) - - - 127
Deficit (a) (c) (d) (f) (j) (47,848) (94,704) (36,786) (66,145)
------- ------- ------- -------
Total Liabilities and
Shareholders' Equity $96,283 $46,895 $77,609 $38,059
======= ======= ======= =======
(For items (a) to (j), see pages 121 and 122.)
Under U.S. GAAP, receivables would be separately disclosed as follows:
1996 1995
---- ----
Receivables from employees $ 325 $ 991
Receivables from joint venture partners 2,387 2,318
Interest receivable 137 153
Other 2,267 738
Allowance for doubtful accounts - -
-------- ------
Total Receivables $5,116 $4,200
====== ======
Of the December 31, 1996 accounts receivable balance, $0.2 million relates to
loans to three officers of the Company.
124
125
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY UNDER U.S. GAAP
(I)
COMMON (B) ACCUMULATED
STOCK STOCK CUMULATIVE UNREALIZED
NUMBER OF SHARE OPTION TRANSLATION GAINS ON
SHARES CAPITAL LOANS ADJUSTMENT INVESTMENTS DEFICIT
------------ ------- ----- ---------- ----------- -------
BALANCE AT DECEMBER 31, 1993 19,209,722 $47,958 $(633) $1,595 - $(21,734)
Shares Issued 2,560,000 40,008 - - - -
Shares Issued Under Options 324,000 909 - - - -
Shares Issued Under Warrants 476,250 3,668 - - - -
Issue Costs - (2,118) - - - -
Stock Option Loans - - (498) - - -
Stock Option Loan Repayments - - 51 - - -
Reclass of Gain of Subsidiary
Stock (f) - 738 - - - -
Stock Based Compensation
Expense (d) - 708 - - - -
Net Loss (a) (c) (d) (f) - - - - - (16,081)
---------- -------- ------- ------ ----- --------
BALANCE AT DECEMBER 31, 1994 22,569,972 $91,871 $(1,080) $1,595 - $(37,815)
Shares Issued 105,208 659 - - - -
Shares Issued Under Options 94,692 285 - - - -
Issue Costs - 20 - - - -
Stock Option Loans - - (90) - - -
Reclass of Gain of Subsidiary
Stock (f) - 2,575 - - - -
Stock Based Compensation
Expense (d) - 256 - - - -
Accumulated Unrealized Gains on
Investments (i) - - - - 127 -
Net Loss (a) (c) (d) (f) - - - - (28,330)
---------- -------- ------- ------ ----- --------
BALANCE AT DECEMBER 31, 1995 22,769,872 95,666 (1,170) 1,595 127 (66,145)
Shares Issued 1,780,712 13,574 - - -
Shares Issued Under Options 1,059,469 6,744 - - -
Shares Issued Under Warrants 331,050 3,983 - - -
Issue Costs - (691) - - -
Stock Option Loans - - (2,902) - -
Stock Option Loan Repayments - - 60 - -
Reclass of Gain of Subsidiary
Stock (f) - 7,719 - - -
Stock Based Compensation
Expense (d) - 85 - - -
Accumulated Unrealized Gains on
Investments (i) - - - - (127)
Other - - - (3,282)
Net Loss (a) (c) (d) (f) (j) - - - (25,277)
---------- -------- ------- ------ ----- --------
BALANCE AT DECEMBER 31, 1996 25,941,103 $127,080 $(4,012) $1,595 $ - $(94,704)
========== ======== ======= ====== ===== ========
STATEMENTS OF CASH FLOWS UNDER U.S. GAAP
NET CASH PROVIDED BY (USED IN): OPERATING ACTIVITIES INVESTING ACTIVITIES FINANCING ACTIVITIES
-------------------- -------------------- --------------------
Canadian U.S. Canadian U.S. Canadian U.S.
For the Years Ended December 31, GAAP GAAP GAAP GAAP GAAP GAAP
-------------------------------- --------- --------- -------- --------- ------- ----------
1996 $(10,650) $(30,024) $(23,442) $ (3,963) $40,257 $40,331
1995 $(11,523) $(31,137) $(21,157) $ 14,359 $ 7,791 $ 8,093
1994 $ (4,362) $(19,374) $(20,633) $(25,827) $42,308 $ 42,273
The statements of cash flows reflect the impact of the previously discussed
adjustments (a) (c) (d) (f) and the following non-cash items:
o U.S. GAAP does not permit the presentation of non-cash items in
investing or financing activities in the consolidated statements of
cash flows, and consequently deferred exploration
125
126
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
costs and share capital and warrants would be reduced by $0.9 million,
$0.8 million and $0.5 million for the years ended December 31, 1994,
1995 and 1996, respectively.
U.S. GAAP TAX CONSIDERATIONS
o U.S. GAAP changes the Company's method of accounting for income taxes
from the deferred method, as recorded under Canadian 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. The adoption of the pronouncement has no effect
on the U.S. 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 15). For the years ended December 31, 1996 and 1995, the
Company has recorded no current tax expense under Canadian or U.S.
GAAP due to the cumulative net losses incurred by the Company. Under
U.S. GAAP, the Company would not record any deferred tax expense based
on the same rationale.
o The Company operates in Africa, French Guiana, Guyana, Suriname,
Bolivia 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.
o 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.
Summarized below are the components of deferred taxes:
December 31, 1996 December 31, 1995
----------------- -----------------
Temporary differences relating to net assets:
Other current assets $ 118 $ 84
Property & equipment 432 351
Deferred exploration 14,540 10,834
Investment in OGML 2,746 3,181
Offering costs 1,103 840
Tax loss and credit carryforwards 6,804 5,317
------- -------
Gross deferred tax asset 25,743 20,607
Valuation allowance (25,743) (20,607)
------- -------
Net deferred tax assets $ - $ -
======= ========
The valuation allowance increased by $4.5 million in 1996 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 U.S. 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).
126
127
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
STOCK BASED COMPENSATION PLANS
At December 31, 1996, the Company has four 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 U.S. 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 U.S. GAAP would have been increased to the pro forma amounts indicated
below:
1996 1995
---- ----
Net loss under U.S. GAAP As reported $ (25,277) $(28,330)
Pro forma $ (28,533) $(29,167)
Loss per share under U.S. GAAP As reported $ (1.00) $ (1.24)
Pro forma $ (1.13) $ (1.28)
Under the 1992 Non-Discretionary Directors' Stock Option Plan ("DSOP"), the
Company may grant options to its directors for up to 627,500 shares of common
stock. Under the 1992 Employees' Stock Option Plan ("ESOP"), the Company may
grant options to its employees for up to 3,591,944 shares of common stock.
Under both the DSOP and ESOP, the options may take the form of non-qualified
stock options, the exercise price of each option equals 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 date as stipulated in a stock option agreement between the
Company and the optionee. Options under both the DSOP and ESOP are granted
from time to time at the discretion of the Board of Directors. Options granted
under the ESOP 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. Options granted under the DSOP vest immediately on the
date of grant.
Under the Guyanor Ressources S.A. Stock Option Plan (the "Guyanor Plan"),
Guyanor may grant options to its employees for up to 3,367,889 shares of Class
B common stock. The options may take the form of non-qualified stock options,
the exercise price of each option equals the market price of Guyanor's stock on
the date of grant, and an option's maximum term is ten years for such other
date as stipulated in a stock option agreement between Guyanor and the
optionee. 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.
Under the Pan African Resources Corporation Stock Option Plan (the "PARC
Plan"), PARC may grant options to its employees and directors for up to
4,407,600 shares of its common stock. The options may take the form of
non-qualified stock options, the exercise price of each option equals the
market price of PARC's stock on the date of grant, and an option's maximum term
is five years for such other date as stipulated in a stock option agreement
between PARC and the optionee. Options under the PARC Plan are granted from
time to time at the discretion of PARC's Board of Directors and vest over
periods ranging from immediately to four years, with vesting periods determined
at the discretion of PARC's Board of Directors.
127
128
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
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 1996 and 1995:
1996
---------------------------------------------------------------------------------
ESOP DSOP Guyanor Plan PARC Plan
---------------------------------------------------------------------------------
Expected volatility 55% 55% 73% 93%
Risk-free interest rate 6.14% to 6.58% 5.30% to 6.77% 5.50% to 6.39% 5.25% to 6.28%
Expected lives 5 years 5 years 5 years 5 years
Dividend yield 0% 0% 0% 0%
1995
---------------------------------------------------------------------------------
ESOP DSOP Guyanor Plan PARC Plan
---------------------------------------------------------------------------------
Expected volatility 55% 55% 73% -
Risk-free interest rate 5.49% to 6.90% 5.79% to 7.55% 5.69% to 7.27% -
Expected lives 5 years 5 years 5 years -
Dividend yield 0% 0% 0% -
The following tables summarize information about stock options under the ESOP
and DSOP:
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
ESOP and DSOP (000) (Cdn$) (000) (Cdn$) (000) (Cdn$)
- ----------------------------------------------------------------------------------------------------------------
Outstanding at beginning of 2,991 $ 9.40 1,998 $10.99 1,732 $ 7.47
year
Granted 992 $ 19.34 1,181 $ 7.84 625 $15.88
Exercised (1,059) $ 6.37 (95) $ 4.01 (324) $ 2.81
Forfeited (40) $ 12.23 (93) $14.58 (35) $ 8.24
- ----------------------------------------------------------------------------------------------------------------
Outstanding at end of year 2,884 $ 13.07 2,991 $ 9.40 1,998 $10.99
Options exercisable at year-end 2,221 2,341 1,435
Weighted-average fair value
of options granted during the $ 19.34 $ 7.84 $17.46
year
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------------------------
Number Number
ESOP and DSOP Outstanding at Weighted-Average Weighted-Average Exercisable at Weighted-Average
Range of Exercise Dec. 31, 1996 Remaining Exercise Price Dec. 31, 1996 Exercise Price
Prices (Cdn$) (000) Contractual Life (Cdn$) (000) (Cdn$)
- ----------------------------------------------------------------------------------------------------------------
$2.76 to $2.76 157 5.42 $ 2.76 157 $ 2.76
$5.50 to $7.63 821 8.64 $ 7.01 586 $ 6.94
$8.67 to $13.05 552 7.37 $11.43 533 $11.51
$14.30 to $19.00 1,131 8.60 $17.73 824 $17.48
$22.75 to $24.40 223 9.39 $23.08 121 $23.32
- ----------------------------------------------------------------------------------------------------------------
2,884 2,221
128
129
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
The following tables summarize information about stock options for the Guyanor
plan:
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
Guyanor Plan (000) (Cdn$) (000) (Cdn$) (000) (Cdn$)
- ----------------------------------------------------------------------------------------------------------------
Outstanding at beginning
of year 1,611 $2.13 - - - -
Granted 1,296 $6.02 1,677 $2.13 - -
Exercised (191) $2.35 (43) $2.10 - -
Forfeited - - (23) $2.10 - -
- ----------------------------------------------------------------------------------------------------------------
Outstanding at end of year 2,716 $3.97 1,611 $2.13 - -
Options exercisable at
year-end 1,591 626 -
Weighted-average fair value
of options granted during
the year $6.02 $2.13 -
year
Options Outstanding Options Exercisable
- -----------------------------------------------------------------------------------------------------------------------
Number Number
Guyanor Plan Outstanding at Weighted-Average Weighted-Average Exercisable at Weighted-Average
Range of Exercise Dec. 31, 1996 Remaining Exercise Price Dec. 31, 1996 Exercise Price
Prices (Cdn$) (000) Contractual Life (Cdn$) (000) (Cdn$)
- -----------------------------------------------------------------------------------------------------------------------
$2.10 to $3.30 1,450 8.52 $2.52 1,310 $2.41
$9.20 to $12.40 1,266 9.86 $9.96 281 $9.68
- -----------------------------------------------------------------------------------------------------------------------
2,716 1,591
The following tables summarize information about stock options for the PARC
plan:
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
PARC Plan (000) (Cdn$) (000) (Cdn$) (000) (Cdn$)
- ----------------------------------------------------------------------------------------------------------------
Outstanding at beginning
of year - - - - - -
Granted 2,367 $.90 - - - -
Exercised (10) $.99 - - - -
Forfeited - - - - - -
- ----------------------------------------------------------------------------------------------------------------
Outstanding at end of year 2,357 $.90 - - - -
Options exercisable at
year- end 1,161
Weighted-average fair value
of options granted during the $.90 - -
year
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------------------------
PARC Plan Number Weighted-Average Weighted-Average Number Weighted-Average
Range of Exercise Outstanding at Remaining Exercise Price Exercisable at Exercise Price
Prices (Cdn$) Dec. 31, 1996 Contractual Life (Cdn$) Dec. 31, 1996 (Cdn$)
- ----------------------------------------------------------------------------------------------------------------
$.65 to $.99 2,357 4.44 $.90 1,161 $.92
NEW ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128
"Earnings Per Share", effective for fiscal years ending after December 15,
1997. This standard revises the calculation and disclosures for earnings per
share. Management does not believe that adoption of
129
130
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
SFAS No. 128 would have a material impact on its U.S. GAAP disclosures, as the
Company's common stock equivalents are anti-dilutive.
OPERATIONS BY GEOGRAPHIC AREA UNDER U.S. GAAP
Information on the Company's continuing operations by geographic area under
U.S. GAAP for the years ended December 31, 1996, 1995 and 1994 is shown below.
Operating earnings from continuing operations are total revenues less operating
expenses of the geographic areas.
OPERATING NET IDENTIFIABLE
REVENUES (LOSS) ASSETS
1996
South America $1,811 $(18,431) $27,121
Africa 224 (3,261) 4,944
Corporate 766 (3,585) 14,830
- ----------------------------------------------------------------------------------------------------------------
Total $2,801 $(25,277) $46,895
================================================================================================================
1995
South America $4,435 $(15,295) $24,267
Africa 1 (9,867) 1,667
Corporate 1,154 (3,168) 12,125
- ----------------------------------------------------------------------------------------------------------------
Total $5,590 $(28,330) $38,059
================================================================================================================
1994
South America $ 736 $(11,045) $22,507
Africa - (3,848) 823
Corporate 2,000 (1,188) 35,595
- ----------------------------------------------------------------------------------------------------------------
Total $2,736 $(16,081) $58,925
================================================================================================================
18. SUBSEQUENT EVENTS
In January 1997, the Company announced that the Government of Guyana had
granted a prospecting license to OGML for the Quartz Hill property. (See Note
19.)
In March 1997, all of the Company's outstanding Cdn$11.00 warrants were
exercised for proceeds of $5.4 million.
19. RELATED PARTIES
To consolidate exploration and possible development of the Quartz Hill area
with the adjacent Omai property, the Company entered, in 1995, into a letter
agreement with OGML whereby the Company relinquished all of its right, title,
and interest in the Quartz Hill prospecting license in exchange for a
beneficial interest in any prospecting license granted to OGML with respect to
the same area. Under the agreement, OGML may acquire 100% of the Company's
beneficial interest by either: (i) making quarterly payments to the Company
equal to 25% of net cash flow generated from mining activity on the Quartz Hill
property; or (ii) issuing to the Company, upon commencement of production at
Quartz Hill, 1,386,000 Class IV Preference Shares with a par value of $1.00 per
share, i.e., the equivalent of the approximate historical book value of the
Company's investment in the Quartz Hill property. Such shares would be fully
redeemable in equal quarterly installments during the 36-month period following
130
131
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
commencement of commercial production from Quartz Hill. In January 1997, OGML
was awarded prospecting licenses for the Quartz Hill area and the Omai River
area, adjacent to the Omai permit area. A budget of $1.0 million to be funded
by OGML has been allocated in 1997 for the Quartz Hill and Omai River
properties, as well as the Omai Mine license. Execution of a definitive
agreement between Cambior, OGML and the Company is subject to execution of an
acceptable mineral agreement regarding the Quartz Hill and Omai River
properties. This agreement is subject to approval by the Board of Directors of
OGML, and, for certain matters, approval of OGML's shareholders.
20. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL REGULATIONS
The Company is not aware of any events of non-compliance in its operations 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.
BUSINESS RISK
All of the Company's mineral properties are located in developing countries with
the exception of Brazil and French Guiana, a Department of France. 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 mineral 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 government and regulatory
authorities. There can be no assurance that the Company will be able to execute
or enforce satisfactory mineral agreements or to obtain satisfactory political
risk insurance on commercially reasonable terms for any or all of its
properties.
LETTERS OF CREDIT AND GUARANTEE
On July 26, 1995, the Company entered into a $2.15 million letter of credit
application and agreement (the "Letter of Credit Documents") with a major
commercial bank (the "first Bank"). Pursuant to the Letter of Credit
Documents, the first Bank issued an irrevocable standby letter of credit in
favor of The Commercial Bank of Ethiopia ("CBE"). Based on the letter of
credit, the CBE, in turn, issued a bank guarantee or performance bond for the
benefit of the Ministry of Mines and Energy for Ethiopia ("MMEE") guaranteeing
the first year's exploration program at the Dul Project in Ethiopia. On July
17, 1996, the performance bond requirements were reduced to $1.15 million by
the MMEE and the first Bank released $1.0 million from the letter of credit.
On September 23, 1996, the performance bond was further reduced to $0.45
million, reflecting the Company's agreed second year exploration program
expenditure requirements, and an additional $0.7 million was released from the
letter of credit by the first Bank. The CBE performance bond (and,
concurrently, the first Bank letter of credit) may be drawn upon following the
end of the exploration year in the event the Company fails to expend the
minimum exploration budget previously submitted by the Company for the
exploration year and approved by the MMEE, but only in the amount of the
difference between the amount actually spent and minimum required under the
program. The current performance bond has been extended for one year and
expires on October 16, 1997, subject to one possible extension of 90 days, and
the first Bank
131
132
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(All tabular amounts in thousands of United States Dollars)
letter of credit expires 15 days after the performance bond. The Company has
provided cash collateral in the amount of $0.45 million for the letter of
credit. Due to the write-down and consequent reduction in the planned 1997
work program for the Dul Mountain property (See Note 10), the Company intends
to negotiate a further reduction of the performance bond. There can be no
assurance that the Company will be successful in reducing the bond prior to its
expiration.
On April 22, 1996, the Company and PARC announced the signing of an Exploration
License Agreement (the "Exploration License") with the Government of Eritrea,
represented by the Ministry of Energy, Mines and Water Resources ("MEMWR"),
over the Galla Valley property. The initial period of the Exploration License
is three years. The Company and PARC have committed to spend $1.25 million on
exploration of the property in the first year of the Exploration License. As
part of the Exploration License, the Company and PARC are required to provide
MEMWR a bank guarantee in an amount equal to the minimum expenditure obligation
(approximately $1.25 million) for the first year of the initial three-year
exploration period. In October 1996, the Company and PARC entered into a bank
guarantee application and related agreements with a major commercial bank (the
"second Bank"). On October 11, 1996, the second Bank issued its bank guarantee
for $1.25 million to the MEMWR to guarantee the first year's work expenditure
commitment of the Company and PARC. The bank guarantee expires on August 19,
1997, and may be drawn on by the MEMWR in the event the Company and PARC fail
to meet the minimum expenditure requirement in the first exploration year, but
only in the amount of the difference between actual expenditures and the
minimum requirement. PARC has provided cash collateral to the second Bank
totaling $1.25 million for the bank guarantee.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements with Coopers & Lybrand, the Company's
chartered accountants, regarding any matter of accounting principles or
practices or financial statement disclosure.
132
133
PART III
ITEMS 10, 11, 12 AND 13.
In accordance with General Instruction G(3), the information required by Part
III (with the exception of certain information regarding the Company's
executive officers set forth above under Item 4A of this Form 10-K) is hereby
incorporated by reference from the Company's proxy statement to be filed
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report.
133
134
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, 1996 and 1995
Consolidated Statements of Operations Years Ended December 31, 1996,
1995 and 1994
Consolidated Statement of Changes in Shareholders' Equity Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows Years Ended December 31, 1996,
1995 and 1994
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.
The Company filed no Form 8-K for the fourth quarter period ending
December 31, 1996.
EXHIBITS
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)
3.2A 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)
4.2 Form of Warrant Certificate. (incorporated by reference to Exhibit
4.2 to the Company's Form 10-K for the year ended December 31, 1995)
134
135
10.1 Cambior Option Agreement dated May 24, 1990 respecting the Omai Gold
Mine. (incorporated by reference to Exhibit 3.3 to the Company's
Registration Statement on Form 20-F, filed on May 10, 1993)
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 Agency Agreement, dated January 17, 1994 between Golden Star Resources
Ltd. and First Marathon Securities Limited, Gordon Capital
Corporation, Yorkton Securities and Robertson Stephens and Company.
(incorporated by reference to Exhibit 10.7 to the Company's Form 10-K
for the year ended December 31, 1994)
10.5 Agreement dated September 25,1994 between BRGM and Guyanor regarding
Paul-Isnard properties (English translation). (incorporated by
reference to Exhibit 10.8 to the Company's Form 10-K for the year
ended December 31, 1994)
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)
10.9 Option Agreement dated October 18, 1994 between the Company, Pan
African Resources Corporation, Precious Stones Sierra Leone Baomahun
Inc. and Harry Winston, Inc. regarding the Baomahun property.
(incorporated by reference to Exhibit 10.12 to the Company's Form 10-K
for the year ended December 31, 1994)
10.10 Agreement dated February 25, 1995 between Guyanor Ressources S.A.,
Societe des Mines de St-Elie, Asarco Incorporated and Asarco Guyane
FranHaise regarding the St-Elie property. (incorporated by reference
to Exhibit 10.16 to the Company's Form 10-K for the year ended
December 31, 1994)
135
136
10.11 Agreement dated August 28, 1992 between Guyanor, CME and Raymond
Blanchard regarding the transfer of the St-Elie concession (together
with English summary thereof). (incorporated by reference to Exhibit
10.19 to the Company's Form 10-K for the year ended December 31, 1994)
10.12 Agreement dated January 10, 1995, between the Ministry of Mines and
Energy of Ivory Coast and the Company together with English summary
thereof. (incorporated by reference to Exhibit 10.12 to the Company's
Form 10-K for the year ended December 31, 1995)
10.13 Agreement dated April 30, 1995, between The Ministry of Mines and
Energy of Ethiopia and the Company, for the exploration of gold at Dul
Locality. (incorporated by reference to Exhibit 10.13 to the Company's
Form 10-K for the year ended December 31, 1995)
10.14 Heads of Agreement dated December 14, 1995, between Guyanor Ressources
S.A. and BHP Minerals International Exploration Inc., concerning
Dachine property. (incorporated by reference to Exhibit 10.14 to the
Company's Form 10-K for the year ended December 31, 1995)
10.15 Agreement of Purchase and Sale dated January 10, 1997, between Pan
African Resources Corporation (Barbados) and Lafayette Holdings Corp.,
re Eteke properties in Gabon terminating the agreements incorporated
by reference as Exhibit 10.15 to the Company's Form 10-K for the year
ended December 31, 1995.
10.16 Mineral Agreement dated October 1995, between Pan African Resources
Corporation and the Minister Responsible for Mining, Industry and
Hydraulics of the Government of Mali, for the Melgue property,
together with English summary thereof. (incorporated by reference to
Exhibit 10.16 to the Company's Form 10-K for the year ended December
31, 1995)
10.17 Company Share Transfer contract between the Company, Pan African
Resources Corporation, Barbey, Almeida, Ly, Keita and AFC; Partners
Agreement between same parties and Receivership Agreement between same
parties, dated December 31, 1995, together with English translations
thereof. (incorporated by reference to Exhibit 10.17 to the Company's
Form 10-K for the year ended December 31, 1995)
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 Management Services Agreement dated January 1, 1996 between the
Company and Pan African Resources Corporation. (incorporated by
reference to Exhibit 10.19 to the Company's Form 10-K for the year
ended December 31, 1995)
136
137
10.20 Underwriting Agreement dated February 21, 1995, between Guyanor
Ressources S.A., and the Company, together with Gordon Capital
Corporation, First Marathon Securities Limited and Yorkton Securities
Inc. (incorporated by reference to Exhibit 10-20 to the Company's
Form 10-K for the year ended December 31, 1995)
10.21 Agency Agreement dated December 12, 1995 and Amendment to Agency
Agreement, dated January 24, 1996 between Pan African Resources
Corporation, Yorkton Securities Inc., Gordon Capital Corporation and
RBC Dominion Securities Inc. (incorporated by reference to Exhibit
10.21 to the Company's Form 10-K for the year ended December 31, 1995)
10.22 Underwriting Agreement dated February 9, 1996, between the Company and
CIBC Wood Gundy Securities Inc., Gordon Capital Corporation, Nesbitt
Burns Inc. and RBC Dominion Securities Inc. (incorporated by reference
to Exhibit 1.1 to the Company's Form 8-K dated March 4, 1996)
10.23 Exploration License Agreement dated April 19, 1996, between the
Government of the State of Eritrea and the Company for the Grant of
Exploration Right and License in The Galla Valley Area
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 Mineraacao S.A.
10.25 Termination and Settlement Agreement dated July 29, 1996, between
Venezuela Investments Ltd., a wholly owned subsidiary of the Company
and various other entities including VenStar Gold Ltd., Venhold
Investments (1994) Ltd., Lindley Associated S.A., Golden Star
Management Ltd., General Mining de Guyana C.A., Krysos Mining S.A.,
Servicios Consultmin S.A., GenVen Holdings Ltd., KrysVen Holdings Ltd.
and ConsultVen Holdings Ltd., terminating the agreements incorporated
by reference as Exhibit 10.13 to the Company's Form 10-K for the year
ended December 31, 1994.
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 (collectively
"SOTRAPMAG"), a 100% owned subsidiary of Guyanor Ressources S.A.,
LaSource Developpement, SAS and ASARCO Exploration Company for the
Paul Isnard property.
10.27 Heads of Agreement dated July 22, 1996, between the Company and BHP
Minerals International Exploration Inc. regarding the Guyana
Reconnaissance Project.
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.
137
138
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.
10.30 English translation of the Underwriting Agreement dated October 29,
1996, between Guyanor Ressources S.A., Banque Paribas, Banque
Bruxelles Lambert France, Banque Nationale De Paris, CIBC Wood Gundy
Securities, Yorkton Securities Inc., Societe De Bourse De Portzamparc
S.A. and the Company.
10.31 English translation of Convention D'Etablissement dated October 15,
1996, between the Government of the Republic of Mali and PARC Fougala
S.A.
10.32 1992 Employee Stock Option Plan amended and restated to June 7, 1995.
(incorporated by reference to Exhibit 10.23 to the Company's Form 10-K
for the year ended December 31, 1995)
10.33 1992 Non-Discretionary Directors' Stock Option Plan, amended and
restated to November 6, 1995.
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 Guyanor Ressources S.A. Stock Option Plan (English translation).
(incorporated by reference to Exhibit 10.26 to the Company's Form 10-K
for the year ended December 31, 1995)
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. Fagin, Fennell, Fleming, Bertoni and
Shields, dated May 15, 1992, May 15, 1992, May 5, 1994, 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)
10.39 Agreements between the Company and its outside directors, dated
December 8, 1995, and December 10, 1996, 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
138
139
10.41 Guarantee (letter of credit) dated July 26, 1995, to Government of
Ethiopia. (incorporated by reference to Exhibit 10.31 to the Company's
Form 10-K for the year ended December 31, 1995)
10.42 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)
21.1 Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand, Chartered Accountants.
27.1 Financial Data Schedule.
139
140
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
GOLDEN STAR RESOURCES LTD.
Registrant
By: /s/ David A. Fennell
---------------------------------------------
DAVID K. FAGIN
President and Chief Executive Officer
Date:
---------------------------------------------
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/ David A. Fennell By: /s/ Gordon J. Bell
------------------------------------- ------------------------------------------
Name: David A. Fennell Name: Gordon J. Bell
--------------------------------- --------------------------------------
Title: President and CEO Title: Vice-President and Chief Financial
(Principal Executive Officer) Officer (Principal Financial and
--------------------------------- Accounting Officer)
-------------------
Date: March 28, 1997 Date: March 28, 1997
----------------------------- -----------------------------
By: /s/ David K. Fagin By: /s/ David A. Fennell
--------------------------------- -------------------------------------
Name: David K. Fagin Name: David A. Fennell
----------------------------- -------------------------------------
Title: Director Title: Director
-------------------------------------
Date: March 28, 1997 Date: March 28, 1997
----------------------------- -----------------------------
By: /s/ Jean-Pierre Lefebvre By: /s/ Pierre Goussleand
--------------------------------- -------------------------------------
Name: Jean-Pierre Lefebvre Name: Pierre Gousseland
--------------------------------- -------------------------------------
Title: Director Title: Director
--------------------------------- -------------------------------------
Date: March 28, 1997 Date: March 28, 1997
----------------------------- -----------------------------
140
141
By: /s/ Donald F. Mazankowski By: /s/ Ernest Mercier
----------------------------- -------------------------------------
Name: Donald F. Mazankowski Name: Ernest Mercier
----------------------------- -------------------------------------
Title: Director Title: Director
----------------------------- -------------------------------------
Date: March 28, 1997 Date: March 28, 1997
----------------------------- -----------------------------
By: /s/ Roger Morton By: /s/ Robert Minto
--------------------------------- -------------------------------------
Name: Roger Morton Name: Robert Minto
--------------------------------- -------------------------------------
Title: Director Title: Director
--------------------------------- -------------------------------------
Date: March 28, 1997 Date: March 28, 1997
----------------------------- -----------------------------
By: /s/ Richard A. Stark
---------------------------------
Name: Richard A. Stark
---------------------------------
Title: Director
---------------------------------
Date: March 28, 1997
-----------------------------
141
142
EXHIBIT INDEX
-------------
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)
3.2A 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)
4.2 Form of Warrant Certificate. (incorporated by reference to Exhibit 4.2 to the Company's Form 10-K for
the year ended December 31, 1995)
143
10.1 Cambior Option Agreement dated May 24, 1990 respecting the Omai Gold Mine. (incorporated by reference
to Exhibit 3.3 to the Company's Registration Statement on Form 20-F, filed on May 10, 1993)
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 Agency Agreement, dated January 17, 1994 between Golden Star Resources Ltd. and First Marathon
Securities Limited, Gordon Capital Corporation, Yorkton Securities and Robertson Stephens and Company.
(incorporated by reference to Exhibit 10.7 to the Company's Form 10-K for the year ended December 31,
1994)
10.5 Agreement dated September 25,1994 between BRGM and Guyanor regarding Paul-Isnard properties (English
translation). (incorporated by reference to Exhibit 10.8 to the Company's Form 10-K for the year ended
December 31, 1994)
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)
10.9 Option Agreement dated October 18, 1994 between the Company, Pan African Resources Corporation,
Precious Stones Sierra Leone Baomahun Inc. and Harry Winston, Inc. regarding the Baomahun property.
(incorporated by reference to Exhibit 10.12 to the Company's Form 10-K for the year ended December 31,
1994)
10.10 Agreement dated February 25, 1995 between Guyanor Ressources S.A., Societe des Mines de St-Elie, Asarco
Incorporated and Asarco Guyane Francaise regarding the St-Elie property. (incorporated by reference to
Exhibit 10.16 to the Company's Form 10-K for the year ended December 31, 1994)
144
10.11 Agreement dated August 28, 1992 between Guyanor, CME and Raymond Blanchard regarding the transfer of
the St-Elie concession (together with English summary thereof). (incorporated by reference to Exhibit
10.19 to the Company's Form 10-K for the year ended December 31, 1994)
10.12 Agreement dated January 10, 1995, between the Ministry of Mines and Energy of Ivory Coast and the
Company together with English summary thereof. (incorporated by reference to Exhibit 10.12 to the
Company's Form 10-K for the year ended December 31, 1995)
10.13 Agreement dated April 30, 1995, between The Ministry of Mines and Energy of Ethiopia and the Company,
for the exploration of gold at Dul Locality. (incorporated by reference to Exhibit 10.13 to the
Company's Form 10-K for the year ended December 31, 1995)
10.14 Heads of Agreement dated December 14, 1995, between Guyanor Ressources S.A. and BHP Minerals
International Exploration Inc., concerning Dachine property. (incorporated by reference to Exhibit
10.14 to the Company's Form 10-K for the year ended December 31, 1995)
10.15 Agreement of Purchase and Sale dated January 10, 1997, between Pan African Resources Corporation
(Barbados) and Lafayette Holdings Corp., re Eteke properties in Gabon terminating the agreements
incorporated by reference as Exhibit 10.15 to the Company's Form 10-K for the year ended December 31,
1995.
10.16 Mineral Agreement dated October 1995, between Pan African Resources Corporation and the Minister
Responsible for Mining, Industry and Hydraulics of the Government of Mali, for the Melgue property,
together with English summary thereof. (incorporated by reference to Exhibit 10.16 to the Company's
Form 10-K for the year ended December 31, 1995)
10.17 Company Share Transfer contract between the Company, Pan African Resources Corporation, Barbey,
Almeida, Ly, Keita and AFC; Partners Agreement between same parties and Receivership Agreement between
same parties, dated December 31, 1995, together with English translations thereof. (incorporated by
reference to Exhibit 10.17 to the Company's Form 10-K for the year ended December 31, 1995)
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 Management Services Agreement dated January 1, 1996 between the Company and Pan African Resources
Corporation. (incorporated by reference to Exhibit 10.19 to the Company's Form 10-K for the year ended
December 31, 1995)
145
10.20 Underwriting Agreement dated February 21, 1995, between Guyanor Ressources S.A., and the Company,
together with Gordon Capital Corporation, First Marathon Securities Limited and Yorkton Securities Inc.
(incorporated by reference to Exhibit 10-20 to the Company's Form 10-K for the year ended December 31,
1995)
10.21 Agency Agreement dated December 12, 1995 and Amendment to Agency Agreement, dated January 24, 1996
between Pan African Resources Corporation, Yorkton Securities Inc., Gordon Capital Corporation and RBC
Dominion Securities Inc. (incorporated by reference to Exhibit 10.21 to the Company's Form 10-K for
the year ended December 31, 1995)
10.22 Underwriting Agreement dated February 9, 1996, between the Company and CIBC Wood Gundy Securities Inc.,
Gordon Capital Corporation, Nesbitt Burns Inc. and RBC Dominion Securities Inc. (incorporated by
reference to Exhibit 1.1 to the Company's Form 8-K dated March 4, 1996)
10.23 Exploration License Agreement dated April 19, 1996, between the Government of the State of Eritrea and
the Company for the Grant of Exploration Right and License in The Galla Valley Area
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
Mineraacao S.A.
10.25 Termination and Settlement Agreement dated July 29, 1996, between Venezuela Investments Ltd., a wholly
owned subsidiary of the Company and various other entities including VenStar Gold Ltd., Venhold
Investments (1994) Ltd., Lindley Associated S.A., Golden Star Management Ltd., General Mining de Guyana
C.A., Krysos Mining S.A., Servicios Consultmin S.A., GenVen Holdings Ltd., KrysVen Holdings Ltd. and
ConsultVen Holdings Ltd., terminating the agreements incorporated by reference as Exhibit 10.13 to the
Company's Form 10-K for the year ended December 31, 1994.
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 (collectively
"SOTRAPMAG"), a 100% owned subsidiary of Guyanor Ressources S.A., LaSource Developpement, SAS and
ASARCO Exploration Company for the Paul Isnard property.
10.27 Heads of Agreement dated July 22, 1996, between the Company and BHP Minerals International Exploration
Inc. regarding the Guyana Reconnaissance Project.
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.
146
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.
10.30 English translation of the Underwriting Agreement dated October 29, 1996, between Guyanor Ressources
S.A., Banque Paribas, Banque Bruxelles Lambert France, Banque Nationale De Paris, CIBC Wood Gundy
Securities, Yorkton Securities Inc., Societe De Bourse De Portzamparc S.A. and the Company.
10.31 English translation of Convention D'Etablissement dated October 15, 1996, between the Government of the
Republic of Mali and PARC Fougala S.A.
10.32 1992 Employee Stock Option Plan amended and restated to June 7, 1995. (incorporated by reference to
Exhibit 10.23 to the Company's Form 10-K for the year ended December 31, 1995)
10.33 1992 Non-Discretionary Directors' Stock Option Plan, amended and restated to November 6, 1995.
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 Guyanor Ressources S.A. Stock Option Plan (English translation). (incorporated by reference to Exhibit
10.26 to the Company's Form 10-K for the year ended December 31, 1995)
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. Fagin, Fennell, Fleming, Bertoni and Shields, dated May 15, 1992, May
15, 1992, May 5, 1994, 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)
10.39 Agreements between the Company and its outside directors, dated December 8, 1995, and December 10,
1996, 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
147
10.41 Guarantee (letter of credit) dated July 26, 1995, to Government of Ethiopia. (incorporated by reference
to Exhibit 10.31 to the Company's Form 10-K for the year ended December 31, 1995)
10.42 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)
21.1 Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand, Chartered Accountants.
27.1 Financial Data Schedule.