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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year ended December 31, 2000
Commission file number 1-12284
GOLDEN STAR RESOURCES LTD.
(Exact Name of Registrant as Specified in Its Charter)
Canada 98-0101955
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10579 Bradford Road, Suite 103
Littleton, Colorado 80127-4247
(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 Toronto Stock Exchange
OTC Bulletin Board
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 Cdn $26.3 million as of April 12, 2001, based on
the closing price of the shares on the Toronto Stock Exchange of Cdn. $0.69 per
share.
Number of Common Shares outstanding as at April 12, 2001: 38,088,988
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's 2001 Proxy Statement and Information Circular for the 2001
Annual Meeting of Shareholders, which will be filed with the Securities and
Exchange Commission within 120 days after December 31, 2000 pursuant to
Regulation 14A under the Securities Exchange Act of 1934, is incorporated by
reference into Part III hereof.
TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS
ITEM 2. DESCRIPTION OF PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The Registrant will furnish a copy of any exhibit filed as part of this report
to any shareholder of record upon receipt of a written request from such person
and payment of the Registrant's reasonable expenses for furnishing such exhibit.
Requests should be made to the Secretary of the Registrant at the address set
forth on the cover page of this report.
REPORTING CURRENCY AND FINANCIAL INFORMATION
All amounts in this Report are expressed in United States dollars, unless
otherwise indicated. References to (i) "Cdn" are to Canadian dollars, (ii) "FF"
are to French francs, (iii) "Cedi" or "Cedis" are to Ghanaian cedis, and (iv)
"Aus" are to Australian dollars.
Financial information is presented in accordance with accounting principles
generally accepted in Canada. Differences between accounting principles
generally accepted in the United States and those applied in Canada, as
applicable to the Registrant, are explained in Note 15 to the Consolidated
Financial Statements.
(i)
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K contains "forward-looking statements" within the meaning of the
United States securities laws. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events, capital
expenditure, exploration efforts, financial needs, and other information that is
not historical information. The forward-looking statements contained herein are
based on Golden Star's current expectations and various assumptions as of the
date such statements are made. Golden Star cannot give assurance that such
statements will prove to be correct. These forward-looking statements include
statements regarding:
. the impact that the Bogoso mine may have on our future liquidity, cash
flows, financial requirements, operating results and capital resources
. the operational and financial performance of the Bogoso mine
. targets for gold production
. cash operating costs and expenses
. percentage increases and decreases in production from the Bogoso mine
. schedules for completion of feasibility studies
. potential increases or decreases in reserves and production
. the timing and scope of future drilling and other exploration
activities
. expectations regarding receipt of permits and commencement of mining
or production
. anticipated recovery rates, and
. potential acquisitions or increases in property interests.
Factors that could cause our actual results to differ materially from these
statements include, but are not limited to, changes in gold prices, the timing
and amount of estimated future production, unanticipated grade changes,
unanticipated recovery problems, mining and milling costs, determination of
reserves, costs and timing of the development of new deposits, metallurgy,
processing, access, transportation of supplies, water availability, results of
current and future exploration activities, results of pending and future
feasibility studies, changes in project parameters as plans continue to be
refined, political, economic and operational risks of foreign operations, joint
venture relationships, availability of materials and equipment, the timing of
receipt of governmental approvals for new permits or renewal of permits,
capitalization and commercial viability, the failure of plant, equipment or
processes to operate in accordance with specifications or expectations,
accidents, labor disputes, delays in start-up dates, environmental costs and
risks, local and community impacts and issues, and general domestic and
international economic and political conditions. See the factors set forth under
the caption "Risk Factors" in Item 1 of this Form 10-K.
1
PART I
ITEM 1. DESCRIPTION OF BUSINESS
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Incorporation
Golden Star Resources Ltd. ("Golden Star" or the "Company" or "we") was
established under the Canada Business Corporations Act on May 15, 1992 as a
result of the amalgamation of South American Goldfields Inc., a corporation
incorporated under the federal laws of Canada, and Golden Star Resources Ltd., a
corporation originally incorporated under the provisions of the Alberta Business
Corporations Act on March 7, 1984 as Southern Star Resources Ltd. Concurrent
with the amalgamation, the common shares of the Company were consolidated on a
one-for-two basis. All references to "common shares" in this document mean the
common shares of the Company after the amalgamation and the share consolidation.
The fiscal year of the Company ends on December 31 of each year.
The head office of the Company is located at 10579 Bradford Road, Suite 103,
Littleton, Colorado 80127-4247, and the registered and records office is located
at 19th Floor, 885 West Georgia Street, Vancouver, British Columbia, Canada V6C
3H4.
In this report, unless the context indicates otherwise, the term the "Company"
refers to the Company together with all its subsidiaries.
Overview
The Company is an international mining and exploration company with a diverse
portfolio of projects. The Company's core focus is on the acquisition,
development, operation and, where appropriate, the exploration of gold mining
projects.
As at April 2, 2001, the Company's interest in gold production was in the form
of (i) a 70% equity interest in Bogoso Gold Limited, a company incorporated
under the laws of Ghana ("BGL") and the owner and operator of the Bogoso gold
mine in Ghana (the "Bogoso Mine") (see "Item 2. Description of Properties - The
Bogoso Gold Mine") and (ii) a 30% common share equity interest in Omai Gold
Mines Limited, a company incorporated under the laws of Guyana ("OGML") and the
owner and operator of the Omai gold mine in Guyana (the "Omai Mine"). (See
"Item 2. Description of Properties - The Omai Gold Mine").
The Company continues to hold several exploration stage gold and diamond
projects which were acquired in past years when the Company's main focus was on
exploration. While most of these projects are now on a care and maintenance
basis, work is continuing on the two most promising properties. The Company is
continuing to work on the Gross Rosebel gold project, an advanced stage
exploration property in Suriname in South America, although this property was on
care and maintenance through 1999 and 2000, and the Company is actively
exploring the Paul Isnard gold project in French Guiana, with funding provided
by a senior mining company.
Business Strategy
Faced with a continuing low gold price environment and the difficulty in raising
funds from the equity markets for pure exploration, management decided in 1999
to change its business strategy from a pure exploration company to a production,
development, and advanced stage exploration company. The first step in the
implementation of this new strategy was the September 1999 acquisition of the
Bogoso Mine. The Bogoso acquisition has provided the Company with a source of
internally generated cash flow from the mining and processing of near-surface
oxide gold ores.
Since purchasing the Bogoso Mine, the Company's immediate focus has shifted to
the acquisition of additional oxide gold reserves in the immediate vicinity of
the Bogoso Mine, which could be processed through the Bogoso mill once the
Bogoso mine reserves are exhausted in late 2001. Several zones of near-surface,
oxide gold mineralization are known to exist within truckable distance of the
Bogoso mill and efforts to evaluate and acquire several of these potential
resources are currently underway. In addition, we are nearing completion of a
feasibility
2
study to assess the potential of a sulfide gold ore operation to treat the
sulfide gold ores located on and around the Bogoso Mine.
On April 4, 2001, the Company announced that it had entered into an agreement to
acquire Anvil's 20% equity interest in BGL in return for the issuance of
3,000,000 common shares of Golden Star.
A second objective of the Company's current business plan is to bring Gross
Rosebel, our most promising advanced stage exploration project into the
development stage. In this regard, the Company and its 50/50 joint venture
partner, Cambior Inc., of Canada ("Cambior"), have in 2000, completed a new pre-
feasibility study and plan to complete a bankable feasibility study by the end
of 2001. Meetings were held with the Government of Suriname in December 2000 to
discuss the results of the 2000 pre-feasibility study and the assumptions made
in the preparation of the study that are under the Government's control and
would ensure an efficient and productive operation. The main element is the
availability of sufficient hydro-power at a reasonable price. See "Item 2.
Description of Properties" for a more detail description of the Gross Rosebel
project.
Gold exploration is still an element of the Company's strategy, although it has
not been management's top priority over the last three years due to the
difficulty of raising funds, at attractive prices, solely for exploration. While
field exploration spending proceeded only at Paul Isnard and Dachine and in
areas around the Bogoso Mine during 2000, to preserve cash, most of our early
and intermediate stage projects have been placed on care and maintenance
awaiting a more favorable environment for gold exploration and development.
Other projects have been abandoned. In 2000, the Company terminated its option
agreement for the Ndori project in Kenya and our Kenyan office was shut down.
Our regional office in Ivory Coast was closed as well although management has
decided to maintain title to the mineral rights at the Tortiya and Tanda
projects which it will manage from Ghana. We have terminated our option
agreements for the acquisition of the Abacaxis and Andorinhas projects in Brazil
and our office in Brasilia is scheduled for closure in 2001.
In the future, as part of its new strategy, the Company intends to act more
often as operator of its own discoveries although, to improve shareholder
benefits, it may still decide, given the nature and size of a project and its
mineralized material, to joint venture projects to larger mining companies that
have the technical skills and financial resources to develop and operate large
modern mining operations. The Company continues to pursue new opportunities and
may, if warranted, make selective additional acquisitions of promising
properties.
In view of the current gold market environment, the Company intends to continue
to focus on transactions that offer the potential to provide cash flow to fund
operations, exploration and development. Various transactions that may be
considered include acquisitions of production or development stage mining
projects, particularly those opportunities which may exist in the Company's
geographical areas of expertise. Transactions involving mergers with other
mining companies may also be considered. The Company's business strategy is
dependent on the availability of adequate capital (see "Risk Factors - We
currently have limited liquidity and capital resources".)
Reserves
The following table presents currently reported reserves for the Bogoso Mine.
Reserves for the Bogoso Mine have been estimated by BGL. See "Item 2.
Description of Properties" for a description of the Bogoso Mine and "Risk
Factors" for a discussion of factors that could affect the following reserve
estimate. The Company has not included reserve details with respect to the Omai
Mine (30% owned by the Company through its common share equity interest in OGML)
as it is considered unlikely that the Company will receive any cash distribution
in connection with its common share equity interest in OGML.
3
BOGOSO MINE RESERVES/1/
at December 31, 2000
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Project Tonnes Gold Grade Contained Ounces Contained Ounces
(100%) g/t (100%) (Golden Star 's share)
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Proven Reserves 2,445,000 2.2 170,700 119,500
Probable Reserves 20,000 2.5 1,600 1,100
--------- --- ------- -------
Total 2,465,000 2.2 172,300 120,600
(1) BGL has reported its Proven and Probable Reserves for year-end 2000 using a
$280 gold price. The reserves are those ore tonnages contained within
economically optimized pit envelopes, designed for the oxide and transition
resources, and using current and predicted mine operating costs and
performance parameters. BGL's Proven and Probable Reserves at December 31,
2000 are compared to Proven and Probable Reserves at December 31, 1999 of
3.26 million tonnes at an average grade of 2.2 g/t, representing
approximately 0.229 million ounces of gold.
The definitions of Proven and Probable Reserves (see glossary of terms) are
those prescribed for use in the United States by the Securities and Exchange
Commission and set forth in SEC Industry Guide 7. These definitions are
substantially the same as those applied in Canada as set forth in National
Instrument 43-101.
Mineralized Material
Mineralized material has been estimated by the Company or by Cambior, our
partner in various properties, as indicated below. See "Item 2. Description of
Properties" for a description and report of mineralized material for each
property and see "Risk Factors" below for a discussion of factors that could
affect the estimates of mineralized material.
Mineralized material does not represent reserves and has not been included in
the Proven and Probable Reserve estimates above. Even though drilling and
trenching indicate sufficient tonnage and grade to warrant further exploration
or development expenditures, the mineralized material does not qualify under the
United States Securities and Exchange Commission standards as being commercially
minable until further drilling, metallurgical work and other economic and
technical feasibility factors based upon such work are resolved. The Company
reports mineralized material only if the potential exists for reclassification
to reserves following additional drilling and/or final technical, economic, and
legal factors have been determined for the project.
MINERALIZED MATERIAL/1/
at December 31, 2000
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Tonnes Tonnes Gold Grade
Project (100%) (Golden Star 's share) g/t
- --------------------------------------------------------------------------------------
Bogoso (oxide and transition)/1/ 1,947,000 1,362,900 2.4
Bogoso (sulfide)/1/ 11,291,000 7,903,700 3.4
Gross Rosebel/2/ 25,166,000 12,583,000 1.7
Yaou and Dorlin/2/ 13,800,000 6,900,000 2.1
Paul Isnard/3/ 6,178,000 4,485,000 2.8
(1) Estimates reflect mineralized material in stock piles or within open pits
designed using a $300 per ounce gold price and geologic, economic and
design constraints that the Company believes are realistic. See "Item 2.
Description of Properties" for more detail information on each project.
(2) Results reported by Cambior as of December 31, 2000 and based on a $300
gold price.
(3) Results estimated by the Company in February 1999 and based on a $325 gold
price
4
Certain Significant Events and Recent Developments
On August 24, 2000 the Company entered into a Letter of Intent with Barnato
Exploration Limited ("Barnex") to acquire their rights to the Prestea Property
in Ghana which adjoins the southern boundary of the Bogoso Mine. On October 25,
2000 the Government of Ghana advised Barnex of its decision to abrogate Barnex's
rights to the Prestea Property. The letter of intent was subsequently allowed to
expire on October 31, 2000. On November 1, 2000 the Government of Ghana granted
a mining lease over the Prestea Property to Prestea Gold Resources Limited.
Barnex has reserved their rights in the matter and the Company continues to
negotiate with Barnex, Prestea Gold Resources Limited and the Government of
Ghana to effect an agreement that would give the Company access to mine on the
Prestea Property. The mineralized material contained within optimized open pits
on the Prestea Property is estimated to be sufficient to provide mill feed for
the Bogoso mill for several years into the future.
On October 12, 2000, the Company and Guyanor Ressources S.A., the Company's 73%
owned subsidiary, ("Guyanor") announced the results from the bulk sampling
program undertaken by Guyanor and its joint venture partner Rio Tinto Mining and
Exploration Limited ("Rio Tinto") on the Dachine diamond project in French
Guiana. The results were considered disappointing and, as a result, Rio Tinto
decided to withdraw from the project and terminate the joint venture (See
"Item 2. Description of Properties - Dachine".)
On January 10, 2001, the Company and Guyanor announced that a Heads of Agreement
had been concluded between Guyanor and Rio Tinto with respect to the Paul Isnard
gold project in French Guiana. Under the terms of the agreement, Rio Tinto can
earn a participating interest of up to 70% in a joint venture relating to the
Paul Isnard property by spending a total of $9.0 million on exploration and
development on the Paul Isnard property (See "Item 2. Description of Properties-
Paul Isnard".)
On January 17, 2001, Rio Tinto purchased by way of private placement 500,000
common shares of Golden Star at a price of $2.00 per common share for total
proceeds of $1,000,000. The Company has committed to lend the full $1.0 million
to Guyanor. Of the $1.0 million total, $0.75 million will be used to fund a work
program on the Paul Isnard gold project and the remaining $250,000 will be used
to partially fund the cost of a re-organization of Guyanor aimed at reducing
ongoing costs.
The Company's shares were de-listed from the American Stock Exchange (Amex) on
January 26, 2001, following several appeals and extended discussions between the
Company's management and the Amex. The Amex noted the Company's stock price
trading below one dollar per share, continuing losses and total shareholder
equity below the Amex minimum, on a U.S GAAP basis, as the reasons for their
decision.
The Company continues to trade on the Toronto Stock Exchange under the symbol
GSC and also trades on the NASDAQ Over-the-Counter Bulletin Board under the
symbol GSRSF.
On April 4, 2001, the Company announced that it had entered into an agreement to
acquire Anvil's 20% equity interest in BGL in return for the issuance of
3,000,000 common shares of Golden Star.
Employee Relations
As at April 2, 2001, the Company and its subsidiaries had a total of
approximately 573 full-time employees and contractors, a 10% reduction from the
634 people employed at the end of 1999. Seven employees are based at the
headquarters in Littleton, Colorado. Approximately 389 full-time employees and
164 full-time contractors are working for BGL in Ghana. Those BGL employees
entitled to join a union were organized during the year and a Collective
Bargaining Agreement that sets out the conditions of service for the 305 union
employees was negotiated and finalized on November 17, 2000. (See "Item 1. Risk
Factors - Certain employees' rights at BGL could have an adverse effect on our
financial condition and results of operation.") As at April 2, 2001, Guyanor
employed 19 full-time employees in French Guiana and the Company employed 42
employees in Suriname.
5
RISK FACTORS
READERS SHOULD CAREFULLY CONSIDER THE RISK FACTORS SET FORTH BELOW.
We currently have limited liquidity and capital resources.
- ----------------------------------------------------------
We have limited financial resources. As at December 31, 2000, we held cash and
short-term investments of approximately $1.0 million as compared to cash and
short-term investments of $2.9 million as at December 31, 1999.
The Company's only internal source of finance is operational cash flows from the
Bogoso Mine which is nearing the end of its reserves. Mining activity is now
expected to cease by mid-2001. Stockpiled ores will then allow continued
operation of the mill into early 2002. The Company's ability to continue as a
going concern after 2001 is dependent on its ability to discover or acquire
additional ore reserves for the Bogoso Mine. The Company is currently carrying
out exploration and is in advanced negotiations to acquire the Prestea Property.
Additional funding would be required for the acquisition of the acquisition of
the Prestea Property. While the Company is currently engaged in negotiations for
the acquisition of the Prestea Property and its financing, there is no
assurance that the acquisition will be successful or that funding can be
obtained. The current market for gold shares is weak and equity capital is
difficult to obtain.
In addition to funds required to acquire additional reserves, the execution of
our business strategy going forward will require significant expenditures,
including debt service on $3.9 million aggregate principal amount of our 7.5%
subordinated convertible debentures. These expenditures may exceed revenues and
free cash flows generated by BGL and our other operations and could affect our
ability to make future distributions on our common shares. We have not, however,
made distributions on our common shares since our inception and do not presently
intend to make future distributions.
Historically low gold prices during the past four years have adversely affected
our ability to obtain financing and therefore our ability to develop our current
portfolio of properties. If these conditions continue to exist for an extended
period of time, we may, in the future, be unable to continue our operations and
fulfill our obligations under our agreements with our partners or under our
permits and licenses. We cannot assure you that in the future we will be able to
obtain adequate financing on acceptable terms. If we are unable to obtain
additional financing, we may need to delay or indefinitely postpone further
exploration and development of our properties. As a result, we may lose our
interest in some of our properties and may be forced to sell some of our
properties.
The loss of any of our interests in exploration and mining properties would give
rise to write-offs, under Canadian GAAP, of any capitalized costs and this would
negatively impact the results of operations. The impact would also be shown in
reduction of assets in our balance sheet, which in turn may reduce our ability
to raise additional funds through equity or debt sources.
Our common shares have been de-listed from the American Stock Exchange.
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The Company's shares were de-listed from the American Stock Exchange (Amex) on
January 26, 2001, following several appeals and extended discussions between the
Company's management and the Amex. The Amex noted the Company's stock price
trading below one dollar per share, continuing losses and total shareholder
equity below the Amex minimum, on a U.S. GAAP basis, as the reasons for their
decision. Although we have not experienced an immediate, direct impact on our
financial position, results of operations and liquidity as a result of the de-
listing, we may, in the longer term, have more difficulty to raise funds in the
US market. Golden Star stock continues to trade on the Toronto Stock Exchange as
well, under the symbol GSC. The Company now trades on the NASDAQ Over-the-
Counter Bulletin Board under the symbol GSRSF. Delisting from the Amex has
triggered penalties on 1.5 million outstanding warrants. The warrants were
issued with the agreement that if our stock was to be delisted from the Amex and
not subsequently relisted on either the New York Stock Exchange, the NASDAQ
National Market or the NASDAQ Smallcap Market, cash payments and other remedies
would be made
6
available to the holders of the warrants. At this time our stock does not
qualify for listing on these three exchanges thus triggering the penalties.
The penalties include cash payments to the warrant holders equal to 3% per month
of the aggregate value of the shares underlying the warrants, which would cost
approximately $19,000 per month. We are now in discussions with the warrant
holders in an attempt to resolve the penalty situation and as a result the
warrant holders have agreed to defer any penalty payments until the end of April
2001.
If we are required to pay this penalty for more than six months, the warrant
agreement would then require us to repurchase the warrants (or if the warrant
holders elect to exercise the warrants, to repurchase the warrant holders'
common stocks at a premium over the fair market value of our common shares).
Payment of the penalties and repurchase of the warrants (shares) would adversely
impact our financial condition, results of operations and liquidity.
If our common shares were deemed to be a "penny stock," the level of trading
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activity in our common shares could be reduced and its marketability affected.
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Broker-dealer practices in connection with transactions in "penny stocks" are
regulated by penny stock rules adopted by the Securities and Exchange
Commission. Penny stocks generally are equity securities with a price of less
than $5.00, other than securities registered on specified national securities
exchanges or quoted on the National Association of Securities Dealers, Automated
Quotation System (NASDAQ) or the Amex. Our shares are not presently subject to
the penny stock rules because of exemptions relating to registration and the
level of our net tangible assets.
The penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules (including the case of an unsolicited
trade), to deliver to its customer a standardized risk disclosure document that
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with the
following:
. current bid and offer quotations for the penny stock
. the compensation of the broker-dealer and its salesperson in the
transaction
. the broker-dealer must disclose if it is the sole market maker and its
presumed control over the market in this case, and
. monthly account statements showing the market value of each penny
stock held in the customer's account.
In addition, broker-dealers who sell these securities to persons other than
established customers and "accredited investors" within the meaning of the
federal securities laws must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. Consequently, these requirements may have
the effect of reducing the level of trading activity, if any, in the secondary
market for a security subject to the penny stock rules. Thus, if our common
shares were ever to become subject to these rules, a transaction in our
securities would subject the broker-dealer to sales practice and disclosure
requirements that could make the trading of our common shares more cumbersome,
which could in turn materially adversely affect the marketability of our shares.
Declines in the price of gold have an adverse effect on our stock price and
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business plan.
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The price of our common shares and our business plan have been and may in the
future be significantly adversely affected by declines in the price of gold.
Gold prices often vary widely and are affected by numerous factors beyond our
control, such as the sale or purchase of gold by various central banks and
financial institutions, inflation or deflationary conditions, fluctuation of the
United States dollar and foreign currencies, global and regional demand, and the
political and economic conditions of major gold-producing countries throughout
the world. The following table sets forth for the last ten years the high and
low selling prices of gold:
7
Year High Low
---- ---- ---
1991 $403.20 $344.30
1992 $359.30 $329.70
1993 $407.00 $326.30
1994 $398.00 $370.60
1995 $395.40 $371.20
1996 $414.70 $368.00
1997 $360.00 $283.00
1998 $314.70 $275.60
1999 $324.50 $253.00
2000 $312.70 $263.80
The closing trading price per ounce of gold quoted by the New York Commodities
Exchange on April 2, 2001 was $255.50.
We continue to experience substantial losses.
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We have reported net losses of $14.9 million in 2000, $24.4 million in 1999,
$22.2 million in 1998, $26.6 million in 1997, and $7.8 million in 1996 and may
continue to incur losses in the future. Future operating losses may make
financing our operations and our business strategy, or raising additional
capital, difficult or impossible, materially and adversely affecting our
operations.
We may not be able to extend the life of the Bogoso Mine beyond existing
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reserves.
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At April 1, 2001, existing oxide and transition reserves at the Bogoso Mine were
expected to be sufficient to continue mining operation until the third quarter
of 2001, with processing operations and gold production continuing from
stockpiles into early 2002. There can be no assurance at this time however that
the treatment of transition reserves will be as efficient as we anticipate.
While we have extended the mine life during 2000 through the discovery of
additional oxide reserves (which are presently being mined), the potential
within the property to discover additional oxide mineralized material and
establish reserves is limited. Actual results from mining and processing
existing reserves or mill feed may also differ materially from historical
production rates and costs. Any of these factors could result in our inability
to generate sufficient cash flow to cover our operating and exploration expenses
on the Bogoso Mine, which would adversely affect our financial liquidity and
results of operations and our ability to make distributions on our common
shares.
Exploration is ongoing at the Bogoso Mine and in surrounding areas to identify
reserves to extend the life of the mine and investigations are underway into
alternative sources of ore, such as further transitional mineralization and
lower grade stockpile. In addition, based on the results of an internal pre-
feasibility study on the sulfide mineralization at the Bogoso Mine, the Company
performed additional drilling to increase the open pittable sulfide mineralized
material and is close to finalizing a bankable-quality feasibility study. It is
currently estimated that the study should be completed in the second quarter of
2001. The Company is also actively pursuing opportunities in the region that
could expand the life of the existing oxide operation at the Bogoso Mine and has
concluded a number of option agreements on nearby properties during 1999 and
2000. Exploration at these properties in ongoing.
The technology and cost of production of sulfide mineralized material at the
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Bogoso Mine may prove infeasible or uneconomic to warrant processing the
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material.
- ----------
While sulfide mineralized material exists on the Bogoso Mine, the technology
used by previous owners to process sulfide ore proved unsuccessful. While the
internal pre-feasibility study was positive and we are in the process of
completing a feasibility study of processing sulfide mineralized material using
other proven technology, there can be no assurance this would become feasible
under any circumstances.
If we determine that mining of sulfide mineralized material is feasible, we
would need to confirm sufficient reserves of sulfide ore to justify establishing
a sulfide operation. There is no assurance that sufficient reserves exist, or
can be established. Furthermore, mining and processing of sulfide ore would
require significant amounts of capital
8
necessary for the design and construction of a sulfide operation. We do not
currently have access to this capital and funding may be unavailable, whether
from internal or external sources, in the necessary amounts and on acceptable
terms, or at all.
Our obligations may strain our financial position and impede our business
- -------------------------------------------------------------------------
strategy.
- ---------
We have total debts and liabilities as of December 31, 2000 of $19.0 million,
including the amount outstanding under our convertible debentures, amounts
payable to financial institutions, the environmental rehabilitation liability
and other payables. This indebtedness may have important consequences, including
the following:
. increasing our vulnerability to general adverse economic and industry
conditions;
. limiting our ability to obtain additional financing to fund future
working capital, capital expenditures, operating and exploration costs
and other general corporate requirements;
. requiring us to dedicate a significant portion of our cash flow from
operations to make debt service payments, which would reduce our
ability to fund working capital, capital expenditures, operating and
exploration costs and other general corporate requirements;
. limiting our flexibility in planning for, or reacting to, changes in
our business and the industry; and
. placing us at a disadvantage when compared to our competitors that
have less debt relative to their capitalization.
We may have insufficient funds available to service our obligations under our
- -----------------------------------------------------------------------------
debentures after the anticipated mine life at the Bogoso Mine expires.
- ----------------------------------------------------------------------
We may experience difficulties in satisfying our obligations under our
debentures because the mine life at the Bogoso Mine is expected to be shorter
than the term of the debentures. Currently, we anticipate production from the
Bogoso Mine to continue until early 2002, while the term of the debentures is
five years, maturing in August 2004. If we are unable to extend the mine life
beyond its anticipated usefulness or are not successful in generating sufficient
free cash flow from other operations or sources, our ability to repay amounts
outstanding under the debentures would be materially and adversely affected.
As a holding company, our operations are dependent on the ability of our
- ------------------------------------------------------------------------
subsidiaries and joint ventures to make distributions to us.
- ------------------------------------------------------------
We are a holding company that conducts a significant amount of our operations
through foreign (African and South American) subsidiaries and joint ventures,
and substantially all of our assets consist of equity in such subsidiaries and
joint ventures. Accordingly, we are and will be dependent on our ability to
obtain funds from our subsidiaries and joint ventures to fund our operations and
to potentially make distributions to our stockholders.
Ghanaian tax implications of the BGL acquisition could affect our cash flow
- ---------------------------------------------------------------------------
projections.
- ------------
We believe that there were no negative Ghanaian tax implications of the
acquisition of BGL for the Company, and that the Government of Ghana will come
to the same conclusion, but there can be no assurance of this. If we were
subject to taxation on the Bogoso acquisition by the Ghanaian government, it
could materially and adversely affect our cash flow projections.
We are subject to changes in the regulatory environment in Ghana.
- -----------------------------------------------------------------
Our mining operations and exploration activities in Ghana will be subject to
extensive regulation governing various matters, including:
. licensing . development
. production . exports
9
. taxes . labor standards
. water disposal . occupational health and safety
. toxic substances . environmental protection
. mine safety
Compliance with these regulations increases the costs of the following:
. planning . developing
. designing . constructing
. drilling . mine and other facilities closure
. operating
We believe that our operations and activities are currently in substantial
compliance with current laws and regulations. However, these laws and
regulations are subject to frequent change. For example, the Ghanaian government
has recently adopted new, more stringent environmental regulations. Amendments
to current laws and regulations governing operations and activities of mining
companies or more stringent implementation or interpretation of these laws and
regulations could have a material adverse impact on us, cause a reduction in
levels of production and delay or prevent the development or expansion of our
properties in Ghana.
Government regulations limit the proceeds from gold sales that may be withdrawn
from Ghana. Changes in regulations that increase these restrictions would have a
material adverse impact on the Company as the Bogoso Mine will be our principal
source of cash.
We are subject to fluctuations in currency exchange rates.
- ----------------------------------------------------------
We conduct all of our exploration and development in countries other than Canada
and the United States. Our two most recent equity financing transactions were in
United States dollars but our funding has historically been through equity
financing transactions completed in Canada and in Canadian currency. We
currently maintain all or the majority of our working capital in United States
dollars or United States dollar denominated securities and convert funds to
foreign currencies as payment obligations become due. In addition, we currently
have future obligations which are payable in French francs and receivables
collectible in French francs. Finally, a significant portion of the operating
costs at the Bogoso Mine is based on the Ghanaian currency, the Cedi. BGL is
required to convert only 20% of the foreign exchange proceeds that BGL receives
from selling gold into Cedis, but the Government of Ghana could require BGL to
convert a higher percentage of such sales proceeds into Cedis in the future.
We currently do not actively hedge against currency exchange risks. Accordingly,
we are subject to fluctuations in the rates of currency exchange between the
United States dollar and these currencies, and such fluctuations may materially
affect our financial position and results of operations.
The Government of Ghana has the right to participate in the ownership and
- -------------------------------------------------------------------------
control of BGL.
- ---------------
The Ghanaian government currently has a 10% carried interest in BGL. The
Ghanaian government also has the right to acquire an additional 20% equity
interest in BGL for a price to be determined by agreement or arbitration. There
can be no assurance that the government will not seek to acquire an additional
equity interest in the mine, or as to the purchase price that the Government of
Ghana would pay for any additional equity interest. A reduction in our equity
interest could reduce our income or cash flows from BGL and amounts available
for reinvestment or distribution. (See "Item 2. Description of Properties - The
Bogoso Gold Mine - Government of Ghana Special Rights".)
10
We have had to restate estimates of mineralized material in the past.
- ---------------------------------------------------------------------
There are numerous uncertainties inherent in estimating proven and probable
reserves and mineralized material, including many factors beyond our control.
The estimation of reserves and mineralized material is a subjective process and
the accuracy of any such estimate is a function of the quantity and quality of
available data and of the assumptions made and judgments used in engineering and
geological interpretation. Results of drilling, metallurgical testing and
production and the evaluation of mine plans subsequent to the date of any
estimate may justify revision of such estimates.
In the past, we have had to revise estimates of mineralized material disclosed
with respect to two of our projects. During the planning for additional
exploration work on these projects, it became apparent that the Company may not
have consistently applied industry and reporting standards in arriving at its
estimates and that additional controls were required. Consequently, we disclosed
new, revised estimates and put controls in place in the third quarter of 1998 to
address deficiencies in past estimation methods. These new controls and
procedures reflect standards adopted by the Toronto Stock Exchange. The controls
call for an internal or external review of all estimates (prepared by the
Company) of mineralized material and reserves by a qualified person recognized
professionally as competent for this type of review. Under our new policy, it is
only after the review that estimates of mineralized material and reserves may be
disclosed. These controls are aimed at insuring that our estimates of
mineralized material and reserves are made in accordance with the best practices
in the industry. We cannot, however, guarantee that revisions to our estimates
will not be required in the future.
Other things being equal, declining gold prices reduce our preexisting estimates
- --------------------------------------------------------------------------------
of mineralized material and reserves and can result in delays in development
- ----------------------------------------------------------------------------
until we can make new estimates using lower gold prices and determine new
- -------------------------------------------------------------------------
potential economic development options under the lower gold price assumptions.
- ------------------------------------------------------------------------------
As a result of a continued decline in world gold prices, we have had to reduce
the estimates of our mineralized material and reserves on various properties
over the last two years. These reductions reflect our decision to re-estimate
our mineralized material and reserves using significantly lower gold prices. If
gold prices continue at current levels or decline further we may initiate
additional significant write-downs of these mineralized material and reserves.
In addition, because of lagging gold prices there may be a postponed development
of the Gross Rosebel project in Suriname. Should gold prices remain at their
current levels or decline further for an extended period, we may further
postpone development at Gross Rosebel until such time as alternative development
options involving other technologies or smaller scale operations can be defined
and determined by both the Company and its joint venture partner to be feasible
under lower gold price assumptions.
Recent low gold prices may require a hedging program against gold production at
- -------------------------------------------------------------------------------
the Bogoso Mine.
- ----------------
BGL is constantly reviewing whether or not, in light of the potential for gold
prices to fall further, it would be appropriate to establish a hedging program
against the production of gold to protect the Company against further gold price
decreases, but to date, BGL and the Company have not decided to implement such a
program. The implementation of any hedging program may not, however, serve to
protect adequately against declines in the price of gold. In addition, if
unsuccessful, the costs of any hedging program may further deplete BGL's
financial resources.
Although a hedging program may protect us from a decline in the price of gold,
it may also prevent us from benefiting fully from price increases. For example,
as part of a hedging program, we may be obligated to sell gold at a price lower
than the then-current market price.
The price of gold may impact the purchase price for the Bogoso Mine.
- --------------------------------------------------------------------
As part of the initial cost of the BGL acquisition, the Company and Anvil agreed
to make additional future payments to a consortium of banks led by the
International Finance Corporation ("IFC") and Deutsche Investitions und
Entwicklungsgeselleschaft mbH ("DEG"), the sellers of BGL (collectively the
"Sellers"). The amount of the future
11
payments is to be determined by the average price of gold over the two years
following the September 30, 1999 acquisition and upon the potential acquisition
of reserves in Ghana outside of the region of BGL's mining interests. These
additional payments are capped at $10 million in total.
The gold price related portion of future payments is determined by a formula,
which is equal to the product of 183,333 times the amount by which the average
price of gold over the two-year period following the acquisition exceeds $255
per ounce. The average price is based upon the London Bullion Market Association
p.m. gold fix. Payment is due on the earlier of production of gold ceasing or
the second anniversary after closing. The Company originally, in the fourth
quarter of 1999, accrued $6.4 million for the future payments, based on its
estimate that the gold price would average $290 per ounce for the remainder of
the Bogoso Mine mine-life. The $6.4 million future payment was included in total
BGL acquisition costs.
From September 1999 to December 2000 gold prices averaged less than the original
estimate of $290 per ounce, and continued to trend downward during most of 2000
reaching prices between $260 and $265 per ounce by the end of 2000. Given this
substantial and protracted decline, the Company reduced the remaining liability
to the Sellers at December 31, 2000 to reflect an estimated gold price of $270
per ounce for the remaining life of the obligation. The revised estimate reduced
the future purchase price by $2.3 million, leaving the December 31, 2000 future
payment, including the unpaid portion of the September 30, 2000 payment, at $2.7
million. If gold prices average more than $270 per ounce from January 1, 2001 to
September 30, 2001 the liability to the Sellers will exceed $2.7 million and if
gold prices average less than $270 per ounce the liability will be lower than
$2.7 million
Our mineral rights for the Gross Rosebel project are subject to governmental
- ----------------------------------------------------------------------------
approvals.
- ----------
At Gross Rosebel, our Right of Exploration was scheduled to expire on March 21,
1997. The Government of Suriname has not yet approved our application for
renewal. Under the Mining Decree (Article 31), an existing right of exploration
remains legally in force until a decision on the application for renewal of the
right of exploration has been taken.
In May, 1997 we submitted, together with our 50/50 joint venture partner,
Cambior Inc. of Canada, a feasibility study and an executive summary of the
environmental impact study to the Government of Suriname. The Government of
Suriname has not yet approved the feasibility study and EIS. It is anticipated
that a revised feasibility study will be completed in 2001, but we cannot assure
you that we will be able to obtain the approvals necessary to obtain the
licenses and permits required to move to the development stage.
Operational hazards and responsibilities
- ----------------------------------------
Our activities are subject to a number of risks and hazards including:
. environmental hazards
. discharge of pollutants or hazardous chemicals
. industrial accidents
. labor disputes
. unusual or unexpected geological or operating conditions
. slope failures
. cave-ins
. failure of pit walls or dams
. fire
. changes in the regulatory environment
. natural phenomena such as inclement weather conditions, floods and
earthquakes, and
. other hazards.
These occurrences could result in damage to, or destruction of, mineral
properties or production facilities, personal injury or death, environmental
damage, delays in mining, monetary losses and possible legal liability. We may
incur liability as a result of pollution and other casualties. We may not be
able to insure fully or at all against such risks, due to political or other
reasons, or we may decide not to insure against such risks as a result of high
premiums or
12
for other reasons. This can result in delayed production, increase in production
costs or liability. Paying compensation for obligations resulting from such
liability may be very costly and could have an adverse effect on our financial
position. Furthermore, insurance against certain risks (including certain
liabilities for environmental pollution or other hazards as result of
exploration and production) is not generally available.
Compliance with environmental regulations
- -----------------------------------------
We cannot assure you that compliance with existing regulations governing the
discharge of materials into the environment, or otherwise relating to
environmental protection, in the jurisdictions where we have projects will not
have a material adverse effect in the future on our exploration activities,
earnings, expenditures or competitive position. New or expanded regulations, if
adopted, could affect the exploration or development of our projects or
otherwise have a material adverse effect on our operations.
As a result of the foregoing risks, expenditures on any and all projects, actual
production quantities and rates and cash operating costs, among other things,
may be materially and adversely affected and may differ materially from
anticipated expenditures, production quantities and rates, and costs, just as
estimated production dates may be delayed materially, in each case. Any such
events can materially and adversely affect our business, financial condition,
results of operations and cash flows.
Gold exploration is speculative in nature.
- ------------------------------------------
Gold exploration involves a high degree of risk and exploration projects are
frequently unsuccessful. Few prospects that are explored end up being ultimately
developed into producing mines. To the extent that the Company continues to be
involved in gold exploration, the long-term success of our operations will be
related to the cost and success of our exploration programs. We cannot assure
you that our gold exploration efforts will be successful. The risks associated
with gold exploration include:
. the identification of potential gold mineralization based on surficial
analysis
. the quality of our management and our geological and technical
expertise, and
. the capital available for exploration and development.
Substantial expenditures are required to determine if a project has economically
minable mineralization. It may take several years to establish proven and
probable reserves and to develop and construct mining and processing facilities.
As a result of these uncertainties, we cannot assure you that current and future
exploration programs will result in the discovery of reserves, the expansion of
our existing reserves and the development of mines.
Uncertainty involved in the development and operation of mining projects
- ------------------------------------------------------------------------
Mining projects frequently require a number of years and significant
expenditures during the mine development phase before production is possible.
Development projects are subject to the completion of successful feasibility
studies, issuance of necessary governmental permits and receipt of adequate
financing. The economic feasibility of such development projects is based on
many factors such as:
. estimation of reserves
. metallurgical recoveries
. future gold prices, and
. capital and operating costs of such projects.
Exploration and development projects have no operating history upon which to
base estimates of future operating costs and capital requirements. Estimates of
proven and probable reserves and operating costs determined in the feasibility
studies are based on geologic and engineering analyses. As a result, the risks
and uncertainties attached to exploration and development activities within a
mining company are very high.
We have a 70% equity interest in the Bogoso Mine in Ghana and a 30% equity
interest in the Omai Mine in Guyana. To that extent, we are subject to risks and
hazards inherent to the mining industry, including:
13
. unanticipated changes in grade and tonnage of ore to be mined and
processed
. unanticipated adverse geotechnical conditions
. costs of constructing and operating a mine in a specific environment
. processing and refining facilities
. availability of economic sources of energy
. adequacy of water supply
. adequate access to the site, unanticipated transportation costs
. government regulations (including regulations relating to prices,
royalties, duties, taxes, restrictions on production, quotas on
exportation of minerals, as well as the costs of protection of the
environment and agricultural lands)
. fluctuations in gold prices, and
. accidents, labor actions and force majeure factors.
The occurrence of any of these factors could materially and adversely affect the
operations or further development of a project and as a result our business,
financial condition, results of operations and cash flow. For example, the
average recovery rates for transition ores processed at the Bogoso mill have
been lower than anticipated. Although we are confident that management can
resolves the problems, there can be no assurance that the recovery rates will be
as projected.
Risks of exploration, development and operations in foreign countries
- ---------------------------------------------------------------------
Certain laws, regulations and statutory provisions in certain countries in which
we have mineral rights could, as they are currently written, have a material
negative impact on our ability to develop or operate a commercial mine. The
range and diversity of the laws and regulations are such that we cannot
adequately summarize them in this document. For countries where we have
exploration or development stage projects we would intend to negotiate mineral
agreements with the governments of these countries and seek variances or
otherwise be exempted from the provisions of these laws, regulations and/or
statutory provisions. We cannot assure you, however, that we will be successful
in obtaining mineral agreements or variances or exemptions on commercially
acceptable terms.
Our assets and operations are affected by various political and economic
uncertainties, including:
. the risks of war or civil unrest;
. expropriation and nationalization;
. renegotiation or nullification of existing concessions, licenses,
permits, and contracts;
. illegal mining;
. changes in taxation policies;
. restrictions on foreign exchange and repatriation; and
. changing political conditions, international monetary fluctuations,
currency controls and foreign governmental regulations that favor or
require the awarding of contracts to local contractors or require
foreign contractors to employ citizens of, or purchase supplies from,
a particular jurisdiction.
For example, in late 2000, Golden Star was negotiating the acquisition of the
rights to a certain mining concession in Ghana, known as the "Prestea Property"
(contiguous to the Bogoso Mine) with Barnato Exploration Limited ("Barnex"), the
holder of the Prestea Property. The Government of Ghana unexpectedly advised
Barnex of its intention to abrogate Barnex's rights to the Prestea Property. As
a result of this decision by the Government of Ghana, we were unable to complete
the acquisition of the Prestea Property during 2000.
Risks associated with illegal mining
- ------------------------------------
In French Guiana, Suriname and Ghana, artisanal miners have been illegally
working on our properties despite the fact that we have hired security personnel
to protect our properties. The issue of these illegal miners could lead to
project delays and disputes regarding the development or operation of commercial
gold deposits. The work performed by the illegal miners could cause
environmental damages for which we could potentially be held responsible.
14
In the event of a dispute arising at our foreign operations, we may be subject
to the exclusive jurisdiction of foreign courts or may not be successful in
subjecting foreign persons to the jurisdiction of courts in the United States or
Canada. We may also be hindered or prevented from enforcing our rights with
respect to a governmental entity because of the doctrine of sovereign immunity.
Our insurance coverage may be insufficient.
- -------------------------------------------
Although we maintain insurance in amounts that we believe to be reasonable, our
insurance may not cover all the potential risks associated with our business. We
may also be unable to maintain insurance to cover these risks at economically
feasible premiums. Insurance coverage may not continue to be available or may
not be adequate to cover any resulting liability. Moreover, insurance against
risks such as environmental pollution or other hazards as a result of
exploration and production is not generally available to us or to other
companies in the industry on acceptable terms. We might also become subject to
liability for pollution or other hazards which we cannot insure against or which
we may elect not to insure against because of premium costs or other reasons.
Losses from these events may cause us to incur significant costs that could have
a material adverse effect upon our financial performance and results of
operations.
Competition
- -----------
We compete with major mining companies and other natural resource companies in
the acquisition, exploration, financing and development of new prospects. Many
of these companies are more experienced, larger, and better capitalized than us.
There is significant competition for the limited number of gold acquisition and
exploration opportunities. Our competitive position depends upon our ability to
successfully and economically explore, acquire and develop new and existing
mineral prospects. Factors which allow producers to remain competitive in the
market over the long term are the quality and size of the ore body, cost of
operation, and proximity to market. We also compete with other mining companies
for skilled mining engineers, mine and mill operators and mechanics, geologists,
geophysicists and other technical personnel. This may result in higher turnover
and greater labor costs.
You may be subject to adverse tax consequences if we are classified as a Passive
- --------------------------------------------------------------------------------
Foreign Investment Company.
- ---------------------------
Under the United States Internal Revenue Code of 1986, we may be classified as a
passive foreign investment company (a "PFIC"). United States shareholders of a
PFIC are subject to certain adverse tax consequences, as discussed below. The
consequences can be mitigated, under certain circumstances, if the United States
shareholder makes a timely election to treat our company as a "qualified
electing fund".
PricewaterhouseCoopers LLP has advised us that we should not be treated as a
PFIC with respect to shares purchased by United States shareholders during the
years 1993 through 1999, although we could potentially be a PFIC with respect to
shares acquired by United States shareholders prior to 1993. We intend to engage
PricewaterhouseCoopers LLP, or any other advisor, in the future to analyze
whether we are a PFIC in subsequent years and will continue to notify
shareholders of the results of such future analyses.
There can be no assurance as to whether or not PricewaterhouseCoopers LLP, or
any other advisor, will conclude that we are a PFIC for such period. Moreover,
even if PricewaterhouseCoopers LLP, or any other advisor, concludes that we are
not a PFIC, its conclusion is not binding on the United States Internal Revenue
Service.
See Item 5. "Market for the Registrant's Common Equity and Related Stockholder
Matters--Certain United States Income Tax Considerations".
15
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 short ton 1 square mile = 2.59 square kilometers
1 short ton (2000 = 0.9072 tonne 1 square kilometer = 100 hectares
pounds)
1 metric tonne = 1,000 kg or 2,204.6 pounds
1 kilogram = 2.2 pounds or 32.151 troy ounce
The following abbreviations of measurements are used herein:
Au = gold m = meter
Ct = carat m2 = square meter
Ct/m2 = carats per square meter m3 = cubic meter
G = gram mg = milligram
g/t = grams of gold per tonne mg/m3 = milligrams per cubic meter
Ha = hectare t = metric tonne
Km = kilometer oz = troy ounce
Km2 = square kilometers ppb = parts per billion
Kg = kilogram
Note: All units in the text are stated in metric measurements unless otherwise
noted.
16
GLOSSARY OF TERMS
Note: The definitions of Proven (Measured) and Probable (Indicated) reserves set
forth below are those used in the United States by the Securities and Exchange
Commission and are set forth in SEC Industry Guide 7.
These definitions are substantially the same as those applied in Canada as set
forth in National Instrument 43-101.
Reserve That part of a mineral deposit which could be economically
and legally extracted or produced at the time of the reserve
determination.
Proven Reserves Reserves for which (a) quantity is computed from dimensions
revealed in outcrops, trenches, workings or drill holes;
grade and/or quality are computed from the results of
detailed sampling and (b) the sites for inspection, sampling
and measurement are spaced so closely and the geologic
character is so well defined that size, shape, depth, and
mineral content of reserves are well-established.
Probable Reserves Reserves for which quantity and grade and/or quality are
computed from information similar to that used for proven
(measured) reserves, but the sites for inspection, sampling
and measurement are farther apart or are otherwise less
adequately spaced. The degree of assurance, although lower
than that for proven reserves, is high enough to assume
continuity between points of observation.
The following definitions of the stages of the exploration and development
process are used by the Company. There can be no assurance that the terminology
used by the Company is consistent with the terminology used by other companies
in the mining industry or by industry analysts.
early stage an early stage exploration prospect typically involves one or
more targets within an area which have been determined to
merit further follow-up work based on a combination of
geological, geochemical and geophysical analysis. The
objective of an early stage prospect typically is to better
define targets that have the potential to be advanced to the
next state of exploration and level of financial commitment.
advanced stage an advanced exploration stage prospect typically involves
testing targets at depth and generating the information
necessary to develop a three dimensional geologic model of
the mineralized zone, which may be used to demonstrate
mineralized materials and/or reserves. This typically is
accomplished by trenching and drilling.
feasibility stage during the feasibility stage, exploration continues to
further increase confidence in mineralization while
attempting to further expand them. During this stage,
management of the project is often transferred to the
operating partner which develops in detail the necessary
engineering and costing for mining, processing, power and
infrastructure, as well as the designs for the plant and
equipment required to construct and operate a modern mining
operation. It is at the end of this stage that mineralization
may be categorized as proven and/or probable reserves if a
positive mining decision is justified. The feasibility stage
normally incorporates several phases of work which involve
increasing levels of detail including (i) scoping study, (ii)
pre-feasibility study, and (iii) bankable feasibility study.
mine mining is the process of transforming a reserve into benefits
for its owners (debt, equity and employees), governments and
communities. Exploration continues during the mining process
and, in many cases, reserves are expanded during the life of
the mine operations as the exploration potential of the
deposit is realized.
17
alluvium, alluvials a general term for clay, silt, sand, gravel or other
material deposited by a body of water usually during recent geological time
alteration any change in the mineral composition of a rock brought about by
physical or chemical means
anomaly a deviation from uniformity or regularity in geochemical or
geophysical quantities
assay to analyze the proportions of metals in an ore
basic an igneous rock having a relatively low silica content, sometimes
delimited arbitrarily as less than 54%
biooxidation a processing method which uses bacteria to oxidize refractory
sulfide ore to make it amenable to normal oxide ore processing techniques such
as carbon in leach
BLEG (Bulk Leach Extractable Gold) an analytical method for determining very
low levels of gold in material
Birimian a thick and extensive sequence of proterozoic age metamorphosed
sediments and volcanics first identified in the Birim region of southern Ghana
carbon in leach (CIL) an ore processing method involving the use of cyanide
where activated carbon which has been added to the leach tanks is used to absorb
gold containing solutions
caustic digestion a technique involving the application of strong acid to a
potentially diamond bearing rock sample so as to dissolve minerals completely
which are more susceptible to solution on exposure to acid. The remaining
undissolved minerals which are artificially concentrated may be studied to
determine the presence of diamonds or diamond indicator minerals
clastic a rock or sediment composed of broken fragments derived from
preexisting rocks or minerals
diamond drilling a variety of rotary drilling in which diamond bits are used
as the rock-cutting tool to produce a recoverable core of rock for observation
and assay
dilation deformation by an increase in volume
dip the angle that a structural surface, a bedding or fault plane, makes with
the horizontal, measured perpendicular to the strike of the structure
disseminated where minerals occur as scattered particles in the rock
dyke a near vertical fracture in the earth's crust which has been filled by
an intrusive rock
elluvial an incoherent ore deposit resulting from decomposition or
disintegration of rock in place
fault a surface or zone of rock fracture along which there has been
displacement
felsic an adjective describing an igneous rock having most light colored
minerals and rich in Si, K and Na
fold a curve or bend of a planar structure such as rock strata, bedding
planes, foliation, or cleavage
formation a distinct layer of sedimentary rock of similar composition
geochemistry the study of the distribution and amounts of the chemical
elements in minerals, ores, rocks, solids, water, and the atmosphere
geological mapping the recording of geologic information such as the
distribution and nature of rock units and the occurrence of structural features,
mineral deposits, and fossil localities
geophysics the study of the earth; in particular the physics of the solid
earth, the atmosphere and the earth's magnetosphere
geotechnical the study of ground stability
granite a medium to coarse grained igneous intrusive rock in which quartz
constitutes 10 to 50 percent of the felsic components
granodiorite a medium to coarse-grained intrusive igneous rock, intermediate
in composition between quartz diorite and quartz monzonite
greenstone a sequence of usually metamorphosed volcanic-sedimentary rock
assemblages
heap leach a mineral processing method involving the crushing and stacking of
an ore on an impermeable liner upon which solutions may be sprayed that dissolve
metals i.e. gold/copper etc.; the solutions containing the metals are then
collected and treated to recover the metals
hydrogeological the study of subsurface water (groundwater)
hydrothermal the products of the actions of heated water, such as a mineral
deposit precipitated from a hot solution
Intrusion; Intrusive molten rock which is intruded (injected) into spaces or
fractures created in existing rock; spaces are created by a combination of
melting and displacement
Island-Arc Sequence rocks which originally formed adjacent to a continental
margin; Island-Arc sequences frequently contain rocks of both volcanic and
sedimentary origin
kimberlite an intrusive ultra-mafic rock which has ascended rapidly from the
mantle/lower crust margin to the surface of the earth; kimberlites frequently
contain diamonds
lamproite lamproites are ultra-mafic intrusive rocks with intrusion
mechanisms similar to kimberlites but with distinctly different chemical
compositions; lamproites have greater mineralogical and textural variations than
kimberlites
laterite highly weathered residual surficial soils and decomposed rocks, rich
in iron and aluminum oxides that are characteristically developed in tropical
climates
mafic an adjective describing an igneous rock composed mostly of one or more
ferromagnesian, dark-colored minerals; also, said of those minerals
massive said of a mineral deposit, especially sulfides, characterized by a
great concentration of ore in one place, as opposed to a disseminated or
veinlike deposit
metasediment a sedimentary rock which shows evidence of having been subjected
to metamorphism
metavolcanic a volcanic rock which shows evidence of having been subjected to
metamorphism
mineral a naturally formed chemical element or 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
Mobile Metal Ion (MMI) a special geochemical method which detects low levels
of metals in soil and other surface samples
outcrop that part of a geologic formation or structure that appears at the
surface of the earth
18
polymetallic a deposit containing more than one metal
Proterozoic the more recent time division of the Precambrian; rocks aged
between 2500 and 550 million years old
pyritization the in situ alteration of a rock involving the additional of
sulfur to the rock mass in fluids which reacts with both iron oxides and mafic
minerals resulting in the formation of Iron Sulfide (Pyrite) often referred to
as "fools gold"
quartz crystalline silica; silicon dioxide
refractory ore containing gold that cannot be satisfactorily recovered by
basic gravity concentration or simple cyanidation
reverse circulation drilling (RC) a drilling method used in geological
appraisals whereby the drilling fluid passes inside the drill stem to a down-
the-hole precision bit and returns to the surface outside the drill stem
carrying chips of rock
rotary air blast drilling (RAB), a drilling method used in geological
appraisals whereby air or drilling fluid passes inside the inner tube of a
double tube system to a down-the-hole percussion bit and returns to the surface
outside the inner tube but inside the outer tube carrying chips of rock
saprolite a soft, earthy, clay-rich and thoroughly decomposed rock formed in
place by chemical weathering of igneous, sedimentary or metamorphic rocks which
retains the original structure of the unweathered rock
shear zone a tabular zone of rock that has been crushed and brecciated by
many parallel fractures due to shear strain
shear a form of strain resulting from stresses that cause or tend to cause
contiguous parts of a body of rock to slide relatively to each other in a
direction parallel to their plane of contact
shield a large area of exposed basement rocks often surrounded by younger
rocks, e.g. Guyana Shield
silicification the in situ alteration of a rock which involves an increase in
the proportion of silica minerals including quartz. The silica is frequently
introduced by hydrothermal solutions as for example in hot springs.
sill a near horizontal fracture in the earth's crust which has been filled by
an intrusive rock
stock an igneous intrusion that is less than 100 square kilometers in surface
exposure
stockwork a mineral deposit in the form of a network of veinlets diffused in
the country rock
strike the direction or trend that a structural surface, e.g. a bedding or
fault plane, takes as it intersects the horizontal
strip to remove overburden in order to expose ore
sulfide a mineral including sulfur (S) and Iron (Fe) as well as other
elements
surficial situated, formed, or occurring on or close to the Earth's surface
syncline a concave downward fold, the core of which contains the
stratigraphically younger rocks
Tarkwaian a scattered group of mainly shallow water sedimentary rocks of
proterozoic age named after the town of Tarkwa in southern Ghana where they were
found to be gold bearing
tourmalinization the in situ alteration of a rock which involves the
development of tourmaline type minerals. The alteration is generally medium to
high temperature and is frequently accompanied by silicification
tuff volcanic rocks which consist of generally fine grained material ejected
from a volcano; particle sizes vary from very fine grained ash to coarser, bean
to nut size pebbles which are known as "Lapilli"
ultramafic an igneous rock composed chiefly of mafic minerals with unusually
high % of Mg, Ca and Fe
vein a thin, sheetlike crosscutting body of hydrothermal mineralization,
principally quartz
volcanic massive sulfide (VMS) mineral deposits formed by volcanic processes
and the activities of thermal springs at the bottom of bodies of water
volcanics those originally molten rocks, generally fine grained, that have
reached or nearly reached the Earth's surface before solidifying
volcano/sedimentary rocks composed of materials of both volcanic and
sedimentary origin
wall rock the rock adjacent to a vein
weathering the destructive process constituting that part of erosion whereby
earthy and rocky materials on exposure to atmospheric agents at or near the
Earth's surface are changed in character with little or no transport of the
loosened or altered material
19
FIGURE 1
MAP - SOUTH AMERICA
Map of "GOLDEN STAR - OPERATIONS IN SOUTH AMERICA," showing
specific project locations in Guyana, Suriname and French Guiana.
FIGURE 2
MAP - AFRICA
Map of "GOLDEN STAR - OPERATIONS IN AFRICA," showing
specific project locations in Ghana.
ITEM 2. DESCRIPTION OF PROPERTIES
- ------- -------------------------
Introduction
As of April 2, 2001, the Company's most significant projects were located in
Ghana (Africa), and in Suriname, French Guiana (France) and Guyana in South
America, as indicated in Figures 1 and 2 above. Those projects are situated in
geologic domains known as greenstone belts, which are ancient volcanic-
sedimentary rock assemblages. Greenstone belts are known to be favorable
geologic environments for gold mineralization and account for a significant
proportion of the world's gold production, (e.g., the greenstone belts of the
Canadian Shield in Eastern Canada, the Pilbara and Yilgarn Blocks of Western
Australia, the greenstone belts of East and West Africa and the Guiana and
Brazilian Shields of South America).
All of the Company's mineral properties are located in developing countries,
with the exception of French Guiana, which is legally a part 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 rights and title to mineral
properties are established and maintained, are often uncertain, incomplete, in a
state of flux or subject to change without notice. Further, in many of the
countries in which the Company's projects are located, it may not be
economically feasible to develop a commercial mine unless special tax or other
fiscal and regulatory concessions are obtained from the applicable governmental
and regulatory authorities. Such concessions are typically sought in a mineral
agreement (also known as foreign investment agreements and establishment
agreements). A mineral agreement thus serves to establish the legal and
financial framework pursuant to which mining will take place in countries where
such framework might be otherwise unclear, uncertain or not commercially viable.
There can be no assurance, however, that the Company will be able to execute or
enforce satisfactory mineral agreements or obtain satisfactory political risk
insurance on commercially reasonable terms for any or all of its properties.
Consequently, the Company may have to abandon or relinquish otherwise valuable
mineral rights if it determines that it will not be able to profitably exploit
any discovery under existing laws and regulations.
20
The consolidated property expenditures and abandonment costs for the Company's
exploration projects for the fiscal year ended December 31, 2000 under Canadian
GAAP were as follows:
Acquisition,
Deferred Acquisition,
Exploration Joint Property Deferred
and Capitalized Capitalized Venture Abandon- Exploration and
Development Exploration Acquisition Recov- ments and Development
Costs as at Expenditures Expenditures eries in Adjustments Costs as of
12/31/99 in 2000 in 2000 2000 in 2000 12/31/00 (5)
================================================================================================
In Thousands of Dollars
GUYANA (1)
Eagle Mountain $ 1,364 $ - $ - $ - $ (1,364) $ -
Other 123 - - - (123) -
------------------------------------------------------------------------------------------------
Sub-total 1,487 - - - (1,487) -
------------------------------------------------------------------------------------------------
SURINAME (1)
Gross Rosebel 15,860 216 - (258) - 15,818
------------------------------------------------------------------------------------------------
Sub-total 15,860 216 - (258) - 15,818
------------------------------------------------------------------------------------------------
FRENCH GUIANA (2)
(Guyanor Ressources S.A.)
Dorlin 2,608 150 - (75) (2,683) -
Yaou 6,968 241 - (91) (7,118) -
Paul Isnard / Eau Blanche 5,376 451 - - - 5,827
Paul Isnard Alluvials 1,987 - - - (1,987) -
Dachine 1,720 708 - (678) (1,750) -
------------------------------------------------------------------------------------------------
Sub-total 18,659 1,550 - (844) (13,538) 5,827
------------------------------------------------------------------------------------------------
AFRICA
(Pan African
Resources Corporation (3))
Ivory Coast / Tanda 1,681 - - - (1,681) -
(Bogoso Gold Limited (4))
Riyadh 75 164 - - - 239
Bogoso Sulfide 160 2,448 - - - 2,608
------------------------------------------------------------------------------------------------
Sub-total 1,916 2,612 - - (1,681) 2,847
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
TOTAL $37,922 $4,378 $ - $(1,102) $(16,706) $24,492
================================================================================================
(1) A division of the Company.
(2) Approximately 73% owned by the Company.
(3) A wholly-owned subsidiary of the Company.
(4) A 70% owned subsidiary of the Company.
(5) Our holdings include ownership interests, royalty interests, leases,
options and joint venture interests in varying percentages.
21
Property Status Table as of December 31, 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Expiration Financial
Property Type of Interest Date Renewal Obligation Status Comments
- ----------------------------------------------------------------------------------------------------------------------------------
Omai 30% equity N/A N/A N/A Operating Mine
interest in OGML
- ----------------------------------------------------------------------------------------------------------------------------------
Eagle 30% indirect interest N/A N/A N/A Care and Exploration
Mountain through OGML (1) maintenance stage
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Right of Application The right of exploration remains N/A Feasibility Advanced
Rosebel Exploration (2) for legally in force until a decision Underway exploration
extension on the right of exploitation has
pending been made
- ----------------------------------------------------------------------------------------------------------------------------------
Dorlin Type A Exploration 3/1/06 Renewable for up to 10 years (FF7,000) Care and Advanced
Permit (3) maintenance exploration
- ----------------------------------------------------------------------------------------------------------------------------------
Yaou Type A Exploration 3/1/06 Renewable for up to 10 years (FF5,000) Care and Advanced
Permit (3) maintenance exploration
- ----------------------------------------------------------------------------------------------------------------------------------
Paul- 8 Concessions (4) 12/31/18 Renewable for an additional 25 US$4,765 Ongoing Advanced
Isnard years (FF30,275) exploration exploration
supervised and
paid for by Rio
Tinto Exploration
-----------------------------------------------------------------------------------------------------------------------
Type A Permit (4) 12/1/02 Renewable for up to 10 years US$2.9M Ongoing Advanced
(FF17.3M) exploration exploration
supervised and
paid for by Rio
Tinto Exploration
- ----------------------------------------------------------------------------------------------------------------------------------
Dachine Type B Exploration 7/1/99 A renewal application for a 5-year US$1,023 Care and Exploration
Permit (5) permit was filed and is pending; (FF6,500) maintenance stage
the type B permit is extended by
law until the decision of the
French administration
- ----------------------------------------------------------------------------------------------------------------------------------
Bogoso 70% equity 8/21/17 N/A N/A Operating Mine
interest in 8/16/18
Bogoso Gold
Limited
- ----------------------------------------------------------------------------------------------------------------------------------
(1) The Eagle Mountain interest is owned by OGML.
(2) 50% owned by Golden Star and 50% owned by Cambior Inc.
(3) 50% owned by Guyanor and 50% owned by Cambior Inc.
(4) 100% owned by Guyanor but on which Rio Tinto Exploration may earn up to a
70% interest under a joint venture agreement.
(5) 100% owned by Guyanor.
THE BOGOSO GOLD MINE
- --------------------
Bogoso Gold Limited ("BGL") is the owner of the Bogoso Mine, located on the
Ashanti Trend in the Republic of Ghana. Golden Star controls 70% of the common
shares of BGL and Anvil Mining NL, a public exploration and development company
whose shares are listed on the Australian Stock Exchange ("Anvil"), controls
another 20%. The Government of Ghana controls the remaining 10%. The Government
of Ghana is entitled at all times to hold a 10% carried interest in all the
rights and obligations of BGL. The Government acquired this interest for no
consideration and is not required to contribute any funds to pay any BGL
expenses.
On April 4, 2001, the Company announced that it had entered into an agreement to
acquire Anvil's 20% equity interest in BGL in return for the issuance of
3,000,000 common shares of Golden Star.
22
Ghana is situated on the West Coast of Africa, approximately 750 kilometers
north of the equator on the Gulf of Guinea, and Accra, the capital city of
Ghana, is located on the Greenwich Meridian. After a period as a British
colony, Ghana achieved independence in 1957 and it is now a republic with a
democratically elected government. Ghana has a population of approximately 18
million people, with English being the official and commercial language. The
total land area of the country is approximately 238,000 km2 and the topography
is relatively flat. Ghana has a tropical climate with two rainy seasons and two
dry seasons.
The Bogoso Mine comprises an operating gold mine and mill facility on two mining
leases, covering an aggregate area of 95 square kilometers. BGL owns the Bogoso
Mine, mines ore from several open pits and processes the ore at a processing
plant that it built on the property in 1991. The plant uses conventional
carbon-in-leach ("CIL") technology to extract gold from the ore and has been
producing approximately 100,000 to 110,000 ounces of gold per year since it was
built.
The Bogoso Mine is located in western Ghana approximately 35 kilometers
northwest of the town of Tarkwa from where it can be reached by accessible
roads. A paved road runs down most of the 18.5 kilometers length of the
property and connects the town of Bogoso in the northeast with the town of
Prestea in the southwest. Another paved road provides access to a sealed
airstrip located at the town of Obuasi, some 115 km to the north. The mining
areas are connected by gravel haul-roads to the treatment plant.
The Government of Ghana issued a gold prospecting license to BGL on November 7,
1986, granting BGL the right to prospect for gold in a prospecting area of
approximately 148 square kilometers for a three-year term commencing on May 12,
1986. On August 21, 1987, the Government of Ghana granted BGL a 30-year mining
lease giving BGL the exclusive right to work, develop and produce gold in a
mining area of 50 square kilometers within this prospecting area. On August 16,
1988, the Government of Ghana granted BGL a second 30-year gold mining lease
covering an additional 45 square kilometers area adjacent to the first mining
area. Under the above mining leases (the "Mining Leases"), BGL now holds gold
mining rights in a mining area totaling 95 square kilometers, subject to the
payment of nominal annual rents.
The Acquisition
On September 30, 1999 the Company and Anvil acquired 70% and 20%, respectively,
of the common shares of BGL. The Government of Ghana retained its remaining 10%
equity interest in BGL. BGL is the owner of the Bogoso Mine.
The acquisition was completed pursuant to a purchase agreement among the Company
and Anvil, the buyers, and the Sellers. The total acquisition cost including
initial payments, future payments, financing costs and administrative costs was
$17.0 million. The Sellers received $6.5 million cash at September 30, 1999 and
agreed to receive additional payments in the future as described below. The
initial payment of $6.5 million, was funded using working capital and proceeds
from the Company's August 24, 1999 offering of its subordinated convertible
debentures, common shares and warrants.
The amount of the future payments due the Sellers is to be determined by the
average price of gold over the two years following the September 30, 1999
acquisition and upon the potential acquisition of reserves in Ghana outside of
the region of BGL's mining interests. These additional payments are capped at
$10.0 million in total.
The gold price related portion of future payments is determined by a formula,
which is equal to the product (in United States dollars) of 183,333 times the
amount by which the average price of gold over the two-year period following the
acquisition exceeds $255 per ounce. The average price is based upon the London
Bullion Market Association p.m. gold fix. Payment is due on the earlier of
production of gold ceasing or the second anniversary after closing. The
Company originally, in the fourth quarter of 1999, accrued $6.4 million for the
future payments, based on its estimate that the gold price would average $290
per ounce for the remainder of the two year period following the acquisition.
The $6.4 million future payment was included in total BGL acquisition costs and
is being
23
amortized on a units of production basis along with other purchase costs. The
acquisition of BGL is accounted for under the purchase method of accounting for
business combinations
An interim payment was due on the first anniversary of the acquisition,
September 30, 2000. The interim payment was equal to one half of 183,333 times
the amount by which the average price of gold during the twelve months following
the acquisition exceeds $255 per ounce. The interim payment is non-refundable
and will be credited to the liability due on the second anniversary of the
acquisition as described above. The Company and Anvil together were scheduled
to make the interim payment to the Sellers on September 30, 2000 in the amount
of $2.8 million. On November 9, 2000 the Company paid the Sellers $1.4 million
of the $2.8 million due, and reached agreement with the Sellers that the
balance, plus interest at 10% per annum, was to be paid by December 22, 2000. To
date the remaining balance and accrued interest is still unpaid. The Sellers
have been kept apprised of the Company's progress with respect to the potential
acquisition of the Prestea Property. The Company was required to escrow the
interim payment six months after closing and the final payment 18 months after
closing. There are no funds in escrow at the current time for the final payment.
From October 1999 to December 2000 gold prices averaged less than the original
estimate of $290 per ounce, and continued to trend downward during most of 2000
reaching prices between $260 and $265 per ounce by the end of 2000. Given this
substantial and protracted decline, the Company reduced the remaining liability
at December 31, 2000 to reflect an estimated gold price of $270 per ounce for
the remaining life of the obligation to the Sellers. The revised estimate
reduced the future purchase price by $2.3 million, leaving the December 31, 2000
future payment, including the unpaid portion of the September 30, 2000 payment
at $2.7 million.
The reserve acquisition linked payment will be triggered if minable reserves
equivalent to 50,000 ounces of gold or greater are acquired elsewhere in Ghana
for processing at the Bogoso mill, as would be the case if the Company is
successful in acquiring the adjoining Prestea property. In this case, Golden
Star and Anvil will make an additional payment to the Sellers on the second
anniversary of closing of $2.0 million, irrespective of the gold price, but
subject to the $10 million cap.
The Company is also required to make production related payments to the provider
of the credit facility arranged for, but not used to effect, the acquisition of
BGL. During the first 72 months following the September 30, 1999 acquisition,
the Company is required to pay $0.25 million for every continuous 12- month
period wherein more than 75,000 ounces of gold is produced from the Bogoso mine
concession. Such payments are limited to $1.25 million in total. Based on
proven and probable reserves, the Company accrued $0.5 million for the two years
expected production life on the Bogoso mine concession. Also in connection with
the credit facility arranged for, but not used, the Company issued three-year
warrants to acquire 1.5 million common shares of the Company (see Note 12 to the
attached financial statements).
The Company and Anvil will be required to pay the Sellers an additional $5.0
million on the first anniversary of the commencement of treatment of sulfide ore
at the Bogoso Mine. Due to the contingent nature of this consideration, the
Company has not recorded any liability as part of the purchase price allocation
for the BGL acquisition.
The Company will receive all distributions from BGL until it recovers the
Company's initial purchase price plus all associated acquisition and financing
costs incurred by it, including any purchase price adjustment for the
acquisition of the Bogoso Mine together with Anvil's share of the distributions
which will be used to pay down the Anvil note receivable. Based on current gold
prices, cash distributions to the Company from BGL are expected to be sufficient
to cover the interest on debentures issued on August 1999 as part of a public
offering and to fund Golden Star's other operating requirements through 2001.
On April 4, 2001, the Company announced that it had entered into an agreement to
acquire Anvil's 20% equity interest in BGL from Anvil in return for the issuance
of 3,000,000 common shares of Golden.
24
Government of Ghana Special Rights
The Government of Ghana is entitled to acquire an additional 20% interest in
BGL. If the Government of Ghana wishes to exercise this right, it must give
reasonable notice to BGL. It must also pay such purchase price for the
additional 20% interest as the Government of Ghana and BGL may agree on at the
time. If there is no agreement, the purchase price will be the fair market
value of such interest at such time as determined by arbitration conducted by
the International Centre for the Settlement of Investment Disputes. The
Government of Ghana may also acquire further interests in BGL on terms mutually
acceptable to the Government and BGL.
The Government of Ghana is entitled to acquire a special or golden share in any
mining company at any time for no consideration or such consideration as the
Government of Ghana and BGL may agree. The special share will constitute a
separate class of shares with such rights as the Government of Ghana and BGL may
agree. In the absence of such agreement, the special share will have the
following rights:
. the special share will carry no voting rights, but the holder will be
entitled to receive notice of and attend and speak at any general meeting of
the members or any separate meeting of the holders of any class of shares;
. the special share may only be issued to, held by or transferred to the
Government or a person acting on behalf of the Government;
. the written consent of the holder of such special share must be obtained for
all amendments to the organizational documents of the company, the voluntary
winding-up or liquidation of the company or the disposal of any mining lease
or the whole or any material part of the assets of the company; and
. the holder of the special share will be entitled to the payment of a nominal
sum of 1,000 Ghanaian Cedis in a winding-up or liquidation of the company in
priority to any payment to other members and may require the company to
redeem the special share at any time for a nominal sum of 1,000 Cedis.
BGL has not issued or been requested to issue to date, any such special share to
the Government of Ghana.
The Government of Ghana has a pre-emptive right to purchase all gold and other
minerals produced by BGL. The purchase price will be such price as the
Government of Ghana and BGL may agree on, or the price established by any gold
hedging arrangement between BGL and any third party approved by the Government,
or the publicly quoted market price prevailing for the minerals or products as
delivered at the mine or plant where the right of preemption was exercised. The
purchase price must be paid in foreign exchange. The Government of Ghana has
agreed to take no preemptive action pursuant to its right to purchase such gold
or other minerals so long as BGL sells gold in accordance with certain
procedures for selling gold approved by the Bank of Ghana.
Royalties
Under the laws of Ghana, a holder of a mining lease is required to pay a royalty
of not less than 3% and not more than 12% of the total revenues earned from the
lease area. The royalty is payable on a quarterly basis. The Government of
Ghana levies a royalty on BGL based on the profitability of its mining
operations. The royalty is determined by the application of an operating ratio
expressed in terms of the percentage that the operating margin bears to the
value of gold from mining operations in every year. The total royalty paid in
2000 was $0.9 million or, 3% of total revenues.
Heads of Agreement with Anvil
The Company entered into a Heads of Agreement with Anvil (the "Anvil Agreement")
outlining the key commercial terms and conditions under which the Company and
Anvil agreed to associate themselves in a joint venture for the acquisition of
BGL. The Company agreed to provide all of the funds for the initial purchase
price and other acquisition costs for the acquisition of BGL. The Company
provided Anvil initially with a loan of $2.3 million (the "Anvil Loan") to fund
Anvil's share of the BGL acquisition costs. The Company charges Anvil interest
at a rate of 15% per year compounded monthly. In addition, Anvil's share of the
accrued additional purchase price at
25
December 31, 2000 was $0.6 million. All of the cash distributions from BGL,
including Anvil's share, will be paid to the Company until all of the
acquisition costs, including interest, have been repaid.
Anvil granted the Company a security interest in its share of BGL's shares and
the BGL Debt. If Anvil does not repay the Anvil Loan, the Company has certain
security interests granted by Anvil but the Company will not have any other
rights against Anvil or Anvil's other assets. In consideration for the Anvil
Loan, Anvil issued to the Company two options (the "Anvil Options") that entitle
the Company to purchase, at any time prior to September 30, 2001, up to 7
million Anvil shares at a price of Aus$0.10 per share.
If the Company or Anvil fails to pay or cause to pay its share of any approved
BGL expense, the other party may advance the required funds on its behalf. The
advance will be treated as a demand loan bearing interest at LIBOR plus 3%. If
the defaulting party fails to repay that loan within 60 days, its participating
interest in BGL will be diluted. The dilution will be a "straight-line"
dilution under which the participating interest of the defaulting party will be
reduced to the percentage that the total of its BGL contributions bears to the
total BGL contributions made by both the defaulting party and the non-defaulting
party. The participating interest of the non-defaulting party will be increased
by the corresponding amount. If the participating interest of either the
Company or Anvil is diluted to less than 10%, the remaining participating
interest of that party in BGL will be automatically converted into a right to
receive 5% of the net profits received from BGL after Golden Star has recouped
all of the Bogoso acquisition costs, plus accrued interest thereon.
So long as the Company holds at least a 50% equity interest, it will have the
right to nominate a majority of the members of the board of directors of BGL.
It will also have the right to nominate the Chairman of the BGL board as well as
the managing director of BGL. Mr. Peter Bradford, President and Chief Executive
Officer of the Company is the current Chairman of the BGL board and Mr. Richard
Gray, Vice President, Ghana, of the Company, is the Managing Director of BGL.
On April 4, 2001, the Company announced that it had entered into an agreement to
acquire Anvil's 20% equity interest in BGL in return for the issuance of
3,000,000 common shares of Golden.
Geology
The Bogoso Mine lies within the West African Precambrian shield, a geological
formation that hosts three important Lower Proterozoic volcanic/sedimentary
sequences that are particularly important for gold mining: the Lower Birimian,
the Upper Birimian and the Tarkwaian. The area is dominated by a major
northeast-southwest trending structural feature referred to as the "Ashanti
Trend" which extends over 200 kilometers and hosts deposits of the Ghana Gold
Belt. This structure is closely aligned with the faulted contact zone between
the metasedimentary and metavolcanic units of the Birimian and the clastic rocks
of the Tarkwaian.
In the Bogoso area, the faulted contact zone is known as the "Main Crush Zone"
and passes through the central part of the Bogoso Mine for its entire 18.5-
kilometer length. The Main Crush Zone lies within a structural corridor that
varies in width from 1,000 to 2,500 meters. Some 90% of the gold mined to date
at the Bogoso Mine has come from the Main Crush Zone with the larger deposits
being located at bends and junctions along this major fault. Additional faults
and splays in the structural corridor may also be prospective for gold. The
oxide ores tend to have fine-grained free gold that has been liberated during
the weathering of pre-existing sulfides and oxidation extends from surface down
to the approximate elevation of the water table. Below this, a transition zone
of up to 20 meters of partially oxidized material directly overlies fresh
sulfide mineralization.
Historical Mining Operations
Gold was first commercially mined at the Bogoso Mine in the early 20th century.
In 1935, Marlu Gold Mining Areas Ltd. started mining high-grade oxide ore from a
series of open pits extending south from Bogoso North to Buesichem, just south
of the Bogoso Mine. Marlu also mined a small amount of ore from underground
operations at Bogoso North, Marlu and Bogoso South. Marlu was mining the
Buesichem pit when it shut down the mine operations in 1955. According to BGL's
records, during its 20-year period of operations from 1935 to 1955, Marlu
produced over 900,000 ounces of gold at an average recovered grade of 3.73 g/t.
26
Billiton PLC, then a unit of the Royal Dutch Shell group, took control of the
Bogoso Mine in the late 1980's. The initial feasibility study established a
minable reserve of 5.96 million tonnes grading 4.0 grams gold per tonne, of
which 461,000 tonnes (or less than 8%) comprised oxide ore. The feasibility
study forecast gold recoveries of 83% from sulfide ore and 78% from oxide ore
and estimated a waste to ore ratio of 5.6:1. Construction of a mining and
processing facility was completed in 1991. The facility was designed to process
oxide ores by using conventional carbon in leach ("CIL") technology at a design
capacity of 1.36 million tonnes per year and to process sulfide ores by using
flotation, fluid bed roasting and CIL technology at a design capacity of 0.9
million tonnes per year.
Billiton encountered serious operation difficulties with the fluid bed roaster,
which did not function as anticipated because the sulfide level in the
concentrate was less than expected and because the clay content of the feed was
higher than expected. Mechanical problems also occurred. As a result, Billiton
closed the flotation circuit and roaster in early 1994. Following closure of the
roaster, Billiton focused the Bogoso operations on oxide ore. The CIL plant has
a capacity of approximately two million tonnes of oxide ore per year. However,
only a few months of oxide ore were available at that time. Basic exploration
has been successful in adding to the available quantity of oxide ore and the
mine has operated as an oxide-only operation since 1994. Operating cash flows
funded all the exploration costs.
Production and Reserves
Gold production from 1991 through 2000 totaled 1,101,966 ounces. Gold production
from January to December 2000 was 108,643 ounces, compared to 130,465 ounces in
1999, 122,585 in 1998 and 108,186 ounces in 1997. The 16.7% decrease in gold
production for 2000 compared to 1999 was primarily attributable to lower gold
recovery and lower tonnage throughput from transitional ore treatment. The 6.4%
increase in production in 1999 was primarily attributable to a higher average
head grade of 2.31 g/t compared to 2.19 g/t in 1998 and to 2.05 g/t in 1997.
Throughput averaged approximately 5,845 tonnes per day in 2000, 5,958 tonnes per
day during 1999, 5,553 tonnes per day during 1998 and 5,229 tonnes per day
during 1997. Gold recovery rates were 64.4% in 2000, 81.4% in 1999 and 85.8% in
1998 Cash cost of production, including royalties averaged $201 per ounce in
2000, $190 per ounce in 1999 and $215 per ounce in 1998. Quarterly production
statistics for the Bogoso Mine for 1999 and 2000 are as follows:
2000
----------------------------------------------------------------------------------
First Second Third Fourth Total / Average
Quarter Quarter Quarter Quarter 2000
- ------------------------------------------------------------------------------------------------------------------------
Ore milled (T) 510,537 529,701 580,413 518,628 2,139,279
- ------------------------------------------------------------------------------------------------------------------------
Rate (T/day) 5,610 5,821 6,309 5,637 5,845
- ------------------------------------------------------------------------------------------------------------------------
Grade (g/t) 2.70 2.84 2.28 2.48 2.56
- ------------------------------------------------------------------------------------------------------------------------
Recovery (%) 69.4 63.1 64.1 60.0 64.4
- ------------------------------------------------------------------------------------------------------------------------
Gold Production (oz) 29,942 31,606 27,899 19,195 108,643
- ------------------------------------------------------------------------------------------------------------------------
Cash cost of production 188 187 211 236 201
($/oz)
- ------------------------------------------------------------------------------------------------------------------------
1999
----------------------------------------------------------------------------------
First Second Third Fourth Total / Average
Quarter Quarter Quarter Quarter 1999
- ------------------------------------------------------------------------------------------------------------------------
Ore milled (T) 521,613 533,657 524,131 577,457 2,156,858
- ------------------------------------------------------------------------------------------------------------------------
Rate (T/day) 5,796 5,864 5,697 6,277 5,958
- ------------------------------------------------------------------------------------------------------------------------
Grade (g/t) 2.31 2.25 2.20 2.47 2.31
- ------------------------------------------------------------------------------------------------------------------------
Recovery (%) 89.2 81.7 76.3 78.7 81.4
- ------------------------------------------------------------------------------------------------------------------------
Gold Production (oz) 34,516 31,555 28,317 36,074 130,465
- ------------------------------------------------------------------------------------------------------------------------
Cash cost of production 199 209 206 152 190
($/oz)
- ------------------------------------------------------------------------------------------------------------------------
27
The Bogoso Mine is expected to produce approximately 99,000 ounces of gold
during 2001 at a total cash cost of approximately $206 per ounce. Mill
throughput is budgeted at approximately 6,000 tonnes per day of ore. Head grades
are anticipated to average 2.25 g/t with a budgeted gold recovery, primarily
from transitional ores and low grade stockpiles, of 64.2%. During 2001, the
stripping of waste is expected to result in a waste to ore ratio of
approximately 2.5:1. Mining is scheduled to cease mid-year and it is planned
that low-grade stockpile material will be processed during the last four months
of the year.
BGL has reported its Proven and Probable Reserves for year-end 2000 using a $280
gold price. The reserves are those ore tonnages contained within economically
optimized pit envelopes, designed for the oxide and transition mineralized
material, and using current and predicted mine operating costs and performance
parameters. BGL's Proven and Probable Reserves at December 31, 2000 stood at
2.47 million tonnes at an average grade of 2.2 g/t, representing approximately
0.172 million ounces of gold. This is compared to Proven and Probable Reserves
at December 31, 1999 of 3.26 million tonnes at an average grade of 2.2 g/t,
representing approximately 0.229 million ounces of gold. The qualified person
responsible for the estimation of reserves for BGL is Mr. Emmanuel Mensah
Aborampah, Projects Superintendent. Mr. Aborampah has a Masters in Mineral
Processing and a Bachelor of Science in Mining Engineering, he has 10 years
experience in gold mining and is a member of the Mining Metallurgical and
Petroleum Society of Ghana.
BGL's reserves are derived from multiple sources, which have been categorized
into the Southern pits, Central pits, Northern pits and Stockpiled material. The
following tables summarize the reserves from these sources at year-end 2000 and
1999:
December 31, 2000 December 31, 1999
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL Proven and Proven and
RESERVES Probable Reserves Grade Contained Probable Reserves Grade Contained
(tonnes) (g/t) Gold (oz) (tonnes) (g/t) Gold (oz)
- -------------------------------------------------------------------------------------------------------------------------------
Southern Pits 87,000 3.4 9,629 237,000 2.5 19,255
- -------------------------------------------------------------------------------------------------------------------------------
Central Pits 587,000 3.5 65,153 500,000 2.9 45,976
- -------------------------------------------------------------------------------------------------------------------------------
Northern Pits 71,000 4.3 9,816 857,000 3.3 90,666
- -------------------------------------------------------------------------------------------------------------------------------
Stockpiles 1,720,000 1.6 87,765 1,669,000 1.4 73,372
- -------------------------------------------------------------------------------------------------------------------------------
Total 2,465,000 2.2 172,363 3,263,000 2.2 229,269
- -------------------------------------------------------------------------------------------------------------------------------
The Company has estimated its 70% share of BGL's Proven and Probable Reserves,
as 1.73 million tonnes grading 2.2 g/t, of which 1.71 million tonnes at 2.2 g/t
are classified as Proven and 0.02 million tonnes at 2.5 g/t are classified as
Probable.
Mineralized Material
At year-end 2000, BGL had estimated total mineralized material of 13.2 million
tonnes grading 3.25 g/t. The Bogoso Mine oxide and transition mineralized
material has been estimated using historic mining, processing costs and
recoveries with a $300 per ounce gold price. Sulfide mineralized material
utilized preliminary estimates of bio-oxidation processing recoveries and costs,
also assuming a $300 per ounce gold price. Using a 1.0 g/t and 2.1 g/t cut off
grade for oxide and transition mineralized material respectively, the combined
estimated total is 1.9 million tonnes grading 2.41 g/t. Sulfide mineralized
material at a 2.1 g/t cut off grade totals 11.3 million tonnes grading 3.40 g/t.
The total mineralized material is exclusive of proven and probable reserves. The
Company has estimated its 70% share of BGL's mineralized material at 9.3 million
tonnes. The mineralized material estimates correspond with measured and
indicated resources as defined by the CIM (Canadian Institute of Mining,
Metallurgy and Petroleum) and recognized in the Canadian National Instrument
43-101.
Sulfide and transition exploration drilling programs conducted in 2000 (8,711
and 24,224 meters of RC and diamond drilling for transition and sulfide
respectively) delineated additional sulfide mineralized material both along
strike and down dip of the previously defined gold mineralization. Mineralized
material inventories for transition and oxide was increased in 2000 through
better delineation of the weathering surfaces. Transition and oxide
mineralization at Bogoso North, Mansahai, Dumase and Chujah Stage 3 was tested
with Rotary Air Blast ("RAB")
28
and Reverse Circulation ("RC") drilling in between the existing 25 meter spaced
exploration drilling to bring drill spacing to approximately 12.5 by 25 meter
spacing. The close spaced drilling of the oxide and transition enabled better
definition of the depth of weathering, which in most instances meant an increase
in the volume of mineralized material for these categories. Sulfide mineralized
material, which is the basis for the ongoing feasibility study was increased
from the December 1999 estimates of 11.1 million tonnes grading 3.3 g/t
(estimated using a $325/ounce gold price), to 11.3 million tonnes grading 3.4
g/t (estimated using a $300/ounce gold price). Upon completion of the
feasibility study, the second quarter of 2001, a portion of this mineralized
material will be re-categorized into either proven or probable reserves. The
exact portion of mineralized material that will translate to proven and probable
reserves has yet to be determined and will depend on mining, metallurgical, and
economic parameters that are currently being finalized.
The December 2000 year-end mineralized material estimates at Bogoso are
summarized in the following table.
- -----------------------------------------------------------------------------------------------------------------------
Measured Indicated
- -----------------------------------------------------------------------------------------------------------------------
Material Cut off Grade Tonnes Gold Grade Tonnes Gold Grade
g/t g/t g/t
- -----------------------------------------------------------------------------------------------------------------------
Oxides greater than 1.0 327,000 1.85 754,000 1.83
Transition greater than 2.1 434,000 3.08 432,000 3.19
Sulfide greater than 2.1 6,395,000 3.75 4,896,000 2.94
- -----------------------------------------------------------------------------------------------------------------------
Totals 7,156,000 3.62 6,082,000 2.82
- -----------------------------------------------------------------------------------------------------------------------
(1) The mineralized material tabulated above has been estimated using a $300
per ounce gold price, mining-processing costs of $8.19, $9.63, and $15.91/tonne
of oxide, transition and sulfide material respectively. Processing recoveries of
80%, 55% and 86% were used for oxide, transition and sulfide respectively. An
overall mining recovery of 95% was also applied for all materials. Processing
costs and recoveries for transition and oxide are based on historic numbers
achieved with the current mining fleet and existing CIL plant. Sulfide
processing costs and recoveries have been based on preliminary estimates for
bio-oxidation based on variability and pilot test work conducted on drill core.
The resources have been calculated in accordance with the definitions and
guidelines adopted by the Canadian Institute of Mining, Metallurgy and Petroleum
and NI 43-101.
Mineralized material does not represent reserves and have not been included in
the Company's proven and probable reserve estimates. Even though drilling and
trenching indicate sufficient tonnage and grade to warrant further exploration
or development expenditures. Mineralized materials do not qualify under the U.S.
Securities and Exchange Commission standards as being commercially mineable
until further drilling, metallurgical work and other economic and technical
feasibility factors based upon such work are resolved.
Mineralized Material Estimation Procedures
Procedures for mineralized material estimates at the Bogoso Mine have been
modified since its acquisition by the Company. The compilation and validation of
the vast data set initiated by SRK in 1999 was continued by BGL personnel
through 2000. Existing sulfide drill intersections were confirmed with a
recently completed sulfide drilling program. The confirmation of existing drill
hole data by the sulfide drilling gives the total sulfide database greater
integrity. Once the database was validated geological sections were interpreted
and a high grade and low grade mineralized corridor delineated. High-grade gold
mineralized corridors were interpreted using the raw assay data with gold tenors
approximately greater than 1 g/t; low-grade corridors were delineated with an
approximate 0.3 g/t contour. Gold mineralization was found to cross cut
lithological units with the majority being associated with graphitic fault
structures. The fault structure and associated gold mineralization is very
continuous and can be traced over the entire 18 kilometer extent of the Bogoso
Mine. Sectional interpretations of both the low-grade and high-grade gold
mineralization have been linked together to form two distinct wire mesh solids.
In addition to geologic interpretation, the depth of weathering was estimated
from drill hole logs with oxide, transition and fresh
29
wire mesh surfaces being created. The resulting surfaces and solids were used to
create a geological block model where grades were interpolated from the
validated drill hole databases.
After drill hole validation the raw assay data was composited at two-meter
lengths. The two-meter assay composites were assigned identifiers to distinguish
between high-grade, low-grade, waste and degree of weathering. In areas of poor
sample recovery, missing intervals were given an "insufficient sample"
identifier and if the missing interval accounted for greater than half the
composite interval they were excluded from the composite data. Two-meter
composite data was extracted from the database and geo-statistical analysis
preformed on the individual data sets to determine sample variability. Through
the geo-statistical analysis it became clear that high grade and low-grade
material should be modeled separately and oxide material should be modeled apart
from transition and sulfide material, which could be grouped together. Using
the two-meter composites Log probability plots for high-grade and low-grade
mineralization were produced to determine where outlier values should be cut.
High-grade cut off grades varied from deposit to deposit but generally the high-
grade zone upper cut was between 18 to 25 g/t whereas the low-grade upper cut
was between 2 and 8 g/t.
The sulfide models were divided into a number of different structural domains
based on variations in orientation of gold mineralized corridors. Two-meter
composite assay data was filtered to correspond with each individual domain and
semi-variogram modeling was conducted. Semi-variogram modeling indicated nugget
effects in the order 40 to 45 %, grade correlation distances of approximately 18
to 25 meters along strike, approximately 25 to 50 meters down dip and 10 to 15
meters perpendicular to strike.
Upon completion of the geological block model and semi-variogram modeling, gold
grades were interpolated into mineralized blocks with dimensions of 5 meters
east - west (perpendicular to strike), 6 meters vertical and 12.5 meters north -
south (along strike). Grade interpolation utilized the two-meter composite assay
data from drill holes spaced approximately 25 by 25 meters. Gold grades were
interpolated into blocks using search parameters defined from the semi-variogram
modeling. Mineralized blocks not interpolated during the first pass were filled
with grade using a wider search ellipse during a second pass. Grades
interpolated during this second pass estimation are classified as either
indicated or inferred resources. Two different grade interpolation algorithms
were used during block modeling, the Chujah - Dumase model, estimated by SRK,
utilized ordinary kriging. The Chujah - Dumase model accounts for approximately
80% of the total mineralized material (10.5 million tonnes grading 3.23 g/t).
The remaining mineralized material estimates were done using inverse distance
squared algorithms. Drill hole sections and plans were plotted so that block
interpreted grades with corresponding drill hole two meter composite assay data
could be checked thoroughly, results showed good correlation. Inverse distance
squared models reconcile well with actual mined figures from grade control.
Inverse distance squared models are actually conservative and understate tonnes
by 15 to 20%, and grade by 5 to 10%.
Geologic and grade block models as well as the transition and oxide surfaces are
converted to ascii and DXF files and then submitted to the mining department.
The mining engineers apply economic, mining and processing costs and if viable
produce a pit design so the mineralized material may be exploited for a profit.
Mineralized material classification for the Company's revised estimation
procedures is based on the density of drill data, complexity and continuity of
gold mineralized corridors and confidence in drill hole data. Approximately 80%
of the mineralized material has been categorized using confidence level
parameters estimated by SRK. Mineralized material estimated with inverse
distance squared methodologies was classified into measured and indicated
resources based on sample density, complexity and continuity of gold bearing
structures. Individual blocks which were situated in areas of continuous robust
gold mineralization and utilized two or more drill holes for grade interpolation
during the restricted first pass search ellipse were allocated as measured
resource category. Indicated resources were allocated to individual blocks
which utilized one drill hole during the restricted ellipse grade interpolation
or utilized two or more holes during the less restrictive second pass. The
classification of the mineralized material conforms to definitions by the
Canadian Institute of Mining Metallurgy and Petroleum.
As part of the management of the sulfide feasibility study, Dr. John Arthur of
SRK is overseeing the mineralized material estimation component of the sulfide
project feasibility study of which the reported sulfide mineralized material is
an integral part. Mineralized material for Chujah and Dumase were estimated by
SRK using the validated drill hole database, geological 3D-solids, weathering
and topographic surfaces prepared on site. The
30
mineralized sulfide material for Chujah - Dumase represents 80% of the total
estimated mineralized material, 11.3 million tonnes at 3.4 g/t.
The information in this report that relates to mineralized material is based on
information compiled and or validated by Mr. S. Mitchel Wasel an employee of
Golden Star, who following the acquisition of the mine in late 1999 has assumed
the position of Exploration Manager for BGL. Mr. Wasel qualifies as the
competent person responsible for overseeing mineralized material estimates. Mr.
Wasel is a qualified geologist who has 13 years of experience in gold and base
metal exploration and is a Member of the Australasian Institute of Mining and
Metallurgy.
Work Program
Exploration activities during 2000 concentrated on delineating and defining
oxide and transition mill feed and increasing the confidence and tonnage of the
existing sulfide mineralized material.
Utilizing RAB and RC drill rigs, known oxide and transition mineralized
materials were confirmed and, where applicable, were converted to proven and
probable reserves. Oxide and transition RC and RAB drilling for 2000, totaled
8,014 and 8,711 meters respectively. Testing of additional oxide and transition
targets is ongoing and is continuing into 2001.
An in-house pre-feasibility study conducted late in 1999 indicated that with
further work the sulfide mineralized material could be expanded and a
feasibility study on the sulfides could be justified. In December 1999, the
Sulfide Project Feasibility Study was initiated. A sulfide drilling program was
completed in June 2000 with a total of 24,224 meters of RC and diamond drilling
being completed (of which 8,298 meters was diamond core drilling and included
1,210 meters of oriented core for geotechnical and hydrogeological modeling).
The drilling program validated historical drilling data, filled in gaps between
previously drilled holes, tested sulfide mineralization at depth and along
strike, better defined depths of weathering surfaces, provided geotechnical and
hydrogeological information for pit design and de-watering and collected
representative core samples for metallurgical and environmental testing.
Mineralized material estimates utilizing the new drilling data has increased
sulfide mineralized material from 11.1 million tonnes grading 3.3 g/t to 31.3
million tonnes grading 2.1 g/t.
Universal Drill Rigs were used for the entire sulfide drill program, utilizing
RC pre-collars for the top portion of the hole above the zone of interest and
then completing the hole with diamond drill core. The majority of the core
drilling was approximately 63 millimeters in diameter of which half was taken
for analysis. Three 85-millimeter diameter core drill holes were drilled to
collect samples for metallurgical comminution test work. RC chip samples were
collected using a face-sampling bit and triple tube rods to minimize bore hole
contamination. RC samples were split using a riffle splitter and submitted to
Performance Laboratory for analysis. Performance Laboratory is a subsidiary of
the South African Time Mining Group.
RC chip samples and core samples were logged in detail according to degree of
weathering, alteration, recovery, and lithology. Diamond drill core sticks were
photographed before being split and sampled. Approximately 500 representative
core samples were selected for in house density determinations. The split core
samples not utilized for metallurgical test work and representative reverse
circulation chip samples remain on site for future reference. Diamond drill core
and RC chip samples collected during the sulfide drilling campaign were analyzed
at an independent laboratory for gold, carbon, sulfur, iron and arsenic.
A thorough sample validation program was implemented during the entire sulfide
drilling program. Sample batches were submitted to the laboratory with four
control samples (blank, replicate and 2 standards) for every 20 samples
submitted. In addition to control samples approximately 10 % of all samples
submitted were renumbered and reanalyzed either at the original laboratory
(Performance Laboratory) or at two different independent laboratories (SGS in
Tarkwa or ITS Bondar Clegg). Results of the validation indicated that there was
good correlation between laboratories and precision and repeatability were
excellent.
Quartered diamond drill core and coarse core sample rejects were combined
together to produce a representative suite of variability and bulk samples for
metallurgical test work. These samples were selected from within a $325 per
ounce optimized pit shell. All mineral types associated with the mineralized
material were sampled to ensure that the potential impact of variations along
strike, down dip and across the gold mineralized body, as well as the
31
potential effects of dilution by waste material were well accounted for. A total
of 22 variability samples were collected, each comprising a composite of 80
kilograms of drill core. These samples were used for the bench variability
testwork program. In addition, one bulk sample of 9.5 tonnes of drill core was
selected representing some 80 mineralized drill intersections. The bulk sample
was used for the pilot plant testwork. Both sets of sampling (variability and
bulk samples) were weighted to represent the mineralized material along strike
and at depth.
Various laboratories that specialized in specific portions of the proposed
extraction process conducted metallurgical test work. Ammtec Laboratories was
used for the physical metallurgical tests and bench flotation test work. Mintek
Laboratories was used for the pilot plant flotation test work. Lakefield
Laboratories was used for the bench bio-oxidation test work. Goldfields BIOX was
used for the bio-oxidation pilot plant test work and will also be supplying the
bio-oxidation technology and design package. The metallurgical test work
program consisted of four main elements:
(i) Physical metallurgy testwork, which determined that the primary sulfide
mineralized material could be processed through the existing crushing and
grinding circuit at Bogoso at an average rate of 1.3 Mtpa, with a
variation depending on depth, which ranged from 1.6 to 1.2 Mtpa. The work
index averaged 14.0 kWh/tonne (range 12.0 to 16.8 kWh/tonne).
(ii) Bench gravity and flotation testwork, which determined that the primary
sulfide mineralized material could be upgraded by gravity and flotation
methods to a concentrate with an average recovery of 93.3% (range 87.6%
and 96.7%). Substantially all of the process equipment to achieve these
recoveries is already in place at Bogoso but needs to be supplemented by
the addition of flash flotation on the grinding circuit and cleaner
flotation in the existing flotation circuit.
(iii) Bench bio-oxidation work, which determined that the primary sulfide
mineralized material is readily oxidized by this process method.
Oxidation after six days averaged 98.1% (range 95 to 99%). Optimum
oxidation of 93.8% (range 91 to 95%) was found to occur after an average
of 4 to 5 days. Cyanide leaching of the bio-oxidized samples indicated an
average gold recovery of 93.2% (range 91 to 98%) for the fully oxidized
sample and an average gold recovery of 92.7% (range 91 to 94%) for the
sample taken to the optimum oxidation point. The overall gold recovery
for the bench testwork averaged 86.5% (range 84.5 to 88.5%)
(iv) Pilot Plant flotation and bio-oxidation testwork, in which a
representative sample of 9.5 tonnes was processed in a 200 kilograms per
hour pilot plant flotation circuit and then in a 0.25 kilogram per hour
pilot plant bio-oxidation circuit. The pilot plant testwork returned an
average flotation circuit recovery of 92.8%, an average bio-oxidation of
92.8% (after an average of 5 days) and an average cyanide leach gold
recovery of 92.7%. The overall gold recovery from the entire circuit
averaged 86.5%.
The Sulfide Project Feasibility Study is expected to be completed in the second
quarter of 2001, once proven and probable reserve estimates, mining schedules,
capital costs estimates, operating cost estimates and Environmental Impact
assessments have been completed and the report collated.
In conjunction with the Sulfide Project Feasibility Study, exploration will be
conducted both within the Bogoso Mine as well as within surrounding exploration
permits that have been optioned by BGL, to identify additional sources of oxide
and transition mineralization.
Environment
BGL has adopted World Bank environmental standards and is in substantial
compliance with the environmental requirements imposed by Ghanaian laws and
guidelines. BGL completed significant work during 1999 to identify the
outstanding reclamation liability and to prepare a rehabilitation work plan.
Significant work was completed in 2000 to advance this plan and to reduce the
outstanding reclamation liability. Monthly expenditures for ongoing
rehabilitation work, including the capping of sulfide material and the
contouring and re-vegetation of waste dumps, were approximately $60,000 per
month during 2000. In connection with the acquisition of BGL, the Company and
Anvil reviewed the information and reports available and they agreed to restrict
$6 million from BGL's existing cash to be used exclusively to fund environmental
rehabilitation work. Based on an independent audit, a total of
32
$1.9 million of the total was made available to BGL during 2000 to cover BGL's
cash reclamation costs incurred since the acquisition.
Exploration Projects in Ghana
The Company and BGL have entered into four option agreements since the
acquisition of BGL in September 1999. Each option agreement entitles BGL to
acquire a 100% interest in mineral properties located on the Akropong trend and
within approximately 20 to 25 kilometers from the BGL plant. The total surface
area of the mineral properties covered in the option agreements is approximately
259 square kilometers. The Company paid an aggregate of $0.3 million to the
owners of these projects in consideration for the grant of the options. The
Company's objective is to acquire potential mining opportunities in the
immediate vicinity of the Bogoso Mine that may, in the future, provide
additional sources of oxide ore to extend BGL's mine life. All these projects
are at an early stage of exploration and they do not have and may not have any
proven and probable reserves. The four projects are referred to hereinafter as
the Akropong projects.
In 2000, BGL's exploration activities on the Akropong projects were limited to
the Riyadh and Pampe projects. Preliminary exploration involved compilation of
historical data and augering to a depth of four meters (or point of refusal) on
a grid of 200 by 50 meters over the anomalous areas previously defined by soil
geochemistry. Excluding property payments and geologists time, exploration
expenditures totaled approximately $0.1 million.
BGL's 2001 budget expenditures for the Akropong projects are approximately $0.7
million. Exploration activities for the Akropong projects will be coordinated
as a single exploration program where equipment and manpower will move from
property to property during different phases of exploration. Phased exploration
work advances only when positive results are generated from early phases of
exploration. Expenditures given are estimates and may vary dependent on actual
results.
OMAI GOLD MINE
- --------------
The operating Omai gold mine is located in the Co-operative Republic of Guyana
("Guyana"), a former British colony, which obtained independence in 1966.
Guyana has a surface area of 216,000 km/2/ with a population of approximately
800,000. The official language is English and the climate is tropical. Guyana
is governed as a democratic republic, and the legal and land title systems are
based on the English common law.
Omai Gold Mines Limited ("OGML") is an equity joint venture of the Government of
Guyana, the Company and Cambior Inc. ("Cambior"). The Company owns a 30% common
share equity interest in OGML. Cambior and the Government of Guyana own 65% and
5% of OGML, respectively. OGML owns the Omai Mining License and the Eagle
Mountain, Omai River and Quartz Hill prospecting licenses.
The Omai mine is owned by OGML. Cambior is the manager of all mining and
related operations. The Omai mine is located on a 52 km/2/ mining license on the
Essequibo River, approximately 160 km southwest of Georgetown, Guyana. Access
to the mine is by improved road and ferry or by fixed-wing aircraft to an all-
weather airstrip.
The Company and Cambior entered into an agreement with the Guyana Geology and
Mines Commission ("GGMC") and the Government of Guyana on August 16, 1991 (the
"Omai Mineral Agreement"), whereby, among other things, OGML was granted the
right to obtain a mining license (which was granted on December 12, 1991 for a
term of 20 years), and to carry out mining operations in accordance with the
terms of the Omai Mineral Agreement. In addition, the Omai Mineral Agreement
provides for the payment to the Government of Guyana of a 5% in-kind royalty
from the Omai Mine. It also provides that capital and profits may be
repatriated without restrictions.
Pursuant to the articles of association of OGML, the Government of Guyana has
the right to a 5% carried interest in OGML and the subsequent right to acquire
from the combined holdings of the Company and Cambior in the common shares of
OGML (i) after the expiration of eight years from commencement of commercial
production at the Omai Mine (which was achieved in January 1993), but before the
expiration of the tenth year, 5% of the common shares of OGML issued and
outstanding at such time; and (ii) after the expiration of ten years from
commencement of commercial production, but before the expiration of the twelfth
year, an additional 22% of the
33
common shares of OGML issued and outstanding at such time. The purchase price
will be the market value of the OGML shares based upon the North American stock
market value of common shares of gold mining companies having similar production
levels and potential, based upon the average market capitalization of such
comparable companies taking into account their relative long term debt position.
Should the government decide to exercise the options mentioned above, the
Company and Cambior have each agreed to sell and deliver to the Government of
Guyana one-half of the total number of common shares of OGML required to give
effect to the Government of Guyana's right. If the Government of Guyana were to
exercise both of its options as set forth above, the Company's common share
equity interest in OGML would be reduced to 16.5%. The exercise of the options
by the Government is not likely to affect the Company's financial position,
results of operations and liquidity since the Company is not expecting to
receive any cash flow from the operations of OGML in the near future. The
articles of association contain a right of first refusal as typical in
shareholder agreements.
Pursuant to OGML's articles of association, the Company received approximately
$11.0 million of Class I redeemable preferred shares of OGML in recognition of
past exploration costs incurred by the Company. Pursuant to their terms, these
preferred shares must be redeemed prior to any distribution to the common
shareholders of OGML out of 10% of net cash flow from operations of OGML (as
defined in the Omai Mineral Agreement). The reimbursements must be calculated
and paid quarterly to the Company. During the fiscal year ended December 31,
2000, the Company received $0.9 million as a result of the redemption of Class I
preferred shares, for a total of $9.6 million in redemption of Class I preferred
shares since the beginning of production in 1993. The amount so received and
all future redemptions will be applied against the reimbursement of the loan
made by OMGL to the Company until it is paid in full. The Company considers it
unlikely that it will receive dividends from its common share holdings in OGML.
As of December 31, 2000, OGML had $63 million in debt and a total of $138
million worth of Class II and III preferred shares outstanding. The Class III
preferred shares have past cumulative unpaid dividends totaling $102 million as
of December 31, 2000. (OMGL's financial statements for the year ended December
31, 2000 were prepared by the management of OMGL but the audit thereof is not
complete as of the date of this form 10K. Thus, the figures set forth in this
paragraph are subject to change.)
On August 19, 1995, a failure occurred in the main section of the tailings dam
at the Omai Mine. The failure resulted in the discharge of cyanide-contaminated
water into the Omai River, which in turn flowed into the Essequibo River.
Production at the Omai Mine was suspended from August 19, 1995, and resumed on
February 4, 1996, after the Government of Guyana and OGML had executed an
agreement authorizing, under certain conditions, OGML to recommence commercial
production at the Omai Mine.
As of December 31, 2000, approximately 1,000 individual claims have been made
against OMGL in Guyana in connection with the tailings dam failure, of which 414
have been settled for an aggregate dollar amount of less than $1 million. Of
the claims that remain unsettled, legal proceedings have been instituted against
OGML with respect to approximately 300 individual claims and one class action
(on behalf of 244 claimants). According to the management of Cambior, as
disclosed in their public filings with the Securities and Exchange Commission,
these claims are expected to be settled for amounts totaling less than $1
million, of which $600,000 has already been funded in advance by an insurance
company as part of a settlement with OGML and Cambior.
Another class action (claiming to represent 23,000 claimants) was filed in
August 1998 in the High Court of the Supreme Court of Judicature, Civil
Jurisdiction in Guyana but was not served on the defendants (OGML, Cambior, two
engineering firms and one insurance company) until August 1999. This class
action is essentially an outgrowth of a class action initiated in 1997 and later
dismissed by a Quebec court. The class action was amended in May 1999 to
include Golden Star as defendant and then served on Golden Star in July 1999.
The class action claims from the defendants, including Golden Star, $100 million
in damages, allegedly resulting from the tailings dam failure. On March 28,
2000, the proceedings against Golden Star were dismissed.
The three-year limitation period for bringing legal proceedings against OGML and
its shareholders in Guyana with respect to the tailings dam failure expired on
August 19, 1998.
Geology
The Omai region is underlain by a series of Precambrian mafic to felsic
volcanics and clastic sedimentary rocks of the Barama-Mazaruni Supergroup.
These strata were intruded by intermediate to felsic plutons of the Younger
34
Granite Group and mafic dykes of the Younger Basic Group. Prolonged uplift and
weathering resulted in the development of thick latosols. Gold mineralization at
Omai is hosted within three distinct settings: a) the Omai Intrusive Complex, b)
the Wenot Lake zone weathered profile and c) alluvial deposits.
The Omai Intrusive Complex consists of an approximately 400m by 500m lobate,
altered quartz diorite pluton that intrudes mafic volcanic rocks. Gold
mineralization within quartz diorite is confined to widespread, narrow,
regularly spaced and discrete but discontinuous quartz and ferroan calcite and
pyrite veins. Alterations associated with gold mineralization include
carbonitization, sulphidation and silicification.
The Wenot Lake zone is an elongated lateritic and saprolitic gold deposit
developed over a sequence of interbedded mafic to felsic volcanic flows and
tuffs. This sequence of rocks underwent weathering under humid, tropical
conditions, leading to the formation of a well- developed weathered profile.
Primary gold mineralization is found in anastomosing stratabound quartz-
carbonate veins filling shears. Secondary gold is found in both the saprolitic
and lateritic horizons. Laterites contain the bulk of the mineralization in the
Wenot zone.
Alluvial gold deposits at Omai are contained in small drainage systems made up
largely of tailings from hydraulic mining of latosols over the Omai Intrusive
complex and Wenot Lake Zone.
Production and Reserves of Omai Mine
The Company has not included production and reserve details with respect to the
operating Omai Mine as it is considered unlikely that the Company will receive
any distribution in connection with its common share equity interest in OGML.
Eagle Mountain
The Eagle Mountain project is located in Central Guyana, 50 km from the Omai
Mine. Prior to its sale in December 1998, the Company owned a 100% interest in
the Eagle Mountain Prospecting License. The transfer of the Eagle Mountain
License by the Company to OGML was approved by the government of Guyana on
December 21, 1998. The purchase agreement between the Company, OGML and Cambior
Inc. was executed on December 23, 1998 and, in accordance with the agreement,
the Company received $80,000. As a result of the transfer to OGML, the Company
now has a 30% indirect interest in the Eagle Mountain project. In consideration
for receiving a 5% free carried interest (its interest in OGML), the government
of Guyana has accepted to charge a consumption tax of only 5% on fuel used with
respect to the Eagle Mountain property. All past capitalized exploration costs
associated with the Eagle Mountain project were written off during 2000.
GROSS ROSEBEL
- -------------
The Gross Rosebel project is located in Suriname, a former Dutch colony that
became independent in 1975. Suriname has a surface area of 163,000 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.
The Company's operations in Suriname in 2000 consisted primarily of care and
maintenance for Gross Rosebel and continued engineering evaluation of the
project. During 2000, the Company incurred total expenditures for Gross Rosebel
of $0.5 million, of which $0.2 million were capitalized and $0.3 million were
expensed. Approximately $0.3 million was reimbursed by the Company's joint
venture partners. Total expenditures during 1999 amounted to $0.7 million, $0.4
million of which was reimbursed by the Company's joint venture partners.
Pursuant to a mineral agreement, dated May 8, 1992, as amended and restated on
April 7, 1994 (the "Gross Rosebel Agreement"), between the Company, the
Government of Suriname and the state mining company, Grasshopper Aluminum
Company N.V. ("Grassalco"), Grassalco assigned to the Company its interest in
the Gross Rosebel right of exploration, a 170 km/2/ area in north-central
Suriname. The National Assembly of Suriname ratified the Gross Rosebel
Agreement on March 1, 1994.
35
The Gross Rosebel Right of Exploration originally transferred to the Company was
for a term of three years expiring in March 1995. It was then renewed for an
additional term of two years expiring in March 1997. The Company filed an
application for the additional two-year extension it is entitled to pursuant to
the mining laws of Suriname. The application is still pending. Under the
mining laws of Suriname, a right of exploration does not terminate by expiration
of its term if the holder has in time applied for prolongation of such right and
such application has not been denied. Moreover, under the mining laws of
Suriname, an existing right of exploration remains legally in force until a
decision on the application for a right of exploitation has been taken.
As partial consideration for the transfer of the Gross Rosebel right of
exploration, the Company issued 60,000 common shares to Grassalco on June 28,
1994. Under the terms of the Gross Rosebel Agreement, the Company committed to
expend an aggregate of $8.0 million on exploration activities over a five-year
period commencing on May 8, 1992. As of May 8, 1997, the Company had spent
approximately $25.8 million on the Gross Rosebel property and, as a result,
fulfilled its expenditure requirement. Of the amounts expended by the Company,
Cambior has contributed $14.1 million by way of joint venture recoveries (see
discussion of Cambior Joint Venture below). In addition, in consideration for
Grassalco making the Gross Rosebel property available for exploration, the
Company paid $1.0 million to Grassalco pursuant to the terms of the Gross
Rosebel Agreement. Under the terms of the Gross Rosebel Agreement, the Company
had the obligation to submit to the Republic of Suriname's Minister in charge of
mining activities and Grassalco a feasibility study and an environmental impact
statement (as these terms are defined in the Gross Rosebel Agreement) on or
prior to May 8, 1997. In the event that Golden Star failed to timely submit
such feasibility study and environmental impact statement, Golden Star was
deemed to have waived its rights resulting from the Gross Rosebel Agreement and
was obliged to reassign the Right of Exploration to Grassalco at its demand,
whereupon the Gross Rosebel Agreement was to terminate. On May 7, 1997, a
feasibility study and an executive summary of the environmental impact statement
were submitted to the Government of Suriname. A more detailed environmental
impact statement and a revised feasibility study were submitted to the
Government of Suriname in June and December 1997, respectively. The Government
of Suriname has not yet approved the feasibility study or the environmental
impact statement. There can be no assurance that a final feasibility study will
be submitted or that the Government of Suriname will approve the feasibility
study and grant a right of exploitation to the operating company to be formed by
the two joint venture partners.
Upon approval by the Suriname Government of the feasibility study and the
environmental impact statement, the Gross Rosebel right of exploration may be
converted into a right of exploitation for an initial term of 25 years. The
right of exploitation is to be granted to an operating company (the "Operating
Company"). Within 30 days of the grant of the right of exploitation, the
Company and Cambior will be obligated to pay to Grassalco the total sum of $2.5
million as compensation for previous exploration expenditures incurred by
Grassalco.
Upon the grant of a right of exploitation to the Operating Company, Grassalco
will have the option, for a period of 60 days, to purchase an undiluted 20%
common share equity interest in the Operating Company by paying 20% of all
exploration costs previously incurred by the Company and 20% of all subsequent
costs of the Operating Company. Grassalco has a further option to purchase a
second undiluted 20% interest in the shares of the Operating Company eight years
following the date of commencement of commercial production (as defined in the
Gross Rosebel Agreement) in consideration for the payment of a sum equal to 90%
of the market value of such shares, as determined in accordance with the terms
of the Gross Rosebel Agreement.
The Gross Rosebel Agreement provides that (i) a royalty of two percent of the
gold produced from the Gross Rosebel property is payable in kind to Grassalco
and (ii) an additional one-quarter of one percent royalty is payable for the
life of the project to a charitable fund to promote natural resources
development in Suriname. In addition, a royalty of two percent of the proceeds
received on any other minerals produced (less transportation and processing
costs) is also payable to Grassalco. An advance royalty payment against the
above-mentioned royalties of $6.5 million must be made to Grassalco within 90
days of receipt of the first proceeds from the sale of minerals at Gross Rosebel
and a further $6.5 million must be made 12 months later. Further, in the event
the price of gold exceeds $500 per ounce Grassalco is entitled to an additional
6.5% royalty on that portion of the sales price, which exceeds $500 per ounce.
36
The Cambior Joint Venture
The Company and Cambior entered into an agreement on June 7, 1994, pursuant to
which Cambior was granted the option to earn an undivided 50% interest in the
Company's rights in the Gross Rosebel Agreement and Gross Rosebel property. On
January 8, 1996, Cambior announced its decision to exercise its option to
acquire 50% of the Company's rights in the Gross Rosebel property after
expending $6.0 million in exploration and development activities on the
property, as required by the June 1994 option agreement. As also required under
the agreement, Cambior advanced a further $2.5 million in expenditures to be
repaid out of initial project earnings. Since April 1996, when Cambior earned a
50% interest in Gross Rosebel, the Company and Cambior have been contributing
equally to programs and budgets with respect to the Gross Rosebel property.
Under the June 1994 option agreement, Cambior must use its best efforts to
secure financing for at least 65% of eventual mine development costs from third
parties. Cambior assumed managerial responsibility for the preparation of the
feasibility study. Cambior has the right to be appointed manager of all
subsequent mining and related operations of the project. The option agreement
provides for the customary right of first refusal typical found in such
agreements.
The Property
The Gross Rosebel right of exploration covers 170 km/2/ (17,000 ha.) and is
located 80 km south of the capital city of Paramaribo. Access is via a paved
highway followed by an all-weather laterite surface road. Gold was reportedly
first discovered in the area in 1879 and since then more than half of Suriname's
recorded production has been produced from the district by dredging and small
artisanal surface and underground workings. Commencing in 1974, Surplacer N.V.,
a subsidiary of Placer Development, a Canadian mining company (now Placer Dome),
conducted an extensive exploration program of trenching, hand augering and
rotary drilling over a period of three years. Subsequent field work was
conducted by Grassalco over a period of seven years and a feasibility study was
prepared and completed in 1984 by a Canadian engineering firm controlled by
Grassalco.
Geology
The Gross Rosebel property is underlain by Proterozoic Armina, Paramaca, and
Rosebel metasedimentary and metavolcanic greenstone formations. These units are
intruded by a large tonalitic stock near the southern boundary of the property,
which has resulted in doming of the adjacent Armina rocks and the development of
steep reverse faults. The greenstone units are folded into a broad east-west
trending and westerly plunging synclinal structure. Gold mineralization
associated with at least five generations of hydrothermal quartz veins occur
over large areas both in the south and north limbs of the syncline where these
are cut by strong west-northwest trending shear zones. Locally, mineralization
is controlled by zones of dilation along the shear planes and by drag folding.
Intense tropical weathering has developed a residual surface laterite and
saprolite profile of up to 50 m thick, overlying bedrock. Gold mineralization
has been established by the Company within at least ten separate target areas
including Royal Hill, Mayo, Rosebel, Koolhoven, Pay Caro, East Pay Caro, "J"
Zone, Bigi Asanjangmoni, Mama Kreek and Spin Zone. All of these target areas
are capped by mineralized laterite blankets typically between 3 to 10 m in
thickness overlying less continuous shear and/or fold related mineralization in
saprolite and bedrock. Both types of deposits are being defined for potential
mining.
Mine Development
A formal feasibility study was submitted to the Government of Suriname in May
1997. The study contained a description and analysis of the economic and
commercial viability of bringing into production and operating a mine on Gross
Rosebel assuming a gold price of between $380 and $400 during the life of the
mine. Development of the Gross Rosebel project has been deferred by the joint
venture partners pending receipt of necessary governmental approvals including
approval of the feasibility study, resolution of several development issues,
economic concessions from the government and improved gold prices. There can be
no assurance that the government of Suriname will approve the May 1997
feasibility study and the environmental impact statement and therefore grant a
right of exploitation to the Operating Company until an acceptable feasibility
study, based on current gold prices, is produced by the joint venture. Some of
the development issues that must be resolved prior to development, include,
amongst other things, the structure of the Operating Company, the ability to
secure foreign investment insurance,
37
availability of financing from banks and other financial institutions, and
disposition of Nieuw Koffiekamp, a small village located within the concession.
Although the Company believes that these issues can be resolved, there can be no
assurance that it will be the case. The project will continue to be on care and
maintenance until these issues are resolved.
Work Program
The project remained on care and maintenance in 1999 and 2000. Engineering
activities performed at Gross Rosebel during 2000, as in 1999, were largely
directed at determining development alternatives for the project because of the
prevailing depressed gold prices. In August 1999, the Company completed an
independent scoping study. This was performed to model the potential benefits
of applying a low cost heap leach processing approach to the project. Results
of the study supported the Company's belief that the project could be developed
at a profit even in a low gold price environment. The outcome of this study
prompted serious discussions between the joint venture partners in the early
part of 2000 to consider alternative low cost mining and processing methods more
suitable to the tropical rain forest conditions existing in Suriname.
As a result of the discussions, a pre-feasibility study based on a more
conventional CIL flow sheet was completed during the final quarter of 2000 and
presented to the Minister of Natural Resources in early December. This study
defines a project that is robust at a project life gold price of $300 per ounce.
This was largely achieved by confining the scope of the project to the softer
saprolite and transition mineralized material, which significantly reduces both
capital cost and operation cost. The hard primary mineralized material included
in the original feasibility study would remain un-mined in this soft rock
scenario, but could be exploited at a future date when gold prices are at a
level that would make the extraction of the material economic. Allowance was
therefore made in the plant design for the future installation of additional
crushing and grinding equipment. The pre-feasibility study and the capital cost
estimates were prepared by Cambior Projects and Construction, a subsidiary of
Cambior Inc.
Meetings were held with the Government of Suriname in December 2000 to discuss
the pre-feasibility study results and the assumptions made in the preparation of
the study that will require commitments from Government, which include the
highly critical supply and price of power from the hydro-electric grid. Once
this and other issues have been resolved, Cambior and Golden Star intend to
complete a final feasibility study in readiness for a decision on the
development of the project by the end of 2001.
Budgeted expenditures in 2001 for Gross Rosebel are $1.0 million comprised of
$0.6 million of care and maintenance, and $0.4 million of engineering work to
complete an updated feasibility study. The Company's share of these
expenditures will be $0.5 million.
Mineralized Material
The Company's share of the mineralized material for Gross Rosebel, as at
December 2000, amounted to 12.5 million tonnes grading 1.7 g/t using a long-term
gold price assumption of $300 per ounce compared to 20.7 million tonnes grading
1.6 g/t at a gold price of $325 per ounce reported as of December 31, 1999. The
mineralized material was calculated by Cambior in accordance with the
definitions and guidelines adopted by the Canadian Institute of Mining,
Metallurgy and Petroleum on August 20, 2000 and NI 43-101 and only takes into
account the softer saprolite and transition material. Cambior reported its 50%
share as "Indicated Resources". The qualified person responsible for this
calculation is Mr. Francis Clouston. The Company has not independently verified
the estimate reported by Cambior.
Mineralized material does not represent reserves and has not been included in
the Company's proven and probable reserve estimates. Even though enough drilling
and trenching has been completed to indicate sufficient tonnages and grade to
warrant further exploration or development expenditures, these mineral deposits
do not qualify under the United States Securities and Exchange Commission
standards as being commercially minable until further drilling, metallurgical
work and other economic and technical feasibility factors based upon such work
are resolved.
38
FRENCH GUIANA PROPERTIES
- ------------------------
General
French Guiana is part of the French national territory and has been an overseas
"Departement" of France since 1946. The Departement, with an area of 84,000
km/2/ and a population of approximately 130,000, has two representatives in the
French National Assembly and one representative in the French Senate. Under the
French Constitution, French Guiana is governed by the same laws as metropolitan
France, subject to modifications (including those affecting tax and mining laws
and regulations) that may be adopted to reflect the historical, cultural,
geographical and economic characteristics of French Guiana and provide for
regional administration. An appointed Prefect, representing the Government of
France, holds governmental and administrative powers locally. A 19-member,
locally-elected General Council votes on departmental budget and other local
matters.
The mineral rights held by our French subsidiaries are subject to French mining
laws applicable in French Guiana, the most important being Decrees no.55-586 of
May 20, 1955 and no. 56-1039 of October 5, 1956 (the "1955 and 1956 Decrees"),
and the law no. 98-297 of April 21, 1998 (the "1998 Law") that partially
extended and adapted the French Mining Code to the French overseas departments
(including French Guiana). The 1998 Law provides that all existing permits
continue to have full force and effect during their terms and that all
applications for extension of existing permits filed before the publication of
the 1998 Law remain subject to the 1955 and 1956 Decrees. Permits granted or
extended since the publication of the 1998 Law are subject to the French Mining
Code.
The grant of mining titles in French Guiana is administered by the Direction
Regionale de l'Industrie, de la Recherche et de l'Environnement ("DRIRE"),
under the Ministry of Industry. There are two different types of mining titles
under French law: permits and concessions. Under the 1955 and 1956 Decrees, two
types of exploration permits could be obtained, the A and B types. An
exploration permit conveys for a specific area of land the exclusive right of
prospecting and exploration for the substances to which it relates. Permits of
Type "B" are valid for two years and renewable twice for periods of two years
each. The surface of type "B" permits covers a square area of 25 km/2/ each.
Type "A" permits are valid for five years and can be renewed at least once for
an additional five-year term. The French Mining Code (now partially applicable
to French Guiana) provides for only one type of exploration permit called Permis
exclusif de recherche ("PER"). PER can be granted for a period of up to five
years and can be renewed for two additional periods of up to five years each.
The holder of an exploration permit who can demonstrate the presence of an
exploitable mineral deposit within the area covered by the exploration permit
and has the financial and technical capacity to bring the project to
exploitation can obtain a mineral concession. A mineral concession confers upon
its holder an immovable right, which is distinct from the actual ownership of
the underlying land for a term of up to 50 years. The 1998 Law provides that
all concessions that were granted for an unlimited amount of time under the 1955
and 1956 Decrees will expire on December 31, 2018 subject to being renewed twice
for up to 25 additional years. Concessions may be mortgaged, leased, sold or
otherwise transferred or inherited, in whole or in part and may be merged or
subdivided, subject to authorization for the transaction being granted by a
decree issued by the French government after consultation with specific
agencies.
Guyanor Ressources S.A.
All of the Company's mineral interests in French Guiana are held through its 73%
owned publicly traded subsidiary Guyanor Ressources S.A. Guyanor is a
societe anonyme incorporated under the laws of France on April 20, 1993 with
its head and registered offices located at Lot. Calimbe 2, Route du Tigre,
B.P. 750, 97300 Cayenne, French Guiana.
Guyanor owns mineral rights (either directly or through its subsidiaries) for
the Yaou, Dorlin, Paul Isnard, Eau-Blanche and St-Elie gold projects and the
Dachine diamond project. All of the properties are in the exploration stage.
39
During 2000, Guyanor spent $1.6 million on exploration and in care and
maintenance expenditures, of which $0.8 million was reimbursed by joint venture
partners. In 1999, Guyanor had spent $3.0 million, $1.4 million of which was
reimbursed by joint venture partners. Total budgeted exploration expenditures
by Guyanor for 2001 are $0.9 million. During 2000 it was determined, given the
historically low gold prices, lack of funds to continue active exploration and
the change in the Company's focus, that all of the Guyanor properties, save Paul
Isnard were impaired. Accordingly all of the Guyanor deferred exploration
projects were written off, with the exception of portions of the Paul Isnard
property. Title to the mineral rights, however, will be retained for all French
Guiana properties.
YAOU AND DORLIN
- ---------------
Pursuant to an agreement, dated July 16, 1993, the Company acquired from BHP
Minerals International Exploration Inc. ("BHP") for $4.3 million a 63.3%
participating interest in a joint venture between BHP and the Bureau de
Recherches Geologiques et minieres ("BRGM") with respect to six type "B"
exploration permits covering an area known as Yaou and six type "B" exploration
permits covering an area known as Dorlin in French Guiana. In August 1993, the
Company transferred its 63.3% participating interest in the joint venture to
Guyanor at cost. Further to an agreement dated August 3, 1993, between the
Company and BRGM and a subsequent agreement, dated September 23, 1993, among the
Company, Guyanor and BRGM, Guyanor acquired for $2.5 million BRGM's 36.7%
interest in the joint venture assets owned for the benefit of the joint venture
by BRGM. In addition, Guyanor agreed to pay to BRGM a further FF14.0 million
(approximately $2.1 million) as follows: FF7.0 million at the time of
completion of a bankable feasibility study on either the Yaou or Dorlin
properties and FF7.0 million at the time of commencement of commercial
production on either of these properties. The transfer of the Yaou and Dorlin
permits from the BRGM to Guyanor was approved by the relevant French regulatory
authorities on May 25, 1994. Both BHP and BRGM are arms' length parties to
Guyanor and the Company.
Guyanor and the Company entered into an option agreement with Cambior, dated as
of May 11, 1994, pursuant to which Cambior was granted the option to acquire a
50% interest in the operating company to hold the Yaou and Dorlin permits in
French Guiana. Cambior exercised the option after having spent the $11.0
million expenditure commitment in September 1997. Since then, Cambior and
Guyanor have participated equally in the funding of the joint venture's
expenditures. The acquisition by Cambior of any interest in the Yaou and Dorlin
permits is subject to French governmental approval. Cambior is responsible for
the preparation of a feasibility study on the properties and will, if warranted,
manage the development and operation of future mining operations.
A "Memoires Technique" and "Notice d'impact were prepared and filed with the
French administration in March 1999, prior to the expiration of type "B"
exploration permit. Since the project was not economic under the then current
gold price, Guyanor revived two applications for type "A" exploration permits
previously filed in 1997. The two Type "A" permits were granted to Guyanor on
January 31, 2001 and will each be valid until March 1, 2006. These permits
replace the type "B" permits. On February 21, 2001, the two type "A" permits
were transferred to Societe Miniere Yaou-Dorlin ("SMYD"), a French
company, created by Cambior and Guyanor to hold the Yaou and Dorlin mineral
rights. Cambior and Guyanor each hold 50% of the shares of SMYD.
The Properties
The Yaou Type "A" permit covers an area of 52 km2 located some 210 km southwest
of Cayenne. Access to the property is by helicopter or four-wheel drive vehicle
on 17 km of dirt road from the town of Maripasoula, which is accessible by
chartered and daily scheduled fixed-wing aircraft from Cayenne.
The Dorlin Type "A" permit covers an area of 84 km2 located some 180 km
southwest of Cayenne and 60 km east of Maripasoula. The property is accessible
by helicopter and a 500 m airstrip located on the property is suitable for fixed
wing aircraft. Access is also available by boat during the rainy season.
Geology
The geology of the Yaou project area consists of a folded and sheared sequence
of Lower Proterozoic mafic and ultramafic volcanics and volcaniclastics, with
minor intercalations of fine-grained clastic sediments. Prior to folding, these
were intruded by dioritic bodies. Two generations of granitic plutons bound the
property to the east
40
and south. A north-north-west striking dolerite dyke of Permo-Triassic age cuts
through the property. Exploration has defined three principal zones of gold
mineralisation, mainly associated with narrow, deformed felsic intrusive bodies
and finely laminated felsic tuffs. These zones, Yaou Central, Chaina and IJK,
have been evaluated by intensive deep augering, trenching and core drilling.
The geology of the Dorlin project area consists of sheared and folded greenstone
units of Lower Paramaca sequence. Exploration has identified an 11km long zone
of soil geochemistry anomalies associated with a radiometric potassium anomaly.
Within this anomalous zone one major, N-S trending gold mineralized system,
Montagne Nivre, associated with tourmalinization, silicification and
pyritization, has been intensively explored by deep auger, trenching and core
drilling.
Work Program
In 2000, at the Yaou and Dorlin remained on care and maintenance. Among other
things, management believes that the price of gold must improve substantially in
order to have an economically feasible project.
In 2000, Guyanor's expenditures on Yaou and Dorlin totaled $0.3 million, $0.2
million of which was reimbursed by Cambior under the above-mentioned agreement.
During 1999, Guyanor spent a total of $1.2 million on the Yaou project, of which
Cambior reimbursed $0.8 million. Guyanor has budgeted $0.1 million in 2001 for
its shares of expenditures at Yaou and Dorlin. During 2000 the Yaou and Dorlin
projects were determined to be impaired and written off.
Mineralized Material
At year-end 2000, Cambior reported its 50% share of mineralized material
(indicated resources) for Yaou and Dorlin, using a long-term gold price
assumption of $300/oz (as compared with $325/oz in 1999), as 6.9 million tonnes
grading 2.1g/t. The Company's share of the mineralized material for Yaou and
Dorlin is 6.9 million tonnes grading 2.1 g/t compared to 8.2 million tonnes
grading at 1.9g/t in 1999. The qualified person responsible for the estimation
of mineralized material for the Yaou and Dorlin project is Mr. Francis Clouston,
Project Assessment Engineer for Cambior. The Company has not independently
verified the estimates reported by Cambior for Yaou and Dorlin.
The Company is reporting these results as mineralized material. Mineralized
material does not represent reserves and has not been included in the Company's
proven and probable reserve estimates because even though enough drilling and
trenching indicate a sufficient amount and grade to warrant further exploration
or development expenditures, these mineral deposits do not qualify under the
U.S. Securities and Exchange Commission standards as being commercially minable
until further drilling, metallurgical work and other economic and technical
feasibility factors based upon such work are resolved.
PAUL ISNARD
- ------------
On October 29, 1994, Guyanor acquired an interest in the Paul Isnard and Eau
Blanche projects by way of the acquisition of all of the outstanding shares of
Societe de Travaux Publics et de Mines Auriferes en Guyane ("SOTRAPMAG").
SOTRAPMAG held, directly or indirectly, eight mineral concessions (the "Paul
Isnard Concessions") and four type "B" exploration permits. Since then, all
type "B" permits have expired or were relinquished. The concessions will expire
on December 31, 2018 but can be renewed for an additional 25 years. A type "A"
permit covering an area of approximately 326 km/2/ was granted to Guyanor on
November 30, 1999 for an initial period of three years. The type "A" permit
includes most of the area covered by the four type "B" permits as well as a new
area adjacent to the Paul Isnard property. In this report, unless the context
indicates otherwise, the term the "Paul Isnard" refers to the Paul Isnard and
Eau Blanche properties.
Agreement with LaSource
In conjunction with Guyanor's acquisition of SOTRAPMAG, BRGM relinquished its
rights under an option from Alcatel Alsthom Compagnie Generale
d'Electricite to acquire any primary deposit located within the Paul Isnard
Concessions. In consideration therefore, Guyanor paid to BRGM the sum of FF2.5
million (approximately
41
$505,000) and LaSource Developpement S.A., a company affiliated to BRGM
("LaSource"), received an initial 25% participating interest in two joint
ventures for the exploration and exploitation of primary gold deposits on the
Paul Isnard project. LaSource did not contribute its share of the exploration
expenditures since 1997. By July 31, 1999, Guyanor's interest in the project had
increased to approximately 90.2% and 91.2%, respectively. As a result of
LaSource's participating interest having decreased below 10%, LaSource's
interest in the joint ventures was automatically converted to a 2.5% of net
profits.
Agreement with Rio Tinto
In January 2001, Guyanor and Rio Tinto Mining and Exploration Limited ("Rio
Tinto") entered into a Heads of Agreement with respect to the Paul Isnard
project. The area covered by the agreement includes the eight concessions held
by SOTRAPMAG and the western part of the type "A" permit held by Guyanor,
covering a total area of 216 km/2/. The remaining 214 km/2/ in the eastern part
of the exploration permit is not included in the joint venture, although Rio
Tinto has a preemptive right over the area. Guyanor may continue to explore and
develop this portion of the exploration permit in its own right.
Under the terms of the agreement, Rio Tinto can earn a 40% participating
interest in the joint venture by incurring expenditures of at least $2,250,000
on the project on or before the third anniversary of the agreement. In order to
maintain its option, Rio Tinto will have to incur, with respect to the Property,
annual expenditures for all years, other than the first year of the option, of
at least $500,000. Unless otherwise specified, upon Rio Tinto having acquired
its 40% participating interest in the joint venture, the parties will have to
contribute to work programs and budgets in accordance with their then
participating interests in the joint venture.
Rio Tinto may also acquire an additional 30% participating interest in the joint
venture by incurring expenditures, without contribution by Guyanor of at least
$6,750,000 on or before the fifth anniversary of the agreement. Upon receiving
notice that Rio Tinto has acquired a 70% participating interest in the joint
venture, Guyanor will have the right to elect to retain its then participating
interest in the joint venture and fund its pro rata share of all costs of the
joint venture or exchange a 10% participating interest in the joint venture in
consideration for the obligation of Rio Tinto to fund all costs of the joint
venture until commencement of commercial production, such amounts to be repaid
out of 80% of Guyanor's share of project cash flow at LIBOR +3%.
The Properties
The Paul Isnard project is located in the western part of French Guiana, some
200 km west of Cayenne. The property is accessible from St-Laurent-du-Maroni,
either by air, at a distance of 75 km to the south, or by means of a 115 km-long
laterite road. The first 62-km section of this road is maintained by the
government and the remaining 53-km section by SOTRAPMAG.
Geology
The Paul Isnard project covers a Lower Proterozoic greenstone belt comprised
dominantly of mafic metavolcanic rocks with lesser felsic meta volcanic rocks,
metavolcaniclastics and meta sediments. These have been intruded by
intermediate granitic rocks of similar age.
The Decou-Decou mountain located to the south of the property is formed of
volcanic rocks that, at the summit, are covered by degraded lateritic layers.
The Lucifer mountain to the north-east is formed of basic intrusive rocks. The
basin between the mountains is underlain by a Proterozoic sequence of mafic to
felsic volcanics and clastic sediments of the Paramaca and Orapu groups, cut by
ultramafic to felsic intrusives.
At Montagne D'Or the host stratigraphy for mineralization is a +400m thick
section of bi-modal felsic and mafic volcanics with lesser volcaniclastics,
particularly at the base. The eastern part of the section contains more mafic
volcanics than the western section. The section is intruded by a largely post
mineral and later deformation swarm of mafic dykes or sills. The section
contains at least three unique time stratigraphic horizons marked by chemical
sediments and thin lithologically distinctive flows designated as "favorable
sequences".
42
Mineralization consists of two principal types: disseminated zones or stringer
mineralization and semi-massive (SMS) mineralization. The SMS occurs mainly
within the favorable sequences that can be reasonably correlated between the
widely spaced (200m) drill sections. Both contain mainly pyrite with lesser
pyrrhotite, chalcopyrite, sphalerite and arsenopyrite. A third more localized
mineralization type, "highly chloritic one" has also been identified.
Work Program
During 2000, Guyanor concentrated its activities on the evaluation of the Elysee
target. Several trenches, pits and galleries were sampled and the results are
considered very encouraging. Guyanor also initiated the systematic geological
mapping of the eastern part of the area, locating and sampling rocks from
historical alluvial mining areas. A few new gold-mineralized occurrences found
by the current alluvial miners were also studied.
Efforts during the first half of 2001 will focus primarily on the identification
of additional gold-mineralized targets to supplement what had been previously
outlined at Montagne d'Or. Work will include the geochemical evaluation of the
area between Montagne d'Or and the Elysee target. Additional work will include
the systematic trenching and test drilling of the Elysee area, and the drilling
of geophysical targets on Montagne d'Or. A re-evaluation of the Montagne d'Or
mineralized material will also be carried out in preparation for additional
drilling.
Total expenditures in 2000 were $0.5 million for Paul Isnard. Total
expenditures in 1999 were $0.8 million. Exploration expenditures for Paul
Isnard in 2001 are budgeted to be $ 0.9million. Golden Star will lend $750,000
from the private placement proceeds received from Rio Tinto in January to fund
the first semester work program on Paul Isnard.
During 2000, $2.0 million of past capitalized exploration work on the Paul
Isnard alluvial areas was impaired and written off.
Mineralized Material
The mineralized material reported by the Company was estimated in February 1999.
The Company estimated its 73% share of Paul Isnard, using a $325 gold price, as
4.4 million tonnes grading 2.8 g/t. This report only reflects mineralized
material estimated to be present within the open pits modeled by the Company.
The qualified person responsible for the estimation of mineralized material for
the Paul Isnard project was Declan Costelloe, former Manager Mining Geology, for
the Company.
Mineralized material does not represent reserves and has not been included in
the Company's proven and probable reserve estimates because even though enough
drilling and trenching indicate a sufficient amount and grade to warrant further
exploration or development expenditures, these mineral deposits do not qualify
under the United States Securities and Exchange Commission standards as being
commercially minable until further drilling, metallurgical work and other
economic and technical feasibility factors based upon such work are resolved.
Exploitation Authorization given for alluvial mining titles by third parties
Guyanor has granted the right to twenty-two small scale mining companies or
individuals to apply for Exploitation Authorization on specific areas located
within the Paul Isnard concessions and the Type A permit. The French government
created this new type of mining title in connection with the recent revisions to
the Mining Code. This new title, referred to as "AEX", grants to small-scale
alluvial miners the right to mine within a specific area of 1 km/2/. The
titleholder of an AEX is responsible for all potential environmental damages.
The applications for AEX have been submitted to the DRIRE and if the applicants
meet the DRIRE requirements, the AEX will be granted for a term of one or two
years. Under separate agreements with each applicant, Guyanor is entitled to
receive as compensation a certain percentage of the value of the gold extracted.
DACHINE
- ---------
The Dachine property is accessible only by helicopter or, during the rainy
season, by canoe from Maripasoula. Microdiamonds were found for the first time,
in 1983, in alluvium/colluvium by BRGM during strategic prospecting
43
work for the Mineral Inventory of French Guiana. No further exploration was
conducted at Dachine until Guyanor, after examining the existing literature and
conducting preliminary reconnaissance in the field, was granted a type "B"
exploration permit by the French government covering a 25 km/2/ area in
southwest French Guiana known as Dachine (formerly known as IT-33). An
application was filed in December of 1995 for a type "A" permit covering an area
of 337 km/2/ that would include the current type "B" permit. Given the results
obtained under the joint venture with Rio Tinto, Guyanor planned to
substantially reduce the area covered by type "A" permit application.
Joint Venture with Rio Tinto
In 1999, Guyanor entered into a Heads of Agreement with Rio Tinto Mining and
Exploration Limited ("Rio Tinto") with respect to the exploration, the
development, and mining of diamonds within the whole territory of French Guiana
excluding the St-Elie, Paul Isnard and Yaou-Dorlin properties. The Heads of
Agreement gave Rio Tinto the right to earn a 70% participating interest in a
Joint Venture between Guyanor and Rio Tinto. A program was designed to sample
a large volume of material from various zones of the Dachine ultramafic body to
yield a parcel of diamonds in order to confirm the presence of gem quality
stones. Diamonds were found in 18 out of 23 samples processed. Using a cut-off
size of 1 mm, grades varied from 0.06 to 10.48 carats per hundred tonnes. The
largest stones were found in the 1.7 to 2.36 mm size range, with an average
weight of 0.066 carats. However, the majority of the stones occurs in the ranges
of 1 to 1.18 mm and 1.18 to 1.70 mm. Stone colors varied from white to light
brown and rarely greenish/yellow. Stones are translucid to transparent, but
often masked by large quantities of inclusions. The dominant shapes are
irregular, with small quantities of cubic and octahedral stones. Stones are
often intensely reabsorbed.
These results were considered disappointing. In October 2000, Rio Tinto decided
to withdraw from the project and terminate the joint venture. Management
determined that the Dachine project was impaired and capitalized exploration
costs were written off during 2000.
Geology
The diamond occurrence at Dachine is hosted in a volcaniclastic komatiite - an
unusual type of volcanic rock which differs from more well-known diamond host
rocks such as kimberlite and lamproite. These komatiites once formed part of an
island-arc sequence, a tectonic setting distinct from all other currently
exploited diamond deposits.
Work Program
No work program is planned for 2001. The project will remain on care and
maintenance. In 2000, $0.7 million was spent on exploration program for
Dachine, of which $0.7million was reimbursed by Rio Tinto. During 1999, $0.8
million was spent on exploration and care and maintenance work for Dachine, of
which $0.5 million was reimbursed by Rio Tinto.
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
Properties - General".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 2000.
44
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
- ------- -----------------------------------------------------
STOCKHOLDER MATTERS
-------------------
During 2000 the Company's common shares were listed on the Toronto Stock
Exchange ("TSE") under the trading symbol "GSC" and on the American Stock
Exchange ("Amex")under the trading symbol "GSR". The Company's shares were de-
listed from the Amex on January 26, 2001, and immediately began trading on the
OTC Bulletin Board. As of April 2, 2001, 38,088,988 common shares were
outstanding and the Company had 837 shareholders of record. On April 2, 2001,
the closing price per share for the Company's common shares, as reported by the
TSE was Cdn$0.49 and as reported by the OTC Bulletin Board was $0.30.
The following table sets forth, for the periods indicated, the high and low
market closing prices per share of the Company's common shares as reported by
the TSE and the AMEX.
Toronto Stock Exchange American Stock Exchange
------------------------- --------------------------
Cdn$ Cdn$ $ $
High Low High Low
---- ---- ---- ----
2000:
First Quarter 2.35 1.17 1.63 0.81
Second Quarter 1.80 1.22 1.19 0.81
Third Quarter 1.35 0.85 0.94 0.56
Fourth Quarter 1.15 0.62 0.75 0.38
1999:
First Quarter 1.85 1.00 1.31 0.69
Second Quarter 1.50 0.86 1.00 0.63
Third Quarter 1.10 0.57 0.69 0.38
Fourth Quarter 2.70 1.03 1.87 0.69
The Company has not declared or paid cash dividends on its common shares since
its inception. The Company's dividend policy is reviewed from time to time by
its Board of Directors. Future dividend decisions will consider then current
business results, cash requirements and the financial condition of the Company.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
- ----------------------------------------------------
The following summarizes the principal Canadian federal income tax
considerations applicable to the holding and disposition of a common share of
the Company (a "Common Share") by a holder (the "Holder") of one or more Common
Shares who is resident in the United States of America and holds the Common
Shares as capital property. This summary is based on the current provisions of
the Canada-United States Income Tax Convention (1980) (the "Treaty"), Income Tax
Act (Canada) (the "Tax Act"), the regulations thereunder and all amendments to
the Tax Act publicly proposed by the government of Canada to the date hereof. It
is assumed that each such amendment will be enacted as proposed and there is no
other relevant change in any governing law, although no assurance can be given
in these respects.
Every Holder is liable to pay a withholding tax on every dividend that is or is
deemed to be paid or credited to him on his Common Shares. Under the Treaty, the
rate of withholding tax is 5% of the gross amount of the dividend where the
Holder is a company that owns at least 10% of the voting stock of the Company
and beneficially owns the dividend, and 15% in any other case.
Under the Tax Act, a Holder will not be subject to Canadian tax on any capital
gain realized on an actual or deemed disposition of a Common Share, including a
deemed disposition at death, provided that he did not hold the Common Share as
capital property used in carrying on a business in Canada, and that neither he
nor persons with whom he did
45
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"). 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"). ALL United States SHAREHOLDERS ARE
THEREFORE URGED TO CONSULT THEIR OWN TAX ADVISORS ABOUT THE ADVISABILITY OF
MAKING A QEF ELECTION WITH RESPECT TO THE COMPANY. ALL UNITED STATES
SHAREHOLDERS ARE ALSO URGED TO CONSULT THEIR OWN TAX ADVISERS ABOUT THE
POSSIBILITY OF CREDITING CANADIAN TAXES PAID AGAINST UNITED STATES TAX PAYABLE.
Definition of a PFIC
A PFIC is a corporation not formed in the United States (a "Non-United States
Corporation") and either (i) 75% or more of its gross income is passive income
or (ii) 50% or more of the average value of its assets produce, or are held for
the production of, passive income. Passive income for these purposes includes
interest, dividends, and certain rents and royalties. For purposes of the
foregoing tests, if a Non-United States Corporation owns at least 25% by value
of the stock of another corporation, it is treated as if it instead owned its
proportionate share of the other corporation's assets and received directly its
proportionate share of the other corporation's income.
The Company has been advised by PricewaterhouseCoopers LLP that it should not be
treated as a PFIC with respect to shares purchased by United States shareholders
during the years 1993 through 1999, 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 PricewaterhouseCoopers LLP in the future to
analyze whether it is a PFIC in 2000 and subsequent years and will continue to
notify shareholders of the results of such future analyses. The PFIC analysis
involves a complex analysis of many factors, including, among other things, the
price of gold, production and cash flow from BGL and the cash flow of OGML.
46
Consequence of PFIC Classification if No QEF Election Made
If the Company is classified as a PFIC, United States shareholders who do not
make timely QEF Elections (as discussed below) will be subject to a number of
special adverse tax rules. For example, gain recognized on disposition of PFIC
stock or the receipt of an "excess distribution" from a PFIC is (i) treated as
if it were ordinary income earned ratably on each day in the taxpayer's holding
period for the stock at the highest marginal rate in effect during the period in
which it was deemed earned and (ii) subject to an interest charge as if the
resulting tax had actually been due in such earlier year or years. (An excess
distribution is the amount of any distribution received by the United States
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 United States shareholder who held the stock of the Company while the
Company met the definition of a PFIC even if the Company ceases to meet the
definition of a PFIC.
The proposed PFIC regulations herein were proposed to be effective in April 1992
and may apply to all post-1986 years. However, there can be no assurance that
such regulations will be adopted in their present form.
Consequences of PFIC Classification if QEF Election Made
Most of the foregoing adverse tax consequences can be avoided if (i) the United
States shareholder makes a timely election to treat the Company as a QEF (a "QEF
Election") for the first year of the shareholder's holding period in which the
Company is a PFIC (or in a year for which the Shareholder also makes the "Deemed
Sale Election" described below) and (ii) the Company provides the United States
shareholder with a "PFIC Annual Information Statement" pursuant to Temporary
Regulations issued by the Internal Revenue Service. United States shareholders
of a PFIC who make a QEF Election, however, will be taxable currently on their
pro rata share of the PFIC's ordinary earnings and net capital gain, unless they
make a further election to defer payments of tax on amounts included in income
for which no distribution has been received (subject to an interest charge).
Special adjustments are provided to prevent inappropriate double taxation of
amounts so included in a United States shareholder's income upon a subsequent
distribution or disposition of the stock.
A United States shareholder makes a QEF Election by filing a Form 8621 with its
tax return. In the case of stock owned through a United States entity, the
election generally must be made at the entity level. A QEF Election must be
filed by the due date (taking into account extensions) for filing the United
States shareholder's income tax return for the taxable year for which the
election is made. 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. A QEF election is
required to be made for each corporation. Thus, to totally purge any PFIC taint,
a separate election would be required for the non-United States subsidiaries of
the Company. If a United States shareholder wishes to make a QEF Election
subsequent to the first year of his holding period for stock of a Non-United
States Corporation that is a PFIC, the United States shareholder may further
elect to recognize gain (the "Deemed Sale Election") as if it had sold the QEF
stock on the first day of the taxable year in which the QEF election is made if
(i) the United States shareholder holds stock in the PFIC on that day and (ii)
the shareholder can establish the fair market value of such stock on that day.
In the event that the Company is classified as a PFIC, the Company intends to
comply with the reporting requirements prescribed by Temporary Treasury
regulations. In particular, the Company will maintain information so that the
ordinary earnings and net capital gains of the Company may be determined.
However, future regulations may contain reporting and record-keeping
requirements that are so onerous that it would not be practicable for the
Company to comply. If, after review of the requirements, the Company determines
that it would not be practicable to comply, it will so notify its shareholders.
47
Mark to Market Election
Under the Taxpayer Relief Act of 1997, a United States holder of "marketable
stock" under the PFIC rules may be able to avoid the imposition of the special
tax and interest charge by making a "mark-to-market election". Generally,
pursuant to this election, such United States holder would include in ordinary
income, for each taxable year during which such stock is held, an amount equal
to the increase in value of the stock, which increase will be determined by
reference to the value of such stock at the end of the current taxable year as
compared with its value as of the end of the prior taxable year. Special rules
should be considered in determining the ordinary income created by the election.
United States holders desiring to make the mark-to-market election should
consult their tax advisors with respect to the application and effect of making
such election.
Taxation of Dividends on the Company's Stock
Subject to the PFIC rules described above for United States 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 United States
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
United States corporation, dividends that it pays will not be eligible for the
dividends-received deduction provided for in Section 243 of the Code. If a
United States shareholder receives a dividend payment in any currency other than
United States dollars, the amount of the dividend payment for United States
Federal income tax purposes will be the United States 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 United States
dollars. In such case, United States 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
United States dollars.
Subject to the limitations provided in the Code, the Canadian tax withheld with
respect to such dividends should be eligible for the benefits of the foreign tax
credit rules of the Code. A shareholder who does not elect the benefits of the
foreign tax credit provisions of the Code will be entitled to a deduction for
the amount of the Canadian tax withheld.
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
The selected financial data set forth below are derived from the audited
consolidated financial statements of the Company for the years ended December
31, 2000, 1999, 1998, 1997 and 1996, included elsewhere herein, and should be
read in conjunction with those financial statements and the footnotes thereto.
The consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles ("Cdn GAAP"). Selected
financial data derived in accordance with United States GAAP ("US GAAP") has
also been provided and should be read in conjunction with Footnote 15 to the
financial statements. For US GAAP reconciliation items, see the attached
consolidated financial statements and notes. Reference should also be made to
"Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations".
48
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
CDN GAAP December 31, December 31, December 31, December 31, December 31,
2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
Working capital $ 4,452 $ 6,020 $ 6,516 $ 16,427 $ 15,287
- ------------------------------------------------------------------------------------------------------------------------
Current assets 12,960 13,957 8,216 20,152 22,182
- ------------------------------------------------------------------------------------------------------------------------
Total assets 49,469 74,352 68,597 89,122 96,283
- ------------------------------------------------------------------------------------------------------------------------
Current liabilities 8,508 7,937 1,700 3,725 6,895
- ------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 26,040 40,501 58,471 79,557 78,094
- ------------------------------------------------------------------------------------------------------------------------
For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
CDN GAAP December 31, December 31, December 31, December 31, December 31,
2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
Revenue $ 31,171 $ 11,254 $ 635 $ 1,698 $ 2,801
- ------------------------------------------------------------------------------------------------------------------------
Net loss (14,881) (24,366) (22,248) (26,584) (7,780)
- ------------------------------------------------------------------------------------------------------------------------
Net loss per share (0.40) (0.76) (0.74) (0.92) (0.31)
- ------------------------------------------------------------------------------------------------------------------------
As of As of As of As of As of
US GAAP December 31, December 31, December 31, December 31, December 31,
2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
Working capital $ 4,452 $ 6,020 $ 3,901 $ 13,485 $ 11,788
- ------------------------------------------------------------------------------------------------------------------------
Current assets 12,960 13,957 5,601 17,210 18,683
- ------------------------------------------------------------------------------------------------------------------------
Total assets 24,020 45,635 27,240 42,076 46,895
- ------------------------------------------------------------------------------------------------------------------------
Current liabilities 8,508 7,937 1,700 3,725 6,895
- ------------------------------------------------------------------------------------------------------------------------
Shareholders' equity (478) 11,145 16,899 31,160 29,959
- ------------------------------------------------------------------------------------------------------------------------
For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
US GAAP December 31, December 31, December 31, December 31, December 31,
2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
Revenue $ 31,171 $ 11,254 $ 635 $ 1,698 $ 2,801
- ------------------------------------------------------------------------------------------------------------------------
Net loss (12,465) (11,335) (15,395) (26,838) (25,279)
- ------------------------------------------------------------------------------------------------------------------------
Net loss per share (0.33) (0.35) (0.51) (0.94) (1.00)
- ------------------------------------------------------------------------------------------------------------------------
Note: Golden Star did not pay any cash dividends during the fiscal years
indicated above.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following discussion and analysis should be read in conjunction with the
accompanying consolidated financial statements and related notes. The financial
statements have been prepared in accordance with Canadian GAAP. For the US GAAP
reconciliation, see foot note 15 to the attached consolidated financial
statements, as well as "Results of Operations" below.
The following contains certain forward-looking statements within the meaning of
the United States securities laws. Actual results, performance or achievements
of the Company could differ materially from those projected in the forward-
looking statements due to a number of factors, including those set forth under
"Risk Factors" and elsewhere in this Annual Report on Form 10-K. Readers are
cautioned not to place undue reliance on forward-looking statements. The Company
disclaims any intent or obligation to update publicly these forward-looking
statements, whether as a result of new information, future events or otherwise.
49
RESULTS OF OPERATIONS
- ---------------------
Overview
Beginning in 1999 the Company embarked upon a significant shift in business
strategy which would turn the organization's focus away from being a pure
exploration company, to becoming a production, development and advanced stage
exploration company (See Item 1, "Business Strategy"). In accordance with this
new direction we were able to acquire a 70% interest in the Bogoso gold mine and
mill in Ghana West Africa in late 1999, becoming the majority owner and operator
of the property. (See Item 2, "The Bogoso Gold Mine").
The year 2000 saw continuation of the efforts to reorient the Company along
these lines. Operation of the Bogoso mine yielded a positive operating cash flow
and additional reserves were identified at Bogoso which, along with low-grade
stock pile material, are expected to extend the life of the Bogoso mine into
early 2002. Also during 2000 and in early 2001, in an effort to reduce costs and
to move away from grass roots exploration, the Company closed exploration
offices in Guyana, Ivory Coast, and Kenya and has cut back exploration efforts
in Suriname, French Guiana and elsewhere in Africa and South America.
The cutbacks in exploration activity resulted in the write-off of the carrying
value of several of our exploration properties, including all projects in
Guyana, the Tanda project in Ivory Coast, the Yaou and Dorlin gold projects in
French Guiana, and the Dachine diamond project, also in French Guiana. In
total, $16.7 million of project abandonment expenses were recognized in 2000.
Also, in accord with the strategy shift, we have sought out and investigated
several gold properties as potential acquisition targets. The majority of the
properties so investigated are located in West Africa, where we have already
established an operating presence via the Bogoso Mine. While acquisition
efforts during 2000 did not come to fruition, such efforts are continuing in
2001.
Liquidity was a concern during 2000 and continues to be so. While positive
operating cash flow was generated by the Bogoso Mine during 2000, cash needs for
corporate operations and to maintain various exploration projects combined to
yield a $1.9 million net reduction in cash on hand during 2000. See Item 1. -
Risk Factors - "We currently have limited liquidity and capital resources", and
the "Liquidity and Capital Resources" and "Outlook" sections below for
additional discussion of our liquidity situation. The Company's ability to
continue as a going concern after 2001 is dependent on its ability to obtain
funding for acquisitions and development projects during 2001. Mining will cease
at the Company's only producing mine (the Bogoso Mine) by mid-2001. While low-
grade stock pile material will allow the Bogoso mill to continue operating into
early 2002, additional ore reserves will be required by the beginning of 2002 to
avoid mill closure. The Company is currently involved in advanced negotiations
to acquire a property contiguous with the Bogoso Mine in Ghana that contains
reserves that, if acquired, would be expected to provide mill feed for several
years into the future. Additional funding would be required for this acquisition
and, while the Company is currently engaged in financing negotiations, there is
no assurance such funding can be obtained. The current market for gold shares is
weak and equity capital is difficult to obtain. Although there is no assurance
that the Company will be successful in these actions, management believes that
they will be able to conclude property acquisitions and to secure the necessary
financing to enable the Company to continue as a going concern.
Our consolidated financial statements are presented in compliance with
accounting principles generally accepted in Canada (Cdn GAAP), with a
reconciliation included in the footnotes to the consolidated financial
statements (presented in footnote 15) reconciling these with accounting
principles generally accepted in the United States (US GAAP). There are several
differences between US GAAP and Cdn GAAP, some of which can yield material
differences in the reported data.
50
The cumulative effect of the differences in accounting under Cdn GAAP and US
GAAP on the statement of net loss is as follows:
For the Years Ended December 31,
2000 1999 1998
-------- -------- --------
Net loss under Canadian GAAP $(14,881) $(24,366) $(22,248)
Net effect of the deferred exploration expenditures on
loss for the period 12,166 13,403 4,901
Effect of capitalized acquisition costs net of related
depletion (11,302) (1,233) -
Other 992 315 814
-------- -------- --------
Loss under US GAAP before minority interest (13,025) (11,881) (16,533)
Minority interest, as adjusted 560 546 1,138
-------- -------- --------
Net loss under US GAAP (12,465) (11,335) (15,395)
Other comprehensive income foreign exchange (loss)/gain 254 10 (26)
-------- -------- --------
Comprehensive income $(12.211) $(11,325) $(15,421)
======== ======== ========
Basic and diluted Net loss per share under US GAAP $ (0.33) $(0.35) $(0.51)
======== ======== ========
The MD&A discussion below is in reference to Canadian GAAP financial results.
2000 Compared to 1999
The Company reported a net loss of $14.9 million for 2000 compared to a net loss
of $24.4 million in 1999. The major factor contributing to the 2000 loss was
the impairment costs of numerous deferred exploration properties following
cutbacks in exploration and the placing of most projects on a care and
maintenance basis during the year in response to continued low gold prices and
in response to the Company's new direction. As a result, a total of $16.7
million of deferred exploration costs were written off during 2000, including
those for the Tanda project in the Ivory Coast; the Yaou, Dorlin, Paul Isnard
Alluvials and Dachine projects in French Guiana, and the Eagle Mountain project
in Guyana. While many of the exploration properties written-off may still have
development potential, and while the mineral rights to most of these properties
will be retained by the Company, continued exploration and development has been
indefinitely delayed.
The Bogoso Mine in Ghana, West Africa, acquired in September 1999, operated
throughout 2000 contributing $30.4 million of revenues versus $10.6 million
during 1999. The 1999 revenues were generated during the last quarter of 1999
following the September 30, 1999 acquisition of the Bogoso Mine. During 2000,
the Bogoso Mine produced and sold 108,643 ounces of gold, which was sold at an
average market price of $279.59 per ounce. We do not hedge our gold sales.
Cash cost of operations was $21.7 million during the year, compared to $6.0
million in 1999, the 1999 figure again reflecting the Company's ownership only
during the last three months of 1999. Total cash cost per ounce averaged $201
per ounce during 2000 versus $165 per ounce in the fourth quarter of 1999. The
higher cost per ounce in 2000 versus 1999 was due to the fact that during
various periods in 2000 the mill processed mixed sulfide/oxide (transition) ore,
which is more expensive to process and yields lower recoveries than did the
oxide ores which were milled exclusively during the fourth quarter of 1999.
Depreciation and depletion expenses increased to $7.3 million from $3.0 million
during the last quarter of 1999, again the increase being due to 12 months of
operation in 2000 versus three months in 1999. Purchase cost amortization
averaged $58 per ounce in 2000. Exploration expenses of $0.9 million during 2000
were up from $0.5 million in 1999. While overall exploration activity decreased
from 1999, the amount of the expenses capitalized to specific projects was
limited in 2000 following the large number of project closures at the end of
1999.
General and administrative costs were further reduced during 2000 from $3.7
million in 1999 to $2.9 million in 2000. Continued reductions in corporate
staff and corporate activities were responsible for the lower costs. Interest
expense rose in response to a full year's interest on the convertible debentures
compared to only four and one-half months interest in 1999, the debentures
having been issued in August 1999.
51
1999 Compared to 1998
The Company reported a net loss of $24.4 million in 1999 as compared to a net
loss of $22.2 million in 1998. The most significant aspects of the 1999 results
were the revenue and operating costs from gold production at the Bogoso Mine,
which was acquired on September 30, 1999, and the impact of property abandonment
charges and write-downs of $23.9 million in 1999 compared with $16.6 million in
1998. The write-downs on exploration properties totaled $10.0 million for
properties in Suriname, $2.5 million for properties in Guyana, $2.6 million for
properties in French Guiana, $3.3 million for properties in Brazil, and $5.5
million for properties in Africa. The write-downs in 1999 were due to the
fundamental shift in the direction and focus of the Company from a pure
exploration company, to a production, development and advanced stage exploration
company. With the consummation of the acquisition of BGL, the Company completed
the first major objective of management's shift of the Company's focus. Also,
as a result of the shift of focus and with the prioritization of available
funding, the Company must continually consolidate and rationalize exploration
and development activities, which could impact its corporate and project
budgets. Available funds will be more focused on the development and
acquisition of advanced stage exploration projects, rather than on grass roots
projects. During 1999, the Company undertook a review of the carrying value of
all of its exploration properties and, as a result, the Company expensed $23.9
million for the write-down or abandonment of several projects and prospecting
licenses. A number of these properties will be retained and could be actively
explored in the future, but the write-down reflects their present potential, in
view of the continuing low gold price and depressed markets for gold equities.
Total revenues in 1999 were $11.2 million, of which $10.6 million came from
revenue from gold sales. The Bogoso Mine produced and sold 36,074 ounces of
gold during the three months ended December 31, 1999, with an average $293 per
ounce gold price realized and total cash costs of $165 per ounce. Depreciation
and depletion expense increased to $3.0 million from $0.2 million, primarily as
a result of the acquisition of the Bogoso Mine in September 1999.
Interest and other revenues of $0.7 million were comparable to the 1998 amount
of $0.6 million.
General and administrative expenditures totaled $3.7 million in 1999, as
compared to $7.7 million for 1998. The decrease in general and administrative
expenditures resulted from the Company's ongoing cost reduction efforts.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash provided by operations increased to $2.5 million from a negative $0.1
million in 1999, the improvement mostly based upon a full year's operation at
the Bogoso Mine in 2000, compared with the three months of operations in the
fourth quarter of 1999. While operating cash flow was higher than in 1999,
capital equipment needs and property development costs at the Bogoso Mine along
with corporate needs and requirements to maintain various exploration projects
and offices combined to draw cash reserves down from $2.9 million at December
31, 1999 to $1.0 million at December 31, 2000.
Cash used in investing activities was down sharply from 1999, totaling only $3.3
million for the year, compared to $11.3 million in 1999 when costs of acquiring
the Bogoso Mine were incurred. Cash used in financing transactions totaled $1.2
million, with most of the outflow used to repay loans. During 1999, financing
transactions provided $7.0 million of cash, mostly from issuance of share
capital and convertible debentures used to acquire the Bogoso Mine.
Working capital as of December 31, 2000 had decreased to $4.5 million from $6.0
million at December 31, 1999, mainly due to the drop in cash on hand and to
lower receivables due to lower gold sales in the last month of 2000 (3,670
ounces) versus the last month of 1999 (14,069 ounces). Lower December gold
sales are the result of a temporary reduction in mill output to allow for
capital improvements in the mill in December of 2000, designed to allow more
economic processing of transition ores in 2001.
The Company had $4.1 million of cash at December 31, 2000, which is restricted,
in accordance with the BGL acquisition agreement, to be used for environmental
rehabilitation at the Bogoso Mine. The Company drew down $1.9 million from the
restricted cash account during 2000 to cover rehabilitation expenditures
incurred since the acquisition of BGL.
52
The Company's ability to continue as a going concern after 2001 is dependent on
its ability to obtain funding for acquisitions and development projects during
2001. Mining at the Company's only producing mine (the Bogoso Mine) is expected
to be completed by mid-2001. While low-grade stock pile material will allow the
Bogoso mill to continue operating through early 2002, additional ore reserves
will be required by the beginning of 2002 to avoid mill closure. The Company is
currently involved in advanced negotiations to acquire a property contiguous
with the Bogoso Mine in Ghana that contains reserves that, if acquired, would be
expected to provide mill feed for several years into the future. Additional
funding would be required for this acquisition and, while the Company is
currently engaged in financing negotiations, there is no assurance such funding
can be obtained. The current market for gold shares is weak and equity capital
is difficult to obtain.
Under the terms of the 1999 Bogoso purchase agreement between the Company, Anvil
and the Sellers, the Company and Anvil together were required to make payment to
the Sellers on September 30, 2000 in the amount of $2.8 million. The amount of
the payment was determined using a formula in the purchase agreement, which
incorporates the average price of gold during the twelve months ended September
30, 2000. On November 9, 2000 the Company paid to the Sellers $1.4 million of
the $2.8 million due, and reached agreement with the Sellers that the balance,
plus interest at 10% per annum, was to be paid by December 22, 2000. As of the
date of this report, the Company is in discussions with the representatives of
the Sellers, but the remaining balance and accrued interest has still not been
paid.
Bogoso Gold Limited
The Bogoso Mine in Ghana, West Africa, acquired in September 1999, operated
throughout 2000, contributing $30.4 of revenues versus $10.6 million during
1999. The 1999 revenues were generated during the last quarter following the
September 30, 1999 acquisition of the Bogoso Mine. In 2000, the Bogoso Mine
produced and sold 108,643 ounces of gold at an average price of $279.59 per
ounce. Cash operating costs were $21.7 million during the year, compared to
$6.0 million in 1999, the 1999 figure again reflecting the company's ownership
only during the last three months of 1999. Total cash cost per ounce averaged
$201 during 2000 versus $165 in the fourth quarter of 1999. The higher cost per
ounce in 2000 versus 1999 was due to the fact that during various periods in
2000 the mill processed transition ore which is more expensive to process and
yields lower recoveries than does the oxide ores which were milled in the fourth
1999.
Cash flow from operations at the Bogoso mine totaled $6.6 million in 2000, of
which $5.7 million was used at Bogoso, mostly for development of new gold
resources and for acquisition of property, plant and equipment. A total of $7.1
million of cash was forwarded to the parent entity, from which $1.4 million was
paid to the Sellers, $1.6 million was applied against a note receivable from the
Anvil, the Bogoso minority interest holder, and the balance was used for
corporate operations and to fund various exploration projects and exploration
offices.
Guyanor Ressources S.A.
Total exploration expenditures for the year ended December 31, 2000, amounted to
$1.6 million, offset by joint venture recoveries of $0.8 million, compared to
1999 expenditures of $3.0 million, offset by 1999 joint venture recoveries of
$1.4 million. Guyanor recorded property write-downs of $13.5 million at the
Dorlin, Yaou, Dachine and Paul Isnard Alluvial projects. This compares to $2.6
million in property write-downs in 1999 at the St-Elie property.
A budget prepared by Guyanor estimates total exploration project spending for
2001 of approximately $0.9 million with recoveries from joint venture partners
of approximately $0.2 million for net expenditures of $0.7 million. Net
expenditures for 2001 are expected to be funded by minor working capital loans
from Golden Star and by funds supplied by Rio Tinto, which purchased $1.0
million of Golden Star common stock in January 2001 with the agreement that the
$0.25 million would be used by Golden Star to fund portions of Guyanor's working
capital needs in early 2001 with the balance of $0.75 million to be spent on
exploration on the Paul Isnard project during 2001.
53
Guyana
There were no capitalized exploration costs in Guyana in 2000 but $0.3 million
of care and maintenance costs were incurred. In comparison there were $0.4
million of capitalized exploration costs incurred in 1999. The company wrote-
off deferred project expenditures in Guyana of $1.5 million in 2000. This
compares with $2.5 million of property abandonment charges in 1999. Lower
spending in Guyana in 2000 reflects closing of the Guyana exploration office in
March 2000.
Suriname
Activities in Suriname during 2000 focused on the Gross Rosebel gold project,
held in a 50/50 joint venture with Cambior. Total Gross Rosebel spending in
2000 amounted to $0.5 million only a portion of which was capitalized, offset by
joint venture recoveries of $0.3 million, as compared to 1999 spending of $0.7
million, which was offset by joint venture recoveries of $0.4 million. The
spending reduction is the result of putting all properties in Suriname,
including the Gross Rosebel project, on care and maintenance pending improved
gold prices, the resolution of various technical matters and Cambior's future
development plans.
In August 1999, the Company announced the results of its scoping study for a
smaller, less capital intensive development plan at Gross Rosebel. These
results supported the Company's belief that the project could be profitably
developed in a low gold price environment by applying a low cost heap leach
processing approach. Budgeted 2001 care and maintenance, and exploration and
development expenditures for Gross Rosebel are $1.0 million, with budgeted joint
venture recoveries of $0.5 million. Expenditures at the Gross Rosebel project
are shared equally between the Company and Cambior. A portion of the 2001
expenditures are expected to be related to a revised feasibility study for a
lower cost, smaller scale operation at the Gross Rosebel property.
At such time as the decision may be made to proceed with the development of
Gross Rosebel, the Company will evaluate various funding alternatives including
the issuance of debt or equity securities or the sale of other assets to fund
its share of the development costs.
Brazil
There were no capitalized exploration costs in Brazil in 2000 but $0.1 million
of care and maintenance costs were incurred. In comparison there were $0.5
million of capitalized exploration costs incurred in 1999. The Company recorded
write-downs totaling $3.3 million in 1999 for all its remaining Brazilian
properties. The write-downs were a result of poor exploration results and
management's decision to reduce exploration expenditures. Expenditures in 2000
reflected administrative costs of the Brazilian office which is scheduled to be
closed in early 2001.
Pan African Resources Corporation
Prior to the acquisition of BGL, all the Company's exploration activities in
Africa were conducted through Pan African Resources Corporation ("PARC") which
became a wholly-owned subsidiary of the Company in April 1998. The Company
spent $0.2 million maintaining the PARC administrative offices in 2000, compared
with $0.3 million in 1999. The PARC administrative offices were closed in
December 2000. During 2000, the Company recorded deferred exploration write-
downs of $1.7 million as compared to $5.5 million in 1999. Maintenance of
exploration rights to Tanda and other administrative duties of PARC will be
handled by the Bogoso Mine staff in Ghana from 2001.
OTHER MATTERS
- -------------
Prior to 2000, the majority of the Company's funding came from equity financing
transactions completed in Canada and in Canadian currency. The Company
currently maintains all or the majority of its working capital in United States
dollars or United States dollar denominated securities and its practice has been
to convert funds to foreign currencies as payment obligations come due.
Accordingly, the Company is subject to fluctuations in the rates of currency
exchange between the Unites States dollar and other currencies, and such
fluctuations may materially affect the Company's financial position and results
of operations. The Company currently has future obligations payable and
receivables collectible in Cedis and French francs. The Company's share of BGL
gold sales (net of
54
operating expenses and capital expenditures) will, however, be in United States
dollars. The Company currently does not actively hedge against such currency
risks.
The Company believes that its current activities are in material compliance with
applicable laws and regulations designed to protect the environment. The
Company periodically engages specialists to evaluate potential environmental
issues for specific projects. The results of these evaluations are utilized in
the property evaluation process, where applicable. The Company also evaluates
reclamation needs in light of current laws and regulations and will make
provisions for the required funding as necessary, based on the Company's
activities in South America and Africa. In accordance with the acquisition
agreement for BGL, the Company has $4.1 million of cash restricted for the final
environmental rehabilitation of the Bogoso Mine site. These funds are
classified as restricted cash on the December 31, 2000 balance sheet.
Management
The Company experienced significant management changes between October 1998 and
March 2000. In October 1998 David Fennell resigned as President and Chief
Executive Officer. James E. Askew was appointed President and Chief Executive
Officer in March 1999 and, after his work to re-focus the Company and to acquire
the operating Bogoso Mine, he resigned in October 1999 to take a position in his
native Australia. Mr. Askew continues as a member of the board of directors.
On November 1, 1999, Peter J. Bradford was appointed President and Chief
Executive Officer. Mr. Bradford was instrumental in bringing the BGL
opportunity to the Company's attention and, after many years of development and
operating gold mining experience (including seven years in Ghana), he brings
appropriate skills to this phase of the Company's development. In addition to
Mr. Askew, the Company's Chief Financial Officer, Vice President, Corporate
Development, and Controller also resigned during 1999 and early 2000. These
latter resignations mostly resulted from the reorganization and re-focusing of
the Company, combined with the objectives of cost reduction to accommodate the
continuing low gold price environment. The board of directors was also reduced
in size during 1999 to a level of five directors, all of whom are independent of
management. Mr. Bradford, the Company's President and Chief Executive Officer,
was elected to the board of directors in 2000, bringing the total board
membership to six.
Effects of the European Monetary Union Currency
Effective January 1, 1999, eleven of the fifteen member countries of the
European Monetary Union ("EMU") adopted a single European currency, the "Euro",
as their common legal currency. During the years 1999 through 2001, business
conducted within the EMU will be conducted in both the existing national
currency and the Euro. As a result, companies operating in EMU member states
will need to ensure that their financial systems are capable of processing
transactions and properly handle these currencies, including the Euro. The
operations of the Company's 73% owned subsidiary Guyanor Ressources S.A. are
affected by this change. The Company has not had and does not expect a material
impact on its results of operations from foreign currency gains or losses as a
result of the transition to the Euro in January 2002.
OUTLOOK
- -------
In years prior to 2000 the Company relied primarily on the capital markets to
fund its acquisitions, operations and exploration activities. With the
acquisition of BGL and its operating gold mine, effective September 30, 1999 the
Company gained a source of positive cash flow from mining operations which is
expected to continue through 2001, although we still have limited cash resources
(see "Risk Factors - We currently have limited liquidity and capital
resources"). The current market for gold shares continues to be weak and equity
capital is difficult to obtain; but, as the Company demonstrated in 1999 through
its capital raising activities (from the issuance of shares and convertible
debentures), it is somewhat easier to raise funds to acquire producing mining
assets compared with the challenge of raising capital primarily for exploration.
The Company will continue to explore various possibilities for raising capital,
which might include, among other things, the further establishment of joint
ventures, the sale of property interests, debt financing and the issuance of
additional equity. Although there is no assurance that the Company will be
successful in these actions, management believes that they will be able to
conclude property acquisitions and to secure the necessary financing to enable
the Company to continue as a going concern.
Whether and to what extent alternative financing options are completed by the
Company or its subsidiaries will depend on a number of factors including, among
others, the successful acquisition of additional properties or projects, the
price of gold and management's assessment of the capital markets. The low gold
price adversely
55
affects our ability to obtain financing and therefore our ability to acquire
additional properties and to explore and develop our current portfolio of
properties. We cannot provide assurance that additional funding will be
available in 2001. We may, in the future, be unable to continue our exploration
and development programs and fulfill our obligations under our agreements with
our partners or under our permits and licenses. Although we have been successful
in the past in obtaining financing though partnership arrangements and sale of
equity securities, we cannot provide assurance that we will be able to obtain
adequate financing on acceptable terms. If we are unable to obtain such
additional financing, we may need to delay, or indefinitely postpone, further
exploration and development of our properties. As a result we may lose our
interest in some of our projects and may be obliged to sell some of our
properties. The loss of any of our interests in exploration and mining
properties would give rise to write-offs, under Canadian GAAP, of any
capitalized costs and this would negatively impact the results of our
operations. The impact would also be shown in reduction of the assets in our
balance sheet, which in turn may reduce our ability to raise additional funds
from equity or debt sources.
As of December 31, 2000, the Company held consolidated cash and short-term
investments of $1.0 million. For 2001 management has budgeted consolidated
total revenue of approximately $28 million and total operating and general and
administrative expenditures of approximately $23.7 million. Consolidated net
exploration and development expenditures, after recoveries from joint venture
partners are budgeted at approximately $3.3 million, most of which will be at
the Bogoso Mine.
The Company has budgeted production from the Bogoso Mine of 99,000 ounces during
2001. The Company's planned exploration and development spending during 2001 is
primarily for completion of the feasibility study on the Bogoso sulfide project,
exploration work at the Paul Isnard property in French Guiana, and the new
feasibility study at Gross Rosebel in Suriname. No fieldwork is planned for
Gross Rosebel, other than property care and maintenance.
The Company does not anticipate receiving cash flow from OGML in 2001 through
redemptions of Class I preferred shares, as any redemptions will be utilized to
reduce the debt owed to OGML. The amount of redemptions, if any, is dependent
on the net cash flow of OGML. In 2000, the Company recorded $0.5 million or
preferred share income from the redemption of Class I preferred shares.
SUBSEQUENT EVENTS
- -----------------
De-listing from the America Stock Exchange and Trading on the Over-The-Counter
Bulletin Board
The Company's shares were de-listed from the American Stock Exchange (Amex) on
January 26, 2001, following several appeals and extended discussions between the
Company' management and the Amex. The Amex noted the Company's stock price
trading below one dollar per share, continuing losses and total shareholder
equity below the Amex minimum, on a U.S GAAP basis, as the reasons for their
decision.
The Company now trades on the NASDAQ Over-the-Counter Bulletin Board under the
symbol GSRSF. Golden Star Resources stock continues to trade on the Toronto
Stock Exchange under the symbol GSC.
Penalties arising from the Amex De-Listing
Delisting from the Amex has triggered penalties on 1.5 million of outstanding
warrants. The warrants were issued with the agreement that if our stock was to
be delisted from the Amex and not subsequently relisted on either the New York
Stock Exchange, the NASDAQ National Market or the NASDAQ Smallcap Market, that
cash payments and other remedies would be made available to the holders of the
warrants. At this time our stock does not qualify for listing on these three
exchanges thus triggering the penalties.
The penalties include cash payments to the warrant holders equal to 3% per month
of the aggregate value of the shares underlying the warrants, being
approximately $19,000 per month. The warrant holders have agreed to defer any
penalty payments until the end of April 2001 and discussions are ongoing
regarding a potential financing and resolution of this matter.
56
If we are required to pay this penalty for more than six months, i.e., through
July 2001, the warrant agreement would then require us to repurchase the
warrants (or if the warrant holders elect to exercise the warrants, to
repurchase the warrant holder's common stocks at a premium over the fair market
value of our common shares). Payment of the penalties and repurchase of the
warrants (shares) would adversely impact our financial condition, results of
operations and liquidity.
Liquidity
Cash availability in the first three months of 2001 has been negatively impacted
by recent events at the Bogoso Mine, associated with the installation of new
mill circuits and mill modifications designed to allow the processing of
transition ores which are expected to be the main source of mill feed for the
mill at the Bogoso Mine during the first few months of 2001. To process such
transition ores, the mill was upgraded during the period from August to December
2000 to add a spiral gravity circuit (to produce a sulfide concentrate from the
transition ore) and a regrind and intensive cyanide leach circuit (CIIL) (to
recover gold from the transition ore concentrate).
As a result of the earlier commissioning in November 2000 of the spiral gravity
circuit, transition ore concentrate was stockpiled until the regrind and CIIL
were commissioned in January 2001. This resulted in a drop in gold output. To
cover ongoing expenses during this time period, BGL obtained a $1.0 million
working capital credit facility. At December 31, 2000, BGL had drawn $0.9
million under this credit facility. Commissioning problems with the new mill
circuits in January and February 2001 left gold output and revenues below
expectations during the first quarter of 2001. Gold output levels returned to
normal levels by late in the first quarter of 2001.
As a result of the above events, only minor amounts of cash have been available
for disbursement by BGL to Golden Star since January 1, 2001. There is at the
present time no assurance that there will be sufficient cash available to
continue meeting all of the Company's needs until the commissioning/processing
difficulties are resolved. There also can be no assurance that the difficulties
experienced to date in commissioning the new mill circuits, can be resolved.
See "Prestea Acquisition Activities" below for impact that additional subsequent
events could have on potential operating cash sources.
Prestea Property Acquisition Activities
Since the beginning of 2000, the Company has endeavored to acquire the property
located along the southern boundary of the existing Bogoso concession, known as
the "Prestea Property". The Prestea Property is known to contain at least three
prospective oxide gold deposits amenable to open-pit mining methods and CIL
processing. Negotiations with the owner of the Prestea Property during 2000 led
to the signing of a letter of intent on August 24, 2000, which would have
allowed the Company to proceed with the acquisition. On October 25, 2000 the
Government of Ghana advised its decision to abrogate the existing rights over
the mining lease on the Prestea Property. On November 1, 2000 the Government of
Ghana granted a new mining lease over the Prestea property to a company that was
mining the underground mine on the Prestea Property. The Company continues to
negotiate with the parties and the Government of Ghana. The letter of intent
was subsequently allowed to expire.
In February 2001, following a change of government in Ghana and other
developments, the Company again entered into negotiations to obtain the Prestea
Property. The Company is also currently in discussions with a number of
financial institutions to obtain the funding required to proceed with the
acquisition and to provide for near-term working capital needs for the Company,
although there can be no assurance that funding can be obtained.
Anvil Buyout
On April 4, 2001, the Company announced that it had entered into an agreement to
acquire Anvil's 20% equity interest in BGL in return for the issuance of
3,000,000 common shares of Golden Star.
Private Placement - Rio Tinto
On January 10, 2001, the Company and Guyanor announced that a heads of agreement
had been concluded between Guyanor and Rio Tinto, with respect to the Paul
Isnard gold project in French Guiana. Under the terms of the agreement, Rio
Tinto can earn a participating interest of up to 70% in a joint venture relating
to the Paul Isnard
57
property, by spending a total of $9.0 million on exploration and development on
the Paul Isnard property (See "Item 2. Description of Properties -Paul Isnard".)
On January 17, 2001, Rio Tinto purchased by way of private placement 500,000
common shares of Golden Star at a price of $2.00 per common share, for total
proceeds of $1,000,000. The Company has committed to lend all $1.0 million of
the proceeds to Guyanor. Of the $1.0 million total, $0.75 million will be used
to fund a work program in 2001 on the Paul Isnard gold project and $250,000 will
be used to partially fund the cost of a re-organization of Guyanor, aimed at
reducing ongoing costs.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- -------- ----------------------------------------------------------
The Company's exposure to market risk includes, but is not limited to, the
following risks: changes in interest rates on the Company's investment
portfolio, changes in foreign currency exchange rates and commodity price
fluctuations. The Company also has various agreements that are classified as
derivative financial instruments. (See also "Risk Factors" in Part I of this
Form 10-K.)
Interest Rate Risk
The Company may invest its cash in debt instruments of the United States
Government and its agencies, and in high-quality corporate issuers, and limits
the amount of exposure to any one issuer. Investments in both fixed rate and
floating rate interest-earning instruments carry a degree of interest rate risk.
Fixed rate securities may have their fair market value adversely impacted due to
a rise in interest rates, while floating rate securities may produce less income
than expected if interest rates fall. Due in part to these factors the
Company's future investment income may fall short of expectations due to changes
in interest rates or the Company may suffer losses in principal if forced to
sell securities which have declined in market value due to changes in interest
rates. Given the relatively low amounts of cash on hand in recent quarters, the
impact on the Company's revenues from changes in interest rates would be nil.
The Company may in the future actively manage its exposure to interest rate
risk.
Foreign Currency Exchange Rate Risk
The price of gold is denominated in United States dollars and the majority of
the Company's revenues and expenses are denominated in United States dollars.
As a result of the limited exposure, management considers that the Company is
not exposed to a material risk as a result of any changes in foreign currency
exchange rate changes, so the Company does not utilize market risk sensitive
instruments to manage its exposure.
Commodity Price Risk
The Company is engaged in gold mining and related activities, including
exploration, extraction, processing and reclamation. Gold bullion is the
Company's primary product and, as a result, changes in the price of gold could
significantly affect the Company's results of operations and cash flows.
According to current estimates, a $25 change in the price of gold could result
in a $2.5 million effect on the results of operations and cash flows. The
Company currently does not have a program for hedging, or otherwise manage its
exposure to commodity price risk. The Company may in the future manage its
exposure through hedging programs.
58
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.......................... F-2
Auditors' Report............................................................... F-3
Consolidated Balance Sheets as of December 31, 2000 and 1999................... F-4
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998.......................................... F-5
Consolidated Statement of Changes in Shareholders' Equity for the years ended
December 31, 2000, 1999 and 1998.......................................... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.......................................... F-7
Notes to the Consolidated Financial Statements................................. F-8-F-28
F-1
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 April 2, 2001, and are in accordance with accounting
principles generally accepted in Canada.
A system of internal accounting and administrative controls is maintained by
management in order to provide reasonable assurance that financial information
is accurate and reliable, and that the Company's assets are safeguarded.
Limitations exist in all cost effective systems of internal controls. The
Company's systems have been designed to provide reasonable but not absolute
assurance that financial records are adequate to allow for the completion of
reliable financial information and the safeguarding of its assets.
The Company believes that the systems are adequate to achieve the stated
objectives. Regular testing of these systems is employed to ensure continued
effectiveness of the controls, and actions are taken when necessary to correct
deficiencies when they are identified.
The Audit and Corporate Governance Committee of the Board of Directors is
comprised of three outside directors, and meets regularly with management and
the independent auditors to ensure that management is maintaining adequate
internal controls and systems and to approve the annual and quarterly
consolidated financial statements of the Company. The committee also reviews
the audit plan of the independent auditors and discusses the results of their
audit and their report prior to submitting the consolidated financial statements
to the Board of Directors for approval.
The consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, Chartered Accountants, who were appointed by the
shareholders. The auditors' report outlines the scope of their examination and
their opinion on the consolidated financial statements.
/s/ Peter J. Bradford /s/ Allan J. Marter
- ----------------------- -------------------
Peter J. Bradford Allan J. Marter
President and Vice President and
Chief Executive Officer Chief Financial Officer
April 10, 2001
F-2
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, 2000 and 1999 and the consolidated statements of operations,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 2000. 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 auditing standards generally accepted
in Canada and in the United States of America. Those standards require that we
plan and perform an audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 2000 and 1999, and the consolidated results of
its operations and cash flows for each of the three years in the period ended
December 31, 2000, in accordance with accounting principles generally accepted
in Canada.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Calgary, Canada
April 4, 2001
Comments by the Auditors for the U.S. Readers on Canada-U.S. Reporting
- ----------------------------------------------------------------------
Differences
- -----------
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern such as those described in
Note 1 of the consolidated financial statements. Our report to the shareholders
dated April 4, 2001 is expressed in accordance with Canadian reporting standards
which do not permit a reference to such conditions and events in the auditor's
report when these are adequately disclosed in the financial statements
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Calgary, Canada
April 4, 2001
F-3
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED BALANCE SHEETS
(Stated in thousands of United States Dollars except share amounts)
- --------------------------------------------------------------------------------
ASSETS As of December 31,
2000 1999
--------- ---------
CURRENT ASSETS
Cash and short-term investments $ 991 $ 2,905
Accounts receivable 976 1,976
Inventories 10,805 8,905
Other assets 188 171
--------- ---------
Total Current Assets 12,960 13,957
RESTRICTED CASH (Note 17) 4,147 6,000
NOTES RECEIVABLE (Note 9) 1,918 3,784
ACQUISITION, DEFERRED EXPLORATION
AND DEVELOPMENT COSTS (Note 10) 24,492 37,922
INVESTMENT IN OMAI GOLD MINES LIMITED (Note 11) 625 1,023
MINING PROPERTIES (Net of accumulated depreciation of $9,111 and $2,777, respectively) (Note 9) 1,922 10,413
FIXED ASSETS (Net of accumulated depreciation of $3,508 and $2,587, respectively) 2,937 1,175
OTHER ASSETS 468 78
--------- ---------
Total Assets $ 49,469 $ 74,352
========= =========
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 2,565 $ 1,151
Accrued liabilities 1,727 3,263
Accrued wages and payroll taxes 238 315
Current portion of amount payable to financial institutions (Note 9) 3,978 3,208
--------- ---------
Total Current Liabilities 8,508 7,937
LONG-TERM DEBT (Note 11c) 1,378 2,254
AMOUNT PAYABLE TO FINANCIAL INSTITUTIONS (Note 9) 250 3,708
CONVERTIBLE DEBENTURES (Note 8) 3,179 3,184
ENVIRONMENTAL REHABILITATION LIABILITY (Note 17) 5,651 6,721
OTHER LIABILITIES 19 24
--------- ---------
Total Liabilities 18,985 23,828
--------- ---------
MINORITY INTEREST 4,444 10,023
COMMITMENTS AND CONTINGENCIES (Note 17)
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 12)
First Preferred Shares, without par value, unlimited shares authorized. No shares issued. - -
Common shares, without par value, unlimited shares authorized. Shares issued and outstanding
in 2000 of 37,588,988 and in 1999 of 36,943,731. 160,922 160,502
Equity component of convertible debentures (Note 8) 1,045 1,045
DEFICIT (135,927) (121,046)
--------- ---------
Total Shareholders' Equity 26,040 40,501
--------- ---------
Total Liabilities and Shareholders' Equity $ 49,469 $ 74,352
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
Approved by the Board:
By: /s/ Robert R. Stone - Director By: /s/ David K. Fagin - Director
------------------------------ ------------------------------
F-4
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,
2000 1999 1998
-------- -------- --------
REVENUE
Gold sales $ 30,405 $ 10,581 $ -
Interest and other 766 673 635
-------- -------- --------
31,171 11,254 635
-------- -------- --------
COSTS AND EXPENSES
Mining operations 21,693 5,966 -
Depreciation and depletion 7,289 2,971 230
Exploration expense 946 468 443
General and administrative 2,905 3,734 7,712
Write-downs and abandonment of mineral properties 16,706 23,933 16,600
Gain on disposal of assets (50) (139) -
Interest expense 805 203 36
Foreign exchange loss (gain) (254) (508) 26
-------- -------- --------
50,040 36,628 25,047
-------- -------- --------
LOSS BEFORE THE UNDERNOTED (18,869) (25,374) (24,412)
Omai preferred share redemption premium 479 379 950
-------- -------- --------
Loss before minority interest (18,390) (24,995) (23,462)
Minority interest 3,509 629 1,214
-------- -------- --------
NET LOSS $(14,881) $(24,366) $(22,248)
======== ======== ========
BASIC AND DILUTED NET LOSS PER SHARE $(0.40) $(0.76) $(0.74)
======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING (in millions of shares) 37.5 32.4 30.2
======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Stated in thousands of United States Dollars except share amounts)
- --------------------------------------------------------------------------------
Equity
Common Component
Stock Stock of
Number of Share Option Convertible
Shares Capital Warrants Loans Debentures Deficit
----------- -------- -------- --------- ----------- ---------
Balance at December 31, 1997 29,797,432 $158,001 $ - $(4,012) $ - $ (74,432)
Shares Issued 421,357 987 - - - -
Shares Issued Under Options 73,460 175 - - - -
Net Loss - - - - - (22,248)
----------- -------- -------- --------- ----------- ---------
Balance at December 31, 1998 30,292,249 159,163 - (4,012) - ( 96,680)
Shares Issued 6,947,994 3,484 - - - -
Shares Canceled (679,012) (3,312) - - - -
Shares Issued Under Options 17,500 12 - - - -
Shares Issued Under Warrants 365,000 255 - - - -
Issue Costs - (441) - - - -
Warrants Issued - - 1,341 - - -
Stock Option Loan -
Repayment/Cancellation - - - 4,012 -
Equity Component of
Convertible Debentures - - - 1,045 -
Net Loss - - - - - (24,366)
----------- -------- -------- --------- ----------- ---------
Balance at December 31, 1999 36,943,731 159,161 1,341 - 1,045 (121,046)
Shares Issued Under Options 62,400 66 - - - -
Shares Issued Under Warrants 150,000 105 - - - -
Stock Bonus 40,000 35 - - - -
Debenture Conversions 392,857 214 - - - -
Net Loss - - - - - ( 14,881)
----------- -------- -------- --------- ----------- ---------
Balance at December 31, 2000 37,588,988 $159,581 $1,341 $ - $1,045 $(135,927)
=========== ======== ======== ========= =========== =========
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of United States Dollars)
- --------------------------------------------------------------------------------
For the Years Ended December 31,
Operating Activities: 2000 1999 1998
---- ---- ----
Net Loss $(14,881) $(24,366) $(22,248)
Reconciliation of net loss to net cash used
in operating activities:
Depreciation, depletion and amortization 7,289 2,971 230
Accretion of convertible debentures 209 74 -
Premium on Omai preferred share redemption (479) (379) (950)
Non-cash compensation 35 - -
Gain on disposal of assets (50) (139) -
Impairment and abandonment of mineral properties 16,706 23,933 16,600
Accrued interest on notes receivable (215) - -
Reclamation expenditures (1,070) - -
Minority interest (3,509) (629) (1,214)
Changes in assets and liabilities:
Accounts receivable 1,000 (12) 1,727
Inventories (1,900) (340) 175
Accounts payable (199) (1,335) (2,025)
Other assets (407) 125 (14)
-------- -------- --------
Total changes in non-cash operating working capital (1,506) (1,562) (137)
-------- -------- --------
Net Cash Provided by/(Used in) Operating Activities 2,529 (97) (7,719)
-------- -------- --------
Investing Activities:
Expenditures on mineral properties, net of joint venture
recoveries (3,224) (3,597) (7,443)
Expenditures on mining properties (102) (303) -
Equipment purchases (2,804) (920) (50)
Omai preferred share redemption 876 694 1,738
Proceeds from sale of equipment 55 245 47
Environmental rehabilitation bonding 1,853 (6,000) -
Payments for acquisition, net of cash acquired - (1,525) -
Other 57 75 (8)
-------- -------- --------
Net Cash Used in Investing Activities (3,289) (11,331) (5,716)
-------- -------- --------
Financing Activities:
Restricted cash - - 250
Repayment of stock option loan - 637 -
Change in other liabilities 14 (310) (52)
Issuance of convertible debentures - 4,155 -
Issuance of long-term liabilities - - 3,169
Repayment of long-term debt (2,286) (694) (220)
Issuance of short term debt 947 - -
Issuance of share capital, net of issue costs 171 3,195 239
-------- -------- --------
Net Cash Provided by/(Used in) Financing Activities (1,154) 6,983 3,386
-------- -------- --------
Decrease in cash and short-term investments (1,914) (4,445) (10,049)
Cash and short-term investments, beginning of year 2,905 7,350 17,399
-------- -------- --------
Cash and short-term investments, end of year $ 991 $ 2,905 $ 7,350
======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
(All amounts in thousands of United States Dollars unless noted otherwise)
1. Operations and Going Concern
- -- ----------------------------
The Company's ability to continue as a going concern after 2001 is dependent on
its ability to obtain funding for acquisitions and development projects during
2001. Mining at the Company's only producing mine (the Bogoso Mine in Ghana) is
expected to be completed by mid-2001. While low grade stock pile material will
allow the Bogoso mill to continue operating into early 2002, additional ore
reserves will be required by the beginning of 2002 to avoid mill closure. The
Company is currently involved in advanced negotiations to acquire a property
contiguous with the Bogoso Mine that contains mineralized material that, if
acquired, would be expected to provide mill feed for several years into the
future. Additional funding would be required for this acquisition and, while
the Company is currently engaged in financing negotiations, there is no
assurance such funding can be obtained. Historically low gold prices continue
to adversely affect our ability to obtain financing and therefore our abilities
to proceed with our current operational and development plans.
The Company may experience difficulties in satisfying our obligations under its
convertible debentures because the Bogoso Mine life is expected to be shorter
than the term of the debentures. Currently, we anticipate production from the
Bogoso Mine to continue until early 2002, while the term of the debentures is
five years, maturing in August 2004. If we are unable to extend the mine life
beyond its anticipated usefulness or are not successful in generating sufficient
free cash flow from other operations or sources, our ability to repay amounts
outstanding under the debentures would be materially and adversely affected
The Company and Anvil, the minority interest holder in BGL, together were
scheduled to make the interim payment to the Sellers of BGL on September 30,
2000 in the amount of $2.8 million. On November 9, 2000 the Company paid the
Sellers $1.4 million of the $2.8 million due, and reached agreement with the
Sellers that the balance, plus interest at 10% per annum, was to be paid by
December 22, 2000. As of April 16, 2001 the Company is in discussions with
representatives of the Sellers, but the remaining balance and accrued interest
is still unpaid
The Company's shares were de-listed from the American Stock Exchange (Amex) on
January 26, 2001. Although the Company has not experienced an immediate, direct
impact on its financial position, results of operations and liquidity as a
result of the de-listing, the Company may, in the longer term, have more
difficulty raising financing in the U.S. market. De-listing from the Amex has
triggered penalties on 1.5 million of outstanding warrants. The penalties
include cash payments to the warrant holders equal to 3% per month of the
aggregate value of the shares underlying the warrants, which would cost
approximately $19,000 per month. We are now in financing discussions with the
warrant holders and will propose alternatives to resolve the penalty situation
and, as a result, the warrant holders have initially agreed to defer any penalty
payments until the end of April 2001.
If the Company is required to pay this penalty for more than six months, the
warrant agreement would then require us to repurchase the warrants or, if the
warrant holders elect to exercise the warrants, to repurchase the warrant
holder's common shares at a premium over the fair market value of our common
shares. Payment of the penalties and repurchase of the warrants or shares would
adversely impact the Company's financial condition, results of operations and
liquidity.
The Company is exploring various transactions which would enable it to have
sufficient capital to continue its operations. Various transactions being
considered include mergers with other companies, the issuance of new equity, the
further establishment of joint ventures and the sale of property interests.
Whether and to what extent alternative financing options are completed by the
Company or its subsidiaries will depend on a number of factors including, among
others, the successful acquisition of additional properties or projects, the
price of gold and management's assessment of the capital markets. Although
there is no assurance that the Company will be successful in these actions,
management believes that they will be able to conclude property acquisitions and
to secure the necessary financing to enable the Company to continue as a going
concern. These financial statements do not reflect going concern adjustments to
the carrying value of assets and liabilities. If the going concern assumption
were not appropriate, such adjustments could be material.
F-8
2. Formation of the Company
- -----------------------------
In May of 1992, the shareholders of Golden Star Resources Ltd. ("Golden Star" or
the "Company") and South American Goldfields Inc. ("South American"),
respectively agreed to a business combination of the two companies. Neither
company was under common control prior to the amalgamation. This combination
was considered to be an amalgamation under the Canada Business Corporations Act
and was effective May 15, 1992. The amalgamation was treated as a purchase by
the Company for accounting purposes. Concurrent with the amalgamation, the
common shares of the Company were consolidated on a one-for-two basis. The
Company's fiscal year-end is December 31, and commencing on May 15, 1992 the
Company changed its reporting currency to the United States dollar. However, if
the Company were to declare a dividend to its shareholders, it would be paid in
Canadian dollars.
3. Description of Business
- ---------------------------
The Company is engaged in the business of gold production in West Africa, and
the acquisition, exploration and development of precious metals deposits in both
South America and Africa and holds a 30% equity interest in the producing Omai
mine in Guyana.
Efforts in Africa are focused on the producing Bogoso Mine in Ghana and are
conducted through the Company's 70% owned subsidiary, Bogoso Gold Limited.
Exploration rights to various inactive properties in Kenya and the Ivory Coast
are held by the Company's wholly-owned subsidiary, Pan African Resources
Corporation.
Efforts in South America are focused on property interests in Guyana, Suriname
and French Guiana (through its 73%-owned subsidiary Guyanor Ressources S.A.)
Most of the Company's projects are conducted through agreements with third
parties, national governments and/or pursuant to permits and licenses granted by
other appropriate authorities. When deemed appropriate, certain projects are
pursued on a joint venture basis to share the associated risk and to assist in
project funding.
4. Summary of Significant Accounting Policies
- ----------------------------------------------
These consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. The following
policies have been adopted by the Company.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its more than 50%-owned subsidiaries. All material intercompany balances and
transactions have been eliminated. The consolidated group includes the
following as of December 31, 2000 (all entities are 100%-owned by the Company,
unless otherwise noted):
2000: 1999:
- ----- -----
Golden Star Holdings Ltd. Golden Star Holdings Ltd.
Venezuela Investments Ltd. Venezuela Investments Ltd.
Golden Star Management Ltd. Golden Star Management Ltd.
Pan African Resources Corporation Pan African Resources Corporation
Southern Star Resources Ltd. Southern Star Resources Ltd.
Guyanor Ressources S.A. (72.6%) Guyanor Ressources S.A. (71%)
Societe de Travaux Publics Societe de Travaux Publics
et de Mines Auriferes en et de Mines Auriferes en
Guyane ("SOTRAPMAG") Guyane ("SOTRAPMAG")
Societe des Mines de St-Elie Societe des Mines de St-Elie
("SMSE") ("SMSE")
Caystar Holdings Caystar Holdings
Bogoso Holdings Bogoso Holdings
Bogoso Gold Limited ("BGL") (70%) Bogoso Gold Limited ("BGL") (70%)
F-9
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Cash and Short-term Investments
Cash and short-term investments consist primarily of high credit quality United
States and Canadian money market investments and fixed and variable income
commercial paper, which are capable of reasonably prompt liquidation, and are
stated at amortized cost, which approximates market value.
Inventories
Stockpiled ore, in-process and finished inventory are recorded at the lower of
cost or market, including direct production costs and attributable operating
expenses. Materials and supplies are valued at the lower of average cost or
replacement cost.
Reclassifications
Certain amounts in the 1999 financial statements have been reclassified to be
consistent with the 2000 presentation.
Restricted Cash
In certain countries where the Company conducts business, governments may
require performance bonds to be placed for certain amounts of the agreed-upon
exploration expenditures. The cash collateral for these bonds is shown as a
non-current asset as the funds are not available for use in operations until the
bond amounts are reduced or released by the governments. In relation to the
Bogoso Mine in Ghana, funds are restricted in accordance with the BGL
acquisition agreement for the final environmental rehabilitation of the mine
site.
Acquisition, Deferred Exploration and Development Costs
Acquisition, administration, exploration and development costs of mineral
properties are capitalized.
Management periodically reviews the carrying value of its investments in
acquisition, deferred exploration and development costs. A decision to abandon,
reduce or expand a specific project is based upon many factors including general
and specific assessments of reserves and mineralized material, anticipated
future mineral prices, the anticipated future costs of exploring, developing and
operating a producing mine, the expiration term and ongoing expenses of
maintaining leased mineral properties and the general likelihood that the
Company will continue exploration. The Company does not set a pre-determined
holding period for properties with unproven reserves; however, properties which
have not demonstrated suitable metal concentrations at the conclusion of each
phase of an exploration program are re-evaluated to determine if future
exploration is warranted and if their carrying values are appropriate.
If a mineral property is abandoned or it is determined that its carrying value
cannot be supported by future production or sale, the related costs are charged
against operations in the year of abandonment or determination of value. Any
costs incurred for a particular project afterward are expensed as incurred.
The accumulated costs of mineral properties are depleted on a units-of-
production basis at such time as production commences.
F-10
Mining Properties Impairments
The Company evaluates its mining properties for impairment annually and when
events or changes in circumstances indicate that the related carrying value may
not be recoverable. If deemed impaired, an impairment loss is measured and
recorded based upon the fair value of the asset which generally will be computed
using discounted future cash flows. The Company's estimates of future cash
flows are subject to risks and uncertainties. Therefore, it is possible that
changes could occur which may affect the recoverability of the Company's
investments in mineral properties.
Investment in Omai Gold Mines Limited
The common share investment in Omai Gold Mines Limited ("OGML") is accounted for
using the equity method. As of December 31, 2000 the Company's share of
cumulative losses of OGML had exceeded the cost of the original investment in
common shares.
In addition, the Company holds Class I redeemable preferred shares of OGML which
were recorded at the cost of the mineral interest exchanged. The preferred
shares are required to be redeemed quarterly based upon a percentage of cash
flows from the Omai Mine (Note 11), which proceeds are applied to the Investment
in Omai Gold Mines Limited balance based upon the relationship that the
Company's original investment in deferred exploration costs ($5 million) bore to
the original value of the redeemable preferred shares ($11 million). The
remainder of the preferred share proceeds is recognized as "Omai preferred share
redemption premium" in the consolidated statement of operations.
Fixed Assets
Fixed assets are stated at cost and include buildings, machinery, equipment and
vehicles. Depreciation is computed using the straight-line method at rates
calculated to depreciate the cost of the assets less their anticipated residual
values, if any, over the 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. Major overhauls of mining equipment that extend the
life of such equipment are capitalized and depreciated on a units-of-production
basis.
Environmental Rehabilitation
Costs are estimated based primarily upon environmental and regulatory
requirements to fund the ongoing and final reclamation and closing costs
relating to the Bogoso mine site.
Foreign Currencies and Foreign Currency Translation
Certain South American and African currencies are not readily negotiable outside
their respective countries. United States of America funds transferred to these
countries are used to purchase local currency to be used for labor, local
supplies, and other items associated with the exploration and development of
mineral properties.
As the functional currency of the Company is the United States Dollar, monetary
assets and liabilities are translated at the rate of exchange prevailing at the
end of the period. Non-monetary assets and liabilities are translated at the
rates of exchange prevailing when the assets were acquired or the liabilities
assumed. Revenue and expense items are translated at the average rate of
exchange during the year. Translation gains or losses are included in the
determination of net income for the period. Fully integrated foreign subsidiary
accounts are translated using the same method.
Canadian currency in these financial statements is denoted as "Cdn$", French
currency is denoted as "FF", Ghanaian currency is denoted as "Cedi" or "Cedis"
and Australian currency is denoted as "Aus$".
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.
F-11
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of cash investments and trade accounts receivable.
The Company restricts investment of temporary cash balances to financial
institutions with high credit standing. The Company strives to minimize its
credit risk through diversification of its holdings with financial institutions.
All gold sales are under one customer contract.
Revenue Recognition
Revenue from the sale of gold is recognized when title and the risk of ownership
passes to the buyer.
5. Supplemental Cash Flow Information
- ----------------------------------------
The following is a summary of non-cash transactions:
2000 1999 1998
---- ---- ----
Depreciation capitalized as acquisition, deferred
exploration and development costs $ 52 $ 193 $ 367
Note receivable from minority interest holder for
acquisition costs (Note 9) (3,784) -
Additional non-cash purchase price allocation (Note 9) (8,258) -
Increase in amount payable to financial institutions (Note 9) 6,917 -
Issuance of warrants for credit facility (Note 9) 1,341 -
Cancellation of stock option loans (Note 12) (3,312) -
Cancellation of stock option loan related shares (Note 12) 3,312 -
Shares issued upon conversion of convertible debentures (Note 8) 214
Conversion of convertible debentures (Note 8) (214)
6. Fair Value of Financial Instruments
- -----------------------------------------
The Company's financial instruments are comprised of short-term investments,
accounts receivable, restricted cash, the investment in OGML, accounts payable,
accrued liabilities, accrued wages, payroll taxes and long-term debt. The fair
value of cash and short-term investments, accounts receivable, accounts payable,
accrued liabilities and accrued wages and payroll taxes equals their carrying
value due to the short-term nature of these items. The fair value of restricted
cash is equal to the carrying value as the cash is invested in short-term, high-
quality instruments. The fair value of the Company's investment in OGML and its
long term debt cannot be determined with sufficient reliability.
7. Inventories
- -----------------
December 31, December 31,
2000 1999
------------ ------------
Stockpiled ore $ 2,736 $2,862
In-process 2,361 836
Materials and supplies 5,708 5,207
------------ ------------
$10,805 $8,905
8. Convertible Debentures
- ----------------------------
Liability Equity
Component Component
--------- ---------
Upon issuance, August 1999 $3,110 $1,045
Accretion since issuance 283 -
Conversions since issuance (214) -
------ ------
December 31, 2000 $3,179 $1,045
====== ======
F-12
On August 24, 1999, the Company issued the principal amount of $4,155,000 in
subordinated convertible debentures to raise financing for the acquisition of
BGL. The debentures mature on August 24, 2004 and bear interest at the rate of
7.5% per annum from the date of issue, payable semi-annually on February 15 and
August 15, to the debenture-holders as of February 1 and August 1, respectively,
commencing on February 15, 2000.
The debentures are convertible at the option of the holder into common shares of
the Company at a conversion price of $0.70 per share, subject to adjustment upon
the occurrence of certain events, such as but not limited to the payment of
dividends on the Company's share capital. Any portion of the debenture that is
a multiple of $1,000 may be converted into common shares at any time prior to
the maturity date of August 24, 2004, unless previously redeemed. The holder's
right of conversion will terminate on the date of redemption, if the Company has
chosen to redeem the debentures. Each $1,000 principal amount of debentures
also entitles the holder to warrants exercisable for 200 common shares of the
Company at a price of $1.50 per share until August 24, 2001 and $1.75 per share
for the remaining two years until August 24, 2003.
The debentures are redeemable by the Company (1) in the event of certain
developments involving Canadian withholding taxes at a redemption price of 100%
of the principal amount of the debentures to be redeemed, plus accrued interest
to the redemption date and (2) at the option of the Company on or after August,
2002 if the reported closing trading price, on the American Stock Exchange or
any other national securities exchange or any automated quotation system the
Company's shares are listed on, of the common shares as reported on the close of
business for any 20 of the 25 consecutive trading days immediately prior to the
date notice of redemption is given is at least 125% of the conversion price.
The debentures are unsecured obligations of the Company and are subordinated in
right of payment to all existing and future indebtedness and other liabilities
of the Company and its subsidiaries. There are no financial restrictions or
covenants contained in the debentures.
During 2000 $214,000 of the debentures were converted to 392,857 shares of
common stock. The following schedule shows the obligations of the Company for
the next five years in relation to interest and principal payments on the
convertible debentures.
Year Obligation
---- ----------
2001 291
2002 291
2003 291
2004 4,069
------
Total $4,942
======
9. Acquisition of BGL
- ------------------------
On September 30, 1999 the Company and Anvil Mining NL, an Australian company
("Anvil"), acquired 70% and 20%, respectively, of the common shares of Bogoso
Gold Limited, a Ghanaian company ("BGL"). The Government of Ghana retained its
10% equity interest in BGL. BGL is the owner of the Bogoso Mine, an operating
gold mine in the Republic of Ghana.
The acquisition was completed pursuant to a purchase agreement among the Company
and Anvil (the buyers) and a consortium of banks headed by the International
Finance Corporation and Deutsche Investition und Entwicklungsgesellschaft mbH
(the Sellers). The total acquisition cost including initial payments, future
payments, financing costs and administrative costs was $17.0 million. The
acquisition was accounted for under the purchase method of accounting for
business combinations. Included in the purchase price were $10.9 million of
current assets, $6.0 million of cash restricted for future reclamation work,
$13.2 million of mining property, $4.4 million of liabilities, $7.0 million of
accrued reclamation liabilities and $1.7 million of minority interest. The
Sellers received $6.5 million cash at September 30, 1999 and agreed to receive
additional payments in the future as described below. The initial payment of
$6.5 million, was funded using working capital and proceeds from the Company's
August 24, 1999 offering of its subordinated convertible debentures, common
shares and warrants.
F-13
The amount of the future payments due the Sellers is to be determined by the
average price of gold over the two years following the September 30, 1999
acquisition and upon the potential acquisition of reserves in Ghana outside of
the region of BGL's mining interests, and upon initiation of the mining and
processing of sulfide ores at Bogoso. These additional payments are capped at
$10.0 million in total.
The gold price related portion of future payments is determined by a formula,
which is equal to the product (in United States dollars) of 183,333 times the
amount by which the average price of gold over the two-year period following the
acquisition exceeds $255 per ounce. The average price is based upon the London
Bullion Market Association p.m. gold fix. Payment is due on the earlier of
production of gold ceasing or the second anniversary after closing. The
Company, in the fourth quarter of 1999, accrued $6.4 million for the future
payments, based on its estimate that the gold price would average $290 per ounce
for the remainder of the two year period following the acquisition. The $6.4
million future payment was included in total BGL acquisition costs and is being
amortized on a units of production basis along with other purchase costs.
An interim payment was due on the first anniversary of the acquisition,
September 30, 2000. The interim payment was equal to one half of 183,333 times
the amount by which the average price of gold during the twelve months following
the acquisition exceeds $255 per ounce. The interim payment is non-refundable
and will be credited to the liability due on the second anniversary of the
acquisition as described above. The Company and Anvil together were scheduled
to make the interim payment to the Sellers on September 30, 2000 in the amount
of $2.8 million, based upon an average price of gold for the first twelve months
following the acquisition, of $286 per ounce. On November 9, 2000 the Company
paid the Sellers $1.4 million of the $2.8 million due, and reached agreement
with the Sellers that the balance, plus interest at 10% per annum, was to be
paid by December 22, 2000. The Company is in discussions with the
representatives of the Sellers but, to date the remaining balance and accrued
interest is still unpaid.
From October 1999 to December 2000 gold prices averaged less than the original
estimate of $290 per ounce, and continued to trend downward during most of 2000
reaching prices between $260 and $265 per ounce by the end of 2000. Given this
substantial and protracted decline, the Company reduced the remaining liability
at December 31, 2000 to reflect an estimated gold price of $270 per ounce for
the remaining life of the obligation to the Sellers. The revised estimate
reduced the future purchase price by $2.3 million, leaving the December 31, 2000
future payment, including the unpaid portion of the September 30, 2000 payment,
at $2.7 million.
The reserve acquisition linked payment due the Sellers will be triggered if
minable reserves equivalent to 50,000 ounces of gold or greater are acquired
elsewhere in Ghana for processing at the Bogoso mill, as would be the case if
the Company is successful in acquiring the adjoining Prestea property. In this
case, Golden Star and Anvil would make an additional payment to the Sellers on
the second anniversary of closing of $2.0 million, irrespective of the gold
price, but subject to the $10 million cap. Due to the contingent nature of this
consideration, no liability has been recorded.
The Company and Anvil would be required to pay the Sellers an additional $5.0
million on the first anniversary of the commencement of treatment of sulfide ore
at the Bogoso Mine. Such payment is contingent upon the successful outcome of a
sulfide mining feasibility study (now in progress) and upon financing,
implementation and start-up of a sulfide operation. Due to the contingent nature
of this consideration, the Company has not recorded any liability as part of the
purchase price allocation for the BGL acquisition.
The Company is also required to make production related payments to the provider
of a credit facility arranged for, but not used to effect, the acquisition of
BGL. During the first 72 months following the September 30, 1999 acquisition,
the Company is required to pay $0.25 million for every continuous 12- month
period wherein more than 75,000 ounces of gold is produced from the Bogoso mine
concession. Such payments are limited to $1.25 million in total. Based on
proven and probable reserves, the Company accrued $0.5 million (for the two
years expected production life on the Bogoso mine concession).
Under the terms of a heads of agreement between the Company and Anvil Mining NL
("Anvil"), the Company funded the entire acquisition cost of BGL at September
30, 1999. The Company initially received two promissory notes totaling $2.3
million from Anvil for their share of the purchase price and the related
transaction costs. This
F-14
receivable is non-recourse and bears interest at 15% per annum, compounded
monthly. In addition, Anvil is liable for its share of the additional purchase
price payments and this estimated liability is included in the notes receivable
total.
As described above, a portion of the notes receivable from Anvil is based upon
Anvil's share of the additional purchase price. Revised assumption on the
average price of gold during the remaining life of the liability to the Sellers
reduced the estimated future purchase price as of December 31, 2000 by $2.3
million. This reduction in turn reduced the Anvil notes receivable by 22.2% of
the reduction or by approximately $0.5 million. The additional purchase price
payments, plus accrued interest less Anvil's payments during 2000 left the year-
end notes receivable balance at $1.9 million.
On April 4, 2001, the Company announced that it had entered into an agreement to
acquire Anvil's 20% equity interest in BGL in return for the issuance of
3,000,000 common shares of Golden Star.
The following is the pro-forma income and loss for the Company for the twelve
months ended December 31, 1999, and 1998 (in summary form), showing the results
of operations had the BGL acquisition been completed on January 1, 1999, and
1998, respectively. The pro-forma information is presented for informational
purposes only and is not necessarily indicative of the results of operations
that actually would have been achieved had the transaction been consummated as
of that time.
(unaudited) (unaudited)
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
------------------ ------------------
Revenue $ 38,931 $ 36,294
Net operating profit before abandonment
and impairment of deferred exploration $ 2,909 $ (8,903)
Abandonment and impairment of deferred
exploration $(23,933) $(16,600)
Net loss $(22,666) $(26,215)
Net loss per share $ (0.62) $ (0.71)
In December 2000 BGL, established a working capital line of credit of $1.0
million of which $0.9 was drawn at December 31, 2000. Repayment is scheduled
during 2001.
Current portions of Bogoso-related amounts due to financial institutions
includes the following items:
Amounts payable to financial institutions $2.8
Working capital line of credit at BGL 0.9
Amounts due other financial institutions 0.3
-----
Total $4.0
Long term amounts due financial institutions associated with the Bogoso
acquisition total $0.25 million.
F-15
10. Acquisition, Deferred Exploration and Development Costs
- --------------------------------------------------------------
Acquisition, Acquisition,
Deferred Deferred
Exploration Property Exploration
and Capitalized Capitalized Joint Abandon- and
Development Exploration Acquisition Venture ments and Development
Costs as at Expenditures Expenditures Recoveries Adjustments Costs as of
12/31/99 in 2000 in 2000 in 2000 in 2000 12/31/00(5)
===============================================================================
In Thousands of Dollars
GUYANA (1)
Eagle Mountain $ 1,364 $ - $ - $ - $( 1,364) $ -
Other 123 - - - (123) -
------------------------------------------------------------------------------
Sub-total 1,487 - - - (1,487) -
------------------------------------------------------------------------------
SURINAME (1)
Gross Rosebel 15,860 216 - (258) 15,818
------------------------------------------------------------------------------
Sub-total 15,860 216 - (258) 15,818
------------------------------------------------------------------------------
FRENCH GUIANA (2)
(Guyanor Ressources S.A.)
Dorlin 2,608 150 - (75) (2,683) -
Yaou 6,968 241 - (91) (7,118) -
Paul Isnard / Eau Blanche 5,376 451 - - - 5,827
Paul Isnard Alluvials 1,987 - - - (1,987) -
Dachine 1,720 708 - (678) (1,750) -
------------------------------------------------------------------------------
Sub-total 18,659 1,550 - (844) (13,538) 5,827
------------------------------------------------------------------------------
AFRICA
(Pan African
Resources Corporation (3))
Ivory Coast / Tanda 1,681 - - - (1,681) -
(Bogoso Gold Limited (4))
Riyadh 75 164 - - - 239
Bogoso Sulfide 160 2,448 - - - 2,608
------------------------------------------------------------------------------
Sub-total 1,916 2,612 - - (1,681) 2,847
------------------------------------------------------------------------------
TOTAL $ 37,922 $4,378 $ - $(1,102) $(16,706) $24,492
==============================================================================
(1) A division of the Company.
(2) Approximately 73% owned by the Company.
(3) A wholly-owned subsidiary of the Company.
(4) A 70% owned subsidiary of the Company.
(5) Our holdings include ownership interests, royalty interests, leases, options
and joint venture interests in varying percentages.
F-16
Acquisition, Acquisition,
Deferred Deferred
Exploration Property Exploration
and Capitalized Capitalized Joint Abandon- and
Development Exploration Acquisition Venture ments and Development
Costs as at Expenditures Expenditures Recoveries Adjustments Costs as of
12/31/98 in 1999 in 1999 in 1999 in 1999 12/31/99(5)
===============================================================================
In Thousands of Dollars
GUYANA (1)
Eagle Mountain $ 1,364 $ - $ - $ - $ - $ 1,364
Quartz Hill 1,347 - - - (1,347) -
Five Stars Gold 819 9 - - (828) -
Other 57 376 - - (310) 123
------------------------------------------------------------------------------
Sub-total 3,587 385 - - (2,485) 1,487
------------------------------------------------------------------------------
SURINAME (1)
Benzdorp / Lawa 3,352 - - - (3,352) -
Gross Rosebel 14,543 742 - (372) - 14,913
Headley's Right of
Exploration 313 1 - - (314) -
Thunder Mountain 456 1 - - (457) -
Saramacca 1,973 2 - (6) (1,969) -
Sara Kreek 588 - - - (588) -
Tempati Reconnaissance 347 1 - - (348) -
Tapanahony Reconnaissance 234 - - - (234) -
Kleine Saramacca 107 - - - (107) -
Lawa Antino 2,109 36 - - (2,145) -
Ulemari Reconnaissance 237 - - - (237) -
Other 283 227 - - (298) 212
------------------------------------------------------------------------------
Sub-total 24,542 1,010 - (378) (10,049) 15,125
------------------------------------------------------------------------------
FRENCH GUIANA (2)
(Guyanor Ressources S.A.)
Dorlin 2,363 796 - (551) - 2,608
St-Elie 2,377 209 - - (2,586) -
Yaou 7,486 413 - (266) - 7,633
Paul Isnard / Eau Blanche 4,650 796 - - - 5,446
Paul Isnard Alluvials 1,987 - - - - 1,987
Dachine 1,481 764 - (525) - 1,720
Other - 51 - (51) - -
------------------------------------------------------------------------------
Sub-total 20,344 3,029 - (1,393) (2,586) 19,394
------------------------------------------------------------------------------
AFRICA
(Pan African
Resources Corporation (3))
Ivory Coast / Tanda 4,304 222 - - (2,845) 1,681
Kenya / Ndori 2,565 52 - - (2,617) -
(Bogoso Gold Limited (4))
Riyadh - 5 70 - - 75
Bogoso Sulfide - 160 - - - 160
------------------------------------------------------------------------------
Sub-total 6,869 439 70 - (5,462) 1,916
------------------------------------------------------------------------------
LATIN AMERICA (1)
Brazil / Abacaxis 2,498 400 - - (2,898) -
Brazil / Other 275 90 - - (365) -
------------------------------------------------------------------------------
Sub-total 2,773 490 - - (3,263) -
------------------------------------------------------------------------------
OTHER 88 - - - (88) -
------------------------------------------------------------------------------
TOTAL $ 58,203 $5,353 $ 70 $(1,771) $(23,933) $37,922
==============================================================================
(1) A division of the Company.
(2) Approximately 71% owned by the Company.
(3) A wholly-owned subsidiary of the Company.
(4) A 70% owned subsidiary of the Company.
(5) Our holdings include ownership interests, royalty interests, leases, options
and joint venture interests in varying percentages.
F-17
The recoverability of amounts shown for deferred exploration is dependent upon
sale or the discovery of economically recoverable reserves, the ability of the
Company to obtain necessary financing to complete the development, and upon
future profitable production or proceeds from the disposition thereof. The
amounts deferred represent costs to be charged to operations in the future and
do not necessarily reflect the present or future values of the properties.
11. Investment in Omai Gold Mines Limited
- ---------------------------------------------
(a) Common Share Investment
The Company has a 30% common share equity interest in OGML, a Guyana company
established to build and operate the Omai Mine in Guyana. The common share
investment in OGML is accounted for using the equity method but, as of December
31, 2000, 1999 and 1998, the Company's share of cumulative losses of OGML
exceeded the value of its initial common equity investment, and accordingly, the
Company discontinued applying the equity method in these years. The Company's
unrecorded share of OGML's losses was $32.4 million, $22.9 million and $0.6
million at December 31, 2000, 1999 and 1998, respectively.
(b) Preferred Share Investment
The Company acquired a preferred share equity interest in recognition of
cumulative exploration costs of $5.0 million incurred by the Company on the Omai
project. The aggregate redemption value of these shares approximated $11.0
million of which $9.6 million had been received by the Company through December
31, 2000.
(c) Note Payable
On December 23, 1998 OGML advanced $3.2 million to the Company as an unsecured
loan to be repaid as and when Class I preferred shares of OGML held by the
Company are redeemed by OGML. The loan is non-interest bearing until September
30, 2010. Of the $0.7 million and $0.9 million of Class I preferred shares
redeemed in 1999 and 2000, approximately $0.7 million and $0.9 million
respectively, were used to reduce the outstanding loan balance. As of December
31, 2000 the Company owed OGML approximately $1.4 million under this loan, all
of which has been classified as long-term debt.
12. Share Capital
- ---------------------
(a) Stock Option Plan
Stock Options
The Company has one stock option plan, the 1997 Stock Option Plan (the GSR
Plan). Options granted under the GSR Plan are non-assignable and are
exercisable for a period of ten years or such other date as stipulated in a
stock option agreement between the Company and an optionee. The maximum number
of shares issuable under the plan is 5,600,000. The number of common shares
vested and exercisable under the plan at December 31, 2000 was 3,520,350. The
number of common shares vested and exercisable under the plan as of December 31,
1999 was 3,126,547.
Stock Option Loans
As of December 31, 1998 employees had exercised their rights under employee
stock option loan agreements and purchased 1,029,012 common shares against which
there were outstanding loans of Cdn$5.3 million which related to loans to two
employees, one a former officer and currently a director, and the other a former
officer of the Company. These loans were non-interest bearing, collateralized
by the Company's common shares issued under the agreement, and repayable within
five years from the date of exercise unless the loan term is extended by vote of
the Board of Directors.
During 1999, 679,012 shares were canceled that were previously issued for
options granted under the Company's Stock Option Plan and the remaining balance
related to stock option loans, principally to one former officer,
F-18
amounting to $3.3 million and collateralized by the shares, was also canceled.
During 1999, the Company negotiated repayment of the stock option loans in the
amount of approximately $0.7 million with the former officer and current
director, and it was paid in full in May 1999. There were no stock option loans
outstanding as of December 31, 1999. No new stock option loans were granted
during 2000.
Schedule of Stock Option Activity
Shares Under Option Price (Cdn$)
------------------- -------------
Shares Under Option at December 31, 1997
3,957,348 3.40 to $4.40
Granted 209,500 1.55 to $6.65
Exercised (73,460) $3.40
Canceled (596,658) 3.40 to $3.00
----------
Shares Under Option at December 31, 1998 3,496,730 1.55 to $4.40
==========
Granted 2,012,750 1.05 to $1.55
Exercised (17,500) $1.08
Canceled (1,761,766) 3.40 to $4.40
----------
Shares Under Option at December 31, 1999 3,730,214 1.05 to $3.40
==========
Granted 1,695,050 1.21 to $1.62
Exercised (62,400) 1.05 to $1.80
Canceled (541,980) 1.05 to $1.80
----------
Shares Under Option at December 31, 2000 4,820,844 1.05 to $1.80
==========
b) Stock Bonus Plan
In December 1992, the Company established an Employees' Stock Bonus Plan (the
"Bonus Plan") for any full-time or part-time employee (whether or not a
director) of the Company or any of its subsidiaries who has rendered meritorious
services which contributed to the success of the Company or any of its
subsidiaries. The Bonus Plan provides that a specifically designated committee
of the Board of Directors of the Company may grant bonus common shares on terms
that it may determine, within the limitations of the Bonus Plan and subject to
the rules of applicable regulatory authorities. The maximum number of common
shares issuable under the Bonus Plan is 320,000.
During 2000, 1999 and 1998, a total of 40,000, 24,994 and 32,783 common shares
respectively were issued to certain employees pursuant to the Bonus Plan. The
Company recognized compensation expense related to bonuses under the Bonus Plan
during 2000, 1999 and 1998 of $0.035 million, $0.02 million and $0.1 million
respectively.
c) Warrants
On August 24, 1999 the Company completed a financing with total proceeds from
the sale of equity units of $3.4 million, comprised of 6,923,000 common shares
and warrants to purchase 3,461,500 common shares. The exercise price of these
warrants was $0.70 and the expiration date was February 24, 2001. In December
2000, the Company obtained regulatory approval to reduce the exercise price for
2,299,500 of these warrants to $0.52 per share and to extend the life of these
same warrants to the earlier of August 24, 2001 or the 30th calendar day
following the determination that the 10-day weighted average trading price is
greater than $0.62 per share. The new price was in excess of the fair market
value at the date of the re-pricing. In conjunction with the convertible
debenture financing (also completed on August 24, 1999), which totaled
$4,155,000, the Company also issued warrants ("four year warrants") to the
holders of the debentures to purchase up to 831,000 common shares. The exercise
prices for the four-year warrants are $1.50 if exercised prior to August 24,
2001 and $1.75 if exercised after August 24, 2001 but before August 24, 2003.
The four-year warrants expire August 24, 2003.
Also on August 24, 1999 the Company issued warrants at an exercise price of
$0.70 to purchase a total of 380,825 common shares of the Company, in connection
with the equity financing completed on the same date. These
F-19
warrants had an expiration date of August 24, 2000. In August 2000, the Company
extended the life of these warrants to February 24, 2001. In December 2000, the
Company obtained regulatory approval to reduce the exercise price for these
warrants to $0.52 per share and to extend the life of these warrants to the
earlier of August 24, 2001 or the 30th calendar day following the determination
that the 10-day weighted average trading price is greater than $0.62 per share.
The new price was in excess of the fair market value at the date of the re-
pricing.
On June 9, 1999 the Company issued two warrants to a financial institution to
purchase 1,500,000 common shares of the Company, in connection with the credit
facility that was arranged, but not used to effect, the purchase of BGL. These
warrants were exercisable at a price of $0.7063 each and expire June 9, 2002.
In October 1999, the Company reduced the exercise price of these warrants from
$0.7063 to $0.425. The fair value of the warrants of approximately $1.3 million
is included in share capital, and was reflected as a purchase price adjustment
in the fourth quarter of 1999. The credit facility was canceled on August 18,
1999.
On October 26 1999 the Company issued two warrants at an exercise price of $0.70
to brokerage firms to purchase a total of 380,825 common shares of the Company
in connection with the completion of the August 24 equity financing and the
closing of the BGL acquisition. These warrants had an expiration date of August
24, 2000. In August 2000, the Company extended the life of these warrants to
February 24, 2001. In December 2000, the Company obtained regulatory approval
to reduce the exercise price for these warrants to $0.52 per share and to extend
the life of these warrants to the earlier of August 24, 2001 or the 30th
calendar day following the determination that the 10-day weighted average
trading price is greater than $0.62 per share. The new price was in excess of
the fair market value at the date of the re-pricing.
13. Income Taxes
- -------------------
Effective January 1, 2000, the Company adopted the liability method of
accounting for income taxes in accordance with the Canadian Institute of
Chartered Accountants new income tax standard. Under this method, income tax
liabilities and assets are recognized for the estimated tax consequences
attributable to differences between the amounts reported in the financial
statements and their respective tax bases, using enacted income tax rates. The
effect of the change in income tax rates on future income tax liabilities and
assets is recognized in the results of the period that the change occurs.
Formerly, Canadian generally accepted accounting principles required the future
income tax method be used.
Income tax accounting for US GAAP utilizes a similar asset and liability
approach. Use of the asset and liability method has no effect on the US GAAP
nor the Cdn GAAP financial statements as the Company has concluded that a full
valuation allowance must be applied to the future tax asset resulting from the
Company's net operating loss carryforwards. For the years ended December 31,
2000 and 1999, the Company has recorded no current tax expense under Canadian
nor US GAAP due to the cumulative net losses incurred by the Company.
Summarized below are the components of future taxes:
As of December 31,
----------------------
2000 1999
---- ----
Temporary differences relating to net assets:
Other current assets $ 62 $ 62
Property & equipment 753 575
Deferred exploration 27,939 27,377
Investment in OGML 930 1,029
Offering costs 1,324 1,324
Tax loss and credit carryforwards 18,016 18,775
-------- --------
Gross future tax asset 49,024 49,142
-------- --------
Valuation allowance (49,024) (49,142)
-------- --------
Net future tax assets $ - $ -
======== ========
Any income tax benefits resulting from utilization of net operating loss carry
forwards existing at May 15, 1992, the date of the quasi-reorganization under US
GAAP, would be excluded from results of operations and credited directly to
share capital, resulting in lower earnings than would be reported absent the
quasi-reorganization. The Company
F-20
has unutilized capital allowances of approximately $19.5 million which will be
available for deductions by BGL in future periods.
14. Operations by Geographic Area
- ------------------------------------
Information on the Company's continuing operations by geographic area for the
years ended December 31, 2000, 1999 and 1998 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.
Net Identifiable
Revenues Income(Loss) Assets
-------- ------------ ------------
2000
South America $ 29 $(14,009) $21,960
Africa 30,916 18 24,625
Corporate 226 (890) 2,884
- --------------------------------------------------------------------------------
Total 31,171 (14,881) 49,469
================================================================================
1999
South America $ 345 $(19,176) $36,800
Africa 10,611 (1,508) 26,364
Corporate 298 (3,682) 11,188
- --------------------------------------------------------------------------------
Total $11,254 $(24,366) $74,352
================================================================================
1998
South America $ 8 $(18,448) $52,711
Africa - (6) 6,865
Corporate 627 (3,794) 9,021
- --------------------------------------------------------------------------------
Total $ 635 $(22,248) $68,597
================================================================================
15. Generally Accepted Accounting Principles in Canada and the United States
- -------------------------------------------------------------------------------
The financial statements have been prepared in accordance with accounting
principles generally accepted in Canada (Cdn GAAP) 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. (US GAAP) Differences which materially
affect these consolidated financial statements are:
(a) For US GAAP exploration and general and administrative costs related to
projects are charged to expense as incurred. As such, the majority of
costs charged to Exploration Expense and Abandonment of Mineral Properties
under Canadian GAAP would have been charged to earnings in prior periods
under US GAAP. Prior to January 1, 2000, acquisition costs for exploration
properties were capitalized under US GAAP. The Company changed its method
effectively January 1, 2000 whereby the Company has expensed previously
capitalized acquisition costs related to exploration projects, totaling
$11,302,000, based upon the uncertainty of the ultimate recoverability of
these costs under FAS 121. Under US GAAP, the Company now expenses all
exploration costs, including property acquisition costs, for exploration
projects.
(b) Under US GAAP, the preferred share investment in OGML would have a carrying
value of nil since the preferred shares were received in recognition of
past exploration costs incurred by the Company, all of which were expensed
for US GAAP purposes. Therefore, the entire Omai preferred share
redemption premium would have been included in income. Under Cdn GAAP, a
portion of the premium on the Omai preferred share redemption premium is
included in income with the remainder reducing the carrying value of the
Company's preferred stock investment.
(c) US GAAP requires that compensation expense be recorded for the excess of
the quoted market price over the option price granted to employees and
directors under stock option plans. Under Cdn GAAP, no compensation
expense is required to be recorded for such awards.
F-21
(d) Cdn GAAP requires that convertible debentures should be classified into
their component parts, as either a liability or equity, in accordance with
the substance of the contractual agreement. Under US GAAP, the convertible
debenture would be classified entirely as a liability.
(e) The gains on subsidiaries' issuance of common shares recorded under Cdn
GAAP in respect of the Guyanor public offering and the PARC private
placement are not appropriate under US GAAP.
(f) The Company eliminated its accumulated deficit through the amalgamation
(defined as a reorganization under US GAAP) effective May 15, 1992. Under
US GAAP the cumulative deficit was greater than the deficit under Cdn GAAP
due to the write-off of certain deferred exploration costs described in (a)
above.
(g) Under US GAAP, items such as foreign exchange gains and losses are required
to be shown separately in derivation of Comprehensive Income.
(h) Under US GAAP, the fair value of warrants issued in connection with the
credit facility that was arranged for, but not used to effect the purchase
of BGL, is required to be expensed. Such costs were capitalized as part of
the purchase cost of BGL for Canadian GAAP.
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,
2000 1999 1998
-------- -------- --------
Net loss under Canadian GAAP $(14,881) $(24,366) $(22,248)
Net effect of the deferred exploration expenditures on loss
for the period (a) 12,166 13,403 4,901
Effect of capitalized acquisition costs (a) (11,302) (1,233) -
Other (b) (d) (g) (h) 992 315 814
-------- -------- --------
Loss under US GAAP before minority interest (13,025) (11,881) (16,533)
Minority interest, as adjusted (a) (h) 560 546 1,138
-------- -------- --------
Net loss under US GAAP (12,465) (11,335) (15,395)
Other comprehensive income foreign exchange gain (loss) (g) 254 10 (26)
-------- -------- --------
Comprehensive income $(12,211) $(11,325) $(15,421)
======== ======== ========
Basic and diluted net loss per share under US GAAP $(0.33) $(0.35) $(0.51)
======== ======== ========
Under US GAAP the Omai preferred share redemption premium would be included with
costs and expenses before the caption "Loss Before the Undernoted" on the
consolidated statements of operations. Weighted average common shares
outstanding are substantially the same under US GAAP as under Cdn GAAP for the
periods presented.
F-22
The effect of the differences in accounting under Canadian GAAP and US GAAP on
the balance sheets and statements of cash flows are as follows:
Balance Sheet
December 31, 2000 December 31, 1999
---------------------- ----------------------
US GAAP Cdn GAAP US GAAP Cdn GAAP
---------- ---------- ---------- ----------
Cash $ 991 $ 991 $ 2,905 $ 2,905
Other current assets 11,969 11,969 11,052 11,052
Restricted cash 4,147 4,147 6,000 6,000
Acquisition, deferred
exploration and development (a) - 24,492 11,302 37,922
Investment in OGML (b) - 625 - 1,023
Mining property (h) 1,371 1,922 9,180 10,413
Long-term investments - - - -
Other assets 5,542 5,323 5,196 5,037
--------- --------- --------- ---------
Total Assets $ 24,020 $ 49,469 $ 45,635 $ 74,352
========= ========= ========= =========
Liabilities (d) $ 19,681 $ 18,985 $ 24,799 $ 23,828
Minority interest 4,817 4,444 9,690 10,023
Share capital, net of stock
option loans (f) 158,519 161,967 157,932 161,547
Cumulative translation
adjustments 1,595 - 1,595 -
Accumulated comprehensive
income (g) (329) - (583) -
Deficit (160,263) (135,927) (147,798) (121,046)
--------- --------- --------- ---------
Total Liabilities and
Shareholders' Equity $ 24,020 $ 49,469 $ 45,635 $ 74,352
========= ========= ========= =========
(For items (a) to (h), see pages F-21-F-22)
Under US GAAP, receivables would be separately disclosed as follows:
2000 1999
----- ------
Receivables from employees $ 35 $ 119
Receivables from joint venture partners (11) 334
Interest receivable 0 16
Trade receivables 952 1,507
Allowance for doubtful accounts - -
----- ------
Total Receivables $ 976 $1,976
===== ======
F-23
Statement of Changes in Shareholders' Equity Under US GAAP
Equity
Common Component Accum.
Stock Stock Cumulative of Compre-
Number of Share Option Translation Convertible hensive
Shares Capital Loans Warrants Adjustment Debentures Deficit Income
---------- -------- ------- --------- ----------- ----------- --------- --------
December 31, 1997
US GAAP 29,797,432 $155,210 $(4,012) $ - $1,595 $ - $(121,068) $(567)
Canadian GAAP 29,797,432 158,001 (4,012) - - - (74,432) -
December 31, 1998
US GAAP 30,292,249 156,372 (4,012) - 1,595 - (136,463) (593)
Canadian GAAP 30,292,249 159,163 (4,012) - - - (96,680) -
December 31, 1999
US GAAP 36,943,731 156,422 - 1,510 1,595 - (147,798) (583)
Canadian GAAP 36,943,731 159,161 - 1,341 - 1,.045 (121,046) -
December 31, 2000
US GAAP 37,588,988 156,903 - 1,613 1,595 - (160,263) (329)
Canadian GAAP 37,588,988 159,581 - 1,341 - 1,045 (135,927) -
(For items (a) to (h), see page F-21-F-22)
Statements of Cash Flows Under US GAAP [
Net Cash Provided By (Used In): Operating Activities Investing Activities Financing Activities
---------------------- ---------------------- ----------------------
For the Years Ended, Cdn GAAP US GAAP Cdn GAAP US GAAP Cdn GAAP US GAAP
- -------------------- ---------- ---------- ----------- --------- ---------- ----------
December 31, 2000 $ 2,529 $ 206 $ (3,289) $ (966) $(1,154) $(1,154)
December 31, 1999 $ (97) $ (3,144) $(11,331) $(4,079) $ 6,983 $ 6,983
December 31, 1998 $(7,719) $(14,792) $ (5,716) $ 2,743 $ 3,386 $ 2,327
(For items (a) to (h), see page F-21-F-22)
US GAAP Stock-Based Compensation Plans
At December 31, 2000 the Company has two stock-based compensations plans, which
are described below. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its plans in its US GAAP presentations. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under the plans
consistent with the method described in Statement of Financial Accounting
Standards No. 123, the Company's consolidated net loss and loss per share under
US GAAP would have been increased to the pro forma amounts indicated below:
2000 1999 1998
---- ---- ----
Net loss under US GAAP As reported $(12,465) $(11,335) $(15,395)
Pro forma $(13,152) $(12,584) $(19,831)
Net loss per share under US GAAP As reported $ (0.33) $ (0.35) $ (0.51)
Pro forma $ (0.35) $ (0.39) $ (0.66)
Under the 1997 Stock Option Plan ("GSR Plan"), the Company may grant options to
employees, consultants and directors of the Company or its subsidiaries for up
to 5,600,000 shares of common stock. Under the GSR Plan, the options may take
the form of non-qualified stock options, the exercise price of each option shall
not be less than the market price of the Company's stock on the date of grant,
and an option's maximum term is ten years or such other shorter term as
stipulated in a stock option agreement between the Company and the optionee.
Options under the GSR Plan are granted from time to time at the discretion of
the Board of Directors. Options granted under the GSR Plan vest over periods
ranging from immediately to four years from the date of grant and vesting
periods are determined at the discretion of the Board of Directors.
Under the Guyanor Ressources S.A. Stock Option Plan (the "Guyanor Plan"),
Guyanor may grant options to its employees for up to 4,367,889 shares of Class B
common shares. The options may take the form of non-qualified
F-24
stock options, the exercise price of each option shall not be less than (i) the
equivalent of the Canadian Dollar amount equal to the closing price of the
shares on the Toronto Stock Exchange on the trading day immediately prior to the
day the option is granted and (ii) 80% of the average closing price on the
Noveau March[_] of the Bourse de Paris during the 20 consecutive trading days
immediately preceding the date the option is granted. An option's term is ten
years. Options under the Guyanor Plan are granted from time to time at the
discretion of Guyanor's Board of Directors and vest over periods ranging from
immediately to two years.
Following the Plan of Arrangement whereby PARC became a wholly-owned subsidiary
of the Company, stock options are still outstanding but there is no market to
trade the shares.
During 1999, certain employee stock options were repriced. On January 15, 1999
the Board of Directors of the Company approved, subject to any necessary
regulatory and shareholder approvals, the amendment of certain stock options.
The number of shares that can be purchased under these outstanding options has
been reduced by 20%. The exercise price of outstanding stock options previously
granted by the Company to certain directors and officers ("Insiders"), employees
and consultants ("Non-Insiders") of the Company was amended to Cdn$1.80 (if the
exercise price was larger than Cdn$1.80). The exercise price of the stock
options being repriced ranges from Cdn$2.76 to Cdn$22.40. The total number of
shares of the stock options repriced was 2,525,780. Of that amount 2,026,780
were held by Insiders and 499,000 were held by Non-Insiders. All the necessary
approvals were obtained and the Insiders' options were reduced to 1,621,424 (a
reduction of 405,356) and the Non-Insiders' options were reduced to 399,200 (a
reduction of 99,800).
The fair value of each option grant is estimated on the date of grant for all
plans using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 2000, 1999 and 1998:
2000
GSR Plan Guyanor Plan
---------------------------------
Expected volatility 87.8% 94.7%
Risk-free interest rate 6.10% - 6.79% 6.33% - 6.37%
Expected lives 5 years 5 years
Dividend yield 0% 0%
1999
GSR Plan Guyanor Plan
---------------------------------
Expected volatility 82.2% 90.3%
Risk-free interest rate 4.65% - 6.08% 5.15%
Expected lives 5 years 5 years
Dividend yield 0% 0%
1998
GSR Plan Guyanor Plan
---------------------------------
Expected volatility 105.9% N/A
Risk-free interest rate 4.37% to 5.70% N/A
Expected lives 5 years N/A
Dividend yield 0% N/A
The following tables summarize information about stock options under the GSR
Plan:
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
GSR Plan (000) (Cdn$) (000) (Cdn$) (000) (Cdn$)
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 3,730 $1.56 3,497 $10.40 3,957 $10.79
Granted 1,695 $1.39 2,013 $ 1.42 210 $ 2.47
Exercised (62) $1.55 (18) $ 1.08 (73) $ 3.40
Forfeited (542) $1.73 (1,762) $ 7.55 (597) $15.27
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 4,821 $1.56 3,730 $ 1.86 3,497 $10.40
Options exercisable at year-end 3,520 3,127 3,318
Weighted-average fair value of
options granted during the year 1.23 $ 1.86 $ 1.90
F-25
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------------------------------
Number Number
GSR Plan Outstanding at Weighted-Average Weighted-Average Exercisable at Weighted-Average
Range of Exercise Dec. 31, 2000 Remaining Exercise Price Dec. 31, 2000 Exercise Price
Prices (Cdn$) (000) Contractual Life (Cdn$) (000) (Cdn$)
- ----------------------------------------------------------------------------------------------------------------------
$1.00 to $1.15 133 8.38 $1.09 107 $1.08
$1.16 to $1.64 2,419 9.08 $1.38 1,145 $1.37
$1.65 to $1.80 2,269 5.48 $1.79 2,268 $1.79
- -------------- ----- ---- ----- ----- -----
4,821 $1.56 3,520 $1.63
The following tables summarize information about stock options for the Guyanor
plan:
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
GSR Plan (000) (Cdn$) (000) (Cdn$) (000) (Cdn$)
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 3,216 $ 3.40 3,035 $ 3.56 3,143 $ 3.60
Granted 70 $ 0.78 181 $ 0.72 - -
Exercised - - - - (11) $ 1.64
Forfeited (1,736) 3.87 - - (97) $ 5.07
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 1,550 $ 2.75 3,216 $ 3.40 3,035 $ 3.56
Options exercisable at year-end 1,539 3,095 3,035
Weighted-average fair value of
options granted during the year $ 0.70 $ 0.72 N/A
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------------------------------
Number Number
GSR Plan Outstanding at Weighted-Average Weighted-Average Exercisable at Weighted-Average
Range of Exercise Dec. 31, 2000 Remaining Exercise Price Dec. 31, 2000 Exercise Price
Prices (Cdn$) (000) Contractual Life (Cdn$) (000) (Cdn$)
- ----------------------------------------------------------------------------------------------------------------------
$0.72 to $1.64 348 7.83 $1.18 333 $1.20
$2.10 to $3.30 1,073 4.46 $2.48 1,073 $2.48
$9.20 129 5.95 $9.20 129 $9.20
- ----------------------------------------------------------------------------------------------------------------------
1,550 1,535
The following tables summarize information about stock options for the PARC
plan:
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
GSR Plan (000) (Cdn$) (000) (Cdn$) (000) (Cdn$)
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year N/A N/A N/A N/A 2,338 $ 0.90
Granted N/A N/A N/A N/A - -
Exercised N/A N/A N/A N/A -
Forfeited N/A N/A N/A N/A (2,338) $ 0.90
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year N/A N/A N/A N/A - -
Options exercisable at year-end N/A N/A N/A N/A -
Weighted-average fair value of
options granted during the year N/A N/A N/A N/A N/A
F-26
Impact of Recently Issued Accounting Standards
In June 1998 the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities (FAS 133).
FAS 133 is effective for all fiscal years beginning after June 15, 2000. FAS
133 requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. Since the Company has no derivative instruments and does
not hedge, there is currently no impact on the Company's financial statements
per this new accounting standard.
Operations by Geographic Area under US GAAP
Information on the Company's continuing operations by geographic area under US
GAAP for the years ended December 31, 2000, 1999 and 1998 is shown below.
Operating earnings from continuing operations are total revenues less operating
expenses of the geographic areas.
Net Identifiable
Revenues Income(Loss) Assets
-------- ------------ ------------
2000
South America $ 29 $(12,092) $ 301
Africa 30,916 (95) 20,809
Corporate 226 (278) 2,910
- ----------------------------------------------------------------------------
Total $31,171 $(12,465) $24,020
============================================================================
1999
South America $ 345 $ (9,381) $12,038
Africa 10,611 2,547 23,246
Corporate 298 (4,501) 10,351
- ----------------------------------------------------------------------------
Total $11,254 $(11,335) $45,635
============================================================================
1998
South America $ 8 $ (8,626) $18,520
Africa - (3,002) 1,034
Corporate 627 (3,767) 7,686
Total $ 635 $(15,395) $27,240
============================================================================
16. Related Parties
- ----------------------
During 1999, the Company, in conjunction with Anvil Mining NL, acquired BGL (see
Note 9). The current President and CEO of the Company, Peter J. Bradford, is
also a Director of Anvil Mining NL and this relationship constitutes a related
party. Based on the heads of agreement with Anvil to effect the BGL
acquisition, the Company provided Anvil with a promissory note for their share
of the purchase price and also a note for their share of the acquisition costs.
On April 4, 2001, the Company announced that it had entered into an agreement to
acquire Anvil's 20% equity interest in BGL in return for the issuance of
3,000,000 common shares of Golden Star.
17. Commitments and Contingencies
- ------------------------------------
Environmental Regulations
The Company is not aware of any events of material non-compliance in its
operations with environmental laws and regulations which could have a material
adverse effect on the Company's operations or financial condition. The exact
nature of environmental control problems, if any, which the Company may
encounter in the future cannot be predicted, primarily because of the changing
character of environmental requirements that may be enacted within foreign
jurisdictions. The environmental rehabilitation liability for reclamation and
closure costs at the Bogoso mine was $5.7 million at December 31, 2000 and $6.7
at December 31, 1999.
Restricted Cash (for the Environmental Rehabilitation Liability)
Upon the closing of the acquisition of BGL in 1999, the Company was required,
according to the acquisition agreement, to restrict $6 million in cash. These
funds are to be used for the ongoing, final reclamation and closure costs
relating to the Bogoso mine site. The withdrawal of these funds must be agreed
to by the sellers of BGL, who
F-27
are ultimately responsible for the reclamation in the event of non-performance
by Golden Star and Anvil. During 2000 the Company was allowed to draw down $1.9
million of the restricted cash to cover ongoing reclamation costs incurred since
the September 1999 project acquisition. At December 31, 2000 the remaining
balance in the BGL reclamation cash fund was $4.1 million.
Payment to the IFC
Under the terms of the purchase agreement between the Company, Anvil and the
Sellers, the Company and Anvil together were required to make a payment to the
Sellers on September 30, 2000 in the amount of $2.8 million. The amount of the
payment was determined using a formula in the purchase agreement, which
incorporates the average price of gold during the twelve months ended September
30, 2000. The Company paid the Sellers $1.4 million on November 9, 2000 and
reached agreement with the Sellers that the balance, plus interest at 10% per
annum, was to be paid by December 22, 2000. The Company is in discussions with
the representatives of the Sellers but, to date the remaining balance and
accrued interest is still unpaid.
18. Quarterly Financial Data - Unaudited
- ------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
2000
---------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------------ ------------------ ------------------ ------------------
- ---------------------------------------------------------------------------------------------------------------------------
Net Sales 8,991 9,110 7,742 5,328
- ---------------------------------------------------------------------------------------------------------------------------
Gross Profit/(Loss) 949 319 (1,190) (15,541)
- ---------------------------------------------------------------------------------------------------------------------------
Net Income (70) (156) (1,689) (12,966)
- ---------------------------------------------------------------------------------------------------------------------------
Earning/(Loss) Per Common Share $ 0.00 $ 0.00 ($0.04) ($0.36)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
1999
---------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------------ ------------------ ------------------ ------------------
- ---------------------------------------------------------------------------------------------------------------------------
Net Sales 166 56 65 10,294
- ---------------------------------------------------------------------------------------------------------------------------
Gross Profit/(Loss) 65 (3,240) (20,527) 1,618
- ---------------------------------------------------------------------------------------------------------------------------
Net Income (273) (3,993) (20,390) 290
- ---------------------------------------------------------------------------------------------------------------------------
Earning/(Loss) Per Common Share ($0.01) ($0.13) ($0.65) $ 0.03
- ---------------------------------------------------------------------------------------------------------------------------
Year 2000:
Third quarter results included a $1.7 million impairment adjustment for the
Dachine diamond property. Fourth quarter results included $15.0 million of
impairment related write-offs of several deferred exploration projects in
Africa, French Guiana, and Guyana.
Year 1999:
Deferred exploration costs of $3.3 million were written off in the second
quarter of 1999 all related to projects in Brazil. During the third quarter of
1999 an additional $20.4 million of deferred exploration costs were written off
related to projects in Guyana, Suriname, French Guiana, Kenya and the Ivory
Coast.
F-28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ------------------------------------------------- --------------
FINANCIAL DISCLOSURE
---------------------
There have been no disagreements with PricewaterhouseCoopers LLP, the Company's
chartered accountants, regarding any matter of accounting principles or
practices or financial statement disclosure.
PART III
ITEMS 10, 11, 12 AND 13
- -----------------------
In accordance with General Instructions G(3), the information required by Part
III is herby incorporated by reference from the Company's proxy statement to be
filed pursuant to Regulation 14A not later than 120 days after the fiscal year
covered by this report.
59
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, 2000 and 1999
Consolidated Statements of Operations Years Ended December 31, 2000, 1999
and 1998
Consolidated Statement of Changes in Shareholders' Equity Years Ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows Years Ended December 31, 2000, 1999
and 1998
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Financial Statement schedules have been omitted since they are either not
required, are not applicable, or the required information is shown in the
financial statements or related notes.
(b) Reports on Form 8-K.
On October 5, 2000 the Company filed with the Securities and Exchange
Commission a Form 8-K regarding an appeal filed by the Company against
the American Stock Exchange's intention to remove the Company's shares
from listing on the Exchange.
On October 20, 2000 the Company filed with the Securities and Exchange
Commission a Form 8-K regarding the results from the bulk sampling
program undertaken by Guyanor and its joint venture partner Rio Tinto
Mining and Exploration Limited on the Dachine Diamond Project in French
Guiana and Rio Tinto's intention to withdraw from the project and
terminate of the joint venture.
EXHIBITS
--------
2 (a) 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 (a) 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 (b) 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 (c) 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 (a) 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)
60
4 (b) Registration Statement Form S-3 (333-12673) (incorporated by reference
as filed on October 2, 1997)
4 (c) Rights Agreement dated April 24, 1996, between the Company and The R-M
Trust Company (incorporated by reference to Exhibit 4.1 to the Company's
Form 8-K dated May 7, 1996)
4 (d) Amendment to Rights Agreement between the Company and CIBC Mellon Trust
Company (formerly, the R-M Trust Company) dated as of June 30, 1999
(incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q
for the period ended June 30, 1999)
4 (e) Indenture, dated as of August 24, 1999, between the Company and IBJ
Whitehall Bank & Trust Company, as trustee (the "Trustee") (incorporated
by reference to Exhibit 4.1 to the Company's Form 8-K dated August 24,
1999)
4 (f) Indenture Supplement, dated as of August 24, 1999, between the Company
and the Trustee (incorporated by reference to Exhibit 4.2 to the
Company's Form 8-K dated August 24, 1999)
4 (g) Form of Specimen of Debenture (incorporated by reference to Exhibit 4.3
to the Company's Form 8-K dated August 24, 1999)
4 (h) Form of Specimen of Four-Year Warrant (incorporated by reference to
Exhibit 4.4 to the Company's Form 8-K dated August 24, 1999)
4 (i) Form of Specimen of Eighteen-Month Warrant (incorporated by reference to
Exhibit 4.5 to the Company's Form 8-K dated August 24, 1999)
4 (j) Form of Specimen of Broker Warrant (incorporated by reference to Exhibit
4.6 to the Company's Form 8-K dated August 24, 1999)
10 (a) 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 (b) 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 (c) 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 (d) 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 (e) 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 (f) 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)
61
10 (g) English translation of the Exploration Agreement dated May 13, 1996,
between the Company's wholly owned subsidiary Southern Star Resources
Ltd. and its wholly-owned Brazilian subsidiary, Estrela Sul do Brasil
Empreendimentos Ltda. and Companhia Vale do Rio Doce and its subsidiary
Rio Doce Geologia e Mineracao S.A. (incorporated by reference to Exhibit
10.24 to the Company's Form 10-K for the year ended December 31, 1996)
10 (h) English translation of the Option and Joint Venture Agreement dated June
26, 1996, between Societe de Travaux Publics et de Mines Aurifiere
en Guyane, Societe Guyanaise des Mines, LaSource Developpement SAS
and ASARCO Exploration Company for the Paul Isnard property
(incorporated by reference to Exhibit 10.26 to the Company's Form 10-K
for the year ended December 31, 1996)
10 (i) 1997 Stock Option Plan as amended and restated to June 14, 1999
(incorporated by reference to Exhibit 10.33(a) to the Company's Form
10-K for the year ended December 31, 1999)
10 (j) Employees' Stock Bonus Plan amended and restated to April 6, 2000
10 (k) Guyanor Ressources S.A. Stock Option Plan amended and restated as of
June 15, 1999 (English translation) (incorporated by reference to
Exhibit 10.35(a) to the Company's Form 10-K for the year ended December
31, 1999)
10 (l) 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 (m) Employment contract with Mr. Peter Bradford dated November 1, 1999
(incorporated by reference to Exhibit 10.38(c) to the Company's Form 10K
for the year ended December 31, 1999)
10 (n) Agreements between the Company and its outside directors granting them
options to purchase Guyanor Class "B" common shares, (1) dated December
8, 1995, and December 10, 1996 (incorporated by reference as Exhibit
10.39 to the Company's Form 10-K for the year ended December 31, 1996),
(2) dated December 9, 1997 (incorporated by reference to Exhibit
10.39(a) to the Company's Form 10-K for the year ended December 31,
1997), (3) dated December 8, 1998 (incorporated by reference to Exhibit
10.39(b) to the Company's Form 10-K for the year ended December 31,
1998), and (4) dated June 15, 1999 (incorporated by reference to Exhibit
10.39(c) to the Company's Form 10-K for the year ended December 31, 1999
10 (o) Registration Rights Agreement between the Company, Elliott Associates,
L.P. and Westgate International L.P. (incorporated by reference to
Exhibit 10.2 to the Company's Form 10-Q for the period ended June 30,
1999)
10 (p) Warrant to purchase common stock granted by the Company to Elliott
Associates, L.P. dated June 9, 1999 (incorporated by reference to
Exhibit 10.3 to the Company's Form 10-Q for the period ended June 30,
1999)
10 (q) Agreement for the sale and purchase of debt and 90% of the shares of
Bogoso Gold Limited dated as of June 1, 1999 (incorporated by reference
to Exhibit 10.4 to the Company's Form 10-Q for the period ended June 30,
1999)
10 (r) Revised and Restated Agreement, dated as of June 1, 1999, among the
Company, Anvil and the other parties signatory thereto Agent
(incorporated by reference to Exhibit 2.1 to the Company's Form 8-K
dated September 30, 1999)
62
10 (s) Credit Facility letter and Option Premium Letter between Elliott
Associates L.P. and the Company entered into on May 5, 1999 in
connection with the purchase of 90% interest in Bogoso Gold Mine Ltd.
(incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q
for the period ended June 30, 1999)
10 (t) Agency Agreement, dated August 16, 1999, between the Company and TD
Securities (USA) Inc, as agent (the "Agent") (incorporated by reference
to Exhibit 10.1 to the Company's Form 8-K dated August 24, 1999)
10 (u) Registration Rights Agreement, dated as of August 24, 1999, between the
Company and the Agent (incorporated by reference to Exhibit 10.2 to the
Company's Form 8-K dated August 24, 1999)
10 (v) Escrow Agreement, dated as of August 24, 1999, among the Company, the
Agent, IBJ Whitehall Bank & Trust Company, as escrow agent, and
International Finance Corporation (incorporated by reference to Exhibit
10.3 to the Company's Form 8-K dated August 24, 1999)
10 (w) Heads of Agreement dated June 9, 1999, between Guyanor Ressources S.A.
and Rio Tinto Mining and Exploration Limited regarding the Dachine
project in French Guiana (incorporated by reference to Exhibit 10.50 to
the Company's Form 10-K for year-end 1999)
10 (x) Heads of Agreement dated December 29, 2000, between Guyanor Ressources
S.A. and Rio Tinto Mining and Exploration Limited regarding the Paul-
Isnard project in French Guiana
10 (y) Share Subscription Agreement dated December 28, 2000 between the Company
and Rio Tinto Mining and Exploration Limited
21.1 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP, Chartered Accountants
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GOLDEN STAR RESOURCES LTD.
Registrant
By: /s/ Peter J. Bradford
-------------------------------------
Peter J. Bradford
President and Chief Executive Officer
Date: April 10, 2001
-------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
By: /s/ Peter J. Bradford By: /s/ Allan J. Marter
--------------------- ------------------------------------------
Name: Peter J. Bradford Name: Allan J. Marter
--------------------- ------------------------------------------
Title: President and CEO Title: Vice-President and Chief Financial Officer
--------------------- ------------------------------------------
Date: April 10, 2001 Date: April 10, 2001
--------------------- ------------------------------------------
By: /s/ James E. Askew By: /s/ David K. Fagin
--------------------- ------------------------------------------
Name: James E. Askew Name: David K. Fagin
--------------------- ------------------------------------------
Title: Director Title: Director
--------------------- ------------------------------------------
Date: April 10, 2001 Date: April 10, 2001
--------------------- ------------------------------------------
By: /s/ Ernest C. Mercier By: /s/ Ian MacGregor
--------------------- ------------------------------------------
Name: Ernest C. Mercier Name: Ian MacGregor
--------------------- ------------------------------------------
Title: Director Title: Director
--------------------- ------------------------------------------
Date: April 10, 2001 Date: April 10, 2001
--------------------- ------------------------------------------
By: /s/ Robert R. Stone
---------------------
Name: Robert R. Stone
---------------------
Title: Director
---------------------
Date: April 10, 2001
---------------------
64