-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I6ny+VfYefw5L1yD7ey3jbKBHayw/GBf3Fgh0fSUi+VTj2ZU8hy4vI6jofdLmkhB fqAKMryv4MyJn0lZudlUWA== 0000950134-97-002542.txt : 19970401 0000950134-97-002542.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950134-97-002542 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDEN STAR RESOURCES LTD CENTRAL INDEX KEY: 0000903571 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 980101955 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12284 FILM NUMBER: 97571562 BUSINESS ADDRESS: STREET 1: 1700 LINCOLN ST STE 1950 CITY: DENVER STATE: CO ZIP: 80203 BUSINESS PHONE: 3038309000 MAIL ADDRESS: STREET 1: 1700 LINCOLN ST STREET 2: STE 1950 CITY: DENVER STATE: CO ZIP: 80203 10-K 1 10-K 12-31-96 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [ X ] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the Fiscal Year ended December 31, 1996 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) Commission file number 0-21708 GOLDEN STAR RESOURCES LTD. (Exact Name of Registrant as Specified in Its Charter) Canada 98-0101955 (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) One Norwest Center, 1700 Lincoln Street, Suite 1950, Denver, Colorado 80203 (Address of Principal Executive Office) (Zip Code)
(303) 830-9000 (Registrant's telephone number, including area code) Securities registered or to be registered pursuant to Section 12(b) of the Act:
Name of Exchange Title of Each Class on which Registered ------------------- ------------------- Common Shares AMERICAN STOCK EXCHANGE TORONTO STOCK EXCHANGE
Securities registered or to be registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes___X No ______ Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form l0-K. ______ The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $369 million as of March 14, 1997, based on the closing price of the shares on the American Stock Exchange of $13.875 per share. Number of Common Shares outstanding as of March 14, 1997: 26,622,636. DOCUMENTS INCORPORATED BY REFERENCE The Company's 1997 Proxy Statement and Information Circular for the 1997 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 1996 pursuant to Regulation 14A under the Securities Exchange Act of 1934, is incorporated by reference into Part III hereof. 1 2 TABLE OF CONTENTS PART I ITEM 1. DESCRIPTION OF BUSINESS ITEM 2. DESCRIPTION OF PROPERTIES ITEM 3. LEGAL PROCEEDINGS ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ITEM 6. SELECTED FINANCIAL DATA ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The Registrant will furnish a copy of any exhibit filed as part of this report to any shareholder of record upon receipt of a written request from such person and payment of the Registrant's reasonable expenses for furnishing such exhibit. Requests should be made to the Secretary of the Registrant at the address set forth on the cover page of this report. REPORTING CURRENCY AND FINANCIAL INFORMATION All amounts in this Report are expressed in United States dollars, unless otherwise indicated. References to (i) "Cdn" are to Canadian dollars, (ii) "FF" are to French francs and (iii) "R" are to Brazilian reals. Financial information is presented in accordance with accounting principles generally accepted in Canada. Differences between accounting principles generally accepted in the United States and those applied in Canada, as applicable to the Company, are explained in Note 17 to the Consolidated Financial Statements. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements in this Form 10-K constitute "forward-looking statements" within the meaning of The Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressly stated or implied by such forward-looking statements. Such factors include, among others, the following: gold and diamond exploration and development costs and results, fluctuation of gold prices, foreign operations and foreign government regulation, competition, uninsured risks, recovery of reserves, capitalization and commercial viability and requirement for obtaining permits and licenses. (See "Item 1. Risk Factors".) 2 3 PART I ITEM 1. DESCRIPTION OF BUSINESS GENERAL Golden Star Resources Ltd. (the "Registrant" or the "Company") is an international gold and diamond exploration company with a diverse portfolio of active exploration and development projects, and an operating mine, in over ten countries on two continents. The Company's core focus is on the acquisition, discovery and development of gold and diamond projects. Once it identifies such projects, the Company's business strategy is, if appropriate, to enter into partnership arrangements with major mining companies to develop and operate mines. The Company currently has interests in properties in various stages of development in Guyana, French Guiana, Suriname, Brazil and Bolivia in South America, and Eritrea, Ethiopia, Gabon, Ivory Coast, Kenya, Mali and Sierra Leone in Africa. The Company's efforts are concentrated in a geologic domain known as greenstone belts, which are ancient volcanic- sedimentary rock assemblages. Greenstone belts are known to be favorable geologic environments for gold mineralization and account for a significant proportion of the world's historic gold production. The Company began its exploration activities in 1985 in the tropical, Proterozoic greenstone belts of the Guiana Shield, and more recently extended its activities to the geologically related greenstone belts of the Brazilian Shield and the West African Shield, and finally to the greenstone belts of eastern Africa. The Company's interest in gold production as at March 14, 1997, was in the form of a 30% common share equity interest in Omai Gold Mines Limited, a company incorporated under the laws of Guyana ("OGML"), the owner and operator of the Omai Gold Mine in Guyana (the "Omai Mine") (see "Item 2. Description of Property - Guyana Properties - Producing Property: Omai Mine"). A final feasibility study is expected to be completed on the Company's second major project, Gross Rosebel, located in Suriname during 1997. The head office of the Company is located at One Norwest Center, 1700 Lincoln Street, Suite 1950, Denver, Colorado 80203, and the Company's registered and records office is located at 19th Floor, 885 West Georgia Street, Vancouver, British Columbia V6C 3H4. As at March 14, 1997, the Company and its subsidiaries had a total of 658 full-time employees, of which 33 were based in Denver, one in Miami and the balance were employed in the various countries of South America and Africa in which the Company and its subsidiaries carry on their operations. The Company was established under the Canada Business Corporations Act on May 15, 1992 as a result of the amalgamation (the "Amalgamation") of South American Goldfields Inc. ("South American"), a Canadian corporation, and Golden Star Resources Ltd. ("Golden Star"), an Alberta corporation. Golden Star was originally incorporated under the provisions of the Alberta Business Corporations Act on March 7, 1984 as Southern Star Resources Ltd., and its name was changed on February 25, 1985 to Golden Star Resources Ltd. Concurrent with the Amalgamation, the common shares of the Company were consolidated on a one-for-two basis (the "Share Consolidation"). Reference to common shares herein shall, unless otherwise indicated, mean common shares of the Company after the Amalgamation and the Share Consolidation. The fiscal year-end of the Company is December 31. 3 4 The Company has established a decentralized structure through region-specific subsidiaries in order to facilitate effective management of its geographically diverse portfolio of mineral properties, to improve access to capital markets and to better allow the equity markets to value the Company's mineral property portfolio. The Company currently directly manages all activities in Guyana and Suriname and indirectly manages activities outside Guyana and Suriname through its subsidiaries. The Company has created two publicly traded subsidiaries. Guyanor Ressources S.A. ("Guyanor") is approximately 68% owned by Golden Star and is incorporated under the laws of France. Guyanor was established in order to comply with the laws of France which require that mining titles be held by a French company. Guyanor's Class B common shares are listed on the Toronto Stock Exchange under the symbol "GRL.B" and on the Nouveau Marche of the Bourse de Paris under the symbol "GUYN". Pan African Resources Corporation, a corporation incorporated under the laws of Yukon in Canada ("PARC"), is approximately 58% owned by Golden Star and was created in recognition of the unique risk profile of establishing exploration projects in Africa. PARC's common shares are quoted on the Canadian Dealing Network under the symbol "PARC". Southern Star Resources Ltd., a corporation incorporated under the laws of Barbados ("Southern Star"), is a wholly owned subsidiary of the Company and was created in 1995 to conduct activities in South America outside of the Guiana Shield. BUSINESS STRATEGY The Company's business strategy is to focus on its core skills of gold and diamond exploration and property acquisition, with the ultimate goal of holding significant interests in large scale gold and diamond mines. The Company's business strategy is comprised of the following elements: # Focus on exploration. The Company believes that the greatest increase in shareholder value in the gold and diamond mining sector comes from the discovery of mineral deposits. The Company intends to continue to concentrate its exploration efforts in its areas of expertise, gold and diamond exploration, in the tropical greenstone belts of the Guiana Shield, Brazilian Shield, West African Shield and the greenstone belts of eastern Africa. # Concentrate on current portfolio of properties. The Company intends to focus its efforts on advancing the most promising projects within its current portfolio of properties to the feasibility stage. The Company continues to pursue new opportunities and may make selective additional acquisitions of promising properties. # Partner with major mining companies. The Company intends to continue to leverage its exploration capital by entering into partnership arrangements with major mining companies that have the technical skills and financial resources to develop and operate large modern mining operations. This strategy enables the Company to transfer a portion of the business and financial risks associated with exploration and development to its partners and utilize a greater portion of its funds to explore and develop additional projects. # Maintain a strong local presence in the countries where the Company operates. The Company intends to continue its practice of locating offices, the majority of its employees and certain of its executives in countries where the Company has exploration, development and mining interests. Many of the Company's employees are from countries in which the Company operates. The Company believes that its local presence and hiring practices support its exploration efforts by enabling the Company to establish and maintain relationships with local government officials and business leaders. In addition, the Company believes that its decentralized local management structure enables it to make better informed exploration and management decisions. 4 5 CERTAIN SIGNIFICANT EVENTS IN 1996 AND RECENT DEVELOPMENTS On January 8, 1996, Cambior Inc. ("Cambior") exercised its option to acquire a 50% interest in the Company's Gross Rosebel project in Suriname. Cambior fulfilled the condition to exercise its option under the option agreement signed in June of 1994, having spent $6.0 million for exploration and development activities on the property. (See "Item 2. Description of Properties - Suriname Properties - Gross Rosebel".) In February 1996, the Government of Guyana approved the resumption of operations at the Omai Gold Mine following a tailings pond incident in August 1995 and construction of the first stage of the new tailings pond was completed. Appropriate measures were taken to ensure safe and environmentally sound operations. The mine resumed operations on February 4, 1996. The total incident-related costs at the Omai Mine for the shutdown period are estimated at $11.3 million. (See "Item 2. Guyana Prospectus - Producing Property: Omai Mine") On February 5, 1996, Pan African Resources Corporation, a company incorporated under the laws of Yukon ("PARC Yukon"), which was, prior to that date, approximately 85% owned by the Company, completed a private placement (the "Private Placement") of 13.2 million units at Cdn$1.00 per unit. Each unit consisted of one common share and one-half of one common share purchase warrant of PARC Yukon. The Private Placement generated net proceeds to PARC Yukon of approximately $9.0 million after payment of commissions and expenses. Each warrant entitled the holder to purchase one common share of PARC Yukon at Cdn$1.25 until January 31, 1997. A total of 1,063,500 warrants were exercised providing proceeds of an additional $1.0 million. (See "Item 2. African Properties - General".) On February 6, 1996, PARC Yukon was amalgamated (the "PARC Amalgamation") under the Yukon Business Corporation Act with Humlin Red Lake Mines Limited, an Ontario corporation. As a result of the Private Placement and the PARC Amalgamation, the Company's interest was reduced to approximately 60% of the 45.3 million outstanding shares of PARC, the amalgamated company. On February 8, 1996, PARC became a publicly traded company in Canada with its common shares quoted on the Canadian Dealing Network. (See "Item 2. African Properties - General".) On March 6, 1996, the Company effected a public offering in Canada of 1.75 million units at a price of Cdn$10.50 per unit for total proceeds of Cdn$18.375 million. Each unit consisted of one common share and one-half of one common share purchase warrant (each whole warrant being designated as a "Warrant") of the Company. Each Warrant was exercisable into one common share of the Company on or prior to March 6, 1997, at a price of Cdn$11.00. As at March 6, 1997, all 875,000 Warrants have been exercised providing proceeds of $7.0 million. On March 26, 1996, Cambior and the Company announced estimated mining reserves of 24 million tonnes grading 1.4 g Au/t on the Gross Rosebel property in Suriname, representing 1.1 million ounces of gold in situ. On April 24, 1996, the Company announced the adoption by its Board of Directors of a Shareholder Rights Plan (the "Rights Plan") designed to encourage the fair treatment of shareholders in connection with any tender offer for the Company's shares. The Rights Plan provides the Board of Directors of the Company and shareholders with more time to fully consider any unsolicited tender offer for the 5 6 Company. It also allows more time for the Board of Directors to pursue, if appropriate, other alternatives to maximize shareholder value. The shareholders of the Company ratified the adoption of the Rights Plan at their June 11, 1996 annual general meeting. The Plan will expire in 1999. Under the Rights Plan, the Company issued one right (a "Right") for each common share of the Company outstanding on April 24, 1996. The Company will also issue one Right for each common share issued in the future. The Rights issued under the Rights Plan become exercisable only when a person, including any party related to it, acquires or announces its intention to acquire 20% or more of the Company's outstanding common shares without complying with the "Permitted Bid" provisions of the Rights Plan or without approval of the Board of Directors of the Company. Should such an acquisition occur, each right would, upon exercise, entitle a rights holder, other than the acquiring person and persons related to it, to purchase common shares of the Company at a 50% discount to the market price at the time. (See "Item 8. Financial Statements and Supplementary Data - Notes to the Consolidated Financial Statements - 14. Share Capital.") In August 1996, the Company announced that Venhold Investments (1994) Ltd., an indirectly controlled subsidiary of the Company, concluded a final termination and settlement agreement in connection with the "unwinding" of its purchase of controlling interests in certain mineral properties located in Venezuela. Therefore, the Company has no remaining interest in Venezuela. The Company recorded a gain of $0.9 million in 1996 as a result of a settlement payment of $1.6 million. In September 1996, the Company and Cambior announced an increase in estimated proven and probable mining reserves at the Gross Rosebel project in Suriname. Proven and probable mining reserves at Gross Rosebel were calculated to be in excess of 30 million tonnes grading 1.5 g Au/t, representing approximately 1.4 million ounces of gold in situ, a 25% increase over the March 1996 estimate at a higher grade and lower overall strip ratio. This increase reflected a new reserve calculation completed on the Pay Caro zone, which includes both the former Pay Caro and East Pay Caro zones. Information included in the calculation was based on drilling and trenching completed through June 30, 1996. The reserve calculation did not include drilling and trenching completed through June 30, 1996, on the Koolhoven and Bigi Asanjangmoni trends on the North Block of the Gross Rosebel property. Saprolite (soft rock) mineralization constituted 72% of the updated reserves.
-------------------------------------------------------------------------------------------------------------- RESERVE HARD ROCK (1) SOFT ROCK (2) TOTAL STRIP ESTIMATE AS OF ('000 TONNES @ G AU/T) ('000 TONNES @ G AU/T) ('000 TONNES @ G AU/T) RATIO -------------------------------------------------------------------------------------------------------------- September 1996 8,590 @ 1.8 21,860 @ 1.3 30,450 @ 1.5 2.8:1 -------------------------------------------------------------------------------------------------------------- March 1996 3,459 @ 1.8 20,594 @ 1.3 24,053 @ 1.4 2.9:1 --------------------------------------------------------------------------------------------------------------
(1) Hard rock cutoff grade of 0.7 g Au/t (2) Soft rock cutoff grade of 0.5 g Au/t On September 25, 1996, the Company announced the filing with the Securities and Exchange Commission ("SEC") of a shelf registration statement on Form S-3 (the "Registration Statement"), with respect to the proposed issuance by the Company from time to time of up to $75.0 million of its common shares, preferred shares, convertible debt securities and/or warrants. On November 6, 1996, the Company filed an amendment to the Registration Statement with the SEC and the Registration Statement, as amended, was declared effective by the SEC on November 8, 1996. On October 15, 1996, the Company filed with nine Canadian provincial securities commissions (i) a short-form shelf prospectus, with respect to the proposed issuance by the Company from time to time of up to 5.0 million common shares and/or 5.0 million common share purchase warrants and (ii) a short-form shelf prospectus with respect to the proposed issuance of up to $75.0 million of convertible debt securities. Final short-form shelf prospectuses were filed on November 7, 1996, and the filing became effective on November 8, 1996. 6 7 On October 30, 1996, a final prospectus was approved by French regulatory authorities entitling Guyanor to (i) list its Class B common shares for trading on the Nouveau Marche of the Bourse de Paris in France, and (ii) sell 1.0 million of its Class B common shares. Trading of Guyanor's Class B common shares on the Nouveau Marche began on October 30, 1996. A placement of Guyanor shares in Europe was completed on November 5, 1996. In connection therewith, Guyanor received net proceeds of approximately 45.5 million French francs (approximately $8.9 million), and the Company's interest in Guyanor was reduced to approximately 68%. On January 10, 1997, PARC sold its interest in Lafayette Mining Gabon Ltd. ("LMG"), which holds an exploration permit on the Eteke property, pursuant to the exercise of a right of first refusal by Lafayette Holdings Corp. ("Lafayette") under an option agreement (dated September 4, 1994) and a joint venture agreement (dated May 5, 1995) between Lafayette and PARC. Under its first right of refusal, Lafayette purchased all of PARC's interest in LMG and all related rights and obligations of PARC under the joint venture agreement, the option agreement and any other related agreement for the sum of $640,000. As a result, the Company and PARC incurred a charge in the fourth quarter of 1996 of $5.3 million for the write-down of capitalized exploration expenditures for the Eteke property. On January 30, 1997, Guyanor and the Company announced their intent to discontinue alluvial gold production in French Guiana by Societe de Travaux Publics et de Mines Auriferes en Guyane ("SOTRAPMAG"), a wholly-owned subsidiary of Guyanor. SOTRAPMAG has experienced continuing operating losses since its acquisition in 1994. Outside consultants engaged in 1996 to review the operation and make recommendations on how to make the operation profitable concluded that without a significant capital investment to increase production, changes in certain work practices and a reduction in fuel taxes, the operation could not achieve profitability. As a result of these factors, Guyanor has begun implementation of a program to discontinue SOTRAPMAG's alluvial operation in the first quarter of 1997. The Company and Guyanor incurred a fourth quarter charge to 1996 earnings of $3.2 million for the write down of assets and accrual of closure costs. (See "Item 2. Guyanor Ressources S.A. - Paul Isnard and Eau Blanche - Mining Operations.") On February 19, 1997, an option agreement was signed between Societe des Mines de St-Elie, SARL and a French company pursuant to which SMSE may acquire three concessions and one exploration permit immediately adjacent to the east and the south of the St-Elie concession, over a 155 km(2) area known as "Dieu-Merci". (See "Item 2. Guyanor Ressources S.A. - St-Elie and Dieu-Merci.") In March of 1997, the Company decided to write-down as at December 31, 1996 the capitalized deferred exploration in the Dul Mountain project in Ethiopia. The charge to earnings was $4.0 million. The Company's share of this charge, after minority interest, was $2.3 million. (See "Item 2. African Properties - Ethiopia property.") RISK FACTORS The following contains certain forward-looking statements within the meaning of the Reform Act. Actual results, performance or achievements of the Company could differ materially from those projected in the forward-looking statements due to a number of factors, including those set forth below and elsewhere in this Annual Report on Form 10-K. 7 8 1. RISKS OF EXPLORATION AND DEVELOPMENT Mineral exploration and development involves a high degree of risk and few properties which are explored ultimately are developed into commercially producing mines. The long-term success of the Company's operations will be substantially and directly related to the cost and success of its exploration programs. The risks associated with the exploration for new mineralization include the identification of potential gold mineralization based on surficial analysis, the attraction and retention of experienced geologists and drilling personnel, the quality and availability of third party assaying, sampling errors, geological, geophysical, geochemical and other technical analyses and other factors. Substantial early stage expenditures are required to outline mineralized prospects and establish ore reserves through, among other things, drilling and the preparation of feasibility studies and mine plans, and to develop and construct the mining and processing facilities at any site chosen for mining. Although substantial benefits may be derived from the discovery of a major mineralized deposit, no assurance can be given that (i) minerals will be discovered in sufficient quantities and/or grades to constitute reserves or justify commercial operations, (ii) the Company will be successful in partnering with companies to develop and operate those properties that are commercially attractive on acceptable or attractive terms or (iii) the funds required for development can be obtained by the Company or any of its partners on a timely or commercially reasonable basis. Further, even if reserves are delineated, it may require a number of years and significant expenditures until production is possible, during which time the economic feasibility of a property may change. Additionally, the Company will be reliant on its partners in each project for technical expertise in the development and operation phases of the project, and, in certain instances, for financing, until cash flow is generated from the property for the Company's account. Finally, to the extent the Company's mineral reserves are produced and sold, the Company must continually acquire new mineral prospects and explore for and develop new mineral reserves to replace such reserves. 2. UNCERTAINTY OF RESERVE AND OTHER MINERALIZATION ESTIMATES There are numerous uncertainties inherent in estimating proven and probable reserves and other mineralization, including many factors beyond the control of the Company. The estimation of reserves and other mineralization is a subjective process and the accuracy of any such estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, metallurgical testing and production and the evaluation of mine plans subsequent to the date of any estimate may justify revision of such estimates. No assurance can be given that the volume and grade of reserves recovered and rates of production will not be less than anticipated. Assumptions about prices are subject to great uncertainty and gold prices have fluctuated widely in the past. Declines in the market price of gold or other precious metals also may render reserves or other mineralization containing relatively lower grades of mineralization or requiring more extensive processing uneconomic to exploit. If the price realized by the Company for its gold bullion were to decline substantially below the price at which ore reserves were calculated for a sustained period of time, the Company potentially could experience reductions in reserves and asset write-downs. Under such circumstances, the Company may discontinue the development of a project or mining at one or more of its properties. Further, changes in operating and capital costs and other factors, including, but not limited to, short- term operating factors such as the need for sequential development of ore bodies and the processing of new or different ore grades, may materially and adversely affect reserves. 8 9 3. RISKS ASSOCIATED WITH THE FLUCTUATION OF GOLD PRICES To the extent that the Company has any revenues from operations, such revenues are expected to be in large part derived from the mining and sale of gold. Gold prices fluctuate widely and are affected by numerous factors beyond the Company's control, including international economic and political trends, inflation expectations, interest rates, central bank sales and purchases, global or regional consumptive patterns (such as the development of gold coin programs), speculative activities and increased production due to new mine developments and improved mining and production methods. The effect of these and other factors on the price of gold cannot be predicted accurately. The current demand for, and supply of, gold affect gold prices but not necessarily in the same manner as current demand and supply affect the prices of other commodities. The potential supply of gold consists of new mine production plus existing stocks of bullion and fabricated gold held by governments, financial institutions, industrial organizations and individuals. Since mine production in any single year constitutes a very small portion of the total potential supply of gold, normal variations in current production do not necessarily have a significant effect on the supply of gold or on its price. If gold prices should decline below the Company's cash costs of production at existing operations, or estimated cash costs of production at any of its exploration and development properties, and remain at such levels for any sustained period, the Company could determine that it is not economically feasible to continue commercial production at any or all of its mines or to pursue further exploration or development activities on such properties. Moreover, on any given date, the prices used in estimating the Company's ore reserves are based on the price of gold on such date. If the Company were to determine that its reserves and future cash flows should be calculated at significantly lower gold prices than those used on the measurement date, there would be a material reduction in the amount of its gold reserves. Should such reductions occur, material write-downs of the Company's investment in mining properties may be required. The following table sets forth for the last ten years the high and low selling prices of gold, as provided by the New York Commodities Exchange ("COMEX"):
Year High Low ---- ---- --- 1987 $497.10 $392.10 1988 $487.00 $394.00 1989 $418.90 $358.10 1990 $422.40 $346.80 1991 $403.20 $344.30 1992 $359.30 $329.70 1993 $407.00 $326.30 1994 $398.00 $370.60 1995 $395.40 $371.20 1996 $414.70 $368.00
The closing trading price per ounce of gold quoted by COMEX on March 14, 1997 was $352.60. 4. CAPITALIZATION AND COMMERCIAL VIABILITY The Company has limited financial resources. To date, and for the reasonably foreseeable future, its exploration and development activities have not generated and are not expected to generate substantial 9 10 revenues, which has caused, and is expected to continue for the reasonably foreseeable future to cause, the Company to incur losses. In addition, the Company historically has incurred significant expenditures in connection with its exploration activities and contemplates doing so for the foreseeable future. There can be no assurance that additional funding will be available to the Company for further exploration or development of its properties or to fulfill its obligations under any applicable agreements with its partners or the nations in which the Company is operating. Although the Company has been successful in the past in obtaining financing through the sale of equity securities and through partnership arrangements involving several of the Company's properties, there can be no assurance that the Company will be able to obtain adequate financing in the future or that the terms of such financing will be favorable, or that such partnership arrangements will continue to be available for the Company's properties on acceptable terms. Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and development of the Company's properties with the possible loss of the Company's interest in such properties. If the Company proceeds to production on a particular property, commercial viability will be affected by certain factors that are beyond the Company's control, including the specific attributes of the deposit (such as mineral grade and stripping ratio), the fluctuation in metal prices, the costs of constructing and operating a mine in a specific environment, processing and refining facilities, the availability of economic sources of energy, adequacy of water supply, adequate access, government regulations including regulations relating to prices, royalties, duties, taxes, restrictions on production, quotas on exportation of minerals, as well as the costs of protection of the environment and agricultural lands. The occurrence of any such factors may materially and adversely affect the Company's business, financial condition, results of operations and cash flow. 5. RISKS ASSOCIATED WITH DIAMOND EXPLORATION The exploration and development of diamond deposits involve exposure to significant financial risks over a significant period of time. Very few properties which are explored are ultimately developed into producing diamond mines. Major expenses over a period of several years may be required to establish reserves by sampling and drilling and to construct mining and processing facilities at a site. It is impossible to ensure that the current exploration programs of the Company, or any programs undertaken in the future, will result in a profitable commercial diamond mining operation. (See "Item 2. Guyanor Ressources S.A. - Dachine"). Whether a diamond deposit will be commercially viable depends on a number of factors, some of which are the particular attributes of the deposit, such as its size, the size, quantity and quality of the diamonds, proximity to infrastructure, financing costs and governmental regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of diamonds and environmental protection. The effect of these factors cannot be accurately predicted, but the combination of these factors may result in the Company not receiving an adequate return on invested capital. 6. MARKETABILITY OF DIAMONDS The marketability of diamonds which may result from projects undertaken by the Company will be affected by numerous factors beyond the control of the Company. These factors include market fluctuations, government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of diamonds and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in the 10 11 Company not receiving an adequate return on invested capital. The price for diamonds is, among other things, based on the size, cut, color and quality of individual diamonds sold and, to a lesser extent, the market supply and demand for diamonds in general. 7. RISKS OF FOREIGN OPERATIONS In certain countries in which the Company has mineral rights (whether held directly or indirectly), there are certain laws, regulations and statutory provisions which, as currently written, could have a material negative impact on the ability of the Company to develop a commercial mine in such countries. The range and diversity of such laws and regulations are such that the Company could not adequately summarize them in this document. Through, among other things, the negotiation of mineral agreements with the governments of these countries, management of the Company intends to seek variances or otherwise to be exempted from the provisions of these laws, regulations and/or statutory provisions. There can be no assurance, however, that the Company will be successful in obtaining such mineral agreements, that any such variances or exemptions can be obtained on commercially acceptable terms or that such agreements will be enforceable in accordance with their terms. Further, many of the mineral rights and interests of the Company are subject to government approvals, licenses and permits. Such approvals, licenses and permits are, as a practical matter, subject to the discretion of the applicable governments or governmental officials. No assurance can be given that the Company will be successful in obtaining any or all of such approvals, licenses and permits, will obtain them in a timely fashion or will be able to maintain them in full force and effect without modification or revocation. The Company's assets and operations are subject to various political, economic and other uncertainties, including, among other things, the risks of war or civil unrest, expropriation, nationalization, renegotiation or nullification of existing concessions, licenses, permits, approvals and contracts, taxation policies, foreign exchange and repatriation restrictions, changing political conditions, international monetary fluctuations, currency controls and foreign governmental regulations that favor or require the awarding of drilling contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. In addition, in the event of a dispute arising from foreign operations, the Company may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of courts in the United States or Canada. The Company also may be hindered or prevented from enforcing its rights with respect to a governmental instrumentality because of the doctrine of sovereign immunity. The Company has suspended its operations in Sierra Leone due to the unstable political situation there and has invoked the force majeure provisions of the contracts pertaining to its Sierra Leone operations. Currently, it is not possible for the Company to accurately predict such developments or changes of law or policy and which, if any, of such developments or changes may have a material adverse impact on the Company's operations. 8. REQUIREMENTS FOR PERMITS AND LICENSES The operations of the Company require licenses and permits from various governmental authorities. Except as otherwise described in "Business and Properties" herein, management believes that the Company presently holds substantially all necessary licenses and permits to carry on the activities which it currently is conducting or expects to conduct in the near term under applicable laws and regulations in respect of its properties, and also believes the Company is presently complying in all material respects with the terms of such laws, regulations, licenses and permits, although the Company 11 12 is in breach of certain provisions of such laws, regulations, licenses and permits from time to time. Such licenses and permits are subject to modification or revocation as discussed above in "Risks of Foreign Operations", as well as changes in regulations and in various operating circumstances. While the Company does not believe that any such breaches will have a material adverse effect on its operations, there can be no assurance that the Company will be able to obtain or maintain in force all necessary licenses and permits that may be required for it to conduct further exploration or commence construction or operation of mining facilities at properties under exploration or to maintain continued operations at economically justifiable costs. 9. DEPENDENCE ON KEY PERSONNEL The Company is dependent on the services of certain key officers and employees, including its Chief Executive Officer, its Chief Financial Officer and certain of its geologists. Competition in the mining exploration industry for qualified individuals is intense, and the loss of any of these key officers or employees if not replaced could have a material adverse effect on the Company's business and its operations. The Company has entered into agreements with certain of its officers which provide for payments upon termination without cause or, in certain cases, upon a change in control of the Company. 10. OPERATION HAZARDS AND RESPONSIBILITIES The business of gold mining is generally subject to a number of risks and hazards, including environmental hazards, the discharge of pollutants or hazardous chemicals, industrial accidents, labor disputes, encountering unusual or unexpected geological or operating conditions, slope failures, cave-ins, failure of pit walls or dams and fire, changes in the regulatory environment and natural phenomena such as inclement weather conditions, floods and earthquakes, as well as other hazards. Such occurrences could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage, delays in mining, monetary losses and possible legal liability. The Company or its subsidiaries or partnership arrangements to which they are parties also may incur liability as a result of pollution and other casualties. The Company may not be able to insure fully or at all against such risks, due to political or other reasons, or the Company may decide not to insure against such risks as a result of high premiums or for other reasons. Such occurrences, against which it cannot insure, or may elect not to insure, may delay production, increase production costs or result in liability. Paying compensation for obligations resulting from such liability may entail significant costs for the Company and may have an adverse effect on the Company's financial position. Furthermore, insurance against certain risks (including certain liabilities for environmental pollution or other hazards as result of exploration and production) is not generally available to the Company or to other companies within the industry. 11. MINING AND PROCESSING The Company's business operations are subject to risks and hazards inherent in the mining industry, including, but not limited to, unanticipated grade and other geological problems, water conditions, surface or underground conditions, metallurgical and other processing problems and mechanical equipment performance problems, the unavailability of materials and equipment, accidents, labor force and force majeure factors, unanticipated transportation costs and weather conditions, and prices and production levels of by-products, any of which can materially and adversely affect, among other things, the development of properties, production quantities and rates, costs and expenditures and production 12 13 commencement dates. In addition, the Company relies upon its partners to manage the development and operating stages of the projects in which it has an interest and, therefore, has less control over such matters than would be the case if the Company were the operator. In the case of the Company's exploration properties, there generally is no operating history upon which to base estimates of future operating costs and capital requirements. The economic feasibility of any individual project is based upon, among other things, the interpretation of geological data obtained from drill holes and other sampling techniques, feasibility studies, which derive estimates of cash operating costs based upon anticipated tonnage and grades of ore to be mined and processed, the configuration of the ore body, expected recovery rates of metals from the ore, comparable facility and equipments costs, anticipated climatic conditions, estimates of labor productivity and other factors. Such exploration properties also are subject to the successful completion of final feasibility studies, issuance of necessary permits and receipt of adequate financing. Accordingly, uncertainties related to operations are magnified in the case of exploration properties. As a result of the foregoing risks, expenditures on any and all projects, actual production quantities and rates and cash operating costs, among other things, may be materially and adversely affected and may differ materially from anticipated expenditures, production quantities and rates, and costs, just as estimated production dates may be delayed materially, in each case, especially to the extent exploration properties are involved. Any such events can materially and adversely affect the Company's business, financial condition, results of operations and cash flows. 12. COMPETITION The Company competes with major mining companies and other natural resource companies in the acquisition, exploration, financing and development of new properties and projects. Many of these companies are more experienced, larger, and better capitalized than the Company. The Company's competitive position will depend upon its ability to successfully and economically explore, acquire and develop new and existing mineral resource properties or projects. Factors which allow producers to remain competitive in the market over the long term are the quality and size of the ore body, cost of production and operation generally, and proximity to market. The Company also competes with other mining companies for skilled geologists, geophysicists and other technical personnel, which may result in higher turnover and greater labor costs for the Company. 13. CURRENCY The Company historically has raised most of its equity capital in Canadian dollars, primarily maintains its accounts in U.S. dollars and converts such U.S. dollars into various local currencies on an as needed basis in order to conduct local operations. The Company currently maintains all or the majority of its working capital in U.S. dollars or U.S. dollar denominated securities and converts funds to foreign currencies as payment obligations come due. Accordingly, the Company is subject to fluctuations in the rates of currency exchange between the U.S. dollar and these currencies, and such fluctuations may materially affect the Company's financial position and results of operations. The Company currently has future obligations which are payable in French francs and Brazilian reals and receivables payable in French francs. The Company currently does not actively take steps to hedge against such risks. 13 14 14. GOVERNMENTAL REGULATIONS Management believes that compliance with existing regulations in the jurisdictions in which the Company operates which are applicable to the discharge of materials into the environment, or otherwise relating to environmental protection, will not have a material adverse effect on the Company's exploration activities, earnings, expenditures or competitive position. However, there can be no assurance that this will always be the case. New or expanded regulations, if adopted, could affect the exploration or development of the Company's mining projects or otherwise have a material adverse effect on the operations of the Company. 15. RISK OF COMPANY BEING CLASSIFIED AS A PASSIVE FOREIGN INVESTMENT COMPANY Under the United State Internal Revenue Code of 1986, as amended (the "Code"), the Company may be classified as a passive foreign investment company (a "PFIC"). United States shareholders of a PFIC are subject to certain adverse tax consequences. These consequences can be mitigated, under certain circumstances, if the United States shareholder makes a timely election to treat the Company as a "qualified electing fund" (a "QEF"). The Company has been advised by Coopers & Lybrand L.L.P. that it should not be treated as a PFIC with respect to shares purchased by United States shareholders during the years 1993 through 1996, although it could potentially be a PFIC with respect to shares acquired by United States shareholders prior to 1993. The Company also intends to engage Coopers & Lybrand L.L.P. in the future to analyze whether it is a PFIC in 1997 and subsequent years and will continue to notify shareholders of the results of such future analyses. There can be no assurance as to whether or not Coopers & Lybrand L.L.P. will conclude that the Company is a PFIC for any such period. Moreover, even if Coopers & Lybrand L.L.P. concludes that the Company is not a PFIC, its conclusion is not binding on the United States Internal Revenue Service. Accordingly, it is possible that the PFIC rules will apply to holders of common shares. (See "Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters - Certain Canadian Federal Income Tax Considerations and Certain United States Federal Income Tax Considerations".) 14 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 ton 1 square mile = 2.59 square kilometers 1 ton (2000 pounds) = 0.9072 tonne 1 square kilometer = 100 hectares 1 metric tonne = 1,000 kg or 2,204.6 pounds 1 kilogram = 2.2 pounds or 32.151 oz
The following abbreviations of measurements are used herein: Au = gold m(2) = square meter ct = carats m(3) = cubic meter ct/m(2) = carats per square meter mg = milligrams gm = grams mg/m(3) = milligrams per cubic meter g/t = grams per tonne mt = metric tonne ha = hectares oz = troy ounces km = kilometers oz/t = troy ounces per ton km(2) = square kilometers t = ton (2,000 pounds) kg = kilogram ppb = parts per billion m = meter
15 16 GLOSSARY OF TERMS Note: The definitions of proven (measured) and probable (indicated) reserves (ore) set forth below are those used in Canada by certain provincial securities regulatory authorities and are set forth in National Policy No. 2-A (of Canada). These definitions are substantially the same as those applied in the United States by the Securities and Exchange Commission, and those accepted by the United States Bureau of Mines and the United States Geological Survey. PROBABLE RESERVES (INDICATED RESERVES) that material for which tonnage and grade are computed partly from specific measurements, samples or production data, and partly from projection for a reasonable distance on geological evidence, and for which the sites available for inspection, measurement and sampling are too widely or otherwise inappropriately spaced to outline the material completely or to establish its grade throughout PROVEN RESERVES (MEASURED RESERVES) that material for which tonnage is computed from dimensions revealed in outcrops or trenches or underground workings or drill holes and for which the grade is computed from the results of adequate sampling, and for which the sites for inspection, sampling and measurement are so spaced and the geological character so well defined that the size, shape and mineral content are established and for which the computed tonnage and grade are judged to be accurate within limits which shall be stated and for which it shall be stated whether the tonnage and grade of proven ore or measured ore are in situ or extractable, with dilution factors shown, and reasons for the use of these dilution factors clearly explained
The following definitions of the stages of the exploration and development process are used by the Company. There can be no assurance that the terminology used by the Company is consistent with the terminology used by other companies in the mining industry or by industry analysts. EARLY STAGE an early stage exploration project typically involves one or more targets within an area which have been determined to merit further follow-up work based on a combination of geological, geochemical and geophysical analysis. The objective of an early stage project typically is to better define targets that have the potential to be advanced to the next state of exploration and level of financial commitment. INTERMEDIATE STAGE an intermediate stage exploration project typically involves establishing near surface mineralization through such techniques as deep augering and trenching. Depending on spacing, drilling (both reverse circulation ("RC") and core) may be an intermediate stage exploration tool. The objective of the intermediate exploration stage is to advance a project by identifying a well defined zone of mineralization that suggests the potential of mineralization continuing to depth. ADVANCED STAGE an advanced exploration stage project typically involves testing targets at depth and generating the information necessary to develop a three dimensional geologic model of the mineralized zone, which may be used to demonstrate mineralized materials and/or reserves. This typically is accomplished by both core and RC drilling, although reserves also can be established through trenching. PRE-FEASIBILITY STAGE a pre-feasibility stage project typically involves a target for which sufficient geologic information exists about the mineralized zone to determine reserves. During the pre- feasibility stage, drilling often is done to infill the information set on the mineralized zone in order to increase the certainly of calculated reserves. Wider spaced step-out drilling also is conducted to extend upon known mineralized zones or to test for additional zones. The objective of the pre-feasibility stage is to prove sufficient reserves to allow for a rate of production over a sufficient period of time to justify the investment of capital to extract the reserves, based on various economic and financial assumptions. FEASIBILITY STAGE during the feasibility stage, exploration continues in order to better define known reserves of a project while attempting to further expand them. During this stage, management of the project often is transferred to the operating partner which develops the necessary engineering and costing for mining, processing, power and infrastructure, as well as the designs for the plant and equipment required to construct and operate a modern mining operation. MINE mining is the process of transforming a valuable mineral reserve or deposit into benefits for its owners (debt, equity and employees), governments and communities. Exploration continues during the mining process and, in many cases, reserves are expanded during the early years of mine operations as the exploration potential of the deposit is realized.
ACIDIC said of an igneous rock based with a high silica content, generally greater than 65% AEROMAGNETIC a magnetic survey made with an airborne magnetometer ALLUVIUM, ALLUVIALS a general term for clay, silt, sand, gravel or other material deposited by a body of water usually during recent geological time ALTERATION any change in the mineral composition of a rock brought about by physical or chemical means AMPHIBOLE a group of dark, rock-forming, ferromagnesian silicate minerals closely related in crystal form and chemical composition AMPHIBOLITE FACIES metamorphic rock formed by moderate to high pressures and temperatures 16 17 ANDESITE a dark-colored, fine-grained volcanic rock ANOMALY a deviation from uniformity or regularity in geophysical quantities ARCHAEN ancient rocks, generally older than 2,400 million years ARKOSIC a feldspar-rich typically coarse-grained sandstone ARSENOPYRITE a white or gray mineral, non-arsenic sulfide ASSAY to analyze the proportions of metals in an ore BASEMENT COMPLEX a complex of undifferentiated rocks that underlie the oldest identifiable rocks in an area BASIC an igneous rock having a relatively low silica content, sometimes delimited arbitrarily as less than 54% BATHOLITH a large, generally discordant, plutonic mass that has more than 100 km in surface exposure and is composed mostly of medium to coarse-grained rocks BEDDING the arrangement of a sedimentary rock in beds or layers of varying thickness and character BIF (BANDED IRONSTONE FORMATION) a rock formation of iron oxides and amorphous silica occurring in distinguishable layers of brown, red and black BRECCIA a coarse-grained rock composed of large angular pieces of broken rock CARBONATE a mineral compound characterized by a fundamental structure of carbon and oxygen CARBONACEOUS a rock or sediment rich in carbon CLASTIC a rock or sediment composed of broken fragments derived from preexisting rocks or minerals CONGLOMERATE a coarse-grained, clastic sedimentary rock composed of rounded or subangular fragments CONTINENTAL FRACTURE the breaking apart of ancient continents as a result of plate tectonics CRATON a part of the Earth's crust which is stable and has not undergone deformation over a significant period of time CUPOLA an upward projection of an igneous intrusion into its roof DACITE a fine-grained volcanic-type rock with the same chemical composition as andesite but having slightly different mineral assemblage DEGRADATION the wearing down or away, and the general lowering or reduction of the Earth's surface by the natural processes of weathering and erosion DETRITAL pertaining to fragmented material worn off or removed by mechanical means DIABASE an intrusive rock whose main components are two specific dark minerals and characterized by a distinctive mineral structure DIAMOND DRILLING a variety of rotary drilling in which diamond bits are used as the rock-cutting tool to produce a recoverable core of rock for observation and assay DIKE a tabular igneous intrusion that cuts across the planar structures of the surrounding rock DILATION deformation by a change in volume but not shape DIORITE a group of plutonic rocks intermediate in composition with a specific mineral assemblage - the intrusive equivalent of andesite DIP the angle that a structural surface, a bedding or fault plane, makes with the horizontal, measured perpendicular to the strike of the structure DISSEMINATED said of a mineral deposit in which the minerals occur as scattered particles in the rock that make the deposit a worthwhile ore ELUVIAL an incoherent ore deposit resulting from decomposition or disintegration of rock in place EN-ECHELON geologic features that are in an overlapping or staggered arrangement, e.g. faults FAULT a surface or zone of rock fracture along which there has been displacement FELSIC applied to an igneous rock having mostly light colored minerals FOLD AXIS a line that connects the central point of each constituent stratum of the fold, from which its limbs bend FOLD CLOSURE the vertical distance between the top of the fold and its lowest point FOLD a curve or bend of a planar structure such as rock strata, bedding planes, foliation, or cleavage FORMATION the basic rock-stratigraphic unit in the local classification of rocks GABBRO a group of dark-colored, basic intrusive igneous rocks composed principally of two specific minerals GEOCHEMISTRY the study of the distribution and amounts of the chemical elements in minerals, ores, rocks, solids, water, and the atmosphere GEOLOGICAL MAPPING mapping based on recorded geologic information such as the distribution and nature of rock units and the occurrence of structural features, mineral deposits, and fossil localities GEOPHYSICS the study of the Earth as a planet with three areas of study: solid-earth, atmosphere and hydrosphere, and magnetosphere GNEISS a foliated rock formed by regional metamorphism in which bands or lenticles of granular minerals alternate with bands and lenticles with flaky or elongate prismatic appearance GRANODIORITE a group of coarse-grained plutonic rocks intermediate in composition between quartz diorite and quartz monzonite GRANITE a plutonic rock in which quartz constitutes 10 to 50 percent of the felsic components GRANITOID an nonporphyritic igneous rock in which all the constituents, apparently the product of continuous crystallization, are incomplete crystals and of approximately the same size GRAPHITE a hexagonal mineral, representing a naturally occurring crystalline form of carbon GRAYWACKE a rock name that applies to dark, hard, tough, and firmly indurated, coarse-grained sandstone GREENSTONE ancient volcanic-sedimentary rock assemblages HORIZON a plane of stratification assumed to have been once horizontal and continuous HYDROTHERMAL the products of the actions of heated water, such as a mineral deposit precipitated from a hot solution IMBRICATION the steeply inclined, overlapping arrangement of thrust sheets INCLUSION a fragment of older, previously crystallized rock within an igneous rock to which it may or may not be genetically related INTERBEDDED said of rock beds laid between or alternating with others of different character INTERCALATION the existence of a layer or layers between other layers INTERMEDIATE an igneous rock that is transitional between basic and acidic, generally having a silica content of 54% to 65% INTERSTRATIFIED layers of strata laid between or alternating with others of different character; especially said of sedimentary rocks laid down in sequence in an alternating arrangement INTRUSION the process of replacement of magma (naturally occurring mobile rock material generated within the Earth) in pre-existing rock LANDSAT a recently launched artificial satellite which provides various images of the Earth's surface LATERITE highly weathered residual surficial soils and decomposed rocks, rich in iron and aluminum oxides that are characteristically developed in tropical climates LODE a mineral deposit consisting of a zone of veins LOELLINGITE a silver-white mineral of iron and arsenic sulfide MAFIC an igneous rock composed mostly of one or more ferromagnesian, dark-colored minerals in its mode; also, said of those minerals MANGANIFERROUS rich in manganese and iron MAGNETITE a black, isometric, strongly magnetic, opaque mineral of the spinel group 17 18 MASSIVE said of a mineral deposit, especially sulfides, characterized by a great concentration of ore in one place, as opposed to a disseminated or veinlike deposit METABASIC a basic rock that has been metamorphosed METALLURGY the science and art of separating metals from their ores by mechanical and chemical processes METAMORPHOSED the mineralogical and structural adjustment of solid rocks to physical and chemical conditions which have been imposed at depth below the surface zones of weathering and cementation METAPELITE a sedimentary rock composed of clay that has been metamorphosed METASEDIMENT a sediment or sedimentary rock which shows evidence of having been subjected to metamorphism METAVOLCANIC a volcanic rock which shows evidence of having been subjected to metamorphism MICA SCHIST a schist whose essential constituents are mica and quartz MICROGRANITE an igneous rock of granitic composition that appears crystalline-grained only under the microscope MINERAL a naturally formed chemical element of compound having a definite chemical composition and, usually, a characteristic crystal form MINERALIZATION a natural occurrence in rocks or soil of one or more metalliferous minerals MONOGENETIC resulting, originating or developing from one formation or derived from one source ORTHOGNEISS gneiss derived from an igneous rock OXIDE a mineral compound characterized by the linkage of oxygen with one metallic element OUTCROP that part of a geologic formation or structure that appears at the surface of the earth; also, bedrock that is covered only by surficial deposits such as alluvium OVERBURDEN barren rock material overlying a mineral deposit OVERTHRUST a low-angle thrust fault of large scale, generally measured in kilometers PALEOPLACER an ancient surficial mineral deposit formed by mechanical concentration of mineral particles from weathered debris PAN CONCENTRATE a small proportion, generally of heavy minerals, typically of a weathered rock or stream sediment, obtained by manual use of a "gold pan". PELITIC composed of the finest detritus, generally clays PHOTOGEOLOGY the identification, recording, and study of geologic features and structures by means of photography PILLOW LAVA a general term for those lavas displaying pillow structure and considered to have formed in an underwater environment PLACER a surficial mineral deposit formed by mechanical concentration of mineral particles from weathered debris PLUG a vertical pipe-like body of solidified magma that represents the conduit to a former volcanic vent PLUNGE the inclination of a fold axis or other geological structure, measured by its departure from the horizontal PLUTON an igneous intrusion or a body of rock formed by the replacement of existing rock POLYGENETIC resulting from more than one process of formation or derived from more than one source PORPHYRITIC an igneous rock in which larger crystals are set in a finer groundmass which may be crystalline or glassy or both PORPHYRY an igneous rock of any composition that contains conspicuous larger fully-formed crystals in a fine-grained groundmass; PORPHYRY COPPER a copper deposit in which the copper-bearing minerals occur as disseminated grains and/or veinlets through a large volume of rock PROTEROZOIC the more recent division of the Precambrian PROXIMAL a sedimentary deposit consisting of coarse clastics and formed nearest the source area PYROCLASTIC clastic rock material formed by volcanic explosion or aerial expulsion from a volcanic vent PYRRHOTITE a common reddish-brown hexagonal iron sulfide mineral PYRITE a common, pale-bronze or brass-yellow, isometric iron sulfide mineral QUARTZ crystalline silica; silicon dioxide QUARTZ DIORITE a group of plutonic rocks having the composition of diorite but with an appreciable amount of quartz QUARTZ MONZONITE intermediate intrusive rock of a particular mineralogy in which quartz comprises 10 to 50% of the felsic constituents QUARTZITE a very hard but unmetamorphosed sandstone consisting chiefly of cemented quartz grains RADIOMETRIC SURVEY survey using a radiation-measuring instrument, usually to detect specific elements in the ground REFRACTORY ORE an ore from which it is difficult or expensive to recover its valuable constituents REVERSE CIRCULATION DRILLING a drilling method used in geological appraisals whereby the drilling fluid passes inside the drill stem to a down-the-hole precision bit and returns to the surface outside the drill stem carrying chips of rock REVERSE FAULT a thrust fault with a dip of 45" or less in which the hanging wall appears to have moved upward relative to the footwall SANDSTONE a medium-grained sedimentary rock composed of abundant fragments of sand size set in a fine-grained matrix of silt or clay SAPROLITE a soft, earthy, clay-rich and thoroughly decomposed rock formed in place by chemical weathering of igneous, sedimentary or metamorphic rocks which retains the original structure of the unweathered rock SCHIST a strongly foliated crystalline rock formed by dynamic metamorphism SERICITE a white fine-grained potassium mica which results from the alteration of various rock-forming minerals SHALE a fine-grained detrital sedimentary rock formed by the consolidation of clay, silt, or mud, and characterized by finely stratified structure SHEAR ZONE a tabular zone of rock that has been crushed and brecciated by many parallel fractures due to shear strain SHEAR a strain resulting from stresses that cause or tend to cause contiguous parts of a body of rock to slide relatively to each other in a direction parallel to their plane of contact SHIELD a large area of exposed basement rocks in a craton commonly with a very gently convex surface, surrounded by sediment-covered platforms SILICEOUS a rock containing abundant silica SILICIFIED the introduction of, or replacement by silica, generally resulting in the formation of fine-grained quartz STOCK an igneous intrusion that is less than 100 square kilometers in surface exposure STOCKWORK a mineral deposit in the form of a network of veinlets diffused in the country rock STRATIFORM having the form of a layer, bed, or stratum; consisting of roughly parallel bands or sheets STRIKE the direction or trend that a structural surface, e.g. a bedding or fault plane, takes as it intersects the horizontal STRIKE-SLIP the component of the movement or slip that is parallel to the strike of the fault STRINGER a mineral veinlet or filament occurring in a discontinuous pattern in the host rock STRIP to remove overburden in order to expose ore SUBPARALLEL somewhat parallel SUPERGENE a mineral deposit or enrichment formed by descending solutions SUPERGROUP a formally named assemblage of related groups, or of formations and groups, having significant lithologic features in common SUPRACRUSTAL rocks that overlie the basement 18 19 SURFICIAL situated, formed, or occurring on the Earth's surface SYNCLINE a concave upward fold, the core of which contains the stratigraphically younger rocks TONALITE a rock similar to quartz diorite TOURMALINE a group of minerals commonly found as an accessory mineral in coarse-grained granitic rocks widely distributed in acid igneous rocks, metamorphic rocks, and clay slates TUFF a compacted pyroclastic deposit of volcanic ash and dust that may or may not contain up to 50% sediments such as sand or clay ULTRAMAFIC an igneous rock composed chiefly of mafic minerals VEIN a thin, sheetlike igneous intrusion into a crevice VLF-EM SURVEY Very Low Frequency ElectroMagnetic Survey: a survey utilizing a worldwide-generated radio signal VOLCANICLASTIC a clastic rock containing volcanic material in whatever proportion, and without regard to its origin or environment VOLCANICS those igneous rocks that have reached or nearly reached the Earth's surface before solidifying WALL ROCK the rock enclosing a vein WEATHERING the destructive process constituting that part of erosion whereby earthy and rocky materials on exposure to atmospheric agents at or near the Earth's surface are changed in character with little or no transport of the loosened or altered material 19 20 FIGURE 1 Map of "GOLDEN STAR RESOURCES LTD - OPERATIONS IN SOUTH AMERICA," showing specific project locations in Guyana, Suriname, French Guiana, Brazil and Bolivia. 20 21 FIGURE 2 Map of "PAN AFRICAN RESOURCES CORPORATION - OPERATIONS IN AFRICA," showing specific project locations in Ivory Coast, Mali, Gabon, Eritrea, Ethiopia and Kenya. 21 22 ITEM 2. DESCRIPTION OF PROPERTIES The following contains certain forward-looking statements within the meaning of the Reform Act. Actual results, performance or achievements of the Company could differ materially from those projected in the forward-looking statements due to a number of factors, including those set forth under "Risk Factors" and elsewhere in this Annual Report on Form 10-K. GENERAL As of March 14, 1997, the Company owned, or had entered into agreements to acquire, direct and indirect, interests in mineral properties located in the following countries: In South America: In Africa: # Guyana # Kenya # French Guiana # Ivory Coast # Suriname # Mali # Bolivia # Eritrea # Brazil # Gabon # Sierra Leone # Ethiopia
All of the properties in which the Company had an interest as of March 14, 1997, are situated in geologic domain known as greenstone belts, which are ancient volcanic-sedimentary rock assemblages. Greenstone belts are known to be favorable geologic environments for gold mineralization and account for a significant proportion of the world's gold production, e.g., the greenstone belts of the Canadian Shield in eastern Canada, the Australian Shield of Western Australia, the African Shield of west Africa and the Guiana and Brazilian Shields of northern South America. The Company currently has active projects in the greenstone belts of the Guiana Shield (Guyana, Suriname, and French Guiana), the Brazilian Shield (Bolivia and Brazil), the West African Shield (Mali and Ivory Coast) and other greenstone belts in Eritrea, Kenya and Ethiopia. As a result of the Company's regional exploration activity for gold in the Guiana Shield, a regional exploration program was also established to search for possible primary diamond sources. So far, the diamond exploration program has led to the identification of diamond targets in French Guiana and Guyana. Regional geophysical surveys conducted in Suriname and Ivory Coast have also led to the identification of targets in countries which have the potential to contain diamond bearing structures. The location of the Company's interests in South America and Africa are illustrated in Figures 1 and 2 above, respectively. Gold exploration and mining have, in the past, been conducted within most of the areas where the Company's properties are located. However, the areas have comparatively few large scale mining operations, due in some cases to a difficult physical environment, poor infrastructure, and until recently, adverse political and business conditions. Though there are, or have been, numerous artisanal mining operations scattered throughout the areas where the Company's properties are located, with a few exceptions, these areas have generally not yet been fully explored using modern techniques and equipment. All of the Company's mineral properties are located in developing countries, with the exception of Brazil and French Guiana, a Departement of France. There are certain business and political risks inherent in doing business in developing countries. In particular, the regulatory framework for conducting mining and exploration activities in these countries, including the tax and general fiscal 22 23 regimes and the manner in which mineral rights and title to mineral properties are established and maintained, are often uncertain, incomplete, in a state of flux or subject to change without notice. Further, in many countries in which the Company's projects are located, it may not be economically feasible to develop a commercial mine unless special tax or other fiscal and regulatory concessions are obtained and maintained from the applicable government and regulatory authorities. Such concessions are typically sought in a mineral agreement (also known as foreign investment agreements and establishment agreements). A mineral agreement thus serves to establish the legal and financial framework under which mining will take place in countries where such framework might be otherwise unclear, uncertain or not commercially viable. There can be no assurance, however, that the Company will be able to execute or enforce satisfactory mineral agreements or obtain satisfactory political risk insurance on commercially reasonable terms for any or all of its properties. Consequently, the Company may have to abandon or relinquish certain mineral rights if it determines that it will not be able to profitably exploit any anticipated mineral discovery under existing laws and regulations. (See "Item 1. Risk Factors - "Risks of Foreign Operations" and "Requirements for Permits and Licenses".") Total consolidated expenditures and property abandonment for the various exploration projects for the fiscal year ended December 31, 1996 were as follows:
Deferred Proceeds Property Deferred Exploration Joint From Abandon- Exploration Expenditures Capitalized Capitalized Venture Sale of ments/ Expenditures In Thousands of Dollars as at Exploration Acquisition Recov- Property write- as at 12/31/95 Expenditures Expenditures eries Interest downs 12/31/96 ------- ------ --- ------ ---- ---- ------- GUYANA (1) Eagle Mountain $ 38 36 37 - - - $ 111 Quartz Hill 1,347 - - - - - 1,347 Upper Potaro Diamond / Amatuk Diamond 836 137 37 - - - 1,010 Mazaruni / Upper Mazaruni Diamond 2,028 480 221 - - - 2,729 Wenamu Gold 512 - - - - - 512 Five Stars Gold 3,651 1,639 477 - - - 5,767 Five Stars Diamond 389 668 40 - - - 1,097 BHP Gold Projects - 281 - (130) - - 151 Guyana Diamond Permits - 27 - - - - 27 Other 1,171 214 - - - (9) 1,376 ------- ------ --- ------ ---- ---- ------- Sub-total 9,972 3,482 812 (130) - (9) 14,127 ------- ------ --- ------ ---- ---- ------- SURINAME (1) Benzdorp / Lawa 2,842 499 - - - - 3,341 Gross Rosebel 6,286 7,777 450 (5,019) - - 9,494 Headley's Right of 311 - - - - - 311 Exploration Thunder Mountain 405 48 - - - - 453 Saramacca 1,255 547 - (233) - - 1,569 Sara Kreek 131 306 75 (357) - - 155 Tempati Reconnaissance - 421 135 (395) - - 161 Tapanahony Reconnaissance - 300 75 (289) - - 86 Kleine Saramacca - 98 20 (14) - - 104 Lawa Antino - 764 - - - - 764 Suriname Diamond Projects - 295 15 - - - 310 Ulemari Reconnaissance - 151 - (98) - - 53 Other Exploration - 20 - - - - 20 Other 226 6 - - - - 232 ------- ------ --- ------ ---- ---- ------- Sub-total 11,456 11,232 770 (6,405) - - 17,053 ------- ------ --- ------ ---- ---- -------
23 24
Deferred Proceeds Property Deferred Exploration Joint From Abandon- Exploration Expenditures Capitalized Capitalized Venture Sale of ments/ Expenditures In Thousands of Dollars as at Exploration Acquisition Recov- Property write- as at 12/31/95 Expenditures Expenditures eries Interest downs 12/31/96 ------- ------- ------ -------- ----- -------- ------- FRENCH GUIANA (2) (GUYANOR RESSOURCES S.A.) Dorlin 609 990 - (971) - - 628 St-Elie 1,973 2,386 21 (2,407) - - 1,973 Dieu-Merci - - 382 - - - 382 Yaou 6,991 1,100 - (1,004) - - 7,087 Paul-Isnard / Eau Blanche 3,629 1,459 - (1,459) - - 3,629 SOTRAPMAG 1,161 1,485 - - - (1,126) 1,520 Dachine 449 1,179 - (1,053) - - 575 Other 1,295 36 - - - - 1,331 Diamond Projects - 243 - (39) - - 204 ------- ------- ------ -------- ----- -------- ------- Sub-total 16,107 8,878 403 (6,933) - (1,126) 17,329 ------- ------- ------ -------- ----- -------- ------- AFRICA (3) (PAN AFRICAN RESOURCES CORPORATION) Gabon / Eteke 5,247 656 - - (640) (5,263) - Ivory Coast / Comoe 2,859 1,092 - - - - 3,951 Mali / Dioulafoundou 1,940 680 143 - - - 2,763 Mali / Melgue - 56 - - - - 56 Mali / Other - 30 - - - - 30 Ethiopia / Dul 2,635 1,315 17 - - (3,967) - Eritrea / Galla Valley 426 883 8 - - - 1,317 Eritrea / Other - 55 - - - - 55 Kenya / Ndori - 301 600 - - - 901 Other - 53 - - - - 53 ------- ------- ------ -------- ----- -------- ------- Sub-total 13,107 5,121 768 - (640) (9,230) 9,126 ------- ------- ------ -------- ----- -------- ------- LATIN AMERICA (4) (SOUTHERN STAR RESOURCES LTD.) Brazil / Andorinhas 123 2,286 1,138 - - - 3,547 Brazil / Abacaxis 162 966 247 - - - 1,375 Brazil / Other 129 454 - - - - 583 Bolivia / San Simon 205 610 43 - - - 858 Bolivia / Sunsas 6 165 50 - - - 221 Bolivia / Other 167 287 48 - - - 502 ------- ------- ------ -------- ----- -------- ------- Sub-total 792 4,768 1,526 - - - 7,086 ------- ------- ------ -------- ----- -------- ------- OTHER 13 (13) - - - - - ------- ------- ------ -------- ----- -------- ------- TOTAL $51,447 $33,468 $4,279 $(13,468) $(640) $(10,365) $64,721 ------- ------- ------ -------- ----- -------- -------
(1) A division of Golden Star Resources Ltd. (2) Approximately 68% owned by the Company as of March 14, 1997. (3) Approximately 58% owned by the Company as of March 14, 1997. (4) Wholly owned by the Company. The following is a description of the mineral property interests held by the Company and its subsidiaries as of March 14, 1997, in (i) Guyana, (ii) Suriname, (iii) French Guiana (Guyanor), (iv) elsewhere in Latin America (Southern Star), and (v) in Africa (PARC). GUYANA PROPERTIES GENERAL The Co-operative Republic of Guyana ("Guyana"), a former British colony, obtained independence in 1966. It has a surface area of 216,000 km(2) with a population of approximately 750,000. The official language is English and the climate is tropical. Guyana is governed as a democratic republic, and the legal and land title systems are based on English common law. 24 25 PRODUCING PROPERTY: OMAI MINE The Company owns a 30% common share equity interest in OGML, the company which owns and operates the Omai Mine. The mine is located on a 52 km(2) mining license on the Essequibo River, approximately 160 km southwest of Georgetown, Guyana. The mine is operated as an equity joint venture of the Government of Guyana, the Company and Cambior, the operator. Cambior and the Government of Guyana own 65% and 5% of OGML, respectively. Access to the mine is by improved road and ferry or by fixed-wing aircraft to an all-weather airstrip. The Company and Cambior entered into an agreement with the Guyana Geology and Mines Commission ("GGMC") and the Government of Guyana on August 16, 1991 (the "OMAI Mineral Agreement"), whereby, among other things, OGML was granted the right to obtain a mining license (which was granted on December 12, 1991), and to carry out mining operations in accordance with the terms of the Omai Mineral Agreement. In addition, the Omai Mineral Agreement provides for the payment to the Government of Guyana of a 5% in-kind royalty from the Omai Mine. It also provides that capital and profits may be repatriated without restriction. Pursuant to the articles of incorporation of OGML, the Government of Guyana was granted the option to acquire from the combined holdings of the Company and Cambior in the common shares of OGML (i) after the expiration of eight years from commencement of commercial production from the Omai Mine (which was achieved in January 1993), but before the expiration of the tenth year, 5% of the common shares of OGML issued and outstanding at such time; and (ii) after the expiration of ten years from commencement of commercial production, but before the expiration of the twelfth year, an additional 22% of the common shares of OGML issued and outstanding at such time, at a price to be established based upon the then current capital market values of the common shares of OGML. The Company and Cambior have each undertaken to sell and deliver to the Government of Guyana one-half of the total number of common shares of OGML required to be sold to the Government of Guyana upon exercise of the options mentioned above. If the Government of Guyana were to exercise both of its options as set forth above, the Company's common share equity interest in OGML would be reduced to 16.5%. Pursuant to the articles of incorporation of OGML, the Company is entitled to reimbursement of the sum of $11.0 million, representing exploration expenses incurred since 1985, directly or indirectly by the Company, its predecessors or by former joint venture partners, prior to any distribution to the common shareholders of OGML. The Company is entitled to receive 10% of net cash flow from operations of OGML (as defined in the Omai Mineral Agreement). This amount is calculated and paid quarterly to the Company by way of redemption of the preferred shares of OGML held by the Company. During the fiscal years ended December 31, 1993, 1994, 1995, and 1996, the Company received $413,000, $1,005,000, $1,209,467, and $1,144,876 respectively, by way of redemption of Class I preferred shares. The Company does not expect to receive dividends from its common share holdings in OGML until debt owed by OGML and guaranteed by Cambior is repaid and Class II and III preferred shares held by Cambior are redeemed. As of December 31, 1996, OGML had $174.3 million in debt and a total of 53.2 million in Class II and III preferred shares outstanding. On August 19, 1995, a failure occurred in the main section of the tailings dam at the Omai Mine. The failure resulted in the discharge of cyanide-contaminated water into the Omai River, which in turn flowed into the Essequibo River. The report of a Commission of Inquiry appointed by the Government of Guyana was submitted on January 8, 1996, and stated that the Commission of Inquiry could see no justifiable reason for OGML not being permitted to resume production at the Omai Mine. The 25 26 Commission of Inquiry also made a number of recommendations in its report relating, among other things, to the construction of the new tailings pond, the treatment of water before its release into receiving waters and the implementation of other environmental safeguards. Production at the Omai Mine was suspended from August 19, 1995, until February 4, 1996. As a consequence of the Omai tailings dam failure, OGML was as of March 7, 1997 named as a defendant in approximately 500 civil proceedings in Guyana. Such proceedings are currently being settled, without admission of liability, or being contested in good faith, as applicable. Amounts claimed under currently instituted proceedings against OGML do not exceed $1.5 million in the aggregate and insurance coverage may be available to OGML in relation to a substantial portion of these claims. OGML and its shareholders, including the Company, may become involved as defendants, plaintiffs or otherwise in a variety of additional legal proceedings in Guyana or elsewhere in relation to this incident. There can be no assurance that such additional litigation will not result in material additional costs arising from out-of-court settlements, damage awards or other sanctions against OGML or the Company. Moreover, there can be no assurance that all or any of such additional costs will be covered by appropriate insurance. Operations at the Omai Mine resumed on February 4, 1996, after the Government of Guyana and OGML executed an agreement authorizing OGML to recommence commercial production at the Omai Mine in accordance with the terms of the Mineral Agreement and the Mining License issued to OGML. Under the terms of the agreement to resume production, OGML agreed to: provide an independent geotechnical review of the new tailings pond constructed at the Omai Mine; install additional equipment to ensure compliance with the original discharge criteria set forth in the Project Environmental Impact Statement dated January 1991; study alternative technologies for cyanide reduction and plan and implement a public education program regarding cyanide; comply with new environmental legislation to be enacted by the Government of Guyana; conduct additional environmental monitoring of tailings, surface and ground waters; provide technical and financial assistance to the Government of Guyana, including the allocation of $0.1 million for laboratory equipment for environmental monitoring purposes; cooperate in the creation of a National Disaster Response Agency or similar body; prepare a closure plan in connection with the ultimate cessation of operations at the Omai Mine and for the reclamation of the original tailings pond together with appropriate measures to ensure the adequate funding of such closure plans; and create a Consultative Committee regarding environmental matters. The primary direct financial impact of the Omai incident on the Company was the deferral of approximately $1.0 million of expected preferred share redemptions in 1995. The Omai Mine was brought into commercial production in January 1993 and currently is the Company's only significant producing property. Gold production for 1993, 1994 and 1995 totaled 206,537 oz, 250,642 oz and 175,080 oz of gold, respectively. Gold production in 1996 of 254,950 oz was lower than the budgeted amount of 276,030 oz due primarily to the August 19, 1995 tailings dam failure and resulting reduced levels of production in early 1996 although production consistently improved during every quarter in 1996. The mine achieved record quarterly and monthly production of 92,834 oz of gold in the fourth quarter of 1996 and 35,403 oz in December 1996. The commissioning of the expanded mill facilities in the third quarter of 1996 contributed to higher production levels. 26 27 Quarterly gold production at the Omai Mine(1) for 1996 was as follows:
First Second Third Quarter Fourth Total Quarter (2) Quarter Quarter 1996 (2) - ----------------------------------------------------------------------------------------------------------------- Tonnage milled 725,203 1,160,413 1,679,890 1,881,248 5,446,754 Rate (t/day) 12,950 12,752 18,260 20,448 16,455 Grade (g/t) 1.6 1.8 1.6 1.7 1.7 Recovery (%) 85% 89% 92% 93% 91% Gold production (oz) 27,204 57,987 76,925 92,834 254,950 Cash cost of production $294 $281 $233 $238 $252
(1) The Company has a 30% equity interest in OGML which owns the Omai Mine. (2) There was no production at the Omai Mine from August 19, 1995 to February 4, 1996, due to the Omai dam failure. (3) Cash cost of production includes mining and milling costs, power generation and general services charges. In 1996, OGML completed its mill expansion program at the Omai Mine at an approximate cost of $51.0 million, $7.0 million below budget, adding a semi-autogenous ("SAG") grinding mill and two ball mills to increase rated daily processing capacity from 12,000 tonnes to 18,000 tonnes per day. Moreover, electric generation at the mine was enhanced with the installation of additional generators for an 87% increase in power potential. OGML also completed a new tailings pond and waste water treatment facility at the mine. Excess process water is treated at the facility in accordance with environmental standards of Guyana, the United States and Quebec, Canada, prior to discharge into the Essequibo river. Ore reserves at the Omai Mine are derived from four sources: the Fennell pit, the Wenot Lake pit, the alluvial deposits and stockpiles. In 1996, ore was processed from the Fennell pit, the Wenot Lake pit, alluvial deposits and the stockpiles. The average mined waste to ore ratio for 1996 was 2.2. Cash costs at the Omai Mine for 1996 and 1995 amounted to $252 and $224 per oz produced, respectively. At December 31, 1996, proven and probable reserves totaled 66,612,000 tonnes grading 1.5 g Au/t representing 3,207,600 oz of contained gold.
December 31, 1996 December 31, 1995 --------------------------------------------- -------------------------------------------- Proven and Proven and Probable Probable Reserves Grade Contained Reserves Grade Contained (tonnes) (1) (g Au/t) Gold (oz) (tonnes) (1) (g Au/t) Gold (oz) ------------------------------------------------------------------------------------------- Fennell Pit 40,427,000 1.6 2,054,800 43,450,000 1.6 2,217,800 Wenot Lake Pit 15,559,000 1.7 859,500 14,127,000 1.6 708,100 Alluvials 1,119,000 0.9 34,900 1,237,000 0.9 38,100 Stockpiles 9,507,000 0.8 258,400 10,094,000 0.9 296,600 ------------------------------------------------------------------------------------------- TOTAL 66,612,000 1.5 3,207,600 68,908,000 1.5 3,260,600 ===========================================================================================
(1) Reserves are calculated using a gold price of $425 per ounce with a cutoff grade of 0.35 g Au/t for soft rock reserves and 0.70 g Au/t for hard rock reserves. Recovery rates range between 85% and 90%, depending on grade. 27 28 EXPLORATION PROPERTIES Total exploration expenditures in Guyana during 1996 amounted to $4.3 million, including $0.1 million reimbursed by the Company's joint venture partners. Total budgeted 1997 exploration, acquisition and reconnaissance expenditures in Guyana are $7.5 million, including budgeted joint venture recoveries of $1.1 million. QUARTZ HILL AND OMAI RIVER In January 1997, OGML was awarded prospecting licenses with respect to the Quartz Hill and the Omai River areas adjacent to the Omai Mine permit area. A budget of $1.0 million to be funded by OGML has been allocated in 1997, to conduct data compilation, line cutting, reconnaissance mapping and geophysical and geochemical surveys on these properties as well as the Omai Mine license. The Quartz Hill property, located 3 km west of the Omai Mine, covers approximately 52 km(2). The Quartz Hill Prospecting License was previously acquired by the Company through the Amalgamation with South American. The Company carried out exploration work on Quartz Hill from 1992 through 1996. To consolidate exploration and possible development of the Quartz Hill area with the adjacent Omai property, the Company entered into a letter agreement in 1995 with OGML whereby the Company relinquished all of its right, title and interest in the Quartz Hill prospecting license in exchange for a beneficial interest in any prospecting license granted to OGML with respect to the same area. Under the agreement, OGML may acquire 100% of the Company's beneficial interest by either: (i) making quarterly payments to the Company equal to 25% of net cash flow generated from mining activity on the Quartz Hill property; or (ii) issuing to the Company, upon commencement of production at Quartz Hill, 1,386,000 Class IV Preference Shares with a par value of $1.00 per share, i.e., the equivalent of the approximate historical book value of the Company's investment in the Quartz Hill property. Such shares would be fully redeemable in equal quarterly installments during the 36-month period following commencement of commercial production from Quartz Hill. The 1997 exploration program for the Omai Mine and these two adjacent properties includes 3,500 m of development drilling to delineate economic zones in soft rock at the mine and 2,000 m of core drilling at Quartz Hill. Execution of a definitive agreement between Cambior, OGML and the Company is subject to execution of an acceptable mineral agreement with the Government of Guyana regarding the Quartz Hill and Omai River properties. This agreement is subject to approval by the Board of Directors of OGML, and, for certain matters, approval of OGML's shareholders. There can be no assurance that an acceptable mineral agreement will be obtained from the Government of Guyana. FIVE STARS GOLD AREAS, AND UPPER MAZARUNI AND UPPER POTARO DIAMOND AREAS During 1996, the Government of Guyana granted to the Company 15 prospecting licenses for gold, precious metals and diamonds in northwestern Guyana. Each prospecting license covers an area of approximately 5,200 ha. Opposition to the grant of five of the Company's 15 prospecting license applications was made by a timber company claiming to have, under a previous agreement with the Government of Guyana, rights of first refusal to the grant of such licenses. Subsequently, an agreement was reached between the Company and the timber company pursuant to which the timber company was granted the option to either receive a 5% net profit interest or purchase up to a 20% undivided participating interest in any entity formed for the exploitation of the five prospecting licenses. The objections were dropped. The term of each license is three years, renewable twice for a 28 29 period of up to one year each. The minimum expenditures commitment for the first year work program on each license varies between $0.1 million and $0.2 million. The Properties The Five Stars gold area is underlain by the Barama-Mazaruni supergroup of greenstone rocks. The typical rock types are metavolcanic, ranging from felsic to mafic flows, and intrusives, and include pyroclastic and volcaniclastic units. The metavolcanics are interstratified with a range of clastic, manganiferrous and carbonaceous metasediments. These units are intruded by small granitoid stocks, some of which are sub-volcanic porphyries associated with felsic volcanism. Others are cupolas of larger underlying granitoid intrusives. The Barama-Mazaruni supergroup of rocks are continuous across Guyana's western border and into Venezuela where, as a result of better access and infrastructure, there are many known gold occurrences. The Upper Mazaruni and Upper Potaro diamond areas are, for the most part, underlain by Roraima Supergroup sedimentary and metasedimentary rocks which have historically been regarded as the source of alluvial diamond deposits. In addition, the areas are located over the sites of intersecting crustal extension zones. The alluvial diamond deposits found throughout the Guiana Shield are generally regarded as having been derived from the degradation of the conglomeratic horizons within the 2,000 m thick sediments of the Roraima Formation. Gold Exploration Work Program During 1996, follow-up exploration was conducted over anomalous areas identified during the 1995 reconnaissance program on 13 prospecting licenses located in the Five Stars reconnaissance block. Soil sampling, totaling approximately 4,000 samples, was conducted on 800 meter by 100 m grids, augmented by stream sediment sampling. Significant (+50 ppb) gold anomalies were identified on seven prospecting licenses within the Five Stars area which warrant further follow-up work. No significant gold anomalies were identified on six of the Five Stars prospecting licenses, which are of primary interest for continued diamond exploration. On the Fish Creek One prospecting license deep augering and core drilling was conducted to test for depth extension of a major gold anomaly covering an area approximately 1,000 by 5,000 m. This work included tighter spaced soil sampling, deep augering, totaling 466 auger holes, and 17 exploratory core drill holes totaling 2,285 m. To date, the work at Fish Creek One has failed to identify a near surface locus of gold mineralization that could account for the significant gold anomaly previously identified. At the Whana East prospecting license to the west of Fish Creek One, a 400 by 50 m auger grid was established involving 1,596 two meter auger holes, which identified a significant anomaly measuring approximately 500 by 2,400 m. The work program for 1997 involves follow-up work on the Fish Creek One, Whana East, Whana West, Rocky River, Erakiri, and Makapa prospecting licenses, all located within the Five Stars area. Detailed soil sampling on 200 by 50 m grids is planned to confirm anomalies identified on 800 by 100 m grids. Deep auger programs will be conducted on gold anomalies resulting from the detailed soil sampling programs. Additional core drilling is anticipated at Fish Creek One to test for the potential of a primary source of gold mineralization at depth. Diamond Exploration Work Program During 1996, diamond exploration was conducted over six prospecting licenses in the Five Stars, Upper Mazaruni and Upper Potaro areas of north western Guyana. In addition, the Company's diamond 29 30 exploration group, based in Guyana, conducted initial field reconnaissance and follow-up programs on three prospective diamond areas in Suriname, eight areas in French Guiana and assisted in the evaluation of prospective diamond targets in Cote d'Ivoire, west Africa. Work consisted primarily of stream sediment and soil sampling for heavy mineral examination, limited bulk sampling of potential diamond bearing rock and limited core drilling. Kimberlitic chromites were discovered on five of the areas explored in Guyana, while two areas yielded diamonds. On one prospecting license in the Five Stars area, three diamond anomalies ranging in size from less than 1 to 4 ha. were investigated by core drilling, totaling approximately 1,000 m in nine holes, three holes on each target. Examination of the drill core from two of the three targets indicated diatreme and crater facies metamorphosed kimberlite. Two diamonds and a significant number of diamond indicator minerals were recovered from caustic fusion processing of drill core at Lakefield Laboratories in Toronto, Canada. The three targets drilled are part of a cluster of up to 70 potential kimberlites on the basis of the interpreted geophysical survey previously conducted. During 1997, follow-up work is anticipated on the five areas in Guyana which yielded kimberlitic chromites and/or diamonds. Additional work on another five areas will be conducted, depending upon positive results from sampling programs completed in late 1996. The 1997 programs are anticipated to involve additional stream sediment and soil sampling, small scale bulk sampling, ground geophysical surveys to better locate potentially diamond bearing bodies, and finally core drilling to test select targets to obtain fresh rock samples for analysis. GUYANA RECONNAISSANCE PROJECT BHP Minerals International Exploration Inc. ("BHP") was granted a two-year non-renewable reconnaissance permit on June 19, 1996, for all minerals (excluding bauxite in those areas where prospecting licenses for bauxite already exist) covering three areas totaling approximately 2.5 million acres in Guyana. Under the terms of the reconnaissance permit, BHP is entitled to apply for prospecting licenses for precious metals and precious stones by June 19, 1998 covering up to 10% of the original area of the reconnaissance permit. Pursuant to a Heads of Agreement dated July 22, 1996, the Company and BHP formed a joint venture to conduct an evaluation of minerals located within the permit area (excluding diamonds and iron ore.) The Company holds a 40% participating interest in the joint venture and BHP holds a 60% participating interest. BHP and the Company are participating jointly in all operations on the basis of their respective participating interests, and failure by either company to advance its share of funds will result in dilution of its participating interest. BHP and the Company each may withdraw from the joint venture upon 30 days' notice. BHP is the manager of the project. The Company will, however, carry out exploration programs approved by the joint venture until completion of a feasibility study. Work program During the latter half of 1996, the Company completed a bulk leach geochemistry ("BLEG") sampling program over most of all the three areas with a sampling density of approximately one sample per 15 km(2). Anomalous gold targets were identified on Area 1 located North of the Company's Five Stars area and in the western sector of Area 3. No significant anomalous gold targets warranting follow-up work were identified on Area 2. 30 31 The program during 1997 will focus on better defining anomalies in Area 1 defined by the first phase of the BLEG survey. The second phase of work involves continued, and more densely spaced BLEG sampling. Results of the second phase of BLEG sampling will determine further follow-up programs. SURINAME PROPERTIES GENERAL The Company is currently active in many gold exploration projects in The Republic of Suriname ("Suriname"). These include, among others, the Gross Rosebel, Headley's, Thunder Mountain, Saramacca, Kleine Saramacca, Antino, De Goeje, Yau Passi, Sara Kreek East Rights of Exploration and Sipaliwini Rights of Reconnaissance. Individual properties range from early to advanced stage exploration. Suriname, a former Dutch colony, became independent in 1975. It has a surface area of 163,000 km(2), a tropical climate, and a population of approximately 470,000. The official language is Dutch with English spoken as a second commercial and technical language. Suriname has a democratically elected government. During 1996, the Company incurred total exploration expenditures in Suriname of $12.0 million, including $6.4 million reimbursed by the Company's joint venture partners. Total 1997 budgeted exploration and acquisition expenditures are $10.2 million, including $4.5 million budgeted for joint venture recoveries. In addition, the Company has budgeted to incur mine development expenditures in 1997 of $14.0 million with respect to Gross Rosebel. GROSS ROSEBEL Pursuant to a mineral agreement dated May 8, 1992, as amended and restated on April 7, 1994 (the "Gross Rosebel Agreement"), between the Company, the Government of Suriname and a state mining company, Grasshopper Aluminum Company ("Grassalco"), Grassalco assigned to the Company its interest in the Gross Rosebel Right of Exploration, which covers exploration rights to a 170 km(2) area in north-central Suriname. The Gross Rosebel Agreement was ratified by the National Assembly of Suriname on March 1, 1994. As partial consideration for the transfer of the Gross Rosebel Right of Exploration, the Company issued 60,000 common shares to Grassalco on June 28, 1994. Under the terms of the Gross Rosebel Agreement, the Company committed to expend an aggregate of $8.0 million on exploration activities over a five-year period commencing May 8, 1992, as follows: $0.3 million in the first year, $0.5 million in the second year, $1.2 million in the third year, $1.5 million in the fourth year and $4.5 million in the fifth year. Through December 31, 1996, the Company had spent approximately $21.1 million on the Gross Rosebel property and, as a result, fulfilled its expenditure requirement. Of the amounts expended by the Company, Cambior has contributed $11.6 million by way of joint venture recoveries (see discussion of Cambior Joint Venture below). In addition, in consideration for Grassalco making the Gross Rosebel property available for exploration, the Company paid pursuant to the terms of the Gross Rosebel Agreement $1.0 million to Grassalco. The Company is required to submit a feasibility study and environmental impact statement to the Government of Suriname by May 8, 1997. Upon approval by the Suriname Government of the feasibility study and the environmental impact statement, the Gross Rosebel Right of Exploration may be converted into a Right of Exploitation for a period not exceeding 25 years. Prior to the issuance of a Right of Exploitation, an operating company 31 32 (the "Operating Company") would be formed to develop and operate a mine on the Gross Rosebel property in accordance with the terms of the Gross Rosebel Agreement. Within 30 days of the grant of the Right of Exploitation, the Company is obligated to pay to Grassalco the sum of $2.5 million as compensation for previous exploration expenditures incurred by Grassalco. Upon the grant of a Right of Exploitation to the Operating Company, Grassalco will have the option, for a period of 60 days, to purchase an undiluted 20% common share equity interest in the Operating Company by paying 20% of all exploration costs previously incurred by the Company, plus 20% of all subsequently incurred unfinanced capital costs of the Operating Company. Grassalco has a further option to purchase a second undiluted 20% interest in the shares of the Operating Company eight years following the date of commencement of commercial production (as defined in the Gross Rosebel Agreement) in consideration for the payment of a sum equal to 90% of the market value of such shares, as determined in accordance with the terms of the Gross Rosebel Agreement. The Gross Rosebel Agreement provides that a royalty of two percent of the gold produced from the Gross Rosebel property is payable in kind to Grassalco for the life of the project. In addition, a royalty of two percent of the proceeds received on any other minerals produced (less transportation and processing costs) is also payable to Grassalco. An advance royalty payment against the above-mentioned royalties of $6.5 million must be made within 90 days of receipt of the first proceeds from the sale of minerals at Gross Rosebel and a further $6.5 million will be due 12 months later. Further, in the event the price of gold exceeds $500 per oz, Grassalco is entitled to an additional 6.5% royalty on that portion of the sales price which exceeds $500 per oz. The Cambior Joint Venture The Company entered into an agreement on June 7, 1994, pursuant to which Cambior was granted the option to earn an undivided 50% interest in the Company's rights in the Gross Rosebel Agreement and Gross Rosebel property. On January 8, 1996, Cambior announced its decision to exercise its option to acquire 50% of the Company's rights in the Gross Rosebel property. Cambior became eligible to exercise its option after expending $6.0 million in exploration and development activities on the property, as required by the June 1994 option agreement. As also required under the option agreement, Cambior has funded a further $2.5 million in expenditures. Since April 1996, the Company and Cambior have been contributing equally in the expenditures on the Gross Rosebel property. Under the option agreement, Cambior must use its best efforts to secure financing of at least 65% of eventual mine development costs from third parties. Cambior has assumed managerial responsibility for the preparation of a feasibility study. Cambior will also, if warranted, assume managerial responsibility for subsequent mine development and operation of the project. The Company continues to manage the exploration programs for the Gross Rosebel property. A feasibility study is currently being finalized to be submitted to the Government of Suriname on or before May 8, 1997. The Company and Cambior are currently negotiating with the Government and representatives of the Niew Koffie camp village about the relocation of the village outside of the Gross Rosebel property. There can be no assurance that these negotiations will not delay the grant of the Right of Exploitation to the Operating Company. 32 33 The Property The Gross Rosebel Right of Exploration covers 170 km(2) (17,000 ha.) and is located 80 km south of the capital city of Paramaribo, Suriname. Access is via a paved highway followed by an all-weather laterite surface road. Gold was reportedly first discovered in the area in 1879 and since that time more than half of Suriname's recorded production has been produced from the district by dredging and small artisanal surface and underground workings. Commencing in 1974, Surplacer N.V., a subsidiary of Placer Development, a Canadian mining company (now Placer Dome), conducted an extensive exploration program of trenching, hand augering and reverse circulation drilling over a period of three years. Subsequent field work was conducted by Grassalco over a period of seven years and a feasibility study was prepared and completed in 1984 by a Canadian engineering firm. The Gross Rosebel Right of Exploration is underlain by Proterozoic Armina, Paramaca, and Rosebel metasedimentary and metavolcanic greenstone formations. These units are intruded by a large tonalitic stock near the southern boundary of the property, which has resulted in doming of the adjacent Armina rocks and the development of steep reverse faults. The greenstone units are folded into a broad east-west trending and westerly plunging synclinal structure. Gold mineralization associated with at least five generations of hydrothermal quartz veins occur over large areas both in the south and north limbs of the syncline where these are cut by strong west-northwest trending shear zones. Locally, mineralization is controlled by zones of dilation along the shear planes and by drag folding. Intense tropical weathering has developed a residual surface laterite and saprolite profile of up to 50 m thick, overlying bedrock. Gold mineralization has been established by the Company within at least ten separate target areas including Royal Hill, Mayo, Rosebel, Koolhoven, Pay Caro, East Pay Caro, "J" Zone, Bigi Asanjangmoni, Mama Kreek and Spin Zone. All of these target areas are capped by mineralized laterite blankets typically between 3 to 10 m in thickness overlying less continuous shear and/or fold related mineralization in saprolite and bedrock. Both types of deposits are being defined for potential mining. Work Program The 1996 exploration program focused on diamond drilling, with both infill and exploration holes totaling over 40,000 m (in excess of 80,000 m in 720 holes since the start of the program in 1992) with approximately 26,000 core samples assayed. Infill drilling in Pay Caro, East Pay Caro, Koolhoven, Bigi Asanjangmoni and Royal Hill defined the preliminary open pits and increased gold reserves. Exploration drilling, combined with 7,400 trench samples from over 27,700 m of trenching, uncovered several additional gold-mineralized shear zones, to the west of Pay Caro, to the south of the main zone in Koolhoven, in "J" Zone, and at the Mama Kreek and Spin Zone prospects. Pre-feasibility work delineated possible location for the tailings pond and mill site. Condemnation drilling was initiated, followed by geotechnical drilling and test pitting. As part of a pre-feasibility study completed in April 1996, Cambior calculated proven and probable gold reserves of approximately 24 million tonnes grading 1.4 g Au/t, representing 1.1 million oz in situ. These reserves lie in the South block, containing the Royal Hill, Mayo and Rosebel deposits, and the North block, containing the Pay Caro and Koolhoven deposits. On September 26, 1996, the Company and Cambior announced a new mining reserve that resulted in an overall improvement in reserve grade as well as a slightly lower stripping ratio and expanded the proven and probable mining 33 34 reserve base by approximately 25%, to over 30 million tonnes grading 1.5 g Au/t, or approximately 1.4 million oz of gold in situ. There can be no assurance that this reserve calculation will be confirmed by the final feasibility study. Reconnaissance work during 1996 involved approximately 300 km of line cutting to extend the one-meter auger grid to cover all of the North Limb prospects, with 1,300 holes sampled. Follow-up deep augering over soil anomalies provided 4,900 samples, and defined targets for trenching and diamond drilling. During 1996, the Company spent approximately $8.2 million on continued exploration expenditures and property payments, with $5.0 million contributed by Cambior. The 1997 work program involves the continuation of intensive core drilling through to completion of the Gross Rosebel Project final feasibility study. Infill and pit definition drilling, anticipated to total approximately 13,500 m, will be concentrated at Koolhoven, Bigi Asanjangmoni and "J" Zone. The Noutoe zone will be tested by a series of trenches and an additional 1,750 m of trenching is planned for the Royal Hill zone. Ground geophysical surveys totaling 300 line km will help delineate future drill targets along the entire mineralized trend between Koolhoven and East Pay Caro. Condemnation and geotechnical drilling will be completed at the tailings pond, dump, plant and stockpile sites. A detailed topographic survey of the Gross Rosebel concessions is planned, requiring 170 km of line cutting. Surficial exploration is planned with detailed soil sampling over Monsanto Hill involving 6 km of line cutting and 220 samples. Pending positive results, follow-up deep augering and trenching will be carried out. Reconnaissance sampling is planned to cover newly-acquired ground between the north and south limbs of the concession as well as the area between Mayo and Royal Hill to the southern granite contact of the large tonalitic stock to the south. A total of 100 km of line cutting and 2,000 soil samples have been budgeted for both areas. Gross Rosebel is the most advanced of the Company's exploration projects. The objective of the 1997 work program is to continue exploration required to complete the final feasibility study for a full scale mining operation and to initiate construction. KLEINE SARAMACCA, SARAMACCA, THUNDER MOUNTAIN AND HEADLEY'S RIGHTS OF EXPLORATION On November 25, 1996, the Company entered into a preliminary option agreement with Mr. Lafantie regarding the Kleine Saramacca Right of Exploration covering approximately 198 km(2) (19,780 ha.). In order to maintain its rights under the option, the Company must (i) make aggregate annual payments over a five-year period totaling $280,000 and (ii) incur expenditures on the property of up to a total amount of $3.5 million. Such minimum expenditure requirements are conditional upon the optionor executing a mineral agreement with the Government of Suriname satisfactory to the Company. Upon exercise of the option, the Company will earn a 100% interest in the mineral rights to the Kleine Saramacca property, subject to governmental approval and a 12% net profit interest being retained by the optionor. The Company may elect to terminate the option at any time without further liabilities or obligations. Pursuant to a decree dated March 7, 1992, the Government of Suriname granted to the Company the Headley's Reef Right of Reconnaissance, covering an area of approximately 2,022 km(2) (202,200 ha.), for a period of two years. On April 6, 1994, the Headley's Reef Right of Reconnaissance was converted into three Rights of Exploration covering in the aggregate an area of approximately 1,000 km(2) (100,000 ha.). The three Rights of Exploration are now referred to as Saramacca, Thunder Mountain and Headley's. They were granted for an initial period of three years ending in April 1997 34 35 and may be extended until 2001. An application for a two-year extension of the three Rights of Exploration was filed in March 1997. Under the terms of the Rights of Exploration, the Company has committed to spend $0.6 million during that three-year period on each Right of Exploration granted. As at March 14, 1997, the Company had only spent the required minimum expenditures on the Saramacca Right of Exploration. Therefore, there can be no assurance that the Thunder Mountain and Headley's Rights of Exploration will be renewed. However, management believes that due to the significant amount of money spent on the whole project so far, the other two Rights of Exploration should also be renewed. At any time after governmental acceptance of a feasibility study, the Company may apply for Rights of Exploitation for an initial period of up to 25 years. The Company has spent an aggregate of $2.7 million as of December 31, 1996 on the exploration programs on the Kleine Saramacca, Saramacca, Thunder Mountain and Headley's group of properties including expenditures transferred from the Company's prior Headley's Reef Right of Reconnaissance. The entire area was flown on a 200 m line spacing as part of the Company's multi-country airborne magnetic and radiometric survey. This data, in conjunction with other sources of information, including extensive surface exploration work, has been used to prioritize target areas within the individual Rights of Exploration. In 1996, the Company reached an understanding with BHP pursuant to which BHP will have a 60% participating interest and the Company a 40% participating interest in joint ventures covering the Kleine Saramacca and the Saramacca Rights of Exploration. BHP will be obligated to advance the Company's pro rata share of the exploration cost through completion of a final feasibility study. A formal joint venture agreement has not yet been executed. The Company has recovered $0.2 million from BHP for these two projects. KLEINE SARAMACCA The 198 km(2) (19,780 ha.) Kleine Saramacca Right of Exploration is in the Sipaliwini and Brokopondo districts between the Kleine Saramacca River and the road from Paramaribo to Pokigron. It is contiguous with, and to the southeast of, the Saramacca Right of Exploration. Access is either by road to the eastern portion of the concession, or by boat up the Saramacca and Kleine Saramacca Rivers. A grass airstrip south of the confluence of these two rivers can also be used for access by air. The Kleine Saramacca Right of Exploration is underlain in the north and central portions by metavolcanic rocks, flanked on the southeast and southwest by granitic and tonalitic basement rocks. The volcanics are predominantly metabasalts and amphibolites. Work Program An initial reconnaissance exploration program was begun at Kleine Saramacca during 1996, involving the completion of 129 km of line cutting and the collection of 81 stream sediment samples from major drainages present on the property. During 1997, information gathered from the 1996 program will be used to plan a follow-up sediment sampling program in anomalous drainages. Anomalies identified from the more closely spaced steam sediment sampling program will be followed-up by grid line cutting and soil sampling to develop targets that warrant further tested by close spaced soil sampling and augering. 35 36 SARAMACCA The Saramacca Right of Exploration covers approximately 382 km(2) (38,225 ha.) in the Brokopondo, Para and Sipaliwini districts both to the east and west of the Saramacca River, 80 to 110 km southwest of Paramaribo and 40 km west of the Gross Rosebel Right of Exploration. Although remote, the entire length of the Saramacca Right of Exploration can be reached by motorized cargo canoe capable of carrying equipment up to the size of a small bulldozer in six hours or less from the nearest road. An unimproved dirt track is passable for heavy loads by four wheel drive trucks into the northwestern one-third of the concession. A grass airstrip located within the central-eastern portion of the area is suitable for small aircraft up to Twin Otter size. The northern two-thirds of the Saramacca Right of Exploration is underlain by intermediate to basic metavolcanics of the Paramaca Formation intruded in places by small tonalitic plugs. To the southwest, ultramafics of the Bemau complex are the dominant rock type. A granite batholith is exposed within the northern belt. A second larger granite batholith separates the northern metavolcanics from the Bemau ultramafics. Gold mineralization within the northern volcanics appears to be associated with both tonalitic intrusives and basic metavolcanics. In the southwest, gold appears to be associated with the Bemau ultramafics. Mechanized artisanal mining is present in the Saramacca River and its tributaries within the central Brokolonko area, with several smaller operations currently active in the Goensi area within the northern metavolcanics. Work Program Work on the Saramacca property during 1995 at the Read-Pompoekampoe prospect indicated the presence of an underlying gold-mineralized structure. Deep augering (average depth of 9 m) on a 50x25 m spacing identified a gold-bearing zone (with grades greater than 0.25 g/t) ranging from 25 to 200 m in width, with a strike length of at least 700 m and open to the west. The Goensi deep augering program defined what appears to be two converging 50 m wide gold-mineralized zones (greater than 0.50 g/t), which have a combined strike length of approximately 700 m. The 1996 exploration program was designed to determine the gold potential of areas not yet explored by the Company. A regional reconnaissance program utilizing panned concentrate and BLEG sampling tested creeks flowing from potential gold-mineralized areas. Field work for 1996 included 365 km of line cutting, 1,139 one-meter soil samples, 120 deep auger holes, 31 grab samples, 17 panned concentrate stream gravel samples and 298 stream silt samples. Total exploration spending on these areas during 1996 was $0.5 million, including joint venture recoveries of $0.2 million. During 1997, new targets generated in 1996 will be followed-up by closer spaced stream sampling, grid line cutting and soil sampling. Work on existing targets in Goensi and Brokolonko is anticipated to involve deep augering and, if warranted, core drilling to better define zones of mineralization laterally and at depth. THUNDER MOUNTAIN The Thunder Mountain Right of Exploration covers approximately 380 km(2) (37,908 ha.) in the Brokopondo and Para districts between the Suriname and Saramacca rivers, 70 to 90 km south of Paramaribo. The property surrounds three sides of the Gross Rosebel Right of Exploration. 36 37 Most of the central and southwestern portion of the Thunder Mountain Right of Exploration lies within three to six km of a system of all weather dirt roads which traverse the Gross Rosebel area. The northwestern corner of the Right of Exploration is accessible from the Saramacca River or from an all-weather dirt road immediately north of the concession. The Thunder Mountain Right of Exploration is underlain by the same Paramaca-Armina volcanic greenstone assemblage that hosts shear and quartz vein hosted gold mineralization in the Gross Rosebel concession. The large Brinks tonalitic intrusive crops out within the southern portion of the concession immediately south of the Gross Rosebel property. The airborne magnetic and radiometric survey has defined a northwest trending regional lineament (possibly a shear zone) just east of the Gross Rosebel property. Work Program Reconnaissance work during 1996 included 55 km of line cutting and approximately 1,400 one-meter auger samples over pan sample anomalies at the Berg en Dal, Kompanie Kreek and Dabikwen Kreek prospects. Follow-up deep augering was carried out over a 200 x 800 m soil anomaly at Dabikwen Kreek. Anomalous gold values were found around a late-stage diabase dike at Kompanie Kreek. Analysis of the airborne geophysical data by a Canadian consulting group assisted with the geological and structural interpretation of the area, with several targets being identified for further evaluation. Following the expected signing of a mineral agreement, multi-element stream sediment and BLEG sampling is scheduled to be carried out in 1997 over the Fossi Bergi and Berg en Dal - Dabikwen Savannah prospects. The planned program involves up to 80 km of line cutting and collection of 300 stream samples. Resulting anomalies in Fossi Bergi will be followed-up by soil sampling on an initial 400 x 50 m grid. The grid will be reduced as soil anomalies are delineated, with a total of 30 km of line cutting and 900 samples budgeted. Core drilling is anticipated to evaluate the underground gold potential at the Headley's Reef deposit (drilled by Kennecott in the mid 1950s) as a possible source of high-grade feed for the Gross Rosebel mill. Initially 10 holes totaling 800 m will test the mineralized structure to a depth of 75 m. HEADLEY'S The Headley's Right of Exploration covers approximately 209 km(2) (20,860 ha.) in the Brokopondo District, 90 km southwest of Paramaribo. The property lies immediately southwest of the Gross Rosebel property. Small scale artisanal mining occurs in a number of locations within the concession. The southeastern one-third of the Headley's Right of Exploration lies within 3 to 10 km of an all weather dirt road. The northwestern two-thirds is remote ranging from 7 to 16 km from road access. The Headley's Right of Exploration is underlain by a continuation of the same volcano-sedimentary sequence of the Paramaca, Armina, and Rosebel formations extending west and southwest of the Gross Rosebel concession. The Moeroe Moeroe area in the northern portion of the concession immediately west of the Company's Mayo exploration target at Gross Rosebel is cut by a number of westerly trending shear zones permissive for gold mineralization. 37 38 Work Program Exploration work in 1996 concentrated on field data compilation and interpretation, with soil sampling grids being designed to investigate pan sampling anomalies on Kraboe Doin Gebergte defined by the Company's regional reconnaissance program in 1995. Analysis of the airborne geophysical data by a Canadian consulting group has assisted with the geological and structural interpretation of the area. Soil sampling will be carried out in 1997 over the stream sample anomaly on Kraboe Doin Gebergte, initially on a 200 x 50 meter grid. The sample grid will be reduced to 100 x 25 m over any resulting anomalies. A total of 12 km of line cutting and 440 soil samples have been budgeted for this work. Multi-element analysis will be carried out on an additional 200 samples from streams previously sampled by the Company exclusively for gold. SOUTH BENZDORP PROJECT: ANTINO, DE GOEJE AND YAU PASSI RIGHTS OF EXPLORATION Pursuant to a letter agreement dated January 22, 1993, between the Company and NANA Resources N.V., a Surinamese corporation ("NANA"), the Company entered into a service contract with respect to a Right of Reconnaissance located on an area known in Suriname as "South Benzdorp", which was issued to NANA in 1992. The essential terms of the letter agreement were restated in an option agreement dated as of January 22, 1994 (the "South Benzdorp Option Agreement"). Pursuant to the South Benzdorp Option Agreement, NANA granted the Company the option to acquire, subject to governmental approval, a 100% interest in any Right of Exploration issued to NANA pursuant to the South Benzdorp Right of Reconnaissance. Three Rights of Exploration, known as Antino (24,000 ha.), De Goeje (37,000 ha.), and Yau Passi (40,000 ha.) were granted to NANA in 1996. The Rights of Exploration are valid for three years and may be extended until 2003. The option is valid until the expiration of such Rights of Exploration and any extension thereof. Under the South Benzdorp Option Agreement, the Company had to expend a minimum of $250,000 on the South Benzdorp property. The minimum expenditure requirement has been met and, as a result, the Company may, subject to governmental approval, at any time prior to expiration, exercise its option to acquire a 100% interest in the Rights of Exploration. Assuming exercise of the South Benzdorp option, the Company must complete a feasibility study in respect of one or more of the three Rights of Exploration six months prior to the expiration of such Rights or any extension thereof or reassign the Rights of Exploration to NANA, subject to governmental approval. In the event the Company or a related party enters into a mineral agreement with the Government of Suriname with respect to any portion of the Rights of Exploration, the Company will be obligated to pay NANA the sum of $50,000. The Company has also agreed to grant NANA a 10% net profit interest with respect to any portion of the Rights of Exploration which may be brought into commercial production, subject to the Company's right to repurchase half of such entitlement, within 60 days of obtaining a Right of Exploitation, for the sum of $3.0 million. THE ANTINO RIGHT OF EXPLORATION The Antino property covers an area of 370 km(2) and is located in the Sipaliwini District in Southeastern Suriname along the Lawa River, on the border of French Guiana, in the locality of Benzdorp. 38 39 Benzdorp, a former gold trade center, is 240 km southeast of Paramaribo and 220 km south and upstream from Albina on the lower Marowijne River (also called Maroni River in French Guiana). Gold bearing alluvials in the area of the Antino property were discovered around 1885. From 1895 to 1928 the Compagnie d'Or de la Guyane Hollandaise recorded a production of 9,854 kg of gold from the area of the property. During the period of 1928 to 1963, a further 2,657 kg of gold were reportedly produced. Some dredging was carried out from 1963 to 1969, after which activity was limited to local artisanal miners. Access to the area is by air or by boat. Small fixed wing aircraft are able to land at a maintained grass strip on an island in Lawa River in front of the Benzdorp landing. The entire eastern boundary of the Antino property is accessible from the Lawa River. Access into the property is by 30 km of wilderness road passable by four wheel drive vehicles. The main camp at Fatoe Switie is 17 km from the Benzdorp landing. The camp is fully equipped with lodging for 37 people.The Antino area contains a northwest striking Proterozoic greenstone belt of volcanic-sedimentary rocks surrounded by granitic gneissic terrain. The greenstone units, locally named the Fatoe Switi belt, are composed of basic and intermediate volcanic rocks, intermediate volcaniclastic rocks and fine grained sedimentary rocks intruded by several tonalitic plugs. Structurally, the Fatoe Switi greenstone belt is characterized by strong north and northwest trending lineaments as defined by regional foliation. These lineaments are cross-cut by east and northeast lineaments representing probable late shear zones which contain the main alluvial gold deposits. Work Program Field work during the first half of 1996 was concentrated on infill and step-out deep augering over the Upper Antino and Lower Antino targets as follow-up to the Company's 1995 program of mechanized deep augering. Approximately 1,500 m of deep augering was completed at Upper Antino (project to date total of 8,000 m) and approximately 550 m was completed in Lower Antino (project to date total of 2,900 m). Additionally, approximately 3,000 m of grid line were cut (project to date total of 413 km) and 5 km of new road was constructed to provide access to drilling sites in the Upper and Lower Antino areas. On October 14, 1996, the Company announced the results of 51 close spaced deep auger holes at Upper Antino, which exhibited near surface, saprolite mineralization with a weighted average grade of approximately 8.1 g Au/t over a strike length of approximately one kilometer, widths of up to approximately 65 m and depths ranging from approximately 5 to 30 m. A core drilling program was initiated to establish the continuity of higher grade shear zone hosted mineralization at depth in hard rock below the saprolite mineralization defined by this deep augering. On January 8, 1997, the Company announced the results from the first phase of the core drilling program on the Antino project. The drilling program involving 20 holes drilled on 50 m centers, verified the existence of a mineralized shear zone over a strike length of approximately 350 m to a vertical depth of approximately 100 m. Based upon the first phase of drilling, mineralization within the shear zone exhibits a weighted average grade of approximately 12.8 g Au/t over an average true thickness of approximately 4 m. 39 40 In Lower Antino, limited core drilling indicated good continuity at depth of mineralization indicated by deep augering. Mineralization is hosted by a tabular shaped felsic intrusive body (sill) with a 20 m minimum true thickness. Gold grades vary from 0.9 to 7 g/t with significant drill intersections up to 28 m thick with an average grade of 1.2 g/t. The budgeted 1997 exploration program at Antino consists of core drilling and ground geophysical surveys. The drilling program is anticipated to involve 6,000 to 8,000 m of core drilling over the Upper and Lower Antino targets. Drilling will focus on extensions of the known zones along strike and at depth. Ground geophysics utilizing induced polarization (IP) is scheduled to provide better definition of the plunging structures hosting strong sulphide, carbonate and chlorite alteration and high gold grades. Ground magnetics and VLF-EM will also be carried out over both targets to better define the location of specific lithologic units and shear zones. In conjunction with core drilling, a deep augering program totaling 150 holes (2,250 m) is scheduled to be carried out over the Upper Antino target area, to test for potential mineralization along strike to the south. In Lower Antino, the Company has planned to drill an additional 100 deep auger holes (1,500 m) over the western most anomalous area. THE DE GOEJE AND YAU PASSI RIGHTS OF EXPLORATION The De Goeje property covers an area of 370 km(2) and is located in the Sipaliwini District in Southeastern Suriname west of the Lawa River, close to the border with French Guiana, in the locality of Benzdorp. The Yau Passi property covers an area of 400 km(2) and is located in the Sipaliwini District in Southeastern Suriname along the Lawa River, on the border with French Guiana, in the locality of Benzdorp. In November 1996, the Company and BHP entered into a Heads of Agreement with respect to the De Goeje and Yau Passi Rights of Exploration pursuant to which BHP has a 60% participating interest and the Company a 40% participating interest in a joint venture with respect to the De Goeje and Yau Passi Rights of Exploration. The term of the De Goeje / Yau Passi agreement commenced on November 13, 1996 and will continue until the last surviving mineral right with respect to the properties has expired. BHP and the Company have agreed to associate themselves to conduct a detailed evaluation of minerals on the areas covered by the De Goeje and Yau Passi Rights of Exploration. Each party is required to pay its pro rata share of work programs and budgets, provided that BHP must carry the Company by advancing its share of work programs and budgets until completion of a feasibility study regarding the properties. Upon delivery of such feasibility study, the Company will have 90 days to elect whether to withdraw from, or participate in, the project described in the feasibility study. If the Company withdraws, it will have no obligation to reimburse BHP for its pro rata share of expenditures. If the Company elects to participate, it will have to immediately reimburse BHP of 40% of all expenditures incurred on behalf of the joint venture. Each party may withdraw from the Heads of Agreement upon 30 days' notice. Work Program In 1996, field work included 277 stream sediment BLEG samples on a wide-spaced reconnaissance pattern of one sample per 10 km(2). Objectives for 1997 are to define anomalous drainage targets to be sampled at closer spacing, followed by grid line cutting and soil sampling. 40 41 SARA KREEK EAST Pursuant to an option agreement among the Company, Sitex Gold N.V. ("Sitex") and Elkor Investment Company Ltd. ("Elkor"), dated July 11, 1996, the Company was granted the right to acquire a 100% interest in the Sara Kreek East Right of Exploration, which covers approximately 59 km(2) (5,940 ha.). Upon the exercise of the Sara Kreek East option, Sitex and Elkor will be entitled to receive 8.125% and 4.375% net profit interests, respectively, from all future profits derived from the Sara Kreek East Right of Exploration. In order to maintain its rights under the Sara Kreek East option, the Company must (i) make aggregate annual payments over a five-year period totaling $525,000 and (ii) incur minimum expenditures on the property of $4,750,000, ranging from $0.5 million in year one to $1.5 million in year five, on each option. Such minimum expenditure requirements are conditional upon the optionors executing a mineral agreement with the Government of Suriname with respect to each property on terms satisfactory to the Company. During 1996, the Company spent $0.4 million on development of the Sara Kreek Right of Exploration, the majority of which was recovered from BHP. In 1996, the Company had reached an understanding with BHP with respect to a possible joint venture covering the Sara Kreek East Right of Exploration. Later in 1996, BHP indicated that it did not want to pursue this opportunity. The Property The Sara Kreek East property is accessible from Paramaribo by small aircraft to grass air strips in each area, as well as by river during the rain season. Sara Kreek East is underlain by a north-northwest trending Proterozoic volcaniclastic greenstone belt. The rocks show strong shearing, with development of quartz veins, stringers and silicification. An intrusive rock of ultramafic composition cuts through the central portion of the area. Work Program Work on the Sara Kreek East property during 1996 included 162 km of line cutting, 134 stream sediment samples, 2,987 soil samples and 57 deep auger holes. In 1997, untested stream anomalies will be covered by a grid of soil samples. Close spaced augering will follow-up on the high grade deep auger intersections in evidence from 1996 deep auger holes. SIPALIWINI On April 23, 1996, the Company entered into a services contract and option agreement with NANA the recorded owner of the Sipaliwini Right of Reconnaissance. Under the terms of the agreement with NANA, the Company has the right to perform reconnaissance work on the Sipaliwini Right of Reconnaissance at its own cost. Provided such services are rendered until the issuance of a Right of Exploration on the Sipaliwini property, NANA will be deemed to have granted to the Company a five-year option to acquire a 100% interest in any Right of Exploration or other successor mineral rights granted on the property, subject to a 12.5% net profit interest to be held by the optionor. In order to maintain its rights under the agreement, the Company must (i) make payments of $15,000 on the signing of the agreement, $75,000 in year two, and $125,000 in each of years three through five, and (ii) incur minimum expenditures on the property of $4.5 million ranging from $0.3 million in year one 41 42 to $1.5 million in year five. Prior to the execution of a mineral agreement with the Government of Suriname with respect to the Sipaliwini property, the Company's sole obligation is to carry-out sufficient exploration work to maintain the mineral right in good standing. The Company may elect to terminate the agreement at any time without further liabilities or obligations. The Property The Sipaliwini Right of Reconnaissance covers an area of 2,000 km(2) located in the Sipaliwini District in Southern Suriname along the opposite banks of Sipaliwini River and Akalapi Creek. The area is accessible by air using three grass airstrips in the region. The area is covered by heavy tropical forest, with the exception of the southeast portion close to the border with Brazil, where the typical landscape is open savanna. The area is inhabited by small nomadic groups of Amerindians. Geologically it is composed of Middle Proterozoic low grade metamorphic acid to intermediate metavolcanics of continental origin, and leucogranites, granite porphyries and granophyres, possibly representing the feeders of the metavolcanics. This assemblage is intruded by large bodies of medium to coarse crystalline biotite granite. A conspicuous feature is the large number of small bodies of mafic to ultramafic composition intrusive into the metavolcanics and granophyres. Work program Work during 1996 included 142 stream gravel pan concentrates, 135 stream silt samples for BLEG and conventional gold assay as well as 30 element ICP, and five bulk samples of 4m(3) each for diamond indicator minerals. To December 31, 1996 the lab had returned 120 assays. Work for 1997 is expected to include wide spaced drainage sampling of those areas in the property not covered by the 1996 survey, and follow-up sampling on a closer spacing of anomalous areas as indicated by the phase one sampling. SURINAME RECONNAISSANCE PROJECTS On August 19, 1996, the Company entered into a heads of agreement with BHP covering different project areas in Suriname. Included in the project areas are areas covered by applications for Rights of Reconnaissance filed or to be filed with the Government of Suriname by the Company or BHP. The project areas may be modified by the parties from time to time. Under the heads of agreement, BHP shall have a 60% participating interest and the Company a 40% participating interest in any joint venture to be entered into with respect to a specific area. BHP and the Company participate jointly in the exploration costs of each different project area on the basis of their respective participating interest. BHP and the Company may withdraw from the agreement by giving 30 days' notice. FRENCH GUIANA PROPERTIES GENERAL French Guiana is part of the French national territory and has been an overseas "Departement" of France since 1946. The Departement, which has an area of 84,000 km(2) and a population of approximately 130,000, is represented by two members of the French National Assembly and by one member of the French Senate. Pursuant to the French Constitution, French Guiana is governed by the 42 43 same laws as metropolitan France, subject to modifications to French law (including those affecting tax and mining laws and regulations) that may be adopted by France or French Guiana to reflect the historical, cultural, geographical and economic characteristics of French Guiana and to provide for administrative structures and regional administration. French mining laws have recently undergone revisions insofar as they apply to metropolitan France. The French Government is in the process of determining the extent to which the revised mining laws should apply to French Guiana. The text of the revised mining laws was adopted by the French Senate on February 27, 1997. The revised laws are now subject to the approval of the French National Assembly in order to be applicable. An appointed Prefect, representing the Government of France, holds governmental and administrative powers locally. A 19-member, locally-elected General Council votes on departmental budget and local regulation matters. The granting of mining titles in French Guiana is administered, depending upon the type of mining title, by the Direction Regionale de l'Industrie, de la Recherche et de l'Environnement ("DRIRE"), the Ministry of Industry and the Conseil d'Etat in France. To apply for and acquire a mining title, a company must obtain a Personal Mining Authorization, or "Autorisation Personnelle Miniere" ("APM"). Under an APM, a company is granted the right to hold up to a certain number of permits. Guyanor was granted an APM on October 6, 1993, effective January 7, 1994, authorizing it to hold up to 15 mining titles for gold and related substances. This APM was amended to include precious metals or precious stones on March 21, 1995. The APM was further amended on August 13, 1996 to allow Guyanor to hold ten additional mining titles. SOTRAPMAG and Societe Guyanaise des Mines ("SGM") (see below - "SOTRAPMAG and Paul-Isnard and Eau-Blanche Properties") each have APMs authorizing them to hold 11 permits and three permits, respectively. GUYANOR RESSOURCES S.A. All of the Company's interests in mineral properties located in French Guiana are held through Guyanor, an approximately 68% owned subsidiary of the Company, incorporated under the laws of France as a societe anonyme on April 20, 1993. Guyanor's head office and registered office are located at Lot. Calimbe 2, Route du Tigre, B.P. 750, 97300 Cayenne, French Guiana. PROPERTIES OF GUYANOR The mineral properties in which Guyanor has an interest (either directly or through its subsidiaries) consist of the St-Elie, Dieu-Merci, Yaou, Dorlin, Paul-Isnard, Eau-Blanche, Regina Est and Dachine properties, all located in French Guiana. Guyanor's interests in the properties are held by way of exploration permits, concessions, property purchase agreements and joint venture and option agreements. All of the properties are in the exploration or pre-exploration stage, except the Yaou project which is already at an advanced stage. During 1996, Guyanor spent $9.3 million in continuing exploration and acquisition expenditures, with $6.9 million reimbursed by joint venture partners. Budgeted 1997 exploration and acquisition expenditures total $17.9 million, with $13.0 million in budgeted joint venture recoveries. Guyanor currently holds, directly, or indirectly through SOTRAPMAG and SGM, a total of 18 permits, 12 for the Yaou and Dorlin properties, four for the Paul-Isnard property, one for the Regina Est property and one permit for the Dachine. 43 44 ST-ELIE AND DIEU-MERCI On October 25, 1993, Guyanor entered into an agreement to acquire the St-Elie concession for FF1.0 million (approximately $0.2 million). Guyanor also paid approximately $0.9 million to Compagnie Miniere Esperance S.A. ("CME") in consideration of the relinquishment of certain contractual rights which CME held in the St-Elie concession. The aggregate amount of $1.1 million represented the Company's original expenditure for the St-Elie concession and was satisfied by Guyanor's issuance of a $1.1 million promissory note payable to the Company. This amount was canceled in March 1995 in consideration for the issuance to the Company of Guyanor shares. Pursuant to an agreement dated October 22, 1993, CME agreed to relinquish to Guyanor certain residual alluvial exploitation rights in consideration for $0.5 million and a royalty of 5% of any fine gold extracted from the concession, up to a maximum of 3,215 oz. By agreement dated February 18, 1995, Guyanor agreed to transfer to ASARCO Inc. ("ASARCO") a 50% equity interest in Societe des Mines de St-Elie S.A.R.L. ("SMSE"), a company wholly owned by Guyanor and to which the St-Elie concession was transferred by decree of the French government dated April 24, 1996. SMSE was granted an APM, authorizing it to hold up to three mining titles. Under the terms of the agreement, ASARCO must fund 100% of all costs required to advance the St-Elie concession to the development stage for a mining operation, including reimbursement of certain expenses incurred by Guyanor and completion of a feasibility study within five years or any shorter period as provided in the agreement with respect to Guyanor's acquisition of the St-Elie concession. ASARCO is required to spend $10.0 million on the concession over a five-year period. If ASARCO completes the feasibility study for less than $10.0 million, ASARCO must expend the remaining balance on the St-Elie concession before Guyanor is required to contribute its proportionate share of expenses. ASARCO and Guyanor will be entitled to reimbursement of all expenses related to the St-Elie concession incurred by each of them and Guyanor will be entitled to a finder's fee of $1.8 million, on a pro rata basis, prior to any distribution of revenues based upon each party's participating interest in SMSE. The agreement provides that ASARCO's 50% interest in SMSE will return automatically to Guyanor if ASARCO's various commitments described above are not met. ASARCO may decide at any time to terminate its obligations under the agreement and stop funding the project. On February 19, 1997, SMSE and a French company entered into an agreement pursuant to which SMSE was granted the four-year option to acquire a 100% undivided interest in three concessions and one exploration permit immediately adjacent to the St-Elie property and covering a 155 km(2) (15,500 ha.) area known in French Guiana as Dieu-Merci. In order to maintain its rights under the Dieu-Merci option, SMSE must (i) make annual payments of FF4.0 million in year one, FF1.5 million in year two, FF2.0 million in year three and FF2.5 million in year four and (ii) incur minimum expenditures on the Dieu-Merci property of FF5.5 million (including a 3,000 meter core drilling campaign) during year one and FF5.0 million during each subsequent year of the option period. SMSE may exercise the option at any time by paying the difference between FF21.5 million and the annual payments made as of the exercise date. In addition, upon exercise of the option, the optionor will be entitled to receive a 3% net smelter royalty from future production from the Dieu-Merci property. In the event the St-Elie property is mined first, the optionor will be entitled to a 1% net smelter royalty from the St-Elie property. The Dieu-Merci property is subject to the ASARCO joint venture regarding the St-Elie property. SMSE has already made the first payment of FF4.0 million which was funded equally by Guyanor and ASARCO. 44 45 The Property The St-Elie concession was originally constituted by the government of France in 1889 and covers a rectangular area of 99 km(2) (9,900 ha.) located in north central French Guiana, 110 km west of Cayenne, the departmental capital. The Dieu-Merci property covers an area of 155 km(2) (15,500 ha.) adjacent to the eastern and southeastern portions of the St-Elie concession. The Dieu-Merci property is composed of three concessions (Dieu-Merci, La Victoire and Renaissance) and one exploration permit (Couriege). St-Elie and Dieu-Merci are located in a region which remains virtually undeveloped. Access to the concession is currently by helicopter, airplane, or by a recently completed 20 km private road from Tigre Creek. The first gold discoveries in the St-Elie region were made in 1873, when two placer deposits were discovered within the limits of the present St-Elie concession. During the period from 1878 to 1923, approximately 11 tonnes of gold production was recorded from the concession. Following a change in the concession's ownership in 1923, a mill was installed on the property and from 1923 to 1955, approximately 3,625 kg of gold were produced. From 1956 to 1993, mining activities on the concession were intermittent and consisted only of local, small-scale operations. The basement rocks of the St-Elie region, including Dieu-Merci, consist of four geological units, all Precambrian in age: (i) a Paramaca volcano-sedimentary unit; (ii) Caribbean granites; (iii) Guianese granites; and (iv) the Bonidoro sedimentary unit. The Paramaca volcano-sedimentary rocks are oriented north-northwest and consist of schists, quartzites, lavas and amphibolites, uniformly metamorphosed to the amphibolite facies by the Caribbean granites. There are six known plutons of Caribbean granites which intrude the Paramaca sequence. Several of the plutons may be connected at depth and most are aligned along an east-west direction. The Bonidoro sedimentary unit is composed of quartzite, schists and conglomerates. To the Company's knowledge, gold extracted to date from the St-Elie, Michel and Devis sectors of the concession was from both alluvials and weathered bedrock, but in unknown proportions, possibly one-third from altered bedrock which comprises both saprolite and quartz veins. The saprolite was mined by surface washing and the quartz veins were mined either by small-scale open-pit or underground methods. Other sources of gold which have been identified include recent and ancient alluvial deposits, re-worked lateritic deposits, eluvial and surficial deposits and mining residues. However, on the basis of present knowledge of the areas, bedrock sources appear to be the most promising and, Guyanor believes, the most recommended for exploration. Work Program During 1996, Guyanor's exploration spending on the St-Elie concession totaled $2.4 million, all of which was reimbursed by ASARCO pursuant to its agreement with Guyanor regarding the St-Elie concession. Extensive exploration work began at St-Elie in late October 1995. Geological, geochemical and geophysical work completed in 1995 identified nine primary drill targets on the property. During the first half of 1996, 34 holes were drilled, totaling 4,982 m, on the Devis and Michel zones of the property. In May 1996, Guyanor completed 23 holes for 3,202 m in the Devis zone. Mineralization was encountered in approximately 57% of the core holes drilled, illustrating a mineralized zone approximately 550 m in length by 200 m wide and exhibiting average intersection widths of 8.5 m at a weighted average grade of 2.6 g Au/t. In July 1996, Guyanor completed an initial 11 hole, 1,780 m 45 46 drilling campaign in the Michel zone over an area of mineralization approximately 1.2 km in length by 200 m wide. At the Michel zone, mineralization was encountered in approximately 82% of the core holes drilled, with average intersection widths of 4.3 m at a weighted average grade of 3.9 g Au/t. Line cutting and hand auger soil sampling were continued over the southeastern part of the St-Elie concession (1,933 samples collected in 1996, 50 m spaced at 100 to 200 m line spacing) and several 300 m wide x 1,000 m long NW trending 100 ppb Au anomalies have outlined the new target areas of Chemin de Fer-Giraud, St-Auguste-Madeleine and Sable-Jonquemont areas. These anomalous areas have been confirmed by the existence of coincident geophysical anomalies corresponding to zones of quartz veining and hydrothermal alteration. During 1996, 48 trenches (2,200 m) were dug over the Pactole-Courriege, Chemin de Fer-Giraud, Sable-Jonquemont and St-Auguste-Madeleine areas. The most significant results have been obtained from the Chemin de Fer-Giraud area where four trenches over a 1,200 m long x 40 m wide NNW trending zone of intense quartz veining yielded an average mineralized interval of approximately 12 m with a weighted average grade of 3.0 g Au/t. Previous exploration work on the Dieu-Merci project included a soil geochemical survey conducted by the Bureau de Recherches Geologiques et Minieres ("BRGM") on a 100 x 100 m grid, totaling approximately 900 samples over an area of 4 x 2 km approximately 2 km southeast of the St-Elie concession. This survey identified four different 400 to 600 m anomalous areas with values greater than 0.9 g Au/t; Kerouani, Virgile, Cesar and Devis Sud. Work conducted by the previous owner included augering (190 holes), trenching and drilling 18 shallow core holes. At Kerouani, five trenches excavated across the zone over a strike length of approximately 350 m exhibited an average mineralized interval of approximately 18 m with a weighted average gold grade of 10.7 g Au/t. At Virgile, five trenches over a strike length of approximately 450 m exhibited an average mineralized interval of approximately 10 m with a weighted average gold grade of 7.6 g Au/t. At Cesar, five trenches excavated over a strike length of approximately 500 m exhibited an average mineralized interval of approximately 18 m with a weighted average gold grade of 6.0 g Au/t. The 1997 work program plans trenching over the St-Auguste-Madeleine area and conducting a 15,000 m drilling campaign with two drills. The first phase of this campaign is scheduled for a minimum of 4,500 m over the Chemin de Fer-Giraud and Michel zones (infill drilling) and a minimum of 3,000 m over the new target areas of Kerouani and Virgile on the Dieu-Merci project. The second phase of the program has scheduled 4,500 m of core drilling over the Sable-Jonquemont, Pactole-Couriege and St-Auguste-Madeleine areas, as well as 3,000 m over other target areas on Dieu-Merci. Extensions of the soil geochemistry grids are planned throughout the area as well as limited ground geophysical surveys. YAOU AND DORLIN Pursuant to an agreement dated July 16, 1993, the Company acquired from BHP for $4.3 million a 63.3% participating interest in a joint venture between BHP and BRGM with respect to six type "B" exploration permits covering an area known as Yaou (the "Yaou Permits") and six type "B" exploration permits covering an area known as Dorlin (the "Dorlin Permits") in French Guiana. In August 1993, the Company transferred its 63.3% participating interest in the joint venture to Guyanor at cost. Further to an agreement dated August 3, 1993, between the Company and BRGM and a subsequent agreement, dated September 23, 1993, among the Company, Guyanor and BRGM, Guyanor acquired for $2.5 million BRGM's 36.7% interest in the joint venture assets owned for the benefit of the joint venture by BRGM. In addition, Guyanor agreed to pay to BRGM a further FF14.0 million (approximately $2.8 million) as follows: FF7.0 million at the time of completion of a feasibility 46 47 study on either the Yaou or Dorlin properties and FF7.0 million at the time of commencement of commercial production on either of these properties. The transfer of the Yaou and Dorlin Permits from BRGM to Guyanor was approved by the relevant French regulatory authorities on May 25, 1994. Both BHP and BRGM are arms' length parties to Guyanor and the Company. Guyanor and the Company entered into an option agreement with Cambior, dated as of May 11, 1994, under which Cambior was granted the option to acquire a 50% interest in a sole purpose company holding Guyanor's Yaou and Dorlin permits interests in French Guiana. Cambior may exercise the option by spending $11.0 million on the Yaou and Dorlin permits by June 30, 1998. The agreement also provides that Guyanor is to manage the exploration of the Yaou and Dorlin Permits and Cambior is to undertake the preparation of a feasibility study on the properties and to manage the development and operation of future mining operations. The acquisition by Cambior of any interest in the Yaou and Dorlin Permits is subject to French government approval. There can be no assurance that such approval will be granted. After having met its initial funding requirement, Cambior may elect to terminate the agreement and stop funding the project at any time. As at December 31, 1996, Cambior had expended $4.3 million and $2.0 million at Yaou and Dorlin, respectively. A renewal of four type "B" permits for Yaou was approved for a two-year period from March 31, 1995, ending March 31, 1997. Application for another two-year period was submitted on December 24, 1996. Renewal of the two other "B" permits for Yaou was approved for a two-year period from March 1, 1996, ending March 1, 1998. A renewal of the six type "B" permits for Dorlin was approved for a two-year period from May 31, 1995, ending May 31, 1997. Applications for further renewals of the six Dorlin permits was submitted in March of 1997. However, there can be no assurance that the Yaou and Dorlin permits will be renewed. The Yaou Property The Yaou Permits cover a total area of 150 km(2) (15,000 ha.) and are located some 210 km southwest of Cayenne, French Guiana. Access to the property is by helicopter or four wheel drive vehicle on 17 km of dirt road northwest from the town of Maripasoula, which is accessible by chartered and daily scheduled fixed-wing aircraft from Cayenne. The property is underlain by a meta-volcano-sedimentary sequence of the Paramaca Formation. Gold mineralization, generally associated with pyrite and quartz-carbonate veins and veinlets, is hosted in two distinct units of this volcano-sedimentary sequence. These units are lens-shaped bodies of felsic intrusive, described for the most part as a quartz-monzonite (A and C-L zones), and mylonitic, sericitized rocks, associated with felsic volcanics and tuffs (B zone). Both contain more or less intense quartz veining, with pyrite and carbonate alteration. From 1989 to 1993, 70 core drill holes totaling 12,548 m, over 13,000 m of motorized auger drilling (to an average depth of 25 m), 10,000 m of hand auguring, 4,000 soil samples and 1,990 m of trenching were undertaken by the BHP/BRGM joint venture on the Yaou permits. Four exploration core drilling target areas in the central Yaou area were identified. Yaou - Work Program During 1996, Guyanor spent a total of $1.1 million the Yaou project, of which $1.0 million was reimbursed by Cambior under the above-mentioned agreement. 47 48 During the first six months of 1996, an evaluation was completed using all exploration data gathered at Yaou by both Guyanor and the previous owners, BRGM and BHP, with the purpose of developing a new geologic model of the known mineralized area. On September 11, 1996, Guyanor and the Company announced the results of this work. A reserve estimation was completed on the Yaou Central and Chaina zones based on results from 130 drill holes for a total of 24,416 m, approximately 40,000 m of augering and approximately 10 km of trenching. Cambior calculated a probable reserve of approximately 10.3 million tonnes grading 2.7 g Au/t, representing approximately 876,000 oz of gold in situ. The probable reserve is part of total ore zone established by Cambior at July 31, 1996 of approximately 13 million tonnes grading 2.5 g Au/t. Over 90% of the probable reserves at Yaou are hosted at Yaou Central, totaling 9.2 million tonnes grading 2.8 g Au/t. In late 1996, 30 core holes, totaling 4,394 m, were drilled to confirm and add to the databases on the mineralized deposits at Yaou Central and Chaina and to expand the known deposits. Drilling in the "A" zone of Yaou Central intercepted mineralization in each of nine holes exhibiting a weighted average grade of approximately 3.6 g Au/t with an average intercept length of approximately 18 m. In the "B" zone, three of four holes intercepted mineralization exhibiting a weighted average grade of approximately 4.0 g Au/t over an average intercept length of approximately 15 m. Drilling in the "C-L" zone intercepted mineralization exhibiting a weighted average grade of approximately 2.2 g Au/t over an average intercept length of approximately 7 m. At the lower grade Chaina zone, six of nine drill holes intercepted mineralization exhibiting a weighted average grade of approximately 1.5 g Au/t over an average intercept length of 12 m. The 1997 budget for the Yaou project anticipates 10,000 m of core drilling. The purpose of this drilling includes step- out and infill drilling to expand the known deposits laterally and at depth as well as identify new zones of mineralization within the Yaou Central and Chaina areas that could be mined by open pit and provide sufficient resource potential to justify commencing a feasibility study for the development of a full scale mining operation. Outside the Yaou Central and Chaina zones, drilling is also planned for the I, J and K zones located approximately 1.5 km northeast of Yaou Central, along the same strike orientation. Continued regional exploration to define additional mineralization which could be mined by open pit on the remainder of the 150 km(2) Yaou property is planned on three zones of interest which have been identified and warrant follow-up exploration, Yaou Nord, Tomantoni and Bois Blanc. The Bois Blanc zone, approximately 10 km north of Yaou Central, will be the initial focus of this work. The Dorlin Property The Dorlin permits cover a total area of 150 km(2) (15,000 ha.) and are located some 180 km southwest of Cayenne and 60 km east of Maripasoula. The property is accessible by helicopter some 150 km southwest from the airport at Cayenne. A 500 m airstrip located on the property was re-opened and is suitable for fixed wing aircraft. Access is also available by boat during the rainy season. The property is underlain by a volcano-sedimentary sequence of the Paramaca Formation lying east of and intruded by younger granitic intrusive rocks. The contact trends generally north-south the length of the property with local inferred offsetting faults. The presence of a basic to ultrabasic north-south lineament has been identified based on a distinctive chromium and nickel geochemical soil anomaly. Exploration efforts by BRGM and BHP since 1986 consisted of soil geochemical and geological surveys, together with hand auger holes and a total of 19 core drill holes totaling 4,323 m. Core 48 49 drilling and surface mapping at the Montagne Nivre area has outlined a hydrothermally altered facies trending north- south intermittently for a strike length of some 5 km with two parallel hydrothermal breccia zones. Dorlin - Work Program Exploration work on the Dorlin permits has focused on two zones, the South-Inini and North-Inini zones, situated on two different permits and covering a large area. During 1995, a total of 55 km of lines were cut on these two sectors and a total of 838 soil samples by manual augering and 242 samples by deep augering were taken. Extensive channel sampling of outcrop on the southern end of Montagne Nivre began. In 1996, outcrop sampling continued and 57 deep auger holes for a total of 565 m were drilled. In the second half of the year, Guyanor drilled 31 core holes, totaling approximately 2,000 m, and recompiled results from the 1986 BRGM-BHP drilling program, 19 holes, totaling approximately 4,323 m. Guyanor's drilling focused on the Sud Nivre zone on a prominent ridge known as Montagne Nivre while the BRGM-BHP drilling focused on the West Nivre zone to the north of Sud Nivre and on the west flank of Montagne Nivre. Guyanor established the presence of two zones of mineralization approximately 40 to 50 m wide over a strike length of approximately 750 m. Mineralization was encountered in approximately 74% of the core holes drilled by Guyanor, exhibiting average widths of 9.8 m at a weighted average grade of 1.9 g Au/t. Drilling conducted by the BRGM and BHP on the West Nivre zone and across the northern extension of the zones drilled by Guyanor encountered mineralization in approximately 79% of the core holes drilled, exhibiting average widths of 9.9 m at a weighted average grade of 1.9 g Au/t. Drilling to date has indicated the presence of mineralization over a strike length of approximately 1.5 km on the far southern end of a major hydrothermal breccia system which has been identified continuously over 5 km and discontinuously over an additional 4 km. Late in 1996, a second, 2,400 m drilling campaign was initiated to test gold mineralization discovered by Guyanor at greater depths and to infill drill on the zones of mineralization discovered by BRGM-BHP. By the end of the year, 4 holes, totaling 607 m, were completed. A bulldozer was also shipped in parts up the Inini River and reassembled on the project. Trenching was initiated and 199 m of trenches were opened. Guyanor incurred exploration expenditures for the Dorlin project of $1.0 million for 1996, all of which were reimbursed by Cambior under the above-mentioned agreement. The work program for 1997 calls for continued soil and auger sampling, trenching and 8,000 m of core drilling. The objectives for the program are to develop minable resources on the South-Inini area and carry out the investigation in the North-Inini area, which host three intrusive related targets known as Jadfar, Sept Kilo and Dartagnan. PAUL-ISNARD AND EAU-BLANCHE On October 29, 1994, Guyanor acquired its interest in the Paul-Isnard and Eau-Blanche properties by way of its acquisition of all of the outstanding shares of SOTRAPMAG, a company incorporated under the laws of France and based in French Guiana. SOTRAPMAG holds a 99.7% interest in SGM, a societe en nom collectif incorporated under the laws of France, also based in French Guiana. Guyanor also directly acquired the 0.3% interest in SGM not owned by SOTRAPMAG. SOTRAPMAG holds, directly or indirectly, eight mineral concessions (the "Paul-Isnard Concessions") and four type "B" exploration permits (the "Eau-Blanche Permits"). 49 50 Pursuant to an agreement (the "Cermi Agreement") dated October 29, 1994, between SOTRAPMAG and Cermi S.A.R.L. ("Cermi"), a corporation owned by the previous owners of SOTRAPMAG, SOTRAPMAG granted Cermi the exclusive right to exploit alluvial minerals on a portion (the "Elysee Creek area") of two of the Paul-Isnard Concessions for a period of three years, renewable for an additional seven years. During the renewal period, SOTRAPMAG may, at its discretion, terminate the Cermi Agreement upon 90 days' notice. In consideration for this grant, Cermi agreed to pay SOTRAPMAG a royalty of 2.5% of the gross proceeds from the sale of gold produced from Cermi's alluvial operations in the Elysee Creek area. Cermi is also allowed to build an airstrip near the Elysee Creek area provided it allows SOTRAPMAG use of the airstrip. SOTRAPMAG reserved the right to conduct exploration in the Elysee Creek area provided Cermi's exploitation rights are not interfered with. In addition, SOTRAPMAG has reserved the right under certain limited conditions to carry out any alluvial operations in the Elysee Creek area which it considers necessary to maintain its alluvial exploitation on the Paul-Isnard Concessions in the event it does not have exploitable reserves elsewhere on the Paul-Isnard Concessions. Cermi has granted SOTRAPMAG the option to acquire an interest in any primary mineral deposits discovered under any exploration permits which Cermi may obtain in the future covering areas adjacent to the Paul-Isnard property. Joint Venture with LaSource and ASARCO In conjunction with Guyanor's acquisition of SOTRAPMAG, BRGM has renounced in favor of Guyanor, an option which BRGM received from Alcatel Alsthom Compagnie Generale d'Electricite to the primary deposits under the eight Paul-Isnard Concessions. In consideration for such renunciation, Guyanor agreed to pay BRGM FF2.5 million (approximately $505,000) in four installments ending December 31, 1996. On June 26, 1996, SOTRAPMAG entered into a joint venture agreement to give LaSource Developpement S.A. ("LaSource") a 25% participating interest in the exploration and exploitation of primary gold deposits on the Paul-Isnard and Eau- Blanche projects. Pursuant to the joint venture agreement, ASARCO has two separate options to acquire a 50% interest in SOTRAPMAG's remaining interest in the primary deposits on each of the Paul-Isnard and Eau-Blanche projects. In order to acquire its interests in one of these projects, ASARCO is obligated, by June 2001, to complete a feasibility study on the project and to spend at least $10 million on such project, or to combine the Paul-Isnard and Eau-Blanche projects into a single project. SOTRAPMAG's share of expenditures will be funded by ASARCO. ASARCO is also obligated to use its best efforts to obtain financing on a project finance basis for 80% of project development costs, with SOTRAPMAG and ASARCO each contributing 37.5% and LaSource contributing 25% of the remainder of such costs. Guyanor will act as project manager for the exploration phase at the Paul-Isnard and Eau Blanche project areas, while ASARCO, once vested, has the right to act as the manager of any resulting feasibility study and exploitation. ASARCO may withdraw from either project and terminate its right to vest its participating interest in such project at any time by giving written notice to SOTRAPMAG 90 days prior to the end of the current program period for such joint venture. 50 51 The Properties The Paul-Isnard and Eau-Blanche properties are located in the western part of French Guiana, some 200 km west of the capital city of Cayenne. The properties are accessed from St-Laurent-du-Maroni, either by air, at a distance of 75 km to the south, or by means of a 115 km-long laterite road. The first 62 km section of this road is maintained by the government and the remaining 53 km section is maintained by SOTRAPMAG. There are two prominent mountain chains bordering the properties which form the edges of a basin in which alluvial gold deposits have accumulated. The Company believes this alluvial gold originated from gold-bearing rocks from Decou-Decou and Lucifer mountains and was transported downward by high-energy streams, concentrating the gold in the gravel beds of streams in the Citron area of the Paul-Isnard property. The Decou-Decou mountain to the south of the property is formed of volcanic rocks that, at the summit, are covered by degraded lateritic layers. The Lucifer mountain to the north-east is formed of basic intrusive rocks. The basin between the mountains is underlain by a Proterozoic sequence of mafic to felsic volcanics and clastic sediments of the Paramaca and Bonidoro groups, cut by ultramafics to felsic intrusives. Work Program To the Company's knowledge, little systematic exploration has been conducted on the Paul-Isnard and Eau-Blanche properties in search of primary gold. Management believes that there are at least two virtually unexplored occurrences which may constitute possible sources of alluvial gold on the properties. An airborne radiometric and magnetometric geophysical survey over the properties was carried out recently by Guyanor as part of a survey of all of Guyanor's properties. Guyanor began an exploration program in 1995 to identify and define the primary deposits that may have contributed to the formation of the alluvial gold deposits. An outcrop sampling program, involving approximately 746 channel samples, outlined a zone of strongly sheared, mineralized felsic volcanic rocks approximately 2 km in length yielding an average gold grade of approximately 2.0 g Au/t over significant widths. A core drilling campaign in 1996 targeted approximately 1.1 km of the strike length of this zone and involved the completion of 18 holes totaling 3,232 m. Gold mineralization was found to be associated with the presence of sulfides, primarily pyrite, pyrrhotite, arsenopyrite and chalcopyrite. Mineralization encountered within the felsic volcanic unit at depth over the strike length drilled appears to be consistent with a massive sulfide ("VMS") type of mineralization similar to deposits currently being mined along the Cadillac Break in Quebec, Canada. Of particular interest is semi- massive to massive sulfide mineralization encountered in two holes. Polymetallic assays on semi-massive to massive sulfide mineralization intersected in one hole yielded weighted average metal grades of 3.7 g Au/t, 17 g/t silver, approximately 0.3% copper and trace zinc values, within a larger, 25 m interval with an average weighted grade of 2.8 g Au/t. On the Paul-Isnard project, two new prospective zones were identified during 1996, Emmanuel and Elysee. At Emmanuel, geological mapping, rock channel sampling, soil geochemistry and ground magnetic surveys have been carried out. The Emmanuel gold anomaly appears to be situated at the contact between the Paramaca greenstone and the Upper Detritic sedimentary formation. Mineralization is associated with quartz veining. At Elysee, channel sampling inside old adits from the Bureau Minier Guyanais indicated anomalous grades of gold. A detailed geological survey was 51 52 initiated. Total expenditures by all parties for 1996 were $1.4 million for Paul-Isnard and $0.1 million for Eau-Blanche, with joint venture recoveries totaling $1.5 million for the two projects in 1996. Guyanor's share of these expenditures were funded by ASARCO. The work program planned for 1997 includes ground geophysical surveys on Montagne d'Or, including induced polarization ("IP"), magnetics and downhole electro magnetics ("EM"). This work is intended to assist in preparing a core drilling program at Montagne d'Or. Additional geochemistry, ground magnetic surveys and trenching are planned for Emmanuel and Elysee in order to prepare core drilling program for the targets. A core drilling budget of 4,500 m has been budgeted to test the Paul-Isnard targets during 1997. Mining Operations SOTRAPMAG commenced alluvial gold production at the Paul-Isnard property in 1987. SOTRAPMAG has experienced continuing operating losses since its acquisition by Guyanor in 1994 with operating losses of $1.8 million in 1995 and $2.4 million in 1996. Outside consultants engaged in 1996 to review the operations and make recommendations on how to make the operations profitable concluded that without a significant capital investment to increase production, changes in certain work practices and a reduction in fuel taxes, the operation could not achieve profitability. As a result of these conclusions, Guyanor began implementation of a program to discontinue alluvial operations conducted by SOTRAPMAG and lay off all of SOTRAPMAG's employees. This procedure is subject to negotiations with the representatives of the workers and French authorities. The French government was formally notified of the closure plans in January 1997. In March 1997, the deadline for French government opposition to the closure plan expired, with no such opposition expressed by the government. Management currently anticipates to substantially complete the closure of the plan and local rehabilitation in the second quarter of 1997. Guyanor and the Company, through its ownership interest in Guyanor, incurred a fourth quarter charge to 1996 earnings of $3.2 million resulting from the write-down of certain fixed assets, inventories, capitalized exploration costs related to the alluvial mining operations, accrual of land rehabilitation and mine closure costs, and accrual of the severance and other costs associated with the discontinuation of alluvial production. The Company's share of these losses at December 31, 1996, was $2.2 million, after minority interest. Certain fixed assets, equipment and inventories owned by SOTRAPMAG will be utilized in the ongoing exploration at the Paul-Isnard project area and were not subject to the write-down. The final amount of severance and other costs associated with the discontinuation of alluvial production are contingent upon negotiations with the representatives of the workers and the French government. Guyanor also expects to incur operating losses of approximately $0.5 million during the first quarter of 1997. Exploration efforts conducted in 1996 have identified several target areas which hold potential to establish near surface mining reserves. Guyanor has budgeted approximately $1.0 million in 1997 for prospecting activities aimed at quantifying a near-surface mineralized inventory at the Paul-Isnard project area. This program is in addition to the hard rock exploration planned for 1997 which will be funded by ASARCO and LaSource, the Company's joint venture partners at the Paul-Isnard project area. 52 53 REGINA EST On April 26, 1994, Guyanor was granted a type "B" exploration permit covering a property known as Regina Est, located in northeastern French Guiana, 15 km southeast of the town of Regina and 80 km southeast of Cayenne. No significant work was conducted on the property in 1996. The permit, unless renewed, will expire on May 1, 1998. DACHINE In June 1995, Guyanor was granted a type "B" exploration permit by the French government covering a 25 km(2) area in southwest French Guiana known as Dachine (formerly known as Inini). An application was filed in December of 1995 for a type "A" permit covering an area of 337 km(2) which would include the current type "B" permit. BHP and Guyanor entered into an agreement in December 1995 whereby BHP would earn a 51% interest in the Dachine project by spending $3.5 million by May 31, 1998. In March 1997, BHP gave notice of its intent to withdraw from the agreement effective as of March 31, 1997. The Company and Guyanor intend to continue diamond exploration on the Dachine area and may seek new joint venture partners. There can be no assurance that Guyanor will be successful in finding a partner or that the funds required for the development of the Dachine project can be obtained by Guyanor. The Property The property is a square, 5x5 km permit area accessible only by helicopter or, during the rainy season by canoe from Maripasoula. Microdiamonds were found for the first time in 1983 in alluvium/colluvium by BRGM during strategic prospecting work for the Mineral Inventory of French Guiana. No further exploration was conducted at Dachine until Guyanor, after examining the existing literature and conducting preliminary reconnaissance in the field, applied for a type B permit, which was granted in June 1995. Work Program In August 1994, an aeromagnetic and radiometric survey was carried out over the area of the B permit. Specific magnetic anomalies were highlighted by the geologists to be potential kimberlitic-type anomalies. In October 1995, petrographic facies were identified as being meta-kimberlite and/or meta-lamproite rocks, hosted in metavolcanics and volcaniclastics. In late 1995, a core drilling program was initiated at the Dachine site involving 10 holes totaling approximately 970 m. On March 1, 1996, the Company and Guyanor reported the discovery within the Dachine permit area of a metamorphosed ultramafic structure that can be traced over a minimum dimension of approximately 3.5 km in length and 0.5 km in width. Final results from the initial exploration program, announced on May 22, 1996, exhibited significant diamond counts from microdiamond analysis on auger and core drill holes that intersected the main body with a total of 8,970 stones recovered from approximately 1,164 kg of core and auger samples. Additionally, a total of 976 stones were recovered from microdiamond analysis on approximately 387 kg of outcrop and soil samples collected during the initial exploration program. Additional exploration activity at the Dachine project during the summer of 1996 focused on geologic mapping, auger drilling and stream sediment sample processing. An additional 30 deep auger holes 53 54 were drilled in fences across the Dachine diamondiferous body to determine geologic contacts and better define the surface expression of the body. This work, in addition to the discovery of additional outcrop, has confirmed the continuation of the diamondiferous body over the entire distance of the Dachine "B" permit (5 km) with widths varying from approximately 350 m to 1,000 m. Results were reported from processing completed at the Company's Georgetown, Guyana laboratory of 31 stream sediment samples collected from creeks draining the Dachine body. A total of 7,824 diamonds were recovered from 700 liters of samples, including 7,009 microdiamonds (measuring less than 0.5 mm across their longest dimension) and 815 macrodiamonds (measuring greater than 0.5 mm across their longest dimension). Macrodiamonds were reported in all the samples, the largest stone measuring 2.7 mm in its longest dimension. These results led to the decision to proceed with an initial bulk sample at Dachine. Following the evaluation of various alternatives to conduct a small initial bulk sample for diamond recovery and macrodiamond analysis, logistical considerations dictated the excavation of pits to collect approximately 200 tonnes of material. Sample collection began in late August. A gravity jig plant was subsequently commissioned at the Dachine site and began operating in September 1996. Excavation was completed in ten pits (DAC-01 - 10) collected at select sites over the strike length of the diamondiferous body, totaling approximately 207 tonnes of material. Processing of approximately 186 tonnes of material was completed in December 1996 to produce approximately 3,000 kg of heavy mineral concentrate. The heavy mineral concentrate was shipped to BHP's Mineral Laboratory in Reno, Nevada for diamond recovery in late December. Processing of the heavy mineral concentrate sample was undertaken to recover only macrodiamonds larger than 1.25 mm in their longest dimension. On February 24, 1997, the Company and Guyanor announced that processing of the bulk sample recovered an insignificant number of stones larger than 1.25 mm. Upon review of final results, BHP decided to withdraw from the Heads of Agreement with Guyanor. Guyanor intends to continue diamond exploration in the Dachine area and may seek new joint venture partners. There can be no assurance that Guyanor will be successful in finding a new partner or that funds required for the development of the Dachine project can be obtained by Guyanor. Guyanor is presently in the process of developing a program for additional exploration at Dachine. The object of the program will be to try and better characterize the geology and commercial potential of the large, Dachine diamondiferous ultramafic body. During 1996, Guyanor spent $1.2 million for exploration at the Dachine property, $1.1 million of which was reimbursed by BHP under the above-mentioned agreement. AFRICAN PROPERTIES GENERAL All of the Company's interests in mineral properties located in Africa are held through PARC. PARC was established under the Yukon Business Corporations Act on February 6, 1996, as a result of the amalgamation, i.e., the merger and continuation as one company (the "PARC Amalgamation"), of Humlin Red Lake Mines Limited, an Ontario corporation ("Humlin"), and PARC Yukon, which was then an approximately 85% owned subsidiary of the Company. As a result of the PARC 54 55 Amalgamation, PARC was vested with all former assets and liabilities of PARC Yukon and Humlin and is engaged in the business carried on by them, being the exploration for and development of precious mineral properties. As a result of the completion of a private placement of 13.2 million units of PARC Yukon on February 5, 1996 (as described below) and the completion of the PARC Amalgamation, PARC became approximately 60% owned by the Company. PARC also became a publicly traded company on February 8, 1996, with its common shares quoted on the Canadian Dealing Network. The private placement of 13.2 million units at Cdn$1.00 per unit generated net proceeds to PARC Yukon of approximately $9.0 million after payment of commissions and expenses. Each unit consisted of one PARC Yukon common share and one-half of one PARC Yukon Series A warrant. Each whole Series A warrant entitles the holder to purchase one PARC Yukon common share at a price of Cdn$1.25 until November 1, 1996. On October 31, 1996, the expiration date of the Series A warrants was extended to January 31, 1997. As at January 31, 1997, 1,063,500 warrants were exercised providing proceeds of $1.0 million. The remaining 5,536,500 warrants expired unexercised. As a result of the PARC Amalgamation, all outstanding PARC Yukon and Humlin shares were exchanged for PARC shares according to ratios approved by their respective shareholders at a special meeting held on January 12, 1996. In addition, all outstanding PARC Yukon Series A warrants were exchanged for PARC Series A warrants. Prior to the PARC Amalgamation, indebtedness in the amount of $12.3 million owed to the Company by PARC Barbados as of December 11, 1995, was converted under the terms of two convertible debentures by the Company into 24,881,632 common shares of PARC Barbados. Upon completion of these loan conversions, 24,881,632 shares held by the Company in PARC Barbados were surrendered for cancellation in exchange for the issuance to the Company of 7,975,000 warrants of PARC Barbados, each warrant entitling the Company to purchase one share of PARC Barbados at Cdn$1.50 until July 15, 1997. After the PARC Amalgamation, the PARC Barbados warrants were surrendered to PARC Barbados in exchange for the issuance by PARC to the Company of 7,975,000 PARC Series B warrants. Each PARC Series B warrant entitles the Company to purchase one PARC common share at Cdn$1.50 until July 15, 1997. The mineral properties in which PARC has an interest are located in several countries in Africa: Eritrea, Ethiopia, Gabon, Ivory Coast, Kenya, Mali and Sierra Leone. PARC's interests in the properties are held by way of option agreements or exploitation, exploration, prospecting or reconnaissance permits, licenses, authorizations or rights. PARC's indirect acquisition of certain of its interests are still subject to applicable governmental approvals. There can be no assurance that such approvals will be granted. Moreover, all of the properties are without a known body of commercial ore and the limited activities by PARC on the properties to date have been exploratory in nature and the results have been disappointing. PARC's principal objectives are to explore and continue to acquire mineral properties in Africa with significant potential as and when appropriate opportunities present themselves and to conduct exploration and, if warranted, subsequent development of mineral deposits on its properties. PARC and its wholly owned subsidiary, PARC Barbados, are hereinafter referred to collectively as "PARC". During 1996, PARC spent $5.9 million on continued exploration and property acquisition. Budgeted 1997 exploration and reconnaissance expenditures for PARC total $4.5 million. 55 56 GABON PROPERTIES The Republique Gabonaise ("Gabon") is located on the west coast of Africa along the equator, covers an area of 268,000 km(2) and has a population of about 1.1 million people. Formerly a French colony, Gabon gained independence in 1960 and is currently governed as a democratic republic. The legal and land title systems are based on French law, the official language is French, and the government retains strong ties with France. KOLISSEN The Company was granted a three-year exploration permit (the "Kolissen Exploration Permit"), expiring on August 22, 1998, covering over 2,670 km(2) of the Kolissen property. As of November 29, 1995, the Company formally assigned its rights to the Kolissen Exploration Permit to PARC, subject to approval of the Gabon government. The Kolissen Exploration Permit requires a minimum of approximately $0.5 million to be expended on exploration work on the property during the three-year term and preparation of a geological map of the Kolissen property at 1:100,000 scale. On February 18, 1997, the Company and PARC signed an option agreement with Adamas Resources Corp. ("Adamas") granting Adamas the sole and exclusive option to acquire a 50% interest in all of the Company's current and future rights to the Kolissen property. The option agreement is subject to acceptance by the Vancouver Stock Exchange ("VSE"). In order to maintain its rights under the option, Adamas must incur minimum exploration expenditures on the Kolissen property of at least $0.5 million during the first 12 months following the date Adamas receives regulatory approval from the VSE and $1.5 million during the following 18-month period. Should Adamas fail to make the required expenditures within the prescribed deadlines, it will be required to pay the amount of the shortfall to PARC in cash or capital stock in Adamas or an interest in mineral rights owned by Adamas with a fair value equivalent to the shortfall, subject to PARC's approval. Assuming VSE approval is obtained, Adamas intends to conduct the work program on the Kolissen property during 1997. MALI PROPERTIES PARC has indirect interests in the Dioulafoundou and Melgue properties located in the Republique du Mali ("Mali"). Mali is a land-locked country covering an area of 1.24 million km(2) in Northwest Africa. Mali has a population of approximately nine million people, most of whom are Muslim. The country borders the southern edge of the Sahara desert and over 70% of its land area is desert or semi-desert. Formerly a French colony, Mali achieved independence in 1960 and has been governed as a democratic republic since 1992. The legal and land title systems of the country are based on French law and the official language is French. DIOULAFOUNDOU PARC has an indirect interest in a small scale exploitation authorization and an exploration permit, which cover a 28 km(2) area in Mali referred to as the Dioulafoundou property. Dioulafoundou Exploitation Authorization PARC's interest in the exploitation authorization comprising part of the Dioulafoundou property was formalized in an agreement dated October 13, 1995 (the "AFC Agreement"), among PARC, 56 57 D'Almeida Freres et Compagnie ("AFC"), an unrelated Mali corporation, the four shareholders of AFC (the "AFC Shareholders") and the Company. PARC subsequently transferred its rights to PARC Dioulafoundou Ltd., a wholly owned subsidiary of PARC. AFC is the holder of the Dioulafoundou exploitation authorization which was granted on December 6, 1993 for a term of five years, subject to renewal for a further five years. The exploitation authorization covers 4 km(2) and is located in the Kenieba District, Administrative Region I, of Mali. Pursuant to the AFC Agreement, PARC Dioulafoundou acquired from the AFC Shareholders an aggregate of 75% of the outstanding shares of AFC (the "AFC Shares"), subject to satisfaction of certain conditions. The purchase price of the AFC Shares totaled $520,000, less the amount of certain of AFC's liabilities at the date of the transfer of the shares. The purchase price, as so adjusted, is payable as to $80,000 on each of October 31, 1995, 1996, 1997 and 1998 and the balance by October 31, 1999, subject to acceleration of the payments to the date a feasibility study commissioned by PARC Dioulafoundou on the property is accepted by the Mali government. PARC Dioulafoundou may terminate the agreement at any time without any further obligations or liabilities. Prior to entering into the AFC Agreement, PARC had paid a total of $175,000 in connection with an initial 180-day option on the Dioulafoundou exploitation authorization. Pursuant to the AFC Agreement, PARC Dioulafoundou granted to Mr. D'Almeida (a previous shareholder of AFC) the right to conduct the alluvial operation on the Dioulafoundou exploitation authorization. During 1996, neither Mr. D'Almeida nor PARC Dioulafoundou conducted any exploitation operations as required under the exploitation authorization. As a result, the Government of Mali could, pursuant to the Mining Code of Mali, send to AFC a three-month notice asking AFC to conduct exploitation activities in accordance with the exploitation authorization failing which AFC could lose title to the property. To the knowledge of the Company, management of AFC has not received such notice from the Government of Mali. Should AFC receive such notice, PARC Dioulafoundou would try to cure such default. The Dioulafoundou exploitation authorization is located in a district where only small scale mining operations are generally allowed by the Mali government (for example, each exploitation authorization is generally for a deposit not exceeding five tonnes of gold). Since there can be no assurance that, in the event of the discovery of a larger mineral deposit, an exploitation permit (for larger deposit) covering the entire deposit will be obtainable, it is the intention of PARC Dioulafoundou to apply for the issuance of an exploration permit covering the existing Dioulafoundou exploitation authorization area so as to avoid the incurrence of significant exploration expenditures without the assurance of obtaining, if warranted, an authorization permit for a larger mineral deposit. Such an exploration permit is only available for potentially larger scale mineral deposits and would be for a term of three years, with up to two renewals of one year each. The holder of such an exploration permit also obtains the first right to acquire an exploitation permit for the applicable area, entitling the holder to exclusive exploitation rights in relation to the area for a maximum period of up to 30 years (including renewals). There can be no assurance, however, that the Mali government will grant the desired exploration permit or any eventual exploitation permits to PARC. Fougala Exploration Permit In May 1995 PARC acquired, subject to governmental approval, three contiguous prospecting authorizations of 8 km(2) each from three individuals unrelated to PARC. The prospecting authorization 57 58 entitles its holder to a small scale exploitation authorization with the problems described above. Consequently, PARC, with the approval of the three prospecting authorization holders, created a company under the laws of Mali (PARC Fougala S.A.) and applied for an exploitation permit covering the three prospecting authorizations. In January 1997, PARC Fougala was granted an exploration permit covering the three prospecting authorizations. The exploration permit is now referred to as the Fougala Exploration Permit. In February 1997, PARC Fougala entered into an agreement with the three owners of the previous prospecting authorizations. Pursuant to the agreement, they will be entitled to receive as a group a net smelter royalty of 1.6% on any gold production on the Fougala permit. PARC Fougala must also complete a feasibility study by February 2002. Should PARC Fougala fail to do so, it will have to transfer its interest in the exploration permit to the previous owners of the prospecting authorizations. Option granted to African Selection Mining Corporation On March 7, 1997, PARC granted African Selection Mining Corporation ("ASM") the three-year option to acquire 50% of the issued and outstanding shares of PARC Dioulafoundou and PARC Fougala (see below). In order to maintain its rights under the option, ASM must incur exploration expenditures on the properties of at least $4.5 million prior to October 31, 1999 with $450,000 during the period commencing March 1, 1997 and ending September 30, 1997 ("Phase I"), $1.5 million during the period commencing October 1, 1997 and ending September 30, 1998, and $2.5 million during the period commencing October 1, 1998 and ending October 31, 1999. Should ASM fail to make the required $450,000 in expenditures for Phase I within the prescribed deadline, it will be required to pay the amount of the shortfall to PARC in cash, subject to certain contingencies. The Property The Dioulafoundou property is located in the Kenieba District of western Mali, situated approximately 350 km west of Bamako, the country's capital, and 170 km south of the town of Kayes (population 50,000). The Dioulafoundou property is accessible by four wheel drive vehicle from Kayes over 228 km of dirt road. A 1,500 m gravel airstrip, accessible by fixed wing charter aircraft from Bamako, is located 10 km south-southeast of the property. Local miners have long produced unknown quantities of gold from alluvial deposits in the Kenieba district. Modern exploration of the Dioulafoundou property commenced in 1993, and pitting and sampling programs, as well as some small- scale alluvial mining, were carried on during the next year. The region in which the Dioulafoundou property lies is part of the West African Shield. The property area lies within the exposed early Proterozoic Kenieba inlier that straddles the Mali/Senegal border, composed primarily of thick Birimian volcanic and sedimentary formations that trend generally north-south and northeast-southwest. Work Program The main objective of PARC's work completed to date at the Dioulafoundou project has been to establish the presence of economically attractive gold mineralization within the prospect area. During the first half of 1996, PARC completed a mechanical augering program for geochemical analysis consisting of 355 holes totaling 4,548 m over the whole of the Dioulafoundou project. A 65-hole, 4,200 m reverse circulation ("RC") drilling program was completed in July 1996. This RC program confirmed the north-south striking mineralization identified by previous core drilling with near surface 58 59 mineralized intersections with an average width of 2.9 m and a weighted average grade of 2.4 g Au/t. Gold mineralization also was encountered on part of the Fougala permit which comprises the south and southeast border of the Dioulafoundou project. These mineralized zones are characterized as near surface, narrow zones with gold grades ranging from 1.3 to 3.2 g Au/t. An early and intense rainy season caused postponement of RC drilling near the extensive Kerekou artisanal working on the Magassa permit. During the second half of 1996, PARC conducted a systematic termite mound sampling program over the entire property involving approximately 250 samples. This work identified additional area of anomalous gold values on the on the border of the Fougala and AFC permits. During 1996, the Company spent $0.8 million on exploration at the Dioulafoundou project. The work program for 1997 to be conducted by ASM is anticipated to involve induced polarization ("IP") geophysical surveys to assist in better defining potential gold bearing structures. Additional geochemistry, including termite mound sampling, will be completed. Based upon results of this work, it is anticipated that ASM will conduct a core and RC drilling program to continue the evaluation of the property during 1997. MELGUE PARC entered into a mineral agreement dated October 18, 1995 (the "Melgue Mineral Agreement") with the Government of Mali represented by the Ministry of Mines, Energy and Hydrology for the Melgue property. The Melgue Mineral Agreement has a term of up to 30 years and provides for the issuance of an exploration permit for a 220 km(2) area of the Melgue property and, if applicable, the issuance of further mining permits for the development and exploitation of the property. The exploration permit covering the Melgue property was granted to PARC on December 11, 1995, for a period of three years. PARC has committed to spend at least $680,000 in connection with the Melgue property during the first 24 months following the grant of the exploration permit on December 11, 1995. A three-phase initial work program is planned, with the first phase to be completed within one year at a minimum expenditure of $180,000. Estimated work expenditures for the second and third phases are $0.5 million and $1.6 million, respectively. The Property The Melgue property is located approximately 60 km north of the regional centre of Kayes in western Mali. The project area is just west of the village of Aourou, which is about a 4 to 5 hour drive from Kayes in a 4-wheel drive vehicle. The permit area is flat with sparse vegetation as it is on the edge of the Sahara desert. Very high temperatures during both day and night are common in the period from February to April making field work difficult. Regional scale soil sampling was carried out by Kloeckner, a German company, over the property as part of a larger survey in the late 1980s. The Kloeckner work identified a number of distinct gold anomalies which require more detailed investigation. Limited follow-up work in this area by the Mali Ministry of Geology and Mines has shown encouraging results. 59 60 PARC geologists conducted a preliminary examination of the property in late 1994 and visited the area again in early 1995. They visited five different areas which are identified by soil sample values ranging from 75 to 103 ppb Au. Soil sample values of this magnitude are considered anomalous. Rock chip samples collected by the Mali Ministry of Geology and Mines on one of these features assayed up to 3.1 g Au/t. Panned samples collected by PARC from four of these areas contained gold grains. Among the geological features indicative of mineralization seen at these locations were altered, sulphide bearing diorite and andesite, breccia, quartz stockworks and altered carbonate units. The local geology of the property area consists of Lower Proterozoic metavolcanics and pyroclastic rocks of the Boutounguissi Formation. These were intruded by granites and granodiorites in the eastern third of the property area. Work Program Initial exploration activity on the Melgue property consisted of a detailed stream sediment geochemistry program. Samples were collected at a density of approximately one per km(2) and analyzed for gold. During 1996, soil sampling, mapping and rock chip sampling were also carried out. Approximately 67 km of line was cut with 675 soil and 77 rock samples collected. This work identified two principal anomalous areas trending north-south through the center of the property. During 1996, $0.1 million was spent for exploration on the Melgue property. During 1997, additional close spaced soil sampling and geologic mapping is planned to further define the anomalies. This is expected to be followed by RC drilling to test the anomalous zones at depth. IVORY COAST PROPERTIES Subject to relevant governmental approval, PARC has acquired an indirect interest in certain exploration permits with respect to the Comoe property, located in the Republique de Cote d'Ivoire ("Ivory Coast"). Ivory Coast is located on the southern coastline of West Africa, covers an area of 322,000 km(2) and has a population of about 12 million people. Formerly a French colony, Ivory Coast achieved independence in 1960 and is currently governed as a democratic republic. The legal and land title systems of the country are based on French law and the official language is French. COMOE On January 10, 1995, the Company and the Ministry of Mines and Energy of the Ivory Coast executed a Protocole d'Accord (the "Comoe Agreement") authorizing the Company to prospect in the Nassian-Bondoukou area, also known in the Ivory Coast as the Comoe area. Under the terms of the Comoe Agreement, the Company was granted exclusive reconnaissance rights over a 15,000 km(2) area of the Comoe property until December 1, 1995, together with the right to apply for exploration permits in respect of up to 25% of the Comoe property area (i.e., up to 3,750 km(2)) by that date. The reconnaissance work included an airborne geophysical survey and ground reconnaissance programs in respect of up to 25% of the Comoe property area. Where the existence of a commercially exploitable deposit is demonstrated, an exploration permit may subsequently be converted, under certain conditions, into an exploitation permit covering the deposit area. As of December 1996, the Company had been granted 12 exploration permits for gold, diamonds and other precious metals and minerals (with the exception of hydrocarbons) covering a total of approximately 2,760 km(2). The permits are valid for three years and are renewable for up to four additional years. The minimum expenditure requirements for each permit is approximately $170,000 during the three-year permit. 60 61 The Company formally assigned as of November 29, 1995 its rights in the Comoe Agreement (and any permits derived therefrom) to PARC, subject to approval of the Ivory Coast government. Prior to the assignment, all work and expenditures relating to the Comoe property in furtherance of the Comoe Agreement had already been supervised and funded through PARC. The Property The center of the Comoe property is located approximately 240 km due north of Abidjan, the principal city in Ivory Coast. The Comoe property is for the most part underlain by Lower Proterozoic Birimian volcano-sedimentary formations of the West African Shield. The central portion of the property is inferred to be underlain predominately by metasedimentary formations. Basic to intermediate volcanics with overlying probably Tarkwan sediments occur within the northeast corner of the property. Granite intrusives occur as small plutons within the central portion of the permit area. Due to limited outcrop, the property is relatively unexplored. Work by SODEMI, a mining company owned by the Republic of Ivory Coast, has confirmed the location of some old artisan gold workings, indicating the possibility of gold source rocks within the permit area. Work Program During 1996, follow-up geochemical evaluation of selected gold targets on the Kregbe, Padanian, Tanda and Koutoukounou permits was initiated. A total of 6,641 soil samples, 364 termite mound samples and 251 rock samples were collected and analyzed and 38 old artisanal mining sites were visited. The most prospective anomalies on the Kregbe permit were tested with rotary air blast ("RAB") drilling to a depth of 25 to 30 m. A total of 2,764 m were drilled in 116 holes on 50 m centers. Follow-up ground magnetic surveys were completed over potentially diamond bearing, pipelike structures identified during the 1995 airborne geophysical survey on the Amoriakro, Aougnanou, Dihezue, Klebo, Ouakabessi, Sirakoro and Tetessi permits. Pitting was conducted over the more prospective areas of the magnetic anomalies to provide large samples of in situ rock for mineral analysis. During 1996, the Company spent $1.1 million exploring the Comoe property. The work program for 1997 is anticipated to involve continued geochemical and geological sampling of additional targets identified during the 1995 reconnaissance exploration program. Infill sampling is planned for the more prospective gold anomalies identified during 1996 on the Padenian, Tanda and Koutoukounou permits to identify targets to be followed-up and tested at depth by RAB drilling. Infill RAB drilling or core drilling is planned for the later half of 1997 to better define the depth extension of mineralization at the principal anomalies on the Kregbe permit. ETHIOPIA PROPERTIES Ethiopia, located in northeastern Africa, is the third most populous country in Africa, with approximately 54 million people, and is one of the poorest countries in the world. Ethiopia is one of the few African countries that has never been colonized, except for a limited period of Italian occupation during World War II. The official language is Amharic, but English is commonly spoken. From the mid-1970s to 1991, Ethiopia was in a period of turmoil during which it was engaged in warfare with Eritrea and Tigrai to the north and Somalia to the east, and experienced intermittent years of catastrophic drought leading to famine. Since 1991, Ethiopia has been ruled by the Transitional Government of Ethiopia established by the Ethiopian People's Revolutionary Democratic Front. 61 62 DUL MOUNTAIN PARC has indirectly acquired, subject to relevant governmental approval, an interest in 90 exclusive exploration licenses to explore for gold (the "Dul Mountain Exploration Licenses") for the Dul Mountain property, located in western Ethiopia. The Dul Mountain Exploration Licenses were granted to the Company pursuant to an agreement dated April 30, 1995 (the "Dul Mountain Agreement") between the Ministry of Mines and Energy of Ethiopia (the "MMEE") and the Company. The Company formally assigned as of November 29, 1995 its rights in the Dul Mountain Agreement (and the exploration licenses and any further licenses) to PARC, subject to approval of the Ethiopian government. Prior to the assignment, all work and expenditures relating to the Dul Mountain property in furtherance of the Dul Mountain Agreement had already been supervised and funded through PARC. The 90 exploration licenses cover an area of 1,800 km(2), each license being for a 20 km(2) area. The licenses have a term of three years, renewable twice for a period of one year, subject to the license area being reduced by at least 25% upon the first renewal and being further reduced with the subsequent renewal. During 1995, a Phase I work program was undertaken by PARC at a cost of $2.6 million. During the second year, the exploration expenditures commitment were, after negotiation with the government, reduced from $4.05 million to $450,000. Pursuant to the terms of the Dul Mountain Agreement, a further minimum of $9.75 million on exploration of the Dul Mountain property is to be expended over the course of the ensuing three years. The Company provided a bank guarantee of $450,000 with respect to the second year exploration expenditure commitments. The Company must provide a bank guarantee with respect to the exploration expenditures of each year during the term of the licenses, to be drawn on by MMEE in the event and to the extent that the work program has not been carried or out expenditure commitments have not been met. After reviewing the results of the exploration conducted on the Dul Mountain property, management of PARC concluded in March of 1997 that a large portion of the property does not meet PARC's expectations. The Company and PARC intend to (i) relinquish approximately 75% of the area covered by the Dul Mountain Exploration Licenses during 1997 and (ii) negotiate with MMEE the reduction of the third-year expenditures commitment from $4.5 million to $50,000. There can be no assurance that the MMEE will accept to reduce the third-year work program. As a result of the disappointing results of the exploration program, the Company decided to write-down as at December 31, 1996 capitalized expenditures totaling $4.0 million. The Company's share of this charge was $2.3 million after minority interest. 62 63 The Property The Dul Mountain Exploration License is located approximately 500 km west-northwest of Addis Ababa, the capital of Ethiopia, and the western border of the license forms part of Ethiopia's border with Sudan. Access to the property from Addis Ababa, which is serviced by international airlines, is by a combination of asphalt and gravel roads. History and Previous Work There are records of small-scale alluvial gold production on the Dul Mountain property for most of this century, with unrecorded production by local miners continuing today. Evidence of previous mining activity on Dul Mountain consists of an old adit and scattered waste/tailing piles. Systematic geological mapping and an airborne geophysical survey in a portion of the property commenced in 1967. Over the ensuing 27 years, four separate exploration programs were carried out on portions of the property, consisting of regional steam sediment and limited soil sampling, further geological mapping and establishment of grids on the three main prospects on the property (Dul, Azale and Ashashire prospects), and, most recently (1993-1994), a program of road building, 850 m of trenching, channel sampling and 697 m of diamond drilling by the Ethiopian Geological Survey. Geology The area covered by the Dul Mountain Exploration License lies within the western Ethiopian Shield, which is part of the north-south trending Pan-African-Mozambique Precambrian belt that extends along the east coast of Africa. Previous exploration has identified three gold prospects on the property: Dul Mountain, Azale-Akendeyu and Ashashire. Gold values, generally associated with quartz veining, have been obtained in metavolcanics, cherts and phyllites. Quartz veins varying in width from one centimeter to one meter, follow major shear and foliation directions. The Dul Mountain property is underlain by north-south trending Precambrian rocks characterized by four lithological groups: metamorphic high grade gneisses, low-grade volcano-sedimentary formations which occur throughout the property, post-syntectonic intrusives of basic and acidic composition; and Cenozoic volcanic rocks consisting of granodiorite, diorite and granite. The Azale-Akendeyu prospect, located 5 km southwest of the Dul Mountain prospect, covers a north-northeast trending ridge 10 km long, underlain by metamorphosed volcano-sedimentary formations intruded by granitic and ultramafic rocks bounded by older Kurmuk gneisses to the west. The Ashashire prospect lies immediately northeast of the Dul Mountain prospect and is underlain by rocks that represent a continuation of the metamorphosed volcano-sedimentary formations with ultramafic and granitic intrusions that occur on the Dul Mountain prospect. Work Program The main objective of the exploration conducted to date has been to evaluate the entire 1,800 km(2) concession area. 63 64 During 1996, continued work in the western part of the property (Dul Mountain, Azale and Ashashire) indicated low potential for defining economically attractive, bulk minable gold deposits and further evaluation ceased. At the Balaute prospect, additional trenching failed to identify gold mineralization below two principal surface anomalies and no further work was undertaken. Following the completion of work at Dul Mountain, Azale, Ashashire and Belaute, PARC's exploration camp was moved to the eastern half of the concession area near the Menghi prospect. An intensive work program was undertaken at Menghi in an area where extensive artisanal gold mining was being conducted. Following soil sampling and a ground magnetics geophysical survey, trenching was conducted on the principal target at Menghi, a north striking, quartz ridge approximately 600 m long which exhibited strong shearing, alteration and well developed sulfides over from 20 to 40 m with gold mineralization hosted by diorite intrusives in the south and granite in the north. Sixteen trenches were excavated along the strike length of the zone, totaling approximately 555 m, with good results. A 10 hole core drilling program, totaling 1,372 m, was completed to test the potential depth extension of gold mineralization identified in the trenches. Despite the indication of wide zones of economic mineralization in trenches, the core drilling at Menghi failed to replicate economic widths at depth with only narrow quartz veins being intersected. No further work is planned at Menghi. Some potential still exists in the far eastern part of the Dul Mountain property. This is demonstrated by results from stream sediment geochemistry. The Company is following-up with soil sampling, a program which is still ongoing and will likely not be completed in the current second permit year. The Company intends to relinquish approximately 75% of the concession area, but maintain the balance in the eastern portion so the evaluation of these targets can be completed in the third permit year. It is proposed that a program of approximately $50,000 will be submitted to the Ethiopian authorities for the third-year permit which commences in May 1997. ERITREA PROPERTIES Eritrea, located in northeastern Africa, is the newest nation in Africa, having gained its independence from Ethiopia in 1991 after a 30 year civil war. The State of Eritrea consists of ten provinces covering an area of 125,000 km(2) with a population of approximately 3.5 million. Tigrinya, Arabic and English are spoken in Eritrea. A competitive mining code was adopted by the National Assembly in 1995 and a tender for several exploration areas was completed in late 1995, attracting bids from approximately 30 international mining companies. As one of the poorest nations in Africa, Eritrea is actively encouraging development of the country's mineral resources. GALLA VALLEY Pursuant to an agreement dated April 19, 1996, with the Ministry of Energy, Mines and Water Resources of Eritrea ("MEMWRE"), the Company and PARC were granted an exclusive exploration license with an initial term of three years and two renewal terms of one year each. The agreement grants the Company and PARC the right to explore over six license areas of 50 km(2) each, for a total area of 300 km(2) in an area known as Galla Valley. The term of the exploration period began on June 3, 1996. The Company and PARC committed to spend $1.25 million on exploration of the Galla Valley property in the first year of the license. Subject to first year results and final approval, the minimum initial budgeted expenditures by the Company and PARC pursuant to the agreement are $3.0 million in the second year and $5.0 million in the third year of the license. The Company and PARC have provided 64 65 a bank guarantee with respect to the exploration expenditure commitment of the first year and must provide a bank guarantee with respect to the exploration expenditures of each other subsequent year during the term of the license, to be drawn on by the MEMWRE in the event and to the extent that the expenditure commitments have not been met. The Property The Galla Valley License covers an area 30 km long and 10 km wide, and is located due south of the capital city of Asmara. Infrastructure is good, with a major road on the west side of the License and several roads traversing the License area. Geology The greenstones of Eritrea lie within the northern extent of the north-south trending Pan African - Mozambique Precambrian belt that extends along the east coast of Africa. The Galla Valley License is underlain by Proterozoic greenstones and encompasses part of a major hydrothermal system localized by a major, north trending structural break, tens of kilometers long running under the capital city of Asmara. In the early 1900s, vigorous gold mining activity was conducted on the Galla Valley License. At least six small gold recovery plants using stamp mills and cyanide recovery were operated, exploiting both open pit and underground ore bodies. Most notably were the Adi Rassi copper/gold occurrence, mined several times since the sixteenth century, and the Torat gold mine, exploited by the Italians in the early 1900s up to World War II. Work Program The Company's Phase I work program for 1996 had two objectives, including the initiation of exploration at the more significant former known gold mines on the License area, Adi Rassi, Torat and Adi Casci, and the initiation of a systematic reconnaissance exploration program over the whole of the Galla Valley License area. During 1996, the Company spent $0.9 million on exploration with respect to the Galla Valley License. Geochemical surveys were completed over the known gold occurrences, with approximately 1,600 soil samples collected at the Adi Rassi and Adi Casci targets. At Adi Rassi, an initial exploratory core drilling program consisting of four holes totaling approximately 1,134 m was completed to confirm mineralization identified by three previous core drilling campaigns conducted by the Italians in the 1930s, the Ethiopians in the 1960s and the Japanese in the 1970s. The Company's drilling confirmed the existence of wide zones of disseminated copper/gold mineralization related to sulfides, primarily chalcopyrite and to a lesser extent pyrite. In addition to the confirmation of the sulfide related mineralization, drilling also exhibited the presence of sheared and folded quartz veining and stockworks. Though copper/gold mineralization was encountered, sufficient data does not yet exist to confirm or deny resource estimates previous calculated on the basis of the Ethiopian drilling program of 9.8 million tonnes grading approximately 1.3% copper and 0.8 g Au/t. The evaluation of all current and prior information on Adi Rassi will be evaluated to determine if any additional follow-up work at the target is justified. Limited core drilling was also conducted at the Torat and Adi Casci targets in late 1996. At Torat, two drill holes failed to intersect economically attractive gold mineralization at depth below the existing workings. At Adi Casci, 1,743 m of trenching was completed over a broad anomalous zone identified by soil geochemistry. An initial core drill hole under the Adi Casci trenches intercepted economically 65 66 attractive gold mineralization in surficially altered material. Additional follow-up core drilling is planned during 1997 to test the depth potential of mineralization identified by trenching. As part of the property-wide reconnaissance exploration program, 1,377 soil samples were collected during 1996 along established grid lines. During 1997, the interpretation and integration of all results received during the first year of exploration will be used to determine the second year work program for Galla Valley. Currently, additional drilling is planned at Adi Casci as well as Adi Caieh, an existing target due south of Adi Acasci where encouraging trenching results have warranted follow-up work. Reconnaissance exploration over the whole of the Galla Valley area will be completed and new areas of anomalous gold will be followed-up with closely spaced soil sampling and trenching. KENYA PROPERTY Kenya, located in eastern Africa on the equator, is a former British colony which gained independence in 1963. The country has a population of approximately 28 million and covers an area of approximately 583,000 km(2). The official language is English. The government of Kenya is a democratic republic and the current head of state, President Daniel arap Moi, has been in power since 1978 with the last multi-party elections held in 1992. Kenya had a vigorous gold mining industry during the early 1900s up to World War II. During the period of political turmoil in the 1950s and early 1960s leading up to independence, the Kenyan gold mining industry declined significantly. The current economy is dominated by tourism, coffee and other agricultural exports. NDORI Pursuant to an agreement dated December 12, 1996, with San Martin Mining Research and Investment Company ("San Martin") and San Martin 96 S.A., PARC was granted the immediate and exclusive right to conduct prospecting, exploration, development or related activities on properties covering an area of approximately 1,300 km(2) known as Ndori in the Kisumu region of Kenya. The Ndori License, which permits prospecting and exploration for gold and other precious metals, became effective on March 29, 1988, and expires on December 31, 1997. PARC was also granted an exclusive option to apply for and acquire a 75% or greater interest in a mining lease or leases pursuant to the license and any successor rights. In order to maintain the working right and option, PARC made a payment of $0.6 million concurrent with the execution of the agreement, and agreed to expenditures of at least $0.6 million during each of the first and second twelve month periods of the agreement. Any first year expenditures by PARC in excess of $0.6 million shall be credited against PARC's expenditure commitments during the second year. PARC committed to make minimum expenditures during the third, fourth and fifth years of the agreement sufficient to maintain the Ndori License in good standing. The Property The Ndori property covers 1,300 km(2) in western Kenya on the shores of Lake Victoria, due northwest of the city of Kisumu. Access to the property is good with a major road through the center of the property and several other traversing roads. Geology The geology of the Ndori property is an extension of the Tanzanian gold fields to the south and beneath Lake Victoria, with the property lying within a well differentiated suite of Archean volcanics. Available geologic data from previous exploration programs by the United Nations Development 66 67 Program ("UNDP") and previous owners suggest the potential for quartz reef hosted, shear zone hosted and intrusive related gold mineralization. Approximately 40 old mines at one time or another have been exploited on the property, 20 of which included milling facilities. Available records from exploration carried out in the 1980s by third parties indicate an existing calculated mineralized inventory of 100,000 tonnes grading 11.4 g Au/t at the Ngiga mine, 100,000 tonnes grading 13.7 g Au/t at the Coronation mine and 75,000 tonnes grading 9.5 g Au/t at the Kidson mine, totaling approximately 104,000 oz. Work Program Previous exploration programs of the UNDP and others have primarily focused on the potential for high grade but low tonnage quartz vein and reef hosted gold mineralization. The principal objective of PARC's first year's work program in 1997 is the first investigation of the potential of the property to host bulk minable deposits capable of supporting large scale, modern mining operations. During 1997, a comprehensive survey of all the existing old gold workings on the Ndori property is expected to be completed as well as a reconnaissance program over the whole of the property involving geologic mapping, termite mound sampling and auger drilling. Results from the ongoing inventory program are being interpreted and integrated into a geological information system data base, and remote sensing and airborne geophysical survey data will be used to identify favorable structural and lithologic settings for gold mineralization. To date, 205 rock samples have been collected at old mine sites and a total of 586 termite mound samples have been collected. Following completion of this work, follow-up work involving augering and trenching is planned over identified anomalous areas. LATIN AMERICA PROPERTIES OUTSIDE OF GUIANA SHIELD SOUTHERN STAR RESOURCES LTD. In March 1995, the Company formed Southern Star Resources Ltd. ("Southern Star"), a Barbados corporation and its 100% owned subsidiary, to hold, explore, develop and exploit all of its mineral interests in Latin America outside of the Guiana Shield. Southern Star has been actively investigating opportunities throughout Latin America. To date, Southern Star's acquisitions have been focused in two countries: Brazil and Bolivia. Capitalized exploration costs for Southern Star as of December 31, 1996 totaled $7.1 million, with a total of $6.3 million spent during 1996 on continued exploration and property acquisition. Budgeted 1997 exploration and preliminary reconnaissance expenditures for Southern Star total $9.0 million. BRAZIL PROPERTIES Brazil is the fifth largest country in the world with an area of 8,510,700 km(2), which is equivalent to almost half of the entire South American continent. The majority of the country is located in a tropical zone and the Amazon river system drains over half of Brazil's area. Brazil comprises 27 states and the Federal District of Brasilia, the capital city. With a population of over 152 million people, its two main cities are Sao Paulo and Rio de Janeiro. Brazil declared its independence in 1822 and has been a republic since 1889. From 1964 to 1985, although under a military regime, Brazil experienced considerable economic growth and development. In 1985, the country returned to democracy and a new Constitution was implemented in 1988. Even though Brazil has a free enterprise system, there is still considerable state and semi-state participation in various strategic sectors, such as transportation 67 68 and utilities. Special legislation was enacted to privatize many companies, but the process is moving at a slow pace. The government has been successful in the last year in reducing the rate of inflation. Brazil hosts the world's largest iron ore deposits and is the world's largest producer. Major export products include soybeans, orange juice, cocoa, coffee and manufactured goods. Southern Star's property interests are located in the central and eastern Amazon region, with administrative offices in Brasilia, the capital of Brazil, in the State of Goias. ANDORINHAS On December 5, 1995, Companhia Vale do Rio Doce ("CVRD") announced that Southern Star was selected by CVRD as the successful bidder to earn a right to associate with CVRD for the possible future development and exploitation of the Andorinhas gold property in Brazil. CVRD is one of the world's largest resource and transportation logistics companies. In mining, CVRD ranks as the world's largest producer of iron ore and ranks as a major producer of bauxite, manganese, precious metals and other mineral products. CVRD is the largest individual producer of gold in Latin America and has extensive land holdings in Brazil. CVRD is currently approximately 51% owned by the Brazilian government and is currently in the process of a privatization effort. The Andorinhas tender represents CVRD's first effort to secure outside partners to assist in the development of CVRD's gold resource potential in Brazil. An agreement with CVRD was executed in May 1996 by Southern Star and Estrela Sul Do Brasil Empreendimentos Ltda., Southern Star's wholly owned Brazilian subsidiary ("Estrela Sul"). Under the agreement, Southern Star's exclusive right to earn a 50% participating interest in an association with CVRD created to exploit any gold discovered on the property is conditional upon Southern Star matching CVRD's previous exploration expenditures of R5.2 million (approximately $5.5 million, subject to monthly adjustments to account for Brazilian inflation), completion of a positive feasibility study, and CVRD obtaining any necessary legal or governmental approvals to form an association for development and exploitation of a mine. Southern Star must spend a minimum of R3.7 million (approximately $3.9 million on the property, subject to monthly adjustments to account for Brazilian inflation). Upon making exploration expenditures of R5.2 million, CVRD will share equally in all remaining exploration and development costs. Southern Star has the right to terminate the agreement and let its right to form an association lapse without any further obligations at any time as long as it has fulfilled the minimum exploration commitment of R3.7 million. Otherwise, Southern Star must pay CVRD the difference between the minimum commitment and the actual amount of expenditures it has made to the date of the termination. As part of an agreement with CVRD, and in lieu of cash property payments to CVRD, Southern Star must also reach agreements with the surface owners and occupants of portions of the land covered by the three exploration licenses comprising Andorinhas in connection with its exercise of the exploration activities. Agreements have been reached with several key land owners to acquire improvements and surface rights over the two principal target areas on the property, Mamao and Babacu. These agreements contemplate aggregate cash payments by Southern Star of approximately $7.1 million payable over four years. More than a dozen additional people own areas less critical and peripheral to the main target areas. There can be no assurance that satisfactory agreements will be concluded with these remaining land owners. 68 69 The Property The Andorinhas project covers approximately 25,000 ha. and is located in the state of Para in the eastern Amazon near the town of Rio Maria and is approximately 150 km south of the Carajas district. The property is located in the central Para State of northeastern Brazil about 670 km south-southwest of the city of Belem. It is accessible by paved road to Rio Maria and then dirt road for 35 km. Scheduled planes service the city of Redencao about 100 km south of Rio Maria. Andorinhas is an advanced stage exploration project. Gold mineralization was discovered at Andorinhas in the late 1970s by Rio Doce Geologia e Mineracao S.A., CVRD's exploration subsidiary. The geologic setting and mineralization of discoveries in the area share the same characteristics of many of the notable underground mines in the Abitibi mineral province in Canada, with high grade gold-quartz vein mineralization occurring in multiple zones. Surface work and approximately 15,000 m of drilling by CVRD in late 1970s identified three primary zones of interest, Mamao and Babacu along a 14 km shear zone trending northeast-southwest through the southern leg of the property and Lagoa Seca on a parallel 8 km shear zone to the north. The drilling results averaged 2.7 m at 17.1 g Au/t from 11 holes at the Mamao prospect, 19.8 m at 4.7 g Au/t from 9 holes at the Lagoa Seca prospect and 2 m at 8.1 g Au/t from 6 holes at Babacu. In the early 1980s, the Andorinhas area experienced a significant influx of garimpeiros (illegal miners) who caused most legitimate exploration activity to cease in the area during that period and who mined multiple surface zones of enriched mineralization along the shear zones. Garimpeiro mining diminished significantly in the mid 1980s as gold prices fell and pits from the surface mining of gold bearing material began to encounter the water table. Several such pits exist at the two primary target areas on the southern 14 km regional shear, Mamao and Babacu. At the Mamao area five distinct pits remain: Melechete, Matinha, Cantina, Maria Bonita and Mandioca. One garimpeiro established an underground mine on the Melechete ore shoot from the bottom of the Melechete pit. Access roads were improved, a power line was brought to the property and a small mill and carbon treatment plant were constructed. Work Program During 1996, regional exploration included 65 km of line cutting, 50 km(2) of surface mapping, and approximately 5,700 line km of airborne geophysical surveys over the property. A total of 356 deep auger holes, totaling approximately 2,850 m, were drilled on the Mamao and Babacu zones. Southern Star's underground sampling of the Melechete ore shoot at the Mamao area during 1996 consisted of a carefully cut series of 675 samples in 78 channels systematically distributed throughout the 27 levels of the existing underground workings. The sampling evaluated an ore body whose minimum dimensions, as defined by the mined out workings, extend from surface down plunge for 270 m, with a width of up to 150 m, and a thickness of 2.5 to 7 m. Encouraging results have been received from the sampling with an uncut weighted average grade of all samples of 20 g Au/t. The cut weighted average grade (cut at the 98th percentile of 125 g Au/t) is 13.7 g Au/t. A core drilling program was initiated to test for the possible extension of gold mineralization to the west of the Melechete zone toward the Matinha zone as well as for potentially new mineralization at the Cantina and Maria Bonita zones. During 1996, 18 core holes were completed totaling approximately 2,370 m. At the Matinha zone, located west of the known Melechete orebody, mineralization was intersected in 8 of 10 holes drilled on approximately 50 m centers to the northwest of the existing Melechete pit. The most significant five holes drilled in the Matinha zone, exhibited an uncut, weighted average grade of approximately 69 70 9.7 g Au/t over an average intercept length of 2.1 m. This drilling in the Melechete/Matinha area suggests that the Melechete and Matinha zones are part of one continuously mineralized zone with a strike length of at least 300 m and variable thickness. The first phase of drilling resulted in a better than doubling of the strike length of mineralization in the Melechete/Matinha area, which remains open down plunge. Core holes drilled in the Cantina and Maria Bonita zones intercepted mineralized shear zones with average grades of 0.5 to 2.0 g Au/t, though it is not yet certain how this shear-related mineralization can be correlated with that discovered in the Melechete/Matinha area to the west. Total exploration and acquisition expenditures in 1996 on the Andorinhas property were $3.4 million. The work program for Andorinhas during 1997 involves a minimum of 12,000 m of core drilling. The principal objective for the second phase of core drilling in the Mamao area will be to complete an initial evaluation of the Melechete/Matinha mineralized zone on 50 to 100 m centers over a strike length of 400 m and down plunge 700 m. This part of the program will require a minimum of 20 holes, totaling approximately 8,000 m. A second core drill is scheduled to begin the first phase of core drilling at the "Babacu" area, anticipated to involve approximately 4,800 m of core drilling. A systematic deep augering program, a geologic mapping effort and sampling of other old surface workings will continue on targets to the north of the Mamao area as well as testing for extensions of the Mamao-Babacu regional shear. A ground geophysical survey is anticipated to better evaluate anomalies identified by the 1996 airborne geophysical survey, particularly to the south of the Mamao area. Budgeted 1997 exploration expenditures total $5.3 million for the Andorinhas property. ABACAXIS PROPERTY Pursuant to an option agreement dated as of June 19, 1996, among Estrela Sul, Matapi Exploracao, Mineral Ltda. ("Matapi") and Ourobras Pesquisas e Mineracao da Amazonia Ltda. ("Ourobras"), Estrela Sul acquired a working right and five-year option to acquire 100% of the right, title and interest of Matapi and Ourobras to three "alvaras", or exploration licenses, issued in favor of Matapi, collectively known as the Abacaxis property. Ourobras has a preexisting joint venture agreement with Matapi with respect to the Abacaxis property. Estrela Sul has paid Matapi and Ourobras approximately $0.2 million to date in connection with the option. Additionally, to keep its option and working right in force, Estrela Sul must: (i) pay Matapi approximately $150,000 on December 1, 1997 and $0.3 million on December 1, 1998 and (ii) incur expenditures on the property of at least $0.2 million by June 19, 1997, an aggregate of $0.5 million by June 19, 1998, an aggregate of $1.1 million by June 19, 1999 and an aggregate of $2.0 million by June 19, 2000. Estrela Sul may exercise its option at any time after completing the payment and expenditure obligations set forth above up to the fifth anniversary of the option agreement. Following exercise of the option, Matapi and Ourobras will be jointly entitled to a royalty of 2% of all net smelter returns from any mine developed on the property, provided that Estrela Sul has the perpetual right to purchase 50% of such interest for $0.8 million which, if exercised, would leave Matapi and Ourobras with a net smelter royalty of 1%. Estrela Sul must make two advance payments of the royalty, in the amount of $0.5 million each (or $250,000 after purchase of 50% of the royalty) within 10 days after June 19, 2000 and June 19, 2001, respectively. The Property The Abacaxis property covers approximately 30,000 ha. and is located approximately 270 km southeast of the city of Manaus, in the District of Maues, State of Amazonas, Brazil. It is accessible by boat, small fixed-wing aircraft or helicopter. Abacaxis is in the Tapajos area, which is one of the most 70 71 actively worked areas mined by garimpeiros in Brazil. At Abacaxis, narrow quartz-sulfide-gold veins cut Proterozoic metasedimentary rocks. The veins are exceptionally high grade, at more than 30 g Au/t. Adjacent wall rocks also locally contain anomalous values of gold with as much as 2 to 4 g Au/t. The area is at the margin of a failed Proterozoic rift that may have been remobilized during younger tectonic events. Work Program Work began at Abacaxis in December 1995 with camp construction access and grid line cutting. During 1996, gold exploration at Abacaxis took place at both regional grid-controlled scales. Fixed-wing airborne geophysical surveys were completed, totaling 4,024 line km of magnetic and radiometric surveys on a 200 m line spacing over the whole of the 30,000 ha. property. A total of 207 line km of follow-up stream sediment traverses was completed involving 305 rock and 555 stream sediment samples. A preliminary 4 by 4 km grid totaling 52 line km at a 400 m line spacing was established in the central part of the property. A more detailed grid totaling 25.7 line km at a 100 m line-spacing with an additional 5.2 km of base line extension was then established over an area which includes four principal +200 ppb anomalies: Airstrip, Main Pit, Tatu and RG-25. Approximately 770 soil samples, 375 rock samples and 136 stream sediments samples were collected from the combined grid areas and analyzed for gold. During the second half of 1996, 595 deep auger holes, totaling approximately 4,525 m were systematically drilled every 40 m along the 100 m grid, yielding a weighted average grade of approximately 1.0 g Au/t across the four anomalies. The zones range from 300 m to 800 m in strike length, and up to 400 m in width. Two of the anomalous areas (Main Pit and Airstrip) contain bedrock occurrences of gold bearing quartz veins. Late in 1996, infill deep auger drilling was initiated to test the continuity of gold in saprolite in the Tatu zone. Total 1996 exploration and acquisition expenditures for Abacaxis were $1.2 million. The 1997 exploration program at Abacaxis anticipates the refinement of the central grid utilizing additional deep augering, ground geophysics and core drilling. A core drilling program will be developed to test each zone, Airstrip, Main Pit, Tatu and RG-25, with three holes. Additional reconnaissance work is scheduled on an area of interest identified in 1996 to the east of the central grid. Reconnaissance work is anticipated to involve establishing a grid through linecutting followed by geologic mapping and preliminary deep augering. Total 1997 budgeted exploration expenditures for Abacaxis are $0.8 million. BOLIVIA PROPERTIES Bolivia is located in the western part of South America and has an area of 1.1 million km(2). The western part of the country, the high Altiplano, averages over 3,800 m in elevation, while the eastern portion of the country is a tropical lowland. Bolivia has been an independent nation since 1825. Although there has been a history of military regimes through the 1970s, all governments since 1982 have been democratically elected. The country has nine Departments with a total population of approximately 10 million. The capital and principal city, located in western Bolivia, is La Paz. Southern Star has established an administrative office in the city of Santa Cruz in central Bolivia. In addition to the San Simon and Sunsas South properties described below, Southern Star has acquired or is in the process of acquiring rights on at least 15 other early stage gold and diamond exploration properties in Bolivia. 71 72 SAN SIMON Pursuant to a joint venture agreement dated as of February 23, 1996 among Jean Marc Marie Teisseire Bellini and Nelson Herrera Ribera, two Bolivian nationals (collectively, "Teisseire and Herrera") and Southern Star Bolivia S.R.L., the wholly owned subsidiary of Southern Star, Southern Star Bolivia acquired the right to undertake exploration, development and exploitation activities on the five concessions in the San Simon region of northeastern Bolivia, covering an aggregate of approximately 14,600 ha. Southern Star Bolivia, in its discretion, may exclude all or portions of the five concessions from the joint venture at any time, subject to certain limitations, and may terminate the joint venture at any time without further obligation. In October 1996, Southern Star Bolivia opted to exclude three of the five concessions (covering approximately 6,000 ha) from the joint venture and relinquished any further rights with respect thereto. The two concessions remaining in the joint venture are known as Marco Maria (approximately 5,200 ha.) and Ibere (approximately 3,300 ha.). As of December 31, 1996, Southern Star Bolivia has made cash payments to Teisseire and Herrera of approximately $0.1 million in connection with the joint venture. Additionally, Southern Star Bolivia must pay: $7 per hectare for each hectare remaining subject to the joint venture as of October 31, 1997; and $10 per hectare for each hectare remaining subject to the joint venture as of October 31, 1998. Commencing on October 31, 1999, and each six months thereafter, Southern Star Bolivia must pay Teisseire and Herrera (jointly) advance royalty payments of $15,000 until the commencement of commercial production on a mine, which amounts shall be offset by deducting 50% of all future royalty payments earned until the amounts advanced are repaid in full. Teisseire and Herrera are jointly entitled to a royalty equal to 3% of the net smelter returns from any mine developed on the two remaining properties. Southern Star Bolivia has the right, during the first two years after commencement of commercial production, to purchase 41.66% of the original royalty from Teisseire and Herrera for $1.0 million and an additional 41.66% (for an aggregate of 83.3%) of the original royalty for an additional $1.5 million which, if exercised, would leave Teisseire and Herrera with a net smelter royalty of 0.5%. In early 1996, claims of "denouncement" of title were filed against virtually all the mineral concessions then existing in the San Simon region, including the Marco Maria and Ibere properties, alleging a technical default relating to the "form" used by the various concession holders to file their annual patent payments. After consulting with local Bolivian counsel, management does not believe this poses a major risk to title to the concessions. However, no assurance can be given with respect to the outcome of those claims at this time. The acquisition of mineral title under the Bolivia mining code is extremely technical and, in many cases, technical defaults cannot be cured and can result in the loss of title. Jorge Forgues Valverde, a Bolivian national ("Forgues"), has filed a claim for the rights to the Marco Maria concession, alleging that the rights of Teisseire and Herrera have expired or are otherwise invalid. Southern Star Bolivia has an understanding with Forgues pursuant to which Southern Star Bolivia would enter a joint venture agreement with Forgues and a third party, on substantially the same terms as its current agreement with Teisseire and Herrera in the event Forgues' claim to Marco Maria should be legally recognized. In addition, Southern Star Bolivia has a preliminary agreement with Forgues and a third party with regard to a joint venture on two prospective gold exploration properties in the San Simon region known as Joe (550 ha.) and Laurencio (775 ha.) over which Forgues has pending title claims. There can be no assurance as to the outcome of Forgues' pending title claims to the Marco Maria, Joe or Laurencio concessions, nor with respect to the 72 73 consummation by Southern Star Bolivia of a formal agreement or agreements with Forgues with respect to those properties. The Property The San Simon area is located in northeastern Bolivia, in the Department of Beni, in the Itenez province, near the Brazilian border. The existing and pending concessions mentioned above, totaling approximately 9,825 ha., are located in the Serrania San Simon, which is comprised of a series of ridges and flat-topped mesas rising up to 400 m above the jungle. From Santa Cruz, the area is accessed by paved and dirt roads (approximately 250 km and 520 km respectively), or by plane. The gold deposits in the Serrania San Simon were first worked by the Jesuits during the colonization period (1688-1767). Mining activity was renewed in the late nineteenth century and peaked during the first rubber boom (1905-1918). Currently, local minors are working on a small scale on two concessions belonging to other companies. Weakly metamorphosed folded and faulted Proterozoic sediments underlie much of the area. Gold-bearing quartz veins, commonly with arsenopyrite, occur in the El Colorado Quartzite and Bonanza Metasubgraywacke. Rock samples from concessions adjacent to Southern Star's have yielded up to 12 g Au/t. Placer gold occurs downstream from some of Southern Star concessions. Work Program During 1996, reconnaissance work was conducted throughout the property and involved the collection of approximately 488 rock samples, 2,910 soil samples, 115 stream sediment samples, and 10 BLEG samples. This work resulted in the identification of the anomalous Marco Maria zone. Follow-up work included 32 deep auger holes and a ground geophysical survey totaling approximately 23 line km. During 1996, the Company spent $0.7 million on exploration at the San Simon area. Work during 1997 has been scheduled to focus on better definition of the Marco Maria anomaly through additional deep augering and trenching in order to plan an initial core drilling campaign. SUNSAS SOUTH Southern Star Bolivia has entered into a preliminary agreement with Goran Matcovic Vranjican ("Matcovic"), pursuant to which Matcovic has granted Southern Star Bolivia the option to earn an 85% interest in two exploration concessions, known as Marioly (of approximately 19,500 ha.) and Mira Maria Magdalena (of approximately 11,200 ha.) in the southern Sunsas region of Bolivia, subject to completing a due diligence investigation and consummation of a formal option agreement meeting all the requirements of Bolivian law. Southern Star Bolivia has additionally obtained a 100% interest in an exploration concession in the southern Sunsas region known as Santo Corazon (of approximately 14,700 ha.). Southern Star Bolivia has made cash payments to Matcovic of $50,000 to date in connection with the option on the Marioly and Mira Maria Magdalena concessions. Another cash payment of $70,000 is due on August 15, 1997. Additionally, to earn its 85% interest, Southern Star Bolivia must (i) incur minimum expenditures of $350,000 and complete a minimum of 2,000 m of diamond drilling on the concessions within 24 months after execution of a formal option agreement and (ii) complete at some point (no fixed time limit) a "pre-feasibility study" on the concessions sufficient, in Southern Star 73 74 Bolivia's judgment, to justify commissioning a formal feasibility study thereon. Southern Star Bolivia may terminate the preliminary option agreement at any time without further obligation. The Property The Sunsas area is located in southeastern Bolivia, in the Department of Santa Cruz, in the Angel Sandoval Province, approximately 400 km from Santa Cruz. The area of the concession consists of the Goran Matkovic options and the Santo Corazon concession. From Santa Cruz, the area is accessed by dirt road. Work Program During 1996, the regional exploration effort comprised 66 rock, 639 soil, 256 pan concentrate and 14 BLEG samples. Gold was panned in the majority of the Matkovic block drainages, with up to 3 relatively coarse gold colors (up to 1 mm). Santo Corazon does not appear to contain coarse gold; however, the area to the west does and is presently being solicited. Soil sampling has proven unsuccessful due to the veneer of piedmont coverage and the BLEG sampling has proven inconclusive. Work during 1997 will focus on the remainder of the Matkovic claim block (presently 60% explored) with first pass sampling. Follow-up detailed sampling will be conducted on favorable zones. Ground magnetics will be carried out across selected areas of interest as well. ITEM 3. LEGAL PROCEEDINGS There are currently no material pending legal proceedings to which the Company or any of its subsidiaries is a party or to which any of its properties or those of any of its subsidiaries is subject. The Company and its subsidiaries are, however, engaged in routine litigation incidental to their business. No material legal proceedings involving the Company are pending, or, to the knowledge of the Company, contemplated, by any governmental authority. The Company is not aware of any material events of non-compliance with environmental laws and regulations. The exact nature of environmental control problems, if any, which the Company may encounter in the future cannot be predicted, primarily because of the changing character of environmental requirements that may be enacted within foreign jurisdictions. For a description of the type of legal and regulatory environment in which the Company does business. (See "Item 1. Description of Business - Risk Factors" and "Item 2. Description of Property - General".) 74 75 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. Executive Officers of the Registrant (as of March 14, 1997) The executive officers of the Company, their ages and their business experience and principal occupations during the past five years are:
------------------------------------------------------------------------------------------------------------- Name Age Office and Experience Officer Since ------------------------------------------------------------------------------------------------------------- Jeffrey T. Abbott 55 President of Southern Star Resources Ltd. since March 1995; 1995 prior thereto Manager of the Latin America division from October 1994; prior thereto Vice President of Homestake International & Minera Homestake Chile. ------------------------------------------------------------------------------------------------------------- Gordon J. Bell 39 Vice President and Chief Financial Officer of the Company 1995 since November, 1995; prior thereto, Vice President and Director, RBC Dominion Securities Inc. from October, 1994; Vice President, RBC Dominion Securities Inc. from December, 1991 to October, 1994. ------------------------------------------------------------------------------------------------------------- Carlos H. Bertoni 45 Vice President, Exploration (Eastern Division) since 1993 and 1993 prior thereto, Exploration Manager. Mr. Bertoni joined Golden Star in 1988 as a Senior Geologist. ------------------------------------------------------------------------------------------------------------- David A. Fennell 44 Chief Executive Officer of the Company since May 1996; 1992 President of the Company since May, 1992. ------------------------------------------------------------------------------------------------------------- Adrian W. Fleming 48 Executive Vice President, Exploration of the Company since 1994 May 1996. President of PARC since 1995 and of PARC Barbados since 1994; Director, Barnu Pty Limited (industrial minerals mining company) from 1990 to 1993. ------------------------------------------------------------------------------------------------------------- Louis O. Peloquin 39 Vice President, General Counsel and Secretary of the Company 1993 since June, 1993; Attorney, McCarthy, Tetrault (law firm) from 1991 to June, 1993. ------------------------------------------------------------------------------------------------------------- Hilbert N. Shields 41 Vice President, Exploration (Western Division) since 1993 and 1993 prior thereto, Exploration Manager. Mr. Shields joined Golden Star in 1988 as a Senior Geologist. ------------------------------------------------------------------------------------------------------------- Richard A. Winters 34 Vice President, Corporate Development since August 1995; 1995 prior thereto Senior Analyst, Robertson Stephens & Co. from August 1994; prior thereto Senior Engineer, Phelps Dodge Mining Co. from January 1993 to August 1994; prior thereto Instructor Mineral Economics, Colorado School of Mines from June 1991. -------------------------------------------------------------------------------------------------------------
75 76 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common shares are listed on the Toronto Stock Exchange ("TSE") under the trading symbol GSC and the American Stock Exchange ("AMEX") under the trading symbol GSR. As of March 14, 1997, 26,622,636 common shares were outstanding and the Company had 645 shareholders of record. On March 14, 1997, the closing sale price per share for the Company's common shares, as reported by the TSE was Cdn$18.85 and as reported by the AMEX was $13.88. The following table sets forth, for the periods indicated, the high and low market closing prices per share of the Company's common shares as reported by the TSE and the AMEX.
Toronto Stock Exchange American Stock Exchange -------------------------- ----------------------- Cdn$ Cdn$ $ $ High Low High Low ---- --- ---- --- 1996: First Quarter 22.00 7.25 16.25 5.19 Second Quarter 26.00 17.25 19.13 12.88 Third Quarter 27.10 16.75 19.75 11.75 Fourth Quarter 28.25 18.00 21.00 12.75 1995: First Quarter 11.75 9.25 8.50 6.58 Second Quarter 12.00 9.25 8.75 6.63 Third Quarter 9.88 6.75 7.00 4.88 Fourth Quarter 8.00 6.25 6.00 4.50
The Company has not declared or paid cash dividends on its common shares since its inception. The Company's dividend policy is reviewed from time to time by its Board of Directors. Future dividend decisions will consider then current business results, cash requirements and the financial condition of the Company. CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS The following summarizes the principal Canadian federal income tax considerations applicable to the holding and disposition of a common share of the Company (a "Common Share") by a holder (the "Holder") of one or more Common Shares who is resident in the United States of America and holds the Common Shares as capital property. This summary is based on the current provisions of the Income Tax Act (Canada) (the "Tax Act"), the regulations thereunder and all amendments to the Tax Act publicly proposed by the government of Canada to the date hereof. It is assumed that each such amendment will be enacted as proposed and there is no other relevant change in any governing law, although no assurance can be given in these respects. Every Holder is liable to pay a withholding tax on every dividend that is or is deemed to be paid or credited to him on his Common Shares. Under the Canada-United States Income Tax Convention (1980) (the "Treaty"), the rate of withholding tax is 6% for 1996 and 5% thereafter of the gross amount 76 77 of the dividend where the Holder is a company that owns at least 10% of the voting stock of the Company and beneficially owns the dividend, and 15% in any other case. Under the Tax Act, a Holder will not be subject to Canadian tax on any capital gain realized on an actual or deemed disposition of a Common Share, including a deemed disposition at death, provided that he did not hold the Common Share as capital property used in carrying on a business in Canada, and that neither he nor persons with whom he did not deal at arm's length alone or together owned 25% or more of the issued shares of any class of the Company at any time in the five years immediately preceding the disposition. A Holder who is liable under the Tax Act for Canadian tax in respect of a capital gain realized on an actual or deemed disposition of a Common Share will be relieved under the Treaty from such liability unless (a) the Common Share formed part of the business property of a permanent establishment or fixed base in Canada that the Holder has or had within the twelve-month period preceding the disposition, or (b) the Holder (i) was resident in Canada for 120 months during any period of 20 consecutive years preceding the disposition, and (ii) was resident in Canada at any time during the ten years immediately preceding the disposition, and (iii) owned the Common Share when he ceased to be a resident of Canada. This summary is of a general nature and is not intended, nor should it be construed, to be legal or tax advice to any particular Shareholder. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS AS TO THE INCOME AND OTHER TAX CONSEQUENCES ARISING IN THEIR PARTICULAR CIRCUMSTANCES. CERTAIN UNITED STATES INCOME TAX CONSIDERATIONS PASSIVE FOREIGN INVESTMENT COMPANY RULES Under the United States Internal Revenue Code of 1986, as amended (the "Code"), the Company may be classified as a passive foreign investment company (a "PFIC"). U.S. shareholders of a PFIC are subject to certain adverse tax consequences. These consequences can be mitigated, under certain circumstances, if the U.S. shareholder makes a timely election to treat the Company as a "qualified electing fund" (a "QEF"). ALL U.S. SHAREHOLDERS ARE THEREFORE URGED TO CONSULT THEIR OWN TAX ADVISORS ABOUT THE ADVISABILITY OF MAKING A QEF ELECTION WITH RESPECT TO THE COMPANY. ALL U.S. SHAREHOLDERS ARE ALSO URGED TO CONSULT THEIR OWN TAX ADVISERS ABOUT THE POSSIBILITY OF CREDITING CANADIAN TAXES PAID AGAINST U.S. TAX PAYABLE. 77 78 DEFINITION OF A PFIC A PFIC is a corporation not formed in the United States (a "Non-U.S. Corporation") and either (i) 75% or more of its gross income is passive income or (ii) 50% or more of the average value (or, if the corporation elects, the adjusted basis) of its assets produce, or are held for the production of, passive income. Passive income for these purposes includes interest, dividends, and certain rents and royalties. For purposes of the foregoing tests, if a Non-U.S. Corporation owns at least 25% by value of the stock of another corporation, it is treated as if it instead owned its proportionate share of the other corporation's assets and received directly its proportionate share of the other corporation's income. The Company has been advised by Coopers & Lybrand L.L.P. that it should not be treated as a PFIC with respect to shares purchased by U.S. shareholders during 1993, 1994, 1995 and 1996, although it could potentially be a PFIC with respect to shares acquired by U.S. shareholders prior to 1993. The Company also intends to engage Coopers & Lybrand L.L.P. in the future to analyze whether it is a PFIC in 1997 and subsequent years and will continue to notify shareholders of the results of such future analyses. CONSEQUENCE OF PFIC CLASSIFICATION IF NO QEF ELECTION MADE If the Company is classified as a PFIC, U.S. shareholders who do not make timely QEF Elections (as discussed below) will be subject to a number of special adverse tax rules. For example, gain recognized on disposition of PFIC stock or the receipt of an "excess distribution" from a PFIC is (i) treated as if it were ordinary income earned ratably on each day at the highest marginal rate in effect during the period in which it was deemed earned and (ii) subject to an interest charge as if the resulting tax had actually been due in such earlier year or years. (An excess distribution is the amount of any distribution received by the U.S. shareholder during the taxable year that exceeds 125% of the immediately preceding three year average of distributions received from the corporation, subject to certain adjustments.) Proposed United States Treasury Regulations broadly define a disposition to include any transaction or event that constitutes an actual or deemed transfer of property for any purpose under the Code, including (but not limited to) a sale, exchange, gift, transfer at death, and the pledging of PFIC stock to secure a loan. If the tax described above is not imposed on a transfer at death, the recipient of the PFIC stock receives a basis in the transferred stock equal to the lesser of the fair market value or the adjusted basis of the stock in the hands of the shareholder immediately before death. Finally, the foregoing rules will continue to apply with respect to a U.S. shareholder who held the stock of the Company while the Company met the definition of a PFIC even if the Company ceases to meet the definition of a PFIC. CONSEQUENCES OF PFIC CLASSIFICATION IF QEF ELECTION MADE Most of the foregoing adverse tax consequences can be avoided if (i) the U.S. shareholder makes a timely election to treat the Company as a QEF (a "QEF Election") for the first year of the shareholder's holding period in which the Company is a PFIC (or in a year for which the Shareholder also makes the "Mark to Market Election" described below) and (ii) the Company provides the U.S. shareholder with an "annual information statement" pursuant to Temporary Regulations issued by the Internal Revenue Service. U.S. shareholders of a PFIC who make a QEF Election, however, will be taxable currently on their pro rata share of the PFIC's ordinary earnings and net capital gain, unless they make a further election to defer payments of tax on amounts included in income for which no distribution has been received (subject to an interest charge). Special adjustments are provided to prevent inappropriate 78 79 double taxation of amounts so included in a U.S. shareholder's income upon a subsequent distribution or disposition of the stock. A U.S. shareholder makes a QEF Election by filing a "Shareholder Section 1295 Election Statement", a "PFIC Annual Information Statement", and Form 8621 with its tax return. In the case of stock owned through a U.S. entity, the election must be made at the entity level. A QEF Election must be filed by the due date (taking into account extensions) for filing the U.S. shareholder's income tax return for the taxable year for which the election is made. A copy of the Election Statement must also be filed with the Philadelphia Internal Revenue Service Center. Once made, the election is effective for the shareholder's taxable year for which it is made and all subsequent taxable years, and may not be revoked without consent of the Secretary of the Treasury. If a U.S. shareholder wishes to make a QEF Election subsequent to the first year of his holding period for stock of a Non-U.S. Corporation that is a PFIC, the U.S. shareholder may further elect to recognize gain (the "Mark to Market Election") as if it had sold the QEF stock on the first day of the taxable year in which the QEF election is made if (i) the U.S. shareholder holds stock in the PFIC on that day and (ii) the shareholder can establish the fair market value of such stock on that day. In the event that the Company is classified as a PFIC, the Company intends to comply with the reporting requirements prescribed by Treasury regulations. In particular, the Company will maintain information so that the ordinary earnings and net capital gains of the Company may be determined. However, future regulations may contain reporting and record- keeping requirements that are so onerous that it would not be practicable for the Company to comply. If, after review of the requirements, the Company determines that it would not be practicable to comply, it will so notify its shareholders. The proposed PFIC regulations herein were proposed to be effective in April 1992 and may apply to all post-1986 years. However, there can be no assurance that such regulations will be adopted in their present form. TAXATION OF DIVIDENDS ON THE COMPANY'S STOCK Subject to the PFIC rules described above for U.S. Federal income tax purposes, dividends paid by the Company (including any Canadian tax withheld thereon) will constitute ordinary dividend income to the extent of the Company's current or accumulated earnings and profits as determined for U.S. Federal income tax purposes, and to the extent in excess of earnings and profits, will first be applied against and reduce the shareholder's basis in such holder's stock, and to the extent in excess of such basis will be treated as gain from the sale or exchange of property. Because the Company is not a U.S. corporation, dividends that it pays will not be eligible for the dividends received deduction provided for in Section 243 of the Code. If a U.S. shareholder receives a dividend payment in any currency other than U.S. dollars, the amount of the dividend payment for United States Federal income tax purposes will be the U.S. dollar value of the dividend payment (determined at the spot rate on the date of such payment) regardless of whether the payment is in fact converted into U.S. dollars. In such case, U.S. shareholders may recognize ordinary income or loss as a result of currency fluctuations during the period between the date of a dividend payment and the date such dividend payment is converted into U.S. dollars. Subject to the limitations provided in the Code, the Canadian tax withheld with respect to such dividends should be eligible for the benefits of the foreign tax credit rules of the Code. A shareholder 79 80 who does not elect the benefits of the foreign tax credit provisions of the Code will be entitled to a deduction for the amount of the Canadian tax withheld. ITEM 6. SELECTED FINANCIAL DATA The selected financial data set forth below are derived from the audited consolidated financial statements of the Company for the years ended December 31, 1996, 1995, 1994 and 1993 and for the periods from May 16, 1992 to December 31, 1992 and July 1, 1991 to May 15, 1992. Consolidated financial statements of the Company included elsewhere herein should be read in conjunction with those financial statements and the footnotes thereto. The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). For United States GAAP reconciliation, see the attached consolidated financial statements and notes. Reference should also be made to "Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations." SUMMARY OF FINANCIAL CONDITION DATA AT END OF PERIOD (Amounts in thousands except per share data)
As of As of As of As of As of As of December 31, December 31, December 31, December 31, December 31, May 15, 1996 1995 1994 1993 1992 1992(1) Working capital $15,287 $11,092 $ 34,940 $ 16,735 $ 1,613 $ (621) Current assets 22,182 16,074 38,603 17,574 4,148 1,442 Total assets 96,283 77,609 85,540 47,299 19,221 15,471 Current liabilities 6,895 4,982 3,663 839 2,535 2,063 Long-term debt - - - - - - Shareholders' equity $78,094 $68,388 $ 79,695 $ 46,460 $ 16,686 $ 13,407
For the For the For the Year For the Year For the Year For the Year Period from Period from Ended Ended Ended Ended May 16, 1992 July 1, 1991 December 31, December 31, December 31, December 31, to December to May 15, 1996 1995 1994 1993 31, 1992 1992(1) Revenue $2,801 $ 5,590 $ 2,736 $ 772 $ 138 $ 245 Net loss (7,780) (12,181) (8,785) (1,650) (14,170) (1,207) Net loss per share $(0.31) $ (0.54) $ (0.42) $ (0.10) $ (1.14) $ (0.10)
(1) On May 13, 1992 and May 12, 1992, the shareholders of each of Golden Star and South American, respectively agreed to a business combination. This combination, which for accounting purposes is treated as a purchase by Golden Star, became effective May 15, 1992, the date at which the companies legally amalgamated to become a single company named "Golden Star Resources Ltd.". In conjunction with the amalgamation, the Company changed its fiscal year end from June 30 to December 31. See additional discussion in Note 1 to the financial statements. (2) Neither the Company nor Golden Star paid any cash dividends during the fiscal years/periods indicated above. 80 81 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and related notes. The financial statements have been prepared in accordance with Canadian GAAP. For the U.S. GAAP reconciliation see attached consolidated financial statements as well as "Results of Operations" below. CAUTIONARY STATEMENT FOR PURPOSES OF REFORM ACT The following contains certain forward-looking statements within the meaning of the Reform Act. Actual results, performance or achievements of the Company could differ materially from those projected in the forward-looking statements due to a number of factors, including those set forth under "Risk Factors" and elsewhere in this Annual Report on Form 10-K. Readers are cautioned not to put undue reliance on forward-looking statements. The Company disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise. RESULTS OF OPERATIONS OVERVIEW The Company's current business activity focus is the exploration and development (if warranted) of precious metal and diamond deposits within specific geological domains. Under Canadian GAAP, expenditures relating to these activities are capitalized in recognition of the potential future value of prospective targets. Upon completion of the exploration phase, a decision to proceed to the development phase requires that these expenditures reflect the cost of the resultant reserves and be depleted on the unit of production basis over the estimated total reserve as mined. A decision to discontinue exploration or not to proceed to the development stage for a specific project would result in reducing the capitalized total cost of the exploration program and charging those costs against income. As such, reported net income or loss for the Company may be volatile and principally represents investment revenues received through the investment of idle funds, the surplus received on redemption of preferred shares in OGML held by the Company, and other revenues, as offset by those expenditures which cannot be directly attributed to a specific project and those costs for projects the Company has elected to abandon. Under U.S. GAAP, exploration and general and administrative expenses related to projects are charged to expense as incurred, whereas under Canadian GAAP, such expenses are capitalized as discussed above. Property acquisition costs are deferred for both Canadian and U.S. GAAP until it is determined whether a project is commercially feasible. In addition, under U.S. GAAP, compensation expense is recorded for the excess of the quoted market price over the option price granted to employees and directors at the date of grant under stock option plans. Under Canadian GAAP, no compensation expense is recorded for such awards. The gains on issuance of subsidiary's common stock recorded under Canadian GAAP in respect of the PARC and Guyanor equity financings would not be recorded under U.S. GAAP. Under U.S. GAAP, accrued severance and social charges resulting from the shut-down of alluvial mining operations at SOTRAPMAG would not have been recorded as the requirements for accrual were not satisfied as of December 31, 1996. 81 82 The effect of the differences in accounting under Canadian GAAP and U.S. GAAP on the statement of net loss is as follows:
For the years ended December 31, (In thousands except per share amounts) 1996 1995 1994 ---- ---- ---- Net loss under Canadian GAAP $ (7,780) $ (12,181) $ (8,785) Effect of the deferred exploration expenditures on loss for the period (10,231) (13,610) (7,797) Effect of recording compensation expense under stock option plans (85) (256) (708) Reversal of the gain on subsidiary's issuance of common stock (7,719) (2,575) (738) Reversal of accruals for severance costs 1,115 - - Effect of Omai Preferred Share Redemption 520 548 456 ------- ------- ------- Net loss under U.S. GAAP before minority interest (24,180) (28,074) (17,572) -------- -------- -------- Minority interest (1,097) (256) 1,491 -------- -------- ------- Net loss under U.S. GAAP $(25,277) $(28,330) $ (16,081) ========= ========= ========== Net loss per share under U.S. GAAP $ (1.00) $ (1.24) $ (0.76) ========== ========== ==========
1996 COMPARED TO 1995 The Company reported a net loss of $7.8 million in 1996 as compared to a net loss of $12.2 million in 1995. During 1996, the Company incurred a charge of $5.3 million for the write-off of capitalized exploration for the Eteke project in Gabon, as a result of the sale of the Company's interest in the Eteke project in January. The Company and PARC decided to discontinue exploration activities at Eteke as the project did not meet the standards required by the Company for further exploration activities and the 20% minority interest owner exercised its right of first refusal under the property agreement, purchasing all of PARC's interest for $0.6 million. The Company also incurred a charge to earnings of $4.0 million for write-down of costs capitalized for the Dul Mountain project in Ethiopia. The majority of the property area of the Dul project did not meet the Company's standards and the Company intends to relinquish approximately 75% of the concession area, with minimal exploration on the area budgeted for 1997. The Company's consolidated share of the write-downs for the Eteke and Dul projects was $3.1 million and $2.3 million, respectively, net of minority shareholders' portion of the loss. The Company, through Guyanor, incurred losses totaling $3.2 million in the fourth quarter for write-downs and accruals related to the shutdown of alluvial mining operations at SOTRAPMAG. (See below.) The Company's consolidated share of these losses net of minority interests was approximately $2.2 million. Offsetting these charges were dilution gains totaling $7.7 million resulting from the sale of shares by and exercise of stock options and warrants in the Company's publicly traded subsidiaries PARC and Guyanor. The Company also recorded a gain of $0.9 million on the recovery of abandonment losses recorded in 1995 resulting from the exit of activities in Venezuela. Total revenues decreased to $2.8 million as compared to $5.6 million in 1995 principally due to operating difficulties and reduced production by SOTRAPMAG. Interest and other revenues decreased from $1.6 million in 1995 to $1.1 million in 1996 due to the decrease in the average cash balance invested during 1996 as compared to 1995. Cost of goods sold decreased to $4.1 million for 1996 as 82 83 compared to $5.8 million for 1995 as a result of the reduced production levels at SOTRAPMAG during 1996, with revenue from gold sales in 1996 of $1.7 million, compared to revenue of $4.0 million in 1995. Total gold production at SOTRAPMAG in 1996 was 143,562 grams (4,616 ounces) compared to 1995 production of 347,295 grams (approximately 11,165 oz). SOTRAPMAG's cost of goods sold exceeded revenues in 1996 by $2.4 million and in 1995 by $1.8 million primarily as a result of higher unit operating costs resulting from lower than expected grades of gold ore mined, lower than planned recoveries of gold due to the delays in changing the recovery methods used, and inefficiencies due to inherited plant operating design and methods. During 1996 and 1995, approximately $0.9 million and $1.0 million, respectively, was spent on improvements in infrastructure and mining and recovery processes at SOTRAPMAG in an effort to increase production and lower unit operating costs. The alluvial operations being conducted through SOTRAPMAG experienced continuing operating losses since its acquisition in 1994. Outside consultants engaged in 1996 to review the operations and make recommendations on how to render the operation profitable concluded that without a significant capital investment to increase production, changes in certain work practices and a reduction in fuel taxes, the operation could not achieve profitability. As a result, the Company, through Guyanor, has begun implementation of a program to discontinue the alluvial operations conducted by SOTRAPMAG. The Company incurred charges to fourth quarter 1996 earnings totaling $3.2 million, including $0.8 million resulting from the write-down of certain fixed assets and inventories, $1.1 million for the write-down of certain capitalized exploration costs related to the alluvial mining operations, $0.1 million for accrual of land rehabilitation and mine closure costs, and $1.1 million for accrual of the severance and other social costs associated with the discontinuation of alluvial production. The Company's share of these losses as of December 31, 1996, was $2.2 million after minority interest. Certain fixed assets, equipment and inventories owned by SOTRAPMAG will be utilized in the ongoing exploration at the Paul-Isnard project area and were not subject to a write-down. The final amount of severance and other costs associated with the discontinuation of alluvial production are contingent upon negotiation with the representative of the workers and the French government. The Company also expects to incur operating losses of approximately $0.5 million during the shut-down process during the first quarter of 1997. General and administrative expenditures totaled $9.1 million for 1996, as compared to $9.4 million for 1995. Depreciation expense increased $0.2 million as a result of an increase in the depreciable asset base through equipment purchases of $1.7 million during 1996 for exploration and support services and inclusion of a full year of depreciation for assets purchased in 1995. OGML, in which the Company maintains a 30% common share equity interest, reported net income of $2.7 million for the year ended December 31, 1996, compared to a net loss of $2.1 million for the year ended December 31,1995. The Omai mine produced 254,950 oz of gold in 1996 versus 175,080 oz of gold in 1995. The increase in both earnings and production was achieved after the temporary shut down of the mine resulting from the tailings dam failure in August 1995. The mine re- opened on February 4, 1996. Although the first quarter of 1996 was adversely impacted by the mine closure, the mine achieved record quarterly production in the fourth quarter of 1996. The commissioning of the expanded mill facilities in the third quarter of 1996 contributed to higher production levels. Approximately $1.1 million was distributed to the Company in 1996 via the redemption of Class "I" preferred shares of OGML as compared to $1.2 million during 1995. Under the equity method of accounting, the Company is required to record its share of OGML's losses to the extent that the losses do not exceed the cost of the common share investment in OGML. 83 84 Accordingly, the Company has not recorded the loss amount, and will commence recognition of future income when its share of accumulated income exceeds its share of accumulated losses. As of December 31, 1996, the Company's share of cumulative equity loss was $2.7 million. Various factors, such as market price fluctuations of gold, increased production costs and/or reduced recovery rates may render ore reserves uneconomic or may ultimately result in a restatement of ore reserves or asset write-down. Moreover, short term factors relating to the ore reserves, such as the need for orderly development of ore bodies, the processing of variable ore grades, and/or other potential problems, may impair the profitability of the Omai mine. The minority interest share of the Company's consolidated losses increased to $7.6 million in 1996 from $4.9 million in 1995 due to the increase in minority ownership of PARC resulting from the private placement in February 1996, increase in minority ownership of Guyanor resulting from the October 1996 offering, and the minority interest shares of property abandonments and operating losses in 1996 for both PARC and Guyanor. 1995 COMPARED TO 1994 The Company reported a net loss of $12.2 million in 1995 as compared to a net loss of $8.8 million in 1994. During 1995, the Company abandoned the Aranka project in Guyana as it did not meet the standards required by the Company for further work, incurring a charge against earnings of $1.4 million. In addition, $0.4 million of capitalized costs were charged to property abandonment for a prospecting area in Guyana which will not be pursued in the future. The Company also wrote off the costs associated with the Baomahun project in Sierra Leone in recognition of continuing security problems and civil unrest in Sierra Leone that may not be resolved in the near term, incurring a charge against earnings of $1.2 million. In addition, certain 1994 capitalized exploration expenditures for PARC, totaling $0.2 million were charged to property abandonments as of December 31, 1995, as the exploration areas associated with these costs will not be pursued in the foreseeable future. As a result of the 1996 budgeting process and related project prioritization, the Company charged costs related to various exploration prospects in Latin America incurred by Southern Star to exploration expense as of December 31, 1995. The expense charge against earnings was $0.9 million. In addition, certain related costs incurred during 1994 were charged to property abandonment, totaling $0.1 million. In February 1996, the Company determined that the capitalized deferred exploration costs in VenStar and the related entities were not recoverable in the foreseeable future. As such, all related capitalized exploration costs were charged to property abandonment as of December 31, 1995. The total charge was $4.5 million. The Company's share of this charge, after minority interest, was $1.4 million. The Company also wrote off $0.8 million in costs incurred by the Company related to the Venezuelan properties. Total revenues increased to $5.6 million as compared to $2.7 million in 1994 principally due to a full year of gold sales by SOTRAPMAG. Revenue from gold sales in 1995 was $4.0 million at an average realized gold price of $388 per ounce sold. Interest and other revenues decreased from $2.2 million in 1994 to $1.6 million in 1995 due to the reduction in the average cash balance invested during 1995 as compared to 1994. Cost of goods sold increased to $5.8 million for 1995 as compared to $0.7 million for 1994 as the result of the inclusion of SOTRAPMAG's production costs for a full year in 1995. Cash operating 84 85 costs amounted to $562 per ounce sold. Total gold production at SOTRAPMAG in 1995 was 347,295 grams (approximately 11,165 oz). SOTRAPMAG's cost of goods sold exceeded revenues in 1995 by $1.8 million primarily as a result of higher unit operating costs resulting from lower than expected grades of gold ore mined, lower than planned recoveries of gold due to the delays in changing the recovery methods used, and inefficiencies due to inherited plant operating design and methods. During 1995, approximately $1.0 million was spent on improvements in infrastructure and mining and recovery processes in order to increase production and lower unit operating costs. General and administrative expenditures increased to $9.4 million (as compared to $4.7 million in 1994) reflecting the necessary growth in the level of support necessary to service the increased size of the Company's portfolio of exploration projects throughout South America and Africa, and the costs associated with creating and maintaining a public listing for Guyanor and PARC. Depreciation expense increased as a result of an increase in the depreciable asset base through the various acquisitions made in 1994 and an increase in equipment purchases of $0.9 million for the period for exploration and support services. During 1995, the Company recorded an additional charge of $0.2 million relating to disposal of assets associated with the sale of the Company's drilling division and other assets. The Company realized a gain on issuance of Class B common shares of Guyanor of $1.6 million on March 14, 1995, which issuance reduced the Company's ownership interest in Guyanor from 100% to approximately 70% and a gain on the issuance of common shares of PARC of $0.9 million in May 1995, which issuance reduced the Company's ownership interest in PARC to approximately 85%. OGML reported a net loss of $2.1 million in 1995 versus a loss of $1.5 in 1994. Omai produced 175,080 oz of gold in 1995 versus 250,644 oz in 1994 as a result of the shut down of the mine from August 19, 1995, to February 4, 1996, due to the tailings dam failure. Operating cash flows of $1.2 million were distributed to the Company via the redemption of Class "I" preferred shares as compared to $1.0 million during 1994. As of December 31, 1995, the Company's share of cumulative equity loss was $3.4 million. Minority interest share of loss increased to $4.9 million primarily due to the initial public offering of Guyanor on March 14, 1995, the issuance of common shares by PARC in May 1995, and the write off of deferred exploration expenditures in Venezuela. LIQUIDITY AND CAPITAL RESOURCES Consolidated cash and short term investments as of December 31, 1996 of $15.7 million increased $6.2 million from $9.5 million as of December 31, 1995 as a result of the Company's public offering in March 1996 ($12.9 million), PARC's equity offering in February 1996 ($9.0 million), and Guyanor's offering of its Class B common shares on the Nouveau Marche in November 1996 ($8.9 million), principally offset by net exploration expenditures of $24.3 million and administrative expenditures of $9.1 million during 1996. Working capital as of December 31, 1996, increased $4.2 million to $15.3 million as compared to $11.1 million as of December 31, 1995. Product and supplies inventories, accounts receivable and other current assets increased $0.1 million during the year resulting primarily from an increase in accounts receivable due to the exit of activities in Gabon ($0.6 million), offset by inventory and accounts receivable write-downs totaling $0.4 million related to the shut-down of alluvial mining operations at SOTRAPMAG. 85 86 Cash used in investing activities of $23.4 million in 1996 increased from $21.2 million in 1995 primarily due to the increase in exploration expenditures related to the Company's operations in Latin America, the gold and diamond reconnaissance projects in Guyana and the purchase of equipment for use at SOTRAPMAG. Cash provided by financing activities increased to $40.3 million from $7.8 million in 1995. On March 6, 1996, the Company effected a public offering in Canada of 1.75 million units at Cdn$10.50 per unit for net proceeds of $12.9 million (Cdn$18.4 million). Each unit consisted of one common share and one-half common share purchase warrant. Each whole warrant was exercisable into one common share until March 6, 1997 at a price of Cdn$11.00. In addition, the Company received $9.0 million from the February 1996 PARC private placement and $8.9 million from the November 1996 Guyanor offering of its Class B common shares on the Nouveau Marche. During 1996 the Company received $0.3 million from the exercise of Guyanor stock options and $1.0 million from the exercise of PARC stock options and warrants, as well as $6.7 million and $4.0 million from the exercise of the Company's stock options and warrants, respectively, as compared to stock option exercise proceeds of $0.3 million in 1995. During the year ended December 31, 1996, restricted cash balances decreased by $0.5 million to $2.0 million, reflecting the reduction in the Company's work program obligation in Ethiopia, offset by new program funding obligations in Eritrea. On September 25, 1996, the Company filed with the SEC a shelf Registration Statement, with respect to the proposed issuance by the Company from time to time of up to $75.0 million of its common shares, preferred shares, convertible debt securities and/or warrants. On November 6, 1996, the Company filed an amendment to the Registration Statement with the SEC and the Registration Statement as amended was deemed effective on November 8, 1996. On October 15, 1996, the Company filed with nine Canadian provincial securities commissions a short-form shelf prospectus, with respect to the proposed issuance by the Company from time to time of up to 5.0 million common shares and/or 5.0 million common share purchase warrants and a short-form shelf prospectus with respect to the proposed issuance from time to time of up to $75.0 million of convertible debt securities. The final short-form shelf prospectuses were filed on November 7, 1996, and the filings became effective on November 8, 1996. No securities were issued under either the Registration Statement or the Canadian prospectuses as of March 14, 1997. PAN AFRICAN RESOURCES CORPORATION On February 5, 1996, PARC Yukon completed a private placement of 13.2 million units at Cdn$1.00 per unit. Each unit consisted of one common share and one-half of one Series A common share purchase warrant of PARC Yukon. Each whole Series A warrant entitled the holder to purchase one common share of PARC Yukon at Cdn$1.25 until November 1, 1996. The private placement generated net proceeds to PARC of approximately $9.0 million after payment of commissions and expenses. Because the price per common share issued exceeded the net book value per common share, a gain of approximately $2.0 million was recorded by the Company. 86 87 On February 6, 1996, PARC Yukon was amalgamated under the Yukon Business Corporation Act with Humlin Red Lake Mines Limited ("Humlin"), an Ontario corporation. As a result of the private placement and the amalgamation, the Company's interest in PARC was reduced to approximately 60% of the 45.3 million outstanding shares of PARC, the amalgamated company. PARC, as a result of the amalgamation, became a publicly traded company in Canada on February 8, 1996, with its common shares quoted on the Canadian Dealing Network. Prior to the amalgamation with Humlin, indebtedness totaling $12.3 million owed by PARC Barbados (a wholly owned subsidiary of PARC) to the Company as of December 11, 1995 was converted by the Company, under the terms of two convertible debentures between PARC and the Company, into 24,881,632 common shares of PARC Barbados. Upon completion of these loan conversions, 24,881,632 PARC Barbados shares held by the Company were surrendered for cancellation in exchange for the issuance to the Company of 7,975,000 warrants of PARC Barbados, each warrant entitling the Company to purchase one share of PARC Barbados at Cdn$1.50 until July 15, 1997. After the PARC Amalgamation, the PARC Barbados warrants were surrendered to PARC Barbados in exchange for the issuance by PARC to the Company of 7,975,000 PARC Series B warrants. Each PARC Series B warrant entitles the Company to purchase one PARC common share at Cdn$1.50 until July 15, 1997. In addition, the Company forgave indebtedness owed to it by PARC of $0.3 million, incurred for funding of PARC's exploration activities from December 1995 through completion of the February 1996 private placement. During 1996, 1,063,500 Series A warrants were exercised providing proceeds of $1.0 million. On October 31, 1996, the expiration date of the Series A warrants issued on February 5, 1996, was extended to January 31, 1997. On January 31, 1997, the remaining 5,536,500 outstanding Series A warrants expired unexercised. Total expenditures by PARC in 1996 were $5.9 million, as compared to 1995 expenditures of $10.6 million. During 1996, the Company recorded property abandonments of $5.3 million as a result of the sale of the interest in the Eteke property and $4.0 million for the write-down of the Dul Mountain Property in Ethiopia. During 1995, the Company recorded property write-offs of $1.4 million for expenditures made on property areas not pursued in 1996, including $1.2 million for Sierra Leone and $0.2 million for other areas. Anticipated exploration and reconnaissance expenditures of $4.5 million are planned for 1997. As of December 31, 1996, the Company owned approximately 58% of the outstanding shares of PARC. On April 22, 1996, the Company and PARC announced the signing of an Exploration License Agreement (the "Exploration License") with the Government of Eritrea, represented by the Ministry of Energy, Mines and Water Resources ("MEMWR"), over the Galla Valley property. The initial period of the Exploration License is three years. The Company and PARC have committed to spend $1.25 million on exploration of the property in the first year of the Exploration License. As part of the Exploration License, the Company and PARC are required to provide MEMWR a bank guarantee in an amount equal to the minimum expenditure obligation (approximately $1.25 million) for the first year of the initial three-year exploration period. In October 1996, the Company and PARC entered into a bank guarantee application and related agreements with a major commercial bank (the "Bank"). On October 11, 1996, the Bank issued its bank guarantee for $1.25 million to the MEMWR to guarantee the first year's work expenditure commitment of the Company and PARC. The bank guarantee expires 87 88 on August 19, 1997, and may be drawn on by the MEMWR in the event the Company and PARC fail to meet the minimum expenditure requirement in the first exploration year, but only in the amount of the difference between actual expenditures and the minimum requirement. PARC has provided cash collateral to the second Bank totaling $1.25 million for the bank guarantee. GUYANOR RESSOURCES S.A. Total exploration expenditures for the year ended December 31, 1996 amounted to $9.3 million, offset by joint venture recoveries of $6.9 million, compared to 1995 expenditures of $6.5 million, offset by 1995 joint venture recoveries of $5.2 million. Budgeted exploration and acquisition expenditures for 1997 are $17.9 million, with budgeted joint venture recoveries of $13.0 million. On October 30, 1996, Guyanor obtained the approval of a final prospectus entitling Guyanor to list its Class B common shares for trading on the Nouveau Marche of the Bourse de Paris in France, and for the sale of 1.0 million of its Class B shares. Trading of Guyanor's Class B shares on the Nouveau Marche began on October 30, 1996. The offering of Guyanor shares in Europe was completed on November 5, 1996, and as a result, Guyanor received net proceeds of approximately FF45.5 million (approximately $8.9 million), and the Company's interest in Guyanor was reduced to approximately 68%. Because the price per Class B share issued exceeded the net book value per common share (including both Class A and Class B shares), the Company recorded a gain of approximately $5.4 million in connection with this transaction. As of December 31, 1996, the Company owned approximately 68% of the outstanding common shares of Guyanor. In February 1997, the Company and Guyanor announced the results of a small initial bulk sample from the Dachine permit area in French Guiana. Based on the results of the sample testing, the Company's joint venture partner, BHP Minerals International, decided to discontinue funding diamond exploration on the Dachine permit under its agreement with Guyanor. The Company and Guyanor intend to continue diamond exploration in the Dachine area and may seek new joint venture partners. GUYANA Total 1996 spending on the Company's projects in Guyana amounted to $4.3 million with joint venture recoveries of $0.1 million, compared to 1995 spending of $4.4 million. During 1996, the Company incurred no material property abandonment charges in Guyana, as compared to property abandonments of $1.8 million during 1995. The Company plans to spend approximately $7.5 million on projects in Guyana during 1997, offset by budgeted joint venture recoveries of $1.1 million. Additional amounts received and attributable to Guyana include the redemption of $1.1 million of Class "I" preferred shares in OGML during 1996, compared to $1.2 million in 1995. The Omai Mine resumed operations on February 4, 1996 after a temporary shutdown caused by the failure of the tailings dam on August 24, 1995. 88 89 SURINAME Activities in Suriname during 1996 focused principally on the Gross Rosebel gold project in joint venture with Cambior. Total Suriname spending in 1996 amounted to $12.0 million, offset by joint venture recoveries of $6.4 million, as compared to 1995 spending of $6.9 million, which was offset by joint venture recoveries of $4.3 million. Budgeted 1997 exploration and acquisition expenditures for Suriname are $10.2 million, with budgeted joint venture recoveries of $4.5 million. As part of a prefeasibility study of the Gross Rosebel project completed in April 1996, Cambior calculated proven and probable gold reserves of approximately 24 million tonnes grading 1.4 g Au/t, representing 1.1 million ounces in situ. Reserves have been subsequently increased by Cambior to 30.5 million tonnes grading 1.5 g Au/t, representing approximately 1.4 million ounces in situ. The Company expects the final feasibility study at the Gross Rosebel project to be completed during the second quarter of 1997. Cambior is obligated to use its best efforts to arrange debt financing for 65% of mine construction and related costs, with the Company and Cambior each contributing 50% of the remainder of such costs. The Company's share of 1997 mine development costs for Gross Rosebel will be determined by the results of the feasibility study but is currently estimated at $14.0 million. SOUTHERN STAR RESOURCES LTD. During 1996, Southern Star spent approximately $6.3 million on exploration and project acquisition, compared to $0.8 million in 1995. Anticipated reconnaissance and exploration expenditures for 1997 of $9.0 million relate primarily to exploration efforts and property acquisition costs for the Andorinhas and Abacaxis projects in Brazil and the San Simon and Sunsas projects in Bolivia. OTHER MATTERS The Company conducts all of its exploration and development of mineral properties in countries other than Canada and the United States. To date, the vast majority of all funding has been through equity financing transactions completed in Canada and in Canadian currency (with the exception of the Guyanor offering of its Class B shares on the Nouveau Marche). The Company currently maintains all or the majority of its working capital in U.S. dollars or U.S. dollar denominated securities and converts funds to foreign currencies as payment obligations come due. Accordingly, the Company is subject to fluctuations in the rates of currency exchange between the U.S. dollar and these currencies, and such fluctuations may materially affect the Company's financial position and results of operations. The Company currently has future obligations which are payable in French francs and Brazilian reals and receivables payable in French francs. The Company currently does not actively take steps to hedge against such risks. The Company also utilizes the services of outside advisors who provide the Company with market information and strategies to employ in protecting the cash and short term investments held by the Company. The Company believes that its current activities are in compliance with applicable laws and regulations designed to protect the environment. The Company periodically engages specialists to evaluate potential environmental issues for specific projects. The results of these evaluations are utilized in the property evaluation process, where applicable. The Company also evaluates the need for reclamation reserves in light of current laws and regulations and will make provisions for such reserves as they become necessary based on the Company's activities in Africa and South America. 89 90 OUTLOOK Total budgeted expenditures on exploration, mine development, acquisitions and preliminary reconnaissance for 1997 approved by the Company's Board of Directors are set out below by geographic region. The 1997 budget plans total expenditures for exploration, mine development and property acquisition of $63.1 million including $3.3 million for diamond projects (approximately 5% of the gross budget) and the balance for gold projects. The Company currently expects to recover approximately $18.6 million of these expenditures from various joint venture partners which are funding such programs to earn interests in the Company's projects based on existing agreements. No assurance can be given, however, as to the actual amounts, if any, that the Company will receive from joint venture partners. The following budgeted 1997 expenditures are estimated expenditures and certain of these expenditures may be reduced or reallocated based, among other things, on exploration results, the completion of joint venture arrangements with respect to certain of the properties or available funding. CERTAIN BUDGETED 1997 EXPENDITURES (IN MILLIONS OF DOLLARS)
Other South Guyana Suriname French Guiana America Africa Total -------------------------------------------------------------------------------------------------------------- Exploration $5.0 $ 9.6 $17.5 $7.8 $4.0 $43.9 Acquisition 0.6 0.6 0.4 - - 1.6 Mine Development - 14.0 - - - 14.0 Preliminary Reconnaissance 1.9 - - 1.2 0.5 3.6 JV Recoveries (1.1) (4.5) (13.0) - - (18.6) ----------------------------------------------------------------------------------------- TOTAL $6.4 $19.7 $ 4.9 $9.0 $4.5 $44.5 =========================================================================================
The Company does not presently have sufficient financial resources to undertake large scale mining development projects. Financing for development of those projects would be dependent upon the Company's ability to raise the necessary funds or secure financing for project development through joint venture partners. As at December 31, 1996, the Company held consolidated cash and short-term investments of $15.7 million. Subsequent to December 31, 1996, $5.4 million was received by the Company for the exercise of its remaining 673,200 Cdn$11.00 warrants issued on March 6, 1996. Most of the exploration and development spending for the Company and its subsidiaries represents discretionary spending and can be adjusted to reflect, among other things, results of exploration and development activities, the successful acquisition of additional properties or projects, the price of gold and management's assessment of the capital markets. The Company anticipates that its current cash balances (including proceeds from the exercise of the Company's warrants during the first quarter of 1997), together with proceeds from the redemption of preferred shares of OGML, proceeds from the exercise of options and warrants, financing provided by joint venture partners and the sale of common shares and/or debt securities will be sufficient to fund budgeted operating and exploration expenditures for the next twelve months. 90 91 In 1997, the consolidated Company is required to make property rental payments and minimum exploration expenditures totaling $8.9 million in order to maintain its current property interests per existing mineral agreements. The Company expects to receive cash flow from OGML in 1997 through redemptions of Class "I" preferred shares. The amount of redemptions, if any, is dependent on the net cash flow of OGML. The Company received $1.1 million of Class "I" preferred share redemptions in 1996. Similarly, most of the budgeted exploration and development spending for Guyanor and PARC is discretionary spending. Guyanor and PARC do not have sufficient cash on hand to fund budgeted 1997 operating and exploration expenditures. Both Guyanor and PARC will be required to access alternative sources of capital in order to fund budgeted 1997 expenditures. The Company intends to provide financial support to Guyanor and PARC, if required, until such capital can be accessed. Alternative sources of capital available to the Company and its subsidiaries include the sale of equity or debt securities, sale of assets or entering into new joint venture partnerships. Whether, and to what extent, such alternative financing options are pursued by the Company or its subsidiaries in 1997 will depend on a number of factors including, among others, results of exploration and development activities; the successful acquisition of additional properties or projects; the price of gold and management's assessment of the capital markets. 91 92 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements of Golden Star Resources Ltd. and Subsidiaries Management's Responsibility for Financial Information . . . . . . . . . . . . . . . . . . . . . 93 Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 Consolidated Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . 95 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 99 - 132
92 93 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL INFORMATION TO THE SHAREHOLDERS OF GOLDEN STAR RESOURCES LTD. The consolidated financial statements and all information in the Annual Report are the responsibility of the Board of Directors and management. The consolidated financial statements have been prepared by management based on information available to March 14, 1997, and are in accordance with accounting principles generally accepted in Canada. A system of internal accounting and administrative controls is maintained by management in order to provide reasonable assurance that financial information is accurate and reliable, and that the Company's assets are safeguarded. Limitations exist in all cost effective systems of internal controls. The Company's systems have been designed to provide reasonable but not absolute assurance that financial records are adequate to allow for the completion of reliable financial information and the safeguarding of its assets. The Company believes that the systems are adequate to achieve the stated objectives. Regular testing of these systems is employed to ensure continued effectiveness of the controls, and actions are taken when necessary to correct deficiencies when they are identified. The Audit and Corporate Governance Committee of the Board of Directors is comprised of five outside directors, and meets regularly with management and the independent auditors to ensure that management is maintaining adequate internal controls and systems and to approve the annual and quarterly consolidated financial statements of the Company. The committee also reviews the audit plan of the independent auditors and discusses the results of their audit and their report prior to submitting the consolidated financial statements to the Board of Directors for approval. The consolidated financial statements have been audited by Coopers & Lybrand, Chartered Accountants, who were appointed by the shareholders. The auditors' report outlines the scope of their examination and their opinion on the consolidated financial statements. DAVID A. FENNELL GORDON J. BELL President and Vice President and Chief Executive Officer Chief Financial Officer
93 94 AUDITORS' REPORT To the Shareholders of Golden Star Resources Ltd.: We have audited the consolidated balance sheets of Golden Star Resources Ltd. as of December 31, 1996 and 1995 and the consolidated statements of operations, changes in shareholders' equity, and cash flows for the years ended December 31, 1996, 1995 and 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Golden Star Resources Ltd. as of December 31, 1996 and 1995, and the consolidated results of its operations and cash flows for the years ended December 31, 1996, 1995 and 1994, in accordance with accounting principles generally accepted in Canada. /s/ Coopers & Lybrand Chartered Accountants Calgary, Canada March 14, 1997 94 95 GOLDEN STAR RESOURCES LTD. CONSOLIDATED BALANCE SHEETS (Stated in thousands of United States Dollars except share amounts)
ASSETS As of December 31, 1996 1995 ------- ------- CURRENT ASSETS Cash and short-term investments $15,663 $9,498 Marketable securities, at cost which approximates market - 800 Accounts receivable 5,116 4,200 Inventories 1,027 1,132 Other assets 376 444 ------- ------- Total Current Assets 22,182 16,074 RESTRICTED CASH 2,015 2,465 DEFERRED EXPLORATION 64,721 51,447 INVESTMENT IN OMAI GOLD MINES LIMITED 3,279 3,798 FIXED ASSETS 3,666 3,627 OTHER ASSETS 420 198 ------- ------- Total Assets $96,283 $77,609 ======= ======= LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities $ 5,830 $ 3,925 Accrued wages and payroll taxes 1,065 1,057 ------- ------ Total Current Liabilities 6,895 4,982 OTHER LIABILITIES 92 36 ------- ------- Total Liabilities 6,987 5,018 ------- ------- MINORITY INTEREST 11,202 4,203 ------- ------- COMMITMENTS AND CONTINGENCIES (Note 20) SHAREHOLDERS' EQUITY SHARE CAPITAL 129,954 106,344 (Common shares, without par value, unlimited shares authorized. Shares issued and outstanding: 1996 - 25,941,103; and 1995 - 22,769,872 Stock option loans (4,012) (1,170) DEFICIT (47,848) (36,786) ------- ------- Total Shareholders' Equity 78,094 68,388 ------- -------- Total Liabilities and Shareholders' Equity $96,283 $77,609 ======= =======
The accompanying notes are an integral part of these consolidated financial statements Approved by the Board: By: /s/ David K. Fagin By: /s/ Richard A. Stark ------------------------------ -------------------------------- Director Director 95 96 GOLDEN STAR RESOURCES LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (Stated in thousands of United States Dollars except per share amounts)
For the Years Ended December 31, 1996 1995 1994 -------- --------- -------- REVENUE Precious metals sales $1,723 $ 4,007 $ 580 Interest and other 1,078 1,583 2,156 -------- --------- -------- 2,801 5,590 2,736 -------- --------- -------- COSTS AND EXPENSES Cost of goods sold 4,097 5,805 738 Depreciation and depletion 1,246 1,084 263 Exploration expense 408 977 149 General and administrative 9,114 9,358 4,721 Write offs & abandonment of mineral properties 10,365 8,750 6,401 Loss (gain) on disposal of assets (33) 152 475 Interest expense 189 8 - Foreign exchange loss (gain) (2) (211) 68 Loss on suspension of mining activities 2,085 - - Recovery of abandonment loss (936) - - -------- --------- -------- 26,533 25,923 12,815 -------- --------- -------- PROFIT (LOSS) BEFORE THE UNDERNOTED (23,732) (20,333) (10,079) Gain on subsidiaries issuance of common shares 7,719 2,575 738 Omai preferred share redemption surplus 626 661 549 -------- --------- -------- Net profit (loss) before minority interest (15,387) (17,097) (8,792) -------- --------- -------- Minority interest 7,607 4,916 7 -------- --------- -------- NET PROFIT (LOSS) $(7,780) $(12,181) $(8,785) ======= ======== ======= NET PROFIT (LOSS) PER SHARE $(0.31) $(0.54) $(0.42) ======== ========= ======== WEIGHTED AVERAGE SHARES OUTSTANDING (in millions of shares) 25.2 22.7 21.1 ======== ========= ========
The accompanying notes are an integral part of these consolidated financial statements 96 97 GOLDEN STAR RESOURCES LTD. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Stated in thousands of United States Dollars except share amounts)
COMMON STOCK SHARE STOCK NUMBER OF SHARES CAPITAL OPTION LOANS DEFICIT ---------- -------- --------- ---------- Balance at December 31, 1993 19,209,722 $ 62,913 $ (633) $(15,820) Shares Issued 2,560,000 40,008 - - Shares Issued Under Options 324,000 909 - - Shares Issued Under Warrants 476,250 3,668 - - Issue Costs - (2,118) - - Stock Option Loans - - (498) - Stock Option Loan Repayments - - 51 - Net Profit (Loss) - - - (8,785) ---------- -------- --------- ---------- Balance at December 31, 1994 22,569,972 $105,380 $ (1,080) $(24,605) Shares Issued 105,208 659 - - Shares Issued Under Options 94,692 285 - - Issue Costs - 20 - - Stock Option Loans - - (90) - Net Profit (Loss) - - - (12,181) ---------- -------- --------- ---------- Balance at December 31, 1995 22,769,872 $106,344 $ (1,170) $ (36,786) Shares Issued 1,780,712 13,574 - - Shares Issued Under Options 1,059,469 6,744 - - Shares Issued Under Warrants 331,050 3,983 - - Issue Costs - (691) - - Stock Option Loans - - (2,902) - Stock Option Loan Repayments - - 60 - Other - - - (3,282) Net Profit (Loss) - - - (7,780) ---------- -------- --------- ---------- Balance at December 31, 1996 25,941,103 $129,954 $ (4,012) $ (47,848) ========== ======== ========= ==========
The accompanying notes are an integral part of these consolidated financial statements 97 98 GOLDEN STAR RESOURCES LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (Stated in thousands of United States Dollars)
For the Years Ended December 31, 1996 1995 1994 OPERATING ACTIVITIES: ------- -------- -------- NET PROFIT (LOSS) $(7,780) $ (12,181) $ (8,785) RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES: Depreciation 1,246 1,034 263 Depletion - 50 - Premium on Omai preferred share redemption (626) (661) (549) Loss (Gain) on disposal of assets (33) 152 475 Write offs and abandonment of mineral properties 10,365 8,750 6,401 Recovery of abandonment loss (936) - - Gain on issuance of common shares by subsidiary (7,719) (2,575) (738) Write-down of equipment 450 - - Minority interest (7,607) (4,916) 7 Changes in non-cash operating working capital 1,990 (1,176) (1,436) ------- -------- -------- Net Cash Used in Operating Activities (10,650) (11,523) (4,362) ------- -------- -------- INVESTING ACTIVITIES: Expenditures on mineral properties, net of joint venture recoveries (24,279) (21,295) (15,163) Proceeds from sale of property interest 640 - - Purchase of SOTRAPMAG, net of cash acquired - - (4,273) Purchase of VenStar, net of cash acquired - - (566) Equipment purchases (1,735) (1,723) (777) Omai Preferred Share Redemption 1,145 1,209 1,005 Other assets and investment 787 652 (859) ------- -------- -------- Net Cash Used in Investing Activities (23,442) (21,157) (20,633) ------- -------- -------- FINANCING ACTIVITIES: Restricted cash 450 (2,465) - Other liabilities (6) (4) 43 Proceeds from issuance of subsidiary stock 19,987 9,426 781 Offering costs of subsidiary stock issues (1,461) (1,118) - Increase in minority interest 518 1,078 860 Payments of long term debt - - (1,396) Issuance of share capital and warrants, net of issue costs 23,610 964 4,901 Issuance of special warrants, net - - 37,068 Stock option loan receipts (additions) (2,841) (90) 51 ------- -------- -------- Net Cash Provided by Financing Activities 40,257 7,791 42,308 ------- -------- -------- Increase (Decrease) in cash and short-term investments 6,165 (24,889) 17,313 Cash and short-term investments, beginning of period 9,498 34,387 17,074 ------- -------- -------- Cash and short-term investments, end of period $15,663 $ 9,498 $ 34,387 ======= ======== ========
The accompanying notes are an integral part of these consolidated financial statements 98 99 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All tabular amounts in thousands of United States Dollars) 1. FORMATION OF THE COMPANY In May of 1992, the shareholders of Golden Star Resources Ltd. (the "Company") and South American Goldfields ("South American"), respectively agreed to a business combination of the two companies. Neither company was under common control prior to the amalgamation. This combination was considered to be an amalgamation under the Canada Business Corporations Act and was effective May 15, 1992. The amalgamation was treated as a purchase by the Company for accounting purposes. Concurrent with the amalgamation, the common shares of the Company were consolidated on a one-for-two basis. The Company's fiscal year end is December 31, and commencing on May 15, 1992, the Company changed its reporting currency to the United States dollar. However, if the Company were to declare a dividend to its shareholders, it would be paid in Canadian dollars. 2. DESCRIPTION OF BUSINESS The Company is engaged in the business of exploration, acquisition, development and operation (if warranted) of precious minerals deposits in both South America and Africa. The Company's common shares trade on the Toronto Stock Exchange under the symbol "GSC", and on the American Stock Exchange under the symbol "GSR". Efforts in South America are focused on property interests in Guyana, Suriname, French Guiana (through Guyanor Ressources S.A.), and Brazil and Bolivia (through Southern Star Resources Ltd.). The Company is also actively pursuing new projects in these countries in addition to other South American countries. Efforts in Africa are focused on property interests in Mali, Eritrea, Ethiopia, Gabon, Kenya and Ivory Coast and are conducted through the Company's majority owned subsidiary, Pan African Resources Corporation. Additional efforts are being directed toward acquiring projects in other African countries. All of the Company's projects are conducted through agreements with third parties and national governments and/or pursuant to permits and licenses granted by appropriate authorities. When deemed appropriate, certain projects are pursued on a joint venture basis to share the associated risk and to assist in project funding. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). The following policies have been adopted by the Company. 99 100 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its more than 50% owned subsidiaries. All material intercompany balances and transactions have been eliminated. The consolidated group includes the following as of December 31, (all entities are 100% owned by the Company, unless otherwise noted):
1996: 1995: ----- ----- Golden Star Holdings Ltd. Golden Star Holdings Ltd. Venezuela Investments Ltd. Venezuela Investments Ltd. Golden Star Management Ltd. Venhold Investments 1994 Ltd. (59%) Pan African Resources Corporation (58%) Golden Star Management Ltd. Southern Star Resources Ltd. Pan African Resources Corporation (85%) Guyanor Ressources S.A. (68%) Southern Star Resources Ltd. Societe de Travaux Publics Guyanor Ressources S.A. (70%) et de Mines Auriferes en Societe de Travaux Publics Guyane ("SOTRAPMAG") (99%) et de Mines Auriferes en Guyane ("SOTRAPMAG") (99%)
CASH AND SHORT-TERM INVESTMENTS Cash and short-term investments consist primarily of high credit quality United States and Canadian money market investments and fixed and variable income commercial paper, which are capable of reasonably prompt liquidation, and are stated at amortized cost, which approximates market value. Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of temporary cash investments. The Company restricts investment of temporary cash balances to financial institutions with high credit standing. The Company strives to minimize its credit risk through diversification of investment and financial institutions. GOLD INVENTORY Gold inventory includes gold and gold concentrate and is recorded at its estimated market value. INVENTORIES - MATERIALS AND SUPPLIES Materials and supplies are valued at the lower of average cost or replacement cost. RESTRICTED CASH In certain countries where the Company conducts business, the governments require performance bonds to be placed for certain amounts of the agreed upon exploration expenditures. The cash collateralizing these bonds is shown as a non- current asset as the funds are not available for use in operations until the bond amounts are reduced or released by the governments. 100 101 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) DEFERRED EXPLORATION Acquisition, administration, exploration and development costs of mineral properties are capitalized and will be depleted on a unit of production basis at such time as production commences or charged against income if the property is abandoned. Administration costs incurred after commencement of production will be charged against operations in the period incurred. FIXED ASSETS Fixed assets are stated at cost and include buildings, machinery, equipment and vehicles. Depreciation is computed using the straight-line method at rates calculated to depreciate the cost of the assets less their anticipated residual values, if any, over their estimated useful lives. The net book value of fixed assets at property locations is charged against income if the site is abandoned and it is determined that the assets cannot be economically transferred to another project or sold. FOREIGN CURRENCIES AND FOREIGN CURRENCY TRANSLATION Certain South American and African currencies are not readily negotiable outside their respective countries. United States of America funds transferred to these countries are used to purchase local currency to be used for labor, local supplies, and other items associated with the exploration and development of mineral properties. Accordingly, cash balances in these countries have been reclassified to deferred exploration. As the functional currency of the Company is the U.S. dollar, monetary assets and liabilities are translated at the rate of exchange prevailing at the end of the period. Nonmonetary assets and liabilities are translated at the rates of exchange prevailing when the assets were acquired or the liabilities assumed. Revenue and expense items are translated at the average rate of exchange during the year. Translation gains or losses are included in the determination of net income for the period. Fully integrated foreign subsidiary accounts are translated using the same method. Canadian currency in these financial statements is denoted as "Cdn$", French currency is denoted as "FF", and Brazilian currency is denoted as "R". NET LOSS PER SHARE Net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the year. Common share equivalents are not included as the effect would be anti-dilutive. INVESTMENT IN OMAI GOLD MINES LIMITED The investment in Omai Gold Mines Limited ("OGML") is accounted for by using the equity method. Redemption of preferred shares of OGML are allocated to the Investment In Omai account and to Premium on Omai Preferred Share Redemption on the basis of the Company's share of costs incurred as a percentage of the total value of the preferred shares. 101 102 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments are comprised of cash and short-term investments, accounts receivable, restricted cash, the investment in OGML, accounts payable, accrued liabilities and accrued wages and payroll taxes. The fair value of cash and short-term investments, accounts receivable, accounts payable, accrued liabilities and accrued wages and payroll taxes equals their carrying value due to the short-term nature of these items. The fair value of restricted cash is equal to the carrying value as the cash is invested in short-term high quality instruments. The fair value of the Company's investment in OGML cannot be determined with sufficient reliability, and information concerning the terms and conditions of this investment is contained in Note 11. 4. INVENTORIES
December 31, December 31, 1996 1995 --------------- -------------- Gold Inventory $384 $ 383 Materials and Supplies 643 749 ------ ------- $1,027 $ 1,132 ====== =======
In December 1996, the Company initiated a program to discontinue alluvial mining operations conducted by SOTRAPMAG. An evaluation of the materials and supplies inventories held by SOTRAPMAG and used in the alluvial mining operations was conducted. As a result, inventories totaling $0.3 million were deemed obsolete and were charged to loss in 1996. (See Note 9.) 5. LINE OF CREDIT On September 5, 1996, the Company's approximately 68% owned subsidiary, Guyanor Ressources S.A. ("Guyanor"), under an agreement with a major commercial bank, borrowed $5.0 million. The debt was collateralized by cash balances of the Company totaling $5.25 million held as restricted cash. The line of credit bears interest at the bank's prime rate per year and is due in full by July 30, 1997. In November 1996, amounts owed under the line of credit by Guyanor were repaid in full. The line of credit remains available for use by Guyanor until the expiration date of July 30, 1997. 6. ACQUISITIONS VENHOLD INVESTMENTS In July 1994, the Company, through its wholly owned subsidiary, Venezuela Investments Ltd., acquired a 59.3% interest in Venhold Investments (1994) Ltd. ("Venhold") through the purchase of common shares. Venhold held a 50.6% interest in VenStar Gold Ltd. ("VenStar"), a Venezuelan company which had interests in various mineral exploration properties in Venezuela. The resulting 102 103 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) consolidation provided the Company with an approximate 30% indirect interest in the mineral properties. A wholly owned subsidiary of the Company managed the operations of VenStar pursuant to a management agreement. The purchase price of the interest was $3.0 million. Of this amount, payments totaling $2.4 million were contingent on resolution of certain title issues and other conditions. The acquisition was accounted for using the purchase method and the allocation of the net purchase price to identifiable assets did not result in any goodwill. Assets acquired $2,003 Liabilities assumed (69) ------ Net assets 1,934 Less: Additional cash contributions made by the Company prior to acquisition for preferred shares (125) ------ Adjusted net assets 1,809 Minority interest share of net asset as of date of acquisition (1,209) ------ Net assets acquired before contingent consideration $ 600 ====== Consideration: Cash before contingent consideration $ 600 ====== Cash acquired in acquisition $ 34 ======
The payment schedule for this remaining $2.4 million was as follows: $1.2 million in July 1995, $0.6 million in December 1995, and $0.6 million in July 1996. Pursuant to the purchase agreement, a payment of $0.6 million due in December 1994 was deferred until July 1995. On July 18, 1995, the Company announced it gave notice to sellers of election to exercise their option to resell or "put" to the Seller their common and preferred shares in VenStar Gold Ltd. In February 1996, the Company determined that the capitalized deferred exploration costs were not recoverable in the foreseeable future. As such, all capitalized exploration costs were charged to property abandonment as of December 31, 1995. In June 1996, the Company agreed to a final termination and settlement agreement in connection with the "unwinding" of its purchase of an interest in VenStar. As a result, the Company received a cash reimbursement of $1.6 million and recorded a gain of $0.9 million in the period ended June 30, 1996. (See further discussion at Note 10). SOCIETE DE TRAVAUX PUBLICS ET DE MINES AURIFPRES EN GUYANE ("SOTRAPMAG") In October 1994, Guyanor acquired all of the outstanding shares of Societe de Travaux Publics et de Mines Auriferes en Guyane, societe a responsabilite limitee ("SOTRAPMAG"), a French company based in French Guiana, in consideration for FF21.8 million ($4.2 million), plus acquisition costs of $0.2 million. In addition, Guyanor repaid existing SOTRAPMAG long term debt of approximately $1.4 million immediately following the purchase. This debt is included in the net assets acquired. The acquisition has been accounted for using the purchase method. The Company's assessment of the fair market value equaled the carrying value for all identifiable assets and liabilities of SOTRAPMAG, except for mining and mineral exploration properties, which had a net book value of approximately $1.3 million at the date of acquisition and was increased by $3.1 million through the allocation of the purchase price. 103 104 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) Assets acquired $7,186 Liabilities assumed (2,804) ------ Net Assets acquired $4,382 ====== Consideration: Cash $4,154 Acquisition costs 153 Balance of purchase price due to seller 75 ------ $4,382 ====== Cash acquired in acquisition $ 34 ======
In connection with the purchase, the vendors agreed to indemnify Guyanor for any losses incurred as a result of misrepresentations made for an amount not to exceed FF4.0 million. As collateral for such indemnification, Guyanor held a balance of the purchase price of $0.3 million. As of December 31, 1995, all of this balance had been paid to the vendors. The period for which claims can be made under the indemnity was limited to six months from the date of acquisition. In the fourth quarter of 1996, the Company initiated a plan to discontinue the alluvial operations conducted by SOTRAPMAG (See Note 9). 7. SALE OF COMMON SHARES AND WARRANTS BY SUBSIDIARIES GUYANOR RESSOURCES S.A. PLAN OF ARRANGEMENT AND PUBLIC OFFERINGS On March 14, 1995, the Company completed a Plan of Arrangement under the Canada Business Corporations Act involving its subsidiary, Guyanor. As part of the arrangement, the Company distributed to each of its shareholders one new Golden Star common share and one-fifth of one Class B common share in exchange for each outstanding Golden Star common share as at the record date for the arrangement. Prior to the effectiveness of the arrangement, Guyanor's share capital was increased to permit the issuance of additional common shares which were subdivided and redesignated as Class A common shares and to permit the creation and issuance of Class B common shares. The Class A common shares and Class B common shares are equal in all respects except the holders of Class A common shares are entitled to receive the par value of their Class A common shares in priority to holders of Class B common shares in the event of a distribution of assets upon liquidation, dissolution or winding up of Guyanor. Concurrent with the arrangement, Guyanor completed an initial public offering in Canada of 6,000,000 Class B common shares at a price of Cdn$2.10 per share. The net proceeds of the offering, after commissions and expenses, were approximately $8.2 million (Cdn$11.6 million). As a result of this offering, the Company recorded a gain of $1.6 million in March of 1995. Immediately prior to the effectiveness of the arrangement and the closing of the offering, the Company converted all of the outstanding debt owed to it at January 31, 1995 by Guyanor with accrued interest, aggregating $22.1 million, as follows: (i) Guyanor issued to the Company 13,250 common shares in exchange for $8.8 million in debts and accrued interest which, following subdivision and redesignation of the common shares as Class A common shares and the transfer to the Company by each holder of "qualifying" shares all but one common share, equaled 22.5 million Class A common shares, and (ii) 8,837,802 Class B common shares at an issue price of Cdn$2.10 per share reducing the debt by a 104 105 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) further $13.3 million. After the arrangement and the public offering, the Company owned approximately 70% of the outstanding voting shares of Guyanor. On October 30, 1996, Guyanor obtained the approval of a final prospectus entitling Guyanor to list its Class B common shares for trading on the Nouveau Marche of the Bourse de Paris in France, and for the sale of 1.0 million of its Class B shares (the "Offering"). Trading of Guyanor's Class B shares on the Nouveau Marche began on October 30, 1996. The offering of Guyanor shares in Europe was completed on November 5, 1996, and as a result, Guyanor received net proceeds of approximately FF45.5 million (approximately $8.9 million), and the Company's interest in Guyanor was reduced to approximately 68%. Because the price per Class B share issued exceeded the net book value per common share (including both Class A and Class B shares), the Company recorded a gain of approximately $5.4 million in connection with this transaction. ISSUANCES OF COMMON SHARES AND WARRANTS BY PAN AFRICAN RESOURCES CORPORATION On November 7, 1994, the Company's wholly owned subsidiary Pan African Resources Corporation ("PARC") completed an equity financing of 2.4 million units for Cdn$0.45 per unit. Each unit consisted of one PARC common share and one PARC common share purchase warrant. The net proceeds of the placement was $0.8 million. In addition, the Company subscribed for 1.5 million common share purchase warrants of PARC, whereby each warrant entitled the holder to purchase one common share of PARC for Cdn$0.70. As a result of the offering, the Company's ownership percentage of PARC was reduced to approximately 91.4%. Because the price per common share issued exceeded the net book value per common share, a gain of $0.7 million was recorded by the Company in connection with this transaction. On May 15, 1995, the Company exercised 1.5 million warrants to purchase PARC common shares, after extension of the exercise period by PARC. In consideration for the exercise price of the warrants, the debt due to the Company by PARC was reduced by $0.8 million. In addition, 2,374,000 common share purchase warrants held by third parties were exercised in May for total net proceeds of $1.2 million. The remaining outstanding 26,000 warrants expired. Because the price per common share issued exceeded the net book value per common share, a gain of $0.9 million was recorded by the Company in connection with this transaction. As of December 31, 1995, the Company beneficially owned approximately 85% of the outstanding common shares of PARC. On February 5, 1996, Pan African Resources Corporation, a Yukon company ("PARC Yukon"), and a subsidiary of the Company, completed a private placement of 13.2 million units at Cdn$1.00 per unit. Each unit consisted of one common share and one-half of one common share purchase warrant of PARC Yukon. Each whole warrant ("Series A Warrant") entitled the holder to purchase one common share of PARC Yukon at Cdn$1.25 until November 1, 1996. The private placement generated net proceeds of approximately $9.0 million after payment of commissions and expenses. Because the price per common share issued exceeded the net book value per common share, a gain of approximately $2.0 million was recorded by the Company in the first quarter of 1996. During the year ended December 31, 1996, PARC (as defined below) received $1.0 million in proceeds from exercise of 1,063,500 of the Series A warrants. On October 31, 1996, PARC (as defined below) extended the exercise date of its $1.25 Series A Warrants issued from November 1, 1996, to January 31, 1997. On January 31, 1997, the remaining 5,536,500 unexercised warrants expired. 105 106 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) On February 6, 1996, PARC Yukon was amalgamated under the Yukon Business Corporation Act with Humlin Red Lake Mines Limited, an Ontario corporation ("Humlin"). As a result of the amalgamation, each share issued under the PARC Yukon private placement was deemed exchanged for 1.001 share of PARC (as defined below) and each series A Warrant was deemed exchanged for one PARC (as defined below) Series A Warrant. As a result of the private placement and the amalgamation, the Company's interest was reduced to approximately 60% of the 45.3 million outstanding shares of Pan African Resources Corporation, the amalgamated company. PARC, as a result of the amalgamation, became a publicly traded company in Canada on February 8, 1996, with its common shares quoted on the Canadian Dealing Network. Prior to the amalgamation with Humlin, indebtedness totaling $12.3 million owed by Pan African Resources Corporation, a Barbados company ("PARC Barbados"), and a wholly-owned subsidiary of PARC Yukon, to the Company as of December 11, 1995, was converted by the Company, under the terms of two convertible debentures between PARC Barbados and the Company, into 24.9 million common shares of PARC Barbados. Upon completion of these loan conversions, 24.9 million PARC Barbados shares held by the Company were surrendered for cancellation in exchange for the issuance to the Company of 7.975 million warrants of PARC Barbados, each warrant entitling the Company to purchase one share of PARC Barbados at Cdn$1.50 until July 15, 1997. After the PARC amalgamation, the PARC Barbados warrants were surrendered to PARC Barbados in exchange for the issuance by PARC to the Company of 7.975 million PARC Series B warrants. Each PARC Series B warrant entitles the Company to purchase one PARC common share at Cdn$1.50 until July 15, 1997. In addition, the Company forgave indebtedness owed to it by PARC Barbados of $0.3 million, incurred for funding of PARC Barbados' exploration activities from December 1995 through completion of the private placement. 8. ASSETS HELD FOR SALE Effective February 27, 1995, the Company sold equipment and inventories related to its drilling department and activities to Major Drilling Group International Inc. ("Major"). The purchase price for the assets was $0.8 million, which was satisfied by the issuance of 173,957 common shares of Major, at a deemed price of Cdn$6.50 per share. The Company recorded the assets held for sale at their net realizable value as of December 31, 1994 and recognized a loss on the sale of the assets of $0.5 million in 1994. The Major common shares were recorded as marketable equity securities by the Company as of December 31, 1995. In 1996, the Company sold the Major common shares and recorded a gain of $0.1 million on the sale. 9. SUSPENSION OF ALLUVIAL MINING OPERATIONS AT SOTRAPMAG The alluvial operations being conducted through SOTRAPMAG experienced continuing operating losses since its acquisition in 1994. Outside consultants engaged in 1996 to review the operations and make recommendations on how to render the operations profitable concluded that without a significant capital investment to increase production, changes in certain work practices and a reduction in fuel taxes, the operation could not achieve profitability. As a result of these conclusions, in the fourth quarter of 1996, management decided to discontinue the alluvial operations conducted by SOTRAPMAG. The Company, through its ownership interest in Guyanor, incurred fourth quarter charges to 1996 earnings totaling $3.2 million, including $0.8 million resulting from the write-down of certain fixed assets and inventories, $1.1 million for the write-down of certain capitalized exploration costs related to 106 107 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) the alluvial mining operations, $0.1 million for accrual of land rehabilitation and mine closure costs, and $1.1 million for accrual of the severance and other social costs associated with the discontinuation of alluvial production. All accruals for future obligations are included in current liabilities. Guyanor expects that certain fixed assets, equipment and inventories owned by SOTRAPMAG will be utilized in the ongoing exploration at the Paul-Isnard project area and were not subject to a write-down. The amount of severance and other costs associated with the discontinuation of alluvial production are contingent upon negotiations with representatives of the workers and the French government. The French government was formally notified of the closure plans in January 1997. In March 1997, the deadline for French government opposition to the closure plan passed, with no such opposition expressed by the government. Closure of the plant and processing facilities and land rehabilitation are scheduled to be completed by the end of the second quarter of 1997. Relocation and retraining of certain employees, as well as company-provided outplacement services is anticipated to be complete by the end of the third quarter of 1997. The Company also expects to incur operating losses of approximately $0.5 million during the shut-down process during the first quarter of 1997. 107 108 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) 10. DEFERRED EXPLORATION
December 31, December 31, 1996 1995 ------------ ------------ GUYANA Eagle Mountain $ 111 $ 38 Quartz Hill 1,347 1,347 Upper Potaro Diamond / Amatuk Diamond 1,010 836 Mazaruni / Upper Mazaruni Diamond 2,729 2,028 Five Star Diamond 1,097 389 Wenamu Gold 512 512 Five Stars Gold 5,767 3,651 BHP Gold Projects 151 - Guyana Diamond Permits 27 - Other 1,376 1,171 ------ ----- 14,127 9,972 ------ ----- SURINAME Benzdorp / Lawa 3,341 2,842 Gross Rosebel 9,494 6,286 Headley's Right of Exploration 311 311 Thunder Mountain 453 405 Saramacca 1,569 1,255 Sara Kreek 155 131 Tempati Reconnaissance 161 - Tapanahony Reconnaissance 86 - Kleine Saramacca 104 - Lawa / Antino 764 - Suriname Diamond Projects 310 - Ulemani Reconnaissance 53 - Other Exploration Projects 20 - Other 232 226 ------ ------ 17,053 11,456 ------ ------ FRENCH GUIANA (GUYANOR RESSOURCES S.A.) Dorlin 628 609 St-Elie 1,973 1,973 Dieu-Merci 382 - Yaou 7,087 6,991 Paul-Isnard / Eau Blanche 3,629 3,629 SOTRAPMAG 1,520 1,161 Dachine 575 449 Other Diamond Projects 204 - Other 1,331 1,295 ------ ------ 17,329 16,107 ------ ------
108 109 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars)
December 31, December 31, 1996 1995 ---------- ------------ AFRICA (PAN AFRICAN RESOURCES CORPORATION) Gabon / Eteke $ - $ 5,247 Mali / Dioulafoundou 2,763 1,940 Mali / Melgue 56 - Mali / Other 30 - Ivory Coast / Comoe 3,951 2,859 Ethiopia / Dul - 2,635 Eritrea / Galla Valley 1,317 426 Eritrea / Other 55 - Kenya / Ndori 901 - Other 53 - ------- ------- 9,126 13,107 ======= ======= LATIN AMERICAN (SOUTHERN STAR RESOURCES LTD.) Brazil / Andorinhas 3,547 123 Brazil / Abacaxis 1,375 162 Brazil / Other 583 129 Bolivia / San Simon 858 205 Bolivia / Sunsas 221 6 Bolivia / Other 502 167 ------- ------- 7,086 792 ------- ------- OTHER - 13 ------- ------- TOTAL DEFERRED EXPLORATION COSTS $64,721 $51,447 ======= =======
109 110 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) DEFERRED EXPLORATION BY COUNTRY / GEOGRAPHIC REGION
FRENCH LATIN TOTAL GUYANA SURINAME GUIANA VENEZUELA AFRICA AMERICA OTHER -------------------------------------------------------------------------------------------- DECEMBER 31, 1993 $24,555 $ 9,231 $ 5,038 $ 9,933 $ 273 $ - $ - $ 80 Deferred Exploration Expenditures 19,238 5,353 6,101 2,434 2,168 3,111 71 - Additions & Acquisitions 6,601 - - 4,026 1,752 823 - - Write-offs & Property Abandonments (6,401) (6,401) - - - - - - Joint Venture Recoveries (4,152) (353) (2,294) (1,505) - - - - Net Drilling (Recoveries) Expenditures (580) (418) (268) 106 - - - - Reclass to other properties (309) - - - (273) - - (36) -------------------------------------------------------------------------------------------- DECEMBER 31, 1994 38,952 7,412 8,577 14,994 3,920 3,934 71 44 Deferred Exploration Expenditures 29,844 4,358 6,924 6,547 1,398 9,872 745 - Additions & Acquisitions 775 29 - - - 705 41 - Write-offs & Property Abandonments (8,750) (1,786) - (156) (5,318) (1,404) (65) (21) Joint Venture Recoveries (9,485) - (4,313) (5,172) - - - - Net Drilling (Recoveries) Expenditures 121 (41) 268 (106) - - - - Reclass to other properties (10) - - - - - - (10) -------------------------------------------------------------------------------------------- DECEMBER 31, 1995 51,447 9,972 11,456 16,107 - 13,107 792 $13 Deferred Exploration Expenditures 33,481 3,482 11,232 8,878 - 5,121 4,768 Additions & Acquisitions 4,279 812 770 403 - 768 1,526 Write-offs & Property Abandonments (10,365) (9) - (1,126) - (9,230) - Joint Venture Recoveries (13,468) (130) (6,405) (6,933) - - - Proceeds From Sale of Property Interest (640) - - - - (640) - Reclass to other properties (13) - - - - - - (13) ============================================================================================ DECEMBER 31, 1996 $64,721 $14,127 $17,053 $17,329 - $9,126 $7,086 $- ============================================================================================
In 1997, the Company is required to make property rental payments and minimum exploration expenditures totaling $8.9 million in order to maintain its current property interests per existing mineral agreements. In December 1996, PARC was granted an option by San Martin Mining and Investment Company Limited ("San Martin") relating to the Ndori property in Kenya. Under the terms of PARC's option to acquire 75% of the Ndori property, PARC has made payments to San Martin totaling $0.6 million and must make minimum annual expenditures of $0.6 million for each of two years. In addition, PARC must relinquish 50% of the original property area after 24 months and a further 25% of the original area after 36 months. In January 1997, PARC announced the sale of its 80% interest in Lafayette Mining Gabon Ltd. ("LMGL"), the indirect holder of the Eteke Exploration Permit, to Lafayette Holdings Corp., the 20% minority interest owner of LMGL. Lafayette Holdings Corp. exercised its right of first refusal under 110 111 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) the LMGL shareholder agreement and purchased PARC's 80% interest in LMGL for $640,000. As a result, the Company wrote off deferred exploration expenses related to the Eteke Exploration Permit totaling $5.3 million in the fourth quarter of 1996. The Company's share of this charge, after minority interest, was $3.1 million. The Company also incurred a charge to earnings in the fourth quarter of 1996 of $4.0 million for write-down of capitalized costs for the Dul Mountain Project in Ethiopia. The majority of the property area did not meet the Company's standards and the Company intends to relinquish approximately 75% of the Concession area, with minimal work on the area budgeted for 1997. The Company's share of this write-down was $2.3 million after minority interest. In the fourth quarter of 1996, the Company decided to discontinue alluvial mining operations at SOTRAPMAG and, as a result, wrote-off certain capitalized exploration costs related to the alluvial operations in 1996 totaling $1.1 million. (See Note 9.) On December 8, 1995, the Company announced its plan to write off past expenditures covering the Baomahun gold property in Sierra Leone, Africa. On October 19, 1994, PARC signed an option agreement covering the Baomahun property. Due to increasing security problems and civil unrest in Sierra Leone, the Company announced a temporary suspension of activities in Sierra Leone on March 6, 1995. Since that time, the Baomahun option agreement has been under force majeure. The decision to write off the expenditure is a result of the 1996 budgeting and project prioritization process for PARC and recognition of continuing security problems and civil unrest in Sierra Leone that may not be resolved in the near term. The expenditures in Sierra Leone written off by the Company in the fourth quarter of 1995 totaled $1.2 million. In addition, certain 1994 capitalized exploration expenditures for PARC totaling $0.2 million were charged to property abandonments as of December 31, 1995, as the exploration areas associated with these costs will not be pursued in the foreseeable future. As a result of the 1996 budgeting process and related project prioritization, the Company decided to charge costs related to various exploration prospects in Latin America by Southern Star to exploration expense as of December 31, 1995. The charge against earnings was $0.9 million. In addition, certain related costs incurred during 1994 were charged to property abandonment, totaling $0.1 million. On July 18, 1995, the Company announced that Venhold Investments (1994) Ltd., its indirectly controlled subsidiary, and BPC Corporation (collectively, the "VenStar Purchasers") had given notice to Lindley Associated S.A. ("Lindley") of their election to exercise their option ("Put Option") to "put" back to Lindley their common and preferred shares in VenStar Gold Ltd. ("VenStar") in return for the reimbursement by Lindley of all purchase price payments and all exploration expenditures of the VenStar Purchasers. The aggregate amount owed to the Company under the Put Option was approximately $1.6 million. In February 1996, Lindley indicated to the VenStar Purchasers that it would not pay the amounts owed under the Put Option until it had found another purchaser or joint venture partner for the Venezuelan properties. As a result of the notification, the Company incurred a charge of $4.5 million to write off the capitalized deferred exploration in Venhold Investments (1994) Ltd., and the related entities as of December 31, 1995. The Company's share of this charge, after minority interest, was $1.4 million. 111 112 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) The Company also wrote off $0.8 million in costs incurred by the Company related to the Venezuelan properties. In June 1996, Lindley informed the Company that it had found a purchaser for the Venezuelan properties and intended to pay the amounts owed under the Put Option. The Company agreed to a final termination and settlement agreement in June 1996 in connection with the "unwinding" of its purchase of an interest in VenStar. Under the terms of the settlement, the Company, through Venhold, received a cash reimbursement in the amount of $1.6 million from Lindley, consisting of $1.3 million in cash from Lindley and $0.3 million in cash held in the management company. This amount represents a recovery of certain purchase price payments and exploration expenditures incurred through July 18, 1996, which were previously written off. As such, the Company recorded a gain of approximately $0.9 million in the second quarter of 1996 as a result of the transaction, and has no remaining interests in Venezuela at this time. On July 11, 1995, the Company gave formal notice to the Company's joint venture partner of its election not to exercise its option on the Aranka property in Guyana and to terminate its agreement relating thereto. This decision was made during the second quarter of 1995 after the Company's geologists concluded that the geological potential of the property failed to meet the company's standards for further exploration and development. The charge against earnings for the year ended December 31, 1995 is $1.4 million. In addition, $0.4 million of capitalized costs were charged to property abandonment for a prospecting area in Guyana which will not be pursued in the future. On March 31, 1993, Guyanor signed an option agreement with CME under which it could earn a 100% interest in an exploration permit on a property known as EspJrance. In March 1995, Guyanor elected not to exercise this option. The option lapsed on March 31, 1995. This decision was made after Guyanor's geologists concluded that the potential for a large tonnage disseminated gold deposit on the property was limited. The charge against earnings for the twelve months ended December 31, 1995 was $0.2 million. During 1994, the Company abandoned its work program and relinquished its mineral rights in two of three contiguous prospecting licenses known at the Mahdia Prospect, and returned them to the Government of Guyana. The decision to relinquish the licenses was based on a thorough review by a potential partner which declined to develop the project. The known deposit did not prove, in view of the economic terms of the Mineral Agreement and other factors, to meet the standards required by the Company. The charge against earnings for the period ended December 31, 1994 was $6.4 million. The Company's drilling program during 1994 resulted in cost recoveries whereby revenue earned through drilling for third parties exceeded the cost of drilling both for third parties' and the Company's drilling projects. The net credit amounts are reflected as a reduction of deferred exploration, with individual projects bearing the net cost of their drilling programs. The Company sold the assets associated with the drilling department in February 1995 and discontinued its drilling efforts (see Note 8). The recoverability of amounts shown for deferred exploration is dependent upon the sale or discovery of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete the development, and upon future profitable production or proceeds from the disposition thereof. The amounts deferred represent costs to be charged to operations in the future and do not necessarily reflect the present or future values of the properties. 112 113 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) 11. INVESTMENT IN OMAI GOLD MINES LIMITED During 1991, the Company acquired a 35% common share equity interest for a nominal amount in Omai Gold Mines Limited ("OGML"), a Guyanese company established to build and operate the Omai Mine in Guyana. This common share equity interest was reduced to 30% on April 1, 1993 pursuant to the exercise of an option granted to Cambior. In addition, the Company received approximately $11.0 million of Class "I" redeemable preferred shares of OGML in recognition of cumulative exploration costs amounting to $5.0 million incurred to date by the Company on the Omai project with the remainder incurred by a former joint venture partner. In accordance with the Omai Mineral Agreement these preferred shares are required to be redeemed quarterly with a minimum redemption amount equal to 10% of the operating cash flow, as defined, of OGML. The Company received preferred share redemptions of $ 1.0 million, $1.2 million and $1.1 million in 1994, 1995 and 1996 respectively. These amounts are allocated to the Investment in OGML account and to Premium on Omai Preferred Share Redemption on the basis of the Company's share of costs incurred as a percentage of the total value of the Class "I" preferred shares. Under the equity method of accounting, equity investors are required to record their share of the net loss of the investee to the extent that these losses do not exceed the investment in common share equity of the investee. Accordingly, the Company has not recorded its share of OGML's loss for the years ended December 31, 1994, 1995 and 1996. The Company will commence recognition of equity income when its share of accumulated income exceeds the amount of unrecognized equity losses. 113 114 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) Details regarding the Company's investment in the common and preferred share equity and its share of equity losses not recorded are as follows:
Common Preferred Shares Shares ------- ------ December 31, 1993 - $ 4,802 Less: Preferred Share Redemptions - (1,005) Add: Premium on Preferred Share Redemptions - 549 --------- ---------- December 31, 1994 $ - $ 4,346 Less: Preferred Share Redemptions - (1,209) Add: Premium on Preferred Share Redemptions - 661 --------- --------- December 31, 1995 $ - $ 3,798 Less: Preferred Share Redemptions - (1,145) Add: Premium on Preferred Share Redemptions - 626 --------- --------- December 31, 1996 $ - $3,279 ========= ======= THE COMPANY'S SHARE OF ACCUMULATED LOSSES AT: December 31, 1994 $(2,672) ======== December 31, 1995 $(3,401) ======== December 31, 1996 $(2,713) ========
114 115 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) SUMMARIZED FINANCIAL INFORMATION OF OGML:
As of December 31, 1996 1995 -------- -------- Current assets $ 29,923 $ 24,767 Non-current assets 219,997 212,527 Current liabilities 25,904 29,076 Non-current liabilities 180,938 164,280 Redeemable preferred shares: Class I 7,886 8,372 Class II 2,919 2,919 Class III $ 50,242 $ 45,466
For the Years Ended December 31, 1996 1995 1994 -------- -------- -------- Revenues $107,199 $ 74,622 $ 98,688 Expenses 104,463 78,584 100,956 Net income (loss) $ 2,736 $ (2,125) $ (1,503)
At December 31, 1996 and 1995, the difference between the Company's carrying value of its investment in OGML and its equity share of net assets was as follows:
As of December 31, 1996 1995 -------- -------- 30% of OGML net assets $12,923 $13,181 Carrying value of investments 3,279 3,798 ------- ------- Difference $ 9,644 $ 9,383 ======= =======
This difference between the Company's equity share of OGML net assets and its carrying value has not been recorded. On August 19, 1995, a failure occurred in the main section of the tailings dam at the Omai Mine. The failure resulted in the discharge of cyanide-contaminated water into the Omai River, which in turn flowed into the Essequibo River. The discharge began on August 19, 1995 and continued until the leakage was fully controlled by Omai personnel on August 24, 1995. To minimize environmental damage, a portion of the discharged water was diverted into the Fennell Pit, the main source of gold at the Omai Mine. Production at the Omai Mine was suspended from August 19, 1995 until February 4, 1996, when operations resumed. As a consequence of the Omai tailings dam failure, OGML has been named as a defendant in a variety of civil proceedings in Guyana. Such proceedings are currently being settled, without admission of liability, or being contested in good faith, as applicable. Amounts claimed under currently instituted proceedings against OGML do not exceed $1.5 million in the aggregate and insurance coverage may be available to OGML in relation to a substantial portion of these claims. OGML and its shareholders, including the Company, may become involved as defendants, plaintiffs or otherwise in a variety of additional legal proceedings in Guyana or elsewhere in relation to this incident. There can be no assurance that such additional litigation will not result in material additional costs arising from out-of-court settlements, damage awards or other sanctions against OGML or 115 116 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) the Company. Moreover, there can be no assurance that all or any of such additional costs will be covered by appropriate insurance. 12. FIXED ASSETS
December 31, December 31, 1996 1995 ------------- ----------------- Building $1,833 $ 903 Machinery & equipment 4,676 4,134 ------- ------- 6,509 5,037 Accumulated depreciation (2,843) (1,410) ------- ------- $3,666 $3,627 ====== ======
In December 1996, the Company initiated a program to discontinue alluvial mining operations conducted by SOTRAPMAG. An evaluation of the fixed assets held by SOTRAPMAG and used in the alluvial mining operations was conducted. As a result, fixed assets totaling $0.4 million were deemed obsolete and were charged to income for 1996. (See Note 9.) In addition, certain fixed assets have been identified for future sale. The net book value of these assets as of December 31, 1996 is $0.5 million. The Company does not have a purchaser identified for these assets and there can be no assurance that these assets will be sold in 1997. As such, the assets are recorded as non-current. 13. LONG-TERM DEBT In connection with the acquisition of SOTRAPMAG (see Note 6) in October 1994, the Company repaid existing SOTRAPMAG long term debt of approximately $1.4 million, bearing 7.5% interest, immediately following the purchase. 14. SHARE CAPITAL a) ISSUANCE OF SHARE CAPITAL On September 25, 1996, the Company filed with the U.S. Securities and Exchange Commission (the "SEC") a shelf Registration Statement, with respect to the proposed issuance by the Company from time to time of up to $75.0 million of its common shares, preferred shares, convertible debt securities and/or warrants. On November 6, 1996, the Company filed an amendment to the Registration Statement with the SEC and the Registration Statement as amended was deemed effective on November 8, 1996. On October 15, 1996, the Company filed with nine Canadian provincial securities commissions a short-form shelf prospectus, with respect to the proposed issuance by the Company from time to time of up to 5.0 million common shares and/or 5.0 million common share purchase warrants and a short-form shelf prospectus with respect to the proposed issuance from time to time of up to $75.0 million of convertible debt securities. The final short-form shelf prospectuses were filed on November 7, 1996, and the filings became effective on November 8, 1996. No shares were issued under either the Registration Statement or the Canadian prospectuses as of December 31, 1996. 116 117 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) On March 6, 1996, the Company effected a public offering in Canada of 1.75 million units at a price of Cdn$10.50 per unit for total proceeds of $12.9 million (Cdn$18.375 million). Each unit consists of one common share and one-half of a common share purchase warrant. Each whole warrant is exercisable into one common share of the Company for a period of 12 months at a price of Cdn$11.00. b) STOCK OPTION PLANS STOCK OPTIONS Options granted pursuant to the 1992 Non-Discretionary Directors' Stock Option Plan ("DSOP") as amended (as approved by the shareholders) and the 1992 Employees' Stock Option Plan ("ESOP") are non-assignable and are exercisable for a period of ten years or such other date as stipulated in a stock option agreement between the Company and an optionee. The maximum number of common shares issuable under the DSOP is 627,500 and under the ESOP is 3,591,994. The number of common shares vested and exercisable under these plans at December 31, 1996 and 1995 was 2,221,227 and 2,341,300, respectively. STOCK OPTION LOANS As of December 31, 1996 and 1995, employees had exercised their rights under employee stock option loan agreements and purchased 1,029,012 and 450,192 common shares, respectively, against which there were outstanding loans of $4.0 million and $1.2 million, respectively. Of the 1996 and 1995 outstanding loan balances, approximately $4.0 million and $1.1 million, respectively, relates to loans to two officers of the Company. These loans are non-interest bearing and must be repaid within five years from the date of exercise unless the loan term is extended by vote of the Board of Directors. The shares are held by a trustee and, in the event of non-payment, the sole recourse for repayment and recovery of the loans shall be as against pledged shares. In the event that the loans are not repaid and the shares are sold at a loss, only the net proceeds will be credited to share capital. The average exercise price of the underlying shares regarding outstanding loans as at December 31, 1996 and 1995 was Cdn$5.26 and Cdn$3.37, respectively. The loans outstanding at December 31, 1996, are due as follows: 1997 $ 499 1998 19 1999 497 2000 94 2001 2,903 ------ $4,012 ======
117 118 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) SCHEDULE OF STOCK OPTION ACTIVITY
SHARES UNDER OPTION PRICE (CDN$) ESOP DSOP ESOP DSOP ---- ---- ---- ---- SHARES UNDER OPTION AT DECEMBER 31, 1993 1,504,192 227,500 $2.30 TO $17.10 $2.30 TO $14.85 Activity: Granted 510,400 115,000 $11.93 to $17.70 $13.75 to $16.88 Exercised (324,000) - $2.30 to $12.15 - Canceled (35,500) - $5.50 to $17.70 - ---------- --------- SHARES UNDER OPTION AT DECEMBER 31, 1994 1,655,092 342,500 $2.30 TO $17.10 $2.30 TO $16.88 Activity: Granted 1,101,550 80,000 $6.38 to $9.38 $8.67 to $10.50 Exercised (62,192) (32,500) $2.30 to $5.50 $2.30 to $4.50 Canceled (92,900) - $9.38 to $17.10 - ---------- ------------ SHARES UNDER OPTION AT DECEMBER 31, 1995 2,601,550 390,000 $2.76 TO $17.00 $2.76 TO $16.88 Activity: Granted 862,250 130,000 $18.45 to $23.00 $9.50 to $24.40 Exercised (1,039,469) (20,000) $2.76 to $16.20 $2.76 to $8.67 Canceled (40,100) - $7.63 to $16.20 - ----------- -------- SHARES UNDER OPTION AT DECEMBER 31, 1996 2,384,231 500,000 $2.76 TO $23.00 $2.76 TO $24.40 ========= ==========
c) STOCK BONUS PLAN In December 1992, the Company established an Employees' Stock Bonus Plan (the "Bonus Plan") for any full-time or part- time employee (whether or not a Director) of the Company or any of its subsidiaries who has rendered meritorious services which contributed to the success of the Company or any of its subsidiaries. The Bonus Plan provides that a specifically designated committee of the Board of Directors of the Company (currently the Compensation Committee) may grant bonus common shares on terms that the Compensation Committee may determine, within the limitations of the Bonus Plan and subject to the rules of applicable regulatory authorities. The maximum number of common shares issuable under the Bonus Plan is 320,000. On February 1, 1995, a total of 95,000 bonus common shares were issued to three employees of the Company under the Bonus Plan. These bonus common shares were distributed in accordance with a specific distribution schedule. In connection with the bonus common shares allocated to them, two of the employees will also be entitled to receive from the Company an amount equal to any applicable income taxes which may be payable by them as a result of the issuance of such bonus common shares. 118 119 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) As of December 31, 1996, no additional amounts have been paid by the Company for any related tax liabilities of these employees. On April 1, 1995, a total of 10,208 bonus common shares were issued to certain employees under the Bonus Plan. On January 1, 1996, bonuses totaling $0.2 million were declared for certain employees under the Bonus Plan as compensation for 1995. A total of 30,712 common shares were issued in January 1996 pursuant to the January 1, 1996 bonuses. In connection with the bonus common shares allocated to them, each of the employees is responsible to pay any applicable income taxes which may be payable by them as a result of the issuance of such bonus common shares. Compensation expense related to bonuses under the Bonus Plan during the year ended December 31, 1995 of $0.8 million is included in the determination of net loss. d) WARRANTS The Company issued 500,000 (1,000,000 before the consolidation referred to in Note 1) Special Units in March of 1992 receiving net consideration of Cdn$1.0 million. Each Special Unit entitled the holder thereof, at no additional charge, to one common share and one common share purchase warrant. As a result of the amalgamation the units were exchanged for one common share and one common share purchase warrant. The warrants had an exercise price to September 23, 1992 of Cdn$2.34 per share, to March 23, 1993 of Cdn$2.50 per share, and to March 23, 1994 of Cdn$3.00 per share. As at December 31, 1994, all of these warrants were exercised. The Company issued 1.2 million Special Warrants in March of 1993 at a price of Cdn$9.25 per Special Warrant. Each Special Warrant entitled the holder thereof, at no additional charge, to one unit consisting of one common share and one common share purchase warrant. Two common share purchase warrants entitled the holder to purchase one additional common share at Cdn$10.25 until February 15, 1994, and thereafter at a price of Cdn$11.00 until August 15, 1994. During 1994, 952,500 common share purchase warrants (representing 476,250 common shares) were exercised and the remaining 50,000 warrants expired. The Company issued 1.5 million Special Warrants in June of 1993 at a price of Cdn$14.25 per Special Warrant. Each Special Warrant entitled the holder thereof, at no additional charge, to one common share. On February 2, 1994, the Company closed a private placement of 2.5 million Special Warrants at a price of Cdn$21.00 per Special Warrant for gross proceeds of Cdn$52.5 million. Each Special Warrant entitles the holder thereof to receive one common share and one half of one common share purchase warrant at no additional cost. One whole common share purchase warrant was exercisable at a price of Cdn$25.00 up to July 31, 1995. As a result of the Plan of Arrangement between the Company and its shareholders effected on March 14, 1995, a warrant holder is entitled to receive, upon the exercise of two warrants and a payment of Cdn$25.00, one common share of the Company and one-fifth of one Class B common share of Guyanor. On July 24, 1995 the Company announced that it obtained all necessary approvals for a one-year extension of the expiration date of the Company's common share purchase warrants to July 31, 1996. During 1996, 129,250 of the Company's common share purchase warrants were exercised for proceeds of $2.4 million. On July 31, 1996, the remaining 1,120,750 of these warrants expired unexercised. 119 120 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) On March 6, 1996, the Company completed a public offering in Canada of 1.75 million units at a price of Cdn$10.50 per unit for total proceeds of $12.9 million (Cdn$18.375 million). Each unit consists of one common share and one-half of a common share purchase warrant. Each whole warrant is exercisable into one common share of the company for a period of 12 months at a price of Cdn$11.00. During 1996, 201,800 of the Company's Cdn$11.00 warrants were exercised for proceeds of $1.6 million. e) SHAREHOLDER RIGHTS PLAN In April 1996, the Company's Board of Directors adopted a Shareholder Rights Plan (the "Rights Plan"). The Rights Plan is designed to expire in June 1999. Under the Rights Plan, the Company issued one right (a "Right") for each common share of the Company outstanding on April 24, 1996. The Company will also issue one Right for each common share issued in the future. The Rights were issued pursuant to the Rights Agreement dated April 24, 1996, between the Company and The R-M Trust Company as rights agent. Each Right will entitle the holder to purchase from the Company one common share at $200, subject to adjustments and the provisions of the Rights Plan. The Board may, at any time, redeem the rights until their expiration and may amend the rights under certain limited circumstances until they become exercisable. f) OTHER Under the terms of an agreement dated September 10, 1987, South American acquired all of the outstanding interest in the GuyGold Syndicate ("Syndicate") for consideration of Cdn$1,750,000. The assets of the Syndicate consisted of interest in mineral properties, each of which consisted of a 20 square mile block, pursuant to an agreement negotiated with the Government of Guyana. As at December 31, 1996, all of the mineral properties were abandoned except for the Quartz Hill property. A further 76,923 common shares will be issued if and when Quartz Hill is brought into production. All members of the Syndicate were directors or former directors of the Company and three were former officers. The Company's potential obligations under this agreement may be affected by the terms of the new agreement with OGML (see Note 19). 15. INCOME TAXES Losses carried forward for income tax purposes in Canada, approximating Cdn$23.3 million are available for the reduction of future years' taxable incomes. These losses expire as follows (in thousands):
CDN$ ---- 1997 3,081 1998 2,515 1999 2,266 2000 1,664 2001 1,702 2002 5,524 2003 6,525 ------- Total $23,277 =======
120 121 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) No recognition has been given in these financial statements to any potential tax savings that may arise from the application of these losses. 16. OPERATIONS BY GEOGRAPHIC AREA Information on the Company's continuing operations by geographic area for the years ended December 31, 1996, 1995 and 1994 is shown below. During the periods presented, the Company had one customer who accounted for 100% of sales. However, because the Company is principally selling a commodity, concentration of credit risk is not considered significant.
OPERATING NET IDENTIFIABLE REVENUES (LOSS) ASSETS 1996 South America $1,811 $(5,760) $65,283 Africa 224 (5,706) 12,893 Corporate 766 3,686 18,107 - ------------------------------------------------------------------------------------------------------------------ Total $2,801 $(7,780) $96,283 ================================================================================================================== 1995 South America $4,435 $(8,978) $48,430 Africa 1 (2,288) 13,383 Corporate 1,154 (915) 15,796 - ------------------------------------------------------------------------------------------------------------------ Total $5,590 $(12,181) $77,609 ================================================================================================================== 1994 South America $ 736 $ (7,848) $41,666 Africa - - 3,934 Corporate 2,000 (937) 39,940 - ------------------------------------------------------------------------------------------------------------------ Total $2,736 $ (8,785) $85,540 ==================================================================================================================
17. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES The financial statements have been prepared in accordance with accounting principles generally accepted in Canada which differ in certain respects from those principles that the Company would have followed had its financial statements been prepared in accordance with accounting principles generally accepted in the United States. Differences which materially affect these consolidated financial statements are: (a) For United States GAAP ("U.S. GAAP") exploration and general and administrative costs related to projects are charged to expense as incurred. As such, the majority of costs charged to Exploration Expense and Abandonment of Mineral Properties under Canadian GAAP would have been charged to earnings in prior periods under U.S. GAAP. Property acquisition costs are capitalized for both Canadian and U.S. GAAP. (b) For periods prior to May 15, 1992 (the "amalgamation"), the Company's reporting currency was the Canadian dollar. Subsequent to the Company's amalgamation and moving of corporate headquarters to the United States, the reporting currency was changed to the U.S. dollar. As such, for the financial statements for the period prior to May 15, 1992, the Company's 121 122 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) financial statements were translated into U.S. dollars using a translation of convenience. U.S. GAAP requires translation in accordance with the current rate method. (c) Under U.S. GAAP, the investment in OGML would have been written off in prior years and, therefore, the entire Omai Preferred Share Redemption would have been included in income. Under Canadian GAAP a portion of the Omai Preferred Share Redemption is included in income with the remainder reducing the carrying value of the Company's preferred stock investment. (d) U.S. GAAP requires that compensation expense be recorded for the excess of the quoted market price over the option price granted to employees and directors under stock option plans, since the Company has adopted the disclosure provisions of SFAS 123 "Accounting for Stock Compensation". Under Canadian GAAP, no compensation expense is recorded for such awards. (e) Canadian GAAP allows classification of investments which are capable of reasonably prompt liquidation as current assets. As such, all of the Company's investments are included under the caption "short-term investments" on the balance sheet under current assets. U.S. GAAP requires classification as current or long term assets based upon the anticipated maturity date of such instruments. (f) The gains on subsidiary's issuance of common shares recorded under Canadian GAAP in respect of the Guyanor public offering and the PARC private placement as discussed in Note 7 are not appropriate under U.S. GAAP. (g) The Company eliminated its accumulated deficit through the amalgamation (defined as a reorganization under U.S. GAAP) effective May 15, 1992. Under U.S. GAAP the cumulative deficit was greater than the deficit under Canadian GAAP due to the write-off of certain deferred exploration costs described in (a) above. (h) Under U.S. GAAP, cash (and cash equivalents) includes bank deposits, money market instruments, and commercial paper with original maturities of three months or less. Canadian GAAP permits the inclusion of temporary investments with maturities greater than 90 days in cash. (i) Under U.S. GAAP, available-for-sale securities are recorded at fair value and unrealized gains and losses are recorded as a separate component of shareholders' equity. Fair value is determined by quoted market prices. At December 31, 1995, the Company held one type of available-for-sale security. The Company held no available-for-sale securities as of December 31, 1996. (j) Under U.S. GAAP, accrued severance and social charges of $1.1 million resulting from suspension of alluvial mining operations at SOTRAPMAG would not have been recorded as the requirements for accrual under U.S. GAAP were not satisfied as of December 31, 1996. 122 123 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) Had the Company followed GAAP in the United States, certain items on the statements of operations and balance sheets would have been reported as follows:
For the Years Ended December 31, 1996 1995 1994 -------- -------- -------- Net loss under Canadian GAAP $ (7,780) $(12,181) $ (8,785) Net effect of the deferred exploration expenditures on loss for the period (a) (10,231) (13,610) (7,797) Effect of recording compensation expense under stock option plans (d) (85) (256) (708) Reversal of the gain on subsidiary's issuance of common stock (f) (7,719) (2,575) (738) Reversal of the loss for severance accruals (j) 1,115 - - Effect of Omai Preferred Share Redemption (c) 520 548 456 -------- -------- -------- Loss under U.S. GAAP before minority interest (24,180) (28,074) (17,572) Minority interest as adjusted (1,097) (256) 1,491 -------- -------- -------- Loss under U.S. GAAP $(25,277) $(28,330) $(16,081) ======== ======== ======== Loss per share under U.S. GAAP $ (1.00) $ (1.24) $ (0.76) ======== ======== ========
(For items (a) to (j), see pages 121 and 122.) Under U.S. GAAP the Omai preferred share redemption would be included with costs and expenses before the caption "Loss Before the Undernoted" on the consolidated statements of loss and deficit. Weighted average common shares outstanding are substantially the same under U.S. GAAP as under Canadian GAAP for the periods presented. 123 124 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) The effect of the differences in accounting under Canadian GAAP and U.S. GAAP on the balance sheets and statements of cash flows are as follows: BALANCE SHEET
DECEMBER 31, 1996 DECEMBER 31, 1995 ----------------- ----------------- CANADIAN GAAP U.S. GAAP CANADIAN GAAP U.S. GAAP ------------- --------- ------------- --------- Cash (h) $9,664 $9,664 $ 5,800 $ 3,320 Short term investments (e) 5,999 2,500 3,698 2,480 Marketable securities (i) - - 800 927 Other current assets 6,519 6,519 5,776 5,776 Restricted cash 2,015 2,015 2,465 2,465 Deferred exploration 64,721 18,611 51,447 15,568 Investment in Omai Gold Mines Limited (c) 3,279 - 3,798 - Long-term investments (e) - 3,499 - 3,698 Other assets 4,086 4,087 3,825 3,825 ------- ------- ------- ------- Total Assets $96,283 $46,895 $77,609 $38,059 ======= ======= ======= ======= Liabilities (j) $ 6,987 $ 5,872 5,018 5,018 Minority interest (a) 11,202 11,064 4,203 2,968 Share capital, net of stock option loans (g) 125,942 123,068 105,174 94,496 Cumulative translation adjustments (b) - 1,595 - 1,595 Accumulated unrealized gains on investments (i) - - - 127 Deficit (a) (c) (d) (f) (j) (47,848) (94,704) (36,786) (66,145) ------- ------- ------- ------- Total Liabilities and Shareholders' Equity $96,283 $46,895 $77,609 $38,059 ======= ======= ======= =======
(For items (a) to (j), see pages 121 and 122.) Under U.S. GAAP, receivables would be separately disclosed as follows:
1996 1995 ---- ---- Receivables from employees $ 325 $ 991 Receivables from joint venture partners 2,387 2,318 Interest receivable 137 153 Other 2,267 738 Allowance for doubtful accounts - - -------- ------ Total Receivables $5,116 $4,200 ====== ======
Of the December 31, 1996 accounts receivable balance, $0.2 million relates to loans to three officers of the Company. 124 125 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY UNDER U.S. GAAP
(I) COMMON (B) ACCUMULATED STOCK STOCK CUMULATIVE UNREALIZED NUMBER OF SHARE OPTION TRANSLATION GAINS ON SHARES CAPITAL LOANS ADJUSTMENT INVESTMENTS DEFICIT ------------ ------- ----- ---------- ----------- ------- BALANCE AT DECEMBER 31, 1993 19,209,722 $47,958 $(633) $1,595 - $(21,734) Shares Issued 2,560,000 40,008 - - - - Shares Issued Under Options 324,000 909 - - - - Shares Issued Under Warrants 476,250 3,668 - - - - Issue Costs - (2,118) - - - - Stock Option Loans - - (498) - - - Stock Option Loan Repayments - - 51 - - - Reclass of Gain of Subsidiary Stock (f) - 738 - - - - Stock Based Compensation Expense (d) - 708 - - - - Net Loss (a) (c) (d) (f) - - - - - (16,081) ---------- -------- ------- ------ ----- -------- BALANCE AT DECEMBER 31, 1994 22,569,972 $91,871 $(1,080) $1,595 - $(37,815) Shares Issued 105,208 659 - - - - Shares Issued Under Options 94,692 285 - - - - Issue Costs - 20 - - - - Stock Option Loans - - (90) - - - Reclass of Gain of Subsidiary Stock (f) - 2,575 - - - - Stock Based Compensation Expense (d) - 256 - - - - Accumulated Unrealized Gains on Investments (i) - - - - 127 - Net Loss (a) (c) (d) (f) - - - - (28,330) ---------- -------- ------- ------ ----- -------- BALANCE AT DECEMBER 31, 1995 22,769,872 95,666 (1,170) 1,595 127 (66,145) Shares Issued 1,780,712 13,574 - - - Shares Issued Under Options 1,059,469 6,744 - - - Shares Issued Under Warrants 331,050 3,983 - - - Issue Costs - (691) - - - Stock Option Loans - - (2,902) - - Stock Option Loan Repayments - - 60 - - Reclass of Gain of Subsidiary Stock (f) - 7,719 - - - Stock Based Compensation Expense (d) - 85 - - - Accumulated Unrealized Gains on Investments (i) - - - - (127) Other - - - (3,282) Net Loss (a) (c) (d) (f) (j) - - - (25,277) ---------- -------- ------- ------ ----- -------- BALANCE AT DECEMBER 31, 1996 25,941,103 $127,080 $(4,012) $1,595 $ - $(94,704) ========== ======== ======= ====== ===== ========
STATEMENTS OF CASH FLOWS UNDER U.S. GAAP
NET CASH PROVIDED BY (USED IN): OPERATING ACTIVITIES INVESTING ACTIVITIES FINANCING ACTIVITIES -------------------- -------------------- -------------------- Canadian U.S. Canadian U.S. Canadian U.S. For the Years Ended December 31, GAAP GAAP GAAP GAAP GAAP GAAP -------------------------------- --------- --------- -------- --------- ------- ---------- 1996 $(10,650) $(30,024) $(23,442) $ (3,963) $40,257 $40,331 1995 $(11,523) $(31,137) $(21,157) $ 14,359 $ 7,791 $ 8,093 1994 $ (4,362) $(19,374) $(20,633) $(25,827) $42,308 $ 42,273
The statements of cash flows reflect the impact of the previously discussed adjustments (a) (c) (d) (f) and the following non-cash items: o U.S. GAAP does not permit the presentation of non-cash items in investing or financing activities in the consolidated statements of cash flows, and consequently deferred exploration 125 126 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) costs and share capital and warrants would be reduced by $0.9 million, $0.8 million and $0.5 million for the years ended December 31, 1994, 1995 and 1996, respectively. U.S. GAAP TAX CONSIDERATIONS o U.S. GAAP changes the Company's method of accounting for income taxes from the deferred method, as recorded under Canadian GAAP, to an asset and liability approach. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The adoption of the pronouncement has no effect on the U.S. GAAP financial statements as the Company has concluded that a full valuation allowance must be applied to the deferred tax asset resulting from the Company's net operating loss carryforwards (see Note 15). For the years ended December 31, 1996 and 1995, the Company has recorded no current tax expense under Canadian or U.S. GAAP due to the cumulative net losses incurred by the Company. Under U.S. GAAP, the Company would not record any deferred tax expense based on the same rationale. o The Company operates in Africa, French Guiana, Guyana, Suriname, Bolivia and Brazil. In Africa and French Guiana, the Company is currently negotiating its tax position with the related governments and as such, the differences between the book bases and tax bases of the Company's assets and liabilities cannot be determined. o Certain of the Company's operations are subject to Canadian taxes including the office headquarters, Guyana and Suriname which are all divisions of the Company. Summarized below are the components of deferred taxes:
December 31, 1996 December 31, 1995 ----------------- ----------------- Temporary differences relating to net assets: Other current assets $ 118 $ 84 Property & equipment 432 351 Deferred exploration 14,540 10,834 Investment in OGML 2,746 3,181 Offering costs 1,103 840 Tax loss and credit carryforwards 6,804 5,317 ------- ------- Gross deferred tax asset 25,743 20,607 Valuation allowance (25,743) (20,607) ------- ------- Net deferred tax assets $ - $ - ======= ========
The valuation allowance increased by $4.5 million in 1996 due to the taxable losses and increase in temporary differences. Any income tax benefits resulting from utilization of net operating loss carry forwards existing at May 15, 1992, the date of the quasi-reorganization under U.S. GAAP, would be excluded from results of operations and credited directly to share capital, resulting in lower earnings than would be reported absent the quasi-reorganization (see (g) above). 126 127 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) STOCK BASED COMPENSATION PLANS At December 31, 1996, the Company has four stock-based compensations plans, which are described below. The Company applies APB Opinion No. 25 and related interpretations in accounting for its plans in its U.S. GAAP presentations. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under the plans consistent with the method described in Statement of Financial Accounting Standards No. 123, the Company's consolidated net loss and loss per share under U.S. GAAP would have been increased to the pro forma amounts indicated below:
1996 1995 ---- ---- Net loss under U.S. GAAP As reported $ (25,277) $(28,330) Pro forma $ (28,533) $(29,167) Loss per share under U.S. GAAP As reported $ (1.00) $ (1.24) Pro forma $ (1.13) $ (1.28)
Under the 1992 Non-Discretionary Directors' Stock Option Plan ("DSOP"), the Company may grant options to its directors for up to 627,500 shares of common stock. Under the 1992 Employees' Stock Option Plan ("ESOP"), the Company may grant options to its employees for up to 3,591,944 shares of common stock. Under both the DSOP and ESOP, the options may take the form of non-qualified stock options, the exercise price of each option equals the market price of the Company's stock on the date of grant, and an option's maximum term is ten years or such other date as stipulated in a stock option agreement between the Company and the optionee. Options under both the DSOP and ESOP are granted from time to time at the discretion of the Board of Directors. Options granted under the ESOP vest over periods ranging from immediately to four years from the date of grant and vesting periods are determined at the discretion of the Board of Directors. Options granted under the DSOP vest immediately on the date of grant. Under the Guyanor Ressources S.A. Stock Option Plan (the "Guyanor Plan"), Guyanor may grant options to its employees for up to 3,367,889 shares of Class B common stock. The options may take the form of non-qualified stock options, the exercise price of each option equals the market price of Guyanor's stock on the date of grant, and an option's maximum term is ten years for such other date as stipulated in a stock option agreement between Guyanor and the optionee. Options under the Guyanor plan are granted from time to time at the discretion of Guyanor's Board of Directors and vest over periods ranging from immediately to three years. Under the Pan African Resources Corporation Stock Option Plan (the "PARC Plan"), PARC may grant options to its employees and directors for up to 4,407,600 shares of its common stock. The options may take the form of non-qualified stock options, the exercise price of each option equals the market price of PARC's stock on the date of grant, and an option's maximum term is five years for such other date as stipulated in a stock option agreement between PARC and the optionee. Options under the PARC Plan are granted from time to time at the discretion of PARC's Board of Directors and vest over periods ranging from immediately to four years, with vesting periods determined at the discretion of PARC's Board of Directors. 127 128 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) The fair value of each option grant is estimated on the date of grant for all plans using the Black-Scholes option- pricing model with the following weighted average assumptions used for grants in 1996 and 1995:
1996 --------------------------------------------------------------------------------- ESOP DSOP Guyanor Plan PARC Plan --------------------------------------------------------------------------------- Expected volatility 55% 55% 73% 93% Risk-free interest rate 6.14% to 6.58% 5.30% to 6.77% 5.50% to 6.39% 5.25% to 6.28% Expected lives 5 years 5 years 5 years 5 years Dividend yield 0% 0% 0% 0%
1995 --------------------------------------------------------------------------------- ESOP DSOP Guyanor Plan PARC Plan --------------------------------------------------------------------------------- Expected volatility 55% 55% 73% - Risk-free interest rate 5.49% to 6.90% 5.79% to 7.55% 5.69% to 7.27% - Expected lives 5 years 5 years 5 years - Dividend yield 0% 0% 0% -
The following tables summarize information about stock options under the ESOP and DSOP:
1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------- Weighted-Average Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Exercise Price ESOP and DSOP (000) (Cdn$) (000) (Cdn$) (000) (Cdn$) - ---------------------------------------------------------------------------------------------------------------- Outstanding at beginning of 2,991 $ 9.40 1,998 $10.99 1,732 $ 7.47 year Granted 992 $ 19.34 1,181 $ 7.84 625 $15.88 Exercised (1,059) $ 6.37 (95) $ 4.01 (324) $ 2.81 Forfeited (40) $ 12.23 (93) $14.58 (35) $ 8.24 - ---------------------------------------------------------------------------------------------------------------- Outstanding at end of year 2,884 $ 13.07 2,991 $ 9.40 1,998 $10.99 Options exercisable at year-end 2,221 2,341 1,435 Weighted-average fair value of options granted during the $ 19.34 $ 7.84 $17.46 year
Options Outstanding Options Exercisable - ---------------------------------------------------------------------------------------------------------------- Number Number ESOP and DSOP Outstanding at Weighted-Average Weighted-Average Exercisable at Weighted-Average Range of Exercise Dec. 31, 1996 Remaining Exercise Price Dec. 31, 1996 Exercise Price Prices (Cdn$) (000) Contractual Life (Cdn$) (000) (Cdn$) - ---------------------------------------------------------------------------------------------------------------- $2.76 to $2.76 157 5.42 $ 2.76 157 $ 2.76 $5.50 to $7.63 821 8.64 $ 7.01 586 $ 6.94 $8.67 to $13.05 552 7.37 $11.43 533 $11.51 $14.30 to $19.00 1,131 8.60 $17.73 824 $17.48 $22.75 to $24.40 223 9.39 $23.08 121 $23.32 - ---------------------------------------------------------------------------------------------------------------- 2,884 2,221
128 129 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) The following tables summarize information about stock options for the Guyanor plan:
1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------- Weighted-Average Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Exercise Price Guyanor Plan (000) (Cdn$) (000) (Cdn$) (000) (Cdn$) - ---------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year 1,611 $2.13 - - - - Granted 1,296 $6.02 1,677 $2.13 - - Exercised (191) $2.35 (43) $2.10 - - Forfeited - - (23) $2.10 - - - ---------------------------------------------------------------------------------------------------------------- Outstanding at end of year 2,716 $3.97 1,611 $2.13 - - Options exercisable at year-end 1,591 626 - Weighted-average fair value of options granted during the year $6.02 $2.13 - year
Options Outstanding Options Exercisable - ----------------------------------------------------------------------------------------------------------------------- Number Number Guyanor Plan Outstanding at Weighted-Average Weighted-Average Exercisable at Weighted-Average Range of Exercise Dec. 31, 1996 Remaining Exercise Price Dec. 31, 1996 Exercise Price Prices (Cdn$) (000) Contractual Life (Cdn$) (000) (Cdn$) - ----------------------------------------------------------------------------------------------------------------------- $2.10 to $3.30 1,450 8.52 $2.52 1,310 $2.41 $9.20 to $12.40 1,266 9.86 $9.96 281 $9.68 - ----------------------------------------------------------------------------------------------------------------------- 2,716 1,591
The following tables summarize information about stock options for the PARC plan:
1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------- Weighted-Average Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Exercise Price PARC Plan (000) (Cdn$) (000) (Cdn$) (000) (Cdn$) - ---------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year - - - - - - Granted 2,367 $.90 - - - - Exercised (10) $.99 - - - - Forfeited - - - - - - - ---------------------------------------------------------------------------------------------------------------- Outstanding at end of year 2,357 $.90 - - - - Options exercisable at year- end 1,161 Weighted-average fair value of options granted during the $.90 - - year
Options Outstanding Options Exercisable - ---------------------------------------------------------------------------------------------------------------- PARC Plan Number Weighted-Average Weighted-Average Number Weighted-Average Range of Exercise Outstanding at Remaining Exercise Price Exercisable at Exercise Price Prices (Cdn$) Dec. 31, 1996 Contractual Life (Cdn$) Dec. 31, 1996 (Cdn$) - ---------------------------------------------------------------------------------------------------------------- $.65 to $.99 2,357 4.44 $.90 1,161 $.92
NEW ACCOUNTING STANDARDS In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128 "Earnings Per Share", effective for fiscal years ending after December 15, 1997. This standard revises the calculation and disclosures for earnings per share. Management does not believe that adoption of 129 130 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) SFAS No. 128 would have a material impact on its U.S. GAAP disclosures, as the Company's common stock equivalents are anti-dilutive. OPERATIONS BY GEOGRAPHIC AREA UNDER U.S. GAAP Information on the Company's continuing operations by geographic area under U.S. GAAP for the years ended December 31, 1996, 1995 and 1994 is shown below. Operating earnings from continuing operations are total revenues less operating expenses of the geographic areas.
OPERATING NET IDENTIFIABLE REVENUES (LOSS) ASSETS 1996 South America $1,811 $(18,431) $27,121 Africa 224 (3,261) 4,944 Corporate 766 (3,585) 14,830 - ---------------------------------------------------------------------------------------------------------------- Total $2,801 $(25,277) $46,895 ================================================================================================================ 1995 South America $4,435 $(15,295) $24,267 Africa 1 (9,867) 1,667 Corporate 1,154 (3,168) 12,125 - ---------------------------------------------------------------------------------------------------------------- Total $5,590 $(28,330) $38,059 ================================================================================================================ 1994 South America $ 736 $(11,045) $22,507 Africa - (3,848) 823 Corporate 2,000 (1,188) 35,595 - ---------------------------------------------------------------------------------------------------------------- Total $2,736 $(16,081) $58,925 ================================================================================================================
18. SUBSEQUENT EVENTS In January 1997, the Company announced that the Government of Guyana had granted a prospecting license to OGML for the Quartz Hill property. (See Note 19.) In March 1997, all of the Company's outstanding Cdn$11.00 warrants were exercised for proceeds of $5.4 million. 19. RELATED PARTIES To consolidate exploration and possible development of the Quartz Hill area with the adjacent Omai property, the Company entered, in 1995, into a letter agreement with OGML whereby the Company relinquished all of its right, title, and interest in the Quartz Hill prospecting license in exchange for a beneficial interest in any prospecting license granted to OGML with respect to the same area. Under the agreement, OGML may acquire 100% of the Company's beneficial interest by either: (i) making quarterly payments to the Company equal to 25% of net cash flow generated from mining activity on the Quartz Hill property; or (ii) issuing to the Company, upon commencement of production at Quartz Hill, 1,386,000 Class IV Preference Shares with a par value of $1.00 per share, i.e., the equivalent of the approximate historical book value of the Company's investment in the Quartz Hill property. Such shares would be fully redeemable in equal quarterly installments during the 36-month period following 130 131 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) commencement of commercial production from Quartz Hill. In January 1997, OGML was awarded prospecting licenses for the Quartz Hill area and the Omai River area, adjacent to the Omai permit area. A budget of $1.0 million to be funded by OGML has been allocated in 1997 for the Quartz Hill and Omai River properties, as well as the Omai Mine license. Execution of a definitive agreement between Cambior, OGML and the Company is subject to execution of an acceptable mineral agreement regarding the Quartz Hill and Omai River properties. This agreement is subject to approval by the Board of Directors of OGML, and, for certain matters, approval of OGML's shareholders. 20. COMMITMENTS AND CONTINGENCIES ENVIRONMENTAL REGULATIONS The Company is not aware of any events of non-compliance in its operations with environmental laws and regulations. The exact nature of environmental control problems, if any, which the Company may encounter in the future cannot be predicted, primarily because of the changing character of environmental requirements that may be enacted within foreign jurisdictions. BUSINESS RISK All of the Company's mineral properties are located in developing countries with the exception of Brazil and French Guiana, a Department of France. There are certain business and political risks inherent in doing business in developing countries. In particular, the regulatory framework for conducting mining and exploration activities in these countries, including the tax and general fiscal regimes and the manner in which mineral rights and title to mineral properties are established and maintained are often uncertain, incomplete, in a state of flux or subject to change without notice. Further, in many of the countries in which the Company's projects are located it may not be economically feasible to develop a commercial mine unless special tax or other fiscal and regulatory concessions are obtained from the applicable government and regulatory authorities. There can be no assurance that the Company will be able to execute or enforce satisfactory mineral agreements or to obtain satisfactory political risk insurance on commercially reasonable terms for any or all of its properties. LETTERS OF CREDIT AND GUARANTEE On July 26, 1995, the Company entered into a $2.15 million letter of credit application and agreement (the "Letter of Credit Documents") with a major commercial bank (the "first Bank"). Pursuant to the Letter of Credit Documents, the first Bank issued an irrevocable standby letter of credit in favor of The Commercial Bank of Ethiopia ("CBE"). Based on the letter of credit, the CBE, in turn, issued a bank guarantee or performance bond for the benefit of the Ministry of Mines and Energy for Ethiopia ("MMEE") guaranteeing the first year's exploration program at the Dul Project in Ethiopia. On July 17, 1996, the performance bond requirements were reduced to $1.15 million by the MMEE and the first Bank released $1.0 million from the letter of credit. On September 23, 1996, the performance bond was further reduced to $0.45 million, reflecting the Company's agreed second year exploration program expenditure requirements, and an additional $0.7 million was released from the letter of credit by the first Bank. The CBE performance bond (and, concurrently, the first Bank letter of credit) may be drawn upon following the end of the exploration year in the event the Company fails to expend the minimum exploration budget previously submitted by the Company for the exploration year and approved by the MMEE, but only in the amount of the difference between the amount actually spent and minimum required under the program. The current performance bond has been extended for one year and expires on October 16, 1997, subject to one possible extension of 90 days, and the first Bank 131 132 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (All tabular amounts in thousands of United States Dollars) letter of credit expires 15 days after the performance bond. The Company has provided cash collateral in the amount of $0.45 million for the letter of credit. Due to the write-down and consequent reduction in the planned 1997 work program for the Dul Mountain property (See Note 10), the Company intends to negotiate a further reduction of the performance bond. There can be no assurance that the Company will be successful in reducing the bond prior to its expiration. On April 22, 1996, the Company and PARC announced the signing of an Exploration License Agreement (the "Exploration License") with the Government of Eritrea, represented by the Ministry of Energy, Mines and Water Resources ("MEMWR"), over the Galla Valley property. The initial period of the Exploration License is three years. The Company and PARC have committed to spend $1.25 million on exploration of the property in the first year of the Exploration License. As part of the Exploration License, the Company and PARC are required to provide MEMWR a bank guarantee in an amount equal to the minimum expenditure obligation (approximately $1.25 million) for the first year of the initial three-year exploration period. In October 1996, the Company and PARC entered into a bank guarantee application and related agreements with a major commercial bank (the "second Bank"). On October 11, 1996, the second Bank issued its bank guarantee for $1.25 million to the MEMWR to guarantee the first year's work expenditure commitment of the Company and PARC. The bank guarantee expires on August 19, 1997, and may be drawn on by the MEMWR in the event the Company and PARC fail to meet the minimum expenditure requirement in the first exploration year, but only in the amount of the difference between actual expenditures and the minimum requirement. PARC has provided cash collateral to the second Bank totaling $1.25 million for the bank guarantee. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements with Coopers & Lybrand, the Company's chartered accountants, regarding any matter of accounting principles or practices or financial statement disclosure. 132 133 PART III ITEMS 10, 11, 12 AND 13. In accordance with General Instruction G(3), the information required by Part III (with the exception of certain information regarding the Company's executive officers set forth above under Item 4A of this Form 10-K) is hereby incorporated by reference from the Company's proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. 133 134 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: 1. Financial Statements Management's Report Auditors' Report Consolidated Balance Sheets as of December 31, 1996 and 1995 Consolidated Statements of Operations Years Ended December 31, 1996, 1995 and 1994 Consolidated Statement of Changes in Shareholders' Equity Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows Years Ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements 2. Financial Statement Schedules Financial Statement schedules have been omitted since they are either not required, are not applicable, or the required information is shown in the financial statements or related notes. (b) Reports on Form 8-K. The Company filed no Form 8-K for the fourth quarter period ending December 31, 1996. EXHIBITS 2.1 Articles of Arrangement dated March 7, 1995 with Plan of Arrangement attached. (incorporated by reference to Exhibit 2.1 to the Company's Form 10-K for the year ended December 31, 1994) 3.1 Articles of Amalgamation of the Company. (incorporated by reference to Exhibit 1.1 to the Company's Registration Statement on Form 20-F, filed on May 10, 1993) 3.2 By-laws of the Company. (incorporated by reference to Exhibit 1.2 to the Company's Registration Statement on Form 20-F, filed on May 10, 1993) 3.2A By-law Number One amended and restated. (incorporated by reference to Exhibit 3 to the Company's Form 10-Q for quarter ended June 30, 1995) 4.1 Form of Stock Certificate. (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 filed on July 15, 1994) 4.2 Form of Warrant Certificate. (incorporated by reference to Exhibit 4.2 to the Company's Form 10-K for the year ended December 31, 1995) 134 135 10.1 Cambior Option Agreement dated May 24, 1990 respecting the Omai Gold Mine. (incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form 20-F, filed on May 10, 1993) 10.2 Memorandum of Association of Omai Gold Mines dated August 15, 1990 and entered into among Cambior, the Company and the Government of Guyana. (incorporated by reference to Exhibit 3.4 to the Company's Registration Statement on Form 20-F, filed on May 10, 1993) 10.3 Omai Mineral Agreement dated August 16, 1992 respecting the Omai Gold Mine. (incorporated by reference to Exhibit 3.10 to the Company's Registration Statement on Form 20-F, filed on May 10, 1993) 10.4 Agency Agreement, dated January 17, 1994 between Golden Star Resources Ltd. and First Marathon Securities Limited, Gordon Capital Corporation, Yorkton Securities and Robertson Stephens and Company. (incorporated by reference to Exhibit 10.7 to the Company's Form 10-K for the year ended December 31, 1994) 10.5 Agreement dated September 25,1994 between BRGM and Guyanor regarding Paul-Isnard properties (English translation). (incorporated by reference to Exhibit 10.8 to the Company's Form 10-K for the year ended December 31, 1994) 10.6 Gross Rosebel Mineral Agreement dated April 7, 1994 between The Republic of Suriname, Grasshopper Aluminum Company N.V. and the Company (English translation). (incorporated by reference to Exhibit 10.9 to the Company's Form 10-K for the year ended December 31, 1994) 10.7 Option Agreement dated June 1, 1994 between Cambior Inc. and the Company regarding the Gross Rosebel property. (incorporated by reference to Exhibit 10.10 to the Company's Form 10-K for the year ended December 31, 1994) 10.8 Option Agreement dated May 11, 1994 between Cambior Inc. and the Company regarding Yaou and Dorlin properties. (incorporated by reference to Exhibit 10.11 to the Company's Form 10-K for the year ended December 31, 1994) 10.9 Option Agreement dated October 18, 1994 between the Company, Pan African Resources Corporation, Precious Stones Sierra Leone Baomahun Inc. and Harry Winston, Inc. regarding the Baomahun property. (incorporated by reference to Exhibit 10.12 to the Company's Form 10-K for the year ended December 31, 1994) 10.10 Agreement dated February 25, 1995 between Guyanor Ressources S.A., Societe des Mines de St-Elie, Asarco Incorporated and Asarco Guyane FranHaise regarding the St-Elie property. (incorporated by reference to Exhibit 10.16 to the Company's Form 10-K for the year ended December 31, 1994) 135 136 10.11 Agreement dated August 28, 1992 between Guyanor, CME and Raymond Blanchard regarding the transfer of the St-Elie concession (together with English summary thereof). (incorporated by reference to Exhibit 10.19 to the Company's Form 10-K for the year ended December 31, 1994) 10.12 Agreement dated January 10, 1995, between the Ministry of Mines and Energy of Ivory Coast and the Company together with English summary thereof. (incorporated by reference to Exhibit 10.12 to the Company's Form 10-K for the year ended December 31, 1995) 10.13 Agreement dated April 30, 1995, between The Ministry of Mines and Energy of Ethiopia and the Company, for the exploration of gold at Dul Locality. (incorporated by reference to Exhibit 10.13 to the Company's Form 10-K for the year ended December 31, 1995) 10.14 Heads of Agreement dated December 14, 1995, between Guyanor Ressources S.A. and BHP Minerals International Exploration Inc., concerning Dachine property. (incorporated by reference to Exhibit 10.14 to the Company's Form 10-K for the year ended December 31, 1995) 10.15 Agreement of Purchase and Sale dated January 10, 1997, between Pan African Resources Corporation (Barbados) and Lafayette Holdings Corp., re Eteke properties in Gabon terminating the agreements incorporated by reference as Exhibit 10.15 to the Company's Form 10-K for the year ended December 31, 1995. 10.16 Mineral Agreement dated October 1995, between Pan African Resources Corporation and the Minister Responsible for Mining, Industry and Hydraulics of the Government of Mali, for the Melgue property, together with English summary thereof. (incorporated by reference to Exhibit 10.16 to the Company's Form 10-K for the year ended December 31, 1995) 10.17 Company Share Transfer contract between the Company, Pan African Resources Corporation, Barbey, Almeida, Ly, Keita and AFC; Partners Agreement between same parties and Receivership Agreement between same parties, dated December 31, 1995, together with English translations thereof. (incorporated by reference to Exhibit 10.17 to the Company's Form 10-K for the year ended December 31, 1995) 10.18 Management Services Agreement dated January 1, 1995 between the Company and Guyanor Ressources S.A. (incorporated by reference to Exhibit 10.18 to the Company's Form 10-K for the year ended December 31, 1995) 10.19 Management Services Agreement dated January 1, 1996 between the Company and Pan African Resources Corporation. (incorporated by reference to Exhibit 10.19 to the Company's Form 10-K for the year ended December 31, 1995) 136 137 10.20 Underwriting Agreement dated February 21, 1995, between Guyanor Ressources S.A., and the Company, together with Gordon Capital Corporation, First Marathon Securities Limited and Yorkton Securities Inc. (incorporated by reference to Exhibit 10-20 to the Company's Form 10-K for the year ended December 31, 1995) 10.21 Agency Agreement dated December 12, 1995 and Amendment to Agency Agreement, dated January 24, 1996 between Pan African Resources Corporation, Yorkton Securities Inc., Gordon Capital Corporation and RBC Dominion Securities Inc. (incorporated by reference to Exhibit 10.21 to the Company's Form 10-K for the year ended December 31, 1995) 10.22 Underwriting Agreement dated February 9, 1996, between the Company and CIBC Wood Gundy Securities Inc., Gordon Capital Corporation, Nesbitt Burns Inc. and RBC Dominion Securities Inc. (incorporated by reference to Exhibit 1.1 to the Company's Form 8-K dated March 4, 1996) 10.23 Exploration License Agreement dated April 19, 1996, between the Government of the State of Eritrea and the Company for the Grant of Exploration Right and License in The Galla Valley Area 10.24 English translation of the Exploration Agreement dated May 13, 1996, between the Company's wholly owned subsidiary Southern Star Resources Ltd. and its wholly-owned Brazilian subsidiary, Estrela Sul do Brasil Empreendimentos Ltda. And Companhia Vale do Rio Doce and its subsidiary Rio Doce Geologia e Mineraacao S.A. 10.25 Termination and Settlement Agreement dated July 29, 1996, between Venezuela Investments Ltd., a wholly owned subsidiary of the Company and various other entities including VenStar Gold Ltd., Venhold Investments (1994) Ltd., Lindley Associated S.A., Golden Star Management Ltd., General Mining de Guyana C.A., Krysos Mining S.A., Servicios Consultmin S.A., GenVen Holdings Ltd., KrysVen Holdings Ltd. and ConsultVen Holdings Ltd., terminating the agreements incorporated by reference as Exhibit 10.13 to the Company's Form 10-K for the year ended December 31, 1994. 10.26 English translation of the Option and Joint Venture Agreement dated June 26, 1996, between Societe de Travaux Publics et de Mines Aurifiere en Guyane, Societe Guyanaise des Mines (collectively "SOTRAPMAG"), a 100% owned subsidiary of Guyanor Ressources S.A., LaSource Developpement, SAS and ASARCO Exploration Company for the Paul Isnard property. 10.27 Heads of Agreement dated July 22, 1996, between the Company and BHP Minerals International Exploration Inc. regarding the Guyana Reconnaissance Project. 10.28 Heads of Agreement dated November 13, 1996, between the Company and BHP Minerals International Exploration Inc. regarding the South Benzdorp Project in Suriname. 137 138 10.29 Heads of Agreement dated August 19, 1996, and amendment No. 1 dated October 25, 1996, between the Company and BHP Minerals International Exploration Inc. regarding the Suriname Reconnaissance Project. 10.30 English translation of the Underwriting Agreement dated October 29, 1996, between Guyanor Ressources S.A., Banque Paribas, Banque Bruxelles Lambert France, Banque Nationale De Paris, CIBC Wood Gundy Securities, Yorkton Securities Inc., Societe De Bourse De Portzamparc S.A. and the Company. 10.31 English translation of Convention D'Etablissement dated October 15, 1996, between the Government of the Republic of Mali and PARC Fougala S.A. 10.32 1992 Employee Stock Option Plan amended and restated to June 7, 1995. (incorporated by reference to Exhibit 10.23 to the Company's Form 10-K for the year ended December 31, 1995) 10.33 1992 Non-Discretionary Directors' Stock Option Plan, amended and restated to November 6, 1995. 10.34 Employees' Stock Bonus Plan amended and restated to June 7, 1995. (incorporated by reference to Exhibit 10.25 to the Company's Form 10-K for the year ended December 31, 1995) 10.35 Guyanor Ressources S.A. Stock Option Plan (English translation). (incorporated by reference to Exhibit 10.26 to the Company's Form 10-K for the year ended December 31, 1995) 10.36 Pan African Resources Corporation Stock Option Plan. (incorporated by reference to Exhibit 10.27 to the Company's Form 10-K for the year ended December 31, 1995) 10.37 Standardized Adoption Agreement for a 401-K Savings Plan adopted January 1, 1996. (incorporated by reference to Exhibit 10.28 to the Company's Form 10-K for the year ended December 31, 1995) 10.38 Employment Contracts of Messrs. Fagin, Fennell, Fleming, Bertoni and Shields, dated May 15, 1992, May 15, 1992, May 5, 1994, January 1, 1994, and January 1, 1994, respectively. (incorporated by reference to Exhibit 10.29 to the Company's Form 10-K for the year ended December 31, 1995) 10.39 Agreements between the Company and its outside directors, dated December 8, 1995, and December 10, 1996, granting them options to purchase Guyanor Class "B" common shares. 10.40 Amendment of Employment Agreement dated May 1, 1996, amending the Employment Agreement dated May 15, 1992, between the Company and David K. Fagin 138 139 10.41 Guarantee (letter of credit) dated July 26, 1995, to Government of Ethiopia. (incorporated by reference to Exhibit 10.31 to the Company's Form 10-K for the year ended December 31, 1995) 10.42 Rights Agreement dated April 24, 1996, between the Company and The R-M Trust Company. (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K dated May 7, 1996) 21.1 Subsidiaries of the Registrant. 23.1 Consent of Coopers & Lybrand, Chartered Accountants. 27.1 Financial Data Schedule. 139 140 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GOLDEN STAR RESOURCES LTD. Registrant By: /s/ David A. Fennell --------------------------------------------- DAVID K. FAGIN President and Chief Executive Officer Date: --------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: By: /s/ David A. Fennell By: /s/ Gordon J. Bell ------------------------------------- ------------------------------------------ Name: David A. Fennell Name: Gordon J. Bell --------------------------------- -------------------------------------- Title: President and CEO Title: Vice-President and Chief Financial (Principal Executive Officer) Officer (Principal Financial and --------------------------------- Accounting Officer) ------------------- Date: March 28, 1997 Date: March 28, 1997 ----------------------------- ----------------------------- By: /s/ David K. Fagin By: /s/ David A. Fennell --------------------------------- ------------------------------------- Name: David K. Fagin Name: David A. Fennell ----------------------------- ------------------------------------- Title: Director Title: Director ------------------------------------- Date: March 28, 1997 Date: March 28, 1997 ----------------------------- ----------------------------- By: /s/ Jean-Pierre Lefebvre By: /s/ Pierre Goussleand --------------------------------- ------------------------------------- Name: Jean-Pierre Lefebvre Name: Pierre Gousseland --------------------------------- ------------------------------------- Title: Director Title: Director --------------------------------- ------------------------------------- Date: March 28, 1997 Date: March 28, 1997 ----------------------------- -----------------------------
140 141 By: /s/ Donald F. Mazankowski By: /s/ Ernest Mercier ----------------------------- ------------------------------------- Name: Donald F. Mazankowski Name: Ernest Mercier ----------------------------- ------------------------------------- Title: Director Title: Director ----------------------------- ------------------------------------- Date: March 28, 1997 Date: March 28, 1997 ----------------------------- ----------------------------- By: /s/ Roger Morton By: /s/ Robert Minto --------------------------------- ------------------------------------- Name: Roger Morton Name: Robert Minto --------------------------------- ------------------------------------- Title: Director Title: Director --------------------------------- ------------------------------------- Date: March 28, 1997 Date: March 28, 1997 ----------------------------- ----------------------------- By: /s/ Richard A. Stark --------------------------------- Name: Richard A. Stark --------------------------------- Title: Director --------------------------------- Date: March 28, 1997 -----------------------------
141 142 EXHIBIT INDEX -------------
2.1 Articles of Arrangement dated March 7, 1995 with Plan of Arrangement attached. (incorporated by reference to Exhibit 2.1 to the Company's Form 10-K for the year ended December 31, 1994) 3.1 Articles of Amalgamation of the Company. (incorporated by reference to Exhibit 1.1 to the Company's Registration Statement on Form 20-F, filed on May 10, 1993) 3.2 By-laws of the Company. (incorporated by reference to Exhibit 1.2 to the Company's Registration Statement on Form 20-F, filed on May 10, 1993) 3.2A By-law Number One amended and restated. (incorporated by reference to Exhibit 3 to the Company's Form 10-Q for quarter ended June 30, 1995) 4.1 Form of Stock Certificate. (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 filed on July 15, 1994) 4.2 Form of Warrant Certificate. (incorporated by reference to Exhibit 4.2 to the Company's Form 10-K for the year ended December 31, 1995)
143 10.1 Cambior Option Agreement dated May 24, 1990 respecting the Omai Gold Mine. (incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form 20-F, filed on May 10, 1993) 10.2 Memorandum of Association of Omai Gold Mines dated August 15, 1990 and entered into among Cambior, the Company and the Government of Guyana. (incorporated by reference to Exhibit 3.4 to the Company's Registration Statement on Form 20-F, filed on May 10, 1993) 10.3 Omai Mineral Agreement dated August 16, 1992 respecting the Omai Gold Mine. (incorporated by reference to Exhibit 3.10 to the Company's Registration Statement on Form 20-F, filed on May 10, 1993) 10.4 Agency Agreement, dated January 17, 1994 between Golden Star Resources Ltd. and First Marathon Securities Limited, Gordon Capital Corporation, Yorkton Securities and Robertson Stephens and Company. (incorporated by reference to Exhibit 10.7 to the Company's Form 10-K for the year ended December 31, 1994) 10.5 Agreement dated September 25,1994 between BRGM and Guyanor regarding Paul-Isnard properties (English translation). (incorporated by reference to Exhibit 10.8 to the Company's Form 10-K for the year ended December 31, 1994) 10.6 Gross Rosebel Mineral Agreement dated April 7, 1994 between The Republic of Suriname, Grasshopper Aluminum Company N.V. and the Company (English translation). (incorporated by reference to Exhibit 10.9 to the Company's Form 10-K for the year ended December 31, 1994) 10.7 Option Agreement dated June 1, 1994 between Cambior Inc. and the Company regarding the Gross Rosebel property. (incorporated by reference to Exhibit 10.10 to the Company's Form 10-K for the year ended December 31, 1994) 10.8 Option Agreement dated May 11, 1994 between Cambior Inc. and the Company regarding Yaou and Dorlin properties. (incorporated by reference to Exhibit 10.11 to the Company's Form 10-K for the year ended December 31, 1994) 10.9 Option Agreement dated October 18, 1994 between the Company, Pan African Resources Corporation, Precious Stones Sierra Leone Baomahun Inc. and Harry Winston, Inc. regarding the Baomahun property. (incorporated by reference to Exhibit 10.12 to the Company's Form 10-K for the year ended December 31, 1994) 10.10 Agreement dated February 25, 1995 between Guyanor Ressources S.A., Societe des Mines de St-Elie, Asarco Incorporated and Asarco Guyane Francaise regarding the St-Elie property. (incorporated by reference to Exhibit 10.16 to the Company's Form 10-K for the year ended December 31, 1994)
144 10.11 Agreement dated August 28, 1992 between Guyanor, CME and Raymond Blanchard regarding the transfer of the St-Elie concession (together with English summary thereof). (incorporated by reference to Exhibit 10.19 to the Company's Form 10-K for the year ended December 31, 1994) 10.12 Agreement dated January 10, 1995, between the Ministry of Mines and Energy of Ivory Coast and the Company together with English summary thereof. (incorporated by reference to Exhibit 10.12 to the Company's Form 10-K for the year ended December 31, 1995) 10.13 Agreement dated April 30, 1995, between The Ministry of Mines and Energy of Ethiopia and the Company, for the exploration of gold at Dul Locality. (incorporated by reference to Exhibit 10.13 to the Company's Form 10-K for the year ended December 31, 1995) 10.14 Heads of Agreement dated December 14, 1995, between Guyanor Ressources S.A. and BHP Minerals International Exploration Inc., concerning Dachine property. (incorporated by reference to Exhibit 10.14 to the Company's Form 10-K for the year ended December 31, 1995) 10.15 Agreement of Purchase and Sale dated January 10, 1997, between Pan African Resources Corporation (Barbados) and Lafayette Holdings Corp., re Eteke properties in Gabon terminating the agreements incorporated by reference as Exhibit 10.15 to the Company's Form 10-K for the year ended December 31, 1995. 10.16 Mineral Agreement dated October 1995, between Pan African Resources Corporation and the Minister Responsible for Mining, Industry and Hydraulics of the Government of Mali, for the Melgue property, together with English summary thereof. (incorporated by reference to Exhibit 10.16 to the Company's Form 10-K for the year ended December 31, 1995) 10.17 Company Share Transfer contract between the Company, Pan African Resources Corporation, Barbey, Almeida, Ly, Keita and AFC; Partners Agreement between same parties and Receivership Agreement between same parties, dated December 31, 1995, together with English translations thereof. (incorporated by reference to Exhibit 10.17 to the Company's Form 10-K for the year ended December 31, 1995) 10.18 Management Services Agreement dated January 1, 1995 between the Company and Guyanor Ressources S.A. (incorporated by reference to Exhibit 10.18 to the Company's Form 10-K for the year ended December 31, 1995) 10.19 Management Services Agreement dated January 1, 1996 between the Company and Pan African Resources Corporation. (incorporated by reference to Exhibit 10.19 to the Company's Form 10-K for the year ended December 31, 1995)
145 10.20 Underwriting Agreement dated February 21, 1995, between Guyanor Ressources S.A., and the Company, together with Gordon Capital Corporation, First Marathon Securities Limited and Yorkton Securities Inc. (incorporated by reference to Exhibit 10-20 to the Company's Form 10-K for the year ended December 31, 1995) 10.21 Agency Agreement dated December 12, 1995 and Amendment to Agency Agreement, dated January 24, 1996 between Pan African Resources Corporation, Yorkton Securities Inc., Gordon Capital Corporation and RBC Dominion Securities Inc. (incorporated by reference to Exhibit 10.21 to the Company's Form 10-K for the year ended December 31, 1995) 10.22 Underwriting Agreement dated February 9, 1996, between the Company and CIBC Wood Gundy Securities Inc., Gordon Capital Corporation, Nesbitt Burns Inc. and RBC Dominion Securities Inc. (incorporated by reference to Exhibit 1.1 to the Company's Form 8-K dated March 4, 1996) 10.23 Exploration License Agreement dated April 19, 1996, between the Government of the State of Eritrea and the Company for the Grant of Exploration Right and License in The Galla Valley Area 10.24 English translation of the Exploration Agreement dated May 13, 1996, between the Company's wholly owned subsidiary Southern Star Resources Ltd. and its wholly-owned Brazilian subsidiary, Estrela Sul do Brasil Empreendimentos Ltda. And Companhia Vale do Rio Doce and its subsidiary Rio Doce Geologia e Mineraacao S.A. 10.25 Termination and Settlement Agreement dated July 29, 1996, between Venezuela Investments Ltd., a wholly owned subsidiary of the Company and various other entities including VenStar Gold Ltd., Venhold Investments (1994) Ltd., Lindley Associated S.A., Golden Star Management Ltd., General Mining de Guyana C.A., Krysos Mining S.A., Servicios Consultmin S.A., GenVen Holdings Ltd., KrysVen Holdings Ltd. and ConsultVen Holdings Ltd., terminating the agreements incorporated by reference as Exhibit 10.13 to the Company's Form 10-K for the year ended December 31, 1994. 10.26 English translation of the Option and Joint Venture Agreement dated June 26, 1996, between Societe de Travaux Publics et de Mines Aurifiere en Guyane, Societe Guyanaise des Mines (collectively "SOTRAPMAG"), a 100% owned subsidiary of Guyanor Ressources S.A., LaSource Developpement, SAS and ASARCO Exploration Company for the Paul Isnard property. 10.27 Heads of Agreement dated July 22, 1996, between the Company and BHP Minerals International Exploration Inc. regarding the Guyana Reconnaissance Project. 10.28 Heads of Agreement dated November 13, 1996, between the Company and BHP Minerals International Exploration Inc. regarding the South Benzdorp Project in Suriname.
146 10.29 Heads of Agreement dated August 19, 1996, and amendment No. 1 dated October 25, 1996, between the Company and BHP Minerals International Exploration Inc. regarding the Suriname Reconnaissance Project. 10.30 English translation of the Underwriting Agreement dated October 29, 1996, between Guyanor Ressources S.A., Banque Paribas, Banque Bruxelles Lambert France, Banque Nationale De Paris, CIBC Wood Gundy Securities, Yorkton Securities Inc., Societe De Bourse De Portzamparc S.A. and the Company. 10.31 English translation of Convention D'Etablissement dated October 15, 1996, between the Government of the Republic of Mali and PARC Fougala S.A. 10.32 1992 Employee Stock Option Plan amended and restated to June 7, 1995. (incorporated by reference to Exhibit 10.23 to the Company's Form 10-K for the year ended December 31, 1995) 10.33 1992 Non-Discretionary Directors' Stock Option Plan, amended and restated to November 6, 1995. 10.34 Employees' Stock Bonus Plan amended and restated to June 7, 1995. (incorporated by reference to Exhibit 10.25 to the Company's Form 10-K for the year ended December 31, 1995) 10.35 Guyanor Ressources S.A. Stock Option Plan (English translation). (incorporated by reference to Exhibit 10.26 to the Company's Form 10-K for the year ended December 31, 1995) 10.36 Pan African Resources Corporation Stock Option Plan. (incorporated by reference to Exhibit 10.27 to the Company's Form 10-K for the year ended December 31, 1995) 10.37 Standardized Adoption Agreement for a 401-K Savings Plan adopted January 1, 1996. (incorporated by reference to Exhibit 10.28 to the Company's Form 10-K for the year ended December 31, 1995) 10.38 Employment Contracts of Messrs. Fagin, Fennell, Fleming, Bertoni and Shields, dated May 15, 1992, May 15, 1992, May 5, 1994, January 1, 1994, and January 1, 1994, respectively. (incorporated by reference to Exhibit 10.29 to the Company's Form 10-K for the year ended December 31, 1995) 10.39 Agreements between the Company and its outside directors, dated December 8, 1995, and December 10, 1996, granting them options to purchase Guyanor Class "B" common shares. 10.40 Amendment of Employment Agreement dated May 1, 1996, amending the Employment Agreement dated May 15, 1992, between the Company and David K. Fagin
147 10.41 Guarantee (letter of credit) dated July 26, 1995, to Government of Ethiopia. (incorporated by reference to Exhibit 10.31 to the Company's Form 10-K for the year ended December 31, 1995) 10.42 Rights Agreement dated April 24, 1996, between the Company and The R-M Trust Company. (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K dated May 7, 1996) 21.1 Subsidiaries of the Registrant. 23.1 Consent of Coopers & Lybrand, Chartered Accountants. 27.1 Financial Data Schedule.
EX-10.15 2 AGREEMENT OF PURCAHSE AND SALE 1 EXHIBIT 10.15 AGREEMENT OF PURCHASE AND SALE AGREEMENT OF PURCHASE AND SALE, dated as of January 10, 1997 (the "Agreement") by and between Pan African Resources Corporation, a company incorporated under the laws of Barbados ("PARC") and Lafayette Holdings Corp., a company incorporated under the laws of the Bahamas ("Lafayette"). A. PARC and Lafayette are parties to that certain Option Agreement dated September 4, 1994 (as amended, the "Option Agreement") and that certain Corporate Joint Venture and Shareholder Agreement dated May 5, 1995 (the "JV Agreement"). The JV Agreement sets forth the respective rights and obligations of the parties in connection with a corporate joint venture entity known as Lafayette Mining Gabon, Ltd. ("LMG"), of which PARC holds an 80% equity interest (subject to divestment under certain conditions) and Lafayette holds a 20% equity interest. Capitalized terms used herein, unless otherwise defined, have the respective meanings ascribed to them in the JV Agreement. B. PARC has received a bona fide offer from a third party to acquire its rights, title, interests and corresponding obligations under the JV Agreement and Option Agreement (the "Offer"), a copy of which offer is attached hereto as Exhibit A. C. By a notice dated December 12, 1996 to PARC, Lafayette has exercised a right of first refusal in its favor to acquire the rights and obligations of PARC on the same terms as the Offer, in accordance with the terms of Article 9 of the JV Agreement. NOW, THEREFORE, in consideration of the foregoing premises and the covenants contained herein and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: 1. Purchase and Sale. 1.1 Subject to all the terms and conditions hereof and in consideration for the payment by Lafayette to PARC of Six Hundred Forty Thousand U.S. Dollars (US$640,000.00) cash (the "Purchase Price"), PARC hereby sells, assigns and transfers to Lafayette all of PARC's rights, title and interests in and to (i) all Shares and Shareholder Loans of PARC in LMG and (ii) all the related rights and obligations of PARC under the JV Agreement, the Option Agreement (to the extent not superseded by the JV Agreement) and any other related agreements. 1.2 Lafayette hereby undertakes and assumes all the obligations and liabilities of PARC in respect of LMG and under the Option Agreement, JV Agreement and related agreements and expressly agrees that its rights and interests are subject to all the terms and conditions of such agreements, to the extent applicable and in force. 1.3 The purchase and sale contemplated herein is made strictly on an "AS-IS", "WHERE-IS" basis, with Lafayette relying solely on its own due diligence investigation of the assets purchased. PARC has not made and will not make any representations or warranties relating to the Shares, Shareholder Loans or any other assets being purchased or liabilities being assumed, directly or indirectly. Notwithstanding the foregoing, to the best of PARC's knowledge and belief, LMG is the owner, free of encumbrance, of 494 out of 500 total capital shares of LMG-G. 2 2. Closing. 2.1 The transaction contemplated by this Agreement shall be consummated (the "Closing") on or before January 10, 1997 (the "Closing Date"). The Closing shall take place at a site to be mutually agreed in Geneva, Switzerland on the Closing Date, unless the parties mutually agree in writing to extend the Closing Date or change the location of the Closing. 2.2 There are no contingencies to the timely closing of this transaction. The parties hereto acknowledge and agree that no regulatory, legal or governmental approvals are required for the consummation of this transaction. In the event for any reason (other than the material failure of PARC to perform hereunder) Lafayette fails to provide PARC with the full Purchase Price in "good" (immediately available) funds satisfactory to PARC on or prior to the Closing Date, then Lafayette shall be deemed to have irrevocably waived its right of first refusal with respect to the Offer and PARC shall be entitled to consummate the transaction set forth in the third party Offer in accordance with the terms of Article 9 of the JV Agreement. 3. Lafayette's Obligations. Lafayette shall: 3.1 At the Closing, provided that on or before the Closing Date PARC shall have materially complied with each and all of its obligations set forth herein,_present PARC with a certified bank or cashier's check, satisfactory in all respects to PARC and its bank, in the amount of the Purchase Price, net of all bank or other charges, from a major international bank satisfactory to PARC and its bank, or, alternatively, at PARC's request, wire-transfer immediately available funds in the amount of the Purchase Price, net of bank or other charges, to a bank account designated by PARC. 3.2 Upon Closing, assume full responsibility for all unfulfilled and ongoing obligations of LMG and LMG-G in connection with the Mineral Rights, the Option Agreement and JV Agreement, to the extent applicable, as well as any and all other obligations and liabilities of LMG and LMG-G, including without limitation, all charges of the registered agents, corporate secretaries, outside accountants, lawyers and other professionals, leases of buildings, offices or land, labor and employment obligations of LMG-G, taxes, duties, statutory and similar obligations, contracts or agreements between LMG-G and third parties and any other obligations or liabilities of LMG or LMG-G which may exist as of the Closing or arise thereafter. LMG-G has in the past utilized certain physical assets in conducting the Operations in Gabon (collectively, the "Hard Assets") which, to the best of PARC's knowledge, are located on or near the Eteke Property and in the offices leased by LMG-G in Mouila and Libreville. PARC makes no representation or warranty whatsoever as to the nature, condition, location or ownership of the Hard Assets. PARC undertakes to arrange to deliver keys to the offices in Mouila and Libreville and to any storage sheds or other structures on the Property, or otherwise to enable Lafayette to gain access thereto and to any employment or other business records therein at a mutually convenient time to be agreed by the parties. 3.3 At the Closing, execute this Agreement and provide PARC with three (3) fully executed originals hereof. 4. PARC's Obligations. At Closing, provided that on or before the Closing Date Lafayette has materially complied with each and all of its obligations set forth herein, PARC shall: 2 3 4.1 Deliver to Lafayette share certificates representing 160 Shares of LMG endorsed in favor of PARC, duly endorsed for transfer to Lafayette, and free and clear of any liens, claims, encumbrances, or other rights of third parties. 4.2 Execute this Agreement and deliver three (3) fully executed originals hereof to Lafayette. 4.3 Deliver or cause to be delivered to Lafayette the resignation, substantially in the form attached hereto as Exhibit B-1, of all officers and directors of LMG and its subsidiaries who were selected by or who are representatives of PARC, the names of which officers and directors are set forth in Exhibit B-2 attached hereto. 4.4 Execute an original letter, substantially in the form attached hereto as Exhibit C, to the office of Colybrand Company Services Ltd., St. Michael, Barbados, the acting corporate secretary and transfer agent of LMG, (a) informing it of the resignations of PARC's directors of LMG, (b) informing it that PARC no longer has any ownership or other interest in LMG, and (c) instructing it to take any and all further actions with respect to LMG only from the remaining and any newly named directors of LMG. 4.5 Provide the originals or, where no originals are available, copies of all corporate and formation documents, minutes of shareholders meetings and board of directors meetings and powers of attorney of LMG and its subsidiaries which it has in its possession, if any, in accordance with the list set forth on Exhibit D attached hereto. 4.6 Deliver or cause to be delivered to Lafayette statements of all business and accounting books and records of LMG and LMG-G, if any, as of the most recent date for which such statements have been prepared or received, which are set forth on Exhibit E attached hereto. 4.7 Deliver to Lafayette originals (where available) or copies of all technical data and reports, inclusive of all data held in electronic media in the form of (inter alia) diskettes, with respect to the property covered by the Permit and the exploration operations undertaken thereon, a description of which is set forth on Exhibit F attached hereto. 4.8 In the event PARC is unable to provide any of the documents or information set forth in sections 4.3, 4.5, 4.6 or 4.7 at the Closing, the Closing shall not be delayed and PARC hereby covenants to deliver such information within thirty (30) days thereafter. In addition, PARC covenants to sign and to cause David A. Fennell, David K. Fagin and Adrian W. Fleming (the holders of one nominal capital share each of LMG-G, as set forth on Exhibit G attached hereto) to sign an endorsement or other document (satisfactory to them in form and content) evidencing the transfer of their respective nominal capital shares in LMG-G to replacement nominal shareholders designated by Lafayette after the Closing, if necessary to effect such transfer under applicable law, upon presentation to them of such documents ready for signature. Lafayette hereby agrees to indemnify, defend and hold Mssrs. Fennell, Fagin and Fleming and PARC harmless and free from any liability, claim, loss, damage, cost or expense whatsoever (including reasonable attorneys' fees) which may arise out of their acting as nominal shareholders of LMG-G during the period after the Closing until they are substituted and replaced by Lafayette. 3 4 The parties hereto agree and acknowledge that all documents, information and data delivered by PARC pursuant to this Agreement are delivered without representation or warranty of any kind, whether express or implied. 5. Releases of Claims. 5.1 From and after the Closing Date Lafayette and all of its past and present directors, officers, shareholders, affiliates, parents, subsidiaries (including LMG and LMG-G), partners, agents, representatives, attorneys, principals, associates, employees, successors and assigns (collectively, the "Comprehensive Buyer Group"), and each of them, individually and collectively, hereby fully, forever and irrevocably release and discharge PARC and all of its past and present directors, officers, shareholders, affiliates, parents, subsidiaries (including, specifically, LMG, LMG-G and all PARC affiliated or designated directors, officers and representatives thereof), partners, agents, representatives, attorneys, principals, associates, employees, successors and assigns (collectively, the "Comprehensive Seller Group"), and each of them, individually and collectively, from any and all rights, claims, demands, liabilities, obligations, damages, losses, injuries, actions and causes of action of every type, kind, nature, description or character, and irrespective of how, why, or by reason of what facts, whether heretofore or now existing, or that could, might, or may be claimed to exist, whether known or unknown, suspected or unsuspected, whether based on contract, tort, breach of duty, or other legal or equitable theory of recovery (collectively a "Claim" or the "Claims"), which the Comprehensive Buyer Group, or any of them, has or hereafter may have, or claim or hereafter may claim to have, against the Comprehensive Seller Group, or any of them, which are or have been incurred or sustained by the Comprehensive Buyer Group, or any of them, and occasioned directly or indirectly by any action or omission of the Comprehensive Seller Group, or any them, arising out of or in connection with this Agreement, the Shares, the Property, the Mineral Rights, the Operations, any Program, the JV Agreement, the Option Agreement or the transactions contemplated by (or ancillary agreements referenced in) any of the foregoing, except for and excluding any Claim arising out of or based on a breach of this Agreement or the fact that any representation or warranty made by the Comprehensive Seller Group, or any of them, in this Agreement is materially untrue as of the Closing. 5.2 From and after the Closing Date the Comprehensive Seller Group and each of them, individually and collectively, hereby fully, forever and irrevocably release and discharge the Comprehensive Buyer Group, and each of them, individually and collectively, from any and all Claims which the Comprehensive Seller Group, or any of them, has or hereafter may have, or claim or hereafter may claim to have, against the Comprehensive Buyer Group, or any of them, which are or have been incurred or sustained by the Comprehensive Seller Group, or any of them, and occasioned directly or indirectly by an action or omission of the Comprehensive Buyer Group, or any of them, arising out of or in connection with this Agreement, the Shares, the Property, the Mineral Rights, the Operations, any Program, the JV Agreement, the Option Agreement or the transactions contemplated by (or ancillary agreements referenced in) any of the foregoing, except for and excluding any Claim arising out of or based on a breach of this Agreement or the fact that any representation or warranty made by the Comprehensive Buyer Group, or any of them, in this Agreement is materially untrue as of the Closing. 5.3 Each of the Comprehensive Buyer Group and the Comprehensive Seller Group irrevocably covenant and agree that each of them shall forever refrain from initiating, filing, instituting, maintaining or proceeding upon any Claim of any nature whatsoever released in the general releases 4 5 provided for in this section 5 (the "General Releases"). If an action is brought arising out of an alleged breach of any General Release, the prevailing party in said action will be entitled to recover from the breaching party, in addition to any other relief provided by the law, such costs and expenses as may be incurred by the prevailing party, including court costs and reasonable attorneys' fees and disbursements. Any General Release made herein may be pleaded as a full and complete defense to or be used as the basis for an injunction against any action, suit, or other proceeding that may be instituted, prosecuted or attempted in breach of such General Release. 5.4 It is understood and agreed that the delivery and acceptance of the General Releases made herein shall not be deemed or construed as an admission of liability by any released party, and each such released party hereby expressly denies liability of any nature whatsoever arising from or related to the subject of the General Releases. 6. Representations and Warranties. 6.1 Each of the parties to this Agreement represents and warrants that it is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. 6.2 Each of the parties to this Agreement represents and warrants that it has full corporate power to enter into this Agreement and to consummate the transactions contemplated hereby, including the making of the applicable General Release, and that the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of such party, and that this Agreement is a valid and binding obligation of such party, enforceable against such party in accordance with its terms. 6.3 Each of the parties to this Agreement represents and warrants that neither the execution and delivery of, nor performance under, this Agreement on the part of such party is prohibited by, conflicts with or requires any authorization, approval or registration under any law, rule, regulation or court order binding upon such party. 6.4 Each of the parties to this Agreement represents and warrants that it is the owner of, and has not assigned, sold or transferred or otherwise disposed of any Claim released in the applicable General Release made by such party. 6.5 Each of the parties to this Agreement represents and warrants that it has had the advice of legal counsel of its own choosing in negotiations for the preparation of this Agreement and the applicable General Release of such party, that it has read such General Release and had it fully explained to it by its legal counsel, and that it is fully aware of its content and legal effect. The representations and warranties made herein shall survive the Closing Date for a period of one year. Each party hereto shall indemnify and hold the others harmless from and against any loss, cost or expense suffered by them due to the fact that any representation or warranty made by the such party in this Agreement is materially untrue as of the Closing Date. 5 6 7. Miscellaneous Provisions. 7.1 No party may assign this Agreement or any of its rights and duties hereunder without the prior written consent of the other party. Subject to this limitation on assignments, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 7.2 This Agreement may not be amended nor any provision herein waived except by an instrument in writing signed by the party to be charged with such amendment or waiver and delivered by such party to the parties claiming the benefit of such amendment or waiver. No waiver of any provision of this Agreement shall be deemed or shall constitute a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver, unless otherwise provided in the written waiver. 7.3 The headings and subheadings contained in this Agreement are for convenience only and shall not control or affect the meaning, construction, or interpretation of any provision hereof. 7.4 This Agreement constitutes the entire agreement among the parties with respect to the subject matter and supersedes all prior and contemporaneous agreements, representations and understandings of the parties. 7.5 This Agreement shall be construed in accordance with, and governed by, the laws of the State of Colorado, U.S.A. and each of the parties hereto hereby submits to the jurisdiction of the courts of such state. 7.6 This Agreement may be executed in counterparts, each of which shall be an original instrument, but all of which together shall constitute one and the same instrument. This Agreement may validly be executed by electronic telecopier or facsimile. 7.7 Each of the parties hereto shall be responsible for all their own legal fees, costs and expenses incurred in connection herewith. 6 7 7.8 Should any provisions of this Agreement, or portions hereof, be found to be invalid by an arbitrator or any court of competent jurisdiction, the remainder of this Agreement shall nonetheless remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed, effective as of the date first above written. PAN AFRICAN RESOURCES CORPORATION By: /s/ Anthony Greenish Title: Vice President LAFAYETTE HOLDINGS CORP. By: /s/ Kieran Flockton Title: CEO 7 8 EXHIBIT A ORIGINAL THIRD PARTY OFFER TO PURCHASE (please see original document for Purchase Offer) 9 EXHIBIT B-1 Form of Resignation of Officers and Directors of PARC January ___, 1997 Board of Directors Lafayette Mining Gabon Ltd. Lafayette Mining Gabon S.A. Gentlemen: The undersigned hereby resign any position they held as an officer and/or member of the Board of Directors or other designated representative of Lafayette Mining Gabon, Ltd. and/or Lafayette Mining Gabon S.A., effective as of the date of this letter and hereby acknowledge that they have no claim for compensation for loss of office or otherwise. This resignation may validly be signed by telecopier (facsimile). Sincerely, - ---------------------- ----------------------- Adrian W. Fleming David A. Fennell - ---------------------- ----------------------- David K. Fagin Bernard Amozig 2 10 EXHIBIT B-2 Names of Officers and Directors Representing PARC Denoted by an Asterisk (*) LAFAYETTE MINING GABON LTD.
INCORPORATED DIRECTORS OFFICERS ------------ --------- -------- March 3, 1995 David K. Fagin Colybrand Company Services Ltd., Barbados (c/o Michael Boyce) Secretary David A. Fennell SHAREHOLDERS David A. Fennell ------------ Adrian W. Fleming Chairman Pan African Resources Corporation (80%) Lafayette Holdings Corp. (20%) Kieran Flockton Adrian W. Fleming President & CEO SHARES Trevor A. Carmichael ------ Authorized: Unlimited Outstanding: 200 Common FISCAL YEAR ----------- Ends December 31 annually REGISTERED OFFICE ----------------- Colybrand Company Services Ltd. The Financial Services Centre Bishop's Court Hill St. Michael, Barbados West Indies ph: 809-431-2700 fax: 809-436-1275 COUNSEL ------- n/a AUDITORS -------- Coopers & Lybrand P.O. Box 111 The Financial Services Centre Bishop's Court Hill St. Michael, Barbados ph: 809-431-2700 fax: 809-436-1275 COMPANY NUMBER -------------- 10525
3 11 LAFAYETTE MINING GABON S.A.
INCORPORATED DIRECTORS OFFICERS ------------ --------- -------- August 29, 1995 Lafayette Mining Gabon Ltd. Bernard Amozig Gabon (Barbados) represented by Secretary Adrian W. Fleming SHAREHOLDERS Adrian W. Fleming ------------ Adrian W. Fleming President Lafayette Mining Gabon, Ltd. (99%) Pan African Resources Corporation Kieran Flockton (Barbados), Societe Lafayette & 4 Individuals (1%) SHARES ------ Authorized: 500 Outstanding: 500 FISCAL YEAR ----------- Ends December 31 annually REGISTERED OFFICE ----------------- FIDAFRICA/Price Waterhouse c/o Stephane Brabant 366 Rue Alfred Marche Boite Postale 2164 Libreville, Gabon AFRICA ph: 011-241-76-2371 fax: 011-241-76-5953 COUNSEL ------- n/a AUDITORS -------- FIDAFRICA/Price Waterhouse c/o Stephane Brabant 366 Rue Alfred Marche Boite Postale 2164 Libreville, Gabon AFRICA ph: 011-241-76-2371 fax: 011-241-76-5953 COMPANY NUMBER -------------- 40515
4 12 EXHIBIT C Form of Letter from PARC to Corporate Secretary and Transfer Agent of LMG January ___, 1996 Colybrand Company Services Ltd. The Financial Services Centre Bishop's Court Hill St. Michael, Barbados, West Indies Telecopier No. (246) 436-1275 Attention: Mr. Michael Boyce and Ms. Lynn Marie Simmons Change of Ownership of Lafayette Mining Gabon Ltd. (the "Company") Gentlemen: Please be informed that the ownership and control of the Company has recently changed. As of January __, 1997, Pan African Resources ("PARC") no longer has any share ownership interest in of any kind in the Company and David Fagin, David Fennell and Adrian Fleming have resigned and are no longer officers or directors of the Company. Copies of the said resignations are attached hereto. As of the date specified above, the shareholder(s) of the Company is/are: Lafayette Holdings Corp., a Bahamas corporation and the officers and/or directors of the Company are: Colybrand Company Services Ltd. (c/o Michael Boyce), as Secretary and the new officers and/or directors of the Company, if any, will be duly elected and notified to you by Lafayette Holdings Corp., the sole shareholder. Henceforth, you are hereby instructed to take any and all further actions with respect to the Company only from the new directors or officers thereof, or designated representatives of Lafayette Holdings Corp. (the sole shareholder), as set forth herein. Thank you for your prompt assistance in this matter. Sincerely, PAN AFRICAN RESOURCES CORPORATION By: ------------------------------ Title: --------------------------- 5 13 EXHIBIT D Corporate and Formation Documents to be Delivered Lafayette Mining Gabon S.A. (Gabon) Documents in the Possession of Golden Star Resources Ltd. 1. Articles of Incorporation & Declaration de Souscription et de Versement (ORIGINAL) 2. Minutes of Board of Directors (ORIGINAL) 3. Minutes of Annual General Meeting (NOT ORIGINAL) 4. Agrement pour la Creation d'une Societe Anonyme (ORIGINAL) 5. Certificate of Registration (NOT ORIGINAL) 6. Declaration de Regularite et de Conformite (ORIGINAL) All other documents, if any, and originals of any copies above should in the possession of FIDAFRICA/Price Waterhouse (See Exhibit B-2 for address) 2 14 EXHIBIT D Lafayette Mining Gabon S.A. (Barbados) Documents in the Possession of Golden Star Resources Ltd. 1. Certified True Copy of the Certificate of Incorporation (Form 3) (ORIGINAL IN THE POSSESSION OF THE REGISTERED AGENT) 2. Copy of the Request for Name Search and Name Reservation (Form 33) (ORIGINAL PROVIDED TO THE REGISTRAR OF COMPANIES, BARBADOS) 3. Certified True Copy of the Articles of Incorporation (Form 1) (ORIGINAL IN THE POSSESSION OF THE REGISTERED AGENT) 4. Certified True Copy of the Notice of Address or Notice of Change of Address of Registered Office (Form 4) (ORIGINAL IN THE POSSESSION OF THE REGISTERED AGENT) 5. Certified True Copy of the Notice of Directors or Notice of Change of Directors (Form 9) (ORIGINAL IN THE POSSESSION OF THE REGISTERED AGENT) 6. Certified True Copy of the Declaration of Trevor Austin Carmichael (ORIGINAL IN THE POSSESSION OF THE REGISTERED AGENT) 7. Certified True and Correct Copy of the By-Law No. 1 (ORIGINAL IN THE POSSESSION OF THE REGISTERED AGENT) 8. Original Certificate of Good Standing dated April 28, 1995 9. Copy of the Resolution in Writing of the Shareholders dated March 6, 1995 (ORIGINAL IN THE POSSESSION OF THE REGISTERED AGENT) 10. Copy of the Organizational Resolutions in Writing of the Directors dated March 6, 1995 (ORIGINAL IN THE POSSESSION OF THE REGISTERED AGENT) 11. Copy of the Written Consent of the Directors in Lieu of Meeting dated December 6, 1995 (ORIGINAL IN THE POSSESSION OF THE REGISTERED AGENT) For your information, verification of the documents in possession of the Registered Agent is also attached. 3 15 EXHIBIT E Business Books and Records 1. A statement of exploration expenditures made on the Property for the years 1994, 1995 and 1996. The expenditures for December of 1996 will be estimates and all the 1996 figures will be subject to year-end and audit adjustments. Such adjustments are not anticipated to be material. Also, copies of general ledger records and working papers used to produce the expenditures statements. 2. 1995 financial statements (prepared by Gabonese accountants) for LMG-G. Please note that these may not correspond with the exploration expenditures referenced in 1 above, due to the fact that costs generated outside of Gabon and/or paid directly from Denver (i.e. ex-pat labor, supplies, equipment, consultants) may not be included in the Gabon generated statements. 1996 financial statements for LMG-G are not available (though any and all financial records upon which they would be based presumably may be obtained through LMG-G's Gabon accountant). Please note that none of the Gabon Financial Statements have been reviewed or approved by PARC. 3. Acord de Cession et D'Engagement (re: transfer of the Permit to LMG). 4. As you know, all exploration activities at Eteke were stopped and the bulk of all employees dismissed on or about September 16, 1996 in order to provide a 4-5 month period to evaluate the exploration results to that date. The Labor and Ministry Departments can be expected to inquire in the near future with respect to the resumption of activities on the Property. (Please see financial and expenditure statements attached to original document) 4 16 EXHIBIT F Technical Reports and Geological Information (Please see reports attached to original document) 5 17 EXHIBIT G Shareholders of LMG-G (Please see original document) 6 EX-10.23 3 EXPLORATION LICENSE AGREEMENT 1 EXHIBIT 10.23 EXPLORATION LICENSE AGREEMENT between THE GOVERNMENT OF THE STATE OF ERITREA and GOLDEN STAR RESOURCES LTD. & PAN AFRICAN RESOURCES CORPORATION for THE GRANT OF EXPLORATION RIGHT AND LICENSE in THE GALLA VALLEY AREA Asmara, April 19, 1996 2 This Agreement, made and entered into at Asmara, Eritrea, this 19th day of April, 1996 BY AND BETWEEN The Government of the State of Eritrea (hereinafter referred to as "The Government") represented by the Ministry of Energy, Mines and Water Resources (hereinafter referred to as "The Ministry") of the one part AND GOLDEN STAR RESOURCES LTD. of One Norwest Center, 1700 Lincoln Street, Suite 1950, Denver, Colorado, 80203 U.S.A. & PAN AFRICAN RESOURCES CORPORATION of 25 Middle Road, Paget PG02, BERMUDA (hereinafter jointly referred to as "The Licensee") of the other part WITNESSETH: WHEREAS, all mineral resources within the territory of Eritrea are public property, and the State shall ensure the conservation and development of the resources for the benefit of the people; WHEREAS, the Government wishes to promote prospecting, exploration and exploitation of mineral resources in accordance with appropriate technology, and sound principles of resource management; WHEREAS, the Government, and thereby the Ministry, through the operation of mining enterprises, is desirous of creating more employment opportunities, encouraging and developing local business, ensuring that skills, know-how and technology are transferred to the people of Eritrea, acquiring basic data regarding and related to the Country's mineral resources, and preserving and rehabilitating the natural environment for further development of Eritrea; WHEREAS, the Licensee, which warrant their financial, technical and managerial competence for undertaking the program of exploration hereinafter provided for under the terms and subject to the conditions set forth in this Agreement have declared themselves willing to engage in mineral exploration operations in Eritrea on the understanding that they shall, jointly and/or severally bear the sole risk and cost of such exploration operations and on establishing that there are good prospects for undertaking commercial mining operations may jointly apply for and be granted a mining lease subject to the provisions of the Mining Proclamation No. 68/1995; WHEREAS, the Ministry and the said Licensee are willing to co-operate in developing mineral resources on the basis of the laws and regulations of Eritrea; WHEREAS, the Ministry intends to grant the said Licensee such appropriate license to explore for minerals on such terms and conditions set out hereinunder; WHEREAS, accordingly, on the application of the Licensee, the Ministry has agreed to enter into an agreement with the Licensee pursuant to the Mining Proclamation No. 68/1995 for the conduct by the Licensee of exploration programme on the terms and conditions hereinafter provided. NOW THEREFORE, in consideration of the mutual considerations, covenants and conditions set hereinafter the Parties hereto have agreed as follows. 3 1. DEFINITIONS In this Agreement, unless otherwise specified, all definitions set forth in Article 2 of the Mining Proclamation No. 68/1995, Mining Income Tax Proclamation No. 69/1995 and Mining Operations Regulations No. 19/1995 shall apply, and for the purposes of this Agreement the terms set forth below shall have the meanings therein set forth: 1. "AGREEMENT" means this Agreement with all its annexes and such other modifications and amendments made from time to time pursuant to this Agreement; 2. "BUDGET" means the total budget expenditures prescribed in Article 6 of this Agreement; 3. "DEPOSIT" means any natural concentration of minerals found on or within a specified area of the earth's crust; 4. "DIRECTIVE" means Mining Directive(s) issued by the Ministry of Energy, Mines and Water Resources pursuant to the Mining Proclamation No. 68/1995; 5. "EFFECTIVE DATE" means the date this Agreement is entered into; 6. "EXPENDITURES" means the funds projected for the first year and those to be allocated for each subsequent year consisting of field expenditures, local administrative overhead costs and additional transnational overhead costs; 7. "EXPLORATION ACTIVITIES" means all activities related to searching for, appraising and evaluating a deposit, provided for under an Exploration Work Programme and, save as therein provided, shall include search by use of geological, geochemical and geophysical methods relating to surface and subsurface geology and structure, excavation, boring and drilling, analysis of the physical and chemical properties of minerals and examination of the economic feasibility of developing and exploiting a deposit; 8. "EXPLORATION LICENSE OR LICENSE" means a license issued pursuant to this Agreement and the Mining Proclamation to explore for minerals, as defined herein, other than construction material, mineral water and geothermal deposits in accordance with the terms and conditions of this Agreement; 9. "EXPLORATION LICENSE AREA" MEANS the area described in Annex One, in relation to which the Exploration License is granted in accordance with the terms and conditions of this Agreement, less any area from time to time relinquished or surrendered therefrom in accordance with the Mining Proclamation; 10. "EXPLORATION PERIOD" means the period during which Exploration Activities are authorised pursuant to the Exploration License granted herewith and for such further periods as the License may be renewed in accordance with the terms and conditions of this Agreement as well as Article 10 of the Mining Proclamation; 11. "FORCE MAJEURE" shall have the meaning ascribed thereto in Article 25 (2) hereof; 2 4 12. "LAW" means any law, proclamation, regulation, directive, or other sovereign act of the Government presently in force or subsequently coming into force including, but not limited to, the Mining Proclamation, Mining Income Tax Proclamation, Mining Operations Regulations and Mining Directives issued thereunder and any successor proclamation, regulation and directive; 13. "MINERALS" means any naturally occurring mineral substance of potential economic value forming part of or found on or within the earth's crust, including salt, mineral water and geothermal deposits, but excluding petroleum, natural gas and oil shale as defined in Articles 5 and 7 of Proclamation No. 40/1993; 14. "MINING INCOME TAX PROCLAMATION" means the Mining Income Tax Proclamation No. 69/1995; 15. "MINING OPERATIONS REGULATIONS" means the Legal Notice No. 19/1995 on the Regulations of Mining Operations; 16. "MINING PROCLAMATION" means the Mining Proclamation No. 68/1995; 17. "PARTY" means a signatory to this Agreement and "PARTIES" means the signatories to this Agreement jointly; 18. "TERMS" means the terms used herein that are defined and provided for in Article 2 of the Mining Proclamation or Article 2 of the Mining Income Tax Proclamation; 19. "WORK PROGRAMME" means exploration programme submitted by the Licensee and approved by the Ministry. 2. GRANT OF EXPLORATION RIGHT AND LICENSE 1. The Ministry hereby grants to the Licensee an exclusive right for the term provided in this Agreement and in accordance with the terms and conditions of this Agreement, the provisions of the Mining Proclamation, Mining Income Tax Proclamation, Mining Operations Regulations and Directives issued thereunder, to engage in exploration for minerals other than construction material, mineral water and geothermal deposits within the License Area described hereinafter. 2. Contemporaneously herewith, the Licensee is granted, under and in accordance with the Mining Proclamation, an Exploration License over the entire area described hereinafter. 3. LICENSE AREA 1. The area which is the subject of this Agreement covering 300 (three hundred) square kilometers consists of 6 (six) Exploration License Areas of 50 (fifty) square kilometers each and is located in the area known as Galla Valley. The exact location of the License Areas and their boundaries more specifically described and delimited by surveyed markers and indicated on a map of 1:250,000 scale using geographic co-ordinates (UTM) is attached to this Agreement as Annex ONE. 2. For the purposes of this Agreement, the 6 (six) Exploration License Areas and the 6 (six) Exploration Licenses granted hereinunder are hereinafter referred to, in the singular form, as "License Area" and "Exploration License" respectively. 3 5 4. TERM 1. The term of this Agreement shall, without prejudice to Article 10 of the Mining Proclamation, be for an initial period of three years and may be renewed twice for additional terms of one year each. 2. The Exploration Period shall commence forty five (45) days from the effective date of this Agreement. 5. RIGHTS OF THE LICENSEE The Licensee shall exercise the following rights in accordance with the Mining Proclamation, Mining Operations Regulations and Directive issued thereunder: 1. The Licensee shall have the right to conduct such exploration activities in the License Area as it considers necessary to determine a geologically proven and economically viable mineral deposit(s). 2. The Licensee may enter and occupy the land covered by the Exploration License during its term for the purposes of exploration activities. 3. The Licensee may cut and use only such timber as is strictly necessary for access to the Exploration License Area. 4. The Licensee may use the existing infrastructure if their use by such Licensee shall not impair the use thereof by other persons. 5. In accordance with Article 22 of the Mining Proclamation, the Ministry shall assist the Licensee in its dealings and communications with inhabitants of the License Area and ensure that the Licensee is not impeded in the exercise of its rights under the License. 6. The exercise by the Licensee of its rights under Articles 21 and 23(2) of the Mining Proclamation shall be free of costs to Licensee, unless currently required by other Laws. 7. The Parties agree to negotiate reasonably and in good faith with respect to the financial contribution by the Licensee to the construction and maintenance of infrastructure which may be required by Licensee and which the Ministry feels may be used jointly with another licensee for the joint economic benefit of Licensee and such other person, as contemplated in Article 23(3) of the Mining Proclamation. In no case shall the Ministry unilaterally impose on Licensee an obligation to construct or contribute financially to the construction or maintenance of any such infrastructure for joint use by others. 8. The Ministry shall assist all non-Eritrean employees, consultants and contractors of the Licensee, and their families, to travel freely into and out of Eritrea and promptly issue any visas, work permits or other authorizations which may be requested. 9. Wherever the approval of the Government or the Ministry is required under this Agreement or any applicable Law, such approval shall not unreasonably be withheld, conditioned or delayed. Notwithstanding any other provisions, the Government and the Ministry undertake to respond in 4 6 writing to all requests for approvals as promptly possible. Wherever any approval or decision of the Government, including the Ministry relating to Licensee under the Law is discriminatory in nature, such decision shall be made reasonably, in such a manner as to carry out the intent of this Agreement and the mutual intent of the Parties hereunder. 10. The Licensee is entitled to employ guards for and in the protection and safety of its equipment, assets and properties located in the subject exploration area. 11. Nothing in this Agreement shall limit any rights of either Party under other applicable Eritrean Laws. 6. WORK PROGRAMME AND EXPENDITURE 1. The Licensee hereby submits a three-year Comprehensive Work Programme and Budget described in ANNEX TWO, for the Exploration Period which indicates the direction and expected outcome of the exploration activities proposed to be undertaken by the Licensee in the License Area. A Detailed Exploration Work Programme and Budget for the first year of the Exploration Period, attached herewith as ANNEX THREE, is hereby approved by the Ministry. Detailed Exploration Work Programmes and Budgets for subsequent annual periods of the Exploration Period shall be submitted for approval by the Ministry not later than thirty (30) days prior to the end of the then existing annual period for which a Detailed Exploration Work Programme and Budget has been approved. 2. The Licensee shall, in accordance with Article 4(2) of this Agreement, promptly commence and diligently pursue the implementation of the Work Programme in the License Area. 3. Subject to Article 19 hereinbelow, the Licensee agrees to spend in each year of the Exploration Period, no less than the minimum Budgeted Expenditure amounts set forth in the approved Work Programmes in the implementation of the Exploration Work Programme submitted herewith. 4. If the Licensee fails in any year to fulfill the minimum Work Programme or Budgeted Expenditure obligation, unless the Licensee provides due explanation and justifications acceptable to the Ministry an amount equal to such unfulfilled obligation shall be immediately paid to the Ministry on simple demand from the Bank Guarantee provided for in Article 7 in order to satisfy the deficiency as may be determined by the Ministry. 5. The fulfillment of any work obligation shall relieve the Licensee of the corresponding minimum expenditure obligations but the fulfillment of any expenditure obligations shall not relieve the Licensee of the corresponding work obligations. 6. The Ministry shall not withhold the approval of the Exploration Work Programme and Budget except on reasonable grounds, which grounds shall be provided to the Licensee in writing. The Licensee may, within thirty (30) days after having received notice in writing that its proposed Work Programme and Budget has not been approved and the grounds thereof, submit a revised work programme for approval by the Ministry. Once a Work Programme and Budget has been approved, any amendment or modification shall be approved by the Ministry on the same terms and conditions as are applicable to an initial submission of a Work Programme and Budget as soon as practicable. 5 7 7. Likewise, the Ministry agrees to respond in writing its approval or reasoned disapproval and recommendations on technical revisions to the subject Programme as promptly possible after receipt of any such proposed revision. 7. GUARANTEE 1. The Licensee shall provide to the Ministry within sixty (60) days from the effective date of the initial term of the exploration period a Bank Guarantee, by a first-class bank acceptable to the latter in an amount equal to the minimum expenditure obligation for the first year of the initial three-year exploration period, provided that the form, terms and conditions of the Bank Guarantee, payments out of which shall be on demand, shall have to be acceptable to the Ministry. 2. The Bank Guarantees for the second and third year of the exploration period and subsequent extensions thereof, shall be submitted within thirty (30) days from the approval of the respective annual Work Programme and Budgets, and the guarantees for each year shall correspond to the minimum expenditure obligation of the applicable Work Programme and Budget for each year as stipulated in this Agreement. 3. Without prejudice to the provisions of sub-article 4 hereof, the guarantee for the first year shall be released upon the submission of the guarantee for the second year and upon the successful completion of the Work Programme and Budget of the corresponding year by the Licensee to the satisfaction of the Ministry. Similarly, the guarantee for the second year shall be released upon the submission of the guarantee for the third year and the successful completion of the Work Programme and Budget of the corresponding year by the Licensee to the satisfaction of the Ministry. Each of the guarantees to be submitted by the Licensee shall be valid for a minimum of fifteen (15) months. 4. Subject to the prior approval by the Ministry of each of such completed quarterly Work Programme and Budget for and during each of such year, the relative amount of the Bank Guarantee shall be automatically reduced at the end of each quarter, by the amount of the Minimum Expenditures incurred in accordance with the Budget in that quarter, upon the submission of the corresponding quarterly report setting forth the portion of the Work Programme completed and the corresponding Minimum Expenditures pursuant to the Budget. 5. This Agreement shall be null and void if the Licensee fails to submit the required Bank Guarantee within sixty (60) days as stated in sub- article 1 of this Article for the first year of the initial exploration period. Where the Licensee fails to submit the required Bank Guarantee in accordance with sub-article 2 of this Article for the second and third years and subsequent extensions thereof, then such failure shall be a ground for the termination of this Agreement. 6. If at the end of the initial term of the Exploration Period or any extension thereof or upon the date of expiration or termination of this Agreement the Licensee has not fulfilled the minimum work obligations and/or the expenditure obligations required under the last approved Annual Work Programme and Budget, the Licensee shall pay the amount corresponding to the unexpended minimum budgeted expenditure obligation to the Ministry as provided for in Article 6(4) hereinabove. 6 8 7. If the Licensee performs work or expenditure in any year in excess of that for which he is obligated such excess shall be credited towards the obligations for the next succeeding annual period; provided that at least a minimum agreed programme of work and expenditure is done in the succeeding year, if applicable. 8. OBLIGATIONS OF THE LICENSEE The Licensee agrees and undertakes to comply, among others, with the following obligations provided for in the Mining Proclamation, Mining Income Tax Proclamation, Mining Operations Regulations and Directives issued thereunder: 1. Within forty five (45) days from the effective date of this Agreement, commence and carry out exploration activities in a prudent, diligent and efficient manner, in accordance with appropriate technology and good international exploration practices generally accepted in the mining industry; 2. Comply with all work programmes and expenditure obligations, unless a departure therefrom is justified and receives the prior written approval of the Ministry, and avoid the performance of work or the incurring of expenditure which is not required; 3. Conduct exploration activities in such a manner as to ensure the health and safety of its employees and other persons and to minimize damage or pollution to the environment; 4. Conduct exploration activities in accordance with applicable laws, regulations and directives; 5. Give preference to the employment of Eritrean nationals, provided that such persons have the required qualifications and experience; 6. Based on the training programme approved by the Ministry, give all employees the training and education required by the duties of their respective employment in the exploration activities and comply with applicable training programmes; 7. The preference to domestic materials, goods and services, where they are readily available at competitive prices and are of comparable quality; and 8. Comply with all reporting and filing obligations specified hereinafter and any other applicable laws. 9. BOOKS, RECORDS AND REPORTS 1. The Licensee agrees and undertakes to keep and maintain during the term of the license all financial, employment, commercial, other books, supporting documents and records of its operations and comply with all other reporting and filing obligations under the applicable Eritrean Laws. All such books, records and reports shall be maintained in the English language and in United States Dollars, and in accordance with generally accepted accounting principles in Canada. 2. The Licensee agrees to submit to the Ministry quarterly technical progress and expenditure reports as well as comprehensive annual exploration reports in the form and content provided for in the Mining Proclamation, Mining Operations Regulations and Mining Directives issued thereunder. 7 9 3. It is agreed and understood that all reports and returns shall be submitted within forty five (45) days after the end of each quarter and year, and the Licensee shall make available to the Ministry or other duly authorized officials all the books, documents and records for the purposes of inspection upon a reasonable prior notice, during normal business hours. 4. In the event of a surrender or relinquishment of the entire Exploration License Area or upon the termination of this Agreement, the Licensee shall be obligated to submit to the Ministry a Final Exploration Report, describing coherently its efforts and the results of such efforts. 5. It is agreed and understood that all technical reports to be submitted shall include details of the complete and entire exploration work undertaken and shall be accompanied by relevant data and appropriate evaluation results and findings. 10. CONFIDENTIALITY 1. All information submitted in applications, reports and other filings pursuant to this Agreement shall be confidential. 2. Notwithstanding the provisions of sub article 1 of this Article: (a) Authorized Government officials may request access on a confidential basis to such information for their official duties, and in such capacity permit access to accountants, professional consultants and legal counsel; (b) The Government or the Ministry may compile and distribute information, geographic or geological maps, statistics and reports and other documents where the identity of Licensee is not disclosed or apparent and his interests are in no way adversely affected; and (c) This confidentiality obligation shall not be applicable to information that has been disclosed by the Licensee to a third party or is otherwise in the public domain. 3. The confidentiality obligation in sub articles 1 and 2 of this Article shall end upon the termination of the Exploration License. 4. All information, data, reports and other files obtained by the Licensee from the Government or the Ministry, which have not been disclosed to a third party or are not in public domain, shall not be published, transferred or disclosed to third party without the prior written approval of the Ministry. 5. All information and data gathered during the exploration period shall become the property of the Government upon the expiration or termination of the exploration license. 11. SAMPLES The Licensee may remove, transport, analyze and, with the prior written consent of the Ministry, export samples of minerals for testing, provided that a comparable sample is submitted to the Directorate of the Geological Survey of Eritrea. However, such minerals shall remain the property of the Government, and if requested by the Ministry the Licensee shall, unless so destroyed in the process 8 10 of testing, return such exported samples to Eritrea. In all events, complete and detailed results of such testing and analysis shall be furnished to the Ministry free of any charges. 12. ENVIRONMENTAL PROTECTION 1. During its exploration activities the Licensee shall comply with all environmental laws and regulations in force in Eritrea. 2. The Licensee shall not unduly disturb or interfere with the living conditions of the indigenous population lawfully settled within the License Area and its surroundings and shall respect their customs and shall provide a fully adequate resettlement programme if that is essential and approved by the Ministry. 3. The Licensee shall, upon the relinquishment, surrender or termination of its Exploration License, take commensurate measure to safeguard any pits and such other works so that the health, life and property of persons is not endangered. 13. INSPECTION The Mines Controller from the Ministry or other duly authorized officials shall have the right to inspect and ensure that the exploration activities are carried out in accordance with this Agreement, and the provisions of the Mining Proclamation, Mining Operations Regulations and Mining Directives issued thereunder during business hours following reasonable prior notice therefor to the Licensee. 14. FOREIGN EXCHANGE 1. The Licensee may make remittances outside Eritrea in accordance with the Regulations of the Bank of Eritrea, Mining Proclamation, Mining Operations Regulations and Directives issued thereunder. 2. Expatriates employed in exploration operations may remit salaries and other payments accruing from their employment in accordance with the foreign exchange regulations of Eritrea. 15. CUSTOMS DUTIES AND TAXES 1. The Licensee and its sub-contractors, if any, shall pay 0.5 percent duty on all imports into Eritrea of equipment, machinery, vehicles and spare parts (excluding sedan cars and their spare parts) as well as consumable materials necessary for the exploration activities in accordance with the provisions of the Mining Proclamation. 2. It is understood that office equipment and supplies, including computer equipment, software and other high technology equipment and intellectual property are equipment for purposes of Article 38(1) of the Mining Proclamation. The Ministry shall intently assist to ensure that all imports and exports be accomplished expeditiously. 3. Expatriate employees, consultants and contractors of the Licensee, and their families who are required to take up residence in Eritrea shall be entitled to import and export all personal and household effects free and clear of any taxes, duties and charges, the Ministry shall exert its utmost efforts. 9 11 4. All goods imported pursuant to sub-articles 1 and 2 of this Article may be exported, free of all export duties and taxes, but may be sold or transferred to a person in Eritrea with the payment of duty and tax thereon in accordance with the applicable laws. 5. The compensation received, according to their contract of employment, by expatriate personnel of the Licensee or its sub-contractors or consultants shall be subject to the payment of income tax at a flat rate of 20% (twenty percent). 16. FEES AND RENTALS 1. The Licensee shall pay rentals and license and renewal fees as provided in the Mining Operations Regulations. 2. Payment of the license and renewal fees specified in sub-article 1 of this Article shall be made upon the issue and renewal of the Exploration License respectively while rentals shall be paid annually in advance, the first year's payment having been made upon the execution of this Agreement, in United States Dollars. 3. In the event of a surrender of any part of the Exploration License Area, pursuant to Article 19 of this Agreement, no rental payments shall be refunded in whole or in part in respect of any area so surrendered for which yearly rental has been paid in advance nor shall rental payments be refunded in the event of termination. 17. RENEWAL OF LICENSE 1. If the Licensee applies in writing to the Ministry not less than three (3) months before the expiration of this Agreement, it shall have the right to renew the Exploration License, provided it has fulfilled the obligations specified in the License, meets all requirements in connection with an application for the renewal of an Exploration License and is not in breach of any provisions of the Mining Proclamation, Mining Income Tax Proclamation, Mining Operations Regulations and Mining Directives issued thereunder which constitute grounds for suspension or revocation of the Exploration License. 2. Provided the Licensee applies for a renewal of the Exploration License prior to the expiration of the License or any renewal thereof, the rights of the Licensee under the License and this Agreement shall continue to be valid until the Ministry has made a final determination with respect to the application. 18. MODIFICATION If the Licensee, upon a discovery of a mineral deposit(s), determines that the Exploration License Area does not include the entire mineral deposit(s), the Licensee may request that the area be adjusted to incorporate the entire deposit, provided that no exclusive license or an application thereof exists for such minerals in the additional area adjacent to the License Area and that it does not exceed the maximum area allowed and that the area has not been reserved or excluded. If the Licensee and the Ministry agree on an appropriate adjustment to the Work Programme and Budget Expenditure obligations, the Ministry shall modify the Exploration License to include such additional adjacent area(s). 10 12 19. SURRENDER 1. The Licensee may, by giving at least three (3) months' prior written notice to the Ministry, surrender all or any part of the Exploration License Area provided that the Licensee has fulfilled all obligations under the Exploration License and is in compliance with the provisions of the Mining Proclamation, Mining Operations Regulations and Directives issued thereunder. 2. Upon surrender of part or the whole of the Exploration License, the Licensee shall vacate the surrendered portion of the Exploration License Area. 20. RELINQUISHMENT 1. The Licensee shall relinquish part of the Exploration License Area during renewal of the Exploration License in accordance with the Mining Proclamation, Mining Operations Regulations and Directives issued thereunder. 2. In applying for each renewal of the Exploration License, the Licensee shall indicate the portion of the License Area to be relinquished, which portion shall not be less than one quarter of the original Exploration License Area. 3. The Licensee shall vacate the whole area relinquished and shall also vacate the entire Exploration License Area upon the termination of the Exploration License, provided no mining license is applied for in respect of an area included in the Exploration License Area. 4. Required relinquishments shall be from 25% of the entire License Area and not necessarily from each of the six individual license areas comprising the License Area. Further the portion of the License Area relinquished at any time may consist of two or more non-contiguous blocks. The Licensee shall be entitled to relinquish areas of the License Area such that the remaining License Area is not rectangular where reasonably necessary in order to ensure that the Licensee can keep discovered mineral deposits within the License Area after any required relinquishment. 5. The Licensee shall be entitled to apply in the ordinary course for new licenses over portions of the License Area required to be relinquished by law. 21. TERMINATION This Agreement may be terminated for the following reasons: 1. By mutual agreement of the Parties. 2. When the Licensee relinquishes or surrenders the whole area of the Exploration License. 3. If the Exploration License is revoked by the Ministry pursuant to the provisions of the Mining Proclamation, the Mining Operations Regulations and Directives issued thereunder. 4. When the term of the Exploration License expires without being renewed or if no mining license has been applied for in respect of an area included in the Exploration License Area. 11 13 5. Upon the dissolution, liquidation, or bankruptcy of the Licensee subject to the rights of its successors according to the provisions of the Mining Proclamation, the Mining Operations Regulations and other relevant laws of Eritrea. 22. ACQUISITION OF PROPERTY 1. Upon the termination of the Exploration License, the Government or the Ministry may acquire all of the immovable and movable property used in exploration activities at a price equal to the then undepreciated and unamortized value of such assets, as shown in the financial books of account of the Licensee. 2. If the Government or the Ministry does not exercise the rights provided for under sub-article (1) of this Article within ninety (90) days from the date of termination, the Licensee shall be free to dispose of such assets to another person in accordance with the applicable laws of Eritrea. 23. TRANSFER AND ASSIGNMENT The Exploration License granted herewith may not be encumbered or inherited but, may subject to the provisions of the Mining Proclamation, Mining Regulations and Directives issued thereunder, be transferred or assigned with the prior approval of the Ministry if it is satisfied that the incoming party has the financial and technical resources to meet the obligations of the License. 24. MINE DEVELOPMENT AND PRODUCTION 1. The Parties to this Agreement understand and agree that the objective of this Agreement is to promptly commence an aggressive exploration programme aiming at the discovery of economically viable deposit(s) within the Exploration Period specified in this Agreement or any extensions thereof and submit full scale feasibility study by the end of the second extension period at the latest, so as to proceed to mine development and production if the exploratory work of the Licensee disclose a commercially viable mineral deposit(s) and if the Licensee wishes to obtain a Mining License. 2. In the event of a discovery of an economically viable deposit(s), the Licensee shall have the right to acquire a Mining License in respect of an area included in the Exploration License Area covering the principal deposit(s) for such mine(s) and any other deposits which may reasonably be covered in any subsequent expansion of the original mine(s), as contemplated in the feasibility study presented to the Ministry, and to develop the mineral deposit subject to negotiations and under such terms and conditions as may be mutually agreed upon by the Parties hereto. 3. Notwithstanding sub-article 2 of this Article, the Licensee shall be granted a Mining License upon: (a) certification by the Licensee that an ore body or bodies exist in the License Area of a quality and in quantities that may be economically viable to mine; (b) submission and approval of a feasibility study prepared in accordance with internationally accepted mining industry standards and practices; (c) application in writing to the Ministry for the grant of a Mining License; 12 14 (d) fulfillment of all obligations under the Exploration License and provided that the Licensee is not in breach of any provisions of this Agreement, the Mining Proclamation, Mining Income Tax Proclamation, Mining Operations Regulations and Mining Directives issued thereunder which constitutes grounds for suspension or revocation of the Exploration License; and (e) meeting all other requirements in connection with the issuance of a Mining License as provided for in the Mining Proclamation, Mining Operations Regulations, Mining Directives issued thereunder and Mining Income Tax Proclamation as may be applicable. 25. FORCE MAJEURE 1. Any failure by the Ministry or by the Licensee to carry out any of its obligations under this Agreement shall not be deemed a breach of contract, infraction under the laws or default if such failure is caused by force majeure, that Party having taken all appropriate precaution, due care and reasonable alternative measures with the objective of avoiding such failure and of carrying out its obligations under this Agreement. 2. For the purposes of this Agreement, the Parties hereby agree that "Force Majeure" shall mean circumstances or events beyond the reasonable control of either Party, including occurrences such as riots, strikes, wars (declared or undeclared), insurrections, rebellions, terrorist acts, civil disturbances, orders of any government authority, whether such authority be actual or assumed, natural phenomena or calamities, provided, however, that the inability to obtain equipment or supplies or fuel shall not be a cause of force majeure unless as a result of force majeure and provided further that if any failure to comply with the provisions of this Agreement is occasioned by a law, regulation or order of the Government and the Licensee is operating in accordance with generally accepted international mining industry practices in the License Area and is making reasonable efforts to comply with such laws, regulations or order, the occurrence shall be deemed force majeure. 3. If the Licensee or the Ministry or the Government are prevented from complying with this Agreement, in whole or in part, by force majeure, the Party claiming force majeure shall give written notice to the other Party as soon as practicable after its occurrence and the obligations of the affected Party which are directly related to the force majeure shall be suspended during the continuance of the force majeure. 4. Upon the occurrence of any force majeure, then anything in this Agreement to the contrary notwithstanding, all time periods and deadlines and the term of this Agreement shall each be extended for a period equal to the total of the periods during which such force majeure existed, plus such further periods, if any' as shall be necessary to make good the time lost as a result of such force majeure. 5. If an obligation is suspended by force majeure for more than one year, the Parties to this Agreement may enter into good faith negotiations on the continuation of this Agreement for the balance of the term. 26. SETTLEMENT OF DISPUTES 1. Except as otherwise provided in this Agreement, if, during the term of this Agreement or thereafter, any difference or dispute arises with respect to the construction, meaning or effects of 13 15 this Agreement or arising out of or related or in connection with this Agreement, or concerning the rights and obligations of a Party hereunder, which difference or dispute can not be mutually resolved by the Parties within ninety (90) days, either Party shall have the right to submit the difference or dispute to a binding arbitration process under this Article. No Party shall have the right to seek any remedy or relief from any court or other tribunal except with respect to the enforcement of a right to arbitration or of any award or other remedy provided thereunder. 2. The dispute or difference referred to under sub-article 1 of this Article shall be finally settled by arbitration in accordance with the I.C.C. (International Chamber of Commerce) Arbitration Rules, as at present in force. 3. The arbitration, including the rendering of the award shall take place in Asmara, Eritrea and shall be in the English Language. The decision of the majority of the arbitrators shall be final and binding upon the Parties. 4. The number of arbitrators shall be three (3). Each Party shall appoint one (1) arbitrator and so notify the other Party of such appointment and those two (2) arbitrators shall appoint the third arbitrator who shall be the umpire. 5. In the event that the two arbitrators appointed under sub-article 4 of this Article are unable to agree upon a third arbitrator or if a Party fails to designate an arbitrator within the time provided herenn, then the I.C.C. Court shall, upon application of a Party, appoint the third arbitrator (in the former event) or appoint the third arbitrator as well as the arbitrator on behalf of the Party which failed to designate an arbitrator (in the later event). 6. The cost of arbitration, including attorney fees and costs, and the cost of remuneration of the arbitrators shall be borne in the manner determined by the arbitrators. 7. The final decision of the majority of the arbitrators shall be reduced in writing and shall be binding upon the Parties hereto without the right of appeal to any or other tribunal except on grounds of public policy and shall be the sole and exclusive remedy regarding any claims, counterclaims, issues or accounting presented to the arbitrators. 8. Any judgment upon the award of the arbitrators may be entered in any court having jurisdiction thereof for execution. 27. AMENDMENTS This Agreement shall not be amended, modified or supplemented except by an instrument in writing signed by the Parties. 28. WAIVER Any waiver of an obligation of the Licensee shall be in writing and signed by the Ministry. No waiver shall be implied if the Ministry does not exercise a remedy under this Agreement. 14 16 29. REGISTRATION AND REPRESENTATION OF LICENSEE 1. The Licensee shall be registered in the Registry of Business Licensing Office and shall maintain an office in Eritrea during the entire term of the License and shall not be required to obtain any other authorization or permission from any other Government office in order to conduct all activities authorized by the Exploration License or to import any goods required for the exploration activities. 2. The Licensee shall also maintain in Eritrea, during the term of the License, a representative who or which is authorized to act on its behalf and shall notify the Ministry of the identity of such representative or any change thereof 3. Every license and every instrument under which such right is transferred, assigned, relinquished, surrendered, suspended, revoked, or otherwise dealt with shall be registered in the registry maintained for this purpose by the Ministry. Each instrument relating to such rights must be presented for registration within 90 (ninety) days after the date thereof (or within such further time as the Ministry may allow) or it shall otherwise become null and void. 4. A copy of every instrument required to be filed with the Ministry for the registration, together with map(s) or other plan(s) necessary for the identification of the area concerned, shall be filed with the appropriate authority of the Government pursuant to the applicable laws. 30. NOTICE Any and all notices, requests, demands and other communications required or permitted to be made or given under this Agreement shall be in writing and shall be deemed to have been duly made or given upon receipt thereof if delivered by hand, registered mail, cable, telex, or facsimile to the following addresses: (a) If to the Ministry: Director General, Department of Mines Ministry of Energy, Mines and Water Resources P.O. Box 272 ASMARA, ERITREA Fax: 291-1-112994 (b) If to the Licensee: Golden Star Resources Ltd. Pan African Resources Corporation Road 702, No. 6/8 TIRA A VOLO, Zone 4/03 Asmara, ERITREA Fax: Tel: 291-1-18 23 30 Attention: Galla Valley Project Manager 15 17 With a copy by FAX or Telegram to: Golden Star Resources Ltd. Pan African Resources Corporation One Norwest Center 1700 Lincoln Street, Suite 1950 Denver, Colorado 80203, U.S.A. Fax: 1-303-830-9022 Attention: Chairman and General Counsel 31. GOVERNING LAW 1. This Agreement shall be governed by, interpreted and construed in accordance with the laws of Eritrea. 2. The Parties agree and undertake that for matters not contained in this Agreement, the Mining Proclamation, Mining Income Tax Proclamation, the Mining Operations Regulations and Directives issued thereunder shall apply. 3. The Parties hereby agree and re-endorse that for and in the implementation of this Agreement the provisions of Article 52(2) of the Mining Proclamation and thereby the provisions of this Agreement in consonance with said Proclamation shall prevail. 32. HEADINGS The headings given to Articles in this Agreement are for convenience only and shall not affect the construction or interpretation of this Agreement. 33. CO-OPERATION OF THE PARTIES Each of the Parties agrees to execute and deliver all such further instruments, and to do and perform all such further acts and things, as shall be necessary or convenient to carry out the provisions of this Agreement. 34. ANNEXES The following documents annexed herewith are integral parts of this Agreement. ANNEX ONE Description and Maps of License Area ANNEX TWO Three-year Comprehensive Exploration Work Programme of the Initial Exploration Period ANNEX THREE Detailed Exploration Work Programme for the First year of the Initial Exploration Period ANNEX FOUR Minimum Annual Exploration Expenditure Obligation of Licensee. 16 18 35. EFFECTIVE DATE This Agreement comes into force on the day the Parties to this Agreement affix their respective signature and seal. IN WLTNESS THEREOF, the Parties hereto have executed this Agreement on the day and year first above written. FOR AND ON BEHALF OF THE GOVERNMENT OF THE STATE OF ERITREA Name: Tesfai Ghebreselassie Title: Minister of Energy Mines & Water Resources Signature: /s/ Tesfai Ghebreselassie FOR AND ON BEHALF OF GOLDEN STAR RESOURCES LTD. Name: Winston King Title: Representative Signature: /s/ Winston King FOR AND ON BEHALF OF PAN AFRICAN RESOURCES CORPORATION Name: Adrian W. Fleming Title: President Signature: /s/ Adrian W. Fleming 17 EX-10.24 4 EXPLORATION AGREEMENT (ENGLISH TRANS) 1 EXHIBIT 10.24 CERTIFICATE OF TRANSLATION I, Carlos H. Bertoni, Vice President, Exploration of Golden Star Resources Ltd. (the "Company") declare to the best of my knowledge that the attached is an accurate English translation of the Exploration Agreement dated May 13, 1996 between Southern Star Resources Ltd., Estrela Sul do Brasil Empreendimentos Ltda and Companhia Vale do Rio Doce and Rio Doce Geologia e Mineracao S.A. /s/ Carlos H. Bertoni ----------------------------- Carlos H. Bertoni Vice President, Exploration State of Colorado ) County of Denver ) ss. Subscribed and sworn to before me this 26th day of March, 1997 by Carlos H. Bertoni. /s/ Nathalie Defferard ----------------------------- Notary Public My Commission Expires: October 25, 1999. 1 2 AGREEMENT FOR CARRYING OUT MINERAL EXPLORATION AND PROMISE OF ASSOCIATION FOR THE ECONOMIC EXPLOITATION OF ORE DEPOSITS, ENTERED INTO BETWEEN COMPANHIA VALE DO RIO DOCE AND RIO DOCE GEOLOGIA E MINERACAO S.A., ON THE ONE SIDE, AND SOUTHERN STAR RESOURCES LTD. AND ESTRELA SUL DO BRASIL EMPREENDIMENTOS LTDA., ON THE OTHER SIDE. COMPANHIA VALE DO RIO DOCE, a Brazilian company, having its head office in this City, at Av. Graca Aranha no. 26, enrolled in the Corporate Taxpayers Record File (CGC - MF) under no. 33.592.510/0001-54, hereinafter referred to as CVRD, and its subsidiary RIO DOCE GEOLOGIA E MINERACAO S.A., having its head office in this City, at Rua Santa Luzia no. 651 - 17th floor, enrolled in the Corporate Taxpayers Record File (CGC - MF) under no. 34.230.763/0001-40, hereinafter referred to as DOCEGEO, and SOUTHERN STAR RESOURCES, LTD., a company incorporated and existing under the laws of Barbados, having its head office at no. 1700 Lincoln Street, suite 1950, Denver, Colorado, U.S.A., hereinafter referred to as SOUTHERN, and its Brazilian subsidiary ESTRELA SUL DO BRASIL EMPREENDIMENTOS LTDA., having its head office in this City, at Av. Nilo Peganha no. 50, suite 1717 (part), enrolled in the Corporate Taxpayers Record File (CGC - MF) under no. 00.626.882/0001-03, hereinafter referred to as ESTRELA, and both collectively hereinafter referred to as COMPANY, all of them together hereinafter referred to as PARTIES, and individually as PARTY, herein represented by their officers WHEREAS I. CVRD and DOCEGEO own mineral rights in relation to areas located in Para, the geological model of which is favorable to the occurrence of gold. II. CVRD has prepared a Program of Associations with private companies to carry out, at their own risk, geological exploration followed by joint exploitation of the gold reserves contingently found. NOW, THEREFORE, the PARTIES decide to enter into this Agreement for carrying out mineral exploration and promise of association for the economic exploitation of ore deposits, hereinafter referred to as AGREEMENT, which shall be governed by the following clauses and conditions: 1 3 CHAPTER I DEFINITIONS 1. Whenever used in this AGREEMENT, the terms in bold listed below shall have the following meanings: 1.1 MINERAL RIGHTS, means the ore mining rights represented by Alvara (Exploration Permit) no. 7.731 (DNPM Proceedings no. 810.354/76), by Alvara no. 827 (DNPM Proceedings no.802.913/78), and by Alvara no. 4.231 (DNPM Proceedings no. 850.026/89), true and complete copies of which integrate Annex 1, and include all successor mineral rights that may be granted, at any time, in the AREAS in full or in part, and any information concerning them. 1.2 AREAS means the areas covered by the MINERAL RIGHTS, described in detail in the copies of the Alvaras that constitute Annex 1, which initially comprise joint areas representing a total of approximately twenty five thousand (25,000) hectares. 1.3 INITIAL WORK PROGRAM means the work plan submitted by SOUTHERN in its bid that is an integral part of this document as Annex 2. 1.4 COMPLEMENTARY WORK PROGRAM and COMPLEMENTARY WORK PROGRAMS mean respectively one or all the work plans submitted by the COMPANY after the INITIAL WORK PROGRAM for each one (1) year stage of complementary exploration work. 1.5 COSTS OF THE AREAS means all costs or expenditures made by the COMPANY in connection with agreements with surface owners or occupants of the AREAS, or with any other agreements for obtaining or ensuring access to the AREAS, entered into prior to the disbursement of the MINIMUM INITIAL INVESTMENT, including all costs or expenditures stipulated in such agreements in relation to the exploration and exploitation to be paid after the disbursement of the MINIMUM INITIAL INVESTMENT. The expenditures dealt with by items 12.2 and 27.2 of this AGREEMENT shall not be included in the COSTS OF THE AREAS.. 1.6 MINIMUM INITIAL INVESTMENT are all costs, expenses, disbursements, debts and charges, whether direct or indirect, incurred by the COMPANY, duly substantiated, and exclusively in relation to the AREAS or the work contemplated by this AGREEMENT and carried out in them, as specified in Annex 3, except the COSTS OF THE AREAS, up to a total of five million two hundred thousand reals (R$ 5,200,000.00) as adjusted by the IGPM index from the date of the execution of this AGREEMENT to the date on which the total disbursement of the amount is completed. 1.6.1 The MINIMUM INITIAL INVESTMENT of CVRD will be in the same amount as the MINIMUM INITIAL INVESTMENT of the COMPANY, and shall be deemed as having been made by CVRD on the date of the execution of this AGREEMENT. 2 4 1.7 MINIMUM DISBURSEMENT, called the minimum disbursement in the COMPANY's bid, are all costs, expenses, disbursements, debts and charges, whether direct or indirect, incurred by the COMPANY, duly substantiated, and exclusively in relation to the work carried out in the AREAS, or that concern them exclusively, as contemplated by this AGREEMENT as specified in Annex 3, except the COSTS OF THE AREAS, up to the total of three million seven hundred and seven thousand reals (R$ 3,707,000.00) as adjusted by the IGPM index from the date of the execution of this AGREEMENT to the date on which the total disbursement of the amount is completed. 1.8 DEPOSIT means the aggregate of the measured and/or indicated mineral resources (as such terms are generally employed in the international industrial jargon of gold mining) of gold and gold coproducts or associated metals discovered in the AREAS, provided that such resources are of approximately one (1) million troy ounces or more. 1.9 FEASIBILITY STUDY means the study of the technical-economical feasibility of the exploitation of the mineral deposits in the AREAS, comprising a detailed description of the implementation, development, mining, processing and marketing strategy for a mine located in the AREAS, in the form and at the detail level normally required by a financial institution that is familiar with mining, with the purpose of financing the projects. The FEASIBILITY STUDY is to take into consideration the information obtained during the exploration work carried out previously confirming the existence of the reserves through detailed drilling, hydrogeologic and geotechnical work, environmental studies, and the collection of one or more bulk samples of the ore for metallurgical tests that may require the construction of one or more shafts, construction of an incline, or work associated with trial mining. The FEASIBILITY STUDY is to contain estimates both of capital and operational costs, and is to analyze how to proceed with the mining operations in order to extract economically and commercially the target mineral (minerals), identify the ideal structure for the mining project, and include references to the relevant marketing and financial aspects. 1.10 VALUE OF THE MINERAL RIGHTS or NET PRESENT VALUE of NPV means the value, on the date of the evaluation, of the proven and probable ore reserves defined in the FEASIBILITY STUDY of the AREAS, after deducting the taxes and statutory royalty payments. Such value shall be stated in U.S. dollars and shall be calculated with a cost of capital (internal discount rate) of eight point seven percent (8.7%) per year, based on the immediate development of a mine in the AREAS, based on the basic assumptions used in the FEASIBILITY STUDY, with one hundred percent (100%) of equity financing, assuming free salability of the gold in the international markets, and the U.S. dollar as constant. Any supplementary resources that may be reasonably inferred, even if they that are not categorized as proven or probable reserves in the FEASIBILITY STUDY, shall be accounted as increments in the NET PRESENT VALUE analysis, being processed in the same facilities included in the capital and operational cost model used in the initial calculations of the NET PRESENT VALUE. Alternative methods, such as rate of return analysis, shall not be employed in the calculation of the NET PRESENT VALUE, but only the net present value method as described in this agreement. 1.11 TOTAL EXPENDITURES means the total expenditures made jointly by the PARTIES during the WORK PROGRAMS and the preparation of the FEASIBILITY STUDY, after the disbursement by the COMPANY of the MINIMUM INITIAL INVESTMENT, except the COSTS OF THE AREAS and the MINIMUM INITIAL 3 5 INVESTMENT. Costs, expenses, disbursements, debts and charges, whether direct or indirect, made by the COMPANY, related to or incidental upon any work done in the AREAS or concerning exclusively the AREAS or the products derived therefrom, according to Annex 3, that are not COSTS OF THE AREAS, shall be included in the calculation of the TOTAL EXPENDITURES. 1.12 WORK PROGRAM means the INITIAL WORK PROGRAM or any COMPLEMENTARY WORK PROGRAM that may be carried out, if applicable. 1.13 ASSOCIATION means a corporation or any other type of association between the COMPANY and CVRD or their respective affiliates that will provide to the PARTIES the most advantageous ways to implement a mine and exploit the MINERAL RIGHTS according to Brazilian laws, administrative, tax and business factors, subject to the provisions of Chapter IX and the other ones of this AGREEMENT. In the event any of the PARTIES retains a ROYALTY instead of its INTEREST PERCENTAGE in the ASSOCIATION, pursuant to the terms established herein, the term ASSOCIATION shall refer to the operating company that is implementing and exploiting a mine to the benefit of the other PARTY. 1.13.1 The PARTIES shall have assured to them the necessary flexibility to adopt the procedures aiming to the formation of the ASSOCIATION in the most advantageous way for them in relation to the limitations of Brazilian legislation and their administrative conveniences, and subject to any requests CVRD may make to the COMPANY as for such way, in order to obtain the AUTHORIZATIONS. 1.14 ASSOCIATION AGREEMENT means an association agreement or any other type of agreement that regulates in detail the terms and the conditions under which the ASSOCIATION will operate and will be managed. The ASSOCIATION AGREEMENT shall contain all the terms and conditions specifically set forth in this AGREEMENT for inclusion in the ASSOCIATION AGREEMENT, as well as the terms of Annex 4 that are appropriate to the type of ASSOCIATION, plus the additional terms over which the PARTIES may reach an agreement. 1.15 ROYALTY means the amount equivalent to a percentage on the gold production ascertained after the refining, upon the mining and beneficiating of the demonstrated reserves contained in the MINERAL RIGHTS. 1.16 OPTION has the meaning attributed in clause 6 hereof. 1.17 PARTICIPATING INTEREST means (i) prior to the formation of the ASSOCIATION, the percentage of contribution of each one of the PARTIES to the aggregate amount of the TOTAL EXPENDITURES plus the MINIMUM INITIAL INVESTMENT of each PARTY; and (ii) after the formation of the ASSOCIATION, and when it is mentioned in this AGREEMENT, the percentage equivalent to the interest of one PARTY in the stock capital of the ASSOCIATION. 4 6 1.18 AUTHORIZATIONS means all governmental, legislative, ministerial or other kind of approvals, consents or collateral signatures of any type that are required by the legislation in force or by the bylaw of CVRD or of DOCEGEO for admission to and for the formation of the ASSOCIATION with the COMPANY and for the performance of the ASSOCIATION AGREEMENT. 1.19 PVI or PRESENT VALUE OF THE CAPITAL INVESTMENT means the present value of the capital investment forecasted in the FEASIBILITY STUDY to implement the business. 1.20 CONTROL means the holding of the majority of the voting capital of a corporation and the permanent power to elect the majority of its board. 1.21 IGPM means the General Index of Prices in the Market ("Indice Geral de Pregos do Mercado)" of Getulio Vargas Foundation. CHAPTER II PURPOSE 2. The following constitute the purpose of this agreement: 2.1 The carrying out by the COMPANY, on its own account and risk, of mineral exploration work, specifically; for gold, in the AREAS. 2.2 The promise hereby made by CVRD to directly or indirectly associate with the COMPANY for the economic exploitation of the gold deposits which may be found in the AREAS. 2.3 The grant of an OPTION to the COMPANY, subject to the provisions of item 1.17 and of clause 22, to obtain an PARTICIPATING INTEREST in the ASSOCIATION, that is to hold the MINERAL RIGHTS and carry out the exploitation of gold and associated minerals discovered in the AREAS, provided that the FEASIBILITY STUDY results positive, and subject to the AUTHORIZATIONS and other provisions of this AGREEMENT. 2.4 To establish the terms and clauses that shall govern the COMPANY, CVRD and DOCEGEO during the mineral exploration in the AREAS, the preparation of the FEASIBILITY STUDY and, if applicable, the formation of the ASSOCIATION. CHAPTER III TITLE ON THE MINERAL RIGHTS 3. CVRD represents it is the beneficial titleholder of the mineral rights represented by Alvara (Exploration Permit) no. 7.731 (DNPM Proceedings no. 810.354/76), by Alvara no. 827 (DNPM Proceedings no.802.913/78), which are in perfect order, duly registered and recorded, free and clear of any encumbrances, and validly authorize the exploration for gold in the AREAS in accordance with the applicable laws. 5 7 4. DOCEGEO represents it is the beneficial titleholder of the mineral rights represented by Alvara no. 4.231 (DNPM Proceedings no. 850.026/89), which is in perfect order, duly registered and recorded, free and clear of any encumbrances, and validly authorizes the exploration for gold in the AREAS in accordance with the applicable laws. 4.1 DOCEGEO and CVRD represent that the ore exploration right dealt with by this clause is free and clear of any encumbrances except for the Waiver signed on 06/24/91 with the National Department of Mineral Exploration (DNPM) which is an integral part of Annex I of this AGREEMENT, and undertake to use their best efforts to render it ineffective. 5. CVRD and DOCEGEO undertake to maintain the MINERAL RIGHTS under their title, in perfect order, and free and clear of any encumbrances and charges, for as long as this AGREEMENT is in effect, fulfilling all necessary legal requirements to that effect. 5.1 In the event CVRD or DOCEGEO are no longer the titleholders of the MINERAL RIGHTS, while this AGREEMENT is still effective, due to any action or omission of CVRD or DOCEGEO, or due to the event dealt with by item 4.1 of this AGREEMENT, this AGREEMENT shall be considered automatically terminated, and CVRD shall pay the COMPANY as liquidated damages: (i) within thirty (30) days as of the loss of the title of said MINERAL RIGHTS, an amount equal to one hundred and fifty percent (150%) of all expenditures made by it until then, except the COSTS OF THE AREAS, in case the loss of the MINERAL RIGHTS occurs before the existence of a DEPOSIT is evidenced, whereby the COMPANY hereby waives any other remedies and benefits it might have under the legislation in force; (ii) the PARTICIPATING INTEREST of the COMPANY multiplied by the VALUE OF THE MINERAL RIGHTS, in five (05) annual installments adjusted by the IGPM index, in the event the loss of the MINERAL RIGHTS occurs after the existence of a DEPOSIT is evidenced but before the completion of a FEASIBILITY STUDY considered positive, whereby the COMPANY hereby waives any other remedies and benefits it might have under the legislation in force; (iii) the PARTICIPATING INTEREST of the COMPANY multiplied by the VALUE OF THE MINERAL RIGHTS, in five (05) annual installments adjusted by the IGPM index, in the event the loss of the MINERAL RIGHTS occurs after the completion of a FEASIBILITY STUDY considered positive, whereby the COMPANY hereby waives any other remedies and benefits it might have under the legislation in force; 5.2 In the event the loss of the MINERAL RIGHTS occurs after the DEPOSIT is evidenced, but before the completion of a FEASIBILITY STUDY, the PARTIES agree to complete the FEASIBILITY STUDY in the way regulated in this AGREEMENT, so that it is possible to calculate the indemnification dealt with by item 5.1 (ii), above. 6 8 CHAPTER IV OPTION TO ASSOCIATE 6. CVRD and DOCEGEO hereby grant to the COMPANY (i) the exclusive and irrevocable right to carry out work in the AREAS, pursuant to the MINERAL RIGHTS, and (ii) the OPTION to acquire a PARTICIPATING INTEREST in the ASSOCIATION to be formed, subject to the provisions of item 1.17 and of clause 22, conditioned on the cumulative occurrence of the three events listed below: 6.1 A positive FEASIBILITY STUDY is obtained; AND 6.2 CVRD obtains the AUTHORIZATIONS; AND 6.3 The COMPANY has made the MINIMUM INITIAL INVESTMENT. 7. The OPTION shall be considered automatically exercised by the COMPANY as soon as the events listed in clause 6, above, occur. 7.1 The COMPANY may fail to exercise the OPTION and terminate this AGREEMENT, without obligations or liabilities in relation to the MINERAL RIGHTS or to the AREAS, by written notice to CVRD, at any time, provided that the COMPANY has made the MINIMUM DISBURSEMENT already. Otherwise the COMPANY shall pay CVRD the difference between the MINIMUM DISBURSEMENT and the actual amount of expenditures that have been made already to the date of the notice of termination. CHAPTER V EXPLORATION WORK 8. The COMPANY undertakes to carry out all geological exploration works in accordance with the mining/environmental legislations, with the WORK PROGRAMS and under the following conditions: 8.1 The COMPANY shall be responsible, at its sole discretion, for the mineral exploration work in the AREAS, comprising all managerial, technical and administrative activities, within the scope of the WORK PROGRAM. 8.2 The COMPANY shall have full power and authority over the AREAS to carry out the mineral exploration work substantially within the periods of time scheduled in the WORK PROGRAM, except where due to a force majeure. However, CVRD and DOCEGEO shall use their best efforts to assist it in order to assure the development of the work in the AREAS according to the WORK PROGRAM. 8.3 All matters related to the exploration work will be dealt by the COMPANY with DOCEGEO, which only for this purpose will act on behalf of CVRD. After the execution of this AGREEMENT, DOCEGEO shall appoint its permanent technical representatives, whose 7 9 responsibilities shall be to act in favor of DOCEGEO, and shall provide the COMPANY with their names and other data required for communication with DOCEGEO under this AGREEMENT. 8.4 The COMPANY undertakes to submit for DOCEGEO's approval, which is not to be unreasonably withheld, every three (3) months, a report with the partial results of the exploration and a statement of the expenses made in the period of time, also informing the contingent discovery of the occurrence of any other mineral substance. DOCEGEO may ask the COMPANY, through notice in writing, within fifteen (15) days after receiving the report, additional details or clarifications regarding any information contained in any report, and the COMPANY shall immediately render the respective clarifications. In the event DOCEGEO does not reply in a term of 15 days counted from the receipt of the report, the latter shall be deemed approved. 8.5 This AGREEMENT and the MINERAL RIGHTS shall encompass gold and any other minerals that are coproducts of gold, or that are otherwise closely related to gold, considering as such those that, for an efficient economic exploitation, should be mined and processed jointly with gold. The ownership, exploration and contingent commercial exploitation of any other substances will be incumbent upon CVRD or DOCEGEO exclusively, whereby no indemnification or reimbursement for expenditures made is due to the other PARTIES. 8.5.1 The COMPANY and the ASSOCIATION may make use of sand, gravel, timber and other minerals and natural resources existing in the AREAS, on a non-commercial basis, in order to comply with the provisions of this AGREEMENT and the ASSOCIATION AGREEMENT, subject to the legislation in force. 8.6 CVRD and DOCEGEO undertake to offer to the COMPANY the right of first refusal to associate with CVRD for the exploitation of any commercial minerals not encompassed in this AGREEMENT and in the MINERAL RIGHTS, according to item 8.5, above, whenever such right may be offered by CVRD to third parties, and under the same terms and conditions. 8.7 CVRD and DOCEGEO may, whenever they wish, and at their expense, on three (3) days' notice to the COMPANY, and through the prior accrediting of persons, carry out the surveillance of the exploration work and of this AGREEMENT, whereby the COMPANY will be obligated to facilitate the surveillance action, permitting free access to all locations, documents, data and elements related to its performance. 9. The COMPANY, except in case of force majeure, undertakes to start the exploration work in a term of ninety (90) days counted from the execution of this AGREEMENT, whereby all time references included in the INITIAL WORK PROGRAM will be extended for an equal period of time. 10. The term required for the COMPANY to carry out the INITIAL WORK PROGRAM is thirty (30) months. The COMPANY may be authorized by DOCEGEO to make changes in the INITIAL WORK PROGRAM or any COMPLEMENTARY WORK PROGRAM, based on the results of the program performed and other circumstances that may arise during the performance of such WORK PROGRAM. DOCEGEO may not unreasonably withhold or delay its authorization. 11. In the hypothesis that at the and of the term required for carrying out the INITIAL WORK PROGRAM the existence of a DEPOSIT has not been confirmed yet, but there being a reasonable 8 10 possibility of attainment of such goal, the PARTIES shall agree to continue the exploration work, under this clause, provided that the sum of the periods of tune of the INITIAL WORK PROGRAM and the COMPLEMENTARY WORK PROGRAMS does not exceed the limit of fifty four (54) months. 11.1 After the completion of the INITIAL WORK PROGRAM, exploration shall be divided in stages with the duration of one (1) year each, or longer periods of time to be agreed upon mutually between the PARTIES. At least thirty (30) days before the end of each stage, the COMPANY shall deliver to DOCEGEO, for examination and approval as for its technical and economic adequacy, the COMPLEMENTARY WORK PROGRAM of the subsequent stage. 11.2 DOCEGEO may refuse to approve the COMPLEMENTARY WORK PROGRAM only for well-founded motives. 11.2.1 The COMPLEMENTARY WORK PROGRAM shall be deemed accepted by DOCEGEO in case the latter does not notify the COMPANY in writing about its refusal, along with the justifications and suggested revisions, within thirty (30) days after its receipt. 11.2.2 In the event divergences arise among the PARTIES about the COMPLEMENTARY WORK PROGRAM, that cannot be solved prior to the date of the start of the new suggested COMPLEMENTARY WORK PROGRAM, the PARTIES shall resolve such disputes according to Chapter XII of this AGREEMENT. The resolutions obtained according to that chapter, regarding the proposed COMPLEMENTARY WORK PROGRAM, shall be final and binding upon the PARTIES. The PARTIES agree that the COMPANY shall proceed with the proposed COMPLEMENTARY WORK PROGRAM during this period of time and that the expenses of the exploration work shall not exceed the amounts spent during the most recently completed WORK PROGRAM. 11.3 In the event the existence of a DEPOSIT is not evidenced after the end of the fifty four (54) months counted from the start of the INITIAL WORK PROGRAM, this AGREEMENT shall be automatically terminated, whereby the COMPANY shall not be entitled to any indemnification under any title, but will be obligated to transfer all its results to CVRD. If the COMPANY has not made the MINIMUM DISBURSEMENT yet, it shall pay CVRD the difference between such amount and the expenditures actually made. 11.4 If CVRD or the COMPANY, for any motive and at any time after the COMPANY has equalized the MINIMUM INITIAL INVESTMENT, do not contribute to the expenditures required for carrying out the WORK PROGRAM the way they should according to this AGREEMENT, and one of the PARTIES wishes to proceed with further exploration works in order to try and define a DEPOSIT, such PARTY is authorized to proceed, at its own cost, with the remaining exploration and/or the resource evaluation. In such case, the PARTICIPATING INTEREST of the PARTY that has not contributed shall be diluted and shall decrease permanently to the extent it does not participate in such continuation of the exploration work in accordance with clause 22 of this AGREEMENT. 9 11 11.5 If the COMPANY, at its discretion and at any time, decides to discontinue its participation, it shall withdraw from this AGREEMENT and relinquish its OPTION. 11.5.1 In this hypothesis, and in case the COMPANY has not completed the MINIMUM DISBURSEMENT, it shall pay CVRD, in thirty (30) days, the difference between such amount and the disbursement actually made. In this case, the COMPANY shall not be entitled to any indemnification or reimbursement of the amounts spent in the AREAS that are the subject matter of this AGREEMENT. CHAPTER VI RELATIONS WITH SURFACE OWNERS AND GOLD DIGGERS 12. The COMPANY undertakes to carry out and put into effect, on its account and responsibility, all understandings and agreements with the surface owners of the lands where it will enter to carry out the exploration works, aiming to obtain the due authorization, where the COMPANY deems necessary to obtain such authorization, and/or agreements for their participation in a future exploitation of the deposit(s). 12.1 No understanding or agreement with any surface owner may create an obligation of any kind for CVRD nor may it compromise the future economic exploitation of the deposit(s) that may be carried out by the contingent association of the COMPANY with CVRD, or by the latter severally. All understandings or agreements with any surface owner shall be entered into or carried out only through the COMPANY. 12.1.1 CVRD shall pay its proportional share of any costs or additional compensations that may arise after the COMPANY has equalized the MINIMUM INITIAL INVESTMENT, relative to the removal of surface owners, gold diggers (garimpeiros) or third parties that are occupying the AREAS, not included in the COSTS OF THE AREAS, provided that it has approved the terms of such obligations. CVRD may not unreasonably withhold its approval to such terms 12.2 In the event the PARTIES agree on the need to acquire real estate and/or fixed improvements for the future exploitation of the MINERAL RIGHTS before the ASSOCIATION is formed, CVRD and the COMPANY shall acquire them proportionately to their respective PARTICIPATING INTEREST and hold them as jointly owned property. 12.2.1 In the event of expiration or termination of this AGREEMENT for any motive, at any time, without the transfer of the MINERAL RIGHTS to the COMPANY or to the ASSOCIATION, the COMPANY undertakes to sell, upon written request from CVRD, and CVRD to buy, its share of the jointly owned property for the acquisition price as adjusted by the IGPM. 12.2.2 In the even of expiration or termination of this AGREEMENT for any motive, at any time, where there has been a transfer of the MINERAL RIGHTS to the COMPANY or to the ASSOCIATION, CVRD undertakes to sell, upon written request from the COMPANY, and the COMPANY to buy, its share of the jointly owned property for the acquisition price as adjusted by the IGPM. 10 12 13. Prior to the completion of the WORK PROGRAMS, the COMPANY undertakes to inform CVRD of any trespass or attempted trespass by third parties onto the AREAS, including gold diggers, as well as to resort to all legal, administrative and judicial means to prevent the entry or stay of such third parties in the AREAS. CVRD shall provide all reasonable assistance that may be requested, and shall take all actions that may be necessary and in the name of the holder of the legal authorization of the MINERAL RIGHTS, as the may PARTIES agree at the proper time, in order to enable it to handle such issues more easily. CHAPTER VII FEASIBILITY STUDY 14. In the event the exploration results positive as for the existence of a DEPOSIT, at the end of the term provided for in the INITIAL WORK PROGRAM and all COMPLEMENTARY WORK PROGRAMS, or alternatively, at any time, regardless of the total fulfillment of the physical-financial time schedule of the INITIAL WORK PROGRAM and of the COMPLEMENTARY WORK PROGRAMS, as long as satisfactory work has been carried out, expressly accepted by DOCEGEO, CVRD and the COMPANY shall carry out a FEASIBILITY STUDY in the AREAS and shall mutually participate in its completion, in accordance with their respective PARTICIPATING INTEREST. If any of the PARTIES, after electing to participate in the FEASIBILITY STUDY, fails to participate in the totality of its PARTICIPATING INTEREST, it shall be diluted and its PARTICIPATING INTEREST shall decrease permanently as provided for in clause 22. 14.1 After the demonstration of the existence of a DEPOSIT, CVRD may not refuse to participate in the FEASIBILITY STUDY. 14.2 The refusal of the COMPANY to invest in the FEASIBILITY STUDY shall entail its waiving the right to participate in the ASSOCIATION, in which hypothesis this AGREEMENT shall be automatically terminated, without the COMPANY having right to any indemnification or reimbursement for the expenditures made with the exploration work, transferring all its rights and results to CVRD. 15. The PARTIES shall contract with an independent consulting firm that has international reputation, specialized in this type of evaluation, to be selected and paid jointly by the PARTIES in the proportion of their PARTICIPATING INTEREST, to carry out the FEASIBILITY STUDY. In case the PARTIES do not reach an agreement about the consulting company, the PARTIES shall request the International Chamber of Commerce to make the selection, mutually binding themselves to the decision. 16. The PARTIES agree that the technical-economical exploitation of the deposit shall be considered as feasible, and the FEASIBILITY STUDY shall be considered as positive, if it demonstrates that: (i) the NPV is greater than zero; and (ii) the absolute NPV/PVI relation is greater or equal to 0.5. 11 13 16.1 The FEASIBILITY STUDY shall also be considered positive iL. (i) the NPV is greater than zero; a (ii) the absolute NPV/PVI relation is between zero and 0.5 (zero point five), and (iii) the FEASIBILITY STUDY contains positive recommendations for the development of a mine in the AREAS with such information (including the economic feasibility and the total cost of implementation of a mine in any portion of the AREAS) and in such a way that the report is sufficient to assure all construction and mining permits, and further to: (a) assure financing from a financial institution, in commercially reasonable conditions, for at least a part of the capital costs required to implement a mine in the AREAS, pledging as guaranty all assets of the PARTIES' operations employed in the AREAS; or (b) indicate a sufficiently strong economic return, so that at least one of the PARTIES to this AGREEMENT is willing and capable to make the additional and/or necessary investments to obtain the additional financing required to proceed with the implementation of a mine in the AREAS. 16.2 In the event an additional investment or financing is required to proceed with the implementation of a mine in the AREAS, as indicated by a positive FEASIBILITY STUDY, and only one of the PARTIES makes the additional investment or secures the required additional financing, the PARTICIPATING INTEREST of the PARTIES will be increased or decreased, as applicable, in the proportion required to reflect the additional investments by the PARTY in the project. 16.3 The MINERAL RIGHTS and all assets of the ASSOCIATION may be pledged as guaranty by the PARTIES or any one of the PARTIES in order to obtain financing for the implementation of a mine in the AREAS. 17. In the event the FEASIBILITY STUDY is not considered positive in accordance with the provisions of this Chapter, this AGREEMENT shall be automatically terminated, whereby the COMPANY will not be entitled to any rights, indemnification of reimbursement for any expenditures made. 17.1 In this case, the COMPANY shall pay CVRD, in a term of thirty (30) days counted from the completion of the FEASIBILITY STUDY, the difference between the MINIMUM DISBURSEMENT and the expenditures actually made, in case the COMPANY has not yet disbursed the total amount of the MINIMUM DISBURSEMENT. 18. Notwithstanding the provisions of clause 17, above, in the event the FEASIBILITY STUDY is not considered positive, but any of the PARTIES believe that with additional exploration a positive FEASIBILITY STUDY could be obtained, this AGREEMENT will not be ended and the PARTIES will proceed carrying out the exploration for one (1) more year. At the end of such term, in case a positive FEASIBILITY STUDY is not obtained, the provisions of clause 17, above, shall be applicable. 12 14 18.1 In the event only one of the PARTIES believe that with additional exploration a positive FEASIBILITY STUDY could be obtained, then this AGREEMENT will not be ended, and such PARTY may proceed at its own expense. 18.2 If by the end of one (1) year counted from the date on which the FEASIBILITY STUDY has not been considered positive the PARTY that has proceeded with the exploration has not obtained a FEASIBILITY STUDY considered positive according to this Chapter, the provisions of clause 17, above, shall be applicable. 18.3 If by the end of one (1) year counted from the date on which the FEASIBILITY STUDY has not been considered positive the PARTY that has proceeded with the exploration has obtained a FEASIBILITY STUDY considered positive according to this Chapter, the other PARTY shall have the option to regain the PARTICIPATING INTEREST it had before the start of the additional exploration pursuant to this clause, through the reimbursement of an amount equal to such PARTICIPATING INTEREST multiplied by one hundred percent (100%) of the expenditures made during such year by the PARTY that proceeded with the exploration. 19. If the FEASIBILITY STUDY results positive, according to the provisions of this Chapter, the provisions of Chapter IX of this AGREEMENT shall apply. CHAPTER VIII EXPENDITURES 20. During the carrying out of the exploration work provided for in Chapter V, above, the expenditures shall be made in the following manner: 20.1 Until the COMPANY has disbursed the MINIMUM INITIAL INVESTMENT, all expenditures of any nature, required to carry out the exploration work, including, without limitation, all taxes, fees, contributions and parafiscal obligations arising or that may arise out of this AGREEMENT and its subject matter, as well as labor obligations, social burdens and damages caused to third parties as a consequence of carrying out the mineral exploration, shall run exclusively on its account. 20.2 CVRD and the COMPANY shall jointly bear, in the proportion established in clause 22, below, all expenditures that exceed the MINIMUM INITIAL INVESTMENT, according to the INITIAL WORK PROGRAM and the COMPLEMENTARY WORK PROGRAMS, as well as the costs or compensations defined under item 12.1.1, except the COSTS OF THE AREAS, which under any hypothesis shall be borne exclusively by the COMPANY, and those resulting from negligence or breach of the laws in force on the part of the COMPANY. 20.3 The amount of contingent fines that may be applied to CVRD or DOCEGEO, for an action or omission of the COMPANY, shall be advanced by the latter for the respective payments, or, in case these are made by them, shall be reimbursed by it. 20.4 The COSTS OF THE AREAS shall be borne by the COMPANY severally. 13 15 20.5 The COMPANY shall not be liable, under any hypothesis, for any expenditures resulting from environmental damages causes prior to the execution of this AGREEMENT, or that are not directly attributable to the COMPANY under the law, and its rights in this AGREEMENT may not be reduced or affected in any way for such motive. 20.6 The COMPANY shall not be responsible, under any hypothesis, for any expenditures deriving from obligations to employees or laborers, or other actions related to the AREAS, which were performed or assumed by third parties other than the COMPANY, including, without limitation, actions or omissions or work performed (i) by or on behalf of CVRD or DOCEGEO or any other agreements or obligations of CVRD or DOCEGEO prior to the execution of this AGREEMENT by the COMPANY and (ii) by surface owners, gold diggers or other occupants or users of the AREAS, and in such cases the provisions of Chapter XI shall remain applicable, as well as the other provisions of this AGREEMENT. 21. The expenditures related to carrying out the FEASIBILITY STUDY shall be divided between CVRD and the COMPANY, in the proportion established in clause 22, below. 21.1 If the FEASIBILITY STUDY is started before the COMPANY has completed the MINIMUM INITIAL INVESTMENT, the difference between such amount and the amount actually spent shall be paid by the COMPANY before CVRD contributes with its share of participation in the costs of such study. 21.2 During the period of time between the obtainment of a FEASIBILITY STUDY considered positive and the obtainment or denial of the AUTHORIZATIONS, the PARTIES are to make jointly, in the proportion of their respective PARTICIPATING INTEREST, the expenditures necessary for maintaining the MINERAL RIGHTS, and are to agree mutually as for any other required and appropriate expenditure and activity to be undertaken in such period of time. 22. The joint disbursements of the PARTIES during the WORK PROGRAMS and the FEASIBILITY STUDY shall obey the following proportion: 22.1 All joint disbursements shall be made by CVRD and the COMPANY in equal proportions, in order to assure that at the completion of the FEASIBILITY STUDY each one has a participation of fifty percent (50%) in the TOTAL EXPENDITURES. 22.2 In the event CVRD or the COMPANY fail to make the required disbursements in the in proportion of fifty percent (50%) each, their respective PARTICIPATING INTEREST in the TOTAL EXPENDITURES shall be automatically and permanently altered in order to reflect the disbursements each PARTY has actually made. 22.3 The PARTIES that have their PARTICIPATING INTEREST in the TOTAL EXPENDITURES altered pursuant item 22.2, above, shall make the subsequent joint disbursements in the proportion of the new PARTICIPATING INTEREST, and if they do not make it, their respective PARTICIPATING INTEREST shall be altered again under item 22.2, above. 22.4 The COMPANY shall notify the PARTIES in writing, at least thirty (30) days in advance, of the need of the disbursements, specifying respective amount, according to the 14 16 physical-financial time schedule that is a part of the INITIAL WORK PROGRAM, or if applicable, of the COMPLIMENTARY WORK PROGRAM approved by DOCEGEO. 22.5 Within a term of twenty (20) days counted from the receipt of the notice dealt with by item 22.4, above, CVRD and the COMPANY shall make the required disbursements. CHAPTER IX ASSOCIATION 23. In the hypothesis that the FEASIBILITY STUDY is considered positive under Chapter VII, CVRD shall directly or indirectly organize with the COMPANY an ASSOCIATION to promote the exploitation of the mineral asset, provided that the COMPANY has made the MINIMUM INITIAL INVESTMENT. 23.1 It is hereby agreed that the admission of CVRD in the ASSOCIATION is conditioned on the obtainment of the AUTHORIZATIONS, under the legislation in force at the time when the formation of the ASSOCIATION is considered. 23.2 Immediately upon the completion or determination of a positive FEASIBILITY STUDY, CVRD shall arrange the AUTHORIZATIONS required for creating the ASSOCIATION. CVRD undertakes to use its best efforts in the obtainment of the AUTHORIZATIONS, and represents that despite having no cognizance of any reason to believe that they will not be granted, some AUTHORIZATIONS are totally discretionary and arbitrary, and may be unreasonably denied. 23.3 As soon as the AUTHORIZATIONS are obtained, the ASSOCIATION AGREEMENT shall become effective, and in accordance with its terms, CVRD and the COMPANY shall create the ASSOCIATION. 23.4 Immediately after the completion or determination of a positive FEASIBILITY STUDY, the COMPANY shall pay to CVRD the difference between the MINIMUM INITIAL INVESTMENT and the amount actually spent, if the total amount of the MINIMUM INITIAL INVESTMENT has not been totally disbursed. 23.5 As of the obtainment of a positive FEASIBILITY STUDY, and until the AUTHORIZATIONS are obtained, the necessary and appropriate actions and activities concerning the AREAS and the MINERAL RIGHTS shall be agreed between the PARTIES, which, if necessary, shall contribute jointly, in accordance with their respective PARTICIPATING INTEREST, pursuant to the provisions of Chapter VIII. 23.6 In the event that at any moment after the obtainment of a positive FEASIBILITY STUDY and after the total disbursement of the MINIMUM INITIAL INVESTMENT by the COMPANY, CVRD waives forming the ASSOCIATION with the COMPANY, CVRD shall transfer the MINERAL RIGHTS to the COMPANY, except if such waiver is due to non- obtainment of the AUTHORIZATIONS. 23.7 If the required AUTHORIZATIONS are denied or are not obtained within one hundred and fifty (150) days, that may be renewed for one single additional period of time of 15 17 one hundred and fifty (150) by written notice from the COMPANY, after the completion of a positive FEASIBILITY STUDY on the AREAS, CVRD shall not transfer the MINERAL RIGHTS to the COMPANY, but shall pay to the COMPANY, under the title of indemnification, an amount equal to its PARTICIPATING INTEREST multiplied by the VALUE OF THE MINERAL RIGHTS, in five (5) annual installments, converted into reals on the date of each respective payment by the sales quotation published on the date of each respective payment, in item 5 of the PTAX 800 Transaction of SISBACEN, Banco Central do Brasil, whereby the first installment shall be paid within sixty (60) days after the term stipulated above or its renewal or after the formal denial of any required AUTHORIZATION. 23.8 At any time prior to making the payment dealt with by item 23.7, above, CVRD may give written notice to the COMPANY indicating the ROYALTY percentage it wishes to permit the COMPANY to retain in lieu of the payment specified in item 23.7. The COMPANY shall have thirty (30) days counted from the receipt of such notice from CVRD, to accept or reject in writing the ROYALTY offer. If the COMPANY rejects the ROYALTY offer made by CVRD, CVRD shall make the payment dealt with by item 23.7 within thirty (30) days counted from the notice of such rejection. 24. The initial PARTICIPATING INTEREST of CVRD and the COMPANY in the stock capital of the ASSOCIATION shall be equal to their respective PARTICIPATING INTEREST at the time of the formation of the ASSOCIATION. 24.1 The capital infusions to the ASSOCIATION shall made in accordance with a timetable that takes into consideration the reasonable period of time for the PARTIES to secure the necessary funds. 25. In the event that the PARTICIPATING INTEREST of the COMPANY, prior to the obtainment of the AUTHORIZATIONS, becomes less than fifteen percent (15%), and as long as the COMPANY has not refused to invest in the FEASIBILITY STUDY, CVRD shall not organize an ASSOCIATION with it to promote the exploitation of the mineral asset, but shall pay it an indemnification of five percent (5%) of the NET PRESENT VALUE, of the enterprise, as determined by the FEASIBILITY STUDY, in five (5) annual installments, converted into reals on the date of each respective payment by the sales quotation published on the date of each respective payment in item 5 of PTAX 800 Transaction of SISBACEN, Banco Central do Brasil. 26. Whatever may be the hypothesis of its incorporation, the final composition of the association shall observe the requirements for companies formed under the Brazilian laws, defined in article 176 of the Brazilian Federal Constitution. 27. The ASSOCIATION shall be organized as follows: 27.1. CVRD and DOCEGEO shall take all steps required to transfer MINERAL RIGHTS to the ASSOCIATION at the same time its formation is being processed. 27.2 The ASSOCIATION may, up to the limit it may deem necessary, acquire assets that may represent improvements to the AREAS in the implementation of a mine, including but not being limited to real estate of the AREAS, roads, power transmission lines, and other mining improvements or equipment items that have been acquired by the COMPANY and the costs of which have not been credited to the MINIMUM INITIAL INVESTMENT or the TOTAL 16 18 EXPENDITURES. The COMPANY shall sell or lease such assets to the ASSOCIATION for an appropriate compensation to be agreed upon by the PARTIES, which shall be based on the highest value of (i) the fair market value of such assets, and (ii) in the case of assets acquired by the COMPANY from surface owners or occupants of the AREAS in order to permit the access for the exploration, the price paid by the COMPANY in acquiring them. 27.3 Upon the formation of the ASSOCIATION, the PARTIES shall capitalize the TOTAL EXPENDITURES and the MINIMUM INITIAL INVESTMENT made by the PARTIES, except the COSTS OF THE AREAS. 27.3.1 The PARTIES acknowledge as already made by CVRD the MINIMUM INITIAL INVESTMENT corresponding to the same amount as that one that shall be realized by the COMPANY, which may also be capitalized as provided for in this item 27.3. 28. After the existence of a DEPOSIT has been evidenced, CVRD shall provide the COMPANY with a draft of the ASSOCIATION AGREEMENT. The PARTIES agree to use their best efforts to reach in good faith a final form of ASSOCIATION AGREEMENT within one hundred and twenty (120) days after the delivery of the initial draft to the COMPANY. 28.1 The ASSOCIATION AGREEMENT shall be substantially consistent with this AGREEMENT and with the basic principles that shall govern the ASSOCIATION, defined in Annex 4 - Basic Principles of the Association, and shall additionally contain all clauses of this kind of agreement, as the legislation in force at the time of its preparation may determine. 28.2 If the ASSOCIATION AGREEMENT is not executed within thirty (30) days as of the date on which the OPTION is exercised, the terms of this AGREEMENT shall be applicable until the ASSOCIATION AGREEMENT is executed. 29. SOUTHERN hereby undertakes to keep the CONTROL of ESTRELA while this AGREEMENT is in force and while the ASSOCIATION exists in the event ESTRELA becomes a party of the ASSOCIATION. CHAPTER X DEFAULT AND TERMINATION 30. This AGREEMENT may be terminated for all legal purposes by either PARTY in case of breach of any of its clauses, without detriment to the recovery of losses, damages and lost profits ascertainable through ordinary judicial procedure. 30.1 In the hypothesis of a breach of any clause of the present AGREEMENT, the PARTY that deems itself injured shall notify the other, formally, in writing, the cognizance of the event. 30.2 The termination shall take place in a term of sixty (60) running days counted from such notice, in the event the effects of such breach, as well as the causes thereof, are not cured in such term. 17 19 30.3 In the event the defaulting PARTY has commenced to cure such a breach within a term of sixty (60) days counted from the notice dealt with by item 30.1, above, the defaulting PARTY shall have one hundred and eighty (180) days counted from the notice dealt with by item 30.1, above, to cure the breach completely. Within the sixty (60) days subsequent to the end of such term, in case the breach is not completely cured, the PARTY that deems itself impaired may terminate this AGREEMENT. 31. Notwithstanding item 30, above, if the COMPANY is the defaulting party, CVRD shall have the right to terminate this AGREEMENT only in the event the default occurs prior to the exercise of the OPTION by the COMPANY, and when it impairs CVRD substantially as to the objective of this AGREEMENT, as for example a material failure to perform on the part of the COMPANY in conducting the WORK PROGRAM. For the other default cases, CVRD will be entitled to recover from the COMPANY, if applicable, the actual amount relative to damages caused by it. 32. Besides the default hypotheses regulated in clauses 30 and 31, above, this AGREEMENT shall be automatically terminated for all legal purposes in the hypotheses of items 5.1, 7.1, 11.3, 11.5, 14.2, 23.6, 23.7, 34.4 and 35.1, and of clauses 9, 17, 25 and 36, each one regulating the consequences of the termination in each case, respectively. 33. In the event of expiration or termination of this AGREEMENT, or under any hypothesis in which the COMPANY withdraws from this AGREEMENT, the COMPANY shall deliver to CVRD all data derived from its mineral exploration work, except professional geological analyses. CHAPTER XI ACT OF GOD AND FORCE MAJEURE 34. If any of the PARTIES is temporarily prevented from fulfilling its obligations in full or in part, as a consequence of an act of God or of force majeure, it shall communicate the fact immediately to the other ones and ratify the communication in writing, informing the damaging effects of the event and the expected duration thereof. The affected PARTY shall resume performance as soon as reasonably possible. 34.1 For purposes of this AGREEMENT, to be considered as acts of God and force majeure, among other events that are beyond the reasonable control of the PARTIES according to the Brazilian legislation, are the following events, as long as they prevent the PARTY from complying with its obligations in full or in part: (i) laws. regulations, instructions from the government or a governmental entity; (ii) judicial order; (iii) fire, explosion, earthquake, storm, flood, drought or other adverse and unpredictable meteorological conditions, and (iv) acts of war or conditions deriving from war, declared or non-declared, or attributable to it; 34.2 Once the occurrence of an act of God or of force majeure is verified, the compliance with the obligations of the PARTY that are assumed as a function of the present AGREEMENT shall become suspended, as well as all other terms and periods of times contemplated therein. Once the act of God or force majeure has ceased, the PARTIES shall agree on a reasonable period of time to resume their obligations in this AGREEMENT. 18 20 34.3 The occurrence of facts pertinent to the regional climatic conditions, as well as their consequences, shall not be considered a cause for extending the terms forecasted in the COMPANY's proposal. 34.4 Any PARTY may terminate this AGREEMENT if the conditions of suspension of the obligations persist for a period of time longer than eighteen (18) months, without any right to indemnification or reimbursement of the expenditures made by the PARTIES. 35. The entry and staying of third parties in the AREAS, entailing the temporary interruption of the exploration work, shall be considered force majeure, but shall not be subject to the provisions of item 34.4, above. 35.1 If the hypothesis of this clause occurs before the existence of the DEPOSIT is evidenced and the conditions for suspending the obligations persist for a period of time longer than eighteen (18) months, either PARTY may terminate this AGREEMENT. 35.2 If the hypothesis of this clause occurs after the existence of the DEPOSIT is evidenced, the fulfillment of the obligations of the PARTIES that have been assumed as a function of this AGREEMENT shall be suspended for an indeterminate period. 36. Notwithstanding the provisions of item 5.1, above, in the event CVRD or DOCEGEO lose their title over the MINERAL RIGHTS by reason of force majeure, despite having taken all actions possible to keep them, this AGREEMENT shall be terminated, whereby no indemnification under any title shall be due to any of the PARTIES. CHAPTER XII TECHNICAL ARBITRATION 37. Any controversies of a technical, geological, economic and financial nature involving the exploration work or the FEASIBILITY STUDY, shall be settled in the way described next: 37.1 In the event of any dispute resulting from this AGREEMENT, any of the PARTIES may commence the procedures provided for under this Chapter, calling a meeting of the presidents, members of the board of directors or senior representatives of the PARTIES designated by them and with capacity to enter into a binding agreement. 37.2 The representatives of the PARTIES shall meet within thirty (30) days counted from the date of the notice calling the meeting, and shall use their best efforts to reach a negotiated settlement of the dispute. 37.3 If the representatives of the PARTIES are unable to reach a settlement within thirty (30) days after the commencement of the negotiations, the PARTIES agree to submit such dispute to arbitration by a specialized consulting company of international reputation in the segment of gold mineral exploration, contracted by common consent by the PARTIES, which shall bear the costs in equal portions. 37.4 The decision of the contracted consulting company in relation to the matter shall be delivered within thirty (30) days after the contracting, shall be final and shall be binding upon 19 21 the PARTIES. If any of the PARTIES refuses to abide by the decision of the consulting company, in accordance with this AGREEMENT and the provisions of its Chapter IX, such refusal shall amount to a default for purposes of Chapter X, and it shall be subject to the precepts contained therein. CHAPTER XIII FINAL PROVISIONS 38. It is forbidden to the PARTIES, their directors and officers, employees, agents or consultants to render information to third parties about the nature or the progress of the performance of this AGREEMENT, as well as to divulge, through any communication means, data and reports relative to the work carried out, the technology adopted and the technical documentation involved, unless by express written authorization of the other ones or when the disclosure of confidential information is (i) required by law or by any applicable governmental or regulatory authority or public stock exchange, or (ii) made to consultants who have a relation with the project, contracted by one of the PARTIES, provided that the PARTY providing confidential information to such consultant is responsible for any breach of this confidentiality covenant by its consultants. 39. None of the PARTIES may assign or transfer this AGREEMENT in full or in part, unless with the prior authorization of the other ones, except if such assignment or transfer is to a controlled company and provided that the assigning PARTY commits itself to keep it as such while this AGREEMENT is in force. 40. The following shall complement this AGREEMENT, being an integral part of it as subsidiary instruments, in the form o annexes: Annex 1 - Copies of the Mineral Rights and of the Descriptive Memos of the Areas and of the Waiver signed on 06/24/91 with DNPM. Annex 2 - SOUTHERN's proposal of 07.11.95. Annex 3 - Description of Expenditures Annex 4 - Basic Principles of the ASSOCIATION Annex 5 - CVRD's Selection Conditions The terms defined herein, when employed in the Annexes, shall have the same meanings. When the provisions contained in any of the Annexes contradict the terms of this AGREEMENT, the terms of this AGREEMENT shall prevail. 41. This AGREEMENT is to be governed and construed according to the Brazilian laws. Elected are the courts of the County of Rio de Janeiro, to the exclusion of any other one, no matter how privileged, to settle any divergences or pending items deriving from this AGREEMENT. 42. CVRD and DOCEGEO represent and warrant to the COMPANY that they have obtained all the authorizations required for the execution, fulfillment and performance of the terms of this AGREEMENT and for the grant of the OPTION. 20 22 43. In the event that any of the provisions or sections of this AGREEMENT is held to be unenforceable or invalid according to the Brazilian law, the PARTIES shall negotiate for such clauses of this AGREEMENT an equitable adjustment, so that this AGREEMENT produces effects and that the validity and enforceability of the remaining provisions are not affected. 44. In the event of relinquishment by the COMPANY of its rights to or interest in the OPTION or in the ASSOCIATION, and once this AGREEMENT is expired or terminated hereunder, the COMPANY shall have no additional rights, obligations or liabilities covered by this AGREEMENT or other ones, in relation to the OPTION, the MINERAL RIGHTS or the ASSOCIATION mentioned herein. 21 23 45. This AGREEMENT shall be prepared in Portuguese and in English, to reflect the intentions of the PARTIES, whereby only the Portuguese version shall have legal effects. In witness whereof, the parties execute this instrument, in four (4) counterparts with the same tenor, in the presence of the witnesses who sign below. Rio de Janeiro, 13 de Maio de 1996 COMPANHIA VALE DO RIO DOCE /s/ Francisco Jose Schettino /s/ Anastacio O. Fernandes Fo Name: Francisco Jose SCHETTINO Name: Anastacio O. FERNANDES Fo Title: Presidente Title: Vice Presidente RIO DOCE GEOLOGIA E MINERACEO S.A. /s/ Breno Augusto Santos /s/ Luiz Antonio Godoy Alves Name: Breno Augusto SANTOS Name: Luiz Antonio Godoy ALVES Title: Director - Presidente Title: Dir-Adm-Financeiro SOUTHERN STAR RESOURCES /s/ David A. Fennell /s/ Jeffrey T. Abbott Name: David A. FENNELL Name: Jeffrey T. ABBOTT Title: Director Title: President ESTRELA SUL DO BRASIL EMPREENDIMENTOS LTDA. /s/ Carlos H. Bertoni Name: Carlos H. BERTONI Title: Gerente Witnesses: /s/ Helcio Roberto M. Guerra /s/ Marcus Roger MM Costa Name: Helcio Roberto M. GUERRA Name: Marcus Roger MM COSTA Address: Av. Graga Aranha, 26/8o Address: Av. Graga Aranha, 26/8(o) Tax Record File: Tax Record File: 22 24 ANNEX 3 DESCRIPTION OF EXPENDITURES 1. In computing and accounting the expenditures of the COMPANY with the purpose of calculating the INITIAL WORK PROGRAM, the MINIMUM INITIAL INVESTMENT and its share of the TOTAL EXPENDITURES, the COMPANY shall receive credit for all reasonable costs, expenses and charges, direct or indirect, exclusive of the COSTS OF THE AREAS, related to any activities that concern the AREAS, performed by the COMPANY or its subsidiaries with the amount of such costs, expenses and charges being determined and including, without limitations: (a) wages and benefits and social burdens for its employees that are engaged in activities related to the AREAS, consultant and consulting fees, allocated legal advice and accounting charges and fees, transportation and lodging, service rendering company and other charges with contractors, or expenses by others who perform activities that are a part of the purposes and obligations of the COMPANY, that are subject to this AGREEMENT. (b) office facilities and equipment, communications instruments, materials and supplies, field equipment, fuel, nourishment, geological and legal surveys, trenching and drilling, opening of roads and wood trails, data collection and analyses, sample collection, metallurgical and geophysical research, mapping, engineering design, geological or geophysical analyses; (c) drilling equipment, heavy equipment, vehicles and other major equipment items, whether purchased, rented or contracted, for the COMPANY purposes related to the AREAS, and (d) mobilization and demobilization, customs duties, employee contributions, sales, use of the goods, assets turnover, ad valorem or other taxes that fall upon any of the preceding items employed in the exploration and evaluation of the AREAS. 2. Furthermore, an amount equal to twelve point five per cent (12.5%) of the total of all costs, expenses and charges described in item 1, above, shall be included in the expenditures attributable to the COMPANY with the purpose of reflecting the allocable portion of the administrative costs and other overhead of the COMPANY, its controlling companies, or any of its subsidiaries, in relation to the COMPANY's activities concerning the AREAS. 23 25 ANNEX 4 BASIC PRINCIPLES OF THE ASSOCIATION The PARTIES hereby agree that the ASSOCIATION shall be incorporated and managed under observance of the following basic principles: 1. The ASSOCIATION may be incorporated under the authorized capital system; 2. The PARTIES that become shareholders shall elect the administrators of the ASSOCIATION in accordance with their respective stock interests, whereby the applicable legislation shall be respected; 2.1 The representation of the PARTIES in the corporate bodies of the ASSOCIATION shall be proportional to their respective PARTICIPATING INTEREST, whereby the initial number of members of the Board of Directors shall be four (4). 3. The PARTIES hereby agree that as long as both PARTIES hold each an PARTICIPATING INTEREST higher than thirty three and one third percent (33-1/3%) in the ASSOCIATION, the following matters and rules shall mandatorily be included in the ASSOCIATION bylaw: 3.1 The ASSOCIATION may issue common and preferred shares; 3.2 The deliberations involving the matters specified below shall be made by unanimous consent in the ASSOCIATION's shareholders meeting: 3.2.1 Amendments of the bylaw entailing changes in the rights and obligations of the PARTIES, as well as amendment of the corporate purpose of the ASSOCIATION, 3.2.2 Any transformation, merger, incorporation or split-up of the ASSOCIATION, its participation in another corporation of in a group of corporations, 3.2.3 The public or private issuance of new shares, common or preferred, and the respective fixation of the issuance price, and the issuance of debentures, convertible into shares or not, of participation certificates, subscription bonuses or share purchase options, except when carried out within the limits of the ASSOCIATION's authorized capital, if applicable; 3.2.4 The adoption of reinvestment, expansion, or new investment project policies, and the distribution of non-mandatory dividends or the payment of dividends higher than the mandatory ones; 3.2.5 The dissolution or liquidation of the ASSOCIATION; 3.2.6 The authorization to the administrators to confess bankruptcy or to apply for a judicial composition with creditors; 3.2.7 Any change in the number of members of the Board of Directors; and 24 26 3.2.8 The abandonment of the AREAS or of the MINERAL RIGHTS. 3.3 It shall be incumbent upon the Board of Directors to deliberate about the following matters, with the favorable vote of at least sixty six and two thirds percent (66-2/3% of its members: 3.3.1 Election and dismissal of officers of the ASSOCIATION and determination of their respective duties; 3.3.2 Approval of any business or amendment of same between the ASSOCIATION and any of its shareholders, or any natural person or legal entity directly or indirectly related to its shareholders. 3.3.3 Making of any relevant new investments of the ASSOCIATION; 3.3.4 Approval of the annual budgets and of the policy for the sale of gold and the distribution of gold; 3.3.5 Sale or transfers, under any title, of relevant assets of the ASSOCIATION, 3.3.6 Appointment of independent auditors, and 3.3.7 Issuance of guaranties. 3.4 In the event of a deadlock on decisions of the General Shareholders Meeting that require the approval of both PARTIES, the matter shall be decided by arbitration. 3.5 Notwithstanding any of the above provisions, the PARTIES agree that the controlling shareholder shall not, under any circumstance, take any action contrary to the wish of a minority shareholder that may cause (i) loss or dilution of its interest without its right of first refusal being offered to it as for the subscription of shares in increases of capital as provided by law, or (ii) lead it to benefit another company, whether Brazilian or foreign, to the detriment of the interest of minority shareholders in the profits. The ASSOCIATION AGREEMENT shall contain provisions relative to this matter, negotiated in good faith by the PARTIES. 4. The PARTIES that become shareholders hereby agree that the following matters and rules shall mandatorily be a part of the shareholders agreement to be signed by them upon the incorporation of the ASSOCIATION: 4.1 The PARTIES that become shareholders shall have, in proportion to the number of shares they hold, the preference in the acquisition of shares and or securities representing stock rights held by the PARTY shareholder that wishes to withdraw from the ASSOCIATION, in equality of conditions with third parties. 4.1.1 Third parties that may contingently participate in the ASSOCIATION by acquiring shares from the PARTIES shall mandatorily adhere to the shareholders agreement in order to maintain the control of the ASSOCIATION. 25 27 4.2 Under observance of its primary purpose, the ASSOCIATION shall be managed with the purpose of generating profits, having in mind its highest interests, which shall always prevail over the specific interests of its shareholders, in case of conflict. 4.3 The administration of the ASSOCIATION shall always seek high efficiency, productivity, competitively and profitability levels, and the maximization of the value of the resources. 4.4 The administration of the ASSOCIATION shall adopt efficient control and accounting instruments, and modern managerial systems. 4.5 The board of executive officers of the ASSOCIATION, elected by its Board of Directors, shall be composed exclusively of professional executives. 4.6 The strategic decisions of the ASSOCIATION shall take into account the shareholders' maximum interest of preserving the purpose of the ASSOCIATION and maximizing the return on their investments, and further of adopting a realistic and consistent dividend policy, the basic guidelines of which shall be established by the Board of Directors. 4.7 The capital structure shall follow the parameters to be established by the Board of Directors, so as to reflect a solid financial position, always taking into consideration the investment programs that may be required to carry out the projects. 4.8 If CVRD holds more than fifty percent (50%) of the voting capital of the ASSOCIATION, it shall be contracted to operate the mine, without detriment to the latter continuing operating the mine through an agreement between the ASSOCIATION and CVRD when it holds an interest lower than such percentage. To this end, a separate agreement shall be entered into between CVRD and the ASSOCIATION, that shall provide about the rights and obligations of the parties involved in relation to the rendering of such service under market terms and conditions. 4.9 The PARTIES shall use their best efforts to help the ASSOCIATION to obtain financing on attractive conditions, and in case it is necessary, the PARTIES may authorize the pledge of the assets of the ASSOCIATION or give guaranties in the proportion of their PARTICIPATING INTEREST in the ASSOCIATION. In the event the ASSOCIATION is not able to obtain financing or loans on reasonable conditions, the PARTIES shall contribute to the ASSOCIATION the funds required, on reasonable terms and in the proportion of their PARTICIPATING INTEREST. 4.10 The ASSOCIATION shall distribute the maximum of dividends, subject to its commitments and financial obligations, its payment and indebtedness capacity, legal and bylaw reserves, as well as the development of its investments and businesses. 4.11 The ASSOCIATION shall be structured so that the PARTIES recover the investment made in the economically fastest and best way. 4.12 In the event either PARTY has its interest diluted to less than fifteen percent (15%) of the total stock capital of the ASSOCIATION, it will be automatically obligated to transfer free of charge to the other PARTY or to the subsidiary of such PARTY, as applicable, all of its stock interest. As of the moment when it transfers its interest, the PARTY will be entitled to a royalty of five percent (5%) of the net profit of the ASSOCIATION, calculated according to the Brazilian Corporation Law. 26 EX-10.25 5 TERMINATION AND SETTLEMENT AGREEMENT 1 EXHIBIT 10.25 TERMINATION AND SETTLEMENT AGREEMENT THIS TERMINATION AND SETTLEMENT AGREEMENT ("Agreement") is entered into as of July 29 1996, by and among: (1) VenStar Gold Ltd., a Bahamas corporation formerly known as Gazara Limited ("VenStar"); (2) Venhold Investments (1994) Ltd., a Barbados corporation ("Venhold"); (3) Lindley Associated S.A., a British Virgin Islands corporation ("Lindley"); (4) BPC Corp., a British Virgin Islands corporation ("BPC" and, collectively with Venhold, the "Buyers"); (5) Golden Star Management Ltd., a Bahamas corporation ("GS Management"); (6) General Mining de Guayana C.A., a private company limited by shares and registered in Venezuela ("General"); (7) Krysos Mining S.A., a private company limited by shares and registered in Venezuela ("Krysos"); (8) Servicios Consultmin S.A., a private company limited by shares and registered in Venezuela ("Consultmin"); (9) GenVen Holdings Ltd., a Bahamas Corporation ("GenVen"); (10) KrysVen Holdings Ltd., a Bahamas Corporation ("KrysVen"); (11) ConsultVen Holdings Ltd., a Bahamas corporation ("ConsultVen") and (12) Venezuela Investments Ltd., a corporation organized and existing under the laws of Barbados ("VI"), with reference to the following facts: A. VenStar owns 100% of the issued and outstanding shares of GenVen, KrysVen and ConsultVen. GenVen, KrysVen and ConsultVen own 100% of the outstanding shares of General, Krysos and Consultmin, respectively. General and Krysos hold Rights or have entered into Agreements with respect to certain Areas which are considered prospective for gold and other minerals in Venezuela. The terms "Rights", "Agreements" and "Areas" have the meanings attributed thereto in the Stock Purchase Agreement (as defined below) and include any amendments or successor rights or agreements which may have been acquired, entered into or otherwise accrued or occurred since the date of the Stock Purchase Agreement. GenVen, KrysVen, ConsultVen, General, Krysos and Consultmin are sometimes collectively referred to herein as the "VenStar Subsidiaries". B. Pursuant to the terms of (i) that certain Stock Purchase Agreement dated as of July 7, 1994 among Lindley and the Buyers (as amended, the "Stock Purchase Agreement") and (ii) the "Trust Agreement" (as that term is defined in the Stock Purchase Agreement) among the Buyers, Lindley and Banco Mercantil, C.A., S.A.C.A. of Caracas (the "Bank"), Venhold agreed to purchase 8,100,000 (50.6%) of the issued and outstanding common shares of VenStar (the "Venhold VenStar Shares") and BPC agreed to purchase 1,500,000 (9.4%) of the issued and outstanding common shares of VenStar from Lindley (the "BPC VenStar Shares"). As of the date hereof, stock certificates representing 1,170,000 Venhold VenStar Shares have been issued in favor of Venhold and stock certificates representing 750,000 BPC VenStar Shares have been issued in favor of BPC. The remaining Venhold VenStar Shares to be purchased by Venhold and BPC VenStar Shares to be purchased by BPC are held in trust by the Bank pursuant to the Trust Agreement. C. Pursuant to the terms of that certain Shareholders Agreement of Gazara Limited (VenStar Gold Ltd.) dated as of April 8, 1994 and effective July 7, 1994 among VenStar, Lindley, Venhold and BPC (as amended, the "VenStar SH Agreement"), VenStar, Lindley, Venhold and BPC set forth certain terms for the conduct of the business and affairs of VenStar. Among other things, the VenStar SH Agreement provided for the issuance of preferred shares to Lindley, Venhold and BPC in 1 2 proportion to their respective contributions to the capital of VenStar (the "VenStar Preferred Shares"). As of the date hereof, 2,054,004.8 VenStar Preferred Shares have been issued in favor of Lindley, 2,301,230.4 have been issued in favor of Venhold and 482,691.2 have been issued in favor of BPC. D. As of the date hereof, the outstanding common shares of Venhold are owned approximately 82% by VI and 18% by BPC. Pursuant to the terms of that certain Shareholders Agreement of Venhold Investments (1994) Ltd. dated as of April 8, 1994 and effective July 7, 1994 among Venhold, VI and BPC (the "Venhold SH Agreement"), Venhold, VI and BPC set forth certain terms for the conduct of the business and affairs of Venhold. Among other things, the Venhold SH Agreement provides for the issuance of preferred shares to VI and BPC in proportion to their respective contributions to the capital of Venhold (the "Venhold Preferred Shares"). As of the date hereof, (i) 960,000 common shares of Venhold have been issued in favor of VI, (ii) 210,000 common shares have been issued in favor of BPC, (iii) 1,113,472 Venhold Preferred Shares have been issued in favor of VI and 764,508 Venhold Preferred Shares have been issued in favor of BPC. Additionally, VI is entitled to 423,249.6 additional Venhold Preferred Shares, relating to the most recent cash call, which have not been issued as of the date hereof. E. Pursuant to the terms of that certain Management Agreement dated July 7, 1994 among VenStar, Lindley, Venhold, BPC, the VenStar Subsidiaries and GS Management (the "Management Agreement"), the said parties set forth, among other things, the terms pursuant to which GS Management would perform management services with respect to the exploration and related activities of the parties on the Areas and in the Republic of Venezuela generally. F. Section 8.4 of the Stock Purchase Agreement provides as a cause of termination the failure by VenStar or one of the VenStar Subsidiaries to obtain the vein or hard rock mineral rights (the "Veta Rights") to the Valle Hondo concession (one of the Areas covered by certain of the Rights) by January 7, 1995. In the event they failed to do so, the Buyers were entitled to "unwind" the VenStar purchase by "putting" (or selling) their Venhold VenStar Shares, BPC VenStar Shares and VenStar Preferred Shares, respectively, back to Lindley in exchange for the payment by Lindley to the Buyers of (i) all amounts paid by the Buyers toward the purchase price of the Venhold VenStar Shares and the BPC VenStar Shares through the date of exercise of the "put" and (ii) all amounts contributed by the Buyers to VenStar pursuant to cash calls for operations and for which VenStar Preferred Shares have been issued or are pending issuance through the date of exercise of the "put". Alternatively, the Buyers could elect to extend the time for acquiring the Veta Rights for an additional six month period, to July 7, 1995. By a notice to Lindley dated December 16, 1994, the Buyers elected to extend the period for acquiring the Veta Rights to July 7, 1995. G. As of July 7, 1995, the Veta Rights had not been acquired. Pursuant to a letter dated July 11, 1995, the Buyers gave Lindley notice of their election to exercise the "put" and terminate the Stock Purchase Agreement and the VenStar SH Agreement based on the failure of VenStar and the VenStar Subsidiaries to timely obtain the Veta Rights. Pursuant to a letter dated July 12, 1995, GS Management gave Lindley notice of its election to terminate the Management Agreement, for the same reason, in accordance with section 11.2.7 thereof. H. Venhold has paid Lindley $731,250 toward the purchase of the Venhold VenStar Shares (of which $131,250 corresponds indirectly to BPC) and has made cash contributions to VenStar in the amount of $1,438,269 (of which $477,818 corresponds indirectly to BPC). BPC has paid Lindley $468,750 directly toward the purchase of the BPC VenStar Shares and has made direct cash contributions to VenStar in the amount of $301,682. 2 3 I. Pursuant to the Stock Purchase Agreement, based on the exercise of the "put" by the Buyers, Lindley is obligated to repay $2,169,519 to Venhold (of which $609,068 corresponds indirectly to BPC) and U.S.$770,432 to BPC directly. Concurrently with such payment, the Buyers are obligated to transfer to Lindley all right, title and interest of the Buyers in the Venhold VenStar Shares (including those held by the Bank pursuant to the Trust Agreement), the BPC VenStar Shares (including those held by the Bank pursuant to the Trust Agreement) and the VenStar Preferred Shares. J. Notwithstanding paragraph I above, Lindley and BPC have entered into a separate arrangement among themselves pursuant to which, among other terms and conditions agreed among Lindley and BPC separately, BPC will retain its BPC VenStar Shares and its VenStar Preferred Shares in exchange for forgoing its right to reimbursement of the amounts to which it is entitled under the exercise of the "put", both directly and indirectly through Venhold. K. In connection with the termination of the Management Agreement certain amounts have been claimed by GS Management to reimburse amounts advanced by it towards operating costs on behalf of VenStar and the VenStar Subsidiaries pursuant to the Management Agreement. Such amounts have not been agreed upon by Lindley and/or BPC. L. The parties desire to enter into this Agreement to settle all existing claims and disputes and to avoid any future claims, disputes or litigation which may arise therefrom, and to set forth, among other things, the terms and conditions of (i) the payment of the amounts owing to Venhold under the "put" (exclusive of amounts indirectly attributable to BPC), (ii) the transfer to Lindley of all Venhold VenStar Shares, all VenStar Preferred Shares held by Venhold and all rights of Venhold thereto, (iii) the final payment and settlement of all amounts which may be owed to GS Management under the Management Agreement and (iv) the final termination of the Stock Purchase Agreement, the VenStar SH Agreement, the Management Agreement, the Trust Agreement and the Venhold SH Agreement and the relinquishment and waiver by all parties of any and all claims with respect thereto. Venhold, VI, GS Management and BPC are sometimes collectively hereinafter referred to as the "Buyer Group" and Lindley, VenStar and the VenStar Subsidiaries are sometimes collectively hereinafter referred to as the "Seller Group". M. Golden Star Resources Ltd. ("GSR"), Lindley and BPC have also entered into that certain Escrow Agreement dated July 9, 1996 (the "Escrow Agreement") whereby Lindley will deposit the amount mentioned in 3.1 below in escrow pending the closing of the termination and settlement transaction. Venhold and GS Management, both affiliates of GSR, acknowledge that GSR will receive the above-mentioned amount placed in escrow on their behalf. NOW, THEREFORE, for valuable consideration, and in consideration of the reciprocal mutual promises, agreements and waivers contained herein, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Incorporation of Recitals. The Recitals set forth in paragraphs A through L above, inclusive, are hereby incorporated into and made a part of this Agreement by this reference. Each of the parties hereto hereby acknowledges and agrees that said Recitals are true and correct. 2. Closing. The transaction contemplated by this Agreement shall be consummated (the "Closing") on or before July 30, 1996 (the "Closing Date"). The Closing shall take place at the offices 3 4 of GS Management in Denver, Colorado on the Closing Date, unless the parties mutually agree in writing to extend the Closing Date or change the location of the Closing. 3. Lindley's Obligations. Lindley shall: 3.1 Pursuant to the Escrow Agreement between GSR, Lindley and BPC, prior to Closing, wire-transfer immediately available funds in the amount of U.S.$1,262,559.36 (the "Funds") to the Escrow Account as more particularly set out in the Escrow Agreement. 3.2 At Closing, provided that on or before the Closing Date Buyers have materially complied with each and all of their obligations set forth herein, Lindley shall: 3.2.1 Along with GSR and BPC instruct the Escrow Holder in writing to release the Funds as more particularly set out in the Escrow Agreement. 3.2.2 Authorize the withdrawal of U.S.$ 337,440.64 from the VenStar account No. 1018025606 with Norwest Bank, N.A. The wire transfer of the funds in 3.1 above shall constitute such authorization. The amounts in 3.1 and 3.2.2 constitute the sole consideration that the Buyer Group, excluding BPC, and including any and all affiliates, subsidiaries and/or related companies is entitled to and will receive from the Seller Group as total compensation arising from or pursuant to the Stock Purchase Agreement, the VenStar SH Agreement and the Management Agreement, and in total satisfaction of all outstanding amounts, and the receipt and sufficiency of which is expressly hereby acknowledged by Venhold, GS Management and their affiliates, subsidiaries and related companies. If applicable, any adjustment between Lindley and BPC in connection with this credit will be made between Lindley and BPC in a separate agreement. 3.3 Assume full responsibility for all unpaid and ongoing obligations of VenStar and the VenStar Subsidiaries, including, without limitation, any obligations arising out of those certain drilling contracts among certain VenStar Subsidiaries and Major Drilling International or any of its affiliates and all charges of the registered agent/corporate secretary of VenStar and the VenStar Subsidiaries. Evidence of the payment of any of these obligations which are due and payable before the Closing Date shall be provided by the Seller Group at or prior to the Closing. 3.4 Execute this Agreement and cause VenStar and each of the VenStar Subsidiaries to do the same and to provide the Buyer Group with three (3) fully executed originals hereof. 4. Venhold's Obligations. At Closing, provided that on or before the Closing Date Lindley has materially complied with each and all of its obligations set forth herein, Venhold shall: 4.1 Deliver to Lindley share certificates representing (a) 1,170,000 Venhold VenStar Shares, (b) 2,301,230.4 VenStar Preferred Shares issued or endorsed in favor of Venhold, duly endorsed for transfer to Lindley, and free and clear of any liens, claims, encumbrances, or other rights of third parties and (c) 2,054,004.8 VenStar Preferred Shares originally issued in favor of Lindley and in the possession of Venhold. Any common and/or preferred share interest to be earned by BPC in VenStar shall be provided for and evidenced in a separate agreement between Lindley and BPC. 4 5 4.2 Execute this Agreement and to cause VI and GS Management to do the same and to deliver three (3) fully executed originals hereof to the Seller Group. 4.3 Deliver or cause to be delivered to Lindley the resignation, substantially in the form attached hereto as Exhibit A-1 or A-2, as applicable, of all officers and directors of VenStar and the VenStar Subsidiaries who were selected by or who are representatives of Venhold (due to the ownership of VI therein) and GS Management, the names of which officers and directors are set forth in Exhibit A-3 attached hereto. 4.4 Execute an original letter, substantially in the form attached hereto as Exhibit B, instructing the Bank to deliver all Venhold VenStar Shares in its possession pursuant to the Trust Agreement to Lindley. 4.5 Execute an original letter, substantially in the form attached hereto as Exhibit C, to the office of Coopers & Lybrand, Nassau, Bahamas, the acting corporate secretary and transfer agent of VenStar, (a) informing it of the new directors of VenStar, (b) informing it that Venhold no longer has any ownership or other interest in VenStar, and (c) instructing it to take any and all further actions with respect to VenStar only from the newly named directors of VenStar. 4.6 Provide, together with GS Management, the originals or, where no originals are available, copies of all corporate and formation documents, minutes of shareholders meetings and board of directors meetings and powers of attorney, if any, relating to VenStar or any of the VenStar Subsidiaries, which are in its possession, in accordance with the list set forth on Exhibit D-1 attached hereto. 4.7 Cause, together with GS Management, Coopers & Lybrand, Nassau, Bahamas to provide (a) a letter dated on or around the Closing Date, substantially in the form attached hereto as Exhibit D-2, certified by a duly authorized representative, setting forth (i) the originals of all corporate and formation documents of VenStar and its Bahamian subsidiaries (the "Bahamian Companies"), which are in its possession, (ii) a complete description of all common and preferred shares issued by each of the Bahamian Companies since July 7, 1994 through the date of the letter and (iii) certified copies of all shareholders meetings and board of directors meetings of the Bahamian Companies since July 7, 1994 through the date of the letter and (iv) all powers of attorney, if any, granted by each of the Bahamian Companies since July 7, 1994 through the date of the letter and (b) a certificate of good standing for each of the Bahamian Companies dated within 180 days prior to the Closing. 4.8 Provided that BPC has complied with all of its obligations set forth herein: 4.8.1 Execute this Agreement and to cause VI and GS Management to do the same and to deliver three (3) fully executed originals hereof to BPC. 4.8.2 Deliver to BPC share certificates representing (a) 499,508 Venhold Preferred Shares originally issued in favor of BPC and in the possession of Venhold, so that BPC can endorse them over to VI as provided in section 5.3.1 below, (b) 482,691.2 VenStar Preferred Shares originally issued in favor of BPC and in the possession of Venhold. 5. BPC's Obligations. At Closing, provided that on or before the Closing Date Lindley has complied with each and all of its obligations set forth herein, BPC shall: 5 6 5.1 Execute this Agreement and to deliver three (3) fully executed originals hereof to Lindley on behalf of the Seller Group and three (3) fully executed originals hereof to VI on behalf of Venhold and GS Management. 5.2 Take all actions which may be necessary in its capacity as a shareholder of Venhold, if any, to enable Venhold to fulfill its obligations under this Agreement. 5.3 Provided that Venhold has complied with all of its obligations set forth herein: 5.3.1 Deliver to VI share certificates representing (a) 210,000 common shares of Venhold previously issued or endorsed in favor of BPC, duly endorsed for transfer to VI, free and clear of any liens, claims, encumbrances, or other rights of third parties and (b) 265,000 Venhold Preferred Shares issued in favor of BPC, duly endorsed for transfer to VI, and free and clear of any liens, claims, encumbrances, or other rights of third parties. Additionally, BPC will endorse for transfer to VI, free and clear of any liens, claims, encumbrances, or other rights of third parties, certificates for 499,508 Venhold Preferred Shares originally issued in favor of BPC and in the possession of Venhold which will be brought to the Closing by Venhold in accordance with section 4.8.2 above. 5.3.2 Execute this Agreement and to deliver three (3) fully executed originals hereof to VI on behalf of Venhold and GS Management. 5.3.3 Deliver or cause to be delivered to VI the resignation, substantially in the form attached hereto as Exhibit E, of all officers and directors of Venhold who were selected by or who are representatives of BPC, the names of which officers and directors are set forth in Exhibit E-1 attached hereto. 5.3.4 Execute an original letter, substantially in the form attached hereto as Exhibit F, to the office of The Corporate Secretary Limited, Bridgetown, Barbados, the acting corporate secretary and transfer agent of Venhold, (a) informing it of the new directors of Venhold, (b) informing it that BPC no longer has any ownership or other interest in Venhold and (c) instructing it to take any and all further actions with respect to Venhold only from the newly named directors of Venhold. 6. GS Management's Obligations. At Closing, provided that on or before the Closing Date Lindley has complied with each and all of its obligations set forth herein, GS Management shall: 6.1 Deliver to Lindley originals (where available) or copies of all technical data and reports with respect to the Areas which is set forth in the memorandum from James Kalynchuk of GS Management to Gustavo Galdo of Lindley which is attached hereto as Exhibit G, and which Lindley and BPC hereby acknowledge that they have received and accepted. 6.2 Execute this Agreement and to deliver three (3) fully executed originals hereof to the Seller Group. 6.3 Comply, together with Venhold, with the provisions of Sections 4.6 and 4.7 above, and to deliver or cause to be delivered to Lindley all the business and accounting books and records of VenStar and the VenStar Subsidiaries which it has in its possession, if any, which are set forth on Exhibit H attached hereto. 6 7 6.4 Deliver or cause to be delivered to Lindley statements of all bank accounts of VenStar and VenStar Subsidiaries, as of the most recent date for which such statements have been received, which are set forth on Exhibit I attached hereto. The parties hereto agree and acknowledge that all information and data delivered by GS Management pursuant to paragraphs 6.3 and 6.4 hereof is delivered without warranty of any kind, whether expressed or implied. 6.5 Deliver or cause to be delivered to Lindley an unaudited, internal income statement and balance sheet for VenStar and each of the VenStar Subsidiaries, current through July 31, 1995. 7. Termination of Agreements; Releases of Claims. 7.1 As of the Closing Date, the Stock Purchase Agreement, the Management Agreement, the VenStar SH Agreement and the Venhold SH Agreement are all terminated and of no further force or effect. Immediately following the Closing Date, Lindley will take all steps necessary to terminate the Trust Agreement, as required by the Bank. 7.2 From and after the Closing Date the Buyer Group and each of them, individually and collectively, and all of their respective past and present directors, officers, shareholders, affiliates, parents, subsidiaries, partners, agents, representatives, attorneys, principals, associates, employees, successors and assigns (collectively, the "Comprehensive Buyer Group") hereby fully, forever and irrevocably release and discharge the Seller Group, and each of them, individually and collectively, and all of their respective past and present directors, officers, shareholders, affiliates, parents, subsidiaries, partners, agents, representatives, attorneys, principals, associates, employees, successors and assigns (collectively, the "Comprehensive Seller Group"), from any and all rights, claims, demands, liabilities, obligations, damages, losses, injuries, actions and causes of action of every type, kind, nature, description or character, and irrespective of how, why, or by reason of what facts, whether heretofore or now existing, or that could, might, or may be claimed to exist, whether known or unknown, suspected or unsuspected, whether based on contract, tort, breach of duty, or other legal or equitable theory of recovery (collectively a "Claim" or the "Claims"), which the Comprehensive Buyer Group, or any of them, has or hereafter may have, or claim or hereafter may claim to have, against the Comprehensive Seller Group, or any of them, which are or have been incurred or sustained by the Comprehensive Buyer Group, or any of them, and occasioned directly or indirectly by an action or omission of the Comprehensive Seller Group, or any them, arising out of or in connection with the Areas, the Rights, the Agreements, the Stock Purchase Agreement, the Management Agreement, the Trust Agreement, the VenStar SH Agreement, the Venhold SH Agreement, or the transactions contemplated by any of the foregoing, except for and excluding any Claim arising out of or based on the fact that any representation or warranty made by the Comprehensive Seller Group, or any of them, in this Agreement is materially untrue as of the Closing. 7.3 From and after the Closing Date the Comprehensive Seller Group and each of them, individually and collectively, hereby fully, forever and irrevocably release and discharge the Comprehensive Buyer Group, and each of them, individually and collectively, from any and all Claims which the Comprehensive Seller Group, or any of them, has or hereafter may have, or claim or hereafter may claim to have, against the Comprehensive Buyer Group, or any of them, which are or have been incurred or sustained by the Comprehensive Seller Group, or any of them, and occasioned directly or indirectly by an action or omission of the Comprehensive Buyer Group, or any of them, arising out of or in connection with the Areas, the Rights, the Agreements, the Stock Purchase Agreement, the Management Agreement, the Trust Agreement, the VenStar SH Agreement, or the 7 8 transactions contemplated by any of the foregoing, except for and excluding any Claim arising out of or based on the fact that any representation or warranty made by the Comprehensive Buyer Group, or any of them, in this Agreement is materially untrue as of the Closing. 7.4 From and after the Closing Date VI, Venhold, GS Management and all of their respective past and present directors, officers, shareholders, affiliates, parents, subsidiaries, partners, agents, representatives, attorneys, principals, associates, employees, successors and assigns (collectively, the "Comprehensive VI Group") hereby fully, forever and irrevocably release and discharge BPC, and all of its past and present directors, officers, shareholders, affiliates, parents, subsidiaries, partners, agents, representatives, attorneys, principals, associates, employees, successors and assigns (collectively, the "Comprehensive BPC Group"), from any and all Claims which the Comprehensive VI Group, or any of them, has or hereafter may have, or claim or hereafter may claim to have, against the Comprehensive BPC Group, or any of them, which are or have been incurred or sustained by the Comprehensive VI Group, or any of them, and occasioned directly or indirectly by an action or omission of the Comprehensive BPC Group, or any them, arising out of or in connection with the Areas, the Rights, the Agreements, the Stock Purchase Agreement, the Management Agreement, the Trust Agreement, the VenStar SH Agreement, the Venhold SH Agreement, or the transactions contemplated by any of the foregoing, except for and excluding any Claim arising out of or based on the fact that any representation or warranty made by the Comprehensive BPC Group, or any of them, in this Agreement is materially untrue as of the Closing. 7.5 From and after the Closing Date the Comprehensive BPC Group, and each of them, collectively and individually, hereby fully, forever and irrevocably release and discharge the Comprehensive VI Group from any and all Claims which the Comprehensive BPC Group, or any of them, has or hereafter may have, or claim or hereafter may claim to have, against the Comprehensive VI Group, or any of them, which are or have been incurred or sustained by the Comprehensive BPC Group, or any of them, and occasioned directly or indirectly by an action or omission of the Comprehensive VI Group, or any them, arising out of or in connection with the Areas, the Rights, the Agreements, the Stock Purchase Agreement, the Management Agreement, the Trust Agreement, the VenStar SH Agreement, the Venhold SH Agreement, or the transactions contemplated by any of the foregoing, except for and excluding any Claim arising out of or based on the fact that any representation or warranty made by the Comprehensive VI Group, or any of them, in this Agreement is materially untrue as of the Closing. 7.6 Each of the Comprehensive Buyer Group, the Comprehensive Seller Group, the Comprehensive VI Group and the Comprehensive BPC Group irrevocably covenant and agree that each of them shall forever refrain from initiating, filing, instituting, maintaining or proceeding upon any Claim of any nature whatsoever released in the general releases provided for in this section 7 (the "General Releases"). If an action is brought arising out of an alleged breach of any General Release, the prevailing party in said action will be entitled to recover from the breaching party, in addition to any other relief provided by the law, such costs and expenses as may be incurred by the prevailing party, including court costs and reasonable attorneys' fees and disbursements. Any General Release made herein may be pleaded as a full and complete defense to or be used as the basis for an injunction against any action, suit, or other proceeding that may be instituted, prosecuted or attempted in breach of such General Release. 7.7 It is understood and agreed that the delivery and acceptance of the General Releases made herein shall not be deemed or construed as an admission of liability by any released party, and 8 9 each such released party hereby expressly denies liability of any nature whatsoever arising from or related to the subject of the General Releases. 8. Representations and Warranties. 8.1 Each of the parties to this Agreement represents and warrants that it is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. 8.2 Each of the parties to this Agreement represents and warrants that it has full corporate power to enter into this Agreement and to consummate the transactions contemplated hereby, including the making of the applicable General Release, and that the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of such party, and that this Agreement is a valid and binding obligation of such party, enforceable against such party in accordance with its terms. 8.3 Each of the parties to this Agreement represents and warrants that neither the execution and delivery of, nor performance under, this Agreement on the part of such party is prohibited by, conflicts with or requires any authorization, approval or registration under any law, rule, regulation or court order binding upon such party. However, the Venezuelan Ministry of Energy and Mines and Corporacion Venezolana de Guayana may need to be notified of certain changes in ownership. The Comprehensive VI Group shall not have any responsibility or liability for any such notifications which may be required. 8.4 Each of the parties to this Agreement represents and warrants that it is the owner of, and has not assigned, sold or transferred or otherwise disposed of any Claim released in the applicable General Release made by such party. 8.5 Each of the parties to this Agreement represents and warrants that it has had the advice of legal counsel of its own choosing in negotiations for the preparation of this Agreement and the applicable General Release of such party, that it has read such General Release and had it fully explained to it by its legal counsel, and that it is fully aware of its content and legal effect. The representations and warranties made herein shall survive the Closing Date for a period of one year. Each party hereto shall indemnify and hold the others harmless from and against any loss, cost or expense suffered by them due to the fact that any representation or warranty made by the such party in this Agreement is materially untrue as of the Closing Date. 9. Miscellaneous Provisions. 9.1 No party may assign this Agreement or any of its rights and duties hereunder without the prior written consent of the other parties. Subject to this limitation on assignments, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 9.2 This Agreement may not be amended nor any provision herein waived except by an instrument in writing signed by the party to be charged with such amendment or waiver and delivered by such party to the parties claiming the benefit of such amendment or waiver. No waiver of any 9 10 provision of this Agreement shall be deemed or shall constitute a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver, unless otherwise provided in the written waiver. 9.3 The headings and subheadings contained in this Agreement are for convenience only and shall not control or affect the meaning, construction, or interpretation of any provision hereof. 9.4 This Agreement constitutes the entire agreement among the parties with respect to the subject matter and supersedes all prior and contemporaneous agreements, representations and understandings of the parties. 9.5 This Agreement shall be construed in accordance with, and governed by, the internal laws of the Republic of Venezuela and the parties hereto agree that this Agreement shall have the binding effect of Res Judicata under Venezuelan law. 9.6 This Agreement may be executed in counterparts, each of which shall be an original instrument, but all of which together shall constitute one and the same instrument. This Agreement may validly be executed by electronic telecopier or facsimile. 9.7 Should any provisions of this Agreement, or portions hereof, be found to be invalid by an arbitrator or any court of competent jurisdiction, the remainder of this Agreement shall nonetheless remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed, effective as of the date first above written. VENSTAR GOLD LTD. formerly known as GAZARA LIMITED By: /s/ David K. Fagin Title: Chairman VENHOLD INVESTMENTS (1994) LTD. By: /s/ David K. Fagin Title: Director LINDLEY ASSOCIATED S.A. By: /s/ Gustavo Galdo Title: Attorney in Fact BPC CORP. By: /s/ Gustavo Galdo Title: Attorney in Fact 10 11 GOLDEN STAR MANAGEMENT LTD. By: /s/ David K. Fagin Title: Chairman GENERAL MINING DE GUAYANA C.A. By: /s/ Johnny Perez-Canto Title: Director KRYSOS MINING S.A. By: /s/ Johnny Perez-Canto Title: Director SERVICIOS CONSULTMIN S.A. By: /s/ Johnny Perez-Canto Title: Director GENVEN HOLDINGS LTD. By: /s/ David K. Fagin Title: Chairman KRYSVEN HOLDINGS LTD. By: /s/ David K. Fagin Title: Chairman CONSULTVEN HOLDINGS LTD. By: /s/ David K. Fagin Title: Chairman VENEZUELA INVESTMENTS LTD. By: /s/ David K. Fagin Title: Chairman 11 12 EXHIBIT A-1 Form of Resignation of Officers and Directors of Bahamas Companies Representing Buyer Group ______________, 1996 Board of Directors ______________________ ______________________ ______________________ Gentlemen: The undersigned hereby resign any position they held as an officer and/or member of the Board of Directors of ____________, effective as of the date of this letter and hereby acknowledge that they have no claim for compensation for loss of office or otherwise. Sincerely, ______________________ ______________________ ______________________ 13 EXHIBIT A-2 Form of Resignation of Officers and Directors of Venezuelan Companies Representing Buyer Group 14 EXHIBIT A-3 Names of Officers and Directors Representing VI (through Venhold) and Affiliates VenStar: Directors: David Fagin, David Fennell, Hilbert Shields, Richard Stark, Jean Pierre Lefebvre, Roger Morton Officers: David Fagin, Chairman & CEO, David Fennell, President, Hilbert Shields, Managing Director and Secretary, Louis Peloquin, Vice President & General Counsel, Christopher Taylor, Vice President of Finance KrysVen: - ------- Directors: David Fagin, David Fennell, Hilbert Shields, Richard Stark, Jean Pierre Lefebvre, Roger Morton Officers: David Fagin, Chairman & CEO, David Fennell, President, Hilbert Shields, Managing Director and Secretary, Christopher Taylor, Vice President of Finance GenVen: - ------ Directors: David Fagin, David Fennell, Hilbert Shields, Richard Stark, Jean Pierre Lefebvre, Roger Morton Officers: David Fagin, Chairman & CEO, David Fennell, President, Hilbert Shields, Managing Director and Secretary, Christopher Taylor, Vice President of Finance ConsultVen: - ---------- Directors: David Fagin, David Fennell, Hilbert Shields, Richard Stark, Jean Pierre Lefebvre, Roger Morton Officers: David Fagin, Chairman & CEO, David Fennell, President, Hilbert Shields, Managing Director and Secretary, Christopher Taylor, Vice President of Finance Krysos: - ------ Directors Principales: Hilbert Shields (Presidente), Yoshiaki Odan (Vice Presidente), James Kalynchuk Directors Suplentes: David Fagin, David Fennell, Misael Villafuerte General: - ------- Directors Principales: Hilbert Shields (Presidente), Yoshiaki Odan (Vice Presidente), James Kalynchuk Directors Suplentes: David Fagin, David Fennell, Misael Villafuerte Consultmin: - ---------- Directors Principales: Hilbert Shields (Presidente), Yoshiaki Odan (Vice Presidente), James Kalynchuk Directors Suplentes: David Fagin, David Fennell, Misael Villafuerte 15 EXHIBIT B Form of Letter to Bank re: delivery of VenStar Common Shares to Lindley [TO BE PROVIDED BY LINDLEY] EXHIBIT C Form of Letter from Venhold and BPC to Corporate Secretary and Transfer Agent of VenStar ______________, 1996 Coopers & Lybrand Charlotte House, 2nd Floor Charlotte Street P.O. Box No. 596 Nassau, N.P. Bahamas Telecopier No. (809) 326-7668 Telephone No. (809) 322-1061 Attention: Mr. John Ranson or Ms. Dorothy Fox Change of Ownership and Control of VenStar Gold Ltd. (the "Company") Gentlemen: Please be informed that the ownership and control of the Company has recently changed. As of ___________, 1996, Venhold Investments (1994) Ltd. ("Venhold") no longer has any share ownership interest in of any kind in the Company and David Fagin, David Fennell, Hilbert Shields, Richard Stark, Jean Pierre Lefebvre, Roger Morton, Louis Peloquin and Christopher Taylor have resigned and are no longer officers or directors of the Company. Copies of the said resignations are attached hereto. As of the date specified above, the shareholder(s) of the Company is/are: Lindley Associated S.A., a British Virgin Islands corporation ("Lindley") and BPC Corp., a British Virgin Islands corporation and the officers and/or directors of the Company are: ___________________________ ___________________________ ___________________________ ___________________________. 16 Henceforth, you are hereby instructed to take any and all further actions with respect to the Company only from the new directors or officers thereof, or designated representatives of Lindley (the sole shareholder), as set forth herein. Thank you for your prompt assistance in this matter. Sincerely, VENHOLD INVESTMENTS (1994) LTD. By: Title: LINDLEY ASSOCIATED S.A. By: Title: BPC CORP. By: Title: 17 EXHIBIT D-1 Documents to be Delivered for VenStar and the VenStar Subsidiaries 18 EXHIBIT D-2 Form of Letter from Coopers & Lybrand, Bahamas 19 EXHIBIT E Form of Resignation of Officers and Directors of Venhold Representing BPC _____________, 1996 Board of Directors ________________ ________________ ________________ Gentlemen: The undersigned hereby resign any position they hold as an officer and/or member of the Board of Directors of Venhold Investments (1994) Ltd., a Barbados corporation, effective as of the date of this letter and hereby acknowledge that they have no claim for compensation for loss of office or otherwise. Sincerely, ______________________ Fernando Perez Canto ______________________ Carlos Behrens 20 EXHIBIT E-1 Names of Officers and Directors of Venhold Representing BPC Directors: Fernando Perez Canto, Carlos Behrens 21 EXHIBIT F Form of Letter from BPC to Corporate Secretary and Transfer Agent of Venhold _____________, 1996 The Corporate Secretary Limited Whitepark House White Park Road Bridgetown, Barbados Telecopier No. (809) 436-7887 Telephone No. (809) 427-8617 Attention: Ms. Mary Ellen Bourque Change of Ownership and Control of Venhold Investments (1994) Ltd. (the "Company") Gentlemen: Please be informed that the ownership and control of the Company has recently changed. As of ___________, 1996, BPC Corp. no longer has any share ownership interest in of any kind in the Company and Fernando Perez Canto and Carlos Behrens have resigned and are no longer officers or directors of the Company. Copies of the said resignations are attached hereto. As of the date specified above, the shareholder(s) of the Company is/are: Venezuela Investments Ltd., a Barbados corporation ("VI") and the new officers and/or directors of the Company which well replace Messrs. Perez Canto and Behrens, if any, will be duly elected and notified to you by VI. Henceforth, you are hereby instructed to take any and all further actions with respect to the Company only from the new directors or officers thereof, or designated representatives of VI (the sole shareholder), as set forth herein. Thank you for your prompt assistance in this matter. Sincerely, VENHOLD INVESTMENTS (1994) LTD. By: Title: BPC CORP. By: Title: 22 EXHIBIT G Technical Reports and Information to be Delivered by GS Management 23 EXHIBIT H List of Original Business and Accounting Books and Records of VenStar and VenStar Subsidiaries in Possession of Venhold 1. VenStar Gold - GS Management has the following information: A. VenStar financial statements B. VenStar consolidation file, including trial balances and journal entries C. Supporting invoices for all transactions entered into by VenStar, or Golden Star Management for the benefit of VenStar D. Computer files utilized in the management of VenStar financial affairs E. Share Capital Listing F. Summary of Cash Calls G. Copies of all bank statements, wire transfers and check stock 2. GenVen, KrysVen, ConVen - GS Management has copies of trial balances and journal entries available for review which will be delivered at the Closing. 24 EXHIBIT I List of Bank Accounts During the term of the agreements, GS Management has opened one bank account for VenStar and no accounts for KrysVen, GenVen and ConVen. Gazara Limited Account # (see original document for this number) Norwest Bank Colorado Denver, Colorado Funds Transfer Department ABA Transit Routing Number: (see original document for this number) Telephone: (303) 863-6117 Immediately after Closing, this account, which currently has a zero balance, will be closed. EX-10.26 6 OPTION AND JOINT VENTURE AGREEMENT (ENGLISH TRANS) 1 EXHIBIT 10.26 CERTIFICATE OF TRANSLATION I, Louis O. Peloquin, Vice President, General Counsel and Secretary of Golden Star Resources Ltd. (the "Company") declare to the best of my knowledge that the attached is an accurate English translation of the Option and Joint Venture Agreement dated June 26, 1996 between Societe de Travaux Publics et de Mines Aurifiere en Guyane, Societe Guyanaise des Mines (collectively "SOTRAPMAG"), a 100% owned subsidiary of Guyanor Ressources S.A., LaSource Developpement, SAS and ASARCO Exploration Company. /s/ Louis O. Peloquin ---------------------- Louis O. Peloquin Vice President, General Counsel and Secretary State of Colorado ) County of Denver ) ss. Subscribed and sworn to before me this 12th day of March, 1997 by Louis O. Peloquin. /s/ Nathalie Defferard ----------------------- Notary Public My Commission Expires: October 25, 1999. 2 PAUL ISNARD OPTION AND JOINT VENTURE AGREEMENT AMONG SOTRAPMAG AND ASARCO EXPLORATION COMPANY AND LA SOURCE DEVELOPPEMENT 1 3 THIS AGREEMENT IS MADE AMONG: SOCIETE DE TRAVAUX PUBLICS ET DE MINES AURIFERES EN GUYANE ("SOTRAPMAG"), a societe a responsabilite limitee, with capital of F2,000,000 and registered office at Aerodrome de Saint-Laurent, Route de Saint-Maurice, 97320 Saint-Laurent du Maroni, French Guiana, a wholly owned subsidiary of GUYANOR RESSOURCES S.A., acting on its behalf and for its own account and for both on behalf of and for the account of: SOCIETE GUYANAISE DES MINES ("SGM"), societe en nom collectif, with capital of 1,000,000 FF and registered office at PK 9 Route de Saint-Jean, 97320 Saint-Laurent du Maroni, French Guiana pursuant to special power of attorney dated _____ ). Herein represented by D.A. Fennell, President and CEO, Golden Star Resources, hereinafter individually referred to as "SOTRAPMAG" and "SGM" respectively and collectively referred to as "SOTRAPMAG" AND: ASARCO EXPLORATION COMPANY, a New York corporation acting on its behalf and for its own account as well as on behalf of and for the account of: ASARCO GUYANE FRANCAISE, a societe a responsabilite limitee with a capital of 50,000 FF and registered office at PK 7 Route de Montjoly, 97343 Cayenne, French Guiana, a wholly owned subsidiary of Asarco Exploration Company Inc. pursuant to a special power of attorney dated N/A. herein represented by G.D. Van Voorhis, President, hereinafter individually referred to as "ASARCO" and "ASARCO GUYANE" respectively and collectively referred to as "ASARCO" AND: LA SOURCE DEVELOPPEMENT SAS, a societe anonyme simplifiee, with capital of 250,000 francs and registered office at 16/18 avenue George V, 75008 Paris, France pursuant to a special power of attorney dated ______________ herein represented by _______________ , and hereinafter referred to as "LA SOURCE". WITNESSETH: Whereas by agreement dated March 25, 1994 SOTRAPMAG obtained from Alcatel Alsthom Compagnie Generale d'Electricite the title and exclusive rights to eight (8) concessions in the Paul Isnard area of Guyane, a Departement of France ("French Guiana"), subject to the grant of necessary administrative authorizations to the transfer on or before December 31, 1995; Whereas by a decree dated December 27, 1995 published in the Journal Officiel of December 29, 1995, the French Minister of Industry, Post and Telecommunications approved the transfer of the Paul Isnard Concessions; 2 4 Whereas the concessions transferred to SOTRAPMAG were subject to option rights held by the BUREAU DE RECHERCHES GEOLOGIQUES ET MINIERES, BP 6009, Avenue Claude Guillemin, 45060 Orleans, France ("BRGM") which by an agreement between BRGM and GUYANOR RESSOURCES S.A. ("GUYANOR") dated September 26, 1994 were automatically converted, upon the grant of necessary administrative authorizations to transfer, into a 25% interest in the exploration and exploitation rights in any primary deposits located within the concessions; Whereas SOTRAPMAG also holds, directly or indirectly, four Type "B" exploration permits in the Paul Isnard area and GUYANOR has under application one Type "A" exploration permit in this area, and SOTRAPMAG has agreed to extend BRGM's 25% interest to include the four Type "B" and, if granted, the one Type "A" exploration permits; Whereas BRGM, pursuant to the terms of the agreement between BRGM and GUYANOR, has assigned its rights to the concessions and permits to LA SOURCE, of which a significant part of the share capital is held by BRGM; Whereas SOTRAPMAG and LA SOURCE have agreed to organize two joint ventures ("societes en participation") one to explore the Paul Isnard Concessions and the other the Eau Blanche Permits and to jointly develop and mine any Primary Deposits found therein; Whereas SOTRAPMAG has agreed to grant ASARCO two separate options to earn interests equal to 50% of SOTRAPMAG's interests in each joint venture (which is equivalent as of the date hereof to a 37.5% interest in each such joint venture organized pursuant to this Agreement) by preparing a feasibility study on the Property or any part thereof of such Joint Venture and by funding SOTRAPMAG's portion of the initial expenditures on Operations to be undertaken by such joint venture on all or part of such Property; Whereas ASARCO shall also have, under the conditions set forth below, the option, once the First Feasibility Study has been delivered, to merge the Paul-Isnard and the Eau Blanche Properties into one joint venture. NOW, THEREFORE, the parties have agreed, under certain conditions, to enter into this joint venture agreement which shall define the terms and conditions of their cooperation as participants in the joint ventures established by this Agreement and the terms on which ASARCO will earn its interest(s) and be vested as a participant in the joint venture(s). NOW THEREFORE, IT IS AGREED AS FOLLOWS: 1. DEFINITIONS The following terms are used in this agreement as defined below: 1.1 "Accounting Procedure" means the procedures set forth in Exhibit II. 1.2 "Adopted Program and Budget" means any Program and its corresponding Budget adopted or approved by the Management Committee according to the procedure described in Articles 8.3 and 8.4. 3 5 1.3 "Affiliate" of a Participant means (i) any person who, directly or indirectly, controls, is controlled by, or is under common control with, one of the Participants. The control concept includes control of the de facto or de jure management or direction by holding equity securities or by contract. "Control" may exist without possession of 50% or more of its voting rights or capital stock provided always that direct or indirect ownership of fifty percent (50%) or more of such voting rights or capital stock gives rise to a presumption of control; (ii) any Subsidiary. 1.4 "Agreement" means this agreement and all Exhibits thereto and future addenda hereto and amendments hereof. 1.5 "Alluvial Deposit" means an unconsolidated deposit of ores, minerals or mineral resources located at or near the surface formed where the concentration of ore minerals was caused by the physical or mechanical separation of heavier from lighter weight minerals during the surficial flow of running water in stream channels. 1.6 "Area of Interest" means the Property and all land part or all of which is located within ten kilometres of any point on the surrounding outermost boundary of the Property described in Exhibit I. The part of the Property to the East of a Northsouth line drawn along the Eastern boundary of the Paul Isnard Concessions (which line is shown on the map that forms part of Exhibit I) shall be included as part of the Eau Blanche Permits and the property to the West of such line shall be included as part of the Paul Isnard Concessions. 1.7 "ASARCO'S Exploration Expenditure Requirement" means the funds required to be contributed by ASARCO under Article 7 through SOTRAPMAG to conduct Operations enabling ASARCO to earn a Participating Interest equal to 50% of SOTRAPMAG's Participating Interest in either Property or in both. 1.8 "Assets" means the Properties and all the Facilities, Products, land and other assets and rights conveyed or assigned to or placed at the disposal of either of the Joint Ventures by the Participants and all the other Facilities and assets and rights acquired by the Manager or the Participants on behalf and for account of either of the Joint Ventures and all data and information resulting from the conduct of Operations and the proceeds of disposition of any of the foregoing. 1.9 "BRGM Agreement" means that agreement dated September 26, 1994 between GUYANOR and BRGM. 1.10 "Budget" means a detailed estimate of all the probable Expenditures to be entailed by the Operations to complete a Program, supplemented, if need be, by a timetable of cash advances to be made. 1.11 "Development" means all the work preparatory to extraction and recovery of the Products from Primary Deposits, including construction or installation of a treatment plant or any other Facility for extraction, transport or treatment of the Products by any process. 1.12 "Effective Date" means the date of execution of this Agreement. 1.13 "Expenditures" means all of the costs, disbursements, debts and expenses, calculated according to the accounting procedure described in Exhibit II hereto, incurred in relation to Operations carried out under the Agreement on any account. 4 6 1.14 "Exploration" means all the activities directed toward ascertaining the existence, location, quantity, quality or commercial value of Primary Deposits including completing any Feasibility Study and including any costs for the maintenance of the applicable Mining Titles. 1.15 "Facility" means any equipment, machine, capital asset or other tangible or other asset. 1.16 "Feasibility Study" means a report and the work required to prepare such report for either of the Joint Ventures in respect of a Primary Deposit (including the First Feasibility Study) as described in Exhibit III hereto which recommends the Development and Exploitation of a Primary Deposit on the basis that it has a positive net present value using a reasonable discount rate and includes such information and is in such form as is generally required to secure all construction and mining permits necessary for the Mining of a Primary Deposit and to obtain a project loan on reasonable terms from a major lending institution to develop Mining Operations on the Primary Deposit that is the subject of the reports. 1.17 "First Feasibility Study" means the First of the Initial Feasibility Studies whereby ASARCO may decide to vest in one of the Properties and has the option to combine the Properties into one Joint Venture. 1.18 "Initial Feasibility Study" means a Feasibility Study prepared for either of the Joint Ventures in respect of a Primary Deposit on either the Paul Isnard Concessions or the Eau Blanche Permits which reaches one of the following conclusions: (a) if made during the first and second years after the Effective Date, it concludes to the existence of at least five million ounces of minable gold; (b) if made during the third and fourth years after the Effective Date, it concludes to the existence of at least two million ounces of minable gold; and (c) if made during the fifth year after the Effective Date, it concludes to the existence of at least one million ounces of minable gold. 1.19 "Initial Participating Interest" means the interests of each Participant set forth in Article 6.6. 1.20 "Initial Period" means the period beginning with the Effective Date and ending on the earlier of the date ASARCO earns its Participating Interest or the date its option terminates without ASARCO having earned its Participating Interest. 1.21 "Joint Venture" means either of the joint ventures established by this Agreement and all the rights, obligations and other relations relating to a Property between the Participants in such joint venture pursuant to this Agreement. 1.22 "Joint Account" means any account or accounts opened in accordance with the Accounting Procedure set forth in Exhibit II hereto. 1.23 "Eau Blanche Permits" means the four Type "B" permits and, if and when granted, the one Type "A" permit currently under application, all as more particularly described in Exhibit I hereto. 5 7 1.24 "Management Committee" means the committee provided for in Article 8. 1.25 "Manager" means the natural person or legal entity designated pursuant to Article 9 to manage Operations or any successor Manager. 1.26 "Mining" means extraction, production, transport, treatment or other processing of Products from Primary Deposits and includes marketing of Products. 1.27 "Mining Titles" means each of the individual titles to the Paul Isnard Concessions and the Eau Blanche Permits and "Mining Title" means any one of them. 1.28 "Net Proceeds" means the amount calculated in the manner described in Exhibit IV. 1.29 "Operation" means any Exploration, Development or Mining and other activities and their administration carried out in respect of a Property. 1.30 "Participant" means a natural person or legal entity who from time to time holds a Participating Interest in either of the Joint Ventures. 1.31 "Participating Interest" means the undivided portion or share of a Participant of the aggregate ownership interest in either of the Joint Ventures and its assets expressed as a percentage. A Participating Interest shall be calculated as a percentage to three decimal places and rounded to two, e.g. 30.519% rounded to 30.52%. Decimals of .005 or more shall be rounded up to .01 and decimals of less than .005 shall be rounded down. 1.32 "Parties" means collectively SOTRAPMAG, SGM, ASARCO, ASARCO GUYANE and LA SOURCE, and their representatives, successors and assigns. 1.33 "Paul lsnard Concessions" means the eight concessions in the Paul Isnard area more particularly identifed and described in Exhibit I. 1.34 "Primary Deposit" means a deposit of ores, minerals or mineral resources which is not an Alluvial Deposit. 1.35 "Products" means all metals, ores, minerals, concentrates and other mineral resources produced from the land covered by the Property. 1.36 "Program" means the description in writing and in reasonable detail of the Operations to be conducted and objectives to be accomplished on any of the Properties by a Manager for a six month period or any longer period. 1.37 "Property" means either of the Paul Isnard Concessions or the Eau Blanche Permits, as the context requires, except that if an election is made pursuant to Article 7.3 to combine the Paul Isnard Concessions and the Eau Blanche Permits then the "Property" means the Paul Isnard Concessions and the Eau Blanche Permits. 6 8 1.38 Any legal entity is deemed to be another's "Subsidiary" if: (a) it is directly or indirectly controlled by the other entity; or (b) it is the Subsidiary of a Subsidiary of such other entity. A legal entity is presumed to be another's Subsidiary if the latter: (c) directly or indirectly holds 50% of its capital stock or voting rights; (d) directly or indirectly controls its management de facto or de jure; or is entitled to elect or appoint its executives. 1.39 "$" and "dollars" means dollar in the currency of the United States of America unless otherwise stated. 2. PURPOSES 2.1 PURPOSES. The sole purpose of this Agreement is to (i) create two Joint Ventures, one covering the Paul-Isnard Property, and the other covering the Eau Blanche Property, (ii) set forth the terms under which Exploration, Development and Mining Operations shall be conducted in respect of the Paul-Isnard and Eau Blanche Properties or any additional properties acquired within the Area of Interest by the said Joint Ventures and to perform any other activity necessary, appropriate or incidental to any of the foregoing and (iii) set forth the terms upon which ASARCO shall earn a Participating Interest in either or both of said Joint Ventures. 2.2 LIMITED PURPOSES. Unless the Participants expressly agree otherwise, the only purpose of this Agreement is the attainment of the objectives in Article 2.1 above and nothing herein below shall be construed as extending the same. 3. TERM 3.1 TERM. The term of this Agreement shall be for an unlimited period. 4. CONTRIBUTIONS 4.1 ASSETS TO BE PLACED AT THE DISPOSAL OF THE JOINT VENTURE. SOTRAPMAG shall place, upon execution of this Agreement, the Paul Isnard Concessions and the Eau Blanche Permits and all geological data relating thereto to which it has rights at the exclusive disposal of the applicable Joint Venture, for Exploration, Development and Mining, in accordance with the provisions hereof. As of the date hereof, SOTRAPMAG warrants and represents, except as disclosed in Exhibit I hereto, that each of the Mining Titles and all of the geological data are held by SOTRAPMAG (with the exception of the Type "A" permit which GUYANOR has under application) and that such rights are free from all claims and encumbrances or any other interests of a third party of any nature whatsoever which might have a material adverse effect on the rights of the Parties hereunder and that the Property is in good standing under the applicable laws and regulations. So long as either of the Joint Ventures remains in existence SOTRAPMAG agrees not to transfer all or part of the Mining Titles placed at the disposal of that Joint Venture without the prior written consent of all of the Participants in such Joint Venture. In the event of 7 9 withdrawal from either of the Joint Ventures by SOTRAPMAG, SOTRAPMAG agrees to take all steps necessary to transfer all or part of the Mining Titles relating to such Joint Venture to the remaining Participants at the request of such Participants. Subject to the provisions of Article 12 below: (a) SOTRAPMAG shall retain legal title to the Paul Isnard Concessions and the Eau Blanche Permits for the benefit of the applicable Joint Venture and nothing in this Agreement shall be construed as a conveyance or transfer of any of the Mining Titles to such Joint Venture or anyone else; (b) During the term of this Agreement each Joint Venture shall have the exclusive right to conduct Exploration, Development and Mining Operations on or in respect of Primary Deposits on its Properties, it being understood however that the Exploration, Development and Mining rights may in relation to a specific Primary Deposit be transferred in whole or in part as provided in Article 12. 4.2 FINANCING. Subject only to Articles 4.3 and 4.4, the Participants shall contribute to the financing of Exploration by contributing to the Adopted Program and Budget which has been adopted by a Joint Venture in proportion to their Participating Interests in such Joint Venture. Once the decision to commence Development and Mining in respect either of the Properties is taken in accordance with Article 12.2, financing of the Development and Mining shall be undertaken as described in Articles 7 and 12. 4.3 INITIAL SOTRAPMAG CONTRIBUTION. Prior to proportional contribution for Operations by LA SOURCE in accordance with its Participating Interest, SOTRAPMAG shall first have contributed one million United States dollars (U.S.$1,000,000) to the financing of the Adopted Programs and Budgets on either or both of the Joint Ventures. LA SOURCE acknowledges that said first U.S.$1,000,000 will be paid by SOTRAPMAG by way of the contributions of ASARCO under Article 7 towards earning 50% of SOTRAPMAG's Participating Interest as of the date of exercise of ASARCO's option, in either of the Joint Ventures. Thus, for example, once SOTRAPMAG has contributed or shall be deemed to have contributed through ASARCO $400,000 to the Paul-Isnard Joint Venture and $600,000 to the Eau Blanche Joint Venture, it shall have fulfilled its obligation under the terms of this Article. 4.4 PROPORTIONAL CONTRIBUTIONS. ASARCO's right and obligation to make proportional contributions that are required by either Joint Venture directly, and not indirectly through SOTRAPMAG, for such Joint Venture's Operations will begin after it has earned a Participating Interest equal to 50% of SOTRAPMAG's Participating Interest as of the date of exercise of ASARCO's option, in this Joint Venture through SOTRAPMAG as provided under Article 7 unless SOTRAPMAG has withdrawn from such Joint Venture prior to ASARCO's having earned its interest in such Joint Venture in which case (a) ASARCO shall have the option to immediately vest in a Participating Interest equal to 50% of SOTRAPMAG's Participating Interest, and (b) the remaining 50% of SOTRAPMAG's Participating Interest shall be transferred to ASARCO and LA SOURCE pursuant to Article 13.1. Unless the Participating Interests have been adjusted in accordance with the terms of this Agreement, LA SOURCE shall contribute 25% of the costs of Operations after SOTRAPMAG shall have first contributed U.S.$1,000,000 as aforesaid and the 8 10 contributions made by ASARCO pursuant to Article 7 to earn its Participating Interest will, until ASARCO has earned its Participating Interest, constitute the 75% percent contribution due from SOTRAPMAG. 5. OPERATIONS 5.1 TWO PHASES. The Operations under this Agreement shall be undertaken in two phases. The initial phase shall consist of carrying out by each Joint Venture of Exploration Operations as described in Articles 6 through 11 including the completion of an Initial Feasibility Study for prospective Primary Deposits found on all or part of the Property of such Joint Venture. In the event a decision is taken by the Management Committee to proceed to the Development of a Mine, the second phase shall consist of the Mining of the Primary Deposits on the Property, according to the conditions set out in Article 12. 5.2 PARALLEL OPERATIONS. It is understood by the Parties that the different phases of Exploration, Development and Mining may be carried out in parallel on the Paul Isnard Concessions and the Eau Blanche Permits, with the Development and Mining of a Primary Deposit being started by a Joint Venture while Exploration by the Joint Venture continues for the discovery of other Primary Deposits on the same Property or for the purpose of increasing the reserves of active Primary Deposits. EXPLORATION PHASE 6. RELATIONS AMONG THE PARTIES AND THEIR PARTICIPATING INTERESTS 6.1 CREATION OF SOCIETES EN PARTICIPATION. For the purpose of the carrying out of the Operations in respect of the Paul Isnard Concessions, the Participants hereby establish a societe en participation bearing the name "Syndical Paul Isnard" governed by Articles 1871 and 1873 of the French Civil Code and by this Agreement. A societe en participation bearing the name "Syndical Eau Blanche", governed by Articles 1871 and 1873 of the French Civil Code and by this Agreement, is also established by the Participants in order to carry out the Operations in respect of the Eau Blanche Permits. Each Participant shall be responsible only for its own obligations as herein set out and shall be liable only for its share of the costs and expenses as provided herein. None of the Participants shall have any authority to act for or to assume any obligation or responsibility on behalf of any other Participant or to bind another Participant, with the exceptions of the powers attributed to the Manager under the terms of this Agreement. The rights, duties, obligations, and liabilities of the Participants shall be several and not joint or collective. Each Participant shall indemnify, defend, and hold harmless the other Participants, their directors, officers, and employees from and against any and all losses, claims, damages and liabilities arising out of any act or any assumption of liability (except if undertaken or assumed pursuant to the authority expressly granted herein or otherwise agreed in writing between the Participants) by the indemnifying Participant or any of its directors, officers, or employees, done or undertaken, or apparently done or undertaken, on behalf of the other Participants, with the exception of the prerogatives granted to the Manager if exercised in the context of his mandate. 6.2 NO PARTNERSHIP. The Participants agree that it is not their intent to create a partnership, and nothing contained in this Agreement shall be deemed to cause either one of the Participants to be considered the partner of the other, as such terms are defined in US law. 9 11 6.3 TAX PARTNERSHIP. Without changing the effect of Article 6.2, the Participants agree that, to the extent permitted under applicable laws, their relationship shall be treated as a tax partnership having the same effect for tax purposes as if their relationship constituted a tax partnership within the meaning of Section 76(a) of the United States Internal Revenue Code of 1954, as amended. Tax elections and allocations shall be made in a manner to carry out this intent. The Manager shall be the Tax Matters Partners who shall file, after approval of the Management Committee any tax returns or forms required. 6.4 MANAGEMENT. Each Joint Venture shall be managed and administered by its Manager who is appointed pursuant to Article 9.1. The Manager shall contract in its own name and shall be the only Participant known to third parties. The Participants in a Joint Venture shall disclose their Joint Venture to third parties only to the extent required to fulfill contractual or legal requirements (including securities requirements and stock exchange regulations applicable to the Participants). 6.5 ASSETS PLACED AT DISPOSAL OF JOINT VENTURE. The Participants in a Joint Venture agree that the Assets, including the Mining Titles, concessions and permits, contributed to or put at the disposal of such Joint Venture by the Participants will continue to be owned exclusively by the Participant holding legal title thereto. Only Assets acquired for the account of a Joint Venture by the Manager or by a Participant in one of the Joint Ventures if one or more Participants are duly qualified to make acquisitions (see Article 8.2) will be deemed held as indivisible property ("en indivision") by the Participants to the Joint Venture, provided, however, that ASARCO shall be deemed not to hold legal title to any Assets acquired for the account of a Joint Venture until and after ASARCO has earned its Participating Interest in such Joint Venture. 6.6 INITIAL PARTICIPATING INTERESTS. The Initial Participating Interests in each of the Joint Ventures as of the Effective Date are fixed at: - SOTRAPMAG: 75.0% - ASARCO: 0% - LA SOURCE: 25.0% Nevertheless, until an Initial Feasibility Study relating to a Property has been completed and ASARCO has earned its Participating Interest in the Joint Venture relating to such Property in accordance with Article 7, ASARCO shall have the right to participate in the management of such Joint Venture and its representatives on the Management Committee of such Joint Venture shall be deemed to have voting rights equivalent to half of SOTRAPMAG's Participating Interest in such Joint Venture as of the date of the applicable vote. These percentages, subject to adjustments that may be made periodically as provided elsewhere in this Agreement, represent all of the rights and obligations of the Participants in either Joint Venture established pursuant to this Agreement. 6.7 OTHER ADJUSTMENTS. The Participating Interests fixed in Article 6 for each of the Joint Ventures, will be adjusted periodically as provided in Articles 6.7, 6.8, and 6.9 provided however that until ASARCO shall have earned a Participating Interest in a Joint Venture pursuant to Article 7, its voting rights under Article 6.6 shall be adjusted periodically to be equal to 50% of 10 12 SOTRAPMAG's Participating Interest in such Joint Venture, as adjusted from time to time as between SOTRAPMAG and LA SOURCE. 6.8 Voluntary Reduction of an Interest. It is understood that until ASARCO has earned its Participating Interest in a Joint Venture pursuant to Article 7, (i) contributions to such Joint Venture's Adopted Programs and Budgets are the obligations of SOTRAPMAG and LA SOURCE in accordance with their Initial Participating Interests in such Joint Venture set out in Article 6.6 and (ii) the payments made by ASARCO pursuant to Article 7 before it earns its Participating Interest in such Joint Venture are payments made to satisfy or reimburse SOTRAPMAG's said contribution obligations. After ASARCO has earned its Participating Interest in such Joint Venture in accordance with Article 7, contributions shall be required to be made by the Participants in such Joint Venture in accordance with their Participating Interests in such Joint Venture, as they may have been or will be adjusted from time to time in accordance with this Agreement. Calculations of adjustments of Participating Interests for each Joint Venture upon voluntary reductions shall be as follows: A. During the period beginning on the Effective Date and ending on the date (the "Vesting Date") when ASARCO has earned its Participating Interest in a Joint Venture in accordance with Article 7, if a Participant in such Joint Venture voluntarily limits the amount of its contribution to the financing of an Adopted Program and Budget in such Joint Venture by: (a) electing to contribute less than an amount proportional to its Interest in such Joint Venture; or (b) electing not to contribute thereto; the amount of its Participating Interest in such Joint Venture shall be adjusted by use of a fraction the numerator of which is the sum of (i) its Original Contribution in such Joint Venture (as defined below), (ii) the sum of all of its contributions ("Program Contributions") to preceding Adopted Programs and Budgets in such Joint Venture between the Effective Date and the date on which such Participant chooses to voluntarily limit the amount of its contribution, and (iii) its partial contribution if any to the current Adopted Program and Budget in such Joint Venture, and the denominator of which is the sum of (i), (ii) and (iii) for all the Participants in such Joint Venture. The result of such fraction shall be such Participant's new Participating Interest in such Joint Venture and the balance shall be the Participating Interest in such Joint Venture of the other Participant in such Joint Venture who did not make any such election. For the purpose of calculating adjustments of Participating Interests in such Joint Venture as between SOTRAPMAG's initial 75% Participating Interest in such Joint Venture and LA SOURCE's initial 25% Participating Interest in such Joint Venture under Article 6.6 prior to the Vesting Date, the Original Contribution of SOTRAPMAG to such Joint Venture, after SOTRAPMAG has contributed the first U.S.$1,000,000 referred to in Article 4.3, shall be equal to the portion of the first U.S.$1,000,000 contributed by SOTRAPMAG to such Joint Venture 11 13 and the Original Contribution of LA SOURCE to such Joint Venture shall be one third of SOTRAPMAG's contribution B. After ASARCO has earned its Participating Interest in such Joint Venture the formula for calculating the adjustments of Participating Interests in clause A above shall continue to apply but Original Contributions and Program Contributions shall be revised for the purposes of that formula as of ASARCO's Vesting Date for such Joint Venture as follows: (a) the Original Contribution of LA SOURCE on and from ASARCO's Vesting Date with respect to such Joint Venture shall be deemed to be the aggregate of its Original Contribution to such Joint Venture in accordance with clause A plus the sum of all of its Contributions to Adopted Programs and Budgets between the Effective Date and ASARCO's Vesting Date for such Joint Venture. The Original Contributions of each of ASARCO and SOTRAPMAG to such Joint Venture as of ASARCO's Vesting Date for such Joint Venture shall be deemed to be one-half of the amount that is the aggregate of (i) the amount of SOTRAPMAG's Original Contribution to such Joint Venture under clause A and (ii) the sum of all of SOTRAPMAG's Program Contributions to such Joint Venture since the Effective Date and up to ASARCO's Vesting Date for such Joint Venture (it being acknowledged that such contributions may have been fully funded by SOTRAPMAG pursuant to Article 7); (b) Contributions to Adopted Programs and Budgets on and from ASARCO's Vesting Date for such Joint Venture shall in respect of each Participant be the sum of its contributions to preceding Adopted Programs and Budgets between ASARCO's Vesting Date for such Joint Venture and the date of the calculation of the adjustment of such Joint Venture's Participating Interests. It is acknowledged that the Exploration Expenditures which ASARCO pays or reimburses to SOTRAPMAG pursuant to Article 7.2(a) shall not be Original Contributions or Contributions to a Joint Venture's Adopted Program and Budget for the purpose of calculating its Participating Interest in such Joint Venture and adjustments thereto. After ASARCO's Vesting Date for such Joint Venture, additional contributions of ASARCO under Article 7, including contributions of Holdover Amounts, shall be deemed to be contributions to such Joint Venture's Adopted Programs and Budgets by ASARCO and SOTRAPMAG in the proportions between them that, at the time of contribution, their respective Participating Interests in such Joint Venture are of the aggregate of their Participating Interests. In the event ASARCO exercises its right to combine both Joint Ventures into a single Joint Venture pursuant to Article 7.3, the Participating Interests of the Participants in the unified Joint Venture so created shall be calculated on the basis of the Contributions made to date by the Participants in the Paul Isnard and Eau Blanche Joint Ventures including the Original Contributions deemed made pursuant to Article 6.8 (a). 6.9 DEFAULT IN MAKING CONTRIBUTIONS. If a Participant defaults in making a contribution or cash call required by an Adopted Program and Budget of a Joint Venture after having elected to so contribute, the non-defaulting Participant in such Joint Venture may advance the defaulted contribution on behalf of the defaulting Participant in such Joint Venture and treat the same, together with any accrued interest, as a demand loan bearing interest from the date of the advance at the rate provided in Article 11.3. If there is more than one non-defaulting Participant and all non-defaulting Participants wish to advance defaulted contributions on behalf of the 12 14 defaulting Participant or Participants, the non-defaulting Participants shall agree between themselves as to the amounts each of them shall advance to the defaulting Participant or defaulting Participants. The failure to repay any such loan upon demand shall be a default. Each Participant hereby grants to the other a lien upon its share of Products or Net Proceeds of such Joint Venture to secure any loan made hereunder, including interest thereon, attorney's fees, and all other reasonable costs and expenses incurred in enforcing such lien or security interest, or both. Each Participant hereby irrevocably appoints the other its attorney-in-fact to execute, file, and record all instruments necessary to perfect or effectuate the above provisions of this Article 6.9. The Participants acknowledge that if a Participant defaults in making a contribution after making an election to contribute pursuant to Article 10.5, or a cash call, or in repaying a loan, as required hereunder, it will be difficult to measure the damages resulting from such default. In the event such default is not cured within ninety (90) days, as reasonable liquidated damages, the defaulting Participant shall be deemed to have withdrawn from such Joint Venture and shall transfer to the non-defaulting Participant its Participating Interest in such Joint Venture and Mining Titles, provided, however, the defaulting Participant shall thereupon be entitled to one percent (1%) of Net Proceeds of such Joint Venture for every ten percent (10%) of Participating Interest in such Joint Venture so transferred. 6.10 ELIMINATION OF A MINORITY PARTICIPANT. Pursuant to Article 6.8, if a Participant's Interest in a Joint Venture falls below ten percent (10%), it shall be deemed to have withdrawn from such Joint Venture. Consequently, in consideration of payment of the nominal sum of one French Franc, such withdrawing Participant shall lose all of the rights appurtenant to its Participating Interest, which shall be divided among the other Participants in proportion to their respective Participating Interests in such Joint Venture on the date of elimination of the minority Participant in such Joint Venture. In such event, the withdrawn Participant shall however retain the right to two point five percent (2.5%) of the Net Proceeds of such Joint Venture. 7. CONTRIBUTIONS BY ASARCO TO EARN ITS PARTICIPATING INTERESTS 7.1 ASARCO'S OPTIONS. SOTRAPMAG hereby grants to ASARCO, subject to Articles 7.2 and 7.3 below, the irrevocable right and option to earn a Participating Interest in each of the Joint Ventures (equal to 50% of SOTRAPMAG's Participating Interest as of the date of the exercise of ASARCO's option in each such Joint Venture) by delivering to SOTRAPMAG and the Management Committee of each such Joint Venture an Initial Feasibility Study (on the Property relating to such Joint Venture) based upon Operations on such Property to which ASARCO has contributed in accordance with Article 7.2., provided that such Initial Feasibility Study is delivered within five years of the Effective Date (subject to any extensions of time available pursuant to the terms of this Agreement). It is acknowledged that such contributions by ASARCO will satisfy the contributions otherwise required to be made by SOTRAPMAG in accordance with its Participating Interest of 75% (unless the Participating Interests have been adjusted in accordance with this Agreement) of the amounts required under Adopted Programs and Budgets of such Joint Venture from time to time, pursuant to Article 4.2. Subject to Article 4.3, the remaining 25% (unless the Participating Interests have been adjusted in accordance with this Agreement) are to be contributed by LA SOURCE. 13 15 7.2 PARTICULARS OF CONTRIBUTIONS BY ASARCO. ASARCO, in order to maintain its option and earn a Participating Interest in a Joint Venture equal to 50% of SOTRAPMAG's Participating Interest in such Joint Venture, shall do and be responsible for the following: (a) Until the earlier of (i) the adoption by the Management Committee of the first Adopted Program and Budget for Exploration on the Property of such Joint Venture or (ii) ASARCO's withdrawal pursuant to Article 7.5, ASARCO shall pay to SOTRAPMAG and its Affiliates all Exploration Expenditures incurred by them after January 1, 1995 in connection with the Property of such Joint Venture (except for the costs of acquiring the Mining Titles of such Joint Venture), provided that SOTRAPMAG or its Affiliates shall, at the request of ASARCO, provide a statement of receipts and other documentary evidence as may be reasonable to confirm such Expenditures. Such payment shall be deducted from ASARCO's funding obligation under Article 7.2(d)(v) for such Joint Venture and, to the extent applicable, from any Holdover Amount as set forth in Article 7.3 and 7.4 for such Joint Venture. (b) After the Management Committee of such Joint Venture has adopted its first Adopted Program and Budget, pay to SOTRAPMAG or as SOTRAPMAG directs, SOTRAPMAG's share of all Expenditures to complete Exploration as provided for in the Adopted Programs and Budgets of such Joint Venture and such other expenses as are approved by the Management Committee of such Joint Venture, including the cost of the Initial Feasibility Study on the Property of such Joint Venture, but subject to the provisions of this Article. (c) With respect to such Joint Venture's Mining Titles, pay to or on behalf of SOTRAPMAG or at SOTRAPMAG's request and direction, whenever the same became due, all amounts required to be paid by SOTRAPMAG or for which SOTRAPMAG is responsible under the terms of the applicable Mining Titles for such Joint Venture or otherwise as required by law to maintain the Mining Titles in good standing and free of defaults (subject to abandonment by mutual agreement of the Participants in the Joint Venture) and generally be responsible to fund all payments required for a Joint Venture's Mining Titles however designated, except for payments to BRGM by GUYANOR pursuant to the BRGM Agreement. (d) In particular, pay SOTRAPMAG pursuant to sections (b) and (c) above, and in accordance with the Adopted Programs and Budgets of such Joint Venture, the following minimum amounts: (i) $500,000 during the first year after the Effective Date; (ii) an additional $1,000,000 during the second year after the Effective Date; (iii) an additional $1,500,000 during the third year after the Effective Date; (iv) an additional $2,000,000 on or before the fourth anniversary after the Effective Date; and (v) an additional $5,000,000 on or before the fifth anniversary after the Effective Date less any payment made pursuant to Article 7.2(a). (e) During the first three years after the Effective Date, ASARCO shall pay or incur the minimum provided for above irrespective of previous Expenditures (i.e. no amount may be carried forward during the first three years). In years four and five, Expenditures made in 14 16 previous years in excess of the minimum for such previous years with respect to the Property of such Joint Venture shall be credited against the required minimum payments for years four and five. (f) The said Expenditures, whether paid or incurred by ASARCO, during the Initial Period, shall be made in accordance with Adopted Programs and Budgets for the applicable Joint Venture pursuant to Article 10.4 of this Agreement. Any failure to expend the full minimum amount specified in Article 7.2(d) above for any of the above years as aforesaid through no fault of ASARCO (for example, by reason of insufficient staff, equipment or supplies to carry out an Adopted Program and Budget of the applicable Joint Venture, or Force Majeure interfering therewith, or otherwise) shall not have any consequences on the rights of ASARCO hereunder and any amounts not so expended shall be added to the required Expenditure amount for the following year. In the event the fifth year's minimum Expenditures are not expended in the fifth year through no fault of ASARCO, the period during which ASARCO may exercise its option to earn a Participating Interest in such Joint Venture will be extended to a sixth year to complete such Expenditures and Initial Feasibility Study on the Property of such Joint Venture. (g) Subject to Article 7.3, if and when an Initial Feasibility Study has been delivered to SOTRAPMAG and the Management Committee, together with a written notice (the "Notice of Vesting") from ASARCO that it wishes to exercise its option and be vested with 50% of SOTRAPMAG's Participating Interest in a Joint Venture, ASARCO shall be deemed to be vested with a Participating Interest in such Joint Venture equal to 50% of SOTRAPMAG's Participating Interest in such Joint Venture as of that date. 7.3 ASARCO's Election on First Feasibility Study. Upon delivery of an Initial Feasibility Study on one of the Properties and of the Notice of Vesting to SOTRAPMAG and the Management Committee of the Joint Venture for such Property (such Initial Feasibility Study shall be designated for purposes of this Agreement as the "First Feasibility Study"), ASARCO shall have the right but not the obligation, as long as its options to earn Participating Interests in both Joint Ventures have not terminated and within 180 days after delivery of such Initial Feasibility Study, to elect by notice in writing to the other Parties to either (I) combine the Paul Isnard Concessions and the Eau Blanche Permits into a single Joint Venture, or (II) to hold them separately in independent joint ventures (societes en participation). (I) If ASARCO combines the Paul Isnard Concessions and the Eau Blanche Permits as one Joint Venture then ASARCO's Participating Interest shall be vested in respect of the entire Property which shall include the Paul Isnard Concessions and the Eau Blanche Permits, and if the amount of the aggregate Expenditures incurred on the Properties relating to Adopted Programs and Budgets of the two Joint Ventures (including the costs of completing the First Feasibility Study) is less than U.S.$20,000,000, SOTRAPMAG shall have no obligation to contribute to the Adopted Programs and Budgets of the new Joint Venture resulting from the merger of the Paul Isnard and Eau Blanche Joint Ventures until ASARCO has contributed to the Joint Venture an amount (the "Holdover Amount") equal to the difference between U.S.$20,000,000 and the aggregate amount of such Expenditures incurred by the two Joint Ventures. (II) If ASARCO elects not to combine the Properties into one Joint Venture and the Expenditures corresponding to the completion of the Initial Feasibility Study on the Property of the Joint Venture for which such Initial Feasibility Study was completed are less than 15 17 U.S.$10,000,000, SOTRAPMAG will have no obligations to contribute to the Expenditures for such Joint Venture until ASARCO shall have contributed an amount (the "Holdover Amount") equal to the difference between U.S.$10,000,000 and said aggregate Expenditures. ASARCO's obligations under Article 7.2(d) to pay or incur Expenditures with respect to a Joint Venture, shall be suspended at ASARCO's option, during the time required to complete an Initial Feasibility Study on the Property of such Joint Venture but such suspension shall not, under any circumstances, exceed a total of six (6) months from the time such Initial Feasibility Study was commissioned. In the event such Initial Feasibility Study has not been completed and ASARCO has commissioned the preparation of such Initial Feasibility Study by the fifth anniversary of the Effective Date, then the time for completing such Initial Feasibility Study will be extended for six months to allow it to be completed. 7.4 PAYMENT OF HOLDOVER AMOUNTS. After the completion of an Initial Feasibility Study on a Property, the monies required to carry out Adopted Programs and Budgets for Exploration, Development or Mining on such Property shall be provided by the Participants in the proportions of their Participating Interests in the Joint Venture related to such Property save and except that if there shall be a Holdover Amount as described in Article 7.3, such amount shall be first contributed by ASARCO alone on behalf of ASARCO and SOTRAPMAG to carry out the Adopted Programs and Budgets until the Holdover Amount has been fully paid. Thereafter, contributions shall be made by ASARCO and SOTRAPMAG in the proportions of their Participating Interests in such Joint Venture. For the purpose of accounting and allocating the Holdover Amounts as between SOTRAPMAG and ASARCO, contributions of Holdover Amounts by ASARCO shall be deemed to have been contributed, and be allocated between SOTRAPMAG and ASARCO, pro rata in the same proportions as their respective Participating Interests are of the aggregate Participating Interests in such Joint Venture. If ASARCO fails to make any Holdover Amount Expenditures as provided herein and fails to cure such failure within thirty (30) days of the receipt of the notice provided for in Article 7.5 hereof, ASARCO shall be deemed to have withdrawn from the Joint Venture for which the Holdover Amount was payable and to have forfeited its rights in respect of such Joint Venture and to be divested of its Participating Interest in such Joint Venture and its Mining Titles and shall be deemed to have transferred such interests to SOTRAPMAG for FRF 1.00. 7.5 WITHDRAWAL BY ASARCO. ASARCO may withdraw at any time from a Joint Venture and terminate its right to vest its Participating Interest in such Joint Venture after the first six months from the Effective Date by giving a written notice of withdrawal to SOTRAPMAG and LA SOURCE (the "Withdrawal Notice") at least 90 days prior to the end of the Budget period for such Joint Venture in progress that specifies the date on which ASARCO's withdrawal is to be effective (the "Withdrawal Date") which Withdrawal Date shall be not more than 30 days after the end of such Budget period. On the Withdrawal Date, ASARCO's current obligations and right to vest its Participating Interest in such Joint Venture under Article 7.2 herein shall be at an end save and except that ASARCO shall remain obligated to complete the funding of the Adopted Program and Budget for the Budget Period in progress when the Withdrawal Notice was given and shall remain obligated in respect of reclamation as stated in Article 7.7. Notwithstanding the giving of a Withdrawal Notice, ASARCO shall have the option, exercisable by notice in writing given during the period between the end of the Adopted Program and Budget Period in progress when the Withdrawal Notice was given and the Withdrawal Date, to elect to 16 18 rejoin, without penalty, such Joint Venture and remain a party to the Joint Venture Agreement, which option may be exercised by written notification to SOTRAPMAG and LA SOURCE from ASARCO. As of the receipt by SOTRAPMAG and LA SOURCE of ASARCO's Withdrawal Notice with regard to a Joint Venture, SOTRAPMAG shall be free to search for a new Participant to replace ASARCO in such Joint Venture, provided, however, that in view of the preceding option granted to ASARCO to retain an interest in such Joint Venture, SOTRAPMAG shall not have the right to definitively commit itself or the Joint Venture to grant to such new Participant any rights to, or in, such Joint Venture until after the Withdrawal Date and ASARCO's option under this Article 7.5 has lapsed. 7.6 TERMINATION OF ASARCO'S OPTION. If ASARCO (i) fails, other than with the written consent of SOTRAPMAG, to fund when due all or any part of any Adopted Program and Budget of a Joint Venture or to fulfill ASARCO's Exploration Expenditure Requirement (whether or not an Adopted Program and Budget was adopted) before its Participating Interest in such Joint Venture has vested, or (ii) fails, other than with the written consent of SOTRAPMAG in any event to complete an Initial Feasibility Study on a Property of such Joint Venture within the time required by this Agreement (or within such lesser or greater period as ASARCO and SOTRAPMAG may by further written agreement fix) and if ASARCO shall fail to cure any such default within 30 days of the giving of written notice by SOTRAPMAG to ASARCO describing the default and requesting that ASARCO remedy the default, ASARCO's right and option to acquire a Participating Interest in such Joint Venture, the existence of which was conditioned on the completion of an Initial Feasibility Study on a Property of such Joint Venture and all rights in respect of such Participating Interest in such Joint Venture shall, after expiration of this 30 day period, be terminated, provided that ASARCO shall nevertheless remain obligated and indebted to SOTRAPMAG and such Joint Venture for the amount of the funding required to complete such Adopted Program and Budget for the Property within which the termination date occurs, and ASARCO shall be obligated in respect of reclamation as stated in Article 7.7. 7.7 RECLAMATION COSTS. Whenever ASARCO has defaulted during the Initial Period as stipulated in Article 7.6 above, in addition to any obligation of ASARCO to complete the funding for the current Adopted Program and Budget of such Joint Venture as provided in Article 7.5, ASARCO shall, if the Property of such Joint Venture is thereupon or within one year thereafter abandoned or surrendered due to ASARCO's default, pay 75% of the costs of all remediation and reclamation work in relation to the work funded by ASARCO on the Property of such Joint Venture, from the Effective Date up to the time of the termination of ASARCO's option with respect to such Property, that is required pursuant to the Mining Rights by any Government or Regulatory Authority or otherwise under applicable law, except to the extent such reclamation costs are generated by SOTRAPMAG's willful misconduct or gross negligence. An independent contractor acting for the account of ASARCO will be appointed by the Participants of such Joint Venture and will prepare a report on the status of the work performed on the Property of such Joint Venture up to the date of such termination. This report will bind ASARCO and SOTRAPMAG. 8. MANAGEMENT COMMITTEE 8.1 ORGANIZATION OF MANAGEMENT COMMITTEE. Upon the Effective Date of this Agreement, a Management Committee shall be established for each Joint Venture to determine overall policies, 17 19 objectives and procedures and methods of Operations of each of the Joint Ventures, subject to the authority granted to the Manager. Each Management Committee shall be composed of one representative of each Participant. Each Participant will notify the other in writing of the name of its representative within thirty (30) days from the Effective Date of the present Agreement. Each Participant will have the right to replace the representative at any moment by advising the other Participants in writing, and will have the right to have their representative be assisted during meetings of the Management Committee by such other persons as they shall choose. Each representative of a Participant on the Management Committee shall have one vote for each 1% Participating Interest of the Participant it represents in each Joint Venture. However, from the Effective Date until ASARCO has earned its Participating Interest in such Joint Venture as provided in Article 7 above, ASARCO's representative on the Management Committee of such Joint Venture shall be entitled to vote and take part in all the meetings of the Management Committee, with a voting interest equal to 50% of SOTRAPMAG's Participating Interest in such Joint Venture at the time of the vote. 8.2 AUTHORITY OF MANAGEMENT COMMITTEE. The Management Committee of a Joint Venture alone is authorized to adopt the Programs and Budgets relating to the Operations on the Property of such Joint Venture. The Management Committee is also alone empowered to authorize its Manager or a Participant to acquire any Assets on behalf and for the account of the Joint Venture. More generally, the Management Committee of a Joint Venture oversees the administration and management of a Joint Venture by its Manager and has for this purpose the broadest powers to take action in keeping with the object of the Agreement. The Manager of a Joint Venture shall attend every meeting of the Management Committee of such Joint Venture, at which it shall submit an operations report on the Properly of such Joint Venture. 8.3 DECISIONS OF MANAGEMENT COMMITTEE. Except as otherwise delegated to its Manager in Article 9.2, the Management Committee of a Joint Venture shall have exclusive authority to determine all management matters related to such Joint Venture. All decisions of a Joint Venture's Management Committee are made by a 66 2/3% majority vote, except that the following decisions may only be made unanimously: (a) amendments of the Joint Venture's operating rules, (b) abandonment of a Mining Title placed at the disposal of such Joint Venture. (c) pledge, mortgage or give a security interest in the Assets owned by or placed at the disposal of such Joint Venture to a banking or other institution as security for financing, 18 20 (d) sale or disposal of all or part of the Assets owned or placed at the disposal of the Joint Venture with a value in excess of 100,000 U.S. Dollars, and sale or disposal of the Property of such Joint Venture, (e) dissolution or liquidation of the Joint Venture. (f) approval of a Program and Budget for the Joint Venture; however, in the event that a Program and Budget proposed by the Manager (the "Manager's Program and Budget") should not be approved by a unanimous vote, the Participants shall have a period of thirty (30) days to review the proposals made by the dissenting Participant(s) and to propose a new Program and Budget. The Participants will exert their best efforts in good faith to take into account the comments and proposals made by the dissenting Participant(s); however, the Participants shall in no event be obligated to modify the Manager's Program and Budget in a manner which the majority of the Participants reasonably determines to be counter to the goals of the Manager's Program and Budget. The new Program and Budget will be approved by a majority vote (more than 50%) of the Participants and any Participant voting against its approval shall have the right to choose to not contribute to it, which would entail a reduction of that Participant's Participating Interest in such Joint Venture pursuant to the terms of this Agreement. The Manager appointed as provided in Article 9 shall be responsible for executing the Management's Committee's decisions and shall comply therewith. 8.4 MEETINGS, MAIL VOTES, MINUTES AND RESOLUTIONS. The Management Committee's members shall consult as often as necessary and at least twice a year on the Manager's initiative to approve the Programs and corresponding Budgets, as provided in Article 10.4 below, as well as to discuss such other matters as are placed on the agenda by a Participant. The Management Committee may meet on call by one of its members or by the Manager and on 15 days written notice to the Management Committee's members. In case of emergency, 48 hours' notice may be given. If all the Participants so agree, a meeting may be validly held instanter on oral call or by telephone conference calls, if such meeting is confirmed in writing by all of the Participants. The Participants' agreement shall then be entered in the minutes of the meeting. The person calling a meeting of the Management Committee sets the agenda of the meeting. The notice specifies the date, place and agenda of the meeting. The decisions are made at actual meetings (in person or by telephone conference) or by written resolutions signed by all of the members. All decisions of the Management Committees must be expressed in minutes. The Management Committee may meet in Cayenne or any other place agreed on by all of the Participants. Business may be transacted at a Management Committee meeting if the representatives of two Participants are present but in any event the representative(s) of a Participant holding a voting interest of 37.5% or more must be present. At the close of every meeting, whether held in person or by phone, the Manager shall prepare minutes, or have minutes prepared, and serve them on the Participants within 30 days. 19 21 Each Participant shall have 15 days from receipt of the minutes to request amendments or enter reservations. Its amendment shall be made or, if not made, the request for such amendment shall be mentioned in the minutes. The minutes shall also mention all of the Participants' reservations. The minutes so supplemented or amended by the Manager shall be the definitive minutes containing the decisions officially made. All expenses relating to participation in Management Committee meetings, including travel expenses, shall be for the account of the Participants. 9. THE MANAGER 9.1 APPOINTMENT. SOTRAPMAG or an Affiliate and/or a natural person or legal entity designated by SOTRAPMAG shall be appointed the initial Manager of each Joint Venture with authority on behalf of the Participants and the Management Committee of such Joint Venture to manage Exploration Operations and to otherwise fulfill the specific duties herein delegated to the Manager and generally to attend the implementation of the Adopted Programs and Budgets of the Management Committee. The Manager shall be deemed an independent contractor and not an employee. Upon the completion of an Initial Feasibility Study on a Property of a Joint Venture, the Participant with the greatest Participating Interest in such Joint Venture shall have the right to become Manager by giving a notice in writing to that effect to the Management Committee of such Joint Venture, provided however that as between SOTRAPMAG and ASARCO, if their Participating Interests in such Joint Venture are equal, ASARCO shall be deemed to have the greatest Participating Interest for the purpose of settling which of them has the right to become Manager of such Joint Venture. If upon the completion of an Initial Feasibility Study ASARCO is entitled to become Manager of such Joint Venture and gives required notice then SOTRAPMAG shall be deemed to have resigned as Manager of such Joint Venture and ASARCO shall be deemed to have been appointed as Manager of such Joint Venture on the 30th day following the giving of such notice by ASARCO. ASARCO will thereafter be Manager until such time as it shall actually have resigned or shall be deemed to have resigned or until its Participating Interest shall no longer be or be deemed to be, the greatest Participating Interest in such Joint Venture. 9.2 POWERS AND DUTIES OF MANAGER. Subject to the terms and provisions of this Agreement, the Manager shall have the following powers and duties which shall be discharged in accordance with Adopted Programs and Budgets: (a) The Manager shall manage, direct and control Exploration Operations, including the drafting of Programs and Budgets to be submitted to the Management Committee for approval. (b) The Manager shall implement the decisions of the Management Committee, shall make all Expenditures necessary to carry out Adopted Programs and Budgets, and shall promptly advise the Management Committee if it lacks sufficient funds to carry out its responsibilities under this Agreement. 20 22 (c) The Manager shall: (i) acquire all material, supplies, equipment, utility and transportation services required for Operations, such purchases and acquisitions to be made on the best terms available, taking into account all of the circumstances; (ii) obtain water supplies; (iii) obtain such customary warranties and guarantees as are available in connection with such purchases and acquisitions; and (iv) keep the Assets free and clear of all liens and encumbrances, except for those existing at the time of, or created concurrently with, the acquisition of such Assets, or mechanics' or materialmen's liens which shall be released or discharged in a diligent manner, or liens and encumbrances specifically approved by the Management Committee. (d) The Manager shall conduct such title examinations and cure such Mining Title defects as may be necessary or useful in the judgment of the Manager. (e) The Manager shall: (i) make or arrange for all payments required by leases, licenses, permits, contracts, and other agreements related to the Assets; (ii) pay all taxes, assessments, and like charges on Operations and Assets except taxes determined or measured by a Participant's sales revenue or net income. If authorized by the Management Committee, the Manager shall have the right to contest, in the courts or otherwise, the validity or amount of taxes, assessments, or charges if the Manager deems same to be unlawful, unjust, unequal, or excessive, or to undertake such other steps or proceedings as the Manager may deem reasonably necessary to secure a cancellation, reduction, readjustment, or equalization thereof before the Manager shall be required to pay same, but in no event shall the Manager permit or allow title to the Assets to be lost as the result of the non- payment of any taxes, assessments, or like charges; and (iii) shall do all other acts reasonably necessary to maintain the Assets. (f) The Manager shall: (i) apply for all necessary permits, licenses, and approvals, (ii) comply with all applicable laws and regulations, (iii) promptly notify the Management Committee of any allegations of substantial violation thereof and (iv) prepare and file all reports or notices required for Operations. Even though the Manager shall not be in breach of this provision if a violation has occurred in spite of the Manager's good faith efforts to comply with the laws and regulations in force, the Manager must remedy such violation through performance or payment of fines and penalties on behalf of the Joint Venture. (g) The Manager shall prosecute and defend, but shall not initiate without consent of the Management Committee, all litigation or administrative proceedings arising out of Operations. The non-managing Participants shall have the right to participate, at its own expense, in such litigation or administrative proceedings. The non-managing Participants shall approve in advance any settlement involving in excess of One Hundred Thousand Dollars ($100,000.00) in cash or value. (h) The Manager shall provide insurance for the benefit of the Participants as provided in Exhibit II. (i) The Manager may dispose of Assets owned by the Joint Venture, whether by abandonment, surrender or Transfer in the ordinary course of business. However, without prior authorization from the Management Committee, the Manager shall not: (i) dispose of Assets in any one transaction having a value in excess of One Hundred Thousand Dollars 21 23 ($100,000.00); (ii) begin a liquidation of the Joint Venture; or (iii) dispose of all or a substantial part of the Assets necessary to achieve the purposes of the Venture. (j) The Manager shall have the right to carry out its responsibilities hereunder through agents, Affiliates, or independent contractors. (k) The Manager shall keep and maintain in US dollars and in French Francs all required accounting and financial records pursuant to the Accounting Procedure and in accordance with customary cost accounting practices in the mining industry. (l) The Manager shall keep the Management Committee advised of all operations by submitting in writing to the Management Committee: (i) within 15 days of the end of each month, monthly progress reports which include statements of Expenditures and comparisons of such Expenditures to the Adopted Program and Budget and which shall include a summary of work completed and data acquired: (ii) copies of reports concerning Operations, and (iii) such other reports as the Management Committee may reasonably request. At all reasonable time the Manager shall provide the Management Committee or the representative of any Participant, upon the request of any member of the Management Committee, access to, and the right to inspect and copy all maps, drill logs, core tests, reports, surveys, assays, analyses, production reports, Operations, technical, accounting, and financial records, and other information acquired in Operations. In addition, the Manager shall allow the non-managing Participants, at Participants' sole risk and expense, and subject to reasonable safety regulations, to inspect the Assets and Operations at all reasonable times, so long as the inspecting Participant does not unreasonably interfere with Operations. (m) The Manager shall undertake any necessary or useful action to implement the foregoing provisions. The Manager shall not be in default of its obligations if its inability to perform results from the failure of the non-managing Participant to perform acts or to contribute amounts required of it by this Agreement. 9.3 STANDARD OF CARE. The Manager shall conduct all Operations in a good, workmanlike, and efficient manner, in accordance with sound mining and other applicable industry standards and practices, and in accordance with the terms and provisions of leases, licenses, permits, contracts, and other agreements pertaining to the Assets. The Manager shall not be liable to the non-managing Participants for any act or omission resulting in damage or loss to the Joint Venture except to the extent caused by or attributable to the Manager's willful misconduct or gross negligence. 9.4 RESIGNATION OF THE MANAGER. The Manager of a Joint Venture may resign by notice given to the Management Committee and the Participants of such Joint Venture at least ninety (90) days prior to the effective date of the resignation. If the Manager is a Participant who elects pursuant to Article 10.5 to contribute less than its Participating Interest to an Adopted Program and Budget, such Participant shall resign as Manager with effect at the end of the Program and Budget period during which such Participant makes such election and, if there is only one other Participant at such date, that other Participant shall thereupon become Manager or at its option appoint the 22 24 successor Manager. Otherwise, upon resignation of the Manager, the Management Committee of each Joint Venture shall appoint a successor Manager. 9.5 DEEMED RESIGNATION OR OFFER TO RESIGN. If a Manager is a Participant and there is only one other Participant, the Manager shall be deemed to have resigned as Manager on the occurrence, in respect of the Manager, or any of the events or circumstances that are set out in the following clauses, (a) to (e) inclusive. If there are at least two Participants other than the Manager, the Manager shall be deemed to have tendered its resignation as Manager to the Management Committee on the occurrence, in respect of the Manager, of any of the following events or circumstances set out in the following clauses (a) to (e) inclusive: (a) if the Manager is a Participant in the Joint Venture and its Participating Interest in the Joint Venture becomes less than any of the other Participants; or (b) the Manager commits a breach of this Agreement, which breach materially and adversely affects the business of the Venture for which it serves as Manager and, after being notified of the breach by the Management Committee or any Participant in such Joint Venture, the Manager does not remedy the breach within thirty (30) days of such notification; or (c) the Manager fails to pay or contest in good faith bills and invoices received with respect to Operations of the Joint Venture within sixty (60) days after they are due; or (d) except as set forth in Schedule 9.5 hereto, the Manager becomes insolvent, commits an act of bankruptcy, makes an assignment for the benefit of its creditors or makes a proposal, application or petition under any applicable bankruptcy law or legislation, or a receiver, receiver-manager, trustee, liquidator or person having similar powers is appointed with respect to the Manager or any substantial part of the Manager's property; or (e) entry is made against the Manager of a judgment, decree or order for relief affecting a substantial part of its property by a court of competent jurisdiction in an involuntary case commenced under any applicable bankruptcy, insolvency or similar law in any jurisdiction. Subject to Article 9.1 the Management Committee of a Joint Venture shall appoint the successor to the Manager of such Joint Venture whose resignation shall have been accepted as aforesaid. If the Manager who has tendered its resignation as aforesaid is a Participant in the Joint Venture, its representatives on the Management Committee of the Joint Venture shall not have a vote on the question of the acceptance of the Manager's resignation and a quorum shall be deemed to be present when the Management Committee is determining any such question if, except in the absence of representatives of the Participant who is Manager, there would otherwise be a quorum. Similarly, an instrument in writing signed by the Management Committee representatives of all Participants except such Manager whereby the Manager's resignation is accepted and/or a new Manager is appointed and/or a successor Manager is appointed shall be of the same force and effect as if such determination was made at a meeting of the Management Committee duly called and constituted and at which a quorum was present and acting throughout. 9.6 COMPENSATION TO MANAGER. In addition to payment of direct Expenditures, the Manager shall be entitled to compensation for indirect costs incurred in relation to providing its management services that are not directly chargeable as Expenditures (including but not limited to a portion of the salaries, employee benefits and other Expenditures of management, supervisory, 23 25 administrative, clerical and other employees of the Manager and a portion of the Expenditures of the Manager in operating and maintaining its offices and facilities not required exclusively for the Joint Venture), by way of an administration charge as more particularly described in Exhibit II. 9.7 TRANSACTIONS WITH AFFILIATES. If the Manager engages Affiliates to provide services hereunder, it shall do so on terms no less favorable than would be the case with unrelated persons in arm's-length transactions. 9.8 ACTIVITIES DURING DEADLOCK. If the Management Committee of a Joint Venture for any reason fails to adopt a Program and Budget, subject to the contrary direction of the Management Committee and to the receipt of necessary funds, the Manager of such Joint Venture shall continue Operations on the Property of such Joint Venture at levels comparable with the last Adopted Program and Budget. For purposes of determining the required contributions of the Participants and their respective Participating Interests in such Joint Venture, the last Adopted Program and Budget shall be deemed extended but in no event during the Initial Period shall be less than the minimum expenditures set forth in Article 7.2(d) for the Property of such Joint Venture. If a Program and Budget is not adopted by the Management Committee within sixty (60) days of the execution of this Agreement, a Program and Budget equal to the minimum amount set forth in Article 7.4(d) shall be deemed to have been adopted until the formal adoption of a Program and Budget has taken place. 10. PROGRAMS AND BUDGETS 10.1 PROGRAMS AND BUDGETS. Each Program and Budget of a Joint Venture shall be subject to the approval of the Management Committee of such Joint Venture. Each Program shall include a Budget and shall describe in sufficient detail the complete nature and size of the proposed Operations, as well as an estimate of the time needed to accomplish such Operations. All Adopted Programs and Budgets of a Joint Venture shall be staffed by the Manager of such Joint Venture. Charges for employees of the Manager assigned to Adopted Programs and Budgets shall be included in the said Adopted Programs and Budgets and shall be at rates consistent with their experience and position, and all costs incurred in the Operations shall be at rates consistent with market conditions at the time they were incurred or contracted. 10.2 OPERATIONS PURSUANT TO PROGRAMS AND BUDGETS. Except as otherwise provided in Article 10.8, Operations shall be conducted, Expenditures shall be incurred, and Assets shall be acquired on behalf of a Joint Venture only pursuant to Adopted Programs and Budgets of such Joint Venture. 10.3 PRESENTATION OF PROGRAMS AND BUDGETS. Proposed Programs and Budgets shall be prepared by the Manager in consultation with the other Participants, and must cover a period of six (6) months until the delivery of an Initial Feasibility Study and for one (1) year periods thereafter unless otherwise agreed by the Management Committee. Each Adopted Program and Budget, regardless of length, shall be reviewed at least once a year by the Management Committee. During the period encompassed by any Adopted Program and Budget, and at least two (2) months prior to its completion, a proposed Program and Budget for the succeeding period shall be prepared by the Manager and submitted to the Management Committee. 10.4 REVIEW AND APPROVAL OF PROPOSED PROGRAMS AND BUDGETS. Within thirty (30) days after submission to the Management Committee of a proposed Program and Budget or an amendment 24 26 to an Adopted Program and Budget, or within such other period as the Participants shall agree upon, the Management Committee shall convene a meeting in order to approve, modify or reject the proposed Program and Budget or amendment. 10.5 ELECTION TO PARTICIPATE. Subject to Article 7, by notice to the Management Committee within twenty (20) days after the final vote adopting a Program and Budget, a Participant may elect to contribute to such Program and Budget in some lesser amount than its Participating Interest, or not at all, in which cases its Participating Interest shall be recalculated as provided in Article 6. If a Participant fails to notify the Management Committee of such an election within said time period, the Participant shall be deemed to have elected to contribute to such Program and Budget in proportion to its respective Participating Interest as of the beginning of the period covered by the Program and Budget. 10.6 DEADLOCK ON PROPOSED PROGRAMS AND BUDGETS. Except during the Initial Period if the Participants to a Joint Venture fail to approve a Program and Budget for such Joint Venture at the end of a period of more than twelve (12) months, except in the event of Force Majeure, this Agreement will terminate in accordance with the provisions of Article 13. 10.7 BUDGET OVERRUNS: PROGRAM CHANGES. (A) The Manager shall notify the Management Committee within fifteen (15) days of becoming aware of any increase in or other material departure from an Adopted Program and Budget and a meeting of the Management Committee shall be held within thirty (30) days of such notice to consider amendment to the current Program and Budget to accommodate such increase or other departure. The Management Committee shall vote on such amendment in accordance with Article 8.3 and this Article 10. (B) If actual Expenditures of a Joint Venture made in accordance with an Adopted Program and Budget during the period covered by a Program exceed the amount authorized by the corresponding Adopted Program and Budget by more than ten percent (10%), then the excess over ten percent (10%) shall be for the sole account of the Manager of such Joint Venture and such excess shall not be included in the calculations of the Participating Interests in such Joint Venture, unless these expenditures were authorized by the Management Committee of such Joint Venture or directly caused by an emergency or an unexpected expenditure incurred pursuant to Article 10-8., provided, however, that before Net Proceeds or Products of such Joint Venture are distributed to the Participants in such Joint Venture in accordance with their Participating Interests, the Manager of such Joint Venture shall be entitled to receive from Net Proceeds or Products reimbursement of such excess paid by the Manager. Budget overruns of ten percent (10%) or less shall be borne by the Participants in such Joint Venture in proportion to their respective Participating Interests in such Joint Venture as of the beginning of the period covered by the Program subject to the overrun. Authorized Budget overruns advanced by the Manager shall be forthwith reimbursed to it by the Joint Venture or by the Participants in proportion to their Participating Interests, on demand, by virtue of a special call for funds as provided for in Article 11.2. 10.8 EMERGENCY OR UNEXPECTED EXPENDITURES. In case of emergency, the Manager may take any action it deems necessary to protect life, limb, or property, to protect the Assets, or to comply with law or governmental regulation. Likewise, the Manager may make Expenditures for unexpected events which are beyond its reasonable control and which do not result from a breach by it of its standard of care. In the case of either an emergency or unexpected expenditure, the Manager shall promptly notify the Participants of the emergency or unexpected expenditure, and 25 27 the Manager shall be reimbursed therefor by the Participants in proportion to their Participating Interests as of the beginning of the period covered by the then current Adopted Program and Budget. 11. ACCOUNTS AND SETTLEMENTS 11.1 MONTHLY STATEMENTS. Within fifteen (15) days after the end of each month, the Manager shall promptly submit to the Management Committee of the Joint Venture monthly statements of account reflecting in reasonable detail the charges and credits to the Joint Account of the Joint Venture during the preceding month. 11.2 CASH CALLS. On the basis of the Adopted Program and Budget, but subject to Article 7 the Manager shall submit to each Participant prior to the last day of each month, a billing for estimated cash requirements for the next month. Within ten (10) days after receipt of each billing, each Participant shall advance to the Manager an amount in proportion to its Participating Interest of the estimated amount if each Participant has received an accounting with documentation for the previous months' expenditures (i.e. a Cash Call for June need not be met until the accounting for April has been submitted). If such accounting has not been provided, the payment of such billing shall be required ten (10) days after such accounting is received by each Participant. Time is of the essence in the payment of such billings. The Manager shall at all times maintain a cash balance approximately equal to the rate of the disbursement for up to thirty (30) days. All funds in excess of immediate cash requirements of the Joint Venture shall be invested in interest-bearing accounts with a bank selected by the Manager for the benefit of the Joint Account. 11.3 FAILURE OF A PARTICIPANT TO MEET CASH CALLS. A Participant that fails to meet cash calls in the amount and at the time specified in Article 11.2 shall be in default, and the amounts of the defaulted cash call shall bear interest from the date due at an annual rate equal to two (2) percentage points over the Taux Interbancaire Offert a Paris ("TIOP"), but in no event shall said rate of interest exceed the maximum permitted by French law. The non-defaulting Participant shall have those rights, remedies and elections specified in Article 6.9. 11.4 AUDITS. Upon request of any Participant made within six (6) months following the end of any calendar year (or, if the Management Committee has adopted an accounting period other than the calendar year, within six (6) months after the end of such period), the Manager shall order an annual audit of the accounting and financial records for such calendar year or other accounting period, to be paid by such requesting Participant. All written exceptions to and claims upon the Manager for discrepancies disclosed by such audit shall be made not more than three (3) months after receipt of the audit report. Failure to make any such exception or claim within the three (3) month period shall mean the audit is correct and binding upon the Participants. The audits shall be conducted by a firm of certified public accountants of international repute selected by the Manager, and in accordance with the Accounting Procedure described in Exhibit II hereto unless otherwise unanimously agreed by the Management Committee. 26 28 MINING PHASE 12. MINING 12.1 DECISION TO PREPARE A FEASIBILITY STUDY. The scope, timing and preparation of the Initial Feasibility Study on a Property shall be determined solely by ASARCO (or, if ASARCO no longer has a Participating Interest in the Joint Venture relating to such Property, by the Participant who has the highest Participating Interest in such Joint Venture), and its preparation shall be included in corresponding Adopted Programs and Budgets adopted by the Management Committee of such Joint Venture. After the Initial Feasibility Study, if the Management Committee of the Joint Venture considers that the Exploration work has revealed one or several additional ore bodies on the Property of such Joint Venture, that Committee may decide by a qualified majority of 66 2/3% to make further Feasibility Studies on such Property. If one or more Participants wish to perform a Feasibility Study on such Property and the others do not, such Participant(s) may do so at their own expense and risk, and if such Feasibility Study is completed and Development and Mining takes place, such Participant(s) shall have the right to be the Manager thereof. In this event, if the other Participant(s) subsequently wish to take part in Mining within at most three (3) months following completion of the Feasibility Study on such Property, they must reimburse the cost of the Feasibility Study on such Property, in proportion to its or their Participating Interests in the Joint Venture relating to such Property plus thirty percent (30%). The completion of such Feasibility Study shall be officially attested by the Management Committee of the Joint Venture relating to such Property and recorded in minutes thereof. 12.2 DECISION TO MINE. Within six (6) months of delivery of the attestation of completion of a Feasibility Study on a Property and on the basis of positive technical and commercial conclusions of such Feasibility Study, each Participant in the Joint Venture relating to such Property shall elect either: (a) to participate in the Development and finance such Development of the Primary Deposit(s) covered by such Feasibility Study in proportion to its Participating Interest in the Joint Venture relating to such Property; or (b) to forfeit all rights to such Primary Deposit(s) by not participating in the financing of the Development thereof, except that such Participant shall retain a royalty of 1% of the Net Proceeds from the Property which was the subject of the Feasibility Study for each 10% of Participating Interest in the Joint Venture relating to such Property forfeited. 12.3 ALL PARTICIPANTS ELECT TO BEGIN MINING. If all the Participants in a Joint Venture decide to begin Development under a structure separate from the Joint Venture relating to the Property which was the subject of the Feasibility Study, the Participants must conclude an agreement for the organization, financing, management and functioning of an entity (the "Operating Entity") which will extract, produce and commercialize the ore within the limits of the pertinent Mining Title(s) containing the Primary Deposit(s). The Participants respective interests in the Operating Entity will be the same as the respective Participating Interests in the Joint Venture relating to the Property where the Feasibility Study was conducted when the Operating Entity is organized. 27 29 Upon the creation of such Operating Entity, the present Agreement shall terminate with respect to the Mining Title(s) containing the Primary Deposit(s) to be mined but shall remain in effect for the areas outside of such Mining Title(s). The legal form of the Operating Entity shall be chosen by agreement among the Participants in the Joint Venture relating to the Property which was the subject of the Feasibility Study. It may or may not be incorporated. The structure chosen will best take into account the tax liability and other consideration of the Participants and must meet the necessary governmental approvals. Unless agreed otherwise by the Participants, the purpose of the Operating Entity shall be the extraction and marketing of ores, concentrate or finished products within the limits of the Property which was the subject of the Feasibility Study and which will be attributed or transferred to the new Operating Entity, as well as Exploration within the limits of such Property. The Participants to a Joint Venture agree that this Agreement shall continue, with respect to the Property which was the subject of the Feasibility Study, to govern the relations between the Participants until the Participants have organized the Operating Entity. 12.4 FINANCING OF OPERATIONS AFTER FEASIBILITY STUDY. If a Feasibility Study demonstrates to the satisfaction of the Management Committee of the Joint Venture owning the Property which was the subject of such Feasibility Study that Development and Exploitation of a Primary Deposit offering a positive net present value using a reasonable discount rate is possible on the Property, the Manager shall use its reasonable best efforts to arrange for financing to be provided by third parties (the "Third Party Financing") as shall be required to bring a Primary Deposit into production on all or part of the Property, substantially on the terms set forth in the Feasibility Study and with a goal of obtaining at least eighty percent (80%) of project development costs from such financing. During the arrangement of such financing, each Participant shall not be obligated to provide such financing or to provide a guarantee for such financing by third parties but shall use reasonable best efforts to cause the financing to be on a project basis. All costs, tees and expenses incurred in order to obtain and implement such Third Party Financing shall be borne by the Operating Entity. Likewise, each Participant shall be entitled to subscribe for investment insurance, if necessary, foreign, of the type normally provided by the Export Development Corporation (Canada) or other similar agencies in respect of such part of the Third Party Financing as shall be guaranteed by such agency, and all premiums and other costs, fees and expenses incurred in respect thereof shall be borne by the Operating Entity. Each Participant shall do everything reasonably within its power to assist in securing such financing. The Manager of the Operating Entity will provide all necessary completion guarantees with respect to Development of the project in order to obtain such financing. 12.5 NO PARTICIPANT ELECTS MINING. If no Participant elects the Mining of the Primary Deposit(s) covered by an Initial Feasibility Study, the Agreement shall continue to govern such Primary Deposit(s) located on the Property of the Joint Venture in which they have a Participating Interest for three years from the date of the attestation of completion of the Initial Feasibility Study on such Property unless the Management Committee of such Joint Venture decides otherwise. 12.6 ONLY ONE PARTICIPANT ELECTS MINING. If only one Participant in a Joint Venture elects Mining he shall be entitled to do so alone, after notice to the other Participants, and such other 28 30 Participants shall each retain a royalty of 1% of Net Proceeds of the Property of such Joint Venture for every 10% of Participating Interest he held in such Joint Venture. 12.7 ADJUSTMENTS AFTER ELECTIONS. If the Participants which elected Development thereafter reduce the costs as estimated in the Feasibility Study by more than twenty percent (20%) or change the mining and metallurgical recovery technology, they shall so notify the other Participants, which shall have ninety (90) days from receipt of such notice to notify the other Participants of their definitive decision to join them in the Mining under the new conditions. If the Participant(s) which elected Development do not actually begin the Development within twelve (12) months, all the other Participants shall regain all their rights to the Primary Deposit(s). However, if the Development could not be commenced for a reason not attributable to the Participant(s), such as Force Majeure or delay in approval of the Mining by the appropriate government agency, the twelve (12) month period shall be suspended pending the Force Majeure or governmental decision. Subject to the above, the Participant(s) who did not elect to develop shall loose all rights to the Primary Deposit(s) being developed. Their rights, which shall be purchased from them for the nominal sum of one franc and shall be divided among the other Participants in proportion to their Participating Interests, such Participants retaining in any event a royalty of five percent (5%) of Net Proceeds. 12.8 DECISION TO MINE. As soon as it is decided to Mine a Primary Deposit(s), the Manager of the Operating Entity with respect to that Primary Deposit shall take all necessary steps to procure the administrative or other authorizations necessary for mining such Primary Deposit(s). The Manager shall also undertake to place the pertinent Property at the Operating Entity's disposal and to procure all of the administrative authorizations necessary for that purpose. The manner by which the Mining Title(s) shall be placed at the disposal of the Operating Entity shall be either: (a) by outright transfer of the Mining Title to the Operating Entity, or (b) by a lease Assignment ("Amodiation") to the Operating Entity of such pertinent Mining Title. The Participants shall decide the most advantageous means to be used prior to the establishment of the Operating Entity. In case the Primary Deposit(s) to be mined is located totally or, if ASARCO has exercised its right to merge the Joint Ventures, partially on the Eau Blanche Permits, SOTRAPMAG agrees to transfer the applicable research permits to the Operating Entity, upon its creation, in order to allow the Operating Entity to directly apply for the appropriate Mining Titles. SOTRAPMAG shall retain title to all Mining Titles until such time as the Management Committee decides the transfer of all or part of them. 29 31 12.9 ALLUVIAL DEPOSITS. At least twelve (12) months prior to the start of Mining of a Primary Deposit(s) by an Operating Entity, the Manager shall provide a mine plan to SOTRAPMAG. If it is determined by the Management Committee that SOTRAPMAG's continuation of the Mining of Alluvial Deposits within the Property attributed to the Operating Entity would interfere with the Mining of the Primary Deposit by the Operating Entity, SOTRAPMAG will remove the Alluvial Deposit within such twelve (12) month period, failing which such Alluvial Deposit will be removed by the Operating Entity during initial stripping of the Primary Deposit and stockpiled for removal and treatment by SOTRAPMAG at its sole convenience and expense. Upon presentation of a mine plan to SOTRAPMAG, SOTRAPMAG may wish to propose other methods of treating the Alluvial Deposit material such as custom milling by the Operating Entity, or sale of contained gold by the Operating Entity, or such other proposal as the parties find mutually agreeable. 12.10 DISTRIBUTION OF PROCEEDS AND PRODUCTS. The distribution of Net Proceeds extracted from a Property may take the form of (i) the distribution of the Net Proceeds of the sale of Products, or (ii) the distribution of the Products in kind to the Participants. In any case such distribution shall be made to the Participants in accordance with and the proportions of each Participant's Participating Interest or ownership interest in the Operating Entity. Any extra Expenditures in the taking in kind or separate disposition by any Participant of its proportionate share of Products shall be borne by the Participant requesting in kind distribution. Nothing in this Agreement shall be construed as requiring a Joint Venture or Operating Entity to organize or manage any joint or corporate marketing or selling of Products of such Joint Venture or Operating Entity or the processing of any Products of such Joint Venture or Operating Entity at processing facilities other than those constructed by the Joint Venture or Operating Entity pursuant to this Agreement. GENERAL PROVISIONS 13. WITHDRAWAL/TERMINATION 13.1 WITHDRAWAL. A Participant may elect to withdraw as a Participant from any of the Joint Ventures by giving notice to the other Participants of the effective date of withdrawal, which notice shall not be later than the meeting for the Management Committee of the Joint Venture from which they intend to withdraw to approve the next Program and Budget. Upon such withdrawal or a withdrawal pursuant to Article 6, the withdrawing Participant will lose all its rights under this Agreement, and the withdrawing Participant shall be deemed to have transferred pro rata in proportion to the remaining Participating Interest to the remaining Participants, at the withdrawing Participant's cost (except for legal fees and expenses incurred by the remaining Participants) and free and clear of royalties, liens, or other encumbrances arising by, through, or under such withdrawing Participant, except those to which all Participants have given their written consent after the date of this Agreement, all of its Participating Interest. Any withdrawal under this Article 13.1 shall not relieve the withdrawing Participant of its share of liabilities including reclamation and other environmental liabilities directly arising out of Operations conducted prior to such withdrawal except to the extent that such liabilities are the direct or indirect result of gross negligence or willful misconduct by the Manager or another Participant, in which case the withdrawing Participant cannot be held liable (except if the withdrawing Participant was the Manager when the damage was caused). 30 32 13.2 CONTINUING OBLIGATIONS - TERMINATION. On termination of a Joint Venture, the Participants in such Joint Venture shall remain liable for the obligations of such Joint Venture until final settlement of all accounts and for any liability, whether it accrues before or after termination, if it arises out of Operations of the Joint Venture during the term of the Agreement. Any environmental liabilities will be the obligation of the Participants in proportion to their Participating Interest in the terminated Joint Venture as it existed at the time of termination, subject to the limitations set forth above in Article 13.1 above. In case of gross negligence or willful misconduct of a Participant or a Manager of a Joint Venture leading to damages or claims, then such person shall be solely liable and shall bear all consequences, including financial ones. 13.3 DISPOSITION OF ASSETS ON TERMINATION. Promptly after termination of a Joint Venture, the Manager shall take all action necessary to wind up the activities of the Joint Venture and all costs and expenses incurred in connection with the termination of the Joint Venture shall be expenses chargeable to the Joint Venture. The assets owned by the Joint Venture shall first be paid, applied, or distributed in satisfaction of all liabilities of the Joint Venture to third parties and then to satisfy any debts, obligations, or liabilities relating to Operations related to the activity of the Participants; provided, however, that the foregoing shall not be construed to include the repayment of any Participant's capital contributions. Thereafter, any remaining cash and all other assets shall be distributed (in undivided interest unless otherwise agreed) to the Participants in proportion to their respective Participating Interests, subject to any dilution, reduction, or termination of such Participating Interests as may have occurred pursuant to the terms of this Agreement. 13.4 NON-COMPETE COVENANTS. A Participant that withdraws pursuant to Article 13.1, or withdraws or is deemed to have withdrawn pursuant to any other provisions of this Agreement, shall not directly or indirectly acquire any interest in property within the Area of Interest for twenty four (24) months after the date of withdrawal. If a withdrawing Participant, or the Affiliate of a withdrawing Participant, breaches this Article 13.4, such Participant or Affiliate shall be obligated to convey to the non-withdrawing Participant(s), at no cost, any such property or interest acquired in such breach. The request from the remaining Participant(s) must be made in writing and shall be considered accepted by the withdrawing Participant within forty-five (45) days of receipt of such request. Throughout the term of the Agreement as it may be extended, until closing of the books upon the Joint Venture's liquidation, no Participant, whether serving as manager or not, shall have a direct or indirect interest, as a partner, through an intermediary or otherwise, in an activity liable to compete with the Participant's mutual interests within the Area of Interest. Unless otherwise provided herein, not other non-compete or information obligation shall be imposed on the Participants. 13.5 CONTINUING AUTHORITY. On termination of a Joint Venture or the deemed withdrawal of a Participant pursuant to Article 6 or 7 or the withdrawal of a Participant pursuant to Article 1 3.1, the Manager shall have the power and authority, subject to control of the Management Committee, if any, to do all things on behalf of the Participants which are reasonably necessary or convenient: (a) to winding up Operations of the Joint Venture and (b) to completing or disposing of any transaction or obligation, unfinished or unsatisfied, at the time of such termination or withdrawal, if the transaction or obligation arises out of Operations prior to such termination or withdrawal. The Manager shall have the power and authority to grant or receive 31 33 extensions of time or change the method of payment of an already existing liability or obligation, prosecute and defend actions on behalf of the Participants, mortgage Assets, or take such other reasonable action in any matter in which the former Participants continue to have a common interest and are under a common liability. 14. TRANSFER OF INTEREST 14.1 GENERAL RULE. Except as permitted under the provisions of this Article 14 or required by the provisions of this Agreement, a Participant shall not sell, assign or transfer all or any of its interest in this Agreement, its Participating Interest in the Joint Venture in which it is a Participant or the Assets of such Joint Venture without the consent of the other Participants. All transfers will be subject to obtaining any necessary French government approval. A change of control of a Participant through any transfer involving shares in the capital of a Participant shall be deemed to be a sale, assignment or transfer of such Participant's Participating Interest for the purposes of this Article. 14.2 TRANSFERS. Each Participant shall have this right to freely transfer all or part of its Participating Interest in a Joint Venture to an Affiliate of such Participant. a) A Participant in a Joint Venture intending to transfer all or any part of its Participating Interest in such Joint Venture to a third party (a "Third Party") shall promptly notify the other Participants of its intentions. The notice shall state the price and all other pertinent terms and conditions of the intended transfer and the name of the purchaser and the other Participants shall have 90 days from the date such notice is delivered to notify the transferring Participant whether they elect to acquire the offered interest at the same price and on the same terms and conditions as set forth in the notice. If they do so elect, the transfer shall be consummated promptly after notice of such election is delivered to the transferring Participant. b) If the other Participants fail to so elect within the period provided for in above, the transferring Participant shall have 30 days following the expiration of such period to consummate the transfer to a Third Party at a price and on terms no less favorable than those offered by the transferring Participant to the other Participants in the notice. c) If the transferring Participant fails to consummate the transfer to a Third Party within the period set forth above, the preemptive right of the other Participant in such offered interest shall be deemed to be revived. Any subsequent proposal to transfer such interest shall be conducted in accordance with all of the procedures set forth in this Article 14.2. d) If more than one Participant exercises its preferential right, the transferred Participating Interest shall be distributed pro rata among the Participants who have exercised their preferential rights in accordance with their Participating Interests. In addition, LA SOURCE shall have the right to freely transfer all or part of its Participating Interest to any company directly or indirectly controlled by BRGM or Normandy Mining Limited. 32 34 15. ACQUISITION WITHIN AREA OF INTEREST 15.1 GENERAL. Any interest or right to acquire any interest in a mining rights contract or in any real property wholly or partially within the Area of Interest acquired during the term of this Agreement by or on behalf of a Participant or any Affiliate or Subsidiary of a Participant shall be subject to the terms and provisions of this Agreement. 15.2 NOTICE TO NON-ACQUIRING PARTICIPANTS. Within twenty (20) days after the acquisition of any interest or right to acquire any interest in any Mining Rights Contract or real property wholly or partially within the Area of Interest (except acquisitions by the Manager pursuant to a Program and for the benefit of the Joint Venture), the acquiring Participant shall notify the other Participants of such acquisition, provide the other Participant with full information of the acquisition, including the nature of the interest acquired, the minerals involved, the cost thereof and the reasons why such interest was acquired. In addition to such notice and such information, the acquiring Participant shall also make any and all information that the acquiring Participant has concerning the acquired interest available for review and inspection by the other Participants. 15.3 OPTION EXERCISED. If within 30 days after receiving the acquiring Participant's notice pursuant to this Article 15 the other Participant or, if more than one, each of the other Participants, notifies the acquiring Participant that it or they, as the case may be, so require, such interest shall become subject to the terms of this Agreement, shall be deemed to be part of the Property on which it is located and shall be transferred to the Joint Venture to which it relates at the acquiring cost. 15.4 OPTION NOT EXERCISED. If each other Participant does not give such notice within before the expiration of the period set forth in Article 15, then the acquired interest shall not be part of the Assets of the Joint Venture or otherwise be subject to this Agreement. 16. GENERAL 16.1 CONFIDENTIAL INFORMATION. The Participants in a Joint Venture agree that all information they may receive as a result of or in connection with the Operations of such Joint Venture shall be the exclusive property of the Joint Venture, shall be classified as confidential and treated as property and shall not be shared or traded by a Participant with others without the prior consent of other Participants in such Joint Venture, this obligation remaining applicable even after the departure of a Participant; provided that the foregoing shall not apply in any of the following cases: (a) disclosure on a confidential basis to consultants or advisors of a Participant to assist that Participant in the carrying out of the terms of this Agreement; (b) disclosure to any Government or Regulatory Authority having jurisdiction over a Property or Participant; (c) disclosure in compliance with any applicable law or regulation, including without limitation securities laws and regulations and the policies of applicable securities or regulatory authorities; or (d) disclosure in connection with a bona fide sale or transfer of a Participating Interest; provided that the person to whom disclosure is made shall agree with the Participant making it to be bound by and observe the provisions of this Article 16.1. 33 35 Except as otherwise required by law, no news releases or similar public announcements respecting Operations, the Property or the Joint Venture shall be made by any Participant in a Joint Venture without first obtaining the approval from the other Participants in such Joint Venture of the content of such news release or public announcement, which approval shall not be unreasonably withheld or delayed. The Participant seeking such approval shall provide the other Participants with the text of any proposed news release or public announcement by 3:00 p.m. at the other Participants' place for receiving notices on a business day immediately preceding the proposed news release or public announcement and if the other Participant has not objected to such text within 24 hours of the receipt thereof, the other Participant shall be deemed to have given its express written approval as required hereunder. 16.2 PARTIAL INVALIDITY. Invalidity of any provision of the Agreement shall not entail the invalidity of the other provisions, paragraphs and sections or affect the validity of the Agreement itself. 16.3 PRIOR AGREEMENTS - ADDENDA. The Agreement shall supersede any and all prior written or oral understanding between the Participants, including the BRGM Agreement (but excepting the sum of FRF 750,000 payable by GUYANOR which was still unpaid as of the date of this Agreement). No change, amendment, cancellation or revision of the Agreement shall be valid unless reduced to a written addendum and signed by the Participants and the other Participants if any. 16.4 FORCE MAJEURE. The non-performance by the Manager or a Participant of any obligations under this Agreement, with the exception of payment and notification obligations, shall be excused to the extent that such non-performance is due to an event of force majeure. If the execution of an obligation is delayed, the time period contemplated in this Agreement for the performance of same, notwithstanding any contrary provisions in this Agreement, shall automatically be extended for the duration of the delay caused by the force majeure. The Participants agree that they cannot claim as force majeure any act or omission to act for which they are responsible. For purposes of this Agreement, the term "Force Majeure" shall mean any event, act or circumstances beyond the reasonable control of a Participant, including without limitation, acts of war or conditions caused by war, insurrection, civil strife, embargoes, labor strikes, riots, epidemics, earthquakes, floods, or adverse weather conditions, explosions, lightening, terrorist acts. It is the intention of the Participants that Force Majeure be interpreted as closely as possible in accordance with the principles and customs of international law. Should one of the Participants be unable to perform any of its obligations as a result of Force Majeure, the affected Participant shall promptly give written notice to the other Participants of the suspension of performance, stating therein the nature of the suspension, the reasons therefor, and the expected duration thereof. The Participants shall take all available measures to resume performance of obligations affected by the Force Majeure as soon as reasonably possible, provided that a Participant shall not have to resolve conflicts with third parties, including labor conflicts, unless the conditions are acceptable to it or unless the resolution of such dispute is required by a final arbitral sentence or by decision of a competent court of law. Should a case of Force Majeure persist, all deadlines provided herein shall be suspended during the entire period such force majeure persists. 34 36 If an event of Force Majeure persists for longer than three (3) years from the giving of the notice, the Management Committee shall meet to evaluate the possibility of continuing the Operations of the Joint Venture affected by the Force Majeure or the termination of such Joint Venture. The termination of such Joint Venture shall require the unanimous vote of the Management Committee. 16.5 SURVIVAL OF PROVISIONS. The following articles shall survive the termination of this Agreement to the full extent necessary for their enforcement and the protection of the Participant in whose favor they run: Articles 6.9, 13.1, 13.2. and 16.6. 16.6 SUPPLEMENTAL STEPS. Each Participant shall take all steps necessary or appropriate to implement the spirit and letter of the Agreement. Each Participant shall also report to the other Participants forthwith any occurrence liable to affect the attainment of that object. At any Participant's request, the Manager shall prepare a summary of the Agreement not containing any technical or financial information, for disclosure to third parties if need be. Except to the extent otherwise provided in Article 16, this Agreement shall be kept in confidence. 16.7 CONDITION PRECEDENT. This Agreement is subject to the condition precedent that the government does not object to performance hereof as provided by paragraph 4 of Article 15 of Decree 55-586 of May 20, 1955. 16.8 APPLICABLE LAW. This Agreement shall be governed by and construed according to law in force in France. 16.9 ARBITRATION. All disputes arising in connection with this Agreement which cannot be amicably resolved by the Participants shall be submitted for binding arbitration, according to the Rules of Arbitration of the International Chamber of Commerce, by three arbitrators appointed in accordance with said Rules, except that where there are more than two parties to the arbitration, the three arbitrators shall be appointed pursuant to the procedure set forth below: (i) The three arbitrators, one of whom shall serve as President of the Arbitral Tribunal, shall be chosen unanimously by all the parties to the arbitration; such agreement must take place within thirty (30) days of the receipt of the request for arbitration by the last respondent party to receive same. (ii) In the event that the parties to the arbitration are unable to agree within the above time period, the three arbitrators, one of whom shall serve as President of the Arbitral Tribunal, shall be appointed by the International Court of Arbitration of the International Chamber of Commerce. Unless the parties to the arbitration agree otherwise, (a) such arbitration shall take place in Paris; (b) the language of the arbitration shall be French, with English translation, it being understood that the parties to the arbitration shall be at liberty to submit evidence as well as written pleadings in English; and (c) the arbitration costs shall be payable by the losing party. The arbitral decision shall be definitive and binding on the parties to the arbitration. 35 37 16.10 NOTICES. All notices, payments and other required communications ("Notices") to the Participants shall be in writing, and shall be addressed respectively as follows: If to ASARCO: ASARCO Exploration Company, Inc. 180 Maiden Lane New York, New York 10038 Attention: President Facsimile: (212)510-1978 With a copy to: ASARCO GUYANE FRANCAISE P.K. 7 route de Montjoly B.P. 1015 97343 Cayenne Cedex French Guiana Attention: D.A. Fournier Facsimile: 594.380.247 If to GUYANOR: SOTRAPMAG SARL Lotissement Calimbe 2 Route de Tigre BP 750 - 97300 Cayenne French Guiana Attention: The Manager Facsimile: (594)37 92 24 With a copy to: SOTRAPMAG SARL Norwest Center 1700 Lincoln Street Suite 1950 Denver, Colorado 80203 U.S.A. Attention: General Counsel Facsimile: (303)830-9022 If to LA SOURCE: LA SOURCE DEVELOPPEMENT SAS Division Exploration 16/18 avenue George V 75008 Paris France Attention: M. Etienne Wilhelm With a copy to: BUREAU DE RECHERCHES GEOLOGIQUES ET MINIERES Direction du Service Minier National Avenue Claude Guillemin 45060 Orleans, France Attention: M. Michel Leleu All Notices shall be given (i) by personal delivery to the Participant, or (ii) by electronic communication, with a confirmation sent by registered or certified mail return receipt requested, or (ii) by registered or certified mail return receipt requested. 36 38 All Notices shall be effective and shall be deemed delivered (i) if by personal delivery on the date of delivery if delivered during normal business hours, and, if not delivered during normal business hours, on the next business day following delivery; (ii) if by electronic communication, on the next business day following receipt of the electronic communication; and (iii) if solely by mail, on the next business day after actual receipt. Any Participant must notify the other Participants of any change of address. 16.11 LA SOURCE, on behalf of BRGM, hereby ratifies and confirms BRGM's renunciation, set forth in the BRGM Agreement, of any and all of its rights and interests, direct or indirect, in and to the Paul Isnard Concessions which BRGM held or may have held prior to the date of the BRGM Agreement. In witness whereof, the Participants hereto have executed this Agreement on the date hereafter indicated. SOCIETE DE TRAVAUX PUBLICS ET DE MINES AURIFERES EN GUYANE AND SOCIETE GUYANAISE DES MINES By: /s/ David A. Fennell, June 4, 1996 ASARCO EXPLORATION COMPANY, Inc. on its own behalf and on behalf of ASARCO GUYANE FRANCAISE SARL By: /s/ Gerald Van Voorhis, June 4, 1996 LA SOURCE DEVELOPPEMENT SAS By: 37 39 EXHIBIT I 38 40 APPENDIX 1 DESCRIPTION OF MINING TITLES 1. Location The Paul-lsnard Concessions and Eau Blanche Permits are located in the commune of Saint-Laurent-du-Maroni, in western French Guiana, about 250km from Cayenne. You will find attached a map indicating the exact location of these concessions and permits. 2. Paul-Isnard Concessions Originally, the eight (8) concessions (Nos. 692, 25, 214, 215, 216, 217, 218, 219) were held by the Compagnie Equatoriale des Mines ("CEM"); 1) No. 692 pursuant to a decision of the "Gouverneur" of French Guiana dated 10 October 1919, 2) No. 25 pursuant to a decision of the "Gouverneur" of French Guiana dated 27 November 1924, 3) No. 214, 215 and 216, pursuant to a decision of the "Gouverneur des Colonies", "Gouverneur" of French Guiana and of the Territoire de l'Inini dated 21 May 1946, 4) and, No. 217, 218 and 219 pursuant to an "arrete" of the "Prefet" of French Guiana dated 14 June 1948. Pursuant to the decision of the 18 December 1972 Extraordinary General Meeting of shareholders, the corporate name of CEM was changed to Occidentale de Participations ("ODP") Pursuant to the resolution of 28 December 1972 Extraordinary General Meeting of ODP shareholders, a merger of the Banque Occidentale pour l'Industrie et le Commerce ("BCPIC") into ODP was approved and the name of the BCPIC was adopted. Pursuant to the resolution dated 22 October 1981, the Extraordinary General Meeting of BCPIC shareholders modified the company's corporate purpose so as to eliminate all references to banking activity, such activity having been sold to another entity, and readopted the corporate name ODP. Pursuant to the resolution dated 21 December 1981, the Extraordinary General Meeting of ODP shareholders approved the merger into the General Occidentale ("GO") and the latter company stepped into the rights of ODP, which was dissolved and liquidated. Pursuant to the resolution dated 27 June 1991, the Extraordinary General Meeting of the shareholders of Alcatel Alsthom Compagnie Generale d'Electricite ("Alcatel") approved the absorption of GO through a merger. Alcatel stepped into all the rights of GO, which was dissolved and liquidated. Pursuant to a deed registered by Maitre Lucien Prevot, "notaire", on 25 March 1994, Alcatel sold to SOTRAPMAG the eight concessions together with all exclusive rights appurtenant thereto for the price of FF. 1,200,000. Pursuant to a contract between SOTRAPMAG and the SARL CERMI dated 29 October 1994, SOTRAPMAG granted to CERMI the exclusive right to mine the alluvial deposits of the Elysee Creek Valley (concessions Nos. 218 and 219) for a period of three years (automatically renewable for a 39 41 maximum duration of seven years) in consideration of a payment representing 2.5% of the gross sales of the gold coming from this valley. The sale was made subject to the condition precedent of the approval of the transfer by the government before 31 December 1995. The approval was granted by "decret" of the Conseil d'Etat dated 27 December 1995, published in the Journal Officiel of 20 December 1995. Paul-Isnard is the name of the exploration project being conducted on the eight (8) concessions (Nos. 692, 25, 214, 215, 216, 217, 218 and 219). TYPE "B" RESEARCH PERMIT SOTRAPMAG directly or indirectly holds four type B research permits for gold and related substances, these include: - - Three (3) held directly by SOTRAPMAG - Nos. 20/93, and 06/95. - - One (1) - No. 02/94 - held by the Societe Guyanaise des Mines ("SGM") owned 99.7% by SOTRAPMAG and 0.3% by Guyanor) These permits have a surface of twenty-five km(2) each. The SGM research permit obtained on 1 June 1994 expires 30 May 1996. An application for renewal was filed on 3 May 1996. TYPE "A" RESEARCH PERMITS Guyanor filed an application for a type "A" research permit on 21 December 1994. Following discussions with the French administrative authorities (DRIRE - - Ministere de l'Industrie), this application was revised with regard to the surface area requested. An updated application was presented to the prefecture on 31 January 1996. Eau-Blanche is the name of the exploration project being conducted on the four permits held by SOTRAPMAG and SGM (and on the type "A" permit if it is obtained). 40 42 SEE ORIGINAL DOCUMENT FOR MAP 41 43 EXHIBIT II ACCOUNTING PROCEDURE The financial and accounting procedures to be followed by the Manager and the Participants under the Option and Joint Venture Agreement between SOTRAPMAG, ASARCO and LA SOURCE (the "Agreement") are set forth below. References in this Accounting Procedure to sections and Articles are to those located in this Accounting Procedure unless it is expressly stated that they are references to the Agreement. Unless otherwise noted, all capitalized terms used in the Exhibits shall have the meanings set forth in the Agreement. Furthermore, in the Exhibits, defined terms, including but not limited to the terms "Joint Venture", "Participant", "Manager", "Adopted Program and Budget", and "Management Committee", shall refer either to the Paul Isnard Joint Venture or the Eau Blanche Joint Venture, as the case may be, and the term "Property" shall refer to either the Paul Isnard Concessions or the Eau Blanche Permits, or both, as the case may be. ARTICLE 1 GENERAL PROVISIONS 1.1 General Accounting Records. The Manager shall maintain detailed and comprehensive cost and general accounting records in accordance with this Accounting Procedure, including general ledgers, supporting and subsidiary journals, invoices, checks and other customary documentation, sufficient to provide a record of revenues and expenditures and periodic statements of financial position and the results of operations for managerial, tax, regulatory or other monthly financial reporting purposes. Such records shall be retained for the duration of the period allowed the Participants for audit or the period necessary to comply with tax or other regulatory requirements. The records shall reflect all obligations, advances and credits of the Participants. 1.2 Bank Accounts. The Manager shall maintain one or more separate bank accounts for the payment of all expenses and the deposit of all cash receipts in relation to Operations during the Initial Period and for each Joint Venture if and when it is created. 1.3 Statements and Billings. The Manager shall prepare statements and bill the Participants as provided in the Agreement. Payment of any such billings by any Participant, including the Manager, shall not prejudice such Participant's right to protest or question the correctness thereof for a period not to exceed twenty-four (24) months following the Operating Year during which such billings were received by the Participant. All written exceptions to and claims upon the Manager for incorrect charges, billings or statements shall be made upon the Manager within such twenty- four (24) month period. The time period permitted for adjustments hereunder shall not apply to adjustments resulting from periodic inventories as provided in Article 4. 1.4 Applicable Law. In addition to the specific requirements of the Exhibit II, the Manager shall be obliged to maintain the books of each syndicate in accordance with the Plan Comptable Francais and under Canadian GAAP. 42 44 ARTICLE 2 CHARGES TO JOINT ACCOUNT Subject to the limitations hereinafter set forth, the Manager shall charge the Joint Account with the following: 2.1 Rentals, Royalties and Other Payments. All property maintenance and holding costs, including filing fees, license fees, costs of permits and assessment work, delay rentals, production royalties, including any required advances, and all other payments made by the Manager which are necessary to acquire or maintain title to the Assets. 2.2 Labour and Employee Benefits. (a) Salaries and wages of the Manager's employees directly engaged in Operations including salaries or wages of employees who are temporarily assigned to and directly employed by same. (b) The Manager's cost of holiday, vacation, sickness and disability benefits and accrual of severance or termination costs pro-rated for only time employed worked on either Paul Isnard or Eau Claire project from the signing of this Agreement, and other customary allowances applicable to the salaries and wages chargeable under Sections 2.2(a) and 2.12. Such costs may be charged on a "when and as paid basis" or by "percentage assessment" on the amount of salaries and wages. If percentage assessment is used, the rate shall be applied to wages or salaries including overtime and bonuses. Such rate shall be based on the Manager's cost experience and it shall be periodically adjusted at least annually to ensure that the total of such charges does not exceed the actual cost thereof to the Manager. (c) The Manager's actual cost of established plans for employees' group life insurance, hospitalization, pension, retirement, stock purchase, thrift, bonus (except production or incentive bonus plans under a union contract based on actual rates of production, cost savings and other production factors, and similar non-union bonus plans customary in the industry or necessary to attract competent employees, which bonus payments shall be considered salaries and wages under Sections 2.2(a) or 2.12; rather than employees' benefit plans) and other benefit plans of a like nature applicable to salaries and wages chargeable under Sections 2.2(a) or 2.12, provided that the plans are limited to the extent feasible to those customary in the industry. (d) Cost of assessments imposed by governmental authority which are applicable to salaries and wages chargeable under Sections 2.2(a) and 2.12, including all penalties except those resulting from the willful misconduct or gross negligence of the Manager. 2.3 Materials. Equipment and Supplies. The cost of materials, equipment and supplies (herein called "Material") purchased from unaffiliated third parties or furnished by the Manager or any Participant as provided in Article 3. The Manager shall purchase or furnish only so much Material as may be required for immediate use in efficient and economical Operations. The Manager shall also maintain inventory levels of Material at reasonable levels to avoid unnecessary accumulation of surplus stock. 2.4 Equipment and Facilities Furnished by Manager. The cost of machinery, equipment and facilities owned by the Manager and used in Operations or used to provide support or utility services to 43 45 Operations charged at rates commensurate with the actual costs of ownership and operation of such machinery, equipment and facilities. Such rates shall include costs of maintenance, repairs, other operating expenses, insurance, taxes, depreciation, mobilization and demobilization and interest, at a rate not to exceed the average commercial rates currently prevailing in the vicinity of the Operations. 2.5 Transportation. Reasonable transportation costs incurred in connection with the transportation of employees and material necessary for the Operations. 2.6 Professional Consultants and Other Services. The cost of other services procured from outside sources and the cost of professional consultants services required from outside sources. The cost of professional consultant services procured from outside sources in excess of $25,000 per year per consultant shall not be charged to the Joint Account unless approved by the Management Committee. 2.7 Insurance Premiums. Net premiums paid for insurance required to be carried for Operations for the protection of the Participants. A Participant who requests additional insurance coverage will be billed to his own account. 2.8 Damages and Losses. All costs in excess of insurance proceeds necessary to repair or replace damage or losses to any Assets resulting from any cause other than the willful misconduct or gross negligence of the Manager. The Manager shall furnish the Management Committee with written notice of damages or losses as soon as practicable after a report thereof has been received by the Manager. 2.9 Legal and Regulatory Expense. Except as otherwise provided in Section 2.13, all legal and regulatory costs and expenses incurred in or resulting from the Operations or necessary to protect or recover the Assets of the Venture. All attorney's fees and other legal costs to handle, investigate and settle litigation or claims, including the cost of legal services provided by the Manager's legal staff, and amounts paid in settlement of such litigation or claims in excess of $25,000 shall not be charged to the Joint Account unless approved by the Management Committee. 2.10 Audit. Cost of annual audits, subject to Article 6 below. 2.11 Taxes. All taxes (except income taxes) of every kind and nature assessed or levied upon or in connection with the Assets, the production of Products or Operations, which have been paid by the Manager for the benefit of the Participants. Each Participant is separately responsible for income taxes which are attributable to its respective Participating Interest. For the purposes of this section, tax on income of a corporation owning the Assets and conducting the Operations shall be deemed not attributable to the Participants' Participating Interests. 2.12 District and Camp Expense (Field Supervisions and Camp Expenses). A pro rata portion of (i) the salaries and expenses of the Manager's superintendent and other employees serving Operations whose time is not allocated directly to such Operations, and (ii) the costs of maintaining and operating an office (herein called the "Manager's Project Office") and any necessary sub-office and (iii) all necessary camps, including housing facilities for employees, used for Operations. The expense of those facilities, less any revenue therefrom, shall include depreciation or a fair monthly rental in lieu of depreciation of the investment. The total of such charges for all properties served by the Manager's employees and facilities shall be apportioned to the Joint Account on the basis of a ratio, the numerator of which is the direct labour costs of the Operations and the denominator of which is the total direct labour costs incurred for all activities served by the Manager. Examples of such employees include but are not limited to surveyors, logisticians and draftsmen. 44 46 2.13 Administrative Charge. (a) Each month, the Manager shall charge the Joint Account a sum for each phase of Operations as provided below, which shall be a liquidated amount to reimburse the Manager for its home office overhead and general and administrative expenses to conduct each phase of the Operations, and which shall be in lieu of any management fee: (i) During Exploration phase - eight percent (8%) of Allowable Costs as described below. (ii) During Development phase - six percent (6%) of Allowable Costs as described below. (iii) During Mining phase - six percent (6%) of the operating costs of the Mine including the cost of contracts services but excluding capital expenditures. (b) The term "Allowable Costs" as used in this Section 2.13 for the Exploration phase and the Development phase of Operations shall mean all charges to the Joint Account excluding (i) the administrative charge referred to herein; (ii) depreciation, depletion or amortization of tangible or intangible assets; (iii) amounts charged in accordance with Sections 2.1 and 2.9.; (iv) capital expenditures and; (v) during a Development phase but not during an Exploration phase, amounts paid to outside contractors. The Manager shall attribute such Allowable Costs to a particular phase of Operations by applying the definitions of "Exploration", "Development" and "Mining" as set forth in Article 1 of the Agreement. (c) The monthly administration charge determined for each phase of Operations shall be equitably apportioned among all of the parts of the Property served under the Joint Venture during such monthly period on the basis of a ratio, the numerator of which is the direct labour costs charged to a particular part of the Property and the denominator of which is the total direct labour costs incurred for all parts of the Property served by the Manager. (d) The following is a representative list of items comprising the Manager's principal business office expenses that are expressly covered by the administrative charge provided in this Section 2.13: (i) Administrative supervision, which includes services rendered by managers, department supervisors, officers and directors of the Manager for operations, except to the extent that such services represent a direct charge to the Joint Account, as provided for in Section 2.2; (ii) Accounting, data processing, personnel administration, billing and record keeping in accordance with governmental regulations and the provisions of the Agreement, and preparation of reports (excluding audit); (iii) The services of the Manager's tax administration employees for all tax matters, including any protests, except any outside professional fees which the Management Committee may approve as a direct charge to the Joint Account; 45 47 (iv) Routine legal services rendered by the Manager's legal staff not otherwise charged to the Joint Account under Section 2.9; and (v) Rentals and other charges for office and records storage space, telephone service, office equipment and supplies not directly related to or provided principally for Operations and therefore not appropriate as a direct charge to the Joint Account. (e) The Management Committee shall annually review the administration charges and shall amend the methodology or rates used to determine such charges if they are found to be insufficient or excessive. 2.14 Other Expenditures. Any reasonable direct expenditure, other than expenditures which are covered by the foregoing provisions, incurred by the Manager for the necessary and proper conduct of Operations. ARTICLE 3 BASIS OF CHARGES TO JOINT ACCOUNT 3.1 Purchases. Material purchased and services procured from third parties shall be charged to the Joint Account by the Manager at invoiced cost, including applicable transfer taxes, less all discounts taken. If any Material is determined to be defective or is returned to a vendor for any other reason the Manager shall credit the Joint Account when an adjustment is received from the vendor. 3.2 Material Furnished by or Transferred to the Manager or a Participant. Any Material furnished by the Manager or a Participant from its stocks or transferred to the Manager or a Participant shall be priced on the following basis: (a) New Material. New Material transferred from the Manager or Participant shall be priced F.O.B. the mine site, at the current replacement cost of the same kind of Material, exclusive of any available cash discounts, at the time of the transfer (herein called, " New Price " ) . (b) Used Material. Used Material transferred by the Manager or Participant shall be priced at fair value not to exceed seventy-five percent (75%) of the New Price. 3.3 Premium Prices. Whenever Material is not readily obtainable at published or listed prices because of national emergencies, strikes or other unusual circumstances over which the Manager has no control, the Manager may charge the Joint Account for the required Material on the basis of the Manager's direct cost and expenses incurred in procuring such Material and making it suitable for use and moving it to the Property. The Manager shall give written notice of the proposed charge to the Participants prior to the time when such charge is to be billed, whereupon any Participant shall have the right, by notifying the Manager within ten days of the delivery of the notice from the Manager, to furnish at the usual receiving point all or part of its share of Material suitable for use and acceptable to the Manager. 3.4 Warranty of Material Furnished by the Manager or Participants. Neither the Manager nor any Participant warrants the Material furnished beyond any dealer's or manufacturer s warranty and no credits shall be made to the Joint Account for defective Material until adjustments are received by the Manager from the dealer, manufacturer or their respective agents. 46 48 ARTICLE 4 DISPOSAL OF MATERIAL 4.1 Disposition Generally. The Manager shall have no obligation to purchase a Participant s interest in Material. The Management Committee shall determine the disposition of major items of surplus Material, provided the Manager shall have the right to dispose of normal accumulations of junk and scrap Material either by sale or by transfer to the Participants as provided in Section 4.2. 4.2 Distribution to Participants. Any Material to be distributed to the Participants shall be made in proportion to their respective Participating Interests, and corresponding credits shall be made to the Joint Account on the basis provided in Section 3.2. 4.3 Sales. Sales of Material to third parties shall be credited to the Joint Account at the net amount received. Any damages or claims by the Purchaser shall be charged back to the Joint Account if and when paid. ARTICLE 5 INVENTORIES 5.1 Periodic Inventories. Notice and Representations. At reasonable intervals, inventories shall be taken by the Manager, which shall include all such Material as is ordinarily considered controllable by operators of mining properties and the expense of conducting such periodic inventories shall be charged to the Joint Account. The Manager shall give written notice to the Participants of its intent to take any inventory at least thirty (30) days before such inventory is scheduled to take place. A Participant shall be deemed to have accepted the results of any inventory taken by the Manager if the Participant fails to be represented at such inventory. 5.2 Reconciliation and Adjustment of Inventories. Reconciliation of inventory with charges to the Joint Account shall be made, and a list of coverages and shortages shall be furnished to the Management Committee within two (2) months after the inventory is taken. Inventory adjustments shall be made by the Manager to the Joint Account for coverages and shortages, but the Manager shall be held accountable to the Venture only for shortages due to lack of reasonable diligence. ARTICLE 6 AUDITS Unless otherwise mutually agreed to by the Participants, an audit of the financial affairs of the Joint Venture shall be conducted at least once in each year by one or more firms of chartered or certified public accountants selected and engaged by the Manager to audit financial statements of the Joint Venture under both the United States and Canadian generally accepted accounting principles and, if required by law, under French generally accepted accounting principles. The cost of such audits or any audit that is required by the law applicable to the Manager shall, only to the extent that it is related to the Joint Venture, be chargeable to a Joint Venture Account as a Joint Venture expense. Copies of audit reports shall be provided to the Participants. 47 49 EXHIBIT III FEASIBILITY STUDY "FEASIBILITY STUDY" means a detailed report, and the work required to prepare such report, showing the feasibility of placing any part of the Property into production and demonstrates a positive net present value using a reasonable rate of return on invested capital, in such form and detail and using such assumptions as to metal prices as are customarily required by institutional lenders of major financing for mining projects, and shall include a reasonable assessment of the minable ore reserves and their amenability to metallurgical treatment, a complete description of the work, equipment and supplies required to bring such part of the Property into production and the estimated cost thereof, a description of the mining methods to be employed and a financial appraisal of the proposed operations including without limitation the following: (a) a description of that part of the Property to be covered by the proposed mine; (b) the estimated recoverable reserves of minerals and the estimated composition and content thereof; (c) the proposed procedure for Development, Mining and Production; (d) ore amenability tests (if any) and the results thereof; (e) the nature and extent of the facilities proposed to be acquired which may include mill facilities, if the size, extent and location of the ore body makes such mill facilities feasible, in which event the study shall also include a preliminary design for such mill; (f) the total costs, including capital budget, which are reasonably required to purchase, construct and install all structures, machinery and equipment required for the proposed mine, including a schedule of timing of such requirements; (g) all environmental impact studies and costs; (h) the period in which it is proposed the Property shall be brought into production; (i) such other data and information as are reasonably necessary to substantiate the existence of a Primary Deposit of sufficient size and grade to justify development of a mine, taking into account all relevant business, tax and other economic considerations; and (j) working capital requirements for the initial four-month operations of the Property as a mine or such longer period as may be reasonably justified in the circumstances. Feasibility work begins when exploration drilling and related activities have established the presence, size, and grade of a mineral resource to the extent that economic extraction is thought possible. Feasibility work consists of fill-in drilling for mine planning and scheduling, bulk metallurgical sampling and testing, and the various related activities and studies included but not limited to (a) through (j) above. 48 50 EXHIBIT IV NET PROCEEDS CALCULATION 1. Income and Expenses. Net Proceeds shall be calculated by deducting from the gross revenue realized (or deemed to be realized) from the sale (or deemed sale) of Products, such costs and expenses attributable to Exploration, Development, Mining, and the marketing of Products as would be deductible under generally accepted accounting principles and practices consistently applied as employed by the Manager of the Property, including without limitation: (a) all costs and expenses of replacing, expanding, modifying, altering or changing from time to time the Mining facilities. Costs and expenses of improvements (such as haulage ways or mill facilities) that are also used in connection with workings other than the Properties shall be charged to the Properties only in the proportion that their use in connection with the Properties bears to their total use; (b) ad valorem real property and unsecured personal property taxes, and all taxes, other than income taxes, applicable to Mining of the Property, including without limitation all state mining taxes, sales taxes, severance taxes, royalties, license fees and governmental levies of a similar nature: (c) allowance for overhead and/or administrative charges in accordance with the Accounting Procedure; (d) all expenses incurred relative to the sale of Products, including an allowance for commission at rates which are normal and customary in the industry; (e) all amounts payable to the Manager of the Property during Mining pursuant to any applicable operating or similar agreement in force with respect thereto; (f) the actual cost of investment prior to beginning of Mining which shall include all expenditures for Exploration and Development of the Property incurred by the nonwithdrawing Participant subsequent to the withdrawing Participant acquiring a Net Proceeds interest; (g) actual interest paid on monies borrowed for costs and expenses and with respect to monies advanced for operating costs and expenses and working capital, interest at an annual rate equal to 2 percentage points above the Taux Interbancaire Offert in Paris ("TIOP"), but in no event in excess of the maximum permitted by law; (h) an allowance for reasonable working capital and inventory; (i) reasonably anticipated reclamation costs. It is intended that each Participant shall recoup pro rata from net cash flow all of its contributions for Exploration, Development, Mining, and marketing Products before any Net Proceeds are distributed to any person holding a Net Proceeds interest. No deduction shall be made for income taxes, depreciation, amortization or depletion. If in any year after the beginning of Mining of the Property an operating loss relative thereto is incurred, the amount thereof shall be considered as and be included with outstanding costs and expenses and carried forward in determining Net Proceeds for subsequent periods. If Products are taken in kind by a Participant, or are processed by the Manager of the 49 51 Property, or are sold to an Affiliate of the Manager, then, for purposes of calculating Net Proceeds, such Products shall be deemed conclusively to have been sold at a price equal to fair market value to arm's length purchasers FOB the concentrator for the Property or such Products, as the case may be, and Net Proceeds relative thereto shall be calculated without reference to any profits or losses attributable to smelting or refining. 2. Payment of Net Proceeds. Payments of Net Proceeds shall commence in the calendar quarter next following the calendar quarter in which Net Proceeds are first realized, and shall be made 45 days following the end of each calendar quarter during which Net Proceeds are realized, and shall be subject to adjustment, if required, at the end of each calendar year. The recipient of such Net Proceeds payments shall have the right to audit such payments within the time and in the manner provided in Article 6 of Exhibit II of the Agreement. 3. Definitions. All capitalized words and terms used herein have the same meaning as in the Agreement to which this Exhibit IV is attached. 50 52 EXHIBIT V ORGANIZATION OF AN OPERATING ENTITY 1. OPERATING ENTITY The parties acknowledge that at any time after the date of this Agreement they may determine it would be advantageous to form a corporation and cause it to become the owner and operator of the Primary Deposit(s) to be developed on the Property (the "Operating Entity"). If ASARCO and SOTRAPMAG agree that an Operating Entity should be formed, the respective Participating Interests of the Participants in an Operating Entity shall be equal to their then respective Participating Interest in the applicable Joint Venture. SOTRAPMAG and ASARCO and LA SOURCE agree that upon the formation of the Operating Entity their relationship as joint venturers as to the Primary Deposit(s) being developed by the Operating Entity shall cease and shall be that of shareholders in the Operating Entity. 2. FURTHER ASSURANCES If a decision is made to form an Operating Entity the Participants will negotiate in good faith the terms for such further agreements, conveyances and assurances as may be required for such purposes and to effectually carry out the intent of the Agreement as a result of the formation of the Operating Entity. The Participants further acknowledge and agree that they will have a community of interest in respect to their shareholdings in the Operating Entity and will take all reasonable steps required to ensure that the Manager under this Joint Venture has management control over all Operations of the Operating Entity. 3. SHAREHOLDERS AGREEMENT The Participants acknowledge that many of the provisions of the Agreement would be inapplicable upon the formation of the Operating Entity and should be replaced by comparable provisions in a shareholders' agreement. The Participants acknowledge and agree to negotiate in good faith to reach agreement on all the terms and conditions of a shareholders' agreement which will reflect as closely as practicable the rights, duties and obligations of the parties set out in the substantive provisions of the Agreement and in particular, they agree in principle that the Shareholders' Agreement should provide for the following: (a) no shareholder shall hold a direct beneficial interest in and to the Property but shall hold an indirect interest in the Property and Assets through their respective shareholdings in the Operating Entity (but this shall not prohibit a shareholder from holding any legal title as a bare trustee or nominee for the Operating Entity); (b) the respective Participating Interests of each Participant shall be transferred to the Operating Entity forthwith upon the formation thereof in consideration of shares of the Operating Entity; (c) subject to any agreement the parties may make with respect to financing generally or with respect to financing Development or Mining Operations of the Operating Entity (including seeking financing by third-party debt as determined by the directors of the Operating Entity), the Participants as shareholders shall be required to fund the Adopted on Programs and Budgets of the Operating Entity and if any shareholder fails to contribute its pro rata share the provisions of the Agreement in respect of reductions and adjustments of Participating Interests shall apply, mutatis mutandis; 51 53 (d) the functions of a Management Committee will be performed by the board of directors of the Operating Entity; (e) the directors of the Operating Entity shall be the nominees of the shareholders and the constitution of the board of directors shall at all times reflect on a pro rata basis, as closely as possible, the shareholdings of the shareholders of the Operating Entity; provided however that so long as a person holds at least 20% of the shares in the Operating Entity it shall be entitled to at least one representative on the board of directors. (f) the net revenue of the Operating Entity shall be distributed to the shareholders by way of dividend, including dividends in specie in the form of Product subject to applicable law. The policy of the board of directors of the Operating Entity will be to maximize the payment of dividends while maintaining adequate working capital, sufficient funds to carry out exploration and development of the Property and for the benefit of any Mine, and reserve, if deemed necessary, for additional capital expenditures. The Participants acknowledge and agree that it is impracticable to provide in this Appendix for all possible situations, circumstances and contingencies that may exist or arise in respect of and following the formation of an Operating Entity, and covenant and agree to use their reasonable efforts in good faith to act in concert as shareholders in the Operating Entity and otherwise in relation to an Operating Entity, and to do all other things reasonably necessary to ensure that the aims and objectives of the Joint Venture and the operation of the Agreement survive the formation of an Operating Entity. 52 EX-10.27 7 HEADS OF AGREEMENT 1-22-96 1 EXHIBIT 10.27 HEADS OF AGREEMENT THIS HEADS OF AGREEMENT ("Agreement") is made effective this 22nd day of July, 1996 ("Effective Date") by and between BHP MINERALS INTERNATIONAL EXPLORATION INC., a Delaware corporation with an address at 550 California Street, San Francisco, California 94104 USA ("BHP") and GOLDEN STAR RESOURCES LTD., a corporation amalgamated under the laws of Canada ("Golden Star"), with an address at One Norwest Center, Suite 1950, Denver, Colorado 80203. INTRODUCTION 1. The Guyana Geology and Mines Commission has issued a reconnaissance permit dated June 19, 1996, to BHP covering three areas having an aggregate of approximately 2,500,000 acres in Guyana (the "Project Area"). The Project Area is described in Exhibit B and is more commonly referred to as the Guyana Reconnaissance Project. 2. Golden Star desires the exclusive right to: (i) determine whether to proceed under the terms of this Agreement for the purpose of evaluating the Project Area; and (ii) determine whether to negotiate a detailed joint venture agreement, as provided below. 3. Definitions are set forth in Exhibit A. The Project Area is described in Exhibit B. A copy of BHP's application for the reconnaissance permit is attached as Exhibit C. Exhibits A, B, and C are attached to and made a part of this Agreement. THE PARTIES AGREE AS FOLLOWS: 1.0 PURPOSE AND LEGAL EFFECT 1.1 Purpose. This Agreement outlines the key commercial terms and conditions agreed upon whereby BHP and Golden Star may associate themselves for the following purposes: 1.1.1 to conduct a detailed evaluation of Minerals on the Project Area; and 1.1.2 to negotiate a joint venture agreement ("JVA") for the creation of a joint venture entity or such other form of entity to evaluate, develop, mine, extract, produce, use, sell and export such Minerals (the Joint Venture). 1.2 Effect. The Joint Venture may affect all or any portion of the Project Area. Until superseded by a JVA, the terms and conditions set forth in this Agreement shall govern the rights and obligations of the Parties. If a JVA is executed, this Agreement shall be superseded. The JVA shall contain the terms set forth in this Agreement and other terms as shall be mutually agreed. The Parties shall in good faith endeavor to cause the JVA to be executed within twenty-four (24) months of the Effective -1- 2 Date. Until such time as a JVA is executed by the Parties, this Agreement shall be binding upon the Parties; provided however, that if the Parties fail to cause the JVA to be executed within twenty-four (24) months as contemplated herein, then Golden Star shall have sufficient rights to protect its minority rights and economic interests under this Agreement, including without limitation: rights protecting Golden Star from related party transactions, matters relating to payments and financing which would materially affect cash flow and other economic benefits running to Golden Star, and matters relating to litigation, disposition of assets, accounting, abandonment of title to the Project Area, and dissolution and liquidation of the Joint Venture. 1.3 Term. The Term of this Agreement shall commence on the Effective Date and shall continue for the term and any extension of the last surviving license, mining lease, or other mineral right held by the Joint Venture, BHP, or Golden Star within the Project Area, unless earlier terminated as provide in this Agreement. 2.0 GRANT OF RIGHTS 2.1 During the Term of this Agreement, BHP grants Golden Star access to: (i) the Project Area, and (ii) all geological reports, evaluations, information and data owned by, in the possession of or at the disposal of BHP and relating to the Project Area. 2.2 BHP agrees during the Term of this Agreement to negotiate exclusively with Golden Star a detailed JVA. 3.0 BHP'S OBLIGATIONS 3.1 During the Term of this Agreement, unless a Party should earlier withdraw from this Agreement as provided in Section 8.0 (WITHDRAWAL AND TERMINATION) or this Agreement should otherwise be terminated as provided herein, BHP shall: 3.1.1 reimburse Golden Star, upon execution of this Agreement by both Parties, for all actual Expenditures incurred by Golden Star on or for the benefit of the Guyana Reconnaissance Project and in an aggregate amount not to exceed $50,000; provided however, that Golden Star shall provide BHP documentary evidence of payment of such Expenditures satisfactory to BHP; 3.1.2 act as Manager and direct all Operations and engage the services of Golden Star pursuant to Section 4.6.2 of this Agreement; 3.1.3 prepare work plans and budgets which the Parties shall review and approve in accordance with Section 4.7 (Owners Council); 3.1.4 conduct Operations in the Project Area in a careful and workmanlike manner and in compliance with all applicable laws, ordinances, and regulations of all governmental authorities having jurisdiction over Operations. 4.0 JOINT VENTURE AGREEMENT 4.1 General. The Parties shall undertake to negotiate in good faith a definitive JVA or such other form of agreement whose purpose is to create a business entity or such other legal structure through -2- 3 which the Parties shall jointly hold all mining rights, mining claims, water rights, surface lands and other rights and entitlements, and conduct Operations. 4.2 Joint Venture Entity. The exact nature of the business entity or legal structure through which BHP and Golden Star shall hold Assets and conduct commercial mining activity pursuant to the JVA shall be jointly determined by the Parties giving due regard to the tax, legal liability and other considerations of each Party, as well as any necessary government approvals. 4.3 Contribution of BHP Assets. Prior to the execution of the Joint Venture Agreement, BHP shall hold all mining rights and mining claims and all other Joint Venture Assets for the benefit of both Parties pursuant to this Agreement. Upon execution of the Joint Venture Agreement, BHP shall, subject to any required governmental approvals, immediately contribute and transfer all Assets to the Joint Venture. 4.4 Participating Interests. 4.4.1 Initial Participating Interests. Upon the Effective Date: (i) BHP shall have a 60% Participating Interest in the Joint Venture and all Assets of the Joint Venture and Golden Star shall have a 40% Participating Interest in the Joint Venture and all Assets of the Joint Venture, and (ii) BHP and Golden Star shall participate jointly in Operations on the basis of their respective Participating Interests. 4.4.2 For purposes of this Agreement, prior to execution of the JVA, the Parties shall be deemed to have a Joint Venture pursuant to the terms of this Agreement and the term Joint Venture shall refer to and include the respective Participating Interests of each Party in the Project Area and Assets of the Joint Venture, and in connection therewith such Joint Venture Assets held in BHP's name or in Golden Star's name shall be held by such Party for the benefit of the Joint Venture. For purposes of clarification, Assets belonging to Golden Star which are used by Golden Star in the performance of services under Section 4.6.2 (excluding such items which may be charged to the Joint Venture as a capital acquisition) shall not be considered to be an Asset of the Joint Venture. 4.4.3 Evidence of Interests. Upon execution of the JVA, BHP and Golden Star shall execute and record in each appropriate official record's office any and all documents and instruments in such form and substance as may be required to evidence or perfect the Participating Interests of the Parties in the Joint Venture and the Joint Venture's interest in all Assets of the Joint Venture within the Project Area, subject to governmental approval in accordance with Section 4.3 (Contribution of BHP Assets). 4.5 Financing Obligations. If, prior to completion of a Feasibility Study, costs are incurred under Section 4.6.2 at the request of BHP in order to comply with BHP's safety requirements, and such costs are in excess of Golden Star's historical costs for such matters, and provided Golden Star's safety procedures are in compliance with industry standards and the standards imposed by Law, then the cost differential shall be at BHP's sole expense. 4.6 Management. 4.6.1 As long as BHP's Participating Interest in the Joint Venture is equal to or greater than 50%, then BHP shall have the continuing right to act as Manager of Operations. The Manager -3- 4 shall be responsible for the day to day management, conduct and control of the Operations, subject to approved work plans and budgets and the direction of the Owners Council. The Parties shall in good faith negotiate and specify the powers and obligations of the Manager which shall be included in the JVA. 4.6.2 Prior to completion of the Feasibility Study, Golden Star, at the direction of the Manager, shall have the exclusive right and obligation to execute and carry out all approved work plans and budgets and provide a monthly report to the Manager as to the progress and development of Operations. Golden Star shall invoice the Manager monthly, on behalf of the Joint Venture, for costs and expenses incurred, including, without limitation, a fee of 8% of the cost of all work executed in connection with the implementation of approved work plans and budgets; provided however, that this fee shall not be applicable to charges for freight, analysis, or third party contractors (subcontractors). A preliminary invoice shall be prepared by Golden Star not less than one month in advance of its incurring the expected costs and such invoice shall be paid by BHP monthly in advance of Golden Star incurring the projected costs and expenses, and such costs and expenses shall be adjusted in the month following the month in which they were incurred; provided however, that the 8% fee shall not be invoiced in advance but shall be based on the costs and expenses actually incurred. The purpose of this fee is not to provide Golden Star with a profit, but to allow Golden Star to recover indirect costs incurred in fulfilling its obligations hereunder. As a result, the Parties shall review the fee annually and the fee shall be adjusted annually if the Parties determine it to be insufficient or excessive. Statements of costs shall be accompanied by invoices, receipts or other evidence reasonably satisfactory to BHP which substantiate the costs incurred. BHP and Golden Star shall indemnify, defend, and hold harmless the other Party to this Agreement, its directors, officers, employees, agents, and attorneys from and against any and all losses, claims, damages, and liabilities arising out of any act, omission, or any assumption of liability by the Party providing the indemnification. Golden Star and BHP shall comply with all requirements of all applicable governmental or local law, rule, regulation, or order. 4.6.3 The Manager shall: (i) have the right to second personnel to the Guyana Reconnaissance Project, (ii) after consultation with Golden Star, have the right to engage the services of other contractors having special qualifications or technical skills to perform services requiring special qualifications or skills that Golden Star's personnel do not possess or are not readily available, and (iii) provide the Joint Venture quarterly reports (March, June, September, and December), specifying in reasonable detail the results of activities conducted by the Manager to date in the Project Area. 4.6.4 Upon completion of the Feasibility Study, the Manager shall be entitled to charge a management fee of 8% of allowable expenses, as that term shall be defined in the JVA provided however, that this fee shall not be applicable to charges for freight, analysis, or third party contractors (subcontractors). The purpose of this fee shall not be to provide the Manager with a profit, but to allow the Manager to recover indirect costs it incurs in fulfilling its obligations as Manager. As a result, the Parties shall review the fee annually and the fee shall be adjusted annually if the Parties determine it to be insufficient or excessive. This management fee shall be considered to be ordinary operating expenses of the Joint Venture. 4.6.5 The Manager shall be deemed to have resigned immediately upon its Participating Interest becoming less than 50% or upon it having become insolvent or bankrupt. -4- 5 4.7 Owners Council. 4.7.1 All decisions during the Term of this Agreement relating to the conduct of Operations and relating to the Joint Venture (including work plans and budgets for each phase of work undertaken pursuant to this Agreement) shall be made by the Owners Council, a governing body to be appropriately structured to serve the type of business entity chosen for the JVA. Prior to execution of the JVA, the Owners Council shall (i) consist of Adrian Fleming representing Golden Star and Harald Berents representing BHP, or their designees, and (ii) not take any binding decision unless both representatives (or their designees) are present (which may be by telephone). BHP and Golden Star shall have on the Owners Council a number of votes proportionate to their respective or deemed Participating Interest. Prior to execution of the JVA by both Parties, the Owners Council shall not approve work programs and budgets which in the aggregate are in excess of Three Million Dollars ($3,000,000), except with the unanimous consent of the Parties. 4.7.2 All decisions of the Owners Council shall be taken by simple majority vote unless otherwise agreed by the Parties in the JVA for the purpose of protecting minority interests. The JVA shall include a provision to be mutually agreed upon which specifies those matters which shall require a super majority vote together with a provision for breaking deadlocks. 4.7.3 The decision to fund and to proceed with development and construction of the First Mine shall be made solely by BHP; provided that such decision shall be made on or before ninety (90) days following completion of the Feasibility Study. Following completion of the Feasibility Study, if a Party (relinquishing Party) elects not to participate in development of the First Mine and the other Party (continuing Party) chooses to fund construction of the entire First Mine in accordance with the Feasibility Study and actually constructs the First Mine, then the relinquishing Party shall have no continuing right or interest to the First Mine and the relinquishing Party may not thereafter participate in the First Mine. 4.7.4 Following completion of the Feasibility Study, the Owners Council shall hold an annual meeting in June of each year, and such additional times as the Parties may provide for in the JVA, in Denver or San Francisco or such other mutually agreed places. Although the Parties contemplate holding meetings to review and approve work plans and budgets for each phase of work undertaken, the Parties do not contemplate holding regular meetings prior to completion of the Feasibility Study. 4.8 Dilution. Should either Party fail to advance funds as required under this Agreement or the JVA, then its Participating Interest shall be diluted on a straight line basis in the manner to be mutually agreed by the Parties in the JVA; provided however, if a Party fails within a reasonable period to make a contribution or cash call which it previously committed to make under an approved work plan and budget, it shall be in default and shall be diluted in an accelerated manner to be mutually agreed by the Parties in the JVA. 4.9 Accounting Procedure. The formal JVA shall contain a detailed accounting procedure setting forth details for all allowable costs and other matters pertinent to a mining venture. -5- 6 5.0 REPRESENTATIONS 5.1 Mutual Representations. Each of the Parties represents to the other Parties as follows: 5.1.1 that it is a corporation duly incorporated and in good standing in its state and/or country of incorporation and that it is qualified to do business and is in good standing in those states and/or countries where necessary in order to carry out the purposes of this Agreement; 5.1.2 that it has the right to enter into this Agreement and that all corporate and/or other actions required to authorize it to enter into and perform this Agreement have been properly taken; 5.1.3 that its obligations under this Agreement constitute legal, valid and binding obligations enforceable against it. 5.2 BHP's Representations and Covenants. BHP represents to Golden Star that: 5.2.1 any and all claims, concessions, mining rights, grants, or other contractual agreements by which BHP holds rights included in the Project Area and BHP's Assets are in good standing and full force and effect in accordance with all applicable laws; 5.2.2 except for any required governmental approval, BHP has the unconditional right and authority to transfer its interest in the Project Area and BHP's Assets without the consent or approval of any other party; 5.2.3 there are no pending, or to BHP's knowledge no threatened actions, suits, claims or proceedings with respect to the Project Area or BHP's Assets; 5.2.4 to the best of BHP's knowledge after reasonable inquiry: (i) BHP is in compliance in all material respects with all Laws relating to or affecting the Project Area; (ii) no condition or use of the Project Area violates any Law governing land use; (iii) BHP has obtained or is in the process of obtaining all material authorizations, licenses, permits, consents, certificates, and orders of any governmental or regulatory body relating to or affecting the Project Area; (iv) the operations of BHP, its agents or contractors, on or related to the Project Area have complied in all material respects with and have not resulted in any violation of Law; and (v) the Project Area is free and clear of all liens, charges, encumbrances and/or conflicting claims and rights of any nature and kind whatsoever; 5.2.5 to the best of BHP's knowledge after reasonable inquiry: (i) no material spill, discharge, leak, emission, ejection, escape, dumping, or any release or threatened release of any kind, of any toxic or hazardous substance or waste (as defined by any applicable Law) has occurred from, on in or under the Project Area or into the environment, except releases permitted or otherwise authorized by or under such Law; (ii) no toxic or hazardous substance or waste has been disposed or is located on the Project Area as a result of activities by BHP on, at, or related to the Project Area; and (iii) no toxic or hazardous substance or waste has been treated on or is now stored in the Project Area. 5.3 Law. For the purposes of this Section 5 (REPRESENTATIONS), the term "Law" or "Laws" includes any applicable governmental law, rule, statute, regulation, ordinance, permit or order. -6- 7 5.4 All representations in this Section 5 shall be true and correct as of the Effective Date and shall survive termination of this Agreement. 6.0 CONFIDENTIALITY AND PUBLIC STATEMENTS 6.1 Any information or data obtained in connection with the performance of this Agreement is confidential and neither Golden Star nor BHP shall make any public statement concerning this Agreement or the activities contemplated thereunder without the prior consent of the other Party, which consent shall not be withheld to the extent the disclosure is required by law or stock exchange rule. The Manager shall be the spokesperson for the Joint Venture. 7.0 TRANSFER OF INTEREST 7.1 Right of First Refusal. Except as provided in Section 7.2 (Exceptions), if BHP or Golden Star at any time wish to and can transfer all or part of their respective rights under this Agreement, the Joint Venture or their ownership interest in the Joint Venture entity or Assets thereof to a third party which is not an Affiliate, the Party wishing to transfer ("Transferor") shall first offer such interest to the other Party ("Non-transferor") on the terms to be offered to or accepted from the third party, with all such terms fully described and including the financial value of any non- cash consideration specified. If the Non-transferor does not elect within sixty (60) days of receiving such offer to accept the same, the Transferor shall be entitled for the next six (6) months to transfer the offered interest to a third party on the same terms without further obligation to the Non-transferor, and if such interest is not transferred within said six (6) month period, the obligation to offer such interest to the Non-transferor shall again be applicable. 7.2 Exceptions. 7.2.1 The right of first refusal shall not apply to transfers to facilitate the granting of security by a Party to a recognized financial institution in connection with its financing of its share of the costs of development and operation of a mine in the Project Area. 7.2.2 A Party may transfer any interest to an Affiliate provided that said Party shall give written notice thereof to the Non-transferor. 8.0 WITHDRAWAL AND TERMINATION 8.1 Prior to completion of the Feasibility Study, each Party may at any time withdraw from this Agreement by providing at least 30 days prior written notice to the other Party of such withdrawal. Upon such withdrawal, this Agreement shall terminate and the withdrawing Party shall have no further interests or rights under this Agreement and the Parties shall thereupon be released and discharged from all of their respective liabilities and obligations hereunder, except those liabilities and obligations existing on the date of termination; provided however, if a Party withdraws from this Agreement prior to completion of a work plan and budget for a phase of work approved in accordance with Section 4.7.1 prior to the giving of notice of such withdrawal, the withdrawing Party shall be liable to the other Party for its prorata share of the incomplete portion of such work and budget; and provided further, the withdrawing Party shall transfer and assign to the other Party free of charge all of its rights and interests in and to the Joint Venture and the Joint Venture Assets, subject however, to any required governmental approval. -7- 8 8.2 Transfer of Licenses. 8.2.1 Subject to the terms thereof and any applicable laws and regulations, the Party withdrawing pursuant to Section 8.1 shall offer to transfer such license or permit held by it on behalf of the Joint Venture to the other Party free of charge. 8.2.2 In the event that, whether by the operation of law or otherwise, a license or permit cannot be transferred or otherwise disposed of, then the Parties shall negotiate in good faith an agreement upon mutually acceptable terms in which the withdrawing Party shall continue to hold such license or permit for the benefit of the non-withdrawing Party; provided however, that (i) the non-withdrawing Party shall indemnify the withdrawing Party on terms that are satisfactory to the withdrawing Party, and (ii) the non-withdrawing Party shall not be obligated to incur any additional costs or liabilities for continuing to hold such license or permit, and (iii) the withdrawing Party shall not be obligated to hold such license or permit for a period greater than 24 months following the date of its withdrawal; provided further, that in the event the reconnaissance permit (Permission for Geological and Geophysical Survey under Section 97 of the Mining Act) dated June 19, 1996, is still in effect at the time of any withdrawal by BHP, than at Golden Star's request (subject to (i) and (ii) above), BHP shall continue to hold the permit in its name until such time as the government of Guyana has officially granted or denied the application(s) for prospecting license(s) made under section 4 of the permit (and BHP has transferred any license granted to Golden Star), provided that BHP shall not be required to hold the permit for longer than 24 months from the application date of such prospecting license. Any application(s) for prospecting license(s) pursuant to the foregoing clause shall be prepared by Golden Star and Golden Star shall bear all responsibility for the content and timing of such applications. Such applications shall be submitted in BHP's name and BHP undertakes to sign any such application within ten (10) business days after its receipt from Golden Star. 8.3 Upon the withdrawal of a Party, the withdrawing Party shall turn over to the other Party originals of all factual maps, reports, assay results and other factual data and documentation relating to the Project Area in its possession, without any warranty or representation as to the accuracy, completeness, reliability or usefulness thereof 9.0 GOVERNING LAW 9.1 The formation, interpretation, and performance of this Agreement and the JVA shall be governed by the internal law, but not the conflicts of law rules, of California, except that the laws of Guyana shall apply as to real property and mineral rights issues. Any terms or agreements herein which by their nature may or must be performed or occur after termination of this Agreement shall survive such termination. 10.0 DISPUTE RESOLUTION 10.1 Matters to be Arbitrated. Any dispute, controversy or claim arising under or in connection with this Agreement, and which cannot be resolved within 60 days of attempted negotiations between the Parties, shall be settled by arbitration in accordance with this Section 10. -8- 9 10.2 Procedure for Arbitration. 10.2.1 Matters subject to arbitration shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules in effect on the date of this Agreement, which Rules are deemed to be incorporated by reference into this clause. The place of arbitration shall be San Francisco, California, or such other location as may be agreed upon by the Parties. The language of the arbitration shall be English. The arbitration shall be the sole and exclusive forum for resolution of the dispute or controversy and the award shall be final and binding. Judgment thereon may be entered by any court having jurisdiction. 10.2.2 A Party may demand arbitration by delivering a written notice thereof to the other Party setting forth a complete, concise statement of the issue(s) in dispute, the amount involved and the remedy requested. The arbitrators shall render a decision within six (6) months after having been appointed. 10.2.3 The number of arbitrators shall be three (3), each of whom shall be disinterested in the dispute and shall have no connection with any Party. At least two (2) of the arbitrators shall be persons having experience in the minerals industry. Unless the three (3) arbitrators have been appointed by agreement of the Parties within thirty (30) days after the date on which any Party requests the settlement of any dispute by arbitration pursuant to this Section 10, the International Chamber of Commerce shall appoint the three (3) arbitrators referred to above. The appointing authority may appoint from among nationals of any country, whether or not a Party is a national of that country. 10.2.4 The Parties consent that the United States District Court for the Northern District of California shall have non-exclusive jurisdiction with respect to all aspects of the enforcement of the arbitration provisions of this Agreement. 11.0 NOTICES 11.1 All notices to be made or given by a Party hereunder shall be in writing and delivered by mail or by telefax at the following addresses: To Golden Star: Golden Star Resources Ltd. One Norwest Center Suite 1950 Denver, Colorado 80203 Attn.: The Corporate Secretary FAX: (303) 830-9092 BHP: BHP Minerals International Exploration Inc. 550 California Street San Francisco, California 94104 Attention: The Corporate Secretary Facsimile: (1) (415) 774-2092 -9- 10 copy to: Minera BHP de Chile Av. Apoquindo 4499, 12th Floor Las Condes, Santiago, Chile Attention: Manager Exploration Facsimile: (56)(2) 206-5352 A Party may change its address by notice to the other Party. 11.2 All notices shall be given: 11.2.1 by personal delivery (including courier); or 11.2.2 by registered mail, charges prepaid; or 11.2.3 by electronic communication, with a confirmation sent by registered mail. 11.3 All notices shall be effective and shall be deemed received: 11.3.1 if by personal delivery or by registered mail, on the date of delivery if delivered during normal business hours, and if not delivered during normal business hours, on the next business day following delivery; or 11.3.2 if by electronic communication, on the next business day following receipt of the electronic communication. 12.0 RELATIONSHIP OF PARTIES 12.1 The relationship of the Parties under this Agreement is contractual only. This Agreement is not intended to make any Party the employee, agent, partner or legal representative of the other Party, or to create any fiduciary relationship between the Parties. No Party shall have any authority to act for or to assume any obligation or responsibility on behalf of any other Party. 12.2 Each Party may freely engage in and receive full benefits from any business or other activity, whether or not competitive with the Joint Venture or one another, without any obligation whatsoever to the other Party. -10- 11 13.0 ENTIRE AGREEMENT 13.1 This Agreement contains the entire understanding and agreement of the Parties with respect to the subject matter of this Agreement and supersedes all prior agreements and understandings as between the Parties. SIGNED FOR AND ON BEHALF OF BHP MINERALS INTERNATIONAL EXPLORATION INC. By/S/ H.T. Dummett Name: H.T. Dummett Title: V. P. Exploration GOLDEN STAR RESOURCES LTD. By/S/ Adrian W. Fleming Name: Adrian W. Fleming Title: Executive V.P. Exploration -11- 12 EXHIBIT A DEFINITIONS For the purposes of this Agreement, the following terms shall have the following meanings assigned to them: "Affiliate" means any person, partnership, joint venture, corporation, or other form of enterprise which directly or indirectly controls, is controlled by, or is under common control with, a Party hereto. For purposes of the preceding sentence, "control" means possession, directly or indirectly, of the power to direct or cause direction of management and policies through ownership of voting securities, contract, voting trust, or otherwise. It is understood and agreed that control of a company can be exercised by another company or companies if such latter company or companies owns shares carrying more than 50% of the votes exercisable at a general meeting (or its equivalent) of the first mentioned company, and a particular company is deemed to be indirectly controlled by a company or companies (the parent company or companies) if a series of companies can be identified beginning with the parent company or companies and ending with the particular company so related that each company of the series except the parent company or companies is directly controlled by one or more of the companies in the series. "Agreement" means this Heads of Agreement including all amendments and modifications thereof, and all schedules and exhibits, which are incorporated herein by this reference. "Assets" means the following: (a) all interests, rights, and privileges (whether absolute or conditional, whether existing or future) in real property, mineral rights, and surface lands falling with the Project Area, including, without limitation, all prospecting and mining licenses, permits, leases, and other entitlements; (b) all Minerals, Product, and materials of commercial value produced or derived from the Project Area under this Agreement; (c) all mines and facilities located on the Project Area together with all equipment used in the Operations; (d) all inventory; all personalty, tangible and intangible, obtained or used by a party in connection with the conduct of Operations, including without limitation all geological data, surveys, assays, analyses and other data or information acquired in the course of Operations. "BHP" means BHP Minerals International Exploration Inc., a corporation duly organized under the laws of the State of Delaware, United States of America or any nominated Affiliate thereof. "Construction Capital" means all funds required to complete construction of the First Mine, including working capital and capitalized interest requirements, until First Commercial Production has been achieved. "Dollars" or "$" means U.S. dollars. "Effective Date" means July ____, 1996. -12- 13 "Expenditures" means any costs incurred by a Party in connection with the Project Area, whether direct or indirect, on or off the Project Area, and for purposes of: (i) prospecting, exploration, evaluation, and development of the Project Area; (ii) payments of fees, duties, or other charges or deductions to acquire, maintain or as required by any license, permit, or other documents issued by governmental bodies or other persons granting the right to use mineral resources and surface lands, (iii) all other expenses incurred in connection with the Project Area, prospecting licenses, mining leases, or this Agreement, including expenses for all permits and documents issued by the Government of Guyana or its authorized agent, environmental and other studies, charges incurred for site preparation, engineering, surveying, permits, equipment rental, third-party contractor services, construction of roads, costs of equipment and supplies, labor costs, legal fees, all fees and mark ups payable to Golden Star under any consulting agreement with BHP, and all direct salary and field expenses of exploration personnel, transportation costs, and (iv) any Feasibility Study. Notwithstanding anything contained herein to the contrary, during the Initial Term Expenditures shall not include costs incurred by BHP to keep and maintain title to the Project Area. "Feasibility Study" means a comprehensive description of the construction, development, mining, processing, and marketing plan for the First Mine within the Project Area in such form and detail as is normally required by a financial institution familiar with mining for the purposes of project financing. The Feasibility Study shall include the confirmation of reserves by the conduct of detailed drilling works, hydrological and geotechnical works, environmental studies, and the mining of one or more bulk samples of diamonds or ore for metallurgical studies which may require the construction of one or more shafts, the construction of an incline, or works associated with a trial mine. The Feasibility Study shall contain estimates of both capital and operating costs and shall analyze how to proceed with mining operations to economically and commercially extract the target mineral(s), identify the optimum structure for the mining venture, and include reference to relevant marketing and financial aspects. "First Mine" means the first mine to be developed by the Parties pursuant to the Feasibility Study and which can be developed as a stand-alone mine. "Golden Star" means Golden Star Resources Ltd., a corporation amalgamated under the laws of Canada, or any nominated Affiliate thereof. "Joint Venture Agreement" or "JVA" means the formal agreement which will detail the basis upon which the Parties shall mutually evaluate, develop, mine, extract, produce, use, sell and export of Minerals and associated mineral resources and, accordingly, hold all mining rights, mining claims, water rights, surface lands, licenses and permits. "Manager" means the person or entity with overall management responsibility for this Agreement and the JVA. The Manager shall be bestowed with power sufficient to undertake, manage, direct and control all day to day activities and decisions reasonably necessary to fulfill the purposes of the JVA, and such activities shall be performed in accordance with international mining industry practice and the terms of this Agreement. The Manager shall consult with each non-managing Party in planning and executing each work plan and budget, including that for producing the Feasibility Study. The Manager's powers shall be subject always to the overriding authority of the Owners Council. The JVA or a separate management agreement will specify with more particularity the Manager's responsibilities, rights and obligations. "Law" or "Laws" shall have the meaning ascribed to it in Section 5.3. -13- 14 "Minerals" means all gold bearing ores, precious minerals, base minerals, and all associated minerals on or within the Project Area, specifically excluding diamonds and iron ore. "Operations" means all activities carried out in connection with the Project Area under this Agreement, including, without limitation, prospecting, exploration, the development of a mine, the mining, extraction, treatment, storage and processing of Minerals, marketing of Product, the acquisition or construction of any improvements, personalty, fixtures or equipment reasonably necessary therefor, and any other activities or operations related to or necessary for exploration, development and mining in the Project Area. "Owners Council" means the governing body described in Section 4.7 (Owners Council). "Participating Interest" means an undivided ownership interest held by Golden Star or BHP in the Joint Venture, the Assets contributed thereto and the business entity or other legal entity created thereunder which entitles the holder to that share of the Joint Venture entity and its Assets and profits and Product thereof and which requires the holder to contribute to that share of the costs and expenses of the development and operations thereof. "Party" or "Parties" means BHP and/or Golden Star, or their successors in interest. "Product" or "Products" means all Minerals and materials of commercial value produced or derived from the Project Area under this Agreement. "Project Area" means those lands more particularly described in Section 1.1 and in Exhibit B attached hereto. "Term" shall have the meaning ascribed to it in Section 1.3 (Term). -14- 15 EXHIBIT B PROJECT AREA The Project Area is described in the reconnaissance application and is generally depicted in the map attached hereto as Exhibit B-1, being commonly referred to as the Guyana Reconnaissance Project. -15- EX-10.28 8 HEADS OF AGREEMENT 11-13-96 1 EXHIBIT 10.28 HEADS OF AGREEMENT (SOUTH BENZDORP PROJECT) THIS HEADS OF AGREEMENT ("Agreement") is made effective this 13th day of November, 1996 ("Effective Date") by and between BHP MINERALS INTERNATIONAL EXPLORATION INC, a Delaware corporation with an address at 550 California Street, San Francisco, California 94104 USA ("BHP") and GOLDEN STAR RESOURCES LTD., a corporation amalgamated under the laws of Canada ("Golden Star"), with an address at One Norwest Center, Suite 1950, Denver, Colorado 80203. INTRODUCTION 1. Golden Star has entered into that certain Option Agreement (the Option Agreement) dated January 22, 1994, with Nana Resources N.V. (herein referred to as Nana) regarding the South Benzdorp property in Suriname. This property and project are commonly referred to as the South Benzdorp Project. 2. Nana currently holds Rights of Exploration GMD 570/95 and GMD 571/95 to the South Benzdorp Project which were granted to Nana by the Government of Suriname, a copy of each Right of Exploration, together with a translation thereof, being attached hereto as Exhibit C. These Rights of Exploration are subject to the Option Agreement. 3. The area covered by the Rights of Exploration described in Paragraph 2 are referred to herein as the "Project Area". The Project Area is more particularly described in Exhibit B. 4. The Parties desire to: (i) evaluate the Project Area; and (ii) determine whether to negotiate a detailed joint venture agreement, as provided below. 5. Definitions are set forth in Exhibit A. The Project Area is described in Exhibit B. The Rights of Exploration are described in Exhibit C. Exhibits A, B and C are attached to and made a part of this Agreement. THE PARTIES AGREE AS FOLLOWS: 1.0 PURPOSE AND LEGAL EFFECT 1.1 Purpose. This Agreement outlines the key commercial terms and conditions agreed upon whereby BHP and Golden Star may associate themselves for the following purposes: 1.1.1 to conduct a detailed evaluation of Minerals on the Project Area; and 2 1.1.2 to negotiate a joint venture agreement ("JVA") for the creation of a joint venture entity or such other form of entity to evaluate, develop, mine, extract, produce, use, sell and export such Minerals (the Joint Venture). 1.2 Effect. The Joint Venture may affect all or any portion of the Project Area. Until superseded by a JVA, the terms and conditions set forth in this Agreement shall govern the rights and obligations of the Parties. If a JVA is executed, this Agreement shall be superseded. The JVA shall contain the terms set forth in this Agreement and other terms as shall be mutually agreed. The Parties shall in good faith endeavor to cause the JVA to be executed within twenty-four (24) months of the Effective Date. Until such time as a JVA is executed by the Parties, this Agreement shall be binding upon the Parties and Golden Star shall have sufficient rights to protect its minority rights and economic interests under this Agreement, including without limitation: rights protecting Golden Star from related party transactions, matters relating to payments and financing which would materially affect cash flow and other economic benefits running to Golden Star, and matters relating to litigation, disposition of assets, accounting, abandonment of title to the Project Area, and dissolution and liquidation of the Joint Venture. 1.3 Term. The Term of this Agreement shall commence on the Effective Date and shall continue for the term and any extension of the last surviving license, mining lease, or other mineral right held by the Joint Venture, BHP, Golden Star, or Nana within the Project Area, unless earlier terminated as provided in this Agreement. 2.0 GRANT OF RIGHTS 2.1 During the Term of this Agreement, Golden Star grants to BHP access to: (i) the Project Area, and (ii) all geological reports, evaluations, information and data owned by, in its possession or at its disposal and relating to the Project Area. 2.2 The Parties agree during the Term of this Agreement to negotiate exclusively with one another a detailed JVA in connection with the Project Area. 3.0 BHP'S OBLIGATIONS 3.1 During the Term of this Agreement, unless a Party should earlier withdraw from this Agreement as provided in Section 8.0 (WITHDRAWAL AND TERMINATION) or this Agreement should otherwise be terminated as provided herein: 3.1.1 BHP shall reimburse Golden Star, upon execution of this Agreement by both Parties and subject to proof satisfactory to BHP that the Rights of Exploration have been properly registered with the Registrar of Land and Mortgages in Suriname, for all actual Expenditures incurred by Golden Star between January 1, 1996 and the Effective Date on or for the benefit of the South Benzdorp Project; provided however, that such reimbursable Expenditures not exceed $250,000 and that Golden Star shall provide BHP documentary evidence of payment of such Expenditures reasonably satisfactory to BHP; 3.1.2 BHP shall act as Manager and direct all Operations and engage the services of Golden Star pursuant to Section 4.6.2 of this Agreement; 2 3 3.1.3 BHP shall prepare work plans and budgets which the Parties shall review and approve in accordance with Section 4.7 (Owners Council); 3.1.4 The Parties will conduct Operations in the Project Area in a careful and workmanlike manner. 4.0 JOINT VENTURE AGREEMENT 4.1 General. The Parties shall undertake to negotiate in good faith a definitive JVA or such other form of agreement whose purpose is to create a business entity or such other legal structure through which the Parties shall jointly hold all mining rights, mining claims, water rights, surface lands and other rights and entitlements, and conduct Operations. 4.2 Joint Venture Entity. The exact nature of the business entity or legal structure through which BHP and Golden Star shall hold Assets and conduct commercial mining activity pursuant to the JVA shall be jointly determined by the Parties giving due regard to the tax, legal liability and other considerations of each Party, as well as any necessary government approvals. 4.3 Contribution of Assets. Prior to the execution of the JVA, the Party in whose name a license, permit or concession covered by this Agreement has been issued shall hold such license, permit or concession and all other Joint Venture Assets, as applicable, for the benefit of both Parties pursuant to this Agreement. Upon execution of the Joint Venture Agreement, each Party shall, subject to any required governmental approvals, immediately contribute and transfer all Assets it owns or controls in connection with the Project Area to the Joint Venture. 4.4 Participating Interests. 4.4.1 Initial Participating Interests. Upon the Effective Date: (i) BHP shall have a 60% Participating Interest in the Joint Venture and all Assets of the Joint Venture and Golden Star shall have a 40% Participating Interest in the Joint Venture and all Assets of the Joint Venture, and (ii) BHP and Golden Star shall participate jointly in Operations on the basis of their respective Participating Interests, subject however, to the funding obligations of each Party under Section 4.5.1 (Obligations to Fund) and Golden Star's obligation to reimburse BHP for its prorata share of such funding under Section 4.5.2 (Reimbursement). 4.4.2 On the basis of the adopted program and budget and except as otherwise provided in Section 4.6 (Management), the Manager shall submit to each Party prior to the last day of each month a billing for estimated cash requirements for the next month. Within fifteen (15) days after receipt of each billing, each Party shall advance to the Manager its proportionate share of the estimated amount. 4.4.3 For purposes of this Agreement, prior to execution of the JVA, the Parties shall be deemed to have a Joint Venture pursuant to the terms of this Agreement and the term Joint Venture shall refer to and include the respective Participating Interests of each Party in the Project Area and Assets of the Joint Venture, and in connection therewith such Joint Venture Assets held in BHP's name or in Golden Star's name shall be held by such Party for the benefit 3 4 of the Joint Venture. For purposes of clarification, Assets belonging to Golden Star which are used by Golden Star in the performance of services under Section 4.6.2 (excluding such items which may be charged to the Joint Venture as a capital acquisition) shall not be considered to be an Asset of the Joint Venture. 4.4.4 Evidence of Interests. Upon execution of the JVA, BHP and Golden Star shall execute and record in each appropriate official record's office any and all documents and instruments in such form and substance as may be required to evidence or perfect the Participating Interests of the Parties in the Joint Venture and the Joint Venture's interest in all Assets of the Joint Venture within the Project Area, subject to governmental approval in accordance with Section 4.3 (Contribution of Assets). 4.5 Reimbursement and Funding Obligations. 4.5.1 Obligations to Fund. a) Notwithstanding anything contained in Section 4.0 to the contrary, BHP shall advance funds on behalf of Golden Star for approved work plans and budgets from the Effective Date until completion of the Feasibility Study for the First Mine; subject however, to reimbursement of such funds in accordance with Section 4.5.2 (Reimbursement). As soon as the Feasibility Study for the First Mine is completed, then BHP and Golden Star shall each contribute funds to approved work plans and budgets in proportion to their respective Participating Interests. b) Notwithstanding anything contained in Section 4.0 to the contrary, Golden Star shall: (i) make all payments due in respect to the South Benzdorp Project to Nana under the Option Agreement and to the Government of Suriname (excluding any minimum expenditure obligations to be incurred with respect to the South Benzdorp Project and payments to be made pursuant to Section 5 of the Option Agreement) which are required to be made until completion of the Feasibility Study for the First Mine, and (ii) unless previously conducted, conduct, at its own cost, an aeromagnetic and radiometric survey at 250 meter line spacing, over the Project Area or the agreed to configuration; provided however, that BHP shall pay for the mobilization costs of the aircraft conducting such survey. 4.5.2 Reimbursement. a) Upon delivery of the Feasibility Study for the First Mine to Golden Star, Golden Star shall have ninety (90) days in which to elect whether to withdraw from the Joint Venture or to participate in the Joint Venture by giving written notice of such election to BHP. b) If Golden Star elects to withdraw, it shall have no obligation to reimburse BHP for Golden Star's prorata share of Expenditures incurred on behalf of the Joint Venture in connection with the Project Area from the Effective Date to the date of Golden Star's election to withdraw. Upon such withdrawal and subject to Section 8.1, Golden Star shall have no further interests or rights under this Agreement and Golden Star shall thereupon be released and discharged from all liabilities and obligations hereunder. Any withdrawal under this Section 4.5.2, except as otherwise provided herein and in Section 4.6.2, shall not relieve Golden Star of its share of liabilities, including reclamation and other environmental liabilities, 4 5 arising out of Operations conducted prior to withdrawal, except to the extent such liabilities are the direct or indirect result of negligence or willful misconduct by the Manager, in which case Golden Star shall not be held liable. c) If Golden Star elects to participate in the Joint Venture, it shall immediately reimburse BHP forty percent (40%) of all Expenditures incurred on behalf of the Joint Venture from the Effective Date to the date of Golden Star's election to participate; provided however, Golden Star shall receive as a credit against the amount it shall be obligated to reimburse BHP an amount equivalent to sixty percent (60%) of all Expenditures incurred by Golden Star prior to January 1, 1996, in connection with the Project Area and which Expenditures have not otherwise been reimbursed to Golden Star by BHP. 4.5.3 Golden Star and BHP shall each be entitled to an independent audit of the matters covered by any statement of Expenditures, at the expense of the Party requesting the audit, provided that the audit is conducted by an accounting firm of recognized standing. Such accounting firm shall have access, during normal business hours and upon three (3) days prior notice to the other Party, to all books and records necessary or useful to perform its audit. The statement of Expenditures shall be presumed true and correct after the expiration of sixty (60) days after the date furnished, unless within the sixty (60) day period the Party requesting the audit takes written exception, specifying with particularity the items to which exception is taken and the ground for each exception. If the Party requesting the audit in good faith takes written exception as provided herein, then the sixty (60) day period shall be suspended until the objection has been resolved in accordance with Section 10 (DISPUTE RESOLUTION). 4.5.4 If, prior to completion of a Feasibility Study, costs are incurred under Section 4.6.2 at the request of BHP in order to comply with BHP's safety requirements, and such costs are in excess of Golden Star's historical costs for such matters, and provided Golden Star's safety procedures are in compliance with industry standards and the standards imposed by Law, then the cost differential shall be at BHP's sole expense. 4.6 Management. 4.6.1 As long as BHP's Participating Interest in the Joint Venture is equal to or greater than 50%, then BHP shall have the continuing right to act as Manager of Operations. The Manager shall be responsible for the day to day management, conduct and control of the Operations, subject to approved work plans and budgets and the direction of the Owners Council. The Parties shall in good faith negotiate and specify the powers and obligations of the Manager which shall be included in the JVA. 4.6.2 Prior to completion of the Feasibility Study, Golden Star, at the direction of the Manager, shall have the exclusive right and obligation to execute and carry out all approved work plans and budgets and provide a monthly report to the Manager as to the progress and development of Operations. Golden Star shall invoice the Manager monthly, on behalf of the Joint Venture, for costs and expenses incurred, including, without limitation, a fee of 8% of the cost of all work executed in connection with the implementation of approved work plans and budgets; provided however, that this fee shall not be applicable to charges for freight, assays, or third party contractors (subcontractors). A preliminary invoice shall be prepared by Golden 5 6 Star not less than one month in advance of its incurring the expected costs and such invoice shall be paid by BHP monthly in advance of Golden Star incurring the projected costs and expenses, and such costs and expenses shall be adjusted in the month following the month in which they were incurred; provided however, that the 8% fee shall not be invoiced in advance but shall be based on the costs and expenses actually incurred. The purpose of this fee is not to provide Golden Star with a profit, but to allow Golden Star to recover indirect costs incurred in fulfilling its obligations hereunder. As a result, the Parties shall review the fee semi- annually and the fee shall be adjusted semi-annually if the Parties determine it to be insufficient or excessive. Statements of costs shall be accompanied by invoices, receipts or other evidence reasonably satisfactory to BHP which substantiate the costs incurred. BHP and Golden Star shall indemnify, defend, and hold harmless the other Party to this Agreement, its directors, officers, employees, agents, and attorneys from and against any and all losses, claims, damages, and liabilities arising out of any act, omission, or any assumption of liability by the Party providing the indemnification. Golden Star and BHP shall comply with all requirements of all applicable governmental or local law, rule, regulation, or order. 4.6.3 The Manager shall: (i) have the right to second personnel to the South Benzdorp Project, (ii) after consultation with Golden Star, have the right to engage the services of other contractors having special qualifications or technical skills to perform services requiring special qualifications or skills that Golden Star's personnel do not possess or are not readily available, and (iii) provide the Joint Venture quarterly reports (March, June, September, and December), specifying in reasonable detail the results of activities conducted by the Manager to date in the Project Area. 4.6.4 Upon completion of the Feasibility Study, the Manager shall be entitled to charge a management fee of 8% of allowable expenses, as that term shall be defined in the JVA provided however, that this fee shall not be applicable to charges for freight, assays, or third party contractors (subcontractors). The purpose of this fee shall not be to provide the Manager with a profit, but to allow the Manager to recover indirect costs it incurs in fulfilling its obligations as Manager. As a result, the Parties shall review the fee semi-annually and the fee shall be adjusted semi-annually if the Parties determine it to be insufficient or excessive. This management fee shall be considered to be ordinary operating expenses of the Joint Venture. 4.6.5 The Manager shall be deemed to have resigned immediately upon its Participating Interest becoming less than 50% or upon it having become insolvent or bankrupt. 4.7 Owners Council. 4.7.1 All decisions during the Term of this Agreement relating to the conduct of Operations and relating to the Joint Venture (including work plans and budgets for each phase of work undertaken pursuant to this Agreement) shall be made by the Owners Council, a governing body to be appropriately structured to serve the type of business entity chosen for the JVA. Prior to execution of the JVA, the Owners Council shall (i) consist of Adrian Fleming representing Golden Star and Harald Berents representing BHP, or their designees, and (ii) not take any binding decision unless both representatives (or their designees) are present (which may be by telephone). BHP and Golden Star shall have on the Owners Council a number of votes proportionate to their respective or deemed Participating Interest. Prior to execution of 6 7 the JVA by both Parties, the Owners Council shall not approve work programs and budgets which in the aggregate are in excess of Two Hundred Fifty Thousand Dollars ($250,000) for a period of twelve (12) months, except with the unanimous consent of the Parties. Prior to completion of the Feasibility Study, the Parties contemplate that work plans will consist of one or more phases of work, and each phase will be for a period of less than one year. At least thirty (30) days prior to the expiration of an adopted phase of work, a proposed program and budget for the succeeding phase shall be prepared by the Manager and submitted to the Parties. By notice to the Owners Council, within ten (10) days after the final vote adopting a program and budget for a phase of work, a Party may elect to contribute to such program and budget in some lesser amount than its respective Participating Interest, or not at all, in which case its Participating Interest will be diluted on a straight line basis. 4.7.2 All decisions of the Owners Council shall be taken by simple majority vote unless otherwise agreed by the Parties in the JVA for the purpose of protecting minority interests; provided however, all decisions relating to the inclusion of new areas to the Project Area shall be by unanimous decision.. The JVA shall include a provision to be mutually agreed upon which specifies those matters which shall require a super majority vote together with a provision for breaking deadlocks. 4.7.3 The decision to fund and to proceed with development and construction of the First Mine shall be made solely by BHP; provided that such decision shall be made on or before ninety (90) days following completion of the Feasibility Study. Following completion of the Feasibility Study, if a Party (relinquishing Party) elects not to participate in development of the First Mine and the other Party (continuing Party) chooses to fund construction of the entire First Mine in accordance with the Feasibility Study and actually constructs the First Mine, then the relinquishing Party shall have no continuing right or interest to the First Mine and the relinquishing Party may not thereafter participate in the First Mine. 4.7.4 Following completion of the Feasibility Study, the Owners Council shall hold an annual meeting in June of each year, and such additional times as the Parties may provide for in the JVA, in Denver or San Francisco or such other mutually agreed places. Although the Parties contemplate holding meetings to review and approve work plans and budgets for each phase of work undertaken, the Parties do not contemplate holding regular meetings prior to completion of the Feasibility Study. 4.8 Dilution. Should either Party fail to advance funds as required under this Agreement or the JVA, then its Participating Interest shall be diluted on a straight line basis; provided however, if a Party fails within a reasonable period to make a contribution or cash call which it previously committed to make under an approved work plan and budget, it shall be in default and shall be diluted in an accelerated manner to be mutually agreed by the Parties . 4.9 Accounting Procedure. The formal JVA shall contain a detailed accounting procedure setting forth details for all allowable costs and other matters pertinent to a mining venture. 7 8 5.0 REPRESENTATIONS 5.1 Mutual Representations. Each of the Parties represents to the other Parties as follows: 5.1.1 that it is a corporation duly incorporated and in good standing in its state and/or country of incorporation and that it is qualified to do business and is in good standing in those states and/or countries where necessary in order to carry out the purposes of this Agreement; 5.1.2 that it has the right to enter into this Agreement and that all corporate and/or other actions required to authorize it to enter into and perform this Agreement have been properly taken; 5.1.3 that its obligations under this Agreement constitute legal, valid and binding obligations enforceable against it. 5.2 Golden Star's Representations and Covenants. Golden Star represents to BHP that: 5.2.1 upon registration of the Rights of Exploration with the Registrar of Land and Mortgages in Suriname, any and all claims, concessions, mining rights, grants, or other contractual agreements by which Golden Star holds rights included in the Project Area and Golden Star's Assets will be in good standing and full force and effect in accordance with all applicable laws; 5.2.2 Golden Star has the unconditional right and authority to transfer its interest in the Project Area and Golden Star's Assets without the consent or approval of any other Party, subject however to any required governmental approval and subject further to the approval of Nana as provided in the Option Agreement, which approval has been obtained; 5.2.3 there are no pending, or to Golden Star's knowledge no threatened actions, suits, claims or proceedings with respect to the Project Area or Golden Star's Assets; 5.2.4 to the best of Golden Star's knowledge after reasonable inquiry: (i) Golden Star is in compliance in all material respects with all Laws relating to or affecting the Project Area; (ii) no condition or use of the Project Area violates any Law governing land use; (iii) Golden Star has obtained and maintained in full force and effect all material authorizations, licenses, permits, consents, certificates, and orders of any governmental or regulatory body relating to or affecting the Project Area; (iv) the operations of Golden Star, its agents or contractors, on or related to the Project Area have complied in all material respects with and have not resulted in any violation of Law; and (v) the Project Area is free and clear of all liens, charges, encumbrances and/or conflicting claims and rights of any nature and kind whatsoever except for the Option Agreement; 5.2.5 to the best of Golden Star's knowledge after reasonable inquiry: (i) no material spill, discharge, leak, emission, ejection, escape, dumping, or any release or threatened release of any kind, of any toxic or hazardous substance or waste (as defined by any applicable Law) has occurred from, on in or under the Project Area or into the environment, except releases permitted or otherwise authorized by or under such Law; (ii) no toxic or hazardous substance 8 9 or waste has been disposed or is located on the Project Area as a result of activities by Golden Star or Golden Star's predecessors in interest on, at, or related to the Project Area; and (iii) no toxic or hazardous substance or waste has been treated on or is now stored in the Project Area; 5.2.6 until completion of the Feasibility Study, Golden Star covenants to take, or to assist BHP in taking whatever measures are reasonably required, at Golden Star's sole cost, to keep and maintain title to the Project Area, except as otherwise provided herein. 5.3 Law. For the purposes of this Section 5 (REPRESENTATIONS), the term "Law" or "Laws" includes any applicable governmental law, rule, statute, regulation, ordinance, permit or order. 5.4 All representations in this Section 5 shall be true and correct as of the Effective Date and shall survive termination of this Agreement. 6.0 CONFIDENTIALITY AND PUBLIC STATEMENTS 6.1 Any information or data obtained in connection with the performance of this Agreement is confidential and neither Golden Star nor BHP shall make any public statement concerning this Agreement or the activities contemplated thereunder without the prior consent of the other Party, which consent shall not be withheld to the extent the disclosure is required by law or stock exchange rule. The Manager shall be the spokesperson for the Joint Venture. 7.0 TRANSFER OF INTEREST 7.1 Right of First Refusal. Except as provided in Section 7.2 (Exceptions), if BHP or Golden Star at any time wish to and can transfer all or part of their respective rights under this Agreement, the Joint Venture or their ownership interest in the Joint Venture entity or Assets thereof to a third party which is not an Affiliate, the Party wishing to transfer ("Transferor") shall first offer such interest to the other Party ("Non-transferor") on the terms to be offered to or accepted from the third party, with all such terms fully described and including the financial value of any non- cash consideration specified. If the Non-transferor does not elect within sixty (60) days of receiving such offer to accept the same, the Transferor shall be entitled for the next six (6) months to transfer the offered interest to a third party on the same terms without further obligation to the Non-transferor, and if such interest is not transferred within said six (6) month period, the obligation to offer such interest to the Non-transferor shall again be applicable. 7.2 Exceptions. 7.2.1 The right of first refusal shall not apply to transfers to facilitate the granting of security by a Party to a recognized financial institution in connection with its financing of its share of the costs of development and operation of a mine in the Project Area. 7.2.2 A Party may transfer any interest to an Affiliate provided that said Party shall give written notice thereof to the Non-transferor. 9 10 8.0 WITHDRAWAL AND TERMINATION 8.1 Prior to completion of the Feasibility Study, each Party may at any time withdraw from this Agreement by providing at least thirty (30) days prior written notice to the other Party of such withdrawal. Upon such withdrawal, this Agreement shall terminate and the withdrawing Party shall have no further interests or rights under this Agreement and the Parties shall thereupon be released and discharged from all of their respective liabilities and obligations hereunder, except those liabilities and obligations existing on the date of termination; provided however, if BHP withdraws from this Agreement prior to completion of a work plan and budget for a phase of work approved in accordance with Section 4.7.1 prior to the giving of such notice of withdrawal, BHP shall be liable to Golden Star for BHP's prorata share of the incomplete portion of such work and budget; and provided further, the withdrawing Party shall transfer and assign to the other Party free of charge all of its rights and interests in and to the Joint Venture and the Joint Venture Assets, subject however, to any required governmental approval. 8.2 Transfer of Licenses. 8.2.1 Subject to the terms thereof and any applicable laws and regulations, the Party withdrawing pursuant to Section 8.1 shall offer to transfer such license or permit held by it on behalf of the Joint Venture to the other Party free of charge. 8.2.2 In the event that, whether by the operation of law or otherwise, a license or permit cannot be transferred or otherwise disposed of, then the Parties shall negotiate in good faith an agreement upon mutually acceptable terms in which the withdrawing Party shall continue to hold such license or permit for the benefit of the non-withdrawing Party; provided however, that (i) the non-withdrawing Party shall indemnify the withdrawing Party on terms that are satisfactory to the withdrawing Party, and (ii) the withdrawing Party shall not be obligated to incur any additional costs or liabilities for continuing to hold such license or permit, and (iii) the withdrawing Party shall not be obligated to hold such license or permit for a period greater than 24 months following the date of its withdrawal 8.3 Upon the withdrawal of a Party, the withdrawing Party shall turn over to the other Party originals of all factual maps, reports, assay results and other factual data and documentation relating to the Project Area in its possession, without any warranty or representation as to the accuracy, completeness, reliability or usefulness thereof 9.0 GOVERNING LAW 9.1 The formation, interpretation, and performance of this Agreement and the JVA shall be governed by the internal law, but not the conflicts of law rules, of California, except that the laws of Suriname shall apply as to real property and mineral rights issues. Any terms or agreements herein which by their nature may or must be performed or occur after termination of this Agreement shall survive such termination. 10 11 10.0 DISPUTE RESOLUTION 10.1 Matters to be Arbitrated. Any dispute, controversy or claim arising under or in connection with this Agreement, and which cannot be resolved within 60 days of attempted negotiations between the Parties, shall be settled by arbitration in accordance with this Section 10. 10.2 Procedure for Arbitration. 10.2.1 Matters subject to arbitration shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules in effect on the date of this Agreement, which Rules are deemed to be incorporated by reference into this clause. The place of arbitration shall be San Francisco, California, or such other location as may be agreed upon by the Parties. The language of the arbitration shall be English. The arbitration shall be the sole and exclusive forum for resolution of the dispute or controversy and the award shall be final and binding. Judgment thereon may be entered by any court having jurisdiction. 10.2.2 A Party may demand arbitration by delivering a written notice thereof to the other Party setting forth a complete, concise statement of the issue(s) in dispute, the amount involved and the remedy requested. The arbitrators shall render a decision within six (6) months after having been appointed. 10.2.3 The number of arbitrators shall be three (3), each of whom shall be disinterested in the dispute and shall have no connection with any Party. At least two (2) of the arbitrators shall be persons having experience in the minerals industry. Unless the three (3) arbitrators have been appointed by agreement of the Parties within thirty (30) days after the date on which any Party requests the settlement of any dispute by arbitration pursuant to this Section 10, the International Chamber of Commerce shall appoint the three (3) arbitrators referred to above. The appointing authority may appoint from among nationals of any country, whether or not a Party is a national of that country. 10.2.4 The Parties consent that the United States District Court for the Northern District of California shall have non-exclusive jurisdiction with respect to all aspects of the enforcement of the arbitration provisions of this Agreement. 11.0 NOTICES 11.1 All notices to be made or given by a Party hereunder shall be in writing and delivered by mail or by telefax at the following addresses: To Golden Star: Golden Star Resources Ltd. One Norwest Center Suite 1950 Denver, Colorado 80203 Attn.: The Corporate Secretary Facsimile: (303) 830-9092 11 12 BHP: BHP Minerals International Exploration Inc. 550 California Street San Francisco, California 94104 Attention: The Corporate Secretary Facsimile: (1) (415) 774-2092 copy to: Minera BHP de Chile Av. Apoquindo 4499, 12th Floor Las Condes, Santiago, Chile Attention: Manager Exploration Facsimile: (56)(2) 206-5352 A Party may change its address by notice to the other Party. 11.2 All notices shall be given: 11.2.1 by personal delivery (including courier); or 11.2.2 by registered mail, charges prepaid; or 11.2.3 by electronic communication, with a confirmation sent by registered mail. 11.3 All notices shall be effective and shall be deemed received: 11.3.1 if by personal delivery or by registered mail, on the date of delivery if delivered during normal business hours, and if not delivered during normal business hours, on the next business day following delivery; or 11.3.2 if by electronic communication, on the next business day following receipt of the electronic communication. 12.0 RELATIONSHIP OF PARTIES 12.1 The relationship of the Parties under this Agreement is contractual only. This Agreement is not intended to make any Party the employee, agent, partner or legal representative of the other Party, or to create any fiduciary relationship between the Parties. No Party shall have any authority to act for or to assume any obligation or responsibility on behalf of any other Party. 12.2 Each Party may freely engage in and receive full benefits from any business or other activity, whether or not competitive with the Joint Venture or one another, without any obligation whatsoever to the other Party. 12 13 13.0 ENTIRE AGREEMENT 13.1 This Agreement contains the entire understanding and agreement of the Parties with respect to the subject matter of this Agreement and supersedes all prior agreements and understandings as between the Parties. SIGNED FOR AND ON BEHALF OF BHP MINERALS INTERNATIONAL EXPLORATION INC. By:/s/ P. Harman Name: P. Harman Title: Manager Exploration GOLDEN STAR RESOURCES LTD. By:/s/ Adrian W. Fleming Name: Adrian W. Fleming Title: Executive V.P. Exploration 13 14 EXHIBIT A DEFINITIONS For the purposes of this Agreement, the following terms shall have the following meanings assigned to them: "Affiliate" means any person, partnership, joint venture, corporation, or other form of enterprise which directly or indirectly controls, is controlled by, or is under common control with, a Party hereto. For purposes of the preceding sentence, "control" means possession, directly or indirectly, of the power to direct or cause direction of management and policies through ownership of voting securities, contract, voting trust, or otherwise. It is understood and agreed that control of a company can be exercised by another company or companies if such latter company or companies owns shares carrying more than 50% of the votes exercisable at a general meeting (or its equivalent) of the first mentioned company, and a particular company is deemed to be indirectly controlled by a company or companies (the parent company or companies) if a series of companies can be identified beginning with the parent company or companies and ending with the particular company so related that each company of the series except the parent company or companies is directly controlled by one or more of the companies in the series. "Agreement" means this Heads of Agreement including all amendments and modifications thereof, and all schedules and exhibits, which are incorporated herein by this reference. "Assets" means the following: (a) all interests, rights, and privileges (whether absolute or conditional, whether existing or future) in real property, mineral rights, and surface lands falling with the Project Area, including, without limitation, all prospecting and mining licenses, permits, leases, and other entitlements; (b) all Minerals, Product, and materials of commercial value produced or derived from the Project Area under this Agreement; (c) all mines and facilities located on the Project Area together with all equipment used in the Operations; (d) all inventory; all personalty, tangible and intangible, obtained or used by a party in connection with the conduct of Operations, including without limitation all geological data, surveys, assays, analyses and other data or information acquired in the course of Operations. "BHP" means BHP Minerals International Exploration Inc., a corporation duly organized under the laws of the State of Delaware, United States of America or any nominated Affiliate thereof. "Dollars" or "$" means U.S. dollars. "Effective Date" means November _________, 1996. "Expenditures" means any costs incurred by a Party in connection with the Project Area, whether direct or indirect, on or off the Project Area, and for purposes of: (i) prospecting, exploration, 14 15 evaluation, and development of the Project Area; (ii) payments of fees, duties, or other charges or deductions to acquire, maintain or as required by any license, permit, or other documents issued by governmental bodies or other persons granting the right to use mineral resources and surface lands, (iii) all other expenses incurred in connection with the Project Area, prospecting licenses, mining leases, or this Agreement, including expenses for all permits and documents issued by the Government of Suriname or its authorized agent, environmental and other studies, charges incurred for site preparation, engineering, surveying, permits, equipment rental, third-party contractor services, construction of roads, costs of equipment and supplies, labor costs, legal fees, all fees and mark ups payable to Golden Star under any consulting agreement with BHP, and all direct salary and field expenses of exploration personnel, transportation costs, and (iv) any Feasibility Study. "Feasibility Study" means a comprehensive description of the construction, development, mining, processing, and marketing plan for the First Mine within the Project Area in such form and detail as is normally required by a financial institution familiar with mining for the purposes of project financing. The Feasibility Study shall include the confirmation of reserves by the conduct of detailed drilling works, hydrological and geotechnical works, environmental studies (including an environmental impact study, if required under Law), and the mining of one or more bulk samples of ore for metallurgical studies which may require the construction of one or more shafts, the construction of an incline, or works associated with a trial mine. The Feasibility Study shall contain estimates of both capital and operating costs and shall analyze how to proceed with mining operations to economically and commercially extract the target mineral(s), identify the optimum structure for the mining venture, and include reference to relevant marketing and financial aspects. "First Mine" means the first mine to be developed by the Parties pursuant to the Feasibility Study and which can be developed as a stand-alone mine. "Golden Star" means Golden Star Resources Ltd., a corporation amalgamated under the laws of Canada, or any nominated Affiliate thereof. "Joint Venture Agreement" or "JVA" means the formal agreement which will detail the basis upon which the Parties shall mutually evaluate, develop, mine, extract, produce, use, sell and export of Minerals and associated mineral resources and, accordingly, hold all mining rights, mining claims, water rights, surface lands, licenses and permits. "Law" or "Laws" means any applicable governmental law, rule, statute, regulation, ordinance, permit or order. "Manager" means the person or entity with overall management responsibility for this Agreement and the JVA. The Manager shall be bestowed with power sufficient to undertake, manage, direct and control all day to day activities and decisions reasonably necessary to fulfill the purposes of the JVA, and such activities shall be performed in accordance with international mining industry practice and the terms of this Agreement. The Manager shall consult with each non- managing Party in planning and executing each work plan and budget, including that for producing the Feasibility Study. The Manager's powers shall be subject always to the overriding authority of the Owners Council. The JVA or a separate management agreement will specify with more particularity the Manager's responsibilities, rights and obligations. 15 16 "Minerals" means all gold bearing ores, precious minerals, base minerals, and all associated minerals on or within the Project Area, specifically excluding diamonds and iron ore. "Operations" means all activities carried out in connection with the Project Area under this Agreement, including, without limitation, prospecting, exploration, the development of a mine, the mining, extraction, treatment, storage and processing of Minerals, marketing of Product, the acquisition or construction of any improvements, personalty, fixtures or equipment reasonably necessary therefor, and any other activities or operations related to or necessary for exploration, development and mining in the Project Area. "Owners Council" means the governing body described in Section 4.7 (Owners Council). "Participating Interest" means an undivided ownership interest held by Golden Star or BHP in the Joint Venture, the Assets contributed thereto and the business entity or other legal entity created thereunder which entitles the holder to that share of the Joint Venture entity and its Assets and profits and Product thereof and which requires the holder to contribute to that share of the costs and expenses of the development and operations thereof. "Party" or "Parties" means BHP and/or Golden Star, or their successors in interest. "Product" or "Products" means all Minerals and materials of commercial value produced or derived from the Project Area under this Agreement. "Project Area" means those lands more particularly described in Section 1.1 and in Exhibit B attached hereto. "Term" shall have the meaning ascribed to it in Section 1.3 (Term). 16 17 EXHIBIT B PROJECT AREA The Project Area, being commonly referred to as the South Benzdorp Project, is that area covered by those two (2) certain Rights of Exploration attached hereto as Exhibit C. 17 18 EXHIBIT C RIGHTS OF EXPLORATION (See maps attached to original document) 18 EX-10.29 9 HEADS OF AGREEMENT 8-19-96 1 EXHIBIT 10.29 HEADS OF AGREEMENT (SURINAME RECONNAISSANCE PROJECT) THIS HEADS OF AGREEMENT ("Agreement") is made effective this 19th day of August, 1996 ("Effective Date") by and between BHP MINERALS INTERNATIONAL EXPLORATION INC, a Delaware corporation with an address at 550 California Street, San Francisco, California 94104 USA ("BHP") and GOLDEN STAR RESOURCES LTD., a corporation amalgamated under the laws of Canada ("Golden Star"), with an address at One Norwest Center, Suite 1950, Denver, Colorado 80203. INTRODUCTION 1. The Parties envisage that they will make one or more applications to the Minister of Mines of Suriname for licenses, permits, and other mineral concessions (collectively referred to herein as tenements), and that such tenements and the area covered thereunder will, by mutual agreement, be made subject to this Agreement. This project is commonly referred to as the Suriname Reconnaissance Project. 2. The area covered by such tenements are referred to herein as the "Project Area". The Project Area will be amended from time to time to incorporate or relinquish those areas covered by tenements which the Parties determine, by mutual agreement, to include or exclude from the terms of this Agreement. The Parties agree to include as part of the Project Area those areas described in Exhibit B which are to be covered by the applications to be filed shortly with the Minister of Mines. The Project Area is more particularly described in Exhibit B, which Exhibit will be amended from time to time. The tenements located in Suriname in which the Parties currently have an interest and which are specifically excluded from this Agreement are attached hereto as Exhibit B-1. 3. The Parties desire the mutually exclusive right to: (i) determine whether to proceed under the terms of this Agreement for the purpose of evaluating the Project Area; and (ii) determine whether to negotiate a detailed joint venture agreement, as provided below. 4. Definitions are set forth in Exhibit A. The Project Area is described in Exhibit B. Exhibits A and B are attached to and made a part of this Agreement. THE PARTIES AGREE AS FOLLOWS: 1.0 PURPOSE AND LEGAL EFFECT 1.1 Purpose. This Agreement outlines the key commercial terms and conditions agreed upon whereby BHP and Golden Star may associate themselves for the following purposes: 1.1.1 to conduct a detailed evaluation of Minerals on the Project Area; and -1- 2 1.1.2 to negotiate a joint venture agreement ("JVA") for the creation of a joint venture entity or such other form of entity to evaluate, develop, mine, extract, produce, use, sell and export such Minerals (the Joint Venture). 1.2 Effect. The Joint Venture may affect all or any portion of the Project Area. Until superseded by a JVA, the terms and conditions set forth in this Agreement shall govern the rights and obligations of the Parties. If a JVA is executed, this Agreement shall be superseded. The JVA shall contain the terms set forth in this Agreement and other terms as shall be mutually agreed. The Parties shall in good faith endeavor to cause the JVA to be executed within twenty-four (24) months of the Effective Date. Until such time as a JVA is executed by the Parties, this Agreement shall be binding upon the Parties; provided however, that Golden Star shall have sufficient rights to protect its minority rights and economic interests under this Agreement, including without limitation: rights protecting Golden Star from related party transactions, matters relating to payments and financing which would materially affect cash flow and other economic benefits running to Golden Star, and matters relating to litigation, disposition of assets, accounting, abandonment of title to the Project Area, and dissolution and liquidation of the Joint Venture. 1.3 Term. The Term of this Agreement shall commence on the Effective Date and shall continue for the term and any extension of the last surviving license, mining lease, or other mineral right held by the Joint Venture, BHP, or Golden Star within the Project Area, unless earlier terminated as provide in this Agreement. 2.0 GRANT OF RIGHTS 2.1 During the Term of this Agreement, each Party grants to the other Party, as applicable, access to: (i) the Project Area, and (ii) all geological reports, evaluations, information and data owned by, in its possession or at its disposal and relating to the Project Area. 2.2 The Parties agree during the Term of this Agreement to negotiate exclusively with one another a detailed JVA in connection with the Project Area. 3.0 BHP'S OBLIGATIONS 3.1 During the Term of this Agreement, unless a Party should earlier withdraw from this Agreement as provided in Section 8.0 (WITHDRAWAL AND TERMINATION) or this Agreement should otherwise be terminated as provided herein: 3.1.1 BHP shall reimburse Golden Star, upon execution of this Agreement by both Parties, for all actual Expenditures incurred as of the Effective Date by Golden Star on or for the benefit of the Suriname Reconnaissance Project; provided however, that such reimbursable Expenditures not exceed $50,000 and that Golden Star shall provide BHP documentary evidence of payment of such Expenditures reasonably satisfactory to BHP; 3.1.2 BHP shall act as Manager and direct all Operations and engage the services of Golden Star pursuant to Section 4.6.2 of this Agreement; 3.1.3 The Manager shall prepare work plans and budgets which the Parties shall review and approve in accordance with Section 4.7 (Owners Council); -2- 3 3.1.4 The Parties will conduct Operations in the Project Area in a careful and workmanlike manner. 4.0 JOINT VENTURE AGREEMENT 4.1 General. The Parties shall undertake to negotiate in good faith a definitive JVA or such other form of agreement whose purpose is to create a business entity or such other legal structure through which the Parties shall jointly hold all mining rights, mining claims, water rights, surface lands and other rights and entitlements, and conduct Operations. 4.2 Joint Venture Entity. The exact nature of the business entity or legal structure through which BHP and Golden Star shall hold Assets and conduct commercial mining activity pursuant to the JVA shall be jointly determined by the Parties giving due regard to the tax, legal liability and other considerations of each Party, as well as any necessary government approvals. 4.3 Contribution of Assets. Prior to the execution of the Joint Venture Agreement, the Party in whose name a license, permit or concession covered by this Agreement has been issued shall hold such license, permit or concession and all other Joint Venture Assets, as applicable, for the benefit of both Parties pursuant to this Agreement. Upon execution of the Joint Venture Agreement, each Party shall, subject to any required governmental approvals, immediately contribute and transfer all Assets it owns or controls in connection with the Project Area to the Joint Venture. 4.4 Participating Interests. 4.4.1 Initial Participating Interests. Upon the Effective Date: (i) BHP shall have a 60% Participating Interest in the Joint Venture and all Assets of the Joint Venture and Golden Star shall have a 40% Participating Interest in the Joint Venture and all Assets of the Joint Venture, and (ii) BHP and Golden Star shall participate jointly in Operations on the basis of their respective Participating Interests. On the basis of the adopted program and budget and except as otherwise provided in Section 4.6 (Management), the Manager shall submit to each Party prior to the last day of each month a billing for estimated cash requirements for the next month. Within fifteen (15) days after receipt of each billing, each Party shall advance to the Manager its proportionate share of the estimated amount. 4.4.2 For purposes of this Agreement, prior to execution of the JVA, the Parties shall be deemed to have a Joint Venture pursuant to the terms of this Agreement and the term Joint Venture shall refer to and include the respective Participating Interests of each Party in the Project Area and Assets of the Joint Venture, and in connection therewith such Joint Venture Assets held in BHP's name or in Golden Star's name shall be held by such Party for the benefit of the Joint Venture. For purposes of clarification, Assets belonging to Golden Star which are used by Golden Star in the performance of services under Section 4.6.2 (excluding such items which may be charged to the Joint Venture as a capital acquisition) shall not be considered to be an Asset of the Joint Venture. 4.4.3 Evidence of Interests. Upon execution of the JVA, BHP and Golden Star shall execute and record in each appropriate official record's office any and all documents and instruments in such form and substance as may be required to evidence or perfect the Participating Interests of the Parties in the Joint Venture and the Joint Venture's interest in all Assets of the Joint -3- 4 Venture within the Project Area, subject to governmental approval in accordance with Section 4.3 (Contribution of Assets). 4.5 Financing Obligations. If, prior to completion of a Feasibility Study, costs are incurred under Section 4.6.2 at the request of BHP in order to comply with BHP's safety requirements, and such costs are in excess of Golden Star's historical costs for such matters, and provided Golden Star's safety procedures are in compliance with industry standards and the standards imposed by Law, then the cost differential shall be at BHP's sole expense. 4.6 Management. 4.6.1 As long as BHP's Participating Interest in the Joint Venture is equal to or greater than 50%, then BHP shall have the continuing right to act as Manager of Operations. The Manager shall be responsible for the day to day management, conduct and control of the Operations, subject to approved work plans and budgets and the direction of the Owners Council. The Parties shall in good faith negotiate and specify the powers and obligations of the Manager which shall be included in the JVA. 4.6.2 Prior to completion of the Feasibility Study, Golden Star, at the direction of the Manager, shall have the exclusive right and obligation to execute and carry out all approved work plans and budgets and provide a monthly report to the Manager as to the progress and development of Operations. Golden Star shall invoice the Manager monthly, on behalf of the Joint Venture, for costs and expenses incurred, including, without limitation, a fee of 8% of the cost of all work executed in connection with the implementation of approved work plans and budgets; provided however, that this fee shall not be applicable to charges for freight, assays, or third party contractors (subcontractors). A preliminary invoice shall be prepared by Golden Star not less than one month in advance of its incurring the expected costs and such invoice shall be paid by BHP monthly in advance of Golden Star incurring the projected costs and expenses, and such costs and expenses shall be adjusted in the month following the month in which they were incurred; provided however, that the 8% fee shall not be invoiced in advance but shall be based on the costs and expenses actually incurred. The purpose of this fee is not to provide Golden Star with a profit, but to allow Golden Star to recover indirect costs incurred in fulfilling its obligations hereunder. As a result, the Parties shall review the fee semi-annually and the fee shall be adjusted semi-annually if the Parties determine it to be insufficient or excessive. Statements of costs shall be accompanied by invoices, receipts or other evidence reasonably satisfactory to BHP which substantiate the costs incurred. BHP and Golden Star shall indemnify, defend, and hold harmless the other Party to this Agreement, its directors, officers, employees, agents, and attorneys from and against any and all losses, claims, damages, and liabilities arising out of any act, omission, or any assumption of liability by the Party providing the indemnification. Golden Star and BHP shall comply with all requirements of all applicable governmental or local law, rule, regulation, or order. 4.6.3 The Manager shall: (i) have the right to second personnel to the Suriname Reconnaissance Project, (ii) after consultation with Golden Star, have the right to engage the services of other contractors having special qualifications or technical skills to perform services requiring special qualifications or skills that Golden Star's personnel do not possess or are not -4- 5 readily available, and (iii) provide the Parties quarterly reports (March, June, September, and December), specifying in reasonable detail the results of activities conducted by the Manager to date in the Project Area. 4.6.4 Upon completion of the Feasibility Study, the Manager shall be entitled to charge a management fee of 8% of allowable expenses, as that term shall be defined in the JVA provided however, that this fee shall not be applicable to charges for freight, assays, or third party contractors (subcontractors). The purpose of this fee shall not be to provide the Manager with a profit, but to allow the Manager to recover indirect costs it incurs in fulfilling its obligations as Manager. As a result, the Parties shall review the fee semi-annually and the fee shall be adjusted semi-annually if the Parties determine it to be insufficient or excessive. This management fee shall be considered to be ordinary operating expenses of the Joint Venture. 4.6.5 The Manager shall be deemed to have resigned immediately upon its Participating Interest becoming less than 50% or upon it having become insolvent or bankrupt. 4.7 Owners Council. 4.7.1 All decisions during the Term of this Agreement relating to the conduct of Operations and relating to the Joint Venture (including work plans and budgets for each phase of work undertaken pursuant to this Agreement) shall be made by the Owners Council. Prior to execution of the JVA, the Owners Council shall (i) consist of Adrian Fleming representing Golden Star and Harald Berents representing BHP, or their designees, and (ii) not take any binding decision unless both representatives (or their designees) are present (which may be by telephone). BHP and Golden Star shall have on the Owners Council a number of votes proportionate to their respective or deemed Participating Interest. Prior to execution of the JVA by both Parties, the Owners Council shall not approve work programs and budgets which in the aggregate would be in excess of One Million Five Hundred Thousand Dollars ($1,500,000) for a period of twelve (12) months, except with the unanimous consent of the Parties. Prior to completion of the Feasibility Study, the Parties contemplate that work programs will consist of one or more phases of work, and each phase will be for a period of less than one year. At least thirty (30) days prior to the expiration of an adopted phase of work, a proposed program and budget for the succeeding phase shall be prepared by the Manager and submitted to the Parties. By notice to the Owners Council, within ten (10) days after the final vote adopting a program and budget for a phase of work, a Party may elect to contribute to such program and budget in some lesser amount than its respective Participating Interest, or not at all, in which case its Participating Interest will be diluted on a straight line basis. 4.7.2 All decisions of the Owners Council shall be taken by simple majority vote unless otherwise agreed by the Parties for the purpose of protecting minority interests; provided however, all decisions relating to the inclusion of new areas to the Project Area shall be by unanimous decision. The JVA shall include a provision to be mutually agreed upon which specifies those matters which shall require a super majority vote together with a provision for breaking deadlocks. 4.7.3 The decision to fund and to proceed with development and construction of the First Mine shall be made solely by BHP; provided that such decision shall be made on or before ninety (90) days following completion of the Feasibility Study. Following completion of the -5- 6 Feasibility Study, if a Party (relinquishing Party) elects not to participate in development of the First Mine and the other Party (continuing Party) chooses to fund construction of the entire First Mine in accordance with the Feasibility Study and actually constructs the First Mine, then the relinquishing Party shall have no continuing right or interest to the First Mine and the relinquishing Party may not thereafter participate in the First Mine. 4.7.4 Following completion of the Feasibility Study, the Owners Council shall hold an annual meeting in June of each year, and such additional times as the Parties may provide for in the JVA, in Denver or San Francisco or such other mutually agreed places. Although the Parties contemplate holding meetings to review and approve work plans and budgets for each phase of work undertaken, the Parties do not contemplate holding regular meetings prior to completion of the Feasibility Study. 4.8 Dilution. Should either Party fail to advance funds as required under this Agreement or the JVA, then its Participating Interest shall be diluted on a straight line basis; provided however, if a Party fails within a reasonable period to make a contribution or cash call which it previously committed to make under an approved work plan and budget, it shall be in default and shall be diluted in an accelerated manner to be mutually agreed by the Parties . 4.9 Accounting Procedure. The formal JVA shall contain a detailed accounting procedure setting forth details for all allowable costs and other matters pertinent to a mining venture. 5.0 REPRESENTATIONS 5.1 Mutual Representations. Each of the Parties represents to the other Parties as follows: 5.1.1 that it is a corporation duly incorporated and in good standing in its state and/or country of incorporation and that it is qualified to do business and is in good standing in those states and/or countries where necessary in order to carry out the purposes of this Agreement; 5.1.2 that it has the right to enter into this Agreement and that all corporate and/or other actions required to authorize it to enter into and perform this Agreement have been properly taken; 5.1.3 that its obligations under this Agreement constitute legal, valid and binding obligations enforceable against it. 5.2 All representations in this Section 5 shall be true and correct as of the Effective Date and shall survive termination of this Agreement. 6.0 CONFIDENTIALITY AND PUBLIC STATEMENTS 6.1 Any information or data obtained in connection with the performance of this Agreement is confidential and neither Golden Star nor BHP shall make any public statement concerning this Agreement or the activities contemplated thereunder without the prior consent of the other Party, which consent shall not be withheld to the extent the disclosure is required by law or stock exchange rule. The Manager shall be the spokesperson for the Joint Venture. -6- 7 7.0 TRANSFER OF INTEREST 7.1 Right of First Refusal. Except as provided in Section 7.2 (Exceptions), if BHP or Golden Star at any time wish to and can transfer all or part of their respective rights under this Agreement, the Joint Venture or their ownership interest in the Joint Venture entity or Assets thereof to a third party which is not an Affiliate, the Party wishing to transfer ("Transferor") shall first offer such interest to the other Party ("Non-transferor") on the terms to be offered to or accepted from the third party, with all such terms fully described and including the financial value of any non- cash consideration specified. If the Non-transferor does not elect within sixty (60) days of receiving such offer to accept the same, the Transferor shall be entitled for the next six (6) months to transfer the offered interest to a third party on the same terms without further obligation to the Non-transferor, and if such interest is not transferred within said six (6) month period, the obligation to offer such interest to the Non-transferor shall again be applicable. 7.2 Exceptions. 7.2.1 The right of first refusal shall not apply to transfers to facilitate the granting of security by a Party to a recognized financial institution in connection with its financing of its share of the costs of development and operation of a mine in the Project Area. 7.2.2 A Party may transfer any interest to an Affiliate provided that said Party shall give written notice thereof to the Non-transferor. 8.0 WITHDRAWAL AND TERMINATION 8.1 Prior to completion of the Feasibility Study, each Party may at any time withdraw from this Agreement by providing at least 30 days prior written notice to the other Party of such withdrawal. Upon such withdrawal, this Agreement shall terminate and the withdrawing Party shall have no further interests or rights under this Agreement and the Parties shall thereupon be released and discharged from all of their respective liabilities and obligations hereunder, except those liabilities and obligations existing on the date of termination; provided however, if a Party withdraws from this Agreement prior to completion of a work program and budget for a phase of work approved in accordance with Section 4.7.1 prior to the giving of such notice of withdrawal, the withdrawing Party shall be liable to the other Party for its prorata share of the incomplete portion of such work and budget; and provided further, the withdrawing Party shall transfer and assign to the other Party free of charge all of its rights and interests in and to the Joint Venture and the Joint Venture Assets, subject however, to any required governmental approval. 8.2 Transfer of Licenses. 8.2.1 Subject to the terms thereof and any applicable laws and regulations, the Party withdrawing pursuant to Section 8.1 shall offer to transfer such license or permit held by it on behalf of the Joint Venture to the other Party free of charge. 8.2.2 In the event that, whether by the operation of law or otherwise, a license or permit cannot be transferred or otherwise disposed of, then the Parties shall negotiate in good faith an agreement upon mutually acceptable terms in which the withdrawing Party shall continue to hold such license or permit for the benefit of the non-withdrawing Party; provided however, that (i) the non-withdrawing Party shall indemnify the withdrawing Party on terms that are -7- 8 satisfactory to the withdrawing Party, and (ii) the withdrawing Party shall not be obligated to incur any additional costs or liabilities for continuing to hold such license or permit, and (iii) the withdrawing Party shall not be obligated to hold such license or permit for a period greater than 24 months following the date of its withdrawal. 8.3 Upon the withdrawal of a Party, the withdrawing Party shall turn over to the other Party originals of all factual maps, reports, assay results and other factual data and documentation relating to the Project Area in its possession, without any warranty or representation as to the accuracy, completeness, reliability or usefulness thereof 9.0 GOVERNING LAW 9.1 The formation, interpretation, and performance of this Agreement and the JVA shall be governed by the internal law, but not the conflicts of law rules, of California, except that the laws of Suriname shall apply as to real property and mineral rights issues. Any terms or agreements herein which by their nature may or must be performed or occur after termination of this Agreement shall survive such termination. 10.0 DISPUTE RESOLUTION 10.1 Matters to be Arbitrated. Any dispute, controversy or claim arising under or in connection with this Agreement, and which cannot be resolved within 60 days of attempted negotiations between the Parties, shall be settled by arbitration in accordance with this Section 10. 10.2 Procedure for Arbitration. 10.2.1 Matters subject to arbitration shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules in effect on the date of this Agreement, which Rules are deemed to be incorporated by reference into this clause. The place of arbitration shall be San Francisco, California, or such other location as may be agreed upon by the Parties. The language of the arbitration shall be English. The arbitration shall be the sole and exclusive forum for resolution of the dispute or controversy and the award shall be final and binding. Judgment thereon may be entered by any court having jurisdiction. 10.2.2 A Party may demand arbitration by delivering a written notice thereof to the other Party setting forth a complete, concise statement of the issue(s) in dispute, the amount involved and the remedy requested. The arbitrators shall render a decision within six (6) months after having been appointed. 10.2.3 The number of arbitrators shall be three (3), each of whom shall be disinterested in the dispute and shall have no connection with any Party. At least two (2) of the arbitrators shall be persons having experience in the minerals industry. Unless the three (3) arbitrators have been appointed by agreement of the Parties within thirty (30) days after the date on which any Party requests the settlement of any dispute by arbitration pursuant to this Section 10, the International Chamber of Commerce shall appoint the three (3) arbitrators referred to above. The appointing authority may appoint from among nationals of any country, whether or not a Party is a national of that country. -8- 9 10.2.4 The Parties consent that the United States District Court for the Northern District of California shall have non-exclusive jurisdiction with respect to all aspects of the enforcement of the arbitration provisions of this Agreement. 11.0 NOTICES 11.1 All notices to be made or given by a Party hereunder shall be in writing and delivered by mail or by telefax at the following addresses: To Golden Star: Golden Star Resources Ltd. One Norwest Center Suite 1950 Denver, Colorado 80203 Attn.: The Corporate Secretary FAX: (303) 830-9092 BHP: BHP Minerals International Exploration Inc. 550 California Street San Francisco, California 94104 Attention: The Corporate Secretary Facsimile: (1) (415) 774-2092 copy to: Minera BHP de Chile Av. Apoquindo 4499, 12th Floor Las Condes, Santiago, Chile Attention: Manager Exploration Facsimile: (56)(2) 206-5352 A Party may change its address by notice to the other Party. 11.2 All notices shall be given: 11.2.1 by personal delivery (including courier); or 11.2.2 by registered mail, charges prepaid; or 11.2.3 by electronic communication, with a confirmation sent by registered mail. 11.3 All notices shall be effective and shall be deemed received: 11.3.1 if by personal delivery or by registered mail, on the date of delivery if delivered during normal business hours, and if not delivered during normal business hours, on the next business day following delivery; or -9- 10 11.3.2 if by electronic communication, on the next business day following receipt of the electronic communication. 12.0 RELATIONSHIP OF PARTIES 12.1 The relationship of the Parties under this Agreement is contractual only. This Agreement is not intended to make any Party the employee, agent, partner or legal representative of the other Party, or to create any fiduciary relationship between the Parties. No Party shall have any authority to act for or to assume any obligation or responsibility on behalf of any other Party. 12.2 Each Party may freely engage in and receive full benefits from any business or other activity, whether or not competitive with the Joint Venture or one another, without any obligation whatsoever to the other Party. 13.0 ENTIRE AGREEMENT 13.1 This Agreement contains the entire understanding and agreement of the Parties with respect to the subject matter of this Agreement and supersedes all prior agreements and understandings as between the Parties. SIGNED FOR AND ON BEHALF OF BHP MINERALS INTERNATIONAL EXPLORATION INC. By: /s/ P. Harman Name: P. Harman Title: Manager Exploration GOLDEN STAR RESOURCES LTD. By: /s/ Adrian W. Fleming Name: Adrian W. Fleming Title: Executive V.P. Exploration -10- 11 EXHIBIT A DEFINITIONS For the purposes of this Agreement, the following terms shall have the following meanings assigned to them: "Affiliate" means any person, partnership, joint venture, corporation, or other form of enterprise which directly or indirectly controls, is controlled by, or is under common control with, a Party hereto. For purposes of the preceding sentence, "control" means possession, directly or indirectly, of the power to direct or cause direction of management and policies through ownership of voting securities, contract, voting trust, or otherwise. It is understood and agreed that control of a company can be exercised by another company or companies if such latter company or companies owns shares carrying more than 50% of the votes exercisable at a general meeting (or its equivalent) of the first mentioned company, and a particular company is deemed to be indirectly controlled by a company or companies (the parent company or companies) if a series of companies can be identified beginning with the parent company or companies and ending with the particular company so related that each company of the series except the parent company or companies is directly controlled by one or more of the companies in the series. "Agreement" means this Heads of Agreement including all amendments and modifications thereof, and all schedules and exhibits, which are incorporated herein by this reference. "Assets" means the following: (a) all interests, rights, and privileges (whether absolute or conditional, whether existing or future) in real property, mineral rights, and surface lands falling with the Project Area, including, without limitation, all prospecting and mining licenses, permits, leases, and other entitlements; (b) all Minerals, Product, and materials of commercial value produced or derived from the Project Area under this Agreement; (c) all mines and facilities located on the Project Area together with all equipment used in the Operations; (d) all inventory; all personalty, tangible and intangible, obtained or used by a party in connection with the conduct of Operations, including without limitation all geological data, surveys, assays, analyses and other data or information acquired in the course of Operations. "BHP" means BHP Minerals International Exploration Inc., a corporation duly organized under the laws of the State of Delaware, United States of America or any nominated Affiliate thereof. "Dollars" or "$" means U.S. dollars. "Effective Date" means August 19, 1996. "Expenditures" means any costs incurred by a Party in connection with the Project Area, whether direct or indirect, on or off the Project Area, and for purposes of: (i) prospecting, exploration, evaluation, and development of the Project Area; (ii) payments of fees, duties, or other charges or -11- 12 deductions to acquire, maintain or as required by any license, permit, or other documents issued by governmental bodies or other persons granting the right to use mineral resources and surface lands, (iii) all other expenses incurred in connection with the Project Area, prospecting licenses, mining leases, or this Agreement, including expenses for all permits and documents issued by the Government of Suriname or its authorized agent, environmental and other studies, charges incurred for site preparation, engineering, surveying, permits, equipment rental, third-party contractor services, construction of roads, costs of equipment and supplies, labor costs, legal fees, all fees and mark ups payable to Golden Star under any consulting agreement with BHP, and all direct salary and field expenses of exploration personnel, transportation costs, and (iv) any Feasibility Study. Notwithstanding anything contained herein to the contrary, during the Initial Term Expenditures shall not include costs incurred by BHP to keep and maintain title to the Project Area. "Feasibility Study" means a comprehensive description of the construction, development, mining, processing, and marketing plan for the First Mine within the Project Area in such form and detail as is normally required by a financial institution familiar with mining for the purposes of project financing. The Feasibility Study shall include the confirmation of reserves by the conduct of detailed drilling works, hydrological and geotechnical works, environmental studies, and the mining of one or more bulk samples of diamonds or ore for metallurgical studies which may require the construction of one or more shafts, the construction of an incline, or works associated with a trial mine. The Feasibility Study shall contain estimates of both capital and operating costs and shall analyze how to proceed with mining operations to economically and commercially extract the target mineral(s), identify the optimum structure for the mining venture, and include reference to relevant marketing and financial aspects. "First Mine" means the first mine to be developed by the Parties pursuant to the Feasibility Study and which can be developed as a stand-alone mine. "Golden Star" means Golden Star Resources Ltd., a corporation amalgamated under the laws of Canada, or any nominated Affiliate thereof. "Joint Venture Agreement" or "JVA" means the formal agreement which will detail the basis upon which the Parties shall mutually evaluate, develop, mine, extract, produce, use, sell and export of Minerals and associated mineral resources and, accordingly, hold all mining rights, mining claims, water rights, surface lands, licenses and permits. "Law" or "Laws" means any applicable governmental law, rule, statute, regulation, ordinance, permit or order. "Manager" means the person or entity with overall management responsibility for this Agreement and the JVA. The Manager shall be bestowed with power sufficient to undertake, manage, direct and control all day to day activities and decisions reasonably necessary to fulfill the purposes of the JVA, and such activities shall be performed in accordance with international mining industry practice and the terms of this Agreement. The Manager shall consult with each non- managing Party in planning and executing each work plan and budget, including that for producing the Feasibility Study. The Manager's powers shall be subject always to the overriding authority of the Owners Council. The JVA or a separate management agreement will specify with more particularity the Manager's responsibilities, rights and obligations. "Minerals" means all gold bearing ores, precious minerals, base minerals, and all associated minerals on or within the Project Area, specifically excluding diamonds and iron ore. The Parties intend that as -12- 13 between them, BHP reserves unto itself and shall have exclusive rights to all iron ore and Golden Star reserves unto itself and shall have exclusive rights to all diamonds within the Project Area. "Operations" means all activities carried out in connection with the Project Area under this Agreement, including, without limitation, prospecting, exploration, the development of a mine, the mining, extraction, treatment, storage and processing of Minerals, marketing of Product, the acquisition or construction of any improvements, personalty, fixtures or equipment reasonably necessary therefor, and any other activities or operations related to or necessary for exploration, development and mining in the Project Area. "Owners Council" means the governing body described in Section 4.7 (Owners Council). "Participating Interest" means an undivided ownership interest held by Golden Star or BHP in the Joint Venture, the Assets contributed thereto and the business entity or other legal entity created thereunder which entitles the holder to that share of the Joint Venture entity and its Assets and profits and Product thereof and which requires the holder to contribute to that share of the costs and expenses of the development and operations thereof. "Party" or "Parties" means BHP and/or Golden Star, or their successors in interest. "Product" or "Products" means all Minerals and materials of commercial value produced or derived from the Project Area under this Agreement. "Project Area" means those lands more particularly described in Section 1.1 and in Exhibit B attached hereto. "Term" shall have the meaning ascribed to it in Section 1.3 (Term). -13- 14 EXHIBIT B PROJECT AREA The Project Area, being commonly referred to as the Suriname Reconnaissance Project, is generally depicted in the maps attached hereto as Exhibit B-2 and is described as follows: The areas being prepared for application of a Right of Reconnaissance are
AREA "A" - -------- The area enclosed within the following defined points: 1) Western boundary defined by Corantijn River and points a) 57 16 23 W 5 55 44 N b) 56 85 47 W 5 55 46 N c) 56 85 62 W 5 12 22 N d) 57 21 45 W 5 12 21 N, and 2) the North, East and West boundaries defined by the Corantijn River and points a) 57 23 29 W 5 12 21 N b) 57 29 30 W 5 12 22 N AREA "B' - -------- The area enclosed within the following 4 points: a) 56 85 47 W 5 55 46 N b) 56 47 69 W 5 55 47 N c) 56 47 60 W 5 12 83 N d) 56 85 62 W 5 12 22 N AREA "C" - -------- The area enclosed within the following 4 points: a) 56 47 69 W 5 55 47 N b) 56 18 68 W 5 55 46 N c) 55 91 56 W 5 19 50 N d) 56 47 55 W 5 19 28 N AREA "D" - -------- The area enclosed within the following 3 points: a) 56 47 69 W 5 19 28 N b) 56 91 56 W 5 19 50 N c) 56 47 52 W 4 61 17 N
-14- 15
AREA "E' - -------- The area enclosed within the following 4 points: a) 56 85 00 W 5 12 22 N b) 56 47 69 W 5 12 83 N c) 56 47 53 W 4 68 84 N d) 56 84 86 W 4 69 04 N AREA "F" - -------- The area enclosed within the following 8 points: a) 56 97 66 W 4 81 92 N b) from Point "a" to Point "c" following the Road c) 56 84 91 W 4 84 18 N d) 56 84 86 W 4 69 04 N e) 56 47 53 W 4 68 84 N f) 56 47 52 W 4 61 17 N g) 56 84 83 W 4 22 25 N h) 56 97 89 W 4 49 52 N The total area described above will need to be split into 6 distinct areas to meet the legislative requirements.
-15- 16 EXHIBIT B-1 EXCLUDED TENEMENTS The tenements located in Suriname in which the Parties currently have an interest and other areas which are specifically excluded from this Agreement are generally depicted in the maps attached hereto as Exhibit B-2 and include, without limitation, the following: 1. Saramacca (2600 square kilometers) (See maps attached to original document) -16- EX-10.30 10 UNDERWRITING AGREEMENT (ENGLISH TRANSLATION) 1 EXHIBIT 10.30 CERTIFICATE OF TRANSLATION I, Louis O. Peloquin, Vice President, General Counsel and Secretary of Golden Star Resources Ltd. (the "Company") declare to the best of my knowledge that the attached is an accurate English translation of the Underwriting Agreement dated October 29, 1996 between Guyanor Ressources S.A. Banque Paribas, Banque Bruxelles Lambert France, Banque Nationale De Paris, CIBC Wood Gundy Securities, Yorkton Securities Inc., Societe De Bourse De Portzamparc S.A. and the Company. /s/ Louis O. Peloquin ---------------------- Louis O. Peloquin Vice President, General Counsel and Secretary State of Colorado ) County of Denver ) ss. Subscribed and sworn to before me this 12th day of March, 1997 by Louis O. Peloquin. /s/ Nathalie Defferard ----------------------- Notary Public My Commission Expires: October 25, 1999. 1 2 GUYANOR RESSOURCES UNDERWRITING AND SELLING AGREEMENT Admission to listing on the Nouveau Marche' of new B shares of Guyanor Ressources effected in accordance with the diffusion par placement garanti procedure Dated 29 October 1996 REF: GRLE/PBH 1 3 UNDERWRITING AND SELLING AGREEMENT BETWEEN: 1 GUYANOR RESSOURCES, a societe anonyme with a share capital of FRF 2,628,208.52, whose registered office is at Lotissement Calimbe II, Route du Tigre, 97300 Cayenne, registered with the Registre du commerce et des societes de Cayenne under No. B 390 919 082 (the "COMPANY"); 2 BANQUE PARIBAS, BANQUE BRUXELLES LAMBERT FRANCE, BANQUE NATIONALE DE PARIS, CIBC WOOD GUNDY SECURITIES PLC AND YORKTON SECURITIES INC. (the "UNDERWRITERS"and each an "UNDERWRITER"); 3 SOCIETE DE BOURSE DE PORTZAMPARC S.A. ("SOCIeTe DE BOURSE"); and 4 GOLDEN STAR RESOURCES LTD, a company incorporated under Canadian law whose registered office is at 885 West Georgia Street, Vancouver, British Colombia, Canada V6C 3H4 ("GOLDEN STAR"). WHEREAS The Company's share capital currently comprises 22,500,000 A shares and 15,045,836 B shares with a nominal value of FRF 0.07 each (the "SHARES"). Only the B Shares are listed on the Toronto Stock Exchange. Pursuant to a separate agreement dated 14 May 1996, the Company authorised Banque Paribas, Banque Bruxelles Lambert France and the Societe de Bourse to act on its behalf in preparing and effecting the listing on the Nouveau Marche of B Shares in the Company (the "B SHARES"). Banque Paribas and Banque Bruxelles Lambert France have been appointed as listing advisers - market makers (etablissements introducteurs teneurs de marche) for the purposes of such listing. The Societe de Bourse has been appointed as joint listing adviser - market maker (co-introducteur teneur de marche). In addition, the societe de bourse Courcoux-Bouvet and the Societe de Bourse have been appointed to act as market makers (teneurs de marche). The Company has made an application to the Societe du Nouveau Marche, in accordance with applicable regulations, to list its B Shares on the Nouveau Marche, and in connection therewith has agreed to comply with the regulations in force regarding undertakings to be made to the Commission des Operations de Bourse (the "COB") and to the Societe du Nouveau Marche (the "SNM"), as well as those concerning shareholder information. The Comite des Admissions of the SNM, at its meeting of 7 October 1996, decided to admit the B Shares of the Company to listing on the Nouveau Marche. The distribution to the public of the Company's B Shares referred to in Clause 2 below, will be effected by an underwritten offering of new B Shares (the "OFFERING") in and outside France (excluding Canada and the United States of America) followed by a listing by the market makers from 30 October 1996. 2 4 In connection with the listing on the Nouveau Marche, the Extraordinary General Meeting (assemblee generale mixte) of shareholders of the Company held on 11 June 1996 authorised the Board of Directors of the Company (conseil d'administration) to increase the nominal share capital of the Company by a maximum global amount of FRF 280 000 by the issue of 4 000 000 new B Shares of a nominal value of FRF 0.07 each to be subscribed in cash; this amount may be increased by up to a maximum of FRF 320 600 in the event of excess demand for Shares during the offering period. The Extraordinary General Meeting also resolved to waive shareholders' preferential subscription rights in relation to the offering in France and abroad, and delegated to the Board of Directors, with the possibility of sub-delegation to its Chairman, the authority to agree the terms of the share capital increase. Pursuant to the authorisation granted by the Extraordinary General Meeting (assemblee generale mixte) referred to above, the Board of Directors of the Company at its meeting of 23 September 1996 delegated to its Chairman the authority to agree the terms of the offering, in particular the timetable, the exact number of shares to be issued and the issue price of the shares. The Chairman of the Board of Directors of the Company has decided today to proceed with the issue of 1,000,000 B Shares of a nominal value of FRF 0.07 (the "NEW SHARES"). It has been agreed that, in order to cover over-allotments, a maximum of 150,000 Over-Allotment B Shares may be sold by certain of Golden Star's employees, in accordance with the provisions of Clause 4 below (the "OVER-ALLOTMENT SHARES"). The New Shares issued for the purpose of the share capital increase and, as the case may be, the Over-Allotment Shares, will be the subject of an offering in and outside France (excluding Canada and the United States of America) subject to the terms of this Agreement; the New Shares and the Over-Allotment Shares are together described as the "PLACED SHARES". The detailed terms and conditions of the offering are set out in a preliminary prospectus which received visa No. 96-424 dated 8 October 1996 from the COB (the "PRELIMINARY PROSPECTUS") and a final prospectus (the "PROSPECTUS" and, together with the Preliminary Prospectus, the "INFORMATION DOCUMENTS") which is the subject of an application for a visa from the COB, as well as the notice published on 16 October 1996 and the notice to be published on 1 November 1996, in each case, in the Bulletin des annonces legales obligatoires. IT IS AGREED as follows:- 1 MANAGEMENT OF THE TRANSACTION Banque Paribas and Banque Bruxelles Lambert France, the listing advisers-market makers (etablissements introducteurs-teneurs de marche), will jointly manage and co-ordinate the offering, Banque Paribas will act as bookrunner and the Societe de Bourse will act as joint listing adviser-market maker (co-introducteur teneur de marche). 3 5 2 OFFERING 2.1 In accordance with applicable regulations, an offering of B Shares, comprising 1,000,000 New Shares and, as the case may be, a maximum of 150,000 Over-Allotment Shares, will be made before, and no later than, the date of listing. 2.2 These shares shall be distributed by the Underwriters and the Societe de Bourse by an offering followed by listing. The preplacement ran from 17 October to 29 October 1996. The subscription price of each New Share is FRF 49 (the "PRICE"). The Price was fixed by the Company at the end of the book-building period after consultation with Banque Paribas and Banque Bruxelles Lambert France by matching offers and demands for shares according to the technique known as "book-building" as developed in accordance with market practice and by reference to the last quoted price of B Shares on the Toronto Stock Exchange. The Price will be published in an SNM notice. 2.3 The Company confirms that it authorises the Underwriters and the Societe de Bourse to offer the Placed Shares comprised in the Offering in accordance with the terms of this Agreement. 2.4 In order to facilitate the first listing, scheduled for 30 October 1996, the Underwriters may have a quantity of shares with which to supply the market. These shares will, if necessary, be deducted from the shares comprising the Offering and may represent approximately 10 per cent of it. 3 UNDERWRITING COMMITMENT 3.1 Each Underwriter undertakes to the Company, with regard to the number of New Shares indicated below next to its name (the "UNDERWRITING COMMITMENT") jointly and not severally with the other Underwriters, to underwrite the subscription of all the New Shares on the basis of the Price defined in Clause 2.2. 3.2 For such purpose, the Underwriters undertake to procure the subscription of the New Shares by investors in and outside France (excluding Canada and the United States of America) or failing which, to subscribe the New Shares themselves, at the Price and subject to the provisions hereof. 3.3 The Company undertakes to issue the New Shares, either to the Underwriters or the investors designated by them, on the Closing Date (as defined in Clause 9) at the Price and subject to the provisions hereof. The New Shares will carry dividend rights as from 1 January 1996. 3.4 The Underwriting Commitments entered into by the Underwriters are as follows:
% NUMBER OF NEW SHARES BANQUE PARIBAS 55 550,000 BANQUE BRUXELLES LAMBERT FRANCE 20 200,000 BANQUE NATIONALE DE PARIS 15 150,000 CIBC WOOD GUNDY SECURITIES plc 5 50,000 YORKTON SECURITIES INC. 5 50,000 - ----------------------------------------------------------------------------------------- TOTAL 100 1,000,000
4 6 If at the end of the listing process a portion of shares has not been subscribed, the underwriting commitment of the Underwriters will be triggered, and they shall, in proportion to their respective Underwriting Commitments set out above, be liable to purchase such shares between them. If the option described in Clause 4 below is exercised, the offering of Over-Allotment Shares will be underwritten, jointly and not severally with the other Underwriters, by the Underwriters in the same proportions. 4 OPTION TO INCREASE THE NUMBER OF SHARES OFFERED 4.1 Solely for the purpose of covering any over-allotments in connection with the Offering, Golden Star undertakes that certain of its employees will on request sell up to 150,000 Over-Allotment Shares to the Underwriters represented by Banque Paribas, if Banque Paribas, after consultation with Banque Bruxelles Lambert France, so requests. In order to exercise the option described in the previous paragraph, Banque Paribas must give written notice to Golden Star on behalf of certain of its employees, which (a) must be received no later than 10 a.m. (Denver time) on 20 November 1996, (b) must indicate the number of Over-Allotment Shares in respect of which the option is exercised and (c) must be substantially in the form set out in the Schedule to this Agreement. Such notice will be irrevocable. As soon as Golden Star receives such notice it will proceed to procure, within a maximum period of 3 Paris stock exchange working days, that certain of its employees sell the relevant number of Over-Allotment Shares. The transfer price per Over-Allotment Share will be the Price per New Share as defined in Clause 2.2 above. The payment of the aggregate Price and delivery of Over-Allotment Shares will take place pursuant to the terms of Clause 9 of this Agreement. All conditions, representations and undertakings given in respect of the Shares and the New Shares pursuant to this Agreement will apply, mutatis mutandis, to the Over-Allotment Shares. 5 SELLING RESTRICTIONS 5.1 GENERAL RESTRICTIONS Each Underwriter and the Societe de Bourse covenant: 5.1.1 to offer and sell the Placed Shares solely in accordance with French laws and regulations, and the laws and regulations in force in the country in which the Offering is made; 5.1.2 to comply with the offer and sale restrictions set out in this Agreement; 5.1.3 not to use or distribute the Information Documents in any country where such use or distribution would contravene the applicable laws or regulations of, or would require a filing with, or the prior authorisation of, a competent authority of, such 5 7 country, each Underwriter and the Societe de Bourse acknowledging to the Company, Banque Paribas and Banque Bruxelles Lambert France that these Information Documents have not been filed or registered so as to allow a public offering or their distribution for such purpose in any country other than France; and 5.1.4 not to offer or sell the Placed Shares in Canada or the United States of America. 5.2 SELLING RESTRICTIONS RELATING TO CANADA Each Underwriter and the Societe de Bourse covenant that, in accordance with securities laws and rules applicable to the Company in Canada, the New Shares issued in connection with the listing on the Nouveau Marche of Paris may neither be offered, sold or otherwise transferred to a Canadian resident nor traded on a Canadian stock exchange until 40 days after the first listing of the New Shares. Consequently, any transfer of New Shares during this period would constitute a breach of the above-mentioned restrictions. 5.3 SELLING RESTRICTIONS RELATING TO THE UNITED STATES OF AMERICA Each Underwriter and the Societe de Bourse understand that the Placed Shares have not been and will not be registered under the U.S Securities Act of 1933, as amended (the "SECURITIES ACT") and may not be offered or sold in the United States or to US persons or persons acting on their behalf. Each Underwriter and the Societe de Bourse represent that neither they, nor any of their respective affiliates nor any persons acting on their behalf, have offered or sold, and agree that they will not offer or sell within the United States or to US persons or to any persons acting on their behalf, any of that portion of the Placed Shares they are required to place. Neither the Underwriters nor the Societe de Bourse nor any of their affiliates, nor any person acting on its or their behalf has engaged or will engage in any "directed selling efforts" with respect to the Placed Shares. Terms defined in this paragraph shall have the meanings given to them by Regulation S under the Securities Act. 5.4 SELLING RESTRICTIONS RELATING TO THE UNITED KINGDOM Each of the Underwriters and the Societe de Bourse represent and warrant that: 5.4.1 they have not offered or sold and prior to the date six months after the Closing Date will not offer or sell any Placed Shares to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; 5.4.2 they have complied with and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by them or to be done by them in respect of the Placed Shares in, from or otherwise involving the United Kingdom; and 5.4.3 they have not issued or passed on, and will not issue or pass on, in the United Kingdom any document received by them in connection with the offering of the Placed Shares to a person who is not of a kind described in Article 11(3) of the 6 8 Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is not a person to whom the document may otherwise lawfully be issued or passed on. 6 COVENANTS OF THE LISTING ADVISERS - MARKET MAKERS (ETABLISSEMENTS INTRODUCTEURS TENEURS DE MARCHE) Banque Paribas, Banque Bruxelles Lambert France and the Societe de Bourse, in their capacity as listing advisers-market makers (etablissements introducteurs teneurs de marche), having assumed that the documents which have been presented to them in connection with the admission to listing on the Nouveau Marche of the B Shares were accurate and complete and that the representations made to them were true, have examined the memorandum and articles of association (statuts), management reports and accounts, minutes of shareholders' general meetings and of the meetings of the board of directors for the last two financial years of the Company, the stock option plan in relation to category B Shares, the reports of the independent mining experts of the Company, the agreements and undertakings which the Company believed may have a significant impact on its future (in particular, the management agreement entered into with Golden Star, partnership agreements, the Declaration de Politique d'Entente with the Chamber of Commerce and Industry of French Guyana, and the titres miniers, and have participated in meetings with the auditor (Commissaire aux Comptes) (the financial statements for the financial years 1994 and 1995 having been audited by a sole auditor) and the internal legal advisers and avocats to the Company. On this basis, Banque Paribas, Banque Bruxelles Lambert France and the Societe de Bourse declare that the Information Documents contain no contradictions or information on material points which they believe to be misleading in relation to the factors known to them or which they requested. 7 REPRESENTATIONS AND WARRANTIES OF THE COMPANY 7.1 REPRESENTATIONS OF THE COMPANY The Company represents that: 7.1.1 it and its subsidiaries, as defined in article 354 of Law No. 66-537 of 24 July 1966 (the "SUBSIDIARIES"), are validly constituted and carrying on business in accordance with applicable laws; 7.1.2 it has full power and authority to enter into this Agreement and that this Agreement has been validly authorised by its decision making bodies; 7.1.3 all the provisions of this Agreement are binding on it; 7.1.4 there is no litigation, current, or so far as it is aware, threatened against the Company or any of its Subsidiaries, other than that listed in the Information Documents, which could have a material adverse effect on the financial position of the Company or which could affect the performance of this Agreement or the issue by the Company of the New Shares; 7 9 7.1.5 the financial statements contained in the Information Documents are a true and accurate description and give a fair view of the financial situation of the Company and its Subsidiaries taken as a whole and of their financial results at the respective dates of those financial statements and that they were prepared in accordance with accounting principles generally accepted in France; and that since 30 June 1996 there has been (i) no material adverse change in nor (ii) any circumstance that has had or is likely to have a material adverse effect on the legal, economic or financial position, the operating results, the business or financial prospects of the Company and its Subsidiaries taken as a whole (a "MATERIAL ADVERSE EFFECT") other than those described in the Information Documents; 7.1.6 that the contents of each of the Information Documents prepared in connection with the listing advisers-market makers (etablissements introducteurs teneurs de marche) are true and contain all material information concerning the Company and its Subsidiaries and the issue of the Shares and the rights attaching to them, and that this information is true and accurate and that there are no material omissions; 7.1.7 neither the Company nor any of its Subsidiaries is in default in the performance of a contractual obligation, the non-performance of which is likely to have a Material Adverse Effect or to adversely affect the ability of the Company to perform its obligations under this Agreement; 7.1.8 the Shares are, and the New Shares will, subject to the approval of relevant authorities be validly issued and free of any charge at the Closing Date and that the B Shares are, and the New Shares will be subject to the agreement of the relevant authorities, listed on the Toronto Stock Exchange and on the Nouveau Marche and accepted for clearance through Sicovam, the Euroclear System and Cedel Bank, societe anonyme no later than 30 October 1996 and that the Company will take all necessary steps to maintain this listing; 7.1.9 neither the terms of the B Shares, whether Over-Allotment Shares or New Shares (when issued), nor the provisions of this Agreement are in breach of any provision of French law or regulation, the memorandum and articles of association (statuts) of the Company nor any other undertaking of the Company; 7.1.10 neither the Company nor any of its affiliates (as defined in Rule 405 of the Securities Act) ("AFFILIATES") of the Company, nor any person acting on behalf of the Company or its Affiliates have undertaken nor will undertake any directed selling efforts in the United States of America ("DIRECTED SELLING EFFORTS" as defined by Regulation S) relating to the Placed Shares; 7.1.11 the Company is a foreign issuer (as defined by Rule 902(f) of Regulation S) and reasonably considers that it does not have a "substantial market interest" (as defined by Regulation S) for its Shares; and 7.1.12 neither the Company nor any of its affiliates, nor any person acting on its or their behalf have, directly or indirectly, taken any action that would require the registration of the Placed Shares under the Securities Act. 8 10 7.2 UNDERTAKINGS OF THE COMPANY 7.2.1 The Company undertakes to publish or promptly provide (at its own cost) to the COB and to Banque Paribas and Banque Bruxelles Lambert France, on behalf of the Underwriters and the Societe de Bourse until the Closing Date, all information necessary to amend the Information Documents so that the information contained therein is not misleading in any material respect. 7.2.2 The Company undertakes that for a period expiring 180 calendar days after the date of this Agreement, it will not, without the prior written consent of Banque Paribas and Banque Bruxelles Lambert France (such consent only to be withheld on reasonable grounds), issue, offer or sell, directly or indirectly, shares, investment certificates or securities giving the right, by conversion, exchange, redemption, presentation of a warrant or any other means, to the allotment of securities representing a proportion of the share capital of the Company. This sub-paragraph 6.2.2 neither applies to the securities which are the subject of this Agreement nor to any shares to be issued following the exercise of subscription rights granted pursuant to the stock option plan of the Company. 8 UNDERTAKINGS AND REPRESENTATIONS OF GOLDEN STAR 8.1 REPRESENTATIONS OF GOLDEN STAR Golden Star represents that: 8.1.1 it is validly constituted; 8.1.2 it has full power and authority to enter into this Agreement and that this Agreement has been validly authorised by its decision making bodies; 8.1.3 all the provisions of this Agreement are binding on it; 8.1.4 the signing and performance of this Agreement do not contravene any provision of any law or regulation of Canada, nor any other undertaking made by it and that all necessary opinions, decisions, orders or authorisations have been made or obtained and remain in force at the date of this Agreement; 8.1.5 it has undertaken to the Toronto Stock Exchange, in connection with the listing of the B Shares on the Toronto Stock Exchange, not to sell 16,769,912 A Shares of the Company representing 44.94% of the Company's share capital; pursuant to the terms of this undertaking 10% of these shares were made available on 14 March 1996, and additional tranches will be made available over the coming years, as indicated in the Preliminary Prospectus; and that the SNM has agreed to recognise this undertaking in substitution for the obligation imposed by Clause 1.1 of SMN Instruction No. 96-9 in relation to the retention obligation of, and the publishing of, share transactions by, managing shareholders; and 8.1.6 that it is not in default in the performance of any contractual obligation, the non-performance of which is likely to adversely affect Golden Star's ability to perform its obligations under this Agreement. 9 11 8.2 UNDERTAKING OF GOLDEN STAR 8.2.1 Golden Star confirms that, for a period of 180 calendar days after the date of this Agreement, that it will not, without prior written consent of Banque Paribas and Banque Bruxelles Lambert France (such consent only to be withheld on reasonable grounds), sell, directly or indirectly, shares, investment certificates or securities giving the right, by conversion, exchange, redemption, presentation of a warrant or any other means, to the allotment of securities representing a proportion of the share capital of the Company, with the exception of the shares made available to Underwriters pursuant to the rules of the Nouveau Marche and 4,027,274 B Shares held by Golden Star and transferable pursuant to the Plan of Arrangement dated 21 December 1994 entered into between Golden Star and the Company and certain options granted by Golden Star to the non-salaried directors of the Company and Golden Star. 8.2.2 Golden Star undertakes that each of its employees which transfers its Over-Allotment Shares pursuant to the option granted in accordance with Clause 4 (a) has or will have full power and capacity to sell the Over-Allotment Shares; (b) is, at the date of this Agreement, and will remain until the Closing Date or will at the Closing Date be the valid and absolute owner of the Over-Allotment Shares that it sells; (c) that on the date of this Agreement and/or on the Closing Date the Over-Allotment Shares are or will be free and clear of any pledge, lien, privilege or other encumbrances of any nature whatsoever, and of any third-party claims other than those resulting from this Agreement; and (d) that the transfer of the Over-Allotment Shares does not contravene any provision of any law or regulation affecting each of its employees nor any undertaking entered into by any of them. 8.2.3 Golden Star undertakes that neither each of its employees which transfers Over-Allotment Shares in accordance with Clause 4 of this Agreement nor any person acting on its or their behalf has engaged or will engage in any directed selling efforts in the United States (as defined in Regulation S) relating to the Over-Allotment Shares and has not taken nor will take any action that would require registration of the Placed Shares under the Securities Act. 9 CLOSING 9.1 The closing date (the "CLOSING DATE") will be 5 November 1996, being 3 stock exchange days after the first listing, or such later date as may be agreed between the Company and Golden Star, and the Underwriters and the Societe de Bourse represented by Banque Paribas, provided that such date shall not, in any event, be later than 15 November 1996. 9.2 On the Closing Date, payment of the aggregate Price of New Shares and delivery of New Shares will take place simultaneously as follows: 9.2.1 each Underwriter and the Societe de Bourse shall pay to Banque Paribas the aggregate Price of the New Shares and Banque Paribas will deposit, in a special non-interest bearing account opened in its books, a sum in French francs corresponding to the aggregate Price of New Shares and, after issuing the depositary certificate, will transfer such sum to the account designated by the Company, after deduction of the commission referred to in Clause 12 below; and 10 12 9.2.2 the Company will give appropriate instructions in order to transfer the New Shares to the account of Banque Paribas on behalf of the Underwriters and the Societe de Bourse. 9.3 If the option is exercised in accordance with Clause 4 above, payment of the aggregate Price and delivery of the Over-Allotment Shares will take place, unless the Company and Golden Star, and the Underwriters represented by Banque Paribas, agree otherwise, on the date which is the later of: o the Closing Date; o the third day that the Paris bourse is open for business following the date on which the above notice is given to Golden Star (the "SECOND CLOSING DATE"). On this date, payment of the aggregate Price and delivery of the Over-Allotment Shares will take place simultaneously as follows: 9.3.1 the Underwriters and the Societe de Bourse will pay Banque Paribas the aggregate Price for the Over-Allotment Shares and Banque Paribas will transfer to Golden Star, for the account of certain of its employees, the aggregate Price for any Over-Allotment Shares sold by them to the Underwriters, after deduction of the commission referred to in Clause 12 (a) below; and 9.3.2 Golden Star will take such steps as are necessary to procure that certain of its employees transfer the Over-Allotment Shares to Banque Paribas on behalf of the Underwriters. 10 CONDITIONS PRECEDENT TO CLOSING The representations given by the Company and Golden Star will be accurate as at the date of this Agreement and will remain so as at the Closing Date and, if necessary, at the Second Closing Date, and the Company and Golden Star will have complied with their undertakings set out in Clauses 7.2 and 8.2. 11 SUPERVISION AND STABILISATION OF THE MARKET During the period (the "SUPERVISION PERIOD") from the date of this Agreement until 27 November 1996 the Underwriters reserve the right: (a) to intervene in the Nouveau Marche for the purpose of stabilizing the market price of the B Shares. (b) to make over-allotments; and (c) to purchase B shares solely to cover over-allotments as well as any hedging transaction or to close out any position; all in accordance with applicable laws and regulations. For this purpose, the Underwriters have decided to form a group responsible for stabilizing the market for the B Shares on the Nouveau Marche in which each participant will participate 11 13 pro rata to its initial Underwriting Commitment under this Agreement, such commitment being expressed as an amount in French francs based on the Price. All decisions relating to stabilization activities will be made by Banque Paribas and Banque Bruxelles Lambert France. Banque Paribas will manage the stabilization group and will carry out stabilization transactions for the account of the Underwriters. The net maximum aggregate amount (taking into account purchases and sales) that may be invested during the Supervision Period in connection with the stabilization and hedging activities mentioned above and the covering of over-allotments (but excluding over-allotments which may be covered by the exercise of the option in accordance with Clause 4) shall not exceed, including expenses and commissions, 10 percent of the aggregate initial Underwriting Commitments of the Underwriters, as calculated in the second paragraph of this Clause 11. 12 COMMISSIONS, TAXES, DUTIES AND EXPENSES As a fee for their services under this Agreement: (a) the Underwriters and the Societe de Bourse will be paid a selling concession equal to 2 percent. (net of tax) of the amount obtained by multiplying the Price by the aggregate number of New Shares and Over-Allotment Shares placed by the Underwriters and the Societe de Bourse or acquired by the Underwriters through the exercise of their Underwriting Commitments as set out in Clause 3; and (b) the Underwriters will be paid an underwriting commission equal to 1.50 percent of the amount obtained by multiplying the Price by the aggregate number of New Shares. These commissions include neither the incidental expenses in relation to the transaction, and in particular, advertising costs, publishing costs and the costs of investors' meetings and experts' costs (apart from those expressly requested by the listing advisers - market makers), nor the fee due to the COB, nor the commission due to SNM, nor any taxation expenses of any kind which will be borne by the Company. The selling concession will be increased by any taxes and charges of any kind to which it may be subject at the time of payment, in particular value added tax. The underwriting commission is exempt from these taxes. The total fees will be paid, on behalf of the relevant parties, to Banque Paribas as indicated in Clause 9 above, and Banque Paribas will pay to such parties the fees to which they are entitled. 13 TERMINATION 13.1 Notwithstanding any provision to the contrary in this Agreement, this Agreement may be terminated at any time prior to the Closing Date by a decision notified to the Company made on behalf of the Underwriters by Banque Paribas, after prior consultation with the other Underwriters and the Societe de Bourse, if any of the events or circumstances set out below shall have occurred and provided that such event or circumstance is, in the reasonable 12 14 opinion of Banque Paribas, so material as to render impossible or seriously prejudice the sale of the Placed Shares: (a) if since the date of execution of this Agreement there shall have occurred a political, financial or economic event or a material adverse change in, or circumstance having or likely to have, a material adverse effect on, the financial position, operating results or activity of the Company or its Subsidiaries taken as a whole, or any change in currency exchange rates or in foreign exchange regulations, or any event seriously affecting the listing of the B Shares on the Nouveau Marche or the Toronto Stock Exchange, or a material change in the trading of the B Shares on the Nouveau Marche or Toronto Stock Exchange, or a significant fall in the level of any official stock market index on the Paris, Toronto, New York or London Stock Exchanges; (b) if on or before the Closing Date the representations made and given in Clauses 7 and 8 by the Company or Golden Star are found to be inaccurate or have not been complied with, or the undertakings specified in Clauses 7 and 8 have not been complied with. 13.2 If this Agreement is terminated pursuant to one of the above events, the parties will be released from all obligations resulting from this Agreement and the date of listing will be postponed. In such case, the parties to this Agreement shall agree on new terms and conditions to govern the transaction. 14 NOTICES All notices in relation to this Agreement must be made in writing and sent: For the Company to: Guyanor Ressources, Lotissement Calimbe II, Route du Tigre, 97300 Cayenne Telephone: (0 594) 29 54 44 Fax: (0 594) 37 92 24 To the attention of: Jacques Spijkerman, Directeur administratif et financier Telephone: (1) 303 830 9000Fax: (1) 303 830 9092 To the attention of: Louis Peloquin For Golden Star to: Golden Star Resources Ltd., One Norwest Center, 1700 Lincoln Street, Suite 1950, Denver, Colorado 80203 USA Telephone: (1) 303 830 9000 Fax: (1) 303 830 9092. To the attention of: Gordon Bell, Chief Financial Officer/Louis Peloquin, General Counsel For Banque Paribas to: Banque Paribas, 3, rue d'Antin 75002 Paris Telephone: (33) 1 42 98 09 96 Fax: (33) 1 42 98 09 94 Telex: 230 983. To the attention of: Marc Vermeulen 13 15 For Banque Bruxelles Lambert France to: Banque Bruxelles Lambert France, Immeuble Kupka B, 92906 Paris La Defense 7 Cedex Telephone: (33) 1 41 26 70 24 Fax: (33) 1 41 26 79 27 Telex: 616 794. To the attention of: Renault Segalen 15 GOVERNING LAW This Agreement shall be governed by French law. 16 JURISDICTION Any dispute relating to the interpretation and/or execution of this Agreement which cannot be resolved amicably will be submitted to the exclusive jurisdiction of the Paris Tribunal de Commerce. For the purposes of this Agreement, the representatives of Golden Star Ressources Ltd and Guyanor Ressources elect domicile at Gibson, Dunn & Crutcher's offices in Paris. Signed in Paris on 29 October 1996 In 8 originals GUYANOR RESSOURCES Represented by: /s/ Louis O. Peloquin BANQUE PARIBAS Represented by: /s/ Vermeulen BANQUE BRUXELLES LAMBERT FRANCE Represented by: /s/ Vermeulen BANQUE NATIONALE DE PARIS CIBC WOOD GUNDY SECURITIES PLC YORKTON SECURITIES INC. Represented by: /s/ Vermeulen SOCIETE DE BOURSE DE PORTZAMPARC S.A. Represented by: /s/ Vermeulen GOLDEN STAR RESOURCES LTD Represented by: /s/ David K. Fagin 14 16 SCHEDULE FORM OF THE TELEX FOR EXERCISE OF THE OPTION RELATING TO EXISTING SHARES PURSUANT TO CLAUSE 4 OF THE UNDERWRITING AND SELLING AGREEMENT Golden Star Resources Ltd., One Norwest Center, 1700 Lincoln Street, Suite 1950, Denver, Colorado 80203 U.S.A. To the attention of Gordon Bell, Chief Financial Officer Paris, [ o ] 1996 ADMISSION TO LISTING ON THE NOUVEAU MARCHeOF NEW B SHARES OF GUYANOR RESSOURCES UNDERWRITING AND SELLING AGREEMENT Dear Sirs We refer to the Underwriting and Selling Agreement dated 29 October 1996. By this letter, we hereby exercise, on behalf of the Underwriter, parties to the Underwriting and Selling Agreement, the option referred to in Clause 4 of the Underwriting and Selling Agreement with a view to acquiring [ o ] Over-Allotment Shares (as defined in the Underwriting and Selling Agreement) and we undertake to pay the Price in respect of such Over-Allotment Shares pursuant to the terms of the Underwriting and Selling Agreement. Yours faithfully Banque Paribas 15 EX-10.31 11 CONVERTION D'ETABLISSMENT (ENGLISH TRANSLATION) 1 EXHIBIT 10.31 CERTIFICATE OF TRANSLATION I, Louis O. Peloquin, Vice President, General Counsel and Secretary of Golden Star Resources Ltd. (the "Company") declare to the best of my knowledge that the attached is an accurate English translation of the Establishment Agreement dated October 15, 1996 between the Government of Mali and PARC Fougala S.A. /s/ Louis O. Peloquin ----------------------- Louis O. Peloquin Vice President, General Counsel and Secretary State of Colorado ) County of Denver ) ss. Subscribed and sworn to before me this 12th day of March, 1997 by Louis O. Peloquin. /s/ Nathalie Defferard ----------------------- Notary Public My Commission Expires: October 25, 1999. 2 ESTABLISHMENT AGREEMENT BETWEEN THE GOVERNMENT OF THE REPUBLIC OF MALI AND THE COMPANY PARC-FOUGALA S.A. FOR THE RESEARCH AND EXPLOITATION OF GOLD, SILVER, RELATED SUBSTANCES AND PLATINOIDS 2 3 BETWEEN: THE GOVERNMENT OF THE REPUBLIC OF MALI, hereinafter known as "the STATE", represented by the Minister of Mines, Energy and Hydraulics, Mr. Cheickna Seydi Ahamadi Diwara On the one hand AND THE COMPANY PARC-FOUGALA S.A. hereinafter known as PARC FOUGALA, having its principal offices at Bamako, P.O. Box 1339, represented by Mr. Hamed Diane SEMEGA, GENERAL MANAGER. On the other hand. WHEREAS: The State has for several years been doing work in the Kayes Region, defined in Annex 1. PARC-FOUGALA has expressed the desire to conduct supplementary research activity on a part of the territory of the Republic of Mali situated in the Fougala sector, in the Cercle de Kenieba, Kayes Region and in the event of the discovery of mineral deposits likely to lead to a commercial exploitation, the right to proceed to the development and exploitation of the said deposits; This desire is perfectly in line with the mining policy of the Government of the Republic of Mali which seeks to promote mining research and exploitation activity in Mali; The parties have met for the purpose of determining the best method to carry out the research and exploitation of the mineral deposits which might be discovered; IT HAS BEEN AGREED AS FOLLOWS: CHAPTER 1 GENERAL TERMS AND CONDITIONS ARTICLE 1 DEFINITIONS Under the terms of this present Agreement and without prejudice to the terms and conditions of Article 1 of the Ordinance mentioned below, the following are defined as: 1.1 MINING CODE: Ordinance No. 91-065/P-CTSP of September 19, 1991 relating to the organisation of research, exploitation, possession, transportation, transformation and commercialisation of mineral, fossil and quarry substances, other than liquid or gaseous hydrocarbons in the territory of the Republic of Mali, Decree No. 91- 277/PM-RM of September 19, 1991 establishing the methods of application of the above mentioned Ordinance No. 91-065/CTSP of September 19, 1991 and Decree No. 91-278/PM-RM of September 19, 1991. 1.2 BOARD OF ADMINISTRATION: The Administrative Body of PARC-FOUGALA as set forth in the Bye-laws. 1.3 AGREEMENT: this present Agreement, including therein all codicils or amendments thereto and all the annexes. 1.4 DNGM: The National Headquarters of Geology and Mines of the Republic of Mali or any organisation which may take its place, exercising identical or similar functions. 3 4 1.5 FEASIBILITY STUDY: The report covering the feasibility of the exploitation of a deposit of mineral substances within the perimeter and setting forth the programme envisaged for the said exploitation, which must include, as an example but not restricted to the following: a) the evaluation of the importance of the quality of the exploitable reserves of mineral substances; b) the determination of the possibility of subjecting the mineral substances to a metallurgic treatment; c) assessment of the socio-economic impact of the project; d) assessment of the environmental impact of the project; e) the presentation of a programme for the construction of the mine giving details of the works, equipment, installations and furnishings required for the commercial production of a potential layer or deposit and the authorisations required and the estimated costs associated therewith, accompanied by forecasts showing estimated annual expenditures; f) the establishment of a plan regarding the commercialisation of the products, including the envisaged points of sale, the customers, the conditions of sale and the selling prices; g) a plan of the exploitation of the mine; h) an economic evaluation of the project, including financial forecasts of the exploitation accounts and balance sheets, calculations of economic indicators (such as internal profitability rates (TRI), rates of return (TR), net present value (VAN), recovery period, profits, foreign currency profit and loss statements of the project) and an analysis of the sensibility of the project; i) the conclusions and recommendations regarding the economic feasibility and the calendarised schedule for the establishment of commercial productions based on points a) to g) above; j) an evaluation of and the methodology to be employed in taking responsibility for the expenses related to the safety of the installations and of the inhabitants of the area inside the borders of the protected zones; k) all other information which the party responsible for the preparation of the said feasibility study shall deem useful to persuade all banking and financial institutions to undertake to lend the funds required for the exploitation of the deposit. 1.6 LIBOR: the interbank interest rate offered in London, over a period of three (3) months, quoted by all international banks. 1.7 PARTICIPATION(S): with regard to the State, the initial participation in an exploitation Company as set forth in article 14.1 of the agreement, increased by the participation which it may have acquired, as set forth in article 14 of the Agreement and, with regard to PARC-FOUGALA, a participation of 100% in an exploitation Company less the participation of the State, except in the case set forth in article 17 of this present Agreement. 1.8 PARTY: PARC-FOUGALA or the State; "Parties" PARC-FOUGALA and the State. 1.9 PERIMETER: The Perimeter defined in Annex 1. It can be modified in accordance with the terms and conditions of the mining legislation. 4 5 1.10 PRODUCTS: All mineral substances extracted from within the perimeter for commercial purposes within the scope of this present Agreement. 1.11 WORKS PROGRAMME: a sufficiently detailed description of the research activity to be undertaken and the objectives to be realised by PARC-FOUGALA within the perimeter during the research phase. 1.12 PROJECT: All of the activities related to the perimeter undertaken pursuant to the terms and conditions of this present Agreement. 1.13 AFFILIATED COMPANY: any physical person, association or joint venture or any form of enterprise which, directly or indirectly, controls a part, or is controlled by a part or is controlled by an individual or corporate person who controls a part. Control is understood to mean the holding, directly or indirectly, of the power to guide or to lead the administration and the decision making of the company by the exercise of voting rights. 1.14 FAIR MARKET VALUE: with regard to all assets and all property, a reasonable price paid in cash, acceptable to a seller who is prepared voluntarily to sell the asset or property in question on the open market, allowing the time necessary to find a buyer willing to purchase voluntarily, and without the seller or the purchaser having to act out of necessity, constraint or any other special circumstances. 1.15 EX-WORKS OR QUARRY VALUE: the value of the products sold in any currency to a foundry, refinery or any other purchaser, less the cost of refining or any other process or method of treatment required to transform the mineral into a commercial finished product,commissions for the commercialisation of the products, transportation costs, weighing costs, analyses, if required, which have not already been deducted by the purchaser. 1.16 NET CASH FLOW: the excess of gross income over the total of costs, expenditures and losses. For the requirements of this present definition gross revenue is understood to be all amounts deposited by PARC-FOUGALA arising from the sale of a portion of the products. Costs, expenses and losses are understood to be all costs associated with refining, smelting, treatment, transformation and commercialisation of the products, including the costs of transportation, insurance, sampling, weighing, analyses, if required, which have not already been deducted by the purchaser and all amounts effectively spent by PARC-FOUGALA including the cost of real assets acquired for the purpose of the project including interest at LIBOR plus 2% on all costs, expenses and non-recovered losses and a reasonable amount for the administration and the management of the company as set forth in the Operations Agreement. Costs, expenses and non-recovered losses are understood to be the cumulative total of the costs, expenses and losses of PARC-FOUGALA in excess of the PARC-FOUGALA's cumulative gross revenue. The above mentioned interest expense shall cease to be a deductible item when the cumulative gross revenue is equal or superior to the cumulative costs, expenses and losses. The terms "cumulative gross revenue" and "cumulative costs, expenses and losses" signify all of the gross revenue and all of the costs, expenses and losses, effectively deposited, paid and/or registered from the effective date of this present agreement until the date of the calculation thereof. 1.17 BOOK VALUE: the accounting value of the assets and investments on the date of acquisition. 1.18 EXPLOITATION COMPANY (SE): the company to be constituted by the parties for the exploitation of the mineral substances defined in this present agreement. 1.19 MINERAL SUBSTANCES: gold, silver, related substances and platinoids. 5 6 1.20 OFFICIAL JOURNAL: the official journal of the Republic of Mali. 1.21 NAME OF THE COMPANY: PARC-FOUGALA SA ARTICLE 2 PURPOSE OF THE AGREEMENT This present Agreement is intended to determine the general, economic, legal, administrative, financial, fiscal, Customs and business framework within which PARC-FOUGALA and/or the exploitation company shall undertake the research activity inside the perimeter, with a view to determining the existence of deposits likely to lead to an industrial exploitation and, if appropriate, to the exploitation of the said deposits either on its own or in conjunction with the State. ARTICLE 3 DESCRIPTION OF THE PROJECT 3.1 The activities covered by this agreement shall be carried out in two separate phases. The first phase shall consist of the realisation by PARC-FOUGALA at its own expense of the activities associated with researching the mineral substances and, to the extent that PARC-FOUGALA shall consider appropriate, the preparation of a feasibility study for each potential deposit discovered during this phase. In the event that PARC-FOUGALA should decide to construct a mine, the second phase shall consist of the exploitation of the deposit(s), in accordance with the terms and conditions set forth in articles 13 to 16 below. 3.2 It is understood by the parties that, within the boundaries of the perimeter, the different phases of research and exploitation activity can be carried out simultaneously, with the exploitation of one deposit having begun while research activities continue for the discovery of other deposits. ARTICLE 4 COOPERATION OF THE ADMINISTRATION AUTHORITIES The State makes known its intention to facilitate to the extent permitted by legislation in effect, all the research activities to be carried out by PARC-FOUGALA by providing all the assistance which it deems appropriate. The same is true for the exploitation activities and later to the commercialisation of the products which activity may be undertaken by the exploitation company. CHAPTER II RESEARCH ACTIVITIES AND FEASIBILITY STUDY ARTICLE 5 GRANT OF RESEARCH PERMIT TO PARC-FOUGALA Within a thirty day period following the execution of this present agreement, the State shall grant to PARC-FOUGALA through an Ordinance from the Minister responsible for Mines a research permit valid for the mineral substances and applicable to the perimeter. This research permit shall give to PARC-FOUGALA the rights and shall subject it to the obligations as set forth in the mining legislation concerning research permits. It is understood that in order to obtain the said permit, PARC-FOUGALA must comply with the formalities as set forth in the Mining Code. ARTICLE 6 OFFICE AT BAMAKO 6.1 PARC-FOUGALA must in any event set up an office in Bamako to be responsible for coordinating the research activities set forth in this present agreement. 6.2 The person in charge of the PARC-FOUGALA office shall be given sufficient authority to enable him to decide on all questions relating to the research activities which could be considered to be matters coming under the heading of day to day operations of the said programme. 6 7 ARTICLE 7 RESEARCH ACTIVITY PROGRAMME 7.1 PARC-FOUGALA shall be 100% responsible for the concept, execution and funding of the research activities. 7.2 During the first three years of validity of the research permit, PARC-FOUGALA undertakes to carry out the research programme attached to this present agreement as Annex III. 7.3 In the event that PARC-FOUGALA should decide to renew the research permit, in accordance with article 8.4 below, PARC-FOUGALA shall submit to the National Headquarters of Geology and Mines at least two (2) months prior to the end of the above mentioned third year , a research activity programme, the new boundaries of the permit and a forecast of expenses covering the entire renewal period. then, PARC-FOUGALA shall submit to the DNGM, at least one month prior to the end of each year, a detailed programme of research activity and a forecast of expenses. 7.4 It is understood that agents from the DNGM shall be made available to PARC-FOUGALA to assist in the preparation and execution of the research programmes outlined in this present agreement. The agents shall report to PARC-FOUGALA. They will be dependent upon and will respect the authority of the head of the PARC-FOUGALA company office in Bamako, appointed in accordance with article 6.1 of this present agreement. The number of agents selected shall be decided by mutual agreement. The terms of this section cannot be considered to have the effect of modifying the responsibilities entrusted to PARC-FOUGALA in section 7.1 above. 7.5 The analyses of samples shall be carried out in Mali, either in the analytical laboratories already in existence or in a fixed or mobile laboratory created for this purpose by PARC-FOUGALA. However, when justified PARC-FOUGALA can arrange for analyses of samples including voluminous samples using metallurgical studies outside Mali. The results of the analyses must be communicated to the National Headquarters of Geology and Mines. 7.6 PARC-FOUGALA shall carry all the types of insurance normally carried by a diligent operator including public liability insurance, insurance covering risk of loss or accidental deterioration of the equipment and death, disability and sickness insurance for its employees. ARTICLE 8 OBLIGATION REGARDING EXPENDITURES FOR RESEARCH ACTIVITIES 8.1 PARC-FOUGALA undertakes to be entirely responsible for funding all the expenses related to the research activity programmes, except in cases where the research is being carried out within the boundaries of an exploitation permit. 8.2 PARC-FOUGALA undertakes to spend a minimum of CFA francs 250,000,000 (two hundred and fifty million) for the research activities during the first twenty four (24) months after the grant of the research permit. 8.3 In accordance with article 10.1 below, PARC-FOUGALA shall have the right to abandon its research activities at any time prior to the expiration of the validity of the said research permit. In the event that PARC-FOUGALA should exercise this right prior to the end of the first twenty four (24) months of validity of the said research permit, the company will have to pay to the State the difference between the actual amount spent on research activities and the minimum expenditure mentioned in article 8.2 above. 8.4 PARC-FOUGALA shall have the right to renew the research permit for a further period of three (3) years, pursuant to the terms and conditions set forth by the mining legislation if the cumulative total of 7 8 research expenditure for the first three (3) years of validity of the said research permit reaches FCFA 450,000,000 (four hundred and fifty million CFA francs). PARC-FOUGALA shall have the right to seek a second renewal for an additional three (3) year period pursuant to the same conditions as those governing the first renewal. 8.5 Aside from the wages, salaries and sundry expenses related to the personnel actively engaged in the research activities in Mali, the only items to be taken into consideration in the calculation of the minimum expenditure shall be: a) the amortisation of the material effectively utilised for the research activities in Mali for the period of time that they are in use; b) the expenses incurred in Mali in genuine research activities in Mali, which include the expenses related to the setting up of the research programmes, experiments, analyses, external studies, etc. as well as the technical services performed by PARC-FOUGALA or an affiliated company at rates based on the base salary of the provider, the social benefits, personnel related taxes and contributions and other related charges and expenses. PARC-FOUGALA's general expenses can be taken into consideration at a fixed rate of 6% of the said expenses. For the purpose of verifying these expenditures, the accounting of the company must be set up so as to allow for a differentiation between the costs related to research and those relating to administration. ARTICLE 9 INFORMATION GATHERED FROM THE RESEARCH PROGRAMME 9.1 PARC-FOUGALA shall provide to the State a copy of all the reports relating to the research activities as required by the mining legislation. 9.2 At the expiry of the research permit and all renewals thereof as set forth in article 8.4 above, PARC-FOUGALA must submit to the State a definitive report as well as all maps, digraphs and depth charts, all aerial surveys and all unedited data acquired during the course of the research. This obligation shall apply equally to all other research permits granted under the aegis of this present agreement. 9.3 The reports and data mentioned in article 9.1 cannot be made available to third parties by the State without the prior written authorisation of PARC-FOUGALA which will not withhold such permission without a valid motive. In the event of abandonment of a research permit, these reports and data shall become the property of the State. ARTICLE 10 CESSATION OF RESEARCH ACTIVITY 10.1 Subject to the terms and conditions set forth in article 8 of this present agreement and pursuant to the terms and conditions set forth in the Mining Code, PARC-FOUGALA can halt the research activities prior to the expiry date of the period of validity of the research permit when it is of the opinion that the results obtained to date do not justify the continuation of the said activities. 10.2 In the event of a total shut down of research activities, all the mining titles and the rights deriving from this present agreement belonging to PARC-FOUGALA shall expire. PARC-FOUGALA shall then submit to the State the definitive report as outlined in article 9.2 above. ARTICLE 11 DISCOVERY OF OTHER SUBSTANCES 11.1 If during the course of the research activities, PARC-FOUGALA should discover the presence of mineral substances other than gold and silver, PARC-FOUGALA can extend the validity of its research permit to include these new substances pursuant to the terms and conditions set forth in the Mining Code. 8 9 11.2 The parties shall enter into negotiations for the purpose of defining the terms and conditions of an establishment agreement which will permit the research into and exploitation of the said substances. ARTICLE 12 FEASIBILITY STUDY 12.1 When, on the basis of data obtained during the research activities, PARC-FOUGALA is of the opinion that there is, within the boundaries of the perimeter, a potential deposit of mineral substances in sufficient quantity and of sufficient quality to be a candidate for an industrial exploitation, PARC-FOUGALA shall carry out a feasibility study on the deposit which shall be submitted to the State for approval upon completion. 12.2 If PARC-FOUGALA should decide, based on this study, to proceed to the exploitation of the deposit, the State shall have a period of ninety (90) days, from the date of submission of the request for an exploitation permit by PARC-FOUGALA, to communicate in writing to PARC-FOUGALA the percentage of its share in the capital of the exploitation company as set forth in article 14 below. CHAPTER III EXPLOITATION ARTICLE 13 METHODS OF EXPLOITATION 13.1 Whenever PARC-FOUGALA shall decide to proceed to the exploitation of a deposit, a new exploitation Company can be formed for the purpose of exploiting the said deposit. The exploitation Company shall be governed by the terms and conditions set forth in this present agreement and the Commercial Code in effect in the Republic of Mali. 13.2 Within a period of ninety (90) days following the submission by PARC-FOUGALA of a request for an exploitation permit, the State shall grant to PARC-FOUGALA the permit or authorisation for this deposit. PARC-FOUGALA must then immediately hand over the permit or authorisation to the exploitation Company. PARC-FOUGALA shall retain ownership of the research permit pursuant to the terms and conditions set forth in the Mining Code so that, if justified, it can continue to carry out its research activities on the perimeter. 13.3 From the moment the exploitation permit is granted, the exploitation Company shall be authorised to begin the process of exploiting the deposit and constructing the mine. ARTICLE 14 SHARE OF THE PARTIES 14.1 Whenever a exploitation Company is formed in accordance with the Mining code, 20% of the share Capital shall be given to the State with no corresponding financial compensation in return for its initial participation for which no fee was charged. The dividends deriving from this free share shall be due and payable from the date of the first production and throughout the period of production. 14.2 By express and accepted agreement between the parties, it is agreed and understood that the State has incurred expenses for its research activities within the boundaries of the perimeter. These expenses amount to CFA 125,000,000, increased by interest at LIBOR plus 2% from the date of execution of this present agreement. These expenses shall either be credited to the account of the State for the requirements of future requests for funds which shall be made by the operator of the mine or considered as a shareholder advance and reimbursed to the State upon demand in accordance with the terms to be negotiated with the operator of the mine. 9 10 14.3 In the event of an increase in the share capital of the exploitation Company as a result of an Extraordinary General Assembly, 20% of the new shares shall be granted to the State so that the State shall continue to maintain its maximum percentage share in the Company as set forth in article 14.1 above. The State shall not be obliged in any way as a result of its percentage share as set forth in article 14.1 above to contribute to the costs of the research activity, the feasibility study or the exploitation of the deposit until the date of the first production of the said deposit. 14.4 The share of the State in the share capital of the exploitation Company set forth in article 14.1 above cannot at any time during the validity of this present agreement be allowed to exceed 20% of the total amount of the said share capital. 14.5 In the event of a negotiation culminating in the transfer of the rights pertaining to any permits or deposits or results of the research activity, PARC-FOUGALA undertakes to involve the State and to pay to the State 20% of any monies derived from the transaction. ARTICLE 15 OBJECTIVES OF THE EXPLOITATION COMPANY 15.1 The objective of the exploitation Company shall consist of the exploitation of the mineral substances within the boundaries of the perimeter, the basis of the feasibility study and for which an exploitation permit or authorisation shall have been granted and it shall be deemed to include all operations necessary or useful for the exploitation of the said deposit. 15.2 From the moment when PARC-FOUGALA transfers to the exploitation Company the exploitation permit or authorisation for a mine, the exploitation company shall proceed in a diligent manner and in accordance with the corresponding regulations to initiate the exploitation of the said deposit on which the feasibility study was based. ARTICLE 16 ORGANISATION OF THE EXPLOITATION COMPANY 16.1 The parties shall decide on the commercial name of the exploitation Company when it is constituted. 16.2 The headquarters of the exploitation Company shall be located in the Republic of Mali in the place to be decided upon by mutual agreement between the parties. 16.3 The fiscal year of the exploitation Company shall begin on the 1st day of January of each year and shall end on the 31st day of December of the same year. 16.4 The exploitation Company can request technical assistance from one of the parties and/or their affiliated Companies. The technical services shall be provided in accordance with the terms and conditions set forth in a Technical Assistance agreement. ARTICLE 17 RIGHT OF THE STATE TO EXPLOIT A DEPOSIT ON ITS OWN If the State considers that a new deposit within the boundaries of the perimeter should be exploited, it can ask PARC- FOUGALA to do a feasibility study on the exploitation of the said deposit. In the event that PARC-FOUGALA should think otherwise and should be of the opinion that a feasibility study is not justified, the State can carry out its own feasibility study and submit it to PARC-FOUGALA with an indication as to whether or not it wishes to proceed to the exploitation phase. PARC-FOUGALA must notify the State, within a ninety (90) day period from the date of receipt by PARC-FOUGALA of the feasibility study, whether it wishes to participate in the exploitation of the deposit on which the feasibility study was based. 10 11 Failure on the part of PARC-FOUGALA to respond within the specified period of time or in the event of a negative response from PARC-FOUGALA the State can proceed on its own to exploit the said deposit. It will bear all the costs and risks and no exploitation Company will be formed. The State, in this case, will have a 100% share in the exploited deposit. If PARC-FOUGALA decides at a later date to share in the exploitation of the deposit, an exploitation Company will be formed by the parties and the terms and conditions set forth in articles 13 to 16 above will be applicable. ARTICLE 18 PURCHASES AND SUPPLIES PARC-FOUGALA, the exploitation Company and their affiliated companies and all sub contractors shall use as far as possible the services and raw materials available in Mali and products manufactured in Mali to the extent that these services and products are available and competitive with regard to price, quality, guarantees and delivery schedules. ARTICLE 19 EMPLOYMENT OF PERSONNEL FROM MALI 19.1 For as long as this present agreement shall be in force, PARC-FOUGALA and the exploitation Company and their affiliated companies and subcontractors undertake to: a) give preference, where qualifications are equal, to personnel from Mali; b) implement a programme for the training and promotion of personnel from Mali with a view to ensuring their participation in all phases of the activities arising from this present agreement; c) provide housing for the workers and employees on the site of a standard with regard to hygiene and sanitation that will meet the requirements of the legislation in force or which will be enacted; d) respect the sanitary legislation and regulations as set forth in documents currently in force and which may be enacted later; e) respect the legislation currently in force or which may be enacted with regard to general working conditions, remuneration schemes, prevention of and restitution for work related accidents and professional illnesses, as well as professional and union associations. 19.2 From the date of the first production from the first mine on the perimeter, the exploitation Company undertakes to contribute to: a) the implementation, extension or improvement of the sanitation and school system at a reasonable distance from the deposit to satisfy the normal needs of the workers and their families. b) the on site construction of leisure facilities for the staff. 19.3 The State undertakes to grant to PARC-FOUGALA, the exploitation Company, their affiliated companies and subcontractors the authorisations required to enable their employees to do overtime and to work through the night or on days which are normally considered to be days off or holidays in accordance with the legislation in force at the time. 19.4 With regard to PARC-FOUGALA, the exploitation Company and/or their affiliated companies and subcontractors as well as their employees, the State undertakes not to enact any legislation either labour or business related which might be considered to be discriminatory vis-a-vis the laws which would be applicable to other businesses engaged in a similar activity in Mali. 11 12 ARTICLE 20 EMPLOYMENT OF EXPATRIATE PERSONNEL 20.1 PARC-FOUGALA and/or the exploitation Company, their affiliates and subcontractors can hire for their activities in Mali, those expatriate employees who, in the respective opinion of PARC-FOUGALA and the exploitation Company are required for the efficient operation of the exploitation and for the success thereof. The State will facilitate the acquisition of the permits and authorisations which are required for these expatriate employees in accordance with the legislation in force at the time of employment. 20.2 With regard to PARC-FOUGALA, the exploitation Company and/or their affiliated companies and subcontractors for so long as this present agreement shall remain in force, the State undertakes not to enact any legislation which can be viewed as a restriction of the terms and conditions under which the legislation in effect or to be enacted permits: a) the entry, the right to stay and the departure of any employee of PARC-FOUGALA, the exploitation Company and/or their affiliated companies and subcontractors and this applies equally to their families and personal effects; b) subject to article 20.1 above, the hiring and dismissal by PARC-FOUGALA, the exploitation Company and/or their affiliated companies and subcontractors, of the persons of their choice regardless of their nationality or the nature of their professional qualifications. 20.3 The State does however reserve at all times the right to forbid the entry and the right of abode of citizens of countries hostile to the Republic of Mali and of persons whose presence might in some way compromise public law and order or who engage in political activity. ARTICLE 23 GENERAL GUARANTEES GRANTED BY THE STATE 21.1 The State undertakes to guarantee to PARC-FOUGALA and to the exploitation Company the continuation of the economic and financial advantages and tax and Customs conditions as set forth in this present agreement. Any modification which may at some future date be enacted into law, in particular with regard to the Mining Code, shall not be applicable to PARC-FOUGALA and the exploitation Company with their prior written approval. Any terms or conditions which are more favourable and which may become law after the date of execution of this present agreement and pertaining to legislation in general shall automatically be applicable in full to PARC- FOUGALA and the exploitation Company. 21.2 The State guarantees equally to PARC-FOUGALA, to the exploitation Company, to their affiliated companies or contractors and to the persons normally employed by these organisations that they shall never in any way be subjected to any for of legal or administrative discrimination in law or in fact. ARTICLE 22 FISCAL REGULATIONS 22.1 The fiscal regime defined in this present agreement shall vary in accordance with the different phases of the operations. 22.2 From the date of execution of this present agreement and during the first three years of production, PARC- FOUGALA, the exploitation Company and their affiliated companies and subcontractors, as the case may be, shall be exempted from the payment of all taxes (including the Value Added Tax and the Services Tax), dues, contributions or any other direct or indirect taxes which they would have to pay personally or for the payment of which they would have been responsible with the exception of: 12 13 a) the fixed tax levied on the grant of a research permit regardless of its size: CFA 30,000; b) the tax on the renewal of the research permit at each renewal date and for so long as this present agreement shall remain in effect: FCA 300,000; c) the fixed tax levied on the grant of an exploitation permit: FCA 1,000,000; d) the additional surface rent for the research permit for so long as this agreement shall be in force: - FCA 50/km(2) per annum for the first period; - FCA 100/km(2) per annum for the first renewal; - FCA 200/km(2) per annum for the second renewal e) the additional surface rent for the exploitation permit: - FCA 50,000/km(2) per annum; f) the mandatory Employers contribution (CFE) at the rate in effect (the base being equal to the total of the gross amount comprising remuneration, benefits and salaries of the employees, including the expatriate staff); g) the business fees and contributions due on behalf of the employees, including the expatriate employees, as set forth in the legislation in effect; h) the General Tax on Income payable by the employees; i) the vehicle license fees with the exception of the work vehicles and other vehicles directly associated with the research activities; j) the stamp duties on the import permits related to vehicles as well as the tax on the insurance contracts issued therefor, with the exception of work vehicles and/or other vehicles directly associated with the research activities; k) the Ad valorem tax at the rate of 3%; l) the contribution on services rendered at the rate of 3%. 22.3 After the first three years of production extracted from a mine for which an exploitation permit is held, the exploitation Company, its affiliated companies and subcontractors will be obliged to pay in the name of this mine: a) the additional surface rent for the exploitation permit: - FCA 75,000.km(2) per annum; b) registration fees; c) stamp duties; d) tax on the real estate revenue and the tax on the mortmain assets with the exception of the exemptions set forth in the Mining Code; e) patent fees; 13 14 f) the lodging tax set at a rate of 1% of the combined payroll of all the employees; g) the lump sum employers contribution (CFE) at the going rate, the base being equal to the total of the gross amount of the remuneration, benefits and salaries of the employees regardless of their present or future nationality; h) the General Income Tax payable by the employees; i) the social fees and contributions normally payable on behalf of the employees as set forth in the current legislation; j) the tax on profits at the rate of 35% subject to article 22.4 below; k) the license fees for vehicles, with the exception of heavy machinery and/or other vehicles directly associated with the exploitation activity; l) the Value added Tax (VAT); m) the tax on the insurance contracts issued by insurance companies domiciled in Mali; n) the Ad Valorem tax at a rate of 3%; o) the fee for services rendered at the rate of 3%. No other tax, levy, contribution or fee of any type whatsoever, either direct or indirect which may in future be levied by the State at any level whatever shall be applicable to the parties, PARC-FOUGALA and the exploitation company, their affiliated companies and subcontractors during the exploitation period. 22.4 Notwithstanding the terms and conditions set forth in article 22.3 j), the exploitation Company shall be exempt from the payment of the tax on Profits during the first five years after the date of the first production. 22.5 The net taxable profit of the exploitation company subject to direct taxation at the rate of 35% shall be determined in accordance with the terms and dispositions of articles 103 and 104 of the Mining Code and subject to the definitions and modifications as set forth below: a) the liabilities as defined in article 105 of the Mining Code shall include those amounts owed by the exploitation Company to the shareholders and/or their affiliated companies as well as to third parties. b) the exploitation company shall be authorised to register as a debit to the exploitation account the real interest paid to third parties as well as to its shareholders and/or their affiliated companies provided that the interest rate paid to the said affiliated companies does not exceed LIBOR plus 2%. c) the applicable amortisation rates shall be those established by the legislation in force at the date of execution of this present agreement, and most particularly the inter-ministerial ordinance No. 236-MF- MDITP of January 23, 1975. The amortisation shall take effect from the date of the first production for those assets required prior to that date. The amortisation of the assets required after the first production shall take effect at the date on which the said assets are brought into use. 14 15 The amortisations entered into the accounting system during the years in which the company shows a loss can be deferred for the requirements of the calculation of the net profit subject to the tax on profits. The amounts of the deferred amortisations shall be deducted, after the deduction of the reported losses, during the first fiscal year in which the exploitation company shows a profit and during subsequent profitable years. Research and exploitation expenses which cannot be attributed to assets subject to amortisation shall be capitalised and depreciated by straight line depreciation over the lesser of the following two terms: either ten years or the estimated productive life of the mine. d) All the costs related to technical assistance provided by PARC-FOUGALA, as listed in Annex II shall be deductible, in full, for the purposes of calculating the tax on profits. The exploitation company undertakes to provide to the State a certified annual statement of accounts in accordance with article 104 c) of the Mining Code. e) The exploitation company shall be authorised to report as a new item, for a period of five years, all exploitation losses incurred after the first production. In this context, the exploitation losses shall signify the excess of all the deductions mentioned in article 105 of the Mining Code over the entire revenue stream as set forth in article 103 of the said Code. 22.6 In accordance with article 96 of the Mining Code, the State guarantees to PARC-FOUGALA and to the exploitation company the continuation of the fiscal regime subject to the terms and conditions set forth in article 21.1 of this present agreement. Throughout the period of validity of this present agreement, no modification can be made to the regulations governing the tax base and the collection of legislated taxes and tariffs without the prior written agreement of PARC-FOUGALA and/or the exploitation company. Throughout the period of validity of this present agreement, PARC-FOUGALA and the exploitation company cannot be subjected to the payment of taxes, levies and contributions levied and due to the State but created at a later date. ARTICLE 23 CUSTOMS REGULATIONS 23.1 PARC-FOUGALA and/or the exploitation company and their affiliated companies and subcontractors shall benefit from the following customs duty exemptions during the period of validity of the research permit and for the first three years of production. a) Regulations for the temporary free importation ad prorata temporis for the material, machinery and apparatus, heavy equipment, utility vehicles and other assets intended to be reexported once the research and exploitation operations have been completed. b) Common law regulations for passenger vehicles used for PARC-FOUGALA or the exploitation Company's activities as well as passenger vehicles intended for private use. c) Exemption from Customs duties and taxes applicable to tools, chemical products, reactive products, petroleum products, oil and grease for machinery required for their activities, spare parts (with the exception of those needed for private vehicles), the materials and materiel, machinery and equipment intended to be assimilated permanently in the mine. 23.2 With regard to their personal effects, the expatriate personnel employed by PARC-FOUGALA and the exploitation company and their affiliated companies and subcontractors shall benefit from an exemption of duties and taxes for a period of six months from the date of their arrival in Mali. 15 16 23.3 At the time of re-export the products will be exempted from all export duties and taxes, all taxes on turnover at the time of export and all other levies normally applicable to exports during the period of validity of this present agreement. The profit from the sale of these exports shall not be subject to any form of taxation, either direct or indirect, and the parties and the exploitation company can convert the profit from the said sales into foreign currency. 23.4 At the time of reexport, the material and equipment which was used for the research and exploitation activities shall be exempted from the payment of the customary export duties and taxes. 23.5 In the event that any of these items which in accordance with the above mentioned terms are exempted from the payment of import duty are resold in Mali, PARC-FOUGALA, the exploitation company and/or their affiliated companies and subcontractors or their employees must first obtain permission from the State and shall be liable for the payment of duty on the resold items. These value of these items shall be assessed in accordance with the legislative conditions prevailing at the time of the sale. 23.6 After the first three (3) years of production, the exploitation Company, its affiliated companies and subcontractors shall be subject to the payment of the Customs duties and taxes which are applicable at the date of execution of this present agreement with the exception: - petroleum products, oils and lubricants required for the generation of energy for the extraction, transportation and treatment of the mineral. These petroleum products, oil and lubricants required for the generation of energy shall remain exempted from the payment of all Customs duties and taxes throughout the period of validity of this present agreement. ARTICLE 24 ECONOMIC REGULATIONS 24.1 Subject to the terms and conditions of this present agreement, the State, throughout the period of validity of this present agreement, shall not with regard to PARC-FOUGALA and/or the exploitation company, their affiliated companies and subcontractors, initiate nor implement any proceedings which may be seen to imply a restriction of the terms and conditions under which the legislation prevailing at the date of execution of this present agreement permits: a) the unrestricted choice of suppliers and subcontractors (subject to the terms of article 18 above); b) the unrestricted import of merchandise, material, machinery, equipment, spare parts and consumer goods (subject to the terms of article 23 above); c) the free circulation inside Mali of material and assets mentioned in the preceding paragraph as well as all substances and products obtained from the research and exploitation activities. 24.2 The State undertakes to provide all the permits and all the authorisations which are needed for the fulfillment of the rights guaranteed in articles 23 and 24 of this present agreement. 24.3 In the event of the sale of gold or other mineral substances included in the voluminous samples intended for metallurgic assays, PARC-FOUGALA must deduct this revenue from the research expenses. In the case of small mines, the value of the finished products extracted from the samples intended for treatment assays (laboratories, pilot factories, etc.) shall be subject to the ad valorem tax in the event that the revenue should be used for any other purpose than for the research expenses. 16 17 24.4 Subject to the terms of this present agreement, PARC-FOUGALA and/or the exploitation company shall be authorised to enter into agreements at a price which is seen to be reasonable vis-a-vis the world market and to export the products, as well as to trade the products freely except in countries which are hostile to the Republic of Mali or to engage in trade with nationals of those countries. All agreements between PARC-FOUGALA and/or an affiliated company or between the exploitation company and its shareholders shall be drafted in such a way that the terms and conditions contained therein are not more favourable than the terms and conditions negotiated with third parties. 24.5 If, during the course of the exploitation activities carried out in accordance with the terms and conditions set forth in this present agreement, PARC-FOUGALA and/or the exploitation company should decide to terminate the activity, they shall not be permitted to transfer to a third party their installations, machinery and equipment until they have granted to the State a first option on the acquisition of these assets at their estimated value at the time of the decision to terminate the activity. 24.6 PARC-FOUGALA, the exploitation company and/or their affiliated companies and subcontractors shall be authorised to import on a duty free basis the materials and products required either directly or indirectly for their operations. For the implementation of the duty free import proceedings, consideration will be given not only to the conditions of quality and delivery schedules but also to the possibility of obtaining the materials and products at competitive prices on the local market. ARTICLE 25 FINANCIAL REGULATIONS 25.1 Subject to the terms and conditions governing this present agreement, the State guarantees, throughout the period of validity of this present agreement, to PARC-FOUGALA, the exploitation company and their affiliated companies and subcontractors the following: a) unrestricted conversion and transfer of funds intended for the settlement of all debts (principal and interest) in foreign currency from the suppliers and creditors who are not Malian; b) the unrestricted conversion and transfer of net profits to be distributed to non Malian associates and of all amounts intended for the amortisation of funding obtained from non Malian institutions and from companies affiliated with PARC-FOUGALA, after the payment of all taxes and duties imposed by this present agreement; c) the unrestricted conversion and transfer of profits and funds resulting from the liquidation of assets, after the payment of the taxes, customs duties and levies set forth in this present agreement. 25.2 In order to allow the exploitation company or PARC-FOUGALA to face the exploitation costs and to make payments to suppliers and creditors for the goods purchased and services provided and for the loans which have been contracted and for future services and dividends arising from its activities, the State, through the application of article 8 of Law No. 89-12 AN-RM of February 9, 1989, shall authorise the exploitation company or PARC-FOUGALA to maintain in a foreign country in US dollars or in any other hard currency, an adequate fund from the profit of its exports. 25.3 PARC-FOUGALA and the exploitation company shall be authorised to open an account in foreign currency in Mali or abroad. 25.4 The State guarantees the unrestricted conversion and transfer to countries outside Mali of all the savings of the expatriate personnel employed by PARC-FOUGALA and the exploitation company as well as by their affiliated companies and subcontractors which have been taken from their salaries or which result from the liquidation of investments made in Mali or from the sale of their personal effects in Mali. 17 18 Through the application of article 6 of Law No. 89-12 AN-RM of February 9, 1989, the State shall authorise the expatriate personnel residing in Mali to open accounts in foreign currency in Mali or abroad. ARTICLE 26 ADMINISTRATIVE, MINING AND LAND GUARANTEES 26.1 The state guarantees to PARC-FOUGALA and to the exploitation company the right to occupy and use all the land required for the research and exploitation activities of the deposit(s) on which this mining research permit or mining exploitation permit is based within the scope of this present agreement both inside and outside the boundaries of the perimeter, in accordance with the terms and conditions set forth in the Mining Code. The occupation and utilisation of the said lands shall not involve PARC-FOUGALA and the exploitation company in any payment of taxes, fees, rents or contributions which are in addition to those which have been specified in this present agreement. At the request of the exploitation company or PARC-FOUGALA, the State shall proceed to relocate those inhabitants whose presence on the said lands would hinder the research and/or exploitation activities. PARC-FOUGALA and/or the exploitation company shall be required to pay a fair indemnification to the inhabitants both for depriving them of the right to enjoy their land and for the damage which their stated activities might cause to the holders of land deeds, common law occupation rights or to the beneficial owners of any other rights whatever they may be. 26.2 PARC-FOUGALA and the exploitation company shall have the right, at their own expense, to cut down the trees as required for their activities and to take and use the said wood, earth, stones, sand, gravel, chalk, plaster and waterfalls and all other materials and elements which might be required in the realisation of the objectives set forth in this present agreement in accordance with the prevailing legislation. 26.3 The Mining Code in effect in Mali on the date of execution of this present agreement shall govern the mining titles granted or renewed to PARC-FOUGALA and the exploitation company throughout the period of validity of this present agreement. ARTICLE 27 EXPROPRIATION The State does hereby assure PARC-FOUGALA, the exploitation company and their affiliated companies and subcontractors that it does not intend to expropriate the future exploitations nor seize any of their assets. However, if the circumstances or a critical situation should require that such measures be taken, the State recognises that, in accordance with international legislation, it will be required to pay an adequate indemnification to the injured parties. ARTICLE 28 PROTECTION OF THE ENVIRONMENT PARC-FOUGALA and/or the exploitation company undertake to: a) to preserve, throughout the duration of this agreement, the environment and the public infrastructures affected by their activities; b) to repair all damage caused to the environment and to the infrastructure beyond normal wear and tear; c) comply strictly with all aspects of current legislation regarding hazardous wastes, natural resources and the protection of the environment; 18 19 d) landscape the excavated sites in accordance with internationally accepted mining industry standards; e) comply with all the terms and conditions of the laws establishing the regulations for the management of the forest, fauna and water resources; f) set up a system for the purification of the residual waters in the mine. ARTICLE 29 IMPLEMENTATION OF MEASURES FOR THE PROTECTION OF THE ENVIRONMENT The Minister responsible for the Environment can periodically, in case of need, and with the consent of the Minister responsible for Mines, implement measures to control the impact of the research and mining exploitation activities on the environment. ARTICLE 30 CULTURAL HERITAGE In accordance with legislation in effect regarding the protection of the national cultural heritage, the exploitation phase must be preceded by an archaeological study funded by PARC-FOUGALA and/or the exploitation company on the land within the exploitation perimeter. The study is to be carried out by the appropriate department of the Minister responsible for Culture. During the research activities if any items related to the national cultural heritage are discovered: assets, fixed or moveable, PARC-FOUGALA undertakes not to disturb these objects for a period not to exceed one month from the notification date and to lose no time in informing the administrative authorities of the find. The exploitation company, PARC-FOUGALA or their associates undertake to participate in the salvage operations. ARTICLE 31 TRANSFER, SUBSTITUTION AND NEW PARTIES 31.1 Either one of the parties can, with the prior written consent of the other party, grant to other individuals who are technically and financially qualified all or a portion of the rights and obligations which the said party shall have acquired by virtue of this present agreement including its participation in the exploitation company and the research and exploitation permits. In such an instance, the assignees must assume all the rights and obligations of the assignor as specified in this present agreement or resulting from its share in the exploitation company as well as those rights and obligations which derive from the research and exploitation permits. With regard to the share of one party in the exploitation company or the transfer of a permit, the other party retains the right of preemption. 31.2 Article 31.1 above shall not be applicable to the transfer by one party of all or a portion of its rights deriving from this present agreement or from its share or from its assets in an exploitation company if the said transfer is to an affiliated company. 31.3 PARC-FOUGALA shall be free, after having given notice of its intention to the State, to hand over the execution of this present agreement to any affiliated company. 31.4 In the event of such a substitution by PARC-FOUGALA in favour of an affiliated company, PARC-FOUGALA shall nevertheless retain full responsibility for compliance with the obligations set forth in the agreement. 19 20 CHAPTER IV FINAL CLAUSES ARTICLE 32 ARBITRATION 32.1 The parties undertake to: a) reach an amicable settlement for all their differences regarding the interpretation or the application of this present agreement; b) in the event of litigation or difference of opinion regarding the technical aspects of the agreement, to submit the dispute to an expert recognised for his technical knowledge, chosen jointly by the parties and not being of the same nationality as either party nor having any ties to either party. The decision of this expert must be made known within 30 days of his appointment and shall be binding and not subject to appeal. In the event of disagreement regarding the understanding of the nature of the dispute or litigation or in the event of disagreement between the parties regarding the choice of the independent expert, the dispute will be settled by arbitration in accordance with the terms and conditions set forth in article 32.1 above. 32.2 Subject to the terms and conditions set forth in article 31.1, all litigation or dispute related to this present agreement shall be sent to arbitration in accordance with the agreement governing the settlement of disputes regarding investments between States and citizens of other States, which became effective on October 14, 1966 (hereinafter known as "the Arbitration Agreement") In the event of arbitration: a) the arbitration will be held in Paris unless the parties agree otherwise; b) the arbitration proceedings will be held in French, with translation into English if required, and the applicable law shall be the law of the Republic of Mali; c) the costs of the arbitration shall be borne by the losing party. 32.3 For the purposes of the arbitration the parties agree that the operations to which this present agreement refers constitute an investment in the sense of article 25, line 1 of the Arbitration Agreement. 32.4 In the event that, for whatever reason, the International Centre for the Resolution of Disputes related to investments (CIRDI) should declare itself to be unsuited for or should refuse to accept the arbitration, the dispute shall then be definitively settled in accordance with the Arbitration Settlement of the International Chamber of Commerce in Paris. The arbitration shall be presided over by a single arbitrator appointed by mutual agreement between the parties. This arbitrator shall be a citizen of a different country from either of the parties and shall have proven experience in the mining industry. In the event that the parties cannot reach agreement on the choice of an arbitrator, the arbitration shall be presided over by three arbitrators appointed in accordance with the Arbitration Settlement of the International Chamber of Commerce in Paris. The terms and conditions of article 31.2 shall apply. 32.5 The parties undertake to implement, without delay, the ruling handed down by the arbitrators and to renounce any claim to an appeal. Any competent tribunal can be requested to ratify the ruling handed down. ARTICLE 33 APPLICABLE LAW This present agreement shall be governed by the laws of the Republic of Mali. 20 21 The State declares that this present agreement is authorised by the Malian mining legislation. It is expressly understood that, throughout the period of validity of the agreement, that the laws of Mali constitute the laws of the parties, subject to respect of the other terms and conditions of public order. ARTICLE 34 TERM OF THE AGREEMENT 34.1 This present agreement shall be valid for a maximum period of 30 years from the date of execution. In the event that the duration of exploitation of a deposit should exceed the duration of this present agreement, the parties undertake to negotiate a new agreement. 34.2 This present agreement shall be terminated prior to its expiry date in the following instances: a) by mutual written agreement of the parties; b) In the event of a total renunciation by PARC-FOUGALA and the exploitation company of their mining titles, or the annulment thereof in accordance with the terms and conditions of the Mining Code; c) in the event of insolvency, bankruptcy, liquidation of assets or other similar collective procedures involving PARC-FOUGALA during the research period or the exploitation company during the exploitation phase. ARTICLE 35 EFFECTIVE DATE This present agreement shall become effective once it has been signed by both parties. ARTICLE 36 ANNEXES Annexes I, II and II to this present agreement are an integral part of the agreement. - Annex I: Coordinates of the perimeter - Annex II: Programme and Cost of the operations - Annex III: Signatory powers ARTICLE 37 AMENDMENTS 37.1 Any clause which is not included in the text of this present agreement can be put forward by one or other of the parties and it will be given careful consideration. Both parties shall make a genuine effort to reach a mutually satisfactory agreement, at the close of which, the said clause shall be the object of an amendment which shall be annexed to this present agreement and signed by both parties and ratified by the State. 37.2 The rights and obligations of the parties resulting from this present agreement seek to establish, at the time of execution of the said agreement, an economic equilibrium between the parties; if, however, during the course of the activities associated with the agreement, significant variations in the economic conditions give rise to expenses which are considerably more onerous for one or other of the parties than those envisaged at the time of execution of the said agreement, which culminate in unfair consequences for one or other of the parties, it is hereby agreed that the parties shall reexamine the terms and conditions of this present agreement in a spirit of objectivity and loyalty for the purpose of reinstating the 21 22 initial equilibrium. The present clause creates a simple obligation for the parties to renegotiate in view of an eventual readaptation of the Agreement, with the exception of an express agreement between the parties otherwise, the Agreement will still be in effect and will continue to be in force during the renegotiation. ARTICLE 38 RENUNCIATION, PARTIAL ANNULMENT, RESPONSIBILITY 38.1 With the exception of an intentional renunciation in writing, the fact that one party does not exercise all or a portion of the rights conferred thereto through the application of this present agreement shall not constitute, at any time, a relinquishment of the rights which have not been exercised. 38.2 If any one of the terms and conditions of this present agreement should be declared null and no longer applicable, in full or in part, for whatever reason, such an event shall not be permitted to annul this present agreement which shall remain in full force and effect. 38.3 If one party is of the opinion that it has been severely affected by this partial annulment, it can request a review of the offending terms and conditions of this present agreement. The parties shall make an effort to reach a fair solution. ARTICLE 39 FORCE MAJEURE 39.1 The non-performance by one or other of the parties of any of the obligations arising from this present agreement, other than obligations related to payments and notifications, shall be excused to the extent that the said failure to comply is due to an event of force majeure (Act of God). If compliance with an obligation affected by an event of force majeure is delayed, the time frame specified for compliance of the said obligation, as well as the duration of the Agreement specified in article 33, notwithstanding any condition to the contrary in this present agreement, shall be duly extended for a period of time equal to the delay caused by the occurrence of the event of force majeure. However, it is understood that neither the State nor PARC-FOUGALA can invoke in their favour as an event of force majeure any act or action (or any failure to act) which is their fault. 39.2 In accordance with the terms and conditions of this present agreement the following shall be deemed to be cases of force majeure: all events, acts or circumstances alien to the will of the party such as war or conditions attributable to war, insurrection, civil disturbances, blockades, embargo, strikes or other labour conflicts, riots, epidemics, earth quakes, floods or other weather related disasters, explosions, fires, lightening, actions of the prince, acts of terrorism. It is the intention of the parties that the term force majeure should be interpreted as closely as possible to the principles and usage of international law. 39.3 When one or other of the parties is of the opinion that it is prevented from complying with any one of its obligations as a result of an event of force majeure, it must immediately notify the other party in writing of this impediment indicating the cause thereof. The parties must do all that is within their power to ensure the rapid resumption of normal compliance with the obligations affected by the act of force majeure, with the proviso that neither of the parties shall be obliged to settle disputes with third parties, including labour conflicts, unless the conditions are acceptable or if settlement is mandatory as a result of a definitive arbitration ruling or a decision handed down by a competent court of law. The State undertakes to cooperate with PARC-FOUGALA and/or the exploitation company to settle any labour conflict which might arise. 22 23 ARTICLE 40 REPORTS, ACCOUNTS AND INSPECTIONS 40.1 PARC-FOUGALA and/or each exploitation company, as appropriate, undertake for the duration of this present agreement to: a) set up in Mali a genuine, veritable and detailed accounting system covering its operations, accompanied by support documents which are required for verification of the accuracy of the accounts. This accounting activity will be controlled by the representatives of the State duly appointed for this purpose; b) make available for inspection by the State or its duly authorised representatives all the accounts or documents which are held abroad but which relate to the operations in Mali. 40.2 All the information made known by PARC-FOUGALA and/or the exploitation company to the State through the application of the terms of this present agreement, shall be deemed to be confidential and the State undertakes not to pass on the information to third parties without the prior written consent of PARC-FOUGALA and/or the exploitation company which, as appropriate, will not be refused without a valid reason. ARTICLE 41 SANCTIONS AND PENALTIES In the event of failure to comply with the obligations resulting from the laws and regulations in effect at the date of execution of this present agreement, to the extent that these laws and regulations apply to PARC-FOUGALA and the exploitation company subject to the terms of article 21 of this present agreement, the sanctions and penalties set forth in the same regulatory legislative documents shall be immediately applicable. ARTICLE 42 NOTIFICATION All communications or notifications required to be given under this present agreement must be sent by registered letter with acknowledgment of receipt or by telex confirmed by a registered letter with acknowledgment of receipt, as follows: a) all notifications to the company must be sent to the address below: PARC-FOUGALA Villa No. 623 rue 216 Hippodrome P.O. Box E 1339 Tel:fax 22.77.51 Bamako - MALI At the time of constitution of an exploitation company, all notifications can validly be sent to the address of the exploitation company. 23 24 b) All notifications to the State can validly be sent to the National Headquarters for Geology and Mining at the address below: National Headquarters for Geology and Mining P.O. Box 223 Bamako Republic of Mali Tel: 22.58.21/22.91.11 Fax: 22.91.11/22.71.74 Any change of address must be notified in writing as soon as possible by one party to the other. ARTICLE 43 LANGUAGE OF THE AGREEMENT AND MEASURING SYSTEM 43.1 This present agreement is written in the French language. All reports or other documents specified or to be specified through the application of this present agreement must be written in the French language. The translation of this present agreement into any other language shall be done solely for the purpose of facilitating the application thereof. In the event of any contradiction between the text in French and the text in any other foreign language, the French text shall prevail. 43.2 The accepted measuring system shall be the metric system. ARTICLE 44 INTERVENTION OF THE EXPLOITATION COMPANY At the time of constitution of each exploitation company as specified in this present agreement, the exploitation company shall sign four original copies of this present agreement and this signature shall be taken as acceptance on the part of the exploitation company of the obligations deriving from this present agreement. Issued in Bamako, on October 15, 1996 in four original copies FOR THE COMPANY PARC-FOUGALA FOR THE GOVERNMENT OF THE REPUBLIC OF MALI THE MANAGING DIRECTOR THE MINISTER FOR MINES, ENERGY AND HYDRAULICS Hamed Diane SEMEGA Cheickna Seydi Ahamadi DIAWARA 24 25 ANNEX I COORDINATES OF THE PERIMETER POINT A: 12 degrees 57'20'' North / 11 degrees 15'26'' West -------- POINT B: 12 degrees 57'20'' North / 11 degrees 13'10'' West -------- POINT C: 12 degrees 54'15'' North / 11 degrees 13'10'' West -------- POINT D: 12 degrees 54'15'' North / 11 degrees 15'26'' West -------- SURFACE AREA: 24km(2)
25 26 ANNEX II PROGRAMME FOR AND COSTS OF THE PROPOSED ACTIVITIES I. OBJECTIVES OF THE PROPOSED RESEARCH PROGRAMME IN THE FOUGALA ZONE There is a layer of lower Proterozoic rocks contained within the byrrimien formation which is recognised in Mali and in Western Africa as being one of the most important sites for gold deposits. There is evidence of recognised gold and copper mineralisation within the boundaries of the perimeter in question. The zone presents a geological configuration similar to that of the GREENSTONE Belts which are located in Eastern Canada, Western Australia and the Guyanese shield in South America which are the largest gold producing zones. The principal objective of the research and exploitation programme consists of producing evidence of a gold mineralisation contained in a body of hard rock which would justify a viable exploitation. The dimension and the form of the mineralisation would be defined to facilitate the reliable determination of both the tonnage and the quality. Metallurgic and geotechnical characteristics can be evaluated. Other information will be sought for the purpose of carrying out a feasibility study which will determine the best method for exploitation and the best method of treating the ore for the extraction of the gold, the cost of construction and operation of a mine and also an overall financial evaluation of the whole project. An important part of the work programme will involve the collection of base environmental data, with particular emphasis being given to the physical and social aspects thereof with a view to minimising the impact of the prospecting activities and exploitation on the environment. PAN AFRICAN RESOURCES CORPORATION has already done research in this zone and some of these research projects are still active. The research projects consist of: - - geological cartography - - rock sampling - - VLF-EM geophysics - - depth drilling The development of phase II of the research programme proposed here will depend on the results obtained from phase I. II. PROPOSED RESEARCH AND EXPLORATION PROGRAMME The proposed programme which is expected to take three years will be carried out in three successive stages. The undertaking to proceed to phases II and III will depend on the success of the work carried out during the first phase. II/I PHASE I Compilation and evaluation of all the available technical data as well as the information obtained from other earlier activities carried out in the region for the purpose of gaining an understanding of the geology, structure, distribution and control of the mineralisation. 26 27 Geological cartography of the zone on a scale of 1/50.000 and geophysical surveys. Digging of wells and/or ditches for taking geochemical samples and to facilitate the task of making a detailed geological map. Drilling work which will be done either with percussion drills, inverse circulation equipment or by channeling may be initiated during phase I depending on the results of the preliminary studies carried out on the zone. II/2 PHASE II - - Detailed geochemical work, detailed geological cartography, supplementary drilling with diamond or inverse circulation drills. - - Geotechnical evaluation of the drill holes; preliminary work on metallurgic tests. - - Collection of environmental data; evaluation of the physical and social environment. - - Calculation of the mineralised resources defined by the drill holes. II/3 PHASE III This will consist of undertaking: - - intensive drilling to define the layer, detailed metallurgic test work, geotechnical evaluation and environmental studies, calculation of the geological reserves and the exploitable reserves, engineering studies and an assessment of the infrastructures in regard to the human and technical resources available, methods of transport, water supply, electricity and other utilisable resources. - - prefeasibility study on the opening and operation of a mine, meetings with the Minister for Mines and other related departments with a view to defining the best way to ensure the smooth running of the project. - - completion of a feasibility study for the development of exploitation operations with a significant portion of the study devoted to the concept behind the project and an environmental impact study. The completion of phase III and the comprehensive feasibility study may extend beyond the initial three year period. III FORECAST COSTS AND PROPOSED TIME FRAME The minimum expenditure proposed for the first year amounts to US$200,000. During this first year phase I will be completed and, depending upon the results, the second phase will be implemented. The expenses forecast for each of the three phases described above will be as follows:
- ----------------------------------------------------------------------- PHASES FORECAST COSTS IN $ - ----------------------------------------------------------------------- I 200,000.00 - ----------------------------------------------------------------------- II 300,000.00 - ----------------------------------------------------------------------- III 400,000.00 - -----------------------------------------------------------------------
i.e. a total of US$ 900,000.00 for the three phases which equates to FCFA 450,000,000. 27 28 IV. TECHNICAL AND FINANCIAL RESOURCES 4.1 THE COMPANY PAN AFRICAN RESOURCES CORPORATION is a company which is registered in Barbados and based in Denver in the United States. The principal business objective of this company is the identification and assessment of projects relating to gold in Africa. PAN AFRICAN RESOURCES CORPORATION has been quoted on the CANADIAN DEALERS NETWORK Exchange since February 1996. PAN AFRICAN RESOURCES CORPORATION is a subsidiary of GOLDEN STAR RESOURCES. GOLDEN STAR RESOURCES is a Canadian company based in Denver in the USA and quoted on the Toronto Stock Exchange and on the American Stock Exchange. 4.2 ACTIVITIES IN SOUTH AMERICA Since 1985, Golden Star has been involved in programmes designed for prospecting gold and diamonds in Guyana, Surinam, French Guiana and Venezuela. In 1985 golden Star acquired the Omai gold project in Guyana and implemented a programme of prospecting and evaluation and conducted a feasibility study as well. In 1990, Cambior Inc., a Canadian company joined with golden Star in a joint venture operation for the construction of a mine, the cost of which amounted to $148 million. The production of gold began in January 1993. Golden Star owns a 30% share in the mine, the Guyanese government 5% and Cambior 65%. Annual production of gold is estimated to be 7,500 kilos. In Suriname, the feasibility study on the Gross Rosebel project will be carried out during this year. Golden Star has undertaken very in-depth research programmes covering the above mentioned projects and zones in the rock formations which are very similar to the byrrimien formation in Mali. Several of these projects have been performed through joint venture associations with other mining companies. Research expenses for the year 1996 are estimated to be US$30 million. The company has built up considerable technical competence in the area of research and evaluation of deposits of precious metals and the company currently employs a significant number of persons qualified to carry out these specialised projects. 4.3 ACTIVITIES IN AFRICA GOLDEN STAR RESOURCES has naturally turned its attention to the "other half" of the Guyanese shield situated in Western Africa. The company is very satisfied with the Malian potential in terms of gold rock and has undertaken to implement a serious exploration programme in the region. The objective of the programme detailed above is to give proof of a deposit for the development of which an investment of US$100 million will be required for a potential return of one billion dollars in sales of gold. PAN AFRICAN RESOURCES CORPORATION is currently taking advantage of the wealth of technical expertise residing in GOLDEN STAR. PAN AFRICAN RESOURCES CORPORATION is currently engaged in exploration activities in Mali, Gabon, Ivory Coast, Ethiopia and very shortly in Erythria. 28 29 V. REPORTS, RELATIONS WITH THE GOVERNMENT WORK METHODS At the start of its activities in Mali, Ivory Coast, Gabon and Ethiopia, the company will do all that is necessary to maintain an excellent working relationship with the government of Mali and the ministerial departments concerned with the development of the mining industry in Mali. Technical reports covering all aspects of the research programme will be submitted on a regular basis to the Malian authorities. The PARC company wishes, through a close liaison with qualified representatives from the department of mines who will be involved in the different projects for the purpose of providing technical and administrative assistance, to contribute to the development of the mining industry through the transfer of its expertise in matters relating to mining exploration to these State representatives as well as to its Malian employees. The company undertakes to give preference to Malians in all areas of its activity provided that the candidates meet the required standards regarding competence and competitiveness. VI. SITE OF THE PERMIT The requested zone covers a surface area of 24 km(2) and in located within the Keniba Circle, in the Kayes region. 29 30 ANNEX III FIRST RESOLUTION The Assembly approves purely and simply the Bye-laws of the company PARC-FOUGALA S.A. This resolution was unanimously adopted. SECOND RESOLUTION The General Assembly declares the release of a quarter of the capital as indicated in the declaration of subscription and payment. This resolution was unanimously adopted. THIRD RESOLUTION The Constitutional General Assembly appoints as first administrators: - the company PARC, represented by Mr. A. FLEMING - Mr. Hamed SEMEGA - Mr. David FENNELL - David FAGIN - Mr. Mamadou Moctair BAH - Bernard AMOZIG - Mr. Sericelli MAGASSA - Mr. Cheick Amadou Tidiane SOW This resolution was unanimously adopted FOURTH RESOLUTION The Constitutional General Assembly states that the company "PARC-FOUGALA" is in compliance with the laws and regulations of the Republic of Mali. The General Assembly will appoint at a later date the Auditors of the company. FIFTH RESOLUTION The Constitutional General Assembly agrees to grant all the necessary powers to Mr. Hamed SEMEGA for the purpose of complying with all the formalities arising from this present Constitutional General Assembly and to proceed with the start up of the company. This with authority to delegate to others. This resolution was unanimously adopted. 30 EX-10.33 12 1992 NON-DISCRETIONARY OPTION PLAN 1 EXHIBIT 10.33 GOLDEN STAR RESOURCES LTD. 1992 NON-DISCRETIONARY DIRECTORS' STOCK OPTION PLAN (Amended and Restated to November 6, 1995) 1. PURPOSE 1.1 The purpose of the 1992 Non-Discretionary Directors' Stock Option Plan (the "Plan") is to establish a plan to advance the interests of Golden Star Resources Ltd. (the "Corporation") by providing incentives which will attract and retain non-employee directors of the Corporation through opportunities to acquire common shares without par value ("Shares") in the Corporation. 2. ADMINISTRATION OF THE PLAN 2.1 The Plan will be administered by the Board of Directors of the Corporation (the "Board of Directors"). The Board of Directors is authorized to interpret the Plan and may from time to time amend or rescind rules and regulations required for carrying out the Plan. Any such interpretation or construction of any provision of the Plan shall be final and conclusive. All administrative costs of the Plan shall be paid by the Corporation. 3. PARTICIPATION 3.1 Options may be granted under the Plan only to persons who are non-employee directors of the Corporation. For purposes of the Plan, a non-employee director is any person who is a member of the Board of Directors of the Corporation and who is not a full-time employee of the Corporation or any of its subsidiaries. 4. NUMBER OF SHARES RESERVED UNDER THE PLAN 4.1 The maximum number of Shares issuable pursuant to the exercise of options granted under the Plan shall be 627,500 Shares (including 357,500 Shares issuable upon the exercise of unexercised options granted under the Plan prior to April 19, 1995), provided that each option granted under the Plan shall not cause the following limitations to be exceeded: (a) the number of Shares subject from time to time to unexercised options granted under the Plan shall not exceed that number which is equal to the difference between (i) 10% of the Outstanding Issue (as defined below) from time to time, and (ii) the number of Shares that are reserved for issuance to Insiders (as defined below) pursuant to stock options granted under other stock option plans or arrangements of the Corporation; (b) the total number of Shares issuable within any one-year period to all Insiders of the Corporation pursuant to the exercise of vested options granted under the Plan or pursuant to any other share compensation arrangements of the Corporation shall not exceed 10% of the Outstanding Issue; (c) the total number of Shares reserved for issuance to any one optionee pursuant to options granted under the Plan or other stock option plans or arrangements of the Corporation shall not exceed 5% of the outstanding number of Shares from time to time; and 1 2 (d) the total number of Shares issuable within any one-year period to an optionee under the Plan and, if applicable, such optionee's "associates" (as defined under the Securities Act (Ontario)) pursuant to the exercise of vested options granted under the Plan or pursuant to any other share compensation arrangements of the Corporation shall not exceed 5% of the Outstanding Issue. "Insiders" has the meaning set forth in The Toronto Stock Exchange's policy issued March 22, 1994 entitled "Employee Stock Option and Stock Purchase Plans, Options for Services and Related Matters". "Outstanding Issue", for the purposes of the Plan, is determined on the basis of the number of Shares that are outstanding immediately prior to the Share issuance or option grant in question, excluding Shares issued pursuant to the Plan or the Corporation's other share compensation arrangements over the preceding one-year period. The maximum number of Shares issuable under the Plan shall be appropriately adjusted in the event of any subdivision or consolidation of the Shares. 5. AUTOMATIC GRANTS 5.1 Each person who becomes a non-employee director of the Corporation will automatically be granted, as of the date such person first becomes a non-employee director, an option to purchase 40,000 Shares, provided that, within the one year prior to the date he or she became a non-employee director, he or she had not been granted any other incentive stock option by the Corporation. On each anniversary of the non-employee director's appointment to the Board of Directors, if he or she continues to be a non-employee director of the Corporation, he or she will automatically be granted, as of the anniversary date, an option to purchase 25,000 Shares for anniversaries occurring in 1993 and 1994 and an option to purchase 10,000 Common Shares for anniversaries occurring after 1994. The exercise price per optioned Share will be the fair market value per Share on the date of grant. For purposes of the Plan, "fair market value" per Share shall mean the closing price of the Shares on the stock exchange or other market on which the Shares are principally traded on the day immediately preceding the date of grant. All options granted under the Plan will vest immediately upon grant, provided, however, that if an optionee is subject to section 16 of the United States Securities Exchange Act of 1934, as amended (the "Exchange Act"), at the time of exercise of his or her option, such optionee shall be precluded from exercising the option unless six months have elapsed since the date of grant of the option. 5.2 Notwithstanding the provisions for automatic grants of options set forth in section 5.1 hereof, if any particular automatic grant of an option would violate the requirements of section 4.1 hereof, then the grant of such option shall be postponed until such time as when the option may be granted without any violation of section 4.1 hereof. 6. EXERCISE OF OPTIONS 6.1 The period during which an option may be exercised (the "Option Period") shall be ten years from the date the option is granted, except as the same may be reduced pursuant to the provisions of sections 7 and 8 hereof. 6.2 Options shall be exercisable, either all or in part. If less than all of the Shares are purchased, the remainder may be purchased at any subsequent time prior to the expiration of the Option Period. 2 3 6.3 Except as set forth in sections 7 and 8 hereof, no option may be exercised unless the optionee is at the time of such exercise a director of the Corporation, and shall have continuously so served since the grant of the option. Absence on leave, with the approval of the Corporation or any of its subsidiaries, shall not be considered an interruption of service for any purpose of the Plan. 6.4 The exercise of any option will be contingent upon receipt by the Corporation of payment for the full purchase price of such Shares in cash by way of certified cheque or bank draft. No optionee or his or her legal representatives, legatees or distributees will be, or will be deemed to be, a holder of any Shares subject to an option under the Plan, unless and until certificates for such Shares are issued to him, her or them under the terms of the Plan. 7. TERMINATION OF DIRECTORSHIP 7.1 If an optionee shall cease to be a director of the Corporation for any reason (other than death), he or she may exercise each option held, to the extent that it has vested and not been exercised, until the earlier of: (a) the date which is 12 months after the optionee ceases to be a director; and (b) the expiry of the Option Period for the option (the "Option Expiry Date"). 8. DEATH OF OPTIONEE 8.1 In the event of the death of an optionee, each option theretofore granted to him or her shall be exercisable until the earlier of: (a) the expiry of the period within which the option may be exercised after such death, which period may be up to one year after such death and is to be specified in his or her option agreement, and (b) the Option Expiry Date, provided, however, that the option is only exercisable in such event: (c) by the person or persons to whom the optionee's rights under the option shall pass by the optionee's will or by the laws of descent and distribution, and (d) to the extent that the option has vested and not been exercised. 9. OPTION AGREEMENT 9.1 Upon the grant of an option to an optionee, the Corporation and the optionee shall enter into an option agreement setting out the number of optioned Shares granted to the optionee and incorporating the terms and conditions of the Plan and any other requirements of regulatory bodies having jurisdiction over the securities of the Corporation. 3 4 10. ADJUSTMENT IN SHARES SUBJECT TO THE PLAN 10.1 "Shares" refers to common shares without par value of the Corporation as constituted on the date of formation of the Corporation after giving effect to a consolidation of such shares on a one-for-two basis effective the same day. Subject to the provisions of section 14 hereof, the option exercise price and the number of Shares to be purchased by an optionee upon the exercise of an option will be adjusted, with respect to the then unexercised portion thereof, by the Board of Directors from time to time (on the basis of such advice as the Board of Directors considers appropriate, including, if considered appropriate by the Board of Directors, a certificate of auditors of the Corporation) in the event and in accordance with the provisions and rules set out in this section 10. Any dispute that arises at any time with respect to any adjustment pursuant to such provisions and rules will be conclusively determined by the Board of Directors, and any such determination will be binding on the Corporation, the optionee and all other affected parties. (a) In the event that a dividend is declared upon the Shares payable in Shares (other than in lieu of dividends paid in the ordinary course), the number of Shares then subject to any option shall be adjusted by adding to each such Share the number of Shares which would be distributable thereon if such Share had been outstanding on the date fixed for determining members entitled to receive such stock dividend. (b) In the event that the outstanding Shares are changed into or exchanged for a different number or kind of Shares or other securities of the Corporation or of another corporation, whether through an arrangement, amalgamation or other similar procedure or otherwise, or a share recapitalization, subdivision or consolidation, then there shall be substituted for each Share subject to any option the number and kind of Shares or other securities of the Corporation or another corporation into which each outstanding Share shall be so changed or for which each such Share shall be exchanged. (c) In the event that there is any change, other than as specified above in this section 10, in the number or kind of outstanding Shares or of any securities into which such Shares shall have been changed or for which they shall have been exchanged, then, if the Board of Directors, in its sole discretion, determines that such change equitably requires an adjustment to be made in the number or kind of Shares then subject to any option, an equitable adjustment shall be made in the number or kind of Shares, such adjustment to be reasonably determined by the Board of Directors and to be effective and binding for all purposes. (d) In the event that the Corporation distributes by way of a dividend, or otherwise, to all or substantially all holders of Shares, property, evidences of indebtedness or shares or other securities of the Corporation (other than Shares) or rights, options or warrants to acquire Shares or securities convertible into or exchangeable for Shares or other securities or property of the Corporation, other than as a dividend in the ordinary course, then, if the Board of Directors, in its sole discretion, determines that such action equitably requires an adjustment in the option exercise price or number of Shares subject to any option, or both, such adjustment shall be made by the Board of Directors and shall be effective and binding for all purposes. 10.2 In the case of any such substitution or adjustment as provided for in this section 10, the exercise price in respect of each option for each Share covered thereby prior to such substitution or adjustment will be proportionately and appropriately varied, such variation shall generally require that the number of Shares or securities covered by the option after the relevant event multiplied by 4 5 the varied option exercise price be equal to the number of Shares covered by the option prior to the relevant event multiplied by the original option exercise price. 10.3 No adjustment or substitution provided for in this section 10 shall require the Corporation to issue a fractional share in respect of any option, and the total substitution or adjustment with respect to each option shall be limited accordingly. 10.4 The grant of an option shall not affect in any way the right or power of the Corporation to effect adjustments, reclassifications, reorganizations, arrangements or changes of its capital or business structure, or to amalgamate, merge, consolidate, dissolve or liquidate, or to sell or transfer all or any part of its business or assets. 11. TRANSFERABILITY 11.1 All benefits, rights and options accruing to any optionee in accordance with the terms and conditions of the Plan shall not be transferable other than as specifically provided in section 8 in the event of the death of the optionee. During the lifetime of an optionee all benefits, rights and options shall not be transferable and may only be exercised by the optionee. 12. RECORD KEEPING 12.1 The Corporation shall maintain a register in which shall be recorded: (a) the name and address of each optionee; and (b) the number of Shares subject to an option remaining outstanding. 13. SECURITIES REGULATION AND TAX WITHHOLDING 13.1 Where necessary to effect exemption from registration or distribution of the Shares under securities laws applicable to the securities of the Corporation, an optionee shall be required, upon the acquisition of any Shares pursuant to the Plan, to acquire the Shares with investment intent (i.e. for investment purposes) and not with a view to their distribution, and to present to the Board of Directors an undertaking to that effect in a form acceptable to the Board of Directors. The Board of Directors may take such other action or require such other action or agreement by such optionee as may from time to time be necessary to comply with applicable securities laws. This provision shall in no way obligate the Corporation to undertake the registration or qualification of any options or the Shares under any securities laws applicable to the securities of the Corporation. 13.2 The Board of Directors and the Corporation may take all such measures as they deem appropriate to ensure that the Corporation's obligations under the withholding provisions under income tax laws applicable to the Corporation and other provisions of applicable laws are satisfied with respect to the issuance of Shares pursuant to the Plan or the grant or exercise of options under the Plan. 13.3 Issuance, transfer or delivery of certificates for Shares purchased pursuant to the Plan may be delayed, at the discretion of the Board of Directors, until the Board of Directors is satisfied that the applicable requirements of securities and income tax laws have been met. 5 6 14. AMENDMENT OF THE PLAN 14.1 The Board of Directors reserves the right to terminate the Plan at any time if and when it is advisable in the absolute discretion of the Board of Directors, provided, however, that no such termination shall adversely affect any outstanding options granted under the Plan. The Board of Directors may also amend the Plan at any time if and when it is advisable in the absolute discretion of the Board of Directors, provided, however, that the provisions of the Plan in connection with the amount and price of common shares to be awarded, the timing of the awards or the formula determining such amount, price and timing may not be amended more than once every six months and no amendment shall (a) adversely affect any outstanding option granted under the Plan, (b) result in any participant in the Plan losing his or her status as a "disinterested person" within the meaning of Rule 16b-3 ("Rule 16b-3") made under the Exchange Act with respect to any employee benefit plan of the Corporation, or (c) result in the Plan losing its status as a formula plan under Rule 16b-3. In addition, any amendment of the Plan which would materially increase the benefits accruing to participants under the Plan or materially increase the number of securities which may be issued under the Plan or materially modify the requirements as to eligibility for participation in the Plan will be effective only upon the approval of the shareholders of the Corporation. Any material amendment to the Plan shall also be subject to any necessary approvals of any stock exchange or regulatory body having jurisdiction over the securities of the Corporation. 15. NO REPRESENTATION OR WARRANTY 15.1 The Corporation makes no representation or warranty as to the future market value of any Shares issued in accordance with the provisions of the Plan. 16. NECESSARY APPROVALS 16.1 The obligation of the Corporation to issue and deliver any Shares in accordance with the Plan is subject to any necessary approval of any regulatory authority having jurisdiction over the securities of the Corporation. If any Shares cannot be issued to any optionee for whatever reason, the obligation of the Corporation to issue such Shares shall terminate and any option exercise price paid to the Corporation will be returned to the optionee. 6 EX-10.39 13 AGREEMENT BETWEEN THE COMPANY AND OUTSIDE DIRECTOR 1 EXHIBIT 10.39 OPTION AGREEMENT THIS AGREEMENT is entered into effective as of the 18th day of February, 1995 (the "Date of Grant") BETWEEN: GOLDEN STAR RESOURCES LTD., a corporation created by amalgamation under the laws of Canada and having its head office at One Norwest Center, #1950 - 1700 Lincoln Street, Denver, Colorado 80203, Telecopier No. (303) 830-9094 (hereinafter called the "Company") OF THE FIRST PART AND: JEAN-PIERRE LEFEBVRE residing at 1835 Sommet Trinite, St-Bruno, Quebec J3V 6E4 Canada (hereinafter called the "Optionee") OF THE SECOND PART WHEREAS: A. The Company is the registered and beneficial owner of, among other things, certain Class B common shares (the "Class B Shares") in Guyanor Ressources S.A. ("Guyanor"), a "societe anonyme" constituted under the laws of France; B. Guyanor is a controlled subsidiary of the Company and the Company will directly benefit from the business success of Guyanor; C. The Optionee is a non-employee director of the Company; and D. In consideration of the service rendered by the Optionee and as an incentive to encourage to Optionee to serve on the Company's Board of Directors, the Company desires to grant an option to the Optionee to purchase certain Class B Shares of Guyanor from the Company. NOW THEREFORE in consideration of the premises and of the covenants and conditions hereinafter set forth, the parties hereto agree as follows: 1. Grant The Company hereby grants to the Optionee the option (the "Option") to purchase, effective the Date of the Grant and upon and subject to all the terms and conditions set forth herein, 30,000 Class B Shares of Guyanor which are owned by the Company (collectively, the "Optioned Shares"). 2 2. Exercise Price The exercise price for Optioned Shares shall be $2.10 (CDN) per share (the "Exercise Price"). 3. Exercise The Option shall vest immediately. If the Optionee is subject to section 16 of the United States Securities Act of 1934, as amended (the "Exchange Act"), the Optionee shall be precluded from exercising the Option unless, at the time of exercise of his Option, six months have elapsed since the date of grant of the Option. Except as provided in paragraph 5 hereof, the Option may only be exercised while the Optionee is at the time of such exercise a director of the Company and shall have continuously so served since the grant of the Option. The Optionee may exercise the Option by giving written notice to the Company and delivering to the Company a certified cheque in an amount equal to the number of Optioned Shares in respect of which the Option is being exercised multiplied by the Exercise Price. Upon compliance with the foregoing but subject to paragraph 8 hereof, the Company agrees to do all things necessary in accordance with Guyanor's share transfer procedures in order to cause the Optionee to become the beneficial owner of such number of Optioned Shares in respect of which the Option is exercised. The Optionee acknowledges that, due to French law considerations, Class B Shares of Guyanor are not represented by share certificates and the Optionee will comply with Guyanor's share registration and transfer procedures. 4. Option Not Transferable The Option is not transferable or assignable except by will or by the laws of descent and distribution. 5. Termination of Option The Option shall terminate, to the extent not previously exercised, upon the first to occur of the following dates: (a) at 5:00 p.m. (Denver, Colorado time) on the date which is ten years from the Date of Grant, the expiration date of the Option; (b) one year after the Optionee ceases to be a Director of the Company for any reason; in the event of death, the Option may be exercised within such year by the person to whom the Optionee's rights under the Option shall pass by the Optionee's will or by the laws of descent and distribution to the extent that the Optionee was entitled to exercise the Option at his death. 3 6. Adjustments in Shares The Option confers upon the Optionee the option to purchase Class B Shares as they are constituted at the Date of Grant. If prior to the exercise of the Option Guyanor is required under French law to make adjustments in the value of its Class B Shares, the Company agrees that it will make corresponding adjustments to the number of Optioned Shares or the Exercise Price. 7. Professional Advice The acceptance and exercise of the Option and the sale of the Optioned Shares issued pursuant to the exercise of the Option may have consequences under applicable tax and securities laws which may vary depending on the individual circumstances of the Optionee. Accordingly, the Optionee acknowledges that he has been advised to consult his personal legal and tax advisor in connection with this Agreement and his dealings with respect to the Option and the acquisition of the Optioned Shares from the Company. 8. Regulatory Approvals The Option shall be subject to any necessary approval of and acceptance by any stock exchange on which the Optioned Shares are listed and any other regulatory authority having jurisdiction over the Company or Guyanor. The Optionee acknowledges that the grant of the Option by the Company to the Optionee and the transfer of the Optioned Shares by the Company to the Optionee upon any exercise of the Option are subject to applicable securities laws and regulations. The Optionee further acknowledges that such Option grant and any transfer of Optioned Shares are subject to appropriate exemptions from the registration and prospectus requirements of such applicable securities laws and regulations being available to the Company and no prospectus or registration statement having to be filed by the Company. To the extent Canadian securities laws are applicable, the Company agrees to apply to relevant Canadian securities regulatory authorities for any necessary order exempting the Company from applicable Canadian registration and prospectus requirements and/or to file with relevant securities regulatory authorities any necessary notices of intention to sell. The Optionee agrees to comply with any conditions of exemptions or exemption orders from applicable registration and prospectus requirements for the Option grant, any transfer of Optioned Shares from the Company to the Optionee and any resale of the Optioned Shares by the Optionee, and acknowledges and agrees to any time delays or hold periods that may be required in connection with the use of or reliance on such applicable exemptions or exemption orders. Where necessary to effect exemption from registration or distribution of the Optioned Shares under securities laws applicable to the securities of the Guyanor, the Optionee shall be required, upon the acquisition of any Optioned Shares pursuant to this Option to acquire the Shares with investment intent (i.e., for investment purposes) and not with a view to their distribution, and the Board of Directors of the Company may require the Optionee to sign an undertaking to that effect in a form acceptable to the Board of Directors. The Board of Directors may take such other action or require such other action or agreement by the Optionee as may from time to time be necessary to comply with applicable securities laws. If for any reason exemptions from or exemption orders relating to applicable registration and prospectus 3 4 requirements under all relevant securities laws are not available to the Company in connection with the Option grant and any transfer of Optioned Shares, the Company will notify the Optionee as soon as it is aware of the same and the Option will be null and void and this Agreement will have no further force or effect. 9. Notices Any notice to be given hereunder shall be deemed to have been well and sufficiently given if mailed by prepaid registered mail, telexed, telecopied, telegraphed or delivered to the parties at the addresses specified above or at such other address as each party may from time to time direct in writing. Any such notice shall be deemed to have been received if mailed, telexed, telecopied, or telegraphed, forty-eight hours after the time of mailing, telexing, telecopying or telegraphing and if delivered, upon delivery. If normal mail service is interrupted by a labor dispute, slowdown, strike, force majeure, or other cause, a notice sent by mail shall not be deemed to be received until actually received, and the party giving such notice shall use such other service as may be available to ensure prompt delivery or shall deliver such notice. 10. Governing Law This Agreement shall be construed and enforced in accordance with the laws of the Province of British Columbia and the Federal laws of Canada applicable therein. 11. Time of the Essence Time shall be of the essence in the performance of obligations under this Agreement. 12. Entire Agreement This Agreement supersedes all prior and contemporaneous oral and written statements and representations and contains the entire agreement between the parties with respect to the Option. IN WITNESS WHEREOF the parties have executed these presents as of the day and the year first above written. ) GOLDEN STAR RESOURCES LTD. ) C/S ) By: /s/ David K. Fagin DAVID K. FAGIN Chairman & Chief Executive Officer /S/ JEAN-PIERRE LEFEBVRE JEAN-PIERRE LEFEBVRE 4 5 OPTION AGREEMENT THIS AGREEMENT is entered into effective as of the 18th day of February, 1995 (the "Date of Grant") BETWEEN: GOLDEN STAR RESOURCES LTD., a corporation created by amalgamation under the laws of Canada and having its head office at One Norwest Center, #1950 - 1700 Lincoln Street, Denver, Colorado 80203, Telecopier No. (303) 830-9094 (hereinafter called the "Company") OF THE FIRST PART AND: DONALD F. MAZANKOWSKI residing at 5238 45B Avenue, Vegreville, Alberta T9C 1S5 Canada (hereinafter called the "Optionee") OF THE SECOND PART WHEREAS: A. The Company is the registered and beneficial owner of, among other things, certain Class B common shares (the "Class B Shares") in Guyanor Ressources S.A. ("Guyanor"), a "societe anonyme" constituted under the laws of France; B. Guyanor is a controlled subsidiary of the Company and the Company will directly benefit from the business success of Guyanor; C. The Optionee is a non-employee director of the Company; and D. In consideration of the service rendered by the Optionee and as an incentive to encourage to Optionee to serve on the Company's Board of Directors, the Company desires to grant an option to the Optionee to purchase certain Class B Shares of Guyanor from the Company. NOW THEREFORE in consideration of the premises and of the covenants and conditions hereinafter set forth, the parties hereto agree as follows: 1. Grant The Company hereby grants to the Optionee the option (the "Option") to purchase, effective the Date of the Grant and upon and subject to all the terms and conditions set forth herein, 30,000 Class B Shares of Guyanor which are owned by the Company (collectively, the "Optioned Shares"). 6 2. Exercise Price The exercise price for Optioned Shares shall be $2.10 (CDN) per share (the "Exercise Price"). 3. Exercise The Option shall vest immediately. If the Optionee is subject to section 16 of the United States Securities Act of 1934, as amended (the "Exchange Act"), the Optionee shall be precluded from exercising the Option unless, at the time of exercise of his Option, six months have elapsed since the date of grant of the Option. Except as provided in paragraph 5 hereof, the Option may only be exercised while the Optionee is at the time of such exercise a director of the Company and shall have continuously so served since the grant of the Option. The Optionee may exercise the Option by giving written notice to the Company and delivering to the Company a certified cheque in an amount equal to the number of Optioned Shares in respect of which the Option is being exercised multiplied by the Exercise Price. Upon compliance with the foregoing but subject to paragraph 8 hereof, the Company agrees to do all things necessary in accordance with Guyanor's share transfer procedures in order to cause the Optionee to become the beneficial owner of such number of Optioned Shares in respect of which the Option is exercised. The Optionee acknowledges that, due to French law considerations, Class B Shares of Guyanor are not represented by share certificates and the Optionee will comply with Guyanor's share registration and transfer procedures. 4. Option Not Transferable The Option is not transferable or assignable except by will or by the laws of descent and distribution. 5. Termination of Option The Option shall terminate, to the extent not previously exercised, upon the first to occur of the following dates: (a) at 5:00 p.m. (Denver, Colorado time) on the date which is ten years from the Date of Grant, the expiration date of the Option; (b) one year after the Optionee ceases to be a Director of the Company for any reason; in the event of death, the Option may be exercised within such year by the person to whom the Optionee's rights under the Option shall pass by the Optionee's will or by the laws of descent and distribution to the extent that the Optionee was entitled to exercise the Option at his death. 2 7 6. Adjustments in Shares The Option confers upon the Optionee the option to purchase Class B Shares as they are constituted at the Date of Grant. If prior to the exercise of the Option Guyanor is required under French law to make adjustments in the value of its Class B Shares, the Company agrees that it will make corresponding adjustments to the number of Optioned Shares or the Exercise Price. 7. Professional Advice The acceptance and exercise of the Option and the sale of the Optioned Shares issued pursuant to the exercise of the Option may have consequences under applicable tax and securities laws which may vary depending on the individual circumstances of the Optionee. Accordingly, the Optionee acknowledges that he has been advised to consult his personal legal and tax advisor in connection with this Agreement and his dealings with respect to the Option and the acquisition of the Optioned Shares from the Company. 8. Regulatory Approvals The Option shall be subject to any necessary approval of and acceptance by any stock exchange on which the Optioned Shares are listed and any other regulatory authority having jurisdiction over the Company or Guyanor. The Optionee acknowledges that the grant of the Option by the Company to the Optionee and the transfer of the Optioned Shares by the Company to the Optionee upon any exercise of the Option are subject to applicable securities laws and regulations. The Optionee further acknowledges that such Option grant and any transfer of Optioned Shares are subject to appropriate exemptions from the registration and prospectus requirements of such applicable securities laws and regulations being available to the Company and no prospectus or registration statement having to be filed by the Company. To the extent Canadian securities laws are applicable, the Company agrees to apply to relevant Canadian securities regulatory authorities for any necessary order exempting the Company from applicable Canadian registration and prospectus requirements and/or to file with relevant securities regulatory authorities any necessary notices of intention to sell. The Optionee agrees to comply with any conditions of exemptions or exemption orders from applicable registration and prospectus requirements for the Option grant, any transfer of Optioned Shares from the Company to the Optionee and any resale of the Optioned Shares by the Optionee, and acknowledges and agrees to any time delays or hold periods that may be required in connection with the use of or reliance on such applicable exemptions or exemption orders. Where necessary to effect exemption from registration or distribution of the Optioned Shares under securities laws applicable to the securities of the Guyanor, the Optionee shall be required, upon the acquisition of any Optioned Shares pursuant to this Option to acquire the Shares with investment intent (i.e., for investment purposes) and not with a view to their distribution, and the Board of Directors of the Company may require the Optionee to sign an undertaking to that effect in a form acceptable to the Board of Directors. The Board of Directors may take such other action or require such other action or agreement by the Optionee as may from time to time be necessary to comply with applicable securities laws. If for any reason exemptions from or exemption orders relating to applicable registration and prospectus 3 8 requirements under all relevant securities laws are not available to the Company in connection with the Option grant and any transfer of Optioned Shares, the Company will notify the Optionee as soon as it is aware of the same and the Option will be null and void and this Agreement will have no further force or effect. 9. Notices Any notice to be given hereunder shall be deemed to have been well and sufficiently given if mailed by prepaid registered mail, telexed, telecopied, telegraphed or delivered to the parties at the addresses specified above or at such other address as each party may from time to time direct in writing. Any such notice shall be deemed to have been received if mailed, telexed, telecopied, or telegraphed, forty-eight hours after the time of mailing, telexing, telecopying or telegraphing and if delivered, upon delivery. If normal mail service is interrupted by a labor dispute, slowdown, strike, force majeure, or other cause, a notice sent by mail shall not be deemed to be received until actually received, and the party giving such notice shall use such other service as may be available to ensure prompt delivery or shall deliver such notice. 10. Governing Law This Agreement shall be construed and enforced in accordance with the laws of the Province of British Columbia and the Federal laws of Canada applicable therein. 11. Time of the Essence Time shall be of the essence in the performance of obligations under this Agreement. 12. Entire Agreement This Agreement supersedes all prior and contemporaneous oral and written statements and representations and contains the entire agreement between the parties with respect to the Option. IN WITNESS WHEREOF the parties have executed these presents as of the day and the year first above written. ) GOLDEN STAR RESOURCES LTD. ) C/S ) By: /s/ David K. Fagin DAVID K. FAGIN Chairman & Chief Executive Officer /S/ DONALD F. MAZANKOWSKI DONALD F. MAZANKOWSKI 4 9 OPTION AGREEMENT THIS AGREEMENT is entered into effective as of the 18th day of February, 1995 (the "Date of Grant") BETWEEN: GOLDEN STAR RESOURCES LTD., a corporation created by amalgamation under the laws of Canada and having its head office at One Norwest Center, #1950 - 1700 Lincoln Street, Denver, Colorado 80203, Telecopier No. (303) 830-9094 (hereinafter called the "Company") OF THE FIRST PART AND: ERNEST C. MERCIER residing at 77 Strathallan Boulevard, Toronto, Ontario M5N 1S8 Canada (hereinafter called the "Optionee") OF THE SECOND PART WHEREAS: A. The Company is the registered and beneficial owner of, among other things, certain Class B common shares (the "Class B Shares") in Guyanor Ressources S.A. ("Guyanor"), a "societe anonyme" constituted under the laws of France; B. Guyanor is a controlled subsidiary of the Company and the Company will directly benefit from the business success of Guyanor; C. The Optionee is a non-employee director of the Company; and D. In consideration of the service rendered by the Optionee and as an incentive to encourage to Optionee to serve on the Company's Board of Directors, the Company desires to grant an option to the Optionee to purchase certain Class B Shares of Guyanor from the Company. NOW THEREFORE in consideration of the premises and of the covenants and conditions hereinafter set forth, the parties hereto agree as follows: 1. Grant The Company hereby grants to the Optionee the option (the "Option") to purchase, effective the Date of the Grant and upon and subject to all the terms and conditions set forth herein, 30,000 Class B Shares of Guyanor which are owned by the Company (collectively, the "Optioned Shares"). 10 2. Exercise Price The exercise price for Optioned Shares shall be $2.10 (CDN) per share (the "Exercise Price"). 3. Exercise The Option shall vest immediately. If the Optionee is subject to section 16 of the United States Securities Act of 1934, as amended (the "Exchange Act"), the Optionee shall be precluded from exercising the Option unless, at the time of exercise of his Option, six months have elapsed since the date of grant of the Option. Except as provided in paragraph 5 hereof, the Option may only be exercised while the Optionee is at the time of such exercise a director of the Company and shall have continuously so served since the grant of the Option. The Optionee may exercise the Option by giving written notice to the Company and delivering to the Company a certified cheque in an amount equal to the number of Optioned Shares in respect of which the Option is being exercised multiplied by the Exercise Price. Upon compliance with the foregoing but subject to paragraph 8 hereof, the Company agrees to do all things necessary in accordance with Guyanor's share transfer procedures in order to cause the Optionee to become the beneficial owner of such number of Optioned Shares in respect of which the Option is exercised. The Optionee acknowledges that, due to French law considerations, Class B Shares of Guyanor are not represented by share certificates and the Optionee will comply with Guyanor's share registration and transfer procedures. 4. Option Not Transferable The Option is not transferable or assignable except by will or by the laws of descent and distribution. 5. Termination of Option The Option shall terminate, to the extent not previously exercised, upon the first to occur of the following dates: (a) at 5:00 p.m. (Denver, Colorado time) on the date which is ten years from the Date of Grant, the expiration date of the Option; (b) one year after the Optionee ceases to be a Director of the Company for any reason; in the event of death, the Option may be exercised within such year by the person to whom the Optionee's rights under the Option shall pass by the Optionee's will or by the laws of descent and distribution to the extent that the Optionee was entitled to exercise the Option at his death. 2 11 6. Adjustments in Shares The Option confers upon the Optionee the option to purchase Class B Shares as they are constituted at the Date of Grant. If prior to the exercise of the Option Guyanor is required under French law to make adjustments in the value of its Class B Shares, the Company agrees that it will make corresponding adjustments to the number of Optioned Shares or the Exercise Price. 7. Professional Advice The acceptance and exercise of the Option and the sale of the Optioned Shares issued pursuant to the exercise of the Option may have consequences under applicable tax and securities laws which may vary depending on the individual circumstances of the Optionee. Accordingly, the Optionee acknowledges that he has been advised to consult his personal legal and tax advisor in connection with this Agreement and his dealings with respect to the Option and the acquisition of the Optioned Shares from the Company. 8. Regulatory Approvals The Option shall be subject to any necessary approval of and acceptance by any stock exchange on which the Optioned Shares are listed and any other regulatory authority having jurisdiction over the Company or Guyanor. The Optionee acknowledges that the grant of the Option by the Company to the Optionee and the transfer of the Optioned Shares by the Company to the Optionee upon any exercise of the Option are subject to applicable securities laws and regulations. The Optionee further acknowledges that such Option grant and any transfer of Optioned Shares are subject to appropriate exemptions from the registration and prospectus requirements of such applicable securities laws and regulations being available to the Company and no prospectus or registration statement having to be filed by the Company. To the extent Canadian securities laws are applicable, the Company agrees to apply to relevant Canadian securities regulatory authorities for any necessary order exempting the Company from applicable Canadian registration and prospectus requirements and/or to file with relevant securities regulatory authorities any necessary notices of intention to sell. The Optionee agrees to comply with any conditions of exemptions or exemption orders from applicable registration and prospectus requirements for the Option grant, any transfer of Optioned Shares from the Company to the Optionee and any resale of the Optioned Shares by the Optionee, and acknowledges and agrees to any time delays or hold periods that may be required in connection with the use of or reliance on such applicable exemptions or exemption orders. Where necessary to effect exemption from registration or distribution of the Optioned Shares under securities laws applicable to the securities of the Guyanor, the Optionee shall be required, upon the acquisition of any Optioned Shares pursuant to this Option to acquire the Shares with investment intent (i.e., for investment purposes) and not with a view to their distribution, and the Board of Directors of the Company may require the Optionee to sign an undertaking to that effect in a form acceptable to the Board of Directors. The Board of Directors may take such other action or require such other action or agreement by the Optionee as may from time to time be necessary to comply with applicable securities laws. If for any reason exemptions from or exemption orders relating to applicable registration and prospectus 3 12 requirements under all relevant securities laws are not available to the Company in connection with the Option grant and any transfer of Optioned Shares, the Company will notify the Optionee as soon as it is aware of the same and the Option will be null and void and this Agreement will have no further force or effect. 9. Notices Any notice to be given hereunder shall be deemed to have been well and sufficiently given if mailed by prepaid registered mail, telexed, telecopied, telegraphed or delivered to the parties at the addresses specified above or at such other address as each party may from time to time direct in writing. Any such notice shall be deemed to have been received if mailed, telexed, telecopied, or telegraphed, forty-eight hours after the time of mailing, telexing, telecopying or telegraphing and if delivered, upon delivery. If normal mail service is interrupted by a labor dispute, slowdown, strike, force majeure, or other cause, a notice sent by mail shall not be deemed to be received until actually received, and the party giving such notice shall use such other service as may be available to ensure prompt delivery or shall deliver such notice. 10. Governing Law This Agreement shall be construed and enforced in accordance with the laws of the Province of British Columbia and the Federal laws of Canada applicable therein. 11. Time of the Essence Time shall be of the essence in the performance of obligations under this Agreement. 12. Entire Agreement This Agreement supersedes all prior and contemporaneous oral and written statements and representations and contains the entire agreement between the parties with respect to the Option. IN WITNESS WHEREOF the parties have executed these presents as of the day and the year first above written. ) GOLDEN STAR RESOURCES LTD. ) C/S ) By: /s/ David K. Fagin DAVID K. FAGIN Chairman & Chief Executive Officer /s/ Ernest C. Mercier ERNEST C. MERCIER 4 13 OPTION AGREEMENT THIS AGREEMENT is entered into effective as of the 18th day of February, 1995 (the "Date of Grant") BETWEEN: GOLDEN STAR RESOURCES LTD., a corporation created by amalgamation under the laws of Canada and having its head office at One Norwest Center, #1950 - 1700 Lincoln Street, Denver, Colorado 80203, Telecopier No. (303) 830-9094 (hereinafter called the "Company") OF THE FIRST PART AND: DR. ROGER MORTON residing at 9103-118 Street, Edmonton, Alberta T6G 1T6 Canada (hereinafter called the "Optionee") OF THE SECOND PART WHEREAS: A. The Company is the registered and beneficial owner of, among other things, certain Class B common shares (the "Class B Shares") in Guyanor Ressources S.A. ("Guyanor"), a "societe anonyme" constituted under the laws of France; B. Guyanor is a controlled subsidiary of the Company and the Company will directly benefit from the business success of Guyanor; C. The Optionee is a non-employee director of the Company; and D. In consideration of the service rendered by the Optionee and as an incentive to encourage to Optionee to serve on the Company's Board of Directors, the Company desires to grant an option to the Optionee to purchase certain Class B Shares of Guyanor from the Company. NOW THEREFORE in consideration of the premises and of the covenants and conditions hereinafter set forth, the parties hereto agree as follows: 1. Grant The Company hereby grants to the Optionee the option (the "Option") to purchase, effective the Date of the Grant and upon and subject to all the terms and conditions set forth herein, 30,000 Class B Shares of Guyanor which are owned by the Company (collectively, the "Optioned Shares"). 14 2. Exercise Price The exercise price for Optioned Shares shall be $2.10 (CDN) per share (the "Exercise Price"). 3. Exercise The Option shall vest immediately. If the Optionee is subject to section 16 of the United States Securities Act of 1934, as amended (the "Exchange Act"), the Optionee shall be precluded from exercising the Option unless, at the time of exercise of his Option, six months have elapsed since the date of grant of the Option. Except as provided in paragraph 5 hereof, the Option may only be exercised while the Optionee is at the time of such exercise a director of the Company and shall have continuously so served since the grant of the Option. The Optionee may exercise the Option by giving written notice to the Company and delivering to the Company a certified cheque in an amount equal to the number of Optioned Shares in respect of which the Option is being exercised multiplied by the Exercise Price. Upon compliance with the foregoing but subject to paragraph 8 hereof, the Company agrees to do all things necessary in accordance with Guyanor's share transfer procedures in order to cause the Optionee to become the beneficial owner of such number of Optioned Shares in respect of which the Option is exercised. The Optionee acknowledges that, due to French law considerations, Class B Shares of Guyanor are not represented by share certificates and the Optionee will comply with Guyanor's share registration and transfer procedures. 4. Option Not Transferable The Option is not transferable or assignable except by will or by the laws of descent and distribution. 5. Termination of Option The Option shall terminate, to the extent not previously exercised, upon the first to occur of the following dates: (a) at 5:00 p.m. (Denver, Colorado time) on the date which is ten years from the Date of Grant, the expiration date of the Option; (b) one year after the Optionee ceases to be a Director of the Company for any reason; in the event of death, the Option may be exercised within such year by the person to whom the Optionee's rights under the Option shall pass by the Optionee's will or by the laws of descent and distribution to the extent that the Optionee was entitled to exercise the Option at his death. 2 15 6. Adjustments in Shares The Option confers upon the Optionee the option to purchase Class B Shares as they are constituted at the Date of Grant. If prior to the exercise of the Option Guyanor is required under French law to make adjustments in the value of its Class B Shares, the Company agrees that it will make corresponding adjustments to the number of Optioned Shares or the Exercise Price. 7. Professional Advice The acceptance and exercise of the Option and the sale of the Optioned Shares issued pursuant to the exercise of the Option may have consequences under applicable tax and securities laws which may vary depending on the individual circumstances of the Optionee. Accordingly, the Optionee acknowledges that he has been advised to consult his personal legal and tax advisor in connection with this Agreement and his dealings with respect to the Option and the acquisition of the Optioned Shares from the Company. 8. Regulatory Approvals The Option shall be subject to any necessary approval of and acceptance by any stock exchange on which the Optioned Shares are listed and any other regulatory authority having jurisdiction over the Company or Guyanor. The Optionee acknowledges that the grant of the Option by the Company to the Optionee and the transfer of the Optioned Shares by the Company to the Optionee upon any exercise of the Option are subject to applicable securities laws and regulations. The Optionee further acknowledges that such Option grant and any transfer of Optioned Shares are subject to appropriate exemptions from the registration and prospectus requirements of such applicable securities laws and regulations being available to the Company and no prospectus or registration statement having to be filed by the Company. To the extent Canadian securities laws are applicable, the Company agrees to apply to relevant Canadian securities regulatory authorities for any necessary order exempting the Company from applicable Canadian registration and prospectus requirements and/or to file with relevant securities regulatory authorities any necessary notices of intention to sell. The Optionee agrees to comply with any conditions of exemptions or exemption orders from applicable registration and prospectus requirements for the Option grant, any transfer of Optioned Shares from the Company to the Optionee and any resale of the Optioned Shares by the Optionee, and acknowledges and agrees to any time delays or hold periods that may be required in connection with the use of or reliance on such applicable exemptions or exemption orders. Where necessary to effect exemption from registration or distribution of the Optioned Shares under securities laws applicable to the securities of the Guyanor, the Optionee shall be required, upon the acquisition of any Optioned Shares pursuant to this Option to acquire the Shares with investment intent (i.e., for investment purposes) and not with a view to their distribution, and the Board of Directors of the Company may require the Optionee to sign an undertaking to that effect in a form acceptable to the Board of Directors. The Board of Directors may take such other action or require such other action or agreement by the Optionee as may from time to time be necessary to comply with applicable securities laws. If for any reason exemptions from or exemption orders relating to applicable registration and prospectus 3 16 requirements under all relevant securities laws are not available to the Company in connection with the Option grant and any transfer of Optioned Shares, the Company will notify the Optionee as soon as it is aware of the same and the Option will be null and void and this Agreement will have no further force or effect. 9. Notices Any notice to be given hereunder shall be deemed to have been well and sufficiently given if mailed by prepaid registered mail, telexed, telecopied, telegraphed or delivered to the parties at the addresses specified above or at such other address as each party may from time to time direct in writing. Any such notice shall be deemed to have been received if mailed, telexed, telecopied, or telegraphed, forty-eight hours after the time of mailing, telexing, telecopying or telegraphing and if delivered, upon delivery. If normal mail service is interrupted by a labor dispute, slowdown, strike, force majeure, or other cause, a notice sent by mail shall not be deemed to be received until actually received, and the party giving such notice shall use such other service as may be available to ensure prompt delivery or shall deliver such notice. 10. Governing Law This Agreement shall be construed and enforced in accordance with the laws of the Province of British Columbia and the Federal laws of Canada applicable therein. 11. Time of the Essence Time shall be of the essence in the performance of obligations under this Agreement. 12. Entire Agreement This Agreement supersedes all prior and contemporaneous oral and written statements and representations and contains the entire agreement between the parties with respect to the Option. IN WITNESS WHEREOF the parties have executed these presents as of the day and the year first above written. ) GOLDEN STAR RESOURCES LTD. ) C/S ) By: /s/ David K. Fagin DAVID K. FAGIN Chairman & Chief Executive Officer /s/ Roger D. Morton DR. ROGER MORTON 4 17 OPTION AGREEMENT THIS AGREEMENT is entered into effective as of the 18th day of February, 1995 (the "Date of Grant") BETWEEN: GOLDEN STAR RESOURCES LTD., a corporation created by amalgamation under the laws of Canada and having its head office at One Norwest Center, #1950 - 1700 Lincoln Street, Denver, Colorado 80203, Telecopier No. (303) 830-9094 (hereinafter called the "Company") OF THE FIRST PART AND: RICHARD A. STARK residing at 340 Palmetto Point, John's Island, Vero Beach, Florida 32963 (hereinafter called the "Optionee") OF THE SECOND PART WHEREAS: A. The Company is the registered and beneficial owner of, among other things, certain Class B common shares (the "Class B Shares") in Guyanor Ressources S.A. ("Guyanor"), a "societe anonyme" constituted under the laws of France; B. Guyanor is a controlled subsidiary of the Company and the Company will directly benefit from the business success of Guyanor; C. The Optionee is a non-employee director of the Company; and D. In consideration of the service rendered by the Optionee and as an incentive to encourage to Optionee to serve on the Company's Board of Directors, the Company desires to grant an option to the Optionee to purchase certain Class B Shares of Guyanor from the Company. NOW THEREFORE in consideration of the premises and of the covenants and conditions hereinafter set forth, the parties hereto agree as follows: 1. Grant The Company hereby grants to the Optionee the option (the "Option") to purchase, effective the Date of the Grant and upon and subject to all the terms and conditions set forth herein, 30,000 Class B Shares of Guyanor which are owned by the Company (collectively, the "Optioned Shares"). 18 2. Exercise Price The exercise price for Optioned Shares shall be $2.10 (CDN) per share (the "Exercise Price"). 3. Exercise The Option shall vest immediately. If the Optionee is subject to section 16 of the United States Securities Act of 1934, as amended (the "Exchange Act"), the Optionee shall be precluded from exercising the Option unless, at the time of exercise of his Option, six months have elapsed since the date of grant of the Option. Except as provided in paragraph 5 hereof, the Option may only be exercised while the Optionee is at the time of such exercise a director of the Company and shall have continuously so served since the grant of the Option. The Optionee may exercise the Option by giving written notice to the Company and delivering to the Company a certified cheque in an amount equal to the number of Optioned Shares in respect of which the Option is being exercised multiplied by the Exercise Price. Upon compliance with the foregoing but subject to paragraph 8 hereof, the Company agrees to do all things necessary in accordance with Guyanor's share transfer procedures in order to cause the Optionee to become the beneficial owner of such number of Optioned Shares in respect of which the Option is exercised. The Optionee acknowledges that, due to French law considerations, Class B Shares of Guyanor are not represented by share certificates and the Optionee will comply with Guyanor's share registration and transfer procedures. 4. Option Not Transferable The Option is not transferable or assignable except by will or by the laws of descent and distribution. 5. Termination of Option The Option shall terminate, to the extent not previously exercised, upon the first to occur of the following dates: (a) at 5:00 p.m. (Denver, Colorado time) on the date which is ten years from the Date of Grant, the expiration date of the Option; (b) one year after the Optionee ceases to be a Director of the Company for any reason; in the event of death, the Option may be exercised within such year by the person to whom the Optionee's rights under the Option shall pass by the Optionee's will or by the laws of descent and distribution to the extent that the Optionee was entitled to exercise the Option at his death. 2 19 6. Adjustments in Shares The Option confers upon the Optionee the option to purchase Class B Shares as they are constituted at the Date of Grant. If prior to the exercise of the Option Guyanor is required under French law to make adjustments in the value of its Class B Shares, the Company agrees that it will make corresponding adjustments to the number of Optioned Shares or the Exercise Price. 7. Professional Advice The acceptance and exercise of the Option and the sale of the Optioned Shares issued pursuant to the exercise of the Option may have consequences under applicable tax and securities laws which may vary depending on the individual circumstances of the Optionee. Accordingly, the Optionee acknowledges that he has been advised to consult his personal legal and tax advisor in connection with this Agreement and his dealings with respect to the Option and the acquisition of the Optioned Shares from the Company. 8. Regulatory Approvals The Option shall be subject to any necessary approval of and acceptance by any stock exchange on which the Optioned Shares are listed and any other regulatory authority having jurisdiction over the Company or Guyanor. The Optionee acknowledges that the grant of the Option by the Company to the Optionee and the transfer of the Optioned Shares by the Company to the Optionee upon any exercise of the Option are subject to applicable securities laws and regulations. The Optionee further acknowledges that such Option grant and any transfer of Optioned Shares are subject to appropriate exemptions from the registration and prospectus requirements of such applicable securities laws and regulations being available to the Company and no prospectus or registration statement having to be filed by the Company. To the extent Canadian securities laws are applicable, the Company agrees to apply to relevant Canadian securities regulatory authorities for any necessary order exempting the Company from applicable Canadian registration and prospectus requirements and/or to file with relevant securities regulatory authorities any necessary notices of intention to sell. The Optionee agrees to comply with any conditions of exemptions or exemption orders from applicable registration and prospectus requirements for the Option grant, any transfer of Optioned Shares from the Company to the Optionee and any resale of the Optioned Shares by the Optionee, and acknowledges and agrees to any time delays or hold periods that may be required in connection with the use of or reliance on such applicable exemptions or exemption orders. Where necessary to effect exemption from registration or distribution of the Optioned Shares under securities laws applicable to the securities of the Guyanor, the Optionee shall be required, upon the acquisition of any Optioned Shares pursuant to this Option to acquire the Shares with investment intent (i.e., for investment purposes) and not with a view to their distribution, and the Board of Directors of the Company may require the Optionee to sign an undertaking to that effect in a form acceptable to the Board of Directors. The Board of Directors may take such other action or require such other action or agreement by the Optionee as may from time to time be necessary to comply with applicable securities laws. If for any reason exemptions from or exemption orders relating to applicable registration and prospectus 3 20 requirements under all relevant securities laws are not available to the Company in connection with the Option grant and any transfer of Optioned Shares, the Company will notify the Optionee as soon as it is aware of the same and the Option will be null and void and this Agreement will have no further force or effect. 9. Notices Any notice to be given hereunder shall be deemed to have been well and sufficiently given if mailed by prepaid registered mail, telexed, telecopied, telegraphed or delivered to the parties at the addresses specified above or at such other address as each party may from time to time direct in writing. Any such notice shall be deemed to have been received if mailed, telexed, telecopied, or telegraphed, forty-eight hours after the time of mailing, telexing, telecopying or telegraphing and if delivered, upon delivery. If normal mail service is interrupted by a labor dispute, slowdown, strike, force majeure, or other cause, a notice sent by mail shall not be deemed to be received until actually received, and the party giving such notice shall use such other service as may be available to ensure prompt delivery or shall deliver such notice. 10. Governing Law This Agreement shall be construed and enforced in accordance with the laws of the Province of British Columbia and the Federal laws of Canada applicable therein. 11. Time of the Essence Time shall be of the essence in the performance of obligations under this Agreement. 12. Entire Agreement This Agreement supersedes all prior and contemporaneous oral and written statements and representations and contains the entire agreement between the parties with respect to the Option. IN WITNESS WHEREOF the parties have executed these presents as of the day and the year first above written. ) GOLDEN STAR RESOURCES LTD. ) C/S ) By: /s/ David K. Fagin DAVID K. FAGIN Chairman & Chief Executive Officer /S/ RICHARD A. STARK RICHARD A. STARK 4 21 EXHIBIT 10.39 OPTION AGREEMENT THIS AGREEMENT is entered into effective as of the 10th day of December, 1996 (the "Date of Grant") BETWEEN: GOLDEN STAR RESOURCES LTD., a corporation created by amalgamation under the laws of Canada and having its registered office at 885 W. Georgia Street, 19th Floor, Vancouver, BC, Canada V6C 3H4 (hereinafter called the "Company") OF THE FIRST PART AND: PIERRE GOUSSELAND, 4 Lafayette Court, Greenwich, CT 06830, U.S.A. (hereinafter called the "Optionee") OF THE SECOND PART WHEREAS: A. The Company is the registered and beneficial owner of, among other things, certain Class B common shares (the "Class B Shares") in Guyanor Ressources S.A. ("Guyanor"), a "societe anonyme" constituted under the laws of France; B. Guyanor is a controlled subsidiary of the Company and the Company will directly benefit from the business success of Guyanor; C. In consideration of the service rendered by the Optionee the Company desires to grant an option to the Optionee to purchase certain Class B Shares of Guyanor from the Company. NOW THEREFORE in consideration of the premises and of the covenants and conditions hereinafter set forth, the parties hereto agree as follows: 1. Grant The Company hereby grants to the Optionee the option (the "Option") to purchase, effective the Date of the Grant and upon and subject to all the terms and conditions set forth herein, 10,000 Class B Shares of Guyanor which are owned by the Company (collectively, the "Optioned Shares"). 2. Exercise Price The exercise price for Optioned Shares shall be $9.20 (CDN) per share (the "Exercise Price"). 3. Exercise The Option shall vest immediately. 22 If the Optionee is subject to section 16 of the United States Securities Act of 1934, as amended (the "Exchange Act"), the Optionee shall be precluded from exercising the Option unless, at the time of exercise of his Option, six months have elapsed since the date of grant of the Option. Except as provided in paragraph 5 hereof, the Option may only be exercised while the Optionee is at the time of such exercise a director of the Company and shall have continuously so served since the grant of the Option. The Optionee may exercise the Option by giving written notice to the Company and delivering to the Company a certified cheque in an amount equal to the number of Optioned Shares in respect of which the Option is being exercised multiplied by the Exercise Price. Upon compliance with the foregoing but subject to paragraph 8 hereof, the Company agrees to do all things necessary in accordance with Guyanor's share transfer procedures in order to cause the Optionee to become the beneficial owner of such number of Optioned Shares in respect of which the Option is exercised. The Optionee acknowledges that, due to French law considerations, Class B Shares of Guyanor are not represented by share certificates and the Optionee will comply with Guyanor's share registration and transfer procedures. 4. Option Not Transferable The Option is not transferable or assignable except by will or by the laws of descent and distribution. 5. Termination of Option The Option shall terminate, to the extent not previously exercised, upon the first to occur of the following dates: (a) at 5:00 p.m. (Denver, Colorado time) on the date which is ten years from the Date of Grant, the expiration date of the Option; (b) one year after the Optionee ceases to be a Director of the Company for any reason; in the event of death, the Option may be exercised within such year by the person to whom the Optionee's rights under the Option shall pass by the Optionee's will or by the laws of descent and distribution to the extent that the Optionee was entitled to exercise the Option at his death. 6. Adjustments in Shares The Option confers upon the Optionee the option to purchase Class B Shares as they are constituted at the Date of Grant. If prior to the exercise of the Option Guyanor is required under French law to make adjustments in the value of its Class B Shares, the Company agrees that it will make corresponding adjustments to the number of Optioned Shares or the Exercise Price. 7. Professional Advice The acceptance and exercise of the Option and the sale of the Optioned Shares issued pursuant to the exercise of the Option may have consequences under applicable tax and securities laws which may vary depending on the individual circumstances of the Optionee. Accordingly, the Optionee acknowledges that he has been advised to consult his personal legal and tax advisor in connection with this Agreement and his dealings with respect to the Option and the acquisition of the Optioned Shares from the Company. 2 23 8. Regulatory Approvals The Option shall be subject to any necessary approval of and acceptance by any stock exchange on which the Optioned Shares are listed and any other regulatory authority having jurisdiction over the Company or Guyanor. The Optionee acknowledges that the grant of the Option by the Company to the Optionee and the transfer of the Optioned Shares by the Company to the Optionee upon any exercise of the Option are subject to applicable securities laws and regulations. The Optionee further acknowledges that such Option grant and any transfer of Optioned Shares are subject to appropriate exemptions from the registration and prospectus requirements of such applicable securities laws and regulations being available to the Company and no prospectus or registration statement having to be filed by the Company. To the extent Canadian securities laws are applicable, the Company agrees to apply to relevant Canadian securities regulatory authorities for any necessary order exempting the Company from applicable Canadian registration and prospectus requirements and/or to file with relevant securities regulatory authorities any necessary notices of intention to sell. The Optionee agrees to comply with any conditions of exemptions or exemption orders from applicable registration and prospectus requirements for the Option grant, any transfer of Optioned Shares from the Company to the Optionee and any resale of the Optioned Shares by the Optionee, and acknowledges and agrees to any time delays or hold periods that may be required in connection with the use of or reliance on such applicable exemptions or exemption orders. Where necessary to effect exemption from registration or distribution of the Optioned Shares under securities laws applicable to the securities of the Guyanor, the Optionee shall be required, upon the acquisition of any Optioned Shares pursuant to this Option to acquire the Shares with investment intent (i.e., for investment purposes) and not with a view to their distribution, and the Board of Directors of the Company may require the Optionee to sign an undertaking to that effect in a form acceptable to the Board of Directors. The Board of Directors may take such other action or require such other action or agreement by the Optionee as may from time to time be necessary to comply with applicable securities laws. If for any reason exemptions from or exemption orders relating to applicable registration and prospectus requirements under all relevant securities laws are not available to the Company in connection with the Option grant and any transfer of Optioned Shares, the Company will notify the Optionee as soon as it is aware of the same and the Option will be null and void and this Agreement will have no further force or effect. 9. Notices Any notice to be given hereunder shall be deemed to have been well and sufficiently given if mailed by prepaid registered mail, telexed, telecopied, telegraphed or delivered to the parties at the addresses specified above or at such other address as each party may from time to time direct in writing. Any such notice shall be deemed to have been received if mailed, telexed, telecopied, or telegraphed, forty-eight hours after the time of mailing, telexing, telecopying or telegraphing and if delivered, upon delivery. If normal mail service is interrupted by a labor dispute, slowdown, strike, force majeure, or other cause, a notice sent by mail shall not be deemed to be received until actually received, and the party giving such notice shall use such other service as may be available to ensure prompt delivery or shall deliver such notice. 3 24 10. Governing Law This Agreement shall be construed and enforced in accordance with the laws of the Province of British Columbia and the Federal laws of Canada applicable therein. 11. Time of the Essence Time shall be of the essence in the performance of obligations under this Agreement. 12. Entire Agreement This Agreement supersedes all prior and contemporaneous oral and written statements and representations and contains the entire agreement between the parties with respect to the Option. IN WITNESS WHEREOF the parties have executed these presents as of the day and the year first above written. GOLDEN STAR RESOURCES LTD. By: /s/ Louis O. Peloquin AUTHORIZED OFFICER /s/ Pierre Gousseland PIERRE GOUSSELAND 4 25 OPTION AGREEMENT THIS AGREEMENT is entered into effective as of the 10th day of December, 1996 (the "Date of Grant") BETWEEN: GOLDEN STAR RESOURCES LTD., a corporation created by amalgamation under the laws of Canada and having its registered office at 885 W. Georgia Street, 19th Floor, Vancouver, BC, Canada V6C 3H4 (hereinafter called the "Company") OF THE FIRST PART AND: JEAN-PIERRE LEFEBVRE residing at 1835 Sommet Trinite, St-Bruno, Quebec J3V 6E4 Canada (hereinafter called the "Optionee") OF THE SECOND PART WHEREAS: A. The Company is the registered and beneficial owner of, among other things, certain Class B common shares (the "Class B Shares") in Guyanor Ressources S.A. ("Guyanor"), a "societe anonyme" constituted under the laws of France; B. Guyanor is a controlled subsidiary of the Company and the Company will directly benefit from the business success of Guyanor; C. In consideration of the service rendered by the Optionee the Company desires to grant an option to the Optionee to purchase certain Class B Shares of Guyanor from the Company. NOW THEREFORE in consideration of the premises and of the covenants and conditions hereinafter set forth, the parties hereto agree as follows: 1. Grant The Company hereby grants to the Optionee the option (the "Option") to purchase, effective the Date of the Grant and upon and subject to all the terms and conditions set forth herein, 20,000 Class B Shares of Guyanor which are owned by the Company (collectively, the "Optioned Shares"). 2. Exercise Price The exercise price for Optioned Shares shall be $9.20 (CDN) per share (the "Exercise Price"). 3. Exercise The Option shall vest immediately. 26 If the Optionee is subject to section 16 of the United States Securities Act of 1934, as amended (the "Exchange Act"), the Optionee shall be precluded from exercising the Option unless, at the time of exercise of his Option, six months have elapsed since the date of grant of the Option. Except as provided in paragraph 5 hereof, the Option may only be exercised while the Optionee is at the time of such exercise a director of the Company and shall have continuously so served since the grant of the Option. The Optionee may exercise the Option by giving written notice to the Company and delivering to the Company a certified cheque in an amount equal to the number of Optioned Shares in respect of which the Option is being exercised multiplied by the Exercise Price. Upon compliance with the foregoing but subject to paragraph 8 hereof, the Company agrees to do all things necessary in accordance with Guyanor's share transfer procedures in order to cause the Optionee to become the beneficial owner of such number of Optioned Shares in respect of which the Option is exercised. The Optionee acknowledges that, due to French law considerations, Class B Shares of Guyanor are not represented by share certificates and the Optionee will comply with Guyanor's share registration and transfer procedures. 4. Option Not Transferable The Option is not transferable or assignable except by will or by the laws of descent and distribution. 5. Termination of Option The Option shall terminate, to the extent not previously exercised, upon the first to occur of the following dates: (a) at 5:00 p.m. (Denver, Colorado time) on the date which is ten years from the Date of Grant, the expiration date of the Option; (b) one year after the Optionee ceases to be a Director of the Company for any reason; in the event of death, the Option may be exercised within such year by the person to whom the Optionee's rights under the Option shall pass by the Optionee's will or by the laws of descent and distribution to the extent that the Optionee was entitled to exercise the Option at his death. 6. Adjustments in Shares The Option confers upon the Optionee the option to purchase Class B Shares as they are constituted at the Date of Grant. If prior to the exercise of the Option Guyanor is required under French law to make adjustments in the value of its Class B Shares, the Company agrees that it will make corresponding adjustments to the number of Optioned Shares or the Exercise Price. 7. Professional Advice The acceptance and exercise of the Option and the sale of the Optioned Shares issued pursuant to the exercise of the Option may have consequences under applicable tax and securities laws which may vary depending on the individual circumstances of the Optionee. Accordingly, the Optionee acknowledges that he has been advised to consult his personal legal and tax advisor in connection with this Agreement and his dealings with respect to the Option and the acquisition of the Optioned Shares from the Company. 2 27 8. Regulatory Approvals The Option shall be subject to any necessary approval of and acceptance by any stock exchange on which the Optioned Shares are listed and any other regulatory authority having jurisdiction over the Company or Guyanor. The Optionee acknowledges that the grant of the Option by the Company to the Optionee and the transfer of the Optioned Shares by the Company to the Optionee upon any exercise of the Option are subject to applicable securities laws and regulations. The Optionee further acknowledges that such Option grant and any transfer of Optioned Shares are subject to appropriate exemptions from the registration and prospectus requirements of such applicable securities laws and regulations being available to the Company and no prospectus or registration statement having to be filed by the Company. To the extent Canadian securities laws are applicable, the Company agrees to apply to relevant Canadian securities regulatory authorities for any necessary order exempting the Company from applicable Canadian registration and prospectus requirements and/or to file with relevant securities regulatory authorities any necessary notices of intention to sell. The Optionee agrees to comply with any conditions of exemptions or exemption orders from applicable registration and prospectus requirements for the Option grant, any transfer of Optioned Shares from the Company to the Optionee and any resale of the Optioned Shares by the Optionee, and acknowledges and agrees to any time delays or hold periods that may be required in connection with the use of or reliance on such applicable exemptions or exemption orders. Where necessary to effect exemption from registration or distribution of the Optioned Shares under securities laws applicable to the securities of the Guyanor, the Optionee shall be required, upon the acquisition of any Optioned Shares pursuant to this Option to acquire the Shares with investment intent (i.e., for investment purposes) and not with a view to their distribution, and the Board of Directors of the Company may require the Optionee to sign an undertaking to that effect in a form acceptable to the Board of Directors. The Board of Directors may take such other action or require such other action or agreement by the Optionee as may from time to time be necessary to comply with applicable securities laws. If for any reason exemptions from or exemption orders relating to applicable registration and prospectus requirements under all relevant securities laws are not available to the Company in connection with the Option grant and any transfer of Optioned Shares, the Company will notify the Optionee as soon as it is aware of the same and the Option will be null and void and this Agreement will have no further force or effect. 9. Notices Any notice to be given hereunder shall be deemed to have been well and sufficiently given if mailed by prepaid registered mail, telexed, telecopied, telegraphed or delivered to the parties at the addresses specified above or at such other address as each party may from time to time direct in writing. Any such notice shall be deemed to have been received if mailed, telexed, telecopied, or telegraphed, forty-eight hours after the time of mailing, telexing, telecopying or telegraphing and if delivered, upon delivery. If normal mail service is interrupted by a labor dispute, slowdown, strike, force majeure, or other cause, a notice sent by mail shall not be deemed to be received until actually received, and the party giving such notice shall use such other service as may be available to ensure prompt delivery or shall deliver such notice. 3 28 10. Governing Law This Agreement shall be construed and enforced in accordance with the laws of the Province of British Columbia and the Federal laws of Canada applicable therein. 11. Time of the Essence Time shall be of the essence in the performance of obligations under this Agreement. 12. Entire Agreement This Agreement supersedes all prior and contemporaneous oral and written statements and representations and contains the entire agreement between the parties with respect to the Option. IN WITNESS WHEREOF the parties have executed these presents as of the day and the year first above written. GOLDEN STAR RESOURCES LTD. By: /s/ Louis O. Peloquin AUTHORIZED OFFICER /s/ Jean-Pierre Lefebvre JEAN-PIERRE LEFEBVRE 4 29 OPTION AGREEMENT THIS AGREEMENT is entered into effective as of the 10th day of December, 1996 (the "Date of Grant") BETWEEN: GOLDEN STAR RESOURCES LTD., a corporation created by amalgamation under the laws of Canada and having its registered office at 885 W. Georgia Street, 19th Floor, Vancouver, BC, Canada V6C 3H4 (hereinafter called the "Company") OF THE FIRST PART AND: DONALD F. MAZANKOWSKI residing at 5238 45B Avenue, Vegreville, Alberta T9C 1S5 Canada (hereinafter called the "Optionee") OF THE SECOND PART WHEREAS: A. The Company is the registered and beneficial owner of, among other things, certain Class B common shares (the "Class B Shares") in Guyanor Ressources S.A. ("Guyanor"), a "societe anonyme" constituted under the laws of France; B. Guyanor is a controlled subsidiary of the Company and the Company will directly benefit from the business success of Guyanor; C. In consideration of the service rendered by the Optionee the Company desires to grant an option to the Optionee to purchase certain Class B Shares of Guyanor from the Company. NOW THEREFORE in consideration of the premises and of the covenants and conditions hereinafter set forth, the parties hereto agree as follows: 1. Grant The Company hereby grants to the Optionee the option (the "Option") to purchase, effective the Date of the Grant and upon and subject to all the terms and conditions set forth herein, 10,000 Class B Shares of Guyanor which are owned by the Company (collectively, the "Optioned Shares"). 2. Exercise Price The exercise price for Optioned Shares shall be $9.20 (CDN) per share (the "Exercise Price"). 3. Exercise The Option shall vest immediately. 30 If the Optionee is subject to section 16 of the United States Securities Act of 1934, as amended (the "Exchange Act"), the Optionee shall be precluded from exercising the Option unless, at the time of exercise of his Option, six months have elapsed since the date of grant of the Option. Except as provided in paragraph 5 hereof, the Option may only be exercised while the Optionee is at the time of such exercise a director of the Company and shall have continuously so served since the grant of the Option. The Optionee may exercise the Option by giving written notice to the Company and delivering to the Company a certified cheque in an amount equal to the number of Optioned Shares in respect of which the Option is being exercised multiplied by the Exercise Price. Upon compliance with the foregoing but subject to paragraph 8 hereof, the Company agrees to do all things necessary in accordance with Guyanor's share transfer procedures in order to cause the Optionee to become the beneficial owner of such number of Optioned Shares in respect of which the Option is exercised. The Optionee acknowledges that, due to French law considerations, Class B Shares of Guyanor are not represented by share certificates and the Optionee will comply with Guyanor's share registration and transfer procedures. 4. Option Not Transferable The Option is not transferable or assignable except by will or by the laws of descent and distribution. 5. Termination of Option The Option shall terminate, to the extent not previously exercised, upon the first to occur of the following dates: (a) at 5:00 p.m. (Denver, Colorado time) on the date which is ten years from the Date of Grant, the expiration date of the Option; (b) one year after the Optionee ceases to be a Director of the Company for any reason; in the event of death, the Option may be exercised within such year by the person to whom the Optionee's rights under the Option shall pass by the Optionee's will or by the laws of descent and distribution to the extent that the Optionee was entitled to exercise the Option at his death. 6. Adjustments in Shares The Option confers upon the Optionee the option to purchase Class B Shares as they are constituted at the Date of Grant. If prior to the exercise of the Option Guyanor is required under French law to make adjustments in the value of its Class B Shares, the Company agrees that it will make corresponding adjustments to the number of Optioned Shares or the Exercise Price. 7. Professional Advice The acceptance and exercise of the Option and the sale of the Optioned Shares issued pursuant to the exercise of the Option may have consequences under applicable tax and securities laws which may vary depending on the individual circumstances of the Optionee. Accordingly, the Optionee acknowledges that he has been advised to consult his personal legal and tax advisor in connection with this Agreement and his dealings with respect to the Option and the acquisition of the Optioned Shares from the Company. 2 31 8. Regulatory Approvals The Option shall be subject to any necessary approval of and acceptance by any stock exchange on which the Optioned Shares are listed and any other regulatory authority having jurisdiction over the Company or Guyanor. The Optionee acknowledges that the grant of the Option by the Company to the Optionee and the transfer of the Optioned Shares by the Company to the Optionee upon any exercise of the Option are subject to applicable securities laws and regulations. The Optionee further acknowledges that such Option grant and any transfer of Optioned Shares are subject to appropriate exemptions from the registration and prospectus requirements of such applicable securities laws and regulations being available to the Company and no prospectus or registration statement having to be filed by the Company. To the extent Canadian securities laws are applicable, the Company agrees to apply to relevant Canadian securities regulatory authorities for any necessary order exempting the Company from applicable Canadian registration and prospectus requirements and/or to file with relevant securities regulatory authorities any necessary notices of intention to sell. The Optionee agrees to comply with any conditions of exemptions or exemption orders from applicable registration and prospectus requirements for the Option grant, any transfer of Optioned Shares from the Company to the Optionee and any resale of the Optioned Shares by the Optionee, and acknowledges and agrees to any time delays or hold periods that may be required in connection with the use of or reliance on such applicable exemptions or exemption orders. Where necessary to effect exemption from registration or distribution of the Optioned Shares under securities laws applicable to the securities of the Guyanor, the Optionee shall be required, upon the acquisition of any Optioned Shares pursuant to this Option to acquire the Shares with investment intent (i.e., for investment purposes) and not with a view to their distribution, and the Board of Directors of the Company may require the Optionee to sign an undertaking to that effect in a form acceptable to the Board of Directors. The Board of Directors may take such other action or require such other action or agreement by the Optionee as may from time to time be necessary to comply with applicable securities laws. If for any reason exemptions from or exemption orders relating to applicable registration and prospectus requirements under all relevant securities laws are not available to the Company in connection with the Option grant and any transfer of Optioned Shares, the Company will notify the Optionee as soon as it is aware of the same and the Option will be null and void and this Agreement will have no further force or effect. 9. Notices Any notice to be given hereunder shall be deemed to have been well and sufficiently given if mailed by prepaid registered mail, telexed, telecopied, telegraphed or delivered to the parties at the addresses specified above or at such other address as each party may from time to time direct in writing. Any such notice shall be deemed to have been received if mailed, telexed, telecopied, or telegraphed, forty-eight hours after the time of mailing, telexing, telecopying or telegraphing and if delivered, upon delivery. If normal mail service is interrupted by a labor dispute, slowdown, strike, force majeure, or other cause, a notice sent by mail shall not be deemed to be received until actually received, and the party giving such notice shall use such other service as may be available to ensure prompt delivery or shall deliver such notice. 3 32 10. Governing Law This Agreement shall be construed and enforced in accordance with the laws of the Province of British Columbia and the Federal laws of Canada applicable therein. 11. Time of the Essence Time shall be of the essence in the performance of obligations under this Agreement. 12. Entire Agreement This Agreement supersedes all prior and contemporaneous oral and written statements and representations and contains the entire agreement between the parties with respect to the Option. IN WITNESS WHEREOF the parties have executed these presents as of the day and the year first above written. GOLDEN STAR RESOURCES LTD. By: /s/ Louis O. Peloquin AUTHORIZED OFFICER /s/ Donald Mazankowski DONALD MAZANKOWSKI 4 33 OPTION AGREEMENT THIS AGREEMENT is entered into effective as of the 10th day of December, 1996 (the "Date of Grant") BETWEEN: GOLDEN STAR RESOURCES LTD., a corporation created by amalgamation under the laws of Canada and having its registered office at 885 W. Georgia Street, 19th Floor, Vancouver, BC, Canada V6C 3H4 (hereinafter called the "Company") OF THE FIRST PART AND: ERNEST C. MERCIER residing at 77 Strathallan Boulevard, Toronto, Ontario M5N 1S8 Canada (hereinafter called the "Optionee") OF THE SECOND PART WHEREAS: A. The Company is the registered and beneficial owner of, among other things, certain Class B common shares (the "Class B Shares") in Guyanor Ressources S.A. ("Guyanor"), a "societe anonyme" constituted under the laws of France; B. Guyanor is a controlled subsidiary of the Company and the Company will directly benefit from the business success of Guyanor; C. In consideration of the service rendered by the Optionee the Company desires to grant an option to the Optionee to purchase certain Class B Shares of Guyanor from the Company. NOW THEREFORE in consideration of the premises and of the covenants and conditions hereinafter set forth, the parties hereto agree as follows: 1. Grant The Company hereby grants to the Optionee the option (the "Option") to purchase, effective the Date of the Grant and upon and subject to all the terms and conditions set forth herein, 10,000 Class B Shares of Guyanor which are owned by the Company (collectively, the "Optioned Shares"). 2. Exercise Price The exercise price for Optioned Shares shall be $9.20 (CDN) per share (the "Exercise Price"). 3. Exercise The Option shall vest immediately. 34 If the Optionee is subject to section 16 of the United States Securities Act of 1934, as amended (the "Exchange Act"), the Optionee shall be precluded from exercising the Option unless, at the time of exercise of his Option, six months have elapsed since the date of grant of the Option. Except as provided in paragraph 5 hereof, the Option may only be exercised while the Optionee is at the time of such exercise a director of the Company and shall have continuously so served since the grant of the Option. The Optionee may exercise the Option by giving written notice to the Company and delivering to the Company a certified cheque in an amount equal to the number of Optioned Shares in respect of which the Option is being exercised multiplied by the Exercise Price. Upon compliance with the foregoing but subject to paragraph 8 hereof, the Company agrees to do all things necessary in accordance with Guyanor's share transfer procedures in order to cause the Optionee to become the beneficial owner of such number of Optioned Shares in respect of which the Option is exercised. The Optionee acknowledges that, due to French law considerations, Class B Shares of Guyanor are not represented by share certificates and the Optionee will comply with Guyanor's share registration and transfer procedures. 4. Option Not Transferable The Option is not transferable or assignable except by will or by the laws of descent and distribution. 5. Termination of Option The Option shall terminate, to the extent not previously exercised, upon the first to occur of the following dates: (a) at 5:00 p.m. (Denver, Colorado time) on the date which is ten years from the Date of Grant, the expiration date of the Option; (b) one year after the Optionee ceases to be a Director of the Company for any reason; in the event of death, the Option may be exercised within such year by the person to whom the Optionee's rights under the Option shall pass by the Optionee's will or by the laws of descent and distribution to the extent that the Optionee was entitled to exercise the Option at his death. 6. Adjustments in Shares The Option confers upon the Optionee the option to purchase Class B Shares as they are constituted at the Date of Grant. If prior to the exercise of the Option Guyanor is required under French law to make adjustments in the value of its Class B Shares, the Company agrees that it will make corresponding adjustments to the number of Optioned Shares or the Exercise Price. 7. Professional Advice The acceptance and exercise of the Option and the sale of the Optioned Shares issued pursuant to the exercise of the Option may have consequences under applicable tax and securities laws which may vary depending on the individual circumstances of the Optionee. Accordingly, the Optionee acknowledges that he has been advised to consult his personal legal and tax advisor in connection with this Agreement and his dealings with respect to the Option and the acquisition of the Optioned Shares from the Company. 2 35 8. Regulatory Approvals The Option shall be subject to any necessary approval of and acceptance by any stock exchange on which the Optioned Shares are listed and any other regulatory authority having jurisdiction over the Company or Guyanor. The Optionee acknowledges that the grant of the Option by the Company to the Optionee and the transfer of the Optioned Shares by the Company to the Optionee upon any exercise of the Option are subject to applicable securities laws and regulations. The Optionee further acknowledges that such Option grant and any transfer of Optioned Shares are subject to appropriate exemptions from the registration and prospectus requirements of such applicable securities laws and regulations being available to the Company and no prospectus or registration statement having to be filed by the Company. To the extent Canadian securities laws are applicable, the Company agrees to apply to relevant Canadian securities regulatory authorities for any necessary order exempting the Company from applicable Canadian registration and prospectus requirements and/or to file with relevant securities regulatory authorities any necessary notices of intention to sell. The Optionee agrees to comply with any conditions of exemptions or exemption orders from applicable registration and prospectus requirements for the Option grant, any transfer of Optioned Shares from the Company to the Optionee and any resale of the Optioned Shares by the Optionee, and acknowledges and agrees to any time delays or hold periods that may be required in connection with the use of or reliance on such applicable exemptions or exemption orders. Where necessary to effect exemption from registration or distribution of the Optioned Shares under securities laws applicable to the securities of the Guyanor, the Optionee shall be required, upon the acquisition of any Optioned Shares pursuant to this Option to acquire the Shares with investment intent (i.e., for investment purposes) and not with a view to their distribution, and the Board of Directors of the Company may require the Optionee to sign an undertaking to that effect in a form acceptable to the Board of Directors. The Board of Directors may take such other action or require such other action or agreement by the Optionee as may from time to time be necessary to comply with applicable securities laws. If for any reason exemptions from or exemption orders relating to applicable registration and prospectus requirements under all relevant securities laws are not available to the Company in connection with the Option grant and any transfer of Optioned Shares, the Company will notify the Optionee as soon as it is aware of the same and the Option will be null and void and this Agreement will have no further force or effect. 9. Notices Any notice to be given hereunder shall be deemed to have been well and sufficiently given if mailed by prepaid registered mail, telexed, telecopied, telegraphed or delivered to the parties at the addresses specified above or at such other address as each party may from time to time direct in writing. Any such notice shall be deemed to have been received if mailed, telexed, telecopied, or telegraphed, forty-eight hours after the time of mailing, telexing, telecopying or telegraphing and if delivered, upon delivery. If normal mail service is interrupted by a labor dispute, slowdown, strike, force majeure, or other cause, a notice sent by mail shall not be deemed to be received until actually received, and the party giving such notice shall use such other service as may be available to ensure prompt delivery or shall deliver such notice. 3 36 10. Governing Law This Agreement shall be construed and enforced in accordance with the laws of the Province of British Columbia and the Federal laws of Canada applicable therein. 11. Time of the Essence Time shall be of the essence in the performance of obligations under this Agreement. 12. Entire Agreement This Agreement supersedes all prior and contemporaneous oral and written statements and representations and contains the entire agreement between the parties with respect to the Option. IN WITNESS WHEREOF the parties have executed these presents as of the day and the year first above written. GOLDEN STAR RESOURCES LTD. By: /s/ Louis O. Peloquin AUTHORIZED OFFICER /s/ Ernest Mercier ERNEST MERCIER 4 37 OPTION AGREEMENT THIS AGREEMENT is entered into effective as of the 10th day of December, 1996 (the "Date of Grant") BETWEEN: GOLDEN STAR RESOURCES LTD., a corporation created by amalgamation under the laws of Canada and having its registered office at 885 W. Georgia Street, 19th Floor, Vancouver, BC, Canada V6C 3H4 (hereinafter called the "Company") OF THE FIRST PART AND: DR. ROGER MORTON residing at 9103-118 Street, Edmonton, Alberta T6G 1T6 Canada (hereinafter called the "Optionee") OF THE SECOND PART WHEREAS: A. The Company is the registered and beneficial owner of, among other things, certain Class B common shares (the "Class B Shares") in Guyanor Ressources S.A. ("Guyanor"), a "societe anonyme" constituted under the laws of France; B. Guyanor is a controlled subsidiary of the Company and the Company will directly benefit from the business success of Guyanor; C. In consideration of the service rendered by the Optionee the Company desires to grant an option to the Optionee to purchase certain Class B Shares of Guyanor from the Company. NOW THEREFORE in consideration of the premises and of the covenants and conditions hereinafter set forth, the parties hereto agree as follows: 1. Grant The Company hereby grants to the Optionee the option (the "Option") to purchase, effective the Date of the Grant and upon and subject to all the terms and conditions set forth herein, 20,000 Class B Shares of Guyanor which are owned by the Company (collectively, the "Optioned Shares"). 2. Exercise Price The exercise price for Optioned Shares shall be $9.20 (CDN) per share (the "Exercise Price"). 3. Exercise The Option shall vest immediately. 38 If the Optionee is subject to section 16 of the United States Securities Act of 1934, as amended (the "Exchange Act"), the Optionee shall be precluded from exercising the Option unless, at the time of exercise of his Option, six months have elapsed since the date of grant of the Option. Except as provided in paragraph 5 hereof, the Option may only be exercised while the Optionee is at the time of such exercise a director of the Company and shall have continuously so served since the grant of the Option. The Optionee may exercise the Option by giving written notice to the Company and delivering to the Company a certified cheque in an amount equal to the number of Optioned Shares in respect of which the Option is being exercised multiplied by the Exercise Price. Upon compliance with the foregoing but subject to paragraph 8 hereof, the Company agrees to do all things necessary in accordance with Guyanor's share transfer procedures in order to cause the Optionee to become the beneficial owner of such number of Optioned Shares in respect of which the Option is exercised. The Optionee acknowledges that, due to French law considerations, Class B Shares of Guyanor are not represented by share certificates and the Optionee will comply with Guyanor's share registration and transfer procedures. 4. Option Not Transferable The Option is not transferable or assignable except by will or by the laws of descent and distribution. 5. Termination of Option The Option shall terminate, to the extent not previously exercised, upon the first to occur of the following dates: (a) at 5:00 p.m. (Denver, Colorado time) on the date which is ten years from the Date of Grant, the expiration date of the Option; (b) one year after the Optionee ceases to be a Director of the Company for any reason; in the event of death, the Option may be exercised within such year by the person to whom the Optionee's rights under the Option shall pass by the Optionee's will or by the laws of descent and distribution to the extent that the Optionee was entitled to exercise the Option at his death. 6. Adjustments in Shares The Option confers upon the Optionee the option to purchase Class B Shares as they are constituted at the Date of Grant. If prior to the exercise of the Option Guyanor is required under French law to make adjustments in the value of its Class B Shares, the Company agrees that it will make corresponding adjustments to the number of Optioned Shares or the Exercise Price. 7. Professional Advice The acceptance and exercise of the Option and the sale of the Optioned Shares issued pursuant to the exercise of the Option may have consequences under applicable tax and securities laws which may vary depending on the individual circumstances of the Optionee. Accordingly, the Optionee acknowledges that he has been advised to consult his personal legal and tax advisor in connection with this Agreement and his dealings with respect to the Option and the acquisition of the Optioned Shares from the Company. 2 39 8. Regulatory Approvals The Option shall be subject to any necessary approval of and acceptance by any stock exchange on which the Optioned Shares are listed and any other regulatory authority having jurisdiction over the Company or Guyanor. The Optionee acknowledges that the grant of the Option by the Company to the Optionee and the transfer of the Optioned Shares by the Company to the Optionee upon any exercise of the Option are subject to applicable securities laws and regulations. The Optionee further acknowledges that such Option grant and any transfer of Optioned Shares are subject to appropriate exemptions from the registration and prospectus requirements of such applicable securities laws and regulations being available to the Company and no prospectus or registration statement having to be filed by the Company. To the extent Canadian securities laws are applicable, the Company agrees to apply to relevant Canadian securities regulatory authorities for any necessary order exempting the Company from applicable Canadian registration and prospectus requirements and/or to file with relevant securities regulatory authorities any necessary notices of intention to sell. The Optionee agrees to comply with any conditions of exemptions or exemption orders from applicable registration and prospectus requirements for the Option grant, any transfer of Optioned Shares from the Company to the Optionee and any resale of the Optioned Shares by the Optionee, and acknowledges and agrees to any time delays or hold periods that may be required in connection with the use of or reliance on such applicable exemptions or exemption orders. Where necessary to effect exemption from registration or distribution of the Optioned Shares under securities laws applicable to the securities of the Guyanor, the Optionee shall be required, upon the acquisition of any Optioned Shares pursuant to this Option to acquire the Shares with investment intent (i.e., for investment purposes) and not with a view to their distribution, and the Board of Directors of the Company may require the Optionee to sign an undertaking to that effect in a form acceptable to the Board of Directors. The Board of Directors may take such other action or require such other action or agreement by the Optionee as may from time to time be necessary to comply with applicable securities laws. If for any reason exemptions from or exemption orders relating to applicable registration and prospectus requirements under all relevant securities laws are not available to the Company in connection with the Option grant and any transfer of Optioned Shares, the Company will notify the Optionee as soon as it is aware of the same and the Option will be null and void and this Agreement will have no further force or effect. 9. Notices Any notice to be given hereunder shall be deemed to have been well and sufficiently given if mailed by prepaid registered mail, telexed, telecopied, telegraphed or delivered to the parties at the addresses specified above or at such other address as each party may from time to time direct in writing. Any such notice shall be deemed to have been received if mailed, telexed, telecopied, or telegraphed, forty-eight hours after the time of mailing, telexing, telecopying or telegraphing and if delivered, upon delivery. If normal mail service is interrupted by a labor dispute, slowdown, strike, force majeure, or other cause, a notice sent by mail shall not be deemed to be received until actually received, and the party giving such notice shall use such other service as may be available to ensure prompt delivery or shall deliver such notice. 3 40 10. Governing Law This Agreement shall be construed and enforced in accordance with the laws of the Province of British Columbia and the Federal laws of Canada applicable therein. 11. Time of the Essence Time shall be of the essence in the performance of obligations under this Agreement. 12. Entire Agreement This Agreement supersedes all prior and contemporaneous oral and written statements and representations and contains the entire agreement between the parties with respect to the Option. IN WITNESS WHEREOF the parties have executed these presents as of the day and the year first above written. GOLDEN STAR RESOURCES LTD. By: /s/ Louis O. Peloquin AUTHORIZED OFFICER /s/ Roger Morton DR. ROGER MORTON 4 41 OPTION AGREEMENT THIS AGREEMENT is entered into effective as of the 10th day of December, 1996 (the "Date of Grant") BETWEEN: GOLDEN STAR RESOURCES LTD., a corporation created by amalgamation under the laws of Canada and having its registered office at 885 W. Georgia Street, 19th Floor, Vancouver, BC, Canada V6C 3H4 (hereinafter called the "Company") OF THE FIRST PART AND: RICHARD A. STARK residing at 340 Palmetto Point, John's Island, Vero Beach, Florida 32963 (hereinafter called the "Optionee") OF THE SECOND PART WHEREAS: A. The Company is the registered and beneficial owner of, among other things, certain Class B common shares (the "Class B Shares") in Guyanor Ressources S.A. ("Guyanor"), a "societe anonyme" constituted under the laws of France; B. Guyanor is a controlled subsidiary of the Company and the Company will directly benefit from the business success of Guyanor; C. In consideration of the service rendered by the Optionee the Company desires to grant an option to the Optionee to purchase certain Class B Shares of Guyanor from the Company. NOW THEREFORE in consideration of the premises and of the covenants and conditions hereinafter set forth, the parties hereto agree as follows: 1. Grant The Company hereby grants to the Optionee the option (the "Option") to purchase, effective the Date of the Grant and upon and subject to all the terms and conditions set forth herein, 20,000 Class B Shares of Guyanor which are owned by the Company (collectively, the "Optioned Shares"). 2. Exercise Price The exercise price for Optioned Shares shall be $9.20 (CDN) per share (the "Exercise Price"). 3. Exercise The Option shall vest immediately. 42 If the Optionee is subject to section 16 of the United States Securities Act of 1934, as amended (the "Exchange Act"), the Optionee shall be precluded from exercising the Option unless, at the time of exercise of his Option, six months have elapsed since the date of grant of the Option. Except as provided in paragraph 5 hereof, the Option may only be exercised while the Optionee is at the time of such exercise a director of the Company and shall have continuously so served since the grant of the Option. The Optionee may exercise the Option by giving written notice to the Company and delivering to the Company a certified cheque in an amount equal to the number of Optioned Shares in respect of which the Option is being exercised multiplied by the Exercise Price. Upon compliance with the foregoing but subject to paragraph 8 hereof, the Company agrees to do all things necessary in accordance with Guyanor's share transfer procedures in order to cause the Optionee to become the beneficial owner of such number of Optioned Shares in respect of which the Option is exercised. The Optionee acknowledges that, due to French law considerations, Class B Shares of Guyanor are not represented by share certificates and the Optionee will comply with Guyanor's share registration and transfer procedures. 4. Option Not Transferable The Option is not transferable or assignable except by will or by the laws of descent and distribution. 5. Termination of Option The Option shall terminate, to the extent not previously exercised, upon the first to occur of the following dates: (a) at 5:00 p.m. (Denver, Colorado time) on the date which is ten years from the Date of Grant, the expiration date of the Option; (b) one year after the Optionee ceases to be a Director of the Company for any reason; in the event of death, the Option may be exercised within such year by the person to whom the Optionee's rights under the Option shall pass by the Optionee's will or by the laws of descent and distribution to the extent that the Optionee was entitled to exercise the Option at his death. 6. Adjustments in Shares The Option confers upon the Optionee the option to purchase Class B Shares as they are constituted at the Date of Grant. If prior to the exercise of the Option Guyanor is required under French law to make adjustments in the value of its Class B Shares, the Company agrees that it will make corresponding adjustments to the number of Optioned Shares or the Exercise Price. 7. Professional Advice The acceptance and exercise of the Option and the sale of the Optioned Shares issued pursuant to the exercise of the Option may have consequences under applicable tax and securities laws which may vary depending on the individual circumstances of the Optionee. Accordingly, the Optionee acknowledges that he has been advised to consult his personal legal and tax advisor in connection with this Agreement and his dealings with respect to the Option and the acquisition of the Optioned Shares from the Company. 2 43 8. Regulatory Approvals The Option shall be subject to any necessary approval of and acceptance by any stock exchange on which the Optioned Shares are listed and any other regulatory authority having jurisdiction over the Company or Guyanor. The Optionee acknowledges that the grant of the Option by the Company to the Optionee and the transfer of the Optioned Shares by the Company to the Optionee upon any exercise of the Option are subject to applicable securities laws and regulations. The Optionee further acknowledges that such Option grant and any transfer of Optioned Shares are subject to appropriate exemptions from the registration and prospectus requirements of such applicable securities laws and regulations being available to the Company and no prospectus or registration statement having to be filed by the Company. To the extent Canadian securities laws are applicable, the Company agrees to apply to relevant Canadian securities regulatory authorities for any necessary order exempting the Company from applicable Canadian registration and prospectus requirements and/or to file with relevant securities regulatory authorities any necessary notices of intention to sell. The Optionee agrees to comply with any conditions of exemptions or exemption orders from applicable registration and prospectus requirements for the Option grant, any transfer of Optioned Shares from the Company to the Optionee and any resale of the Optioned Shares by the Optionee, and acknowledges and agrees to any time delays or hold periods that may be required in connection with the use of or reliance on such applicable exemptions or exemption orders. Where necessary to effect exemption from registration or distribution of the Optioned Shares under securities laws applicable to the securities of the Guyanor, the Optionee shall be required, upon the acquisition of any Optioned Shares pursuant to this Option to acquire the Shares with investment intent (i.e., for investment purposes) and not with a view to their distribution, and the Board of Directors of the Company may require the Optionee to sign an undertaking to that effect in a form acceptable to the Board of Directors. The Board of Directors may take such other action or require such other action or agreement by the Optionee as may from time to time be necessary to comply with applicable securities laws. If for any reason exemptions from or exemption orders relating to applicable registration and prospectus requirements under all relevant securities laws are not available to the Company in connection with the Option grant and any transfer of Optioned Shares, the Company will notify the Optionee as soon as it is aware of the same and the Option will be null and void and this Agreement will have no further force or effect. 9. Notices Any notice to be given hereunder shall be deemed to have been well and sufficiently given if mailed by prepaid registered mail, telexed, telecopied, telegraphed or delivered to the parties at the addresses specified above or at such other address as each party may from time to time direct in writing. Any such notice shall be deemed to have been received if mailed, telexed, telecopied, or telegraphed, forty-eight hours after the time of mailing, telexing, telecopying or telegraphing and if delivered, upon delivery. If normal mail service is interrupted by a labor dispute, slowdown, strike, force majeure, or other cause, a notice sent by mail shall not be deemed to be received until actually received, and the party giving such notice shall use such other service as may be available to ensure prompt delivery or shall deliver such notice. 3 44 10. Governing Law This Agreement shall be construed and enforced in accordance with the laws of the Province of British Columbia and the Federal laws of Canada applicable therein. 11. Time of the Essence Time shall be of the essence in the performance of obligations under this Agreement. 12. Entire Agreement This Agreement supersedes all prior and contemporaneous oral and written statements and representations and contains the entire agreement between the parties with respect to the Option. IN WITNESS WHEREOF the parties have executed these presents as of the day and the year first above written. GOLDEN STAR RESOURCES LTD. By: /s/ Louis O. Peloquin AUTHORIZED OFFICER /s/ Richard A. Stark RICHARD A. STARK 4 45 OPTION AGREEMENT THIS AGREEMENT is entered into effective as of the 10th day of December, 1996 (the "Date of Grant") BETWEEN: GOLDEN STAR RESOURCES LTD., a corporation created by amalgamation under the laws of Canada and having its registered office at 885 W. Georgia Street, 19th Floor, Vancouver, BC, Canada V6C 3H4 (hereinafter called the "Company") OF THE FIRST PART AND: DR. ROBERT MINTO, 168 Bisley, Beaconsfield, PQ, Canada H9W 1J8 (hereinafter called the "Optionee") OF THE SECOND PART WHEREAS: A. The Company is the registered and beneficial owner of, among other things, certain Class B common shares (the "Class B Shares") in Guyanor Ressources S.A. ("Guyanor"), a "societe anonyme" constituted under the laws of France; B. Guyanor is a controlled subsidiary of the Company and the Company will directly benefit from the business success of Guyanor; C. In consideration of the service rendered by the Optionee the Company desires to grant an option to the Optionee to purchase certain Class B Shares of Guyanor from the Company. NOW THEREFORE in consideration of the premises and of the covenants and conditions hereinafter set forth, the parties hereto agree as follows: 1. Grant The Company hereby grants to the Optionee the option (the "Option") to purchase, effective the Date of the Grant and upon and subject to all the terms and conditions set forth herein, 10,000 Class B Shares of Guyanor which are owned by the Company (collectively, the "Optioned Shares"). 2. Exercise Price The exercise price for Optioned Shares shall be $9.20 (CDN) per share (the "Exercise Price"). 3. Exercise The Option shall vest immediately. 46 If the Optionee is subject to section 16 of the United States Securities Act of 1934, as amended (the "Exchange Act"), the Optionee shall be precluded from exercising the Option unless, at the time of exercise of his Option, six months have elapsed since the date of grant of the Option. Except as provided in paragraph 5 hereof, the Option may only be exercised while the Optionee is at the time of such exercise a director of the Company and shall have continuously so served since the grant of the Option. The Optionee may exercise the Option by giving written notice to the Company and delivering to the Company a certified cheque in an amount equal to the number of Optioned Shares in respect of which the Option is being exercised multiplied by the Exercise Price. Upon compliance with the foregoing but subject to paragraph 8 hereof, the Company agrees to do all things necessary in accordance with Guyanor's share transfer procedures in order to cause the Optionee to become the beneficial owner of such number of Optioned Shares in respect of which the Option is exercised. The Optionee acknowledges that, due to French law considerations, Class B Shares of Guyanor are not represented by share certificates and the Optionee will comply with Guyanor's share registration and transfer procedures. 4. Option Not Transferable The Option is not transferable or assignable except by will or by the laws of descent and distribution. 5. Termination of Option The Option shall terminate, to the extent not previously exercised, upon the first to occur of the following dates: (a) at 5:00 p.m. (Denver, Colorado time) on the date which is ten years from the Date of Grant, the expiration date of the Option; (b) one year after the Optionee ceases to be a Director of the Company for any reason; in the event of death, the Option may be exercised within such year by the person to whom the Optionee's rights under the Option shall pass by the Optionee's will or by the laws of descent and distribution to the extent that the Optionee was entitled to exercise the Option at his death. 6. Adjustments in Shares The Option confers upon the Optionee the option to purchase Class B Shares as they are constituted at the Date of Grant. If prior to the exercise of the Option Guyanor is required under French law to make adjustments in the value of its Class B Shares, the Company agrees that it will make corresponding adjustments to the number of Optioned Shares or the Exercise Price. 7. Professional Advice The acceptance and exercise of the Option and the sale of the Optioned Shares issued pursuant to the exercise of the Option may have consequences under applicable tax and securities laws which may vary depending on the individual circumstances of the Optionee. Accordingly, the Optionee acknowledges that he has been advised to consult his personal legal and tax advisor in connection with this Agreement and his dealings with respect to the Option and the acquisition of the Optioned Shares from the Company. 2 47 8. Regulatory Approvals The Option shall be subject to any necessary approval of and acceptance by any stock exchange on which the Optioned Shares are listed and any other regulatory authority having jurisdiction over the Company or Guyanor. The Optionee acknowledges that the grant of the Option by the Company to the Optionee and the transfer of the Optioned Shares by the Company to the Optionee upon any exercise of the Option are subject to applicable securities laws and regulations. The Optionee further acknowledges that such Option grant and any transfer of Optioned Shares are subject to appropriate exemptions from the registration and prospectus requirements of such applicable securities laws and regulations being available to the Company and no prospectus or registration statement having to be filed by the Company. To the extent Canadian securities laws are applicable, the Company agrees to apply to relevant Canadian securities regulatory authorities for any necessary order exempting the Company from applicable Canadian registration and prospectus requirements and/or to file with relevant securities regulatory authorities any necessary notices of intention to sell. The Optionee agrees to comply with any conditions of exemptions or exemption orders from applicable registration and prospectus requirements for the Option grant, any transfer of Optioned Shares from the Company to the Optionee and any resale of the Optioned Shares by the Optionee, and acknowledges and agrees to any time delays or hold periods that may be required in connection with the use of or reliance on such applicable exemptions or exemption orders. Where necessary to effect exemption from registration or distribution of the Optioned Shares under securities laws applicable to the securities of the Guyanor, the Optionee shall be required, upon the acquisition of any Optioned Shares pursuant to this Option to acquire the Shares with investment intent (i.e., for investment purposes) and not with a view to their distribution, and the Board of Directors of the Company may require the Optionee to sign an undertaking to that effect in a form acceptable to the Board of Directors. The Board of Directors may take such other action or require such other action or agreement by the Optionee as may from time to time be necessary to comply with applicable securities laws. If for any reason exemptions from or exemption orders relating to applicable registration and prospectus requirements under all relevant securities laws are not available to the Company in connection with the Option grant and any transfer of Optioned Shares, the Company will notify the Optionee as soon as it is aware of the same and the Option will be null and void and this Agreement will have no further force or effect. 9. Notices Any notice to be given hereunder shall be deemed to have been well and sufficiently given if mailed by prepaid registered mail, telexed, telecopied, telegraphed or delivered to the parties at the addresses specified above or at such other address as each party may from time to time direct in writing. Any such notice shall be deemed to have been received if mailed, telexed, telecopied, or telegraphed, forty-eight hours after the time of mailing, telexing, telecopying or telegraphing and if delivered, upon delivery. If normal mail service is interrupted by a labor dispute, slowdown, strike, force majeure, or other cause, a notice sent by mail shall not be deemed to be received until actually received, and the party giving such notice shall use such other service as may be available to ensure prompt delivery or shall deliver such notice. 3 48 10. Governing Law This Agreement shall be construed and enforced in accordance with the laws of the Province of British Columbia and the Federal laws of Canada applicable therein. 11. Time of the Essence Time shall be of the essence in the performance of obligations under this Agreement. 12. Entire Agreement This Agreement supersedes all prior and contemporaneous oral and written statements and representations and contains the entire agreement between the parties with respect to the Option. IN WITNESS WHEREOF the parties have executed these presents as of the day and the year first above written. GOLDEN STAR RESOURCES LTD. By: /s/ Louis O. Peloquin AUTHORIZED OFFICER /s/ Robert Minto Dr. ROBERT MINTO 4 EX-10.40 14 EMPLOYMENT AGREEMENT 5-15-92 1 EXHIBIT 10.40 AMENDMENT OF EMPLOYMENT AGREEMENT BETWEEN GOLDEN STAR RESOURCES LTD. AND DAVID K. FAGIN THIS AGREEMENT made as of May 1, 1996, amends the Employment Agreement made as of May 15, 1992 (the "Employment Agreement") between Golden Star Resources Ltd., a Canadian corporation with offices at 1700 Lincoln Street (Suite 1950), Denver, Colorado (the "Company") and David K. Fagin (the "Employee") under which the Employee is employed as Chairman of the Board of Directors and Chief Executive Officer of the Company for a term ending December 31, 1997. On the terms set forth below and as contemplated by subsection 1.4 of the Employment Agreement, the Company and the Employee have mutually agreed that the Employee's service as Chief Executive Officer of the Company under the Employment Agreement will terminate as of May 1, 1996 and that the Employee will continue thereafter to serve in a non-executive capacity as an employee of the company and Chairman of the Board of Directors of the Company for the remainder of the term of the Employment Agreement without any change in provisions for compensation or benefits or any other term of employment, the Employee's employment being construed as continuing under the Employment Agreement as amended by this Agreement. Because of the difficulty of establishing objective standards for Employee's new role under the Employment Agreement as amended, the Company and the Employee agree that the Employee's annual performance bonus pursuant to subsection 4.2 of the Employment Agreement shall be not less than US$40,000, which is the amount that has been paid in the past years under the Employment Agreement. It is also hereby understood that the termination of the Employee's service as Chief Executive Officer shall not constitute termination for purposes of Article 6 of the Employment Agreement; provided, however, that termination by either party of the Employee's service as an employee (other than Chief Executive Officer) and/or as Chairman of the Board of Directors of the Company shall be subject to the provisions of section 6 of the Employment Agreement. The Company will continue to provide Employee with an appropriate executive office, properly equipped and maintained and with a full-time secretary, all at the Company's cost and expense. IN WITNESS WHEREOF, the Company and the Employee have executed his Agreement as of the date set forth above. GOLDEN STAR RESOURCES LTD. BY: /s/ Louis O. Peloquin --------------------------- Name: Title: /s/ David K. Fagin --------------------------- David K. Fagin EX-21.1 15 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 LIST OF REGISTRANTS SIGNIFICANT SUBSIDIARIES Name of Subsidiary Place of Incorporation - ------------------ ---------------------- Pan African Resources Corporation Yukon Territory, Canada Guyanor Ressources S.A. France BALANCE OF PAGE LEFT BLANK EX-23.1 16 CONSENT OF COOPERS & LYBRAND 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements of Golden Star Resources Ltd. on Form S-3 (File No. 333-12673) and on Form S-8 (File No. 33-81614) of our report dated March 14, 1997, on our audits of the consolidated financial statements of Golden Star Resources Ltd. as of December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995, and 1994, which report is included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand Coopers & Lybrand Chartered Accountants Calgary, Canada March 31, 1997 EX-27.1 17 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 15,663 0 5,116 0 1,027 22,182 6,509 2,843 96,283 6,895 0 0 0 129,954 4,012 78,094 1,723 2,801 4,097 26,533 8,345 0 189 (7,780) 0 0 0 0 0 (7,780) (0.31) 0 Other income After minority interest of $7,607
-----END PRIVACY-ENHANCED MESSAGE-----