GOLDEN STAR RESOURCES LTD., 10-Q filed on 5/10/2012
Quarterly Report
Document And Entity Information
3 Months Ended
Mar. 31, 2012
May 8, 2012
Entity Information [Line Items]
 
 
Entity Registrant Name
GOLDEN STAR RESOURCES LTD 
 
Entity Central Index Key
0000903571 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Mar. 31, 2012 
 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q1 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
258,861,961 
Consolidated Statements Of Operations (USD $)
In Thousands, except Share data in Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
REVENUE
 
 
Gold revenues
$ 131,020 
$ 116,506 
Cost of sales (Note 15)
117,145 
107,751 
Mine operating margin
13,875 
8,755 
Exploration expense
1,264 
579 
General and administrative expense
6,767 
7,102 
Derivative mark-to-market loss (Note 5)
162 
4,249 
(Gain)/loss on fair value of convertible debentures (Note 4)
892 
(18,185)
Property holding costs
2,074 
2,674 
Foreign exchange loss
861 
257 
Interest expense
2,773 
2,358 
Interest and other income
(138)
(39)
Loss on sale of assets
15 
Gain on sale of assets
(22,385)
Income before income tax
21,590 
9,760 
Income tax expense
(12,531)
(4,305)
Net income
9,059 
5,455 
Net (loss) attributable to noncontrolling interest
(54)
(473)
Net income attributable to Golden Star shareholders
$ 9,113 
$ 5,928 
Net income per share attributable to Golden Star shareholders
 
 
Basic (Note 17)
$ 0.035 
$ 0.023 
Diluted (Note 17)
$ 0.035 
$ 0.023 
Weighted average shares outstanding (millions)
258.7 
258.6 
Weighted average shares outstanding-diluted (millions)
258.9 
259.8 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest
$ 9,059 
$ 5,455 
Unrealized loss on investment net of taxes (Note 7)
4,165 
(85)
Comprehensive income
4,894 
5,540 
Comprehensive income attributable to noncontrolling interest
(54)
(473)
Comprehensive income attributable to Golden Star shareholders
$ 4,948 
$ 6,013 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
ASSETS
 
 
Cash and cash equivalents
$ 103,811 
$ 103,644 
Accounts receivable
11,971 
10,077 
Inventories (Note 6)
77,355 
74,297 
Deposits
9,114 
6,474 
Prepaids and other
2,071 
2,048 
Total Current Assets
204,322 
196,540 
RESTRICTED CASH
1,273 
1,273 
PROPERTY, PLANT AND EQUIPMENT (Note 8)
257,059 
252,131 
INTANGIBLE ASSETS
4,739 
5,266 
MINING PROPERTIES (Note 9)
270,305 
270,157 
OTHER ASSETS (Note 4 and 7)
14,368 
1,416 
OTHER
895 
Total Assets
752,066 
727,678 
LIABILITIES
 
 
Accounts payable
43,433 
40,708 
Accrued liabilities
49,326 
51,380 
Asset retirement obligations (Note 10)
8,626 
8,996 
Current tax liability (Note 12)
197 
Current debt (Notes 11)
129,893 
128,459 
Total Current Liabilities
231,278 
229,740 
LONG TERM DEBT (Note 11)
15,104 
10,759 
ASSET RETIREMENT OBLIGATIONS (Note 10)
23,382 
24,884 
DEFERRED TAX LIABILITY (Note 12)
36,524 
23,993 
Total Liabilities
306,288 
289,376 
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS' EQUITY
 
 
First preferred shares, without par value, unlimited shares authorized. No shares issued and outstanding
Common shares, without par value, unlimited shares authorized. Shares issued and outstanding: 258,861,961 at March 31, 2012; 258,669,487 at December 31, 2011 (Note 14)
694,341 
693,899 
CONTRIBUTED SURPLUS
21,956 
19,815 
ACCUMULATED OTHER COMPREHENSIVE INCOME
(2,187)
1,978 
DEFICIT
(266,999)
(276,112)
Total Golden Star Equity
447,111 
439,580 
NONCONTROLLING INTEREST
(1,333)
(1,278)
Total Equity
445,778 
438,302 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 752,066 
$ 727,678 
Consolidated Balance Sheets (Parenthetical) (USD $)
Mar. 31, 2012
Dec. 31, 2011
Consolidated Balance Sheets
 
 
First preferred shares, no par value
   
   
First preferred shares, shares issued
First preferred shares, shares outstanding
Common shares, no par value
   
   
Common shares, shares issued
258,861,961 
258,669,487,000 
Common shares, shares outstanding
258,861,961 
258,669,487,000 
Consolidated Statements Of Cash Flows (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
OPERATING ACTIVITIES:
 
 
Net income
$ 9,059 
$ 5,455 
Reconciliation of net loss to net cash provided by operating activities:
 
 
Depreciation, depletion and amortization
19,050 
21,218 
Amortization of loan acquisition cost
895 
354 
Gain on sale of investments
(22,385)
Gain on sale of assets
15 
Non-cash employee compensation
2,579 
1,341 
Deferred income tax expense
12,531 
3,307 
Fair value of derivatives loss
162 
4,249 
Fair value (gain)/loss on convertible debt
892 
(18,185)
Accretion of asset retirement obligations
703 
933 
Reclamation expenditures
(2,575)
(3,883)
Reconciliation, Total
20,926 
14,789 
Changes in non-cash working capital:
 
 
Accounts receivable
(1,969)
(1,025)
Inventories
(2,012)
(406)
Deposits
(1,305)
(945)
Accounts payable and accrued liabilities
3,018 
(16,614)
Other
(774)
(1,664)
Net cash provided by/(used in) operating activities
17,884 
(5,865)
INVESTING ACTIVITIES:
 
 
Expenditures on mining properties
(12,537)
(8,840)
Expenditures on property, plant and equipment
(12,128)
(9,912)
Change in accounts payable and deposits on mine equipment and material
(3,696)
893 
Cash used for equity investments
(938)
Other
6,605 
Net cash used in investing activities
(22,694)
(17,859)
FINANCING ACTIVITIES:
 
 
Principal payments on debt
(2,150)
(2,765)
Proceeds from debt agreements and equipment financing
7,036 
Other
91 
132 
Net cash provided by/(used in) financing activities
4,977 
(2,633)
Increase/(decrease) in cash and cash equivalents
167 
(26,357)
Cash and cash equivalents, beginning of period
103,644 
178,018 
Cash and cash equivalents end of period
$ 103,811 
$ 151,661 
Nature Of Operations
Nature Of Operations
NATURE OF OPERATIONS
Through our 90% owned subsidiary Golden Star (Bogoso/Prestea) Ltd (“GSBPL”) we own and operate the Bogoso/Prestea gold mining and processing operation (“Bogoso/Prestea”) located near the town of Bogoso, Ghana. Through our 90% owned subsidiary Golden Star (Wassa) Ltd (“GSWL”) we also own and operate the Wassa gold mine (“Wassa”), located approximately 35 kilometers east of Bogoso/Prestea. Wassa mines ore from pits near the Wassa plant and also processes ore mined at our Hwini-Butre (“HBB”) mine located south of Wassa. We hold interests in several gold exploration projects in Ghana and elsewhere in West Africa including Sierra Lone, Niger and Côte d'Ivoire, and in South America we hold and manage exploration properties in Brazil.
Basis Of Presentation
Nature of Operations [Text Block]
BASIS OF PRESENTATION AND LIQUIDITY RISK
Golden Star Resources Ltd (“Golden Star” or “Company”) is a Canadian federally-incorporated, international gold mining and exploration company headquartered in the United States (“U.S.”).
These unaudited interim financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the interim periods presented.
These consolidated financial statements include the accounts of the Company and its subsidiaries, whether owned directly or indirectly. All inter-company balances and transactions have been eliminated. Subsidiaries are defined as entities in which the company holds a controlling interest, is the general partner or where it is subject to the majority of expected losses or gains.
The results reported in these interim financial statements are not necessarily indicative of the results that may be reported for the entire year. Accordingly, these interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2011, as filed on Form 10-K.
As of March 31, 2012, the Company had a negative working capital position of $27.0 million, which includes cash of $103.8 million and a current liability of $123.8 million for our convertible debentures (face value of $125.0 million) due in November 2012. If the debentures are not refinanced, the liability must be met by either (i) payment in cash or (ii) payment in common shares or a combination of shares and cash, based on (a) a share issue value which is 95% of the weighted average trading price of our common shares on the NYSE Amex stock exchange for the 20 consecutive trading days ending five days preceding the maturity date and (b) a maximum share issuance of 46.7 million shares. If the value of the 46.7 million shares is less than $125.0 million, we would be required to pay cash, in addition to the shares issued, in an amount equal to the difference between the aggregate value of the shares issued and the $125.0 million.
Recent Accounting Pronouncements
Recent Accounting Pronouncements
RECENT ACCOUNTING PRONOUNCEMENTS
RECENTLY ADOPTED STANDARDS
Presentation of Comprehensive Income: In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220)-Presentation of Comprehensive Income (ASU 2011-05), to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity. ASU 2011-05 is effective for us in the first quarter of fiscal 2012 and should be applied retrospectively. Our presentation of comprehensive income complies with this new guidance.
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements: In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820)-Fair Value Measurement (ASU 2011-04), to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. ASU 2011-04 is effective for us in 2012 and should be applied prospectively.
Financial Instruments
Financial Instruments
FINANCIAL INSTRUMENTS
The following tables illustrate the classification of the Company's financial instruments within the fair value hierarchy as of March 31, 2012. The three levels of the fair value hierarchy are:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
Level 3 - Inputs that are not based on observable market data.

 
Financial assets measured at fair value as at
 
March 31, 2012
 
Level 1    
 
Level 2    
 
Level 3    
 
Total    
Available for sale investments
$
14,368

 
$

 
$

 
$
14,368

 
$
14,368

 
$

 
$

 
$
14,368


Available for sale investments in Level 1 are based on the quoted market price for the equity investment. It is possible that some of these investments could be sold in large blocks at a future date via a negotiated agreement and such agreements may include a discount from the quoted price.

 
Financial liabilities measured at fair value as at
 
March 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Total
Convertible debentures
$
123,750

 
$

 
$

 
$
123,750

 
$
123,750

 
$

 
$

 
$
123,750


The convertible senior unsecured debentures are recorded at fair value. The debentures are valued based on recent observable trading of the debentures. The $123.8 million fair value includes $1.4 million of accrued interest as of March 31, 2012.

 
Financial assets measured at fair value as at
 
December 31, 2011
 
Level 1    
 
Level 2    
 
Level 3    
 
Total    
Available for sale investments
$
1,416

 
$

 
$

 
$
1,416

Warrants

 
555

 

 
555

 
$
1,416

 
$
555

 
$

 
$
1,971


 
Financial liabilities measured at fair value as at
 
December 31, 2011
 
Level 1
 
Level 2
 
Level 3
 
Total
Convertible debentures
$
121,625

 
$

 
$

 
$
121,625

 
$
121,625

 
$

 
$

 
$
121,625


During the period ended March 31, 2012, an unrealized loss of $0.9 million (2011: gain of $18.2 million) was recorded in the Statement of Operations relating to the change in fair value of the convertible debentures.
Derivative Gains And Losses
Derivative Gains And Losses
DERIVATIVE GAINS AND LOSSES
The derivative mark-to-market (gains)/losses recorded in the Statement of Operations are comprised of the following amounts:
 
 
For the three months ended
 
March 31,
 
2012

2011
Riverstone Resources, Inc. - warrants
$
162

 
$
(274
)
Gold price derivatives

 
4,523

Derivative (gain)/loss
$
162

 
$
4,249


 
For the three months ended
 
March 31,
 
2012
 
2011
Realized (gain)/loss
$
(393
)
 
$

Unrealized (gain)/loss
555

 
4,249

Derivative (gain)/loss
$
162

 
$
4,249

RIVERSTONE RESOURCES INC. - WARRANTS
In the first quarter of 2008, we received two million warrants from Riverstone Resources Inc. (“Riverstone”) as partial payment for the right to earn an ownership interest in our exploration projects in Burkina Faso. These warrants were exercisable through January 2012 at Cdn$0.45. In January 2012, the Riverstone warrants were exercised.
GOLD PRICE DERIVATIVES
In January 2011, we entered into a series of put and call contracts covering 76,800 ounces of future gold production between February and December 2011. The contracts were spread evenly in each week over this period and structured as cashless collars with a floor of $1,200 per ounce and a cap of $1,457 per ounce. In early February 2011, we entered into a second set of put and call contracts covering 75,200 ounces of future gold production between February and December 2011. The contracts were spread evenly in each week during this period and structured as cashless collars with a floor of $1,200 per ounce and a cap of $1,503 per ounce. As of March 31, 2012, there were no outstanding gold price contracts.
Inventories
Inventories
INVENTORIES
 
As of
 
As of
 
March 31,
 
December 31,
 
2012
 
2011
Stockpiled ore
$
17,648

 
$
16,773

In-process
12,534

 
8,912

Materials and supplies
47,173

 
48,612

Finished goods

 

Total
$
77,355

 
$
74,297

There were approximately 58,000 and 48,000 recoverable ounces of gold in the ore stockpile inventories shown above at March 31, 2012, and December 31, 2011, respectively. Stockpile inventories are short-term surge piles expected to be processed within the next 12 months. A total of $0.2 million and $1.4 million of material and supply inventories were written off in 2012 and 2011 respectively due to obsolescence and counts. $0.1 million and $1.7 million of net realizable value adjustments were recorded at Bogoso in 2012 and 2011 respectively. The net realizable value adjustments in 2012 are related to the non-refractory plant in process inventory.
Available For Sale Investments
Available For Sale Investments
AVAILABLE FOR SALE INVESTMENTS
The following table presents changes in available for sale investments in the first three months of 2012 and the full year 2011:
 
As of March 31, 2012
 
As of December 31, 2011
 
Riverstone
 
Riverstone
 
Fair Value
 
Shares
 
Fair Value
 
Shares
Balance at beginning of period
$
1,416

 
2,000,000

 
$
928

 
1,300,000

Acquisitions
17,117

 
23,676,301

 
469

 
700,000

OCI - unrealized gain/(loss)
(4,165
)
 

 
19

 

Balance at end of period
$
14,368

 
25,676,301

 
$
1,416

 
2,000,000


The acquisition of the Riverstone shares was accomplished through two transactions. The first was an exercise of the two million warrants at an exercise price CDN$0.45 for cash consideration of $0.9 million. The fair value of the shares acquired was $1.3 million. The second transaction was the sale of the Company's Burkina Faso subsidiary to Riverstone. The sale generated $6.6 million of cash plus 21.7 million Riverstone shares. We recognized the shares at their face value of $15.8 million on February 2, 2012, when the sale was finalized. It is possible that some of these investments could be sold in large blocks at a future date via a negotiated agreement and such agreements may include a discount from the quoted price. The Company currently does not intend to actively trade in its holdings and it is classified as long term.  Subsequent to February 2, 2012, the quoted market price of Riverstone's common stock has decreased, such that for the period ended March 31, 2012, the Company has recognized through Comprehensive Income a loss of $4.2 million related to its holdings.
Property, Plant And Equipment
Property, Plant And Equipment
PROPERTY, PLANT AND EQUIPMENT

 
As of March 31, 2012
 
As of December 31, 2011
 
Property,
Plant and
Equipment
at Cost
 
Accumulated
Depreciation
 
Property,
Plant and
Equipment
Net Book
Value
 
Property,
Plant and
Equipment
at Cost
 
Accumulated
Depreciation
 
Property,
Plant and
Equipment
Net Book
Value
Bogoso/Prestea
$
179,771

 
$
(109,552
)
 
$
70,219

 
$
179,216

 
$
(109,519
)
 
$
69,697

Bogoso refractory plant
193,590

 
(60,986
)
 
132,604

 
186,607

 
(58,873
)
 
127,734

Wassa/HBB
108,945

 
(55,179
)
 
53,766

 
106,631

 
(52,430
)
 
54,201

Corporate & other
1,344

 
(874
)
 
470

 
1,378

 
(879
)
 
499

Total
$
483,650

 
$
(226,591
)
 
$
257,059

 
$
473,832

 
$
(221,701
)
 
$
252,131


There was no interest capitalized in new additions to property, plant and equipment in the periods shown above.
Mining Properties
Mining Properties
MINING PROPERTIES
 
 
As of March 31, 2012
 
As of December 31, 2011
 
Mining
Properties
 
Accumulated
Amortization
 
Mining
Properties,
Net Book
 
Mining
Properties
 
Accumulated Amortization
 
Mining
Properties,
Net Book
Bogoso/Prestea
$
122,359

 
$
(61,495
)
 
$
60,864

 
$
119,700

 
$
(60,186
)
 
$
59,514

Bogoso refractory
70,286

 
(36,338
)
 
33,948

 
70,090

 
(34,839
)
 
35,251

Mampon
16,095

 

 
16,095

 
16,095

 

 
16,095

Wassa/HBB
322,163

 
(189,184
)
 
132,979

 
314,801

 
(180,486
)
 
134,315

Other
29,600

 
(3,181
)
 
26,419

 
27,312

 
(2,330
)
 
24,982

Total
$
560,503

 
$
(290,198
)
 
$
270,305

 
$
547,998

 
$
(277,841
)
 
$
270,157


There was no interest capitalized in new additions to mining properties in the periods shown above.
Asset Retirement Obligations
Asset Retirement Obligations
ASSET RETIREMENT OBLIGATIONS
At the end of each period, Asset Retirement Obligations (“ARO”) are equal to the present value of all estimated future costs required to remediate any environmental disturbances that exist as of the end of the period, using discount rates applicable at the time of initial recognition of each component of the liability. Included in this liability are the costs of closure, reclamation, demolition and stabilization of the mines, processing plants, infrastructure, tailings storage facilities, waste dumps and ongoing post-closure environmental monitoring and maintenance costs. While the majority of these costs will be incurred near the end of the mines' lives, it is expected that certain on-going reclamation costs will be incurred prior to mine closure. These costs are recorded against the asset retirement obligation liability as incurred. At March 31, 2012, and March 31, 2011, the total undiscounted amount of the estimated future cash needs was estimated to be $70.3 million and $84.1 million, respectively. Discount rates used to value the ARO range between 8% and 10%. The schedule of payments required to settle the December 31, 2011, ARO liability extends through 2029.
The changes in the carrying amount of the ARO during the three months ended March 31, 2012, and March 31, 2011, are as follows:

 
For the three months ended
 
March 31,
 
2012
 
2011
Beginning balance
$
33,880

 
$
44,952

Accretion expense
703

 
933

Additions and change in estimates

 
3,748

Cost of reclamation work performed
(2,575
)
 
(3,883
)
Balance at March 31
$
32,008

 
$
45,750

 
 
 
 
Current portion
$
8,626

 
$
23,220

Long term portion
$
23,382

 
$
22,530

Debt
Debt
DEBT
 
As of
 
As of
 
March 31, 2012
 
December 31, 2011
Current debt:
 
 
 
Equipment financing credit facility
$
7,801

 
$
7,036

Capital lease

 
224

Convertible Debentures
122,092

 
121,199

Total current debt
$
129,893

 
$
128,459

Long term debt:
 
 
 
Equipment financing credit facility
$
15,104

 
$
10,759

Total long term debt
$
15,104

 
$
10,759

Schedule of payments on outstanding debt as of March 31, 2012:

Nine Months
 

 

 

 

 
 
 

Debt
2012
 
2013
 
2014
 
2015
 
2016
 
2017
 
Maturity
Equipment financing loans
 
 
 
 
 
 
 
 
 
 
 
 
 
     principal
$
5,920

 
$
6,571

 
$
4,515

 
$
3,567

 
$
1,961

 
$
371

 
 
     interest
1,045

 
941

 
556

 
288

 
101

 
6

 
 2012 to 2017
Convertible debentures
 
 
 
 
 
 
 
 
 
 
 
 
 
     principal
125,000

 

 

 

 

 

 
November 30, 2012
     interest
5,000

 

 

 

 

 

 

Total
$
136,965

 
$
7,512

 
$
5,071

 
$
3,855

 
$
2,062

 
$
377

 


EQUIPMENT FINANCING CREDIT FACILITY
GSBPL and GSWL maintain a $40 million equipment financing facility with Caterpillar Financial Services Corporation, with Golden Star as the guarantor of all amounts borrowed. The facility provides credit for new and used mining equipment. Amounts drawn under this facility are repayable over five years for new equipment and over two years for used equipment. The interest rate for each draw-down is fixed at the date of the draw-down using the Federal Reserve Bank 2-year or 5-year swap rate or London Interbank Offered Rate (“LIBOR”) plus 2.38%. At March 31, 2012, approximately $17.1 million was available to draw down, compared to $22.2 million at December 31, 2011. The average interest rate on the outstanding loans was approximately 6.8% at March 31, 2012, unchanged from from 6.8% at December 31, 2011. Each outstanding equipment loan is secured by the title of the specific equipment purchased with the loan until the loan has been repaid in full.
CAPITAL LEASE
In February 2010, GSBPL accepted delivery of a nominal 20 megawatt power plant. Upon acceptance, a $4.9 million liability was recognized which, at the time, was equal to the present value of future lease payments. The life of the lease was two years from the plant's February 2010 in-service date. We were required to pay the owner/operator a minimum of $0.3 million per month on the lease, of which $0.23 million was allocated to principal and interest on the recognized liability and the remainder of the monthly payments were charged as operating costs. In February 2012, we made the final lease payment and assumed ownership of the power plant.
CONVERTIBLE DEBENTURES
Interest on the $125 million aggregate principal amount of 4.0% convertible senior unsecured debentures due November 30, 2012, (the “Debentures”) is payable semi-annually, in arrears on May 31 and November 30 of each year. The Debentures are, subject to certain limitations, convertible into common shares at a conversion rate of 200 shares per $1,000 principal amount of the Debentures (equal to a conversion price of $5.00 per share) subject to adjustment under certain circumstances. The Debentures are not redeemable at our option.
On maturity, we may, at our option, satisfy our repayment obligation by paying the $125 million principal amount of the Debentures in cash or, alternatively, by issuing up to approximately 46.7 million common shares to the debenture holders. If we settle in shares, we must redeem all, and not less than all of the debentures, by issuing shares. The value assigned to the shares issued will be determined as 95% of the weighted average trading price of our common shares on the NYSE Amex stock exchange for the twenty consecutive trading days ending five trading days preceding the maturity date. If the value assigned to the shares multiplied by the 46.7 million shares is insufficient to cover the entire $125 million liability, we would be required to pay cash, in addition to the shares, in an amount that when added to the value of the shares will equal $125 million.
Upon the occurrence of certain change in control transactions, the holders of the Debentures may require us to purchase the Debentures for cash at a price equal to 101% of the principal amount plus accrued and unpaid interest. If 10% or more of the fair market value of any such change in control consideration consists of cash, the holders may convert their Debentures and receive a number of additional common shares, determined as set forth in the indenture.
The Debentures are direct senior unsecured indebtedness of Golden Star Resources Ltd., ranking equally and ratably with all our other senior unsecured indebtedness, and senior to all our subordinated indebtedness. None of our subsidiaries has guaranteed the Debentures, and the Debentures do not limit the amount of debt that we or our subsidiaries may incur.
REVOLVING CREDIT FACILITY
The loan agreement for our $31.5 million revolving credit facility provided that the facility would end on September 30, 2012. The loan agreement further specified that our ability to draw on the facility would expire on April 1, 2012, if there was no outstanding balance as of this date. Since there was no outstanding balance at April 1, 2012, the facility has expired.
Income Taxes
Income Taxes
INCOME TAXES
The provision for income taxes includes the following components: 
 
For the three months ended
March 31,
 
2012
 
2011
Current tax expense
 
 
 
Canada
$

 
$

Foreign

 
(899
)
Deferred tax expense
 
 
 
Canada

 

Foreign
(12,531
)
 
(3,406
)
Total tax expense
$
(12,531
)
 
$
(4,305
)
The deferred tax expense is related to the change in the temporary difference between book and tax basis at GSWL. In the first quarter of 2012, Ghana passed new tax laws that raised the statutory rate from 25% to 35%. This tax change had a $9.6 million impact on the first quarter 2012 deferred tax expense relating to the temporary difference at GSWL arising from prior periods. The tax expense related to the activity of the first quarter of 2012 is $2.9 million. The historical tax losses in Canada are sufficient to cover the taxable gain on the sale of the Burkina Faso Subsidiary to Riverstone. No tax expense has been recorded related to this transaction.
The current tax expense in 2011 was related to a temporary tax levy on certain Ghanaian industries, including; mining, brewing, banking, communications and insurance. The levy was set at 5% of “profits before tax” as disclosed on the statements of operations. The levy expired at the end of 2011.
Commitments And Contingencies
Commitments And Contingencies
COMMITMENTS AND CONTINGENCIES
Our commitments and contingencies include the following items:
ENVIRONMENTAL BONDING IN GHANA
In July 2011, we increased a letter of credit for Wassa/HBB's environmental bonding from $2.85 million to $7.8 million. This brought the total bonded amount, including $0.15 million of cash, from $3 million to $7.95 million. In early 2012, the Ghana Environmental Protection Agency ("EPA) raised Wassa/HBB's reclamation bonding requirement to approximately $10.6 million, reflecting increases in on-going mining disturbances. We expect that this $2.65 million increase in bonding will be met with a combination of letters of credit and cash.
We have also bonded $9 million to cover rehabilitation and closure obligations at Bogoso/Prestea. These bonding requirements have been met by an $8.1 million letter of credit from a commercial bank and a $0.9 million cash deposit held by the EPA. The cash deposits are recorded as Restricted Cash on our Consolidated Balance Sheets.
In 2008, Bogoso/Prestea resubmitted an updated draft of the Environmental Management Plan (“EMP”) to the EPA that included an updated estimate of the reclamation and closure costs prepared by a third party consultant. A consultant was commissioned to prepare the reclamation and closure cost estimate and the final EMP was submitted to the EPA in February 2009. Bogoso/Prestea has completed all the legal requirements and is waiting for the environmental certificate. In the mean time, and in compliance with the legal time line for the previous EMP, Bogoso/Prestea prepared a new EMP and submitted it to the EPA in the fourth quarter of 2011. This EMP included a more current estimate of the reclamation and closure costs for Bogoso/Prestea and could result in a need for additional bonding later in 2012.
See Note 21 Subsequent Events for information about renewal of these environmental bonds on May 1, 2012.
GOVERNMENT OF GHANA'S RIGHTS TO INCREASE ITS PARTICIPATION
Under Act 703, the Government of Ghana has the right to acquire a special share or “golden share” in our Ghanaian subsidiaries at any time for no consideration or such consideration as the Government of Ghana and such subsidiaries might agree, and a pre-emptive right to purchase all gold and other minerals produced by such subsidiaries. A “golden share” carries no voting rights and does not participate in dividends, profits or assets. To date, the Government of Ghana has not sought to exercise any of these rights at our properties.

ROYALTIES
Dunkwa Properties
As part of the acquisition of the Dunkwa properties in 2003, we agreed to pay the seller a net smelter return royalty on future gold production from the Mansiso and Asikuma properties. As per the acquisition agreement, there will be no royalty due on the first 200,000 ounces produced from Mampon which is located on the Asikuma property. The amount of the royalty is based on a sliding scale which ranges from 2% of net smelter return at gold prices at or below $300 per ounce and progressively increases to 3.5% for gold prices in excess of $400 per ounce.
Government of Ghana
The Ghana Government receives a royalty equal to 5% of mineral revenues.
Hwini-Butre
As part of the agreement for the purchase of the Hwini-Butre properties, Golden Star agreed to pay B.D. Goldfields Ltd, Hwini-Butre’s former owner, an additional $1.0 million in cash if at least one million ounces of gold are produced and recovered in the first five years of production from the area covered by the Hwini-Butre prospecting license. Gold production was initiated at Hwini-Butre in May 2009. It is not possible at this time to know if future exploration work will increase Hwini-Butre’s reserves sufficiently to yield production of one million ounces prior to May 2014, and as such, no amounts have been accrued in the financial statements.
EXPLORATION AGREEMENTS
Obuom
In October 2007, we entered into an agreement with AMI Resources Inc. (“AMI”), which gives AMI the right to earn our 54% ownership position in the Obuom property in Ghana. Should AMI eventually obtain full rights to our position on the property and develop a gold mining operation at Obuom, we would receive from AMI a 2% net smelter return royalty on 54% of the property’s gold production.
Goulagou and Rounga
In October 2007, we entered into an option agreement with Riverstone Resources Inc. (“Riverstone”) whereby Riverstone had the right to acquire our 90% interest in the Goulagou and Rounga properties in Burkina Faso. To exercise the option, Riverstone was required to spend Cdn$4 million on exploration programs on the Goulagou and Rounga properties over a four-year period ended in February 2012, and could then purchase our interest for $18.6 million in cash and Riverstone common shares. We were also entitled to receive up to two million shares of Riverstone over the term of the option, all of which were received as of March 31, 2011. In addition, we received a one-time distribution of two million Riverstone common share purchase warrants during 2008. The Riverstone purchase warrants had an exercise price of Cdn$0.45 and were exercised in January 2012. In December 2011, Riverstone notified us of their intent to exercise their option to acquire Goulagou and Rounga in February 2012. The sale of exploration projects was completed in February 2012 upon receipt of $6.6 million of cash and 21.7 million Riverstone common shares valued at $15.8 million on the day of the sale. A gain of $22.4 million was recognized on the completion of this disposition in the Statement of Operations as the underlying properties were written down to a zero carrying value in prior periods. There was no tax expense recorded in connection with this gain as the Canadian deferred tax assets have a full valuation allowance against them.
LEGAL PROCEEDINGS
B.D. Goldfields Legal Action - On July 19, 2011, B.D. Goldfields, Ltd. (“plaintiff”), a Ghanaian registered company, filed suit in the Superior Court of Judicature, the High Court of Justice, Commercial Division, in Accra, Ghana, against Golden Star Resources Ltd. and our subsidiary St. Jude Resources (Ghana) Ltd. The plaintiff is challenging the validity of the concession contracts and settlements related to our acquisition of the Hwini-Butre gold property in Ghana in 2006. More specifically, the plaintiff is taking the position that the original sales agreement covered only a small section of the Hwini-Butre concession and is now seeking $24 million plus a royalty for the remaining portion of the concession. The plaintiff is also seeking an interim court injunction which would halt mining on the concession until all legal issues are resolved.
In 2008, the plaintiff filed two similar suits in the United States, challenging our ownership of the Hwini-Butre concession and these claims were dismissed by the courts. Based on the earlier dismissed claims brought by the same plaintiff, and on comprehensive court-approved settlements that were reached among the plaintiff and our wholly-owned subsidiary St Jude Resources Ltd. and other related parties before the Ghanaian Court of Appeal in February 2006 with respect to title to the Hwini-Butre gold property, we believe this present action, as commenced before a lower court in the Ghana court hierarchy, and within the same Ghanaian jurisdiction, is without merit and will not be successful. During the third quarter of 2011, we prepared a defense to this claim and filed it with the Ghana court on October 5, 2011, and we continue to wait for the court's initial consideration of this case. We have not accrued a provision for this action.
Genser Legal Action - In March 2012, Genser Power Ghana Limited ("plaintiff"), a Ghana registered company, commenced an action in the High Court of Justice, Commercial Division ("the Court"), in Accra Ghana, against our subsidiary Golden Star (Bogoso/Prestea) Limited. The plaintiff is challenging our ownership of an electric power generating plant that the plaintiff constructed and subsequently operated on our behalf at our Bogoso mine site for the past two years.
The construction/operations contract required us to make periodic payments to the plaintiff over the first two years of operations totaling $7.1 million, after which we earned the right to own the plant for no additional consideration. All such payments were made by us and the payments are not disputed.
The plaintiff claims, however, that although all contractual payments were made as required by the specified contract, we failed to provide notice of our intent to take ownership of the plant prior to the date as specified in the contract and as a result, we forfeited our right to ownership of the plant. We dispute the plaintiff's interpretation of the notice date, believing it to be later than the plaintiff alleges. Furthermore, we believe that we clearly communicated to the plaintiff our intent to take ownership of the plant prior to the required date.
The plaintiff' claims that ownership of the plant remains with them and they have announced their intent to remove the power plant from our mine site unless we agree to make an additional payment of $10.0 million dollars. The plaintiff is also seeking damages of $1.4 million and costs.
The Company has disputed the plaintiff's right to bring legal action in Ghana on the basis that the contract provides for dispute resolution to be dealt with by arbitration in Paris, France. On May 4, 2012, the Court granted our petition to refer this dispute to international arbitration at the ICC in Paris, France. We have not accrued a provision for this action.
Share Capital
Share Capital
SHARE CAPITAL
Changes in share capital during the three months ended March 31, 2012, are as follows: 
 
Shares
 
Amount
Balance at December 31, 2011
258,669,487

 
$
693,899

Common shares issued:
 
 
 
Option exercises
78,334

 
135

     Unclaimed shares forfeited
(50,869
)
 

        Bonus shares and other
165,009

 
307

Balance at March 31, 2012
258,861,961

 
$
694,341


We held no treasury shares as of December 31, 2011, and March 31, 2012.
Cost Of Sales
Cost Of Sales
COST OF SALES
 
For the three months ended
March 31,
 
2012
 
2011
Mining operations costs
$
100,849

 
$
88,479

Operations costs to metal inventory
(3,450
)
 
(2,690
)
Mining related depreciation and amortization
19,043

 
21,029

Accretion of asset retirement obligations
703

 
933

Total cost of sales
$
117,145

 
$
107,751

Stock Based Compensation
Stock Based Compensation
STOCK BASED COMPENSATION
Non-cash employee compensation expense recognized in general and administrative expense in the statements of operations, with respect to our non-cash employee compensation plans are as follows:
 
For the three months ended
March 31,
 
2012
 
2011
Total stock compensation expense
$
2,579

 
$
1,342


STOCK OPTIONS
We have one stock option plan, the Third Amended and Restated 1997 Stock Option Plan (the “Plan”) approved by shareholders in May 2010, under which options are granted at the discretion of the Board of Directors. Options granted are non-assignable and are exercisable for a period of ten years or such other period as stipulated in a stock option agreement between Golden Star and the optionee. Under the Plan, we may grant options to employees, consultants and directors of the Company or its subsidiaries for up to 25,000,000 shares, of which 4,833,346 are available for grant as of March 31, 2012, and the exercise price of each option is not less than the closing price of our shares on the Toronto Stock Exchange on the day prior to the date of grant. Options typically vest over periods ranging from immediately to three years from the date of grant. Vesting periods are determined at the discretion of the Board of Directors.
We granted 4,537,000 and 1,718,000 options during the first three months of 2012 and 2011, respectively. We do not receive a tax deduction for the issuance of options. As a result, we do not recognize any income tax benefit related to the stock compensation expense.
The fair value of our option grants are estimated at the grant dates using the Black-Scholes option-pricing model. Fair values of options granted in the first three months of 2012 and 2011 were based on the assumptions noted in the following table:
 
For the three months ended
March 31,
 
2012
 
2011
Expected volatility
67.07 to 87.50%
 
66.34 to 69.79%
Risk-free interest rate
0.36 to 0.84%
 
2.26 to 2.26%
Expected lives
4.3 to 7.4 years
 
5.6 to 8.5 years
Dividend yield
0%
 
0%
Expected volatilities are based on the mean reversion tendency of the volatility of Golden Star's shares. Golden Star uses historical data to estimate share option exercise and employee departure behavior and this data is used in determining input data for the Black-Scholes model. Groups of employees that have dissimilar historical behavior are considered separately for valuation purposes. The expected term of the options granted represents the period of time that the options granted are expected to be outstanding; the range given above results from certain groups of employees exhibiting different post-vesting behaviors. The risk-free rate for periods within the contractual term of the option is based on the Canadian Chartered Bank administered interest rates in effect at the time of the grant.

A summary of option activity under the Plan during the three months ended March 31, 2012:
 
Options
(‘000)
 
Weighted–
Average
Exercise
price
(Cdn$)
 
Weighted–
Average
Remaining
Contractual
Term (Years)
 
Aggregate
intrinsic  value
Cdn($000)
Outstanding as of December 31, 2011
8,539

 
3.18

 
7.0

 
95

Granted
4,537

 
2.02

 
7.0

 

Exercised
(78
)
 
1.16

 

 
81

Forfeited, canceled and expired
(340
)
 
3.13

 
7.8

 

Outstanding as of March 31, 2012
12,658

 
2.79

 
6.8

 
358

 
 
 
 
 
 
 
 
Exercisable as of March 31, 2012
8,235

 
3.03

 
6.3

 
337



Options
(‘000)
 
Weighted–
Average
Exercise
price
(Cdn$)
 
Weighted–
Average
Remaining
Contractual
Term (Years)
 
Aggregate
intrinsic  value
Cdn($000)
Outstanding as of December 31, 2010
6,724

 
3.35

 
7.0

 
9,001

Granted
1,718

 
2.83

 
10.0

 

Exercised
(48
)
 
2.73

 
7.0

 
132

Forfeited, canceled and expired

 

 

 

Outstanding as of March 31, 2011
8,393

 
3.25

 
7.4

 
1,896

 


 


 


 


Exercisable as of March 31, 2011
5,765

 
3.36

 
6.6

 
1,386

Stock Bonus Plan
In December 1992, we 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 our 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 may grant bonus common shares on terms that it might determine, within the limitations of the Bonus Plan and subject to the rules of applicable regulatory authorities. The Bonus Plan, as amended, provides for the issuance of 900,000 common shares of bonus stock, of which 710,854 common shares have been issued as of March 31, 2012. 165,009 shares were issued in 2012 under the Stock Bonus Plan at a value of $0.3 million. No shares were issued in 2011.
Deferred Share Units
Our DSU Plan provides for Deferred Share Units (“DSUs”), each representing the right to receive one share of Golden Star common stock upon redemption. DSUs may be redeemed only upon termination of the holder's services to the Company, and may be subject to vesting provisions. DSU awards are granted at the sole discretion of the Company's compensation committee. The DSU Plan allows directors, at their option, to receive all or any portion of their retainer by accepting DSUs in lieu of cash.
The compensation committee may also award DSUs to executive officers and/or directors in lieu of cash as a component of their long term performance compensation, the amount of such awards being in proportion to the officer's or director's achievement of pre-determined performance goals. As with DSU awards for directors' retainers, DSUs received as performance compensation are redeemable only upon termination of the holder's services to the Company. The Company may, at its option, provide cash in lieu of common shares upon a holder's redemption, the cash value being established by the share price on the DSU original award date, less all applicable tax withholding.
During the first quarter of 2012, we granted 14,625 DSUs to directors of the Company in payment of fees earned in 2012. These units were immediately vested and a compensation expense of $31,882 was recognized for these grants. As of March 31, 2012, there was nil unrecognized compensation expense related to DSUs granted under the Company's DSU plan. There were 36,772 DSUs outstanding at March 31, 2012.
Stock Appreciation Rights
During the three months ended March 31, 2012, the Company granted 1,452,526 stock appreciation rights (SARs) that vest over a period of three years. These awards will be settled in cash equal to the Company’s stock price less the strike price on the vesting date. Since these awards are settled in cash, the Company marks-to-market the associated expense for each award at the end of each reporting period. The Company accounts for these as liability awards and marks-to-market the fair value of the award until final settlement. 
As of the March 31, 2012, there was approximately $1.5 million of total unrecognized compensation cost related to unvested SARs. The Company recognized approximately $0.1 million of compensation expense related to these cash based awards for the three months ended March 31, 2012.
Earnings Per Common Share
Earnings Per Common Share
EARNINGS PER COMMON SHARE
The following table provides reconciliation between basic and diluted earnings per common share:
 
For the three months ended
March 31,
 
2012
 
2011
Net income attributable to Golden Star shareholders
$
9,113

 
$
5,928

 
 
 
 
Weighted average number of shares (millions)
258.7

 
258.6

Dilutive securities:
 
 
 
Options
0.2

 
1.2

Convertible debentures
0.0

 
0.0

Weighted average number of diluted shares (millions)
258.9

 
259.8

 
 
 
 
Net income per share attributable to Golden Star shareholders:
 
 
 
Basic
$
0.035

 
$
0.023

Diluted
$
0.035

 
$
0.023

Options to purchase 12.5 million and 7.2 million shares of common stock were outstanding at March 31, 2012 and 2011, respectively, but were not included in the computation of diluted weighted average common shares because their effect would have been anti-dilutive. In addition, we had 25.0 million shares related to the convertible debentures that were not dilutive for either period.
Operations By Segment And Geographic Area
Operations By Segment And Geographic Area
OPERATIONS BY SEGMENT AND GEOGRAPHIC AREA
 
 
Africa
 
 
 
 
 
 
As of and for the three months ended March 31
 
Bogoso/
Prestea
 
Wassa/
HBB
 
Other
 
South
America
 
Corporate
 
Total
2012
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
69,595

 
$
61,425

 
$

 
$

 
$

 
$
131,020

Net income/(loss) attributable to Golden Star
 
5,472

 
852

 
(1,111
)
 
(122
)
 
4,022

 
9,113

Income tax expense
 

 
(12,531
)
 

 

 

 
(12,531
)
Capital expenditure
 
14,957

 
9,708

 

 

 

 
24,665

Total assets
 
422,912

 
242,007

 
1,189

 
855

 
85,103

 
752,066

2011
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
42,488

 
$
74,018

 
$

 
$

 
$

 
$
116,506

Net income/(loss) attributable to Golden Star
 
(7,604
)
 
10,641

 
(705
)
 
(97
)
 
3,693

 
5,928

Income tax benefit
 

 
(4,305
)
 

 

 

 
(4,305
)
Capital expenditure
 
8,342

 
10,313

 
97

 

 

 
18,752

Total assets
 
359,528

 
239,022

 
2,323

 
68

 
131,334

 
732,275


Related Parties
Related Parties
RELATED PARTIES
During the first three months of 2012, we obtained legal services from a firm to which one of our board members is of counsel. The cost of services from this firm during the first three months of 2012 and 2011 was $0.2 million and $0.2 million, respectively. Our board member did not personally provide any legal services to the Company during these periods nor did he benefit directly or indirectly from payments for the services performed by the firm.
Supplemental Cash Flow Information
Supplemental Cash Flow Information
SUPPLEMENTAL CASH FLOW INFORMATION
In the first three months of 2012, $0.2 million was paid for income taxes. Cash paid for income taxes during the first three months of 2011 was $1.0 million. Cash paid for interest was $0.3 million in the first three months of 2012 and $0.3 million in the first three months of 2011.

Subsequent Events
Subsequent Events [Text Block]
SUBSEQUENT EVENTS
REVOLVING CREDIT FACILITY
The loan agreement for our $31.5 million revolving credit facility provided that the facility would end on September 30, 2012. The loan agreement further specified that our ability to draw on the facility would expire on April 1, 2012, if there was no outstanding balance as of this date. Since there was no outstanding balance at April 1, 2012, the facility has expired.
REPLACEMENT OF ENVIRONMENTAL BONDS IN GHANA
The Ghana Environmental Protection Agency ("EPA") requires environmental compliance bonds that provide assurance for environmental remediation at our Bogoso/Presteaa and Wassa mining operations. In recent years the bonds were provided by the same bank that provided our revolving credit facility which expired on April 1, 2012 (see discussion immediately above). Thus, the environmental bonds also expired on April 1, 2012. New bonds were provided by a Ghanaian bank on May 1, 2012 on terms similar to the prior bonds. The Ghanaian bank provided an $8.1 million bond to GSBPL and a $9.6 million bond to GSWL. There was no change in the amount of the cash deposits associated with our environmental reclamation obligations as the deposits remained with EPA. The new bonds are guaranteed by Golden Star Resources Ltd. We are looking at extending the GSWL bond by an additional $1.0 million to cover the increases noted in Note 13.