GOLDEN STAR RESOURCES LTD. - Quarter Report: 2004 June (Form 10-Q)

SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended June 30, 2004

OR

Commission file number 1-12284

GOLDEN STAR RESOURCES LTD.

(303) 830-9000
(Registrant’s telephone number, including area code)

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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o

Number of Common Shares outstanding as of July 30, 2004: 141,848,937

INDEX

REPORTING CURRENCY, FINANCIAL AND OTHER INFORMATION

All amounts in this report are expressed in US dollars, unless otherwise indicated. Canadian currency is denoted as “Cdn$” and the Euro is denoted as “€”.Financial information is presented in accordance with accounting principles generally accepted in Canada (“Cdn GAAP”). Differences between accounting principles generally accepted in the US (“US GAAP”) and those applied in Canada, as applicable to Golden Star Resources Ltd., are explained in Note 18 to the Consolidated Financial Statements.References to “Golden Star”, “we”, “our”, and “us” mean Golden Star Resources Ltd., its predecessors and consolidated subsidiaries, or any one or more of them, as the context requires.

NON-GAAP FINANCIAL MEASURES

In this Form 10-Q, the terms “total cash cost” and “cash operating cost” are used on a per ounce of gold basis. Total cash cost per ounce is equivalent to mining operations expense for the period as found on the Consolidated Statements of Operations, divided by the number of ounces of gold sold during the period. Cash operating cost per ounce is equivalent to mining operations expense for the period less production royalties and production taxes, divided by the number of ounces of gold sold during the period. We have included total cash cost and cash operating cost information to provide investors with information about the cost structure of our mining operations. We use this information for the same purpose and for monitoring the performance of our operations. This information differs from measures of performance determined in accordance with GAAP in Canada and the US and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. These measures are not necessarily indicative of operating profit or cash flow from operations as determined under GAAP and might not be comparable to similarly titled measures of other companies. See Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations for a reconciliation of these non-GAAP measures to our Statements of Operations.

STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

This Form 10-Q contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, with respect to our financial condition, results of operations, business prospects, plans, objectives, goals, strategies, future events, capital expenditure, and exploration and development efforts. Words such as “anticipates”, “expects”, “intends”, “plans”, “forecasts”, “projects”, “budgets”, “believes”, “seeks”, “estimates”, “could”, “might”, “should”, “may”, “will”, and similar expressions identify forward-looking statements. Although we believe that our plans, intentions and expectations reflected in these forward-looking statements are reasonable, we cannot be certain that these plans, intentions or expectations will be achieved. Actual results, performance or achievements could

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differ materially from those contemplated, expressed or implied by the forward-looking statements contained or incorporated by reference in this Form 10-Q. These statements include comments regarding: the establishment and estimates of mineral reserves and mineral resources, production, production commencement dates, production costs, cash operating costs per ounce, total cash costs per ounce, grade, processing capacity, potential mine life, feasibility studies, development costs, capital and operating expenditures, exploration, the closing of certain transactions including acquisitions and offerings, our expansion plans for Bogoso/Prestea, start-up of Wassa and the potential acquisition of IAMGold.

The following, in addition to the factors described in “Risk Factors” discussed in our Form 10-K for the fiscal year ended December 31, 2003, are among the factors that could cause actual results to differ materially from the forward-looking statements:

These factors are not intended to represent a complete list of the general or specific factors that could affect us. We might note additional factors elsewhere in this Form 10-Q, and in any documents incorporated by reference into this Form 10-Q. We undertake no obligation to update forward-looking statements.

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ITEM 1 FINANCIAL STATEMENTS

GOLDEN STAR RESOURCES LTD.
CONSOLIDATED BALANCE SHEETS
(Stated in thousands of US dollars except shares issued and outstanding)
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS

(Stated in thousands of US dollars except per share amounts)
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in thousands of US dollars)
(Unaudited)

See Note 17 for supplemental cash flow information

The accompanying notes are an integral part of these consolidated financial statements.

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GOLDEN STAR RESOURCES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All tabular amounts in thousands of US dollars unless noted otherwise)
(Unaudited)

These consolidated financial statements and the accompanying notes are unaudited and should be read in conjunction with the audited consolidated financial statements and related notes thereto included in our annual report on Form 10-K for the year ended December 31, 2003, on file with the Securities and Exchange Commission and with the Canadian securities commissions (referred to as the “2003 Form 10-K”). Financial information is presented in accordance with accounting principles generally accepted in Canada.

The unaudited consolidated financial statements for the three and six months ended June 30, 2004 and June 30, 2003 contained herein reflect all adjustments, consisting solely of normal recurring items, which are necessary for a fair presentation of financial position, results of operations and cash flows on a basis consistent with that of our prior audited consolidated financial statements.

Prior period amounts have been restated to reflect the impact of the adoption in December 2003 of the Canadian Institute of Chartered Accountant’s amended Handbook Section 3870, “Stock-based Compensation and other Stock-based Payments”. Information presented for prior periods in 2003 have been restated to reflect the adoption of Section 3870 amendments as of January 1, 2003.

1. Description of Business

We are a Canadian international gold mining and exploration company focused primarily on mining, mine development and exploration in Ghana, West Africa. Through our subsidiaries and joint ventures we own a controlling interest in four gold properties in Ghana; the Bogoso property (“Bogoso”), the Prestea property (“Prestea”), the Wassa property (“Wassa”) and the currently inactive Prestea underground property (“Prestea Underground”). Bogoso and Prestea are adjoining properties and both are owned by our 90% owned subsidiary Bogoso Gold Limited (“BGL”). These two properties now function as a single operation referred to as “Bogoso/Prestea”. BGL holds a 90% managing interest in the Prestea Underground.

We operate the Bogoso/Prestea mine, with ore mined at the Prestea property being processed at the Bogoso processing plant. To date, Bogoso/Prestea has produced all of our gold since we became a gold producer upon our purchase of the Bogoso mine in late 1999. We commenced development of the Wassa mine in mid-2003.

We hold interests in exploration joint ventures, managed by our joint venture partners, in Mali and Sierra Leone in West Africa. We also hold active exploration properties in Ghana and in Suriname and, through our 53%-owned subsidiary, Guyanor Ressources S.A. (“Guyanor”), we hold interests in gold exploration properties in French Guiana. And through our affiliate Goldmin Holdings, we hold interests in gold exploration properties in Peru and Chile.

We are a reporting issuer or the equivalent in all provinces and territories of Canada and the United States and file continuous disclosure documents with the Canadian securities regulatory authorities and the United States Securities and Exchange Commission.

2. Inventories

3. Guiana Shield Transaction

In late 2001 we sold our Gross Rosebel exploration property in South America to Cambior Inc. (“Cambior”). In addition to a $5.0 million payment received at closing in 2002, terms of the sale agreement provided that Cambior would make three deferred payments of $1.0 million each plus royalty payments on the first seven million ounces of gold production. The first and second

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deferred payments were received in the first quarters of 2003 and 2004 respectively. The third and final deferred payment is expected in the first quarter of 2005. Gold production began at Gross Rosebel in the first quarter of 2004 which triggered the quarterly production royalty due to us from the property. Royalty revenue of approximately $1.0 million was recorded in the first six months of 2004 of which $0.3 million has been received.

4. Deferred Exploration and Development Costs

The Bogoso Sulfide project, and the Beta Boundary property which will feed the Bondaye Plant, were deemed sufficiently advanced by the end of 2003 to be reclassified in early 2004 as Mining Properties rather than as exploration properties. Reclassification was based upon definitive proven and probable reserves at both projects, completion of a feasibility study for the Bogoso Sulfide project showing it to be economically viable, board approval to proceed with the Bondaye/Beta Boundary project and initiation of detailed engineering and development in 2004.

5. Property, Plant and Equipment

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6. Mining Properties

During the quarter ended June 30, 2004 due to financial difficulties experienced by our joint venture partner, the portion of the Prestea Underground owned by our joint venture partner reverted to our ownership per terms of the original joint venture agreement. As a result, a $2.4 million minority position originally recorded when the partnership was organized was reversed and a $2.4 million reduction was recorded in the carrying value of the Prestea Underground Mining Property assets.

The Bogoso Sulfide project, and the Beta Boundary property which will feed the Bondaye Plant, were deemed sufficiently advanced by early 2004 for reclassification as Mining Properties rather than as exploration properties. Reclassification was based upon definitive proven and probable reserves at both projects, completion of a feasibility study for the Bogoso Sulfide project showing it to be economically viable, board approval to proceed with the Bondaye/Beta Boundary project and initiation of detailed engineering and development in 2004. The Mining Property costs associated with these two projects will be amortized over production ounces when gold production begins.

7. Mine Construction-in-Progress

Mine construction in progress represents costs incurred at the Wassa project subsequent to acquisition. The balance includes exploration drilling, feasibility study costs, equipment purchases and construction costs, including progress payments to the construction contractor and development costs.

8. Other Assets

Other assets include $1.9 million of direct, incremental acquisition costs resulting from our tender offer for IAMGold Corporation (“IAMGold”) common shares. The majority of these costs are for financial advisory, legal and accounting services. If the tender offer fails to acquire a controlling interest in IAMGold, this amount plus any additional future costs incurred in the endeavor would be expensed.

9. Debt

(a) Revolving facility from Barclays Bank (Ghana) in the amount of $1.0 million.

(b) Caterpillar Financial Services Corporation — A $0.8 million installment loan was used to purchase mobile equipment at Wassa and is repayable in 60 equal monthly installments beginning January 2004 with an interest rate of 6.25%.

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(c) In June 2004 an equipment financing credit facility was established between Caterpillar Financial Services Corporation and the subsidiaries of Golden Star Resources with Golden Star the guarantor of all amounts borrowed. The loan provides up to a maximum of $25 million of credit for a mixture of new and used mining equipment. The facility expires on April 30, 2005, bears an interest at a rate equal to the Five Year US$ Swap Rate plus 2.28%, is repayable over five years for new equipment and over two years for used equipment and requires monthly payments. As of June 30, 2004 the amount drawn on this line of credit was nil.

10. Asset Retirement Obligations

Our Asset Retirement Obligations (“ARO”) are estimated to be the present value of the ultimate closure cost associated with reclamation, demolition and stabilization of our Bogoso/Prestea and Wassa mining properties. Included in this liability are the costs of mine closure and reclamation, processing plant and infrastructure demolition, tailings pond stabilization and reclamation and environmental monitoring costs.

The changes in the carrying amount of the ARO during the first six months of 2004 are:

11. Commitments and Contingencies

(a) Environmental Regulations and Asset Retirement Obligations — We are not aware of any events of material non-compliance with environmental laws and regulations in our operations which could have a material adverse effect on our operations or financial condition. The exact nature of environmental control problems, if any, which we may encounter in the future cannot be predicted, primarily because of the changing character of environmental regulations that may be enacted. Asset retirement obligations, which include environmental rehabilitation liabilities for reclamation and for closure costs, were $5.4 million at Bogoso/Prestea at June 30, 2004, up from $5.2 million at December 31, 2003. Asset retirement obligations at Wassa totaled $2.6 million at June 30, 2004, up from $2.5 million at December 31, 2003.

(b) Cash Restricted for Environmental Rehabilitation Liabilities — In 1999, we were required, according to the acquisition agreement with the sellers of BGL, to restrict $6.0 million of cash to be used for the ongoing and final reclamation and closure costs at Bogoso. The withdrawal of these funds for our use must be agreed to by the sellers, who are ultimately responsible for the reclamation in the event of our non-performance. In the past the sellers have agreed to allow disbursement of portions of the restricted cash to us equal to the cash costs we have incurred for work performed, but there have been no agreements for disbursements since 2001. We are seeking to obtain an amendment to the agreement that would remove the restriction and in its place establish a reclamation bond to meet Ghana’s Environmental Protection Agency’s reclamation bonding requirements. At June 30, 2004, approximately $3.3 million of restricted cash was held as a cash provision against future reclamation commitments at Bogoso.

(c) Royalties

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(d) Wassa Construction Contract — In July 2003 we entered into a contract with Metallurgical Design and Management (Pty) Ltd. (“MDM”), a South African company, for the construction of the CIL processing plant facility and other associated processing facilities at Wassa. The total contract amount is set at $15.9 million of which $13.8 million had been disbursed at June 30, 2004.

(e) Mano River Joint Venture — In late 2003 we entered into a joint venture to invest up to $6 million over the next four years in the Mano River project in Sierra Leone via an earn-in agreement with a junior exploration company which now holds a group of gold exploration properties in Sierra Leone. The initial $6 million, if fully funded (we can terminate the agreement after spending $1.0 million) would yield a 51% interest in the joint venture. Further provisions of the joint venture agreement provide the opportunity to acquire up to 85% of the joint venture by continued long term funding. The joint venture agreement is subject to completion of documentation. Our spending during the first six months of 2004 totaled $0.2 million.

(f) Mininko Joint Venture — In late 2003 we entered into a joint venture agreeing to fund exploration work on the Mininko gold property in Mali. Funding of $2.6 million would earn a 51% interest in the joint venture. We can terminate the joint venture at any time after spending $0.4 million. We have spent a total of $0.8 million as of June 30, 2004. The joint venture agreement provides that we can earn up to an 82.5% interest by continued funding of exploration and development, if warranted.

12. Share Capital

Changes in share capital during the six months ended June 30, 2004:

13. Stock Based Compensation

(a) Stock Options — We have one stock option plan, the Amended and Restated 1997 Stock Option Plan (the “GSR Plan”). Options are granted under this plan from time to time 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 an optionee. Under the GSR Plan we may grant options to employees, consultants and directors of the Company or its subsidiaries for up to 15,000,000 shares of common stock. Options take the form of non-qualified stock options, and the exercise price of each option is not less than the market price of our stock on the date of grant. Options typically vest over periods ranging from immediately, to four years from the date of grant. Vesting periods are determined at the discretion of the Board of Directors.

In 2003 the Canadian Institute of Chartered Accountants amended CICA Handbook Section 3870, “Stock-based Compensation and other Stock-based Payments” to require expensing of all stock based compensation awards for fiscal years beginning on or after January 1, 2004. In light of this development we adopted the new provision of CICA 3870 at the end of 2003 and recognized approximately $1.1 million of option expense in 2003 as if CICA 3870 had been in effect since the beginning of 2003.

Data presented in this Form 10-Q related to the quarter and the six months ended June 30, 2003 has been revised to reflect compensation expensed that would have been reported had the provisions of CICA 3870 been in place at the beginning of 2003.

No new options were granted during the first quarter of 2004. A total 855,000 options were granted in the second quarter of 2004. Certain of these options vested immediately and others vest 1/4th immediately, and 1/4th on each of the next three anniversary dates. In the three and six months ended June 30, 2004, we recognized approximately $0.1 million and $0.3 million respectively of stock option expense related to options granted during 2003, and we recognized $0.7 million of compensation expense in the second quarter of 2004 for options granted in the second quarter of 2004.

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The fair value of options granted during the second quarter of 2004 was estimated at the grant dates using a Black-Scholes option-pricing model with the following assumptions:

The expense of options issued prior to 2003 is not recognized in reported net income. Had compensation costs been recognized for options granted prior to 2003 and vesting in 2004, our net income and earnings per share would have been reduced to the pro forma amounts shown below:

(b) 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 Compensation Committee grants bonus common shares under the Bonus Plan on terms that it determines, within the limitations of the Bonus Plan and subject to the rules of applicable regulatory authorities. The Bonus Plan, as amended, provided for the issuance of 900,000 common shares of bonus stock of which 445,820 common shares have been issued as of June 30, 2004.

During the three months ended June 30, 2004 and 2003 there were no common shares issued to employees pursuant to the Bonus Plan. During the six months ended June 30, 2004 and 2003 a total of nil and 57,200 common shares, respectively, were issued to employees pursuant to the Bonus Plan. We recognized nil compensation expense related to bonuses under the Bonus Plan during each of the three months ended June 30, 2004 and 2003. We recognized compensation expense related to bonuses under the Bonus Plan during the six months ended June 30, 2004 and 2003 of nil and $0.1 million, respectively.

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14. Operations by Geographic Area

The following geographic data includes revenues based on product shipment origin and long-lived assets based on physical location:

15. Income Tax

For the six months ended June 30, 2004 BGL generated approximately $6.3 million of pre-tax net income. BGL has tax loss carry-forwards not previously recognized in amounts sufficient to fully offset income taxes on the pre-tax net income. Accordingly, no tax provision has been recorded in the period ended June 30, 2004.

16. Earnings per Common Share

The following table provides reconciliation between basic and diluted earnings per common share:

Earnings per share on a US GAAP basis are found in Note 18 below.

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17. Supplemental Cash Flow Information

The following is a summary of non-cash transactions:

18. Generally Accepted Accounting Principles in Canada and the United States

The following Golden Star consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States.

(a) Balance Sheets under US GAAP

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(b) Statements of Operations under US GAAP

(c) Statements of Cash Flows under US GAAP

(d) Footnotes

(1) Under US GAAP, exploration, acquisition and general and administrative costs related to exploration projects are charged to expense as incurred. Under Cdn GAAP, exploration, acquisition and exploration group general and administrative costs are capitalized. In each subsequent period, the exploration, engineering, financial and market information for each exploration project is reviewed by management to determine if any of the capitalized costs are impaired.

(2) Under US GAAP, the initial purchase cost of mining properties is capitalized. Pre-acquisition costs and subsequent development costs incurred, until such time as a feasibility study had been completed, are expensed in the period incurred. Under Cdn GAAP, all costs of new mine properties as well as costs incurred after acquisition are capitalized, and subsequently reviewed each period for impairment.

(3) Asset retirement obligations: Under US GAAP, the cumulative effect of applying Statement of Financial Accounting Standard No. 143 “Accounting for Asset Retirement Obligations” was included in net income in 2003. In Cdn GAAP, under the

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Canadian Institute of Chartered Accountant’s Section 3110 “Asset Retirement Obligations”, the cumulative effect of the initial application of this new standard in 2003 was recorded as an adjustment to the beginning deficit account.

(4) Under US GAAP, marketable securities available for sale are marked to market and gains or losses are recognized in Other Comprehensive Income until the securities are sold. Under Cdn GAAP, marketable securities are accounted for at the lower of cost or market.

ITEM 2. 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 accounting principles generally accepted in Canada (“Cdn GAAP”). For a reconciliation to accounting principles generally accepted in the United States (“US GAAP”), see Note 18 to the attached consolidated financial statements.

In this Form 10-Q, the terms “total cash cost” and “cash operating cost” are used on a per ounce of gold basis. Total cash cost per ounce is equivalent to mining operations expense for the period as found on the Consolidated Statements of Operations, divided by the number of ounces of gold sold during the period. Cash operating cost per ounce is equivalent to mining operations expense for the period less production royalties and production taxes, divided by the number of ounces of gold sold during the period.

We have included total cash cost and cash operating cost information to provide investors with information about the cost structure of our mining operations. We use this information for the same purpose and for monitoring the performance of our operations. This information differs from measures of performance determined in accordance with GAAP in Canada and the United States and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. These measures are not necessarily indicative of operating profit or cash flow from operations as determined under GAAP and may not be comparable to similarly titled measures of other companies.

All figures in this Item 2 are on a 100% basis, which represents our current beneficial interest in gold production and revenues. Once all capital invested in a Ghanaian subsidiary has been repaid, the Government of Ghana would receive 10% of any dividends declared by a Ghanaian subsidiary.

Additional documents which discuss our company and its management, history and operations are available at www.sedar.com and at www.sec.gov.

OVERVIEW OF THE THREE AND SIX MONTHS ENDED JUNE 30, 2004

Results

Our net income for the three months ended June 30, 2004 was $1.1 million, down from $4.0 million in the same period of 2003. While revenues were higher, higher mining and processing costs associated with mining and processing metallurgically complex transition ores in the second quarter of this year and higher depreciation and amortization charges more than offset the improved revenues resulting in lower net income than in the same period of 2003. The increase in depreciation and amortization reflects the buy-out of a production royalty in 2003.

Increase in general and administrative costs, and a foreign exchange loss also contributed to the lower income versus the same period of 2003. Higher compensation costs from adding new management, and stock option expenses were the major factors contributing to the increase in general and administrative costs.

Net income during the six months ended June 30, 2004 totaled $6.3 million or $0.047 per share on revenues of $36.4 million, versus net income of $8.0 million or $0.078 per share on revenues of $27.8 million in the same period of 2003. Increases in operating costs as described above for the quarter were also responsible for much of the increase in costs for the six months. Foreign exchange losses, higher exploration expenses and general and administrative costs also contributed to the lower earnings versus the same period of 2003. As with the quarter, cash and non-cash compensation costs and foreign currency losses accounted for most of the cost increase.

Mining and milling of oxide ores from the Plant-North pit was completed during the second quarter of 2004 and we are now mining and processing only transition ores from the Plant-North pit. The new flotation circuit at Bogoso/Prestea was commissioned in the quarter and is now operating on a regular basis. Non-recurring start-up costs of this new circuit contributed to the increase in operating costs. Construction continued at the Wassa project during the quarter as did planning, engineering and preconstruction activities for the proposed Bogoso/Prestea expansion projects.

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IAMGold Tender Offer

On March 30, 2004 IAMGold Corporation (“IAMGold”), a Toronto-based international gold exploration, development, and royalty company, and Wheaton River Minerals Ltd. (“Wheaton”), a Canadian-based precious and base metals producer, announced that the two entities would amalgamate, subject to shareholder approval. Special shareholder meetings for IAMGold and Wheaton to seek shareholder approval for the amalgamation were scheduled on June 8 and June 9, 2004.

On May 27 we announced our intent to make an offer to purchase all of the outstanding shares of IAMGold. On June 8 we obtained a ruling from the Ontario Superior Court permitting us to make our offer and delaying the IAMGold shareholders’ vote on the Wheaton/IAMGold merger until June 29 to give IAMGold shareholders time to evaluate our offer. On June 10, following unsuccessful discussions with IAMGold’s management and directors about a potential combination of IAMGold with Golden Star, we made a formal tender offer to IAMGold’s shareholders to exchange 1.15 Golden Star shares for each IAMGold share and urged the IAMGold shareholders to reject the proposed amalgamation between IAMGold and Wheaton. Subsequently, IAMGold rescheduled its shareholder vote to July 6, the same day as the rescheduled Wheaton shareholder vote.

On the same day that we announced our intent to purchase all of the outstanding shares of IAMGold, Coeur d’Alene Mines Corporation (“Coeur”), a U.S. based silver producer, announced its intent to make an offer to purchase all of the outstanding shares of Wheaton. Coeur initially offered a partial Coeur share and cash, together worth $3.28, for each share of Wheaton. Coeur has subsequently made a tender offer directly to the Wheaton shareholders and has also increased the value of their offer.

On July 1 we increased our bid for IAMGold to 1.25 shares of our stock for each IAMGold share or alternatively 1.15 shares of our common stock plus Cdn$0.50 per share. We agreed to add a contingent Cdn$0.20 per share for each IAMGold share if it is definitively determined that no break-fee is paid or payable by IAMGold in connection with the proposed arrangement with Wheaton.

On July 6 a majority of the IAMGold shareholders voted against the merger with Wheaton thereby effectively terminating the IAMGold/Wheaton merger. Shortly afterward IAMGold’s directors issued a statement that they considered our increased bid inadequate and urged the IAMGold shareholders not to tender their shares to us. On July 13 IAMGold’s directors announced that a new shareholders’ rights plan had been adopted which would be effective until August 15, 2004 that would allow IAMGold’s shareholders, other than us, to purchase shares at a 50% discount to the market price if we acquired more than 20% of the outstanding IAMGold shares. The IAMGold directors further stated the new shareholders’ rights plan was to provide sufficient time to bring forward alternatives to maximize shareholder value. IAMGold also announced that they had prepared due diligence data files to be made available to interested parties but refused to provide the data to us.

On July 15 we made application with the Ontario Securities Commission to set aside the new IAMGold shareholders’ rights plan saying it constituted an improper defensive response to our offer. On July 22 following an exchange of letters with IAMGold we agreed to withdraw our request to the Ontario Securities Commission to review the IAMGold shareholders’ rights plan and IAMGold agreed to provide to us the same due diligence data being supplied to other potential bidders. Such data was received and we have initiated a due diligence review of the data. On July 28 our board agreed to extend our tender offer expiry date to 12:01 a.m. on August 16 to coincide with the expiry of IAMGold’s new shareholders’ rights plan at the end of the day of August 15.

Assuming that all of the IAMGold shareholders choose the all share option, that all of the IAMGold shares that are issued and outstanding as of June 4, 2004, and all shares issuable upon exercise of IAMGold options that are in the money as of July 27, 2004, are tendered to the offer and that we take up and pay for such shares under the offer, we would issue approximately 188.4 million new Golden Star common shares. If the Cdn$0.20 per share contingent payment described above is payable, we will pay to IAMGold shareholders an additional Cdn$30.1 million, or approximately $22.6 million, in cash if all of the IAMGold shares issued and outstanding as of June 4, 2004, and all of the shares issuable upon exercise of IAMGold options that are in the money as of July 17, 2004, are tendered to the offer and taken up and paid under the offer.

As of June 30, we have incurred $1.9 million of direct, incremental acquisition costs resulting from our tender offer for IAMGold’s common shares. The majority of these costs are for financial advisory, legal and accounting services. If the tender offer fails to acquire a controlling interest in IAMGold, this amount plus any additional future costs incurred in this endeavor would be expensed.

We plan at this point to continue to encourage IAMGold shareholders to tender their shares to Golden Star prior to the August 16 expiry of our offer. For more details of the IAMGold tender offer see our registration statement on Form S-4 as amended (reg.

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no. 333-116350) and our Canadian Offer to Purchase as amended. There can be no assurance given that our tender offer for IAMGold will be successful.

Prestea Underground Restructuring

In late 2003, our partner in the Prestea Underground joint venture filed for bankruptcy in Ghana. This event resulted in our partner relinquishing its rights under the joint venture agreement that in turn resulted in a transfer of all of the partner’s remaining ownership position to our subsidiary Bogoso Gold Limited, (“BGL”), thereby giving BGL a 90% ownership in the Prestea Underground. The Government of Ghana will continue to hold a 10% ownership in Prestea Underground as well as its 10% holding in BGL resulting in a net 81% ownership by Golden Star.

Guyanor Restructuring

During the second quarter a memorandum of understanding (“MOA”) was signed with our 73% owned subsidiary, Guyanor Ressources S.A., which will govern a significant restructuring of Guyanor and an expansion of its existing exploration business to include the acquisition of royalty and other similar interests.

As provided in the MOU, Mr. Michel Juilland resigned as director and general manager of Guyanor and Mr. James Dunnett and Mr. David Birkenshaw (the “Consultants”) were elected as directors. In exchange for their services in the Guyanor restructuring, Golden Star agreed to sell to the Consultants for a nominal consideration, nine million shares of Guyanor common share owned by Golden Star which reduced Golden Star’s ownership to 53% as of June 30, 2004.

The existing loan agreement between Guyanor and Golden Star will be replaced by a new loan agreement which will require Guyanor to repay approximately $16 million owed to Golden Star only when and if Guyanor returns to a sound financial condition and the $16 million loan will be paid only from proceeds Guyanor may receive from its Paul Isnard properties (referred to a the” SOTRAPMAG Properties”) in French Guiana. Furthermore, Golden Star and Guyanor will enter into a joint venture, which will allow Golden Star to earn a 50% interest in the SOTRAPMAG Properties by funding $2.0 million of exploration work. Golden Star will further increase its interest to 70% by reducing the loan balance by $500,000 per year for three years under the joint venture and by an additional $3.5 million upon delivery of a feasibility study on the Paul Isnard property. Golden Star may also purchase, via a $6.0 million reduction in the loan balance, Guyanor’s regional exploration database which includes data on Guyanor’s past work on several French Guiana properties including the SOTRAPMAG Properties.

If Golden Star makes a decision to initiate mining from the SOTRAPMAG Properties within five years of the date of the MOU, Guyanor will sell its SOTRAPMAG Properties to Golden Star for an additional $5.0 million reduction in the loan balance and a net smelter royalty on the first 2.0 million ounces of gold produced from the SOTRAPMAG Properties. Any remaining unpaid debt owed by SOTRAPMAG to Golden Star as of the date of the sale will be permanently forgiven. Furthermore Guyanor has agreed to let Golden Star conclude the acquisition of the Bon Espoir property in French Guiana which is contiguous with the SOTRAPMAG Properties.

Guyanor’s Yaou and Dorlin gold properties will be joint ventured or sold to a new company organized by Guyanor’s former management.

In the interim until the restructuring is completed, Golden Star has agreed to provide continued financial support to Guyanor. Golden Star has further agreed to indemnify Guyanor from liabilities relating to the operation of Guyanor’s business prior to the restructuring, including potential environmental and severance liabilities.

The final step in the restructuring will require Guyanor’s new management to undertake a rights offering or other capital increase to fund Guyanor’s acquisition of the new property interests. The financing will be limited to a maximum of €250 million, by issuance of shares, and/or warrants and/or shares and warrants. In conjunction with the above, Guyanor’s Class A and Class B shares will be merged into one class of common shares.

Once the restructuring and recapitalization of Guyanor is completed, it is expected that Golden Star will (i) have no involvement in Guyanor’s day-to-day operation; (ii) will no longer fund Guyanor’s operations; and (iii) is expected to own less than 50% of Guyanor. At the point where Golden Star’s ownership drops below 50%, Golden Star will hold its investment in Guyanor as an equity investment.

Golden Star will write-off its inter-company loan receivable from Guyanor as well as reduce its investment in Guyanor as a result of the transfer of the nine million Guyanor shares to the Consultants. But since the value of Golden Star’s investment in Guyanor

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is essentially nil, the impact of Guyanor’s restructuring on Golden Star’s consolidated financial statements is expected to be immaterial. In the near term Golden Star will continue to hold a 53% interest in Guyanor and will consolidate Guyanor’s activities until such time as the financing is completed and Golden Star owns less than 50% of Guyanor. If the financing is not completed by September 30, 2004 and does not result in equity proceeds in excess of $3.0 million the MOU described above will be terminated.

TRENDS AFFECTING OUR OPERATIONS DURING THE FIRST HALF OF 2004

While gold prices trended generally upward during the last two and a half years, during the last two quarters gold prices have traded in a range between $375 per ounce and $420 per ounce. However the $404 per ounce average gold price received for our shipments during the first six months of 2004 is well above the $351 per ounce average price received in the first six months of 2003.

As expected, operating costs at Bogoso/Prestea were up from the same period in 2003, the result of mining harder, more metallurgically complex transition material at the Plant-North pit which caused lower mill throughput, lower gold production and higher mining and processing costs.

The Bogoso plant completed processing Plant-North oxide ore during the second quarter and is now processing exclusively transition ore. The Bogoso plant will continue to process only transition ore until late 2005 when the BIOX® conversion is completed.

In anticipation of the transition ore, the Bogoso plant flotation circuit was redesigned, re-built and commissioned in the second quarter and is now being used to assist in obtaining higher recoveries from the more complex transition ores. The total capital cost for the upgraded flotation circuit which was project managed in-house and which will be a key component of the future BIOX® project, was $3.5 million. Metallurgical test work in 2003 indicated the combination of gravity, flotation and intensive cyanide leaching of transition material would increase gold recoveries from transition ores to a range of 60% to 70% compared to recoveries in the range of 42% to 50% for carbon-in-leach alone. With the flotation circuit now on-line, we are currently achieving gold recovery of approximately 66% and expect to optimize the process and achieve incremental improvements in the third quarter.

RESULTS OF OPERATIONS

Three months ended June 30, 2004 compared to the three months ended June 30, 2003

Net income during the three months ended June 30, 2004 totaled $1.1 million or $0.008 per share on revenues of $16.5 million, versus net income of $4.0 million or $0.037 per share on revenues of $12.7 million in the same three months of 2003. Gold revenues for the three months ended June 30, 2004 were based on sales of 38,805 ounces, an 8% improvement over the 36,042 ounces sold in the same period of 2003. Realized gold prices averaged $399 per ounce for the quarter, a 15% increase from $347 per ounce realized in the second quarter of 2003.