EX-1 3 qstk3q.htm INTERIM CONSOLIDATED FINANCIAL STATEMENTS QUEENSTAKE RESOURCES LTD - Interim Consolidated Financial Statements





        Queenstake Resources Ltd.




Interim Consolidated Financial Statements


For the three month and nine month periods ended September 30, 2002


 

 

 

 

 

 


Table of Contents

Letter to Shareholders
Management's Discussion and Analysis
Consolidated Balance Sheets
Consolidated Statements of Loss and Deficit
Consolidated Statements of Cash Flows
Notes to Financial Statements
Corporate Directory

 

 

Dear Shareholders:


Queenstake Resources Ltd., the operator of the Magistral Joint Venture (the “MJV”), shipped its first 254 ounces of gold poured at Magistral on Wednesday, October 9, 2002.  The gold was received at the Johnson Matthey refinery on October 11th and was sold at US$316.10 per ounce. By November 23, 2002 gold production had totaled 2,200 ounces and is not hedged.


Queenstake began stacking ore on the leach pad at the end of August and leaching began mid-September.  Production is expected to gradually increase over the next few months to the anticipated average annual production rate of 40,000 ounces of gold per year.  Mine life, based on the current reserves, is expected to be 8 years and gold recovery from the ore, over its 240 day leach cycle, is expected to be 73%. The proven and probable reserve base for the Magistral mine is 6,980,000 tonnes containing 465,100 ounces at an average grade of 2.07 grams of gold per tonne.  The feasibility study forecast an estimated life-of-mine operating cost per ounce to be US$180 but the MJV expects this to be lower due to the high-grade nature of recently discovered additional reserves (NR02-06 June 4, 2002).


Queenstake’s strategy to grow to a mid-tier gold producer is comprised of three stages.  


•

Stage one -  cash flow from production at Magistral.  

•

Stage two – acquire additional cash-flow producing gold assets.

•

Stage three - increase gold resources at Magistral and any newly acquired gold asset through exploration using cash flow from production


Management’s current focus is on investigating new acquisition opportunities.  With the Company’s treasury intact by virtue of the financing used at Magistral, Queenstake is ready to advance to additional production opportunities.  Chris Davie, Queenstake’s CEO said: “The first gold pour at any project is exciting but this has been particularly so, representing as it does the culmination of an extended period of project development and construction.  When we completed financing of the project the gold price was $270 and many said it could not be done.  I give my heartfelt thanks to everyone at the Company involved in making this dream a reality. We now have our principal asset in production at a time of rising gold prices and our first stepping stone to the Company’s future growth is complete”.


During the third quarter the Company’s treasury increased by the receipt of $959,380 gross proceeds for the exercise of 5,329,889 share purchase warrants and the receipt of $1.2 million as proceeds for the sale of its interest in the Taparko Joint Venture to High River Gold.  The Company loaned the MJV US$1 million in the third quarter at 18% interest to be repaid from a first call on MJV cash flow.  


The Company has increased its market awareness program by participating in a number of investor shows in Canada, the United States and London as well as increased visits to brokers and mining analysts.  Please visit the Company’s web site at www.queenstake.com to read independent analyst reports on the Company.


The Company now enters the fourth quarter as a producer in a gold market that shows continued signs of strength amid turmoil in other markets. We look forward to the achievement of revenues, cash flow and continued exploration success while continuing to seek growth by means of appropriate acquisition opportunities.


(signed) Chris Davie


Chris Davie

President and Chief Executive Officer


November 27, 2002


 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Consolidated Financial Statements for the Three Months and Nine Months ended September 30, 2002


These interim financial statements follow the same accounting policies and methods of their application as the most recent annual financial statements and should be read in conjunction with the audited consolidated financial statements and management discussion and analysis of financial condition and results of operations for the year ended December 31, 2001.

 

Queenstake is operator and joint owner of the Magistral Joint Venture (“MJV”).  In the first nine months of 2002 almost 100% of the Company’s efforts were directed towards constructing and placing into production the Magistral gold mine in Sinaloa, Mexico.  The Magistral mine poured and shipped its first 254 ounce gold bar on October 9, 2002.  This narrative will intertwine the Company’s results of operations and comments on the liquidity of the Company at September 30, 2002.

 

Queenstake’s interest in the MJV does not meet the Canadian general accepted accounting principles criteria to be accounted for as a joint venture and therefore its carrying value is reported as a long-term investment.  The asset and liability accounts of the MJV are not consolidated in Queenstake’s financial statements.  

 

Pursuant to the terms of the MJV agreement, Queenstake earned a US$300,000 fee (Cdn$472,305) for the construction period and will begin earning US$50,000 per month once targeted production is achieved, expected to be in November 2002.   

 

In the third quarter 2002 the Company received $959,380 proceeds pursuant to the issuance of 5,329,889 shares issued upon exercise of share purchase warrants and  $5,000 proceeds pursuant to the issuance of 50,000 shares upon exercise of stock options.

 

On December 27, 2001 the Company and Midwest Mining Inc. formalized the MJV agreement, committed to developing the Magistral project into a gold mine and Midwest converted its September 2001 loan of $986,563 (US$625,000) to equity in the MJV. Midwest funded the MJV with an additional US$6 million being the cash component necessary to construct the mine earning its effective 57.5% interest in the MJV.  The Company contributed the Magistral project to the MJV.  On January 31, 2002 Queenstake exercised its option to acquire Oro de Sotula SA de C.V. from Campbell Resources Inc. funded by and for the benefit of the MJV.  Oro was acquired because it owns the past producing Santa Gertrudis project in Mexico and the plant and mobile equipment necessary to operate a heap-leach gold mine.  The consideration for the shares of Oro was the assumption of the reclamation obligations at Santa Gertrudis, a Mexican tax liability, a note of US$1 million payable to Campbell, and a second contingent payment of US$1 million payable to Campbell in tranches at certain milestone gold prices ($315, $330 and $350 per ounce).  In accordance with the MJV agreement, these assets and contingent liabilities were contributed to the MJV and are not included in these consolidated financial statements.   In 2001, the MJV paid Campbell $197,034 (US$125,000) option payments. On September 9th, 2002, the first US$150,000 tranche of the contingent US$1 million note was triggered when the gold price for the preceding 120 calendar days averaged over US$315 per ounce.  The Company satisfied the MJV obligation by the issuance of 978,500 shares to Campbell. The Company expects to recover the deemed value of the shares $234,840 (US$150,000) from the MJV after Midwest is repaid its preferred US$6,625,000.

 

Estimated Magistral construction capital budget overruns of US$2 million were loaned to the MJV equally between Queenstake and Midwest in the third quarter 2002.  Each US$1 million loan, bearing interest at 18% per annum, will be repaid from a first call on 100% of Magistral cash flow and is secured by the assets of the MJV. The Company has accrued interest on this loan of $48,333 to September 30, 2002.  Queenstake loaned an additional US$150,000 to the MJV in October 2002 to fund its 50% share of a US$300,000 working capital loan on the same basis.

 

In February 2001 the Company completed the acquisition of Incanore Gold Mines Ltd. and its mineral projects in Burkina Faso, of which the most significant asset was an 18.5% interest in the Taparko project. The Company’s partner, High River Gold Mines Ltd., had an option to purchase the Company’s interest in the Taparko project for $1.4 million until February 26, 2004. The Company accepted a discounted price of $1.2 million on July 15, 2002 rather than $1.4 million on February 26, 2004 resulting in a loss on sale of resource property of $298,161, representing the $200,000 difference between the acquisition price and the sale price and $98,161 of asset evaluation and exploration costs capitalized in 2001.

 

General and administration expenses were $1,050,166 for the first nine months of 2002 compared to $481,833 for the first nine months of 2001.  On January 1, 2002 the Company hired a Controller and secretary both working from the Denver office to assist in the Company’s growth. With commencement of construction at Magistral the Company stopped capitalizing up to 50% of the salaries of its President and Vice President Exploration to the Magistral project, or about $130,000 (US$83,000) for the first nine months of 2001.  In the third and fourth quarter of 2002 the Company has increased its market awareness program and budget and has participated in a number of investor shows throughout the United States, Canada and London.  The majority of the Company’s general and administrative costs are now incurred in US dollars and paid for from a Canadian dollar treasury.  The average Canadian to U.S. dollar exchange rate for the first nine months of 2002 was 1.571 compared to 1.538 for the first nine months of 2001 which contributed to the overall increase when comparing the two periods.

 

A significant item on the Statement of Loss is the non-cash expense of $679,634 relating to the early conversion of a note that would have matured in September 2003.  The charge is calculated in accordance with the pronouncement of the CICA, EIC-96, Accounting for the Early Extinguishment of Convertible Securities Through Induced Early Conversion. The charge to earnings in the amount of $1,304 was calculated in accordance with the new requirements of CICA of accounting for stock-based compensation expense.  Under this method, compensation expense on stock options granted to consultants is recorded as an expense in the period the options are vested. Stock options granted to consultants are accounted for using the fair value method.  Stock options granted to employees and directors are reported on a pro-forma basis and are not included in the current loss.

 

Historically, Queenstake's capital needs have been met through sales of equity securities. There can be no assurance that such financing will continue to be available to Queenstake on favorable terms or at all. Queenstake expects to receive operator fees from revenue from production at Magistral during the next twelve months; however, if production is delayed or is not profitable, then there may be delays in receiving this anticipated income. Queenstake is subject to various risks and uncertainties, most of which are inherent to conducting mineral exploration and development activities. Foreign investments are subject to taxation as imposed at various levels within each country, capital investments and repatriation limitations, and the effects of changes in foreign currency rates. Environmental laws imposed presently or in the future may also result in additional costs of conducting mineral exploration or mining activities. Queenstake's Magistral project is its only mineral property with economically recoverable gold reserves.  Its residual interests in its Peru Properties, through its shareholding in Monterrico Metals PLC, are in the exploration stage and it has not yet been determined whether the properties contain ore reserves that are economically recoverable or whether Monterrico will continue to be successful in raising the funds to explore its property portfolio to its full potential.  Finally, amounts recorded by Queenstake as long-term investments are dependent upon future profitable operations of the underlying mineral properties.

 

Other than as discussed herein, the Company is not aware of any trends, demands, commitments, events or uncertainties that may result in the Company’s liquidity either materially increasing or decreasing at present or in the foreseeable future.  Material increases or decreases in the Company’s liquidity will be substantially determined by the success or failure of placing its Magistral project into profitable production, the price of gold and the ability of the Company to successfully acquire and finance another mineral acquisition.

 

The Company’s cash at September 30, 2002 was $851,663, an increase of $496,871 compared to December 31, 2001 and working capital increased to $2,609,809 from $308,034 at December 31, 2001.  In addition to the previously discussed loan made by the Company to the MJV, the Company had unbilled travel advances of $80,659 included in accounts receivable at September 30, 2002.

 

The working capital position combined with its management fee income, is sufficient to fund the next 12 months of planned operations of the Company with any increase in corporate activity or acquisitions to be funded by additional and associated external debt or equity financing.

QUEENSTAKE RESOURCES LTD.

CONSOLIDATED BALANCE SHEETS


(In Canadian Dollars)

 (unaudited – Prepared by Management)

 

As at

 

September 30, 2002

 

December 31, 2001


ASSETS

 


 


Current assets

 

 

Cash and short-term investments

$

851,663

$

354,795

      Loan to Magistral Joint Venture

 

1,587,200

 

-

      Interest on loan to Magistral Joint Venture

 

48,333

 

-

Accounts receivable

 

174,356

 

80,751

  

2,661,552

 

435,546

Long-term investments (Note 4)

 

4,405,706

 

4,170,866

Resource properties (Note 5)

 

-

 

1,498,161

Other capital assets, less accumulated depreciation (Note 6)

 

59,658

 

36,054

 

$

7,126,916

$

6,140,627

LIABILITIES

    

Current liabilities

 


 


Accounts payable and accrued liabilities

$

51,743

$

127,512

  

51,743

 

127,512

  


 


Convertible unsecured note  (Note 7)

 

-

 

864,450

Non controlling interest

 

604,130

 

591,575

  

655,873

 

1,583,537

SHAREHOLDERS’ EQUITY

 

 

Share capital  (Note 8)

Authorized: unlimited common shares without par value

   



Issued: 67,984,045 (2001 – 48,002,294 shares)

 

55,416,145

 

51,728,011

Contributed surplus

 

227,232

 

227,232

Equity component of convertible notes

 

-

 

163,953

Deferred stock option compensation (Note 8)

 

1,303

 

-

Deficit

 

(49,173,637)

 

(47,562,106)

  

6,471,043

 

4,557,090

 

$

7,126,916

$

6,140,627


(See accompanying notes to the Consolidated Financial Statements)


Approved by the Board of Directors

 

/s/ James Mancuso

/s/ Chris topher Davie

 

J. Mancuso

C. Davie

 

Director

Director


 

 


QUEENSTAKE RESOURCES LTD.

CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT


(In Canadian Dollars)

 (unaudited – Prepared by Management)



 

Three months ended

 

Nine months ended

For the period ended

 

September 30, 2002

 

September 30, 2001

 

September 30, 2002

 

September 30, 2001

Revenue

 


 


 


 


Management fees

$

-

$

-

$

472,305

$

-

Interest

 

48,349

 

5,635

 

48,709

 

30,300

Other income

 

6,800

 

(114)

 

7,453

 

21,305


 

55,149

 

5,521

 

528,467

 

51,605

Costs and expenses

 


 


 


 


General and administrative

 

331,508

 

131,463

 

1,050,166

 

481,833

Corporate development

 

5,068

 

50,667

 

6,145

 

102,506

Current exploration

 

-

 

4,241

 

-

 

71,509

Depreciation

 

3,055

 

2,403

 

8,512

 

14,573

Interest

 

-

 

29,263

 

4,850

 

91,690


 

339,631

 

218,037

 

1,069,673

 

762,111

Loss before the undernoted

 

(284,482)

 

(212,516)

 

(541,206)

 

(710,506)

Other (income) expense

 


 


 


 


Non-cash loss on early conversion of debt

 

-

 

-

 

679,634

 

-

Non-cash stock compensation

 

-

 

-

 

1,303

 

-

Gain on foreign exchange

 

(57,337)

 

(507)

 

(51,028)

 

(7,852)

Gain on sale of subsidiary

 

(8,750)

 

-

 

(8,750)

 

(28,500)

      Loss on sale of resource property

 

298,161

 

-

 

298,161

 

-

Loss on sale of equipment

 

-

 

(5,396)

 

-

 

(5,259)

  

232,074

 

(5,903)

 

919,320

 

(41,611)

Loss before non-controlling interest

 

(516,556)

 

(206,613)

 

(1,460,526)

 

(668,895)

Non-controlling interest

 

(12,555)

 

-

 

(12,555)

 

-

Net loss

$

(529,111)

$

(206,613)

$

(1,473,081)

$

(668,895)

Net loss per share

$

(0.01)

$

(0.00)

$

(0.02)

$

(0.01)

Weighted average number

of shares outstanding

 

 

63,770,119

 

 

47,668,961

 

 

62,929,272

 

 

46,334,072

Deficit, beginning of period

$

(48,644,526)

$

(42,467,566)

$

(47,562,106)

$

(41,975,474)

Net loss

 

(529,111)

 

(206,613)

 

(1,473,081)

 

(668,895)

Accretion of liability component of

convertible secured note

 

 

-

 

 

(14,905)

 

 

(138,450)

 

 

(44,715)

Deficit, end of period

$

(49,173,637)

$

(42,689,084)

$

(49,173,637)

$

(42,689,084)

 

 

(See accompanying notes to the Consolidated Financial Statements)

QUEENSTAKE RESOURCES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(In Canadian Dollars)

 (unaudited – Prepared by Management)

 


 

Three months ended

 

Nine months ended

For the period ended

 

September 30, 2002

 

September 30, 2001

 

September 30, 2002

 

September 30, 2001

CASH FLOWS FROM (USED IN):

OPERATING ACTIVITIES

        

Net loss

$

(529,111)

$

(206,613)

$

(1,473,081)

$

(668,895)

Items not involving cash

        

Loss on early conversion of note

 

-

 

-

 

679,634

 

-

Stock based compensation expense

 

-

 

-

 

1,303

 

-

Interest paid in shares

 

-

 

-

 

4,850

 

-

  Loss on sale of resource property

 

            298,161

 

-

 

           298,161

 

-

Depreciation

 

3,055

 

2,403

 

8,512

 

14,573

  Loss on sale of equipment

 

-

 

 

-

 

-

 

137

  

(227,891)

 

(204,210)

 

(480,621)

 

(654,185)

Net changes in non-cash working capital items:

Accounts receivable

Accounts payable and accrued liabilities

Secured note

 


(71,109)

(37,223)

-

 


14,089

44,728

-

 


(93,606)

(27,332)

-

 


12,836

(123,388)

(483,145)

Loan to Magistral Joint Venture

 

        (1,587,200)

 

-

 

       (1,587,200)

 

-

Interest on loan to Magistral Joint Venture

 

             (48,333)

 

-

 

            (48,333)

 

-

  

(1,971,756)

 

(145,393)

 

(2,237,092)

 

(1,247,882)

 FINANCING ACTIVITIES

        

Cost of acquisition, net of cash acquired

 

-

 

-

 

-

 

            (85,138)

Share purchase warrants exercised

 

959,380

 

-

 

1,588,880

 

-

Cost to issue shares on conversion of note

 

(35,992)

 

(12,498)

 

(40,356)

 

(12,498)

Shares issued for stock options

 

                5,000

 

-

 

               5,000

 

-

Midwest Joint Venture contribution

 

-

 

             986,563

 

-

 

           986,563

Deferred share acquisition costs

 

-

 

-

 

-

 

37,060

  

928,388

 

974,065

 

1,553,524

 

925,987

INVESTING ACTIVITIES

        

Proceeds from sales of resource property and equipment

 

1,200,000

 

-

 

1,200,000

 

 

500

Minority interest change

 

              12,555

 

-

 

             12,555

 

-

Expenditures on resource properties and equipment

 

 

(1,601)

 

(293,128)

 

(32,116)

 

(521,529)

  

1,210,954

 

(293,128)

 

1,180,439

 

(521,029)

Increase (decrease) in cash and short-term

investments

 

167,586

 

535,544

 

496,871

 

(842,924)

 Cash and short-term investments,

beginning of period

 

 

684,080

 

 

952,206

 

 

354,795

 

 

2,330,674

Cash and short-term investments,

end of period

 

$

 

851,666

 

$

 

1,487,750

 

$

 

851,666

 

$

 

1,487,750


(See accompanying notes to the Consolidated Financial Statements)

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY

In January 2002, the Company issued 9,687,830 common shares in exchange for conversion of a convertible note and 532,830 common shares as payment of $53,283 accrued interest on the convertible note.  On September 11, 2002 the Company issued 978,500 common shares as payment of $234,840 to satisfy the first tranche of Magistral Joint Venture’s note payable to Campbell Resources Inc.


QUEENSTAKE RESOURCES LTD.

NOTES TO INTERIM FINANCIAL STATEMENTS

For the three and nine months ended September 30, 2002 (in Canadian Dollars)

 (unaudited – Prepared by Management)


1.

INTERIM UNAUDITED FINANCIAL STATEMENTS


These interim financial statements follow the same accounting policies and methods of their application as the most recent annual financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2001. Certain of the prior years’ comparative figures have been reclassified to the current year’s presentation.


2.        CHANGES IN ACCOUNTING POLICIES


The Company has adopted the new policy of the Canadian Institute of Chartered Accountants  (“CICA”) of accounting for stock-based compensation expense.  Under this method, compensation expense on stock options granted to consultants is recorded as an expense in the period the options are vested. Stock options granted to consultants are accounted for using the fair value method.

 

The Company has elected to follow the intrinsic value method of accounting for stock options granted to directors and employees.  Under this method, no compensation expense is recorded when stock or stock options are granted to directors and employees if the exercise price of the stock options is granted at market value.  Any consideration paid by directors and employees on exercise of stock options or purchase of shares is credited to share capital.  However, additional disclosure of the effects of accounting for stock based compensation to directors and employees as compensation expense, using the fair value method, is disclosed as pro-forma information.

 

The fair values of the options are estimated using the Black-Scholes Option Pricing Model.


3.        BUSINESS ACQUISITIONS

 

 

 

Effective January 31, 2002, pursuant to a share purchase agreement and on behalf of and funded by the Magistral Joint Venture, Queenstake Resources Ltd. purchased all of the outstanding shares of Oro de Sotula S.A. de C.V. (“Oro”), a Mexican company.  Oro was acquired because it owns the past producing Santa Gertrudis project in Mexico and the plant and mobile equipment necessary to operate a heap-leach gold mine.  The consideration for the shares of Oro is the assumption of the reclamation obligations at Santa Gertrudis, a Mexican tax liability, a note of US$1 million payable to Campbell Resources Inc., and a second contingent payment of US$1 million payable to Campbell in tranches at certain milestone gold prices ($315, $330 and $350 per ounce).  In accordance with the Magistral Joint Venture agreement, these assets and liabilities were contributed to the MJV and are not included in these consolidated financial statements.     


4.        LONG-TERM INVESTMENTS


 

September 30, 2002

 

December 31, 2001

Magistral Joint Venture, Mexico

$

4,375,706

 

$

4,140,866

Monterrico Metals PLC, Peru

30,000


30,000

 

$

4,405,706

 

$

4,170,866



5.        RESOURCE PROPERTIES


 

September 30, 2002

 

December 31, 2001

Taparko, Burkina Faso

$

-

 

$

1,498,161

 

$

-

 

$

1,498,161


The Company’s partner, High River Gold Mines Ltd., had an option to purchase the Company’s interest in the Taparko project for $1.4 million until February 26, 2004. The Company accepted a discounted price of $1.2 million on July 15, 2002 rather than $1.4 million on February 26, 2004 resulting in a loss on sale of resource property of $298,161, representing the $200,000 difference between the acquisition price and the sale price and $98,161 of asset evaluation and exploration costs capitalized in 2001.

 

 

6.        OTHER CAPITAL ASSETS


  

September 30,

2002

 

December 31, 2001

  

Cost

 

Accumulated depreciation

 

Net book value

 

Net book value

  

Mining equipment

$

74,402

$

62,361

$

12,041

$

12,041

Office equipment

 

117,593

 

69,976

 

47,617

 

24,013

 

$

191,995

$

132,337

$

59,658

$

36,054


7.

DEBT


  

September 30,

 2002

 

December 31,

2001

Debt component

    

Convertible unsecured note

$

-

$

864,450

 

 

$

 

-


$

 

864,450

Equity component





Convertible unsecured note

$

-

$

163,953

 

$

-

$

163,953


On January 15, 2002 the holder of the Company’s convertible unsecured note, issued on September 14, 2000 with a face value of $968,783 and a maturity date of September 15, 2003, agreed to an immediate conversion of the entire balance of the note if the Company would seek regulatory approval to adjust the conversion price to $0.10 per share from $0.18 per share. The Toronto Stock Exchange approved the modification and on January 31, 2002 the holder was issued 9,687,830 common shares and 1,779,864 share purchase warrants which were subsequently exercised at $0.18 on September 11, 2002.  On January 31, 2002, the debt component of the convertible note in the amount of $864,450 and the equity component of the convertible unsecured note in the amount of $163,953 were transferred to share capital, and an additional non-cash amount of $679,634 was charged to operations with a corresponding increase in share capital in accordance with the pronouncement of the CICA, EIC-96, Accounting for the Early Extinguishment of Convertible Securities Through Induced Early Conversion. The note bore interest at the rate of 12% per year payable each July 31 in cash or, alternatively, in shares at the Company’s discretion with further regulatory approval being required at the time of payment. Accrued interest on the convertible note from August 1, 2001 to the deemed conversion date of January 15, 2002 amounted to $53,283 and on January 31, 2002 the holder was issued 532,830 common shares in satisfaction thereof.  Of this $53,283 interest payment, $48,438 was recorded as a current liability on the consolidated balance sheet at December 31, 2001.


8.        SHARE CAPITAL        Authorized:        Unlimited common shares


(a)

During the nine months ended September 30, 2002 changes in share capital were as follows:


 

September 30, 2002

December 31, 2001

 

Shares

Amount

Shares

Amount

Balance beginning of period

48,002,294

$51,728,011

38,988,294

$49,829,265

Issued during the period (net of issue costs)





For Incanore Gold Mines Ltd.

-

-

7,600,000

1,314,569

Conversion of note(s)

9,687,830

1,806,131

414,000

506,677

For interest on convertible note

532,830

53,283

1,000,000

77,500

Shares issued to Campbell Resources Inc.

978,500

234,840

-

-

For cash on exercise of incentive stock

options


50,000


5,000


-


-

For cash on exercise of warrants

8,732,591

1,588,880

-

-

Balance end of period

67,984,045

$55,416,145

48,002,294

$51,728,011


(b)

At September 30, 2002 the Company had two stock option plans, the 1995 Plan and the Santa Cruz plan.  The Santa Cruz Plan will remain in place until all existing options are exercised, expire or are cancelled. The Company’s 1995 Plan is the only active incentive stock option plan.  It was established on May 17, 1995, and amended most recently on May 30, 2002.  A maximum of 5,800,000 five year options may be granted under the 1995 Plan at market value on the day before granting.  One half of any options granted are exercisable immediately and the remainder one year later.   At September 30, 2002, there were 4,995,162 options granted and 504,838 options available for granting under the 1995 Plan.

 

 

Options outstanding at September 30, 2002 are exercisable in the following amounts and exercise prices:


Exercisable in 2002

Number of Shares

Exercisable in 2003

Number of Shares

Exercise Price

Expiry Dates

1,332,500

1,332,500

$0.315

June 3, 2007

50,000

50,000

$0.19

August 2, 2007

15,000

15,000

$0.11

January 14, 2007

650,000


$0.09

December 18, 2006

410,000


$0.155

June 16, 2005

755,000


$0.25

September 17, 2004

51,750


$0.97

January 31, 2004

152,287


$1.24

January 30, 2003

46,575


$2.61

September 25, 2005

134,550


$3.86

September 25, 2005

3,597,662

1,397,500

  


Option activity for the preceding nine month period is as follows:


 

September 30, 2002

December 31, 2001

 



Shares

Weighted Average

Exercise Price

$



Shares

Weighted Average

Exercise Price

$

Balance, beginning of period

2,603,674

0.89

2,316,472

1.39

Granted

2,845,000

0.31

650,000

0.09

Exercised

(50,000)

(0.10)

-


-

Expired

(403,512)

(2.77)

(362,798)

(2.65)

Balance, end of period

4,995,162

0.41

2,603,674

0.89


Pursuant to the new CICA policy of accounting for stock based compensation, compensation expense on stock options granted to directors and employees using the fair value method is disclosed as pro-forma information.

The fair value of stock options used to calculate compensation expense is estimated using the Black-Scholes Option Pricing Model with the following assumptions made as the date of grant of January 1, 2002.

Risk-free interest rate

4.8%

Expected dividend yield

-

Expected stock price volatility

28%

Expected option life in years

5


The pro forma effect on net loss and loss per share for the period ended September 30, 2002 of the actual results had the Company accounted for the stock options granted to directors and employees using the fair value method is as follows:

 

Net loss for the period

Reported

$(1,473,081)

Pro forma

$(1,615,622)

Basic and diluted loss per share

Reported

$(0.02)

Pro forma

$(0.03)

Option pricing models require the input of highly subjective assumptions including the expected price volatility.  Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s stock options.


(c)

As at September 30, 2002 the Company has no outstanding purchase warrants.

Warrant activity for the preceding nine month period is as follows:


 

September 30, 2002

December 31, 2001

 



Shares

Weighted Average

Exercise Price

$



Shares

Weighted Average

Exercise Price

$

Balance, beginning of period

8,955,430

0.18

8,955,430

0.18

Issued

1,779,864

0.18

-

-

Exercised

(8,732,591)

0.185

-

-

Expired

(2,002,703)

(0.185)

-

-

Balance, end of period

-

-

8,955,430

0.18


9.

SEGMENTED INFORMATION


The Company considers its business to consist of one operating and geographic segment in Mexico.  


CORPORATE DIRECTORY

 

REGISTERED AND RECORDS OFFICE

 

Queenstake Resources Ltd.

Suite 200, 204 Lambert Street

Whitehorse, Yukon Y1A 3T2 Canada

 

EXECUTIVE OFFICE

 

Queenstake Resources Ltd.

Suite 2940, 999 Eighteenth Street

Denver, CO 80202 USA

Phone:

(303) 297-1557

Fax:

(303) 297-1587

Email:

usa@queenstake.com

 

CORPORATE &

SHAREHOLDER RELATIONS OFFICE

 

Doris Meyer

712C – 12th Street

New Westminster, BC V3M 4J6 Canada

Phone:

(604) 516-0566

Fax:

(604) 516-0568

Email:

dorism@telus.net

 

LEGAL COUNSEL

 

Gowling Lafleur Henderson LLP

Suite 2300, Four Bentall Centre

1055 Dunsmuir Street, P.O. Box 49122

Vancouver, BC V7X 1J1 Canada

 

Anton, Campion, MacDonald, Oyler & Buchan

Suite 200, 204 Lambert Street

Whitehorse, Yukon  Y1A 3T2 Canada

 

AUDITORS

 

Deloitte & Touche LLP

Suite 2100, Four Bentall Centre

1055 Dunsmuir Street

Vancouver, BC V7X 1P4 Canada

 

TRANSFER AGENT

 

CIBC Mellon Trust Company

1066 West Hastings Street

Suite 1600, The Oceanic Plaza

Vancouver BC Canada V6E 3X1


DIRECTORS AND OFFICERS


James Mancuso

Director and (Non-Executive) Chairman


Chris Davie

Director and President, Chief Executive Officer


Dorian (Dusty) Nicol

Director and Vice President Exploration


Doris Meyer

Vice President Finance, Chief Financial Officer

and Corporate Secretary


Charles Andrews

Controller


Gordon Gutrath

Director


Hugh Mogensen

Director


Peter Bojtos

Director


Grant Edey

Director




WEBSITE

 

www.queenstake.com