BEMA GOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands of United States dollars)
| As at | As at | |||||
| June 30 | December 31 | |||||
| 2004 | 2003 | |||||
| ASSETS | ||||||
| Current | ||||||
| Cash and cash equivalents | $ | 44,653 | $ | 30,773 | ||
| Accounts receivable | 10,039 | 5,754 | ||||
| Marketable securities | ||||||
| (Market value - $11.8 million; December 31, 2003 - $12.1 million) | 3,554 | 3,567 | ||||
| Inventories | 17,030 | 14,932 | ||||
| Other | 6,469 | 4,845 | ||||
| 81,745 | 59,871 | |||||
| Investments | 2,623 | 2,706 | ||||
| Property, plant and equipment | 314,870 | 290,822 | ||||
| Goodwill | 27,344 | 27,344 | ||||
| Unrealized fair value of derivatives | 31,529 | 20,792 | ||||
| Deferred losses | 2,561 | 3,965 | ||||
| Other assets | 22,519 | 14,206 | ||||
| $ | 483,191 | $ | 419,706 | |||
| LIABILITIES | ||||||
| Current | ||||||
| Accounts payable | $ | 30,525 | $ | 23,292 | ||
| Current portion of long-term debt | 43,632 | 45,864 | ||||
| 74,157 | 69,156 | |||||
| Unrealized fair value of derivatives | 37,898 | 48,382 | ||||
| Long-term debt(Note 5) | 57,578 | 7,084 | ||||
| Future income tax liabilities | 2,132 | 2,098 | ||||
| Asset retirement obligations | 16,119 | 15,380 | ||||
| Other liabilities | 3,517 | 3,465 | ||||
| Non-controlling interest | 996 | 830 | ||||
| 192,397 | 146,395 | |||||
| SHAREHOLDERS' EQUITY | ||||||
| Capital stock | ||||||
| Issued - 361,593,592 common shares (December 31, 2003 - | ||||||
| 355,688,190 | 449,641 | 441,309 | ||||
| Value assigned to share purchase warrants and stock options | 17,552 | 14,814 | ||||
| Convertible debt(Note 5) | 19,829 | - | ||||
| Deficit | (196,228 | ) | (182,812 | ) | ||
| 290,794 | 273,311 | |||||
| $ | 483,191 | $ | 419,706 |
| Subsequent event(Note 8) | |
| Approved by the Directors | |
| "Clive T. Johnson" | "Robert J. Gayton" |
| Clive T. Johnson | Robert J. Gayton |
BEMA GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the periods ended June 30
(Unaudited)
(in thousands of United States dollars, except shares and per share amounts)
| Second Quarter | Six Months | |||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||
| (Restated) | (Restated) | |||||||||||
| GOLD REVENUE | $ | 21,150 | $ | 24,567 | $ | 40,836 | $ | 36,104 | ||||
| EXPENSES | �� | |||||||||||
| Operating costs | 21,752 | 19,595 | 39,421 | 29,974 | ||||||||
| Depreciation and depletion | 4,921 | 4,787 | 8,479 | 7,464 | ||||||||
| Other | 1,459 | 785 | 2,091 | 1,073 | ||||||||
| 28,132 | 25,167 | 49,991 | 38,511 | |||||||||
| OPERATING LOSS | (6,982 | ) | (600 | ) | (9,155 | ) | (2,407 | ) | ||||
| OTHER EXPENSES (INCOME) | ||||||||||||
| General and administrative | 3,382 | 2,761 | 5,269 | 3,765 | ||||||||
| Interest and financing costs(Note 5) | 2,598 | 1,611 | 4,403 | 2,986 | ||||||||
| General exploration | 159 | 90 | 370 | 165 | ||||||||
| Stock-based compensation(Note 7) | 2,404 | 1,699 | 3,032 | 1,802 | ||||||||
| Foreign exchange losses (gains) | 64 | 194 | 1,209 | (1,168 | ) | |||||||
| Other | 573 | 15 | 1,454 | (149 | ) | |||||||
| 9,180 | 6,370 | 15,737 | 7,401 | |||||||||
| LOSS BEFORE THE UNDERNOTED ITEMS | (16,162 | ) | (6,970 | ) | (24,892 | ) | (9,808 | ) | ||||
| Write-down of Yarnell mineral property(Note 6) | - | - | (8,527 | ) | - | |||||||
| Realized derivative gains | 1,155 | 893 | 1,572 | 576 | ||||||||
| Unrealized derivative gains | 16,392 | 3,596 | 18,731 | 19,699 | ||||||||
| Equity in losses of associated companies | (136 | ) | - | (180 | ) | (7 | ) | |||||
| Investment gains | 15 | 64 | 399 | 6 | ||||||||
| EARNINGS (LOSS) BEFORE INCOME TAXES | 1,264 | (2,417 | ) | (12,897 | ) | 10,466 | ||||||
| Current income taxes | (485 | ) | (196 | ) | (485 | ) | (244 | ) | ||||
| Future income taxes | (34 | ) | (1,609 | ) | (34 | ) | (6,366 | ) | ||||
| NET EARNINGS (LOSS) FOR THE PERIOD | $ | 745 | $ | (4,222 | ) | $ | (13,416 | ) | $ | 3,856 | ||
| EARNINGS (LOSS) PER COMMON SHARE - basic | $ | 0.002 | $ | (0.013 | ) | $ | (0.038 | ) | $ | 0.013 | ||
| EARNINGS (LOSS) PER COMMON SHARE - diluted | $ | 0.002 | $ | (0.013 | ) | $ | (0.038 | ) | $ | 0.012 | ||
| Weighted average number of common shares | ||||||||||||
| outstanding (in thousands) | 358,078 | 319,740 | 356,910 | 304,167 | ||||||||
BEMA GOLD CORPORATION
CONSOLIDATED STATEMENTS OF DEFICIT
For the periods ended June 30
(Unaudited)
(in thousands of United States dollars)
| Second Quarter | Six Months | |||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||
| (Restated) | (Restated) | |||||||||||
| DEFICIT, BEGINNING OF PERIOD, AS PREVIOUSLYREPORTED | $ | (196,973 | ) | $ | (153,782 | ) | $ | (182,812 | ) | $ | (152,557 | ) |
| CHANGE IN ACCOUNTING POLICY (NOTE 2) | - | 9,624 | - | 321 | ||||||||
| DEFICIT, BEGINNING OF PERIOD, AS RESTATED | (196,973 | ) | (144,158 | ) | (182,812 | ) | (152,236 | ) | ||||
| NET EARNINGS (LOSS) FOR THE PERIOD | 745 | (4,222 | ) | (13,416 | ) | 3,856 | ||||||
| DEFICIT, END OF PERIOD | $ | (196,228 | ) | $ | (148,380 | ) | $ | (196,228 | ) | $ | (148,380 | ) |
BEMA GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the periods ended June 30
(Unaudited)
(in thousands of United States dollars)
| Second Quarter | Six Months | |||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||
| (Restated) | (Restated) | |||||||||||
| OPERATING ACTIVITIES | ||||||||||||
| Net earnings (loss) for the period | $ | 745 | $ | (4,222 | ) | $ | (13,416 | ) | $ | 3,856 | ||
| Non-cash charges (credits) | ||||||||||||
| Depreciation and depletion | 4,921 | 4,787 | 8,479 | 7,464 | ||||||||
| Amortization of deferred financing costs | 542 | 426 | 1,007 | 853 | ||||||||
| Equity in losses of associated companies | 136 | - | 180 | 7 | ||||||||
| Derivative instruments | (17,304 | ) | (2,748 | ) | (19,817 | ) | (18,077 | ) | ||||
| Investment gains | (15 | ) | (64 | ) | (399 | ) | (6 | ) | ||||
| Future income tax expense | 34 | 1,609 | 34 | 6,366 | ||||||||
| Stock-based compensation | 2,404 | 1,699 | 3,032 | 1,802 | ||||||||
| Write-down of Yarnell mineral property | - | - | 8,527 | - | ||||||||
| Other | 1,302 | 295 | (335 | ) | (135 | ) | ||||||
| Change in non-cash working capital | (3,522 | ) | (1,574 | ) | (2,601 | ) | (210 | ) | ||||
| (10,757 | ) | 208 | (15,309 | ) | 1,920 | |||||||
| FINANCING ACTIVITIES | ||||||||||||
| Convertible loan, net of issue costs | - | - | 66,874 | - | ||||||||
| Common shares issued, net of issue costs | 7,902 | 51 | 8,012 | 274 | ||||||||
| Julietta project loan repayment | - | - | (5,583 | ) | (5,583 | ) | ||||||
| Petrex loan repayments | (1,500 | ) | - | (3,000 | ) | (5,000 | ) | |||||
| Other | 48 | (109 | ) | 48 | (130 | ) | ||||||
| 6,450 | (58 | ) | 66,351 | (10,439 | ) | |||||||
| INVESTING ACTIVITIES | ||||||||||||
| Julietta Mine | (2,018 | ) | (930 | ) | (2,980 | ) | (1,489 | ) | ||||
| Petrex Mines | (2,560 | ) | (2,523 | ) | (4,698 | ) | (3,311 | ) | ||||
| Refugio exploration and construction | (6,176 | ) | (556 | ) | (6,913 | ) | (1,879 | ) | ||||
| Kupol exploration and development | (8,275 | ) | (1,895 | ) | (18,515 | ) | (4,832 | ) | ||||
| Acquisition, exploration and development | (1,784 | ) | (2,086 | ) | (3,781 | ) | (3,505 | ) | ||||
| Acquisition of EAGC Ventures Corp., net cash acquired | - | - | - | 6,742 | ||||||||
| Sale of EAGC special warrants | - | - | - | 16,935 | ||||||||
| Other | (480 | ) | (36 | ) | (407 | ) | (227 | ) | ||||
| (21,293 | ) | (8,026 | ) | (37,294 | ) | 8,434 | ||||||
| Effect of exchange rate changes on cash | ||||||||||||
| and cash equivalents | 5 | 492 | 132 | 938 | ||||||||
| Increase (decrease) in cash and cash equivalents | (25,595 | ) | (7,384 | ) | 13,880 | 853 | ||||||
| Cash and cash equivalents, beginning of period | 70,248 | 24,895 | 30,773 | 16,658 | ||||||||
| Cash and cash equivalents, end of period | $ | 44,653 | $ | 17,511 | $ | 44,653 | $ | 17,511 | ||||
Supplemental disclosure of cash flow information (Note 3)
BEMA GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2004
(all tabular amounts are in thousands of United States dollars unless otherwise stated)
(Unaudited)
| 1) | Basis of presentation |
| These interim financial statements do not contain all the information required for annual financial statements and should be read in conjunction with the most recent annual financial statements of the Company. These financial statements follow the same accounting policies and methods of application as the most recent annual financial statements of the Company. | |
| 2) | Changes in accounting policies |
Asset retirement obligations | |
| As described in Note 2(i) to the 2003 audited consolidated financial statements, the Company has applied retroactive adoption of the new accounting standard CICA 3110 "Asset retirement obligations", effective January 1, 2003. The effect of this change on the balance sheet as at December 31, 2002 resulted in a $1.9 million increase to asset retirement obligations, a $2.2 million increase to property, plant and equipment and a decrease in deficit by $321,000. The effect on earnings, net of taxes, for the three and six months ended June 30, 2003 was an increase of $8,000 and a reduction of $130,000, respectively. | |
Commodity instruments | |
| Effective January 1, 2003, the Company prospectively adopted AcG 13 "Hedging Relationships", as described in Note 2 (ii) to the audited consolidated financial statements. The effect on earnings, net of taxes, for the three and six months ended June 30, 2003 was an increase of $1.4 million and $10.9 million, respectively. | |
Stock-based compensation | |
| Effective January 1, 2003, the Company also adopted CICA 3870 "Stock-based Compensation and Other Stock-based Payments" as described in Note 2(iii) to the audited consolidated financial statements. The effect on earnings for the three and six months ended June 30, 2003 was a reduction of $1.5 million and $1.6 million, respectively. | |
| 3) | Supplemental disclosure of cash flow information |
| Second Quarter | Six Months | ||||||||||||
| 2004 | 2003 | 2004 | 2003 | ||||||||||
| Non-cash investing and financing activities | |||||||||||||
| Common shares issued upon acquisition of EAGC Ventures Corp. | $ | - | $ | - | $ | - | $ | 62,271 | |||||
| Fair value of EAGC Ventures Corp. share purchase warrants exchanged | - | - | - | 11,132 | |||||||||
| Fair value of EAGC Ventures Corp. stock options exchanged | - | - | - | 513 | |||||||||
| Common shares issued for other non-cash consideration | - | - | - | 150 | |||||||||
| Subsidiary common shares issued for property payment | - | - | 522 | - | |||||||||
| Refugio Mine equipment acquired under capital leases | 4,802 | - | 4,802 | - | |||||||||
| Convertible notes issued to Endeavour Financial for milestone and | |||||||||||||
| success fees relating to the acquisition of EAGC Ventures Corp. | - | - | - | 2,480 | |||||||||
| Accounts payable and accrued liabilities relating to resource | |||||||||||||
| property expenditures | 2,092 | - | 2,092 | - | |||||||||
| Accrued interest capitalized to notes receivable from | |||||||||||||
| associates | 38 | 13 | 68 | 25 | |||||||||
| Reallocation of fair value of stock-based compensation to share | |||||||||||||
| capital upon exercise of stock options | 320 | - | 320 | - | |||||||||
| Interest paid | 726 | 1,559 | 1,603 | 2,578 | |||||||||
| On June 30, 2004, the Company's 50% owned joint venture in Chile signed capital lease agreements for $9.6 million (the Company's share - $4.8 million) of equipment that were delivered and accepted by June 30, 2004. When the entire mining fleet is delivered and accepted, the total of all the capital lease agreements entered into by the joint venture will approximate $31 million. |
BEMA GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2004
(all tabular amounts are in thousands of United States dollars unless otherwise stated)
(Unaudited)
| 4) | Segmented information The Company's reportable operating segments are as follows: |
| Second Quarter | Six Months | ||||||||||||
| 2004 | 2003 | 2004 | 2003 | ||||||||||
| GOLD | |||||||||||||
| Julietta Mine | $ | 1,538 | $ | (440 | ) | $ | 185 | $ | (2,014 | ) | |||
| Petrex Mines | (8,917 | ) | (2,664 | ) | (13,366 | ) | (3,997 | ) | |||||
| Refugio Mine | (1,454 | ) | (423 | ) | (1,647 | ) | (546 | ) | |||||
| EXPLORATION AND DEVELOPMENT | (159 | ) | (90 | ) | (8,897 | ) | (165 | ) | |||||
| UNALLOCATED CORPORATE | |||||||||||||
| General and administrative | (3,382 | ) | (2,761 | ) | (5,269 | ) | (3,765 | ) | |||||
| Notes receivable and investments | (121 | ) | 64 | 219 | (1 | ) | |||||||
| Realized derivative gains | 1,155 | 893 | 1,572 | 576 | |||||||||
| Unrealized derivative gains | 16,392 | 3,596 | 18,731 | 19,699 | |||||||||
| Stock-based compensation | (2,404 | ) | (1,699 | ) | (3,032 | ) | (1,802 | ) | |||||
| Other | (1,903 | ) | (698 | ) | (1,912 | ) | (4,129 | ) | |||||
| NET EARNINGS (LOSS) FOR THE PERIOD | $ | 745 | $ | (4,222 | ) | $ | (13,416 | ) | $ | 3,856 | |||
| Second Quarter | Six Months | ||||||||||||
| 2004 | 2003 | 2004 | 2003 | ||||||||||
| GOLD | |||||||||||||
| Julietta Mine | $ | 10,426 | $ | 10,720 | $ | 16,777 | $ | 16,443 | |||||
| Petrex Mines | 10,724 | 13,847 | 24,059 | 19,661 | |||||||||
| GOLD SALES FOR THE PERIOD | $ | 21,150 | $ | 24,567 | $ | 40,836 | $ | 36,104 | |||||
| 5) | $70 million convertible notes |
| On February 25, 2004, the Company completed an offering of $70 million senior unsecured convertible notes maturing February 26, 2011 (the "Convertible Notes"). The Convertible Notes bear interest at 3.25% per annum payable on February 26 in each year with the first interest payment due on February 26, 2005. The Convertible Notes are convertible at the option of the note holder beginning on June 26, 2004 at a conversion price of $4.664 per share ("Conversion Price"). In addition, the note holder has the right to require the Company to redeeem the note on September 25, 2009 at a price equal to its principal amount together with interest accrued but unpaid to such date. The Company also has the right to redeem all outstanding Convertible Notes beginning February 26, 2007, if the closing share price of Bema common stock (for at least 10 days within 30 consecutive trading days prior to the notice of redemption) is at a 20% premium to the Conversion Price. A commission of 3.5% of the principal amount of the Convertible Notes was paid with respect to the financing. | |
| The $70 million convertible notes have been accounted for as debt instruments, at a present value of $50.2 million, with an amount of $19.8 million recorded in equity to reflect the estimated fair value of the conversion feature. The debt of $50.2 million is being accreted to its face value of $70 million over the term of the notes. During the six months ended June 30, 2004, interest and financing expense included approximately $1.5 million pertaining to the accretion of the debt. | |
| In addition, the Company paid to Endeavour Financial Corporation ("Endeavour Financial") a financing fee of $525,000 (or 0.75% of the face value of the Convertible Notes) upon closing. A director of Endeavour Financial is also a director of the Company. | |
| 6) | Write-down of Yarnell mineral property |
| On April 30, 2004, the Company entered into a letter agreement to sell to StrataGold Corporation ("StrataGold") its 100% interest in the Yarnell gold property in Arizona. The agreement was subject to satisfactory results of StrataGold due diligence, closing of a definitive sale and purchase agreement and regulatory approval. As a result, the carrying value of the Yarnell property was written down by $8.5 million to its estimated recoverable amount during the first quarter of 2004. | |
| During the second quarter of 2004, StrataGold elected not to exercise its option to purchase the Yarnell property. | |
BEMA GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2004
(all tabular amounts are in thousands of United States dollars unless otherwise stated)
(Unaudited)
| 7) | Stock-based compensation | |
On April 13, 2004, the Company granted to directors and employees approximately 3.7 million share purchase options at market with an exercise price of Cdn.$4.07 per share. These options have a term of ten years and expire on April 12, 2014. One-half of these options vested immediately and the remainder on April 12, 2005. The fair value of these options was estimated at approximately $3.4 million (or Cdn.$1.214 per option) of which $1.7 million was expensed in the current quarter and the remaining $1.7 million will be charged to operations over the vesting period. Also included in the 2004 stock-based compensation expense is approximately $1.3 million pertaining to the amotization of the fair value of options granted in 2003. | ||
| The fair value of the options granted in 2004 has been calculated using the Black-Scholes option-pricing model, based on the following assumptions: | ||
| - | Risk free interest rate of 3% per annum | |
| - | Expected life of 2 years | |
| - | Expected volatility of 50% | |
| - | Dividend yield rate of nil | |
| Option pricing models require the input of highly subjective assumptions regarding the expected volatility. Changes in assumptions can materially affect the fair value estimate, and therefore, the existing models do not necessarily provide a reliable measure of the fair value of the Company's stock options at date of grant. | ||
| 8) | Subsequent event | |
| On July 21, 2004, a subsidiary of the Company signed an agreement with Bayerische Hypo-und Vereinsbank AG ("HVB") whereby HVB will provide a $60 million bridge loan facility to the Company for the continued development of the Kupol project located in north eastern Russia. The Company will guarantee the facility, which will mature 24 months from the signing of the agreement. However, the Company intends to repay the facility from a portion of the proceeds of the Kupol project construction financing, which is expected to be arranged in early 2005. | ||
