. 2
To date, Golden Eagle has only been able to achieve limited cash flow from
the limited non-commercial mining operations it has conducted. During 1997
Golden Eagle produced approximately 13,678 grams of gold, which it sold for
approximately $126,000 (before payment of $25,000 in royalties). During the
first quarter of 1998, Golden Eagle's operations in Bolivia produced
post-royalty revenue of $11,800. The 1997 and first quarter 1998 funds were all
used in the Bolivian operations. Although Golden Eagle believes that it will be
able to generate a significant amount of additional revenues from mining gold
from its properties, no reserves have been established to date, Golden Eagle has
not developed a formal mining plan, and there can be no assurance that any
revenues received will exceed the expenses incurred.
During the 1997 fiscal year (through December 31, 1997), Golden Eagle,
through its Bolivian subsidiaries, completed a substantial amount of work on the
Cangalli properties. These activities included ongoing rehabilitation and
exploration of the Cangalli shaft, and exploration of several open-pit mining
sites within the concession area. Some of this work continued during the first
quarter of 1998, but two material factors affected work on the property during
the first quarter of 1998:
1) The "El Nino" world-wide weather phenomenon which resulted from warmer
water temperatures in the Pacific Ocean off the coast of South
America. The impacts of "El Nino" included substantial increases in
rainfall over the usual precipitation received during the normal
Bolivian rainy season. During the first quarter of 1998, the
super-saturation of the soil in the Tipuani River Basin caused a
mudslide in the town of Mokotoro, 15 kilometers upriver from the
Cangalli properties, which resulted in over 60 deaths. The extremely
wet weather caused Golden Eagle to reduce mining operations and to
implement costly de-watering and mine timber replacement measures in
the Cangalli shaft.
2) Golden Eagle's inability to finance any significant operations, other
than its overall exploration work, on the property in the first
quarter of 1998.
Golden Eagle has no significant capital commitments other than to continue
to evaluate and explore its properties in Bolivia with the goal of achieving
commercial production if the properties are capable of producing gold
commercially. Golden Eagle is contractually committed to investing $3 million in
the development and exploration of the Cangalli property over the 25-year life
of the initial contract period. As a result of meetings held with the president
and general secretary of the UCL in Miami, Florida on December 14 and 15, 1998,
Golden Eagle's president and corporate secretary committed to fulfill a pending
obligation to the cooperative of $42,451 owing on the purchase of equipment from
the cooperative and for royalties on production. In addition, Golden Eagle
committed to the cooperative that it would finish paying any and all back
obligations owed to workers and suppliers in the Cangalli district, which amount
is still pending an accounting from Golden Eagle's subsidiary in La Paz,
Bolivia.
In addition, Golden Eagle has offered to purchase the interests
("Certificados de Aporte" or "Certificates of Contribution") from each of UCL's
118 members. If the offer is accepted, and if certain conditions precedent are
met, Golden Eagle will pay each member approximately $10,000, including $3,000
cash and the balance in shares of Golden Eagle's common stock. Among the
conditions precedent that must be met before the offer can be completed is
compliance with U.S. and Bolivian securities laws, as well as acceptance by the
UCL members. Golden Eagle's offer to UCL is still pending as of the filing of
this quarterly report.
In summary, therefore, Golden Eagle believes that it does not have
sufficient liquidity or capital resources to purchase the interests of the UCL
members or to accomplish its other operational objectives. Golden Eagle's
current status makes it more difficult for Golden Eagle to raise such funds on
reasonable terms. Issues that Golden Eagle believes would be of concern to
prospective investors include (without limitation) the pending litigation filed
by the Securities and Exchange Commission, the significant working capital
shortage, the lack of proven mineral reserves or a mine plan, the difficulties
associated with international operations, the concentration of Golden Eagle's
assets in a single prospect in Bolivia, and the significant dependence on
management. 3
In addition, Golden Eagle believes that a substantial and material risk
exists, which Management has termed the "cooperative risk factor." This risk
relates to various aspects of Golden Eagle's relationship with the UCL, an
organization consisting of 118 members of all socio-economic, education, and
political levels and criteria. Golden Eagle's Management has sought and
received, repeatedly, assurances from UCL's president and board of directors
that Golden Eagle's subsidiary's contract position and right to the quiet
pursuit of its contract rights of exploration, development, and mining will
remain undisturbed. Over the course of the contract between Golden Eagle's
subsidiary and UCL, approximately 22 years, Golden Eagle has received informal
and formal complaints from UCL's administration regarding Golden Eagle's
contract compliance. However, Golden Eagle believes it has always been able to
satisfactorily resolve any complaint or dispute. Golden Eagle's management
believes that this problem resolution process will continue for the life of the
contract, 25 years from January 1996. Factors which are somewhat out of Golden
Eagle's management's control regarding the "cooperative risk factor" are:
tortious interference by unrelated third parties, force majeure, commodities and
metals market fluctuations, or the failure of governmental institutions to
support Golden Eagle's legitimate rights vis-a-vis some illegal action on the
part of UCL or third parties. Golden Eagle is aware that certain third parties
are attempting to disrupt Golden Eagle's relationship with UCL. Golden Eagle has
defended, and intends to continue to defend, its rights aggressively. Although
management believes it will be able to defend its rights, there can be no
assurance that it will be successful. During the meetings with members of UCL's
board of directors in December 1998, Golden Eagle's president and corporate
secretary received written assurances that relations between UCL and Golden
Eagle are extremely cordial and in excellent condition. While Golden Eagle's
management's analysis is very positive for future relations, any potential
investors or current shareholders must take notice of the "cooperative risk
factor," and weigh it carefully when making any investment decision regarding
Golden Eagle's securities.
As noted, the future conduct of Golden Eagle's business and its response to
issues raised by third parties are dependent upon a number of factors, and there
can be no assurance that Golden Eagle will be able to conduct its operations as
contemplated. Certain statements contained in this report using the terms "may,"
"expects to," and other terms denoting future possibilities, are forward-looking
statements. The accuracy of these statements cannot be guaranteed as they are
subject to a variety of risks which are beyond Golden Eagle's ability to predict
or control and which may cause actual results to differ materially from the
projections or estimates contained herein. These risks include, but are not
limited to, the risks described above, and the other risks associated with
start-up mineral exploration operations, and Golden Eagle's operations with
insufficient liquidity and no historical profitability. It is important that
each person reviewing this report understands the significant risks attendant to
Golden Eagle's operations and that of its subsidiaries. As noted, the future
conduct of Golden Eagle's business and its subsidiaries is dependent upon a
number of factors, and there can be no assurance that any of these companies
will be able to conduct its operations as contemplated herein. Golden Eagle
disclaims any obligation to update any forward-looking statement made herein.
Results of Operations ---------------------
Golden Eagle's operations in the first quarter of 1998 resulted in
significant losses and negative cash flow. Notwithstanding the limited amount of
revenues generated from mining operations ($11,800 in post-royalty revenues in
the first quarter of 1998), Golden Eagle's general, administrative and other
costs have vastly outstripped the resources generated by Golden Eagle's
operations. As described above in "Liquidity and Capital Resources," Golden
Eagle has been dependent on loans from affiliated and unaffiliated parties
(including certain family members of affiliates), stock issuances and debenture
arrangements to meet its working capital obligations and to finance Golden
Eagle's continuing operating losses. There can be no assurance that Golden Eagle
will be able to continue to finance its operating losses in such a manner.
The following sets forth certain information regarding Golden Eagle's
results of operations during the three months of the first quarter of 1998
compared with the same period in 1997. |
