SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K/A
Amendment No. 2

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the Fiscal Year ended December 31, 2005

GOLDEN STAR RESOURCES LTD.

(Exact Name of Registrant as Specified in Its Charter)

Canada (State or other Jurisdiction of Incorporation or Organization)		98-0101955 (I.R.S. Employer Identification No.)

10901 West Toller Drive, Suite 300 Littleton, Colorado (Address of Principal Executive Office)		80127-6312 (Zip Code)

Registrant’s telephone number, including area code (303) 830-9000
Securities registered or to be registered pursuant to Section 12 (b) of the Act:

Title of Each Class Common Shares		Name of each exchange on which registered American Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:
Warrants Issued February 2003

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 (the “Act”) 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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form l0-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. (See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act).

(Check one):     Large accelerated filer: o     Accelerated filer: þ     Non-accelerated filer: o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was approximately $437 million as of June 30, 2005, based on the closing price of the shares on the American Stock Exchange of $3.10 per share.

Number of Common Shares outstanding as at March 27, 2006: 207,265,758

 

 

Explanatory Note

     This Form 10-K/A, Amendment No. 2, is being filed to amend Golden Star Resources Ltd.’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2005 in order to reflect the restatement of our financial statements for the year ended December 31, 2005 to change, in footnote 28 regarding US GAAP reconciliation, the way in which we have accounted for our warrants to purchase common shares which have an exercise price denominated in Canadian dollars. The restatement arose from management’s determination on February 22, 2007 that such warrants denominated in Canadian dollars, which had been treated as equity instruments, should have been treated as derivative instruments under US GAAP. As such the fair value of such warrants is required to be treated as a liability, and we are required to mark to market those warrants on a current basis, with the resulting gains or losses being included in the statement of operations under US GAAP.

     Generally, no attempt has been made in this Form 10-K/A, Amendment No. 2, to modify or update other disclosures presented in the original report on Form 10-K, as amended, except as otherwise required to reflect the effects of the restatement, including in footnote 24 and Item 9A. This Form 10-K/A, Amendment No. 2, does not reflect events occurring after the filing of the original Form 10-K, as amended, or modify or update those disclosures. Information not affected by the restatement is unchanged and reflects the disclosure made at the time of the original filing of the Form 10-K with the Securities and Exchange Commission (the “SEC”) on March 29, 2006 and the filing of the Form 10-K/A, Amendment No. 1, with the SEC on March 31, 2006.

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data set forth below are derived from our audited consolidated financial statements for the years ended December 31, 2005, 2004, 2003, 2002 and 2001, and should be read in conjunction with those financial statements and the notes thereto. The consolidated financial statements have been prepared in accordance with Canadian GAAP. Selected financial data derived in accordance with US GAAP has also been provided and should be read in conjunction with Note 28 to the financial statements. Reference should also be made to “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Summary of Financial Condition

(Amounts in thousands except per share data)

		As of Dec.				As of Dec.				As of Dec.				As of Dec.				As of Dec.
Canadian GAAP		31, 2005				31, 2004				31, 2003				31, 2002				31, 2001
Working capital		$	91,974			$	61,366			$	96,784			$	21,963			$	(5,149	)
Current assets			132,789				78,846				104,935				32,843				9,636
Total assets			564,603				252,160				222,391				74,135				36,552
Current liabilities			40,815				17,480				8,151				10,880				14,785
Long-term liabilities			124,919				10,367				8,402				8,973				7,765
Shareholder’s equity			392,240				217,960				198,362				49,384				12,342

		For the				For the				For the				For the				For the
		Year Ended				Year Ended				Year Ended				Year Ended				Year Ended
		Dec. 31,				Dec. 31,				Dec. 31,				Dec. 31,				Dec. 31,
Canadian GAAP		2005				2004				2003				2002				2001
Revenues		$	95,465			$	65,029			$	64,370			$	38,802			$	24,658
Net income/(loss)			(13,531	)			2,642				21,956				4,856				(20,584	)
Net income/(loss) per share - basic			(0.094	)			0.019				0.198				0.067				(0.488	)

		As of Dec.				As of Dec.				As of Dec.				As of Dec.				As of Dec.
US GAAP1.		31, 2005				31, 2004				31, 2003				31, 2002				31, 2001
Working capital		$	91,974			$	61,366			$	96,784			$	22,262			$	(5,149	)
Current assets			132,789				78,846				104,935				33,391				9,636
Total assets			522,443				219,972				200,337				62,644				24,232
Current liabilities			40,815				17,480				8,151				10,880				14,785
Long-term liabilities			135,832				22,432				87,126				14,445				7,818
Shareholder’s equity			343,832				176,161				98,698				35,597				1,533

		For the				For the				For the				For the				For the
		Year End				Year Ended				Year Ended				Year Ended				Year Ended
		Dec. 31,				Dec. 31,				Dec. 31,				Dec. 31,				Dec. 31,
US GAAP1.		2005				2004				2003				2002				2001
Revenues		$	102,237			$	65,029			$	64,370			$	38,802			$	24,658
Net income/(loss)			(24,470	)			47,708				(58,611	)			7,212				(5,352	)
Net income/(loss) per share - basic			(0.170	)			0.345				(0.528	)			0.094				(0.126	)

1.

Restated to reflect correction of accounting treatment of warrants issued in currencies other than US$. See Explanatory Note above.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements of
Golden Star Resources Ltd.

Auditors’ Report			4
Consolidated Balance Sheets as of December 31, 2005 and 2004			7
Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003			8
Consolidated Statement of Changes in Shareholders’ Equity for the years ended December 31, 2005, 2004 and 2003			9
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003			10
Notes to the Consolidated Financial Statements			11 - 35

INDEPENDENT AUDITORS’ REPORT

To the Shareholders of Golden Star Resources Ltd.

We have audited the accompanying consolidated balance sheets of Golden Star Resources Ltd. (the “Company”) at December 31, 2005 and 2004 and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2005. We have also audited the effectiveness of the Company’s internal control over financial reporting as at December 31, 2005 based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and management’s assessment thereof included in Management’s Report on Internal Control Over Financial Reporting. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on these financial statements, an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audits.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We conducted our audits of the Company’s financial statements in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. A financial statement audit also includes assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We conducted our audit of the effectiveness of the Company’s internal control over financial reporting and management’s assessment thereof in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control and performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management’s assessment identified the following material weaknesses: (i) As of December 31, 2005, management did not maintain effective controls over the presentation and documentation of certain derivatives. Specifically, the Company did not prepare and maintain sufficient documentation to support the designation and effectiveness of hedges of certain gold future contracts entered into by its subsidiary, EURO Ressources S.A., during 2005. This control deficiency resulted in the requirement for the restatement of the Company’s consolidated financial statements for the quarters ended March 31, June 30 and September 30, 2005 and an audit adjustment to the 2005 annual consolidated financial statements. In addition, this control deficiency could result in a misstatement of derivative related accounts including fair value of derivatives and mark-to-market adjustments that would result in a material misstatement of the interim or annual consolidated financial statements that would not be prevented or detected. (ii) As of December 31, 2005, management did not maintain effective controls over the accounting for warrants denominated in Canadian dollars using accounting principles generally accepted in the United States (“US GAAP”). As a result, warrants denominated in Canadian dollars were treated as equity instruments rather than as derivative instruments. This control deficiency resulted in the requirement to restate, in this Form 10-K/A the Company’s 2005, 2004 and 2003 annual consolidated financial statements. In addition, this control deficiency could result in the misstatement of aforementioned accounts that would result in a misstatement of the interim or annual consolidated financial statements that would not be prevented or detected.

Management has concluded that these control deficiencies constitute material weaknesses. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2005 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded St. Jude Resources Ltd. from its assessment of internal control over financial reporting as of December 31, 2005 because it was acquired by the Company in a purchase business combination on December 21, 2005. For this reason, we have also excluded St. Jude Resources Ltd. from our audit of internal control over financial reporting. St. Jude Resources Ltd. is a wholly-owned subsidiary whose total assets represent 28% of the Company’s consolidated assets as of December 31, 2005.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2005 and 2004 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005 in accordance with Canadian generally accepted accounting principles.

In our opinion, management’s assessment that the Company did not maintain effective internal control over financial reporting as of December 31, 2005 is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the COSO.

In our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, Golden Star Resources Ltd. has not maintained effective internal control over financial reporting as of December 31, 2005 based on criteria established in Internal Control — Integrated Framework issued by the COSO.

Our previous report dated March 27, 2006 has been withdrawn. As discussed in note 28, the 2005, 2004 and 2003 consolidated financial statements have been restated. Management and we previously concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2005 because of the material weakness described in item (i) above. However, management has subsequently determined that the material weakness described in item (ii) above also existed as of December 31, 2005. Accordingly, Management’s Report on Internal Control Over Financial Reporting and our opinion on the effectiveness of internal control over financial reporting have been restated to include this additional material weakness.

/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Vancouver, BC Canada
March 27, 2006 (except note 28 which is as of February 26, 2007)

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

		As of December 31,
		2005				2004
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	89,709			$	12,877
Short term investments (Note 2)			—				38,850
Accounts receivable			6,560				3,592
Inventories (Note 3)			23,181				15,366
Due from sale of property (Note 4)			—				1,000
Future tax assets (Note 19)			6,248				1,542
Fair value of derivatives (Note 14)			1,220				—
Deposits (Note 5)			5,185				5,102
Prepaids and other			686				517
Total Current Assets			132,789				78,846
RESTRICTED CASH (Note 16c)			3,865				3,351
LONG TERM INVESTMENTS (Note 6)			8,160				5,528
DEFERRED EXPLORATION AND DEVELOPMENT COSTS (Notes 7 and 24)			167,532				7,452
PROPERTY, PLANT AND EQUIPMENT (Note 8)			84,527				28,653
MINING PROPERTIES (Note 9)			118,088				74,197
CONSTRUCTION IN PROGRESS (Note 10)			36,707				51,159
DEFERRED STRIPPING (Note 11)			1,548				1,357
LOAN ACQUISITION COSTS (Note 13)			1,020				—
FUTURE TAX ASSETS (Note 19)			8,223				—
OTHER ASSETS			2,144				1,617
Total Assets		$	564,603			$	252,160
LIABILITIES
CURRENT LIABILITIES
Accounts payable		$	9,093			$	7,010
Other accrued liabilities			17,051				9,203
Fair value of derivatives (Note 14)			4,709				—
Asset retirement obligations			3,107				—
Current debt (Note 12)			6,855				1,267
Total Current Liabilities			40,815				17,480
LONG TERM DEBT (Note 12)			64,298				1,707
ASSET RETIREMENT OBLIGATIONS (Note 15)			8,286				8,660
FAIR VALUE OF DERIVATIVES (Note 14)			7,263				—
FUTURE TAX LIABILITY (Notes 19 and 24)			45,072				—
Total Liabilities			165,734				27,847
MINORITY INTERESTS			6,629				6,353
COMMITMENTS AND CONTINGENCIES (Note 16)			—				—
SHAREHOLDERS’ EQUITY
SHARE CAPITAL
First preferred shares, without par value, unlimited shares authorized. No shares issued.			—				—
Common shares, without par value, unlimited shares authorized.
Shares issued and outstanding:
205,954,582 at December 31, 2005; 142,244,112 at December 31, 2004			522,510				340,888
CONTRIBUTED SURPLUS			6,978				3,646
EQUITY COMPONENT OF CONVERTIBLE NOTES (Note 12c)			2,857				—
DEFICIT			(140,105	)			(126,574	)
Total Shareholders’ Equity			392,240				217,960
Total Liabilities and Shareholders’ Equity		$	564,603			$	252,160

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

By:		/s/ David K. Fagin — Director		By:		/s/ Peter J. Bradford — CEO

GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of US dollars except per share amounts)

		For the years ended December 31,
		2005				2004				2003
REVENUE Gold sales		$	89,663			$	60,690			$	63,512
Royalty income			4,178				3,049				—
Interest and other			1,624				1,290				858
Total revenues			95,465				65,029				64,370
EXPENSES
Mining operations			79,609				39,095				32,125
Depreciation, depletion and amortization			15,983				8,096				4,993
Accretion of asset retirement obligations			752				645				578
Total mine operating costs			96,344				47,836				37,696
Exploration expense			951				895				594
Corporate general and administrative and options expense			8,631				8,197				5,556
Corporate development expense			248				4,504				10
Loss on equity investments			239				331				—
Abandonments and impairments			1,403				470				175
Derivative mark-to-market adjustments			11,820				—				—
Interest expense			2,416				139				42
Gain on sale of marketable securities			—				—				(1,905	)
Gain on subsidiary’s sale of common shares			(977	)			—				—
Foreign exchange (gain)/loss			574				280				(2,331	)
Total expenses			121,649				62,652				39,837
Income/(loss) before minority interest			(26,184	)			2,377				24,533
Minority interest			(277	)			(1,277	)			(2,577	)
Net income/(loss) before income tax			(26,461	)			1,100				21,956
Provision for future income taxes			12,930				1,542				—
Net income/(loss)		$	(13,531	)		$	2,642			$	21,956
Net income/(loss) per common share — basic (Note 20)		$	(0.094	)		$	0.019			$	0.198
Net income/(loss) per common share — diluted (Note 20)		$	(0.094	)		$	0.018			$	0.186
Weighted average shares outstanding (millions of shares)			143.6				138.3				111.0

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

GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Stated in thousands of United States dollars except share amounts)

																		Equity
																		Component
		Number of								Contributed								of
		Common				Share				Surplus								Convertible
		Shares				Capital				Warrants				Options				Debentures				Deficit
Balance at December 31, 2002			87,400,702			$	198,954			$	2,085			$	—			$	—			$	(151,655	)
Shares issued			33,030,000				107,598				—				—				—				—
Issue costs			—				(6,455	)			—				—				—				—
Warrants issued			—				—				1,780				—				—				—
Warrants exercised			—				1,504				(1,504	)			—				—				—
Options issued — net of forfeitures			—				—				—				955				—				—
Shares issued under options			1,518,420				2,858				—				—				—				—
Shares issued under warrants			8,167,956				8,595				—				—				—				—
Stock bonus			57,200				118				—				—				—				—
Shares issued to acquire property			2,750,000				11,090				—				—				—				—
Cumulative effect of change in accounting method			—				—				—				—				—				483
Net income			—				—				—				—				—				21,956
Balance at December 31, 2003			132,924,278				324,262				2,361				955				—				(129,216	)
Warrants exercised			—				755				(755	)			—				—				—
Options issued — net of forfeitures			—				—				—				1,218				—				—
Shares issued under options			767,180				1,239				—				(133	)			—				—
Shares issued under warrants			8,494,609				14,332				—				—				—				—
Shares issued to acquire property			58,045				300				—				—				—				—
Net income			—				—				—				—				—				2,642
Balance at December 31, 2004			142,244,112				340,888				1,606				2,040				—				(126,574	)
Shares issued			31,589,600				75,864				—				—				—				—
Issue costs			—				(4,168	)			—				—				—				—
Warrants issued			—				—				992								—				—
Warrants exercised			—				22				(22	)			—				—				—
Options issued — net of forfeitures			—				—				—				2,476				—				—
Shares issued under options			312,940				722				—				(114	)			—				—
Shares issued under warrants			385,000				718				—				—				—				—
Stock bonus			45,342				166				—				—				—				—
Shares issued to acquire property			31,377,588				108,298				—				—				—				—
Equity Component of Convertible Debentures			—				—				—				—				2,857				—
Net loss			—				—				—				—				—				(13,531	)
Balance at December 31, 2005			205,954,582			$	522,510			$	2,576			$	4,402			$	2,857			$	(140,105	)

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

GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of US dollars)

		For the years ended December 31,
		2005				2004				2003
OPERATING ACTIVITIES:
Net income/(loss)		$	(13,531	)		$	2,642			$	21,956
Reconciliation of net income to net cash provided by operating activities:
Depreciation, depletion and amortization			16,042				8,096				4,993
Amortization of loan acquisition costs			228				—				—
Stock based compensation			1,007				1,386				1,085
Deferred stripping			(191	)			(1,357	)			—
Loss on equity investment			239				331				—
Abandonment and impairment of mineral properties			1,413				470				175
Sale of common shares by subsidiary			(977	)			—				—
Fair value of derivatives			10,752				—				—
Provision for future income tax			(12,930	)			(1,542	)
Accretion of asset retirement obligations			752				645				578
Cash used for reclamation			(691	)			(730	)			(841	)
Accretion of convertible debt			523				—				—
Minority interests			277				1,277				2,577
			2,913				11,218				30,523
Changes in assets and liabilities:
Accounts receivable			(2,853	)			(2,802	)			1,187
Inventories			(7,815	)			(2,705	)			(4,240	)
Deposits			163				—				—
Marketable securities			—				—				906
Accounts payable and accrued liabilities			8,817				8,204				690
Other			(165	)			(5	)			10
Net cash provided by operating activities			1,060				13,910				29,076
INVESTING ACTIVITIES:
Expenditures on deferred exploration and development			(5,954	)			(5,260	)			(4,539	)
Expenditures on mining properties			(26,631	)			(18,302	)			(29,950	)
Expenditures on property, plant and equipment			(36,321	)			(12,286	)			(10,691	)
Expenditures on construction in progress			(35,530	)			(23,783	)			(22,833	)
Sale of property			1,000				1,000				1,000
Change in payable on capital expenditures			434				—				—
Short term investments			38,850				(38,850	)			—
Long term investments			(2,871	)			(4,971	)			(888	)
Deposits			(246	)			(5,102	)			—
Other			(220	)			(894	)			(139	)
Net cash used in investing activities			(67,489	)			(108,448	)			(68,040	)
FINANCING ACTIVITIES:
Issuance of share capital, net of issue costs			73,132				15,270				113,408
Debt repayments (Note 13)			(3,678	)			(153	)			(5,289	)
Issuance of debt (Note 13)			71,334				2,328				799
Equity portion of convertible notes			2,857				—				—
Other			(384	)			—				—
Net cash provided by financing activities			143,261				17,445				108,918
Increase/(decrease) in cash and cash equivalents			76,832				(77,093	)			69,954
Cash and cash equivalents, beginning of period			12,877				89,970				20,016
Cash and cash equivalents end of period		$	89,709			$	12,877			$	89,970

See Note 21 for supplemental cash flow information

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

STAR RESOURCES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in tables are in thousands of US Dollars unless noted otherwise)

1. Summary of Significant Accounting Policies

Basis of Consolidation and the Preparation of Financial Statements

These consolidated financial statements are prepared and reported in United States (“US”) dollars and in accordance with generally accepted accounting principles in Canada (“Canadian GAAP”) which differ in some respects from GAAP in the United States (“US GAAP”). These differences in GAAP are quantified and explained in Note 28. The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries whether owned directly or indirectly. All material inter-company balances and transactions have been eliminated.

Certain prior period comparative figures in the preceding financial statements and in the following notes have been reclassified to conform to current period presentation.

Fiscal Year

Our fiscal year runs from January 1 to December 31.

Use of Estimates

Preparation of our consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that can affect reported amounts of assets, liabilities, revenues and expenses. The more significant areas requiring the use of estimates include asset impairments, stock based compensation, depreciation and amortization of assets, and site reclamation and closure accruals. Accounting for these areas is subject to estimates and assumptions regarding, among other things, gold reserves, gold recoveries, future gold prices, future operating costs, asset usage rates, and future mining activities. Management bases its estimates on historical experience and on other assumptions we believe to be reasonable under the circumstances. However, actual results may differ from our estimates.

Cash and Cash Equivalents

Cash and cash equivalents include cash deposits, in any currency, residing in checking, interest bearing checking accounts, money market funds and sweep accounts. Cash equivalents consist of highly liquid short term investments. We consider all highly liquid marketable securities with maturities of less than 91 days at date of purchase to be cash equivalents. Our cash equivalents consist mostly of US and Canadian government treasury bills and agency notes.

Short Term Investments

When cash is invested in auction rate certificates, which are short term positions in long term investments, such investments are deemed “Short Term Investments” and displayed as a current asset next to Cash and Cash Equivalents on the Consolidated balance Sheets.

Marketable Securities

Short term investments in publicly traded marketable securities are recorded at the lower of cost or quoted market prices, with unrealized losses included in income. The market value is based on the closing price at the end of the period, as reported on recognized securities exchanges.

Inventories

Inventories classifications include “stockpiled ore,” “in-process inventory,” “finished goods inventory” and “materials and supplies.” All of our inventories are recorded at the lower of cost or market. The stated value of all inventories include direct production costs and attributable overhead and depreciation except for materials and supplies inventories.

Stockpiled ore represents coarse ore that has been extracted from the mine and is ready for further processing. Stockpile ore is measured by estimating the number of tonnes (via truck counts or by physical surveys) added or removed from the stockpile, the number of contained ounces (based on assay data) and the estimated gold recovery percentage. Stockpiled ore value is based on the costs incurred (including depreciation and amortization) in bringing the ore to the stockpile. Costs are added to the stockpiled ore based on current mining costs per tonne and are removed at the average cost per recoverable ounce of gold in the stockpile.

In-process inventory represents material that is currently being treated in the processing plants to extract the contained gold and to transform it into a saleable product. The amount of gold in the in-process inventory is determined by assay and by measure of the quantities of the various gold-bearing materials in the recovery process. The in-process gold is valued at the average of the beginning inventory and the cost of material fed into the processing stream plus in-process conversion costs including applicable depreciation and amortization related to the processing facilities.

Finished goods inventory is composed of saleable gold in the form of dore bars that have been poured but not yet delivered to the buyer. The bars are valued at the lower of total cost or market value. Included in the total costs are the direct costs of the mining and processing operations as well as direct overheads, amortization and depreciation.

Materials and supplies inventories consist mostly of equipment parts, fuel and lubricants and reagents consumed in ore processing. Materials and supplies are valued at the lower of average cost or replacement cost.

Reserve Quantities Used in Units-of-Production Amortization

Gold ounces contained in ore stockpiles recognized in inventory balances on the balance sheet are excluded from total reserves when determining units-of-production amortization of mining property, asset retirement assets and other assets.

Exploration Costs

Exploration costs related to specific, identifiable properties, including the cost of acquisition, exploration and development, are capitalized until viability of the exploration property is determined. Exploration costs not directly related to an identifiable property are expensed as incurred.

Management periodically reviews, on a property-by-property basis, the carrying value of such properties including the costs of acquisition, exploration and development incurred to date. A decision to abandon, reduce or expand a specific project is based upon many factors including general and specific assessments of contained or potential mineralized materials, potential reserves, anticipated future mineral prices, the anticipated costs of additional exploration and, if warranted, costs of potential future development and operational costs, and the expiration terms and ongoing expenses of maintaining leased mineral properties. We do not set a pre-determined holding period for properties with unproven reserves; however, properties which have not demonstrated suitable metal concentrations at the conclusion of each phase of an exploration program are re-evaluated to determine if future exploration is warranted and if their carrying values are appropriate.

If an exploration property is abandoned or it is determined that its carrying value cannot be supported by future production or sale, the related costs are charged against operations in the year of abandonment or determination of value. Any subsequent costs incurred for that property are expensed as incurred.

The accumulated costs of mineral properties are reclassed as mine property and depleted on a units-of-production basis at such time as production commences.

Impairment of Long-Lived Assets

We review and evaluate our long-lived assets for impairment at least annually and also when events or changes in circumstances indicate the related carrying amounts may not be recoverable. Asset impairment is considered to exist if the total estimated future cash flows, on an undiscounted basis, are less than the carrying amount of the long-lived asset. An impairment loss is measured and recorded based on discounted estimated future cash flows. Future cash flows are based on estimated quantities of recoverable minerals, expected gold and other commodity prices (considering current and historical prices, price trends and related factors), production levels and cash costs of production, capital and reclamation costs, all based on detailed engineering life-of-mine plans.

The significant assumptions used in determining the future cash flows for each operating unit at December 31, 2005, apart from production cost and capitalized expenditure assumptions unique to each operation, included a long-term gold price of $556 per ounce plus future contango. In estimating future cash flows, assets are grouped at the lowest levels for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups.

With the exception of other mine-related exploration potential and exploration potential in areas outside of the immediate mine-site, all assets at a particular operation are considered together for purposes of estimating future cash flows. In the case of mineral interests associated with other mine-related exploration potential and exploration potential in areas outside of the immediate mine-site, cash flows and fair values are individually evaluated based primarily on recent exploration results.

Various factors could impact our ability to achieve forecasted production schedules from proven and probable reserves. Additionally, commodity prices, capital expenditure requirements and reclamation costs could differ from the assumptions used in the cash flow models used to assess impairment. The ability to achieve the estimated quantities of recoverable minerals from exploration stage mineral interests involves further risks in addition to those factors applicable to mineral interests where proven and probable reserves have been identified, due to the lower level of confidence that the identified mineralized material can ultimately be mined economically.

Material changes to any of these factors or assumptions discussed above could result in future impairment charges to operations.

Property, Plant, Equipment and Mine Development

Property, plant and equipment assets, including, machinery, processing equipment, mining equipment, mine site facilities, vehicles and expenditures that extend the life of such assets are recorded at cost, including direct acquisition costs. Depreciation for mobile equipment and other assets having estimated lives shorter than the estimated life of the ore reserves, is computed using the straight-line method at rates calculated to depreciate the cost of the assets, less their anticipated residual values, if any, over their estimated useful lives.

Mineral property acquisition, exploration and development costs, buildings, processing plants and other long-lived assets which have an estimated life equal to or greater than the estimated life of the ore reserves, are amortized over the life of the reserves of the associated mining property using a units-of-production amortization method. The net book value of property, plant and equipment assets at property locations is charged against income if the site is abandoned and it is determined that the assets cannot be economically transferred to another project or sold.

Deferred Stripping

We employ a deferred stripping accounting convention to capitalize the costs of waste rock mined from one of our open pit mines during periods when waste rock is removed in amounts that exceed the life-of-mine average waste removal rate. The amount of stripping costs to be capitalized in each period is calculated by determining the tonnes of waste moved in excess of the life-of-pit average strip ratio and valuing the excess tonnage of removed waste at the average mining cost per tonne during the period. Costs are recovered in periods when the actual tonnes of waste moved are less than what would have been moved at the average life-of-pit rate, such tonnes being valued at the rolling average cost of the waste tonnage amounts capitalized.

The capitalized component of waste rock removal costs is shown on our consolidated balance sheets in the line item titled “Deferred Stripping.” The cost impact is included in the Statements of Operations in the line item titled “Mining operations.”

Environmental Rehabilitation and Closure

In accordance with the requirements of the CICA Handbook Section 3110, “Asset Retirement Obligations” environmental reclamation and closure liabilities are recognized at the time of environmental disturbance in amounts equal to the discounted value of expected future reclamation and closure costs. The discounted cost of future reclamation and closure activities is capitalized into mine property and amortized over the life of the property. The estimated future cash costs of such liabilities are based primarily upon environmental and regulatory requirements of the various jurisdictions in which we operate. Cash expenditures for environmental remediation and closure are netted against the accrual as incurred.

Foreign Currencies and Foreign Currency Translation

Our functional currency is the US dollar. Transaction amounts denominated in foreign currencies are translated to US dollars at exchange rates prevailing at the date of the transaction. The carrying value of monetary assets and liabilities is translated at the rate of exchange prevailing at the balance sheet date. Non-monetary assets are translated at the rates of exchange prevailing when the assets were acquired or the liabilities assumed. Revenue and expense items are translated at the average rate of exchange during the period. Translation gains or losses are included in net earnings for the period.

Canadian currency in these financial statements is denoted as “Cdn$,” European Common Market currency is denoted as “Euro” or “ (euro),” and Ghanaian currency is denoted as “Cedi” or “Cedis.”

Income and Mining Taxes

Income and mining taxes comprise the provision (or recovery) for taxes actually paid or payable and for future taxes. Future income and mining taxes are computed using the asset and liability method whereby future income and mining tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Future income and mining tax assets and liabilities are computed using income tax rates in effect when the temporary differences are expected to reverse. The effect on the future tax assets and liabilities of a change in tax rates is recognized in the period of substantive enactment. The provision or relief for future taxes is based on the changes in future tax assets and liabilities during the period. In estimating future income and mining tax assets, a valuation allowance is determined to reduce the future tax assets to amounts that are more likely than not to be realized.

Net Income per Share

Basic income per share is calculated by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. In periods with earnings the calculation of diluted net income per common share uses the treasury stock method to compute the dilutive effects of stock options, warrants and other dilutive instruments. In periods of loss, diluted net income per share is equal to basic income per share.

Revenue Recognition

Revenue from the sale of gold is recognized when title and the risk of ownership pass to the buyer. Title and risk of ownership pass to the buyer when dore is delivered into the buyer’s custody. Our gold is sold to a South African gold refinery and revenue is recognized when title is transferred to the customer at the refinery. The sales price is based on the London P.M. fix on the day of delivery.

Credits from by-products are credited against operating costs and not included in revenues. By-product costs have been de minimis to date at our existing properties.

Stock Based Compensation

In accordance with the requirements of CICA Handbook Section 3870, “Stock Based Compensation and other Stock-based Payments” we use the fair value method to expense the fair value of options granted to employees and directors. The fair value of options granted is established at the date of the grant, using the Black-Scholes option-pricing model. Compensation expense for options with immediate vesting is recognized in the period of the grant. Compensation expense for options with graded vesting is recognized on a straight line basis over the vesting periods.

Derivatives and Hedges

We utilize forward foreign exchange and commodity price derivatives to manage exposure to fluctuations in foreign currency exchange rates and gold prices. We do not employ derivative financial instruments for trading purposes or for speculative purposes.

Derivative instruments that do not qualify as a hedge under AcG-13, or are not designated as a hedge, are recorded on the balance sheet at fair value with changes in fair value recognized in earnings at the end of each period in an account titled mark-to-market adjustments.

When financial instruments are designated as hedges, we formally document the relationships between the hedge instrument and the hedged items, as well as the risk management objectives and strategy for undertaking the hedge transaction. The effectiveness of the hedging relationship is also documented. The gains and losses on derivative instruments designated as hedges are not recognized on the balance sheet and gains and losses are recognized in income in the period when the instrument is settled. We did not utilize hedge accounting for any of our derivatives in 2005.

Reclassifications

For comparative purposes, certain prior year amounts have been reclassified to conform to the current year presentation.

Recent Accounting Pronouncements

Section 3831 — Non-Monetary Transactions Section 3831, issued in June 2005, replaces the previous recommendations of Section 3830 and establishes new guidelines for the evaluation and disclosure relating to non-monetary transactions. Its provisions determine whether a non-monetary transaction is to be measured at fair value or at book value. This section will be effective for non-monetary transactions concluded in periods beginning on or after January 1, 2006.

Section 1530 — Comprehensive Income / This Section introduces new disclosure requirements regarding comprehensive income and its components, as well as net income, in its financial statements. As a consequence, certain unrealized gains and losses, which would otherwise be excluded from the calculation of net income and be assigned directly to shareholders’ equity, will be used to calculate comprehensive income. This section will be effective for fiscal years beginning on or after October 1, 2006. We will adopt this new requirement in our January 2007 reporting.

Section 3855 — Financial Instruments — Recognition and Measurement Section 3855 determines the time and value at which a financial instrument must be recorded in the balance sheet. In some cases, it may be measured at fair value or, in other cases, at cost. The standard also provides for the manner in which gains and losses related to financial instruments are to be recorded. This section will be effective for interim periods and fiscal years beginning on or after October 1, 2006. We will adopt this new requirement in our January 2007 reporting.

Section 3865 — Hedges — Section 3865 provides guidance for hedge accounting when applied to certain derivatives that meet the definition of a hedge. Application of Section 3865 to derivatives that qualify as a hedges is optional, but once a derivative is classified as a hedge, the provisions of Section 3865 are then mandatory. Section 3865 replaces AcG-13, “Hedging Relationships” and completes the provisions of Section 1650, “Foreign Currency Translation”, by addressing how to account for hedges and related disclosure of information requirements. This section will be effective for fiscal years beginning on or after October 1, 2006. We will adopt this new requirement in our January 2007 reporting.

Section 3861 — Financial Instruments — Disclosure and Presentation Section 3861 replaces Section 3860, “Financial Instruments — Disclosure and Presentation”, and establishes the requirements for presentation and disclosure of financial instruments and non-financial derivatives.

EIC-160 — Stripping Costs Incurred in the Production Phase of a Mining Operation - In response to an EITF issued in the US in mid-2005 which prohibits use of deferred stripping accounting during the production phase, the Emerging Issues Committee (“EIC”) in Canada issued a “Draft Abstract of Issue Discussed” titled “D56 Accounting for Stripping Costs in the Mining Industry” which concluded that deferred stripping could be retained as an acceptable accounting method in Canada under certain circumstances. In late 2005 the EIC issued further guidance in EIC-160 “Stripping Costs Incurred in the Production Phase of a Mining Operation”. EIC-160 concluded that “stripping costs should be accounted for according to the benefit received by the entity. Generally, stripping costs should be accounted for as variable production costs that should be included in the costs of the inventory produced (that is, extracted) during the period that the stripping costs are incurred. However stripping costs should be capitalized of the stripping activity can be shown to represent a betterment the mineral property. The EIC also concluded that “capitalized stripping costs should be amortized in a rational and systematic manner over the reserves that directly benefit from the specific activity. In the mining industry, the units of production is generally the appropriate method.” The EIC went on to state that capitalized stripping costs should appear in the statement of cash flow as an investing activity. Provisions of EIC-160 are applicable to years beginning after July 1, 2006.

2. Short Term Investments

Short term investments are comprised of funds invested in AA or AAA rated Auction Rate Certificates. The certificates are short term positions in long term securities. The interest rate received is reset every 7, 28 or 35 days, and the certificates can be liquidated for cash at each interest reset date.

3. Inventories

		As of
		December 31,
		2005				2004
Stockpiled ore		$	5,753			$	3,659
In-process			3,106				2,858
Materials and supplies			14,322				8,849
Total inventories		$	23,181			$	15,366

There were approximately 16,000 and 15,400 recoverable ounces of gold in ore stockpile inventories at December 31, 2005 and 2004 respectively. These ounces contained in ore stockpile inventories are included in ore reserves. The stockpile inventories are for the most part short-term surge piles which will be processed in the next 12 months or less.

4. Due from Sale of Property

In late 2001 we sold our interest in the 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 Price Participation Right (royalty) payments on the first seven million ounces of gold production. The deferred payments were received in the first quarters of 2003, 2004 and 2005 respectively.

5. Deposits

Represents cash advances for equipment, and materials purchases at WGL and BGL.

6. Long Term Investments

We hold a 19% interest in Goldmin Consolidated Holdings, a privately held gold exploration company with a focus on South America. The investment is carried on an equity investment basis at $1.2 million, and we recognized $0.2 million and $0.3 million of equity losses in 2004 and 2005, respectively.

As of December 31, 2005 we also held approximately 11% of the outstanding common shares of Moto Goldmines Limited (“Moto”), a gold exploration and development company publicly traded in Canada, with a focus on gold exploration and development in the Democratic Republic of Congo. Our investment in Moto increased by $2.9 million during 2005 to $7.0 million upon the exercise of a portion of our Moto warrants. We also held 1.0 million additional Moto warrants which if exercised would require the investment of an additional $2.25 million Australian dollars. The fair value of our approximately 11% interest in Moto, based on the market price of its shares on December 31, 2005, was $15.1 million, which exceeded our cost basis by $8.1 million.

In March 2006 we exercised the remaining 1.0 million warrants bringing our total ownership to 6.0 million shares and immediately afterward sold all six million common shares in a bought-deal transaction in Canada for Cdn$7.50 per share. The sale of the six million shares resulted in net proceeds to Golden Star of Cdn$45.0 million ($38.9 million). The sale is expected to realize approximately $30.3 million of pre-tax capital gain for Golden Star, which will be recorded as income in the first quarter of 2006.

7. Deferred Exploration and Development Costs

Consolidated property expenditures on our exploration projects for the year ended December 31, 2005 were as follows:

		Deferred																Deferred
		Exploration																Exploration
		&																&
		Development				Capitalized												Development
		Costs				Exploration				Acquisition								Costs
		as of				Expenditures				Costs				Impairments				as of
		12/31/04																12/31/05
AFRICAN PROJECTS
Akropong trend and other Ghana		$	2,443			$	3,114			$	—			$	(320	)		$	5,237
Prestea property — Ghana			2,067				7				—				—				2,074
Mininko — Mali			1,033				50				—				(1,083	)			—
Mano River — Sierra Leone			758				527				—				—				1,285
Afema — Ivory Coast			—				918				110				—				1,028
Hweni-Butre/South Benso — Ghana			—				—				135,832				—				135,832
Goulagou — Burkina Faso			—				—				18,247				—				18,247
Other Africa							—				—				1,460				1,460
SOUTH AMERICAN PROJECTS
Saramacca — Suriname			394				337				—				—				731
Bon Espoir — French Guiana			501				881				—				—				1,382
Paul Isnard — French Guiana			256				—				—				—				256
TOTAL		$	7,452			$	5,834			$	155,649			$	(1,403	)		$	167,532

Consolidated property expenditures on our exploration projects for the year ended December 31, 2004 were as follows:

		Deferred																				Deferred
		Exploration																				Exploration
		&																				&
		Development				Capitalized												Reclassified				Development
		Costs				Exploration				Acquistion								to mining				Costs
		as of				Expenditures				Costs				Impairments				Property				as of
		12/31/03																				12/31/04
AFRICAN PRODUCTS
Bogoso Sulfide Project — Ghana		$	5,930			$	—			$	—			$	—			$	(5,930	)		$	—
Akropong Trend & Other — Ghana			2,037				406				—				—				—				2,443
Prestea Property Projects — Ghana			—				2,537				—				(470	)			—				2,067
Beta Boundary — Ghana							814				—				—				(814	)			—
Mininko — Mali			130				903				—				—				—				1,033
Mano River — Sierra Leone			—				758				—				—				—				758
SOUTH AMERICAN PROJECTS
Saramacca — Suriname			197				197				—				—				—				394
Bon Espoir — French Guiana			—				—				501				—				—				501
Paul Isnard — French Guiana			—				—				256				—				—				256
TOTAL		$	9,108			$	4,801			$	757			$	(470	)		$	(6,744	)		$	7,452

8. Property, Plant and Equipment

		As of December 31, 2005												As of December 31, 2004
						Accumulated				Property,								Accumulated
		Property, Plant				Depreciation				Plant and								Depreciation
		and Equipment				Equipment Net				Equipment at				Property,				Equipment Net				Property,
		at Cost				Book Value				Cost				Plant and				Book Value				Plant and
Bogoso/Prestea		$	40,802			$	8,240			$	32,562			$	27,722			$	5,057			$	22,665
Prestea Underground			2,748				—				2,748				238				—				238
EURO Ressources			1,456				1,449				7				1,969				1,951				18
Wassa			50,701				1,985				48,716				5,460				—				5,460
Corporate & Other			611				117				494				1,060				788				272
TOTAL		$	96,318			$	11,791			$	84,527			$	36,449			$	7,796			$	28,653

9. Mining Properties

		As of December 31, 2005												As of December 31, 2004
										Mining												Mining
		Mining								Properties,				Mining								Properties,
		Properties				Accumulated				Net Book				Properties				Accumulated				Net Book
		at Cost				Amortization				Value				at Cost				Amortization				Value
Bogoso/Prestea		$	46,970			$	28,792			$	18,178			$	43,420			$	23,113			$	20,307
Prestea Underground			21,612								21,612				12,984				—				12,984
Wassa			50,810				5,104				45,706				9,653				—				9,653
Bogoso Sulfide			13,065								13,065				13,065				—				13,065
Mampon			15,062								15,062				13,676				—				13,676
Other			4,465								4,465				4,512				—				4,512
TOTAL		$	151,984			$	33,896			$	118,088			$	97,310			$	23,113			$	74,197

Some prior period numbers have been adjusted to conform to the 2005 presentation.

10. Mine Construction-in-Progress

At December 31, 2004, mine construction in progress represents costs incurred at the Wassa project subsequent to acquisition, including feasibility study costs, equipment purchases and construction costs, including interim payments to the construction contractor and development costs.

At December 31, 2005, mine construction in progress represents costs incurred during 2005 at the Bogoso sulfide expansion project. The balance is made up of development drilling costs, equipment purchases, materials and construction costs, including payments to the construction contractors.

11. Deferred Stripping

In recent years mining at the Plant North pit at Prestea has trended toward deeper pits with longer lives and higher and more variable stripping ratios than in the past. Stripping ratios at the Plant-North pit increased from 2.3 to 1 in 2002, to 3.4 to 1 in 2003, to 5.1 to 1 in 2004 and to 6.5 to 1 during 2005. In response to the changing stripping rate we initiated a deferred waste stripping policy at the Plant-North pit in the third quarter of 2004.

The amount of stripping costs to be capitalized in each period is calculated by determining the tonnes of waste moved in excess of the life-of-pit average strip ratio and valuing the excess tonnage of removed waste at the average mining cost per tonne during the period. Costs are recovered in periods when the actual tonnes of waste moved are less than what would have been moved at the average life-of-pit rate, such tonnes being valued at the rolling average cost of the waste tonnage amounts capitalized.

The capitalized component of waste rock removal costs is shown on our consolidated balance sheets in the line item titled “Deferred Stripping.” The cost impact is included in the Statements of Operations in the line item titled “Mining operations.” In periods when the strip ratio exceeds the pit average, the costs of the excess stripping are excluded from our cost per ounce calculations. In periods when the strip ratio is less than the pit average, capitalized waste costs are added back to operating costs and included in cost per ounce calculations.

Based on actual results from 2004 and our January 1, 2005 mine plan, we expected to move 3.7 million tonnes of ore and 18.0 million tonnes of waste during the overall life of the Plant-North pit and thus the expected strip ratio was 4.8 to 1. Deferrals during 2005 were based on this average rate, which will also be the rate for deferrals in 2006.

A total of $1.4 million of Plant-North deferred waste stripping cost, which would have been included in operating costs under our previous policy, was capitalized in 2004. During 2005, an additional $3.6 million of deferred stripping costs were deferred but, as explained below, $3.4 million of this deferral was reversed in December 2005.

A new mining plan was completed in January 2006 adding four months of mining life and 38,000 ounces of gold output to the Plant North pit’s life. But the new plan also added significant amounts of unanticipated waste tonnage versus the December 2004 mining plan and projections of the life-of-mine strip ratio resulting from the new plan indicated that $3.4 million of deferred stripping costs accrued as of December 31, 2005 would not be recovered. As a result, a $3.4 million write-off was taken in December 2005 leaving a balance of $1.5 million in the account at the end of 2005. The current Plant North mining plan anticipates that this amount will be recovered by the fourth quarter of 2006 when we expect to complete mining of the Plant North.

See Note 1 “Summary of Significant Accounting Policies — Recent Accounting Pronouncements” for additional discussion of new guidance for deferred stripping accounting in Canada and Note 28 “Generally Accepted Accounting Principles in Canada and the United States — Impact of Recently Issued Accounting Standards” for other new developments in deferred stripping accounting in the US.

12. Debt

		As of				As of
DEBT		December 31, 2005				December 31, 2004
Current debt:
Bank loan — at EURO Ressources (Note a)		$	2,667			$	—
CAT equipment financing loans (Note b)			4,188				1,267
Total current debt		$	6,855			$	1,267
Long term debt:
Bank loan — at EURO Ressources (Note a)		$	5,000			$	—
CAT equipment financing loans (Note b)			11,632				1,707
Convertible notes (Note c)			47,666				—
Total long term debt		$	64,298			$	1,707

13. Loan Acquisition Costs

In the second quarter of 2005 approximately $0.9 million of loan acquisition fees were incurred in obtaining the $50 million of convertible notes. This amount was capitalized and is being amortized to interest expense over the life of the notes. In addition we recorded loan acquisition costs at EURO related to its January 2005 and its August 2005 borrowings. As with the convertible notes, the balance is being amortized to interest expense over the life of the loan. The net balance of loan acquisition costs was $1.0 million as of December 31, 2005.

14. Hedging and Derivatives

In January 2005, EURO, a majority owned subsidiary, entered into a series of contracts that qualify as a derivative as part of a $6.0 million loan agreement (see note 12a). EURO’s derivative is tied to a future stream of gold royalty payments EURO expects to receive from a Canadian mining company that purchased a mining property interest from Golden Star in 2002. Golden Star originally owned the royalty but sold the royalty to EURO in 2004. The derivative provides that (a) when the average gold price for a quarter exceeds $421 per ounce, EURO will pay to the counter party cash equal to the difference between the quarter’s average gold price per ounce and $421 per ounce, times 5,700 ounces, and (b) when the average quarterly gold price is below $421 per ounce, EURO will receive a cash payment from the counterparty equal to the difference between $421 per ounce and the average gold price per ounce times 5,700 ounces. The $421 per ounce figure was the spot gold price on the date EURO entered into the derivative. The derivative agreement established 10 tranches of 5,700 ounces each which settle quarterly over ten quarters beginning in the first quarter of 2005.

In August 2005, EURO entered into a second set of derivative position related to a $3.0 million debt facility. These positions are spread over ten quarters beginning in the last quarter of 2007, and have a fixed price of $458.50 per ounce which was approximately $18 per ounce over the spot price on the date of the agreement. The quarterly cash payments are determined exactly as with the first derivative describe above except $458.50 per ounce is the reference price for calculating the quarterly payments.

During 2005, we recorded a $0.5 million reduction in royalty revenues for the cash settlement of the first four quarterly tranches and in addition we recorded $9.6 million of unrealized, non-cash mark-to-market losses as of December 31, 2005.

Gold Derivatives — To provide gold price protection during the 2005/2006 construction phase of the Bogoso sulfide expansion project, we purchased a series of gold puts. In the second quarter of 2005 we purchased put options on 140,000 ounces of gold at an average floor price of $409.75 paying approximately $1.0 million in cash for the options. During the third quarter we purchased an additional 90,000 put options locking in a $400 per ounce floor for each of the 90,000 ounces. Due to increases in gold prices since purchasing the puts the mark-to-market value of the puts at December 31, 2005 stood at $0.1 million dollars or $0.9 million less than we paid for them. This decline in value has been recognized in our statement of operations for the year ended December 31, 2005.

During the third quarter we sold 90,000 ounces of call options with a strike price of $525 per ounce. The revenues from sale of the call options exactly offset the cost of the put options bought in the third quarter. Due to the increase in gold prices since the call options were sold, the mark-to-market value has fallen by $2.3 million at December 31, 2005 and this amount was recognized in our statement of operations for the year ended December 31, 2005.

Foreign Currency Forward Positions — To help control the potential adverse impact of fluctuations in foreign currency exchange rates on the cost of equipment and materials we expect o purchase during the 2006 construction phase of the Bogoso sulfide expansion project, we have entered into Rand and EURO forward contracts. These contracts, established without cost, had a positive fair value of $1.0 million at December 31, 2005 and the $1.0 million gain was recognized in our statement of operations at December 31, 2005.

The following table summarizes our derivative contracts at December 31, 2005:

		Fair				Amount Outstanding/												Total /
		Value				Average Price												Average
At December 31, 2005		12/31/2005				2006				2007				Thereafter
Gold Forward Contracts (EURO Ressources)
Ounces (thousands)							22.8				22.8				51.3				96.9
Average price per ounce							421				430				459				443
Fair value ($ thousands)		$	(9,560	)
Gold Put Options (Golden Star)
Ounces (thousands)							150				37.5				—				187.5
Average price per ounce							407				405				—				407
Fair value ($ thousands)		$	74
Gold Call Options (Golden Star)
Ounces (thousands)							50				15				—				65
Average price per ounce							525				525				—				525
Fair value ($ thousands)		$	(2,250	)
Foreign Exchange Forward Contracts (Golden Star)
South African Rand (millions)							122.1				—				—				122.1
Average Rate (ZAR/$)							6.8				—				—				6.8
Fair value ($ thousands)		$	1,146
Euros (millions)							2.5				—				—				2.5
Average Rate (EUR/$)							0.80				—				—				0.80
Fair value ($ thousands)		$	(162	)

The puts, calls and foreign exchange forward contracts are comprised of numerous individual contracts each with a different settlement date.

15. Asset Retirement Obligations

Our Asset Retirement Obligations (“ARO”) are equal to the present value of all estimated future closure cost associated with reclamation, demolition and stabilization of our Bogoso/Prestea and Wassa mining and ore processing 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. While the majority of these costs will be incurred near the end of the mines’ lives, it is expected that cash costs will be incurred in interim periods reclaiming areas where mining has been completed, such costs being netted against the ARO provision.

The changes in the carrying amount of the ARO during 2005 and 2004 were as follows:

		Year ended
		December 31, 2005
Balance at December 31, 2004		$	8,660
Accretion expense			752
Cost of reclamation work performed			(691	)
New AROs incurred during the period			2,672
Balance at December 31, 2005		$	11,393
Current portion		$	3,107
Long term portion		$	8,286

		Year ended
		December 31, 2004
Balance at December 31, 2003		$	7,745
Accretion expense			645
Cost of reclamation work performed			(730	)
New AROs incurred during the period			1,000
Balance at December 31, 2004		$	8,660

16. Commitments and Contingencies

Our commitments and contingencies include the following items:

	(a)		Environmental Regulations and Asset Retirement Obligations — The exact nature of environmental control problems we may encounter in the future cannot be predicted, primarily because of the changing character of environmental requirements that may be enacted within various jurisdictions. ARO liabilities, which include environmental rehabilitation liabilities for reclamation and for closure costs, were $8.1 million at Bogoso/Prestea at December 31, 2005, up from $6.0 million at December 31, 2004. ARO liabilities at Wassa totaled $3.3 million at December 31, 2005, up from $2.7 million at the end of 2004.
	(b)		Environmental Bonding in Ghana — In March 2005, at the request of the Ghana Environmental Protection Agency (“EPA”), we bonded $3.0 million to cover future reclamation obligations at Wassa. To meet the bonding requirements we established a $2.85 million letter of credit and deposited $0.15 million of cash with the EPA. An $8.55 million letter of credit has been established to cover our obligations for Bogoso/Prestea bonding and $0.9 million of cash has been deposited with the EPA. Final signatures were received from the EPA in February 2006 thereby completing our obligations.
	(c)		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 must be agreed to by the sellers, who are ultimately responsible for the reclamation in the event of our non-performance. Between 1999 and 2001 we drew $2.6 million of the restricted cash to cover our out-of-pocket cash reclamation costs. There have been no disbursements of the restricted cash since 2001. Now that the BGL reclamation bonding process is completed, we will seek to amend the agreement with the original sellers of BGL and obtain their consent to allow us to withdraw the remaining $3.4 million of restricted cash.
	(d)		Royalties -

(i)

Dunkwa Properties: As part of the acquisition of the Dunkwa properties in August 2003, we agreed to pay the seller a net smelter return royalty on future gold production from the Mansiso and Asikuma properties. Per the acquisition agreement, there will be no royalty due on the first 200,000 ounces produced from Mampon which is located on the Asikuma property. The amount of the royalty is based on a sliding scale which ranges from 2% of net smelter return at gold prices at or below $300 per ounce up to 3.5% for gold prices in excess of $400 per ounce.

	(ii)		Government of Ghana: Under the laws of Ghana, a holder of a mining lease is required to pay an annual royalty of not less than 3% and not more than 12% of the total revenues earned from the lease area. The royalty is payable on a quarterly basis. We currently pay a 3% annual royalty on gold production from Bogoso/Prestea and Wassa production. The Government of Ghana retains the right to increase the amount of the royalty to as much as 12% based upon a formula related to operating margins.
	(iii)		Benso: Benso is subject to two royalties. The first is a 1.5% net smelter return. The royalty can be purchased for $4.0 million or for $6.0 million if a feasibility study indicates more than 3.5 million ounces of recoverable gold. The second royalty is $1.00 per ounce of gold produced. This royalty can be purchased for $0.5 million.

	(e)		Mano River Joint Venture — We entered into a joint venture agreement in late 2003 to invest up to $6 million over four years in the Mano River project in Sierra Leone via an earn-in agreement with a junior exploration company, Mano River Resources Inc. which holds a group of gold exploration properties in Sierra Leone. The initial $6 million, if fully funded, 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. Spending in 2004 totaled $0.8 million, leaving $0.2 million on our minimum commitment to the project. We spent $0.5 million on the Mano River project during 2005, thereby meeting the minimum commitment. In addition, agreement has been reached with our partner to extend the earn in period by 12 months.
	(f)		Afema Project — On March 29, 2005 we entered into an agreement with Societe d’Etat pour le Developpement Minier de la Cote d’Ivoire (“SO.DE.MI.”), the Cote d’Ivoire state mining and exploration company, to acquire their 90% interest in the Afema gold property in south-east Cote d’Ivoire. A $0.1 million initial payment to SO.DE.MI. gave us the right to carry out a six month detailed technical due diligence program which was essentially completed by September of 2005. We now have the right to acquire 100% of SO.DE.MI.’s rights in the Afema property for an additional $1.5 million. A six month extension to March 2006 has subsequently been granted by SO.DE.MI. to allow Golden Star to carry out further due diligence work and to analyze the large quantity of data collected during 2005 before making a decision on the $1.5 million payment. In addition to the acquisition payments, we agreed to pay SO.DE.MI. a royalty on any future gold production from the Afema property. The royalty is indexed to the gold price and ranges from 2% of net smelter returns at gold prices below $300 per ounce to 3.5% of net smelter returns for gold prices exceeding $525 per ounce. If we proceed with the $1.5 million payment to acquire full rights to the property the purchase agreement requires us to spend an additional $3.5 million on exploration work at Afema, subject to exploration success, over the following three and a half years.
	(g)		Pending Legal Issues — Prestea Gold Resources Limited (“PGR”), our joint venture partner in the Prestea Underground, entered receivership in March 2003. The joint venture agreement between BGL and PGR specified that if either party to the joint venture were to go into receivership any remaining interest held in the partnership by the insolvent partner would immediately vest with the solvent partner. While PGR’s official liquidator affirmed that the vesting of this interest in BGL was proper under the terms of the joint venture agreement, the transfer and vesting of PGR’s ownership was challenged in an action brought before the High Court in Accra, Ghana against the official liquidator by Merchant Bank (Ghana) Ltd, in its capacity as a judgment creditor of PGR. The action was commenced on February 28, 2005 and sought an order of the court to compel the official liquidator to take control of PGR’s residual interest in the joint venture and to have the interest valued with the ultimate goal of making proceeds available for distribution among all the creditors of PGR.
			The judgment creditor’s claim was based on the assertion that the vesting of the residual interest in BGL under the joint venture agreement was either illegal and void and/or that such vesting should necessarily go with the assumption by BGL of all PGR’s obligations owed to third parties, including those unrelated to the joint venture.
			In June 2005, the High Court issued a finding in favor of the Merchant Bank (Ghana) Ltd. While the ruling transferred PGR’s ownership position to the liquidator, it did not require BGL to assume any of PGR’s obligations. Nevertheless, in subsequent periods following the vesting of PGR’s ownership position in BGL, continued project spending by BGL diluted PGR’s original ownership position to less than 10% by September 30, 2005. The joint venture agreement further specifies that if either partner allowed itself to be diluted to 10% or less, the residual value would immediately convert into a 2.5% net profit interest in potential future earnings from the Prestea Underground mine. While the court’s ruling has effectively given the 2.5% net profits interest to the bankruptcy trustee, the trustee still must establish the fair value of the interest and then find a buyer. The trustee has approached the creditors asking for funding of a valuation study but to-date the creditors have not provide the requested funding.
			We are also engaged in routine litigation incidental to our business. No material legal proceedings, involving us or our business are pending, or, to our knowledge, contemplated, by any governmental authority. We are not aware of any material events of noncompliance with environmental laws and regulations.

17. Warrants

The following warrants were outstanding as of December 31, 2005.

Warrants

Expiration

Date issued

outstanding

Exercise price

date

Issued with:

Equity Offering

February 14, 2003

8,448,334

Cdn$4.60

February 14, 2007

St. Jude Acquisition

December 21, 2005

3,240,000

Cdn$4.17

November 20, 2008

Total

11,688,334

The 8.4 million warrants expiring February 14, 2007 are traded on the Toronto Stock Exchange under the symbol GSC.WT.A. During 2005, 385,000 warrants were exercised resulting in cash proceeds of $0.7 million to Golden Star.

18. Stock Based Compensation

Stock Options — We have one stock option plan, the 1997 Stock Option Plan, as amended (the “GSR Plan”) and options are granted under this plan from time to time at the discretion of the Compensation Committee. Options granted are non-assignable and are exercisable for a period of ten years or such other period as stipulated in a stock option agreement between Golden Star and the optionee. Under the 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 Compensation Committee.

The following tables summarize information about options under the GSR Plan:

		2005								2004								2003
						Weighted-Average								Weighted-Average								Weighted-Average
		Shares				Exercise Price				Shares				Exercise Price				Shares				Exercise Price
GSR Plan		(000s)				(Cdn$)				(000s)				(Cdn$)				(000s)				(Cdn$)
Outstanding at beginning of year			5,271				3.17				5,241				2.41				4,489				1.36
Granted			3,047				2.56				855				6.95				2,354				3.99
Exercised			(313	)			2.37				(767	)			2.12				(1,518	)			1.73
Forfeited			(615	)			5.42				(58	)			4.31				(84	)			2.92
Outstanding end of year			7,390				2.75				5,271				3.17				5,241				2.41
Options vested and exercisable at year-end			6,414				2.34				4,140				2.54				3,803				1.81
Weighted-average fair value of options granted during the year							0.95								2.45								1.25

		Options Outstanding												Options Exercisable
GSR Plan		Number												Number				Weighted-
Range of		Outstanding at				Weighted-Average								Exercisable at				Average
Exercise		December 31,				Remaining				Weighted-Average				December 31,				Exercise
Prices		2005				Contractual Life				Exercise Price				2005				Price
(Cdn$)		(000s)				(years)				(Cdn$)				(000s)				(Cdn$)
0.00 to .99			140				1.1				0.29				140				0.29
1.00 to 2.50			5,099				4.1				1.77				5,024				1.76
2.51 to 4.00			655				7.1				3.21				481				3.19
4.01 to 7.00			1,419				8.5				6.00				730				5.90
7.01 to 10.00			76				7.9				8.39				38				8.39
			7,390				5.2				2.75				6,414				2.34

Options granted during 2005:

Date		Number of Options				Strike Price				Fair Value per Total Fair Value								Option
Granted		(000s)				(Cdn$)				option (Cdn$)				(000s of Cdn$)				Life
January 26, 2005			345				4.58				1.68				579				5
January 26, 2005			169				4.58				1.37				231				3.5
December 21, 2005			339				1.82				1.16				393				3.5
December 21, 2005			612				2.50				0.68				416				3
December 21, 2005			140				0.29				2.41				338			6 months
December 21, 2005			722				1.82				0.91				658			6 months
December 21, 2005			720				2.50				0.37				266			6 months
Total			3,047				2.56				0.95				2,881

Options granted during 2004:

Date

Number of Options

Strike Price

Fair Value per Total Fair Value

Option

Granted

(000s)

(Cdn$)

option (Cdn$)

(000s of Cdn$)

Life

May 14, 2004

855

6.95

2.45

2,094

10 years

Total

855

6.95

2.45

2,094

10 years

The fair value of options granted during 2005, 2004 and 2003 were estimated at the grant dates using the Black-Scholes option-pricing model with the following weighted average assumptions:

		2005		2004		2003
Expected volatility		27.3% - 34.9%		36%		34%
Risk-free interest rate		2.75% - 3.5%		3.72% - 4.06%		3.01% - 4.46%
Expected lives		0.5 to 5 years		3.5 to 5 years		3.5 to 5 years
Dividend yield		0%		0%		0%