Golden Star Resources Ltd.
Q1 2021 Earnings Call Transcript

Published: 10 May 2021

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Golden Star Resources First Quarter 2021 Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. This call is being recorded on Thursday, May 6, 2021. I'd now like to turn the conference over to Michael Stoner. Please go ahead.

[Michael Stoner:]

Thank you, Colin. And thank you everyone for taking the time to join us for today's call. The slides are already available on our website. And on slide 2, please note the disclaimer on forward looking-statements.

[Andrew Wray:]

Thanks very much, Michael and hi to everyone. We'll start on slide 4 with the overview there of the business. As a quick reminder, where we operate in Ghana in the Ashanti belt and what we've been doing, which we spoken about previously over the last year or so to really set the business up to grow. That translated most recently into the technical report we released after our last set of results where we showed the reserve plans now my life of six years and then the PA that we did show the further 11 year life on top of that and the two of those consensus gold pricing delivering in excess of $1.1 billion of value. Moving on to slide 5, and really turning to the quarter in question Q1, 2021 washes out of solid Q1 with over 40,000 ounces produced in the quarter, volumes mined in line around 4,500 tons a day, as we indicated grade slightly below reserve grade of 3 grams versus reserve grade of 3.1. And also, as you can see, there on gold sold a slight lag to the timing issue in terms of sales versus production. And as a result of those elements the cost metrics were slightly above target and about where we'd expect them to be over the remaining quarters of the year. We ended the quarter with just over $66 million of cash and we raise just over $8.5 million through the ATM facility. And we also at the same time made a tax payment at the end of year tax payments of over $13 million. We've continued to manage through the COVID pandemic and actually achieved ongoing improvements in health and safety statistics as you can see there and a lot of focus remains on that area. I'll turn over at this point to Philipa who's going to talk a little bit more about our approach and what we're up to in the sustainability arena. Philipa?

[Philipa Varris:]

Thanks very much Andrew and hi everybody. Mike if we can move to slide 7 please. Golden Stars approach to sustainability is underpinned by two key work streams, the effective management of risk and the creation of lasting value. Key topics under these streams are noted in the slide and I'll touch on a few of these as we go through our presentation today. Let's move on to slide 8 please. The ongoing implementation of our health and safety strategy and plans have seen a year-on-year improvement in our injury frequency rates. In parallel as Andrew mentioned, our COVID management has been recognized this industry leading practice employing elements such as specific programs for vulnerable people in our workplace, and routine screening of persons returning from break. This prevention focused approach has been highly successful and not only have we not lost any of our team to COVID but we've also had very few serious cases with limited operational impact. In recent excellent news, we're pleased to announce that over 600 of our employees have received their first COVID vaccination as part of the Ghana Health Services Programming.

[Graham Crew:]

Thanks Philipa. Straight across to slide 12. Thanks, Michael. As Andrew mentioned, solid quarter Wassa tracking pretty well on the 4500 tons per day. It was a tough start to the year for the team on site with some dilution coming through on the 545 level meant that we were playing a bit of catch up through February and March but managed to pull together a pretty solid quarter through that. Plant continues to perform well maintaining that recovery rate of 95% or better. So good performance there during the quarter. And then production as Andrew mentioned just over 40,000 ounces with a bit of a lag in sales. Moving over to slide 13, Michael. Costs are pretty well in line certainly in processing, bit of improvement quarter-on-quarter, mainly related to volumes coming through. And that slide really speaks for itself in terms of the performance in the quarter. Onto slide 14. Probably one of the main updates is ongoing commissioning of the backfill system through Q1. We had a couple of delays in the commissioning process during the quarter. It's pleasing to report that the plant is now operating to design. We had to do a little bit of re-engineering work there but that's now operating to design. Some of the tests work in our first half some of the strengths have come back a little bit different to the bench test work. So we're just working through that. That quarter has some impacts later in the year. We've got no secondary sites planned in H1, but obviously we just need to work through that and just make sure that everything is as we expect that to be as we especially as we move through this quarter and move into the second half.

[Paul Thomson:]

Thank you Graham. Michael could you go to slide 16, please. To operationally Q1, 2021 is a steady quarter. With respect to the macroeconomic environment the gold price was up year-on-year. To the gold price at the end of the quarter actually depth slightly below 1700. However, the price has subsequently increased. In terms of gold to sold was 38,942 ounces sold have an average reliable gold price of 1780 and 1669 post the Royal Gold stream. So you're able to see here that our business continues to produce strong and robust EBITDA. The EBITDA in the quarter was $31.6 million for the quarter an adjusted EBITDA of $27.2 million. With respect to those adjustments of $4.3 million to calculate the adjusted EBITDA revenue is worthwhile just pointing out these comprise the following 7.2 million for fair value adjustments on financial instruments that we had 4.8 million adjustment for hedges and the convertible debenture embedded derivative of 2.4 million. These are obviously both non-cash. There was also 2.9 million and other expenses which primarily comprises 2.1 million of expected credit loss, which is obviously non-cash and 0.5 million of restructuring costs. In terms of their earnings per share even slightly below analysts’ consensus forecasts, primarily due to depreciation of $7.3 million in the quarter. This actually relates to the completion of the construction of a number of capital items, which were actually completed during Q4, 2020. So that then resulted in the depreciation charges starting to come through in Q1, 2021 and this specifically relates to the page plan plan. Can you go to slide, please 17. With perspective to the balance sheet for net debt reduction. So the balance sheet continues to be repositioned to provide a stronger, more robust base to the business. This is absolutely key as the investment is being made to underpin Wassa's feature development. With the convertibles adventure, this is due to be redeemed on the 15th of August 2021. So this is one of the key boxes of the business. There was a healthy cash balance at the end of Q1 of 66.1 million , meaning that the net debt position was 39.5. So with the underlying performance of Wassa the businesse'sthe ability to generate strong cash flow, particularly in a high gold price environment in respect of additional liquidity factors in 2021, we are able to point to 10 million of additional principal from Macquarie facility. We've got the receipt of the deferred consideration from FGR and we've also got the ATM.

[Mitch Wasel:]

Thanks, Paul. Michael as you can move on to slide 20 for me, please . The first slide I'm showing you here is an overview of exploration efforts for 2021. The main focus for our exploration is actually the inline exploration which is focusing on the up and down dip extensions of the Wassa reserve. And I'll show you a few slides on that. But we are continuing to test some of the targets along the HPV trend, which we call Eastern Ashanti belt as well. We've got one aircore rig and Sterling close to the southern end of the extensions on the target down there called and we will be mobilizing a drill rig to the Benso to be drilling underneath the Sabrisa East and Sabrisa West pits where we've identified some cleansing mineralization and we hope to sort of redo the Wassa model where we go from the open pit all the time we down and look at these as far as underground potential is concerned. So we'll be doing some of that exploration in the next quarter.

[Andrew Wray:]

Excellent. Many thanks, Mitch. So just concluding last couple of slides. On slide 25 as you can see there, and as we've been talking a little bit through the presentation, the real focus for us as we go through the year, Wassa itself is on the infield drilling with reserve resources to reserve conversion development to give ourselves access as we go forward. And then to some of what Mitch has just been talking about both sites at near mine exploration as well as some more regional targets which are going to deliver some quite interesting early results. And also on slide 25, a reminder that the guidance for 2021 which as of today with Q1 results is unchanged for the year. Finally, on slide 26, just to summarize, there is quite a step up in activity this year across the business. We've made good progress during the first quarter. We've got a number of catalysts coming up as you can see there with respect to some of the infrastructure investments we've made, the drilling I spoke about, addressing the further issues in the balance sheet, and particularly the repayment of the convertibles in August and then ongoing exploration results as we go through the year. And I think there is a good degree of confidence amongst the team that we can continue to unlock what we see as significant value in the asset base. So with that, I'll stop there, hand back to Collins so we can take any questions that anybody has.

[Operator:]

Thank you. Ladies and gentlemen will now begin the question and answer session. Your first question comes from Bryce Adams from CIBC. Bryce please go ahead.

[Bryce Adams:]

Good afternoon, all thanks for taking my question. Firstly, on COVID, the 23 cases that you reported, are they all Ghanaian workforce or some of the expatriates employees been impacted as well?

[Andrew Wray:]

Do you want to run through your questions then I can sort of move to the team. If you happy to do that?

[Bryce Adams:]

Yes, that's fine. I've got four in total. So the first one. The second one is on the ATM? What's your decision making process on new issuance? Is it focused on the share price? Or is it more dependent on the cash balance? Number three, for the low grade stockpile what's the thinking of processing around 1000 tons per day? It looks like you did a bit more in Q1. So what drove that decision? And just trying to reconcile the gold recoveries for the stock call? Are they less than the higher grade underground all? And then the last one is just a clarification on exploration guidance. So guidance has $11 million expense, but Q1 and results in 2020 they've been around about a million bucks or less per quarter. What's the expected run rate for exploration expense? That's the four questions. Thanks.

[Andrew Wray:]

Thanks very much, Bryce. Maybe Philipa if you want to give a little bit of color on COVID cases, starting with the first question.

[Philipa Varris:]

Sure. Thanks very much, Bryce. The COVID suspect cases within our workforce were a combination of Ghanian and expatriates. But interesting to note that the expatriate workforce the handful of positive cases that we had were people who've been in the country for longer than the incubation period for COVID indicating that they had contacted locally. And everybody's fully recovered and back to work.

[Bryce Adams:]

Okay, and those expatriates that tested positive, were they've been able to return home at the end of their roster or do they do an extended swing?

[Philipa Varris:]

No. Everybody was able to return home. Everybody recovered whilst in Ghana. In fact, most of the cases were asymptomatic. We had very few people who actually out of all of the 23 confirmed cases very few actually had any symptoms. And those that did work were all managed closely through to recovery. And it has not affected movements of many people. We did have one expatriate whose departure was delayed slightly by having contracted.

[Bryce Adams:]

Okay, thanks for the color.

[Andrew Wray:]

Thank you. On the ATM, I'll deal with that one in terms of use of the ATM facility. And really, it's more driven by a view on overall liquidity, cash balances, which as you know is a function of where we see production moving, where the gold price is and then what opportunities we've got from a capital perspective, as well as the obligations we've got the main one being the convertible repayment just over $50 million in August. So really, it's just ensuring that we've got what we see as a sufficient level of flexibility there. And to a degree, also taking advantage of any inbound inquiries we get of people looking to pick up stock at a certain level. So it's a little bit of just being opportunistic in accessing that facility, and overall ensuring that we've got what we see as a sensible level of liquidity in the business.

[Bryce Adams:]

Okay, thanks. And then subsequent to the convertibles, you wouldn't expect to use the ATM from September -- beyond September?

[Andrew Wray:]

At this point in time, it's a bit early to say. But I think realistically that the key for us is to get through that period in time and then we've got the facility there if, for example, we have a need for additional or we see a benefit in additional significant exploration spend as an example, if we hit success on multiple of those targets, then it's always there as a potential to ramp that up. But for ordinary course no, we wouldn't require it.

[Bryce Adams:]

Okay. Understood.

[Andrew Wray:]

Then maybe Graham, talk a little bit about the stockpile material and recovery on that material.

[Graham Crew:]

So yes, so Bryce on recovery, first we generally blend. So we're generally doing about a 5.1 blend. So that's sort of how you get 5.1/5.2 blend, which is how you sort of get those 6000 tonnes per day. And we don't we say very flat grade recovery curve for Wassa. We have done some work in previous quarters on batch milling just to make sure that that all makes sense. And even on the low grade stockpile, you do get a, you get a bit of a recovery drop, but not too much. So pretty comfortable with the blend strategy there. As I mentioned, like through the quarter, January was a bit of a tough month for the underground team. So we pushed a bit more low grade through there just to boost the production on the ounces. And to see what we could do with the mill. So we can push a bit more through there. But in general, it's just keep that nice steady blend and look after the recovery is the general strategy.

[Bryce Adams:]

And then the volumes Graham in Q1 being a little bit higher than we've seen previously.

[Graham Crew:]

Yes just as I mentioned, is trying to just try to push the mill a little bit and see what we can do. We haven't taken up to 100% yet, but it certainly goes along with that 6000 tonnes per day and a little bit higher at times. And performs very consistently.

[Andrew Wray:]

Thanks, Graham. And then the last one, what's the last question, Bryce?

[Bryce Adams:]

It was an exploration in terms of the cost?

[Andrew Wray:]

Yes. Was it the absolute quantum you're getting at or the classification of the spend?

[Bryce Adams:]

Yes, maybe just a little bit of help if I've got a misclassify but I think guidance says 11 million exploration expense, but the runway since we're about a million bucks a quarter or less. Just trying to refine our model to be a little more accurate.

[Graham Crew:]

Yes, no problem. Should I get that Andrew.

[Andrew Wray:]

In Q1 Bryce we had a cost of $2.2 million. So that was between $0.8 million which was expense and $1.4 million, which was capitalized. So going forward, we're looking at something around $4 million to $4.25 million a quarter just over $12 million for the remainder of the year of which $3 million will be CapEx and about $9 million to $10 million likely be expensed. So that CapEx expense ratio may change depending on how the -- how that drilling program goes in terms of the feedback and interpretation of it and so on. So, in broad terms, that's roughly where it is that.

[Bryce Adams:]

Okay, so we should expect a step up in exploration expense in Q2, 3 and 4.

[Andrew Wray:]

Yes, that's correct. Yes.

[Bryce Adams:]

Okay. Thanks, everyone. Appreciate the time and keep well, thank you.

[Andrew Wray:]

Thanks. Thank you.

[Speaker:]

Thanks Bryce.

[Operator:]

Okay. Your next question comes from Raj Ray from BMO Capital Markets. Raj please go ahead.

[Raj Ray:]

Thank you operator Good afternoon Andrew and team. I just had a quick question and I apologize if you have already thought about this previously. I was a bit late in joining. But I just want to get a sense on the challenges that you've faced with the strength and some of the test, did mention that in Q2, you're looking to fix it just wanted to get some details on what you're doing currently? What the issues were around? And then you talked about in the second half of the year having some contingencies in place. So if you can also throw some color on what contingencies you have in place.

[Andrew Wray:]

Thanks Raj. Graham, that's one for you.

[Graham Crew:]

I think that's me. Yes. Hi Raj. Yes. Good question. So just as we were doing the test sites, obviously we were doing a lot of strength testing. Some of those quality assurance results have come back a bit lower than what we would have expected from the bench test work that went into the feasibility. So we want to get a good understanding of that. So we're delaying feeling at this point in time, as I said, we've got nothing, no production, certainly an H1 that's impacted by that. But we're just delaying that. We're doing some work with Gasim, who are the cement supplier, and they are obviously pretty expert in what the chemical composition of their cement is. And we've given them some more tailings samples to work a little bit more on that. And we're also partnering with a group out of Australia called Mine Field Services, who are pretty much experts in the field. And they're collaborating with the University of Mining and Technology in Ghana, just to make sure we've got a pretty robust test regime. So that's the kind of three strains. In terms of contingencies, there's a few things. One is, we might increase some of the cement contents from plant which would obviously have a bit of a cost impact. So we need to understand that pretty well. The second opportunity is just around re-sequencing. So we are placing some of the secondary stokes that we have in the plan with primaries. And that would involve also re-sequencing, some of the developments. So you'd be mining cross cuts into primary slope areas as opposed to the secondary. So that would just change the mix a little bit in terms of where the production is coming from. So that there are things that we're working through at the moment.

[Raj Ray:]

Okay. Thanks for that. And then assuming there is a bit of a delay in getting this fixed. You still confident about the production guidance and the cost guidance over year?

[Andrew Wray:]

Yes. For the time being we're maintaining guidance as is, whilst we work through that. We need to see one, the length of the delay, as Graham said, whether it's resolved during this quarter, it extends beyond this quarter and then work through some of the potential re-sequencing and what the plans look like to see if there is any impact. But at this stage, we don't see that. We will obviously update if that changes at any point.

[Raj Ray:]

Okay. Thanks Andrew. That's it for me.

[Andrew Wray:]

Thanks very much, Raj.

[Operator:]

There are no further questions at this time. I'll now turn it back to Andrew for closing remarks.

[Andrew Wray:]

Excellent. Well, thank you very much, everybody. We look forward to staying in touch as we go through the year and who knows maybe even seeing some of you at some stage. So thank you again.

[Operator:]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.