Golden Star Resources Ltd.
Q2 2020 Earnings Call Transcript

Published: 30 Jul 2020

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Golden Star Resources second quarter 2020 results conference call and webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised, today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. Michael Stoner, Director of Investor Relations and Business Development. Thank you. Please go ahead, sir.

[Michael Stoner:]

Thank you everyone for joining our Q2 results call. Just getting into the slide deck, if you could please note the disclaimer on slide two of the presentation. And for those who are on the call, not the webcast, the presentation is already available on our website. Today, I am joined by Andrew Wray, our CEO, Graham Crew, our COO, Paul Thomson, our CFO and Peter Spora, Head of Growth and Discovery. With that, I am pleased to hand over the call to Andrew.

[Andrew Wray:]

Thank you very much, Michael. Hi everybody and welcome again to the Golden Star Q2 results call. We are on slide four and you can see there an overview which I am sure most of you are familiar with of our asset base in Ghana. We have been undertaking and continue to undertake significant work at both our operating mines to unlock value. Wassa, the focus has been on successfully growing volumes and also a better understanding what is a very significant ore body. Prestea, we are optimizing the current mining areas so we can stabilize that business and then adding volume over time to get it to the point where it's again a cash contributor. That is within a sustainable business model that really makes a meaningful contribution, both locally to the communities around our assets as well as nationally in Ghana. Moving on to slide five with an overview there of the second quarter results that we announced after market close last night. A solid quarter overall with good underlying improvement in the business. We have added cash to the balance sheet. We have reduced debt. The various different infrastructure type projects at Wassa that sets us up for the longer term has continued to progress. We have had good mining execution there. At Prestea, we faced challenges in the quarter with COVID amongst them, but we continue to focus on setting up the second mining level on 17 Level. And as I mentioned COVID, that's all against the backdrop of substantial disruption globally to movement, supply chains and we have navigated our way through that and continue to do so. Moving on to slide six which is really a transformational announcement and move the business which we communicated yesterday which is the binding agreement we have reached the sale of our Bogoso-Prestea asset. Really, this transaction helps to guarantee the future of that asset which, as everyone knows, has been through tough times and we have got a plan to turn that around. And this, I think, puts us on a more stable long term footing with a focused investor coming in and then allows Golden Star post-closing to really focus all of its energy, resources and financial capability on accelerating what we are doing at Wassa. The acquirer of that asset is a business called FGR with a team that's got some really strong experience in sector and in Africa, particularly in Ghana as well. So Ghana is certainly a jurisdictions they were targeting in order to start a business. The CEO, Glenn Baldwin, former Head of Operations at Gold Fields and with a real commitment, I think, on their side to set up a business and use now with around the Bogoso-Prestea as the foundation for that. As you can see at the bottom of that slide on slide six, we signed a definitive agreement and now there is a series however of conditions we have got to satisfy so that we can get to completion which we have target for the end of September 30. Moving on to slide seven, in terms of the structure of the consideration of that transaction. There were several elements to that. I think the objective, from our perspective, was to ensure that we had upside exposure as that operation continues to turn around and potentially develops further in the future. At the same time is staggering some of the payments which will enable the incoming investor to focus their resource on supporting that turnaround. So up from around $25 million in working capital which will come off our balance sheet and stay with Bogoso-Prestea and the new owner. And at completion, on top of that, a $5 million cash payment. So that's the initial $30 million. Then in July 2023, a further $15 million payment in 2021, $10 million. I think the number is a wrong way around a little bit. And then $15 million in July 2023. So all-in, that will be a $30 million of cash plus the $25 million of working capital. So $55 million. And then, there is a separate contingent payment there you can see on the right hand side of the slide which really relates to the potential future development of the refractory material which was mined historically. There is over 1.5 million ounces of resource. And that's something that FGR have told us, they are going to take a closer look at. So should that be developed, there is anything up to an additional $40 million payment to Golden Star. So we think that's the right balance in terms of allowing and enabling investment and ensuring that as that happens we have exposure to the success of that. And all of that, as I said, leaves Golden star then with its full focus on developing Wassa and accelerating what we are doing at Wassa. In terms of slide eight, just looking over and our guidance for the year. As you have all see, at the half way stage, we are tracking at a consolidated level fairly well in line with the expectations that we set out. Within that, Wassa is slightly ahead of where we thought it would be. Prestea, a little bit behind what we guided for it. So we have made some small adjustments there to the composition but effectively we haven't reduced that overall guidance. We just tightened the range as we go into the second half of the year. And clearly, as the Prestea sale closes at the end of September, then we will update further from what that means for the balance of the year. Moving on to slide nine where you can see there a little bit more detail around the range of community and health and safety initiatives the business has. And these range from malaria initiatives, high rates of local procurement and virtually all of our workforce being Ghanaian and currently it is all Ghanaian, because our ex-pats are back in their home countries and through to the oil palms business that we set up to help remediate and reclaim some of our historic tailings and provide pretty significant local employment. So, a key element for us in maintaining strong relationships with our host communities. And then on slide 10, in terms of COVID-19. I think those relationships I mentioned have been key to the response over the last now four to five months and to the challenge we have faced from the global pandemic and our response to that. And we work very closely with our communities but also with the government of Ghana has in very supportive. We addressed the issue pretty early. We had site controls from February, pretty extensive education and significant screening and testing protocols at site. We have now got PCR laboratory testing equipment in where we can test at each of our sites, which is very, very important to us in terms of the speed of testing and identifying any issues. As a company, we have contributed nationally, the management and the Board have contributed to health initiatives and health infrastructure in our local communities. But all of that said, obviously some impact is inevitable. We have seen that at Prestea. And I think clearly COVID-19 remains a very real threat to our business as much as it does to pretty much any other business. But we have put comprehensive response into that and succeeded in continuing to operate in that environment. So with that, I will hand over to Graham to take it forward from slide 11 and 12 and talk about the assets in a bit more detail.

[Graham Crew:]

Thanks Andrew. Moving over to slide 12, just to talk about Wassa for a little bit. If anyone needs any reminder, I think most of you on the call will be familiar with the scale of the Wassa system and definitely a solid quarter in the context of COVID that Andrew talked about and in terms of projects continuing. So really solid quarter production wise, cost wise and also starting to progress through some of the longer term plans for Wassa. With that, moving over to slide 13. The paste fill plant, you can see the photo at the bottom left there, just the progress, at about 84% completion at the end of the quarter. So, on track for completion in the Q3, commissioning into Q4. There was this part of the year there was and the pandemic, we were a little bit concerned about the supply chain and some of the equipment coming out of China, but have managed to maintain the critical path on that project. Similar with the electrical upgrades. That's a key enabler for the paste plant, but also kind of the lower mine. Infrastructure, there is a little bit risk associated with that just with getting people into, technical people into Ghana at the moment. So we are working through whether we can get some people in for the commissioning of that project or alternatively have started doing some work on testing some online body cameras and so on to do that commissioning remotely. Moving over to slide 14, a bit on the scorecard. As we mentioned, just in terms of production volumes from underground, very strong quarter and four quarters in a row now above that 4,000 tons a day. Good, strong production from the underground team here. Again, in the context of enhanced screening protocols, social distancing, some concern about supply lines at the beginning of the quarter, but managed to hold all of those. And as Andrew mentioned, good support from the government of Ghana there in terms of recognizing the mining industry as an essential industry for the community. In terms of the grade, also an improvement on quarter one as we moved into the more central parts of B-Shoot, mainly on 595 Level, 570 Level and a little bit on 620. So moving to those central portions and seeing the grade normalized closer to the reserve grade. Also, with the continued low grade, opportunistically with the low grade processing during the quarter and it was pleasant to see the recovery site about 95% with that lower grade material in the blend. Slide 15. The unit costs certainly benefiting from the productivity and slight increase in G&A. One of the impacts there of the shipment changes having going from commercial flights to charter flights impacting those costs slightly. On to Prestea, moving on to slide 17. Again, I think most people are familiar with the work that's going on there. It's been another challenging quarter, specifically on 24 Level. But we have continued to work to set up 17 Level for long hole open stoping later in the year. We did have some COVID impacts in Q2 at Prestea. We had some positive cases within the contact trace at that point in time as being, had to manage through the Ghana Health Service. So at one stage, we had about 60 of our underground workforce caught up in contact tracing which impacted our ability to develop and get set up in some of the stopes there. So we focused through that. We focused the attention on continuing to get 17 Level set up. The other COVID impact was just some equipment related delay. Some of the small scale mining equipment coming out of Europe was delayed by a couple of months but first two pieces of equipment arrived late in the quarter and a couple more arriving now elderly in Q3. Moving on to slide 18, scorecard, just I guess reflecting the production challenges on 24 Level. The tons and grade both being down there as we continue to experience mining ore loss and dilution in those large Alimak stopes. On the positive, we were able to set up the northern block of 24 Level. So early in Q3, we started our first stoping of the northern stopes in 24 Level which is an important milestone. We also completed during the quarter, everyone be aware that we have been mining through some lower grade oxide material as we have gone through. That was completed during the quarter and we are starting to see now the processing plant reflect the recoveries, et cetera, in line with what we are seeing from the underground mine. Again, costs reflective of those volumes. Volume was quite low and the unit costs accordingly. But worth noting that we continue to invest in equipment and development in particular in 17 Level. And with that, I will hand over to Paul to talk about the financial results.

[Paul Thomson:]

Thank you Graham. As Andrew mentioned, we had a really solid quarter. So in terms of the financial results, they are real solid results actually. So what we have seen is Wassa. We have seen grade improving and the volumes coming through there as well. And then as Graham just said, in terms of Prestea, we are still seeing the actual impact of the turnaround and also the impact of COVID. In terms of the production, you can see there that we have produced just over 50,000 ounces in the quarter and we have sold just over 52,000, almost 53,000 ounces in the quarter. The reason for that discrepancy is because of the change in the flight schedules associated with COVID-19. So previously we would use commercial flights, but we had to go onto private charter. So there is a slight discrepancy there in terms of when we actually get paid for product. That will unwind as soon as we go back to commercial flight. In terms of the spot, we have realized at a price and an overall basis, it's averaged at $1,626 and that's split in terms of spot piece which is at $1,720 and that actually decrease in terms of total of $1,626 is as a consequence of the streaming agreement we have with Royal Gold. If we move on to slide 22, you can see here the actual net cash flow in terms of how the cash was being generated during the quarter. So we started the quarter with $41.9 million and then that increased to $45.1 million. So you can rally see the cash generation coming through at Wassa in terms of the performance there. The cash generation was $28.1 million there, which was offset by the funding requirement at Prestea which was $9.2 million. We have really tackled the balance sheet as well during the quarter. So we reduced our working capital by just under $7 million, to $6.9 million and this is in addition what we were able to do during Q1, which also reduced working capital by $11 million. Other points to note for the quarter would be that we have also paid our finance principal in terms of the $5 million in relation to the Macquarie term loan. And that's the first payment of principal. If we look at the cash and our net debt position, because of that timing difference I mentioned earlier in terms of the sales profile, had that sale actually happened within the quarter as opposed to being post quarter-end, the cash position would have been $40.9 million and our net debt would have been $53.7 million. It's important to note that at quarter-end the actual net debt position was $57.5 million. And with that, I will pass over to Peter. He will cover of the exploration and geology section.

[Peter Spora:]

Thank Paul. And all now on slide 24, okay. So just a bit of an update on where we stand with exploration. We had a pretty quiet Q2 with no field activities due to COVID. We suspended our original exploration programs just during the early phases just to limit the amount of people traveling in and out of the mine sites to ensure that we maintained our protocols. So that time was spent assessing the exploration strategy in the context of the significant resource increase at Wassa and particularly in inferred category drilling that was announced in the back end of Q1 and on the back of the potential reviews that we are now undertaking on our original properties. Despite this hiatus in activities, I guess we plan and we still expect to complete the planned 2020 programs in the second half of the year. The budgets maintained at $6.2 million, split $3.5 million to capitalize and $2.5 million on expensed. And we expect the field activities to start regionally on the HBB projects from the beginning of August and we will recommence drilling at Wassa around the beginning of September at this point. And I guess the focus, the real shift in strategy is now for the exploration group to step away from doing more infill drilling on the southern extension inferred area and then start to focus on other in-mine and near-mine targets at Wassa in that regard. So if we go to slide 25 and just talk through this. Graham has already mentioned the scale. The left and right on the section, the long section that's shown on the screen is 2.5 kilometers of length and then the bottom blocks of the model are down at 1.4 kilometer depth. So you can see the very large scale system as the Wassa is. The purple and green blocks on the left-hand side of the mined out areas, the grade blocks of the reserve there is from 2019. Our focus really going forward at this point within the mine is to continue to drill into the inferred resource extension block, particularly in the upper levels so that, as Graham mentioned, we can start to look outside the mine plan going forward. At the same time, the exploration group will step away from drilling more holes in this inferred resource extension area, start to look at down-dip, up-dip extensions of the main B-Shoot load that's being mined currently. We will also be looking at parallel loads in the footwall and hanging walls and also start to look at some of the additional opportunities below some of the older pits that were mines using the knowledge we have gained that we pull together from understanding the Wassa system better. So those targeting exercises are under way and we expect to start to do some planning in the back end of Q3 in terms of what the program is going to be looking like going forward for 2021 in terms of near-mine, in-mine exploration. Turning to slide 26. Just zooming out a little bit and the big, if you look at the map insert on the left-hand side, the Wassa 242 Level is the surface expression of the Wassa gold deposit shown, soil geochemical sampling. Essentially what we are seeing there is, the Wassa system is 2.5 kilometers in strike you can see with the arrows. That's the current footprint of Wassa surface to the furthest extent of the underground drilling where there would be southern extensions. And what we can see there is there is two parallel trends. One, we are calling the Wassa Corridor trend which encapsulates Anomaly 1 and Anomaly 4. And then the second trend, which is further to the west, which includes the SAK1-3 open pits but extends down through Anomalies 2 and 3. Both of those trends are nine kilometers in extent and they have multi-kilometer gold anomalies on them. Limited amount of drilling below 50 meters vertical and in a lot of cases all of the RAB drilling has been done there is no deeper than 25 meters vertical depth. And despite that, all of the anomalies have shown gold anomalies in the RAB drilling but there is only a limited amount of RC drilling even have been drilled on the northern end of Anomaly 1. So not only within the Wassa envelope and in an in-mine area that we have potential within one to 10 kilometer of the Wassa plants. On the mining license, we had a series of very significant anomalies that require a strategy to be put around those. So will be are looking at that in some detail during Q3 as well to make some plans on that. Turning to slide 27 and just zooming out. So if you look up in the top right hand corner of the map, on the left hand side you will see the Wassa license I was just talking about. The red star is the Wassa plant. We have 85 kilometer haul road going all the way down to the bottom red star which is Father Brown, which has a small resource on it in terms of potential underground, maybe sometime in the future, but not at this point. Along that corridor and all the way down the Coast of Ghana, we have 90 kilometer, we had around 350 square kilometer of licenses with the more than 30 gold anomalies already identified or gold targets already identified either around existing or historically mined open pits or previously defined anomaly through all of soil and auger geochemistry. So the plan really is and what we have been working through in Q2 and will continue to work through the remainder of this year is really to identify the top targets within these and start to put together systematic programs to start drill testing a lot of these targets. And we were taking a little bit of a different approach in the strategy. As Graham said in his presentation and as you have seen from Wassa ML potential, I think there is, quite frankly, within 10 kilometer of the Wassa plant, there is significant potential to essentially meet the capacity or the current capacity of the plant. So the strategy we starting to think about is, is there opportunity for possible standalone operation based in another gold camp somewhere down along this belt. Looking at a one to two million ounce orebody that's capable of delivering maybe an open pit or underground 100,000 to 150,000 ounces a year and then on top of that adding a satellite feed within some of these clusters. And that's the idea of putting the five and 10 kilometer circles around each of those licenses there. It's to just give people a feeling to scale and what might be trackable and doesn't necessarily have to be trucked 85 kilometers back to Wassa. So that's it from me from the exploration side for now. And I will pass it back to Andrew.

[Andrew Wray:]

Many thanks, Peter. Just before wrapping up, on slide 28, just to confirm what I mentioned on slide seven with respect to the Bogoso-Prestea sale agreement. So the typo on that slide, the $10 million cash payment is 2021, not 2023. So Michael will correct that. The press release yesterday has all of the detail in it but just to make sure that people have understood that. So in terms of Q2, as I said at the outset, a good quarter for the business, really driven by the performance at Wassa. And you put that plus the gold price together and you can see that's all reflected in the financial metrics that Paul went through. The Bogoso-Prestea sale, we already put that in mine on a stable, long term footing. And it transforms Golden Star. And once that's closed, then we have got the capacity to focus all our efforts, as I said before, in accelerating what is still very significant growth potential from Wassa. So I will wrap up there and pass it back to Jason for Q&A.

[Operator:]

[Operator Instructions]. Your first question comes from the line of Raj Ray from BMO Capital Markets. Your line is open.

[Raj Ray:]

Thank you operator. Good afternoon Andrew and team. First of all, congrats on the announcement of the Prestea transaction. Looking at Q2, my first question is on the Wassa grade. It was good to see the grade come up closer to the reserve grade. Can you give some idea about how much confidence you have with respect to maintaining or growing the grade from or increasing the grade from here? And how much flexibility have you developed within the mine that can allow you to keep or stabilize the grade going forward?

[Andrew Wray:]

Do you have other questions, Raj? You want to just run through them all and then I will package them out to the team or answer them myself.

[Raj Ray:]

Okay.

[Andrew Wray:]

Sorry. Is that the only question you have Raj? Or do you have any other questions?

[Raj Ray:]

So, yes, I do have another question around the mining cost. It was $31 a ton this quarter. Is that the level you expect for the mining cost to be at? And when the pace still planned does become operational, how much additional cost do you expect to add on top of the current mining cost? And my third question is around your grade reconciliation. Now that you have done a lot of infill drilling, how is your mill reconciled grade comparing with your reserve grades for the areas that you are starting to mine now?

[Andrew Wray:]

Perfect. Thanks Raj. I think that's nice and easy for Graham. So I will hand over to Graham to deal with those. I hope he gets them all.

[Graham Crew:]

Yes. Okay. Just on the grade, yes, it was pleasing to see, Raj. And I think I mentioned as we were going through, a lot of that's driven by the areas we were mining during the quarter. I am not going to promise you that we won't see any dips at Wassa from here on in. We have still got a bit of work to do to really create that flexibility in the plan. What we have progressed during the quarter is starting to work on what the longer term could look like at Wassa and it really involves accelerating development and sort of going from maybe three underground rigs to five or six, contingent on the fact that we can get the drill platforms and get them drilling. And that's talking about starting to do some conversion in blocks three and four and the B-Shoot as well. So yes. So I think one of the things we are working on in that case, we have already been starting to push development tracking the deep mine development much more closely, making sure that we are getting ahead of the plan and the site team is doing well there. The pleasing things over the quarter were compliance of the plan over the quarter, not just in terms of where we are stoping and producing from but also in terms of development, compliance and development productivity. We did not think, with COVID coming in early in the quarter that we might suffer from development. That's where we do have some ex-pat resource. We thought we might suffer from that over the quarter. But it was a little bit of a difficult start but we have managed to pull that back. So pleasing, I can't yet comment yet that won't have any grades, any quarters where there is, we are mining some of those lower grade areas, particularly on the periphery. But what we are progressing towards is being able to schedule our way around that. So we have got a better mix of material both from the core of the orebody and from the periphery. And the second question, in terms of mining costs, yes, I think it's pretty fixed cost base. Obviously there is some variable costs in line with production. But we see both in the mining costs and the processing costs a pretty direct relationship between the tons that we get through versus our per ton unit costs. So maintaining that level and incrementally improving that level of production should see that level of costs maintained. That being said, I think even we are pleasantly surprised that it is reflecting that relationship. So assuming that can keep that production rate going, that's where we should see the cost. In terms of the paste, we are talking about $6 to $7 per ton mined additional cost when the paste wall comes in. But of course what we get for that is roughly an extra sort of 30% to 40% per level where we can mine those secondaries and that also gives us a bit more flexibility around the grade mix. Reconciliations, yew, we have done quite a bit of work during the quarter on reconciliations, both from a kind of sampling and lab procedures point of view and also just looking at drill hole spacing studies and where it needs to be tighter or where it can be widened, et cetera. But I think that there is still, again between the core of the orebody, I think that we are pretty good there. When we start to get to the periphery and we get those narrow sort of intersections of grade, that's where we still see some reconciliation that we do tend to overestimate by a little bit in those nice periphery area. So that's something that we have progressed during the quarter. And as we go into the budget model for next year, I think there will be some improvements in that.

[Andrew Wray:]

Does that answers the three questions?

[Raj Ray:]

Yes. That's good. Thank you. Thank you Graham.

[Operator:]

Your next question comes from the line of Heiko Ihle from H.C. Wainwright. Your line is open.

[Heiko Ihle:]

Hi guys. Thanks for taking my questions. Can you hear me guys?

[Andrew Wray:]

Hi Heiko. Yes. Loud and clear.

[Heiko Ihle:]

Just two quick ones for you. You mentioned in the release that the increase in the gold price in Q2 resulted in the higher royalty payments to the Government of Ghana. With the current COVID pandemic, obviously everyone is looking for sources of revenue and this gold at 19 something right now, one might think that that would be a source of funds that they are looking at. Can you just remind us what pricing you currently expect at the current gold price? And is there has been any conversations with the government in regards to amending your agreement with them?

[Andrew Wray:]

Okay. Any other question, Heiko? Do you want to give it now?

[Heiko Ihle:]

The other one I had was and I assume your answer is going to be no, but I am just going to quote your Prestea sale press release for a second here. You got in there looking for other opportunities to further expand your business. Just to confirm, you are not looking at any particular assets at this point in time. I mean you have only got $5 million in hard cash on the sale of this asset. So I assume it's fair to say that you are currently not looking at specific assets, right?

[Andrew Wray:]

Thanks Heiko. Let me deal with both the questions. On the first one, in terms of government payments, I mean you are actually right. Every single government in the world is under fiscal pressure as they respond to COVID-19. Ghana has been actually very proactive. I mean what I would is, they have allowed the mining industry as a critical industry to continue working. The mining industry has contributed towards various different initiative in the country. And really with the gold price going where it is, it means not only the royalty payments but tax contributions going up. So you can just look at Wassa and you look at it in terms of what we reported so far in the year and you put that into the second half of the year and you forecast forward, then between corporate tax and royalties alone, let alone all of the other acts and indirect contributions, that's going to be a $50 million contribution to the Government of Ghana this year, which is a very significant step-up. So you know, there is that natural step-up with the gold price. In terms of any specific initiatives, we are not seeing anything. There was elections in Ghana in December. And as with pretty much every country in the world, there would be noise around the elections. But you know, at this point in time, no specific to look around any changes to the fiscal regime. And as I say, the industry is, by definition, going to making much more significant contribution this year with the gold price where it is. On your second question with respect to future expansion of the business. Yes, this is part of our strategic objective. It doesn't imply that we go from one day to the next and we are buying assets. But certainly, it's part of our consideration now going forward. We are going to close the Bogoso-Prestea sale first. So fair bit of hard work over the next two months to complete that. And then clearly the short term focus on Wassa, but we remain alive to opportunities where I think we will be a much more attractive counterparty for anyone at that point in time in terms of cleaned up balance sheet and one core very high quality asset. So hopefully that answers the question and the first one as well. Let me know if not, Heiko.

[Heiko Ihle:]

No, it does. Thank you very much and stay safe.

[Andrew Wray:]

Great. Thank you. You too.

[Operator:]

Your next question comes from the line of Bryce Adams from CIBC. Your line is open.

[Bryce Adams:]

Good morning Andrew and thanks for taking my questions. Three questions that I will pitch here. So firstly, on the $40 million contingent payment, obviously pretty hard to say what the FGR team will do. But do you have any expectations on the potential timing of that? For example, would you expect the first tranche within five years? The second question is also on Prestea. So the timing of the Prestea transaction comes just a few months before the long hole stoping was expected to ramp up and improve the operations. Was there a consideration to wait a few quarters and determine how successful the new mining method would be? Or from what you saw in the first stopes, did it highlight challenges, potential challenges with long haul stoping? The third question is a Raj follow-up question. So great to see the grades step up quarter-over-quarter at Wassa. On the last conference call, you highlighted that the lower grade stopes were completed. And at the time of the Q1 call, you were seeing some higher grades come up the deep mine. I was wondering if you could touch on the underground grade profile month-by-month for April, May and June? And maybe what you have seen in July so far as well? Thanks.

[Andrew Wray:]

Thanks Bryce. I will take the first two and then I will pass it to Graham, so the third one. In terms of the contingent payment and timing of that, in short it is impossible to say. But I think you know what I would say is that in the conversations with FGR, a clear attraction to them is the sulfide material and they have been very clear that they want to start taking a look at that once they take the operation over. So I think it is a priority for them. And obviously with the gold price, even since we started talking to them two, three months ago, gold prices are few hundred dollars higher. So that probably focuses thinking particularly around proven material, but proven material that's obviously gold price dependent. So I would have thought that will probably sharpen the focus a little bit and hopefully sooner rather than later. But we have really put those payments in so that at any point that gets considered, we have got some reasonable exposure to that. In terms of Prestea, we have been considering for some time the strategy and what we would do. And I think as we progress through the operational changes we have made as we developed more coherent longer term plan, we have seen inbound interest that we engaged with. And you we still see 17 Level as being critical. We clarified development of that level actually during Q2 when we were short underground workers because of COVID-19. So we prioritized bringing that on stream versus 24 Level. And that's still on track for the end of the year. And we still believe that's going to get that operation the real step up it needs in terms of volumes, additional higher grade material to then carry its cost base and start to contribute. So it isn't a reflection of how we see the asset. I think it's more a strategic decision that we took that we want to focus firepower and resources we have got on Wassa because we believe we will, as a business, see a higher return there and then somebody else can focus their investment capacity on Prestea-Bogoso where there is clear plan in place to get that back on an even keel by the end of the year and then with the upside, as we said, of the sulfide material. On the grade at Wassa, Graham, I will pass it on to you.

[Graham Crew:]

Thanks. Just on the grade at Wassa, I mean the profile over the quarter was reasonably flat. As we reported coming into Q2, sort of right towards the end of Q1, we have mined out some of those periphery stopes and we are coming more into the central portions of the orebody. So that's what's come through in the grades over the quarter. Coming into Q3, there has been a little bit of a dip in grades but also coming back in the second half of this month. So yes, it's all about the mix and starts at any given time. I think you and I have talked about before is that the grade profile at Wassa, there is a about 25% of all the scopes that are above reserve grade and the rest reserve grades down to cutoff. So you are sort of relying on one in four sort of high grade stopes to help you maintain that grade average. What we are doing and what we are still aiming to do is give ourselves flexibility in the schedule as we schedule that out to be able to mine that much closer to reserve grade quarter-in, quarter out. As I said to Raj, not quite ready to promise zero quarters significantly below reserve grade but certainly making good progress on that strategy.

[Bryce Adams:]

Yes. Got it. So for the short term planning engineers, the focus is on a stable grade profile rather than trying to optimize it?

[Graham Crew:]

Yes. And really what we have been working on is schedule compliance. You and I are both know that in a underground mine, there is sometimes this stuff doesn't quite work out. If this happens, you have got to adjust the plan. But it's really about development compliance, stoping compliance because at least then, we are more predictable of, okay, we know we have got of lower grade quarter coming up because that's what the plan shows us rather than go and hang on scratching your head, hang on, why isn't the grade coming up now. Hang on. It's because we are mining these stopes. We need to go over here. So just getting more information in the plan enables us to be more proactive with the scheduling.

[Bryce Adams:]

Yes. Got it. Maybe just one last follow-up on that one and it's related to development and pushing that in front of the production profile. How far in front is the development heading at the minute? Are you six months in front of the current production profile? Or where is that sitting?

[Andrew Wray:]

Yes. So we have broken into about 20 levels. So we are one and a bit levels ahead and because those levels will last a couple of years. And that's not to say, we are two years ahead in development because we have to still get in there, get footwall drives in and we have to got to get drill platforms and get drilling as well. So we are in a better position than we were this time 12 months ago but still don't have that development stock or drilling stock as far ahead as we would like at this stage. Certainly, we have been talking about that in terms of next year's budget. I see an increase in drillings for next year with available drill sites to be able to accelerate that. One of the issues we have because we have been outperforming on tonnage. We consume that drilling stock a little bit quicker as well. So we have got to adjust that in the plan.

[Bryce Adams:]

Perfect. Thanks a lot. I appreciate the extra color. Stay healthy and talk to you again.

[Andrew Wray:]

Thanks Bryce.

[Graham Crew:]

Thanks Bryce.

[Operator:]

Your next question comes from the line of Don DeMarco from National Bank Financial. Your line is open.

[Don DeMarco:]

Hi. Good morning everyone. Gentlemen, three quick questions. I will just give them all to you now. First off, how long do you expect to supplement feed from stockpiles? And if you could give an indication of the stockpiled grade and throughput that we can expect? And the second question, looking at, I think you have got 500,000 ounces of gold at reserves. Could they be practically mined? And if so, what quarter? I think grade is about 1.5 grams a tons. So what throughput might we expect" And then finally, Prestea has had some COVID impacts. What's the status of the COVID situation at Wassa? Thanks. I will hand it over to you.

[Andrew Wray:]

Thanks Don. I think probably Graham, it's easy for you to go through the three of those.

[Graham Crew:]

Yes. Supplementary feed with some of the low grade stocks from the open pits, there is about 250,000 tons or thereabouts remaining on those stockpiles and there could be a bit of scratching around exactly what's there. And I think we have sort of put that in the plan for the rest of this year at around 1,000 tons for that and it's sub one gram material. So, yes. And really opportunistic on the gold price. In terms of the open pit reserve, really that's just where that's located in relation to the underground infrastructure and the surface infrastructure supporting the underground mine. Currently, it's light in the schedule. So we have been looking at couple of options of how we can potentially bring that forward or potentially even mine up from underground and bring value forward that way. That's work in progress. But it's something that we will look pretty closely at sort of over the coming quarter and see where we can potentially put that into the schedule. And the third question was on Prestea. Sorry, Don, just remind me?

[Don DeMarco:]

Yes. It was just on, well, actually, just if you gave a little bit more clarity on the open pit. You said it's where it's located in relation to the underground infrastructure. How far is it to the underground infrastructure? And then my third question just had to do with the status of the COVID situation at Wassa.

[Graham Crew:]

That's right, sorry. I was too slow writing my notes. In terms of the infrastructure, it sort of bottoms out the pit, bottoms out on some of the stoping areas in the upper areas of the mine. So very, very close. So we have to look pretty closely at that reserve in terms of crown pillars and things to be able to go ahead and mine it as an open pit in the short term. So, yes. So that's why we are looking at potentially some other options that we can bring those ounces forward into the plan. Obviously, if we do it from underground, the cut-off grade would be higher but we could potentially do it much sooner. So you would lose some of the ounces that are cutoff, but you would bring it earlier in the plan. In terms of the COVID situation, Prestea, in the quarter initially we saw cases at Tarkwa which I think impacted on the operations at gold fields. And Tarkwa is very close to Bogoso township. So we were sort of on watch at Prestea earlier. Wassa is a little bit more remote. So there were cases, community transition cases around Prestea earlier than what we saw around Wassa. And it was at that stage in terms of management, any suspected case was being managed by Ghana Health Service. That's relaxed a little bit now as Ghana Health Service sort of reached their capacity and obviously mining companies in particular, including us, have ramped up their ability to be able to help manage those cases. So those who were lagged in terms of testing, getting test results back and getting test back to contact tracing. So we had some of our people caught up in isolation for up to four weeks which is really hard on them and impacted on what was going at Prestea. We have moved on and we have updated our protocols from there to the point where, as Andrew mentioned, we have got our own testing capability now and we have got enhanced screening at the site. So we are able to, as people come back from their break, every single person coming back goes through a medical screen, temperature testing, oxygen saturation levels in blood, full questionnaire. Where have you been? Have you been with anyone with symptoms, et cetera? And everyone goes through that before they come into the workplace. So now we have started to see some cases at Wassa, but we have in every case but one so far, we have been able to isolate those people before they come on to the mine. So I would say, the contact trace has been much, much smaller. So, yes, that's just the timing of when that's occurred and as the protocol have evolved.

[Don DeMarco:]

Okay. Thank you gentlemen. That's all for me.

[Operator:]

I would not like to turn the call to Andrew Wray for any closing comments.

[Andrew Wray:]

Thank you Jason. Thanks very much everybody for dialing in today. We have got to call it a day then and get on with other calls. But you have got Michael's contact details. And any follow-up questions, please don't hesitate to give us a call. Stay safe and speak soon.

[Operator:]

That concludes today's conference call and webcast. Thank you for joining and have a wonderful day.