Golden Star Resources Ltd.
Q3 2018 Earnings Call Transcript

Published: 1 Nov 2018

[Operator:]

Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Golden Star Third Quarter 2018 Results Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Sam Coetzer. Please go ahead.

[Sam Coetzer:]

Thank you, Michelle and good morning everyone. As you know and as you heard, I'm Sam Coetzer. I'm the President and CEO of Golden Star Resources. Again, thank you very much for dialing in to the call this morning following the release of our third quarter results yesterday after market close. The third quarter was an important period in Golden Star's evolution. We're a small team, but we've achieved a lot in a short period time at both the corporate and operational levels. We successfully closed an accretive deal for our shareholders and this was negotiated internally without incurring substantial advisory fees. The transaction received shareholder approval in early September and received the net cash of just over 125 million on October 1. We've already began to accelerate our growth plans. With today six drilled rigs drilling at Wassa South deposit, two at Father Brown Satellite deposit and one at Prestea Underground. We've also commenced expansion at Wassa Underground and we've begun the process of right sizing the Prestea Complex. We remain committed to our best in class approach to corporate social responsibility and this was highlighted when we were featured in a Ghanaian TV documentary about women in mining. Women are represented at all levels in our company and we're proud to exceed the industrial reach for female employees by 50%. Unfortunately, during the quarter we also revised our full year guidance. I was disappointed to have to increase our cost guidance and to slightly decrease the production guidance, but I believe it's a short-term challenge. On the longer term investment case the company remains firmly intact. If you take away two messages from this presentation today, it should be these. Golden Star has the greatest exploration upside potential that we have ever had and it's now at its lowest risk. So let me begin with the presentation. Take note of our disclaimer and we'll just turn past that. Joining me on the call this morning are André van Niekerk, our Chief Financial Officer and Katharine Sutton, our Vice President of Investor Relations. After the presentation, there will be the opportunity to ask questions of all the team members, but first let's take a look at where we stand today. Turning now to Slide 4, we won't spend a lot of time on this. But just to briefly recap, Golden Star is a West African-focused gold mining company with two producing mines in Ghana. Our assets are situated in one of the world's most prolific gold belts, the Ashanti, in a very favorable mining jurisdiction. This year, we expect to produce between 225,000 ounces and 235,000 ounces of gold at an all-in sustaining cost per ounce of $1,050 to $1,100 an ounce. We finished the quarter with just over $18 million in cash, but that did not include the $125 million for the investment from La Mancha and that we received on October 1. The La Mancha is our new cornerstone investor. I believe we have the right partner, the right operations, the right people to create long-term shareholder value. Turning firstly to our production, in the third quarter we produced just over 57,000 ounces of gold, which was in line with our expectations. Wassa continues to outperform, delivering a 20% increase in productions since the third quarter of 2017. This demonstrates the robustness of the underground operation. This time last year, Wassa was still producing from both the open pit and the underground and now it's an underground mine only. At Prestea we implemented an improvement plan during the third quarter with the objective of reducing the mine's annual cash operating cost and increasing the production rate. The changes made as part of the plan have already yielded a 10% increase in Prestea's underground average daily production rate compared to the second quarter of 2018. I'll be telling you more about the improvement plan later in the presentation. The end of the third quarter, we produced just under 176,000 ounces of gold, which is 76% of the midpoint of the full year consolidated production guidance and we're well on track to achieve it. Moving on to cost, our consolidated cash operating cost was $780 an ounce in the third quarter and now all-in sustaining cost was just over $990 per ounce. Wassa delivered another impressive quarter in terms of cost, although it only partially offset the higher than anticipated cost at the Prestea Complex. As I mentioned on the previous slide, we've commenced the cost reduction program at Prestea, so we expect to see our consolidated cost begin to reduce in the fourth quarter of 2018 and then into 2019. It's encouraging to see the growth on the slide that Prestea costs have already decreased quarter-on-quarter in 2018. Now, at the end of the third quarter we are on track to achieve our consolidated cost guidance. We look at the operations in more detail. Let's discuss the most significant of thing of the third quarter, the $126 million investment by La Mancha. We believe that this strategic relationship gives us a compelling platform for growth in three key ways. Firstly, it has transformed our balance sheet. The substantial capital injection makes our balance sheet significantly stronger and more flexible. Secondly, it gives us the funding to fast track the exciting growth opportunities we have within Golden Star and I'll be discussing the use of proceeds in more detail on the next slide. Thirdly, it also gives us a chance to pursue other growth opportunities. Now, let's look at how we intend to use the proceeds. We expect to allocate the majority of the funds to further exploring and expanding Wassa Underground. We've already mobilized six drills to the Wassa South to gain a more thorough understanding of the opportunity it presents. We've provided ranges for each of the three areas of spinning as the size of the exploration budget is dependent on the success of our drilling programs. The exploration budget will then have a knock-on effect on the size of the other two budgets. For example, we've allocated funds within the exploration budget for two drill rigs to drill at the Father Brown Satellite deposit with the objective on converting inferred resources into the indicated category and extending the deposit's inferred resources. Should that drilling program yield positive results, then we'll look to develop a standalone operation at Father Brown to provide a second high grade ore supply to the Wassa processing plant. However if the drilling results aren't positive, we will choose not to develop the Father Brown underground operation. And instead the funds will be allocated to the corporate budget where they may be used to pursue other growth opportunities. Our vision is to operate multiple high-grade mines in a number of jurisdictions and to crystallize these external growth opportunities. So I think it's clear that it's a very exciting time for our company. Now let's take a look at each of the operations in more detail. I'll turn to Wassa first. The Wassa Complex produced just over 38,000 ounces in the third quarter, the 96% of the production attributable to the Wassa Underground. Wassa Underground is having a fantastic 2018, and that lead us to increase the mine's full year production guidance by 9%. We saw a 130% increase in the Wassa Underground production compared to the same period in 2017 and then performed in line with the second quarter of this year. The mining team continue to put a strong performance in terms of tonnage with an average daily mining rate of over 3,400 tons per day. This represents a 55% increase compared to the third quarter of 2017 and 28% increase compared to the second quarter of 2018. With an increasing number of stocks now being developed and the mining sequence now working really well, we're well prepared position to maintain this tonnage profile. The grade processed for Wassa Underground was lower than the first of the year at 3.7 grams per ton, over this was anticipated due to mining sequence. However, more importantly, we are finding more ore per vertical meter allowing us to mine longer on a level. This has now begun a grade attribute to Wassa. And importantly, the average grade process during the first nine months of 2018 was 4.33 grams a ton, which is above the reserve grade. Cash op cost, Wassa reported almost a 30% decrease in cash operating cost per ounce in the third quarter of 2018, compared to the third quarter of 2017 and $613 per ounce. Wassa team has also begun to look ahead of the next stage of this mine's growth. In 2018, we're targeting an average production rate of 3,000 tons per day and by mid-2020, we planned to be at 4,000 per day. We've already started upgrading Wassa's infrastructure and this were concluded installing new and larger fans commencing two new ventilation boreholes and increasing a longhole drilling productivity. The photos at the bottom of the slide shows the construction of one of the ventilation boreholes. I'm very proud of the Wassa team and remain extremely confident that they will keep up this great work. Moving now to Prestea, one of the benefits of having two operations is at wide flexibility. You remember last year when Wassa was transitioning from being a combined open pit and underground operations to becoming an underground only, the strong performance by Prestea open pits helped us to weather that storm. It took us three quarters at Wassa Underground to gain good understanding of the ore body and to optimize the efficiency of our blasting practices and we are seeing a very similar story at Prestea now. During the fourth quarter of 2018, we plan to close the Prestea open pits, so that Prestea Complex will begin in 2019 as an underground only operation. Once we effect this change at Wassa - once we effected this change at Wassa, the operations performance strengthened significantly and the operation is now delivering some of its lowest cost in the past seven years. The third quarter of 2018 was challenging for the Prestea Complex, but we're already taking major steps in order to reduce its cost and increase the production rate from underground and I'll tell you more about that in the next two slides. I went to Ghana a couple of weeks to go visiting both the operations and I've spoken detail with our team about the rollout of the Prestea improvement plan. We are committed to ensuring that the operation can begin in 2019 from a strong position and that means implementing the closure of the Prestea open pits during the fourth quarter. The pits have generated strong cash flow for Golden Star over the past three years, but now they are at the end of their mine life. Part of the closure proceeds, we will be downsizing the Prestea processing plant from a capacity of 4,000 per day to 700 tons per day, so it's a right size to handle suddenly underground ore. The plant remains scalable, so there is an opportunity to increase this capacity again in the future, but for now, smaller is optimal. We will also be reducing our workforce to allow us to move forward with a leaner cost structure and paying approximately $9 million in severance expenses. And we have optimized our management and supervisory structure to some major changes that's already been implemented. For making these changes, we can decrease the Prestea's annual operating cost by approximately 30% or $25 million, rightsizing this operation is paramount. Now, let's take a look at the other part of the Prestea improvement and which is increasing Prestea's Underground production rate. Early in the third quarter, we made the decision to bring out Alimak training program in-house, instead of using a contract training company. We believe this allows the program to better integrate it for the rest of the operations and it makes the management of personnel, equipment and now machinery more efficient. The results, we've already seen improvement on our key lead indicators of longhole drilling and raise development has improved. We also saw a 10% increase in the average daily production rate during the third quarter of 2018 compared to the second quarter of 2018. We decided to purchase two additional Alimak's, which are expected to increase flexibility of the mining sequence. The first Alimak has already arrived on site and is currently being installed. And the second is due to arrive early in the New Year. Once the downsizing of the processing plant is complete, we expect to see an increase in the recovery rate in the same way as we've seen it at Wassa, due to the increases at residence time. Currently, the Prestea Underground ore is expected to have recovery of approximately 94%, although following the downsizing, we anticipate it will increase further. We also expect the operations power consumption to decrease as we will be reducing the capacity of the plant of over 80%. We are hosting an Analyst and Investor visits to both our operations in Ghana next week and I'm very confident that they will be impressed by what they see above mines. Wassa is trying to deliver a strong performance and major changes are underway at Prestea that allow us to begin 2019 from a firm filly [ph]. This stage, I'm going to hand over to Andre, Chief Financial Officer, to give you an update on our financial position.

[Andre van Niekerk:]

Thank you, Sam. Firstly, the net cash of $125 million from the private placement was received October 1st, so it isn't reflected in our cash position of $18.4 million at the end of the third quarter, but we are now very well positioned to execute on our exploration and development plans. Now looking at the third quarter financial results, revenue of approximately $68 million, were down 23% compared to the third quarter of 2017. This is primarily due to the 53% decrease in revenues at Prestea and also the lower average gold price, which was only partially offset by the 14% increase in revenues at Wassa. The consolidated mine operating margin for the third quarter of 2018 was approximately $10 million, which is 62% lower than in the same period of 2017. Wassa's mine operating margin increased 280% to approximately $14 million in the third quarter of 2018. The increase is due to both higher gold revenues and lower mine operating expenses. At Prestea, we incurred a 3.5 million mine operating loss in the third of 2018, compared to $22 million mine operating margin in the same period last year. This is due to lower gold production from the Prestea open pits and a slower than expected ramp up of the Prestea Underground mine. For the third quarter, we reported a net loss attributable to Golden Star shareholders of $3.2 million, compared to a net attributable income of $12.1 million in the third quarter of 2017. This was due primarily to a decrease in the mine operating margin and increase in deferred income tax expense at Wassa and an increased financing expense. This will partially offset by a decrease in the loss on fair value of financial instruments, lower G&A expenses and an increase in other income. On an adjusted basis, we reported net income attributable to Golden Start shareholders of $3 million. Lastly, at the end of the third quarter, our principal debt outstanding was approximately $114 million, and $4.1 million of principal repayments were made during the quarter. Back to you Sam.

[Sam Coetzer:]

Thanks, Andre. It's great to hear that we have positive working capital and there are no overhangs on our growth going forward. Now, let's take a look at one of the most exciting process of Golden Star story and that is exploration. I love this slide, it show Wassa's Underground exceptional resource growth over the past five years as well as the development milestones. We drilled the first hole in 2011 to explore the Wassa deposit, the potential at depth and since that time we have increased its resources by more than 20 times. One of the biggest outflows came earlier this year when we increased the Wassa's Underground inferred mineral resources by almost 150% to now over 5 million ounces. The La Mancha basement is the testament to the quality of the Wassa deposit and it demonstrates they believe in its future growth potential. The latest drilling results suggest that there is more growth to come and I'll discuss those on the next slide. In late September we released the drilling results showing that the Wassa deposit extends a further 200 meters to the south of the existing inferred resources. Some of the new results which are shown on the slide in blue reported intercepts of 64 meters at over 7 grams per ton, these followed it up on earlier outstanding drilling results from the deposit including a 134 meters at 4 grams per ton. We will expect these latest results will lead to an increase in the Wassa's resources and the next update is planned in February next year. We haven't found the extent of the deposit yet, as the deposit remains open down plunge and also up and down dip. So we will be accelerating our drilling program to gain a more thorough understanding of Wassa's largest scale, longer-term potential as I mentioned earlier in the presentation. Wassa South represents a compelling opportunity to increase production significantly at the Wassa Complex. You might have remember at the start of the year that we outlined five new underground progress for exploration, as part of our strategy, and that was to fill the mill and Father Brown was one of them. Father Brown is a satellite deposit to Wassa that we mined previously as an open pit operation and the average grade in the past was over 5 grams per ton. As I mentioned earlier, we are now investigating the opportunity to mine this as an underground operation, as it has the potential to provide a second source of high-grade underground feed through the Wassa processing plant. It has almost 500,000 ounces of resources already and we believe there is a significant upside potential through exploration. We commenced drilling with two rigs at the end of the third quarter and we are expecting to release the first drilling results during the fourth quarter. There is already significant existing infrastructure at Father Brown, including a haul road connecting it to the Wassa processing plant. This means and we choose to commence underground production, limited capital expenditures will be required. Let's take a look at what we can expect from our internal growth opportunities going forward on the key milestones over the next few months. So let me present the slide before you know it's one of my favorites in the deck. However, with the most recent investment, we have taken a significant step closer to changing it from a concept to a plan. It shows that with our expected exploration success, we can substantially increase our production rate without having to incur significant additional CapEx, and that's an opportunity that I believe not many companies have. When we started developing the two underground mines, we decided to building more capacity than we originally needed in order to allow us to grow our production profile in the future, and Wassa is already a testament of that. So going forward, the focus will be our exploration team to accelerate our drilling programs and demonstrate the full potential of our ore bodies. We can then begin to unlock the larger scale, longer-term opportunity within both our underground mines. Since we secured the investment we have begun to advance our organic growth opportunities with urgency and results. As I mentioned earlier, we have commenced drilling at Father Brown satellite deposit already. We now have six drills at Wassa Underground, so we can accelerate the drilling program. We've started to take the necessary steps to expand production at Wassa Underground including undertaking a ventilation upgrade. During the fourth quarter, we will be implementing the closure plan of Prestea open pits to allow for a right size of the Prestea Complex. I believe Golden Star offers a compelling investment case, which we expect to be enhanced by internal and also external growth opportunities going forward. Thank you very much for listening, and at this stage, I'll hand it over to the operator, so that we can take some questions.

[Operator:]

[Operator Instructions] Your first question comes from Nana Sangmuah, Clarus Securities. Your line is open.

[Nana Sangmuah:]

Thanks, operator. Congrats on a good quarter. So I have a couple of questions from me. On the underground shaft sinking at Wassa, could you provide some color on timing? And given the recent success in growing the resource space, what sort of hoisting capacity has been envisaged there and would that be incremental to the 4000 tons per day that you're projecting for the underground operation?

[Sam Coetzer:]

Right, Nana, thanks, great question. As you gather, we are moving from concept to - moving into thinking forward, so let's make the assumption that those 5 million ounces down there is going to profitable and it's a right thing to do. The plan would be, yes, to move the sequence in the following way is to, number one, bring Father Brown in the short to medium term before the shaft will be sank, the shaft will then - if that pans out from the exploration, probably 2022 to - completed in 2024. Our intention would be to fill the plant with 8000 tons of underground ore, almost close to that as we can possibly can. So your answer would be right. It will be incremental, but we also helping to add from Father Brown, which will be a higher rate of return ore body should that turn out to be possible for us.

[Nana Sangmuah:]

Great, thanks. And the CapEx provided as a guidance for '19 to '20, what sort of breakdown are we going to be seen in '19 in particular and constant in the pace back fill [ph]?

[Sam Coetzer:]

Right, concerning Wassa, so as you would gather, I have not had an approval or sign of win of budgets with our Board, but I can give you rough number at this point in time. We are in the midst of our final budget preparations. So I think talking to Martin recently, looks like 16 million next year and spending on the pace for system and then as you saw the exploration for next year what you want to focus on round about 25 million next year on the exploration budget. But other than that is I need to go through the process of completing our budgets, but that's roughly, Nana, where you could be thinking of.

[Nana Sangmuah:]

Great. And just one last one if I may on Prestea, I noted the sequential improvement quarter-over-quarter, can you comment on - from quarter-to-date, what do you continue you to see in terms of throughput and greater conciliation?

[Sam Coetzer:]

Yeah. And I maybe - I'm going to take a little bit longer on answering this question. We now know the mining effort and the equipment is the right equipment. What we do realize is that it is more organizational of nature that we had competing at activities on that level because of the - just the close proximity. We have now adjusted organizational plan ensuring that these activities are better supplied with the resources required. Since we've introduced that we see marginal improvements when the next Alimak comes in, we will see more flexibility exist for the teams to enter these folks, so they don't really falling out on one another if you want to call it that. My expectation is, you probably going to see some way between 400, 450 in this quarter as we embed some of the organizational components of plan and hopefully will be ready next year to run at a much lesser reduced cost basis similar to what you saw at Wassa in the third and fourth quarter before we close down the open pits and became focused only on one activity and that's the underground.

[Nana Sangmuah:]

And were the grade reconciliation, any commentary on that?

[Sam Coetzer:]

No, I think the grade is what we expect, you know, the ore body is not - I think in the first quarter, I can't remember, we were over the reserve grade 30 grams a ton, I think the second quarter the ore body would go up and above low those ore grade from time to time. But you may sense what we need to do get that grade stabilize is to have a consistent flow of stock ore and that's what we're focusing on.

[Nana Sangmuah:]

Great and what we - Alimak patches that came through, we done with additional capital spend or we should be on this stage at any further capital budgets to the underground?

[Sam Coetzer:]

At this year we will really have high level of capital because it's been relatively looked in the process as you know. In Alimak, I think the cost was about $0.5 million for Alimak. So they are not large capital but they can give you a very little people, obviously, a good flow of ore. So it's not high capital though we bought the two, it allows us to flexibility now.

[Nana Sangmuah:]

Great, that's it from me. Congratulations once again.

[Sam Coetzer:]

Thank you, Nana.

[Operator:]

Your next question comes from Justin Chan from Numis Securities. Your line is open.

[Justin Chan:]

Hi, Sam, thanks very much for the color.

[Sam Coetzer:]

Thanks, Justin.

[Justin Chan:]

Hi. So my first question is just as a follow-up to Nana on Prestea, what are your thoughts on - when do you hope to reach your 600 ton to 700 ton a day target? And I guess as a follow-on on that, should we expect three active stopes being marked at some stage of development when you reach that, is that the thought on the mining sequence?

[Sam Coetzer:]

Yeah, Justin, since you know it really well. It's about 16000 to 18000 tons in the stopes, so as you take 600 to 650 the day over 90 days it's about 2.5 to 3 stopes were in a month, so if you want to get through, so that is our target that we are now working, our development and the raises are well at front from us. As I indicated earlier, it's not a mining issue, it's more organizational, closed proximity of people, we're structuring the business a bit better in order to make sure that there is more efficiency in the amount of hours that we have for the people underground. And since we've done that, we've seen that increased a bit. The bottom line is we are targeting to bring as you say is a stope a month, which is about to 600 ton to 650 tons a days, and you always have a bit of development in advance with that, as your develop raises going forward.

[Justin Chan:]

I see. So I guess - should I assume post the seventh Alimak getting well but it ends towards the end of Q1 or maybe H1 next year?

[Sam Coetzer:]

Yeah, I would - I would think that would be a great assumption for you, to me moving forward. The first big component for us is that the right sizing is started and activities is now focused only probably on the underground. And the next component is to ensure that we have this. So I do believe the average would be about 650 next year. Hopefully we can do the same we did at Wassa launch, we right sized it.

[Justin Chan:]

Okay. Excellent. And on Wassa, my first question is just on grade, in the first half year, it's running above the reserve model and it's varied a little a bit. Was that due to the higher production rate and was it all solution related or is it mostly just stope grade, was it result of the stope grades and geology?

[Sam Coetzer:]

Well, it's a grade ore body and I'm glad you asked that question. Firstly, sequencing will allow you to mine the average grade of reserve over a 12 month period. What I indicated earlier, what we are seeing at Wassa which drives also the cost and the margin is we're getting now our ore per vertical meter is increasing as we go down the mine, refining 20% more stopes or more ore per label which would be massively additive to it, so we - we're finding that we are - could mine more, more beneficial grades that is already been developed but the reserve grade is still what we believe is going to be 4.1 gram a ton, and over a year you might see the fluctuation. But what excites me most is that we have this positive conversion of the short term mine plan into the ore body is bigger than what we have thought in our initial models allowing us to build in the additional capacity and get the higher tonnage than Q2.

[Justin Chan:]

Okay. And between here at 4000 tons a day and you said the mid-2020 target for that. You're already at 3400 tons a day. Is there any upsides to that timeline and could you just go over what the intervening steps are?

[Sam Coetzer:]

Yeah. To me when I look at a mine is about sustainable, if you want to be a 4000 tons day, you got to make sure all your systems are in place. We probably have the ability from our drilling and our blasting and our stopes sizes to let 4000 tons a day. But what will happen as you go deeper down the mine you still need that ventilation restriction. You don't want to break the regulations when you lose productivity. So, yeah, on the short term you could probably do that, but we - by the way that Martin and the team looks at we - we're scheduling it really well, so that we keep on gaining the productivity that we have and making sure that we have a very safe working environment. Well, I showed answers, we - probably we've see days running at 4000 tons a day, but you got to determine where are you sustainable in terms of the current infrastructure. And requirement for longer-term to be at 4000 tons a day will be a pace of system. I think the ventilation is now fairly sorted, so that pace will allow us to go back after to the mine, take some of those folks that we lift as full as mine then, so you will see some tons coming out from lower cost base in the future because of the pace of system that has already been developed. So the numbers are giving us more sustainable rather than maybe for a quarter or two, Justin.

[Justin Chan:]

Okay. That definitely makes sense. So for next year at Wassa, best look at it on reserve grade 3400 tons a day basis that -

[Sam Coetzer:]

Yeah, that's what we would guide you. We will - well, we're going to have budgets, I'm very excited about this mine and I can see some low-hanging fruit, but for time being why don't you do that?

[Justin Chan:]

Okay. Okay, great. Thanks a lot Sam. I'll open it for other people to other questions.

[Operator:]

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

[Unidentified Analyst:]

Hey, guys, this is Mehta [ph] her for Heiko. Thanks for taking our questions.

[Sam Coetzer:]

Hey, Mehta, welcome.

[Unidentified Analyst:]

So, I assume there is no definitive or specific answers, but please walk through when you expect to spend some of the amounts you're posting maybe quarter-by-quarter over the next few quarters and how much approximately has been spent thus far?

[Justin Chan:]

Sure, that will be too detailed, now as I said, we follow a person that is approved by the Board, we have a use of proceed which we've indicated, which I think in the totality is probably fairly close, you can work on the numbers that we put in, in the totality. On a quarter-by-quarter basis, I need to see how some of these spinning's are dependent on another activity that needs to be completed. So let us go through our budget process and then deliver that in total with the production profile that we will see, Mitch. In terms of your question, we started spending. Of course we have - as you've to raise boreholes. We - our assumption was we are going to be successful with the investment. We put in the larger plans at Wassa already. We started with drilling at Father Brown. So we got six drill rigs that started running ahead of the schedule of the proceeds. We were confident that our shareholders will be positive and we made the decision like we've done in the past to keep momentum. This mine has a great opportunity and all it needs us to unfold that and we are going to keep that momentum up.

[Unidentified Analyst:]

Perfect. Thanks for that color. And then on the same topic you guys have decided about $75 million from the La Mancha investment to general corporate purposes assuming all exploration and development continue at the low end of that range. This is mining and things tend to happen, maybe expected at times, but would you really keep the 75 million on your balance sheet or should we expect some transaction or other moves with these funds?

[Sam Coetzer:]

Firstly, it's very nice for us to wake up in the morning and see a decent cash balance, I mean that is great. We're going to be extremely disciplined in that approach. As you see from a use of proceeds, return on investment is the highest from organic growth and so - and that's why we indicated the Father Brown and the extension of the Prestea and the Prestea deep. So from a business perspective, from how the board and management looks at that, that is the number one focus that we want to do because it's the best value for the money. Should any of that have as you say a hiccup or it doesn't pan out to be the way we were - we have a voucher been available to ensure that the growth of this company could be forward and see if we can move into from being small to mid-tier over the next five years.

[Unidentified Analyst:]

Perfect, thanks a lot guys. Have a good one.

[Sam Coetzer:]

Thanks, Mehta.

[Operator:]

Your next question will come from Andrew Breichmanas from BMO Capital Markets. Your line is open.

[Andrew Breichmanas:]

Thanks, good morning. So just following on from the last question about the proceeds, I know you provided an allocation and set the success based ranges, but can you talk a little bit more about how you quantify that success for exploration programs and what sort of rates you may plan on using to make investment decisions on development or expansion projects like Father Brown?

[Sam Coetzer:]

Yeah, a good question. So how are we looking at expansion, I think the first target we want to do for resources. I'm answering you - hope not to way [ph], is to get the resource to 10 million ounces and so we've got some extension growing that we want to do. And secondly, all those drills have been conferred, some of the inferred into indicated, we also have allocated some into proven, if you want to call it proven reserves drilling and the reason that is important Andrew is we keep on seeing this positive conversion once we get onto the level. If we can this upfront from us, making decisions on short-term improvement or short-term increased capacity in terms of development spending or how much development you need compared to your - to what you can mine, could have a good effect, a positive effect on the company. So that's some exploration at Wassa is the focus and once we get to see what that deep shoot and that wide zones look like, it will allow us to immediately go into the studies and determine how to unfold that. Father Brown as you know and you've been with the company for a long time, we mined it extremely successful in the past and we've indicated in the last two years, we need to get back into that, we just didn't have the capital to do that and I've always been extremely excited about it. And that's why we already started drilling. We got the permits very quickly, we got the support of the communities and we currently have two drills drilling at Benso [ph] and Father Brown at this point in time with the intention to fast track that in very similar that we did when we developed the Wassa mine with the decline going into the ore body very limited capital required. So I don't know if that fully answers, but that's the concept that we're following.

[Andrew Breichmanas:]

Okay, that's helpful thank you.

[Operator:]

The next question will come from Bryce Adams from CIBC. Your line is open.

[Bryce Adams:]

Good morning Sam and team. Thanks for taking my questions. Many of them are answered already. First, we look at the tonnage of Wassa, the Q3 pretty solid results there and you highlighted Q4 is on track for the 3,400 tons a day run rate as well. This relates to the increased number of stopes as well as larger stopes, is that a function of both of those?

[Sam Coetzer:]

Yeah, it's - as I said we - as we're one year into this ore body Bryce, it's giving us really a lot of more confidence than we had when we did the feasibility study at 2,400 tons a day. You can imagine as you develop stopes and you had an envelope that you drilled and as you get in then you do your delineation and you see the stopes are 20% larger or the lateral extension allows you to mine longer at the level, then that is the positive. So we've now more than sufficient targets at Wassa to run very comfortably at the rate that we see. This mine I would say, probably the start of the second quarter has just not had one single hiccup. The other advantage I want to tell everybody earlier is when you run only one hole in the plant at 4,000 tons a day, your processing plant is at a 100% availability. So having that benefit and then obviously the residence time that we now have in the plant with a higher recovery allows us to just fill this with ore without ever being low on availability or not being able to move. So to answer, yes, we have more than sufficient stopes, we have a - we continue to drill the delineation of the stopes into the next panel, which is panel 2. When we refer to a panel it's not one single stope. A panel is really a 18 month period, if you look at that plan that we showed, we have the opportunity to drill actually the gaps between the two panels which we think is going to fill in, we'll let you know about that if that fills in we constantly will be adding stopes. You're going to call it and look when we extend our profile going forward.

[Bryce Adams:]

Okay, so for the plant or drills once you complete the plant [indiscernible] you continue to take cuts beyond that - beyond the original plan?

[Sam Coetzer:]

Correct, that is correct. Some of them are just bigger. When we drill the delineation from what was in the original exploration model. So assume the exploration of original model indicated the stope is 20 meters wide when we do the delineation you can see up to 30 meters wide and longer. So in both directions we're getting the positive conversion.

[Bryce Adams:]

Okay, regarding the ventilation upgrade, will that benefit Q4 and 2019 production as well as enable 4,000 tons a day longer term?

[Sam Coetzer:]

Yes, that's why we did it sooner rather than later. Ventilation allows you to put more horsepower underground, so and allows for increased drilling, increased development, right sizing the mine and just because general conditions are better for us. We also started with raisebore, [indiscernible], we have to fill some of these upper stopes with consolidated rock and then look at taking some of those pillars earlier rather than later. So lot of benefits this mine, this ore body is really turning out to be turning out to be really special of all the mines I've been in my 35 years. This one is just very special for us.

[Bryce Adams:]

On sustainable production of course you need to have longhole drilling and you mentioned there was a record of 1,000 meters in two shifts?

[Sam Coetzer:]

Correct.

[Bryce Adams:]

What's that, is that a function of adding extra drills or you got some easy drilling there?

[Sam Coetzer:]

No, when we did our first assumptions on the hardness of the rock and very stiffness of it, you make an assumption on your - life of your drill bits, how often you have to change that. You make assumptions on water, hydrology in the holes et cetera. There are a bunch of assumptions. What we're seeing into - firstly, we have a great fantastic team on our data solos, we see the penetration rate is better than what we predicted. We see the life of our bits being longer, we actually had now installed our own bit sharpening system which allows us for quicker and better bit performance. I'm just so impressed. I had not seen this kind of drilling performance and it is just - don't know what to tell you, it's just fantastic to see how well these data solos drill these ore bodies and it's fantastic to see it.

[Bryce Adams:]

So the abrasiveness for the abrasiveness on the rock, does that translate onto wear and tear on the bucket and how it damage as well?

[Sam Coetzer:]

Yeah, so and I think that's why we're seeing the improved tonnage rate and the lower cost and the higher productivity. I think it's all of the above and that's why Wassa keeps on bringing its cost down and continue to improve its production profile. With this investment that we had we're now clear, we got to look at how do we fill to 8,000 tons a day, if this ore body is going to be as easy to mine and now deep drilling is showing very similar ore types, very similar hardness, very similar attributes and we need to make sure we understand what we have at depth as well.

[Bryce Adams:]

Switching to Prestea on the severances, any indication on the timings that we saved throughout Q4 or done simultaneously?

[Sam Coetzer:]

We want to finish it in Q4 like we did last year, the rate of return on that is rapid. At Wassa when we did that you saw how the cost, I mean you can just see this year since we closed down, the open pits reduced the power cost, reduced some of the G&A cost. That translates very quickly to the bottom line and our intention is to do the same at Prestea.

[Bryce Adams:]

And that sort of would be staged throughout Q4 that's what you're saying?

[Sam Coetzer:]

Yeah, it will be staged through Q4. So there is always negotiation and we've completed most of those negotiations now.

[Bryce Adams:]

So the payments and they're expected to be 9 million, the last disclosure was 5 million, is that due to change in terms or number of employees to be served is increased?

[Sam Coetzer:]

Yeah, not –the terms are very fixed, this is low or its pre-negotiated, so we know those terms. I just think that we saw other benefits in terms of maintenance that we could do to reduce the maintenance component of people utilizing the skills across the two companies. We've done our plans on that, so they're running on the capacity, so you can utilize the lower labor force in terms of your maintenance. So we did adjust it upwards, but it's for the right reason and of course you will see the benefit of that coming down.

[Bryce Adams:]

And so the reason is increased headcount or decreased headcount?

[Sam Coetzer:]

Yeah.

[Bryce Adams:]

Yeah, my last question is just to help me with my cash. Your 11.5 million in PSUs that were recently paid, were they paid in cash?

[Sam Coetzer:]

Yes.

[Bryce Adams:]

Okay, that's all for me. Thanks very much.

[Sam Coetzer:]

Alright, thanks.

[Operator:]

Thank you everyone. That will bring us to the end of today's Q&A session. I turn the call back over to the presenters for closing remarks.

[Sam Coetzer:]

Thank you, Michelle and thank you for everyone listening and I'm looking forward to see you. Enjoy the site visit next week and get some of the reports back and I'm sure it will be great. Thank you everyone. Bye.

[Operator:]

Thank you everyone. This will conclude today's conference call. You may now disconnect.