Golden Star Resources Ltd.
Q1 2016 Earnings Call Transcript

Published: 5 May 2016

[Operator:]

Good morning everyone and thank you for joining us to discuss Golden Star Resources’ First Quarter 2016 Results. The financial statements were filed last night and these are available on the Company’s website at www.gsr.com. Please also note the forward-looking statement and legal disclaimer on the webcast presentation. I will now turn the call over to Sam Coetzer, President and CEO of Golden Star.

[Sam Coetzer:]

Thank you, good morning everyone on the call. Joining me today on the call are my colleagues, André van Niekerk, our Chief Financial Officer; and Daniel Owiredu, Chief Operating Officer, Lisa Doddridge, Vice President, Investor Relations and Corporate Affairs and all of that today, I will have Dr. Martin Raffield, Senior Vice President Technical Services and also for the Projects. But firstly, I want to thank both Daniel and André for their incredible effort to raise the money that has allowed us to reach an agreement with large creditor in the last week. Earlier this year, when we released our fourth quarter and full year results, I indicated, I was both proud and relieved by the significant progress of the Company’s transition. Results in this quarter continue to demonstrate this transition. Let me start by reviewing the highlights of our first quarter financial performance and other developments in the Company. Our first quarter results were well within expectations and continue to demonstrate our transition to a new and better company. They are consistent with their fourth quarter. Gold sales were comparable to the previous quarter, while our average realized gold price increased. We generated over $4 million in earnings that have been adjusted for certain non-recurring items which equates to $0.02 per share. We generated cash flow before changes in working capital of $0.04 per share. And our capital spending of just under $16 million# was exactly as planned leaving us with close to $15 million in available cash at the end of the quarter. Since the end of the quarter, we have received $20 million scheduled payments from Royal Gold with an additional $50 million in additional payments from them over the remainder of this year. In addition, we repurchased some of their outstanding convertible debentures at a significant discount, bringing down the principal amount outstanding to just under $74 million. This last week, we announced a bought deal financing, which is expected to generate gross proceeds of about $15 million for the deal closing on or about May 9. In relations to the financing just yesterday, we signed an agreement to settle $36.5 million of current account payable with one creditor. Under the agreement we will pay $12 million by the end of June this year and the remaining of $24.5 million will be deferred until January 2018, after which we will pay this amount in equal installments over 24 months. This deferred amount will be reclassified to longer term debt. Now turning to our operations, in general, both sides delivered on if not exceeded our own targets. Gold production in the quarter totaled 53,000 ounces, the level established in the fourth quarter and cash operating costs continued to be well below historical levels but consistent with the fourth quarter and just over $720 per ounce for the quarter, increasing our cash operating margin, significantly even despite the lower gold price. For the quarter, all-in sustaining costs were just over $960 per ounce. Before I get into the specifics of the operations, I'd like to take a minute just to highlight the significant progress made on the reduction but also the sustainability of our new cost structure, our cost – cash operating cost declined by 32% from the first quarter 2015. Our all-in sustaining cost improved by 17%, this is not a true reflection of our achievement in the containment of cash cost as our G&A in the quarter, which is captured in our all-in cost calculation includes $4.2 million non-cash accrual for share based compensation caused by the significant increase in our share price. Despite this, I believe this is a clear demonstration that the Company’s cost structure has stabilized and is sustainable as we continue to transition to even lower cost. I would now like to review each operation. I’ll start with Wassa. Wassa continues to deliver solid results. Gold production has improved by 35% from a year-ago as the grades and recoveries, improved and cost declined significantly. I do however want to mention that we expect a weakest second quarter, mainly due to planned maintenance shut down scheduled for early this quarter, which we have already completed. During the first two weeks, we went into a shutdown and changed components of the crusher, which had to be looked but replaced and work was done on the mine foundation and we replaced that electrical systems in the ECIR [ph] section and that was upgraded. We also expect for that our second and third quarters will be impacted slightly by the rainy season in Ghana. This is all normal course and was contemplated as part of our guidance. Taking a closer look all cost at Wassa, you can see that our cash operating cost declined by 37% from the first quarter last year. When you look at the cash operating margins generated at Wassa, which is simply the gold price minus the cash costs, you can see that despite the decline in realized gold price, our margin grew to 39% of the gold price or $458 per ounce. As I mentioned we do expect a lower level of production in the second quarter and also in the third quarter and the cost structures will reflect that. As I’m sure you recall we are currently building an underground mine at Wassa to more quickly access some of the higher grade ore and to accelerate cash flow generation. We expect to commence the blending of higher grade, underground ore into the plant towards the latter part of this year. The first ore from Wassa underground expected in mid-2016. Once fully ramped up, we expect to about 2,500 of the 7,000 tons per day to come from the higher grade underground mine. We expect to reach commercial production in the early 2017. The life-of-mine average production, as indicated in the feasibility study is expected to be approximately 160,000 ounces, which represents some increase of 34% in commercial ounces from this year's level. This year, our expectations are to produce, a 100,000 ounces to 110,000 ounces from the open pit and about 20,000 ounces to 25,000 ounces of pre-commercial production. We continue to focus our efforts on developing the underground mine and one year in we’ve accomplished many of the critical path items. As I stated earlier, we are just completing some planned work on the plant to ready the processing facility for the blending of first underground ore which is expected shortly. We have also made significant progress on development with over 1.9 kilometers of development completed to-date, which includes just under the 800 meters developed in the quarter, and to-date the daily average that exceeds our fourth quarter average. Development has now reached the shoot and we will start all development. Everything at Wassa remains on track. Moving onto Prestea the open pit operation has been exceeding our expectations, a testament to the focus of our mining and processing teams at Prestea. As a reminder, we have only two operating quarters exclusively from these open pits in which there were no refractory ounces produced. So we are providing the comparison to the fourth quarter, as it provides better comparability. Production in the quarter was comparable to the fourth quarter with a 30% improvement to cost a slight decline in grades was offset by improved recoveries and throughput. I remain very encouraged with the performance of the plant which will eventually process the Prestea Underground ore. Reviewing the future of the Prestea mine’s production, we continue to rehabilitate the Underground at Prestea and we are committed to supplying ore from our open pit sources and fill, high grade underground mine spots delivering ore to the plant. This year we anticipate delivering 60,000 ounces to 70,000 ounces at a cost of $840 to $970 an ounce. Now I’d like to give you the specifics of the Underground project. The update to the feasibility study completed in March indicated a total average life-of-mine production of 90,000 ounces and an average life-of-mine cash operating cost of $468 per ounce and an all-in sustaining cost of $615 an ounce. This represents increase in production of approximately 38% and a decrease in cost of approximately 48% from currently expected levels. Prestea will be a very different operation in the future. First gold production is expected mid-2017. And I now would quickly review the status of the Prestea Underground. The rehabilitation of the Underground work is now well underway with most, if not all, major shafts were completed. The rail work in 24 level is also completed and we are now in the process of upgrading the winders and the electrical systems. We remain on track to deliver first gold from Prestea in the middle of 2017. We did reiterate our guidance for the year and we remain on target to achieve that. As I mentioned earlier the [indiscernible] that expect – where we expect to the second quarter and third quarter has been factored into our expectations for the year, we remain on track. In this slide you can see the profile of our expected production. You will notice that in the first quarter we expect significant contributions from the Wassa Underground mine. Once to two underground projects are fully ramped up, replacing level-grade tons with higher grade ore production, production levels is expected to increase by approximately 50%. And we continue to look at the opportunity that remains for the Prestea open pit to extend production and mine life for the open pits, from our exploration activities. Finally, and just before I hand it over to questions, I’d like to highlight what we re focusing as a team for the coming year. And that is to bring Wassa underground into production, as we planned to advance the Prestea underground, to continue to improve the balance sheet of the company and remain extremely disciplined in all aspects of the business. Thank you operator and I will hand it over to you to open it for questions, thank you.

[Operator:]

Thanks to you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question is from Raj Ray, National Bank Financial. Raj, please go ahead.

[Raj Ray:]

Thank you, operator. Sam good morning, as well as good morning to rest of the team there.

[Daniel Owiredu:]

Good morning, Raj.

[Raj Ray:]

It’s definitely good to see some consistency and the improvement in operations, just a quick question on the strip ratio at Wassa and Prestea in 2016. What do you expect the numbers to be?

[Daniel Owiredu:]

Wassa will remain round about four, Prestea would be 2.5, two point – as we are currently sitting about 2.18 probably 2.5 is what I would average that to.

[Raj Ray:]

Okay and with the underground development in Wassa, have you done any underground growing and how is that grade be concerning with your model, there?

[Daniel Owiredu:]

Yes, obviously you can imagine we are months away from developing our first step. So we did – we started with the delineation drilling and also an extension of the down plunge and reconciliation still indicates that I don’t need to change any guidance. And our expectation is what we expect to deliver, by the end of this year and going forward. So yes we focused on delineating the executed steps [ph] as we will be there in the next quarter, basically starting to prepare for it.

[Raj Ray:]

Okay. And then on Prestea Underground with the change in mining method to mechanize the shrinkage stoping, do you expect any increase in up front capital?

[Daniel Owiredu:]

No, but I’ll add it to more to just to give you bit of a highlight maybe how the mechanized shrinkage operation was modernized [ph] no capital increase right.

[Martin Raffield:]

Raj, yes, sounds right there, there’s no overall capital increase, there’s small changes in various areas of the project. We are not spending the capital on exactly the same things, we are going to be using mechanized equipment underground. So overall, the profile of capital is reasonably the same and we have no material change from the original feasibility study.

[Raj Ray:]

Okay, thank you. One last question on the exploration at Prestea open pit, when can we expect to see some results from there?

[Martin Raffield:]

We are drilling; we are two drillers drilling that area to extend. We didn’t plan to release. We are looking at – how to extend that operation and we continue to drill. They are not very deep holes Raj they are about 40 meters deep into the oxides. And we will probably – maybe by mid-year I’ll give an update on whether there is an increase in what we see.

[Raj Ray:]

Okay, thanks. Thanks and thanks for your time.

[Martin Raffield:]

See you.

[Raj Ray:]

Okay, thanks. Thanks and thanks for your time. And then congrats on a good quarter.

[André van Niekerk:]

Thank you, Raj.

[Operator:]

Thank you, ladies and gentlemen. [Operator Instructions] There are no further questions at this time, please proceed.

[Sam Coetzer:]

Thank you operator and thanks to all of those listening to us, we have the IGM [ph] to date. And I’m excited about how this company is moving forward and I hope you continue to follow this company the story is unfolding really well for us. Thank you everybody and bye.

[Operator:]

Thank you, ladies and gentleman. This concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.