Golden Star Resources Ltd.
Q3 2016 Earnings Call Transcript

Published: 3 Nov 2016

[Operator:]

Good morning everyone and thank you for joining us to discuss Golden Star Resources' Third Quarter 2016 Results. The management discussion and analysis and the financial statements were filed last night and these are available on Sedar as well as the Company's website at www.gsr.com. I will now turn the call over to Sam Coetzer, President and CEO of Golden Star. Please go ahead.

[Sam Coetzer:]

Thank you, Diana. Good morning everyone, I'm Sam Coetzer, as you've heard, the President and CEO of Golden Star. Thank you very much for dialing into this call this morning, following the release of our third quarter results yesterday after market close. I'm going take you through the quarter and tell you about the huge transformation we have undergone in the past few years, to leave behind our history as a high-cost refractory producer to become a high grade low-cost non-refractory producer. This is third part of the streamer. Joining me on this call this morning is André van Niekerk, our Chief Financial Officer who has been very busy on our balance sheet lately; Daniel Owiredu, our Chief Operating Officer has been very active to get the operations to operate for the future; and then Katharine Sutton, our Director, Investor Relations and Corporate Affairs. After the presentation, there will be an opportunity for you to ask questions of all team members, but first let's take a look at who is Golden Star and why you should invest in us. I won't spend a long time on this slide as I'm sure many of you already have a good knowledge of the Company. The Golden Star is an established gold producer with two producing mines in Ghana, a stable jurisdiction. Historically we have produced over 4 million ounces of gold and this year we are on track to meet our production guidance of 180,000 to 205,000 ounces. Production in expected to expand and cost are expected to continue to decrease. This is due to a high-grade underground development projects at both of our new mines including Prestea Underground which had a head grade of about 14 grams per tonne. We have mineral reserves of over 2 million ounces, they are all now non-refractory and we have significant upside potential as going forward, we will be focusing on expanding the lives of our operations. We also have one of the largest land packages of any company operating in Ghana including the major producers such as Gold Fields and Anglo Ashanti. We have our experienced management team with the complementary skillset. I believe despite our strong performance over the year-to-date remained undervalued on a number of metrics compared to our peer group, meaning there is an attractive entry point for investors to buy into our stock. Now, we're going to discuss the key theme of the third quarter, which was to advance our two underground development projects. We have budgeted $90 million of CapEx this year with approximately $40 million for the Wassa Underground and $40 million for Prestea Underground in total and the remaining $10 million toward sustaining capital. This was a very significant investment, but the results of the feasibility studies for both underground developments were highly compelling, and we see low-cost high grade underground ore of the future of this company. During the third quarter we spent just under $22 million which brings our year-to-date capital expenditures to just under $61 million. Development work on both projects continued to advance very well. And this culminated in the first of being blasted the Wassa Underground in early July, which was a significant milestone in our transformation into our high-grade, low-cost producer. So, let's look a little more closely at reducing cost, which was another theme for the third quarter. These graphs compare our last four quarters that included refractory production from Bogoso and our most recent four quarters, once refractory production at Bogoso had ceased. As you can see, there has already been a 21% reduction in cost as refractory production consumed a lot of power and therefore very high cost. However, the most recent four quarters only included a very small amount of the very high-grade ore, we expect to receive from the two underground developments. So, we expect our cost to reduce further still over the coming years of the Wassa Underground and at the Prestea Underground ramp up fully. Despite our outreach gold price being approximately the same in the most recent fourth quarter as in the previous four, our cash operating merging has increased by well over 100% and we expect this trend to continue. We [indiscernible] lowered its cost over the past year, but now let's look at how we will be expanding our production and reducing our cost even further in the future. This year, we are on track to achieve our production guidance of 180,000 to 205,000 ounces at a cash operating cost between $815 and $925 an ounce. However by 2015 our production will have increased 60 percent and our average production for the five years starting in 2017 will be just over 280,000 ounces by the. All-in sustaining cost will then be around $900 an ounce in average, positioning this company as a low cost producer from 2017 onward. This graph was compiled from the Wassa and the Prestea feasibility studies, so it would not take into account the significant upside potential, we have at both of our assets. I remain optimistic that we will be able to further increase our production and increase the lives of these mines beyond the current 7.5 years. Now let's look at the performance of our two mines, the progress being made at the underground development and our exploration upside opportunities in more detail. At the end of the third quarter, I'm pleased to say that we remain on track to achieve our guidance on all metrics. The graph shows that our mines in Ghana are affected by seasonality with the first and fourth quarters of the year typically yielding stronger production and lower cost than the second and third quarters. As you recall the second and third quarters are when the rainy reasons appears in Ghana. The head grade in our Wassa mine also varies depending on which horizon of the pit we are mining. The grades tend to be lower with nearer to the surface and it increases as we get down at depth. However going forward, the impact of rainy season will be reduced, one the two underground mines are in production and the head grades will then be more consistent. As I mentioned in the previous slide, our cost will also be lower due to 5 gram per tonne material will be coming from the Wassa underground and the 14 gram per ton coming from the Prestea underground. Now let's take a closer look at our Wassa mine. For those of you who aren't familiar with it, it is open pit and will soon add the underground mine coupled to it and is situated in Southwestern Ghana. Wassa has always been a completely non-refractory mine and ore is now sourced from a single ore body that is accessed by other Wassa mine pits and the underground mine. The third quarter production from Wassa was in line with our expectations. However in the second quarter was lower than expected due to dilution which meant that on a 9 month basis production was below budget. As you may remember, we carried out a processing plant upgrade in the second quarter and we reaped the benefits of that in the third quarter. The processing plants nameplate capacity is 2.7 million tonnes per annum and during the quarter it was now running at close to 2.8 million tonnes per annum. Due to this expanded capacity we had hoped for the increased production Q3 to offset the weaker production of the second quarter, but unfortunately that wasn't possible. Now, we've identified the problem with dilution. We have put measures in place in the pits to remedy us. I'm pleased to say that during the final month of the third quarter, September, we already saw the grades returning to the levels we expected Going into the fourth quarter, we believe production will be in line with our expectations. So, production from Wassa for the full year will now be 100,000 to 112,000 ounces in total including 11,000 to 15,000 ounces from the Wassa Underground. And we'll talk a bit more about the underground on the next slide. However production is expected to expand at Wassa, with the life of mine production expected to be approximately 175,000 ounces per annum. On average from 2017 onward the underground begins to make a more significant contribution. I've mentioned a couple of times now as it's important milestone for us. But the first stope was blasted at Wassa Underground in early July. The first stope was an issue which is a more moderate grade area, so we've been using it for test stoping for completing the training of our personnel in the Underground mining targets. However the F Shoot is the area of price. The reason we build the underground mine was so that we could access the higher grade B Shoot at depth. And I'm pleased to tell you that all the infrastructure at Wassa is now well advanced including the twin decline system now completed for the access to the underground mine, a new ventilation system in place, the picture on the slide shows one of the big fans that has been installed recently. The third quarter was the first time that mining was taking place at Wassa underground and we encountered more internal dilution within the stopes of the F Shoot than we expected. As a result of this, we undertook 10,300 meters of drilling in order to better delineate the stopes and have the targets better defined. When we mine them during the fourth quarter, we will be able to target the best areas of gold mineralization with minimum dilution in the F Shoot. The first stopes in the higher grade B Shoot will be mined during the first quarter of next year and that's when we will start to see a much stronger contribution from the Wassa Underground to our production profile. This slide shows how the Wassa Underground development will look based on the current mineral resources. We currently have 3.5 million ounces of measured and indicated resources at Wassa and 1.6 million ounces of those are in the underground mine. Of those 1.6 million ounces, only 42% are in the reserve categories, so there is a lot of potential to extend our reserves and the life of our mine through drilling. You can see the areas in the top left of the diagram is the F Shoot where we are currently mining and moving to the right in the purple and red areas, that is the B Shoot, where our mineral reserves are located. The red and purple colors show the areas with the highest grade and the biggest risk of gold mineralization. The area in the bottom right hand side of the diagram in the red dash box shows Wassa's inferred mineral resource which totals 1.9 million ounces in the underground mine. We expect to be able to upgrade them through further drilling to M&I resources and potentially into reserves. The bottle is also opened down punch, so we expect to be able to significantly increase Wassa's resources through further drilling in this direction, and our concession areas extends for another six kilometers. Now, we're going to move over to the Prestea mine and I'm going to let our Chief Operating Officer, Daniel Owiredu take you through it as we've got some news here.

[Daniel Owiredu:]

Thank you, Sam. The Prestea gold mine is over 40 kilometers from Wassa and it's also in Southwestern Ghana. Golden Star began certain the Prestea Open Pit in quarter three of 2015, after we stopped production from the refractory pits at Bogoso. The Prestea Open Pit are outside the process and they are bridging the production gap until we begun production from Prestea Underground in mid-2017. We had a record quarter at Prestea with good production just under 23,000 ounces which is the most the Prestea Open Pits have produced since they started production a year ago. On a year-to-date basis, Prestea has produced nearly 66,000 ounces and as a result of this, we have upgraded our annual guidance by approximately a third to between 80,000 to 93,000 ounces. Due to the increase in expected production, we have also lowered our cash operating cost guidance. It really has been a great performance by the Prestea team. Now turning the Mampon project, we have some more good news after the end of the third quarter when we received a mining lease for the Mampon deposit. Mampon is a high-grade oxide deposit 65 kilometers to the north of the processing plant at Bogoso. It has a mineral reserve of 45,000 ounces, up 4.6 grams per tonne which is materially higher than the pet grade of the reserves we currently processed from the Prestea South Pit which is greater at 2.3 grams per tonne. Also Mampon will be blended with ore from the Prestea Open Pit and it is expected to significantly enhance Golden Star's cash flow in 2017. There is already a good quality road for most of the distance between Mampon and the project implant through capital expenditures are expected to be limited. We expect to start mining Mampon in the first half of next year and it's not included in our current production profile, therefore it represents an upside for us. Turning to the Prestea Underground project update, the Prestea Open Pit have been a real win for Golden Star. But they are not the prices for us at Prestea. When the very high grade Prestea Underground Mine begins production, we will reach the final mark soon in our transformation into a low cost producer. Prestea Underground is one the highest grade development projects in West Africa with mineral reserves at 14 grams per tonne. As a result, we expect to produce 90,000 ounces per year at a cash operating cost of below $500 per ounce. This slide shows the critical items that need to be achieved in order to bring the mine back into production and we are on track to blast, and the first stopes in the second quarter of next year and to reach commercial production in mid-2017. On the exploration potential for Prestea Underground, although Prestea Underground will be transformational for Golden Star, at present it's mineral reserves at fairly limited. However, I believe the 469,000 ounces of mineral reserves, we have now at just the tip of the iceberg. The mineral reserves are located in the West Reef, which is small brown area of the diagram. We're only able to drill out a small area of the ore body due to access issues. Remember, Prestea Underground has been mined for over 100 years and some of the mine was flooded and there was not adequate ventilation. However now that we have upgraded ventilation and pumped out the water, we plan to start drilling again in 2017. We believe that a strong potential to significantly increase Prestea's reserve and to extend the life beyond the current five year I will now hand you back to Sam.

[Sam Coetzer:]

Thank you, Dan. I'm always excited to see what's happening at Prestea. I was there a few weeks ago and those mine and the pits are all looking really great. Anyway, let's talk a little bit more about exploration. As we've mentioned previously, we believe there is a strong opportunity to increase our reserves and expand the lives of our operations through exploration. At present, only 42% of the Wassa Measured and Integrated resources are in the reserve category and at Prestea only 57%, so we believe there is some of upside potential for us here. There is also potential to increase our resources outside of our existing resource area. Our concession areas total over 1,100 square kilometers which is one of the largest land packages on this empty gold valley. Once our current CapEx programs are completed, the exploration again will be coming off of this. Now, let's take a look at our financial results and key financial events that occurred in the quarter. And I will let André our Chief Financial Officer to tell you more about that.

[André van Niekerk:]

Thanks Sam. As Sam mentioned at the start of the presentation, the key theme for the quarter was progressing our development assets and that is reflected in the $21.7 million of CapEx that was spent during the period. However, looking beyond other financial results, it's important to understand how our performance has changed over the last year, since we became a non-refractory producer. Take the mine operating margins for instance. In the third quarter of last year, we made an operating loss of $4.3 million whereas this year our margins went positive and we made $5.8 million. We expect to see this margin to continue to grow as the two high grade underground developments come into production. We ended the quarter with $17.5 million cash and at the start of October we received another $20 million payment from Royal Gold to further fund our development projects. Our financial position should continue to strengthen, which underlines Golden Star's transformation into a low cost mid-tier gold producer. Speaking with the scene of transformation, at the start of the quarter we completed two financing transactions which transformed our balance sheet. The first was $65 million offering of 7% convertible debentures which matures in 2021. $42 million of the $65 million were exchanged for the existing 5% convertible debenture, which are due on June 1, 2017, refinancing this piece of the 5% convertible debenture has significant improved our position. The second offering was for $30 million of equity. It was an option for a 50% of our allotment and this was fully exercised to the gross proceeds of $34.5 million. The funds from both the offerings were used to reduce our debt. First, we reduced the outstanding balance of the 5% convertible debenture from $74 million to $14 million. Then we used $22 million to settle the remaining balance of Ecobank II loan. This will have a significant impact on our cash flow going forward, since the principal and interest payments have now been eliminated. For the equity offering we also saw a number of high-quality institutional investors take positions in Golden Star. I'll what about the impact on our cash flow. This slide compares the previous bid maturity schedule with the new one after the two transactions. Look at the top graph. The large requirement note come in from 2019 onwards, by which time we expect both underground mines to ramp up fully. We expect to be able to meet all our outstanding debt obligations from cash flow which puts Golden Star on much stronger footing. Sam?

[Sam Coetzer:]

Thank you, André. Good story. So, hopefully you can see that Golden Star has already started to look very different from the one a year ago. Now, let's look at the milestones we've already passed and that we can expect to see for the remainder of the second half of this year. The great thing about the potion we're in at the moment is that they always see something new to talk about as we look at the Company from different angles. As Daniel just told you, last week we announced that we received the Mampon mining license and only a couple of weeks before that we announced that we appointed Manroc as the underground mining contractor for Prestea Underground as its progressed sufficiently to do that. Although the bigger catalyst will come in the first half of next year with commercial production expected to be declared at Wassa Underground in early 2017 and the first stope to be blasted at the Prestea Underground in the second quarter. There are some other milestones to look at before the end of the year. In the coming weeks, we expect Manroc to mobilize to Prestea Underground. We're seeing photographs of [indiscernible] loaded on to a truck, so we expect them to arrive in the fourth quarter as planned. We also expect the ore body development to begin at Prestea Underground during the fourth quarter, which is another important step bringing the very high grade mine back into life. I could probably add that, as of to-date, we've done 140 meters of development in ways to prepare for the West Reef. So, in summary, Golden Star is transforming into a lower cost non-refractory producer. But that transformation still has further to go and we will not rest until we get there, as we bring our two underground mines on stream. We are on track to deliver on our full year guidance for production, cost and CapEx and we expect see our production expand and our cost continue to decrease in the coming years. We also have significant exploration upside potential with an experienced management team with a track record of discovery and project delivery. Lastly, despite our strong share price performance year-to-date, I do believe we remain undervalued compared to our peers. So, there is an attractive entry point for investors to buy into our stock. Thank you everyone for listening. And at this stage, I will open the lines for questions. Thank you

[Operator:]

[Operator Instructions]. Your first question comes from Cosmos Chiu from CIBC World Markets. Please go ahead.

[Cosmos Chiu:]

Hi. Thank you, Sam, Daniel André. Just a few questions from me here, maybe first off, you know at Wassa, is that like there was a bit of higher than expected dilution both in the Open Pit and also Underground? Are those two sort of related and maybe Sam or Daniel could you maybe quantify it for us in terms of what were you expecting in terms of no dilution underground and what is sort of, came out as?

[Sam Coetzer:]

Okay, I'll answer this question. You said you had more than one. So thank you Cosmos for asking. Let's start with the outcome first. We tend to see that every time when we do the first few benches at surface, we completed the mining of that. We moved back up to the pit into close to surface where the grade was in the region of expected about 1.13 to 1.15 gram per ton. When we do our grade control drilling in that area, it is more difficult because, you've got the shape of the contours of the surface et cetera, so we saw that the mining teams had dilution that was at one stage over 15% in that area and we – at that point in time we – as went to the second, third benches down, we then changed the blast patterns, and now that we are deep into the mine we see that we are now getting bigger blocks than what we have at surface. So, it's normally an issue when we are at the surface part of the mine where the dilution is more prominent due to – ability to do the grade control. As we go down at depth and every time you see when we – about 50, 60 meters deep, we see bigger blocks and we have an easier task to do our dilution control. So, that Cosmos, the Open Pit answer.

[Cosmos Chiu:]

Yeah. And the underground?

[Sam Coetzer:]

So, firstly when we – I must make sure that we all understand Wassa is in pre-commercial production. Focus has been on the F Shoot but really what we needed to achieve was the installation of fans, of twin declines getting our people, starting to delineate stopes, understanding how the exploration model compares to the grade control model, ensuring that we have over the plant, the systems, that was all the number one priority for the third quarter. We expect them to do roughly about 8,000 to 10,000 ounces from the F Shoot. Once we got into the first levels, we got the drilling, we got first test stope, we saw that upper part of the F Shoot appear to have more internal dilution than what we wanted. We put the jumbos, we drilled below that area, because we still believe that the F Shoot could add a substantial ability to contribute to us as we drill deeper below that horizon. We initially anticipated to mine only on one horizon, then the F Shoot appeared to show better mineralization at depth and it was then the right decision for us to keep our people in that area, put a decline deeper down into the F Shoot with more delineation drilling, we now see that we have five stopes that emerge more than what we had ever planned before. We then slowed down, obviously we're using more infrastructure, more personnel and drilling capability in the F Shoot which we know now that we got a bigger mineralized zone that we'll be adding to the B Shoot to reduce our risk in the future. So, it's no – the dilution that we saw in the first stopes was on the upper part of the F shoot. We never did a lot of drilling as we did in the B Shoot, and when we did a look at the F Shoot closer, we realized that more delineation needed to be done Cosmos. So, what we're now looking at is the grade profile as is deeper down and we've been able to bring ourselves some more stoping in of that we haven't anticipated before. So, it is a function of dilution that will continue through. It was a function of understanding how the exploration model which we have very limited drilling in on the F Shoot has now changed our view and that we still see the grades that will be forthcoming, and those stopes will start coming out, Daniel I think about this week from next week with the five stopes now?

[Daniel Owiredu:]

Yeah, the five stopes in this fourth quarter.

[Sam Coetzer:]

Yeah, so, it is in the function of dilution or the ore body, it's a function of defining it with dilution. We weren't going to focus on mining grades just for the sake of it and we did fine bit. Sorry Cosmos, that's a very long answer.

[Cosmos Chiu:]

No. But it does sound like Sam that you have done more drilling in the B shoot and you know and you are learning from the F Shoot that was certain things that can be applies as you go into the B Shoot? Is that correct?

[Sam Coetzer:]

Yes. That's correct. What we had to do and as I stated too, here pre-commercial production in incredibly important for any mine. The number one for me and my team is making sure we have people trained, we have equipment, we have a plan, we have the allocation of all the blending into the plant, the gravity circuits in the plan – that we understand how moving from being an open pit mine where our grade controls drilling is holes down low as vertical holes, how you allocate now your drilling patterns and your stope designs. We look at the breaking of the rock, we look at the explosive. Now that we're ready, we've learned so much from our – but the grade – the information that we will probably update when we come up with next year's guidance is how the F Shoot now is going to add to us into the future. And probably the – having slow down moving very quickly into the B Shoot, it was only a resource allocation issue. We have done delineation on the B shoot and what we see from the B Shoot drilling recently resembles much stronger or better if you want to call it to what this on the exploration model. The B shoot was drilled extensively in our reserves.

[Cosmos Chiu:]

And then on that as well Sam, you know you talked about non-commercial and commercial production at Wassa. What's your criteria for declaring commercial production next year, s you are transitioning sort of from F Shoot to B Shoot, although they are kind of in parallel these days, or it sounds like it will be for a while. What's your criteria in terms of declaring commercial production?

[Sam Coetzer:]

Generally, Criteria would be looking at how you've advanced your infrastructure. You would look at – so we had a few components. When you want to declare commercial production, you want to make sure that you have the ability keep all your infrastructure, your rate of mining, your development, all is completed in terms of the capital. So, at this stage as you know any ounces that was produced from the underground is not in the denominator of your cost. So, once we feel that we now resemble an operating team, and I think we're very close. I think that we're very close. We are having those internal discussions that obviously I would want to get to a point very quickly where you can add the underground ounce production to the Wassa cost completion going forward. So, our intention is to do it very early in the next year. From an infrastructure perspective, everything – while not everything, but it is about compete. The equipment is in place, people is in place, the infrastructure, the plant has been upgraded. The ability to drill to delineate to look at our plan for next year to get comfort in that, all that is now increasing rapidly in the third and the fourth quarter.

[Cosmos Chiu:]

Then to maybe to touch on the Q3 2016 for Wassa, so want to make sure 1.09 gram per ton, is that a blended grade between Open Pit and Underground, or is that just Open Pit?

[Sam Coetzer:]

It's basically only Open Pit. We did – we didn't do a lot of, we did the first stope, which as I said was a test stope, if I recall right it was somewhere between 1 and 2 grams material. The intention was never to blend it. It wasn't a lot of tons. We see development tons go in. That is basically what we show there is the Open Pit was the majority of it. This quarter we will be seeing a much bigger contribution from the grade profile coming from the underground ore and our reconciliations will be much better after the fourth quarter.

[Cosmos Chiu:]

Maybe one last question from me, Mampon, any concerns, are there any villages, is there anything on the grounds as you apply pre-environment permits?

[Sam Coetzer:]

Yes. I'd let Dan talk about it. We – this has been something that we've looked on for a long time. I mean we've always announced just at the last moment that you received, but it's something that we'll be working over a year. Dan, maybe just give him [indiscernible] Mampon and the communities and support?

[Cosmos Chiu:]

Hi Dan.

[Daniel Owiredu:]

Hi Cosmos. This is Daniel. The Mampon project really far ahead, the communities there are well behind us in terms of development of this project. We have had public hearings and there has been no issues. It actually – the land belongs to one person who has settle up farm. So, it's not a big issue. We've now received it manually and we – we believe that in the next few weeks we shall the receive the EPA permit as well.

[Cosmos Chiu:]

Great. Thank you. That's all I have. Thanks.

[Sam Coetzer:]

Thanks Cosmos.

[Operator:]

Thank you. Your next question is from Raj Ray from National Bank Financial. Please go ahead.

[Raj Ray:]

Good morning guys. Hey how are you doing?

[Sam Coetzer:]

Good morning

[Raj Ray:]

Few questions from me, first up, looking at the quarter, I know it was expectedly a softer quarter, but if you compare it to Q2, production was slightly higher but costs remained almost the same or slightly higher in Q3, any particular reasons for that?

[Sam Coetzer:]

As you'd note the cost, all the ounce production was 50/50 to say 50 is now from Prestea which has been substantially improved from what we believed in the beginning and Wassa was a bit lower in terms of its production profile we didn't see any of the benefits from the underground ounces. Obviously, you – some of the low tonnes and some of that work is carried by some of your GMA as well, but on the activity surrounding the amount of people and preparation, maybe as unintended cost until we get into the commercial production of Wassa. André is there reason you want to add why the cost wasn't a bit fair there?

[André van Niekerk:]

I think the cost was as expected. I mean I think there was a two items in the mining side that cost was more or less in line. And we are on track to meet our full year production guidance on cost.

[Raj Ray:]

Moving on to the second question. In the MD&A, Sam you mentioned that for the B Shoot, you now expect the first stoping to be in Q1 as opposed to Q4. Can you give us the idea about, probably on a percentage basis, what's the underground development versus what was planned originally at Wassa?

[Sam Coetzer:]

We are on track with the main development. There has been no change in terms of the twin decline and the main declines going down and the access into the B Shoot. The only additional I would say is because we saw the F Shoot being deeper down and bigger. We did a fair amount of additional development while we maintained our focus on the B Shoot. We have started accessing into it. So, it wasn't a really a question of when you go past and you see that you have an opportunity. We allocated resources in terms of ventilation, in terms of our people in terms of drilling and preparation to the F Shoot, because we believe that's going to be an opportunity for us next year to add. So, no change in the development of the main infrastructure. It is not the internal F Shoot development. I don't have a number Raj. I can give that you, my guess is probably that 200 meters more than what we predicted in the F Shoot that we didn't have before. I'm guessing there. I don't know. I'm now giving you a number. I can get that number. that was the additional, but it will open up new ground for us that we didn't have previously thought we have.

[Raj Ray:]

The next question is in terms of, and this is probably for André. In terms of the remaining CapEx spend that was underground in Prestea Underground, do you have a number?

[André van Niekerk:]

Yeah. We didn't change our guidance for the CapEx either for the full year. But we're looking at what's underground to spend an additional $13 million in the remaining part of the year. At $11 million, then for the Wassa tailings we're looking at another $3 million.

[Raj Ray:]

That's what – the remaining 2016, but as opposed to the total estimated budget?

[André van Niekerk:]

As I mentioned for Wassa we expect it to be in commercial production in early 2017, so we expect CapEx to drop off quite substantially in 2017.

[Sam Coetzer:]

Roughly, your question is, I don't have a number, but this will be in the $5 million remain for Wassa roughly and yeah, probably $20 million odd Prestea giving us close to the $30 million that we gave you from Royal Gold to complete the projects as we follow that schedule very, very, carefully. So we – and where Prestea is moving into, most of its purchase or refurbished and capital has been spent. So, we have the low cost underground, we have the LHD underground, we're repurchasing the LMX [ph] most of the shaft work electrical work, all those things done. So, we will go into really – we have 170 people underground – not underground on the mine now doing training. So, a lot of it is to do with working capital, operating to get to the point. As I indicated earlier, we started developing towards the West Reef and we've done 140 meters, a lot of that is development for underground workshops. So, we're moving into a different domain with Prestea, where it isn't buying equipment, but it is now more operating cost related if you want to call it that until we get into production.

[Raj Ray:]

Okay. Thank you. One last question if I may. Mampon seems to be a nice win for you Sam. In terms of your haulage cost what's the estimate you have on the per tonne basis?

[Sam Coetzer:]

So, the cost will be, everything very similar to what we do at Prestea haulage, will be about $12 a ton roughly in that range. It's $20 per ton.

[André van Niekerk:]

$0.22 per tonne.

[Sam Coetzer:]

Right. I got from the guys. I just know its cost per tonne. So André maybe just tell him.

[Raj Ray:]

Actually it's think it was a confusing thing. So the number is…

[André van Niekerk:]

So, the Mampon cost will be very similar to what – the haulage cost will be similar to what we're seeing at Prestea South. So, that's in the range of $0.22 per ton kilometer.

[Raj Ray:]

Okay. Thank you. That's it from me. Thank you, guys.

[Sam Coetzer:]

Thanks Raj.

[Operator:]

Thank you. Your next question is from Robert Reynolds from Credit Suisse. Please go ahead.

[Robert Reynolds:]

Good morning guys. Just a quick question on Mampon, what's the strip ratio there?

[Sam Coetzer:]

The strip ratio there would very similar to what we saw at our Prestea Mine. Initially it will be about 1.4, but they go quickly down. So, we did plan to mine this ore body extremely quickly. We want to do, get all the over to our Bogoso plan in three to four months periods. So, we didn't have a rapid go at this. It was started four to one.

[Robert Reynolds:]

Similar cost structure.

[Sam Coetzer:]

Sorry 1.4 to 1. I spoke wrong about 1.4 to 1 which is similar. It's a free biggest oxide so it's very similar to what we see at our Prestea.

[Robert Reynolds:]

So, similar cost structure to Prestea, except for the higher grades.

[Sam Coetzer:]

Yeah. You've got the answer there. That's why I'm very excited that we've been able to move this. We've been working on this for a while now, and as I said recently to a few people now that we can lift our heads and look at the horizon and not just focus down on transformation and putting the company. We now are looking at all additional opportunities of the company on its land package have. So Mampon would be the first one when we're looking at bring in.

[Robert Reynolds:]

Okay great. That's it for me now.

[Sam Coetzer:]

Okay. Robert. Thanks.

[Operator:]

Your next question is from Eric Winmill from Scotiabank. Please go ahead.

[Eric Winmill:]

Great. Thanks for taking my call. I just had a quick question here. I know that you are going to provide more of an update on exploration strategy in the beginning of 2017, but can you comment a little bit on what you are doing particularly in Prestea. It sounds like you say you are finding little bit of extension perhaps beyond some of the existing pits there?

[Sam Coetzer:]

Yeah, and so, I think you hit the nail on the head. So, at Prestea Underground, the first thing is the way that we look at the company. So, you are talking about Prestea South or Prestea Underground I wasn't sure?

[Eric Winmill:]

I was speaking more on Prestea South, but I guess you want to come on Underground too, that's fine.

[Sam Coetzer:]

Right, so Prestea South, we've been able to extend our mining road nearly double as much as what we thought we were going to get, and that was done with very low key, what we call rab drilling. So, we just drilled the extension of the stopes and we've been able to add and get the grade profile. We will not – we will continue to do that. We will be looking with a very low. I don't see it really as an exploration program. It's more a program finding the opportunity. Our initial intention was that this would be a bridge and so we get to that Prestea Underground. We've had some windfalls in terms of extension and with the Mampon, so we will continue in the meantime doing just that, doing the rab drilling in and around those stopes and see if we can continue to add.

[Eric Winmill:]

Okay, and anything on the Underground you can share at this time?

[Sam Coetzer:]

So, just how we look at it in terms of our capital efficiency plan as we have going forward. The current mining rate for the Prestea Underground is 650 tonnes a day. The shaft capacity is at 1,500 tonnes a day. Our plant capacity is at 4,000 tonnes a day. So, the biggest backlog for this company would be to first focus on extending the Prestea Underground where the high grade is and doing some exploration drilling in that area. It will also be the easiest ones we have the access and interrelation because it's not very long drill holes that we need to drill to understand that. So as you correctly said, we will be sitting with the board at the end of this year and make sure I look at the focus and we are working and we will be focusing on is to see how do we utilize the capacity through increasing strikes or ability to improve our focus on this mine going forward.

[Eric Winmill:]

Okay, that's great. I guess we'll look forward to the update next year, and all my other questions have been answered. So thanks a lot.

[Sam Coetzer:]

Thanks.

[Operator:]

Thank you. You have a follow-up question from Robert Reynolds from Credit Suisse. Please go ahead.

[Robert Reynolds:]

Hi, I just want to ask about the power and royalty rate in Ghana. Earlier this morning, Ken Ross mentioned that there is some increases that has been impacting their Toronto mine and I just want to see if you had experienced the same thing at your assets or if you can provide any color around that?

[Sam Coetzer:]

We – I don't know in the context of what Ken Ross announced, we've seen a reduction in our costs. But we got a put it in perspective that we've reduced our demand by 60% as we close the refractory business. So, I don't know the context of what Ken Ross said, but we haven't seen any royalties or – we've actually had a reduction in our power cost and then I'm not sure if they use VRA or ECG to supply them. So, I know we use VRA, so I don't know if they have a different supplier.

[Robert Reynolds:]

Okay. Thanks for touching on that.

[Operator:]

Thank you. [Operator Instructions]. There are no further questions at this time. You may proceed.

[Sam Coetzer:]

Thank you joining again. Thank you again for listening and contact details for Katharine, our Director of Investor Relations on the Slide, so please, don't hesitate to contact us for more information. Thank you and good bye.

[Operator:]

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