Golden Star Resources Ltd.
Q2 2015 Earnings Call Transcript

Published: 31 Jul 2015

[Operator:]

Good morning everyone and thank you for joining us to discuss Golden Star Resources’ Second Quarter 2015 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, who will be presenting these results.

[Sam Coetzer:]

Thank you, Joanna. Thank you all for joining us on this call this morning. I trust that you have seen our financial results that we released last night as well as the announcement on the Royal Gold financing that we released yesterday morning. Our last two announcements detailed the critical decisions that we have taken in the last month. We remain on target, our results, to transform this company to a lower cost non-refractory underground producer. The funding from Royal Gold provides us with a bridge we need to achieve on that strategy. To preserve shareholder value, we have decided to suspend refractory operations with immediate effect. In the near-term, our efforts will now be focused on delivery production from the Wassa and Prestea open pit operations and also at the same time progressing our longer-term objective of bringing the Wassa and Prestea underground mines into production. I am pleased to say that we have started mining in the twin declines at Wassa and we continue to upgrade the levels at our Prestea underground mine. Despite the challenges that we face as an industry, our Board and this Management Team remain excited about this transformation. Joining me on this call today are my colleagues Andre van Niekerk, our Chief Financial Officer; and Angela Parr, our Vice President of Investor Relations and Corporate Affairs. Firstly, I would like to take this opportunity in thanking Andre and our Chief Operating Officer, Daniel Owiredu for their efforts that we put in, in closing the Royal Gold financing. The financing of this nature has not been done in Ghana before. An extensive management time was required to ship at this transaction through the approval processes. Moving on to discuss the operational matters for the second quarter, at Wassa, we returned mining into the Main pit. We saw higher grade mined as a solid performance in terms of processing that all. However, fluctuating power at the Bogoso mine hampered processing for second quarter in a row. Just to give you an idea, year-to-date tons processed at this operation are below 80% of the company and that was due to regular daily outages. On the right side, we are the first blast at the Wassa underground declines, and this operates – and this construction is ongoing. At Prestea South, we received the permits for mining in the open pits at Prestea and we have now upgraded both our non-refractory plants to be able to treat the new ore r sources. Obviously, revenue was negatively impacted by lower gold prices and more so by the weaker Bogoso refractory production. Mine operating expenses and cost of sales before severances reduced again at both operating mines and we expect even further reductions in the second half of this year. In line with our decision to suspend the refractory operations, the carrying values of Bogoso refractory assets were written off in totality, resulting in $34 million impairment. Mine operating expenses continued to reduce and will decline further into the second half of this year, as we continue to transform this business. However, the reduced processing capacity at Bogoso refractory operations negatively impacted on the unit cost for the quarter, but at Wassa, the performance had been solid and this mine is on track to meet the full-year 2015 guidance. Our group cash cost balance has now been revised upwards to about $1000 ounce as a result of the changes in the mine plant and also the poor first half of the year, we received from Bogoso. It must be noted that our future mine, Wassa and the non-refractory plant at Bogoso has operated to our expectations. Talking about Wassa, at Wassa, the ore mined as I indicated increased during the quarter as we have now hold our equipment in the Main pit focusing on the mining the B chute which is also the ore body that will host the higher grade underground mine. On a year-to-date basis, the stripping is in line with a 4

[Operator:]

Thank you. [Operator Instructions] Thank you. Your first question comes from Raj Ray from National Bank Financial. Please go ahead.

[Raj Ray:]

Thank you, Sam good morning. My question is on Prestea open pit and what throughput rates you’re expecting out of there over 2015 and 2016?

[Sam Coetzer:]

So, now we look it at this stage, Raj. Thank you, I mean we’ve been looking at it about what we’ve guided is about 70% of the capacity of the plant and we took a conservative view at this stage to make sure that we can make the requirements that we want. So the guidance we gave was about 68% of the capacity of about 1.4 million tons per annum. Should we be able to increase the mining rate through drilling and through grade control drilling, we would hope to improve that throughput. So you can work round about 70% to 75% that we see that we can increase that I’ll lift the group now?

[Raj Ray:]

Okay, thank you. And the second one is do you expect the additional severance charges and do you have that number in mind, what it might be?

[Sam Coetzer:]

Yes. We did a full plan on the severance. I’m going to hand that to Andre, because we knew that we were going to get to this point. We’re just a bit earlier. So we’ve had presented preparations on severance long before today.

[Andre van Niekerk:]

Hi, Raj.

[Raj Ray:]

Hi.

[Andre van Niekerk:]

Under the severance, we basically are fully accruable all the severance that need to be paid in 2015. We took an additional accrual of $13 million of which $3 was paid during the second quarter, so we left with amount of $10 for the remainder of this year that will happen later on when we have spend at the refractory operations completely.

[Raj Ray:]

Okay. And I wonder whether you’re still there. I have a question on the funding for the Prestea underground and the Wassa underground, do you think with Bogoso now going out of mine earlier than expected and the current gold price, you are fully funded to production for those assets or you might have to look price similar funding at some point in 2016?

[Sam Coetzer:]

We still have the Ecobank II loan available at our disposal. We’ve been modeled the closure or the suspension of the refractory business. We looked at the development program and basement what we’re seeing we still have sufficient funding to complete both projects by 2016 – end of 2016.

[Raj Ray:]

Okay. Thank you.

[Operator:]

Thank you. There are no further questions at this time.

[Sam Coetzer:]

Thank you for all those taking part in our call and I am excited as we see the transformation of this business. We continue to reduce our cost structures down, and I do believe that we are at a point where we’ll start seeing some improvement in our results and continued to deliver on the projects that we want to bring into production during 2016. Thank you for joining us and we’ll open for discussion if anybody wants to give us a call at any stage. Bye. Thank you, operator.

[Operator:]

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