Golden Star Resources Ltd.
Q3 2015 Earnings Call Transcript

Published: 30 Oct 2015

[Operator:]

Good morning everyone and thank you for joining us to discuss Golden Star Resources' Third Quarter 2015 Results. The financial statements were filed last night and these are available on the company's website at www.gsr.com. Please 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 and good morning everybody on the line. Joining me today are my colleagues, firstly, Andre van Niekerk, our Chief Financial Officer; and Bruce Higson-Smith, our Senior Vice President for Corporate Strategy. What a great year 2015 has turned out to be for Golden Star. During the last quarter we have taken significant steps in making Golden Star a less complex company. In this period we suspended the refractory plant operations, reduced the workforce significantly, and the startup of mining of the Prestea Open Pits commenced. Today I'm confident we have created a stronger and more streamlined business going forward. Having arranged financing with Royal Gold for $150 million, we are now in a position to bring our two new low cost projects into production. These achievements are a reflection of the focus and dedication of the Golden Star team, the quality of our assets, and the clarity of our vision. Looking at our operational achievements, we produced almost 52,000 ounces at $988 an ounce compared to the previous quarter of 55,000 ounces at over $1,100 an ounce. On the Prestea Open Pits mining commenced production, and that plant produced over 7,000 ounces which is up from 4,500 ounces in the second quarter when we only proceed low grade times. In terms of our development projects, the Wassa Underground decline development has now achieved 382 meters today. And if you see underground, redevelopment has commenced, production was still expected to start early 2017. Prestea underground feasibility study results are expected within this quarter. The company continues to find ways of doing things better. The high cost refractory operations have been suspended. Operational complexity have been reduced by now minding 3 mill mole only, and also our liquidity has improved. Regarding the financial performance for the quarter we saw a continued decline in gold prices to below $1,100 an ounce, lower production due to the suspension of the refractory plant resulting in a lower revenue on the third quarter versus the second quarter. However, cash operating cost decreased to $998 from $1,100 in the previous quarter. The cost of sales before depreciation and amortization decreased by 30% to $55.2 million. We expect a further reduction of cost in the next quarter. At the end of the quarter our cash balance was at $27.7 million. This slide a very telling, indicating a quest of improving margins. Mine operating expenses trend is positive, cost continue to decrease. Wassa cost reduced to operational efficiencies including the equipment and homage cost reductions. The Bogoso/Prestea cost reduced at the refractory operations were suspended. On a cash balance basis we are on-track to meet the revised guidance provided last quarter. Let's look closer at the operations. Wassa mining operations stabilized and continue to find ways to prove that cost. We've now entered into a higher grade area of the orebody and grade has increased by about 11% in the third quarter which accounted for most of the increased gold sales from Wassa. That obviously resulted in a 16% increase in gold sales. We expect consistent production going forward. Gold production to be enhanced when the underground ore starts contributing in the second half of 2016. Our team at Wassa has done a stellar job in reducing costs finding significant operational efficiencies. For example, improved mining efficiencies, reduction in personal and contractors as we continue to improve productivity at this mine. We also saw certain input cost reduce over the quarter. We are continuing on looking for cost saving initiatives. All those resulted in the lower cash operating over the last three quarters and cash cost at Wassa was below $800 an ounce. Bogoso/Prestea, I would like to talk about two business lines; the refractory operation which has now been suspended, and the non-refractory operation which will continue into the future. As the refractory business was suspended, production reduced accordingly but so did our cost. Inventories were cleaned up and we posted low grade stockpiles that remained. The tailings retreatment program was suspend and we've commenced feeding a higher grade and better recovery ore at the end of August. And we expect to see recoveries go above 80%. In this slide, recoveries indicate an improvement from 44% to 68% which is stellar impact on the tailings production in the first part of the quarter. Currently recoveries are now over 80%. Mining at Prestea commenced in August and the Open Pits have now been supplying over 3,000 tons per day by the end of the quarter and grade now two grans a ton. We expect this business line to produce between 20,000 and 25,000 ounces in 2015. The Prestea/Bogoso truly been exceeding our initial expectations. During the quarter we continued to balance on our development projects as they will be the cornerstone of Golden Star's future. The Wassa decline started in July, has now achieved 382 meters today and we expect to complete just below a 1,000 meters by year-end. The Prestea underground project is now firmly underway. Both of these development projects are funded with $150 million agreement with Royal Gold. We are now geared to pick up momentum going forward. Just to remind you at Wassa underground we secured the permits on financing in the second quarter of 2015. We commenced a construction about the support infrastructure and nearing completion. We spent $15 million to-date and we expect to spend another $6 million for the remainder of 2015. We still expect to produce first of all, by mid-2016. Obviously you can imagine we are eager to see the processing plant receiving higher gradeore from the source. At this stage I want to talk a little bit about the developmental -- the development potential at Wassa. I remain very excited about what we see in this orebody. As you are aware, our focus is to develop what we call the B Shoot. On the slide it's indicated by the large solid [ph]. It was on the B shoot we did the feasibility study and raised our funds. However, at the bottom of that low we intersected a hole grading 5.9 grams a ton of the 70 meters which is about 50 meters parallel to this main B Shoot which we now call the F Shoot. Those hole and unstructured lines are with the Shoot close to surface which we intend to mine early next year. Our focus was now to review the potential of a parallel zone to the B Shoot which is obviously be a fantastic outcome for the company should that be true. Turning to Prestea Underground, the underground feasibility progressed well, results are expected to be published within this quarter. The central shelf upgrade are all on-schedule. The mechanical and electrical work is expected to be completed by the third quarter of 2016. Stoping is expected to start early in 2017. And then we'll be ramping up to 500 tons per day by the end of that year, a very high grade material. Today I would like to explain to you the picture we see at Prestea. On surface we have a collection of three digging pits ranging between two to three grams a ton, relatively low cost mining environment. This surface and Prestea Underground Pits and in close proximity of one another allowing for real synergies here to be unlocked. Those ripple will be hold 16 kilometers to the processing facility which has a capacity in excess of 3,000 tons per day. The underground mines, specifically the waste stream has reserved grade of over 15 grams a ton on the combination of both, the Open Pit and the Underground is expected to yield good results. Both the pits on the Underground are further exploration upside and we commenced a small drilling program to extend the mine life of both. Since defining our new strategy we have been meeting our targets, most notably, the commencement of the underground decline at Wassa. We will be continuing forward with the momentum with both, and 2016 onwards we will be looking at running a much less complex company. In summary, we have remained focused on becoming a lower cost producer and we achieved on the strategy through -- number one, the continuous reduction of cash operating cost. The suspension of the refractory business line, improving our liquidity. And lastly, we continue to review upsides existing in this company yet untapped. I will now turn it back to the operator for any questions which Andre and myself will take. Thank you everyone. Operator?

[Operator:]

Thank you. [Operator Instructions] And your first question will be coming from Benj Gallander [ph]. Please go ahead.

[Unidentified Analyst:]

Congratulations on the progress that you are making. It sounds to me from what I'm hearing that other people are also noticing the progress and there is some rumors that people are -- some companies are interested in buying Golden Star. I'm just wondering how willing you guys are to sell? And if you've got a price in mind that what should be willing to do it?

[Sam Coetzer:]

We are only focusing on developing the strategy as we said. We have good upside in this company, we are fully funded. And at this stage we are developing a business that we could be proud of, that would be stronger and better in the future.

[Unidentified Analyst:]

But you are open to take over offers as they come in, is that correct?

[Sam Coetzer:]

I will not discuss any of those opportunities because our focus is now to get the company to a much better place.

[Unidentified Analyst:]

Well, I do appreciate the work that you are doing. And I hope as people on the Board and incharge of the company you will look out after investor's interest as things transpire.

[Sam Coetzer:]

Right. Thanks a lot.

[Operator:]

Thank you. [Operator Instructions]. And your next question will be coming from Raj Ray at National Bank. Please go ahead.

[Raj Ray:]

Hello, can you hear me?

[Sam Coetzer:]

Hi, Raj. Good Morning, yes, I do.

[Raj Ray:]

Good morning, Sam, good morning, Andre. I have two questions here. So you spend around $2.1 million on the Prestea Open Pit in the quarter, do you expect any more development CapEx at the Prestea Open Pit?

[Sam Coetzer:]

Yes, it will be a little bit that we didn't mark for in the fourth quarter. Probably around another $3 million that we would spend.

[Raj Ray:]

And can you give us some idea about the cost -- so that you are seeking the mining cost at Prestea surface?

[Sam Coetzer:]

I can give you -- yes, we're going to give you a full update obviously when the next guidance is coming up. We now have much more clearer picture of what we can achieve. Roughly what we're looking at to run the company or Bogoso third quarter or Prestea third quarter, it would be in the range of about $5 million per month. So that is the cost. I hesitate to give you the final mining and processing cost because we've been exceeding our expectations here, and we want to see a full month or two of only this operation by itself. But you can work on typically 3D without blasting and holding cost, and processing similar to the Wassa cost per ton which will be $16 to $18 a ton. And we're looking at recoveries of somewhere between 80% and 90%. For the oxide, Prestea Underground obviously will have much better recoveries but that is the current focus. I hope to be able to maybe by -- once we update, we have a much dearer picture of what the cost structure would be.

[Raj Ray:]

Okay, thanks. And next question is on the Cap Ex for the tailings. Is that mostly done or do you still have some spend there?

[Sam Coetzer:]

You're talking about tailing at Wassa or at…

[Andre van Niekerk:]

Yes, we still have some spending to do on that site. Most of that spending will actually happen from now onwards. We were in the rainy season and we're going to the dry season from December and early next year. So we are gearing up and getting ready to get the word going on the TSF. So you would see about $2 million in the fourth quarter this year related to the TSF.

[Raj Ray:]

Okay. And one last question on this program, Andre again, the update on the tax legislation MDD -- so you will be looking to provide an update there. But can you just give us a brief overview on how it might impact your tax?

[Andre van Niekerk:]

We don't see any immediate impact that will affect us. There is some quite significant changes that were made to the Ghana tax regime overall. They did however ensured that their resource industries remain protected, both, oil and gas and mining. From what we have found out from our consultants, we only had a short time to review the new legislation but from what we see, the major change is that you – your repair is a maintenance cost, it would be treated as a capital allowance you will only get the deduction over five years, 20% per year. What we see in our models is that we're kind of building up quite a bit of a capital allowance over the next two to three years for the construction happening. So we don't expect that to have a major impact on our taxable income, that was up because we would have probably the equivalent of 100% pulled out by the time that we have an impact. There are some other changes that define ring fencing, that is how we expect to have a look at the processing plant as the common denominator or going through the same processing will be considered reinvent. And royalty and those kind of taxes remain the same. And then there were some changes to capital allowances such as I mentioned for other industries, we're still looking at 20% per year for the mining industry.

[Raj Ray:]

Okay. So overall not a major impact as you're saying?

[Andre van Niekerk:]

Overall that we're seeing -- not at this stage, no. If we're going to do some more work and dig more into it in the fourth quarter, if there is any more information that need to be discussed, we will have that in our year-end results.

[Raj Ray:]

Okay, thank you, that's it for me.

[Sam Coetzer:]

Thanks, Raj.

[Raj Ray:]

Thanks, Sam.

[Operator:]

Thank you. Next question is from Paulo Lastreto [ph] at Red Cloud. Please go ahead.

[Unidentified Analyst:]

Good morning, guys. Most of my questions have been answered but I wanted to get a sense Sam from your or niches there on potentially timing of results from the F Shoot.

[Sam Coetzer:]

Right, right. So what we will be updating probably early into next year, we've additional drilling in what we've produced from the halfway path which we now know as F Shoot. So we will be updating information of drilling there. And obviously, we're having the decline down, going down we will be able to drill fairly quickly from underground. So hopefully by end of this quarter, at least next quarter we could be more definitive in terms of what this F Shoot meaning for us.

[Unidentified Analyst:]

Okay, thank you.

[Sam Coetzer:]

Thanks.

[Operator:]

Thank you. [Operator Instructions] And at this time sir, it appears that we have no other questions. So I would like to turn the call back over to you.

[Sam Coetzer:]

Thank you, thank you all. [Indiscernible] I thank you too as well. We continue to move the company forward, streamlined and focused on what are our long-term strategy is. We'll keep you updated on any developments that we see in the company. We thank you for joining us today.

[Operator:]

Thank you, sir. Ladies and gentlemen this does conclude your conference call for today. Once again, we thank you for participating. And at this time we do ask that you please disconnect your lines. Have yourselves a great day.